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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
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(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
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]
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<S> <C>
DELAWARE 95-4340340
[STATE OR OTHER JURISDICTION OF [I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION] IDENTIFICATION NO.]
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350 SOUTH GRAND AVENUE, LOS ANGELES, CA 90071-3459
[ADDRESS OF REGISTRANT'S PRINCIPAL
EXECUTIVE OFFICES INCLUDING ZIP CODE]
(323) 210-5000
[REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE]
NO CHANGES
[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 May 7, 1999, Registrant had 31,015,893 shares of common stock
outstanding.
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TABLE OF CONTENTS
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ITEM NO. PAGE NO.
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet at March 31,
1999 and June 30, 1998 (Restated).................. 3
Condensed Consolidated Statement of Operations for
the three and nine months ended March 31, 1999 and
1998 (Restated).................................... 4
Condensed Consolidated Statement of Cash Flows for
the nine months ended March 31, 1999 and 1998
(Restated)......................................... 5
Notes to Condensed Consolidated Financial
Statements................................................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk............................................... 35
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................... 35
Signature Page.............................................. 37
</TABLE>
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AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS
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<CAPTION>
MARCH 31, 1999 JUNE 30, 1998
-------------- -------------
(RESTATED)
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Cash and cash equivalents................................... $ 10,984,000 12,322,000
Loans held for sale, at lower of cost or market............. 342,060,000 198,202,000
Accounts receivable......................................... 19,656,000 51,072,000
Interest-only strips, at estimated fair market value........ 324,842,000 490,542,000
Mortgage servicing rights, net.............................. 23,249,000 32,090,000
Equipment and improvements, net............................. 14,464,000 13,939,000
Prepaid and other........................................... 12,954,000 17,020,000
Income tax refund receivable................................ 9,850,000 -
------------- -----------
Total Assets...................................... $ 758,059,000 815,187,000
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Borrowings.................................................. $ 281,240,000 286,990,000
Revolving warehouse facilities.............................. 284,387,000 141,012,000
Accounts payable and accrued expenses....................... 47,825,000 49,964,000
Deferred income taxes payable............................... 8,486,000 33,170,000
------------- -----------
Total liabilities................................. 621,938,000 511,136,000
------------- -----------
Stockholders' equity:
Preferred Stock, par value $.001 per share, 1,000,000 shares
authorized; none outstanding.............................. - -
Series B Convertible Preferred Stock, par value $.001 per
share, 100,000 shares authorized; 26,704 and -0- shares
outstanding............................................... 26,704,000 -
Series C Convertible Preferred Stock, par value $.001 per
share, 100,000 shares authorized; 50,046 and -0- shares
outstanding............................................... 40,725,000 -
Common Stock, par value $.001 per share 50,000,000 shares
authorized; 31,015,893 and 30,962,578 shares
outstanding............................................... 31,000 31,000
Additional paid-in capital.................................. 250,096,000 249,851,000
Retained earnings (deficit)................................. (181,435,000) 54,169,000
------------- -----------
Total stockholders' equity........................ 136,121,000 304,051,000
------------- -----------
Total liabilities and stockholders' equity........ $ 758,059,000 815,187,000
============= ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
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<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- ---------------------------
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1999 1998 1999 1998
------------ ---------- ------------ -----------
(RESTATED) (RESTATED)
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Revenue:
Gain on sale of loans.............. $ 8,236,000 24,821,000 36,665,000 91,259,000
Net gain (loss) on valuation of
interest-only strips and
mortgage servicing rights....... - 3,058,000 (186,451,000) 13,813,000
Commissions........................ 9,005,000 7,515,000 26,751,000 20,531,000
Loan servicing..................... 11,656,000 11,634,000 32,510,000 31,778,000
Fees and other..................... 7,917,000 12,510,000 30,677,000 36,997,000
------------ ---------- ------------ -----------
Total revenue, including
valuation adjustment..... 36,814,000 59,538,000 (59,848,000) 194,378,000
------------ ---------- ------------ -----------
Expenses:
Compensation....................... 21,759,000 24,348,000 65,460,000 70,668,000
Production......................... 9,390,000 9,292,000 30,879,000 22,630,000
General and administrative......... 11,300,000 10,258,000 38,472,000 27,923,000
Interest........................... 9,474,000 11,703,000 31,759,000 32,620,000
Nonrecurring servicing
receivable...................... 37,044,000 - 37,044,000 -
------------ ---------- ------------ -----------
Total expenses............. 88,967,000 55,601,000 203,614,000 153,841,000
------------ ---------- ------------ -----------
Income (loss) before income taxes.... (52,153,000) 3,937,000 (263,462,000) 40,537,000
Provision (benefit) for income
taxes.............................. (16,174,000) 1,919,000 (29,582,000) 19,416,000
------------ ---------- ------------ -----------
Net income (loss).................... $(35,979,000) 2,018,000 (233,880,000) 21,121,000
============ ========== ============ ===========
Net income (loss) per share:
Basic................................ $ (1.16) 0.07 (7.55) 0.76
Diluted.............................. (1.16) 0.07 (7.55) 0.68
Dividends per share.................. - 0.03 0.03 0.10
Weighted average number shares
outstanding:
Basic................................ 31,006,962 27,898,000 30,997,059 27,827,000
------------ ---------- ------------ -----------
Diluted.............................. 31,006,962 28,740,000 30,997,059 35,097,000
============ ========== ============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
(UNAUDITED)
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<CAPTION>
NINE MONTHS ENDED
---------------------------------
MARCH 31, MARCH 31,
1999 1998
--------------- --------------
(RESTATED)
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Operating activities:
Net income (loss)......................................... $ (233,880,000) 21,121,000
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization.......................... 4,142,000 2,926,000
Gain on sale of loans.................................. (35,716,000) (88,670,000)
Net loss (gain) on valuation of interest-only strips
and mortgage servicing rights........................ 186,451,000 (13,813,000)
Accretion of interest-only strips...................... (3,185,000) (9,299,000)
Mortgage servicing rights originated................... (6,194,000) (13,533,000)
Mortgage servicing rights amortized.................... 9,109,000 6,555,000
Mortgage servicing rights charged off.................. 8,100,000 --
Changes in assets and liabilities:
Loans originated or purchased.......................... (1,677,024,000) (1,709,698,000)
Proceeds from sale of loans............................ 1,533,166,000 1,779,121,000
(Increase) decrease in:
Accounts receivable.................................. 31,416,000 33,252,000
Interest-only strips................................. 15,973,000 -
Income tax refund receivable......................... (9,850,000) -
Prepaid and other.................................... 4,066,000 (2,360,000)
Increase (decrease) in:
Accounts payable and accrued expenses................ (2,139,000) 5,053,000
Deferred income taxes payable........................ (24,684,000) 8,958,000
6.5% accrued preferred dividend........................ (691,000) -
--------------- --------------
Net cash (used in) provided by operating activities......... (200,940,000) 19,613,000
--------------- --------------
Investing activities:
Purchases of equipment and improvements................... (4,667,000) (4,356,000)
--------------- --------------
Net cash (used in) investing activities..................... (4,667,000) (4,356,000)
--------------- --------------
Financing activities:
Net proceeds from convertible preferred stock issuance.... 67,429,000 -
Proceeds from exercise of options......................... 235,000 270,000
Reduction in borrowings................................... (5,748,000) -
Net increase (decrease) in revolving warehouse
facilities............................................. 143,375,000 (11,000,000)
Dividends paid............................................ (1,022,000) (2,752,000)
--------------- --------------
Net cash provided by (used in) financing activities......... 204,269,000 (13,482,000)
--------------- --------------
Net increase (decrease) in cash and cash equivalents........ (1,338,000) 1,775,000
Cash and cash equivalents at beginning of period............ 12,322,000 26,902,000
--------------- --------------
Cash and cash equivalents at end of period.................. $ 10,984,000 28,677,000
=============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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AAMES FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The condensed 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 condensed consolidated financial statements include the accounts of the
Company 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 and nine months ended March
31, 1999 are not necessarily indicative of the results expected for the full
fiscal year.
Additionally, certain amounts related to fiscal year 1998 have been
reclassified to conform to the fiscal year 1999 presentation.
NOTE 2: RESTATEMENT OF THE RESULTS FOR THE THREE AND NINE MONTHS ENDED MARCH 31,
1998
In December 1998, the FASB issued, in question and answer format, "A Guide
to Implementation of Statement 125 on Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, Questions and Answers,
Second Edition" (the "Special Report"). The Special Report indicates that two
methods have arisen in practice for accounting for credit enhancements relating
to securitization. These methods are the cash-in method and the cash-out method.
The cash-in method treats credit enhancements (pledged loans or cash) as
belonging to the Company. As such, these assets are recorded at their face value
as of the time they are received by the trust. The cash-out method treats credit
enhancements as assets owned by the related securitization trust. As such, these
assets are treated as part of the interest-only strips and are recorded at a
discounted value for the period between when collected by the trust and released
to the Company. The Special Report indicates that if no true market exists for
credit enhancement assets, the cash-out method should be used to measure the
fair value of credit enhancements.
The Company had historically used the cash-in method to account for its
interest-only strips. However, during the three months ended December 31, 1998,
the Company retroactively changed its practice of measuring and accounting for
its interest-only strips to the cash-out method in response to the FASB's
Special Report and to public comments from the Securities and Exchange
Commission released on December 8, 1998.
Under the cash-in method previously used by the Company, the assumed
discount period for measuring the present value of the interest-only strips
ended when the cash flows were received by the securitization trust; and, the
initial deposits to overcollateralization accounts were recorded at face value.
Under the cash-out method now required by the FASB and Securities and Exchange
Commission, the assumed discount period for measuring the present value of the
interest-only strips ends when cash, including the return of any initial
deposits, is distributed to the Company on an unrestricted basis. The change to
the cash-out method results only in a difference in the timing of revenue
recognition from a securitization and has no effect on the total cash flows of
securitization transactions. While the total amount of revenue recognized over
the term of a securitization is the same under either method, the cash-out
method results in lower initial gains on the sale of loans due to the longer
discount period, and higher subsequent loan servicing revenue resulting from the
impact of discounting cash flows.
Accordingly, the Company's condensed consolidated results of operations of
all periods prior to December 31, 1998 as presented herein have been restated to
reflect the cash-out method of accounting and
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AAMES FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
reporting for its interest-only strips. The Company intends to file an amended
June 30, 1998 Form 10-K in May 1999 to reflect the restatement.
As used throughout this document, interest-only strips includes
overcollateralization amounts.
The restatement resulted in the following changes to financial information
as of and for the three and nine months ended March 31, 1998 (Unaudited. Dollars
in thousands, except per share amounts):
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THREE NINE
MONTHS MONTHS
ENDED ENDED
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MARCH 31, 1998
-------------------
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Revenue:
Previous.............................................. $ 62,772 208,875
As restated........................................... 59,538 194,378
Net income:
Previous.............................................. 4,120 30,544
As restated........................................... 2,018 21,121
Earnings per share:
Basic:
Previous........................................... 0.15 1.10
As restated........................................ 0.07 0.76
Diluted:
Previous........................................... 0.15 0.95
As restated........................................ 0.07 0.68
Interest-only strips:
(end of period)
Previous.............................................. 509,528 509,528
As restated........................................... 451,033 451,033
Stockholders' equity:
(end of period)
Previous.............................................. 296,416 296,416
As restated........................................... 258,394 258,394
</TABLE>
NOTE 3: SUBSIDIARY GUARANTORS
In October 1996, the Company completed an offering of its 9.125% Senior
Notes due 2003 which were guaranteed by all of the Company's operating
subsidiaries, all of which are wholly-owned. The guarantees are joint and
several, full, complete and unconditional. There are no restrictions on the
ability of such subsidiaries to transfer funds to the Company in the form of
cash dividends, loans or advances. The Company is a holding company with limited
assets or operations other than its investments in its subsidiaries. Separate
financial statements of the guarantors are not presented because the aggregate
total assets, net earnings and net equity of such subsidiaries are substantially
equivalent to the total assets, net earnings and net equity of the Company on a
consolidated basis.
NOTE 4: ISSUANCE OF PREFERRED STOCK
During the quarter ended March 31, 1999, the Company issued 26,704 shares
of Series B Convertible Preferred Stock and 50,046 shares of Series C
Convertible Preferred Stock to Capital Z Financial Services Fund II, L.P. (and
certain investors designated by it) and received in return proceeds of $67.4
million, which were net of $9.4 million of issuance related expenses.
7
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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 the Company should be read in conjunction with the
Company's Condensed Consolidated Financial Statements included in Item 1 of this
Form 10-Q.
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
This Report contains statements that constitute "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934 and Section 27A of the Securities Act of 1933. The words "expect,"
"estimate," "anticipate," "predict," "believe," and similar expressions and
variations thereof are intended to identify forward-looking statements. Such
statements appear in a number of places in this filing and include statements
regarding the intent, belief or current expectations of the Company, its
directors or officers with respect to, among other things (a) market conditions
in the securitization, capital, credit and whole loan markets and their future
impact on the Company's operations, (b) trends affecting the Company's liquidity
position, including, but not limited to, its access to warehouse and other
credit facilities and its ability to effect whole loan sales, (c) the impact of
the various cash savings plans and other restructuring strategies being
considered by the Company, (d) the Company's on-going efforts in improving its
equity position, (e) trends affecting the Company's financial condition and
results of operations, (f) the Company's plans to address the Year 2000 problem
and (g) the Company's business and liquidity strategies. The stockholders of the
Company are cautioned not to put undue reliance on such forward-looking
statements. Such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties. Actual results may differ
materially from those projected in this Report, for the reasons, among others,
discussed under the captions "Recent Events," "Overview -- Market Conditions"
and "Risk Factors." The Company undertakes no obligation to publicly revise
these forward-looking statements to reflect events or circumstances that arise
after the date hereof. Readers should carefully review the factors referred to
above and the other documents the Company files from time to time with the
Securities and Exchange Commission, including the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1998, the quarterly reports on Form
10-Q filed by the Company during fiscal 1999, and any current reports on Form
8-K filed by the Company.
RECENT EVENTS
On December 23, 1998, the Company entered into a Preferred Stock Purchase
Agreement (the "Stock Purchase Agreement") with Capital Z Financial Services
Fund II, L.P., a Bermuda limited partnership ("Capital Z"), providing for an
equity investment of up to $100 million in the Company. The investment is to be
made in three stages, as follows: (i) on February 10, 1999 (the "Initial
Closing"), Capital Z and certain other investors designated by it purchased
26,704 shares of the Series B Convertible Preferred Stock ("Series B Preferred
Stock") of the Company and 50,046 shares of the Series C Convertible Preferred
Stock ("Series C Preferred Stock") of the Company for $1,000 per share, or an
aggregate purchase price of $76.8 million (the "Initial Investment"); (ii) as
soon as practicable following the Initial Investment, subject to the receipt of
stockholder approval of an increase in the Company's authorized common and
preferred stock (together with a 1000 to 1 stock split of the preferred stock
(the "Recapitalization"), the Company intends to make a distribution in the form
of a dividend to the common stockholders of the Company of nontransferable
subscription rights to purchase up to $25 million of Series C Preferred Stock
for $1.00 per share (the "Rights Offering"); and (iii) Capital Z has agreed to
purchase any shares of the Series C Preferred Stock which are not purchased by
common stockholders in the Rights Offering. In addition, certain members of the
Company's management team have agreed to purchase 997.7 shares of the Series C
Preferred Stock for $1,000 per share, and other members of the Management team
have agreed to exercise their rights to purchase 1,667,000 shares of Series C
Preferred Stock in the Rights Offering for $1.00 per share. On January 4, 1999,
a designee of Capital Z received, as a standby commitment fee, warrants to
purchase 1,250,000 of the Common Stock at an exercise price of $1.00 per share.
In addition, at the time of the Initial Closing, the Company paid a designee of
Capital Z a $1,000,000 transaction fee in connection with the transactions
contemplated by the Stock Purchase Agreement and Capital Z received an
additional warrant (the "Contingent Warrant") to purchase up to 3,000,000 shares
of the common stock at an exercise price of $1.00 per share, which is
8
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exercisable only if the Recapitalization is not completed by June 30, 1999. In
addition, in connection with the transactions contemplated by the Stock Purchase
Agreement, the Company has paid Capital Z aggregate additional fees of
$2,000,000 and has agreed to reimburse Capital Z for all of its expenses
incurred in connection with the negotiation and execution of the Stock Purchase
Agreement and the transactions contemplated thereby.
Pursuant to the terms of the Series B Preferred Stock and Series C
Preferred Stock, if the Company fails to effect the Recapitalization prior to
June 30, 1999, the dividend rate on the Series B Preferred Stock and Series C
Preferred Stock will increase from 6.5% to 15% per annum. Further, prior to the
Recapitalization, in addition to its regular dividend rights and rights in
liquidation based on its stated value per share, the Series B Preferred Stock
and Series C Preferred Stock will participate in dividends and rights in
liquidation with holders of the common stock in any remaining assets of the
Company.
The Company had contemplated that the Recapitalization and the Rights
Offering would be completed by June 30, 1999. However, the events outlined
below, as well as the restatement of accounts discussed in note 2 to the
condensed consolidated financial statements, delayed the filing of certain
documents with the Securities and Exchange Commission. The Company believes that
the Recapitalization and Rights Offering will be completed in July or August
1999. Capital Z has agreed to extend the June 30, 1999 trigger dates in the
Contingent Warrant and Series B Preferred Stock and Series C Preferred Stock
until August 16, 1999. Certain of the Company's outstanding credit facilities
require the Rights Offering to be completed by June 30, 1999. The Company
intends to request the necessary waivers of that condition. See "Liquidity."
The Board of Directors of the Company, effective as of the Initial Closing,
consists of nine Directors divided into two classes. One class, consisting of
four Directors (the "Series B Directors") is elected annually by the holders of
the Series B Preferred Stock, voting as a single class, and the other class of
Directors, consisting of five Directors (the "Common Stock Directors"), one of
whom is nominated by Capital Z, is elected by the holders of the common stock
and the holders of the Series B Preferred Stock, voting together as a single
class, for staggered three year terms. The holders of the Series C Preferred
Stock are not entitled to vote with respect to the election of Directors. As of
February 10, 1999, Capital Z holds Series B Preferred Stock and Series C
Preferred Stock representing 100% of the voting rights entitled to elect the
Series B Directors, 46.3% of the voting rights entitled to elect the Common
Stock Directors and 69.8% of the voting rights entitled to vote with respect to
all other matters. Moreover, the investment by Capital Z results in a change in
control for income tax purposes thereby limiting future net operating loss and
certain other future deductions.
As part of a leadership transition plan approved by the Company's Board of
Directors, effective May 14, 1999, Chief Executive Officer Cary Thompson has
been appointed vice chairman and director Mani A. Sadeghi has been named interim
Chief Executive Officer of the Company. Mr. Sadeghi will assume the duties of
chief executive during an interim period while a special committee of the Board
completes a search for a new Chief Executive Officer.
During the quarter ended March 31, 1999, the Company recorded a net loss of
$36.0 million. Contributing to the net loss was $15.1 million in pre-tax
operating losses and $37.0 million for a one-time charge related to the
Company's servicing advances which are recorded as accounts receivable on the
Company's balance sheet. The operating loss arose primarily from the Company's
reliance on the whole loan market rather than securitization for its loan
disposition strategy and, to a lesser extent, reduced loan production. As
previously disclosed, the whole loan market is generally less profitable than
the securitization market. Further, the gain on sale recorded for the Company's
whole loan sales during the quarter were less than the Company's cost of
production. The Company has implemented various cost savings plans and expects
to realize the benefit from those cost savings in the future. Even with those
cost savings, until the Company's loan production increases significantly, the
Company will not be profitable as long as it continues to rely solely on the
whole loan market. The Company is evaluating market and other conditions with
respect to completing a securitization during the quarter ended June 30, 1999.
However, no assurance can be given that market conditions will not change or
other events will not occur that would preclude or inhibit the Company's ability
to complete a securitization in the June 1999 quarter.
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The one-time charge relates to payments made by the Company to the
securitization trusts for which it acts as servicer. As servicer of the loans it
securitizes, the Company is obligated to advance, or "loan," to the trusts
delinquent interest. In addition, as servicer, the Company advances to the
trusts foreclosure-related expenses and certain tax and insurance remittances
relating to loans in securitized pools. The Company, as servicer, is then
entitled to recover these advances from regular monthly cash flows into the
trusts, including monthly payments, pay-offs and liquidation proceeds on the
related loan. Until recovered, the Company records the cumulative advances as
accounts receivable on the balance sheet. In addition, the Company, as servicer,
is obligated to make additional payments into the trusts which are not
recoverable from monthly cash flows and, therefore, should not be included in
accounts receivable. These payments, for example, relate to compensating
interest payments for loans that pay-off other than at a month's end. As
servicer, the Company is required to pay into the trust that portion of a
monthly interest payment that is not included in the pay-off amount. However,
payments into a trust that are not recovered from monthly cash flows may be
recoverable from the trust's distributions to the Company, as residual
certificate holder.
In early 1999, the Company began to explore ways to reduce the cash burden
of its servicing advance obligations through various financing techniques. At
the same time, and after a comprehensive review, the Company determined that
certain amounts recorded as accounts receivable associated with the Company's
securitization trusts were not recoverable from the trusts' monthly cash flows.
As a result, accounts receivable were written-down by $37.0 million. This
write-down represents the one-time charge.
In April 1999, the Company entered into a transaction with a loan servicing
company pursuant to which the servicing company would sub-service two of the
Company's securitization trusts and assume the obligation to make future
advances on the two pools. The Company is in the process of completing
negotiations with the servicing company for the sale of outstanding servicing
advances related to those two pools. Pursuant to this transaction, the Company
will receive proceeds of approximately $13.3 million, representing the
outstanding advances against those two pools.
The Company continues to explore other arrangements to reduce the cash
burden of its advance obligations. The Company is currently in negotiations for
other arrangements to finance or otherwise monetize its servicing advances. The
Company believes that its ability to monetize its servicing advances requires it
to change the way it has paid, recovered and recorded advances to the
securitization trusts. These changes will require the Company to make a one-time
cash deposit to the trusts equal to certain existing cumulative advances in the
amount of $34.0 million. The one-time cash deposit will be paid into the trusts
during the quarter ended June 30, 1999. After the cash deposit is made, the
amount of cash the Company will be obligated to advance into the trusts on a
monthly basis will be reduced from historical levels. The one-time cash deposit
will strain the Company's liquidity until the completion of the Rights Offering,
unless an arrangement to monetize the Company's servicing advances can be
finalized sooner.
OVERVIEW -- MARKET CONDITIONS
The results of operations for the quarter ended March 31, 1999 reflect the
continued impact on the Company of the negative market conditions that existed
in the prior quarter. While the U.S. capital and credit markets improved from
the prior quarter, the home equity sector, generally, and the Company,
specifically, did not participate in this improvement as capital access remained
constrained. These conditions adversely affected the Company's liquidity and
loan production until the Initial Closing on February 10, 1999. The Company
began to benefit from improving market conditions with the completion of the
Initial Investment. However, profitability for the quarter continued to be
adversely affected.
Until the Initial Closing, the Company was dependent upon one committed
warehouse line in the amount of $300 million. In conjunction with the Initial
Closing, effective February 10, 1999, the Company obtained an additional $400
million in committed credit facilities and an additional $100 million in an
uncommitted credit facility.
The Company's limited warehouse capacity during the first half of the
quarter severely hampered the Company's loan production volume. These lower
volumes and the time and effort of absorbing the new capital made it infeasible
to complete a securitization during the third fiscal quarter. Foregoing the
higher gains of the
10
<PAGE> 11
securitization market had an adverse impact on the Company's profitability as it
was forced to rely upon less profitable whole loan sales as a means of disposing
of its loan production. During the December 31, 1998 quarter, the Company
entered into a mandatory forward commitment to sell $750 million of its loan
production based on a pricing formula that reflected the negative market
conditions that then existed. As previously disclosed, that forward commitment
permitted the Company to continue to operate under its restricted warehouse
capacity. Changes the Company made to its underwriting guidelines and pricing at
the end of the second fiscal quarter to conform to the forward commitment's
pricing formula maximized the profitability of that forward during the March
quarter. Even with the maximized profitability, however, the forward's pricing
formula was still lower than securitization gains and lower than current whole
loan prices which steadily increased throughout the March quarter. Still, the
size of the forward commitment effectively required the Company to sell
substantially all of its loan production under the forward commitment.
Therefore, the Company was unable to reap the benefit of the improved whole loan
prices. See "General." Additionally, the Company's sale of whole loans during
the quarter on a servicing released basis precluded the growth of its servicing
portfolio.
Management is evaluating market and other conditions with respect to
re-entering the securitization market in the June 1999 quarter. However, no
assurance can be given that market conditions will not change or other events
will not occur that would preclude or inhibit the Company's ability to complete
a securitization in the June 1999 quarter.
GENERAL
The Company is a consumer finance company primarily engaged, through its
subsidiaries, in the business of originating, purchasing, selling, and servicing
home equity mortgage loans secured by single family residences. Upon its
formation in 1991, the Company acquired Aames Home Loan, a home equity lender
founded in 1954. In August 1996, the Company acquired One Stop Mortgage, Inc.
("One Stop") which originates mortgage loans primarily through a broker network.
In March 1998, the Company augmented its retail production by establishing One
Stop Retail Direct ("Retail Direct"). Unlike the Company's traditional retail
network, which uses a centralized marketing approach, Retail Direct uses a
decentralized marketing approach at the branch level. The Company is in the
process of consolidating its loan production channels in one company. Subject to
receiving the necessary licenses and regulatory approvals, the retail direct and
broker production channels will also operate under the name "Aames Home Loan."
The Company's principal market is borrowers whose financing needs are not
being met by traditional mortgage lenders for a variety of reasons, including
the need for specialized loan products or credit histories that may limit such
borrowers' access to credit. The Company believes these borrowers continue to
represent an underserved niche of the home equity loan market and present an
opportunity to earn a superior return for the risk assumed. The residential
mortgage loans originated and purchased by the Company, which include fixed and
adjustable rate loans, are generally used by borrowers to consolidate
indebtedness or to finance other consumer needs rather than to purchase homes.
The Company originates and purchases loans nationally through three
production channels -- retail, broker and correspondent. In recent quarters, the
Company has emphasized its core retail and broker loan production channels and
decreased its reliance on correspondent purchases. During the three and nine
months ended March 31, 1999, the Company originated and purchased $401.7 million
and $1.68 billion, respectively, of mortgage loans. The Company underwrites and
appraises every loan it originates and generally reviews appraisals and
re-underwrites all loans it purchases. The review appraisals are used to
substantiate the credit grades assigned to the loans, but generally do not
replace the original appraisal for purposes of establishing loan to value
ratios. Included in the $1.68 billion of loans originated during the nine months
ended March 31, 1999 is $14.4 million of commercial loans originated through the
Company's commercial loan division which ceased operations in January 1999.
The Company retains the servicing on the loans it originates or purchases
and securitizes. At March 31, 1999, the Company serviced 100% of its $4.05
billion servicing portfolio. The Company recently entered into a
11
<PAGE> 12
sub-servicing arrangement with a loan servicing company with respect to two
pools containing an aggregate of $394.3 million in principal amount of loans at
March 31, 1999.
As a fundamental part of its business and financing strategy, the Company
sells its loans to third party investors in the secondary market. The Company
maximizes opportunities in its loan disposition transactions by selling its loan
production through a combination of securitizations and whole loan sales,
depending on market conditions, profitability and cash flows. For a discussion
of the impact of current market conditions on the Company's loan disposition
strategies, see "Overview -- Market Conditions." The Company sold $393.9 million
and $605 million of loans during the three months ended March 31, 1999 and 1998,
respectively, and, $1.6 billion and $1.8 billion of loans during the nine months
ended March 31, 1999 and 1998, respectively. Of the total amount of loans sold
during the nine months ended March 31, 1999 and 1998, $650 million and $1.4
billion were sold in securitizations, respectively. The Company did not complete
a securitization during the quarter ended March 31, 1999. See "Recent Events."
The following table presents the volume of loans originated and purchased
by the Company and the portfolio serviced by the Company during the periods
presented:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------- -----------------------
1999 1998 1999 1998
-------- ------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Broker network......................... $226,420 235,788 866,713(1) 771,378
Retail................................. 156,059 165,018 582,173 455,856(2)
Correspondent.......................... 19,270 170,090 228,138 482,464
-------- ------- ---------- ---------
Total........................ $401,749 570,896 1,677,024 1,709,698
======== ======= ========== =========
Servicing portfolio at period end...... $4,045,000(3) 4,031,000
</TABLE>
- ---------------
(1) Includes $14.4 million of commercial loans.
(2) Includes loans brokered to institutional investors.
(3) Includes $193.9 million of loans subserviced for others by the Company on an
interim basis.
Total originations decreased 29.6% from $570.9 million for the quarter
ended March 31, 1998 to $401.7 million for the quarter ended March 31, 1999. The
decline in originations resulted from a combination of the Company's limited
warehouse capacity in the first half of the quarter and price and underwriting
changes implemented in the second fiscal quarter to permit the Company to access
the whole loan market and stay within its liquidity constraints. See
"Overview -- Market Conditions." After the Initial Closing and as a result of
the increase in warehouse capacity, the Company implemented changes in pricing
to jump-start its loan production. As is generally the case in retail and
wholesale loan production operations, the changes in pricing are not reflected
in production for 45 to 60 days. Consequently, loan production remained low
throughout the quarter. The Company's core operations, retail and broker,
decreased 4.6% to $382.5 million for the quarter ended March 31, 1999 from
$400.8 million for the quarter ended March 31, 1998. The Company's retail
originations were $156.1 million for the quarter ended March 31, 1999 compared
to $165 million for the quarter ended March 31, 1998. Origination volume for the
broker network declined to $226.4 million for the quarter ended March 31, 1999
compared to $235.8 million for the quarter ended March 31, 1998. Correspondent
purchases were $19.3 million for the quarter ended March 31, 1999 compared to
$170.1 million for the quarter ended March 31, 1998. The decline in the third
fiscal quarter of 1999 in correspondent loan purchases reflects pricing changes
implemented by the Company in response to the Company's liquidity constraints
and its emphasis on core operation loan origination.
Total loan production for the nine months ended March 31, 1999 declined
1.9% to $1.68 billion from $1.7 billion for the nine months ended March 31,
1998. The Company's retail originations increased 27.7% to $582.2 million for
the nine months ended March 31, 1999 compared to $455.9 million for the nine
months ended March 31, 1998. Origination volume for the broker network reached
$866.7 million for the nine months ended March 31, 1999, up 12.4% compared to
$771.4 million for the nine months ended March 31, 1998.
12
<PAGE> 13
Correspondent volume decreased 52.7% from $482.5 million in the nine months
ended March 31, 1998 to $228.1 million for the nine months ended March 31, 1999.
See "Overview -- Market Conditions."
During the quarter ended March 31, 1999 and after the Initial Investment,
in response to market conditions and its increased credit availability, the
Company decreased its prices in its core loan production and correspondent loan
production channels. Management expects that these changes will increase loan
production from the March quarter's volumes.
At April 26, 1999, the Company operated 80 retail loan offices serving 32
states (including the District of Columbia), compared to 89 offices serving 33
states at February 9, 1999. At April 26, 1999, the broker division operated 44
branches serving 46 states (including the District of Columbia), compared to 40
branches serving 46 states at February 9, 1999. At April 26, 1999, Retail Direct
operated 21 offices serving 14 states compared to 21 offices serving 12 states
at February 9, 1999. See "Expenses."
CERTAIN ACCOUNTING CONSIDERATIONS
New Accounting Development. In December 1998, the FASB issued, in question
and answer format, "A Guide to Implementation of Statement 125 on Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
Questions and Answers, Second Edition" (the "Special Report"). The Special
Report indicates that two methods have arisen in practice for accounting for
credit enhancements relating to securitization. These methods are the cash-in
method and the cash-out method. The cash-in method treats credit enhancements
(pledged loans or cash) as belonging to the Company. As such, these assets are
recorded at their face value as of the time they are received by the trust. The
cash-out method treats credit enhancements as assets owned by the related
securitization trust. As such, these assets are treated as part of the
interest-only strips and are recorded at a discounted value for the period
between when collected by the trust and released to the Company. The Special
Report indicates that if no true market exists for credit enhancement assets,
the cash-out method should be used to measure the fair value of credit
enhancements.
Restatement of Prior Period Results. The Company has historically used the
cash-in method to account for its interest-only strips. However, during the
three months ended December 31, 1998, the Company retroactively changed its
practice of measuring and accounting for its interest-only strips to the
cash-out method in response to the FASB's Special Report and to public comments
from the Securities and Exchange Commission released on December 8, 1998.
Under the cash-in method previously used by the Company, the assumed
discount period for measuring the present value of the interest-only strips
ended when the cash flows were received by the securitization trust; and, the
initial deposits to overcollateralization accounts were recorded at face value.
Under the cash-out method now required by the FASB and Securities and Exchange
Commission, the assumed discount period for measuring the present value of the
interest-only strips ends when cash, including the return of any initial
deposits, is distributed to the Company on an unrestricted basis.
The change to the cash-out method results only in a difference in the
timing of revenue recognition from a securitization and has no effect on the
total cash flows of securitization transactions. While the total amount of
revenue recognized over the term of a securitization is the same under either
method, the cash-out method results in lower initial gains on the sale of loans
due to the longer discount period, and higher subsequent loan service revenue
resulting from the impact of discounting cash flows. See "Revenue."
To quantify the impact of the change in accounting, the Company measured
the difference between the face value of its residual assets and the value of
its residual assets when measured on a discounted basis. Further, the Company
used the same assumptions for prepayment, loss and discount rates as were used
in the periods affected. The impact of moving to the cash-out method was
approximately 11.5% of the interest-only strips asset (excluding the effects of
the write-down recorded in the second fiscal quarter). See " Revenue." The use
of such a percentage was deemed reasonable for purposes of restating prior
period consolidated financial statements.
As a result, the Company's consolidated results of operations for all prior
periods prior to the quarter ended December 31, 1998 have been restated. The
Company intends to file an amended June 30, 1998
13
<PAGE> 14
Form 10-K in May 1999 to reflect the restatement. Such restatement resulted in
the following changes to financial information as of and for the three and nine
months ended March 31, 1998 (Unaudited. Dollars in thousands, except per share
amounts):
<TABLE>
<CAPTION>
THREE NINE
MONTHS MONTHS
ENDED ENDED
-------- -------
MARCH 31, 1998
-------------------
<S> <C> <C>
Revenue:
Previous.............................................. $ 62,772 208,875
As restated........................................... 59,538 194,378
Net income:
Previous.............................................. 4,120 30,544
As restated........................................... 2,018 21,121
Earnings per share:
Basic:
Previous........................................... 0.15 1.10
As restated........................................ 0.07 0.76
Diluted:
Previous........................................... 0.15 0.95
As restated........................................ 0.07 0.68
Interest-only strips:
(end of period)
Previous.............................................. 509,528 509,528
As restated........................................... 451,033 451,033
Stockholders' equity:
(end of period)
Previous.............................................. 296,416 296,416
As restated........................................... 258,394 258,394
</TABLE>
Accounting for Securitizations. Although the Company's loan disposition
strategy relies on a combination of securitization transactions and whole loan
sales, the Company relied solely on whole loan sales during the quarter ended
March 31, 1999. The following discusses certain accounting considerations which
arise only in the context of securitization transactions.
In a securitization, the Company conveys loans that it has originated or
purchased to a separate entity (such as a trust or trust estate) in exchange for
cash proceeds and an interest in the loans securitized represented by the
non-cash gain on sale of loans. The cash proceeds are raised through an offering
of the pass-through certificates or bonds evidencing the right to receive
principal payments on the securitized loans and the interest rate on the
certificate balance or on the bonds. The non-cash gain on sale of loans
represents the difference between the proceeds (including premiums) from the
sale, net of related transaction costs, and the allocated carrying amount of the
loans sold. The allocated carrying amount is determined by allocating the
original amount of loans (including premiums paid on loans purchased) between
the portion sold and any retained interests (interest-only strip), based on
their relative fair values at the date of transfer. The interest-only strip
represents, over the estimated life of the loans, the present value of the
estimated future cash flows. These cash flows are determined by the excess of
the weighted average coupon on each pool of loans sold over the sum of the
interest rate paid to investors, the contractual servicing fee (currently .50%),
a monoline insurance fee, if any, and an estimate for loan losses. In quarters
where the Company engaged in a securitization transaction, net gains or losses
in valuation of interest-only strips and mortgage servicing rights include the
recognition of a gain or loss which represents the initial difference between
the allocated carrying amount and the fair market value of the interest-only
strip at the date of sale. Additionally, increases or decreases in valuation of
the interest-only strips are also recognized as net gains or losses. Each
agreement that the Company has entered into in connection with its
securitizations requires either the overcollateralization of
14
<PAGE> 15
the trust or the establishment of a reserve account that may initially be funded
by cash deposited by the Company.
The Company determines the present value of the cash flows at the time each
securitization transaction closes using certain estimates made by management at
the time the loans are sold. These estimates include: (i) future rate of
prepayment; (ii) discount rate used to calculate present value; and (iii) credit
losses on loans sold. There can be no assurance of the accuracy of management's
estimates.
Rate of Prepayment. The estimated life of the securitized loans
depends on the assumed annual prepayment rate which is a function of
estimated voluntary (full and partial) and involuntary (liquidations)
prepayments. The prepayment rate represents management's expectations of
future prepayment rates based on prior and expected loan performance, the
type of loans in the relevant pool (fixed or adjustable rate), the
production channel which produced the loan, prevailing interest rates, the
presence of prepayment penalties, the loan-to-value ratios and the credit
grades of the loans included in the securitization and other industry data.
The rate of prepayment may be affected by a variety of economic and other
factors. For the quarters up to and including September 30, 1998,
prepayment rates used by the Company were held constant, e.g. flat, over
the life of the pool. The estimates used by the Company for the quarters up
to and including September 30, 1998 were flat prepayment rates ranging from
26% for fixed to 30.5% for adjustable and hybrid loan products. These rates
represented a weighted average loan life of approximately 2.6 to 3.8 years.
During the quarter ended December 31, 1998, the Company changed its
estimate of prepayment rates from a flat constant prepayment rate to a
vectored rate, which more closely approximates the performance of the
securitized loans. The new vectored prepayment rates peak at approximately
29% for fixed and approximately 42% to 57% for adjustable rate loans. These
revised prepayment rates result in a weighted average life of approximately
2.9 years.
Discount Rate. In order to determine the fair value of the cash flow
from the interest-only strips, the Company discounts the cash flows based
upon rates prevalent in the market. For the quarters up to and including
September 30, 1998, the Company used the weighted average interest rates of
the loans included in the pool as the best estimate available as an
appropriate discount rate to determine fair value. As the market
deteriorated in the quarter ended December 31, 1998, it became apparent
that a change in discount rate would be required in order for the estimate
of fair value to be consistent with market conditions. For the quarters
ended December 31, 1998 and March 31, 1999, the Company used a discount
rate of 15% to reflect current market conditions and the appropriate rate
of return given the inherent risk of the related asset.
Credit Losses. In determining the estimate for credit losses on loans
securitized, the Company uses assumptions that it believes are reasonable
based on information from its prior securitizations, the loan-to-value
ratios, credit grades of the loans included in the current securitizations
and other industry data. For the quarters up to and including September 30,
1998, the Company used a prospective cumulative loan loss estimate of
approximately 1.4% of the balance of the loans in the securitization pools
as an appropriate estimate to determine fair value. As market conditions
deteriorated in the quarter ended December 31, 1998, the Company refined
its estimate of credit losses by expanding the factors it considers in
developing its credit loss estimates to include loss and delinquency
information by channel, credit grade and product, and information available
from other market participants such as investment bankers, credit providers
and credit agencies. Accordingly, the Company increased its prospective
cumulative loan loss estimate to approximately 2.8% of the balance of the
loans in the securitization pools at March 31, 1999.
The interest-only strips are recorded at estimated fair value and are
marked to market through a charge (or credit) to earnings. On a quarterly basis,
the Company reviews the fair value of the interest-only strips by analyzing its
prepayment, discount rate and loss assumptions in relation to its actual
experience and current rates of prepayment and loss prevalent in the industry
and may adjust or take a charge to earnings through an adjustment to net gain or
loss on valuation of interest-only strips. In its regular quarterly review of
its interest-only strips, the Company considered the historical performance of
its securitized loan pools, the recent prepayment experience of those pools, the
credit performance of previously securitized loans and other
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<PAGE> 16
industry data and determined that no adjustment of its assumptions (rate of
prepayment, discount rate and credit loss) was warranted.
Additionally, upon sale or securitization of servicing retained mortgages,
the Company capitalizes the fair value of mortgage servicing rights ("MSRs")
assets separate from the loan. The Company determines fair value based on the
present value of estimated net future cash flows related to servicing income.
The Company used a discount rate of 15%. The capitalized cost basis allocated to
the servicing rights is amortized over the period of estimated net future
servicing fee income. The Company periodically reviews the valuation of
capitalized servicing rights. This review is performed on a disaggregated basis
for the predominant risk characteristics of the underlying loans which are loan
type and origination date. During the three months ended March 31, 1999, the
Company adjusted its MSRs down $8.1 million to reflect the sub-servicing of
certain trusts to a separate loan servicing company. See "Recent Events."
RESULTS OF OPERATIONS -- THREE AND NINE MONTHS ENDED MARCH 31, 1999 AND 1998
(RESTATED AND UNAUDITED)
The following table sets forth information regarding the components of the
Company's revenue and expenses for the three and nine months ended March 31,
1999 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------ -------------------
1999 1998 1999 1998
-------- ------ -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue:
Gain on sale of loans.................... $ 8,236 24,821 36,665 91,259
Net gain (loss) on valuation of
interest-only strips.................. -- 3,058 (186,451) 13,813
Commissions.............................. 9,005 7,515 26,751 20,531
Loan servicing:
Servicing spread......................... 5,846 6,830 14,673 18,251
Prepayment fees.......................... 3,215 2,629 10,363 8,247
Late charge and other servicing fees..... 2,595 2,175 7,474 5,280
Fees and other:
Closing.................................. 109 697 1,299 1,954
Appraisal................................ 522 704 2,239 1,839
Underwriting............................. 443 282 1,280 822
Interest income.......................... 6,639 10,761 25,361 31,870
Other.................................... 204 66 498 512
-------- ------ -------- -------
Total revenue, including
valuation adjustments.......... 36,814 59,538 (59,848) 194,378
-------- ------ -------- -------
Expense:
Compensation............................. 21,759 24,348 65,460 70,668
Production............................... 9,390 9,292 30,879 22,630
General and administrative............... 11,300 10,258 38,472 27,923
Interest................................. 9,474 11,703 31,759 32,620
Nonrecurring servicing receivable........ $ 37,044 -- 37,044 --
-------- ------ -------- -------
Total expense.................... 88,967 55,601 203,614 153,841
-------- ------ -------- -------
Income (loss) before income taxes.......... (52,153) 3,937 (263,462) 40,537
Provision (benefit) for income taxes....... (16,174) 1,919 (29,582) 19,416
-------- ------ -------- -------
Net income (loss)................ $(35,979) 2,018 (233,880) 21,121
======== ====== ======== =======
</TABLE>
16
<PAGE> 17
REVENUE
Total revenue for the three and nine months ended March 31, 1999 was $36.8
million and ($59.8) million, as compared to $59.5 million and $194.4 million for
the three and nine months ended March 31, 1998, respectively. The nine month
period ended March 31, 1999 revenues include the $191.6 million net loss in
valuation of its interest-only strip recorded in the quarter ended December 31,
1998 (the "Write-Down"). The Write-Down reflected the impact of negative market
conditions that existed in the quarter on the prepayment, loss and discount rate
assumptions applied by the Company in estimating the fair value of its
interest-only strips. Revenues for the three and nine months (excluding the
Write-Down) ended March 31, 1999 were $36.8 million and $126.6 million, a 38.2%
and 34.9% decrease from 1998's comparable periods. The decrease in total revenue
during the quarter ended March 31, 1999 from the amount reported in the
comparable period in 1998 primarily reflects the Company's reliance on whole
loan sales for cash during the quarter. Gains associated with whole loans for
cash are generally lower than those recognized when such loans are securitized.
This disparity was exacerbated during the March 31, 1999 quarter as
substantially all of the whole loan sales were closed under a forward commitment
entered into in the prior quarter when whole loan prices were at their lowest
level. During the quarter ended December 31, 1998, the Company entered into the
mandatory forward commitment to sell $500 million, subsequently amended to $750
million, of loans to an affiliate of one of the Company's lenders. The
commitment, which expires in May 1999, reflects the lower whole loan prices that
existed during the quarter. As of April 30, 1999, the Company had satisfied
$674.2 million of its commitment. This commitment is expected to adversely
impact the gain on sale recognized by the Company in subsequent quarters at
least until the commitment is satisfied. See "Overview -- Market Conditions."
During the three months ended March 31, 1998, the Company sold $605 million of
loans of which $300 million were sold in securitizations. In contrast, during
the three months ended March 31, 1999, the Company relied exclusively on the
whole loan market for its loan disposition strategy. Further contributing to the
results for the three months ended March 31, 1999 was the 29.6% decrease in
total loan production, from $570.9 million during the March 1998 quarter to
$401.7 million during the 1999 comparable quarter. The decrease in total revenue
during the nine months ended March 31, 1999 from amounts reported in the
comparable 1998 period was due primarily to lower premiums on whole loan sales,
lower gains on sale resulting from hedge losses and lower than historical
spreads on the Company's $650 million securitization closed in the quarter ended
September 30, 1998. During the first fiscal quarter, the Company, as it had
historically, hedged its fixed rate pipeline by purchasing hedges against U.S.
Treasuries. In the past, changes in Treasury rates were generally reflected in
the pass-through rates of the fixed rate portion of the Company's
securitization. During fiscal 1999's first quarter, unsettled market conditions
resulted in a $15.3 million loss on the Company's hedge position without an
equivalent benefit from reductions in the pass-through rate paid on certificates
sold in the fixed rate portion of the Company's securitization.
Gain on sale for the three months ended March 31, 1999 declined $16.6
million, or 66.8%, from $24.8 million gain on sale recorded for the three months
ended March 31, 1998. Gain on sale for the three months ended March 31, 1999
reflects the Company's reliance solely on the whole loan market for its loan
disposition strategy. During 1998's comparable quarter, the Company relied
almost equally on the securitization market for its loan disposition strategy.
The gains associated with the whole loan sales were substantially less than the
gains associated with the earlier quarter's securitization. Gain on sale for the
nine month period ended March 31, 1999, which decreased $54.6 million, or 59.8%,
from 1998's comparable period, was also adversely affected by the $13.5 million
hedge loss recorded in the period. (See above.)
Net gain (loss) on valuation of interest-only strips and mortgage servicing
rights for the nine months ended March 31, 1999 primarily reflects the impact of
the Write-Down recorded in the three month period ended December 31, 1998. The
Company determines the fair value of the interest-only strips by applying
certain assumptions as to prepayments, losses and discount rate to the estimated
future cash flows from prior securitizations. The negative market conditions
that existed during the quarter, as well as the performance of the Company's
pools of securitized loans, caused management to adjust these assumptions which
resulted in the Write-Down. See "Certain Accounting Considerations -- Accounting
for Securitizations." Net gain (loss) on valuation of interest-only strips and
mortgage servicing rights for the three and nine months ended March 31, 1998 in
the amounts of $3.1 million and $13.8 million, respectively, represents the
initial difference
17
<PAGE> 18
between the allocated carrying amount and the fair value of the interest-only
strip at the date of the closing of the related securitization transaction.
Commission revenue during the three and nine month period ended March 31,
1999 was $9.0 million and $26.8 million, a 19.8% and 30.3% increase,
respectively, from $7.5 million and $20.5 million during the three and nine
months ended March 31, 1998. The increase in commissions for the three and nine
months ended March 31, 1999 over the comparable 1998 periods was due to higher
commission rates earned on loan originations in the Company's retail and broker
loan production channels and, for the nine month period, higher retail loan
volume.
Loan servicing revenue for the three and nine months ended March 31, 1999
amounted to $11.7 million and $32.5 million, respectively, as compared to $11.6
million and $31.8 million reported for the comparable periods in 1998. Loan
servicing 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, increased by the accretion of the interest-only strips and
reduced by the amortization of the MSRs. Loan servicing revenues for the three
and nine months ended March 31, 1999 remained relatively the same as the prior
year's comparable periods since the average loan servicing portfolio also
remained the same for all periods.
The Company's loan servicing portfolio at March 31, 1999 increased slightly
to $4.05 billion from $4.03 billion at March 31, 1998. At March 31, 1999 the
Company's loan servicing portfolio had declined 2.5%, or approximately $102
million, from the $4.1 billion reported at June 30, 1998 reflecting the
Company's recent reliance on whole loan sales with servicing released. At March
31, 1999, 100% of the Company's servicing portfolio was serviced in-house,
compared to 95% at March 31, 1998. See "Recent Events." Further, the Company
recently entered into a sub-servicing arrangement with a loan servicing company
with respect to two pools containing an aggregate of $394.3 million in principal
amount of loans at March 31, 1999. The growth of the Company's servicing
portfolio will be negatively impacted by the Company's reliance on sales of
whole loans on a servicing released basis. Nevertheless, management believes
that the business of loan servicing provides a more consistent revenue stream
and is less cyclical than the business of loan origination and purchasing. See
"Risk Factors -- Delinquencies and Losses in Securitization Trusts; Right to
Terminate Mortgage Servicing; Negative Impact on Cash Flow."
The Company has historically experienced delinquency rates that are higher
than those prevailing in its industry due to its origination of lower credit
grade loans. At the end of calendar year 1996, the Company started to focus more
on higher credit grade loans which should cause delinquencies in the Company's
servicing portfolio to decrease in the future. So long as the Company sells
loans in the whole loan market on a servicing released basis, the Company will
not be adding new loans to the servicing portfolio. The seasoning of the old
portfolio without the addition of new loans could cause delinquency rates to
rise. The delinquency rate for March 31, 1999 was 16.4% compared to 15.4% at
March 31, 1998.
In some cases, the Company has determined that the proceeds from the
disposal of REO and foreclosed properties in its loan servicing portfolio are
maximized by accelerating disposition of REO properties rather than holding such
properties until market conditions improve. During the nine months ended March
31, 1999, losses increased to $35.4 million from $21.9 million in the comparable
prior period due, in part, to a loss mitigation strategy adopted during the 1997
fiscal year of minimizing the REO holding period, thereby reducing carrying
costs. This strategy was implemented in conjunction with the transfer in-house
of a portion of its servicing portfolio that was previously subserviced by third
parties. See "General." It is the Company's goal to reduce the REO holding
period to maximize the economics of liquidation transactions. Current loss
levels have also increased due to the seasoning of the lower credit grade loans
purchased in bulk and included in the Company's earlier trusts. The Company has
reduced significantly its bulk purchase program and the purchase in bulk of
lower credit grade loans. While the accelerated efforts to sell properties is
expected to have a short-term impact on loss levels, the seasoning of the lower
credit grade bulk portfolio may contribute to an increase in losses over time.
Further, the adverse market conditions that existed during the fall of 1998
resulted in the tightening in underwriting guidelines by purchasers of whole
loans and the insolvency of several large subprime home equity lenders. These
factors have had the effect of decreasing the availability of credit
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<PAGE> 19
to delinquent lower credit grade borrowers who in the past had avoided default
by refinancing. Management believes that this will increase the Company's level
of losses in future periods.
The following table sets forth delinquency, foreclosure, and loss
information of the Company's servicing portfolio for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JUNE 30, MARCH 31,
---------------------------------- ---------------------
1998 1997 1996 1999 1998
---------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Percentage of dollar amount of
delinquent loans to loans
serviced (period
end)(1)(2)(3)(4)
One month........................ 3.8% 4.3 4.9 3.0 4.0
Two months....................... 1.3 1.9 1.8 1.0 1.2
Three or more months:
Not foreclosed(4)(5)............. 9.0 8.1 8.0 10.5 8.7
Foreclosed(6).................... 1.5 1.0 1.0 1.9 1.5
---------- --------- --------- --------- ---------
Total.......................... 15.6% 15.3 15.7 16.4 15.4
========== ========= ========= ========= =========
Percentage of dollar amount of
loans foreclosed during the
period to loans
serviced(2)(4)................. 2.0% 1.5 1.1 2.3 1.6
Number of loans foreclosed(7).... 1,125 560 221 1,284 826
Principal amount of foreclosed
loans(7)....................... $ 84,613 48,029 14,349 93,896 63,892
Net losses on liquidations(8).... 26,488 5,470 931 35,439 15,944
Percentage of annualized losses
to average servicing
portfolio(4)................... 0.72% 0.24 0.09 1.15 .59
Servicing portfolio at period
end(4)......................... $4,147,000 3,174,000 1,370,000 4,045,000 4,031,000
</TABLE>
- ---------------
(1) Delinquent loans are loans for which more than one payment is 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, and any subservicers as
of the end of the periods indicated. Percentages for fiscal year 1996 have
not been restated to include delinquencies on loans originated by One Stop.
The Company believes any such adjustment would not be material.
(3) At March 31, 1999, the dollar volume of loans delinquent more than 90 days
in 10 of the Company's REMIC trusts, 5 of which also exceeded certain loss
limits, formed in December 1992 and during the period from March 1995 to
March 1997 exceeded the permitted limit in the related pooling and servicing
agreements. See "Capital Resources" and "Risk Factors -- Delinquencies and
Losses in Securitizations Trusts; Right to Terminate Mortgage Servicing;
Negative Impact on Cash Flow."
(4) The servicing portfolio used in the percentage calculations includes $193.9
million of loans subserviced for others by the Company on an interim basis
at March 31, 1999.
(5) Represents loans which are in foreclosure but as to which foreclosure
proceedings have not concluded.
(6) Represents properties acquired following a foreclosure sale and still
serviced by the Company at period end.
(7) The increase in the number of loans foreclosed and principal amount of loans
foreclosed in the periods presented is due to the larger, more seasoned
servicing portfolio.
(8) Represents losses, net of gains, on sales of foreclosed properties during
the period indicated.
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<PAGE> 20
Fee and other revenue, which consist of fees received by the Company
through its retail loan office network in the form of closing, appraisal,
underwriting and other fees, and interest income, for the three and nine months
ended March 31, 1999 decreased 36.7% and 17.1% to $7.9 million and $30.7 million
from $12.5 million and $37 million, respectively, during the comparable 1998
periods. The dollar amount of fees and other revenue decreased during the three
and nine months ended March 31, 1999 from the comparable 1998 periods primarily
due to interest earned on lower amounts of loans held by the Company during the
period from origination or purchase of the loans until the date sold by the
Company, offset by increasing weighted average interest rates on loans held.
Interest income should continue to decline so long as the Company relies on
whole loan sales which decreases the average number of days loans are held by
the Company prior to sale. See "Overview -- Market Conditions."
EXPENSES
Compensation expense for the three and nine months ended March 31, 1999
decreased 10.6% and 7.4% from $24.3 million and $70.7 million for the three and
nine months ended March 31, 1998, respectively, to $21.8 million and $65.5
million for the three and nine months ended March 31, 1999, respectively. This
decrease was primarily due to employee attrition brought about by declines in
branch expansion, a decrease in compensation incentives as a consequence of the
decline in loan origination during the three and nine months ended March 31,
1999 and the absence of incentive compensation due to the Company's results of
operations. Despite a $2.6 million decline in compensation expense during the
three months ended March 31, 1999 from the amount reported during the comparable
1998 period, compensation as a percentage of loan origination and purchases
increased to 5.4% during the three months ended March 31, 1999 from 4.3% during
the same period in 1998. The increase reflects the decline in loan origination
volume during the quarter ended March 31, 1999 due to material liquidity
constraints on the Company's origination capacity when compared to capacity
levels existing during the three months ended March 31, 1998. During the nine
months ended March 31, 1999, compensation as a percentage of loan originations
and purchases declined to 3.9% from the 4.1% reported for the comparable period
in 1998. The decline is due to a $5.2 million decrease in compensation expense
during the nine months ended March 31, 1999 from the comparable 1998 period
offset by a decrease in total origination volume in the nine months ended March
31, 1999 from levels reported during the nine months ended March 31, 1998. In
mid-February, 1999 and subsequent to the Initial Closing, management commenced a
cost savings program designed to reduce the Company's operating expenses. The
implementation of this recent cost savings plan initially included personnel
reductions on a Company-wide basis. The effects of these reductions are expected
to reduce compensation costs on an annualized basis in a pre-tax amount of
approximately $6.7 million. The estimated pre-tax savings in compensation
expense during the remainder of fiscal 1999 are expected to approximate $2
million. Severance costs of approximately $500 thousand were recognized in the
quarter ended March 31, 1999.
Production expense, primarily advertising, outside appraisal costs, travel
and entertainment, and credit reporting fees, increased 1.1% and 36.5% to $9.4
million and $30.9 million during the three and nine months ended March 31, 1999,
respectively, from $9.3 million and $22.6 million in the comparable periods last
year. The increase in production expense during the three months ended March 31,
1999 from the amounts reported during the comparable 1998 period is due
primarily to increases in advertising costs offset by declines in travel and
entertainment, and outside appraisal costs. The $8.2 million increase in total
production expense during the nine months ended March 31, 1999 from the
comparable period ended March 31, 1998 primarily reflects a rise in advertising
and the additional cost of outsourcing appraisal services offset by a decline in
travel and entertainment costs. Production costs as a percentage of total loan
originations and purchases for the three and nine months ended March 31, 1999
were 2.3% and 1.8%, respectively, compared to 1.6% and 1.3% for the three and
nine months ended March 31, 1998, respectively. The increase in the percentage
of production costs to total loan originations and purchases for the three
months ended March 31, 1999 from the similar percentage in the comparable 1998
period is due to the decline between periods in the level of loan originations
and purchases.
General and administrative expense for the three and nine months ended
March 31, 1999 increased 10.2% and 37.8% to $11.3 million and $38.5 million,
respectively, from $10.3 million and
20
<PAGE> 21
$27.9 million for the three and nine months ended March 31, 1998, respectively.
The increase was primarily the result of increased occupancy, communication and
technology costs related to the Company's core origination channel expansion and
increased origination volumes and increases in legal and other professional
costs related primarily to the negotiation and closing of the Stock Purchase
Agreement. As part of the costs savings program implemented in the quarter ended
March 31, 1999, the Company ceased activities in certain retail and broker
branches that were deemed unprofitable by management. The office space for such
branches remains subject to operating leases that management is attempting to
sublease or terminate. If such office space is subleased at lease rates less
than existing base lease terms or if the lease commitments are bought-out as a
consequence of a negotiated lease termination, occupancy expense in future
periods will increase for these effects.
Interest expense during the three months ended March 31, 1999 decreased 19%
to $9.5 million from $11.7 million in the comparable three month period in 1998.
During the nine months ended March 31, 1999, interest expense decreased 2.6% to
$31.8 million from $32.6 million during the nine months ended March 31, 1998.
The decrease in interest expense during the three and nine months ended March
31, 1999 was due to lower borrowings used to fund lower loan originations
relative to the comparable 1998 periods.
INCOME TAXES
During the three and nine months ended March 31, 1999, the Company recorded
an estimated tax benefit of $16.2 million and $29.6 million, respectively, due
to its net operating losses during those periods. The tax benefits for the three
and nine months ended March 31, 1999 reflect effective rates of (31%) and
(11.2%), respectively, and are net of tax valuation adjustments recorded to
account for estimated nonrealizable deferred tax assets. The investment in the
Company by Capital Z results in a change in control for income tax purposes
thereby limiting future net operating loss and certain other future deductions.
During the three and nine months ended March 31, 1998, the Company's provisions
for taxes were $1.9 million and $19.4 million, respectively, reflecting
estimated effective tax rates of 48.7% and 47.9%, respectively.
FINANCIAL CONDITION
Loans Held for Sale. The Company's portfolio of loans held for sale
increased to $342.1 million at March 31, 1999, from $198.2 million at June 30,
1998. This increase is directly related to production volume and the size and
timing of the Company's securitization and whole loan sales in the secondary
market during the fiscal periods ended on such dates. During the month ended
April 30, 1999, the Company sold $109.7 million of loans held for sale at March
31, 1999 in whole loan sales for cash.
Accounts Receivable. Accounts receivable, representing servicing fees and
advances and other receivables, decreased to $19.7 million at March 31, 1999,
from $51.1 million at June 30, 1998. The level of servicing related advances, in
any given period, is dependent on portfolio delinquencies, the levels of REO and
loans in the process of foreclosure and the timing of cash collections. See
"Recent Events."
Interest-Only Strips. Interest-only strips were $324.8 million at March 31,
1999 compared to $490.5 million at June 30, 1998 reflecting the Write-Down in
the December quarter, offset by the non-cash gain recognized on the Company's
securitization in the quarter ended September 30, 1998, net of accretion and
amortization.
Mortgage Servicing Rights, net. Mortgage servicing rights, net were $23.2
million at March 31, 1999 compared to $32.1 million at June 30, 1998 reflecting
the charge-off of mortgage servicing rights resulting from the Company
outsourcing certain loan servicing to subservicers, the capitalization of
mortgage servicing rights on the securitization in the quarter ended September
30, 1998, net of amortization. See "Recent Events."
Equipment and Improvements, net. Equipment and improvements, net, increased
slightly to $14.5 million at March 31, 1999 from $13.9 million at June 30, 1998.
Prepaid and Other Assets. Prepaid and other assets decreased to $13.0
million at March 31, 1999 from $17.0 million at June 30, 1998.
21
<PAGE> 22
Income Tax Refund Receivable. At March 31, 1999, the Company had federal
and state income tax refunds receivable in the amounts of $8.1 million and $1.8
million, respectively. The federal income tax refund was received in April 1999.
Borrowings. Borrowings at March 31, 1999 decreased to $281.2 million from
$287 million at June 30, 1998 and reflects the scheduled $5.8 million principal
reduction to the Company's 10.5% Senior Notes.
Revolving Warehouse Facilities. Amounts outstanding under warehouse and
repurchase facilities increased to $284.4 million at March 31, 1999 from $141
million at June 30, 1998, primarily as a result of the increase in mortgage
loans held for sale and from the negative cash flow from operations during the
nine months ended March 31, 1999, and the resulting decrease in equity capital.
Proceeds from the Company's whole loan sales and securitizations are used to pay
down the Company's warehouse and repurchase facilities.
LIQUIDITY
The Company's operations require continued access to short-term and
long-term sources of cash. The Company's primary operating cash requirements
include the funding of: (i) mortgage loan originations and purchases prior to
their securitization and sale, (ii) fees, expenses and hedging costs, if any,
incurred in connection with the securitization and sale of loans, (iii) cash
reserve accounts or overcollateralization requirements in connection with the
securitization and sale of mortgage loans, (iv) tax payments due on recognition
of non-cash gain on sale other than in a debt-for-tax securitization structure,
(v) ongoing administrative and other operating expenses, (vi) interest and
principal payments under the Company's warehouse credit facilities and other
existing indebtedness, (vii) advances in connection with the Company's servicing
portfolio and (viii) costs associated with expanding the Company's core
production units.
Historically, the Company funded its negative operating cash flow
principally through borrowings from financial institutions, sales of equity
securities and sales of senior and subordinated notes, among other sources. The
deterioration of the credit and capital markets severely restricted the
Company's access to these markets during the current quarter until the Initial
Closing on February 10, 1999. The $76.8 million ($67.4 million net of issuance
expenses) in equity capital from the Initial Investment augmented the Company's
negative operating cash until additional working capital lines were established.
On February 10, 1999, the Company entered into a $300 million committed
repurchase facility and a $100 million committed warehouse line provided from
two separate financial institution counterparties. The $100 million committed
warehouse line also includes a $100 million uncommitted warehouse facility. All
of the aforementioned facilities expire on February 9, 2000. The $100 million
committed and $100 million uncommitted warehouse lines required the Company to
obtain an additional working capital facility by no later than March 26, 1999.
On April 9, 1999, the Company obtained an additional $175 million committed
repurchase facility and a $25 million revolving line of credit for working
capital needs from a third financial institution counterparty. The lender of the
$100 million committed and $100 million warehouse facilities waived its original
working capital deadline in anticipation of closing this transaction. On April
8, 1999, the Company's pre-existing $300 million syndicated warehouse facility
which had included a working capital sublimit expired. See "Capital Resources."
The Company has historically relied on working capital lines to help it
fund its servicing advance obligations. As servicer of the loans it securitizes,
the Company is obligated to advance, or "loan," to the trusts delinquent
interest. In addition, as servicer, the Company advances to the trusts
foreclosure related expenses and certain tax and insurance remittances relating
to loans in securitized pools. The Company, as servicer, is then entitled to
recover these advances from regular monthly cash flows into the trusts,
including monthly payments, pay-offs and liquidation proceeds on the related
loan.
The Company has been exploring ways in which it could reduce the cash
burden of its servicing advance obligations and reduce its reliance on working
capital lines. In April 1999, the Company reduced its servicing advance
obligations by engaging a loan servicing company to subservice two of the
Company's securitization pools. Further, the loan service company assumed the
obligations to make all future advances on those two pools. The Company is in
the process of completing negotiations for the sale to the loan servicing
company of the outstanding servicing advances on those two pools for
approximately $13.3 million. The Company is
22
<PAGE> 23
currently in negotiations for arrangements to finance or otherwise monetize its
servicing advances. The Company believes that its ability to monetize its
advances requires it to change the way it has paid, recovered and recorded
advances to the securitization trusts. These changes will require the Company to
make a one-time cash deposit to the trusts equal to certain cumulative advances
in the amount of $34.0 million. The one-time cash deposit will be paid into the
trusts during the quarter ended June 30, 1999. The one-time cash deposit will
strain the Company's liquidity until the completion of the Rights Offering,
unless an arrangement to monetize the Company's servicing advances can be
finalized sooner. After the cash deposits are made, the amount of cash the
Company will be obligated to advance into the trusts on a monthly basis will be
reduced from historical levels.
Under the terms of the Company's Indenture, dated October 21, 1996 with
respect to its 9.125% Senior Notes due 2003, the Company's ability to incur
certain additional indebtedness, including residual financing, is limited to two
times adjusted stockholders' equity. Warehouse indebtedness is not included in
the indebtedness limitations. The Company's new repurchase and warehouse
facilities contain similar limits on the Company's ability to incur additional
indebtedness. Further, until the Company receives investment grade ratings for
the notes issued under the Indenture, the amount of residual and servicing
advance financing the Company may incur on such assets allocable to
post-September 1996 securitizations is limited to 75% of the difference between
such post-September 1996 residuals and servicing advances and $225 million.
Although the Company's loan disposition strategy consists of a combination
of securitizations and whole loan sales, whole loan sales were the sole
disposition method during the third fiscal quarter and may be the sole
disposition method during the fourth fiscal quarter. The Company will continue
to monitor market conditions and cash flow to determine the optimal time to
re-enter the securitization market. If the Company does not complete a
securitization during the quarter ended June 30, 1999, it is very likely that it
will report an operating loss for the quarter. During the three and nine months
ended March 31, 1999, the Company securitized -0- and $650 million,
respectively, compared to $300 million and $1.4 billion, respectively, in the
comparable 1998 periods. In connection with securitization transactions
completed during these periods, the Company was required to provide credit
enhancements in the form of overcollateralization amounts or reserve accounts.
In addition, during the life of the related securitization trusts, the Company
subordinates a portion of the excess cash flow otherwise due it to the rights of
holders of senior interests as a credit enhancement to support the sale of the
senior interests. The terms of the securitization trusts generally require that
all excess cash flow otherwise payable to the Company during the early months of
the trusts be used to increase the cash reserve accounts or to repay the senior
interests in order to increase overcollateralization to specified maximums.
Overcollateralization requirements increase up to approximately twice the level
otherwise required when the delinquency rates exceed the specified limit. At
March 31, 1999, the Company was required to maintain an additional $76.4 million
in overcollateralization amounts as a result of the level of its delinquency
rates above that which would have been required to be maintained if the
applicable delinquency rates had been below the specified limit. Of this amount,
at March 31, 1999, $41 million remains to be added to the overcollateralization
amounts from future spread income on the loans held by these trusts. See "Risk
Factors -- Delinquencies and Losses in Securitization Trusts; Right to Terminate
Mortgage Servicing; Negative Impact on Cash Flow."
In the Company's securitizations structured as a REMIC, the recognition of
non-cash gain on sale has a negative impact on the cash flow of the Company
since the Company is required to pay federal and state taxes on a portion of
these amounts in the period recognized although it does not receive the cash
representing the gain until later periods as the related service fees are
collected and applicable reserve or overcollateralization requirements are met.
The Company's primary sources of liquidity are expected to be cash from the
Initial Investment and the Rights Offering, fundings under warehouse and
repurchase facilities, working capital facilities, whole loan sales and the
monetization of the Company's servicing advances. See "Recent Events."
The Company had originally anticipated that the Rights Offering would be
completed in the quarter ending June 30, 1999. However, the Company was delayed
in making the required filings with the Securities and Exchange Commission
pending completion of the restatement of its financial statements. See "Certain
23
<PAGE> 24
Accounting Considerations." The Company currently expects the Rights Offering to
be completed in July or August 1999. Each of the Company's repurchase, warehouse
and working capital lines require the Rights Offering to be completed by June
30, 1999. The Company intends to request a waiver for this breach from each of
the lenders and expects that the waiver will be forthcoming. Certain provisions
relating to the Stock Purchase Agreement require the Recapitalization to be
completed by June 30, 1999. See "Recent Events." Capital Z has agreed to extend
the date to August 16, 1999. Further, the failure to complete the Rights
Offering by June 30, 1999, combined with the net loss reported for the quarter
ended March 31, 1999 and the net loss that may be reported for the quarter ended
June 30, 1999 if the Company does not complete a securitization, may violate
other provisions in those credit lines relating to minimum levels of net worth
at certain dates. The Company intends to ask the lenders to modify those
provisions to avoid a potential default and expects those modifications to be
forthcoming. If the waiver or modifications are not obtained, the Company would
have to find alternative sources of funds. If those alternative sources of funds
were not obtained, the Company's ability to continue to operate would be
jeopardized.
The Company's primary and potential sources of liquidity as described in
the paragraph above (assuming continued access to working capital financing,
completion of the Rights Offering and implementation of the cash savings plans
which by no means can be assured) are expected to be sufficient to fund the
Company's liquidity requirements through at least the next 12 months if the
Company's future operations are consistent with management's current growth
expectations. If available at all, the type, timing and terms of financing
selected by the Company will be dependent upon the Company's cash needs, the
availability of other financing sources, limitations under debt covenants and
the prevailing conditions in the financial markets. See "Capital
Resources -- Warehouse, Repurchase and Working Capital Facilities." There can be
no assurance that any such sources will be available to the Company at any given
time or that favorable terms will be available. As a result of the limitations
described above, the Company may be restricted in the amount of loans that it
will be able to produce and dispose of.
CAPITAL RESOURCES
The Company has historically financed its operating cash requirements
primarily through (i) warehouse and repurchase facilities and working capital
lines of credit, (ii) the securitization and sale of mortgage loans, and (iii)
the issuance of debt and equity securities.
Warehouse, Repurchase and Working Capital Facilities. Through February 10,
1999, the Company retained access to warehouse and other credit facilities with
borrowing limits aggregating in excess of $1.0 billion. Changes in advance rates
imposed by lenders effectively limited the Company to a single $300 million
committed warehouse line. The warehouse line included a working capital line of
credit with a syndicate of ten commercial banks. This facility was secured by
loans originated and purchased by the Company, as well as certain servicing
receivables. This line expired on April 8, 1999.
On February 10, 1999, and conditioned upon the Initial Closing occurring,
the Company entered into a $100 million committed warehouse facility and a $300
million committed repurchase facility and one uncommitted warehouse facility in
the amount of $100 million. These facilities are each secured by the Company's
home equity mortgage loans. One of the committed facilities, in the amount of
$300 million, bears interest at rates of from 1.25% to 1.75% over one month
LIBOR depending upon selected sublimits under the facility and expires on
February 9, 2000. The other committed facility in the amount of $100 million
bears interest at a rate of 1.50% over one month LIBOR and expires on February
9, 2000. The $100 million uncommitted facility bears interest at 1.50% over one
month LIBOR and expires on February 9, 2000. On April 7, 1999, the Company
entered into a second committed repurchase facility in the amount of $175
million. This facility is secured by the Company's home equity mortgage loans,
bears interest at a rate of from 1.25% to 1.50% over one month LIBOR depending
on selected submits, and expires on April 5, 2000. The Company's ability to
continue to draw under these facilities is conditioned upon the Rights Offering
closing on or prior to June 30, 1999. The Company currently expects that the
Rights Offering will not be completed until July or August 1999. The Company
intends to request a waiver for this breach from each of the lenders and expects
that the waiver will be forthcoming. See "Liquidity." Further, the loss reported
in the current quarter combined with the failure to complete the Rights Offering
by June 30, 1999 and the potential
24
<PAGE> 25
loss for the quarter ended June 30, 1999 if the Company does not complete a
securitization would cause the Company to violate other provisions in these
credit lines relating to minimum net worth. The Company intends to ask the
lenders to modify those provisions to avoid a potential default and expects
those modifications to be forthcoming. If the waiver or modifications are not
obtained, the Company would have to find alternative sources of funds. If those
alternative sources of funds were not obtained, the Company's ability to
continue to operate would be jeopardized. See "Liquidity." The Company will
continue to require short-term warehouse facilities. If the Company is unable to
maintain existing warehouse or repurchase lines, it would have to cease loan
production operations which would negatively impact profitability and jeopardize
the Company's ability to continue to operate as a going concern.
In September 1998, the Company entered into a revolving line of credit with
a maximum borrowing capacity of $50 million secured by certain of the Company's
interest-only strips. Access to this line originally depended upon the Company
completing a new securitization and pledging the related interest-only strips.
However, during each of the months of December 1998 and January and February
1999, the lender allowed the Company to borrow $20 million on a short-term basis
to satisfy the Company's obligation as servicer of the loans it securitizes to
advance interest on delinquent loans.
On April 9, 1999, this line was amended to provide for a maximum borrowing
capacity of $25 million secured by certain of the Company's interest-only strips
and certain of its servicing receivables. The collateral is subject to
mark-to-market valuation, or may otherwise be deemed unacceptable, in the sole
discretion of the lender. To the extent that such provisions result in a
shortfall, the line provides for the delivery of additional collateral to bring
the line back to compliance. Advances on this line bear interest at the Federal
Funds Rate, plus 200 basis points. This line contains provisions similar to
those contained in the warehouse and repurchase lines with respect to the Rights
Offering and minimum net worth. See "Liquidity;" "Risk Factors -- Dependence on
Funding Sources."
Loan Sales. The Company's ability to sell loans originated and purchased by
it in the secondary market is necessary to generate cash proceeds to pay down
its warehouse and repurchase facilities and fund new originations and purchases.
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. See "Overview -- Market Conditions," and "Risk
Factors -- Risk of Adverse Changes in the Secondary Market for Mortgage Loans."
Other Capital Resources. The Company has historically funded negative cash
flow primarily from the sale of its equity and debt securities. However, current
market conditions have restricted the Company's ability to access its
traditional public equity and debt sources. In December 1991, July 1993, June
1995, October 1996 and April 1998, the Company effected public offerings of its
common stock with net proceeds to the Company aggregating $217 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. Under the agreements relating to these debt
issuances, the Company is required to comply with various operating and
financial covenants including covenants which may restrict the Company's ability
to pay certain distributions, including dividends. At March 31, 1999, the
Company had no money available for the payment of such distributions under the
most restrictive of such covenants.
On April 27, 1998, the Company issued 2.78 million shares of its common
stock, or 9.9% of the Company's outstanding shares, to private entities
controlled by Ronald Perelman and Gerald Ford, at an aggregate purchase price of
approximately $38 million. The Company also issued warrants to these entities to
purchase an aggregate additional 5.3 million shares (as adjusted) of the
Company's common stock at an exercise price of $9.06 (as adjusted), subject to
customary anti-dilution provisions. The warrants are exercisable only upon a
change in control of the Company and expire in three years.
During the three months ended March 31, 1999, the Company raised an
additional $76.8 million ($67.4 million net of issuance expenses) in the Initial
Investment by Capital Z. Subsequent to receiving
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stockholder approval of the Recapitalization, the Company will commence the
Rights Offering. Capital Z has agreed to purchase any shares of the Series C
Preferred Stock which are not purchased by the common stockholders in the Rights
Offering.
The Company had cash and cash equivalents of approximately $10.9 million at
March 31, 1999. See "Risk Factors -- Negative Cash Flow and Capital Needs."
YEAR 2000 COMPLIANCE AND TECHNOLOGICAL ENHANCEMENT
Readers are cautioned that forward-looking statements contained in this
Year 2000 disclosure should be read in conjunction with the Company's
disclosures under the heading, "Special Note on Forward-looking Statements,"
beginning on page 8 above. Readers should understand that the dates on which the
Company believes the Year 2000 project will be completed are based upon
management's best estimates, which were derived utilizing numerous assumptions
of future events, including the availability of certain resources, third-party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved, or that there will not be a delay in, or
increased costs associated with, the implementation of the Company's Year 2000
Compliance Project. A delay in specific factors that might cause differences
between the estimates and actual results include, but are not limited to, the
availability and cost of personnel trained in these areas, the ability of
locating and correcting all relevant computer codes, timely responses to and
corrections by third parties and suppliers, the ability to implement interfaces
between the new systems and the systems not being replaced, and similar
uncertainties. Due to the general uncertainty inherent in the Year 2000 problem,
resulting in part from the uncertainty of the Year 2000 readiness of third
parties and the inter-connection of national and international businesses, the
Company cannot ensure its ability to timely and cost effectively resolve
problems associated with the Year 2000 issue that may effect its operations and
business, or expose it to third party liability.
The Company's year 2000 compliance program consists of four
phases -- inventory, risk assessment process, corrective action and testing. The
Company has completed the inventory phase which included the identification of
all computer hardware and software, electronic data exchanges, operating
systems, communications systems and non-information items. As a corollary to the
inventory phase, the Company has made inquiries of its significant vendors as to
their year 2000 readiness.
The Company has also completed the risk assessment process of assigning
risk factors to each system used by the Company to determine the priority and
resource allocation of its year 2000 efforts. The Company expects to complete
the corrective action and testing phases with respect to mission critical
systems by September 1999. The Company will complete any remaining testing and
compliance by the end of 1999.
Costs to Address the Company's Year 2000 Issues. The Company anticipates
that costs relating to year 2000 issues are not expected to be material since
the Company primarily relies on third party software for its primary information
technology systems and does not require significant internal reprogramming
resources to change program codes. The Company is in the process of converting
or is scheduled to convert its major computer systems, including the loan
origination system and the financial system from in-house to vendor-supported
systems. These conversions were planned to upgrade and improve functionality
rather than as a result of year 2000 issues.
Risks of the Company's Year 2000 Issues. The most significant risk
associated with the Company's year 2000 compliance would result from the loss of
the Company's vendor supported servicing system and the inability to maintain
the ongoing loan service operations, including payment processing, collections
and investor remittance processing. The Company's servicing platform uses
software supplied by a subsidiary of Fiserv, Inc. To reduce the risk of
non-compliance, the Company intends to rely on the vendor's representations
regarding year 2000 compliance, the Company's testing efforts, as well as the
testing results of other companies that use the same software. The testing and
other costs relating to the Company's year 2000 compliance program are not
expected to be material.
Another year 2000 risk relates to the Company's vendor supported loan
origination system. In the event of year 2000 issues with respect to the
software used with such system (also supplied by a subsidiary of Fiserv,
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Inc.), the Company's ability to originate loans would be diminished and may
result in reduced loan production until the problem is resolved. The Company
intends to rely on the vendor's assurances and Company testing to minimize the
risk of non-compliance of this system.
Contingency Plans. The Company has no reason to believe that its most
significant systems will not be year 2000 compliant. If testing indicates any of
the systems are not compliant, the Company will develop appropriate contingency
plans.
RISK MANAGEMENT
The Company is currently re-evaluating its current hedging policy, and at
March 31, 1999 had no hedge transactions in place. While the Company monitors
the interest rate environment and has employed fixed rate hedging strategies,
there can be no assurance that the earnings of the Company would not be
adversely affected during any period of unexpected changes in interest rates or
prepayment rates.
RISK FACTORS
NEGATIVE CASH FLOW AND CAPITAL NEEDS
We operate on a negative cash flow basis (our cash expenditures exceed our
cash earnings). Our negative cash flow arises mostly from our use of
securitization to sell our loans. Each time we enter into a securitization
transaction, we transfer a significant amount of loans that we recently
originated or purchased to a separate entity, usually a trust. In exchange for
the loans, we receive cash and an interest in the loans securitized. Our
interest in the loans securitized is evidenced by the non-cash gain on sale we
record at the closing of the securitization. The cash we receive from the trust
is raised through the trust's sale of certificates or bonds. These certificates
or bonds give the holders the right to receive principal payments on the
securitized loans and the interest rate on the certificate or bond. The interest
rate on the loans is higher than, usually substantially so, the interest rate on
the certificates or bonds. The amount of that excess spread provides the basis
for the non-cash gain we record at the closing. The actual amount of the gain is
reduced by fees paid to us as servicer of the loans (collecting interest and
managing delinquencies and foreclosures) and fees paid to an insurance company
for a credit-enhancement policy, if one is issued. The gain recorded also
reflects our estimate of the life of the loans (most of our loans prepay in
under 3 years even though substantially all have 30 year terms) and estimated
losses on the loans. A risk adjusted discount rate is then applied to the
estimated cash flows. The end result is our non-cash gain on sale. The amount of
the gain is added to the interest-only strips carried on our balance sheet. The
interest-only strips represents the aggregate amount of gain on sale recorded on
all of our securitizations. This amount is adjusted through amortization
(payments received by the trusts) and actual prepay or loss performance that is
different from our original estimates. In a securitization, we record as income
the non-cash gain on sale of the loans securitized upon the closing of the
securitization. We receive the cash representing the gain over the actual life
of the loans securitized.
Our primary uses of cash relate to our use of securitizations to sell our
loans. These uses include:
- mortgage loan originations and purchases before their securitization and
sale;
- fees, expenses and hedging costs, if any, incurred for the securitization
of loans;
- cash reserve accounts or overcollateralization required in the
securitization and sale of loans;
- tax payments generally due on recognition of non-cash gain on sale
recorded in the securitizations;
- ongoing administrative and other operating expenses;
- interest and principal payments under our credit facilities and other
existing indebtedness;
- cash advances made on delinquent loans included in our loan servicing
portfolio; and
- costs of expanding our loan production units.
We did not execute a securitization during the quarter ended March 31, 1999
and relied on whole loan sales for cash. We are evaluating market and other
conditions regarding completing a securitization in the June quarter. Market
conditions or other events may prevent us from doing so. Whole loan prices are
too low
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to eliminate our negative cash flow. We have implemented and have under
discussion various cash savings plans. However, we may be unable to implement
these plans. Even if we do implement these plans, cash expenditures may still
exceed cash income. Therefore, we need continued access to short- and long-term
external sources of cash to fund our operations.
Our primary sources of cash are expected to be cash from the Rights
Offering, warehouse (loan origination) facilities, working capital (bank credit)
facilities, transactions by which we monetize our servicing advance receivables
and whole loan sales.
Our primary and potential sources of cash as described in the paragraph
above should be sufficient to fund our cash requirements through at least the
next 12 months, but only if our future operations are consistent with our
current growth expectations. If available at all, the type, timing and terms of
financing selected by us will be dependent upon our cash needs, the availability
of other financing sources, limitations under debt covenants and the prevailing
conditions in the financial markets. However, we are not sure that these sources
of cash will be available when needed. Even if the sources of cash are
available, the providers of cash may impose terms that are not favorable to us.
As a result of the limitations described above, we may be restricted in the
amount of loans that we will be able to produce and dispose of.
DELINQUENCIES AND LOSSES IN SECURITIZATION TRUSTS; RIGHT TO TERMINATE MORTGAGE
SERVICING; NEGATIVE IMPACT ON CASH FLOW
A substantial majority of our servicing portfolio consists of loans
securitized by us and sold to real estate mortgage investment conduits or owner
trusts in securitization transactions. Generally, the agreement entered into in
connection with these securitizations contains specified limits on delinquencies
(i.e., loans past due 90, or in some cases 60, days or more) and losses that may
be incurred in each trust. Losses occur when the cash we receive from the sale
of foreclosed properties, less sales expenses, is less than the principal
balances of the loans previously secured by those properties and related
interest and servicing advances (see below).
A majority of our securitization transactions were credit-enhanced by an
insurance policy issued by a monoline insurance company. That insurance policy
protects the securitization investor against certain losses. If, at any
measuring date, the delinquencies or losses with respect to any trust
credit-enhanced by monoline insurance were to exceed the delinquency or loss
limits applicable to that trust, provisions of the agreements permit the
monoline insurance company to terminate our rights to service the loans in the
affected trust.
Higher delinquency rates hurt our cash flows. When delinquency rates exceed
the limit specified in the securitization agreement, our right to receive cash
from the trust is delayed. When delinquency rates exceed the specified amount,
we are required to use the cash flows from the trust to make accelerated
payments of principal on the certificates or bonds issued by the trust. These
accelerated payments increase the overcollateralization levels (the amount that
the principal balance of the loans in the trust exceeds the principal balance of
the certificates or bonds issued by the trust). We do not receive distributions
from the trust until after the required overcollateralization levels are met.
Generally, provisions in the securitization agreements have the effect of
requiring the overcollateralization amount to be increased up to approximately
twice the level otherwise required when the delinquency rates do not exceed the
specified limit. As of March 31, 1999, we were required to maintain an
additional $76.4 million in overcollateralization amounts as a result of the
level of the delinquency rates above that which would have been required to be
maintained if the applicable delinquency rates had been below the specified
limit. Of this amount, at March 31, 1999, $41.0 million remains to be added to
the overcollateralization amounts from future spread income on the loans held by
these trusts.
Higher delinquency rates also negatively affect our cash flows because we
act as servicer of the loans in the trust. As the servicer, we are required to
use our cash to pay (advance) to the trust past due interest.
Higher delinquency and loss levels may also affect our reported earnings.
We apply certain assumptions with respect to expected losses on loans in a
securitization trust to determine the amount of non-cash gain on sale that we
record at the closing of a securitization transaction. If actual losses exceed
those assumptions, we may be required to take a charge to earnings. The charge
to earnings would result in an adjustment to the carrying value of the
interest-only strips recorded on our balance sheet.
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At March 31, 1999, the dollar volume of loans delinquent more than 90 days
in our 10 securitization trusts formed in December 1992 and during the period
from March 1995 to March 1997 exceeded the permitted limit in the related
securitization agreements.
We have implemented various plans to lower the delinquency rates in our
future trusts, including diversifying the loans we originate and purchase to
include higher credit grade loans. The delinquency rate at March 31, 1999 was
16.4% and at June 30, 1998 was 15.4%.
Five of the ten trusts referred to above (representing in the aggregate
15.4% of the dollar volume of our servicing portfolio) exceeded loss limits at
March 31, 1999. The limit that has been exceeded provides that losses may not
exceed a certain threshold (which ranges from .50% to .94% of the original pool
balances in the relevant securitization trusts) on a rolling 12 month basis.
Although the monoline insurance company has the right to terminate
servicing with respect to the trusts that exceed the delinquency and loss
limits, no servicing rights have been terminated and we believe that it is
unlikely that we will be terminated as servicer. We cannot be sure, however,
that our servicing rights with respect to the mortgage loans in such trusts, or
any other trusts which exceed the specified delinquency or loss limits in future
periods, will not be terminated.
We believe that current loss levels have increased in part due to our
recently implemented strategy of minimizing the period of time foreclosed
properties are held before sale. In this way, we reduce carrying costs. The
implementation of this strategy accelerated the volume of foreclosed properties
sold. Current loss levels have also increased due to the aging of the lower
credit grade loans purchased in bulk and included in our earlier securitization
trusts. The losses incurred on those lower credit grade loans are higher than we
originally anticipated. We no longer purchase large volumes of lower credit
grade loans in bulk purchases. We expect the accelerated efforts to sell
properties to have a short-term impact on loss levels. We expect the aging of
the lower credit grade bulk portfolio and the current origination of higher
credit grade loans to contribute to an increase in losses over time.
Further, the adverse market conditions that existed in the quarter ended
December 31, 1998 and, to a lesser extent, March 31, 1999, resulted in
- the tightening of underwriting guidelines by purchasers of whole loans,
and
- the insolvency of several large subprime home equity lenders.
These factors have had the effect of decreasing the availability of credit
to delinquent lower credit grade borrowers who in the past had avoided default
by refinancing their loans with other lenders. We believe that this will
increase our level of losses.
RISK OF CHANGES IN INTEREST RATE ENVIRONMENT
A substantial and sustained increase in long-term interest rates could,
among other things:
- decrease the demand for consumer credit;
- adversely affect our ability to originate or purchase loans; and
- reduce the average size of loans we underwrite.
A significant decline in long-term interest rates could increase the level
of loan prepayments. An increase in prepayments would decrease the size of, and
servicing income from, our servicing portfolio. Our expectations as to
prepayment are used to determine the amount of non-cash gain on sale recorded at
the closing of a securitization transaction. An increase in prepayment rates
could result in a charge to earnings if the rate is faster than originally
expected. The charge to earnings would result in an adjustment to the carrying
value of the interest-only strips recorded on our balance sheet.
A substantial and sustained increase in short-term interest rates could,
among other things:
- increase our borrowing costs (most of which are tied to those rates); and
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- reduce the gains recorded by us upon the securitization and sale of
loans.
YEAR 2000 COMPLIANCE AND TECHNOLOGY ENHANCEMENTS
As part of our overall systems enhancement program, we are using both
internal and external resources to identify, correct, reprogram or replace, and
test our systems for year 2000 compliance. It is anticipated that all of our
year 2000 compliance efforts will be completed on time. We cannot be sure,
however, that the systems of other companies on which our systems rely will be
timely reprogrammed for year 2000 compliance.
Certain state regulatory authorities have imposed early deadlines for year
2000 compliance. We may be unable to meet those deadlines. If we are unable to
satisfy those regulators that our year 2000 compliance effort is adequate, our
license to conduct business in a state could be revoked or not renewed.
We have recently installed and are testing a year 2000 compliant loan
origination system that is expected to add approximately $2.0 million per year
to our technology costs over the next three years. Other technology enhancements
are being reviewed but, to date, the costs for those enhancements have not been
determined.
PREPAYMENT RISK
If actual prepayments occur more quickly than was projected at the time
loans were sold, the carrying value of the interest-only strips may have to be
adjusted through a charge to earnings in the period of adjustment. The rate of
prepayment of loans may be affected by a variety of economic and other factors.
We estimate prepayment rates based on our expectations of future prepayment
rates, which are based, in part, on the historic performance of our loans and
other considerations.
CREDIT RISK
Loans made to borrowers in the lower credit grades have historically
resulted in a higher risk of delinquency and loss than loans made to borrowers
who use conventional mortgage sources. We believe that the underwriting criteria
and collection methods we use permit us to mitigate the higher risks inherent in
loans made to these borrowers. However, we cannot be sure that those criteria or
methods will protect us against those risks. In the event that loans we
originate and purchase experience higher delinquencies, foreclosures or losses
than anticipated, our results of operations or financial condition could be
adversely affected.
All of our loans are collateralized by residential property. The value of
the property collateralizing our loans may not be sufficient to cover the
principal amount of the loans in the event of liquidation. Losses not covered by
the underlying properties could have a material adverse effect on our results of
operations and financial condition. In addition, historical loss rates affect
the assumptions used by us in computing our non-cash gain on sale. If actual
losses exceed those assumptions, we may be required to take a charge to
earnings.
Adjustable rate loans account for a substantial portion of the mortgage
loans that we originate or purchase. Substantially all of the adjustable rate
mortgages include a "teaser" rate, i.e., an initial interest rate significantly
below the fully indexed interest rate at origination. Although these loans are
underwritten at the indexed rate as of the first adjustment date,
credit-impaired borrowers may encounter financial difficulties as a result of
increases in the interest rate over the life of the loan.
BASIS RISK
The value of our interest-only strips created as a result of the
securitization of adjustable rate mortgage ("ARM") loans is subject to so-called
basis risk. Basis risk arises when the ARM (including fixed initial rate
mortgage) loans in a securitization trust bear interest based on an index or
adjustment period that is different from the certificates or bonds issued by the
trust. Accordingly, in the absence of effective hedging (loss mitigation)
strategies, in a period of increasing interest rates, the value of the
interest-only strips would be adversely affected because the interest rates on
the certificates or bonds issued by a securitization trust could adjust faster
than the interest rates on our ARMs in the trust. ARMs are typically subject to
periodic and lifetime interest rate caps, which limit the amount an ARM's
interest rate can change during any given period. In a period of rapidly
increasing interest rates, the value of the interest-only strips could be
adversely affected
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in the absence of effective hedging strategies because the interest rates on the
certificates or bonds issued by a securitization trust could increase without
limitation by caps, while the interest rates on our ARMs would be so limited.
DEPENDENCE ON FUNDING SOURCES
We use cash draws under credit facilities, referred to as warehouse and
repurchase facilities, to fund new originations and purchases of mortgage loans
before securitization or sale. We currently have three committed lines with
aggregate borrowing capacity of $575 million and one $100 million uncommitted
repurchase line. We use cash draws under working capital lines to fund our
servicing advance obligations. As servicer of the loans we securitize, we are
required to advance, "loan," to the trusts delinquent interest. In addition, as
servicer we advance to the trusts foreclosure related expenses, and certain tax
and insurance remittances relating to loans serviced. We currently have a $25
million working capital line available to us. We are currently negotiating with
various financial institutions and investment banks to obtain additional credit
facilities. We cannot be sure that we will be able to secure the financing.
Further, we cannot be sure we will be able to get the financing on favorable
terms. To the extent that we are unable to maintain existing facilities, arrange
new warehouse, repurchase or other credit facilities or obtain additional
commitments to sell whole loans for cash, we may have to curtail loan
origination and purchasing activities. This would have a material adverse effect
on our financial position and results of operations and jeopardize our ability
to continue to operate as a going concern.
Each of our warehouse, repurchase and working capital lines requires us to
complete the Rights Offering by June 30, 1999. We do not believe that the Rights
Offering will be completed until July or August 1999. We will be asking the
lenders for waivers of this breach. We expect to receive the waivers. If we do
not receiver the waivers, we will have to find alternative sources of funds to
continue to operate. Certain provisions relating to the Stock Purchase Agreement
require the Recapitalization to be completed by June 30, 1999. See "Recent
Events." Capital Z has agreed to extend this deadline to August 16, 1999. Those
credit facilities also contain provisions which require us to have a certain
level of equity at certain dates. Our failure to complete the Rights Offering by
June 30, 1999, combined with our loss in the March quarter and a possible loss
in the June quarter if we do not complete a securitization in the June quarter
may violate these provisions. We intend to ask the lenders for modifications of
these provisions to avoid a potential default. We expect the credit facilities
to be modified. If they are not modified and we do violate these provisions, we
would need to find alternative sources of funds to continue to operate.
RISK OF ADVERSE CHANGES IN THE SECONDARY MARKET FOR MORTGAGE LOANS
We must be able to sell loans we originate and purchase in the
securitization and whole loan market to generate cash proceeds to pay down our
warehouse and repurchase facilities and fund new originations and purchases. See
"-- Dependence on Funding Sources." Our ability to sell loans in the
securitization and whole loan markets on acceptable terms is essential for the
continuation of our loan origination and purchase operations. The value of and
market for our loans are dependent upon a number of factors, including general
economic conditions, interest rates and governmental regulations. Adverse
changes in these factors may affect our ability to securitize or sell whole
loans for acceptable prices within a reasonable period of time. Adverse changes
in the global markets severely weakened the asset-backed market in the quarter
ending December 31, 1998. We continued to feel those effects in the March 31,
1999 quarter. During the December quarter, we entered into a mandatory forward
commitment to sell $750 million of our loan production based on a pricing
formula that reflected the negative market conditions that then existed. That
forward commitment permitted us to continue to operate under our restricted
warehouse capacity. Changes we made to our underwriting guidelines and pricing
during the second fiscal quarter to conform to the forward commitment's pricing
formula maximized the profitability of that formula during the March quarter.
Even with the maximized profitability, the forward's pricing formula was still
lower than securitization gains and lower than current whole loan prices which
steadily increased throughout the quarter. Still, the size of the forward
commitment effectively required us to sell substantially all of our loan
production under the forward commitment. Therefore, we were unable to reap the
benefit of the improved whole loan prices.
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We have in the past sold a substantial portion of our loans through
securitizations, and will again securitize a significant portion of our loans.
To facilitate the sale of certificates or bonds issued by the securitization
trust, we must obtain investment grade ratings for the certificates or bonds. To
obtain those credit ratings, we credit-enhance the securitization trust. The
overcollateralization amount (the amount by which the principal amount of the
loans in the securitization trust exceeds the principal amount of the
certificates or bonds issued by the trust) is one form of credit enhancement.
Additionally, we either obtain an insurance policy to protect holders of the
certificates or bonds against certain losses, or sell subordinated interests in
the securitization trusts.
Our financial position and results of operations would be materially
affected if investors were unwilling to purchase interests in our securitization
trusts or monoline insurance companies were unwilling to provide financial
guarantee insurance for the certificates or bonds sold. Other accounting, tax or
regulatory changes could also adversely affect our securitization program.
We rely on institutional purchasers, such as investment banks, financial
institutions and other mortgage lenders, to purchase our loans in the whole loan
market. We cannot be sure that the purchasers will be willing to purchase loans
on satisfactory terms or that the market for such loans will continue. Our
results of operations and financial condition could be materially adversely
affected if we could not successfully identify whole loan purchasers or
negotiate favorable terms for loan purchases.
DEPENDENCE ON BROKER NETWORK
We depend on independent mortgage brokers for the origination and purchase
of our broker loans, which constitute a significant portion of our loan
production. These independent mortgage brokers negotiate with multiple lenders
for each prospective borrower. We compete with these lenders for the independent
brokers' business on pricing, service, loan fees, costs and other factors. Our
competitors also seek to establish relationships with such brokers, who are not
obligated by contract or otherwise to do business with us. Our future results of
operations and financial condition may be vulnerable to changes in the volume
and cost of its broker loans resulting from, among other things, competition
from other lenders and purchasers of such loans.
COMPETITION
We face intense competition in the business of originating, purchasing and
selling mortgage loans. Competition among industry participants can take many
forms, including convenience in obtaining a loan, customer service, marketing
and distribution channels, amount and term of the loan, loan origination fees
and interest rates. Many of our competitors are substantially larger and have
considerably greater financial, technical and marketing resources than we do.
Our competitors in the industry include other consumer finance companies,
mortgage banking companies, commercial banks, investment banks, credit unions,
thrift institutions, credit card issuers and insurance companies. In the future,
we may also face competition from government-sponsored entities, such as FNMA
and FHLMC. These government-sponsored entities may enter the subprime mortgage
market and target potential customers in our highest credit grades, who
constitute a significant portion of our customer base.
The historical level of gains realized on the sale of subprime mortgage
loans could attract additional competitors into this market. Certain large
finance companies and conforming mortgage originators have announced their
intention to originate, or have purchased companies that originate and purchase,
subprime mortgage loans, and some of these large mortgage companies, thrifts and
commercial banks have begun offering subprime loan products to customers similar
to our targeted borrowers. In addition, establishing a broker-sourced loan
business requires a substantially smaller commitment of capital and human
resources than a direct-sourced loan business. This relatively low barrier to
entry permits new competitors to enter this market quickly and compete with our
broker lending business.
Additional competition may lower the rates we can charge borrowers and
increase the cost to purchase loans, which could potentially lower the gain on
future loan sales or securitizations. Increased competition may also reduce the
volume of our loan origination and loan sales and increase the demand for our
experienced personnel and the potential that such personnel will leave for
competitors.
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Competitors with lower costs of capital have a competitive advantage over
us. During periods of declining rates, competitors may solicit our customers to
refinance their loans. In addition, during periods of economic slowdown or
recession, our borrowers may face financial difficulties and be more receptive
to the offers of our competitors to refinance their loans.
Our correspondent and broker programs depend largely on independent
mortgage bankers and brokers and other financial institutions for the purchases
of new loans. Our competitors also seek to establish relationships with the same
sources.
CONCENTRATION OF OPERATIONS IN CALIFORNIA
At March 31, 1999, 21.8% of the loans we serviced were collateralized by
residential properties located in California. Because of this concentration in
California, our financial position and results of operations have been and are
expected to continue to be influenced by general trends in the California
economy and its residential real estate market. Residential real estate market
declines may adversely affect the values of the properties collateralizing
loans. If the principal balances of our loans, together with any primary
financing on the mortgaged properties, equal or exceed the value of the
mortgaged properties, we could incur higher losses on sales of properties
collateralizing foreclosed loans. In addition, California historically has been
vulnerable to certain natural disaster risks, such as earthquakes and
erosion-caused mudslides, which are not typically covered by the standard hazard
insurance policies maintained by borrowers. Uninsured disasters may adversely
impact our ability to recover losses on properties affected by such disasters
and adversely impact our results of operations.
TIMING OF LOAN SALES
Our loan disposition strategy calls for substantially all of our production
to be sold in the secondary market each quarter. However, market and other
considerations, including the conformity of loan pools to monoline insurance
company and rating agency requirements, could affect the timing of the sale
transactions. Any delay in the sale of a significant portion of our loan
production beyond a quarter-end would postpone the recognition of gain on sale
related to such loans until their sale and would likely result in losses for the
quarter.
ECONOMIC CONDITIONS
The risks associated with our business become more acute in any economic
slowdown or recession. Periods of economic slowdown or recession may be
accompanied by decreased demand for consumer credit and declining real estate
values. Any material decline in real estate values reduces the ability of
borrowers to use home equity to support borrowings. Material declines in real
estate values also weakens collateral coverage and increases the possibility of
a loss in the event of liquidation. Further, delinquencies, foreclosures and
losses generally increase during economic slowdowns or recessions. Because of
our focus on credit-impaired borrowers, the actual rates of delinquencies,
foreclosures and losses on such loans could be higher than those generally
experienced in the mortgage lending industry. In addition, in an economic
slowdown or recession, our servicing costs may increase. Any sustained period of
increased delinquencies, foreclosure, losses or increased costs could adversely
affect our ability to securitize or sell loans in the secondary market and could
increase the cost of these transactions. See "-- Credit Risk" and "-- Risk of
Adverse Changes in the Secondary Market for Mortgage Loans."
CONTINGENT RISKS
Although we sell substantially all the mortgage loans which we originate or
purchase, we retain some degree of credit risk on substantially all loans sold
where we continue to service (collect loan payments and manage late payments and
defaults). During the period of time that loans are held before sale, we are
subject to the various business risks associated with the lending business
including the risk of borrower default, the risk of foreclosure and the risk
that a rapid increase in interest rates would result in a decline in the value
of loans to potential purchasers. Cash flows from the securitization trust are
represented by the interest rate earned on the loans in the trust over the
amount of interest paid by the trust to the holders of the certificates or
33
<PAGE> 34
bonds issued by the trust, plus certain monoline and servicing fees. The
agreements governing our securitization program require us to credit-enhance the
securitization trust by either establishing deposit accounts or building
overcollateralization levels. Deposit accounts are established by maintaining a
portion of the excess cash flows in a trust deposit account.
Overcollateralization levels are built up by applying these excess cash flows to
reduce the principal balances of the certificates or bonds issued by the trust.
Those amounts are available to fund losses realized on loans held by such trust.
We continue to be subject to the risks of default and foreclosure following
securitization and the sale of loans to the extent excess cash flows are
required to be maintained in the deposit account or applied to build up
overcollateralization, as opposed to being distributed to us. In addition,
agreements governing our securitization program and whole loan sales require us
to commit to repurchase or replace loans which do not conform to our
representations and warranties at the time of sale.
When borrowers are delinquent in making monthly payments on loans included
in a securitization trust, as servicer of the loans in the trust, we are
required to advance interest payments with respect to such delinquent loans.
These advances require funding from our capital resources, but have priority of
repayment from collections or recoveries on the loans in the related pool in the
succeeding month.
In the ordinary course of our business, we are subject to claims made
against us by borrowers and private investors arising from, among other things,
losses that are claimed to have been incurred as a result of alleged breaches of
fiduciary obligations, misrepresentations, errors and omissions of our employees
and officers, incomplete documentation and failures to comply with various laws
and regulations applicable to our business. We believe that liability with
respect to any currently asserted claims or legal actions is not likely to be
material to our financial position or results of operations. However, any claims
asserted in the future may result in legal expenses or liabilities which could
have a material adverse effect on our financial position and results of
operations.
GOVERNMENT REGULATION
Our operations are subject to extensive regulation, supervision and
licensing by federal, state and local governmental authorities and are subject
to various laws and judicial and administrative decisions imposing requirements
and restrictions on part or all of our operations. Our consumer lending
activities are subject to the Federal Truth-in-Lending Act and Regulation Z
(including the Home Ownership and Equity Protection Act of 1994), the Federal
Equal Credit Opportunity Act, as amended, and Regulation B, the Fair Credit
Reporting Act of 1970, as amended, the Federal Real Estate Settlement Procedures
Act and Regulation X, the Home Mortgage Disclosure Act, the Federal Debt
Collection Practices Act and the National Housing Act of 1934, as well as other
federal and state statutes and regulations affecting our activities. We are also
subject to the rules and regulations of, and examinations by, state regulatory
authorities with respect to originating, processing, underwriting, selling,
securitizing and servicing loans. These rules and regulations, among other
things, impose licensing obligations on us, establish eligibility criteria for
mortgage loans, prohibit discrimination, govern inspections and appraisals of
properties and credit reports on loan applicants, regulate assessment,
collection, foreclosure and claims handling, investment and interest payments on
escrow balances and payment features, mandate certain disclosures and notices to
borrowers and, in some cases, fix maximum interest rates, fees and mortgage loan
amounts. Failure to comply with these requirements can lead to loss of approved
status, certain rights of rescission for mortgage loans, class action lawsuits
and administrative enforcement action.
Members of Congress and government officials have from time-to-time
suggested the elimination of the mortgage interest deduction for federal income
tax purposes, either entirely or in part, based on borrower income, type of loan
or principal amount. Because many of our loans are made to borrowers for the
purpose of consolidating consumer debt or financing other consumer needs, the
competitive advantages of tax deductible interest, when compared with
alternative sources of financing, could be eliminated or seriously impaired by
such government action. Accordingly, the reduction or elimination of these tax
benefits could have a material adverse effect on the demand for loans of the
kind offered by us.
34
<PAGE> 35
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
SECURITIZATIONS -- HEDGING INTEREST RATE RISK
The most significant variable in the determination of gain on sale in a
securitization is the spread between the weighted average coupon on the
securitized loans and the pass-through interest rate. In the interim period
between loan origination or purchase and securitization of such loans, the
Company is exposed to interest rate risk. The majority of loans are securitized
or sold within 90 days of origination or purchase. However, a portion of the
loans are held for sale or securitization for as long as 12 months (or longer,
in very limited circumstances) prior to securitization. If interest rates rise
during the period that the mortgage loans are held, in the case of a
securitization, the spread between the weighted average interest rate on the
loans to be securitized and the pass-through interest rates on the securities to
be sold (the latter having increased as a result of market rate movements) would
narrow. Upon securitization, this would result in a reduction of the Company's
related gain on sale. During the nine months ended March 31, 1999, gain on sale
included a hedge loss of $13.5 million. There were no hedge gains or losses
during the three months ended March 31, 1999.
INTEREST-ONLY STRIPS AND MSRS
The Company had interest-only strips of $324.8 million and $490.5 million
outstanding at March 31, 1999 and June 30, 1998, respectively. The Company also
had MSRs outstanding at March 31, 1999 and June 30, 1998 in the amount of $23.2
million and $32.1 million, respectively. Both of these instruments are valued at
market at March 31, 1999 and June 30, 1998. The Company values these assets
based on the present value of future cash flow streams net of expenses using
various assumptions. See "Certain Accounting Considerations -- Accounting for
Securitizations."
These assets are subject to risk of accelerated mortgage prepayment or
losses in excess of assumptions used in valuation. Ultimate cash flows realized
from these assets would be reduced should prepayments or losses exceed
assumptions used in the valuation. Conversely, cash flows realized would be
greater should prepayments or losses be below expectations.
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<C> <S>
4.8 Warrant to Purchase Common Stock of the Registrant, dated
January 4, 1999, by the Registrant in favor of Capital Z
Management, Inc.(1)
4.9 Contingent Warrant to Purchase Common Stock of the
Registrant, dated February 10, 1999, by the Registrant in
favor of Capital Z Management, Inc.(2)
10.22(d) Third Amendment to Residuals Financing Agreement, dated as
of February 8, 1999, between Registrant and NationsBank,
N.A.
10.22(e) Fourth Amendment to Residuals Financing Agreement, dated as
of April 9, 1999, between Registrant and NationsBank, N.A.
10.30(a) Amended and Restated Master Repurchase Agreement Governing
Purchases and Sales of Mortgage Loans, dated as of February
10, 1999, between Aames Capital Corporation, Registrant's
wholly owned subsidiary ("ACC") and Lehman Commercial Paper,
Inc.
10.30(b) Guaranty, dated as of March 8, 1996, between Registrant and
Lehman Commercial Paper, Inc., with respect to Exhibit
10.30(a).
10.31(a) Master Loan and Security Agreement, dated as of February 10,
1999, between ACC and Greenwich Capital Financial Products,
Inc.
10.31(b) Guaranty, dated as of February 10, 1999, between Registrant
and Greenwich Capital Financial Products, Inc., with respect
to Exhibit 10.31(a).
</TABLE>
35
<PAGE> 36
<TABLE>
<C> <S>
10.32(a) Master Repurchase Agreement, dated as of April 8, 1999,
between ACC and NationsBank, N.A.
10.32(b) Guaranty, dated as of April 8, 1999, between Registrant and
NationsBank, N.A., with respect to Exhibit 10.32(a).
10.33 Agreement for Management Advisory Services, dated as of
February 10, 1999 between Registrant and Equifin Capital
Management, LLC.
11 Computation of Per Share Earnings (Loss).
27 Financial Disclosure Schedule.
</TABLE>
- ---------------
(1) Incorporated herein by reference to the Form of Warrant to Purchase Common
Stock of the Registrant, filed as Exhibit C to Exhibit 10.1 of the
Registrant's Current Report on Form 8-K, filed with the Commission on
December 31, 1998.
(2) Incorporated herein by reference to the Form of Contingent Warrant to
Purchase Common Stock of the Registrant, filed as Exhibit E to Exhibit 10.1
of the Registrant's Current Report on Form 8-K, filed with the Commission on
December 31, 1998.
(b) Reports on Form 8-K
During the fiscal quarter ended March 31, 1999, the Company filed (i) a
Current Report on Form 8-K, filed on February 2, 1999 (earliest event reported
January 29, 1999), reporting information under Item 5 with respect to the New
York Stock Exchange's approval of the sale of preferred stock pursuant its
financial distress policy; (ii) a Current Report on Form 8-K filed on February
4, 1999 (earliest event reported February 2, 1999), reporting information under
Item 5 with respect to the Company's announcement that the holders of a majority
of its 9.125% Senior Notes due 2003 (the "Notes") delivered consents to a waiver
of the change of control provisions in the Notes indenture as solicited by the
Company and that the Company amended its solicitation of consents and extended
the expiration of the consent solicitation; (iii) a Current Report on Form 8-K
filed on February 16, 1999 (earliest event reported February 11, 1999),
reporting information under Item 5 with respect to the completion of the initial
phase of the investment by Capital Z Financial Services Fund II, LP, the
revision of valuation assumptions and a change in accounting methodology for
interest-only strips and a write-down for the second fiscal quarter; (iv) a
Current Report on Form 8-K filed on February 24, 1999 (earliest event reported
February 22, 1999), reporting information under Item 5 regarding the Company's
recording of a net loss in valuations of interest-only strips, the adoption of
the "cash-out" method of accounting and the appointment of new auditors; (v) a
Current Report on Form 8-K filed on February 25, 1999 (earliest event reported
February 10, 1999), reporting information under Item 1 regarding a change in
control of the Company; and (vi) a Current Report on Form 8-K filed on March 1,
1999 (earliest event reported February 22, 1999), reporting information under
Item 4 regarding a change in the Company's certified public accountants.
36
<PAGE> 37
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: May 17, 1999 By: /s/ DAVID A. SKLAR
------------------------------------
David A. Sklar
Executive Vice President-Finance and
Chief Financial and Accounting
Officer
37
<PAGE> 38
AAMES FINANCIAL CORPORATION
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
4.8 Warrant to Purchase Common Stock of the Registrant, dated
January 4, 1999, by the Registrant in favor of Capital Z
Management, Inc.(1)
4.9 Contingent Warrant to Purchase Common Stock of the
Registrant, dated February 10, 1999, by the Registrant in
favor of Capital Z Management, Inc.(2)
10.22(d) Third Amendment to Residuals Financing Agreement, dated as
of February 8, 1999, between Registrant and NationsBank,
N.A.
10.22(e) Fourth Amendment to Residuals Financing Agreement, dated as
of April 9, 1999, between Registrant and NationsBank, N.A.
10.30(a) Amended and Restated Master Repurchase Agreement Governing
Purchases and Sales of Mortgage Loans, dated as of February
10, 1999, between Aames Capital Corporation, Registrant's
wholly owned subsidiary ("ACC") and Lehman Commercial Paper,
Inc.
10.30(b) Guaranty, dated as of March 8, 1996, between Registrant and
Lehman Commercial Paper, Inc., with respect to Exhibit
10.30(a).
10.31(a) Master Loan and Security Agreement, dated as of February 10,
1999, between ACC and Greenwich Capital Financial Products,
Inc.
10.31(b) Guaranty, dated as of February 10, 1999, between Registrant
and Greenwich Capital Financial Products, Inc., with respect
to Exhibit 10.31(a).
10.32(a) Master Repurchase Agreement, dated as of April 8, 1999,
between ACC and NationsBank, N.A.
10.32(b) Guaranty, dated as of April 8, 1999, between Registrant and
NationsBank, N.A., with respect to Exhibit 10.32(a).
10.33 Agreement for Management Advisory Services, dated as of
February 10, 1999 between Registrant and Equifin Capital
Management, LLC.
11 Computation of Per Share Earnings (Loss)
27 Financial Disclosure Schedule
</TABLE>
- ---------------
(1) Incorporated herein by reference to the Form of Warrant to Purchase Common
Stock of the Registrant, filed as Exhibit C to Exhibit 10.1 of the
Registrant's Current Report on Form 8-K, filed with the Commission on
December 31, 1998.
(2) Incorporated herein by reference to the Form of Contingent Warrant to
Purchase Common Stock of the Registrant, filed as Exhibit E to Exhibit 10.1
of the Registrant's Current Report on Form 8-K, filed with the Commission on
December 31, 1998.
38
<PAGE> 1
EXHIBIT 10.22(d)
THIRD AMENDMENT TO
RESIDUALS FINANCING AGREEMENT
THIS THIRD AMENDMENT TO RESIDUALS FINANCING AGREEMENT (this "Amendment")
is made and dated as of the 8th day of February, 1999, 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"), and NATIONSBANK, N.A., a national banking association (the "Lender").
RECITALS
A. Pursuant to that certain Residuals Financing Agreement dated as of
September 4, 1998 among the Company, the Parent and the Lender (as amended,
extended and replaced from time to time, the "Agreement" and with capitalized
terms used herein and not otherwise defined herein used with the meanings given
such terms in the Agreement), the Lender agreed to extend credit to the Company
on the terms and subject to the conditions set forth therein.
B. The Company wishes to pledge additional Collateral to create
additional availability in the credit facility under the Agreement for a limited
time period and the Lender has agreed to permit the creation of such temporary
availability on certain terms and conditions, all as set forth more particularly
below.
C. The Company and the Parent have also requested the Lender to waive on
a prospective basis compliance by the Company with certain financial covenants
set forth in the Agreement and the Lender has agreed to provide such waiver on
the terms and subject to the conditions set forth 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. Delivery of Additional Collateral for Temporary Availability. On or
before the Third Amendment Effective Date (as such term is defined in Paragraph
5 below), the Company shall deliver to The Chase Manhattan Bank, as custodian on
behalf of the Lender (the "Custodian"), the certificates representing the
Residual Mortgage-Backed Securities set forth on Schedule I hereto, properly
endorsed in blank for transfer (collectively, as so endorsed, the "Additional
Collateral"), under cover of a letter addressed to the Lender requesting the
Additional Collateral to be identified as Collateral
1
<PAGE> 2
for the Obligations pursuant to the Security Agreement. The parties hereto
hereby agree that:
(a) As of the Third Amendment Effective Date, the Additional
Collateral shall constitute Eligible Residual Securities identified as
Collateral pursuant to the Security Agreement with an aggregate Established
Collateral Value of $20,000,000.00. The Lender agrees that, on the terms and
subject to the conditions set forth in the Agreement, it shall from time to time
from and including the Third Amendment Effective Date to but not including the
Temporary Availability Termination Date (as defined in Paragraph 1(b) below)
make Revolving Loans under the Agreement on account of the increased
availability under the Residuals Borrowing Base resulting from the delivery of
the Additional Collateral (all such Revolving Loans, collectively, the "New
Advances").
(b) On the earlier of February 26, 1999 and the date on which all
outstanding New Advances have been repaid in full (the "Temporary Availability
Termination Date"):
(i) The Additional Collateral shall automatically cease to
constitute Eligible Residual Securities;
(ii) The Collateral Value of the Residuals Borrowing Base
shall be automatically reduced accordingly; and
(iii) The New Advances shall become immediately due and
payable in full.
(c) If, but only if, the New Advances are paid in full in strict
compliance with the requirement of Paragraph 1(d) below on or before the
Temporary Availability Termination Date out of the Company's own funds (and not
as a result of the sale or other disposition of any Collateral and application
of funds therefrom), the Lender shall promptly release the Additional Collateral
from the Lien under the Security Agreement and shall notify the Custodian to
deliver the Additional Collateral to such Persons as the Company may direct. The
parties hereto acknowledge and agree the Lender shall have no obligation to
release the Additional Collateral except pursuant to the immediately preceding
sentence, notwithstanding any circumstance which would prohibit the Company, or
cause the Company to be unable, to timely repay the New Advances in accordance
with Paragraph 1(d), including, without limitation, in the event the Company
becomes involved in a bankruptcy or similar proceeding. The Lender acknowledges
and agrees that in the event all Obligations under the Agreement are repaid in
full, the Lender shall release all Collateral, including the Additional
Collateral, in accordance with applicable laws.
(d) Subject to the prepayment requirements under the Agreement
and under Paragraphs 1(b)(iii) above and 1(e) below, the Company shall pay the
principal amount of each New Advance no later than the earlier of (i) the tenth
(10th) Business Day after the
2
<PAGE> 3
date such Revolving Loan is made and (ii) the Temporary Availability Termination
Date. The Term-Out Option shall not be available with respect to any such
Revolving Loan.
(e) The Company shall immediately prepay any outstanding
Revolving Loans advanced pursuant to this Amendment from cash available to the
Company for general corporate purposes ("Cash from Operations"). Notwithstanding
the previous sentence, the Lender acknowledges that the Company does not have to
include any cash contributed to the Parent's equity capital accounts pursuant to
the Cap Z Agreement (as defined below) as Cash from Operations, and the Lender
further acknowledges that before Cash from Operations is applied to the
prepayment of such Revolving Loans such cash will first be applied (i) to repay
any outstanding "Tranche B Loans" to the extent required (and as such term is
defined) under the terms of the Warehousing Agreement, (ii) to make payroll and
payroll-related payments of the consolidated Parent as they become due, (iii) to
pay net operating costs of the consolidated Parent not to exceed $1,000,000.00
on any one day, and (iv) to make payments to the State of California on account
of escheat payments due pursuant to any notice received by the Parent.
2. Waiver. The Lender hereby waives any Potential Default or Event of
Default which may result from (a) the failure of the Company to have been in
compliance with any of the financial covenants set forth in Paragraphs 8(j),
8(k) and 8(l) of the Credit Agreement as of the end of the calendar quarter
ended December 31, 1998, and (b) any material adverse change because of such
non-compliance or which may occur as a direct result of the failure of the
Company to be in compliance with such financial covenants as of the end of the
calendar quarter ended December 31, 1998; such waiver being made on a
prospective basis and to become effective upon the occurrence of any such
Potential Default or Event of Default; provided, however, that the effectiveness
of such waiver shall be conditioned upon (1) the Parent having a consolidated
net worth, determined in accordance with GAAP, as of the end of the calendar
quarter ended December 31, 1998, of not less than $50,000,000.00; (2) that
certain Preferred Stock Purchase Agreement dated as of December 23, 1998 by and
between the Parent and Capital Z Financial Services Fund II, L.P. (the "Cap Z
Agreement") not having been terminated and the transactions contemplated thereby
not having been aborted; and (3) the "Initial Closing" under (and as such term
is defined in) the Cap Z Agreement being consummated on or before March 5, 1999.
3. Limited Nature of Waiver. Each of the Company and the Parent hereby
acknowledges and agrees that nothing contained herein shall: (a) constitute any
agreement by the Lender to waive any Potential Default or Event of Default other
than those expressly waived pursuant to Paragraph 2 above; and (b) be construed
as a waiver of any material adverse change in the business, operations, assets
or financial or other condition of the Company, the Parent and its consolidated
Subsidiaries taken as a whole other than those expressly waived pursuant to
Paragraph 2 above.
4. Reaffirmation of Loan Documents. Each of the Company and the Parent
hereby affirms and agrees that (a) except as expressly amended hereby, the
execution and
3
<PAGE> 4
delivery by the Company and the Parent of and the performance of their
obligations under this Amendment shall not in any way amend, impair, invalidate
or otherwise affect any of the obligations of the Company or the Parent or the
rights of the Lender under the Agreement, the Security Agreement, the Guaranty
or any other Loan Document, (b) the term "Obligations" as used in the Loan
Documents includes, without limitation, the Obligations of the Company under the
Agreement as amended hereby.
5. Third Amendment Effective Date. This Amendment shall be effective as
of the earliest date (the "Third Amendment Effective Date") on which each of the
following events shall have occurred:
(a) Each of the Company and the Parent has duly executed and
delivered to the Lender this Amendment;
(b) The Company has duly delivered to the Custodian the
Additional Collateral pursuant to Paragraph 1 above; and
(c) The Custodian has confirmed in writing to the Lender that it
is holding the Additional Collateral in its capacity as custodian on behalf of
the Lender under that certain Collateral Custody Agreement dated as of December
10, 1998 by and among the Company, the Lender and the Custodian.
6. Representations and Warranties. Each of the Company and the Parent
hereby represents and warrants to the Lender that it has the corporate power and
authority and the legal right to execute, deliver and perform this Amendment and
has taken all necessary corporate action to authorize the execution, delivery
and performance of this Amendment, and that this Amendment has been duly
executed and delivered on behalf of the Company and the Parent and constitutes
the legal, valid and binding obligations of each, enforceable against each in
accordance with its terms.
7. No Other Amendment. Except as expressly amended hereby, the Loan
Documents shall remain in full force and effect as written and amended to date.
8. Counterparts. This Amendment may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
agreement.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
as of the day and year first above written.
AAMES CAPITAL CORPORATION, a California
corporation
By: /s/ David A. Sklar
-----------------------------------------------
Name: David A. Sklar
---------------------------------------------
Title: EVP & CFO
--------------------------------------------
AAMES FINANCIAL CORPORATION, a Delaware
corporation
By: /s/ David A. Sklar
-----------------------------------------------
Name: David A. Sklar
---------------------------------------------
Title: EVP & CFO
--------------------------------------------
NATIONSBANK, N.A., a national banking association
By: /s/ Carolyn Warren
-----------------------------------------------
Name: Carolyn Warren
---------------------------------------------
Title: Senior Vice President
--------------------------------------------
5
<PAGE> 6
SCHEDULE I
SCHEDULE OF ADDITIONAL COLLATERAL
Aames Mortgage Trust 1995-C Mortgage Pass-Through Certificate, Series 1995-C,
Class R, Certificate No.: R02
Aames Mortgage Trust 1995-D Mortgage Pass-Through Certificate, Series 1995-D,
Class R, Certificate No.: R02
Aames Mortgage Trust 1996-A Mortgage Pass-Through Certificate, Series 1996-A,
Class R, Certificate No.: R02
Aames Mortgage Trust 1996-B Mortgage Pass-Through Certificate, Series 1996-B,
Class R, Certificate No.: R02
Aames Mortgage Trust 1996-C Mortgage Pass-Through Certificate, Series 1996-C,
Class R, Certificate No.: R02
6
<PAGE> 1
EXHIBIT 10.22(e)
FOURTH AMENDMENT TO
RESIDUALS FINANCING AGREEMENT
THIS FOURTH AMENDMENT TO RESIDUALS FINANCING AGREEMENT (this
"Amendment") is made and dated as of the 9th day of April, 1999, 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"), and NATIONSBANK, N.A., a national banking association
(the "Lender").
RECITALS
A. Pursuant to that certain Residuals Financing Agreement dated as of
September 4, 1998 among the Company, the Parent and the Lender (as amended,
extended and replaced from time to time, the "Agreement" and with capitalized
terms used herein and not otherwise defined herein used with the meanings given
such terms in the Agreement), the Lender agreed to extend credit to the Company
on the terms and subject to the conditions set forth therein.
B. The Company wishes to pledge certain Eligible Servicing Receivables
(as defined below) to Lender as collateral to create a borrowing base for a
working capital credit facility in replacement of the current credit facility
under the Agreement and the Lender has agreed to provide such replacement credit
facility on certain terms and conditions, all as set forth more particularly
below.
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. Revolving Credit Facility. To reflect the agreement of the parties
hereto to replace the existing credit facility in the Agreement with a revolving
credit facility to be supported by a borrowing base consisting of Eligible
Servicing Receivables, effective as of the Fourth Amendment Effective Date (as
defined in Paragraph 10 below):
(a) Paragraph 1 of the Agreement is hereby amended to read in its
entirety as follows:
"1. Revolving Credit Facility.
1(a) Revolving Credit Limit. On the terms and
subject to the conditions set forth herein, the Lender agrees that it
shall from time to time to but not including the Maturity Date (as such
term and capitalized terms not otherwise
1
<PAGE> 2
defined herein are defined in Paragraph 11 below) makes loans (the
"Revolving Loans" or a "Revolving Loan") to the Company in an amount not
to exceed, in the aggregate at any one time outstanding, the lesser of:
(1) The Revolving Credit Limit; and
(2) The Collateral Value of the Borrowing
Base.
1(b) Payment of Revolving Loans. Subject to the
prepayment requirements of Paragraph 3(f) below and the interest rate
conversion and continuation provisions of Paragraph 2(c) below, the
Company shall pay the principal amount of each Revolving Loan on the
Maturity Date."
(b) Paragraph 2(a) of the Agreement is hereby amended by deleting
the phrase "and, following the Conversion Date, the Term Loan and portions
thereof," from the second line thereof and the phrase "and the Term Loan" from
the eighth line thereof.
(c) Paragraph 2(c)(1) of the Agreement is hereby amended by
deleting the phrase "or, following the Conversion Date, the Term Loan" from the
eleventh and twelfth lines thereof.
(d) Paragraph 2(i) of the Agreement is hereby amended to read in
its entirety as follows:
"2(i) Facility Fee. The Company shall pay to the
Lender from the Fourth Amendment Effective Date to and including the
Maturity Date, monthly, in arrears, and on the Maturity Date for such
month or portion thereof, a non-usage fee in the amount set forth in a
fee billing delivered by the Lender to the Company, which non-usage fee
shall equal: (1) the average daily Revolving Credit Limit in effect
during such month (or portion thereof), minus the daily average
outstanding amount of Revolving Loans during such month (or portion
thereof), multiplied by (2) the product of: (i) one-eighth of one
percent (0.125%), and (ii) a fraction, the numerator of which is the
number of days in the applicable calculation period and the denominator
of which is 360."
(e) Paragraph 3(a) of the Agreement is hereby amended to read in
its entirety as follows:
"3(a) Use of Proceeds. The proceeds of Revolving
Loans shall be utilized by the Company for working capital purposes."
(f) Paragraph 3(b)(2) of the Agreement is hereby amended to
delete the phrase "Collateral Value of the Residuals Borrowing Base" in the
fourth line thereof and inserting in its place the phrase "Collateral Value of
the Borrowing Base".
(g) Paragraphs 3(d)(1), 3(d)(2) and 3(d)(3) of the Agreement are
hereby amended to read in their entirety as follows:
2
<PAGE> 3
"(1) In support of its obligations to repay
Revolving Loans hereunder, the Company shall cause (i) the Collateral
Value of the Borrowing Base to be not less than, at any date, the sum of
the aggregate principal amount of Revolving Loans outstanding on such
date, including any such Revolving Loans to be funded on such date, (ii)
the Collateral Value of the Residuals Collateral to be not less than, on
any date, one and one-quarter (1.25) times the Revolving Credit Limit on
such date. The Company may from time to time request the Lender to
release and/or substitute from the Lien in favor of the Lender under the
Security Agreement certain items of collateral, including Residual
Mortgage-Backed Securities, and the Lender shall promptly notify the
Company whether, in its sole and absolute discretion, the Lender will
agree to do so. The Company may also from time to time deliver
additional Eligible Servicing Receivables to be included in the
Borrowing Base by written notice to the Lender. The Company shall
identify in such written notice the servicing agreement(s) pursuant to
which such Eligible Servicing Receivables arose (the "Additional
Servicing Agreements") and shall state that such Eligible Servicing
Receivables are being pledged as Collateral under the Security
Agreement. The Company shall also attach to such written notice a
replacement Schedule 1 to the Security Agreement, restating therein the
list of all the servicing agreements the related Eligible Servicing
Receivables of which were already included in the Borrowing Base and
adding thereto the Additional Servicing Agreements. Pursuant to the
terms of the Security Agreement, Schedule 1 to the Security Agreement
shall be deemed replaced by such replacement Schedule 1 and such
Eligible Servicing Receivables shall be included in the Borrowing Base.
(2) In the event on any date that the Collateral
Value of the Borrowing Base is less than the sum of the aggregate
principal amount of Revolving Loans outstanding on such date, upon
telephonic demand by the Lender, the Company shall pay to the Lender, no
later than the following Business Day, an amount to prepay the Revolving
Loans equal to the amount by which the sum of the aggregate principal
amount of Revolving Loans outstanding on the date of payment by the
Company exceeds the Collateral Value of the Borrowing Base on the date
of payment by the Company. If, but only if, at such time as the Company
shall be required to prepay Revolving Loans under this subparagraph
3(d)(2) there shall not have occurred and be continuing an Event of
Default or Potential Default, in lieu of making a principal prepayment,
the Company may deliver to the Lender additional Eligible Servicing
Receivables such that the aggregate principal balance of Revolving Loans
outstanding does not exceed the Collateral Value of the Borrowing Base.
(3) In the event the Lender shall determine on any
date that the Collateral Value of the Residuals Collateral is less than
one and one-quarter (1.25) times the Revolving Credit Limit on such
date, the Lender may, in its sole discretion, elect to deliver to the
Company (which delivery may be by facsimile transmission) a Collateral
Valuation Report so demonstrating. Upon such
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<PAGE> 4
delivery, the Revolving Credit Limit shall be automatically reduced to
equal eighty percent (80%) of the Collateral Value of the Residuals
Collateral as determined by the Lender, and the Company shall pay to the
Lender, no later than the fifth Business Day following such delivery, an
amount to prepay the Revolving Loans equal to the amount, if any, by
which the sum of the aggregate principal amount of Revolving Loans
outstanding on the date of payment by the Company exceeds the Revolving
Credit Limit as so reduced. If, but only if, at such time as the Company
shall be required to prepay Revolving Loans under this subparagraph
3(d)(3) there shall not have occurred and be continuing an Event of
Default or Potential Default, in lieu of making a principal prepayment,
the Company may deliver to the Lender and/or the Custodian additional
Eligible Residual Securities with an Established Collateral Value such
that the Collateral Value of the Residuals Collateral, as determined by
the Lender in its sole discretion, shall equal or exceed one and
one-quarter (1.25) times the Revolving Credit Limit prior to the
automatic reduction pursuant to the preceding sentence, and the
Revolving Credit Limit shall be automatically increased to the level
prior to such automatic reduction. If upon any such automatic reduction
the Company shall not be required to prepay Revolving Loans under this
subparagraph 3(d)(3) and there shall not have occurred and be continuing
an Event of Default or Potential Default, the Company may also deliver
to the Lender and/or the Custodian additional Eligible Residual
Securities with an Established Collateral Value such that the Collateral
Value of the Residuals Collateral, as determined by the Lender in its
sole discretion, shall equal or exceed one and one-quarter (1.25) times
the Revolving Credit Limit prior to such automatic reduction, and the
Revolving Credit Limit shall be automatically increased to the level
prior to such automatic reduction."
(h) Paragraphs 3(f)(3) and 3(f)(4) are hereby deleted in their
entirety and Paragraph 3(f)(5) is hereby renumbered as Paragraph 3(f)(3).
(i) Paragraph 5(b) is hereby amended (i) to delete the phrase
"and to fund the Term Loan," from the second and third lines thereof, (ii) to
add the phrase "and a Borrowing Base Certificate current as of the immediately
preceding Business Day" after the word "therefor" in subparagraph (1) thereof,
(iii) to delete the second, erroneously numbered, subparagraph (4) thereof in
its entirety and to insert in its place a new subparagraph (5) to read in its
entirety as follows:
"(5) With respect to any Revolving Loan to be
funded at any time on and after August 1, 1999, there shall not have
been any outstanding Revolving Loans for a period of no less than three
consecutive Business Days during the immediately preceding calendar
month."
, and (iv) to delete the phrase "and, as applicable, (b)(3) and b(4)" in the
last line thereof and to insert in its place the phrase ", (b)(4) and (b)(5)".
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<PAGE> 5
2. Representations and Warranties. To reflect the agreement of the
parties hereto to amend and add certain representations and warranties,
effective as of the Fourth Amendment Effective Date:
(a) Paragraphs 6(a) and 6(b) are hereby amended to read in their
entirety as follows:
"6(a) Financial Condition. The financial statements dated
February 28, 1999, copies of which have heretofore been delivered to the
Lender, are complete and correct in all material respects and present
fairly in accordance with GAAP the consolidated financial condition of
the Parent and its consolidated Subsidiaries at such dates and the
consolidated and consolidating results of its operations and changes in
cash flows for the fiscal period then ended.
6(b) No Change. Since February 28, 1999, 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."
(b) Paragraph 6(f) of the Agreement is hereby amended by deleting
the phrase "Except as disclosed on Exhibit E hereto," in the first line thereof
and capitalizing the word "no" in the first line thereof.
(c) Paragraph 6(i) of the Agreement is hereby deleted in its
entirety and the phrase "Intentionally omitted" is hereby inserted in its place.
(d) Paragraph 6(j) of the Agreement is hereby amended by deleting
the phrase "nor the Letter of Credit" in the fifth line thereof.
(e) Paragraph 6(l) of the Agreement is hereby amended to read in
its entirety as follows:
"6(l) Assets. The Parent and each of its Subsidiaries have
good and marketable title to all material property and assets reflected
in the financial statements referred to in Paragraph 6(a) above, except
property and assets sold or otherwise disposed of in the ordinary course
of business or for fair market value subsequent to the date thereof."
(f) A new Paragraph 6(o) is hereby added to the Agreement to read
in its entirety as follows:
"6(o) Year 2000 Compliance. Each of the Parent and
the Company has (i) initiated a review and assessment of all areas
within its and each of its Subsidiaries' business and operations
(including those affected by suppliers and vendors) that could be
adversely affected by the "Year 2000 Problem" (that is, the risk that
computer applications used by it or any of its Subsidiaries (or its
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<PAGE> 6
suppliers and vendors) may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date
after December 31, 1999), (ii) developed a plan and timeline for
addressing the Year 2000 Problem on a timely basis, and (iii) to date,
implemented that plan in accordance with that timetable, except to the
extent that a failure to do so could not reasonably be expected to have
a Material Adverse Effect. Each of the Parent and the Company reasonably
believes that all computer applications (including those of its
suppliers and vendors) that are material to its or any of its
Subsidiaries' business and operations will on a timely basis be able to
perform properly date-sensitive functions for all dates before and after
January 1, 2000 (that is, be "Year 2000 compliant"), except to the
extent that a failure to do so could not reasonably be expected to have
a Material Adverse Effect."
3. Changes in Covenants. To reflect the agreement of the parties hereto
to amend and add certain covenants, effective as of the Fourth Amendment
Effective Date:
(a) Paragraphs 7(a)(2) and 7(a)(3) of the Agreement are hereby
amended to read in their entirety as follows:
"(2) Within forty-five (45) days after the last day
of each calendar quarter other than the last quarter of each fiscal
year, statements of income of the Company for such quarter and a balance
sheet of the Company as of the end of such quarter, and statements of
income and statements of cash flow of the Parent for such quarter and a
balance sheet of the Parent as of the end of such quarter;
(3) Within thirty (30) days after the last day of
each calendar month other than the last month of each calendar quarter,
consolidated statements of income for such month and a consolidated
balance sheet as of the end of such month of the Parent and its
Subsidiaries;"
(b) Paragraph 7(a)(4) of the Agreement is hereby amended by
deleting the phrase "and 8(l)" in the last line thereof and inserting in its
place the phrase ", 8(l) and 8(m)".
(c) Paragraphs 7(b)(1) and 7(b)(2) of the Agreement are hereby
amended to read in their entirety as follows:
"(1) On each Business Day that any Revolving Loan
is outstanding, a Borrowing Base Certificate setting forth a
reconciliation of the Eligible Servicing Receivables included as
Collateral, on a pool by pool basis, including, without limitation,
detail of all outstanding Eligible Servicing Receivables included as
Collateral and all reimbursement on account of Eligible Servicing
Receivables received as of the immediately preceding Business Day; and
upon request of the Lender, such reports and other information relating
to the Collateral, including, without limitation, Residual
Mortgage-Backed Securities as are described therein; and
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<PAGE> 7
(2) The required reports listed on Schedule I
attached hereto at the times set forth therein; and"
and Schedule I to the Agreement is hereby replaced by Replacement Schedule I
attached hereto.
(d) Paragraphs 7(c) and 7(d) of the Agreement are hereby amended
to read in their entirety as follows:
"7(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 Indebtedness (other than the Obligations) in an aggregate
amount not to exceed $1,000,000.
7(d) Maintenance of Existence and Properties. Maintain its
corporate existence and obtain and maintain all rights, privileges,
licenses, approvals, franchises, properties and assets necessary in the
normal conduct of its business (other than such rights, privileges,
licenses, approvals, franchises, properties and assets the failure to so
obtain and maintain would not in the aggregate have a Material Adverse
Effect) and comply with all Contractual Obligations and Requirements of
Law."
(e) New Paragraphs 7(k) and 7(l) are hereby added to the
Agreement to read in their entirety as follows:
"7(k) Year 2000 Compliance. Promptly notify the Lender in
the event it discovers or determines that any computer application
(including those of its suppliers and vendors) that is material to its
or any of its Subsidiaries' business and operations will not be Year
2000 compliant on a timely basis, except to the extent that such failure
could not reasonably be expected to have a Material Adverse Effect.
7(l) No Outstanding Revolving Loans. Pay off all
outstanding Revolving Loans and maintain a zero balance for outstanding
Revolving Loans for a period of not less than three consecutive Business
Days during each calendar month commencing with the month of July,
1999."
(f) Paragraph 8(b)(7) of the Agreement is hereby amended by
deleting the phrase "and Permitted Guaranties" set forth therein.
(g) Paragraph 8(d) of the Agreement is hereby amended by deleting
the phrase "the April 10, 1998" in the third and fourth lines thereof and
inserting in its place the phrase "April 8, 1999".
(h) Paragraph 8(f) of the Agreement is hereby amended to read in its
entirety as follows:
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<PAGE> 8
"8(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 (other than the conversion of Series B preferred stock and
Series C preferred stock into common stock contemplated by the Cap Z
Agreement); 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."
(i) Paragraphs 8(h), 8(i), 8(j), 8(k), 8(l), 8(m), 8(n) and 8(o)
of the Agreement are hereby amended to read in their entirety as follows:
"8(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 or otherwise in
accordance with the Company's business plan projection known as the
"Project Angel Projection" dated as of February 15, 1999, a copy of
which having been delivered to the Lender.
8(i) Leverage. Permit at any time the Leverage Ratio of
the Parent and its consolidated Subsidiaries to exceed 4.00: 1.00.
8(j) Minimum Tangible Net Worth. Permit at any time:
(1) The Parent's Tangible Net Worth to be less than
the sum of: (i) $135,000,000, plus (ii) eighty percent (80%) of net
income (if positive), determined in accordance with GAAP, during each
calendar quarter ending after the date hereof, plus (iii) eighty-five
percent (85%) of contributions to equity of the Parent (other than the
"Rights Offering" under (and as defined in) the Cap Z Agreement) made at
any time after the date hereof, plus (iv) one hundred percent (100%) of
contributions to equity of the Parent in connection with the "Rights
Offering" under (and as defined in) the Cap Z Agreement, or
(2) The Company's Tangible Net Worth to be less
than the sum of: (i) $400,000,000, plus (ii) eighty percent (80%) of net
income (if positive), determined in accordance with GAAP, during each
calendar quarter ending after the date hereof, plus (iii) eighty-five
percent (85%) of contributions to equity of the Company (other than the
"Rights Offering" under (and as defined in) the Cap Z Agreement) made at
any time after the date hereof, plus (iv) one hundred percent (100%) of
contributions to equity of the Company in connection with the "Rights
Offering" under (and as defined in) the Cap Z Agreement.
8(k) Minimum Profitability. Permit at the end of any
calendar quarter (commencing with the calendar quarter ending September
30, 1999) the Parent's consolidated net income, determined in accordance
with GAAP, for such
8
<PAGE> 9
calendar quarter and the immediately preceding calendar quarter,
taken together, to be less than $1.00.
8(l) Non-Warehouse Debt. Permit the Non-Warehouse Debt
Ratio of the Parent and its consolidated Subsidiaries to exceed
1.55:1.00 for the calendar quarters ending March 31, 1999 and June 30,
1999, and 1.40: 1.00 for any other calendar quarter thereafter.
8(m) Maintenance of Liquidity and Committed Working
Capital Line. Permit:
(1) The aggregate amount of the Parent's cash, Cash
Equivalents and available borrowing capacity on unencumbered
assets that could be drawn against (taking into account required
haircuts) under committed warehouse or working capital
facilities, on a consolidated basis and on any given day, to be
less than: (i) prior to July 1, 1999, $5,000,000, and (ii) on and
after July 1, 1999, $15,000,000; provided, however, that the
liquidity of the Parent, on a consolidated basis and on any given
day, may fall below the foregoing thresholds one time in any
given calendar month and such noncompliance shall not last for
more than three Business Days, but may in no event fall below
$1,000,000 at any time; or
(2) The Company to have less than $25,000,000 of
commitment under a committed working capital line (including the
credit facility pursuant to this Agreement) at any time;
provided, however, that the Company may have less commitment than
the foregoing threshold if the Company can otherwise satisfy the
Lender as to the availability of working capital to meet its
servicing advance obligations.
8(n) 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 Mortgage Loans, as
such are in effect on the date hereof.
8(o) Subsidiaries. Create or permit the creation of any
Subsidiary not in existence as of the date hereof unless such Subsidiary
is in the same line of business as the Company and the total
capitalization thereof does not exceed $1,000,000."
(j) A new Paragraph 8(p) is hereby added to the Agreement to read
in its entirety as follows:
"8(p) Transactions with Affiliates. Purchase, acquire or
lease any property from, or sell, transfer or lease any property to,
lend or advance any
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<PAGE> 10
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 (i) on an
arms-length basis upon terms and conditions comparable to those that
could be reached with a third party (ii) Mortgage Loans on the books of
the Parent or the Company with original principal amounts in the
aggregate not to exceed $5,000,000 at any one time extended to
executives of the Parent or the Company, which Mortgage Loans can and
will be securitized."
4. Changes in Events of Default. To reflect the agreement of the parties
hereto to amend and add certain Events of Default, effective as of the Fourth
Amendment Effective Date:
(a) Paragraph 9(b) of the Agreement is hereby amended to read in
its entirety as follows:
"9(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 material
respect on or as of the date made or deemed made; or"
(b) Paragraph 9(e) of the Agreement is hereby amended to read in
its entirety as follows:
"9(e) The Parent or any of its Subsidiaries shall default
in any payment of principal of or interest on any Indebtedness to the
Lender or any of its Affiliates, or in any other Indebtedness in an
aggregate amount of not less than $1,000,000.00, 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 there shall occur an "Event of Default" under (and
as that term is defined in) the Repo Agreement; or"
(c) Paragraph 9(h) of the Agreement is hereby amended to read in
its entirety as follows:
"(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 $1,000,000, and the same remains undischarged or unpaid for a
period of sixty (60) days during which execution of such judgment or
decree is not effectively stayed; or"
(d) Paragraphs 9(j) and 9(k) of the Agreement is hereby amended
to read in its entirety as follows:
"9(j) Any Person other than Capital Z Financial Services
Fund II, L.P. and its Affiliates shall acquire more than twenty-five
percent (25%) of the equity interest in the Parent and its Subsidiaries
on a consolidated basis; or
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<PAGE> 11
9(k) There shall occur (i) a material adverse change in, or a
material adverse effect upon, the operations, business, properties,
condition (financial or otherwise) or prospects of the Company or the
Parent, (ii) a material impairment of the ability of the Company or the
Parent to perform under the Loan Documents and to avoid any Event of
Default, or (iii) a material adverse effect upon the legality, validity,
binding effect or enforceability against the Company or the Parent of
the Loan Documents;"
5. Changes in Definitions. To reflect the agreement of the parties
hereto to amend, add and delete certain definitions, effective as of the Fourth
Amendment Effective Date, Paragraph 11 of the Agreement is hereby amended as
follows:
(a) The following definitions are hereby deleted in their
entirety: "Adjusted Net Worth," "Average Total Liabilities," "Collateral Value
of the Residuals Borrowing Base," "Conversion Date," "Interim Date," "Permitted
Guaranties," "Required Principal Prepayment," "Residuals Borrowing Base,"
"Statement Date," "Term Loan," "Term-Out Option" and "Warehousing Agreement."
(b) The following definitions are hereby amended to read in their
entirety as follows:
"Applicable Effective Fed Funds Rate" shall mean on any
day the Effective Fed Funds Rate on such day plus 2.00%.
"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 + 2.00%
---------------
1-ERP
where
ER = Eurodollar Rate
ERP = Eurodollar Reserve Percentage
"Effective Fed Funds Rate Loans" shall mean Revolving
Loans at such time as they are made or being maintained at a rate of
interest based on the Effective Fed Funds Rate.
"Established Collateral Value" shall mean at any date with
respect to any Eligible Residual Security, the value of such Eligible
Residual Security as determined by the Lender using such methodologies
and parameters as may be established by the Lender from time to time in
its sole discretion, as such "Established Collateral Value" set forth in
the most recent Collateral Valuation Report delivered by the Lender to
the Company.
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<PAGE> 12
"Leverage Ratio" of any Person shall mean, on a consolidated
basis, the ratio of such Person's (a) total liabilities, as determined
in accordance with GAAP, minus Subordinated Debt, to (b) Tangible Net
Worth plus Subordinated Debt.
"Loan Documents" shall mean this Agreement, the Security
Agreement, the Notes, the Guaranty, the Custody Agreement 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.
"Loans" shall mean the Revolving Loans.
"Maturity Date" shall mean the earlier of: (a) April 7, 2000, as
such date may be extended from time to time in writing by the Lender,
the Company and the Parent, and (b) the date the Lender terminates its
obligation to make further Loans hereunder pursuant to Paragraph 9
above.
"Non-Warehouse Debt Ratio" shall mean, with respect to the
Parent and its Subsidiaries on a consolidated basis, on any date the
ratio of (a) consolidated funded Indebtedness (including Subordinated
Debt), minus the sum of- (i) unrestricted cash or Cash Equivalents
exceeding $5,000,000.00, plus (ii) one hundred percent (100%) of the
value, according to the Parent's balance sheet at such date, of all
Mortgage Loans held for sale, plus (iii) eighty percent (80%) of the
dollar amount of all accounts receivable shown on the Parent's balance
sheet at such date (but excluding all accounts receivable as to which
any Affiliate or any Subsidiary of the Parent is the account party), to
(b) Tangible Net Worth.
"Revolving Credit Limit" shall mean $25,000,000.00, as such
amount may be increased or decreased by mutual agreement of the Lender
and the Company.
(c) The following new definitions are hereby added to Paragraph
11 of the Agreement in correct alphabetical order to read in their entirety as
follows:
"Borrowing Base" shall mean at any date all Eligible Servicing
Receivables in which the Lender holds a first priority perfected
security interest at such date.
"Borrowing Base Certificate" shall mean a certificate in the
form of Exhibit J hereto setting forth in detail satisfactory to the
Lender the Collateral Value of the Borrowing Base as of the date of such
certificate.
"Cap Z Agreement" shall mean that certain Preferred Stock
Purchase Agreement dated as of December 23, 1998 by and between
Guarantor and Capital Z Financial Services Fund II, L.P., as amended on
February 10, 1999.
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<PAGE> 13
"Cash Equivalents" shall mean (a) securities with
maturities of 90 days or less from the date of acquisition issued or
fully guaranteed or insured by the United States Government or any
agency thereof, (b) certificates of deposit and eurodollar time deposits
with maturities of 90 days or less from the date of acquisition and
overnight bank deposits of any commercial bank having capital and
surplus in excess of $500,000,000, (c) repurchase obligations of any
commercial bank satisfying the requirements of clause (b) of this
definition, having a term of not more than seven days with respect to
securities issued or fully guaranteed or insured by the United States
Government, (d) commercial paper of a domestic issuer rated at least A-1
or the equivalent thereof by Standard and Poor's Ratings Group ("S&P")
or P-1 or the equivalent thereof by Moody's Investors Service, Inc.
("Moody's") and in either case maturing within 90 days after the day of
acquisition, (e) securities with maturities of 90 days or less from the
date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States, by any political
subdivision or taxing authority of any such state, commonwealth or
territory or by any foreign government, the securities of which state,
commonwealth, territory, political subdivision, taxing authority or
foreign government (as the case may be) are rated at least A by S&P or A
by Moody's, (f) securities with maturities of 90 days or less from the
date of acquisition backed by standby letters of credit issued by any
commercial bank satisfying the requirements of clause (b) of this
definition or (g) shares of money market mutual or similar funds which
invest exclusively in assets satisfying the requirements of clauses (a)
through (f) of this definition.
"Collateral Value of the Borrowing Base" shall mean eighty
percent (80%) of the aggregate dollar amount of Eligible Servicing
Receivables included in the Borrowing Base at such date.
"Collateral Value of the Residuals Collateral" shall mean
at any date the aggregate Established Collateral Value of all Eligible
Residual Securities in which the Lender holds a first priority perfected
security interest at such date.
"Custodian" shall mean The Chase Manhattan Bank, in its
capacity as custodian for the Lender pursuant to the Custody Agreement.
"Custody Agreement" shall mean that certain Amended and
Restated Collateral Custody Agreement dated as of April 9, 1999 by and
among the Company, the Lender and the Custodian, as amended, restated,
extended and replaced from time to time.
"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 Borrowing
Base shall be deemed to so represent and warrant to the Lender):
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<PAGE> 14
(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 (other than any of the following defaults
which exist as of the Fourth Amendment Effective Date: (i) the dollar
volume of loans which are delinquent for more than ninety (90) days
exceeded the permitted limit in the related pooling and servicing
agreements for the following securitization trusts: 1992-2, 1993-2,
1995-A, 1995-B, 1995-C, 1995-D, 1996-A, 1996-B, 1996-C, 1996-D and
1997-1, and (ii) one of two loss limits in the relating pooling and
servicing agreements were exceeded for the following securitization
trusts: 1994-B, 1995-D, 1996-A, 1996-B, 1996-C and 1996-D; and other
than any future defaults of similar nature so long as the related
servicing contract is not terminated) and there does not exist any fact
or circumstance that would entitle the investor thereunder to terminate
said servicing contract.
(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.
"Fourth Amendment Effective Date" shall have the meaning given
such term in that certain Fourth Amendment to Residuals Financing
Agreement dated as of April 9, 1999 by and among the Company, the Parent
and the Lender.
"Material Adverse Effect" shall mean the existence of any
circumstance or event which, individually or collectively, is reasonably
expected to result in any (a) material adverse impairment of the
Company's or the Parent's ability to perform its obligations under the
Loan Documents, (b) material impairment on the ability of the Lender to
enforce any of such obligations or any of its rights, remedies, powers,
privileges and benefits under the Loan Documents, (c) material adverse
effect on the Parent's or the Company's financial condition as
represented to the Lender in the most recently furnished financial
statements, or (d) Event of Default.
14
<PAGE> 15
"Repo Agreement" shall mean that certain Master Repurchase
Agreement dated as of April 8, 1999 by and between the Company and the
Lender.
"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 Lender has reviewed and approved
the form of such servicing agreement prior to inclusion of the related
Servicing Receivable in the Borrowing Base.
"Tangible Net Worth" of any Person shall mean the consolidated
net worth of such Person, determined in accordance with GAAP, minus all
intangible assets under GAAP; provided that residual assets shall not be
classified as intangible assets.
6. Pledge of Servicing Receivables. Pursuant to the Security Agreement,
the Company has pledged and granted to the Lender a first priority, perfected
security interest in the Servicing Receivables from time to time identified by
the Company as Collateral under the Agreement. To reflect the Company's
inclusion of certain Eligible Servicing Receivables in the Borrowing Base,
effective as of the Fourth Amendment Effective Date, Schedule 1 to the Security
Agreement is hereby replaced by Replacement Schedule 1 attached hereto. The
Company shall execute and deliver to the Lender such UCC financing statement
amendments as required by the Lender to reflect such change. In addition,
Paragraph 2(b) of the Security Agreement is hereby amended to read in its
entirety as follows:
"(b) All rights of the Company, now existing and hereafter
arising, to reimbursement for all fees and advances (collectively and
severally, the "Servicing Receivables"), whether on account of principal
or interest, property taxes or property insurance or otherwise, made by
the Company under those servicing contracts covering Mortgage Loans
owned by third parties and under those pooling and servicing agreements
covering Mortgage-Backed Securities described on Schedule 1 attached
hereto, as such Schedule 1 may be amended from time to time: (i) if such
amendment relates solely to the addition of servicing contracts or
agreements, by the Company in writing submitted to the Lender, and (ii)
in all other cases, by written agreement of the Company and the Lender;"
7. Delivery of Residuals Collateral. The parties hereto hereby agree
that on or before the Fourth Amendment Effective Date, the Company shall deliver
either directly to the Lender or to the Custodian pursuant to the Custody
Agreement (a form of which is attached hereto as Exhibit A) the certificates
representing the Residual Mortgage-Backed Securities set forth on Schedule 2
hereto (the "Additional Collateral"), properly endorsed in blank for transfer,
such that as of the Fourth Amendment Effective Date, the Collateral
15
<PAGE> 16
Value of the Residuals Collateral shall equal to or exceed one and one-quarter
(1.25) times the Revolving Credit Limit.
8. Amendment and Addition of Exhibits. The parties hereto hereby agree
that, effective as of the Fourth Amendment Effective Date:
(a) Exhibits G, H and I to the Agreement are hereby amended and
replaced by Replacement Exhibits G, H and I attached hereto.
(b) A new Exhibit J in the form of that attached hereto is hereby
added to the Agreement.
9. Reaffirmation of Loan Documents. Each of the Company and the Parent
hereby affirms and agrees that (a) except as expressly amended hereby, the
execution and delivery by the Company and the Parent of and the performance of
their obligations under this Amendment shall not in any way amend, impair,
invalidate or otherwise affect any of the obligations of the Company or the
Parent or the rights of the Lender under the Agreement, the Security Agreement,
the Guaranty or any other Loan Document, (b) the term "Obligations" as used in
the Loan Documents includes, without limitation, the Obligations of the Company
under the Agreement as amended hereby.
10. Fourth Amendment Effective Date. This Amendment shall be effective
as of the earliest date (the "Fourth Amendment Effective Date") on which each of
the following events shall have occurred:
(a) Each of the Company and the Parent has duly executed and
delivered to the Lender this Amendment;
(b) Each of the Company and the Custodian has duly executed and
delivered to the Lender the Custody Agreement;
(c) The Company has duly delivered to the Lender and/or the
Custodian the Additional Collateral pursuant to Paragraph 7 above;
(d) The Company has duly executed and delivered to the Lender all
UCC financing statement amendments required by the Lender to perfect its first
priority security interest in the Collateral;
(e) The Company has paid to the Lender the upfront fee pursuant
to that certain fee letter dated as of April 8, 1999 in immediately available
funds;
(f) The Company has duly prepared and delivered to the Lender a
Borrowing Base Certificate as of the Fourth Amendment Effective Date in form and
substance satisfactory to the Lender; and
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<PAGE> 17
(g) The Company has delivered to the Lender an opinion of counsel
for the Company and the Parent to the effect (but updated to be current as of
the Fourth Amendment Effective Date) and in substantially the form of that
certain opinion of counsel dated September 4, 1998 delivered by the general
counsel of the Parent in connection with the Agreement.
11. Representations and Warranties. Each of the Company and the Parent
hereby further represents and warrants to the Lender as follows:
(a) Each of the Company and the Parent has the corporate power
and authority and the legal right to execute, deliver and perform this Amendment
and has taken all necessary corporate action to authorize the execution,
delivery and performance of this Amendment. This Amendment has been duly
executed and delivered on behalf of the Company and the Parent and constitutes
the legal, valid and binding obligations of each, enforceable against each in
accordance with its terms.
(b) At and as of the date of execution hereof and at and as of
the Fourth Amendment Effective Date and both prior to and after giving effect
hereto: (i) the representations and warranties of the Company and the Parent
contained in the Agreement and the other Loan Documents are accurate and
complete in all respects, and (ii) there has not occurred an Event of Default or
Potential Default.
12. No Other Amendment. Except as expressly amended hereby, the Loan
Documents shall remain in full force and effect as written and amended to date.
13. Counterparts. This Amendment may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
agreement.
17
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first above written.
AAMES CAPITAL CORPORATION, a California
corporation
By: /s/ David A. Sklar
-----------------------------------------------
Name: David A. Sklar
---------------------------------------------
Title: EVP & CFO
--------------------------------------------
AAMES FINANCIAL CORPORATION, a Delaware
corporation
By: /s/ David A. Sklar
-----------------------------------------------
Name: David A. Sklar
---------------------------------------------
Title: EVP & CFO
--------------------------------------------
NATIONSBANK, N.A., a national banking association
By: /s/ Carrolyn Warren
-----------------------------------------------
Name: Carrolyn Warren
---------------------------------------------
Title: Senior Vice President
--------------------------------------------
18
<PAGE> 19
REPLACEMENT SCHEDULE I
TO THE AGREEMENT
SCHEDULE OF REQUIRED REPORTS
1. Monthly Total Geographic Servicing Portfolio
2. Quarterly MR141 Pool Loan Statistics Report
3. Quarterly Loss Report
4. Quarterly I/O Strip Status Report
5. Quarterly Gain on Sale Reconciliation
6. Quarterly REMIC Cash Flow Report
7. Quarterly Asset Quality Data Report
8. Quarterly Projected REO Loss Report
9. Static Pool Analysis Report
10. Daily Cash Flow and Servicing Advance Report, to be delivered to the Lender
once every two weeks for the immediately preceding two-week period and more
frequently upon telephonic request by the Lender
19
<PAGE> 20
REPLACEMENT SCHEDULE 1
TO THE SECURITY AGREEMENT
SERVICING CONTRACTS
AND
POOLING AND SERVICING AGREEMENTS
(AS OF THE FOURTH AMENDMENT EFFECTIVE DATE)
[TO BE PREPARED BY THE COMPANY;
TO INCLUDE A LIST OF ALL SERVICING CONTRACTS EXISTING
AS OF THE FOURTH AMENDMENT EFFECTIVE DATE
OTHER THAN THOSE RELATED TO THE POOLS
SUBJECT TO THE FAIRBANKS TRANSACTION]
20
<PAGE> 21
SCHEDULE 2
SCHEDULE OF ADDITIONAL COLLATERAL
Aames Mortgage Trust 1995-B Mortgage Pass-Through Certificate, Series 1995-B,
Class R, Certificate No.: R02
Aames Mortgage Trust 1996-A Mortgage Pass-Through Certificate, Series 1996-C,
Class R, Certificate No.: R02
Aames Mortgage Trust 1996-B Mortgage Pass-Through Certificate, Series 1996-C,
Class R, Certificate No.: R02
21
<PAGE> 22
REPLACEMENT EXHIBIT G
TO THE AGREEMENT
FORM OF
COMPLIANCE CERTIFICATE
Aames Financial Corporation
Aames Capital Corporation
Compliance Certificate
Dated ____________
To: NationsBank, N.A.
Attached please find the financial statements of Aames Financial
Corporation (the "Parent") and Aames Capital Corporation (the "Company"). This
is the certificate referenced in Paragraph 7(a)(4) of that certain Residuals
Financing Agreement dated as of September 4, 1998 among the Parent, the Company
and NationsBank, N.A. (the "Lender") (as amended from time to time, the "Loan
Agreement"). Capitalized terms used herein and not otherwise defined shall have
the meanings given such terms in the Loan Agreement.
The undersigned on behalf of the Parent and the Company hereby
certifies that the attached consolidated financial statement is complete, true
and correct, and that it was prepared in conformity with generally accepted
accounting principles applied on a basis consistent with that of the preceding
fiscal year end statements, and that it fairly presents the financial position
of the Parent, the Company and their respective Subsidiaries and the results of
their respective operations as of the end of ___________ and for the period then
ended.
The undersigned further hereby certifies that each and every
covenant of the Parent and the Company in the Loan Agreement and the other Loan
Documents has been performed and observed, that all representations and
warranties of the Parent and the Company in the Loan Agreement and the other
Loan Documents are accurate and complete as of the date hereof, and that no
Event of Default or Potential Default has occurred as of the date hereof.
Attached in addition to the financial statements are the
calculations of the financial covenants as required by the Loan Agreement.
22
<PAGE> 23
FINANCIAL COVENANT COMPLIANCE SUMMARY
<TABLE>
<CAPTION>
Section Covenant Required Actual
------- -------- -------- ------
<S> <C> <C> <C>
8(i) Leverage Ratio (Guarantor only) 4.00:1.00 ________
8(j) Minimum Net Worth:
Aames Financial Corporation ________ ________
Aames Capital Corporation ________ ________
8(k) Minimum Profitability (Guarantor only) $1.00 ________
8(l) Non-Warehouse Debt Ratio (Guarantor only) 1.55:1.00 at
3/31/99 and
6/30/99; ________
1.40:1
thereafter
8(m) Liquidity (Guarantor only) $5,000,000 ________
at any time
prior to
7/1/99;
$15,000,000
thereafter
Committed Working Capital Line $25,000,000 __________
</TABLE>
AAMES FINANCIAL CORPORATION AAMES CAPITAL CORPORATION
By:_____________________________ By:_________________________________
Name:___________________________ Name________________________________
Title:__________________________ Title:______________________________
23
<PAGE> 24
CALCULATIONS
Leverage Ratio Calculation (Guarantor only)
(A) total liabilities (A) _______________
(B) Subordinated Debt (B) _______________
(C) Line (a) minus Line (b) (C) _______________
(D) net worth (D) _______________
(E) intangible assets (E)
(F) Tangible Net Worth (Line (d)
minus Line (e)) (F) _______________
(G) LEVERAGE RATIO (Line (c)
divided by Line (f)) (G) _______________
Minimum Tangible Net Worth - Guarantor
$135,000,000 $135,000,000
Plus 80% of net income excluding losses ____________
Plus 85% of contributions to equity (other than
Rights Offering) ____________
Plus 100% of contributions to equity in
connection with Rights Offering ____________
Minimum Tangible Net Worth ____________
Actual Tangible Net Worth ____________
Minimum Tangible Net Worth - Seller
$400,000,000 $400,000,000
Plus 80% of net income excluding losses ____________
Plus 85% of contributions to equity (other than
Rights Offering) ____________
Plus 100% of contributions to equity in
connection with Rights Offering ____________
Minimum Tangible Net Worth ____________
Actual Tangible Net Worth ____________
Minimum Profitability (Guarantor only)
Net income for the quarter ending _________ (a) _______________
Net income for the previous quarter ending ________ (b) _______________
Total (a+b) _______________
24
<PAGE> 25
Non-Warehouse Debt Ratio (Guarantor only)
(a) Consolidated funded Indebtedness
(including Subordinated Debt) (a)_____________
(1) unrestricted cash or cash equivalents in
excess of $5,000,000 (1)_____________
(2) 100% of book value of all Mortgage Loans
held for sale (2)_____________
(3) 80% of all accounts receivables (3)_____________
(b) Result of (1) plus (2) plus (3) (b)_____________
(c) Result of (a) minus (b) (c)_____________
(d) Tangible Net Worth (d)_____________
(e) NON WAREHOUSE DEBT RATIO
(line (c) divided by line (d)) (e)_____________
Liquidity (Guarantor only)
(a) Cash and Cash Equivalents (a)_____________
(b) Available borrowing capacity under
committed warehouse and working capital facilities (b)_____________
(c) Result of (a) plus (b) (c)_____________
which is not to be less than:
(1) $5,000,000 at any time prior to 7/1/99 (1)_____________
(2) $15,000,000 at any time on and after 7/1/99 (2)_____________
Details of noncompliance period, if any:
Committed Working Capital Line (Seller) _____________
25
<PAGE> 26
REPLACEMENT EXHIBIT H
TO THE AGREEMENT
FORM OF
LOAN AND/OR INTEREST RATE ELECTION REQUEST
To: NationsBank, N.A.,
901 Main Street, 51st Floor
Dallas, Texas 95202
Attention: Carolyn Warren
Facsimile: (214) 508-0338
The undersigned, AAMES CAPITAL CORPORATION ("Borrower") hereby requests
[a Revolving Loan] [conversion/continuation of a Loan] under (and as capitalized
terms used herein are defined in) that certain Residuals Financing Agreement,
dated as of September 4, 1998 among Borrower, Aames Financial Corporation and
NationsBank, N.A. (as amended from time to time, the "Agreement"), as follows:
1. REQUEST FOR NEW REVOLVING LOAN:
A. Date of borrowing: _____________
B. Principal amount of requested Revolving Loan: $_____________
2. CONVERSION TO A EURODOLLAR LOAN:
A. Date of proposed conversion (at least three
Eurodollar Business Days after the date hereof): _____________
B. Principal amount of outstanding Effective
Fed Funds Rate Loans to be converted: $_____________
C. Interest Period (one, two or three months),
and last day thereof: _____________
26
<PAGE> 27
3. CONVERSION TO AN EFFECTIVE FED FUNDS RATE LOAN:
A. Date of proposed conversion (which date must
be the last day of the Interest Period applicable to
the Eurodollar Loans being converted): _____________
B. Principal amount of outstanding Eurodollar
Loans to be converted: $_____________
4. CONTINUATION OF EURODOLLAR LOANS:
A. Date of proposed continuation (which date must
be the last day of the Interest Period applicable to
the Eurodollar Loans being continued, and at least
three Eurodollar Business Days after the date hereof): _____________
B. Principal amount of outstanding Eurodollar
Loans to be continued: $_____________
C. Interest Period (one, two or three months),
and last day thereof: _____________
Borrower hereby confirms on behalf of itself and Aames Financial
Corporation that on and as of the date of the requested borrowing or conversion
or continuation all of the conditions precedent required by Paragraph 5 of the
Agreement have been met, and that no Event of Default or Potential Event of
Default has occurred or will occur as a result of the requested borrowing or
conversion or continuation.
DATE:_________________ AAMES CAPITAL CORPORATION
By:__________________________________
Name:________________________________
Title:_______________________________
27
<PAGE> 28
REPLACEMENT EXHIBIT I
TO THE AGREEMENT
PERMITTED SECURED DEBT
1. Warehouse lines of credit secured by Mortgage Loans owned by the Company
provided that the Intercreditor and Joint Shipment Agreement required by
the Repo Agreement has been executed and delivered by the lenders under
such other warehouse lines of credit.
2. Indebtedness secured by the Company's residual interest certificates in
REMIC trusts.
3. Indebtedness under arbitrage lines of credit secured by readily
marketable investment securities purchased with the proceeds of advances
thereunder in an aggregate amount not to exceed $60,000,000.
4. Capitalized Lease Obligations in an aggregate amount not to exceed
$10,000,000.
5. Indebtedness under repurchase agreements for the warehousing of Mortgage
Loans entered into in the ordinary course of business provided that the
Intercreditor and Joint Shipment Agreement required by the Repo
Agreement has been executed and delivered by the repo lenders under such
repurchase agreements.
6. Indebtedness secured by servicing receivables.
28
<PAGE> 29
EXHIBIT J
FORM OF
BORROWING BASE CERTIFICATE
[TO ATTACH THE BORROWING BASE CERTIFICATE DELIVERED
AS OF THE FOURTH AMENDMENT EFFECTIVE DATE]
29
<PAGE> 30
EXHIBIT A
AMENDED AND RESTATED COLLATERAL CUSTODY AGREEMENT
This Amended and Restated Collateral Custody Agreement (this
"Agreement") is made and dated as of April 9, 1999, by and among Aames Capital
Corporation (the "Company"), NationsBank, N.A. (the "Lender"), and The Chase
Manhattan Bank (the "Custodian").
RECITALS
A. Pursuant to that certain Residuals Financing Agreement dated as of
September 4, 1998 among the Company, Aames Financial Corporation and the Lender
(as amended, extended and replaced from time to time, the "Credit Agreement"),
the Lender agreed to extend credit to the Company on the terms and subject to
the conditions set forth therein.
B. Pursuant to that certain Residuals Financing Security Agreement dated
as of September 4, 1998 between the Company and the Lender (as amended, extended
and replaced from time to time, the "Security Agreement"), the Company granted a
first priority, perfected security interest in the "Collateral" in order to
secure payment and performance of the "Obligations" under the Credit Agreement.
The terms "Collateral" and "Obligations" shall have the meanings given such
terms in the Credit Agreement.
C. Pursuant to that certain Collateral Custody Agreement dated as of
December 10, 1998 (the "Existing Custody Agreement") by and among the Company,
the Lender and the Custodian, the Custodian has agreed to act as custodian for
the Lender with respect to certain items of Collateral.
D. The parties hereto wish to amend certain provisions of the Existing
Custody Agreement and, for convenience of reference, restate the Existing
Custody Agreement in its entirety hereby.
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 agree as follows:
1. Appointment of Custodian. The Lender and Company do hereby appoint
and designate the Custodian as custodian on behalf of the Lender for the
purposes set forth herein, and the Custodian does hereby accept such appointment
under the terms and conditions set forth herein.
2. Taking Possession of Collateral. From time to time the Company may
deposit certain items of Collateral with the Custodian with written instruction
that such items of Collateral be held by the Custodian as Collateral under the
Security Agreement (such items of Collateral so deposited, individually and
collectively, the "Delivered Collateral"). The Custodian shall take possession
of the Delivered Collateral as
30
<PAGE> 31
custodian on behalf of the Lender as secured party under the Security Agreement
until such time as the Custodian shall have received notice from the Lender that
the Lender is releasing any item of the Delivered Collateral pursuant to the
terms of the Credit Agreement, at which time the Custodian shall hold such
released item of the Delivered Collateral as custodian on behalf of the Company
as owner and deliver such released item of the Delivered Collateral as directed
by the Company. The Custodian shall maintain books and records reflecting the
Delivered Collateral as collateral security for the Obligations of the Company
to the Lender and shall hold the Delivered Collateral in secure and
fire-resistant facilities. As of the date of this Agreement, the Company hereby
deposits the items of Collateral identified on Schedule I attached hereto and
instructs the Custodian to hold such items as Delivered Collateral for the
benefit of the Lender. Notwithstanding the preceding sentence, the Lender hereby
releases any interest in Aames Mortgage Trust 1995-C Mortgage Pass-Through
Certificate, Series 1995-C, Class R, Certificate No.: R02, Aames Mortgage Trust
1995-D Mortgage Pass-Through Certificate, Series 1995-D, Class R, Certificate
No.: R02 and Aames Mortgage Trust 1996-C Mortgage Pass-Through Certificate,
Series 1996-C, Class R, Certificate No.: R02 (collectively, the "Company
Collateral") which Custodian shall hold as custodian on behalf of the Company as
owner and deliver the Company Collateral as directed by the Company.
3. Income on Account of Delivered Collateral. In the event that any
interest income attributable to the Delivered Collateral is paid to the
Custodian, unless otherwise instructed by the Lender, the Custodian is hereby
instructed to transfer, as soon as practicable, said interest income to the
Company pursuant to the following wire instructions:
Sanwa Bank - ABA# 122003516
Aames Capital Corp. Investment Account
Account No. 0499-18969
Attn: Ramada Yasmin
Upon receipt of any instructions otherwise by the Lender, the Custodian shall
cease to transfer said interest income to the Company and shall transfer said
interest income in accordance with the Lender's instructions. It is hereby
understood that the Custodian shall have no duty to solicit any payments that
may be due in connection with the Delivered Collateral.
4. Execution of Transfer Notices in Blank. Within one (1) Business Day
after the Custodian takes possession of the Delivered Collateral pursuant to
this Agreement, the Custodian shall execute a transfer notice in blank in the
form attached hereto as Exhibit A for each certificate constituting Delivered
Collateral and attach one such executed transfer notice to each such
certificate.
5. Reregistration of Delivered Collateral. The Custodian shall hold the
Delivered Collateral as endorsed pursuant to Paragraph 4 above and shall not
reregister the Delivered Collateral in the name of the Lender or any other
person, unless and until the
31
<PAGE> 32
Custodian receives from the Lender a notice of default by the Company under the
Credit Agreement. Upon receipt of such notice of default, the Custodian shall
reregister the Delivered Collateral in the name of the Lender or any other
person as designated by the Lender, and deliver the Delivered Collateral as
directed by the Lender.
6. Termination. Upon delivery of the Delivered Collateral by the
Custodian to any party pursuant to the terms of this Agreement, the Company and
the Lender shall release the Custodian from all further responsibility hereunder
and this Agreement shall terminate, subject to the provisions of Paragraph 12
hereunder, which paragraph shall survive such termination.
7. Duties of the Custodian. The duties and responsibilities of the
Custodian hereunder shall be determined solely by the express provisions of this
Agreement, and no other or further duties or responsibilities shall be implied.
The Custodian shall not have any liability under, nor duty to inquire into the
terms and provisions of any agreement or instructions, other than outlined in
the Agreement.
8. Reliance. The Custodian may rely and shall be protected in acting or
refraining from acting upon any written notice, instruction or request furnished
to it hereunder and believed by it to be genuine and to have been signed or
presented by the proper party or parties. The Custodian shall be under no duty
to inquire into or investigate the validity, accuracy or content of any such
document. The Custodian shall have no duty to solicit any payments which may be
due it hereunder.
9. Liability. The Custodian shall not be liable for any action taken or
omitted by it in good faith unless a court of competent jurisdiction determines
that the Custodian's willful misconduct was the primary cause of any loss to the
Lender or Company. In the administration of the collateral account hereunder,
the Custodian may execute any of its powers and perform its duties hereunder
directly or through agents or attorneys and may consult with counsel,
accountants and other skilled persons to be selected and retained by it. The
Custodian shall not be liable for anything done, suffered or omitted in good
faith by it in accordance with the advice or opinion of any such counsel,
accountants or other skilled persons. The Custodian shall not incur any
liability for following the instructions herein contained or expressly provided
for, or written instructions given by the parties hereto.
10. Resignation. The Custodian may resign and be discharged from its
duties or obligations hereunder by giving ten (10) Business Days' prior notice
in writing to the Lender and the Company of such resignation specifying a date
when such resignation shall take effect.
11. Compensation. The Company hereby agrees to (i) pay the Custodian
upon execution of this Agreement reasonable compensation for the services to be
rendered hereunder, as described on Schedule II attached hereto, and (ii) pay or
reimburse the Custodian upon request for all expenses, disbursement and
advances, including
32
<PAGE> 33
reasonable attorney's fees, incurred or made by it in connection with the
preparation, execution, performance, delivery, modification and termination of
this Agreement.
12. Indemnification. The Company shall indemnify, defend and save
harmless the Custodian from all loss, liability or expense (including the fees
and expenses of in house or outside counsel) arising out of or in connection
with (i) its execution and performance of this Agreement, except to the extent
that such loss, liability or expense is due to the gross negligence or willful
misconduct of the Custodian, or (ii) its following any instructions or other
directions from the Lender or the Company, except to the extent that its
following any such instruction or direction is expressly forbidden by the terms
hereof. Anything in this agreement to the contrary notwithstanding, in no event
shall the Custodian be liable for special, indirect or consequential loss or
damage of any kind whatsoever (including but not limited to lost profits), even
if the Custodian has been advised of the likelihood of such loss or damage and
regardless of the form of action.
13. Tax Identification Number. Each party hereto, except the Custodian,
shall, in the notice section of this agreement, provide the Custodian with its
Tax Identification Number (TIN) as assigned by the Internal Revenue Service. All
interest or other income earned under this Agreement shall be allocated and paid
as provided herein and reported by the recipient to the Internal Revenue Service
as having been so allocated and paid.
14. Notice. All notices and communications hereunder shall be in writing
and shall be deemed to be duly given if sent by registered mail, return receipt
requested, or by telefacsimile, as follows:
If to the Custodian: The Chase Manhattan Bank
Corporate Trust Group
450 West 33rd Street
New York, NY 10001
Attention: Pledged Asset Control Services, 15th Floor
Fax: 212-946-3638
If to the Company: Aames Capital Corporation
350 South Grand Avenue, 52nd Floor
Los Angeles, CA 90071
Attention: Barbara Polsky, Esq.
Fax: 213-210-5026
TIN: 95-4438859
If to the Lender: NationsBank, N.A.
901 Main Street, 51st Floor
Dallas, Texas 75202
Attention: Ms. Carolyn Warren
Fax: (214) 508-0338
33
<PAGE> 34
or at such other address or fax number as any of the above may have furnished to
the other parties in writing by registered mail, return receipt requested, or by
telefacsimile, and any such notice or communication given in the manner
specified in this Paragraph 14 shall be deemed to have been given as of the date
so mailed or as of the time so faxed, as applicable. In the event that the
Custodian, in its sole discretion, shall determine that an emergency exists, the
Custodian may use such other means of communications as the Custodian deems
advisable.
15. Funds Transfer Instructions. In the event funds transfer
instructions are given (other than in writing at the time of execution of this
Agreement), whether in writing, by telecopier or otherwise, the Custodian is
authorized to seek confirmation of such instructions by telephone call-back to
the person or persons designated on Schedule III hereto, and the Custodian may
rely upon the confirmations of anyone purporting to be the person or persons so
designated. The persons and telephone numbers for call-backs may be changed only
in a writing actually received and acknowledged by the Custodian. The parties to
this Agreement acknowledge that such security procedure is commercially
reasonable. It is understood that the Custodian and the beneficiary's bank in
any funds transfer may rely solely upon any account numbers or similar
identifying number provided by either of the other parties hereto to identify
(i) the beneficiary, (ii) the beneficiary's bank, or (iii) an intermediary bank.
The Custodian may apply any of the escrowed funds for any payment order it
executes using any such identifying number, even where its use may result in a
person other than the beneficiary being paid, or the transfer of funds to a bank
other than the beneficiary's bank, or an intermediary bank designated.
16. Amendment. The provisions of this Agreement may not be waived,
altered, amended or supplemented, in whole or in part, except by a writing
signed by all of the parties hereto.
17. No Assignment. Neither this Agreement nor any right or interest
hereunder may be assigned in whole or in part by any party without the prior
consent of the other parties.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
19. Conflicting Instructions. In the event that the Custodian shall
receive instructions, claims or demands from any party hereto which, in its
opinion, conflict with any of the provisions of this Agreement, it shall be
entitled to refrain from taking any action and its sole obligation shall be to
keep safely all property held in escrow until it shall be directed otherwise in
writing by all of the other parties hereto or by a final order or judgment of a
court of competent jurisdiction.
20. Merger. Any corporation into which the Custodian in its individual
capacity may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Custodian in its
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<PAGE> 35
individual capacity shall be a party, or any corporation to which substantially
all the corporate trust business of the Custodian in its individual capacity may
be transferred, shall be the Custodian under this Agreement without further act.
21. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to its
principles of conflicts of laws and any action brought hereunder shall be
brought in the courts of the State of New York, located in the County of New
York. Each party hereto irrevocably waives any objection on the grounds of
venue, forum non-conveniens or any similar grounds and irrevocably consents to
service of process by mail or in any other manner permitted by applicable law
and consents to the jurisdiction of said courts.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date and year first above written.
AAMES CAPITAL CORPORATION, a California
corporation
By: /s/ David A. Sklar
-------------------------------------------
Name: David A. Sklar
-----------------------------------------
Title: EVP & CFO
----------------------------------------
NATIONSBANK, N.A., a national banking association
By: /s/ Carolyn Warren
-------------------------------------------
Name: Carolyn Warren
-----------------------------------------
Title: Senior Vice President
----------------------------------------
THE CHASE MANHATTAN BANK, as the Custodian
By: /s/ Bruce C. Vecchio
-------------------------------------------
Name: Bruce C. Vecchio
-----------------------------------------
Title: Assistant Vice President
----------------------------------------
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<PAGE> 37
SCHEDULE I
SCHEDULE OF DELIVERED COLLATERAL
[AS OF APRIL 9, 1999]
Aames Mortgage Trust 1995-C Mortgage Pass-Through Certificate,
Series 1995-C, Class R, Certificate No.: R02
Aames Mortgage Trust 1995-D Mortgage Pass-Through Certificate,
Series 1995-D, Class R, Certificate No.: R02
Aames Mortgage Trust 1996-A Mortgage Pass-Through Certificate,
Series 1996-C, Class R, Certificate No.: R02
Aames Mortgage Trust 1996-B Mortgage Pass-Through Certificate,
Series 1996-C, Class R, Certificate No.: R02
Aames Mortgage Trust 1996-C Mortgage Pass-Through Certificate,
Series 1996-C, Class R, Certificate No.: R02
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<PAGE> 38
EXHIBIT A
TRANSFER NOTICE
FOR VALUE RECEIVED, the undersigned holder hereby sells, assigns and transfers
unto ____________________________________, whose taxpayer identification number
is _________________ and whose address including postal/ZIP code is
_____________________________________________________, the within security and
all rights thereunder, hereby irrevocably constituting and appointing
_________________________________ attorney-in-fact to transfer said security on
books of the Trustee with full power of substitution in the premises.
NOTICE:The signature of the holder to this assignment must correspond
with the name as written upon the face of the within instrument in every
particular, without enlargement or any change whatsoever.
Dated: ____________ THE CHASE MANHATTAN BANK, AS CUSTODIAN
FOR NATIONSBANK, N.A.
By:_____________________________
Name:___________________________
Title:__________________________
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<PAGE> 39
SCHEDULE II
7.5 basis points of the highest value of collateral held on deposit per annum or
any part thereof without proration for partial years, subject to a minimum of
$7,500 per annum or any part thereof without proration for partial years.
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<PAGE> 40
SCHEDULE III
TELEPHONE NUMBER(S) FOR CALL-BACKS AND
PERSON(S) DESIGNATED TO CONFIRM FUNDS TRANSFER INSTRUCTIONS
If to Lender:
Name Telephone Number
---- ----------------
1. ______________________ _______________________
2. ______________________ _______________________
3. ______________________ _______________________
If to Company:
Name Telephone Number
---- ----------------
1. ______________________ _______________________
2. ______________________ _______________________
3. ______________________ _______________________
Telephone call-backs shall be made to each Lender and Company if joint
instructions are required pursuant to the Agreement.
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<PAGE> 1
EXHIBIT 10.30(a)
AMENDED AND RESTATED MASTER REPURCHASE AGREEMENT GOVERNING
PURCHASES AND SALES OF MORTGAGE LOANS
Dated as of February 10, 1999
Between
LEHMAN COMMERCIAL PAPER INC.,
as Buyer
and
AAMES CAPITAL CORPORATION,
as Seller
1. APPLICABILITY
From time to time until February 10, 2000, Lehman Commercial Paper Inc.
("Buyer") shall, subject to the terms hereof, enter into transactions upon the
request of Aames Capital Corporation ("Seller") in which Seller agrees to
transfer to Buyer Mortgage Loans against the transfer of funds by Buyer, with a
simultaneous agreement by Buyer to transfer to Seller such Mortgage Loans at a
date certain not later than 30 days after the date of transfer or on demand, as
specified in the Confirmation, against the transfer of funds by Seller. Each
such transaction shall be referred to herein as a "Transaction" and shall be
governed by this Agreement and the related Confirmation, unless otherwise agreed
in writing. Notwithstanding anything in this Agreement to the contrary, Buyer
shall have no obligation to enter into any Transaction hereunder if there shall
have occurred any material adverse change, as determined by Buyer in its
reasonable judgment, in the financial condition of Seller, the financial markets
generally or the secondary market for Mortgage Loans. Buyer shall promptly
notify Seller of any determination by Buyer that any of the foregoing has
occurred.
2. DEFINITIONS
"Act of Insolvency" means, with respect to any party and its Affiliates,
(i) the filing of a petition, commencing, or authorizing the commencement of any
case or proceeding under any bankruptcy, insolvency, reorganization,
liquidation, dissolution or similar law relating to the protection of creditors,
or suffering any such petition or proceeding to be commenced by another which is
consented to, not timely contested or results in entry of an order for relief;
(ii) the seeking the appointment of a receiver, trustee, custodian or similar
official for such party or an Affiliate or any substantial part of the property
of either, (iii) the appointment of a receiver, conservator, or manager for such
party or an Affiliate by any governmental agency or authority having the
jurisdiction to do so; (iv) the making or offering by such party or an Affiliate
of a composition with its creditors or a general assignment for the benefit of
creditors, (v) the admission by such party or an Affiliate of such party of its
inability to pay its debts or discharge
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<PAGE> 2
its obligations as they become due or mature; or (vi) that any governmental
authority or agency or any person, agency or entity acting or purporting to act
under governmental authority shall have taken any action to condemn, seize or
appropriate, or to assume custody or control of, all or any substantial part of
the property of such party or of any of its Affiliates, or shall have taken any
action to displace the management of such party or of any of its Affiliates or
to curtail its authority in the conduct of the business of such party or of any
of its Affiliates.
"Additional Loans" means Mortgage Loans or cash provided by Seller to
Buyer or its designee pursuant to Section 4(a).
"Adjusted Leverage Ratio" means, at any time, the ratio of (i) the
aggregate principal amount of all indebtedness (other than indebtedness incurred
in connection with Mortgage Loan warehousing facilities of Guarantor and its
subsidiaries) of Guarantor and its subsidiaries at such time which on a
consolidated basis in accordance with GAAP would be required to be reflected on
a consolidated balance sheet of Guarantor and its subsidiaries as a liability to
(ii) Tangible Net Worth.
"Affiliate" means an affiliate of a party as such term is defined in the
United States Bankruptcy Code in effect from time to time.
"Agreement" means this Master Repurchase Agreement Governing Purchases
and Sales of Mortgage Loans between Buyer and Seller, as amended from time to
time.
"Balloon Mortgage Loan" means any Mortgage Loan that provided on the
date of origination for scheduled payments by the Mortgagor based upon an
amortization schedule extending beyond its maturity date.
"Business Day" means a day other than (i) a Saturday or Sunday, or (ii)
a day in which the New York Stock Exchange is authorized or obligated by law or
executive order to be closed.
"Buyer" has the meaning specified in Section 1.
"Collateral" has the meaning specified in Section 6.
"Collateral Amount" means, with respect to any Transaction, the amount
obtained by application of the applicable Collateral Amount Percentage to the
Repurchase Price for such Transaction.
"Collateral Amount Percentage" means the amount set forth in the
Confirmation which, in any event, (i) shall not be less than 103% in determining
whether a Market Value Collateral Deficit exists pursuant to the first sentence
of Section 4(a) hereof and (ii) shall not be less than 105% in determining
whether a Securitization Value Collateral Deficit exists pursuant to the second
sentence of Section 4(a) hereof.
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<PAGE> 3
"Collateral Deficit" means either a Market Value Collateral Deficit or a
Securitization Value Collateral Deficit.
"Collateral Information" means the following information with respect to
each Mortgage Loan: (i) Seller's loan number, (ii) the Mortgagor's name, (iii)
the address of the Mortgaged Property, (iv) the current interest rate, (v) the
original balance, (vi) current balance as of the first day of the current month,
(vii) the paid to date and the next payment date, (viii) the appraised value of
the Mortgaged Property at the time the Mortgage Loan was originated, (ix)
whether interest rate is fixed or adjustable (and if adjustable, the ARM code,
which includes the index, adjustment frequency, spread and caps), (x) the lien
position of the Mortgage Loan on the Mortgaged Property (and if a second lien,
the outstanding principal balance of the first lien at the time the Mortgage
Loan was originated), (xi) the occupancy status of the Mortgaged Property
(including whether owner occupied), (xii) whether the Mortgage Loan is a Balloon
Loan, (xiii) the first payment date, (xiv) the maturity date, (xv) the principal
and interest payment, (xvi) the property type of the Mortgaged Property, (xvii)
the Mortgagor's Credit Score (where available in the Mortgage File), (xviii) the
Mortgage Loan grade and FICO score (where available in the Mortgage File), and
(xix) the delinquency status.
"Confirmation" has the meaning specified in Section 3(a).
"Custodial Agreement" means that amended and restated custodial
agreement, dated as of February 10, 1999, as amended, modified or supplemented
from time to time, by and among Buyer, Seller and the Custodian.
"Custodial Delivery" means the form executed by the Seller in order to
deliver a Mortgage Loan Schedule and/or Mortgage Files to Buyer or its designee
(including the Custodian) pursuant to Section 7, a form of which is attached
hereto as Exhibit II.
"Custodian" means the custodian under the Custodial Agreement. The
initial custodian is Bankers Trust Company of California, N.A.
"Delinquent" means, with respect to any Mortgage Loan, the period of
time from the date on which a Mortgagor fails to pay an obligation under the
terms of such Mortgage Loan to the date on which such payment is made.
"EBITDA" means, for any period, Net Income for such period plus, without
duplication and to the extent reflected as a charge in the statement of such Net
Income for such period, the sum of (a) total income tax expense, (b) interest
expense, (c) depreciation and amortization expense, (d) amortization of
intangibles (including, but not limited to, goodwill) and organization costs,
(e) any extraordinary expenses or losses (including, whether or not otherwise
includable as a separate item in the statement of such Net Income for such
period, losses on sales of assets outside of the ordinary course of business),
and (f) any other noncash charges, and minus, to the extent included in the
statement of such Net Income for such period, the sum of (a) any extraordinary
income or gains (including, whether or not otherwise includable as a separate
item in the statement of such Net Income for such period, gains on the sales of
assets outside of the
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<PAGE> 4
ordinary course of business) and (b) any other noncash income (other than any
income represented by a receivable that in the ordinary course would be expected
to be paid in cash), all as determined on a consolidated basis.
"Event of Default" has the meaning specified in Section 13.
"Fee Letter" has the meaning specified in Section 3(h).
"First Mortgage" means the Mortgage that is the first lien on the
Mortgaged Property.
"Forward Commitment Provider" means a Person who enters into a formal
commitment to purchase Mortgage Loans from the Seller and who is approved by
Buyer in its sole discretion.
"GAAP" means with respect to the financial statements or other financial
information of any Person, generally accepted accounting principles in the
United States which are in effect from time to time.
"Guarantor" means Aames Financial Corporation.
"Hedge" means, with respect to any or all of the Mortgage Loans, any
interest rate swap, cap or collar agreement or similar arrangements providing
for protection against fluctuations in interest rates or the exchange of nominal
interest obligations, either generally or under specific contingencies, entered
into by Seller, and reasonably acceptable to the Buyer.
"HUD" means the United States Department of Housing and Urban
Development.
"Income" means, with respect to any Mortgage Loan at any time, any
principal thereof then payable and all interest, dividends or other
distributions payable thereon less any related servicing fee(s) charged by the
Servicer.
"Interest Coverage Ratio" means for any period, the ratio of (a) EBITDA
of Guarantor and its subsidiaries for such period to (b) Interest Expense for
such period.
"Interest Expense" means for any period, total interest expense, both
expensed and capitalized, of Guarantor and its subsidiaries for such period with
respect to all outstanding indebtedness of Guarantor and its subsidiaries
(including, without limitation, all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance financing
and net costs under interest rate protection agreements), determined on a
consolidated basis in accordance with GAAP, net of interest income of Guarantor
and its subsidiaries for such period (determined on a consolidated basis in
accordance with GAAP).
"Leverage Ratio" means, at any time, the ratio of (i) the aggregate
principal amount of all indebtedness of Guarantor and its subsidiaries at such
time which on a consolidated basis in accordance with GAAP would be required to
be reflected on a consolidated balance sheet of Guarantor and its subsidiaries
as a liability to (ii) the Net Worth at such time.
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<PAGE> 5
"LIBOR" means the London Interbank Offered Rate for one-month United
States dollar deposits as set forth on page 3750 of Telerate as of 11:00 a.m.,
London time, on the date of determination.
"Loan-to-Value Ratio" means with respect to any Mortgage Loan, the
fraction, expressed as a percentage, the numerator of which is the principal
balance of such Mortgage Loan at the date of origination and the denominator of
which is the lowest of (a) the value of the related Mortgaged Property as set
forth in the appraisal of such Mortgaged Property obtained in connection with
the origination of such Mortgage Loan, (b) the purchase price of the Mortgaged
Property or (c) the review appraisal, if any, provided that the appraised value
shown in the review appraisal is less than the appraised value at origination by
a variance of 10% or greater. For purposes of calculating the Loan-to-Value
Ratio of a Mortgage Loan secured by a second Mortgage, the principal balance of
the related First Mortgage as well as the second Mortgage shall be included in
the numerator.
"Market Value" means as of any date with respect to any Mortgage Loan,
the price at which such Mortgage Loan could readily be sold as determined by
Buyer in its sole discretion; provided, that Buyer may take into consideration
the price at which the Forward Commitment Provider will buy such Mortgage Loan
from Seller and any Hedges with respect to such Mortgage Loans; provided,
further, that Buyer shall not take into account, for purposes of calculating
Market Value, any Mortgage Loan (i) which has been subject to Transactions for
more than 90 days (provided that this clause (i) shall not apply to Purchased
Mortgage Loans which do not exceed in the aggregate 20% of the aggregate
outstanding principal balance of Purchased Mortgage Loans subject to then
outstanding Transactions), (ii) which is referred to in the parenthetical in the
preceding clause (i) and has been subject to Transactions for more than 180
days, (iii) which, together with the other Mortgage Loans subject to then
outstanding Transactions, would cause the 30+ Delinquency Percentage to exceed
5.0%, (iv) which is more than 59 days Delinquent , (v) which is a Wet Ink
Mortgage Loan for more than 7 Business Days or (vi) with respect to which there
is a breach of a representation, warranty or covenant made by Seller in this
Agreement that materially adversely affects Buyer's interest in such Mortgage
Loan and which breach has not been cured.
"Market Value Collateral Deficit" has the meaning specified in Section
4(a).
"Mortgage" means a mortgage, deed of trust, deed to secure debt or other
instrument, creating a valid and enforceable first or second lien on or a first
or second priority ownership interest in an estate in fee simple in real
property and the improvements thereon, securing a mortgage note or similar
evidence of indebtedness.
"Mortgage File" means the documents specified as the "Mortgage File" in
Section 7(d).
"Mortgage Loan" means (i) non-securitized whole loan, namely a
conventional mortgage loan secured by a first or second lien on a one to four
family residential property or mixed-use
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<PAGE> 6
property including, without limitation, a Wet Ink Mortgage Loan, or (ii) other
type of non-securitized whole loan as may be agreed upon in writing by the
parties hereto from time to time.
"Mortgage Loan Schedule" means a schedule of Mortgage Loans attached to
each Trust Receipt, Confirmation and Custodial Delivery.
"Mortgage Note" means a note or other evidence of indebtedness of a
Mortgagor secured by a Mortgage.
"Mortgaged Property" means the real property securing repayment of the
debt evidenced by a Mortgage Note.
"Mortgagee" means the record holder of a Mortgage Note secured by a
Mortgage.
"Mortgagor" means the obligor on a Mortgage Note and the grantor of the
related Mortgage.
"Net Income" means, for any period, the consolidated net income (or
loss) for such period, determined on a consolidated basis in accordance with
GAAP.
"Net Worth" mean the amount which would be included under stockholders'
equity on a consolidated balance sheet of Guarantor and its subsidiaries
determined on a consolidated basis in accordance with GAAP
"Periodic Payment" has the meaning specified in Section 5(b).
"Person" means an individual, partnership, corporation, joint stock
company, trust or unincorporated organization or a governmental agency or
political subdivision thereof.
"Price Differential" means, with respect to any Transaction hereunder as
of any date, the aggregate amount obtained by daily application of the Pricing
Rate for such Transaction to the Purchase Price for such Transaction on a 360
day per year basis for the actual number of days during the period commencing on
(and including) the Purchase Date for such Transaction and ending on (but
excluding) the Repurchase Date (reduced by any amount of such Price Differential
previously paid by Seller to Buyer with respect to such Transaction).
"Pricing Rate" means, with respect to a Transaction, the per annum
percentage rate specified in the related Confirmation for determination of the
Price Differential which shall not exceed LIBOR as of the applicable Purchase
Date plus the applicable Pricing Spread.
"Pricing Spread" means the rate specified in the Confirmation, which
shall be equal to (i) on each date prior to the delivery to the Custodian of the
complete Mortgage Files with respect to the related Purchased Mortgage Loans,
1.75% and (ii) on each date on and after the delivery to the Custodian of such
Mortgage Files, 1.25%.
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<PAGE> 7
"Prime Rate" means the rate of interest published by The Wall Street
Journal, northeast edition, as the "prime rate."
"Purchase Date" means the date on which Purchased Mortgage Loans are
transferred by Seller to Buyer or its designee (including the Custodian) as
specified in the Confirmation.
"Purchase Price" means on each Purchase Date, the price at which
Purchased Mortgage Loans are transferred by Seller to Buyer or its designee
(including the Custodian).
"Purchased Mortgage Loans" means the Mortgage Loans (including any
Additional Loans) sold by Seller to Buyer in a Transaction, any Additional Loans
and any Substituted Mortgage Loans.
"Replacement Loans" has the meaning specified in Section 14(b)(ii).
"Repurchase Date" means the date on which Seller is to repurchase the
Purchased Mortgage Loans from Buyer, including any date determined by
application of the provisions of Sections 3 or 14, as specified in the
Confirmation; provided that in no event shall such date be more than 30 days
after the Purchase Date.
"Repurchase Price" means the price at which Purchased Mortgage Loans are
to be transferred from Buyer or its designee (including the Custodian) to Seller
upon termination of a Transaction, which will be determined in each case
(including Transactions terminable upon demand) as the sum of the Purchase Price
and the Price Differential as of the date of such determination decreased by all
cash, Income and Periodic Payments actually received by Buyer pursuant to
Sections 4(a), 5(a) and 5(b), respectively, with respect to such Transaction.
"Securitization Value" means, as of any date with respect to any
Mortgage Loans, the price at which such Mortgage Loans could be securitized and
sold in a securitization as determined by Buyer in its sole discretion;
provided, that the Buyer may take into consideration any Hedges with respect to
such Mortgage Loans; provided, however, that Buyer shall not take into account,
for purposes of calculating Securitization Value, any Mortgage Loan (i) which
has been subject to Transactions for more than 90 days (provided this clause (i)
shall not apply to Purchased Mortgage Loans which do not exceed in the aggregate
20% of the aggregate outstanding principal balance of Purchased Mortgage Loans
subject to then outstanding Transactions), (ii) which is referred to in the
parenthetical in the preceding clause (i) and has been subject to Transactions
for more than 180 days, (iii) which, together with the other Mortgage Loans
subject to then outstanding Transactions, would cause the 30+ Delinquency
Percentage to exceed 5.0%, (iv) which is more than 59 days Delinquent, (v) which
is a Wet Ink Mortgage Loan for more than 7 Business Days or (vi) with respect to
which there is a breach of a representation, warranty or covenant made by Seller
in this Agreement that materially adversely affects Buyer's interest in such
Mortgage Loan and which breach has not been cured.
"Securitization Value Collateral Deficit" has the meaning specified in
Section 4(a).
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<PAGE> 8
"Seller" has the meaning specified in Section 1.
"Servicing Records" has the meaning specified in Section 25.
"Substituted Mortgage Loans" means any Mortgage Loans substituted for
Purchased Mortgage Loans in accordance with Section 9 hereof.
"Tangible Net Worth" means, at any time, Net Worth at such time, minus
intangible assets included in determining Net Worth.
"30+ Delinquency Percentage" means the fraction, expressed as a
percentage, the numerator of which is the aggregate outstanding principal
balance of Purchased Mortgage Loans subject to then outstanding Transactions
which are more than 30 days Delinquent and the denominator of which is the
aggregate outstanding principal balance of all Purchased Mortgage Loans subject
to then outstanding Transactions.
"Transaction" has the meaning specified in Section 1.
"Trigger Event" means the occurrence of any of the following with
respect to Guarantor and its subsidiaries on a consolidated basis:
(a) Net Worth shall be less than (i) $125,000,000 at any time from the
date of this Agreement to (but excluding) June 30, 1999, (ii) $170,000,000 on
June 30, 1999 or (iii) thereafter, $170,000,000 plus 90% of all additional
shareholders' equity raised, determined in accordance with GAAP, since the date
of this Agreement plus 75% of all cumulative reported net income, determined in
accordance with GAAP, since the date of this Agreement;
(b) Tangible Net Worth shall be less than (i) $125,000,000 at any time
from the date of this Agreement to (but excluding) June 30, 1999, (ii)
$170,000,000 on June 30, 1999 or (iii) thereafter, $170,000,000 plus 90% of all
additional shareholders' equity raised, determined in accordance with GAAP,
since the date of this Agreement plus 75% of all cumulative reported net income,
determined in accordance with GAAP, since the date of this Agreement; or
(c) the Leverage Ratio shall exceed 4.5 to 1.0.
"Trust Receipt" means a trust receipt issued by Custodian to Buyer
confirming the Custodian's possession of certain mortgage loan files which are
the property of and held by Custodian for the benefit of the Buyer or the
registered holder of such trust receipt.
"Wet Ink Mortgage Loan" means a Mortgage Loan for which a Mortgage File
has not been delivered to the Custodian.
"Year 2000 Compliant" has the meaning specified in Section 10(d).
"Year 2000 Problem" has the meaning specified in Section 10(d).
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<PAGE> 9
3. INITIATION; CONFIRMATION; TERMINATION; MAXIMUM TRANSACTION AMOUNTS
(a) Each agreement to enter into a Transaction must be entered into in
writing at the initiation of Seller. In any event, Buyer shall confirm the terms
of each Transaction by issuing a written confirmation to Seller promptly after
the parties enter into such Transaction in the form of Exhibit I attached hereto
(a "Confirmation"). Such Confirmation shall describe the Purchased Mortgage
Loans, identify Buyer and Seller and set forth (i) the Purchase Date, (ii) the
Purchase Price, (iii) the Repurchase Date, unless the Transaction is stated to
be terminable on demand as stated in the Confirmation, (iv) the Pricing Rate
applicable to the Transaction, (v) the applicable Collateral Amount Percentages
and (vi) additional terms or conditions not inconsistent with this Agreement.
After receipt of the Confirmation, Seller shall, subject to the provisions of
subsection (c) below, sign the Confirmation and promptly return it to Buyer. The
Purchase Price for any Transaction shall exceed $750,000.
(b) Any Confirmation by Buyer shall be deemed to have been received by
Seller on the date actually received by Seller.
(c) Each Confirmation, together with this Agreement, shall be conclusive
evidence of the terms of the Transaction(s) covered thereby unless objected to
in writing by Seller no more than two (2) Business Days after the date the
Confirmation was received by Seller or unless a corrected Confirmation is sent
by Buyer. An objection sent by Seller must state specifically that writing which
is an objection, must specify the provision(s) being objected to by Seller, must
set forth such provision(s) in the manner that the Seller believes they should
be stated, and must be received by Buyer no more than two (2) Business Days
after the Confirmation was received by Seller. Buyer shall promptly respond to
any such objection raised by Seller.
(d) In the case of Transactions terminable upon demand, such demand
shall be made by Buyer or Seller by telephone or otherwise, no later than 1:00
p.m. (New York Time) on the Business Day prior to the Repurchase Date.
(e) On the Repurchase Date, termination of the Transaction will be
effected by transfer to Seller or its designee of the Purchased Mortgage Loans
(and any Income in respect thereof received by Buyer not previously credited or
transferred to, or applied to the obligations of, Seller pursuant to Section 5)
against the simultaneous transfer of the Repurchase Price to an account of
Buyer. Seller is obligated to obtain the Mortgage Files from Buyer or its
designee at Seller's expense on the Repurchase Date.
(f) With respect to all Transactions hereunder, the aggregate Purchase
Price for all Purchased Mortgage Loans at any one time subject to then
outstanding Transactions shall not exceed $300,000,000. The Purchase Price for
any individual Purchased Mortgage Loan under this Agreement shall not exceed the
unpaid principal balance of such Purchased Mortgage Loan.
(g) Buyer shall not be obligated to enter into any Transaction until
such time as Capital Z Financial Services Fund II, L.P. has made an equity
contribution to Seller in an amount
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<PAGE> 10
equal to $75,000,000 less expenses.
(h) On the date of execution of this Agreement, Seller shall pay to
Buyer a commitment fee pursuant to a separate letter agreement dated the date
hereof (the "Fee Letter") among Seller, Buyer and Guarantor.
(i) Buyer shall not be obligated to enter into any Transaction until
such time as Buyer shall have received copies of each material agreement or
instrument entered into by Guarantor, Seller or any of their respective
subsidiaries with respect to indebtedness for borrowed money, certified by the
chief financial officer or vice president of finance of Guarantor or Seller as
being a true and correct copy of such agreement or instrument, as the case may
be, and in full force and effect.
4. COLLATERAL AMOUNT MAINTENANCE
(a) Buyer shall mark to market the Mortgage Loans in its sole
discretion, but at least monthly. If at any time the aggregate Market Value of
all Purchased Mortgage Loans subject to all Transactions is less than the
aggregate Collateral Amount for all such Transactions (a "Market Value
Collateral Deficit"), then Buyer may by notice to Seller require Seller to
transfer to Buyer or its designee (including the Custodian) Mortgage Loans
("Additional Loans") or cash or other collateral acceptable to Buyer, so that
the cash and aggregate Market Value of the Purchased Mortgage Loans and other
collateral, including any such Additional Loans, will thereupon equal or exceed
the aggregate Collateral Amount. If at any time the aggregate Securitization
Value of all Mortgage Loans subject to Transactions is less than the aggregate
Collateral Amount for all such Transactions (a "Securitization Value Collateral
Deficit"), then Buyer may by notice to Seller require Seller to transfer to
Buyer or its designee (including the Custodian) Additional Loans or cash or
other collateral acceptable to Buyer, so that the cash and aggregate
Securitization Value of the Purchased Mortgage Loans and other collateral,
including any such Additional Loans, will thereupon equal or exceed the
aggregate Collateral Amount.
(b) Notice required pursuant to subsection (a) above may be given by any
means of facsimile or telegraphic transmission. Seller shall transfer Additional
Loans or cash pursuant to subsection (a) above not later than 5:00 p.m. on
Business Day following the receipt of such notice. The failure of Buyer, on any
one or more occasions, to exercise its rights under subsection (a) of this
Section shall not change or alter the terms and conditions to which this
Agreement is subject or limit the right of the Buyer to do so at a later date.
Buyer and Seller agree that a failure or delay to exercise its rights under
subsection (a) of this Section shall not limit Buyer's rights under this
Agreement or otherwise existing by law or in any way create additional rights
for Seller.
(c) In the event that Seller fails to comply with the provisions of this
Section 4, Buyer shall not enter into any additional Transactions hereunder
after the date of such failure.
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5. INCOME PAYMENTS
(a) Where a particular Transaction's term extends over an Income payment
date on the Purchased Mortgage Loans subject to that Transaction such Income
shall be the property of Buyer. Seller shall instruct each Mortgagor to remit
all Income (including all tax and insurance escrow payments) to a lockbox under
the sole dominion and control of a financial institution (the "Lockbox Bank")
reasonably acceptable to Buyer. The Lockbox Bank shall upon receipt thereof
deposit all cash, checks, and other near cash items received in the lockbox to a
lockbox account, and shall promptly remit all Income (other than tax and
insurance escrow payments) on deposit in such lockbox account to the Collection
Account (as defined below).
(b) Seller shall establish on or prior to the date of the first
Transaction, and maintain for the Buyer's benefit, one or more collection
accounts pledged to the Buyer with a financial institution (the "Collection
Account Bank") reasonably acceptable to the Buyer, which may be interest-bearing
and entitled "Aames Capital Corporation in trust for Lehman Commercial Paper
Inc." (the "Collection Account"). Prior to the date of the first Transaction,
Seller shall cause the Collection Account Bank to deliver to the Buyer an
acknowledgment of the Buyer's security interest in the Collection Account (the
"Depository Acknowledgment"). The Depository Acknowledgment shall provide that
upon notice to the Collection Account Bank (which notice Buyer may deliver after
the occurrence of a Trigger Event, an Event of Default or a Market Value
Collateral Deficit or Securitization Value Collateral Deficit which is not cured
in accordance with Section 4), only Buyer shall be permitted to withdraw funds
from the Collection Account, such funds to be applied by Buyer to reduce the
outstanding Repurchase Price. Prior to the delivery by Buyer to the Collection
Account Bank of the notice referred to in the immediately preceding sentence,
all Income held in the Collection Account may be withdrawn by Seller for
servicing of the Mortgage Loans, administration of and escrow-related matters
pertaining to the Purchased Mortgage Loans and any other purposes approved by
Buyer.
(c) Notwithstanding that Buyer and Seller intend that the Transactions
hereunder be sales to Buyer of the Purchased Mortgage Loans, Seller shall pay by
wire transfer to Buyer the accreted value of the Price Differential (less any
amount of such Price Differential previously paid by Seller to Buyer) (each such
payment, a "Periodic Payment") on the earlier of (x) the fifth day of each month
(or if such day is not a Business Day, the following Business Day) or (y) the
related Repurchase Date. The Price Differential shall accrue, be calculated and
be compounded on a daily basis for each Purchased Mortgage Loan.
(d) Buyer shall offset against the Repurchase Price of each such
Transaction all Income and Periodic Payments actually received by Buyer pursuant
to Sections 5(a) and (b), respectively.
6. SECURITY INTEREST
(a) Buyer and the Seller intend that the Transactions hereunder be sales
to Buyer of the Purchased Mortgage Loans and not loans from Buyer to Seller
secured by the Purchased Mortgage Loans. However, in order to preserve Buyer's
rights under this Agreement in the event
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that a court or other forum recharacterizes the Transactions hereunder as loans
and as security for the performance by Seller of all of Seller's obligations to
Buyer under this Agreement and the Transactions entered into pursuant to this
Agreement, Seller grants Buyer a first priority security interest in the
Purchased Mortgage Loans, Servicing Records, insurance relating to the Purchased
Mortgage Loans, Income, any and all Hedges, any and all custodial accounts and
escrow accounts relating to the Purchased Mortgage Loans, the Collection Account
and all cash or other property or amounts on deposit therein and any other
contract rights, general intangibles and other assets relating to the Purchased
Mortgage Loans or any interest in the Purchased Mortgage Loans and the servicing
of the Purchased Mortgage Loans and any and all replacements, substitutions,
distributions on or proceeds of any and all of the foregoing (collectively, the
"Collateral").
(b) Seller shall pay all fees and expenses associated with perfecting
Buyer's security interest in the Collateral, including, without limitation, the
cost of filing financing statements under the Uniform Commercial Code and, upon
the occurrence of an Event of Default, recording assignments of Mortgage, as and
when required by Buyer in its sole discretion.
7. PAYMENT, TRANSFER AND CUSTODY
(a) Unless otherwise mutually agreed in writing, all transfers of funds
hereunder shall be in immediately available funds.
(b) On or before each Purchase Date, Seller shall deliver or cause to be
delivered to Buyer or its designee the Custodial Delivery in the form attached
hereto as Exhibit II.
(c) On the Purchase Date for each Transaction, ownership of the
Purchased Mortgage Loans shall be transferred to the Buyer or its designee
(including the Custodian) against the simultaneous transfer of the Purchase
Price to an account of Seller specified in the Confirmation. Seller,
simultaneously with the delivery to Buyer or its designee (including the
Custodian) of the Purchased Mortgage Loans relating to each Transaction hereby
sells, transfers, conveys and assigns to Buyer or its designee (including the
Custodian) without recourse, but subject to the terms of this Agreement, all the
right, title and interest of Seller in and to the Purchased Mortgage Loans
together with all right, title and interest in and to the proceeds of any
related insurance policies.
(d) In connection with each sale, transfer, conveyance and assignment,
on or prior to each Purchase Date with respect to each Mortgage Loan which is
not a Wet Ink Mortgage Loan (or with respect to item (vii) below within seven
Business Days after the Purchase Date), the Seller shall deliver or cause to be
delivered and released to the Custodian the following original documents
(collectively the "Mortgage File"), pertaining to each of the Purchased Mortgage
Loans identified in the Custodial Delivery delivered therewith:
(i) the original Mortgage Note bearing all intervening
endorsements (or allonges), endorsed "Pay to the order of ________,
without recourse" and signed in the name of the last endorsee (the "Last
Endorsee") by an authorized officer (in the event that
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the Mortgage Loan was acquired by the Last Endorsee in a merger, the
signature must be in the following form: "[the Last Endorsee], successor
by merger to [name of predecessor]"; in the event that the Mortgage Loan
was acquired or originated while doing business under another name, the
signature must be in the following form: "[the Last Endorsee], formerly
known as [previous name]");
(ii) the original of any guarantee executed in connection with
the Mortgage Note (if any);
(iii) the original Mortgage with evidence of recording thereon or
a copy certified by Seller to have been sent for recording;
(iv) the originals of all assumption, modification, consolidation
or extension agreements, with evidence of recording thereon or copies
certified by Seller to have been sent for recording;
(v) the original assignment of Mortgage in blank for each
Mortgage Loan, in form and substance acceptable for recording and signed
in the name of the Last Endorsee (in the event that the Mortgage Loan
was acquired by the Last Endorsee in a merger, the signature must be in
the following form: "[the Last Endorsee], successor by merger to [name
of predecessor]"; in the event that the Mortgage Loan was acquired or
originated while doing business under another name, the signature must
be in the following form: "[the Last Endorsee], formerly known as
[previous name]");
(vi) the originals of all intervening assignments of mortgage
with evidence of recording thereon or copies certified by Seller to have
been sent for recording;
(vii) the original policy of title insurance or a true copy
thereof or, if such policy has not yet been delivered by the insurer,
the commitment or binder to issue the same; and
(viii) the original of any security agreement, chattel mortgage
or equivalent document executed in connection with the Mortgage (if
any).
(e) In connection with each sale, transfer, conveyance and assignment,
on or prior to the seventh Business Day following each Purchase Date with
respect to each Mortgage Loan which is a Wet Ink Mortgage Loan, Seller shall
deliver or cause to be delivered to the Custodian a complete Mortgage File. On
the date on which the Buyer receives a Trust Receipt from the Custodian
certifying that a complete Mortgage File with respect to a Wet Ink Mortgage Loan
is in the possession of the Custodian, such Wet Ink Mortgage Loan be deemed a
standard Mortgage Loan (and no longer a Wet Ink Mortgage Loan) for all purposes
hereunder, including, without limitation, determination of the Pricing Spread
and compliance with subsection (zz) of Exhibit V.
(f) With respect to each Mortgage Loan delivered by Seller to Buyer or
its designee (including the Custodian), Seller shall have executed an omnibus
power of attorney substantially
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in the form of Exhibit III attached hereto irrevocably appointing Buyer its
attorney-in-fact with full power to complete and record the assignment of
Mortgage, complete the endorsement of the Mortgage Note and take such other
steps as may be necessary or desirable to enforce Buyer's rights against such
Mortgage Loans, the related Mortgage Files and the Servicing Records.
(g) Buyer shall deposit the Mortgage Files representing the Purchased
Mortgage Loans, or direct that the Mortgage Files be deposited directly, with
the Custodian. The Mortgage Files shall be maintained in accordance with the
Custodial Agreement.
(h) Any Mortgage Files not delivered to Buyer or its designee (including
the Custodian) are and shall be held in trust by Seller or its designee for the
benefit of Buyer as the owner thereof. Seller or its designee shall maintain a
copy of the Mortgage File and the originals of the Mortgage File not delivered
to Buyer or its designee. The possession of the Mortgage File by Seller or its
designee is at the will of the Buyer for the sole purpose of servicing the
related Purchased Mortgage Loan, and such retention and possession by the Seller
or its designee is in a custodial capacity only. The books and records
(including, without limitation, any computer records or tapes) of Seller or its
designee shall be marked appropriately to reflect clearly the sale of the
related Purchased Mortgage Loan to Buyer. Seller or its designee (including the
Custodian) shall release its custody of the Mortgage File only in accordance
with written instructions from Buyer, unless such release is required as
incidental to the servicing of the Purchased Mortgage Loans or is in connection
with a repurchase of any Purchased Mortgage Loan by Seller.
8. REHYPOTHECATION OR PLEDGE OF PURCHASED MORTGAGE LOANS
Title to all Purchased Mortgage Loans shall pass to Buyer and Buyer
shall have free and unrestricted use of all Purchased Mortgage Loans. Nothing in
this Agreement shall preclude Buyer from engaging in repurchase transactions
with the Purchased Mortgage Loans or otherwise assigning, syndicating,
participating, sub-participating, pledging, repledging, hypothecating, or
rehypothecating the Purchased Mortgage Loans, but no such transaction shall
relieve Buyer of its obligations to transfer Purchased Mortgage Loans to Seller
pursuant to Section 3. Seller shall cooperate with Buyer's reasonable requests
to complete such assignments, syndication, participation or pledge. Nothing
contained in this Agreement shall obligate Buyer to segregate any Purchased
Mortgage Loans delivered to Buyer by Seller. In the event that there is a
material adverse change or other development in the repurchase markets which
results in Buyer being unable to finance its position through the repurchase
market with its traditional repurchase counterparties, Buyer may accelerate the
Repurchase Date for any outstanding Transactions following reasonable written
notice to Seller of the occurrence of such event.
9. SUBSTITUTION
(a) Subject to Section 9(b) and the agreement of Buyer, Seller may, upon
one (1) Business Days written notice to Buyer, with a copy to Custodian,
substitute Mortgage Loans or other assets for any Purchased Mortgage Loans. Such
substitution shall be made by transfer to Buyer or its designee (including the
Custodian) of the Mortgage File of such other Mortgage
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Loans together with a Custodial Delivery and transfer to Seller or its designee
of the Purchased Mortgage Loans requested for release. After substitution, the
substituted Mortgage Loans, shall be deemed to be Purchased Mortgage Loans
subject to the same Transaction as the released Mortgage Loans.
(b) Notwithstanding anything to the contrary in this Agreement, Seller
may not substitute other Mortgage Loans or other assets for any Purchased
Mortgage Loans if (i) after taking into account such substitution, a Collateral
Deficit would occur, (ii) such substitution would cause a breach of any
provision of this Agreement or (iii) the Market Value of the Mortgage Loans or
assets substituted is less than the Market Value of such Purchased Mortgage
Loans.
10. REPRESENTATIONS AND WARRANTIES
(a) Each of Buyer and Seller represents and warrants to the other that
(i) it is duly authorized to execute and deliver this Agreement, to enter into
the Transactions contemplated hereunder and to perform its obligations hereunder
and has taken all necessary action to authorize such execution, delivery and
performance; (ii) it will engage in such Transactions as principal; (iii) the
person signing this Agreement on its behalf is duly authorized to do so on its
behalf; (iv) no approval, consent or authorization of the Transactions
contemplated by this Agreement from any federal, state, or local regulatory
authority having jurisdiction over it is required or, if required, such
approval, consent or authorization has been or will, prior to the first Purchase
Date, be obtained; (v) the execution, delivery, and performance of this
Agreement and the Transactions hereunder will not violate any law, regulation,
order, judgment, decree, ordinance, charter, by-law, or rule applicable to it or
its property or constitute a default (or an event which, with notice or lapse of
time, or both would constitute a default) under or result in a breach of any
agreement or other instrument by which it is bound or by which any of its assets
are affected; (vi) it has received approval and authorization to enter into this
Agreement and each and every Transaction actually entered into hereunder
pursuant to its internal policies and procedures; and (vii) neither this
Agreement nor any Transaction pursuant hereto are entered into in contemplation
of insolvency or with intent to hinder, delay or defraud any creditor.
(b) Seller represents and warrants to Buyer that as of the Purchase Date
for the purchase of any Purchased Mortgage Loans by Buyer from Seller and as of
the date of this Agreement and any Transaction hereunder and at all times while
this Agreement and any Transaction hereunder is in full force and effect:
(i) Organization. Seller is duly organized, validly existing and
in good standing under the laws and regulations of the state of
California and is duly licensed, qualified, and in good standing in
every state where Seller transacts business and in any state where any
Mortgaged Property is located if the laws of such state require
licensing or qualification in order to conduct business of the type
conducted by Seller therein.
(ii) No Litigation. There is no action, suit, proceeding,
arbitration or investigation pending or, to Seller's knowledge,
threatened against Seller which, either in
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any one instance or in the aggregate, may result in any material adverse
change in the business, operations, financial condition, properties or
assets of Seller, or in any material impairment of the right or ability
of Seller to carry on its business substantially as now conducted, or in
any material liability on the part of Seller, or which if adversely
determined would affect the validity of this Agreement or any of the
Purchased Mortgage Loans or of any action taken or to be taken in
connection with the obligations of Seller contemplated herein, or which
would be likely to impair materially the ability of Seller to perform
under the terms of this Agreement;
(iii) No Broker. Seller has not dealt with any broker, investment
banker, agent, or other person, except for Buyer, who may be entitled to
any commission or compensation in connection with the sale of Purchased
Mortgage Loans pursuant to this Agreement;
(iv) Good Title to Collateral. Purchased Mortgage Loans shall be
free and clear of any lien, encumbrance or impediment to transfer, and
Seller has good, valid and marketable title and the right to sell and
transfer such Purchased Mortgage Loans to Buyer.
(v) Delivery of Mortgage File. With respect to each Purchased
Mortgage Loan (other than a Wet Ink Mortgage Loan), the Mortgage Note,
the Mortgage, the assignment of Mortgage and any other documents
required to be delivered under this Agreement and the Custodial
Agreement for the Mortgage Loans have been delivered to the Custodian.
Seller or its designee is in possession of a complete, true and accurate
Mortgage File with respect to the Mortgage Loans, except for such
documents the originals of which have been delivered to the Custodian.
(vi) Selection Process. The Purchased Mortgage Loans were
selected from among the outstanding mortgage loans in Seller's portfolio
as to which the representations and warranties set forth in this
Agreement could be made and such selection was not made in a manner so
as to affect adversely the interests of Buyer.
(vii) No Untrue Statements. To the best of Seller's knowledge,
neither this Agreement nor any written statement made, or any report or
other document issued or delivered or to be issued or delivered by
Seller pursuant to this Agreement or in connection with the transactions
contemplated hereby contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements
contained herein or therein not misleading;
(viii) Origination Practices. The origination practices used by
Seller with respect to each Mortgage Loan (i) have been and are in all
respects legal and proper in the mortgage origination business and (ii)
are in accordance with the underwriting guidelines previously supplied
by Seller to Buyer;
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(ix) Performance of Agreement. Seller does not believe, nor does
it have any reason or cause to believe, that it cannot perform each and
every covenant contained in this Agreement on its part to be performed;
(x) Seller Not Insolvent. Seller is not, and with the passage of
time does not expect to become, insolvent; and
(xi) No Event of Default. No Event of Default has occurred and is
continuing hereunder.
(c) Seller represents and warrants to the Buyer that each Purchased
Mortgage Loan sold hereunder and each pool of Purchased Mortgage Loans sold in a
Transaction hereunder, as of the related Purchase Date, conforms to the
representations and warranties set forth in Exhibit V attached hereto and that
each Mortgage Loan delivered hereunder as Additional Loans or Substituted
Mortgage Loans, as of the date of such delivery, conforms to the representations
and warranties set forth in Exhibit V hereto. Seller further represents and
warrants to the Buyer that, as of the seventh Business Day of each month, the
Collateral Information delivered on such day with respect to each Purchased
Mortgage Loan is complete, true and correct. It is understood and agreed that
the representations and warranties set forth in Exhibit V hereto, if any, shall
survive delivery of the respective Mortgage File to Buyer or its designee
(including the Custodian).
(d) Seller represents and warrants to the Buyer that Seller has (i)
initiated a review and assessment of all areas within its and each of its
subsidiaries' business and operations (including those affected by suppliers,
vendors and customers) that could be adversely affected by the "Year 2000
Problem" (that is, the risk that computer applications used by Seller or any of
its subsidiaries (or suppliers, vendors and customers) may be unable to
recognize and perform properly date-sensitive functions involving certain dates
prior to and any date after December 31, 1999), (ii) developed a plan and
timeline for addressing the Year 2000 Problem on a timely basis, and (iii) to
date, implemented that plan in accordance with that timetable. Based on the
foregoing, Seller believes that all computer applications (including those of
its suppliers, vendors and customers) that are material to its or any of its
subsidiaries' business and operations are reasonably expected on a timely basis
to be able to perform properly date-sensitive functions for all dates before and
after January 1, 2000 (that is, be "Year 2000 Compliant").
(e) On the Purchase Date for any Transaction, Buyer and Seller shall
each be deemed to have made all the foregoing representations with respect to
itself as of such Purchase Date.
11. NEGATIVE COVENANTS OF THE SELLER
On and as of the date of this Agreement and each Purchase Date and until
this Agreement is no longer in force with respect to any Transaction, Seller
covenants that it will not:
(a) take any action which would directly or indirectly impair or
adversely affect Buyer's title to or the value of the Purchased Mortgage Loans;
or
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(b) pledge, assign, convey, grant, bargain, sell, set over, deliver or
otherwise transfer any interest in the Purchased Mortgage Loans to any person
not a party to this Agreement nor will the Seller create, incur or permit to
exist any lien, encumbrance or security interest in or on the Purchased Mortgage
Loans except as described in Section 6 of this Agreement.
12. AFFIRMATIVE COVENANTS OF THE SELLER
For so long as this Agreement is in effect:
(a) Seller covenants that it will promptly notify Buyer of any material
adverse change in its business operations and/or financial condition.
(b) Seller shall provide Buyer with copies of such documentation as
Buyer may reasonably request evidencing the truthfulness of the representations
set forth in Section 10, including but not limited to resolutions evidencing the
approval of this Agreement by Seller's board of directors or loan committee and
copies of the minutes of the meetings of Seller's board of directors or loan
committee at which this Agreement and the Transactions contemplated by this
Agreement were approved.
(c) Seller shall, at Buyer's request, take all action necessary to
ensure that Buyer will have a first priority security interest in the Purchased
Mortgage Loans, including, among other things, filing such Uniform Commercial
Code financing statements as Buyer may reasonably request.
(d) Seller covenants that it will not create, incur or permit to exist
any lien, encumbrance or security interest in or on any of the Collateral
without the prior express written consent of Buyer.
(e) Seller shall notify Buyer no later than one (1) Business Day after
obtaining actual knowledge thereof, if any event has occurred that constitutes
an Event of Default with respect to Seller or any event that with the giving of
notice or lapse of time, or both, would become an Event of Default with respect
to Seller.
(f) Seller covenants that each Purchased Mortgage Loan subject to this
Agreement shall be serviced in accordance with Section 25 hereof.
(g) Seller covenants to provide Buyer with a copy of any material
changes to Seller's underwriting guidelines prior to the effectiveness of any
such change. Buyer shall use commercially reasonable efforts to notify Seller
within 7 Business Days of receipt of such changes if such changes are
acceptable. If such changes are not acceptable to Buyer in its sole discretion,
Buyer shall not be obligated to purchase Mortgage Loans hereunder that are
originated in accordance with such changed underwriting guidelines.
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(h) Seller covenants, upon request of Buyer after the occurrence of a
Collateral Deficit, to enter into hedging transactions with respect to fixed
rate Purchased Mortgage Loans in order to protect adequately, in the reasonable
judgment against interest rate risks.
(i) Seller covenants to provide Buyer on the seventh Business Day of
each month, either by direct modem electronic transmission or via a computer
diskette, the Collateral Information in computer readable format with respect to
all Purchased Mortgage Loans then subject to Transactions.
(j) Seller covenants to provide Buyer with the following financial and
reporting information:
(i) Within 90 days after the last day of its fiscal year,
Guarantor's audited consolidated statements of income and balance sheets
and statements of changes in cash flow for such year and balance sheets
as of the end of such year in each case presented fairly in accordance
with GAAP, and accompanied, in all cases, by an unqualified report of
Price Waterhouse LP or another nationally recognized independent
certified public accounting firm consented to by Buyer (which consent
shall not be unreasonably withheld);
(ii) Within 90 days after the last day of its fiscal year,
Seller's audited consolidated statements of income and balance sheets as
of the end of such year in each case presented fairly in accordance with
GAAP, and accompanied, in all cases, by an unqualified report of Price
Waterhouse LP or another nationally recognized independent certified
public accounting firm consented to by Buyer (which consent shall not be
unreasonably withheld);
(iii) Within 60 days after the last day of the first three fiscal
quarters in any fiscal year, Seller's unaudited consolidated statements
of income and statements of changes in cash flow for such quarter and
balance sheets as of the end of such quarter presented fairly in
accordance with GAAP;
(iv) Within 30 days after the last day of each calendar month, an
officer's certificate from the chief financial officer or vice president
of finance of Seller addressed to Buyer certifying that, as of such
calendar month, (x) Seller is in compliance with all of the terms,
conditions and requirements of this Agreement (such certification to
include a calculation on a quarterly basis of the financial tests set
forth in Sections 13(xiii) - (xviii)), and (y) no Event of Default
exists;
(v) As soon as available, copies of all proxy statements,
financial statements, and reports which Guarantor sends to its
stockholders, and copies of all regular, periodic and special reports,
and all registration statements under the Securities Act of 1933, as
amended, which it files with the Securities and Exchange Commission or
any government authority which may be substituted therefor, or with any
national securities exchange
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(vi) Within 30 days after the last day of each fiscal quarter in
any fiscal year, an officer's certificate from the chief financial
officer or vice president of finance of Guarantor addressed to Buyer
certifying the calculation of Tangible Net Worth, including the
valuation (and the assumptions used to derive such valuation) of
residual certificates, interest-only certificates and other comparable
instruments with respect to securitizations of mortgage loans included
in the calculation of such Tangible Net Worth.
(k) Seller covenants to repurchase or substitute pursuant to Section 9
hereof any Mortgage Loan, within two Business Days following written notice from
Buyer, which as to a representation or warranty made by Seller set forth in
Exhibit V hereto proves to be incorrect or untrue in any material respect.
(l) Seller covenants to provide Buyer, within seven Business Days
following the execution thereof by the parties thereto, copies of each material
agreement or instrument entered into after the date of this Agreement by
Guarantor, Seller or any of their respective subsidiaries with respect to
indebtedness for borrowed money, certified by the chief financial officer or
vice president of finance of Guarantor or Seller as being a true and correct
copy of such agreement or instrument, as the case may be, and in full force and
effect.
13. EVENTS OF DEFAULT
If any of the following events (each an "Event of Default") occur,
Seller and Buyer shall have the rights set forth in Section 14, as applicable:
(i) Seller or Buyer fails to satisfy or perform any material
obligation or covenant under this Agreement;
(ii) an Act of Insolvency occurs with respect to Seller or Buyer;
(iii) any representation (excluding the representations and
warranties made with respect to the Mortgage Loans set forth on Exhibit
V hereto) made by Seller shall have been incorrect or untrue in any
material respect when made or repeated or deemed to have been made or
repeated;
(iv) Seller or Buyer shall admit its inability to, or its
intention not to, perform any of its obligations hereunder;
(v) any governmental, regulatory, or self-regulatory authority
takes any action to remove, limit, restrict, suspend or terminate the
rights, privileges, or operations of the Seller or any of its
Affiliates, including suspension as an issuer, lender or seller/servicer
of mortgage loans, which suspension has a material adverse effect on the
ordinary business operations of Seller or Seller's Affiliate, and which
continues for more than 24 hours;
(vi) Seller dissolves, merges or consolidates with another
entity (unless (A) it is the surviving party or (B) the entity into
which it mergers has equity and a market
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value of at least that of the Seller immediately prior to such merger
and such entity expressly assumes the obligations of the Seller at the
time of such merger), or sells, transfers, or otherwise disposes of a
material portion of its business or assets, except for the sale or
transfer of Mortgage Loans in the ordinary course of business;
(vii) Buyer, in its good faith judgment, believes that there has
been a material adverse change in the business, operations, corporate
structure or financial condition of Seller or that Seller will not meet
any of its obligations under any Transaction pursuant to this Agreement,
this Agreement or any other agreement between the parties;
(viii) Seller, Guarantor or any of their respective subsidiaries
shall fail to perform or shall violate any other material agreement or
instrument between any of them and Buyer or any of its Affiliates and
such failure or violation continues unremedied after any applicable
grace period therefor, or Seller, Guarantor or any of their respective
subsidiaries shall fail to pay when due or within any applicable grace
period therefor any portion of any single obligation constituting
indebtedness of Borrower, Guarantor or any of their respective
subsidiaries in excess of $1,000,000; or any default or other event
shall occur under or with respect to any agreement under which any
single obligation constituting indebtedness of Borrower, Guarantor or
any of their respective subsidiaries in excess of $1,000,000 was created
or is governed, the effect of which is to cause, or to permit the holder
or holder of such indebtedness to cause, such indebtedness to become due
prior to its stated maturity; or any single obligation constituting
indebtedness of Borrower, Guarantor or any of their respective
subsidiaries in excess of $1,000,000 shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled
payment), prior to the stated maturity thereof;
(ix) A final judgment by any competent court in the United States
of America for the payment of money in an amount of at least $1,000,000
is rendered against the Seller, and the same remains undischarged or
unpaid for a period of sixty (60) days during which execution of such
judgment is not effectively stayed;
(x) This Agreement shall for any reason cease to create a valid,
first priority security interest in any of the Purchased Mortgage Loans
purported to be covered hereby;
(xi) A Market Value Collateral Deficit or Securitization Value
Collateral Deficit occurs with respect to Seller or Buyer, as
applicable, and is not eliminated within the time period specified in
Section 4(b);
(xii) Capital Z Financial Services Fund II, L.P. shall have
failed to make an additional equity contribution, or cause an additional
equity contribution to be made, to Seller in an amount equal to
$25,000,000 by June 30, 1999;
(xiii) Net Worth shall be less than (i) $125,000,000 at any time
from the date of this Agreement to (but excluding) June 30, 1999, (ii)
$155,000,000 on June 30, 1999 or (iii) thereafter, $155,000,000 plus 90%
of all additional shareholders' equity raised,
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determined in accordance with GAAP, since the date of this Agreement
plus 75% of all cumulative reported net income, determined in accordance
with GAAP, since the date of this Agreement;
(xiv) Tangible Net Worth shall be less than (i) $125,000,000 at
any time from the date of this Agreement to (but excluding) June 30,
1999, (ii) $155,000,000 on June 30, 1999 or (iii) thereafter,
$155,000,000 plus 90% of all additional shareholders' equity raised,
determined in accordance with GAAP, since the date of this Agreement
plus 75% of all cumulative reported net income, determined in accordance
with GAAP, since the date of this Agreement;
(xv) at any time, the Leverage Ratio shall exceed 5.0 to 1.0;
(xvi) the Adjusted Leverage Ratio shall exceed (a) 2.25 to 1.0 on
the last Business Day of any calendar month or (b) 3.5 to 1.0 on any
other day;
(xvii) at any time on and after September 30,1999, the Interest
Coverage Ratio shall be less than 1.0 to 1.0;
(xviii) for any two consecutive fiscal quarters of Guarantor,
beginning with the fiscal quarter ending June 30, 1999, Guarantor and
its subsidiaries shall incur a loss on a consolidated basis in
accordance with GAAP; or
(xix) Seller or Guarantor shall fail to satisfy or perform any
obligation or covenant under the Fee Letter.
14. REMEDIES
(a) If an Event of Default occurs with respect to Seller, the following
rights and remedies are available to Buyer:
(i) At the option of Buyer, exercised by written notice to Seller
(which option shall be deemed to have been exercised, even if no notice
is given, immediately upon the occurrence of an Act of Insolvency), the
Repurchase Date for each Transaction hereunder shall be deemed
immediately to occur.
(ii) If Buyer exercises or is deemed to have exercised the option
referred to in subsection (a)(i) of this Section,
(A) Seller's obligations hereunder to repurchase all
Purchased Mortgage Loans in such Transactions shall thereupon
become immediately due and payable,
(B) to the extent permitted by applicable law, the
Repurchase Price with respect to each such Transaction shall be
increased by the aggregate amount obtained by daily application
of, on a 360 day per year basis for the actual number
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of days during the period from and including the date of the
exercise or deemed exercise of such option to but excluding the
date of payment of the Repurchase Price as so increased, (x) the
greater of the Prime Rate or the Pricing Rate for each such
Transaction to (y) the Repurchase Price for such Transaction as
of the Repurchase Date as determined pursuant to subsection
(a)(i) of this Section (decreased as of any day by (I) any
amounts actually in the possession of Buyer pursuant to clause
(C) of this subsection, (II) any proceeds from the sale of
Purchased Mortgage Loans applied to the Repurchase Price pursuant
to subsection (a)(xii) of this Section, and (III) any amounts
applied to the Repurchase Price pursuant to subsection (a)(iii)
of this Section), and
(C) all Income actually received by the Buyer or its
designee (including the Custodian) pursuant to Section 5 shall be
applied to the aggregate unpaid Repurchase Price owed by Seller.
(iii) After one Business Day's notice to Seller (which notice
need not be given if an Act of Insolvency shall have occurred, and which
may be the notice given under subsection (a)(i) of this Section), Buyer
may (A) immediately sell, without notice or demand of any kind, at a
public or private sale and at such price or prices Buyer may reasonably
deem satisfactory any or all Purchased Mortgage Loans subject to a
Transaction hereunder or (B) in its sole discretion elect, in lieu of
selling all or a portion of such Purchased Mortgage Loans, to give
Seller credit for such Purchased Mortgage Loans in an amount equal to
the Market Value of the Purchased Mortgage Loans against the aggregate
unpaid Repurchase Price and any other amounts owing by Seller hereunder.
The proceeds of any disposition of Purchased Mortgage Loans shall be
applied first to the costs and expenses incurred by Buyer in connection
with Seller's default; second to costs of cover and/or related hedging
transactions relating to Transactions and to losses, damages, costs or
expenses directly arising or resulting from the occurrence of the Event
of Default; third to the Repurchase Price; and fourth to any other
outstanding obligation of Seller to Buyer or its Affiliates.
(iv) The parties recognize that it may not be possible to
purchase or sell all of the Purchased Mortgage Loans on a particular
Business Day, or in a transaction with the same purchaser, or in the
same manner because the market for such Purchased Mortgage Loans may not
be liquid. In view of the nature of the Purchased Mortgage Loans, the
parties agree that liquidation of a Transaction or the underlying
Purchased Mortgage Loans does not require a public purchase or sale and
that a good faith private purchase or sale shall be deemed to have been
made in a commercially reasonable manner. Accordingly, Buyer may elect,
in its sole discretion, the time and manner of liquidating any Purchased
Mortgage Loan and nothing contained herein shall (A) obligate Buyer to
liquidate any Purchased Mortgage Loan on the occurrence of an Event of
Default or to liquidate all Purchased Mortgage Loans in the same manner
or on the same Business Day or (B) constitute a waiver of any right or
remedy of Buyer. However, in recognition of the parties' agreement that
the Transactions hereunder have been entered into in consideration of
and in reliance upon the fact that all Transactions hereunder constitute
a
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single business and contractual relationship and that each Transaction
has been entered into in consideration of the other Transactions, the
parties further agree that Buyer shall use its best efforts to liquidate
all Transactions hereunder upon the occurrence of an Event of Default as
quickly as is prudently possible in the reasonable judgment of Buyer.
(v) Buyer shall, without regard to the adequacy of the security
for the Seller's obligations under this Agreement, be entitled to the
appointment of a receiver by any court having jurisdiction, without
notice, to take possession of and protect, collect, manage, liquidate,
and sell the Collateral or any portion thereof, and collect the payments
due with respect to the Collateral or any portion thereof. Seller shall
pay all costs and expenses incurred by Buyer in connection with the
appointment and activities of such receiver.
(vi) Seller agrees that Buyer may obtain an injunction or an
order of specific performance to compel Seller to fulfill its
obligations as set forth in Section 25, if Seller fails or refuses to
perform its obligations as set forth therein.
(vii) Seller shall be liable to Buyer for the amount of all
expenses, reasonably incurred by Buyer in connection with or as a
consequence of an Event of Default, including, without limitation,
reasonable legal fees and expenses and reasonable costs incurred in
connection with hedging or covering transactions relating to
Transactions.
(viii) Buyer shall have all the rights and remedies provided
herein, provided by applicable federal, state, foreign, and local laws
(including, without limitation, the rights and remedies of a secured
party under the Uniform Commercial Code of the State of New York, to the
extent that the Uniform Commercial Code is applicable, and the right to
offset any mutual debt and claim), in equity, and under any other
agreement between Buyer and Seller.
(ix) Buyer may exercise one or more of the remedies available to
Buyer immediately upon the occurrence of an Event of Default and, except
to the extent provided in subsections (a)(i) and (iii) of this Section,
at any time thereafter without notice to Seller. All rights and remedies
arising under this Agreement as amended from time-to-time hereunder are
cumulative and not exclusive of any other rights or remedies which Buyer
may have.
(x) In addition to its rights hereunder, Buyer shall have the
right to proceed against any assets of Seller which may be in the
possession of Buyer or its agent on Buyer's behalf including the right
to liquidate such assets and to set off the proceeds against monies owed
by Seller to Buyer pursuant to this Agreement. Buyer may set off cash,
the proceeds of the liquidation of the Purchased Mortgage Loans, any
Collateral or its proceeds, and all other sums or obligations owed by
Seller to Buyer against all of Seller's obligations to Buyer, whether
under this Agreement, under a Transaction, or under any other agreement
between the parties, or otherwise, whether or not such obligations are
then due, without prejudice to Buyer's right to recover any deficiency.
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Any cash, proceeds, or property in excess of any amounts due, or which
Buyer reasonably believes may become due, to it from Seller shall be
returned to Seller after satisfaction of all obligations of Seller to
Buyer.
(xi) Buyer may enforce its rights and remedies hereunder without
prior judicial process or hearing, and Seller hereby expressly waives
any defenses Seller might otherwise have to require Buyer to enforce its
rights by judicial process. Seller also waives any defense Seller might
otherwise have arising from the use of nonjudicial process, enforcement
and sale of all or any portion of the Collateral, or from any other
election of remedies. Seller recognizes that nonjudicial remedies are
consistent with the usages of the trade, are responsive to commercial
necessity and are the result of a bargain at arm's length.
(xii) Buyer and Seller hereby agree that sales of the Purchased
Mortgage Loans shall be deemed to include and permit the sales of
Purchased Mortgaged Loans pursuant to a securities offering. The net
proceeds of any such sale shall be applied to reduce the Repurchase
Price of outstanding Transactions.
(b) If an Event of Default occurs with respect to Buyer, the following
rights and remedies are available to Seller:
(i) Upon tender by Seller of payment of the aggregate Repurchase
Price for all such Transactions, Buyer's right, title and interest in
all Purchased Mortgage Loans subject to such Transactions shall be
deemed transferred to Seller, and Buyer shall deliver or cause to be
transferred all such Purchased Mortgage Loans to Seller or its designee
at Buyer's expense.
(ii) If Seller exercises the option referred to in subsection
(b)(i) of this Section and Buyer fails to deliver or cause to be
delivered the Purchased Mortgage Loans to Seller or its designee, after
one Business Day's notice to Buyer, Seller may (A) purchase Mortgage
Loans ("Replacement Loans") that are as similar as is reasonably
practicable in characteristics, outstanding principal amounts (as a
pool) and interest rate to any Purchased Mortgage Loans that are not
delivered by Buyer to Seller or its designee as required hereunder or
(B) in its sole discretion elect, in lieu of purchasing Replacement
Loans, to be deemed to have purchased Replacement Loans at a price
therefor on such date, equal to the Market Value of the Purchased
Mortgage Loans.
(iii) Buyer shall be liable to the Seller (A) with respect to
Purchased Mortgage Loans (other than Additional Loans), for any excess
of the price paid (or deemed paid) by Seller for Replacement Loans
therefor over the Repurchase Price for such Purchased Mortgage Loans and
(B) with respect to Additional Loans, for the price paid (or deemed
paid) by Seller for the Replacement Loans therefor. In addition, Buyer
shall be liable to Seller for interest on such remaining liability with
respect to each such purchase (or deemed purchase) of Replacement Loans
calculated on a 360-day year basis for the actual number of days during
the period from and including the date of such purchase (or
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deemed purchase) until paid in full by Buyer. Such interest shall be at
the greater of the Pricing Rate or the Prime Rate.
(iv) Buyer shall be liable to Seller for the amount of all
expenses reasonably incurred by Seller in connection with or as a
consequence of an Event of Default, including, without limitation,
reasonable legal fees and expenses and reasonable costs incurred in
connection with covering existing hedging transactions with respect to
the Purchased Mortgage Loans.
(v) Seller shall have all the rights and remedies provided
herein, provided by applicable federal, state, foreign, and local laws,
in equity, and under any other agreement between Buyer and Seller,
including, without limitation, the right to offset any debt or claim.
(vi) Seller may exercise one or more of the remedies available to
Seller immediately upon the occurrence of an Event of Default and at any
time thereafter without notice to Buyer. All rights and remedies arising
under this Agreement as amended from time-to-time hereunder are
cumulative and not exclusive of any other rights or remedies which
Seller may have.
15. ADDITIONAL CONDITION
Seller shall, on the date of the initial Transaction hereunder and, upon
the request of Buyer, on the date of any subsequent Transaction, cause to be
delivered to Buyer, with reliance thereon permitted as to any Person that
purchases the Purchased Mortgage Loan from Buyer in a repurchase transaction, a
favorable opinion or opinions of counsel with respect to the matters set forth
in Exhibit IV attached hereto.
16. SINGLE AGREEMENT
Buyer and Seller acknowledge that, and have entered hereunto and will
enter into each Transaction hereunder in consideration of and in reliance upon
the fact that, all Transactions hereunder constitute a single business and
contractual relationship and that each has been entered into in consideration of
the other Transactions. Accordingly, each of Buyer and Seller agrees (i) to
perform all of its obligations in respect of each Transaction hereunder, and
that a default in the performance of any such obligations shall constitute a
default by it in respect of all Transactions hereunder, (ii) that each of them
shall be entitled to set off claims and apply property held by them in respect
of any Transaction against obligations owing to them in respect of any other
Transactions hereunder and (iii) that payments, deliveries, and other transfers
made by either of them in respect of any Transaction shall be deemed to have
been made in consideration of payments, deliveries, and other transfers in
respect of any other Transactions hereunder, and the obligations to make any
such payments, deliveries, and other transfers may be applied against each other
and netted; provided, however, that the parties hereto acknowledge and agree
that each Purchased Mortgage Loan is identified and unique and nothing in this
Agreement should limit or
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reduce Buyer's obligation to deliver the Purchased Mortgage Loans to Seller as
and when provided herein.
17. NOTICES AND OTHER COMMUNICATIONS
Unless another address is specified in writing by the respective party
to whom any written notice or other communication is to be given hereunder, all
such notices or communications shall be in writing or confirmed in writing and
delivered at the respective addresses set forth in the form of Confirmation set
forth in Exhibit I.
18. ENTIRE AGREEMENT; SEVERABILITY
This Agreement together with the applicable Confirmation constitutes the
entire understanding between Buyer and Seller with respect to the subject matter
it covers and shall supersede any existing agreements between the parties
containing general terms and conditions for repurchase transactions involving
Purchased Mortgage Loans. By acceptance of this Agreement, Buyer and Seller
acknowledge that they have not made, and are not relying upon, any statements,
representations, promises or undertakings not contained in this Agreement. Each
provision and agreement herein shall be treated as separate and independent from
any other provision or agreement herein and shall be enforceable notwithstanding
the unenforceability of any such other provision or agreement.
19. NON-ASSIGNABILITY
The rights and obligations of the parties under this Agreement and under
any Transaction shall not be assigned by Seller without the prior written
consent of Buyer. Subject to the foregoing, this Agreement and any Transactions
shall be binding upon and shall inure to the benefit of the parties and their
respective successors and assigns. Nothing in this Agreement express or implied,
shall give to any person, other than the parties to this Agreement and their
successors hereunder, any benefit or any legal or equitable right, power, remedy
or claim under this Agreement.
20. TERMINABILITY
(a) This Agreement shall terminate upon the earlier of (i) 364 days from
the date hereof or (ii) written notice from Seller to Buyer to such effect,
except that this Agreement shall, notwithstanding the above clauses, remain
applicable to any Transaction then outstanding.
(b) Buyer may, in its sole and absolute discretion, terminate this
Agreement if, within 30 days after notice from Buyer to Guarantor stating that
Buyer does not agree with the valuation (and the assumptions used to derive such
valuation) of residual certificates, interest-only certificates and other
comparable instruments with respect to securitizations of mortgage loans
included in the calculation of Tangible Net Worth as certified in the
certificate delivered to Buyer pursuant to Section 12(j)(vi), Buyer and
Guarantor do not agree on such valuation. Upon any such termination, the
Repurchase Price of all Transactions shall become immediately due and
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payable.
(c) Notwithstanding any termination of this Agreement or the occurrence
of an Event of Default, all of the representations and warranties hereunder
(including those made in Exhibit V) shall continue and survive.
21. GOVERNING LAW
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT
OF LAW PRINCIPLES THEREOF.
22. CONSENT TO JURISDICTION AND ARBITRATION
The parties irrevocably agree to submit to the personal jurisdiction of
the United States District Court for the Southern District of New York, the
parties irrevocably waiving any objection thereto. If, for any reason, federal
jurisdiction is not available, and only if federal jurisdiction is not
available, the parties irrevocably agree to submit to the personal jurisdiction
of the Supreme Court of the State of New York, the parties irrevocably waiving
any objection thereto. Notwithstanding the foregoing two sentences, at either
party's sole option exercisable at any time not later than thirty (30) days
after an action or proceeding has been commenced, the parties agree that the
matter may be submitted to binding arbitration in accordance with the commercial
rules of the American Arbitration Association then in effect in the State of New
York and judgment upon any award rendered by the arbitrator may be entered in
any court having jurisdiction thereof within the City, County and State of New
York; provided, however, that the arbitrator shall not amend, supplement, or
reform in any regard this Agreement or the terms of any Confirmation, the rights
or obligations of any party hereunder or thereunder, or the enforceability of
any of the terms hereof or thereof. Any arbitration shall be conducted before a
single arbitrator who shall be reasonably familiar with repurchase transactions
and the secondary mortgage market in the City, County, and State of New York.
23. NO WAIVERS, ETC.
No express or implied waiver of any Event of Default by either party
shall constitute a waiver of any other Event of Default and no exercise of any
remedy hereunder by any party shall constitute a waiver of its right to exercise
any other remedy hereunder. No modification or waiver of any provision of this
Agreement and no consent by any party to a departure herefrom shall be effective
unless and until such shall be in writing and duly executed by both of the
parties hereto. Any such waiver or modification shall be effective only in the
specific instance and for the specific purpose for which it was given.
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24. INTENT
The parties understand and intend that this Agreement and each
Transaction hereunder constitute a "repurchase agreement" and a "securities
contract" as those terms are defined under the relevant provisions of Title 11
of the United States Code, as amended.
25. SERVICING
(a) Notwithstanding the purchase and sale of the Purchased Mortgage
Loans hereby, Seller shall continue to service the Purchased Mortgage Loans for
the benefit of Buyer and, if Buyer shall exercise its rights to pledge or
hypothecate the Purchased Mortgage Loan prior to the related Repurchase Date
pursuant to Section 8, Buyer's assigns; provided, however, that the obligations
of Seller to service the Purchased Mortgage Loans shall cease upon the payment
by Seller to Buyer of the Repurchase Price therefor. Seller shall service the
Purchased Mortgage Loans in accordance with the servicing standards maintained
by other prudent mortgage lenders with respect to mortgage loans similar to the
Purchased Mortgage Loans.
(b) Seller agrees that Buyer is the owner of all servicing records,
including but not limited to any and all servicing agreements, files, documents,
records, data bases, computer tapes, copies of computer tapes, proof of
insurance coverage, insurance policies, appraisals, other closing documentation,
payment history records, and any other records relating to or evidencing the
servicing of Purchased Mortgage Loans (the "Servicing Records"). Seller grants
Buyer a security interest in all servicing fees and rights relating to the
Mortgage Loans and all Servicing Records to secure the obligation of the Seller
or its designee to service in conformity with this Section and any other
obligation of Seller to Buyer. Seller covenants to, and will cause each servicer
and subservicer to, segregate such Servicing Records from any and all servicing
agreements, files, documents, records, data bases, computer tapes, copies of
computer tapes, proof of insurance coverage, insurance policies, appraisals,
other closing documentation, payment history records, and any other records
relating to or evidencing the servicing of Mortgage Loans which are not
Purchased Mortgage Loans and to safeguard such Servicing Records and to deliver
them promptly to Buyer or its designee (including the Custodian) at Buyer's
request.
(c) Upon the occurrence and continuance of an Event of Default, Buyer
may, in its sole discretion, (i) sell its right to the Purchased Mortgage Loans
on a servicing released basis or (ii) terminate the Seller as servicer of the
Purchased Mortgage Loans with or without cause, in each case without payment of
any termination fee.
(d) Seller shall not employ sub-servicers (other than an Affiliate of
Seller) to service the Purchased Mortgage Loans without the prior written
approval of Buyer.
(e) Seller shall cause any sub-servicer hereunder to execute a letter
agreement with Buyer acknowledging Buyer's security interest and agreeing that,
upon notice from Buyer (or the Custodian on its behalf) that an Event of Default
has occurred and in continuing hereunder, it
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shall deposit all Income with respect to the Purchased Mortgage Loans in the
account specified in the third sentence of Section 5(a).
(f) After the occurrence of a Trigger Event, an Event of Default or a
Market Value Collateral Deficit or Securitization Value Collateral Deficit which
is not cured in accordance with Section 4, at the request of Buyer, Seller shall
enter into a master servicing agreement with Buyer and a backup servicer
reasonably acceptable to Buyer, which agreement shall be satisfactory in form
and substance to Buyer.
26. DISCLOSURE RELATING TO CERTAIN FEDERAL PROTECTIONS
The parties acknowledge that they have been advised that in the case of
Transactions in which one of the parties is an "insured depository institution"
as that term is defined in Section 1831(a) of Title 12 of the United States
Code, as amended, funds held by the financial institution pursuant to a
Transaction hereunder are not a deposit and therefore are not insured by the
Federal Deposit Insurance Corporation, the Savings Association Insurance Fund or
the Bank Insurance Fund, as applicable.
27. NETTING
If Buyer and Seller are "financial institutions" as now or hereinafter
defined in Section 4402 of Title 12 of the United States Code ("Section 4402")
and any rules or regulations promulgated thereunder:
(a) All amounts to be paid or advanced by one party to or on behalf of
the other under this Agreement or any Transaction hereunder shall be deemed to
be "payment obligations" and all amounts to be received by or on behalf of one
party from the other under this Agreement or any Transaction hereunder shall be
deemed to be "payment entitlements" within the meaning of Section 4402, and this
Agreement shall be deemed to be a "netting contract" as defined in Section 4402.
(b) The payment obligations and the payment entitlements of the parties
hereto pursuant to this Agreement and any Transaction hereunder shall be netted
as follows. In the event that either party (the "Defaulting Party") shall fail
to honor any payment obligation under this Agreement or any Transaction
hereunder, the other party (the "Nondefaulting Party") shall be entitled to
reduce the amount of any payment to be made by the Nondefaulting Party to the
Defaulting Party by the amount of the payment obligation that the Defaulting
Party failed to honor.
28. MISCELLANEOUS
(a) Time is of the essence under this agreement and all Transactions and
all references to a time shall mean New York time in effect on the date of the
action unless otherwise expressly stated in this Agreement.
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(b) Buyer shall be authorized to accept orders and take any other action
affecting any accounts of the Seller in response to instructions given in
writing by any authorized officer of Seller listed on Exhibit VI hereto, as such
list may be amended in writing from time to time. Seller shall indemnify Buyer,
defend, and hold Buyer harmless from and against any and all liabilities,
losses, damages, costs, and expenses of any nature arising out of or in
connection with any action taken by Buyer in response to such instructions
received or reasonably believed to have been received from such authorized
officers of Seller.
(c) If there is any conflict between the terms of this Agreement or any
Transaction entered into hereunder and the Custodial Agreement, this Agreement
shall prevail.
(d) If there is any conflict between the terms of a Confirmation or a
corrected Confirmation issued by the Buyer and this Agreement, the Confirmation
shall prevail.
(e) This Agreement may be executed in counterparts, each of which so
executed shall be deemed to be an original, but all of such counterparts shall
together constitute but one and the same instrument.
(f) Seller agrees to reimburse Buyer for all reasonable costs and
expenses of Buyer in connection with this Agreement including, without
limitation, the fees, expenses and disbursement of outside counsel to Buyer and
due diligence expenses and on-going auditing fees not to exceed $25,000 per
year.
(g) Seller and Buyer agree to maintain the confidentiality of this
Agreement and its terms and agree not to disclose this Agreement or its terms to
any other party except as required for the enforcement of its terms or as
required by law, regulatory requirements or court order or discovery. In the
event Seller determines that the Agreement must be filed with the Securities and
Exchange Commission pursuant to applicable law, such filing may only be made
after consultation with Buyer and upon redaction of the Pricing Spread.
(h) The headings in this Agreement are for convenience of reference only
and shall not affect the interpretation or construction of this Agreement.
[Signature page follows]
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IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the date set forth above.
LEHMAN COMMERCIAL PAPER INC., as Buyer
By: /s/ Francis X. Gilhool
-------------------------------------
Name: Francis X. Gilhool
Title: Authorized Signatory
AAMES CAPITAL CORPORATION, as Seller
By: /s/ David S. Sklar
-------------------------------------
Name:
Title:
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EXHIBITS
EXHIBIT I Confirmation
EXHIBIT II Form of Custodial Delivery
EXHIBIT III Form of Power of Attorney
EXHIBIT IV Opinion of Counsel to Seller
EXHIBIT V Representations and Warranties Regarding Mortgage Loan
EXHIBIT VI Authorized Officers of Seller
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EXHIBIT I
Form of Confirmation Letter
(date)
Aames Capital Corporation
350 South Grand Avenue
Los Angeles, California 90071
Attention:
Confirmation No.: _____________________
Ladies/Gentlemen:
This letter confirms our agreement to purchase from you the Mortgage
Loans listed in Appendix I hereto, pursuant to the Amended and Restated Master
Repurchase Agreement Governing Purchases and Sales of Mortgage Loans between us,
dated as of February 10, 1999 (the "Agreement"), as follows:
Purchase Date:
Mortgage Loans to be Purchased: See Appendix I hereto.(1)
Aggregate Principal Amount of Purchased Mortgage Loans:
Purchase Price:
Pricing Rate:
Repurchase Date:
Repurchase Price:
Collateral Amount Percentage with respect to Market Value:
Collateral Amount Percentage with respect to Securitization Value:
Names and addresses for communications:
Buyer:
- --------
(1) Appendix I to Confirmation Letter will list Mortgage Loans.
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Lehman Commercial Paper Inc.
200 Vesey Street
9th Floor
New York, New York 10285-0900
Attention: Central Funding Department
Seller:
Aames Capital Corporation
350 South Grand Avenue
Los Angeles, California 90071
Attention: Michelle Treasure, Finance Department
LEHMAN COMMERCIAL PAPER INC., as Buyer
By: ___________________________________
Name:
Title:
Agreed and Acknowledged:
AAMES CAPITAL CORPORATION, as Seller
By: __________________________________
Name:
Title:
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EXHIBIT II
Form of Custodial Delivery
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EXHIBIT III
Form of Power of Attorney
"Know All Men by These Presents, that Aames Capital Corporation
("Seller"), does hereby appoint Lehman Commercial Paper Inc. ("Buyer"), its
attorney-in-fact to act in Seller's name, place and stead in any way which
Seller could do with respect to (i) the completion of the endorsements of the
Mortgage Notes and the Assignments of Mortgages, (ii) the recordation of the
assignments of Mortgages and (iii) the enforcement of the Seller's rights under
the Mortgage Loans purchased by Buyer pursuant to an Amended and Restated Master
Repurchase Agreement Governing Purchases and Sales of Mortgage Loans dated as of
February 10, 1999 between Seller and Buyer and to take such other steps as may
be necessary or desirable to enforce Buyer's rights against such Mortgage Loans,
the related Mortgage Files and the Servicing Records to the extent that Seller
is permitted by law to act through an agent.
TO INDUCE ANY THIRD PARTY TO ACT HEREUNDER, SELLER HEREBY AGREES THAT
ANY THIRD PARTY RECEIVING A DULY EXECUTED COPY OR FACSIMILE OF THIS INSTRUMENT
MAY ACT HEREUNDER, AND THAT REVOCATION OR TERMINATION HEREOF SHALL BE
INEFFECTIVE AS TO SUCH THIRD PARTY UNLESS AND UNTIL ACTUAL NOTICE OR KNOWLEDGE
OF SUCH REVOCATION OR TERMINATION SHALL HAVE BEEN RECEIVED BY SUCH THIRD PARTY,
AND SELLER ON ITS OWN BEHALF AND ON BEHALF OF SELLER'S ASSIGNS, HEREBY AGREES TO
INDEMNIFY AND HOLD HARMLESS ANY SUCH THIRD PARTY FROM AND AGAINST ANY AND ALL
CLAIMS THAT MAY ARISE AGAINST SUCH THIRD PARTY BY REASON OF SUCH THIRD PARTY
HAVING RELIED ON THE PROVISIONS OF THIS INSTRUMENT.
IN WITNESS WHEREOF Seller has caused this Power of Attorney to be
executed and the Seller's seal to be affixed this 10th day of February, 1999.
AAMES CAPITAL CORPORATION, as Seller
By: __________________________________
Name:
Title:
(Seal)
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EXHIBIT IV
Opinion Of Seller's Counsel
1. Seller is duly organized and validly existing as a corporation in
good standing under the laws of California and has power and authority to enter
into and perform its obligations under the Agreement and the Custodial
Agreement. Seller is duly qualified to do business and is in good standing in
each jurisdiction in which the character of the business transacted by it
requires such qualification and in which the failure so to qualify would have a
material adverse effect on the business, properties, assets or condition
(financial or other) of Seller and its subsidiaries, considered as a whole.
2. The Agreement and the Custodial Agreement have each been duly
authorized, executed and delivered by Seller, and each constitutes a valid and
legally binding obligation of Seller enforceable against Seller in accordance
with its terms, subject, as to enforcement, to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or affecting
creditors' rights generally and to general equity principles.
3. No consent, approval, authorization or order of any state or federal
court or government agency or body is required to be obtained by Seller for the
consummation of the transactions contemplated by the Agreement or the Custodial
Agreement.
4. The consummation of any of the transactions contemplated by the
Agreement and the Custodial Agreement will not conflict with, result in a breach
of, or constitute a default under the charter or bylaws of Seller or the terms
of any indenture or other agreement or instrument known to us to which Seller is
party or bound, or any order known to such counsel to be applicable to Seller or
any regulations applicable to Seller, of any state or federal court, regulatory
body, administrative agency, governmental body or arbitrator having jurisdiction
over Seller.
5. There is no pending or, to such counsel's knowledge, threatened
action, suit or proceeding before any court or governmental agency, authority or
body or any arbitrator involving Seller or relating to the transactions
contemplated by the Agreement or the Custodial Agreement which, if adversely
determined, would have a material adverse effect on Seller.
6. The Agreement together with (a) the delivery of such related Mortgage
Loans to Custodian; (b) the endorsement of such Mortgage Loans in blank; and (c)
the delivery of the assignments of Mortgages related to the Mortgage Loans to
the Custodian in recordable form assigning such Mortgages to Custodian, creates
a valid, perfected security interest in such Mortgage Loans in favor of Buyer.
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EXHIBIT V
Representations and Warranties Regarding Mortgage Loans.
The Seller represents and warrants to the Buyer that, with respect to
each Mortgage Loan sold in a Transaction hereunder, as of the related Purchase
Date:
(a) Mortgage Loans as Described. The information set forth in the
Mortgage Loan Schedule is complete, true and correct in all material respects.
(b) Payments Current Within 59 Days; Delinquency. The Mortgage Loan (i)
together with the other Purchased Mortgage Loans subject to Transactions, would
not cause the 30+ Delinquency Percentage for all Mortgage Loans to exceed 5% and
(ii) is not more than 59 days Delinquent.
(c) No Outstanding Charges. There are no defaults in complying with the
terms of the Mortgage, and all taxes, governmental assessments, insurance
premiums, water, sewer and municipal charges, leasehold payments or ground rents
which previously became due and owing have been paid, or an escrow of funds has
been established in an amount sufficient to pay for every such item which
remains unpaid and which has been assessed but is not yet due and payable.
Seller has not advanced funds, or induced, solicited or knowingly received any
advance of funds by a party other than the Mortgagor, directly or indirectly,
for the payment of any amount required under the Mortgage Loan, except for
interest accruing from the date of the Mortgage Note or date of disbursement of
the Mortgage Loan proceeds, whichever is greater, to the day which precedes by
one month the due date of the first installment of principal and interest.
(d) Original Terms Unmodified. The terms of the Mortgage Note and
Mortgage have not been impaired, waived, altered or modified in any respect,
except by a written instrument which has been recorded, if necessary to protect
the interests of Buyer and which has been delivered to Buyer or its designee
(including the Custodian). The substance of any such waiver, alteration or
modification has been approved by the title insurer, to the extent required by
the policy, and its terms are reflected on the Mortgage Loan Schedule. No
Mortgagor has been released, in whole or in part, except in connection with an
assumption agreement approved by the title insurer, and which assumption
agreement is included in the Mortgage File delivered to Buyer or its designee
(including the Custodian) and the terms of which are reflected in the Mortgage
Loan Schedule.
(e) No Defenses. The Mortgage Loan is not subject to any right of
rescission, set-off, counterclaim or defense, including without limitation the
defense of usury, nor will the operation of any of the terms of the Mortgage
Note or the Mortgage, or the exercise of any right thereunder, render either the
Mortgage Note or the Mortgage unenforceable, in whole or in part, or subject to
any right of rescission, set-off, counterclaim or defense, including without
limitation
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the defense of usury, and no such right of rescission, set-off, counterclaim or
defense has been asserted with respect thereto.
(f) Insurance Policies in Effect. The fire and casualty insurance policy
covering the Mortgaged Property (1) affords (and will afford) sufficient
insurance against fire and such other risks as are usually insured against in
the broad form of extended coverage insurance from time to time available, as
well as insurance against flood hazards if the Mortgaged Property is an area
identified by the Federal Emergency Management Agency as having special flood
hazards; (2) is a standard policy of insurance for the locale where the
Mortgaged Property is located, is in full force and effect, and the amount of
the insurance is in the amount of the full insurable value of the Mortgaged
Property on a replacement cost basis or the unpaid balance of the Mortgage
Loans, whichever is less; (3) names (and will name) the present owner of the
Mortgaged Property as the insured; and (4) contains a standard mortgagee loss
payable clause in favor of Seller. All individual insurance policies with
respect to the Mortgage Loan are the valid and binding obligation of the insurer
and contain a standard mortgage clause naming Seller, its successors and
assigns, as Mortgagee. All premiums thereon have been paid. The Mortgage
obligates the Mortgagor thereunder to maintain all such insurance policies at
the Mortgagor's cost and expense, and upon the Mortgagor's failure to do so,
authorizes the holder of the Mortgage to obtain and maintain such insurance at
the Mortgagor's cost and expense and to seek reimbursement therefor from the
Mortgagor.
(g) Compliance with Applicable Laws. Any and all requirements of any
federal, state or local law including, without limitation, usury,
truth-in-lending, real estate settlement procedures, consumer credit protection,
equal credit opportunity or disclosure laws applicable to the origination and
servicing of the Mortgage Loan have been complied with, and Seller shall
maintain in its possession, available for Buyer's inspection, and shall deliver
to Buyer upon demand, evidence of compliance with all such requirements.
(h) No Satisfaction of Mortgage. The Mortgage has not been satisfied,
canceled, subordinated or rescinded, in whole or in part, and the Mortgaged
Property has not been released from the lien of the Mortgage, in whole or in
part, nor has any instrument been executed that would effect any such release,
cancellation, subordination or rescission.
(i) Location and Type of Mortgaged Property. The Mortgaged Property is
located in the state identified in the Mortgage Loan Schedule and consists of a
parcel of real property with a detached single family residence erected thereon,
or a two- to four-family dwelling, or an individual condominium unit in a
condominium project, or an individual unit in a planned unit development and no
residence or dwelling is a mobile home or a manufactured dwelling (other than a
mobile home or a manufactured dwelling permanently affixed to real property). No
portion of the Mortgaged Property is used for commercial purposes (except for
home offices).
(j) Valid First or Second Lien. The Mortgage is a valid, subsisting and
enforceable first or second lien on the Mortgaged Property, including all
buildings on the Mortgaged Property and all installations and mechanical,
electrical, plumbing, heating and air conditioning
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systems located in or annexed to such buildings, and all additions, alterations
and replacements made at any time with respect to the foregoing. The lien of the
Mortgage is subject only to:
(i) the lien of current real property taxes and special
assessments not yet due and payable;
(ii) covenants, conditions and restrictions, rights of way,
easements and other matters of the public record as of the date of
recording acceptable to mortgage lending institutions generally and
specifically referred to in the lender's title insurance policy
delivered to the originator of the Mortgage Loan and (i) referred to or
otherwise considered in the appraisal made for the originator of the
Mortgage Loan or (ii) which do not adversely affect the appraised value
of the Mortgaged Property set forth in such appraisal;
(iii) in the case of a Mortgaged Property that is a condominium
or an individual unit in a planned unit development, liens for common
charges permitted by statute;
(iv) in the case where the Mortgage Loan is secured by a second
mortgage lien on the Mortgaged Property (and represented on the Mortgage
Loan Schedule as such), the lien of the First Mortgage; and
(v) 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 the mortgage or the use, enjoyment, value or
marketability of the related Mortgaged Property.
Any security agreement, chattel mortgage or equivalent document related
to and delivered in connection with the Mortgage Loan establishes and creates a
valid, subsisting and enforceable first or second lien and first or second
priority security interest on the property described therein and Seller has full
right to pledge and assign the same to Buyer or its designee (including the
Custodian).
(k) Validity of Mortgage Documents. The Mortgage Note and the Mortgage
are genuine, and each is the legal, valid and binding obligation of the maker
thereof enforceable in accordance with its terms, except as such enforcement may
be limited by bankruptcy, insolvency, reorganization, receivership, moratorium
or other similar laws relating to or affecting the rights of creditor's
generally, and by general equity principles (regardless of whether such
enforcement is considered in a proceeding in equity or at law.) All parties to
the Mortgage Note and the Mortgage had legal capacity to enter into the Mortgage
Loan and to execute and deliver the Mortgage Note and the Mortgage, and the
Mortgage Note and the Mortgage have been duly and properly executed by such
parties. The Mortgagor is a natural person or living trust who is a party to the
Mortgage Note and the Mortgage in an individual or trustee capacity,
respectively.
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(l) Full Disbursement of Proceeds. The proceeds of the Mortgage Loan
have been fully disbursed and there is no requirement for future advances
thereunder, and any and all requirements as to completion of any on-site or
off-site improvement and as to disbursements of any escrow funds therefor have
been complied with. All costs, fees and expenses incurred in making or closing
the Mortgage Loan and the recording of the Mortgage were paid, and the Mortgagor
is not entitled to any refund of any amounts paid or due under the Mortgage Note
or Mortgage.
(m) Ownership. Seller is the sole owner of record and holder of the
Mortgage Loan. The Mortgage Loan is not assigned or pledged except as provided
in this Agreement, and Seller has good and marketable title thereto, and has
full right to pledge and assign the Mortgage Loan to Buyer or its designee
(including the Custodian) free and clear of any encumbrance, equity,
participation interest, lien, pledge, charge, claim or security interest, and
has full right and authority subject to no interest or participation of, or
agreement with, any other party, to sell and assign each Mortgage Loan pursuant
to this Agreement.
(n) Doing Business. All parties which have had any interest in the
Mortgage Loan, whether as mortgagee, assignee, pledgee or otherwise, are (or,
during the period in which they held and disposed of such interest, were) (1) in
compliance with any and all applicable licensing requirements of the laws of the
state wherein the Mortgaged Property is located, and (2) organized under the
laws of such state, or (3) qualified to do business in such state, or (4)
federal savings and loan associations or national banks having principal offices
in such state, or (5) not doing business in such state.
(o) Loan-to-Value Ratio. No Mortgage Loan has a Loan-to-Value Ratio of
more than 90%. The Mortgage Loans subject to Transactions do not have a weighted
average cumulative Loan-to-Value Ratio in excess of 85%.
(p) Title Insurance. The Mortgage Loan is covered by an ALTA mortgage
title insurance policy or such other form of policy acceptable to FNMA or FHLMC,
issued by and constituting the valid and binding obligation of a title insurer
generally acceptable to prudent mortgage lenders that regularly originate or
purchase mortgage loans comparable to the Mortgage Loans for sale to prudent
investors in the secondary market that invest in mortgage loans such as the
Mortgage Loans and qualified to do business in the jurisdiction where the
Mortgaged Property is located, insuring Seller, its successors and assigns, as
to the first priority lien of the Mortgage in the case of a First Mortgage Loan
secured by a First Mortgage and the second priority lien of the Mortgage in the
case of a Mortgage Loan secured by a second lien on the related Mortgaged
Property, in the original principal amount of the Mortgage Loan. Seller is the
sole named insured of such mortgage title insurance policy, the assignment to
Buyer or the Custodian as assignee of Buyer of Seller's interest in such
mortgage title insurance policy does not require the consent of or notification
to the insurer or the same has been obtained, and such mortgage title insurance
policy is in full force and effect and will be in full force and effect and
inure to the benefit of Buyer upon the consummation of the transactions
contemplated by this Agreement. No claims have been made under such mortgage
title insurance policy and no prior
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holder of the related Mortgage, including Seller, has done, by act or omission,
anything that would impair the coverage of such mortgage title insurance policy.
(q) No Defaults. Other than a payment default, there is no default,
breach, violation or event of acceleration existing under the Mortgage or the
Mortgage Note and no event which, with the passage of time or with notice and
the expiration of any grace or cure period, would constitute a default, breach,
violation or event of acceleration, and neither Seller nor its predecessors have
waived any default, breach, violation or event of acceleration.
(r) No Mechanics' Liens. There are no mechanics' or similar liens or
claims which have been filed for work, labor or material (and no rights are
outstanding that under the law could give rise to such liens) affecting the
Mortgaged Property which are or may be liens prior to, or equal or coordinate
with, the lien of the Mortgage.
(s) Location of Improvements; No Encroachments. All improvements which
were considered in determining the appraised value of the mortgaged property lay
wholly within the boundaries and building restriction lines of the mortgaged
property and no improvements on adjoining properties encroach upon the mortgaged
property. No improvement located on or being part of the mortgaged property is
in violation of any applicable zoning law or regulation.
(t) Origination. The Mortgage Loan was originated by Seller, an
affiliate of Seller or by an originator not affiliated with the Seller licensed
to originate such Mortgage Loan. The documents, instruments and agreements
submitted for loan underwriting were not falsified and contain no untrue
statement of material fact or omit to state a material fact required to be
stated therein or necessary to make the information and statements therein not
misleading.
(u) Customary Provisions. The Mortgage contains customary and
enforceable provisions such as to render the rights and remedies of the holder
thereof adequate for the realization against the Mortgaged Property of the
benefits of the security provided thereby, including, (i) in the case of a
Mortgage designated as a deed of trust, by trustee's sale, and (ii) otherwise by
judicial foreclosure. There is no homestead or other exemption available to a
Mortgagor which would interfere with the right to sell the Mortgaged Property at
a trustee's sale or the right to foreclose the Mortgage.
(v) Occupancy of the Mortgaged Property. As of the related Purchase Date
the Mortgaged Property is capable of being lawfully occupied under applicable
law. All inspections, licenses and certificates required to be made or issued
with respect to all occupied portions of the Mortgaged Property and, with
respect to the use and occupancy of the same, including but not limited to
certificates of occupancy and fire underwriting certificates, have been made or
obtained from the appropriate authorities. Either that the Mortgagor represented
at the time of origination of the Mortgage Loan that the Mortgagor would occupy
the Mortgaged Property as the Mortgagor's primary residence or second home or
the Mortgaged Property is capable of being occupied pursuant to terms that
approximate current standard market rental terms and rates.
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(w) No Additional Collateral. The Mortgage Note is not and has not been
secured by any collateral except the lien of the corresponding Mortgage and the
security interest of any applicable security agreement or chattel mortgage
referred to in (j) above.
(x) Deeds of Trust. In the event the Mortgage constitutes a deed of
trust, a trustee, duly qualified under applicable law to serve as such, has been
properly designated and currently so serves and is named in the Mortgage, and no
fees or expenses are or will become payable by Buyer to the trustee under the
deed of trust, except in connection with a trustee's sale after default by the
Mortgagor.
(y) Acceptable Investment. Seller has no knowledge of any circumstances
or conditions with respect to the Mortgage, the Mortgaged Property, the
Mortgagor (other than the Mortgagor's credit standing) that can reasonably be
expected to cause private institutional investors that regularly invest in
subprime or high loan-to-value mortgage loans similar to the Mortgage Loans to
regard the Mortgage Loan as an unacceptable investment or adversely affect the
value or marketability of the Mortgage Loan to other similar institutional
investors.
(z) Purchase of Mortgage Documents. The Mortgage File and any other
documents required by Buyer to be delivered for the Mortgage Loan by Seller
under this Agreement have been delivered (or with respect to Wet Ink Mortgage
Loans, will be delivered within seven Business Days) to the Custodian. Seller is
in possession of a complete, true and accurate Mortgage File except for such
documents the originals of which have been delivered to the Buyer or its
designee (including the Custodian). Each of the documents and instruments
included in the Mortgage File is duly executed and in due and proper form and
each such document or instrument is in a form generally acceptable to prudent
institutional mortgage lenders that regularly originate and purchase subprime or
high loan-to-value mortgage loans.
(aa) Condominiums/Planned Unit Developments. If the Mortgaged Property
is a condominium unit or a planned unit development (other than a de minimus
planned unit development) such condominium or planned unit development project
meets Seller's Underwriting Guidelines.
(bb) Transfer of Mortgage Loans. The assignment of Mortgage is in
recordable form and is acceptable for recording under the laws of the
jurisdiction in which the Mortgaged Property is located.
(cc) Due on Sale. The Mortgage contains an enforceable provision for the
acceleration of the payment of the unpaid principal balance of the Mortgage Loan
in the event that the Mortgaged Property is sold or transferred without the
prior written consent of the Mortgagee thereunder.
(dd) No Buydown Provisions; No Graduated Payments or Contingent
Interests. The Mortgage Loan does not contain provisions pursuant to which
monthly payments are paid or partially paid with funds deposited in any separate
account established by Seller, the Mortgagor or anyone on behalf of the
mortgagor, or paid by any source other than the Mortgagor nor does it
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contain any other similar provisions currently in effect which may constitute a
"buydown" provision. The Mortgage Loan is not a graduated payment mortgage loan
and the Mortgage Loan does not have a shared appreciation or other contingent
interest feature.
(ee) Consolidation of Future Advances. Any future advances made prior to
the Purchase Date have been consolidated with the outstanding principal amount
secured by the Mortgage, and the secured principal amount, as consolidated,
bears a single interest rate and single repayment term. The lien of the Mortgage
securing the consolidated principal amount is expressly insured as having first
or second lien priority, as the case may be, by a title insurance policy or an
endorsement to the policy insuring the mortgagee's consolidated interest. The
consolidated principal amount does not exceed the original principal amount of
the Mortgage Loan.
(ff) Mortgaged Property Undamaged. There is no proceeding pending or, to
Seller's knowledge, threatened for the total or partial condemnation of the
Mortgaged Property. The Mortgaged Property is undamaged by waste, fire,
earthquake or earth movement, windstorm, flood, tornado or other casualty so as
to affect adversely the value of the Mortgaged Property as security for the
Mortgage Loan or the use for which the premises were intended.
(gg) Collection Practices; Escrow Deposits; Interest Rate Adjustments.
The origination and collection practices used with respect to the Mortgage Loan
have been in all respects in accordance with industry custom and practice, and
have been in all respects legal and proper. With respect to escrow deposits and
escrow payments, all such payments are in the possession of Seller and there
exist no deficiencies in connection therewith for which customary arrangements
for repayment thereof have not been made. All escrow payments have been
collected in full compliance with state and federal law. If an escrow of funds
has been established, it is not prohibited by applicable law and has been
established in an amount sufficient to pay for every item that remains unpaid
and has been assessed but is not yet due and payable. No escrow deposits or
escrow payments or other charges or payments due Seller have been capitalized
under the Mortgage or the Mortgage Note. All mortgage interest rate adjustments
have been made in strict compliance with state and federal law and the terms of
the related Mortgage Note. Any interest required to be paid pursuant to state
and local law has been properly paid and credited.
(hh) Conversion to Fixed Interest Rate. With respect to the aggregate
outstanding principal balance of the Mortgage Loans on the related Purchase
Date, no more than 50% of the Mortgage Notes contain a provision allowing the
Mortgagor to convert the Mortgage Note from an adjustable interest rate Mortgage
Note to a fixed interest rate Mortgage Note for the remaining term thereof all
in accordance with the terms of a rider to the related Mortgage Note.
(ii) Appraisal. The Mortgage File for each Mortgage Loan contains an
appraisal of the related Mortgaged Property signed prior to the approval of the
Mortgage Loan application by a qualified appraiser, duly appointed by the
originator of the Mortgage Loan, who had no interest, direct or indirect in the
mortgaged property or in any loan made on the security thereof, other than as an
employee of the lender, and whose compensation is not affected by the approval
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or disapproval of the Mortgage Loan, and the appraisal and appraiser both
satisfy the requirements of Title XI of the Federal Institutions Reform,
Recovery, and Enforcement Act of 1989 and the regulations promulgated
thereunder, all as in effect on the date the Mortgage Loan was originated.
(jj) Soldiers' and Sailors' Relief Act. The Mortgagor has not notified
Seller, and Seller has no knowledge of any relief requested or allowed to the
Mortgagor under the Soldiers' and Sailors' Civil Relief Act of 1940.
(kk) Environmental Matters. To the best of Seller's knowledge based on
customary residential mortgage industry practices the mortgaged Property is free
from any and all toxic or hazardous substances and there exists no violation of
any local, state or federal environmental law, rule or regulation.
(ll) Seller Origination The Mortgage Loan was originated by Seller or an
Affiliate of Seller or was purchased and reunderwritten by Seller.
(mm) Balloon Mortgage Loans. Each Balloon Mortgage Loan has an original
term of not less than 7 years and which provides for level monthly payments
based on a thirty (30) year amortization schedule and a final Monthly Payment
substantially greater than the preceding Monthly Payments.
(nn) No Construction Loans. No Mortgage Loan is a construction loan or
relates to manufactured housing which is not permanently affixed to real
property.
(oo) Selection by Seller. No Mortgage Loan was selected for inclusion
under this Agreement on any basis which was intended to have a material adverse
effect on Buyer.
(pp) Second Mortgages. With respect to each Mortgage Loan secured by a
second lien on the related Mortgaged Property:
(i) if the Loan-to-Value Ratio is higher than 70%, either the
related first lien does not provide for a balloon payment or the
maturity date of each Mortgage Loan with respect to which a first lien
on the related Mortgaged Property provides for a balloon payment is
prior to the maturity date of the mortgage loan relating to such first
lien;
(ii) the related first lien on any Mortgaged Property with
respect to which the related Mortgage Loan secured by a second lien does
not provide for negative amortization;
(iii) either no consent for the Mortgage Loan secured by a second
lien on the related Mortgaged Property is required by the holder of the
related first lien or such consent has been obtained and is contained in
the Mortgage File;
(iv) the related first lien is not held by an individual;
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(v) if such Mortgage Loan has a Loan-to-Value Ratio greater than
90% and less than 95%, the Purchase Price of such Mortgage Loan together
with the Purchase Price of Purchased Mortgage Loans secured by a second
lien on the related Mortgaged Properties subject to then outstanding
Transactions having a Loan-to-Value Ratio greater than 90% and less than
95% does not exceed 3% of the aggregate Purchase Price for all Mortgage
Loans which are subject to then outstanding Transactions; and
(vi) the Purchase Price of such Mortgage Loan together with the
Purchase Price of Purchased Mortgage Loans subject to then outstanding
Transactions secured by a second lien on the related Mortgaged
Properties does not exceed 10% of the aggregate Purchase Price for all
Mortgage Loans subject to then outstanding Transactions.
(qq) CERCLA. To the best of the Seller's knowledge, no Mortgaged
Property was, as of the Purchase Date or, with respect to Additional Loans or
Substitute Mortgage Loans, as of the related date of addition or substitution,
located within a one-mile radius of any site listed in the National Priorities
List as defined under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, or on any similar state list of hazardous
waste sites which are known to contain any hazardous substance or hazardous
waste.
(rr) No Bankruptcy of Mortgagor. None of the Mortgage Loans are subject
to a bankruptcy plan.
(ss) Conformance to Underwriting Standards. Each Mortgage Loan was
underwritten in accordance with the underwriting guidelines supplied to Buyer by
Seller.
(tt) Qualified Mortgage. Each Mortgage Loan constitutes a "qualified
mortgage" within the meaning of Section 860G(a)(3) of the Code.
(uu) Balloon Loan Concentration. If the Mortgage Loan is a Balloon Loan,
it, together with the other Purchased Mortgage Loans which are Balloon Loans
subject to Transactions, constitutes less than 10% of the aggregate outstanding
Repurchase Price of all Purchased Mortgage Loans subject to Transactions.
(vv) No Short Maturity Balloon Loans. The Mortgage Loan is not a Balloon
Loan with a maturity date occurring within five years from its origination date
of the related Purchase Date.
(ww) Owner Occupied. In the event the Purchased Mortgage Loan relates to
a Mortgaged Property which is non-owner occupied, it, together with the other
Purchased Mortgage Loans subject to Transactions relating to Mortgaged
Properties which are non-owner occupied, does not exceed 20% of the aggregate
outstanding Repurchase Price of all Purchased Mortgage Loans subject to
Transactions.
(xx) Payment Terms. With respect to adjustable rate Mortgage Loans,
following any applicable initial fixed rate period of 2, 3 or 5 years, the
mortgage interest rate is adjusted annually or semi-annually on each interest
rate adjustment date to equal the index plus the gross
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margin, rounded up or down to the nearest 1/8%, subject to the mortgage interest
rate cap. With respect to fixed rate Mortgage Loans, the mortgage note is
payable each month in equal monthly installments of principal and interest. With
respect to adjustable rate Mortgage Loans, installments of interest are subject
to change due to the adjustments to the mortgage interest rate on each interest
rate adjustment date, with interest calculated and payable in arrears,
sufficient to amortize the Mortgage Loan fully by the stated maturity date, over
an original term of not more than thirty years from commencement of
amortization.
(yy) Securitization Standards. Each of the Mortgage Loans conforms to
the then current standards of securitization applicable to similar assets as
determined in the reasonable judgment of Buyer.
(zz) Wet Ink Mortgage Loans. The Purchase Price of a Wet Ink Mortgage
Loan together with the Purchase Price of Purchased Mortgage Loans which are Wet
Ink Mortgage Loans does not exceed, during the first and last week of each
month, 25% of the aggregate Purchase Price for all Mortgage Loans which are
subject to then outstanding Transactions and, at all other time, 15% of the
aggregate Purchase Price for all Purchased Mortgage Loans subject to then
outstanding Transactions.
It is understood and agreed that the representations and warranties set
forth in this Exhibit V shall survive delivery of the respective Mortgage Files
to the Custodian on behalf of Buyer.
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EXHIBIT 10.30(b)
GUARANTY
This GUARANTY, dated as of February 10, 1999, is made by AAMES FINANCIAL
CORPORATION, a corporation organized under the laws of the State of Delaware
("Guarantor"), in favor of LEHMAN COMMERCIAL PAPER INC., a corporation organized
under the laws of the State of New York ("Lehman").
As an inducement to and in consideration for Lehman to enter into the
Amended and Restated Master Repurchase Agreement Governing Purchases and Sales
of Mortgage Loans dated as of the date hereof (the "Repurchase Agreement")
between Lehman and Aames Capital Corporation, a wholly-owned subsidiary of the
Guarantor ("Aames"), the Guarantor hereby unconditionally and irrevocably
guarantees the punctual payment and performance when due, whether at stated
maturity, by acceleration or otherwise, of all obligations of Aames now or
hereafter existing under the Repurchase Agreement (such obligations being the
"Obligations"), and agree to pay any and all expenses incurred by Lehman in
enforcing any rights under this Guaranty. This Guaranty is a guaranty of payment
and not of collection. Lehman shall not be required to exhaust any right to
remedy or take any action against Aames, any guarantor, any other person, any
collateral or any credit support.
The Guarantor guarantees that the Obligations will be paid or performed
strictly in accordance with their terms. The liability of the Guarantor under
this Guaranty shall be absolute and unconditional irrespective of any defense
whatsoever available to Aames or a guarantor, including but not limited to the
following: (a) any lack of validity or enforceability or any Obligation or any
agreement or instrument related thereto; (b) any change in the time, manner or
place of payment or performance of, or in any term of, all or any of the
Obligations, or any other amendment or waiver of or any consent to the departure
from any Obligation or any agreement or instrument related thereto; (c) any
exchange, release or non-perfection of any collateral, or any release or
amendment or waiver of or consent to departure from any other guaranty, for all
or any of the Obligations; or (d) any law, regulation or order of any
jurisdiction affecting or purporting to affect any terms of any Obligation or of
any agreement or instrument relating thereto or any of Lehman's rights with
respect thereto (including, without limitation, any stay imposed by the Federal
bankruptcy laws).
This Guaranty is a continuing guaranty and shall remain in full force
and effect until the Obligations have been paid in full.
The Guarantor hereby waives promptness, diligence, notice of acceptance
and any other notice with respect to any of the Obligations or this Guaranty.
This Guaranty shall continue to be effective or be reinstated, as the case may
be, if any payment of any of the Obligations is rescinded or must otherwise be
returned by Lehman upon the insolvency, bankruptcy or reorganization of Aames or
otherwise, all as though such payment had not been made.
<PAGE> 2
The Guarantor will not exercise any rights which it may acquire by way
of subrogation under this Guaranty, by any payment made hereunder or otherwise,
until all the Obligations shall have been paid in full. If any amount shall be
paid to the Guarantor on account of such subrogation rights at any time when all
the Obligations shall not have been paid in full, such amount shall be held in
trust for the benefit of Lehman and shall forthwith be paid to Lehman to be
applied to the Obligations, whether matured or unmatured, in accordance with the
terms of such Obligations and any related agreement or instrument.
Any and all payments made by the Guarantor hereunder shall be made free
and clear of and without deduction from any and all present and future taxes,
levies, deductions, charges or withholdings and all liabilities with respect
thereof, excluding taxes imposed on Lehman's income and franchise taxes imposed
on Lehman by the jurisdiction under which Lehman is organized.
All notices hereunder shall be in writing and sent or delivered:
if to Lehman:
c/o Lehman Commercial Paper Inc.
3 World Financial Center
New York, New York 10285
Attention: Fred Madonna
if to the Guarantor:
350 South Grand Avenue
Los Angeles, California 90071
Attention:
or to either party at such other address(es) as may be specified in a written
notice given in accordance herewith.
This Guaranty shall be binding upon the Guarantor, its successors and
assigns, and shall inure to the benefit of and be enforceable by Lehman and its
successors, transferees and assigns.
THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS (OTHER THAN CONFLICTS LAWS) OF THE STATE OF NEW YORK.
2
<PAGE> 3
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed and delivered by its duly authorized officers as of the date first
above written.
AAMES FINANCIAL CORPORATION
By: /s/ David A. Sklar
-----------------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.31(a)
================================================================================
MASTER LOAN AND SECURITY AGREEMENT
---------------------------
DATED AS OF FEBRUARY 10, 1999
---------------------------
AAMES CAPITAL CORPORATION
AS BORROWER
AND
GREENWICH CAPITAL FINANCIAL PRODUCTS, INC.
AS LENDER
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
Section 1. Definitions and Accounting Matters................................................1
1.01 Certain Defined Terms.................................................................1
1.02 Accounting Terms and Determinations..................................................16
Section 2. Advances, Note and Prepayments...................................................16
2.01 Advances.............................................................................16
2.02 Notes................................................................................17
2.03 Procedure for Borrowing..............................................................18
2.04 Limitation on Types of Advances; Illegality..........................................18
2.05 Repayment of Advances; Interest......................................................18
2.06 Mandatory Prepayments or Pledge......................................................19
2.07 Optional Prepayments.................................................................20
Requirements of Law........................................................................20
2.09 Extension of Termination Date........................................................21
2.10 Purpose of Advances..................................................................21
Section 3. Payments; Computations; Taxes; Commitment Fee....................................22
3.01 Payments.............................................................................22
3.02 Computations.........................................................................22
3.03 Commitment Fee.......................................................................22
Section 4. Collateral Security..............................................................22
4.01 Collateral; Security Interest........................................................22
4.02 Further Documentation................................................................23
4.03 Changes in Locations, Name, etc......................................................24
4.04 Lender's Appointment as Attorney-in-Fact.............................................24
4.05 Performance by Lender of Borrower's Obligations......................................25
4.06 Proceeds.............................................................................25
4.07 Remedies.............................................................................26
4.08 Limitation on Duties Regarding Presentation of Collateral............................26
4.09 Powers Coupled with an Interest......................................................27
4.10 Release of Security Interest.........................................................27
Section 5. Conditions Precedent..............................................................27
5.01 Initial Advance......................................................................27
5.02 Initial and Subsequent Advances....................................................29
Section 6. Representations and Warranties...................................................31
6.01 Existence..........................................................................31
6.02 Financial Condition................................................................31
6.03 Litigation...........................................................................31
6.04 No Breach..........................................................................32
6.05 Action.............................................................................32
6.06 Approvals............................................................................32
6.07 Margin Regulations.................................................................32
6.08 Taxes..............................................................................32
6.09 Investment Company Act.............................................................32
6.10 No Legal Bar.......................................................................33
6.11 No Default.........................................................................33
6.12 Collateral; Collateral Security....................................................33
6.13 Chief Executive Office.............................................................33
6.14 Location of Books and Records......................................................34
6.15 True and Complete Disclosure.......................................................34
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
6.16 Tangible Net Worth; Liquidity......................................................34
6.17 ERISA..............................................................................34
6.18 Licenses...........................................................................34
6.19 Relevant States....................................................................34
6.20 True Sales.........................................................................34
6.21 No Burdensome Restrictions.........................................................35
6.22 Subsidiaries.......................................................................35
6.23 Origination and Acquisition of Mortgage Loans......................................35
6.24 No Adverse Selection...............................................................35
6.25 Borrower Solvent; Fraudulent Conveyance............................................35
6.26 Year 2000 Compliance...............................................................35
Section 7. Covenants of the Borrower........................................................36
7.01 Financial Statements...............................................................36
7.02 Litigation.........................................................................38
7.03 Existence, Etc.....................................................................38
7.04 Prohibition of Fundamental Changes.................................................39
7.05 Borrowing Base Deficiency..........................................................39
7.06 Notices............................................................................39
7.07 Servicing............................................................................40
7.08 Intentionally Omitted..............................................................40
7.09 Underwriting Guidelines............................................................40
7.10 Lines of Business..................................................................40
7.11 Transactions with Affiliates.........................................................40
7.12 Use of Proceeds....................................................................40
7.13 Limitation on Liens................................................................40
7.14 Limitation on Sale of Assets.......................................................41
7.15 Limitation on Distributions........................................................41
7.16 Maintenance of Liquidity...........................................................41
7.17 Maintenance of Tangible Net Worth..................................................41
7.18 Committed Warehouse Facilities and Working Capital Line of the Borrower............41
7.19 Restricted Payments..................................................................41
7.20 Servicing Transmission.............................................................41
7.21 No Amendment or Waiver.............................................................41
7.22 Maintenance of Property; Insurance...................................................42
7.23 Further Identification of Collateral.................................................42
7.24 Mortgage Loan Determined to be Defective.............................................42
7.25 Interest Rate Protection Agreements..................................................42
7.26 Year 2000 Compliance.................................................................42
7.27 Certificate of a Responsible Officer of the Borrower.................................43
Section 8. Events of Default................................................................43
Section 9. Remedies Upon Default............................................................45
Section 10. No Duty on Lender's Part.........................................................46
Section 11. Miscellaneous....................................................................46
11.01 Waiver.............................................................................46
11.02 Notices............................................................................46
11.03 Indemnification and Expenses.......................................................46
11.04 Amendments.........................................................................47
11.05 Successors and Assigns.............................................................48
11.06 Survival...........................................................................48
11.07 Captions...........................................................................48
11.08 Counterparts.......................................................................48
11.09 Loan Agreement Constitutes Security Agreement; Governing Law.......................48
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
11.10 SUBMISSION TO JURISDICTION; WAIVERS................................................48
11.11 WAIVER OF JURY TRIAL...............................................................49
11.12 Acknowledgments....................................................................49
11.13 Hypothecation or Pledge of Collateral..............................................49
11.14 Assignments; Participations........................................................50
11.15 Servicing..........................................................................50
11.16 Periodic Due Diligence Review......................................................52
11.17 Set-Off............................................................................52
11.18 Intent.............................................................................53
</TABLE>
<PAGE> 5
SCHEDULES
SCHEDULE 1 Representations and Warranties re: Mortgage Loans
SCHEDULE 2 Filing Jurisdictions and Offices
SCHEDULE 3 Relevant States
SCHEDULE 4 Subsidiaries
SCHEDULE 5 Disclosure of Guarantor re: Financial Condition
EXHIBITS
EXHIBIT A Form of Promissory Note
EXHIBIT B Form of Custodial Agreement
EXHIBIT C Form of Opinion of Counsel to the Borrower
EXHIBIT D Form of Notice of Borrowing and Pledge
EXHIBIT E Underwriting Guidelines
EXHIBIT F Required Fields for Servicing Transmission
EXHIBIT G Required Fields for Mortgage Loan Data Transmission
EXHIBIT H Form of Borrowing Base Certificate
EXHIBIT I Form of Confidentiality Agreement
EXHIBIT J Form of Instruction Letter
<PAGE> 6
MASTER LOAN AND SECURITY AGREEMENT
MASTER LOAN AND SECURITY AGREEMENT, dated as of February 10,
1999, between AAMES CAPITAL CORPORATION, a California corporation (the
"Borrower") and GREENWICH CAPITAL FINANCIAL PRODUCTS, INC., a Delaware
corporation (the "Lender").
RECITALS
The Borrower wishes to obtain financing from time to time to
provide interim funding for the origination and acquisition of certain Mortgage
Loans (as defined herein), which Mortgage Loans are to be sold or contributed by
the Borrower to one or more trusts or other entities to be sponsored by the
Borrower or an Affiliate (as defined herein) thereof, as to which the Lender
shall act as lead manager or co-manager (on an annual rotating basis), or to be
sold to third-parties, and which Mortgage Loans shall secure Advances (as
defined herein) to be made by the Lender hereunder.
The Lender has agreed, subject to the terms and conditions of
this Loan Agreement (as defined herein), to provide such financing to the
Borrower, with a portion of the proceeds of the sale of all mortgage-backed
securities issued by any such trust or other entity, together with a portion of
the proceeds of any permitted whole loan sales, together with other funds of the
Borrower, if necessary, being used to repay any Advances made hereunder as more
particularly described herein.
Accordingly, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
SECTION 1. Definitions and Accounting Matters.
1.01 Certain Defined Terms. As used herein, the following terms
shall have the following meanings (all terms defined in this Section 1.01 or in
other provisions of this Loan Agreement in the singular to have the same
meanings when used in the plural and vice versa):
"Accepted Servicing Practices" shall mean, with respect to any
Mortgage Loan, accepted and prudent mortgage servicing practices of prudent
mortgage lending institutions which service mortgage loans of the same type as
such Mortgage Loans in the jurisdiction where the related Mortgaged Property is
located and in a manner at least equal in quality to the servicing the Borrower
or Borrower's designee provides to mortgage loans which they own in their own
portfolio.
"Advance" shall mean any Committed Advance or Uncommitted
Advance, as applicable, and collectively "Advances" shall mean the sum of all
Committed Advances and Uncommitted Advances.
<PAGE> 7
"Affiliate" means, with respect to any Person, any other Person
which, directly or indirectly, controls, is controlled by, or is under common
control with, such Person. For purposes of this definition, "control" (together
with the correlative meanings of "controlled by" and "under common control
with") means possession, directly or indirectly, of the power (a) to vote 10% or
more of the securities (on a fully diluted basis) having ordinary voting power
for the directors or managing general partners (or their equivalent) or such
Person, or (b) to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities, by contract, or
otherwise.
"ALTA" means the American Land Title Association.
"Applicable Collateral Percentage" shall mean, (i) for the first
120 days following the date such Eligible Mortgage Loan first becomes subject to
the terms of this Agreement, with respect to each Advance:
(a) with respect to Mortgage Loans as to which scheduled
payments of principal and interest are not more than 29 days
past due, 95%; and
(b) with respect to Delinquent Mortgage Loans, 85%
(ii) thereafter, 0%.
"Applicable Margin" shall mean 1.50% per annum.
"Appraised Value" shall mean the value set forth in an appraisal
made in connection with the origination of the related Mortgage Loan as the
value of the Mortgaged Property.
"Assignment of Mortgage" shall mean, with respect to any
Mortgage, an assignment of the Mortgage, notice of transfer or equivalent
instrument in recordable form, sufficient under the laws of the jurisdiction
wherein the related Mortgaged Property is located to reflect the assignment and
pledge of the Mortgage.
"Bankruptcy Code" shall mean the United States Bankruptcy Code of
1978, as amended from time to time.
"Best's" means Best's Key Rating Guide, as the same shall be
amended from time to time.
"Borrower" shall have the meaning provided in the heading hereof.
"Borrowing Base" shall mean the aggregate Collateral Value of all
Eligible Mortgage Loans that have been, and remain pledged to the Lender
hereunder.
"Borrowing Base Certificate" shall mean the certificate prepared
by the Lender substantially in the form of Exhibit H, attached hereto.
<PAGE> 8
"Borrowing Base Deficiency" shall have the meaning provided in
Section 2.06 hereof.
"Business Day" shall mean any day other than (i) a Saturday or
Sunday, or (ii) a day in which the New York Stock Exchange, the Federal Reserve
Bank of New York or the Custodian is authorized or obligated by law or executive
order to be closed.
"Capital Lease Obligations" shall mean, for any Person, all
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) Property to the extent such
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP, and, for purposes of this Loan
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
"Cash Equivalents" shall mean (a) securities with maturities of
90 days or less from the date of acquisition issued or fully guaranteed or
insured by the United States Government or any agency thereof, (b) certificates
of deposit and eurodollar time deposits with maturities of 90 days or less from
the date of acquisition and overnight bank deposits of any commercial bank
having capital and surplus in excess of $500,000,000, (c) repurchase obligations
of any commercial bank satisfying the requirements of clause (b) of this
definition, having a term of not more than seven days with respect to securities
issued or fully guaranteed or insured by the United States Government, (d)
commercial paper of a domestic issuer rated at least A-1 or the equivalent
thereof by Standard and Poor's Ratings Group ("S&P") or P-1 or the equivalent
thereof by Moody's Investors Service, Inc. ("Moody's") and in either case
maturing within 90 days after the day of acquisition, (e) securities with
maturities of 90 days or less from the date of acquisition issued or fully
guaranteed by any state, commonwealth or territory of the United States, by any
political subdivision or taxing authority of any such state, commonwealth or
territory or by any foreign government, the securities of which state,
commonwealth, territory, political subdivision, taxing authority or foreign
government (as the case may be) are rated at least A by S&P or A by Moody's, (f)
securities with maturities of 90 days or less from the date of acquisition
backed by standby letters of credit issued by any commercial bank satisfying the
requirements of clause (b) of this definition or (g) shares of money market
mutual or similar funds which invest exclusively in assets satisfying the
requirements of clauses (a) through (f) of this definition.
"Change of Control" means the acquisition by any Person, or two
or more Persons acting in concert, of beneficial ownership (within the meaning
of Rule 13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934) of outstanding shares of voting stock of the Borrower at
any time if after giving effect to such acquisition (i) such Person or Persons
owns twenty percent (20%) or more of such outstanding voting stock or (ii) the
Guarantor does not own more than fifty (50%) of such outstanding shares of
voting stock.
"Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time. "Collateral" shall have the meaning assigned to such term in
Section 4.01(b) hereof.
<PAGE> 9
"Collateral Value" shall mean (i) with respect to each Mortgage
Loan originated by the Borrower or Aames Funding Corporation ("Aames Funding")
which is not a Delinquent Mortgage Loan, the lesser of (a) the product of (x)
the related Applicable Collateral Percentage times (y) the Market Value thereof
and (b) the outstanding principal balance of such Mortgage Loan, (ii) with
respect to each Mortgage Loan originated by One Stop Mortgage, Inc. ("One Stop")
which is not a Delinquent Mortgage Loan, the lesser of (a) the product of (x)
the related Applicable Collateral Percentage times (y) the Market Value thereof,
and (b) the product of (x) 95% times (y) the outstanding principal balance of
such Mortgage Loan, and (iii) with respect to each Delinquent Mortgage Loan, the
product of (a) the related Applicable Collateral Percentage times (b) the lesser
of (x) the Market Value thereof and (y) the outstanding principal balance of
such Mortgage Loan; provided that, the percentage specified in clause (ii)(b)(x)
above may, in the sole and absolute discretion of the Lender be increased based
upon the Lender's review of One Stop's mortgage loan production, underwriting
guidelines and the Lender's analysis of the feasibility of securitizations
and/or whole loan sales with respect to mortgage loans originated by One Stop;
provided, further that, the Collateral Value shall be deemed to be zero with
respect to each Mortgage Loan:
(1) in respect of which there is a material breach of a
representation and warranty set forth on Schedule 1 (assuming
each representation and warranty is made as of the date
Collateral Value is determined) or a Material Exception which was
not otherwise waived by the Lender;
(2) which the Lender determines, in its reasonable
discretion that such Mortgage Loan is not eligible for sale in
the secondary market or for securitization without unreasonable
credit enhancement;
(3) which has been released from the possession of the
Custodian under Section 5(a) of the Custodial Agreement to the
Borrower or its bailee for a period in excess of the period
specified in the Custodial Agreement;
(4) which has been released from the possession of the
Custodian under Section 5(b) of the Custodial Agreement under any
Transmittal Letter in excess of the time period stated in such
Transmittal Letter for release;
(5) in respect of which (a) the related Mortgaged Property
is the subject of a foreclosure proceeding or (b) the related
Mortgage Note has been extinguished under relevant state law in
connection with a judgment of foreclosure or foreclosure sale or
otherwise;
(6) in respect of which the related Mortgagor is the
subject of a bankruptcy proceeding;
(7) if the Mortgagor has not made its first payment on the
related Mortgage Loan within forty-five days of its related Due
Date;
<PAGE> 10
(8) if such Mortgage Loan is a Delinquent Mortgage Loan
and the Collateral Value of such Mortgage Loan when added to the
aggregate Collateral Value of all other Delinquent Mortgage Loans
exceeds, at any time, $5,000,000 and, to the extent the Lender
has elected to make Uncommitted Advances, 5% of the aggregate
amount of Uncommitted Advances made to the Borrower hereunder;
(9) if, with respect to such Mortgage Loan, the Borrower
has provided the Lender with a lost note affidavit and the
Collateral Value of such Mortgage Loan when added to the
aggregate Collateral Value of all other Mortgage Loans for which
a lost note affidavit was provided to the Lender exceeds
$1,000,000 at any time; or
(10) if the Borrower has delivered a lost note affidavit
to the Lender and such Mortgage Loan is either (i) more than 29
days delinquent with respect to scheduled payments of principal
and interest or (ii) remains pledged to the Lender hereunder more
than 90 days after the date on which it is first included in the
Collateral.
"Combined LTV or CLTV" means with respect to any Mortgage Loan,
the ratio of (i) the original outstanding principal amount of the Mortgage Loan
and any other mortgage loan which is secured by a lien on the related Mortgaged
Property at the time of the Borrower's funding of such Mortgage Loan (ii) the
lesser of (a) the Appraised Value of the Mortgaged Property at origination or
(b) if the Mortgaged Property was purchased within 6 months of the origination
of the Mortgage Loan, the purchase price of the Mortgaged Property.
"Committed Advance" shall have the meaning assigned to such term
in Section 2.01(a) hereof.
"Commitment Fee" shall have the meaning assigned to such term in
Section 3.03 hereof.
"Contractual Obligation" shall mean as to any Person, any
material provision of any agreement, instrument or other undertaking to which
such Person is a party or by which it or any of its property is bound or any
material provision of any security issued by such Person.
"Cooperative Corporation" shall mean with respect to any
Cooperative Loan, the cooperative apartment corporation that holds legal title
to the related Cooperative Project and grants occupancy rights to units therein
to stockholders through Proprietary Leases or similar arrangements.
"Cooperative Loan" shall mean a Mortgage Loan that is secured by
a first lien on and a perfected security interest in Cooperative Shares and the
related Proprietary Lease granting
<PAGE> 11
exclusive rights to occupy the related Cooperative Unit in the building owned by
the related Cooperative Corporation.
"Cooperative Project" shall mean with respect to any Cooperative
Loan, all real property and improvements thereto and rights therein and thereto
owned by a Cooperative Corporation including without limitation the land,
separate dwelling units and all common elements.
"Cooperative Shares" shall mean with respect to any Cooperative
Loan, the shares of stock issued by a Cooperative Corporation and allocated to a
Cooperative Unit and represented by a stock certificates.
"Cooperative Unit" shall mean with respect to any Cooperative
Loan, a specific unit in a Cooperative Project.
"Custodial Agreement" shall mean the Custodial Agreement, dated
as of the date hereof, among the Borrower, the Custodian and the Lender,
substantially in the form of Exhibit B hereto, as the same shall be modified and
supplemented and in effect from time to time.
"Custodian" shall mean Bankers Trust Company of California, N.A.,
its successors and permitted assigns.
"Custodian Loan Transmission" shall have the meaning provided in
the Custodial Agreement.
"Default" shall mean an Event of Default or an event that with
notice or lapse of time or both would become an Event of Default.
"Delinquent Mortgage Loan" means a Mortgage Loan which is 30-59
days delinquent with respect to scheduled payments of principal and interest.
"Dollars" and "$" shall mean lawful money of the United States of
America.
"Due Date" means the day of the month on which the Monthly
Payment is due on a Mortgage Loan, exclusive of any days of grace.
"Due Diligence Review" shall mean the performance by the Lender
of any or all of the reviews permitted under Section 11.16 hereof with respect
to any or all of the Mortgage Loans or the Borrower or related parties, as
desired by the Lender from time to time.
"Effective Date" shall mean the date upon which the conditions
precedent set forth in Section 5.01 shall have been satisfied.
"Eligible Mortgage Loan" shall mean a Mortgage Loan which is made
to a subprime credit Mortgagor secured by a first or second mortgage lien (as
reflected on the Mortgage Loan Data Transmission) on a one-to-four family
residential property and as to
<PAGE> 12
which (i) the representations and warranties in Section 6.12 and 6.23 and
Schedule 1 hereof are correct, (ii) was originated or acquired by the Borrower
in accordance with the Borrower's or Lender approved third party's Underwriting
Guidelines not more than 60 days prior to the related Funding Date, (iii)
contains all required Mortgage Loan Documents without any Material Exception and
(iv) such other customary criteria for eligibility determined by the Lender
shall have been satisfied.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA Affiliate" shall mean any corporation or trade or business
that is a member of any group of organizations (i) described in Section 414(b)
or (c) of the Code of which Borrower is a member and (ii) solely for purposes of
potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of
the Code and the lien created under Section 302(f) of ERISA and Section 412(n)
of the Code, described in Section 414(m) or (o) of the Code of which Borrower is
a member.
"Escrow Payments" means with respect to any Mortgage Loan, the
amounts constituting ground rents, taxes, assessments, water rates, sewer rents,
municipal charges, mortgage insurance premiums, fire and hazard insurance
premiums, condominium charges, and any other payments required to be escrowed by
the Mortgagor with the mortgagee pursuant to the Mortgage or any other document.
"Event of Default" shall have the meaning provided in Section 8
hereof.
"Exception Report" shall mean the exception report prepared by
the Custodian pursuant to the Custodial Agreement.
"Federal 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 on the
next succeeding Business Day by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day which is a Business Day, the average
of the quotations for the day of such transactions received by the Lender from
three primary dealers (other than an affiliate of the Lender).
"FHLMC" means the Federal Home Loan Mortgage Corporation, or any
successor thereto.
"First Lien" shall mean with respect to each Mortgaged Property,
the lien of the mortgage, deed of trust or other instrument securing a mortgage
note which creates a first lien on the Mortgaged Property.
"FNMA" means the Federal National Mortgage Association, or any
successor thereto.
"Funding Date" shall mean the date on which an Advance is made
hereunder.
<PAGE> 13
"GAAP" shall mean generally accepted accounting principles as in
effect from time to time in the United States of America.
"Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government and any court or arbitrator having jurisdiction over the Borrower,
any of its Subsidiaries or any of its properties.
"Gross Margin" means with respect to each adjustable rate
Mortgage Loan, the fixed percentage amount set forth in the related Mortgage
Note.
"Guarantee" shall mean, as to any Person, any obligation of such
Person directly or indirectly guaranteeing any Indebtedness of any other Person
or in any manner providing for the payment of any Indebtedness of any other
Person or otherwise protecting the holder of such Indebtedness against loss
(whether by virtue of partnership arrangements, by agreement to keep-well, to
purchase assets, goods, securities or services, or to take-or-pay or otherwise),
provided that the term "Guarantee" shall not include (i) endorsements for
collection or deposit in the ordinary course of business, or (ii) obligations to
make servicing advances for delinquent taxes and insurance, or other obligations
in respect of a Mortgaged Property, to the extent required by the Lender. The
amount of any Guarantee of a Person shall be deemed to be an amount equal to the
stated or determinable amount of the primary obligation in respect of which such
Guarantee is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith. The terms "Guarantee" and "Guaranteed" used as verbs shall have
correlative meanings.
"Guaranty" shall mean the guaranty, dated February 10, 1999
executed by the Guarantor in favor of the Lender which evidences the guarantee
by the Guarantor of the obligations of the Borrower under this Loan Agreement.
"Guarantor" shall mean Aames Financial Corporation.
"Indebtedness" shall mean, for any Person: (a) obligations
created, issued or incurred by such Person for borrowed money (whether by loan,
the issuance and sale of debt securities or the sale of Property to another
Person subject to an understanding or agreement, contingent or otherwise, to
repurchase such Property from such Person); (b) obligations of such Person to
pay the deferred purchase or acquisition price of Property or services, other
than trade accounts payable (other than for borrowed money) arising, and accrued
expenses incurred, in the ordinary course of business so long as such trade
accounts payable are payable within 90 days of the date the respective goods are
delivered or the respective services are rendered; (c) Indebtedness of others
secured by a Lien on the Property of such Person, whether or not the respective
Indebtedness so secured has been assumed by such Person; (d) obligations
(contingent or otherwise) of such Person in respect of letters of credit or
similar instruments issued or accepted by banks and other financial institutions
for account of such Person; (e) Capital Lease Obligations of such Person; (f)
obligations of such Person under repurchase
<PAGE> 14
agreements or like arrangements; (g) Indebtedness of others Guaranteed by such
Person; (h) all obligations of such Person incurred in connection with the
acquisition or carrying of fixed assets by such Person; (i) Indebtedness of
general partnerships of which such Person is a general partner; and (j) any
other indebtedness of such Person by a note, bond, debenture or similar
instrument.
"Index" means with respect to each adjustable rate Mortgage Loan,
the index set forth in the related Mortgage Note for the purpose of calculating
the interest rate thereon.
"Instruction Letter" shall mean a letter agreement between the
Borrower and each Subservicer substantially in the form of Exhibit J attached
hereto, in which such Persons acknowledge the Lender's security interest in the
Mortgage Loans, and agree to remit any collections with respect to the Mortgage
Loans as the Lender may so direct from time to time, which Instruction Letter
may be delivered by Lender to such Subservicer in its sole discretion.
"Insurance Proceeds" means with respect to each Mortgage Loan,
proceeds of insurance policies insuring the Mortgage Loan or the related
Mortgaged Property.
"Interest Period" shall mean, with respect to any Advance, (i)
initially, the period commencing on the Funding Date with respect to such
Advance and ending on the calendar day prior to the Payment Date of the next
succeeding month, and (ii) thereafter, each period commencing on the Payment
Date of a month and ending on the calendar day prior to the Payment Date of the
next succeeding month. Notwithstanding the foregoing, no Interest Period may end
after the Termination Date.
"Interest Rate Adjustment Date" means with respect to each
adjustable rate Mortgage Loan, the date, specified in the related Mortgage Note
and the Mortgage Loan Schedule, on which the Mortgage Interest Rate is adjusted.
"Interest Rate Protection Agreement" shall mean with respect to
any or all of the Mortgage Loans and/or Advances, any interest rate swap, cap or
collar agreement or any other applicable hedging arrangements providing for
protection against fluctuations in interest rates or the exchange of nominal
interest obligations, either generally or under specific contingencies entered
into by Borrower and reasonably acceptable to the Lender.
"Lender" shall have the meaning assigned thereto in the heading
hereto.
"LIBO Base Rate" shall mean with respect to each day an Advance
is outstanding (or if such day is not a Business Day, the next succeeding
Business Day), the rate per annum equal to the rate published by Bloomberg or if
such rate is not available, the rate appearing at page 3750 of the Telerate
Screen as one-month LIBOR on such date, and if such rate shall not be so quoted,
the rate per annum at which the Lender is offered Dollar deposits at or about
11:00 A.M., eastern time, on such date by prime banks in the interbank
eurodollar market where the eurodollar and foreign currency and exchange
operations in respect of its Advances are then being conducted for delivery on
such day for a period of one month and in an amount comparable to the amount of
the Advances to be outstanding on such day.
<PAGE> 15
"LIBO Rate" shall mean with respect to each Interest Period
pertaining to an Advance, a rate (reset on a weekly basis) per annum determined
by the Lender in its sole discretion in accordance with the following formula
(rounded upwards to the nearest l/100th of one percent), which rate as
determined by the Lender shall be conclusive absent manifest error by the
Lender:
LIBO Base Rate
------------------------------------------------
1.00 - LIBO Reserve Requirements
The LIBO Rate shall be calculated each Funding Date and Payment Date
commencing with the first Funding Date.
"LIBO Reserve Requirements" shall mean for any Interest Period for any
Advance, the aggregate (without duplication) of the rates (expressed as a
decimal fraction) of reserve requirements applicable to the Lender in effect on
such day (including, without limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Board of Governors of the
Federal Reserve System or other Governmental Authority having jurisdiction with
respect thereto), dealing with reserve requirements prescribed for eurocurrency
funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of
such Board) maintained by a member bank of such Governmental Authority. As of
the Effective Date, the LIBO Reserve Requirements shall be deemed to be zero.
"Lien" shall mean any mortgage, lien, pledge, charge, security
interest or similar encumbrance.
"Loan Agreement" shall mean this Master Loan and Security
Agreement, as may be amended, supplemented or otherwise modified from time to
time as mutually agreed by the parties in writing.
"Loan Documents" shall mean collectively, this Loan Agreement,
the Guaranty, the Note and the Custodial Agreement.
"Loan-to-Value Ratio" or "LTV" means with respect to any Mortgage
Loan, the ratio of the original outstanding principal amount of the Mortgage
Loan to the lesser of (a) the Appraised Value of the Mortgaged Property at
origination or (b) if the Mortgaged Property was purchased within 6 months of
the origination of the Mortgage Loan, the purchase price of the Mortgaged
Property.
"Market Value" shall mean the value, determined by the Lender in
its sole reasonable discretion, of the Mortgage Loans if sold in their entirety
to a single third-party purchaser. In determining Market Value, the Lender may
take into account (a) customary factors, including, but not limited to current
market conditions and the fact that the Mortgage Loans may be sold under
circumstances in which the Borrower, as originator of the Mortgage Loans, is in
default under the Agreement, and (b) firm take-out commitments from investment
grade purchasers in favor of the Borrower covering the Mortgage loans or
mortgage loans substantially similar to the Mortgage Loans to the extent
recently obtained and during similar
<PAGE> 16
market conditions. The Lender's determination of Market Value shall be
conclusive upon the parties, absent manifest error on the part of the Lender.
The Lender shall have the right to mark to market the Mortgage Loans on a daily
basis which Market Value may be determined to be zero. The Borrower acknowledges
that the Lender's determination of Market Value is for the limited purpose of
determining Collateral Value for lending purposes hereunder without the ability
to perform customary purchaser's due diligence and is not necessarily equivalent
to a determination of the fair market value of the Mortgage Loans achieved by
obtaining competing bids in an orderly market in which the originator/servicer
is not in default under a revolving debt facility and the bidders have adequate
opportunity to perform customary loan and servicing due diligence.
"Material Adverse Effect" shall mean a material adverse effect on
(a) the property, business, operations, financial condition or prospects of the
Borrower, (b) the ability of the Borrower to perform in all material respects
its obligations under any of the Loan Documents to which it is a party, (c) the
validity or enforceability in all material respects of any of the Loan
Documents, (d) the rights and remedies of the Lender under any of the Loan
Documents, (e) the timely payment of the principal of or interest on the
Advances or other amounts payable in connection therewith or (f) the Collateral
(other than changes in Market Value due to market conditions).
"Material Exception" shall have the meaning assigned thereto in
the Custodial Agreement.
"Maximum Committed Amount" shall mean $100 million.
"Maximum Credit" shall mean the sum of the Maximum Committed
Amount and the Maximum Uncommitted Amount, which shall equal $200 million.
"Maximum Uncommitted Amount" shall mean $100 million.
"Monthly Payment" means the scheduled monthly payment of
principal and interest on a Mortgage Loan as adjusted in accordance with changes
in the Mortgage Interest Rate pursuant to the provisions of the Mortgage Note
for an adjustable rate Mortgage Loan.
"Mortgage" shall mean the mortgage, deed of trust or other
instrument, which creates a first lien or second lien (as indicated on the
Mortgage Loan Data Transmission) on either (i) with respect to a Mortgage Loan
other than a Cooperative Loan, the fee simple or leasehold estate in such real
property or (ii) with respect to a Cooperative Loan, the Proprietary Lease and
related Cooperative Shares, which in either case secures the Mortgage Note.
"Mortgage File" shall have the meaning assigned thereto in the
Custodial Agreement.
<PAGE> 17
"Mortgage Interest Rate" means the annual rate of interest borne
on a Mortgage Note, which shall be adjusted from time to time with respect to
adjustable rate Mortgage Loans.
"Mortgage Interest Rate Cap" means with respect to an adjustable
rate Mortgage Loan, the limit on each Mortgage Interest Rate adjustment as set
forth in the related Mortgage Note.
"Mortgage Loan" shall mean a mortgage loan or Cooperative Loan
which the Custodian has been instructed to hold for the Lender pursuant to the
Custodial Agreement, and which Mortgage Loan includes, without limitation, (i) a
Mortgage Note, the related Mortgage and all other Mortgage Loan Documents and
(ii) all right, title and interest of the Borrower in and to the Mortgaged
Property covered by such Mortgage.
"Mortgage Loan Documents" shall mean, with respect to a Mortgage
Loan, the documents comprising the Mortgage File for such Mortgage Loan.
"Mortgage Loan List" shall mean the hard copy report provided by
the Borrower which shall include with respect to each Mortgage Loan to be
included as Collateral: (i) the Mortgage Loan number, (ii) the Mortgagor's name,
(iii) the original principal amount of the Mortgage Loan and (iv) the current
principal balance of the Mortgage Loan.
"Mortgage Loan Data Transmission" shall mean a computer-readable
magnetic or other electronic format incorporating the fields identified on
Exhibit G.
"Mortgage Note" shall mean the original executed promissory note
or other evidence of the indebtedness of a mortgagor/borrower with respect to a
Mortgage Loan.
"Mortgaged Property" means the real property (including all
improvements, buildings, fixtures, building equipment and personal property
thereon and all additions, alterations and replacements made at any time with
respect to the foregoing) and all other collateral securing repayment of the
debt evidenced by a Mortgage Note.
"Mortgagee" means either Borrower or any subsequent holder of a
Mortgage Loan.
"Mortgagor" means the obligor on a Mortgage Note.
"Multiemployer Plan" shall mean a multiemployer plan defined as
such in Section 3(37) of ERISA to which contributions have been or are required
to be made by Borrower or any ERISA Affiliate and that is covered by Title IV of
ERISA.
"Net Income" shall mean, for any period, the net income of the
applicable Borrower for such period as determined in accordance with GAAP.
<PAGE> 18
"Net Worth" shall mean, with respect to any Person, the excess of
total assets of such Person, over total liabilities of such Person, determined
in accordance with GAAP.
"Note" shall mean the promissory note provided for by Section
2.02(a) hereof for Advances and any promissory note delivered in substitution or
exchange therefor, in each case as the same shall be modified and supplemented
and in effect from time to time.
"Notice of Borrowing and Pledge" shall have the meaning assigned
to such term in Section 2.03(a).
"Payment Date" shall mean the seventh (7th) day of each calendar
month, or if such day is not a Business Day, the next succeeding Business Day.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Permitted Exceptions" shall mean the exceptions to lien priority
including but not limited to: (i) the lien of current real property taxes and
assessments not yet due and payable; (ii) covenants, conditions and
restrictions, rights of way, easements and other matters of the public record as
of the date of recording acceptable to mortgage lending institutions generally
and specifically referred to in the lender's title insurance policy delivered to
the originator of the Mortgage Loan and (A) referred to or otherwise considered
in the appraisal (if any) made for the originator of the Mortgage Loan or (B)
which do not adversely affect the appraised value of the Mortgaged Property set
forth in such appraisal; (iii) 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 the Mortgage or the use, enjoyment, value or
marketability of the related Mortgaged Property; and (iv) in the case of a
Second Lien Mortgage Loan, a First Lien on the Mortgaged Property.
"Person" shall mean any individual, corporation, company,
voluntary association, partnership, joint venture, limited liability company,
trust, unincorporated association or government (or any agency, instrumentality
or political subdivision thereof).
"Plan" shall mean an employee benefit or other plan established
or maintained by either Borrower or any ERISA Affiliate and that is covered by
Title IV of ERISA, other than a Multiemployer Plan.
"PMI Policy" or "Primary Insurance Policy" means a policy of
primary mortgage guaranty insurance issued by a Qualified Insurer.
"Post-Default Rate" shall mean, in respect of any principal of
any Advance or any other amount under this Loan Agreement, the Note or any other
Loan Document that is not paid when due to the Lender (whether at stated
maturity, by acceleration or mandatory prepayment or otherwise), a rate per
annum during the period from and including the due date to but excluding the
date on which such amount is paid in full equal to 2% per annum, plus
<PAGE> 19
(a)(i) the interest rate otherwise applicable to such Advance or other amount,
or (ii) if no interest rate is otherwise applicable, the LIBO Rate plus (b) the
Applicable Margin.
"Property" shall mean any right or interest in or to property of
any kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"Proprietary Lease" shall mean the lease on a Cooperative Unit
evidencing the possessory interest of the owner of the Cooperative Shares in
such Cooperative Unit.
"Qualified Insurer" means an insurance company duly qualified as
such under the laws of the states in which the Mortgaged Property is located,
duly authorized and licensed in such states to transact the applicable insurance
business and to write the insurance provided, and approved as an insurer by FNMA
and FHLMC and whose claims paying ability is rated in the two highest rating
categories by any of the rating agencies with respect to primary mortgage
insurance and in the two highest rating categories by Best's with respect to
hazard and flood insurance.
"Qualified Originator" shall mean (a) the Borrower, (b) One Stop
Mortgage, Inc., (c) Aames Funding Corporation or (d) any other mutually agreed
upon originator of Mortgage Loans; provided, however, that no correspondent of
the Borrower shall be a Qualified Originator for the purposes of this Loan
Agreement.
"Regulations G, T, U and X" shall mean Regulations G, T, U and X
of the Board of Governors of the Federal Reserve System (or any successor), as
the same may be modified and supplemented and in effect from time to time.
"Requirement of Law" shall mean as to any Person, the certificate
of incorporation and by-laws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation or determination of an
arbitrator or 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.
"Required Documents" shall mean those documents identified in
Section 2(I) of the Custodial Agreement.
"Responsible Officer" shall mean, as to any Person, the chief
executive officer or, with respect to financial matters, the chief financial
officer of such Person; provided, that in the event any such officer is
unavailable at any time he or she is required to take any action hereunder,
Responsible Officer shall mean any officer authorized to act on such officer's
behalf as demonstrated by a certificate of corporate resolution.
"Restricted Payments" shall mean with respect to any Person,
collectively, all dividends or other distributions of any nature (cash,
securities, assets or otherwise), and all payments, by virtue of redemption or
otherwise, on any class of equity securities (including, without limitation,
warrants, options or rights therefor) issued by such Person, whether such
securities are now or may hereafter be authorized or outstanding and any
distribution in respect of any of the foregoing, whether directly or indirectly.
<PAGE> 20
"Second Lien" shall mean with respect to each Mortgaged Property,
the lien of the mortgage, deed of trust or other instrument securing a mortgage
note which creates a second lien on the Mortgaged Property.
"Second Lien Mortgage Loan" shall mean an Eligible Mortgage Loan
secured by the lien on the Mortgaged Property, subject to one prior lien on such
Mortgaged Property securing financing obtained by the related Mortgagor and to
Permitted Exceptions.
"Secured Obligations" shall have the meaning assigned thereto in
Section 4.01(c) hereof.
"Securitization Letter" shall mean that certain letter agreement
by and between Borrower and Lender dated the date hereof, outlining rights and
obligations with respect to securitizations and whole loan sales of Mortgage
Loans subject to this Loan Agreement from time to time.
"Servicer" shall mean the Borrower in its capacity as servicer or
master servicer of the Mortgage Loans.
"Servicing File" means with respect to each Mortgage Loan, the
file retained by the Borrower consisting of originals of all material documents
in the Mortgage File which are not delivered to a Custodian and copies of the
Mortgage Loan Documents set forth in Section 2 of the Custodial Agreement.
"Servicing Records" shall have the meaning assigned thereto in
Section 11.15(b) hereof.
"Servicing Transmission" shall mean a computer-readable magnetic
or other electronic format acceptable to the parties containing the information
identified on Exhibit F.
"Subservicer" shall have the meaning provided in Section 11.15(c)
hereof.
"Subsidiary" shall mean, with respect to any Person, any
corporation, partnership or other entity of which at least a majority of the
securities or other ownership interests having by the terms thereof ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions of such corporation, partnership or other entity
(irrespective of whether or not at the time securities or other ownership
interests of any other class or classes of such corporation, partnership or
other entity shall have or might have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned or controlled by
such Person or one or more Subsidiaries of such Person or by such Person and one
or more Subsidiaries of such Person.
"Tangible Net Worth" shall mean, with respect to any Person, as
of any date of determination, the consolidated Net Worth of such Person and its
Subsidiaries, less the consolidated net book value of all assets of such Person
and its Subsidiaries (to the extent
<PAGE> 21
reflected as an asset in the balance sheet of such Person or any Subsidiary at
such date) which will be treated as intangibles under GAAP, including, without
limitation, such items as deferred financing expenses, net leasehold
improvements, good will, trademarks, trade names, service marks, copyrights,
patents, licenses and unamortized debt discount and expense; provided, that
residual securities issued by such Person or its Subsidiaries shall not be
treated as intangibles for purposes of this definition.
"Termination Date" shall mean February 10, 2000, or such earlier
date on which this Loan Agreement shall terminate in accordance with the
provisions hereof or by operation of law as same may be extended pursuant to
Section 2.09.
"Total Indebtedness" shall mean with respect to any Person, for
any period, the aggregate Indebtedness of such Person and its Subsidiaries
during such period (excluding any warehouse debt), less the amount of any
nonspecific consolidated balance sheet reserves maintained in accordance with
GAAP.
"Uncommitted Advance" shall have the meaning assigned to such
term in Section 2.01(b) hereof.
"Underwriting Guidelines" shall mean collectively, the
underwriting guidelines applicable to the Mortgage Loans which shall be subject
to the prior written approval of the Lender and may be amended from time to time
in accordance with Section 7.09.
"Uniform Commercial Code" shall mean the Uniform Commercial Code
as in effect on the date hereof in the State of New York; provided that if by
reason of mandatory provisions of law, the perfection or the effect of
perfection or non-perfection of the security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than New York, "Uniform Commercial Code" shall mean the Uniform Commercial Code
as in effect in such other jurisdiction for purposes of the provisions hereof
relating to such perfection or effect of perfection or non-perfection.
1.02 Accounting Terms and Determinations. Except as otherwise
expressly provided herein, all accounting terms used herein shall be
interpreted, and all financial statements and certificates and reports as to
financial matters required to be delivered to the Lender hereunder shall be
prepared, in accordance with GAAP.
SECTION 2. Advances, Note and Prepayments.
2.01 Advances.
(a) Subject to fulfillment of the conditions precedent set
forth in Sections 5.01 and 5.02 hereof, and provided that no Default shall have
occurred and be continuing hereunder, the Lender agrees from time to time, on
the terms and conditions of this Loan Agreement, to make loans (individually, a
"Committed Advance"; collectively, the "Committed Advances") to the Borrower in
Dollars, on any Business Day from and including the Effective Date to but
excluding the Termination Date in an aggregate principal amount at any one time
outstanding up to but not exceeding the lesser of (i) the Maximum Committed
<PAGE> 22
Amount (which shall be further subject to the limitations in the definition of
Collateral Value) and (ii) the Borrowing Base as in effect from time to time.
(b) In addition to the foregoing, subject to fulfillment of
the conditions precedent set forth in Sections 5.01 and 5.02 hereof, and
provided that no Default shall have occurred and be continuing hereunder, the
Lender may from time to time in its sole discretion, on the terms and conditions
of this Loan Agreement, make loans (individually, an "Uncommitted Advance";
collectively, the "Uncommitted Advances") to the Borrower in Dollars, on any
Business Day from and including the Effective Date to but excluding the
Termination Date in an aggregate principal amount at any one time outstanding up
to but not exceeding the lesser of (i) the Maximum Uncommitted Amount (which
shall be further subject to the limitations in the definition of Collateral
Value) and (ii) the Borrowing Base as in effect from time to time. Unless
otherwise agreed by the parties, in determining whether Advances secured by
Eligible Mortgage Loans are Committed Advances or Uncommitted Advances, such
Advances shall first be deemed Committed Advances up to the Maximum Committed
Amount, and then the remained shall be deemed Uncommitted Advances.
(c) Subject to the terms and conditions of this Loan
Agreement, during such period the Borrower may borrow, repay and reborrow
hereunder; provided that, the Borrower shall not request more than one Advance
in any one week period.
(d) In no event shall an Advance be made when any Default or
Event of Default has occurred and is continuing.
2.02 Notes.
(a) The Advances made by the Lender shall be evidenced by a
single promissory note of the Borrower substantially in the form of Exhibit A
hereto (the "Note"), dated the date hereof, payable to the Lender in a principal
amount equal to the amount of the Maximum Credit as originally in effect and
otherwise duly completed. The Lender shall, with the consent of the Borrower,
have the right to have its Note subdivided, by exchange for promissory notes of
lesser denominations or otherwise.
(b) The date, amount and interest rate of each Advance made by
the Lender to the Borrower, and each payment made on account of the principal
thereof, shall be recorded by the Lender on its books and, prior to any transfer
of the Note, noted by the Lender on the grid attached to the Note or any
continuation thereof; provided, that the failure of the Lender to make any such
recordation or notation shall not affect the obligations of the Borrower to make
a payment when due of any amount owing hereunder or under the Note in respect of
the Advances.
<PAGE> 23
2.03 Procedure for Borrowing.
(a) Borrowing Procedure for Requesting an Advance. The
Borrower may request a borrowing to be secured by any Mortgage Loans hereunder,
on any Business Day during the period from and including the Effective Date to
the Termination Date, by delivering to the Lender, with a copy to the Custodian,
a Mortgage Loan Data Transmission and a Notice of Borrowing and Pledge
substantially in the form of Exhibit D hereto (a "Notice of Borrowing and
Pledge"), appropriately completed, which must be received no later than 2:00 p.m
(eastern time) two Business Days prior to the requested Funding Date. Such
Notice of Borrowing and Pledge shall include a Mortgage Loan List in respect of
the Eligible Mortgage Loans that the Borrower proposes to pledge to the Lender
and to be included in the Borrowing Base in connection with such borrowing;
provided, however, to the extent that any such requested borrowing shall
constitute an Uncommitted Advance, the Lender may, at its sole option, elect not
to make such Uncommitted Advance and shall notify the Borrower of its election
within one Business Day of Lender's receipt of such Notice of Borrowing and
Pledge.
(b) Upon the Borrower's request for a borrowing pursuant to
Section 2.03(a) above, the Lender shall, assuming all conditions precedent set
forth in this Section 2.03 and in Section 5.01 and 5.02 have been met, and
provided no Default shall have occurred and be continuing (in accordance with
Section 2.01), not later than 2:00 p.m. (eastern time) on the requested Funding
Date make an Advance (determined by the Lender) in an amount which would not
cause the aggregate amount of Advances then outstanding to exceed the lesser of
(i) the Maximum Credit or (ii) the Borrowing Base shown on the latest Borrowing
Base Certificate of the Lender. Subject to the foregoing, such borrowing will be
made available to the Borrower by the Lender transferring, via wire transfer
(pursuant to wire transfer instructions provided by the Borrower on or prior to
such Funding Date), in the aggregate amount of such borrowing in funds
immediately available to the Borrower.
2.04 Limitation on Types of Advances; Illegality. Anything herein
to the contrary notwithstanding, if, on or prior to the determination of any
LIBO Base Rate:
(a) the Lender determines, which determination shall be
conclusive, that quotations of interest rates for the relevant deposits
referred to in the definition of "LIBO Base Rate" in Section 1.01 hereof
are not being provided in the relevant amounts or for the relevant
maturities for purposes of determining rates of interest for Advances as
provided herein; or
(b) it becomes unlawful for the Lender to honor its obligation to
make or maintain Advances hereunder using a LIBO Rate;
then the Lender shall give the Borrower prompt notice thereof and, so long as
such condition remains in effect, the Lender shall be under no obligation to
make additional Advances.
2.05 Repayment of Advances; Interest.
<PAGE> 24
(a) The Borrower shall repay in full on the Termination Date
the then aggregate outstanding principal amount of the Advances (as evidenced by
the Note); provided, however any Advances secured by Mortgage Loans for which
the Borrower has delivered a lost note affidavit to the Lender or the Custodian
shall be repaid on a date which is not more than 90 days from the related
Funding Date.
(b) No later than two (2) Business Days prior to each Payment
Date, the Lender shall provide to the Borrower a report which shall state the
interest amount due for the current interest period on the Advance (including
the amount of interest which will accrue on such Advance on the Business Day
immediately preceding the related Payment Date). The calculation on such report
shall be based upon information provided in the Servicing Transmission and the
report provided pursuant to Section 7.20.
(c) The Borrower shall pay to the Lender interest on the
unpaid principal amount of each Advance for the period from and including the
date of such Advance to but excluding the date such Advance shall be paid in
full, at a rate per annum equal to the LIBO Rate plus the Applicable Margin.
Notwithstanding the foregoing, the Borrower shall pay to the Lender interest at
the applicable Post-Default Rate on any principal of any Advance and on any
other amount payable by the Borrower hereunder or under the Note, that shall not
be paid in full when due (whether at stated maturity, by acceleration or by
mandatory prepayment or otherwise), for the period from and including the due
date thereof to but excluding the date the same is paid in full. Accrued
interest on each Advance as calculated in Section 2.05(b) above shall be payable
monthly on each Payment Date and on the Termination Date, except that interest
payable at the Post-Default Rate shall accrue daily and shall be payable
promptly upon receipt of invoice. Promptly after the determination of any
interest rate provided for herein or any change therein, the Lender shall give
written notice thereof to the Borrower.
2.06 Mandatory Prepayments or Pledge.
On each Advance Date or other date on which there is a change in
the Mortgage Loans held by the Custodian, the Custodian shall deliver to the
Lender and the Borrower the Custodian Loan Transmission. In accordance with
Section 2.03(b), the Lender shall deliver to the Borrower a Borrowing Base
Certificate in the form attached hereto as Exhibit H, the calculation in such
certificate to be based on the delinquency status and principal balance of the
Eligible Mortgage Loans as of the later of the funding date balance or the last
calendar day of the prior month). Such information shall be ascertained from the
Servicing Transmission which shall be delivered or caused to be delivered by the
Borrower in accordance with Section 7.20 and shall include all Mortgage Loans
which were funded on or prior to the last calendar day of the previous month. In
the event that such Borrowing Base Certificate indicates or if at any time the
aggregate outstanding principal amount of Advances exceeds the Borrowing Base (a
"Borrowing Base Deficiency"), as determined by the Lender and notified to the
Borrower on any Business Day, the Borrower shall no later than one Business Day
after receipt of such written notice, either prepay the Advances in part or in
whole or pledge additional Eligible Mortgage Loans (which Collateral shall be in
all respects acceptable to the Lender) to the Lender, such that after giving
effect to such prepayment or pledge the aggregate outstanding principal amount
of the Advances does not exceed the Borrowing Base.
<PAGE> 25
2.07 Optional Prepayments.
(a) The Advances are prepayable without premium or penalty, in
whole or in part on each Payment Date or after providing not less than five (5)
Business Days prior notice. The Advances are prepayable at any other time, in
whole or in part, in accordance herewith and subject to clause (b) below. Any
amounts prepaid shall be applied to repay the outstanding principal amount of
any Advances (together with interest thereon) until paid in full. Amounts repaid
may be reborrowed in accordance with the terms of this Loan Agreement. If the
Borrower intends to prepay an Advance in whole or in part from any source, the
Borrower shall give five (5) Business Days' prior written notice thereof to the
Lender. If such notice is given, the amount specified in such notice shall be
due and payable on the date specified therein, together with accrued interest to
such date on the amount prepaid. Partial prepayments shall be in an aggregate
principal amount of at least $100,000.
(b) If the Borrower makes a prepayment of the Advances other than
as provided in Section 2.07(a) above, the Borrower shall indemnify the Lender
and hold the Lender harmless from any actual loss or expense which the Lender
may sustain or incur arising from (a) the deployment of funds obtained by the
Lender to maintain the Advances hereunder or from (b) fees payable to terminate
the deposits from which such funds were obtained, in either case, which actual
loss or expense shall be equal to an amount equal to the excess, as reasonably
determined by the Lender, of (i) its cost of obtaining funds for such Advances
for the period from the date of such payment through the following Payment Date
over (ii) the amount of interest likely to be realized by such Lender in
redeploying the funds not utilized by reason of such payment for such period.
This Section 2.07 shall survive termination of this Loan Agreement and payment
of the Note.
2.08 Requirements of Law.
(a) If any Requirement of Law (other than with respect to any
amendment made to the Lender's certificate of incorporation and by-laws or other
organizational or governing documents) or any change in the interpretation or
application thereof or compliance by the Lender with any request or directive
(whether or not having the force of law) from any central bank or other
Governmental Authority made subsequent to the date hereof:
(i) shall subject the Lender to any tax of any kind whatsoever
with respect to this Loan Agreement, the Note or any Advance made by it
(excluding net income taxes) or change the basis of taxation of payments
to the Lender in respect thereof;
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory Advance or similar requirement against assets held
by deposits or other liabilities in or for the account of advances.
Advances or other extensions of credit by, or any other acquisition of
funds by any office of the Lender which is not otherwise included in the
determination of the LIBO Base Rate hereunder;
(iii) shall impose on the Lender any other condition;
<PAGE> 26
and the result of any of the foregoing is to increase the cost to the Lender, by
an amount which the Lender deems to be material, of making, continuing or
maintaining any Advance or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrower shall promptly pay the Lender such
additional amount or amounts as will compensate the Lender for such increased
cost or reduced amount receivable thereafter incurred or shall prepay the
aggregate amount of outstanding Advances. Any prepayment made by the Borrower as
a result of the application of this Section 2.08(a) shall not be subject to the
provisions of Section 2.07(b).
(b) If the Lender shall have determined that the adoption of or
any change in any Requirement of Law (other than with respect to any amendment
made to the Lender's certificate of incorporation and by-laws or other
organizational or governing documents) regarding capital adequacy or in the
interpretation or application thereof or compliance by the Lender or any
corporation controlling the Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on the Lender's or such corporation's capital as a
consequence of its obligations hereunder to a level below that which the Lender
or such corporation (taking into consideration the Lender's or such
corporation's policies with respect to capital adequacy) by an amount deemed by
the Lender to be material, then from time to time, the Borrower shall promptly
pay to the Lender such additional amount or amounts as will thereafter
compensate the Lender for such reduction or shall prepay the aggregate amount of
outstanding Advances. Any prepayment made by the Borrower as a result of the
application of this Section 2.08(b) shall not be subject to the provisions of
Section 2.07(b).
(c) If the Lender becomes entitled to claim any additional
amounts pursuant to this subsection, it shall promptly notify the Borrower of
the event by reason of which it has become so entitled. A certificate as to any
additional amounts payable pursuant to this subsection submitted by the Lender
to the Borrower shall be conclusive in the absence of manifest error.
2.09 Extension of Termination Date.
At the request of Borrower, at least thirty (30) days prior to
the then Termination Date, the Lender may in its sole discretion extend the
Termination Date for a period of 364 days by giving written notice of such
extension to the Borrower no later than twenty (20) days, but in no event more
than thirty (30) days, prior to the then current Termination Date.
2.10 Purpose of Advances.
Each Advance shall be used to finance Eligible Mortgage Loans
identified to the Lender in writing on each Mortgage Loan Schedule as such
Mortgage Loan Schedule may be amended from time to time.
<PAGE> 27
SECTION 3. Payments; Computations; Taxes; Commitment Fee.
3.01 Payments.
Except to the extent otherwise provided herein, all payments of
principal, interest and other amounts to be made by the Borrower under this Loan
Agreement and the Note, shall be made in Dollars, in immediately available
funds, without deduction, set-off or counterclaim, to the Lender at the
following account maintained by the Lender at The Chase Manhattan Bank: Account
Number 140095961, For the A/C of Greenwich Capital Financial Products, Inc.,
ABA# 021000021, Attn: Brett Kibbe, not later than 2:00 p.m., eastern time, on
the date on which such payment shall become due (each such payment made after
such time on such due date to be deemed to have been made on the next succeeding
Business Day). The Borrower acknowledges that it has no rights of withdrawal
from the foregoing account.
3.02 Computations. Interest on the Advances shall be computed
on the basis of a 360-day year for the actual days elapsed (including the first
day but excluding the last day) occurring in the period for which payable.
3.03 Commitment Fee. The Borrower agrees to pay to the Lender,
upon the execution of this Loan Agreement, a commitment fee equal to the product
of (a) 50 basis points (0.50%) times (b) the Maximum Committed Amount (the
"Commitment Fee"), such payment to be made in Dollars, in immediately available
funds, without deduction, set-off or counterclaim, to the Lender. The Lender
may, in its sole discretion, net such Commitment Fee from the proceeds of the
initial Advance made to the Borrower hereunder.
SECTION 4. Collateral Security.
4.01 Collateral; Security Interest.
(a) Pursuant to the Custodial Agreement, the Custodian shall
hold the Mortgage Loan Documents as exclusive bailee and agent for the Lender
pursuant to the terms of the Custodial Agreement and shall deliver to the Lender
Trust Receipts with Exception Reports (as such terms are defined in the
Custodial Agreement) to the effect that it has reviewed such Mortgage Loan
Documents in the manner required by the Custodial Agreement and identifying any
deficiencies in such Mortgage Loan Documents as so reviewed.
(b) Each of the following items or types of property, whether
now owned or hereafter acquired, now existing or hereafter created and wherever
located, is hereinafter referred to as the "Collateral":
(i) all Mortgage Loans identified on a Notice of Borrowing and
Pledge delivered by the Borrower to the Lender and the Custodian from
time to time;
(ii) all Mortgage Loan Documents, including without limitation
all promissory notes, and all Servicing Records (as defined in Section
11.15(b) below), and any other collateral pledged or otherwise relating
to such Mortgage Loans, together with all files, material documents,
instruments, surveys (if available), certificates,
<PAGE> 28
correspondence, appraisals, computer records, computer storage media,
Mortgage Loan accounting records and other books and records relating
thereto;
(iii) all mortgage guaranties and insurance (issued by
governmental agencies or otherwise) and any mortgage insurance
certificate or other document evidencing such mortgage guaranties or
insurance relating to any Mortgage Loans and all claims and payments
thereunder;
(iv) all other insurance policies and insurance proceeds relating
to any Mortgage Loans or the related Mortgaged Property;
(v) all Interest Rate Protection Agreements relating to any or
all of the foregoing;
(vi) any purchase agreements or other agreements or contracts
relating to or constituting any or all of the foregoing;
(vii) all purchase or take-out commitments relating to or
constituting any or all of the foregoing;
(viii) all "accounts", "chattel paper" and "general intangibles"
as defined in the Uniform Commercial Code relating to or constituting
any or all of the foregoing; and
(ix) any and all replacements, substitutions, distributions on or
proceeds of any or all of the foregoing.
(c) The Borrower hereby assigns, pledges and grants a security
interest to the Lender in all of its right, title and interest in, to and under
all the Collateral, whether now owned or hereafter acquired, now existing or
hereafter created and wherever located, to secure the repayment of principal of
and interest on all Advances and all other amounts owing to the Lender
hereunder, under the Note and under the other Loan Documents (collectively, the
"Secured Obligations"). The Borrower agrees to mark their computer records and
tapes to evidence the security interests granted to the Lender hereunder.
4.02 Further Documentation. At any time and from time to time,
upon the written request of the Lender, and at the sole expense of the Borrower,
the Borrower will promptly and duly execute and deliver, or will promptly cause
to be executed and delivered, such further instruments and documents and take
such further action as the Lender may reasonably request for the purpose of
obtaining or preserving the full benefits of this Loan Agreement and of the
rights and powers herein granted, including, without limitation, the filing of
any financing or continuation statements under the Uniform Commercial Code in
effect in any jurisdiction with respect to the Liens created hereby. The
Borrower also hereby authorizes the Lender to file any such financing or
continuation statement without the signature of the Borrower to the extent
permitted by applicable law. A carbon, photographic or other
<PAGE> 29
reproduction of this Loan Agreement shall be sufficient as a financing statement
for filing in any jurisdiction.
4.03 Changes in Locations, Name, etc. The Borrower shall not
(i) change the location of its chief executive office/chief place of business
from that specified in Section 6 hereof or (ii) change its name, identity or
corporate structure (or the equivalent) or change the location where it
maintains its records with respect to the Collateral unless it shall have given
the Lender at least 30 days prior written notice thereof and shall have
delivered to the Lender all Uniform Commercial Code financing statements and
amendments thereto as the Lender shall request and taken all other actions
deemed reasonably necessary by the Lender to continue its perfected status in
the Collateral with the same or better priority.
4.04 Lender's Appointment as Attorney-in-Fact.
(a) The Borrower hereby irrevocably constitutes and appoints
the Lender and any officer or agent thereof, with full power of substitution, as
its true and lawful attorney-in-fact with full irrevocable power and authority
in the place and stead of the Borrower and in the name of the Borrower or in its
own name, from time to time in the Lender's discretion, for the purpose of
carrying out the terms of this Loan Agreement, to take any and all appropriate
action and to execute any and all documents and instruments which may be
necessary or desirable to accomplish the purposes of this Loan Agreement, and,
without limiting the generality of the foregoing, the Borrower hereby gives the
Lender the power and right, on behalf of the Borrower, without assent by, but
with notice to, the Borrower, if an Event of Default shall have occurred and be
continuing, to do the following:
(i) in the name of the Borrower or its own name, or otherwise, to
take possession of and endorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of moneys due under any
mortgage insurance or with respect to any other Collateral and to file
any claim or to take any other action or proceeding in any court of law
or equity or otherwise deemed appropriate by the Lender for the purpose
of collecting any and all such moneys due under any such mortgage
insurance or with respect to any other Collateral whenever payable;
(ii) to pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral; and
(iii) (A) to direct any party liable for any payment under any
Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Lender or as the Lender shall direct; (B) to
ask or demand for, collect, receive payment of and receipt for, any and
all moneys, claims and other amounts due or to become due at any time in
respect of or arising out of any Collateral; (C) to sign and endorse any
invoices, assignments, verifications, notices and other documents in
connection with any of the Collateral; (D) to commence and prosecute any
suits, actions or proceedings at law or in equity in any court of
competent jurisdiction to collect the Collateral or any thereof and to
enforce any other right in respect of any Collateral; (E) to defend any
suit, action or proceeding brought against the Borrower with respect to
any Collateral; (F) to settle, compromise or adjust any suit, action or
proceeding described in clause
<PAGE> 30
(E) above and, in connection therewith, to give such discharges or
releases as the Lender may deem appropriate; and (G) generally, to sell,
transfer, pledge and make any agreement with respect to or otherwise
deal with any of the Collateral as fully and completely as though the
Lender were the absolute owner thereof for all purposes, and to do, at
the Lender's option and the Borrower's expense, at any time, or from
time to time, all acts and things which the Lender deems necessary to
protect, preserve or realize upon the Collateral and the Lender's Liens
thereon and to effect the intent of this Loan Agreement, all as fully
and effectively as the Borrower might do.
The Borrower hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable.
(b) The Borrower also authorizes the Lender, at any time and
from time to time, to execute, in connection with the sale provided for in
Section 4.07 hereof, any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral.
(c) The powers conferred on the Lender are solely to protect
the Lender's interests in the Collateral and shall not impose any duty upon the
Lender to exercise any such powers. The Lender shall be accountable only for
amounts that it actually receives as a result of the exercise of such powers,
and neither the Lender nor any of its officers, directors, or employees shall be
responsible to the Borrower for any act or failure to act hereunder, except for
its own gross negligence or willful misconduct.
4.05 Performance by Lender of Borrower's Obligations. If the
Borrower fails to perform or comply with any of its material agreements
contained in the Loan Documents and the Lender may itself perform or comply, or
otherwise cause performance or compliance, with such agreement, the reasonable
out-of-pocket expenses of the Lender incurred in connection with such
performance or compliance, together with interest thereon at a rate per annum
equal to the Post-Default Rate, shall be payable by the Borrower to the Lender
on demand and shall constitute Secured Obligations.
4.06 Proceeds. If an Event of Default shall occur and be
continuing, (a) all proceeds of Collateral received by the Borrower consisting
of cash, checks and other near-cash items shall be held by the Borrower in trust
for the Lender, segregated from other funds of the Borrower, and shall forthwith
upon receipt by the Borrower be turned over to the Lender in the exact form
received by the Borrower (duly endorsed by the Borrower to the Lender, if
required) and (b) any and all such proceeds received by the Lender will be
applied by the Lender against, the Secured Obligations. Any balance of such
proceeds remaining after the Secured Obligations shall have been paid in full
and this Loan Agreement shall have been terminated shall be promptly paid over
to the Borrower or to whomsoever may be lawfully entitled to receive the same.
For purposes hereof, proceeds shall include, but not be limited to, all
principal and interest payments, all prepayments and payoffs, insurance claims,
condemnation awards, sale proceeds, real estate owned rents and any other income
and all other amounts received with respect to the Collateral.
<PAGE> 31
4.07 Remedies. If an Event of Default shall occur and be
continuing, the Lender may exercise, in addition to all other rights and
remedies granted to it in this Loan Agreement and in any other instrument or
agreement securing, evidencing or relating to the Secured Obligations, all
rights and remedies of a secured party under the Uniform Commercial Code.
Without limiting the generality of the foregoing, the Lender without demand of
performance or other demand, presentment, protest, advertisement or notice of
any kind (except any notice required by law referred to below) to or upon the
Borrower or any other Person (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, lease, assign, give option or options
to purchase, or otherwise dispose of and deliver the Collateral or any part
thereof (or contract to do any of the foregoing), in one or more parcels or as
an entirety at public or private sale or sales, at any exchange, broker's board
or office of the Lender or elsewhere upon such terms and conditions and at
prices that are consistent with the prevailing market for similar collateral as
it may deem advisable and at such prices as it may deem best, for cash or on
credit or for future delivery without assumption of any credit risk. The Lender
shall act in good faith to obtain the best execution possible under prevailing
market conditions. The Lender shall have the right upon any such public sale or
sales, and, to the extent permitted by law, upon any such private sale or sales,
to purchase the whole or any part of the Collateral so sold, free of any right
or equity of redemption in the Borrower, which right or equity is hereby waived
or released. The Borrower further agrees, at the Lender's request, to assemble
the Collateral and make it available to the Lender at places which the Lender
shall reasonably select, whether at the Borrower's premises or elsewhere. The
Lender shall apply the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, after deducting all reasonable costs and
expenses of every kind incurred therein or incidental to the care or safekeeping
of any of the Collateral or in any way relating to the Collateral or the rights
of the Lender hereunder, including, without limitation, reasonable attorneys'
fees and disbursements, to the payment in whole or in part of the Secured
Obligations, in such order as the Lender may elect, and only after such
application and after the payment by the Lender of any other amount required or
permitted by any provision of law, including, without limitation, Section
9-504(1)(c) of the Uniform Commercial Code, need the Lender account for the
surplus, if any, to the Borrower. To the extent permitted by applicable law, the
Borrower waives all claims, damages and demands it may acquire against the
Lender arising out of the exercise by the Lender of any of its rights hereunder,
other than those claims, damages and demands arising from the gross negligence
or willful misconduct of the Lender. If any notice of a proposed sale or other
disposition of Collateral shall be required by law, such notice shall be deemed
reasonable and proper if given at least 10 days before such sale or other
disposition. The Borrower shall remain liable for any deficiency (plus accrued
interest thereon as contemplated pursuant to Section 2.05(b) hereof) if the
proceeds of any sale or other disposition of the Collateral are insufficient to
pay the Secured Obligations and the reasonable fees and disbursements of any
attorneys employed by the Lender to collect such deficiency.
4.08 Limitation on Duties Regarding Presentation of Collateral.
The Lender's duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under Section 9-207 of the
Uniform Commercial Code or otherwise, shall be to deal with it in the same
manner as the Lender deals with similar property for its own account. Neither
the Lender nor any of its directors, officers or employees shall be liable for
failure to
<PAGE> 32
demand, collect or realize upon all or any part of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of the Borrower or otherwise.
4.09 Powers Coupled with an Interest. All authorizations and
agencies herein contained with respect to the Collateral are irrevocable and
powers coupled with an interest.
4.10 Release of Security Interest. Upon termination of this
Loan Agreement and repayment to the Lender of all Secured Obligations and the
performance of all obligations under the Loan Documents the Lender shall release
its security interest in any remaining Collateral; provided that if any payment,
or any part thereof, of any of the Secured Obligations is rescinded or must
otherwise be restored or returned by the Lender upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the Borrower, or upon or as a
result of the appointment of a receiver, intervenor or conservator of, or a
trustee or similar officer for the Borrower or any substantial part of its
Property, or otherwise, this Loan Agreement, all rights hereunder and the Liens
created hereby shall continue to be effective, or be reinstated, until such
payments have been made.
SECTION 5. Conditions Precedent.
5.01 Initial Advance. The obligation of the Lender to make its
initial Advance hereunder is subject to the satisfaction, immediately prior to
or concurrently with the making of such Advance, of the following conditions
precedent:
(a) Loan Agreement. The Lender shall have received this Loan
Agreement, executed and delivered by a duly authorized officer of the Borrower.
(b) Loan Documents. The Lender shall have received the following
documents, each of which shall be satisfactory to the Lender in form and
substance:
(i) Note. The Note, duly completed and executed;
(ii) Custodial Agreement. The Custodial Agreement, duly
executed and delivered by the Borrower and the Custodian. In
addition, the Borrower shall have filed all Uniform Commercial
Code and related filings and performed under the Custodial
Agreement and taken such other action as the Lender shall have
requested in order to perfect the security interests created
pursuant to the Loan Agreement; and
(iii) Guaranty. The Guaranty, duly executed and delivered
by the Guarantor.
(c) Organizational Documents. A good standing certificate and
certified copies of the charter and by-laws (or equivalent documents) of
the Borrower and of all corporate or other authority for the Borrower
with respect to the execution, delivery and performance of the Loan
Documents and each other document to be delivered by
<PAGE> 33
the Borrower from time to time in connection herewith (and the Lender
may conclusively rely on such certificate until it receives notice in
writing from the Borrower to the contrary).
(d) Legal Opinion. A legal opinion of counsel to the Borrower,
substantially in the form attached hereto as Exhibit C.
(e) Securitization Letter. The Lender shall have received the
Securitization Letter, in form and substance satisfactory to the Lender
and executed by a duly authorized officer of the Borrower.
(f) Filings, Registrations, Recordings. Any documents (including,
without limitation, financing statements) required to be filed,
registered or recorded in order to create, in favor of the Lender, a
perfected, first-priority security interest in the Collateral, subject
to no Liens other than those created hereunder, shall have been properly
prepared and executed for filing (including the applicable county(ies)
if the Lender determines such filings are necessary in its reasonable
discretion), registration or recording in each office in each
jurisdiction in which such filings, registrations and recordations are
required to perfect such first-priority security interest.
(g) Fees and Expenses. The Lender shall have received all fees
and expenses required to be paid by the Borrower on or prior to the
initial Funding Date pursuant to Sections 3.03 and 11.03(b) and such
fees and expenses may be netted out of any Advance made by the Lender
hereunder.
(h) Financial Statements. The Lender shall have received the
financial statements referenced in Section 7.01(a).
(i) Underwriting Guidelines. The Lender and the Borrower shall
have agreed upon the Qualified Originators' current Underwriting
Guidelines for the Mortgage Loans and the Lender shall have received a
copy thereof.
(j) Consents, Licenses, Approvals, etc. The Lender shall have
received copies certified by the Borrower of all consents, licenses and
approvals, if any, required in connection with the execution, delivery
and performance by the Borrower of, and the validity and enforceability
of, the Loan Documents, which consents, licenses and approvals shall be
in full force and effect.
(k) Insurance. The Lender shall have received evidence in form
and substance satisfactory to the Lender showing compliance by the
Borrower as of such initial Funding Date with Section 7.22 hereof.
(l) Instruction Letter. The Lender shall have received an
Instruction Letter in the form attached hereto as Exhibit J executed by
the Borrower.
(m) Capitalization of Guarantor. The Lender shall have received
evidence satisfactory to it that the Guarantor has been capitalized by a
contribution of cash to the equity of the Guarantor in an aggregate
amount equal to not less than $65,000,000
<PAGE> 34
(after taking into account related expenses, if any, payable on the date
of such contribution).
(n) Year 2000 Compliance. The Lender shall have satisfactorily
completed its due diligence of the Borrower's Year 2000 program and
shall have determined that the Year 2000 issues will not have a material
adverse effect on the Borrower's or the Subservicer's operations or
financial condition.
(o) Financing Agreements. The Lender shall have received copies
satisfactory to the Lender of all indenture agreements and terms sheets
and proposals with respect to all other financing facilities maintained
by, or being considered by, the Borrower. The Borrower shall have
received a copy of the Bank of America syndicate lending agreement.
(p) Residual Financing Arrangements. The Lender shall have
received information in form and substance acceptable to it as to the
valuation of any residual certificates retained by it as well as any
assumptions regarding the write down of the value of such residual
certificates. The Lender shall have received a copy satisfactory to the
Lender of the Borrower's 1994 agreement with respect to the residual
certificates with Piper Jaffrey and shall have received confirmation
that only the post September 1996 residuals certificates are subject to
set aside covenants in the Borrower's debt indentures.
(q) Negative Consent Waivers. The Lender shall have received a
copy satisfactory to the Lender of the negative consent waivers prepared
and distributed by the Borrower.
(r) Other Documents. The Lender shall have received such other
documents as the Lender or its counsel may reasonably request.
5.02 Initial and Subsequent Advances. The making of each
Advance to the Borrower (including the initial Advance) on any Business Day is
subject to the following further conditions precedent, both immediately prior to
the making of such Advance and also after giving effect thereto and to the
intended use thereof:
(a) no Default or Event of Default shall have occurred and be
continuing;
(b) both immediately prior to the making of such Advance and also
after giving effect thereto and to the intended use thereof, the
representations and warranties made by the Borrower in Section 6 hereof,
and in each of the other Loan Documents, shall be true and complete on
and as of the date of the making of such Advance in all material
respects (in the case of the representations and warranties in Section
6.23 and Schedule 1, solely with respect to Mortgage Loans included in
the Borrowing Base) with the same force and effect as if made on and as
of such date (or, if any such representation or warranty is expressly
stated to have been made as of a specific date, as of such specific
date). At the request of the Lender, the Lender shall have received
<PAGE> 35
an officer's certificate signed by a Responsible Officer of the Borrower
certifying as to the truth and accuracy of the above, which certificate
shall specifically include a statement that the Borrower is in
compliance with all governmental licenses and authorizations and is
qualified to do business and in good standing in all required
jurisdictions;
(c) the aggregate outstanding principal amount of the Advances
shall not exceed the Borrowing Base;
(d) subject to the Lender's right to perform one or more Due
Diligence Reviews pursuant to Section 11.16 hereof, the Lender shall
have completed its due diligence view of the Mortgage Loan Documents for
each Advance and such other documents, records, agreements, instruments,
mortgaged properties or information relating to such Advances and the
Borrower as the Lender in its reasonable discretion deems appropriate to
review and such review shall be satisfactory to the Lender in its
reasonable discretion;
(e) the Lender shall have received a Notice of Borrowing and
Pledge, Loan List and Mortgage Loan Data Transmission and all other
documents required under Section 2.03;
(f) the Lender shall have received from the Custodian a Custodian
Loan Transmission and one or more Trust Receipts in respect of Mortgage
Loans to be pledged hereunder on such Business Day and an Exception
Report, in each case dated such Business Day and duly completed;
(g) with respect to Mortgage Loans originated in Florida and
California on forms not acceptable to FNMA, the Borrower shall (i)
deliver copies of such forms to the Lender and (ii) deliver an opinion
of counsel acceptable to the Lender substantially in the form of items
number 12 and 13 of Exhibit C. In the event that the aggregate principal
balance of Mortgage Loans originated in any other state on forms not
acceptable to FNMA exceeds 10% of the aggregate outstanding principal
balance of Mortgage Loans pledged hereunder, the Lender may, in its sole
discretion require an opinion of counsel to be delivered to the Lender
as contemplated in the preceding sentence;
(h) if any Mortgage Loans to be pledged hereunder were acquired
by the Borrower, such Mortgage Loans shall conform to the Underwriting
Guidelines or the Lender shall have received Underwriting Guidelines for
such Mortgage Loans acceptable to the Lender in its reasonable
discretion;
(i) the Lender shall have received all information requested from
the Borrower relating to Interest Rate Protection Agreements pursuant to
Section 7.25, and the Lender shall have reasonably determined that such
Interest Rate Protection Agreements adequately protect the Borrower from
interest rate fluctuations; and
<PAGE> 36
(j) the Lender shall have received, no later than 10:00 a.m.
three (3) days prior to the requested Funding Date, an Instruction
Letter, executed by the Borrower, with the related Servicing Agreement
(as defined in Section 11.15(c)) attached thereto, which such Servicing
Agreement shall be in form and substance acceptable to Lender.
Each request for a borrowing by the Borrower hereunder shall constitute a
certification by the Borrower to the effect set forth in this Section (both as
of the date of such notice, request or confirmation and as of the date of such
borrowing).
SECTION 6. Representations and Warranties. The Borrower
represents and warrants to the Lender that throughout the term of this Loan
Agreement:
6.01 Existence. The Borrower (a) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, (b) has all requisite corporate or other
power, and has all governmental licenses, authorizations, consents and
approvals, necessary to own its assets and carry on its business as now being or
as proposed to be conducted, except where the lack of such licenses,
authorizations, consents and approvals would not be reasonably likely to have a
material adverse effect on its property, business or financial condition, or
prospects; and (c) is qualified to do business and is in good standing in all
other jurisdictions in which the nature of the business conducted by it makes
such qualification necessary, except where failure so to qualify would not be
reasonably likely (either individually or in the aggregate) to have a material
adverse effect on its property, business or financial condition, or prospects
and (d) is in compliance in all material respect with all Requirements of Law.
6.02 Financial Condition. The Guarantor has heretofore
furnished to the Lender a copy of its Annual Report on Form 10-K which includes
audited consolidated financial statements at and for the fiscal year ended June
30, 1998 with the opinion thereon of PricewaterhouseCoopers LLP. All such
financial statements are materially complete and correct and fairly present the
consolidated financial condition of the Guarantor and its Subsidiaries and the
consolidated results of their operations for the fiscal year ended on said date,
all in accordance with GAAP applied on a consistent basis. The Guarantor has
heretofore furnished to the Lender a copy of its Quarterly Report on Form 10-Q
which includes unaudited consolidated financial statements at and for the fiscal
quarter ended September 30, 1998. All such financial statements are materially
complete and correct and fairly present the consolidated financial condition of
the Guarantor and its Subsidiaries and the consolidated results of their
operations for the fiscal quarter ended on said date, all in accordance with
GAAP applied on a consistent basis. Other than as disclosed on Schedule 5
attached hereto, since September 30, 1998 there has been no development or event
which has not been disclosed in the public filings of the Guarantor (including
Current Reports on Form 8-K) nor any prospective development or event which has
had or should reasonably be expected to have a Material Adverse Effect.
6.03 Litigation. There are no actions, suits, arbitrations,
investigations or proceedings pending or, to its knowledge, threatened against
the Borrower or any of its Subsidiaries or affecting any of the property thereof
before any Governmental Authority, (i) as
<PAGE> 37
to which individually or in the aggregate there is a reasonable likelihood of an
adverse decision which would be reasonably likely to have a material adverse
effect on the property, business or financial condition, or prospects of the
Borrower or (ii) which questions the validity or enforceability of any of the
Loan Documents or any action to be taken in connection with the transactions
contemplated hereby and there is a reasonable likelihood of a materially adverse
effect or decision.
6.04 No Breach. Neither (a) the execution and delivery of the
Loan Documents or (b) the consummation of the transactions therein contemplated
in compliance with the terms and provisions thereof will conflict with or result
in a breach of the charter or by-laws of the Borrower, or any applicable law,
rule or regulation, or any order, writ, injunction or decree of any Governmental
Authority, or other material agreement or instrument to which the Borrower, or
any of its Subsidiaries, is a party or by which any of them or any of their
property is bound or to which any of them is subject, or constitute a default
under any such material agreement or instrument, or (except for the Liens
created pursuant to this Loan Agreement) result in the creation or imposition of
any Lien upon any property of the Borrower or any of its Subsidiaries, pursuant
to the terms of any such agreement or instrument.
6.05 Action. The Borrower has all necessary corporate or other
power, authority and legal right to execute, deliver and perform its obligations
under each of the Loan Documents to which it is a party; the execution, delivery
and performance by the Borrower of each of the Loan Documents to which it is a
party has been duly authorized by all necessary corporate or other action on its
part; and each Loan Document has been duly and validly executed and delivered by
the Borrower and constitutes a legal, valid and binding obligation of the
Borrower, enforceable against the Borrower in accordance with its terms.
6.06 Approvals. No authorizations, approvals or consents of,
and no filings or registrations with, any Governmental Authority, or any other
Person, are necessary for the execution, delivery or performance by the Borrower
of the Loan Documents to which it is a party or for the legality, validity or
enforceability thereof, except for filings and recordings in respect of the
Liens created pursuant to this Loan Agreement.
6.07 Margin Regulations. Neither the making of any Advance
hereunder, nor the use of the proceeds thereof, will violate or be inconsistent
with the provisions of Regulation G, T, U or X.
6.08 Taxes. The Borrower and its Subsidiaries have filed all
Federal income tax returns and all other material tax returns that are required
to be filed by them and have paid all taxes due pursuant to such returns or
pursuant to any assessment received by any of them, except for any such taxes,
if any, that are being appropriately contested in good faith by appropriate
proceedings diligently conducted and with respect to which adequate reserves
have been provided. The charges, accruals and reserves on the books of the
Borrower and its Subsidiaries in respect of taxes and other governmental charges
are, in the opinion of the Borrower, adequate.
6.09 Investment Company Act. Neither the Borrower nor any of
its Subsidiaries is an "investment company", or a company "controlled" by an
"investment
<PAGE> 38
company", within the meaning of the Investment Company Act of 1940, as amended.
The Borrower is not subject to any Federal or state statute or regulation which
limits its ability to incur indebtedness.
6.10 No Legal Bar. The execution, delivery and performance of
this Loan Agreement and the Note, the borrowings hereunder and the use of the
proceeds thereof will not violate any Requirement of Law or Contractual
Obligation of the Borrower or of any of its Subsidiaries and will not result in,
or require, the creation or imposition of any Lien (other than the Liens created
hereunder) on any of its or their respective properties or revenues pursuant to
any such Requirement of Law or Contractual Obligation.
6.11 No Default. Neither the Borrower nor any of its
Subsidiaries is in default under or with respect to any of its Contractual
Obligations in any respect which should reasonably be expected to have a
Material Adverse Effect. No Default or Event of Default has occurred and is
continuing.
6.12 Collateral; Collateral Security.
(a) The Borrower has not assigned, pledged, or otherwise
conveyed or encumbered any Mortgage Loan to any other Person, and immediately
prior to the pledge of any such Mortgage Loan, the Borrower was the sole owner
of such Mortgage Loan and had good and marketable title thereto, free and clear
of all Liens, in each case except for Liens to be released simultaneously with
the Liens granted in favor of the Lender hereunder and no Person other than the
Borrower has any Lien on any Mortgage Loan.
(b) The provisions of this Loan Agreement are effective to
create in favor of the Lender a valid security interest in all right, title and
interest of the Borrower in, to and under the Collateral.
(c) Upon receipt by the Custodian of each Mortgage Note,
endorsed in blank by a duly authorized officer of the Borrower, the Lender shall
have a fully perfected first priority security interest therein, in the Mortgage
Loan evidenced thereby and in the Borrower's interest in the related Mortgaged
Property.
(d) Upon the filing of financing statements on Form UCC-1
naming the Lender as "Secured Party" and the Borrower as "Debtor", and
describing the Collateral, in the jurisdictions and recording offices listed on
Schedule 2 attached hereto, the security interests granted hereunder in the
Collateral will constitute fully perfected first priority security interests
under the Uniform Commercial Code in all right, title and interest of the
Borrower in, to and under such Collateral, which can be perfected by filing
under the Uniform Commercial Code.
6.13 Chief Executive Office; Chief Operating Office. The
Borrower's chief executive office and chief operating office on the Effective
Date is located at 350 South Grand Avenue, Los Angeles, California 90071.
<PAGE> 39
6.14 Location of Books and Records. The location where the
Borrower keeps its books and records including all computer tapes and records
relating to the Collateral is its chief executive office or chief operating
office or the offices of the Custodian.
6.15 True and Complete Disclosure. The information, reports,
financial statements, exhibits and schedules furnished in writing by or on
behalf of the Borrower to the Lender in connection with the negotiation,
preparation or delivery of this Loan Agreement and the other Loan Documents or
included herein or therein or delivered pursuant hereto or thereto, when taken
as a whole, do not contain any untrue statement of material fact or omit to
state any material fact necessary to make the statements herein or therein, in
light of the circumstances under which they were made, not misleading. All
written information furnished after the date hereof by or on behalf of the
Borrower to the Lender in connection with this Loan Agreement and the other Loan
Documents and the transactions contemplated hereby and thereby will be true,
complete and accurate in every material respect, or (in the case of projections)
based on reasonable estimates, on the date as of which such information is
stated or certified. There is no fact known to a Responsible Officer that, after
due inquiry, could reasonably be expected to have a Material Adverse Effect that
has not been disclosed herein, in the other Loan Documents or in a report,
financial statement, exhibit, schedule, disclosure letter or other writing
furnished to the Lender for use in connection with the transactions contemplated
hereby or thereby.
6.16 Tangible Net Worth; Liquidity. The Borrower's Tangible Net
Worth is not less than $10,000,000 and the Borrower has cash, Cash Equivalents
and unused borrowing capacity on unencumbered assets that could be drawn against
(taking into account required haircuts) under committed warehouse facilities in
an amount not less than $1,000,000.
6.17 ERISA. Each Plan to which the Borrower or its Subsidiaries
make direct contributions, and, to the knowledge of the Borrower, each other
Plan and each Multiemployer Plan, is in compliance in all material respects
with, and has been administered in all material respects in compliance with, the
applicable provisions of ERISA, the Code and any other Federal or State law. No
event or condition has occurred and is continuing as to which the Borrower would
be under an obligation to furnish a report to the Lender under Section 7.01(d)
hereof.
6.18 Licenses. The Lender will not be required as a result of
financing or taking a pledge of the Mortgage Loans to be licensed, registered or
approved or to obtain permits or otherwise qualify (i) to do business in any
state in which it currently so required or (ii) under any state consumer
lending, fair debt collection or other applicable state statute or regulation.
6.19 Relevant States. Schedule 3 sets forth all of the states
or other jurisdictions (the "Relevant States") in which the Qualified
Originators originate Mortgage Loans in their own names or through brokers on
the date of this Loan Agreement.
6.20 True Sales. Any and all interest of a Qualified Originator
in, to and under any Mortgage funded in the name of or acquired by such
Qualified Originator has been
<PAGE> 40
sold, transferred, conveyed and assigned to the Borrower pursuant to a legal
sale and such Qualified Originator retains no interest in such Mortgage Loan.
6.21 No Burdensome Restrictions. No Requirement of Law or Contractual Obligation
of the Borrower or any of its Subsidiaries has a Material Adverse Effect.
6.22 Subsidiaries. All of the Subsidiaries of the Guarantor at
the date hereof are listed on Schedule 4 to this Loan Agreement.
6.23 Origination and Acquisition of Mortgage Loans. The
Mortgage Loans were originated or acquired by the Borrower, and the origination
and collection practices used by the Borrower or Qualified Originator, as
applicable, with respect to the Mortgage Loans have been, in all material
respects legal, proper, prudent and customary in the residential mortgage loan
servicing business, and in accordance with the Underwriting Guidelines. With
respect to Mortgage Loans acquired by the Borrower, all such Mortgage Loans are
in conformity with the Underwriting Guidelines. Each of the Mortgage Loans
complies with the representations and warranties listed in Schedule I hereto.
6.24 No Adverse Selection. The Borrower used no selection
procedures that identified the Mortgage Loans as being less desirable or
valuable than other comparable Mortgage Loans owned by the Borrower.
6.25 Borrower Solvent; Fraudulent Conveyance. As of the date
hereof and immediately after giving effect to each Advance, the fair value of
the assets of the Borrower is greater than the fair value of the liability
(including, without limitation, contingent liabilities if and to the extent
required to be recorded as a liability on the financial statements of the
Borrower in accordance with GAAP) of the Borrower and the Borrower is and will
be solvent, is and will be able to pay its debts as they mature and does not and
will not have an unreasonably small capital to engage in the business in which
it is engaged and proposes to engage. Borrower does not intend to incur, or
believe that it has incurred, debt beyond its ability to pay such debts as they
mature. Borrower is not contemplating the commencement of insolvency,
bankruptcy, liquidation or consolidation proceedings or the appointment of a
receiver, liquidator, conservator, trustee or similar official in respect of
Borrower or any of its assets. Borrower is not transferring any Mortgage Loans
with any intent to hinder, delay or defraud any of its creditors.
6.26 Year 2000 Compliance. The Borrower has made a full and
complete assessment of all issues which may be related to the occurrence of the
year 2000, including all issues related to its computer program and software and
the computer program and software of the Subservicer (the "Year 2000 Issues"),
and both the Borrower and the Subservicer have realistic and achievable programs
for remediating the Year 2000 Issues on a timely basis (the "Year 2000
Program"). Based on such assessment and on the Year 2000 Program, the Borrower
does not reasonably anticipate that Year 2000 Issues will have a material
adverse effect on the Borrower's or the Subservicer's operations or financial
condition.
<PAGE> 41
SECTION 7. Covenants of the Borrower. The Borrower covenants and
agrees with the Lender that, so long as any Advance is outstanding and until
payment in full of all Secured Obligations:
7.01 Financial Statements. The Borrower shall, and shall cause
the Guarantor to, deliver to the Lender:
(a)(i) as soon as available and in any event within 30 days after
the end of each month, the consolidated balance sheets of the Borrower
and the consolidated balance sheets of the Guarantor and its
consolidated Subsidiaries as at the end of such month and the related
unaudited consolidated statements of income and retained earnings and of
cash flows for the Borrower, the Guarantor and its consolidated
Subsidiaries for such month and the portion of the fiscal year through
the end of such month, setting forth in each case in comparative form
the figures for the previous year, accompanied by a certificate of a
Responsible Officer of the Borrower or the Guarantor, as applicable,
which certificate shall state that said consolidated financial
statements fairly present the consolidated financial condition and
results of operations of the Borrower, the Guarantor and its
Subsidiaries in accordance with GAAP, consistently applied, as at the
end of, and for, such month (subject to normal year-end audit
adjustments);
(ii) as soon as available and in any event within 45 days after
the end of each of the first three quarterly fiscal periods of each
fiscal year of the Borrower, the consolidated balance sheets of the
Borrower and the consolidated balance sheets of the Guarantor and its
consolidated Subsidiaries as at the end of such period and the related
unaudited consolidated statements of income and retained earnings and of
cash flows for the Borrower, the Guarantor and its consolidated
Subsidiaries for such period and the portion of the fiscal year through
the end of such period, setting forth in each case in comparative form
the figures for the previous year, accompanied by a certificate of a
Responsible Officer of the Borrower or the Guarantor, as applicable,
which certificate shall state that said consolidated financial
statements fairly present the consolidated financial condition and
results of operations of the Borrower, the Guarantor and its
Subsidiaries in accordance with GAAP, consistently applied, as at the
end of, and for, such period (subject to normal year-end audit
adjustments);
(b) as soon as available and in any event within 90 days after
the end of each fiscal year of the Borrower, the consolidated balance
sheets of the Borrower and the consolidated balance sheets of the
Guarantor and its consolidated Subsidiaries as at the end of such fiscal
year and the related consolidated statements of income and retained
earnings and of cash flows for the Borrower, the Guarantor and its
consolidated Subsidiaries for such year, setting forth in each case in
comparative form the figures for the previous year, accompanied by an
opinion thereon of independent certified public accountants of
recognized national standing, which opinion shall not be qualified as to
scope of audit or going concern and shall state that said consolidated
financial statements fairly present the consolidated financial condition
and results of operations of the Borrower, the Guarantor and its
consolidated Subsidiaries at the end of, and for, such fiscal year in
accordance with GAAP, and a certificate of such accountants stating
<PAGE> 42
that, in making the examination necessary for their opinion, they
obtained no knowledge, except as specifically stated, of any Default or
Event of Default;
(c) from time to time such other information regarding the
financial condition, operations, or business of the Borrower and the
Guarantor as the Lender may reasonably request; and
(d) as soon as reasonably possible, and in any event within
thirty (30) days after a Responsible Officer knows, or with respect to
any Plan or Multiemployer Plan to which the Borrower or any of its
Subsidiaries makes direct contributions, has reason to believe, that any
of the events or conditions specified below with respect to any Plan or
Multiemployer Plan has occurred or exists, a statement signed by a
senior financial officer of the Borrower setting forth details
respecting such event or condition and the action, if any, that the
Borrower or its ERISA Affiliate proposes to take with respect thereto
(and a copy of any report or notice required to be filed with or given
to PBGC by the Borrower or an ERISA Affiliate with respect to such event
or condition):
(i) any reportable event, as defined in Section 4043(b) of
ERISA and the regulations issued thereunder, with respect to a
Plan, as to which PBGC has not by regulation or otherwise waived
the requirement of Section 4043(a) of ERISA that it be notified
within thirty (30) days of the occurrence of such event (provided
that a failure to meet the minimum funding standard of Section
412 of the Code or Section 302 of ERISA, including, without
limitation, the failure to make on or before its due date a
required installment under Section 412(m) of the Code or Section
302(e) of ERISA, shall be a reportable event regardless of the
issuance of any waivers in accordance with Section 412(d) of the
Code); and any request for a waiver under Section 412(d) of the
Code for any Plan;
(ii) the distribution under Section 4041(c) of ERISA of a
notice of intent to terminate any Plan or any action taken by the
Borrower or an ERISA Affiliate to terminate any Plan;
(iii) the institution by PBGC of proceedings under Section
4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan, or the receipt by the Borrower
or any ERISA Affiliate of a notice from a Multiemployer Plan that
such action has been taken by PBGC with respect to such
Multiemployer Plan;
(iv) the complete or partial withdrawal from a
Multiemployer Plan by the Borrower or any ERISA Affiliate that
results in liability under Section 4201 or 4204 of ERISA
(including the obligation to satisfy secondary liability as a
result of a purchaser default) or the receipt by the Borrower or
any ERISA Affiliate of notice from a Multiemployer Plan that it
is in reorganization or insolvency pursuant to Section 4241 or
4245 of ERISA or that it intends to terminate or has terminated
under Section 4041A of ERISA;
<PAGE> 43
(v) the institution of a proceeding by a fiduciary of any
Multiemployer Plan against the Borrower or any ERISA Affiliate to
enforce Section 515 of ERISA, which proceeding is not dismissed
within 30 days; and
(vi) the adoption of an amendment to any Plan that,
pursuant to Section 401(a)(29) of the Code or Section 307 of
ERISA, would result in the loss of tax-exempt status of the trust
of which such Plan is a part if the Borrower or an ERISA
Affiliate fails to timely provide security to such Plan in
accordance with the provisions of said Sections.
The Borrower will furnish to the Lender, at the time it furnishes each set of
financial statements pursuant to paragraphs (a) and (b) above, a certificate of
a Responsible Officer of the Borrower to the effect that, to the best of such
Responsible Officer's knowledge, the Borrower during such fiscal period or year
has observed or performed all of its covenants and other agreements, and
satisfied every material condition, contained in this Loan Agreement and the
other Loan Documents to be observed, performed or satisfied by it, and that such
Responsible Officer has obtained no knowledge of any Default or Event of Default
except as specified in such certificate (and, if any Default or Event of Default
has occurred and is continuing, describing the same in reasonable detail and
describing the action the Borrower has taken or proposes to take with respect
thereto).
7.02 Litigation. The Borrower will promptly, and in any event
within 7 days after service process on any of the following, give to the Lender
notice of all legal or arbitrable proceedings affecting the Borrower or any of
its Subsidiaries that questions or challenges the validity or enforceability of
any of the Loan Documents or as to which there is a reasonable likelihood of
adverse determination which would result in a Material Adverse Effect.
7.03 Existence, Etc. Each of the Borrower, its Subsidiaries and
the Qualified Originators will:
(a) preserve and maintain its legal existence and all of its
material rights, privileges, licenses and franchises (other than
Subsidiaries which are not material to the business of the Borrower);
(b) comply with the requirements of all applicable laws, rules,
regulations and orders of Governmental Authorities (including, without
limitation, truth in lending, real estate settlement procedures and all
environmental laws) if failure to comply with such requirements would be
reasonably likely (either individually or in the aggregate) to have a
Material Adverse Effect;
(c) keep adequate records and books of account, in which complete
entries will be made in accordance with GAAP consistently applied;
(d) not move its chief executive office or chief operating office
from the addresses referred to in Section 6.13 unless it shall have
provided the Lender 30 days prior written notice of such change (other
than Subsidiaries which are not material to the business of the
Borrower);
<PAGE> 44
(e) pay and discharge all taxes, assessments and governmental
charges or levies imposed on it or on its income or profits or on any of
its Property prior to the date on which penalties attach thereto, except
for any such tax, assessment, charge or levy the payment of which is
being contested in good faith and by proper proceedings and against
which adequate reserves are being maintained; and
(f) permit representatives of the Lender, during normal business
hours upon three (3) Business Days' prior written notice at a mutually
desirable time, to examine, copy and make extracts from its books and
records, to inspect any of its Properties, and to discuss its business
and affairs with its officers, all to the extent reasonably requested by
the Lender.
7.04 Prohibition of Fundamental Changes. The Borrower shall not
enter into any transaction of merger or consolidation or amalgamation, or
liquidate, wind up or dissolve itself (or suffer any liquidation, winding up or
dissolution) or sell all or substantially all of its assets; provided, that the
Borrower may merge or consolidate with (a) any wholly owned subsidiary of the
Borrower, or (b) any other Person if the Borrower is the surviving corporation;
and provided further, that if after giving effect thereto, no Default would
exist hereunder.
7.05 Borrowing Base Deficiency. If at any time there exists a
Borrowing Base Deficiency the Borrower shall cure same in accordance with
Section 2.06 hereof.
7.06 Notices. The Borrower shall give notice to the Lender
promptly:
(a) upon the Borrower becoming aware of, and in any event within
one (1) Business Day after, the occurrence of any Default or Event of
Default or any material event of default or default under any other
material agreement of the Borrower which has not been waived or cured;
(b) upon, and in any event within three (3) Business Days after,
service of process on the Borrower or any of its Subsidiaries, or any
agent thereof for service of process, in respect of any legal or
arbitrable proceedings affecting the Borrower or any of its Subsidiaries
(i) that questions or challenges the validity or enforceability of any
of the Loan Documents or (ii) in which the amount in controversy exceeds
$1,000,000;
(c) upon the Borrower becoming aware of any default related to
any Collateral which would reasonably be expected to have a Material
Adverse Effect and any event or change in circumstances which should
reasonably be expected to have a Material Adverse Effect;
(d) upon the Borrower becoming aware during the normal course of
its business that the Mortgaged Property in respect of any Mortgage Loan
or Mortgage Loans with an aggregate unpaid principal balance of at least
$1,000,000 has been damaged by waste, fire, earthquake or earth
movement, windstorm, flood, tornado or
<PAGE> 45
other casualty, or otherwise damaged so as to materially and adversely
affect the Collateral Value of such Mortgage Loan;
(e) upon the entry of a judgment or decree in an amount in excess
of $1,000,000.
Each notice pursuant to this Section 7.06 (other than 7.06(e)) shall be
accompanied by a statement of a Responsible Officer of the Borrower setting
forth details of the occurrence referred to therein and stating what action the
Borrower has taken or proposes to take with respect thereto.
7.07 Servicing. Except as provided in Section 11.15(c), the
Borrower shall not permit any Person other than the Borrower or Aames Funding
Corporation to service Mortgage Loans without the prior written consent of the
Lender, which consent shall not be unreasonably withheld.
7.08 Intentionally Omitted.
7.09 Underwriting Guidelines. The Borrower shall notify the
Lender in writing of any material modifications to the Underwriting Guidelines
prior to implementation of such change, and unless the Lender objects in writing
within 5 Business Days of receipt of notice, the proposed modifications shall be
deemed acceptable.
7.10 Lines of Business. The Borrower will not engage to any
substantial extent in any line or lines of business activity other than the
businesses generally carried on by it as of the Effective Date.
7.11 Transactions with Affiliates. The Borrower will not enter
into any transaction, including, without limitation, any purchase, sale, lease
or exchange of property or the rendering of any service, with any Affiliate
unless such transaction is (i) pursuant to the Borrower's executive loan program
as approved from time to time by its Board of Directors or (ii)(a) otherwise
permitted under this Loan Agreement, (b) in the ordinary course of the
Borrower's business and (c) upon fair and reasonable terms no less favorable to
the Borrower than it would obtain in a comparable arm's length transaction with
a Person which is not an Affiliate, or make a payment that is not otherwise
permitted by this Section 7.11 to any Affiliate.
7.12 Use of Proceeds. The Borrower will use the proceeds of the
Advances solely to originate, fund, and purchase Eligible Mortgage Loans.
7.13 Limitation on Liens. The Borrower will not, nor will it
permit or allow others to, create, incur or permit to exist any Lien, security
interest or claim on or to any of the Collateral. The Borrower will defend the
Collateral against, and will take such other action as is necessary to remove,
any Lien, security interest or claim on or to the Collateral, other than the
security interests created under this Loan Agreement, and the Borrower will
defend the right, title and interest of the Lender in and to any of the
Collateral against the claims and demands of all persons whomsoever.
<PAGE> 46
7.14 Limitation on Sale of Assets. The Borrower shall not
convey, sell, lease, assign, transfer or otherwise dispose of (collectively,
"Transfer"), all or substantially all of its Property, business or assets
(including, without limitation, receivables and leasehold interests) whether now
owned or hereafter acquired or allow any Subsidiary to Transfer substantially
all of its assets to any Person; provided, that the Borrower may after prior
written notice to the Lender allow such action with respect to any Subsidiary
which is not a material part of the Borrower's overall business operations.
7.15 Limitation on Distributions. Except in connection with the
[sinking fund], without the Lender's consent, the Borrower shall not make any
payment on account of, or set apart assets for a sinking or other analogous fund
for the purchase, redemption, defeasance, retirement or other acquisition of,
any stock or senior or subordinate debt of the Borrower, whether now or
hereafter outstanding, or make any other distribution in respect thereof, either
directly or indirectly, whether in cash or property or in obligations of the
Borrower.
7.16 Maintenance of Liquidity. The Borrower has cash, Cash
Equivalents and available borrowing capacity under committed warehouse
facilities equal to $1,000,000.
7.17 Maintenance of Tangible Net Worth. The Tangible Net Worth
of the Borrower shall be $10,000,000 at all times during the term of this Loan
Agreement.
7.18 Committed Warehouse Facilities and Working Capital Line of
the Borrower. The Borrower at all times has available capacity under committed
revolving facilities other than the Lender's committed revolving facilities
equal to $100,000,000. On and after March 26, 1999, the Borrower will have a
committed working capital line equal to $25,000,000 or otherwise satisfy the
Lender as to the availability of working capital to meet servicing advance
obligations.
7.19 Restricted Payments. The Borrower shall not make any
Restricted Payments following an Event of Default.
7.20 Servicing Transmission. The Borrower shall provide to the
Lender no later than 11:00 a.m. eastern time two Business Days prior to each
Payment Date (or such other day requested by Lender) (i) the Servicing
Transmission, on a loan-by-loan basis and in the aggregate, with respect to the
Mortgage Loans serviced hereunder by the Borrower which were funded prior to the
first day of the current month, summarizing the Borrower's delinquency and loss
experience with respect to Mortgage Loans serviced by the Borrower (including,
in the case of the Mortgage Loans, the following categories: current, 30-59,
60-89 and 90+) and (ii) any other information reasonably requested by the Lender
with respect to the Mortgage Loans.
7.21 No Amendment or Waiver. The Borrower will not, nor will it
permit or allow others to amend, modify, terminate or waive any provision of any
Mortgage Loan to
<PAGE> 47
which the Borrower is a party in any manner which shall reasonably be expected
to materially and adversely affect the value of such Mortgage Loan as
Collateral.
7.22 Maintenance of Property; Insurance. The Borrower shall (a)
keep all property useful and necessary in its business in good working order and
condition; and
(b) maintain errors and omissions insurance and/or mortgage
impairment insurance and blanket bond coverage in such amounts as are in
effect on the Effective Date (as disclosed to Lender in writing) and
shall not reduce such coverage without the written consent of the
Lender, and shall also maintain such other insurance with financially
sound and reputable insurance companies, and with respect to property
and risks of a character usually maintained by entities engaged in the
same or similar business similarly situated, against loss, damage and
liability of the kinds and in the amounts customarily maintained by such
entities.
7.23 Further Identification of Collateral. The Borrower will
furnish to the Lender from time to time statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as the Lender or any Lender may reasonably request, all in
reasonable detail.
7.24 Mortgage Loan Determined to be Defective. Upon discovery
by the Borrower or the Lender of any breach of any representation or warranty
listed on Schedule 1 hereto applicable to any Mortgage Loan, the party
discovering such breach shall promptly give notice of such discovery to the
other.
7.25 Interest Rate Protection Agreements. Upon the Lender's
request, the Borrower shall deliver to the Lender any and all information
relating to Interest Rate Protection Agreements.
7.26 Year 2000 Compliance. The Borrower shall take and shall
cause each of its Affiliates and any Sub-servicer to take all such actions as
are reasonably necessary to successfully implement the Year 2000 Program and to
assure that the Year 2000 Issues will not have a material adverse effect on the
Borrower's operations or financial condition. At the request of the Lender, the
Borrower will provide a description of the Year 2000 Program, together with any
updates or progress reports with respect thereto. The Borrower shall provide the
Lender with immediate notice in writing in the event that the Lender has reason
to believe that the occurrence of the year 2000 will adversely affect the
Borrower's business or any Advances executed in connection herewith.
(b) By September 1, 1999, the Borrower shall be required to
provide written assurance to the Lender that it is year 2000 compliant. If
satisfactory assurance can not be made on such date, the Lender shall have no
obligation to make any additional Advances under this Agreement. In addition,
the failure of the Borrower to provide satisfactory assurance of year 2000
compliance by September 30, 1999 shall constitute an Event of Default under this
Agreement.
<PAGE> 48
7.27 Certificate of a Responsible Officer of the Borrower. At
the time that the Borrower delivered financial statements to the Lender in
accordance with Section 7.01 hereof, the Borrower shall, and shall cause the
Guarantor to, forward to the Lender a certificate of a Responsible Officer of
the Borrower which demonstrates that the Borrower or the Guarantor, as
applicable, is in compliance with the covenants set forth in Sections 7.16, 7.17
and 7.18.
SECTION 8. Events of Default. Each of the following events shall
constitute an event of default (an "Event of Default") hereunder:
(a) the Borrower shall default in the payment of any principal of
or interest on any Advance (whether at stated maturity, upon
acceleration or at mandatory prepayment) or the Guarantor shall default
in the payment of any amount required to be paid by it under the
Guaranty; or
(b) the Borrower or the Guarantor shall default in the payment of
any other amount payable by it hereunder or under any other Loan
Document after notification by the Lender of such default, and such
default shall have continued unremedied for three Business Days; or
(c) any representation, warranty or certification made or deemed
made herein or in any other Loan Document by the Borrower or the
Guarantor or any certificate furnished to the Lender pursuant to the
provisions thereof, shall prove to have been false or misleading in any
material respect as of the time made or furnished (other than the
representations and warranties set forth in Schedule 1 which shall be
considered solely for the purpose of determining the Collateral Value of
the Mortgage Loans; unless Borrower shall have made any such
representations and warranties with knowledge that they were materially
false or misleading at the time made); or
(d) the Borrower shall fail to comply with the requirements of
Section 7.03(a), Section 7.04, Section 7.06(a) or (c), Sections 7.12
through 7.19, Section 7.22(b) and Section 7.26 hereof or the Guarantor
shall fail to comply with the requirements of Section 3(b) of the
Guaranty; or the Borrower shall default in the performance of its
obligations under Section 7.05 hereof, and such default shall continue
unremedied for a period of one (1) Business Day; or the Borrower shall
otherwise fail to observe or perform any other agreement contained in
this Loan Agreement or any other Loan Document and such failure to
observe or perform shall continue unremedied for a period of five (5)
Business Days; or
(e) a final judgment or judgments for the payment of money in
excess of $2,000,000 in the aggregate (to the extent that it is, in the
reasonable determination of the Lender, uninsured and provided that any
insurance or other credit posted in connection with an appeal shall not
be deemed insurance for these purposes) shall be rendered against the
Borrower or any of its Subsidiaries by one or more courts,
administrative tribunals or other bodies having jurisdiction over them
and the same shall not be discharged (or provision shall not be made for
such discharge) or bonded,
<PAGE> 49
or a stay of execution thereof shall not be procured, within 60 days
from the date of entry thereof and the Borrower or any such Subsidiary
shall not, within said period of 60 days, or such longer period during
which execution of the same shall have been stayed or bonded, appeal
therefrom and cause the execution thereof to be stayed during such
appeal; or
(f) the Borrower shall admit in writing its inability to pay its
debts as such debts become due; or
(g) the Borrower or any of its Subsidiaries shall (i) apply for
or consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee, examiner or liquidator of itself or of all
or a substantial part of its property, (ii) make a general assignment
for the benefit of its creditors, (iii) commence a voluntary case under
the Bankruptcy Code, (iv) file a petition seeking to take advantage of
any other law relating to bankruptcy, insolvency, reorganization,
liquidation, dissolution, arrangement or winding-up, or composition or
readjustment of debts, (v) fail to controvert in a timely and
appropriate manner, or acquiesce in writing to, any petition filed
against it in an involuntary case under the Bankruptcy Code or (vi) take
any corporate or other action for the purpose of effecting any of the
foregoing; or
(h) a proceeding or case shall be commenced, without the
application or consent of the Borrower or any of its Subsidiaries, in
any court of competent jurisdiction, seeking (i) its reorganization,
liquidation, dissolution, arrangement or winding-up, or the composition
or readjustment of its debts, (ii) the appointment of a receiver,
custodian, trustee, examiner, liquidator or the like of the Borrower or
any such Subsidiary or of all or any substantial part of its property,
or (iii) similar relief in respect of the Borrower or any such
Subsidiary under any law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of debts, and
such proceeding or case shall continue undismissed, or an order,
judgment or decree approving or ordering any of the foregoing shall be
entered and continue unstayed and in effect, for a period of 60 or more
days; or an order for relief against the Borrower or any such Subsidiary
shall be entered in an involuntary case under the Bankruptcy Code; or
(i) the Custodial Agreement or any Loan Document shall for
whatever reason (including an event of default thereunder) be terminated
or the lien on the Collateral created by this Agreement or Borrower's
material obligations hereunder shall cease to be in full force and
effect, or the enforceability thereof shall be contested by the
Borrower; or
(j) any materially adverse change in the Properties, business or
financial condition, or prospects of the Borrower or any of its material
Subsidiaries or Affiliates or any Qualified Originator, in each case as
determined by the Lender in its sole discretion, or the existence of any
other condition which, in the Lender's sole discretion, constitutes a
material impairment of the Borrower's ability to perform its obligations
under this Loan Agreement, the Note or any other Loan Document; or
<PAGE> 50
(k) (i) any Person shall engage in any "prohibited transaction"
(as defined in Section 406 of ERISA or Section 4975 of the Code)
involving any Plan, (ii) any material "accumulated funding deficiency"
(as defined in Section 302 of ERISA), whether or not waived, shall exist
with respect to any Plan or any Lien in favor of the PBGC or a Plan
shall arise on the assets of the Borrower or any Commonly Controlled
Entity, (iii) 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 commencement of proceedings or
appointment of a trustee is, in the reasonable opinion of the Lenders,
likely to result in the termination of such Plan for purposes of Title
IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes
of Title IV of ERISA, (v) the Borrower or any Commonly Controlled Entity
shall, or in the reasonable opinion of the Lenders is likely to, incur
any liability in connection with a withdrawal from, or the insolvency or
reorganization of, a Multiemployer Plan or (vi) any other event or
condition shall occur or exist with respect to a Plan; and in each case
in clauses (i) through (vi) above, such event or condition, together
with all other such events or conditions, if any, could reasonably be
expected to have a Material Adverse Effect; or
(l) any Change of Control of the Borrower shall have occurred
without the prior consent of the Lender; or
(m) the Borrower shall grant, or suffer to exist, any Lien on any
Collateral except the Liens contemplated hereby; or the Liens
contemplated hereby shall cease to be first priority perfected Liens on
the Collateral in favor of the Lender or shall be Liens in favor of any
Person other than the Lender; or
(n) the Borrower shall default under, or fail to perform as
requested under, or shall otherwise materially breach the terms of any
instrument, agreement or contract between Borrower and Lender or any of
Lender's Affiliates; or
(o) the Borrower shall default under or be subject to any
acceleration provision of any material agreement to which the Borrower
is a party and, as a consequence of such default, Borrower's monetary
obligations thereunder which shall equal $5,000,000 or more shall have
been accelerated; or
(p) the Lender shall reasonably request, specifying the reasons
for such request, information, and/or written responses to such
requests, regarding the financial well-being of the Borrower and such
information and/or responses shall not have been provided within three
Business Days of such request.
SECTION 9. Remedies Upon Default.
(a) Upon the occurrence of one or more Events of Default (subject
to the expiration of the applicable cure period contained therein) other
than those referred to in Section 8(g) or (h), the Lender may
immediately declare the principal amount of the Advances then
outstanding under the Note to be immediately due and payable, together
<PAGE> 51
with all interest thereon and reasonable fees and out-of-pocket expenses
accruing under this Loan Agreement; provided that upon the occurrence of
an Event of Default referred to in Sections 8(g) or (h), such amounts
shall immediately and automatically become due and payable without any
further action by any Person. Upon such declaration or such automatic
acceleration, the balance then outstanding on the Note shall become
immediately due and payable, without presentment, demand, protest or
other formalities of any kind, all of which are hereby expressly waived
by the Borrower and may thereupon exercise any remedies available to it
at law and pursuant to the Loan Documents.
(b) Upon the occurrence of one or more Events of Default, the
Lender shall have the right to obtain physical possession of the
Servicing Records and all other files of the Borrower relating to the
Collateral and all documents relating to the Collateral which are then
or may thereafter come in to the possession of the Borrower or any third
party acting for the Borrower and the Borrower shall deliver to the
Lender such assignments as the Lender shall request. The Lender shall be
entitled to specific performance of all agreements of the Borrower
contained in this Loan Agreement.
SECTION 10. No Duty on Lender's Part. The powers conferred on the
Lender hereunder are solely to protect the Lender's interests in the Collateral
and shall not impose any duty upon it to exercise any such powers. The Lender
shall be accountable only for amounts that it actually receives as a result of
the exercise of such powers, and neither it nor any of its officers, directors,
employees or agents shall be responsible to the Borrower for any act or failure
to act hereunder, except for its or their own gross negligence or willful
misconduct.
SECTION 11. Miscellaneous.
11.01 Waiver. No failure on the part of the Lender to exercise
and no delay in exercising, and no course of dealing with respect to, any right,
power or privilege under any Loan Document shall operate as a waiver thereof,
nor shall any single or partial exercise of any right, power or privilege under
any Loan Document preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
11.02 Notices. Except as otherwise expressly permitted by this
Loan Agreement, all notices, requests and other communications provided for
herein and under the Custodial Agreement (including, without limitation, any
modifications of, or waivers, requests or consents under, this Loan Agreement)
shall be given or made in writing (including, without limitation, by telex or
telecopy) delivered to the intended recipient at the "Address for Notices"
specified below its name on the signature pages hereof); or, as to any party, at
such other address as shall be designated by such party in a written notice to
each other party. Except as otherwise provided in this Loan Agreement and except
for notices given under Section 2 (which shall be effective only on receipt),
all such communications shall be deemed to have been duly given when transmitted
by telex or telecopier or personally delivered or, in the case of a mailed
notice, upon receipt, in each case given or addressed as aforesaid.
11.03 Indemnification and Expenses.
<PAGE> 52
(a) The Borrower agrees to hold the Lender harmless from and
indemnify the Lender against all liabilities, losses, damages, judgments, costs
and expenses of any kind which may be imposed on, incurred by, or asserted
against the Lender, relating to or arising out of, this Loan Agreement, the
Note, any other Loan Document or any transaction contemplated hereby or thereby,
or any amendment, supplement or modification of, or any waiver or consent under
or in respect of, this Loan Agreement, the Note, any other Loan Document or any
transaction contemplated hereby or thereby, that, in each case, results from
anything other than the Lender's gross negligence or willful misconduct. In any
suit, proceeding or action brought by the Lender in connection with any Mortgage
Loan for any sum owing thereunder, or to enforce any provisions of any Mortgage
Loan, the Borrower will save, indemnify and hold the Lender harmless from and
against all expense, loss or damage suffered by reason of any defense, set-off,
counterclaim, recoupment or reduction or liability whatsoever of the account
debtor or obligor thereunder, arising out of a breach by the Borrower of any
obligation thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to or in favor of such account debtor or obligor or
its successors from the Borrower. The Borrower also agrees to reimburse the
Lender as and when billed by the Lender for all the Lender's reasonable
out-of-pocket costs and expenses incurred in connection with the enforcement or
the preservation of the Lender's rights under this Loan Agreement, the Note, any
other Loan Document or any transaction contemplated hereby or thereby, including
without limitation the reasonable fees and disbursements of its counsel. The
Borrower hereby acknowledges that, notwithstanding the fact that the Note is
secured by the Collateral, the obligation of the Borrower under the Note is a
recourse obligation of the Borrower.
(b) The Borrower agrees to pay as and when billed by the
Lender all of the out-of pocket costs and expenses incurred by the Lender in
connection with the development, preparation and execution of, and any
amendment, supplement or modification to, this Loan Agreement, the Note, any
other Loan Document or any other documents prepared in connection herewith or
therewith. The Borrower agrees to pay as and when billed by the Lender all of
the out-of-pocket costs and expenses incurred in connection with the
consummation and administration of the transactions contemplated hereby and
thereby including, without limitation, (i) all the reasonable fees,
disbursements and expenses of counsel to the Lender in connection with the
execution of this Loan Agreement (not in excess of $30,000), (ii) all the due
diligence, inspection, testing and review costs and expenses incurred by the
Lender with respect to Collateral under this Loan Agreement, including, but not
limited to, those costs and expenses incurred by the Lender pursuant to Sections
11.03(a), 11.14 and 11.16 hereof other than any costs and expenses incurred in
connection with the Lender's rehypothication of the Mortgage Loans prior to an
Event of Default and (iii) initial and ongoing fees and expenses incurred by the
Custodian in connection with the performance of its duties under the Custodial
Agreement.
11.04 Amendments. Except as otherwise expressly provided in this
Loan Agreement, any provision of this Loan Agreement may be modified or
supplemented only by an instrument in writing signed by the Borrower and the
Lender and any provision of this Loan Agreement may be waived by the Lender.
<PAGE> 53
11.05 Successors and Assigns. This Loan Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
11.06 Survival. The obligations of the Borrower under Sections
3.03 and 11.03 hereof shall survive the repayment of the Advances and the
termination of this Loan Agreement. In addition, each representation and
warranty made, or deemed to be made by a request for a borrowing, herein or
pursuant hereto shall survive the making of such representation and warranty,
and the Lender shall not be deemed to have waived, by reason of making any
Advance, any Default that may arise by reason of such representation or warranty
proving to have been false or misleading, notwithstanding that the Lender may
have had notice or knowledge or reason to believe that such representation or
warranty was false or misleading at the time such Advance was made.
11.07 Captions. The table of contents and captions and section
headings appearing herein are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this Loan
Agreement.
11.08 Counterparts. This Loan Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument, and any of the parties hereto may execute this Loan Agreement
by signing any such counterpart.
11.09 Loan Agreement Constitutes Security Agreement; Governing
Law. This Loan Agreement shall be governed by New York law without reference to
choice of law doctrine (but with reference to Section 5-1401 of the New York
General Obligations Law, which by its terms applies to this Loan Agreement), and
shall constitute a security agreement within the meaning of the Uniform
Commercial Code.
11.10 SUBMISSION TO JURISDICTION; WAIVERS. EACH LOAN PARTY HEREBY
IRREVOCABLY AND UNCONDITIONALLY:
(A) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS LOAN AGREEMENT, THE NOTE AND THE OTHER LOAN
DOCUMENTS, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT
THEREOF, TO THE NONEXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE
STATE OF NEW YORK, THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA
FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY
THEREOF;
(B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN
SUCH COURTS AND, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY OBJECTION
THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR
PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS
BROUGHT
<PAGE> 54
IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME;
(C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR
CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE
PREPAID, TO ITS ADDRESS SET FORTH UNDER ITS SIGNATURE BELOW OR AT SUCH
OTHER ADDRESS OF WHICH THE LENDER SHALL HAVE BEEN NOTIFIED; AND
(D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT
SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT
THE RIGHT TO SUE IN ANY OTHER JURISDICTION.
11.11 WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE LENDER
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THIS LOAN AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.
11.12 Acknowledgments. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution
and delivery of this Loan Agreement, the Note and the other Loan
Documents to which it is a party;
(b) the Lender has no fiduciary relationship to the Borrower, and
the relationship between the Borrower and the Lender is solely that of
debtor and creditor; and
(c) no joint venture exists among or between the Lender and the
Borrower.
11.13 Hypothecation or Pledge of Collateral. The Lender shall
have free and unrestricted use of all Collateral and nothing in this Loan
Agreement shall preclude the Lender from engaging in repurchase transactions
with the Collateral or otherwise pledging, repledging, transferring,
hypothecating, or rehypothecating the Collateral. Nothing contained in this Loan
Agreement shall obligate the Lender to segregate any Collateral delivered to the
Lender by the Borrower.
<PAGE> 55
11.14 Assignments; Participations.
(a) The Borrower may assign any of its rights or obligations
hereunder or under the Note with the prior written consent of the Lender which
consent shall not be unreasonably withheld. The Lender may assign or transfer to
any bank or other financial institution that makes or invests in loans or any
Affiliate of the Lender all or any of its rights or obligations under this Loan
Agreement and the other Loan Documents.
(b) The Lender may, in accordance with applicable law, at any
time sell to one or more lenders or other entities ("Participants")
participating interests in any Advance, the Note, its commitment to make
Advances, or any other interest of the Lender hereunder and under the other Loan
Documents. In the event of any such sale by the Lender of participating
interests to a Participant, the Lender's obligations under this Loan Agreement
to the Borrower shall remain unchanged, the Lender shall remain solely
responsible for the performance thereof, the Lender shall remain the holder of
the Note for all purposes under this Loan Agreement and the other Loan
Documents, and the Borrower and the Lender shall continue to deal solely and
directly with the Lender in connection with the Lender's rights and obligations
under this Loan Agreement and the other Loan Documents. The Borrower agrees that
if amounts outstanding under this Loan Agreement and the Note are due or unpaid,
or shall have been declared or shall have become due and payable upon the
occurrence of an Event of Default, each Participant shall be deemed to have the
right of set-off in respect of its participating interest in amounts owing under
this Loan Agreement and the Note to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under this Loan
Agreement or the Note; provided, that such Participant shall only be entitled to
such right of set-off if it shall have agreed in the agreement pursuant to which
it shall have acquired its participating interest to share with the Lender the
proceeds thereof. The Lender also agrees that each Participant shall be entitled
to the benefits of Sections 2.07 and 11.03 with respect to its participation in
the Advances outstanding from time to time; provided, that the Lender and all
Participants shall be entitled to receive no greater amount in the aggregate
pursuant to such Sections than the Lender would have been entitled to receive
had no such transfer occurred.
(c) The Lender may furnish any information concerning the
Borrower or any of its Subsidiaries in the possession of such Lender from time
to time to assignees and participants (including prospective assignees and
participants) only after notifying the Borrower in writing and securing signed
confidentiality statements (a form of which is attached hereto as Exhibit I) and
only for the sole purpose of evaluating participations and for no other purpose.
(d) The Borrower agrees to cooperate with the Lender in
connection with any such assignment and/or participation, to execute and deliver
such replacement notes, and to enter into such restatements of, and amendments,
supplements and other modifications to, this Loan Agreement and the other Loan
Documents in order to give effect to such assignment and/or participation. The
Borrower further agrees to furnish to any Participant identified by the Lender
to the Borrower copies of all reports and certificates to be delivered by the
Borrower to the Lender hereunder, as and when delivered to the Lender.
11.15 Servicing.
<PAGE> 56
(a) The Borrower covenants to maintain or cause the servicing
of the Mortgage Loans to be maintained in conformity with Accepted Servicing
Practices. In the event that the preceding language is interpreted as
constituting one or more servicing contracts, each such servicing contract shall
terminate automatically upon the earliest of (i) an Event of Default, or (ii)
the date on which all the Secured Obligations have been paid in full, or (iii)
the transfer of servicing to any entity approved by the Lender.
(b) During the period the Borrower is servicing the Mortgage
Loans, (i) the Borrower agrees that Lender has a first priority perfected
security interest in all servicing records, including but not limited to any and
all servicing agreements, files, documents, records, data bases, computer tapes,
copies of computer tapes, proof of insurance coverage, insurance policies,
appraisals, other closing documentation, payment history records, and any other
records or rights relating to or evidencing the servicing of such Mortgage Loans
(the "Servicing Records"), and (ii) the Borrower grants the Lender a security
interest in all servicing fees and rights relating to the Mortgage Loans and all
Servicing Records to secure the obligation of the Borrower or its designee to
service in conformity with this Section and any other obligation of Borrower to
the Lender. The Borrower covenants to safeguard such Servicing Records and to
deliver them promptly to the Lender or its designee (including the Custodian) at
the Lender's request. It is understood and agreed by the parties that prior to
an Event of Default, the Borrower shall retain the servicing fees with respect
to the Mortgage Loans.
(c) If the Mortgage Loans are serviced by any other third party
servicer (such third party servicer, the "Subservicer"), the Borrower shall
provide a copy of the related servicing agreement with a properly executed
Instruction Letter to the Lender at least three (3) Business Days prior to the
applicable Funding Date or the date on which the Subservicer shall begin
subservicing the Mortgage Loans, which shall be in the form and substance
acceptable to Lender (the "Servicing Agreement") and shall have obtained the
written consent of the Lender for such Subservicer to subservice the Mortgage
Loans. Initially, the Subservicer shall be Aames Funding.
(d) The Borrower agrees that upon the occurrence of an Event
of Default, the Lender may terminate the Borrower in its capacity as servicer
and terminate any Servicing Agreement and transfer such servicing to the Lender
or its designee, at no cost or expense to the Lender. In addition, the Borrower
shall provide to the Lender an Instruction Letter from the Borrower to the
effect that upon the occurrence of an Event of Default, the Lender may terminate
any Subservicer or Servicing Agreement and direct that collections with respect
to the Mortgage Loans be remitted in accordance with the Lender's instructions.
The Borrower agrees to cooperate with the Lender in connection with the transfer
of servicing.
(e) After the Funding Date, until the pledge of any Mortgage
Loan is relinquished by the Custodian, the Borrower will have no right to modify
or alter the terms of the Mortgage Loan or consent to the modification or
alteration of the terms of any Mortgage Loan, and the Borrower will have no
obligation or right to repossess any Mortgage Loan or substitute another
Mortgage Loan, except as provided in any Custodial Agreement.
<PAGE> 57
(f) The Borrower shall permit the Lender to inspect upon
reasonable prior written notice (which shall be no more than five (5) Business
Days prior to such date) at a mutually convenient time, the Borrower's or its
Affiliate's servicing facilities, as the case may be, for the purpose of
satisfying the Lender that the Borrower or its Affiliate, as the case may be,
has the ability to service the Mortgage Loans as provided in this Loan
Agreement. In addition, with respect to any Subservicer which is not an
Affiliate of the Borrower, the Borrower shall use its best efforts to enable the
Lender to inspect the servicing facilities of such Subservicer.
11.16 Periodic Due Diligence Review. The Borrower acknowledges
that the Lender has the right to perform continuing due diligence reviews with
respect to the Mortgage Loans, for purposes of verifying compliance with the
representations, warranties and specifications made hereunder, or otherwise, and
the Borrower agrees that upon reasonable (but no less than one (1) Business
Day's) prior notice to the Borrower, the Lender or its authorized
representatives will be permitted during normal business hours to examine,
inspect, make copies of, and make extracts of, the Mortgage Files and any and
all documents, records, agreements, instruments or information relating to such
Mortgage Loans in the possession, or under the control, of the Borrower and/or
the Custodian. The Borrower also shall make available to the Lender a
knowledgeable financial or accounting officer for the purpose of answering
questions respecting the Mortgage Files and the Mortgage Loans. Without limiting
the generality of the foregoing, the Borrower acknowledges that the Lender shall
make Advances to the Borrower based solely upon the information provided by the
Borrower to the Lender in the Mortgage Loan Data Transmission and the
representations, warranties and covenants contained herein, and that the Lender,
at its option, has the right, at any time to conduct a partial or complete due
diligence review on some or all of the Mortgage Loans securing such Advance,
including, without limitation, ordering new credit reports, new appraisals on
the related Mortgaged Properties and otherwise re-generating the information
used to originate such Mortgage Loan. The Lender may underwrite such Mortgage
Loans itself or engage a mutually agreed upon third party underwriter to perform
such underwriting. The Borrower agrees to cooperate with the Lender and any
third party underwriter in connection with such underwriting, including, but not
limited to, providing the Lender and any third party underwriter with access to
any and all documents, records, agreements, instruments or information relating
to such Mortgage Loans in the possession, or under the control, of the Borrower.
In addition, the Lender has the right to perform continuing Due Diligence
Reviews of the Borrower and its Affiliates, directors, officers, employees and
significant shareholders. The Borrower and Lender further agree that all
out-of-pocket costs and expenses incurred by the Lender in connection with the
Lender's activities pursuant to this Section 11.16 shall be paid for as agreed
by such parties.
11.17 Set-Off. In addition to any rights and remedies of the
Lender provided by this Loan Agreement and by law, the Lender shall have the
right, without prior notice to the Borrower, any such notice being expressly
waived by the Borrower to the extent permitted by applicable law, upon any
amount becoming due and payable by the Borrower hereunder (whether at the stated
maturity, by acceleration or otherwise) to set-off and appropriate and apply
against such amount any and all Property and deposits (general or special, time
or demand, provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or
<PAGE> 58
unmatured, at any time held or owing by the Lender or any Affiliate thereof to
or for the credit or the account of the Borrower. The Lender agrees promptly to
notify the Borrower after any such set-off and application made by the Lender;
provided that the failure to give such notice shall not affect the validity of
such set-off and application.
11.18 Intent. The parties recognize that each Advance is a
"securities contract" as that term is defined in Section 741 of Title 11 of the
United States Code, as amended.
[SIGNATURE PAGES FOLLOW]
<PAGE> 59
IN WITNESS WHEREOF, the parties hereto have caused this Loan
Agreement to be duly executed and delivered as of the day and year first above
written.
BORROWER
AAMES CAPITAL CORPORATION
By: /s/ David A. Sklar
-----------------------------------------
Name:
Title:
Address for Notices:
350 South Grand Avenue
Los Angeles, California 90071
Attention:
Telecopier No.:
Telephone No.:
With a copy to:
Attention: Vice President/Treasury
Telecopier No.:
Telephone No.:
LENDER
GREENWICH CAPITAL FINANCIAL
PRODUCTS, INC.
By: /s/ Dawn Papaccio
-----------------------------------------
Name: Dawn Papaccio
Title: Vice President
Address for Notices:
600 Steamboat Road
Greenwich, Connecticut 06830
Attention: Dawn Papaccio
Telecopier No.: (203) 629-3650
Telephone No.: (203) 625-2928
With a copy to:
Attention: General Counsel
Telecopier No.: (203) 629-5718
Telephone No.: (203) 625-2700
<PAGE> 60
SCHEDULE 1
REPRESENTATIONS AND WARRANTIES RE: MORTGAGE LOANS
Eligible Mortgage Loans
As to each Mortgage Loan that forms part of the Collateral
hereunder (and the related Mortgage, Mortgage Note, Assignment of Mortgage and
Mortgaged Property), the Borrower shall be deemed to make the following
representations and warranties to the Lender as of such date and as of each date
Collateral Value is determined:
(a) Mortgage Loans as Described. The information set forth in the
Mortgage Loan Data Transmission with respect to the Mortgage Loan is complete,
true and correct in all material respects.
(b) Payments Current. The Mortgagor has made its first Monthly
Payment within forty-five days of the related Due Date.
(c) No Outstanding Charges. There are no defaults in complying
with the terms of the Mortgage securing the Mortgage Loan, and all taxes,
governmental assessments, insurance premiums, water, sewer and municipal
charges, leasehold payments or ground rents which previously became due and
owing have been paid, or an escrow of funds has been established in an amount
sufficient to pay for every such item which remains unpaid and which has been
assessed but is not yet due and payable. Neither the Borrower nor the Qualified
Originator from which the Borrower acquired the Mortgage Loan has advanced
funds, or induced, solicited or knowingly received any advance of funds by a
party other than the Mortgagor, directly or indirectly, for the payment of any
amount required under the Mortgage Loan, except for interest accruing from the
date of the Mortgage Note or date of disbursement of the proceeds of the
Mortgage Loan, whichever is more recent, to the day which precedes by one month
the Due Date of the first installment of principal and interest thereunder.
(d) Original Terms Unmodified. The terms of the Mortgage Note and
Mortgage have not been impaired, waived, altered or modified in any respect,
from the date of origination; except by a written instrument which has been
recorded, if necessary to protect the interests of the Lender, and which has
been delivered to the Custodian and the terms of which are reflected in the
Mortgage Loan Schedule. The substance of any such waiver, alteration or
modification has been approved by the title insurer, to the extent required by
the title insurance policy, and its terms are reflected on the Mortgage Loan
Schedule. No Mortgagor in respect of the Mortgage Loan has been released, in
whole or in part, except in connection with an assumption agreement approved by
the title insurer, to the extent required by such policy, and which assumption
agreement is part of the Mortgage File delivered to the Custodian and the terms
of which are reflected in the Mortgage Loan Schedule.
(e) No Defenses. The Mortgage Loan is not subject to any right of
rescission, setoff, counterclaim or defense, including without limitation the
defense of usury,
<PAGE> 61
nor will the operation of any of the terms of the Mortgage Note or the Mortgage,
or the exercise of any right thereunder, render either the Mortgage Note or the
Mortgage unenforceable, in whole or in part and no such right of rescission,
set-off, counterclaim or defense has been asserted with respect thereto, and no
Mortgagor in respect of the Mortgage Loan was a debtor in any state or Federal
bankruptcy or insolvency proceeding at the time the Mortgage Loan was
originated.
(f) Hazard Insurance. The Mortgaged Property is insured by a fire
and extended perils insurance policy, issued by a Qualified Insurer, and such
other hazards as are customary in the area where the Mortgaged Property is
located, and to the extent required by the Borrower as of the date of
origination consistent with the Underwriting Guidelines, against earthquake and
other risks insured against by Persons operating like properties in the locality
of the Mortgaged Property, in an amount not less than the greatest of (i) 100%
of the replacement cost of all improvements to the Mortgaged Property, (ii)
[either (A)] the outstanding principal balance of the Mortgage Loan [with
respect to each First Lien Mortgage Loan or (B) with respect to each Second Lien
Mortgage Loan, the sum of the outstanding principal balance of the First Lien
Mortgage Loan and the outstanding principal balance of the Second Lien Mortgage
Loan], (iii) the amount necessary to avoid the operation of any co-insurance
provisions with respect to the Mortgaged Property, and consistent with the
amount that would have been required as of the date of origination in accordance
with the Underwriting Guidelines or (iv) the amount necessary to fully
compensate for any damage or loss to the improvements that are a part of such
property on a replacement cost basis. If any portion of the Mortgaged Property
is in an area identified by any federal Governmental Authority as having special
flood hazards, and flood insurance is available, a flood insurance policy
meeting the current guidelines of the Federal Insurance Administration is in
effect with a generally acceptable insurance carrier, in an amount representing
coverage not less than the least of (1) the outstanding principal balance of the
Mortgage Loan, (2) the full insurable value of the Mortgaged Property, and (3)
the maximum amount of insurance available under the Flood Disaster Protection
Act of 1973, as amended. All such insurance policies (collectively, the "hazard
insurance policy") contain a standard mortgagee clause naming the Borrower, its
successors and assigns (including without limitation, subsequent owners of the
Mortgage Loan), as mortgagee, and may not be reduced, terminated or canceled
without 30 days' prior written notice to the mortgagee. No such notice has been
received by the Borrower. All premiums due and owing on such insurance policy
have been paid. The related Mortgage obligates the Mortgagor to maintain all
such insurance and, at such Mortgagor's failure to do so, authorizes the
mortgagee to maintain such insurance at the Mortgagor's cost and expense and to
seek reimbursement therefor from such Mortgagor. Where required by state law or
regulation, the Mortgagor has been given an opportunity to choose the carrier of
the required hazard insurance, provided the policy is not a "master" or
"blanket" hazard insurance policy covering a condominium, or any hazard
insurance policy covering the common facilities of a planned unit development.
The hazard insurance policy is the valid and binding obligation of the insurer
and is in full force and effect. The Borrower has not engaged in, and has no
knowledge of the Mortgagor's having engaged in, any act or omission which would
impair the coverage of any such policy, the benefits of the endorsement provided
for herein, or the validity and binding effect of either including, without
limitation, no unlawful fee, commission, kickback or other unlawful compensation
or value of any kind has been or will be
<PAGE> 62
received, retained or realized by any attorney, firm or other Person, and no
such unlawful items have been received, retained or realized by the Borrower.
(g) Compliance with Applicable Laws. Any and all requirements of
any federal, state or local law including, without limitation, usury,
truth-in-lending, real estate settlement procedures, consumer credit protection,
equal credit opportunity or disclosure laws applicable to the Mortgage Loan have
been complied with, the consummation of the transactions contemplated hereby
will not involve the violation of any such laws or regulations, and the Borrower
shall maintain or shall cause its agent to maintain in its possession, available
for the inspection of the Lender, and shall deliver to the Lender, upon two
Business Days' request, evidence of compliance with all such requirements.
(h) No Satisfaction of Mortgage. The Mortgage has not been
satisfied, canceled, subordinated or rescinded, in whole or in part, and the
Mortgaged Property has not been released from the lien of the Mortgage, in
whole-or in part, nor has any instrument been executed that would effect any
such release, cancellation, subordination or rescission other than in the case
of a release of a portion of the land comprising a Mortgaged Property or a
release of a blanket Mortgage which release will not cause the Mortgage Loan to
fail to satisfy the Underwriting Guidelines. The Borrower has not waived the
performance by the Mortgagor of any action, if the Mortgagor's failure to
perform such action would cause the Mortgage Loan to be in default, nor has the
Borrower waived any default resulting from any action or inaction by the
Mortgagor.
(i) Location and Type of Mortgaged Property. The Mortgaged
Property is located in the state identified in the Mortgage Loan Schedule and
consists of a single parcel of real property with a detached single family
residence erected thereon, or a two-to four-family dwelling, or an individual
condominium unit in a condominium project, or an individual unit in a planned
unit development or a de minimis planned unit development, provided, however,
that any condominium unit or planned unit development shall conform with the
applicable FNMA and FHLMC requirements regarding such dwellings, that a de
minimus percentage of the Mortgage Loans may be Cooperative Loans subject to a
land trust and that no residence or dwelling is a mobile home or a manufactured
dwelling. No portion of the Mortgaged Property is used for commercial purposes.
(j) Valid Lien. The Mortgage is a valid, subsisting, enforceable
and perfected (A) first lien and first priority security interest with respect
to each Mortgage Loan which is indicated by the Borrower to be a First Lien (as
reflected on the Mortgage Loan Data Transmission), or (B) second lien and second
priority security interest with respect to each Mortgage Loan which is indicated
by the Borrower to be a Second Lien (as reflected on the Mortgage Loan Data
Transmission), in either case, on the real property included in the Mortgaged
Property, including all buildings on the Mortgaged Property and all
installations and mechanical, electrical, plumbing, heating and air conditioning
systems located in or annexed to such buildings, and all additions, alterations
and replacements made at any time with respect to the foregoing and with respect
to Cooperative Loans, including the Proprietary Lease and the Cooperative
Shares. The lien of the Mortgage is subject only to:
<PAGE> 63
(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 acceptable to prudent mortgage lending institutions generally
and specifically referred to in the Lender's title insurance policy
delivered to the originator of the Mortgage Loan and (a) referred to or
otherwise considered in the appraisal made for the originator of the
Mortgage Loan or (b) which do not adversely affect the Appraised Value
of the Mortgaged Property 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 the Mortgage or the use, enjoyment, value or
marketability of the related Mortgaged Property; and
(4) with respect to each Mortgage Loan which is indicated by the
Borrower to be a Second Lien Mortgage Loan (as reflected on the Mortgage
Loan Data Transmission) a First Lien on the Mortgaged Property.
Any security agreement, chattel mortgage or equivalent document
related to and delivered in connection with the Mortgage Loan establishes and
creates a valid, subsisting and enforceable (A) first lien and first priority
security interest with respect to each Mortgage Loan which is indicated by the
Borrower to be a First Lien (as reflected on the Mortgage Loan Data
Transmission), or (B) second lien and second priority security interest with
respect to each Mortgage Loan which is indicated by the Borrower to be a Second
Lien Mortgage Loan (as reflected on the Mortgage Loan Data Transmission), in
either case, on the property described therein and the Borrower has full right
to pledge and assign the same to the Lender. The Mortgaged Property was not, as
of the date of origination of the Mortgage Loan, subject to a mortgage, deed of
trust, deed to secure debt or other security instrument creating a lien
subordinate to the lien of the Mortgage.
(k) Validity of Mortgage Documents. The Mortgage Note and the
Mortgage and any other agreement executed and delivered by a Mortgagor or
guarantor, if applicable, in connection with a Mortgage Loan are genuine, and
each is the legal, valid and binding obligation of the maker thereof enforceable
in accordance with its terms. All parties to the Mortgage Note, the Mortgage and
any other such related agreement had legal capacity to enter into the Mortgage
Loan and to execute and deliver the Mortgage Note, the Mortgage and any such
agreement, and the Mortgage Note, the Mortgage and any other such related
agreement have been duly and properly executed by such related parties. No
fraud, error, omission, misrepresentation, negligence or similar occurrence with
respect to a Mortgage Loan has taken placed on the part of any Person,
including, without limitation, the Mortgagor, any appraiser, any builder or
developer, or any other party involved in the origination of the Mortgage Loan.
The Borrower has reviewed all of the documents constituting the Servicing File
and has made such inquiries as it deems necessary to make and confirm the
accuracy of the representations set forth herein.
<PAGE> 64
(l) Full Disbursement of Proceeds. The proceeds of the Mortgage
Loan have been fully disbursed and there is no further requirement for future
advances thereunder, and any and all requirements as to completion of any
on-site or off-site improvement and as to disbursements of any escrow funds
therefor have been complied with. All costs, fees and expenses incurred in
making or closing the Mortgage Loan and the recording of the Mortgage were paid,
and the Mortgagor is not entitled to any refund of any amounts paid or due under
the Mortgage Note or Mortgage.
(m) Ownership. The Borrower is the sole owner and holder of the
Mortgage Loan. All Mortgage Loans acquired by the Borrower from third parties
(including affiliates) were acquired in a true and legal sale pursuant to which
such third party sold, transferred, conveyed and assigned to the Borrower all of
its right, title and interest in, to and under such Mortgage Loan and retained
no interest in such Mortgage Loan. In connection with such sale, such third
party received reasonably equivalent value and fair consideration and, in
accordance with GAAP and for federal income tax purposes, reported the sale of
such Mortgage Loan to the Borrower as a sale of its interests in such Mortgage
Loan. The Mortgage Loan is not assigned or pledged, and the Borrower has good,
indefeasible and marketable title thereto, and has full right to transfer,
pledge and assign the Mortgage Loan to the Lender free and clear of any
encumbrance, equity, participation interest, lien, pledge, charge, claim or
security interest, and has full right and authority subject to no interest or
participation of, or agreement with, any other party, to assign, transfer and
pledge each Mortgage Loan pursuant to this Loan Agreement and following the
pledge of each Mortgage Loan, the Lender will hold such Mortgage Loan free and
clear of any encumbrance, equity, participation interest, lien, pledge, charge,
claim or security interest except any such security interest created pursuant to
the terms of this Loan Agreement.
(n) Doing Business. All parties which have had any interest in
the Mortgage Loan, whether as mortgagee, assignee, pledgee or otherwise, are
(or, during the period in which they held and disposed of such interest, were)
(i) in compliance with any and all applicable licensing requirements of the laws
of the state wherein the Mortgaged Property is located, and (ii) either (A)
organized under the laws of such state, (B) qualified to do business in such
state, (C) a federal savings and loan association, a savings bank or a national
bank having a principal office in such state or (D) not doing business in such
state.
(o) LTV. As of the date of origination of the Mortgage Loan, the
LTV or CLTV (if applicable) are as identified on the Mortgage Loan Data
Transmission.
(p) Title Insurance. The Mortgage Loan is covered by either (i)
an attorney's opinion of title and abstract of title, the form and substance of
which is acceptable to prudent mortgage lending institutions making mortgage
loans in the area wherein the Mortgaged Property is located or (ii) an ALTA
Lender's title insurance policy or other generally acceptable form of policy or
insurance acceptable to FNMA or FHLMC and each such title insurance policy is
issued by a title insurer acceptable to FNMA or FHLMC and qualified to do
business in the jurisdiction where the Mortgaged Property is located, insuring
the Borrower, its successors and assigns, as to the first priority lien of the
Mortgage in the original principal amount of the Mortgage Loan (or to the extent
a Mortgage Note provides for
<PAGE> 65
negative amortization, the maximum amount of negative amortization in accordance
with the Mortgage), subject only to the exceptions contained in clauses (1),
(2), (3) and, with respect to each Mortgage Loan which is indicated by the
Borrower to be a Second Lien Mortgage Loan (as reflected on the Mortgage Loan
Data Transmission) clause (4) of paragraph (j) of this Part I of Schedule 1, and
in the case of adjustable rate Mortgage Loans, against any loss by reason of the
invalidity or unenforceability of the lien resulting from the provisions of the
Mortgage providing for adjustment to the Mortgage Interest Rate and Monthly
Payment. Where required by state law or regulation, the Mortgagor has been given
the opportunity to choose the carrier of the required mortgage title insurance.
Additionally, such Lender's title insurance policy affirmatively insures ingress
and egress and against encroachments by or upon the Mortgaged Property or any
interest therein. The title policy does not contain any special exceptions
(other than the standard exclusions) for zoning and uses and has been marked to
delete the standard survey exception or to replace the standard survey exception
with a specific survey reading. The Borrower, its successors and assigns, are
the sole insureds of such Lender's title insurance policy, and such Lender's
title insurance policy is valid and remains in full force and effect and will be
in force and effect upon the consummation of the transactions contemplated by
this Loan Agreement. No claims have been made under such Lender's title
insurance policy, and no prior holder or servicer of the related Mortgage,
including the Borrower, has done, by act or omission, anything which would
impair the coverage of such Lender's title insurance policy, including, without
limitation, no unlawful fee, commission, kickback or other unlawful compensation
or value of any kind has been or will be received, retained or realized by any
attorney, firm or other Person, and no such unlawful items have been received,
retained or realized by the Borrower.
(q) No Defaults. There is no default, breach, violation or event
of acceleration existing under the Mortgage or the Mortgage Note and no event
has occurred which, with the passage of time or with notice and the expiration
of any grace or cure period, would constitute a default, breach, violation or
event of acceleration, and neither the Borrower nor its predecessors have waived
any default, breach, violation or event of acceleration. With respect to each
Mortgage Loan which is indicated by the Borrower to be a Second Lien Mortgage
Loan (as reflected on the Mortgage Loan Data Transmission) (i) the First Lien is
in full force and effect, (ii) there is no default, breach, violation or event
of acceleration existing under such First Lien mortgage or the related mortgage
note, (iii) no event which, with the passage of time or with notice and the
expiration of any grace or cure period, would constitute a default, breach,
violation or event of acceleration thereunder, and either (A) the First Lien
mortgage contains a provision which allows or (B) applicable law requires, the
mortgagee under the second lien Mortgage Loan to receive notice of, and affords
such mortgagee an opportunity to cure any default by payment in full or
otherwise under the First Lien mortgage.
(r) No Mechanics' Liens. At origination, there were no mechanics'
or similar liens or claims which have been filed for work, labor or material
(and no rights are outstanding that under the law could give rise to such liens)
affecting the Mortgaged Property which are or may be liens prior to, or equal or
coordinate with the lien of the Mortgage.
(s) Location of Improvements: No Encroachments. All improvements
which were considered in determining the Appraised Value of the Mortgaged
Property lie wholly within the boundaries and building restriction lines of the
Mortgaged Property, and no
<PAGE> 66
improvements on adjoining properties encroach upon the Mortgaged Property. No
improvement located on or being part of the Mortgaged Property is in violation
of any applicable zoning and building law, ordinance or regulation.
(t) Origination: Payment Terms. Principal payments on the
Mortgage Loan commenced no more than sixty (60) days after funds were disbursed
in connection with the Mortgage Loan. The Mortgage Interest Rate is adjusted,
with respect to adjustable rate Mortgage Loans, on each Interest Rate Adjustment
Date to equal the Index plus the Gross Margin (rounded up or down to the nearest
.125 %), subject to the Mortgage Interest Rate Cap. The Mortgage Note is payable
on the day set forth in the Mortgage Note in equal monthly installments of
principal and interest, which installments of interest, with respect to
adjustable rate Mortgage Loans, are subject to change due to the adjustments to
the Mortgage Interest Rate on each Interest Rate Adjustment Date, with interest
calculated and payable in arrears, sufficient to amortize the Mortgage Loan
fully by the stated maturity date, over an original term of not more than 30
years from commencement of amortization. The Due Date of the first payment under
the Mortgage Note is no more than 60 days from the date of the Mortgage Note.
(u) Customary Provisions. The Mortgage Note has a stated
maturity. The Mortgage contains customary and enforceable provisions such as to
render the rights and remedies of the holder thereof adequate for the
realization against the Mortgaged Property of the benefits of the security
provided thereby, including, (i) in the case of a Mortgage designated as a deed
of trust, by trustee's sale, and (ii) otherwise by judicial foreclosure. Upon
default by a Mortgagor on a Mortgage Loan and foreclosure on, or trustee's sale
of, the Mortgaged Property pursuant to the proper procedures, the holder of the
Mortgage Loan will be able to deliver good and merchantable title to the
Mortgaged Property. There is no homestead or other exemption available to a
Mortgagor which would interfere with the right to sell the Mortgaged Property at
a trustee's sale or the right to foreclose the Mortgage.
(v) Conformance with Underwriting Guidelines and Agency
Standards. The Mortgage Loan was underwritten in accordance with the applicable
Underwriting Guidelines. The Mortgage Note and Mortgage are on forms similar to
those used by FHLMC or FNMA, or, on such forms, copies of which have been
delivered to the Lender, which are customary in the mortgage origination and
servicing industry and the Borrower has not made any representations to a
Mortgagor that are inconsistent with the mortgage instruments used.
(w) Occupancy of the Mortgaged Property. As of the Funding Date
the Mortgaged Property is either vacant or lawfully occupied under applicable
law. All inspections, licenses and certificates required to be made or issued
with respect to all occupied portions of the Mortgaged Property and, with
respect to the use and occupancy of the same, including but not limited to
certificates of occupancy and fire underwriting certificates, have been made or
obtained from the appropriate authorities. The Borrower has not received written
notification from any governmental authority that the Mortgaged Property is in
material non-compliance with such laws or regulations, is being used, operated
or occupied unlawfully or has failed to have or obtain such inspection, licenses
or certificates, as the case may be. The Borrower has not received notice of any
violation or failure to conform with any such law,
<PAGE> 67
ordinance, regulation, standard, license or certificate. Except as otherwise set
forth in the Mortgage Loan Data Transmission, the Mortgagor represented at the
time of origination of the Mortgage Loan that the Mortgagor would occupy the
Mortgaged Property as the Mortgagor's primary residence.
(x) No Additional Collateral. The Mortgage Note is not and has
not been secured by any collateral except the lien of the corresponding Mortgage
and the security interest of any applicable security agreement or chattel
mortgage referred to in clause (j) above.
(y) Deeds of Trust. In the event the Mortgage constitutes a deed
of trust, a trustee, authorized and duly qualified under applicable law to serve
as such, has been properly designated and currently so serves and is named in
the Mortgage, and no fees or expenses are or will become payable by the
Custodian or the Lender to the trustee under the deed of trust, except in
connection with a trustee's sale after default by the Mortgagor.
(z) Delivery of Mortgage Documents. The Mortgage Note, the
Mortgage, the Assignment of Mortgage and any other documents required to be
delivered under the Custodial Agreement for each Mortgage Loan have been
delivered to the Custodian. The Borrower or its agent is in possession of a
complete, true and materially accurate Mortgage File in compliance with the
Custodial Agreement, except for such documents the originals of which have been
delivered to the Custodian.
(aa) Transfer of Mortgage Loans. The Assignment of Mortgage is in
recordable form and is acceptable for recording under the laws of the
jurisdiction in which the Mortgaged Property is located.
(bb) Due-On-Sale. The Mortgage contains an enforceable provision
for the acceleration of the payment of the unpaid principal balance of the
Mortgage Loan in the event that the Mortgaged Property is sold or transferred
without the prior written consent of the mortgagee thereunder.
(cc) No Buydown Provisions: No Graduated Payments or Contingent
Interests. The Mortgage Loan does not contain provisions pursuant to which
Monthly Payments are paid or partially paid with funds deposited in any separate
account established by the Borrower, the Mortgagor, or anyone on behalf of the
Mortgagor, or paid by any source other than the Mortgagor nor does it contain
any other similar provisions which may constitute a "buydown" provision. The
Mortgage Loan is not a graduated payment mortgage loan and the Mortgage Loan
does not have a shared appreciation or other contingent interest feature.
(dd) Consolidation of Future Advances. Any future advances made
to the Mortgagor prior to the origination of the Mortgage Loan have been
consolidated with the outstanding principal amount secured by the Mortgage, and
the secured principal amount, as consolidated, bears a single interest rate and
single repayment term. The lien of the Mortgage securing the consolidated
principal amount is expressly insured as having (A) first lien priority with
respect to each Mortgage Loan which is indicated by the Borrower to be a First
Lien (as reflected on the Mortgage Loan Data Transmission), or (B) second lien
priority with respect to
<PAGE> 68
each Mortgage Loan which is indicated by the Borrower to be a Second Lien
Mortgage Loan (as reflected on the Mortgage Loan Data Transmission), in either
case, by a title insurance policy, an endorsement to the policy insuring the
mortgagee's consolidated interest or by other title evidence acceptable to FNMA
and FHLMC. The consolidated principal amount does not exceed the original
principal amount of the Mortgage Loan.
(ee) Mortgaged Property Undamaged. The Mortgaged Property (and
with respect to any Cooperative Loan, the Cooperative Unit) is undamaged by
waste, fire, earthquake or earth movement, windstorm, flood, tornado or other
casualty so as to affect adversely the value of the Mortgaged Property as
security for the Mortgage Loan or the use for which the premises were intended
and each Mortgaged Property is in good repair. There have not been any
condemnation proceedings with respect to the Mortgaged Property and the Borrower
has no knowledge of any such proceedings.
(ff) Collection Practices: Escrow Deposits: Interest Rate
Adjustments. The origination and collection practices used by the originator,
each servicer of the Mortgage Loan and the Borrower with respect to the Mortgage
Loan have been in all material respects in compliance with Accepted Servicing
Practices, applicable laws and regulations, and have been in all respects legal
and proper. With respect to escrow deposits and Escrow Payments (other than with
respect to each Mortgage Loan which is indicated by the Borrower to be a Second
Lien Mortgage Loan and for which the mortgagee under the First Lien is
collecting Escrow Payments (as reflected on the Mortgage Loan Data
Transmission), all such payments are in the possession of, or under the control
of, the Borrower and there exist no deficiencies in connection therewith for
which customary arrangements for repayment thereof have not been made. All
Escrow Payments have been collected in full compliance with state and federal
law. An escrow of funds is not prohibited by applicable law and has been
established in an amount sufficient to pay for every item that remains unpaid
and has been assessed but is not yet due and payable. No escrow deposits or
Escrow Payments or other charges or payments due the Borrower have been
capitalized under the Mortgage or the Mortgage Note. All Mortgage Interest Rate
adjustments have been made in strict compliance with state and federal law and
the terms of the related Mortgage Note. Any interest required to be paid
pursuant to state, federal and local law has been properly paid and credited.
(gg) Conversion to Fixed Interest Rate. With respect to
adjustable rate Mortgage Loans, the Mortgage Loan is not convertible to a fixed
interest rate Mortgage Loan.
(hh) Other Insurance Policies. No action, inaction or event has
occurred and no state of facts exists or has existed that has resulted or will
result in the exclusion from, denial of, or defense to coverage under any
applicable special hazard insurance policy, PMI Policy or bankruptcy bond,
irrespective of the cause of such failure of coverage. In connection with the
placement of any such insurance, no commission, fee, or other compensation has
been or will be received by the Borrower or by any officer, director, or
employee of the Borrower or any designee of the Borrower or any corporation in
which the Borrower or any officer, director, or employee had a financial
interest at the time of placement of such insurance.
<PAGE> 69
(ii) Soldiers' and Sailors' Civil Relief Act. The Mortgagor has
not notified the Borrower, and the Borrower has no knowledge, of any relief
requested or allowed to the Mortgagor under the Soldiers' and Sailors' Civil
Relief Act of 1940.
(jj) Appraisal. The Mortgage File contains an appraisal of the
related Mortgaged Property signed prior to the approval of the Mortgage Loan
application by a qualified appraiser, duly appointed by the Borrower or the
Qualified Originator, who had no interest, direct or indirect in the Mortgaged
Property or in any loan made on the security thereof, and whose compensation is
not affected by the approval or disapproval of the Mortgage Loan, and the
appraisal and appraiser both satisfy the requirements of FNMA or FHLMC and Title
XI of the Federal Institutions Reform, Recovery, and Enforcement Act of 1989 as
amended and the regulations promulgated thereunder, all as in effect on the date
the Mortgage Loan was originated.
(kk) Disclosure Materials. The Mortgagor has executed a statement
to the effect that the Mortgagor has received all disclosure materials required
by applicable law with respect to the making of adjustable rate mortgage loans,
and the Borrower maintains such statement in the Mortgage File.
(ll) Construction or Rehabilitation of Mortgaged Property. No
Mortgage Loan was made in connection with the construction or rehabilitation of
a Mortgaged Property or facilitating the trade-in or exchange of a Mortgaged
Property.
(mm) No Defense to Insurance Coverage. No action has been taken
or failed to be taken, no event has occurred and no state of facts exists or has
existed on or prior to the Funding Date (whether or not known to the Borrower on
or prior to such date) which has resulted or will result in an exclusion from,
denial of, or defense to coverage under any private mortgage insurance
(including, without limitation, any exclusions, denials or defenses which would
limit or reduce the availability of the timely payment of the full amount of the
loss otherwise due thereunder to the insured) whether arising out of actions,
representations, errors, omissions, negligence, or fraud of the Borrower, the
related Mortgagor or any party involved in the application for such coverage,
including the appraisal, plans and specifications and other exhibits or
documents submitted therewith to the insurer under such insurance policy, or for
any other reason under such coverage, but not including the failure of such
insurer to pay by reason of such insurer's breach of such insurance policy or
such insurer's financial inability to pay.
(nn) Capitalization of Interest. The Mortgage Note does not by
its terms provide for the capitalization or forbearance of interest.
(oo) No Equity Participation. No document relating to the
Mortgage Loan provides for any contingent or additional interest in the form of
participation in the cash flow of the Mortgaged Property or a sharing in the
appreciation of the value of the Mortgaged Property. The indebtedness evidenced
by the Mortgage Note is not convertible to an ownership interest in the
Mortgaged Property or the Mortgagor and the Borrower has not financed nor does
it own directly or indirectly, any equity of any form in the Mortgaged Property
or the Mortgagor.
<PAGE> 70
(pp) Withdrawn Mortgage Loans. If the Mortgage Loan has been
released to the Borrower pursuant to a Request for Release as permitted under
Section 5 of the Custodial Agreement, then the promissory note relating to the
Mortgage Loan was returned to the Custodian within 10 days (or if such tenth day
was not a Business Day, the next succeeding Business Day).
(qq) No Exception. Other than as noted by the Custodian on the
Exception Report; no Material Exception exists (as defined in the Custodial
Agreement) with respect to the Mortgage Loan which would materially adversely
affect the Mortgage Loan or the Lender's security interest, granted by the
Borrower, in the Mortgage Loan as determined by the Lender in its sole
discretion.
(rr) Qualified Originator. The Mortgage Loan has been originated
by, and, if applicable, purchased by the Borrower from, a Qualified Originator.
No Mortgage Loan was originated by First Alliance.
(ss) Mortgage Submitted for Recordation. The Mortgage has been
submitted for recordation in the appropriate governmental recording office of
the jurisdiction where the Mortgaged Property is located.
(tt) First Lien Consent. With respect to each Mortgage Loan which
is a Second Lien, (i) if the related first lien provides for negative
amortization, the LTV was calculated at the maximum principal balance of such
first lien that could result upon application of such negative amortization
feature, and (ii) either no consent for the Mortgage Loan is required by the
holder of the first lien or such consent has been obtained and is contained in
the Mortgage File.
(uu) Acceptable Investment. No specific circumstances or
conditions exist with respect to the Mortgage, the Mortgaged Property or the
Mortgagor, other than the Mortgagor's credit standing, that should reasonably be
expected to (i) cause private institutional investors which invest in Mortgage
Loans similar to the Mortgage Loan to regard the Mortgage Loan as an
unacceptable investment, (ii) cause the Mortgage Loan to be more likely to
become past due in comparison to similar Mortgage Loans, or (iii) adversely
affect the value or marketability of the Mortgage Loan in comparison to similar
Mortgage Loans;
(vv) Environmental Matters. The Mortgaged Property is free from
any and all toxic or hazardous substances and there exists no violation of any
local, state or federal environmental law, rule or regulation;
(ww) Ground Leases. With respect to each ground lease to which
the Mortgaged Property is subject (a "Ground Lease"): (i) the Mortgagor is the
owner of a valid and subsisting interest as tenant under the Ground Lease; (ii)
the Ground Lease is in full force and effect, unmodified and not supplemented by
any writing or otherwise; (iii) all rent, additional rent and other charges
reserved therein have been paid to the extent they are payable to the date
hereof; (iv) the Mortgagor enjoys the quiet and peaceful possession of the
estate
<PAGE> 71
demised thereby, subject to any sublease; (v) the Mortgagor is not in default
under any of the terms thereof and there are no circumstances which, with the
passage of time or the giving of notice or both, would constitute an event of
default thereunder; (vii) the lessor under the Ground Lease is not in default
under any of the terms or provisions thereof on the part of the lessor to be
observed or performed; (vii) the lessor under the Ground Lease has satisfied all
of its repair or construction obligations, if any, to date pursuant to the terms
of the Ground Lease; and (ix) the execution, delivery and performance of the
Mortgage do not require the consent (other than those consents which have been
obtained and are in full force and effect) under, and will not contravene any
provision of or cause a default under, the Ground Lease.
(xx) Value of Mortgage Property. The Borrower has no knowledge of
any circumstances existing, other than the Mortgagor's credit standing, that
should reasonably be expected to adversely affect the value or the marketability
of the Mortgaged Property or the Mortgage Loan or to cause the Mortgage Loan to
prepay during any period materially faster or slower than the Mortgage Loans
originated by the Borrower generally; and
(yy) Section 32 Mortgages; Overages. The Borrower has provided
the related Mortgagor with all disclosure materials required by Section 226.32
of the Federal Reserve Board Regulation Z with respect to any Mortgage Loans
subject to such Section of the Federal Reserve Board Regulation Z. The Borrower
has not made or caused to be made any payment in the nature of an "overage" or
"yield spread premium" to a mortgage broker or like Person which has not been
fully disclosed to the Mortgagor.
(zz) Cooperative Loans. With respect to each Cooperative Loan,
each original UCC financing statement, continuation statement or other
governmental filing or recordation necessary to create or preserve the
perfection and priority of the first priority lien and security interest in the
Cooperative Shares and Proprietary Lease has been timely and properly made. Any
security agreement, chattel mortgage or equivalent document related to the
Cooperative Loan and delivered to the Borrower or its designee establishes in
the Borrower a valid and subsisting perfected first lien on and security
interest in the Mortgaged Property described therein, and the Borrower has full
right to sell and assign the same
<PAGE> 72
SCHEDULE 2
<PAGE> 73
SCHEDULE 3
<PAGE> 74
SCHEDULE 4
<PAGE> 75
EXHIBIT A
[FORM OF PROMISSORY NOTE]
$______________
__, 1999
New York, New York
FOR VALUE RECEIVED, AAMES CAPITAL CORPORATION, a California
corporation (the "Borrower"), hereby promises to pay to the order of GREENWICH
CAPITAL FINANCIAL PRODUCTS, INC. (the "Lender"), at the principal office of the
Lender at 600 Steamboat Road, Greenwich, Connecticut 06830, in lawful money of
the United States, and in immediately available funds, the principal sum of
[_____________________________] ($___________) (or such lesser amount as shall
equal the aggregate unpaid principal amount of the Advances made by the Lender
to the Borrower under the Loan Agreement), on the dates and in the principal
amounts provided in the Loan Agreement, and to pay interest on the unpaid
principal amount of each such Advance, at such office, in like money and funds,
for the period commencing on the date of such Advance until such Advance shall
be paid in full, at the rates per annum and on the dates provided in the Loan
Agreement.
The date, amount and interest rate of each Advance made by the
Lender to the Borrower, and each payment made on account of the principal
thereof, shall be recorded by the Lender on its books and, prior to any transfer
of this Note, endorsed by the Lender on the schedule attached hereto or any
continuation thereof; provided, that the failure of the Lender to make any such
recordation or endorsement shall not affect the obligations of the Borrower to
make a payment when due of any amount owing under the Loan Agreement or
hereunder in respect of the Advances made by the Lender.
This Note is the Note referred to in the Master Loan and Security
Agreement dated as of February 10, 1999 (as amended, supplemented or otherwise
modified and in effect from time to time, the "Loan Agreement") between the
Borrower, and the Lender, and evidences Advances made by the Lender thereunder.
Terms used but not defined in this Note have the respective meanings assigned to
them in the Loan Agreement.
The Borrower agrees to pay all the Lender's costs of collection
and enforcement (including reasonable attorneys' fees and disbursements of
Lender's counsel) in respect of this Note when incurred, including, without
limitation, reasonable attorneys' fees through appellate proceedings.
Notwithstanding the pledge of the Collateral, the Borrower hereby
acknowledges, admits and agrees that the Borrower's obligations under this Note
are recourse obligations of the Borrower to which the Borrower pledges its full
faith and credit.
The Borrower, and any indorsers or guarantors hereof, (a)
severally waive diligence, presentment, protest and demand and also notice of
protest, demand, dishonor and
<PAGE> 76
nonpayments of this Note, (b) expressly agree that this Note, or any payment
hereunder, may be extended from time to time, and consent to the acceptance of
further Collateral, the release of any Collateral for this Note, the release of
any party primarily or secondarily liable hereon, and (c) expressly agree that
it will not be necessary for the Lender, in order to enforce payment of this
Note, to first institute or exhaust the Lender's remedies against the Borrower
or any other party liable hereon or against any Collateral for this Note. No
extension of time for the payment of this Note, or any installment hereof, made
by agreement by the Lender with any person now or hereafter liable for the
payment of this Note, shall affect the liability under this Note of the
Borrower, even if the Borrower is not a party to such agreement; provided,
however, that the Lender and the Borrower, by written agreement between them,
may affect the liability of the Borrower.
Any reference herein to the Lender shall be deemed to include and
apply to every subsequent holder of this Note. Reference is made to the Loan
Agreement for provisions concerning optional and mandatory prepayments,
Collateral, acceleration and other material terms affecting this Note.
Any enforcement action relating to this Note may be brought by
motion for summary judgment in lieu of a complaint pursuant to Section 3213 of
the New York Civil Practice Law and Rules. The Borrower hereby submits to New
York jurisdiction with respect to any action brought with respect to this Note
and waives any right with respect to the doctrine of forum non conveniens with
respect to such transactions.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF
THE STATE OF NEW YORK (WITHOUT REFERENCE TO CHOICE OF LAW DOCTRINE BUT WITH
REFERENCE TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW, WHICH BY
ITS TERMS APPLIES TO THIS NOTE) WHOSE LAWS THE BORROWER EXPRESSLY ELECTS TO
APPLY TO THIS NOTE. THE BORROWER AGREES THAT ANY ACTION OR PROCEEDING BROUGHT TO
ENFORCE OR ARISING OUT OF THIS NOTE MAY BE COMMENCED IN THE SUPREME COURT OF THE
STATE OF NEW YORK, BOROUGH OF MANHATTAN, OR IN THE DISTRICT COURT OF THE UNITED
STATES FOR THE SOUTHERN DISTRICT OF NEW YORK.
-----------------------------------------
By:
Name:
Title:
<PAGE> 77
SCHEDULE OF LOANS
This Note evidences Advances made under the within-described Loan
Agreement to the Borrower, on the dates, in the principal amounts and bearing
interest at the rates set forth below, and subject to the payments and
prepayments of principal set forth below:
<TABLE>
<CAPTION>
- ------------------ ------------------ ----------------- ------------------- -------------------
Principal Amount Amount Paid Unpaid Principal Notation
Date Made of Loan or Prepaid Amount Made by
- ------------------ ------------------ ----------------- ------------------- -------------------
<S> <C> <C> <C> <C>
- ------------------ ------------------ ----------------- ------------------- -------------------
- ------------------ ------------------ ----------------- ------------------- -------------------
- ------------------ ------------------ ----------------- ------------------- -------------------
- ------------------ ------------------ ----------------- ------------------- -------------------
- ------------------ ------------------ ----------------- ------------------- -------------------
- ------------------ ------------------ ----------------- ------------------- -------------------
- ------------------ ------------------ ----------------- ------------------- -------------------
- ------------------ ------------------ ----------------- ------------------- -------------------
- ------------------ ------------------ ----------------- ------------------- -------------------
- ------------------ ------------------ ----------------- ------------------- -------------------
- ------------------ ------------------ ----------------- ------------------- -------------------
- ------------------ ------------------ ----------------- ------------------- -------------------
- ------------------ ------------------ ----------------- ------------------- -------------------
- ------------------ ------------------ ----------------- ------------------- -------------------
- ------------------ ------------------ ----------------- ------------------- -------------------
- ------------------ ------------------ ----------------- ------------------- -------------------
- ------------------ ------------------ ----------------- ------------------- -------------------
- ------------------ ------------------ ----------------- ------------------- -------------------
- ------------------ ------------------ ----------------- ------------------- -------------------
- ------------------ ------------------ ----------------- ------------------- -------------------
</TABLE>
<PAGE> 78
EXHIBIT B
FORM OF CUSTODIAL AGREEMENT
<PAGE> 79
EXHIBIT C
[FORM OF OPINION OF COUNSEL TO THE BORROWER]
(date)
Greenwich Capital Financial Products, Inc.
600 Steamboat Road
Greenwich, Connecticut 06830
Dear Sirs and Mesdames:
You have requested [our] [my] opinion, as counsel to Aames Capital
Corporation, a California corporation, (the "Borrower"), with respect to certain
matters in connection with that certain Master Loan and Security Agreement,
dated as of February 10, 1999 (the "Loan and Security Agreement"), by and
between the Borrower and Greenwich Capital Financial Products, Inc. (the
"Lender"), being executed contemporaneously with a Promissory Note dated
February 10, 1999 from the Borrower to the Lender (the "Note"), a Custodial
Agreement, dated as of February 10, 1999 (the "Custodial Agreement"), by and
among the Borrower, Bankers Trust Company (the "Custodian"), and the Lender.
Capitalized terms not otherwise defined herein have the meanings set forth in
the Loan and Security Agreement.
[We] [I] have examined the following documents:
1. the Loan and Security Agreement;
2. the Note;
3. the Custodial Agreement;
4. the Guaranty executed by Aames Financial Corporation;
5. unfiled copies of the financing statements listed on Schedule 1
(collectively, the "Financing Statements") naming the Borrower
as Debtor and the Lender as Secured Party and describing the
Collateral (as defined in the Loan and Security Agreement) as to
which security interests may be perfected by filing under the
Uniform Commercial Code of the States listed on Schedule 1 (the
"Filing Collateral"), which I understand will be filed in the
filing offices listed on Schedule 1 (the "Filing Offices");
6. the reports listed on Schedule 2 as to UCC financing statements
(collectively, the "UCC Search Report"); and
<PAGE> 80
7. such other documents, records and papers as we have deemed
necessary and relevant as a basis for this opinion.
To the extent [we] [I] have deemed necessary and proper, [we] [I] have
relied upon the representations and warranties of the Borrower contained in the
Loan and Security Agreement. [We] [I] have assumed the authenticity of all
documents submitted to me as originals, the genuineness of all signatures, the
legal capacity of natural persons and the conformity to the originals of all
documents.
Based upon the foregoing, it is [our] [my] opinion that:
1. The Borrower and the Guarantor are each corporations duly organized,
validly existing and in good standing under the laws of the state of
[state] and is qualified to transact business in, duly licensed and in
the case of the Borrower is in good standing under, the laws of each
state in which any Mortgaged Property is located to the extent necessary
to ensure the enforceability of each Mortgage Loan and the servicing of
each Mortgage Loan pursuant to the Loan and Security Agreement.
2. The Borrower and the Guarantor each have the corporate power to
engage in the transactions contemplated by the Loan and Security
Agreement, the Note, the Guaranty and the Custodial Agreement and all
requisite corporate power, authority and legal right to execute and
deliver the Loan and Security Agreement, the Note, the Guaranty and the
Custodial Agreement and observe the terms and conditions of such
instruments. The Borrower has all requisite corporate power to borrow
under the Loan and Security Agreement and to grant a security interest
in the Collateral pursuant to the Loan and Security Agreement.
3. The execution, delivery and performance by the Borrower of the Loan
and Security Agreement, the Note, and the Custodial Agreement, and the
borrowings by the Borrower and the pledge of the Collateral under the
Loan and Security Agreement and the execution of the Guaranty by the
Guarantor have been duly authorized by all necessary corporate action on
the part of the Borrower. Each of the Loan and Security Agreement, the
Note, the Guaranty and the Custodial Agreement have been executed and
delivered by the Borrower or the Guarantor, as the case may be, and are
legal, valid and binding agreements enforceable in accordance with their
respective terms against the Borrower or the Guarantor, subject to
bankruptcy laws and other similar laws of general application affecting
rights of creditors and subject to the application of the rules of
equity, including those respecting the availability of specific
performance, none of which will materially interfere with the
realization of the benefits provided thereunder or with the Lender's
security interest in the Mortgage Loans.
4. No consent, approval, authorization or order of, and no filing or
registration with, any court or governmental agency or regulatory body
is required on the part of the Borrower for the execution, delivery or
performance by the Borrower of the Loan and Security Agreement, the Note
and the Custodial Agreement or for the borrowings by the Borrower under
the Loan and Security Agreement or the granting of a security interest
to the Lender in the Collateral, pursuant to the Loan and Security
Agreement.
<PAGE> 81
5. The execution, delivery and performance by the Borrower or the
Guarantor of, and the consummation of the transactions contemplated by,
the Loan and Security Agreement, the Note, the Guaranty and the
Custodial Agreement do not and will not (a) violate any provision of the
Borrower's or the Guarantor's charter or by-laws, (b) violate any
applicable law, rule or regulation, (c) violate any order, writ,
injunction or decree of any court or governmental authority or agency or
any arbitral award applicable to the Borrower or the Guarantor of which
I have knowledge (after due inquiry) or (d) result in a breach of,
constitute a default under, require any consent under, or result in the
acceleration or required prepayment of any indebtedness pursuant to the
terms of, any agreement or instrument of which I have knowledge (after
due inquiry) to which the Borrower or the Guarantor is a party or by
which it is bound or to which it is subject, or (except for the Liens
created pursuant to the Loan and Security Agreement) result in the
creation or imposition of any Lien upon any Property of the Borrower
pursuant to the terms of any such agreement or instrument.
6. There is no action, suit, proceeding or investigation pending or, to
the best of [our] [my] knowledge, threatened against the Borrower or the
Guarantor which, in [our] [my] judgment, either in any one instance or
in the aggregate, would be reasonably likely to result in any material
adverse change in the properties, business or financial condition, or
prospects of the Borrower or the Guarantor or in any material impairment
of the right or ability of the Borrower or the Guarantor to carry on its
business substantially as now conducted or in any material liability on
the part of the Borrower or which would draw into question the validity
of the Loan and Security Agreement, the Note, the Guaranty the Custodial
Agreement or the Mortgage Loans or of any action taken or to be taken in
connection with the transactions contemplated thereby, or which would be
reasonably likely to impair materially the ability of the Borrower or
the Guarantor to perform under the terms of the Loan and Security
Agreement, the Note, the Guaranty, the Custodial Agreement or the
Mortgage Loans.
7. The Loan and Security Agreement is effective to create, in favor of
the Lender, a valid security interest under the Uniform Commercial Code
in all of the right, title and interest of the Borrower in, to and under
the Collateral as collateral security for the payment of the Secured
Obligations (as defined in the Loan and Security Agreement), except that
(a) such security interests will continue in Collateral after its sale,
exchange or other disposition only to the extent provided in Section
9-306 of the Uniform Commercial Code, (b) the security interests in
Collateral in which the Borrower acquires rights after the commencement
of a case under the Bankruptcy Code in respect of the Borrower may be
limited by Section 552 of the Bankruptcy Code.
8. When the Mortgage Notes are delivered to the Custodian, endorsed in
blank by a duly authorized officer of the Borrower, the security
interest referred to in paragraph 7 above in the Mortgage Notes will
constitute a fully perfected first priority security interest in all
right, title and interest of the Borrower therein, in the Mortgage Loan
evidenced thereby and in the Borrower's interest in the related
Mortgaged Property.
<PAGE> 82
9. (a) Upon the filing of financing statements on Form UCC-1 naming the
Lender as "Secured Party" and the Borrower as "Debtor", and describing
the Collateral, in the jurisdictions and recording offices listed on
Schedule 1 attached hereto, the security interests referred to in
paragraph 8 above will constitute fully perfected security interests
under the Uniform Commercial Code in all right, title and interest of
the Borrower in, to and under such Collateral, which can be perfected by
filing under the Uniform Commercial Code.
(b) The UCC Search Report sets forth the proper filing offices
and the proper debtors necessary to identify those Persons who have on
file in the jurisdictions listed on Schedule 1 financing statements
covering the Filing Collateral as of the dates and times specified on
Schedule 2. Except for the matters listed on Schedule 2, the UCC Search
Report identifies no Person who has filed in any Filing Office a
financing statement describing the Filing Collateral prior to the
effective dates of the UCC Search Report.
10. The Assignments of Mortgage are in recordable form, except for the
insertion of the name of the assignee, and upon the name of the assignee
being inserted, are acceptable for recording under the laws of the state
where each related Mortgaged Property is located.
11. The Borrower is duly registered as a [____________] in each state in
which Mortgage Loans were originated to the extent such registration is
required by applicable law, and has obtained all other licenses and
governmental approvals in each jurisdiction to the extent that the
failure to obtain such licenses and approvals would render any Mortgage
Loan unenforceable or would materially and adversely affect the ability
of the Borrower to perform any of its obligations under, or the
enforceability of, the Loan Documents.
12. Assuming that all other elements necessary to render a Mortgage Loan
legal, valid, binding and enforceable were present in connection with
the execution, delivery and performance of each Mortgage Loan (including
completion of the entire Mortgage Loan fully, accurately and in
compliance with all applicable laws, rules and regulations) and assuming
further that no action was taken in connection with the execution,
delivery and performance of each Mortgage Loan (including in connection
with the sale of the related Mortgaged Property) that would give rise to
a defense to the legality, validity, binding effect and enforceability
of such Mortgage Loan, nothing in the forms of such Mortgage Loans, as
attached hereto as Exhibit A, would render such Mortgage Loans other
than legal, valid, binding and enforceable.
13. Assuming their validity, binding effect and enforceability in all
other respects (including completion of the entire Mortgage Loan fully,
accurately and in compliance with all applicable laws, rules and
regulations), the forms of Mortgage Loans attached hereto as Exhibit A
are in sufficient compliance with ________ law and Federal consumer
protection laws so as not to be rendered void or voidable at the
election of the Mortgagor thereunder.
<PAGE> 83
Very truly yours,
<PAGE> 84
EXHIBIT D
FORM OF NOTICE OF BORROWING AND PLEDGE
[insert date]
Greenwich Capital Financial Products, Inc.
600 Steamboat Road
Greenwich, Connecticut 06830
Attention: _______________________
Notice of Borrowing and Pledge No.:_____________________
Ladies/Gentlemen:
Reference is made to the Master Loan and Security Agreement,
dated as of February 10, 199 (the "Loan Agreement"; capitalized terms used but
not otherwise defined herein shall have the meaning given them in the Loan
Agreement), between Aames Capital Corporation (the "Borrower") and Greenwich
Capital Financial Products, Inc. (the "Lender").
In accordance with Section 2.03(a) of the Loan Agreement, the
undersigned Borrower hereby requests that you, the Lender, make Advances to us
in connection with our deliver of Mortgage Loans on ____________________ [insert
requested Funding Date, which must be at least two (2) Business Days following
the date of the request], in connection with which we shall pledge to you as
Collateral the Mortgage Loans (along with all previous pledges defined as
Eligible Mortgage Loans for such date) set forth on the Mortgage Loan Schedule
attached hereto.
The Borrower hereby certifies, as of such Funding Date, that:
(a) no Default or Event of Default has occurred and is continuing
on the date hereof nor will occur after giving effect to such Advance as
a result of such Advance;
(b) each of the representations and warranties made by the
Borrower in or pursuant to the Loan Documents is true and correct in all
material respects on and as of such date (in the case of the
representations and warranties in respect of Mortgage Loans, solely with
respect to Mortgage Loans being included the Borrowing Base on the
Funding Date) as if made on and as of the date hereof (or, if any such
representation or warranty is expressly stated to have been made as of a
specific date, as of such specific date);
<PAGE> 85
(c) the Borrower is in compliance with all governmental licenses
and authorizations and is qualified to do business and is in good
standing in all required jurisdictions; and
(d) the Borrower has satisfied all conditions precedent in
Section 5.02 of the Loan Agreement and all other requirements of the
Loan Agreement.
The undersigned duly authorized officer of Borrower further represents
and warrants that (1) the documents constituting the Custodial File (as defined
in the Custodial Agreement) with respect to the Mortgage Loans that are the
subject of the Advance requested herein and more specifically identified on the
mortgage loan schedule or computer readable magnetic transmission delivered to
both the Lender and the Custodian in connection herewith (the "Receipted
Mortgage Loans") have been or are hereby submitted to Custodian and such
Required Documents are to be held by the Custodian subject to Lender's first
priority security interest thereon, (2) all other documents related to such
Receipted Mortgage Loans (including, but not limited to, mortgages, insurance
policies, loan applications and appraisals) have been or will be created and
held by Borrower in trust for Lender, (3) all documents related to such
Receipted Mortgage Loans withdrawn from Custodian shall be held in trust by
Borrower for Lender, and Borrower will not attempt to pledge, hypothecate or
otherwise transfer such Receipted Mortgage Loans to any other party until the
Advance to which such Receipted Mortgage Loans are related has been paid in full
by Borrower and (4) Borrower has granted a first priority perfected security
interest in and lien on the Receipted Mortgage Loans.
Borrower hereby represents and warrants that (x) the Receipted Mortgage Loans
have an unpaid principal balance as of the date hereof of $__________ and (y)
the number of Receipted Mortgage Loans is ______.
Very truly yours,
By:________________________________
Name:
Title:
<PAGE> 86
SCHEDULE I
TO NOTICE OF BORROWING AND PLEDGE
[MORTGAGE LOANS PROPOSED TO BE PLEDGED
TO LENDER ON FUNDING DATE]
[attach Mortgage Loan Schedule]
<PAGE> 87
EXHIBIT E
UNDERWRITING GUIDELINES
[TO BE PROVIDED BY BORROWER]
<PAGE> 88
EXHIBIT F
REQUIRED FIELDS FOR SERVICING TRANSMISSION
[TO BE PROVIDED BY LENDER]
<PAGE> 89
EXHIBIT G
REQUIRED FIELDS FOR MORTGAGE LOAN DATA TRANSMISSION
[TO BE PROVIDED BY LENDER]
<PAGE> 90
EXHIBIT H
FORM OF BORROWING BASE CERTIFICATE
[TO BE PROVIDED BY LENDER ]
<PAGE> 91
EXHIBIT I
FORM OF CONFIDENTIALITY
AGREEMENT
In connection with your consideration of a possible or actual
acquisition of a participating interest (the "Transaction") in an advance, note
or commitment of Greenwich Capital Financial Products, Inc. ("Greenwich")
pursuant to a Master Loan and Security Agreement between Greenwich and Aames
Capital Corporation (the "Borrower"") dated February 10, 1999, you have
requested the right to review certain non-public information regarding the
Borrower that is in the possession of Greenwich. In consideration of, and as a
condition to, furnishing you with such information and any other information
(whether communicated in writing or communicated orally) delivered to you by
Greenwich or its affiliates, directors, officers, employees, advisors, agents or
"controlling persons" (within the meaning of the Securities Exchange Act of
1934, as amended (the "1934 Act")) (such affiliates and other persons being
herein referred to collectively as Greenwich "Representatives") in connection
with the consideration of a Transaction (such information being herein referred
to as "Evaluation Material"), Greenwich hereby requests your agreement as
follows:
1. The Evaluation Material will be used solely for the purpose of
evaluating a possible Transaction with Greenwich involving you
or your affiliates, and unless and until you have completed such
Transaction pursuant to a definitive agreement between you or
any such affiliate and Greenwich, such Evaluation Material will
be kept strictly confidential by you and your affiliates,
directors, officers, employees, advisors, agents or controlling
persons (such affiliates and other persons being herein referred
to collectively as "your Representatives"), except that the
Evaluation Material or portions thereof may be disclosed to
those of your Representatives who need to know such information
for the purpose of evaluating a possible Transaction with
Greenwich (it being understood that prior to such disclosure
your Representatives will be informed of the confidential nature
of the Evaluation Material and shall agree to be bound by this
Agreement). You agree to be responsible for any breach of this
Agreement by your Representatives.
2. The term "Evaluation Material" does not include any information
which (i) at the time of disclosure or thereafter is generally
known by the public (other than as a result of its disclosure by
you or your Representatives) or (ii) was or becomes available to
you on a nonconfidential basis from a person not otherwise bound
by a confidential agreement with Greenwich or its
Representatives or is not otherwise prohibited from transmitting
the information to you. As used in this Agreement, the term
"person" shall be broadly interpreted to include, without
limitation, any corporation, company, joint venture, partnership
or individual.
3. In the event that you receive a request to disclose all or any
part of the information contained in the Evaluation Material
under the terms of a valid and effective subpoena or order
issued by a court of competent jurisdiction, you agree to (i)
immediately notify Greenwich and the Borrower of the existence,
terms and
<PAGE> 92
circumstances surrounding such a request, (ii) consult with the
Borrower on the advisability of taking legally available steps
to resist or narrow such request, and (iii) if disclosure of
such information is required, exercise your best efforts to
obtain an order or other reliable assurance that confidential
treatment will be accorded to such information.
4. Unless otherwise required by law in the opinion of your counsel,
neither you nor your Representative will, without our prior
written consent, disclose to any person the fact that the
Evaluation Material has been made available to you.
5. You agree not to initiate or maintain contact (except for those
contacts made in the ordinary course of business) with any
officer, director or employee of the Borrower regarding the
business, operations, prospects or finances of the Borrower or
the employment of such officer, director or employee, except
with the express written permission of the Borrower.
6. You understand and acknowledge that the Borrower is not making
any representation or warranty, express or implied, as to the
accuracy or completeness of the Evaluation Material or any other
information provided to you by Greenwich. The Borrower, its
respective affiliates or Representatives, nor any of its
respective officers, directors, employees, agents or controlling
persons (within the meaning of the 1934 Act) shall have any
liability to you or any other person (including, without
limitation, any of your Representatives) resulting from your use
of the Evaluation Material.
7. You agree that neither Greenwich or the Borrower has not granted
you any license, copyright, or similar right with respect to any
of the Evaluation Material or any other information provided to
you by Greenwich.
8. If you determine that you do not wish to proceed with the
Transaction, you will promptly deliver to Greenwich all of the
Evaluation Material, including all copies and reproductions
thereof in your possession or in the possession of any of your
Representatives.
9. Without prejudice to the rights and remedies otherwise available
to the Borrower, the Borrower shall be entitled to equitable
relief by way of injunction if you or any of your
Representatives breach or threaten to breach any of the
provisions of this Agreement. You agree to waive, and to cause
your Representatives to waive, any requirement for the securing
or posting of any bond in connection with such remedy.
10. The validity and interpretation of this Agreement shall be
governed by, and construed and enforced in accordance with, the
laws of the State of New York applicable to agreements made and
to be fully performed therein (excluding the conflicts of law
rules). You submit to the jurisdiction of any court of the State
of New York or the United States District Court for the Southern
District of the State
<PAGE> 93
of New York for the purpose of any suit, action, or other
proceeding arising out of this Agreement.
11. The benefits of this Agreement shall inure to the respective
successors and assigns of the parties hereto, and the
obligations and liabilities assumed in this Agreement by the
parties hereto shall be binding upon the respective successors
and assigns.
12. If it is found in a final judgment by a court of competent
jurisdiction (not subject to further appeal) that any term or
provision hereof is invalid or unenforceable, (i) the remaining
terms and provisions hereof shall be unimpaired and shall remain
in full force and effect and (ii) the invalid or unenforceable
provision or term shall be replaced by a term or provision that
is valid and enforceable and that comes closest to expressing
the intention of such invalid or unenforceable term or
provision.
13. This Agreement embodies the entire agreement and understanding
of the parties hereto and supersedes any and all prior
agreements, arrangements and understandings relating to the
matters provided for herein. No alteration, waiver, amendments,
or change or supplement hereto shall be binding or effective
unless the same is set forth in writing by a duly authorized
representative of each party and may be modified or waived only
by a separate letter executed by the Borrower and you expressly
so modifying or waiving such Agreement.
14. For the convenience of the parties, any number of counterparts
of this Agreement may be executed by the parties hereto. Each
such counterpart shall be, and shall be deemed to be, an
original instrument, but all such counterparts taken together
shall constitute one and the same Agreement.
<PAGE> 94
Kindly execute and return one copy of this letter which will constitute
our Agreement with respect to the subject matter of this letter.
By:
------------------------------------------------
Greenwich Capital Financial Products, Inc.
Confirmed and agreed to
this _____ day of
_____________, 199_.
By:
-------------------------------------
Name
Title:
<PAGE> 95
EXHIBIT J
FORM OF INSTRUCTION LETTER
__________ __, 1999
___________________, as [Subservicer]
________________________
________________________
Attention: _______________
Re: Loan and Security Agreement, dated as of February 10,
1999, by and between Greenwich Capital Financial
Products, Inc., ("Lender"), and Aames Capital
Corporation ("Borrower")
Ladies and Gentlemen:
Pursuant to the Master Loan and Security Agreement, dated as of
February 10, 1999 (the "Loan and Security Agreement"), between the Lender and
the Borrower, you are hereby notified that: (i) the undersigned Borrower has
pledged to the Lender the assets described on Schedule 1 hereto (the "Eligible
Assets"), (ii) each of the Eligible Assets is subject to a security interest in
favor of the Lender, and (iii) effective as of the delivery of this letter to
the Subservicer, unless otherwise notified by the Lender in writing, any
payments or distributions made with respect to such Eligible Assets shall be
remitted immediately by the [Subservicer] in accordance with the Lender's wiring
instructions provided below:
Account No.: [____________________]
ABA No.: [____________________]
[____________________]
Reference: [____________________]
The Subservicer also acknowledges its consent to terminate such
Servicing Agreement upon notification by the Lender of an occurrence of an Event
of Default.
<PAGE> 96
Please acknowledge receipt of this instruction letter by signing in the
signature block below and forwarding an executed copy to the Lender promptly
upon receipt. Any notices to the Lender should be delivered to the following
address: 600 Steamboat Road, Greenwich, Connecticut 06830, Attention: Joe
Bartolotta, Telephone: (203) 625-6675, Facsimile: (203) 625-4751.
Very truly yours,
[BORROWER]
By:
Name:
Title:
ACKNOWLEDGED:
_______________________________, as [Subservicer]
By:
..................................
Name:
Title:
Telephone:
Facsimile:
<PAGE> 1
EXHIBIT 10.31(b)
GUARANTY
GUARANTY, dated as of February 10, 1999 (the "Guaranty"), made by AAMES
FINANCIAL CORPORATION (the "Guarantor") in favor of GREENWICH CAPITAL FINANCIAL
PRODUCTS, INC. (the "Lender"), party to the Master Loan and Security Agreement
referred to below.
RECITALS
Pursuant to the Master Loan and Security Agreement dated as of
February 10, 1999 (as amended, supplemented or otherwise modified from time to
time, the "Loan Agreement") between Aames Capital Corporation (the "Borrower")
and the Lender, the Lender has agreed to make certain Advances to the Borrower
upon the terms and subject to the conditions set forth therein. It is a
condition precedent to the obligation of the Lender to make any such Advance to
the Borrower under the Loan Agreement that the Guarantor shall have executed and
delivered this Guaranty to the Lender.
NOW, THEREFORE, in consideration of the premises and to induce
the Lender to enter into the Loan Agreement and to induce the Lender to make any
Advances to the Borrower under the Loan Agreement, the Guarantor hereby agrees
with the Lender as follows:
1. Defined Terms. (a) Unless otherwise defined herein, terms defined in the Loan
Agreement and used herein shall have the meanings given to them in the Loan
Agreement.
(b) "Obligations" shall mean the obligations and liabilities of
the Borrower to the Lender, including, without limitation, the obligations
whether direct or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, which may arise under, or out of or in
connection with the Loan Agreement, this Guaranty and any other document made,
delivered or given in connection therewith or herewith, whether on account of
principal, interest, reimbursement obligations, fees, indemnities, costs,
expenses (including, without limitation, all fees and disbursements of counsel
to the Lender that are required to be paid by the Borrower pursuant to the terms
of the Loan Agreement) or otherwise.
(c) The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Guaranty shall refer to this Guaranty as a
whole and not to any particular provision of this Guaranty, and section and
paragraph references are to this Guaranty unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
2. Guaranty. (a) The Guarantor hereby, unconditionally and irrevocably,
guarantees to the Lender and its successors, indorsees, transferees and assigns,
the prompt and complete payment and performance by the Borrower when due
(whether at the stated maturity, by acceleration or otherwise) of the
Obligations.
<PAGE> 2
(b) The Guarantor further agrees to pay any and all expenses
(including, without limitation, all reasonable fees and disbursements of
counsel) which may be paid or incurred by the Lender in enforcing any rights
with respect to, or collecting, any or all of the Obligations and/or enforcing
any rights with respect to, or collecting against, the Guarantor under this
Guaranty. This Guaranty shall remain in full force and effect until the
Obligations are paid in full notwithstanding that from time to time prior
thereto the Borrower may be free from any Obligations.
(c) No payment or payments made by the Borrower, the Guarantor,
any other guarantor or any other Person or received or collected by the Lender
from the Borrower, the Guarantor, any other guarantor or any other Person by
virtue of any action or proceeding or any set-off or appropriation or
application at any time or from time to time in reduction of or in payment of
the Obligations shall be deemed to modify, reduce, release or otherwise affect
the liability of the Guarantor hereunder which shall, notwithstanding any such
payment or payments other than payments made by the Guarantor in respect of the
Obligations or payments received or collected from the Guarantor in respect of
the Obligations, remain liable for the Obligations up to the maximum liability
of the Guarantor hereunder until the Obligations are paid in full and the Loan
Agreement is terminated.
(d) The Guarantor agrees that whenever, at any time, or from
time to time, it shall make any payment to the Lender on account of its
liability hereunder, it will notify the Lender in writing that such payment is
made under this Guaranty for such purpose.
3. Representations, Warranties and Covenants of Guarantor. (a) Guarantor hereby
represents and warrants (i) that it is duly organized and validly existing in
good standing under the laws of the jurisdiction under which it is organized and
is duly qualified to do business and is in good standing in every other
jurisdiction as to which the nature of the business conducted by it makes such
qualification necessary, (ii) that it has power and authority to enter into and
perform this Guaranty, (iii) that execution, delivery and performance of this
Guaranty by it have been duly authorized by proper action and are not in
contravention of law or of the terms of its Articles of Incorporation or
By-Laws, or any agreement, instrument, indenture or other undertaking to which
it is a party or by which it is bound, (iv) that all registrations and approvals
of any governmental agency, department or commission necessary for the
execution, delivery and performance of this Guaranty and for the validity and
enforceability thereof, have been obtained and are in full force and effect, (v)
that this Guaranty is the legal, valid and binding obligation of the Guarantor,
enforceable against Guarantor, in accordance with its terms, subject to
bankruptcy, insolvency and similar laws and to the availability of equitable
remedies, (vi) that no legal proceedings are pending, or threatened, before any
court or governmental agency which would adversely affect its financial
condition, operations or any licenses or its ability to perform under this
Guaranty, and (vii) that Guarantor has received and reviewed copies of the Loan
Agreement.
<PAGE> 3
(b) The Guarantor covenants and agrees with the Lender that,
until the payment in full of the Obligations or the termination of this Guaranty
pursuant to Section 20 hereof:
(i) Maintenance of Tangible Net Worth. The Tangible Net
Worth of the Guarantor, on a consolidated basis and on any given
day, shall be (a) prior to July 1, 1999, $120,000,000; and (b)
on and after July 1, 1999, not less than the greater of (x)
$150,000,000 and (y) 80% of the Tangible Net Worth of the
Guarantor, on a consolidated basis, as at the end of each fiscal
quarter;
(ii) Maintenance of Ratio of Total Indebtedness to
Tangible Net Worth. The Guarantor shall not permit the ratio of
Total Indebtedness to Tangible Net Worth, on a consolidated
basis and on any given day, to be greater than 3.5:1;
(iii) Liquidity. The aggregate amount of the Guarantor's
cash, Cash Equivalents and available borrowing capacity on
unencumbered assets that could be drawn against (taking into
account required haircuts) under committed warehouse or working
capital facilities, on a consolidated basis and on any given
day, shall be (a) prior to July 1, 1999, $5,000,000; and (b) on
and after July 1, 1999, $15,000,000; provided, however that the
liquidity of the Guarantor, on a consolidated basis and on any
given day, may fall below the foregoing thresholds one time in
any given calendar month and such noncompliance shall not last
for more than three Business Days;
(iv) Maintenance of Ratio of Earnings to Total Interest
Expense. Effective as of December 31, 1999 and thereafter, the
Guarantor shall not permit the ratio of earnings before interest
and taxes to total interest expense, on a consolidated basis, to
be less than 1.10:1 measured on a rolling basis from the
immediately preceding two calendar quarters commencing with the
two quarters ending September 30, 1999 and December 31, 1999;
(v) Profitability. The Guarantor shall have a GAAP after
tax net income of at least $1.00 as measured at the end of June
30, 1999 and September 30, 1999; and
(vi) Capitalization of Guarantor. The Guarantor has been
capitalized by a contribution of cash to the equity of the
Guarantor in an aggregate amount equal to not less than
$65,000,000 (after taking into account related expenses, if any,
payable on date of contribution) and, as of June 30, 1999, the
Guarantor shall have received an additional contribution to
capital in an amount not less than $25,000,000 (after taking
into account related expenses, if any, payable on the date of
such contribution).
<PAGE> 4
(c) At the time that the Guarantor delivers its consolidated
financial statements to the Lender in accordance with Section 7.01 of the Loan
Agreement, the Guarantor shall forward to the Lender a certificate of a
Responsible Officer of the Guarantor which demonstrates that the Guarantor is in
compliance with the covenants set forth in clauses (b) (i) through (v) above.
Prior to the execution of this Guaranty, the Guarantor shall have provided
evidence satisfactory to the Lender of its compliance with clause (b)(vi) above.
4. Right of Set-off. Upon the occurrence of any Event of Default, the Guarantor
hereby irrevocably authorizes the Lender and each of its affiliates at any time
and from time to time without notice to the Guarantor, any such notice being
expressly waived by the Guarantor, to set-off and appropriate and apply any and
all deposits (general or special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in any currency, in
each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by the Lender or any of its affiliates to
or for the credit or the account of the Guarantor, or any part thereof in such
amounts as the Lender or any of its affiliates may elect, against and on account
of the obligations and liabilities of the Guarantor to the Lender hereunder and
claims of every nature and description of the Lender or any of its affiliates
against the Guarantor, in any currency, whether arising hereunder, under the
Loan Agreement as the Lender may elect, whether or not the Lender has made any
demand for payment and although such obligations, liabilities and claims may be
contingent or unmatured. The Lender shall notify the Guarantor promptly of any
such set-off and the application made by the Lender, provided that the failure
to give such notice shall not affect the validity of such set-off and
application. The rights of the Lender under this Section are in addition to
other rights and remedies (including, without limitation, other rights of
set-off) which the Lender may have.
5. No Subrogation. Notwithstanding any payment or payments made by the Guarantor
hereunder or any set-off or application of funds of the Guarantor by the Lender,
the Guarantor shall not be entitled to be subrogated to any of the rights of the
Lender against the Borrower or any other guarantor or any collateral security or
guarantee or right of offset held by the Lender or any of its affiliates for the
payment of the Obligations, nor shall the Guarantor seek or be entitled to seek
any contribution or reimbursement from the Borrower or any other guarantor in
respect of payments made by the Guarantor hereunder, until all amounts owing to
the Lender by the Borrower on account of the Obligations are paid in full and
the Loan Agreement is terminated. If any amount shall be paid to the Guarantor
on account of such subrogation rights at any time when all of the Obligations
shall not have been paid in full, such amount shall be held by the Guarantor in
trust for the Lender, segregated from other funds of the Guarantor, and shall,
forthwith upon receipt by the Guarantor, be turned over to the Lender in the
exact form received by the Guarantor (duly indorsed by the Guarantor to the
Lender, if required), to be applied against the Obligations, whether matured or
unmatured, in such order as the Lender may determine.
6. Amendments, Etc. with Respect to the Obligations. The Guarantor shall remain
obligated hereunder notwithstanding that, without any reservation of rights
against the Guarantor and without notice to or further assent by the Guarantor,
any demand for payment of any of the Obligations made by the Lender may be
rescinded by the Lender and any of the Obligations
<PAGE> 5
continued, and the Obligations, or the liability of any other party upon or for
any part thereof, or any collateral security or guarantee therefor or right of
offset with respect thereto, may, from time to time, in whole or in part, be
renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by the Lender, and the Loan Agreement and any other
documents executed and delivered in connection therewith may be amended,
modified, supplemented or terminated, in whole or in part, as the Lender may
deem advisable from time to time, and any collateral security, guarantee or
right of offset at any time held by the Lender for the payment of the
Obligations may be sold, exchanged, waived, surrendered or released. The Lender
shall not have any obligation to protect, secure, perfect or insure any Lien at
any time held by it as security for the Obligations or for this Guaranty or any
property subject thereto. When making any demand hereunder against the
Guarantor, the Lender may, but shall be under no obligation to, make a similar
demand on the Borrower or any other guarantor, and any failure by the Lender to
make any such demand or to collect any payments from the Borrower or any such
other guarantor or any release of the Borrower or such other guarantor shall not
relieve the Guarantor of its obligations or liabilities hereunder, and shall not
impair or affect the rights and remedies, express or implied, or as a matter of
law, of the Lender against the Guarantor. For the purposes hereof "demand" shall
include the commencement and continuance of any legal proceedings.
7. Waiver of Rights. The Guarantor waives any and all notice of the creation,
renewal, extension or accrual of any of the Obligations, and notice of or proof
of reliance by the Lender upon this Guaranty or acceptance of this Guaranty; the
Obligations, and any of them, shall conclusively be deemed to have been created,
contracted or incurred, or renewed, extended, amended or waived, in reliance
upon this Guaranty; and all dealings between the Borrower and the Guarantor, on
the one hand, and the Lender, on the other hand, likewise shall be conclusively
presumed to have been had or consummated in reliance upon this Guaranty. The
Guarantor waives diligence, presentment, protest, demand for payment and notice
of default or nonpayment to or upon the Borrower or the Guarantor with respect
to the Obligations.
8. Guaranty Absolute and Unconditional. The Guarantor understands and agrees
that this Guaranty shall be construed as a continuing, absolute and
unconditional guarantee of the full and punctual payment and performance by the
Borrower of the Obligations and not of their collectibility only and is in no
way conditioned upon any requirement that the Lender first attempt to collect
any of the obligations from the Borrower without regard to (a) the validity,
regularity or enforceability of the Loan Agreement, any of the Obligations or
any other collateral security therefor or guarantee or right of offset with
respect thereto at any time or from time to time held by the Lender, (b) any
defense, set-off or counterclaim (other than a defense of payment or
performance) which may at any time be available to or be asserted by the
Borrower against the Lender, or (c) any other circumstance whatsoever (with or
without notice to or knowledge of the Borrower or the Guarantor) which
constitutes, or might be construed to constitute, an equitable or legal
discharge of the Borrower from the Obligations, or of the Guarantor from this
Guaranty, in bankruptcy or in any other instance. When pursuing its rights and
remedies hereunder against the Guarantor, the Lender may, but shall be under no
obligation to, pursue such rights and remedies as it may have against the
Borrower or any other Person or against any collateral security or guarantee for
the Obligations or any right of offset with respect
<PAGE> 6
thereto, and any failure by the Lender to pursue such other rights or remedies
or to collect any payments from the Borrower or any such other Person or to
realize upon any such collateral security or guarantee or to exercise any such
right of offset, or any release of the Borrower or any such other Person or any
such collateral security, guarantee or right of offset, shall not relieve the
Guarantor of any liability hereunder, and shall not impair or affect the rights
and remedies, whether express, implied or available as a matter of law, of the
Lender against the Guarantor. This Guaranty shall remain in full force and
effect and be binding in accordance with and to the extent of its terms upon the
Guarantor and the successors and assigns thereof, and shall inure to the benefit
of the Lender, and its successors, indorsees, transferees and assigns, until all
the Obligations and the obligations of the Guarantor under this Guaranty shall
have been satisfied by payment in full and the Loan Agreement shall be
terminated, notwithstanding that from time to time during the term of the Loan
Agreement the Borrower may be free from any Obligations.
9. Reinstatement. This Guaranty shall continue to be effective, or be
reinstated, as the case may be, if at any time payment, or any part thereof, of
any of the Obligations is rescinded or must otherwise be restored or returned by
the Lender upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of the Borrower or the Guarantor, or upon or as a result of the
appointment of a receiver, intervenor or conservator of, or trustee or similar
officer for, the Borrower or the Guarantor or any substantial part of its
property, or otherwise, all as though such payments had not been made.
10. Payments. The Guarantor hereby guarantees that payments hereunder will be
paid to the Lender without set-off or counterclaim in U.S. Dollars in accordance
with the wiring instructions of the Lender.
11. Notices. All notices, requests and other communications provided for herein
(including without limitation any modifications of, or waivers, requests or
consents under, this Guaranty) shall be given or made in writing (including
without limitation by telex or telecopy) delivered to the intended recipient at
the "Address for Notices" specified below its name on the signature pages of the
Loan Agreement); or, as to any party, at such other address as shall be
designated by such party in a written notice to each other party. All such
communications shall be deemed to have been duly given when transmitted by telex
or telecopy or personally delivered or, in the case of a mailed notice, upon
receipt, in each case given or addressed as aforesaid.
12. Severability. Any provision of this Guaranty which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
13. Integration. This Guaranty and the Loan Agreement represent the agreement of
the Guarantor with respect to the subject matter hereof and thereof and there
are no promises or representations by the Lender relative to the subject matter
hereof or thereof not reflected herein or therein.
<PAGE> 7
14. Amendments in Writing; No Waiver; Cumulative Remedies. (a) None of the terms
or provisions of this Guaranty may be waived, amended, supplemented or otherwise
modified except by a written instrument executed by the Guarantor and the
Lender, provided that any provision of this Guaranty may be waived by the
Lender.
(b) The Lender shall not by any act (except by a written
instrument pursuant to Section 14(a) hereof), delay, indulgence, omission or
otherwise be deemed to have waived any right or remedy hereunder or to have
acquiesced in any Default or Event of Default or in any breach of any of the
terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of the Lender, any right, power or privilege hereunder
shall operate as a waiver thereof. No single or partial exercise of any right,
power or privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. A waiver by the
Lender of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Lender would otherwise have
on any future occasion.
(c) The rights and remedies herein provided are cumulative, may
be exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
15. Section Headings. The section headings used in this Guaranty are for
convenience of reference only and are not to affect the construction hereof or
be taken into consideration in the interpretation hereof.
16. Successors and Assigns. This Guaranty shall be binding upon the successors
and assigns of the Guarantor and shall inure to the benefit of the Lender and
its successors and assigns. This Guaranty may not be assigned by the Guarantor
without the express written consent of the Lender.
17. Governing Law. This Guaranty shall be governed by New York law without
reference to choice of law doctrine.
18. SUBMISSION TO JURISDICTION; WAIVERS. THE GUARANTOR HEREBY IRREVOCABLY AND
UNCONDITIONALLY:
(A) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS GUARANTY AND THE LOAN AGREEMENT, OR FOR
RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE
NON-EXCLUSIVE GENERAL JURISDICTION OF THE FEDERAL COURTS OF THE UNITED
STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE
COURTS FROM ANY THEREOF;
(B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT
IN SUCH COURTS AND, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY OBJECTION
THAT IT MAY NOW OR HEREAFTER
<PAGE> 8
HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR
THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND
AGREES NOT TO PLEAD OR CLAIM THE SAME;
(C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR
CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE
PREPAID, TO ITS ADDRESS SET FORTH UNDER ITS SIGNATURE BELOW OR AT SUCH
OTHER ADDRESS OF WHICH THE LENDER SHALL HAVE BEEN NOTIFIED; AND
(D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT
SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT
THE RIGHT TO SUE IN ANY OTHER JURISDICTION.
19. WAIVER OF JURY TRIAL. EACH OF THE GUARANTOR AND THE LENDER HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS GUARANTY, ANY THE LOAN AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY.
20. Termination. This Guaranty shall terminate upon the final payment in full of
the Obligations and the termination of the Loan Agreement.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 9
IN WITNESS WHEREOF, the undersigned has caused this Guaranty to
be duly executed and delivered by its duly authorized officer as of the day and
year first above written.
AAMES FINANCIAL CORPORATION
By: /s/ David A. Sklar
-------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.32(a)
MASTER REPURCHASE AGREEMENT
This MASTER REPURCHASE AGREEMENT (this "Agreement") is dated as of April
8, 1999 by and between NATIONSBANK, N.A., a national banking association, as
buyer ("Buyer," which term shall include any "Principal" as defined in Paragraph
26 below) or as agent for any Principal (in such capacity, "Agent"), and AAMES
CAPITAL CORPORATION, a California corporation ("Seller").
1. Applicability. From time to time the parties hereto may enter into
transactions in which Seller agrees to transfer to Buyer Eligible Repo Assets
against the transfer of funds by Buyer, with a simultaneous agreement by Buyer
to transfer to Seller such Eligible Repo Assets at a date certain or on demand,
against the transfer of funds by Seller. Each such transaction shall be referred
to herein as a "Transaction" and, unless otherwise agreed in writing, shall be
governed by this Agreement.
2. Definitions. For purposes of this Agreement, the terms set forth
below shall have the following meanings:
"Act of Insolvency" shall mean, with respect to any party, (i)
the commencement by such party as debtor of any case or proceeding under any
bankruptcy, insolvency, reorganization, liquidation, moratorium, dissolution,
delinquency or similar law, or such party seeking the appointment or election of
a receiver, conservator, trustee, custodian or similar official for such party
or any substantial part of its property, or the convening of any meeting of
creditors for purposes of commencing any such case or proceeding or seeking such
an appointment or election, (ii) the commencement of any such case or proceeding
against such party, or another seeking such an appointment or election, or the
filing against a party of an application for a protective decree under the
provisions of the Securities Investor Protection Act of 1970, which (A) is
consented to or not timely contested by such party, (B) results in the entry of
an order for relief, such an appointment or election, the issuance of such a
protective decree or the entry of an order having a similar effect, or (C) is
not dismissed within 15 days, (iii) the making by such party of a general
assignment for the benefit of creditors, or (iv) the admission in writing by
such party of such party's inability to pay such party's debts as they become
due.
"Additional Repo Assets" shall mean Eligible Repo Assets provided
by Seller to Buyer pursuant to Paragraph 4(a) hereof.
"Additional Required Documents" shall mean those documents
described on Exhibit A attached hereto.
"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.
"Agent" shall mean NationsBank, N.A. or any successor thereto, in
its capacity as agent for any Principal pursuant to Paragraph 26 below.
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"Aggregate Purchase Price Limit" shall mean on any date an amount
equal to: (a) $200,000,000, minus (b) the aggregate amount of Buyer's commitment
to extend credit to Seller under all other credit facilities at such date, and
minus (c) the Buyer's commitment to extend credit to Aames Funding Corp. in the
aggregate amount of $1,000,000.00.
"Approved Investor" shall mean any financial institution
pre-approved in writing by Buyer to purchase Mortgage Loans while they are
subject to any Transaction under this Agreement. The Approved Investors as of
the date hereof are set forth in Exhibit B attached hereto.
"Authorized Representative" shall mean, with respect to Seller,
the officers of Seller as set forth in Exhibit C attached hereto or as otherwise
notified by Seller to Buyer from time to time.
"Business Day" shall mean any day excluding Saturday, Sunday and
any day on which banks located in the States of New York, Texas or California
are authorized or permitted to close for business.
"Buyer" shall refer to NationsBank, N.A.
"Buyer's Margin Amount" shall mean, with respect to any Purchased
Repo Asset as of any date, the amount obtained by application of the Buyer's
Margin Percentage to the Purchase Price of such Purchased Repo Asset as of such
date.
"Buyer's Margin Percentage" shall mean, with respect to any
Purchased Repo Asset as of any date, the percentage obtained by dividing the
Market Value of such Purchased Repo Asset as of its Purchase Date by the
Purchase Price of such Purchased Repo Asset as of its Purchase Date.
"Cap Z Agreement" shall mean that certain Preferred Stock
Purchase Agreement dated as of December 23, 1998 by and between Guarantor and
Capital Z Financial Services Fund II, L.P., as amended on February 10, 1999.
"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 hereof, the amount of such obligations at any time shall
be the capitalized amount thereof at such time determined in accordance with
GAAP.
"Cash Equivalents" shall mean (a) securities with maturities of
90 days or less from the date of acquisition issued or fully guaranteed or
insured by the United States Government or any agency thereof, (b) certificates
of deposit and eurodollar time deposits with maturities of 90 days or less from
the date of acquisition and overnight bank deposits of any commercial bank
having capital and surplus in excess of $500,000,000, (c) repurchase obligations
of any commercial bank satisfying the requirements of clause (b) of this
definition, having a term of not more than seven days with respect to securities
issued or fully guaranteed or insured by the United States Government, (d)
commercial paper of a domestic issuer rated at
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<PAGE> 3
least A-1 or the equivalent thereof by Standard and Poor's Ratings Group ("S&P")
or P-1 or the equivalent thereof by Moody's Investors Service, Inc. ("Moody's")
and in either case maturing within 90 days after the day of acquisition, (e)
securities with maturities of 90 days or less from the date of acquisition
issued or fully guaranteed by any state, commonwealth or territory of the United
States, by any political subdivision or taxing authority of any such state,
commonwealth or territory or by any foreign government, the securities of which
state, commonwealth, territory, political subdivision, taxing authority or
foreign government (as the case may be) are rated at least A by S&P or A by
Moody's, (f) securities with maturities of 90 days or less from the date of
acquisition backed by standby letters of credit issued by any commercial bank
satisfying the requirements of clause (b) of this definition or (g) shares of
money market mutual or similar funds which invest exclusively in assets
satisfying the requirements of clauses (a) through (f) of this definition.
"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.
"Confirmation" shall have the meaning specified in Paragraph 3
hereof and shall be substantially in the form attached hereto as Exhibit D.
"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 refer to the custodian named in the Custody
Agreement.
"Custody Agreement" shall refer to the Custody Agreement, dated
as of April 8, 1999, by and among Buyer, Seller and the Custodian named therein,
as the same may be modified and amended from time to time.
"Custody Receipt" shall be in the form attached as an exhibit to
the Custody Agreement.
"Eligible Repo Asset" shall mean a Repo Asset with respect to
which each of the following statements shall be accurate and complete (and
Seller by including said Repo Asset in any Transaction hereunder and delivering
the Required Documents for the related Repo Asset to the Custodian in accordance
with the Custody Agreement shall be deemed to so represent and warrant to Buyer
at and as of each date prior to the related Repurchase Date):
(a) The related 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 Seller, and
all information set forth therein is true and correct.
(c) Said Mortgage Loan is free of any default of any party
thereto (including Seller), (other than as permitted under subparagraph (d)
below), counterclaims, offsets
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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 sixty
(60) days past due the payment due date set forth in the underlying promissory
note and deed of trust (or mortgage); provided, however that if any payment
under said Mortgage Loan is more than thirty (30) days past due, the Purchase
Price for said Mortgage Loan, when added to the aggregate Purchase Price of all
other Mortgage Loans with any payment more than thirty (30) days past due, does
not exceed: (i) at any time prior to May 7, 1999, seven and one-half percent
(7.5%) of the Aggregate Purchase Price Limit, and (ii) at any time on and after
May 7, 1999, five percent (5%) of the Aggregate Purchase Price 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 not expressed in writing therein 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, other than as disclosed to Buyer 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 the security interest in favor of Buyer pursuant to this
Agreement.
(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 Seller 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 Seller subject only to (i) the Lien of
current real property taxes and assessments not yet due and payable; (ii)
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 referred to or otherwise considered in the appraisal made for the
originator of said Mortgage Loan or which do not materially adversely affect the
appraised value of such Property as set forth in such appraisal; (iii) 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,
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<PAGE> 5
value or marketability of the related Property; (iv) any subsequent Liens, and
(v) a prior first 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
Custody Agreement:
(i) If said Mortgage Loan was withdrawn by Seller for
purposes of correcting clerical or other non-substantive documentation
problems, the promissory note and other documents relating to said
Mortgage Loan were or will be returned to the Custodian within ten (10)
Business Days from the date of withdrawal, and the Purchase Price for
said Mortgage Loan when added to the aggregate Purchase Price of all
other Mortgage Loans which have been similarly withdrawn, does not
exceed $2,000,000; and
(ii) If said Mortgage Loan was shipped by the
Custodian pursuant to Section 6 of the Custody Agreement, the full
amount required to be paid on account thereof (as set forth on the
schedule attached to the related bailee 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 bailee 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 related Purchase Date; provided,
however, that with respect to any Mortgage Loan purchased at any time prior to
April 16, 1999, the date of the underlying promissory note is no earlier than
one hundred eighty (180) days prior to the related Purchase Date, and if the
date of the underlying promissory note is earlier than ninety (90) days prior to
the related Purchase Date, the Purchase Price for said Mortgage Loan, when added
to the aggregate Purchase Price of all other Mortgage Loans where the date of
the underlying promissory note is earlier than ninety (90) days prior to the
related Purchase Date, does not exceed five percent (5%) of the Aggregate
Purchase Price 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 or otherwise permitted
under the Underwriting Guidelines, 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 on or prior to the time required pursuant to the
Custody Agreement (or, if such items have not been delivered to the Custodian,
the Custodian has received a Mortgage Loan Confirmation Agreement, including a
complete Mortgage Loan Schedule, relating to said Mortgage Loan on or prior to
such time, and the Required Documents are received by the Custodian within seven
(7) Business Days after the related Purchase Date, and the Purchase Price for
said Mortgage Loan when added to the Purchase Price of all other Mortgage Loans
for which the Custodian has not received the Required Documents does not exceed
forty percent (40%) of the Aggregate Purchase Price Limit).
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<PAGE> 6
(o) If so requested by Buyer, the Additional Required
Documents for said Mortgage Loan have been delivered to the Custodian within
five (5) Business Days of such request.
(p) Said Mortgage Loan is not subject to any servicing
arrangement with any Person other than (i) Seller or a subservicer servicing
said Mortgage Loan on behalf of Seller and (ii) the Buyer as permitted under
Paragraph 11(n) below, 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-seven percent (97%); provided, however, that if said
Mortgage Loan has a Loan-to-Value Ratio greater than ninety percent (90%), the
amount of said Mortgage Loan in excess of the 90% Loan-to-Value Ratio is covered
by private mortgage insurance, and the Purchase Price for said Mortgage Loan,
when added to the aggregate Purchase Price of all other Mortgage Loans with a
Loan-to-Value Ratio greater than ninety percent (90%), does not exceed two
percent (2%) of the Aggregate Purchase Price Limit.
(r) The original principal balance of said Mortgage Loan
did not exceed $500,000; provided, however, that if the original principal
balance of said Mortgage Loan exceeded $250,000, the Purchase Price for said
Mortgage Loan when added to the aggregate Purchase Price of all other Mortgage
Loans as to which the original principal balance exceeded $250,000, does not
exceed ten percent (10%) of the Aggregate Purchase Price Limit.
(s) The promissory note evidencing said Mortgage Loan is
secured by a first or second priority Lien on the related Property; provided,
however, that if said Mortgage Loan is secured by a second priority Lien on the
related Property:
(i) And the Loan-to-Value Ratio is greater than seventy
percent (70%), either the related first lien does not provide for a
balloon payment or the maturity date of each Mortgage Loan with respect
to which a first lien on the related Property provides for a balloon
payment is prior to the maturity date of the Mortgage Loan relating to
such first lien;
(ii) Either the related first Lien on the related
Property does not provide for negative amortization, or if it does
provide for negative amortization, the total amount of negative
amortization allowed is not more than twenty-five percent (25%) of the
original principal balance of the related first Lien and the
Loan-to-Value Ratio is calculated on the maximum allowable amount of the
negative amortization;
(iii) Either no consent for said Mortgage Loan is
required by the holder of the related first lien or such consent has
been obtained and is contained in the mortgage file provided to the
Custodian; and
(iv) The Purchase Price for said Mortgage Loan, when
added to the aggregate Purchase Price of all other Mortgage Loans which
are secured by a second priority Lien on the related Property, does not
exceed five percent (5%) of the Aggregate Purchase Price Limit.
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<PAGE> 7
(t) The proceeds of said Mortgage Loan have been fully
disbursed and the obligor thereon has no additional right to further borrowings
thereunder. Any and all requirements as to completion of any improvements and as
to disbursements of any escrow funds therefor either have been complied with or
are not yet required to be complied with but will be complied with as and when
required. All costs, fees and expenses incurred in making or closing or
recording said Mortgage Loan were paid.
(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 of the promissory note
evidencing said Mortgage Loan insuring the mortgagee's interest under said
Mortgage Loan as the holder of a first or second 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
Seller, and Seller has no knowledge, of any relief requested or allowed to such
obligor under the Soldiers' and Sailors' Civil Relief Act of 1940.
(x) Said Mortgage Loan was underwritten in compliance with
the requirements of the Underwriting Guidelines; provided, however, that (i) if
said Mortgage Loan has a "C" rating according to the Underwriting Guidelines,
the Purchase Price for said Mortgage Loan, when added to the aggregate Purchase
Price of all other Mortgage Loans with a "C" rating, does not exceed (A) at any
time prior to June 30, 1999, twelve and one-half percent (12.5%) of the
Aggregate Purchase Price Limit, and (B) at any other time, ten percent (10%) of
the Aggregate Purchase Price Limit; and (ii) if said Mortgage Loan has a "D"
rating according to the Underwriting Guidelines, the Purchase Price for said
Mortgage Loan, when added to the aggregate Purchase Price of all other Mortgage
Loans with a "D" rating, does not exceed (A) at any time prior to June 30, 1999,
ten percent (10%) of the Aggregate Purchase Price Limit, and (B) at any other
time, seven and one-half percent (7.5%) of the Aggregate Purchase Price Limit.
(y) Said Mortgage Loan has not been purchased and owned by
Buyer for more than one hundred eighty (180) days; provided, however, that if
said Mortgage Loan has been purchased and owned by Buyer for more than one
hundred twenty (120) days, the Purchase Price for said Mortgage Loan, when added
to the aggregate Purchase Price of all other Mortgage Loans which has been
purchased and owned by Buyer for more than one hundred twenty (120) days, does
not exceed twenty percent (20%) of the Aggregate Purchase Price Limit.
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"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as the same may from time to time be supplemented or amended.
"Facility Fee Percentage" shall mean three-tenths of one percent
(0.30%) per annum.
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
"Guarantor" shall mean Aames Financial Corporation, a Delaware
corporation.
"Guaranty" shall mean a guaranty in the form of Exhibit E
attached hereto.
"Income" shall mean, with respect to any Purchased Repo Asset at
any time, any principal thereof and all interest, dividends or other
distributions thereon.
"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.
"Lender Release" shall be in the form attached as an exhibit to
the Custody Agreement.
"Leverage Ratio" of any Person shall mean, on a consolidated
basis, the ratio of such Person's (a) total liabilities, as determined in
accordance with GAAP, minus Subordinated Debt, to (b) Tangible Net Worth plus
Subordinated Debt.
"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-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
priority deed of trust (or mortgage), the principal amount outstanding under the
first Mortgage Loan affecting the related Property) divided by the lesser of (a)
the most recent selling price of the related Property in the case of a purchase
money loan, and (b) the appraised value of the related Property.
"Margin Deficit" shall have the meaning specified in Paragraph
4(a) hereof.
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"Market Value" shall mean, with respect to any Eligible Repo
Asset as of any date, the market price on such date for such Eligible Repo Asset
as determined by Seller in its sole discretion.
"Material Adverse Effect" shall mean the existence of any
circumstance or event which, individually or collectively, is reasonably
expected to result in any (a) material adverse impairment of Seller's ability to
perform its obligations under this Agreement, (b) material impairment on the
ability of the Buyer to enforce any of such obligations or any of its rights,
remedies, powers, privileges and benefits under this Agreement, (c) material
adverse effect on Seller's financial condition as represented to Buyer in the
most recently furnished financial statements, or (d) Event of Default.
"Mortgage-Backed Security" shall mean any security (including,
without limitation, a participation certificate) that represents an interest in
a pool of mortgages, deeds of trust 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
Seller to return premiums or payments with respect thereto; and (c) all right,
title and interest of Seller in the Property covered by said deed of trust (or
mortgage).
"Mortgage Loan Confirmation Agreement" shall be substantially in
the form of Exhibit F attached hereto.
"Mortgage Loan Schedule" shall mean a schedule in the form of
Exhibit G attached hereto.
"NationsBank Agreement" shall mean that certain Residuals
Financing Agreement dated as of September 4, 1998 among Seller, Buyer and
Guarantor, as amended, restated, extended and replaced from time to time.
"Non-Warehouse Debt Ratio" shall mean, with respect to Guarantor
and its Subsidiaries on a consolidated basis, on any date the ratio of (a)
consolidated funded Indebtedness (including Subordinated Debt), minus the sum
of- (i) unrestricted cash or cash equivalents exceeding $5,000,000.00, plus (ii)
one hundred percent (100%) of the value, according to Guarantor's balance sheet
at such date, of all Mortgage Loans held for sale, plus (iii) eighty percent
(80%) of the dollar amount of all accounts receivable shown on Guarantor's
balance sheet at such date (but excluding all accounts receivable as to which
any affiliate or any Subsidiary of Guarantor is the account party), to (b)
Tangible Net Worth.
"Permitted Secured Debt" shall mean the Indebtedness set forth on
Exhibit H hereto.
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"Person" shall mean any corporation, natural person, firm, joint
venture, partnership, limited liability company, trust, unincorporated
organization or governmental entity.
"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.
"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.
"Price Differential" shall mean, with respect to any Transaction
as of any date, the aggregate amount obtained by daily application of the
Pricing Rate for such Transaction to the Purchase Price for such Transaction on
a 360-day-per-year basis for the actual number of days during the period
commencing on (and including) the Purchase Date for such Transaction and ending
on (but excluding) the date of determination (reduced by any amount of such
Price Differential previously paid by Seller to Buyer with respect to such
Transaction).
"Pricing Rate" shall mean on any day, the per annum percentage
rate equal to the sum of (a) the thirty (30)-day rate set forth at Telerate Page
3750 (generally known to be the 30-day LIBOR rate) at approximately 11:00 a.m.
London time for such day, plus (b) (i) with respect to the aggregate amount of
Purchase Price of Eligible Repo Assets delivered under a Mortgage Loan
Confirmation Agreement and the Required Documents for which have not been
delivered to the Custodian, one and one-half of one percent (1.50%), and (ii)
with respect to the aggregate amount of Purchase Price of Eligible Repo Assets
the Required Documents for which have been delivered to the Custodian, one and
one-quarter of one percent (1.25%); provided, however, that if such information
is not available on Telerate, the "Pricing Rate" shall be determined from
information supplied to the Buyer by a nationally recognized reporting service
for similar information acceptable to the Buyer.
"Prime Rate" shall mean the prime rate of U.S. commercial banks
as published in The Wall Street Journal (or, if more than one such rate is
published, the average of such rates).
"Principal" shall have the meaning given such term in Paragraph
26 below.
"Property" shall mean the real property, including the
improvements thereon, and the personal property (tangible or intangible) which
are encumbered pursuant to a Mortgage Loan.
"Purchase Date" shall mean the date on which Purchased Repo
Assets are to be transferred by Seller to Buyer.
"Purchase Price" shall mean, as calculated on each date pursuant
to information certified by Seller on all Purchased Repo Assets subject to a
Transaction on such date, with respect to each Purchased Repo Asset, an amount
equal to the least of (a) one hundred percent (100%) of the unpaid principal
balance thereof, (b) ninety-eight (98%) of the Market Value (as determined by
Buyer in its sole discretion) thereof as of such date, and (c) one hundred
percent (100%) of the acquisition cost thereof if said Purchased Repo Asset was
acquired by Seller from a third party; provided, however, that (i) if any
payment under the Mortgage Loan related to such
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Purchased Repo Asset is more than thirty (30) days past due, the Purchase Price
for such Purchased Repo Asset shall be eighty-five percent (85%) of the amount
calculated pursuant to the above formula, (ii) at any time prior to June 30,
1999, if the Mortgage Loan related to such Purchased Repo Asset has a "C" rating
according to the Underwriting Guidelines and the aggregate Purchase Price for
all Purchased Repo Assets the related Mortgage Loan of which has a "C" rating
according to the Underwriting Guidelines exceeds ten percent (10%) of the
Aggregate Purchase Price Limit, the Purchase Price for such Purchased Repo Asset
and each other Purchased Repo Asset which exceeds such ten-percent limit shall
be ninety percent (90%) of the amount calculated pursuant to the above formula,
(iii) at any time prior to June 30, 1999, if the Mortgage Loan related to such
Purchased Repo Asset has a "D" rating according to the Underwriting Guidelines
and the aggregate Purchase Price for all Purchased Repo Assets the related
Mortgage Loan of which has a "D" rating according to the Underwriting Guidelines
exceeds seven and one-half percent (7.5%) of the Aggregate Purchase Price Limit,
the Purchase Price for such Purchased Repo Asset and each other Purchased Repo
Asset which exceeds such seven-and-one-half-percent limit shall be ninety
percent (90%) of the amount calculated pursuant to the above formula, and (iv)
if the date of the promissory note underlying the Mortgage Loan related to such
Purchased Repo Asset is earlier than ninety (90) days prior to the related
Purchase Date, the Purchase Price for such Purchased Repo Asset shall be ninety
percent (90%) of the amount calculated pursuant to the above formula.
"Purchased Repo Assets" shall mean the Eligible Repo Assets
transferred by Seller to Buyer in a Transaction hereunder, and any Eligible Repo
Assets substituted therefor in accordance with Paragraph 9 hereof. The term
"Purchased Repo Assets" with respect to any Transaction at any time also shall
include Additional Repo Assets delivered pursuant to Paragraph 4(a) hereof.
"Repo Asset" shall mean all now existing and hereafter arising
right, title and interest of Seller in, under and to each of the following:
(a) A Mortgage Loan, now owned and hereafter acquired by
Seller the Required Documents for which are delivered to the Custodian or which
Mortgage Loan is otherwise identified for inclusion under the Custody Agreement
(including, without limitation, on a Mortgage Loan Confirmation Agreement),
including, without limitation, the promissory notes or other instruments or
agreements evidencing the indebtedness of obligors thereon, all mortgages, deeds
to secure debt, trust deeds and security agreements related thereto, all rights
to payment thereunder, all rights in the properties securing payment of the
indebtedness of the obligors thereon, all rights under documents related
thereto, such as guaranties and insurance policies (issued by governmental
agencies or otherwise), including, without limitation, mortgage and title
insurance policies, fire and extended coverage insurance policies (including the
right to any return premiums) and FHA insurance and VA guaranties, and all
rights in cash deposits consisting of impounds, insurance premiums or other
funds held on account thereof;
(b) All rights of Seller (but not its obligations) under
all Take-Out Commitments and hedge contracts, now existing and hereafter
arising, covering any part of the foregoing Repo Asset, and all rights to
deliver Mortgage Loans included as Repo Asset hereunder to permanent investors
and other purchasers, and all proceeds resulting from the disposition of such
Repo Asset;
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(c) All now existing and hereafter established hedge
contracts and other futures and futures options transactions involving Mortgage
Loans included as Repo Asset hereunder;
(d) All now existing and hereafter arising rights to
service, administer and/or collect Mortgage Loans included as Repo Asset
hereunder;
(e) All rights of Seller, now existing and hereafter
arising, to the payment of monies on account of advances made by Seller, on
account of principal and interest payments and otherwise, under all servicing
contracts pursuant to which Seller is servicing Mortgage Loans, and on account
of fees payable to Seller under such servicing contracts;
(f) All now existing and hereafter arising accounts,
contract rights and general intangibles constituting or relating to any of the
foregoing Repo Asset;
(g) All now existing and hereafter acquired files,
documents, instruments, surveys, certificates, correspondence, appraisals,
computer programs, tapes, discs, cards, accounting records and other books,
records, information and data of Seller relating to the foregoing Repo Asset
(including all information, records, data, programs, tapes, discs, and cards
necessary or helpful in the administration or servicing of the foregoing Repo
Asset);
(h) The Settlement Account and any and all funds at any
time held therein; and
(i) All products and proceeds of the foregoing Repo Asset.
"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.
"Repurchase Date" shall mean, with respect to any Purchased Repo
Asset, the earliest of: (a) the date all Transactions hereunder are terminated
pursuant to Paragraph 17 below, (b) the date such Purchased Repo Asset is no
longer an Eligible Repo Asset, (c) the date of occurrence of any Event of
Default, and (d) the date Seller otherwise requests to repurchase such Purchased
Repo Asset pursuant to Paragraph 3(c) below.
"Repurchase Price" shall mean the price at which Purchased Repo
Assets are to be transferred from Buyer to Seller on the Repurchase Date, which
will be determined in each case as the sum of the Purchase Price and the Price
Differential as of the date of such determination.
"Repurchase Request" shall have the meaning set forth in
Paragraph 3(c) below.
"Required Documents" shall mean those documents described in
Exhibit I attached hereto.
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"Required Servicing Data" shall mean, with respect to any Repo
Asset, all information, records, data, programs, tapes, discs, cards and other
materials necessary to enable Buyer or its designee or assignee to administer or
service such Repo Asset.
"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 Seller or Guarantor which
is required to be executed and delivered by a "Responsible Financial Officer"
being acknowledged by Seller and Guarantor as being a Person actively involved
with and knowledgeable with respect to all financial matters affecting Seller
and Guarantor, as applicable.
"Secured Obligations" shall mean any and all debts, obligations
and liabilities of Seller to the Buyer (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: (a) this Agreement, the
Custody Agreement, and all documents, instruments and agreements executed in
connection herewith, and (b) any and all other credit extensions and other
contractual relationships between Buyer and/or any of its Affiliates and Seller
and/or Guarantor, excluding, however, credit extensions in the nature of
syndicated credit facilities under which Seller and/or Guarantor is liable to
Buyer and/or its Affiliates and other credit extenders which are not Affiliates
of Buyer and/or its Affiliates.
"Seller" shall refer to Aames Capital Corporation, a California
corporation.
"Settlement Account" shall mean no-access account #01-419-663
maintained with the Custodian (ABA # 021-001-033).
"Subordinated Debt" shall mean Indebtedness of the Seller
subordinated to the Secured Obligations in the manner and to the extent required
by the Buyer pursuant to written subordination agreements satisfactory in form
and substance to the Buyer.
"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 Seller include any special purpose
entity formed solely for the purpose of issuing
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Mortgage-Backed Securities supported by Mortgage Loans originated or acquired by
Seller and transferred to such special purpose entity in support of such
Mortgage-Backed Securities.
"Take-Out Commitment" shall mean a bona fide current, unused and
unexpired whole loan commitment or forward sale Mortgage-Backed Security
commitment issued in favor of and held by Seller made by an Approved Investor,
under which said Approved Investor agrees, prior to the expiration thereof, upon
the satisfaction of certain terms and conditions therein, to purchase the
subject Mortgage Loan or related Mortgage-Backed Security at a specified price,
which commitment is not subject to any term or condition which is not customary
in commitments of like nature, and which can and will be fully complied with
prior to the expiration thereof.
"Tangible Net Worth" of any Person shall mean the consolidated
net worth of such Person, determined in accordance with GAAP, minus all
intangible assets under GAAP; provided that residual assets shall not be
classified as intangible assets.
"Transaction" shall, in addition to the definition set forth in
Paragraph 1 above, refer to substitutions pursuant to Paragraph 9 below.
"Underwriting Guidelines" shall mean Seller's guidelines for
underwriting the origination or acquisition of Mortgage Loans as of the date
hereof, a copy of which guidelines have been furnished to Buyer.
"Upfront Fees" shall mean such fees payable to the Buyer as are
set forth in that certain fee letter dated as of April 8, 1999.
3. Initiation; Confirmation; Purchase and Repurchase; Price
Differential; Transaction Amount; Non-Usage Fee.
(a) Subject to the terms and conditions set forth herein, Seller
may initiate a Transaction by delivering a written confirmation (a
"Confirmation") to Buyer on or before 9:00 a.m. (Los Angeles time) on the
proposed Purchase Date for the related Transaction.
(b) Each Confirmation shall be prepared and duly executed by an
Authorized Representative of Seller and shall describe the Purchased Repo
Assets, identify Buyer and Seller and set forth (i) the Purchase Date, (ii) the
Purchase Price, and (iii) any additional terms or conditions of the Transaction
not inconsistent with this Agreement. In the event any Repo Asset subject to the
proposed Transaction is subject to any prior Lien to be released upon receipt of
funds in payment therefor and any portion of the Purchase Price shall be used to
pay any lienholder for the release of such Lien, Seller shall identify such Repo
Asset, the lienholder, the amount to be wired to such lienholder for the release
of such Lien, and the wire instructions for such lienholder and instruct and
authorize Buyer in the Confirmation to wire such portion of the Purchase Price
to such lienholder directly; provided, however, that on any Purchase Date, with
respect to any Repo Assets subject to the Lien of a flow correspondent mortgage
lender of Seller with an aggregate Purchase Price not exceeding $1,000,000,
Seller shall identify such Repo Assets and the related flow correspondent
mortgage lender in the Confirmation and attach thereto a copy of the related
bailee letter from such flow correspondent mortgage lender and Seller's
internally generated wire request, and provide to Buyer on the Business Day
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immediately following the Purchase Date confirmation satisfactory to Buyer that
Seller has wired the full amount necessary for the release of the Lien of such
flow correspondent mortgage lender. The Confirmation, together with this
Agreement, shall constitute conclusive evidence of the terms agreed between
Buyer and Seller with respect to the Transaction to which the Confirmation
relates, unless with respect to the Confirmation specific objection is made
promptly after receipt thereof. In the event of any conflict between the terms
of such Confirmation and this Agreement, this Agreement shall prevail. On the
Purchase Date for the Transaction, the Purchased Repo Assets shall be
transferred to Buyer against the transfer of the Purchase Price to the account
or accounts specified by Seller.
(c) The Purchased Repo Assets shall be repurchased by Seller on
the Repurchase Date. In the event Seller wishes to repurchase any Purchased Repo
Asset at any time prior to a Repurchase Date which would otherwise occur
pursuant to the terms hereof (including the repurchase and simultaneous sale of
any Purchased Repo Asset to an Approved Investor), Seller shall deliver a
written request in the form of Exhibit J hereto (the "Repurchase Request") to
each of the Buyer and the Custodian on or before 1:00 p.m. (Los Angeles time) on
the Business Day prior to the proposed Repurchase Date. Each Repurchase Request
shall be prepared and duly executed by an Authorized Representative of Seller
and shall describe the Purchased Repo Assets to be repurchased, identify Buyer
and Seller and set forth (i) the Repurchase Date, and (ii) the Repurchase Price.
The Repurchase Request, together with this Agreement, shall constitute
conclusive evidence of the terms agreed between Buyer and Seller with respect to
the repurchase to which the Repurchase Request relates, unless with respect to
the Repurchase Request specific objection is made promptly after receipt
thereof. In the event of any conflict between the terms of such Repurchase
Request and this Agreement, this Agreement shall prevail. On the Repurchase
Date, the Purchased Repo Assets shall be transferred to Seller against the
transfer of the Repurchase Price to an account specified by Buyer.
(d) Unless otherwise required by Buyer, the outstanding Price
Differential, if not previously paid, shall be payable monthly in arrears at the
end of each calendar month. Buyer shall prepare and deliver a billing to Seller
for any such monthly payment as well as the non-usage fee pursuant to Paragraph
3(f) below and Seller shall pay the full amount of such billing no later than
two (2) Business Days after receipt thereof. Payment of the Repurchase Price
(including any Price Differential) and the non-usage fee shall be made by wire
transfer in immediately available funds.
(e) The minimum aggregate Purchase Price for the Purchased Repo
Assets subject to each Transaction shall be $1,000,000. The aggregate
outstanding Purchase Price for all Purchased Repo Assets subject to this
Agreement as of any date of determination shall not exceed the Aggregate
Purchase Price Limit.
(f) Seller shall pay to Buyer a monthly non-usage fee, in
arrears, equal to the product of: (i) one-twelfth (1/12) of the Facility Fee
Percentage multiplied by (ii) the excess, if any, of the daily average Aggregate
Purchase Price Limit during the month for which such fee is calculated, over the
daily average dollar amount of Purchase Price paid by Buyer during such monthly
period, such monthly amount to be billed and to be payable in accordance with
the provisions of Paragraph 3(d) above.
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4. Margin Maintenance.
(a) Buyer shall determine the Market Value for the Purchased Repo
Assets in its sole discretion from time to time and at such time as it may elect
in its sole discretion. Buyer shall not take into account any Purchased Repo
Asset with respect to which there is a breach of representation, warranty or
covenant made by Seller in this Agreement or the Custody Agreement and which
breach has not been cured prior to the date on which Market Value is being
determined. If at any time the aggregate Market Value of all Purchased Repo
Assets is less than the aggregate Buyer's Margin Amount for all Purchased Repo
Assets (a "Margin Deficit"), then Buyer may by written notice to Seller require
Seller, at Seller's option, to transfer to Buyer cash or additional Eligible
Repo Assets reasonably acceptable to Buyer ("Additional Repo Assets"), so that
the cash and aggregate Market Value of the Purchased Repo Assets, including any
such Additional Repo Assets, will thereupon equal or exceed such aggregate
Buyer's Margin Amount.
(b) If any notice is given by Buyer under subparagraph (a) of
this Paragraph at or before the close of business on any Business Day, Seller
shall transfer cash or Additional Repo Assets as provided in such subparagraph
no later than the close of business on the next Business Day following such
notice.
(c) Notwithstanding any term to the contrary set forth herein or
in the Custody Agreement, so long as a Margin Deficit has occurred and is
continuing, Buyer shall not be required to sell or release any Purchased Repo
Asset to Seller.
5. Income Payments. All payments and distributions of Income, whether in
cash or in kind, made on or with respect to the Purchased Repo Assets shall
belong to Buyer; provided, however, that until otherwise notified by Buyer, such
notification to be given in Buyer's sole and absolute discretion at any time,
amounts payable by obligors on account of Mortgage Loans included in the
Purchased Repo Assets may be received and retained by Seller. Upon such
notification by Buyer, Seller shall cause all payments and distributions of
Income with respect to the Purchased Repo Assets to be made directly to Buyer.
Buyer shall in its sole discretion, on the date such Income is paid or
distributed, either (i) transfer to or credit to the account of Seller such
Income or (ii) with respect to Income paid in cash, apply the Income payment or
payments to reduce the outstanding Repurchase Price to be transferred to Buyer
by Seller upon termination of such Transaction. Buyer shall not be obligated to
take any action pursuant to the preceding sentence (A) to the extent that such
action would result in the creation of a Margin Deficit, unless prior thereto or
simultaneously therewith Seller transfers to Buyer cash or Additional Repo
Assets sufficient to eliminate such Margin Deficit, or (B) if an Event of
Default with respect to Seller has occurred and is then continuing at the time
such Income is paid or distributed.
6. Security Interest.
(a) Although the parties intend that all Transactions hereunder
be sales and purchases and not loans, in the event any such Transactions are
construed by any court or otherwise deemed to be secured loans rather than sales
and purchases, Seller shall be deemed to have pledged to Buyer as security for
the performance by Seller of its obligations under each such Transaction, and
shall be deemed to have granted to Buyer a perfected, first priority
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security interest in, all of the Purchased Repo Assets with respect to all
Transactions hereunder and all Income thereon and other proceeds thereof. Seller
hereby pledges, assigns and grants to Buyer a first priority, perfected security
interest in the Purchased Repo Assets at any time acquired by Buyer to secure
payment and performance of the Secured Obligations.
(b) Seller shall execute any financing statements required by
Buyer from time to time in order to perfect such security interest, and shall
pay all fees and expenses associated with perfecting such security interest.
(c) Upon Buyer's request, Seller shall give notice of its
assignment of all hedge contracts in connection with the Purchased Repo Assets
to the issuers under such hedge contracts and cause such issuers to acknowledge
in writing such assignments to the Buyer and the rights of the Buyer thereunder.
7. Payment and Transfer. All transfers of funds hereunder shall be in
immediately available funds. All Eligible Repo Assets transferred by Seller to
Buyer shall be in suitable form for transfer or shall be accompanied by duly
executed instruments of transfer or assignment in blank and such other
documentation as required hereunder and under the Custody Agreement. Except as
otherwise permitted under the definition of Eligible Repo Asset, Seller shall,
at such time as required pursuant to the Custody Agreement prior to the funding
of each Transaction, deliver to Buyer through the Custodian a fully executed
Custody Receipt (with a copy to the Buyer) and all Required Documents in
connection with each Eligible Repo Asset to be included in such Transaction. All
transfers of Purchased Repo Assets by Buyer to Seller shall occur upon Buyer's
receipt of the Repurchase Price therefor. Upon request by Seller, Buyer shall
promptly notify the Custodian to transfer custody of the applicable Purchased
Repo Assets to Seller pursuant to the Custody Agreement after Buyer has
confirmed its receipt of the Repurchase Price therefor.
8. Transfer of Purchased Repo Assets by Buyer. All of Seller's interest
in the Purchased Repo Assets shall pass to Buyer on the Purchase Date and
nothing in this Agreement shall preclude Buyer from engaging in repurchase
transactions with the Purchased Repo Assets or otherwise selling, transferring,
pledging or hypothecating the Purchased Repo Assets, but no such transaction
shall relieve Buyer of its obligations to transfer Purchased Repo Assets to
Seller pursuant to the terms hereof, or of Buyer's obligation to credit or pay
Income to, or apply Income to the obligations of, Seller pursuant to Paragraph 5
hereof.
9. Substitution. Seller may, subject to agreement with and acceptance by
Buyer, substitute other Eligible Repo Assets of the same type for any Purchased
Repo Assets. Such substitution shall be made by transfer to Buyer of such other
Eligible Repo Assets pursuant to the same procedure as that set forth in
Paragraph 7 above for any Transaction. After substitution, the substituted
Eligible Repo Assets shall be deemed to be Purchased Repo Assets.
10. Representations and Warranties. Seller hereby represents and
warrants, and shall on and as of the Purchase Date for any Transaction and on
and as of each date thereafter through and including the related Repurchase Date
be deemed to represent and warrant, that:
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(a) Financial Condition. The financial statements dated February
28, 1999, copies of which have heretofore been furnished to the Buyer, are
complete and correct in all material respects and present fairly in accordance
with GAAP the consolidated financial condition of the Guarantor and its
consolidated Subsidiaries at such dates and the consolidated and consolidating
results of its operations and changes in cash flows for the fiscal periods then
ended.
(b) No Change. Since February 28, 1999, there has been no
material adverse change in the business, operations, assets or financial or
other condition of Seller, Guarantor or the Guarantor and its consolidated
Subsidiaries taken as a whole.
(c) Corporate Existence; Compliance with Law. Each of Seller and
Guarantor: (1) is duly organized, validly existing and in good standing as a
corporation under 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 Seller, Guarantor or their respective
property and/or business or on the ability of Seller to pay or perform its
obligations under this Agreement or Guarantor 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
Seller, Guarantor or Guarantor and its consolidated Subsidiaries taken as a
whole or on the Purchased Repo Assets.
(d) Corporate Power; Authorization; Enforceable Obligations. Each
of Seller and Guarantor has the corporate power and authority and the legal
right to execute, deliver and perform this Agreement and the Guaranty,
respectively, and to enter into the transactions contemplated hereby and
thereby, and has taken all necessary corporate action to authorize the
execution, delivery and performance of this Agreement and the Transactions
hereunder, and the Guaranty and the transactions contemplated thereby,
respectively. This Agreement has been duly executed and delivered on behalf of
Seller and constitute legal, valid and binding obligations of Seller,
enforceable against Seller in accordance with its 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. The Guaranty has been duly executed and
delivered on behalf of Guarantor and constitute legal, valid and binding
obligations of Guarantor, enforceable against Guarantor in accordance with its
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.
(e) No Legal Bar. The execution, delivery and performance of this
Agreement, the Guaranty, the Transactions hereunder and the use of the proceeds
thereof, will not violate any Requirement of Law or any Contractual Obligation
of Seller and/or Guarantor or create or result in the creation of any Lien
(except the security interest purported to be created under this Agreement) on
any assets of Seller.
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(f) No Material Litigation. No litigation, investigation or
proceeding of or before any arbitrator, court or governmental authority is
pending (or, to the knowledge of Seller or Guarantor, threatened) by or against
Guarantor 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, could have a material adverse effect on the business, operations,
property or financial or other condition of Guarantor or any of its Subsidiaries
or on the Purchased Repo Assets or is likely to have a material adverse effect
on the validity or enforceability of this Agreement or the Guaranty.
(g) Taxes. Guarantor and each of its Subsidiaries has 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 Guarantor or the
applicable Subsidiary has established adequate reserves in conformity with GAAP.
(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.
(i) Federal Reserve Board Regulations. Neither Guarantor 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 Transaction 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.
(j) ERISA. Guarantor 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 Guarantor or any of its
Subsidiaries which is likely to result in the termination of such Plan for
purposes of Title IV of ERISA.
(k) Assets. Guarantor and each of its Subsidiaries have good and
marketable title to all material 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 or for fair market
value subsequent to the date thereof.
(l) Securities Acts. Neither Guarantor 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.
(m) Consents, etc. No consent, approval or authorization of, or
registration, declaration or filing with, any Person is required on the part of
Seller or Guarantor in connection with the execution and delivery of this
Agreement or the Transactions hereunder, and the Guaranty, respectively (other
than filings to perfect the security interest purported to be granted
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by Seller pursuant hereto) or the performance of or compliance with the terms,
provisions and conditions hereof.
(n) Repurchase Agreement. Each Transaction is a "repurchase
agreement" as that term is defined in Section 101 of Title 11 of the United
States Code, as amended (except insofar as the type of Repo Assets subject to
such Transaction or the term of such Transaction would render such definition
inapplicable), and a "securities contract" as that term is defined in Section
741 of Title 11 of the United States Code, as amended.
(o) Contractual Right to Liquidation. Buyer's right to liquidate
Repo Assets delivered to it in connection with Transactions under this Agreement
or to exercise any other remedies pursuant thereto (including, without
limitation, Paragraph 11 of this Agreement) is a contractual right to liquidate
such Transaction as described in Sections 555 and 559 of Title 11 of the United
States Code, as amended, and is a right of setoff for settlement payments with
respect to such Transaction as described in subsections (b)(6) and (7) of
Section 362 of Title 11 of the United States Code, as amended.
(p) Information. All information provided by Seller to Buyer
concerning the Purchased Repo Assets is true and correct as of the date provided
in all material respects. All data and other information provided by or on
behalf of Seller to the Custodian, whether in writing, by electronic
transmission or on computer tape or diskette or otherwise, is true and correct
(or corrected as of the Purchase Date so as to be true and correct) as of the
date provided in all material respects.
(q) Servicing. Seller is servicing each Mortgage Loan in strict
conformity with the servicing standards described in Paragraph 11(n) below.
(r) Year 2000 Compliance. Seller has (i) initiated a review and
assessment of all areas within its and each of its subsidiaries' business and
operations (including those affected by suppliers and vendors) that could be
adversely affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by Seller or any of its subsidiaries (or its suppliers and
vendors) may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date after December 31,
1999), (ii) developed a plan and timeline for addressing the Year 2000 Problem
on a timely basis, and (iii) to date, implemented that plan in accordance with
that timetable, except to the extent that a failure to do so could not
reasonably be expected to have a Material Adverse Effect. Seller reasonably
believes that all computer applications (including those of its suppliers and
vendors) that are material to its or any of its subsidiaries' business and
operations will on a timely basis be able to perform properly date-sensitive
functions for all dates before and after January 1, 2000 (that is, be "Year 2000
compliant"), except to the extent that a failure to do so could not reasonably
be expected to have a Material Adverse Effect.
11. Affirmative Covenants of the Seller. Seller hereby covenants and
agrees with Buyer that, as long as any Repurchase Price or any other obligations
of Seller under this Agreement remain unpaid (or longer as expressly provided in
Paragraphs 11(g) and 11(j) below) or this Agreement has not been terminated,
Seller shall:
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(a) Financial Statements. Furnish or cause to be furnished to
Buyer:
(1) Within: (i) ninety (90) days after the last day of
each fiscal year of Guarantor, consolidated statements of income and
statements of cash flow of Guarantor for such year and a consolidated
balance sheet of Guarantor 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 Buyer, and (ii) ninety (90) days after the last day of each fiscal
year end of Seller, statements of income and statements of cash flow of
Seller for such year and a balance sheet of Seller 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 Buyer;
(2) Within forty-five (45) days after the last day of
each calendar quarter other than the last quarter of each fiscal year,
statements of income of Seller for such quarter and a balance sheet of
Seller as of the end of such quarter, and statements of income and
statements of cash flow of Guarantor for such quarter and a balance
sheet of Guarantor as of the end of such quarter;
(3) Within thirty (30) days after the last day of each
calendar month other than the last month of each calendar quarter,
consolidated statements of income for such month and a consolidated
balance sheet as of the end of such month of Guarantor 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 Guarantor or Seller, as
applicable, in the form of Exhibit K hereto, stating that such financial
statements are presented fairly in accordance with GAAP and
demonstrating in detail satisfactory to Buyer the Guarantor's or
Seller's, as applicable, compliance with the financial covenants set
forth in Paragraphs 12(i), 12(j), 12(k), 12(l) and 12(m) 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 Guarantor submitted to Guarantor by its independent accountants in
connection with each annual or interim special audit of the financial
condition of Guarantor made by such independent public accountants; and
(6) Copies of all proxy statements, financial
statements, and reports which Guarantor sends to its stockholders, and
copies of all regular, periodic and special reports, and all
registration statements under the Act which Guarantor files with the
Securities and Exchange Commission or any Governmental Authority which
may be substituted therefor, or with any national securities exchange,
and copies of all prospectuses for any debt or equity offerings as well
as asset-based securitizations by Guarantor or any of its Subsidiaries.
(b) Certificates; Reports; Other Information. Furnish or cause to
be furnished to Buyer:
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(1) On each Business Day, the information set forth in the
Mortgage Loan Schedule with respect to each Purchased Repo Asset to
Buyer electronically;
(2) The required reports listed on Exhibit L hereto at the
times set forth therein; and
(3) Promptly, such additional financial and other
information, including, without limitation, financial statements of
Seller, Guarantor, any Subsidiary of Seller or Guarantor or any Approved
Investor, and information regarding the Purchased Repo Assets as Buyer
may from time to time reasonably request.
(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 Indebtedness
(other than the obligations under this Agreement) in an aggregate amount not to
exceed $1,000,000.
(d) Maintenance of Existence and Properties. Maintain its
corporate existence and obtain and maintain all rights, privileges, licenses,
approvals, franchises, properties and assets necessary in the normal conduct of
its business (other than such rights, privileges, licenses, approvals,
franchises, properties and assets the failure to so obtain and maintain would
not in the aggregate have a Material Adverse Effect) and comply with all
Contractual Obligations and Requirements of Law.
(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 Buyer 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 Buyer, (ii) discuss the business, operations,
properties and financial and other condition of Guarantor and its
Subsidiaries with officers and employees of such parties, and with their
independent certified public accountants, and (iii) conduct periodic
operational audits of Seller's business and/or operations.
(f) Notices. Promptly give written notice to Buyer of.
(1) The occurrence of any Potential Default or Event of
Default;
(2) Any litigation or proceeding affecting Guarantor or
any of its Subsidiaries or the Purchased Repo Assets which Seller
reasonably believes could have a material adverse effect on the
Purchased Repo Assets or the business, operations, property, or
financial or other condition of Guarantor or any of its Subsidiaries, or
could have a material adverse effect on the validity or enforceability
of this Agreement;
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(3) A material adverse change in the business,
operations, property or financial or other condition of Guarantor or any
of its Subsidiaries;
(4) Any change in the chief executive officer of
Seller;
(5) The incurrence by Seller or Guarantor of any
obligation in connection with any derivatives transaction outside of the
normal course of business of Seller or Guarantor;
(6) Any event or anticipated event, including, without
limitation, the unavailability of pool insurance or other forms of
credit enhancement, which Seller or Guarantor 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
Seller; and
(7) Receipt by Seller of written notice from any Person
that any pooling and servicing contract under which Seller acts as
servicer has been or may in the future be terminated as a result of the
occurrence of any event of default under such pooling and servicing
contract or otherwise "for cause" pursuant to the terms of such pooling
and servicing contract.
(g) Expenses. Pay all reasonable out-of-pocket costs and expenses
(including fees and disbursements of counsel) of Buyer incident to: (1) the
preparation, negotiation and administration of this Agreement and the related
documents and the protection of the rights of Buyer hereunder and thereunder,
and (2) the enforcement of payment of the Repurchase Price and/or Price
Differential, whether by judicial proceedings or otherwise, including, without
limitation, in connection with bankruptcy, insolvency, liquidation,
reorganization, moratorium or other similar proceedings involving Seller or a
"workout" of Seller's obligations hereunder. The obligations of Seller under
this Paragraph 11(g) shall be effective and enforceable whether or not any
Transaction is consummated hereunder and shall survive payment of all other
obligations of Seller hereunder.
(h) Repo Documents. Comply with and observe all terms and
conditions of this Agreement, the Custody Agreement and all agreements and other
documents related hereto and thereto.
(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 Buyer on request full information as to all such insurance.
(j) Indemnification. Indemnify, defend and hold harmless Buyer
("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 Indemnified
Party in any way relating to or arising out of this Agreement or the Custody
Agreement or the transactions contemplated thereby or any action reasonably
taken or omitted to be taken by
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Indemnified Party in connection with the foregoing; provided, however, that
neither Seller nor Guarantor shall be liable for any portion of any Claims
arising out of or resulting from the gross negligence or willful misconduct of
Indemnified Party. Indemnified Party agrees that it will promptly notify Seller
of any claim, action or suit asserted or commenced against it and that Seller
may assume the defense thereof with counsel reasonably satisfactory to
Indemnified Party at Seller's sole expense, that Indemnified Party will
cooperate with Seller on such defense, and that Indemnified Party will not
settle any such claim, action or suit without the consent of Seller; provided,
however, that in the event Indemnified Party is not reasonably satisfied with
such defense, Indemnified Party may assume such defense with counsel
satisfactory to Indemnified Party at Seller's sole expense. The indemnification
obligations of Seller and Guarantor under this Paragraph 11(j) shall survive
termination of this Agreement and payment in full of all outstanding Repurchase
Price.
(k) Custodian. Utilize the same financial institution as
"custodian" or "collateral agent" for all of its credit and repo facilities
secured by Mortgage Loans owned by Seller or Guarantor.
(l) Shipment of Purchased Repo Assets. Direct the Custodian to
ship Purchased Repo Assets only to Approved Investors.
(m) Ownership. Seller shall be, at the time it sells any Repo
Assets to Buyer under any Transaction, the legal and beneficial owner of such
Repo Assets free and clear of any Lien except for the security interest created
by this Agreement.
(n) Servicing.
(1) The parties hereto agree and acknowledge that the
purchase and sale of the Repo Assets contemplated hereby are on a
servicing-released basis. Notwithstanding the nature of such purchase
and sale, until otherwise notified by Buyer in its sole and absolute
discretion, Seller shall continue to service such Purchased Repo Assets
for the benefit of Buyer and any transferee of Buyer's interest therein
(subject to any such transferee's right, in its sole and absolute
discretion to terminate such servicing arrangements if the same have not
earlier been terminated by Buyer), at no cost or expense to Buyer or any
such transferee.
(2) Until such servicing activity is terminated by
Buyer or its transferee as permitted hereunder, Seller shall service and
administer the Purchased Repo Assets in accordance with prudent mortgage
loan servicing standards and procedures generally accepted in the
mortgage banking industry for similar mortgage loans. Seller shall at
all times maintain accurate and complete records of its servicing of the
Purchased Repo Assets. Automatically within 30 days following the
termination of the Master Repurchase Agreement, for whatever reason, and
automatically following the occurrence of any Event of Default without
demand or notice by any person, including Buyer, and at any other date
upon the request of Buyer, Seller shall provide to Buyer the Required
Servicing Data on all Purchased Repo Assets owned by Buyer at such date.
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(3) Seller shall provide Buyer and its permitted
assigns with periodic reports concerning the Purchased Repo Assets with
such frequency and containing such information as Buyer or its permitted
assigns may reasonably request.
(4) Seller shall cooperate with Buyer to effect any
transfer of the servicing for the Mortgage Loans included in the
Purchased Repo Assets, including, without limitation to deliver the
Required Servicing Data, and all other files, documents, instruments,
surveys, certificates, correspondence, appraisals, computer programs,
tapes, discs, cards, accounting records and other books, records,
information and data of Seller relating to the Purchased Repo Assets
(including all information, records, data, programs, tapes, discs, and
cards necessary or helpful in the administration or servicing of such
Purchased Repo Assets) to Buyer or as otherwise directed by Buyer.
(o) Year 2000 Compliance. Seller shall promptly notify the Buyer
in the event Seller discovers or determines that any computer application
(including those of its suppliers and vendors) that is material to its or any of
its subsidiaries' business and operations will not be Year 2000 compliant on a
timely basis, except to the extent that such failure could not reasonably be
expected to have a Material Adverse Effect.
(p) Additional Information. At any reasonable time Seller shall
permit Buyer, its agents or attorneys, to inspect and copy any and all documents
and data in their possession pertaining to each Purchased Repo Asset that is the
subject of any Transaction. Such inspection shall occur upon the request of
Buyer at a mutually agreeable location during regular business hours on the date
of such request.
(q) Confidentiality. Seller acknowledges that this Agreement and
the Custody Agreement are confidential in nature and Seller agrees that, unless
otherwise directed by a court of competent jurisdiction or as may be required by
federal or state law or regulation, it shall limit the distribution of such
documents to its officers, employees, attorneys, accountants and agents as
required in order to conduct its business with Buyer and to Lehman Commercial
Paper Inc. and Greenwich Capital Financial Products, Inc.
(s) Further Assurances. Seller shall promptly provide and cause
to be provided to the Buyer such further assurances, documents, instruments and
agreements as the Buyer may reasonably request in order to effect the purposes
of this Agreement.
12. Negative Covenants. Seller hereby covenants and agrees with Buyer
that, as long as any Repurchase Price or any other obligations of Seller under
this Agreement remain unpaid or this Agreement has not been terminated, neither
Seller nor Guarantor shall, nor shall Seller or Guarantor permit any Subsidiary
of Seller or Guarantor to, at any time, directly or indirectly:
(a) Liens. Create, incur, assume or suffer to exist, any Lien
upon the Purchased Repo Assets except as contemplated hereby 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
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the enforcement thereof, provided Seller or Guarantor, 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
Seller's or Guarantor's business;
(3) Purchase money security interests for property
hereafter acquired, conditional sale agreements, or other title
retention agreements, with respect to 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.
(b) Indebtedness. Create, incur, assume or suffer to exist, or
otherwise become or be liable in respect of, any Indebtedness except:
(1) The "Obligations" under the Warehouse Agreement;
(2) Indebtedness reflected in the financial statements
referred to in Paragraph 11(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 $10,000,000.00;
(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.
(c) Consolidation and Merger. Liquidate or dissolve, or enter
into any consolidation, merger, partnership, joint venture, syndicate or other
combination unless: (1) Seller and Guarantor remain as separate surviving
corporations following any such consolidation, merger, partnership, joint
venture, syndicate or other combination by either Seller or Guarantor,
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 Guarantor (determined in accordance with
GAAP on a consolidated basis) immediately prior to the proposed effective date
of such
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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.
(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 acquired after the effective date hereof,
exceeds twenty percent (20%) of total assets of Guarantor (determined in
accordance with GAAP on a consolidated basis) immediately prior to the proposed
effective date of such acquisition.
(e) Payment of Dividends. Declare or pay any dividends upon any
shares of Guarantor's stock now or hereafter outstanding, except dividends
payable in the capital stock of Guarantor, 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.
(f) Purchase or Retirement of Stock. In the case of Guarantor,
from and after the date of this Agreement, acquire, purchase, redeem or retire
any shares of its capital stock now or hereafter outstanding (other than the
conversion of Series B preferred stock and Series C preferred stock into common
stock contemplated by the Cap Z Agreement); 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, Guarantor may enter into such transactions in an aggregate fair market
dollar amount not to exceed $5,000,000.00.
(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 Seller'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 Guarantor (determined in accordance with
GAAP on a consolidated basis) immediately prior to the proposed effective date
of such investment, advance or commitment to advance.
(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 or otherwise in accordance with the Seller's business
plan projection known as the "Project Angel Projection" dated as of February 15,
1999, a copy of which having been delivered to the Buyer.
(i) Leverage. Permit at any time the Leverage Ratio of Guarantor
and its consolidated Subsidiaries to exceed 4.00: 1.00.
(j) Minimum Tangible Net Worth. Permit at any time:
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(1) Guarantor's Tangible Net Worth to be less than the
sum of: (i) $135,000,000, plus (ii) eighty percent (80%) of net income
(if positive), determined in accordance with GAAP, during each calendar
quarter ending after the date hereof, plus (iii) eighty-five percent
(85%) of contributions to equity of Guarantor (other than the "Rights
Offering" under (and as defined in) the Cap Z Agreement) made at any
time after the date hereof, plus (iv) one hundred percent (100%) of
contributions to equity of Guarantor in connection with the "Rights
Offering" under (and as defined in) the Cap Z Agreement, or
(2) Seller's Tangible Net Worth to be less than the sum
of: (i) $400,000,000, plus (ii) eighty percent (80%) of net income (if
positive), determined in accordance with GAAP, during each calendar
quarter ending after the date hereof, plus (iii) eighty-five percent
(85%) of contributions to equity of Seller (other than the "Rights
Offering" under (and as defined in) the Cap Z Agreement) made at any
time after the date hereof, plus (iv) one hundred percent (100%) of
contributions to equity of Seller in connection with the "Rights
Offering" under (and as defined in) the Cap Z Agreement.
(k) Minimum Profitability. Permit at the end of any calendar
quarter (commencing with the calendar quarter ending September 30, 1999)
Guarantor'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.
(l) Non-Warehouse Debt. Permit the Non-Warehouse Debt Ratio of
Guarantor and its consolidated Subsidiaries to exceed 1.55:1.00 for the calendar
quarters ending March 31, 1999 and June 30, 1999, and 1.40: 1.00 for any other
calendar quarter thereafter.
(m) Maintenance of Liquidity and Committed Working Capital Line.
Permit:
(1) The aggregate amount of the Guarantor's cash, Cash
Equivalents and available borrowing capacity on unencumbered assets that
could be drawn against (taking into account required haircuts) under
committed warehouse or working capital facilities, on a consolidated
basis and on any given day, to be less than: (i) prior to July 1, 1999,
$5,000,000, and (ii) on and after July 1, 1999, $15,000,000; provided,
however, that the liquidity of the Guarantor, on a consolidated basis
and on any given day, may fall below the foregoing thresholds one time
in any given calendar month and such noncompliance shall not last for
more than three Business Days, but may in no event fall below $1,000,000
at any time; or
(2) Seller to have less than $25,000,000 of commitment
under a committed working capital line at any time; provided, however,
that Seller may have less commitment than the foregoing threshold if
Seller can otherwise satisfy the Buyer as to the availability of working
capital to meet its servicing advance obligations.
(n) 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
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purchased by Seller or such Subsidiary, or (2) its hedging policies relating to
Eligible Repo Assets, as such are in effect on the date hereof.
(o) Subsidiaries. Create or permit the creation of any Subsidiary
not in existence as of the date hereof unless such Subsidiary is in the same
line of business as the Seller and the total capitalization thereof does not
exceed $ 1,000,000.
(p) 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 (i) on an arms-length basis upon
terms and conditions comparable to those that could be reached with a third
party (ii) Mortgage Loans on the books of Guarantor or Seller with original
principal amounts in the aggregate not to exceed $5,000,000 at any one time
extended to executives of the Guarantor or Seller, which Mortgage Loans can and
will be securitized.
13. Events of Default. Upon the occurrence of any of the following
events (each, an "Event of Default"):
(a) Seller fails to transfer Purchased Repo Assets upon the
applicable Purchase Date (it being understood and agreed that the failure to
timely deliver the Required Documents for Mortgage Loans submitted under a
Mortgage Loan Confirmation Agreement shall not constitute an Event of Default
hereunder); or
(b) Seller fails to repurchase Purchased Repo Assets upon the
applicable Repurchase Date (other than in the case of a voluntary repurchase
pursuant to Paragraph 3(c) above); or
(c) Seller fails to comply with Paragraph 4 hereof; or
(d) An Act of Insolvency occurs with respect to Seller, Guarantor
or any other controlling entity; or
(e) Any representation made by Seller hereunder and under the
Custody Agreement shall have been incorrect or untrue in any material respect
when made or repeated or deemed to have been made or repeated; or
(f) Seller shall admit to the other its inability to, or its
intention not to, perform any of its obligations hereunder; or
(g) Any governmental or regulatory authority shall take
possession of Buyer or all or substantially all its property or appoint any
trustee, receiver, conservator or other official, or such party shall take any
action to authorize any of the actions set forth in this clause (g); or
(h) One or more judgments or decrees shall be entered against
Seller or any of its Subsidiaries in an aggregate amount in excess of
$1,000,000, and the same remains undischarged or unpaid for a period of sixty
(60) days during which execution of such judgment or decree is not effectively
stayed; or
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(i) This Agreement shall for any reason cease to create a valid,
first priority security interest in any of the Purchased Repo Assets purported
to be covered hereby; provided, however, that such circumstance shall not
constitute an Event of Default if, after determining the Market Value of the
Purchased Repo Assets without taking into account the Purchased Repo Assets with
respect to which such circumstance has occurred, no other Event of Default shall
have occurred and be continuing; or
(j) Seller shall fail to pay the Price Differential and/or the
Repurchase Price on the date when due; or
(k) Seller shall breach any other covenant in this Agreement or
the Custody Agreement; or
(l) There shall have occurred an "Event of Default" under (and as
defined in) the NationsBank Agreement; or
(m) Guarantor or any of its Subsidiaries shall default in any
payment of principal of or interest on any Indebtedness to the Buyer or any of
its Affiliates or any other Indebtedness in an aggregate amount of not less than
$1,000,000, 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
(n) Any representation or warranty made by Guarantor in the
Guaranty shall be inaccurate or incomplete in any material respect on or as of
the date made or deemed made, or Guarantor shall fail to observe or perform or
indicate its inability or intent to fail to perform or observe any covenant,
agreement or obligation contained in the Guaranty or otherwise or shall attempt
to rescind or revoke the Guaranty, with respect to future transactions or
otherwise; or
(o) There shall occur (i) a material adverse change in, or a
material adverse effect upon, the operations, business, properties, condition
(financial or otherwise) or prospects of Seller or Guarantor, (ii) a material
impairment of the ability of Seller or Guarantor to perform under this Agreement
or the Guaranty and to avoid any Event of Default, or (iii) a material adverse
effect upon the legality, validity, binding effect or enforceability against
Seller and Guarantor of this Agreement and the Guaranty; or
(p) Any Person other than Capital Z Financial Services Fund II,
L.P. and its Affiliates shall acquire more than twenty-five percent (25%) of the
equity interest in the Guarantor and its Subsidiaries on a consolidated basis;
or
(q) The "Supplemental Closing" under (and as defined in) the Cap
Z Agreement shall not have been consummated on or before June 30, 1999; or
(r) Receipt by Seller of written notice from any Person that any
pooling and servicing contract under which Seller acts as servicer has been
terminated as a result of the occurrence of any event of default under such
pooling and servicing contract or otherwise "for cause" pursuant to the terms of
such pooling and servicing contract;
then
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<PAGE> 31
(1) The Buyer may, at its option (which option shall be
deemed to have been exercised immediately upon the occurrence of an Act of
Insolvency), declare an Event of Default to have occurred hereunder and, upon
the exercise or deemed exercise of such option, the Repurchase Date for each
Transaction hereunder shall, if it has not already occurred, be deemed
immediately to occur (except that, in the event that the Purchase Date for any
Transaction has not yet occurred as of the date of such exercise or deemed
exercise, such Transaction shall be deemed immediately canceled). The Buyer
shall (except upon the occurrence of an Act of Insolvency) give notice to the
Seller of the exercise of such option as promptly as practicable.
(2) If Buyer exercises or is deemed to have exercised the
option referred to in subparagraph (1) above, Seller's obligations in such
Transactions to repurchase all Purchased Repo Assets, at the Repurchase Price
therefor on the Repurchase Date determined in accordance with subparagraph (1)
above, shall thereupon become immediately due and payable, all Income paid after
such exercise or deemed exercise shall be retained by Buyer and applied to the
aggregate unpaid Repurchase Prices and any other amounts owing by Seller
hereunder, and Seller shall immediately deliver to Buyer any Purchased Repo
Assets subject to such Transactions then in Seller's possession or control.
(3) If the Buyer exercises or is deemed to have exercised
the option referred to in subparagraph (1) above, the Buyer, without prior
notice to the Seller, may immediately sell or otherwise dispose of any Repo
Asset at one or more public or private sales, whether or not such Repo Asset is
present at the place of sale, for cash or credit or future delivery and without
assumption of any credit risk, on such terms and in such manner as the Buyer may
determine in its sole discretion.
(4) The Seller shall be liable to the Buyer for (i) the
amount of all reasonable legal or other expenses incurred by the Buyer in
connection with or as a result of an Event of Default, (ii) damages in an amount
equal to the cost (including all fees, expenses and commissions) of entering
into replacement transactions and entering into or terminating hedge
transactions in connection with or as a result of an Event of Default, and (iii)
any other loss, damage, cost or expense directly arising or resulting from the
occurrence of an Event of Default in respect of a Transaction. Expenses incurred
in connection with an Event of Default shall include without limitation those
costs and expenses reasonably incurred by the Buyer as a result of the early
termination of any repurchase agreement or reverse repurchase agreement entered
into by the Buyer in connection with the Transaction then in default.
(5) To the extent permitted by applicable law, the Seller
shall be liable to the Buyer for interest on any amounts owing by the Seller
hereunder, from the date the Seller becomes liable for such amounts hereunder
until such amounts are (i) paid in full by the Seller or (ii) satisfied in full
by the exercise of the Buyer's rights hereunder. Interest on any sum payable by
the Seller to the Buyer under this Paragraph 13(5) shall be at a rate equal to
the greater of the Pricing Rate for the relevant Transaction or the Prime Rate
plus 2.0%.
(6) All rights of Seller to receive payments which it
would otherwise be authorized to receive pursuant to Paragraph 5 above shall
cease, and all such rights shall thereupon become vested in Buyer, which shall
thereupon have the sole right to receive such
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<PAGE> 32
payments and apply them to the aggregate unpaid Repurchase Price owed by Seller.
All payments that are received by Seller contrary to the provisions of the
preceding sentence shall be received in trust for the benefit of Buyer and shall
be segregated from other funds of Seller and immediately paid over to Buyer.
(7) The Buyer shall have, in addition to its rights
hereunder, any rights otherwise available to it under any other agreement or
applicable law.
(8) Buyer is hereby appointed to act as the
attorney-in-fact of Seller for the purpose of carrying out the provisions of
this Agreement and taking any action and executing any instruments that Buyer
may deem necessary to accomplish the purposes hereof, which appointment as
attorney-in-fact is irrevocable and coupled with an interest. Without limiting
the generality of the foregoing, Buyer shall have the right and power after the
occurrence and during the continuation of any Event of Default to receive,
endorse and collect all checks made payable to the order of Seller representing
any payment on account of the principal of or interest on any of the Purchased
Repo Assets and to give full discharge for the same.
14. Single Agreement. Buyer and Seller acknowledge that, and have
entered hereinto and will enter into each Transaction hereunder in consideration
of and in reliance upon the fact that, all Transactions hereunder constitute a
single business and contractual relationship and have been made in consideration
of each other. Accordingly, each of Buyer and Seller agrees (i) to perform all
of its obligations in respect of each Transaction hereunder, and that a default
in the performance of any such obligations shall constitute a default by it in
respect of all Transactions hereunder, (ii) that each of them shall be entitled
to set off claims and apply property held by them in respect of any Transaction
against obligations owing to them in respect of any other Transactions hereunder
and (iii) that payments, deliveries and other transfers made by either of them
in respect of any Transaction shall be deemed to have been made in consideration
of payments, deliveries and other transfers in respect of any other Transactions
hereunder, and the obligations to make any such payments, deliveries and other
transfers may be applied against each other and netted.
15. Notices and Other Communications. Any and all notices, statements,
demands or other communications hereunder may be given by a party to the other
by confirmed facsimile, certified mail, or nationally recognized overnight
courier to the address specified in Annex I hereto, or so sent to such party at
any other place specified in a notice of change of address hereafter received by
the other.
16. Severability. Each provision and agreement herein shall be treated
as separate and independent from any other provision or agreement herein and
shall be enforceable notwithstanding the unenforceability of any such other
provision or agreement.
17. Non-assignability; Termination. The rights and obligations of Seller
under this Agreement and under any Transaction shall not be assigned by Seller
without the prior written consent of the Buyer, and any such assignment without
the prior written consent of the Buyer shall be null and void. Subject to the
foregoing this Agreement and any Transactions shall be binding upon and shall
inure to the benefit of the parties and their respective successors and assigns.
This Agreement and all Transactions outstanding hereunder shall terminate
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<PAGE> 33
automatically without any requirement for notice on the date occurring three
hundred sixty-four (364) calendar days after the date as of which this Agreement
is entered into; provided, however, that this Agreement and any Transaction
outstanding hereunder may be extended by mutual agreement of Buyer and the
Seller; and provided further, however, that no such party shall be obligated to
agree to such an extension.
18. Governing Law. This Agreement shall be governed by the laws of the
State of New York without giving effect to the conflict of law principles
thereof.
19. No Waivers, Etc. No express or implied waiver of any Event of
Default by either party shall constitute a waiver of any other Event of Default
and no exercise of any remedy hereunder by any party shall constitute a waiver
of its right to exercise any other remedy hereunder. No modification or waiver
of any provision of this Agreement and no consent by any party to a departure
herefrom shall be effective unless and until such shall be in writing and duly
executed by both of the parties hereto. Without limitation on any of the
foregoing, the failure to give a notice pursuant to Paragraph 4(a) hereof will
not constitute a waiver of any right to do so at a later date.
20. Use of Employee Plan Assets.
(a) If assets of an employee benefit plan subject to any
provision of the Employee Retirement Income Security Act of 1974 ("ERISA") are
intended to be used by either party hereto (the "Plan Party") in a Transaction,
the Plan Party shall so notify the other party prior to the Transaction. The
Plan Party shall represent in writing to the other party that the Transaction
does not constitute a prohibited transaction under ERISA or is otherwise exempt
therefrom, and the other party may proceed in reliance thereon but shall not be
required so to proceed.
(b) Subject to the last sentence of subparagraph (a) of this
Paragraph, any such Transaction shall proceed only if Seller furnishes or has
furnished to Buyer its most recent available audited statement of its financial
condition and its most recent subsequent unaudited statement of its financial
condition.
(c) By entering into a Transaction pursuant to this Paragraph,
Seller shall be deemed (i) to represent to Buyer that since the date of Seller's
latest such financial statements, there has been no material adverse change in
Seller's financial condition which Seller has not disclosed to Buyer, and (ii)
to agree to provide Buyer with future audited and unaudited statements of its
financial condition as they are issued, so long as it is a Seller in any
outstanding Transaction involving a Plan Party.
21. Intent.
(a) The parties recognize that each Transaction is a "repurchase
agreement" as that term is defined in Section 101 of Title 11 of the United
States Code, as amended, and a "securities contract" as that term is defined in
Section 741 of Title 11 of the United States Code, as amended.
(b) It is understood that either party's right to liquidate
Eligible Repo Assets delivered to it in connection with Transactions hereunder
or to exercise any other remedies
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<PAGE> 34
pursuant to Paragraph 13 hereof is a contractual right to liquidate such
Transaction as described in Sections 555 and 559 of Title 11 of the United
States Code, as amended.
(c) The parties agree and acknowledge that if a party hereto is
an "insured depository institution," as such term is defined in the Federal
Deposit Insurance Act, as amended ("FDIA"), then each Transaction hereunder is a
"qualified financial contract" as that term is defined in FDIA and any rules,
orders or policy statements thereunder (except insofar as the type of assets
subject to such Transaction would render such definition inapplicable).
(d) It is understood that this Agreement constitutes a "netting
contract" as defined in and subject to Title IV of the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA") and each payment entitlement and
payment obligation under any Transaction hereunder shall constitute a "covered
contractual payment entitlement" or "covered contractual payment obligation",
respectively, as defined in and subject to FDICIA (except insofar as one or both
of the parties is not a "financial institution" as that term is defined in
FDICIA).
22. Disclosure Relating to Certain Federal Protections. The parties
acknowledge that they have been advised that.
(a) in the case of Transactions in which one of the parties is a
broker or dealer registered with the Securities and Exchange Commission ("SEC"
under Section 15 of the Securities Exchange Act of 1934 ("1934 Act"), the
Securities Investor Protection Corporation has taken the position that the
provisions of the Securities Investor Protection Act of 1970 ("SIPA") do not
protect the other party with respect to any Transaction hereunder;
(b) in the case of Transactions in which one of the parties, is a
government securities broker or a government securities dealer registered with
the SEC under Section 13C of the 1934 Act, SIPA will not provide protection to
the other party with respect to any Transaction hereunder; and
(c) in the case of Transactions in which one of the parties is a
financial institution, funds held by the financial institution pursuant to a
Transaction hereunder are not a deposit and therefore are not insured by the
Federal Deposit Insurance Corporation or the National Credit Union Share
Insurance Fund, as applicable.
23. Counterparts. This Agreement may be executed in any number of
counterparts, each of which counterparts shall be deemed to be an original, and
such counterparts shall constitute but one and the same instrument.
24. Amendment of Related Documents. In the event of any amendment,
waiver or other modification of any term or provision of any document,
instrument or agreement the obligations under which are included in the Secured
Obligations, or under any other agreement to which Buyer and Seller are parties,
including any syndicated credit facility, then Buyer may, unilaterally and in
its sole and absolute discretion but without obligation so to do, deem this
Agreement concurrently amended, waived or otherwise modified consistent
therewith and may execute and deliver to Seller written statement of such
amendment, waiver or other modification. Buyer and Seller hereby further agree
that in the event the Warehouse Agreement shall be extended beyond its
currently-scheduled maturity date or replaced by a different facility agented
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<PAGE> 35
by the Buyer, at the Buyer's discretion, the financial covenants of Guarantor
and Seller hereunder and in the Guaranty shall be amended to mirror the
financial covenants set forth in the Warehouse Agreement as so extended or in
such replacement facility and Seller shall execute, and shall cause the
Guarantor to execute, any document required by the Buyer to reflect such
amendment.
25. Conditions Precedent.
(a) As conditions precedent to the effectiveness hereof and to
the initiation of the first Transaction hereunder:
(1) Seller and Guarantor, as applicable, shall have
delivered or shall have caused to be delivered to Buyer, in form and substance
satisfactory to Buyer, each of the following:
(i) A duly executed copy of this Agreement;
(ii) A duly executed copy of the Guaranty;
(iii) A duly executed copy of the Custody Agreement;
(iv) Duly executed copies of all financing statements
and other documents, instruments and agreements deemed necessary or
appropriate by Buyer to create in favor of Buyer a first priority
perfected security interest in and lien upon the Purchased Repo Assets;
(v) Certified copies of resolutions of the Board of
Directors of each of Seller and Guarantor approving the execution and
delivery of, as applicable, this Agreement, the Custody Agreement, the
Guaranty, and any other documents, instruments and agreements in
connection herewith (collectively, the "Repo Documents");
(vi) A certificate of the Secretary or an Assistant
Secretary of each of Seller and Guarantor certifying the names and true
signatures of the officers of Seller and Guarantor, as applicable,
authorized to sign the Repo Documents;
(vii) An opinion of counsel for Seller and Guarantor to
the effect of that attached hereto as Exhibit M;
(viii) A copy of the Articles of Incorporation of
Seller and the Certificate of Incorporation of Guarantor, certified by
the Secretaries of State of the State of California and the State of
Delaware, respectively, as of a recent date;
(ix) A copy of the Bylaws of each of Seller and
Guarantor, certified by the Secretary or an Assistant Secretary of
Seller or Guarantor, as applicable, as of the date of this Agreement as
being accurate and complete;
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<PAGE> 36
(x) Certificates of the Secretary of State of the State
of California and the State of Delaware certifying that each of Seller
and Guarantor, respectively, are in good standing as of a recent date;
(xi) A certificate of an executive officer of each of
Seller and Guarantor in the form of that attached hereto as Exhibit N
dated as of the date of this Agreement;
(xii) A certificate of a Responsible Financial Officer
of each of Seller and Guarantor in the form of Exhibit K hereto
demonstrating in detail satisfactory to Buyer Seller's and Guarantor's
compliance, as applicable, with the financial covenants set forth in
Paragraphs 12(i), 12(j), 12(k), 12(l) and 12(m) above at and as of
February 28, 1999; and
(xiii) The Upfront Fee in immediately available funds.
(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 Repo 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 Repo Documents, shall be satisfactory in form
and substance to Buyer and its counsel.
(b) As conditions precedent to each Transaction hereunder,
including the first Transaction:
(1) There shall have been delivered to the Buyer a
Confirmation therefor;
(2) The representations and warranties of Seller and
Guarantor contained in the Repo Documents shall be accurate and complete in all
respects as if made on and as of the Purchase Date thereof,
(3) There shall not have occurred an Event of Default or
Potential Default;
(4) Following the funding of the requested Transaction,
the aggregate outstanding Purchase Price will not exceed the Aggregate Purchase
Price Limit; and
(5) The Required Documents (or the necessary Mortgage Loan
Confirmation Agreement) for the Eligible Repo Assets subject to such Transaction
shall have been received by the Custodian.
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<PAGE> 37
By delivering a Confirmation to Buyer hereunder, Seller 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.
26. Agent and Principals.
(a) Definitions. From time to time NationsBank, N.A. may enter
into Transactions hereunder as Agent for one or more third party Buyers (each, a
"Principal"). All references to "Buyer" in this Agreement shall, subject to the
provisions set forth below (including, among other provisions, the limitations
on Agent's liability in subparagraph (d) below), be construed to reflect that
(i) each Principal shall have, in connection with any Transaction or
Transactions entered into by Agent on its behalf, the rights, responsibilities,
privileges and obligations of the "Buyer" directly entering into such
Transaction or Transactions with the Seller under this Agreement, and (ii) each
Principal has designated Agent as its sole agent for performance of Buyer's
obligations to Seller and for receipt of performance by Seller of its
obligations to Buyer in connection with any Transaction or Transactions under
this Agreement (including, among other things, as Agent for such Principal in
connection with transfers of Repo Assets, cash or other property and as agent
for giving and receiving all notices under this Agreement). Both Agent and its
Principal or Principals shall be deemed "parties" to this Agreement and all
references to a "party" or "either party" in this Agreement shall be deemed
revised accordingly.
(b) Additional Representations. Agent hereby makes the following
representations, which shall continue during the term of any Transaction:
Principal has duly authorized Agent to execute and deliver this Agreement on its
behalf, has the power to so authorize Agent and to enter into the Transactions
contemplated by this Agreement and to perform the obligations of Buyer under
such Transactions, and has taken all necessary action to authorize such
execution and delivery by Agent and such performance by it.
(c) Identification of Principals. Agent agrees (a) to provide
Seller, prior to the date on which the parties agree to enter into any
Transaction under this Agreement, with a written list of Principals for which it
intends to act as Agent (which list may be amended in writing from time to time
with the consent of Seller), and (b) to provide Seller, before the close of
business on the next Business Day after orally agreeing to enter into a
Transaction, with notice of the specific Principal or Principals for whom it is
acting in connection with such Transaction. If (i) Agent fails to identify such
Principal or Principals prior to the close of business on such next Business Day
or (ii) Seller shall determine in its sole discretion that any Principal or
Principals identified by Agent are not acceptable to it, Seller may reject and
rescind any Transaction with such Principal or Principals, return to Agent any
portion of the Purchase Price previously transferred to Seller and refuse any
further performance under such Transaction, and Agent shall immediately return
to Seller any portion of the Purchased Repo Assets previously transferred to
Agent in connection with such Transaction; provided, however, that (A) Seller
shall promptly (and in any event within one Business Day) notify Agent of its
determination to reject and rescind such Transaction and (B) to the extent that
any performance was rendered by Agent under any Transaction rejected by Seller,
Agent shall remain entitled to any Price Differential or other amounts that
would have been payable to it with respect to such performance if such
Transaction had not been rejected. Seller acknowledges that Agent shall not
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<PAGE> 38
have any obligation to provide it with confidential information regarding the
financial status of its Principals; Agent agrees, however, that it will assist
Seller in obtaining from such Principals such information regarding the
financial status of such Principals as Seller may reasonably request.
(d) Limitation of Agent's Liability. The parties expressly
acknowledge that if the representations of Agent under this Agreement are true
and correct in all material respects during the term of any Transaction and
Agent otherwise complies with the provisions hereof, then (a) Agent's
obligations under this Agreement shall not include a guarantee of performance by
its Principal or Principals and (b) Seller's remedies shall not include a right
of setoff in respect of rights or obligations, if any, of Agent arising in other
transactions in which Agent is acting as principal.
(e) Multiple Principals.
(1) In the event that Agent proposes to act for more than
one Principal hereunder, Agent and Seller shall elect whether (i) to treat
Transactions under the Agreement as transactions entered into on behalf of
separate Principals or (ii) to aggregate such Transactions as if they were
transactions by a single Principal. Failure to make such an election in writing
shall be deemed an election to treat Transactions under this Agreement as
transactions on behalf of separate Principals.
(2) In the event that Agent and Seller elect (or are
deemed to elect) to treat Transactions under the Agreement as transactions on
behalf of separate Principals, the parties agree that (i) Agent will provide
Seller, together with the notice described in subparagraph (c) above, notice
specifying the portion of each Transaction allocable to the account of each of
the Principals for which it is acting (to the extent that any such Transaction
is allocable to the account of more than one Principal); (ii) the portion of any
individual Transaction allocable to each Principal shall be deemed a separate
Transaction under the Agreement; (iii) the margin maintenance obligations of
Seller under Paragraph 4 of this Agreement shall be determined on a
Transaction-by-Transaction basis (unless the parties agree to determine such
obligations on a Principal-by-Principal basis); and (iv) Buyer's and Seller's
remedies under this Agreement upon the occurrence of an Event of Default shall
be determined as if Agent had entered into a separate Agreement with Seller on
behalf of each of its Principals.
(3) In the event that Agent and Seller elect to treat
Transactions under the Agreement as if they were transactions by a single
Principal, the parties agree that (i) Agent's notice under subparagraph (c)
above need only identify the names of its Principals but not the portion of each
Transaction allocable to each Principal's account; (ii) the margin maintenance
obligations of Seller under Paragraph 4 of this Agreement shall, subject to any
greater requirement imposed by applicable law, be determined on an aggregate
basis for all Transactions entered into by Agent on behalf of any Principal; and
(iii) Buyer's and Seller's remedies upon the occurrence of an Event of Default
shall be determined as if all Principals were a single Buyer.
(4) Notwithstanding any other provision of this Agreement,
the parties agree that any Transactions by Agent on behalf of an employee
benefit plan under ERISA shall
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<PAGE> 39
be treated as Transactions on behalf of separate Principals in accordance with
subparagraph (2) above (and all margin maintenance obligations of the parties
shall be determined on a Transaction-by-Transaction basis).
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<PAGE> 40
IN WITNESS WHEREOF, the undersigned have executed this Agreement
as of the date fist above written.
AAMES CAPITAL CORPORATION, a California
corporation, as Seller
By: /s/ David A. Sklar
--------------------------------------------
Name: David A. Sklar
------------------------------------------
Title: EVP & CFO
-----------------------------------------
NATIONSBANK, N.A., a national banking
association, as Buyer and as Agent
By: /s/ Carolyn Warren
--------------------------------------------
Name: Carolyn Warren
------------------------------------------
Title: Senior Vice President
-----------------------------------------
40
<PAGE> 41
SCHEDULE OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DOCUMENT
------- --------
<S> <C>
A Schedule of Additional Required Documents
B Schedule of Approved Investors
C Schedule of Authorized Representatives
D Form of Confirmation
E Form of Guaranty
F Form of Mortgage Loan Confirmation Agreement
G Form of Mortgage Loan Schedule
H Schedule of Permitted Secured Debt
I Schedule of Required Documents
J Form of Repurchase Request
K Form of Covenant Compliance Certificate
L Schedule of Required Reports
M Form of Required Legal Opinion
N Form of Officer's Certificate
O Form of Intercreditor and Joint Shipment Agreement
</TABLE>
41
<PAGE> 42
EXHIBIT A
ADDITIONAL REQUIRED DOCUMENTS
1. Evidence of fire and extended coverage insurance (as well as evidence of
any other required insurance such as earthquake and flood insurance) in
an amount not less than the lower of the following: (a) the amount of
the mortgage loan and (b) 100% of the insurable value of the
improvements, and (c) such amount as complies with applicable state law.
Buyer reserves the right to obtain a loss payable endorsement in its
favor if it so desires.
2. If applicable, evidence of Notice to Customer and Rescission required by
the federal Truth-in-Lending Law and Federal Reserve Regulation Z, and
evidence of all disclosure statements required by the Real Estate
Settlement Procedures Act and implementing regulations.
3. Evidence of certificate of completion, as appropriate under the
circumstances.
4. A copy of the appraisal of the Property.
5. Such additional documents as may be required in the opinion of Buyer to
transfer to Buyer the title to any Repo Assets pledged and/or
hypothecated pursuant to the Agreement.
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<PAGE> 43
EXHIBIT B
SCHEDULE OF APPROVED INVESTORS
Bear, Stearns & Co., Inc.
CS First Boston
Lehman Brothers
Merrill Lynch
Prudential Securities, Inc.
Salomon Brothers
Greenwich Capital Markets
Chase Manhattan Mortgage Corp.
Donaldson, Lufkin & Jenrette
Equicredit Corporation of America
Nomura Asset Capital Corporation
Fairbanks Capital Corp.
Ocwen Federal Bank, F.S.B.
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<PAGE> 44
EXHIBIT C
SCHEDULE OF AUTHORIZED REPRESENTATIVES
Name:
---------------------------------------
Title:
--------------------------------------
Signature:
----------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
Signature:
----------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
Signature:
----------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
Signature:
----------------------------------
44
<PAGE> 45
EXHIBIT D
CONFIRMATION
Aames Capital Corporation ("Seller") hereby requests the purchase by Buyer of
the Mortgage Loans identified on Schedule A attached hereto pursuant to the
Master Repurchase Agreement dated as of April 8, 1999 (the "Agreement") between
Buyer and Seller under the following terms and conditions:
Requested Purchase Date: ____________ __, 199__
Aggregate Unpaid Principal Balance of Mortgage Loans: $_____________
Proposed Purchase Price: $______________
* Mortgage Loans subject to prior Liens (sorted by lienholder):
<TABLE>
<S> <C> <C>
[Identify Mortgage Loans] [Individual Purchase Price] [Identify Lienholder]
[Total Purchase Price for
Mortgage Loans subject to the
Lien of each lienholder]
</TABLE>
** Wire Instructions:
$______________________ of the Purchase Price shall be wired as follows:
$______________________ of the Purchase Price shall be wired as follows:
*** Mortgage Loans subject to the Lien of flow correspondent mortgage lender:
<TABLE>
<S> <C> <C>
[Identify Mortgage Loans] [Individual Purchase Price] [Identify lienholder]
[Total Purchase Price for
Mortgage Loans subject to the
Lien of each lienholder not
to exceed $1,000,000]
</TABLE>
45
<PAGE> 46
AAMES CAPITAL CORPORATION
By:
-------------------------------
Its:
------------------------------
* If any Mortgage Loan subject to the Transaction is subject to any prior Lien
to be released upon receipt of funds in payment therefor, Seller shall identify
such Mortgage Loan and its lienholder.
** If any portion of the Purchase Price shall be used to pay any lienholder in
order to release any Lien on Mortgage Loans subject to the Transaction, Seller
shall indicate the amount to be wired to such lienholder as well as the wire
instructions for such lienholder.
*** Attach relevant bailee letters and wire requests.
46
<PAGE> 47
Schedule A
MORTGAGE LOAN SCHEDULE
47
<PAGE> 48
EXHIBIT E
FORM OF
GUARANTY
[provided separately]
48
<PAGE> 49
EXHIBIT F
FORM OF
MORTGAGE LOAN CONFIRMATION AGREEMENT
Aames Capital Corporation (the "Company"), hereby notifies
Bankers Trust Company of California, N.A., as custodian (in such capacity, the
"Custodian") under that certain Tri-Party Custody Agreement dated as of April 8,
1999, by and among the Company, the Custodian and NationsBank, N.A.
("NationsBank") (as amended, extended or replaced from time to time, the
"Custody Agreement") that those mortgage loans described on the schedule
attached hereto (or as described on computer readable tape containing the
information listed on said schedule) (constituting ________ by number of
mortgage loans) have (as indicated on said schedule or on said computer tape)
been closed and funded by the Company or will be closed and funded no later than
two (2) Business Days from the date hereof.
Pursuant to the terms of the Custody Agreement and acknowledging
and agreeing that "new value," as that term is used in Section 9304(4) of the
California Uniform Commercial Code, has been given in reliance hereon, the
Company confirms that NationsBank has been granted a first priority perfected
security interest in and Lien upon said mortgage loans, that the documents
relating thereto required to be delivered to the Custodian pursuant to the
Custody Agreement are being (or, in the case of any mortgage loan described on
said schedule which has not yet funded and closed, will be) transmitted to the
Custodian and that such documents will be in the possession of the Custodian
within seven (7) Business Days from the date hereof.
Dated: __________________
AAMES CAPITAL CORPORATION
By:
-------------------------------
Title:
----------------------------
49
<PAGE> 50
EXHIBIT G
MORTGAGE LOAN SCHEDULE
BORROWER NAME
SELLER LOAN NUMBER
DATE OF LOAN
ORIGINATION
CITY
STATE
ZIP
INTEREST TYPE
CURRENT GROSS INTEREST
RATE
ORIGINAL BALANCE
CURRENT BALANCE
SENIOR BALANCE, IF NOT A
FIRST LIEN
ORIGINAL APPRAISAL
VALUE
STATED COMBINED LOAN
TO VALUE
STATED PRINCIPAL AND
INTEREST PAYMENT
STATED ORIGINAL
AMORTIZATION TERM -
MONTHS
NEXT PAYMENT DUE DATE
LIEN POSITION
STATED MATURITY DATE
STATED ORIGINAL TERM -
MONTHS
FIRST PAYMENT DATE
PROPERTY TYPE
OCCUPANCY
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PRODUCT
PURPOSE
ORIGINATOR CREDIT
GRADE / FICO SCORE
DOCUMENTATION TYPE CODE
PMI INSURANCE (Y/N CODE)
PREPAYMENT PENALTY
ORIGINAL INDEX
MARGIN
ORIGINAL INTEREST RATE
CAP LIFE (OR CEILING)
FLOOR LIFE (OR STATED
FLOOR)
CAP INITIAL
CAP INTERIM
STATED NEXT RATE RESET
DATE
RATE RESET FREQUENCY
MAXIMUM NEGATIVE
AMORTIZATION
PERCENTAGE
ACQUISITION COST
WET/DRY FUNDING CODE
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EXHIBIT H
PERMITTED SECURED DEBT
1. Other warehouse lines of credit secured by Mortgage Loans owned by the
Seller provided that an Intercreditor and Joint Shipment Agreement in
the form of Exhibit O attached hereto has been executed and delivered by
the lenders under such other warehouse lines of credit.
2. Indebtedness secured by the Seller's residual interest certificates in
REMIC trusts.
3. Indebtedness under arbitrage lines of credit secured by readily
marketable investment securities purchased with the proceeds of advances
thereunder in an aggregate amount not to exceed $60,000,000.
4. Capitalized Lease Obligations in an aggregate amount not to exceed
$10,000,000.
5. Indebtedness under repurchase agreements for the warehousing of Mortgage
Loans entered into in the ordinary course of business provided that an
Intercreditor and Joint Shipment Agreement in the form of Exhibit O
attached hereto has been executed and delivered by the repo lenders
under such repurchase agreements.
6. Indebtedness secured by servicing receivables.
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EXHIBIT I
SCHEDULE OF REQUIRED DOCUMENTS
1. An original mortgage note endorsed by Seller in blank showing a complete
chain of endorsement from the original holder through Seller.
2. An original mortgage or deed of trust securing the above mortgage note.
In lieu of a recorded document, the Custodian will accept a certified
copy, including a copy certified by Seller to be a true and correct copy
of the mortgage or deed of trust that has been duly delivered to the
appropriate recording office, with a conformed recorded copy to follow
as soon as the same is received by Seller.
3. An original assignment of the mortgage or deed of trust by Seller in
blank in recordable form and a certified copy of all intervening
assignments of the related mortgage or deed of trust from the original
holder, through any subsequent transferees to Seller, certified in each
case by the records office or escrow or title company or Seller.
4. A policy of title insurance (or binding commitment to issue the same,
with the policy of title insurance to follow promptly upon receipt)
insuring the mortgage or deed of trust as a first or second Lien on the
Property, written by a title company and in an amount not less than the
amount of the related mortgage note and containing exceptions reasonably
satisfactory to Buyer.
5. If subject to the Lien of a lienholder to be released upon receipt of
payment therefor, a bailee letter from such lienholder indicating the
amount to be wired (with wire instructions) in order for such Lien to be
released, or a Lender Release executed by the lender or creditor in
connection with such Lien; provided that if such bailee letter or Lender
Release covers more than one Mortgage Loan, only one such bailee letter
or Lender Release is required to be provided for all the Mortgage Loans
covered thereby.
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EXHIBIT J
FORM OF
REPURCHASE REQUEST
Aames Capital Corporation ("Seller") hereby requests the repurchase from Buyer
of the Mortgage Loans identified on Schedule A attached hereto pursuant to the
Master Repurchase Agreement dated as of April 8, 1999 (the "Agreement") between
Buyer and Seller under the following terms and conditions:
Requested Repurchase Date: ____________ __, 199__
Aggregate Unpaid Principal Balance of Mortgage Loans: $_____________
Repurchase Price: $______________
AAMES CAPITAL CORPORATION
By:
-------------------------------
Its:
------------------------------
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<PAGE> 55
Schedule A
MORTGAGE LOAN SCHEDULE
55
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EXHIBIT K
FORM OF
COVENANT COMPLIANCE CERTIFICATE
Aames Financial Corporation
Aames Capital Corporation
Compliance Certificate
Dated ____________
To: NationsBank, N.A.
Attached please find the financial statements of Aames Financial
Corporation (the "Guarantor") and Aames Capital Corporation (the "Seller"). This
is the certificate referenced in Paragraph 11(a)(4) of the Master Repurchase
Agreement dated as of April 8, 1999 between the the Seller and NationsBank, N.A.
(the "Buyer") (as amended from time to time, the "Repo Agreement"). Capitalized
terms used herein and not otherwise defined shall have the meanings given such
terms in the Repo Agreement.
The undersigned on behalf of the Seller and the Guarantor hereby
certifies that the attached consolidated financial statement is complete, true
and correct, and that it was prepared in conformity with generally accepted
accounting principles applied on a basis consistent with that of the preceding
fiscal year end statements, and that it fairly presents the financial position
of the Guarantor, the Seller and their respective Subsidiaries and the results
of their respective operations as of the end of ___________ and for the period
then ended.
The undersigned further hereby certifies that each and every
covenant of the Guarantor and the Seller in the Repo Agreement has been
performed and observed, that all representations and warranties of the Guarantor
and the Seller in the Repo Agreement are accurate and complete as of the date
hereof, and that no Event of Default or Potential Default has occurred as of the
date hereof.
Attached in addition to the financial statements are the
calculations of the financial covenants as required by the Repo Agreement.
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<PAGE> 57
FINANCIAL COVENANT COMPLIANCE SUMMARY
<TABLE>
<CAPTION>
Section Covenant Required Actual
------- -------- -------- ------
<S> <C> <C> <C>
12(i) Leverage Ratio (Guarantor only) 4.00:1.00 ________
12(j) Minimum Net Worth:
Aames Financial Corporation ________ ________
Aames Capital Corporation ________ ________
12(k) Minimum Profitability (Guarantor only) $1.00 ________
12(l) Non-Warehouse Debt Ratio (Guarantor only) 1.55:1.00 at
3/31/99 and
6/30/99; ________
1.40:1
thereafter
12(m) Liquidity (Guarantor only) $5,000,000 ________
at any time
prior to
7/1/99;
$15,000,000
thereafter
Committed Working Capital Line $25,000,000 __________
</TABLE>
AAMES FINANCIAL CORPORATION AAMES CAPITAL CORPORATION
By:_________________________________ By:_________________________________
Name:_______________________________ Name________________________________
Title:______________________________ Title:______________________________
57
<PAGE> 58
CALCULATIONS
<TABLE>
<S> <C>
Leverage Ratio Calculation (Guarantor only)
(a) total liabilities (a) _______________
(b) Subordinated Debt (b) _______________
(c) Line (a) minus Line (b) (c) _______________
(d) net worth (d) _______________
(e) intangible assets (e)
(f) Tangible Net Worth (Line (d) minus Line (e)) (f) _______________
(g) LEVERAGE RATIO (Line (c) divided by Line (f)) (g) _______________
</TABLE>
<TABLE>
<S> <C>
Minimum Tangible Net Worth - Guarantor
$135,000,000 $135,000,000
Plus 80% of net income excluding losses ___________
Plus 85% of contributions to equity (other than
Rights Offering) ___________
Plus 100% of contributions to equity in
connection with Rights Offering ___________
Minimum Tangible Net Worth ___________
Actual Tangible Net Worth ___________
Minimum Tangible Net Worth - Seller
$400,000,000 $400,000,000
Plus 80% of net income excluding losses ___________
Plus 85% of contributions to equity (other than
Rights Offering) ___________
Plus 100% of contributions to equity in
connection with Rights Offering ___________
Minimum Tangible Net Worth ___________
Actual Tanbible Net Worth ___________
</TABLE>
Minimum Profitability (Guarantor only)
<TABLE>
<S> <C>
Net income for the quarter ending _________ (a) _______________
Net income for the previous quarter ending ________ (b) _______________
Total (a+b) _______________
</TABLE>
58
<PAGE> 59
Non-Warehouse Debt Ratio (Guarantor only)
<TABLE>
<S> <C>
(a) Consolidated funded Indebtedness (including Subordinated Debt) (a)____________
(1) unrestricted cash or cash equivalents in excess of $5,000,000 (1)____________
(2) 100% of book value of all Mortgage Loans held for sale (2)____________
(3) 80% of all accounts receivables (3)____________
(b) Result of (1) plus (2) plus (3) (b)____________
(c) Result of (a) minus (b) (c)____________
(d) Tangible Net Worth (d)____________
(e) NON WAREHOUSE DEBT RATIO (line (c) divided by line (d)) (e)____________
Liquidity (Guarantor only)
(a) Cash and Cash Equivalents (a)____________
(b) Available borrowing capacity under
committed warehouse and working capital facilities (b)____________
(c) Result of (a) plus (b) (c)____________
which is not to be less than:
(1) $5,000,000 at any time prior to 7/1/99 (1)____________
(2) $15,000,000 at any time on and after 7/1/99 (2)____________
</TABLE>
Details of noncompliance period, if any:
Committed Working Capital Line (Seller) ______________
59
<PAGE> 60
EXHIBIT L
SCHEDULE OF REQUIRED REPORTS
1. Monthly Total Geographic Servicing Portfolio
2. Quarterly MR141 Pool Loan Statistics Report
3. Quarterly Loss Report
4. Quarterly I/O Strip Status Report
5. Quarterly Gain on Sale Reconciliation
6. Quarterly REMIC Cash Flow Report
7. Quarterly Asset Quality Data Report
8. Quarterly Projected REO Loss Report
9. Static Pool Analysis Report
10. Daily Cash Flow and Servicing Advance Report, to be delivered to Buyer
once every two weeks for the immediately preceding two-week period and
more frequently upon telephonic request of Buyer
60
<PAGE> 61
EXHIBIT M
OPINION OF COUNSEL
FOR SELLER AND GUARANTOR
TO: NATIONSBANK, N.A.,
as Buyer and as Agent under the below referenced
Master Repurchase Agreement
Re: Master Repurchase Agreement dated April 8, 1999
Ladies and Gentlemen:
We have acted as counsel for Aames Capital Corporation ("Seller")
and Aames Financial Corporation ("Guarantor"), in connection with the
negotiation, execution and delivery of that certain Master Repurchase Agreement
(the "Agreement") dated as of April 8, 1999, by and between Seller and
NationsBank, N.A. ("Buyer" and "Agent"). This opinion is being furnished to
Buyer and Agent pursuant to the provisions of Paragraph 25(a)(1)(vii) of the
Agreement. Capitalized terms not otherwise defined herein shall have the meaning
given such terms in the Agreement.
We have examined executed copies of the Agreement, the UCC-1
financing statements executed by Seller in favor of Buyer, the Custody Agreement
dated as of April 8, 1999 among Seller, Buyer and the Custodian, and the
Guaranty dated as of April 8, 1999 by Guarantor in favor of Buyer (collectively,
the "Repurchase Documents"), as well as a copy of the organizational documents
of each of Seller and Guarantor, respectively, and certified copies of
resolutions adopted by the Boards of Directors of each of Seller and Guarantor
on _____________, 1999, authorizing the execution and delivery of the Repurchase
Documents to which such Person is party. We are generally familiar with the
business and operations of Seller and Guarantor. We have examined such statutes,
decisions and matters of law and other documents as we deemed necessary to
express the following opinions.
In our examination made for the purpose of rendering these
opinions, we have relied upon the certificates of incumbency this day furnished
to us as to the genuineness of all signatures. After due inquiry and
examination, we have assumed for the purpose of the opinions the authenticity of
all other documents submitted to us as originals and the conformity with
originals of all other documents submitted to us as certified copies. As to any
questions of fact material to such opinions, we have, when relevant facts were
not independently established, relied upon certificates of governmental
officials and certificates of officers of Seller and Guarantor, copies of which
are attached hereto.
The opinions hereinafter expressed are subject to the following
qualifications:
(a) The effect of applicable bankruptcy and other similar
laws affecting the rights of creditors generally; and
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<PAGE> 62
(b) The effect of rules of law governing specific
performance, injunctive relief or other equitable remedies.
Based upon and subject to the foregoing, we are of the opinion
that:
1. Each of Seller and Guarantor: (a) is duly organized,
validly existing and in good standing as a corporation under the laws of the
State of California and the State of 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 its property and/or business or on its ability to pay
or perform its obligations under the Repurchase Documents to which it is party,
(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
Seller, Guarantor or Guarantor and its consolidated Subsidiaries taken as a
whole or on the Purchased Repo Assets.
2. Each of Seller and Guarantor has the corporate power
and authority and the legal right to execute, deliver and perform the Repurchase
Documents to which it is party, and has taken all necessary corporate action to
authorize the execution, delivery and performance of the Repurchase Documents to
which it is party. The Repurchase Documents have been duly executed and
delivered on behalf of Seller and Guarantor, and constitute legal, valid and
binding obligations of Seller and Guarantor, as applicable, enforceable against
such Person in accordance with their respective terms.
3. The execution, delivery and performance of the
Repurchase Documents will not violate any Requirement of Law or create or result
in the creation of any Lien (except for the security interest in favor of Buyer
made pursuant to the Agreement) on any assets of Seller or Guarantor.
4. No litigation, investigation or proceeding of or before
any arbitrator, court or Governmental Authority is pending or threatened by or
against Seller, Guarantor or any of their respective 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 Seller, Guarantor or any of their respective Subsidiaries or on the
Purchased Repo Assets or is likely to have a material adverse effect on the
validity or enforceability of the Repurchase Documents.
5. Neither Seller nor Guarantor is an "investment company"
or a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
6. Neither Seller nor Guarantor 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 Transaction will be used for "purchasing" or
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<PAGE> 63
"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.
7. Seller, Guarantor and each of their respective
subsidiaries are in compliance in all respects with the requirements of ERISA
and no Reportable Event has occurred under any Plan maintained by Seller,
Guarantor or any of their respective Subsidiaries which is likely to result in
the termination of such Plan for purposes of Title IV of ERISA.
8. No consent, approval, authorization of, or
registration, declaration or filing with, any Person is required on the part of
Seller or Guarantor in connection with the execution and delivery of Repurchase
Documents (other than filings necessary to perfect the Liens granted by Buyer
pursuant to the Agreement) or the performance of or compliance with the terms,
provisions and conditions thereof.
9. The Repurchase Documents are in appropriate form so as
to create a security interest in the Purchased Repo Assets in favor of Buyer,
and all filings and other actions necessary to perfect, with first priority,
such security interest have been made and taken.
Very truly yours,
63
<PAGE> 64
EXHIBIT N
FORM OF
OFFICER'S CERTIFICATE
I, _______________________, a duly appointed
_______________________ of [AAMES FINANCIAL CORPORATION (the "Guarantor")/AAMES
CAPITAL CORPORATION] (the "Seller"), DO HEREBY CERTIFY as follows:
1. The representations and warranties set forth in Paragraph 10
of that certain Master Repurchase Agreement, dated as of April 8, 1999 (the
"Agreement") by and between the Seller and NationsBank, N.A., and Paragraph 2 of
the Guaranty referred to therein, are accurate and complete on and as of the
date hereof with the same effect as though such representations and warranties
had been made on and as of the date hereof.
2. The [Guarantor/Seller] is in compliance with all the terms and
provisions set forth in the Agreement and the Guaranty on its part to be
observed and performed, and no Event of Default or Potential Default (as those
terms are defined in the Agreement) has occurred and is continuing.
IN WITNESS WHEREOF, the undersigned has hereunto signed his name
this _________ day of April, 1999.
__________________________________
Name:_____________________________
Title:____________________________
64
<PAGE> 65
EXHIBIT O
FORM OF
INTERCREDITOR AND JOINT SHIPMENT AGREEMENT
[provided separately]
65
<PAGE> 66
ANNEX I TO MASTER REPURCHASE AGREEMENT
DATED AS OF APRIL 8, 1999, BETWEEN
NATIONSBANK, N.A., AND
AAMES CAPITAL CORPORATION
Aames Capital Corporation
350 South Grand Avenue, 51st Floor
Los Angeles, CA 90071
Attn:_________________________________
Fax:__________________________________
NationsBank, N.A.
901 Main Street, 51st Floor
Dallas, Texas 75283-1000
Attn: Ms. Carolyn Warren
Fax: 214-508-0338
66
<PAGE> 1
EXHIBIT 10.32(b)
GUARANTY
THIS GUARANTY (the "Guaranty") is made and dated as of the 8th day of
April, 1999 by AAMES FINANCIAL CORPORATION, a Delaware corporation
("Guarantor").
RECITALS
A. Pursuant to that certain Master Repurchase Agreement dated as of
April 8, 1999 by and between Aames Capital Corporation ("Seller") and
NationsBank, N.A. ("Buyer") (as amended, extended and replaced from time to
time, the "Agreement"), Buyer and Seller agreed to the terms and conditions on
which they may enter into Transactions from time to time, as set forth more
particularly therein. Capitalized terms used but not otherwise defined herein
are used with the meanings given such terms in the Agreement.
B. As a condition precedent to the effectiveness of the Agreement,
Guarantor is required to execute and deliver this Guaranty to Buyer.
NOW, THEREFORE, in consideration of the above Recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Guarantor hereby agrees as follows:
AGREEMENT
1. Guaranty.
(a) Guarantor hereby absolutely and unconditionally guarantees
the payment when due, whether prior to or upon termination of the Agreement and
all Transactions thereunder, upon the occurrence of an Event of Default or
otherwise, of the aggregate outstanding Repurchase Price and any and all other
obligations of Seller to Buyer under the Agreement, whether heretofore, now, or
hereafter made, incurred or created, whether voluntary or involuntary and
however arising, absolute or contingent, liquidated or unliquidated, determined
or undetermined (collectively and severally, the "Obligations"), whether or not
the Obligations are from time to time reduced, or extinguished and thereafter
increased or incurred, whether Seller may be liable individually or jointly with
others, whether or not recovery upon the Obligations may be or hereafter become
barred by any statute of limitations, and whether or not the Obligations may be
or hereafter become otherwise unenforceable.
(b) Guarantor hereby absolutely and unconditionally guarantees
the payment of the Obligations, whether or not due or payable by Seller, upon:
(1) the dissolution, insolvency or business failure of, or any assignment for
benefit of creditors by, or commencement of any bankruptcy, reorganization,
arrangement, moratorium or other debtor relief proceedings by or against, Seller
or Guarantor, or (2) the appointment of a receiver for, or the attachment,
restraint of or making or levying of any order of court or legal process
affecting, the property of Seller or Guarantor, and unconditionally
1
<PAGE> 2
promises to pay the Obligations to Buyer, or order, on demand, in lawful money
of the United States.
(c) The liability of Guarantor hereunder is exclusive and
independent of any security for or other guaranty of the Obligations, whether
executed by Guarantor or by any other party, and the liability of Guarantor
hereunder is not affected or impaired by (1) any direction of application of
payment by Seller or by any other party, or (2) any other guaranty, undertaking
or maximum liability of Guarantor or of any other party as to the Obligations,
or (3) any payment on or in reduction of any such other guaranty or undertaking,
or (4) any revocation or release of any obligations of any other guarantor of
the Obligations, or (5) any dissolution, termination or increase, decrease or
change in personnel of Guarantor, or (6) any payment made to Buyer on the
Obligations which Buyer repays to Seller pursuant to court order in any
bankruptcy, reorganization, arrangement, moratorium or other debtor relief
proceeding, and Guarantor waives any right to the deferral or modification of
Guarantor's obligations hereunder by reason of any such proceeding. This
Guaranty and Guarantor's payment obligations hereunder shall continue to be
effective or be reinstated, as the case may be, if at any time payment of any of
the Obligations is rescinded or must otherwise be restored or returned by Buyer,
all as though such payment had not been made. Buyer's good faith determination
as to whether a payment must be restored or returned shall be binding on
Guarantor.
(d) (1) The obligations of Guarantor hereunder are independent
of the Obligations of Seller, and a separate action or actions may be
brought and prosecuted against Guarantor whether or not action is
brought against Seller and whether or not Seller be joined in any such
action or actions. Guarantor waives, to the fullest extent permitted by
law, the benefit of any statute of limitations affecting its liability
hereunder or the enforcement thereof. Any payment by Seller or other
circumstance which operates to toll any statute of limitations as to
Seller shall operate to toll the statute of limitations as to Guarantor.
(2) All payments made by Guarantor under this Guaranty
shall be made without set-off or counterclaim and free and clear of and
without deductions for any present or future taxes, fees, withholdings
or conditions of any nature ("Taxes"). Guarantor shall pay any such
Taxes, including Taxes on any amounts so paid, and will promptly furnish
Buyer copies of any tax receipts or such other evidence of payment as
Buyer may require.
(e) Guarantor authorizes Buyer (whether or not after termination
of this Guaranty), without notice or demand (except as shall be required by
applicable statute and cannot be waived), and without affecting or impairing its
liability hereunder, from time to time to (1) renew, compromise, extend,
increase, accelerate or otherwise change the time for payment of, or otherwise
change the terms of Obligations or any part thereof, including increase or
decrease of the Pricing Rate thereon; (2) take and hold security for the payment
of this Guaranty or the Obligations and exchange, enforce, waive and release any
such security; (3) apply such security and direct the order or manner of sale
thereof as Buyer in its discretion may determine; and (4) release or substitute
any one or more endorsers, guarantors, Seller or other obligors. Buyer may,
2
<PAGE> 3
without notice to or the further consent of Seller or Guarantor, assign this
Guaranty in whole or in part to any person acquiring an interest in the
Obligations.
(f) It is not necessary for Buyer to inquire into the capacity
or power of Seller or the officers acting or purporting to act on its behalf,
and Obligations made or created in reliance upon the professed exercise of such
powers shall be guaranteed hereunder.
(g) Guarantor waives any right to require Buyer to (1) proceed
against Seller or any other party; (2) proceed against or exhaust any security
held from Seller; or (3) pursue any other remedy whatsoever. Guarantor waives
any personal defense based on or arising out of any personal defense of Seller
other than payment in full of the Obligations, including, without limitation,
any defense based on or arising out of the disability of Seller, or the
unenforceability of the Obligations or any part thereof from any cause, or the
cessation from any cause of the liability of Seller other than payment in full
of the Obligations. Buyer may, at its election, foreclose on any security held
for the Obligations by one or more judicial or nonjudicial sales, or exercise
any other right or remedy they may have against Seller, or any security, without
affecting or impairing in any way the liability of Guarantor hereunder except to
the extent the Obligations have been paid. Guarantor waives all rights and
defenses arising out of an election of remedies, even though that election of
remedies, such as a nonjudicial foreclosure with respect to security for a
guaranteed obligation, has destroyed the Guarantor's rights of subrogation and
reimbursement against the principal by operation of law.
(h) Guarantor hereby waives any claim or other rights which
Guarantor may now have or may hereafter acquire against the Seller or any other
guarantor of all or any of the Obligations that arise from the existence or
performance of the Guarantor's obligations under this Guaranty or any other of
the Repurchase Documents (all such claims and rights being referred to as the
"Guarantor's Conditional Rights"), including, without limitation, any right of
subrogation, reimbursement, exoneration, contribution, or indemnification, any
right to participate in any claim or remedy which Buyer has against the Seller
or any collateral which Buyer now has or hereafter acquires for the Obligations,
whether or not such claim, remedy or right arises in equity or under contract,
statute or common law, by any payment made hereunder or otherwise, including,
without limitation, the right to take or receive from the Seller, directly or
indirectly, in cash or other property or by setoff or in any other manner,
payment or security on account of such claim or other rights. If,
notwithstanding the foregoing provisions, any amount shall be paid to the
Guarantor on account of the Guarantor's Conditional Rights and either (1) such
amount is paid to the Guarantor at any time when the Obligations shall not have
been paid or performed in full, or (2) regardless of when such amount is paid to
the Guarantor any payment made by Seller to Buyer is at any time determined to
be a preferential payment, then such amount paid to the Guarantor shall be
deemed to be held in trust for the benefit of Buyer and shall forthwith be paid
to Buyer to be credited and applied upon the Obligations, whether matured or
unmatured, in such order and manner as Buyer, in its sole discretion, shall
determine. To the extent that any of the provisions of this Paragraph 1(h) shall
not be enforceable, the
3
<PAGE> 4
Guarantor agrees that until such time as the Obligations have been paid and
performed in full and the period of time has expired during which any payment
made by the Seller or the Guarantor may be determined to be a preferential
payment, the Guarantor's Conditional Rights to the extent not validly waived
shall be subordinate to the Buyer's right to full payment and performance of the
Obligations and the Guarantor shall not seek to enforce the Guarantor's
Conditional Rights during such period.
(i) Guarantor waives all presentments, demands for performance,
protests and notices, including, without limitation, notices of nonperformance,
notices of protest, notices of dishonor, notices of acceptance of this Guaranty,
and notices of the existence, creation or incurring of new or additional
Obligations. Guarantor assumes all responsibility for being and keeping itself
informed of Seller's financial condition and assets, and of all other
circumstances bearing upon the risk of nonpayment of the Obligations and the
nature, scope and extent of the risks which Guarantor assumes and incurs
hereunder, and agrees that Buyer shall not have a duty to advise Guarantor of
information known to it regarding such circumstances or risks.
(j) All indebtedness of Seller to Guarantor shall be and such
indebtedness hereby is, deferred, postponed and subordinated to payment and
performance of the Obligations. Any payment made to Guarantor by Seller or any
third party with respect to the indebtedness subordinated hereunder while any
Obligations or any part thereof shall remain outstanding shall be held in trust
by Guarantor for the benefit of Buyer and shall be turned over to Buyer
immediately upon receipt thereof. Any lien, charge or claim which Guarantor now
has or hereafter may have on or to any real or personal property of Seller, the
personal property located thereon, any rights therein and related thereto, and
the revenue and/or income to be realized therefrom, as security for any loans,
advances or other indebtedness of Seller to Guarantor shall be, and, in any such
lien, claim or charge hereby is, subordinated to (1) the lien of any security
interest heretofore or hereafter granted to the Buyer by Seller, without regard
to the order of perfection of such liens or security interests and whether or
not Buyer's lien or security interest is perfected, and (2) the payment and
performance of the Obligations. Any payment made to Buyer under the terms of
this section shall not, as between Buyer and Seller, be deemed a payment by
Seller on the Obligations. This section only defines the relative rights of
Buyer, on the one hand, and Guarantor, on the other hand.
2. Representations and Warranties.
(a) The financial statements most recently furnished to the
Buyer are complete and correct in all material respects and present fairly in
accordance with GAAP the consolidated financial condition of the Guarantor and
its consolidated Subsidiaries at such dates and the consolidated and
consolidating results of its operations and changes in cash flows for the fiscal
periods then ended.
(b) Since the date of the most recently furnished financial
statements, there has been no material adverse change in the business,
operations, assets or financial or other condition of Seller, Guarantor or the
Guarantor and its consolidated Subsidiaries taken as a whole.
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(c) Each of Seller and Guarantor: (1) is duly organized, validly
existing and in good standing as a corporation under 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 Seller, Guarantor or their respective property and/or business or on the
ability of Seller to pay or perform its obligations under the Agreement or
Guarantor 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 Seller, Guarantor or
Guarantor and its consolidated Subsidiaries taken as a whole or on the Purchased
Repo Assets.
(d) Each of Seller and Guarantor has the corporate power and
authority and the legal right to execute, deliver and perform the Agreement and
the Guaranty, respectively, and to enter into the transactions contemplated
hereby and thereby, and has taken all necessary corporate action to authorize
the execution, delivery and performance of the Agreement and the Transactions
thereunder, and the Guaranty and the transactions contemplated hereby,
respectively. The Agreement has been duly executed and delivered on behalf of
Seller and constitutes legal, valid and binding obligations of Seller,
enforceable against Seller in accordance with its 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. This Guaranty has been duly executed and
delivered on behalf of Guarantor and constitutes legal, valid and binding
obligations of Guarantor, enforceable against Guarantor in accordance with its
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.
(e) The execution, delivery and performance of this Guaranty,
the Agreement, the Transactions thereunder and the use of the proceeds thereof,
will not violate any Requirement of Law or any Contractual Obligation of Seller
and/or Guarantor or create or result in the creation of any lien (except the
security interest purported to be created under this Agreement) on any assets of
Seller.
(f) No litigation, investigation or proceeding of or before any
arbitrator, court or governmental authority is pending (or, to the knowledge of
Seller or Guarantor, threatened) by or against Guarantor 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, could have
a material adverse effect on the business, operations, property or financial or
other condition of Guarantor or any of its Subsidiaries or on the Purchased Repo
Assets or is likely to have a material adverse effect on the validity or
enforceability of the Agreement or this Guaranty.
(g) Guarantor and each of its Subsidiaries has filed or caused
to be filed all tax returns that are required to be filed and have paid all
taxes shown to be due
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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 Guarantor or the applicable Subsidiary
has established adequate reserves in conformity with GAAP.
(h) Neither Seller nor the Guarantor is an "investment company"
or a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(i) Neither Guarantor 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 Transaction 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.
(j) Guarantor 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 Guarantor or any of its Subsidiaries which is
likely to result in the termination of such Plan for purposes of Title IV of
ERISA.
(k) Guarantor and each of its Subsidiaries have good and
marketable title to all material property and assets reflected in the financial
statements referred to in Paragraph 2(a) above, except property and assets sold
or otherwise disposed of in the ordinary course of business or for fair market
value subsequent to the date thereof.
(l) Neither Guarantor 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.
(m) No consent, approval or authorization of, or registration,
declaration or filing with, any Person is required on the part of Seller or
Guarantor in connection with the execution and delivery of the Agreement or the
Transactions thereunder, and this Guaranty, respectively (other than filings to
perfect the security interest purported to be granted by Seller pursuant to the
Agreement) or the performance of or compliance with the terms, provisions and
conditions hereof or thereof.
(n) Guarantor has (1) initiated a review and assessment of all
areas within its and each of its Subsidiaries' business and operations
(including those affected by suppliers and vendors) that could be adversely
affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by the Guarantor or any of its Subsidiaries (or its suppliers
and vendors) may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date after
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December 31, 1999), (2) developed a plan and timeline for addressing the Year
2000 Problem on a timely basis, and (3) to date, implemented that plan in
accordance with that timetable, except to the extent that a failure to do so
could not reasonably be expected to have a Material Adverse Effect. Guarantor
reasonably believes that all computer applications (including those of its
suppliers and vendors) that are material to its or any of its Subsidiaries'
business and operations will on a timely basis be able to perform properly
date-sensitive functions for all dates before and after January 1, 2000 (that
is, be "Year 2000 compliant"), except to the extent that a failure to do so
could not reasonably be expected to have a Material Adverse Effect.
3. Affirmative Covenants. The Guarantor hereby covenants and agrees with
the Buyer that the Guarantor shall:
(a) Financial Statements. Furnish or cause to be furnished to
Buyer:
(1) Within: (i) ninety (90) days after the last day of
each fiscal year of Guarantor, consolidated statements of income and
statements of cash flow of Guarantor for such year and a consolidated
balance sheet of Guarantor 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 Buyer, and (ii) ninety (90) days after the last day of each fiscal
year end of Seller, statements of income and statements of cash flow of
Seller for such year and a balance sheet of Seller 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 Buyer;
(2) Within forty-five (45) days after the last day of
each calendar quarter other than the last quarter of each fiscal year,
statements of income of Seller for such quarter and a balance sheet of
Seller as of the end of such quarter, and statements of income and
statements of cash flow of Guarantor for such quarter and a balance
sheet of Guarantor as of the end of such quarter;
(3) Within thirty (30) days after the last day of each
calendar month other than the last month of each calendar quarter,
consolidated statements of income for such month and a consolidated
balance sheet as of the end of such month of Guarantor 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 Guarantor or Seller, as
applicable, in form satisfactory to Buyer stating that such financial
statements are presented fairly in accordance with GAAP and
demonstrating in detail satisfactory to Buyer the Guarantor's or
Seller's, as applicable, compliance with the financial covenants set
forth in Paragraphs 4(i), 4(j), 4(k), 4(l) and 4(m) below as of and at
the date of such financial statements;
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(5) As soon as is available any written report
pertaining to material items in respect of the internal control matters
of Guarantor submitted to Guarantor by its independent accountants in
connection with each annual or interim special audit of the financial
condition of Guarantor made by such independent public accountants; and
(6) Copies of all proxy statements, financial
statements, and reports which Guarantor sends to its stockholders, and
copies of all regular, periodic and special reports, and all
registration statements under the Act which Guarantor files with the
Securities and Exchange Commission or any Governmental Authority which
may be substituted therefor, or with any national securities exchange,
and copies of all prospectuses for any debt or equity offerings as well
as asset-based securitizations by Guarantor or any of its Subsidiaries.
(b) Certificates; Reports; Other Information. Furnish or cause
to be furnished to Buyer promptly, such financial and other information,
including, without limitation, financial statements of Seller, Guarantor, any
Subsidiary of Seller or Guarantor or any Approved Investor, and information
regarding the Purchased Repo Assets as Buyer may from time to time reasonably
request.
(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 Indebtedness
(other than the Obligations) in an aggregate amount not to exceed $1,000,000.
(d) Maintenance of Existence and Properties. Maintain its
corporate existence and obtain and maintain all rights, privileges, licenses,
approvals, franchises, properties and assets necessary in the normal conduct of
its business (other than such rights, privileges, licenses, approvals,
franchises, properties and assets the failure to so obtain and maintain would
not in the aggregate have a Material Adverse Effect) and comply with all
Contractual Obligations and Requirements of Law.
(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 Buyer 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 Buyer, (ii) discuss the business, operations,
properties and financial and other condition of Guarantor and its
Subsidiaries with officers and employees of such parties, and with their
independent certified public accountants, and (iii) conduct periodic
operational audits of Seller's business and/or operations.
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(f) Notices. Promptly give written notice to Buyer of:
(1) The occurrence of any Potential Default or Event of
Default;
(2) Any litigation or proceeding affecting Guarantor or
any of its Subsidiaries or the Purchased Repo Assets which Guarantor
reasonably believes could have a material adverse effect on the
Purchased Repo Assets or the business, operations, property, or
financial or other condition of Guarantor or any of its Subsidiaries, or
could have a material adverse effect on the validity or enforceability
of this Agreement;
(3) A material adverse change in the business,
operations, property or financial or other condition of Guarantor or any
of its Subsidiaries;
(4) Any change in the chief executive officer of Seller;
(5) The incurrence by Seller or Guarantor of any
obligation in connection with any derivatives transaction outside of the
normal course of business of Seller or Guarantor; and
(6) Any event or anticipated event, including, without
limitation, the unavailability of pool insurance or other forms of
credit enhancement, which Seller or Guarantor 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
Seller.
(g) Repo Documents. Comply with and observe all terms and
conditions of this Guaranty, the Agreement and all agreements and other
documents related hereto and thereto.
(h) 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 Buyer on request full information as to all such insurance.
(i) Indemnification. Indemnify, defend and hold harmless Buyer
("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 Indemnified
Party in any way relating to or arising out of the Agreement, this Guaranty or
the Custody Agreement or the transactions contemplated thereby or any action
reasonably taken or omitted to be taken by Indemnified Party in connection with
the foregoing; provided, however, that neither Seller nor Guarantor shall be
liable for any portion of any Claims arising out of or resulting from the gross
negligence or willful misconduct of Indemnified Party. Indemnified Party agrees
that it
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will promptly notify Seller of any claim, action or suit asserted or commenced
against it and that Seller may assume the defense thereof with counsel
reasonably satisfactory to Indemnified Party at Seller's sole expense, that
Indemnified Party will cooperate with Seller on such defense, and that
Indemnified Party will not settle any such claim, action or suit without the
consent of Seller; provided, however, that in the event Indemnified Party is not
reasonably satisfied with such defense, Indemnified Party may assume such
defense with counsel satisfactory to Indemnified Party at Seller's sole expense.
The indemnification obligations of Seller and Guarantor under this Paragraph
3(i) shall survive termination of the Agreement and payment in full of all
outstanding Repurchase Price.
(j) Custodian. Utilize the same financial institution as
"custodian" or "collateral agent" for all of its credit and repo facilities
secured by Mortgage Loans owned by Seller or Guarantor.
(k) Year 2000 Compliance. Guarantor shall promptly notify the
Buyer in the event Guarantor discovers or determines that any computer
application (including those of its suppliers and vendors) that is material to
its or any of its subsidiaries' business and operations will not be Year 2000
compliant on a timely basis, except to the extent that such failure could not
reasonably be expected to have a Material Adverse Effect.
(l) Additional Information. At any reasonable time Guarantor
shall permit Buyer, its agents or attorneys, to inspect and copy any and all
documents and data in their possession pertaining to each Purchased Repo Asset
that is the subject of any Transaction. Such inspection shall occur upon the
request of Buyer at a mutually agreeable location during regular business hours
on the date of such request.
(m) Confidentiality. Guarantor acknowledges that the Agreement
and the Custody Agreement are confidential in nature and Guarantor agrees that,
unless otherwise directed by a court of competent jurisdiction or as may be
required by federal or state law, it shall limit the distribution of such
documents to its officers, employees, attorneys, accountants and agents as
required in order to conduct its business with Buyer and to Lehman Commercial
Paper Inc. and Greenwich Capital Financial Products, Inc.
(n) Further Assurances. Guarantor shall promptly provide and
cause to be provided to the Buyer such further assurances, documents,
instruments and agreements as the Buyer may reasonably request in order to
effect the purposes of this Guaranty and the Agreement.
4. Negative Covenants. The Guarantor hereby covenants and agrees with
the Buyer that the Guarantor shall not:
(a) Liens. Create, incur, assume or suffer to exist, any Lien
upon the Purchased Repo Assets except as contemplated hereby or create, incur,
assume or
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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 Seller or Guarantor, 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
Seller's or Guarantor's business;
(3) Purchase money security interests for property
hereafter acquired, conditional sale agreements, or other title
retention agreements, with respect to 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.
(b) Indebtedness. Create, incur, assume or suffer to exist, or
otherwise become or be liable in respect of, any Indebtedness except:
(1) The "Obligations" under the Warehouse Agreement;
(2) Indebtedness reflected in the financial statements
referred to in Paragraph 3(a) above;
(3) Trade debt incurred in the ordinary course of
business;
(4) Indebtedness secured by Liens permitted under
Paragraph 4(a) above;
(5) Capitalized Lease Obligations in an aggregate amount
not to exceed at any one time outstanding $10,000,000.00;
(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.
(c) Consolidation and Merger. Liquidate or dissolve, or enter
into any consolidation, merger, partnership, joint venture, syndicate or other
combination
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unless: (1) Seller and Guarantor remain as separate surviving corporations
following any such consolidation, merger, partnership, joint venture, syndicate
or other combination by either Seller or Guarantor, 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 Guarantor (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.
(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 acquired after the effective date hereof,
exceeds twenty percent (20%) of total assets of Guarantor (determined in
accordance with GAAP on a consolidated basis) immediately prior to the proposed
effective date of such acquisition.
(e) Payment of Dividends. Declare or pay any dividends upon any
shares of Guarantor's stock now or hereafter outstanding, except dividends
payable in the capital stock of Guarantor, 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.
(f) Purchase or Retirement of Stock. From and after the date of
the Agreement, acquire, purchase, redeem or retire any shares of Guarantor's
capital stock now or hereafter outstanding (other than the conversion of Series
B preferred stock and Series C preferred stock into common stock contemplated by
the Cap Z Agreement); 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,
Guarantor may enter into such transactions in an aggregate fair market dollar
amount not to exceed $5,000,000.00.
(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 Seller's or Guarantor's or any
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 Guarantor (determined in accordance with
GAAP on a consolidated basis) immediately prior to the proposed effective date
of such investment, advance or commitment to advance.
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(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 or otherwise in accordance with the Seller's business
plan projection known as the "Project Angel Projection" dated as of February 15,
1999, a copy of which having been delivered to the Buyer.
(i) Leverage. Permit at any time the Leverage Ratio of Guarantor
and its consolidated Subsidiaries to exceed 4.00:1.00.
(j) Minimum Tangible Net Worth. Permit at any time:
(1) Guarantor's Tangible Net Worth to be less than the
sum of: (i) $135,000,000, plus (ii) eighty percent (80%) of net income
(if positive), determined in accordance with GAAP, during each calendar
quarter ending after the date hereof, plus (iii) eighty-five percent
(85%) of contributions to equity of Guarantor (other than the "Rights
Offering" under (and as defined in) the Cap Z Agreement) made at any
time after the date hereof, plus (iv) one hundred percent (100%) of
contributions to equity of Guarantor in connection with the "Rights
Offering" under (and as defined in) the Cap Z Agreement, or
(2) Seller's Tangible Net Worth to be less than the sum
of: (i) $400,000,000, plus (ii) eighty percent (80%) of net income (if
positive), determined in accordance with GAAP, during each calendar
quarter ending after the date hereof, plus (iii) eighty-five percent
(85%) of contributions to equity of Seller (other than the "Rights
Offering" under (and as defined in) the Cap Z Agreement) made at any
time after the date hereof, plus (iv) one hundred percent (100%) of
contributions to equity of Seller in connection with the "Rights
Offering" under (and as defined in) the Cap Z Agreement.
(k) Minimum Profitability. Permit at the end of any calendar
quarter (commencing with the calendar quarter ending September 30, 1999)
Guarantor'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.
(l) Non-Warehouse Debt. Permit at any time the Non-Warehouse
Debt Ratio of Guarantor and its consolidated Subsidiaries to exceed 1.55:1.00
for the calendar quarters ending March 31, 1999 and June 30, 1999, and 1.40:1.00
for any other calendar quarter thereafter.
(m) Maintenance of Liquidity and Committed Working Capital Line.
Permit:
(1) The aggregate amount of the Guarantor's cash, Cash
Equivalents and available borrowing capacity on unencumbered assets that
could be drawn against (taking into account required haircuts) under
committed warehouse or working capital facilities, on a consolidated
basis and on any given day, to be less than: (i) prior to July 1, 1999,
$5,000,000, and (ii) on and after July 1, 1999,
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$15,000,000; provided, however, that the liquidity of the Guarantor, on
a consolidated basis and on any given day, may fall below the foregoing
thresholds one time in any given calendar month and such noncompliance
shall not last for more than three Business Days, but may in no event
fall below $1,000,000 at any time; or
(2) Seller to have less than $25,000,000 of commitment
under a committed working capital line at any time; provided, however,
that Seller may have less commitment than the foregoing threshold if
Seller can otherwise satisfy the Buyer as to the availability of working
capital to meet its servicing advance obligations.
(n) Subsidiaries. Create or permit the creation of any
Subsidiary not in existence as of the date hereof unless such Subsidiary is in
the same line of business as the Seller and the total capitalization thereof
does not exceed $1,000,000.
(o) 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 (i) on an arms-length basis upon
terms and conditions comparable to those that could be reached with a third
party, and (ii) Mortgage Loans on the books of Guarantor or Seller with original
principal amounts in the aggregate not to exceed $5,000,000 at any one time
extended to executives of the Guarantor or Seller, which Mortgage Loans can and
will be securitized.
5. Miscellaneous.
(a) In addition to the Obligations, Guarantor agrees to pay
reasonable attorneys' fees and all other costs and expenses incurred by Buyer in
enforcing this Guaranty in any action or proceeding arising out of, or relating
to, this Guaranty.
(b) Guarantor agrees to execute any and all further documents,
instruments and agreements as Buyer from time to time reasonably requests to
evidence Guarantor's obligations hereunder.
(c) This Guaranty and the liability and obligations of Guarantor
hereunder are binding upon Guarantor and Guarantor's successors and assigns, and
this Guaranty inures to the benefit of and is enforceable by Buyer and its
successors, transferees and assigns.
(d) No right or power of Buyer hereunder shall be deemed to have
been waived by any act or conduct on the part of Buyer, or by any neglect to
exercise such right or power, or by any delay in so doing, and every right or
power shall continue in full force and effect until specifically waived or
released by an instrument in writing executed by Buyer.
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(e) Guarantor has reviewed and approved the Agreement and all
the Repurchase Documents.
(f) This Guaranty shall be governed by and construed in
accordance with the substantive laws of the State of California.
(g) The terms and provisions hereof may not be waived, altered,
modified or amended except in writing duly signed by Buyer and by Guarantor.
(h) If any of the provisions of this Guaranty shall contravene
or be held invalid under the laws of any jurisdiction, this Guaranty shall be
construed as if not containing those provisions and the rights and obligations
of the parties hereto shall be construed and enforced accordingly.
Executed as of the day and year first above written.
AAMES FINANCIAL CORPORATION,
a Delaware corporation
By: /s/ David A. Sklar
---------------------------------
Name: David A. Sklar
-------------------------------
Title: EVP & CFO
------------------------------
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EXHIBIT 10.33
AGREEMENT FOR MANAGEMENT ADVISORY SERVICES
THIS MANAGEMENT ADVISORY SERVICES AGREEMENT (this "Agreement")
is made as of February 10, 1999, between Aames Financial Corporation, a Delaware
corporation (the "Company"), and Equifin Capital Management, LLC, a Delaware
limited liability company ("Advisor").
WHEREAS, the Company and Advisor are entering into this
Agreement pursuant to that certain Preferred Stock Purchase Agreement, dated as
of December 23, 1998, between the Company and Capital Z Financial Services Fund
II, L.P.; and
WHEREAS, the Company desires to retain the advisory services
of Advisor and Advisor is willing to render such services on the terms set forth
in this Agreement.
NOW, THEREFORE, in consideration of the promises and the
mutual covenants contained in this Agreement, the parties agree as follows:
1. Scope of Agreement
Unless and until this Agreement is amended and except as the
parties agree otherwise in writing, this Agreement sets forth the terms and
conditions applicable to the performance by Advisor during the Term (as defined
in Section 2 hereof) of the
<PAGE> 2
specific services for the Company related to the business of the Company, which
are set forth in Section 3 hereof.
2. Term
The term of this Agreement (the "Term") shall commence on the
date hereof and shall continue until the earlier of (i) five (5) years from the
date hereof and (ii) such date as is mutually agreed to by the parties hereto as
the termination date for the services to be provided hereunder. Notwithstanding
the foregoing, the Term may be terminated earlier in accordance with Section 8
hereof or may be extended by mutual consent of the parties.
3. Advisory Services
During the Term, Advisor shall provide advisory services to
Company as requested by the Company with respect to business performance
improvements, cost reduction programs and quality initiatives to be implemented
by the Company, as well as general advice relating to business decisions which
have been or may be contemplated by the Company (the "Advisory Services"). The
Advisory Services shall be provided by Advisor in such manner and at such places
as it reasonably deems to be appropriate. The Company shall provide to Advisor
such documentation and access to Company personnel as Advisor may deem
reasonably necessary to perform the Advisory Services that may be requested by
the Company hereunder. From time to time, the Company and the Advisor may enter
into mutually acceptable arrangements with
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<PAGE> 3
regard to transactions outside the normal course of business, at compensation
levels to be mutually agreed upon.
4. Compensation and Expenses
(a) In consideration for the Advisory Services, the Company
shall pay to Advisor an advisory fee of $250,000 per calendar quarter (the
"Fee"). The Fee shall be paid to Advisor in advance on each January 15, April
15, July 15 and October 15 during the Term, provided that the initial Fee
payment shall be made on the date hereof, in recognition of services performed
prior to date hereof and for the balance of the calendar quarter ending March
31, 1999.
(b) The Company shall pay or reimburse Advisor for all
reasonable, documented out-of-pocket expenses incurred by Advisor in performing
Advisory Services (including, but not limited to, reasonable travel, hotel and
meal expenses incurred by Advisor's employees and representatives in connection
with the performance of Advisory Services and in accordance with the Advisor's
applicable travel and expense policies). Advisor may invoice the Company
periodically for all such expenses incurred, which invoice shall be accompanied
by reasonable documentation of all expenses then being invoiced, and the Company
shall pay Advisor the amount of such invoice within ten (10) days of the receipt
of such invoice.
(c) All payments made to Advisor under this Agreement shall be
in cash in the manner specified in writing by Advisor,
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<PAGE> 4
and all such payments shall be made without deduction, set off, recoupment or
counterclaim.
5. Documentation
At the request of the Company, Advisor will submit a summary
of all services performed during the period covered by such request indicating
the date(s) of performance, the resources involved, and a summary description of
services rendered. Advisor may submit, on a monthly basis, a statement showing
all time spent performing Advisory Services during such month and, unless the
Company objects to such statement within 30 days after the delivery of same by
Advisor, such statement shall be conclusive as to the number of hours spent
performing such services.
6. Conflicts of Interest; Confidentiality.
(a) The Company acknowledges that Advisor (and its affiliates)
intend to provide services which are similar to the Advisory Services to other
persons or entities, some of which may be in competition with the Company. The
Company agrees that it will not assert that the provision of any such other
services constitutes a conflict of interest or breach of this Agreement or
otherwise gives rise to a claim against Advisor or any such affiliate.
(b) Advisor agrees to treat confidentially any non-public
information provided to it by the Company hereunder and not to disclose such
information to any other person (other than any of Advisor's employees,
representatives or affiliates who
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<PAGE> 5
need to know such information for purposes of performing Advisory Services or
members of the Company's Board of Directors or representatives of Capital Z
Financial Services Fund II, L.P. or its general partner), except as may be
required by law or legal process.
7. Independent Contractor Status.
(a) Advisor will function under this Agreement solely as an
independent Advisory contractor performing work for the Company. This Agreement
does not constitute either party as an employee, partner, joint venturer, agent
or other representative of the other party for any purpose whatsoever. Neither
party has the right or authority to enter into any contract, warranty, guarantee
or other undertaking in the name of or for the account of the other party, or to
create an obligation or liability of any kind, express or implied, on behalf of
the other party, or to bind the other party in any manner whatsoever, or hold
itself out as having any right, power or authority to create any such obligation
or liability on behalf of the other or to bind the other party in any manner
whatsoever (except as to any actions taken by either party at the express
written request and direction of the other party).
(b) Advisor shall be solely responsible for the payment of any
Federal, state and local taxes applicable to the Advisory Fees and expenses paid
or payable by the Company in connection with the Advisory Services.
8. Termination.
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<PAGE> 6
In the event that (i) Advisor's professionals spend, in the
aggregate, less than 480 hours performing Advisory Services during any twelve
month period or (ii) Mani Sedeghi ceases to serve as a principal of Advisor,
then the Company may terminate this Agreement upon thirty (30) days' prior
written notice to Advisor. Upon such termination, the Company shall be liable
for payment of any Advisory Fees and expenses accrued prior to the date of such
termination. The provisions of Sections 4 (with respect to all Fees earned and
expenses incurred prior to the date of termination) and 6 through 12 hereof,
inclusive, shall survive any termination of this Agreement. 9. Indemnification.
The Company shall indemnify and hold harmless Advisor and any
of its officers, partners, members, shareholders, directors, employees and
affiliates (direct or indirect) (each, an "Indemnified Person") from and against
all actions, suits, proceedings (including any investigations or inquiries),
claims, losses, damages, liabilities or expenses or any kind or nature
whatsoever ("Claims") which may be incurred by or asserted against or involve
Advisor or any other Indemnified Person as a result of any third party claim
arising out of the Advisory Services (including, without limitation, any
Advisory Services rendered prior to the date hereof) or the engagement of
Advisor hereunder and, upon demand by Advisor or any other Indemnified Person,
pay or reimburse any of Advisor or such other Indemnified Person for any
reasonable out-of-pocket legal or other expenses, and other costs incurred by
Advisor or such Indemnified Person in
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<PAGE> 7
connection with the investigation, defending or preparing to defend any such
Claim, provided that the foregoing indemnity shall not apply to the extent any
Claim is finally determined by a court of competent jurisdiction to have
resulted from the gross negligence or willful misconduct of Advisor.
The Company shall assume the defense of any Claim and shall
employ counsel reasonably satisfactory to the Advisor. Any Indemnified Person
shall have the right to employ separate counsel with respect to any such Claim
and participate in the defense thereof at the expense of the Company if (i) the
Company has failed promptly to assume the defense and employ counsel or (ii) the
named parties to such action (including any impleaded parties) include any
Indemnified Person and the Company or any of its affiliates, and such
Indemnified Person shall have been advised by counsel that there may be one or
more legal defenses available which are different from or in addition to those
available to the Company or any of its affiliates, in which case the Indemnified
Person shall have the right to assume the defense thereof at the expense of the
Company; provided, that, the Company shall not be responsible for the fees and
expenses of more than one firm of separate counsel for all Indemnified Persons
in connection with any such action in the same jurisdiction, in addition to any
local counsel.
10. Notices.
All notices, requests, consents and other communications shall
be deemed given upon receipt and shall be in
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<PAGE> 8
writing and shall be delivered in person or mailed by certified mail, return
receipt requested, or sent by facsimile transmission, and, if to the Company,
shall be addressed as follows:
Aames Financial Corporation
2 California Plaza
350 South Grand Avenue
Los Angeles, California 90071
Attention: General Counsel
Telecopy: (323) 210-5026
and if to Advisor, shall be addressed as follows:
Equifin Capital Finance Management, LLC
One Chase Manhattan Plaza
New York, New York
Attention: Mani Sadeghi
Telecopy: 212-898-8721
11. Assignment.
Neither party may assign this Agreement without the consent of
the other party in writing.
12. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without giving
effect to conflicts of law principles thereof.
(b) Entire Agreement. This Agreement constitutes the sole and
entire agreement of the parties with respect to the subject matter hereof and
supersedes and is in full substitution for any and all prior agreements and
understandings between them relating to such subject matter.
-8-
<PAGE> 9
(c) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(d) Amendments. This Agreement may not be amended or modified,
and no provisions hereof may be waived, without the written consent of the
Company and Advisor.
(e) Severability. If any provision of this Agreement shall be
declared void or unenforceable by any judicial or administrative authority, the
validity of any other provision and of the entire Agreement shall not be
affected thereby.
(f) Titles and Subtitles. The titles and subtitles used in
this Agreement are for convenience only and are not to be considered in
construing or interpreting any term or provision of this Agreement.
-9-
<PAGE> 10
AAMES FINANCIAL CORPORATION EQUIFIN CAPITAL MANAGEMENT, LLC
By: /s/ Cary H. Thompson By: /s/ Mani Sadeghi
------------------------------- --------------------------------
Name: Name: Mani A. Sadeghi
Title: Title: CEO
Date Date 2/8/99
------------------------------- --------------------------------
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<PAGE> 1
EXHIBIT 11
AAMES FINANCIAL CORPORATION
EARNINGS PER SHARE
FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
-------------------------- --------------------------
1999 1998 1999 1998
------------ ---------- ------------ ----------
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C>
BASIC EARNINGS (LOSS) PER COMMON
SHARE:
Net income (loss) for calculating
basic earnings per common
share............................ $(35,979,000) 2,018,000 (233,880,000) 21,121,000
Average common shares outstanding... 31,006,962 27,898,000 30,997,059 27,827,000
------------ ---------- ------------ ----------
Basic earnings (loss) per common
share.......................... $ (1.16) 0.07 (7.55) 0.76
============ ========== ============ ==========
DILUTED EARNINGS (LOSS) PER COMMON
SHARE:
Net income (loss) for calculating
diluted earnings per common
share............................ (35,979,000) 2,018,000 (233,880,000) 21,121,000
Adjust net income to add back the
after-tax amount of interest
recognized in the period
associated with the convertible
subordinated notes............... -- -- -- 2,726,000
------------ ---------- ------------ ----------
Adjusted net income (loss)....... $(35,979,000) 2,018,000 (233,880,000) 23,847,000
============ ========== ============ ==========
Average common shares outstanding... 31,006,962 27,898,000 30,997,059 27,827,000
Add exercise of options and
warrants......................... -- 842,000 -- 1,163,000
Convertible subordinated notes...... -- -- -- 6,107,000
------------ ---------- ------------ ----------
Diluted shares outstanding....... 31,006,962 28,740,000 30,997,059 35,097,000
============ ========== ============ ==========
Diluted earnings (loss) per common
share............................ $ (1.16) 0.07 (7.55) 0.68
============ ========== ============ ==========
</TABLE>
39
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 10,984,000
<SECURITIES> 0
<RECEIVABLES> 391,215,000
<ALLOWANCES> 664,000
<INVENTORY> 342,060,000
<CURRENT-ASSETS> 743,595,000
<PP&E> 28,506,000
<DEPRECIATION> 14,042,000
<TOTAL-ASSETS> 758,059,000
<CURRENT-LIABILITIES> 340,698,000
<BONDS> 281,240,000
0
67,429,000
<COMMON> 31,000
<OTHER-SE> 68,661,000
<TOTAL-LIABILITY-AND-EQUITY> 758,059,000
<SALES> (59,848,000)
<TOTAL-REVENUES> (59,848,000)
<CGS> 30,879,000
<TOTAL-COSTS> 30,879,000
<OTHER-EXPENSES> 140,976,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,759,000
<INCOME-PRETAX> (263,462,000)
<INCOME-TAX> (29,582,000)<F1>
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (233,880,000)
<EPS-PRIMARY> (7.55)<F2>
<EPS-DILUTED> (7.55)
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, INCOME TAX READS "INCOME TAX/(BENEFIT)"
<F2>FOR THE PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
