UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1997
------------------
Commission File Number: 0-19822
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LITCHFIELD FINANCIAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3023928
----------------------------------- -----------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
789 MAIN ROAD, STAMFORD, VT 05352
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Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (802) 694-1200
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(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
--- ---
As of October 29, 1997, 5,651,609 shares of common stock of Litchfield Financial
Corporation were outstanding.
1
<PAGE>
LITCHFIELD FINANCIAL CORPORATION
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1997
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
2
<PAGE>
FORM 10-Q
PART I - FINANCIAL STATEMENTS
Item 1. Financial Statements
LITCHFIELD FINANCIAL CORPORATION
Consolidated Balance Sheets
(in 000's except share amounts)
<TABLE>
September 30, December 31,
1997 1996
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................. $ 5,909 $ 5,557
Restricted cash .......................................... 20,848 18,923
Loans held for sale, net of allowance for loan losses of
$1,594 in 1997 and $817 in 1996........................ 24,585 12,260
Other loans, net of allowance for loan losses of
$1,306 in 1997 and $1,200 in 1996...................... 76,931 79,996
Retained interests in loan sales.......................... 30,076 28,912
Other..................................................... 7,116 7,041
-------- --------
Total assets........................................ $165,465 $152,689
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Lines of credit........................................ $ 20,472 $ 36,299
Term note payable...................................... 5,797 7,428
Accounts payable and accrued liabilities............... 4,754 3,811
Dealer/developer reserves.............................. 10,890 10,628
Deferred income taxes.................................. 6,860 5,080
--------- --------
48,773 63,246
--------- --------
9.3% Notes ............................................. 20,000 ---
10% Notes due 2002...................................... 12,785 12,785
8 7/8 % Notes due 2003.................................. 15,317 15,930
10% Notes due 2004...................................... 18,280 18,280
--------- --------
66,382 46,995
--------- --------
Stockholders' equity:
Preferred stock, $.01 par value; authorized 1,000,000
shares, none issued and outstanding.................. --- ---
Common stock, $.01 par value; authorized 8,000,000
shares, 5,651,609 shares issued and outstanding
in 1997 and 5,444,399 shares issued and outstanding
in 1996.............................................. 56 54
Additional paid in capital............................. 36,625 34,633
Net unrealized gain on retained interests in loan sales 682 ---
Retained earnings ..................................... 12,947 7,761
--------- --------
Total stockholders' equity.......................... 50,310 42,448
--------- --------
Total liabilities and stockholders' equity.......... $165,465 $152,689
========= ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
FORM 10-Q
LITCHFIELD FINANCIAL CORPORATION
Consolidated Statements of Income
(in 000's except share and per share amounts)
Unaudited
<TABLE>
Three Months Ended September 30,
-------------------------------
1997 1996
------ ------
<S> <C> <C>
Revenues:
Interest and fees on loans.......................... $5,025 $3,823
Gain on sale of loans............................... 2,684 2,811
Servicing and other fee income...................... 554 343
------- -------
8,263 6,977
------- -------
Expenses:
Interest expense.................................... 2,733 1,843
Salaries and employee benefits...................... 883 672
Other operating expenses............................ 889 873
Provision for loan losses........................... 244 420
------- -------
4,749 3,808
------- -------
Income before income taxes............................. 3,514 3,169
Provision for income taxes............................. 1,353 1,223
------- -------
Net income............................................. $2,161 $1,946
======= =======
Primary per common share amounts:
Net income per common share ........................ $ .36 $ .34
======== ========
Weighted average number of shares................... 5,980,230 5,697,127
Fully-diluted per common share amounts:
Net income per common share......................... $ .36 $ .34
======== ========
Weighted average number of shares................... 6,044,528 5,720,924
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
FORM 10-Q
LITCHFIELD FINANCIAL CORPORATION
Consolidated Statements of Income
(in 000's except share and per share amounts)
Unaudited
<TABLE>
Nine Months Ended September 30,
-------------------------------
1997 1996
------- -------
<S> <C> <C>
Revenues:
Interest and fees on loans.......................... $14,354 $10,463
Gain on sale of loans............................... 6,751 6,165
Servicing and other fee income...................... 1,256 1,100
------- -------
22,361 17,728
------- -------
Expenses:
Interest expense.................................... 7,775 5,140
Salaries and employee benefits...................... 2,529 2,054
Other operating expenses............................ 2,645 2,155
Provision for loan losses........................... 979 1,374
------- -------
13,928 10,723
------- -------
Income before income taxes............................. 8,433 7,005
Provision for income taxes............................. 3,247 2,697
------- -------
Net income............................................. $5,186 $4,308
======= =======
Primary per common share amounts:
Net income per common share ........................ $ .88 $ .76
======== ========
Weighted average number of shares................... 5,874,768 5,681,431
Fully-diluted per common share amounts:
Net income per common share......................... $ .87 $ .75
======== ========
Weighted average number of shares................... 5,986,379 5,715,391
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
FORM 10-Q
LITCHFIELD FINANCIAL CORPORATION
Consolidated Statement of Stockholders' Equity
(in 000's)
Unaudited
<TABLE>
Net unrealized
Gain on
Additional Retained
Common Paid In Interests in Retained
Stock Capital Loan Sales Earnings Total
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996.......................... $54 $34,633 $ --- $ 7,761 $42,448
Issuance of 207,210 shares of common
stock ......................................... 2 1,992 --- --- 1,994
Net unrealized gain on retained
interests in loan sales........................ --- --- 682 --- 682
Net income....................................... --- --- --- 5,186 5,186
----- ------- ---- ------- -------
Balance, September 30, 1997......................... $56 $36,625 $682 $12,947 $50,310
===== ======= ==== ======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE>
FORM 10-Q
LITCHFIELD FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(in 000's)
Unaudited
<TABLE>
Nine Months Ended September 30,
-------------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income........................................... $5,186 $4,308
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Gain on sale of loans............................. (6,751) (6,165)
Amortization and depreciation..................... 412 462
Amortization of retained interests in loan sales.. 3,441 2,359
Provision for loan losses......................... 979 1,374
Deferred income taxes............................. 1,780 1,040
Net changes in operating assets and liabilities:
Restricted cash................................ (1,925) (1,697)
Loans held for sale............................ (12,530) 7,726
Retained interests in loan sales............... (1,588) (3,959)
Dealer/developer reserves...................... 262 307
Net change in other assets and liabilities..... 1,185 (3,226)
------- -------
Net cash provided by (used in) operating activities (9,549) 2,529
------- -------
Cash flows from investing activities:
Redemption of investments held to maturity........... 46 101
Net originations and principal payments on other loans (37,831) (30,276)
Other loans sold..................................... 40,790 ---
Collections on retained interests in loan sales...... 3,567 359
Capital expenditures and other assets................ ( 594) (90)
-------- -------
Net cash provided by (used in) investing activities 5,978 (29,906)
-------- -------
Cash flows from financing activities:
Net borrowings (payments) on lines of credit......... (15,827) 21,600
Proceeds from issuance of 9.3% Notes................. 20,000 ---
Retirement of long-term Notes........................ (613) (303)
Payments on term note................................ (1,631) (1,970)
Net proceeds from issuance of common stock........... 1,994 52
------- -------
Net cash provided by financing activities......... 3,923 19,379
------- -------
Net increase (decrease) in cash and cash equivalents..... 352 (7,998)
Cash and cash equivalents, beginning of period........... 5,557 18,508
------- -------
Cash and cash equivalents, end of period................. $5,909 $10,510
======= =======
Supplemental Schedule of Noncash Financing and
Investing Activities:
Exchange of loans for retained interests in loan sales $ 577 $ 3,540
====== =======
Transfers from loans to real estate acquired
through foreclosure................................... $ 815 $ 498
====== =======
Supplemental Cash Flow Information:
Interest paid........................................ $7,556 $ 4,806
====== =======
Income taxes paid.................................... $1,455 $ 1,154
====== =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
7
<PAGE>
FORM 10-Q
LITCHFIELD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Basis of Presentation
The accompanying unaudited consolidated interim financial statements as of
September 30, 1997 and for the three and nine month periods ended September 30,
1997 and 1996 have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal accruals) considered necessary
for a fair presentation have been included. Operating results for the three and
nine month periods ended September 30, 1997, are not necessarily indicative of
the results expected for the year ended December 31, 1997. For further
information, refer to the consolidated financial statements and footnotes
thereto included in Litchfield Financial Corporation's annual report on Form
10-K for the year ended December 31, 1996.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share," which
is required to be adopted for financial statements on December 31, 1997. At that
time, the Company will be required to change the method currently used to
compute earnings per share and to restate all prior periods. Primary earnings
per share will be replaced by basic earnings per share. Fully-diluted earnings
per share will be replaced by diluted earnings per share. Under the new
requirements for calculating basic earnings per share, the dilutive effect of
stock options will be excluded. Under the new standard, basic earnings per share
would have been $.02 per share higher for each of the quarters ended September
30, 1997 and 1996 and $.06 and $.03 per share higher for the nine months ended
September 30, 1997 and 1996, respectively. Under the new requirements for
calculating diluted earnings per share, the average market price for the period
will be used rather than the greater of the average market price for the period
or the ending market price for the period. There would be no impact on the
calculation of diluted earnings per share for either of the quarters ended
September 30, 1997 and 1996. Diluted earnings per share would have been $.01
higher for the nine months ended September 30, 1997 and 1996.
B. Gain on Sale of Loans and Retained Interests in Loan Sales
As of January 1, 1997, the Company adopted the requirements of Statement of
Financial Accounting Standards No. 125 "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" for transfers of
receivables. This standard did not have a material effect on net income for the
three or nine months ended September 30, 1997. The Company has reclassified
certain subordinated pass-through certificates, interest only strips and
recourse obligations as retained interests in loan sales to conform with this
standard.
Gains on sales of loans are based on the difference between the allocated
cost basis of the assets sold and the proceeds received, which includes the fair
value of any assets or liabilities that are newly created as a result of the
transaction. Newly created interests which consist primarily of interest only
8
<PAGE>
FORM 10-Q
LITCHFIELD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
strips and recourse obligations are initially recorded at fair value. The
previous carrying amount is allocated between the assets sold and any retained
interests based on their relative fair values at the date of transfer. Retained
interests in transferred assets consist primarily of subordinate portions of the
principal balance of transferred assets.
The Company estimates fair value using discounted cash flow analysis
(using a discount rate commensurate with the risks involved), because quoted
market prices are not available. The Company's analysis incorporates assumptions
that market participants would be expected to use in their estimates of future
cash flows including assumptions about interest, defaults and prepayment rates.
The Company considers retained interests in loan sales, such as subordinated
pass-through certificates and interest only strips, as available for sale
because such assets are subject to prepayment.
There is generally no servicing asset or liability because the Company
estimates that the benefits of servicing are just adequate to compensate it for
its servicing responsibilities.
Since its inception, the Company has sold $327,646,000 of loans at face
value ($249,451,000 through December 31, 1996). The principal amount remaining
on the loans sold was $174,009,000 at September 30, 1997 and $129,619,000 at
December 31, 1996. In June and August 1997, the Company completed its first
securitizations of $15,325,000 and $25,465,000 of Hypothecation Loans in private
placements. In connection with certain loan sales, the Company guarantees,
through replacement or repayment, loans in default up to a specified percentage
of loans sold. Dealer/developer guaranteed loans are secured by repurchase or
replacement guarantees in addition to, in most instances, dealer/developer
reserves.
The Company's undiscounted exposure to loss on loans sold in the event of
nonperformance by the borrower, default by the dealer/developer on its
guarantee, and the determination that the collateral is of no value was
$9,675,000 at September 30, 1997 ($8,780,000 at December 31, 1996). The Company
repurchased $104,000 and $264,000 of loans under the recourse provisions of loan
sales during the three months ended September 30, 1997 and 1996. Loans
repurchased during the nine months ended September 30, 1997 and 1996 were
$558,000 and $778,000, respectively, and $991,000 during the year ended December
31, 1996. In addition, when the Company sells loans through securitization
programs, the Company commits either to replace or repurchase any loans that do
not conform to the requirements thereof in the operative loan sale documents. As
of September 30, 1997, $19,875,000 of the Company's cash was restricted as
credit enhancements in connection with certain securitization programs.
The Company's Serviced Portfolio is geographically diversified with
collateral and consumers located in 43 and 50 states, respectively. The Serviced
Portfolio consists of the principal amount of loans serviced by or on behalf of
the Company. At September 30, 1997, 19.0% of the portfolio by collateral
location was located in Texas, and 18.6% and 12.0% of the portfolio by borrower
location was located in Texas and Florida, respectively. No other state
accounted for more than 9.0% of the total by either collateral or borrower
location.
9
<PAGE>
FORM 10-Q
LITCHFIELD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
C. Allowance for loan losses
The total allowance for loan losses consists of the following:
<TABLE>
September 30, December 31,
1997 1996
------------- -----------
<S> <C> <C>
Allowance for losses on loans held for sale... $1,594,000 $ 817,000
Allowance for losses on other loans........... 1,306,000 1,200,000
Recourse obligation on retained interests
in loan sales .............................. 2,830,000 2,511,000
---------- ----------
$5,730,000 $4,528,000
========== ==========
</TABLE>
D. Debt
In January 1997, an additional secured line of credit was increased from
$5,000,000 to $8,000,000. This line of credit matures in January 1998. There
were no outstanding borrowings on this line of credit at September 30, 1997 and
December 31, 1996. This line of credit is secured by consumer receivables and
other secured loans.
In January 1997, an additional secured line of credit was increased from
$15,000,000 to $20,000,000. Outstanding borrowings under this facility were
$7,050,000 and $8,300,000 at September 30, 1997 and December 31, 1996,
respectively. This facility is secured by certain retained interests in loan
sales, cash collateral accounts and certain other loans and matures in September
1999.
On March 5, 1997, the Company entered into an additional $25,000,000
secured line of credit. The outstanding borrowings at September 30, 1997 were
$6,152,000. The facility is secured by loans to developers of VOI resorts for
the acquisition and development of VOI resorts ("Facility A") and the related
financing of consumer purchases of VOIs ("Facility B"). Although the maximum
amount that can be borrowed on each facility is $15,000,000, the aggregate
outstanding borrowings cannot exceed $25,000,000. This facility expires in March
2000.
On March 21, 1997, the Company entered into a $3,000,000 secured line of
credit with an additional financial institution. This line of credit is secured
by consumer receivables and other secured loans and matures in March 1998. There
were no outstanding borrowings at September 30, 1997.
In May 1997, a secured line of credit was renewed and amended to include
an increase in the amount of the line from $30,000,000 to $50,000,000 and an
extension of the maturity to April 2000. Outstanding borrowings under the line
of credit were $6,950,000 and $26,200,000 at September 30, 1997 and December 31,
1996, respectively. This line of credit is secured by consumer receivables and
other secured loans.
Interest rates on the above lines of credit range from the Eurodollar or
LIBOR rates plus 2% to the prime rate plus 1.25%. The Company is not required to
maintain compensating balances or forward sales commitments under the terms of
these lines of credit.
10
<PAGE>
FORM 10-Q
LITCHFIELD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company also has a revolving line of credit and sale facility as part
of an asset backed commercial paper facility with a multi-seller commercial
paper issuer ("Conduit A"). In October 1996 the Company amended the facility to
increase the facility from $75,000,000 to $100,000,000, subject to certain terms
and conditions, reduce certain credit enhancement requirements and expand
certain loan eligibility criteria. The outstanding aggregate balance of the
loans pledged and sold under the facility at any time cannot exceed
$100,000,000. The facility expires in June 1998.
In connection with the facility, the Company formed a wholly owned
subsidiary, Litchfield Mortgage Securities Corporation 1994 ("LMSC"), to
purchase loans from the Company. LMSC either pledges the loans on a revolving
line of credit with Conduit A or sells the loans to Conduit A. Conduit A issues
commercial paper or other indebtedness to fund the purchase or pledge of loans
from LMSC. Conduit A is not affiliated with the Company or its affiliates. As of
September 30, 1997, the outstanding balance of eligible loans sold under the
facility was $95,625,000. Outstanding borrowings under the line of credit at
September 30, 1997 and December 31, 1996 were $320,000 and $1,799,000,
respectively. Interest is payable on the line of credit at an interest rate
based on certain commercial paper rates.
On March 21, 1997, the Company closed an additional revolving line of
credit and sale facility of $25,000,000 with another multi-seller of commercial
paper conduit ("Conduit B"). The facility, which expires in March 2000, is
subject to certain terms and conditions, credit enhancement requirements and
loan eligibility criteria. The outstanding aggregate balance of the loans
pledged and sold under the facility at any time cannot exceed $25,000,000.
In connection with the facility, the Company formed a wholly owned
subsidiary, Litchfield Capital Corporation 1995 ("LCC"), to purchase loans from
the Company. LCC either pledges the loans on a revolving line of credit with
Conduit B or sells the loans to Conduit B. Conduit B issues commercial paper or
other indebtedness to fund the purchase or pledge of loans from LCC. Conduit B
is not affiliated with the Company or its affiliates. As of September 30, 1997,
the outstanding balance of the eligible loans previously sold under the facility
was $13,710,000. There were no outstanding borrowings under the line of credit
as of September 30, 1997. Interest is payable on the line of credit at an
interest rate based on certain commercial paper rates.
The 10.43% promissory note is payable monthly based on collection of the
underlying collateral. The note is redeemable only with the approval of the
noteholder. The note is collateralized by certain of the Company's retained
interests in loan sales and cash. The balance outstanding on the note was
$5,797,000 and $7,428,000 at September 30, 1997 and December 31, 1996,
respectively.
In April 1997, the Company issued unsecured notes with an initial
principal balance of $20,000,000. Interest is payable at 9.3% semiannually in
arrears. The notes require principal reductions of $7,500,000, $6,000,000,
$6,000,000 and $500,000 in March 2001, 2002, 2003 and 2004, respectively.
11
<PAGE>
FORM 10-Q
LITCHFIELD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
E. Derivative financial instruments held for purposes other than trading
The Company enters into interest rate swap agreements to modify the
interest characteristics of its outstanding debt. There are currently two swap
agreements in effect which involve the payment of interest to the counterparty
at the prime rate on a notional amount of $110,000,000 and the receipt of
interest at the commercial paper rate plus a spread and the LIBOR rate plus a
spread on notional amounts of $80,000,000 and $30,000,000, respectively. The
swap agreements expire in June, 2000. There is no exchange of the notional
amounts upon which the interest payments are based.
The differential to be paid or received as interest rates change is
accrued and recognized as an adjustment to interest expense on outstanding debt,
(the accrual accounting method.) The related amount receivable from or payable
to the counterparty is included in other assets or other liabilities. The fair
values of the swap agreements are not recognized in the financial statements.
The Company intends to keep the contracts in effect until they mature in June,
2000.
In June, 1994, the Company entered into an interest rate cap agreement
with a bank in order to manage its exposure to certain increases in interest
rates. The Company's objective in managing interest rate exposure is to match
its proportion of fixed versus variable rate assets, liabilities and loan sale
facilities. The interest rate cap entitles the company to receive an amount,
based on an amortizing notional amount, when commercial paper rates exceed 8%.
Payments to be received as a result of the cap agreement are accrued as a
reduction of interest expense. The Company is exposed to credit loss in the
event of non-performance by the cap provider.
12
<PAGE>
FORM 10-Q
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Litchfield Financial Corporation is a specialty finance company which
provides financing to creditworthy borrowers for assets not typically financed
by banks. The Company provides such financing by purchasing consumer loans, by
making loans to businesses secured by consumer receivables and by making other
secured loans to businesses.
Currently, the Company provides financing for the purchase of rural and
vacation properties and vacation ownership interests, popularly known as
timeshare interests ("Purchased Loans"). The Company also provides financing to
rural land dealers, timeshare resort developers and others secured by
receivables ("Hypothecation Loans"), to dealers and developers for the
acquisition and development of rural land and timeshare resorts ("A&D Loans")
and for other secured loans ("Other Loans").
The principal sources of the Company's revenues are (i) interest and fees
on loans, (ii) gain from the sale of loans and (iii) servicing and other fee
income. Gains on sales of loans are based on the difference between the
allocated cost basis of the assets sold and the proceeds received, which
includes the fair value of any assets or liabilities that are newly created as a
result of the transaction. Because a significant portion of the Company's
revenues is comprised of gains realized upon sales of loans, the timing of such
sales has a significant effect on the Company's results of operations.
Results of Operations
The following table sets forth the percentage relationship to revenues,
unless otherwise indicated, of certain items included in the Company's
statements of income.
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
1997 1996 1997 1996
----- ------- ------ ------
Revenues:
Interest and fees on loans. 60.8% 54.8% 64.2% 59.0%
Gain on sale of loans..... 32.5 40.3 30.2 34.8
Servicing and other fee income 6.7 4.9 5.6 6.2
----- ----- ----- ------
100.0 100.0 100.0 100.0
----- ----- ----- ------
Expenses:
Interest expense........... 33.1 26.4 34.8 29.0
Salaries and employee benefits 10.7 9.7 11.3 11.6
Other operating expenses... 10.8 12.5 11.8 12.2
Provision for loan losses.. 2.9 6.0 4.4 7.7
------ ----- ----- ------
57.5 54.6 62.3 60.5
------ ----- ---- ------
Income before income taxes ... 42.5 45.4 37.7 39.5
Provision for income taxes..... 16.3 17.5 14.5 15.2
------ ----- ----- -------
Net income..................... 26.2% 27.9% 23.2% 24.3%
====== ===== ===== =======
13
<PAGE>
FORM 10-Q
Revenues increased 18.4% and 26.1% to $8,263,000 and $22,361,000 for the
three and nine months ended September 30, 1997, from $6,977,000 and $17,728,000
for the same periods in 1996. Net income for the three and nine months ended
September 30, 1997 increased 11.0% and 20.4% to $2,161,000 and $5,186,000
compared to $1,946,000 and $4,308,000 for the same periods in 1996. Loan
originations grew 31.9% and 37.6% to $51,235,000 and $134,546,000 for the three
and nine months ended September 30, 1997 from $38,837,000 and $97,789,000 for
the same periods in 1996. The Serviced Portfolio increased 34.7% to $297,098,000
at September 30, 1997 from $220,507,000 at September 30, 1996.
Interest and fees on loans increased 31.4% and 37.2% to $5,025,000 and
$14,354,000 for the three and nine months ended September 30, 1997 from
$3,823,000 and $10,463,000 for the same periods in 1996, primarily as the result
of the higher average balance of loans held for sale and other loans during the
1997 periods. The average rate earned on loans owned and retained interests in
loan sales decreased to 12.3% at September 30, 1997 from 12.7% at September 30,
1996, primarily due to the effect of the growth in Hypothecation Loans as a
percentage of the Serviced Portfolio. Hypothecation Loan yields are usually less
than Land Loan or VOI Loan yields, but Hypothecation Loans servicing costs and
loan losses are generally less as well.
Gain on the sale of loans decreased 4.5% to $2,684,000 for the three
months ended September 30, 1997 from $2,811,000 in the same period in 1996. Gain
on the sale of loans increased 9.5% to $6,751,000 for the nine months ended
September 30, 1997 from $6,165,000 in the same period in 1996. The volume of
loans sold increased 79.3% and 72.1% to $38,694,000 and $78,195,000 for the
three and nine months ended September 30, 1997 from $21,582,000 and $45,430,000
during the corresponding periods in 1996. Gain on sale of loans decreased
despite the increase in the volume of loans sold for the three months ended
September 30, 1997 and increased less than the volume of loans sold for the nine
months ended September 30, 1997 primarily due to the lower yield on the sale of
Hypothecation Loans in the second and third quarters and, to a lesser extent,
the lower amount of discount relating to loans sold. The yield on the sale of
Hypothecation Loans is significantly less than the typical yield on sales of
consumer receivables primarily due to shorter average maturities.
Servicing and other fee income increased 61.5% and 14.2% to $554,000 and
$1,256,000 for the three and nine months ended September 30, 1997, from $343,000
and $1,100,000 for the same periods in 1996 mostly due to the increase in other
fee income resulting from the collection of a significant prepayment penalty
from a Hypothecation Loan during the three months ended September 30, 1997.
Although loans serviced for others increased 38.3% to $174,009,000 as of
September 30, 1997 from $125,793,000 at September 30, 1996, servicing income
remained relatively constant due to a decrease in the average servicing fee per
loan.
Interest expense increased 48.3% and 51.3% to $2,733,000 and $7,775,000
during the three and nine months ended September 30, 1997 from $1,843,000 and
$5,140,000 for the same periods in 1996. The increase in interest expense
primarily reflects an increase in average borrowings which was only partially
offset by a slight decrease in average rates. During the three and nine months
ended September 30, 1997, borrowings averaged $112,159,000 and $105,688,000 at
an average rate of 9.0% and 9.1%, respectively, as compared to $72,379,000 and
$66,972,000, at an average rate of 9.3% and 9.2%, respectively, during the same
periods in 1996. Interest expense includes the amortization of deferred debt
issuance costs.
14
<PAGE>
FORM 10-Q
Salaries and employee benefits increased 31.4% and 23.1% to $883,000 and
$2,529,000 for the three and nine months ended September 30, 1997 from $672,000
and $2,054,000 for the same periods in 1996 because of an increase in the number
of employees in 1997 and, to a lesser extent, an increase in salaries. The
number of full time equivalents increased to 67 at September 30, 1997 compared
to 56 at September 30, 1996. Personnel costs as a percentage of revenues
increased to 10.7% for the three months ended September 30, 1997 compared to
9.7% for the same period in 1996. Personnel costs as a percentage of revenues
decreased slightly to 11.3% for the nine months ended September 30, 1997 from
11.6% for the same period in 1996 primarily as a result of subcontracting of
additional servicing to a third party in April, 1996. As a percentage of the
Serviced Portfolio, personnel costs decreased to 1.19% and 1.14% for the three
and nine months ended September 30, 1997 from 1.22% and 1.24% for the same
periods in 1996.
Other operating expenses increased 1.8% to $889,000 for the three months
ended September 30, 1997 from $873,000 for the same period in 1996. Other
operating expenses increased 22.7% to $2,645,000 for the nine months ended
September 30, 1997 from $2,155,000 for the same period in 1996 primarily as the
result of subcontracting of servicing to a third party and growth in the
Serviced Portfolio. As a percentage of revenues, other operating expenses
decreased to 10.8% and 11.8% for the three and nine months ended September 30,
1997 compared to 12.5% and 12.2% for the corresponding periods in 1996. As a
percentage of the Serviced Portfolio, other operating expenses decreased to
1.20% and 1.19% for the three and nine months ended September 30, 1997 from
1.58% and 1.30% for the same periods in 1996.
During the three and nine months ended September 30, 1997, the Company
decreased its provision for loan losses 41.9% and 28.7% to $244,000 and $979,000
from $420,000 and $1,374,000 for the same periods in 1996. The provision for
loan losses increased less than the increase in loans owned and retained
interests in loan sales because of the growth in Hypothecation Loans as a
percentage of the Serviced Portfolio. Hypothecation Loans have experienced
significantly lower delinquency and default rates than Purchased Loans.
Liquidity and Capital Resources
The Company's business requires continued access to short and long-term
sources of debt financing and equity capital. The Company's principal cash
requirements arise from loan originations, repayment of debt on maturity,
payments of operating and interest expenses and loan repurchases. The Company's
primary sources of liquidity are loan sales, short-term borrowings under secured
lines of credit, long-term debt and equity offerings and cash flows from
operations.
Since its inception, the Company has sold $327,646,000 of loans at face
value ($249,451,000 through December 31, 1996). The principal amount remaining
on the loans sold was $174,009,000 at September 30, 1997 and $129,619,000 at
December 31, 1996. In June and August 1997, the Company completed its first
securitizations of $15,325,000 and $25,465,000 of Hypothecation Loans in private
placements. In connection with certain loan sales, the Company commits to
repurchase from investors any loans that become 90 days or more past due. This
obligation is subject to various terms and conditions, including, in some
instances, a limitation on the amount of loans that may be required to be
repurchased. There were approximately $9,675,000 of loans at September 30, 1997
which the Company could be required to repurchase in the future should such
loans become 90 days or more past due. The Company repurchased $104,000 and
$558,000 as compared to $264,000 and $778,000 of such loans under the recourse
provisions of loan sales during the three and nine months ended September 30,
1997 and 1996, respectively. As of September 30, 1997, $19,875,000 of the
Company's cash was restricted as credit enhancement for certain securitization
programs.
15
<PAGE>
The Company funds its loan purchases in part with borrowings under various
lines of credit. Lines are paid down when the Company receives the proceeds from
the sale of the loans or when cash is otherwise available. In January 1997, an
additional secured line of credit was increased from $5,000,000 to $8,000,000.
This line of credit matures in January 1998. There were no outstanding
borrowings on this line of credit at September 30, 1997 and December 31, 1996.
This line of credit is secured by consumer receivables and other secured loans.
In January 1997, an additional secured line of credit was increased from
$15,000,000 to $20,000,000. Outstanding borrowings under this facility were
$7,050,000 and $8,300,000 at September 30, 1997 and December 31, 1996,
respectively. This facility is secured by certain retained interests in loan
sales, cash collateral accounts and certain other loans and matures in September
1999.
On March 5, 1997, the Company entered into an additional $25,000,000
secured line of credit. The outstanding borrowings at September 30, 1997 were
$6,152,000. The facility is secured by loans to developers of VOI resorts for
the acquisition and development of VOI resorts ("Facility A") and the related
financing of consumer purchases of VOIs ("Facility B"). Although the maximum
amount that can be borrowed on each facility is $15,000,000, the aggregate
outstanding borrowings cannot exceed $25,000,000. This facility expires in March
2000.
On March 21, 1997, the Company entered into a $3,000,000 secured line of
credit with an additional financial institution. This line of credit is secured
by consumer receivables and other secured loans and matures in March 1998. There
were no outstanding borrowings at September 30, 1997.
In May 1997, a secured line of credit was renewed and amended to include
an increase in the amount of the line from $30,000,000 to $50,000,000 and an
extension of the maturity to April 2000. Outstanding borrowings under the line
of credit were $6,950,000 and $26,200,000 at September 30, 1997 and December 31,
1996, respectively. This line of credit is secured by consumer receivables and
other secured loans.
Interest rates on the above lines of credit range from the Eurodollar or
LIBOR rates plus 2% to the prime rate plus 1.25%. The Company is not required to
maintain compensating balances or forward sales commitments under the terms of
these lines of credit.
The Company also has a revolving line of credit and sale facility as part
of an asset backed commercial paper facility with a multi-seller commercial
paper issuer ("Conduit A"). In October 1996 the Company amended the facility to
increase the facility from $75,000,000 to $100,000,000, subject to certain terms
and conditions, reduce certain credit enhancement requirements and expand
certain loan eligibility criteria. The outstanding aggregate balance of the
loans pledged and sold under the facility at any time cannot exceed
$100,000,000. The facility expires in June 1998.
In connection with the facility, the Company formed a wholly owned
subsidiary, Litchfield Mortgage Securities Corporation 1994 ("LMSC"), to
purchase loans from the Company. LMSC either pledges the loans on a revolving
line of credit with Conduit A or sells the loans to Conduit A. Conduit A issues
commercial paper or other indebtedness to fund the purchase or pledge of loans
from LMSC. Conduit A is not affiliated with the Company or its affiliates. As of
September 30, 1997, the outstanding balance of eligible loans sold under the
facility was $95,625,000. Outstanding borrowings under the line of credit at
September 30, 1997 and December 31, 1996 were $320,000 and $1,799,000,
16
<PAGE>
FORM 10-Q
respectively. Interest is payable on the line of credit at an interest rate
based on certain commercial paper rates.
On March 21, 1997, the Company closed an additional revolving line of
credit and sale facility of $25,000,000 with another multi-seller of commercial
paper conduit ("Conduit B"). The facility, which expires in March 2000, is
subject to certain terms and conditions, credit enhancement requirements and
loan eligibility criteria. The outstanding aggregate balance of the loans
pledged and sold under the facility at any time cannot exceed $25,000,000.
In connection with the facility, the Company formed a wholly owned
subsidiary, Litchfield Capital Corporation 1995 ("LCC"), to purchase loans from
the Company. LCC either pledges the loans on a revolving line of credit with
Conduit B or sells the loans to Conduit B. Conduit B issues commercial paper or
other indebtedness to fund the purchase or pledge of loans from LCC. Conduit B
is not affiliated with the Company or its affiliates. As of September 30, 1997,
the outstanding balance of the eligible loans previously sold under the facility
was $13,710,000. There were no outstanding borrowings under the line of credit
as of September 30, 1997. Interest is payable on the line of credit at an
interest rate based on certain commercial paper rates.
The 10.43% promissory note is payable monthly based on collection of the
underlying collateral. The note is redeemable only with the approval of the
noteholder. The note is collateralized by certain of the Company's retained
interests in loan sales and cash. The balance outstanding on the note was
$5,797,000 and $7,428,000 at September 30, 1997 and December 31, 1996,
respectively.
In April 1997, the Company issued unsecured notes with an initial
principal balance of $20,000,000. Interest is payable at 9.3% semiannually in
arrears. The notes require principal reductions of $7,500,000, $6,000,000,
$6,000,000 and $500,000 in March 2001, 2002, 2003 and 2004, respectively.
In June 1997, the Company entered into interest rate swap agreements
whereby it pays the counterparty interest at the prime rate on a notional amount
of $110,000,000 and it receives from the counterparty interest at the commercial
paper rate plus a spread on a notional amount of $80,000,000 and interest at the
LIBOR rate plus a spread on a notional amount of $30,000,000. The swap
agreements expire in June 2000.
Historically, the Company has not required major capital expenditures to
support its operations.
Credit Quality and Allowances for Loan Losses
The Company maintains allowances for loan losses and recourse obligations
on retained interests in loan sales at levels which, in the opinion of
management, provide adequately for current and possible future losses on such
assets. Past-due loans (loans 30 days or more past due which are not covered by
dealer/developer reserves and guarantees) as a percentage of the Serviced
Portfolio were 1.31% as of September 30, 1997 compared with 1.34% at December
31, 1996 and 1.43% at September 30, 1996. Management evaluates the adequacy of
the allowances on a quarterly basis by examining current delinquencies, the
characteristics of the accounts, the value of the underlying collateral, and
general economic conditions and trends. Management also evaluates the extent to
17
<PAGE>
FORM 10-Q
which dealer/developer reserves and guarantees can be expected to absorb loan
losses. A provision for loan losses is recorded in an amount deemed sufficient
by management to maintain the allowances at adequate levels. Total allowances
for loan losses and recourse obligations on retained interests in loan sales
increased to $5,730,000 at September 30, 1997 compared to $4,528,000 at December
31, 1996. The allowance ratio (the allowances for loan losses divided by the
amount of the Serviced Portfolio) at September 30, 1997 increased slightly to
1.93% from 1.87% at December 31, 1996.
As part of the Company's financing of Purchased Loans, arrangements are
entered into with dealers and resort developers, whereby reserves are
established to protect the Company from potential losses associated with such
loans. As part of the Company's agreement with the dealers and resort
developers, a portion of the amount payable to each dealer and resort developer
for a Purchased Loan is retained by the Company and is available to the Company
to absorb loan losses for those loans. The Company negotiates the amount of the
reserves with the dealers and developers based upon various criteria, two of
which are the financial strength of the dealer or developer and credit risk
associated with the loans being purchased. Dealer/developer reserves amounted to
$10,890,000 and $10,628,000 at September 30, 1997 and December 31, 1996,
respectively. The Company generally returns any excess reserves to the
dealer/developer on a quarterly basis as the related loans are repaid by
borrowers.
Inflation
Inflation has not had a significant effect on the Company's operating
results to date.
18
<PAGE>
FORM 10-Q
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. (a) Exhibits
The following exhibits are filed herewith:
10.157 Employment agreement, dated as of March 17,1997, between the
Company and Joseph S. Weingarten.
10.158 Asset Purchase Agreement, dated March 21, 1997 among the
Company, Litchfield Capital Corporation, Eaglefunding Capital
Corporation and The First National Bank of Boston, as deal
agent.
11.1 Statement re: computation of earnings per share
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K filed on July 8, 1997 listing the press release dated July 7,
1997 relating to the announcement of the 1997 second quarter
originations.
Form 8-K filed on July 22, 1997 listing the press release dated July
22, 1997 relating to the announcement of the 1997 second quarter
earnings.
19
<PAGE>
FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LITCHFIELD FINANCIAL CORPORATION
DATE: October 29, 1997 /s/ Richard A. Stratton
-----------------------
RICHARD A. STRATTON
Chief Executive Officer,
President and Director
DATE: October 29, 1997 /s/ Ronald E. Rabidou
---------------------
RONALD E. RABIDOU
Chief Financial Officer
<PAGE>
Exhibit 10.157
ASSET PURCHASE AGREEMENT
Dated as of March 21, 1997
Among
LITCHFIELD CAPITAL CORPORATION - 1996
as Seller,
LITCHFIELD FINANCIAL CORPORATION
as Servicer,
EAGLEFUNDING CAPITAL CORPORATION,
as Purchaser
and
THE FIRST NATIONAL BANK OF BOSTON
as Deal Agent
<PAGE>
TABLE OF CONTENTS
Section Page
ARTICLE I DEFINITIONS.....................................................1
SECTION 1.01. Certain Defined Terms......................................1
SECTION 1.02. Other Terms...............................................22
SECTION 1.03. Computation of Time Periods............................23
ARTICLE II AMOUNTS AND TERMS OF THE PURCHASE ............................23
SECTION 2.01. Facility .............................................23
SECTION 2.02. Making Purchases .....................................23
SECTION 2.03. Transfers of Interests in Purchased Assets............24
SECTION 2.04. Termination or Reduction of the Purchase Limit........24
SECTION 2.05. Selection of Purchase Periods.........................24
SECTION 2.06. Settlement Procedures.................................25
SECTION 2.07. Payments and Computations, Etc........................29
SECTION 2.08. Yield Protection .....................................29
SECTION 2.09. Increased Capital ...................................30
SECTION 2.10. Grant of Security Interest ...........................31
SECTION 2.11. Taxes.................................................31
SECTION 2.12. Financing Option......................................32
ARTICLE III CONDITIONS OF PURCHASES......................................33
SECTION 3.01. Conditions Precedent to Initial Purchase..............33
SECTION 3.02. Conditions Precedent to All Purchases.................35
SECTION 3.03. Asset Documents.......................................36
ARTICLE IV REPRESENTATIONS AND WARRANTIES................................39
SECTION 4.01. Representations and Warranties of the Seller..........39
SECTION 4.02. Representations and Warranties of the Servicer........42
SECTION 4.03. Eligible Assets.......................................44
ARTICLE V GENERAL COVENANTS..............................................50
SECTION 5.01. Affirmative Covenants of the Seller...................50
SECTION 5.02. Reporting Requirements of the Seller..................54
SECTION 5.03. Negative Covenants of the Seller......................55
SECTION 5.04. Covenants of the Servicer.............................57
ARTICLE VI ADMINISTRATION AND COLLECTION.................................60
SECTION 6.01. Designation of Servicer...............................60
SECTION 6.02. Duties of the Servicer................................60
SECTION 6.03. Rights of the Deal Agent..............................64
SECTION 6.04. Responsibilities of the Seller and Initial Servicer...65
SECTION 6.05. Further Action Evidencing Purchases...................65
SECTION 6.06. Application of Payments...............................65
SECTION 6.07. Collateral Custodian..................................66
ARTICLE VII EVENTS OF TERMINATION........................................66
SECTION 7.01. Events of Termination.................................66
ARTICLE VIII THE DEAL AGENT..............................................69
SECTION 8.01. Authorization and Action..............................69
SECTION 8.02. Deal Agent's Reliance, Etc............................69
SECTION 8.03. Deal Agent and Affiliates.............................69
SECTION 8.04. Resifnation of the Deal Agent.........................70
ARTICLE IX INDEMNIFICATION; REPURCHASES..................................70
SECTION 9.01. Indemnities by the Seller.............................70
SECTION 9.02. Substitution and Repurchase of Assets.................72
ARTICLE X MISCELLANEOUS..................................................74
SECTION 10.01. Amendments, Etc......................................74
SECTION 10.02. Notices, Etc.........................................75
SECTION 10.03. No Waiver; Remedies..................................75
SECTION 10.04. Binding Effect; Assignability........................75
SECTION 10.05. GOVERNING LAW; WAIVER OF JURY TRIAL..................76
SECTION 10.06. Costs, Expenses and Taxes ...........................77
SECTION 10.07. No Proceedings.......................................78
SECTION 10.08. Set-Off..............................................78
SECTION 10.09. Execution in Counterparts; Serverability.............78
LIST OF EXHIBITS
EXHIBIT A Description of Credit and Collection Policy and Minimum
Underwriting
Guidelines
EXHIBIT B Form of Interest Rate Hedge Assignment(withInterest Rate Hedge
Assignment Acknowledgment attached)
EXHIBIT C Form of Collection Account Agreement
EXHIBIT D Form of Purchase Request
EXHIBIT E Form of Asset Report
EXHIBIT F List of Offices of Seller where Records Are Kept
EXHIBIT G Deferred Purchase Price Certificate
Appendix A Description of the Purchased Interests
Schedule I Asset Schedule
Schedule II Project Schedule
<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT dated as of March 21, 1997 among LITCHFIELD
CAPITAL CORPORATION-1996, a Delaware corporation, as Seller, LITCHFIELD
FINANCIAL CORPORATION, a Massachusetts corporation, as Servicer, EAGLEFUNDING
CAPITAL CORPORATION, as Purchaser, and THE FIRST NATIONAL BANK OF BOSTON, as
Deal Agent.
PRELIMINARY STATEMENTS.
(1) The Initial Servicer is in the business of purchasing and providing
associated services with respect to loans and other obligations related to
timeshare intervals;
(2) The Seller is a special purpose subsidiary of the Initial Servicer
established to purchase and otherwise acquire Assets and related property;
(3) The Seller wishes from time to time to offer to sell, transfer and
assign the Assets and related property to the Purchaser;
(4) The Purchaser will receive certain Collections until its Capital is
reduced to zero and any Yield and other amounts due have been paid; and
(5) Subject to the terms and conditions set forth herein, the Purchaser
shall accept such offers to purchase such Assets and related property from the
Seller.
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this Agreement (both above
and elsewhere), the following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"Adjusted Base Rate" means, on any date, a per annum rate of interest
equal to the Base Rate on such date.
"Adjusted Eurodollar Rate" means, with respect to any Purchase Period for
all Capital allocated to such Purchase Period, an interest rate per annum equal
to the sum of the Eurodollar Rate with respect to such Purchase Period and 1.15%
for a Purchase Period after a CP Disruption Event or an event described in
clause (e), (g) or (j) of the definition of Termination Date has occurred
provided that an Event of Termination has not occurred and otherwise 2.00%.
"Administration Agreement" means the Amended and Restated Administration
Agreement dated as of October 25, 1996 between the Purchaser and The First
National Bank of Boston, as the same may be from time to time amended, restated,
supplemented or otherwise modified.
"Adverse Claim" means a lien, security interest, charge, encumbrance or
other right or claim of any Person other than Permitted Encumbrances.
"Affected Party" means the Purchaser, FNBB, individually and in its
capacity as Deal Agent, any Liquidity Provider and any parent company
controlling any of the foregoing.
"Affiliate" means, with respect to any Person, any other Person directly
or indirectly controlling, controlled by, or under common control with, such
specified Person; provided, however, that none of the Deal Agent, the Purchaser
or any Liquidity Provider shall be deemed to be an Affiliate of the Seller. For
the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract, or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Aggregate Fee Rate" means the sum of the per annum rates or percentages
applicable from time to time to calculate each of the Servicer Fee (including
the Collateral Custodian Fee), the Subservicer Fee, the Backup Servicer Fee, the
Program Fee, the Liquidity Fee, and the fees, if any, payable by the Seller with
respect to Interest Rate Hedges.
"Aggregate Outstanding Balance" means, at any time, the aggregate
Outstanding Balance of all Purchased Assets that are Eligible Assets.
"Aggregate Purchase Price" means, at any time, the sum of the outstanding
Capital at such time and the Deferred Purchase Price at such time.
"Agreement" means this Asset Purchase Agreement, as the same may from time
to time be amended, restated, supplemented or otherwise modified.
"Alternative Rate" means, with respect to any Purchase Period for all
Capital allocated to such Purchase Period, an interest rate per annum equal to
the Adjusted Eurodollar Rate or the Adjusted Base Rate as the Seller shall
select in accordance with the terms of this Agreement; provided, however, that
the "Alternative Rate" for such Capital allocated to such Purchase Period shall
be the Adjusted Base Rate if (i) on or before the first day of such Purchase
Period, the Purchaser shall have notified the Deal Agent that a Eurodollar
Disruption Event has occurred, (ii) such Fixed Period is a period of 1 to 29
days or (iii) such Capital is less than $1,000,000.
"Asset" means a Loan or an Installment Contract.
"Asset Documents " means the documents with respect to each Asset
described in Section 3.03.
"Asset Purchase" means a purchase by the Purchaser of Purchased Interests
from the Seller pursuant to Sections 2.01 and 2.02.
"Asset Rate" means, with respect to any Purchased Asset at any time, a
rate of interest to be paid by the Obligor.
"Asset Report" means a report, in substantially the form of Exhibit E,
furnished by the Servicer to the Deal Agent for the Purchaser pursuant to
Section 2.06(a).
"Asset Sale Agreement" means that certain Asset Sale and Contribution
Agreement of even date herewith between the Initial Servicer and the Seller, as
such agreement may be amended, supplemented or modified from time to time.
"Asset Sale Assets" means all right, title and interest of the Seller in,
to and under the Asset Sale Agreement, including, without limitation, all
obligations due and to become due to the Seller from the Initial Servicer under
or in connection therewith, whether as Assets or fees, expenses, costs,
indemnities, insurance recoveries, damages for breach or otherwise, and all
rights, remedies, powers, privileges and claims of the Seller against Initial
Servicer under or with respect to the Asset Sale Agreement.
"Asset Schedule" means the list of Purchased Assets attached hereto as
Schedule I, as modified from time to time, which list shall set forth the
following information with respect to each such Purchased Asset as of the
Cut-off Date: (i) loan number used by the Initial Servicer, (ii) name of
Obligor, (iii) Project number, (iv) current interest rate per annum and, in the
case of an adjustable rate, index, margin and periodic and lifetime floor and
cap, (v) original principal balance, (vi) Outstanding Balance, (vii) current
monthly payment amount, (viii) date of origination to the extent available in
the servicing data base, (ix) maturity date, (x) original term (in months), (xi)
timeshare estate unit(s), week(s) or number(s), and (xii) any Exception with
respect to such Purchased Asset and the aggregate amount of the same type of
Exception with respect to all Purchased Assets.
"Backup Servicer" means The CIT Group/Sales Financing, Inc., in its
capacity as Backup Servicer for the Servicer and the Subservicer pursuant to the
Backup Servicing Agreement and any successors thereto.
"Backup Servicer Fee" has the meaning in the Backup Servicing Agreement.
"Backup Servicing Agreement" means the Backup Servicing Agreement, dated
as of March 21, 1997 among the Backup Servicer, the Initial Servicer and the
Purchaser, as the same may be amended, restated, supplemented or otherwise
modified from time to time.
"Bankruptcy Code" means Title 11 of the United States Code (11 U.S.C.
Section 101 et seq.), as amended from time to time, or any successor statute.
"Base Rate" means, on any date, a fluctuating rate of interest per annum
equal to the higher of (i) the per annum rate of interest announced from time to
time by FNBB at its head office in Boston, Massachusetts as its "base rate", and
(ii) one-half of one percent per annum above the Federal Funds Rate.
"Benefit Plan" means, with respect to any Person, a defined benefit plan
as defined in Section 3(35) of ERISA (other than a Multiemployer Plan) in
respect of which such Person or any ERISA Affiliate of such Person is, or at any
time within the immediately preceding six years was, an "employer" as defined in
Section 3(5) of ERISA.
"Breakage Indemnity" means, for any Purchase Period (computed without
regard to the maturity of a Purchase Period occurring as a result of the
occurrence of the Termination Date) during which Capital is reduced (determined
without regard to any Purchases), the amount, if any, by which (i) the
additional Yield (calculated without taking into account any Breakage Indemnity)
which would have accrued on the reductions of such Capital during such Purchase
Period (as so computed) if such reductions had remained as Capital exceeds (ii)
the income, if any, received by the Purchaser or the applicable Liquidity
Provider from the investment by such Person of the proceeds of such reductions
of Capital (which investment the Purchaser and the Liquidity Providers will use
reasonable efforts to make under the then applicable conditions and
circumstances).
"Business Day" means a day of the year other than a Saturday or a Sunday
on which (i) banks are authorized or required to be open in New York City and
Boston, Massachusetts and (ii) if the term "Business Day" is used in connection
with the Adjusted Eurodollar Rate, dealings in dollar deposits are carried on in
the London interbank market.
"Capital" means the sum of the amounts paid to the Seller for each Capital
Purchase pursuant to Section 2.02, reduced from time to time by Collections
received and distributed on account of such Capital pursuant to Section 2.06
below. If the Purchaser, any Liquidity Provider or the Deal Agent is required by
law to repay (as a preference or otherwise) to the Seller, the Initial Servicer,
an Obligor, a trustee for the Seller, the Initial Servicer or any Obligor, a
court or any other Person any amount which previously caused a reduction in
Capital, and does so repay such amount, then Capital shall be reinstated by the
amount of such repayment and the Seller will indemnify and hold the Purchaser,
such Liquidity Provider or the Deal Agent harmless for the amount of such
repayment, interest thereon required to be paid in connection therewith and all
losses, liabilities, costs and expenses related thereto (including but not
limited to reasonable attorneys' fees and expenses).
"Capital Purchase" means any increase in the aggregate outstanding Capital
hereunder.
"Collateral Custodian" means the Person appointed from time to time as
Collateral Custodian by the Deal Agent pursuant to Section 6.07.
"Collateral Custodian Fee" means that portion of the Servicer Fee which is
allocated for the account of the Collateral Custodian as compensation for its
duties hereunder, as the Seller, the Servicer, the Deal Agent and the Collateral
Custodian may from time to time agree.
"Collection Account" means the account maintained at the Collection
Account Bank into which Collections of Purchased Assets are deposited following
withdrawal of such Collections from the Lockbox Account.
"Collection Account Agreement" means an agreement substantially in the
form of Exhibit C among the Seller, the Servicer, the Deal Agent and the
Collection Account Bank which agreement sets forth the rights of the Deal Agent,
the Seller and the Servicer with respect to the disposition and allocation of
the Collections deposited into the Collection Account.
"Collection Account Bank" means The First National Bank of Boston, and any
successor.
"Collection Date" means the date following the Termination Date on which
the aggregate outstanding Capital has been reduced to zero and the Purchaser and
the Deal Agent have received all Yield and other amounts payable under this
Agreement or any other document, instrument or agreement executed pursuant
hereto.
"Collections" means, with respect to any Purchased Asset, all cash
collections and other cash proceeds including Late Charges of such Purchased
Asset, all cash proceeds of Related Security with respect to such Purchased
Asset, and any amounts in respect of such Purchased Asset received or deemed to
have been received pursuant to Section 9.02, and shall also include any amounts
earned as a result of the investment of the Collections held by the Deal Agent
pursuant to Section 2.06.
"Contract" means the original agreement, as modified or supplemented, with
respect to any Installment Contract.
"Coverage Shortfall" means the occurrence of the Event of Termination
described in Section 7.01(j).
"CP Disruption Event" means the inability of the Purchaser, at any time,
whether as a result of a prohibition, a contractual restriction or any other
event or circumstance whatsoever, to raise funds through the issuance of its
commercial paper notes (whether or not constituting commercial paper notes
issued to fund Purchases hereunder) in the United States commercial paper
market.
"CP Rate" means, with respect to any Purchase Period for all Capital
allocated to such Period, the rate equivalent to the rate for (or if more than
one rate, the weighted average or the rates) at which commercial paper notes of
the Purchaser having a term equal to such Purchase Period and to be issued to
fund the applicable Purchase by the Purchaser may be sold by any placement agent
or commercial paper dealer selected by such Purchaser, as agreed between each
such agent or dealer and such Purchaser and notified by the Purchaser to the
Deal Agent and the Servicer; provided, however, if the rate (or rates) as agreed
between any such agent or dealer and the Purchaser with regard to any Purchase
Period for the applicable Purchase is a discount rate (or rates), the "CP Rate"
for such Purchase Period shall be the rate (or if more than one rate, the
weighted average of the rates) resulting from converting such discount rate (or
rates) to an interest bearing equivalent rate per annum.
"Credit and Collection Policy" means those credit and collection policies
and practices relating to the Assets described in Exhibit A, as modified in
compliance with Section 5.03(c).
"Cutoff Date" means the beginning of business on February 28, 1997 with
respect to the Initial Purchase Date and thereafter on the third Business Day
prior to the Purchase Date with respect to a Purchased Asset.
"DCR" means Duff & Phelps Credit Rating Co. and any successor thereto.
"Deal Agent" means FNBB, in its capacity as agent hereunder for the
Purchaser.
"Dealer Fee" means a fee equal to .05% per annum of the principal amount
of the commercial paper on each commercial paper maturity date.
"Default Ratio" means, for any month, the product of 12 and a fraction
(expressed as a percentage) determined as of the last day of such month equal to
(i) the aggregate Outstanding Balance of all Purchased Assets which became
Defaulted Assets during such month divided by (ii) the aggregate Outstanding
Balance of all Purchased Assets which were Eligible Assets outstanding on the
last day of the fourth month next preceding such month.
"Defaulted Asset" means an Asset at any time: (i) as to which any payment
is delinquent for 120 days or more from the original due date for such payment
(regardless of whether such Asset becomes current at some future date), (ii) as
to which foreclosure proceedings have been initiated and are continuing, or
(iii) which, consistent with the Credit and Collection Policy, has been or
should be specifically reserved against, classified as uncollectible or charged
off; provided, that neither the Servicer nor the Seller shall be required to
include an Asset which becomes a Defaulted Asset during a given calendar month
as a "Defaulted Asset" for the purposes of this Agreement until the earlier of
(x) the date on which the Asset Report in respect of such month is required to
be delivered pursuant to Section 2.06(a) and (y) the date on which such Asset
Report is actually delivered to the Deal Agent.
"Deferred Purchase Price" means
(a) at any time prior to the Collection Date, an amount equal to the
greater of:
(i) the Minimum Overcollateralization Amount,
(ii) the product of 20.0% and an amount equal to the Aggregate
Outstanding Balance at such time; or
(iii) the product of 25.0% and an amount equal to the Capital at
such time; and
(b) on and after th Collection Date, an amount equal to the Aggregate
Outstanding Balance.
"Delinquency Ratio" means, for any month, the product of 12 and a fraction
(expressed as a percentage) determined as of the last day of such month equal to
(i) the aggregate Outstanding Balance of all Purchased Assets which became
Delinquent Assets during such month divided by (ii) the aggregate Outstanding
Balance of all Purchased Assets which were Eligible Assets outstanding on the
last day of the third month next preceding such month.
"Delinquent Asset" means an Asset that is not a Defaulted Asset and (i)
any payment remains unpaid for at least 90 days and less than 120 days from the
original due date for such payment or (ii) which, consistent with the Credit and
Collection Policy, has been or should be classified as delinquent; provided,
that neither the Servicer nor the Seller shall be required to include an Asset
which becomes a Delinquent Asset during a given calendar month as a "Delinquent
Asset" for the purposes of this Agreement until the earlier of (x) the date on
which the Asset Report in respect of such month is required to be delivered
pursuant to Section 2.06(a) and (y) the date on which such Asset Report is
actually delivered to the Deal Agent.
"Developer" means the developer of a Project, or the seller of any
Purchased Assets to the Initial Servicer, or its successors and assigns.
"Developer Agreement" means an agreement between the Initial Servicer and
a Developer pursuant to which the Initial Servicer has purchased Purchased
Assets.
"DOL" means the United States Departmen of Labor and any successor
department or agency.
"Early Stage Delinquency Ratio" means, for any month, a fraction
(expressed as a percentage) determined as of the last day of such month equal to
(i) the aggregate Outstanding Balance of all Purchased Assets which are Early
Stage Delinquent Assets on the last day of such month divided by (ii) the
aggregate Outstanding Balance of all Purchased Assets which were Eligible Assets
outstanding on the last day of such month.
"Early Stage Delinquent Asset" means an Asset that is not a Defaulted
Asset and any payment remains unpaid for at least 30 days and less than 60 days
from the original due date for such payment; provided, that neither the Servicer
nor the Seller shall be required to include an Asset which becomes an Early
Stage Delinquent Asset during a given calendar month as an "Early Stage
Delinquent Asset" for the purposes of this Agreement until the earlier of (x)
the date on which the Asset Report in respect of such month is required to be
delivered pursuant to Section 2.06(a) and (y) the date on which such Asset
Report is actually delivered to the Deal Agent.
"EFCC" means EagleFunding Capital Corporation, a Delaware corporation.
"Eligible Asset" means, at any time, an Asset which complies with the
provisions of Section 4.03.
"ERISA" means the U.S. Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute.
"ERISA Affiliate" means, with respect to any Person, any (i) corporation
which is a member of the same controlled group of corporations (within the
meaning of Section 414(b) of the IRC) as such Person; (ii) partnership or other
trade or business (whether or not incorporated) under common control (within the
meaning of Section 414(c) of the IRC) with such Person or (iii) member of the
same affiliated service group (within the meaning of Section 414(m) of the IRC)
as such Person, (iv) any corporation described in clause (i) above or (v) any
partnership or other trade or business described in clause (ii) above.
"Eurocurrency Liabilities" has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"Eurodollar Disruption Event" means, with respect to all Capital allocated
to any Purchase Period, any of the following: (i) a determination by a Purchaser
that it would be contrary to law or to the directive of any central bank or
other governmental authority (whether or not having the force of law) to obtain
United States dollars in the London interbank market to make, fund or maintain
any Purchase for such Purchase Period, (ii) the inability of FNBB to furnish
timely information for purposes of determining the Adjusted Eurodollar Rate,
(iii) a determination by a Purchaser that the rate at which deposits of United
States dollars are being offered in the London interbank market does not
accurately reflect the cost to such Purchaser of making, funding or maintaining
any Purchase for such Purchase Period or (iv) the inability of the Purchaser to
obtain United States dollars in the London interbank market to make, fund or
maintain any Purchase for such Purchase Period.
"Eurodollar Rate" means, with respect to any Purchase Period for all
Capital allocated to such Purchase Period, an interest rate per annum equal to
the quotient, stated as a percentage, of (i) the per annum rate determined by
the Deal Agent at which United States dollar deposits for such Purchase Period
are offered by FNBB based on information presented on Telerate Page 3750 as of
11:00 a.m. London time on the second Business Day prior to the first day of such
Purchase Period, divided by (ii) a number equal to 1.00 minus the Eurodollar
Reserve Percentage, if applicable.
"Eurodollar Reserve Percentage" means, for any day with respect to a
Purchase Period to which Capital has been allocated hereunder, means the maximum
rate (expressed as a decimal) at which any lender subject thereto would be
required to maintain reserves under Regulation D of the Board of Governors of
the Federal Reserve System (or any successor or similar regulations relating to
such reserve requirements) against Eurocurrency Liabilities, if such liabilities
were outstanding. The Eurodollar Reserve Percentage shall be adjusted
automatically on and as of the effective date of any change in the maximum rate
described above.
"Event of Subservicer Termination" means the termination of the
Subservicer under the Subservicing Agreement.
"Event of Termination" has the meaning assigned to that term in Section
7.01.
"Exception" means any exception to the criteria for an Eligible Asset
permitted by this Agreement provided that the exceptions with respect to all the
Purchased Assets do not exceed a specified percentage of the Pool.
"Facility Documents" shall mean collectively, this Agreement, the Asset
Sale Agreement, the Subservicing Agreement, the Backup Servicing Agreement, the
Funds Designation Agreement, the Project Title Assignments, the Interest Rate
Hedges, the Liquidity Agreements, the Security Agreements, the Fee Letter, each
Liquidity Fee Letter and all other agreements, documents and instruments
executed and delivered in connection herewith or therewith, in each case, as the
same may be amended, supplemented or otherwise modified from time to time.
"Federal Funds Rate" means, for any day, a fluctuating interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published for such day (or, if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day which is a Business Day, the
average of the quotations for such day for such transactions received by FNBB
from three Federal funds brokers of recognized standing selected by it.
"Fee Interval" means an undivided fractional fee title ownership or
substantially equivalent leasehold interest in a timeshare estate, together with
a periodic right to occupancy of such timeshare estate.
"Fee Letter" means the fee letter of even date herewith, among the Deal
Agent, the Purchaser and the Seller, as the same may from time to time be
amended, restated, supplemented or otherwise modified.
"Financing Asset" means a Purchased Asset with respect to which the Seller
has elected the Financing Option.
"Financing Option" means the election by the Seller to treat the
assignment of a Purchased Asset as a pledge securing a loan by the Purchaser to
the Seller.
"FNBB" means The First National Bank of Boston, a national banking
association, and any successor.
"FNBB Interest Rate Hedges" means all Interest Rate Hedges entered into by
the Seller with FNBB, as counterparty.
"Foreclosure Property" means any Property acquired by the Purchaser or its
nominee through foreclosure, deed in lieu of foreclosure or otherwise.
"Funds Designation Agreement" means the Funds Designation Agreement, dated
as of March 21, 1997, among the Lockbox Bank, Bank One Arizona, N.A., the
Initial Servicer, the Purchaser, the Seller and the Subservicer, as the same may
be amended, supplemented or otherwise modified from time to time.
"Guarantor" means any partial or full guarantor of any Purchased Asset
under any Developer Agreement.
"Indebtedness" of any Person means (i) indebtedness of such Person for
borrowed money, (ii) obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments, (iii) obligations of such Person to pay the
deferred purchase price of property or services, (iv) obligations of such Person
as lessee under leases which shall have been or should be, in accordance with
generally accepted accounting principles, recorded as capital leases, (v)
obligations secured by any lien or other charge upon property or Assets owned by
such Person, even though such Person has not assumed or become liable for the
payment of such obligations, (vi) obligations of such Person in connection with
any letter of credit issued for the account of such Person and (vii) obligations
of such Person under direct or indirect guaranties in respect of, and
obligations (contingent or otherwise) to purchase or otherwise acquire, or
otherwise to assure a creditor against loss in respect of, indebtedness or
obligations of others of the kinds referred to in clauses (i) through (vi)
above.
"Initial Liquidity Agreement" means the Liquidity Agreement of even date
herewith, entered into by the Purchaser, the Liquidity Providers, and FNBB, in
its capacity as liquidity agent.
"Initial Purchase Date" means the date the first Asset Purchase is made
pursuant to this Agreement.
"Initial Servicer" means Litchfield Financial Corporation and its
successors.
"Initial Servicer Default or Change" means (i) the Initial Servicer shall
fail to pay any principal or premium or interest on any Indebtedness having a
principal amount of $500,000 or greater, when the same becomes due and payable
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise) and such failure shall continue after the applicable grace period, if
any, specified in the agreement or instrument relating to such Indebtedness; or
any other default under any agreement or instrument relating to any such
Indebtedness of the Initial Servicer or any other event, shall occur and shall
continue after the applicable grace period, if any, specified in such agreement
or instrument if the effect of such default or event is to accelerate the
maturity of such Indebtedness; or any such Indebtedness shall be declared to be
due and payable or required to be prepaid (other than by a regularly scheduled
required prepayment) prior to the stated maturity thereof; or (ii) the ratio of
total Indebtedness to tangible net worth of the Initial Servicer shall exceed
4.00:1.00; or (iii) the Initial Servicer shall fail to maintain a minimum net
worth of $35,000,000 as increased by 50% of retained earnings for each quarter
ending after December 31, 1996, measured quarterly, without any adjustment for
losses incurred in any quarter.
"Installment Contract" means an installment sale contract which provides
for periodic occupancy of a timeshare estate and for conveyance of a Fee
Interval or other Property acceptable to the Purchaser upon payment of the
installments.
"Interest Rate Hedges" means all interest rate exchange, collar, cap, swap
or similar agreements entered into by the Seller in connection herewith to
provide protection to, or minimize the impact upon, the Seller of increasing
Yield Rates .
"Interest Rate Hedge Assignment" means an assignment of an Interest Rate
Hedge in substantially the form of Exhibit B, made by the Seller in favor of the
Deal Agent.
"Interest Rate Hedge Assignment Acknowledgment" means an acknowledgment in
substantially the form of Exhibit B executed by a counterparty to an Interest
Rate Hedge in favor of the Deal Agent.
"Interest Rate Hedge Test" means a test calculated as of any Settlement
Date which requires that as of at least one day during the period commencing
with the last Business Day of the preceding calendar month and including the
next four Business Days (i) the weighted average Asset Rate of the Eligible
Assets with a fixed Asset Rate as of the last Business Day of the preceding
calendar month exceeds (ii) the sum of (x) a fixed rate five year bullet swap
meeting the terms of Section 5.01(k) hereof in a notional amount required by
such Section 5.01(k), (y) the Aggregate Fee Rate and (z) three percent per annum
(3%).
"IRC" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor statute.
"IRS" means the Internal Revenue Service of the United States of America.
"Late Charges" means amounts due under an Asset as fees or charges for
late payments.
"Liquidity Agreements" means any one or more loan or purchase agreements
styled as "liquidity loan agreements," "liquidity purchase agreements" or other
similar agreements, entered into by the Purchaser and one or more financial
institutions at any time from and after the Initial Purchase Date, pursuant to
which the Purchaser may from time to time make borrowings from such financial
institutions secured by all or part of the Purchaser's right, title and interest
in, to and under the Purchased Interests arising hereunder, or sales to such
financial institutions of the Purchaser's right, title and interest in, and
under the Purchased Interests arising hereunder, as such agreements may from
time to time be amended, restated, supplemented or otherwise modified.
"Liquidity Fee" means a fee payable monthly in arrears to the Deal Agent
for the account of each Liquidity Provider, equal to the product of (i) the
average daily aggregate amount of the liquidity commitment of such Liquidity
Provider under the applicable Liquidity Agreement during the month then most
recently concluded, and (ii) the relevant per annum rate set forth in the
applicable Liquidity Fee Letter.
"Liquidity Fee Letter" means, with respect to a Liquidity Agreement, a fee
letter making reference to such Liquidity Agreement and entered into on or about
the date of such Liquidity Agreement among the Purchaser, the Seller and the
relevant Liquidity Provider (or an agent for a group of such Liquidity
Providers, as the case may be), as the same may from time to time be amended,
restated, supplemented or otherwise modified.
"Liquidity Provider" means any of the financial institutions from time to
time party to any Liquidity Agreement in a capacity as a liquidity lender to the
Purchaser thereunder.
"Loan" means a loan evidenced by a Note and secured by a Mortgage on a Fee
Interval or secured by other Property acceptable to the Purchaser.
"Lockbox Account" means account number 0411-8583 (or a replacement account
therefor) maintained at the Lockbox Bank pursuant to the terms of the Funds
Designation Agreement, for the purpose of receiving Collections and providing
for (among other things) the remittance of such Collections to the Collection
Account.
"Lockbox Bank" means Banc One Operations Services Corporation, in its
capacity as lockbox bank under the Funds Designation Agreement and any successor
lockbox bank under the Funds Designation Agreement.
"Manager" means a manager of a Project.
"Minimum Overcollateralization Amount" means $1,000,000.
"Minimum Underwriting Guidelines" means the Minimum Underwriting
Guidelines set forth in Exhibit A.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Mortgage" means the original mortgage, deed of trust or other instrument
creating a first lien on the Property securing a Loan.
"Multiemployer Plan" means, with respect to any Person, a "multiemployer
plan" as defined in Section 4001(a)(3) of ERISA which is, or within the
immediately preceding six (6) years was, contributed to by either such Person or
any ERISA Affiliate of such Person.
"Note" means the original note or other instrument of indebtedness
evidencing a loan.
"Obligor" means a person obligated to make payments on a Purchased Asset.
"Obligor Filing Requirement" means, with respect to any Purchased
Interest, that the Seller has caused all mortgages and assignments of mortgages
to be recorded, and all UCC financing statements, continuation statements and
assignments to be filed, in the appropriate jurisdictions, against the Obligor,
so that, the Purchaser would reasonably be expected to have a first priority
perfected security interest in the Purchased Asset.
"Outstanding Balance" means, with respect to any Asset, the outstanding
principal amount.
"Permitted Encumbrance" means any of the following:
(a) liens, charges or other encumbrances for taxes and assessments which
are not yet due and payable;
(b) liens, charges or other encumbrances or priority claims incidental to
the conduct of business or the ownership of properties and Assets (including
mechanics', carriers', repairers', warehousemen's and attorneys' liens and
statutory landlords' liens) and deposits, pledges or liens to secure statutory
obligations, surety or appeal bonds or other liens of like general nature
incurred in the ordinary course of business and not in connection with the
borrowing of money, provided in each case, the obligation secured is not overdue
or, if overdue, is being contested in good faith by appropriate actions or
proceedings; and
(c) liens, charges or encumbrances in favor of the Purchaser, or the Deal
Agent or liens, charges or encumbrances in favor of any Liquidity Provider
created by any Liquidity Agreement.
"Permitted Investments" means:
(a) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof having
maturities of no more than 90 days from the date of acquisition;
(b) time deposits and certificates of deposit having maturities of no more
than 90 days from the date of acquisition, maintained with or issued by any
commercial bank having capital and surplus in excess of $500,000,000 and having
a short-term rating of not less than P-1 or the equivalent thereof from Moody's
and D-1 or the equivalent thereof from DCR (if rated by DCR) and a short-term
rating from S&P which is at least as high as the rating of the commercial paper
notes issued by EFCC (if rated by S&P);
(c) repurchase obligations for underlying securities of the types
described in clauses (a) or (b) above with a term of not more than ten days and
maturing no later than 90 days after the date of acquisition; and
(d) commercial paper maturing within 90 days after the date of acquisition
and having a rating of not less than P-1 or the equivalent thereof from Moody's
and D-1 or the equivalent thereof from DCR (if rated by DCR) and a rating from
S&P which is at least as high as the rating of the commercial paper notes issued
by EFCC (if rated by S&P).
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, limited liability company, trust,
unincorporated association, joint venture, government (or any agency or
political subdivision thereof) or other entity.
"Plan" means, with respect to any Person, an employee benefit plan defined
in Section 3(3) of ERISA in respect of which such Person or any ERISA Affiliate
of such Person is, or within the immediately preceding six years was, an
"employer" as defined in Section 3(5) of ERISA.
"Pool" means the pool of Purchased Assets including any Financing Assets.
"Post Office Box" means, with respect to the Lockbox Account, 29352, or a
replacement post office box agreed to by the Deal Agent, to which Obligors
remitting payments relating to Assets by mail are instructed to direct such
payments for deposit into the Lockbox Account.
"Program Fee" means a fee, payable monthly in arrears to the Deal Agent
for the account of the Purchaser, equal to the product of (i) the average daily
amount of outstanding Capital during the month then most recently concluded, and
(ii) the relevant per annum rate set forth in the Fee Letter.
"Project" means the land, buildings and appurtenant rights of each
condominium or other project set forth on the Project Schedule, as created by a
declaration of condominium or similar document recorded in the public records of
the recording office set forth on such schedule.
"Project Association" means the condominium association or other form of
organization with respect to each Project, as set forth on the Project Schedule.
"Project Schedule" means the list of Projects attached hereto as Schedule
II, as modified from time to time, which list shall set forth the following
information with respect to each Project: (i) each Project, (ii) whether the
Purchased Assets are Loans or Installment Contracts, (iii) the Record Owner and
the Project Title Agreement with respect to any Installment Contract, (iv) the
Project Association, (v) the Developer, (vi) the Manager, (vi) the Guarantor,
and (vii) the Seller's good faith estimate of the percentage of the timeshare
intervals which have been sold to a person who is not the Developer, the Manager
or the Guarantor or an Affiliate of any of the foregoing.
"Project Title Agreement" means with respect to an Installment Contract a
trust, escrow, nominee or other agreement with respect to holding title to the
Property for the Project.
"Project Title Assignment" means (i) an assignment of the interest of the
Initial Servicer or any of its Affiliates with respect to the Property subject
to any Project Title Agreement and (ii) the acknowledgment by the trustee,
escrow agent, nominee or other Person as applicable, as the same may be from
time to time amended, supplemented or modified.
"Property" means the timeshare estate at a Project which secures a Loan or
which will be conveyed pursuant to an Installment Contract.
"Purchase" means an Asset Purchase or a Capital Purchase, as applicable.
"Purchase Date" means, with respect to any Asset, the date of the initial
Purchase thereof hereunder.
"Purchase Limit" means at any time $25,000,000, as such amount may be
reduced pursuant to Section 2.04. Notwithstanding anything in the foregoing
sentence to the contrary, at all times on and after the Termination Date, the
"Purchase Limit" shall mean the aggregate outstanding Capital at such time.
"Purchase Period" for any outstanding Capital means (i) if Yield in
respect of all or any part thereof is computed by reference to the CP Rate, a
period of 1 to and including 31 days, (ii) if Yield in respect thereof is
computed by reference to the Adjusted Eurodollar Rate, a period of one, two or
three months and (iii) if Yield in respect thereof is computed at the Adjusted
Base Rate, a period of 1 to and including 31 days, in each case, as determined
pursuant to Section 2.05.
"Purchase Request" means a written request, in substantially the form of
Exhibit D, delivered by the Seller to the Deal Agent for the Purchaser, and (i)
requesting an Asset Purchase or a Capital Purchase pursuant to Sections 2.01 and
2.02, or (ii) identifying Assets for substitution in accordance with Section
9.02.
"Purchased Asset" means any Asset purchased pursuant to Section 2.01 and
Section 2.02; provided, however, that with respect to any Asset that is
repurchased or substituted for by the Seller pursuant to Section 9.02, following
the Deal Agent's receipt of the repurchase price or substituted Asset for such
Asset, the term "Purchased Asset" shall not include the Asset so repurchased or
substituted for.
"Purchased Interests" means, at any time, all then outstanding Purchased
Assets, Related Security with respect to such Purchased Assets, payments owing
to the Seller or the Deal Agent (as applicable) under Interest Rate Hedges
covering Purchased Assets and Collections with respect to, and other proceeds
of, such Purchased Assets, including, without limitation, all Collections of a
Purchased Asset relating to payments received at any time following the Cut-off
Date.
"Purchaser" means EFCC, and any of its successors or permitted assignees.
"Purchaser Filing Requirement" means, with respect to any Purchased Asset,
that the Seller shall have filed all appropriate UCC financing statements
executed by the Initial Servicer or the Seller (Form UCC-1) in all applicable
jurisdictions, so that, if a Purchase is a financing, the Purchaser would
reasonably be expected to have a first priority perfected security interest in
the Purchased Asset.
"Rating Agency" means each of S&P, Moody's and DCR.
"Record Owner" means the holder of title to any Property subject to any
Installment Contract.
"Records" means all Asset Documents and other documents, books and records
(including without limitation, computer programs, tapes, discs and punch cards)
maintained by Seller with respect to Assets and the related Obligors.
"Related Security" means with respect to any Asset:
(a) all security interests or liens and property subject thereto from
time to time purporting to secure payment of the Asset;
(b) the blanket assignment to the Deal Agent, for the benefit of the
Purchaser, of all Mortgages and UCC financing statements covering any
collateral securing payment of the Asset;
(c) all guarantees, indemnities, warranties, letters of credit, insurance
policies and proceeds and premium refunds thereof and other agreements or
arrangements of whatever character from time to time supporting or
securing payment of the Asset;
(d) all Records;
(e) all Collections and other proceeds of the foregoing, including,
without limitation, all insurance and condemnation proceeds and all
security deposits related to the Purchased Assets; and
(f) all rights with respect to the Purchased Assets under any Developer
Agreement pursuant to which the Initial Servicer may seek reimbursement
from the Developer for a defaulted Asset.
"S&P" means Standard & Poor's Ratings Group and its successors.
"Scheduled Termination Date" means March 21, 2000.
"Security Agreements" means any one or more agreements styled as a
"security agreement" or other similar agreements, made by the Purchaser in favor
of a collateral agent for the benefit of one or more Liquidity Providers and/or
the holders of the commercial paper notes of EFCC, evidencing the grant by EFCC
of a security interest in and to its interests in the Purchased Assets and under
this Agreement in order to secure any obligations of EFCC to any such Persons.
"Seller" means Litchfield Capital Corporation-1996, a Delaware
corporation, in its capacity as seller hereunder, together with its successors
and permitted assigns.
"Servicer" means at any time the Person(s) then authorized pursuant to
Article VI to service, administer and collect the Purchased Assets.
"Servicer Advance" means an advance of any amounts of interest due on the
Purchased Assets by the Servicer for the account of the Seller to the Deal Agent
as payment of any amounts owing by the Seller as set forth in Section
2.06(b)(iii).
"Servicer Default" means any of the following events shall have occurred:
(a) The Servicer shall fail to make any payment or deposit to be made by
it hereunder when due within one Business Day; or
(b) The Servicer shall fail to perform or observe any other term, covenant
or agreement contained in this Agreement on its part to be performed or observed
and any such failure shall remain unremedied for five Business Days after
written notice from the Deal Agent; or
(c) Any representation or warranty made or deemed to be made by the
Servicer (or any of its officers) under or in connection with this Agreement,
any Asset Report, or any Purchase Request shall prove to have been false or
incorrect in any material respect when made; provided, however, that if any such
representation or warranty relates to an Asset which is repurchased by the
Seller pursuant to Section 9.02 hereof, then the breach of such representation
or warranty shall not give rise to a Servicer Default under this subsection (c);
or
(d) (i) The Servicer shall admit in writing its inability to pay its debts
generally, or shall make a general assignment for the benefit of creditors; or
any proceeding shall be instituted by or against the Servicer seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or composition of
it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order for relief
or the appointment of a receiver, trustee, or other similar official for it or
for any substantial part of its property and, in the case of a proceeding
instituted by a party other than the Servicer, such proceeding shall continue
undismissed, unstayed and in effect for a period of sixty (60) consecutive days;
or (ii) the Servicer's Board of Directors shall vote affirmatively to authorize
any of the actions set forth in clause (i) above in this subsection (d); or
(e) If the Initial Servicer is the Servicer, any Event of Termination or
Initial Servicer Default or Change shall have occurred.
"Servicer Fee" means a fee payable monthly in arrears to the Deal Agent
for the account of the Servicer, equal to the product of (i) the Aggregate
Outstanding Balance at the end of the preceding month and (ii) the per annum
rate of 1.25% less any portion allocated as the Subservicer Fee.
"Servicing Agreement Assets" means all right, title and interest of the
Seller with respect to the Purchased Assets (by way of assignment from the
Initial Servicer or otherwise) in, to and under the Subservicing Agreement and
the Backup Servicing Agreement, including, without limitation, all obligations
due and to become due to the Initial Servicer or the Seller thereunder.
"Servicing Officer" means any officer of the Servicer involved in, or
responsible for, the administration and servicing of the Purchased Assets whose
name appears on a list of servicing officers furnished to the Collateral Agent
by the Servicer, as such list may be amended or supplemented from time to time.
"Settlement Date" means the 20th calendar day or next succeeding Business
Day of each month; provided, that (i) the Seller may, in its discretion, by
notice to the Deal Agent, request that Settlement Dates occur more frequently
than monthly and (ii) the Deal Agent may, in its discretion following the
occurrence of an Event of Termination, by notice to the Seller, require that
Settlement Dates occur more frequently than monthly.
"Settlement Period" with respect to Collections means (i) the calendar
month preceding the month when the Settlement Date occurs or (ii) in the case of
the first Settlement Period for any Purchased Asset, the portion of such
calendar month following the Cut-off Date; provided, that if the Settlement Date
is more frequently than monthly, the Settlement Period may be a shorter period
than a calendar month.
"Stop Event" means the occurrence of an Event of Termination of the type
described in Section 7.01 (i) or (j). For purposes of the Administration
Agreement, this Stop Event shall be the sole Stop Event under this Agreement.
"Subordinated Interest" means the Seller's interest in cash distributions
equal to the Deferred Purchase Price, plus any other distributions to the Seller
pursuant to Section 2.06(d) and (e), and which shall be evidenced by a
certificate in the form set forth in Exhibit G.
"Subservicer" means, initially, Concord Servicing Corporation, an Arizona
corporation, and thereafter any Person which is subservicing one or more of the
Purchased Assets pursuant to the Subservicing Agreement.
"Subservicer Fee" means the amount payable to the Subservicer pursuant to
the Subservicing Agreement with respect to the Purchased Assets, as evidenced by
an invoice from the Subservicer or the Servicer, provided that any such fee may
not exceed the Servicing Fee.
"Subservicing Agreement" means an agreement relating to the servicing of
the Purchased Assets, between the Servicer and the Subservicer, as the same may
be amended, supplemented or modified from time to time.
"Subsidiary" means, as to any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the Board of Directors or other Persons performing similar
functions are at the time directly or indirectly owned by such Person.
"Tape" means a tape or other electronic media from the Servicer,
Subservicer or the Lockbox Bank of payment information with respect to the
Purchased Assets used to calculate the information contained in the Asset
Reports.
"Taxes" has the meaning assigned to that term in Section 2.11(a).
"Termination Date" means the earliest of
(a) that Business Day which the Seller designates as the Termination Date
by written notice to the Deal Agent at least sixty (60) Business Days
prior to such Business Day,
(b) that Business Day which the Deal Agent designates as the Termination
Date by written notice to the Seller following the occurrence of an Event
of Termination,
(c) the date of the reduction of the Purchase Limit to zero pursuant
to Section 2.04,
(d) the automatic occurrence of the Termination Date pursuant to
Section 7.01,
(e) the Scheduled Termination Date,
(f) an Initial Servicer Default or Change shall have occurred,
(g) commercial paper notes of EFCC (i) are not rated at least D-1 by DCR,
(ii) are not rated at least P-1 by Moody's, or (iii) are not rated at
least A-1 if rated by S&P,
(h) there shall not exist a liquidity facility in favor of the Purchaser
in form and substance satisfactory to each of the Purchaser and the Deal
Agent (and, in the event that the Purchaser has issued commercial paper
notes at any such time of determination hereunder, satisfactory in form
and substance to each of the rating agencies then rating such commercial
paper at the request of the Purchaser) providing liquidity coverage to the
Purchaser in an amount equal to or exceeding 102% of the Purchase Limit
then in effect hereunder, (i) any expiration, termination or other
cancellation of the commitments of any of the Liquidity Providers under
any Liquidity Agreement if the effect of such expiration, termination or
other cancellation is to cause the aggregate outstanding principal amount
of such commitments at such time (whether or not drawn) to be less than
102% of the Purchase Limit in effect at any time,
(j) the Purchaser or the Deal Agent shall determine in its reasonable
discretion that its participation in the transactions contemplated
hereunder will impose a material adverse regulatory, accounting, tax or
other impact on the Purchaser or the Deal Agent,
(k) there shall remain undischarged, unstayed or unbonded for more than
sixty (60) days any final judgment or execution action not covered by
insurance against the Initial Servicer that, together with other
outstanding claims and execution actions against the Initial Servicer
exceeds $2,000,000 in the aggregate, and
(l) the Pension Benefit Guaranty Corporation or the IRS shall have filed
notice of one or more liens against the Initial Servicer, and such notice
shall have remained in effect for more than thirty (30) days unless, prior
to the expiration of such period, such liens shall have been adequately
bonded by the Initial Servicer or do not exceed $2,000,000 in the
aggregate.
"UCC" means the Uniform Commercial Code as from time to time in effect in
the specified jurisdiction.
"Up-Front Fee" means a fee payable by or on behalf of the Seller, pursuant
to the Fee Letter, on the date of the initial Asset Purchase hereunder.
"Weighted Average Remaining Term" means, at any time, the weighted average
remaining term of the Purchased Assets calculated in a manner acceptable to the
Purchaser.
"Yield" means, during any Purchase Period, the product of:
YRT x C x ED
----
360
where:
C = the applicable Capital outstanding during such Purchase Period.
YRT = the Yield Rate for such Purchase Period.
ED = the actual number of days elapsed during such Purchase Period.
provided, however that (i) no provision of this Agreement shall require
the payment or permit the collection of Yield in excess of the maximum permitted
by applicable law and (ii) Yield shall not be considered paid by any
distribution if at any time such distribution is rescinded or must otherwise be
returned for any reason.
"Yield Payment Date" means, with respect to each Purchase Period, the last
day of such Purchase Period.
"Yield Rate" means, for any Purchase Period for all Capital allocated to
such Purchase Period:
(a) to the extent a Purchaser will be funding the applicable Purchase on
the first day of such Purchase Period through the issuance of commercial paper,
a rate equal to the CP Rate and the Dealer Fee for such Purchase Period;
(b) to the extent a Purchaser will not be funding the applicable Purchase
on the first day of such Purchase Period through the issuance of commercial
paper, a rate equal to the Alternative Rate for such Purchase Period or such
other rate as the Deal Agent and the Seller shall agree to in writing;
provided, however, that at all times following the occurrence and during
the continuation of a Stop Event or an Event of Termination, the "Yield Rate"
shall be a rate equal to the sum of the Base Rate at such time plus a per annum
rate of 2.0%.
SECTION 1.02. Other Terms. All accounting terms not specifically defined
herein shall be construed in accordance with generally accepted accounting
principles. All terms used in Article 9 of the UCC in the State of New York, and
not specifically defined herein, are used herein as defined in such Article 9.
SECTION 1.03. Computation of Time Periods and Pool Percentages. Unless
otherwise stated in this Agreement, in the computation of a period of time from
a specified date to a later specified date, the word "from" means "from and
including" and the words "to" and "until" each means "to but excluding." In
calculating the percentage of the Pool with respect to any Exception, the
percentage shall express a fraction which has a numerator equal to the
Outstanding Balance of the Purchased Assets with such Exception and a
denominator equal to the Aggregate Outstanding Balance of all the Purchased
Assets as of any Purchase Date or the date of any reassignment to the Seller of
any Financing Assets, as applicable.
ARTICLE II
AMOUNTS AND TERMS OF THE PURCHASES
SECTION 2.01. Facility. On the terms and conditions hereinafter set forth,
the Purchaser shall make Purchases from the Seller from time to time during the
period from the date the conditions precedent in Section 3.01 are satisfied to
the Termination Date. Each Asset Purchase shall constitute an assignment and
sale by the Seller, and a purchase and acquisition by the Purchaser, of
Purchased Interests, including, without limitation, designated Eligible Assets,
Related Security and Collections with respect thereto. Under no circumstances
shall the Purchaser make a Capital Purchase, if, after giving effect to such
Capital Purchase, the aggregate outstanding Capital hereunder would exceed the
Purchase Limit. Each Asset Purchase shall consist of the purchase of Eligible
Assets with an aggregate Outstanding Balance of not less than $1,000,000, and
each Capital Purchase shall be in a minimum amount of at least $1,000,000;
provided, however, that the Purchase made on the Initial Purchase Date shall be
in a minimum amount of $10,000,000.
SECTION 2.02. Making Purchases.
(a) Purchases. Purchases shall be made not more frequently than once a
week upon delivery to the Deal Agent of a Purchase Request by 10:00 A.M. at
least three Business Days before the effective date of the requested Purchase
(other than in the case of the initial Purchase Request hereunder, which may be
delivered prior to 10:00 A.M. (Boston, Massachusetts time) on the Initial
Purchase Date). Each Purchase Request for a Capital Purchase shall specify the
increase to outstanding Capital as a result of such requested Capital Purchase.
Each Purchase Request for an Asset Purchase shall specify (i) a list of all
items on the Asset Schedule and Project Schedule, and (ii) the items listed in
the form of Purchase Request attached at Exhibit D (i.e., the amount of
outstanding Capital, the Deferred Purchase Price, the Aggregate Outstanding
Balance and the Weighted Average Remaining Term) in each case calculated after
giving effect to such Asset Purchase. Each Purchase Request for a Capital
Purchase shall specify the items listed in the form of Purchase Request attached
at Exhibit D (i.e., the amount of outstanding Capital, the Deferred Purchase
Price, the Aggregate Outstanding Balance and the Weighted Average Remaining
Term) in each case calculated after giving effect to such Capital Purchase. On
the date of each Capital Purchase, the Purchaser shall, upon satisfaction of the
applicable conditions set forth in Article III, make available to the Seller the
amount of the Capital Purchase in same day funds in an account designated by the
Seller from time to time.
(b) Purchase Price; Deferred Purchase Price. The purchase price for any
Asset Purchase hereunder shall be composed of (i) an immediate payment to the
Seller consisting of a Capital Purchase plus (ii) the Deferred Purchase Price
allocable to such Asset Purchase. The amount of each Capital Purchase (whether
in connection with an Asset Purchase or otherwise) shall be the amount requested
by the Seller in the related Purchase Request but shall not exceed an amount
equal to (i) the Aggregate Outstanding Balance (after giving effect to the
Capital Purchase) minus (ii) the sum of (A) the outstanding Capital (before
giving effect to such Capital Purchase) and (B) the Deferred Purchase Price
(after giving effect to any changes in the Deferred Purchase Price on such
Purchase Date). After the Collection Date has occurred, the Purchaser shall, in
full satisfaction of the Deferred Purchase Price, assign and sell to the holder
of the Subordinated Interest, its respective remaining interest in the Purchased
Interests and any remaining Collections without any representation or warranty,
express or implied (other than a representation and warranty that such Purchased
Interests are free and clear of any Adverse Claim created by or through the
Purchaser or any Liquidity Provider).
SECTION 2.03. Transfers of Interests in Purchased Assets. Notwithstanding
anything to the contrary contained in this Agreement, none of the Deal Agent,
the Purchaser, or any Liquidity Provider shall have any affirmative obligation
or liability with respect to any Purchased Asset or any other Purchased
Interests (including, without limitation, any Interest Rate Hedges), nor shall
any of them be obligated to perform any of the affirmative obligations of any of
the Seller or the Initial Servicer thereunder.
SECTION 2.04. Termination or Reduction of the Purchase Limit. The Seller
may, upon at least five Business Days' notice to the Deal Agent, terminate in
whole or reduce in part the unused portion of the Purchase Limit; provided,
however, that each partial reduction shall be in an amount equal to $1,000,000
or an integral multiple thereof.
SECTION 2.05. Selection of Purchase Periods. At all times hereafter until
the Termination Date, the Seller shall, subject to the limitations described
below, select (a) Purchase Periods and allocate a portion of the outstanding
Capital to each selected Purchase Period, so that the outstanding Capital is at
all times allocated to a Purchase Period and (b) Yield Rates to apply to such
Capital for such Purchase Periods. The initial Purchase Period(s) and Yield
Rate(s) applicable to the Capital arising as a result of the initial Purchase
hereunder or any later Capital Purchase shall be specified in the Purchase
Request relating to such Purchase described in Section 2.02(a). Each subsequent
Purchase Period shall commence on the last day of the immediately preceding
Purchase Period, and the duration of and Yield Rate applicable to such
subsequent Purchase Period shall be such as the Seller shall select after notice
from the Seller received by the Deal Agent (including notice by telephone,
confirmed in writing) not later than 10:00 A.M. (Boston, Massachusetts time) on
such last day, except that (a) if the Seller shall not have so selected before
10:00 A.M. (Boston, Massachusetts time) on such last day, such Purchase Period
shall be one day and the applicable Yield Rate shall be the Adjusted Base Rate
and (b) if the Seller is requesting that Yield accrue at the Adjusted Eurodollar
Rate for such Purchase Period, and the Seller shall not have so selected before
10:00 A.M. (Boston, Massachusetts time) on the second Business Day prior to such
last day, such Purchase Period shall be one day and the applicable Yield Rate
shall be the Adjusted Base Rate. Any Purchase Period which would otherwise end
on a day which is not a Business Day shall be extended to the next succeeding
Business Day; provided, however, that if Yield in respect of such Purchase
Period is computed by reference to the Adjusted Eurodollar Rate, and such next
succeeding Business Day is in the next calendar month, then such Purchase Period
shall end on the next preceding Business Day. In addition, whenever any Purchase
Period as to which Yield accrues at the Adjusted Eurodollar Rate commences on
the last Business Day in a month or on a day for which there is no numerically
corresponding day in the month in which such Purchase Period ends, the last day
of such Purchase Period shall occur on the last Business Day of the month in
which such Purchase Period ends. Furthermore, if a CP Disruption Event shall
have occurred and be continuing, the Purchaser, or the Deal Agent on its behalf,
may, upon notice to the Seller, terminate any Purchase Period then in effect if
the Purchaser has funded the Capital allocated to such Purchase Period by
issuing its commercial paper notes. Any Purchase Period which commences before
the Termination Date and would otherwise end on a date occurring after the
Termination Date shall end on the Termination Date. On or after the Termination
Date, the Deal Agent shall have the right to allocate outstanding Capital to
Purchase Periods of such duration as shall be selected by the Deal Agent. The
Purchaser shall, on the first day of each Purchase Period, notify the Deal Agent
of the Yield Rate for the Capital allocated to such Purchase Period.
SECTION 2.06. Settlement Procedures.
(a) Asset Reports. On or prior to the 15th calendar day or next Business
Day of each month, the Servicer shall prepare and forward to the Deal Agent for
the Purchaser, an Asset Report, indicating the status of the Purchased Assets as
of the close of business of the Servicer on the last day of the immediately
preceding month, together with such attachments as may be required by the Deal
Agent thereunder, and setting forth, among other things, the payments made on
the immediately preceding Yield Payment Date.
(b) Allocation of Collections and Other Amounts.
(i) Collections. On each day, both before and after the Termination Date,
the Servicer or, if the Deal Agent has exercised its right under Section
6.03(a) to require the Collection Account Bank to remit all Collections of
Purchased Assets deposited in the Collection Account directly to the Deal
Agent, the Deal Agent, shall allocate Collections of Purchased Asset
received on such day as follows: (1) Set aside and hold in trust for the
Seller all amounts in respect of
such Collections pertaining to (A) sales, use, personal property and
real estate taxes and (B) premiums for insurance, in each case to
the extent the portion of the Collections described in clauses (A)
and (B) of this paragraph (1) are separately identified in the loan
documents executed by the Obligor and, if the Deal Agent is making
the allocation, identified to the Deal Agent to such uses; and
(2) Set aside and hold in trust in the Collection Account for the
Purchaser all remaining Collections.
(ii) Payments Under Interest Rate Hedges. Each payment from the applicable
counterparty under an Interest Rate Hedge shall be set aside by the
Servicer (or the Deal Agent, as the case may be) and held in trust in the
Collection Account for the Purchaser.
(iii) Servicer Advances. To the extent that the amounts set aside for the
Purchaser and the Seller pursuant to this Section 2.06(b) are at any time
insufficient to pay in full the amounts set forth in Sections 2.06(c) or
(d) below, the Servicer may make a Servicer Advance to satisfy such
deficiency if, and only if, the Servicer determines in good faith that
such Servicer Advance will be recoverable from future Collections and
payments under Interest Rate Hedges with respect to the related Purchased
Interests (such determination to be conclusive and binding).
(c) Yield Payment Dates. On each Yield Payment Date, the Servicer shall
pay to the Deal Agent (or the Deal Agent shall retain) from the excess of (x)
the amounts then set aside for the Purchaser and the Seller pursuant to Section
2.06(b) over (y) the aggregate amount, for all Interest Rate Hedges, of the net
amount due to each counterparty under the relevant Interest Rate Hedge on the
next Settlement Date to occur hereunder, an amount equal to the Yield due and
payable on such Yield Payment Date. On each such Yield Payment Date, the Deal
Agent shall pay such amount in respect of Yield so paid to (or retained by) the
Deal Agent for application to the amounts of Yield then due and payable to the
Purchaser.
(d) Settlement Dates - Pre-Termination Date. On each Settlement Date
(which may or may not be a Purchase Date) occurring prior to the Termination
Date, out of amounts set aside for the Purchaser and the Seller pursuant to
Section 2.06(b) during or in respect of the immediately preceding Settlement
Period (after giving effect to any payments previously made under Section
2.06(c) and including any amounts received pursuant to a Servicer Advance), the
Servicer or the Deal Agent (as the case may be) shall pay or retain (as the case
may be), for application to the following items in the following order of
priority:
(i) first, to the Servicer, the amount of any outstanding Servicer
Advances from Collections and payments under Interest Rate Hedges with
respect to the related Purchased Interests;
(ii) second, (A) to the Deal Agent, for application to accrued Yield which
is due and payable on such Settlement Date (if any), and (B) to the extent
of any accrued Yield which is not then due and payable, to be retained in
the Collection Account for the benefit of the Purchaser, until the next
succeeding Yield Payment Date, and not to be applied to any of the
following items;
(iii) third , to each counterparty under an Interest Rate Hedge, the net
amount, if any, due to such counterparty thereunder as of such Settlement
Date;
(iv) fourth, to the Servicer (if the Servicer is other than the Initial
Servicer or an Affiliate of the Initial Servicer) in payment of the
Servicer Fee;
(v) fifth, on a pro rata basis, to the Collateral Custodian, the
Subservicer and the Backup Servicer in payment of the Collateral Custodian
Fee , the Subservicer Fee and the Backup Servicer Fee, respectively;
(vi) sixth, to the Purchaser, in payment of the Program Fee and the
Liquidity Fee, on a pro rata basis calculated in accordance with the then
outstanding balance of each such fee;
(vii) seventh, to the Deal Agent, an amount equal to the sum of (A) the
excess, if any, of (x) outstanding Capital over (y) the Aggregate
Outstanding Balance minus the Deferred Purchase Price, as of the end of
the next preceding month, as set forth in the applicable Asset Report)
plus (B) any applicable Breakage Indemnity;
(viii) eighth, to the Servicer (if the Servicer is the Initial
Servicer or an Affiliate of the Initial Servicer) in payment of the
Servicer Fee; and
(ix) ninth, to the Seller, all remaining amounts (if any) following the
payment of the amounts set forth in the clauses above.
The Deal Agent shall pay to the Purchaser all amounts received or retained
pursuant to clause (vii) above (including any amounts received pursuant to a
Servicer Advance) and, at the Seller's option, such other funds of the Seller,
(x) first, to the payment of any Breakage Indemnity under clause (vii)(B) above,
and (y) second, in reduction of outstanding Capital. With the Purchaser's
consent, the Subservicer Fee may be paid to the Servicer on behalf of the
Subservicer.
(e) Settlement Dates -- Post-Termination Date. On each Settlement Date on
and after the Termination Date, out of amounts set aside for the Purchaser and
the Seller pursuant to Section 2.06(b) during or in respect of the immediately
preceding Settlement Period (after giving effect to any payments previously made
under Section 2.06(c)), the Servicer or the Deal Agent (as the case may be)
shall pay or retain (as the case may be), for application to the following items
in the following order of priority:
(i) first, (A) to the Deal Agent, for application to accrued Yield which
is due and payable on such Settlement Date (if any), and (B) to the extent
of any accrued Yield which is not then due and payable, to be retained in
the Collection Account for the benefit of the Purchaser, until the next
succeeding Yield Payment Date, and not to be applied to any of the
following items;
(ii) second, to each counterparty under an Interest Rate Hedge, the net
amount, if any, due to such counterparty thereunder as of such Settlement
Date;
(iii) third, to the Servicer (if the Servicer is other than the Initial
Servicer or an Affiliate of the Initial Servicer) in payment of the
Servicer Fee.
(iv) fourth, on a pro rata basis, to the Collateral Custodian, the
Subservicer and the Backup Servicer in payment of the Collateral Custodian
Fee, the Subservicer Fee and the Backup Servicer Fee, respectively;
(v) fifth, to the Purchaser, in payment of the Program Fee;
(vi) sixth, to the Purchaser, in payment of the Liquidity Fee;
(vii) seventh, to the Deal Agent, an amount equal to the sum of (A) if an
Event of Termination has not occurred, the excess, if any of (x)
outstanding Capital over (y) the Aggregate Outstanding Balance minus the
Deferred Purchase Price (as of the end of the next preceding month), as
set forth in the applicable Asset Report, and if an Event of Termination
has occurred, the amount of outstanding Capital plus (B) any applicable
Breakage Indemnity;
(viii) eighth, to the Servicer (if the Servicer is the Initial
Servicer or an Affiliate of the Initial Servicer) in payment of the
Servicer Fee;
(ix) ninth, to the Servicer, to the extent that the Servicer has
previously made Servicer Advances which have not been repaid in full, the
amount of such outstanding Services Advances; and
(x) tenth, to the Seller, all remaining amounts (if any) following the
payment of the amounts set forth in the clauses above.
The Deal Agent shall pay all amounts received or retained pursuant to
clause (vii) above to the Purchaser (A) first, to the payment of any applicable
Breakage Indemnity, and (B) second, in reduction of outstanding Capital. With
the Purchaser's consent, the Subservicer Fee may be paid to the Servicer on
behalf of the Subservicer. Following the Collection Date, all Collections shall
be payable to the holder of the Subordinated Interest in satisfaction of the
Deferred Purchase Price.
SECTION 2.07. Payments and Computations, Etc. All amounts to be paid or
deposited by the Seller or the Servicer hereunder shall be paid or deposited in
accordance with the terms hereof no later than 2:00 P.M. (Boston, Massachusetts
time) on the day when due in lawful money of the United States of America in
immediately available funds to a special account at FNBB (ABA #011-000-390,
account #52266445), in the name of the Deal Agent and maintained at FNBB's
office located at 100 Federal Street, Boston, Massachusetts 02110. The Seller
shall, to the extent permitted by law, pay to the Deal Agent interest on all
amounts not paid or deposited when due hereunder (whether owing by the Seller
individually or as Servicer) at 2.0% per annum above the Base Rate, payable on
demand; provided, however, that such interest rate shall not at any time exceed
the maximum rate permitted by applicable law. Such interest shall be retained by
the Deal Agent except to the extent that such failure to make a timely payment
or deposit has continued beyond the date for distribution by the Deal Agent of
such overdue amount to the Purchaser or any applicable Liquidity Provider
pursuant to Section 2.06 or otherwise, in which case such interest accruing
after such date shall be for the account of, and distributed by the Deal Agent
to the Purchaser or such Liquidity Provider. All computations of interest and
all computations of Yield, Breakage Indemnity, Program Fees, Liquidity Fees,
Servicer Fees, Collateral Custodian Fees, Subservicer Fees, Backup Servicer Fees
and other fees hereunder shall be made on the basis of a year of 360 days for
the actual number of days (including the first but excluding the last day)
elapsed.
SECTION 2.08. Yield Protection. (a) If due to either: (i) after the date
hereof, the introduction of or any change (including, without limitation, any
change by way of imposition or increase of reserve requirements) in or in the
interpretation by any governmental or regulatory authority or agency of any law
or regulation (other than laws or regulations relating to taxes) or (ii) after
the dated hereof, the compliance by any Affected Party with any guideline or
request from any central bank or other governmental authority (whether or not
having the force of law) or from any Rating Agency, (1) there shall be an
increase in the cost to any Affected Party of accepting, funding or maintaining
any Purchase hereunder, or agreeing to accept, fund or maintain any Purchase
hereunder, (2) there shall be a reduction in the amount receivable with regard
to any Purchased Asset or (3) any Affected Party shall be required to make a
payment calculated by reference to the Purchased Asset purchased by it or Yield
received by it, then the Seller shall, from time to time, immediately upon
demand by the Deal Agent, pay the Deal Agent for the account of such Affected
Party, that portion of such increased costs incurred, amounts not received or
required payment made or to be made, which the Deal Agent determines is
attributable to accepting, funding and maintaining any Purchase hereunder, or
agreeing to accept, fund or maintain any Purchase hereunder. In determining such
amount, the Deal Agent may use any reasonable averaging and attribution methods.
The Deal Agent shall submit to the Seller a certificate as to such increased
costs incurred, amounts not received or receivable or required payment made or
to be made, which certificate shall, in the absence of manifest error, be
conclusive and binding for all purposes.
(b) If due to either: (i) after the date hereof, the introduction of or
any change (including, without limitation, any change by way of imposition or
increase of reserve requirements) in or in the interpretation by any
governmental or regulatory authority or agency of any law or regulation (other
than laws or regulations relating to taxes) or (ii) after the date hereof,
compliance with any guideline or request from any central bank or other
governmental authority (whether or not having the force of law) or from any
Rating Agency, similar in nature to those described in subsection (a) above, any
Affected Party is required to compensate any other Affected Party in connection
with this Agreement or any Liquidity Agreement, or the funding or maintenance of
a Purchase hereunder, then immediately upon demand by any such Affected Party,
the Seller shall pay to such Affected Party, such additional amount or amounts
as may be necessary to pay such other Affected Party the amounts due or to
otherwise reimburse such other Affected Party for any amounts paid by it.
SECTION 2.09. Increased Capital. (a) If either (i) the introduction of or
any change in or in the interpretation by any governmental or regulatory
authority or agency of any law or regulation or (ii) compliance by any Affected
Party with any guideline or request from any central bank or other governmental
authority (whether or not having the force of law), or any rating agency,
affects or would affect the amount of capital required or expected to be
maintained by such Affected Party or such Affected Party determines that the
amount of such capital is increased by or based upon the existence of the
Purchaser's agreement to accept, fund or maintain Purchases hereunder and other
similar agreements or facilities, then, upon demand by such Affected Party or
the Deal Agent, the Seller shall immediately pay to such Affected Party or the
Deal Agent for the account of such Affected Party from time to time, as
specified by such Affected Party or the Deal Agent, additional amounts
sufficient to compensate such Affected Party in light of such circumstances, to
the extent that such Affected Party or the Deal Agent on behalf of such Affected
Party reasonably determines such increase in capital to be allocable to the
existence of the Purchaser's agreements hereunder. A certificate as to such
amounts submitted to the Seller by such Affected Party or the Deal Agent, shall,
in the absence of manifest error, be conclusive and binding for all purposes.
(b) If either (i) the introduction of or any change in or in the
interpretation by any governmental or regulatory authority or agency of any law
or regulation or (ii) compliance with any guideline or request from any central
bank or other governmental authority (whether or not having the force of law),
or any Rating Agency, under events or circumstances similar to those described
in subsection (a) above, any Affected Party is required to compensate any other
Affected Party in connection with this Agreement or any Liquidity Agreement, or
the funding or maintenance of a Purchase hereunder, then immediately upon demand
by any such Affected Party, the Seller shall pay to such Affected Party, such
additional amount or amounts as may be necessary to pay such other Affected
Party the amounts due or to otherwise reimburse such other Affected Party for
any amounts paid by it.
SECTION 2.10. Grant of Security Interest . (a) If at any time a court
characterizes the transactions hereunder as loans by the Purchaser to the Seller
notwithstanding the intent of the parties, or if the Seller elects to borrow
funds from the Purchaser pursuant to the Financing Option, then the Seller
hereby pledges, grants a security interest in and assigns to the Deal Agent, for
the benefit of the Purchaser, all of the right and title to and interest in the
Purchased Interests, including the Purchased Assets and the Related Security and
Collections related thereto, as security for such loans and for the payment and
performance of all obligations of the Seller hereunder.
(b) At any time, upon the request of the Deal Agent, the Seller shall, at
its expense, promptly execute and deliver all further instruments and documents,
and take all further action (including, without limitation, the execution and
filing of such financing or continuation statements, or amendments thereto or
assignments thereof), that may be necessary or desirable, or that the Deal Agent
may request, in order to perfect and protect any security interest granted or
purported to be granted to the Deal Agent hereunder or to enable the Deal Agent
to exercise and enforce its rights and remedies hereunder with respect to any
Purchased Interests. The Seller hereby authorizes the Deal Agent to file one or
more financing or continuation statements, and amendments thereto and
assignments thereof, relative to all or any part of the Purchased Interests now
existing or hereafter arising without the signature of the Seller where
permitted by law. A carbon, photographic or other reproduction of this Agreement
or any financing statement covering the Purchased Interests or any part thereof
shall be sufficient as a financing statement. The Seller will furnish to the
Deal Agent from time to time statements and schedules further identifying and
describing the Purchased Interests and such other reports in connection with the
Purchased Interests as the Deal Agent may request, all in reasonable detail.
SECTION 2.11. Taxes. (a) Any and all payments to an Affected Party
hereunder shall be made, in accordance with Section 2.06, free and clear of and
without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding, in the case of an Affected Party, net income taxes that are imposed
by the United States and franchise taxes and net income taxes that are imposed
on such Affected Party by the state or foreign jurisdiction under the laws of
which such Affected Party is organized or in which it is otherwise doing
business or any political subdivision thereof (all such non-excluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes"). If the Seller or the Servicer shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder to any Affected Party, (i) the Seller shall make an additional payment
to such Affected Party, in an amount sufficient so that, after making all
required deductions (including deductions applicable to additional sums payable
under this Section 2.11), such Affected Party receives an amount equal to the
sum it would have received had no such deductions been made, (ii) the Seller or
the Servicer, as the case may be, shall make such deductions and (iii) the
Seller or the Servicer, as the case may be, shall pay the full amount deducted
to the relevant taxation authority or other authority in accordance with
applicable law.
(b) If, in connection with an agreement or other document providing
liquidity support, credit enhancement or other similar support in connection
with this Agreement or the funding or maintenance of any Purchases hereunder,
any Affected Party is required to compensate any other Affected Party in respect
of taxes under circumstances similar to those described in this Section 2.11,
then immediately upon demand by such Affected Party, the Seller shall pay to
such Affected Party such additional amount or amounts as may be necessary to pay
such other Affected Party the amounts due or to otherwise reimburse such other
Affected Party for any amounts paid by it.
SECTION 2.12. Financing Option. In lieu of any Asset Purchase pursuant to
Sections 2.01 and 2.02, the Seller may elect the Financing Option in the
Purchase Request. The Purchaser shall make a loan to the Seller in the amount of
Capital that would otherwise be attributable to the Financing Asset. The Seller
promises to repay the loan with interest at such times and in such amounts as
the Seller would be required to make payments with respect to any Purchased
Asset. The Seller hereby pledges and assigns as security for the loan the
Purchased Assets including the Financing Asset. The Seller may repay the
Capital, Yield and any other amount allocated to any Financing Loan at the
termination of any Purchase Period upon two Business Days written notice. Upon
such payment, the Purchaser shall reassign the Financing Asset to the Seller
provided that the Seller has represented that the Purchased Assets shall remain
Eligible Assets, and no Event of Termination shall occur, after giving effect to
such reassignment. The Seller shall be entitled to terminate the Financing
Option with respect to any Financing Asset at any time and thereafter the Seller
shall not be entitled to make a repayment except as provided in other Sections
of this Agreement. If the Financing Option has been elected and has not been
terminated by the Seller, the Seller shall treat the assignment of the Financing
Asset as a financing for financial reporting purposes. Except as otherwise
provided in this Section, any provision of this Agreement and the other Facility
Documents applicable to the Purchased Assets shall apply to the Financing
Assets.
ARTICLE III
CONDITIONS OF PURCHASES
SECTION 3.01. Conditions Precedent to Initial Purchase. The initial
Capital Purchase and Asset Purchase shall be subject to the condition precedent
that the Deal Agent shall have received the following, each in form and
substance satisfactory to the Deal Agent:
(a) This Agreement, the Asset Sale Agreement, the Collection
Account Agreement, the Funds Designation Agreement, the Subservicing Agreement
, the Backup Servicing Agreement and the Initial Liquidity Agreement,
executed by each party thereto;
(b) A copy of the resolutions of the Board of Directors of the Seller
approving this Agreement, the Asset Sale Agreement and the other Facility
Documents to be delivered by it hereunder and the transactions contemplated
hereby, certified by its Secretary or Assistant Secretary;
(c) The Certificate of Incorporation of the Seller certified by
the Secretary of State of Delaware;
(d) Good Standing Certificate for the Seller issued by the Secretary
of State of the State of Delaware;
(e) A certificate of the Secretary or Assistant Secretary of the Seller
certifying (i) the names and true signatures of the officers authorized on its
behalf to sign this Agreement, the Asset Sale Agreement and the other Facility
Documents to be delivered by it hereunder (on which certificate the Deal Agent
and the Purchaser may conclusively rely until such time as the Deal Agent shall
receive from the Seller a revised certificate meeting the requirements of this
subsection (e)) and (ii) a copy of the Seller's by-laws;
(f) A copy of the resolutions of the Board of Directors of the Initial
Servicer approving the Asset Sale Agreement and the other Facility Documents to
be delivered by it hereunder and the transactions contemplated hereby, certified
by its Secretary or Assistant Secretary;
(g) The Certificate of Incorporation of the Initial Servicer certified
by the Secretary of the Commonwealth of Massachusetts;
(h) Good Standing Certificates for the Initial Servicer issued by the
Secretary of State of the State of Vermont, and by the Secretary of the
Commonwealth of Massachusetts.
(i) A certificate of the Secretary or Assistant Secretary of the Initial
Servicer certifying (i) the names and true signatures of the officers authorized
on its behalf to sign the Asset Sale Agreement and the other Facility Documents
to be delivered by it hereunder (on which certificate the Deal Agent and the
Purchaser may conclusively rely until such time as the Deal Agent shall receive
from the Initial Servicer a revised certificate meeting the requirements of this
subsection) and (ii) a copy of the Initial Servicer's bylaws;
(j) Upon the Purchaser's request, acknowledgment copies as duly filed of
proper UCC-1 Financing Statements (executed by the Initial Servicer, the Seller
or any intervening assignee, as applicable), as may be necessary or, in the
opinion of the Deal Agent, desirable under the UCC of all appropriate
jurisdictions or any comparable law to perfect the Initial Servicer's, the
Seller's, the Deal Agent's and the Purchaser's respective interests in all
Purchased Interests or under the Asset Sale Agreement;
(k) Certified copies of Requests for Information or Copies (Form UCC-11)
(or a similar search report certified by a party acceptable to the Deal Agent),
dated a date reasonably near to the date of the initial Purchase, listing all
effective financing statements which name any intervening assignee, the Initial
Servicer or the Seller (under their respective present names, and any previous
names or tradenames) as debtor and which are filed in the jurisdictions in which
filings were made pursuant to the preceding subsection of this Section 3.01,
together with copies of such financing statements;
(l) An opinion of Battle Fowler LLP, counsel for the Initial Servicer and
the Seller, as to enforceability, no conflict with laws and agreements,
perfection, priority, and such corporate and other matters as the Deal Agent may
reasonably request;
(m) An opinion of Battle Fowler LLP, counsel for the Initial Servicer and
the Seller, as to true sale, non-consolidation and such other matters as the
Deal Agent may reasonably request;
(n) An opinion of Thomas McHugh, special Massachusetts counsel for the
Initial Servicer, and Wilson & White, special Vermont counsel for the Initial
Servicer, as to seek matters as the Deal Agent may reasonably request;
(o) An opinion of counsel to the Lockbox Bank, the Subservicer and the
Backup Servicer as to such matters as the Deal Agent may reasonably request;
(p) An opinion of local counsel as to the Assets related to such Projects
as the Deal Agent may reasonably request; and
(q) If applicable, a copy of the Interest Rate Hedge Agreement entered
into by the Seller and a counterparty satisfying the requirements of Section
5.01(k), in form and substance satisfactory to the Deal Agent and otherwise
meeting the requirements of Section 5.01(k), together with an executed Interest
Rate Hedge Assignment relating thereto executed by the Seller and an Interest
Rate Hedge Assignment Agreement, executed by such counterparty.
SECTION 3.02. Conditions Precedent to All Purchases. Each Purchase
(including the initial Capital Purchase and Asset Purchase) from the Seller by
the Purchaser shall be subject to the further conditions precedent that:
(a) on or prior to the date thereof, the Servicer shall have delivered (i)
to the Deal Agent, (1) a completed Purchase Request in accordance with Section
2.02, (2) a duly completed Asset Report for the most recently ended month, (3)
if applicable, with respect to each Asset Purchase, evidence, in form and
substance reasonably satisfactory to the Deal Agent, that the Seller has entered
into Interest Rate Hedges satisfying the terms of this Agreement and in a
notional amount equal to the aggregate Outstanding Balance of the Eligible
Assets subject to such Asset Purchase (together, for any Interest Rate Hedges
the counterparty of which is not FNBB, with an Interest Rate Hedge Assignment
Acknowledgment duly executed by such counterparty and concurrently delivered to
the Deal Agent), and (4) copies of the UCC financing statements and requests for
information referred to in Section 3.01 with respect to any additional Person
reasonably requested by the Purchaser in light of the additional Purchased
Assets or concentration of Purchased Assets, and (ii) with respect to each Asset
Purchase, to the Collateral Custodian, the Asset Documents to the extent
provided in Section 3.03;
(b) all amounts then due and payable under the Facility Documents have
been paid (including the Up-Front Fee in connection with the initial Asset
Purchase to made hereunder and any costs and expenses under Section 8.04 of the
Liquidity Agreement);
(c) all Adverse Claims with respect to the Purchased Interests shall
have been released;
(d) on the date of each Purchase the following statements shall be true
and the Seller by accepting the amount for a Capital Purchase shall be deemed to
have certified that:
(i) The representations and warranties contained in Section 4.01 and, if
the Servicer is the Initial Servicer, Section 4.02 are correct in all
material respects on and as of such day as though made on and as of such
date, and
(ii) No event has occurred and is continuing, or would result from such
Purchase which constitutes an Event of Termination or would constitute an
Event of Termination but for the requirement that notice be given or time
elapse or both; and (e) any commercial paper issued in connection with the
transaction shall be rated at least D-1 by DCR, P-1 by Moody's and A-1 if
rated by S&P.
SECTION 3.03. Asset Documents.
(a) Asset Documents. On each Purchase Date, the Seller shall deliver the
documents described in clauses (b), (c) and (d) below or such other documents
set forth on a schedule acceptable to the Purchaser. If the Asset is related to
a Project located outside the United States, or if the Assets related to
Projects in a single state constitute 10% or more of the Pool, the Seller shall
furnish a legal opinion in form and substance acceptable to the Deal Agent and
the Rating Agencies, from counsel which may include the counsel representing the
Initial Servicer and the Seller in acquiring the Assets, that the documents are
sufficient to create the equivalent of a first perfected security interest with
respect to any Loan or any Installment Contract, as applicable. If a legal
opinion is not required with respect to an Asset, the Seller shall furnish a
memorandum as to such issue from counsel acceptable to the Deal Agent and the
Rating Agencies if necessary to update the memorandum delivered by Battle Fowler
LLP at the Initial Purchase Date. The Deal Agent acknowledges receipt of legal
opinions and a memorandum with respect to the Purchased Assets on the Initial
Purchase Date.
(b) Loans Generally. On the Purchase Date with respect to any Loan other
than any Loan relating to the Stardust Lodge Project, the Seller shall deliver
to the Purchaser the following documents except for those indicated in clause
(iv):
(i) The Note, endorsed without recourse in blank or to the Purchaser's
designee, showing an unbroken chain of endorsements from the originator
thereof to the Person endorsing it;
(ii) The original Mortgage to the original mortgagee or a copy thereof,
with evidence of recording indicated thereon;
(iii) An original of any intervening assignment of the Mortgage from the
original mortgagee to the Seller (which may be included in a blanket
assignment), or a copy thereof, with evidence of recording indicated
thereon;
(iv) Assignments in the form satisfactory for recordation in the
appropriate jurisdiction (which may be included in a blanket assignment)
of the Mortgage from the Seller to the Purchaser's designee, each such
assignment showing evidence of recording indicated thereon;
(v) The original lender's title insurance policy if such a policy has been
obtained; and
(vi) An original or copy of any guaranty relating to, or any assumption or
other agreement, if any, modifying, such Note, Mortgage or title insurance
policy (including, without limitation, any extension agreement).
(c) Stardust Lodge Project Loan. On each Purchase Date with respect to any
Loan relating to the Stardust Lodge Project, the Seller shall deliver to the
Purchaser the following documents except for those indicated in clauses (iv),
(v), (vi) and (ix):
(i) The Note, endorsed without recourse in blank or to the Purchaser's
designee, showing an unbroken chain of endorsements from the originator
thereof to the Person endorsing it;
(ii) The original mortgage to the original mortgagee, creating a lien on
the right to use, or a copy thereof, with evidence of recording indicated
thereon, and the original security agreement (which may be included in the
mortgage) creating a security interest in the beneficial ownership
interest in the trust containing the Property;
(iii) An original of any intervening assignment of the mortgage and
security agreement from the mortgagee to the Seller (which may be included
in a blanket assignment), or a copy thereof, with evidence of recording
indicated thereon;
(iv) Assignments in the form satisfactory for recordation in the
appropriate jurisdiction (which may be included in blanket assignments) of
the mortgage from the Seller to the Purchaser's designee, each such
assignment showing evidence of recording indicated thereon, and
assignments of the security agreement (which may be included in blanket
assignments) from the Seller to the Purchaser's designee;
(v) A UCC financing statement, together with an assignment thereof from
the secured party to the Seller, and together with a continuation
statement within every five years from the date of filing of the initial
UCC financing statement, with, in each case, evidence of filing thereon;
(vi) Assignments of the UCC financing statement from the Seller to the
Purchaser's designee, with evidence of filing thereon;
(vii) The original lender's title insurance policy if such a policy has
been obtained;
(viii) An original or copy of any guaranty relating to, or any assumption
or other agreement, if any, modifying, such Note, mortgage, security
agreement or title insurance policy (including, without limitation, any
extension agreement); and
(ix) A Project Title Assignment or other document transferring to the
Purchaser's designee an interest in the Property acceptable to the
Purchaser.
(d) Installment Contract. On each Purchase Date with respect to any
Contract, the Seller shall deliver to the Purchaser the following documents or
instruments except for those indicated in clauses (iii), (iv), (v) and (vi):
(i) The original Contract;
(ii) An unbroken chain of endorsements or assignments (which may be
included in a blanket allonge or assignment) from the original payee to
the Contract to the Seller;
(iii) Endorsements or assignments of the Contract (which may be included
in a blanket allonge or assignment) from the original payee to the Initial
Servicer to the Seller to the Purchaser's designee with evidence of
recording in any jurisdiction in which recording is required, as
determined by reference to the memoranda and legal opinions delivered on
the Initial Purchase Date or subsequent memoranda and legal opinions
required pursuant to Section 3.03(a); (iv) A Project Title Assignment or
other document transferring to the Purchaser's designee an interest in the
Property acceptable to the Purchaser;
(v) UCC financing statement against the Developer, together with an
assignment thereof from the Initial Servicer to the Seller, and together,
in each case, with a continuation statement within every five years from
the date of filing of the initial UCC financing statement, with, in each
case, evidence of filing thereon;
(vi) Assignments of all UCC financing statements from the Seller to the
Purchaser's designee, with evidence of filing thereon; and
(vii) The original or a copy of any guaranty relating to, or any
assumption or other agreement, if any, modifying such Contract (including,
without limitation, any extension agreement).
(e) Delivery Requirements. With respect to the documents described in
Section 3.03(b)(iv), (c)(iv), (v), (vi) and (ix) and (d)(iii), (iv), (v) and
(vi), the Seller shall use its best efforts to have such documents prepared and
executed and, if applicable, recorded or filed in the appropriate jurisdiction
promptly after the Purchase Date. With respect to any recording or filing, the
Seller shall deliver such Asset Documents to the recording or filing office no
later than 90 days after the Purchase Date and shall deliver such Asset
Documents to the Purchaser with evidence of recording or filing thereon no later
than 180 days from the date of delivery to the recording or filing office. The
Purchaser shall maintain a copy provided by the Seller until the original or a
copy, with recording or filing information thereon, is delivered to the
Purchaser. Any Project Title Assignment shall be delivered to the Purchaser
within 90 days after the Purchase Date. If any Asset Document is not delivered
to the Purchaser as required by this Section, the Seller, and if the Seller
fails to do so, the Initial Servicer shall purchase or substitute for the
related Asset pursuant to Section 9.02. At the Purchaser's request, any Asset
Document may be delivered to and reviewed by the Collateral Agent or the Deal
Agent in lieu of the Purchaser.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Seller. The Seller
represents and warrants as follows:
(a) Due Incorporation and Good Standing. The Seller is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, and is duly qualified to do business, and in good standing, in the
State of Vermont and in every other jurisdiction in which the nature of its
business requires it to be so qualified and the failure to qualify may have an
adverse effect on the Purchaser or any Affected Party.
(b) Due Authorization and No Conflict. The execution, delivery and
performance by the Seller of this Agreement, the Asset Sale Agreement and all
other Facility Documents to which it is a party, and the transactions
contemplated hereby and thereby, are within the Seller's corporate powers, have
been duly authorized by all necessary corporate action on the part of the
Seller, do not contravene (i) the Seller's charter or bylaws, (ii) any law, rule
or regulation applicable to the Seller, (iii) any contractual restriction in any
material respect contained in any indenture, loan or credit agreement, lease,
mortgage, security agreement, bond, note, or other agreement or instrument
binding on the Seller or its property or (iv) any order, writ, judgment, award,
injunction or decree binding on the Seller or its property, and do not result in
or require the creation of any Adverse Claim upon or with respect to any of its
properties pursuant to any material indenture, loan or credit agreement, lease,
mortgage, security agreement, bond, note or other material agreement binding on
the Seller or its properties; and no transaction contemplated hereby requires
compliance with any bulk sales act or similar law. This Agreement and the Asset
Sale Agreement have been duly executed and delivered on behalf of the Seller.
(c) Governmental Consent. No authorization or approval or other action by,
and no notice to or filing with, any governmental authority or regulatory body
is required for the due execution, delivery and performance by the Seller of
this Agreement, the Asset Sale Agreement or any other agreement, document or
instrument to be delivered by it hereunder, except for recordings in appropriate
recording offices and filings under the UCC.
(d) Enforceability of Facility Documents. This Agreement and each other
Facility Document to be delivered by the Seller in connection herewith
constitute the legal, valid and binding obligation of the Seller enforceable
against the Seller in accordance with their respective terms subject, as to the
enforcement of remedies, to bankruptcy, insolvency, reorganization, moratorium
and other similar laws affecting the enforceability of creditors' rights
generally applicable in the event of the bankruptcy, insolvency or
reorganization of the Seller and to general principles of equity.
(e) No Litigation. There are no actions, suits or proceedings pending, or
to the knowledge of the Seller threatened in writing, against the Seller, or the
property of the Seller, in any court, or before any arbitrator of any kind, or
before or by any governmental body, which (i) assert the invalidity of any
Facility Document or any action to be taken by the Seller in connection
therewith; or (ii) seek to prevent the consummation of the transactions
contemplated by this Agreement and the other Facility Documents. The Seller is
not in default with respect to any order of any court, arbitrator or
governmental body.
(f) Perfection of Interest in Purchased Asset. Each Purchased Asset shall,
at all times, be owned by the Seller free and clear of any Adverse Claim except
as provided herein or arising as a result of any action taken by the Purchaser
or any assignee thereof, and upon each Purchase, and the recording and filing
specified in Section 3.03, the Purchaser shall acquire a valid and perfected
first priority interest in each Purchased Asset then existing or thereafter
arising and in the Related Security and Collections with respect thereto, in
each case free and clear of any Adverse Claim except as provided herein or
arising as a result of any action taken by the Purchaser or any assignee
thereof; and no effective financing statement or other instrument similar in
effect, filed or permitted to be filed by the Seller, covering any Purchased
Asset, the Related Security and Collections shall at any time be on file in any
recording office except such as may be filed in favor of the Deal Agent in
accordance with this Agreement.
(g) Accuracy of Information. No Asset Report or Purchase Request (if
prepared by the Seller) furnished or to be furnished by the Seller to the Deal
Agent, the Purchaser or any Liquidity Provider in connection with this Agreement
is or shall be inaccurate in any material respect as of the date it is or shall
be dated, or as of the date so furnished, and the description of the Purchased
Interests in Appendix A does not contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(h) Location of Chief Executive Office and Records. The chief place of
business and chief executive office of the Seller are located at the address of
the Seller referred to in Section 10.02 hereof and the locations of the offices
where the Seller keeps all the Records are listed on Exhibit F (or at such other
locations, notified to the Deal Agent in accordance with Section 5.01(f), in
jurisdictions where all action required by Section 6.05 has been taken and
completed).
(i) Lockbox Bank Information. Except as otherwise agreed by the Deal
Agent, and in the case of occasional inadvertent errors on the part of one or
more Obligors (which errors are immaterial in the aggregate with respect to the
Purchased Assets taken as a whole): (A) the Lockbox Bank is the only bank to
which Collections of Purchased Assets are remitted by Obligors, (B) the account
number at such Lockbox Bank is the only Lockbox Account to which Collections of
Purchased Assets are so remitted, (C) the Post Office Box is the only
post-office box to which Collections of Purchased Assets are remitted by
Obligors, and (D) none of the Servicer, the Seller or the Lockbox Bank shall
have given any contrary instructions to any Obligor.
(j) No Tradenames.The Seller has no tradenames, fictitious names, assumed
names or "doing business as" names.
(k) Separate Corporate Existence. The Seller is operated as an entity with
assets and liabilities distinct from those of the Initial Servicer and any other
Affiliates of the Seller, and the Seller hereby acknowledges that the Deal Agent
and the Purchaser are entering into the transactions contemplated by this
Agreement in reliance upon the Seller's identity as a separate legal entity from
the Initial Servicer and each such Affiliate. Since its incorporation, the
Seller has been operated in such a manner as to comply with the covenants set
forth in Section 5.01(l).
(l) Investments. The Seller does not own or hold, directly or indirectly,
any capital stock or equity security of, or any equity interest in, any Person.
(m) Facility Documents. The Facility Documents are the only agreements
pursuant to which the Seller purchases and receives contributions of Assets or
any other interests from the Initial Servicer, and the Facility Documents
represent all material agreements between the Initial Servicer and the Seller.
Upon the purchase and/or contribution of each Asset pursuant to the Asset Sale
Agreement, the Seller shall be the lawful owner of, and have good and marketable
title to, such Asset and all assets relating thereto, free and clear of any
Adverse Claims. All such assets are transferred without recourse to the Initial
Servicer except as described in the Asset Sale Agreement.
(n) Business. Since its incorporation, the Seller has conducted no
business other than the purchase and receipt of Assets and related assets, the
sale of Purchased Interests and such other activities as are incidental to the
foregoing.
(o) Taxes. The Seller has filed or caused to be filed all Federal, state
and local tax returns which are required to be filed by it, and has paid or
caused to be paid all taxes prior to such taxes becoming delinquent, other than
any taxes or assessments the validity of which are being contested in good faith
by appropriate proceedings.
(p) Solvency. The Seller is not "insolvent" (as such term is defined
in '101(32)(A) of the Bankruptcy Code.
(q) Software. To the extent the Seller or the Servicer develops or
licenses computer software to administer the Purchased Assets, the Seller or the
Servicer, respectively, shall assign (by way of sale or collateral) or
sublicense such rights to use all of such software solely with respect to
administration of the Purchased Assets to the Deal Agent and the Purchaser.
(r) Investment Company Act. The Seller is not, and is not controlled by
an "investment company" within the meaning of the Investment Company Act of 1940
, as amended.
(s) Use of Proceeds. All proceeds of the Purchases will be used by the
Seller to fund its purchase obligations under the Asset Sale Agreement and to
pay ordinary operating expenses incurred in connection therewith, and no
proceeds of any Purchase will be used by the Seller (i) for a purpose which
violates, or would be inconsistent with, Regulation G, T, U or X promulgated by
the Board of Governors of the Federal Reserve System from time to time or (ii)
to acquire any security in any transaction which is subject to Section 13 or 14
of the Securities Exchange Act of 1934, as amended.
SECTION 4.02. Representations and Warranties of the Servicer. The
Servicer represents and warrants as follows:
(a) Due Incorporation and Good Standing. The Servicer is a corporation
duly incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and is duly qualified to do business, and is in
good standing, in every jurisdiction in which the nature of its business
requires it to be so qualified and the failure to qualify may have an adverse
effect on the Purchaser or any Affected Party.
(b) Due Authorization and No Conflict. The execution, delivery and
performance by the Servicer of this Agreement, the Asset Sale Agreement and all
other agreements, instruments and documents to be delivered by it hereunder, and
the transactions contemplated hereby and thereby, are within the Servicer's
corporate powers, have been duly authorized by all necessary corporate action on
the part of the Servicer, do not contravene (i) the Servicer's charter or
bylaws, (ii) any law, rule or regulation applicable to the Servicer, (iii) any
material contractual restriction contained in any material indenture, loan or
credit agreement, lease, mortgage, security agreement, bond, note, or other
material agreement or instrument binding on the Servicer or its property or (iv)
any material order, writ, judgment, award, injunction or decree binding on the
Servicer or its property, and do not result in or require the creation of any
Adverse Claim upon or with respect to any of its properties pursuant to any
material indenture, loan or credit agreement, lease, mortgage, security
agreement, bond, note or other material agreement binding on the Servicer or its
properties. This Agreement and the Asset Sale Agreement have been duly executed
and delivered on behalf of the Servicer.
(c) Governmental Consent. No authorization or approval or other action by,
and no notice to or filing with, any governmental authority or regulatory body
is required for the due execution, delivery and performance by the Servicer of
this Agreement, the Asset Sale Agreement or any other agreement, document or
instrument to be delivered by it hereunder.
(d) Enforceability of Facility Documents. This Agreement and each other
Facility Document to be delivered by the Servicer in connection herewith
constitute the legal, valid and binding obligation of the Servicer enforceable
against the Servicer in accordance with their respective terms subject, as to
the enforcement of remedies, to bankruptcy, insolvency, reorganization,
moratorium and other similar laws affecting the enforceability of creditors'
rights generally applicable in the event of the bankruptcy, insolvency or
reorganization of the Servicer and to general principles of equity.
(e) No Litigation. There are no actions, suits or proceedings pending, or
to the knowledge of the Servicer threatened in writing, against or affecting the
Servicer, or the property of the Servicer, in any court, or before any
arbitrator of any kind, or before or by any governmental body, which (i) assert
the invalidity of any Facility Document or any action to be taken by the
Servicer in connection therewith, or (ii) seek to prevent the consummation of
the transactions contemplated by this Agreement and the other Facility
Documents. The Servicer is not in default with respect to any order of any
court, arbitrator or governmental body.
(f) Accuracy of Information. No Asset Report or Purchase Request (if
prepared by the Servicer), furnished or to be furnished by the Servicer to the
Deal Agent, the Purchaser or any Liquidity Provider in connection with this
Agreement is or shall be inaccurate in any material respect as of the date it is
or shall be dated, or as of the date so furnished, and the description of the
Purchased Interests in Appendix A does not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(g) Financial Statements. The audited balance sheet of the Initial
Servicer as at December 31, 1996, and the related statements of income and cash
flow of the Initial Servicer for the year period then ended, certified by its
chief financial officer, copies of which have been furnished to the Deal Agent,
present fairly in all material respects the financial position of the Initial
Servicer at such date and the results of the operations of the Initial Servicer
for the period ended on such date, all in accordance with generally accepted
accounting principles consistently applied, and since December 31, 1996, there
has been no material adverse change in any such condition or operations.
SECTION 4.03. Eligible Asset. Unless an exception is noted on the Asset
Schedule and acceptable to the Purchaser, and each Rating Agency has given
written confirmation that its rating will not be downgraded or withdrawn, an
Eligible Asset at any time will meet the following criteria. If any Purchased
Asset or Project exceeds a specified portion of the pool of Purchased Assets
required for an Eligible Asset, the Purchased Asset or Project within such
portion will remain an Eligible Asset unless otherwise provided in this
Agreement.
(a) Schedule. Each item on the Asset Schedule and the Project Schedule is
correct and complete in all material respects as of the Cut-off Date and the
Purchase Date.
(b) Ownership. Upon the assignment from the Seller to the Purchaser, the
Purchaser shall own legal and equitable title to the Asset, free and clear of
any lien, charge or encumbrance in favor of any other Person.
(c) Loan. With respect to each Loan other than any Loan relating to the
Stardust Lodge Project, the Property consists of a right to use for a fixed or
floating week in perpetuity and an undivided interest in fee simple or a
substantially equivalent leasehold in real property consisting of a lodging unit
or group of lodging units at a Project. The Obligor is the owner of the
Property. The Mortgage creates a first priority lien on the Property. The
Mortgage has been duly recorded in all jurisdictions where it is required to be
recorded to create a first priority lien on the Property. The execution and
delivery of a chain of assignments of the Mortgage from the original mortgagee
to the Purchaser, the recording of such assignments in the applicable
jurisdiction, the execution and delivery of a chain of endorsements of the Note
from the original payee to the Purchaser and the delivery of the Mortgage and
Note to the Purchaser constitute all actions required to perfect the Purchaser's
ownership interest in the Mortgage and Note.
(d) Stardust Lodge Project Loan. With respect to each Loan relating to the
Stardust Lodge Project, the Property consists of a right to use for a fixed or
floating week in perpetuity and a beneficial interest in a trust that holds fee
title to the Project. The Obligor is the owner of the Property. A Mortgage
creates a first priority security interest in such beneficial interest, which
was perfected by filing a UCC financing statement with the California Secretary
of State and filing a UCC continuation every five years. A Mortgage also creates
a first priority lien on the Obligor's right to use the Project which right to
use was conveyed to the Obligor by a grant deed and which lien was perfected by
recording in the appropriate jurisdiction. The execution and delivery to the
Purchaser of the chain of assignments of the security interest and lien from the
original mortgagee to the Purchaser and the chain of endorsements of the Note
from the original payee to the Purchaser, the filing of any assignments of the
UCC financing statements from the original mortgagee to the Purchaser, the
recording of the assignments of the lien, and the delivery of the Note and
Mortgages constitute all actions required to perfect the Purchaser's ownership
interest in the Mortgage and Note.
(e) Installment Contract. With respect to each Installment Contract, the
Obligor has a right to use for a fixed or floating week in perpetuity. The
Record Owner has an undivided interest in a fee simple or a substantially
equivalent leasehold in real property consisting of a lodging unit or a group of
lodging units at a Project. The Installment Contract provides for the conveyance
of such interest to the Obligor upon payment of the installments. The execution
and delivery of a chain of assignments of the Installment Contract from the
original payee to the Purchaser and the assignment and acknowledgment of the
Project Title Assignment constitute all actions required to perfect the
Purchaser's ownership interest in the Installment Contract and related Property.
(f) Binding Obligation. Each of the Asset Documents is genuine and the
legal, valid, binding and enforceable obligation of the parties thereto. No
Asset or Asset Document is subject to any dispute, claim, defense or set-off of
any kind. The Purchaser is not obligated to perform any obligation in respect of
any Loan or Contract, and all obligations of the original payee or mortgagee
under the Loan or Contract have been performed. The Asset and the Property is
assignable to the Purchaser without the consent of the Project Association or
any other Person and there are no other restrictions on resale thereof. The
terms of the Asset have not been modified in any material respect. The Obligor
is not an Affiliate of the Initial Servicer or the Seller.
(g) Title. The Obligor of a Loan or the Record Owner of any Property
subject to an Installment Contract has good and marketable fee simple title or a
substantially equivalent leasehold to the Property, free and clear of any lien,
charge or encumbrance, subject only to any Permitted Encumbrances to which
properties of the same type are commonly subject and which do not materially
interfere with the benefits of the security intended to be provided by the Loan
or Installment Contract. The owners of the Project have good and marketable fee
simple title, free and clear of any lien, charge or encumbrance, subject only to
any Permitted Encumbrance or ground lease with commercially financeable terms to
which properties of the same type are commonly subject and which do not
materially interfere with the benefits of the security intended to be provided
by the Loan or Installment Contract.
(h) Customary Documents. Each Asset Document is in a form used by prudent
lenders with respect to similar assets. The Mortgage or Installment Contract
contains customary and enforceable provisions so as to render the rights and
remedies of the holder thereof adequate for the practical realization against
the related Property of the benefit of the security interest intended to be
provided thereby. There is no exemption available to the Obligor which would
interfere with the mortgagee's right to foreclosure the Mortgage, other than
that which may be available under applicable bankruptcy, debt relief or
homestead statutes. The Note is not secured by any collateral except the lien of
the Mortgage as described in this Agreement. The trustee under any deed of trust
is qualified under applicable law to serve as such, has been designated in
accordance with applicable law, and so currently serves.
(i) Compliance with Law. All federal, state and local laws and regulations
applicable to the origination or servicing of the Asset and the sale or use of
the related Property, including those relating to usury, truth-in-lending, real
estate settlement procedures, land sales, consumer credit protection, equal
credit opportunity, and offer or sale of securities, have been complied with in
all material respects. Any originator or servicer of the Asset and the related
Property has been duly qualified to do business and properly licensed in each
applicable jurisdiction to the extent failure to do so may have a material
adverse affect on the he Purchaser.
(j) Credit. The Asset satisfies all applicable requirements of the Credit
and Collection Policy and Minimum Underwriting Guidelines except that 5% of the
Pool need not comply with the Minimum Underwriting Guidelines. The collection
and servicing practices with respect to the Asset since its origination have
been in all respect legal, proper and prudent, and consistent with those
customarily employed by companies servicing mortgage loans secured by timeshare
estates. The Asset was originated in accordance with prudent underwriting and
origination criteria of the originator. The Asset has not been rewritten or
modified.
(k) Default. The Asset is not a Defaulted Asset and on the Purchase Date
thereof is not a Delinquent Asset and has not been specifically reserved against
by the Initial Servicer or its Affiliates or classified by any of them as
uncollectible or charged off. No installment payable under the Asset has been
deferred or extended while the Asset is owned by the Initial Servicer or its
Affiliates except for the grant of an extension of payment provided (i) the
Obligor is not solicited for an extension and (ii) such extension is a customary
practice and made in accordance with the Credit and Collection Policy. There are
no delinquent taxes, ground rents, water charges, sewer rents, or assessments
outstanding with respect to any of the Property. On the applicable Purchase Date
(except on the Initial Purchase Date), any payments of principal and interest
with respect to the Asset and maintenance fees with respect to the Project
Association are not more than 30 days past the due date. All applicable
intangible taxes and documentary stamp taxes have been paid with respect to the
Asset.
(l) Good Repair. The unit related to the timeshare estate for the Asset is
completed in accordance with the requirements of federal, state and local law,
is ready for occupancy and is not in need of maintenance or repair, except for
ordinary, routine maintenance and repairs which are not substantial in nature or
cost and such unit contains no structural defects materially affecting its value
and is in good condition. The Project is contiguous to a dedicated public (or
private, if subject to an easement running in favor of all owners of the
timeshare estates constituting such Project, and their invitees, affording
access to a public street), physically-open, all-weather street, allows for
appropriate ingress, egress and parking and is adequately serviced by public (or
private if complying with all material and applicable local laws, regulations
and ordinances) water and sewer systems and utilities. The Project is not in
need of maintenance or repair, except for ordinary, routine maintenance and
repairs which are not substantial in nature of cost and such Project contains no
structural defects materially affecting its value. The portions of the Project
which represent the security gate, pool, tennis court and other recreational
facilities, if any, are in good repair and condition, ordinary wear and tear
excepted.
(m) No Casualty or Condemnation. The Property and the Project are
undamaged by waste, fire, earthquake or earth movement, wind storm, flood,
tornado or other casualty, so as to adversely affect the value of the Property
as security for the Assets or the use for which the Property was intended. The
Property and the Project are adequately insured for fire, earthquake or earth
movement, wind storm, flood, tornado, vandalism and other casualty. There is no
legal, judicial or administrative proceeding pending or threatened for the total
or partial condemnation or taking of the Property or the Project by eminent
domain.
(n) Title Policy. If the Asset is covered by a form of lender's title
insurance policy, the policy has been issued by a title insurer qualified to do
business in the jurisdiction where the related Property is located, insuring the
original lender and its successors and assigns as an assignee of the Asset, as
to the first priority lien of the related Mortgage or Installment Contract in an
amount equal to the original principal balance of such Asset. Such lender's
title insurance policy is in full force and effect. No claims have been made
under such lender's title insurance policy.
(o) Insurance and Condemnation Proceeds. No action has been taken or
omitted that would impair or invalidate the coverage provided by any hazard,
title or other insurance policy which has been obtained relating to the Asset or
the Property. In the event of a casualty or condemnation, the Purchaser will
receive insurance and condemnation proceeds in respect of the Property, if any.
(p) Amortization. The proceeds of the Asset have been fully disbursed. The
Asset is a fully amortizing debt obligation which provides for level payments of
principal and interest. The Outstanding Balance does not include any interest
added to principal. No Asset has an Outstanding Balance in excess of $25,000. No
Asset has an original term to maturity of more than 180 months. Except for up to
10% of the Pool, no Asset has an original term to maturity of more than 120
months. Upon becoming a Purchased Asset, the Asset will not cause the Weighted
Average Remaining Term to exceed 72 months. At least one scheduled monthly
payment has been made on the Asset on the Purchase Date. If less than four
scheduled monthly payments have been made on the Asset on the Purchase Date, the
Initial Servicer shall have guaranteed all scheduled monthly payments on the
Asset until the Asset has had four scheduled payments made and qualifies as an
Eligible Asset as if purchased on such date. The weighted average number of
monthly payments based on Outstanding Balance on the Purchase Date exceeds 12
payments. The Obligor made a minimum downpayment for the Property of 10% of the
purchase price. The index for any adjustable rate loan shall be the prime rate
as reported in The Wall Street Journal or another index acceptable to the
Purchaser. No adjustable rate loan shall have a periodic or lifetime cap unless
acceptable to the Purchaser.
(q) United States. All payments on the Asset are denominated and payable in
U.S. dollars. Except for up to 10% of the Pool, each Obligor is a U.S. citizen
with a U.S. mailing address. Any Obligor who is not a U.S. citizen with a
U.S.mailing address is from a country which will not impose any withholding or
other tax liability with respect to payments on the Asset. Any Note and Mortgage
may be enforced without personal jurisdiction over the Obligor, and any Contract
may be enforced in at least one court in the United States which has personal
jurisdiction over the Obligor.
(r) Project. The Project is affiliated with Resorts Condominium
International or Intervals International. The Assets related to Projects in any
one state will not constitute more than 35% of the Pool, and the Assets related
to Projects in the top three states will not constitute more than 75% of the
Pool. The Assets related to Projects located outside the United States will
constitute less than 5% of the Pool. Except for up to 25% of the Pool, the
intervals in each Project, based upon the good faith estimates of the Seller,
will be at least 70% sold out to persons other than the Developer, the Manager
or the Guarantor or any Affiliates of the foregoing. The Assets related to any
single Project (other than up to $3,437,000 in Outstanding Balance with respect
to Harbor Club and up to $1,834,000 in Outstanding Balance with respect to
Thunderbird) will not constitute more than 10% of the Pool.
(s) Project Organization. The Project Association for the Project is duly
organized and validly existing to the extent that its organization and existence
may affect the interest of the Purchaser. A homeowners or members association
has been established. The rights of the Obligor are subject to the declarations,
covenants and restrictions of record affecting the Project.
(t) Project Developer. The Developer of the Project has complied in all
material respects with all material obligations and duties incumbent upon it
under the declaration of condominium or similar applicable document for the
Project, and with respect to any homeowners association or similar organization,
to the extent such compliance may have a material effect on the interest of
Purchaser. No Developer has any continuing or future right or obligation under
any Asset Documents including any obligation to provide services to any
consumer; provided that the Developer may have the obligation to make payments
to a homeowners association for the Project, which homeowners association
provides or causes to be provided services to consumers pursuant to certain
documents establishing the timeshare plan; and further provided that any
obligation of the Developer to make payments to a homeowners association arises
from the Developer's ownership of timeshare interest in the Project and not from
the Developer's role as the developer of the Project. The Assets related to any
one Developer and its Affiliates constitute 25% or less of the Pool. If the
Initial Servicer purchased Assets constituting 10% or more of the Pool from any
one Developer in a transaction which provides for recourse, neither the
Developer nor any of its Affiliates (i) are in any bankruptcy or insolvency
proceeding, (ii) have been in any bankruptcy or insolvency proceeding during the
preceding three years or (iii) are in material default with respect to any
Indebtedness having a principal amount of $100,000 or greater and such default
has continued after the applicable grace period. If the event in clause (i),
(ii) or (iii) occurs, no new Assets shall be permitted to be purchased from such
Developer.
(u) Project Management. The Project in which a Property is located is
currently being managed pursuant to a management agreement between the related
Project Association and the Manager. The management agreement contains customary
provisions for the prudent management of the Project. None of the parties to any
management agreement is in material default under the management agreement.
(v) Project Licenses. All licenses, permits and approvals reasonably
necessary or required under the laws, ordinances and regulations of the
appropriate jurisdiction for the operation, occupancy and use of the Project
have been obtained and are in effect. No zoning law, ordinance or regulation is
in violation by the maintenance, operation, occupancy or use of any of the
Project such that the violation would adversely affect the operation, occupancy
or use of the Project. No building or other federal, state or municipal law,
ordinance, regulation or any restrictive covenant is in violation by the
maintenance, operation, occupancy or use of any Project in its present manner
such that the violation would adversely affect the operation, occupancy or other
use of the Project.
(w) Environmental Laws. Each Project and the present use thereof does not
violate any applicable environmental laws, ordinances or regulations of any
governmental authority, so as to materially adversely affect the value or use of
the Project or the performance by the related Project Association of its
obligations pursuant to and as contemplated by the terms and provisions of its
management agreement. There is no condition presently existing concerning any
Project relating to any hazardous or toxic materials, asbestos or other
environmental or similar matters which might reasonably be expected to
materially and adversely affect the present use of the Project or the financial
condition or business operations of the related Project Association.
(x) No Adverse Proceeding. There is no pending or threatened action, suit,
proceeding or investigation before any court, administrative agency, arbitrator
or governmental body against or affecting the Property or the Project which, if
decided adversely, would materially and adversely affect the transactions
contemplated hereunder. With the exception of Club Donatello, Willow Valley,
Surfrider, Smoketree Lodge and Ridge Sierra under Harlesk Management, Inc., no
Project is involved in a bankruptcy or insolvency proceeding which concluded
prior to the Purchase Date. No Project is involved in a bankruptcy or insolvency
proceeding which has not concluded prior to the Purchase Date.
ARTICLE V
GENERAL COVENANTS
SECTION 5.01. Affirmative Covenants of the Seller. From the Initial
Purchase Date until the later of the Termination Date or the Collection Date,
the Seller shall, unless the Deal Agent shall otherwise consent in writing:
(a) Compliance with Laws, Etc. Comply in all material respects with
all applicable laws, rules, regulations and orders with respect to all Assets.
(b) Preservation of Corporate Existence. Preserve and maintain its
corporate existence, rights, franchises and privileges in the jurisdiction of
its incorporation, and qualify and remain qualified in good standing as a
foreign corporation in each jurisdiction where the nature of its business
requires it to be so qualified and the failure to qualify may adversely affect
the Purchaser or any other Affected Party.
(c) Audits. From time to time during each calendar quarter, (with expenses
to be allocated as set forth in Section 10.06) upon reasonable prior written
notice to the Seller and during regular business hours, permit the Deal Agent,
or its agents or representatives, (i) to examine and make copies of and
abstracts from all Records, and (ii) to visit the offices and properties of the
Seller for the purpose of examining such Records, and to discuss matters
relating to the Assets or the Seller's performance hereunder with any of the
officers or employees of the Seller having knowledge of such matters and in the
Seller's presence with the Seller's independent public accountants.
(d) Keeping of Records and Books of Account. Maintain and implement
administrative and operating procedures (including, without limitation, an
ability to recreate records evidencing the Assets in the event of the
destruction of the originals thereof) and keep and maintain, all documents,
books, records and other information reasonably necessary or advisable for the
collection of all Assets (including, without limitation, records adequate to
permit the daily identification of all Collections of and adjustments to each
Purchased Asset). The Asset Documents shall be delivered to the Collateral
Custodian and all other Records relating to the Purchased Assets shall be held
by the Servicer.
(e) Performance and Compliance with Assets. At its expense timely and
fully perform and comply, in all material respects, with all material
provisions, covenants and other promises required to be observed by it under the
Purchased Asset.
(f) Location of Records. Keep its chief place of business and chief
executive office, and the offices where it keeps the Records, at the address(es)
of the Seller referred to in Section 4.01(h), or, in any such case, upon 30
days' prior written notice to the Deal Agent, at such other locations within the
United States where all action required by Section 6.05 shall have been taken
and completed.
(g) Credit and Collection Policies. Comply in all material respects
with its Credit and Collection Policy in regard to each Purchased Asset.
(h) Obligor Filing Requirement.Comply with the Obligor Filing Requirement
and the Purchaser Filing Requirement.
(i) Facility Documents. Comply in all material respects with the terms of
and employ the procedures outlined in and enforce its rights with respect to the
obligations of the Initial Servicer under the Facility Documents to which the
Seller is a party.
(j) Separate Corporate Existence. Take all reasonable steps it deems
necessary or advisable to maintain the Seller's identity as a separate legal
entity from the Initial Servicer and any of its other Affiliates, and to not
mislead others as to the separate identity of Seller and the Initial Servicer.
Without limiting the generality of the foregoing and in addition to and
consistent with the covenants set forth in Sections 5.01(b) and 5.01(i), the
Seller shall:
(i) constitute a limited purpose corporation whose activities are
restricted in its certificate of incorporation;
(ii) not permit the direct involvement by the Initial Servicer or any
other Affiliate of the Initial Servicer in the day-to-day management of
the Seller (other than permitting employees, officers and directors of the
Initial Servicer to serve as employees, officers and directors of the
Seller and to take such acts and do such things in connection therewith as
such persons deem reasonable or necessary under the circumstances to
faithfully fulfill their duties as officers, directors and employees of
Seller, or as they are required to take or do by any applicable law, rule
or regulation, or by the order, decree or judgment of any court,
arbitrator or governmental body);
(iii) other than activities undertaken pursuant to the Asset Sale
Agreement and this Agreement and the other Facility Documents, not engage
in intercorporate transactions with the Initial Servicer or any other
Affiliate of the Initial Servicer, other than transactions in the ordinary
course of business between a parent corporation and its subsidiary; (iv)
maintain separate corporate records and books of account from the Initial
Servicer and the other Affiliates of the Initial Servicer, hold corporate
meetings and otherwise observe corporate formalities;
(v) prepare its financial statements separately from those of its other
Affiliates or prepare consolidated and consolidating financial statements
of the Initial Servicer and its Affiliates and insure that any
consolidated financial statements and books and records of the Initial
Servicer that include the Seller have notes to the effect that the Seller
is a separate corporate entity and that the Seller's creditors have a
claim on its Assets prior to those Assets becoming available to any
creditors of the Initial Servicer;
(vi) not commingle its funds (other than those deposited into the Lockbox
Account) or other Assets of the Seller with those of any other Affiliate,
and not hold its Assets in any manner that would be reasonably likely to
mislead any Person as to the ownership of such Assets, and will not
maintain bank accounts or other depository accounts (other than the
Lockbox Account) to which any Affiliate is an account party, into which
any Affiliate makes deposits or from which any Affiliate has the power to
make withdrawals;
(vii) pay its own expenses and obligations out of its own funds and
Assets, other than expenses incurred in connection with the closing of the
transactions contemplated by this Agreement and the other Facility
Documents;
(viii) not permit the Initial Servicer or any Affiliate of the Initial
Servicer (other than in connection with any Lockbox Account) to (A)
guaranty any of the Seller's obligations or (B) advance funds to the
Seller for the payment of expenses or otherwise (other than in connection
with Servicer Advances);
(ix) not pay any expenses, guaranty any obligations or advance funds for
the payment of expenses or obligations of the Initial Servicer or any
other Affiliate of the Initial Servicer;
(x) conduct all business correspondence of the Seller and
other communications in the Seller's own name on its own stationery;
(xi) not permit the Initial Servicer or any other Affiliate of the Initial
Servicer to act as an agent of the Seller in any capacity (except as
Servicer hereunder) and not itself act as an agent for the Initial
Servicer, but instead present itself to the public as a corporation
separate from the Initial Servicer, independently engaged in the business
of purchasing and selling Assets;
(xii) maintain one independent director at all times who shall at no time
be a shareholder, director, officer, employee, Affiliate or associate of
any shareholder of the Initial Servicer as provided in its articles of
incorporation; and
(xiii) take such other actions as are necessary on its part to ensure that
the facts and assumptions set forth in the opinion of Seller's counsel
described in Section 3.01(m) remain true and correct at all times.
(k) Interest Rate Hedges. (A) Within five Business Days after any failure
to meet the Interest Rate Hedge Test or make another arrangement satisfactory to
the Deal Agent, concurrently with each Asset Purchase hereunder, enter into an
Interest Rate Hedge with such counterparties and on such terms as shall satisfy
the requirements of clause (B) below, and transfer, assign and otherwise convey
to the Deal Agent all of the Seller's rights in, to and under such Interest Rate
Hedge pursuant to an Interest Rate Hedge Assignment together with an Interest
Rate Hedge Assignment Acknowledgment executed by the relevant Interest Rate
Hedge counterparty; and
(B) Within five Business Days after any failure to meet the Interest Rate
Hedge Test or make another arrangement satisfactory to the Deal Agent, maintain,
at all times, with respect to each Asset Purchase and the Eligible Assets
subject thereto, Interest Rate Hedges (i) between the Seller and either FNBB,
and/or such other counterparties as may be acceptable to the Deal Agent and have
a long-term rating of at least AA- from S&P, Aa3 from Moody's, AA- from DCR (if
rated by DCR) and a short-term rating of at least A-1 from S&P, P-1 from Moody's
and D-1 from DCR (if rated by DCR), (ii) with an aggregate notional amount equal
to the product of (A) a factor of 100%, and (B) the aggregate Outstanding
Balance of such Eligible Assets with a fixed Asset Rate, less the Outstanding
Balance of any such Eligible Assets which have interest rate hedge protection
satisfactory to the Deal Agent, amortizing in a manner satisfactory to the
parties hereto, (iii) with respect to which the Seller makes periodic payments
to the applicable counterparty (solely on a net basis from funds available under
Section 2.06(d)(iii) or Section 2.06(e)(ii), as the case may be) by reference to
a fixed rate equal to the applicable market rate on the notional balance
specified in clause (ii) above, and the counterparty makes periodic payments to
the Seller or (to the extent the Deal Agent has required such counterparty to
remit such payments directly to the Deal Agent) to the Deal Agent (in either
case, solely on a net basis) by reference to a rate equal during any month to
the daily average during such month of the money market yields of the rate set
forth in H.15 (519) for 30 day maturities under the caption "Commercial Paper"
and (iv) which the Seller at the direction of the Deal Agent may terminate every
three or six months; and
(C) Deliver prior written notice to each of the Rating Agencies then
rating the commercial paper notes of the Purchaser (if any), of the Seller's
entry into one or more Interest Rate Hedges with a Person other than FNBB.
(l) Search Updates. Without limiting any other rights of the Deal Agent
hereunder, upon the Purchaser's request provided the request is made in a
commercially reasonable manner, with expenses to be allocated as set forth in
Section 10.06, obtain (or cause the Servicer to obtain), at the expense of the
Seller, and deliver to the Deal Agent, certified copies of Requests for
Information or Copies (Form UCC-11) (or a similar search report certified by a
party acceptable to the Deal Agent), listing all effective financing statements
which name, the originator, any intervening assignee, the Initial Servicer or
the Seller (under their respective present names, and any previous names or
tradenames) as debtor and which are filed in any jurisdiction in which filings
would be required to be made under the UCC of any applicable jurisdiction in
order to perfect (by filing a financing statement) a security interest in any
Purchased Interests, together with copies of such financing statements (which
search reports may be "bringdowns" of any earlier search report executed against
any such Person in the same jurisdiction).
(m) Fair Selection. In connection with each Asset Purchase hereunder,
select, to the best knowledge of the Initial Servicer and the Seller on the
Purchase Date, Eligible Assets for inclusion in such Asset Purchase on a basis
which is not adverse to any of the Purchaser or the Deal Agent.
SECTION 5.02. Reporting Requirements of the Seller. From the Initial
Purchase Date until the later of the Termination Date or the Collection Date,
the Seller will, unless the Deal Agent shall otherwise consent in writing,
furnish to the Deal Agent:
(a) as soon as possible and in any event within five Business Days after
the Seller or the Servicer obtains knowledge of the occurrence of each Event of
Termination or each event which, with the giving of notice or lapse of time or
both, would constitute an Event of Termination, the statement of the chief
financial officer, chief accounting officer or treasurer of the Seller setting
forth details of such Event of Termination or event and the action which the
Seller proposes to take with respect thereto;
(b) as soon as available and in any event within 45 days after the end of
each of the first three quarters of each fiscal year of the Seller and the
Initial Servicer, balance sheets of the Seller, consolidated balance sheets of
the Initial Servicer and its consolidated Subsidiaries as of the end of such
quarter, and the related consolidated statements of income and retained earnings
and consolidated statements of cash flow of the Seller and the Initial Servicer
and its consolidated Subsidiaries, each for the period commencing at the end of
the previous fiscal year (as appropriate) and ending with the end of such
quarter;
(c) as soon as available and in any event within 90 days after the end of
each fiscal year of the Seller and the Initial Servicer, an unqualified audit
report, including the balance sheets of the Seller and the consolidated balance
sheets of the Initial Servicer and its consolidated Subsidiaries as of the end
of such year and the related consolidated statements of income and retained
earnings and consolidated statements of cash flow of the Seller and the Initial
Servicer and its consolidated Subsidiaries for such year, together with a
separate consolidating balance sheet, statement of income and retained earnings
and statement of cash flow for the Initial Servicer and the Seller for the
equivalent periods, all of the foregoing to be certified by nationally
recognized independent public accountants acceptable to the Deal Agent, in each
such case prepared in accordance with generally accepted accounting principles,
consistently applied; and
(d) as soon as reasonably practicable, from time to time, such other
information, documents, records or reports (including SEC filings) respecting
the Assets or the conditions or operations, financial or otherwise, of the
Seller and its Affiliates as the Deal Agent may from time to time reasonably
request in order to protect the interests of the Deal Agent or the Purchaser
under or as contemplated by this Agreement.
SECTION 5.03. Negative Covenants of the Seller. From the Initial Purchase
Date until the later of the Termination Date or the Collection Date, the Seller
will not, without the written consent of the Deal Agent:
(a) Sales, Liens, Etc. Against Assets and Related Assets. Except as
otherwise provided herein, (i) sell, assign (by operation of law or otherwise)
or otherwise dispose of, or create or suffer to exist, any Adverse Claim upon or
with respect to, any Purchased Asset, Related Security or Collections, or any
Asset Sale Asset or Servicing Agreement Asset (if any), or assign any right to
receive income in respect thereof, or (ii) create or suffer to exist, any
Adverse Claim upon or with respect to any Purchased Interests.
(b) Extension or Amendment of Assets. Except as otherwise permitted in
Section 6.02, extend, amend or otherwise modify, the terms of any Purchased
Asset.
(c) Change in Business or Credit and Collection Policy. Make any change in
the character of its business, which change would materially impair the
collectibility of any Purchased Asset, or make any change in the Credit and
Collection Policy, including any change to the policy regarding rewriting or
modifying any Asset.
(d) Change in Payment Instructions to Obligors. Make any amendment, change
or other modification to the terms of the Funds Designation Agreement, or in any
instructions to Obligors given in accordance with Section 5.01(h).
(e) Stock, Merger, Consolidation, Etc. Sell any shares of any class of its
capital stock to any Person (other than the Initial Servicer) or consolidate
with or merge into or with any other corporation, or purchase or otherwise
acquire all or substantially all of the Assets or capital stock, or other
ownership interest of, any Person or sell, transfer, lease or otherwise dispose
of all or substantially all of its Assets to any Person, except as expressly
permitted under the terms of this Agreement.
(f) Change in Corporate Name. Make any change to its corporate name or use
any tradenames, fictitious names, assumed names or "doing business as" names
unless the Seller shall give the Deal Agent thirty (30) days prior written
notice thereof and shall take such other steps reasonably requested by the Deal
Agent (including, without limitation, the filing of amendments to and/or new UCC
financing statements) in order to maintain a first priority perfected interest
of the Purchaser in the Purchased Interests.
(g) ERISA Matters. Establish or be party to any Plan, Multiemployer Plan
or Benefit Plan.
(h) Indebtedness. Create, incur, assume or suffer to exist any
Indebtedness except for (i) Indebtedness to the Deal Agent, the Purchaser or any
Affected Party expressly contemplated hereunder, and (ii) Indebtedness to the
Initial Servicer pursuant to or as permitted by the Asset Sale Agreement or any
other Facility Document.
(i) Guarantees. Guarantee, endorse or otherwise be or become contingently
liable (including by agreement to maintain balance sheet tests) in connection
with the obligations of any other Person, except endorsements of negotiable
instruments for collection in the ordinary course of business and reimbursement
or indemnification obligations in favor of the Deal Agent, the Purchaser or any
Affected Party as provided for under this Agreement.
(j) Limitation on Transactions with Affiliates. Enter into, or be a
party to any transaction with any Affiliate of the Seller, except for:
(i) the transactions contemplated by the Asset Sale Agreement and the
other Facility Documents;
(ii) other transactions in the nature of employment contracts and
directors' fees, upon fair and reasonable terms materially no less
favorable to the Seller than would be obtained in a comparable arm's
length transaction with a Person not an Affiliate; and (iii) with respect
only to transactions between the Seller and or the Initial Servicer,
transactions in the ordinary course of business between a parent
corporation and its subsidiary.
(k) Facility Documents. Except as otherwise permitted under Section 10.01,
(i) terminate, amend or otherwise modify any Facility Document to which it is a
party or grant any waiver or consent thereunder, (ii) terminate, amend or
otherwise modify, or permit the Initial Servicer or Subservicer to terminate,
amend or otherwise modify, either of the Subservicing Agreement or the Backup
Servicing Agreement or any Facility Document to which it is a party, or grant
any waiver or consent thereunder, or (iii) without the prior written consent of
the Deal Agent, which consent shall not be unreasonably withheld, consent to any
amendment or modification of the Credit and Collection Policy, including any
change to the policy regarding rewriting or modifying any Asset.
(m) Charter and By-Laws. Amend or otherwise modify its Certificate of
Incorporation or By-laws in any manner which requires the consent of the
"Independent Director" (as defined in the Seller's Certificate of Incorporation)
without the prior written consent of the Deal Agent or delivery of an opinion of
counsel that such amendment shall not alter the conclusions set forth in the
legal opinion described in Section 3.01(m).
(n) Lines of Business. Conduct any business other than that described in
Section 4.01(n), or enter into any transaction with any Person which is not
contemplated by or incidental to the performance of its obligations under the
Facility Documents.
(o) Accounting and Tax Treatment. Prepare any financial statements or
other statements (including any tax filings which are not consolidated with
those of the Initial Servicer) which shall account for the transactions
contemplated by the Asset Sale Agreement in any manner other than as the sale
of, or a capital contribution of, the Assets and the related assets by the
Initial Servicer to the Seller for financial reporting purposes and a financing
for income tax purposes.
(p) Limitation on Investments. Make or suffer to exist any loans or
advances to, or extend any credit to, or make any investments (by way of
transfer of property, contributions to capital, purchase of stock or securities
or evidences of indebtedness, acquisition of the business or Assets, or
otherwise) in, any Affiliate or any other Person except for Permitted
Investments and the purchase of Assets and related assets pursuant to the terms
of the Asset Sale Agreement.
SECTION 5.04. Covenants of the Servicer.
(a) Affirmative Covenants of the Servicer. From the Initial Purchase Date
until the later of the Termination Date or the Collection Date, the Servicer
will, unless the Deal Agent shall otherwise consent in writing:
(i) Compliance with Laws, Etc. Comply in all material respects with all
applicable laws, rules, regulations and orders with respect to, and the
servicing of, all Assets.
(ii) Preservation of Corporate Existence. Preserve and maintain its
corporate existence, rights, franchises and privileges in the jurisdiction
of its incorporation, and qualify and remain qualified in good standing as
a foreign corporation in each jurisdiction where the nature of its
business requires it to be so qualified. (iii) Audits. From time to time
upon reasonable prior written notice to the Servicer and during regular
business hours, permit the Deal Agent, or its agents or representatives,
(1) to examine and make copies of and abstracts from all Records, and (2)
to visit the offices and properties of the Servicer for the purpose of
examining such Records, and to discuss matters relating to the Assets or
the Servicer's performance hereunder with any of the officers or employees
of the Servicer having knowledge of such matters, and with the Servicer's
independent public accountants in the Servicer's presence.
(iv) Keeping of Records and Books of Account. Maintain and implement
administrative and operating procedures (including, without limitation, an
ability to recreate records evidencing the Assets in the event of the
destruction of the originals thereof) and keep and maintain, all
documents, books, records and other information reasonably necessary for
the collection of all Assets (including, without limitation, records
adequate to permit the daily identification of all Collections of and
adjustments to each Purchased Asset). The Asset Documents shall be
delivered to the Collateral Custodian and all other Records relating
thereto shall be held by the Servicer segregated from any similar
documents; and such Records shall be marked with a legend indicating the
interests of the Purchaser and the Liquidity Providers therein.
(v) Performance and Compliance with Assets. At its expense timely perform
and comply, in all material respects, with all material provisions,
covenants and other promises required to be observed by it under each
Purchased Asset.
(vi) Credit and Collection Policies. Comply in all material respects
with its Credit and Collection Policy in regard to each Purchased Asset.
(vii) Collections. Instruct all Obligors of Purchased Assets to cause all
Collections to be deposited directly to the Lockbox Account (and in the
case of any payments made by mail, to the related Post Office Box).
Pursuant to the terms of the Lockbox Agreement, the Servicer shall cause
all Collections so deposited into the Lockbox Account to be remitted to
the Collection Account within two Business Days after the date of such
deposit.
(viii) Posting of Collections and Assets. Apply all Collections to the
applicable Assets pursuant to the terms of Section 6.06 within one
Business Day following the Seller's or the Servicer's receipt of
information in respect of such Collections but in no event more than two
Business Days after the earliest date on which such Collections are
deposited in the Lockbox Bank or otherwise received by the Servicer or the
Seller.
(ix) Maintenance of Insurance. Maintain with respect to the Purchased
Assets or the Project related thereto any insurance in an amount and of a
nature consistent with industry practice and the Credit and Collection
Policy. The Servicer shall remit, or shall cause to be remitted, the
proceeds of any such insurance policy to the Collection Account.
(x) Facility Documents. Comply in all material respects with the terms
of and employ the procedures outlined in the Asset Sale Agreement, and
all of the other Facility Documents to which it is a party.
(b) Reporting Requirements of the Servicer. From the Initial Purchase Date
until the later of the Termination Date or the Collection Date, the
Servicer will, unless the Deal Agent shall otherwise consent in writing,
furnish to the Deal Agent:
(i) As soon as reasonably practicable and in any event within five
Business Days after obtaining knowledge of the occurrence of any Event of
Termination or any event which, with the giving of notice or lapse of time
or both, would constitute an Event of Termination, a notice setting forth
details of such Event of Termination or event.
(ii) As soon as reasonably practicable and in any event within five
Business Days after obtaining knowledge of the occurrence of any Servicer
Default or any event which, with the giving of notice or lapse of time or
both, would constitute a Servicer Default, the statement of the chief
financial officer, chief accounting officer or treasurer of the Servicer
setting forth details of such Servicer Default or event and the action
which the Servicer proposes to take with respect thereto.
(iii) As soon as reasonably practicable, from time to time, such other
information, documents, records or reports within its possession
respecting the Assets or the conditions or operations, financial or
otherwise, of the Servicer as the Deal Agent may from time to time
reasonably request in order to protect the interests of the Deal Agent or
the Purchaser under or as contemplated by this Agreement.
(c) Negative Covenants of the Servicer. From the Initial Purchase Date
until the later of the Termination Date or the Collection Date, the Servicer
will not, without the written consent of the Deal Agent and the Seller:
(i) Extension or Amendment of Assets. Except as otherwise permitted in
Section 6.02, extend, amend or otherwise modify, the terms of any Purchased
Asset.
(ii) Change in Business or Credit and Collection Policy. Make any material
change in the character of its business, which change would materially impair
the collectibility of any Purchased Asset, or make any change in the Credit and
Collection Policy including any changes to the policy regarding rewriting or
modifying any Asset.
(iii) Change in Payment Instructions to Obligors. Make any amendment,
change or other modification to the Funds Designation Agreement or in any
instructions to Obligors given in accordance with Section 5.04(a)(vii).
(iv) ERISA. (1) Engage or permit any ERISA Affiliate to engage in any
prohibited transaction for which an exemption is not available or has not
previously been obtained from the DOL; (2) permit to exist any accumulated
funding deficiency, as defined in Section 302(a) of ERISA and Section 412(a) of
the IRC, or funding deficiency with respect to any Benefit Plan other than a
Multiemployer Plan; (3) fail to make any payments to any Multiemployer Plan that
the Servicer or any ERISA Affiliate may be required to make under the agreement
relating to such Multiemployer Plan or any law pertaining thereto; (4) terminate
any Benefit Plan so as to result in any material liability; or (5) permit to
exist any occurrence of any reportable event described in Title IV of ERISA
which represents a material risk of a material liability of the Servicer or any
ERISA Affiliate under ERISA or the IRC.
ARTICLE VI
ADMINISTRATION AND COLLECTION
SECTION 6.01. Designation of Servicer. The servicing, administering and
collection of the Assets shall be conducted by the Person (the "Servicer") so
designated from time to time in accordance with this Section 6.01. Until the
Deal Agent gives notice to the Seller of the designation of a new Servicer, the
Initial Servicer is hereby designated as, and hereby agrees to perform the
duties and obligations of, the Servicer pursuant to the terms hereof. The Deal
Agent may only designate as Servicer the Backup Servicer to succeed the Initial
Servicer or any successor Servicer to succeed the Backup Servicer upon two
Business Days' prior written notice following the occurrence of a Servicer
Default or, in the case of the Initial Servicer, an Event of Termination, and on
the condition in each case that any such Person so designated shall agree to
perform the duties and obligations of the Servicer pursuant to the terms hereof
and of any other Facility Documents. The Servicer may subcontract with any other
Person for administering, servicing or collection any Delinquent Asset or
Defaulted Asset and, with the prior consent of the Deal Agent, which consent
shall not be unreasonably withheld, subcontract with any other Person for
servicing, administering or collecting the Purchased Assets, provided that the
Servicer shall remain liable for the performance of the duties and obligations
of the Servicer pursuant to the terms hereof. The Servicer shall not resign from
the obligations and duties hereby imposed on it except upon determination that
(i) the performance of its duties hereunder is no longer permissible under
applicable law and (ii) there is no reasonable action which the Servicer could
take to make the performance of its duties hereunder permissible under
applicable law.
SECTION 6.02. Duties of the Servicer.
(a) Servicing Standard. The Servicer shall service and administer the
Purchased Assets and perform all of its duties hereunder in accordance with (i)
prudent procedures employed by institutions servicing Assets, (ii) the
Servicer's own past policies and practices, and (iii) any applicable laws and
regulations. The Servicer shall collect all payments made under each Asset and
shall use its best efforts to cause each Obligor to timely make all payments in
respect of the Asset.
(b) Subservicing Agreement. Without the consent of the Purchaser, the
Servicer shall not amend or supplement the Subservicing Agreement if such
amendment or supplement may adversely affect the Purchaser. The Servicer may,
and upon the written request of the Purchaser, shall terminate the Subservicer
in accordance with the terms of the Subservicing Agreement. If the Subservicer
is terminated, the Servicer may enter into one or more Subservicing Agreements
reasonably acceptable to the Purchaser with a Subservicer reasonably acceptable
to the Purchaser. The Servicer shall act directly as Servicer in accordance with
its duties hereunder if the Subservicer has been terminated and a new
Subservicer has not entered into a Subservicing Agreement. Servicer shall
require the Subservicer to deliver to the Purchaser its audited financial
statements within 120 days after each fiscal year. The Purchaser may inspect
during reasonable business hours the business operations and financial
information of the Subservicer and make reasonable inquiries to the auditors of
the Subservicer.
(c) Servicing and Collection Activities.In addition to any other customary
services which the Servicer may perform, the Servicer shall perform the
following servicing and collection activities:
(i) perform standard accounting services and general record keeping
services with respect to the Assets;
(ii) respond to any telephone and written inquiries of Obligors concerning
the Assets;
(iii) keep Obligors informed of the proper place and method for making
payments with respect to the Assets; (iv) contact Obligors to effect
collection and to discourage delinquencies in the payment of Assets, doing
so by any lawful means, including, but not limited to, the following:
mailing of routine past due notices; preparing and mailing collection
letters; contacting delinquent Obligors by telephone to encourage payment;
mailing of reminder notices to delinquent Assets; and
(v) initiating and pursuing termination or foreclosure actions deemed
necessary by the Servicer; advance any maintenance fee, assessment, tax or
similar amount due with respect to any Property if failure to make such
advance may adversely affect the interest of the Purchaser and if the
Servicer in its reasonable judgment believes that the amount advanced will
be recovered from proceeds of the related Purchased Interests
(vi) report tax information to Obligors as required by law;
(vii) take such other action as may be necessary or appropriate in the
discretion of the Servicer for the purpose of collecting and transferring
to the Collection Account all payments received in respect of the Assets
(except as otherwise expressly provided herein), and to carry out the
duties and obligations imposed upon the Servicer pursuant to the terms of
this Section, provided, however, that the Servicer may, in its discretion,
waive any late payment charge in connection with delinquent payments on an
Assets; and
(viii) reviewing the Asset Report for completeness prior to the related
Settlement Date and assisting the Backup Servicer in reconciling any
amounts on the Tape in connection with a Settlement Date.
(d) Liquidations. The Servicer may not commence and prosecute any
proceeding in respect of an Asset in the name of and on behalf of the Purchaser
unless the Servicer determines that the proceeds of liquidation will exceed any
liability for taxes, maintenance or other amounts. The Servicer shall use its
best efforts to sell any Foreclosure Property as soon as practicable and shall
manage, operate, conserve and protect the Foreclosure Property solely for the
purpose of its prompt disposition. The Servicer shall, not later than the second
Business Day following the liquidation of an Asset deposit the related net
liquidation proceeds in the Collection Account. The Servicer shall, concurrently
with such deposit, furnish to the Purchaser a certificate setting forth the
basis for the Servicer's determination of the amount, if any, of such net
liquidation proceeds.
(e) Environmental Matters. The Servicer shall not acquire any Foreclosure
Property unless the Servicer has taken reasonable steps to assure that such
Property and the related Project are in compliance with applicable environmental
laws and that there are no circumstances present at such Property or Project
relating to the use, management or disposal of any hazardous substances,
hazardous materials, hazardous wastes, or petroleumbased materials for which
investigation, testing, monitoring, containment, cleanup or remediation could be
required under any federal, state or local law or regulation or if, as a result
of any such action, the Purchaser would be considered to hold title to, to be a
"mortgageeinpossession" of, or to be an "owner" or "operator" of such Property
or Project within the meaning of the Comprehensive Environmental Responsibility
Cleanup and Liability Act of 1980, as amended from time to time, or any other
similar state or local environmental statute.
(f) Modifications. Without the Purchaser's consent, neither the Servicer
nor the Seller shall modify, waive or amend the terms of any Asset unless the
Asset is a Defaulted Asset or unless such modification, amendment or waiver
shall not (i) alter the interest rate on, the principal amount of, or the timing
of payments of interest and principal in respect of, such Asset, except that the
Servicer in its reasonable judgment may modify an Asset in accordance with the
Credit and Collection Policy, (ii) materially impair the Property related to
such Asset or (iii) reduce materially the likelihood that payments of interest
and principal on such Asset shall be made when due.
(g) Assumptions. In connection with any transfer of ownership of a
Property by an Obligor to a Person, the Servicer may consent to the assumption
by such Person of the Asset related to such Property, if any such assumption is
permitted under the applicable Asset Documents and applicable law and
governmental regulations, and if any such assumption complies with prudent
underwriting standards. In connection with any such assumption, the rate of
interest borne by, the maturity date of, the principal amount of, the timing of
payments of principal and interest in respect of, and all other material terms
of, the related Asset shall not be changed.
(h) Records. If the Servicer requires possession of any Asset Documents to
perform its servicing functions, the Servicer shall execute a release in a form
satisfactory to the Deal Agent, and the Collateral Custodian shall release to
the Servicer such Asset Documents. The Servicer shall maintain all data
(including, without limitation, computerized tapes or disks) relating directly
to or maintained in connection with the servicing of the Assets (which data and
records shall be clearly marked to reflect that the Assets have been sold to and
constitute property of the Purchaser) at the address of the Servicer set forth
in this Agreement or the Subservicer set forth in the Subservicing Agreement,
or, upon 15 days' notice to the Purchaser, at such other place where any
Servicing Officer of the Servicer is located. The Servicer shall give the
Purchaser or its authorized agents access to all such information at all
reasonable times, upon 72 hours' written notice.
(i) Payment of Fees and Expenses. Except as provided in Section 2.06, the
Initial Servicer shall pay the fees and expenses of the Subservicer, the Lockbox
Bank, the Backup Servicer and the Collateral Agent in accordance with the terms
of the Facility Documents and any other agreements between such parties and the
Initial Servicer.
(j) Servicing Compensation. As compensation for the performance of its
obligations under this Agreement, the Servicer shall be entitled to receive the
Servicing Fee on each Settlement Date out of amounts released from the
Collection Account on such Settlement Date. In addition, the Servicer may retain
as additional servicing compensation any late fees and other ancillary income.
The Servicer shall pay all expenses incurred by it in connection with its
servicing activities hereunder.
(k) Tax Returns and Reports. The Servicer shall prepare and file, and the
Purchaser shall sign, all federal, state, local and, to the extent required by
the existence of the Assets with respect to which the related Obligor has an
address of record other than the United States of America, foreign tax and
information returns and reports required to be filed by or in respect of the
Assets.
(l) Servicer Termination. Upon the termination of the Servicer, all
authority and power of the Servicer under this Agreement, whether with respect
to the Assets or otherwise, shall pass to and be vested in the Backup Servicer,
if any, and otherwise such person as the Deal Agent may select. The successor
Servicer is hereby authorized and empowered to execute and deliver, on behalf of
the Servicer, as attorneyinfact or otherwise, any and all documents and other
instruments, and to do or accomplish all other acts or things necessary or
appropriate, to effect the purposes of the termination. The Servicer shall
cooperate with the successor Servicer in effecting the termination of the
responsibilities and rights of the Servicer under this Agreement, including the
transfer to the successor Servicer, for administration by it of all cash amounts
which at the time are or would be required to be deposited by the Servicer in
the Collection Account and the subsequent transfer of any other such amounts
thereafter received with respect to an Asset. In addition, upon the termination
of the Servicer, the Servicer shall, promptly upon the demand, and in any event
no later than five Business Days after such demand, of the Deal Agent, deliver
to the successor Servicer all data (including, without limitation, computerized
records) necessary for the servicing of the Assets. In addition to delivering
such monies and data, the Servicer shall use its best efforts to effect the
orderly and efficient transfer of the servicing of the Purchased Assets to the
successor Servicer, including, without limitation, directing Obligors to remit
all payments in respect of the Assets to an account or address designated by the
successor Servicer. If the identity of the Servicer shall change, the
predecessor Servicer shall be entitled to receive reimbursement for unreimbursed
advances made by it pursuant to this Agreement less any sums owed by such
predecessor Servicer, to the extent, at the times and in the manner provided for
in this Agreement.
SECTION 6.03. Rights of the Deal Agent. (a) The Deal Agent is hereby
authorized at any time (i) to notify the Collection Account Bank or the Lockbox
Bank to accept directions with respect thereto only from the Deal Agent or its
designee and (ii) notify the counterparties to each Interest Rate Hedge to make
any payments owed by such counterparties thereunder directly to the Deal Agent
or its designee.
(b) At any time following the occurrence of a Servicer Default or an Event
of Termination:
(i) The Deal Agent may notify (or may direct the Servicer to notify) at
any time the Obligors of Purchased Assets, or any of them, of the
Purchaser's interest in the Purchased Interests and direct such Obligors,
or any of them, that payment of all amounts payable under any Purchased
Asset be made directly to the Deal Agent or its designee.
(ii) The Seller shall, at the Deal Agent's request and at the Seller's
expense, give notice of the Purchaser's and the Liquidity Providers'
interest in Purchased Asset to each Obligor and direct that payments be
made directly to the Deal Agent or its designee.
(iii) Each of the Seller and the Purchaser hereby authorizes the Deal
Agent to take any and all steps in the Seller's name and on behalf of the
Seller and the Purchaser which are reasonably necessary or desirable, in
the sole determination of the Deal Agent, to collect all amounts due under
any and all Purchased Assets, including, without limitation, endorsing the
Seller's name on checks and other instruments representing Collections and
enforcing such Assets.
(c) The Deal Agent shall have the sole and exclusive right to withdraw or
order a transfer of funds in respect of Collections from the Lockbox Account,
and the Lockbox Bank shall be instructed to remit any amounts in respect of
Collections deposited in the Lockbox Account solely according to the direction
of the Deal Agent or its assigns (or as otherwise instructed in writing by the
Deal Agent from time to time).
SECTION 6.04. Responsibilities of the Seller and Initial Servicer.
Anything herein to the contrary notwithstanding, the Seller and the Initial
Servicer shall (i) perform all of its obligations under the Purchased Asset to
the same extent as if Purchased Interests had not been sold hereunder and the
exercise by Deal Agent of its rights hereunder shall not relieve Seller from
such obligations and (ii) pay when due any taxes, including without limitation,
sales, excise and personal property taxes payable in connection with the
Purchased Asset, unless the Seller is contesting the payment of such taxes in
good faith and by appropriate proceedings.
SECTION 6.05. Further Action Evidencing Purchases. The Seller agrees that
from time to time, at its expense, it will promptly execute and deliver all
further instruments and documents, and take all further action that the Deal
Agent may reasonably request in order to perfect, protect or more fully evidence
the Purchased Interests. Without limiting the generality of the foregoing, the
Seller will (i) mark its master data processing records evidencing such
Purchased Asset with a legend, acceptable to the Deal Agent, evidencing that the
Deal Agent and the Purchaser have acquired an interest therein as provided in
this Agreement, (ii) comply with the Obligor Filing Requirement and the
Purchaser Filing Requirement and (iii) upon the request of the Deal Agent or the
Purchaser (subject to the provisions of Section 2.10), execute and file such
financing or continuation statements, or amendments thereto or assignments
thereof, and such other instruments or notices, as may be necessary or
appropriate or as such Persons may reasonably request. The Seller hereby
authorizes the Deal Agent to file one or more financing or continuation
statements, and amendments thereto and assignments thereof, relative to all or
any of the Purchased Assets, and the Related Security now existing or hereafter
arising without the signature of the Seller where permitted by law. A carbon,
photographic or other reproduction of this Agreement or any financing statement
covering all or any part of the Purchased Assets and the Related Security, shall
be sufficient as a financing statement. If the Seller fails to perform any of
its agreements or obligations under this Agreement, the Deal Agent may (but
shall not be required to) itself perform, or cause performance of, such
agreement or obligation, and the expenses of the Deal Agent incurred in
connection therewith shall be payable by the Seller upon the Deal Agent's demand
therefor.
SECTION 6.06. Application of Payments. To the extent the Servicer receives
a payment from an Obligor of a Purchased Asset with respect to which the Obligor
has not identified the Asset to which such payment should be applied (a payment
in the exact amount of an outstanding obligation being sufficient
identification), the Servicer shall use its best efforts to contact such Obligor
to confirm the Asset to which such Obligor intended that such payment be
applied.
SECTION 6.07. Collateral Custodian. All Asset Documents in respect of the
Purchased Assets shall at all times prior to the Collection Date be held by the
Person (the "Collateral Custodian") so designated from time to time in
accordance with this Section 6.07. Until the Deal Agent gives notice to the
Seller of the designation of a new Collateral Custodian, the Deal Agent is
hereby designated as, and hereby agrees to perform the duties and obligations
of, the Collateral Custodian pursuant to the terms hereof. In the event, as a
result of an audit or otherwise, the Deal Agent reasonably believes that the
performance and practices of the Collateral Custodian threaten in any manner the
perfection or priority of the Purchaser's interest in the Purchased Interests,
the Deal Agent may, upon two Business Days prior written notice, designate as
Collateral Custodian, any other Person to succeed the Deal Agent or any
successor Collateral Custodian, on the condition in each case that any such
Person so designated shall agree to perform the duties and obligations of the
Collateral Custodian pursuant to the terms hereof. Upon taking possession of the
original copy of any Asset Document, the Collateral Custodian hereby agrees (i)
to maintain possession of such original copies in trust for the Purchaser and
the Deal Agent, (ii) to exercise the same degree of care with respect to the
possession of such Asset Document as it would if such Asset Document were its
own property, and (iii) to return the original copy of such Asset Document to
the Seller within five Business Days of the Seller's request therefor to the
extent the Seller requires such original copy to conduct further business with,
or take enforcement action against, the Obligor of such Purchased Asset. Upon
the appointment of a successor Collateral Custodian, the Collateral Custodian
being replaced shall make all Asset Documents available to the successor
Collateral Custodian at a place selected by such successor Collateral Custodian.
If the Seller or the Initial Servicer takes possession of any Asset Documents,
it shall execute a bailee letter acceptable to the Collateral Custodian, it
shall not hold any Asset Documents more than 10 Business Days and the Seller and
the Initial Servicer collectively shall not hold Asset Documents for more than
5% of the Purchased Assets.
ARTICLE VII
EVENTS OF TERMINATION
SECTION 7.01. Events of Termination. If any of the following events
("Events of Termination") shall occur:
(a) The Seller shall fail to make any payment or deposit required to be
made by it hereunder when due and such failure shall remain unremedied for one
Business Day after written notice to the Deal Agent; or
(b) The Seller shall fail to perform or observe any other term, covenant
or agreement contained in this Agreement on its part to be performed or observed
and any such failure shall remain unremedied for five days after written notice
from the Deal Agent; or
(c) Any representation or warranty made or deemed to be made by the Seller
(or any of its officers or agents) under or in connection with this Agreement,
any Asset Report, any Purchase Request or other written information or report
delivered pursuant hereto or pursuant to any other Facility Document shall prove
to have been false or incorrect in any material respect when made; provided,
however, that if any such representation or warranty relates to an Asset which
is repurchased by the Seller pursuant to Section 9.02 hereof, then the breach of
such representation or warranty shall not give rise to an Event of Termination
under this subsection (c); or
(d) Any Asset Purchase shall for any reason, except to the extent
permitted by the terms hereof, cease to create a valid and perfected first
priority interest in each Purchased Asset and the Related Security (subject to
Section 6.05 hereof) and Collections with respect thereto; provided, however, if
any such failure relates to an Asset which is repurchased by the Seller pursuant
to Section 9.02 hereof, then such failure shall not give rise to an Event of
Termination under this subsection (d); or
(e) The Guarantors of Purchased Assets with an Outstanding Balance equal
to one-half of the Deferred Purchase Price shall be subject to any action
described in clause (f) of this Section 7.01 and a successful claim shall be
made in connection with such action such that the Guarantor or its creditors are
deemed by the court in such proceeding to be the owner of the Purchased Assets;
or
(f) (i) The Seller shall admit in writing its inability to pay its debts
generally, or shall make a general assignment for the benefit of creditors; or
any proceeding shall be instituted against the Seller (an "Involuntary
Proceeding") or by the Seller seeking to adjudicate it a bankrupt or insolvent,
or seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee, or other
similar official for it or for any substantial part of its property and, in the
case of an Involuntary Proceeding, such proceeding shall continue undismissed,
unstayed and in effect for a period of sixty (60) consecutive days; or (ii) the
Seller's Board of Directors shall vote affirmatively to authorize any of the
actions set forth in clause (i) above in this subsection (f); or
(g) If the Initial Servicer is the Servicer, a Servicer Default including
an Initial Servicer Default or Change shall have occurred and be continuing; or
(h) As of any Settlement Date, (i) the average Default Ratio for the three
most recently concluded months exceeds 6% or (ii) beginning in June 1997, the
average Default Ratio for the twelve most recently concluded months exceeds
5.50%; or
(i) As of any Settlement Date, (i) the Early Stage Delinquency Ratio for
the most recently concluded month exceeds 9%, (ii) the average Delinquency Ratio
for the three most recently concluded months exceeds 9% or (iii) beginning in
June 1997, the average Delinquency Ratio for the twelve most recently concluded
months exceeds 8.25%; or
(j) As of the close of business on any Settlement Date, the Aggregate
Outstanding Balance then in effect minus the Deferred Purchase Price then in
effect shall be less than the then outstanding Capital (after giving effect to
any increases or reductions to Capital to be made on such day), and such
deficiency shall exist for a period of five Business Days after such day,
without cure or waiver; or
(k) There shall have been any material adverse change in the financial
condition or operations of the Seller since its formation, or there shall have
occurred any event which materially adversely affects the collectibility of the
Assets generally or there shall have occurred any other event which materially
adversely affects the ability of the Seller to collect Assets generally or the
ability of the Seller to perform hereunder, in each case, as determined in the
reasonable judgment of the Deal Agent; or
(l) The Initial Servicer shall cease to own directly 100% of the
outstanding capital stock of the Seller; or
(m) The Pension Benefit Guaranty Corporation or the IRS shall have filed
notice of one or more liens against the Seller or the Initial Servicer if the
Initial Servicer is the Servicer (unless such lien does not purport to cover the
Purchased Assets), and such notice shall have remained in effect for more than
thirty (30) days unless, prior to the expiration of such period, such liens
shall have been adequately bonded by the Seller or the Initial Servicer do not
exceed $250,000 in the aggregate; or
(n) The Interest Rate Hedge Test shall not be met and the Initial Servicer
shall not have purchased an Interest Rate Hedge as required by Section
5.01(k).
then, and in any such event, the Deal Agent shall, at the request, or
may with the consent, of the
Purchaser, by notice to the Seller declare the Termination Date to have
occurred, except that, in the case of any event described in subsection (j) or
clause (i) of subsection (f) above, the Termination Date shall be deemed to have
occurred automatically upon the occurrence of such event; provided, however,
that if any Involuntary Proceeding (as defined in subsection (f) above) is
dismissed within sixty (60) days after its commencement, and if no other Event
of Termination has occurred, then following such dismissal, the program shall be
reinstated as if the Termination Date had not occurred. Upon any such
declaration or automatic occurrence, the Deal Agent and the Purchaser shall
have, in addition to all other rights and remedies under this Agreement or
otherwise, all other rights and remedies provided under the UCC of the
applicable jurisdiction and other applicable laws, which rights shall be
cumulative.
ARTICLE VIII
THE DEAL AGENT
SECTION 8.01. Authorization and Action. The Purchaser hereby appoints and
authorizes the Deal Agent to take such action as agent on its behalf and to
exercise such powers under this Agreement as are delegated to the Deal Agent by
the terms hereof, together with such powers as are reasonably incidental
thereto, including, without limitation, the power and authority to hold and to
perfect any ownership interest or security interest created pursuant hereto or
in connection herewith on behalf of the Purchaser.
SECTION 8.02. Deal Agent's Reliance, Etc. The Deal Agent: (i) may consult
with legal counsel (including counsel for the Seller), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken in good faith by it in accordance with the
advice of such counsel, accountants or experts; (ii) makes no warranty or
representation to any Affected Party other than the Purchaser and shall not be
responsible to any Affected Party other than the Purchaser for any statements,
warranties or representations made in or in connection with this Agreement or in
connection with any of the other agreements executed pursuant hereto; (iii)
shall not have any duty to ascertain or to inquire as to the performance or
observance of any of the terms, covenants or conditions of this Agreement on the
part of the Seller or to inspect the property (including the books and records)
of the Seller; (iv) shall not be responsible to any Affected Party other than
the Purchaser for the due execution, legality, validity, enforceability,
genuineness or sufficiency of value of this Agreement or any other agreement,
instrument or document furnished pursuant hereto; and (v) shall incur no
liability under or in respect of this Agreement or any other agreement executed
pursuant hereto, by acting upon any notice (including notice by telephone with
respect to notices under Section 2.02), consent, certificate or other instrument
or writing (which may be by telex or facsimile) believed by it to be genuine and
signed or sent by the proper party or parties.
SECTION 8.03. Deal Agent and Affiliates. With respect to any interests
which may be assigned by the Purchaser to FNBB pursuant to Section 10.04, FNBB
shall have the same rights and powers under this Agreement as would the
Purchaser if it were holding such interests and may exercise the same as though
it were not the Deal Agent. FNBB and its Affiliates may generally engage in any
kind of business with the Seller, the Initial Servicer or any Obligor, any of
their respective Affiliates and any Person who may do business with or own
securities of the Seller or any Obligor or any of their respective Affiliates,
all as if FNBB were not the Deal Agent and without any duty to account therefor
to the Purchaser or any Liquidity Provider.
SECTION 8.04. Resignation of the Deal Agent. The Deal Agent may resign as
Deal Agent hereunder at any time by giving not less than five (5) Business Days'
prior written notice to the Purchaser, the Seller and the Servicer, such
resignation to be effective on the earlier of (i) the appointment and acceptance
of a successor Deal Agent as provided below and (ii) the 30th day following
delivery of such notice. Upon any such resignation, the Purchaser shall appoint
a financial institution of its choosing as Deal Agent. Following the appointment
of a successor Deal Agent and such successor Deal Agent's acceptance thereof,
such successor Deal Agent shall succeed to and become vested with all the
rights, powers, privileges and duties of the resigning Deal Agent as Deal Agent
hereunder, and the resigning Deal Agent shall be discharged from its duties and
obligations as Deal Agent hereunder. After the Deal Agent's resignation, the
provisions of this Article VIII shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting as
the Deal Agent.
ARTICLE IX
INDEMNIFICATION; REPURCHASES
SECTION 9.01. Indemnities by the Seller. (a) Without limiting any other
rights which any Affected Party may have hereunder or under applicable law, the
Seller and the Initial Servicer jointly and severally hereby agree to indemnify
the Purchaser and FNBB, individually and in its capacity as Deal Agent (the
"Indemnified Parties"), from and against any and all damages, losses, claims,
liabilities and related costs and expenses, including reasonable attorneys' fees
and disbursements (all of the foregoing being collectively referred to as
"Indemnified Amounts") awarded against or incurred by such Indemnified Party
arising out of or as a result of this Agreement, any of the other Facility
Documents, or any interest of any such Indemnified Party in, to or under the
Purchased Interests, or in respect of any Asset, excluding, however, (i)
Indemnified Amounts to the extent resulting from gross negligence or willful
misconduct on the part of any Indemnified Party, (ii) recourse (except with
respect to payment and performance obligations provided for in this Agreement)
for uncollectible Purchased Assets, or (iii) Indemnified Amounts which are cured
upon a repurchase of the Purchased Assets by the Seller or the Initial Servicer.
The Seller and, if the Seller fails to do so, the Initial Servicer shall
indemnify each Indemnified Party for Indemnified Amounts relating to or
resulting from:
(i) reliance on any representation or warranty made or deemed made by the
Seller or the Initial Servicer (or any of its officers) under or in
connection with this Agreement, any Purchase Request or any other
information or report delivered by or on behalf of the Seller or the
Initial Servicer pursuant hereto, which shall have been false or incorrect
in any material respect when made or deemed made or delivered;
(ii) the failure by the Seller, the Initial Servicer or the Subservicer to
comply with any term, provision or covenant contained in this Agreement,
the Asset Sale Agreement or any other Facility Document to which it is
party or with any applicable law, rule or regulation with respect to any
Asset, the Related Security, the Property or the Project, or the
nonconformity of any Asset, the Related Security, the Property or the
Project with any such applicable law, rule or regulation or the criteria
for an Eligible Asset; (iii) the assertion by any Person of any claim
(including any claim alleging the violation of any environmental law or
regulation) relating to the ownership, operation, repair, use or
maintenance of any Property or Project or the noncompliance of any Asset
or the sale of any Asset or Property with any applicable law;
(iv) the withholding or offset or otherwise as a result, solely or in
part, of any Obligor being a citizen or resident of, or making any payment
from, any country (or political subdivision thereof) or any place other
than the "United States" (as defined in Section 7701(a) (9) of the
Internal Revenue code of 1986), including, without limitation, the result
of any applicable exchange control or withholding tax law or regulation;
(v) any reduction of a Purchased Asset due to a Permitted Encumbrance
(excluding any Permitted Encumbrance in favor of an Indemnified Party),
whether existing at the time of the Asset Purchase of such Purchased Asset
or at any time thereafter;
(vi) any products liability claim or personal injury or property damage
suit or other similar or related claim or action of whatever sort arising
out of or in connection with property, goods, merchandise and/or services
which are the subject of any Asset;
(vii) the failure to pay when due any taxes, including, without
limitation, sales, excise or personal property taxes payable by the Seller
or the Initial Servicer in connection with the Purchased Assets;
(viii) the failure of the Initial Servicer to maintain, or cause the
relevant Obligor to maintain in effect, policies of insurance with respect
to the Purchased Assets, to the extent required pursuant to Section
5.04(a)(ix);
(ix) the payment by such Indemnified Party of Taxes, including, without
limitation, any Taxes imposed by any jurisdiction on amounts payable and
any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto to the extent caused by the Seller's
actions or failure to act; provided that an Indemnified Party, making a
demand for indemnity payment shall provide the Seller, at its address
referred to in Section 10.02, with a certificate from the relevant taxing
authority or from a responsible officer of such Indemnified Party stating
or otherwise evidencing that such Indemnified Party has made payment of
such Taxes and, within 30 days thereafter, will provide a copy of or
extract from documentation, if available, furnished by such taxing
authority evidencing assertion or payment of such Taxes; and
(x) any payment made by or on behalf of an Indemnified Party (1) to the
Lockbox Bank with respect to the Lockbox Account or to the Collection
Account Bank with respect to the Collection Account , whether in
connection with reimbursement for a returned item, or for any other reason
whatsoever, or (2) to the Liquidity Agent or the Collateral Agent with
respect to the Liquidity Agreement or any Facility Document.
Any amounts subject to the indemnification provisions of this Section 9.01
shall be paid by the Seller to the Deal Agent within two Business Days following
Deal Agent's demand therefor.
(b) Without limiting any other rights which any Affected Party may have
hereunder or under applicable law, the Servicer hereby agrees to indemnify the
Indemnified Parties from and against any Indemnified Amounts awarded or incurred
by such Indemnified party arising out of or as a result of (i) reliance on any
representation or warranty made or deemed made by the Servicer (or any of its
officers) under or in connection with this Agreement or any other Facility
Documents or (ii) the failure of the Servicer to comply with any term,
provision, or covenant contained in this agreement or any other Facility
Documents or with any applicable law, rule or regulation with respect to any
Asset, the Related Security, the Property or the Project.
SECTION 9.02. Substitution and Repurchase of Assets. The following rights
are in addition to and not in limitation of any other rights or remedies that
the Purchaser or the Deal Agent may have hereunder.
(a) If, with respect to any Purchased Asset, such Asset did not constitute
an Eligible Asset on the date such Asset became a Purchased Asset or the Seller
or the Initial Servicer shall have breached any representation or warranty made
hereunder with respect to such Asset, including, without limitation, any of the
representations and warranties contained in Section 4.01(f) (a Purchased Asset
described above being referred to as an "Ineligible Purchased Asset"), then the
Seller and if the Seller fails to do so, the Initial Servicer shall, unless such
ineligibility or breach is waived or cured in all material respects or does not
have a material adverse effect on the Purchaser or any Affected Party, on the
next succeeding Settlement Date, upon the Deal Agent's written demand, either
substitute for such Ineligible Purchased Asset a new Asset in the manner
specified in subsection (f) of this Section 9.02 or repurchase such Ineligible
Purchased Asset for the repurchase price specified in subsection (g) of this
Section 9.02; provided, however, that following the Termination Date, the Seller
shall not have the option to substitute for Ineligible Purchased Assets, but
must repurchase such Ineligible Purchased Assets for the repurchase price
specified in subsection (g) of this Section 9.02. If less than four scheduled
payments have been made on any Asset on the Purchase Date, the Asset will be
deemed an Ineligible Purchased Asset unless the Initial Servicer fulfills its
guaranty in Section 4.03(p).
(b) [Reserved].
(c) The Seller may at any time and from time to time notify the Deal Agent
of its intent to substitute one or more new Assets for any Purchased Assets
(other than any Purchased Asset (i) which is a Defaulted Asset or (ii) in
respect of which the Obligor thereunder has requested the rewriting and/or
restructuring of the Purchased Asset as an accommodation to such Obligor);
provided, that in such notice the Seller shall certify that the Purchased Assets
to be repurchased by the Seller represent a fair selection of the aggregate
Purchased Assets. On the Settlement Date next succeeding any such notice, the
Seller shall substitute for any such Purchased Asset a new Asset in the manner
specified in subsection (f) of this Section 9.02.
(d) Notwithstanding anything herein to the contrary, in no event may the
Seller substitute for a Purchased Asset under subsection (c) of this Section
9.02 if, after giving effect to such substitution, the aggregate outstanding
principal amount of all Purchased Assets substituted for by the Seller pursuant
to subsection (c) of this Section 9.02 would exceed ten percent (10%) of the
cumulative initial Outstanding Balance of all Purchased Assets to date.
(e) At any time following the Termination Date when the Aggregate
Outstanding Balance is less than ten percent (10%) of the Aggregate Outstanding
Balance as of the Termination Date, the Seller may notify the Deal Agent of its
intent to repurchase all remaining Purchased Assets. On the Settlement Date next
succeeding any such notice, the Seller shall repurchase all outstanding
Purchased Assets for the repurchase price specified in subsection (g) of this
Section 9.02.
(f) If the Seller substitutes a new Asset for a Purchased Asset pursuant
to this Section 9.02, such new Asset shall (i) on the date of substitution, be
an Eligible Asset, (ii) have an Outstanding Balance at least equal to the
Outstanding Balance of the Purchased Asset for which it is being substituted,
(iii) have a remaining term that is no longer than the remaining term of the
Purchased Asset for which it is being substituted, (iv) in the case of a fixed
rate, have an interest rate no less than the interest rate of the Purchased
Asset for which it is being substituted, and in case of an adjustable rate, have
the same index, margin and periodic and lifetime floor and cap as the Purchased
Asset for which it is being substituted, (v) have at least 12 payments made by
the Obligor, (vi) consist of an Asset from the same Project, or with the consent
of the Deal Agent, a substantially equivalent Project, as the Purchased Asset
for which it is being substituted, (vii) be of equivalent credit quality to the
Purchased Asset for which it is being substituted, and (viii) not give rise to
the occurrence of an Event of Termination after giving effect to the
substitution therefor. In no event shall any such substitution take place after
the occurrence or during the continuation of an Event of Termination, or
otherwise after the occurrence of the Termination Date. On the date of such
substitution, such new Eligible Asset shall become a Purchased Asset and the
Asset so replaced shall cease to be a Purchased Asset, and the Seller shall list
the Purchased Asset on a new Purchase Request, and a certification by the Seller
as to the satisfaction of the requirements relating to such Purchased Asset set
forth in clauses (i) through (v) above.
(g) In the case of a repurchase from the Purchaser by the Seller of a
Purchased Asset pursuant to this Section 9.02, the Seller shall, on the
Settlement Date coinciding with such repurchase pay to the Deal Agent as a
reduction of Capital an amount equal to the Outstanding Balance of such
Purchased Asset. The proceeds of any such repurchase shall be deemed to be
Collections of such Asset received by the Seller, and the amount of each such
Collection shall be applied as provided in Section 2.06. The repurchase of any
Asset shall not relieve the Seller of the obligation to pay Yield on the Capital
outstanding with respect to such Asset through the date of such repurchase. Any
such repurchase shall be made without recourse or warranty, express or implied
(other than a representation and warranty that such Asset is free and clear of
any Adverse Claim created by or through the Purchaser). The Purchaser shall
return to the Seller at the Seller's expense any Asset Documents related to a
Purchased Asset subject to repurchase or substitution.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Amendments, Etc. No amendment to or waiver of any provision
of this Agreement nor consent to any departure by the Seller, shall in any event
be effective unless the same shall be in writing and signed by (i) the Seller,
the Deal Agent and the Purchaser (with respect to an amendment) or (ii) the Deal
Agent and the Purchaser (with respect to a waiver or consent by them) or the
Seller (with respect to a waiver or consent by it), as the case may be, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given; provided, however, that no such amendment
or modification shall affect the rights or duties of the Servicer hereunder
without the prior written consent of the Servicer; and provided, further,
however, that, at any time that the commercial paper notes of the Purchaser (if
any) are being rated by one or more of the Rating Agencies, at the request of
the Purchaser, no material amendment or modification of Article II or Article
VII hereof, or of any other material provisions hereof, shall be effective
absent written confirmation by each of Moody's, S&P and DCR (as applicable) that
such amendment or modification will not result in a withdrawal or downgrading of
the then current rating of the commercial paper notes issued by the Purchaser by
such Rating Agency. The Purchaser shall send, or shall cause to be sent, copies
of all amendments, modifications or supplements to this Agreement to each of the
Rating Agencies then rating the commercial paper notes issued by the Purchaser,
if any, at the request of the Purchaser, prior to the execution thereof by all
parties thereto. This Agreement contains a final and complete integration of all
prior expressions by the parties hereto with respect to the subject matter
hereof and shall constitute the entire agreement (together with the exhibits
hereto) among the parties hereto with respect to the subject matter hereof,
superseding all prior oral or written understandings.
SECTION 10.02. Notices, Etc. All notices and other communications provided
for hereunder shall, unless otherwise stated herein, be in writing (including
telex communication and communication by facsimile copy) and shall be personally
delivered or sent by first class mail, postage prepaid, or by courier or by
facsimile, to each party hereto, at its address set forth under its name on the
signature pages hereof or at such other address as shall be designated by such
party in a written notice to the other parties hereto. All such notices and
communications shall be effective, upon receipt, or in the case of delivery by
mail, three days after being deposited in the mails, or, in the case of notice
by facsimile, when electronic communication of receipt is obtained, in each case
addressed as aforesaid.
SECTION 10.03. No Waiver; Remedies. No failure on the part of the Deal
Agent, the Purchaser or any Liquidity Provider to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right hereunder preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
Without limiting the foregoing, the Deal Agent is hereby authorized by the
Seller at any time and from time to time, to the fullest extent permitted by
law, to instruct FNBB or any Affiliate of FNBB to set off and apply any and all
deposits (whether general or special, time or demand, provisional or final) at
any time held and other indebtedness at any time owing by FNBB or such Affiliate
to or for the credit or the account of the Seller against any and all of the
obligations of Seller, now or hereafter existing under this Agreement or under
any agreement executed pursuant hereto, to the Deal Agent, the Purchaser or
their respective successors and assigns irrespective of whether or not demand
therefor shall have been made under this Agreement or under any agreement
executed pursuant hereto. The Seller acknowledges that the rights of the Deal
Agent, the Purchaser and the Liquidity Providers or any of their respective
successors and assigns described in this paragraph are in addition to other
rights and remedies (including, without limitation, other rights of set-off)
such parties may have.
SECTION 10.04. Binding Effect; Assignability. (a) This Agreement shall be
binding upon and inure to the benefit of the Seller, the Servicer, the Deal
Agent, the Purchaser and their respective successors and permitted assigns
(which successors of the Seller shall include a trustee in bankruptcy). This
Agreement shall create and constitute the continuing obligations of the parties
hereto in accordance with its terms, and shall remain in full force and effect
until such time, after the Termination Date, as the Collection Date shall occur;
provided, however, that the rights and remedies with respect to any breach of
any representation and warranty made by the Seller pursuant to Article IV and
the indemnification and payment provisions of Sections 2.08, 2.09 and 2.11,
Article IX and Article X shall be continuing and shall survive any termination
of this Agreement for one year.
(b) Subject to review by counsel of the Seller and the Purchaser, the
Seller may assign any of its rights with respect to the Deferred Purchase Price
to any Affiliate and pledge the cash distributions related to the Deferred
Purchase Price to the Affiliate's creditors. The assignment of the Deferred
Purchase Price shall represent an interest in solely cash distributions payable
pursuant to this Agreement and not an interest in any Purchased Interests.
(c) The Purchaser may, without the consent of the Seller, assign at any
time all of its rights and obligations hereunder and interest herein to any
Person, except that if such Person is not FNBB, or any other Affiliate of FNBB,
the Purchaser shall be required to acquire the prior written consent of the Deal
Agent and the Seller to any such assignment. Any permitted assignee of the
Purchaser as described in the preceding sentence may further assign at any time
its rights and obligations hereunder or interests herein with the consent of the
Deal Agent and the Seller to the extent required in the preceding sentence. Upon
any such assignment, the assignee shall succeed to and become vested with all
the rights, powers, privileges and duties of the Purchaser, and the resigning
Purchaser shall be discharged from its duties and obligations as Purchaser
hereunder. The Seller and the Servicer agree to execute or obtain such other
documentation as may be reasonably requested by the assigning Purchaser in order
to effectuate such assignment.
(d) At any time and from time to time, the Purchaser may, without the
consent of the Seller, assign all or a portion of its interests in Purchased
Interests hereunder, and all or a portion of its interests under the Facility
Documents, to any or all of the Liquidity Providers, and each of the Seller and
the Servicer hereby acknowledge and agree that the obligations of the Purchaser
to any such Liquidity Providers may from time to time be secured by an
assignment by the Purchaser of its interests in Purchased Interests hereunder,
and under the Facility Documents. The Liquidity Providers, or any agents
therefor, shall also be entitled to sell their interests (or portions thereof)
to other Liquidity Providers, or to any other Persons in connection with the
enforcement of any of the above described security interests granted to the
Liquidity Providers by the Purchaser. The Purchaser or the Liquidity Provider
making any such assignment shall provide notice to the Seller of any assignment
hereunder or thereunder.
SECTION 10.05. GOVERNING LAW; WAIVER OF JURY TRIAL. THIS AGREEMENT SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE INTERESTS OF
THE PURCHASER IN THE PURCHASED INTERESTS OR REMEDIES HEREUNDER OR THEREUNDER, IN
RESPECT THEREOF, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE
OF NEW YORK. THE SELLER AND THE SERVICER HEREBY AGREE TO THE JURISDICTION OF ANY
FEDERAL COURT LOCATED WITHIN THE STATE OF NEW YORK. THE SELLER AND THE SERVICER
EACH HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY
DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE AMONG ANY OF THE
SELLER, THE SERVICER, THE PURCHASER OR THE DEAL AGENT ARISING OUT OF, CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM IN CONNECTION
WITH THIS AGREEMENT. INSTEAD, ANY DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN
A BENCH TRIAL WITHOUT A JURY. WITH RESPECT TO THE FOREGOING CONSENT TO
JURISDICTION, EACH OF THE SELLER AND THE SERVICER HEREBY WAIVES ANY OBJECTION
BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION
INSTITUTED HEREUNDER AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE
RELIEF AS IS DEEMED APPROPRIATE BY THE COURT. NOTHING IN THIS SECTION 10.05
SHALL AFFECT THE RIGHT OF THE PURCHASER OR THE DEAL AGENT TO SERVE LEGAL PROCESS
IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF THE PURCHASER OR THE
DEAL AGENT TO BRING ANY ACTION OR PROCEEDING AGAINST THE SELLER OR ITS PROPERTY
IN THE COURTS OF ANY OTHER JURISDICTION.
SECTION 10.06. Costs, Expenses and Taxes. (a) In addition to the rights of
indemnification under Article IX hereof, the Seller agrees to pay on demand all
reasonable costs and expenses in connection with the administration (including
(i) periodic auditing up to once each quarter prior to an Event of Termination
and at the Purchaser's request thereafter, (ii) filing searches in connection
with any Asset Purchase and annually prior to an Event of Termination and at the
Purchaser's request thereafter and (iii) any amendments, waivers or consents
requested by the Servicer) of this Agreement and the other documents to be
delivered hereunder or in connection herewith, including, without limitation,
the reasonable fees and out-of-pocket expenses of counsel for the Deal Agent and
the Purchaser with respect thereto and with respect to advising the Deal Agent
and the Purchaser as to their respective rights and remedies under this
Agreement, and the other agreements executed pursuant hereto or in connection
herewith and all costs and expenses, if any (including reasonable counsel fees
and expenses), in connection with the enforcement of this Agreement and the
other agreements and documents to be delivered hereunder or in connection
herewith, (provided, however, that the Seller shall not be obligated to pay or
reimburse the Deal Agent for personnel costs in connection with any audit of the
Servicer's or the Seller's books and/or records hereunder taking place after the
date hereof, to the extent that the amount charged in connection with such
personnel costs exceeds, on an average basis, $1,000 per man/day).
(b) In addition, the Seller shall pay on demand any and all stamp, sales,
excise and other taxes and fees payable or determined to be payable in
connection with the execution, delivery, filing and recording of this Agreement
or the other agreements and documents to be delivered hereunder or in connection
herewith, or of any other agreement or document providing liquidity support,
credit enhancement or other similar support to the Purchaser in connection with
this Agreement or the funding or maintenance of Purchases hereunder, and agrees
to indemnify the Deal Agent, the Purchaser and the Liquidity Providers against
any liabilities with respect to or resulting from any delay in paying or
omission to pay such taxes and fees.
(c) In addition, the Seller shall pay on demand all other reasonable costs
and expenses incurred by the Purchaser or any general or limited partner or
shareholder of the Purchaser ("Other Costs"), in connection with (i) the cost of
rating the Purchaser's promissory notes by independent financial rating
agencies, and (ii) the enforcement of this Agreement and the other documents to
be delivered hereunder or in connection herewith; provided, however, that if the
Purchaser enters into agreements for the purchase of receivables from one or
more other Persons ("Other Sellers"), the Seller and such Other Sellers shall
each be liable for such Other Costs ratably in accordance with the usage under
the respective facilities of the Purchaser to purchase receivables from the
Seller and each Other Seller; and provided, further, that if such Other Costs
are attributable to the Seller and not attributable to any Other Seller, the
Seller shall be solely liable for such Other Costs.
SECTION 10.07. No Proceedings. (a) Each of the Seller, the Servicer and
the Collateral Custodian hereby agrees, and the Seller shall cause the
counterparty to any Interest Rate Hedge to agree, that it will not institute
against the Purchaser any proceeding of the type referred to in clause (i) of
Section 7.01(f) so long as any promissory notes issued by the Purchaser shall be
outstanding or there shall not have elapsed one year plus one day since the last
day on which any such promissory notes shall have been outstanding.
(b) The Purchaser, the Deal Agent, the Servicer and the Collateral
Custodian each hereby agree, and the Seller shall cause the counterparty to any
Interest Rate Hedge to agree, that it will not institute against the Seller any
proceeding of the type referred to in clause (i) of Section 7.01(f) so long as
any obligations of the Seller shall be outstanding or there shall not have
elapsed one year plus one day since the last day on which any such obligations
shall have been outstanding.
(c) The provisions of this Section shall survive the termination of
this Agreement.
SECTION 10.08. Set-Off.Each of the Seller and the Servicer hereby waives
any rights it may have by way of set-off or deduction with respect to the
Purchaser or any of the Purchaser's rights, claims or properties.
SECTION 10.09. Execution in Counterparts; Severability. This Agreement may
be executed in any number of counterparts and by different parties hereto in
separate 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. In case any provision in or obligation under this Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
SELLER: LITCHFIELD CAPITAL CORPORATION - 1996
By___________________________
Title
PURCHASER: EAGLEFUNDING CAPITAL CORPORATION
By The First National Bank of
Boston, as its Attorney-in-Fact
By__________________________
Title
DEAL AGENT: THE FIRST NATIONAL BANK OF BOSTON
as Deal Agent
By__________________________
Title
SERVICER: LITCHFIELD FINANCIAL CORPORATION
By______________________________
Title
<PAGE>
ADDRESSES OF SIGNATORIES
LITCHFIELD CAPITAL CORPORATION--1996
c/o Litchfield Financial Corporation
789 Main Road
Stamford, VT 05352
Attn: Controller
Telecopy No. (802) 694-1237
EAGLEFUNDING CAPITAL CORPORATION
100 Federal Street
Boston, MA 02110
Attn: Mitchell B. Feldman
Telecopy No. (617) 434-9591
THE FIRST NATIONAL BANK OF BOSTON
100 Federal Street
Boston, MA 02110
Attn: Mitchell B. Feldman
Telecopy No. (617) 434-9591
LITCHFIELD FINANCIAL CORPORATION
789 Main Road
Stamford, Vt 05352
Attn: Controller
Telecopy No. (802) 694-1237
<PAGE>
Exhibit 10.158
EMPLOYMENT AGREEMENT
AGREEMENT entered into as of the 17th day of March, 1997, by and between
Litchfield Financial Corporation, a Massachusetts corporation (the "Company"),
and Joseph S. Weingarten, an individual residing in Ridgefield, Connecticut (the
"Executive").
WHEREAS, the Board of Directors determined that it is in the best interest
of the Company to execute and deliver this Employment Agreement;
NOW, THEREFORE, for good and valuable consideration , the receipt and
sufficiency of which are hereby acknowledged, the undersigned hereby enter into
this Employment Agreement as follows:
1. Nature of Employment; Term of Employment. The Company shall employ the
Executive as its Senior Vice President and the Executive shall serve the Company
in such capacity, upon the terms and conditions contained herein. The
Executive's employment shall commence on March 17, 1997, or such later date on
or before April 7, 1997, on which the Executive shall be available for
employment hereunder and shall continue until March 30, 2000. The term of the
Executive's employment hereunder, subject to termination as herein provided, is
referred to herein as the "Term." The Executive agrees to devote his full
working time and energy and best efforts to the business of the Company and the
performance of his duties hereunder during the Term; provided that nothing
herein shall preclude the Executive from managing his personal business affairs
as long as the same do not interfere with his services hereunder.
2. Compensation. In consideration of the services rendered by the Executive
under this Agreement, the Company shall pay the Executive a base salary (the
"Base Salary") of (i) One Hundred Twenty Five Thousand Dollars ($125,000) per
year during the period from the date hereof through March 30, 1998, (ii) One
Hundred Thirty Five Thousand Dollars ($135,000) per year during the period March
30, 1998 through March 30, 1999, and (iii) One Hundred Forty-Five Thousand
Dollars ($145,000) per year during the period March 30, 1999 through March 30,
2000. The Executive's Base Salary will be reviewed not less than annually by the
Company's Board of Directors, but in no event reduced. In addition, the
Executive shall be entitled to receive a bonus (the "Bonus") upon the terms as
set forth on Schedule 1 hereto.
3. Fringe Benefits. During the Term and thereafter to the extent provided in
Section 5.6(c), the Executive shall be entitled to participate in such employee
benefit plans as are made available generally to key executive employees of the
Company, including but not limited to 401(k) plans, pension plans, health
benefits, life insurance and four (4) weeks paid vacation per year.
4. Expenses. The Company shall reimburse the Executive for reasonable
expenses incurred in connection with its business affairs, subject to guidelines
approved by the Board of Directors and to the receipt of appropriate
documentation therefor.
5. Termination.
5.1 Death. In the event of the death of the Executive during his employment
hereunder, his employment by the Company shall be deemed to terminate at the end
of the calendar month in which his death occurs.
5.2 Disability. In the event of the physical or mental disability of the
Executive for a period in excess of ninety (90) consecutive days as determined
by a qualified physician, such that the Executive is unable to discharge his
responsibilities hereunder, then the Board of Directors may vote to terminate
the Executive's employment effective as of the end of the calendar month which
includes the last day of such ninety (90) day period.
5.3 By the Executive for Cause. In the event the Company shall fail to make
any payment of salary owed to the Executive under Section 2 hereof when due or
pay any expenses for which the Executive is entitled to reimbursement under
Section 4 hereof, or breach any of the other material covenants of the Company
hereunder, and such non-payment, non-reimbursement or breach shall continue for
a period of twenty (20) days after the Executive gives written notice hereof to
the Company, the Executive shall be entitled to terminate this Agreement on the
expiration of such twenty (20) day period.
5.4 By the Executive Without Cause. The Executive may terminate his
employment at any time without cause upon 30 days' prior written notice to the
Company.
5.5 By the Company for Cause. The Company may terminate the Executive's
employment for "reasonable cause," by which phrase is meant only one or more of
the following:
(a) If the Executive has been convicted of, or pleads guilty or nolo
contendere to a felony, the Company may terminate the Executive's
employment immediately upon the occurrence of such conviction or
plea.
(b) If the Executive shall commit any embezzlement against the Company
, the Company may terminate the Executive's employment at any
time after the commission of such act.
(c) If the Executive has (i) engaged in willful misconduct with
respect to the Company other than that covered by subparagraph(b),
or (ii) grossly neglected his duties to the Company, and after
written notice of the same, specifying in reasonable detail the
alleged misconduct or neglect, the Executive fails to cease such
misconduct or neglect within a reasonable period of time not
exceeding thirty (30) days following the date of such notice, the
Company may terminate the Executive's employment at any time after
expiration of such thirty (30) day period; provided that the
Company has complied with the following terms and conditions:
(A) the Executive is provided with written notice of the proposed
termination;
(B) the Executive is given the opportunity to appear with his
counsel, and to present evidence and a defense to the alleged
misconduct or neglect, at a duly called and held meeting of the
Board of Directors of the Company, the purpose of which shall
be to determine whether the Executive engaged in such willful
misconduct or grossly neglected his duties and should be
terminated; and
(C) if the Executive avails himself of the opportunity set forth in
clause (B), following such meeting not less than two-thirds of
the members of the Board of Directors determine that the
Executive engaged in such willful misconduct or grossly
neglected his duties and should be terminated.
5.5A By the Company Without Cause. The Company may terminate the Executive's
employment other than for "reasonable cause" upon 60 days' prior written notice
to the Executive.
5.6 Rights and Obligations of the Executive and the Company upon
termination.
(a)In the event the Executive's employment terminates pursuant to
Section 5.1, the Company shall continue to make, until March 30,
2000, payments at a rate equal to the Base Salary in effect on the
date of death. The Executive shall have no liability to the Company
as a result of a termination of employment pursuant to Sections 5.1
or 5.2 hereof. In the event of termination pursuant to Sections 5.1
or 5.2 the Executive shall also be entitled to receive a pro rata
share of any bonus which otherwise would have been payable with
respect to the year in which termination occurs, but shall not be
entitled to any bonus for any subsequent year.
(b)In the event of the Executive's employment terminates or is
terminated pursuant to Sections 5.4 or 5.5, all of the Executive's
rights to receive compensation under Section 2 (other than Base
Salary for services rendered prior to the date of termination and
other amounts earned but unpaid) and other benefits (excluding any
benefits which by their terms have vested) shall cease upon the date
of termination. The Executive shall have no liability to the Company
as a result of a termination of employment pursuant to Sections 5.3
or 5.4 hereof.
(c)If the Executive terminates his employment pursuant to Section 5.3
or if the Company terminates the Executive's employment pursuant to
Section 5.5A, the Company shall, until March 30, 2000, continue to
pay and provide to the Executive the Base Salary, Bonus and fringe
benefits which the Executive would otherwise have received under
Sections 2 and 3 during that period. Such payments and benefits shall
be liquidated damages for termination of employment, and the
Executive shall not be entitled to receive any further payment or
benefit.
(d)If the Company terminates the Executive's employment pursuant to
Section 5.5A, the Company shall, until March 30, 2000, continue to
pay and provide to the Executive the Base Salary, Bonus and fringe
benefits which the Executive would otherwise have received under
Sections 2 and 3 during that period, in addition to any other
remedies available to the Executive pursuant to applicable law.
6. Restrictive Covenants. In consideration of his employment hereunder, the
Executive agrees that he will observe the following covenants. For the purposes
of this Section, the term "Company" shall include any of the Company's current
or future direct or indirect subsidiaries.
6.1 Non-disclosure. The Executive acknowledges that the technology,
research, know-how, trade secrets, marketing techniques, business plan and other
confidential information used or to be used by the Company in pursuit of its
business (collectively, the "Proprietary Information") are of value to the
Company and provide the Company with substantial competitive advantage in its
business. By virtue of his relationship to the Company, the Executive has
knowledge of and will be given access to Proprietary Information. The Executive
agrees that he will not, during the Term or at any time thereafter, directly or
indirectly divulge, transmit or otherwise disclose or cause to be divulged,
other than in the ordinary course of his employment hereunder, any Proprietary
Information. Any Proprietary Information which comes into the public domain
through no fault of the Executive's shall cease to be Proprietary Information
for purposes of this Agreement.
6.2 Non-Competition.
(a)The Executive agrees that upon any termination of his employment
pursuant to any one of Sections 5.3, 5.5, or 5.5A, he will, during
the Non-Competition Period (as defined in Section 6.2(d)) observe the
non-competition covenant set forth in Section 6.2(c).
(b)The Executive agrees that upon any termination of his employment
pursuant to any one of Sections 5.2, or 5.4, or upon expiration of
the Term on March 30, 2000, he will, during the Non-Competition
Period, observe the non-competition convenant set forth in Section
6.2 (c) provided that within thirty days after termination pursuant
to Section 5.2 or 5.4, or in the event of termination upon expiration
of the Term, at least thirty days prior to such expiration, the
Company shall have given written notice to the Executive of its
election to require the Executive to be bound by the non-competition
covenant set forth in Section 6.2(c) in exchange for the payments to
be made pursuant to Section 6.2(e).
(c)If the Executive is required under Section 6.2 (a) or (b) to observe
a non-competition covenant, he shall not engage in any business or
render services to any business in the United States, as an officer,
director, employee, agent, stockholder (excluding ownership of not
more than one (1%) percent of the outstanding shares of a publicly
held corporation if such ownership does not involve managerial or
operational responsibility), manager partner or consultant, if such
business is competitive with any product or service then being
developed, produced or marketed by the Company. The parties agree
that the current business of the Company consists of the origination,
purchasing, servicing, packaging or disposing of loans, obligations,
receivables, notes or mortgages or the acquisition of or investment
in any company which engages in such services.
(d)The term "Non-Competition Period" shall mean: (i) for purposes of
Section 6.2(a), the first to occur of (x) the date 12 months after
termination of employment and (y) March 30, 2000; and (ii) for
purposes of Section 6.2(b), the date 18 months after termination of
employment or expiration of the Term, as the case may be.
(e)If the Company wishes to require that the Executive be bound by the
non-competition covenant in Section 6.2(c) following a termination of
employment pursuant to Sections 5.2 or 5.4 or upon expiration of the
Term on March 30, 3000, it shall give the Executive written notice of
such effect as set forth in Section 6.2(b). In such event, the
Company shall pay the Executive (i) compensation at a monthly rate
equal to the annual Base Salary in effect as of the date of the
termination of employment divided by 12, to be paid monthly in
advance, during the continuation of the Non-Competition Period, and
(ii) an amount equal to one-half of the Bonus paid to the Executive
under Section 2 for the year immediately preceding the year in which
termination occurs, which payment shall be made in equal monthly
payments on the first day of each month during the Non-Competition
Period.
7. [Intentionally Omitted]
8. Payments Upon Change of Control. In the event of a Change of Control
Transaction (as herein defined), the provisions of this Section 8 shall apply:
(a)If within one year following consummation of a Change of Control
Transaction, the Company shall seek to (x) relocate the principal
office of the Company more than 25 miles from its current location or
(y) materially alter the Executive's authority or responsibility
within the Company, and such alteration continues for 20 days after
notice thereof from the Executive to the Company, the Executive may
terminate his employment pursuant to Section 5.3. In such event, the
Executive shall receive the payments and benefits provided under
Section 5.6(c) unless he elects, by written notice to the Company
within 30 days of such termination, to receive, in a lump sum
payment, an amount equal to 150% of the Base Salary then in effect.
If the Executive elects such lump sum payment, it shall be paid
within 30 days of such election, he shall have no further obligations
hereunder, except to observe the covenants set forth in Section 6.1,
and the Company shall have no further obligations hereunder, other
than to pay such lump sum payment.
(b)A "Change of Control Transaction" shall mean (i) a sale, conveyance,
lease or other transfer of all or substantially all of the assets of
the Company, (ii) a consolidation or merger of the Company with or
into another corporation in which the Company is not the surviving or
resulting corporation or after which more than 50% of the issued and
outstanding shares of voting capital stock of the surviving or
resulting corporation is thereafter owned of record or beneficially
by any single Person or Group of affiliated Persons, (iii) a sale or
transfer in a single transaction of shares of the voting capital
stock of the Company, which results in more than 50% of the issued
and outstanding shares of the voting capital stock of the Company
being thereafter owned of record or beneficially by any single Person
or Group of affiliated Persons, (iv) any other transaction or series
of transactions involving the issuance, sale or transfer of shares of
the capital stock of the Company, which results in more than fifty
percent (50%) of the issued and outstanding shares of the voting
capital stock of the Company being thereafter owned of record or
beneficially by any single Person or Group of affiliated Persons, or
(v) a majority of the Board of Directors of the Company ceasing to
consist of individuals (A) who are currently members of the Board or
(B) for whose nomination for such membership a majority of such
current members voted in favor.
(c)"Group of affiliated Persons" shall mean a group of tow (2) or more
persons (i) in which one (1) or more of such Persons controls, is
controlled by, or is under common control with, another of such
Persons, or (ii) which is associated by agreement for the purpose of
controlling the Company or any successor corporation thereof. The
term "Group of affiliated Persons" shall not include any such group
which consists entirely of Persons who are current stockholders
and/or directors of the Company which any currently be deemed to
control the Company. "Person" shall mean an individual, partnership,
corporation, trust, or other business entity.
9. Termination of this Agreement. This Agreement shall remain in full force
and effect, notwithstanding any termination of the Term, until all of the
parties' obligations hereunder have been fully performed.
10. Notices. All notices hereunder, to be effective, shall be in writing and
shall be delivered by hand or by certified mail, postage and fees prepaid, as
follows:
(i) If to the Company: Litchfield Financial Corporation
789 Main Road
Stamford, VT 05352
With a Copy to: James Westra, Esq.
Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, MA 02110
(ii) If to Executive:Joseph S. Weingarten
With a Copy to: Craig Griffith, Esq.
Sidley & Austin
1 First National Place
Chicago, IL 60603
unless and until notice of another or different address shall be given as
provided herein.
11. Modification. This Agreement constitutes the entire Agreement between
the parties hereto with regard to the subject matter hereof, superseding all
prior understandings and agreements, whether written or oral. This Agreement may
not be amended or revised except by a writing signed by the parties.
12. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of both parties and their respective successors and assigns,
including any corporation with which or into which the Company or its successor
may be merged or which may succeed to its assets or business, although the
obligations of the Executive are personal and may be performed only by him.
13. Captions. Captions herein have been inserted solely for convenience of
reference and in no way define, limit or describe the scope or substance of any
provision of this Agreement.
14. Severability. The provisions of this Agreement are severable, and
invalidity of any provision shall not affect the validity of any other
provision. In the event that any court of competent jurisdiction shall determine
that any provision of this Agreement or the application thereof is unenforceable
because of the duration or scope thereof, the parties hereto agree that said
court in making such determinations shall have the power to reduce the duration
and scope of such provision to the extent necessary to make it enforceable, and
that the Agreement in its reduced form shall be valid and enforceable to the
full extent permitted by law.
15. Governing Law. This Agreement shall be construed under and governed by
the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
a sealed instrument as of the day and year first above written.
LITCHFIELD FINANCIAL CORPORATION
By: /s/ Richard A. Stratton
Title: President
/s/ Joseph S. Weingarten
Joseph S. Weingarten
<PAGE>
Schedule 1
The Executive will be eligible for total bonuses of $120,000, $135,000 and
$145,000 in 1997, 1998, and 1999, respectively. The bonuses will be comprised of
(i) a discretionary portion granted based upon the employee's performance as
compared to agreed upon goals and mandatory payable if the Company's EPS growth
exceeds 10%. The discretionary bonuses available will be 40,000 in 1997; 45,000
in 1998 and 45,000 in 1999; (ii) a portion of the total bonus will be earned for
each percentage increase in EPS in excess of 10% and (iii) a greater portion
earned for each percentage increase in EPS from 15% to 20%. The dollar amounts
payable under this EPS portion of the plan, for each one percent increase, is as
follows:
>10% and >15% and
<or = 15% <or = 20%
--------- ---------
1997 7,500 8,500
1998 8,500 9,500
1999 9,500 10,500
<PAGE>
Exhibit 11.1
Litchfield Financial Corporation
Computation of Earnings Per Share
<TABLE>
Three months ended Nine months ended
------------------ -----------------
September 30, September 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary
Weighted average number of common
shares outstanding ................................ 5,629,644 5,443,319 5,545,507 5,440,714
Weighted average number of common
stock equivalents outstanding:
Stock options ...................................... 350,586 253,808 329,261 240,717
------- ------- ------- -------
Fully-diluted weighted average common
and common equivalent shares
outstanding (1).................................... 5,980,230 5,697,127 5,874,768 5,681,431
========= ========= ========= =========
Net income ............................................ $2,161,000 $1,946,000 $5,186,000 $4,308,000
========== ========== ========== ==========
Net income per common share ........................... $ .36 $ .34 $ .88 $ .76
======== ========== ========= ==========
Fully-diluted
Weighted average number of common
shares outstanding ................................ 5,629,644 5,443,319 5,545,497 5,440,745
Weighted average number of common
stock equivalents outstanding:
Stock options ...................................... 414,884 277,605 440,882 274,646
------- ------- ------- -------
Fully-diluted weighted average common
and common equivalent shares
outstanding (1).................................... 6,044,528 5,720,924 5,986,379 5,715,391
========= ========= ========= =========
Net income............................................. $2,161,000 $1,946,000 $5,186,000 $4,308,000
========== ========== ========== ==========
Net income per common share ........................... $ .36 $ .34 $ .87 $ .75
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 26,757 26,757
<SECURITIES> 30,076 30,076
<RECEIVABLES> 101,486 101,486
<ALLOWANCES> 5,730 5,730
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 165,465 165,465
<CURRENT-LIABILITIES> 0 0
<BONDS> 66,382 66,382
<COMMON> 56 56
0 0
0 0
<OTHER-SE> 50,254 50,254
<TOTAL-LIABILITY-AND-EQUITY> 165,465 165,465
<SALES> 0 0
<TOTAL-REVENUES> 8,263 22,361
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 244 979
<INTEREST-EXPENSE> 2,733 7,775
<INCOME-PRETAX> 3,514 8,433
<INCOME-TAX> 1,353 3,247
<INCOME-CONTINUING> 2,161 5,186
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,161 5,186
<EPS-PRIMARY> .36 .88
<EPS-DILUTED> .36 .87
</TABLE>
