<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended December 31, 1996
or
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ______ to ______
Commission File Number 0-19604
AAMES FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 95-4340340
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3731 WILSHIRE BOULEVARD, 10TH FLOOR, LOS ANGELES, CALIFORNIA 90010
(Address of Registrant's principal executive offices including ZIP Code)
(213) 351-6100
(Registrant's telephone number,
including area code)
NO CHANGE
-------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---------- ---------
At February 4, 1997, the Registrant had 18,280,924 shares of common stock
outstanding.
<PAGE> 2
TABLE OF CONTENTS
ITEM PAGE
NO. NO.
-----
PART I FINANCIAL INFORMATION
1. Financial Statements 1 - 4
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5 - 18
PART II OTHER INFORMATION
1. Legal Proceedings 19
2. Changes in Securities 19
3. Defaults Upon Senior Securities 19
4. Submission of Matters to a Vote of
Security Holders 19 - 20
5. Other Information 20
6. Exhibits and Reports on Form 8-K 20
Signature Page 21
<PAGE> 3
AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1996 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 23,941,000 $189,119,000
Loans held for sale, at cost which approximates market 186,189,000 154,554,000
Accounts receivable, less allowance for
doubtful accounts of $473,000 and $589,000 9,685,000 23,989,000
Excess servicing receivable 129,113,000 230,898,000
Mortgage servicing rights 10,902,000 16,446,000
Residual assets 44,676,000 70,528,000
Equipment and improvements, net 6,674,000 9,267,000
Prepaid and other 10,295,000 15,360,000
------------ ------------
Total assets $421,475,000 $710,161,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Borrowings $138,045,000 $288,023,000
Revolving warehouse facility 112,363,000 100,000,000
Accounts payable and accrued expenses 11,380,000 19,565,000
Accrued compensation and related expenses 4,427,000 7,071,000
Income taxes payable 21,831,000 32,446,000
------------ ------------
Total liabilities 288,046,000 447,105,000
============ ============
Stockholders' equity:
Preferred Stock, par value $.001 per
share, 1,000,000 shares authorized;
none outstanding
Common Stock, par value $.001 per share
50,000,000 shares authorized;
15,896,900 and 18,264,700 shares outstanding 16,000 18,000
Additional paid-in capital 88,142,000 205,705,000
Retained earnings 45,271,000 57,333,000
------------ ------------
Total stockholders' equity 133,429,000 263,056,000
------------ ------------
Total liabilities and stockholders' equity $421,475,000 $710,161,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE> 4
AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
------------ ------------ ------------ ------------
1995 1996 1995 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Excess servicing gain 20,264,000 56,960,000 33,939,000 113,160,000
Commissions 6,532,000 7,841,000 10,729,000 15,587,000
Loan service 4,458,000 5,402,000 7,801,000 10,062,000
Fees and other 2,825,000 9,825,000 5,532,000 16,860,000
------------ ------------ ------------ ------------
Total revenue 34,079,000 80,028,000 58,001,000 155,669,000
------------ ------------ ------------ ------------
Expenses:
Compensation and related expenses 10,552,000 19,709,000 16,577,000 39,033,000
Sales and advertising costs 4,149,000 6,760,000 7,619,000 14,234,000
General and administrative expenses 3,402,000 7,156,000 5,755,000 14,718,000
Interest expense 2,058,000 7,743,000 3,284,000 15,187,000
Provision for loan losses 1,728,000 7,150,000 2,818,000 16,932,000
Nonrecurring charges -- -- -- 28,108,000
------------ ------------ ------------ ------------
Total expenses 21,889,000 48,518,000 36,053,000 128,212,000
------------ ------------ ------------ ------------
Income before income taxes 12,190,000 31,510,000 21,948,000 27,457,000
Provision for income taxes 4,901,000 13,236,000 9,001,000 13,807,000
------------ ------------ ------------ ------------
Net income $ 7,289,000 $ 18,274,000 $ 12,947,000 $ 13,650,000
============ ============ ============ ============
Net income per share
Primary $ 0.44 $ 0.92 $ 0.78 $ 0.73
============ ============ ============ ============
Fully diluted $ 0.44 $ 0.80 $ 0.78 $ 0.68
============ ============ ============ ============
Prior to nonrecurring charges $ 1.50
============
Dividends $ 0.05 $ 0.05 $ 0.10 $ 0.10
============ ============ ============ ============
Weighted average number
of shares outstanding
Primary 16,569,000 19,769,000 16,531,500 18,585,000
============ ============ ============ ============
Fully diluted 16,569,000 23,876,000 16,531,500 22,692,000
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31
1995 1996
--------------- ---------------
<S> <C> <C>
Operating activities:
Net income $ 12,947,000 $ 13,650,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan losses 2,818,000 16,932,000
Depreciation and amortization 394,000 1,223,000
Deferred income taxes 3,029,000 13,734,000
Excess servicing gain (38,629,000) (145,066,000)
Excess servicing amortization 5,386,000 26,349,000
Mortgage servicing rights originated (4,287,000) (7,828,000)
Mortgage servicing rights amortization 116,000 2,283,000
Changes in assets and liabilities:
Loans originated or purchased (423,928,000) (1,130,090,000)
Proceeds from sale of loans 391,947,000 1,161,725,000
(Increase) decrease in:
Accounts receivable (581,000) (14,304,000)
Prepaid and other (1,628,000) (5,065,000)
Residual assets (9,352,000) (25,852,000)
Increase (decrease) in:
Accounts payable and accrued expenses (72,000) 8,185,000
Accrued compensation and related expenses 2,262,000 2,644,000
Income taxes payable 5,106,000 (3,119,000)
--------------- ---------------
Net cash used in operating activities (54,472,000) (84,599,000)
--------------- ---------------
Investing activities:
Purchases of property and equipment (2,161,000) (3,815,000)
--------------- ---------------
Net cash used in investing activities (2,161,000) (3,815,000)
--------------- ---------------
Financing activities:
Proceeds from sale of stock or exercise of options 1,858,000 117,565,000
Proceeds from borrowing (62,000) 149,978,000
Amounts outstanding under warehouse facilities 41,796,000 (12,363,000)
Dividends paid (1,341,000) (1,588,000)
--------------- ---------------
Net cash provided by financing activities 42,251,000 253,592,000
--------------- ---------------
Net increase (decrease) in cash (14,382,000) 165,178,000
Cash and cash equivalents at beginning of period 20,359,000 23,941,000
--------------- ---------------
Cash and cash equivalents at end of period $ 5,977,000 $ 189,119,000
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 6
AAMES FINANCIAL CORPORATION
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The consolidated financial statements of Aames Financial Corporation,
a Delaware corporation, and its subsidiaries (collectively, the "Company")
included herein have been prepared by the Company, without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted.
The consolidated financial statements include the accounts of Aames
Financial Corporation and all of its subsidiaries after eliminating all
significant intercompany transactions and reflect all normal, recurring
adjustments which are, in the opinion of management, necessary to present a
fair statement of the results of operations of the Company for the interim
periods reported. The results of operations for the Company for the three
months and six months ended December 31, 1996 are not necessarily indicative of
the results expected for the full fiscal year.
NOTE 2: STOCK SPLIT
On January 28, 1997, the Company declared a three-for-two split of the
Company's common stock effected in the form of a stock dividend, payable
February 21, 1997 to stockholders of record February 10, 1997.
NOTE 3: RECLASSIFICATIONS
Certain amounts related to 1995 have been reclassified to conform
to the 1996 presentation.
4
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of Aames Financial Corporation (the "Company") should be
read in conjunction with the Company's Consolidated Financial Statements
included in Item 1 of this Form 10-Q.
GENERAL
The Company engages in the business of originating, purchasing,
selling and servicing home equity mortgages secured by single family
residences. The Company originates and purchases loans through three
production channels. The Company historically originated its loans solely
through its retail loan office network. In 1994, the Company diversified its
production channels to include a wholesale correspondent program which
consisted initially of purchasing loans on a flow basis from other mortgage
bankers and financial institutions underwritten in accordance with the
Company's guidelines. In fiscal 1996, this program was expanded to include the
purchase of loans in bulk from other mortgage bankers and financial
institutions. The Company's acquisition of One Stop Mortgage, Inc. ("One
Stop") in August 1996 further diversified the Company's production channels to
include the origination and purchase of mortgage loans from a network of
independent mortgage brokers. Commencing in December 1996, the Company
expanded its retail production to include the "virtual office," giving the
Company an outbound telemarketing loan production capability. Further, the
Company anticipates commencing operations in the United Kingdom prior to the
end of this fiscal year.
The following table presents the volume of loans originated and
purchased by the Company through each of the three production channels during
the periods presented:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------- ------------- ------------- ---------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Loans originated and purchased:
Wholesale correspondent . . . . . . . . . . $ 133,912,000 $ 324,535,000 $ 217,600,000 $ 583,548,000
Broker network(1) . . . . . . . . . . . . . 82,728,000 189,685,000 82,728,000 330,602,000
Retail . . . . . . . . . . . . . . . . . . 52,044,000 101,612,000 100,281,000 193,612,000
-------------- ------------- ------------- ---------------
Total . . . . . . . . . . . . . . . . . . $ 268,684,000 $615,832,000 $ 400,609,000 $1,107,762,000
============= ============ ============= ==============
Servicing portfolio at period end . . . . . . $ 852,600,000 $2,274,400,000
============= ==============
(1) One Stop commenced operations in October 1995.
</TABLE>
CERTAIN ACCOUNTING CONSIDERATIONS
As a fundamental part of its business and financing strategy, the
Company sells substantially all of its loans to third party investors in
securitization transactions. In a securitization, the Company conveys loans
that it has originated or purchased to a separate entity (such as a trust)
in exchange for cash proceeds and an interest in the loans securitized
representing the excess servicing
5
<PAGE> 8
gain. The cash proceeds are raised through an offering of the certificates
evidencing the right to receive certain payments on the securitized loans. The
excess servicing gain represents, over the estimated life of the loans, the
excess of the weighted average coupon on each pool of loans sold over the sum of
the pass-through interest rate, the normal servicing fee (currently .50%) and a
monoline insurance fee, if any. The Company determines the present value of this
anticipated revenue stream at the time each securitization transaction closes
using prepayment assumptions appropriate for each particular transaction and
recognizes it as the excess servicing gain and records it as an asset called the
excess servicing receivable. In order to determine the present value of this
excess cash flow, the Company discounts the cash flows based upon the rates
charged to borrowers on such loans, subject to adjustment for credit risk
retained by the Company and recorded as a reserve. The weighted average rate
used to discount the cash flows was 15.4% for the six months ended December 31,
1996.
The estimated life of the securitized loans depends on the assumed
annual prepayment rate which is a function of full and partial prepayments and
defaults. In the calculation of its excess servicing gain, the Company makes
an assumption of the prepayment rate based on prior performance, the presence
or absence of prepayment penalties, the loan-to-value ratios of the loans, the
credit grades included in a particular pool and industry analyses. Generally,
the presence of prepayment penalties slows the rate of prepayment; the lower
loan-to-value ratio loans exhibit a higher prepayment rate due to refinancing
potential; and the higher credit grade loans are assumed to be more interest
rate sensitive than the lower credit grade loans since the higher credit grade
borrowers are assumed to have more options for obtaining credit.
In determining the adjustment for credit risk for a particular
securitization, the Company utilizes assumptions that it believes are reasonable
based on the information on its prior securitizations and the loan-to-value
ratios of the loans included in the current securitizations. At December 31,
1996, the Company had reserves of $25.7 million related to these credit risks,
or 1.29% of the outstanding balance of loans securitized as of that date.
Cumulative losses to date from the Company's securitization transactions dating
back to June 1992, have totaled $2.8 million, or .12% of the total balance of
loans securitized through December 31, 1996. The weighted average loan-to-value
ratio of the loans serviced by the Company was 66% as of December 31, 1996.
Accordingly, the Company believes its allowance for credit losses is adequate to
cover anticipated losses on previously securitized pools determined on a
pool-by-pool basis.
The excess servicing receivable is amortized over the expected lives of
the related loans and a corresponding reduction in servicing fee income is
recorded. See "Revenue." On a quarterly basis, the Company reviews its
prepayment and other assumptions in relation to its actual experience and
current rates of prepayment prevalent in the industry. The excess servicing
receivable is written down through a charge to earnings when a shortfall in the
net present value of the estimated remaining future excess servicing revenue
becomes apparent due to either accelerated prepayments or larger than expected
loss experience. To date, the Company has not been required to record a
material adjustment to its excess servicing receivable.
6
<PAGE> 9
In June 1996, the Financial Accounting Standard Board issued Statement
No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities ("SFAS No. 125"). Among other provisions, this
Statement uses a "financial components" approach that focuses on control to
determine the proper accounting for financial asset transfers, addresses the
accounting for servicing rights on financial assets in addition to mortgage
loans and requires that mortgage servicing rights (including excess servicing)
be carried at fair value. The provisions of SFAS No. 125 are not expected to
have a material impact on the Company's financial position or results of
operations but could affect the way the Company structures future
securitizations.
RESULTS OF OPERATIONS--THREE AND SIX MONTHS ENDED DECEMBER 31, 1995 AND 1996
For the three months ended December 31, 1996, the Company's total
revenue increased to $80.0 million, up 135% when compared to the corresponding
period in the prior year. In addition, the Company's total expenses as a
percentage of total revenue declined. As a result, the Company's net income
increased 151% to $18.3 million for the three months ended December 31, 1996
when compared to the corresponding period in the prior year. For the six
months ended December 31, 1996, the Company's total revenues increased to $156
million, up 168% when compared to the corresponding period in the prior year.
Total expenses in the six month period increased as a percentage of revenue due
to a nonrecurring, pretax charge of $28.1 million resulting primarily from the
acquisition of One Stop. Net income for the six months ended December 31, 1996
increased 5% to $13.7 million, when compared to the corresponding period in the
prior year.
For the three months ended December 31, 1996, fully diluted net income
per share was $.80, up from $.44 in the corresponding prior year period,
reflecting an increase of 82% on 44% more shares outstanding. For the six
months ended December 31, 1996, fully diluted net income per share was $.68 per
share ($1.50 before nonrecurring charges) compared with $.78 per share for the
corresponding prior year period on 37% more shares outstanding.
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<PAGE> 10
The following table sets forth information regarding the components of
the Company's revenue and expenses for the three and six months ended December
31:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1995 1996 1995 1996
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue:
Excess servicing gain . . . . . . . . . . . . . . . . $ 20,264 $ 56,960 $ 33,939 $ 113,160
Commissions . . . . . . . . . . . . . . . . . . . . . . 6,532 7,841 10,729 15,587
Loan service:
Servicing spread . . . . . . . . . . . . . . . . . . 3,115 3,540 5,424 6,547
Prepayment fees . . . . . . . . . . . . . . . . . . 803 1,186 1,340 2,220
Late charges and other servicing fees . . . . . . . 540 676 1,037 1,295
Fees and other:
Closing . . . . . . . . . . . . . . . . . . . . . . . 581 689 1,216 1,536
Appraisal . . . . . . . . . . . . . . . . . . . . . . 232 459 517 929
Underwriting . . . . . . . . . . . . . . . . . . . . 379 333 812 948
Interest income . . . . . . . . . . . . . . . . . . . 1,504 8,151 2,552 13,044
Other . . . . . . . . . . . . . . . . . . . . . . . . 129 193 435 403
----------- ----------- ---------- -----------
Total revenue . . . . . . . . . . . . . . . . . . . . $ 34,079 $ 80,028 $ 58,001 $155,669
----------- ----------- ---------- -----------
Expenses:
Compensation and related expenses . . . . . . . . . . . $ 10,552 $ 19,709 $ 16,577 $ 39,033
Sales and advertising costs . . . . . . . . . . . . . . 4,149 6,760 7,619 14,234
General and administrative expenses . . . . . . . . . . 3,402 7,156 5,755 14,718
Interest expense . . . . . . . . . . . . . . . . . . . 2,058 7,743 3,284 15,187
Provision for loan losses . . . . . . . . . . . . . . . 1,728 7,150 2,818 16,932
Nonrecurring charges . . . . . . . . . . . . . . . . . -- -- -- 28,108
----------- ----------- ---------- -----------
Total expenses . . . . . . . . . . . . . . . . . . . 21,889 48,518 36,053 128,212
Income before income taxes . . . . . . . . . . . . . . 12,190 31,510 21,948 27,457
Provision for income taxes . . . . . . . . . . . . . . 4,901 13,236 9,001 13,807
----------- ----------- ---------- -----------
Net income . . . . . . . . . . . . . . . . . . . . . $ 7,289 $ 18,274 $ 12,947 $13,650
=========== =========== =========== ===========
</TABLE>
REVENUE
Total revenue for the three and six months ended December 31, 1996
increased to $80.0 million and $156 million, up 135% and 168%, respectively,
over total revenue for the same periods last year. This increase in total
revenue was primarily due to the higher excess servicing gain resulting from
the increased volume of mortgage loans originated and purchased by the Company
that it securitized and sold.
Excess servicing gain for the three and six months ended December 31,
1996 increased to $57.0 million and $113 million, up 181% and 233%,
respectively, when compared to the corresponding periods in the prior year.
These increases resulted primarily from the greater size of mortgage loan pools
securitized and sold by the Company in the secondary market. During the three
and six months ended December 31, 1996, the Company securitized and sold in the
secondary market $603 million and $1.13 billion of loans, respectively,
compared to $167 million and $287 million for the corresponding periods in the
prior year. The increases in the
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<PAGE> 11
amount of loans securitized and sold in the secondary market were attributable
to the higher volume of loans originated and securitized through the Company's
three production channels. The weighted average servicing spread on all loans
securitized and sold by the Company during the six months ended December 31,
1996 was 4.41% compared to 4.80% for the corresponding period in the prior
year. The lower weighted average servicing spread in 1996 reflected a decrease
in weighted average interest rates on pooled loans due primarily to the larger
percentage of higher credit grade loans included in the pool, partially offset
by continued improvement in securitization transaction executions. While the
Company intends to continue focusing on its traditional niche in the "C-" and
"D" credit grade loans, the Company also intends to continue to diversify loan
originations and purchases through its production channels to include more
"A-," "B" and "C" credit grade loans.
Commissions earned on loan originations continue to be an important
component of total revenue, although to a lesser degree than in prior years,
comprising 9.8% and 10.0% of total revenue for the three and six months ended
December 31, 1996, compared to 19.1% and 18.5% for the same periods last year.
Commissions for the three and six months ended December 31, 1996 increased to
$7.8 million and $15.6 million, up 20% and 45%, respectively, when compared to
the corresponding periods in the prior year. Commission revenue is primarily a
function of the volume of mortgage loans originated by the Company through its
retail loan office network and the weighted average commission rate charged on
such loans. Retail loan originations for the three and six months ended
December 31, 1996 totaled $102 million and $194 million, up 96% and 94%,
respectively, from $52.0 million and $100 million for the corresponding periods
in the prior year. During the three and six months ended December 31, 1996,
the weighted average commission rate charged on retail loans decreased from
7.6% to 5.0% and 8.4% to 5.4%, respectively, when compared to the same periods
in the prior year. The decrease in the weighted average commission rate
reflected competitive factors and the increase of higher credit grade loans
originated through the Company's retail loan office network.
Loan service revenue for the three and six months ended December 31,
1996 increased to $5.4 million and $10.1 million, up 21% and 29%, respectively,
from the corresponding periods in the prior year. Loan service revenue
consists of net servicing spread earned on the principal balances of the loans
in the Company's loan servicing portfolio, prepayment fees, late charges and
other fees retained by the Company in connection with the servicing of loans
reduced by the amortization of excess servicing receivable. The increase in
loan service revenue was due primarily to the greater size of the portfolio of
loans serviced in this period offset by increased amortization of the excess
servicing due to faster prepayment rate assumptions in the six month period and
changes in amortization assumptions to reflect the anticipated increases in the
higher credit grade loans and anticipated increases in competition. The
Company's loan servicing portfolio increased to $2.27 billion at December 31,
1996, up 167% from the December 31, 1995 balance of $853 million. The Company
currently services loans in seven western states, including California. Loans
secured by properties in other states are serviced through one or more
subservicers. In November 1996, the Company implemented a new servicing system
which will enable the Company to service loans in all 50 states and the
District of Columbia, and is in the process of obtaining the licenses required
to service loans nationwide. Commencing in the
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<PAGE> 12
fourth fiscal quarter of 1997, the Company intends to add to the states in
which it will be servicing loans. By December 31, 1997, the Company intends to
service all newly originated or purchased loans which are securitized by it.
Due to the Company's focus on lower credit grade loans, the Company
has historically experienced delinquency rates that are higher than those
prevailing in its industry. Management believes, however, the Company's
historical loan losses are generally lower than those experienced by most other
lenders to credit-impaired borrowers because of the lower combined
loan-to-value ratios on the Company's lower credit grade loans. In the fall of
1996, the Company made a strategic decision to diversify the loans it
originates and purchases to include more of the higher credit grade (A-, B and
C) loans. This diversification was accomplished through the acquisition of One
Stop which had traditionally focused on the higher credit grade spectrum and by
adopting more competitive pricing structures in the wholesale correspondent and
retail divisions. Generally, higher credit grade loans have higher average
combined loan-to-value ratios than the lower credit grade loans. Therefore,
the Company anticipates that loan losses may increase over the historical low
levels. On the other hand, the higher credit grade loans generally perform
with lower levels of delinquency than the lower credit grade loans. The
following table sets forth delinquency, foreclosure, loss and reserve
information of the Company's servicing portfolio for the periods indicated:
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<PAGE> 13
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
JUNE 30, DECEMBER 31,
--------------------------------------- ---------------------
1994 1995 1996 1995 1996
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Percentage of dollar amount of delinquent
loans to loans serviced (period end)(1)(2)(3)
One month . . . . . . . . . . . . . . . . . . . . . 3.8% 3.9% 4.9% 5.6% 3.8%
Two months . . . . . . . . . . . . . . . . . . . . 1.6% 1.6% 1.8% 2.1% 1.8%
Three or more months:
Not foreclosed(4) . . . . . . . . . . . . . . . 6.7% 5.0% 8.0% 7.3% 7.5%
Foreclosed(5) . . . . . . . . . . . . . . . . . 3.6% 1.5% 1.0% .9% 1.1%
------ ------ ------ ------ ------
Total . . . . . . . . . . . . . . . . . . . 15.7% 12.0% 15.7% 15.9% 14.2%
Percentage of dollar amount of loans foreclosed
to loans serviced(2) . . . . . . . . . . . . . . . . 3.0% 1.2% 1.1% .35% .78%
Number of loans foreclosed . . . . . . . . . . . . . 215 159 221 68 211
Principal amount at time of foreclosure of
foreclosed loans . . . . . . . . . . . . . . . . . . $ 11,528 $6,675 $14,349 $2,843 $17,472
Net losses (gains)(6) . . . . . . . . . . . . . . . . $(56) $127 $931 $542 $1,804
Percentage of losses to average servicing
portfolio . . . . . . . . . . . . . . . . . . . . . NM .03% .09% .15% .20%
Liquidation loss reserve(7) . . . . . . . . . . . . . $ 959 $3,371 $10,300 $5,701 $25,743
</TABLE>
________________________________
(1) Delinquent loans are loans for which more than one payment is past
due.
(2) The delinquency and foreclosure percentages are calculated on the
basis of the total dollar amount of mortgage loans originated or purchased by
the Company and, in each case, serviced by the Company, or the Company and any
subservicers, as applicable, as of the end of the periods indicated.
(3) At December 31, 1996, the dollar volume of loans delinquent more
than 90 days in the Company's seven securitization trusts formed during the
period from September 1994 to March 1996 exceeded the permitted limit in the
related pooling and servicing agreements. The higher delinquency rates could
result in the termination of the Company's normal servicing rights with respect
to the loans in these trusts (although to date no servicing rights have been
terminated), negatively affect the Company's cash flows and adversely influence
the Company's assumptions underlying the excess servicing gain. (See Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Risk Factors--Delinquencies; Negative Impact on Cash Flow; Right to
Terminate Normal Servicing in the Company's Form 10-K for the fiscal year ended
June 30, 1996. See also Capital Resources.)
(4) Represents loans which are in foreclosure but as to which
foreclosure proceedings have not concluded.
(5) Represents properties acquired following a foreclosure sale and
still serviced by the Company.
(6) Represents losses net of gains on foreclosed properties sold
during the periods indicated.
(7) Represents period end reserves for future liquidation losses.
11
<PAGE> 14
Fees and other revenue for the three and six months ended December 31,
1996 increased to $9.8 million and $16.9 million, up 248% and 205%,
respectively, from the corresponding periods in the prior year. Fees and other
revenue consist primarily of interest income and fees received by the Company
through its retail loan office network in the form of closing, appraisal,
underwriting and other fees. Interest income increased to $8.2 million and
$13.0 million for the three and six months ended December 31, 1996,
respectively, due to interest earned on larger amounts of loans held by the
Company during the period from origination or purchase of the loans until the
date sold by the Company. The dollar amount of other fees increased due to the
larger number of mortgage loans originated through the Company's retail loan
office network during the respective periods.
EXPENSES
Compensation and related expenses for the three and six months ended
December 31, 1996 increased to $19.7 million and $39.0 million, up 87% and
135%, respectively, when compared to the corresponding periods in the prior
year. These increases reflected compensation paid to new personnel and
increased commissions and bonuses paid to certain employees. Compensation and
related expenses as a percentage of total revenues were 25% for the three and
six months ended December 31, 1996, down from 31% and 29%, respectively, for
the same periods last year.
Sales and advertising costs for the three and six months ended
December 31, 1996 increased to $6.8 million and $14.2 million, up 63% and 87%,
respectively, when compared to the corresponding periods in the prior year.
Increased advertising was due primarily to the Company's nationwide expansion
of its retail loan office network. The Company operated 53 retail loan offices
in 18 states throughout the United States at December 31, 1996 compared to 37
offices in 11 states at December 31, 1995. Sales and advertising costs as a
percentage of total revenue decreased to 8.4% and 9.1%, respectively, for the
three and six months ended December 31, 1996, from 12% and 13% for the
corresponding periods in the prior year.
General and administrative expenses for the three and six months ended
December 31, 1996 increased to $7.2 million and $14.7 million, up 110% and
156%, respectively, when compared to the corresponding periods in the prior
year. These increases resulted primarily from occupancy and communications
costs related to the expansion of the Company's retail loan office network. As
a percentage of revenue, general and administrative expenses for the three and
six months ended December 31, 1996 remained virtually unchanged at
approximately 10% when compared to the same periods last year.
Interest expense for the three and six months ended December 31, 1996
increased to $7.7 million and $15.2 million, up 276% and 362%, respectively,
when compared to the corresponding periods in the prior years. The increase
was primarily the result of increased borrowings under various financing
arrangements used to fund the origination and purchase of mortgage loans prior
to their securitization and sale in the secondary market and as a result of
the Company's sale in the third quarter of fiscal 1996 of $115 million of its
5.5% Convertible Subordinated Debentures due 2006, and the sale in the second
quarter of fiscal 1997 of $150 million of its 9.125% Senior Notes due 2003.
Interest expense is expected to increase in future
12
<PAGE> 15
periods due to the Company's continued reliance on warehousing facilities to
fund increased originations and purchases of loans pending their
securitization.
INCOME TAXES
The Company's provision for income taxes increased from $9.0 million
for the six months ended December 31, 1995 to $13.8 million for the six months
ended December 31, 1996.
FINANCIAL CONDITION
Loans held for sale. Prior to securitization, the Company holds
mortgage loans in its portfolio. Balances are dependent on the volume of loans
originated and the size of the securitization in the current period. The
Company's portfolio of loans held for sale decreased from $186 million at June
30, 1996 to $155 million at December 31, 1996.
Accounts receivable. Accounts receivable, representing servicing fees
and advances, increased from $9.7 million at June 30, 1996 to $24.0 million at
December 31, 1996. This increase is primarily the result of larger pools
serviced and increases in related advances and receivables.
Excess servicing receivable. Excess servicing receivable increased
from $129 million at June 30, 1996 to $231 million at December 31, 1996
reflecting the increased size of the Company's first six months'
securitizations.
Mortgage servicing rights. The December 31, 1996 balance represents
mortgage servicing rights capitalized in accordance with the Statement of
Financial Accounting Standards No. 122, "Accounting For Mortgage Servicing
Rights" ("SFAS 122"). This balance reflects the capitalization under SFAS 122
of $6.8 million of servicing rights partially offset by amortization of $2.3
million for the six months ended December 31, 1996.
Residual assets. Residual assets represent the reserve accounts and
overcollateralization amounts required to be maintained in connection with the
securitization of loans. Residual assets include cash and mortgage loans in
excess of the principal amounts of the senior certificates of the
securitization trusts. Residual assets increased from $44.7 million at June
30, 1996 to $70.5 million at December 31, 1996 due to the size of the Company's
recent securitizations.
Equipment and improvements. Primarily as a result of the expansion of
the Company's retail loan office network and the associated investment in
technology, equipment and improvements, net increased from $6.7 million at June
30, 1996 to $9.3 million at December 31, 1996.
Prepaid and other assets. Prepaid and other assets increased from
$10.3 million at June 30, 1996 to $15.4 million at December 31, 1996 as a
result of the capitalization of debt issuance costs related to the issuance of
the Company's 9.125% Senior Notes due 2003.
13
<PAGE> 16
Borrowings. Borrowings increased from $138 million at June 30, 1996
to $288 million at December 31, 1996. This increase was the result of the
Company's sale in October 1996 of $150 million of its 9.125% Senior Notes due
2003.
Revolving warehouse facilities. Amounts outstanding under warehouse
facilities decreased from $112 million at June 30, 1996 to a $100 million
balance at December 31, 1996. Proceeds from the Company's securitizations are
used to pay down the Company's warehouse facilities. Although the Company
closed a $603 million securitization in December 1996, a $100 million balance
remained outstanding under the warehouse facilities. This was primarily a
result of the amount of restricted cash held by the Company related to the
pre-funding of the securitization completed during the three months ended
December 31, 1996. Restricted cash cannot be used to repay amounts
outstanding under warehouse facilities pending final monoline insurance due
diligence on the loans included in the pre-funding. (See "Risk Management.")
The restricted cash was released in January 1997 and used to pay down warehouse
facilities.
LIQUIDITY
The Company's operations require continued access to short-term and
long-term sources of cash. The Company's operating cash requirements include
the funding of: (i) mortgage loan originations and purchases prior to their
securitization and sale, (ii) fees and expenses incurred in connection with the
securitization and sale of loans, (iii) cash reserve account or
overcollateralization requirements in connection with the securitization and
sale of mortgage loans, (iv) tax payments due on recognition of excess
servicing gain, and (v) ongoing administrative and other operating expenses.
The Company has operated on a negative operating cash flow basis and
expects to continue to do so for as long as the Company's cash requirements
necessitated by the growth in volume of its securitization program continue to
grow at rates in excess of the cash generated by the Company from its
operations, including its servicing activities. To increase the cash generated
from operations, the Company intends to increase the volume of whole loans sold
in bulk to other mortgage lenders. Unlike a securitization, a whole loan sale
generates cash at the closing of the sale.
Historically, the Company has funded, and expects to continue to fund,
its negative operating cash flows, subject to limitations under the Company's
existing credit facilities, principally through borrowings from financial
institutions, sales of equity securities and sales of senior and subordinated
notes, among other sources. There can be no assurance that the Company will
have access to the capital markets in the future or that financing will be
available to satisfy the Company's operating and debt service requirements or
to fund its future growth.
New loan originations and purchases represent the Company's most
significant cash flow requirement. The Company pays a premium on loans
purchased through its wholesale correspondent program and on loans purchased
from independent mortgage brokers. The amount of cash used to pay premiums
approximated $16.1 million and $31.4 million for the three and six months ended
December 31, 1996 compared to $6.4 million and $9.8 million for the prior
year periods. This increase is primarily related to the increase in the
amount of loans purchased in bulk through the loan correspondent program and,
to a lesser extent, the higher premiums paid per loan.
14
<PAGE> 17
The Company securitized and sold in the secondary market $603 million
and $1.13 billion of loans for the three and six months ended December 31,
1996 compared to $167 million and $287 million during the same periods of the
prior year. In connection with securitization transactions completed during
these periods, the Company was required to provide credit enhancements in the
form of overcollateralization amounts. In addition, during the life of the
related securitization trusts, the Company subordinates a portion of the excess
servicing otherwise due it to the rights of holders of senior interests as a
credit enhancement to support the sale of the senior interests. In connection
with securitizations effected during the six months ended December 31, 1995 and
1996, overcollateralization requirements were set at $2.0 million and $4.6
million, respectively. The terms of the securitization trusts generally
require that all excess servicing otherwise payable to the Company during the
early months of the trusts be used to repay the senior interests in order to
increase overcollateralization to specified maximums.
In addition, the increasing use of securitization transactions as a
funding source by the Company has resulted in a significant increase in the
amount of excess servicing gain recognized by the Company. During the three
months and six months ended December 31, 1996, the Company recognized excess
servicing gain in the amounts of $57.0 million and $113 million, respectively,
compared with $20.3 million and $33.9 million during the same periods of the
prior year. In the securitization structure used by the Company for its past
securitizations, the recognition of excess servicing gain has had a negative
impact on the cash flow of the Company since the Company was required to pay
federal and state taxes on a portion of these amounts in the period recognized
although the cash representing the gain is not received until later periods as
the related servicing fees are collected and applicable overcollateralization
requirements are met. The Company is considering alternative securitization
structures that would defer a larger portion of the taxes payable on the
excess servicing gain.
The Company also incurs certain expenses in connection with
securitizations, including underwriting fees, credit enhancement fees, trustee
fees, hedging and other costs which, for the pools sold during the six months
ended December 31, 1996, approximated .70% of the principal amount of the
securitized mortgage loans.
CAPITAL RESOURCES
The Company finances its operating cash requirements primarily through
(i) warehouse and other credit facilities, (ii) the securitization and sale of
mortgage loans, and (iii) the issuance of debt and equity securities.
Warehouse and Other Credit Facilities. The Company currently has
three warehouse facilities in place. On January 15, 1997, the Company amended
and restated its warehouse and working capital line of credit with a syndicate
of eight commercial banks. The facility provides for a maximum borrowing
amount of $350 million, is secured by loans originated and purchased by the
Company as well as certain servicing receivables, and bears interest at the
rate of 0.80% over one-month LIBOR. This line is currently scheduled to expire
on January 13, 1998 and is subject to renewal. There are two additional
warehouse lines of credit from investment banks that are secured by loans
originated and purchased by the Company. One line of $150 million bears
interest at the rate of 0.875% over one-month LIBOR, subject to renewal
periodically and is
15
<PAGE> 18
currently scheduled to expire on February 28, 1997. The second line of $125
million bears interest at a rate of 0.70% over one-month LIBOR and expires on
the earlier of March 31, 1997 or the completion of the third quarters'
securitization. Management expects, although there can be no assurance, that
the Company will be able to maintain these or similar facilities in the future.
In addition, the Company is currently negotiating with a number of financial
institutions for additional warehouse facilities.
Securitization Program. The Company's most important capital resource
has been its ability to sell loans originated and purchased by it in the
secondary market in order to generate cash proceeds to pay down its warehouse
facilities and fund new originations and purchases. The value of and market
for the Company's loans are dependent upon a number of factors, including
general economic conditions, interest rates and governmental regulations.
Adverse changes in such factors may affect the Company's ability to securitize
and sell loans for acceptable prices within a reasonable period of time. The
ability of the Company to sell loans in the secondary market on acceptable
terms is essential for the continuation of the Company's loan origination and
purchase operations. A reduction in the size of the secondary market for loans
of the types originated or purchased by the Company may adversely affect the
Company's ability to sell loans in the secondary market with a consequent
adverse impact on the Company's profitability and ability to fund future
originations and purchases.
In addition, in order to gain access to the secondary market, the
Company has relied on monoline insurance companies to provide financial
guarantee insurance on senior interests in the securitization trusts
established by the Company. Although the Company is exploring the possibility
of structuring a pool for securitization and sale in the secondary market based
solely on the internal credit enhancements of the pool or the Company's
guarantees, the Company expects to rely on monoline insurance companies for at
least a portion of its future securitizations. Any substantial reduction in
the size or availability of the secondary market for the Company's loans or the
unwillingness of monoline insurance companies to provide financial guarantee
insurance for the senior interests in the securitization trusts could have a
material adverse effect on the Company's financial position and results of
operations. At December 31, 1996, the dollar volume of loans delinquent more
than 90 days on the Company's seven securitization trusts formed during the
period from September 1994 to March 1996 exceeded the permitted limit in the
related pooling and servicing agreements. The higher delinquency rates could
negatively affect the Company's cash flows and adversely influence the
Company's assumptions underlying the excess servicing gain. Additionally, the
higher delinquency rates permit the monoline insurance company to terminate the
Company's servicing rights with respect to the affected trust. To date, no
servicing rights have been terminated, and the Company has no reason to believe
such action will be taken. The Company has implemented various plans to lower
the delinquency rates in its future trusts, including diversifying the loans it
originates and purchases to include higher credit grade loans. Further, the
monoline insurance companies agreed to higher permitted delinquency limits in
the two securitizations completed in the six month period ended December 31,
1996. (See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations-- Risk Factors--Delinquencies; Negative
Impact on Cash Flow; Right to Terminate Normal Servicing" in the Company's Form
10-K for the fiscal year ended June 30, 1996.)
16
<PAGE> 19
Other Capital Resources. The Company has funded negative cash flows
primarily from the sale of its equity and debt securities. In December 1991,
July 1993, June 1995, and October 1996, the Company effected offerings of its
Common Stock with net proceeds to the Company aggregating $179.1 million. In
March 1995, the Company completed an offering of its 10.5% Senior Notes due
2002 with net proceeds to the Company of $22.2 million. In February 1996, the
Company completed an offering of its 5.5% Convertible Subordinated Debentures
due 2006 with net proceeds to the Company of $112 million. In October 1996,
the Company completed an offering of its 9.125% Senior Notes due 2003 with net
proceeds to the Company of $145 million. The Company had cash and cash
equivalents of approximately $189 million (of which $130 million was
restricted) at December 31, 1996. The Company anticipates that its sources of
liquidity will be sufficient to fund the Company's liquidity requirements for
at least the next 12 months, if the Company's future operations are consistent
with management's current growth expectations. There can be no assurance that
the Company will be successful in consummating any such financing transaction
in the future on terms the Company would consider to be favorable.
RISK MANAGEMENT
The Company employs a variety of strategies in order to manage the
risk that mortgage loans held for sale pending securitization will fluctuate in
value as a result of changing interest rates prevailing in the market. The
Company hedges against interest rate fluctuations by entering into swap
agreements with third parties that sell United States Treasury securities not
yet purchased and purchase Treasury put options. The amount and timing of
hedging transactions are determined by members of the Company's senior
management. Management assesses factors including the interest rate
environment, loan production levels and open positions of current hedge
positions. The Company has also mitigated its interest rate exposure by
effecting securitizations once each quarter resulting in a holding period for
most of the mortgage loans originated and purchased by it of less than one
quarter.
The Company also mitigates its exposure to interest rate risk through
a pre-funding strategy in which it agrees to sell loans to the securitization
trust in the future at an agreed-upon price. The pre-funding locks in the
price agreed upon with investors on the pricing date (typically five business
days prior to the closing date of the securitization) for a period of generally
30 days. In a pre-funding arrangement, the Company typically delivers
approximately 75% of the loans sold at the closing and the remainder generally
within 30 days after the closing.
FORWARD-LOOKING STATEMENTS
From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects and similar matters. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements. In order to comply
with the terms of the safe harbor, the Company notes that a variety of factors
could cause the Company's actual results and experience to differ materially
from the anticipated results or other expectations expressed in the Company's
forward-looking statements. The risks and uncertainties that may affect the
operations, performance and results of the Company's business include the
following: negative cash flows and capital needs, delinquencies, risks of
17
<PAGE> 20
contracted servicing, dependence on funding sources, capitalized excess
servicing receivable, recent addition of wholesale correspondent program,
recent acquisition of One Stop, concentration of wholesale correspondent
program, competition, concentration of operations, timing of loan sales,
economic conditions, contingent risks, and government regulation. For a more
complete discussion of these risks and uncertainties, see "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Risk Factors" in the Company's Form 10-K for the fiscal year ended
June 30, 1996.
18
<PAGE> 21
AAMES FINANCIAL CORPORATION
OTHER INFORMATION
PART II
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its annual meeting of stockholders
on November 12, 1996.
(b) The following directors were elected at the annual
meeting to serve for a three-year term:
Bobbie J. Burroughs
Melvyn Kinder
Cary H. Thompson
The following directors continued in office after the annual meeting:
Joseph R. Cerrell
Dennis F. Holt
Gary K. Judis
Neil B. Kornswiet
Gregory J. Witherspoon
(c) At the annual meeting, stockholders voted on (1) the
election of the Company's Class II directors; (2) the adoption of the Company's
1996 Stock Incentive Plan; (3) the approval of the Annual Performance Bonus
Provisions in the Employment Agreement of Gary K. Judis; and (4) the
ratification of the appointment of Price Waterhouse LLP as the Company's
independent accounts for the fiscal year ending June 30, 1997. The results of
the voting were as follows:
19
<PAGE> 22
<TABLE>
<CAPTION>
Votes Broker
Matter Votes For Against Withheld Abstentions Non-Votes
- ----- ---------- ------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Bobbie J. Burroughs 13,353,412 -- 148,172 -- 2,246
Melvyn Kinder ..... 13,293,334 -- 208,250 -- 62,534
Cary H. Thompson .. 13,353,502 -- 148,082 -- 2,606
1996 Stock ........ 9,890,233 2,330,719 -- 21,958 2,911,150
Incentive Plan
Bonus provisions .. 13,160,934 182,591 -- 157,910 1,652,626
of G.Judis
Employment
Agreement
Price Waterhouse .. 13,362,046 11,280 -- 128,108 1,652,626
</TABLE>
(d) Not applicable.
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Amended and Restated Mortgage Loan
Warehousing Agreement dated as of January 15,
1997 among Registrant; Registrant's wholly
owned subsidiary, Aames Capital Corporation;
the lenders from time to time a party
thereto; and NationsBank of Texas, N.A., as
administrative agent for the lenders
11 Computation of Per Share Earnings
27.1 Financial Data Schedule
(b) Reports on Form 8-K: The Company filed a Current
Report on Form 8-K dated October 22, 1996 reporting
the completion of its equity and debt offerings and
its financial results for the quarter ended September
30, 1996.
20
<PAGE> 23
AAMES FINANCIAL CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant has duly caused this Report on Form 10-Q to be
signed on its behalf by the undersigned, thereunto duly authorized.
AAMES FINANCIAL CORPORATION
Date February 14, 1997 By:/s/ Gregory J. Witherspoon
-------------------------------------
Gregory J. Witherspoon
Executive Vice President - Finance and
Chief Financial Officer
By:/s/ Mark E. Elbaum
-------------------------------------
Mark E. Elbaum
Senior Vice President - Finance and
Principal Accounting Officer
21
<PAGE> 24
EXHIBIT INDEX
EXHIBIT
10.1 Amended and Restated Mortgage Loan Warehousing Agreement dated
as of January 15, 1997 among Registrant; Registrant's wholly
owned subsidiary, Aames Capital Corporation; the lenders from
time to time a party thereto; and NationsBank of Texas, N.A.,
as administrative agent for the lenders
11 Computation of Per Share Earnings
27.1 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.1
AMENDED AND RESTATED MORTGAGE LOAN WAREHOUSING AGREEMENT
THIS AMENDED AND RESTATED MORTGAGE LOAN WAREHOUSING AGREEMENT
(the "Agreement") made and dated as of the 15th day of January, 1997, by and
among AAMES CAPITAL CORPORATION, a California corporation (the "Company");
AAMES FINANCIAL CORPORATION, a Delaware corporation and the sole shareholder of
the Company (the "Parent"); the lenders from time to time party hereto,
together with their respective successors and assigns (each a "Lender and,
collectively, the "Lenders"); and NATIONSBANK OF TEXAS, N.A., a national
banking association ("NationsBank"), as administrative agent for the Lenders
(in such capacity, the "Administrative Agent").
RECITALS
A. Pursuant to that certain Mortgage Loan Warehousing Agreement
dated as of December 27, 1995 by and among the Company, the Administrative
Agent, and the Lenders party thereto (as amended to date, the "Existing Credit
Agreement"), such Lenders extended credit to the Company on the terms and
subject to the conditions set forth therein.
B. The Company, the Administrative Agent and the Lenders party to
the Existing Credit Agreement desire to amend the Existing Credit Agreement and
the documents, instruments and agreements relating thereto in certain respects
and, for convenience of reference, to restate the Existing Credit Agreement in
its entirety herein.
NOW, THEREFORE, in consideration of the above Recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
1. Tranche A Credit Facility (Standard Warehouse Loans).
1(a) Tranche A Lending Limit. On the terms and
subject to the conditions set forth herein, the Lenders severally agree that
they shall from time to time to and including the Maturity Date (as such term
and capitalized terms not otherwise defined herein are defined in Paragraph 17
below) make loans (the "Tranche A Committed Loans" or a "Tranche A Committed
Loan"), pro rata in accordance with their respective Percentage Shares, to the
Company in amounts not to exceed, in the aggregate at any one time outstanding,
the lesser of:
(1) The Aggregate Committed Credit Limit
minus the sum of:
(i) The aggregate dollar amount of
Tranche B Loans and Tranche C Loans outstanding (including all
Tranche B Loans and Tranche C Loans to be funded on the
proposed date of funding of the requested Tranche A
1
<PAGE> 2
Committed Loans but excluding Tranche C Loans which will be
repaid with proceeds of the requested Tranche A Committed
Loans);
(ii) The aggregate dollar amount of
Tranche A Bid Loans outstanding (excluding Tranche A Bid Loans
which will be repaid with the proceeds of the requested
Tranche A Committed Loans); and
(iii) The L/C Available Amount and
any unrepaid L/C Drawings as of such date; and
(2) The Collateral Value of the
Warehouse Borrowing Base plus any Supplemental Cash Collateral held by
the Administrative Agent, minus the sum of:
(i) The aggregate dollar amount of
all Tranche C Loans outstanding (excluding Tranche C Loans
which will be repaid with proceeds of the requested Tranche A
Committed Loans);
(ii) The aggregate dollar amount of
all Bid Loans outstanding (excluding Bid Loans which will be
repaid with the proceeds of the requested Tranche A Committed
Loans); and
(iii) The L/C Available Amount and
any unrepaid L/C Drawings as of such date.
1(b) Calculation and Payment of Interest. Tranche
A Committed Loans shall bear interest from the date disbursed to but not
including the date of payment calculated on the principal amount of Tranche A
Committed Loans outstanding from time to time hereunder at a per annum rate
equal to, at the option of and as selected by the Company from time to time
(subject to the provisions of Paragraphs (6(c), 6(d) and 6(e) below), the
Applicable Eurodollar Rate for the applicable Interest Period or the daily
average Applicable Effective Fed Funds Rate during the applicable interest
computation period, said interest to be payable as provided more particularly
in Paragraph 6(b) below.
1(c) Payment of Principal. Subject to the
prepayment requirements of Paragraph 7(f) below and the conversion and
continuation provisions of Paragraph 6(c) below, the Company shall pay the
principal amount of each Tranche A Committed Loan being maintained as a
Eurodollar Loan on the last day of the applicable Interest Period and shall pay
the principal amount of each Tranche A Committed Loan being maintained as an
Effective Fed Funds Rate Loan on the Maturity Date.
2. Letter of Credit Facility.
2(a) Letter of Credit. On the terms and subject
to the conditions set forth in the Existing Credit Agreement, NationsBank has
issued its letter of credit (as amended, extended and replaced from time to
time, including, without limitation, pursuant to this
2
<PAGE> 3
Agreement, the "Letter of Credit") for the account of the Company in favor of
Pacific Thrift and Loan Company, a California corporation, in the amount of
$2,500,000.00. Effective as of the Effective Date and subject to the
conditions set forth herein, NationsBank shall amend the Letter of Credit to
extend the stated expiration date to a date no later than the regularly
scheduled Maturity Date hereunder; provided, however, that the L/C Available
Amount of the Letter of Credit as so amended and extended shall not exceed the
least of:
(1) $2,500,000.00;
(2) The Aggregate Committed Credit Limit
minus the aggregate dollar amount of Tranche A Loans, Tranche B Loans
and Tranche C Loans outstanding and unrepaid L/C Drawings (including
all Loans outstanding plus all Loans to be funded on the Effective
Date but excluding all such Loans which will be repaid by Loans
requested to be funded on the Effective Date); and
(3) The Collateral Value of the
Warehouse Borrowing Base plus any Supplemental Cash Collateral held by
the Administrative Agent, minus the sum of:
(i) The aggregate dollar amount of
all Tranche A Committed Loans and Tranche C Loans outstanding
(including all Loans outstanding plus all Loans to be funded
on the Effective Date but excluding all such Loans which will
be repaid by Loans requested to be funded on the Effective
Date); and
(ii) The aggregate dollar amount of
all Bid Loans outstanding or to be funded on the Effective
Date (excluding all Bid Loans which will be repaid by Loans
requested to be funded on the Effective Date).
As a condition to the amendment and extension of the Letter of Credit, the
Company shall execute and deliver to NationsBank not less than four (4)
Business Days prior to the Effective Date a duly executed Letter of Credit
Application, accompanied by all other documents, instruments and agreements as
NationsBank may require (such Letter of Credit Application and other documents,
instruments and agreements, together with all documents, instruments and
agreements delivered to NationsBank at the time of the original issuance of the
Letter of Credit under the Existing Credit Agreement, being referred to herein
as the "L/C Documents"). Following the Effective Date, the Letter of Credit
may not be extended to a date beyond the then current regularly scheduled
Maturity Date hereunder without the prior written consent of one hundred
percent (100%) of the Lenders.
2(b) Purchase of Participation Interests. Upon
the Effective Date the Lenders shall be automatically deemed to have purchased
an undivided participation interest in the Letter of Credit and in all rights
and obligations relating thereto pro rata in accordance with their respective
Percentage Shares.
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<PAGE> 4
2(c) Repayment of L/C Drawings. Any drawing under
the Letter of Credit (a "L/C Drawing") shall be payable in full by the Company:
(1) prior to the occurrence of an Event of Default and acceleration of the
Obligations, on the date NationsBank notifies the Administrative Agent and the
Company (which notice may be telephonic) of such L/C Drawing if such notice is
given prior to 11:30 a.m. (Los Angeles time), or on the next succeeding
Business Day if given after 11:30 a.m. (Los Angeles time), or (2) following the
occurrence of an Event of Default and acceleration of the Obligations, without
demand upon or notice to the Company, on the date of such L/C Drawing. Any L/C
Drawing not paid on the date when due shall accrue interest as provided in
Paragraph 6(k) below, from and including such date to but not including the
date paid in full. The Lenders hereby absolutely and unconditionally
(including, without limitation, following the occurrence of an Event of
Default) agree to purchase and sell among themselves the dollar amount of any
L/C Drawing which is not paid on the date when due by the Company, so that each
unrepaid L/C Drawing shall be held and participated in by the Lenders pro rata
in accordance with their respective Percentage Shares.
2(d) Absolute Obligation to Repay. The Company's
obligation to repay L/C Drawings shall be absolute, irrevocable and
unconditional under any and all circumstances whatsoever and irrespective of
any set-off, counterclaim or defense to payment which the Company may have or
have had, against NationsBank, the Administrative Agent, any Lender or any
other Person, including, without limitation, any set-off, counterclaim or
defense based upon or arising out of:
(1) Any lack of validity or
enforceability of this Agreement or any of the other Loan Documents;
(2) Any amendment or waiver of or any
consent to departure from the terms of the Letter of Credit;
(3) The existence of any claim, setoff,
defense or other right which the Company or any other Person may have
at any time against any beneficiary or any transferee of the Letter of
Credit (or any Person for whom any such beneficiary or any such
transferee may be acting);
(4) Any allegation that any demand,
statement or any other document presented under the Letter of Credit
is forged, fraudulent, invalid or insufficient in any respect, or that
any statement therein is untrue or inaccurate in any respect
whatsoever or that variations in punctuation, capitalization, spelling
or format were contained in the drafts or any statements presented in
connection with any L/C Drawing;
(5) Any payment by NationsBank under the
Letter of Credit against presentation of a draft or certificate that
does not strictly comply with the terms of the Letter of Credit, or
any payment made by NationsBank under the Letter of Credit to any
Person purporting to be a trustee in bankruptcy, debtor-in-possession,
assignee for the benefit of creditors, liquidator, receiver or other
representative of or successor to any beneficiary or any transferee of
the Letter of Credit, including any arising in connection with any
insolvency proceeding;
4
<PAGE> 5
(6) Any exchange, release or
non-perfection of any Collateral; or
(7) Any other circumstance or happening
whatsoever, whether or not similar to any of the foregoing, including
any other circumstance that might otherwise constitute a defense
available to, or a discharge of, the Company.
Nothing contained herein shall constitute a waiver of any rights of the Company
against NationsBank arising out of the gross negligence or willful misconduct
of NationsBank in connection with the Letter of Credit.
2(e) Uniform Customs and Practice. The Uniform
Customs and Practice for Documentary Credits as published by the International
Chamber of Commerce most recently at the time of issuance of the Letter of
Credit shall (unless otherwise expressly provided in the Letter of Credit)
apply to the Letter of Credit.
2(f) Relationship to Letter of Credit Application.
In the event of any inconsistency between the terms and provisions of this
Agreement and the terms and provisions of the L/C Documents, the terms and
provisions of this Agreement shall supersede and govern.
3. Tranche B Credit Facility (Working Capital Loans).
3(a) Tranche B Lending Limit. On the terms and
subject to the conditions set forth herein, the Lenders severally agree that
they shall from time to time to and including the Maturity Date make loans (the
"Tranche B Loans" or a "Tranche B Loan"), pro rata in accordance with their
respective Percentage Shares, to the Company in amounts not to exceed, in the
aggregate at any one time outstanding, the least of:
(1) The Tranche B Credit Limit; and
(2) The Collateral Value of the Working
Capital Borrowing Base; and
(3) The Aggregate Committed Credit
minus the sum of:
(i) The aggregate dollar amount of
Tranche A Committed Loans and Tranche C Loans outstanding
(including all Tranche A Committed Loans and Tranche C Loans
to be funded on the proposed date of funding of the requested
Tranche B Loan but excluding Tranche C Loans which will be
repaid with proceeds of a requested Tranche A Committed Loan
on such date);
(ii) The aggregate dollar amount of
Tranche A Bid Loans outstanding (excluding Tranche A Bid Loans
which will be repaid with the proceeds of a requested Tranche
A Committed Loan on such date); and
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<PAGE> 6
(iii) The L/C Available Amount and
any unrepaid L/C Drawings as of such date.
3(b) Calculation and Payment of Interest. Tranche
B Loans shall bear interest from the date disbursed to but not including the
date of payment calculated at a per annum rate equal to, at the option of and
as selected by the Company from time to time (subject to the provisions of
Paragraphs 6(c), 6(d) and 6(e) below), the Applicable Eurodollar Rate for the
applicable Interest Period or the daily average Applicable Effective Fed Funds
Rate during the applicable interest computation period, said interest to be
payable as provided more particularly in Paragraph 6(b) below.
3(c) Payment of Principal. Subject to the
prepayment requirements of Paragraph 7(f) below and the conversion and
continuation provisions of Paragraph 6(c) below, the Company shall pay the
principal amount of each Tranche B Loan being maintained as a Eurodollar Loan
on the last day of the applicable Interest Period and shall pay the principal
amount of each Tranche B Loan being maintained as an Effective Fed Funds Rate
Loan on the Maturity Date.
4. Tranche C Credit Facility (Swing Loans).
4(a) Tranche C Lending Limit. On the terms and
subject to the conditions set forth herein, NationsBank agrees that it shall
from time to time to but not including the Maturity Date make loans (the
"Tranche C Loans" or a "Tranche C Loan") to the Company in amounts not to
exceed, in the aggregate at any one time outstanding, the least of:
(1) The Tranche C Credit Limit; and
(2) The Aggregate Committed Credit Limit
minus the sum of:
(i) The aggregate dollar amount of
Tranche A Committed Loans and Tranche B Loans outstanding
(including all Tranche A Committed Loans and Tranche B Loans
to be funded on the proposed date of funding of the requested
Tranche C Loan);
(ii) The aggregate dollar amount of
Tranche A Bid Loans outstanding; and
(iii) The L/C Available Amount and
any unrepaid L/C Drawings as of such date; and
(3) The Collateral Value of the
Warehouse Borrowing Base plus any Supplemental Cash Collateral held by
the Administrative Agent, minus the sum of:
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<PAGE> 7
(i) The aggregate dollar amount of
all Tranche A Committed Loans outstanding (including all
Tranche A Committed Loans to be funded on the proposed date of
funding of the requested Tranche C Loan);
(ii) The aggregate dollar amount of
all Bid Loans outstanding; and
(iii) The L/C Available Amount and
any unrepaid L/C Drawings as of such date.
4(b) Funding of Tranche C Loans. Upon receipt by
NationsBank, acting in its capacity as Administrative Agent hereunder, of a
Loan And/Or Interest Rate Election Request for a Tranche C Loan, NationsBank,
acting in its capacity as the Tranche C Lender hereunder, shall advance the
amount of the Tranche C Loan or Loans requested for the purpose of funding the
Company's operations on a daily basis without requiring daily fundings from the
applicable Lenders.
4(c) Refunding of Tranche C Loans by Lenders.
Tranche C Loans shall be refunded by the Lenders to NationsBank upon demand of
NationsBank through the Administrative Agent, which demand will be made no more
frequently than once each Business Day and no less frequently than weekly (and,
in any event, on each Wednesday or, if any Wednesday is not a Business Day, the
immediately preceding Business Day); provided, however, that NationsBank shall
not be required to request refundings of Tranche C Loans hereunder in aggregate
amounts of less than $5,000,000.00. All Tranche C Loans shall be automatically
designated as Tranche A Committed Loans on and as of such refunding date. Such
refundings shall be made by the Lenders (including NationsBank) in accordance
with their respective Percentage Shares and shall, thereafter, be reflected as
Tranche A Committed Loans of the Lenders on the books and records of the
Administrative Agent. Subject to Paragraph 4(f) below, the Administrative
Agent shall, upon the occurrence of an Event of Default and acceleration of the
Obligations, request a refunding hereunder of all Tranche C Loans outstanding
as of such date.
4(d) Calculation and Payment of Interest. Tranche
C Loans shall bear interest from the date disbursed to but not including the
refunding date or the date of payment calculated on the principal amount of
Tranche C Loans outstanding from time to time hereunder during the applicable
interest calculation period at the daily average Applicable Effective Fed Funds
Rate, said interest to be payable as provided more particularly in Paragraph
6(b) below.
4(e) Payment of Principal. Subject to the
prepayment requirements of Paragraph 7(f) and earlier refunding pursuant to
Paragraph 4(c) above, the Company shall pay the principal amount of each
Tranche C Loan on the Maturity Date.
4(f) Absolute Obligation to Refund. It is
expressly acknowledged and agreed by the Lenders and the Company that the
obligation of the Lenders to refund Tranche C Loans shall be absolute and
unconditional and shall be effected by the Lenders upon telephonic request of
the Administrative Agent regardless of whether at the proposed refunding date
there
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<PAGE> 8
shall exist an Event of Default or Potential Default hereunder; provided,
however, that the obligation of the Lenders to refund Tranche C Loans made by
NationsBank on any date on which NationsBank personnel responsible for
administering the credit facility hereunder had actual knowledge of the
existence of an Event of Default, shall be limited to those Tranche C Loans
made on such date with the consent (which may be telephonic) of one hundred
percent (100%) of the Lenders. In the event for any reason the Lenders shall
be prohibited from refunding their respective ratable portion of Tranche C
Loans as Tranche A Committed Loans as provided herein, then instead of
refunding Tranche C Loans as Tranche A Committed Loans, upon request of
NationsBank and subject to the proviso of the immediately preceding sentence,
each Lender (other than NationsBank) shall purchase and take from NationsBank
an individual participation interest in all Tranche C Loans outstanding
hereunder in the amount of such Lender's Percentage Share thereof.
5. Bid Loans.
5(a) Bid Loan Credit Limit. The Company may from
time to time, on the terms and subject to the conditions set forth herein,
request the Lenders to quote fixed rates at which they would, individually, be
prepared to fund advances to the Company hereunder in a stated dollar amount
and for a stated Bid Loan Interest Period ("Bid Loans"); provided, however,
that in no event shall:
(1) The aggregate dollar amount of Bid
Loans outstanding at any date exceed the least of:
(i) The Bid Loan Credit Limit;
(ii) The Maximum Aggregate Credit
Limit minus the sum of the aggregate dollar amount of Tranche
A Committed Loans, Tranche B Loans and Tranche C Loans
outstanding, the L/C Available Amount and any unrepaid L/C
Drawings; and
(iii) The Collateral Value of the
Warehouse Borrowing Base plus any Supplemental Cash Collateral
held by the Administrative Agent, minus the sum of the
aggregate dollar amount of all Tranche A Committed Loans and
Tranche C Loans outstanding, the L/C Available Amount and any
unrepaid L/C Drawings;
(2) The aggregate dollar amount of
Tranche A Bid Loans outstanding at any date exceed twenty percent
(20%) of the Aggregate Committed Credit Limit; or
(3) The Company request a Bid Loan other
than a Tranche A Bid Loan at any date upon which (and after the
funding and application of the proceeds of any and all Loans to be
funded on such date) the aggregate dollar amount of Tranche A
8
<PAGE> 9
Committed Loans, Tranche B Loans and Tranche C Loans would be less
than $150,000,000.00.
5(b) Procedures for Request for Bid Loans. In the
event the Company desires to request the advance of Bid Loans, it shall deliver
to the Administrative Agent (which delivery may be by facsimile transmission) a
duly executed Bid Loan Request on the third Business Day prior to the proposed
funding date, which Bid Loan Request shall specify:
(1) Whether or not the requested Bid
Loans are Tranche A Bid Loans;
(2) The proposed funding date;
(3) The aggregate principal amount of
all Bid Loans requested to be funded on such date, which amount shall
be not less than $5,000,000.00 or increments of $1,000,000.00 in
excess thereof; and
(4) The Bid Loan Interest Period(s) for
such Bid Loans.
The Administrative Agent shall promptly notify each Lender of the contents of
each Bid Loan Request received by it hereunder. In no event shall the Company
deliver a Bid Loan Request to the Administrative Agent within five Business
Days after delivering any other Bid Loan Request.
5(c) Offer Procedures. Upon receipt from the
Administrative Agent of the contents of a Bid Loan Request, any Lender may, in
its sole discretion, elect to offer, on the terms and subject to the conditions
set forth in this Agreement, to make one or more of the requested Bid Loans at
such fixed rates of interest as may be quoted by such Lender in it sole
discretion. Any such offer shall be made by delivery to the Administrative
Agent no later than 9:00 a.m. (Los Angeles time) on the proposed funding date
of a duly executed Bid Loan Offer. Each Bid Loan Offer shall specify:
(1) The maximum dollar amount of Bid
Loans which such Lender is prepared to fund for the requested Bid Loan
Interest Periods, with the amount of each Bid Loan to be $5,000,000.00
or increments of $1,000,000.00 in excess thereof (except in the case
following the submission of Bid Loan Offers a lesser amount shall be
allocated pro rata among Lenders as provided in Paragraph 5(d) below);
and
(2) The rate or rates of interest at
which such Lender is prepared to make the offered Bid Loans.
The Administrative Agent shall notify the Company no later than 10:00 a.m. (Los
Angeles time) on the proposed funding date of the contents of each Bid Loan
Offer received by it.
5(d) Response Procedures. No later than 10:30
a.m. (Los Angeles time) on the proposed funding date the Company shall, in its
sole discretion, either:
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<PAGE> 10
(1) Cancel the subject Bid Loan Request
by giving the Administrative Agent telephonic notice to such effect,
which notice the Administrative Agent will promptly provide to the
Lenders; or
(2) Accept one or more of the Bid Loan
Offers by delivery to the Administrative Agent by facsimile
transmission of a duly executed Bid Loan Confirmation setting forth
the amount of the Bid Loans to be made by the Lenders (such amount not
to exceed for any Lender the amount set forth in the Bid Loan Offer
submitted by such Lender or, in the aggregate, the aggregate dollar
amount of the related Bid Loan Request).
In electing to accept certain Bid Loan Offers, the Company must do so solely on
the basis of the pricing offered for the relevant Bid Loan Interest Period and
no other criteria. If two or more Lenders submit Bid Loan Offers for identical
pricing, the Company shall accept offers from all of such Lenders in amounts
allocated among them pro rata in accordance with the dollar amounts offered by
such Lenders (or as nearly pro rata as shall be practicable after giving effect
to the requirements of Paragraph 5(c)(1) above). In no event may the Company
accept a Bid Loan Offer if after the funding of the Bid Loans thereunder more
than fifteen (15) Bid Loans having different Bid Loan Interest Periods or
interest rates would be outstanding. If the Company elects to accept any Bid
Loan Offer, the Administrative Agent shall notify each Lender thereof no later
than 11:00 a.m. (Los Angeles time) on the proposed funding date. Each Lender
which is to make a Bid Loan shall, on or before 12:00 noon (Los Angeles time)
on the proposed funding date make available to the Administrative Agent the
amount thereof as provided in Paragraph 7(b)(2) below. In the event the
Company rejects some or all Bid Loan Offers solicited in connection with a Bid
Loan Request but nevertheless desires to request an equivalent (or lesser)
dollar amount of Tranche A Committed Loans to be funded by the Lenders on the
date of such rejection, the Company shall so notify the Administrative Agent no
later than 10:30 a.m. (Los Angeles time) on the proposed funding date. The
Administrative Agent shall notify each Lender thereof no later than 11:00 a.m.
(Los Angeles time) on the proposed funding date and, on the terms and subject
to the conditions otherwise applicable to the funding of Tranche A Committed
Loans hereunder, each of the Lenders shall fund its respective Percentage Share
of the requested Tranche A Committed Loans no later than 12:00 noon (Los
Angeles time) on such date. All Tranche A Committed Loans funded in lieu of
Bid Loans as provided herein shall initially be funded as Effective Federal
Funds Rate Loans.
5(e) Calculation and Payment of Interest on Bid
Loans. Interest on Bid Loans shall be calculated at the rates established
pursuant to the related Bid Loan Offer and shall be payable as provided in
Paragraph 6(b) below.
5(f) Principal Repayment. Subject to the
prepayment requirements of Paragraph 7(f) below, each Bid Loan shall be payable
in full on the last day of the applicable Bid Loan Interest Period therefor.
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<PAGE> 11
6. Interest Rate and Yield-Related Provisions.
6(a) Initial Rate Applicable to Tranche A
Committed Loans and Tranche B Loans. All Tranche A Committed Loans and Tranche
B Loans shall initially be funded as Effective Fed Funds Rate Loans and,
thereafter, shall be maintained, at the election of the Company made from time
to time as permitted herein, as Effective Fed Funds Rate Loans and/or
Eurodollar Loans or any combination thereof.
6(b) Payment of Interest and Fees. The
Administrative Agent shall deliver to the Company an interest and fee billing
for each month on or before the third Business Day of the next succeeding
month, which billing shall set forth monthly interest accrued and payable on
Loans and fees payable hereunder to be collected by the Administrative Agent.
On or before the seventh Business Day following receipt of such billing
statement, the Company shall pay to the Administrative Agent for remittance to
the Lenders the full amount of the interest and fee billing set forth on such
billing statement. In addition, the Company shall pay to the Administrative
Agent for remittance to the Lenders interest accruing on Eurodollar Loans on
the last day of the applicable Interest Period.
6(c) Conversion and Continuation.
(1) The Company may elect from time to
time to convert Tranche A Committed Loans and Tranche B Loans
outstanding as Eurodollar Loans to Effective Fed Funds Rate Loans by
giving the Administrative Agent same day notice of such election. Any
conversion of Eurodollar Loans may only be made on the last day of the
applicable Interest Period. The Company may elect from time to time
to convert Tranche A Committed Loans and Tranche B Loans outstanding
as Effective Fed Funds Rate Loans to Eurodollar Loans by giving the
Administrative Agent at least three Eurodollar Business Days' prior
irrevocable notice of such election. All such elections shall be
evidenced by the delivery by the Company to the Administrative Agent
within the required time frame of a duly executed Loan And/Or Interest
Rate Election Request. Upon receipt of a Loan And/Or Interest Rate
Election Request, the Administrative Agent shall promptly notify each
of the Lenders of the Company's elections under such Loan And/Or
Interest Rate Election Request. No Effective Fed Funds Rate Loan
shall be converted into a Eurodollar Loan if an Event of Default or
Potential Default has occurred and is continuing on the date of the
conversion requested by the Company. All or any part of outstanding
Tranche A Committed Loans and Tranche B Loans may be converted as
provided herein; provided, however, that partial conversions shall be
in a principal amount of $5,000,000.00 or whole multiples of
$1,000,000.00 in excess thereof, and in the case of conversions into
Eurodollar Loans, after giving effect thereto the aggregate of the
then number of Eurodollar Loans of each Lender having a different
Interest Period does not exceed ten.
(2) Any Eurodollar Loan may be continued
as such upon the expiration of the Interest Period with respect
thereto by the Company giving the Administrative Agent at least three
Eurodollar Business Days' prior irrevocable notice of
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<PAGE> 12
such election as set forth on a duly executed Loan And/Or Interest
Rate Election Request; provided, however, that no Eurodollar Loan may
be continued as such when any Event of Default or Potential Default
has occurred and is continuing, but shall be automatically converted
to an Effective Fed Funds Rate Loan on the last day of the then
current Interest Period applicable thereto, and the Administrative
Agent shall notify the Lenders and the Company promptly that such
automatic conversion will occur. Upon receipt of a Loan And/Or
Interest Rate Election Request, the Administrative Agent shall
promptly notify each of the Lenders of the Company's elections under
such Loan And/Or Interest Rate Election Request. If the Company shall
fail to give notice as provided above, the Company shall be deemed to
have elected to convert the affected Eurodollar Loan to an Effective
Fed Funds Rate Loan on the last day of the relevant Interest Period.
6(d) Inability to Determine Rate. In the event
that the Administrative Agent shall have determined (which determination shall
be conclusive and binding upon the Company) that by reason of circumstances
affecting the London interbank eurodollar market adequate and reasonable means
do not exist for ascertaining the Eurodollar Rate for any Interest Period, the
Administrative Agent shall forthwith give facsimile notice of such
determination, confirmed in writing, to each Lender and to the Company. If
such notice is given: (1) any Tranche A Committed Loan or Tranche B Loan that
was to have been converted to a Eurodollar Loan shall be continued as an
Effective Fed Funds Rate Loan, and (2) any outstanding Eurodollar Loan shall be
converted, on the last day of the then current Interest Period with respect
thereto, to an Effective Fed Funds Rate Loan. Until such notice has been
withdrawn by the Administrative Agent, the Company shall not have the right to
convert a Tranche A Committed Loan or Tranche B Loan to a Eurodollar Loan or to
continue a Eurodollar Loan.
6(e) Illegality. Notwithstanding any other
provisions herein, if any law, regulation, treaty or directive, or any change
therein or in the interpretation or application thereof, shall make it unlawful
for any Lender to make or maintain Eurodollar Loans as contemplated by this
Agreement: (1) the commitment of such Lender hereunder to make or to continue
Eurodollar Loans or to convert Effective Fed Funds Rate Loans to Eurodollar
Loans shall forthwith be canceled, and (2) such Lender's Tranche A Committed
Loans and Tranche B Loans then outstanding as Eurodollar Loans, if any, shall
be converted automatically to Effective Fed Funds Rate Loans at the end of
their respective Interest Periods or within such earlier period as is required
by law. In the event of a conversion of any Tranche A Committed Loan or
Tranche B Loan prior to the end of its applicable Interest Period as provided
herein, the Company hereby agrees promptly to pay any Lender affected thereby,
upon demand, the amounts required pursuant to Paragraph 6(h) below, it being
agreed and understood that such conversion shall constitute a prepayment for
all purposes hereof. The provisions hereof shall survive the termination of
this Agreement and payment of the outstanding Loans and all other Obligations.
6(f) Requirements of Law; Increased Costs. In the
event that any applicable law, order, regulation, treaty or directive issued by
any central bank or other Governmental Authority, or in the governmental or
judicial interpretation or application thereof, or compliance by any Lender
with any request or directive (whether or not having the force of law) issued
subsequent to the date hereof by any central bank or other Governmental
Authority:
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<PAGE> 13
(1) Does or shall subject any Lender to
any tax of any kind whatsoever with respect to this Agreement or any
Loans made hereunder, or change the basis of taxation of payments to
such Lender of principal, fee, interest or any other amount payable
hereunder (except for a change in the rate of tax on the overall net
income of such Lender);
(2) Does or shall impose, modify or hold
applicable any reserve, capital requirement, special deposit,
compulsory loan or similar requirements against assets held by, or
deposits or other liabilities in or for the account of, advances or
loans by, or other credit extended by, or any other acquisition of
funds by, any office of such Lender which are not otherwise included
in the determination of the Effective Fed Funds Rate or the Eurodollar
Rate; or
(3) Does or shall impose on such Lender
any other condition;
and the result of any of the foregoing is to increase the cost to such Lender
of making, renewing or maintaining any Loan or to reduce any amount receivable
in respect thereof or to reduce the rate of return on the capital of such
Lender or any Person controlling such Lender, then, in any such case, the
Company shall promptly pay to the Administrative Agent for remittance to such
Lender, upon its written demand made through the Administrative Agent, any
additional amounts necessary to compensate such Lender for such additional cost
or reduced amounts receivable or rate of return as reasonably determined by
such Lender with respect to this Agreement or Loans made hereunder. If a
Lender becomes entitled to claim any additional amounts pursuant to this
Paragraph 6(f), it shall promptly notify the Company through the Administrative
Agent of the event by reason of which it has become so entitled. A certificate
as to any additional amounts payable pursuant to the foregoing sentence
containing the calculation thereof in reasonable detail submitted by a Lender,
through the Administrative Agent, to the Company shall be conclusive in the
absence of manifest error. The provisions hereof shall survive the termination
of this Agreement and payment of the outstanding Loans and all other
Obligations.
6(g) Funding. Each Lender shall be entitled to
fund all or any portion of Loans held by it in any manner it may determine in
its sole discretion, including, without limitation, in the Grand Cayman
inter-bank market, the London inter-bank market and within the United States,
but all calculations and transactions hereunder in respect of Eurodollar Loans
shall be conducted as though all Lenders actually fund all Eurodollar Loans
through the purchase in London of offshore dollar deposits in the amount of the
relevant Eurodollar Loan in maturities corresponding to the applicable Interest
Period.
6(h) Prepayment Premium. In addition to all other
payment obligations hereunder, in the event: (1) any Eurodollar Loan or Bid
Loan is prepaid prior to the last day of the applicable Interest Period or Bid
Loan Interest Period, as applicable, whether following a voluntary prepayment,
mandatory prepayment, application of proceeds from the sale of Collateral or
otherwise, or (2) the Company shall fail to continue or to make a conversion to
a Eurodollar Loan after the Company has given notice thereof as provided in
Paragraph 6(c) above,
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<PAGE> 14
then the Company shall immediately pay to the Lenders holding the Loans prepaid
or not continued or converted, through the Administrative Agent, an additional
premium sum compensating each Lender for losses, costs and expenses incurred by
such Lender in connection with such prepayment. The Company acknowledges that
such losses, costs and expenses are difficult to quantify and that, in the case
of the prepayment of or failure to continue or convert to a Eurodollar Loan,
the following formula represents a fair and reasonable estimate of such losses,
costs and expenses:
<TABLE>
<S> <C> <C> <C>
Amount [Applicable Eurodollar Rate ] Days Remaining
Being [Eurodollar Rate for such Incre- ] in Interest
Prepaid or [for Increment ment for Days ] x Period
----------------------
Being x [Being Prepaid - Remaining in ] 360
Not Converted [or Not Interest ]
or Continued [Converted Period ]
[or Continued (as quoted on the first
Eurodollar Business
Day following Lenders'
receipt of notice thereof)
</TABLE>
For purposes of calculating the current Eurodollar Rate for the days remaining
in the Interest Period for both the increment being prepaid or not converted or
continued, said current Eurodollar Rate shall be an interest rate interpolated
between Eurodollar Rates quoted for standard calendar periods for subsequent
months' maturities in accordance with normal conventions. The prepayment
premium payable by the Company with respect to any Bid Loan shall be an amount
equal to the losses associated therewith, as internally allocated by the Lender
holding such Bid Loan consistent with its policies and practices in effect from
time to time as such are applied to its borrowers generally.
6(i) Buy-Down Provisions. Notwithstanding
anything contained in this Agreement, the Company and any individual Lender (as
used in this Paragraph 6(i), a "Buy-Down Lender") may notify the Administrative
Agent in writing that the Company and such Buy-Down Lender have entered into a
Buy-Down Agreement with respect to all or a portion of the Loans from time to
time outstanding held by such Buy-Down Lender, and that, pursuant to said
Buy-Down Agreement, the interest otherwise payable by the Company to such
Buy-Down Lender during any interest calculation period shall be reduced based
on the amount of Available Deposits maintained by the Company with such
Buy-Down Lender. Prior to the occurrence of an Event of Default and
acceleration of the Obligations, each Buy-Down Lender shall bill the Company
directly for all interest accrued and payable to such Buy-Down Lender on
account of Loans from time to time outstanding held by such Buy-Down Lender.
The Administrative Agent, in rendering any monthly interest billing pursuant to
Paragraph 6(b) above shall have no obligation to bill any interest payable to a
Buy-Down Lender or to verify the amount of any Available Deposits supporting
the pricing of Loans held by any Buy-Down Lender or the monthly interest amount
payable to any Buy-Down Lender, including without limitation, any deficiency
fees or other amounts payable to such Lender by the Company under the
applicable Buy-Down Agreement. The Company shall pay all interest, and any
deficiency fees or other
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amounts payable under its Buy-Down Agreement with each Buy-Down Lender,
directly to such Buy-Down Lender within ten (10) calendar days of receipt of a
billing statement from such Buy-Down Lender. Any Buy-Down Lender may elect not
to make demand for the payment of deficiency fees accruing in respect of
Available Deposits from time to time and it is expressly agreed and understood
that: (1) any such deficiency fee shall not, by reason of such failure of such
Buy-Down Lender or otherwise, be deemed to have been waived by such Buy-Down
Lender (except as such waiver is expressly acknowledged in writing by such
Buy-Down Lender from time to time), and (2) all deficiency fees accrued and
unpaid hereunder and not so expressly waived, whether or not previously
declared due and owing by any such Buy-Down Lender, shall automatically be due
and payable in full upon the Maturity Date.
6(j) Fees. The Company shall pay the following
fees:
(1) To the Administrative Agent for the
account of each Lender, a monthly non-usage fee, in arrears, equal (as
calculated for each Lender individually) to the product of: (i)
one-twelfth (1/12) of the Facility Fee Percentage multiplied by (ii)
the excess, if any, of a. such Lender's daily average Percentage Share
of the daily average Aggregate Committed Credit Limit during the month
for which such fee is calculated, over b. such Lender's daily average
Percentage Share of Loans (other than Bid Loans) outstanding and of
the L/C Available Amount during such monthly period, such monthly
amount to be billed and to be payable in accordance with the
provisions of Paragraph 6(b) above.
(2) To NationsBanc Capital Markets, Inc.
and NationsBank, respectively, the "Structure and Arrangement Fee" and
the "Administrative Agency Fee," referred to in that certain Fee
Letter dated November 6, 1996 among the Company and said parties, such
fees to be payable on the Effective Date and such other fees as may
from time to time be agreed by the Company and either of such Persons
in writing.
(3) To the Custodian, fees in such
amounts and payable at such times as the Company and the Custodian may
from time to time agree in writing.
(4) To the Administrative Agent for the
account of each Lender, a monthly non-refundable letter of credit
facility fee, in advance (with the initial such fee to be payable on
the Effective Date and to be pro rated if the Effective Date is not
the first Business Day of a month), equal to the product of: (i)
one-twelfth (1/12) of the L/C Facility Fee Percentage multiplied by
(ii) such Lender's Percentage Share of the L/C Available Amount on the
date of calculation of the monthly letter of credit facility fee, such
monthly amount to be billed and payable in accordance with the
provisions of Paragraph 6(b) above.
(5) To NationsBank, in advance, an
annual, non-refundable letter of credit issuance or extension fee in
such amount as may be agreed to from time to time by the Company in
writing, with the initial such fee to be payable on the Effective Date
(for the period from such date to the then currently scheduled
Maturity Date) and
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<PAGE> 16
such annual fee to be payable on each anniversary of such currently
scheduled Maturity Date thereafter.
6(k) Post-Maturity Interest. Any Obligations not
paid when due (whether at stated maturity, upon acceleration or otherwise)
shall bear interest from the date due until paid in full at a per annum rate
equal to three percent (3%) above the Effective Fed Funds Rate.
6(l) Computations. All computations of interest
and fees payable hereunder shall be based upon a year of 360 days for the
actual number of days elapsed.
7. Miscellaneous Lending Provisions.
7(a) Use of Proceeds. Other than the initial
Loans funded hereunder on the Effective Date which shall be utilized to pay in
full all Loans and other Obligations outstanding under (and as the terms
"Loans" and "Obligations" are defined in) the Existing Credit Agreement, (1)
the proceeds of all Tranche A Committed Loans, Tranche C Loans and Bid Loans
shall be utilized by the Company solely for the purpose of originating and/or
acquiring and/or refinancing the origination or acquisition of Mortgage Loans
and, in the case of Tranche A Committed Loans and Bid Loans, to repay Tranche C
Loans and L/C Drawings, and (2) the proceeds of all Tranche B Loans shall be
used for the purpose set forth in subparagraph (1) above and, in addition, for
the purpose of funding or refinancing the funding of Servicing Receivables made
by the Company in the ordinary course of the Company's business.
7(b) Request For New Loans; Determination of
Availability; Making of New Loans.
(1) Subject with respect to Bid Loans to
the provisions of Paragraph 5 above, on any Business Day that the
Company desires to borrow hereunder, it shall deliver a Loan And/Or
Interest Rate Election Request to the Administrative Agent no later
than: (i) in the case of a Tranche A Committed Loan or a Tranche B
Loan, 6:30 a.m. (Los Angeles time), and (ii) in the case of a Tranche
C Loan, 11:30 a.m. (Los Angeles time) on such date. Except for a
request for a Tranche C Loan made after 6:30 a.m. (Los Angeles time)
on a given date, only one Loan And/Or Interest Rate Election Notice
per tranche shall be submitted to the Administrative Agent on any
date.
(2) Upon receipt of a Loan And/Or
Interest Rate Election Request or, in the case of a Bid Loan, a Bid
Loan Confirmation, the Administrative Agent shall make a Determination
of Availability with respect to any requested Loans, which
Determination of Availability shall, in the case of a request for
Tranche A Committed Loans, Tranche C Loans and Bid Loans be based upon
information provided to the Administrative Agent by the Custodian
pursuant to Paragraph 6 of the Security Agreement. In the event the
Administrative Agent shall have determined that the Collateral Value
of the Warehouse Borrowing Base or the Collateral Value of the Working
Capital Borrowing Base, as applicable, is sufficient to support the
requested borrowings, the Administrative Agent shall so notify the
Lenders (which notification may
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<PAGE> 17
be telephonic) no later than 10:30 a.m. (Los Angeles time) on the date
of the delivery of such Loan And/Or Interest Rate Election Request or,
in the case of a Bid Loan, a Bid Loan Confirmation, and each Lender's
respective Percentage Share or, in the case of Bid Loans, the amount
of new Loans required to be funded thereunder. Thereafter, each
Lender shall make its Percentage Share or, in the case of Bid Loans,
the amount of the requested Loans available by wiring such amount in
immediately available same day funds to the Administrative Agent no
later than 11:30 a.m. (Los Angeles time) on the date of such request
or, in the case of Bid Loans, 12:00 noon (Los Angeles time) on the
proposed funding date.
(3) Unless the Administrative Agent
shall have received notice from a Lender prior to a proposed funding
deadline that such Lender will not make available to the
Administrative Agent such Lender's portion of the proposed Loan or
Loans, the Administrative Agent may assume that such Lender has made
such portion available on the proposed funding date in accordance with
this Paragraph 7(b) and the Administrative Agent may, in reliance upon
such assumption, make available to the Company on such date a
corresponding amount. If and to the extent such Lender shall not have
so made such portion available, such Lender and the Company jointly
and severally agree to repay to the Administrative Agent forthwith on
demand such corresponding amount together with interest thereon, for
each day from the date such amount is made available to the Company
until the date such amount is repaid to the Administrative Agent, in
the case of the Company at the interest rate applicable at the time to
the subject Loan or Loans, and in the case of such Lender at the
Effective Fed Funds Rate. If such Lender shall repay to the
Administrative Agent such corresponding amount, such amount so repaid
shall constitute such Lender's applicable Percentage Share of such
Loan or Loans or Bid Loans for all purposes of this Agreement as of
the date such amount is made available to the Company. The failure of
any Lender to make the advances to be made by it as part of any
borrowing shall not relieve any other Lender of its obligation
hereunder to advance its applicable Percentage Share or, in the case
of Bid Loans, the amount thereof, but no Lender shall be responsible
for the failure of any other Lender to make any such advance.
(4) The Administrative Agent shall make
the principal amount of requested Loans approved in accordance with
this Paragraph 7(b) available to the Company by wiring such amount in
immediately available same day funds to the Funding Account no later
than 11:30 a.m. (Los Angeles time) in the case of a Tranche A
Committed Loan or a Tranche B Loan on the date of such request or, in
the case of a Bid Loan, no later than 12:00 noon (Los Angeles time) on
the proposed funding date; provided, however, that in the event any
proceeds of any Tranche A Committed Loan and/or Tranche C Loan and/or
Bid Loan advanced on the same Business Day, in an aggregate amount
greater than $2,500,000.00 and less than $10,000,000.00, are to be
utilized by the Company to purchase Mortgage Loans from a Person which
is not an Affiliate of the Company or the Parent (such Person, a
"Non-Affiliate Seller"), the Company shall so notify the
Administrative Agent in the Loan And/Or Interest Rate Election Notice
and/or Bid Loan Confirmation therefor and shall provide to the
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Administrative Agent within one Business Day of the date such Loan is
made, confirmation satisfactory to the Administrative Agent that the
Company has wired the full purchase price for such Mortgage Loans to
the Non-Affiliate Seller; and provided, further, that in the event any
proceeds of any Tranche A Committed Loan and/or Tranche C Loan and/or
Bid Loan advanced on the same Business Day, in an aggregate amount
greater than $10,000,000.00, are to be utilized by the Company to
purchase Mortgage Loans from a Non-Affiliate Seller, the Company shall
so notify the Administrative Agent in the Loan And/Or Interest Rate
Election Notice and/or Bid Loan Confirmation therefor and shall
provide to the Administrative Agent: (i) evidence satisfactory to the
Administrative Agent that upon the funding of the requested Loan the
Company will own such Mortgage Loans free and clear of any Lien or
residual interest of the seller thereof, which evidence shall include,
if so requested by the Administrative Agent, written confirmation of
such fact duly executed by such Non-Affiliate Seller, and (ii) wiring
instruction of such Non-Affiliate Seller directing the account into
which such Loan shall be funded directly by the Administrative Agent.
(5) Each request for a Tranche A
Committed Loan or a Tranche B Loan shall be in the minimum amount of
$1,000,000.00, and each request for a Tranche C Loan shall be in the
minimum amount of $500,000.00.
(6) The Company may elect to convert or
continue Effective Fed Funds Rate Loans and/or Eurodollar Loans
outstanding on any date consistent with the timing requirements set
forth in Paragraph 4(c) above.
7(c) Notes. The obligation of the Company to
repay the Loans (other than Bid Loans) shall be evidenced by notes payable to
the order of each Lender, as applicable, in the forms of those attached hereto
as Exhibit A-1 (the "Tranche A Committed Loans Notes"), Exhibit A-2 (the
"Tranche B Notes") and Exhibit A-3 (the "Tranche C Note"). Bid Loans shall be
evidenced by notes payable to the order of each Lender in the form of that
attached hereto as Exhibit A-4 (the "Bid Loans Notes"). Upon any advance,
conversion or prepayment of a Loan as provided herein, each Lender is hereby
authorized to record the date and amount of each such advance and conversion
made by such Lender, or the date and amount of each such payment or prepayment
of principal of such Loan, the applicable Interest Period, if any, and interest
rate with respect thereto, on the schedules annexed to and constituting a part
of its respective Notes (or by any analogous method any Lender may elect
consistent with its customary practices) and any such recordation shall
constitute prima facie evidence of the accuracy of the information so recorded
absent manifest error. The failure of any Lender to make any such notation
shall not affect in any manner or to any extent the Company's Obligations.
7(d) Borrowing Base Conformity.
(1) In support of its obligation to
repay Tranche A Committed Loans, Tranche C Loans, Bid Loans and L/C
Drawings, the Company shall cause the Collateral Value of the
Warehouse Borrowing Base plus any Supplemental Cash Collateral held by
the Administrative Agent to be not less than, at any date, the sum of:
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<PAGE> 19
(i) The aggregate principal amount
of Tranche A Committed Loans and Tranche C Loans outstanding
on such date (including any such Loans to be funded on such
date but excluding Tranche C Loans which will be repaid with
proceeds of Tranche A Loans to be advanced on such date),
(ii) The aggregate amount of Bid
Loans outstanding on such date (excluding Bid Loans which will
be repaid with the proceeds of Tranche A Committed Loans to be
advanced on such date), and
(iii) The L/C Available Amount and
any unrepaid L/C Drawings as of such date.
(2) In support of its obligation to
repay Tranche B Loans hereunder, the Company shall cause the
Collateral Value of the Working Capital Borrowing Base to be not less
than, at any date, the sum of the aggregate principal amount of
Tranche B Loans outstanding on such date, including any such Loans to
be funded on such date.
(3) The Company shall immediately
prepay, upon telephonic demand by the Administrative Agent: (i)
Tranche A Committed Loans, Tranche C Loans and/or Bid Loans to the
Administrative Agent on behalf of the Lenders, as applicable, on any
day in the amount of any shortfall in the Collateral Value of the
Warehouse Borrowing Base plus Supplemental Cash Collateral held by the
Administrative Agent as determined pursuant to subparagraph (1) above,
said amounts to be allocated as provided in Paragraph 7(g) below, and
(ii) Tranche B Loans to the Administrative Agent on behalf of the
Lenders on any day in the amount of any shortfall in the Collateral
Value of the Working Capital Borrowing Base as determined pursuant to
subparagraph (2) above.
(4) If, but only if, at such time as the
Company shall be required to prepay Loans under subparagraph (3)(i) of
this Paragraph 7(d) there shall not have occurred and be continuing an
Event of Default or Potential Default, in lieu of prepaying the
Tranche A Committed Loans, Tranche C Loans or Bid Loans, the Company
may deliver to the Custodian additional Eligible Mortgage Loans with a
Collateral Value and/or to the Administrative Agent Supplemental Cash
Collateral such that the Company shall be in compliance with the
requirement of subparagraph (1) above.
7(e) Nature and Place of Payments. All payments
made on account of the Obligations shall be made without setoff or counterclaim
in lawful money of the United States of America in immediately available same
day funds, free and clear of and without deduction for any taxes, fees or other
charges of any nature whatsoever imposed by any taxing authority and must be
received by the Administrative Agent by 11:30 a.m. (Los Angeles time) on the
day of payment, it being expressly agreed and understood that if a payment is
received after 11:30 a.m. (Los Angeles time) by the Administrative Agent, such
payment will be considered to have been made on the next succeeding Business
Day and interest thereon shall be payable at the then applicable rate during
such extension. Except as otherwise provided in Paragraph 6(i) above, all
payments on account of the Obligations shall be made to the Administrative
Agent
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through its office located at the address listed next to its name on the
signature pages hereof. If any payment required to be made by the Company
hereunder becomes due and payable on a day other than a Business Day, the due
date thereof shall be extended to the next succeeding Business Day and interest
thereon shall be payable at the then applicable rate during such extension.
All amounts received by the Administrative Agent on account of the Obligations
shall be disbursed by the Administrative Agent promptly to the Lenders by wire
transfer on the date of receipt if received by the Administrative Agent before
11:30 a.m. (Los Angeles time) or if received later, by 11:30 a.m. (Los Angeles
time) on the next succeeding Business Day, without further interest payable by
the Administrative Agent.
7(f) Prepayments.
(1) The Company may prepay Effective Fed
Funds Rate Loans in whole or in part at any time and the Company may
prepay Eurodollar Loans and Bid Loans in whole or in part upon three
Business Days' notice to the Administrative Agent.
(2) Loans are subject to mandatory
prepayment pursuant to Paragraph 7(d) above and, in addition, by
application of proceeds of the sale or other disposition of Collateral
as provided in the Security Agreement.
(3) The Company shall pay in connection
with any prepayment hereunder all interest accrued but unpaid on Loans
to which such prepayment is applied (including any prepayment premium
that may be due under Paragraph 6(h) above) concurrently with payment
to the Administrative Agent of any principal amounts.
7(g) Allocation of Payments Received. Prior to
the occurrence of an Event of Default and acceleration of the Obligations or
termination of the commitment of the Lenders to advance Loans hereunder,
principal amounts received by the Administrative Agent shall be allocated first
to repay all outstanding Tranche C Loans and, then, among the Lenders as the
Company may direct to repay Tranche A Committed Loans and/or Tranche B Loans
and/or Bid Loans until all Loans outstanding have been paid in full and,
thereafter, to the Company; provided, however, that any allocation by the
Company to the repayment of any Tranche A Committed Loans or Tranche B Loans
shall be allocated, pro rata, among the Lenders in accordance with their
respective Percentage Shares. Following the occurrence of an Event of Default
and acceleration of the Obligations or termination of the commitment of the
Lenders to advance Loans hereunder, all amounts received by the Administrative
Agent on account of the Obligations shall be disbursed by the Administrative
Agent as follows:
(1) First, to the payment of expenses
incurred by the Administrative Agent and Custodian in the performance
of their duties and enforcement of their rights under the Loan
Documents, including, without limitation, all costs and expenses of
collection, attorneys' fees, court costs and foreclosure expenses;
(2) Then, to the Lenders, pro rata in
accordance with their respective Post-Default Percentage Shares, until
all outstanding Loans and unrepaid L/C Drawings and interest accrued
thereon and all other Obligations have been paid in full,
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said amounts to be allocated first to interest and then, but only
after all accrued interest has been paid in full, to principal of
Loans and unrepaid L/C Drawings;
(3) Then, and if but only if the Letter
of Credit remains outstanding, to the Administrative Agent to hold as
cash collateral for the obligation of the Company to reimburse any
future L/C Drawings as the same may occur and fees which are and will
in the future become payable with respect to the Letter of Credit to
and including the expiration date thereof (the Company, by executing
this Agreement, hereby granting a first priority perfected security
interest to the Administrative Agent for the pari passu benefit of the
Lenders for such purpose); and
(4) Then, to such Persons as may be
legally entitled thereto.
8. Security; Guaranty; Additional Documents.
8(a) Security Agreement. As collateral for the
Obligations of the Company under (and as the term "Obligations" is defined in)
the Existing Credit Agreement, the Company executed and delivered to the
Administrative Agent and the Lenders that certain Security and Collateral
Agency Agreement dated as of December 27, 1995 (the "Existing Security
Agreement"). The Company hereby confirms that the first priority, perfected
security interest of the Administrative Agent for the benefit of the Lenders
participating in the Existing Credit Agreement shall continue in full force and
effect with respect to all Obligations hereunder. On or before the Effective
Date, the Existing Security Agreement shall be amended and, for convenience of
reference, restated in its entirety with a replacement security agreement in
the form of that attached hereto as Exhibit B (as amended, extended or replaced
from time to time, the "Security Agreement"), which Security Agreement shall
continue the perfection and priority of the security interest of the
Administrative Agent in the Collateral thereunder.
8(b) Guaranty. As support for the Obligations of
the Company under (and as the term "Obligations" is defined in) the Existing
Credit Agreement, the Parent executed and delivered to the Administrative Agent
and the Lenders that certain Credit Guaranty dated as of December 27, 1995 (the
"Existing Guaranty"). The Parent hereby confirms the continuing enforceability
and effectiveness of the Existing Guaranty with respect to all Obligations
hereunder. On or before the Effective Date, the Existing Guaranty shall be
amended and, for convenience of reference, restated in its entirety with a
replacement guaranty in the form of that attached hereto as Exhibit C (as
amended, extended or replaced from time to time, the "Guaranty")
8(c) Further Documents. Each of the Company and
the Parent agrees to execute and deliver and to cause to be executed and
delivered to the Administrative Agent on behalf of the Lenders from time to
time such confirmatory or supplementary security agreements, financing
statements and other documents, instruments and agreements as the
Administrative Agent may reasonably request, which are in the Administrative
Agent's judgment necessary or desirable to obtain and maintain for the Lenders
and the Administrative Agent the benefit of the Loan Documents and the
Collateral.
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9. Conditions to Making of Loans.
9(a) First Loan. As conditions precedent to any
Lender's obligation to fund the first Loan hereunder:
(1) The Company and the Parent, as
applicable, shall have delivered or shall have had delivered to the
Administrative Agent, in form and substance satisfactory to the
Lenders and their counsel, each of the following (with sufficient
copies for each of the Lenders):
(i) A duly executed copy of this
Agreement;
(ii) A duly executed copy of the
Security Agreement;
(iii) Duly executed originals of each
of the Notes;
(iv) A duly executed copy of the
Guaranty;
(v) Duly executed copies of all
financing statements and other documents, instruments and
agreements, properly executed, deemed necessary or appropriate
by the Administrative Agent, in its reasonable discretion, to
create and/or continue in favor of the Administrative Agent
for the pari passu benefit of the Lenders a first priority
perfected security interest in and lien upon the Collateral;
(vi) Acknowledgment copies of all
UCC-1 financing statements filed with respect to the
Collateral, accompanied by a search report showing such
financing statements as duly filed and evidencing that the
security interest of the Administrative Agent for the pari
passu benefit of the Lenders in the Collateral is prior to all
security interests of record;
(vii) Certified copies of resolutions
of the Board of Directors of each of the Company and the
Parent approving the execution and delivery of the Loan
Documents, the performance of the Obligations and the
consummation of the transactions contemplated thereby;
(viii) A certificate of the Secretary
or an Assistant Secretary of each of the Company and the
Parent certifying the names and true signatures of the
officers of the Company and the Parent, as applicable,
authorized to sign the Loan Documents;
(ix) An opinion of counsel for the
Company and the Parent, which counsel shall be satisfactory to
the Administrative Agent, in substantially the form of Exhibit
D attached hereto and covering such other matters as the
Administrative Agent may reasonably request;
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(x) A copy of the Articles of
Incorporation of the Company and the Certificate of
Incorporation of the Parent, certified by the Secretaries of
State of the State of California and the State of Delaware,
respectively, as of a recent date;
(xi) A copy of the Bylaws of each
of the Company and the Parent, certified by the Secretary or
an Assistant Secretary of the Company and the Parent, as
applicable, as of the date of this Agreement as being accurate
and complete;
(xii) Certificates of the Secretary
of State of the State of California and the State of Delaware
certifying that each of the Company and the Parent,
respectively, are in good standing as of a recent date;
(xiii) A certificate of an executive
officer of each of the Company and the Parent in the form of
that attached hereto as Exhibit E dated as of the date of this
Agreement;
(xiv) A certificate of a Responsible
Financial Officer of each of the Parent and the Company
demonstrating in detail satisfactory to the Administrative
Agent the Parent's or the Company's compliance, as applicable,
with the financial covenants set forth in Paragraphs 12(i),
12(j) and 12(k) below at and as of the last day of October,
1996; and
(xv) Evidence satisfactory to the
Administrative Agent that upon the funding of the first Loan
hereunder all Obligations outstanding under (and as the term
"Obligations" is defined in) the Existing Credit Agreement
will be paid in full.
(2) All acts and conditions precedent
(including, without limitation, the obtaining of any necessary
regulatory approvals and the making of any required filings,
recordings or registrations) required to be done and performed and to
have happened prior to the execution, delivery and performance of the
Loan Documents and to constitute the same legal, valid and binding
obligations, enforceable in accordance with their respective terms,
shall have been done and performed and shall have happened in due and
strict compliance with all applicable laws.
(3) All documentation, including,
without limitation, documentation for corporate and legal proceedings
in connection with the transactions contemplated by the Loan
Documents, shall be satisfactory in form and substance to the Lenders
and their counsel.
(4) All fees required to be paid
pursuant to Paragraph 6(j) above on the Effective Date and all fees
and expenses of Morrison & Foerster payable by the Company pursuant to
Paragraph 11(g) below for which invoices have been delivered to the
Company prior to or on such date shall have been paid.
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9(b) Ongoing Loans. As conditions precedent to
each Lender's obligation or agreement to make any Loan hereunder (other than
any Tranche A Committed Loan advanced by the Lenders to repay Tranche C Loans),
including the first Loan and including the conversion of any Loan from or into
a Eurodollar Loan or the continuation of any Eurodollar Loan after the end of
the applicable Interest Period, at and as of the date of the funding,
conversion or continuation:
(1) There shall have been delivered to
the Administrative Agent a Loan And/Or Interest Rate Election Request
or, in the case of a Bid Loan, the Bid Loan Confirmation therefor;
(2) The representations and warranties
of the Company and the Parent contained in the Loan Documents shall be
accurate and complete in all respects as if made on and as of the date
of such funding, conversion or continuance;
(3) There shall not have occurred an
Event of Default or Potential Default;
(4) Following the funding of the
requested Loan: (i) the aggregate principal amount of Loans (other
than Bid Loans) advanced by any Lender will not exceed its respective
Maximum Commitment, (ii) the aggregate principal amount of Loans
(other than Bid Loans which are not Tranche A Bid Loans) outstanding
plus the L/C Available Amount and any unrepaid L/C Drawings will not
exceed the Aggregate Committed Credit Limit and (iii) the aggregate
principal amount of Loans outstanding plus the L/C Available Amount
and any unrepaid L/C Drawings will not exceed a. the applicable
limitations of Paragraphs 1(a), 3(a), 4(a), 5(a) and 7(d) above, and
b. as applicable, the Collateral Value of the Warehouse Borrowing Base
and the Collateral Value of the Working Capital Borrowing Base; and
(5) If the Loan is a Tranche A Loan, a
Tranche C Loan or a Bid Loan, the Required Documents for the Mortgage
Loan(s) being funded or acquired therewith shall have been received by
the Custodian or such Mortgage Loan(s) shall have been identified as
Collateral on a duly executed Collateral Confirmation Agreement.
By delivering a Loan And/Or Interest Rate Election Request or Bid Loan
Confirmation to the Administrative Agent hereunder, the Company shall be deemed
to have represented and warranted the accuracy and completeness of the
statements set forth in subparagraphs (b)(2) through (b)(5) above.
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10. Representations and Warranties of the Company and the
Parent.
As an inducement to the Administrative Agent and each Lender
to enter into this Agreement and to make Loans as provided herein, each of the
Company and the Parent severally represents and warrants to the Administrative
Agent and each Lender that:
10(a) Financial Condition. The financial
statements dated the Statement Date and the Interim Date, copies of which have
heretofore been furnished to each Lender, are complete and correct and present
fairly in accordance with GAAP the financial condition of the Parent and its
consolidated Subsidiaries at such dates and the consolidated and consolidating
results of their operations and changes in financial position for the fiscal
periods then ended.
10(b) No Change. Since the Statement Date there
has been no material adverse change in the business, operations, assets or
financial or other condition of the Company, the Parent or the Parent and its
consolidated Subsidiaries taken as a whole.
10(c) Corporate Existence; Compliance with Law.
Each of the Company and Parent: (1) is duly organized, validly existing and in
good standing as a corporation under the laws of the States of California and
Delaware, respectively, and is qualified to do business in each jurisdiction
where its ownership of property or conduct of business requires such
qualification and where failure to qualify would have a material adverse effect
on the Company, the Parent or their respective property and/or business or on
the ability of the Company to pay or perform the Obligations or the Parent to
pay or perform the Guaranty, (2) has the corporate power and authority and the
legal right to own and operate its property and to conduct business in the
manner in which it does and proposes so to do, and (3) is in compliance with
all Requirements of Law and Contractual Obligations, the failure to comply with
which could have a material adverse effect on the business, operations, assets
or financial or other condition of the Company, the Parent or the Parent and
its consolidated Subsidiaries taken as a whole or on the Collateral.
10(d) Corporate Power; Authorization; Enforceable
Obligations. Each of the Company and the Parent has the corporate power and
authority and the legal right to execute, deliver and perform the Loan
Documents to which it is a party and to obtain extensions of credit hereunder,
and has taken all necessary corporate action to authorize the execution,
delivery and performance of the Loan Documents, and the borrowing and other
extensions of credit hereunder. The Loan Documents have been duly executed and
delivered on behalf of the Company and the Parent, as applicable, and
constitute legal, valid and binding obligations of the Company and the Parent,
as applicable, enforceable against such Person in accordance with their
respective terms, subject to the effect of applicable bankruptcy and other
similar laws affecting the rights of creditors generally and the effect of
equitable principles whether applied in an action at law or a suit in equity.
10(e) No Legal Bar. The execution, delivery and
performance of the Loan Documents, the borrowing and other extensions of credit
hereunder and the use of the proceeds thereof, will not violate any Requirement
of Law or any Contractual Obligation of the
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Company or the Parent or create or result in the creation of any Lien (except
the Lien created by the Security Agreement) on any assets of the Company or the
Parent.
10(f) No Material Litigation. Except as disclosed
on Exhibit F hereto, no litigation, investigation or proceeding of or before
any arbitrator, court or Governmental Authority is pending (or, to the
knowledge of the Company or the Parent, threatened) by or against the Parent or
any of its Subsidiaries or against any of such parties' properties or revenues
which is likely to be adversely determined and which, if adversely determined,
is likely to have a material adverse effect on the business, operations,
property or financial or other condition of the Parent or any of its
Subsidiaries or on the Collateral or is likely to have a material adverse
effect on the validity or enforceability of any of the Loan Documents.
10(g) Taxes. The Parent and each of its
Subsidiaries have filed or caused to be filed all tax returns that are required
to be filed and have paid all taxes shown to be due and payable on said returns
or on any assessments made against them or any of their property other than
taxes which are being contested in good faith by appropriate proceedings and as
to which the Parent or applicable Subsidiary has established adequate reserves
in conformity with GAAP.
10(h) Investment Company Act. Neither the Company
nor the Parent is an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
10(i) Subsidiaries. Attached hereto as Exhibit G
is an accurate and complete list of all presently existing Subsidiaries of the
Parent, their respective jurisdictions of incorporation and the percentage of
their capital stock owned by the Parent or other Subsidiaries. All of the
issued and outstanding shares of capital stock of such Subsidiaries have been
duly authorized and issued and are fully paid and non-assessable.
10(j) Federal Reserve Board Regulations. Neither
the Parent nor any of its Subsidiaries is engaged or will engage, principally
or as one of its important activities, in the business of extending credit for
the purpose of "purchasing" or "carrying" any "margin stock" within the
respective meanings of such terms under Regulation U. No part of the proceeds
of any Loan made hereunder nor the Letter of Credit will be used for
"purchasing" or "carrying" "margin stock" as so defined or for any purpose
which violates, or which would be inconsistent with, the provisions of the
Regulations of the Board of Governors of the Federal Reserve System.
10(k) ERISA. The Parent and each of its
Subsidiaries are in compliance in all respects with the requirements of ERISA
and no Reportable Event has occurred under any Plan maintained by the Parent or
any of its Subsidiaries which is likely to result in the termination of such
Plan for purposes of Title IV of ERISA.
10(l) Assets. The Parent and each of its
Subsidiaries have good and marketable title to all property and assets
reflected in the financial statements referred to in Paragraph 10(a) above,
except property and assets sold or otherwise disposed of in the ordinary course
of business subsequent to the respective dates thereof. Except as reflected in
the financial statements referred to in Paragraph 10(a) above or as permitted
under Paragraph 12(a) below,
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neither the Parent nor any of its Subsidiaries has outstanding Liens on any of
its properties or assets nor are there any security agreements to which the
Parent or any of its Subsidiaries is a party, or title retention agreements,
whether in the form of leases or otherwise, of any personal property.
10(m) Securities Acts. Neither the Parent nor any
of its Subsidiaries has issued any unregistered securities in violation of the
registration requirements of Section 5 of the Securities Act of 1933, as
amended (the "Act"), or any other law, and is not violating any rule,
regulation or requirement under the Act or the Securities Exchange Act of 1934,
as amended. The Company is not required to qualify an indenture under the
Trust Indenture Act of 1939, as amended, in connection with its execution and
delivery of the Notes.
10(n) Consents, etc. No consent, approval or
authorization of, or registration, declaration or filing with, any Person is
required on the part of the Company or the Parent in connection with the
execution and delivery of the Loan Documents or the borrowing or any other
extension of credit hereunder (other than filings to perfect the Liens granted
by the Company pursuant to the Security Agreement) or the performance of or
compliance with the terms, provisions and conditions hereof or thereof.
11. Affirmative Covenants. Each of the Company and the
Parent hereby covenants and agrees with the Administrative Agent and each
Lender that, as long as any Obligations remain unpaid (or longer as expressly
provided in Paragraphs 11(g) and 11(j) below) or any Lender has any obligation
to make Loans hereunder, the Company and the Parent shall:
11(a) Financial Statements. Furnish or cause to be
furnished to the Administrative Agent and each Lender directly:
(1) Within: (i) ninety (90) days after
the last day of each fiscal year of the Parent, consolidated
statements of income and statements of changes in financial position
of the Parent for such year and a consolidated balance sheet of the
Parent as of the end of such year presented fairly in accordance with
GAAP and accompanied by an unqualified report of a firm of independent
certified public accountants reasonably acceptable to the
Administrative Agent, and (ii) one hundred twenty (120) days after the
last day of each fiscal year end of the Company, statements of income
and statements of changes in financial position of the Company for
such year and a balance sheet of the Company as of the end of such
year presented fairly in accordance with GAAP and accompanied by an
unqualified report of a firm of independent certified public
accountants reasonably acceptable to the Administrative Agent;
(2) Within forty-five (45) days after
the last day of each calendar quarter, statements of income and
statements of changes in financial position of the Company for such
quarter and a balance sheet of the Company as of the end of such
quarter accompanied in each case by a certificate of a Responsible
Financial Officer of the Company;
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(3) Within forty-five (45) days after
the last day of each calendar month, consolidated statements of income
and statements of changes in financial position for such month and a
consolidated balance sheet as of the end of such month of the Parent
and its Subsidiaries;
(4) Concurrently with each delivery of
the financial statements referred to in subparagraphs (2) and (3)
above, a certificate of a Responsible Financial Officer of the Parent
or the Company, as applicable, in the form of that attached hereto as
Exhibit H stating that such financial statements are presented fairly
in accordance with GAAP and demonstrating in detail satisfactory to
the Administrative Agent the Parent's or Company's, as applicable,
compliance with the financial covenants set forth in Paragraphs 12(i),
12(j) and 12(k) below as of and at the date of such financial
statements;
(5) As soon as is available any written
report pertaining to material items in respect of the internal control
matters of the Parent submitted to the Parent by its independent
accountants in connection with each annual or interim special audit of
the financial condition of the Parent made by such independent public
accountants; and
(6) Copies of all proxy statements,
financial statements, and reports which the Parent sends to its
stockholders, and copies of all regular, periodic and special reports,
and all registration statements under the Act which the Parent files
with the Securities and Exchange Commission or any Governmental
Authority which may be substituted therefor, or with any national
securities exchange; provided, however, that there shall not be
required to be delivered hereunder such copies for any Lender of
prospectuses relating to future series of offerings under registration
statements filed under Rule 415 of the Act or other items which such
Lender has indicated in writing to the Parent from time to time need
not be delivered to such Lender.
11(b) Certificates; Reports; Other Information.
Furnish or cause to be furnished to the Administrative Agent for distribution to
the Lenders:
(1) At such times as the Administrative
Agent may reasonably request, a Warehouse Borrowing Base Certificate
and a Working Capital Borrowing Base Certificate, dated in each case
as of the close of business of the Company on the immediately
preceding Business Day, and in the case of a Warehouse Borrowing Base
Certificate, current as of 8:30 a.m. on the date of delivery with
respect to Eligible Mortgage Loans submitted under a Collateral
Confirmation Agreement.
(2) At the applicable times specified on
Exhibit I attached hereto, the additional reports described on said
Exhibit I; and
(3) Promptly, such additional financial
and other information, including, without limitation, financial
statements of the Company, the Parent, any Subsidiary of the Company
or the Parent or any Approved Investor, and information regarding the
Collateral as any Lender, through the Administrative Agent, may from
time
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to time reasonably request, including, without limitation, such
information as is necessary for any Lender to participate out any of
its interests in the Loans or the Letter of Credit hereunder or to
enable other financial institutions to become signatories hereto.
11(c) Payment of Indebtedness. Pay, discharge or
otherwise satisfy at or before maturity or before it becomes delinquent,
defaulted or accelerated, as the case may be, all its Indebtedness (including
taxes), except (1) Indebtedness (other than the Obligations) in an aggregate
amount not to exceed $5,000,000.00, or (2) Indebtedness being contested in good
faith and for which provision is made to the satisfaction of the Administrative
Agent for the payment thereof in the event the Company or the Parent, as
applicable, is found to be obligated to pay such Indebtedness and which
Indebtedness is thereupon promptly paid by the Company or the Parent, as
applicable.
11(d) Maintenance of Existence and Properties.
Maintain its corporate existence and obtain and maintain all rights,
privileges, licenses, approvals, franchises, properties and assets necessary or
desirable in the normal conduct of its business and comply with all Contractual
Obligations and Requirements of Law.
11(e) Inspection of Property; Books and Records;
Audits.
(1) Keep proper books of record and
account in which full, true and correct entries in conformity with
GAAP and all Requirements of Law shall be made of all dealings and
transactions in relation to its business and activities; and
(2) Permit representatives of the
Administrative Agent or any Lender to: (i) visit and inspect any of
its properties and examine and make abstracts from any of its books
and records at any reasonable time and as often as may reasonably be
desired by the Administrative Agent or any Lender, (ii) discuss the
business, operations, properties and financial and other condition of
the Parent and its Subsidiaries with officers and employees of such
parties, and with their independent certified public accountants, and
(iii) conduct periodic operational audits of the Company's business
and/or operations.
11(f) Notices. Promptly give written notice to the
Administrative Agent and each Lender directly of:
(1) The occurrence of any Potential
Default or Event of Default;
(2) Any litigation or proceeding
affecting the Parent or any of its Subsidiaries or the Collateral
which could have a material adverse effect on the Collateral or the
business, operations, property, or financial or other condition of the
Parent or any of its Subsidiaries, or could have a material adverse
effect on the validity or enforceability of any of the Loan Documents;
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(3) A material adverse change in the
business, operations, property or financial or other condition of the
Parent or any of its Subsidiaries;
(4) Any change in the chief executive
officer of the Company;
(5) The incurrence by the Company or the
Parent of any obligation in connection with any derivatives
transaction outside of the normal course of business of the Company or
the Parent;
(6) Any event or anticipated event,
including, without limitation, the unavailability of pool insurance or
other forms of credit enhancement, which the Company or the Parent
anticipates is likely to adversely affect the timely planned issuance
of any Mortgage-Backed Security which would have been supported by
Mortgage Loans owned by the Company; and
(7) Receipt by the Company of written
notice from any Person that any pooling and servicing contract under
which the Company acts as servicer has been or may in the future be
terminated "for cause."
11(g) Expenses. Pay all reasonable out-of-pocket
costs and expenses (including fees and disbursements of counsel) of: (1) the
Administrative Agent incident to the preparation, negotiation and
administration of the Loan Documents and the protection of the rights of the
Lenders and the Administrative Agent under the Loan Documents, and (2) the
Administrative Agent and each of the Lenders incident to the enforcement of
payment of the Obligations, whether by judicial proceedings or otherwise,
including, without limitation, in connection with bankruptcy, insolvency,
liquidation, reorganization, moratorium or other similar proceedings involving
the Company or a "workout" of the Obligations. The obligations of the Company
and the Parent under this Paragraph 11(g) shall be effective and enforceable
whether or not any Loan is advanced by any Lender hereunder and shall survive
payment of all other Obligations.
11(h) Loan Documents. Comply with and observe all
terms and conditions of the Loan Documents.
11(i) Insurance. Obtain and maintain insurance
with responsible companies in such amounts and against such risks as are
usually carried by corporations engaged in similar businesses similarly
situated, including, without limitation, errors and omissions coverage and
fidelity coverage, and furnish the Administrative Agent on request full
information as to all such insurance.
11(j) Indemnification. Indemnify, defend and hold
harmless the Administrative Agent and each Lender (each, an "Indemnified
Party") from and against any and all claims, obligations, penalties, actions,
suits, judgments, reasonable costs and disbursements, losses, liabilities and
damages (including, without limitation, reasonable attorneys' fees) of any kind
whatsoever (collectively and severally, "Claims") which may at any time be
imposed on, assessed against or incurred by such Indemnified Party in any way
relating to or arising out of
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the Loan Documents or the transactions contemplated thereby or any action
reasonably taken or omitted to be taken by such Indemnified Party in connection
with the foregoing; provided, however, that neither the Company nor the Parent
shall be liable for any portion of any Claims arising out of or resulting from
the gross negligence or willful misconduct of such Indemnified Party. Each
Indemnified Party agrees that it will promptly notify the Parent of any claim,
action or suit asserted or commenced against it and that the Parent may assume
the defense thereof with counsel reasonably satisfactory to such Indemnified
Party at the Parent's sole expense, that such Indemnified Party will cooperate
with the Parent on such defense, and that such Indemnified Party will not
settle any such claim, action or suit without the consent of the Parent;
provided, however, that in the event such Indemnified Party is not reasonably
satisfied with such defense, such Indemnified Party may assume such defense
with counsel satisfactory to such Indemnified Party at the Parent's sole
expense. The indemnification obligations of the Company and the Parent under
this Paragraph 11(j) shall survive termination of this Agreement and payment in
full of the Obligations.
11(k) Collateral Custodian. Utilize the same
financial institution as "custodian" or "collateral agent" for all of its
credit facilities secured by Mortgage Loans owned by the Company or the Parent.
11(l) Shipment of Collateral. Direct the
Custodian to ship Mortgage Loans included in the Warehouse Borrowing Base only
to Approved Investors.
12. Negative Covenants. Each of the Company and the
Parent hereby agrees that, as long as any Obligations remain unpaid or any
Lender has any obligation to make Loans hereunder, neither the Company nor the
Parent shall, nor shall the Company or the Parent permit any Subsidiary of the
Company or the Parent to, at any time, directly or indirectly:
12(a) Liens. Create, incur, assume or suffer to
exist, any Lien upon the Collateral except as contemplated by the Security
Agreement or create, incur, assume or suffer to exist any Lien upon any of its
other property and assets (including servicing rights) except:
(1) Liens or charges for current taxes,
assessments or other governmental charges which are not delinquent or
which remain payable without penalty, or the validity of which are
contested in good faith by appropriate proceedings upon stay of
execution of the enforcement thereof, provided the Company or the
Parent, as applicable, shall have set aside on its books and shall
maintain adequate reserves for the payment of same in conformity with
GAAP;
(2) Liens, deposits or pledges made to
secure statutory obligations, surety or appeal bonds, or bonds for the
release of attachments or for stay of execution, or to secure the
performance of bids, tenders, contracts (other than for the payment of
borrowed money), leases or for purposes of like general nature in the
ordinary course of the Company's or the Parent's business;
(3) Purchase money security interests
for property hereafter acquired, conditional sale agreements, or other
title retention agreements, with respect to
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property hereafter acquired; provided, however, that no such security
interest or agreement shall affect any servicing rights or extend to
any property other than the property acquired; and
(4) Liens securing Permitted Secured
Debt.
12(b) Indebtedness. Create, incur, assume or
suffer to exist, or otherwise become or be liable in respect of, any
Indebtedness except:
(1) The Obligations;
(2) Indebtedness reflected in the
financial statements referred to in Paragraph 10(a) above;
(3) Trade debt incurred in the ordinary
course of business;
(4) Indebtedness secured by Liens
permitted under Paragraph 12(a) above;
(5) Capitalized Lease Obligations in an
aggregate amount not to exceed at any one time outstanding
$5,000,000.00;
(6) Unsecured Indebtedness consisting of
direct borrowings from independent third parties incurred in the
ordinary course of business, including Indebtedness incurred pursuant
to public debt offerings; and
(7) Permitted Secured Debt and Permitted
Guaranties.
12(c) Consolidation and Merger. Liquidate or
dissolve, or enter into any consolidation, merger, partnership, joint venture
(other than the UK Venture), syndicate or other combination unless: (1) the
Company and the Parent remain as separate surviving corporations following any
such consolidation, merger, partnership, joint venture, syndicate or other
combination by either the Company or the Parent, respectively, (2) the fair
market value of the total assets of the other Person party to such
consolidation, merger, partnership, joint venture, syndicate or other
combination when combined with the fair market value of the total assets
acquired through any other consolidation, merger, partnership, joint venture
syndicate or other combination after the date hereof, does not exceed twenty
percent (20%) of the total assets of the Parent (determined in accordance with
GAAP on a consolidated basis) immediately prior to the proposed effective date
of such consolidation, merger, partnership, joint venture, syndicate or other
combination, and (3) no Potential Default or Event of Default exists
immediately prior to, or will occur as a result of, such consolidation, merger,
partnership, joint venture, syndicate or other combination.
12(d) Acquisitions. Purchase or acquire or incur
liability for the purchase or acquisition of any or all of the assets or
business of any Person if the fair market value of assets being acquired when
combined with the fair market value of all assets similarly
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acquired after the Effective Date, exceeds twenty percent (20%) of total assets
of the Parent (determined in accordance with GAAP on a consolidated basis)
immediately prior to the proposed effective date of such acquisition.
12(e) Payment of Dividends. Declare or pay any
dividends upon any shares of the Parent's stock now or hereafter outstanding,
except dividends payable in the capital stock of the Parent, or make any
distribution of assets to its stockholders as such, whether in cash, property
or securities if upon the payment thereof there would exist an Event of
Default or Potential Default.
12(f) Purchase or Retirement of Stock. In the case
of the Parent, from and after the date of this Agreement, acquire, purchase,
redeem or retire any shares of its capital stock now or hereafter outstanding;
provided, however, that as long as both before and following the consummation
of such acquisition, purchase, redemption or retirement there does not exist an
Event of Default or Potential Default, the Parent may enter into such
transactions in an aggregate fair market dollar amount not to exceed
$5,000,000.00.
12(g) Investments; Advances. Make or commit to
make any advance, loan or extension of credit (other than Mortgage Loans and
reimbursable servicing advances made in the ordinary course of the Company's or
such Subsidiary's business) or capital contribution to, or purchase any stock,
bonds, notes, debentures or other securities of, or make any other investment
in, any Person if such investment, advance or commitment to advance, when
combined with all other such investments, advances and commitments to advance,
exceeds twenty percent (20%) of the total equity of the Parent (determined in
accordance with GAAP on a consolidated basis) immediately prior to the proposed
effective date of such investment, advance or commitment to advance; provided,
however, that unless and until the UK Venture is wholly-owned by the Company
and/or the Parent, in no event may the Company, the Parent or any Subsidiary
make any investment, advance or commitment to advance to the UK Venture, if
such, when combined with any and all other investments, advances and
commitments to advance to the UK Venture of such Persons taken in the
aggregate, would exceed $6,000,000.00.
12(h) Sale of Assets. Sell, lease, assign,
transfer or otherwise dispose of any of its assets (other than obsolete or worn
out property), whether now owned or hereafter acquired, other than in the
ordinary course of business and at fair market value.
12(i) Leverage. Permit at the last day of any
calendar month the Leverage Ratio of the Parent and its consolidated
Subsidiaries to exceed 5.00:1.00.
12(j) Minimum Net Worth. Permit at the last day of
any calendar quarter:
(1) The Parent's consolidated net worth,
determined in accordance with GAAP, to be less than the sum of: (i)
$113,414,650.00, plus (ii) eighty-five percent (85%) of net income (if
positive), determined in accordance with GAAP, during each calendar
quarter, commencing with the calendar quarter ended September 30, 1996
and ending with the calendar quarter immediately preceding the date as
of which compliance
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with this Paragraph 12(j) is determined, plus (iii) one hundred
percent (100%) of contributions to equity of the Parent made at any
time after June 30, 1996, or
(2) The Company's net worth, determined in
accordance with GAAP to be less than the sum of: (i) $32,080,258.00,
plus (ii) eighty-five percent (85%) of net income (if positive),
determined in accordance with GAAP, during each calendar quarter,
commencing with the calendar quarter ended September 30, 1996 and
ending with the calendar quarter immediately preceding the date as of
which compliance with this Paragraph 12(j) is determined, plus (iii)
one hundred percent (100%) of contributions to equity of the Company
made at any time after June 30, 1996.
12(k) Minimum Profitability. Permit at the end of
any calendar quarter the Parent's consolidated net income, determined in
accordance with GAAP, for such calendar quarter and the immediately preceding
calendar quarter, taken together, to be less than $1.00.
12(l) Modification of Policies and Procedures.
Make any material change in (1) its underwriting policies and procedures which
would, due to reduced standards of creditworthiness for potential Obligors or
reduced standards of approval for Property securing a Mortgage Loan, result in
the expansion of the pool of potential Obligors on Mortgage Loans originated or
purchased by the Company or such Subsidiary, or (2) its hedging policies
relating to Eligible Mortgage Loans, as such are in effect on the Effective
Date; provided, however, that the Administrative Agent shall promptly convey to
each Lender any written request by the Company, any Subsidiary or the Parent to
change such policies and procedures, and the requested change shall
automatically be deemed to be approved fifteen (15) Business Days following the
date the Administrative Agent distributes such request unless during such
fifteen day period the Administrative Agent receives written rejection of the
requested change in policies and procedures from any Lender stating the basis
of such rejection.
12(m) Subsidiaries. Create or permit the creation
of any Subsidiary not in existence as of the Effective Date; provided, however,
that the Administrative Agent shall promptly convey to each Lender any written
request by the Company or the Parent to create a new Subsidiary (which request
shall include an explanation of the business reason for creation of such
Subsidiary), and such request shall automatically be deemed to be approved
fifteen (15) Business Days following the date the Administrative Agent
distributes such request unless during such fifteen day period the
Administrative Agent receives written rejection of the request to create a new
Subsidiary from any Lender stating the basis of such rejection.
12(n) Transactions with Affiliates. Purchase,
acquire or lease any property from, or sell, transfer or lease any property to,
lend or advance any money to, borrow any money from, guarantee any obligation
of, acquire any stock, obligations or securities of, or enter into any
management or similar fee arrangement with, any Affiliate, other than on an
arms-length basis upon terms and conditions comparable to those that could be
reached with a third party.
13. Events of Default. Upon the occurrence of any of the
following events (an "Event of Default"):
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13(a) The Company shall fail to pay any Obligation
on the date when due (or, with respect to monthly interest and fees due
pursuant to Paragraph 6(b) above, within two (2) days of the date when due); or
13(b) Any representation or warranty made or deemed
made by the Company or the Parent in any Loan Document or in connection with
any Loan Document shall be inaccurate or incomplete in any respect on or as of
the date made or deemed made, except representations and warranties made or
deemed made that a Mortgage Loan is an Eligible Mortgage Loan, it being the
intention of the parties that the inaccuracy or incompleteness of any such
representation or warranty will disqualify such Mortgage Loan as an "Eligible
Mortgage Loan" hereunder and such Mortgage Loan shall be excluded from the
calculation of the Collateral Value of the Warehouse Borrowing Base; or
13(c) The Company or the Parent shall fail to
maintain its corporate existence or shall default in the observance or
performance of any covenant or agreement contained in Paragraph 12 above or in
the Security Agreement; or
13(d) The Company or the Parent shall fail to
observe or perform any other term or provision contained in the Loan Documents
to which it is a party and such failure shall continue for thirty (30) days; or
13(e) The Parent or any of its Subsidiaries shall
default in any payment of principal of or interest on any Indebtedness (other
than the Obligations) in an aggregate amount in excess of $5,000,000.00 or any
other event shall occur, the effect of which other event is to permit such
Indebtedness to be declared or otherwise to become due prior to its stated
maturity; or
13(f) (1) The Parent or any of its Subsidiaries
shall commence any case, proceeding or other action (i) under any existing or
future law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it or its
debts, or (ii) seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its assets, or
the Parent or any of its Subsidiaries shall make a general assignment for the
benefit of its creditors; or (2) there shall be commenced against the Parent or
any of its Subsidiaries any case, proceeding or other action of a nature
referred to in clause (1) above which (i) results in the entry of an order for
relief or any such adjudication or appointment, or (ii) remains undismissed,
undischarged or unbonded for a period of sixty (60) days; or (3) there shall be
commenced against the Parent or any of its Subsidiaries any case, proceeding or
other action seeking issuance of a warrant of attachment, execution, distraint
or similar process against all or substantially all of its assets which results
in the entry of an order for any such relief which shall not have been vacated,
discharged, stayed, satisfied or bonded pending appeal within sixty (60) days
from the entry thereof; or (4) the Parent or any of its Subsidiaries shall take
any action in furtherance of, or indicating its consent to, approval of, or
acquiescence in (other than in connection with a final
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settlement), any of the acts set forth in clauses (1), (2) or (3) above; or (5)
the Parent or any of its Subsidiaries shall generally not, or shall be unable
to, or shall admit in writing its inability to, pay its debts as they become
due; or
13(g) (1) Any Person shall engage in any
"prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of
the Code) involving any Plan, (2) any "accumulated funding deficiency" (as
defined in Section 302 of ERISA), whether or nor waived, shall exist with
respect to any Plan, (3) a Reportable Event shall occur with respect to, or
proceedings shall commence to have a trustee appointed, or a trustee shall be
appointed, to administer or to terminate, any Single Employer Plan, which
Reportable Event or institution of proceedings is, in the reasonable opinion of
the Administrative Agent, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, and, in the case of a Reportable Event, the
continuance of such Reportable Event unremedied for ten days after notice of
such Reportable Event pursuant to Section 4043(a), (c) or (d) of ERISA is given
or the continuance of such proceedings for ten days after commencement thereof,
as the case may be, (4) any Single Employer Plan shall terminate for purposes
of Title IV of ERISA, (5) any withdrawal liability to a Multiemployer Plan
shall be incurred by the Parent or any of its Subsidiaries or (6) any other
event or condition shall occur or exist; and in each case in clauses (1)
through (6) above, such event or condition, together with all other such events
or conditions, if any, is likely to subject the Parent or any of its
Subsidiaries to any tax, penalty or other liabilities in the aggregate material
in relation to the business, operations, property or financial or other
condition of the Parent or any of its Subsidiaries; or
13(h) One or more judgments or decrees shall be
entered against the Company or any of its Subsidiaries in an aggregate amount
in excess of $2,000,000.00, and all such judgments or decrees shall not have
been vacated, discharged, stayed, satisfied or bonded pending appeal within
sixty (60) days from the entry thereof; or
13(i) The Parent shall fail to observe or perform
any covenant or agreement contained in the Guaranty or shall attempt to rescind
or revoke the Guaranty, with respect to future transactions or otherwise; or
13(j) The Parent shall cease to own one hundred
percent (100%) of the outstanding capital stock of the Company; or
13(k) Any Person other than Gary K. Judis shall
acquire more than twenty-five percent (25%) of the voting common stock of the
Parent; or the majority of the directors of the Parent shall consist of
directors who were not recommended or elected by the Parent's Board of
Directors;
THEN,
(1) Automatically upon the occurrence of an Event of
Default under Paragraph 13(f) above,
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(2) At the option of any Lender upon the occurrence of an
Event of Default under Paragraph 13(a) above and/or Paragraph 13(c)
above (but only with respect to a covenant contained in
Paragraphs 12(i), 12(j) and/or 12(k) above), and
(3) In all other cases, at the option of the Majority
Lenders,
each Lender's obligation to make Loans hereunder shall terminate and/or the
principal balance of outstanding Loans and interest accrued but unpaid thereon
and the aggregate contingent liability of the Company to reimburse NationsBank
and the Lenders for future L/C Drawings with respect to the Letter of Credit
and all other Obligations shall become immediately due and payable, without
demand upon or presentment to the Company, which are expressly waived by the
Company.
14. The Administrative Agent.
14(a) Appointment. Each Lender hereby irrevocably
designates and appoints the Administrative Agent as the agent of such Lender
under the Loan Documents and such Lender hereby irrevocably authorizes the
Administrative Agent, as the agent of such Lender, to take such action on its
behalf under the provisions of the Loan Documents and to exercise such powers
and perform such duties as are expressly delegated to the Administrative Agent
by the terms of the Loan Documents, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
elsewhere in the Loan Documents, the Administrative Agent shall not have any
duties or responsibilities, except those expressly set forth herein or therein,
or any fiduciary relationship with any Lender, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into the Loan Documents or otherwise exist against the Administrative Agent.
14(b) Delegation of Duties. The Administrative
Agent may execute any of its duties under the Loan Documents by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent
shall be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.
14(c) Exculpatory Provisions. Neither the
Administrative Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates shall be (1) liable for any action lawfully
taken or omitted to be taken by it or such Person under or in connection with
the Loan Documents (except for its or such Person's own gross negligence or
willful misconduct), or (2) responsible in any manner to any of the Lenders for
any recitals, statements, representations or warranties made by the Company or
any officer thereof contained in the Loan Documents or in any certificate,
report, statement or other document referred to or provided for in, or received
by the Administrative Agent under or in connection with, the Loan Documents or
for the value, validity, effectiveness, genuineness, enforceability or
sufficiency of the Loan Documents or for any failure of the Company to perform
its obligations hereunder. The Administrative Agent shall be under no
obligation to any Lender to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, the Loan
Documents or to inspect the properties, books or records of the Company.
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14(d) Reliance by Administrative Agent. The
Administrative Agent shall be entitled to rely, and shall be fully protected in
relying, upon any note, writing, resolution, notice, consent, certification,
affidavit, letter, cablegram, telegram, telecopy, telex or teletype message,
statement, order or other document or conversation reasonably believed by it to
be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Company), independent accountants and other
experts selected by the Administrative Agent. The Administrative Agent may
deem and treat the payee of any note as the owner thereof for all purposes. As
to the Lenders: (1) the Administrative Agent shall be fully justified in
failing or refusing to take any action under the Loan Documents unless it shall
first receive such advice or concurrence of the Majority Lenders or all of the
Lenders, as appropriate, or it shall first be indemnified to its satisfaction
by the Lenders ratably in accordance with their respective Percentage Shares
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any action (except for liabilities and expenses
resulting from the Administrative Agent's gross negligence or willful
misconduct), and (2) the Administrative Agent shall in all cases be fully
protected in acting, or in refraining from acting, under the Loan Documents in
accordance with a request of the Majority Lenders or all of the Lenders, as
appropriate, and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Lenders.
14(e) Notice of Default. The Administrative Agent
shall not be deemed to have knowledge or notice of the occurrence of any
Potential Default or Event of Default hereunder unless the Administrative Agent
has received notice from a Lender or the Company referring to the Loan
Documents, describing such Potential Default or Event of Default and stating
that such notice is a "notice of default." In the event that the
Administrative Agent receives such a notice, the Administrative Agent shall
give notice thereof to the Lenders. The Administrative Agent shall take such
action with respect to such Potential Default or Event of Default as shall be
reasonably directed by the Majority Lenders (or any Lender with respect to an
Event of Default under Paragraphs 13(a) or 13(c) above (but only with respect
to a covenant contained in Paragraphs 12(i), 12(j) and/or 12(k) above)),
provided that, unless and until the Administrative Agent shall have received
such directions, the Administrative Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
Potential Default or Event of Default as it shall deem advisable in the best
interest of the Lenders.
14(f) Non-Reliance on Administrative Agent or Other
Lenders. Each Lender expressly acknowledges that neither the Administrative
Agent nor any of its officers, directors, employees, agents, attorneys-in-fact
or Affiliates has made any representations or warranties to it and that no act
by the Administrative Agent hereafter taken, including any review of the
affairs of the Company, shall be deemed to constitute any representation or
warranty by the Administrative Agent to any Lender. Each Lender represents to
the Administrative Agent that it has, independently and without reliance upon
the Administrative Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of the Company and the Parent and made its own
decision to
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make its Loans hereunder and enter into this Agreement. Each Lender also
represents that it will, independently and without reliance upon the
Administrative 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 analysis, appraisals and decisions in taking or not taking action under
this Agreement, and to make such investigation as it deems necessary to inform
itself as to the business, operations, property, financial and other condition
and creditworthiness of the Company and the Parent. Except for notices,
reports and other documents expressly required to be furnished to the Lenders
by the Administrative Agent hereunder, the Administrative Agent shall have no
duty or responsibility to provide any Lender with any credit or other
information concerning the business, operations, property, financial and other
condition or creditworthiness of the Company or the Parent which may come into
the possession of the Administrative Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates.
14(g) Back-Up Indemnification. The Lenders agree
to indemnify the Administrative Agent in its capacity as such (to the extent
not reimbursed by the Company or the Parent and without limiting the obligation
of the Company and the Parent to do so), ratably according to the respective
amounts of their Percentage Shares, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind whatsoever which may at any time
(including without limitation at any time following the payment of the
Obligations) be imposed on, incurred by or asserted against the Administrative
Agent in any way relating to or arising out of the Loan Documents or any
documents contemplated by or referred to herein or the transactions
contemplated hereby or any action taken or omitted by the Administrative Agent
under or in connection with any of the foregoing; provided that no Lender shall
be liable for the payment of any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the Administrative Agent's gross negligence or
willful misconduct. The agreements in this subsection shall survive the
payment of the Obligations.
14(h) Administrative Agent in Its Individual
Capacity. The Administrative Agent and its Affiliates may make loans to,
accept deposits from and generally engage in any kind of business with the
Company or the Parent as though the Administrative Agent were not the
Administrative Agent hereunder. With respect to such loans made or renewed by
it and any Note issued to it, the Administrative Agent shall have the same
rights and powers under the Loan Documents as any Lender and may exercise the
same as though it were not the Administrative Agent, and the terms "Lender" and
"Lenders" shall include the Administrative Agent in its individual capacity.
14(i) Successor Administrative Agent. The
Administrative Agent may resign as Administrative Agent under the Loan
Documents upon ninety (90) days' notice to the Lenders and agrees that it will
so resign in the event it ceases to hold any Percentage Share of the
Obligations. If the Administrative Agent shall resign, then the Majority
Lenders shall appoint from among the Lenders a successor agent or, if the
Majority Lenders are unable to agree on the appointment of a successor agent,
the retiring Administrative Agent shall appoint a successor agent for the
Lenders (which successor agent, assuming that there does not exist a Potential
Default or Event of Default, shall be subject to approval by the Company, which
approval shall
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not be unreasonably withheld), whereupon such successor agent shall succeed to
the rights, powers and duties of the retiring Administrative Agent, and the
term "Administrative Agent" shall mean such successor agent effective upon its
appointment, and the former Administrative Agent's rights, powers and duties as
Administrative Agent shall be terminated, without any other or further act or
deed on the part of such former Administrative Agent or any of the parties to
this Agreement or any of the Loan Documents or successors thereto. After any
retiring Administrative Agent's resignation hereunder as Administrative Agent,
the provisions of this Paragraph 12 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Administrative Agent
under the Loan Documents.
15. Additional Lenders; Assignments and Participations;
Increases in Availability.
15(a) Addition of New Lender.
(1) Subject to the limitation on the
Maximum Aggregate Credit Limit, the Company or any Lender may at any
time propose that one or more financial institutions (each, an
"Applicant Financial Institution") become an additional Lender
hereunder. At such time, the Company or such Lender, as applicable,
shall notify the other parties hereto, including the Administrative
Agent, of the identity of such Applicant Financial Institution and
such Applicant Financial Institution's proposed Maximum Commitment.
The addition of any Applicant Financial Institution shall be subject
to:
(i) If such Applicant Financial
Institution is proposed for inclusion as a Lender hereunder by
an existing Lender, the prior written consent of the Company
and the Administrative Agent, and if such Applicant Financial
Institution is proposed for inclusion as a Lender hereunder by
the Company, the prior written consent of the Administrative
Agent, none of which consents shall be unreasonably withheld
and which, if given, shall be given in writing to the other
parties hereto no later than the tenth day following receipt
by the Company of a written request for the inclusion of such
Applicant Financial Institution as a Lender hereunder; and
(ii) Delivery of each of the items
and the occurrence of each of the events described in
subparagraph (2) below.
(2) Assuming delivery of the consent of
the Company and/or the Administrative Agent as required pursuant to
subparagraph (1)(i) above, the Administrative Agent, the Company and,
if such Applicant Financial Institution will be acquiring a portion of
an existing Lender's Maximum Commitment by way of assignment from such
existing Lender, such existing Lender, shall mutually agree on the
Adjustment Date on which such Applicant Financial Institution shall
become a party hereto and a Lender hereunder. On such Adjustment
Date:
(i) The Administrative Agent shall
deliver to the Company and each of the Lenders a replacement
Commitment Schedule to be
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effective as of such Adjustment Date, reflecting the Aggregate
Committed Credit Limit and the Lenders' respective Maximum
Commitments and Percentage Shares.
(ii) No later than 11:30 a.m. (Los
Angeles time) on such Adjustment Date, such Applicant
Financial Institution shall pay to the Administrative Agent an
amount equal to such Applicant Financial Institution's
Percentage Share of Tranche A Committed Loans and Tranche B
Loans outstanding. The Administrative Agent shall thereupon
remit to the Lenders their Percentage Shares of such funds.
Following such Adjustment Date, fees and interest accrued on
the Obligations to but not including such Adjustment Date
shall be payable to the Lenders in accordance with their
respective Percentage Shares prior to such Adjustment Date
before giving effect to the readjustment thereof pursuant to
the Commitment Schedule provided by the Administrative Agent
on such Adjustment Date.
(iii) If such Applicant Financial
Institution is acquiring a portion of an existing Lender's
Commitment and Percentage Share by way of assignment from such
existing Lender, the Administrative Agent, the Company, the
assigning Lender and the Applicant Financial Institution shall
execute and deliver an Assignment Agreement, or if such
Applicant Financial Institution is becoming a Lender hereunder
as a result of an increase in the Aggregate Committed Credit
Limit, the Administrative Agent, the Company and the Applicant
Financial Institution shall execute and deliver an Additional
Lender Agreement, either of which Assignment Agreement or
Additional Lender Agreement shall constitute an amendment to
this Agreement and the other Loan Documents to the extent
necessary to reflect the inclusion of the Applicant Financial
Institution as a Lender hereunder.
(iv) The Company shall execute and
deliver to such Applicant Financial Institution a Tranche A
Note and a Tranche B Note.
(v) The Applicant Financial
Institution shall pay to the Administrative Agent a
registration fee of $3,500.00.
Subject to the requirements described above, on the Adjustment Date
the Applicant Financial Institution shall become a party hereto and a
Lender hereunder and shall be entitled to all rights, benefits and
privileges accorded a Lender under the Loan Documents and shall be
subject to all obligations of a Lender under the Loan Documents.
15(b) Assignments Among Existing Lenders. Any
Lender may at any time agree to assign a portion of such Lender's Maximum
Commitment and Percentage Share to an existing Lender (a "Transferee Lender").
In such event, such Lender and the Transferee Lender shall so notify the
Administrative Agent and the Company of the Adjustment Date on which such
assignment is to be effective. On such Adjustment Date:
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(1) The Company shall deliver to the
Administrative Agent, and each of the Lenders a Commitment Schedule to
be effective as of such Adjustment Date, reflecting the Aggregate
Committed Credit Limit and the Lenders' respective Maximum Commitments
and Percentage Shares.
(2) The Administrative Agent, the
Company, the assigning Lender and the Transferee Lender shall execute
and deliver an Assignment Agreement, which shall constitute an
amendment to this Agreement and the other Loan Documents to the extent
necessary to reflect such transfer.
(3) No later than 12:30 p.m. (Los
Angeles time) on such Adjustment Date, the Transferee Lender shall pay
to the Administrative Agent an amount equal to such Transferee
Lender's Percentage Share of Tranche A Committed Loans and Tranche B
Loans outstanding in excess of such Transferee Lender's previous
Percentage Share thereof. The Administrative Agent shall thereupon
remit to the transferring Lender the amount thereof.
15(c) Minimum Loan Commitment. Notwithstanding
anything to the contrary contained herein, the inclusion of any Applicant
Financial Institution as a Lender hereunder pursuant to Paragraph 15(a) above
and the assignment by an existing Lender of a portion of such Lender's Maximum
Commitment to a Transferee Lender pursuant to Paragraph 15(b) above shall be
subject to the following restrictions:
(1) If an Applicant Financial
Institution is acquiring a portion of an existing Lender's Maximum
Commitment by way of an assignment from such existing Lender, then
such assignment of Maximum Commitment must be in the minimum amount of
$10,000,000.00 (or if in a higher amount, in integral multiples of
$1,000,000.00 in excess thereof) and such existing Lender must
continue to hold a Maximum Commitment of not less than $10,000,000.00
following the consummation of the contemplated assignment;
(2) If an existing Lender is assigning a
portion of its Maximum Commitment to a Transferee Lender, such
assignment of Maximum Commitment is in the minimum amount of
$10,000,000.00 (or if in a higher amount, in integral multiples of
$1,000,000.00 in excess thereof) and such existing Lender shall
continue to hold a Maximum Commitment of not less than $10,000,000.00
following the consummation of the contemplated assignment.
15(d) Sub-Participations by Lenders. Any Lender
may at any time sell participating interests in any of the Obligations held by
such Lender and its Maximum Commitment hereunder; provided, however, that:
(1) No participation contemplated by
this Paragraph 15(d) shall relieve such Lender from its obligations
hereunder or under any other Loan Document;
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(2) Such Lender shall remain solely
responsible for the performance of such obligations;
(3) The Company, the Administrative
Agent, and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under the Loan Documents; and
(4) Such Lender shall not enter into
participation agreements with any participants involving the sale of a
participation interest in less than $10,000,0000.00 of such Lender's
Maximum Commitment for each $20,000,000.00 of Maximum Commitment held
by such Lender.
15(e) Federal Reserve Bank. Notwithstanding the
provisions of Paragraphs 15(a) and 15(b) above, any Lender may at any time
pledge or assign all or any portion of such Lender's rights under this
Agreement and the other Loan Documents to a Federal Reserve Bank.
15(f) Increases in Availability. From time to time
the Company and any Lender (an "Increasing Lender") may agree, with the prior
written consent of the Administrative Agent, to permanently or temporarily
increase such Lender's Maximum Commitment and Percentage Share, the dollar
amount of any such increase to be, subject to the Maximum Aggregate Credit
Limit limitation, in the minimum dollar amount of $10,000,000.00 and integral
multiples of $5,000,000.00 in excess thereof. The Company and the Increasing
Lender shall agree on the Adjustment Date for said increase and, if the
increase is a temporary rather than permanent increase, the date on which said
increase shall terminate (the "Temporary Increase Termination Date"). The
Company shall deliver to the Administrative Agent and each of the Lenders a
Commitment Schedule to be effective as of such Adjustment Date, and the Lenders
shall purchase and sell among themselves Loans in amounts necessary to effect
the new Percentage Shares as of such Adjustment Date. On the Temporary
Increase Termination Date the aggregate amount of such Increasing Lender's
Percentage Share of outstanding Tranche A Committed Loans and Tranche B Loans
held by the Increasing Lender in excess of its Maximum Commitment after giving
effect to the termination of the subject increase shall, if but only if at such
Temporary Increase Termination Date there does not exist an Event of Default,
be payable in full. If at the Temporary Increase Termination Date there exists
an Event of Default, the temporary increase of the Increasing Lender shall
continue in effect and, unless otherwise agreed by one hundred percent (100%)
of the Lenders, shall be treated thereafter as a permanent increase in said
Increasing Lender's Maximum Commitment.
16. Miscellaneous Provisions.
16(a) No Assignment. Neither the Company nor the
Parent may assign its rights or obligations under this Agreement or the other
Loan Documents without the prior written consent of one hundred percent (100%)
of the Administrative Agent and the Lenders. Any purported assignment in
violation of this Paragraph 16(a) shall automatically be deemed null and void.
Subject to the foregoing, all provisions contained in this Agreement and the
other Loan Documents or any document or agreement referred to herein or
relating hereto shall inure
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to the benefit of each Lender, its successors and assigns, and shall be binding
upon the Company, the Parent and their respective successors and assigns.
16(b) Amendment. Neither this Agreement nor any
other Loan Document may be amended or terms or provisions hereof or thereof
waived unless such amendment or waiver is in writing and signed by the Majority
Lenders, the Administrative Agent, the Company and the Parent; provided,
however, that without the prior written consent of one hundred percent (100%)
of the Lenders, no amendment or waiver shall: (1) waive or amend any term or
provision of Paragraphs 12(i), 12(j) or 12(k) above or the definitions of
"Eligible Mortgage Loan," "Eligible Seasoned Mortgage Loan," "Eligible
Servicing Receivable," "Collateral Value of the Warehouse Borrowing Base" or
"Collateral Value of the Working Capital Borrowing Base," (2) reduce the
principal of, or rate of interest on, the Loans, or the fees payable pursuant
to Paragraph 6(j) above, or extend the payment dates for such principal,
interest or fees, (3) release any Collateral or the Guaranty other than as
expressly permitted under the Guaranty or the other Loan Documents, (4) modify
the Tranche B Credit Limit or the Tranche C Credit Limit or the definition of
"Aggregate Committed Credit Limit" or "Maximum Aggregate Credit Limit," (5)
modify any Lender's Percentage Share (except as a result of the increase by a
Lender of such Lender's Maximum Commitment as permitted hereunder), (6) modify
the definition of "Majority Lenders," (7) extend the Maturity Date or (8) amend
this Paragraph 16(b) or any provision of this Agreement which by its terms
requires the consent or approval of one hundred percent (100%) of the Lenders.
16(c) Cumulative Rights; No Waiver. The rights,
powers and remedies of the Administrative Agent and the Lenders hereunder and
under the other Loan Documents are cumulative and in addition to all rights,
power and remedies provided under any and all agreements among the Company, the
Parent and the Administrative Agent and the Lenders relating hereto and
thereto, at law, in equity or otherwise. Any delay or failure by the
Administrative Agent and the Lenders to exercise any right, power or remedy
shall not constitute a waiver thereof by the Administrative Agent and the
Lenders, and no single or partial exercise by the Administrative Agent and the
Lenders of any right, power or remedy shall preclude any other or further
exercise thereof or any exercise of any other rights, powers or remedies.
16(d) Entire Agreement. This Agreement and the
other Loan Documents and the documents and agreements referred to herein embody
the entire agreement and understanding between the parties hereto and supersede
all prior agreements and understandings relating to the subject matter hereof
and thereof.
16(e) Survival. All representations, warranties,
covenants and agreements contained in this Agreement and the other Loan
Documents on the part of the Company and the Parent shall survive the
termination of this Agreement and shall be effective until the Obligations are
paid and performed in full or longer as expressly provided herein.
16(f) Notices. All notices given by any party to
the others to be given under the Loan Documents shall be in writing (including
facsimile transmission) unless otherwise provided for herein, delivered
personally or by depositing the same in the United
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States mail, registered, with postage prepaid, addressed to the party at the
address set forth on Schedule I attached hereto. Any party may change the
address to which notices are to be sent by notice of such change to each other
party given as provided herein. Such notices shall be effective on the date
received or, if mailed, on the third Business Day following the date mailed.
16(g) Governing Law. This Agreement and the other
Loan Documents shall be governed by and construed in accordance with the laws
of the State of California without giving effect to choice of law rules.
16(h) Counterparts. This Agreement and the other
Loan Documents may be executed in any number of counterparts, all of which
together shall constitute one agreement.
16(i) Sharing of Payments. Subject to the
provisions of Paragraph 7(g) above, if any Lender shall receive and retain any
payment, whether by setoff, application of deposit balance or security, or
otherwise, in respect of the Obligations in excess of such Lender's Percentage
Share or, as applicable, Post-Default Percentage Share, then such Lender shall
purchase from the other Lenders for cash and at face value and without
recourse, such participation in the Obligations held by them as shall be
necessary to cause such excess payment to be shared ratably as aforesaid with
each of them; provided, that if such excess payment or part thereof is
thereafter recovered from such purchasing Lender, the related purchases from
the other Lenders shall be rescinded ratably and the purchase price restored as
to the portion of such excess payment so recovered, but without interest. Each
Lender agrees to exercise any and all rights of setoff, counterclaim or
bankers' lien first fully against the Obligations held by such Lender, and only
then to any other Indebtedness of the Company to such Lender.
16(j) 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 PARAGRAPH 16(j) 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 THE OTHER LOAN DOCUMENTS.
16(k) Limitation on Interest. The Lenders, the
Company, the Parent and the other parties to the Loan Documents intend to
contract in strict compliance with applicable
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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.
17. Definitions. For purposes of this Agreement, the
terms set forth below shall have the following meanings:
"Act" shall have the meaning given such term in Paragraph
10(m) above.
"Additional Lender Agreement" shall mean an agreement in the
form of that attached hereto as Exhibit J.
"Additional Required Documents" shall mean with respect to any
Mortgage Loan those documents described on Exhibit K attached hereto.
"Adjusted Net Worth" shall mean on a consolidated basis for
the Parent at any date an amount equal to: (a) Net Worth (as defined under
GAAP), minus (b) goodwill, minus (c) residual assets and deposit accounts to
the extent that residual assets and deposit accounts, in the aggregate, exceed
seventy five percent (75%) of Net Worth, minus (d) capitalized Servicing Rights
to the extent that such capitalized Servicing Rights exceeded the product of
(i) four times the weighted average servicing fee applicable to such Servicing
Rights, times (ii) the aggregate unpaid principal balance of the Mortgage Loans
subject to such Servicing Rights.
"Adjustment Date" shall mean that date as of which an
Applicant Financial Institution becomes a "Lender" or an existing Lender takes
a portion of another existing Lender's Maximum Commitment and Percentage Share,
as provided more particularly in this Agreement.
"Administrative Agent" shall have the meaning given such term
in the introductory paragraph hereof.
"Affiliate" shall mean, as to any Person, any other Person
directly or indirectly controlling, controlled by or under direct or indirect
common control with, such Person. "Control" as used herein means the power to
direct the management and policies of such Person.
"Aggregate Committed Credit Limit" shall mean at any date the
sum of the Maximum Commitments of the Lenders as the same may be increased or
decreased from time to time as permitted hereunder, with the "Aggregate
Committed Credit Limit" on the Initial Funding Date being $250,000,000.00;
provided, however, that in no event shall the Aggregate Committed Credit Limit
be increased to an amount in excess of the then current Maximum Aggregate
Credit Limit.
"Agreement" shall mean this Agreement, as the same may be
amended, extended or replaced from time to time.
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<PAGE> 47
"Applicable Effective Fed Funds Rate" shall mean on any day
the Effective Fed Funds Rate on such day plus the Applicable Fed Funds Spread.
"Applicable Eurodollar Rate" shall mean, with respect to any
Eurodollar Loan for the Interest Period applicable to such Eurodollar Loan, the
rate per annum (rounded upward, if necessary, to the next higher 1/32 of one
percent) calculated as of the first day of such Interest Period in accordance
with the following formula:
Applicable Eurodollar Rate = ER + AES
----------------
1-ERP
where
ER = Eurodollar Rate
ERP = Eurodollar Reserve Percentage
AES = Applicable Eurodollar Spread
"Applicable Eurodollar Spread" shall mean on any day that
percentage determined based upon the Leverage Ratio as reported in the most
recent financial statements delivered by the Parent prior to the date of
determination of "Applicable Eurodollar Spread" in accordance with the
following:
<TABLE>
<CAPTION>
Leverage Ratio Tranche A Committed Loan and Tranche Tranche B Loan
-------------- ------------------------------------ --------------
C Loan Applicable Eurodollar Spread Applicable Eurodollar
----------------------------------- ---------------------
Spread
------
<S> <C> <C>
Less than or equal to 1.75:1.00 0.80% 1.35%
Greater than 1.75:1.00 but less 0.925% 1.475%
than or equal to 3.50:1.00
Greater than 3.50:1.00 1.125% 1.725%
</TABLE>
"Applicable Fed Funds Spread" shall mean on any day that
percentage determined based upon the Leverage Ratio as reported in the most
recent financial statements delivered by the Parent prior to the date of
determination of "Applicable Fed Funds Spread" in accordance with the following
schedule:
<TABLE>
<CAPTION>
Leverage Ratio Tranche A Committed Loan Tranche B Loan
-------------- ------------------------- --------------
and Tranche C Loan Applicable Fed
------------------ --------------
Applicable Fed Funds Spread Funds Spread
---------------------------- ------------
<S> <C> <C>
Less than or equal to 1.75:1.00 1.05% 1.60%
</TABLE>
47
<PAGE> 48
<TABLE>
<S> <C> <C>
Greater than 1.75:1.00 but less 1.175% 1.725%
than or equal to 3.50:1.00
Greater than 3.50:1.00 1.375% 1.925%
</TABLE>
"Applicant Financial Institution" shall have the meaning given
such term in Paragraph 15(a)(1) above.
"Approved Investor" shall mean any financial institution
pre-approved in writing by one hundred percent (100%) of the Lenders to
purchase Mortgage Loans included in the Warehouse Borrowing Base or
Mortgage-Backed Securities supported by Mortgage Loans which have been included
in the Warehouse Borrowing Base (with the schedule of Approved Investors as of
the Effective Date attached hereto as Schedule II), and which approval has not
been revoked by any Lender in its sole discretion, any such revocation notice
to be given no later than ten (10) days prior to its intended effective date,
after which date no additional commitments shall be made by the Company to ship
Mortgage Loans from the Warehouse Borrowing Base to the financial institution
whose approved status has been so revoked; provided, however, that following
the Effective Date the Administrative Agent shall promptly notify each Lender
in writing of any request by the Company to add a new institution as an
Approved Investor hereunder, and such institution shall automatically be deemed
to be an Approved Investor ten (10) Business Days following the date of such
notice unless during such ten day period the Administrative Agent receives a
written rejection of the Company's request from any Lender (it being understood
and agreed that notwithstanding such automatic approval, any Lender may at any
time in its sole discretion revoke any institution's status as an "Approved
Investor" upon notice to be given no later than ten (10) days prior to its
intended effective date, after which date no additional commitments shall be
made by the Company to ship Mortgage Loans from the Warehouse Borrowing Base to
the financial institution whose approved status has been so revoked).
"Assignment Agreement" shall mean an agreement in the form of
that attached hereto as Exhibit L.
"Available Deposits" shall mean those free collected balances
maintained in accounts in the name of the Company (or held by the Company in
trust for third parties) with a Lender (after deducting float and balances
required by such Lender under its normal practices to compensate such Lender
for the maintenance of such accounts and taking into consideration reserve
requirements applicable to such accounts) and which balances are not included
in determining "Available Deposits" under any other credit arrangements between
such Lender and the Company.
"Average Total Liabilities" shall mean for any calendar month
the sum of (a) average consolidated funded Indebtedness of the Parent for such
month, plus (b) all other consolidated liabilities of the Parent, determined in
accordance with GAAP, as of the last day of such month; provided, however, that
for purposes of this definition of "Average Total
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<PAGE> 49
Liabilities," the terms "Indebtedness" and "liabilities" shall in no event
include any Subordinated Debt so long as there does not exist a default with
respect to such Subordinated Debt.
"Basic Information" shall mean with respect to any Bulk
Acquisition Mortgage Loan the Company's loan number therefor, a flag
identifying such Mortgage Loan as a Bulk Acquisition Mortgage Loan, the
acquisition price therefor, the original principal balance, the current unpaid
principal balance, the date of the underlying promissory note, and the current
paid-to-date.
"Bid Loan" shall have the meaning given such term in Paragraph
5(a) above.
"Bid Loan Confirmation" shall mean a confirmation in the form
of that attached hereto as Exhibit M.
"Bid Loan Credit Limit" shall mean the sum of: (a) twenty
percent (20%) of the Aggregate Committed Credit Limit at such date, plus (b)
(1) the Maximum Aggregate Credit Limit at such date minus (2) the Aggregate
Committed Credit Limit at such date.
"Bid Loan Interest Period" shall mean with respect to any Bid
Loan, the period commencing on the date advanced and ending no earlier than
seven days and no later than ninety (90) days thereafter, as designated in the
related Bid Loan Confirmation; provided, however, that any Bid Loan Interest
Period which would end on a day which is not a Business Day shall be extended
to the next succeeding Business Day and no Bid Loan Interest Period shall
extend beyond the regularly scheduled Maturity Date.
"Bid Loans Note" shall have the meaning given such term in
Paragraph 7(c) above.
"Bid Loan Offer" shall mean an offer in the form of that
attached hereto as Exhibit N.
"Bid Loan Request" shall mean a request in the form of that
attached hereto as Exhibit O.
"Bulk Acquisition Mortgage Loan" shall mean a Mortgage Loan
acquired by the Company from a Non-Affiliate Seller in connection with a bulk
acquisition of Mortgage Loans for a purchase price to be advanced on the same
Business Day in excess of $10,000,000.00.
"Business Day" shall mean any day other than a Saturday, a
Sunday or a day on which banks in Los Angeles, California, Dallas, Texas, or
New York, New York are authorized or obligated to close their regular banking
business.
"Buy-Down Agreement" shall mean a written agreement between
the Company and a Lender setting forth the terms and conditions under which
such Lender has agreed to credit against interest otherwise payable to such
Lender on account of Loans outstanding hereunder
49
<PAGE> 50
certain amounts calculated based upon Available Deposits maintained by the
Company with such Lender.
"Capitalized Lease Obligations" of any Person shall mean the
obligations of such Person to pay rent or other amounts under any lease of (or
other arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP
and, for the purposes of this Agreement, the amount of such obligations at any
time shall be the capitalized amount thereof at such time determined in
accordance with GAAP.
"Collateral" shall mean, collectively and severally, the
personal property collateral described as such in the Security Agreement.
"Collateral Confirmation Agreement" shall mean an agreement in
the form of that attached hereto as Exhibit P.
"Collateral Value of the Warehouse Borrowing Base" shall mean,
at any date the aggregate amount calculated with respect to each Eligible
Mortgage Loan included in the Warehouse Borrowing Base at such date as follows:
(a) During the first one hundred eighty (180)
days such Eligible Mortgage Loan is included in the Warehouse Borrowing Base:
(1) if such Eligible Mortgage Loan was originated by the Company, the lesser
of: (i) one hundred percent (100%) of the outstanding principal balance
thereof, and (ii) ninety-eight percent (98%) of the Fair Market Value thereof,
or (2) if such Eligible Mortgage Loan was acquired, rather than originated, by
the Company, the least of: (i) one hundred percent (100%) of the outstanding
principal balance thereof, (ii) if the acquisition price was less than the
outstanding principal balance, ninety-eight percent (98%) of the acquisition
price therefor, and (iii) ninety-eight percent (98%) of the Fair Market Value
thereof;
(b) On each day following the 180th day such
Eligible Mortgage Loan is included in the Warehouse Borrowing Base,
seventy-five percent (75%) of the lesser of: (1) the outstanding principal
balance thereof, and (2) the Fair Market Value thereof.
"Collateral Value of the Working Capital Borrowing Base" shall
mean eighty percent (80%) of the aggregate dollar amount of Eligible Servicing
Receivables included in the Working Capital Borrowing Base at such date.
"Commitment Schedule" shall mean a schedule setting forth the
current Aggregate Committed Credit Limit, Tranche B Credit Limit, Tranche C
Credit Limit and, for each Lender, such Lender's Maximum Commitment and
Percentage Share, as such schedule may be modified from time to time consistent
with the Loan Documents, with the initial Commitment Schedule being attached
hereto as Schedule III.
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<PAGE> 51
"Commonly Controlled Entity" of a Person shall mean a Person,
whether or not incorporated, which is under common control with such Person
within the meaning of Section 414(c) of the Internal Revenue Code.
"Contractual Obligation" as to any Person shall mean any
provision of any security issued by such Person or of any agreement, instrument
or undertaking to which such Person is a party or by which it or any of its
property is bound.
"Custodian" shall mean such Person which may be designated as
such in accordance with the terms of the Security Agreement, with the initial
Custodian being Bankers Trust Company of California, N.A.
"Determination of Availability" shall mean a determination
made by the Administrative Agent upon receipt by the Administrative Agent of a
request for a Loan or Loans hereunder that upon the funding of such Loan or
Loans the Company will be in compliance with the requirements of Paragraphs
7(d)(1) and 7(d)(2) above.
"Effective Date" shall mean the date on which each of the
conditions set forth in Paragraph 9(a) above are satisfied and the first Loan
is funded.
"Effective Fed Funds Rate" shall mean for any day, the
weighted average of the rates on overnight Federal Funds transactions with
members of the Federal Reserve System arranged by Federal Funds brokers, as
published for such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York or, if such
rate is not so published for any day that is a Business Day, the average of
quotations for such day on such transactions received by the Administrative
Agent from three Federal Funds brokers of recognized standing selected by the
Administrative Agent.
"Effective Fed Funds Rate Loans" shall mean all Tranche C
Loans and such Tranche A Committed Loans and Tranche B Loans as are being
maintained at a rate of interest based on the Effective Fed Funds Rate.
"Eligible Mortgage Loan" shall mean a Mortgage Loan with
respect to which each of the following statements shall be accurate and
complete (and the Company by including said Mortgage Loan in any computation of
the Collateral Value of the Warehouse Borrowing Base shall be deemed to so
represent and warrant to the Administrative Agent and the Lenders at and as of
the date of such computation):
(a) Said Mortgage Loan is a binding and valid
obligation of the Obligor thereon, in full force and effect and enforceable in
accordance with its terms.
(b) Said Mortgage Loan is genuine in all respects
as appearing on its face and as represented in the books and records of the
Company, and all information set forth therein is true and correct.
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<PAGE> 52
(c) Said Mortgage Loan is free of any default of
any party thereto (including the Company) (other than as permitted under
subparagraph (d) below), counterclaims, offsets and defenses and from any
rescission, cancellation or avoidance, and all right thereof, whether by
operation of law or otherwise.
(d) No payment under said Mortgage Loan is more
than fifty-nine (59) days past due the payment due date set forth in the
underlying promissory note and deed of trust (or mortgage); provided, however,
that in the event any payment under said Mortgage Loan is more than thirty (30)
days past due the payment due date set forth in the underlying promissory note,
the Collateral Value of said Mortgage Loan when added to the Collateral Value
of all other Mortgage Loans included in the Warehouse Borrowing Base which are
similarly delinquent does not exceed twenty percent (20%) of the Aggregate
Committed Credit Limit.
(e) Said Mortgage Loan contains the entire
agreement of the parties thereto with respect to the subject matter thereof,
has not been modified or amended in any respect and is free of concessions or
understandings with the Obligor thereon of any kind not expressed in writing
therein.
(f) Said Mortgage Loan is in all respects as
required by and in accordance with all applicable laws and regulations
governing the same, 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 said Mortgage
Loan have been given and performed as required.
(g) All advance payments and other deposits on
said Mortgage Loan have been paid in cash, and no part of said sums has been
loaned, directly or indirectly, by the Company to the Obligor thereon and,
other than as disclosed to the Administrative Agent in writing, there have been
no prepayments on said Mortgage Loan.
(h) At all times said Mortgage Loan will be free
and clear of all Liens, except in favor of the Administrative Agent and the
Lenders.
(i) The Property covered by said 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 said
Mortgage Loan with the Company named as a loss payee thereon.
(j) The Property covered by said Mortgage Loan is
free and clear of all Liens except in favor of the Company subject only to (1)
the Lien of current real property taxes and assessments not yet due and
payable; (2) covenants, conditions and restrictions, rights of way, easements
and other matters of the public record, as of the date of recording, as are
acceptable to mortgage lending institutions generally and specifically referred
to in a lender's title insurance policy delivered to the originator of said
Mortgage Loan and (i) referred to or otherwise considered in the appraisal made
for the originator of said Mortgage Loan or (ii) which
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<PAGE> 53
do not materially adversely affect the appraised value of such Property as set
forth in such appraisal; (3) other matters to which like properties are
commonly subject which do not materially interfere with the benefits of the
security intended to be provided by said Mortgage Loan or the use, enjoyment,
value or marketability of the related Property; and (4) a prior first or second
priority Lien to the extent permitted pursuant to subparagraph (s) below.
(k) If said Mortgage Loan has been withdrawn from
the possession of the Custodian on terms and subject to conditions set forth in
the Security Agreement:
(1) If said Mortgage Loan was withdrawn by
the Company for purposes of correcting clerical or other non-
substantive documentation problems, the promissory note and other
documents relating to said Mortgage Loan were returned to the Custodian
within ten (10) Business Days from the date of withdrawal and the
Collateral Value of said Mortgage Loan when added to the Collateral
Value of all other Mortgage Loans included in the Warehouse Borrowing
Base which have been similarly withdrawn does not exceed $5,000,000.00;
and
(2) If said Mortgage Loan was shipped by the
Custodian pursuant to Paragraph 7(b)(1), 7(b)(2) or 7(b)(3) of the
Security Agreement, the full amount required to be paid on account
thereof (as set forth on the schedule attached to the related
transmittal letter) has been received into the Settlement Account (or
said Mortgage Loan has been returned to the Custodian) within the
required number of days (as set forth in the related transmittal letter)
from the date of shipment by the Custodian.
(l) The date of the underlying promissory note is
no earlier than ninety (90) days prior to the date said Mortgage Loan is first
included in the Warehouse Borrowing Base, unless said Mortgage Loan is an
Eligible Seasoned Mortgage Loan; provided, however, that if said Mortgage Loan
is an Eligible Seasoned Mortgage Loan, the Collateral Value of said Mortgage
Loan when added to the Collateral Value of all other Eligible Seasoned Mortgage
Loans included in the Warehouse Borrowing Base does not exceed fifty percent
(50%) of the Aggregate Committed Credit Limit.
(m) The improvements on the related Property
consist of a completed one-to-four family residence (and as to which there are
no commercial operations, other than in the nature of an in-home office,
conducted on such Property) or a unit in a condominium or planned unit
development.
(n) The Required Documents for said Mortgage Loan
have been delivered to the Custodian prior to the inclusion of said Mortgage
Loan in the Warehouse Borrowing Base (or, if such items have not been delivered
to the Custodian, the Custodian has received a Collateral Confirmation
Agreement, including a complete Mortgage Loan Schedule, relating to said
Mortgage Loan on or prior to the date said Mortgage Loan is first included in
the Warehouse Borrowing Base and the Required Documents are received by the
Custodian within seven (7) Business Days after said Mortgage Loan is first
included in the Warehouse Borrowing Base and the Collateral Value of said
Mortgage Loan when added to the Collateral Value of all other Mortgage Loans
for which the Custodian has not received the Required Documents does
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<PAGE> 54
not exceed forty percent (40%) of the Aggregate Committed Credit Limit;
provided, however, that if said Mortgage Loan is a Bulk Acquisition Mortgage
Loan, the Mortgage Loan Schedule accompanying the Collateral Confirmation
Agreement initially delivered to the Custodian with respect thereto need only
include the Basic Information for such Mortgage Loan until the third Business
Day following the date such Mortgage Loan is first included in the Warehouse
Borrowing Base at which date the balance of the information required to be
included on the Mortgage Loan Schedule shall have been supplied to the
Custodian.
(o) If so requested by the Administrative Agent,
the Additional Required Documents for said Mortgage Loan have been delivered to
the Custodian.
(p) Said Mortgage Loan is not subject to any
servicing arrangement with any Person other than the Company or a subservicer
servicing said Mortgage Loan on behalf of the Company, nor are any servicing
rights relating to said Mortgage Loan subject to any Lien or negative pledge in
favor of any Person.
(q) Said Mortgage Loan does not have a
Loan-to-Value Ratio greater than ninety percent (90%).
(r) Said Mortgage Loan has not been included in
the Warehouse Borrowing Base for more than three hundred sixty (360) days;
provided, however, that if said Mortgage Loan has been included in the
Warehouse Borrowing Base for more than one hundred eighty (180) days, the
Collateral Value of said Mortgage Loan when added to the Collateral Value of
all other Mortgage Loans included in the Warehouse Borrowing Base for more than
one hundred eighty (180) days does not exceed twenty percent (20%) of the
Aggregate Committed Credit Limit; and, provided further, that if said Mortgage
Loan is an Eligible Seasoned Mortgage Loan, said Mortgage Loan has not been
included in the Warehouse Borrowing Base for more than two hundred ten (210)
days and, if said Mortgage Loan has been included in the Warehouse Borrowing
Base for more than one hundred twenty (120) days, the Collateral Value of said
Mortgage Loan when added to the Collateral Value of all other Eligible Seasoned
Mortgage Loans included in the Warehouse Borrowing Base for more than one
hundred twenty (120) days does not exceed fifteen percent (15%) of the
Aggregate Committed Credit Limit.
(s) The promissory note evidencing said Mortgage
Loan is secured by a first, second or third priority Lien on the related
Property; provided, however, that if such promissory note is secured by a third
priority Lien on the related Property, the Collateral Value of said Mortgage
Loan when added to the Collateral Value of all other Mortgage Loans included in
the Warehouse Borrowing Base which are secured by third priority Liens does not
exceed five percent (5%) of the Aggregate Committed Credit Limit.
(t) The proceeds of said Mortgage Loan have been
fully disbursed and the Obligor thereon has no additional right to further
borrowings thereunder.
(u) Said Mortgage Loan is covered by a lender's
title insurance policy (issued in standard form by a title insurance company
authorized to transact business in the state where the related Property is
located) in an amount at least equal to the original principal balance
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<PAGE> 55
of the promissory note evidencing said Mortgage Loan insuring the mortgagee's
interest under said Mortgage Loan as the holder of a first, second or third
Lien of record on the related Property, as appropriate (subject only to such
exceptions as are generally acceptable to home equity mortgage lending
institutions, and such other exceptions to which similar properties are
commonly subject and which do not individually, or in the aggregate, materially
and adversely affect the benefits of the security intended to be provided by
said Mortgage Loan).
(v) The Property relating to said Mortgage Loan
is undamaged by waste, fire, earthquake or earth movement, windstorm, flood,
tornado or other casualty so as to affect adversely the value of such Property
as security for said Mortgage Loan or the use for which the premises were
intended, such Property is in good repair and no condemnation proceeding has
been commenced against such Property.
(w) The Obligor on said Mortgage Loan has not
notified the Company, and the Company has no knowledge, of any relief requested
or allowed to such Obligor under the Soldiers' and Sailors' Civil Relief Act of
1940.
In determining the eligibility of any Mortgage Loan any of the requirements for
eligibility (other than the requirements contained in subparagraphs (h), (i)
and (m) above) may be waived by the Administrative Agent; provided, however,
that any Mortgage Loan which is accepted by the Administrative Agent pursuant
to such a waiver (an "Eligible Waiver Mortgage Loan") shall cease to be an
Eligible Mortgage Loan upon notice of the retraction of such waiver given to
the Company by the Administrative Agent unless at the time of giving such
notice the deficiency which originally required such waiver has been cured;
and, provided further, that the Collateral Value of such Mortgage Loan when
added to the Collateral Value of all other Mortgage Loans included in the
Warehouse Borrowing Base as Eligible Mortgage Loans pursuant to a waiver
hereunder shall not exceed $5,000,000.00 at any date.
"Eligible Seasoned Mortgage Loan" shall mean an Eligible
Mortgage Loan purchased or originated by the Company as to which the date of
the underlying promissory note is more than ninety but not more than three
hundred sixty (360) days prior to the date such Eligible Mortgage Loan was
first included in the calculation of the Collateral Value of the Warehouse
Borrowing Base.
"Eligible Servicing Receivable" shall mean a Servicing
Receivable with respect to which each of the following statements shall be
accurate and complete (and the Company by including such Servicing Receivable
in any computation of the Collateral Value of the Working Capital Borrowing
Base shall be deemed to so represent and warrant to the Administrative Agent
and the Lenders):
(a) The servicing contract under which such
Servicing Receivable arose is in full force and effect and is free of any
default of the Company and there does not exist any fact or circumstance that
would entitle the investor thereunder to terminate said servicing contract.
55
<PAGE> 56
(b) No Person has a Lien or other interest or
claim on any right, title or interest of the Company under the servicing
contract under which such Servicing Receivable arose or on any right of the
Company to payment thereunder.
(c) Such Servicing Receivable arose in connection
with a servicing advance made by or a servicing fee owed to the Company,
whether on account of principal or interest, property taxes or property
insurance or otherwise, consistent with all terms and conditions of the
related servicing contract and is free of any counterclaim, right of appeal
or defense to payment.
(d) The assignment by the Company of its right to
payment of such Servicing Receivable does not violate any Requirement of Law or
Contractual Obligation or require the giving of notice to or obtaining the
consent of any Person, including, without limitation, the investor party to the
related servicing contract.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as the same may from time to time be supplemented or amended.
"Eurodollar Business Day" shall mean a Business Day upon which
commercial banks in London, England are open for domestic and international
business.
"Eurodollar Loans" shall mean Tranche A Committed Loans and
Tranche B Loans at such time as they are made and/or being maintained at a rate
of interest based upon the Eurodollar Rate.
"Eurodollar Rate" shall mean, with respect to any Eurodollar
Loan for the Interest Period applicable to such Eurodollar Loan, the arithmetic
average as determined by the Administrative Agent of the rates at which
deposits in immediately available U.S. dollars in an amount equal to the amount
of such Eurodollar Loan having a maturity approximately equal to such Interest
Period are offered to four (4) reference banks to be selected by the
Administrative Agent in the London interbank market, at approximately 11:00
a.m. (London time) two Eurodollar Business Days prior to the first day of such
Interest Period.
"Eurodollar Reserve Percentage" shall mean with respect to an
Interest Period for a Eurodollar Loan, the maximum aggregate reserve
requirement (including all basic, supplemental, marginal and other reserves and
taking into account any transitional adjustments) which is imposed under
Regulation D on eurocurrency liabilities.
"Event of Default" shall have the meaning given such term in
Paragraph 13 above.
"Existing Credit Agreement" shall have the meaning given such
term in Recital A above.
"Facility Fee Percentage" shall mean that percentage
determined based upon the Leverage Ratio as reported in the most recent
financial statements delivered by the Parent prior
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<PAGE> 57
to the date of calculation of the monthly facility fee payable pursuant to
Paragraph 6(j)(1) above in accordance with the following schedule:
<TABLE>
<CAPTION>
Leverage Ratio Facility Fee Percentage
-------------- -----------------------
<S> <C>
Less than or equal to 1.75:1.00 0.20%
Greater than 1.75:1.00 but less than or 0.25%
equal to 3.50:1.00
Greater than 3.50:1.00 0.30%
</TABLE>
"Fair Market Value" shall mean at any date with respect to any
Eligible Mortgage Loan, the fair market value of such Eligible Mortgage Loan as
of such date as determined by the Administrative Agent in its reasonable
business judgment in conformity with standard industry practice for valuing
similar Mortgage Loans.
"Funding Account" shall mean Account No. 049918969 maintained
in the Company's name alone with Sanwa Bank California.
"GAAP" shall mean generally accepted accounting principles in
the United States of America in effect from time to time.
"Governmental Authority" shall mean any nation or government,
any state or other political subdivision thereof, or any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guaranty" shall have the meaning given such term in Paragraph
8(b) above.
"Increasing Lender" shall have the meaning given such term in
Paragraph 15(f) above.
"Indebtedness" of any Person shall mean all items of
indebtedness which, in accordance with GAAP and practices, would be included in
determining liabilities as shown on the liability side of a statement of
condition of such Person as of the date as of which indebtedness is to be
determined, including, without limitation, all obligations for money borrowed
and Capitalized Lease Obligations, and shall also include all indebtedness and
liabilities of others assumed or guaranteed by such Person or in respect of
which such Person is secondarily or contingently liable (other than by
endorsement of instruments in the course of collection) whether by reason of
any agreement to acquire such indebtedness or to supply or advance sums or
otherwise.
"Initial Funding Date" shall mean the date on which the
initial Loan or Loans requested by the Company hereunder are funded by the
Lenders pursuant to the terms hereof.
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<PAGE> 58
"Intercreditor And Joint Shipment Agreement" shall mean an
agreement in the form of that attached hereto as Exhibit Q to be executed and
delivered by the Administrative Agent, the Custodian and any other lender
providing the Company with a credit facility secured by Mortgage Loans owned by
the Company.
"Interest Period" shall mean, with respect to any Eurodollar
Loan, the period commencing on the date advanced and ending one, two or three
months thereafter, as designated in the related Loan And/Or Interest Rate
Election Request; provided, however, that (a) any Interest Period which would
otherwise end on a day which is not a Eurodollar Business Day shall be extended
to the next succeeding Eurodollar Business Day unless by such extension it
would fall in another calendar month, in which case such Interest Period shall
end on the immediately preceding Eurodollar Business Day; (b) any Interest
Period applicable to a Eurodollar Loan which begins on a day for which there is
no numerically corresponding day in the calendar month during which such
Interest Period is to end shall, subject to the provisions of clause (a) above,
end on the last day of such calendar month; and (c) no such Interest Period
shall extend beyond the regularly scheduled Maturity Date.
"Interim Date" shall mean September 30, 1996.
"L/C Available Amount" shall mean at any date the dollar
amount available for drawing under the Letter of Credit at such date.
"L/C Documents" shall have the meaning given such term in
Paragraph 2(a) above.
"L/C Drawing" shall have the meaning given such term in
Paragraph 2(c) above.
"L/C Fee Percentage" shall mean that percentage determined
based upon the Leverage Ratio as reported in the most recent financial
statements delivered by the Parent prior to the date of calculation of the
monthly letter of credit facility fee payable pursuant to Paragraph 6(j)(4)
above in accordance with the following schedule:
<TABLE>
<CAPTION>
Leverage Ratio L/C Fee Percentage
-------------- ------------------
<S> <C>
Less than or equal to 1.75:1.00 0.80%
Greater than 1.75:1.00 but less than or 0.925%
equal to 3.50:1.00
Greater than 3.50:1.00 1.125%
</TABLE>
"Letter of Credit" shall have the meaning given such term in
Paragraph 2(a) above.
58
<PAGE> 59
"Letter of Credit Application" shall mean the standard form
written application for the issuance, amendment or extension of a letter of
credit utilized by NationsBank in connection with the issuance or extension of
letters of credit in the nature of the Letter of Credit.
"Lenders" shall have the meaning given such term in the
introductory paragraph of this Agreement.
"Leverage Ratio" shall mean at any date the ratio at the last
day of the immediately preceding calendar month of Average Total Liabilities to
Adjusted Net Worth.
"Lien" shall mean any security interest, mortgage, pledge,
lien, claim on property, charge or encumbrance (including any conditional sale
or other title retention agreement), any lease in the nature thereof, and the
filing of or agreement to give any financing statement under the Uniform
Commercial Code of any jurisdiction.
"Loan Documents" shall mean this Agreement, the Security
Agreement, the Notes, the Guaranty, the Letter of Credit, the Letter of Credit
Application, the L/C Documents and each other document, instrument or agreement
executed by the Company in connection herewith or therewith, as any of the same
may be amended, extended or replaced from time to time.
"Loan And/Or Interest Rate Election Request" shall mean a
written request in the form of Exhibit R attached hereto.
"Loans" shall mean, collectively and severally, Tranche A
Committed Loans, Tranche B Loans, Tranche C Loans and Bid Loans.
"Loan-to-Value Ratio" shall mean, with respect to any Mortgage
Loan, the ratio of the principal amount of such Mortgage Loan outstanding at
the origination thereof (plus, in the case of a Mortgage Loan secured by a
second or third priority deed of trust (or mortgage), the principal amount
outstanding under the first and second (if applicable) Mortgage Loan affecting
the related Property) divided by the lesser of (a) the most recent selling
price of the related Property, and (b) the appraised value of the related
Property.
"Majority Lenders" shall mean: (a) prior to the occurrence
and continuance of an Event of Default, the Lenders holding not less than
sixty-six and two-thirds percent (66.667%) of the Percentage Shares, and (b)
following the occurrence and during the continuance of an Event of Default, the
Lenders holding not less than sixty-six and two-thirds percent (66.667%) of the
Post-Default Percentage Shares.
"Maturity Date" shall mean the earlier of: (a) January 13,
1998, as such date may be extended from time to time in writing by one hundred
percent (100%) of the Lenders, in their sole discretion, and (b) the date the
Lenders terminate their obligation to make further Loans hereunder pursuant to
Paragraph 13 above.
59
<PAGE> 60
"Maximum Aggregate Credit Limit" shall mean $350,000,000.00 as
such amount may be increased or decreased from time to time by written
agreement of the Administrative Agent, the Company and one hundred percent
(100%) of the Lenders.
"Maximum Commitment" shall mean, with respect to any Lender on
any date, the dollar amount specified as such Lender's "Maximum Commitment" on
the current Commitment Schedule as such amount may be increased by written
agreement of the Company and any Lender (subject to the limitation on the
Maximum Aggregate Credit Limit), or decreased by written agreement of the
Administrative Agent, the Company, and one hundred percent (100%) of the
Lenders, with each Lender's initial Maximum Commitment set forth on Schedule
III hereto.
"Mortgage-Backed Security" shall mean any security (including,
without limitation, a participation certificate) that represents an interest in
a pool of mortgages, deeds of trusts or other instruments creating a Lien on
Property which is improved by a completed single family dwelling (one-to-four
family units) or a unit in a condominium or planned unit development.
"Mortgage Loan" shall mean a residential real estate secured
loan (including 1-4 family unit, condominium and planned unit development),
including, without limitation: (a) a promissory note and related deed of trust
(or mortgage) and/or security agreement; (b) all guaranties and insurance
policies, including, without limitation, all mortgage and title insurance
policies and all fire and extended coverage insurance policies and rights of
the Company to return premiums or payments with respect thereto; and (c) all
right, title and interest of the Company in the Property covered by said deed
of trust (or mortgage).
"Mortgage Loan Schedule" shall have the meaning given such
term in Paragraph 5 of the Security Agreement.
"Multiemployer Plan" as to any Person shall mean a Plan of
such Person which is a multiemployer plan as defined in Section 4001(a)(3) of
ERISA.
"Non-Affiliate Seller" shall have the meaning given such term
in Paragraph 7(b)(4) above.
"Notes" shall mean, collectively and severally, the Tranche A
Committed Loans Notes, the Tranche B Notes, the Tranche C Note and the Bid
Loans Notes.
"Obligations" shall mean any and all debts, obligations and
liabilities of the Company to the Administrative Agent and the Lenders (whether
now existing or hereafter arising, voluntary or involuntary, whether or not
jointly owed with others, direct or indirect, absolute or contingent,
liquidated or unliquidated, and whether or not from time to time decreased or
extinguished and later increased, created or incurred), arising out of or
related to the Loan Documents.
60
<PAGE> 61
"Obligor" shall mean the Person or Persons obligated to pay
the Indebtedness which is the subject of a Mortgage Loan.
"Parent" shall have the meaning given such term in the
introductory paragraph of this Agreement.
"Percentage Share" shall mean at any date for any Lender that
percentage which such Lender's Maximum Commitment bears to the Aggregate
Committed Credit Limit, as set forth on the most recent Commitment Schedule,
with the initial Percentage Shares of the Lenders being set forth on Schedule
III attached hereto.
"Permitted Guaranties" shall mean those guaranties executed by
the Company and the Parent covering Indebtedness of Affiliates which
Indebtedness is included in the calculation of Average Total Liabilities for
purposes of computing the Leverage Ratio pursuant to Paragraph 12(i) above.
"Permitted Secured Debt" shall mean that Indebtedness
described as "Permitted Secured Debt" on Exhibit S attached hereto.
"Person" shall mean any corporation, natural person, firm,
joint venture, partnership, limited liability company, trust, unincorporated
organization or Governmental Authority.
"Plan" shall mean, as to any Person, any pension plan that is
covered by Title IV of ERISA and in respect of which such Person or a Commonly
Controlled Entity of such Person is an "employer" as defined in Section 3(5) of
ERISA.
"Post-Default Percentage Share" shall mean for any Lender that
percentage which (a) the principal dollar amount of Loans outstanding held by
such Lender plus such Lender's Percentage Share of unrepaid L/C Drawings plus
such Lender's Percentage Share of the contingent liability with respect to the
L/C Available Amount, bears to (b) the aggregate principal dollar amount of all
Loans outstanding and unrepaid L/C Drawings plus the L/C Available Amount.
"Potential Default" shall mean an event which but for the
lapse of time or the giving of notice, or both, would constitute an Event of
Default.
"Proceeds" shall mean whatever is receivable or received when
Collateral or proceeds are sold, collected, exchanged or otherwise disposed of,
whether such disposition is voluntary or involuntary, and includes, without
limitation, all rights to payment, including return premiums, with respect to
any insurance relating thereto.
"Property" shall mean the real property, including the
improvements thereon, and the personal property (tangible and intangible) which
are encumbered pursuant to a Mortgage Loan.
"Regulation D" shall mean Regulation D of the Board of
Governors of the Federal Reserve System from time to time in effect and shall
include any successor or other regulation of
61
<PAGE> 62
said Board of Governors relating to reserve requirements applicable to member
banks of the Federal Reserve System.
"Regulation U" shall mean Regulation U of the Board of
Governors of the Federal Reserve System (12 C.F.R. Section 221), as the same
may from time to time be amended, supplemented or superseded.
"Reportable Event" shall mean a reportable event as defined in
Title IV of ERISA, except actions of general applicability by the Secretary of
Labor under Section 110 of ERISA.
"Required Documents" shall mean those documents described on
Exhibit T attached hereto.
"Requirements of Law" shall mean, as to any Person, the
Articles or Certificate of Incorporation and ByLaws or other organizational or
governing documents of such Person, and any law, treaty, rule or regulation, or
a final and binding determination of an arbitrator or a determination of a
court or other Governmental Authority, in each case applicable to or binding
upon such Person or any of its property or to which such Person or any of its
property is subject.
"Responsible Financial Officer" shall mean as to any Person
the chief financial officer, senior vice president-finance, vice
president-finance or assistant vice president-finance of such Person, with any
Person executing and delivering any certificate hereunder on behalf of the
Company or the Parent which is required to be executed and delivered by a
"Responsible Financial Officer" being acknowledged by the Company and the
Parent as being a Person actively involved with and knowledgeable with respect
to all financial matters affecting the Company and the Parent, as applicable.
"Security Agreement" shall have the meaning given such term
in Paragraph 8(a) above.
"Servicing Receivable" shall mean the right of the Company to
reimbursement for an advance made by or a fee owed to the Company in the
ordinary course of the Company's business in its capacity as servicer of
Mortgage Loans owned by a Person that is not an Affiliate of the Company under
(a) a servicing agreement covering a pool of Mortgage Loans originated or
purchased by the Company and securing or otherwise supporting a Mortgage-Backed
Security, or (b) a servicing agreement with a private investor provided that
the Administrative Agent has reviewed and approved the form of such servicing
agreement prior to inclusion of the related Servicing Receivable in the Working
Capital Borrowing Base.
"Servicing Rights" shall mean all now existing and hereafter
arising rights of the Company or any Subsidiary of the Parent to service,
collect and administer Mortgage Loans owned by a Person that is not an
Affiliate of the Company under servicing agreements between such Person and the
Company or such Subsidiary.
"Settlement Account" shall mean Account No. 19070 maintained
in the Company's name alone with the Custodian at its office listed on the
signature pages of the Security Agreement.
62
<PAGE> 63
"Single Employer Plan" shall mean as to any Person any Plan of
such Person which is not a Multiemployer Plan.
"Statement Date" shall mean June 30, 1996.
"Subordinated Debt" shall mean Indebtedness expressly
subordinated to the Obligations in the manner and to the extent required by the
Lenders pursuant to written subordination agreements satisfactory in form and
substance to the Lenders.
"Subsidiary" shall mean, with respect to any Person, any
corporation more than fifty percent (50%) of the stock of which having by the
terms thereof ordinary voting power to elect the board of directors, managers
or trustees of such corporation shall, at the time as of which any
determination is being made, be owned by such Person, either directly or
through Subsidiaries of such Person (irrespective of whether or not at such
time stock of any other class or classes of such corporation shall have or
might have voting power by reason of the happening of any contingency);
provided, however, that in no event shall the term "Subsidiary" as it relates
to the Company include any special purpose entity formed solely for the purpose
of issuing Mortgage-Backed Securities supported by Mortgage Loans originated or
acquired by the Company and transferred to such special purpose entity in
support of such Mortgage-Backed Securities, and, provided further, that in no
event shall the term "Subsidiary" include the UK Venture until the UK Venture
is wholly-owned by the Company and/or the Parent.
"Supplemental Cash Collateral" shall mean cash delivered to
and held by NationsBank for the pro rata, pari passu benefit of the Lenders as
additional collateral security for the Obligations and in which NationsBank for
the pro rata pari passu benefit of the Lenders has been granted and has a first
priority, perfected security interest.
"Tranche A Bid Loan" shall mean a Bid Loan designated as such
in the Bid Loan Request therefor.
"Tranche A Committed Loan" shall have the meaning given such
term in Paragraph 1(a) above.
"Tranche A Loans" shall mean, collectively, all Tranche A Bid
Loans and all Tranche A Committed Loans.
"Tranche A Committed Loans Note" shall have the meaning given
such term in Paragraph 7(c) above.
"Tranche B Credit Limit" shall mean $35,000,000.00, as such
amount may be increased or decreased by written agreement of the Administrative
Agent, the Company and one hundred percent (100%) of the Lenders.
"Tranche B Loan" shall have the meaning given such term in
Paragraph 3(a) above.
"Tranche B Note" shall have the meaning given such term in
Paragraph 7(c) above.
63
<PAGE> 64
"Tranche C Credit Limit" shall mean $25,000,000.00, as such
amount may be increased or decreased by written agreement of the Administrative
Agent, the Company and one hundred percent (100%) of the Lenders.
"Tranche C Loan" shall have the meaning given such term in
Paragraph 4(a) above.
"Tranche C Note" shall have the meaning given such term in
Paragraph 7(c) above.
"Transferee Lender" shall have the meaning given such term in
Paragraph 15(b) above.
"UK Venture" shall mean the joint venture to be formed by the
Company for the purpose of engaging in the residential secured lending business
in the United Kingdom, as described more particularly in the letter dated
December 23, 1996 sent by the Parent to the Administrative Agent, as the terms
and conditions set forth therein may be modified with notice to and the consent
of the Majority Lenders, which consent shall not be unreasonably withheld.
"Warehouse Borrowing Base" shall mean at any date all Eligible
Mortgage Loans in which the Administrative Agent holds for the benefit of the
Lenders a first priority perfected security interest at such date.
"Warehouse Borrowing Base Certificate" shall mean a
certificate in form and detail acceptable to the Administrative Agent.
"Working Capital Borrowing Base" shall mean at any date all
Eligible Servicing Receivables in which the Administrative Agent holds for the
benefit of the Lenders a first priority perfected security interest at such
date.
"Working Capital Borrowing Base Certificate" shall mean a
certificate in form acceptable to the Administrative Agent setting forth in
detail satisfactory to the Administrative gent the Collateral Value of the
Working Capital Borrowing Base as of the date of such certificate.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above written.
AAMES CAPITAL CORPORATION,
a California corporation
By /s/Gregory J. Witherspoon
----------------------------------------------
Name: Gregory J. Witherspoon
Title: Executive Vice President - Finance and
Chief Financial Officer
64
<PAGE> 65
AAMES FINANCIAL CORPORATION,
a Delaware corporation
By /s/Gregory J. Witherspoon
-------------------------
Name: Gregory J. Witherspoon
Title: Executive Vice President -
Finance and Chief Financial Officer
NATIONSBANK OF TEXAS, N.A., a national
banking association, as the Administrative
Agent and a Lender
By /s/Elizabeth Kurilecz
-------------------------
Name: Elizabeth Kurilecz
Title: Senior Vice President
BANKERS TRUST COMPANY, as a Lender
By /s/John O'Rourke
-------------------------
Name: John O'Rourke
Title: Managing Director
THE FIRST NATIONAL BANK OF CHICAGO,
as a Lender
By /s/Ann H. Chudacoff
-------------------------
Name: Ann H. Chudacoff
Title: Vice President
65
<PAGE> 66
GUARANTY FEDERAL BANK FSB,
as a Lender
By /s/Abbie Y. Tidmore
-------------------------
Name: Abbie Y. Tidmore
Title: Vice President
THE BANK OF NEW YORK, a New York banking
corporation, as a Lender
By /s/Cynthia E. Crites
-------------------------
Name: Cynthia E. Crites
Title: Vice President
COMERICA BANK-CALIFORNIA, as a Lender
By /s/David Chirchill
-------------------------
Name: David Chirchill
Title: Corporate Banking Officer
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, a national banking association,
as a Lender
By /s/C.L. Simms
-------------------------
Name: C. L. Simms
Title: Vice President
66
<PAGE> 67
SANWA BANK CALIFORNIA, as a Lender
By /s/John Linder
--------------------------------
Name: John Linder
Title: Vice President
67
<PAGE> 68
LIST OF SCHEDULES AND EXHIBITS
------------------------------
<TABLE>
<S> <C>
Schedule I Schedule of Addresses for Notice Purposes
Schedule II Initial Schedule of Approved Investors
Schedule III Initial Commitment Schedule
Exhibit A-1 Form of Tranche A Committed Loans Note
Exhibit A-2 Form of Tranche B Note
Exhibit A-3 Form of Tranche C Note
Exhibit A-4 Form of Bid LoansNote
Exhibit B Form of Security Agreement
Exhibit C Form of Guaranty
Exhibit D Form of Legal Opinion of Counsel for the Company and
the Parent
Exhibit E Form of Officer's Certificate
Exhibit F Litigation Schedule
Exhibit G Schedule of Subsidiaries
Exhibit H Form of Covenant Compliance Certificate
Exhibit I Schedule of Additional Reports
Exhibit J Form of Additional Lender Agreement
Exhibit K Schedule of Additional Required Documents
Exhibit L Form of Assignment Agreement
Exhibit M Form of Bid Loan Confirmation
Exhibit N Form of Bid Loan Offer
Exhibit O Form of Bid Loan Request
Exhibit P Form of Collateral Confirmation Agreement
Exhibit Q Form of Intercreditor and Joint Shipment Agreement
</TABLE>
68
<PAGE> 69
<TABLE>
<S> <C>
Exhibit R Form of Loan And/Or Interest Rate Election Request
Exhibit S Schedule of Permitted Secured Debt
Exhibit T Schedule of Required Documents
</TABLE>
69
<PAGE> 1
Exhibit 11
AAMES FINANCIAL CORPORATION
Earnings Per Share
For the three and six months ended December 31, 1995 and 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1995 1996 1995 1996
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding 15,897,000 18,265,000 15,897,000 17,051,000
Common equivalent shares:
Options and warrents 672,000 1,503,000 634,000 1,533,000
Convertible subordinated notes - 4,108,000 - 4,108,000
------------ ------------ ----------- ------------
16,569,000 23,876,000 16,531,000 22,692,000
============ ============ ============ ============
Net income $7,289,000 $18,274,000 $12,947,000 $13,650,000
Adjustment to add back interest on
Convertible subordinated notes - 917,125 - 1,875,010
------------ ------------ ----------- ------------
Adjusted net income 7,289,000 19,191,125 12,947,000 15,525,010
============ ============ ============ ============
Fully diluted earnings per share $ 0.44 $ 0.80 $ 0.78 $ 0.68
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 189,119,000
<SECURITIES> 0
<RECEIVABLES> 357,810,000
<ALLOWANCES> 589,000
<INVENTORY> 154,554,000
<CURRENT-ASSETS> 700,894,000
<PP&E> 13,809,000
<DEPRECIATION> 4,542,000
<TOTAL-ASSETS> 710,161,000
<CURRENT-LIABILITIES> 159,105,000
<BONDS> 288,000,000
0
0
<COMMON> 18,000
<OTHER-SE> 263,038,000
<TOTAL-LIABILITY-AND-EQUITY> 710,161,000
<SALES> 155,669,000
<TOTAL-REVENUES> 155,669,000
<CGS> 14,234,000
<TOTAL-COSTS> 14,234,000
<OTHER-EXPENSES> 81,859,000
<LOSS-PROVISION> 16,932,000
<INTEREST-EXPENSE> 15,187,000
<INCOME-PRETAX> 27,457,000
<INCOME-TAX> 13,807,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,650,000
<EPS-PRIMARY> .73
<EPS-DILUTED> .68
</TABLE>
