<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly Period ended September 30, 1997
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______________
to _______________
Commission file number 0-19391
NAB ASSET CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 76-0332956
- ------------------------------- ---------------------------------------
(State of Incorporation) (I.R.S. Employer Identification Number)
2 Ada, Suite 100, Irvine, CA 92618
- ------------------------------- ---------------------------------------
(Address of principal executive (Zip code)
offices)
Registrant's telephone number, including area code: (714) 790-8000
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
------- -------
As of September 30, 1997, there were 5,091,300 shares of common stock, $.10 par
value per share, of the registrant outstanding.
<PAGE>
PART I - Financial Information
Item 1. Financial Statements
NAB ASSET CORPORATION
and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Assets
------
Cash and cash equivalents $13,010 $ 3,315
Receivables:
Commercial loans held for investment, net 1,591 -
Residential mortgage loans held for sale 50,348 12,648
Other receivables 1,928 1,092
Note receivable from the sale of CARS USA 1,300 -
Vehicle and parts inventory - 3,446
Property and equipment, net 1,072 340
Costs in excess of net assets acquired, net 808 1,095
Other assets 749 201
------- -------
Total Assets $70,806 $22,137
======= =======
Liabilities and Shareholders' Equity
------------------------------------
Liabilities:
Notes payable:
Mortgage warehouse line of credit 53,758 11,819
Notes payable to affiliate 6,800 -
Automobile flooring lines of credit - 3,349
Accounts payable and accrued expenses 2,115 1,194
Deferred income 474 120
------- -------
Total Liabilities 63,147 16,482
------- -------
Minority interest 192 50
Shareholders' equity (note 1):
Common stock: $.10 par value, 30,000,000
authorized shares:
5,091,300 shares issued and outstanding at
September 30, 1997 and December 31, 1996 509 509
Additional paid-in capital 7,217 7,217
Accumulated deficit (259) (2,121)
------- -------
Total shareholders' equity 7,467 5,605
------- -------
$70,806 $22,137
======= =======
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
NAB ASSET CORPORATION
and Subsidiaries
Consolidated Statements of Operations
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Gains on sales of loans $ 2,924 $ 338 $ 6,215 $ 338
Interest income 839 70 1,961 80
Other operating revenues 958 73 1,277 73
---------- ---------- ---------- ----------
Total revenues: 4,721 481 9,453 491
Costs and expenses:
Compensation and benefits 2,398 636 5,011 663
Interest expense 740 9 1,298 9
General and administrative 904 136 2,204 157
Minority interest in earnings 133 - 191 -
---------- ---------- ---------- ----------
Total costs and expenses 4,175 781 8,704 829
---------- ---------- ---------- ----------
Net earnings (loss) from
Continuing operations 546 (300) 749 (338)
Net earnings (loss) from dis-
Continued operations,
Net of income taxes:
Retail automobile sales - (126) (271) (126)
Real estate services - - - 3,467
Gain on disposal of CARS USA - - 1,384 -
---------- ---------- ---------- ----------
Net earnings (loss) $ 546 $ (426) $ 1,862 $ 3,003
========== ========== ========== ==========
Net earnings (loss) per share from
Continuing operations $ 0.11 $ (0.06) $ 0.15 $ (0.07)
========== ========== ========== ==========
Weighted average number of
Common and common equivalent
Shares outstanding from
Continuing operations 5,091,300 5,091,300 5,091,300 5,091,300
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
NAB ASSET CORPORATION
and Subsidiaries
Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
1997 1996
--------- -------
<S> <C> <C>
Cash flows from operating activities: $ 749 $ (338)
Net earnings (loss) from continuing operations
Adjustments to reconcile net earnings (loss) to net cash
from operating activities:
Cash (used in) provided by discontinued operations (176) 527
Proceeds from sale of CARS USA 200 -
Depreciation and amortization 251 57
Minority interest 191 25
Net changes in:
Residential mortgage loans originated,
purchased and sold 4,156 2,110
Provision for credit losses 18 31
Other receivables (1,797) (699)
Deferred income, net 354 -
Other assets (286) (174)
Accounts payable and accrued expenses 1,677 75
------- -------
Net cash from operating activities 5,337 1,614
Cash flows from investing activities:
Loan to Mortgage Portfolio Services, Inc. - (2,999)
Commercial loans purchased and originated (1,610) -
Principal collections on commercial loans 19 -
Acquisition of businesses, net of cash acquired (524) 685
Purchases of property and equipment (327) (120)
------- -------
Net cash (used by) investing activities (2,442) (2,434)
Cash flows from financing activities:
Contribution of capital by CPS in merger - 4,000
Proceeds from note payable to affiliate 6,800 -
------- -------
Net cash from financing activities 6,800 4,000
------- -------
Net increase in cash and cash equivalents 9,695 3,180
Cash and cash equivalents at beginning of period 3,315 1,961
------- -------
Cash and cash equivalents at end of period $13,010 $ 5,141
======= =======
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
Notes to the Financial Statements
(1) Summary of Business and Significant Accounting Policies
NAB Asset Corporation, a Texas Corporation (the "Company" or "NAB") is
primarily engaged in the financial services business. Prior to June 5, 1996 the
Company's business consisted of the acquisition, ownership, management and
disposition of loans and real estate for its own account and the account of
others. As discussed in Note (2), on June 27, 1997, the Company sold its retail
automotive sales business. The company has reported the results of these
segments as discontinued operations for financial statement purposes.
The Company was organized on March 31, 1991, by National Asset Bank (a bank
in liquidation) (the "Bank") as a wholly-owned subsidiary of the Bank for the
purpose of acquiring substantially all of the assets of the Bank through a
series of transactions and agreements intended to effect the final liquidation
of the Bank. The Company acquired substantially all of the assets of the Bank
in consideration of the issuance by the Company of shares of its common stock,
$.01 par value (the "Common Stock"), and the assumption of all the Bank's
liabilities. Immediately following such acquisition, the Bank distributed the
shares of Common Stock received to the holders of the Bank's common stock, (the
"Bank Common Stock"), on the basis of one share of Common Stock for each ten
shares of the Bank Common Stock held of record as of the close of business on
July 17, 1991. Because the Company was formed for the purpose of effecting the
acquisition of substantially all of the Bank's assets, the Company had only
limited operating activities prior to such acquisition.
On June 5, 1996, pursuant to the Plan and Agreement of Merger, CPS
Investing Corp. ("CPS Sub"), a wholly owned subsidiary of Consumer Portfolio
Services, Inc. ("CPS"), was merged with and into NAB. Under the terms of the
Plan and Agreement of Merger and in exchange for all of the outstanding shares
of NAB $.01 par value common stock, the shareholders of NAB received on a pro
rata basis (i) an aggregate cash distribution of $15.3 million ($3.64 per
share), (ii) an undivided interest in a liquidating trust ("Liquidating Trust"),
and (iii) 62% of the outstanding shares of common stock, $.10 par value (the
"New Common Stock") of the new combined company which had a net asset value of
$7.5 million as of the merger date. The Liquidating Trust was established for
the benefit of converting the trust assets to cash for the NAB shareholders. On
June 5, 1996 in connection with the Merger, NAB contributed approximately $3.0
million in cash and all of the remaining non-cash assets of NAB with a net book
value of $3.7 million to the Liquidating Trust. No gain or loss was recognized
by NAB in connection with the merger.
<TABLE>
<CAPTION>
Nine months ended September 30,
(in thousands)
------------------------------
1997 1996
-------- --------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period
Interest $ 391 $9
Non-cash disclosure
Note received from sale of CARS $1,300 $-
</TABLE>
<PAGE>
(2) Basis of Financial Statement Presentation
The consolidated balance sheet of the Company as of September 30,
1997, the related consolidated statements of operations for the three month and
nine month periods ended September 30, 1997 and 1996 and the related statements
of cash flows for the nine month periods ended September 30, 1997 and 1996 are
unaudited. These statements reflect, in the opinion of management, all material
adjustments consisting only of normal recurring accruals, necessary for a fair
presentation of the consolidated balance sheet of the Company as of September
30, 1997, and results of consolidated operations for the three month and nine
month periods ended September 30, 1997 and 1996 and the consolidated cash flows
for the nine month periods ended September 30, 1997 and 1996. The results of
consolidated operations for the unaudited periods are not necessarily indicative
of the results of consolidated operations to be expected for the entire year of
1997.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Securities and Exchange
Commission ("SEC") Form 10-Q and therefore do not include all information and
footnotes normally included in consolidated financial statements prepared in
conformity with generally accepted accounting principles. Accordingly, these
unaudited consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included in the
Company's annual report on SEC form 10-K for the year ended December 31, 1996.
(3) Subsidiary Operations
Investment in Mortgage Portfolio Services, Inc. On July 10, 1996, NAB
acquired from CPS 84 percent of the outstanding voting common stock of Mortgage
Portfolio Services, Inc. ("MPS") for a purchase price of $300,000 in cash. The
remaining common stock of MPS is owned by its management. NAB also acquired
$2.25 million of MPS preferred stock through conversion of debt to equity and
contributed approximately $249,000 to the additional paid-in capital of MPS.
The MPS preferred stock acquired by NAB provides for cumulative dividends at a
rate of 10% per annum and has a liquidation preference over the MPS common stock
equal to the purchase price of the MPS preferred stock plus any accrued and
unpaid dividends. At June 30, 1996, just prior to the acquisition, the Company
had advanced MPS $2,999,000 of which $2,499,000 was subsequently converted to
equity as described above and $500,000 was repaid to the Company.
MPS is a mortgage banking company with headquarters in Dallas, Texas
that specializes in the purchase, origination and servicing of residential
mortgage loans that do not meet traditional secondary market guidelines due to
credit or employment history of the borrower, debt-to-income ratios, or the
nature of the collateral (sub-prime). MPS originated $60.41 million in loans
for the three months ending September 30, 1997 and $142.83 million in loans for
the nine months ended September 30, 1997.
On August 31, 1997 MPS acquired the retail single family mortgage
production facilities and related personnel of a Dallas-based financial
institution for $724,000. Additional payments over the next two years may be
required depending on the volume of loan originations. The production unit
(PAMCO) primarily originates conventional and government insured mortgage loans.
For the month of September PAMCO originated $46.9 million in mortgage loans of
which $679,000 were sub-prime. PAMCO originates single family mortgage loans
through 10
<PAGE>
retail branches in 5 states. Including the retail production of
PAMCO, MPS originated $107.31 million in mortgage loans for the three months
ended September 30, 1997 of which $61.1 million was sub-prime and for the nine
months ended September 30, 1997 originations totaled $189.73 million of which
$143.51 million was sub-prime. For the period from July 10, 1996 (acquisition
date) to September 30, 1996, MPS originated $9.25 million in sub-prime mortgage
loans.
A summary of the PAMCO assets and liabilities acquired at fair value are as
follows (in thousands):
<TABLE>
<S> <C>
Property and equipment $ 560
Other Assets 125
Accounts payable and accrued expenses (161)
-----
Net Assets acquired 524
Purchase price paid 724
-----
Cost in excess of net assets acquired $ 200
=====
</TABLE>
Investment in NAFCO, Inc. In January, 1997, NAB acquired 84 percent of the
voting common stock and 100% of the preferred stock of a newly created entity,
NAFCO, Inc., for a purchase price of $1,501,000. The common stock investment
totaled $1,000 and the preferred stock investment totaled $1,500,000. On
September 30, 1997 the Company acquired an additional $3,500,000 in preferred
stock.
In January, 1997, NAFCO, Inc. acquired a portfolio of loans of which the
debtors are rent-to-own and rental purchase retail operations with a principal
balance of $1,966,000 at a discount for a net purchase price of $1,227,000.
The discount of $739,000 will fully amortize by March, 2001. NAFCO, Inc. is a
finance company that specializes in providing financing and consulting services
to small independently owned rent-to-own retailers throughout the United States.
Disposition of CARS USA, Inc. On June 27, 1997, NAB sold its interest in
CARS for $1,500,000. The Company received a down payment of $200,000 and a note
for $1,300,000 of which $500,000 in principal is due on the first anniversary of
the purchase and sale agreement and $800,000 is due on the second anniversary of
the purchase and sale agreement. The note bears interest at 9% and is payable
quarterly. The acquirer is a newly formed company owned by Charles E. Bradley,
Sr. and Charles E. Bradley, Jr. Mr. Bradley, Sr. is the Chairman of the Board
and Chief Executive Officer of NAB, and Mr. Bradley, Jr. is a director of NAB.
As a result of the decision to divest NAB of its retail automobile sales
company, all related operating activity was reported as discontinued operations
for financial reporting purposes. The operating results of the discontinued
retail automobile sales company are summarized as follows:
<TABLE>
<CAPTION>
For the period from
January 1, 1997 to
June 27, 1997
-------------------
<S> <C>
Total revenues: $ 5,384,000
Total expenses: (5,655,000)
-----------
Net loss from discontinued operations: $ (271,000)
===========
</TABLE>
<PAGE>
PART II - Other Information
Item 1. Legal Proceedings
NAB and CARS USA, Inc. ("CARS") are defendants in a suit filed on July
30, 1997 in the United States District Court for the Central District of
California, Case No. 97-0199RT, by Al Washington ("Mr. Washington"), his wife
and two dependents of his. CARS was a subsidiary of NAB until June, 1997, when
NAB sold its interest in CARS.
The Complaint alleges that Mr. Washington was wrongfully terminated as
an employee of CARS on January 15, 1997, that the plaintiffs were not given
notice of their purported right to continue group health insurance coverage
pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA")
and that Mr. Washington has incurred uninsured medical expenses in connection
with the treatment of brain cancer. The plaintiffs seek statutory penalties of
$400 per day under COBRA until such time as the COBRA notice is given,
unspecified compensatory damages alleged to be in excess of $100,000, punitive
damages, reimbursement of their attorney's fees and other costs of suit.
The position of NAB and CARS in this suit is that Mr. Washington was
never an employee of CARS, that the plaintiffs were not entitled to COBRA notice
or coverage and that the plaintiffs are not entitled to any recovery.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion is intended to assist in the understanding of
the Company's consolidated financial position as of September 30, 1997 and it's
consolidated results of operations for the periods (1) from July 1, 1997 through
September 30, 1997 compared to the three months ended September 30, 1996, and
(2) January 1 through September 30, 1997 compared to the nine months ended
September 30, 1996. The notes to the Company's consolidated financial
statements included in this report and the Company's annual Report on Form 10-K
for the year ended December 31, 1996 and the notes thereto, should be read in
conjunction with this discussion.
General
The Company's primary operations are mortgage lending and commercial
lending to rental purchase (sometimes referred to as "rent to own") businesses.
As discussed in Item 1, on June 27, 1997, the Company sold its interest in CARS
USA, a retail automotive dealership. Prior to the Merger with CPS Sub on June
5, 1996, the Company's primary operations consisted of the acquisition,
ownership, management and disposition of loans and real estate for its own
account and the account of others. For financial statement purposes, the retail
automobile sales operations have been classified as discontinued operations.
<PAGE>
Results of Operations
Three months ended September 30, 1997 compared to three months ended
September 30, 1996
Results of operations for the three months ended September 30, 1997
reflected net earnings from continuing operations of $546,000, or $0.11 per
share. Loss from continuing operations for the three months ended September 30,
1996 was ($300,000), or $(0.06) per share.
Revenues from continuing operations for the three months ended
September 30, 1997, were $4,721,000. Included in revenues were gains on sales
of loans of $2,924,000, other operating revenues of $958,000, and interest of
$839,000. Revenues from continuing operations for the three months ending
September 30, 1996 totaled $481,000 of which $338,000 were gains on sales of
loans.
Operating expenses relating to continuing operations for the three
months ended September 30, 1997, and 1996 were $4,175,000 and $781,000,
respectively. Operating expenses consisted primarily of costs and expenses
associated with the mortgage banking operation of $2,857,000 and $603,000
respectively. The costs and expenses of the mortgage banking operations were
comprised of compensation and benefit expenses of $2,128,000 and $545,000 and
general and administrative expenses of $629,000 and $58,000 for the three months
ended September 30, 1997 and 1996, respectively.
Nine months ended September 30, 1997 compared to nine months ended
September 30, 1996
Results of operations for the nine months ended September 30, 1997,
reflected net earnings from continuing operations of $749,000 or $0.15 per
share, and a net loss from the discontinued automotive operations of ($271,000)
and a gain on the disposition of CARS USA of $1,384,000. Loss from continuing
operations for the nine months ended September 30, 1996 was ($338,000) or
$(0.07) per share. Earnings from the discontinued real estate operations for
the nine months ended September 30, 1996 was $3,467,000 and the loss from the
discontinued automotive operations totaled ($126,000) for the same period.
Revenues from continuing operations for the nine months ended
September 30, 1997 were $9,453,000. Included in revenues were gains on sales of
loans of $6,215,000, other operating revenues of $1,277,000, and interest of
$1,961,000. Revenues from continuing operations for the nine months ended
September 30, 1996 totaled $491,000 of which $338,000 were gains on sales of
loans.
Operating expenses relating to continuing operations for the nine
months ended September 30, 1997 and 1996 were $7,406,000 and $820,000,
respectively. Operating expenses consisted primarily of cost and expenses
associated with the mortgage banking operation of $5,787,000 and $603,000
respectively. The costs and expenses of the mortgage banking operations were
comprised of compensation and benefit expenses of $4,226,000 and $545,000 and
general and administrative expenses of $1,561,000 and $58,000 for the nine
months ended September 30, 1997 and 1996, respectively.
<PAGE>
Liquidity and Capital Resources
At September 30, 1997, the Company had approximately $13,010,000 in
cash and cash equivalents compared to $3,315,000 at December 31, 1996.
During the quarter ended September 30, 1997, MPS increased its credit
line to $75,000,000. Interest is payable based on a spread over the one month
LIBOR index and the line matures August, 1998.
NAFCO has obtained a $5,000,000 line of credit with a bank. Interest
accrues at the prime rate plus 1% and the line expires on April 30, 1998. The
line of credit is secured by NAFCO's commercial loans receivable. No
borrowings have been incurred under the line.
In August 1997 the Company has borrowed $3,500,000 under a $5,000,000
unsecured loan from Stanwich Financial Services Corp. (SFSC). The line is to
be used to fund additional investments in MPS. The line bears interest at 16%
per year payable quarterly. The principal amount of the loan is due in August
2002 but may be prepaid at any time without penalty.
In June the Company borrowed $800,000 from SFSC pursuant to an
unsecured promissory note. The loan bears interest at 14% per year payable
quarterly. The loan had an original due date of August 27, 1997. The maturity
date has been extended to September 30, 2000. The loan is pre-payable at any
time without penalty.
In September 1997 the Company borrowed $2,500,000 from SFSC pursuant
to an unsecured promissory note. The note bears interest at 14% per year
payable quarterly. The principal is due September 30, 2000 and may be prepaid
at anytime without penalty. A fee of 1% of the principal amount is payable in
connection with the granting of the loan.
Charles E. Bradley, Sr., who is an officer and director of NAB, and
Charles E. Bradley, Jr., who is a director of NAB, together own a majority
interest in SFSC.
It is anticipated that both MPS and NAFCO will require, and the
Company believes it can obtain, additional financing to support the growth of
MPS's and NAFCO's loan production. The Company anticipates that any material
capital expenditure requirements relating to the operations can be funded with
existing liquidity.
<PAGE>
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
10.11 $800,000 Promissory Note dated June 27, 1997 issued by NAB to SFSC.
10.12 $5,000,000 Credit Line Note dated August 28, 1997 issued by NAB to
SFSC.
10.13 $2,500,000 Promissory Note dated September 30, 1997 issued by NAB
to SFSC.
10.14 Second Restated Credit Agreement between Mortgage Portfolio
Services, Inc. and Guaranty Federal Bank, F.S.B.
10.15 Revolving Warehouse Line of Credit Loan Agreement between NAFCO,
Inc. and First American Bank Texas, SSB.
10.16 Stockholders Agreement dated as of May 1, 1997 between MPS, NAB and
Executives.
10.17 Option Agreement dated as of May 1, 1997 between MPS, NAB and
Manager.
27 Financial Data Schedule.
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 13(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: November 12, 1997
By: /s/ Michael W. Caton
--------------------
Michael W. Caton
President and Chief Operating Officer
By: /s/ Alan Ferree
----------------
Alan Ferree
Senior Vice President and Chief Financial Officer
<PAGE>
EXHIBIT 10.11
PROMISSORY NOTE
$800,000 June 27, 1997
For value received, NAB ASSET CORPORATION (the "Maker"), a Texas corporation,
promises to pay to the order of STANWICH FINANCIAL SERVICES CORP. (the
"Holder"), a Rhode Island corporation, the principal amount of Eight Hundred
Thousand Dollars ($800,000) in accordance with the terms of this Note.
1. Payment of Principal. The principal of this Note shall be payable in full
--------------------
on August 25, 1997.
2. Interest. The unpaid principal of this Note outstanding from time to time
--------
shall bear interest, beginning as of the date hereof, at an annual rate of
fourteen percent (14%), computed on the basis of a 365-day year and continuing
until the principal hereof is repaid in full. Interest shall be payable in
arrears on August 25, 1997.
3. Prepayments. The Maker may prepay this Note in whole or, from time to
-----------
time, in part without penalty or premium.
4. Place of Payments. All payments of principal and interest under this Note
-----------------
shall be made to the order of Holder at the address specified in numbered
paragraph 12 hereof.
5. Default; Acceleration. Maker agrees that:
---------------------
(i) if any installment of principal or interest under this Note shall not
be paid when it is due and payable and such failure to pay is not cured
within fifteen (15) days after notice from Holder of such failure to pay;
or
(ii) if Maker shall suffer or permit the filing by or against the Maker of
any petition for adjudication, arrangement, reorganization or the like
under any bankruptcy or insolvency law (and, in the case of an involuntary
proceeding the same is not dismissed within 30 days), make an assignment
for the benefit of creditors or suffer or permit the appointment of a
receiver for any part of Maker's property,
then, upon the happening of any such event (specified in items (i) and (ii),
above), the entire indebtedness and accrued interest thereon due under this Note
shall, at the option of the Holder, accelerate and become immediately due and
payable without notice.
6. Cost of Collection. The Maker shall reimburse the Holder for all
------------------
reasonable costs and expenses, including reasonable attorneys' fees, which may
be incurred by the Holder in collecting any amounts due hereunder.
7. Loss, Theft, Destruction or Mutilation of Note. Upon receipt by the Maker
----------------------------------------------
of evidence
<PAGE>
reasonably satisfactory to the Maker of the loss, theft, destruction or
mutilation of this Note, and of indemnity or security reasonably satisfactory to
the Maker, and upon reimbursement to the Maker of all reasonable expenses
incidental thereto, and upon surrender and cancellation of this Note, if
mutilated, the Maker will make and deliver a new note of like tenor in lieu of
this Note. Any note made and delivered in accordance with the provision of this
paragraph shall be dated as of the date to which interest has been paid on this
Note, or if no interest has theretofore been paid on this Note, then dated the
date hereof.
8. Governing Law. This Note shall be construed in accordance with and
-------------
governed by the laws of the State of Connecticut where the loan evidenced by
this Note was made.
9. Successors and Assigns. All the covenants, stipulations, promises and
----------------------
agreements contained in this Note by or on behalf of the Maker or the Holder and
all rights of the Maker or the Holder contained in this Note shall bind or inure
to their respective successors, assigns, heirs and personal representatives,
whether so expressed or not.
10. Cumulative Remedies. No course of dealing, or any delay or omission of
-------------------
the Holder to exercise any right or power hereunder (including, without
limitation, any right or power arising from any default or failure of
performance of the Maker), shall exhaust, impair, waive or otherwise prejudice
any such right or power or prevent its exercise. Every right and remedy given to
the Holder hereunder, by any and all agreements executed and delivered in
connection herewith or by law may be exercised from time to time as often as the
Holder may deem expedient. No waiver by the Holder of any such default, whether
such waiver be full or partial, shall extend to or be taken to affect any
subsequent default, or to impair the rights resulting therefrom except as may be
otherwise expressly provided herein. No remedy hereunder is intended to be
exclusive of any other remedy but each and every remedy shall be cumulative and
in addition to any and every other remedy given hereunder or otherwise existing.
11. Headings. The headings of the paragraphs of this Note are inserted for
--------
convenience only and shall not be deemed to constitute a part hereof.
12. Notices. All notices, requests, demands and other communications
-------
hereunder must be in writing and shall be deemed to have been duly given if
delivered by hand or mailed by first class, registered or certified mail, return
receipt requested, postage and registry fees prepaid, and addressed as follows:
(a) If to Maker: NAB Asset Corporation
19200 Von Karmen Avenue
Suite 950
Irvine, CA 93612
Attention: Chief Financial Officer
2
<PAGE>
(b) If to Holder: Stanwich Financial Services Corp.
c/o Stanwich Partners, Inc.
One Stamford Landing
62 Southfield Avenue
Stamford, CT 06902
Attention: President
Any of the foregoing parties by notice in writing mailed to the other parties
may change the name and address to which notices, requests, demands and other
communications to it or him shall be mailed.
13. Consideration. This note evidences the following indebtedness of the
-------------
Maker to the Holder: a loan of $800,000 made by the Holder to the Maker on the
date hereof, which loan has been funded, in accordance with Maker's
instructions, by wire transfer of funds to Maker's bank account. Maker hereby
acknowledges receipt of the proceeds of said loan.
IN WITNESS WHEREOF, the Maker has signed this Note by a duly authorized
officer and dated it as of the day and year first above written.
NAB ASSET CORPORATION
By:___________________________
Name: Michael W. Caton
Title: President
3
<PAGE>
EXHIBIT 10.12
NAB CREDIT LINE NOTE I
Not to Exceed
$5,000,000 August 28, 1997
For value received, NAB ASSET CORPORATION (the "Maker"), a Texas
corporation, promises to pay to the order of STANWICH FINANCIAL SERVICES CORP.
(the "Holder"), a Rhode Island corporation, the principal amount of Five Million
Dollars ($5,000,000) or, if less, the aggregate unpaid principal amount of all
loans and advances now or hereafter made by the Holder to the Maker, as
contemplated by Sections 1 and 2 of this Note, together with interest thereon,
in accordance with the provisions of this Note.
Section 1. Initial Advance. On the date hereof the Holder has made an
--------- ---------------
advance to or for the benefit of the Maker under this Note in the amount of
Three Million Five Hundred Thousand Dollars ($3,500,000) (the "Initial
Advance"). The Initial Advance was funded, in accordance with the Maker's
instructions, by wire transfer of the amount thereof to the account of Mortgage
Portfolio Services, Inc., a Delaware corporation ("MPS") more than 80% of whose
common stock is owned by Maker as of the date hereof. The Maker acknowledges
receipt of the Initial Advance. The Maker further acknowledges that such
funding constituted both (i) the Initial Advance to the Maker hereunder and (ii)
a loan by the Maker to MPS in the amount of the proceeds of the Initial Advance.
Section 2. Future Advances. The Maker acknowledges that the Holder may
--------- ---------------
hereafter make up to three (3) additional advances to the Maker under this Note
(each a "Future Advance") in an aggregate amount not to exceed One Million Five
Hundred Thousand Dollars ($1,500,000); provided, however, that the Holder shall
-------- -------
not be obligated to make any Future Advance after the earlier to occur of July
31, 2000 or the Maturity Date (as such term is hereinafter defined); and
provided, further, that the Holder shall not be obligated to make any Future
- -------- -------
Advance unless:
(I) the Maker shall have delivered to the Holder a request in writing for
such Future Advance (an "Advance Request"); and
(ii) the Advance Request specifies (A) the amount of the Future Advance
then being requested, which shall be Five Hundred Thousand Dollars
($500,000) or an integral multiple thereof (but no other amount), (B)
the date proposed by the Maker for the making of such Future Advance
(the "Proposed Advance Date"), which shall be not fewer than five (5)
nor more than thirty (30) business days after the date of the Advance
Request and (C) that such Advance Request is being made pursuant to
this Note, which shall be identified in such Advance Request as "that
certain NAB Credit Line Note I dated August 28, 1997 in the principal
amount not to exceed $5,000,000"; and
(iii) the amount of such requested Future Advance is not greater than the
amount obtained
<PAGE>
by subtracting (A) the aggregate amount of all Future Advances
theretofore made under this Note from (B) One Million Five Hundred
Thousand Dollars ($1,500,000); and
(iv) no Event of Default (as such term is hereinafter defined) shall have
occurred on or prior to the Proposed Advanced Date and be continuing
on such date; and
(v) the Maker is the record and beneficial owner of not less than 80% of
the issued and outstanding shares of the common stock of MPS on the
Proposed Advance Date.
Section 3. Payment of Principal. Subject to Section 8 of this Note, the
--------- --------------------
principal of this Note (consisting of the amounts of the Initial Advance and all
Future Advances, if any) shall be payable in full on the date (the "Maturity
Date") which is the earlier to occur of (I) the date, if any, on which the Maker
ceases to own more than 80% of the issued and outstanding shares of the common
stock of MPS or (ii) September 30, 2000.
Section 4. Interest. The unpaid principal of this Note outstanding from
--------- --------
time to time shall bear interest, beginning as of the date hereof, at an annual
rate of sixteen percent (16%), computed on the basis of a 365-day year and
continuing until the principal hereof is repaid in full. Interest shall be
payable quarterly in arrears beginning September 30, 1997 and on the last day of
each succeeding December, March, June and September (each, an "Interest Payment
Date") until the principal of this Note is paid in full. If the principal of
this Note is paid on other than an Interest Payment Date, interest shall also be
payable on the date of such principal payment.
In no contingency or event whatsoever shall the interest payable to Holder
by Maker, howsoever characterized or computed, hereunder, exceed the highest
rate permissible under any law to which such interest is subject. There is no
intention that Holder shall contract for, charge or receive interest in excess
of the highest lawful rate, and, in the event it should be determined that any
excess has been charged or received then, ipso facto, such rate shall be reduced
---- -----
to the highest lawful rate so that no amounts shall be charged which are in
excess thereof. In the event that it should be determined that any excess over
such highest lawful rate has been charged or received, Holder, shall apply such
excess against the outstanding principal balance of this Note, and, to the
extent of any amounts remaining thereafter, shall refund such excess to Maker.
Section 5. Prepayments. The Maker may prepay the principal of this Note
--------- -----------
in whole or, from time to time, in part without penalty or premium; provided,
--------
however, that each partial prepayment shall be in the amount of Two Hundred
- -------
Fifty Thousand Dollars ($250,000) or an integral multiple thereof; and provided
--------
further that, if the Maker makes a prepayment of principal on any date, it shall
- -------
also pay on the same date all accrued and unpaid interest hereunder to such
date. Each partial prepayment of principal, if any, made under this Note shall
constitute a permanent reduction in the line of credit evidenced by this Note,
with the effect that the principal so repaid may not thereafter be reborrowed
hereunder.
2
<PAGE>
Section 6. Place of Payments. All payments of principal and interest
--------- -----------------
under this Note shall be made to the order of Holder at the address specified in
Section 15(b) or, if the Holder so requests, by wire transfer of funds to the
Holder's account.
Section 7. Maker's Representations, Warranties and Covenants. Maker
--------- -------------------------------------------------
represents, warrants and covenants to and with the Holder as follows:
(a) The Maker is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas.
(b) The execution and delivery of this Note, and the performance by the
Maker of its obligations hereunder, have been duly authorized by all necessary
corporate action on the part of the Maker.
(c) The Maker is a corporation organized for a profit and is engaged
primarily in commercial or nonconsumer pursuits.
(d) The funds received by the Maker from the Initial Advance and all Future
Advances, if any, will not be utilized for consumer purposes.
(e) The Maker will (I) use the entire amount of the proceeds from the
Initial Advance and each Future Advance, if any, to make loans, advances or
investments to or in MPS and to perform its obligations under this Note and (ii)
cause MPS to use the entire proceeds of such loans, advances or investments for
MPS's working capital purposes.
(f) Upon Holder's request after each Future Advance, if any, the Maker will
execute and deliver to the Holder a receipt of the proceeds thereof, in form and
substance satisfactory to the Holder.
Section 8. Default; Acceleration. As used in this Note, the term "Event of
---------- ---------------------
Default" means the occurrence of any of the following events:
(i) the failure of the Maker to pay any installment of interest under this
Note when due or within ten (10) business days after notice from the
Holder of such failure to pay; or
(ii) the filing by or against the Maker or MPS of any petition for
adjudication, arrangement, reorganization or the like under any
bankruptcy or insolvency law (which petition, in the case of an
involuntary proceeding, is not dismissed within 30 days of its
filing); or
(iii) the making by the Maker or MPS of an assignment for the benefit of
its creditors; or
(iv) the appointment of a receiver for any part of the property of the
Maker or MPS; or
3
<PAGE>
(v) the acceleration of the payment of any indebtedness of the Maker or
MPS for borrowed money to a date prior to the date of the scheduled
maturity thereof as a result of the occurrence of a default or event
of default under the loan or financing agreements or instruments
pursuant to which such indebtedness was incurred; or
(vi) the Maker's breach or failure to perform any covenant or agreement
made by it in this Note; or
(vii) the breach of or inaccuracy in any representation or warranty made
or given by the Maker in this Note; or
(viii) the dissolution of the Maker or MPS; or
(ix) the sale of all or substantially all of its assets of the Maker or MPS
other than in the ordinary course of business; or
(x) the merger or consolidation of the Maker with or into another
corporation or entity in a transaction in which the Maker is not the
surviving corporation.
If an Event of Default occurs, then, in such case, the entire indebtedness
and accrued interest thereon outstanding under this Note, at the Holder's
option, shall accelerate and become immediately due and payable without notice,
presentment, demand or any other formalities, all of which, to the extent
permitted by applicable law, the Maker hereby expressly waives.
Section 9. Costs of Collection. The Maker shall reimburse the Holder for
--------- -------------------
all reasonable costs and expenses, including the reasonable fees and
disbursements of the Holder's attorneys, which may be incurred by the Holder in
collecting any amounts due hereunder.
Section 10. Loss, Theft, Destruction or Mutilation of Note. Upon receipt
---------- ----------------------------------------------
by the Maker of evidence reasonably satisfactory to the Maker of the loss,
theft, destruction or mutilation of this Note, and of indemnity or security
reasonably satisfactory to the Maker, and upon reimbursement to the Maker of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
this Note, if mutilated, the Maker will make and deliver a new note of like
tenor in lieu of this Note. Any note made and delivered in accordance with the
provision of this paragraph shall be dated as of the date to which interest has
been paid on this Note, or if no interest has theretofore been paid on this
Note, then dated the date hereof.
Section 11. Governing Law. This Note shall be construed in accordance
---------- -------------
with and governed by the laws of the State of Connecticut (in which State (I)
this Note has been delivered and accepted and (ii) payments hereunder are to be
made), without regard to principles of conflicts of laws.
4
<PAGE>
Section 12. Successors and Assigns. All the covenants, stipulations,
---------- ----------------------
promises and agreements contained in this Note by or on behalf of the Maker or
the Holder and all rights of the Maker or the Holder contained in this Note
shall bind or inure to their respective successors, assigns, heirs and personal
representatives, whether so expressed or not.
Section 13. Cumulative Remedies. No course of dealing, or any delay or
---------- -------------------
omission of the Holder to exercise any right or power hereunder (including,
without limitation, any right or power arising from any default or failure of
performance of the Maker), shall exhaust, impair, waive or otherwise prejudice
any such right or power or prevent its exercise. Every right and remedy given
to the Holder hereunder, by any and all agreements executed and delivered in
connection herewith or by law may be exercised from time to time as often as the
Holder may deem expedient. No waiver by the Holder of any such default, whether
such waiver be full or partial, shall extend to or be taken to affect any
subsequent default, or to impair the rights resulting therefrom except as may be
otherwise expressly provided herein. No remedy hereunder is intended to be
exclusive of any other remedy but each and every remedy shall be cumulative and
in addition to any and every other remedy given hereunder or otherwise existing.
Section 14. Headings. The headings of the paragraphs of this Note are
---------- --------
inserted for convenience only and shall not be deemed to constitute a part
hereof.
Section 15. Notices. All notices, requests, demands and other
---------- -------
communications hereunder must be in writing and shall be deemed to have been
duly given if delivered by hand or mailed by first class, registered or
certified mail, return receipt requested, postage and registry fees prepaid, and
addressed as follows:
(a) If to Maker:
NAB Asset Corporation
19200 Von Karman Avenue
Suite 950
Irvine, CA 93612
Attention: President
(b) If to Holder:
Stanwich Financial Service Corp.
c/o Stanwich Partners, Inc.
62 Southfield Avenue
Stamford, CT 06902
Attention: President
5
<PAGE>
Any of the foregoing parties by notice in writing mailed to the other parties
may change the name and address to which notices, requests, demands and other
communications to it or him shall be mailed.
IN WITNESS WHEREOF, the Maker has signed this Note by a duly authorized
officer and dated it as of the day and year first above written.
NAB ASSET CORPORATION
By: _____________________________________
Name: Michael W. Caton
Title: President
Accepted in Stamford, Connecticut by
STANWICH FINANCIAL SERVICES CORP.
By: ___________________________________
Charles E. Bradley
President
6
<PAGE>
EXHIBIT 10.13
PROMISSORY NOTE
$2,500,000 September 30, 1997
For value received, NAB ASSET CORPORATION (the "Maker"), a Texas corporation,
promises to pay to the order of STANWICH FINANCIAL SERVICES CORP. (the
"Holder"), a Rhode Island corporation, the principal amount of Two Million Five
Hundred Thousand Dollars ($2,500,000) in accordance with the terms of this
Note.
1. Payment of Principal. The principal of this Note shall be payable in full
--------------------
on September 30, 2000.
2. Interest. The unpaid principal of this Note outstanding from time to time
--------
shall bear interest, beginning as of the date hereof, at an annual rate of
fourteen percent (14%), computed on the basis of a 365-day year and continuing
until the principal hereof is repaid in full. Interest shall be payable
quarterly in arrears beginning on December 31, 1997 and continuing thereafter on
the last day of each March, June, September and December until the principal of
this Note is paid in full. If the principal of this Note is paid on other than
September 30, 2000, interest shall also be payable on the date of such principal
payment.
In no contingency or event whatsoever shall the interest payable to Holder by
Maker, howsoever characterized or computed, hereunder, exceed the highest rate
permissible under any law to which such interest is subject. There is no
intention that Holder shall contract for, charge or receive interest in excess
of the highest lawful rate, and, in the event it should be determined that any
excess has been charged or received then, ipso facto, such rate shall be reduced
---- -----
to the highest lawful rate so that no amounts shall be charged which are in
excess thereof. In the event that it should be determined that any excess over
such highest lawful rate has been charged or received, Holder, shall apply such
excess against the outstanding principal balance of this Note, and, to the
extent of any amounts remaining thereafter, shall refund such excess to Maker.
3. Prepayments. The Maker may prepay this Note in whole or, from time to
-----------
time, in part without penalty or premium.
4. Place of Payments. All payments of principal and interest under this Note
-----------------
shall be made to the order of Holder at the address specified in numbered
paragraph 12 hereof.
5. Default; Acceleration. Maker agrees that:
---------------------
(i) if any installment of principal or interest under this Note shall not
be paid when it is due and payable and such failure to pay is not cured
within fifteen (15) days after notice from Holder of such failure to pay;
or
(ii) if Maker shall suffer or permit the filing by or against the Maker
of any petition for adjudication, arrangement, reorganization or the like
under any bankruptcy or insolvency law (and, in the case of an
involuntary proceeding the same is not dismissed within 30 days), make an
assignment for the benefit of creditors or suffer or permit the
appointment of a receiver for any part of Maker's property, or
1
<PAGE>
(iii) if a default or event of default occurs under any promissory note or
other instrument evidencing any other indebtedness of the Maker to the
Holder for borrowed money,
then, upon the happening of any such event (specified in items (i), (ii) and
(iii) above), the entire indebtedness and accrued interest thereon due under
this Note shall, at the option of the Holder, accelerate and become immediately
due and payable without notice.
6. Cost of Collection. The Maker shall reimburse the Holder for all
------------------
reasonable costs and expenses, including reasonable attorneys' fees, which may
be incurred by the Holder in collecting any amounts due hereunder.
7. Loss, Theft, Destruction or Mutilation of Note. Upon receipt by the
----------------------------------------------
Maker of evidence reasonably satisfactory to the Maker of the loss, theft,
destruction or mutilation of this Note, and of indemnity or security reasonably
satisfactory to the Maker, and upon reimbursement to the Maker of all reasonable
expenses incidental thereto, and upon surrender and cancellation of this Note,
if mutilated, the Maker will make and deliver a new note of like tenor in lieu
of this Note. Any note made and delivered in accordance with the provision of
this paragraph shall be dated as of the date to which interest has been paid on
this Note, or if no interest has theretofore been paid on this Note, then dated
the date hereof.
8. Governing Law. This Note shall be construed in accordance with and
-------------
governed by the laws of the State of Connecticut (in which State (i) this Note
has been delivered and accepted and (ii) payments hereunder are to be made),
without regard to principles of conflicts of laws.
9. Successors and Assigns. All the covenants, stipulations, promises and
----------------------
agreements contained in this Note by or on behalf of the Maker or the Holder and
all rights of the Maker or the Holder contained in this Note shall bind or inure
to their respective successors, assigns, heirs and personal representatives,
whether so expressed or not.
10. Cumulative Remedies. No course of dealing, or any delay or omission
-------------------
of the Holder to exercise any right or power hereunder (including, without
limitation, any right or power arising from any default or failure of
performance of the Maker), shall exhaust, impair, waive or otherwise prejudice
any such right or power or prevent its exercise. Every right and remedy given
to the Holder hereunder, by any and all agreements executed and delivered in
connection herewith or by law may be exercised from time to time as often as the
Holder may deem expedient. No waiver by the Holder of any such default, whether
such waiver be full or partial, shall extend to or be taken to affect any
subsequent default, or to impair the rights resulting therefrom except as may be
otherwise expressly provided herein. No remedy hereunder is intended to be
exclusive of any other remedy but each and every remedy shall be cumulative and
in addition to any and every other remedy given hereunder or otherwise existing.
11. Headings. The headings of the paragraphs of this Note are inserted
--------
for convenience only and shall not be deemed to constitute a part hereof.
12. Notices. All notices, requests, demands and other communications
-------
hereunder must be in writing and shall be deemed to have been duly given if
delivered by hand or mailed by first class,
2
<PAGE>
registered or certified mail, return receipt requested, postage and registry
fees prepaid, and addressed as follows:
(a) If to Maker: NAB Asset Corporation
19200 Von Karmen Avenue
Suite 950
Irvine, CA 93612
Attention: Chief Financial Officer
(b) If to Holder: Stanwich Financial Services Corp.
c/o Stanwich Partners, Inc.
One Stamford Landing
62 Southfield Avenue
Stamford, CT 06902
Attention: President
Any of the foregoing parties by notice in writing mailed to the other parties
may change the name and address to which notices, requests, demands and other
communications to it or him shall be mailed.
13. Consideration. This note evidences the following indebtedness of the
-------------
Maker to the Holder: a loan of $2,500,000 made by the Holder to the Maker on the
date hereof, which loan has been funded, in accordance with Maker's
instructions, by wire transfer of funds to Maker's bank account. Maker hereby
acknowledges receipt of the proceeds of said loan.
14. Loan Closing Fee. As additional consideration to the Holder for making
-----------------
the loan evidenced hereby, the Maker promises to pay the Holder a loan closing
fee of $25,000 on or before November 30, 1997.
IN WITNESS WHEREOF, the Maker has signed this Note by a duly authorized
officer and dated it as of the day and year first above written.
NAB ASSET CORPORATION
By:___________________________
Name: Michael W. Caton
Title: President
Accepted at Stamford, Connecticut by
Stanwich Financial Services Corp.
By: ___________________________________
Charles E. Bradley
President
3
<PAGE>
EXHIBIT 10.14
================================================================================
SECOND RESTATED CREDIT AGREEMENT
---------------
MORTGAGE PORTFOLIO SERVICES, INC.
Borrower
NAB ASSET CORPORATION
Guarantor
GUARANTY FEDERAL BANK, F.S.B.
RESIDENTIAL FUNDING CORPORATION
FIRST AMERICAN BANK TEXAS, SSB
as Lenders
and
GUARANTY FEDERAL BANK, F.S.B.
as Agent
---------------
August 29, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE I GENERAL TERMS................................................. 1
-------------
Section 1.01 Certain Definitions..................................... 1
Section 1.02 Other Definitional Provisions........................... 16
Section 1.03 Exhibits and Schedules.................................. 17
Section 1.04 Calculations and Determinations......................... 17
ARTICLE II AMOUNT OF TERMS OF CREDITS.................................... 17
--------------------------
Section 2.01 Commitment and Loans.................................... 17
Section 2.02 Promissory Notes; Interest on the Notes................. 18
Section 2.03 Notice and Manner of Obtaining Loans.................... 18
Section 2.04 Fees.................................................... 19
Section 2.05 Mandatory Repayments.................................... 19
Section 2.06 Payments to Lenders..................................... 19
Section 2.07 Refinancing of Swing-Line Loans......................... 20
Section 2.08 Capital Reimbursement................................... 21
Section 2.09 Increased Cost of Loans................................. 21
Section 2.10 Availability............................................ 22
Section 2.11 Reimbursable Taxes...................................... 22
Section 2.12 Notice of Certain Events; Change of Applicable Lending
Office.................................................. 23
ARTICLE III CONDITIONS PRECEDENT.......................................... 23
--------------------
Section 3.01 Initial Borrowing....................................... 23
Section 3.02 All Borrowings.......................................... 24
ARTICLE IV BORROWER REPRESENTATIONS AND WARRANTIES....................... 24
---------------------------------------
Section 4.01 Organization and Good Standing.......................... 24
Section 4.02 Authorization and Power................................. 25
Section 4.03 No Conflicts or Consents................................ 25
Section 4.04 Enforceable Obligations................................. 25
Section 4.05 Priority of Liens....................................... 25
Section 4.06 No Liens................................................ 25
Section 4.07 Financial Condition of Borrower and Guarantor........... 25
Section 4.08 Full Disclosure......................................... 26
Section 4.09 No Default.............................................. 26
Section 4.10 No Litigation........................................... 26
Section 4.11 Taxes................................................... 26
Section 4.12 Principal Office, etc................................... 26
Section 4.13 Compliance with ERISA................................... 26
Section 4.14 Subsidiaries............................................ 26
Section 4.15 Indebtedness............................................ 26
Section 4.16 Permits, Patents, Trademarks, etc....................... 27
Section 4.17 Status Under Certain Federal Statutes................... 27
Section 4.18 Securities Act.......................................... 27
Section 4.19 Pollution Control....................................... 27
Section 4.20 No Approvals Required................................... 27
</TABLE>
i
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<TABLE>
<S> <C>
Section 4.21 Survival of Representations............................. 27
Section 4.22 Individual Mortgage Loans............................... 28
ARTICLE V AFFIRMATIVE COVENANTS......................................... 29
---------------------
Section 5.01 Financial Statements and Reports........................ 29
Section 5.02 Taxes and Other Liens................................... 30
Section 5.03 Maintenance............................................. 30
Section 5.04 Further Assurances...................................... 30
Section 5.05 Reimbursement of Expenses............................... 31
Section 5.06 Insurance............................................... 31
Section 5.07 Accounts and Records; Servicing Records................. 31
Section 5.08 Right of Inspection..................................... 32
Section 5.09 Notice of Certain Events................................ 32
Section 5.10 Performance of Certain Obligations and Information
Regarding Investors..................................... 32
Section 5.11 Use of Proceeds; Margin Stock........................... 32
Section 5.12 Notice of Default....................................... 33
Section 5.13 Compliance with Loan Documents.......................... 33
Section 5.14 Operations and Properties............................... 33
ARTICLE VI NEGATIVE COVENANTS............................................ 33
------------------
Section 6.01 No Merger............................................... 33
Section 6.02 Limitation on Indebtedness.............................. 33
Section 6.03 Fiscal Year, Method of Accounting....................... 33
Section 6.04 Business................................................ 33
Section 6.05 Liquidations, Mergers, Consolidations and Dispositions
of Substantial Assets................................... 33
Section 6.06 Loans, Advances, and Investments........................ 34
Section 6.07 Use of Proceeds......................................... 34
Section 6.08 Actions with Respect to Mortgage Collateral............. 34
Section 6.09 Net Worth............................................... 35
Section 6.10 Total Liabilities to Tangible Net Worth Ratio........... 35
Section 6.11 Interest Coverage Ratio................................. 35
Section 6.12 Transactions with Affiliates............................ 35
Section 6.13 Liens................................................... 35
Section 6.14 ERISA................................................... 35
Section 6.15 Change of Principal Office.............................. 35
ARTICLE VII EVENTS OF DEFAULT............................................. 36
-----------------
Section 7.01 Nature of Event......................................... 36
Section 7.02 Default Remedies........................................ 38
ARTICLE VIII INDEMNIFICATION.............................................. 38
---------------
Section 8.01 Indemnification......................................... 38
Section 8.02 Limitation of Liability................................. 38
ARTICLE IX AGENT......................................................... 39
-----
Section 9.01 Appointment and Authority............................... 39
Section 9.02 Agent's Reliance, Etc................................... 39
Section 9.03 Lenders' Credit Decisions............................... 40
Section 9.04 Indemnification......................................... 40
Section 9.05 Rights as Lender........................................ 40
</TABLE>
ii
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<TABLE>
<S> <C>
Section 9.06 Sharing of Set-Offs and Other Payments.................. 40
Section 9.07 Investments............................................. 41
Section 9.08 Benefit of Article IX................................... 41
Section 9.09 Resignation............................................. 41
ARTICLE X MISCELLANEOUS................................................. 41
-------------
Section 10.01 Notices................................................ 41
Section 10.02 Amendments, Etc........................................ 42
Section 10.03 Invalidity............................................. 43
Section 10.04 Survival of Agreements................................. 43
Section 10.05 Renewal, Extension or Rearrangement.................... 43
Section 10.06 Waivers................................................ 43
Section 10.07 Cumulative Rights...................................... 43
Section 10.08 Construction........................................... 43
Section 10.09 Limitation on Interest................................. 43
Section 10.10 Bank Accounts; Offset.................................. 44
Section 10.11 Assignments, Participations............................ 45
Section 10.12 Exhibits............................................... 46
Section 10.13 Titles of Articles, Sections and Subsections........... 46
Section 10.14 Counterparts........................................... 46
Section 10.15 ENTIRE AGREEMENT....................................... 46
Section 10.16 Termination; Limited Survival.......................... 46
Section 10.17 Joint and Several Liability............................ 46
Section 10.18 Restatement............................................ 46
</TABLE>
iii
<PAGE>
EXHIBITS
Exhibit A -- Form of Note
Exhibit B -- Form of Borrowing Request
Exhibit C -- Borrowing Base Certificate
Exhibit D -- Certificate Accompanying Financial Statement
Exhibit E -- Form of Security Agreement
Exhibit F -- Investors
Exhibit G -- Form of Opinion of Counsel for Borrower and Guarantor
Exhibit H -- Subsidiaries
Exhibit I -- Form of Guaranty
Exhibit J -- Acceptable Manufactured Housing States
iv
<PAGE>
SECOND RESTATED CREDIT AGREEMENT
--------------------------------
THIS SECOND RESTATED CREDIT AGREEMENT is made and entered into as of August
29, 1997, among Mortgage Portfolio Services, Inc., a Delaware corporation
("Borrower"), NAB Asset Corporation, a Texas corporation ("Guarantor"), Guaranty
Federal Bank, F.S.B., as Agent ("Agent"), and the Lenders referred to below
("Lenders").
The parties hereto hereby agree as follows:
ARTICLE I
---------
GENERAL TERMS
-------------
Section 1.01 Certain Definitions. As used in this Agreement, the following
-------------------
terms have the following meanings:
"Acceptable Manufactured Housing State" means any state: (1) listed on a
-------------------------------------
schedule of `Acceptable Manufactured Housing States' mutually agreed to by
Borrower and Majority Lenders, from time to time, with the initial such schedule
in the form of that attached hereto as Exhibit "J", and (2) as to which Agent
shall have received an opinion of counsel to Borrower in form and substance
satisfactory to Agent regarding the perfection of Agent's security interest in
Mortgage Loans secured by Property in such state and covering such other matters
as Agent may request.
"Adjusted Eurodollar Rate" means the rate per annum calculated by Agent
------------------------
(rounded upwards, if necessary, to the next higher 0.01%) determined on a daily
basis pursuant to the following formula:
Adjusted Eurodollar Rate =
Eurodollar Rate + Applicable Margin
---------------------------
100.0% - Reserve Percentage
The Adjusted Eurodollar Rate shall in no event, however, exceed the Maximum
Rate.
"Affiliate" means, as to any Person, each other Person that directly or
---------
indirectly (through one or more intermediaries or otherwise) controls, is
controlled by, or is under common control with, such Person.
"Agent" has the meaning assigned to such term in the preamble hereof.
-----
"Aggregate Collateral Value of the Borrowing Base" means at any date the
------------------------------------------------
sum of the Collateral Value of the Tranche A Borrowing Base and the Collateral
Value of the Tranche B Borrowing Base, all as of such date.
"Agreement" means this Second Restated Credit Agreement, as the same may
---------
from time to time be amended, modified or supplemented.
"Agreement to Pledge" means each agreement by Borrower, in the form of
-------------------
Exhibit 1 to the Security Agreement, to deliver Required Mortgage Documents to
Agent.
"Applicable Margin" means with respect to
-----------------
<PAGE>
(a) Tranche A Loans, and Swing-Line Loans that will be refinanced as
Tranche A Loans, one and three-quarters percent (1.75%); and
(b) Tranche B Loans and Swing-Line Loans that will be refinanced as
Tranche B Loans, two percent (2%);
provided, however, that with respect to any Loan made under an Agreement to
Pledge and prior to the delivery to Agent of the Required Mortgage Documents for
the Eligible Mortgage Loans with respect to such Loan, the margin set forth
above which is applicable to such Loan shall be increased by one-eighth of one
percent (0.125%).
"Applicable Rate" means with respect to any Lender's Loan, for any day, the
---------------
Adjusted Eurodollar Rate in effect on such day, provided that, if any of the
events described in Section 2.10 with respect to such Loan have occurred and are
continuing on such day, "Applicable Rate" means the Back-Up Rate then in effect.
"Backup Rate" means a per annum rate equal to the higher of (a) the base
-----------
commercial rate of interest as announced from time to time by Guaranty Federal
(which may not be the lowest, best or most favorable rate of interest which
Guaranty Federal may charge on loans to its customers) or (ii) the Federal Funds
Rate from time to time in effect, plus one-half of one percent (.50%). The
Backup Rate shall in no event, however, exceed the Maximum Rate.
"Balance Calculation Period" means each calendar month.
--------------------------
"Balance Funded Amount" means with respect to any Lender for any Balance
---------------------
Calculation Period, the average of the Qualifying Balances of such Lender for
such Balance Calculation Period. As used in this paragraph, "Qualifying
----------
Balances" shall mean, with respect to any Lender, for any day the lesser of (x)
- --------
the amount of such Lender's Loans on such day, and (y) the sum of the collected
balances in all identified non-interest bearing accounts of Borrower maintained
with such Lender less (i) amounts necessary to satisfy reserve and deposit
insurance requirements and (ii) amounts required to compensate such Lender for
services rendered in accordance with such Lender's system of charges for
services to similar accounts.
"Balance Funded Rate" means with respect to:
-------------------
(a) Tranche A Loans, one and three quarters percent (1.75%); and
(b) Tranche B Loans, two percent (2%).
"Borrower" shall have the meaning assigned to such term in the preamble
--------
hereof.
"Borrower's Adjusted EBITDA" means for any period, the sum of (a) the
--------------------------
Consolidated Net Income of Borrower during such period, plus (b) all interest
during such period on the Subordinated Debt which was deducted in determining
such Consolidated Net Income, plus (c) all income taxes which were deducted in
determining such Consolidated Net Income, plus (d) all depreciation,
amortization (including amortization of good will and debt issue costs) and
other non-cash charges which were deducted in determining such Consolidated Net
Income, plus (e) the aggregate principal amount of Debt incurred by Borrower to
finance other assets created pursuant to a securitization facility during such
period, plus (f) the aggregate principal amount of funds advanced to Borrower
during such period pursuant to any Subordinated Debt, minus (g) unbilled
revenues which were included in determining such Consolidated Net Income, minus
(h) any Dividends made or declared (without duplication) by Borrower during such
period in respect of the preferred stock of Borrower.
<PAGE>
"Borrower's Consolidated Tangible Net Worth" means, as of any date, (a)
------------------------------------------
Borrower's Consolidated Net Worth as of such date minus (b) all Consolidated
assets of Borrower which would be classified as intangible assets under GAAP,
including Capitalized Servicing Rights, goodwill (whether representing the
excess cost over book value of assets acquired or otherwise), patents,
trademarks, trade names, copyrights, franchises, deferred charges and
intercompany Indebtedness plus (c) ninety percent (90%) of Capitalized Servicing
Rights plus (d) the original principal amount of the Subordinated Debt (without
including any occurred interest or payments of interest made by the issuance of
additional Indebtedness or otherwise compounded or added to the principal).
"Borrowing Base Certificate" means at a certificate in the form attached
--------------------------
hereto as Exhibit "C".
"Borrowing Request" means a request, in the form of Exhibit "B", for a
-----------------
Borrowing pursuant to Article II.
"Business Day" means a day, other than a Saturday or Sunday, on which
------------
commercial banks are open for business with the public in Dallas, Texas. Any
Business Day in any way relating to the Eurodollar Rate must also be a day on
which, in the judgment of Agent, significant transactions in dollars are carried
out in the interbank Eurocurrency market.
"Capitalized Servicing Rights" means as of any Person, all rights to
----------------------------
service Mortgage Loans which would be capitalized under GAAP (regardless of
whether such rights result from asset securitizations, whole loan sales or
originations of Mortgage Loans).
"Cash Equivalents" means (i) securities issued or directly and fully
----------------
guaranteed or insured by the United States Government or any agency or
instrumentality thereof which mature within 90 days from the date of
acquisition, and (ii) time deposits and certificates of deposit, which mature
within 90 days from the date of acquisition, of Agent, any Lender or any other
domestic commercial bank having capital and surplus in excess of $200,000,000,
which has, or the holding company of which has, a commercial paper rating of at
least A-1 or the equivalent thereof by Standard & Poors Corporation or P-1 or
the equivalent thereof by Moody's Investors Service, Inc.
"Change of Control" means (i) the acquisition by any Person or group of
-----------------
Persons acting together, of a direct interest in more than twenty percent (20%)
of the voting power of the voting stock of Borrower, by way of merger or
consolidation or otherwise; or (ii) James Hinton ceases to be and act as
President and CEO of Borrower; provided, however, that the acquisition by CPS of
more than twenty percent (20%) of the voting power of the voting stock of
Borrower shall not constitute a Change of Control so long as concurrently with
such acquisition CPS executes and delivers a Guaranty to Agent and agrees to be
bound to the terms of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Collateral" has the meaning given to it in the Security Agreement.
----------
"Collateral Value" means at any date, the Collateral Value of the Tranche A
----------------
Borrowing Base or the Collateral Value of the Tranche B Borrowing Base, as
applicable.
"Collateral Value of the Tranche A Borrowing Base" means at any date the
------------------------------------------------
sum of the Unit Collateral Values of all Eligible Tranche A Mortgage Loans
included in the Tranche A Borrowing Base at such date.
<PAGE>
"Collateral Value of the Tranche B Borrowing Base" means at any date the
------------------------------------------------
sum of the Unit Collateral Values of all Eligible Tranche B Mortgage Loans
included in the Tranche B Borrowing Base at such date.
"Commitment" means the obligation of Lenders to make Tranche A Loans and
----------
Tranche B Loans to Borrower pursuant to Section 2.01 hereof in an aggregate
amount not to exceed $75,000,000 at any time outstanding.
"Consolidated" refers to the consolidation of any Person, in accordance
------------
with GAAP, with its properly consolidated subsidiaries. References herein to a
Person's Consolidated financial statements, financial position, financial
condition, liabilities, etc. refer to the consolidated financial statements,
financial position, financial condition, liabilities, etc. of such Person and
its properly consolidated subsidiaries.
"Consolidated Net Income" of any Person means, for the period ending on a
-----------------------
particular date, the gross revenues of such Person for such period, plus any
cash Dividends actually received by such Person from any other business entity,
minus all expenses and other proper charges (including taxes on income, to the
extent imposed upon such Person), determined on a Consolidated basis after
eliminating earnings or losses attributable to outstanding minority interests.
"Consolidated Net Worth" of any Person means, as of any date, the remainder
----------------------
of all Consolidated assets of such Person minus such Person's Consolidated
-----
Indebtedness.
"Construction Home" means a single family residence that is being
-----------------
constructed on real property subject to a Mortgage.
"CPS" means Consumer Portfolio Services, Inc.
---
"Debtor Laws" means all applicable liquidation, conservatorship,
-----------
bankruptcy, moratorium, arrangement, receivership, insolvency, reorganization or
similar laws from time to time in effect affecting the rights of creditors
generally and general principles of equity.
"Default" means any of the events specified in Section 7.01 hereof, whether
-------
or not any requirement for notice or lapse or time or any other condition has
been satisfied.
"Dividends", in respect of any corporation, means: (i) cash distributions
---------
or any other distributions on, or in respect of, any class of equity security of
such corporation, except for distributions made solely in shares of securities
of the same class; and (ii) any and all funds, cash or other payments made in
respect of the redemption, repurchase or acquisition of such securities;
provided, however, that "Dividends" shall not include Borrower's payments to
Guarantor for Borrower's Share of Taxes owed by the Affiliated Group of
Corporations (as defined in section 1504 of the Code) of which Borrower is a
member. As used herein "Borrower's Share of Taxes" means the amount of federal
income taxes which Borrower would have been obligated to pay if Borrower was not
a member of an Affiliated Group of Corporations.
"Drawdown Termination Date" means the earlier of August 29, 1998, or the
-------------------------
day on which the Notes first become due and payable in full.
"Eligible Manufactured Housing Mortgage Loan" means a Mortgage Loan with
-------------------------------------------
respect to which each of the following statements is accurate and complete (and
Borrower by including such Mortgage Loan in any computation of the Collateral
Value of the Tranche A Borrowing Base shall be deemed to so represent to Agent
and Lenders at and as of the date of such computation):
<PAGE>
(i) Such Mortgage Loan is an Eligible Mortgage Loan;
(ii) Such Mortgage Loan is secured by a first priority deed of trust
(or mortgage) on the related Property;
(iii) The proceeds of said Mortgage Loan are utilized by the Obligor to
facilitate the permanent attachment of a new Manufactured Home on the
related Property;
(iv) The Property securing such Mortgage Loan is located in an
Acceptable Manufactured Housing State;
(v) Upon completion and attachment of the related Manufactured Home to
the related Property, such Mortgage Loan will meet all underwriting and
other criteria for purchase by FNMA under the Take-Out Commitment relating
to such Mortgage Loan;
(vi) The Manufactured Home financed with the proceeds of such Mortgage
Loan is a new Manufactured Home which has not previously been financed;
(vii) All actions required to create a valid and enforceable first
priority perfected security interest in and lien upon such Mortgage Loan,
the related Manufactured Home, the related Property and all documents and
instruments relating to such Mortgage Loan, in favor of the Agent for the
benefit of the Lenders shall have been taken; and
(viii) The Unit Collateral Value of such Mortgage Loan, when added to
the Unit Collateral Value of all other Eligible Manufactured Housing Loans
included in the computation of the Collateral Value of the Tranche A
Borrowing Base does not exceed two percent (2%) of the Commitment.
"Eligible Mortgage Loan" means a Mortgage Loan with respect to which each
----------------------
of the following statements is accurate and complete (and the Borrower by
including such Mortgage Loan in any computation of the Aggregate Collateral
Value of the Borrowing Base shall be deemed to so represent to Agent and Lenders
at and as of the date of such computation):
(i) Such Mortgage Loan is a binding and valid obligation of the Obligor
thereon, in full force and effect and enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar terms affecting creditor's rights in
general and by general principles of equity;
(ii) Such Mortgage Loan is genuine in all respects as appearing on its
face and as represented in the books and records of Borrower, and all
information set forth therein is true and correct;
(iii) To the best knowledge of Borrower, such Mortgage Loan is free of
any default (other than as permitted by subparagraph below) of any party
thereto (including Borrower), counterclaims, offsets and defenses,
including the defense of usury, and from any rescission, cancellation or
avoidance, and all right thereof, whether by operation of law or otherwise;
(iv) No payment under such Mortgage Loan is more than thirty (30) days
past due the payment due date set forth in the underlying Mortgage Note and
Mortgage;
<PAGE>
(v) 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 not expressed in writing therein and is free of
concessions or understandings with the Obligor thereon of any kind not
expressed in writing therein;
(vi) Such Mortgage Loan is in all respects in accordance with all
Requirements of Law applicable thereto, including, without limitation, 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;
(vii) All advance payments and other deposits on such Mortgage Loan
have been paid in cash, and no part of said sums has been loaned, directly
or indirectly, by Borrower to the Obligor, and, other than as disclosed to
Agent in writing, there have been no prepayments;
(viii) At all times such Mortgage Loan will be free and clear of all
Liens, except in favor of Agent for the benefit of the Lenders and any
other Lien which has been disclosed to Agent in writing and is permitted
hereunder;
(ix) The Property covered by such Mortgage Loan is insured against loss
or damage by fire and all other hazards normally included within standard
extended coverage in accordance with the provisions of such Mortgage Loan
with Borrower named as a loss payee thereon;
(x) The Required Mortgage Documents have been delivered to Agent prior
to the inclusion of such Mortgage Loan in any computation of the Aggregate
Collateral Value of the Borrowing Base or, if such items have not been
delivered to Agent on or prior to the date such Mortgage Loan is first
included in any computation of the Aggregate Collateral Value of the
Borrowing Base, (1) an Agreement to Pledge has been delivered to Agent
prior to such inclusion, and (2) the Unit Collateral Value of such Mortgage
Loan when added to the Unit Collateral Value of all other Mortgage Loans
for which Agent has not received the Required Mortgage Documents does not
exceed (A) during the last five (5) Business Days in any calendar month and
the first five (5) Business Days in the next succeeding calendar month,
fifty percent (50%) of the Commitment, and (B) at any other time, thirty-
five percent (35%) of the Commitment, provided that, all Required Documents
with respect to such Mortgage Loan shall be delivered to Agent within seven
(7) Business Days after the date of the Agreement to Pledge with respect
thereto, provided further that, as to any Eligible Tranche B Mortgage Loan,
an Agreement to Pledge can be delivered to Agent only for the first Loan
made with respect to such Eligible Tranche B Mortgage Loan, all Required
Documents for any subsequent Loan with respect to such Eligible Tranche B
Mortgage Loan must be delivered to Agent not later than one (1) Business
Day after such subsequent Loan;
(xi) If such Mortgage Loan is included in either the Tranche A
Borrowing Base or the Tranche B Borrowing Base and has been withdrawn from
the possession of the Agent on terms and subject to conditions set forth in
the Security Agreement:
(1) If such Mortgage Loan was withdrawn by Borrower for purposes of
correcting clerical or other non-substantive documentation problems,
the promissory note and other documents relating to such Mortgage Loan
are returned to the Agent within twelve (12) calendar days from the
date of withdrawal; and the Unit Collateral Value of such Mortgage Loan
when added to the Unit Collateral Value of other Mortgage Loans which
have been similarly released to Borrower and have not been returned
does not exceed $4,000,000;
<PAGE>
(2) If such Mortgage Loan was shipped by the Agent directly to a
permanent investor for purchase or to a custodian for the formation of
a pool, the full purchase price therefor has been received by the Agent
(or such Mortgage Loan has been returned to the Agent) within twenty-
one (21) days from the date of shipment by the Agent.
(xi) If such Mortgage Loan is a Jumbo Mortgage Loan or a Super Jumbo
Mortgage Loan, the Unit Collateral Value of such Mortgage Loan when added
to the Unit Collateral Value of all other Jumbo Mortgage Loans and Super
Jumbo Mortgage Loans does not exceed thirty percent (30%) of the
Commitment;
(xii) If such Mortgage Loan is a Super Jumbo Mortgage Loan, the Unit
Collateral Value of such Mortgage Loan when added to the Unit Collateral
Value of all other Super Jumbo Mortgage Loans does not exceed five percent
(5%) of the Commitment; and
(xiii) The face amount of the Mortgage Note underlying such Mortgage
Loan does not exceed $1,000,000.
In determining the eligibility of any Mortgage Loan, any of the
requirements for eligibility (other than the requirements contained in clauses
(i), (viii) and (ix) above) may be waived by Agent, provided, that any Mortgage
Loan which is accepted by Agent as an Eligible Mortgage Loan pursuant to such
waiver (an "Eligible Waiver Mortgage Loan") shall cease to be an Eligible Waiver
Mortgage Loan upon written notice of the retraction of such waiver given to
Borrower by Agent unless at the time of giving such notice the deficiency which
originally required such waiver has been cured and such Eligible Waiver Mortgage
Loan meets all other requirements for an Eligible Mortgage Loan; and provided
further, that the Unit Collateral Value of any Mortgage Loan accepted by Agent
as an Eligible Waiver Mortgage Loan when added to the Unit Collateral Value of
all other Eligible Waiver Mortgage Loans included in the Aggregate Collateral
Value of the Borrowing Base at anytime, does not exceed $5,000,000.
"Eligible Tranche A Mortgage Loan" means an Eligible Mortgage Loan or
--------------------------------
Eligible Manufactured Housing Mortgage Loan owned by Borrower with respect to
which each of the following statements shall be accurate and complete (and
Borrower by including such Eligible Mortgage Loan in any computation of the
Collateral Value of the Tranche A Borrowing Base shall be deemed to so represent
to Agent and Lenders at and as of the date of such computation):
(i) Such Mortgage Loan has not been included in the Tranche A Borrowing
Base for more than 120 days;
(ii) Such Mortgage Loan is covered by a Take-Out Commitment which is in
full force and effect, and Borrower and such Mortgage Loan are in full
compliance therewith;
(iii) Except for Eligible Manufactured Housing Mortgage Loans, such
Mortgage Loan is secured by a first or second Mortgage on Property
consisting of a completed one-to-four unit single family residence,
including a condominium, planned unit development, townhouse or co-op.
(iv) For any Mortgage Loan which was originally included in the Tranche
B Borrowing Base, Agent has received the Required Mortgage Documents set
forth in Section 3 of Schedule A to the Security Agreement.
"Eligible Tranche B Mortgage Loan" means an Eligible Mortgage Loan owned by
--------------------------------
Borrower with respect to which each of the following statements shall be
accurate and complete (and Borrower by including
<PAGE>
such Eligible Mortgage Loan in any computation of the Collateral Value of the
Tranche B Borrowing Base shall be deemed to so represent to Agent and Lender at
and as of the date of such computation):
(i) Such Mortgage Loan is an Eligible Mortgage Loan;
(ii) Such Mortgage Loan has not been included in the Tranche B
Borrowing Base for more than 180 days; provided, however, that such
Mortgage Loan may be included in the Tranche B Borrowing Base for up to a
maximum aggregate period of 270 days so long as the Unit Collateral Value
of such Mortgage Loan when added to the Unit Collateral Value of all other
Eligible Tranche B Mortgage Loans included in the Tranche B Borrowing Base
pursuant to this proviso does not exceed $4,000,000;
(iii) Such Mortgage Loan is secured by a first Mortgage on Property
consisting of a Construction Home;
(iv) The Mortgage Note, Mortgage and other documents and instruments
evidencing such Mortgage Loan provide that the Mortgage Loan will become a
fully amortizing Mortgage Loan immediately upon certification by the
contractor and Borrower that the Construction Home has been completed and
is ready for occupancy;
(v) The Construction Home will be completed within nine (9) months from
the date on which construction commences; and
(vi) Borrower has advanced to or for the benefit of Borrower, at least
ten percent (10%) of the stated principal amount of the Mortgage Note
evidencing such Mortgage Loan; and
(vii) Such Mortgage Loan is not included in the Tranche A Borrowing
Base.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, together with the regulations from time to time
promulgated with respect thereto.
"ERISA Affiliate" means all members of the group of corporations and trades
---------------
or businesses (whether or not incorporated) which, together with Borrower, are
treated as a single employer under Section 414 of the Code.
"ERISA Plan" means any pension benefit plan subject to Title IV of ERISA or
----------
Section 412 of the Code maintained or contributed to by Borrower or any ERISA
Affiliate with respect to which Borrower has a fixed or contingent liability.
"Eurodollar Rate" means, for any day, the rate per annum (rounded upwards,
---------------
if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or
any successor page) as the London interbank offered rate for deposits in dollars
on that day for a period of one month. If for any reason such rate is not
available, the term "Eurodollar Rate" shall mean the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen
LIBO Page as the London interbank offered rate for deposits in dollars on that
day for a period of one month; provided, however, if more than one rate is
specified on Reuters Screen LIB0 Page, the applicable rate shall be the
arithmetic mean of all such rates (rounded upwards, if necessary, to the nearest
of 1/100 of 1%).
"Event of Default" means any of the events specified in Section 7.01
----------------
hereof, provided that any requirement in connection with such event for the
giving of notice or the lapse of time, or the happening of any further
condition, event or act has been satisfied.
<PAGE>
"Existing Agreement" means that certain First Restated Credit Agreement
------------------
dated as of February 18, 1997, among Borrower, Guarantor, Agent and the lenders
named therein, as amended by that certain First Amendment to First Restated
Credit Agreement dated as of April 28, 1997, and that certain Second Amendment
to First Restated Credit Agreement dated as of June 6, 1997.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
------------------
upwards, if necessary, to the nearest 1/100th of one percent) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (i) if the day for which such rate is to
be determined is not a Business Day, the Federal Funds Rate for such day shall
be such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day, and (ii) if such rate is not so
published for any day, the Federal Funds Rate for such day shall be the average
rate quoted to Agent on such day on such transactions as determined by Agent.
"Financing Lease" means (i) any lease of Property if the then present value
---------------
of the minimum rental commitment thereunder should, in accordance with GAAP, be
capitalized on a balance sheet of the lessee, and (ii) any other lease
obligations which are capitalized on a balance sheet of the lessee.
"Fiscal Quarter" means each period of three calendar months ending March
--------------
31, June 30, September 30 and December 31 of each year.
"Fiscal Year" means each period of twelve calendar months ending December
-----------
31 of each year.
"FNMA" means the Federal National Mortgage Association, or any successor
----
thereto.
"Funding Account" means the non-interest bearing demand checking account
---------------
established by Borrower with Agent to be used for (i) the initial deposit of
proceeds of Loans; and (ii) the funding or purchase of Mortgage Notes by
Borrower; provided that the Funding Account shall be pledged to Agent for the
benefit of Lenders and that Borrower shall not be entitled to withdraw funds
from the Funding Account and provided further that Agent will transfer funds as
directed by Borrower.
"GAAP" means those generally accepted accounting principles and practices
----
which are recognized as such by the Financial Accounting Standards Board (or any
generally recognized successor) and which, in the case of Borrower and Guarantor
and its Consolidated subsidiaries, are applied for all periods after the date
hereof in a manner consistent with the manner in which such principles and
practices were applied to the financing statements described in Section 4.07. If
any change in any accounting principle or practice is required by the Financial
Accounting Standards Board (or any such successor) in order for such principle
or practice to continue as a generally accepted accounting principle or
practice, all reports and financial statements required hereunder with respect
to Borrower or with respect to Borrower and its Consolidated subsidiaries may be
prepared in accordance with such change, but all calculations and determinations
to be made hereunder may be made in accordance with such change only after
notice of such change is given to each Lender and Majority Lenders agree to such
change insofar as it affects the accounting of Borrower, Guarantor or of
Guarantor and its Consolidated subsidiaries.
"Governmental Authority" means any nation or government, any agency,
----------------------
department, state or other political subdivision thereof and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Governmental Requirement" means any law, statute, code, ordinance, order,
------------------------
rule, regulation, judgment, decree, injunction, franchise, permit, certificate,
license, authorization or other direction or requirement (including, without
limitation, any of the foregoing which relate to environmental standards or
<PAGE>
controls, energy regulations and occupational, safety and health standards or
controls) of any arbitrator, court or other Governmental Authority, which
exercises jurisdiction over any Related Person or any of its Property.
"Guarantor" means NAB Asset Corporation, a Texas corporation, or any other
---------
Person who has guaranteed some or all of the Obligations and who has been
accepted by Agent as a Guarantor.
"Guaranty" means a Guaranty in the form attached hereto as Exhibit "I", as
--------
the same may from time to time be further supplemented, amended or restated.
"Guaranty Federal" means Guaranty Federal Bank, F.S.B., as a Lender and its
----------------
successors in such capacity.
"Guaranty Obligation" of any Person means any contract, agreement or
-------------------
understanding of such Person pursuant to which such Person guarantees, or in
effect guarantees, any Indebtedness, lease, dividends or other obligations (the
"Primary Obligations") of any other Person (the "Primary Obligor") in any
------------------- ---------------
manner, whether directly or indirectly, contingently or absolutely, in whole or
in part, including without limitation agreements:
(i) to purchase such Primary Obligation or any property constituting
direct or indirect security therefor;
(ii) to advance or supply funds (A) for the purchase or payment of any
such Primary Obligation, or (B) to maintain working capital or other
balance sheet conditions of the Primary Obligor or otherwise to maintain
the net worth or solvency of the Primary Obligor;
(iii) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such Primary Obligation of the ability
of the Primary Obligor to make payment of such Primary Obligation; or
(iv) otherwise to assure or hold harmless the owner of any such Primary
Obligation against loss in respect thereof;
provided, that "Guaranty Obligation" shall not include endorsements that are
-------------------
made in the ordinary course of business of negotiable instruments or documents
for deposit or collection. The amount of any Guaranty Obligation shall be
deemed to be the maximum amount for which the guarantor may be liable pursuant
to the agreement that governs such Guaranty Obligation, unless such maximum
amount is not stated or determinable, in which case the amount of such
obligation shall be the maximum reasonably anticipated liability thereon, as
determined by such guarantor in good faith.
"Indebtedness" of any Person at a particular date means the sum (without
------------
duplication) at such date of (i) all indebtedness of such Person for borrowed
money or for the deferred purchase price of property or services or which is
evidenced by a note, bond, debenture, or similar instrument, (ii) all
obligations of such Person under any Financing Lease, (iii) all obligations of
such Person in respect of letters of credit, acceptances, or similar obligations
issued or created for the account of such Person, (iv) all Guaranty Obligations
of such Person, (v) all liabilities secured by any Lien on any property owned by
such Person, whether or not such Person has assumed or otherwise become liable
for the payment thereof, and (vi) any liability of such Person or any Affiliate
thereof in respect of unfunded vested benefits under an ERISA Plan.
"Investor" means any Person listed on Exhibit "F" and any other Person
--------
approved in writing by Agent who agrees to purchase Mortgage Collateral pursuant
to a Take-Out Commitment.
"Jumbo Loan" means a Mortgage Loan for which the original unpaid principal
----------
amount of the underlying Mortgage Note is greater than $350,000 but does not
exceed $600,000.
<PAGE>
"Late Payment Rate" means, at the time in question, four percent (4%) per
-----------------
annum plus the Applicable Rate then in effect.
"Lenders" means each signatory hereto (other than Borrower and Guarantor),
-------
including Guaranty Federal in its capacity as a Lender hereunder rather than as
Agent, and the successors of each as holder of a Note (or a portion thereof)
that has been transferred in accordance with Section 10.11.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
----
arrangement, encumbrance, lien (whether statutory or otherwise), or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, any conditional sale or other
title retention agreement, any financing lease having substantially the same
economic effect as any of the foregoing, and the filing of any financing
statement under the Uniform Commercial Code or comparable law of any
jurisdiction in respect of any of the foregoing).
"Loan" means a Tranche A Loan, Tranche B Loan, or Swing-Line Loan as
----
applicable. "Loans" means all Tranche A Loans, Tranche B Loans and Swing-Line
Loans.
"Loan Document" means any, and "Loan Documents" shall mean all, of this
------------- --------------
Agreement, the Notes, the Security Instruments and any and all other agreements
or instruments now or hereafter executed and delivered by Borrower, Guarantor,
or any other Person in connection with, or as security for the payment or
performance of any or all of the Obligations, as any of such may be renewed,
amended or supplemented from time to time.
"Majority Lenders" means Lenders collectively having Percentage Shares
----------------
totaling in the aggregate at least sixty-six and two-thirds percent (66 2/3%).
"Manufactured Home" means a structure, transportable in one or more
-----------------
sections, which is built on a permanent basis and designed to be used as a
dwelling with a permanent foundation when affixed to real property and connected
to the required utilities, including, without limitation, plumbing and
electrical systems.
"Market Value" at any time shall be determined by Agent, in its sole
------------
discretion, based upon information then available to Agent regarding quotes to
dealers for the purchase of mortgage notes similar to the Mortgage Notes that
have been delivered to Agent pursuant to this Agreement.
"Material Adverse Effect" means any material adverse effect on (i) the
-----------------------
validity or enforceability of this Agreement, the Notes or any other Loan
Document, (ii) the business, operations, total Property or financial condition
of any Related Person, (iii) the collateral under any Security Instrument, or
(iv) the ability of any Related Person to fulfill its obligations under this
Agreement, the Notes, or any other Loan Document to which it is a party.
"Maximum Rate" means, with respect to each Lender, the maximum nonusurious
------------
rate of interest that such Lender is permitted under applicable law to contract
for, take, charge, or receive with respect to its Loans. All determinations
herein of the Maximum Rate, or of any interest rate determined by reference to
the Maximum Rate, shall be made separately for each Lender as appropriate to
assure that the Loan Documents are not construed to obligate any Person to pay
interest to any Lender at a rate in excess of the Maximum Rate applicable to
such Lender.
"Mortgage" means a mortgage or deed of trust, on standard forms in form and
--------
substance satisfactory to Agent, securing a Mortgage Note and granting a
perfected first or second priority lien on residential real
<PAGE>
property consisting of land and either a Construction Home thereon or a single-
family dwelling thereon which is completed and ready for occupancy.
"Mortgage Assignment" means an instrument duly executed and in recordable
-------------------
form assigning a Mortgage, in blank and like all intervening instruments that
have been executed with respect to such Mortgage and which is in form acceptable
to Agent and satisfies all Requirements of Law.
"Mortgage Collateral" means all Mortgage Notes (i) which are made payable
-------------------
to the order of Borrower or have been endorsed (without restriction or
limitation) payable to the order of Borrower, (ii) in which Agent has been
granted and continues to hold a perfected first priority security interest,
(iii) which are in form and substance acceptable to Agent in its reasonable
discretion, (iv) which are secured by Mortgages, and (v) with respect to Tranche
A Eligible Mortgage Loans, conform in all respects with all the requirements for
purchase of such Mortgage Notes under the Take-Out Commitments and are valid and
enforceable in accordance with their respective terms.
"Mortgage Loan" means a one-to-four-family mortgage loan which is evidenced
-------------
by a Mortgage Note and secured by a Mortgage, together with the rights and
obligations of a holder thereof and payments thereon and proceeds therefrom.
"Mortgage Note" means the Note or other evidence of indebtedness evidencing
-------------
the indebtedness of an Obligor under a Mortgage Loan.
"Note" means any promissory note delivered by Borrower to a Lender pursuant
----
to Section 2.02 in the form attached hereto as Exhibit "A", and all renewals,
modifications and extensions thereof. "Notes" means collectively each Lender's
Note.
"Obligations" means all present and future Indebtedness, obligations, and
-----------
liabilities of Borrower to Agent or any Lender, and all renewals and extensions
thereof, or any part thereof, arising pursuant to this Agreement or any other
Loan Document, and all interest accrued thereon, and reasonable attorneys' fees
and other costs incurred in the drafting, negotiation, enforcement or collection
thereof, regardless of whether such indebtedness, obligations, and liabilities
are direct, indirect, fixed contingent, joint, several or joint and several.
"Obligor" means the Person or Persons obligated to pay the Indebtedness
-------
which is the subject of a Mortgage Loan.
"Operating Account" means the non-interest bearing demand checking account
-----------------
established by Borrower with Agent to be used for Borrower's operations.
"PBGC" means the Pension Benefit Guaranty Corporation or any Governmental
----
Authority succeeding to any of its functions.
"Percentage Share" means, with respect to any Lender (a) when used in
----------------
Section 2.01, in any Borrowing Request or when no Loans are outstanding
hereunder, the percentage set forth opposite such Lender's name on the signature
pages of this Agreement, and (b) when used otherwise, the percentage obtained by
dividing (i) the sum of the unpaid principal balance of such Lender's Loans at
the time in question by (ii) the sum of the aggregate unpaid principal balance
of all Loans at such time.
"Person" means any individual, corporation, partnership, joint venture,
------
association, joint stock company, limited liability company trust,
unincorporated organization, Governmental Authority, or any other form of
entity.
<PAGE>
"Property" means any interest in any kind of property or asset, whether
--------
real, personal or mixed, or tangible or intangible.
"Regulation D" means Regulation D issued by the Board of Governors of the
------------
Federal Reserve System as in effect from time to time.
"Regulation U" means Regulation U issued by the Board of Governors of the
------------
Federal Reserve System as in effect from time to time.
"Regulation X" means Regulation X issued by the Board of Governors of the
------------
Federal Reserve System as in effect from time to time.
"Related Persons" means Borrower, Guarantor and each of Borrower's
---------------
Subsidiaries.
"Reportable Event" means (1) a reportable event described in Sections
----------------
4043(b)(5) or (6) of ERISA or the regulations promulgated thereunder, or (2) any
other reportable event described in Section 4043(b) of ERISA or the regulations
promulgated thereunder other than a reportable event not subject to the
provision for 30-day notice to the PBGC pursuant to a waiver by the PBGC under
Section 4043(a) of ERISA.
"Required Mortgage Documents" means as to any Mortgage Loan, the items
---------------------------
described on Schedule A to the Security Agreement.
"Requirement of Law" as to any Person means the charter and by-laws or
------------------
other organizational or governing documents of such Person, and any law,
statute, code, ordinance, order, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization or other determination,
direction or requirement (including, without limitation, any of the foregoing
which relate to environmental standards or controls, energy regulations and
occupational, safety and health standards or controls) of any arbitrator, 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 Percentage" means the maximum reserve requirement, as determined
------------------
by Agent (including without limitation any basic, supplemental, marginal,
emergency or similar reserves), expressed as a percentage and rounded to the
next higher 0.01%, which would then apply to a member bank of the Federal
Reserve System under Regulation D, with deposits comparable in amount to those
held by Agent, with respect to "Eurocurrency liabilities" (as such term is
defined in Regulation D). If such reserve requirement shall change after the
date hereof, the Reserve Percentage shall be automatically increased or
decreased, as the case may be, from time to time as of the effective time of
each such change in such reserve requirement.
"Risk Rating" means the risk rating of a Mortgage Loan determined by the
-----------
underwriting guidelines of Borrower or other applicable standards of an Investor
to which such Mortgage Loan is to be sold by the Company under a Take-Out
Commitment, provided that such underwriting guidelines or other applicable
standards comply with industry standards in the sole judgment of Agent.
"Security Agreement" means the Security and Collateral Agency Agreement
------------------
between Borrower and Agent in the form attached hereto as Exhibit "E", as the
same may from time to time be further supplemented, amended or restated.
"Security Instrument" means (i) the Security Agreement and (ii) such other
-------------------
executed documents as are or may be necessary to grant to Agent a perfected
first prior and continuing security interest in and to all Mortgage Collateral,
and any and all other agreements or instruments now or hereafter executed and
delivered
<PAGE>
by Borrower in connection with, or as security for the payment or performance
of, all or any of the Obligations, including Borrower's obligations under the
Notes and this Agreement, as such agreements may be amended, modified or
supplemented from time to time.
"Servicing Agreements" means all agreements between Borrower and Persons
--------------------
other than Borrower pursuant to which Borrower undertakes to service Mortgage
Loans.
"Servicing Records" means all contracts and other documents, books, records
-----------------
and other information (including without limitation, computer programs, tapes,
discs, punch cards, data processing software and related property and rights)
maintained with respect to the Servicing Rights.
"Servicing Rights" means all of Borrower's right, title and interest in and
----------------
under the Servicing Agreements, including, without limitation, the rights of
Borrower to income and reimbursement thereunder.
"Settlement Account" means the non-interest bearing demand checking account
------------------
established by Borrower with Agent to be used for (i) the deposit of proceeds
from the sale of Mortgage Collateral; (ii) the payment of the Obligations;
provided that (i) the Settlement Account shall be pledged to Agent for the
benefit of Lenders, (ii) Borrower shall not be entitled to withdraw funds from
the Settlement Account, (iii) as long as no Event of Default has occurred and is
continuing, to the extent that the deposit of proceeds from the sale of Mortgage
Loans exceeds the Unit Collateral Value of such Mortgage Loans and any payments
then due and owing under this Agreement or the Notes, Agent shall transfer such
excess amount to the Operating Account, and (iv) if at any time the aggregate
amount of funds in the Settlement Account is insufficient to pay any and all
payments due and owing under this Agreement or the Notes (such amount being
referred to as the "Deficiency"), Agent shall transfer an amount equal to the
Deficiency from the Operating Account to the Settlement Account.
"Submission List" means a list in the form of Schedule I to the form of
---------------
Borrowing Request.
"Subordinated Debt" means unsecured Indebtedness of Borrower which matures
-----------------
at least twelve (12) months after the Drawdown Termination Date and is subject
to a subordination agreement in form and substance satisfactory to Agent in its
sole and absolute discretion, which subordination agreement shall provide for,
among other things, a prohibition on (i) principal payments of such Indebtedness
until the Obligations are paid in full and all commitments of Lenders to advance
funds hereunder have terminated, (ii) interest payments on such Indebtedness if
a Default is then continuing or would arise as a result of such payment and
(iii) the exercise of any rights or remedies by the subordinating creditor
against Borrower, Guarantor (if Guarantor is not the subordinating creditor) or
any of the Collateral until such time as the Obligations have been paid in full.
"Subsidiary" means, with respect to any Person, any corporation,
----------
association, partnership, joint venture, or other business or corporate entity,
enterprise or organization which is directly or indirectly (through one or more
intermediaries) controlled by or owned fifty percent or more by such Person.
"Super-Jumbo Loan" means a Mortgage Loan for which the original principal
----------------
amount of the underlying Mortgage Note is greater than $600,000 but does not
exceed $1,000,000.
"Swing-Line Loan" means a loan made by Guaranty Federal to Borrower
---------------
pursuant to Section 2.01(c).
"Take-Out Commitment" means (a) with respect to any Mortgage Loan which has
-------------------
a Risk Rating of A, a written commitment of an Investor to purchase such
Mortgage Loan on terms satisfactory to Agent, in its sole discretion and, (b)
with respect to any Mortgage Loan which has a Risk Rating of B or C, a written
<PAGE>
master commitment of an Investor to purchase Mortgage Collateral on terms
satisfactory to Agent, in its sole discretion.
"Termination Event" means (1) the occurrence with respect to any ERISA Plan
-----------------
of a Reportable Event, (2) the withdrawal of the Borrower or any ERISA Affiliate
from a plan during a plan year in which it was a "substantial employer", as
defined in Section 4001(a)(2) of ERISA, (3) the distribution to affected parties
of a notice of intent to terminate any ERISA Plan or the treatment of any ERISA
Plan amendment as a termination under Section 4041 of ERISA, (4) the institution
of proceedings to terminate any ERISA Plan by the PBGC under Section 4042 of
ERISA, or (5) any other event or condition which might constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any ERISA Plan.
"Total Liabilities" of any Person means, as of any date, all amounts which
-----------------
would be included as liabilities on a balance sheet of such Person as of such
date prepared in accordance with GAAP; provided however, that as to the
Subordinated Debt only, the Total Liabilities of Borrower shall include fifty
percent (50%) of the aggregate principal amount outstanding as of such date of
the Subordinated Debt rather than the entire Subordinated Debt.
"Tranche A Borrowing Base" means at any date all Eligible Tranche A
------------------------
Mortgage Loans which have been delivered to and held by Agent or otherwise
identified as Mortgage Collateral.
"Tranche A Loan" has the meaning given it in Section 2.01(a).
--------------
"Tranche B Borrowing Base" means at any date all Eligible Tranche B
------------------------
Mortgage Loans which have been delivered to and held by Agent or otherwise
identified as Mortgage Collateral.
"Tranche B Loan" has the meaning given it in Section 2.01(b).
--------------
"Tranche B Sublimit means twenty-five percent (25%) of the Commitment.
------------------
"UCC" means the Texas Uniform Commercial Code, as the same may hereafter be
---
amended.
"Unit Collateral Value" means
---------------------
(a) with respect to each Eligible Tranche A Mortgage Loan included in the
Tranche A Borrowing Base, ninety-seven percent (97%) of the least of: (i) the
outstanding principal balance of the Mortgage Note constituting such Eligible
Tranche A Mortgage Loan; (ii) the actual out-of-pocket cost to Borrower of such
Eligible Tranche A Mortgage Loan minus the amount of principal paid under such
Eligible Tranche A Mortgage Loan and delivered to Agent for application to the
prepayment of the Loans; (iii) the amount at which an Investor has committed to
purchase the Eligible Tranche A Mortgage Loan pursuant to a Take-Out Commitment
not to exceed 100% of the original principal balance of the Mortgage Note; or
(iv) the Market Value of the Mortgage Note constituting such Eligible Tranche A
Mortgage Loan; and
(b) with respect to each Eligible Tranche B Mortgage Loan included in the
Tranche B Borrowing Base, ninety percent (90%) of the least of: (i) the
outstanding principal balance of the Mortgage Note constituting such Eligible
Tranche B Mortgage Loan; (ii) the amount at which an Investor has committed to
purchase the Eligible Tranche B Mortgage Loan pursuant to a Take-Out Commitment
not to exceed 100% of the original principal balance of the Mortgage Note; and
(iii) the Market Value of the Mortgage Note constituting such Eligible Tranche B
Mortgage Loan.
Section 1.02 Other Definitional Provisions.
-----------------------------
<PAGE>
(a) Unless otherwise specified therein, all terms defined in this Agreement
shall have the above-defined meanings when used in the Notes or any other Loan
Document, certificate, report or other document made or delivered pursuant
hereto.
(b) Each term defined in the singular form in Section 1.01 shall mean the
plural thereof when the plural form of such term is used in this Agreement, the
Notes or any other Loan Document, certificate, report or other document made or
delivered pursuant hereto, and each term defined in the plural form in Section
1.01 shall mean the singular thereof when the singular form of such term is used
herein or therein.
(c) The words "hereof," "herein," "hereunder" and similar terms when used
in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and section, subsection, schedule and
exhibit references herein are references to sections, subsections, schedules and
exhibits to this Agreement unless otherwise specified. The word "or" is not
exclusive, and the word "including" (in its various forms) means "including
without limitation.
(d) Unless the context otherwise requires or unless otherwise provided
herein the terms defined in this Agreement which refer to a particular
agreement, instrument or document also refer to and include all renewals,
extensions, modifications, amendments and restatements of such agreement,
instrument or document, provided that nothing contained in this section shall be
construed to authorize any such renewal, extension, modification, amendment or
restatement.
(e) As used herein, in the Notes or in any other Loan Document,
certificate, report or other document made or delivered pursuant hereto,
accounting terms relating to any Person and not specifically defined in this
Agreement or therein shall have the respective meanings given to them under
GAAP.
Section 1.03 Exhibits and Schedules. All Exhibits and Schedules attached
----------------------
to this Agreement are a part hereof for all purposes.
Section 1.04 Calculations and Determinations. All calculations under the
-------------------------------
Loan Documents of interest and of fees shall be made on the basis of actual days
elapsed (including the first day but excluding the last) and a year of 360 days.
Each determination by Agent or a Lender of amounts to be paid under Sections
2.08 through 2.11 or any other matters which are to be determined hereunder by
Agent or a Lender (such as any Eurodollar Rate, Adjusted Eurodollar Rate,
Business Day, or Reserve Percentage) shall, in the absence of manifest error, be
conclusive and binding. Unless otherwise expressly provided herein or unless
Agent otherwise consents all financial statements and reports furnished to Agent
or any Lender hereunder shall be prepared and all financial computations and
determinations pursuant hereto shall be made in accordance with GAAP.
<PAGE>
ARTICLE II
----------
AMOUNT OF TERMS OF CREDITS
--------------------------
Section 2.01 Commitment and Loans.
--------------------
(a) Tranche A Loans. Subject to the terms and conditions contained in
---------------
this Agreement, each Lender agrees to make loans ("Tranche A Loans") to Borrower
on a revolving credit basis from time to time on any Business Day from the date
of this Agreement through the Drawdown Termination Date. Each request for
Tranche A Loans pursuant to a Borrowing Request shall be in an aggregate amount
of not less than $50,000. The aggregate principal amount of any Lender's
Tranche A Loans at any time outstanding (after giving effect to the other
transactions contemplated by the Borrowing Request pursuant to which a Tranche A
Loan is requested) shall not exceed the lesser of: (1) such Lender's Percentage
Share of the Collateral Value of the Tranche A Borrowing Base or (2) such
Lender's Percentage Share of the Commitment. At no time shall the aggregate
amount of all Loans outstanding at any time exceed the lesser of (1) the
Aggregate Collateral Value of the Borrowing Base, and (2) the Commitment at such
time.
(b) Tranche B Loans. Subject to the terms and conditions contained in
---------------
this Agreement, each Lender agrees to make loans ("Tranche B Loans") to Borrower
to finance the draws advanced from time to time by Borrower pursuant to the
Eligible Tranche B Mortgage Loans. Tranche B Loans shall be made on a revolving
credit basis from time to time on any Business Day from the date of this
Agreement through the Drawdown Termination Date. Each request for Tranche B
Loans pursuant to a Borrowing Request shall be in an aggregate amount of not
less than $10,000. The aggregate principal amount of any Lender's Tranche B
Loans at any time outstanding (after giving effect to the other transactions
contemplated by the Borrowing Request pursuant to which a Tranche B Loan is
requested) shall not exceed the lesser of: (1) such Lender's Percentage Share of
the Collateral Value of the Tranche B Borrowing Base or (2) such Lender's
Percentage Share of the Tranche B Sublimit. At no time shall the aggregate
amount of all Tranche B Loans outstanding at any time exceed the lesser of (1)
the Collateral Value of the Tranche B Borrowing Base, and (2) the Tranche B
Sublimit.
(c) Discretionary Swing-Line Loans. Subject to the terms and conditions of
------------------------------
this Agreement, until the Drawdown Termination Date, Guaranty Federal, in its
sole discretion, may lend to Borrower at such times and in such amounts as
Borrower shall request, up to an aggregate principal amount outstanding equal to
$30,000,000. Guaranty Federal will not make a Swing-Line Loan if either (i)
after giving effect thereto, the aggregate amount of all Loans outstanding would
exceed the lesser of (1) the Aggregate Collateral Value of the Borrowing Base or
(2) the Commitment or (ii) one or more of the conditions precedent set forth in
Article 3 for the making of any Loan have not been satisfied.
Section 2.02 Promissory Notes; Interest on the Notes. The Loans made by
---------------------------------------
each Lender pursuant to this Article II shall be evidenced by a Note payable to
the order of such Lender. Each Lender's Loans (exclusive of any past due
principal) from time to time outstanding shall bear interest on each day
outstanding at the Applicable Rate in effect on such day; provided, however,
that the portion of such Lender's Loans which is equal to the Balance Funded
Amount for such Lender computed for the immediately preceding Balance
Calculation Period, shall bear interest on each day outstanding at the Balance
Funded Rate. All past due principal of and past due interest on each Lender's
Loans shall bear interest on each day at the Late Payment Rate in effect on such
day.
<PAGE>
Section 2.03 Notice and Manner of Obtaining Loans. Borrower shall give
------------------------------------
Agent notice of each request for Tranche A Loans or Tranche B Loans pursuant to
a Borrowing Request which is received by Agent not later than 11:00 a.m.
(Dallas, Texas) time, on the day on which such Loans are to be advanced. Each
Borrowing Request shall constitute a request for both (1) a Swing-Line Loan to
be funded by Guaranty Federal and the Loans to be made by Lender to refinance
that Swing-Line Loan, and (2) if Guaranty Federal elects not to make a Swing-
Line Loan, the Loans actually requested by the text of the Borrowing Request to
be funded by the Lenders. If all conditions precedent to such Loan have been met
and Agent has notified each Lender that Guaranty Federal has elected not to make
a Swing-Line Loan pursuant to such Borrowing Request, each Lender will on the
date requested promptly remit to Agent at Agent's office in Dallas, Texas the
amount of such Lender's Tranche A Loan or Tranche B Loan, as applicable, in
immediately available dollars, and upon receipt of such funds, unless to its
actual knowledge any conditions precedent to such Loan have been neither met nor
waived as provided herein, Agent shall promptly make such Loan available to
Borrower by crediting the Funding Account with a like amount of immediately
available funds. Guaranty Federal shall, not later than 3:00 p.m. (Dallas, Texas
time) on the date on which it makes any Swing-Line Loan, deposit the amount
thereof into the Funding Account. Each Borrowing Request shall be irrevocable
and binding on Borrower. Unless Agent shall have received prompt notice from a
Lender that such Lender will not make available to Agent such Lender's Loan,
Agent may in its discretion assume that such Lender has made such Loan available
to Agent in accordance with this section and Agent may if it chooses, in
reliance upon such assumption, make such Loan available to Borrower. If and to
the extent such Lender shall not so make its Loan available to Agent, such
Lender and Borrower severally agree to pay or repay to Agent within three days
after demand the amount of such Loan together with interest thereon, for each
day from the date such amount is made available to Borrower until the date such
amount is paid or repaid to Agent, at (i) the Federal Funds Rate, if such Lender
is making such payment and (ii) the interest rate applicable at the time to the
other Loans made on such date, if Borrower is making such repayment; Agent shall
use its best efforts to demand any such amount from both such Lender and
Borrower, provided, that any failure by Agent to make any such demand on both
such Lender and Borrower shall not in any manner affect such Lender's and
Borrower's obligation to pay or repay such amount, with interest, as set forth
herein. The failure of any Lender to make any Loan to be made by it hereunder
shall not relieve any other Lender of its obligation hereunder, if any, to make
its Loan, but no Lender shall be responsible for the failure of any other Lender
to make any Loan to be made by such other Lender.
Section 2.04 Fees.
----
(a) In consideration of each Lender's commitment to make Tranche A Loans
and Tranche B Loans, Borrower will pay to Agent for the account of each Lender a
commitment fee determined on a daily basis by applying a rate of one-quarter of
one percent (0.25%) per annum on the Commitment on each day from the date of the
initial Loan until the Drawdown Termination Date. This commitment fee shall be
due and payable quarterly in advance beginning on the date of the initial Loan
and thereafter on the last day of each Fiscal Quarter.
(b) Borrower shall also pay to Agent for its own account, a collateral
handling fee and an agent's fee agreed to in that certain letter agreement dated
of even date herewith between Borrower and Agent.
Section 2.05 Mandatory Repayments.
--------------------
(a) If at any time the aggregate outstanding principal amount of
all Tranche A Loans exceeds the Collateral Value of the Tranche A Borrowing
Base, Borrower shall repay the amount of such excess within three (3) Business
Days after written notice thereof from Agent.
<PAGE>
(b) If at any time the aggregate outstanding principal amount of all
Tranche B Loans exceeds the Collateral Value of the Tranche B Borrowing Base,
Borrower shall repay the amount of such excess within three (3) Business Days
after written notice thereof from Agent.
Section 2.06 Payments to Lenders. All payments of interest on the Notes,
-------------------
all payments of principal, including any principal payment made with proceeds of
Mortgage Collateral, and fees hereunder shall be made directly to Agent for the
account of the Lender to whom such payment is owed in federal or other
immediately available funds before 1:00 pm (Dallas, Texas time) on the
respective dates when due via wire transfer to the Settlement Account. Any
payment received by Agent after such time will be deemed to have been made on
the next following Business Day. Should any such payment become due and payable
on a day other than a Business Day, the maturity of such payment shall be
extended to the next succeeding Business Day, and, in the case of a payment of
principal or past due interest, interest shall accrue and be payable thereon for
the period of such extension as provided in the Loan Document under which such
payment is due. Each payment under a Loan Document shall be payable at the place
provided therein and, if no specific place of payment is provided, shall be
payable at the place of payment of the Notes. When Agent collects or receives
money on account of the Obligations, Agent shall distribute all money so
collected or received, and Agent and Lenders shall apply all such money so
distributed, as follows:
(a) first, for the payment of all Obligations which are then due, and
if such money is insufficient to pay all such Obligations, (i) first to any
reimbursements due Agent under Section 5.05, (ii) second to Guaranty
Federal for the payment of any outstanding Swing-Line Loans then due, (iii)
third if such payments are on account of the Tranche A Loans, to the
payment of the Tranche A Loans then due, or if such payments are on account
of the Tranche B Loans, to the payment of the Tranche B Loans then due, and
(iv) then to the partial payment of all other Obligations then due in
proportion to the amounts thereof, or as Lenders shall otherwise agree;
(b) then for the prepayment of amounts owing under the Loan Documents
if so specified by Borrower;
(c) then for the prepayment of principal on the Notes, together with
accrued and unpaid interest on the principal so prepaid; and
(d) last, for the payment or prepayment of any other Obligations.
All payments applied to principal or interest on any Note shall be applied first
to any interest then due and payable, then to principal then due and payable,
and last to any prepayment of principal and interest. All distributions of
amounts described in any of subsections (b), (c) or (d) above shall be made by
Agent pro rata to Agent and each Lender then owed Obligations described in such
subsection in proportion to all amounts owed to all Lenders which are described
in such subsection.
Section 2.07 Refinancing of Swing-Line Loans.
-------------------------------
(a) Permitted Refinancings of Swing-Line Loans. Guaranty Federal, at any
------------------------------------------
time in its sole and absolute discretion, may, upon notice given to each other
Lender by not later than 12:00 noon (Dallas time) on any Business Day, request
that each Lender (including Guaranty Federal) make a Tranche A Loan or Tranche B
Loan, as applicable, in an aggregate amount equal to its Percentage Share of the
portion of the aggregate unpaid principal amount of any outstanding Swing-Line
Loans for the purpose of refinancing such Swing-Line Loans.
(b) Mandatory Refinancings of Swing-Line Loans. Not later than 12:00 noon
------------------------------------------
(Dallas time) on the penultimate Business Day of each week, Guaranty Federal
will notify each other Lender of the aggregate
<PAGE>
amount of Swing-Line Loans which are then outstanding and the amount of the
Tranche A Loan or Tranche B Loan required to be made by each Lender (including
Guaranty Federal) to refinance such outstanding Swing-Line Loans (the aggregate
amount of Loans to be made by each Lender shall equal such Lender's Percentage
Share of such outstanding Swing-Line Loans).
(c) Lenders' Obligation to Fund Refinancings of Swing-Line Loans. Upon the
------------------------------------------------------------
giving of notices by Guaranty Federal under Section 2.07(a) or 2.07(b), each
Lender (including Guaranty Federal) shall promptly remit to Agent at Agent's
office in Dallas, Texas, the amount equal to its Percentage Share of the
aggregate principal amount of Swing-Line Loans to be refinanced, in immediately
available funds, by not later than 3:00 p.m. (Dallas time) on the date such
notice was received, provided, however, that a Lender shall not be obligated to
make any such Tranche A Loan or Tranche B Loan, unless (A) Guaranty Federal
believed in good faith that all conditions to making the subject Swing-Line Loan
were satisfied at the time such Swing-Line Loan was made, or (B) if the
conditions to such Swing-Line Loan were not satisfied, the satisfaction of such
conditions have been waived in a writing by Majority Lenders in accordance with
the provisions of this Agreement. The proceeds of Tranche A Loans and Tranche B
Loans made pursuant to the preceding sentence shall be paid to Guaranty Federal
(and not to Borrower) and applied to the payment of principal of the outstanding
Swing-Line Loans, and Borrower authorizes Agent to charge the Operating Account
or any other account (other than escrow or custodial accounts) maintained by it
with Agent (up to the amount available therein) in order to immediately pay
Guaranty Federal the principal amount of such Swing-Line Loans to the extent
amounts received from the other Lenders are not sufficient to repay in full the
principal of the outstanding Swing-Line Loans requested or required to be
refinanced. Upon the making of a Tranche A Loan or Tranche B Loan by a Lender
pursuant to this Section 2.07(c), the amount so funded shall become due under
such Lender's Note and the outstanding principal amount of the Swing-Line Loans
shall be correspondingly reduced. If any portion of any such amount paid to
Guaranty Federal should be recovered by or on behalf of Borrower from Guaranty
Federal in bankruptcy or otherwise, the loss of the amount so recovered shall be
ratably shared among all the Lenders in the manner contemplated by Section 9.06.
Each Lender's obligation to make Tranche A Loans and Tranche B Loans pursuant to
this Section 2.07(c) shall, subject to the proviso to the first sentence of this
Section 2.07(c), be absolute and unconditional and shall not be affected by any
circumstances, including, without limitation, (1) any setoff, counterclaim,
recoupment, defense or other right which such Lender may have against Guaranty
Federal, Borrower or anyone else for any reason whatsoever; (2) the occurrence
or continuance of an Event of Default or Default; (3) any adverse change in the
condition (financial or otherwise) of Borrower; (4) any breach of this Agreement
by Borrower, 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 Lender be obligated to make a Tranche A Loan or Tranche B
Loan pursuant to this Section 2.07(c) if, after giving effect thereto, the
outstanding principal balance of such Lender's Loans would exceed its Percentage
Share of the Commitment.
Section 2.08 Capital Reimbursement. If either (a) the introduction or
---------------------
implementation of or the compliance with or any change in or in the
interpretation of any law, rule or regulation, or (b) the introduction or
implementation of or the compliance with any request, directive or guideline
from any central bank or other governmental authority (whether or not having the
force of law) affects or would affect the amount of capital required or expected
to be maintained by any Lender or any corporation controlling such Lender, then,
upon demand by such Lender, Borrower will pay to Agent for the account of such
Lender, from time to time as specified by such Lender, such additional amount or
amounts which such Lender shall determine to be appropriate to compensate such
Lender or any corporation controlling such Lender in light of such
circumstances, to the extent that such Lender reasonably determines that the
amount of any such capital would be increased or the rate of return on any such
capital would be reduced by or in whole or in part based on the face amount of
such Lender's Note or commitments under this Agreement.
Section 2.09 Increased Cost of Loans. If any applicable domestic or
-----------------------
foreign law, treaty, rule or regulation (whether now in effect or hereinafter
enacted or promulgated, including Regulation D) or any
<PAGE>
interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof (whether or not having the
force of law):
(a) shall change the basis of taxation of payments to any Lender of any
principal, interest, or other amounts attributable to any Loan bearing interest
at the Eurodollar Rate (a "Eurodollar Loan") or otherwise due under this
Agreement in respect of any Eurodollar Loan (other than taxes imposed on the
overall net income of such Lender or any lending office of such Lender by any
jurisdiction in which such Lender or any such lending office is located); or
(b) shall change, impose, modify, apply or deem applicable any reserve,
special deposit or similar requirements in respect of any Eurodollar Loan
(excluding those for which such Lender is fully compensated pursuant to
adjustments made in the definition of any Adjusted Eurodollar Rate) or against
assets of, deposits with or for the account of, or credit extended by, such
Lender; or
(c) shall impose on any Lender or the interbank Eurocurrency deposit
market any other condition relating to any Eurodollar Loan, the result of which
is to increase the cost to any Lender of funding or maintaining any Eurodollar
Loan or to reduce the amount of any sum receivable by any Lender in respect of
any Eurodollar Loan by an amount deemed by such Lender to be material,
then such Lender shall promptly notify Agent and Borrower in writing of the
happening of such event and Borrower shall upon demand pay to Agent for the
account of such Lender such additional amount or amounts as will compensate such
Lender for such event (on an after-tax basis, taking into account any taxes on
such compensation).
Section 2.10 Availability. If (a) any change in applicable laws,
------------
treaties, rules or regulations or in the interpretation or administration
thereof of or in any jurisdiction whatsoever, domestic or foreign, shall make it
unlawful or impracticable for any Lender to fund or maintain Loans which bear
interest at the Eurodollar Rate, or shall materially restrict the authority of
any Lender to purchase or take offshore deposits of dollars (i.e.,
"eurodollars"), or (b) any Lender determines that matching deposits appropriate
to fund or maintain loans bearing interest at the Eurodollar Rate are not
available to it, or (c) any Lender determines that the formula for calculating
the Adjusted Eurodollar Rate does not fairly reflect the cost to any Lender of
making or maintaining loans based on such rate, then, upon notice by such Lender
to Borrower and Agent, all Loans of such Lender which are then outstanding or
are then the subject of any Borrowing Request and which cannot lawfully or
practicably be maintained or funded based on the Eurodollar Rate shall
immediately begin bearing interest at the Back-Up Rate. Borrower agrees to
indemnify each Lender and hold it harmless against all costs, expenses, claims,
penalties, liabilities and damages which may result from any such change in law,
treaty, rule, regulation, interpretation or administration. Such indemnification
shall be on an after-tax basis, taking into account any taxes imposed on the
amounts paid as indemnity.
Section 2.11 Reimbursable Taxes. Borrower covenants and agrees that:
------------------
(a) Borrower will indemnify Agent and each Lender against and reimburse
Agent and each Lender for all present and future income, stamp and other taxes,
levies, costs and charges whatsoever imposed, assessed, levied or collected on
or in respect of this Agreement or any Loans bearing interest at the Eurodollar
Rate (whether or not legally or correctly imposed, assessed, levied or
collected), excluding, however, any taxes imposed on or measured by the overall
net income of Agent or such Lender or any lending office of Agent or such Lender
by any jurisdiction in which Agent or such Lender or any lending office is
located (all such non-excluded taxes, levies, costs and charges being
collectively called "Reimbursable Taxes" in this section). Such indemnification
shall be on an after-tax basis, taking into account any taxes imposed on the
amounts paid as indemnity.
<PAGE>
(b) All payments on account of the principal of, and interest on, each
Lender's Loan and each Lender's Note, and all other amounts payable by Borrower
to Agent and each Lender hereunder, shall be made in full without set-off or
counterclaim and shall be made free and clear of and without deductions or
withholdings of any nature by reason of any Reimbursable Taxes, all of which
will be for the account of Borrower. In the event of Borrower being compelled by
law or other regulations to make any such deduction or withholding from any
payment to Agent or any Lender, Borrower shall pay on the due date of such
payment, by way of additional interest, such additional amounts as are needed to
cause the amount receivable by Agent or such Lender after such deduction or
withholding to equal the amount which would have been receivable in the absence
of such deduction or withholding. If Borrower should make any deduction or
withholding as aforesaid, Borrower shall within 60 days thereafter forward to
Agent or such Lender an official receipt or other official document evidencing
payment of such deduction or withholding.
Section 2.12 Notice of Certain Events; Change of Applicable Lending Office.
-------------------------------------------------------------
Each Lender agrees to provide written notice to Borrower of the occurrence of
any event (a "Triggering Event") described in Sections 2.08, 2.09, 2.10 or 2.11,
which would give rise to any costs, expenses, claims, penalties, liabilities,
damages or Reimbursable Taxes, within sixty (60) days of the date such Lender
first learns of the occurrence of such Triggering Event (the "Trigger Date"). If
any Lender fails to provide written notice to Borrower of a Triggering Event in
accordance with the immediately preceding sentence, Borrower shall be liable for
only those costs, expenses, claims, penalties, liabilities, damages or
Reimbursable Taxes with respect to such Lender which arose during the period
beginning 120 days prior to the Trigger Date and ending on the Trigger Date.
ARTICLE III
-----------
CONDITIONS PRECEDENT
--------------------
The obligation of each Lender to make Loans hereunder is subject to
fulfillment of the conditions precedent stated in this Article III.
Section 3.01 Initial Borrowing. The obligation of each Lender to fund any
-----------------
Loan hereunder shall be subject to, in addition to the conditions precedent
specified in Section 3.02, delivery to Agent of the following (each of the
following documents being duly executed and delivered and in form and substance
satisfactory to Agent, and, with the exception of the Notes, each in a
sufficient number of originals that Agent, its counsel and each Lender may have
an executed original of each document):
(a) an executed counterpart of this Agreement and of all instruments, and
opinions referred to in this Article III not theretofore delivered (except the
Borrowing Request which is to be delivered at the time provided in Subsection
3.02(a) hereof);
(b) the Notes;
(c) the Security Agreement dated of even date herewith;
(d) the Guaranty dated of even date herewith;
(e) a certificate of the Secretary or Assistant Secretary of each of
Borrower and Guarantor setting forth (i) resolutions of its board of directors
authorizing the execution, delivery, and performance of the Loan Documents to
which it is a party and identifying the officers authorized to sign such
instruments, (ii) specimen signatures of the officers so authorized, and (iii)
articles of incorporation of each of Borrower and Guarantor certified by the
appropriate Secretary of State as of a recent date, and (iv) bylaws of each of
Borrower and Guarantor, certified as being accurate and complete;
<PAGE>
(f) a certificate of the existence and good standing for Borrower and
Guarantor in their state of incorporation dated no earlier than August 20, 1997;
and
(g) an opinion of counsel for Borrower and Guarantor in the form of
Exhibit G;
(h) a Borrowing Base Certificate dated as of the date of the first
Borrowing, certified by the chief financial officer of Borrower; and
(i) such other documents as Agent may reasonably request at any time at or
prior to the date of the initial Borrowing hereunder.
Section 3.02 All Borrowings. The obligation of each Lender to fund any
--------------
Loan pursuant to this Agreement is subject to the following further conditions
precedent:
(a) Borrower shall deliver to Agent a Borrowing Request accompanied by the
Required Mortgage Documents or, if applicable, an Agreement to Pledge;
(b) all Property in which Borrower has granted a Lien to Agent shall have
been physically delivered to the possession of Agent or a bailee acceptable to
Agent to the extent that such possession is required under this Agreement or
necessary or appropriate for the purpose of perfecting the Lien of Agent in such
collateral;
(c) the representations and warranties of each Related Person contained in
this Agreement or any Security Instrument (other than those representations and
warranties which are by their terms limited to the date of the agreement in
which they are initially made) shall be true and correct in all material
respects on and as of the date of such Loan;
(d) no Default or Event of Default shall have occurred and be continuing
and no change or event which constitutes a Material Adverse Effect shall have
occurred as of the date of such Loan;
(e) the Funding Account, the Settlement Account and the Operating Account
shall be established and in existence;
(f) the making of such Loan shall not be prohibited by any Governmental
Requirement;
(g) the delivery to Agent of such other documents and opinions of counsel,
including such documents as may be necessary or desirable to perfect or maintain
the priority of any Lien granted or intended to be granted hereunder or
otherwise and including favorable written opinions of counsel with respect
thereto, as Agent may reasonably request; and
(h) the aggregate amount of all Loans outstanding, after giving effect to
such Loan, does not exceed the lesser of (1) Aggregate Collateral Value of the
Borrowing Base and (2) the Commitment.
Delivery to Agent of a Borrowing Request shall be deemed to constitute a
representation and warranty by Borrower on the date thereof and on the date on
which the Loan is made, if any, set forth therein as to the facts specified in
Subsections (c) and (d) of this Section 3.02.
<PAGE>
ARTICLE IV
----------
BORROWER REPRESENTATIONS AND WARRANTIES
---------------------------------------
Each of Borrower and Guarantor represents and warrants as follows:
Section 4.01 Organization and Good Standing. Each Related Person (a) is a
------------------------------
corporation duly incorporated and existing in good standing under the laws of
the jurisdiction of its incorporation, (b) is duly qualified as a foreign
corporation and in good standing in all jurisdictions in which its failure to be
so qualified could have a Material Adverse Effect, (c) has the corporate power
and authority to own its properties and assets and to transact the business in
which it is engaged and is or will be qualified in those states wherein it
proposes to transact business in the future and (d) is in compliance with all
Requirements of Law except to the extent that the failure to comply therewith
could not, in the aggregate, have a Material Adverse Effect.
Section 4.02 Authorization and Power. Each Related Person has the
-----------------------
corporate power and requisite authority to execute, deliver and perform the Loan
Documents to which it is a party; each Related Person is duly authorized to and
has taken all corporate action necessary to authorize it to, execute, deliver
and perform the Loan Documents to which it is a party and is and will continue
to be duly authorized to perform such Loan Documents.
Section 4.03 No Conflicts or Consents. Neither the execution and delivery
------------------------
by any Related Person of the Loan Documents to which it is a party, nor the
consummation of any of the transactions herein or therein contemplated, nor
compliance with the terms and provisions hereof or with the terms and provisions
thereof, will (a) materially contravene or conflict with any Requirement of Law
to which any Related Person is subject, or any indenture, mortgage, deed of
trust, or other agreement or instrument to which any Related Person is a party
or by which any Related Person may be bound, or to which the Property of any
Related Person may be subject, or (b) result in the creation or imposition of
any Lien, other than the Lien of the Security Agreement, on the Property of any
Related Person. All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and licenses
required to be taken, given or obtained, as the case may be, from any
Governmental Authority that are necessary in connection with the transactions
contemplated by the Loan Documents have been obtained.
Section 4.04 Enforceable Obligations. This Agreement, the Notes and the
-----------------------
other Loan Documents to which any Related Person is a party are the legal, valid
and binding obligations of such Related Person, enforceable in accordance with
their respective terms, except as limited by Debtor Laws.
Section 4.05 Priority of Liens. Upon delivery to Agent of each Borrowing
-----------------
Request, Agent shall have valid, enforceable, perfected, first priority Liens
and security interests in each Mortgage Note identified therein, except to the
extent that the requirements for perfection have not been completed with respect
to Eligible Mortgage Loans for which Agent has received an Agreement to
Pledge.
Section 4.06 No Liens. Borrower has good and indefeasible title to the
--------
Mortgage Collateral free and clear of all Liens and other adverse claims of any
nature, other than Liens in the Mortgage Collateral in favor of Agent.
Section 4.07 Financial Condition of Borrower and Guarantor. Each of
---------------------------------------------
Borrower and Guarantor has delivered to Agent and each Lender copies of their
annual audited balance sheet as of December 31, 1996, in the case of Borrower,
and as of December 31, 1996 in the case of Guarantor, and the related statements
of income, stockholders' equity and cash flows for the period ended such date;
such financial statements fairly present the financial condition of each of
Borrower and Guarantor, respectively as of such date and the results
<PAGE>
of operations of Borrower for the period ended on such date and have been
prepared in accordance with GAAP, subject to normal year-end adjustments; as of
the date thereof, there were no obligations, liabilities or Indebtedness
(including material contingent and indirect liabilities and obligations or
unusual forward or long-term commitments) of Borrower which are not reflected in
such financial statements and no change which constitutes a Material Adverse
Effect has occurred in the financial condition or business of (i) Borrower since
June 30, 1997 and (ii) Guarantor since June 30, 1997. Borrower has also
delivered to Agent and each Lender management reports for the months ended June
30, 1997; such reports fairly and accurately present Borrower's commitment
position, pipeline position, servicing and production as of the end of such
months and for the fiscal year to date for the periods ending on such dates.
Guarantor has also delivered to Agent and each Lender its unaudited quarterly
balance sheet for the period ending June 30, 1997; such report fairly and
accurately presents Guarantor's financial condition for the fiscal period ending
on such date.
Section 4.08 Full Disclosure. There is no material fact that Borrower or
---------------
Guarantor has not disclosed to Agent and each Lender which could adversely
affect the properties, business, prospects or condition (financial or otherwise)
of the Related Persons, or could adversely affect the Mortgage Collateral or the
Servicing Rights. To the best knowledge of each of Borrower and Guarantor,
neither the financial statements referred to in Section 4.07 hereof, nor any
Borrowing Request, officer's certificate or statement delivered by any Related
Person to Agent and each Lender in connection with this Agreement, contains any
untrue statement of material fact.
Section 4.09 No Default. No Related Person is in default under any loan
----------
agreement, mortgage, security agreement or other material agreement or
obligation to which it is a party or by which any of its Property is bound.
Section 4.10 No Litigation. There are no material actions, suits or
-------------
legal, equitable, arbitration or administrative proceedings pending, or to the
knowledge of Borrower or Guarantor threatened, against any Related Person the
adverse determination of which could constitute a Material Adverse Effect.
Section 4.11 Taxes. All tax returns required to be filed by each Related
-----
Person in any jurisdiction have been filed and all taxes, assessments, fees and
other governmental charges upon each Related Person or upon any of its
properties, income or franchises have been paid prior to the time that such
taxes could give rise to a Lien thereon, unless protested in good faith by
appropriate proceedings and with respect to which reserves in conformity with
GAAP have been established on the books of such Related Person. No Related
Person has any knowledge of any proposed tax assessment against any Related
Person.
Section 4.12 Principal Office, etc. The principal office, chief executive
----------------------
office and principal place of business of each Related Person is at the address
set forth in Section 10.01.
Section 4.13 Compliance with ERISA. No Related Person nor any ERISA
---------------------
Affiliate of any Related Person currently maintains, contributes to, is required
to contribute to or has any liability, whether absolute or contingent, with
respect to an ERISA Plan. With respect to all other employee benefit plans
maintained or contributed to by each Related Person, each Related Person is in
material compliance with ERISA.
Section 4.14 Subsidiaries. No Related Person presently has any Subsidiary
------------
or owns any stock in any other corporation or association except those listed in
Exhibit "H". As of the date hereof, each Related Person owns, directly or
indirectly, the equity interest in each of its Subsidiaries which is indicated
in Exhibit "H".
Section 4.15 Indebtedness. Borrower has no indebtedness outstanding other
------------
than the Indebtedness permitted by Section 6.02.
<PAGE>
Section 4.16 Permits, Patents, Trademarks, etc.
----------------------------------
(a) Each Related Person has all permits and licenses necessary for the
operation of its business.
(b) Each Related Person owns or possesses (or is licensed or otherwise has
the necessary right to use) all patents, trademarks, service marks, trade names
and copyrights, technology, know-how and processes, and all rights with respect
to the foregoing, which are necessary for the operation of its business, without
any known material conflict with the rights of other. The consummation of the
transactions contemplated hereby will not alter or impair in any material
respect any of such rights of each Related Person.
Section 4.17 Status Under Certain Federal Statutes. No Related Person is
-------------------------------------
(a) a "holding company" or a "subsidiary company" of a "holding company" or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company", as such terms are defined in the Public Utility Holding Company Act of
1935, as amended, (b) a "public utility", as such term is defined in the Federal
Power Act, as amended, (c) an "investment company", or a company "controlled" by
an "investment company", within the meaning of the Investment Company Act of
1949, as amended or (d) a "rail carrier", or a "person controlled by or
affiliated with a rail carrier", within the meaning of Title 49, U.S.C., and no
Related Person is a "carrier" to which 49 U.S.C. (S)11301(b)(1) is applicable.
Section 4.18 Securities Act. No Related Person has issued any
--------------
unregistered securities in violation of the registration requirements of the
Securities Act of 1933, as amended, or of any other Requirement of Law, and is
not violating any rule, regulation, or requirement under the Securities Act of
1933, as amended, or the Securities and Exchange Act of 1934, as amended. No
Related Person is required to qualify an indenture under the Trust Indenture Act
of 1939, as amended, in connection with its execution and delivery of the
Notes.
Section 4.19 Pollution Control. Each Related Person is in compliance
-----------------
with, and to the best of each Related Person's knowledge after due inquiry, each
Related Person has, at all times since its incorporation, been in compliance
with, all Requirements of Law relating to pollution control (a) in the United
States and the State of Texas and (b) in each other jurisdiction where it is
presently doing business.
Section 4.20 No Approvals Required. Other than consents and approvals
---------------------
previously obtained and actions previously taken, neither the execution and
delivery of this Agreement, the Notes and the other Loan Documents to which any
Related Person is a party, nor the consummation of any of the transactions
contemplated hereby or thereby requires the consent or approval of, the giving
of notice to, or the registration, recording or filing by any Related Person of
any document with, or the taking of any other action in respect of, any
Governmental Authority which has jurisdiction over each Related Person or any of
its Property, except for (a) the filing of the Mortgages, Uniform Commercial
Code financing statements and other similar filings to perfect the interest of
Agent in the Collateral, and (b) such other consents, approvals, notices,
registrations, filings or action as may be required in the ordinary course of
business of the Related Persons in connection with the performance of the
obligations of the Related Persons hereunder.
Section 4.21 Survival of Representations. All representations and
---------------------------
warranties by each of Borrower and Guarantor herein shall survive delivery of
the Notes and the funding of the Borrowings, and any investigation at any time
made by or on behalf of Agent or any Lender shall not diminish the right of
Agent or such Lender to rely thereon.
Section 4.22 Individual Mortgage Loans. Borrower hereby represents with
-------------------------
respect to each Mortgage Note and Mortgage Loan that is part of the
Collateral:
<PAGE>
(a) Borrower has good and marketable title to each Mortgage Note and
Mortgage, was the sole owner thereof and had full right to pledge the
Mortgage Loan to Agent free and clear of any other Lien except any such
Lien which has been disclosed to Agent in writing and which is permitted
hereunder;
(b) To the best knowledge of Borrower, there is no default, breach,
violation or event of acceleration existing under any Mortgage or the
related Mortgage Note and there is no event which, with the passage of time
or with notice and/or the expiration of any grace or cure period, would
constitute a default, breach, violation or event of acceleration and no
such default, breach, violation or event of acceleration has been waived;
(c) To the best of the knowledge of Borrower, the physical condition
of the Property subject to the Mortgage has not deteriorated since the date
of origination of the related secured Mortgage Loan (normal wear and tear
excepted) and there is no proceeding pending for the total or partial
condemnation of any Mortgaged Property;
(d) Each Mortgage contains customary and enforceable provisions such
as to render the rights and remedies of the holder thereof adequate for the
realization against the related Property subject to the Mortgage of the
benefits of the security provided thereby, including, (i) in the case of a
Mortgage designated as a deed of trust, by trustee's sale, and (ii)
otherwise, by judicial foreclosure;
(e) Each Mortgage Loan is a first or second lien one-to-four-family
loan, and has been underwritten by the originator thereof in accordance
with such originator's then current underwriting guidelines;
(f) Each Mortgage Note (other than with respect to Eligible Tranche B
Mortgage Loans) is payable in monthly installments of principal and
interest, with interest payable in arrears, and requires a monthly payment
which is sufficient to amortize the original principal balance over the
original term and to pay interest at the related interest rate; and no
Mortgage Note (except for any Mortgage Note evidencing an Eligible Tranche
B Mortgage Loan) provides for any extension of the original term;
(g) Except for Eligible Manufactured Housing Mortgage Loans, no
Mortgage Loan is a loan in respect of the purchase of a Manufactured Home
or mobile home or the land on which a Manufactured Home or mobile home will
be placed;
(h) The origination practices used by the originator of the Mortgage
Loans and the collection practices used by the Borrower with respect to
each Mortgage Loan have been in all material respects legal, proper,
prudent and customary in the loan origination and servicing business;
(i) Each Mortgage Loan was originated in compliance with all
applicable laws and no fraud or misrepresentation was committed by any
Person in connection therewith; and
(j) Any Eligible Manufactured Housing Mortgage Loan originated in the
State of Texas, was originated pursuant to Chapter 6A of the Texas Consumer
Credit Code.
<PAGE>
ARTICLE V
---------
AFFIRMATIVE COVENANTS
---------------------
Each Related Person shall at all times comply with the covenants contained
in this Article V, from the date hereof and for so long as any part of the
Obligations or the Commitment is outstanding unless Majority Lenders have agreed
otherwise.
Section 5.01 Financial Statements and Reports.
--------------------------------
(a) Borrower shall furnish to Agent and each Lender the following, all in
form and detail reasonably satisfactory to Majority Lenders:
(i) Promptly after becoming available, and in any event within ninety
(90) days after the close of each Fiscal Year of Borrower, the balance
sheet of Borrower as of the end of such year, and the related statements of
income, stockholders' equity and cash flows of Borrower for such year,
setting forth in each case in comparative form the corresponding figures
for the preceding Fiscal Year, accompanied by the related report of
independent certified public accountants, KPMG Peat Marwick or other
independent certified public accountants of national standing acceptable to
Majority Lenders which report shall be to the effect that such statements
have been prepared in accordance with GAAP applied on a basis consistent
with prior periods except for such changes in such principles with which
the independent public accountants shall have concurred;
(ii) Promptly after becoming available, and in any event within thirty
(30) days after the end of each month, including the twelfth month in the
Fiscal Year of Borrower, a balance sheet of Borrower as of the end of such
month and the related statements of income, stockholders' equity and cash
flows of Borrower for such month and the period from the first day of the
then current fiscal year of Borrower through the end of such month,
certified by the chief financial officer or other executive officer of
Borrower to have been prepared in accordance with GAAP applied on a basis
consistent with prior periods, subject to normal year-end adjustments;
(iii) Promptly upon receipt thereof, a copy of each other report
submitted to Borrower by independent accountants in connection with any
annual, interim or special audit of the books of Borrower;
(iv) Promptly and in any event within thirty (30) days after the
request of Agent at any time and from time to time, a certificate, executed
by the president or chief financial officer of Borrower, setting forth all
of Borrower's warehouse borrowings;
(v) Promptly and in any event within thirty (30) days after the end of
each calendar month in each Fiscal Year of Borrower (except the last), and
within fifteen (15) days after the completion of each year-end audit by
Borrower's independent public accountants, a completed Officer's
Certificate in the form of Exhibit "D" hereto, executed by the president,
chief financial officer or other executive officer of Borrower;
(vi) Promptly and in any event within thirty (30) days after the end
of each month, (A) a Borrowing Base Certificate, and (B) a management
report regarding (1) Borrower's pipeline and commitment position, including
amount and rate of committed Mortgage Loans and (2) Borrower's production
statistics, including type of product and origination source (retail or
correspondent) in each case in form and detail as reasonably required by
Agent, prepared as of the end of such month and for the Fiscal Year to
date; and
<PAGE>
(vii) Such other information concerning the business, properties or
financial condition of any Related Person as Agent or any Lender may
reasonably request.
(b) Guarantor shall furnish to Agent and each Lender the following, all in
form and detail reasonably satisfactory to Majority Lenders:
(i) Promptly after becoming available, and in any event within ninety
(90) days after the close of each Fiscal Year of Guarantor, the balance
sheet of Guarantor as of the end of such year, and the related statements
of income, stockholders' equity and cash flows of Guarantor for such year,
setting forth in each case in comparative form the corresponding figures
for the preceding Fiscal Year, accompanied by the related report of
independent certified public accountants, KPMG Peat Marwick or other
independent certified public accountants of national standing acceptable to
Majority Lenders which report shall be to the effect that such statements
have been prepared in accordance with GAAP applied on a basis consistent
with prior periods except for such changes in such principles with which
the independent public accountants shall have concurred;
(ii) Promptly after becoming available, and in any event within forty-
five (45) days after the end of each Fiscal Quarter, including the last
Fiscal Quarter in the Fiscal Year of Guarantor, a copy Guarantor's 10-Q as
of the end of such Fiscal Quarter filed by Guarantor with the Securities
and Exchange Commission or any similar governmental authority, including a
balance sheet of Guarantor as of the end of such Fiscal Quarter and the
related statements of income, stockholders' equity and cash flows of
Guarantor for such Fiscal Quarter and the period from the first day of the
then current Fiscal Year of Guarantor through the end of such Fiscal
Quarter.
Section 5.02 Taxes and Other Liens. Each Related Person shall pay and
---------------------
discharge promptly all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or upon any of its Property as well as all
claims of any kind (including claims for labor, materials, supplies and rent)
which, if unpaid, might become a Lien upon any or all of its Property; provided,
however, each Related Person shall not be required to pay any such tax,
assessment, charge, levy or claim if the amount, applicability or validity
thereof shall currently be contested in good faith by appropriate proceedings
diligently conducted by or on behalf of such Related Person and if such Related
Person shall have set up reserves therefor adequate under GAAP.
Section 5.03 Maintenance. Each Related Person shall (i) maintain its
-----------
corporate existence, rights and franchises; (ii) observe and comply in all
material respects with all Governmental Requirements, and (iii) maintain its
Properties (and any Properties leased by or consigned to it or held under title
retention or conditional sales contracts) in good and workable condition at all
times and make all repairs, replacements, additions, betterments and
improvements to its Properties as are needful and proper so that the business
carried on in connection therewith may be conducted properly and efficiently at
all times.
Section 5.04 Further Assurances. Borrower shall, within three (3)
------------------
Business Days after the request of Agent, cure any defects in the execution and
delivery of the Notes, this Agreement or any other Loan Document and each
Related Person shall, at its expense, promptly execute and deliver to Agent upon
request all such other and further documents, agreements and instruments in
compliance with or accomplishment of the covenants and agreements of each
Related Person in this Agreement and in the other Loan Documents or to further
evidence and more fully describe the collateral intended as security for the
Notes, or to correct any omissions in this Agreement or the other Loan
Documents, or more fully to state the security for the obligations set out
herein or in any of the other Loan Documents, or to make any recordings, to file
any notices, or obtain any consents.
<PAGE>
Section 5.05 Reimbursement of Expenses. Borrower shall pay (i) all
-------------------------
reasonable legal fees (including, without limitation, allocated costs for in-
house legal service) incurred by Agent in connection with the preparation,
negotiation or execution of this Agreement, the Notes and the other Loan
Documents and any amendments, consents or waivers executed in connection
therewith, (ii) legal fees (including without limitation, allocated costs for
in-house legal service), in an amount of $1,000 for each Lender (other than
Guaranty Federal) incurred by such Lender in connection with the preparation,
negation or execution of this Agreement, the Notes and the other Loan Documents,
(iii) all fees, charges or taxes for the recording or filing of the Security
Instruments, (iv) all out-of-pocket expenses of Agent in connection with the
legal administration of this Agreement, the Notes and the other Loan Documents,
including courier expenses incurred in connection with the Mortgage Collateral,
and (v) all amounts expended, advanced or incurred by Agent to satisfy any
obligation of Borrower under this Agreement or any of the other Loan Documents
or to collect the Notes, or to enforce the rights of Agent or any Lender under
this Agreement or any of the other Loan Documents or to collect the Note, or to
enforce the rights of Agent or any Lender under this Agreement or any of the
other Loan Documents, which amounts shall include all underwriting expenses,
collateral liquidation costs, court costs, attorneys' fees (including, without
limitation, for trial, appeal or other proceedings), fees of auditors and
accountants, and investigation expenses reasonably incurred by Agent or any
Lender in connection with any such matters, together with interest at the post-
maturity rate specified in the Note on each item specified in clause (i) through
(v) from thirty (30) days after the date of written demand or request for
reimbursement until the date of reimbursement.
Section 5.06 Insurance. Borrower shall maintain with financially sound
---------
and reputable insurers, insurance with respect to its Properties and business
against such liabilities, casualties, risks and contingencies and in such types
and amounts as is customary in the case of Persons engaged in the same or
similar businesses and similarly situated, including, without limitation, a
fidelity bond or bonds with financially sound and reputable insurers with such
coverage and in such amounts as is customary in the case of Persons engaged in
the same or similar businesses and similarly situated. The improvements on the
land covered by each Mortgage shall be kept continuously insured at all times by
responsible insurance companies against fire and extended coverage hazards under
policies, binders, letters, or certificates of insurance, with a standard
mortgagee clause in favor of Borrower and its assigns. Each such policy must be
in an amount equal to the lesser of the maximum insurable value of the
improvements or the original principal amount of the Mortgage Note, without
reduction by reason of any co-insurance, reduced rate contribution, or similar
clause of the policies or binders. Upon request of Agent, Borrower shall furnish
or cause to be furnished to Agent from time to time a summary of the insurance
coverage of Borrower in form and substance satisfactory to Agent and if
requested shall furnish Agent copies of the applicable policies.
Section 5.07 Accounts and Records; Servicing Records. Each Related Person
---------------------------------------
shall keep books of record and account in which full, true and correct entries
will be made of all dealings or transactions in relation to its business and
activities, in accordance with GAAP. Each Related Person shall maintain and
implement administrative and operating procedures (including, without
limitation, an ability to recreate all records pertaining to the performance of
such Related Person's obligations under the Servicing Agreements in the event of
the destruction of the originals of such records) and keep and maintain all
documents, books, records, computer tapes and other information reasonably
necessary or advisable for the performance by each Related Person of its
obligations under the Servicing Agreements.
Section 5.08 Right of Inspection. Each Related Person shall permit
-------------------
authorized representatives of Agent to discuss the business, operations, assets
and financial condition of such Related Person with their officers and
employees, to examine their Servicing Records and books of records and account
and make copies or extracts thereof and to visit and inspect any of the
Properties of each Related Person, all at such reasonable times and as often as
Agent may request. Each Related Person will provide its accountants with a copy
of this Agreement promptly after the execution hereof and will instruct its
accountants to answer candidly any and all questions that the officers of Agent
or any authorized representatives of Agent may
<PAGE>
address to them in reference to the financial condition or affairs of any
Related Person as those conditions or affairs relate to this Agreement. Each
Related Person may have its representatives in attendance at any meetings
between the officers or other representatives of Agent and such Related Person's
accountants held in accordance with this authorization.
Section 5.09 Notice of Certain Events. Borrower shall promptly notify
------------------------
Agent and each Lender upon (i) the receipt of any notice from, or the taking of
any other action by, the holder of any promissory note, debenture or other
evidence of Indebtedness of any Related Person with respect to a claimed
default, together with a detailed statement by a responsible officer of Borrower
specifying the notice given or other action taken by such holder and the nature
of the claimed default and what action Borrower is taking or proposes to take
with respect thereto; (ii) the commencement of, or any determination in, any
legal, judicial or regulatory proceedings which, if adversely dispute between
any Related Person and any Governmental Authority or any other Person which, if
adversely determined, could have a Material Adverse Effect; (iii) any change in
senior management of Borrower or Guarantor; (iv) any material adverse change in
the business, operations, prospects or financial condition of any Related
Person, including, without limitation, the insolvency of any Related Person, (v)
any event or condition which, if adversely determined, could have a Material
Adverse Effect or (vi) the occurrence of any Termination Event.
Section 5.10 Performance of Certain Obligations and Information Regarding
------------------------------------------------------------
Investors. Borrower shall perform and observe in all material respects each of
- ---------
the provisions of each Take-Out Commitment and each of the Servicing Agreements
on its part to be performed or observed and will cause all things to be done
which are necessary to have each item of Mortgage Collateral covered by a Take-
Out Commitment comply with the requirements of such Take-Out Commitment.
Borrower will deliver to Agent financial information concerning any Person
Lenders are reviewing to determine whether to approve such Person as an
Investor.
Section 5.11 Use of Proceeds; Margin Stock. The proceeds of the first
-----------------------------
Borrowing shall be used to repay Borrower's obligations under the Existing
Agreement, and the proceeds of all other Borrowings shall be used by Borrower
solely for the origination or acquisition of Mortgage Loans in the ordinary
course of Borrower's business. None of such proceeds shall be used for the
purpose of purchasing or carrying any "margin stock" as defined in Regulation U,
or for the purpose of reducing or retiring any Indebtedness which was originally
incurred to purchase or carry margin stock or for any other purpose which might
constitute this transaction a "purpose credit" within the meaning of such
Regulation U. Neither Borrower nor any Person acting on behalf of Borrower shall
take any action in violation of Regulation U or Regulation X or shall violate
Section 7 of the Securities Exchange Act of 1934 or any rule or regulation
thereunder, in each case as now in effect or as the same may hereafter be in
effect.
Section 5.12 Notice of Default. Borrower shall furnish to Agent and each
-----------------
Lender immediately upon becoming aware of the existence of any Default or Event
of Default, a written notice specifying the nature and period of existence
thereof and the action which Borrower is taking or proposes to take with respect
thereto.
Section 5.13 Compliance with Loan Documents. Each Related Person shall
------------------------------
promptly comply with any and all covenants and provisions of this Agreement the
Notes and the other Loan Documents to be complied with by such Related Person.
Section 5.14 Operations and Properties. Each Related Person shall comply
-------------------------
with all rules, regulations and guidelines applicable to it. Borrower shall act
prudently and in accordance with customary industry standards in managing and
operating its Property.
<PAGE>
ARTICLE VI
----------
NEGATIVE COVENANTS
------------------
Each Related Person shall at all times comply with the covenants contained
in this Article VI, from the date hereof and for so long as any part of the
Obligations or the Commitment is outstanding unless Majority Lenders have agreed
otherwise (which agreement shall not be unreasonably withheld with respect to
Sections 6.06, 6.08 and 6.14):
Section 6.01 No Merger. Borrower and its Subsidiaries shall not merge or
---------
consolidate with or into any Person, nor shall Borrower or its Subsidiaries
acquire by purchase or otherwise all or substantially all of the assets (except
to the extent that such assets consist solely of Mortgage Notes, securities
which evidence undivided interests in pools of Mortgage Notes, and rights to
service mortgage loans) or capital stock of any Person.
Section 6.02 Limitation on Indebtedness. At no time shall Borrower incur,
--------------------------
create, contract, assume, have outstanding, guarantee or otherwise be or become,
directly or indirectly, liable in respect of any Indebtedness except:
(a) the Obligations;
(b) trade debt, equipment leases, equipment loans and liens for taxes and
assessments not yet due and payable owed in the ordinary course of
business; and
(c) the Subordinated Debt.
Section 6.03 Fiscal Year, Method of Accounting. Neither Borrower nor
---------------------------------
Guarantor shall change its Fiscal Year or make any material change in its method
of accounting.
Section 6.04 Business. Borrower shall not, directly or indirectly, engage
--------
in any business which differs materially from that currently engaged in by
Borrower or any other business customarily engaged in by other Persons in the
mortgage banking business.
Section 6.05 Liquidations, Mergers, Consolidations and Dispositions of
---------------------------------------------------------
Substantial Assets. Borrower and its Subsidiaries shall not dissolve or
- ------------------
liquidate or sell, transfer, lease or otherwise dispose of any material portion
of their property or assets or business; provided, however, nothing in this
Section 6.05 shall be construed to prohibit Borrower or its Subsidiaries from
selling rights to service mortgage loans and pools of mortgage loans or Mortgage
Notes in the ordinary course of their business.
Section 6.06 Loans, Advances, and Investments. Borrower shall not make
--------------------------------
any loan (other than Mortgage Loans), advance, or capital contribution to, or
investment in (including any investment in any Subsidiary, joint venture or
partnership), or purchase or otherwise acquire any of the capital stock,
securities, or evidences of indebtedness of, any Person (collectively,
"Investment"), or otherwise acquire any interest in, or control of, another
Person, except for the following:
(a) Cash Equivalents;
(b) Any acquisition of securities or evidences of indebtedness of others
when acquired by Borrower in settlement of accounts receivable or other debts
arising in the ordinary course of its business, so long as the aggregate amount
of any such securities or evidences of indebtedness is not material to the
business or condition (financial or otherwise) of Borrower;
<PAGE>
(c) Mortgage Notes acquired in the ordinary course of Borrower's business;
and
(d) Investment in any Subsidiary listed on Exhibit "H", so long as Agent
is given 10 days advance notice of each such Investment in a Subsidiary and the
aggregate amount paid, contributed, lent, or otherwise invested in such
Subsidiary does not exceed $200,000.
Section 6.07 Use of Proceeds. Borrower shall not permit the proceeds of
---------------
the Loans to be used for any purpose other than those permitted by Section 5.11
hereof. Borrower shall not, directly or indirectly, use any of the proceeds of
the Loans for the purpose, whether immediate, incidental or ultimate, of buying
any "margin stock" or of maintaining, reducing or retiring any Indebtedness
originally incurred to purchase a stock that is currently any "margin stock", or
for any other purpose which might constitute this transaction a "purpose
credit", in each case within the meaning of Regulation G of the Board of
Governors of the Federal Reserve System (12 C.F.R. 207, as amended), or
Regulation U, or otherwise take or permit to be taken any action which would
involve a violation of such Regulation G or Regulation U or of Regulation T (12
C.F.R. 220, as amended) or Regulation X (12 C.F.R. 224, as amended) or any other
regulation of such board.
Section 6.08 Actions with Respect to Mortgage Collateral. Borrower shall
-------------------------------------------
not:
(a) Compromise, extend, release, or adjust payments on any Mortgage
Collateral, accept a conveyance of mortgaged property in full or partial
satisfaction of any Mortgage Collateral, or release any Mortgage securing or
underlying any Mortgage Collateral;
(b) Agree to the amendment or termination of any Take-Out Commitment in
which Agent has a security interest or to substitution of a Take-Out Commitment
for a Take-Out Commitment in which Agent has a security interest hereunder, if
such amendment, termination or substitution may reasonably be expected (as
determined by Majority Lenders in their sole discretion) to have a Material
Adverse Effect;
(c) Transfer, sell, assign, or deliver any Mortgage Collateral pledged to
Agent to any Person other than Agent, except pursuant to a Take-Out Commitment;
or
(d) Grant, create, incur, permit or suffer to exist any Lien upon any
Mortgage Collateral except for Liens granted to Agent to secure the Notes and
Obligations and such non-consensual Liens as may be deemed to arise as a matter
of law pursuant to any Take-Out Commitment.
Section 6.09 Net Worth. As of the date hereof, Borrower's Consolidated
---------
Tangible Net Worth, excluding any Subordinated Debt in excess of $3,500,000,
shall not be less than $5,500,000. As of the end of each subsequent calendar
month, Borrower's Consolidated Tangible Net Worth shall not be less than the sum
of (i) $5,500,000 plus (ii) the original principal amount of Subordinated Debt
incurred after the date hereof (without including any accrued interest or
payments of interest made by the issuance of additional Indebtedness or
otherwise compounded or added to principal), plus (iii) equity contributions
received by Borrower, plus (iv) seventy-five percent (75%) of Borrower's
Consolidated Net Income (but only if a positive number) for each Fiscal Quarter
beginning with September 30, 1997. As of the end of each Fiscal Quarter,
Guarantor's Net Worth shall not be less than $5,000,000. As of the end of each
Fiscal Quarter occurring after CPS becomes a Guarantor, the Net Worth of CPS
shall not be less than $45,000,000.
Section 6.10 Total Liabilities to Tangible Net Worth Ratio. The ratio of
---------------------------------------------
Borrower's Total Liabilities to Borrower's Consolidated Tangible Net Worth shall
not be more than 12.0 to 1.0 as of the end of each calendar month.
<PAGE>
Section 6.11 Interest Coverage Ratio. As of the end of each Fiscal
-----------------------
Quarter, the ratio of (a) Borrower's Adjusted EBITDA as of the four Fiscal
Quarters ending with such Fiscal Quarter to (b) the aggregate amount of interest
to be paid on Subordinated Debt and Debt of Borrower incurred to finance assets
pursuant to a securitization facility for the immediately following four Fiscal
Quarters shall not be less than 1.4 to 1.0.
Section 6.12 Transactions with Affiliates. Borrower shall not enter into
----------------------------
any transactions including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transactions are otherwise permitted under this Agreement, are in the
ordinary course of Borrower's business and are upon fair and reasonable terms no
less favorable to Borrower than it would obtain in a comparable arm's length
transaction with a Person not an Affiliate.
Section 6.13 Liens. Borrower shall not grant, create, incur, assume,
-----
permit or suffer to exist any Lien, upon any of its Property, including without
limitation any and all of Borrower's Mortgage Notes, and Servicing Rights and
the proceeds from any thereof, other than (i) Liens which secure payment of the
Obligations, and (ii) to the extent not otherwise prohibited hereunder, Liens
which secure payment of the Indebtedness described in Section 6.02(b) on
Property other than Collateral.
Section 6.14 ERISA Plans. Borrower shall not adopt or agree to maintain
-----------
or contribute to any ERISA Plan. Borrower shall promptly notify Agent and each
Lender in writing in the event an ERISA Affiliate adopts an ERISA Plan.
Section 6.15 Change of Principal Office. No Related Person shall move its
--------------------------
principal office, executive office or principal place of business from the
address set forth in Section 10.01 without prior written notice to Agent and
each Lender.
Section 6.16 Minimum Unrestricted Balance Sheet Liquidity. The
--------------------------------------------
Unrestricted Balance Sheet Liquidity of Borrower shall not be less than $200,000
as of the end of each calendar month. The Unrestricted Balance Sheet Liquidity
of Guarantor shall not be less than $750,000 as of the end of each Fiscal
Quarter. As of the end of each Fiscal Quarter occurring after CPS becomes a
Guarantor, the Unrestricted Balance Sheet Liquidity of CPS shall not be less
than $750,000. As used in this section with respect to any Person, the term
"Unrestricted Balance Sheet Liquidity" means the sum of (i) the Cash Equivalents
owned by such Person and (ii) the unutilized portion of any revolving credit
facility of such Person which is then available for borrowing.
ARTICLE VII
-----------
EVENTS OF DEFAULT
-----------------
Section 7.01 Nature of Event. An Event of Default shall exist if any one
---------------
or more of the following occurs:
(a) Borrower fails to make any payment of principal of or interest on
the Notes, or payment of any fee, expense or other amount due hereunder, under
the Notes or under any other Loan Document, on or before the date such payment
is due and such default continues unremedied for two (2) Business Days after any
executive officer of such Related Person obtains knowledge thereof;
(b) Guarantor fails to make any payment of any Obligation on the date
such payment in due and such default continues unremedied for two (2) Business
Days after any executive officer of such Related Person obtains knowledge
thereof;
<PAGE>
(c) Default is made in the due observance or performance by any Related
Person of any covenant set forth in Sections 6.09 through 6.11 and Section 6.16
and such default continues unremedied for thirty (30) calendar days after any
executive officer of such Related Person obtains knowledge thereof;
(d) Default is made in the due observance or performance by any Related
Person of any covenant set forth in Article VI that is not described in
subsections (a), (b) or (c) immediately above;
(e) Default is made in the due observance or performance by any Related
Person of any of the other covenants or agreements contained in this Agreement
and such Default continues for a period of fifteen (15) days after Agent gives
Borrower notice thereof;
(f) Any Related Person defaults in the due observance or performance or
any of the covenants or agreements contained in any other Loan Document to which
it is a party, and (unless such default otherwise constitutes a Default pursuant
to other provisions of this Section 7.01) such default continues unremedied
beyond the expiration of any applicable grace period which may be expressly
allowed under such other Loan Document;
(g) Any material statement, warranty or representation by or on behalf of
any Related Person contained in this Agreement, the Notes or any other Loan
Document to which it is a party, or in any Borrowing Request, officer's
certificate or other writing furnished in connection with this Agreement, proves
to have been incorrect or misleading in any material respect as of the date made
or deemed made;
(h) Any Related Person:
(i) suffers the entry against it of a judgment, decree or order for
relief by a court of competent jurisdiction in an involuntary proceeding
commenced under any applicable bankruptcy, insolvency or other similar law
of any jurisdiction now or hereafter in effect, including the federal
Bankruptcy Code, as from time to time amended, or has any such proceeding
commenced against it which remains undismissed for a period of sixty days;
or
(ii) commences a voluntary case under any applicable bankruptcy,
insolvency or similar law now or hereafter in effect, including the federal
Bankruptcy Code, as from time to time amended; or applies for or consents
to the entry of an order for relief in an involuntary case under any such
law; or makes a general assignment for the benefit of creditors; or fails
generally to pay (or admits in writing its inability to pay) its debts as
such debts become due; or takes corporate or other action to authorize any
of the foregoing; or
(iii) suffers the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official
of all or a substantial part of its assets or of any part of the Mortgage
Collateral in a proceeding brought against or initiated by it, and such
appointment or taking possession is neither made ineffective nor discharged
within sixty days after the making thereof, or such appointment or taking
possession is at any time consented to, requested by, or acquiesced to by
it; or
(iv) suffers the entry against it of a final judgment for the payment
of money in excess of $500,000 (not covered by insurance satisfactory to
Agent in its discretion), unless the same is discharged within thirty days
after the date of entry thereof or an appeal or appropriate proceeding for
review thereof is taken within such period and a stay of execution pending
such appeal is obtained; or
<PAGE>
(v) suffers a writ or warrant of attachment or any similar process to
be issued by any court against all or any substantial part of its assets or
any part of the Mortgage Collateral;
(i) Any Related Person fails to make when due or within any applicable
grace period any payment on any Indebtedness (other than the Obligations) with
an unpaid principal balance of over $100,000; or any event or condition occurs
under any provision contained in any agreement under which such obligation is
governed, evidenced or secured (or any other material breach or default under
such obligation or agreement occurs) if the effect thereof is to cause or permit
the holder or trustee of such obligation to cause such obligation to become due
prior to its stated maturity; or any such obligation becomes due (other than by
regularly scheduled payments) prior to its stated maturity; or any of the
foregoing occurs with respect to any one or more items of Indebtedness of any
Related Person with unpaid principal balances exceeding, in the aggregate,
$100,000;
(j) Any default or event of default occurs under any other Indebtedness of
any Related Person to any Lender;
(k) This Agreement, the Notes or any other Loan Document shall for any
reason cease to be in full force and effect, or be declared null and void or
unenforceable in whole or in part as the result of any action initiated by any
Person other than Agent or any Lender; or the validity or enforceability of any
such document shall be challenged or denied by any Person other than Agent or
any Lender other than by reason of illegality;
(l) Either (i) any "accumulated funding deficiency" (as defined in Section
412(a) of the Code in excess of $25,000 exists with respect to any ERISA Plan,
whether or not waived by the Secretary of the Treasury or his delegate, or (ii)
any Termination Event occurs with respect to any ERISA Plan and the then current
value of such ERISA Plan's benefits guaranteed under Title IV of ERISA exceeds
the then current value of such ERISA Plan's assets available for the payment of
such benefits by more than $10,000 (or in the case of a Termination Event
involving the withdrawal of a substantial employer, the withdrawing employer's
proportionate share of such excess exceeds such amount) or (iii) any Related
Person or any ERISA Affiliate withdraws from a multiemployer plan resulting in
liability under Title IV of ERISA of an amount in excess of $10,000; or
(m) A Change of Control occurs.
Section 7.02 Default Remedies. Upon the occurrence of an Event of
----------------
Default, Agent may (and upon written instructions from Majority Lenders, Agent
shall) declare the Commitment to be terminated and/or declare the entire
principal and all interest accrued on the Notes to be, and the Notes, together
with all Obligations, shall thereupon become, forthwith due and payable, without
any presentment, demand, protest, notice of protest and nonpayment, notice of
acceleration or of intent to accelerate or other notice of any kind, all of
which hereby are expressly waived. Notwithstanding the foregoing, if an Event of
Default specified in Subsections 7.01 (h)(i), (ii) or (iii) above occurs with
respect to Borrower, the Commitment shall automatically and immediately
terminate and the Notes and all other Obligations shall become automatically and
immediately due and payable, both as to principal and interest, without any
action by Agent or any Lender and without presentment, demand, protest, notice
of protest and nonpayment, notice of acceleration or of intent to accelerate, or
any other notice of any kind, all of which are hereby expressly waived, anything
contained herein or in any Notes to the contrary notwithstanding.
<PAGE>
ARTICLE VIII
------------
INDEMNIFICATION
---------------
Section 8.01 Indemnification. Each of Borrower and Guarantor agrees to
---------------
indemnify Agent and each Lender and each director, officer, agent, attorney,
employee, representative and Affiliate of Agent and each Lender (each an
"Indemnified Party"), upon demand, from and against any and all liabilities,
obligations, claims, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements (including reasonable fees of attorneys,
accountants, experts and advisors) of any kind or nature whatsoever (in this
Section 8.01 collectively called "liabilities and costs") which to any extent
(in whole or in part) may be imposed on, incurred by, or asserted against any
Indemnified Party growing out of, resulting from or in any other way associated
with any of the Mortgage Collateral, the Loan Documents, any Mortgage Loan
originated for the construction of a Construction Home, and the transactions and
events (including the enforcement or defense thereof) at any time associated
therewith or contemplated therein.
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES
AND COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER
ANY CLAIM OR THEORY OF STRICT LIABILITY, OR ARE CAUSED IN WHOLE OR PART, BY
ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY SUCH INDEMNIFIED PARTY,
provided only that such indemnified party shall be not entitled under this
section to receive indemnification for that portion, if any, of any liabilities
and costs which is proximately caused by its own individual gross negligence or
willful misconduct.
Section 8.02 Limitation of Liability. None of Agent, Lenders, their
-----------------------
directors, officers, agents or employees shall be liable for any action taken or
omitted to be taken by it or them under or in connection with this Agreement.
THE FOREGOING EXCULPATION SHALL APPLY TO ANY NEGLIGENT ACT OR OMISSION OF ANY
KIND BY ANY SUCH PERSON, PROVIDED THAT SUCH PERSON SHALL BE LIABLE FOR ITS OWN
INDIVIDUAL GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
<PAGE>
ARTICLE IX
----------
AGENT
-----
Section 9.01 Appointment and Authority. Each Lender hereby irrevocably
-------------------------
authorizes Agent, and Agent hereby undertakes, to receive payments of principal,
interest and other amounts due hereunder as specified herein, to act as secured
party, agent, bailee and custodian for the exclusive benefit of Lenders with
respect to the Collateral, and to take all other actions and to exercise such
powers under the Loan Documents as are specifically delegated to Agent by the
terms hereof or thereof, together with all other powers reasonably incidental
thereto. The relationship of Agent to Lenders is only that of one commercial
bank acting as administrative agent for others, and nothing in the Loan
Documents shall be construed to constitute Agent a trustee or other fiduciary
for any holder of any of the Notes or of any participation therein nor to impose
on Agent duties and obligations other than those expressly provided for in the
Loan Documents. With respect to any matters not expressly provided for in the
Loan Documents and any matters which the Loan Documents place within the
discretion of Agent, Agent shall not be required to exercise any discretion or
take any action, and it may request instructions from Lenders with respect to
any such matter, in which case it shall be required to act or to refrain from
acting (and shall be fully protected and free from liability to all Lenders in
so acting or refraining from acting) upon the instructions of Majority Lenders
(including itself), provided, however, that Agent shall not be required to take
any action which exposes it to a risk of personal liability that it considers
unreasonable or which is contrary to the Loan Documents or to applicable law.
Upon receipt by Agent from Borrower of any communication calling for action on
the part of Lenders or upon notice from any Lender to Agent of any Default or
Event of Default, Agent shall promptly notify each Lender thereof.
Section 9.02 Agent's Reliance, Etc. Neither Agent nor any of its
----------------------
directors, officers, agents, attorneys, or employees shall be liable for any
action taken or omitted to be taken by any of them under or in connection with
the Loan Documents, including their negligence of any kind, except that each
shall be liable for its own gross negligence or willful misconduct. Without
limiting the generality of the foregoing, Agent (a) may treat the payee of any
Note as the holder thereof until Agent receives written notice of the assignment
or transfer thereof in accordance with this Agreement, signed by such payee and
in form satisfactory to Agent; (b) may consult with legal counsel (including
counsel for Borrower), independent public accountants and other experts selected
by it and shall not be liable for any action taken or omitted to be taken in
good faith by it in accordance with the advice of such counsel, accountants or
experts; (c) makes no warranty or representation to any Lender and shall not be
responsible to any Lender for any statements, warranties or representations made
in or in connection with the Loan Documents; (d) shall not have any duty to
ascertain or to inquire as to the performance or observance of any of the terms,
covenants or conditions of the Loan Documents on the part of Borrower or to
inspect the Property (including the books and records) of Borrower; (e) shall
not be responsible to any Lender for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of any Loan Document or any
instrument or document furnished in connection therewith; (f) may rely upon the
representations and warranties of Borrower and the Lenders in exercising its
powers hereunder; and (g) shall incur no liability under or in respect of the
Loan Documents by acting upon any notice, consent, certificate or other
instrument or writing (including any telecopy, telegram, cable or telex)
believed by it to be genuine and signed or sent by the proper Person or
Persons.
Section 9.03 Lenders' Credit Decisions. Each Lender acknowledges that it
-------------------------
has, independently and without reliance upon Agent or any other Lender, made its
own analysis of Borrower and the transactions contemplated hereby and its own
independent decision to enter into this Agreement and the other Loan Documents.
Each Lender also acknowledges that it will, independently and without reliance
upon Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Loan Documents.
<PAGE>
Section 9.04 Indemnification. Each Lender agrees to indemnify Agent (to
---------------
the extent not reimbursed by Borrower within ten (10) days after demand) from
and against such Lender's Percentage Share of any and all liabilities,
obligations, claims, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements (including reasonable fees of attorneys,
accountants, experts and advisors) of any kind or nature whatsoever (in this
section, collectively, "liabilities and costs") which to any extent (in whole or
---------------------
in part) may be imposed on, incurred by, or asserted against Agent, in its
capacity as Agent, growing out of, resulting from or in any other way associated
with any of the Collateral, the Loan Documents, any Mortgage Loan for the
construction of a one-to-four family residence, and the transactions and events
(including the enforcement thereof) at any time associated therewith or
contemplated therein. THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT
SUCH LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED UNDER ANY CLAIM
OR THEORY OF STRICT LIABILITY OR ARE CAUSED, IN WHOLE OR IN PART, BY ANY
NEGLIGENT ACT OR OMISSION OF ANY KIND BY AGENT OR BY STRICT LIABILITY, PROVIDED
ONLY THAT NO LENDER SHALL BE OBLIGATED UNDER THIS SECTION TO INDEMNIFY AGENT FOR
THAT PORTION, IF ANY, OF ANY LIABILITIES AND COSTS WHICH IS PROXIMATELY CAUSED
BY AGENT'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, AS DETERMINED IN A FINAL
JUDGMENT. Cumulative of the foregoing, each Lender agrees to reimburse Agent
promptly upon demand for such Lender's Percentage Share of any costs and
expenses to be paid to Agent by Borrower under Section 5.05 to the extent that
Agent is not timely reimbursed for such expenses by Borrower as provided in such
section. As used in this section the term "Agent" shall refer not only to the
Person designated as such in Section 1.01 but also to each director, officer,
agent, attorney, employee, representative and Affiliate of such Person.
Section 9.05 Rights as Lender. In its capacity as a Lender, Agent shall
----------------
have the same rights and obligations as any Lender and may exercise such rights
as though it were not Agent. Agent may accept deposits from, lend money to, act
as Trustee under indentures of, and generally engage in any kind of business
with Borrower or its Affiliates, all as if it were not Agent hereunder and
without any duty to account therefor to any other Lender.
Section 9.06 Sharing of Set-Offs and Other Payments. Each of Agent and
--------------------------------------
Lender agrees that if it shall, whether through the exercise of rights under
Security Instruments or rights of banker's lien, set off, or counterclaim
against Borrower or otherwise, obtain payment of a portion of the aggregate
Obligations owed to it which, taking into account all distributions made by
Agent under Section 2.06, causes Agent or such Lender to have received more than
it would have received had such payment been received by Agent and distributed
pursuant to Section 2.06, then (a) it shall be deemed to have simultaneously
purchased and shall be obligated to purchase interests in the Obligations as
necessary to cause Agent and all Lenders to share all payments as provided for
in Section 2.06, and (b) such other adjustments shall be made from time to time
as shall be equitable to ensure that Agent and all Lenders share all payments of
Obligations as provided in Section 2.06; provided, however, that nothing herein
contained shall in any way affect the right of Agent or any Lender to obtain
payment (whether by exercise of rights of banker's lien, set-off or counterclaim
or otherwise) of indebtedness other than the Obligations. Borrower expressly
consents to the foregoing arrangements and agrees that any holder of any such
interest or other participation in the Obligations, whether or not acquired
pursuant to the foregoing arrangements, may to the fullest extent permitted by
law exercise any and all rights of banker's lien, set-off, or counterclaim as
fully as if such holder were a holder of the Obligations in the amount of such
interest or other participation. If all or any part of any funds transferred
pursuant to this section is thereafter recovered from a Lender under this
section which received the same, the purchase provided for in this section shall
be deemed to have been rescinded to the extent of such recovery, together with
interest, if any, if interest is required pursuant to court order to be paid on
account of the possession of such funds prior to such recovery.
<PAGE>
Section 9.07 Investments. Whenever Agent in good faith determines that it
-----------
is uncertain about how to distribute to Lenders any funds which it has received,
or whenever Agent in good faith determines that there is any dispute among
Lenders about how such funds should be distributed, Agent may choose to defer
distribution of the funds which are the subject of such uncertainty or dispute.
If Agent in good faith believes that the uncertainty or dispute will not be
promptly resolved, or if Agent is otherwise required to invest funds pending
distribution to Lenders, Agent shall invest such funds pending distribution; all
interest on any such investment shall be distributed upon the distribution of
such investment and in the same proportion and to the same Persons as such
investment. All moneys received by Agent for distribution to Lenders (including
Agent in its separate capacity as a Lender) shall be held by Agent pending such
distribution solely as Agent for such Lenders, and Agent shall have no equitable
title to any portion thereof.
Section 9.08 Benefit of Article IX. The provisions of this Article are
---------------------
intended solely for the benefit of Agent and Lenders, and shall not be entitled
to rely on any such provision or assert any such provision in a claim or defense
against Agent or any Lender. Agent and Lenders may waive or amend such
provisions as they desire without any notice to or consent of Borrower.
Section 9.09 Resignation. Agent may resign at any time by giving written
-----------
notice thereof to Lenders and Borrower. Each such notice shall set forth the
date of such resignation. Upon any such resignation Majority Lenders shall have
the right to appoint a successor Agent. A successor must be appointed for any
retiring Agent, and such Agent's resignation shall become effective when such
successor accepts such appointment. If, within thirty days after the date of the
retiring Agent's resignation, no successor Agent has been appointed and has
accepted such appointment, then the retiring Agent may appoint a successor
Agent, which shall be a Lender or commercial bank organized or licensed to
conduct a banking or trust business under the laws of the United States of
America or of any state thereof. Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, 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 the provisions of this Article IX
shall continue to inure to its benefit as to any actions taken or omitted to be
taken by it while it was Agent under the Loan Documents.
ARTICLE X
---------
MISCELLANEOUS
-------------
Section 10.01 Notices. Any notice or request required or permitted to be
-------
given under or in connection with this Agreement, the Notes or the other Loan
Documents (except as may otherwise be expressly required therein) shall be in
writing and shall be mailed by first class or express mail, postage prepaid, or
sent by telex, telegram, telecopy or other similar form of rapid transmission,
confirmed by mailing (by first class or express mail, postage prepaid) written
confirmation at substantially the same time as such rapid transmission, or
personally delivered to an officer of the receiving party. All such
communications shall be mailed, sent or delivered to the parties hereto at their
respective addresses as follows:
Borrower: Mortgage Portfolio Services, Inc.
5520 LBJ Freeway
Suite 200
Dallas, Texas 75240
Attn: James E. Hinton
FAX: (972) 503-8756
Telephone: (972) 404-4400
<PAGE>
Guarantor: NAB Asset Corporation
19200 Von Karman Avenue
Suite 950
Irvine, California 92612
Attn: Michael Caton
FAX: (714) 475-4440
Telephone: (714) 475-4444
Agent: Guaranty Federal Bank, F.S.B.
8333 Douglas Avenue
Dallas, Texas 75225
Attention: James Meintjes
FAX: (214) 360-1660
Telephone: (214) 360-2845
or at such other addresses or to such individual's or department's attention as
any party may have furnished the other party in writing. Any communication so
addressed and mailed shall be deemed to be given when so mailed, except that
Borrowing Requests, and communications related thereto shall not be effective
until actually received by Agent or Borrower, as the case may be; and any notice
so sent by rapid transmission shall be deemed to be given when receipt of such
transmission is acknowledged, and any communication so delivered in person shall
be deemed to be given when receipted for by, or actually received by, an
authorized officer of Borrower or Agent, as the case may be.
Section 10.02 Amendments, Etc. No amendment or waiver of any provision of
----------------
this Agreement, the Security Instruments, the Notes, or any other Loan Document,
nor consent to any departure by any Related Person from the terms thereof, shall
in any event be effective unless the same shall be in writing and signed by (i)
if such party is Borrower, by Borrower, (ii) if such party is Agent, by Agent
and (iii) if such party is a Lender, by such Lender or by Agent on behalf of
Lenders with the written consent of Majority Lenders (or without further consent
than that already provided herein in the circumstances provided in Section
10.16). Notwithstanding the foregoing or anything to the contrary herein, Agent
shall not, without the prior consent of each individual Lender, execute and
deliver on behalf of such Lender any waiver or amendment which would: (1) waive
any of the conditions specified in Article III (provided that Agent may in its
discretion withdraw any request it has made under Section 3.02(g)), (2) increase
the Percentage Share of the Commitment of such Lender or subject such Lender to
any additional obligations, (3) reduce any fees hereunder, or the principal of,
or interest on, such Lender's Note, (4) postpone any date fixed for any payment
of any fees hereunder, or principal of, or interest on, such Lender's Note, (5)
amend the definition herein of "Majority Lenders" or otherwise change the
aggregate amount of Percentage Shares which is required for Agent, Lenders or
any of them to take any particular action under the Loan Documents, (6) release
Borrower from its obligation to pay such Lender's Note, (7) amend the
definitions of "Mortgage Collateral," "Collateral Value of Tranche A Borrowing
Base," "Collateral Value of Tranche B Borrowing Base" or "Aggregate Collateral
Value of the Borrowing Base," (8) release Guarantor from any of its obligations
under the Loan Documents, or (9) release any Collateral except in accordance
with and pursuant to the Loan Documents.
Section 10.03 Invalidity. In the event that any one or more of the
----------
provisions contained in the Notes, this Agreement or any other Loan Document
shall, for any reason, be held invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision of such document.
Section 10.04 Survival of Agreements. All covenants and agreements herein
----------------------
and in any other Loan Document not fully performed before the date hereof or the
date thereof, and all representations and
<PAGE>
warranties herein or therein, shall survive until payment in full of the
Obligations and termination of the Commitment.
Section 10.05 Renewal, Extension or Rearrangement. All provisions of this
-----------------------------------
Agreement and of the other Loan Documents shall apply with equal force and
effect to each and all promissory notes hereafter executed which in whole or in
part represent a renewal, extension for any period, increase or rearrangement of
any part of the Obligations originally represented by the Notes or of any part
of such other Obligations.
Section 10.06 Waivers. No course of dealing on the part of Agent or any
-------
Lender, or any of its officers, employees, consultants or agents, nor any
failure or delay by Agent or such Lender with respect to exercising any right,
power or privilege of Agent or any Lender under the Notes, this Agreement or any
other Loan Document shall operate as a waiver thereof, except as otherwise
provided in Section 10.02 hereof.
Section 10.07 Cumulative Rights. The rights and remedies of Agent and
-----------------
each Lender under the Notes, this Agreement, and any other Loan Document shall
be cumulative, and the exercise or partial exercise of any such right or remedy
shall not preclude the exercise of any other right or remedy.
Section 10.08 Construction. THIS AGREEMENT, THE NOTES AND EACH OTHER LOAN
------------
DOCUMENT IS A CONTRACT MADE UNDER AND SHALL BE CONSTRUED, INTERPRETED AND
ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE UNITED STATES OF
AMERICA AND THE STATE OF TEXAS. TEX. REV. CIV. STAT. ANN. ART. 5069, CH. 15
(WHICH REGULATES CERTAIN REVOLVING LOAN ACCOUNTS AND REVOLVING TRIPARTY
ACCOUNTS) SHALL NOT APPLY TO THIS AGREEMENT OR THE NOTES.
Section 10.09 Limitation on Interest. Agent, Lenders, each Related Person
----------------------
and any other parties to the Loan Documents intend to contract in strict
compliance with applicable usury law from time to time in effect. In furtherance
thereof such Persons stipulate and agree that none of the terms and provisions
contained in the Loan Documents shall ever be construed to create a contract to
pay, for the use, forbearance or detention of money, interest in excess of the
maximum amount of interest permitted to be charged by applicable law from time
to time in effect. Neither each Related Person nor any present or future
guarantors, endorsers, or other Persons hereafter becoming liable for payment of
any Obligation shall ever be liable for unearned interest thereon or shall ever
be required to pay interest thereon in excess of the maximum amount that may be
lawfully charged under applicable law from time to time in effect, and the
provisions of this section shall control over all other provisions of the Loan
Documents which may be in conflict or apparent conflict herewith. Agent and
Lenders expressly disavow any intention to charge or collect excessive unearned
interest or finance charges in the event the maturity of any Obligation is
accelerated. If (a) the maturity of any Obligation is accelerated for any
reason, (b) any Obligation is prepaid and as a result any amounts held to
constitute interest are determined to be in excess of the legal maximum, or (c)
Agent or any Lender or any other holder of any or all of the Obligations shall
otherwise collect moneys which are determined to constitute interest which would
otherwise increase the interest on any or all of the Obligations to an amount in
excess of that permitted to be charged by applicable law then in effect, then
all such sums determined to constitute interest in excess of such legal limit
shall, without penalty, be promptly applied to reduce the then outstanding
principal of the related Obligations or, at Agent's or such Lender's or such
holder's option, promptly returned to each Related Person or the other payor
thereof upon such determination. In determining whether or not the interest paid
or payable, under any specific circumstance, exceeds the maximum amount
permitted under applicable law, Agent, Lenders and the each Related Persons (and
any other payors thereof) shall to the greatest extent permitted under
applicable law, (i) characterize any non-principal payment as an expense, fee or
premium rather than as interest, (ii) exclude voluntary prepayments and the
effects thereof, and (iii) amortize, prorate, allocate, and spread the total
amount of interest throughout the entire contemplated term of the instruments
evidencing the Obligations in accordance with the amounts outstanding from time
to time
<PAGE>
thereunder and the maximum legal rate of interest from time to time in effect
under applicable law in order to lawfully charge the maximum amount of interest
permitted under applicable law. In the event applicable law provides for an
interest ceiling under Texas Revised Civil Statutes Annotated article 5069-1.04,
that ceiling shall be the indicated rate ceiling.
Section 10.10 Bank Accounts; Offset. To secure the repayment of the
---------------------
Obligations each Related Person hereby grants to Agent, each Lender and to each
financial institution which hereafter acquires a participation or other interest
in the Loans or Notes (in this section called a "Participant") a security
interest, a lien, and a right of offset, each of which shall be in addition to
all other interests, liens, and rights of Agent, any Lender or Participant at
common law, under the Loan Documents, or otherwise, and each of which shall be
upon and against (a) any and all moneys, securities or other property (and the
proceeds therefrom) of any Related Person now or hereafter held or received by
or in transit to Agent, any Lender or Participant from or for the account any
Related Person, whether for safekeeping, custody pledge, transmission,
collection or otherwise, (b) any and all deposits (general or special, time or
demand, provisional or final) of any Related Person with Agent, any Lender or
Participant, and (c) any other credits and claims of any Related Person at any
time existing against Agent, any Lender or Participant, including claims under
certificates of deposit. Upon the occurrence of any Default, each of Agent,
Lenders and Participants is hereby authorized to foreclose upon, offset,
appropriate, and apply, at any time and from time to time, without notice to
Borrower, any and all items hereinabove referred to against the Obligations then
due and payable.
Section 10.11 Assignments, Participations.
---------------------------
(a) Assignments. Each Lender shall have the right to sell, assign or
-----------
transfer all or any part of such Lender's Note, Loans and rights and the
associated rights and obligations under all Loan Documents to one or more
financial institutions, pension plans, investment funds, or similar purchasers;
provided, that each such sale, assignment, or transfer shall be with the consent
of Agent, and the assignee, transferee or recipient shall have, to the extent of
such sale, assignment, or transfer, the same rights, benefits and obligations as
it would if it were such Lender and a holder of such Note, including, without
limitation, the right to vote on decisions requiring consent or approval of all
Lenders or Majority Lenders and the obligation to fund its Percentage Share of
any Loan directly to Agent; provided further, that (i) each Lender in making
each such sale, assignment, or transfer must dispose of a pro rata portion of
each Loan made by such Lender, (ii) each such sale, assignment, or transfer
shall be in a principal amount not less than $5,000,000, (iii) each Lender shall
at all times maintain Loans then outstanding in an aggregate amount at least
equal to $5,000,000, (iv) each Lender may not offer to sell its Note and Loans
or interests therein in violation of any securities laws, and (v) no such
assignments shall become effective until (i) the assigning Lender delivers to
Agent copies of all written assignments and other documents evidencing any such
assignment or related thereto and the assignee Lender becomes a party to this
Agreement. Notwithstanding the provisions of clauses (ii) and (iii) above, a
Lender may make a sale, assignment or transfer, or maintain Loans then
outstanding, in an amount which is less than that required above provided that
Borrower and such Lender have agreed to modify such requirements and have
delivered to Agent prior written evidence of their agreement to make such
modification. An assignment fee in the amount of $2,500 for each such assignment
will be payable to Agent by assignor or assignee. Within five (5) Business Days
after its receipt of notice that the Agent has received copies of any assignment
and the other documents relating thereto, the assignee shall notify Borrower of
the outstanding principal balance of the Notes payable to such Lender and shall
execute and deliver to Agent (for delivery to the relevant assignee) new Notes
evidencing such assignee's assigned Loans and, if the assignor Lender has
retained a portion of its Loans, replacement Notes in the principal amount of
the Loans retained by the assignor Lender (such Notes to be in exchange for, but
not in payment of, the Notes held by such Lender).
(b) Participations. Each Lender shall have the right to grant
--------------
participations in all or any part of such Lender's Note, Loans and the
associated rights and obligations under all Loan Documents to one or more
<PAGE>
pension plans, investment funds, financial institutions or similar purchasers;
provided that (i) each Lender granting a participation shall use its best
efforts to give prior notice of any such participation, but in any event shall
promptly notify Agent and Borrower thereof, (ii) each Lender granting a
participation shall retain the right to vote hereunder, and no participant shall
be entitled to vote hereunder on decisions requiring consent or approval of
Majority Lenders (except as set forth in (iv) below), (iii) each Lender and
Borrower shall be entitled to deal with the Lender granting a participation in
the same manner as if no participation had been granted, and (iv) no participant
shall ever have any right by reason of its participation to exercise any of the
rights of Lenders hereunder, except that any Lender may agree with any
participant that such Lender will not, without the consent of such participant,
consent to any amendment or waiver described in Section 10.02 requiring approval
of 100% of the Lenders.
(c) Distribution of Information. It is understood and agreed that any
---------------------------
Lender may provide to assignees and participants and prospective assignees and
participants financial information and reports and data concerning Borrower's
properties and operations which was provided to such Lender pursuant to this
Agreement.
Section 10.12 Exhibits. The exhibits attached to this Agreement are
--------
incorporated herein and shall be considered a part of this Agreement for the
purposes stated herein, except that in the event of any conflict between any of
the provisions of such exhibits and the provisions of this Agreement, the
provisions of this Agreement shall prevail.
Section 10.13 Titles of Articles, Sections and Subsections. All titles or
--------------------------------------------
headings to articles, sections, subsections or other divisions of this Agreement
or the exhibits hereto are only for the convenience of the parties and shall not
be construed to have any effect or meaning with respect to the other content of
such articles, sections, subsections or other divisions, such other content
being controlling as to the agreement between the parties hereto.
Section 10.14 Counterparts. This Agreement may be executed in
------------
counterparts, and it shall not be necessary that the signatures of both of the
parties hereto be contained on any one counterpart hereof; each counterpart
shall be deemed an original, but all counterparts together shall constitute one
and the same instrument.
Section 10.15 ENTIRE AGREEMENT. THE NOTES, THIS AGREEMENT, AND THE OTHER
----------------
LOAN DOCUMENTS EXECUTED AND DELIVERED AS OF EVEN DATE HEREWITH REPRESENT THE
FINAL AGREEMENT BETWEEN THE PARTIES HERETO AND THERETO AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
Section 10.16 Termination; Limited Survival. In its sole and absolute
-----------------------------
discretion Borrower may at any time that no Obligations are owing elect in a
notice delivered to Agent to terminate this Agreement. Upon receipt by Agent of
such a notice, if no Obligations are then owing, this Agreement and all other
Loan Documents shall thereupon be terminated and the parties thereto released
from all prospective obligations thereunder. Notwithstanding the foregoing or
anything herein to the contrary, any waivers or admissions made by any Person in
any Loan Documents, any Obligations, and any obligations which any Person may
have to indemnify or compensate Agent and any Lender shall survive any
termination of this Agreement or any other Loan Document. At the request and
expense of Borrower, Agent shall prepare and execute all necessary instruments
to reflect and effect such termination of the Loan Documents. Agent is hereby
authorized to execute all such instruments on behalf of all Lenders, without the
joinder of or further action by any Lender.
<PAGE>
Section 10.17 Joint and Several Liability. All Obligations which are
---------------------------
incurred by two or more Related Persons shall be their joint and several
obligations and liabilities.
Section 10.18 Restatement. This Agreement amends and restates the
-----------
Existing Credit Agreement in its entirety.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed as of the date first above written.
BORROWER: MORTGAGE PORTFOLIO SERVICES, INC.
- --------
By:______________________________________
James E. Hinton
President
GUARANTOR: NAB ASSET CORPORATION
- ---------
By:______________________________________
Michael Caton
President
<PAGE>
AGENT: GUARANTY FEDERAL BANK, F.S.B
- -----
By:______________________________________
James Meintjes
Vice President
LENDERS:
- -------
Percentage Share: 40% GUARANTY FEDERAL BANK, F.S.B.
By:______________________________________
James Meintjes
Vice President
<PAGE>
Percentage Share: 40% RESIDENTIAL FUNDING CORPORATION
By:______________________________________
Name:
Title:
<PAGE>
Percentage Share: 20% FIRST AMERICAN BANK TEXAS, SSB
By:______________________________________
Name:
Title:
<PAGE>
EXHIBIT 10.15
REVOLVING WAREHOUSE LINE OF CREDIT
LOAN AGREEMENT
between
NAFCO, INC.
as Borrower
and
FIRST AMERICAN BANK TEXAS, SSB,
as Lender
$5,000,000
JULY ___, 1997
<PAGE>
LOAN AGREEMENT
This REVOLVING WAREHOUSE LINE OF CREDIT LOAN AGREEMENT ("Agreement"), is
---------
made and executed effective as of July ___, 1997, between NAFCO, INC., a
Delaware corporation ("Borrower"), and FIRST AMERICAN BANK TEXAS, SSB, a Texas
--------
savings bank ("Lender").
------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Borrower has requested that Lender make available to Borrower a
revolving line of credit facility not to exceed an aggregate principal amount of
FIVE MILLION AND NO/DOLLARS ($5,000,000.00) for the purpose of (i) financing
inventory for Dealers (as defined below) providing rental and/or rent-to-own
purchase services on a retail basis, and (ii) warehousing such Dealer Notes (as
defined below) with Lender pursuant to the terms hereof; and
WHEREAS, Lender is willing to make such a facility available to Borrower
upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises contained herein
and other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, Borrower and Lender agree as follows:
ARTICLE I
---------
TERMS DEFINED
-------------
1.1. Definitions. The following terms, as used herein, have the following
-----------
meanings:
"Adjusted Tangible Net Worth" of Borrower means, as of any date, as
---------------------------
determined by GAAP, the amount equal to (i) the sum of (a) the Net Worth of
Borrower, plus (b) the amount of Subordinated Debt, less (ii) the value of all
Intangible Assets of Borrower.
"Advance" means an advance or loan of funds by Lender to Borrower pursuant
-------
to Article II hereof, the proceeds of which are used by Borrower to make or
----------
acquire Dealer Loans as may be approved by Lender.
"Advance Request Form" means a certificate, in substantially the form of
--------------------
Exhibit "B" hereto, properly completed and signed by Borrower requesting an
- -----------
Advance.
"Affiliate" means, as to any Person, any Subsidiary of such Person, or any
---------
other Person which, directly or indirectly, controls, is controlled by, or is
under common control with, such Person. For the purposes of this definition,
"control" (including, with correlative meanings, the terms "controlled by" and
"under common control with"), as used with respect to any Person,
LOAN AGREEMENT - Page 1
- --------------
<PAGE>
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities or partnership interests, or by
contract or otherwise.
"Agency Agreement" shall mean, if any is so executed, an agreement by and
----------------
among Borrower, Lender, one or more other parties providing financing to
Borrower, if any, and a third party financial institution, as agent, relating to
the disbursement of Advances, receipt and collection of payments under this
Agreement and the holding and handling of Collateral under the terms of this
Agreement.
"Agreement" shall mean this Revolving Warehouse Line of Credit Loan Agreement,
---------
as the same may be amended or supplemented from time to time.
"Base Rate" means an interest rate equal to the lesser of (i) the sum of
---------
Prime Rate plus one percent (1%) per annum, or (ii) the Maximum Lawful Rate.
"Borrowing Base" means at the particular time in question, (i) the aggregate
--------------
Collateral Value of all Eligible Collateral as of the most recent date of
determination thereof, and (ii) Dealer Notes originated or purchased by
Borrower, and in its possession at the time of Closing.
"Business Day" means any day on which Lender is open for business in
------------
Dallas, Texas.
"Cash Equivalents" shall mean (i) securities issued or directly and fully
----------------
guaranteed or insured by the United States Government or any agency or
instrumentality thereof which mature within 90 days from the date of
acquisition, and (ii) time deposits and certificates of deposit, which mature
within 90 days from the date of acquisition, of Lender or any other domestic
commercial bank having capital and surplus in excess of $200,000,000, which has,
or the holding company of which has, a commercial paper rating of a least A-1 or
the equivalent thereof by Standard & Poors Corporation or P-1 or the equivalent
thereof by Moody's Investors Service, Inc.
"Certificate Accompanying Financial Statements" means Exhibit "D," attached
--------------------------------------------- ------------
hereto
"Closing Date" means the date Borrower executes the Note and this Agreement.
------------
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Collateral " means all collateral securing the indebtedness evidenced by
----------
the Note and this Agreement pursuant to the Security Documents.
"Collateral Schedule" means a schedule delivered to Lender, along with an
-------------------
Advance Request Form, pursuant to the terms of Section 4.2, hereof.
-----------
LOAN AGREEMENT - Page 2
- --------------
<PAGE>
"Collateral Value" means that portion of a Dealer Note that is funded with
----------------
Advances by Lender.
"Commitment" shall mean the obligation of Lender to make Advances to
----------
Borrower pursuant to Section 2.1 up to the Committed Sum, as provided in this
-----------
Agreement.
"Commitment Fee" shall have the meaning assigned to it in Section 2.7
-------------- -----------
hereof.
"Commitment Termination Date" (or maturity date of the Loan) shall mean April
---------------------------
30, 1998, or such earlier date on which the Commitment terminates as provided in
this Agreement.
"Committed Sum" means the obligation of Lender to make Advances to Borrower
-------------
from time to time not to exceed at any one time Five Million and No/100 Dollars
($5,000,000.00).
"Consolidated Subsidiary" means any Subsidiary or other entity the accounts
-----------------------
of which would be consolidated with those of Borrower in its consolidated
financial statements as of such date.
"Contested in Good Faith" means, as to any payment, tax, assessment,
-----------------------
charge, levy, lien, encumbrance or claim, contesting the amount, applicability
or validity thereof in good faith by appropriate proceedings or other
appropriate actions promptly initiated and diligently conducted in a manner
reasonably satisfactory to the Lender in the full amount of the contested
payment, tax, assessment, charge, levy, lien, encumbrance or claim has been
provided for in a manner reasonably satisfactory to the Lender, and (b) the
enforcement of the contested payment, tax, assessment, charge, levy, lien,
encumbrance or claim is stayed in a manner reasonably satisfactory to the Lender
pending the resolution of such contest.
"Custodial Accounts" has the meaning given to such term under the Security
------------------
Agreement attached hereto as Exhibit "C."
------------
"Dealer" means a Person engaged in the rental and purchase business that makes
------
available to consumers Dealer Inventory, and to which Borrower will make credit
available in the form of Dealer Loans to finance such Dealer Inventory.
"Dealer Collateral" shall include, but not be limited to, (i) various rental
-----------------
and/or rent-to-own agreements by and between Dealer and consumers; (ii) Dealer
Inventory; and (iii) such other security as Dealers may deliver to Borrower from
time to time, all of which shall be listed in a UCC-1 Financing Statement
executed by Dealer in favor of the Borrower.
"Dealer Inventory" shall mean inventory which is comprised of household goods
----------------
and other personal property, including, without limitation, appliances,
televisions, stereos, computers, furniture and telecommunications equipment.
LOAN AGREEMENT - Page 3
- --------------
<PAGE>
"Dealer Loan" means a loan (i) originated to finance Dealer Inventory; (ii)
-----------
evidenced by a Dealer Note and secured by Dealer Collateral; (iii) has been
approved in all respects by Borrower; and (iv) is reasonably satisfactory to the
Lender.
"Dealer Note" shall mean a promissory note evidencing a Dealer Loan,
-----------
secured by Dealer Collateral, and Advances under which shall amortize monthly
with equal payments of principal, together with interest thereon on a 15, 18 or
21 month (or longer or shorter, as may be approved by Lender) schedule.
"Dealer Underwriting Criteria" shall mean such underwriting criteria that
----------------------------
has been approved in advance by Lender, including any proposed changes or
modifications thereof that may be approved by Lender from time to time, which
approval shall not be unreasonably withheld.
"Default" means any condition or event which constitutes an Event of
-------
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Eligible Collateral" means a Dealer Note originated (or otherwise owned)
-------------------
by Borrower in compliance with the terms and provisions of this Agreement,
including, without limitation, Dealer Notes originated and purchased by
Borrower, and in its possession at the time of Closing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
"Event of Default" has the meaning set forth in Article VII.
---------------- -----------
"Exhibit" refers to an exhibit attached to this Agreement, unless
-------
specifically provided otherwise.
"Funding Account" shall mean the non-interest bearing demand checking account
---------------
established by Borrower at Lender to be used for (i) the deposit of proceeds of
Advances; (ii) the funding of Dealer Notes by Borrower; and (iii) the payment of
the Obligations or other general corporate purposes of Borrower.
"Generally Accepted Accounting Principles" or "GAAP" shall mean those
---------------------------------------- ----
generally accepted accounting principles and practices which are recognized as
such by the American Institute of Certified Public Accountants acting through
its Accounting Principles Board or by the Financial Accounting Standards Board
or through other appropriate boards or committees thereof and which are
consistently applied for all periods after the date hereof, except that any
accounting principle or practice required to be changed by the said Accounting
Principles Board or Financial Accounting Standards Board (or other appropriate
board or committee of the said Boards) in order to continue as a generally
accepted accounting principle or practice may so be changed.
LOAN AGREEMENT - Page 4
- --------------
<PAGE>
"Guarantor" means NAB Asset Corporation ("NAB"), or any Person who has
---------
guaranteed some or all of the Obligations pursuant to a guaranty, or any other
Person who has guaranteed some or all of the Obligations and who has been
accepted by Lender as a Guarantor.
"Guaranty" shall mean (i) that certain Guaranty Agreement of even date
--------
herewith executed by NAB, guaranteeing the Obligations of Borrower as provided
for therein; and (ii) any contract, agreement or understanding of any Person
pursuant to which such Person guarantees, or in effect guarantees, any
Indebtedness of any other Person (the "Primary Obligor") in any manner, whether
---------------
directly or indirectly, including without limitation agreements: (i) to purchase
such Indebtedness or any property constituting security therefor; (ii) to
advance or supply funds (A) for the purchase or payment of such Indebtedness, or
(B) to maintain working capital or other balance sheet conditions, or otherwise
to advance or make available funds for the purchase or payment of such
Indebtedness; (iii) to purchase property, securities or service primarily for
the purpose of assuring the holder of such Indebtedness of the ability of the
Primary Obligor to make payment of the Indebtedness; or (iv) otherwise to assure
the holder of the Indebtedness of the Primary Obligor against loss in respect
thereof.
"Indebtedness" of any Person shall mean (i) all indebtedness of such
------------
Person, whether or not represented by bonds, debentures, notes or other
securities, for the repayment of money borrowed, (ii) all deferred indebtedness
of such Person for the payment of the purchase price of property or assets
purchased, (iii) all obligations of such Person under any lease which are
required to be capitalized for balance sheet purposes, (iv) all Guaranties of
such Person, and (v) all indebtedness secured by any Lien existing on property
owned by such Person, whether or not the indebtedness secured thereby shall have
been assumed by such Person.
"Indemnified Parties" has the meaning set forth in Section 8.3(b) hereof.
------------------- --------------
"Intangible Assets" of any Person shall mean those assets of such Person
-----------------
which are (i) deferred assets, (ii) contract rights (if any) to service Dealer
Loans, (iii) patents, copyrights, trademarks, tradenames, franchises, goodwill,
experimental expenses, and other similar assets which would be classified as
intangible on a balance sheet of such Person prepared in accordance with GAAP,
(iv) unamortized debt discount and expense and (v) assets located, and notes and
receivables due from obligors domiciled outside the United States of America.
"Investment" has the meaning set forth in Section 6.4 hereof.
---------- -----------
"Lien" shall mean any lien, mortgage, security interest, tax lien, pledge
----
or encumbrance, or conditional sale or title retention agreement, or any other
interest in property designed to secure the repayment of indebtedness, whether
arising by agreement or under any statute or law, or otherwise.
"Line" means the Revolving Warehouse Line of Credit in the amount of FIVE
----
MILLION AND NO/100 DOLLARS ($5,000,000.00) being extended to Borrower by Lender
pursuant to
LOAN AGREEMENT - Page 5
- --------------
<PAGE>
this Agreement, the Note and the Loan Documents. For purposes of this Agreement,
the term Line shall be inclusive of all funds advanced on all of the Loans.
"Liquidity" shall mean cash or Cash Equivalents.
---------
"Loan" means the funds advanced under the Line (sometimes referred to
----
herein as an "Advance") by Lender to Borrower for its use in making (or
-------
acquiring, as may be approved by Lender) Dealer Loans, as provided for under
this Agreement. Each Loan (or Advance) must be separately approved by Lender
prior to being funded.
"Loan Documents" means this Agreement, the Note, the Guaranty, the Security
--------------
Documents and all other documents, instruments and certificates executed and/or
delivered pursuant to the terms of any of the foregoing, as same may be amended
or supplemented from time to time.
"Margin Stock" means "margin stock" as defined in Regulation U.
------------
"Material Adverse Effect" shall mean any event or set of circumstances that
-----------------------
(i) would have a material adverse effect on the validity or enforceability of
this Agreement, the Note, the Guaranty, or any Loan Document, (ii) is, or upon
the passage of time or happening of an event will be, material and adverse to
the financial condition or business operations of Borrower or Guarantor, or
(iii) would materially impair the ability of Borrower or Guarantor to fulfill
its obligations under this Agreement, the Note, the Guaranty or any Loan
Document to which it is a party.
"Material Agreement" means any material written or oral agreement,
------------------
contract, commitment or understanding to which such Person is a party, by which
such Person is directly or indirectly bound, or to which any assets of such
Person may be subject, which is not cancelable by such Person upon notice of 90
days or less without liability for further payment other than a nominal penalty.
"Maximum Lawful Rate" means the maximum rate (or, if the context so permits
-------------------
or requires, an amount calculated at such rate) of interest which, at the time
in question, would not cause the interest charged on the indebtedness under the
Note at such time to exceed the maximum amount which Lender would be allowed to
contract for, charge, take, reserve, or receive under applicable laws of the
United States of America or the State of Texas, whichever is higher, after
taking into account all charges, payments and receipts of interest and, to the
extent required by applicable law, all other relevant payments, fees or charges
under the Loan Documents. If under federal or state law there is no legal
limitation on the amount or rate of interest that may be charged on amounts
outstanding under the Note, there shall be no Maximum Lawful Rate,
notwithstanding any reference thereto herein or in any of the Loan Documents.
LOAN AGREEMENT - Page 6
- --------------
<PAGE>
"Net Collateral Deficit" means, at any time, the amount, if any, by which
----------------------
the Borrowing Base of all Eligible Collateral that is held by Lender as
Collateral is not equal to or greater than two hundred percent (200%) of the
principal balance of the Loan.
"Net Worth" means, as to any Person, as of any date, the total owners' or
---------
shareholders' equity (including capital stock, additional paid in capital and
retained earnings after deducting treasury stock) which would appear on a
balance sheet of such Person prepared as of such date in accordance with GAAP.
"Note" means that certain Master Revolving Line of Credit Promissory Note
----
dated of even date herewith, executed by Borrower, in the stated principal
amount of Five Million and No/100 Dollars ($5,000,000.00), in the form of the
attached Exhibit "A," together with all renewals, extensions and replacements
------------
thereof.
"Obligations" shall mean all present and future indebtedness, obligations,
-----------
and liabilities of Borrower to Lender, and all renewals and extensions thereof,
or any part thereof, arising pursuant to this Agreement or represented by the
Note, and all interest accruing thereon, and all expenses and fees owed to the
Lender under the Loan Documents (including reasonable attorneys' fees incurred
in the drafting, negotiation, enforcement or collection thereof), regardless of
whether such indebtedness, obligations, and liabilities are direct, indirect,
fixed, contingent, joint, several or joint and several, and all indebtedness,
obligations and liabilities of Borrower evidenced or arising pursuant to any of
the Loan Documents, and all renewals, modifications, increases and extensions
thereof, or any part thereof.
"Payment Date": as defined in the Note.
------------
"Permitted Liens" shall mean: (i) Liens granted to Lender to secure the
---------------
Obligations or (ii) Liens for taxes, assessments or other governmental charges
either not yet due or being diligently Contested in Good Faith (and for the
payment of which adequate reserves have been established) by appropriate
proceedings so long as such proceedings do not involve any material danger of
the sale, forfeiture, loss or loss of use of any material portion of the
affected Property.
"Person" means an individual, a corporation, a partnership, an association,
------
a trust or any other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit plan which is covered
----
by Title V of ERISA or subject to the minimum funding standards under Section
412 of the Code and which is either (a) maintained by Borrower or any Subsidiary
of Borrower for employees of Borrower or any Subsidiary of Borrower, or (b)
maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
Borrower or any Subsidiary of Borrower is then making or accruing an obligation
to make contributions or has within the preceding five plan years made
contributions.
LOAN AGREEMENT - Page 7
- --------------
<PAGE>
"Prime Rate" shall mean the rate of interest per annum established from
----------
time to time by NationsBank of Texas, N.A. or any successor thereto ("Bank") and
----
designated as its prime rate, which may not necessarily be the lowest interest
rate charged by Bank. If Bank ceases to publish on a regular basis its prime
rate, then the Prime Rate shall be such other similar rate regularly established
on a regional or national basis, as selected by Lender, in its sole and absolute
discretion. Fluctuations in the Prime Rate shall become effective on the date
such change in Bank's prime rate is effective.
"Principal Balance" means the aggregate outstanding principal amount of all
-----------------
outstanding Advances under the Note, and all other amounts advanced by Lender
under or pursuant to the Loan Documents.
"Property" shall mean any interest in any kind of property or asset,
--------
whether real, personal or mixed, or tangible or intangible.
"Regulation U" means Regulation U of the Board of Governors of the Federal
------------
Reserve System, as in effect from time to time.
"Requirement of Law" means as to any Person the articles of incorporation and
------------------
bylaws or other organizational or governing documents of such Person, and any
law, statute, code, ordinance, order, rule, regulation, judgment, decree,
injunction, franchise, permit, certificate, license, authorization or other
determination, direction or requirement (including, without limitation, any of
the foregoing which relate to environmental standards of controls, energy
regulations and occupational, safety and health standards or controls) of any
arbitrator, 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.
"Sales Proceeds" has the meaning given to such term in the Security
--------------
Agreement attached hereto as Exhibit "C."
------------
"Schedule" means a schedule attached to this Agreement, unless specifically
--------
indicated otherwise.
"Security Documents" means the documents listed in Section 4.1 of this
------------------ -----------
Agreement, together with any and all other documents, instruments or
certificates representing, evidencing, securing or delivered pursuant to the
terms of any of the foregoing.
"Subordinated Debt" means, as of the date in question, the unpaid principal
-----------------
balance of all unsecured notes, debentures or other debt securities issued by
Borrower and subordinated on liquidation to all claims of Borrower's
shareholders and Persons having claims of any higher priority.
"Subsidiary" means, with respect to any Person, any corporation,
----------
association, partnership, joint venture, or other business or corporate entity,
enterprise or organization which is directly or
LOAN AGREEMENT - Page 8
- --------------
<PAGE>
indirectly (through one or more intermediaries) controlled by such Person or in
which 50% or more of the equity interests are owned directly or indirectly by
such Person.
"Tangible Net Worth" of a Person means, as of any date, as determined by
------------------
GAAP, the amount equal to the sum of (i) a Person's Net Worth, minus (ii) the
value of all Intangible Assets of such Person.
"Total Liabilities" of Borrower means, as of any date, all amounts which
-----------------
would be included as liabilities on a balance sheet of Borrower prepared in
accordance with GAAP.
"Unfunded Vested Liabilities" means, with respect to any Plan at any time,
---------------------------
the amount (if any) by which (a) the present value of all vested nonforfeitable
benefits under such Plan exceeds (b) the fair market value of all Plan assets
allocable to such benefits, all determined as of the then most recent valuation
date for such Plan, but only to the extent that such excess represents a
potential liability of Borrower or the Plan under Title IV of ERISA.
"Warehouse Agreement" means this Revolving Warehouse Line of Credit Loan
-------------------
Agreement.
1.2. Accounting Terms and Determinations. Unless otherwise specified
-----------------------------------
herein, all accounting terms used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial statements required to
be delivered hereunder shall be prepared in accordance with GAAP, applied on a
basis consistent (except for changes concurred in by Borrowers independent
public accountants) with the most recent audited financial statements of
Borrower delivered to Lender.
1.3. Other Definitional Provisions. All definitions contained in this
-----------------------------
Agreement are equally applicable to the singular and plural forms of the terms
defined. The words "hereof," "herein" and "hereunder" and words of similar
import referring to this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement. Unless otherwise specified, all
Article and Section references pertain to this Agreement. Terms used herein that
are defined in the Uniform Commercial Code, as adopted by the State of Texas
(the "UCC"), unless otherwise defined herein, shall have the meanings specified
in the UCC.
ARTICLE II
----------
AMOUNT AND TERMS OF CREDITS
---------------------------
2.1. Commitment. Subject to the terms and conditions contained in this
----------
Agreement, and all applicable laws and regulations and so long as no Default or
Event of Default has occurred and is continuing, from the date of this Agreement
through the Commitment Termination Date, Lender shall make Advances to Borrower
on a revolving credit basis from time to time on any Business Day in such
amounts as Borrower may request, and Borrower may borrow and repay
LOAN AGREEMENT - Page 9
- --------------
<PAGE>
(including those required in Section 2.4 hereof) and reborrow pursuant to this
-----------
Section 2.1; provided, however, that:
- -----------
(a) each Advance shall be in a minimum amount of $50,000;
(b) each Advance shall be made for the lesser of:
(i) fifty percent (50%) of the unamortized principal balance of a
Dealer Note; or
(ii) the amount disbursed by Borrower from its own account for
such Dealer Note;
(c) the aggregate principal amount of all Advances at any time
outstanding shall not exceed the lesser of:
(i) fifty percent (50%) of the aggregate principal amount then
outstanding on the Eligible Collateral;
(ii) the amount funded by Borrower from its own account for all
Dealer Notes; or
(iii) the Commitment Sum; and
(d) no Advance shall be made to finance the making or purchase of any
other type of loan except a Dealer Loan.
2.2. Promissory Note. To evidence the Advances made by Lender pursuant to
---------------
this Agreement, Borrower shall execute and deliver to Lender a Note in the
principal amount of the Commitment and dated as of the date hereof in the form
attached hereto as Exhibit "A". The Note shall be payable and bear interest as
-----------
set forth below and therein.
(a) the unpaid principal balance of the Note from time to time
outstanding shall be paid to Lender as follows: In the event that the
aggregate of the outstanding Advances made under the Note shall exceed the
Borrowing Base, such Advances (i) shall be due and payable, along with
interest thereon, on each respective Payment Date of each consecutive month
during such time that the outstanding principal under the Note shall exceed
the Borrowing Base, and (ii) shall be amortized in equal monthly
installments of fifteen (15), eighteen (18) or twenty-one (21), or longer
or shorter as agreed upon by Borrower and Dealer, and as approved by
Lender. Notwithstanding the above, however, all principal and accrued but
unpaid interest under the Note shall be due and payable on the Commitment
Termination Date.
LOAN AGREEMENT - Page 10
- --------------
<PAGE>
(b) the interest rate applicable to the Line shall be calculated and
accrued on the basis of a 360-day year, and shall accrue on the actual
number of days any principal and interest balance hereof is outstanding.
All accrued and unpaid interest on all Loan proceeds advanced under the
Line shall be paid monthly on the applicable Payment Date. The interest
rate on the Loan shall be a floating rate calculated on a daily basis equal
to the Base Rate, as defined and set forth herein.
2.3. Notice and Manner of Obtaining Advances; Draft Advances. Borrower
-------------------------------------------------------
shall give Lender a written notice by means of an Advance Request Form not less
than three (3) Business Days prior to the requested funding date for the Advance
in accordance with the provisions of Section 4.2 hereof. Not later than 12:00
-----------
noon (Dallas, Texas time) on the date specified in such Advance Request Form as
the requested funding date for the Advance, and subject to the terms and
conditions of this Agreement, Lender shall make available to Borrower the amount
of the requested Advance by deposit of immediately available funds to the
Funding Account.
Notwithstanding the above, however, Lender shall use its reasonable best efforts
to make available the Advance requested the same day such Advance request is
made, provided such request (i) is received by Lender prior to 10:00 a.m.
(Dallas, Texas time) and (ii) pertains either to an increase to a Dealer Loan,
or to a new Dealer Loan with a Dealer already approved by both Borrower and
Lender.
2.4. Net Collateral Deficit. At any time that a Net Collateral Deficit is
----------------------
found to exist, Borrower shall promptly eliminate such Net Collateral Deficit
within five (5) Business Days after written notice thereof from Lender either
(a) by delivering, or by causing to be delivered, to Lender additional Eligible
Collateral, necessary to eliminate the deficit, or (b) by paying to Lender the
amount of such deficit in accordance with Section 2.5 hereof.
-----------
2.5. Payment Procedure. All payments of the principal of (if and to the
-----------------
extent applicable, as provided for herein) and interest upon the Note shall be
made on or within five (5) Business Days from the receipt by Borrower of the
notice from Lender setting forth the amount of principal (if any) and the
monthly installment of interest that is then due and owing under the Note. All
payments of principal and interest shall be made by Borrower to Lender at
Lender's principal office in Dallas, Texas before 3:00 p.m. (Dallas, Texas time)
in federal or other immediately available funds. Funds received after 3:00 p.m.
(Dallas, Texas time) shall be treated for all purposes as having been received
by Lender on the Business Day next following the date of receipt of such funds.
All payments received by Lender shall be applied to the Obligations in such
order as Lender may require. The principal and interest due under the Note shall
be evidenced by the Lender's records which, absent manifest error, shall be
conclusive evidence of the computation of principal and interest balances owed
by the Borrower to the Lender. Lender shall provide to Borrower on a monthly
basis all amounts due for the preceding monthly period.
2.6. Business Days. If the date for any payment hereunder falls on a day
-------------
which is not a Business Day, then for all purposes of the Note and this
Agreement such payment shall be deemed
LOAN AGREEMENT - Page 11
- --------------
<PAGE>
to have fallen on the next following Business Day, and such extension of time
shall be included in the computation of payments of interest.
2.7. Commitment Fee. The Borrower agrees to pay to Lender a Commitment Fee
--------------
of $50,000.00 (1% of the Loan amount) as compensation for Lender's commitment to
extend the Loan to Borrower. This Commitment Fee shall be earned upon and due
and payable the closing of the Loan on the Closing Date.
2.8. Prepayment. Upon written notice to Lender prior to noon, Dallas, Texas
----------
time, on the date of any such prepayment, Borrower may, without penalty, prepay
all or a portion of the amounts due under the Note. All partial prepayments
shall, unless otherwise provided or agreed to, be applied to the principal
installments provided for hereunder in the inverse order of their maturities.
2.9. Legal and Other Fees. Borrower will reimburse Lender on the Closing
--------------------
Date for all expenses of Lender, including reasonable attorneys' fees, incurred
in connection with the preparation, execution, delivery, administration, and
performance of the Loan Documents. Borrower shall also reimburse Lender for all
other expenses of Lender, including reasonable attorneys' fees, incurred from
time to time in connection with the preparation of any Advance, or in connection
with any renewal, modification, or amendment of this Agreement or the Loan
Documents.
ARTICLE III
-----------
COLLATERAL
----------
3.1. Collateral. To secure the payment of the Note and the performance by
----------
Borrower of its Obligations hereunder and under the Loan Documents, Borrower has
granted to Lender pursuant to the Security Agreement a first and prior security
interest in and to the Collateral, and shall execute all documents and
instruments, and perform all other acts reasonably deemed necessary by Lender,
to perfect and maintain the security interest and priority of Lender in and to
such Collateral.
3.2. Delivery of Collateral. Simultaneously with delivery to Lender of an
----------------------
Advance Request Form and Collateral Schedule, as required by Section 4.2 hereof,
-----------
and if not previously delivered to Lender, Borrower shall deliver to Lender the
following items:
(a) the original of each Dealer Note referenced in such Collateral
Schedule, endorsed as follows:
"Pay to the order of ____________________________________________
_________________________________________________________________.
LOAN AGREEMENT - Page 12
- --------------
<PAGE>
NATIONAL ASSET FINANCE COMPANY,
a Texas corporation
By: _____________________________
Name: ___________________________
Title: __________________________"
(b) an original assignment (leaving the name of the assignee blank)
executed by Borrower, for each Dealer Note, in form satisfactory to Lender;
and
(c) a true and complete photocopy or other documentation, which is
acceptable to Lender in its reasonable discretion, of the (i) UCC-1
financing statement executed by the Dealer in favor of the Borrower
covering the Dealer Collateral; and (ii) such other documentation
evidencing or describing the Dealer Loan.
3.3. Power of Attorney. Borrower hereby irrevocably appoints Lender its
-----------------
attorney in fact, with full power of substitution, for and on behalf and in the
name of Borrower, to (i) endorse and deliver to any Person any check, instrument
or other paper coming into Lender's possession and representing payment made in
respect of any Dealer Note delivered to and held by Lender as Collateral or in
respect of any other Collateral; (ii) prepare, complete, execute, deliver and
record any assignment of the Collateral to Lender or to any other Person; (iii)
endorse and deliver any promissory note, and to do every other thing necessary
or desirable to effect transfer of all or any part of the Collateral to Lender
or to any other Person; (iv) take all necessary and appropriate action with
respect to all Obligations and the Collateral to be delivered to Lender or held
by Borrower in trust for Lender; (v) commence, prosecute, settle, discontinue,
defend, or otherwise dispose of any claim relating to any part of the
Collateral; and (vi) sign Borrower's name wherever appropriate to effect the
enforcement of Lender's rights and remedies set forth in this Agreement relating
to the Obligations and/or the Collateral. This section shall be liberally, not
restrictively, construed so as to give the greatest latitude to Lender's power,
as attorney-in-fact, to collect, sell and deliver any of the Collateral and all
other documents relating thereto. The powers and authorities herein conferred
on Lender may be exercised by Lender through any Person who, at the time of the
execution of a particular instrument, is an officer of Lender. The power of
attorney conferred by this Section 3.3 shall be effective only upon the
-----------
occurrence, and during the continuance, of an Event of Default and is grounds
for a valuable consideration and is coupled with an interest and irrevocableness
so long as the Obligations, or any part thereof, shall remain unpaid or the
Commitment is outstanding. All Persons dealing with Lender, or any officer
thereof acting pursuant hereto, or any substitute, shall be fully protected in
treating the powers and authorities conferred by this Section 3.3 as existing
-----------
and continuing in full force and effect until advised by Lender that the
Obligations have been fully and finally paid and satisfied and the Commitment
has been terminated.
3.4. Release/Redemption of Dealer Notes.
----------------------------------
LOAN AGREEMENT - Page 13
- --------------
<PAGE>
(a) Generally. Borrower may obtain the release of Lender's security
---------
interest in any Dealer Note at any time, and from time to time; provided
that, after such release, there will not then exist a Net Collateral
Deficit, by paying to Lender the reasonable costs and expenses incurred by
Lender, including reasonable attorneys' fees, if any, in connection with
such release; provided, however, no Default or Event of Default has
occurred and is continuing hereunder.
(b) Mandatory Redemption of Dealer Notes. Borrower shall, within
------------------------------------
three (3) Business Days after an event requiring mandatory redemption and
the request of Lender at any time during the term hereof, repay to Lender
in immediately available funds the Collateral Value of any Dealer Note
designated by Lender, or (ii) deliver to Lender other Eligible Collateral
in substitution for such designated Dealer Note, as shall be satisfactory
to Lender. Events requiring mandatory redemption are as follows:
(1) any obligor of a Dealer Loan shall have contested the
validity of the Dealer Loan pursuant to the Federal Truth in Lending
Act, the Equal Credit Opportunity Act, or any other federal or state
law or regulation, or any such Dealer Loan shall have been rescinded,
or Lender, in its reasonable judgment, determines that such Dealer
Loan is not in material, compliance with any Requirement of Law and
such failure would have a Material Adverse Effect; or
(2) the obligor of any Dealer Loan shall have failed to perform
any obligation required to be performed thereunder or under the
related Dealer Loan or any other related document, which failure shall
have continued for a period of more than thirty (30) days (so long as
Borrower shall be current in its payments of principal and interest
under the Note), or foreclosure, collection activity, or similar
proceedings shall have been commenced and are continuing with respect
to any such Dealer Loan; or
(3) any of the Collateral or any Property covered thereby shall
become subject to any material Lien (other than a Permitted Lien)
which is not inferior to the Lien of the Loan Documents, and such Lien
shall not be discharged, or provision for such discharge satisfactory
to Lender shall not have been made, within thirty (30) days after
written notice is sent by Lender to Borrower, or after Borrower
otherwise obtains knowledge of such Lien; or
(4) any assignment and pledge to Lender of a Dealer Note shall
fail to be valid, binding and enforceable against Borrower, or such
assignment and pledge shall fail to secure the Loan or be in
compliance with all Requirements of Law and such failure would have a
Material Adverse Effect; or
(5) any required documents relating to any Dealer Loan (including
the Dealer Collateral) described in any Collateral Schedule delivered
to Lender with an
LOAN AGREEMENT - Page 14
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<PAGE>
Advance Request Form shall not have been received promptly by Lender
or Dealer, as applicable and such failure would have a Material
Adverse Effect.
3.5. Representations and Warranties Regarding Dealer Collateral. Effective
----------------------------------------------------------
with the delivery of the Advance Request Form on which a Dealer Note is
identified, the Borrower represents and warrants to Lender with respect to each
Dealer Note that:
(a) the Borrower (and, if the Borrower did not originate the loan(s)
evidenced by such Dealer Note, the originator of such loan(s)) complied,
and the Dealer Collateral comply, in all material respects, with all
applicable Requirements of Law, including, without limitation, (i) usury
laws, (ii) the Equal Credit Opportunity Act, as amended, (iii) the Federal
Truth in Lending Act, as amended, if applicable and (iv) all consumer
protection laws applicable in any jurisdiction in which the Dealer Note was
originated;
(b) the stated principal amount of such Dealer Note was funded to or
for the benefit of the obligor thereunder;
(c) such Dealer Note evidences a Dealer Loan which was underwritten in
compliance with the Dealer Underwriting Criteria, and no changes in such
criteria have been made except those previously approved by both Borrower
and Lender; and
(d) the UCC-1 financing statements executed by the Dealer securing the
Dealer Collateral, and any other security agreements or pledges executed by
the Dealer in favor of Borrower shall be valid and enforceable subject to
(i) the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally, (ii) rights of
acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability, and no other prior or other
claim or lien, except as may be held by Lender, shall be filed of record or
otherwise existing as to the Dealer Collateral, to the best of Borrower's
knowledge.
If any of the representations and warranties contained in subsections (a), (c)
or (d) of this Section is at any time untrue or incorrect in any material
respect as to any Dealer Note(s), Borrower shall within three (3) Business Days
after the request of the Lender either (i) deliver to Lender additional, or
other, Eligible Collateral, or (ii) pay to the Lender in immediately available
funds the Collateral Value of such Dealer Notes designated by the Lender. After
the expiration of such three (3) day period without the required payment by
Borrower, such failure by Borrower to make such payment shall result in an Event
of Default under Section 7.1(b) hereof. With respect to a misrepresentation and
-------------
breach of warranty under subsection (b) of this Section which would have a
Material Adverse Effect, such misrepresentation shall become an Event of Default
under Section 7.1(b) hereof automatically and without any notice or opportunity
-------------
to cure, all of which are hereby waived by Borrower.
LOAN AGREEMENT - Page 15
- --------------
<PAGE>
ARTICLE IV
----------
CONDITIONS PRECEDENT
--------------------
The obligation of Lender to make Advances is subject to satisfactory fulfillment
of all of the conditions precedent stated in this Article IV.
----------
4.1. Initial Advance. In addition to the conditions precedent specified in
---------------
Section 4.2 hereof, the obligation of Lender to make the initial Advance shall
be subject to the delivery to Lender of the following (each of the following
documents being duly executed and delivered and in form and substance
satisfactory to Lender):
(a) executed counterparts of this Agreement and of all instruments,
certificates and opinions referred to in this Article IV not theretofore
----------
delivered;
(b) the Note;
(c) the Security Agreement and related Financing Statement, each in
form and substance acceptable to Lender, granting to Lender a perfected,
first priority security interest in all Collateral required to be pledged
to Lender;
(d) the Guaranty;
(e) a Secretary's Certificate (herein so called) of Borrower
containing (i) resolutions of Borrower's board of directors authorizing the
execution and performance of the Note, this Agreement and all of the other
Loan Documents provided herein and identifying the officers of Borrower
authorized to sign such instruments, (ii) specimen signatures of the
officers so authorized, (iii) a copy, certified as true by the Secretary of
Borrower, of the certificate and articles of incorporation and bylaws of
Borrower, together with all amendments thereto, (iv) a certificate of
existence and good standing from the Secretary of State of the state of
Borrower's incorporation; and (iv) a certificate of authority from all
jurisdictions in which Borrower is required to qualify as a foreign
corporation under applicable Requirements of Law, evidencing that Borrower
is qualified to transact business and is in good standing in such state;
(f) a Secretary Certificate of Guarantor containing (i) resolution of
Guarantor's board of directors authorizing the execution and performance of
the Guaranty and identifying the officers of Guarantor authorized to such
instrument; (ii) specimen signatures of the officers so authorized, (iii) a
copy, certified as true by the Secretary of Guarantor, of the certificate
and articles of incorporation and bylaws of Guarantor, together with all
amendments thereto, (iv) a certificate of existence and good standing from
the Secretary of State of the state of Guarantor's incorporation; and (iv)
a certificate of authority from all jurisdictions in which Guarantor is
transacting business, evidencing that Guarantor is qualified to transact
business and is in good standing in such state;
LOAN AGREEMENT - Page 16
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<PAGE>
(g) an opinion from Borrower's counsel licensed and in good standing
to practice law in the State of Texas, opining that (i) the Borrower has
the authority to borrow the proceeds of the Loan and to execute and perform
Borrower's obligations under the Loan Documents, (ii) the Loan Documents
have each been duly authorized and properly executed and delivered by
Borrower, and each of the Loan Documents is a valid and binding obligation
of the Borrower, enforceable in accordance with its terms subject to (1)
the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally, (2) rights of
acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability, and (iii) the Loan is not
usurious;
(h) a report from the office of the Secretary of State of Texas (and
such other UCC filing offices as Lender may specify) of the UCC financing
statements filed with that office naming Borrower as debtor, as of a date
not more than fifteen (15) days prior to the date of the initial Advance
and a report from the office of County Clerk of the county in which
Borrower's principal place of business is located, as of a date not more
than fifteen (15) days prior to the date of the initial Advance, showing
the results of a tax and judgment lien search for the Borrower; and
(i) such other documents as Lender may reasonably request at any time
at or prior to the date of the initial Advance.
4.2. All Advances. The obligation of Lender to make each Advance, including
------------
the initial Advance, pursuant to this Agreement is subject to the following
further conditions precedent:
(a) Borrower shall have approved the Dealer Loan request by the Dealer
pursuant to the Dealer Underwriting Criteria;
(b) Three (3) days prior to a request for Advance, Borrower shall have
provided, and Lender shall have approved, to Lender's designated
representative an executed Advance Request Form, which shall be complete
and accurate in all respects. (As indicated in Section 2.3, Lender will
-----------
use its reasonable best efforts to comply with a request for an Advance on
an existing Dealer Note if (i) such request complies with all terms and
conditions set forth herein, and (ii) such request shall have been received
by Lender prior to 10:00 a.m. Dallas, Texas time);
(c) along with each Advance Request Form, Borrower shall deliver to
Lender a Collateral Schedule, identifying the Dealer Loans for which Lender
has received (i) a Dealer Note(s); (ii) the corresponding UCC-1 financing
statement; and (iii) an original assignment, in blank, executed by
Borrower;
LOAN AGREEMENT - Page 17
- --------------
<PAGE>
(d) simultaneously with the delivery to Lender of an Advance Request
Form and Collateral Schedule, Borrower shall, to the extent not already
delivered, deliver to Lender all of the items required to be delivered to
Lender as provided herein and by Section 3.2 hereof;
-----------
(e) the representations and warranties of Borrower contained in this
Agreement or any Loan Document shall be true and correct in all respects on
and as of the date of such Advance;
(f) no Default or Event of Default shall have occurred and be
continuing as of the date of such Advance;
(g) no circumstance or event, as determined by Lender in its
reasonable discretion, having a Material Adverse Effect shall have occurred
and be continuing;
(h) the Funding Account shall be established and in existence;
(i) the payment to Lender of those fees, costs and expenses specified
in Sections 2.7 and 2.8 hereof shall have been made; and
------------ ---
(j) notwithstanding any provision to the contrary set forth in the
Loan Documents, the Lender's obligation to make any Advance to Borrower
hereunder shall be subject to the following additional limitation:
(i) no Advance shall be made if, after making such Advance, the
aggregate principal amount of all Advances outstanding would, to any
one (1) Dealer or Affiliate thereof, exceed the lesser of (A)
------
$1,000,000, or (B) twelve and one-half percent (12.5%) of the Net
Worth of the Borrower.
Each Advance Request Form shall be deemed to constitute a representation and
warranty by Borrower on the date of the requested Advance as to the facts
specified in Section 4.2(e) and (f) hereof.
-------------- ---
ARTICLE V
---------
REPRESENTATIONS AND WARRANTIES
------------------------------
In order to induce Lender to enter into this Agreement, and to make Advances to
Borrower, Borrower represents and warrants to Lender that:
5.1. Organization and Good Standing. Borrower is a corporation duly
------------------------------
incorporated and existing in good standing under the laws of the jurisdiction of
its incorporation (i.e., Delaware) and is authorized to do business in all other
states in which its failure to qualify would
LOAN AGREEMENT - Page 18
- --------------
<PAGE>
have a Material Adverse Effect, and has the corporate power and authority to own
its properties and assets and to transact the business in which it is engaged
and does not presently conduct business in any state other than Texas to the
extent that it is required to qualify to do business as a foreign corporation in
such state under the Requirements of Law applicable in such state, but if, at
any time in the future Borrower conducts business to such extent in any other
jurisdiction, Borrower shall have qualified as a foreign corporation and shall
be in good standing in such jurisdiction where it conducts business to such
extent in the future.
5.2. Authorization and Power. Borrower has the corporate power and
-----------------------
requisite authority to execute, deliver and perform this Agreement, the Note and
the Loan Documents to be executed by it; Borrower is duly authorized to, and has
taken all corporate action necessary to authorize it to, execute, deliver and
perform this Agreement, the Note and the Loan Documents to be executed by it and
is and will continue to be duly authorized to perform this Agreement, the Note
and such Loan Documents.
5.3. Corporate and Governmental Authorization; Contravention. The
-------------------------------------------------------
execution, delivery and performance of each Loan Document executed or to be
executed by Borrower are within Borrower's corporate powers, have been duly
authorized by all necessary corporate action, and except as otherwise set forth
in the Loan Documents require no action by or in respect of, or filing with, any
governmental body, agency or official (except where the failure to do so could
not reasonably be expected to have a Material Adverse Effect on its business or
financial condition) and do not materially contravene, or constitute a default
under, any provision of applicable law or regulation or of the certificate of
incorporation or bylaws of Borrower or of any agreement, judgment, injunction,
order, decree or other instrument binding upon Borrower or result in the
creation or imposition of any Lien on any asset of Borrower or any Subsidiary of
Borrower except Liens securing the Note.
5.4. Binding Effect. This Agreement constitutes a valid and binding
--------------
agreement of Borrower; the Note, when executed and delivered in accordance with
this Agreement, will constitute a valid and binding obligation of Borrower; each
Security Document, when executed and delivered in accordance with this
Agreement, will constitute valid and binding obligations of the Person
purporting to execute the same; and each Loan Document is enforceable in
accordance with its terms except as (a) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally, (b) rights of acceleration and the availability of equitable remedies
may be limited by equitable principles of general applicability, and (c) as
otherwise set forth therein.
5.5. Financial Information.
----------------------
(a) The audited balance sheet of Guarantor as of December 31, 1996,
and the related statements of operations, stockholders' equity for the
fiscal year then ended, copies of which have been delivered to Lender,
fairly present, in conformity with GAAP, the consolidated financial
position of Borrower as of such date and its results of operations,
stockholders' equity and cash flows and changes in financial position for
such fiscal year.
LOAN AGREEMENT - Page 19
- --------------
<PAGE>
(b) The unaudited balance sheet of Guarantor and Borrower as of March
31, 1997, and the related unaudited statements of operations, stockholders'
equity for the month then ended, and the monthly unaudited financial
statements, copies of which have been delivered to Lender, fairly present,
in conformity with GAAP applied on a basis consistent with the financial
statements referred to in Section 5.5(a) hereof, the consolidated financial
--------------
position of Borrower as of such date and its results of operations,
stockholders' equity and cash flows for such periods.
5.6. Litigation. There is no action, suit or proceeding pending against
----------
or, to the knowledge of Borrower, threatened against or affecting Borrower or
any Subsidiary or Guarantor before any court or arbitrator or any governmental
body, agency or official which is not disclosed to Lender in writing hereto and
in which there is a reasonable possibility of an adverse decision which could
have a Material Adverse Effect on the business, financial position or results of
operations of such Person or which could in any manner draw into question the
validity of this Agreement, the Note, the Guaranty or the Security Documents.
5.7. Filing of Tax Returns. Borrower and, to the best of its knowledge,
---------------------
Guarantor has filed all tax returns required to have been filed and have paid
all taxes shown to be due and payable on such returns, including interest and
penalties, and all other taxes which are payable by it, to the extent the same
have become due and payable. Borrower does not know of any proposed tax
assessment against Borrower and all tax liabilities of Borrower are adequately
provided for.
5.8. Liens. All Property of Borrower is free and clear of all Liens other
-----
than Permitted Liens.
5.9. Business; Compliance. Borrower has performed and abided by all
--------------------
Obligations required to be performed by it under any license, permit, order,
authorization, grant, contract, agreement or regulation to the extent it could
have a Material Adverse Effect.
5.10. Subsidiaries. Borrower has, as applicable, submitted to Lender a
------------
complete listing of all Subsidiaries of Borrower and the nature and extent of
Borrower's direct and indirect ownership interest therein.
5.11. Licenses, Permits, Etc. Borrower possesses such valid franchises,
----------------------
certificates of convenience and necessity, operating rights, licenses, permits,
consents, authorizations, exemptions and orders of tribunals, as are necessary
to carry on its business as now being conducted, except where the failure to do
so could not reasonably be expected to have a Material Adverse Effect.
5.12. Compliance with Law. The business and operations of Borrower have
-------------------
been and are being conducted in accordance with all applicable laws, rules and
regulations of all tribunals,
LOAN AGREEMENT - Page 20
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<PAGE>
except where the failure to do so could not reasonably be expected to have a
Material Adverse Effect.
5.13. Full Disclosure. All information heretofore furnished by Borrower
---------------
and, to the best of its knowledge, by Guarantor to Lender for purposes of or in
connection with this Agreement or any transaction contemplated hereby is, and
all such information hereafter furnished by Borrower and Guarantor to Lender
will be, true and accurate in every material respect or based on reasonable
estimates on the date as of which such information is stated or certified.
Borrower has disclosed to Lender in writing any and all facts which have or
could have (to the extent such party can now reasonably foresee) a Material
Adverse Effect.
5.14. Consents. Notwithstanding any other provision of this Agreement,
--------
Borrower has obtained all necessary consents and approvals, as applicable,
relating to the pledge of the Collateral, and will deliver same to Lender upon
request.
ARTICLE VI
----------
COVENANTS
---------
Borrower agrees that, so long as any amount payable under the Note remains
unpaid under this Agreement:
6.1. Information. Borrower will deliver or cause to be delivered to Lender
-----------
the following, all in form and detail reasonably satisfactory to Lender,
prepared in accordance with GAAP, and with a Certificate Accompanying Financial
Statements in the form of Exhibit "D," attached:
------------
(a) Annual Financial Statements. As soon as available and in any
---------------------------
event within one hundred twenty (120) days after the close of each fiscal
year of Borrower and Guarantor, copies of the consolidated balance sheet of
Borrower and Guarantor as of the close of such fiscal year and consolidated
statement of income and retained earnings, cash flow statements and changes
in stockholders' equity for such fiscal year, each setting forth in
comparative form the corresponding figures for the preceding fiscal year,
all in reasonable detail together with all notes thereto and accompanied by
an opinion thereon (which shall not be qualified by reason of any
limitation imposed by Borrower) by KPMG Peat Marwick LLP or other
independent certified public accountants selected by Borrower and Guarantor
and reasonably satisfactory to Lender, to the effect that such financial
statements have been prepared in accordance with GAAP and such other
professional practices as may then conform to the usual and customary
professional standards, practices and disclosures then in existence in
connection with the preparation and publication of financial statements by
independent certified public accountants and that the examination of such
accounts in connection with such financial statements has been made in
accordance with GAAP and, accordingly, includes such tests of the
LOAN AGREEMENT - Page 21
- --------------
<PAGE>
accounting records and such other auditing procedures as were considered
necessary in the circumstances;
(b) Interim Financial Statements.
----------------------------
(i) As relating to Borrower, as soon as available, and in any
event within thirty (30) days after the end of each calendar month of
each fiscal year of Borrower, copies of the consolidated and
consolidating balance sheet of Borrower as of the end of such month
and consolidated and consolidating statements of income and retained
earnings and of changes in stockholders' equity for such calendar
month each setting forth in comparative form the corresponding figures
for the preceding fiscal year of Borrower for such mouth and for the
portion of the fiscal year ending with such month, all in reasonable
detail, and certified by the chief financial officer or the president
of Borrower as being true and correct and as having been prepared in
accordance with GAAP, subject to year-end audit adjustments;
(ii) As relating to Guarantor, promptly after becoming available,
and in any event within forty-five (45) days after the end of each
fiscal quarter, including the last fiscal quarter in the fiscal year
of Guarantor, a copy of Guarantor's 10-Q as of the end of such fiscal
quarter filed by Guarantor with the Securities and Exchange Commission
or any similar governmental authority, including a balance sheet of
Guarantor as of the end of such fiscal quarter and the related
statements of income, stockholders' equity and cash flows of Guarantor
for such fiscal quarter and the period from the first day of the then
current fiscal year of Guarantor through the end of such fiscal
quarter;
(c) Month Dealer Reports. As soon as available, and in any event
--------------------
within thirty (30) days after the end of each calendar month of each month
during which time a Dealer Note shall be outstanding, deliver to Lender
copies of all operational, financial and statistical reports, or an
acceptable summary thereof, submitted by each Dealer and/or summarized by
Borrower in a format reasonably acceptable to Lender;
(d) Other Auditing Reports. Promptly upon receipt thereof, a copy of
----------------------
each other report submitted to Borrower by independent accountants in
connection with any annual, interim or special audit of the books of
Borrower;
(e) Monthly Compliance Reports. If required by Lender, within thirty
--------------------------
(30) days after the end of each calendar month a Compliance Certificate, in
the form attached hereto as Schedule "D-1" to Exhibit "D," certified by the
------------------------------
chief financial officer of or the president of Borrower that, as of the
last day of the immediately preceding calendar month, Borrower was not in
violation of any provision hereof;
LOAN AGREEMENT - Page 22
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<PAGE>
(f) Monthly Note and Advance Schedule. Borrower shall identify on a
---------------------------------
monthly schedule attached hereto as Exhibit "E", or in other form
-----------
satisfactory to Lender, the Dealer Notes outstanding and the Collateral
Value of same, calculated separately and in the aggregate, for the purpose
of disclosing the amortization schedule of each underlying Dealer Note for
Lender to ensure that all principal payments on its Collateral Value of all
Dealer Notes are being remitted to Borrower pursuant to the terms of the
respective Dealer Notes in equal, monthly installments, as required hereby.
(g) Quarterly Compliance Reports of Guarantor. If required by
-----------------------------------------
Lender, cause Guarantor to provide Lender, within forty-five (45) days
after the end of each calendar quarter a Compliance Certificate, in the
form attached hereto as Schedule "D-2," certified by the chief financial
-----
officer of or the president of Guarantor that, as of the last day of
the immediately preceding calendar quarter, Guarantor was not in violation
of any provision applicable to it under the Loan Documents;
(h) Tax Returns. As soon as available and in any event within thirty
-----------
(30) days of filing and no later than two hundred twenty-five (225) days
from the end of each fiscal year of Borrower and Guarantor, copies of all
tax returns with all exhibits thereto filed by Borrower and Guarantor;
(i) Other Information. From time to time such additional information
-----------------
regarding the financial position, business or properties of Borrower or the
Guarantor as Lender may reasonably request.
6.2. Minimum Net Worth.
-----------------
(a) Borrower will at all times maintain a Tangible Net Worth of not
less than $1,250,000, calculated on a monthly basis and, in addition
thereto, shall have a Tangible Net Worth of not less than $5,000,000 by
September 30, 1997; and
(b) Guarantor shall at all times have a minimum Tangible Net Worth,
measured quarterly, of not less than $5,000,000.
6.3. Limitation on Indebtedness. Borrower shall not, without the prior
--------------------------
written consent of Lender, incur, create, contract, assume, have outstanding,
guarantee or otherwise be or become, directly or indirectly, liable in respect
of any Indebtedness, except (i) the Obligations, (ii) current liabilities for
taxes and assessments, (iii) Subordinated Debt, (iv) new lease obligations which
are required to be capitalized for balance sheet purposes but which do not
exceed $50,000.00 annually, (v) any existing Indebtedness disclosed to and
approved by Lender, and (vi) current amounts payable or accrued (other than for
borrowed funds or purchase money obligations) which have been incurred in the
ordinary course of business; provided that all such liabilities, accounts and
claims shall be promptly paid and discharged when due or in conformity with
customary trade terms, unless the same shall be Contested in Good Faith by
Borrower.
LOAN AGREEMENT - Page 23
- --------------
<PAGE>
6.4. Loans, Advances, and Investments. Without Lender's prior written
--------------------------------
consent, which shall not be unreasonably withheld, Borrower shall not make any
loan (other than loans made in the ordinary course of its business as a rent
and/or rent-to-own finance company), advance, or capital contribution to, or
investment in, or purchase or otherwise acquire any of the capital stock,
securities, or evidences of indebtedness of, any Person (collectively,
"Investment"), or otherwise acquire any interest in, or control of, another
Person, except for the following:
(a) Investments having a maturity of one year or less in commercial
paper given the highest rating by a nationally recognized credit rating
agency, United States governmental obligations, fully insured certificates
of deposit, bankers acceptances and repurchase agreements issued by Lender
or any commercial bank, savings association or savings bank having assets
in excess of $50,000,000; and
(b) any acquisition of securities or evidences of indebtedness of
others when acquired by Borrower in settlement of accounts receivable or
other debts arising in the ordinary course of business, so long as the
aggregate amount of any such securities or evidences of indebtedness is not
material to the business or condition (financial or otherwise) of Borrower;
provided that, the foregoing will not apply to the acquisition of
securities or evidences of indebtedness in connection with foreclosure
upon, or acquisitions in lieu thereof, loans made by Borrower in the
ordinary course of business.
6.5. Acquisitions. Neither Borrower nor any of its Consolidated
------------
Subsidiaries, if any, will acquire all or substantially all of the assets of any
other Person without Lender's prior written consent, which consent shall not be
unreasonably withheld.
6.6. Consolidations, Mergers, Sales of Assets, Maintenance and
Hypothecations.
---------------------------------------------------------
(a) Neither Borrower nor any of Borrower's Consolidated Subsidiaries
(if and as applicable) will, without Lender's prior written consent, which
consent shall not be unreasonably withheld, (i) consolidate or merge with
or into any other Person, or (ii) sell, lease or otherwise transfer all or
substantially all of its assets to any other Person, or (iii) fail to
maintain its corporate existence in the state of its incorporation or its
good standing and qualification to transact business in all jurisdictions
where the nature of its business requires the same, or (iv) materially
engage in any business other than that of originating or acquiring Dealer
Loans or materially alter the nature of such business as conducted on and
immediately following the date of this Agreement.
(b) Borrower will not, without Lender's prior written consent, sell,
encumber or otherwise transfer the assets covered by the Security Documents
except as provided in such Security Documents.
6.7. Negative Pledge. Neither Borrower nor any of its Subsidiaries will
---------------
create, assume or suffer to exist any Lien on any asset now owned or hereafter
acquired by Borrower or such Subsidiary, except Permitted Liens.
LOAN AGREEMENT - Page 24
- --------------
<PAGE>
6.8. Affiliate Transactions. Neither Borrower nor any of its Subsidiaries
----------------------
will, directly or indirectly, enter into any transaction (including, but not
limited to, the sale or exchange of property or the rendering of services) with
any of its Affiliates or any of its shareholders, other than in the ordinary
course of business of such company and upon fair and reasonable terms no less
favorable than such company could obtain or could become entitled to in an
arm's-length transaction with a Person which was not an Affiliate or shareholder
of such company.
6.9. Use of Proceeds; Margin Stock. The proceeds of the Advances shall not
-----------------------------
be used by Borrower except for the purposes herein specified. Borrower shall use
all funds from Advances for proper corporate purposes in the ordinary course of
Borrower's business as presently being conducted and as represented and
warranted herein. In no event shall the funds from any Advance be used directly
or indirectly by any Person for personal, family, household or agricultural
purposes or for the purpose of purchasing or carrying any Margin Stock, or for
the purpose of reducing or retiring any Indebtedness which was originally
incurred to purchase or carry Margin Stock or for any other purpose which might
constitute this transaction a "purpose credit" within the meaning of such
Regulation U. Neither Borrower nor any Person acting on behalf of Borrower shall
take any action in violation of Regulation U or Regulation X or shall violate
Section 7 of the Securities Exchange Act of 1933 or any rule or regulation
thereunder, in each case as now in effect or as the same may hereafter be in
effect.
6.10. Right of Inspection. After notice by Lender to Borrower or Guarantor,
-------------------
as appropriate, at least twenty-four (24) hours prior thereto, Borrower shall
permit any officer, employee or agent of Lender to visit and inspect any of the
Properties of Borrower, Guarantor or any Dealers, examine Borrower's,
Guarantor's or any Dealer's books of record and accounts, take copies and
extracts therefrom, and discuss the affairs, finances and accounts of Borrower,
Guarantor or any Dealers with Borrower's, Guarantor's or any Dealer's officers,
accountants and auditors, all at such reasonable times and as often as Lender
may reasonably desire. Borrower and Guarantor may have their representatives in
attendance at any meetings between the officers or other representatives of
Lender and the officers, accountants or auditors of Borrower, Guarantor or any
Dealer.
6.11. Maintenance of Insurance. Borrower will at all times maintain or
------------------------
cause to be maintained insurance covering such risks and in such amounts as are
customarily carried by businesses similarly situated and in any event (a)
workmen's compensation insurance in amounts required by the states in which
Borrower does business, (b) comprehensive general public liability and property
damage insurance, and (c) comprehensive automobile liability insurance.
6.12. Maintenance of Security. Borrower will execute and deliver, or
-----------------------
cause the appropriate Person to execute and deliver, to Lender all security
agreements, financing statements, assignments and such other documents and
instruments, and supplements and amendments thereto, and take such other actions
as Lender deems necessary in order to maintain as valid, enforceable and first
perfected priority Liens, all Liens granted to Lender to secure the Note in
accordance with this Agreement and the Security Documents.
LOAN AGREEMENT - Page 25
- --------------
<PAGE>
6.13. Payment of Taxes and Claims. Borrower and Guarantor will, and will
---------------------------
cause each of their respective Consolidated Subsidiaries (as applicable) to pay
(a) all taxes imposed upon it or any of its assets or with respect to any of its
franchises, business, income or profits before any penalty or interest accrues
thereon and (b) all material claims (including, without limitation, claims for
labor, services, materials and supplies) for sums which have become due and
payable and which by law have or might become a Lien on any of its assets;
provided that no payment of such taxes or claims shall be required if (i) the
amount, applicability or validity thereof is currently being Contested in Good
Faith by appropriate action promptly initiated and diligently conducted, (ii)
such Person has set aside on its books reserves (segregated to the extent
required by GAAP) reasonably deemed by it to be adequate with respect thereto.
6.14. Servicing of Collateral. Borrower shall service or cause to be
-----------------------
serviced (with Lender's prior approval) all Dealer Loans constituting Collateral
hereunder, and use its very best efforts to collect all amounts payable
thereunder as they become due.
6.15. Records Relating to Dealer Loans. Borrower shall maintain complete
--------------------------------
and accurate records and books of account at the address set forth on the
signature pages hereof covering all collections and other proceeds of each
Dealer Loan, and all payments made, it being acknowledged and agreed to by
Borrower that Lender may inspect, after twenty-four (24) hours' prior notice to
Borrower, all the records and books and supporting data and make copies and
extracts therefrom at Borrower's place of business during ordinary business
hours and that, upon the request of Lender, Borrower will furnish any reasonable
information with respect to any matter relating to this Agreement or any Loan
Document.
6.16. Management; Ownership. The senior officers of Borrower (president,
---------------------
executive vice president, senior vice president) shall not be changed and the
owners and holders of 10% or more of the common stock in Borrower shall not
sell, transfer or hypothecate all or substantially all of their common stock in
Borrower, unless Borrower shall have provided Lender ten (10) Business Days'
prior written notice of such change or sale, transfer or hypothecation and
Lender shall have consented in writing to such change, sale or transfer, which
consent shall not be unreasonably withheld.
6.17. Compliance with Laws and Documents. Borrower and Guarantor will not,
----------------------------------
and will not permit any of its Consolidated Subsidiaries to, directly or
indirectly, violate the provisions of any laws, its certificate of incorporation
or by-laws, or any of its Material Agreements, if such violation, alone or when
combined with all other such violations, could have a Material Adverse Effect.
6.18. Total Liabilities to Adjusted Tangible Net Worth Ratio. Borrower will
------------------------------------------------------
maintain, at all times during the term of the Loan, a positive ratio of Total
Liabilities to Adjusted Tangible Net Worth of not more than two (2.0) to one
(1.0).
LOAN AGREEMENT - Page 26
- --------------
<PAGE>
6.19. Liquidity. Borrower shall not permit at any time its unencumbered
---------
Liquidity to be less than $100,000, measured monthly; Guarantor shall not permit
at any time its unencumbered Liquidity to be less than $750,000, measured
quarterly,
6.20. Additional Documents. Borrower will execute and deliver or cause the
--------------------
appropriate Person to execute and deliver to Lender such other agreements and
other instruments and documents as in the judgment of Lender may be reasonably
required to better effectuate the transactions contemplated hereby and evidence
and assure Lender's security and rights under the Loan Documents.
ARTICLE VII
-----------
DEFAULTS
--------
7.1. Events of Default. The occurrence of any of the following events,
-----------------
and the giving of any required notice and expiration of any applicable grace
period, shall constitute an "Event of Default" hereunder:
(a) Borrower fails to pay when due any principal of or interest on
the Note, any fees or any other amount payable hereunder by the date when
due;
(b) Borrower or any other Person fails to observe or perform any
covenant or agreement contained in this Agreement or any other Loan
Document;
(c) Any representation, warranty, certification or statement made or
deemed to have been made by Borrower or Guarantor in this Agreement or any
other Loan Document or by any Person in any certificate, financial
statement, Guaranty or other document delivered pursuant to this Agreement
proves to have been incorrect in any material respect when made;
(d) Borrower defaults under any Material Agreement and such default
would have a Material Adverse Effect;
(e) Borrower defaults under any agreement evidencing an Indebtedness
and such default would have a Material Adverse Effect;
(f) Any event or condition occurs which results in the acceleration
of the maturity of any Indebtedness of Borrower or enables (or, with the
giving of notice or lapse of time or both, would enable) the holder of such
Indebtedness to accelerate the maturity thereof and such default would have
a Material Adverse Effect;
(g) Borrower, Guarantor or any Subsidiary of either commences a
voluntary case or other proceeding seeking liquidation, reorganization or
other relief with respect to
LOAN AGREEMENT - Page 27
- --------------
<PAGE>
itself or its debts under any bankruptcy, insolvency or other similar law
now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any part
of its property, or consents to any such relief or to the appointment of or
taking possession by any such official in an involuntary case or other
proceeding commenced against it, or makes a general assignment for the
benefit of creditors, or fails generally to pay its debts as they become
due, or takes any corporate action to authorize any of the foregoing;
(h) An involuntary case or other proceeding is commenced against
Borrower, Guarantor or any Subsidiary of either seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, and
such involuntary case or other proceeding remains undismissed and unstayed
for a period of 60 days; or an order for relief is entered against
Borrower, Guarantor or any Consolidated Subsidiary of either under the
federal bankruptcy laws as now or hereafter in effect; or
(i) A judgment or order for the payment of money in excess of $200,000
is rendered against Borrower or any Subsidiary of Borrower and such
judgment or order continues unsatisfied and unstayed for a period in excess
of 30 days;
(j) a Dealer defaults under any Dealer Loan, and Borrower is in non-
compliance with the terms hereof concerning Borrower's obligation to
provide substituted Eligible Collateral or additional funds;
provided, however, unless a different grace or notice and opportunity to cure
period is specified herein or in any other Loan Document with respect thereto,
Borrower shall have (i) thirty (30) days after a Default under Sections 7.1(b),
----------------
(d) (e), (f), or (i) hereof to cure said Default, (ii) five (5) days after the
- --------------------
date when due under Section 7.1(a) hereof to cure said Default, and as provided
--------------
for herein. After the occurrence of a Default and the giving of the notice
specified in the preceding sentence, if any is required, such Default shall
become an Event of Default if not cured within the applicable period of time.
Upon the occurrence of a Default described in Section 7.1(g) or (h) hereof,
---------------------
all of the Obligations shall thereupon be immediately due and payable, without
presentment, demand, protest, notice of protest, declaration or notice of
acceleration or intention to accelerate, or any other notice or declaration of
any kind, all of which are hereby expressly waived by Borrower. Upon the
occurrence of any other Event of Default, Lender at any time and from time to
time may without further notice to Borrower or any other person, declare any or
all of the Obligations immediately due and payable, and all such Obligations
shall thereupon be immediately due and payable, without presentment, demand,
protest, notice of protest, notice of acceleration or of intention to
accelerate, or any other notice or declaration of any kind, all of which are
hereby expressly waived by Borrower and each Affiliate. After any such
acceleration Lender shall have
LOAN AGREEMENT - Page 28
- --------------
<PAGE>
no obligation to make any further Advances or loans of any kind under any
agreement with any Affiliate.
7.2. Remedies. If any Event of Default shall occur and be continuing,
--------
Lender may protect and enforce its rights under the Loan Documents by any
appropriate proceedings, including proceedings for specific performance of any
covenant or agreement contained in any Loan Document, and Lender may enforce the
payment of any Obligations due or enforce any other legal or equitable right.
All rights, remedies and powers conferred upon Lender under the Loan Documents
shall be deemed cumulative and not exclusive of any other rights, remedies or
powers available under the Loan Documents or at law or in equity.
Upon the occurrence and during the continuance of an Event of Default,
Lender may:
(a) Termination. Terminate the obligation of Lender to make Advances
-----------
hereunder.
(b) Acceleration. Declare all unpaid amounts under the Note and any
------------
other portion of the Obligations immediately due and payable, without
further notice, presentment, protest, demand or action of any nature
whatsoever (each of which is hereby expressly waived by Borrower),
whereupon the same shall become immediately due and payable.
(c) Judgment. Reduce to judgment any claim arising under this
--------
Agreement that Lender has standing to assert.
(d) Guaranty. Demand Guarantor perform the Obligations as set forth in
--------
the Guaranty.
(e) Foreclosure. Take such steps as are appropriate to foreclose or
-----------
otherwise enforce all Liens granted to Lender, to secure payment and
performance of the Obligations, and to exercise any and all rights afforded
secured parties by the UCC, the Loan Documents, at law, in equity or
otherwise.
In addition to, and without limiting or restricting in any way the
foregoing, Lender or its designee may: (i) take possession of any Collateral
and related documents securing the Obligations or any portion thereof not
already in the possession of Lender or its designee, and of any documents or
instruments held by Borrower for the benefit of Lender and may direct Borrower
to, and Borrower will, gather or assemble all of such Collateral and documents
or any portion thereof at the principal offices of Lender or its designee as
Lender shall determine or any other place reasonably convenient to Borrower and
Lender; (ii) notify any party obligated on any Collateral securing the
Obligations or a portion thereof to make all payments due or to become due with
respect thereto directly to Lender or its designee, with the amounts of such
payments to be held for the benefit of Lender, and Lender or its designee may
collect such payments; (iii) enforce collection of any Collateral securing the
obligations or a portion thereof by suit or
LOAN AGREEMENT - Page 29
- --------------
<PAGE>
otherwise in its own name or in the name of Borrower; (iv) assign, negotiate or
transfer any such Collateral for purposes of collection; (v) surrender, release,
substitute or exchange all or any part of such Collateral or any collateral,
security or guaranty therefor; or (vi) compromise or extend or renew for any
period (whether or not longer than the original period) any indebtedness
thereunder or evidenced thereby. Upon the request of Lender or its designee,
Borrower will, at its own expense, notify any person obligated upon any
Collateral securing the obligations or a portion thereof to make payment to
Lender or its designee of any amounts due or to become due thereunder.
In addition to, and without limiting or restricting in any way the
foregoing, Lender or its designee may exercise any and all rights or remedies
available to Lender to offset against the Obligations any deposits of Borrower
and Guarantor held by Lender including Lender's common law right of offset and a
contractual right of offset separate and apart from Lender's remedies under the
UCC and the common law right of offset. Upon the occurrence and during the
continuance of an Event of Default, Lender shall have the right to apply such
deposits to the outstanding indebtedness evidenced by the Note. Lender's
contractual right of offset granted by Borrower hereunder is independent of
Lender's common law right of offset and is not governed by any restrictions
existing under the common law right of offset.
7.3. Performance by Lender. If Borrower fails to perform any covenant, duty
---------------------
or agreement in accordance with the terms and conditions of any of the Loan
Documents to which it is party, Lender may, at its option, perform, or attempt
to perform, such covenant, duty or agreement on behalf of Borrower. In such
event, Borrower shall, at the request of Lender, promptly pay any amount
reasonably expended by Lender in such performance or attempted performance to
Lender at the office of Lender listed on the signature pages hereof, together
with interest thereon at the Maximum Lawful Rate from the date of such
expenditure by Lender until paid. Notwithstanding the foregoing, it is expressly
understood that Lender does not assume and shall never have, except by express
written consent, any liability or responsibility for the performance of any
duties of Borrower hereunder, or under or in connection with all or any part of
the Collateral.
ARTICLE VIII
MISCELLANEOUS
8.1. Notices. Any notice or request required or permitted to be given under
-------
or in connection with this Agreement, the Loan Documents (except as may
otherwise be expressly required therein) or the Note shall be in writing and
shall be mailed by first class mail, postage prepaid, or sent by telex,
telegram, telecopy or other similar form of rapid transmission confirmed by
written confirmation mailing (by first class mail, postage prepaid) at
substantially the same time as such rapid transmission, or personally delivered
to an officer of the receiving party. All such communications shall be mailed,
sent or delivered to the parties hereto at their respective addresses set forth
on the execution page hereof, or at such other addresses or to such individual's
LOAN AGREEMENT - Page 30
- --------------
<PAGE>
or department's attention as either party may have furnished the other party in
writing. Any communication so addressed and mailed shall be deemed to be given
when so mailed, except that notices and requests for Advances and Advance
Request Forms shall not be effective until actually received by Lender or
Borrower, as the case may be; and any notice so sent by rapid transmission shall
be deemed to be given when receipt of such transmission is acknowledged, and any
communication so delivered in person shall be deemed to be given when receipted
for by, or actually received by, an authorized officer of Borrower or Lender, as
the case may be. For purposes of such notices, the addresses of the parties
shall be as follows:
If to Lender: First American Bank Texas, SSB
14651 Dallas Parkway, Suite 400
Dallas, Texas 75240
Attention: James R. Reynolds
FAX: 972/419-3308
with a copy to: Mark A. Mesec & Associates
14651 Dallas Parkway, Suite 400
Dallas, Texas 75240
Attention: Mark A. Mesec
FAX: 972/458-9633
If to Borrower: NAFCO, Inc.
13760 Noel Road, Suite 918
Dallas, Texas 75240
Attention: Terry Fleck
FAX: (972) 960-0850
with a copy to: NAB Asset Corporation
19200 Von Karman Avenue, Suite 950
Irvine, California 92612
Attention: Michael W. Caton
FAX: (714) 475-4440
with a copy to: Parsons & Funnell, L.L.P.
6116 North Central Expressway, Suite 200
Dallas, Texas 75206
Attention: Kevin J. Funnell
FAX: (214) 365-7316
8.2. No Waivers. No failure or delay by Lender in exercising any right,
----------
power or privilege hereunder or under the Note, Guaranty or other Security
Documents shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies
LOAN AGREEMENT - Page 31
- --------------
<PAGE>
herein provided shall be cumulative and not exclusive of any rights or remedies
provided by law or in any of the other Loan Documents.
8.3. Expenses; Documentary Taxes; Indemnification.
--------------------------------------------
(a) Whether or not any Advance is ever funded, Borrower shall pay (i)
all out-of-pocket expenses of Lender with respect to or arising from,
including, without limitation, filing fees, lien search fees, the
reasonable fees and disbursements of counsel for Lender and the costs of
title or lien searches, title insurance or title opinions, incurred in
connection with the preparation of this Agreement and the other Loan
Documents (including, without limitation, the furnishing of any written or
oral opinions or advice incident to this transaction) and, if appropriate,
the recordation of the Security Documents, the closing of the transactions
as contemplated herein, any waiver or consent hereunder or any amendment
hereof or any Default or alleged Default (provided that such was incurred
during the continuance of such Default or alleged Default) hereunder and
(ii) all out-of-pocket expenses incurred by Lender, including fees and
disbursements of counsel for Lender, in connection with any Event of
Default and collection and other enforcement proceedings resulting
therefrom, fees of auditors, consultants, engineers and other Persons
incurred in connection therewith (including, without limitation, the
supervision, maintenance or disposition of the assets pledged to Lender to
secure the Note) and investigation expenses incurred by Lender in
connection therewith. BORROWER SHALL INDEMNIFY LENDER AGAINST ANY TRANSFER
TAXES, DOCUMENTARY TAXES, SIMILAR ASSESSMENTS OR CHARGES MADE BY ANY
GOVERNMENTAL AUTHORITY BY REASON OF THE EXECUTION AND DELIVERY OF THIS
AGREEMENT OR THE NOTE.
(b) WHETHER OR NOT ANY ADVANCE IS EVER FUNDED, BORROWER AGREES TO
INDEMNIFY LENDER AND HOLD HARMLESS LENDER AND ITS OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS AND ATTORNEYS, AND EACH OF THEM (THE "INDEMNIFIED
----------
PARTIES"), FROM AND AGAINST ANY AND ALL LIABILITIES, LOSSES, CLAIMS,
DAMAGES, COSTS, JUDGMENTS, DISBURSEMENTS, INTEREST, CHARGES, REASONABLE
COUNSEL FEES AND OTHER EXPENSES AND PENALTIES OF ANY KIND WHICH ANY OF THE
INDEMNIFIED PARTIES MAY SUSTAIN OR INCUR IN CONNECTION WITH ANY
INVESTIGATIVE, ADMINISTRATIVE OR JUDICIAL PROCEEDING (WHETHER OR NOT LENDER
SHALL BE DESIGNATED A PARTY THERETO) OR OTHERWISE BY REASON OF OR ARISING
FROM THE EXECUTION AND DELIVERY OF THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS AND/OR THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY. WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT, IT IS
THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO BE
INDEMNIFIED HEREUNDER SHALL BE INDEMNIFIED AND HELD HARMLESS AGAINST
ANY AND ALL LOSSES, LIABILITIES, CLAIMS,
LOAN AGREEMENT - Page 32
- --------------
<PAGE>
DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS AND EXPENSES (INCLUDING
ATTORNEYS' FEES) ARISING OUT OR RESULTING FROM THE SOLE OR CONTRIBUTORY
NEGLIGENCE OF SUCH PERSON, BUT NOT ARISING OUT OF OR RESULTING FROM THE
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH PERSON. LENDER SHALL NOT BE
RESPONSIBLE OR LIABLE TO BORROWER OR ANY OTHER PERSON FOR ANY CONSEQUENTIAL
DAMAGES THAT MAY BE ALLEGED AS A RESULT OF OR IN CONNECTION WITH THE
EXECUTION AND DELIVERY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS AND/OR
THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
BORROWER'S OBLIGATIONS UNDER THIS PARAGRAPH SHALL SURVIVE THE PAYMENT OF
THE ADVANCE AND THE RELEASE OF LENDER'S LIENS AND SECURITY INTERESTS.
(c) Any amount to be paid by Borrower under this Section 8.3 shall be a
-----------
demand obligation owing by Borrower and if not paid within ten days of
demand shall bear interest from the date of expenditure by the Indemnified
Parties until paid at a rate equal to the lesser of (i) the Prime Rate plus
6% per annum, or (ii) the Maximum Lawful Rate. The obligations of Borrower
under this Section shall survive payment of the Note and assignment of any
right hereunder.
8.4. Right of Setoff.
---------------
(a) Upon the occurrence and during the continuance of any Event of
Default, Lender is hereby authorized at any time and from time to time, to
the fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) or
other funds payable to investors at any time held and other indebtedness at
any time owing by Lender to or for the credit or the account of Borrower or
Guarantor against any and all of the obligations of Borrower now or
hereafter existing under this Agreement and the Note held by Lender,
irrespective of whether or not Lender shall have made any demand under this
Agreement or the Note and although such obligations may be unmatured.
Lender agrees promptly to notify Borrower or Guarantor after any such
setoff and application made by Lender, provided that the failure to give
such notice shall not affect the validity of such setoff and application.
The rights of Lender under this Section 8.4(a) are in addition to the
--------------
express assignment or pledge of such accounts to Lender and all other
rights and remedies (including, without limitation, other rights of setoff)
which Lender may have.
(b) Borrower agrees, to the fullest extent it may effectively do so
under applicable law, that any holder of a participation or assignment in
the Note may exercise rights of setoff or counterclaim and other rights
with respect to such participation or assignment as fully as if such holder
of a participation or assignment were a direct creditor of Borrower in the
amount of such participation or assignment.
LOAN AGREEMENT - Page 33
- --------------
<PAGE>
8.5. Amendments and Waivers. Any provision of this Agreement, the Note or
----------------------
the other Loan Documents may be amended or waived if, but only if, such
amendment or waiver is in writing and is signed by the party against whom
enforcement is sought.
8.6. Survival. All representations, warranties and covenants made by
--------
Borrower herein or in any certificate or other instrument delivered by it or on
its behalf under the Loan Documents shall be considered to have been relied upon
by Lender and shall survive the delivery to Lender of such Loan Documents or the
extension of the Advances (or any part thereof), regardless of any investigation
made by or on behalf of Lender.
8.7. Limitation on Interest. Regardless of any provision contained in
----------------------
the Loan Documents, Lender shall never be entitled to receive, collect, or
apply, as interest on the Advances, any amount in excess of interest calculated
at the Maximum Lawful Rate. It is expressly stipulated and agreed to be the
intent of Borrower and Lender at all times to comply with the applicable law
governing the maximum rate or amount of interest payable on or in connection
with the Note and the Advances. If the applicable law is ever judicially
interpreted so as to render usurious any amount called for under the Note or
under any of the Loan Documents, or contracted for, charged, taken, reserved or
received with respect to the Advances, or if acceleration of the maturity of the
Note, any prepayment by Borrower, or any other circumstance whatsoever, results
in Lender having been paid any interest in excess of that permitted by
applicable law, then it is the express intent of Borrower and Lender that all
excess amounts theretofore collected by Lender be credited on the principal
balance of the Note (or, if the Note has been or would thereby be paid in full,
refunded to Borrower), and the provisions of the Note and the Loan Documents
immediately be deemed reformed and the amounts thereafter collectible hereunder
and thereunder reduced, without the necessity of the execution of any new
document, so as to comply with the applicable law, but so as to permit the
recovery of the fullest amount otherwise called for hereunder and thereunder.
The right to accelerate the maturity of the Note does not include the right to
accelerate any interest which has not otherwise accrued on the date of such
acceleration, and Lender does not intend to collect any unearned interest in the
event of acceleration. All sums paid or agreed to be paid to Lender for the use,
forbearance or detention of the indebtedness evidenced hereby or by the Note
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full term of such indebtedness until payment
in full so that the rate or amount of interest on account of such indebtedness
does not exceed the Maximum Lawful Rate or maximum amount of interest permitted
under applicable law. The term "applicable law" as used in this Section 8.7
-----------
shall mean the laws of the State of Texas, or any other applicable United States
federal law to the extent that it permits Lender to contract for, charge, take,
reserve or receive a greater amount of interest than under Texas law. The
provisions of this Section 8.7 shall control all agreements between Borrower and
-----------
Lender.
8.8. Severability. If any provision of this Agreement, the Note or any
------------
other Loan Document is held to be illegal, invalid, or unenforceable under
present or future laws effective during the term thereof, such provision shall
be fully severable, this Agreement, the Note and the other Loan Documents shall
be construed and enforced as if such illegal, invalid, or unenforceable
provision had never comprised a part thereof, and the remaining provisions
thereof shall remain in
LOAN AGREEMENT - Page 34
- --------------
<PAGE>
full force and effect and shall not be affected by the illegal, invalid, or
unenforceable provision or by its severance therefrom. Furthermore, in lieu of
such illegal, invalid, or unenforceable provision there shall be added
automatically as a part of this Agreement, the Note or the other Loan Documents,
as applicable, a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
8.9. Successors and Assigns.
----------------------
(a) The provisions of this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns, except that Borrower may not assign or otherwise transfer any of
its rights under this Agreement without the express written consent of
Lender.
(b) Borrower may, for all purposes of this Agreement, treat Lender as
the holder of any Note drawn to its order until written notice of
assignment, transfer or participation shall have been received by it.
8.10. Sale of Interest. Borrower may not sell, assign or transfer any
----------------
interest in this Agreement or any of the Loan Documents nor any portion thereof,
including, without limitation, Borrower's rights, title, interest, remedies,
powers and duties hereunder or thereunder. Borrower hereby consents to Lender's
participation, sale, assignment, transfer or other disposition at any time or
times hereafter of this Agreement and any of the other Loan Documents or of any
portion hereof or thereof, including, without limitation, Lender's rights,
title, interest, remedies, powers and duties hereunder or thereunder. Lender
agrees to provide prior notice to Borrower of Lender's intention to sell a
participation interest in the Note or other Obligation of Borrower under this
Agreement.
8.11. Applicable Law. THIS AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS
--------------
HAVE BEEN NEGOTIATED, AND ARE BEING EXECUTED AND DELIVERED, IN THE STATE OF
TEXAS, AND THE SUBSTANTIVE LAWS OF SUCH STATE AND THE APPLICABLE FEDERAL LAWS OF
THE UNITED STATES OF AMERICA SHALL GOVERN THE VALIDITY, CONSTRUCTION,
ENFORCEMENT AND INTERPRETATION HEREOF AND THEREOF.
8.12. Choice of Forum; Venue and Jurisdiction. THE OBLIGATIONS OF BORROWER
---------------------------------------
HEREUNDER, UNDER THE NOTE AND UNDER THE OTHER LOAN DOCUMENTS ARE PERFORMABLE IN
DALLAS COUNTY, TEXAS. ANY SUIT, ACTION OR PROCEEDING AGAINST BORROWER WITH
RESPECT TO THIS AGREEMENT, THE NOTE OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY
JUDGMENT ENTERED BY ANY COURT IN RESPECT THEREOF, MAY BE BROUGHT IN THE COURTS
OF THE STATE OF TEXAS, COUNTY OF DALLAS, OR IN THE UNITED STATES COURTS LOCATED
IN THE STATE OF TEXAS AS LENDER MAY ELECT, AND BORROWER HEREBY SUBMITS TO THE
NON-EXCLUSIVE JURISDICTION OF SUCH COURTS FOR THE PURPOSE OF ANY SUCH SUIT,
ACTION
LOAN AGREEMENT - Page 35
- --------------
<PAGE>
OR PROCEEDING. BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTIONS WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTE OR ANY OF THE OTHER LOAN
DOCUMENTS BROUGHT IN THE COURTS LOCATED IN THE STATE OF TEXAS, COUNTY OF DALLAS,
AND HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
8.13. Counterparts; Effectiveness. To facilitate execution, this
---------------------------
instrument may be executed in as many counterparts as may be convenient or
required. It shall not be necessary that the signature of, or on behalf of, each
party, or that the signature of all persons required to bind any party, appear
on each counterpart. All counterparts shall collectively constitute a single
instrument. It shall not be necessary in making proof of this instrument to
produce or account for more than a single counterpart containing the respective
signatures of, or on behalf of, each of the parties hereto. Any signature page
to any counterpart may be detached from such counterpart without impairing the
legal effect of the signatures thereon and thereafter attached to another
counterpart identical thereto except having attached to it additional signature
pages.
8.14. Agency Agreement. If an Agency Agreement is executed, then the terms
----------------
and provisions of such Agency Agreement shall supersede, govern and control the
manner of the disbursement of Advances, payments by Borrower on the Note and the
application thereof to the Loan, the receipt, handling, holding and disposition
of Collateral, and any and all other similar provisions thereof which contradict
or are otherwise inconsistent with the provisions of the Loan Documents;
provided, however, the Loan Documents shall remain in full force and effect,
notwithstanding the execution of the Agency Agreement, to the fullest extent not
inconsistent or in contradiction of the Agency Agreement and, to the extent such
Agency Agreement provides for additional or other duties or obligations of
Borrower, Borrower shall have consented to the same. If the Loan Documents
contain any terms or provisions which are not addressed by, and which are not
inconsistent with or in contradiction of any explicit provision of, the Agency
Agreement, then such terms and provisions of the Loan Documents shall prevail
and govern the parties. From and after the termination, expiration, cancellation
or avoidance of the Agency Agreement, the Loan Documents shall govern the
subject transaction, without regard to the Agency Agreement.
8.15. Preclusion of Oral Agreements. THIS AGREEMENT, THE NOTE AND THE
-----------------------------
OTHER LOAN DOCUMENTS CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
LOAN AGREEMENT - Page 36
- --------------
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
NOTICE OF INDEMNIFICATION: NAFCO, INC.
- -------------------------
BORROWER HEREBY ACKNOW- a Delaware corporation
LEDGES AND AGREES THAT THIS
LOAN AGREEMENT CONTAINS By: __________________________
CERTAIN INDEMNIFICATION Name: Terry Fleck
PROVISIONS PURSUANT TO Its: President
SECTION 8.3 HEREOF.
- -----------
FIRST AMERICAN BANK TEXAS, SSB,
a Texas state savings bank
By:____________________________
Name: James R. Reynolds
Its: Vice President
Exhibits:
- ---------
Exhibit "A" - Promissory Note
Exhibit "B" - Advance Request Form
Schedule "B-1" - Dealer Notes
Exhibit "C" - Security Agreement
Exhibit "D" - Certificate Accompanying Financial Statements
Schedule "D-1" - Compliance Certificate
Schedule "D-2" - NAB Compliance Certificate
Exhibit "E" - Form of Monthly Schedule
LOAN AGREEMENT - Page 37
- --------------
<PAGE>
EXHIBIT 10.16
STOCKHOLDERS AGREEMENT
This Agreement dated as of May 1, 1997 is among Mortgage Portfolio
Services, Inc., a Delaware corporation (the "Company"); NAB Asset Corporation, a
Texas corporation ("NAB"); and the following persons (each an "Executive"):
James E. Hinton, David Walden, Donald J. Heibel, Diana Mathis and James R.
Ovington. Capitalized terms used in this Agreement are defined in the preceding
sentence or in Section 1.
Recitals
--------
a. The Executives are currently serving as officers of the Company and are
the owners of certain shares of MPS Common Stock.
b. NAB is currently the owner of more than 80% of the outstanding shares
of MPS Common Stock.
c. The MPS Common Stock is not publicly traded.
d. NAB desires to grant the Executive certain options, which may become
exercisable under certain circumstances, to purchase a portion of NAB's MPS
Common Shares.
e. The Executives have requested that the Company and NAB provide them
with a means, under certain circumstances, of selling or exchanging their shares
of MPS Common Stock, and the Company and NAB are willing to do so, under the
terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of their mutual promises contained herein,
the parties agree as follows:
Section 1. Interpretation
---------- --------------
(a) Definitions. As used in this Agreement, the following terms have the
-----------
following meanings:
"Adjusted Total Economic Value" means an amount equal to the Total Economic
Value as of the applicable Determination Date minus the Reserve Amount as of
such date.
"Agreement" means this Agreement, as the same may be amended from time to
time.
<PAGE>
"Aggregate Purchase Price" means, with respect to any purchase of shares of
MPS Common Stock from the owner thereof pursuant to the exercise of an Option,
an amount, stated in United States Dollars, equal to the product of (i) the
price per share payable for such shares multiplied by (ii) the total number of
such shares being purchased from such owner.
"Applicable Percent" means (i) 37.5% in the case of James E. Hinton; (ii)
17.5% in the case of David Walden; (iii) 17.5% in the case of Donald J. Heibel;
(iv) 2.5% in the case of Diana Mathis; (v) 2.5% in the case of James R.
Ovington; and (vi) such other percent or percents as may hereafter be determined
in the case of another person or other persons, if any, who hereafter become
"Executives" within the meaning of this Agreement and become parties to this
Agreement.
"Asset Sale Transaction" is defined in Section 11(a)
"Bring Along Right" is defined in Section 11(b)
"Budgeted Pre-Tax Income" means, with respect to any fiscal year,
forecasted Pre-Tax Income for such year as set forth in a budget approved by the
Company's Board of Directors by no later than May 31 of such year.
"Buy-Out Payment" has the meaning given to such term in the Option
Agreement.
"Buy-Out Right" has the meaning given to such term in the Option
Agreement.
"Call Option" is defined in Section 4(a).
"Call Option Commencement Date" means, with respect to any Executive Shares
owned by any Executive, the earlier to occur of (i) the date on which the
Employment of the Executive who owns such shares terminates for any reason or
(ii) (A) April 18, 2003 with respect to KEEP Shares or (B) July 2, 1999 with
respect to Non-KEEP Shares.
"Call Option Exercise Period" is defined in Section 4(b).
"Closing" means the closing of (i) any purchase or sale of shares of MPS
Common Stock from or to an Executive pursuant to this Agreement (including a
Stock Sale Transaction) or (ii) the making of a Termination Payment.
"Closing Date" means the date on which a Closing occurs.
2
<PAGE>
"Come-Along Exercise Period" is defined in Section 11(b).
"Come-Along Notice" is defined in Section 11(b).
"Come-Along Right" is defined in Section 11(b)
"Company" is defined in the opening paragraph of this Agreement.
"Company Exercise Notice" is defined in Section 10(a).
"CPS" means Consumer Portfolio Services, Inc., a California corporation.
"Determination Date" means, for all purposes of this Agreement with respect
to any Executive, the end of the three-month calendar period (March 31, June 30,
September 30 or December 31) next preceding the date which is the earlier to
occur of (i) the date on which such Executive's Employment terminates or (ii)
the date on which the Put Option or the Call Option is exercised as to his KEEP
Shares; provided, however, that if a Sale Notice is given to such Executive
--------
prior to such exercise of the Put Option or the Call Option as to his KEEP
Shares and prior to the termination of his Employment, then, in such case,
unless and until the related Sale Transaction is abandoned or terminated or
deemed abandoned or terminated pursuant to Section 11(c), "Determination Date"
means the end of the three-month calendar period (March 31, June 30, September
30 or December 31) next preceding the date on which such Sale Notice is given.
"Determination Notice" is defined in Section 5(c).
"Employment" and "Employed" means, with respect to an Executive, such
Executive's full-time employment with (or being employed on a full-time basis
by) the Company, either directly or through a business entity which leases the
services of such Executive to the Company.
"Exchange Option" is defined in Section 9(a)
"Exchange Option Exercise Period" is defined in Section 10(c).
3
<PAGE>
"Executive" is defined in the opening paragraph of this Agreement.
"Executive" also includes each person who, after the date hereof, becomes a
party to this Agreement by an agreement in writing which states, among other
things, that such person is intended to be an "Executive" within the meaning of
this Agreement.
"Executive Exercise Notice" is defined in Section 10(b).
"Executive Shares" means, at any time, the shares of MPS Common Stock
(other than Option Shares) owned by the Executives or their permitted
transferees, if any, at such time. On the date hereof, the number of Executive
Shares owned by each Executive is as follows:
<TABLE>
<CAPTION>
Name No. Shares
---- ----------
<S> <C>
James E. Hinton 750
David Walden 350
Donald J. Heibel 350
Diana Mathis 50
James R. Ovington 50
</TABLE>
"Executive Shares Number" means two thousand (2,000), subject to
appropriate adjustment in the event of any stock split, stock combination
(reverse stock split) or stock dividend of or on the outstanding shares of MPS
Common Stock. By way of example, if the Company were to effect a two-for-one
split of MPS Common Stock, the Executive Shares Number would be changed to four
thousand (4,000). By way of additional example, if the Company were to effect a
one-for-four reverse stock split of MPS Common Stock, the Executive Shares
Number would be changed to five hundred (500).
"Exercise Notice" means any of a Company Exercise Notice, an Executive
Exercise Notice, a Parent Company Exercise Notice, the Come-Along Notice and
notice of exercise of the Bring-Along Right contained in a Sale Notice, as
applicable.
"Exercise Period" means any of the Put Option Exercise Period, the Call
Option Exercise Period, the Exchange Option Exercise Period, the Second Call
Option Exercise Period, the Last Option Exercise Period, the Termination Right
Exercise Period and the Come-Along Exercise Period, as applicable.
"First Buy-Out Payment" has the meaning given such term in the Option
Agreement.
4
<PAGE>
"First Buy-Out Right" has the meaning given such term in the Option
Agreement.
"First KEEP Determination Date" is defined in Section 5(d)(i).
"First Option" has the meaning given such term in the Option Agreement.
"First Option Shares" has the meaning given such term in the Option
Agreement.
"First Year" is defined in Section 5(d)(i).
"Fourth Option" has the meaning given such term in the Option Agreement.
"GAAP" means generally accepted accounting principals as used by the
Financial Accounting Standards Board and/or the American Institute of
Certificate Public Accountants, consistently applied and maintained through the
periods indicated.
"including" means including without limitation.
"Initial KEEP Consideration" means an amount, stated in United States
Dollars, equal to the lesser of (i) the KEEP Amount as of the applicable
Determination Date or (ii) the product of (A) such KEEP Amount multiplied by (B)
a fraction the numerator of which is twenty (20) and the denominator of which is
the KEEP Number. The Initial KEEP Consideration may be a negative number.
"Interested Management Shareholders" means, with respect to a Determination
Notice, all Management Shareholders who, at a Closing relating to which such
Determination Notice is given, are to receive a payment from the Company, the
Parent Company or a Purchaser in an amount calculated in part by reference to
the amount of the Total Economic Value which is the subject of such
Determination Notice.
"KEEP Amount" means an amount equal to the lesser of (i) 40% of the Total
Economic Value as of the applicable Determination Date or (ii) 60% of Adjusted
Total Economic Value as of such date. The KEEP Amount may be a negative number.
"KEEP Number" means a number determined by multiplying (i) 100 by (ii) a
fraction the numerator of which is the KEEP Amount and the denominator of which
is Total Economic Value, both as of the applicable Determination Date.
"KEEP Shares" means Executive Shares, if any, which become and are
redesignated as KEEP Shares in accordance with the provisions of Section 5(d).
"Last Option Commencement Date" means a date which is the later to occur of
(i) a
5
<PAGE>
date which is the next day after the Closing Date on or by which all Executive
Shares owned by the Executives shall have been purchased by one or both of the
Company and the Parent Company pursuant to one or more exercises of one or more
of the Put Option, the Call Option and the Exchange Option or (ii) a date which
is the next day after the Closing Date for the purchase and sale of Option
Shares pursuant to the exercise of the Second Call Options.
"Last Option Exercise Period" is defined in Section 7(b).
"Last Option Purchase Price" is defined in Section 7(c).
"Management Options" means the First Option, the Third Option and the
Second Call Options.
"Management Option Shares" means the First Option Shares, the Third Option
Shares and the Executive Option Shares.
"Management Shareholders" means, at any time, the persons who, at such
time, own or hold any Management Shares.
"Management Shares" means First Option Shares, Third Option Shares, KEEP
Shares, Non-KEEP Shares, and Option Shares; provided, however, that after July
-------- -------
1, 1999 Non-KEEP Shares shall not be deemed to be, and shall not be included in
the definition of, Management Shares. For purposes of this definition only, (i)
at any time prior to July 2, 1999 all shares which are not then, but which
thereafter may become, subject to the First Option shall be deemed at such time
to be issued and outstanding First Option Shares owned by the holder of the
First Option; (ii) all shares which at any time are subject to the First Option
shall be deemed at such time to be issued and outstanding First Option Shares
owned by the holder of the First Option; (iii) all shares which at any time are
then or may thereafter become subject to the Third Option shall be deemed at
such time to be issued and outstanding Third Option Shares owned by the holder
of the Third Option; and (iv) all shares which at any time are then or
thereafter may become subject to a Second Call Option shall be deemed at such
time to be issued and outstanding Option Shares owned by the holder of such
Second Call Option.
"Manager" has the meaning given such term in the Option Agreement. As of
the date of this Agreement, the Manager is Gordon S. Stockwell.
"Mandatory Exercise" is defined in Section 10(d).
"MPS Common Stock" means the common stock, par value $0.01 per share, of
the
6
<PAGE>
Company.
"MPS Preferred Stock" means the preferred stock, par value $0.01 per share,
of the Company.
"MPS Subsidiary" means, at any time, a corporation more than 50% of whose
voting stock is then owned, directly or indirectly (through one or more other
MPS Subsidiaries), by the Company or whose financial statements the Company is
then otherwise required to consolidate with its own pursuant to GAAP.
"NAB" is defined in the opening paragraph of this Agreement.
"NAB Common Stock" means the common stock, par value $0.10 per share, of
NAB.
"NAB Note" is defined in Section 9(a).
"Non-KEEP Shares" means Executive Shares which have not become KEEP Shares.
"Note" is defined in Section 10(e)(ii).
"Objection Notice" is defined in Section 5(c).
"Objection Notice Period" is defined in Section 5(c).
"Option" means any of the Call Option, the Exchange Option, the Put Option,
the Second Call Options, the Second Put Option, the Third Call Option and the
Termination Right, as applicable.
"Option Agreement" means that certain Option Agreement of even date
herewith among the Company, the Parent Company and the Manager.
"Option Shares" is defined in Section 6(b).
"Original Cost" means One Dollar ($1.00), subject to appropriate adjustment
in the event of any stock split, stock combination (reverse stock split) or
stock dividend of or on the outstanding shares of MPS Common Stock. By way of
example, if the Company were to effect a two-for-one split of the MPS Common
Stock, the Original Cost would be changed to fifty cents ($0.50). By way of
further example, if the Company were to effect a one-for-four reverse stock
split of MPS Common Stock, the Original Cost would be changed to four dollars
($4.00).
"Parent Company" means, at any time, the common parent corporation of a
group of corporations of which the Company then is a member, which parent
corporation owns, directly or indirectly (through one or more subsidiaries), at
least 50% of the outstanding shares of MPS Common Stock at such time. As of the
date hereof, NAB is the Parent
7
<PAGE>
Company.
"Parent Company Affiliate" means, at any time, any corporation or entity
which at such time owns, directly or indirectly (through one or more
subsidiaries), twenty-five percent (25%) or more of the issued and outstanding
shares of the Parent Company Common Stock. As of the date of this Agreement,
the only Parent Company Affiliate is CPS.
"Parent Company Common Stock" means the common stock of the Parent Company.
As of the date hereof, the NAB Common Stock is the Parent Company Common Stock.
"Parent Company Exchange Shares" means the shares of Parent Company Common
Stock, if any, to be issued by the Parent Company at the Closing of an exercise
of an Exchange Option or the Termination Right.
"Parent Company Exercise Notice" is defined in Section 10(c).
"Parent Company's MPS Common Shares" means, at any time, the shares of MPS
Common Stock which are owned by the Parent Company at such time. As of the date
hereof, the Parent Company's MPS Common Shares consist of 8,000 shares of MPS
Common Stock which are owned by NAB.
"Parent Company's MPS Preferred Shares" means, at any time, the shares of
MPS Preferred Stock which are owned by the Parent Company at such time. As of
the date hereof, the Parent Company's MPS Preferred Shares consist of 2,250
shares of MPS Preferred Stock which are owned by NAB.
"Parent Company Stock Price" is defined in Section 9(b).
"Personal Representative" means the executor, administrator or other
representative of the estate of an Executive who has died or the conservator,
receiver or trustee in bankruptcy of or with respect to the person or assets of
an Executive appointed as such by a court of competent jurisdiction.
"Pre-Tax Income" means, for any period, the consolidated income before
income taxes of the Company and the MPS Subsidiaries for such period, computed
in accordance with GAAP. Pre-Tax Income shall not include the results of
operations of any stockholder of the Company. If the Company's financial
statements are audited for any period, Pre-Tax Income for such period shall be
as set forth therein.
"Purchaser" is defined in Section 11(a)
"Put Option" is defined in Section 3(a).
8
<PAGE>
"Put Option Exercise Period" is defined in Section 3(b).
"Reserve Amount" means an amount equal to the sum of (i) Two Million Five
Hundred Thousand Dollars ($2,500,000) plus (ii) an amount equal to the product
of (A) Two Million Five Hundred Thousand Dollars ($2,500,000) multiplied by (B)
a fraction the denominator of which is 365 and the numerator of which is the
number of days elapsed from July 10, 1996 through the applicable Determination
Date. The amount calculated pursuant to the preceding sentence shall be reduced
by the amount, if any, of any cash dividends paid by the Company on the Parent
Company's MPS Preferred Shares and by the amount, if any, paid by the Company to
repurchase or redeem any of the Parent Company's MPS Preferred Shares during the
period from the date hereof to such Determination Date.
"Residual KEEP Consideration" means an amount equal to (i) the sum of the
KEEP Amount as of the applicable Determination Date plus Three Million Three
Hundred Thousand Dollars ($3,300,000) minus (ii) the Initial KEEP Consideration
as of such date.
"Sale Notice" is defined in Section 11(a).
"Sale Notice Period" is defined in Section 11(a) .
"Sale Transaction" is defined in Section 11(a).
"Second Buy-Out Payment" has the meaning given such term in the Option
Agreement.
"Second Buy-Out Right" has the meaning given such term in the Option
Agreement.
"Second Call Option" is defined in Section 6(a).
"Second Call Option Exercise Period" is defined in Section 6(d).
"Second Call Option Purchase Price" is defined in Section 6(c).
"Second KEEP Determination Date" is defined in Section 5(d)(ii).
"Section Option" has the meaning given such term in the Option Agreement.
"Second Put Option" is defined in Section 7(a).
"Second Year" is defined in Section 5(d)(ii).
9
<PAGE>
"Selling Stockholder" means an Executive, a Manager or other person or
entity that is obligated to sell shares of MPS Common Stock at a Closing
pursuant to the exercise of an Option or any option granted in the Option
Agreement or that is entitled to receive a Termination Payment or a Buy-Out
Payment at a Closing.
"Stock Purchase Restriction" means any provision of (i) any agreement,
document or instrument to which the Company is a party, (ii) applicable law or
(iii) the Company's Certificate of Incorporation or By-laws which prohibits, or
the effect of which is to prohibit, the purchase of Executive Shares or Option
Shares by the Company pursuant to the exercise of an Option or the making of a
Termination Payment pursuant to an exercise of the Termination Right.
"Stock Sale Transaction" is defined in Section 11(a).
"Termination Payment" is defined in Section 6(f).
"Termination Right" is defined in Section 6(f).
"Termination Right Exercise Period" is defined in Section 6(f).
"Third Call Option" is defined in Section 8.
"Third KEEP Determination Date" is defined in Section 5(d)(iv).
"Third Option" has the meaning given such term in the Option Agreement.
"Third Option Shares" has the meaning given such term in the Option
Agreement.
"Third Year" is defined in Section 5(d)(iv).
"Total Economic Value" means, as of any Determination Date, the fair market
value of one hundred percent (100%) of the equity ownership of the Company on
such date, determined in accordance with the provisions of Section 5(c).
"Transfer" means (i) when used as a verb, to sell, assign, transfer,
encumber, pledge or otherwise dispose of; and (ii) when used as a noun, a sale,
transfer, encumbrance, pledge or other disposition.
"Valuation" means the amount stated to be the Total Economic Value in the
Valuation Report or, if Total Economic Value is stated in a Valuation Report to
be within a range of amounts, the mid-point or average of such range.
10
<PAGE>
"Valuation Agreement" is defined in Section 5(c).
"Valuation Firm" is defined in Section 5(c).
"Valuation Report" is defined in Section 5(c).
(b) Provisions Pertaining to Interpretation. For all purposes of this
---------------------------------------
Agreement:
(i) references to any person refer to such person and his successors in
title and assigns or (as the case may be) his successors, assigns, heirs,
executors, administrators or other legal representatives;
(ii) references to any agreement, instrument or document refer to such
agreement, instrument or document as originally executed, or, if
subsequently varied, supplemented, amended, restated, or replaced from time
to time, as so varied, supplemented, amended, restated or replaced and in
effect at the relevant time of reference thereto;
(iii) words importing the singular only shall include the plural and vice
----
versa; and pronouns in any gender are to be construed as masculine,
-----
feminine or neuter as the context requires; and all references to dollars
shall be in United States Dollars.
Section 2. Restrictions on Transfer; Legend.
---------- ------------------------ -------
An Executive shall not Transfer any of his Executive Shares or Option
Shares prior to April 18, 2006 except (i) pursuant to the exercise of any
Option, (ii) in accordance with Section 11 or (iii) upon the death of such
Executive, by will or the laws of descent and distribution; provided, however,
-------- -------
that a Transfer pursuant to preceding clause (iii) shall not be effective and
the Company shall not be obligated to record such Transfer on its books or to
issue a certificate representing the shares so Transferred in the name of the
transferee unless and until such transferee shall have executed an agreement, in
form and substance satisfactory to the Company's Board of Directors, by which
such transferee becomes a party to this Agreement and to be bound hereby to the
same extent as the deceased Executive was prior to his death.
Each certificate evidencing Executive Shares and Option Shares shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
The securities represented by this certificate are subject to
restrictions on transfer and other provisions contained in a Stockholders
Agreement
11
<PAGE>
dated as of May 1, 1997 among the issuer of such securities (the
"Company"), NAB Asset Corporation and certain other stockholders of the
Company. A copy of such Agreement will be furnished without charge by the
Company to the holder hereof upon written request.
The securities represented by this certificate have not been registered
under the Securities Act of 1933. The securities have been acquired for
investment and may not be sold, transferred or assigned in the absence of
an effective registration statements for these securities under the
Securities Act of 1933 or an opinion of the Company's counsel that
registration is not required under said Act.
The first paragraph of the legend set forth above shall be removed from
such certificates upon the earlier to occur of (i) any Transfer thereof pursuant
to exercise of any Option other than a Second Call Option or (ii) the
termination of this Agreement. The second paragraph of such legend shall be
removed if and when the statements made therein are no longer accurate or
applicable.
Section 3. Put Option.
--------- ----------
(a) Grant. Subject to Sections 3(b), 5, 9, 10 and 11, the Company hereby
-----
grants to the Executives, acting as a group, the right and option (the "Put
Option") to require the Company to purchase all, but not less than all, of their
Executive Shares for a purchase price determined in accordance with Section 5.
(b) Exercise Period. The Put Option shall be exercisable at any time
---------------
during the period (the "Put Option Exercise Period") beginning on March 18, 2001
and ending on April 17, 2003.
12
<PAGE>
Section 4. Call Option.
--------- -----------
(a) Grant. Subject to Sections 4(b), 5, 9, 10 and 11, each Executive
-----
hereby grants to the Company the right and option (the "Call Option") to
purchase all, but not less than all, of the Executive Shares owned by such
Executive for a purchase price determined in accordance with Section 5.
(b) Exercise Period. Each Call Option shall be exercisable at any time or
---------------
from time to time during the period (the "Call Option Exercise Period")
beginning on the Call Option Commencement Date and ending on April 17, 2005. If
the Company exercises the Call Option, the Second Option or the First Buy-Out
Right at any time after April 17, 2003 and prior to April 18, 2005 as to any
KEEP Shares, any First Option Shares or the First Option then owned or held by
any Executive or the Manager, it shall be obligated to exercise at the same time
its Call Options as to all other KEEP Shares then owned by the Executives.
Section 5. Purchase Price for Executive Shares;
--------- ------------------------------------
Valuation; Redesignation of Shares.
-----------------------------------
(a) Non-KEEP Shares. The purchase price per share payable at a Closing for
----------------
any Non-KEEP Shares shall be an amount equal to the lesser of (i) the Original
Cost or (ii) two times the book value per share of such shares as of the related
Determination Date; provided, however, that if such book value per share is zero
--------- --------
or a negative amount, then, in such case, the purchase price per share payable
to an Executive for his Non-KEEP Shares at such Closing shall be an amount equal
to the quotient obtained by dividing (i) One Dollar ($1.00) by (ii) the
aggregate number of Non-KEEP Shares then being purchased from such Executive.
(b) KEEP Shares. The purchase price per share payable at a Closing for any
-----------
KEEP Shares owned by an Executive shall be the greater of (i) an amount equal to
the quotient obtained by dividing (A) the applicable Initial KEEP Consideration
by (B) the Executive Shares Number or (ii) an amount equal to the quotient
obtained by dividing (A) One Dollar ($1.00) by (B) the aggregate number of KEEP
Shares then being purchased from such Executive.
(c) Determination of Total Economic Value. Upon the giving of an
-------------------------------------
Exercise Notice (which for purposes of this Section 5(c), also includes an
Exercise Notice as defined in the Option Agreement) in respect of which the
applicable KEEP Amount must be calculated, the Board of Directors of the Parent
Company or, if there is then no Parent Company, the Board of Directors of the
Company shall determine the applicable Total Economic Value and shall provide
such determination in writing (the "Determination Notice") to all Interested
Management Shareholders within ten (10) business days after the
13
<PAGE>
date of such Exercise Notice. The Determination Notice shall set forth the
basis for such determination of Total Economic Value.
If the Interested Management Shareholders, acting as a group (if there is
more than one), desire to object to the determination of the Total Economic
Value set forth in the Determination Notice, they may do so by giving notice
thereof in writing (the "Objection Notice") to the Parent Company or the
Company, as applicable. To be effective, an Objection Notice must (i) be signed
by Interested Management Shareholders owning a majority of the Management Shares
then owned by all Interested Management Shareholders, (ii) set forth their basis
for objecting to the Determination Notice, (iii) specify the Total Economic
Value proposed by them, (iv) set forth their calculation thereof and (v) be
given to the Parent Company or the Company, as applicable, during the period
(the "Objection Notice Period") ending on the tenth (10th) business day after
the date of the related Determination Notice. If the Interested Management
Shareholders fail to give an Objection Notice during the Objection Notice
Period, then, in such case, the determination of Total Economic Value set forth
in the Determination Notice shall be deemed to be accepted and agreed to by
them, and such determination shall be conclusive and binding on the Company, the
Parent Company and all Interested Management Shareholders.
If an Objection Notice is given during the Objection Notice Period, then,
in such case, such Total Economic Value shall be determined in writing (the
"Valuation Report") by a nationally recognized investment firm (the "Valuation
Firm") which is engaged in the valuation of businesses and their securities.
The Valuation Firm shall be selected by the Board of Directors of the Parent
Company or, if there is then no Parent Company, by the Board of Directors of the
Company.
If Total Economic Value is determined by a Valuation Firm pursuant to the
preceding paragraph and if at the Closing for which Total Economic Value is
being determined the owners of more than 25% of the Management Shares are to
receive payment from the Company, the Parent Company or a Purchaser pursuant to
the terms of this Agreement or the Option Agreement, then, in such case, the
Company shall pay all the fees and expenses of such determination by the
Valuation Firm. In any other case, such fees and expenses shall be paid as
follows: (i) one hundred percent (100%) by the Company if the Valuation is
ninety percent (90%) or less of the Total Economic Value set forth in the
Determination Notice; (ii) one hundred percent (100%) by the Interested
Management Shareholder if the Valuation is one hundred ten percent (110%) or
more of the Total Economic Value set forth in the Determination Notice; and
(iii) fifty percent (50%) by the Company and fifty percent (50%) by the
Interested Management Shareholders if the Valuation is more than ninety percent
(90%) and less than one hundred ten percent (110%) of the Total Economic Value
set forth in the Determination Notice.
14
<PAGE>
The obligations of the Interested Management Shareholders referred to in
the preceding paragraph, if any arise, shall be satisfied by them pro rata based
--- ----
on their ownership of Management Shares (but not based on the ownership of such
shares by any Management Shareholder who is not an Interested Management
Shareholder). By way of example, if an Interested Management Shareholder were
to own ten percent (10%) of the Management Shares owned by all Interested
Management Shareholders, then, in such case, he would be obligated to pay ten
percent (10%) of that portion, if any, of the fees and expenses of the Valuation
Firm which the Interested Management Shareholders are obligated to pay pursuant
to the preceding paragraph. If the Company pays the Valuation Firm for any fees
and expenses which an Interested Management Shareholder is obligated to pay,
then, in such case, such Interested Management Shareholder shall be obligated to
reimburse the Company for the same, and the Company or the Parent Company (on
behalf of the Company) may, but shall not be obligated to, effect such
reimbursement by reducing the amount otherwise payable to him at any Closing.
Notwithstanding the foregoing, Total Economic Value may be determined at
any time by an agreement in writing (the "Valuation Agreement") which (i) is
signed by the Company and by the Parent Company, if any, (ii) is signed by
Interested Management Shareholders who own more than fifty percent (50%) of the
Management Shares owned by all Interested Management Shareholders; and (iii) is
approved by the Boards of Directors of the Company and the Parent Company, if
any. A Valuation Agreement, if entered into, shall be conclusive and binding on
each Interested Management Shareholder even if he is not a signatory thereto,
and on the Company and the Parent Company. If a Valuation Agreement is entered
into, the Company and the Parent Company, as applicable, shall not be obligated
to select a Valuation Firm to determine Total Economic Value, and any
determination of Total Economic Value theretofore made by the Valuation Firm
shall be superseded and replaced by the determination thereof set forth in the
Valuation Agreement.
(d) Redesignation as KEEP Shares. All Executive Shares shall initially be
----------------------------
Non-KEEP Shares. Non-KEEP Shares may become KEEP Shares as follows:
(i) On July 1, 1997 (the "First KEEP Determination Date") thirty-three
and one-third percent (33 %) of the Non-KEEP Shares owned by an Executive
shall become and be redesignated as KEEP Shares if such Executive has been
continuously Employed from the date hereof through the First KEEP
Determination Date. The parties acknowledge and agree that (A) actual Pre-
Tax Income for the fiscal year ended December 31, 1996 (the "First Year")
was a negative $351,000 and (B) Budgeted Pre-Tax Income for the First Year
was a negative $457,000.
(ii) On July 1, 1998 (the "Second KEEP Determination Date") thirty-three
and one-third percent (33 %) of the Non-KEEP Shares owned by an Executive
shall become and be redesignated as KEEP Shares (in addition to any such
shares which
15
<PAGE>
became KEEP Shares prior thereto) if (A) such Executive has been
continuously Employed from the date hereof through the Second KEEP
Determination Date and (B) either (x) actual Pre-Tax Income for the fiscal
year ending December 31, 1997 (the "Second Year") equals or exceeds eighty
percent (80%) of Budgeted Pre-Tax Income for the Second Year or (y) the
cumulative actual Pre-Tax Income for the First Year and the Second Year
equals or exceeds eighty percent (80%) of the cumulative Budgeted Pre-Tax
Income for the First Year and the Second Year. The parties acknowledge and
agree that Budgeted Pre-Tax Income for the Second Year is $2,874,484 and
that cumulative Budgeted Pre-Tax Income for the First Year and the Second
Year is $2,417,484.
(iii) In the event that any Non-KEEP Shares owned by an Executive
eligible to become KEEP Shares on the First KEEP Determination Date did not
become KEEP Shares on such date, such shares shall become and be
redesignated as KEEP Shares on the Second KEEP Determination Date if (A)
such Executive has been continuously Employed from the date hereof through
the Second KEEP Determination Date and (B) the cumulative Pre-Tax Income
for the First Year and the Second Year equals or exceeds eighty percent
(80%) of cumulative Budgeted Pre-Tax Income for the First Year and the
Second Year.
(iv) On July 1, 1999 (the "Third KEEP Determination Date") thirty-three
and one-third percent (33 %) of the Non-KEEP Shares owned by an Executive
shall become and be redesignated as KEEP Shares (in addition to any such
shares which became KEEP Shares prior thereto) if (A) such Executive has
been continuously Employed from the date hereof through the Third KEEP
Determination Date and (B) either (x) actual Pre-Tax Income for the fiscal
year ending December 31, 1998 (the "Third Year") equals or exceeds eighty
percent (80%) of Budgeted Pre-Tax Income for the Third Year or (y) the
cumulative actual Pre-Tax Income for the First Year, the Second Year and
the Third Year equals or exceeds eighty percent (80%) of the cumulative
Budgeted Pre-Tax Income for the First Year, the Second Year and the Third
Year.
(v) In the event that any Non-KEEP Shares owned by an Executive which
were eligible to become KEEP Shares on the First KEEP Determination Date or
the Second KEEP Determination Date did not become KEEP Shares on either or
both of such dates, such shares shall become and be redesignated as KEEP
Shares on the Third KEEP Determination Date, if (A) such Executive has been
continuously Employed from the date hereof through the Third KEEP
Determination Date and (B) the cumulative actual Pre-Tax Income for the
First Year, the Second Year and the Third Year equals or exceeds eighty
percent (80%) of the cumulative Budgeted Pre-Tax
16
<PAGE>
Income for the First Year, the Second Year and the Third Year.
(vi) In the event that a Sale Transaction is consummated prior to the
determination of actual Pre-Tax Income for the Third Year, then, in such
case, for purposes of such Sale Transaction only, all Non-KEEP Shares owned
by an Executive shall be presumed to be KEEP Shares unless such Executive
has not been continuously Employed during the period from the date hereof
through the date of the related Sale Notice. If an Executive has not been
continuously Employed throughout such period, such presumption shall not be
applicable, and, for purposes of such Sale Transaction, such Executive's
only KEEP Shares shall be those shares, if any, that became such pursuant
to any of items (i) through (iii) of this Section 5(d). The presumption
referred to in the second preceding sentence shall take effect as of the
date of the related Sales Notice; provided, however, that if such Sale
-------- -------
Transaction is abandoned or terminated or deemed abandoned or terminated
pursuant to Section 11(c), then, in such case, such presumption shall no
longer be applicable.
Section 6. Second Call Option
---------- ------------------
(a) Grant. Subject to Sections 6(b), 6(c), 6(d), 6(e), 10 and 11, the
-----
Parent Company hereby grants to each Executive the right and option to
purchase, during the Second Call Option Exercise Period specified in Section
6(d), that number of the Parent Company's MPS Common Shares which is determined
in accordance with Section 6(b) for a purchase price per share determined in
accordance with Section 6(c). Each Option granted in this Section 6(a) is
referred to in this Agreement as a "Second Call Option."
(b) Number of Option Shares. The number of the Parent Company's MPS Common
------------------------
Shares, if any, which become subject to a Second Call Option granted to any
Executive in this Section 6 shall be zero (0) if (i) none of such Executive's
Non-KEEP Shares shall have been redesignated as KEEP Shares prior to July 2,
1999 pursuant to Section 5(d) or (ii) the KEEP Amount constitutes 20% or less of
Total Economic Value as of the applicable Determination Date or (iii) the Second
Call Option Purchase Price is equal to or greater than the applicable Last
Option Purchase Price. In any other case, such number shall be equal to the
product obtained by multiplying (A) the Executive Shares Number by (B) such
Executive's Applicable Percent and by (C) a fraction the numerator of which is
the aggregate number of all of such Executive's Non-KEEP Shares, if any, which
shall have been redesignated as KEEP Shares on or before July 1, 1999 pursuant
to Section 5 (d) and the denominator of which is the total number of Executive
Shares owned by such Executive (as set forth in the definition of "Executive
Shares" in Section 1(a)), subject to appropriate adjustment (in the manner
described in the definition of "Executive Shares Number" in Section 1(a)) in the
event of any stock split, stock combination (reverse stock split) or stock
dividend of or on the outstanding shares of MPS Common Stock.
17
<PAGE>
The shares, if any, of MPS Common Stock which become subject to the Second
Call Options pursuant to this Section 6(b) are referred to in this Agreement as
the "Option Shares." The term "Option Shares" also refers to the shares, if
any, which are transferred and assigned to the Executives pursuant to exercise
of the Second Call Options.
(c) Purchase Price. The purchase per share payable by an Executive at a
--------------
Closing for the Option Shares upon exercise of a Second Call Option (the "Second
Call Option Purchase Price") shall be One Thousand Seven Hundred Dollars
($1,700), subject to appropriate adjustment in the event of any stock split,
stock combination (reverse stock split) or stock dividend of or on the
outstanding shares of MPS Common Stock. By way of example, if the Company were
to effect a two-for-one split of MPS Common Stock, the Second Call Option
Purchase Price would be changed to Eight Hundred Fifty Dollars ($850). By way
of additional example, if the Company were to effect a one-for-four reverse
stock split of MPS Common Stock, the Second Call Option Purchase Price would be
changed to Six Thousand Eight Hundred Dollars ($6,800).
(d) Exercise Period. Subject to Section 10, each Second Call Option shall
---------------
be exercisable at any time during the period (i) beginning on a date which is
the next day after the Closing Date on or by which (A) all Executive Shares
owned by the Executives shall have been purchased by one or both the Company and
the Parent Company pursuant to one or more exercises of one or more of the Put
Option, the Call Option and the Exchange Option and (B) the First Buy-Out
Payment shall have made to the Manager or all First Option Shares owned by the
Manager shall have been purchased by one or both of the Company and the Parent
Company pursuant to the exercise of one or more of the options granted in the
Option Agreement and (ii) ending on July 31, 2005. In addition, subject to
Sections 10 and 11, if a Sale Notice is given prior to July 31, 2005, then, in
such case, each Second Call Option shall also be exercisable during the Come-
Along Exercise Period in the case of a Stock Sale Transaction or during the 30-
day period from and after the date of the Sale Notice relating to an Asset Sale
Transaction. Any period during which a Second Call Option may be exercised
pursuant to this Section 6(d) is referred to in this Agreement as a "Second Call
Option Exercise Period."
(e) Non- Assignability. The Second Call Options are not assignable or
------------------
transferable except by will or the laws of descent and distribution, and each
Second Call Option may be exercised, if it becomes exercisable, only by the
Executive holding such Option during his lifetime (within the applicable
Exercise Period).
(f) Buy-Out of Second Call Option. Subject to Sections 9, 10 and 11, the
------------------------------
Parent Company shall have the right (the "Termination Right") to terminate any
Second Call Option by making a payment (the "Termination Payment") to the
Executive who then holds
18
<PAGE>
such Second Call Option in an amount equal to the product obtained by
multiplying (i) the amount obtained by subtracting the Second Call Option
Purchase Price from the applicable Last Option Purchase Price by (ii) the number
of shares subject to the Second Call Option held by such Executive; provided,
--------
however, that, if the Second Call Option Purchase Price equals or exceeds the
- -------
applicable Last Option Purchase Price, then, in such case, the amount of the
Termination Payment shall be One Dollar ($1.00). The Termination Right may be
exercised, as to a Second Call Option held by any Executive, at any time during
any Second Call Option Exercise Period whether or not such Second Call Option
has theretofore been exercised; provided, however, that, if the Employment of
-------- -------
such Executive terminates prior to the beginning of the Second Call Option
Exercise Period, then, in such case, the Termination Right as to his Second Call
Option may also be exercised by the Parent Company at any time during the period
from and after the date on which the Call Option or the Put Option is exercised
as to such Executive's KEEP Shares until the expiration of the Second Call
Exercise Option Period; and provided, further, that the Termination Right may be
-------- -------
exercised in any Sale Notice given prior to July 31, 2005. If the Parent
Company exercises the Termination Right or the Buy-Out Right at any time after
the beginning of the Second Call Option Period as to any Second Call Option or
Third Option then outstanding, it shall be obligated to exercise at the same
time its Termination Right as to all Second Call Options then outstanding. If a
Termination Right as to any Second Call Option is exercised after the exercise
of such Second Call Option and prior to the related Closing thereof, such
exercise of the Termination Right shall supersede and take precedence over such
exercise of such Second Call Option. Any period of time during which a
Termination Right may be exercised is referred to in this Agreement as a
"Termination Right Exercise Period."
(g) No Stockholder Rights. An Executive shall not have any voting or other
---------------------
rights as a stockholder of the Company with respect to the Option Shares unless
and until such shares are transferred to him pursuant to exercise of his Second
Call Option. Prior to such transfer, the Parent Company shall have all of the
rights incident to ownership of such shares.
Section 7. Second Put Option.
- ---------- -----------------
(a) Grant. If any Option Shares are transferred and assigned to the
-----
Executives pursuant to the exercise of one of more Second Call Options, then, in
such case, subject to Sections 7(b), 7(c), 9, 10 and 11, the Company hereby
grants to the Executives, acting as a group, the right and option (the "Second
Put Option") to require the Company to purchase all, but not less than all, of
their Option Shares for a purchase price determined in accordance with Section
7(c).
(b) Exercise Period. The Second Put Option shall be exercisable at any
---------------
time during the period (the Last Option Exercise Period") beginning on the Last
Option Commencement Date and ending on December 31, 2005.
19
<PAGE>
(c) Purchase Price. The purchase price per share payable by the Company
--------------
for any Option Shares owned by an Executive at a Closing pursuant to exercise of
the Second Put Option (the "Last Option Purchase Price") shall be the greater of
(i) an amount equal to the quotient obtained by dividing (A) the applicable
Residual KEEP Consideration by (B) the Executive Shares Number or (ii) an amount
equal to the quotient obtained by dividing (A) One Dollar ($1.00) by (B) the
aggregate number of Option Shares then being purchased from such Executive.
Section 8. Third Call Option.
- ---------- -----------------
Grant. If any Option Shares are transferred and assigned to the Executives
-----
pursuant to the exercise of one or more Second Call Options, then, in such case,
subject to Sections 9, 10 and 11, each Executive hereby grants to the Company
the right and option (the "Third Call Option") to purchase all, but not less
than all, of the Option Shares owned by such Executive for a purchase price per
share equal to the Last Option Purchase Price. The Third Call Option shall be
exercisable at any time during the Last Option Exercise Period. If the Company
exercises a Third Call Option or a Fourth Option at any time as to any Option
Shares or Third Option Shares then owned by an Executive or the Manager, it
shall be obligated to exercise at the same time its Third Call Options as to all
Option Shares then owned by the Executives.
Section 9. Exchange Option; Parent Company Exchange Shares.
- --------- ------------------------------------------------
(a) Subject to Sections 9(b), 9(c), 10 and 11, if, and on each occasion
that, a Put Option or Call Option is exercised as to any KEEP Shares or a Second
Put Option or a Third Call Option is exercised as to any Option Shares or the
Parent Company exercises its Termination Right, then, in any such case, the
Parent Company, if any, shall have the right and option (the "Exchange Option")
(i) to assume the Company's rights and obligations, if any, to acquire such KEEP
Shares or Option Shares and (ii) to pay, and to require each Executive whose
KEEP Shares, Second Call Option or Option Shares are subject to such Option
exercise to accept payment of the Aggregate Purchase Price therefor or the
Termination Payment in the form of cash or shares of Parent Company Common Stock
or any combination thereof, as determined by the Parent Company; provided,
--------
however, that if NAB is the Parent Company on the Closing Date and is making the
- -------
Termination Payment, it shall also have the right to elect to pay up to 50% of
each Termination Payment, if any, in the form of its three-year promissory note
(the "NAB Note") in accordance with Section 10(e)(iii). If the Parent Company
exercises the Exchange Option or the Termination Right and elects to pay all or
any portion of the Aggregate Purchase Price for such KEEP Shares or Option
Shares or the Termination Payment with shares of Parent Company Common Stock,
then, in such case, the number of shares of Parent Company Common Stock issuable
20
<PAGE>
to any Executive at the applicable Closing thereof shall be that number which is
equal to the quotient (rounded to the nearest whole number) obtained by dividing
so much of such Aggregate Purchase Price or the Termination Payment as the
Parent Company elects to pay in the form of such shares by the Parent Company
Stock Price.
(b) As used in this Agreement, the term "Parent Company Stock Price" means
the average daily market price per share of Parent Company Common Stock during
the thirty (30) consecutive trading days next preceding the date on which the
Parent Company gives notice of exercise of the Exchange Option.
The market price for each such trading day shall be the last sale price on
such day on the New York Stock Exchange, or, if Parent Company Common Stock is
not then listed or admitted to trading on the New York Stock Exchange, on the
American Stock Exchange, or, if Parent Company Common Stock is not then listed
or admitted to trading on the American Stock Exchange, on such other principal
stock exchange on which such stock is then listed or admitted to trading or, if
no sale takes place on such day on any such exchange, the average of the closing
bid and asked prices on such day as officially quoted on any such exchange, or,
if Parent Company Common Stock is not then listed or admitted to trading on any
stock exchange, the market price for each such trading day shall be the last
sale price on such day as reported in the National Association of Securities
Dealers, Inc. Automated Quotations System, or if Parent Company Common Stock is
not on the National Market List, the average of the closing reported bid and
asked prices on such day in the over-the-counter market, as furnished by the
National Quotation Bureau, Inc., or if such firm at the time is not engaged in
the business of reporting such prices, as furnished by any similar firm then
engaged in such business and selected by the Parent Company, or, if there is no
such firm, as furnished by any member of the National Association of Securities
Dealers, Inc. selected by the Parent Company. In the event that, after the
Parent Company exercises an Exchange Option and determines the number of Parent
Company Exchange Shares, there is a change in Parent Company Common Stock
through stock dividend, stock split or stock combination (reverse stock split),
the Board of Directors of the Parent Company shall make such adjustments to the
Exchange Option as may be necessary or appropriate to prevent dilution or
enlargement of rights under the Exchange Option. No such adjustments to the
Exchange Option shall be made as a result of the issuance of shares of the
Parent Company Common Stock by the Parent Company, from time to time, (i) upon
exercise of options or warrants hereunder, heretofore or hereafter granted, (ii)
upon conversion of securities heretofore or hereafter issued by the Parent
Company or any of its subsidiaries into shares of Parent Company Common Stock,
(iii) in connection with any public or private offering of shares of Parent
Company Common Stock or (iv) in connection with any other issuance and sale of
shares of Parent Company Common Stock.
(c) The Exchange Option shall not be exercisable by the Parent Company at
any time
21
<PAGE>
when the Parent Company Common Stock is not generally publicly traded.
Section 10. Option Exercise and Closing Procedures.
- ----------- ---------------------------------------
(a) Exercise by the Company. If the Company desires to exercise the Call
-----------------------
Option or the Third Call Option, it may do so at any time during the applicable
Exercise Period by giving written notice thereof (the "Company Exercise Notice")
to all applicable Selling Stockholders and, if such exercise relates to KEEP
Shares or Option Shares, to the Parent Company.
(b) Exercise by the Executives. If the Executives desire to exercise any
--------------------------
Option granted to them, they may do so at any time during the applicable
Exercise Period only by giving written notice thereof (the "Executive Exercise
Notice") to the Parent Company with respect to the Second Call Options and to
the Company and the Parent Company, if any, with respect to the Put Option and
the Second Put Option. To be effective, an Executive Exercise Notice must be
signed by Management Shareholders then owning more than fifty percent (50%) of
the Management Shares. An Executive Exercise Notice shall be binding upon, and
shall be deemed to have been signed by, all of the persons then owning any
Executive Shares, Second Call Options or Option Shares, as applicable.
Accordingly, by way of example and not by way of limitation, if an Executive
Exercise Notice is given with respect to the Put Option, it shall obligate each
person then owning any Executive Shares to sell all of his Executive Shares to
the Company pursuant to such exercise of the Put Option or, if the Exchange
Option is thereafter exercised in respect thereof, to the Parent Company
pursuant to such exercise of the Exchange Option, regardless of whether or not
such person signed the related Executive Exercise Notice or desires to sell such
shares.
(c) Exercise by the Parent Company. If the Parent Company desires to
------------------------------
exercise an Exchange Option or the Termination Right (whether or not in
connection with the Exchange Option) or the Bring-Along Right, it may do so by
giving written notice thereof (the "Parent Company Exercise Notice") to the
Company and all applicable Selling Stockholders at any time during the
Termination Right Exercise Period in the case of the Termination Right or, in
the case of an Exchange Option unrelated to the Termination Right, during the
period (the "Exchange Option Exercise Period") beginning on the date the related
Executive Exercise Notice or the related Company Exercise Notice, as
applicable, is given and ending in a date which is thirty (30) days thereafter
or, in the case of the Bring-Along Right, in the Sale Notice. If the Parent
Company elects to pay any portion of the Aggregate Purchase Price or the
Termination Payment in the form of shares of Parent Company Common Stock, the
Parent Company Exercise Notice shall (i) specify the amount, if any, of the
Aggregate Purchase Price or Termination Payment, as applicable, that the Parent
Company is paying in the form of such shares and the amount, if any, thereof, if
any. which it is paying in cash (and, if NAB is then the Parent Company and is
making a Termination Payment, the portion
22
<PAGE>
thereof, if any, which it is paying in the form of a NAB Note), (ii) set forth
the amount of the Parent Company Stock Price and the details of its calculation
thereof and (iii) set forth the number of shares of Parent Company Common Stock,
if any, and the amount of cash, if any, to be delivered or paid to each
applicable Selling Stockholder at the Closing as purchase price for the
Executive Shares or Option Shares or in satisfaction of the Termination Payment.
The percentage of the total consideration payable in the form of shares of
Parent Company Common Stock at any Closing shall be the same for each Selling
Stockholder at the same Closing. By way of example, if the Parent Company
determines to pay to any Selling Stockholder 50% of the total consideration in
the form of shares of Parent Company Common Stock at a Closing, then, in such
case, the Parent Company shall be obligated to pay to each other Selling
Stockholder at the same Closing 50% of such other Selling Stockholder's total
consideration in the form of such shares.
(d) Closing. Except as otherwise provided in this Section 10(d), if an
-------
Executive Exercise Notice or Company Exercise Notice is given (and the related
Exchange Option is not exercised) or if a Parent Company Exercise Notice is
given with respect to a Termination Right, the related Closing shall take place
at 10:00 a.m., local time, on a date determined by the Company or the Parent
Company, as applicable, which date shall not be more than forty-five (45) or
less than thirty-one (31) business days after the date on which the related
Exercise Notice is given. The party determining the Closing Date shall give
notice thereof to the other parties no less than ten (10) days prior thereto.
If the Parent Company exercises an Exchange Option relating to such Executive
Exercise Notice or Company Exercise Notice during the applicable Exchange Option
Exercise Period, then, in such case, the Closing of the purchase and sale of
shares pursuant to such exercise of the Exchange Option shall take place twenty
(20) business days after the date of the related Parent Company Exercise Notice.
If the Company exercises an Option which it is obligated to exercise by the
terms of this Agreement because of the exercise of an option or a Buy-Out Right
granted in the Option Agreement (a "Mandatory Exercise"), then, in such case,
the Closing related to the Mandatory Exercise (or of any exercise of the
Exchange Option relating thereto) shall occur simultaneously with and at the
location of the closing of the related exercise of such option or Buy-Out Right
under the Option Agreement, and the same shall be deemed to constitute one and
the same Closing for purposes of Section 5(c), 10(c), 10(e)(ii) and 10(e)(iii).
If the Executives give an Exercise Notice with respect to the Second Call
Options pursuant to the second sentence of Section 6(d) or if the Parent Company
gives an Exercise Notice with respect to the Termination Right during the period
specified in the second sentence of Section 6(d), the Closing Date for the
purchase and sale of Option Shares or the making of the Termination Payment, as
applicable, pursuant to such Exercise Notice shall be the date of the closing
of the related Sale Transaction; provided, however, that if such Sale
-------- -------
Transaction is abandoned or terminated or deemed abandoned or terminated
pursuant to Section 11(c), then, in such case, such Exercise Notice shall be
deemed to be revoked and
23
<PAGE>
withdrawn without prejudice to the Executives' right thereafter to exercise the
Second Call Options or the Parent Company's right thereafter to exercise the
Termination Right if and to the extent that such Options or Termination Right
are or become otherwise exercisable in accordance with the terms of this
Agreement.
Except as otherwise provided in the next sentence, the Closing shall take
place at the principal executive offices of the Company (in the case of a
Closing pursuant to an Executive Exercise Notice or a Company Exercise Notice)
or of the Parent Company (in the case of a Closing pursuant to a Parent Company
Exercise Notice) or at such other place as the Company or the Parent Company, as
applicable, may reasonably designate. If an Exercise Notice is given with
respect to any Second Call Option or Termination Right pursuant to the second
sentence of Section 6(d) or during the period specified in such sentence, the
Closing thereof Termination shall take place on the date of and at the time and
at the location of the closing of the related Sale Transaction. If the Closing
under this Agreement and a closing under the Option Agreement take place at or
in connection with a closing of a Sale Transaction, the same shall be deemed to
constitute one and the same Closing for purposes of Sections 5(c), 10(c),
10(e)(ii) and 10(e)(iii).
(e) Deliveries at Closing. At the Closing the applicable parties shall
---------------------
make the following deliveries:
(i) If the Closing relates to a sale of shares of MPS Common Stock to
the Company or the Parent Company, each Selling Stockholder shall deliver
to the Company or the Parent Company, as applicable, the certificate(s)
representing the Executive Shares or Option Shares, as applicable, which
are then being sold by him, together with duly executed stock powers (with
signature guaranty if requested by the transferee, and all necessary tax
stamps, if any) transferring such shares to the Company or the Parent
Company as applicable. In addition, if a Selling Stockholder is a Personal
Representative, he shall deliver to the Company or the Parent Company, as
applicable, evidence of his appointment and qualification as such (and his
authority to sell such shares) satisfactory to the Company or the Parent
Company, as applicable. If the Closing relates to an exercise of the
Termination Right, each Selling Stockholder shall execute and deliver to
the Parent Company, a release and termination of his Second Call Option, in
form and substance satisfactory to the Parent Company.
(ii) If the Company is the purchaser of the Executive Shares or Option
Shares, the Company shall pay the applicable Aggregate Purchase Price to
each applicable Selling Stockholder. If NAB is the Parent Company on the
Closing Date, the Company shall have the right to elect to pay up to fifty
percent (50%) of the Aggregate Purchase Price to each Selling Stockholder
in the form of the Company's
24
<PAGE>
three-year promissory note (the "Note"), which shall be delivered to each
Selling Stockholder at the Closing. Each Note, if any is issued, shall
provide that (A) the principal thereof is payable in twelve (12) equal (or
approximately equal) quarterly installments beginning at the end of the
calendar quarter in which the Closing Date falls, (B) the principal thereof
outstanding from time to time shall bear interest at the rate of nine
percent (9%) per annum payable quarterly in arrears with each installment
of principal, and (C) the Note is prepayable at any time, in whole or in
part, without penalty or premium. Each such Note shall contain such other
terms and provisions as are customary in such instruments as reasonably
determined in good faith by the Company. The percentage of total
consideration payable in the form of a Note shall be the same for each
Selling Stockholder at the same Closing. By way of example, if the Company
determines to pay any Selling Stockholder at a Closing fifty percent (50%)
of his total consideration in the form of a Note, then, in such case, the
Company shall be obligated to pay each other Selling Stockholder at the
same Closing fifty percent (50%) of such other Selling Stockholder's total
consideration in the form of a Note. The Company shall deliver to each
Selling Stockholder that amount of cash, which, when added to the principal
amount of the Note delivered to such Selling Stockholder, equals the total
consideration payable to such Selling Stockholder. If NAB is not the Parent
Company on the Closing Date, the Company shall be obligated to pay the
entire amount of the applicable consideration to each Selling Stockholder
in cash.
(iii) If the Parent Company is the purchaser of the Executive Shares or
Option Shares, as applicable, or if it is making the Termination Payment,
the Parent Company shall deliver the following to each Selling Stockholder
at the Closing: (A) if the Parent Company is paying all or a portion of
such Selling Stockholder's Aggregate Purchase Price or the Termination
Payment with Parent Company Exchange Shares, a stock certificate
representing the applicable number of Parent Company Exchange Shares in the
name of such Selling Stockholder; (B) if the Parent Company is paying all
or a portion of such Selling Stockholder's Aggregate Purchase Price or the
Termination Payment in cash, a payment of the amount thereof in cash to
such Selling Stockholder; (C) if NAB is the Parent Company on the Closing
Date and is issuing a NAB Note in payment of a portion of the Termination
Payment, a duly executed NAB Note in the applicable principal amount
payable to such Selling Stockholder; and (D) if the Parent Company is
paying all or a portion of such Selling Stockholder's Aggregate Purchase
Price or the Termination Payment with Parent Company Exchange Shares, a
Registration Rights Agreement (containing provisions which are customary in
such an agreement) pursuant to which the Parent Company undertakes to file,
within sixty (60) days after the Closing (and to keep effective for a
period of three years thereafter), a Registration Statement with the
Securities and Exchange Commission (on an appropriate form authorized by
such Commission) covering the
25
<PAGE>
future sale (by the Selling Stockholders) of all Parent Company Exchange
Shares being issued to such Selling Stockholders. Such Registration Rights
Agreement shall be duly executed by the Parent Company and dated the
Closing Date; provided, however, that the Parent Company's obligation to
-------- -------
deliver such Registration Rights Agreement is subject to the condition that
the Selling Stockholders shall have executed and delivered the same at the
Closing. The payment and other terms of the NAB Note shall be the same as
the terms specified for the Note in Section 10(e)(ii), mutatis mutandis.
------- --------
The percentage of Termination Payment or Buy-Out Payment payable in the
form of a NAB Note at any Closing shall be the same for each Selling
Stockholder at the same Closing.
(iv) In the case of a Closing pursuant to exercise of the Second Call
Options, (A) NAB shall deliver to each person then purchasing Option Shares
certificate(s), in such person's name, representing the applicable number
of Option Shares which such person is then purchasing and (B) each such
person shall pay to NAB, in cash, the Aggregate Purchase Price for such
shares.
Payments in cash at any Closing shall be made by certified or cashier's
check or, if agreed to by the applicable parties, by wire transfer of funds in
accordance with precise written instructions provided to the paying party by the
receiving party at least three (3) business days prior to the Closing Date.
(f) Limitation on Purchase of Executive Shares; Assignment of Call Option.
---------------------------------------------------------------------
Notwithstanding any other provision of this Agreement and notwithstanding any
exercise of an Option, the Company shall not be obligated to, and shall not,
purchase any Executive Shares or Option Shares pursuant to exercise of an Option
at any time when a Stock Purchase Restriction exists and is applicable;
provided, however, that the existence or applicability of a Stock Purchase
- -------- -------
Restriction shall not prevent exercise of an Option, but shall merely postpone
the Closing of the purchase and sale of Executive Shares or Option Shares
pursuant to such exercise until such time as no Stock Purchase Restriction
exists. The Company shall use reasonable efforts to obtain any consents or
waivers which would eliminate the existence or applicability of any Stock
Purchase Restriction. In the event that a Closing is postponed in accordance
with the second preceding sentence, each Aggregate Purchase Price otherwise
payable at the postponed Closing shall be increased by an interest-like accrual
on such amount at the rate of nine percent (9%) per annum from the date on which
the Closing would have taken place but for the existence of a Stock Purchase
Restriction to the date of the actual Closing. If at any time, the Company is
unable, because of the existence of a Stock Purchase Restriction at such time,
to purchase any Non-KEEP Shares, then, in such case, the Company may assign to
the Parent Company or any other person or entity the Company's rights to
purchase such shares pursuant to exercise of a Call Option.
26
<PAGE>
(g) Board Approval for Exercise. The Company shall not exercise any Option
---------------------------
without the approval of its Board of Directors. The Parent Company shall not
exercise any Exchange Option or Termination Right without the approval of its
Board of Directors.
Section 11. Sale Transactions; Come-Along and Bring-Along Rights.
- ---------- ----------------------------------------------------
(a) If at any time during the Sale Notice Period (as defined below) the
Parent Company proposes to sell more than 50% of the Parent Company's MPS Common
Shares (other than pursuant to exercise of the Second Call Options or the Third
Option) in a private transaction or proposes to sell any such shares in a public
offering (a "Stock Sale Transaction"), or if the Company proposes to sell its
business and substantially all of its assets (an "Asset Sale Transaction"), in
either case to a third-party purchaser or purchasers (the "Purchaser") which is
not a Parent Company Affiliate, in a single transaction or related series of
transactions pursuant to a bona fide offer from, or letter of intent or contract
---- ----
with, a Purchaser or an underwriter, then, in such case, the Parent Company or
the Company, as applicable, shall give each Executive notice thereof (the "Sale
Notice") not less than thirty (30) days prior to the proposed closing thereof;
provided, however, that no Sale Notice is required to be given to any Executive
- -------- -------
who does not then own or hold any Executive Shares or Option Shares or an
outstanding Second Call Option. The Sale Notice shall specify in reasonable
detail the material terms of the Sale Transaction. As used herein, the term
"Sale Transaction" means a Stock Sale Transaction or an Asset Sale Transaction
and (ii) the term "Sale Notice Period" means the period beginning on the date
hereof and ending on the tenth anniversary of the date hereof.
(b) The Management Shareholders, acting as a group, shall have the right
(the "Come-Along Right") to require, as a condition to the consummation of a
Stock Sale Transaction, that the Purchaser acquire that percentage of their KEEP
Shares and Management Option Shares, if any, in the Stock Sale Transaction as
equals the percentage of the Parent Company's MPS Common Shares that are
proposed to be sold in such Stock Sale Transaction and (ii) the Parent Company
shall have the right (the "Bring-Along Right") to require each Executive to sell
that percentage of his KEEP Shares and Management Option Shares, if any, in the
Stock Sale Transaction as equals the percentage of the Parent Company's MPS
Common Shares that are proposed to be sold in such Stock Sale Transaction. In
any Stock Sale Transaction for which a Sale Notice is given prior to April 18,
2005 and which does not constitute and is not part of a public offering of
shares of MPS Common Stock, (A) the purchase price per share payable to each
Executive for his KEEP Shares, if any, shall be determined in accordance with
Section 5(b) and (B) the purchase price per share payable to each Executive for
his Option Shares (assuming exercise of the Second Call Options), if any, shall
be determined in accordance with Section 7(c). In any other Stock Sale
Transaction the purchase price per share payable to each Executive for his KEEP
Shares, if any, and his Option Shares (assuming exercise of the Second Call
Options),
27
<PAGE>
if any, being sold in such transaction shall be the same as the purchase price
per share payable to the Parent Company for the Parent Company's MPS Common
Shares being sold in such transaction. The nature or composition of the
consideration paid to each Executive for his KEEP Shares and Option Shares, if
any, which are being sold in such transaction shall be the same as is applicable
to the Parent Company's MPS Common Shares which are being sold in such
transaction. By way of example, and not be way of limitation, if the aggregate
consideration to be paid by the Purchaser for the Parent Company's MPS Common
Shares consists of 50% cash and 50% promissory note issued by the Purchaser,
then, in such case, the aggregate consideration to be paid to each Executive for
his KEEP Shares and Option Shares, if any, shall consist of 50% cash and 50%
promissory note (having the same terms (other than principal amount) as the
promissory note issued to the Parent Company) issued by the Purchaser.
The Sale Notice relating to a Stock Sale Transaction shall state whether
the Parent Company is exercising its Bring-Along Right. If the Bring-Along
Right is not exercised, the Executives, acting as a group, shall have a period
(the "Come-Along Exercise Period") of twenty (20) days from and after the date
of the Sale Notice to give notice (the "Come-Along Notice") to the Parent
Company of their exercise of the Come-Along Right, which notice shall also state
whether the Executives are then exercising any Second Call Options granted to
them which are then outstanding. If the Come-Along Notice states that the
Executives are then exercising the Second Call Options, then such notice shall
also constitute the Executive Exercise Notice with respect to the Second Call
Options. If the Executives do not exercise the Second Call Options during the
Come-Along Exercise Period, then, in such case, subject to the next sentence,
the Second Call Options shall be deemed to have expired unexercised as of the
end of such period, and the Parent Company shall be free to sell to the
Purchaser in the Stock Sale Transaction, for the Parent Company's own account
and free from such Second Call Options, all of the shares subject to the Second
Call Options. Notwithstanding the preceding sentence, if such Stock Sale
Transaction is abandoned or terminated or deemed abandoned or terminated
pursuant to Section 11(c), then, in such case, such deemed expiration of the
Second Call Options shall be automatically rescinded, and such Second Call
Options shall once again be in effect from and after the date of such actual or
deemed abandonment or termination (unless such Options otherwise shall have
expired by their terms) until the end of the Second Call Option Exercise Period.
To be effective, the Come-Along Notice must be signed by Management
Shareholders who then own more than fifty percent (50%) of the Management
Shares. If the Parent Company does not exercise the Bring-Along Right and if
the Come-Along Notice is not given during the Come-Along Exercise Period, the
Executives shall be deemed to have elected not to participate in such Stock Sale
Transaction.
If any Executive sells any of his KEEP Shares and Option Shares, if any,
in the Stock
28
<PAGE>
Sale Transaction pursuant to an exercise of the Bring-Along Right or the Come-
Along Right, he shall be obligated, on demand, to pay, or to reimburse the
Parent Company for, as applicable, (i) all underwriting expenses and discounts
applicable to his shares in any public offering and (ii) that percentage of all
costs and expenses (including reasonable attorney's fees and disbursements)
incurred by the Parent Company in connection with the Stock Sale Transaction as
equals the percentage obtained by multiplying 100 by a fraction the numerator of
which is the number of shares sold by such Executive in such transaction and the
denominator of which is the total number of shares sold by the Parent Company
and the Management Shareholders (including such Executive) in such transaction.
At any closing of a Stock Sale Transaction which occurs after July 1, 1999, each
Executive shall be obligated to sell and transfer all Non-Keep Shares then owned
by such Executives to the Company or the Company's designee for a purchase per
share equal to the Original Cost.
In any Stock Sale which constitutes or is part of a public offering of
shares of MPS Common Stock, each person selling shares of MPS Common Stock in
such transaction shall be obligated, if so requested by the Company or the
Parent Company, to execute and deliver such underwriting, representation,
standstill and other agreements with the underwriters in such offering are
customary in such transactions or as are executed and delivered by the Parent
Company.
(c) A Sale Notice shall take precedence over any Exercise Notice then
pending or thereafter given except for an Exercise Notice relating to any Second
Call Option, the Termination Right or an Exchange Option relating to any Second
Call Option or the Termination Right. Notwithstanding any other provision of
this Agreement, the Closing related to any Exercise Notice over which a Sale
Notice takes precedence shall not take place unless the related Sale Transaction
is abandoned or terminated. If such Sale Transaction is abandoned or
terminated, such Closing shall take place on a date which in the later to occur
of (i) the thirtieth business day after the date of such abandonment or
termination or (ii) the Closing Date determined in accordance with Section
10(d). A Sale Transaction shall be deemed abandoned or terminated if it is not
consummated within one hundred fifty (150) days after the date of the related
Sale Notice or if the Parent Company or the Company gives notice to the Manager
that such Sale Transaction has been abandoned or terminated
(d) Within one hundred eighty (180) days after the consummation of an Asset
Sale Transaction, the Company shall: (i) in the case of an Asset Sale for which
the date of the Sale Notice is prior to April 18, 2005, purchase all of the
Executive Shares and Option Shares then outstanding for an amount per share (A)
determined in accordance with Section 5(b) for KEEP Shares, (B) determined in
accordance with Section 5(a) for Non-KEEP Shares and (C) determined in
accordance with Section 7(c) for Option Shares or (ii) in the case of any other
Asset Sale Transaction, either (A) purchase all of the Executive Shares and
Option Shares, if any, then outstanding for a price per share equal to their net
book value per share or (B)
29
<PAGE>
adopt a plan of complete liquidation pursuant to which the net assets, if any,
of the Company shall be distributed pro rata to its stockholders (subject to the
--- ----
limitation that the distribution per share on Non-KEEP Shares shall not exceed
the Original Cost) in accordance and compliance with the Company's Certificate
of Incorporation and applicable law. In the case of a purchase of KEEP Shares
and Option Shares pursuant to clause (ii) (A) the preceding sentence, their net
book value per share shall be determined by the Board of Directors of the
Company in good faith. Such determination shall be conclusive and final in the
absence of manifest bad faith or fraud. In determining such net book value, the
Board of Directors shall take into account, among other things, reasonable
reserves for contingent liabilities.
(e) Neither the Come-Along Right nor the Bring-Along Right shall apply, or
be exercisable with respect to, any proposed or actual sale or transfer of any
of the Parent Company's MPS Common Shares to a Parent Company Affiliate;
provided, however, that any subsequent proposed or actual sale or transfer
- -------- -------
thereof by such Parent Company Affiliate to a buyer that is not also a Parent
Company Affiliate shall be subject to such rights as if the prior Parent Company
were the selling party.
Section 12. Sale by NAB to a NAB Affiliate. If the Parent Company sells
----------- ------------------------------
and transfers the Parent Company's MPS Common Shares to any Parent Company
Affiliate, then, in such case, in connection with such sale and transfer, the
transferring Parent Company shall (i) assign to such transferee Parent Company
Affiliate all of the Transferring Parent Company's rights under this Agreement
and (ii) cause such transferee Parent Company Affiliate to become a party to and
assume all of the transferring Parent Company's obligations under this
Agreement, including its obligations under Sections 6 and 11.
Section 13. Examples of Calculations. Schedule I to this Agreement sets
----------- ------------------------
forth examples of certain calculations which may be required to be made pursuant
to this Agreement.
Section 14. Specific Performance. The shares of MPS Common Stock cannot
----------- --------------------
be readily purchased or sold on the open market, and for that reason, among
others, the parties will be irreparably damaged in the event that this Agreement
is not specifically enforced. Should any controversy arise concerning a sale or
disposition of any shares of MPS Common Stock, an injunction may be issued
restraining any sale or disposition pending the determination of such
controversy, and the resolution thereof shall be enforceable in a court of
equity by an injunction or a decree of specific performance. However such
remedy shall be cumulative and not exclusive, and shall be in addition to any
other remedies at law or in equity which the parties may have.
Section 15. Amendments. No amendments to this Agreement or waiver or
----------- ----------
discharge to any provision hereof shall be made or be effective unless the same
(i) is in
30
<PAGE>
writing; (ii) is signed by an authorized officer of each of the Company and the
Parent Company, if any, (iii) is approved by the Boards of Directors of the
Company and the Parent Company, if any; and (iv) is signed by Management
Shareholders then owning more than fifty percent (50%) of the Management Shares;
provided, however, that, if any such amendment, waiver or discharge would
- -------- -------
materially and adversely affect the rights or obligations (under this Agreement
or the Option Agreement) of fewer than all of the Management Shareholders then
owning Management Shares then, in such case, such amendment, waiver or discharge
shall not be made or be effected unless it is also signed by the Management
Shareholders whose rights and obligations are adversely affected.
Section 16. Termination. This Agreement shall terminate on the earlier to
---------- -----------
occur of:
(i) the date on or by which both of the following events shall have
occurred: (A) all of the Executive Shares shall have been purchased by
the Company or the Parent Company or by a Purchaser in a Stock Sale
Transaction and (B) either (x) all of the Option Shares, if any, shall
have been purchased by the Company or the Parent Company or by a
Purchaser in a Stock Sale Transaction or (y) it shall have been
determined that no shares of the Parent Company's MPS Common Shares are
then or will thereafter become subject to any Second Call Options or
(z) the Second Call Options shall have been terminated pursuant to one
or more exercises of the Termination Right and the making of one or
more Termination Payments;
(ii) the date on which any shares of MPS Common Stock are sold in a
public offering; or
(iii) the tenth anniversary of the date of this Agreement.
Section 17. Notices. All notices, requests, demands and other
---------- -------
communications hereunder must be in writing and shall be deemed to have been
duly given if delivered by hand or mailed by first class, registered or
certified mail, return receipt requested, postage and registry fees prepaid, and
addressed as follows:
(a) If to the Company:
Mortgage Portfolio Services, Inc.
LBJ Financial Center
5520 LBJ Freeway, Suite 200
Dallas, TX 75024
Attn: Chairman of the Board
31
<PAGE>
(b) If to the Parent Company or the Company:
NAB Asset Corp.
19200 Von Karman Ave., Suite 950
Irvine, CA 93612
Attn: President
(c) If to any Executive, at the address set forth below his name on the
signature page(s) hereof.
Any of the foregoing parties by notice in writing mailed to the other parties
may change the name and address to which notices, requests, demands and other
communications to him shall be mailed.
Any notice or other communication pursuant to this Agreement shall be deemed
to have been duly given or made and to have become effective (i) when delivered
in hand to the party to which it is directed, or, if sent by certified or
registered mail, return receipt requested, or by telex, facsimile transmission
or telegraph, and properly transmitted and addressed in accordance with of this
Section 17 when received by the addressee, or (ii) on the third business day
following the day of the dispatch thereof, whichever of (i) or (ii) shall be the
earlier.
Section 18. Acknowledgment Regarding Option Agreement. Each of the
---------- -----------------------------------------
Executives acknowledges that the Company has provided him with a copy of the
Option Agreement and he has had an opportunity to read it before signing this
Agreement.
Section 19. Miscellaneous. This Agreement (i) contains the entire
---------- -------------
understanding of the parties with respect to the subject matter hereof; (ii)
supersedes all prior agreements and understandings if any, with respect to such
subject matter; (iii) shall inure to the benefit of and be binding upon the
Company, NAB and the Executives and their respective successors, permitted
assigns, personal representatives and heirs; (iv) shall be governed and
construed in accordance with the laws of the State of Delaware without regard to
principles of conflicts of laws; and (v) may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
taken further shall constitute one and the same instrument.
End of Text of Agreement.
Signatures appear on next page.
32
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
MORTGAGE PORTFOLIO SERVICES, INC. THE EXECUTIVES:
By: __________________________ ______________________________
Name: Michael W. Caton James E. Hinton
Title: Chairman of the Board 5420 Hilton Head Drive
Dallas, TX 75287
NAB ASSET CORPORATION ______________________________
David Walden
By: __________________________ 1204 Oakmont Place
Name: Michael W. Caton Richardson, TX 75081
Title: President
______________________________
Donald J. Heibel
1509 Leese Place
Flower Mound, TX 75028
________________________________
Diana Mathis
132 Stagecoach Drive
Red Oak, TX 75154
_______________________________
James R. Ovington
1. 3213 Briole Lane
Grapevine, TX 76051
33
<PAGE>
EXHIBIT 10.17
OPTION AGREEMENT
This Agreement dated as of May 1, 1997 is among Mortgage Portfolio
Services, Inc., a Delaware corporation (the "Company"); NAB Asset Corporation, a
Texas corporation ("NAB"); and Gordon S. Stockwell (the "Manager").
Capitalized terms used in this Agreement are defined in the preceding sentence
or in Section 1.
Recitals
--------
a. The Manager is currently serving as a key employee and manager of the
Company and of MPS Funding Corporation, which is a wholly-owned subsidiary of
the Company.
b. NAB is currently the owner of more than 80% of the outstanding shares
of MPS Common Stock.
c. The MPS Common Stock is not publicly traded.
d. To provide the Manager additional incentive in the performance of his
duties as a key employee of the Company and MPS Funding Corporation, the Company
and NAB desire to grant the Executive certain options, which may become
exercisable under certain circumstances, to purchase certain shares of MPS
Common Stock.
e. The Executive has requested that the Company and NAB provide him with a
means, under certain circumstances, of selling or exchanging the shares of MPS
Common Stock, if any, that he may acquire pursuant to said options and the
Company and NAB are willing to do so, under the terms and conditions hereinafter
set forth.
NOW THEREFORE, in consideration of their mutual promises contained herein,
the parties agree as follows:
Section 1. Interpretation
- ---------- --------------
(a) Definitions. As used in this Agreement, the following terms have the
-----------
following meanings:
"Adjusted Total Economic Value" means an amount equal to the Total Economic
Value as of the applicable Determination Date minus the Reserve Amount as of
such date.
"Agreement" means this Agreement, as the same may be amended from time to
time.
<PAGE>
"Aggregate Purchase Price" means, with respect to any purchase of shares of
MPS Common Stock from the owner thereof pursuant to the exercise of an option
granted in this Agreement, an amount, stated in United States Dollars, equal to
the product of (i) the price per share payable for such shares multiplied by
(ii) the total number of such shares being purchased from such owner.
"Asset Sale Transaction" is defined in Section 11(a)
"Bring Along Right" is defined in Section 11(b)
"Buy-Out Payment" means either of the First Buy-Out Payment and the Second
Buy-Out Payment.
"Buy-Out Right" means either of the First Buy-Out Right or the Second Buy-
Out Right.
"Budgeted Pre-Tax Income" means, with respect to any fiscal year,
forecasted Pre-Tax Income for such year as set forth in a budget approved by the
Company's Board of Directors by no later than May 31 of such year.
"Call Option" has the meaning given to such term in the Stockholders
Agreement.
"Closing" means the closing of (i) any purchase or sale of shares of MPS
Common Stock from or to the Manager pursuant to this Agreement (including a
Stock Sale Transaction) or (ii) the making of a Buy-Out Payment.
"Closing Date" means the date on which a Closing occurs.
"Come-Along Exercise Period" is defined in Section 11(b).
"Come-Along Notice" is defined in Section 11(b).
"Come-Along Right" is defined in Section 11(b)
"Company" is defined in the opening paragraph of this Agreement.
"Company Exercise Notice" is defined in Section 10(a).
"CPS" means Consumer Portfolio Services, Inc., a California corporation.
"Determination Date" means, for all purposes of this Agreement, the end of
the
2
<PAGE>
three-month calendar period (March 31, June 30, September 30 or December 31)
next preceding the date which is the earliest to occur of (i) the date on which
the Manager's Employment terminates or (ii) the date on which the First Buy-Out
Right is exercised or (iii) the date on which the Second Option is exercised;
provided, however, that if a Sale Notice is given to the Manager prior to such
- -------- -------
exercise of the First Buy-Out Right or the Second Option and prior to the
termination of his Employment, then, in such case, unless and until the related
Sale Transaction is abandoned or terminated or deemed abandoned or terminated
pursuant to Section 11(c), "Determination Date" means the end of the three-month
calendar period (March 31, June 30, September 30 or December 31) next preceding
the date on which such Sale Notice is given.
"Determination Notice" is defined in Section 5(c).
"Employment" and "Employed" means, with respect to the Manager, his full-
time employment with (or being employed on a full-time basis by) the Company or
any Subsidiary, either directly or through a business entity which leases his
services to the Company or any Subsidiary.
"Exchange Option" is defined in Section 9(a)
"Exchange Option Exercise Period" is defined in Section 10(c).
"Executive" has the meaning given to such term in the Stockholders
Agreement. As of the date of this Agreement, the Executives are James E.
Hinton, David Walden, Donald J. Heibel, Diana Mathis and James R. Ovington.
"Executive Option Shares" means "Option Shares" as such term is defined in
the Stockholders Agreement.
"Executive Shares" means, at any time, the shares of MPS Common Stock
(other than Executive Option Shares) owned by the Executives or their permitted
transferees, if any, at such time. On the date hereof, the number of Executive
Shares owned by each Executive is as follows:
3
<PAGE>
<TABLE>
<CAPTION>
Name No. Shares
---- ----------
<S> <C>
James E. Hinton 750
David Walden 350
Donald J. Heibel 350
Diana Mathis 50
James R. Ovington 50
</TABLE>
"Executive Shares Number" means two thousand (2,000), subject to
appropriate adjustment in the event of any stock split, stock combination
(reverse stock split) or stock dividend of or on the outstanding shares of MPS
Common Stock. By way of example, if the Company were to effect a two-for-one
split of MPS Common Stock, the Executive Shares Number would be changed to four
thousand (4,000). By way of additional example, if the Company were to effect a
one-for-four reverse stock split of MPS Common Stock, the Executive Shares
Number would be changed to five hundred (500).
"Exercise Notice" means any of a Company Exercise Notice, a Manager
Exercise Notice, a Parent Company Exercise Notice, the Come-Along Notice and
notice of exercise of the Bring-Along Right contained in a Sale Notice, as
applicable.
"Exercise Period" means any of the First Option Exercise Period, the Second
Option Exercise Period, the Third Option Exercise Period, the Fourth Option
Exercise Period, the Exchange Option Exercise Period, the First Buy-Out Right
Exercise Period, the Second Buy-Out Right Exercise Period and the Come-Along
Exercise Period, as applicable.
"First Buy-Out Right Exercise Period" is defined in Section 3(e).
"First Buy-Out Payment" is defined in Section 3(e).
"First Buy-Out Right" is defined in Section 3(e).
"First KEEP Determination Date" is defined in Section 3(b)(i).
"First Option" is defined in Section 3(a).
"First Option Exercise Period" is defined in Section 3(c).
"First Option Purchase Price" is defined in Section 3(a).
4
<PAGE>
"First Option Shares" is defined in Section 3(a).
"First Year" is defined in Section 3(b)(i).
"Fourth Option" is defined in Section 8(a).
"Fourth Option Commencement Date" means a date which is the later to occur
of (i) a date which is the next day after the Closing Date on or by which (A)
the First Option shall have been terminated pursuant to the exercise of the
First Buy-Out Right and the making of the First Buy-Out Payment or (B) all First
Option Shares owned by the Manager shall have been purchased by one or both of
the Company and the Parent Company pursuant to one or more exercises of one or
both of the Second Option and the Exchange Option or (ii) a date which is the
next day after the Closing Date for the purchase and sale of Third Option Shares
pursuant to the exercise of the Third Option.
"Fourth Option Exercise Period" is defined in Section 8(b).
"Fourth Option Purchase Price" is defined in Section 8(a).
"GAAP" means generally accepted accounting principals as used by the
Financial Accounting Standards Board and/or the American Institute of
Certificate Public Accountants, consistently applied and maintained through the
periods indicated.
"including" means including without limitation.
"Initial KEEP Consideration" means an amount, stated in United States
Dollars, equal to the lesser of:
(a) the KEEP Amount as of the applicable Determination Date plus Three
Million Three Hundred Thousand Dollars ($3,300,000); or
(b) the sum of (i) the product of (A) such KEEP Amount multiplied by
(B) a fraction the numerator of which is twenty (20) and the denominator of
which is the KEEP Number plus (ii) Three Million Three Hundred Thousand
Dollars ($3,300,000).
The Initial KEEP Consideration may be a negative number.
"Interested Management Shareholders" means, with respect to a Determination
Notice, all Management Shareholders who, at a Closing relating to which such
Determination Notice is given, are to receive a payment from the Company, the
Parent Company or a
5
<PAGE>
Purchaser in an amount calculated in part by reference to the amount of the
Total Economic Value which is the subject of such Determination Notice.
"KEEP Amount" means an amount equal to the lesser of (i) 40% of the Total
Economic Value as of the applicable Determination Date or (ii) 60% of Adjusted
Total Economic Value as of such date. The KEEP Amount may be a negative number.
"KEEP Number" means a number determined by multiplying (i) 100 by (ii) a
fraction the numerator of which is the KEEP Amount and the denominator of which
is Total Economic Value, both as of the applicable Determination Date.
"KEEP Shares" means Executive Shares, if any, which become and are
redesignated as KEEP Shares in accordance with the provisions of Section 5(d) of
the Stockholders Agreement.
"Management Options" means the First Option, the Third Option and the
Second Call Options.
"Management Option Shares" means the First Option Shares, the Third Option
Shares and the Executive Option Shares.
"Management Shareholders" means, at any time, the persons who, at such
time, own or hold any Management Shares.
"Management Shares" means First Option Shares, Third Option Shares, KEEP
Shares, Non-KEEP Shares, and Executive Option Shares; provided, however, that
-------- -------
after July 1, 1999 Non-KEEP Shares shall not be deemed to be, and shall not be
included in the definition of, Management Shares. For purposes of this
definition only, (i) at any time prior to July 2, 1999 all shares which are not
then, but which thereafter may become, subject to the First Option shall be
deemed at such time to be issued and outstanding First Option Shares owned by
the holder of the First Option; (ii) all shares which at any time are then
subject to the First Option shall be deemed at such time to be issued and
outstanding First Option Shares owned by the holder of the First Option; (iii)
all shares which at any time are then or may thereafter become subject to the
Third Option shall be deemed at such time to be issued and outstanding Third
Option Shares owned by the holder of the Third Option; and (iv) all shares
which at any time are then or thereafter may become subject to a Second Call
Option shall be deemed at such time to be issued and outstanding Executive
Option Shares owned by the holder of such Second Call Option.
"Manager" is defined in the opening paragraph of this Agreement. "Manager"
also includes each person or entity who or which, after the date hereof becomes
a party to this Agreement by an agreement in writing which provides, among other
things that such person
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<PAGE>
or entity has assumed all of the Manager's obligations under this Agreement.
"Manager Exercise Notice" is defined in Section 10(b).
"Mandatory Exercise" is defined in Section 10(d).
"MPS Common Stock" means the common stock, par value $0.01 per share, of
the Company.
"MPS Preferred Stock" means the preferred stock, par value $0.01 per share,
of the Company.
"MPS Subsidiary" means, at any time, a corporation more than 50% of whose
voting stock is then owned, directly or indirectly (through one or more other
MPS Subsidiaries), by the Company or whose financial statements the Company is
then otherwise required to consolidate with its own pursuant to GAAP.
"NAB" is defined in the opening paragraph of this Agreement.
"NAB Common Stock" means the common stock, par value $0.10 per share, of
NAB.
"NAB Note" is defined in Section 9(a).
"Non-KEEP Shares" means Executive Shares which have not become KEEP Shares.
"Note" is defined in Section 10(e)(ii).
"Objection Notice" is defined in Section 5(c).
"Objection Notice Period" is defined in Section 5(c).
"Parent Company" means, at any time, the common parent corporation of a
group of corporations of which the Company then is a member, which parent
corporation owns, directly or indirectly (through one or more subsidiaries), at
least 50% of the outstanding shares of MPS Common Stock at such time. As of the
date hereof, NAB is the Parent Company.
"Parent Company Affiliate" means, at any time, any corporation or entity
which at such time owns, directly or indirectly (through one or more
subsidiaries), twenty-five percent (25%) or more of the issued and outstanding
shares of the Parent Company Common Stock. As of the date of this Agreement,
the only Parent Company Affiliate is CPS.
"Parent Company Common Stock" means the common stock of the Parent Company.
As of the date hereof, the NAB Common Stock is the Parent Company Common Stock.
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<PAGE>
"Parent Company Exchange Shares" means the shares of Parent Company Common
Stock, if any, to be issued by the Parent Company at the Closing of an exercise
of an Exchange Option or a Buy-Out Right.
"Parent Company Exercise Notice" is defined in Section 10(c).
"Parent Company's MPS Common Shares" means, at any time, the shares of MPS
Common Stock which are owned by the Parent Company at such time. As of the date
hereof, the Parent Company's MPS Common Shares consist of 8,000 shares of MPS
Common Stock which are owned by NAB.
"Parent Company's MPS Preferred Shares" means, at any time, the shares of
MPS Preferred Stock which are owned by the Parent Company at such time. As of
the date hereof, the Parent Company's MPS Preferred Shares consist of 2,250
shares of MPS Preferred Stock which are owned by NAB.
"Parent Company Stock Price" is defined in Section 9(b).
"Personal Representative" means the executor, administrator or other
representative of the estate of an Executive who has died or the conservator,
receiver or trustee in bankruptcy of or with respect to the person or assets of
an Executive appointed as such by a court of competent jurisdiction.
"Pre-Tax Income" means, for any period, the consolidated income before
income taxes of the Company and the MPS Subsidiaries for such period, computed
in accordance with GAAP. Pre-Tax Income shall not include the results of
operations of any stockholder of the Company. If the Company's financial
statements are audited for any period, Pre-Tax Income for such period shall be
as set forth therein.
"Purchaser" is defined in Section 11(a)
"Put Option" has the meaning given to such term in the Stockholders
Agreement.
"Reserve Amount" means an amount equal to the sum of (i) Two Million Five
Hundred Thousand Dollars ($2,500,000) plus (ii) an amount equal to the product
of (A) Two Million Five Hundred Thousand Dollars ($2,500,000) multiplied by (B)
a fraction the denominator of which is 365 and the numerator of which is the
number of days elapsed from July 10, 1996 through the applicable Determination
Date. The amount calculated pursuant to the preceding sentence shall be reduced
by the amount, if any, of any cash dividends paid by the Company on the Parent
Company's MPS Preferred Shares and by the amount, if any, paid by the Company to
repurchase or redeem any of the Parent Company's MPS Preferred
8
<PAGE>
Shares during the period from the date hereof to such Determination Date.
"Residual KEEP Consideration" means an amount equal to (i) the sum of the
KEEP Amount as of the applicable Determination Date plus Three Million Three
Hundred Thousand Dollars ($3,300,000) minus (ii) the Initial KEEP Consideration
as of such date.
"Sale Notice" is defined in Section 11(a).
"Sale Notice Period" is defined in Section 11(a) .
"Sale Transaction" is defined in Section 11(a).
"Second Buy-Out Payment is defined in Section 6(f).
"Second Buy-Out Right is defined in Section 6(f).
"Second Buy-Out Right Exercise Period" is defined in Section 6(f).
"Second Call Option" has the meaning given to such term in the Stockholders
Agreement.
"Second Option" is defined in Section 4(a).
"Second Option Commencement Date" means the earlier to occur of (i) the
date on which the Manager's Employment terminates, (ii) the date on which the
Put Option is exercised or (iii) April 18, 2003.
"Second Option Exercise Period" is defined in Section 4(b).
"Second Option Purchase Price" is defined in Section 4(b).
"Second KEEP Determination Date" is defined in Section 3(b)(ii).
"Second Put Option" has the meaning given to such term in the Stockholders
Agreement.
"Second Year" is defined in Section 3(b)(ii).
"Selling Stockholder" means a Manager, an Executive or other person or
entity that is obligated to sell shares of MPS Common Stock at a Closing
pursuant to the exercise of the Second Option, the Fourth Option, the Exchange
Option or any option granted in the Stockholders Agreement or that is entitled
to receive a Buy-Out Payment or Termination
9
<PAGE>
Payment at a Closing pursuant to an exercise of a Buy-Out Right or the
Termination Right.
"Stockholders Agreement" means that certain Stockholders Agreement of even
date herewith among the Company, the Parent Company and the Executives.
"Stock Purchase Restriction" means any provision of (i) any agreement,
document or instrument to which the Company is a party, (ii) applicable law or
(iii) the Company's Certificate of Incorporation or By-laws which prohibits, or
the effect of which is to prohibit, (A) the purchase of First Option Shares or
Third Option Shares by the Company pursuant to the exercise of the Second Option
or the Fourth Option or the making of a Buy-Out Payment pursuant to an exercise
of a Buy-Out Right.
"Stock Sale Transaction" is defined in Section 11(a).
"Termination Payment" has the meaning given to such term in the
Stockholders Agreement.
"Termination Right" has the meaning given to such term in the Stockholders
Agreement.
"Third Call Option" has the meaning given to such term in the Stockholders
Agreement.
"Third KEEP Determination Date" is defined in Section 3(b)(iv).
"Third Option" is defined in Section 6(a).
"Third Option Exercise Period" is defined in Section 6(d).
"Third Option Purchase Price" is defined in Section 6(c).
"Third Option Shares" is defined in Section 6(b).
"Third Year" is defined in Section 3(b)(iv).
"Total Economic Value" means, as of any Determination Date, the fair market
value of one hundred percent (100%) of the equity ownership of the Company on
such date, determined in accordance with the provisions of Section 3(c).
"Transfer" means (i) when used as a verb, to sell, assign, transfer,
encumber, pledge or otherwise dispose of; and (ii) when used as a noun, a sale,
transfer, encumbrance, pledge
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<PAGE>
or other disposition.
"Valuation" means the amount stated to be the Total Economic Value in a
Valuation Report or, if Total Economic Value is stated in a Valuation Report to
be within a range of amounts, the mid-point or average of such range.
"Valuation Agreement" is defined in Section 5(c).
"Valuation Firm" is defined in Section 5(c).
"Valuation Report" is defined in Section 5(c).
(b) Provisions Pertaining to Interpretation. For all purposes of this
---------------------------------------
Agreement:
(i) references to any person refer to such person and his successors
in title and assigns or (as the case may be) his successors, assigns,
heirs, executors, administrators or other legal representatives;
(ii) references to any agreement, instrument or document refer to such
agreement, instrument or document as originally executed, or, if
subsequently varied, supplemented, amended, restated, or replaced from time
to time, as so varied, supplemented, amended, restated or replaced and in
effect at the relevant time of reference thereto;
(iii) words importing the singular only shall include the plural and
vice versa; and pronouns in any gender are to be construed as masculine,
---- -----
feminine or neuter as the context requires; and all references to dollars
shall be in United States Dollars.
Section 2. Restrictions on Transfer; Legend.
- ---------- ------------------------ -------
The Manager shall not Transfer any of his First Option Shares or Third
Option Shares prior to April 18, 2006 except (i) pursuant to the exercise of the
Second Option, the Fourth Option or a Buy-Out Right, (ii) in accordance with
Section 11 or (iii) upon the death of the Manager, by will or the laws of
descent and distribution; provided, however, that a Transfer pursuant to
-------- -------
preceding clause (iii) shall not be effective and the Company shall not be
obligated to record such Transfer on its books or to issue a certificate
representing the shares so Transferred in the name of the transferee unless and
until such transferee shall have executed an agreement, in form and substance
satisfactory to the Company's Board of Directors, by which such transferee
becomes a party to this Agreement and to be bound
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<PAGE>
hereby to the same extent as the Manager was prior to his death.
Each certificate evidencing First Option Shares and Third Option Shares
shall be stamped or otherwise imprinted with a legend in substantially the
following form:
The securities represented by this certificate are subject to
restrictions on transfer and other provisions contained in an Option
Agreement dated as of May 1, 1997 among the issuer of such securities (the
"Company") and certain stockholders of the Company. A copy of such
Agreement will be furnished without charge by the Company to the holder
hereof upon written request.
The securities represented by this certificate have not been
registered under the Securities Act of 1933. The shares have been acquired
for investment and may not be sold, transferred or assigned in the absence
of an effective registration statements for these securities under the
Securities Act of 1933 or an opinion of the Company's counsel that
registration is not required under said Act.
The first paragraph of the legend set forth above shall be removed from
such certificates upon the earlier to occur of (i) any Transfer thereof pursuant
to exercise of any Option other than the First Option or the Third Option or
(ii) the termination of this Agreement. The second paragraph of such legend
shall be removed if and when the statements made therein are no longer accurate
or applicable.
Section 3. First Option.
- --------- ------------
(a) Grant. Subject to subsections (b) through (h) of this Section 3 and
-----
Sections 5, 9, 10 and 11, the Company hereby grants to the Manager the option
(the "First Option") to purchase that number of shares of MPS Common Stock from
the Company which is determined in accordance with Section 3(b) for a purchase
price of One Thousand Seven Hundred Dollars ($1,700) per share (the "First
Option Purchase Price"). The shares, if any, which become subject to the First
Option are referred to in this Agreement as the "First Option Shares." The term
"First Option Shares," as used in this Agreement also refers to the shares, if
any, which are issued to the Manager pursuant to the exercise of the First
Option. The First Option Purchase Price and the number of First Option Shares
are subject to appropriate adjustment in the event of any stock split, stock
combination (reverse stock split) or stock dividend of or on the outstanding
shares of MPS Common Stock. By way of example, if the Company were to effect a
two-for-one split of MPS Common Stock, the number of First Option Shares (i.e.,
shares, if any, subject to the First Option) would be doubled and the First
Option Purchase Price would be changed to Eight Hundred Fifty
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<PAGE>
Dollars ($850). By way of additional example, if the Company were to effect a
one-for-five reverse stock split, the number of First Option Shares (i.e.,
shares, if any, subject to the First Option) would be changed to one-fifth of
such number and the First Option Purchase Price would be changed to Eight
Thousand Five Hundred Dollars ($8,500).
(b) Number of First Option Shares. The number of shares of MPS Common
-----------------------------
Stock, if any, which become subject to the First Option shall be as follows:
(i) On July 1, 1997 (the "First KEEP Determination Date") one hundred
sixteen (116) shares of MPS Common Stock shall become subject to the First
Option if the Manager has been continuously Employed from the date hereof
through the First KEEP Determination Date. The parties acknowledge and
agree that (A) actual Pre-Tax Income for the fiscal year ended December 31,
1996 (the "First Year") was a negative $351,000 and (B) Budgeted Pre-Tax
Income for the First Year was a negative $457,000.
(ii) On July 1, 1998 (the "Second KEEP Determination Date") one
hundred seventeen (117) shares of MPS Common Stock shall become subject to
the First Option (in addition to any such shares which became First Option
Shares prior thereto) if (A) the Manager has been continuously Employed
from the date hereof through the Second KEEP Determination Date and (B)
either (x) actual Pre-Tax Income for the fiscal year ending December 31,
1997 (the "Second Year") equals or exceeds eighty percent (80%) of Budgeted
Pre-Tax Income for the Second Year or (y) the cumulative actual Pre-Tax
Income for the First Year and the Second Year equals or exceeds eighty
percent (80%) of the cumulative Budgeted Pre-Tax Income for the First Year
and the Second Year. The parties acknowledge and agree that Budgeted Pre-
Tax Income for the Second Year is $2,874,484 and that cumulative Budgeted
Pre-Tax Income for the First Year and the Second Year is $2,417,484.
(iii) In the event that any shares which were eligible to become First
Option Shares on the First KEEP Determination Date did not become First
Option Shares on such date, such shares shall become First Option Shares on
the Second KEEP Determination Date if (A) the Manager has been continuously
Employed from the date hereof through the Second KEEP Determination Date
and (B) the cumulative Pre-Tax Income for the First Year and the Second
Year equals or exceeds eighty percent (80%) of cumulative Budgeted Pre-Tax
Income for the First Year and the Second Year.
(iv) On July 1, 1999 (the "Third KEEP Determination Date") one hundred
seventeen (117) shares of MPS Common Stock shall become subject to the
First Option (in addition to any such shares which became First Option
Shares prior thereto) if (A) the Manager has been continuously Employed
from the date hereof
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<PAGE>
through the Third KEEP Determination Date and (B) either (x) actual Pre-Tax
Income for the fiscal year ending December 31, 1998 (the "Third Year")
equals or exceeds eighty percent (80%) of Budgeted Pre-Tax Income for the
Third Year or (y) the cumulative actual Pre-Tax Income for the First Year,
the Second Year and the Third Year equals or exceeds eighty percent (80%)
of the cumulative Budgeted Pre-Tax Income for the First Year, the Second
Year and the Third Year.
(v) In the event that any shares which were eligible to become First
Option Shares on the First KEEP Determination Date or the Second KEEP
Determination Date did not become First Option Shares on either or both of
such dates, such shares shall become First Option Shares on the Third KEEP
Determination Date, if (A) the Manager has been continuously Employed from
the date hereof through the Third KEEP Determination Date and (B) the
cumulative actual Pre-Tax Income for the First Year, the Second Year and
the Third Year equals or exceeds eighty percent (80%) of the cumulative
Budgeted Pre-Tax Income for the First Year, the Second Year and the Third
Year.
(vi) In the event that a Sale Transaction is consummated prior to the
determination of actual Pre-Tax Income for the Third Year, then, in such
case, for purposes of such Sale Transaction only, all shares potentially
eligible to become subject to the First Option shall be presumed to be
First Option Shares unless the Manager has not been continuously Employed
during the period from the date hereof through the date of the related Sale
Notice. If the Manager has not been continuously Employed throughout such
period, such presumption shall not be applicable, and, for purposes of such
Sale Transaction, the only shares subject to the First Option shall be
those shares, if any, that became such pursuant to any of items (i) through
(iii) of this Section 3(b). The presumption referred to in the second
preceding sentence shall take effect as of the date of the related Sales
Notice; provided, however, that if such Sale Transaction is abandoned or
-------- -------
terminated or deemed abandoned or terminated pursuant to Section 11(c),
then, in such case, such presumption shall no longer be applicable.
(c) Exercise Period. Subject to Section 10, the First Option shall be
---------------
exercisable at any time during the period beginning on July 2, 1999 and ending
on December 31, 2005 In addition, subject to Sections 10 and 11, if a Sale
Notice is given prior to July 1, 1999, then, in such case, the First Option
shall also be exercisable during the Come-Along Exercise Period in the case of a
Stock Sale Transaction or during the 30-day period from and after the date of
the Sale Notice relating to an Asset Sale Transaction. Any period during which a
First Option may be exercised pursuant to this Section 3(c) is referred to in
this Agreement as a "First Option Exercise Period".
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<PAGE>
(d) Non-Assignability. The First Option is not assignable or transferable
-----------------
except by will or the laws of descent and distribution, and the First Option is
exercisable only by the Manager during his lifetime (within the First Option
Exercise Period).
(e) Buy-Out of First Option. Subject to Sections 3(f), 9, 10 and 11, the
-----------------------
Company shall have the right (the "First Buy-Out Right") to terminate the First
Option at any time during the Second Option Exercise Period (and prior to the
Closing of a purchase and sale of First Option Shares pursuant to the exercise
of the First Option) by making a payment (the "First Buy-Out Payment") to the
Manager in an amount equal to the product obtained by multiplying (i) the amount
obtained by subtracting the First Option Purchase Price from the Second Option
Purchase Price by (ii) the number of First Option Shares, in any. which are
subject to the First Option as of the date of the Exercise Notice in which the
First Buy-Out Right is exercised; provided, however, that if the First Option
-------- -------
Purchase Price equals or exceeds the Second Option Purchase Price, then, in such
case the amount of the First Buy-Out Payment shall be One Dollar ($1.00). In
addition, the First Buy-Out Right may be exercised in any Sale Notice given
prior to April 17, 2005. Any period of time during which a First Buy-Out Right
may be exercised is referred to in this Agreement as a "First Buy-Out Right
Exercise Period." If the First Buy-Out Right is exercised after the exercise of
the First Option and prior to the related Closing thereof, then, in such case,
such exercise of the First Buy-Out Right shall supersede and take precedence
over such exercise of the First Option.
(f) Mandatory Exercise of First Buy-Out Right. If the Put Option is
-----------------------------------------
exercised at any time as to all then outstanding KEEP Shares, then, in such
case, (i) Company shall be obligated to exercise the First Buy-Out Right within
10 business days thereafter and (ii) the date of such exercise of the First Buy-
Out Right shall be deemed to be the date of exercise of the Put Option. If the
Call Option is exercised as to any KEEP Shares at any time after April 17, 2003
and prior to April 18, 2005, then, in such case, the Company shall be obligated
to exercise the First Buy-Out Right at the same time. This Section 3(f) shall
not be applicable after the issuance of the First Option Shares to the Manager
pursuant to his exercise of the First Option.
(g) No Stockholder Rights. The Manager shall not have any voting or other
---------------------
rights as a stockholder of the Company with respect to the First Option Shares
unless and until such shares are issued to him pursuant to exercise of the First
Option.
(h) Reservation of Shares. The Company shall reserve a sufficient number
---------------------
of the authorized but unissued shares of MPS Common Stock for issuance of the
First Option Shares upon the exercise thereof.
Section 4. Second Option.
- --------- -------------
15
<PAGE>
(a) Grant. If the First Option Shares are issued to the Manager pursuant
-----
to exercise of the First Option, then, in such case, subject to Sections 4(b),
4(c), 5, 9, 10, and 11, the Company shall have the right and option (the "Second
Option") to purchase all but not less than all, of the First Option Shares for a
purchase price per share (the "Second Option Purchase Price") equal to the
greater of (i) an amount equal to the quotient obtained by dividing (A) the
Initial KEEP Consideration by (B) the Executive Shares Number or (ii) an amount
equal to the quotient obtained by dividing (A) One Dollar ($1.00) by (B) the
number of First Option Shares then being purchased from the Manager.
(b) Exercise Period. The Second Option shall be exercisable at any time
---------------
during the period (the "Second Option Exercise Period") beginning on the Second
Option Commencement Date and ending on April 17, 2005.
(c) Mandatory Exercise. If the Put Option is exercised at any time as to
------------------
all then outstanding KEEP Shares, then, in such case, (i) the Company shall be
obligated to exercise the Second Option as to any First Option Shares then
issued and outstanding within 10 business days after such exercise of the Put
Option and (ii) the date of such exercise of the Second Option shall be deemed
to be the date of exercise of the Put Option. If the Company exercises the Call
Option as to any KEEP Shares at any time after April 17, 2003 and prior to April
18, 2005, then, in such case, the Company shall be obligated to exercise the
Second Option as to all First Option Shares then outstanding at the same time.
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<PAGE>
Section 5. Valuation.
- --------- ----------
(a) Intentionally omitted.
(b) Intentionally omitted.
(c) Determination of Total Economic Value. Upon the giving of an Exercise
-------------------------------------
Notice (which, for purposes of this Section 5(c), also includes an Exercise
Notice as defined in the Stockholders Agreement) in respect of which the
applicable KEEP Amount must be calculated, the Board of Directors of the Parent
Company or, if there is then no Parent Company, the Board of Directors of the
Company shall determine the applicable Total Economic Value and shall provide
such determination in writing (the "Determination Notice") to all Interested
Management Shareholders within ten (10) business days after the date of such
Exercise Notice. The Determination Notice shall set forth the basis for such
determination of Total Economic Value.
If the Interested Management Shareholders, acting as a group (if there is
more than one), desire to object to the determination of the Total Economic
Value set forth in the Determination Notice, they may do so by giving notice
thereof in writing (the "Objection Notice") to the Parent Company or the
Company, as applicable. To be effective, an Objection Notice must (i) be signed
by Interested Management Shareholders owning a majority of the Management Shares
then owned by all Interested Management Shareholders, (ii) set forth their basis
for objecting to the Determination Notice, (iii) specify the Total Economic
Value proposed by them, (iv) set forth their calculation thereof and (v) be
given to the Parent Company or the Company, as applicable, during the period
(the "Objection Notice Period") ending on the tenth (10th) business day after
the date of the related Determination Notice. If the Interested Management
Shareholders fail to give an Objection Notice during the Objection Notice
Period, then, in such case, the determination of Total Economic Value set forth
in the Determination Notice shall be deemed to be accepted and agreed to by
them, and such determination shall be conclusive and binding on the Company, the
Parent Company and all Interested Management Shareholders.
If an Objection Notice is given during the Objection Notice Period, then,
in such case, such Total Economic Value shall be determined in writing (the
"Valuation Report") by a nationally recognized investment firm (the "Valuation
Firm") which is engaged in the valuation of businesses and their securities.
The Valuation Firm shall be selected by the Board of Directors of the Parent
Company or, if there is then no Parent Company, by the Board of Directors of the
Company.
If Total Economic Value is determined by a Valuation Firm pursuant to the
preceding
17
<PAGE>
paragraph and if at the Closing for which Total Economic Value is being
determined the owners of more than 25% of the Management Shares are to receive
payment from the Company, the Parent Company or a Purchaser pursuant to the
terms of this Agreement or the Stockholders Agreement, then, in such case, the
Company shall pay all the fees and expenses of such determination by the
Valuation Firm. In any other case, such fees and expenses shall be paid as
follows: (i) one hundred percent (100%) by the Company if the Valuation is
ninety percent (90%) or less of the Total Economic Value set forth in the
Determination Notice; (ii) one hundred percent (100%) by the Interested
Management Shareholders if the Valuation is one hundred ten percent (110%) or
more of the Total Economic Value set forth in the Determination Notice; and
(iii) fifty percent (50%) by the Company and fifty percent (50%) by the
Interested Management Shareholders if the Valuation is more than ninety percent
(90%) and less than one hundred ten percent (110%) of the Total Economic Value
set forth in the Determination Notice.
The obligations of the Interested Management Shareholders referred to in
the preceding paragraph, if any arise, shall be satisfied by them pro rata based
--- ----
on their ownership of Management Shares (but not based on the ownership of such
shares by any Management Shareholder who is not an Interested Management
Shareholder). By way of example, if an Interested Management Shareholder were
to own ten percent (10%) of the Management Shares owned by all Interested
Management Shareholders, then, in such case, he would be obligated to pay ten
percent (10%) of that portion, if any, of the fees and expenses of the Valuation
Firm which the Interested Management Shareholders are obligated to pay pursuant
to the preceding paragraph. If the Company pays the Valuation Firm for any fees
and expenses which an Interested Management Shareholder is obligated to pay,
then, in such case, such Interested Management Shareholder shall be obligated to
reimburse the Company for the same, and the Company or the Parent Company (on
behalf of the Company) may, but shall not be obligated to, effect such
reimbursement by reducing the amount otherwise payable to him at any Closing.
Notwithstanding the foregoing, Total Economic Value may be determined at
any time by an agreement in writing (the "Valuation Agreement") which (i) is
signed by the Company and by the Parent Company, if any, (ii) is signed by
Interested Management Shareholders who own more than fifty percent (50%) of the
Management Shares owned by all Interested Management Shareholders; and (iii) is
approved by the Boards of Directors of the Company and the Parent Company, if
any. A Valuation Agreement, if entered into, shall be conclusive and binding on
each Interested Management Shareholder even if he is not a signatory thereto,
and on the Company and the Parent Company. If a Valuation Agreement is entered
into, the Company and the Parent Company, as applicable, shall not be obligated
to select a Valuation Firm to determine Total Economic Value, and any
determination of Total Economic Value theretofore made by the Valuation Firm
shall be superseded and replaced by the determination thereof set forth in the
Valuation Agreement.
18
<PAGE>
Section 6. Third Option
- ---------- ------------
(a) Grant. Subject to Sections 6(b), 6(c), 6(d), 6(e), 10 and 11, the
-----
Parent Company hereby grants to the Manager the right and option (the "Third
Option") to purchase that number of the Parent Company's MPS Common Shares
which is determined in accordance with Section 6(b) for a purchase price per
share determined in accordance with Section 6(c).
(b) Number of Third Option Shares. The number of the Parent Company's MPS
------------------------------
Common Shares, if any, which become subject to the Third Option shall be zero
(0) if (i) the number of shares of MPS Common Stock which become First Option
Shares subject to the First Option prior to July 2, 1999 is zero (0) or (ii) the
KEEP Amount constitutes twenty percent (20%) or less of Total Economic Value as
of the applicable Determination Date or (iii) the Third Option Purchase Price is
equal to or greater than the Fourth Option Purchase Price. In any other case,
such number shall be equal to the product obtained by multiplying (A) the
Executive Shares Number by (B) seventeen and one-half percent (17.5%) and by
(C) a fraction the numerator of which is the number of shares of MPS Common
Stock which become First Option Shares subject to the First Option prior to July
2, 1999 and the denominator of which is three hundred fifty (350) (such
denominator being subject to appropriate adjustment in the manner described in
the definition of "Executive Shares Number" in Section 1(a) in the event of any
stock split, stock combination (reverse stock split) or stock dividend of or on
the outstanding shares of MPS Common Stock).
The shares, if any, of MPS Common Stock which become subject to the Third
Option pursuant to this Section 6(b) are referred to in this Agreement as the
"Third Option Shares." The term "Third Option Shares," as used herein also
refers to the shares, if any, which are transferred and assigned to the Manager
pursuant to exercise of the Third Option.
(c) Purchase Price. The purchase per share payable by the Manager at a
--------------
Closing for the Third Option Shares upon exercise of the Third Option (the
"Third Option Purchase Price") shall be One Thousand Seven Hundred Dollars
($1,700), subject to appropriate adjustment in the event of any stock split,
stock combination (reverse stock split) or stock dividend of or on the
outstanding shares of MPS Common Stock. By way of example, if the Company were
to effect a two-for-one split of MPS Common Stock, the Third Option Purchase
Price would be changed to Eight Hundred Fifty Dollars ($850). By way of
additional example, if the Company were to effect a one-for-four reverse stock
split of MPS Common Stock, the Third Option Purchase Price would be changed to
Six Thousand Eight Hundred Dollars ($6,800).
(d) Exercise Period. Subject to Section 10, the Third Option shall be
---------------
exercisable
19
<PAGE>
at any time during the period (i) beginning on a date which is the next day
after the Closing Date on or by which (A) the First Buy-Out Payment shall have
been made to the Manager or all First Option Shares owned by the Manager shall
have been purchased by one or both the Company and the Parent Company pursuant
to exercise of one or more of the First Buy-Out Right, the Second Option and the
Exchange Option and (B) all Executive Shares owned by the Executives shall have
been purchased by one or both of the Company and the Parent Company pursuant to
one or more exercises of the options granted in the Stockholders Agreement and
(ii) ending on July 31, 2005. In addition, subject to Sections 10 and 11, if a
Sale Notice is given prior to July 31, 2005, then, in such case, the Third
Option shall also be exercisable during the Come-Along Exercise Period in the
case of a Stock Sale Transaction or during the 30-day period from and after the
date of the Sale Notice relating to an Asset Sale Transaction. Any period
during which a Third Option may be exercised pursuant to this Section 6(d) is
referred to in this Agreement as a "Third Option Exercise Period."
(e) Non-Assignability. The Third Option is not assignable or
------------------
transferable except by will or the laws of descent and distribution, and the
Third Option may be exercised, if it becomes exercisable, only by the Manager
during his lifetime (within the applicable Exercise Period).
(f) Buy-Out of Third Option. Subject to Sections 9, 10 and 11, the Parent
------------------------
Company shall have the right (the "Second Buy-Out Right") to terminate the Third
Option by making a payment (the "Second Buy-Out Payment") to the Manager in an
amount equal to the product obtained by multiplying (i) the amount obtained by
subtracting the Third Option Purchase Price from the Fourth Option Purchase
Price by (ii) the number of shares subject to the Third Option; provided,
--------
however, that, if the Third Option Purchase Price equals or exceeds the Fourth
- -------
Option Purchase Price, then, in such case, the amount of the Second Buy-Out
Payment shall be One Dollar ($1.00). The Second Buy-Out Right may be exercised,
at any time during any Third Option Exercise Period whether or not the Third
Option has theretofore been exercised; provided, however, that, if the Manager's
-------- -------
Employment terminates prior to the beginning of the Third Option Exercise
Period, then, in such case, the Second Buy-Out Right as to his Third Option may
also be exercised by the Parent Company at any time during the period from and
after the date on which the First Buy-Out Right or Second Option is exercised
until the expiration of the Third Option Exercise Period; and provided, further,
-------- -------
that the Second Buy-Out Right may be exercised in any Sale Notice given prior to
July 31, 2005. If the Parent Company exercises the Termination Right at any
time after the beginning of the Third Option Exercise Period as to any Second
Call Option then outstanding and held by any Executive, then, in such case, if
the Third Option is then outstanding, it shall be obligated to exercise at the
same time its Second Buy-Out Right. If the Second Buy-Out Right is exercised
after the exercise of the Third Option and prior to the related Closing
thereof, then, in such case, such exercise of the
20
<PAGE>
Second Buy-Out Right shall supersede and take precedence over such exercise of
such Second Option. Any period of time during which a Second Buy-Out Right may
be exercised is referred to in this Agreement as a "Second Buy-Out Right
Exercise Period."
(g) No Stockholder Rights. The Manager shall not have any voting or other
---------------------
rights as a stockholder of the Company with respect to the Second Option Shares
unless and until such shares are transferred to him pursuant to exercise of his
Second Option. Prior to such transfer, the Parent Company shall have all of the
rights incident to ownership of such shares.
Section 7. Intentionally omitted.
- ---------
Section 8. Fourth Option.
- --------- -------------
(a) Grant. If any Third Option Shares are transferred and assigned to the
-----
Manager pursuant to the exercise of the Third Option, then, in such case,
subject to Sections 8(b) and 8(c), 9, 10 and 11, the Company shall have the
right and option (the "Fourth Option") to purchase all, but not less than all,
of the Third Option Shares owned by the Manager for a purchase price per share
(the "Fourth Option Purchase Price") equal to the greater of (i) an amount equal
to the quotient obtained by dividing (A) the Residual KEEP Consideration by (B)
the Executive Shares Number or (ii) an amount equal to the quotient obtained by
dividing (A) One Dollar ($1.00) by (B) the number of Third Option Shares then
being purchased from the Manager.
(b) Exercise Period. The Fourth Option shall be exercisable at any time
---------------
during the period (the "Fourth Option Exercise Period") beginning on the Fourth
Option Commencement Date and ending on December 31, 2005.
(c) Mandatory Exercise. If the Second Put Option or the Third Call Option
------------------
is exercised at any time as to all then outstanding Executive Option Shares,
then, in such case, (i) the Company shall be obligated, within 10 business days
after such exercise, to exercise the Fourth Option as to any Third Option Shares
then issued and outstanding and (ii) the date of such exercise of the Fourth
Option shall be deemed to be the date of exercise of the Second Put Option or
the Third Call Option, as applicable.
Section 9. Exchange Option; Parent Company Exchange Shares.
- --------- ------------------------------------------------
(a) Subject to Sections 9(b), 9(c), 10 and 11, if a Buy-Out Right, a
Second Option or a Fourth Option is exercised, then, in any such case, the
Parent Company, if any, shall have the right and option (the "Exchange Option")
(i) to assume the Company's rights and obligations, if any, with respect
thereto and (ii) to pay, and to require the Manager to accept payment of the
Aggregate Purchase Price or the Buy-Out Payment, as applicable, at the
21
<PAGE>
applicable Closing in the form of cash or shares of Parent Company Common Stock
or any combination thereof, as determined by the Parent Company; provided,
--------
however, that if NAB is the Parent Company on the Closing Date and is making the
- -------
Second Buy-Out Payment, it shall also have the right to elect to pay up to fifty
percent (50%) of such payment, if any, in the form of its three-year promissory
note (the "NAB Note") in accordance with Section 10(e)(iii). If the Parent
Company exercises an Exchange Option or the Second Buy-Out Right and elects to
pay all or any portion of the Aggregate Purchase Price or the Buy-Out Payment
with shares of Parent Company Common Stock, then, in such case, the number of
shares of Parent Company Common Stock issuable to the Manager at the applicable
Closing thereof shall be that number which is equal to the quotient (rounded to
the nearest whole number) obtained by dividing so much of such Aggregate
Purchase Price or the Buy-Out Payment as the Parent Company elects to pay in the
form of such shares by the Parent Company Stock Price.
(b) As used in this Agreement, the term "Parent Company Stock Price" means
the average daily market price per share of Parent Company Common Stock during
the thirty (30) consecutive trading days next preceding the date on which the
Parent Company gives notice of exercise of the Exchange Option.
The market price for each such trading day shall be the last sale price on
such day on the New York Stock Exchange, or, if Parent Company Common Stock is
not then listed or admitted to trading on the New York Stock Exchange, on the
American Stock Exchange, or, if Parent Company Common Stock is not then listed
or admitted to trading on the American Stock Exchange, on such other principal
stock exchange on which such stock is then listed or admitted to trading or, if
no sale takes place on such day on any such exchange, the average of the closing
bid and asked prices on such day as officially quoted on any such exchange, or,
if Parent Company Common Stock is not then listed or admitted to trading on any
stock exchange, the market price for each such trading day shall be the last
sale price on such day as reported in the National Association of Securities
Dealers, Inc. Automated Quotations System, or if Parent Company Common Stock is
not on the National Market List, the average of the closing reported bid and
asked prices on such day in the over-the-counter market, as furnished by the
National Quotation Bureau, Inc., or if such firm at the time is not engaged in
the business of reporting such prices, as furnished by any similar firm then
engaged in such business and selected by the Parent Company, or, if there is no
such firm, as furnished by any member of the National Association of Securities
Dealers, Inc. selected by the Parent Company. In the event that, after the
Parent Company exercises an Exchange Option and determines the number of Parent
Company Exchange Shares, there is a change in Parent Company Common Stock
through stock dividend, stock split or stock combination (reverse stock split),
the Board of Directors of the Parent Company shall make such adjustments to the
Exchange Option as may be necessary or appropriate to prevent dilution or
enlargement of rights under the Exchange Option. No such adjustments to the
Exchange
22
<PAGE>
Option shall be made as a result of the issuance of shares of the Parent Company
Common Stock by the Parent Company, from time to time, (i) upon exercise of
options or warrants hereunder, heretofore or hereafter granted, (ii) upon
conversion of securities heretofore or hereafter issued by the Parent Company or
any of its subsidiaries into shares of Parent Company Common Stock, (iii) in
connection with any public or private offering of shares of Parent Company
Common Stock or (iv) in connection with any other issuance and sale of shares of
Parent Company Common Stock.
(c) The Exchange Option shall not be exercisable by the Parent Company at
any time when the Parent Company Common Stock is not generally publicly traded.
Section 10. Option Exercise and Closing Procedures.
- ----------- ---------------------------------------
(a) Exercise by the Company. If the Company desires to exercise the First
-----------------------
Buy-Out Right, the Second Option or the Fourth Option, it may do so at any time
during the applicable Exercise Period by giving written notice thereof (the
"Company Exercise Notice") to the Manager and to the Parent Company, if any.
(b) Exercise by the Manager. If the Manager desires to exercise the First
-----------------------
Option or the Third Option or the Come-Along Right, he may do so at any time
during the applicable Exercise Period by giving written notice thereof (the
"Manager Exercise Notice") to the Company and the Parent Company, if any.
(c) Exercise by the Parent Company. If the Parent Company desires to
------------------------------
exercise an Exchange Option, the Second Buy-Out Right (whether or not in
connection with the Exchange Option) or the Bring-Along Right, it may do so by
giving written notice thereof (the "Parent Company Exercise Notice") to the
Company and the Manager any time during the Second Buy-Out Right Exercise
Period, in the case of the Second Buy-Out Right, or, in the case of an Exchange
Option unrelated to the Second Buy-Out Right, during the period (the "Exchange
Option Exercise Period") beginning on the date the related Manager Exercise
Notice or the related Company Exercise Notice, as applicable, is given and
ending in a date which is thirty (30) days thereafter or, in the case of the
Bring-Along Right, in the Sale Notice. If the Parent Company elects to pay any
portion of the Aggregate Purchase Price or the applicable Buy-Out Payment in the
form of shares of Parent Company Common Stock, the Parent Company Exercise
Notice shall (i) specify the amount, if any, of the Aggregate Purchase Price or
Buy-Out Payment, as applicable, that the Parent Company is paying in the form of
such shares and the amount, if any, thereof, which it is paying in cash (and, if
NAB is then the Parent Company and is making a Second Buy-Out Payment, the
portion thereof, if any, which it is paying in the form of a NAB Note), (ii) set
forth the amount of the Parent Company Stock Price and the details of its
calculation thereof and (iii) set forth the number of shares of Parent Company
Common Stock, if any, and the amount
23
<PAGE>
of cash, if any, to be delivered or paid to the Selling Stockholder at the
Closing as purchase price for the First Option Shares or the Second Option
Shares, as applicable, or in satisfaction of the applicable Buy-Out Payment. The
percentage of the total consideration payable in the form of shares of Parent
Company Common Stock at any Closing shall be the same for each Selling
Stockholder at the same Closing. By way of example, if the Parent Company
determines to pay to any Selling Stockholder 50% of his total consideration in
the form of shares of Parent Company Common Stock at a Closing, then, in such
case, the Parent Company shall be obligated to pay to each other Selling
Stockholder at the same Closing 50% of such other Selling Stockholder's total
consideration in the form of such shares.
(d) Closing. Except as otherwise provided in this Section 10(d), if a
-------
Manager Exercise Notice or Company Exercise Notice is given (and the related
Exchange Option is not exercised) or if a Parent Company Exercise Notice is
given with respect to a Second Buy-Out Right, the related Closing shall take
place at 10:00 a.m., local time, on a date determined by the Company or the
Parent Company, as applicable, which date shall not be more than forty-five (45)
or less than thirty-one (31) business days after the date on which the related
Exercise Notice is given. The party determining the Closing Date shall give
notice thereof to the other parties not less than ten (10) days prior thereto.
If the Parent Company exercises an Exchange Option relating to a Manager
Exercise Notice or Company Exercise Notice during the applicable Exchange Option
Exercise Period, then, in such case, the Closing related thereto shall take
place on a date which is twenty (20) business days after the date of the related
Parent Company Exercise Notice. If the Company exercises the First Buy-Out
Right, the Second Option or the Fourth Option pursuant to Sections 3(f), 4(c) or
8(c) or if the Parent Company exercises the Second Buy-Out Right pursuant to the
third sentence of Section 6(f), (each a "Mandatory Exercise") then, in such
case, the Closing related to the Mandatory Exercise (or of any exercise of the
Exchange Option relating thereto) shall occur simultaneously with and at the
location of the closing of the related exercise of the Put Option, the Call
Option, the Termination Right, the Second Put Option or the Third Call Option,
as applicable, and the same shall be deemed to constitute one and the same
Closing for purposes of Sections 5(c) 10(c), 10(e)(ii) and 10(e)(iii).
If the Manager gives an Exercise Notice with respect to the First Option
pursuant to the second sentence of Section 3(c)or with respect to the Third
Option pursuant to the second sentence of Section 6(d) or if the Company gives
an Exercise Notice with respect to the First Buy-Out Right during the period
specified in the second sentence of Section 3(e) or if the Parent Company gives
an Exercise Notice with respect to the Second Buy-Out Right during the period
specified in the second sentence of Section 6(d), the related Closing Date shall
be the date of the closing of the related Sale Transaction; provided, however,
-------- -------
that if such Sale Transaction is abandoned or terminated or deemed abandoned or
terminated pursuant to Section 11(c), then, in such case, such Exercise Notice
shall be deemed to be revoked and withdrawn without prejudice to the Executives'
right thereafter to exercise the Third Option
24
<PAGE>
or the Parent Company's right thereafter to exercise the First Buy-Out Right or
the Company's right thereafter to exercise the Second Buy-Out Right, as
applicable, if and to the extent that such Option or Buy-Out Right is or becomes
otherwise exercisable in accordance with the terms of this Agreement.
Except as otherwise provided in the next sentence, the Closing shall take
place at the principal executive offices of the Company (in the case of a
Closing pursuant to a Manager Exercise Notice or a Company Exercise Notice) or
of the Parent Company (in the case of a Closing pursuant to a Parent Company
Exercise Notice) or at such other place as the Company or the Parent Company, as
applicable, may reasonably designate. If an Exercise Notice is given with
respect to the First Option pursuant to the second sentence of Section 3(c) or
with respect to the Third Option pursuant to the second sentence of Section 6(d)
or with respect to the First Buy-Out Right during the period specified on the
second sentence of Section 3(e) or with respect to the Second Buy-Out Right
during the period specified in the second sentence of Section 6(d), the related
Closing shall take place on the date of and at the time and at the location of
the closing of the related Sale Transaction. If a Closing under this Agreement
and a closing under the Stockholders Agreement take place at or in connection
with a closing of a Sale Transaction, the same shall be deemed to constitute one
and the same Closing for purposes of Sections 5(c), 10(c), 10(e)(ii) and
10(e)(iii).
(e) Deliveries at Closing. At the Closing the applicable parties shall
---------------------
make the following deliveries:
(i) If the Closing relates to a sale of shares of MPS Common Stock to
the Company or the Parent Company, each Selling Stockholder shall deliver
to the Company or the Parent Company, as applicable, the certificate(s)
representing the First Option Shares or the Third Option Shares, as
applicable, which are then being sold by him, together with duly executed
stock powers (with signature guaranty if requested by the transferee, and
all necessary tax stamps, if any) transferring such shares to the Company
or the Parent Company as applicable. In addition, if a Selling Stockholder
is a Personal Representative, he shall deliver to the Company or the Parent
Company, as applicable, evidence of his appointment and qualification as
such (and his authority to sell such shares) satisfactory to the Company or
the Parent Company, as applicable. If the Closing relates to an exercise
of a Buy-Out Right, the Selling Stockholder shall execute and deliver to
the Company or the Parent Company, as applicable, a release and termination
of the option being terminated by the exercise of such Buy-Out Right, in
form and substance satisfactory to the Company or the Parent Company, as
applicable.
(ii) If the Company is the purchaser of the First Option Shares or the
Third Option Shares or is making the First Buy-Out Payment, the Company
shall pay the
25
<PAGE>
applicable Aggregate Purchase Price or the First Buy-Out Payment to the
Selling Stockholder. If NAB is the Parent Company on the Closing Date, the
Company shall have the right to elect to pay up to fifty percent (50%) of
such Aggregate Purchase Price or First Buy-Out Payment to the Selling
Stockholder in the form of the Company's three-year promissory note (the
"Note"), which shall be delivered to the Selling Stockholder at the
Closing. The Note, if any is issued, shall provide that (A) the principal
thereof is payable in twelve (12) equal (or approximately equal) quarterly
installments beginning at the end of the calendar quarter in which the
Closing Date falls, (B) the principal thereof outstanding from time to time
shall bear interest at the rate of nine percent (9%) per annum payable
quarterly in arrears with each installment of principal, and (C) the Note
is prepayable at any time, in whole or in part, without penalty or premium.
The Note shall contain such other terms and provisions as are customary in
such instruments as reasonably determined in good faith by the Company.
The percentage of the total consideration payable in the form of a Note
shall be the same for each Selling Stockholder at the same Closing. By way
of example, if the Company determines to pay any Selling Stockholder at a
Closing fifty percent (50%) of his Aggregate Purchase Price in the form of
a Note, then, in such case, the Company shall be obligated to pay each
other Selling Stockholder at the same Closing fifty percent (50%) of such
other Selling Stockholder's Aggregate Purchase Price in the form of a Note.
The Company shall deliver to the Selling Stockholder that amount of cash,
which, when added to the principal amount of the Note delivered to such
Selling Stockholder, equals the total consideration payable to such Selling
Stockholder. If NAB is not the Parent Company on the Closing Date, the
Company shall be obligated to pay the entire amount of the applicable
consideration to the Selling Stockholder in cash.
(iii) If the Parent Company is the purchaser of the First Option
Shares or the Third Option Shares, as applicable, or if it is making a Buy-
Out Payment, the Parent Company shall deliver the following to the Selling
Stockholder at the Closing: (A) if the Parent Company is paying all or a
portion of such Selling Stockholder's Aggregate Purchase Price or the Buy-
Out Payment with Parent Company Exchange Shares, a stock certificate
representing the applicable number of Parent Company Exchange Shares in the
name of such Selling Stockholder; (B) if the Parent Company is paying all
or a portion of such Selling Stockholder's Aggregate Purchase Price or a
Buy-Out Payment in cash, a payment of the amount thereof in cash to such
Selling Stockholder; (C) if NAB is the Parent Company on the Closing Date
and is issuing a NAB Note in payment of a portion of the Second Buy-Out
Payment, a duly executed NAB Note in the applicable principal amount
payable to such Selling Stockholder; and (D) if the Parent Company is
paying all or a portion of such Selling Stockholder's Aggregate Purchase
Price or a Buy-Out Payment with Parent Company Exchange Shares, a
Registration Rights Agreement (containing provisions which are
26
<PAGE>
customary in such an agreement) pursuant to which the Parent Company
undertakes to file, within sixty (60) days after the Closing (and to keep
effective for a period of three years thereafter), a Registration Statement
with the Securities and Exchange Commission (on an appropriate form
authorized by such Commission) covering the future sale (by the Selling
Stockholders) of all Parent Company Exchange Shares being issued to such
Selling Stockholders. Such Registration Rights Agreement shall be duly
executed by the Parent Company and dated the Closing Date; provided,
--------
however, that the Parent Company's obligation to deliver such Registration
-------
Rights Agreement is subject to the condition that the Selling Stockholders
shall have executed and delivered the same at the Closing. The payment and
other terms of the NAB Note shall be the same as the terms specified for
the Note in Section 10(e)(ii), mutatis mutandis. The percentage of Second
----------------
Buy-Out Payment or Termination Payment payable in the form of a NAB Note at
any Closing shall be the same for each Selling Stockholder at the same
Closing.
(iv) In the case of a Closing pursuant to exercise of the First
Option, (A) the Company shall deliver to each person then purchasing First
Option Shares certificate(s), in such person's name, representing the
applicable number of First Option Shares which such person is then
purchasing and (B) each such person shall pay to the Company, in cash, the
Aggregate Purchase Price for such shares.
(v) In the case of a Closing pursuant to exercise of the Third
Option, (A) NAB shall deliver to each person then purchasing Third Option
Shares certificate(s), in such person's name, representing the applicable
number of Third Option Shares which such person is then purchasing and (B)
each such person shall pay to NAB, in cash, the Aggregate Purchase Price
for such shares.
Payments in cash at any Closing shall be made by certified or cashier's
check or, if agreed to by the applicable parties, by wire transfer of funds in
accordance with precise written instructions provided to the paying party by the
receiving party at least three (3) business days prior to the Closing Date.
(f) Limitation on Purchase of Shares. Notwithstanding any other
--------------------------------
provision of this Agreement and notwithstanding the giving of any Exercise
Notice, the Company shall not be obligated to, and shall not, purchase any First
Option Shares or Third Option Shares or make a First Buy-Out Payment pursuant to
such Exercise Notice at any time when a Stock Purchase Restriction exists and is
applicable; provided, however, that the existence or applicability of a Stock
-------- -------
Purchase Restriction shall not prevent the giving of an Exercise Notice, but
shall merely postpone the Closing of the purchase and sale of First Option
Shares or Third Option Shares, as applicable, pursuant to such exercise until
such time as no Stock
27
<PAGE>
Purchase Restriction exists. The Company shall use reasonable efforts to obtain
any consents or waivers which would eliminate the existence or applicability of
any Stock Purchase Restriction. In the event that a Closing is postponed in
accordance with the second preceding sentence, the Aggregate Purchase Price or
First Buy-Out Payment otherwise payable at the postponed Closing shall be
increased by an interest-like accrual on such amount at the rate of nine percent
(9%) per annum from the date on which the Closing would have taken place but for
the existence of a Stock Purchase Restriction to the date of the actual Closing.
(g) Board Approval for Exercise. The Company shall not exercise any Option
---------------------------
without the approval of its Board of Directors. The Parent Company shall not
exercise any Option without the approval of its Board of Directors.
Section 11. Sale Transactions; Come-Along and Bring-Along Rights.
- ---------- ----------------------------------------------------
(a) If at any time during the Sale Notice Period (as defined below) the
Parent Company proposes to sell more than 50% of the Parent Company's MPS Common
Shares (other than pursuant to exercise of the Third Option or the Second Call
Options) in a private transaction or proposes to sell any such shares in a
public offering (a "Stock Sale Transaction"), or if the Company proposes to sell
its business and substantially all of its assets (an "Asset Sale Transaction"),
in either case to a third-party purchaser or purchasers (the "Purchaser") which
is not a Parent Company Affiliate, in a single transaction or related series of
transactions pursuant to a bona fide offer from, or letter of intent or contract
---- ----
with, a Purchaser or underwriter, then, in such case, the Parent Company or the
Company, as applicable, shall give the Manager notice thereof (the "Sale
Notice") not less than thirty (30) days prior to the proposed closing thereof;
provided, however, that no Sale Notice is required to be given to the Manager
- -------- -------
if he does not then own or hold any First Option Shares or Third Option Shares
or an outstanding First Option or Third Option. The Sale Notice shall specify in
reasonable detail the material terms of the Sale Transaction. As used herein,
(i) the term "Sale Transaction" means a Stock Sale Transaction or an Asset Sale
Transaction and (ii) the term "Sale Notice Period" means the period beginning on
the date hereof and ending on the tenth anniversary of the date hereof.
(b) The Management Shareholders, acting as a group, shall have the right
(the "Come-Along Right") to require, as a condition to the consummation of a
Stock Sale Transaction, that the Purchaser acquire that percentage of their KEEP
Shares and Management Option Shares, if any, in the Stock Sale Transaction as
equals the percentage of the Parent Company's MPS Common Shares that are
proposed to be sold in such Stock Sale Transaction and (ii) the Parent Company
shall have the right (the "Bring-Along Right") to require each of the Management
Shareholders to sell that percentage of his KEEP Shares and Management Option
Shares, if any, in the Stock Sale Transaction as equals the
28
<PAGE>
percentage of the Parent Company's MPS Common Shares that are proposed to be
sold in such Stock Sale Transaction. In any Stock Sale Transaction for which a
Sale Notice is given prior to April 18, 2005 and which does not constitute and
is not part of a public offering of shares of MPS Common Stock, (A) the purchase
price per share payable to the Manager for his First Option Shares (assuming
exercise of the First Call Option), if any, shall be the Second Option Purchase
Price and (B) the purchase price per share payable to the Manager for his Third
Option Shares (assuming exercise of the Third Option), if any, shall be the
Fourth Option Purchase Price. In any other Stock Sale Transaction, the purchase
price per share payable to the Manager for his First Option Shares (assuming
exercise of the First Call Option), if any, and his Third Option Shares
(assuming exercise of the Third Option), if any, being sold in such transaction
shall be the same as the purchase price per share payable to the Parent Company
for the Parent Company's MPS Common Shares being sold in such transaction. The
nature or composition of the consideration paid to the Manager for his First
Option Shares and Third Option Shares, if any, which are being sold in such
transaction shall be the same as is applicable to the Parent Company's MPS
Common Shares which are being sold in such transaction. By way of example, and
not be way of limitation, if the aggregate consideration to be paid by the
Purchaser for the Parent Company's MPS Common Shares consists of 50% cash and
50% promissory note issued by the Purchaser, then, in such case, the aggregate
consideration to be paid to the Manager for his First Option Shares and Third
Option Shares, if any, shall consist of 50% cash and 50% promissory note (having
the same terms (other than principal amount) as the promissory note issued to
the Parent Company) issued by the Purchaser.
The Sale Notice relating to a Stock Sale Transaction shall state whether
the Parent Company is exercising its Bring-Along Right. If the Bring-Along
Right is not exercised, the Management Shareholders, acting as a group, shall
have a period (the "Come-Along Exercise Period") of twenty (20) days from and
after the date of the Sale Notice to give notice (the "Come-Along Notice") to
the Parent Company of their exercise of the Come-Along Right, which notice shall
also state whether the Manager is then exercising any Management Option granted
to him which is then outstanding. If the Come-Along Notice states that the
Manager is then exercising any such Management Option, then such notice shall
also constitute the Manager Exercise Notice with respect to such Management
Option. If the Manager does not exercise, during the Come-Along Exercise
Period, any Management Option granted to him which is then outstanding, then, in
such case, subject to the next sentence, such Management Option shall be deemed
to have expired unexercised as of the end of such period, and, in the case of
the Third Option, the Parent Company shall be free to sell to the Purchaser in
the Stock Sale Transaction, for the Parent Company's own account and free from
the Third Option, all of the shares subject to Third Option. Notwithstanding
the preceding sentence, if such Stock Sale Transaction is abandoned or
terminated or deemed abandoned or terminated pursuant to Section 11(c), then, in
such case, such deemed expiration of such Management Option shall be
automatically rescinded, and such
29
<PAGE>
Management Option shall once again be in effect from and after the date of such
actual or deemed abandonment or termination (unless such Management Option
otherwise shall have expired by its terms) until the end of the applicable
Exercised Period for such Management Option.
To be effective, the Come-Along Notice must be signed by Management
Shareholders who then own more than fifty percent (50%) of the Management
Shares. If the Parent Company does not exercise the Bring-Along Right and if
the Come-Along Notice is not given during the Come-Along Exercise Period, the
Management Shareholders shall be deemed to have elected not to participate in
such Stock Sale Transaction.
If the Manager sells any of his shares of MPS Common Stock, if any, in the
Stock Sale Transaction pursuant to an exercise of the Bring-Along Right or the
Come-Along Right, he shall be obligated, on demand, to pay, or to reimburse the
Parent Company for, as applicable, (i) all underwriting expenses and discounts
applicable to his shares in any public offering and (ii) that percentage of all
costs and expenses (including reasonable attorney's fees and disbursements)
incurred by the Parent Company in connection with the Stock Sale Transaction as
equals the percentage obtained by multiplying 100 by a fraction the numerator of
which is the number of shares sold by the Manager in such transaction and the
denominator of which is the total number of shares sold by the Parent Company
and the Management Shareholders (including the Manager) in such transaction.
In any Stock Sale which constitutes or is part of a public offering of
shares of MPS Common Stock, each person selling shares of MPS Common Stock in
such transaction shall be obligated, if so requested by the Company or the
Parent Company, to execute and deliver such underwriting, representation,
standstill and other agreements with the underwriters in such offering are
customary in such transactions or as are executed and delivered by the Parent
Company.
(c) A Sale Notice shall take precedence over any Exercise Notice then
pending or thereafter given except for an Exercise Notice relating to the Third
Option, the Second Buy-Out Right or an Exchange Option relating to the Third
Option or the Second Buy-Out Right. Notwithstanding any other provision of this
Agreement, the Closing related to any Exercise Notice over which a Sale Notice
takes precedence shall not take place unless the related Sale Transaction is
abandoned or terminated. If such Sale Transaction is abandoned or terminated,
such Closing shall take place on a date which in the later to occur of (i) the
thirtieth business day after the date of such abandonment or termination or (ii)
the Closing Date determined in accordance with Section 10(d). A Sale
Transaction shall be deemed abandoned or terminated if it is not consummated
within one hundred fifty (150) days after the date of the related Sale Notice or
if the Parent Company or the Company gives notice to the Manager that such Sale
Transaction has been abandoned or terminated.
30
<PAGE>
(d) Within one hundred eighty (180) days after the consummation of an Asset
Sale Transaction, the Company shall: (i) in the case of an Asset Sale for which
the date of the related Sale Notice is prior to April 18, 2005, purchase all of
the First Option Shares, if any, then outstanding for a price per share equal to
the Second Option Purchase Price and purchase all of the Third Option Shares, if
any, then outstanding for a purchase per share equal to the Fourth Option
Purchase Price or (ii) in the case of any other Asset Sale Transaction, either
(A) purchase all of the First Option Shares and Third Option Shares, if any,
then outstanding for a price per share equal to their net book value per share
or (B) adopt a plan of complete liquidation pursuant to which the net assets, if
any, of the Company shall be distributed pro rata to its stockholders in
--- ----
accordance and compliance with the Company's Certificate of Incorporation and
applicable law. In the case of a purchase of First Option Shares and Third
Option Shares pursuant to clause (ii)(A) of the preceding sentence, their net
book value per share shall be determined by the Board of Directors of the
Company in good faith. Such determination shall be conclusive and final in the
absence of manifest bad faith or fraud. In determining such net book value, the
Board of Directors shall take into account, among other things, reasonable
reserves for contingent liabilities.
(e) Neither the Come-Along Right nor the Bring-Along Right shall apply, or
be exercisable with respect to, any proposed or actual sale or transfer of any
of the Parent Company's MPS Common Shares to a Parent Company Affiliate;
provided, however, that any subsequent proposed or actual sale or transfer
- -------- -------
thereof by such Parent Company Affiliate to a buyer that is not also a Parent
Company Affiliate shall be subject to such rights as if the prior Parent Company
were the selling party.
Section 12. Sale by NAB to a NAB Affiliate. If the Parent Company sells
----------- ------------------------------
and transfers all of the Parent Company's MPS Common Shares to any Parent
Company Affiliate, then, in such case, in connection with such sale and
transfer, the transferring Parent Company shall (i) assign to such transferee
Parent Company Affiliate all of the Transferring Parent Company's rights under
this Agreement and (ii) cause such transferee Parent Company Affiliate to become
a party to and assume all of the transferring Parent Company's obligations under
this Agreement, including its obligations under Sections 6 and 11.
Section 13. Specific Performance. The shares of MPS Common Stock cannot
----------- --------------------
be readily purchased or sold on the open market, and for that reason, among
others, the parties will be irreparably damaged in the event that this Agreement
is not specifically enforced. Should any controversy arise concerning a sale or
disposition of any shares of MPS Common Stock, an injunction may be issued
restraining any sale or disposition pending the determination of such
controversy, and the resolution thereof shall be enforceable in a court of
equity by an injunction or a decree of specific performance. However such
remedy shall
31
<PAGE>
be cumulative and not exclusive, and shall be in addition to any other remedies
at law or in equity which the parties may have.
Section 14. Amendments. No amendments to this Agreement or waiver or
----------- ----------
discharge of any provision hereof shall be made or be effective unless the same
(i) is in writing; (ii) is signed by an authorized officer of each of the
Company and the Parent Company, if any, (iii) is approved by the Boards of
Directors of the Company and the Parent Company, if any; and (iv) is signed by
Management Shareholders then owning more than fifty percent (50%) of the
Management Shares; provided, however, that, if any such amendment, waiver or
-------- -------
discharge would materially and adversely affect the rights or obligations (under
this Agreement or the Stockholders Agreement) of fewer than all of the
Management Shareholders then owning Management Shares, hen, in such case, such
amendment, waiver or discharge shall not be made or be effected unless it is
also signed by the Management Shareholders whose rights and obligations are
adversely affected.
Section 15. Termination. This Agreement shall terminate on the earlier to
---------- -----------
occur of:
(i) the date on or by which both of the following events shall have
occurred: (A) either (x) all of the First Option Shares shall have
been purchased by the Company or the Parent Company or by a Purchaser
in a Stock Sale Transaction or (y) it shall have been determined that
no shares of MPS Common Stock are then or will thereafter become
subject to the First Option or (z) the First Option shall have been
terminated pursuant to the exercise of the First Buy-Out Right and the
making of the First Buy-Out Payment; and (B) either (x) all of the
Third Option Shares, if any, shall have been purchased by the Company
or the Parent Company or by a Purchaser in a Stock Sale Transaction or
(y) it shall have been determined that no shares of the Parent
Company's MPS Common Shares are then or will thereafter become subject
to the Third Option or (z) the Third Option shall have been terminated
pursuant to the exercise of the Second Buy-Out Right and the making of
the Second Buy-Out Payment;
(ii) the date on which any shares of MPS Common Stock are sold in a
public offering; or
(iii) the tenth anniversary of the date of this Agreement.
Section 16. Notices. All notices, requests, demands and other
---------- -------
communications hereunder must be in writing and shall be deemed to have been
duly given if delivered by hand or mailed by first class, registered or
certified mail, return receipt requested, postage and registry fees prepaid, and
addressed as follows:
32
<PAGE>
(a) If to the Company:
Mortgage Portfolio Services, Inc.
LBJ Financial Center
5520 LBJ Freeway, Suite 200
Dallas, TX 75024
Attn: Chairman of the Board
(b) If to the Parent Company or the Company:
NAB Asset Corp.
19200 Von Karman Ave., Suite 950
Irvine, CA 93612
Attn: President
(c) If to the Manager, at the address set forth below his name on
the signature page(s) hereof.
Any of the foregoing parties by notice in writing mailed to the other parties
may change the name and address to which notices, requests, demands and other
communications to him shall be mailed.
Any notice or other communication pursuant to this Agreement shall be deemed
to have been duly given or made and to have become effective (i) when delivered
in hand to the party to which it is directed, or, if sent by certified or
registered mail, return receipt requested, or by telex, facsimile transmission
or telegraph, and properly transmitted and addressed in accordance with of this
Section 17 when received by the addressee, or (ii) on the third business day
following the day of the dispatch thereof, whichever of (i) or (ii) shall be the
earlier.
Section 17. Acknowledgment Regarding Stockholders Agreement. The Manager
---------- -----------------------------------------------
acknowledges that the Company has provided him with a copy of the Stockholders
Agreement and he has had the opportunity to read it before signing this
Agreement.
Section 18. Miscellaneous. This Agreement (i) contains the entire
---------- -------------
understanding of the parties with respect to the subject matter hereof; (ii)
supersedes all prior agreements and understandings if any, with respect to such
subject matter; (iii) shall inure to the benefit of and be binding upon the
Company, NAB and the Manager and their respective successors, permitted assigns,
personal representatives and heirs; (iv) shall be governed and construed in
accordance with the laws of the State of Delaware without regard to principles
of conflicts
33
<PAGE>
of laws; and (v) may be executed in one or more counterparts, each of which
shall be deemed to be an original and all of which taken further shall
constitute one and the same instrument.
End of text of Agreement.
Signatures appear on next page.
34
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
MORTGAGE PORTFOLIO SERVICES, INC. THE MANAGER:
By: __________________________ ______________________________
Name: Michael W. Caton Gordon S. Stockwell
Title: Chairman of Board 22181 Wayside
Mission Viejo, CA 92692
NAB ASSET CORPORATION
By: __________________________
Name: Michael W. Caton
Title: President
35
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 13,010
<SECURITIES> 0
<RECEIVABLES> 3,519
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,867
<PP&E> 1,072
<DEPRECIATION> 0
<TOTAL-ASSETS> 70,806
<CURRENT-LIABILITIES> 56,347
<BONDS> 0
0
0
<COMMON> 509
<OTHER-SE> 6,958
<TOTAL-LIABILITY-AND-EQUITY> 70,806
<SALES> 2,924
<TOTAL-REVENUES> 4,721
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,435
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 740
<INCOME-PRETAX> 546
<INCOME-TAX> 0
<INCOME-CONTINUING> 546
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 546
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
