<PAGE> 1
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
June 30, 1998
[ ] 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)
<TABLE>
<S> <C>
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)
</TABLE>
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 July 31, 1998, there were 5,091,300 shares of common stock, $.10 par value
per share, of the registrant outstanding.
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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>
June 30, December 31,
Assets 1998 1997
------------- -------------
<S> <C> <C>
Cash and cash equivalents $ 1,476 $ 3,620
Restricted cash 6,136 3,655
Receivables:
Construction loans, net of allowances of $430 at June 30, 1998 75,417 69,052
Residential mortgage loans held for sale 75,710 45,472
Commercial loans held for investment, net of allowances
of $86 at June 30, 1998 4,702 3,677
Other receivables 4,394 1,024
Residual interest in securitization of mortgage loans 3,514 --
Property and equipment, net 1,276 1,151
Costs in excess of net assets acquired, net 557 584
Other assets 1,397 884
------------- -------------
Total assets $ 174,579 $ 129,119
============= =============
Liabilities and Shareholders' Equity
Liabilities:
Warehouse lines of credit 128,181 95,716
Notes payable to affiliates 19,300 16,300
Drafts payable 11,064 5,425
Accounts payable and accrued expenses 5,564 2,914
Deferred income 750 609
------------- -------------
Total liabilities 164,859 120,964
------------- -------------
Minority interest 1,213 316
Shareholders' equity:
Common stock: $.10 par value, 30,000,000
Authorized shares:
5,091,300 shares issued and outstanding at
June 30, 1998 and December 31, 1997 509 509
Additional paid-in capital 7,217 7,217
Retained earnings 781 113
------------- -------------
Total shareholders' equity 8,507 7,839
------------- -------------
$ 174,579 $ 129,119
============= =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
2
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NAB ASSET CORPORATION
and Subsidiaries
Consolidated Statements of Operations
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
---------------------------------- ----------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Gains on sales of loans $ 4,778 $ 1,921 $ 9,110 $ 3,291
Interest income 3,754 597 6,570 1,123
Other operating revenues 2,701 200 5,065 318
------------- ------------- ------------- -------------
Total revenues: 11,233 2,718 20,745 4,732
Costs and expenses:
Compensation and benefits 5,160 1,393 9,816 2,614
Interest expense 3,328 289 5,976 558
Provision for credit losses 205 7 277 7
General and administrative 2,014 772 3,738 1,293
Minority interest in earnings 114 39 270 57
------------- ------------- ------------- -------------
Total costs and expenses 10,821 2,500 20,077 4,529
------------- ------------- ------------- -------------
Net earnings from
continuing operations 412 218 668 203
Net earnings (loss) from dis-
continued operations,
Net of income taxes:
Retail automobile sales -- (64) -- (271)
Gain on disposal of CARS USA -- 1,384 -- 1,384
------------- ------------- ------------- -------------
Net earnings $ 412 $ 1,538 $ 668 $ 1,316
============= ============= ============= =============
Basic and diluted earnings per
share from continuing operations $ 0.08 $ 0.04 $ 0.13 $ 0.04
============= ============= ============= =============
Basic and diluted earnings per share
$ 0.08 $ 0.30 $ 0.13 $ 0.26
============= ============= ============= =============
Weighted average number of
Common and common equivalent
shares outstanding 5,091,300 5,091,300 5,091,300 5,091,300
============= ============= ============= =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
3
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NAB ASSET CORPORATION
and Subsidiaries
Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
--------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings from continuing operations $ 668 $ 203
Adjustments to reconcile net earnings to net cash
from (used by) operating activities:
Cash used in discontinued operations -- (176)
Proceeds from sale of CARS USA -- 200
Non-cash gain on securitization of mortgage loans (3,248) --
Depreciation and amortization 296 137
Minority interest 897 57
Provision for credit losses 277 7
Net changes in:
Residential mortgage loans originated, purchased
and sold (30,584) (1,019)
Other receivables (3,370) 37
Drafts payable 5,639 --
Deferred income, net 141 250
Other assets (514) 361
Accounts payable and accrued expenses 2,650 206
------------- -------------
Net cash from (used by) operating activities (27,148) 263
Cash flows from investing activities:
Construction loan fundings (66,088) --
Principal collections on construction loans 59,584 --
Commercial loans purchased and originated (1,744) (1,797)
Principal collections on commercial loans 633 204
Purchases of property and equipment (365) (244)
------------- -------------
Net cash used by investing activities (7,980) (1,837)
Cash flows from financing activities:
Net borrowings under warehouse lines of credit 32,465 780
Proceeds from note payable to affiliates 3,000 800
------------- -------------
Net cash from financing activities 35,465 1,580
------------- -------------
Net increase in cash and cash equivalents 337 6
Cash and cash equivalents at beginning of period 7,275 3,315
------------- -------------
Cash and cash equivalents at end of period $ 7,612 $ 3,321
============= =============
Supplement disclosure of cash flow information:
Cash paid during the period - Interest $ 4,219 $ 300
============= =============
Non-cash - Note received from sale of CARS USA $ - $ 1,300
============= =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
4
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Notes to the Unaudited Consolidated Financial Statements
(1) DESCRIPTION OF BUSINESS
NAB Asset Corporation, a Texas Corporation (the "Company" or "NAB") is
primarily engaged in the residential lending business. As discussed below the
Company disposed of its retail automotive sales business in June, 1997. 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.
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 (the "Merger"). 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. In exchange for a $4
million contribution to NAB, CPS received 38% or 1,934,706 shares of the New
Common Stock of NAB.
(2) BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated balance sheet of the Company as of June 30, 1998, the
related consolidated statements of operations for the three and six month
periods ended June 30, 1998 and 1997, and the related statements of cash flows
for the six month periods ended June 30, 1998
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and 1997 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
June 30, 1998, and results of consolidated operations for the three and six
months ended June 30, 1998 and 1997 and the consolidated cash flows for the six
month period ended June 30, 1998 and 1997. 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 1998.
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, 1997.
On January 1, 1998 the Company adopted Statement of Financial Accounting
Standards No. 130 (SFAS No. 130), "Reporting Comprehensive Income". SFAS 130
defines comprehensive income as the total of all components of comprehensive
income, including net income and other comprehensive income. The term "other
comprehensive income" refers to revenues, expenses, gains and losses that under
generally accepted accounting principles are included in comprehensive income
but excluded from net income. Other comprehensive income items are classified
separately into foreign currency items, minimum pension liability adjustments,
and unrealized gains and losses on certain investments in debt and equity
securities. All components of comprehensive income shall be reported in the
financial statements in the period in which they are recognized; however, if
there are no items of other comprehensive income in any period presented, then
comprehensive income is not required to be reported in that period. The adoption
of SFAS No. 130 did not have any material impact on the Company's financial
statements. During the six months ended June 30, 1998 and 1997, there were no
items of other comprehensive income recognized.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132 (SFAS No. 132), "Employers Disclosures about Pension and Other
Postretirement Benefits." SFAS No. 132 amends the disclosure requirements of
SFAS No. 87, "Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits," and SFAS No. 106,
"Employer's Accounting for Retirement Benefits Other than Pensions". SFAS No.
132 standardizes the disclosure requirements of SFAS No. 87 and 106 to the
extent practicable and recommends a parallel format for presenting information
about pensions and other retirement benefits. SFAS No. 132 is effective for
fiscal years beginning after December 15, 1997. SFAS No. 132 will result in
disclosure changes only.
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative
6
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instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designed as (a) a hedge of the exposure to
changes in the fair value of a recognized asset or liability or an unrecognized
firm commitment, (b) a hedge of the exposure to variable cash flows of a
forecasted transaction, or (c) a hedge of the foreign currency exposure of a net
investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction. Under SFAS No. 133, an entity that elects to apply hedge accounting
is required to establish at the inception of the hedge the method it will use
for assessing the effectiveness of the hedging derivative and the measurement
approach for determining the ineffective aspect of the hedge. Those methods must
be consistent with the entity's approach to managing risk.
SFSA No. 133 supercedes FASB Statements No. 80 "Accounting for Futures
Contracts", No. 105 "Disclosure of Information about Financial Instruments with
Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit
Risk," and No. 119, "Disclosure about Derivative Financial Instruments and Fair
Value of Financial Instruments". It amends FASB Statement No. 107 "Disclosures
about the Fair Value of Financial Instruments" to include in Statement 107 the
disclosure provisions about concentration of credit risk from Statement 105.
This Statement also nullifies or modifies the consensus reached in a number of
issues addressed by the Emerging Issues Task Force. This Statement is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999.
Management is in the process of assessing the future impact of the
implementation of SFAS No. 133.
(3) ACQUISITIONS AND DISPOSITIONS
On December 30, 1997 the Company, through a newly formed 86% owned
subsidiary, Construction Portfolio Funding, Inc. ("CPFI") acquired approximately
$53,000,000 in single family construction loans from a bank. A premium of
$250,000 was paid in addition to the principal balances acquired.
Additionally on December 30, 1997, CPFI acquired $2,000,000 in
residential lot loans from NAFCO, Inc., ("NAFCO") an 84% owned subsidiary of NAB
that were acquired from the bank in November, 1997.
In March 1997, NAB entered into a definitive agreement to sell its
interest in CARS and on June 27, 1997 completed the transaction. The acquirer
was a newly formed company owned by Charles E. Bradley, Sr., the chief executive
officer and chairman of the board of NAB and Charles E. Bradley, Jr., a director
of NAB. The purchase price consisted of a $200,000 cash payment and a note for
$1,300,000. The note bears interest at 9% payable quarterly and is included in
Commercial loans on the Consolidated Balance Sheets.
As a result of NAB's decision to divest its retail automotive sales
operations, all related operating activity has been reported as discontinued
operations for financial reporting purposes.
7
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Operating results of the discontinued retail automotive sales operation
is summarized as follows (in thousands):
<TABLE>
<CAPTION>
For the period from For the period from
April 1, 1997 to January 1, 1997 to
June 27, 1997 June 27, 1997
------------------- -------------------
<S> <C> <C>
Total revenues: $ 3,185,000 $ 5,384,000
Total expenses: (3,249,000) (5,655,000)
------------- -------------
Net loss from discontinued operations: $ (64,000) $ (271,000)
============= =============
</TABLE>
Revenue and expenses for the discontinued automotive sales operation
consisted primarily of sales and cost of sales, respectively.
(4) RESIDUAL INTEREST IN SECURITIZATION OF MORTGAGE LOANS
The Company records net gains on securitization of loans representing
the excess of the cash received and assets retained by the Company over the
relative fair value of the loans sold, less transaction costs. Various
assumptions are used in the calculation of the gain on the sale of the loans and
the valuation of the residual interest in the securitization of mortgage loans.
The residual interests in the securitization of loans represent the
present value of the difference between the contractual interest rates on the
loans and the rate paid to the buyer or bondholder using those assumptions. The
residual interest is accounted for as a trading security and as such is recorded
at its estimated fair value. The Company is not aware of an active market for
the purchase or sale of the residual interests. Accordingly, the Company
determines the estimated fair value of the residual interests by discounting the
expected cash flows released from the trust (the cash out method) using a
discount rate which the Company believes is commensurate with the risks
involved.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NAB is a financial services company engaged in residential mortgage
banking, residential construction lending and commercial finance. The
residential mortgage banking business, acquired in July 1996, originates,
acquires and sells prime and sub-prime mortgage loans. The residential
construction lending business, begun in December, 1997, originates and holds for
investment single family residential construction loans to homebuilders and to a
lesser extent lots, model homes, and acquisition and development projects for
those homebuilders. The commercial finance operations, begun in January, 1997,
provides financing to operators of rent-to-own or rental purchase retailers. On
June 27, 1997 the Company sold its interest in its retail automobile sales
business.
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RESULTS OF OPERATIONS
The following discussion and analysis presents the significant changes
in financial condition and results of continuing operations of the Company by
primary business line for the three and six months ended June 30, 1998 and 1997.
The results of operations of acquired businesses are included in the
consolidated financial statements from the date of acquisition. This discussion
should be read in conjunction with the consolidated financial statements and
notes thereto (in thousands).
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
-------------------------------- --------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Residential mortgage banking $ 9,192 $ 2,551 $ 16,926 $ 4,395
Residential construction lending 1,746 -- 3,347 --
Commercial lending 293 164 468 321
Corporate and
intercompany eliminations 2 3 4 16
------------- ------------- ------------- -------------
Total revenues: 11,233 2,718 20,745 4,732
Costs and expenses:
Residential mortgage banking 8,514 2,054 15,384 3,670
Residential construction lending 1,630 -- 3,113 --
Commercial lending 214 222 388 296
Corporate and
intercompany eliminations 463 224 1,192 563
------------- ------------- ------------- -------------
Total costs and
expenses 10,821 2,500 20,077 4,529
------------- ------------- ------------- -------------
Net earnings from continuing operations:
Residential mortgage banking 678 497 1,542 726
Residential construction lending 116 -- 234 --
Commercial lending 79 (58) 80 24
Corporate and
intercompany eliminations (461) (221) (1,188) (547)
------------- ------------- ------------- -------------
Net earnings from
continuing operations: $ 412 $ 218 $ 668 $ 203
============= ============= ============= =============
Net earnings (loss) from dis-
continued operations,
Net of income taxes:
Retail automobile sales -- (64) -- (271)
Gain on disposal of
CARS USA -- 1,384 -- 1,384
------------- ------------- ------------- -------------
Net earnings (loss) $ 412 $ 1,538 $ 668 $ 1,316
============= ============= ============= =============
</TABLE>
9
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THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
RESIDENTIAL MORTGAGE BANKING
Revenues for the three months ended June 30, 1998 primarily consisted of
$4,778,000 in gains on sale of loans, $2,077,000 in fee income and $2,072,000 in
interest income. The $6,641,000 increase in revenues from $2,551,000 for the
three months ended June 30, 1997 primarily related to the additional revenues
generated by the acquisition of the assets and business of Pacific American
Mortgage Company (PAMCO) in August, 1997 and increased levels of loan
originations. The increase in revenues was primarily comprised of a $2,857,000
increase in gains on sale of loans, a $1,877,000 increase in fee income and a
$1,642,000 increase in interest income.
The increased gain on sale of loans was due primarily to the sale of
$211.5 million in loans sold for the three months ended June 30, 1998 compared
to $43.7 million for the three months ended June 30, 1997. The increase in fee
income was primarily due to the increase in loan production to $235.8 million
for the three months ended June 30, 1998 compared to $46.4 million for the three
months ended June 30, 1997. The acquisition of PAMCO accounted for $149 million
of the increase in loan production and $139.3 million of the increase in loan
sales for the quarter ended June 30, 1998.
Operating expenses for the three months ended June 30, 1998 primarily
consisted of $1,831,000 in interest expense, $4,603,000 in compensation and
benefit expense, $349,000 in intercompany tax expense, and $1,731,000 in general
and administrative expense. Operating expenses increased by $6,460,000 from
$2,054,000 for the prior period to $8,515,000 for the three months ended June
30, 1998. This increase consisted of $1,464,000 in interest expense, $3,473,000
in compensation and benefit expense, $303,000 in intercompany tax expense and
$1,221,000 in general and administrative expense. In general, expenses increased
due to the PAMCO acquisition, which accounted for the majority of the increase
in interest expense related to the additional warehouse line necessary to fund
the additional production. Compensation and benefits and general and
administrative expenses also increased mainly due to the addition of PAMCO.
RESIDENTIAL CONSTRUCTION LENDING
Revenues for the three months ended June 30, 1998 consisted of interest
income of $1,390,000 and fee income of $356,000.
Operating expenses for the three months ended June 30, 1998 consisted of
$1,185,000 of interest expense, $167,000 of compensation and benefit expense,
$77,000 of bad debt expense and $201,000 of general and administrative expense.
New loan commitments for residential construction for the three months
ended June 30, 1998 totaled $1,000,000.
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COMMERCIAL LENDING
Revenues for the three months ended June 30, 1998 primarily consisted of
interest income of $291,000. The $129,000 increase in revenues from the three
months ended June 30, 1997 relates to the increase in loans receivable.
Operating expenses for the three months ended June 30, 1998 consisted of
$50,000 in compensation and benefit expense, $47,000 in bad debt expense,
$10,000 in interest expense and $107,000 in general and administrative expense.
Operating expenses from the three months ended June 30, 1998 decreased $8,000
from the three months ended June 30, 1997.
New loan commitments approved for the three months ended June 30, 1998
totaled $2,950,000 compared to $0 for the three months ended June 30, 1997.
CORPORATE AND INTERCOMPANY ELIMINATIONS
Corporate expenses for the three months ended June 30, 1998 increased
$241,000 from the three months ended June 30, 1997 primarily as a result of
increased compensation expense.
In April 1998, the Board of Directors authorized the Company to make
payments to officers and Directors in lieu of stock options that were originally
granted under stock option plans that were never presented to shareholders for
approval. As a result, the Company recorded a charge of $132,000 which is
recorded in compensation expense for the three months ended June 30, 1998, and
is obligated to pay certain officers of the Company an additional $232,000 over
the period to January, 2000, contingent on continued employment. The Company
will record compensation expense as these amounts become due.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
RESIDENTIAL MORTGAGE BANKING
Revenues for the six months ended June 30, 1998 primarily consisted of
$9,110,000 in gains on sale of loans, $3,850,000 in fee income and $3,469,000 in
interest income. The $12,531,000 increase in revenues from $4,395,000 for the
six months ended June 30, 1997 primarily related to the additional revenues
generated by the acquisition of the assets and business of Pacific American
Mortgage Company (PAMCO) in August, 1997 and increased levels of loan
originations. The increase in revenues was primarily comprised of a $5,819,000
increase in gains on sale of loans, a $3,532,000 increase in fee income and a
$2,682,000 increase in interest income.
The increased gain on sale of loans was due primarily to the sale of
$319.0 million in loans sold for the six months ended June 30, 1998 compared to
$79.0 million for the six months ended June 30, 1997. The increase in fee income
was primarily due to the increase in loan production to $434.0 million for the
six months ended June 30, 1998 compared to $82.7 million
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<PAGE> 12
for the six months ended June 30, 1997. The acquisition of PAMCO accounted for
$278.0 million of the increase in loan production and $246.8 million of the
increase in loan sales for the six months ended June 30, 1998.
Operating expenses for the six months ended June 30, 1998 consisted of
$3,060,000 in interest expense, $8,473,000 in compensation and benefit expense,
$790,000 in intercompany tax expense, and $3,061,000 in general and
administrative expense. Operating expenses increased by $11,714,000 from
$3,670,000 for the prior period to $15,384,000 for the six months ended June 30,
1998. This increase consisted of $2,421,000 in interest expense, $6,375,000 in
compensation and benefit expense, $744,000 in intercompany tax expense and
$2,174,000 in general and administrative expense. In general, expenses increased
due to the PAMCO acquisition, which accounted for the majority of the increase
in interest expense related to the additional warehouse line necessary to fund
the additional production. Compensation and benefits and general and
administrative expenses also increased mainly due to the addition of PAMCO.
RESIDENTIAL CONSTRUCTION LENDING
Revenues for the six months ended June 30, 1998 consisted of interest
income of $2,707,000 and fee income of $640,000.
Operating expenses for the six months ended June 30, 1998 consisted of
$2,287,000 of interest expense, $308,000 of compensation and benefit expense,
$139,000 in bad debt expense and $379,000 of general and administrative expense.
New loan commitments for residential construction for the six months
ended June 30, 1998 totaled $1,464,000.
COMMERCIAL LENDING
Revenues for the six months ended June 30, 1998 primarily consisted of
interest income of $465,000. The $147,000 increase in revenues from the six
months ended June 30, 1997 relates to the increase in loans receivable.
Operating expenses for the six months ended June 30, 1998 consisted of
$114,000 in compensation and benefit expense, $58,000 in bad debt expense,
$23,000 in interest expense and $193,000 in general and administrative expense.
Operating expenses from the six months ended June 30, 1998 increased $94,000
from the six months ended June 30, 1997 primarily due to the increase in bad
debt and interest expense due to the growth of the loan portfolio.
New loan commitments approved for the six months ended June 30, 1998
totaled $4,300,000 compared to $0 for the six months ended June 30, 1997.
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CORPORATE AND INTERCOMPANY ELIMINATIONS
Corporate expenses for the six months ended June 30, 1998 increased
$629,000 from the six months ended June 30, 1997 primarily as a result of the
payments made to officers and Directors in lieu of stock options totaling
$508,000 and increased interest expense incurred as a result of additional debt
incurred to facilitate the growth of the Company.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998 the Company has approximately $7,612,000 in cash as
compared to $7,275,000 at December 31, 1997. Of the $7,612,000 in cash at June
30, 1998, $6,136,000 was restricted to usage for mortgage loan fundings and
repayments under the Company's residential warehouse line of credit. Of the
$7,275,000 in cash at December 31, 1997, $3,655,000 was restricted.
Total assets have increased to $174,579,000 at June 30, 1998 from
$129,119,000 at December 31, 1997. The increase is principally attributable to
the growth in mortgage loan production. This growth was financed primarily by
borrowings from banks under lines of credit.
As of June 30, 1998, the Company increased its warehouse line of credit,
secured by residential mortgage loans, to $120,000,000. At June 30, 1998,
$72,356,000 was borrowed under the line. Outstanding borrowings bear interest at
various spreads over LIBOR. The line of credit matures June 29, 1999.
On December 30, 1997 the Company entered into a line of credit borrowing
arrangement providing for advances up to $75,000,000 secured by construction
loans receivable. As of June 30, 1998, $55,025,000 was outstanding under the
line. The line of credit matures December 29, 1998.
On April 30, 1998 the Company renewed its line of credit totaling
$5,000,000 secured by commercial loans. The line matures April 30, 1999. At June
30, 1998, $800,000 was borrowed under the line that bears interest at a spread
over the prime rate.
As discussed below, in connection with the restructuring of certain
employee incentive plans at its mortgage banking subsidiary, the Company
borrowed $3,000,000 from CPS during the quarter ended June 30, 1998. The
unsecured loan is due September 30, 1998 and bears interest at 13%.
13
<PAGE> 14
As of June 30,1998, notes payable to affiliates were comprised of the
following:
<TABLE>
<CAPTION>
Payee Type Date Maturity Outstanding Rate
- ----- ---- ---- -------- ----------- ----
<S> <C> <C> <C> <C> <C>
SFSC Note June 27, 1997 September 30, 1998 $ 800,000 14%
SFSC Note September 30, 1997 September 30, 2000 2,500,000 14%
SFSC Line of Credit August 28, 1997 September 30, 2000 3,500,000 16%
SFSC Note December 30, 1997 September 30, 1998 4,000,000 13%
SFSC Note March 12, 1998 September 30, 1998 900,000 13%
SFSC Note March 13, 1998 September 30, 1998 1,100,000 13%
CPS Note December 30, 1997 September 30, 1998 3,500,000 13%
CPS Note June 26, 1998 September 30, 1998 3,000,000 13%
-----------
$19,300,000
===========
</TABLE>
In order to maintain its net operating loss carryforwards the Company is
limited under Section 382 of the Internal Revenue Code of 1986 as to issuance of
new common shares in order to raise additional capital. The Company must rely on
additional borrowings to grow its operations. NAB has relied on Stanwich
Financial Services Corp. (SFSC), a company that is 85% owned by Charles E.
Bradley, Sr. and Charles E. Bradley, Jr., directors of the Company, and CPS to
provide funds to support the additional growth of the Company. Management
believes that the Company can obtain extensions on its notes payable to
affiliates as necessary to support its ongoing operations
SIGNIFICANT EVENTS
Incentive Plan Restructure
In 1997, the Company entered into agreements with the executives of MPS
that granted options to the executives, exercisable only if certain conditions
are satisfied, to acquire up to 20% of the authorized common shares of MPS. The
number of shares to be issued pursuant to the agreements was dependent upon
several factors, including the future earnings and value of MPS.
On June 26, 1998 the Company, MPS and the executives entered into a
Restructure Agreement which terminated the options. In exchange for the
termination of the options the Company entered into a deferred compensation
arrangement with the executives that requires the Company to pay equal annual
installments of $1,180,000 to the executives over the three year period
beginning June 26, 1999, as long as the executive continues employment with the
Company. If the executive is terminated without cause all remaining amounts due
under the deferred compensation arrangement become immediately payable.
The Company also granted loans totaling $3,040,000 to the executives
repayable in three equal annual installments, plus interest at 5.7% per annum,
beginning June 30, 1999. The loans are secured by the stock that each executive
owns, which aggregates approximately 19% of the outstanding shares of MPS. If
the executive terminates for any reason prior to the end of the three year
period, all remaining amounts under the note become immediately payable.
14
<PAGE> 15
Included in the Restructure Agreement is an additional provision that
requires the Company to pay to one of the executives $93,334 every six months,
beginning June 30, 1998, over the next three years, contingent upon continued
employment.
The financial statement impact of these new agreements for the three and
six months periods ending June 30, 1998 was to record compensation expense
totaling $93,334.
Securitization
The Company completed its first mortgage loan securitization on June 29,
1998. The company retained the servicing responsibilities for the loans. The
Company recorded a net gain of $1,908,000 or 3.74% of the principal balance of
the loans sold, which represents the excess of the cash received and assets
retained by the Company over the relative fair value of the loans sold, less
transaction costs.. The assumptions used in the calculation of the gain on the
sale of the loans and the valuation of the residual interest in the
securitization of mortgage loans were as follows:
<TABLE>
<CAPTION>
Fixed Rate Adjustable Rate
---------- ---------------
<S> <C> <C>
Principal $ 27,667,000 $23,311,000
Cumulative losses 5.4% 5.5%
Discount rate 12% 12%
Overcollateralization account Ramp up to 2.75% Ramp up to 4.00%
Weighted average life of pool 3.94 years 3.16 years
</TABLE>
The Company purchased a mortgage pool insurance policy that will cover
all losses up to 5% of the initial pool balances. The fee is .52% annually of
the unpaid principal of the loans. The net loss assumption used in calculating
the gain on sale of loans taking the policy into effect was .40% for the fixed
rate loans and .50% for the adjustable rate loans.
In addition, to facilitate the sale, the Company provided a credit
enhancement for the benefit of the investors in the form of additional
collateral held by the trust. The over-collateralization account was required by
the servicing agreement to be maintained at certain levels.
The residual interests in the securitization of loans represent the
present value of the difference between the contractual interest rates on the
loans and the rate paid to the buyer or bondholder using the assumptions
discussed above. The residual interest is accounted for as a trading security
and as such is recorded at its estimated fair value. The Company is not aware of
an active market for the purchase or sale of the residual interests.
Accordingly, the Company determined the estimated fair value of the residual
interests by discounting the expected cash flows released from the trust (the
cash out method) using a discount rate which the Company believes is
commensurate with the risks involved.
15
<PAGE> 16
SUBSEQUENT EVENTS
On August 13, 1998, the Company entered into a Debt Restructure
Agreement with SFSC in which the Company will exchange two commercial loans
(including the $1,300,000 note received from the sale of CARS) totaling
$1,600,000 for a corresponding reduction in the Company's indebtedness to SFSC.
Additionally the Company and SFSC agreed to extend the maturity date on notes
payable to SFSC totaling $6,800,000 to June 30,1999. Subsequent to the execution
of this agreement the Company's notes payable to SFSC will total $11,200,000, of
which $6,800,000 will be due June 30, 1999 and $4,400,000 will be due September
30, 2000.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
The Annual Meeting of Shareholders was held on June 16, 1998, in Irvine,
California. Five directors were re-elected without opposition to serve until the
next annual meeting of shareholders. The results of this election were as
follows:
<TABLE>
<CAPTION>
Name of Director Votes for Votes withheld
- ---------------------- ----------- --------------
<S> <C> <C>
Charles E. Bradley, Sr. 4,718,641 40,083
Charles E. Bradley, Jr. 4,721,935 36,789
Michael W. Caton 4,719,529 39,195
James B. Gardner 4,719,836 38,888
Jeffrey W. Kramer 4,719,902 38,822
</TABLE>
16
<PAGE> 17
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
1) EX-10.23 Third Restated Credit Agreement between
Mortgage Portfolio Services, Inc. and Guaranty Federal
Bank, F.S.B. dated June 30, 1998
2) EX-27 Financial Data Schedule
(b) Reports on Form 8-K
1) Form 8-K/A dated June 3, 1998 (reporting rescission of
the acquisition of Stanwich Financial Services Corp. and
Stanwich Holdings, Inc.).
17
<PAGE> 18
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: August 14, 1998
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
18
<PAGE> 19
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10.23 Third Restated Credit Agreement between Mortgage
Portfolio Services, Inc. and Guaranty Federal Bank, F.S.B. dated
June 30, 1998
27 Financial Data Schedule
<PAGE> 1
Exhibit 10.23
================================================================================
THIRD RESTATED CREDIT AGREEMENT
-------------------------------
MORTGAGE PORTFOLIO SERVICES, INC.
Borrower
NAB ASSET CORPORATION
Guarantor
GUARANTY FEDERAL BANK, F.S.B.
RESIDENTIAL FUNDING CORPORATION
FIRST UNION NATIONAL BANK
U.S. BANK NATIONAL ASSOCIATION
as Lenders
and
GUARANTY FEDERAL BANK, F.S.B.
as Agent
----------
June 30, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I GENERAL TERMS..................................................................... 1
Section 1.01 Certain Definitions................................................... 1
Section 1.02 Other Definitional Provisions......................................... 21
Section 1.03 Exhibits and Schedules................................................ 22
Section 1.04 Calculations and Determinations....................................... 22
ARTICLE II AMOUNT OF TERMS OF CREDITS....................................................... 22
Section 2.01 Commitment and Loans.................................................. 22
Section 2.02 Promissory Notes; Interest on the Notes............................... 23
Section 2.03 Notice and Manner of Obtaining Loans.................................. 24
Section 2.04 Fees.................................................................. 24
Section 2.05 Mandatory Repayments.................................................. 25
Section 2.06 Payments to Lenders................................................... 25
Section 2.07 Refinancing of Swing-Line Loans....................................... 26
Section 2.08 Capital Reimbursement................................................. 27
Section 2.09 Increased Cost of Loans............................................... 27
Section 2.10 Availability.......................................................... 28
Section 2.11 Reimbursable Taxes.................................................... 28
Section 2.12 Notice of Certain Events; Change of Applicable Lending Office......... 29
ARTICLE III CONDITIONS PRECEDENT............................................................ 29
Section 3.01 Initial Borrowing..................................................... 29
Section 3.02 All Borrowings........................................................ 30
ARTICLE IV BORROWER REPRESENTATIONS AND WARRANTIES.......................................... 31
Section 4.01 Organization and Good Standing........................................ 31
Section 4.02 Authorization and Power............................................... 31
Section 4.03 No Conflicts or Consents.............................................. 31
Section 4.04 Enforceable Obligations............................................... 31
Section 4.05 Priority of Liens..................................................... 32
Section 4.06 No Liens.............................................................. 32
Section 4.07 Financial Condition of Borrower and Guarantor......................... 32
Section 4.08 Full Disclosure....................................................... 32
Section 4.09 No Default............................................................ 32
Section 4.10 No Litigation......................................................... 32
Section 4.11 Taxes................................................................. 32
Section 4.12 Principal Office, etc................................................. 33
Section 4.13 Compliance with ERISA................................................. 33
Section 4.14 Subsidiaries.......................................................... 33
Section 4.15 Indebtedness.......................................................... 33
Section 4.16 Permits, Patents, Trademarks, etc..................................... 33
Section 4.17 Status Under Certain Federal Statutes................................. 33
Section 4.18 Securities Act........................................................ 33
Section 4.19 Pollution Control..................................................... 34
Section 4.20 No Approvals Required................................................. 34
Section 4.21 Survival of Representations........................................... 34
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 4.22 Individual Mortgage Loans............................................. 34
Section 4.23 Environmental Matters................................................. 35
ARTICLE V AFFIRMATIVE COVENANTS............................................................. 35
Section 5.01 Financial Statements and Reports...................................... 35
Section 5.02 Taxes and Other Liens................................................. 38
Section 5.03 Maintenance........................................................... 38
Section 5.04 Further Assurances.................................................... 38
Section 5.05 Reimbursement of Expenses............................................. 38
Section 5.06 Insurance............................................................. 39
Section 5.07 Accounts and Records; Servicing Records............................... 39
Section 5.08 Right of Inspection................................................... 39
Section 5.09 Notice of Certain Events.............................................. 40
Section 5.10 Performance of Certain Obligations and Information Regarding Investors 40
Section 5.11 Use of Proceeds; Margin Stock......................................... 40
Section 5.12 Notice of Default..................................................... 40
Section 5.13 Compliance with Loan Documents........................................ 40
Section 5.14 Operations and Properties............................................. 41
Section 5.15 Year 2000 Covenant.................................................... 41
Section 5.16 REO Closing Proceeds.................................................. 41
Section 5.17 Environmental Matters................................................. 41
ARTICLE VI NEGATIVE COVENANTS............................................................... 41
Section 6.01 No Merger............................................................. 42
Section 6.02 Limitation on Indebtedness............................................ 42
Section 6.03 Fiscal Year, Method of Accounting..................................... 42
Section 6.04 Business.............................................................. 42
Section 6.05 Liquidations, Mergers, Consolidations and Dispositions of
Substantial Assets........................................................... 42
Section 6.06 Loans, Advances, and Investments...................................... 42
Section 6.07 Use of Proceeds....................................................... 43
Section 6.08 Actions with Respect to Mortgage Collateral........................... 43
Section 6.09 Net Worth............................................................. 43
Section 6.10 Total Liabilities to Tangible Net Worth Ratio......................... 43
Section 6.11 Transactions with Affiliates.......................................... 43
Section 6.12 Liens................................................................. 44
Section 6.13 ERISA................................................................. 44
Section 6.14 Change of Principal Office............................................ 44
ARTICLE VII EVENTS OF DEFAULT............................................................... 44
Section 7.01 Nature of Event....................................................... 44
Section 7.02 Default Remedies...................................................... 46
ARTICLE VIII INDEMNIFICATION................................................................ 46
Section 8.01 Indemnification....................................................... 46
Section 8.02 Limitation of Liability............................................... 47
ARTICLE IX AGENT............................................................................ 47
Section 9.01 Appointment and Authority............................................. 47
Section 9.02 Agent's Reliance, Etc................................................. 48
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 9.03 Lenders' Credit Decisions............................................. 48
Section 9.04 Indemnification....................................................... 48
Section 9.05 Rights as Lender...................................................... 49
Section 9.06 Sharing of Set-Offs and Other Payments................................ 49
Section 9.07 Investments........................................................... 50
Section 9.08 Benefit of Article IX................................................. 50
Section 9.09 Resignation........................................................... 50
Section 9.10 NO REPRESENTATIONS.................................................... 50
ARTICLE X MISCELLANEOUS..................................................................... 51
Section 10.01 Notices.............................................................. 51
Section 10.02 Amendments, Etc...................................................... 51
Section 10.03 CHOICE OF LAW; VENUE................................................. 52
Section 10.03 Invalidity........................................................... 52
Section 10.04 Survival of Agreements............................................... 52
Section 10.05 Renewal, Extension or Rearrangement.................................. 52
Section 10.06 Waivers.............................................................. 52
Section 10.07 Cumulative Rights.................................................... 53
Section 10.08 Limitation on Interest............................................... 53
Section 10.09 Bank Accounts; Offset................................................ 53
Section 10.10 Assignments, Participations.......................................... 54
Section 10.11 Exhibits............................................................. 55
Section 10.12 Titles of Articles, Sections and Subsections......................... 55
Section 10.13 Counterparts......................................................... 55
Section 10.14 ENTIRE AGREEMENT..................................................... 55
Section 10.15 Termination; Limited Survival........................................ 55
Section 10.16 Joint and Several Liability.......................................... 55
Section 10.17 Restatement.......................................................... 55
Section 10.18 Disclosures.......................................................... 56
Section 10.19 WAIVER OF JURY TRIAL................................................. 56
Section 10.20 CONSEQUENTIAL DAMAGES................................................ 56
</TABLE>
iii
<PAGE> 5
EXHIBITS
Exhibit A-1 -- Form of Note
Exhibit A-2 -- Form of Swing-Line 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-1 -- Tranche A Investors
Exhibit F-2 -- Tranche B 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
Exhibit K -- Securitization Reporting Worksheet for Monthly Reporting
Exhibit L -- Securitization Reporting Worksheet
vi
<PAGE> 6
THIRD RESTATED CREDIT AGREEMENT
THIS THIRD RESTATED CREDIT AGREEMENT is made and entered into as of June
30, 1998, 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; provided, however, that no state shall be an Acceptable
Manufactured Housing State unless the laws of such state treat manufactured
housing as real property rather than as personal property for purposes of
perfection of a Lien thereon.
"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.
"Adjusted Tranche A Portion" means, on any date of determination, that
portion of the aggregate principal amount of Tranche A Loans which equals the
Unit Collateral Value of the Designated Agency Loans as of such date.
"Adjusted Tranche B Portion" means, on any date of determination, that
portion of the aggregate principal amount of Tranche B Loans which equals the
Unit Collateral Value of the Designated Sub-Prime Loans as of such date.
"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.
<PAGE> 7
"Aggregate Collateral Value of the Borrowing Base" means at any date the
sum of the Collateral Value of the Tranche A Borrowing Base, the Collateral
Value of the Tranche B Borrowing Base, the Collateral Value of the Tranche C
Borrowing Base, and the Collateral Value of the Tranche D Borrowing Base, all as
of such date.
"Agreement" means this Third 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
(a) The Unadjusted Tranche A Portion, and Swing-Line Loans that
will be refinanced as Tranche A Loans, one and one-half percent (1.5%);
(b) The Adjusted Tranche A Portion, one and one-quarter percent
(1.25%);
(c) The Unadjusted Tranche B Portion, and Swing-Line Loans that
will be refinanced as Tranche B Loans, one and five-eighths percent
(1.625%);
(d) The Adjusted Tranche B Portion, one and three-eighths
percent (1.375%);
(e) Tranche C Loans and Swing-Line Loans that will be refinanced
as Tranche C Loans, two percent (2%);
(f) Tranche D Loans and Swing-Line Loans that will be refinanced
as Tranche D Loans, two and one-quarter percent (2.25%).
"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
<PAGE> 8
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) The Unadjusted Tranche A Portion, one and one-half percent
(1.5%);
(b) The Adjusted Tranche A Portion, one and one-quarter percent
(1.25%);
(c) The Unadjusted Tranche B Portion, one and five-eighths
(1.625%);
(d) The Adjusted Tranche B Portion, one and three-eighths
percent (1.375%);
(e) Tranche C Loans, two percent (2%); and
(f) Tranche D Loans, two and one-quarter percent (2.25%).
"Borrower" shall have the meaning assigned to such term in the preamble
hereof.
"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 the book value of
Capitalized Servicing Rights plus (d) the original principal amount of the
Subordinated Debt (without including any accrued 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). Included in this definition are residual
assets, over-collateralization accounts, reserves accounts, interest-only
certificates, subordinate securities or other such assets resulting from asset
securitizations.
"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
<PAGE> 9
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.
"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, the Collateral Value of the Tranche B Borrowing Base,
the Collateral Value of the Tranche C Borrowing Base, or the Collateral Value of
the Tranche D 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.
"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.
"Collateral Value of the Tranche C Borrowing Base" means at any date the
sum of the Unit Collateral Values of all Eligible Tranche C Mortgage Loans
included in the Tranche C Borrowing Base at such date.
"Collateral Value of the Tranche D Borrowing Base" means at any date the
sum of the Unit Collateral Values of all Eligible REOs plus the Unit Collateral
Value of all Eligible Repurchased and Defaulted Mortgages included in the
Tranche D Borrowing Base at such date.
"Commitment" means the obligation of Lenders to make Tranche A Loans,
Tranche B Loans, Tranche C Loans and Tranche D Loans to Borrower pursuant to
Section 2.01 hereof in an aggregate amount not to exceed $120,000,000 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.
<PAGE> 10
"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 liabilities, each as determined by GAAP.
"Construction Home" means a single family residence that is being
constructed on real property subject to a Mortgage.
"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.
"Designated Agency Loan" means an Eligible Agency Mortgage Loan for
which Agent has shipped the related Mortgage Collateral to an Investor for
purchase by such Investor pursuant to a Take-Out Commitment. An Eligible Agency
Mortgage Loan shall be classified as a Designated Agency Loan for the period
beginning on the date Agent ships the related Mortgage Collateral to an Investor
and ending on the earliest to occur of (a) the date Agent receives the proceeds
of such Mortgage Loan from the Investor, (b) the date the Agent receives the
related Mortgage Collateral from the Investor and (c) thirty (30) days from the
date Agent shipped the related Mortgage Collateral to the Investor.
"Designated Sub-Prime Loans" means an Eligible Sub-Prime Mortgage Loan
either (a) for which Agent has received documentation satisfactory to Agent from
an Investor stating that such Investor has underwritten such Eligible Sub-Prime
Mortgage Loan and has committed to purchase such Eligible Sub-Prime Mortgage
Loan for the price stated within such documentation or (b) which has been
shipped to a trustee pursuant to a securitization of Mortgage Loans. An Eligible
Sub-Prime Mortgage Loan shall be classified as a Designated Sub-Prime Loan for
the period beginning on the date either (a) Agent receives satisfactory
documentation from an Investor stating that such Investor has underwritten such
Eligible Sub-Prime Mortgage Loan and has committed to purchase such Eligible
Sub-Prime Mortgage Loan for the price stated within such documentation or (b)
Agent ships the related Mortgage Collateral to a trustee in conjunction with a
securitization and ending on the earliest to occur of (a) the date Agent
receives the proceeds of such Mortgage Loan from the Investor or from the
proceeds of such securitization, (b) the date Agent receives the related
Mortgage Collateral from the Investor or trustee, (c) thirty (30) days from the
date Agent shipped the related Mortgage Collateral to the trustee, and (d)
thirty (30) days from the date on which such Mortgage Collateral was first
designated as a Designated Sub-Prime Loan.
"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.
<PAGE> 11
"Drawdown Termination Date" means the earlier of June 29, 1999, or the
day on which the Notes first become due and payable in full.
"Eligible Agency Mortgage Loan" means an Eligible Mortgage Loan that has
a Risk Rating of A and that has been committed for sale to an Investor; provided
that such Mortgage Loan shall conform to FNMA/FHLMC guidelines in regards to
credit quality (and 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).
"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 or of the Collateral Value of the Tranche
B 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 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 an Investor 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 the related
Manufactured Home and the related Property, in favor of Borrower 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 Mortgage Loans included in the computation of the Collateral
Value of the Tranche A Borrowing Base and the Collateral Value of the
Tranche B 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
<PAGE> 12
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;
(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;
(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 and a copy of the
unexecuted Mortgage Note for such Mortgage Loan 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
<PAGE> 13
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 C Mortgage Loan, an Agreement to Pledge can be
delivered to Agent only for the first Loan made with respect to such
Eligible Tranche C Mortgage Loan, and all Required Documents for any
subsequent Loan with respect to such Eligible Tranche C 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 the Tranche A
Borrowing Base, the Tranche B Borrowing Base or the Tranche C 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;
(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 thirty (30) days from the date of shipment
by the Agent.
(xii) If such Mortgage Loan is a Jumbo Loan or a Super-Jumbo
Loan, the Unit Collateral Value of such Mortgage Loan when added to the
Unit Collateral Value of all other Jumbo Loans and Super-Jumbo Loans
does not exceed thirty percent (30%) of the Commitment;
(xiii) If such Mortgage Loan is a Super-Jumbo Loan, the Unit
Collateral Value of such Mortgage Loan when added to the Unit Collateral
Value of all other Super-Jumbo Loans does not exceed five percent (5%)
of the Commitment; and
(xiv) 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.
<PAGE> 14
"Eligible REO" means an REO owned by Borrower with respect to which each
of the following statements shall be accurate and complete (and Borrower by
including such Eligible REO in any computation of the Collateral Value of the
Tranche D Borrowing Base shall be deemed to so represent to Agent and Lenders at
and as of the date of such computation):
(i) such REO is not encumbered by a mortgage or a deed of trust
in favor of any Person, other than in favor of Agent on behalf of
Lenders;
(ii) such REO shall not have been included in the Tranche D
Borrowing Base for more than an aggregate period of 270 days (including
any period of time the Eligible Mortgage Loan secured by such REO was
previously included in the Aggregate Collateral Value of the Borrowing
Base; and
(iii) the Unit Collateral Value of such REO when added to the
Unit Collateral Value of all other Eligible REO included in the Tranche
D Borrowing Base does not exceed $500,000.
"Eligible Repurchased Defaulted Mortgage" means a Repurchased Defaulted
Mortgage owned by Borrower with respect to which each of the following
statements shall be accurate and complete (and Borrower by including such
Eligible Repurchased Defaulted Mortgage in any computation of the Collateral
Value of the Tranche D Borrowing Base shall be deemed to so represent to Agent
and Lenders at and as of the date of such computation):
(i) such Repurchased Defaulted Mortgage Loan meets all the
requirements set forth in the definition of an Eligible Mortgage Loan
except for clause (iv) of such definition;
(ii) such Repurchased Defaulted Mortgage shall not have been
included in the Tranche D Borrowing Base for more than an aggregate
period of 270 days;
(iii) such Mortgage Loan is secured by a first or second
priority Mortgage on Property consisting of a completed one-to-four unit
single family residence, including a condominium, planned unit
development, townhouse or co-op; and
(iv) the Unit Collateral Value of such Repurchased Defaulted
Mortgage when added to the Unit Collateral Value of all the Eligible
Repurchased Defaulted Mortgages included in the Tranche D Borrowing Base
does not exceed $1,000,000.
"Eligible Sub-Prime Mortgage Loan" means an Eligible Mortgage Loan that
has a Risk Rating of A-1, B or C and is eligible for sale to a Tranche B
Investor (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).
"Eligible Tranche A Mortgage Loan" means an Eligible Agency 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 180 days (including any period of time such
Mortgage Loan was included in the
<PAGE> 15
Aggregate Collateral Value of the Borrowing Base under the Existing
Agreement); provided, however, that such Mortgage Loan may be included
in the Tranche A Borrowing Base for up to a maximum aggregate period of
270 days (including any period of time such Mortgage Loan was included
in the Aggregate Collateral Value of the Borrowing Base under the
Existing Agreement) so long as the Unit Collateral Value of such
Mortgage Loan when added to the Unit Collateral Value of all other
Eligible Tranche A Mortgage Loans and Eligible Tranche B Mortgage Loans
included in the Tranche A Borrowing Base and the Tranche B Borrowing
Base for more than 180 days (including any period of time such Mortgage
Loan was included in the Aggregate Collateral Value of the Borrowing
Base under the Existing Agreement) does not exceed $12,000,000;
(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) Such Mortgage Loan is secured by a first or second
priority Mortgage on Property consisting of a completed one-to-four unit
single family residence, including a condominium, planned unit
development or townhouse; provided, however, that if such Mortgage Loan
is a Second Mortgage Loan, such Mortgage Loan may be included in the
Tranche A Borrowing Base only if the Unit Collateral Value of such
Second Mortgage Loan when added to the Unit Collateral Value of all
other Second Mortgage Loans then included in the Tranche A Borrowing
Base and the Tranche B Borrowing Base does not exceed five percent (5%)
of the Commitment;
(iv) For any Mortgage Loan which was originally included in the
Tranche C Borrowing Base, Agent has received the Required Mortgage
Documents set forth in Section 3 of Schedule A to the Security
Agreement;
(v) If such Mortgage Loan is an Eligible Manufactured Housing
Mortgage Loan, such Mortgage Loan has a Risk Rating of A; and
(vi) Such Mortgage Loan is not included in the Tranche C
Borrowing Base.
"Eligible Tranche B Mortgage Loan" means an Eligible Sub-Prime 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 B 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 B
Borrowing Base for more than 180 days (including any period of time such
Mortgage Loan was included in the Aggregate Collateral Value of the
Borrowing Base under the Existing Agreement); 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 (including any period of
time such Mortgage Loan was included in the Aggregate Collateral Value
of the Borrowing Base under the Existing Agreement) 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 and Eligible
Tranche A Mortgage Loans included in the Tranche A Borrowing Base and
the Tranche B Borrowing Base for more than 180 days (including any
period of time such Mortgage Loan was included in the Aggregate
Collateral Value of the Borrowing Base under the Existing Agreement)
does not exceed $12,000,000;
<PAGE> 16
(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; and
(iii) Such Mortgage Loan is secured by a first or second
priority Mortgage on Property consisting of a completed one-to-four unit
single family residence, including a condominium, planned unit
development, or townhouse; provided, however, that if such Mortgage Loan
is a Second Mortgage Loan, such Mortgage Loan may be included in the
Tranche B Borrowing Base only if the Unit Collateral Value of such
Second Mortgage Loan when added to the Unit Collateral Value of all
other Second Mortgage Loans then included in the Tranche B Borrowing
Base and the Tranche A Borrowing Base does not exceed five percent (5%)
of the Commitment.
"Eligible Tranche C 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 such Eligible Mortgage Loan in
any computation of the Collateral Value of the Tranche C 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 an Eligible Mortgage Loan;
(ii) Such Mortgage Loan has not been included in the Tranche C
Borrowing Base for more than 180 days (including any period of time such
Mortgage Loan was included in the Aggregate Collateral Value of the
Borrowing Base under the Existing Agreement); provided, however, that
such Mortgage Loan may be included in the Tranche C Borrowing Base for
up to a maximum aggregate period of 270 days (including any period of
time such Mortgage Loan was included in the Aggregate Collateral Value
of the Borrowing Base under the Existing Agreement) so long as the Unit
Collateral Value of such Mortgage Loan when added to the Unit Collateral
Value of all other Eligible Tranche C Mortgage Loans included in the
Tranche C 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;
(vi) Borrower has advanced to or for the benefit of Obligor, at
least ten percent (10%) of the stated principal amount of the Mortgage
Note evidencing such Mortgage Loan;
(vii) Such Mortgage Loan is not included in the Tranche A
Borrowing Base; and
(viii) Such Mortgage Loan, upon completion of the Construction
Home, shall be eligible for inclusion in the Tranche A Borrowing Base.
<PAGE> 17
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, judicial decisions, regulations, ordinances, rules, judgments,
orders, decrees, plans, injunctions, permits, concessions, grants, franchises,
licenses, agreements and other governmental restrictions relating to (i) the
protection of the environment, (ii) the effect of the environment on human
health, (iii) emissions, discharges or releases of pollutants, contaminants,
hazardous substances or wastes into surface water, ground water or land, or (iv)
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, hazardous substances or
wastes or the clean-up or other remediation thereof.
"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 the Bloomberg
Eurorate (or, if not available, any other nationally recognized trading screen
reporting on-line trading in London interbank offered rates) at 10:00 a.m.
(Dallas, Texas time) as the London interbank offered rate for deposits in
dollars on that day for a period of one month.
"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.
"Existing Agreement" means that certain Second Restated Credit Agreement
dated as of August 29, 1997, among Borrower, Guarantor, Agent and the lenders
named therein, as amended by that certain First Amendment to Second Restated
Credit Agreement dated as of April 7, 1998, that certain Second Amendment to
Second Restated Credit Agreement dated as of April 28, 1998, that certain Third
Amendment to Second Restated Credit Agreement dated as of May 15, 1998, and that
certain Fourth Amendment to Second Restated Credit Agreement dated as of May 28,
1998.
"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.
"FHA" means the Federal Housing Administration or any successor thereto.
"FHLMC" means the Federal Home Loan Mortgage Corporation or any
successor thereto.
<PAGE> 18
"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.
"GNMA" means the Government National Mortgage Association or any
successor thereto.
"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 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 the First Restated Guaranty in the form attached hereto
as Exhibit "I," as the same may from time to time be further supplemented,
amended or restated.
<PAGE> 19
"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 either a Tranche A Investor or a Tranche B Investor.
"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.
"Late Payment Rate" means, at the time in question, four percent (4%)
per annum plus the Applicable Rate then in effect.
<PAGE> 20
"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, Tranche C Loan, Tranche D
Loan or Swing-Line Loan as applicable. "Loans" means all Tranche A Loans,
Tranche B Loans, Tranche C Loans, Tranche D Loans and Swing-Line Loans.
"Loan Document" means any, and "Loan Documents" shall mean all, of this
Agreement, the Notes, the Swing-Line Note, 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 (a) 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 or (b) sales prices
actually received by Borrower for mortgage notes sold by Borrower during the
immediately preceding thirty (30) day period 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.
<PAGE> 21
"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 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 and Tranche B 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-1," 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.
<PAGE> 22
"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.
"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.
"REO" means any interest in real property and the improvements thereon
owned by Borrower as a result of the foreclosure or transfer in lieu of
foreclosure of a Mortgage Loan.
"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.
"Repurchased Defaulted Mortgage" means a defaulted Mortgage Loan
repurchased by Borrower from an investor or out of a pool of Mortgage Loans
pursuant to Borrower's contractual obligation or election by Borrower to do so.
"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
<PAGE> 23
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.
"Second Mortgage Loan" means a Mortgage Loan secured by a second
priority Mortgage, which Mortgage Loan has a combined loan-to-value ratio at
origination (taking into account the full outstanding principal balance secured
by the first priority Mortgage) not in excess of 100% using the appraised value
of the single-family dwelling described in such Mortgage according to the
appraisal obtained in connection with the origination of such second priority
Mortgage Loan.
"Security Agreement" means the First Restated 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 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; and (ii) the payment of the
Obligations; provided that (a) the Settlement Account shall be pledged to Agent
for the benefit of Lenders, (b) Borrower shall not be entitled to withdraw funds
from the Settlement Account, (c) 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 (d) 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.
<PAGE> 24
"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(e).
"Swing-Line Note" means the promissory note delivered by Borrower to
Guaranty Federal pursuant to Section 2.02 in the form attached hereto as Exhibit
"A-2," and all renewals, modifications, and extensions thereof.
"Take-Out Commitment" means (a) with respect to any Eligible Tranche A
Mortgage Loan, 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 Eligible Tranche B Mortgage Loan, a written master commitment or
a loan specific 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 exclude the
aggregate principal amount outstanding as of such date of the 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 Investor" means any Person listed on Exhibit "F-1", as such
exhibit may be updated or supplemented from time to time; provided, however,
that Agent shall deliver a list of all
<PAGE> 25
Persons approved as Tranche A Investors by Agent to Lenders upon each amendment
of such exhibit by Agent, and a Tranche A Investor shall be removed from such
list upon the written direction of Majority Lenders.
"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 Investor" means any Person listed on Exhibit "F-2", as such
exhibit may be amended or supplemented from time to time; provided, however,
that Agent shall deliver a list of all Persons approved as Tranche B Investors
by Agent to Lenders upon each amendment of such exhibit by Agent, and a Tranche
B Investor shall be removed from such list upon the written direction of
Majority Lenders.
"Tranche B Loan" has the meaning given it in Section 2.01(b).
"Tranche C Borrowing Base" means at any date all Eligible Tranche C
Mortgage Loans, which have been delivered to and held by Agent or otherwise
identified as Mortgage Collateral.
"Tranche C Loan" has the meaning given it in Section 2.01(c).
"Tranche C Sublimit" means $18,750,000.
"Tranche D Borrowing Base" means at any date all Eligible REO and
Eligible Repurchased Defaulted Mortgages which have been delivered to and held
by Agent or otherwise identified as Collateral.
"Tranche D Loan" has the meaning given it in Section 2.01(d).
"UCC" means the Texas Uniform Commercial Code, as the same may hereafter
be amended.
"Unadjusted Tranche A Portion" means, on any date of determination, the
aggregate principal amount of the Tranche A Loans which is in excess of the
Adjusted Tranche A Portion.
"Unadjusted Tranche B Portion" means, on any date of determination, the
aggregate principal amount of the Tranche B Loans which is in excess of the
Adjusted Tranche B Portion.
"Unit Collateral Value" means
(a) with respect to each Eligible Tranche A Mortgage Loan or Eligible
Tranche B Mortgage Loan included in the Tranche A Borrowing Base or Tranche B
Borrowing Base, as applicable, for not more than 180 days, ninety-eight percent
(98%) of the least of: (i) the outstanding principal balance of the Mortgage
Note constituting such Mortgage Loan; (ii) the actual out-of-pocket cost to
Borrower of such Mortgage Loan minus the amount of principal paid under such
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
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 Mortgage Loan; and
<PAGE> 26
(b) with respect to each Eligible Tranche A Mortgage Loan or Eligible
Tranche B Mortgage Loan included in the Tranche A Borrowing Base or Tranche B
Borrowing Base, as applicable, more than 180 days but not in excess of 270 days,
eighty percent (80%) of the least of: (i) the outstanding principal balance of
the Mortgage Note constituting such Mortgage Loan; (ii) the actual out-of-pocket
cost to Borrower of such Mortgage Loan minus the amount of principal paid under
such 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
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 Mortgage Loan; and
(c) with respect to each Eligible Tranche C Mortgage Loan included in
the Tranche C Borrowing Base, ninety percent (90%) of the least of: (i) the
outstanding principal balance of the Mortgage Note constituting such Eligible
Tranche C Mortgage Loan; (ii) if such Eligible Tranche C Mortgage Loan is
subject to a Take-Out Commitment, the amount at which an Investor has committed
to purchase the Eligible Tranche C 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 C Mortgage Loan; and
(d) with respect to each Eligible REO included in the Tranche D
Borrowing Base, fifty percent (50%) of the least of: (i) the appraised value of
the Eligible REO at the time of acquisition by Borrower; (ii) the acquisition
cost to Borrower of such Eligible REO; or (iii) the Market Value of such
Eligible REO; and
(e) with respect to each Eligible Repurchased Defaulted Mortgage
included in the Tranche D Borrowing Base, seventy percent (70%) of the least of:
(i) the outstanding principal balance of the Mortgage Note constituting such
Eligible Repurchased Defaulted Mortgage; (ii) the actual out-of-pocket cost to
Borrower for the repurchase of such Eligible Repurchased Defaulted Mortgage
Note; or (iii) the Market Value of the Mortgage Note constituting such Eligible
Repurchased Defaulted Mortgage.
"VA" means the Department of Veteran's Affairs and any successor
thereto.
Section 1.02 Other Definitional Provisions.
(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.
<PAGE> 27
(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. The Agent
shall deliver to Borrower an interest billing statement for each month on or
before the fifteenth day of the next succeeding month, which interest billing
statement shall set forth the interest accrued on the Loans for such month;
provided that any failure or delay in delivering such interest billing or any
inaccuracy therein shall not affect the Obligations.
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 reduced by the sum of (A) such Lender's
Percentage Share of all Tranche B Loans outstanding at such time, (B) such
Lender's Percentage Share of all Tranche C Loans outstanding at such time, and
(C) such Lender's Percentage Share of all Tranche D Loans outstanding at such
time. 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.
<PAGE> 28
(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
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 $50,000. 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 Commitment reduced by the sum of (A) such Lender's
Percentage Share of all Tranche A Loans outstanding at such time, (B) such
Lender's Percentage Share of all Tranche C Loans outstanding at such time, and
(C) such Lender's Percentage Share of all Tranche D Loans outstanding at such
time. 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.
(c) Tranche C Loans. Subject to the terms and conditions contained in
this Agreement, each Lender agrees to make loans ("Tranche C Loans") to Borrower
to finance the draws advanced from time to time by Borrower pursuant to Eligible
Tranche C Mortgage Loans. Tranche C 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 C 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 C Loans at any time
outstanding (after giving effect to the other transactions contemplated by the
Borrowing Request pursuant to which a Tranche C Loan is requested) shall not
exceed the lesser of: (1) such Lender's Percentage Share of the Collateral Value
of the Tranche C Borrowing Base or (2) such Lender's Percentage Share of the
Tranche C Sublimit. At no time shall the aggregate amount of all Tranche C Loans
outstanding at any time exceed the lesser of (1) the Collateral Value of the
Tranche C Borrowing Base and (2) the Tranche C Sublimit. 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.
(d) Tranche D Loans. Subject to the terms and conditions contained in
this Agreement, each Lender agrees to make loans ("Tranche D 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 D Loans pursuant to a Borrowing Request shall be in an aggregate amount
of not less than $30,000. The aggregate principal amount of any Lender's Tranche
D Loans at any time outstanding (after giving effect to the other transactions
contemplated by the Borrowing Request pursuant to which a Tranche D Loan is
requested) shall not exceed the lesser of: (1) such Lender's Percentage Share of
the Collateral Value of the Tranche D Borrowing Base or (2) such Lender's
Percentage Share of the Commitment reduced by the sum of (A) such Lender's
Percentage Share of all Tranche A Loans outstanding at such time, (B) such
Lender's Percentage Share of all Tranche B Loans outstanding at such time, and
(C) such Lender's Percentage Share of all Tranche C Loans outstanding at such
time. 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.
(e) 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
<PAGE> 29
(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 Section 2.01(a), (b), (c) or (d) shall be evidenced by a
Note payable to the order of such Lender. The Swing-Line Loans made by Guaranty
Federal pursuant to Section 2.01(e) shall be evidenced by the Swing-Ling Note.
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. Each Lender which has any
Balance Funded Amount for any Balance Calculation Period shall provide Agent
written notice of such Balance Funded Amount not later than two Business Days
after the end of such Balance Calculation Period, and Agent shall be entitled to
rely on the accuracy of such notice in calculating the interest accrued for such
Balance Calculation Period. For any Lender which has a Balance Funded Amount,
the Balance Funded Rate shall apply first to such Lender's Tranche D Loans,
second to such Lender's Tranche C Loans, third to such Lender's Unadjusted
Tranche B Portion, fourth to such Lender's Unadjusted Tranche A Portion, fifth
to such Lender's Adjusted Tranche B Portion, and last to such Lender's Adjusted
Tranche A Portion. 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> 30
Section 2.03 Notice and Manner of Obtaining Loans. Borrower shall give
Agent notice of each request for Tranche A Loans, Tranche B Loans, Tranche C
Loans or Tranche D 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, Tranche B Loan, Tranche C Loan or Tranche D 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, Tranche B Loans, Tranche C Loans and Tranche D 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 0.175% 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 July
1, 1998, and continuing regularly on each October 1, January 1, April 1 and July
1 thereafter.
(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.
<PAGE> 31
(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 one (1) Business Day after
written notice thereof from Agent.
(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 one (1) Business Day after
written notice thereof from Agent.
(c) If at any time the aggregate outstanding principal amount of all
Tranche C Loans exceeds the lesser of (i) the Collateral Value of the Tranche C
Borrowing Base and (ii) the Tranche C Sublimit, Borrower shall repay the amount
of such excess within one (1) Business Day after written notice thereof from
Agent.
(d) If at any time the aggregate outstanding principal amount of all
Tranche D Loans exceeds the Collateral Value of the Tranche D Borrowing Base,
Borrower shall repay the amount of such excess within one (1) Business Day 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. Borrower
shall send notice to Agent before 1:00 p.m. (Dallas, Texas time) on the day any
payment of principal or interest is received by Agent which sets forth the Loans
against which such payment is to be applied. Any payment (or any payment
received without a notice regarding application of such 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 if such Swing-Line Loans are of the type which Lenders are
obligated to refund pursuant to Section 2.07(c) below, (iii) third if
such payments are on account of the Tranche A Loans, to the payment of
the Tranche A Loans then due, if such payments are on account of the
Tranche B Loans, to the payment of the Tranche B Loans then due, if such
payments are on account of the Tranche C Loans, to the Tranche C Loans
then due, if such payments are on account of the Tranche D Loans, to the
payment of the Tranche D Loans then due, (iv) fourth to Guaranty Federal
for the payment of any outstanding Swing-Line Loans then due which are
of the type which Lenders are not obligated to refund pursuant to
Section 2.07(c) below, and (v) then to the partial payment of all other
Obligations then due in proportion to the amounts thereof, or as Lenders
shall otherwise agree;
<PAGE> 32
(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, Tranche B
Loan, Tranche C Loan or Tranche D Loan, as applicable, in an aggregate amount
equal to its Percentage Share 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 amount of Swing-Line
Loans which are then outstanding and the amount of the Tranche A Loan, Tranche B
Loan, Tranche C Loan or Tranche D 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, Tranche B Loan, Tranche C Loan or Tranche D 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, Tranche B Loans, Tranche C Loans and Tranche D 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, Tranche B Loan, Tranche C Loan
or Tranche D Loan by a Lender pursuant to this Section
<PAGE> 33
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, Tranche B Loans, Tranche C Loans and Tranche D 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,
Tranche B Loan, Tranche C Loan or Tranche D 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 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,
<PAGE> 34
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.
(b) All payments on account of the principal of, and interest on, each
Lender's Loan, each Lender's Note, and the Swing-Line 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,
<PAGE> 35
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 and the Swing-Line
Note, 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,
certificates 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 and the Swing-Line Note;
(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;
(f) a certificate of the existence and good standing for Borrower and
Guarantor in their state of incorporation dated no earlier than June 20, 1998;
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.
<PAGE> 36
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 or as provided under subsection (x) of the definition of Eligible
Mortgage Loans;
(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) (A) the aggregate amount of all Loans outstanding, after giving
effect to such Loan, does not exceed the lesser of (1) the Aggregate Collateral
Value of the Borrowing Base and (2) the Commitment (B) the aggregate amount of
all Tranche A Loans outstanding, after giving effect to such Loan, does not
exceed the lesser of (1) the Collateral Value of the Tranche A Borrowing Base,
and (2) the Commitment reduced by the sum of A. the aggregate amount of all
Tranche B Loans outstanding, B. the aggregate amount of all Tranche C Loans
outstanding, and C. the aggregate amount of all Tranche D Loans outstanding; (C)
the aggregate amount of all Tranche B Loans outstanding, after giving effect to
such Loan, does not exceed the lesser of: (1) the Collateral Value of the
Tranche B Borrowing Base, and (2) the Commitment reduced by the sum of A. the
aggregate amount of all Tranche A Loans outstanding, B. the aggregate amount of
all Tranche C Loans outstanding, and C. the aggregate amount of all Tranche D
Loans outstanding; (D) the aggregate amount of all Tranche C Loans outstanding,
after giving effect to such Loan, does not exceed the lesser of (1) the
Collateral Value of the Tranche C Borrowing Base, (2) the Commitment reduced by
the sum of A. the aggregate amount of all Tranche A Loans outstanding, B. the
aggregate amount of all Tranche B Loans outstanding, and C. the aggregate amount
of all Tranche D Loans outstanding and (3) the Tranche C Sublimit; and (E) the
aggregate amount of all Tranche D Loans outstanding, after giving effect to such
Loan, does not exceed the lesser of (1) the Collateral Value of the Tranche D
Borrowing Base, and (2) the Commitment reduced by the sum of A. the aggregate
amount of all Tranche A Loans outstanding, B. the aggregate amount of all
Tranche B loans outstanding, and C. the aggregate amount of all Tranche C Loans
outstanding.
<PAGE> 37
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.
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, the
Swing-Line Note, 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.
<PAGE> 38
Section 4.06 No Liens. Borrower has good and indefeasible title to the
Mortgage Collateral and to all of the Eligible REO free and clear of all Liens
and other adverse claims of any nature, except for ad valorem taxes and
assessments not yet due and payable and Liens in the Mortgage Collateral or the
Eligible REO 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, 1997, 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 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 March 31,
1998 and (ii) Guarantor since March 31, 1998. Borrower has also delivered to
Agent and each Lender its unaudited quarterly balance sheet for the period
ending March 31, 1998 and management reports for the months ended March 31,
1998; 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 March 31, 1998; 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.
<PAGE> 39
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.
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. Section 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
<PAGE> 40
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, the Swing-Line Note, 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 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, the Swing-Line Note 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:
(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;
(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 (other than with respect to Repurchased Defaulted Mortgages) 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 C
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
<PAGE> 41
and to pay interest at the related interest rate; and no Mortgage Note (except
for any Mortgage Note evidencing an Eligible Tranche C 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 Section 347 of the Texas Finance
Code.
Section 4.23 Environmental Matters. In the ordinary course of each
Related Person's business, the officers and managers of each Related Person
consider the effect of Environmental Laws on the business of such Related
Person, in the course of which they identify and evaluate potential risks and
liabilities accruing to such Related Person due to Environmental Laws. On the
basis of this consideration, each Related Person has reasonably concluded that
neither violation of nor compliance with Environmental Laws can reasonably be
expected to have a material adverse effect on the business or financial
condition of such Related Person or on the ability of Borrower to perform the
Obligations. No Related Person has received any notice to the effect that its
operations are not in material compliance with any of the requirements of
applicable Environmental Laws or are the subject of any federal or state
investigation evaluating whether any remedial action is needed to respond to a
release of any toxic or hazardous waste or substance into the environment, which
non-compliance or remedial action could reasonably be expected to have a
material adverse effect on the business or financial condition of the Related
Persons, taken as a whole, or on the ability of Borrower to perform the
Obligations.
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
Consolidated balance sheet of Borrower and its Consolidated Subsidiaries
as of the end of such year, and the related Consolidated statements of
income, stockholders' equity and cash flows of Borrower and its
Consolidated Subsidiaries for such year, setting forth in each case in
comparative form the corresponding figures for the
<PAGE> 42
preceding Fiscal Year, such financial statements shall be unqualified
and shall be 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 Consolidated balance sheet of
Borrower and its Consolidated Subsidiaries as of the end of such month
and the related Consolidated statements of income, stockholders' equity
and cash flows of Borrower and its Consolidated Subsidiaries 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;
(vii) Promptly and in any event within thirty (30) days after
the end of each month a list of all Repurchased Defaulted Mortgages
(including the outstanding principal amounts of each) repurchased by
Borrower during such month, together with a list of all other
Repurchased Defaulted Mortgages (including the outstanding principal
amount of each) then owned by Borrower;
(viii) Promptly and in any event within thirty (30) days after
the end of each month a Securitization Reporting Worksheet for Monthly
Reporting in the form of Exhibit "K" hereto, executed by the chief
financial officer of Borrower;
<PAGE> 43
(ix) Promptly and in any event within thirty (30) days after the
closing of any securitization of Mortgage Loans, a Securitization
Reporting Worksheet in the form of Exhibit "L" hereto, executed by the
chief financial officer of Borrower;
(x) Promptly and in any event within thirty (30) days after the
end of each month, a report detailing the following information, with
respect to any Mortgage Loans serviced by Borrower during such month:
the aggregate unpaid principal amount of such Mortgage Loans, the
weighted average interest rate of such Mortgage Loans, the weighted
average maturity date of such Mortgage Loans; the principal amount of
each Mortgage Loan which was paid in full during such month; the
aggregate principal amount of such Mortgage Loans which are 30, 60 or 90
days delinquent, the aggregate principal amount of any such Mortgage
Loans either repurchased or foreclosed upon during such month;
(xi) Promptly and in any event within thirty (30) days after the
end of each month, a list of all REO (including the acquisition cost to
Borrower of such REO) purchased by Borrower during such month, together
with a list of all other REO then owned by Borrower;
(xii) Promptly and in any event within thirty (30) days after
the end of each month, a report stating the outstanding principal amount
as of the end of such month of each Eligible Tranche C Mortgage Loan
then included in the Tranche C Borrowing Base; and
(xiii) 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
Consolidated balance sheet of Guarantor and its Consolidated
Subsidiaries as of the end of such year, and the related Consolidated
statements of income, stockholders' equity and cash flows of Guarantor
and its Consolidated Subsidiaries 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 of Guarantor,
including the last fiscal quarter in the Fiscal Year of Guarantor,
Guarantor's Consolidated and consolidating balance sheet as of the end
of such Fiscal Quarter and the related Consolidated and consolidating
statements of income, stockholder's equity and cash flows of Guarantor
and its Consolidated Subsidiaries 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; and
(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
<PAGE> 44
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.
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. Borrower shall maintain good standing as an FHLMC-approved seller and
servicer. Upon achievement, Borrower shall maintain good standing as an FHA- and
VA-approved lender and mortgagee, a GNMA-approved issuer and servicer and a
FNMA-approved seller and servicer.
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.
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, syndication, execution and delivery of this Agreement, the Notes,
the Swing-Line Note 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, negotiation 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 administration of this Agreement, the Notes, the
Swing-Line Note and the other Loan Documents, including courier expenses
incurred in connection with the Mortgage Collateral, (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 the
Swing-Line Note, or to protect, preserve, exercise or 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 protect, preserve, exercise or enforce the rights of
Agent or any Lender under this Agreement or any of the other Loan Documents,
(vi) each Lender for all out-of-pocket costs and expenses (including fees and
disbursements of attorneys and other experts
<PAGE> 45
employed or retained by such Person) incurred in connection with, arising out
of, or in any way related to (a) consulting during a Default with respect to (A)
the protection, preservation, exercise or enforcement of any of its rights in,
under or related to the Collateral or the Loan Documents or (B) the performance
of any of its obligations under or related to the Loan Documents, or (b)
protecting, preserving, exercising or enforcing during a Default any of its
rights in, under or related to the Collateral or the Loan Documents, each of (i)
through (v) 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 or the Swing-Line 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 (including,
without limitation, all Eligible REO) 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
and on each Eligible REO 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 (including, without limitation, with respect to all Eligible REO)
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 and of each Lender 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 or any Lender 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 Lender or any authorized representatives of Agent
or any Lender may 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
<PAGE> 46
meetings between the officers or other representatives of Agent or any Lender
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.
Upon request by Agent, Borrower will deliver to Agent financial information
concerning any Person Lenders are reviewing to determine whether to approve such
Person as an Investor; all such financial information must be delivered to Agent
prior to any request by Borrower for Mortgage Collateral to be delivered to such
Person.
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.
<PAGE> 47
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.
Section 5.15 Year 2000 Covenant. Borrower shall ensure that Borrower and
its Affiliates are Year 2000 Compliant in a timely manner, but in no event later
than December 31, 1999. Borrower shall further make reasonable inquiries of and
request reasonable validation that all major contractors, suppliers, service
providers and vendors of Borrower are similarly Year 2000 Compliant. As used in
this paragraph, "major" shall mean properties or entities the failure of which
to be Year 2000 Compliant would have a material adverse economic impact upon
Borrower. The term "Year 2000 Compliant" shall mean that all software, hardware,
equipment, goods or systems utilized by or material to the physical operations,
business operations, or financial reporting of such property or entity
(collectively, the "systems") will properly perform date sensitive functions
before, during and after the year 2000. In furtherance of this covenant,
Borrower shall, in addition to any other necessary actions, perform a
comprehensive review and assessment of all systems of Borrower, and shall adopt
a detailed plan, with itemized budget, for the testing, remediation, and
monitoring of such systems. Borrower has provided Agent with satisfactory
documentation and shall provide to Agent such additional certifications or other
evidence of Borrower's compliance with the terms of this paragraph as any Lender
may from time to time reasonably require.
Section 5.16 REO Closing Proceeds. Borrower shall send a notice to each
and every closing agent and closing attorney employed by Borrower to sell REO on
behalf of Borrower, which notice shall instruct said closing agent or closing
attorney to remit any and all proceeds (net of expenses of the sale) derived
from the sale of REO directly to the Settlement Account.
Section 5.17 Environmental Matters.
(a) Each Related Person will comply in all material respects
with all Environmental Laws now or hereafter applicable to such Related
Person and shall obtain, at or prior to the time required by applicable
Environmental Laws, all environmental, health and safety permits,
licenses and other authorizations necessary for its operations and will
maintain such authorizations in full force and effect.
(b) Borrower will promptly furnish to Agent all written notices
of violation, orders, claims, citations, complaints, penalty
assessments, suits or other proceedings received by Borrower, or of
which it has notice, pending or threatened against Borrower, by any
governmental authority with respect to any alleged violation of or
non-compliance with any Environmental Laws or any permits, licenses or
authorizations in connection with its ownership or use of its properties
or the operation of its business.
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 6.13):
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
<PAGE> 48
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;
(c) Indebtedness of Borrower under gestation agreements, which
Indebtedness shall be incurred on terms satisfactory to Majority Lenders;
(d) Indebtedness in an aggregate amount not to exceed $5,000,000 to
support securitizations of Mortgage Loans transferred by Borrower to a special
purpose entity, which Indebtedness shall be incurred on terms satisfactory to
Majority Lenders; and
(e) 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;
(c) Mortgage Notes and REOs acquired in the ordinary course of
Borrower's business; and
<PAGE> 49
(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. Borrower's Consolidated Tangible Net Worth shall
never be less than the sum of (i) $6,500,000 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) one
hundred percent (100%) 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 the Fiscal Quarter
commencing on July 1, 1998. As of the end of each Fiscal Quarter, Guarantor's
Consolidated Net Worth shall not be less than $5,000,000.
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
never be more than 15.0 to 1.0.
Section 6.11 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
<PAGE> 50
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 6.12 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) or Section
6.02(c) on Property other than Collateral.
Section 6.13 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 6.14 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 6.15 Minimum Unrestricted Balance Sheet Liquidity. The
Unrestricted Balance Sheet Liquidity of Borrower shall never be less than
$200,000. As used in this section, the term "Unrestricted Balance Sheet
Liquidity" means the sum of (i) the cash and Cash Equivalents owned by Borrower
and (ii) the unutilized portion of any revolving credit facility of Borrower
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 the Swing-Line Note, or payment of any fee, expense or other amount
due hereunder, under the Notes, the Swing-Line Note or under any other Loan
Document, on or before the date such payment is due;
(b) Guarantor fails to make any payment of any Obligation on the date
such payment in due;
(c) Default is made in the due observance or performance by any Related
Person of any covenant set forth in Sections 6.09, 6.10 and Section 6.15 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;
<PAGE> 51
(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, the Swing-Line
Note 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
(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
<PAGE> 52
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, the Swing-Line Note 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 and the Swing-Line Note to be,
and the Notes and the Swing-Line Note, 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, the
Swing-Line Note 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, in any Notes or the Swing-Line Note to the contrary
notwithstanding.
<PAGE> 53
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 (including any violation or noncompliance with
any Environmental Laws by any Related Person).
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. All amounts payable by Borrower and Guarantor shall be
immediately due upon Agent's request for the payment thereof.
Section 8.02 Limitation of Liability. None of Agent, Lenders, their
directors, officers, agents, attorneys, employees, representatives or affiliates
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> 54
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
Collateral agent and representative (within the meaning of Section 9.105(13) of
the UCC) for such Lender under the Security Agreement with such powers as are
reasonably incidental thereto, 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, the Agent's duties shall be purely ministerial, 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. 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.
Each Lender hereby authorizes Agent to execute deliver and perform, in name of
and on behalf of such Lender, the Security Agreement. Agent may execute any of
its duties by or through agents or attorneys in fact.
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 the
value or sufficiency of the Collateral 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.
<PAGE> 55
Section 9.03 Lenders' Credit Decisions. Each Lender acknowledges that it
has, independently and without reliance upon Agent or any other Lender in full
compliance with Lender's responsibilities under all applicable Governmental
Requirements (including but not limited to the due diligence requirements of
Banking Circular 181 promulgated by the Office of the Comptroller of the
Currency) based on its own commercial lending expertise has 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 as a sophisticated commercial lender has based its decision to make
the Loan upon a complete analysis of Borrower's credit quality, the value and
lien status of Collateral and the Loan Documents, conducted at the same level of
due diligence that Lender would undertake if it alone were making the Loan. 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. Each Lender's Loan is a
commercial loan transaction made in the ordinary course of Lender's business,
about which Lender, as a commercial lender, is fully informed and actively
involved on a daily basis. The Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default hereunder unless the
Agent has received notice from a Lender or the Borrower referring to the Loan
Documents, describing such Default or Event of Default and stating that such
notice is a "notice of default." In the event the Agent receives such notice,
the Agent shall give notice thereof to the Lenders. The Agent shall take such
action with respect to such Default or Event of Default as directed by the
number of Lenders required for such action.
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
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<PAGE> 56
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) such Lender 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.
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 on behalf of the
Lenders 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
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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. The successor Agent shall thereupon succeed to and become vested
with all rights, powers, privileges and duties and obligations as Agent under
the Loan Documents. The retiring Agent shall transfer all Collateral within its
possession or control to the successor Agent and shall execute and deliver such
notices, instructions and assignments as may be necessary or desirable to
transfer the rights of Agent with respect to the Collateral to the successor
Agent. After any retiring Agent's resignation as Agent, the provisions of this
Article IX and the provisions of the Loan Agreement providing for the
indemnification of Agent by Borrower or Lenders, shall continue in effect for
retiring Agent's benefit with respect to any of the actions taken or omitted to
be taken by it while acting as Agent.
Section 9.10 NO REPRESENTATIONS. LENDERS ACKNOWLEDGE AND AGREE THAT
AGENT HAS MADE NO REPRESENTATION OR WARRANTY, WRITTEN OR ORAL, EXPRESS OR
IMPLIED, REGARDING THE ACCURACY OR COMPLETENESS OF ANY INFORMATION RELATING TO
BORROWER OR THE COLLATERAL INCLUDING BUT NOT LIMITED TO THE CREDITWORTHINESS OF
BORROWER OR ANY OBLIGOR, OR THE CONDITION OR COLLECTABILITY OF ANY ASSET. AGENT
AND ITS DIRECTORS, OFFICERS, AGENTS, ATTORNEYS, EMPLOYEES, REPRESENTATIVES AND
AFFILIATES SHALL HAVE NO LIABILITY TO ANY LENDER OR ANY OTHER PERSON RESULTING
FROM ANY SUCH INFORMATION.
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
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Guarantor: NAB Asset Corporation
2 Ada
Suite 100
Irvine, California 92618
Attn: Michael Caton
FAX: (714) 790-8010
Telephone: (714) 790-8000
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 10.15). 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," "Eligible Agency
Mortgage Loan," "Eligible Manufactured Housing Mortgage Loan," "Eligible
Mortgage Loan," "Eligible REO," "Eligible Repurchased Defaulted Mortgage,"
"Eligible Tranche A Mortgage Loan," "Eligible Tranche B Mortgage Loan,"
"Eligible Tranche C Mortgage Loan" or "Unit Collateral Value," (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.
Each waiver or amendment granted pursuant to this Section shall be effective
only in the specific instance and for the specific purpose given.
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Section 10.03 CHOICE OF LAW; VENUE. THIS AGREEMENT SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF TEXAS. ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR
IN CONNECTION WITH THIS AGREEMENT SHALL BE BROUGHT AND MAINTAINED IN THE
APPLICABLE STATE OR FEDERAL COURT IN DALLAS COUNTY, TEXAS. THIS AGREEMENT IS
PERFORMABLE IN DALLAS COUNTY, TEXAS AND THE PARTIES HERETO WAIVE ANY RIGHT THEY
MAY HAVE TO BE SUED ELSEWHERE. THE PARTIES HERETO CONSENT TO PERSONAL
JURISDICTION IN DALLAS COUNTY, TEXAS. SECTION 346 OF THE TEXAS FINANCE CODE
(WHICH REGULATES CERTAIN REVOLVING LOAN ACCOUNTS AND REVOLVING TRIPARTY
ACCOUNTS) SHALL NOT APPLY TO THIS AGREEMENT OR THE OTHER 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 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 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
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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 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 Section 303
of the Texas Finance Code, that ceiling shall be the weekly ceiling.
Section 10.09 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 10.10 Assignments, Participations.
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(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, with minimum assets of $5,000,000,000; provided, that
each such sale, assignment, or transfer shall be with the reasonable 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, or the entire amount of
Lender's Percentage Share, if 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 (unless Lender transfers 100% of its Percentage Share), (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
financial institutions with minimum assets of $5,000,000,000; 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.
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Section 10.11 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 10.12 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 10.13 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 10.14 ENTIRE AGREEMENT. THE NOTES, THE SWING-LINE NOTE, 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 10.15 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.
Section 10.16 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 10.17 Restatement. This Agreement amends and restates the
Existing Agreement in its entirety.
Section 10.18 Disclosures. Agent and Lenders may disclose to, and
exchange and discuss with, any other Person any information concerning the
Collateral or Borrower or any Subsidiary (whether received by Agent, Lenders or
any other Person) for the purpose of (a) complying with Governmental
Requirements or any legal proceedings, (b) protecting or preserving the
Collateral, (c) protecting, preserving, exercising or enforcing any of their
rights in, under or related to the Collateral or the Loan Documents, (d)
performing any of their obligations under or related to the Loan Documents, or
(e) consulting with respect to any of the foregoing matters.
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SECTION 10.19 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO WAIVES
ITS RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR
THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION, PROCEEDING OR
OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER
PARTY, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. EACH
OF THE PARTIES HERETO AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE
TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE
PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED
BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING
WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY PROVISION HEREOF OR THEREOF.
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT AND ANY OTHER LOAN DOCUMENTS.
SECTION 10.20 CONSEQUENTIAL DAMAGES. NEITHER BORROWER, AGENT NOR ANY
LENDER SHALL HAVE ANY LIABILITY WITH RESPECT TO, AND EACH SUCH PERSON HEREBY
WAIVES, RELEASES AND AGREES NOT TO SUE EACH OTHER SUCH PERSON FOR, ANY SPECIAL,
INDIRECT OR CONSEQUENTIAL DAMAGES SUFFERED BY SUCH OTHER PERSON IN CONNECTION
WITH ANY CLAIM RELATED TO THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
HEREIN.
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
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AGENT: GUARANTY FEDERAL BANK, F.S.B
By:
-------------------------------
James Meintjes
Vice President
LENDERS:
Percentage Share: 37.5% GUARANTY FEDERAL BANK, F.S.B.
By:
-------------------------------
James Meintjes
Vice President
<PAGE> 65
Percentage Share: 33.33% RESIDENTIAL FUNDING CORPORATION
By:
-------------------------------
Name:
Title:
<PAGE> 66
Percentage Share: 16.67% FIRST UNION NATIONAL BANK
By:
-------------------------------
Name:
Title:
<PAGE> 67
Percentage Share: 12.5% U.S. BANK NATIONAL ASSOCIATION
By:
-------------------------------
Name:
Title:
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<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> APR-01-1998 JAN-01-1997
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0 0
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