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 JUNE 30, 1997
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Commission File Number: 0-19822
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LITCHFIELD FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3023928
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(State or other jurisdiction (I.R.S.Employer Identification No.)
of incorporation or organization)
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 August 12, 1997, 5,623,326 shares of common stock of Litchfield Financial
Corporation were outstanding.
<PAGE>
LITCHFIELD FINANCIAL CORPORATION
FORM 10-Q
QUARTER ENDED JUNE 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 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
<PAGE>
FORM 10-Q
PART I - FINANCIAL STATEMENTS
Item 1. Financial Statements
LITCHFIELD FINANCIAL CORPORATION
Consolidated Balance Sheets
(in 000's except share amounts)
June 30, December 31,
1997 1996
---------- ------------
(unaudited)
ASSETS
Cash and cash equivalents................................. $ 7,061 $ 5,557
Restricted cash .......................................... 21,364 18,923
Loans held for sale, net of allowance for loan losses of
$1,406 in 1997 and $817 in 1996........................ 20,475 12,260
Other loans, net of allowance for loan losses of
$1,500 in 1997 and $1,200 in 1996...................... 91,750 79,996
Retained interests in loan sales.......................... 27,759 28,912
Other .................................................... 6,901 7,041
-------- --------
Total assets........................................$175,310 $152,689
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Lines of credit........................................$ 34,287 $ 36,299
Term note payable...................................... 6,396 7,428
Accounts payable and accrued liabilities............... 3,981 3,811
Dealer/developer reserves.............................. 10,626 10,628
Deferred income taxes.................................. 6,035 5,080
-------- --------
61,325 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, 5,616,372 shares issued and outstanding in
1997 and 5,444,399 shares issued and outstanding
in 1996............................................. 56 54
Additional paid in capital............................. 36,238 34,633
Net unrealized gain on retained interests in loan sales 523 ---
Retained earnings ..................................... 10,786 7,761
-------- --------
Total stockholders' equity.......................... 47,603 42,448
-------- --------
Total liabilities and stockholders' equity..........$175,310 $152,689
======== ========
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
FORM 10-Q
LITCHFIELD FINANCIAL CORPORATION
Consolidated Statements of Income
(in 000's except share and per share amounts)
Unaudited
Three Months Ended June 30,
---------------------------
1997 1996
------ ------
Revenues:
Interest and fees on loans.......................... $4,783 $3,348
Gain on sale of loans............................... 2,563 2,474
Servicing and other fee income...................... 345 279
------ ------
7,691 6,101
------ ------
Expenses:
Interest expense.................................... 2,648 1,768
Salaries and employee benefits...................... 833 645
Other operating expenses............................ 853 618
Provision for loan losses........................... 300 529
------ ------
4,634 3,560
------ ------
Income before income taxes............................. 3,057 2,541
Provision for income taxes............................. 1,177 977
------ ------
Net income............................................. $1,880 $1,564
====== ======
Primary and fully-diluted net income per common share . $ .32 $ .27
====== ======
Fully-diluted weighted average number of shares........5,917,911 5,708,191
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
FORM 10-Q
LITCHFIELD FINANCIAL CORPORATION
Consolidated Statements of Income
(in 000's except share and per share amounts)
Unaudited
Six Months Ended June 30,
-------------------------
1997 1996
------ ------
Revenues:
Interest and fees on loans.......................... $9,329 $6,640
Gain on sale of loans............................... 4,067 3,354
Servicing and other fee income...................... 702 757
------ ------
14,098 10,751
------ ------
Expenses:
Interest expense.................................... 5,042 3,297
Salaries and employee benefits...................... 1,646 1,382
Other operating expenses............................ 1,756 1,282
Provision for loan losses........................... 735 954
------ ------
9,179 6,915
------ ------
Income before income taxes............................. 4,919 3,836
Provision for income taxes............................. 1,894 1,474
------- ------
Net income............................................. $3,025 $2,362
======= ======
Primary and fully-diluted net income per common share . $ .52 $ .41
======= ======
Fully-diluted weighted average number of shares........ 5,861,180 5,698,866
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
FORM 10-Q
LITCHFIELD FINANCIAL CORPORATION
Consolidated Statements of Stockholders' Equity
(in 000's)
Unaudited
Net
Unrealized
Gain on
Retained
Additional Interests
Common Paid In in Retained
Stock Capital Loan Sales Earnings Total
------ --------- ---------- -------- -------
Balance, December 31, 1996........ $54 $34,633 $ --- $ 7,761 $42,448
Issuance of 171,973 shares
of common stock ............. 2 1,605 --- --- 1,607
Net unrealized gain on retained
interests in loan sales...... --- --- 523 --- 523
Net income..................... --- --- --- 3,025 3,025
----- ------- ------ ------- -------
Balance, June 30, 1997......... $56 $36,238 $523 $10,786 $47,603
===== ======= ====== ======= =======
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
LITCHFIELD FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(in 000's)
Unaudited
Six Months Ended June 30,
-------------------------
1997 1996
------ -------
Cash flows from operating activities:
Net income........................................... $3,025 $2,362
Adjustments to reconcile net income to net cash used
in operating activities:
Gain on sale of loans............................. (4,067) (3,354)
Amortization and depreciation..................... 332 296
Amortization of retained interests in loan sales.. 2,061 1,364
Provision for loan losses......................... 735 954
Deferred income taxes............................. 955 130
Net changes in operating assets and liabilities:
Restricted cash................................ (2,441) 133
Loans held for sale............................ (8,300) 1,327
Retained interests in loan sales............... 470 (3,071)
Dealer/developer reserves...................... (2) (414)
Net change in other assets and liabilities..... 753 (2,891)
------- -------
Net cash used in operating activities............. (6,479) (3,164)
------- -------
Cash flows from investing activities:
Redemption of investments held to maturity........... 32 71
Net originations and principal payments on other loans (27,379) (19,834)
Other loans sold..................................... 15,325 ---
Collections on retained interests in loan sales...... 2,534 142
Capital expenditures and other assets................ (479) (72)
------- --------
Net cash used in investing activities............ (9,967) (19,693)
------- --------
Cash flows from financing activities:
Net borrowings (payments) on lines of credit......... (2,012) 11,145
Proceeds from issuance of 9.3% Notes................. 20,000 ---
Retirement of long-term Notes..................... (613) (283)
Payments on term note................................ (1,032) (1,067)
Net proceeds from issuance of common stock........... 1,607 42
------- -------
Net cash provided by financing activities......... 17,950 9,837
- ---- ------- -------
Net increase (decrease) in cash and cash equivalents..... 1,504 (13,020)
Cash and cash equivalents, beginning of period........... 5,557 18,508
------ --------
Cash and cash equivalents, end of period................. $7,061 $5,488
====== ========
Supplemental Schedule of Noncash Financing and Investing Activities:
Exchange of loans for retained interests in loan sales . $ 364 $2,785
====== =======
Transfers from loans to real estate acquired through $ 516 $ 170
foreclosure............................................. ====== =======
Supplemental Cash Flow Information:
Interest paid........................................ $4,339 $3,059
====== =======
Income taxes paid.................................... $ 937 $ 840
====== =======
See accompanying notes to unaudited consolidated financial statements.
<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
June 30, 1997 and for the three and six month periods ended June 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 six month
periods ended June 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 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 is replaced by
basic 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 June 30, 1997 and 1996 and $.03 and $.02 per
share higher for the six months ended June 30, 1997 and 1996, respectively.
There was no impact on the calculation of diluted earnings per share for these
periods.
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 had no effect on net income for the second quarter
or for the six months ended June 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
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 $288,952,000 of loans at face
value ($249,451,000 through December 31, 1996). In June 1997, the Company
completed its first securitization of $15,325,000 of dealer hypothecation loans
in a private placement with a bank. Dealer hypothecation loans are loans to
rural land dealers and VOI resort developers secured by consumer receivables.
The principal amount remaining on the loans sold was $138,771,000 at June 30,
1997 and $129,619,000 at December 31, 1996. 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.
<PAGE>
FORM 10-Q
LITCHFIELD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company's undiscounted exposure to loss on loans sold in the event of
nonperformance by the consumer, default by the dealer/developer on its
guarantee, and the determination that the collateral is of no value was
$8,936,000 at June 30, 1997 ($8,780,000 at December 31, 1996). The Company
repurchased $119,000 and $359,000 of loans under the recourse provisions of loan
sales during the three months ended June 30, 1997 and 1996. Loans repurchased
during the six months ended June 30, 1997 and 1996 were $454,000 and $514,000,
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 June 30, 1997,
$20,136,000 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 current principal balance of Land, VOI and
Dealer/Other Loans serviced by or on behalf of the Company. At June 30, 1997,
15.4% of the portfolio by collateral location was located in Texas, and 17.7%
and 12.4% 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.
C. Allowance for loan losses
The total allowance for loan losses consists of the following:
June 30, December 31,
1997 1996
---------- ------------
Allowance for losses on loans held for sale. $1,406,000 $ 817,000
Allowance for losses on other loans......... 1,500,000 1,200,000
Recourse obligation on retained interests in
loan sales.............................. 2,635,000 2,511,000
---------- ------------
$5,541,000 $4,528,000
========== ============
<PAGE>
FORM 10-Q
LITCHFIELD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
D. Debt
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 $28,000,000 and $26,200,000 at June 30, 1997 and December 31,
1996, respectively. 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
$5,000,000 to $8,000,000 with another financial institution. This line of credit
matures in January 1998. There were no outstanding borrowings on this line of
credit at June 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. There were no outstanding borrowings under this
facility at June 30, 1997. At December 31, 1996, the outstanding borrowings were
$8,300,000. 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 June 30, 1997 were
$6,058,000. 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 June 30, 1997.
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 the Conduit 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 June 30, 1997, the outstanding balance of eligible loans sold under the
facility was $83,200,000. Outstanding borrowings under the line of credit at
June 30, 1997 and December 31, 1996 were $229,000 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 Conduit
B with or sells the loans to Conduit B. Conduit B issues commercial paper or
<PAGE>
FORM 10-Q
LITCHFIELD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 June 30, 1997, the
outstanding balance of the eligible loans previously sold under the facility was
$13,767,000. There were no outstanding borrowings under the line of credit as of
June 30, 1997. Interest is payable on the line of credit at an interest rate
based on certain commercial paper rates.
During the first quarter of 1995, the Company issued a 10.43% promissory
note with an initial balance of $12,500,000 to an insurance company. Principal
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 $6,396,000 and $7,428,000 at June 30, 1997
and December 31, 1996, respectively. As of June 30, 1997 the approximate value
of the underlying collateral was $14,231,000.
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. The
proceeds were used to repay the outstanding balance on certain of the Company's
the lines of credit.
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.
<PAGE>
FORM 10-Q
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Litchfield Financial Corporation (the "Company") is a specialty finance
company which provides financing for the purchase of rural and vacation
properties ("Land Loans") and financing of vacation ownership interests ("VOI
Loans"), popularly known as timeshare interests. In addition, the Company makes
loans to rural land dealers and resort developers secured by consumer
receivables and other secured loans (collectively "Dealer/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 Six months ended
------------------ ----------------
June 30, June 30,
----------------- ----------------
1997 1996 1997 1996
----- ----- ----- -----
Revenues:
Interest and fees on loans..... 62.2% 54.9% 66.2% 61.8%
Gain on sale of loans......... 33.3 40.5 28.8 31.2
Servicing and other fee income. 4.5 4.6 5.0 7.0
----- ----- ----- -----
100.0 100.0 100.0 100.0
----- ----- ----- -----
Expenses:
Interest expense.............. 34.4 29.0 35.8 30.7
Salaries and employee benefits 10.9 10.6 11.7 12.8
Other operating expenses...... 11.1 10.1 12.4 11.9
Provision for loan losses..... 3.9 8.7 5.2 8.9
----- ----- ----- -----
60.3 58.4 65.1 64.3
----- ----- ----- -----
Income before income taxes ...... 39.7 41.6 34.9 35.7
Provision for income taxes........ 15.3 16.0 13.4 13.7
----- ----- ----- -----
Net income........................ 24.4% 25.6% 21.5% 22.0%
===== ===== ===== =====
<PAGE>
FORM 10-Q
Revenues increased 26.1% and 31.1% to $7,691,000 and $14,098,000 for the
three and six months ended June 30, 1997, from $6,101,000 and $10,751,000 for
the same periods in 1996. Net income for the three and six months ended June 30,
1997 increased 20.2% and 28.1% to $1,880,000 and $3,025,000 compared to
$1,564,000 and $2,362,000 for the same periods in 1996. Loan originations grew
44.9% and 41.3% to $47,249,000 and $83,311,000 for the three and six months
ended June 30, 1997 from $32,602,000 and $58,902,000 for the same periods in
1996. The Serviced Portfolio increased 39.7% to $281,965,000 at June 30, 1997
from $201,797,000 at June 30, 1996.
Interest and fees on loans increased 42.9% and 40.5% to $4,783,000 and
$9,329,000 for the three and six months ended June 30, 1997 from $3,348,000 and
$6,640,000 for the same periods in 1996, primarily as the result of the increase
in other loans and retained interests in loan sales. The average rate earned on
loans owned and retained interests in loan sales decreased to 12.4% at June 30,
1997 from 13.0% at June 30, 1996, primarily due to the effect of the growth in
Dealer/Other Loans as a percentage of the Serviced Portfolio. Dealer/Other Loan
yields are usually less than Land Loan or VOI Loan yields, but Dealer/Other
Loans servicing costs and loan losses are generally less as well.
Gain on the sale of loans increased 3.6% and 21.3% to $2,563,000 and
$4,067,000 for the three and six months ended June 30, 1997 from $2,474,000 and
$3,354,000 in the same periods in 1996. The volume of loans sold increased 10.5%
and 44.6% to $27,458,000 and $39,501,000 for the three and six months ended June
30, 1997 from $18,549,000 and $23,848,000 during the corresponding periods in
1996. Gain on sale of loans increased less than the volume of loans sold
primarily due to the lower amount of discount relating to loans sold and, to a
lesser extent, the lower spread between the coupon rate of the loans sold and
the pass-through rate. In addition, the yield on the securitization of dealer
hypothecation loans in the second quarter was significantly less than the
typical yield on sales of consumer receivables, primarily due to shorter average
maturities.
Loans serviced for others increased 22.8% to $138,771,000 as of June 30,
1997 from $113,037,000 at June 30, 1996. Servicing and other fee income
increased 23.7% to $345,000 for the three months ended June 30, 1997, from
$279,000 for the same period in 1996. Servicing and other fee income decreased
7.3% to $702,000 for the six months ended June 30, 1997, from $757,000 for the
same period in 1996. For the three and six months ended June 30, 1997, servicing
income decreased despite the increase in loans serviced for others due to a
decrease in the average servicing fee per loan. However, for the three months
ended June 30, 1997, miscellaneous fees more than offset the decrease in
servicing fees.
Interest expense increased 49.8% and 52.9% to $2,648,000 and $5,042,000
during the three and six months ended June 30, 1997 from $1,768,000 and
$3,297,000 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 six months
ended June 30, 1997, borrowings averaged $107,934,000 and $103,551,000 at an
average rate of 9.0% and 9.1%, respectively, as compared to $70,153,000 and
$63,733,000, both at an average rate of 9.3% during the same periods in 1996.
Interest expense includes the amortization of deferred debt issuance costs.
Salaries and employee benefits increased 29.1% and 19.1% to $833,000 and
$1,646,000 for the three and six months ended June 30, 1997 from $645,000 and
$1,382,000 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 66 at June 30, 1997 compared to 53 at June
30, 1996. Personnel costs as a percentage of revenues increased slightly to
10.8% for the three months ended June 30, 1997 compared to 10.6% for the same
period in 1996. Personnel costs as a percentage of revenues decreased to 11.7%
for the six months ended June 30, 1997 from 12.8% 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 0.30% and 0.58% for the three and six months ended June 30, 1997
from 0.32% and 0.68% for the same periods in 1996.
<PAGE>
FORM 10-Q
Other operating expenses increased 38.0% and 37.0% to $853,000 and
$1,756,000 for the three and six months ended June 30, 1997 from $618,000 and
$1,282,000 for the same periods 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 increased
slightly to 11.1% and 12.4% for the three and six months ended June 30, 1997
compared to 10.1% and 11.9% for the corresponding periods in 1996. As a
percentage of the Serviced Portfolio, other operating expenses decreased to
0.30% and 0.62% for the three and six months ended June 30, 1997 from 0.31% and
0.64% for the same periods in 1996.
During the three and six months ended June 30, 1997, the Company decreased
its provision for loan losses 43.3% and 23.0% to $300,000 and $735,000 from
$529,000 and $954,000 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 Dealer/Other Loans as a percentage of the
Serviced Portfolio. Dealer/Other Loans have experienced significantly lower
delinquency and default rates than Land Loans and VOI 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.
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 $8,936,000 of loans at June 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 $119,000 and $454,000 as compared to $359,000
and $514,000 of such loans under the recourse provisions of loan sales during
the three and six months ended June 30, 1997 and 1996, respectively. As of June
30, 1997, $20,136,000 of the Company's cash was restricted as credit enhancement
for certain securitization programs.
The Company funds its loan purchases in part with borrowings under various
bank 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 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
$28,000,000 and $26,200,000 at June 30, 1997 and December 31, 1996,
respectively. 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
$5,000,000 to $8,000,000 with another financial institution. This line of credit
matures in January 1998. There were no outstanding borrowings on this line of
credit at June 30, 1997 and December 31, 1996. This line of credit is secured by
consumer receivables and other secured loans.
<PAGE>
FORM 10-Q
In January 1997, an additional secured line of credit was increased from
$15,000,000 to $20,000,000. There were no outstanding borrowings under this
facility at June 30, 1997. At December 31, 1996, the outstanding borrowings were
$8,300,000. 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 June 30, 1997 were
$6,058,000. 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 June 30, 1997.
Interest rates on the above lines of credit range from the Eurodollar or
LIBOR rate 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
June 30, 1997, the outstanding balance of eligible loans sold under the facility
was $83,200,000. Outstanding borrowings under the line of credit at June 30,
1997 and December 31, 1996 were $229,000 and $1,799,000, respectively. Interest
is payable on the line of credit at an interest rate based on certain commercial
paper rates.
<PAGE>
FORM 10-Q
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 June 30, 1997 the
outstanding balance of the eligible loans previously sold under the facility was
$13,767,000. There were no outstanding borrowings under the line of credit as of
June 30, 1997. Interest is payable on the line of credit at an interest rate
based on certain commercial paper rates.
During the first quarter of 1995, the Company issued a 10.43% promissory
note with an initial balance of $12,500,000 to an insurance company. Principal
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 $6,396,000 and $7,428,000 at June 30, 1997
and December 31, 1996, respectively. As of June 30, 1997 the approximate value
of the underlying collateral was $14,231,000.
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. The
proceeds were used to repay the outstanding balance on certain of the Company's
the lines of credit.
The Company manages its exposure to changes in interest rates by
attempting to match its proportion of fixed versus variable rate assets,
liabilities and loan sale facilities. The Company has further mitigated its
interest rate exposure due to interest rate declines by instituting interest
rate floors on certain of its adjustable rate loans. The Company has also
mitigated its interest rate exposure due to basis risk attributable to
differences between the prime rate and the commercial paper and LIBOR rates by
entering into interest rate swap agreements.
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 .99% as of June 30, 1997 compared with 1.34% at December 31, 1996
and 1.74% at June 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 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 $5,541,000 at June 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 June 30, 1997 increased slightly to 1.97% from
1.87% at December 31, 1996.
<PAGE>
FORM 10-Q
As part of the Company's financing of Land Loans and VOI 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 Land Loan or a VOI 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
$10,626,000 and $10,628,000 at June 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.
<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
See Item 4 of Litchfield Financial Corporation quarterly report on Form
10-Q for the quarter ended March 31, 1997.
Item 5. Other Information
See Litchfield Financial Corporation quarterly report on Form 10-Qfor
the quarter ended March 31, 1997.
Item 6. (a) Exhibits
The following exhibits are filed herewith:
10.154 Loan and security agreement dated March 6, 1997 between
Litchfield Financial Corporation and Green Tree Financial
Servicing Corporation in the principal amount of $25,000,000.
10.155 Second amended and restated loan and security agreement among
Litchfield Financial Corporation, BankBoston, N.A., and Fleet
Bank-NH in the principal amount of $50,000,000.
10.156 9.3% Note purchase agreement dated April 7, 1997 between
Litchfield Financial Corporation and Teachers Insurance and
Annuity Association of America in the principal amount of
$20,000,000.
11.1 Statement re: computation of earnings per share
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
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: August 12, 1997 /s/ Richard A. Stratton
-----------------------
RICHARD A. STRATTON
Chief Executive Officer,
President and Director
DATE: August 12, 1997 /s/ Ronald E. Rabidou
---------------------
RONALD E. RABIDOU
Chief Financial Officer
Exhibit 10.154
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is made as of March 6, 1997, by and among
GREEN TREE FINANCIAL SERVICING CORPORATION ("Lender"), a Delaware corporation
with an office at 100 North Point Center East, Suite 200, Alpharetta, Georgia
30202-4168; LITCHFIELD FINANCIAL CORPORATION ("Litchfield"), a Massachusetts
corporation with its chief executive office and principal place of business at
789 Main Road, Stamford, Vermont 05352; and GREEN MOUNTAIN FUNDING CORP. ("Green
Mountain"), a Delaware corporation with its chief executive office and principal
place of business at 789 Main Road, Stamford, Vermont 05352 (Litchfield and
Green Mountain are referred to collectively as "Borrowers" and individually as a
"Borrower").
Each Borrower has requested that Lender make available a revolving credit
facility to Borrowers, which facility shall be used by Borrowers to finance
their mutual and collective enterprise of financing the acquisition and
development of rural and vacation properties and timeshare interests. In order
to utilize the financial powers of each Borrower in the most efficient and
economical manner, and in order to facilitate the financing of each Borrower's
needs, Lender will, at the request of either Borrower, make loans to both
Borrowers under the revolving credit facility on a combined basis and in
accordance with the provisions hereinafter set forth. Borrowers' business is a
mutual and collective enterprise and Borrowers believe that the consolidation of
all revolving credit loans under this Agreement will enhance the aggregate
borrowing powers of each Borrower and ease the administration of their revolving
credit loan relationship with Lender, all to the mutual advantage of Borrowers.
Lender's willingness to extend credit to Borrowers and to administer each
Borrower's collateral security therefor, on a combined basis as more fully set
forth in this Agreement, is done solely as an accommodation to Borrowers and at
Borrowers' request in furtherance of Borrowers' businesses.
NOW THEREFORE, for Ten Dollars ($10.00) and other good and valuable
consideration, the parties hereto hereby agree as follows:
SECTION 1. GENERAL DEFINITIONS
A&D Borrower - a Person to whom an A&D Loan from a Borrower is
-------------
outstanding.
A&D Collateral - all Property and interests in Property in which a
---------------
Borrower holds a Lien to secure the whole or any part of an A&D Loan,
including the A&D Project securing such A&D Loan.
A&D Loan - an acquisition or development term loan made or acquired by
--------
Litchfield prior to the date hereof and identified on Exhibit D hereto, or
made or acquired by Green Mountain after the Closing Date, to an A&D
Borrower for the purpose of enabling such A&D Borrower to pay all or part
of the purchase price of an A&D Project and/or the cost of repairing,
refurbishing or making improvements to such A&D Project or converting such
A&D Project to a Timeshare Project.
<PAGE>
A&D Loan Documents - for each A&D Loan, all instruments, agreements and
-------------------
other documents that at any time evidence or secure the payment of such
A&D Loan.
A&D Loan Formula Amount - on any date of determination thereof, the sum
-----------------------
derived by (a) calculating for each Eligible A&D Loan outstanding on such
date the lesser of (i) the Applicable A&D Loan Margin or (ii) the
Applicable A&D Collateral Margin, and (b) adding together each of the
calculations so determined.
A&D Obligor - a Person who is liable for the payment, in whole or in part,
-----------
of an A&D Loan, including the A&D Borrower and any guarantor of such A&D
Loan.
A&D Project - improved real Property that is acquired by an A&D Borrower
-----------
with the proceeds of an A&D Loan and that at the time of acquisition
constitutes a Timeshare Project or a fully constructed hotel or
condominium that is to be converted into a Timeshare Project.
Acceptable A&D Loan Documents - for each A&D Loan, A&D Loan Documents that
-----------------------------
evidence or secure the payment of such A&D Loan and that are Enforceable,
contain terms and conditions (including Payment Rights and Remedies) that
are substantially in the form and scope (excepting only local law
variations and changes in basic business terms) of the sample A&D Loan
Documents annexed to the Transaction Documents Certificate, consistent
with the Underwriting Criteria and otherwise acceptable to Lender and
create Enforceable Liens with respect to the A&D Collateral purported to
be covered thereby. In no event shall any A&D Loan Documents be deemed to
constitute "Acceptable A&D Loan Documents" unless, pursuant to express
provisions set forth therein, such documents, together with all Payment
Rights, Remedies and Liens provided for thereunder, may be assigned
(whether outright or as security) or otherwise transferred to any Person
without the necessity of obtaining the consent of or giving prior notice
to any other party to any of such documents for the effectiveness of any
such assignment or transfer.
Acceptable Hypothecation Loan Documents - for each Hypothecation Loan,
-----------------------------------------
Hypothecation Loan Documents that evidence or secure the payment of such
Hypothecation Loan and are Enforceable, contain terms and conditions
(including Payment Rights and Remedies) that are substantially in the form
and scope (excepting only local law variations and changes in basic
business terms) of the sample Hypothecation Loan Documents annexed to the
Transaction Documents Certificate, consistent with the Underwriting
Criteria and otherwise acceptable to Lender and create Enforceable Liens
with respect to the Hypothecation Collateral purported to be covered
thereby. In no event shall any Hypothecation Loan Documents be deemed to
constitute "Acceptable Hypothecation Loan Documents" unless, pursuant to
express provisions set forth therein, such documents, together with all
Payment Rights, Remedies and Liens provided for thereunder, may be
assigned (whether outright or as security) to any Person without the
necessity of obtaining the consent of or giving prior notice to any other
party to any of such documents for the effectiveness of any such
assignment or transfer.
Account - shall have the meaning given to "account" in the UCC.
-------
Affiliate - a Person (other than a Subsidiary): (i) which directly or
---------
indirectly through one or more intermediaries controls, or is controlled
by, or is under common control with, a Person; (ii) which beneficially
owns or holds 5% or more of any class of the Voting Stock of a Person; or
(iii) 5% or more of the Voting Stock (or in the case of a Person which is
not a corporation, 5% or more of the equity interest) of which is
beneficially owned or held by a Person or a Subsidiary of a Person.
<PAGE>
Agency Agreement (Document Agent) - the Collateral Agent and Bailee
------------------------------------
Agreement (Document Agent) to be executed on or about the Closing Date by
Borrowers, Lender and Document Agent.
Agency Agreement (Servicing Agent) - for each Servicer, a Collateral Agent
----------------------------------
and Bailee Agreement to be executed on or about the Closing Date by
Borrowers, Lender and such Servicer.
Agency Agreements - collectively, the Agency Agreement (Document Agent)
------------------
and each Agency Agreement (Servicing Agent).
Applicable A&D Collateral Margin - on any date and for each Eligible A&D
----------------------------------
Loan outstanding on such date, an amount equal to (a) 65% of the Appraised
Value of the Eligible A&D Project for such Eligible A&D Loan if, at the
time of acquisition thereof by the A&D Borrower, such Eligible A&D Project
constituted hotel property; (b) 75% of the Appraised Value of Eligible A&D
Project for such Eligible A&D Loan if, at the time of acquisition thereof
by the A&D Borrower, such Eligible A&D Project constituted a condominium
project; and (c) if the Appraised Value has not been determined or relates
to a Timeshare Project, 80% of the Sales Value. In applying the Applicable
A&D Collateral Margin, if more than one A&D Loan is secured by the same
Eligible A&D Project, then all such A&D Loans shall be deemed to be one
A&D Loan.
Applicable A&D Loan Margin - on any date and for each Eligible A&D Loan
---------------------------
outstanding on such date, an amount equal to 80% of the Net Principal
Balance of such Eligible A&D Loan on such date, but not to exceed (a)
during the period commencing 366 days, and ending 550 days, after the date
of this Agreement, 75% of the original principal amount of such Eligible
A&D Loan, and (b) during the period commencing 551 days, and ending 730
days, after the date of this Agreement, 70% of the original principal
amount of such Eligible A&D Loan; provided, however, that the applicable
percentage shall be reduced to 0% after 730 days following the date of
this Agreement.
Applicable Laws - all laws, rules and regulations applicable to the
----------------
Person, conduct, transaction, covenant, Loan Documents, Transaction
Documents, Timeshare Financing Documents or other matters in question,
including all applicable common law and equitable principles; all
provisions of all applicable state and federal constitutions, statutes,
rules, regulations and orders of governmental bodies; and orders,
judgments and decrees of all courts and arbitrators. The term includes all
Consumer Laws, Land Sales Laws, and Environmental Laws.
Appraised Value - with respect to any A&D Project, the fair market value
----------------
of such A&D Project as determined by an independent third party appraiser
who holds an MAI designation and who is state licensed or certified under
the laws of the state in which the A&D Collateral is located, which
valuation is reflected in an appraisal prepared by such appraiser not more
than 60 days prior to the date of acquisition of such A&D Project by an
A&D Borrower.
<PAGE>
Approved Servicer- a Servicer identified on Exhibit A hereto.
----------------- ---------
Bank of Boston - the First National Bank of Boston, a national bank, with
--------------
its headquarters in Boston, Massachusetts.
Bank One - Bank One, Arizona, N.A., a national banking association.
--------
Bankruptcy Code - title 11 of the United States Code.
---------------
Borrowing Base Certificate - a Borrowing Base Certificate in the form of
---------------------------
Exhibit B hereto.
---------
Business Day - any day excluding Saturday, Sunday and any day which is a
------------
legal holiday under the laws of the State of Georgia or is a day on which
banking institutions located in such state are closed.
Business Entity - a corporation, partnership, limited liability company,
---------------
business trust or other form of business entity.
Capital Expenditures - expenditures made or liabilities incurred for the
---------------------
acquisition of any fixed assets or improvements, replacements,
substitutions or additions thereto which have a useful life of more than
one year, including the total principal portion of Capitalized Lease
Obligations.
Capitalized Lease Obligation - any Debt represented by obligations under a
----------------------------
lease that is required to be capitalized for financial reporting purposes
in accordance with GAAP.
Cash Equivalents - (i) marketable direct obligations issued or
------------------
unconditionally guaranteed by the United States government and backed by
the full faith and credit of the United States government having
maturities of not more than 12 months from the date of acquisition; (ii)
domestic certificates of deposit and time deposits having maturities of
not more than 12 months from the date of acquisition, bankers' acceptances
having maturities of not more than 12 months from the date of acquisition
and overnight bank deposits, in each case issued by any commercial bank
organized under the laws of the United States, any state thereof or the
District of Columbia, which at the time of acquisition are rated A-1 (or
better) by Standard & Poor's Corporation of P-1 (or better) by Moody's
Investors Services, Inc., and not subject to offset rights in favor of
such bank arising from any banking relationship with such bank; (iii)
repurchase obligations with a term of not more than 30 days for underlying
securities of the types described in clauses (i) and (ii) above entered
into with any financial institution meeting the qualifications specified
in clause (ii) above; and (iv) commercial paper having at the time of
investment therein or a contractual commitment to invest therein a rating
of A-1 (or better) by Standard & Poor's Corporation or P-1 (or better) by
Moody's Investors Services, Inc., and having a maturity within 9 months
after the date of acquisition thereof.
Cash Flow - cash revenues of an A&D Borrower in relation to a particular
---------
A&D Project, less cash expenditures and other outlays by such A&D Borrower
in relation to such A&D Project.
Chattel Paper - shall have the meaning ascribed to the term "chattel
--------------
paper" in the UCC.
<PAGE>
Claims - any and all claims, demands, liabilities, obligations, losses,
------
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever (including reasonable
attorneys' fees and expenses), whether arising under or in connection with
the Loan Documents, any Transaction Documents, any Applicable Laws
(including any Environmental Law) or otherwise.
Closing Date - the date on which all of the conditions precedent in
-------------
Section 9 of this Agreement are satisfied and the initial Revolver Loan is
made under this Agreement.
Collateral - all of the Property and interests in Property described in
----------
Section 6 of this Agreement, and all other Property and interests in
Property that now or hereafter secure the payment and performance of any
of the Obligations.
Compliance Certificate - a Compliance Certificate in the form of Exhibit E
---------------------- ---------
hereto.
Concentration Accounts - the 2 bank accounts to be established on or about
----------------------
the date of this Agreement by Borrowers at Bank One or such other
financial institution (or financial institutions) acceptable to Lender, as
provided in Section 4.4 of this Agreement, which accounts shall constitute
the depository accounts for all payments and proceeds with respect to
Pledged Loans and Pledged Loan Collateral, shall be collaterally assigned
to Lender pursuant to the Deposit Account Assignments, and shall be the
subject of the Payment Direction Agreements.
Consolidated - the consolidation in accordance with GAAP of assets and
------------
liabilities.
Consumer Laws - all federal, state or local laws, rules or regulations
--------------
that govern or relate to the rights or protections of consumers, including
the Truth in Lending Act (and Regulation Z promulgated by the Federal
Reserve Board pursuant thereto), the Equal Credit Opportunity Act (and
Regulation by promulgated by the Federal Reserve Board pursuant thereto),
the Consumer Credit Protection Act of 1968, the Real Estate Settlement
Procedures Act of 1974, the Fair Debt Collection Practices Act, all Land
Sales Laws, and all Applicable Laws regulating the amount of interest fees
or other charges that may be assessed against or collected from consumers.
Credit Facilities - Facility A and Facility B.
-----------------
Credit Limit - for each Pledged Loan, the amount initially established in
------------
the Transaction Documents relating to such Pledged Loan as the maximum
amount of such Pledged Loan (in the case of an A&D Loan) or line of credit
for such Pledged Loan (in the case of a Hypothecation Loan).
Debt - as applied to a Person means, without duplication: (i) all items
----
which in accordance with GAAP would be included in determining total
liabilities as shown on the liability side of a balance sheet of such
Person as at the date as of which Debt is to be determined, including
Capitalized Lease Obligations; (ii) all obligations of other Persons which
such Person has guaranteed; (iii) all reimbursement obligations in
connection with letters of credit or letter of credit guaranties issued
for the account of such Person; and (iv) in the case of Borrowers (without
duplication), the Obligations.
<PAGE>
Default - an event or condition the occurrence of which would, with the
-------
lapse of time or the giving of notice, or both, become an Event of
Default.
Default Rate - on any date, a per annum rate of interest that is equal to
------------
(i) 5.75% plus the LIBOR Rate with respect to the principal amount of all
Facility A Loans; (ii) 4.0% plus the LIBOR Rate with respect to the
principal amount of Facility B Revolver Loans outstanding; and (iii) 5.75%
plus the LIBOR Rate with respect to the principal amount of any other
Obligations.
Deposit Account Assignments - each Collateral Assignment of Certain
-----------------------------
Deposit Accounts to be executed by each Borrower in favor of Lender on or
about the Closing Date and by which each Borrower shall collaterally
assign its rights in each of the Concentration Accounts to Lender as
security for the payment of the Obligations.
Distribution - in respect of any corporation means and includes: (i) the
------------
payment of any dividends or other distributions on capital stock of the
corporation (except distributions in such stock) and (ii) the redemption
or acquisition of Securities unless made contemporaneously from the net
proceeds of the sale of Securities.
Document - shall have the meaning ascribed to the term "document" in the
--------
UCC.
Document Agent - Bank of Boston, acting through its trust department, or
--------------
such other Person as Borrowers may retain to fulfill the role of Document
Agent pursuant to the provisions of Section 4.6 of this Agreement, subject
to Lender's prior written consent.
Dollars and the sign "$" - lawful money of the United States of America.
------------------------
EBITDA - for any fiscal period of Litchfield, an amount equal to the sum
------
for such period of (i) Litchfield's Consolidated income (or loss) before
interest and taxes for such period plus, (ii) to the extent deducted in
determining such income (or loss), depreciation, amortization and other
similar non-cash charges, minus (iii) to the extent recognized in
determining such income (or loss) extraordinary gains (or losses).
Eligible A&D Borrower - an Eligible Borrower that is an A&D Borrower.
---------------------
Eligible A&D Collateral - A&D Collateral that is situated in the United
------------------------
States, is owned in fee simple solely by an Eligible A&D Borrower, is
subject to an Enforceable Lien in favor of a Borrower and no other Lien
that is not a Permitted Lien, conforms in all respects to the Underwriting
Criteria, is not the subject of a pending claim under any policy of
casualty insurance for an amount that exceeds 20% of the Appraised Value
or Sales Value or any material proceeding for condemnation at the time
that an A&D Loan secured by such A&D Collateral was first funded, and in
respect of which all Governmental Approvals have been obtained to convert
any A&D Project that is not a Timeshare Project to a Timeshare Project.
Eligible A&D Loan - an A&D Loan which is an Eligible Loan, but only if and
-----------------
to the extent: (i) the unpaid principal balance and accrued interest owing
with respect to the A&D Loan on any date does not exceed 25% (or such
greater percentage as Lender may in its sole discretion permit) of the
<PAGE>
then unpaid principal balance and accrued interest of all Eligible A&D
Loans outstanding; (ii) the completion of the development of the A&D
Project is not more than 60 days past the original targeted completion
date as set forth in the Project Completion Schedule submitted to a
Borrower with respect to such A&D Loan; (iii) the Cash Flow realized on a
cumulative basis from the sale of Timeshare Intervals and other sources
before and during conversion to, and prior to completion of, the A&D
Project as a Timeshare Project is not at any time less than 75% of the
original Project Cash Flow Forecast; (iv) at or prior to the funding of
the A&D Loan, the Eligible A&D Borrower contributed to the total cost of
the A&D Project in cash (other than cash derived from Money Borrowed or
other incurrence of Debt) or Property fairly valued of at least 10% of
such cost; and (v) Lender shall have received a Loan Designation Schedule,
Project Completion Schedule and Project Cash Flow Forecast with respect to
such A&D Loan.
Eligible Borrower - a Person that is (i) either a natural person who is a
------------------
citizen and resident of the United States or an Business Entity that is
duly organized and validly existing under, and has its principal assets
and place of business in, a state of the United States; (ii) Solvent;
(iii) not a debtor in any Insolvency Proceeding; (iv) not an Affiliate or
a creditor of either Borrower; and (v) not in default of any of such A&D
Borrower's obligations to either Borrower.
Eligible Collateral - Eligible A&D Collateral or Eligible Hypothecation
--------------------
Collateral.
Eligible Hypothecation Borrower - an Eligible Borrower that is a
----------------------------------
Hypothecation Borrower.
Eligible Hypothecation Collateral - Hypothecation Collateral that is
-----------------------------------
situated in the United States, is owned solely by an Eligible
Hypothecation Borrower, is subject to an Enforceable Lien in favor of
either Borrower and no other Lien that is not a Permitted Lien, and
conforms in all respects to the Underwriting Criteria.
Eligible Hypothecation Loan - a Hypothecation Loan which is an Eligible
-----------------------------
Loan and which is secured by Hypothecation Collateral consisting of
Eligible Timeshare Receivables.
Eligible Loan - an A&D Loan or a Hypothecation Loan made by either
--------------
Borrower in the ordinary course of its business to an Eligible A&D
Borrower or an Eligible Hypothecation Borrower pursuant to Acceptable A&D
Loan Documents or Acceptable Hypothecation Loan Documents, but only if and
to the extent that such A&D Loan or Hypothecation Loan is a Pledged Loan
and: (i) such Pledged Loan is payable only in Dollars, is on a full
recourse basis to the Eligible A&D Borrower or Hypothecation Borrower, and
is not subject to any defense, offset or recoupment; (ii) a Borrower is
the legal and beneficial owner of and sole payee with respect to the
entire Pledged Loan, free of all Liens except Permitted Liens, and such
Borrower has not sold or otherwise transferred any interest therein; (iii)
the Borrower with respect to such Pledged Loan has taken all steps to
qualify to do business in each state in which, under the laws of such
state, it is deemed to be doing business and in which the failure to so
qualify would hinder, delay or impair such Borrower's ability to use the
courts of such state to sue an Obligor or realize upon any Lien with
respect to any Pledged Loan Collateral; (iv) Lender has an Enforceable
collateral assignment of and Lien upon all Transaction Documents, all
Pledged Loan Collateral for such Pledged Loan and all Payment Rights and
Remedies associated with or arising under such Transaction Documents; (v)
the Pledged Loan was made in conformity with the Underwriting Criteria;
<PAGE>
(vi) no event of default exists under any of the Transaction Documents
evidencing or securing the Pledged Loan (whether or not a Borrower has
waived any such event of default); (vii) no Obligor with respect to such
Pledged Loan is in default of any of its covenants or other obligations
under any Transaction Documents evidencing or securing any other A&D Loan
or Hypothecation Loan made by such Borrower; (viii) the principal and
interest payable with respect to the Pledged Loan is not more than 30 days
past due or 2 payments delinquent, whichever first occurs, based upon the
original repayment terms for such Pledged Loan as set forth in the
Transaction Documents related thereto as in effect on the date of funding
of such Pledged Loan; (ix) there is not outstanding any other loan or
other extension of credit by either Borrower to the Eligible A&D Borrower
or Eligible Hypothecation Borrower that is secured, in whole or in part,
by any of the collateral securing such Pledged Loan unless such loan or
other extension of credit is also a Pledged Loan; (x) the principal
balance of such Pledged Loan does not exceed the Credit Limit originally
established in the Transaction Documents relating to such Pledged Loan;
(xi) no broker's, finder's or other similar fees payable by a Borrower in
connection with such Pledged Loan remains unpaid in whole or in part; and
(xii) the originals of all of the Primary Transaction Documents with
respect to such Pledged Loan are in the possession of Lender or the
Document Agent and such Primary Transaction Documents have not been
destroyed, defaced or substantially damaged in a manner that would render
them not Enforceable or that would require additional proof in an
enforcement proceeding to demonstrate the existence, terms or
enforceability thereof.
Eligible Timeshare Purchaser - a natural Person who (i) (A) is a resident
-----------------------------
of the United States or Canada and has such Person's principal assets in
the United States or Canada, (B) is a nonresident citizen of the United
States or (C) subject to the proviso in clause (xi) of the definition of
Eligible Timeshare Receivable, is a citizen of a country other than the
United States who resides in a country other than the United States or
Canada; (ii) is Solvent; (iii) is not a debtor in any Insolvency
Proceeding; (iv) is not an Affiliate, creditor, employee or relative of a
Borrower or a Hypothecation Borrower; and (v) is not in default of any of
such Person's obligations to a Borrower or to a Hypothecation Borrower.
Eligible Timeshare Receivable - a Timeshare Receivable which arises in the
-----------------------------
ordinary course of business of a Hypothecation Borrower and which is owed
by a Timeshare Purchaser who is and at all times remains an Eligible
Timeshare Purchaser, but only if and to the extent that: (i) the Timeshare
Receivable is evidenced by Timeshare Financing Documents that satisfy the
Underwriting Criteria, are Enforceable, provide for payment of amounts due
thereunder in Dollars and in equal monthly installments of principal and
interest over a term (measured from the date of original sale of the
underlying Timeshare Interval) not to exceed 120 consecutive months, are
subject to a Borrower's Enforceable Lien and no other Lien that is not a
Permitted Lien, have been delivered to and are in the possession of Lender
or the Document Agent and, to the extent any of the Transaction Documents
are Instruments, are endorsed to a Borrower (and, if so requested by
Lender at any time, endorsed by such Borrower to Lender); (ii) it is
secured by an Enforceable Lien in favor of the Hypothecation Borrower upon
the underlying Timeshare Interval, but is subject to no other Lien that is
not a Permitted Lien, and such Enforceable Lien is collaterally assigned
of record to a Borrower (and, if so requested by Lender at any time an
Event of Default exists, collaterally reassigned of record to Lender);
(iii) any Enforceable Lien upon the underlying Timeshare Interval that
constitutes, or arises pursuant to the terms of, a Mortgage is insured by
a mortgagee's policy of title insurance in form and scope satisfactory to
<PAGE>
a Borrower and satisfying the Underwriting Criteria (the benefits of which
insurance are collaterally assigned to Lender by such Borrower if so
requested by Lender); (iv) either the Hypothecation Borrower or a Borrower
has received from the Timeshare Purchaser, in respect of the purchase of
the underlying Timeshare Interval, an amount equal to at least 10% of the
actual purchase price of such Timeshare Interval (or, in the case of a
Timeshare Purchaser that is not a resident of the United States or Canada,
20% of the actual purchase price), and the Timeshare Purchaser shall have
received no cash or other rebates of any kind; (v) the rate of interest
payable on the unpaid principal balance of the Timeshare Receivable is at
least 12% per annum; (vi) the sale of the Timeshare Interval from which
the Timeshare Receivable arises shall not have been canceled by the
Timeshare Purchaser, all required deliveries of documents by the
Hypothecation Borrower to the Timeshare Purchaser under Applicable Laws
have been made, and any statutory or other applicable cancellation or
rescission period shall have expired; (vii) the sale shall have been in
compliance with all of the Timeshare Financing Documents and all
Applicable Laws; (viii) the Timeshare Purchaser has immediate and
unrestricted access to the Timeshare Interval purchased by such Timeshare
Purchaser for the time-share period related thereto, the Timeshare
Interval relates to a Timeshare Project that has been renovated and
furnished in accordance with all specifications provided in the Timeshare
Financing Documents, any public offering statements and any other
instruments or agreements, and the Timeshare Purchaser also has complete
and unrestricted access to the Timeshare Project and all common areas
pertaining thereto; (ix) the Timeshare Receivable is not subject to any
defense, offset, recoupment or counterclaim, whether under any of the
Timeshare Financing Documents or Applicable Laws; (x) the Timeshare
Interval is not subject to any Lien that is not a Permitted Lien; (xi) if
the Timeshare Purchaser is a nonresident, non-citizen of the United
States, the aggregate amount of Timeshare Receivables owing by such
Timeshare Purchaser and all other such Timeshare Purchasers who are
nonresident non-citizens of the United States does not exceed at any time
5% of the total Timeshare Receivables outstanding at such time or
$500,000, whichever is less; and (xii) the total aggregate of all
Timeshare Receivables owing by such Timeshare Purchaser does not exceed 3%
of the aggregate of all Eligible Timeshare Receivables at a time when the
total of all Eligible Timeshare Receivables equals or exceeds $2,000,000.
Enforceable - when used with reference to any Loan Document, any
-----------
Transaction Document, any Timeshare Financing Document or any other
instrument or agreement, such instrument or agreement was duly executed
and delivered by each of the parties thereto; each signatory at the time
of such execution and delivery had the capacity to contract, and, if such
signatory signed in a representative capacity, did so with full
authorization from the party represented; each Business Entity that is a
signatory to such instrument or agreement had full power and authority to
execute and deliver such instrument and agreement; and such instrument or
agreement creates a legal, valid and binding obligation of each of such
parties thereto that is enforceable against each of the parties in
accordance with the terms thereof under all Applicable Laws (except for
the effect of any Applicable Laws relating to Insolvency Proceedings and
except for the effect of the application of any general principles of
equity upon the enforcement of Remedies generally); and when used with
reference to any Lien, such Lien is a legal, valid and binding Lien which
has duly attached to the Property intended to be the subject thereof and
is duly perfected under the UCC and all other Applicable Laws.
Environmental Laws - all federal, state and local laws, rules,
--------------------
regulations, ordinances, programs, permits, guidances, orders and consent
decrees relating to health, safety or environmental matters, including the
Comprehensive Environmental Response, Compensation and Liability Act of
1980.
<PAGE>
Equipment - shall have the meaning given to "equipment" in the UCC.
---------
ERISA - the Employee Retirement Income Security Act of 1974, as amended,
-----
and all rules and regulations from time to time promulgated thereunder.
Event of Default - as defined in Section 10.1 of this Agreement.
----------------
Facility A - the revolving credit facility established in favor of
-----------
Borrowers pursuant to the terms of Section 2.1 hereof.
Facility A Borrowing Base - on any date of determination thereof, an
----------------------------
amount equal to the least of (a) $15,000,000, (b) the A&D Loan Formula
Amount on such date, or (c) the difference between $25,000,000 and the
amount of Facility B Revolver Loans outstanding on such date.
Facility A Revolver Loan - a Revolver Loan made by Lender to Borrowers
-------------------------
pursuant to Section 2.1 hereof.
Facility B - the revolving credit facility established in favor of
-----------
Borrowers pursuant to the terms of Section 2.2 hereof.
Facility B Borrowing Base - on any date of determination thereof, an
----------------------------
amount equal to the least of (a) $15,000,000, (b) the Hypothecation Loan
Formula amount on such date, or (c) the difference between $25,000,000 and
the amount of Facility A Revolver Loans outstanding on such date.
Facility B Revolver Loan - a Revolver Loan made by Lender to Borrowers
-------------------------
pursuant to Section 2.2 hereof.
Federal Reserve Board - the Board of Governors of the Federal Reserve
-----------------------
System.
GAAP - generally accepted accounting principles in the United States of
----
America in effect from time to time.
General Intangible - shall have the meaning given to "general intangible"
------------------
in the UCC.
Governmental Approvals - all authorizations, consents, approvals, licenses
----------------------
and exemptions of, registrations and filings with, and reports to, all
national state or local government (whether domestic or foreign) and any
political subdivisions thereof in any other governmental,
quasi-governmental, judicial, administrative, public or statutory
instrumentality, authority, body, agency, bureau or entity.
Governmental Unit - a federal, state, local, or foreign government or any
-----------------
department, agency, bureau or subdivision thereof.
Hypothecation Borrower - a Person to whom a Hypothecation Loan from a
-----------------------
Borrower is outstanding.
Hypothecation Collateral - all Property and interest in Property in which
-------------------------
a Borrower holds a Lien to secure the whole or any part of a Hypothecation
Loan, including all Timeshare Financing Documents.
Hypothecation Loan - a loan or loans made by Litchfield pursuant to a
-------------------
revolving credit facility established prior to the Closing Date, or made
or acquired by Green Mountain pursuant to a revolving credit facility
established after the Closing Date, to a Hypothecation Borrower for the
purpose of financing all or part of the Hypothecation Borrower's Eligible
Timeshare Receivables derived from the sale of Timeshare Intervals with
respect to a Timeshare Project.
Hypothecation Loan Documents - for each Hypothecation Loan, all
-------------------------------
instruments, agreements and other documents that at any time evidence or
secure the payment of such Hypothecation Loan.
Hypothecation Loan Formula Amount - on any date of determination thereof,
---------------------------------
the sum derived by (a) calculating for each Eligible Hypothecation Loan
outstanding on such date the Hypothecation Loan Margin and (b) adding
together each of the calculations so determined.
Hypothecation Loan Margin - on any date and for each Eligible
-----------------------------
Hypothecation Loan outstanding on such date, an amount equal to the lesser
of (a) the principal balance of such Hypothecation Loan on such date or
(b) 80% of the aggregate amount of all Eligible Timeshare Receivables upon
which a Borrower has a Lien to secure the payment of such Hypothecation
Loan.
Hypothecation Obligor - a Person who is liable for the payment, in whole
----------------------
or in part, of a Hypothecation Loan, including the Hypothecation Borrower
and any guarantor of such Hypothecation Loan.
Insolvency Proceeding - any action, case or proceeding commenced by or
----------------------
against a Person, or any agreement of such Person, for (a) the entry of an
order for relief under any chapter of the Bankruptcy Code or other
insolvency or debt adjustment law (whether state, federal or foreign), (b)
the appointment of a receiver, trustee, liquidator or other custodian for
such Person or any part of its Property, (c) an assignment or trust
mortgage for the benefit of creditors of such Person, or (d) the
liquidation, dissolution or winding up of the affairs of such Person.
Instrument - shall have the meaning ascribed to the term "instrument" in
----------
the UCC.
Interest Coverage Ratio - for any fiscal period, the ratio which (i) the
------------------------
sum of Borrower's EBITDA for such period, bears to (ii) the sum of
interest expense, including interest expense attributable to capitalized
leases of Borrower, for the same such period, all as determined in
accordance with GAAP.
Inventory - shall have the meaning given to "inventory" in the UCC.
---------
<PAGE>
Land Sales Laws - all laws, rules and regulations that govern or relate to
---------------
the dedication, development and operation of Timeshare Projects or the
promotion, offer or sale of Timeshare Intervals to consumers.
LIBOR Rate - shall have the meaning ascribed to it in Section 3.1.1
-----------
hereof.
Lien - any interest in Property securing an obligation owed to, or a claim
----
by, a Person other than the owner of the Property, whether such interest
is based on common law, statute or contract. The term "Lien" shall also
include reservations, exceptions, encroachments, easements, rights-of-way,
covenants, conditions, restrictions, leases and other title exceptions and
encumbrances affecting Property.
Loan Account - the loan account established on the books of Lender
-------------
pursuant to Section 4.11 of this Agreement.
Loan Designation Schedule - a Loan Designation Schedule in the form of
---------------------------
Exhibit C-1 or Exhibit C-2 annexed hereto, which shall be completed by a
----------- -----------
Borrower and submitted to Lender with respect to each Pledged Loan that
such Borrower requests Lender to consider as an Eligible A&D Loan or an
Eligible Hypothecation Loan.
Loan Documents - this Agreement, the Other Agreements and the Security
---------------
Documents.
Loan Party - each Borrower and each other Person (other than Lender) who
----------
is at any time liable for the payment of the Obligations.
Loan Year - a period commencing each calendar year on the same month and
---------
day as the date of this Agreement and ending on the same month and day in
the immediately succeeding calendar year, with the first such period
(i.e., the first Loan Year) to commence on the date of this Agreement.
Loans - all loans and advances of any kind made by Lender pursuant to this
-----
Agreement.
Margin Stock - as such term is defined in Regulation U and Regulation G of
------------
the Board of Governors.
Material Adverse Effect - the effect of any event or condition which,
-------------------------
alone or when taken together with other events or conditions occurring or
existing concurrently therewith, (a) has a material adverse effect upon
the business, operations, Properties, condition (financial or otherwise)
or business prospects of a Person, including either Borrower; (b) has any
material adverse effect whatsoever upon the validity or enforceability of
this Agreement or any of the other Loan Documents; (c) has or may be
reasonably expected to have any material adverse effect upon the value of
the whole or any material part of the Collateral, the Liens of Lender with
respect to the Collateral or any material part thereof or the priority of
such Liens; (d) materially impairs the ability of a Borrower to perform
its obligations under this Agreement or any of the other Loan Documents,
including repayment of the Obligations when due; or (e) materially impairs
the ability of Lender to enforce or collect the Obligations or realize
upon any of the Collateral in accordance with the Loan Documents and
Applicable Laws.
<PAGE>
Maximum Rate - the maximum non-usurious rate of interest permitted by
-------------
Applicable Laws that at any time, or from time to time, may be contracted
for, taken, reserved, charged or received on the Debt in question or, to
the extent that at any time Applicable Laws may thereafter permit a higher
maximum non-usurious rate of interest, then such higher rate.
Notwithstanding any other provision hereof, the Maximum Rate shall be
calculated on a daily basis (computed on the actual number of days elapsed
over a year of 365 or 366 days, as the case may be).
Money Borrowed - means (i) Debt arising from the lending of money by any
---------------
Person to either Borrower; (ii) Debt, whether or not in any such case
arising from the lending by any Person of money to either Borrower, (A)
which is represented by notes payable or drafts accepted that evidence
extensions of credit, (B) which constitutes obligations evidenced by
bonds, debentures, notes or similar instruments, or (C) upon which
interest charges are customarily paid (other than accounts payable) or
that was issued or assumed as full or partial payment for Property; (iii)
Debt that constitutes a Capitalized Lease Obligation; (iv) reimbursement
obligations with respect to letters of credit or guaranties of letters of
credit; and (v) Debt of a Borrower under any guaranty of obligations that
would constitute Debt for Money Borrowed under clauses (i) through (iii)
hereof, if owed directly by such Borrower.
Mortgage - an instrument or agreement that creates under Applicable Laws a
--------
Lien upon real property or improvements thereon, whether such instrument
or agreement is a mortgage, deed of trust, deed to secure debt or other
form of security instrument.
Multiemployer Plan - has the meaning set forth in Section 4001(a)(3) of
-------------------
ERISA.
Net Income - at any date of determination, as applied to any Person, the
----------
net income (or net loss) of such Person for the period in question after
giving effect to deduction of or provision for all operating expenses, all
taxes and reserves (including reserves for deferred taxes) and all other
proper deductions, all determined in accordance with GAAP.
Net Principal Balance - when used with reference to the Applicable A&D
----------------------
Loan Margin of an Eligible A&D Loan on any date, and for purposes of
determining the principal balance on any date of such Eligible A&D Loan,
an amount equal to the principal balance of such Eligible A&D Loan on such
date, but there shall in all events be excluded from such determination
amounts added to the principal balance thereof (whether pursuant to the
underlying A&D Loan Documents or Applicable Laws) as capitalized interest,
fees or other charges.
Net Worth - at any date of determination, with respect to any Person, such
---------
Person's total shareholder's equity (including capital stock, additional
paid-in capital and retained earnings, after deducting treasury stock)
which would appear as such on a balance sheet of such Person prepared in
accordance with GAAP.
Obligations - all Loans and all other advances, debts, liabilities,
-----------
obligations, covenants and duties, together with all interest, fees and
other charges thereon, owing, arising, due or payable from either
Borrower, or both of them, to Lender of any kind or nature, present or
future, whether or not evidenced by any note, guaranty or other
instrument, whether arising under this Agreement or any of the other Loan
Documents or otherwise, and whether direct or indirect (including those
acquired by assignment), absolute or contingent, primary or secondary, due
or to become due, joint or several, now existing or hereafter arising and
however acquired.
<PAGE>
Obligor - an A&D Obligor or a Hypothecation Obligor.
-------
Original Term - as defined in Section 5.1 of this Agreement.
-------------
Other Agreements - any and all agreements, instruments and documents
-----------------
(other than this Agreement and the Security Documents), heretofore, now or
hereafter executed by a Borrower, any Subsidiary of a Borrower or any
other third party and delivered to Lender in respect of the transactions
contemplated by this Agreement, including the Agency Agreements and the
Power-of- Attorney.
Out-of-Formula Condition - on any date of determination thereof, a
-------------------------
condition such that the aggregate principal amount of Facility A Revolver
Loans or Facility B Revolver Loans outstanding on such date exceeds the
Facility A Borrowing Base or Facility B Borrowing Base, as the case may
be, on such date.
Payment Account - bank account #160232402265 that Lender maintains in its
---------------
name at First Bank Systems, having its principal office in Minneapolis,
Minnesota, the wiring instructions to which are as follows: ABA 091000022,
or such other account as Lender may hereafter establish from time to time.
Payment Direction Agreements - each Payment Direction Agreement among
------------------------------
Borrowers, Lender and a financial institution at which a Concentration
Account is maintained.
Payment Items - all checks, drafts, or other items of payment payable to a
-------------
Borrower, including proceeds of any of the Collateral.
Payment Right - a right of a Borrower to the payment of money from an
--------------
Obligor (whether such right is evidenced by or constitutes an Account,
Chattel Paper, Document, General Intangible or Instrument) or from any
other Person at any time under any Transaction Document, including the
right to the repayment of a Pledged Loan.
Permitted Lien - a Lien at any time granted in favor of Lender; in the
---------------
case of A&D Collateral and Hypothecation Collateral, a Lien in favor of a
Borrower; a Lien for Taxes (excluding any Liens imposed pursuant to any of
the provisions of ERISA) incurred in the ordinary course of a Person's
business and not yet due or being Properly Contested; a Lien arising in
the ordinary course of business of a Person by operation of Applicable
Laws, but only if payment in respect of any such Lien is not at the time
required or the Debt secured by such Lien is being Properly Contested and
such Lien does not materially detract from the value of the property to
which it attaches or materially impair the use thereof in the operation of
such Person's business; and, in the case of A&D Collateral, a Lien in
favor of a Person other than a Borrower that is expressly subordinate to
such Borrower's Lien thereon.
Permitted Use - with respect to Litchfield, a use of proceeds of any of
--------------
the Loans (i) on the Closing Date, to pay any fees payable to Lender under
this Agreement; and (ii) after the Closing Date, for Litchfield's general
<PAGE>
operating capital needs; and, with respect to Green Mountain, a use of
proceeds of any of the Loans (i) on the Closing Date, to pay any fees
payable to Lender under this Agreement, and (ii) after the Closing Date,
to pay any Debt incurred in the ordinary course of Borrowers' business to
the extent not prohibited by this Agreement and to make any investment
that is not a Restricted Investment. It shall not be a Permitted Use for
either Borrower to use any proceeds of any of the Loans to acquire any
Pledged Loans from the other, except for acquisitions by Green Mountain
from Litchfield of Pledged Loans that are free and clear of any Liens that
are not Permitted Liens in exchange for fair and adequate consideration or
the acquisition by Litchfield of Pledged Loans that have been released
from the Collateral pursuant to the terms of this Agreement.
Person - a natural person, a Business Entity or a Governmental Unit.
------
Plan - an employee benefit plan now or hereafter maintained for employees
----
of either Borrower that is covered by Title IV of ERISA.
Pledged Loan - an A&D Loan or Hypothecation Loan that (i) a Borrower has
------------
designated to Lender in a Loan Designation Schedule to be part of the
Collateral, whether or not such A&D Loan or Hypothecation Loan is an
Eligible Loan; (ii) is subject to a Lien in favor of Lender to secure
payment of the obligations, whether or not Lender's Lien with respect
thereto, any Transaction Documents evidencing same or any Pledged Loan
Collateral securing same is perfected or unperfected in whole or in part;
and (iii) the Transaction Documents for which are in the possession of
Lender or Document Agent.
Pledged Loan Collateral - with respect to each Pledged Loan, all of the
------------------------
A&D Collateral or Hypothecation Collateral securing such Pledged Loan.
Power-of-Attorney - the Irrevocable Power-of-Attorney and Agency Agreement
-----------------
to be executed by Borrower in favor of Lender and by which Borrower shall
confer upon Lender the power to act in Borrower's name and on its behalf,
after the occurrence and during the continuance of any Default or Event of
Default, for the purpose of realizing upon any of the Collateral.
Primary Transaction Documents - with respect to a Pledged Loan, each
-------------------------------
Transaction Document that evidences the obligation of the A&D Borrower or
Hypothecation Borrower to repay such Pledged Loan or the terms of any such
repayment; secures, in whole or in part, the obligation to repay such
Pledged Loan or to perform any other obligation with respect to any
Pledged Loan Collateral securing such Pledged Loan; or constitutes
Eligible Collateral.
Project Cash Flow Forecast - a forecasted cash flow which is prepared by
---------------------------
the A&D Borrower with respect to the A&D Collateral and sets forth the
forecasted cash flow to be derived from the operation, use or sale of any
such A&D Collateral, and which has been reviewed and approved by Borrower.
Project Completion Schedule - a schedule prepared by an A&D Borrower and
-----------------------------
delivered to Borrower with respect to each A&D Collateral and setting
forth the estimated time of completion of the renovation and development
of such A&D Collateral or the conversion of such A&D Collateral to a
Timeshare Project.
<PAGE>
Properly Contested - in the case of any Debt of a Person (including any
-------------------
Tax) that is not paid as and when due or payable by reason of such
Person's bona fide dispute concerning its liability to pay same or
concerning the amount thereof, that (i) such Debt and any Liens securing
same are being properly contested in good faith by appropriate proceedings
promptly instituted and diligently conducted; (ii) such Person has
established appropriate reserves as shall be required in conformity with
GAAP; (iii) the non-payment of such Debt during the period being contested
by such Person will not have a Material Adverse Effect and does not and
will not result in a forfeiture of, foreclosure upon or loss of any assets
of such Person; (iv) no Lien is imposed upon any of such Person's assets
with respect to such Debt unless such Lien is at all times junior and
subordinate in priority to the Liens in favor of Lender (except only with
respect to property taxes that have priority as a matter of applicable
state law) and enforcement of such Lien is stayed during the period prior
to the final resolution or disposition of such dispute; (v) if the Debt
results from the entry, rendition or issuance against such Person or any
of its assets of a judgment, writ, order or decree, such judgment, writ,
order or decree is stayed pending a timely appeal or other judicial review
and such Person shall have established adequate reserves in accordance
with GAAP for such judgment, writ, order or decree or the same is either
fully insured against by an insurer that has not denied or reserved rights
with respect to coverage or has been bonded to Lender's satisfaction; and
(vi) if such contest is abandoned, settled or determined adversely to such
Person, such Person forthwith pays such Debt and all penalties and
interest in connection therewith.
Property - any interest in any kind of property or asset, whether real,
--------
personal or mixed, or tangible or intangible.
Remedies - all rights, remedies, privileges and powers of a Borrower
--------
arising under or in connection with any of the Transaction Documents.
Renewal Term - as defined in Section 5.1 of this Agreement.
------------
Reportable Event - any of the events set forth in Section 4043(b) of
-----------------
ERISA.
Restricted Investment - any acquisition of Property by Green Mountain in
----------------------
exchange for cash or other Property, whether in the form of an acquisition
of Securities or other Debt, or the purchase or acquisition by Green
Mountain of any other Property, or a loan, advance, capital contribution
or subscription, except acquisitions of the following: (a) fixed assets to
be used in the business of Green Mountain; (b) Cash Equivalents; (c) loans
made or acquired by Green Mountain in the ordinary course of business,
including all A&D Loans and Hypothecation Loans; and (d) all A&D
Collateral or Hypothecation Collateral title to which is taken through the
enforcement of Remedies under any Transaction Documents..
Revolver Loan - a Loan made by Lender as provided in Section 2 of this
--------------
Agreement.
Sales Value - the value of an Eligible A&D Project determined by
------------
application of the following formula: .20 x (A x 51 x B), where A is the
number of Timeshare Units existing or to exist in the A&D Project and B is
<PAGE>
the estimated average weekly sales price for each Timeshare Interval, all
as reflected on the Project Cash Flow Forecast received and approved by
Borrower and submitted to Lender with respect to such A&D Project.
SEC - the Securities and Exchange Commission or any governmental authority
---
which may hereafter be substituted therefor.
Security - shall have the same meaning as in Section 2(1) of the
--------
Securities Act of 1933, as amended.
Security Documents - the Deposit Account Assignments, the Payment
-------------------
Direction Agreements and all other instruments and agreements now or at
any time hereafter securing the whole or any part of the Obligations.
Servicer - such Person or Persons as may be retained by a Borrower to
--------
fulfill the role of Servicer for one or more Pledged Loans pursuant to the
provisions of Section 4.3 of this Agreement.
Servicing Agreement - each Servicing Agreement which is entered into
--------------------
between either or both Borrowers and a Servicer and which sets forth the
responsibility of the Servicer to either or both Borrowers with respect to
Pledged Loans.
Solvent - as to any Person, such Person (i) owns Property whose fair
-------
saleable value is greater than the amount required to pay all of such
Person's Debt (including contingent debts), (ii) is able to pay all of its
Debt as such Debt matures, (iii) has capital sufficient to carry on its
business and transactions and all business and transactions in which it is
about to engage and (iv) is not "insolvent" within the meaning of Section
101(32) of the Bankruptcy Code.
Subordinated Debt - Debt of a Borrower that is subordinated to the
------------------
Obligations in a manner satisfactory to Lender.
Subsidiary - any corporation of which a Person owns, directly or
----------
indirectly through one or more intermediaries, more than 50% of the Voting
Stock at the time of determination.
Tangible Net Worth - as applied to any Person, the Net Worth of such
--------------------
Person at the time in question, after deducting therefrom the amount of
all intangible items reflected therein, including all unamortized debt
discount and expense, unamortized research and development expense,
unamortized deferred charges, prepaid expenses, goodwill, patents,
trademarks, service marks, tradenames, copyrights, unamortized excess cost
of investment in Subsidiaries over equity at dates of acquisition, and all
similar items which would properly be treated as intangibles in accordance
with GAAP.
Taxes - any present or future taxes, levies, imposts, duties, fees,
-----
assessments, deductions, withholdings or other charges of whatever nature,
including income, receipts, excise, property, sales, transfer, license,
payroll, withholding, social security and franchise taxes now or hereafter
imposed or levied by the United States or any state, local or foreign
government or by any department, agency or other political subdivision or
taxing authority thereof or therein, and all interest, penalties,
additions to tax and similar liabilities with respect thereto.
<PAGE>
Timeshare Financing Documents - all instruments and agreements executed by
-----------------------------
a Timeshare Purchaser in favor of a Hypothecation Borrower in connection
with a sale of a Timeshare Interval by such Hypothecation Borrower to such
Timeshare Purchaser.
Timeshare Interval - a timeshare ownership interest in a Timeshare Project
------------------
sold to a Timeshare Purchaser by delivery of a warranty deed or other
appropriate instrument of conveyance or transfer, which interest consists
of an undivided interest with those of other Timeshare Purchasers in the
Timeshare Project.
Timeshare Project - a vacation or resort property that is dedicated to
------------------
Timeshare Interval ownership pursuant to a plan that has received all
Governmental Approvals and is in compliance with all Applicable Laws.
Timeshare Purchaser - a Person who purchases one or more Timeshare
--------------------
Intervals from a Hypothecation Borrower.
Timeshare Receivable - an amount or amounts at any time due, payable or
---------------------
owing by a Timeshare Purchaser to a Hypothecation Borrower in connection
with the sale of a Timeshare Interval by such Hypothecation Borrower to
such Timeshare Purchaser.
Timeshare Unit - with respect to a Timeshare Project, a unit within such
--------------
Timeshare Project that is or may become the subject of a timeshare
ownership interest in favor of a Timeshare Purchaser.
Transaction Documents - all instruments, agreements, documents and other
---------------------
writings that now or hereafter (i) evidence a Pledged Loan or any Payment
Right relating thereto, including all promissory notes and loan
agreements, (ii) secure (whether by the grant or conveyance of a security
interest or other Lien) a Pledged Loan or any Payment Right relating
thereto, including all security agreements, UCC-1 financing statements,
Mortgages, pledge agreements, lease agreements, negative pledge
agreements, hypothecation agreements, assignments, title insurance
policies, surveys and site assessments, (iii) guarantee the payment or
performance of all or any part of any Payment Right owing by an Obligor,
including all guaranties, support or contribution agreements, letters of
credit, indemnifications and repurchase agreements, or (iv) are at any
time executed and delivered by any Person in connection with or relating
to any Payment Right, including all mortgagee waivers or agreements,
lockbox, blocked account or other dominion account agreements,
intercreditor or subordination agreements and estoppel certificates,
whether the foregoing are executed and delivered by an Obligor, any
guarantor or surety of a Payment Right or any other Person. The term
"Transaction Documents" shall include the A&D Loan Documents, the
Hypothecation Loan Documents and the Timeshare Financing Documents.
Transaction Documents Certificate - the Certificate Regarding the Forms of
---------------------------------
Certain Transaction Documents, to be executed and delivered by Borrowers
to Lender on the Closing Date.
UCC - the Uniform Commercial Code (or any successor statute) as adopted
---
and in force in the State of Georgia or, when the laws of any other state
govern the method or manner of the creation or perfection of any security
interest in any of the Collateral, A&D Collateral or Hypothecation
Collateral, as the case may be, the Uniform Commercial Code (or any
successor statute) of such state.
<PAGE>
Underwriting Criteria - the criteria customarily employed by each Borrower
---------------------
as of the date of this Agreement in determining the creditworthiness of an
Obligor, the value or suitability of any A&D Collateral or Hypothecation
Collateral, or the suitability of a Timeshare Purchaser or any Timeshare
Financing Documents.
Voting Stock - Securities of any class or classes of a corporation the
------------
holders of which are ordinarily, in the absence of contingencies, entitled
to elect a majority of the corporate directors (or Persons performing
similar functions).
Accounting Terms. Unless otherwise specified herein, all terms of an
-----------------
accounting character used in this Agreement shall be interpreted, all accounting
determinations under this Agreement shall be made, and all financial statements
required to be delivered under this Agreement shall be prepared, in accordance
with GAAP, applied on a basis consistent with the most recent audited financial
statements of Litchfield and its Subsidiaries heretofore delivered to Lender and
using the same method for valuation as used in such audited financial
statements, except for any change in which Borrowers' independent public
accountants concur or as required by GAAP. In the event of any change in GAAP
that occurs after the date of this Agreement and that is material to Borrowers,
conforming adjustments shall be made to any financial covenants set forth in
this Agreement, or the components thereof, that are affected by such change.
Other Terms. All other terms contained in this Agreement shall have,
------------
when the context so indicates, the meanings provided for by the UCC to the
extent the same are used or defined therein.
Certain Matters of Construction. The terms "herein", "hereof" and
---------------------------------
"hereunder" and other words of similar import refer to this Agreement as a whole
and not to any particular section, paragraph or subdivision. Any pronoun used
shall be deemed to cover all genders. In the computation of periods 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." The
section titles, table of contents and list of exhibits appear as a matter of
convenience only and shall not affect the interpretation of this Agreement. All
references to statutes and related regulations shall include any amendments of
same and any successor statutes and regulations. All references to any
instruments or agreements, including the Loan Documents and Transaction
Documents, shall include any and all modifications thereto and any and all
extensions or renewals thereof. Wherever the phrase "including" shall appear in
this Agreement, such word shall be understood to mean "including, without
limitation." All references to the time of day shall mean the time of day on the
day in question in Atlanta, Georgia, unless otherwise expressly provided in this
Agreement. A Default or an Event of Default shall be deemed to exist at all
times during the period commencing on the date that such Default or Event of
Default occurs to the date on which such Default or Event of Default is waived
in writing pursuant to this Agreement or is cured within any period of cure
expressly provided in this Agreement. References in this Agreement to Borrower's
"knowledge" shall mean the knowledge of any officer or director of Borrower as
to the matter in question.
SECTION 2. CREDIT FACILITIES
Subject to the terms and conditions of, and in reliance upon the
representations and warranties made in, this Agreement and the other Loan
<PAGE>
Documents, Lender agrees to establish the Credit Facilities pursuant to which
Lender agrees to make available to Borrowers up to $25,000,000 in aggregate
outstanding at any time, available upon Borrowers' request therefor, as follows:
2.1. Facility A Revolver Loans. Lender agrees, during the term of this
---------------------------
Agreement and for so long as no Default or Event of Default exists, to make
Facility A Revolver Loans to Borrowers from time to time, as requested by
Borrowers in the manner set forth in Section 3.1.1 hereof, up to a maximum
principal amount at any time outstanding equal to the Facility A Borrowing Base
at such time. The Facility A Revolver Loans shall be used solely for Permitted
Uses. In no event shall any proceeds of any Revolver Loans be used to purchase
or to carry, reduce, retire or refinance any Debt incurred to purchase or carry
any Margin Stock. The initial Facility A Revolver Loan shall be to Litchfield
and shall be for an amount in excess of $250,000. If the unpaid balance of
Facility A Revolver Loans outstanding at any time should exceed the Facility A
Borrowing Base at such time, such Facility A Revolver Loans shall nevertheless
constitute Obligations that are secured by the Collateral and entitled to all of
the benefits of the Loan Documents and shall be repaid on demand.
2.2. Facility B Revolver Loans. Lender agrees, during the term of this
---------------------------
Agreement and for so long as no Default or Event of Default exists, to make
Facility B Revolver Loans to Borrowers from time to time, as requested by
Borrowers in the manner set forth in Section 3.1.1 hereof, up to a maximum
principal amount at any time outstanding equal to the Facility B Borrowing Base
at such time. The Facility B Revolver Loans shall be used solely for Permitted
Uses. In no event shall any proceeds of any Revolver Loans be used to purchase
or to carry, reduce, retire or refinance any Debt incurred to purchase or carry
any Margin Stock. The initial Facility B Revolver Loan shall be to Litchfield
and shall be for an amount in excess of $250,000. If the unpaid balance of
Facility B Revolver Loans outstanding at any time should exceed the Facility B
Borrowing Base at such time, such Facility B Revolver Loans shall nevertheless
constitute Obligations that are secured by the Collateral and entitled to all of
the benefits of the Loan Documents and shall be repaid on demand.
SECTION 3. INTEREST, FEES AND CHARGES
3.1. Interest.
---------
3.1.1. Rates of Interest. Interest shall accrue on the principal
------------------
amount of the Facility A Revolver Loans at the end of each day at a rate per
annum equal to 3.75% plus the LIBOR Rate, and shall accrue on the principal
amount of the Facility B Revolver Loans outstanding at the end of each day at a
rate per annum equal to 2.00% plus the LIBOR Rate. As used in this Agreement,
the term "LIBOR Rate" shall mean the rate published in The Wall Street Journal
------------------------
under "Money Rates" (or if such publication shall cease to publish such rate,
then the rate published in such other nationally recognized publication as
Lender may from time to time specify) as the average of the interbank offered
rates for Dollar deposits in the London interbank market for a term of one
month, based on quotations at 5 major banks. The LIBOR Rate for each day of a
month shall be the rate so published on the first Business Day of such month,
provided that the LIBOR Rate on the date of this Agreement and for each day
remaining in the month in which this Agreement is executed shall be the rate so
published on the date of this Agreement. On the date hereof, the LIBOR Rate is
5.46875% and therefore the rate of interest in effect hereunder on the date
hereof, expressed in simple interest terms, is 9.21875% with respect to Facility
A Revolver Loans and 7.46875% with respect to Facility B Revolver Loans.
<PAGE>
3.1.2. Default Rate of Interest. Interest shall accrue at the
---------------------------
Default Rate (i) with respect to the principal amount of any portion of the
Obligations (and, to the extent permitted by Applicable Laws, all past due
interest) that is not paid on the due date thereof (whether due at stated
maturity, on demand, upon acceleration or otherwise) until paid in full, and
(ii) with respect to the principal amount of all of the Obligations upon the
earlier to occur of (x) a Borrower's receipt of notice of Lender's election to
charge the Default Rate based upon the existence of any Event of Default or (y)
the commencement by or against a Borrower of an Insolvency Proceeding, whether
or not under the circumstances described in either clauses (i) or (ii) hereof
Lender elects to accelerate the maturity or demand payment of any of the
Obligations. To the fullest extent permitted by Applicable Laws, the Default
Rate shall apply and accrue on any judgment entered with respect to any of the
Obligations and to the unpaid principal amount of the Obligations during any
Insolvency Proceeding of a Borrower. Each Borrower acknowledges that the cost
and expense to Lender attendant upon the occurrence of an Event of Default are
difficult to ascertain or estimate and that the Default Rate is a fair and
reasonable estimate to compensate Lender for such added cost and expense.
3.2. Computation of Interest and Fees. Interest, fees and other charges
---------------------------------
hereunder shall be calculated daily and shall be computed on the actual number
of days elapsed over a year of 360 days. For the purpose of computing interest
hereunder, all Payment Items or other forms of payment received by Lender shall
be deemed applied by Lender on account of the Obligations (subject to final
payment of such items) on the Business Day received by Lender in the Payment
Account in immediately available funds and Lender shall be deemed to have
received such Payment Items or other forms of payment on the date specified in
Section 4.4 hereof.
3.3. Annual Credit Facility Fee. For each Loan Year (or portion thereof)
----------------------------
that either of the Credit Facilities is in effect, Borrowers shall be jointly
and severally obligated to pay to Lender a credit facility fee annually, in
advance, on the first day of each Loan Year (if such day is not a Business Day,
on the next succeeding Business Day), commencing on the date hereof. The first
annual credit facility fee shall be in the amount of $75,000 and each subsequent
fee shall be due and payable in the amount of .16% of the aggregate amount of
Facility A and Facility B on the date that such fee is payable.
3.4. Audit and Appraisal Fees. Borrowers shall be jointly and severally
--------------------------
obligated to reimburse Lender for quarterly audit expenses at the per diem rate
of $300, together with all out-of-pocket costs and expenses incurred by Lender,
in connection with each audit and appraisal of Borrower's books and records
(including all Transaction Documents) and such other matters as Lender shall
deem reasonable and appropriate in connection with each such quarterly audits.
For so long as no Default or Event of Default exists, the per diem audit
expenses for any quarterly audit shall not be payable after the eighth day of
such audit.
3.5. Reimbursement of Expenses. If, at any time or times regardless of
---------------------------
whether or not an Event of Default then exists, Lender incurs legal or
accounting expenses or any other costs or out-of-pocket expenses in connection
with (i) the negotiation and preparation of this Agreement or any of the other
Loan Documents or any amendment of or modification of this Agreement or any of
the other Loan Documents; (ii) the administration of this Agreement or any of
the other Loan Documents and the transactions contemplated hereby and thereby;
(iii) any litigation, contest, dispute, suit, proceeding or action (whether
instituted by Lender, either Borrower, an Obligor or any other Person) in any
way relating to the Collateral, this Agreement or any of the other Loan
Documents or either Borrower's or any Obligor's affairs; (iv) any attempt to
<PAGE>
enforce any rights of Lender against either Borrower, an Obligor or any other
Person which may be obligated to Lender by virtue of this Agreement or any of
the other Loan Documents; or (v) any attempt to inspect, verify, protect,
preserve, perfect or continue the perfection of Lender's Liens upon, restore,
collect, sell, liquidate or otherwise dispose of or realize upon the Collateral;
then all such legal and accounting expenses, other reasonable costs and
out-of-pocket expenses of Lender shall be charged to Borrowers. All amounts
chargeable to Borrowers under this Section 3.5 shall be Obligations secured by
all of the Collateral, shall be payable on demand to Lender and shall bear
interest from the date such demand is made until paid in full at the rate
applicable to Facility A Revolver Loans from time to time. Borrowers shall also
be jointly and severally obligated to reimburse Lender for reasonable costs and
out-of-pocket expenses incurred by Lender in its administration of the
Collateral to the extent and in the manner provided in Section 4 hereof.
3.6. Bank Charges. Borrowers shall be jointly and severally obligated to
-------------
pay to Lender, on demand, any and all reasonable fees, costs or expenses which
Lender pays to a bank or other similar institution arising out of or in
connection with the depositing for collection by Lender of any check or item of
payment received or delivered to Lender on account of the Obligations.
3.7. Maximum Interest. Regardless of any provision contained in this
------------------
Agreement or any of the other Loan Documents, in no contingency or event
whatsoever shall the aggregate of all amounts that are contracted for, charged
or received by Lender pursuant to the terms of this Agreement or any of the
other Loan Documents and that are deemed interest under Applicable Laws exceed
the highest rate permissible under any Applicable Laws. No agreements,
conditions, provisions or stipulations contained in this Agreement or any of the
other Loan Documents or the exercise by Lender of the right to accelerate the
payment or the maturity of all or any portion of the Obligations, or the
exercise of any option whatsoever contained in any of the Loan Documents, or the
prepayment by Borrowers of any of the Obligations, or the occurrence of any
contingency whatsoever, shall entitle Lender to charge or receive in any event,
interest or any charges, amounts, premiums or fees deemed interest by Applicable
Laws (such interest, charges, amounts, premiums and fees referred to herein
collectively as "Interest") in excess of the Maximum Rate and in no event shall
Borrowers be obligated to pay Interest exceeding such Maximum Rate, and all
agreements, conditions or stipulations, if any, which may in any event or
contingency whatsoever operate to bind, obligate or compel Borrowers to pay
Interest exceeding the Maximum Rate shall be without binding force or effect, at
law or in equity, to the extent only of the excess of Interest over such Maximum
Rate. If any Interest is charged or received in excess of the Maximum Rate
("Excess"), each Borrower acknowledges and stipulates that any such charge or
receipt shall be the result of an accident and bona fide error, and such Excess,
to the extent received, shall be applied first to reduce the principal
Obligations and the balance, if any, returned to Borrowers, it being the intent
of the parties hereto not to enter into a usurious or otherwise illegal
relationship. The right to accelerate the maturity of any of the Obligations
does not include the right to accelerate any interest that has not otherwise
accrued on the date of such acceleration, and Lender does not intend to collect
any unearned interest in the event of any such acceleration. Each Borrower
recognizes that, with fluctuations in the rates of interest set forth in Section
2.1.1 of this Agreement and the Maximum Rate, such an unintentional result could
inadvertently occur. All monies paid to Lender hereunder or under any of the
other Loan Documents, whether at maturity or by prepayment, shall be subject to
any rebate of unearned interest as and to the extent required by Applicable
Laws. By the execution of this Agreement, each Borrower covenants that (i) the
credit or return of any Excess shall constitute the acceptance by Borrowers of
such Excess, and (ii) Borrowers shall not seek or pursue any other remedy, legal
or equitable, against Lender, based in whole or in part upon contracting for,
charging or receiving any Interest in excess of the Maximum Rate. For the
purpose of determining whether or not any Excess has been contracted for,
<PAGE>
charged or received by Lender, all interest at any time contracted for, charged
or received from Borrowers in connection with any of the Loan Documents shall,
to the extent permitted by Applicable Laws, be amortized, prorated, allocated
and spread in equal parts throughout the full term of the Obligations. Each
Borrower and Lender shall, to the maximum extent permitted under Applicable
Laws, (i) characterize any non-principal payment as an expense, fee or premium
rather than as Interest and (ii) exclude voluntary prepayments and the effects
thereof. The provisions of this Section shall be deemed to be incorporated into
every Loan Document (whether or not any provision of this Section is referred to
therein). All such Loan Documents and communications relating to any Interest
owed by Borrowers and all figures set forth therein shall, for the sole purpose
of computing the extent of Obligations, be automatically recomputed by
Borrowers, and by any court considering the same, to give effect to the
adjustments or credits required by this Section.
SECTION 4. LOAN ADMINISTRATION; PAYMENTS; NATURE OF EACH BORROWER'S
LIABILITY
4.1. Manner of Borrowing Revolver Loans. Borrowings under the Credit
--------------------------------------
Facilities shall be as follows:
4.1.1. Loan Requests. A request for a Revolver Loan shall be made,
--------------
or shall be deemed to be made, in the following manner:
(i) Borrowers may give Lender notice of Borrowers' intention
to borrow, which shall be in writing and shall specify whether the proposed
borrowing is to be a Facility A Revolver Loan or a Facility B Revolver Loan, the
amount of the Loan, and the proposed date of funding of the Loan (which shall be
a Business Day). Lender shall have no obligation to honor any notice of
borrowing if any Default, Event of Default or Out-of-Formula Condition exists at
the time of Lender's receipt of such notice or would result from Lender's
funding of the requested Loan, and Lender may defer the funding of any Loan
requested pursuant to a notice of borrowing received after 11:00 a.m. on any
Business Day to the next Business Day. By Borrowers' submission of a notice of
intention to borrow, Borrowers shall be deemed to represent and warrant that the
information in the most recent Borrowing Base Certificate remains true and
accurate as of the time of such notice.
(ii) Unless payment is otherwise timely made by Borrowers, the
becoming due of any amount required to be paid under this Agreement or any of
the other Loan Documents, as principal, accrued interest, fees or other charges,
shall be deemed irrevocably to be a request by Borrowers from Lender for a
Revolver Loan on the due date of, and in an aggregate amount required to pay,
such principal, accrued interest, fees or other charges and the proceeds of each
such Revolver Loan may be disbursed by Lender by way of direct payment of the
relevant Obligation and shall bear interest at the rate of interest applicable
to Revolver Loans (whether or not any Default, Event of Default or
Out-of-Formula Condition exists at the time of or would result from such
Revolver Loan). As an accommodation to Borrowers, Lender will permit electronic
transmittal of notices of intention to borrow, Borrowing Base Certificates and
other authorizations and instructions to Lender from Borrowers. Unless Borrowers
specifically direct Lender in writing not to accept or act upon electronic
communications from Borrowers, Lender shall have no liability to Borrowers for
any loss or damage suffered by Borrowers as a result of Lender's honoring of any
such notices, instructions, authorizations or reports that are communicated to
Lender electronically and purporting to have been sent to Lender by Borrowers
and Lender shall have no duty to verify the origin of any such communication or
the authority of the person sending it.
<PAGE>
4.1.2. Disbursement. Each Borrower hereby irrevocably authorizes
-------------
Lender to disburse the proceeds of each Revolver Loan requested, or deemed to be
requested, pursuant to Section 4.1.1 as follows: (i) the proceeds of each
Revolver Loan requested under Section 4.1.1(i) shall be disbursed by Lender in
lawful money of the United States of America in immediately available funds, in
the case of the initial borrowing, in accordance with the terms of the written
disbursement letter from Borrowers, and in the case of each subsequent
borrowing, by wire transfer to such bank account as may be agreed upon by
Borrowers and Lender from time to time or elsewhere if pursuant to a written
direction from a Borrower; and (ii) the proceeds of each Revolver Loan requested
under Section 4.1.1(ii) shall be disbursed by Lender by way of direct payment of
the relevant interest or other Obligation.
4.2. Repayment of Obligations. All payments with respect to any of the
--------------------------
Obligations shall be made to Lender not later than 2:00 p.m. central time on the
date when due, in Dollars and by wire transfer to the Payment Account of
immediately available funds, without any offset or counterclaim and free and
clear of (and without deduction for) any Taxes. Except where evidenced by notes
or other instruments issued or made by Borrowers to Lender specifically
containing payment provisions which are in conflict with this Section 4.2 (in
which event the conflicting provisions of said notes or other instruments shall
govern and control), the Obligations shall be due and payable (and shall be
paid) as follows:
4.2.1. Principal. Principal payable on account of Revolver Loans
----------
shall be payable by Borrowers to Lender immediately upon (i) each date that
Borrowers are obligated pursuant to the provisions of Section 4.4 hereof to
transmit to Lender balances in the Concentration Accounts, to the extent of such
balances, (ii) the occurrence of an Event of Default in consequence of which
Lender elects to accelerate the maturity and payment of the Obligations, and
(iii) termination of the Credit Facility under which the Revolver Loans were
made by Lender to Borrowers, to the extent that payment is required to be made
in accordance with the provisions of Section 5.2.4 of this Agreement.
4.2.2. Interest. Interest accrued on the Revolver Loans shall be due
---------
on (i) the first Business Day of each month (for the immediately preceding
month), computed through the last calendar day of the preceding month, (ii) the
occurrence of an Event of Default in consequence of which Lender elects to
accelerate the maturity and payment of the Obligations, and (iii) termination of
either or both of the Credit Facilities, to the extent that payment of accrued
interest is required pursuant to the provisions of Section 5.2.4 of this
Agreement.
4.2.3. Costs, Fees and Charges. Costs, fees and charges payable
-------------------------
pursuant to this Agreement shall be payable by Borrowers as and when provided in
Section 3 hereof, to Lender or to any other Person designated by Lender in
writing.
4.2.4. Other Obligations. The balance of the Obligations requiring
------------------
the payment of money, if any, shall be payable by Borrowers to Lender as and
when provided in this Agreement or the other Loan Documents, or, if no date of
payment is otherwise specified in the Loan Documents, on demand.
4.2.5. Out-of-Formula Condition. If on any date an Out-of-Formula
--------------------------
Condition exists with respect to Revolver Loans outstanding under a Credit
<PAGE>
Facility, then, not later than 2 Business Days after the sooner to occur of a
Borrower's obtaining knowledge thereof or a Borrower's receipt of written notice
thereof from Lender, Borrowers shall cure such Out-of-Formula Condition either
by (i) payment to Lender of an amount, to be applied to the principal amount of
the Revolver Loans in respect of which an Out-of-Formula Condition exists,
sufficient to eliminate such Out-of-Formula Condition, or (ii) the addition to
the existing Collateral new Pledged Loans to increase the Facility A Borrowing
Base or the Facility B Borrowing Base, as the case may be, so as to eliminate
the Out-of-Formula Condition. During the period that any Out-of-Formula
Condition exists, Lender shall have no obligation whatsoever to honor any
requests for a Revolver Loan under either or both of the Credit Facilities.
4.2.6. Prepayment. Borrowers shall be authorized to borrow, repay
-----------
and reborrow Revolver Loans without having to pay any prepayment premium or
penalty in connection therewith; provided, however, if a Borrower shall remove
-------- -------
any Pledged Loan from the Collateral in accordance with and subject to the terms
of Section 4.5.2 hereof and within 30 days thereafter such Pledged Loan shall
become subject to a Lien other than a Permitted Lien (except a Lien granted in
connection with an asset securitization transaction or whole loan sale
transaction of which such Pledged Loan is made a part), then, except as
hereinafter provided, at the time such Pledged Loan becomes subject to any such
Lien, Borrowers shall be jointly and severally obligated to pay to Lender a
prepayment fee equal to the Applicable Prepayment Percentage (as defined in the
succeeding sentence) of the amount obtained by multiplying (i) the unpaid
principal balance of such Pledged Loan (whether or not such Pledged Loan is an
Eligible Loan) by (ii) the Applicable A&D Loan Margin or the Hypothecation Loan
Margin, as applicable depending upon whether the Pledged Loan to be removed from
the Collateral as provided in Section 4.5.2 hereof is an A&D Loan or
Hypothecation Loan. For purposes hereof, the "Applicable Prepayment Percentage"
shall be 3% if removal occurs during the first Loan Year, 2% if such removal
occurs during the second Loan Year, and 1% if such removal occurs during the
third Loan Year. Notwithstanding the foregoing provisions of this Section 4.2.6,
if Borrowers shall be permitted to remove a Pledged Loan from the Collateral
pursuant to the terms and conditions of Section 4.5.2 hereof, and (i) such
Pledged Loan is an A&D Loan but is not an Eligible A&D Loan, (ii) Borrowers are
removing such Pledged Loan from the Collateral for the purpose of pledging the
same to a lender (other than Lender) that is not an Affiliate of either Borrower
for which Borrowers will receive availability or borrowing credit from such
other lender and (iii) Lender does not elect to deem such Pledged Loan an
Eligible Loan, then no prepayment fee shall be payable by Borrowers in
connection with or as the result of Borrowers' removal of such Pledged Loan from
the Collateral. The preceding sentence shall apply only to A&D Loans and not to
Hypothecation Loans.
4.3. Retention and Duties of Approved Servicers. Borrowers shall retain
--------------------------------------------
one or more Servicers (each of which must be an Approved Servicer) with respect
to all of the Pledged Loans, the duties and responsibilities of each of which
Servicers shall be as set forth and detailed in the Servicing Agreement and the
Agency Agreement (Servicing Agent) and shall include the following: (i) the
receipt and collection of all amounts due and payable with respect to each of
the Pledged Loans and the proceeds of any Pledged Loan Collateral, including all
monies remitted by Timeshare Purchasers with respect to Timeshare Receivables
forming a part of the Pledged Loan Collateral; (ii) the deposit of all such
payments and proceeds in the Concentration Account (into which no other funds of
a Borrower or any other Obligor shall be commingled); (iii) the maintenance of
accurate and timely books and records relating to the Servicer's receipt and
collection of all such payments and proceeds and the balance due in respect of
the Pledged Loans; (iv) the rendering to Borrowers and, if so requested by
Lender, to Lender, of periodic reports (not less frequently than monthly) in
which the Servicer shall set forth such information as is customarily reported
to Borrowers under the Servicing Agreement and with such additional detail as
<PAGE>
Lender may from time to time request; and (v) the maintenance of records
concerning the status of all of the Timeshare Receivables. If the Person serving
as a Servicer at any time shall resign, Borrowers shall promptly cause a
successor to be appointed, provided that such successor, to be qualified, must
be an Approved Servicer or otherwise acceptable to Lender, in the exercise of
its customary credit judgment, and shall be obligated to execute and deliver to
Lender an agreement in form and content substantially identical to the Agency
Agreement (Servicing Agent) entered into by the predecessor Servicer and shall
be obligated to comply with all of the provisions of the Agency Agreement
(Servicing Agent). Borrowers alone shall be responsible for paying all fees and
expense reimbursement of the Servicer.
4.4. Concentration Accounts. Borrowers shall establish the Concentration
------------------------
Accounts at Bank One or one or more other banks organized under the laws of the
United States or any State that are acceptable to Lender and that are not at any
time a creditor of either Borrower (other than solely in the capacity as either
Borrower's depository bank) unless such bank executes an agreement with Lender
by which such bank shall agree not to offset any amounts owing to it against
funds on deposit in the Concentration Account. Borrowers shall cause such bank
to join with Lender in executing a Payment Direction Agreement. In no event
shall a Borrower change the bank at which the Concentration Account is
maintained without Lender's prior written consent. Each Borrower shall deposit,
and shall cause each Servicer to deposit, all payments with respect to or
proceeds of any Collateral into a Concentration Account, promptly after receipt
thereof, and neither of the Borrowers nor any Servicer shall deposit into a
Concentration Account any other monies or Payment Items that do not constitute
proceeds of Collateral. Borrowers shall be obligated to instruct and cause each
depository bank at which a Concentration Account is maintained to wire transfer,
at least once each week, all collected balances in the Concentration Account to
the Payment Account for application to the Obligations or, subject to the
provisions below in this Section 4.4, to either Borrower's operating account.
Under no circumstances may a Borrower transfer amounts from the Concentration
Accounts to any account other than the Payment Account if, at the time of or
after giving effect to such transfer, (a) a Default, Event of Default or
Out-of-Formula Condition exists, or (b) the sum of the Facility A Borrowing Base
and the Facility B Borrowing Base at the time of transfer, plus the collected
balances in the Concentration Accounts at such time, do not exceed the
outstanding principal balance of the Obligations at such time, by at least
$250,000. At any time that an Event of Default shall exist, Lender may direct
each depository bank at which a Concentration Account is maintained to transfer
all balances at any time or from time to time existing in such Concentration
Account to the Payment Account pursuant to the Payment Direction Agreement.
4.5. Loan Designation Procedure; Removal from Collateral.
----------------------------------------------------
4.5.1. With respect to each A&D Loan and each Hypothecation Loan
that Borrowers desire to be added to the Collateral after the Closing Date,
Green Mountain shall complete and submit to Lender a Loan Designation Schedule,
appropriately completed, and shall comply with the document delivery
requirements of Section 4.6 hereof.
4.5.2. Each Borrower shall be authorized from time to time, on not
less than 5 Business Days' notice to Lender, to designate one or more Pledged
Loans owned by it to be removed from the Collateral, but only if each of the
following conditions is satisfied at the time of Lender's receipt of such
request and at the time of Lender's release of its Liens with respect to each
Pledged Loans: (a) no Default, Event of Default or Out-of-Formula Condition
exists or would result therefrom; (b) after giving effect to any requested
<PAGE>
release, there are no other Pledged Loans owing by the same A&D Borrower or
Hypothecation Borrower, as the case may be, which are secured by the same
Pledged Loan Collateral that secures the Pledged Loan which is the subject of
the release; and (c) such Borrower submits to Lender appropriate forms of Lien
release, which are in all respects acceptable to Lender in the exercise of its
customary credit judgment. In connection with the release of any such Pledged
Loan, Lender agrees that, subject to satisfaction of the conditions to release
set forth herein, it shall notify Document Agent to release and deliver to
Borrowers the Transaction Documents relating to Pledged Loan so released from
the Collateral. After a Pledged Loan is released from the Collateral, the same
shall no longer be deemed to be a Pledged Loan under this Agreement and shall no
longer be a part of the Collateral, and shall not ever be considered an Eligible
Loan even if the same is thereafter repledged to Lender. Borrowers shall be
jointly and severally obligated to pay all reasonable costs and out-of-pocket
expenses associated with any such release, including all filing fees for Lien
release documents and the reasonable costs, attorneys' fees incurred by Lender
in connection with its review of any Lien release documents. Lender shall, if so
requested by Borrowers, authorize the Document Agent to release to Borrowers any
Transaction Documents that relate to such Pledged Loan that is removed from the
Collateral to the extent that such Transaction Documents do not also relate to
any other Pledged Loan. If no prepayment fee is payable by Borrowers to Lender
under Section 4.2.6 hereof as a consequence of the removal of a Pledged Loan
because a Borrower intends to sell the entirety of such Pledged Loan to a third
party that is not an Affiliate of either Borrower, Borrowers shall so notify
Lender in writing at or prior to a Borrower's designation of such Pledged Loan
as one to be removed from the Collateral and shall afford Lender a right of
first refusal (to be exercised within 15 days after such notice) to purchase
such Pledged Loan on the same terms and conditions as are offered to a Borrower
by a proposed purchaser thereof that is not an Affiliate of a Borrower.
4.6. Required Document Deliveries. With respect to an A&D Loan or
-------------------------------
Hypothecation Loan that Borrowers desire to be a Pledged Loan, Borrowers shall
deliver or cause to be delivered to Lender (or, in the case of the Transaction
Documents for such Pledged Loan, to the Document Agent) the following, which
delivery shall be made, except as hereinafter provided, concurrently with, or
prior to, the delivery by Borrowers to Lender of a Loan Designation Schedule for
such Pledged Loans:
(i) if such Pledged Loan is an Eligible A&D Loan, a Project
Completion Schedule and a Project Cash Flow Forecast with respect to such A&D
Loan;
(ii) a Borrowing Base Certificate reflecting the addition of
such Pledged Loan to the Collateral if such Pledged Loan is an Eligible Loan;
(iii) the originals of each of the Primary Transaction
Documents for such Pledged Loan;
(iv) if any of the Transaction Documents include an Instrument
executed by an Obligor or a Timeshare Purchaser, the original Instrument
endorsed in blank by the Obligor or Timeshare Purchaser, or, if endorsed to a
Borrower, endorsed in blank by an authorized officer of such Borrower;
(v) if any of the Pledged Loan Collateral shall consist of
real estate encumbered by a Mortgage, the original or copy time-stamped by the
appropriate recording office of the recorded Mortgage; an original or copy
time-stamped by the appropriate recording office of all amendments to such
<PAGE>
Mortgage; with respect to a Mortgage securing an A&D Loan, an assignment of such
Mortgage from the applicable Borrower to Lender, in form suitable for recording
by Lender; with respect to each Mortgage received by a Hypothecation Borrower
from a Timeshare Purchaser and collaterally assigned to a Borrower, the original
or copy time-stamped by the appropriate recording office of such collateral
assignment and an original collateral reassignment of such Mortgage from such
Borrower to Lender, executed in blank and in form suitable for recording by
Lender at any time that an Event of Default exists; and a title insurance policy
with respect to such real estate insuring Lender's interest as first mortgagee
with respect to the real estate, in an amount not less than the full amount of
the Pledged Loan secured by such Pledged Loan Collateral, from a title company
approved by Lender, or, if title insurance was not obtained for a Mortgage
encumbering a Timeshare Interval (and no such policy shall be deemed to be
required by this Agreement), an opinion from an attorney acceptable to Lender
that the Mortgage creates a first priority Lien on the underlying Timeshare
Interval subject only to such exceptions as are acceptable to Lender;
(vi) if any of the Pledged Loan Collateral shall consist of
Property other than real estate, an original assignment and/or pledge of all
such Pledged Loan Collateral, in form and scope acceptable to Lender, and any
amendments or assignments of the same showing an unbroken chain of ownership
from the originator to a Borrower; and an original assignment from such Borrower
of all of its interests in such non-real estate Pledged Loan Collateral, signed
in blank, in form ready for filing or recording and accompanied by UCC-1 or
UCC-3 financing statements, if applicable, in each instance acceptable to Lender
in both form and scope and in form acceptable to Lender and suitable for
recording;
(vii) if the Pledged Loan Collateral consists, in whole or in
part, of Timeshare Receivables, if requested by Lender at any time that an Event
of Default exists, an original notice to the Timeshare Purchaser signed by the
Hypothecation Borrower and the applicable Borrower that payments are to be made
to Lender or its designee and to no other Person until further notice is
received from Lender;
(viii) if and to the extent that any of the Pledged Loan
Collateral is subject to any Lien other than a Permitted Lien, a release of such
Lien, in form and scope satisfactory to Lender, which shall show on its face its
having been recorded in the appropriate recording office to effectuate a
complete release of such Lien under Applicable Laws; and
(ix) such other instruments and agreements as Lender may
request from time to time to give effect to the terms of this Agreement, and to
perfect or more fully perfect any Lien that it may have with respect to any of
the Collateral.
Notwithstanding the foregoing provisions of this Section 4.6, Mortgages, UCC-1
financing statements and other documents, agreements or instruments constituting
Transaction Documents that have been delivered for recording or filing with the
appropriate authority shall not be subject to the requirement set forth
hereinabove that all Transaction Documents be delivered to Document Agent prior
to or concurrently with delivery by Borrowers to Lender of a Loan Designation
Schedule for a Pledged Loan, but shall be delivered to the Document Agent
promptly upon their receipt or return from recording or filing.
<PAGE>
4.7. Borrowing Base Certificate. Each Borrower shall submit to Lender a
----------------------------
Borrowing Base Certificate, properly completed, (i) not later than the fifth day
of each month, which Borrowing Base Certificate shall state the Facility A
Borrowing Base and the Facility B Borrowing Base as of the last day of the
immediately preceding month, and shall be obligated to submit Borrowing Base
Certificates more frequently (if so requested by Lender) at any time that a
Default, Event of Default or Out-of-Formula Condition exists; (ii) on each date
that a Borrower submits to Lender a notice of intention to borrow pursuant to
the provisions of Section 4.1.1(i) hereof, which Borrowing Base Certificate
shall state the amount of the Facility A Borrowing Base and the Facility B
Borrowing Base as of the close of business of the Business Day immediately
preceding the date of such notice; and (iii) on each date that a Borrower
requests Lender to release any Collateral pursuant to Section 4.5.1 hereof,
which shall state the amount of the Facility A Borrowing Base and Facility B
Borrowing Base after giving effect to such release. On each date that a Borrower
submits a Borrowing Base Certificate to Lender, each Borrower shall be deemed to
have warranted and represented to Lender that, to the best of such Borrower's
knowledge, the information contained therein is true and correct and that all of
the A&D Loans and Hypothecation Loans included in the calculations set forth
therein constitute Eligible Loans and all of the Hypothecation Borrowers and A&D
Borrowers included therein are Eligible Borrowers.
4.8. Collection of Payments. Prior to the occurrence of any Default or
------------------------
Event of Default, Borrowers and the applicable Servicer shall continue to
service and administer all Pledged Loans constituting Collateral in the ordinary
course of business. Borrowers shall collect all amounts due to Borrowers with
respect to the Pledged Loans diligently and in good faith. Upon and after the
occurrence of an Event of Default, Lender shall be entitled (but not obligated)
to assume the administration and servicing of such Pledged Loans (after giving
any required notices to Obligors) and each Borrower shall deliver all amounts at
any time paid to such Borrower with respect to any of the Collateral directly to
Lender and shall continue to do so until otherwise notified by Lender in
writing. If any Obligor on a Pledged Loan shall be in default of any of its
obligations under any of the A&D Loan Documents or Hypothecation Loan Documents,
a Borrower shall not be authorized to waive any such default, or to enter into
any forbearance or moratorium with respect thereto, for so long as such Pledged
Loan remains part of the Collateral, unless and until Lender shall otherwise
give its consent in writing.
4.9. Application of Payments and Collections. All Payment Items or other
----------------------------------------
forms of payment received by Lender by 2:00 p.m., Minneapolis, Minnesota time,
on any Business Day shall be deemed received on that Business Day. All Payment
Items or other forms of payment received after 2:00 p.m., Minneapolis, Minnesota
time, on any Business Day shall be deemed received on the following Business
Day. Each Borrower irrevocably waives the right to direct the application of any
and all payments and collections at any time or times hereafter received by
Lender from or on behalf of a Borrower, and each Borrower does hereby
irrevocably agree that Lender shall have the continuing exclusive right to apply
and reapply any and all such payments and collections received at any time or
times hereafter by Lender or its agent against the Obligations, in such manner
as Lender may deem advisable. If as the result of collections of Pledged Loans
and related Payment Rights a credit balance exists in the Loan Account, such
credit balance shall not accrue interest in favor of Borrower, but shall be
available to Borrower at any time or times for so long as no Default or Event of
Default exists.
4.10. All Loans to Constitute One Obligation; Cross-Collateralization. The
----------------------------------------------------------------
Revolver Loans shall constitute one general Obligation of Borrowers, and (unless
and to the extent otherwise expressly provided in any of the Security Documents)
shall be secured by Lender's Liens upon all of the Collateral.
<PAGE>
4.11. Loan Account; Statements of Account. Lender shall establish an
---------------------------------------
account on its books (the "Loan Account") and shall enter all Revolver Loans as
debits to the Loan Account and shall also record in the Loan Account all
payments made by Borrower on any Obligations and all proceeds of Collateral
which are finally paid to Lender, and may record therein, in accordance with
customary accounting practice, other debits and credits, including interest and
all charges and expenses properly chargeable to Borrowers. Lender will account
to Borrowers monthly with a statement of Revolver Loans, charges and payments
made pursuant to this Agreement, and such accounting rendered by Lender shall be
deemed final, binding and conclusive upon Borrowers unless Lender is notified by
Borrowers in writing to the contrary within 30 days after the date each
accounting is deemed to have been sent pursuant to Section 11.8. Such notice
shall only be deemed an objection to those items specifically objected to
therein.
4.12. Verification of Collateral. Whether or not a Default or Event of
-----------------------------
Default has occurred, any of Lender's officers, employees or agents shall have
the right, at any time or times hereafter, in the name of Lender, any designee
of Lender or either Borrower, to verify the validity , amount or any other
matter relating to any Pledged Loan or Pledged Loan Collateral (including any
Timeshare Receivable) by mail, telephone, telegraph or other means. Borrowers
shall cooperate fully with Lender in an effort to facilitate and promptly
conclude any such verification process.
4.13. Borrowers' Representative. Each Borrower hereby irrevocably appoints
--------------------------
Litchfield as, and Litchfield shall act under the Loan Documents as, the
representative of each Borrower for all purposes under the Loan Documents,
including requesting Borrowings and receiving account statements and other
notices and communications to Borrowers (or any of them) from Lender. Lender may
rely, and shall be fully protected in relying, on disbursement instructions,
reports, information or any other notice or communication made or given by
Litchfield, whether in its own name, on behalf of any Borrower or on behalf of
"the Borrowers," and Lender shall have no obligation to make any inquiry or
request any confirmation from or on behalf of any other Borrower as to the
binding effect on such Borrower of any such request, instruction, report,
information, notice or communication, nor shall the joint and several character
of Borrowers' liability for the Revolver Loans be affected, provided that the
provisions of this Section 4.13 shall not be construed so as to preclude any
Borrower from directly requesting Borrowings or taking other actions permitted
to be taken by "a Borrower" hereunder.
4.14. Nature and Extent of Each Borrower's Liability.
-----------------------------------------------
(i) Joint and Several Liability. Each Borrower shall be
----------------------------
liable, on a joint and several basis, for all of the Revolver Loans and other
Obligations, regardless of which Borrower actually may have received the
proceeds of any Revolver Loans or other extensions of credit hereunder or the
amount of such Revolver Loans received or the manner in which Lender accounts
for such Revolver Loans or other extensions of credit on its books and records,
it being acknowledged and agreed that Revolver Loans to any Borrower inure to
the mutual benefit of all Borrowers and that Lender is relying on the joint and
several liability of Borrowers in extending the Revolver Loans and other
financial accommodations hereunder. Each Borrower hereby unconditionally and
irrevocably agrees that upon default in the payment when due (whether at stated
maturity, by acceleration or otherwise) of any principal of, or interest owed
on, any of the Revolver Loans, such Borrower shall forthwith pay the same,
without notice or demand.
<PAGE>
(ii) Unconditional Nature of Liability. Each Borrower's
----------------------------------
joint and several liability hereunder with respect to the Loans and other
Obligations shall, to the fullest extent permitted by Applicable Laws, be
unconditional irrespective of (i) the validity, enforceability, avoidance or
subordination of any of the Obligations or of any document evidencing all or any
part of the Obligations, (ii) the absence of any attempt to collect any of the
Obligations from any other Loan Party or any Collateral or other security
therefor, or the absence of any other action to enforce the same, (iii) the
waiver, consent, extension, forbearance or granting of any indulgence by Lender
with respect to any provision of any instrument evidencing or securing the
payment of any of the Obligations, or any other agreement now or hereafter
executed by any other Borrower and delivered to Lender, (iv) the failure by
Lender to take any steps to perfect or maintain the perfected status of its
security interest in or Lien upon, or to preserve its rights to, any of the
Collateral or other security for the payment or performance of any of the
Obligations or Lender's release of its Liens upon any Collateral, (v) Lender's
election, in any proceeding instituted under the Bankruptcy Code, for the
application of Section 1111(b)(2) of the Bankruptcy Code, (vi) any borrowing or
grant of a security interest by any other Borrower, as debtor-in-possession
under Section 364 of the Bankruptcy Code, (vii) the disallowance of all or any
portion of Lender's claims for the repayment of any of the Obligations under
Section 502 of the Bankruptcy Code, or (viii) any other circumstance that might
constitute a legal or equitable discharge or defense of any other Borrower.
Whenever an Event of Default exists, Lender may proceed directly and at once,
without notice, against any or all of the Loan Parties to collect and recover
all or any part of the Obligations, without first proceeding against any other
Loan Party or against any Collateral or other security for the payment or
performance of any of the Obligations. Each Borrower consents and agrees that
Lender shall be under no obligation to marshall any assets in favor of any Loan
Party or against or in payment of any or all of the Obligations.
(iii) No Release from Liability. No payment or payments
--------------------------
made by an Loan Party or received or collected by Lender from a Borrower or any
other Person by virtue of any action or proceeding or any setoff or
appropriation or application at any time or from time to time in reduction of or
in payment of the Obligations shall be deemed to modify, release or otherwise
affect the liability of each Borrower under this Agreement, each of which shall
remain jointly and severally liable for the payment and performance of all of
the Obligations until all of the Obligations are paid in full and this Agreement
is terminated.
(iv) Subordination. Each Borrower hereby subordinates
--------------
any Claims, including any right of payment, subrogation, contribution and
indemnity, that it may have from or against any other Loan Party, and any
successor or assign of any other Loan Party, including any trustee, receiver or
debtor- in-possession, howsoever arising, due or owing or whether heretofore,
now or hereafter existing, to the payment in full of all of the Obligations.
SECTION 5. TERM AND TERMINATION
5.1. Term of Credit Facilities. Subject to Lender's right to cease making
--------------------------
Revolver Loans to Borrowers upon or after the occurrence of any Default or Event
of Default, the Credit Facilities shall be in effect for a period of 3 years
from the date hereof, through March 6, 2000 (the "Original Term"), and this
Agreement shall automatically renew itself for 1-year periods thereafter (each a
"Renewal Term"), unless terminated as provided in Section 5.2 hereof.
<PAGE>
5.2. Termination and Reductions of Credit Facilities.
------------------------------------------------
5.2.1. Termination by Lender. Upon at least 90 days prior written
-----------------------
notice to either Borrower, Lender may terminate the Credit Facilities as of the
last day of the Original Term or the then current Renewal Term and Lender may
terminate the Credit Facilities without notice upon or after the occurrence of
an Event of Default.
5.2.2. Termination by Borrowers. Upon at least 60 days prior written
-------------------------
notice to Lender (in the case of any termination of Facility A) and upon at
least 30 days prior written notice to Lender (in the case of any termination of
Facility B), either Borrower may, at its option, terminate either or both of the
Credit Facilities; provided, however, that no such termination by Borrowers
-------- -------
shall be effective unless Borrowers designate which of the Credit Facilities is
to be terminated and has caused to be satisfied all of the Obligations relating
to such terminated Credit Facility in immediately available funds. Any notice of
termination given by a Borrower shall be irrevocable unless Lender otherwise
agrees in writing.
5.2.3. Termination Charges. On the effective date of termination of
--------------------
either or both of the Credit Facilities by Borrowers for any reason, Borrowers
shall be jointly and severally obligated to pay to Lender (in addition to the
then outstanding principal, accrued interest and other fees and charges owing
under the terms of this Agreement and any of the other Loan Documents), as
liquidated damages for the loss of the bargain and not as a penalty, an amount
equal to the product of the amount of the terminated Credit Facility (and, for
this purpose, the amount of Facility B shall be deemed to be $10,000,000) times
3% if termination occurs in the first Loan Year, 2% if termination occurs in the
second Loan Year, and 1% if termination occurs during the third Loan Year.
Notwithstanding the foregoing, no termination charge shall be due or payable if
any termination occurs on the last day of the Original Term or thereafter, or,
in the case of Facility B, if termination is effective as of the last day of any
Loan Year.
5.2.4. Effect of Termination. Upon the effective date of termination
----------------------
of either of the Credit Facilities (whether such termination is the result of a
notice of termination given by a Borrower or by Lender), all Revolver Loans
outstanding under the Credit Facility that is terminated and all interest, fees
and other charges payable in connection therewith shall be immediately due and
payable by Borrowers to Lender without further notice to or demand upon either
Borrower, and Lender shall forthwith have no further obligation to make any
Revolver Loans to or for the direct or indirect benefit of Borrowers under the
Credit Facility that is terminated. Provided no Default, Event of Default or
Out-of-Formula Condition exists, upon Lender's receipt in immediately available
funds of an amount sufficient to pay all Obligations outstanding under or
payable in connection with the Credit Facility that has been terminated, Lender
shall execute a release of its Liens with respect to the A&D Collateral if the
Credit Facility terminated is Facility A or the Hypothecation Collateral if the
Credit Facility terminated is Facility B, notwithstanding the fact that all of
the Collateral secures all of the Obligations. All undertakings, agreements,
covenants, warranties and representations of each Borrower contained in the Loan
Documents shall nevertheless survive any termination of a single Credit Facility
and shall continue to apply with respect to any Credit Facility that is not
terminated. Notwithstanding the payment in full of all of the Obligations,
Lender shall not be required to terminate its security interest in Liens in the
<PAGE>
Collateral unless, with respect to any loss or damage Lender may incur as a
result of dishonored checks, Payment Items or other forms of payment received by
Lender from either Borrower, any Obligor or any Timeshare Purchaser and applied
to the Obligations, Lender shall (i) have received a written agreement, executed
by Borrowers and by any Person whose loans or other advances to Borrowers are
used in whole or in part to satisfy the Obligations, indemnifying Lender from
and against any such loss or damage; or (ii) have retained such monetary
reserves and Liens on the Collateral for such period of time as Lender, in its
reasonable discretion, may deem necessary or appropriate to protect Lender from
any such loss or damage. No termination of either or both of the Credit
Facilities or payment in full of the Obligations shall in any way affect the
obligation of any Loan Party to indemnify Lender in accordance with the
provisions of the Loan Documents, all of which indemnifications shall be deemed
to survive any termination of the Credit Facilities and payment in full of the
Obligations.
5.2.5. Voluntary Reduction of Credit Facilities. Borrowers shall
------------------------------------------
have the right at any time to permanently reduce the amount of either or both of
the Credit Facilities upon written notice by either Borrower to Lender of such
reduction, which notice shall specify the amount of such reduction and the
Credit Facility to be reduced. Each such notice shall be irrevocable once given
and shall be given at least 5 Business Days prior to the end of the month. The
effective date of any voluntary reduction of either or both of the Credit
Facilities shall be the first day of a month following the month in which such
notice is received by Lender. If on the effective date of any such reduction of
either or both of the Credit Facilities and after giving effect thereto an
Out-of-Formula Condition exists, then there shall be due and payable to Lender
immediately, without further notice to or demand upon either Borrower, an amount
necessary to cure such Out-of-Formula Condition. If a Credit Facility is reduced
to zero, then such reduction shall be deemed to constitute a termination of such
Credit Facility by Borrowers pursuant to the terms of Sections 5.2.2 and 5.2.3
of this Agreement and shall not be effective unless the notice required by
Section 5.2.2 is given. In the event that Borrowers elect to permanently reduce
the amount of Facility B pursuant to the terms hereof, then such reduction shall
serve to reduce the amount of Facility B upon which the annual credit facility
fee payable to Lender pursuant to Section 3.3 of this Agreement is based. In no
event shall any reduction of Facility A during the Original Term reduce the
amount of the annual credit facility fee payable to Lender pursuant to Section
3.3 of this Agreement, and such fee shall be calculated as if no such reduction
to Facility A had ever occurred.
SECTION 6. SECURITY FOR LOANS
6.1. Lien Upon Collateral.
6.1.1. To secure the prompt payment and performance to Lender of all
of the Obligations, each Borrower hereby grants to Lender a continuing security
interest in and Lien upon all of the following Property of such Borrower and all
of such Borrower's right, title and interest therein, whether such Property is
now owned or existing or hereafter created, acquired or arising and wheresoever
located:
(i) All Pledged Loans;
(ii) All Pledged Loan Collateral;
(iii) All Payment Rights;
<PAGE>
(iv) All Transaction Documents and all Remedies;
(v) All monies and other Property of any kind that
relates to any of the Pledged Loans and that is now or at any time or
times hereafter in the possession or under the control of Lender, a
Servicer, or a bailee or Affiliate of Lender;
(vi) All accessions to, substitutions for and all
replacements, products and cash and non-cash proceeds of (i) through (v)
above, including proceeds of and unearned premiums with respect to
insurance policies insuring any of the Collateral; and
(vii) All books and records of such Borrower to the
extent pertaining to any of (i) through (vi) above, including all computer
programs, disks, tapes and related electronic data processing media,
credit files, account cards, payment records, correspondence and ledgers,
and all cabinets in which any of the foregoing are reflected or
maintained.
6.1.2. As additional security for the prompt payment
and performance to Lender of all of the Obligations, each Borrower agrees that,
if and to the extent after the date of this Agreement such Borrower (or any
Affiliate of such Borrower) shall obtain title to any of the Pledged Loan
Collateral that consist of real Property, such Borrower shall, at Lender's
request, promptly execute and deliver, or cause to be executed and delivered, to
Lender a Mortgage with respect to such real Property, in the form requested by
Lender and otherwise in conformity with Applicable Laws.
6.1.3. In addition to the foregoing and as additional
security for the payment and performance of the Obligations, Green Mountain
hereby grants to Lender a continuing security interest in and Lien upon all of
Green Mountain's assets, including all of the following property and interest in
Property of Green Mountain, whether now owned or existing or hereafter created,
acquired or arising and wheresoever located: (i) all Accounts; (ii) all
Inventory; (iii) all Equipment; (iv) all Instruments; (v) all Chattel Paper;
(vi) all Documents; (vii) all General Intangibles; (viii) all Securities,
whether certificated or uncertificated (but excluding any portion thereof that
constitute Margin Stock), and all securities entitlements; (ix) all other monies
and other Property of any kind now or at any time or times hereafter in the
possession or under the control of Lender, a Servicer, or a bailee or Affiliate
of Lender; (x) all accessions to, substitutions for and replacements, products
and cash and non-cash proceeds of clauses (i) through (ix) of this Section
6.1.3, including proceeds of and unearned premiums with respect to insurance
policies insuring any of the foregoing; and (xi) all books and records
(including customer lists, files, correspondence, tapes, computer programs,
print-outs and other computer materials and records) of Green Mountain
pertaining to any of the above in this Section 6.1.3.
6.2. Lien Perfection; Further Assurances.
------------------------------------
6.2.1. Each Borrower shall, at its sole cost and
expense, execute such UCC-1 financing statements as are required by the UCC or
other Applicable Laws and such other instruments, assignments or documents as
are necessary to perfect, or maintain the perfected status of, Lender's Lien
upon any of the Collateral and shall take such other action as may be required
to perfect or to continue the perfection of Lender's Lien upon the Collateral,
including (i) the pledge and delivery to Lender or Servicer of all Instruments
evidencing a Payment Right to such Borrower and (ii) promptly upon Lender's
request therefor, the assignment of record to Lender of all UCC-1 financing
<PAGE>
statements naming an Obligor as debtor and such Borrower as secured party.
Unless prohibited by any Applicable Laws, each Borrower hereby authorizes Lender
to execute and file any such financing statement on such Borrower's behalf. The
parties agree that a carbon, photographic or other reproduction of this
Agreement shall be sufficient as a financing statement and may be filed in any
appropriate office in lieu thereof. At Lender's request, each Borrower shall
also promptly execute or cause to be executed and shall deliver to Lender any
and all documents, instruments and agreements deemed reasonably necessary by
Lender to give effect to or carry out the terms or intent of the Loan Documents.
6.2.2. To the extent that any of the Transaction Documents evidence
a Payment Right and a security interest in or lease of specific goods (and,
therefore, constitute Chattel Paper), Borrowers shall either cause to be
inscribed on the face of each such Transaction Document a conspicuous legend
indicating that the same is at all times subject to the Liens in favor of Lender
or deliver possession thereof to Lender. For so long as no Default or Event of
Default exists, upon a Borrower's request therefor Lender will deliver (or
instruct the Servicer to deliver) to such Borrower any Instrument evidencing a
Payment Right theretofore delivered by such Borrower pursuant to this Section
6.2 for the purpose of enabling such Borrower (a) to enforce payment of, or
otherwise exercise its rights and remedies with respect to, such Payment Right,
or (b) to administer such Instrument in the ordinary course of such Borrower's
business operations, which, by way of example, may include modifications,
amendments, extensions, renewals or consolidations of such Instrument.
6.3. No Obligations on Part of Lender. Lender shall be under no obligation
---------------------------------
to review or in any manner approve any Collateral delivered to Lender from time
to time, but Lender shall have the absolute right to review and approve any such
Collateral from time to time whenever it deems it appropriate to do so. Lender
may, in its sole discretion, require that Collateral be delivered to it not less
than 5 Business Days prior to any date on which Borrowers request such
Collateral to be made part of the Facility A Borrowing Base or Facility B
Borrowing Base. Lender shall have no responsibility for taking any steps
necessary to preserve rights against other parties or any other rights
pertaining to any of the Collateral. Lender shall have no responsibility to
perfect, or to maintain the perfected status of, any of its Liens with respect
to any of the Collateral or any of the Liens of a Borrower with respect to any
of the Pledged Loan Collateral, and no loss of, imperfection of Liens with
respect to or any damage to any Collateral or Pledged Loan Collateral shall in
any way release any Loan Party from the obligation to pay or perform all of the
Obligations. Without limiting the generality of the foregoing, Lender shall not
be liable or responsible in any way for any act of any Servicer, custodian or
other Person whatsoever, and all of the same shall be at Borrowers' sole risk.
Lender shall not be responsible for any excise, property or other Taxes relating
to any of the Collateral or Pledged Loan Collateral, or due upon any sale
thereof, and all such Taxes shall be the responsibility of Borrowers. The grant
and conveyance of Liens pursuant to the terms hereof and the other Loan
Documents shall not obligate or be construed to obligate Lender to perform any
of the terms contained in the A&D Loan Documents, Hypothecation Loan Documents
or any other instrument or agreement forming part of any of the Pledged Loan
Collateral or otherwise to impose any duties upon Lender with respect to the
same.
SECTION 7. REPRESENTATIONS AND WARRANTIES
7.1. General Representations and Warranties. To induce Lender to enter
-----------------------------------------
into this Agreement and to make advances hereunder, each Borrower warrants and
represents to Lender and covenants with Lender that:
<PAGE>
7.1.1. Organization and Qualification. Each Borrower and each of its
-------------------------------
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation. Each Borrower
and each of its Subsidiaries is duly qualified and is authorized to do business
and is in good standing as a foreign corporation in each state or jurisdiction
listed on Schedule 7.1.1 hereto and, to the best of such Borrower's knowledge
---------------
and belief, in all other states and jurisdictions where the character of its
Properties or the nature of its activities make such qualification necessary.
7.1.2. Corporate Power and Authority. Each Borrower is duly
---------------------------------
authorized and empowered to enter into, execute, deliver and perform this
Agreement and each of the other Loan Documents to which it is a party. The
execution, delivery and performance of this Agreement and each of the other Loan
Documents have been duly authorized by all necessary corporate action and do not
and will not (i) require any consent or approval of the shareholders of either
Borrower or any of either Borrower's Subsidiaries; (ii) contravene either
Borrower's charter, articles or certificate of incorporation or by-laws; (iii)
violate, or cause either Borrower to be in default under, any provision of any
law, rule, regulation, order, writ, judgment, injunction, decree, determination
or award in effect having applicability to such Borrower or any of its
Subsidiaries; (iv) result in a breach of or constitute a default under any
indenture or loan or credit agreement or any other agreement, lease or
instrument to which either Borrower or any of its Subsidiaries is a party or by
which it or its Properties may be bound or affected; or (v) result in, or
require, the creation or imposition of any Lien (other than Permitted Liens)
upon or with respect to any of the Properties now owned or hereafter acquired by
either Borrower or any of its Subsidiaries.
7.1.3. Legally Enforceable Agreement. This Agreement is, and each of
------------------------------
the other Loan Documents when delivered under this Agreement will be,
Enforceable.
7.1.4. Capital Structure. Schedule 7.1.4 hereto states (i) the
------------------- ---------------
correct name of each of the Subsidiaries of each Borrower, its jurisdiction of
incorporation and the percentage of its Voting Stock owned by such Borrower,
(ii) the name of each Borrower's corporate or joint venture Affiliates and the
nature of the affiliation, and (iii) the number of authorized, issued and
treasury shares of each Borrower and each of its Subsidiaries. Except as
provided in Schedule 7.1.4 hereto, each Borrower has good title to all of the
---------------
shares it purports to own of the stock of each of its Subsidiaries, free and
clear in each case of any Lien other than Permitted Liens. All such shares have
been duly issued and are fully paid and non- assessable. There are no
outstanding options to purchase, or any rights or warrants to subscribe for, or
any commitments or agreements to issue or sell, or any Securities or obligations
convertible into, or any powers of attorney relating to, shares of the capital
stock of either Borrower or any of its Subsidiaries. There are no outstanding
agreements or instruments binding upon either Borrower's shareholders relating
to the ownership of its shares of capital stock.
7.1.5. Corporate Names. No Borrower nor any of its Subsidiaries has
----------------
been known as or used any corporate, fictitious or trade names except those
listed on Schedule 7.1.5 hereto. Except as set forth on Schedule 7.1.5, no
--------------- ---------------
Borrower nor any of its Subsidiaries has been the surviving corporation of a
merger or consolidation or acquired all or substantially all of the assets of
any Person.
7.1.6. Business Locations; Agent for Process. Each Borrower's and
---------------------------------------
each of its Subsidiaries' chief executive office and other places of business
are as listed on Schedule 7.1.6 hereto. During the preceding 5-year period, no
--------------
Borrower nor any of its Subsidiaries has had an office, place of business or
agent for service of process other than as listed on Schedule 7.1.6.
---------------
<PAGE>
7.1.7. Title to Properties; Priority of Liens. Each Borrower and
-----------------------------------------
each of its Subsidiaries has good, indefeasible and marketable title to and fee
simple ownership of, or valid and subsisting leasehold interests in, all of its
real Property, and good title to all of the Collateral and all of its other
Property, in each case, free and clear of all Liens except Permitted Liens. Each
Borrower has paid or discharged all lawful claims which, if unpaid, might become
a Lien against any such Borrower's Properties that is not a Permitted Lien. The
Liens granted to Lender under Section 5 hereof are first priority Liens, subject
only to those Permitted Liens which are expressly stated to have priority over
the Liens of Lender.
7.1.8. Financial Statements; Fiscal Year. The Consolidated balance
-----------------------------------
sheets of Litchfield and such other Persons described therein (including the
accounts of all Subsidiaries of Litchfield for the respective periods during
which a Subsidiary relationship existed) as of December 31, 1996, and the
related statements of income, changes in stockholder's equity, and changes in
financial position for the periods ended on such dates, have been prepared in
accordance with GAAP, and present fairly the financial positions of Litchfield
and such Persons at such dates and the results of Litchfield's and such Persons'
operations for such periods. Since December 31, 1996, there has been no material
change in the condition, financial or otherwise, of either Borrower or such
other Persons as shown on the Consolidated balance sheet as of such date, except
changes in the ordinary course of business, none of which individually or in the
aggregate has been materially adverse. The fiscal year of each Borrower and each
of its Subsidiaries ends on December 31 of each year.
7.1.9. Full Disclosure. The financial statements referred to in
-----------------
Section 7.1.8 hereof do not, nor does this Agreement or any other written
statement of either Borrower to Lender, contain any untrue statement of a
material fact. There is no fact or circumstances which either Borrower has
failed to disclose to Lender in writing and which may reasonably be expected to
have a Material Adverse Effect.
7.1.10. Solvent Financial Condition. Each Borrower and each of its
----------------------------
Subsidiaries is now and, after giving effect to the Loans to be made hereunder,
at all times will be, Solvent.
7.1.11. Surety Obligations. Except as set forth on Schedule 7.1.11
------------------- ---------------
hereto, no Borrower nor any of its Subsidiaries is obligated as surety or
indemnitor under any surety or similar bond or other contract issued or entered
into any agreement to assure payment, performance or completion of performance
of any undertaking or obligation of any other Person.
7.1.12. Taxes. The federal tax identification number of each
------
Borrower and each of its Subsidiaries is shown on Schedule 7.1.12 hereto. Each
---------------
Borrower has filed all federal, state and local tax returns and other reports
that it is required by Applicable Laws to file and has paid, or made provision
for the payment of, all Taxes upon it, its income and Properties as and when
such Taxes are due and payable, except to the extent being Properly Contested.
The provision for Taxes on the books of each Borrower and each of its
Subsidiaries are adequate to cover that portion of Taxes owing by such Borrower
and such Subsidiaries for all years not closed by applicable statutes and for
its current fiscal year.
7.1.13. Brokers. There are no claims for brokerage commissions,
--------
finder's fees or investment banking fees in connection with any of the
transactions contemplated by this Agreement.
<PAGE>
7.1.14. Patents, Trademarks, Copyrights and Licenses. Each Borrower
----------------------------------------------
and each of its Subsidiaries owns or possesses all the patents, trademarks,
service marks, trade names, copyrights and licenses necessary for the present
and planned future conduct of its business without any conflict with the rights
of others. All such patents, trademarks, service marks, trade names, copyrights,
licenses and other similar rights are listed on Schedule 7.1.14 hereto.
---------------
7.1.15. Governmental Consents. Each Borrower and each of its
-----------------------
Subsidiaries has, and is in good standing with respect to, all Governmental
Approvals necessary to continue to conduct its business as heretofore or
proposed to be conducted by it and to own or lease and operate its Properties as
now owned or leased by it.
7.1.16. Compliance with Laws. Each Borrower and each of its
-----------------------
Subsidiaries has duly complied with, and its Properties, business operations,
Pledged Loans, and Pledged Loan Collateral are in compliance in all material
respects with, the provisions of all Applicable Laws and there have been no
citations, notices or orders of noncompliance issued to such Borrower or any of
its Subsidiaries under any such law, rule or regulation.
7.1.17. Restrictions. No Borrower nor any of its Subsidiaries is a
-------------
party or subject to any contract, agreement, or charter or other corporate
restriction, which has or could be reasonably expected to have a Material
Adverse Effect. No Borrower nor any of its Subsidiaries is a party or subject to
any contract or agreement which restricts its right or ability to incur Debt,
and as set forth on Schedule 7.1.17 hereto, none of which prohibit the execution
---------------
of or compliance with this Agreement or the other Loan Documents by Borrower or
any of its Subsidiaries, as applicable.
7.1.18. Litigation. Except as set forth on Schedule 7.1.18 hereto,
----------- ---------------
there are no actions, suits, proceedings or investigations pending, or to the
knowledge of such Borrower, threatened, against or affecting either Borrower or
any of its Subsidiaries, or the business, operations, Properties, prospects,
profits or condition of either Borrower or any of its Subsidiaries, none of
which if resolved adversely to either Borrower or its Subsidiaries would have a
Material Adverse Effect. No Borrower nor any of its Subsidiaries is in default
with respect to any order, writ, injunction, judgment, decree or rule of any
court, governmental authority or arbitration board or tribunal.
7.1.19. No Defaults. No event has occurred and no condition exists
------------
which would, upon or after the execution and delivery of this Agreement or
either Borrower's performance hereunder, constitute a Default or an Event of
Default. No Borrower nor any of its Subsidiaries is in default, and no event has
occurred and no condition exists which constitutes, or which with the passage of
time or the giving of notice or both would constitute, a default in the payment
of any Debt to any Person for Money Borrowed.
7.1.20. Leases. Except for miscellaneous leases of office equipment
-------
entered into in the ordinary course of each Borrower's business, Schedule 7.1.20
---------------
hereto is a complete listing of all capitalized leases and operating leases of
each Borrower and each of its Subsidiaries on the date hereof. Each Borrower and
each of its Subsidiaries is in full compliance with all of the terms of each of
its respective capitalized and operating leases.
7.1.21. Pension Plans. Except as disclosed on Schedule 7.1.21
--------------- ----------------
hereto, no Borrower nor any of its Subsidiaries has any Plan on the date hereof.
The Plan in which each Borrower and each of its Subsidiaries participates is in
<PAGE>
full compliance with the requirements of ERISA and the regulations promulgated
thereunder with respect thereto. No fact or situation that could result in a
material adverse change in the financial condition of Borrower exists in
connection with such Plan. No Borrower nor any of its Subsidiaries has any
withdrawal liability in connection with a Multiemployer Plan.
7.2. Continuous Nature of Representations and Warranties. Each
------------------------------------------------------------
representation and warranty contained in this Agreement and the other Loan
Documents shall be continuous in nature and shall remain accurate, complete and
not misleading at all times during the term of this Agreement, except for
changes in the nature of a Borrower's or its Subsidiaries' business or
operations that would not have a Material Adverse Effect or would not render the
information in any exhibit attached hereto either inaccurate, incomplete or
misleading, so long as Lender has consented to such changes or such changes are
expressly permitted by this Agreement. Notwithstanding the foregoing,
representations and warranties which by their terms are applicable only to a
specific date shall be deemed made only at and as of such date.
7.3. Survival of Representations and Warranties. All representations and
--------------------------------------------
warranties of Borrower contained in this Agreement or any of the other Loan
Documents shall survive the execution, delivery and acceptance thereof by Lender
and the parties thereto and the closing of the transactions described therein or
related thereto.
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS
8.1. Affirmative Covenants. During the term of this Agreement, and
-----------------------
thereafter for so long as there are any Obligations to Lender, each Borrower
covenants that it shall and shall cause each of its Subsidiaries to:
8.1.1. Visits and Inspections.
-----------------------
(i) Upon 3 Business Days' notice from Lender, permit any
representative, officer, accountant or agent of Lender, during normal business
hours, to visit and inspect any of such Borrower's Properties, to examine such
Borrower's books and records, and to discuss such Borrower's business, financial
affairs, financial condition and accounts with such Borrower's officers, all at
such reasonable time and as often as Lender may request and, in each such case,
cause each of its Subsidiaries so to do. Notwithstanding the foregoing, no prior
notice by Lender will be required as a condition to any such visit or inspection
if at the time thereof any Event of Default exists.
(ii) Upon 3 Business Days' notice from Lender and the prior
submission by Lender to either Borrower of Lender's proposed agenda therefor,
permit any representative, officer, accountant or agent of Lender from time to
time to discuss the financial statements referred to in Section 7.1.8 hereof,
any other financial information from time to time delivered hereunder to Lender,
the financial condition of each Borrower or any of its Subsidiaries, or any
information contained in any Borrowing Base Certificate (collectively, the
"Financial Information") with such Borrower's auditors; provided, however, that
-------- -------
if no Default or Event of Default then exists, Lender will not have the right to
require such discussions more than once per year. Notwithstanding the foregoing,
no prior notice or submission of a proposed agenda will be required as a
condition to Lender's having such discussions with either Borrower's auditors at
any time that an Event of Default exists. Each Borrower hereby irrevocably
authorizes its auditors to discuss all matters pertaining to the Financial
<PAGE>
Information with all such Persons. Each Borrower shall have the right to have
one or more of its officers present at any such discussions with such Borrower's
auditors, but the availability of any officer of such Borrower to be present at
any such discussion shall not be a condition to Lender's rights hereunder to
hold such discussions.
8.1.2. Notices. Notify Lender in writing (i) of the occurrence of
--------
any event or the existence of any fact which renders any representation or
warranty in this Agreement or any of the other Loan Documents inaccurate,
incomplete or misleading; (ii) promptly after a Borrower's learning thereof, of
the commencement of any litigation having a Material Adverse Effect on a
Borrower or any of its Properties, whether or not the claim is considered by
such Borrower to be covered by insurance, and of the institution of any
administrative proceeding which if determined adversely to a Borrower would have
a Material Adverse Effect; (iii) at least 30 days prior thereto, of a Borrower's
opening of any new office or place of business or a Borrower's closing of any
existing office or place of business; (iv) promptly after a Borrower's learning
thereof, of any labor dispute to which a Borrower may become a party, any
strikes or walkouts relating to any of its plants or other facilities, and the
expiration of any labor contract to which it is a party or by which it is bound;
(v) promptly after a Borrower's learning thereof, of any material default by any
Loan Party under any note, indenture, loan agreement, Mortgage, lease, deed,
guaranty or other similar agreement relating to any Debt of a Borrower exceeding
$500,000; (vi) promptly after the occurrence thereof, of any Default or Event of
Default; (vii) promptly after the occurrence thereof, of any default by any
Obligor under any of the Transaction Documents with respect to any Pledged Loan;
(viii) promptly after the rendition thereof, of any judgment rendered against
any Loan Party in an amount exceeding $250,000; and (ix) promptly after a
Borrower's learning thereof, of any termination or expiration of any Servicing
Agreement.
8.1.3. Financial Statements. Keep, and cause each Subsidiary to
----------------------
keep, adequate records and books of account with respect to its business
activities in which proper entries are made in accordance with GAAP reflecting
all its financial transactions; and cause to be prepared and furnished to Lender
the following (all to be prepared in accordance with GAAP applied on a
consistent basis, unless Borrowers' certified public accountants concur in any
change therein and such change is disclosed to Lender and is consistent with
GAAP):
(i) not later than 120 days after the close of each
fiscal year of Litchfield, unqualified audited financial statements of
Litchfield and its Subsidiaries as of the end of such year, on a
Consolidated basis, certified by a firm of independent certified public
accountants of recognized standing selected by Litchfield but reasonably
acceptable to Lender (except for a qualification for a change in
accounting principles with which the accountant concurs);
(ii) not later than 45 days after the end of each fiscal
quarter of Litchfield, Litchfield's form 10Q filing with the SEC for such
quarter;
(iii) promptly after the sending or filing thereof, as
the case may be, copies of any proxy statements, financial statements or
reports which Litchfield has made available to its shareholders and copies
of any regular, periodic and special reports or registration statements
which Litchfield files with the SEC, or any national securities exchange;
(iv) promptly after the filing thereof, copies of any
annual report to be filed in accordance with ERISA in connection with each
Plan;
<PAGE>
(v) with respect to Green Mountain, annual unaudited
financial statements of Green Mountain delivered not later than 120 days
after the close of each fiscal year, and quarterly unaudited financial
statements of Green Mountain delivered not later than 45 days after the
end of each fiscal quarter of Green Mountain; and
(vi) such other data and information (financial and
otherwise) as Lender, from time to time, may reasonably request, bearing
upon or related to the Collateral or each Borrower's and each of its
Subsidiaries' financial condition or results of operations.
Concurrently with the delivery of the financial statements described
in clause (i) of this Section 8.1.3, Borrowers shall forward to Lender a copy of
the accountants' letter to Borrowers' management that is prepared in connection
with such financial statements. Concurrently with the delivery of the items
described in clauses (i) and (ii) of this Section 8.1.3, or more frequently if
requested by Lender, Borrowers shall cause to be prepared and furnished to
Lender a Compliance Certificate duly executed by the president or chief
financial officer of Borrowers.
8.1.4. Transaction Documents. Include or caused to be included in
-----------------------
each Transaction Document executed and delivered subsequent to the Closing Date
language providing that, subject to any restrictions upon the assignment thereof
by the Obligor, such Primary Transaction Document shall be binding upon and
inure to the benefit of any and all successors and assigns of the parties
thereto, and exercise its best efforts to include such language in any Primary
Transaction Document in existence on the Closing Date that does not expressly
purport to be binding upon the successors and assigns of the parties thereto
pursuant to a written amendment or modification of any such Primary Transaction
Document (but if such Borrower is unsuccessful in including such language in any
Primary Transaction Document, then the Pledged Loan evidenced or secured by such
Primary Transaction Document shall not be deemed to be an Eligible Loan).
8.1.5. Taxes. Pay and discharge, and cause each Subsidiary to pay
------
and discharge, all Taxes prior to the date on which such Taxes become delinquent
or penalties attach thereto, except and to the extent only that such Taxes are
being Properly Contested.
8.1.6. Compliance with Laws. Comply, and cause each Subsidiary to
---------------------
comply, with all Applicable Laws, including all laws, statutes, regulations and
ordinances regarding the collection, payment and deposit of Taxes, and all ERISA
and Environmental Laws, and obtain and keep in force any and all Governmental
Approvals necessary to the ownership of its Properties or to the conduct of its
business, which violation or failure to obtain might have a Material Adverse
Effect.
8.1.7. Insurance. In addition to the insurance required herein with
----------
respect to the Collateral, maintain, with financially sound and reputable
insurers, insurance with respect to its Properties and business against such
casualties and contingencies of such type (including business interruption,
larceny, embezzlement or other criminal misappropriation insurance) and in such
amounts as is customary in the business of Borrowers or as otherwise reasonably
required by Lender.
8.2. Negative Covenants. During the term of this Agreement, and
--------------------
thereafter for so long as there are any Obligations to Lender, each Borrower
covenants that, unless Lender has first consented thereto in writing, it will
not nor will it permit any Subsidiary to:
<PAGE>
8.2.1. Mergers; Consolidations. Enter into any transaction to merge,
------------------------
consolidate or amalgamate with any Person, or liquidate, wind up or dissolve
itself, except mergers or consolidations of any Subsidiary with another
Subsidiary of either Borrower.
8.2.2. Loans. Make any loans or other advances of money to any
------
Person other than (i) for salary, travel advances, advances against commissions
and other similar advances in the ordinary course of a Borrower's or a
Borrower's Subsidiary's business, and (ii) loans or other advances of money to
Obligors and other Persons in the ordinary course of Borrower's or a
Subsidiary's business.
8.2.3. Affiliate Transactions. Enter into, or be a party to any
------------------------
transaction with any Affiliate or stockholder, except: (i) the transactions
contemplated by the Loan Documents; (ii) payment of customary directors' fees
and indemnities; (iii) transactions with Affiliates that were consummated prior
to the date hereof; and (iv) in the ordinary course of and pursuant to the
reasonable requirements of a Borrower's business and upon fair and reasonable
terms which are fully disclosed to Lender.
8.2.4. Limitation on Liens. Create or suffer to exist any Lien upon
--------------------
any of the Collateral, whether now owned or hereafter acquired, except Permitted
Liens.
8.2.5. Subordinated Debt. Make any payment of any part or all of any
------------------
Subordinated Debt or take any other action or omit to take any other action in
respect of any Subordinated Debt.
8.2.6. Distributions. Declare or make any Distributions at any time
--------------
that a Default, Event of Default or Out-of-Formula Condition exists or would
occur as the result of the making of any such Distribution.
8.2.7. Disposition of Assets. Sell, lease or ot herwise dispose of
----------------------
any interest in any of the Pledged Loans, Pledged Loan Collateral or Transaction
Documents to or in favor of any Person, including the sale, pledge or assignment
of any interest in any Pledged Loan, except for sales, leases or dispositions
(i) to Lender, (ii) of Pledged Loans released pursuant to Section 4.5.2 hereof
or (iii) as otherwise expressly authorized by this Agreement.
8.2.8. Stock of Subsidiaries. At any time that a Default or Event of
----------------------
Default exists, permit any of its Subsidiaries to issue any additional shares of
its capital stock except director's qualifying shares.
8.2.9. Restricted Investments and Debt Incurrence. In the case of
--------------------------------------------
Green Mountain, (i) make or have any Restricted Investment; or (ii) create,
incur, assume or suffer to exist any Debt, except (a) the Obligations, (b) Debt
to Litchfield which does not exceed at any time the sum of $1,000,000, (c)
incidental accounts payable and current operating expenses (other than for Money
Borrowed) incurred and timely paid in the ordinary course of business, (d)
contingent obligations arising out of endorsements of checks and other
negotiable instruments for deposit or collection in the ordinary course of
business, and (e) the obligation to fund A&D Loans and Hypothecation Loans and
to the extent provided in Transaction Documents to which Green Mountain is a
party.
8.2.10. Fiscal Year. Establish a fiscal year of Borrowers and their
------------
Subsidiaries other than the 12-month period ending December 31 of each year.
<PAGE>
8.2.11. Corporate Documents. Amend, modify or otherwise change any
--------------------
of the terms or provisions in any of either Borrower's corporate charter,
Articles of Incorporation, By-laws, or other governing documents as in effect on
the Closing Date, except for changes that do not affect in any way such
Borrower's rights and obligations to enter into and to perform the Loan
Documents to which it is a party and to pay all of the Obligations and that do
not otherwise have a Material Adverse Effect.
8.2.12. Conduct of Business.
--------------------
(i) enter into, or permit any of its Subsidiaries
to enter into, any business that is substantially different from the
business of Borrower or such Subsidiaries as set forth on Schedule
--------
8.2.12 or any businesses or activities that are not substantially
------
similar, related or incidental to the businesses or activities
described in Schedule 8.2.12; or
---------------
(ii) make or acquire loans other than loans of the
type made by such Borrower and its Subsidiaries on the date hereof
or as otherwise described on Schedule 8.2.12; provided, however,
---------------- -------- -------
that Borrowers and their Subsidiaries shall be permitted to make or
acquire loans that are different from those described on Schedule
--------
8.2.12 (each such loan, a "New Business Loan") so long as the
------
aggregate outstanding principal amount of New Business Loans held by
Borrowers and their Subsidiaries does not at any time exceed 25% of
the aggregate serviced portfolio of Borrowers and their
Subsidiaries.
8.2.13. Administration of Transaction Documents. Subordinate any
------------------------------------------
Lien securing any Pledged Loan to the Lien of another Person; subordinate all or
any part of any Pledged Loan to the Debt of another Person; forgive all or any
part of any Pledged Loan; release any Solvent guarantor or other third party
Obligor of the payment or performance of all or any part of such Obligor's
liabilities or obligations with respect to any Pledged Loan; release any Pledged
Loan Collateral or Lien with respect thereto; waive any default under any
Transaction Documents that relate to a Pledged Loan; or increase the Credit
Limit on any Pledged Loan to an extent where such New Credit Limit exceeds in
amount the applicable A&D Loan Margin or the Hypothecation Loan Margin.
8.2.14. Books and Records. Move or relocate books and records
-------------------
pertaining to any of the Collateral from either Borrower's chief executive
office and principal place of business.
8.3. Specific Financial Covenants. During the term of this Agreement, and
-----------------------------
thereafter for so long as there are any Obligations outstanding, Borrowers
covenant that, unless otherwise consented to by Lender in writing, Litchfield
shall:
8.3.1. Debt to Tangible Net Worth Ratio. Maintain at all times a
-----------------------------------
ratio of total Debt to Consolidated Tangible Net Worth that does not exceed 6 to
1.
8.3.2 Consolidated Tangible Net Worth. Maintain at all times a
-----------------------------------
Consolidated Tangible Net Worth of not less than $33,000,000; provided, however,
that the foregoing amount shall be increased, on a cumulative basis, on the
first day of each fiscal year, commencing January 1, 1998, by an amount equal to
50% of the Consolidated Net Income of Litchfield during the immediately
preceding fiscal year (if a positive number).
<PAGE>
8.3.3 Interest Coverage Ratio. Maintain at all times an
----------------------------
Interest Coverage Ratio of not less than 1.0 to 1.
SECTION 9. CONDITIONS PRECEDENT
9.1. Conditions Precedent to Initial Loans. Notwithstanding any other
----------------------------------------
provision of this Agreement or any of the other Loan Documents, and without
affecting in any manner the rights of Lender under the other sections of this
Agreement, Lender shall not be required to make the initial Loans requested by
Borrowers unless, on or before March 21, 1997, each of the following conditions
has been and continues to be satisfied:
9.1.1. Documentation. Lender shall have received, in form and
--------------
substance satisfactory to Lender and its counsel, a duly executed counterpart of
this Agreement and the other Loan Documents together with such additional
documents, instruments and certificates as Lender and its counsel shall require
in connection therewith from time to time, all in form and substance
satisfactory to Lender and its counsel.
9.1.2. Evidence of Perfection and Priority of Liens in
------------------------------------------------------
Collateral. Lender shall have received copies of all filing receipts or
- -----------
acknowledgments issued by any governmental authority to evidence any filing or
recordation necessary to perfect the Liens of Lender in the Collateral and
evidence in form satisfactory to Lender that such Liens constitute valid and
perfected security interests and Liens, and that there are no other Liens upon
any Collateral except for Permitted Liens.
9.1.3. Articles of Incorporation. Lender shall have received a
--------------------------
copy of the Articles or Certificate of Incorporation of each Borrower, and all
amendments thereto, certified by the Secretary of State or other appropriate
official of the jurisdiction of each Borrower's incorporation.
9.1.4. Good Standing Certificates. Lender shall have received
---------------------------
good standing certificates for each Borrower, issued by the Secretary of State
or other appropriate official of each Borrower's jurisdiction of incorporation
and each jurisdiction where the conduct of a Borrower's business activities or
ownership of its Property necessitates qualification.
9.1.5. Opinion Letter. Lender shall have received a favorable,
---------------
written opinion of Battle Fowler LLP, general counsel to Borrowers, and
Borrowers' special Vermont counsel and special Massachusetts counsel, as to the
transactions contemplated by this Agreement, to be in substantially the form of
Exhibit F hereto.
9.1.6. Disbursement Letter. Lender shall have received written
--------------------
instructions from Borrowers directing application of proceeds of the initial
Loans made pursuant to this Agreement, and an initial Borrowing Base Certificate
from Borrowers, in form satisfactory to Lender.
9.2. Conditions Precedent to all Credit Extensions. Notwithstanding any
-----------------------------------------------
other provision of this Agreement or any of the other Loan Documents, and
without affecting in any manner the rights of Lender under the other sections of
this Agreement, Lender shall not be required to make any Loan or otherwise
extend any credit or other financial accommodations to or for the benefit of
Borrowers, unless and until each of the following conditions has been and
continues to be satisfied:
<PAGE>
9.2.1. Required Document Deliveries. Borrowers shall have
-------------------------------
delivered or caused to be delivered all documents with respect to each Pledged
Loan in accordance with the provisions of Section 4.6 of this Agreement.
9.2.2. No Default. No Default or Event of Default shall exist
-----------
at the time of, or after giving effect to, any funding of a Revolver Loan.
9.2.3. Satisfaction of Conditions in Other Loan Documents.
------------------------------------------------------
Each of the conditions precedent set forth in any other Loan Document shall have
been and shall remain satisfied.
9.2.4. No Litigation. No action, proceeding, investigation,
--------------
regulation or legislation shall have been instituted, threatened or proposed
before any court, governmental agency or legislative body to enjoin, restrain or
prohibit, or to obtain damages in respect of, or which is related to or arises
out of this Agreement or the consummation of the transactions contemplated
hereby.
9.2.5. Material Adverse Effect. No event shall have occurred
------------------------
and no condition shall exist which has or may be reasonably likely to have a
Material Adverse Effect.
SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
10.1. Events of Default. The occurrence of any one or more of the
--------------------
following events or conditions shall constitute an "Event of Default":
10.1.1. Payment of Obligations. Borrowers shall fail to pay
------------------------
any of the Obligations on the due date thereof (whether due at stated maturity,
on demand, upon acceleration or otherwise).
10.1.2. Misrepresentations. Any representation, warranty or
-------------------
material statement made or furnished to Lender by or on behalf of either
Borrower, in this Agreement, any of the other Loan Documents or any instrument,
certificate or financial statement furnished in compliance with or in reference
thereto proves to have been false or misleading in any material respect when
made or furnished or when reaffirmed pursuant to Section 7.2 hereof.
10.1.3. Breach of Specific Covenants. Either Borrower shall
------------------------------
fail or neglect to perform, keep or observe any covenant contained in Sections
4.4, 8.1.1, 8.1.3, 8.2 or 8.3 hereof on the date that such Borrower is required
to perform, keep or observe such covenant.
10.1.4. Breach of Other Covenants. Either Borrower shall fail
--------------------------
or neglect to perform, keep or observe any covenant contained in this Agreement
(other than a covenant which is dealt with specifically elsewhere in Section
10.1 hereof) and the breach of such other covenant is not cured to Lender's
satisfaction within 15 days after the sooner to occur of such Borrower's receipt
of notice of such breach from Lender or the date on which such failure or
neglect first becomes known to any officer of such Borrower; provided, however,
-------- -------
that such notice and opportunity to cure shall not apply in the case of any
failure to perform, keep or observe any covenant which is not capable of being
cured at all or within such 15 day period, or which has been the subject of a
prior failure within the preceding 180 days, or which is a willful and knowing
breach by either Borrower.
<PAGE>
10.1.5. Default Under Security Documents/Other Agreements. Any
--------------------------------------------------
event of default shall occur under, or either Borrower shall default in the
performance or observance of any term, covenant, condition or agreement
contained in, any of the Security Documents or the Other Agreements and such
default shall continue beyond any applicable grace period.
10.1.6. Other Defaults. There shall occur any default or event
---------------
of default on the part of either Borrower under any agreement, document or
instrument to which such Borrower is a party or by which such Borrower or any of
its Property is bound, creating or relating to any Debt for Money Borrowed
(other than the Obligations) if the payment or maturity of such Debt is
accelerated in consequence of such event of default or demand for payment of
such Debt is made.
10.1.7. Insolvency and Related Proceedings. Any Loan Party
-------------------------------------
shall cease to be Solvent or any Insolvency Proceeding shall be commenced by or
against any Loan Party (if against an Loan Party, the continuation of such
proceeding for more than 30 days), or any Loan Party shall make any offer of
settlement, extension or composition to such unsecured creditors generally.
10.1.8. Business Disruption. There shall occur a cessation of
--------------------
a substantial part of the business of either Borrower or any other Loan Party
for a period which may be reasonably expected to have Material Adverse Effect;
or either Borrower or any other Loan Party shall suffer the loss or revocation
of any license or permit now held or hereafter acquired by such Borrower or such
other Loan Party which is necessary to the continued or lawful operation of its
business and such license or permit shall not have been reinstated on or before
the thirtieth day after the loss or revocation thereof; or either Borrower or
any other Loan Party shall be enjoined, restrained or in any way prevented by
court, governmental or administrative order from conducting all or any material
part of its business affairs.
10.1.9. ERISA. A Reportable Event shall occur which Lender, in
------
its sole discretion, shall determine in good faith constitutes grounds for the
termination by the Pension Benefit Guaranty Corporation of any Plan or for the
appointment by the appropriate United States district court of a trustee for any
Plan, or if any Plan shall be terminated or any such trustee shall be requested
or appointed, or if either Borrower, any Subsidiary of either Borrower or any
Guarantor is in "default" (as defined in Section 4219(c)(5) of ERISA) with
respect to payments to a Multiemployer Plan resulting from such Borrower's or
such Guarantor's complete or partial withdrawal from such Plan.
10.1.10. Challenge to Agreement. Either Borrower or any other
-----------------------
Loan Party, or any Affiliate of any of them, shall challenge or contest in any
action, suit or proceeding the validity or enforceability of this Agreement, or
any of the other Loan Documents, the legality or enforceability of any of the
Obligations or the perfection or priority of any Lien granted to Lender.
10.1.11. Servicer Defaults. Any Servicer shall repudiate the
------------------
Agency Agreement (Servicing Agent) or the Servicing Agreement executed by such
Servicer, or such Servicer shall resign and a successor acceptable to Lender
shall not be appointed within 20 days thereafter, or shall default in the
observance or performance of any material term or provision contained in the
Agency Agreement (Servicing Agent) and shall fail to cure same within 15 days
after written notice thereof is received by such Servicer from Lender.
10.1.12. Criminal Forfeiture. Either Borrower shall be
---------------------
criminally indicted or convicted under any law that could lead to a forfeiture
of any Property of either Borrower.
<PAGE>
10.1.13. Portfolio Default. On any date, 50% or more of all
-------------------
Pledged Loans outstanding that are A&D Loans, or 20% or more of Pledged Loans
outstanding that are Hypothecation Loans, are in default, whether or not any
such default has resulted from the failure of an Obligor to pay any amounts due
with respect to any of such Pledged Loans on the due date thereof or for any
other cause and regardless of whether or not any such default has been waived
(orally or in writing) by either Borrower.
10.2. Acceleration of the Obligations. Without in any way limiting the
----------------------------------
right of Lender to demand payment of any portion of the Obligations payable on
demand in accordance with Section 3.2 hereof, upon or at any time after the
occurrence of an Event of Default (and for so long as such Event of Default
exists), all or any portion of the Obligations shall, at the option of Lender
and without presentment, demand protest or further notice by Lender, become at
once due and payable and Borrowers shall forthwith pay to Lender, the full
amount of such Obligations; provided, however, that upon the commencement of an
Insolvency Proceeding by either Borrower, all of the Obligations shall become
automatically due and payable without declaration, notice or demand by Lender.
10.3. Other Remedies. Upon and after the occurrence of an Event of
----------------
Default (and for so long as such Event of Default exists), Lender shall have and
may exercise from time to time the following rights and remedies:
10.3.1. All of the rights and remedies of a secured party
under the UCC or under other Applicable Laws, and all other legal and equitable
rights to which Lender may be entitled under any of the Loan Documents, all of
which rights and remedies shall be cumulative and shall be in addition to any
other rights or remedies contained in this Agreement or any of the other Loan
Documents, and none of which shall be exclusive.
10.3.2. The right to take immediate possession of the
Collateral, and to (i) require Borrowers to assemble the Collateral, at
Borrowers' expense, and make it available to Lender at a place designated by
Lender which is reasonably convenient to both parties, and (ii) enter any
premises where any of the Collateral shall be located and to keep and store the
Collateral on said premises until sold (and if said premises be the Property of
either Borrower, then such Borrower agrees not to charge Lender for storage
thereof).
10.3.3. The right to sell or otherwise dispose of all or any
Collateral in its then condition, at public or private sale or sales, with such
notice as may be required by law, in lots or in bulk, for cash or on credit, all
as Lender, in its sole discretion, may deem advisable. Each Borrower agrees that
any requirement of notice to Borrowers of any proposed public or private sale or
other disposition of Collateral by Lender shall be deemed reasonable notice
thereof if given at least 10 days prior thereto, and such sale may be at such
locations as Lender may designate in said notice. Lender shall have the right to
conduct such sales on either Borrower's premises, without charge therefor, and
such sales may be adjourned from time to time in accordance with Applicable
Laws. Lender shall have the right to sell, lease or otherwise dispose of the
Collateral, or any part thereof, for cash, credit or any combination thereof,
and Lender may purchase all or any part of the Collateral at public or, if
permitted by law, private sale and, in lieu of actual payment of such purchase
price, may set off the amount of such price against the Obligations. The
proceeds realized from the sale of any Collateral may be applied, after allowing
2 Business Days for collection, first to the reasonable costs and expenses, and
attorneys' fees, incurred by Lender in collecting the Obligations, in enforcing
<PAGE>
the rights of Lender under the Loan Documents and in collecting, retaking,
completing, protecting, removing, storing, advertising for sale, selling and
delivering any Collateral, second to the interest due upon any of the
Obligations; and third, to the principal of the Obligations. If any deficiency
shall arise, each Borrower and each Guarantor shall remain jointly and severally
liable to Lender therefor.
Lender is hereby granted, effective upon or after the occurrence of an Event of
Default (and for so long as such Event of Default exists), a license or other
right to use, without charge, each Borrower's labels, any intellectual property,
rights of use of any name, software, telephone number, or any Property of a
similar nature, as it pertains to the Collateral, for the sole and limited
purpose of enabling Lender to collect, sell or otherwise realize upon any of the
Collateral.
10.4. Setoff. In addition to any Liens granted under any of the Loan
-------
Documents and any rights now or hereafter available under Applicable Laws,
Lender is hereby authorized by each Borrower at any time that an Event of
Default exists, without notice to either Borrower or any other Person (any such
notice being hereby expressly waived) to set off and to appropriate and to apply
any and all deposits, general or special (including Debt evidenced by
certificates of deposit whether matured or unmatured (but notincluding trust
accounts)) and any other Debt at any time held or owing by Lender or its
Affiliates to or for the credit or the account of either Borrower against and on
account of the Obligations of Borrowers arising under the Loan Documents to
Lender, including all Loans and all claims of any nature or description arising
out of or in connection with this Agreement, irrespective of whether or not (i)
Lender shall have made any demand hereunder or (ii) Lender shall have declared
the principal of and interest on the Loans and other amounts due hereunder to be
due and payable as permitted by this Agreement and even though such Obligations
may be contingent or unmatured.
10.5. Remedies Cumulative; No Waiver. All covenants, conditions,
------------------------------------
provisions, warranties, guaranties, indemnities, and other undertakings of
Borrowers contained in this Agreement and the other Loan Documents, or in any
document referred to herein or contained in any agreement supplementary hereto
or in any schedule or in any Guaranty Agreement given to Lender or contained in
any other agreement between Lender and either Borrower, heretofore,
concurrently, or hereafter entered into, shall be deemed cumulative to and not
in derogation or substitution of any of the terms, covenants, conditions, or
agreements of Borrowers herein contained. The failure or delay of Lender to
require strict performance by Borrowers of any provision of this Agreement or to
exercise or enforce any rights, Liens, powers, or remedies hereunder or under
any of the aforesaid agreements or other documents or security or Collateral
shall not operate as a waiver of such performance, Liens, rights, powers and
remedies, but all such requirements, Liens, rights, powers, and remedies shall
continue in full force and effect until all Loans and all other Obligations
owing or to become owing from Borrowers to Lender shall have been fully
satisfied. None of the undertakings, agreements, warranties, covenants and
representations of Borrowers contained in this Agreement or any of the other
Loan Documents and no Event of Default by Borrowers under this Agreement or any
other Loan Documents shall be deemed to have been suspended or waived by Lender,
unless such suspension or waiver is by an instrument in writing specifying such
suspension or waiver and is signed by a duly authorized representative of Lender
and directed to Borrowers.
SECTION 11. MISCELLANEOUS
11.1. Power-of-Attorney. Borrowers shall join with Lender and Servicer in
------------------
executing and delivering the Power-of-Attorney on the Closing Date.
<PAGE>
11.2.Indemnity. Each Borrower hereby agrees to indemnify and defend Lender
----------
and hold Lender harmless from and against any Claims against Lender (including
reasonable attorneys' fees and legal expenses) as the result of such Borrower's
failure to observe, perform or discharge any of such Borrower's duties
hereunder. In addition, each Borrower shall indemnify and defend Lender against
and save Lender harmless from all Claims of any Person with respect to any of
the Pledged Loans or Pledged Loan Collateral. Without limiting the generality of
the foregoing, these indemnities shall extend to any Claims asserted against
Lender by any Person under any Environmental Laws or similar laws by reason of
either Borrower's or any other Person's failure to comply with laws applicable
to solid or hazardous waste materials or other toxic substances. Additionally,
if any Taxes (excluding taxes imposed upon or measured solely by the net income
of Lender, but including, any intangibles tax, stamp tax, recording tax or
franchise tax) shall be payable by Lender, either Borrower or any other Loan
Party on account of the execution or delivery of this Agreement, or the
execution, delivery, issuance or recording of any of the other Loan Documents,
or the creation of any of the Obligations hereunder, by reason of any existing
or hereafter enacted federal, state, foreign or local statute, rule or
regulation, Borrowers will pay (or will promptly reimburse Lender for the
payment of) all such Taxes, including any interest and penalties thereon, and
will indemnify and hold Lender harmless from and against liability in connection
therewith. The provisions of this Section 11.2 shall not be deemed to obligate
Borrowers to indemnify Lender for any claim by Lender for lost profits.
Notwithstanding any contrary provision in this Agreement, the obligation of
Borrowers under this Section 11.2 shall survive the payment in full of the
Obligations and the termination of this Agreement.
11.3. Modification of Agreement; Sale of Interest. This Agreement may not
---------------------------------------------
be modified, altered or amended, except by an agreement in writing signed by
Borrower and Lender. Borrower may not sell, assign or transfer any interest in
this Agreement, any of the other Loan Documents, or any of the Obligations, or
any portion thereof, including Borrower's rights, title, interests, remedies,
powers, and duties hereunder or thereunder. Lender may not participate, sell,
assign, transfer or otherwise dispose of this Agreement or any of the other Loan
Documents, or of any portion hereof or thereof, including Lender's rights,
title, interests, remedies, powers, and duties hereunder or thereunder, without
the prior written consent of Borrower. In the case of an assignment to which
Borrower has provided its written consent, the assignee shall have, to the
extent of such assignment, the same rights, benefits and obligations as it would
if it were "Lender" hereunder and Lender shall be relieved of all obligations
hereunder upon any such assignment. Borrower agrees that it will use its best
efforts to assist and cooperate with Lender in any manner reasonably requested
by Lender to effect the sale of participations in or assignments of any of the
Loan Documents or any portion thereof or interest therein to which Borrower has
provided its written consent, including assisting in the preparation of
appropriate disclosure documents. Borrower further agrees that Lender may
disclose credit information regarding Borrower and its Subsidiaries, if any, to
any potential participant or assignee with respect to which Borrower has
provided its prior written consent.
11.4. Severability. Wherever possible, each provision of this Agreement
-------------
shall be interpreted in such manner as to be effective and valid under
Applicable Laws, but if any provision of this Agreement shall be prohibited by
or invalid under Applicable Laws, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement.
11.5. Successors and Assigns. This Agreement, the Other Agreements and the
-----------------------
Security Documents shall be binding upon and inure to the benefit of the
successors and assigns of each Borrower and Lender permitted under Section 11.3
hereof.
11.6. Cumulative Effect; Conflict of Terms. The provisions of the Other
---------------------------------------
Agreements and the Security Documents are hereby made cumulative with the
provisions of this Agreement. Except as otherwise provided in Section 3.2 hereof
and except as otherwise provided in any of the other Loan Documents by specific
reference to the applicable provision of this Agreement, if any provision
contained in this Agreement is in direct conflict with, or inconsistent with,
any provision in any of the other Loan Documents, the provision contained in
this Agreement shall govern and control.
11.7. Execution in Counterparts. This Agreement may be executed in any
---------------------------
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which counterparts taken together shall constitute but one and the
same instrument.
11.8. Notice. All notices, requests and demands to or upon a party hereto
-------
shall be in writing and shall be sent by certified or registered mail, return
receipt requested, personal delivery against receipt or by telecopier or other
facsimile transmission and shall be deemed to have been validly served, given or
delivered when delivered against receipt or 5 Business Days after deposit in the
U.S. mail, postage prepaid, or, in the case of facsimile transmission, when
received at the office where the noticed party's telecopier is located, in each
case addressed as follows:
If to Lender: Green Tree Financial Servicing Corporation
100 North Point Center East
Suite 200
Alpharetta, Georgia 30202-4168
Attention: Loan Administration Manager
Facsimile No.: (770) 410-9693
If to Borrowers: Litchfield Financial Corporation
789 Main Road
Stamford, Vermont 05352
Attention: President
Facsimile No.: (802) 694-1237
or to such other address as each party may designate for itself by notice given
in accordance with this Section 11.8; provided, however, that any notice,
-------- -------
request or demand to or upon Lender pursuant to Section 3.1.1 or 4.2.2 hereof
shall not be effective until received by Lender. Any written notice or demand
that is not sent in conformity with the provisions hereof shall nevertheless be
effective on the date that such notice is actually received by the noticed
party.
11.9. Time of Essence. Time is of the essence of this Agreement, the Other
----------------
Agreements and the Security Documents.
11.10. Entire Agreement. This Agreement and the other Loan Documents,
------------------
together with all other instruments, agreements and certificates executed by the
parties in connection therewith or with reference thereto, embody the entire
understanding and agreement between the parties hereto and thereto with respect
to the subject matter hereof and thereof and supersede all prior agreements,
understandings and inducements, whether express or implied, oral or written.
<PAGE>
11.11. Interpretation. No provision of this Agreement or any of the other
---------------
Loan Documents shall be construed against or interpreted to the disadvantage of
any party hereto by any court or other governmental or judicial authority by
reason of such party having or being deemed to have structured, drafted or
dictated such provision.
11.12. Lender's Consent. Whenever Lender's consent is required to be
------------------
obtained under any of the Loan Documents as a condition to any action, inaction,
condition or event, Lender shall be authorized to give or withhold such consent
in its sole and absolute discretion and to condition its consent upon the giving
of additional collateral security for the Obligations, the payment of money or
any other matter.
11.13. Credit Inquiries. Each Borrower hereby authorizes and permits
------------------
Lender (but Lender shall have no obligation) to respond to usual and customary
credit inquiries from third parties concerning such Borrower or any of its
Subsidiaries.
11.14. Waiver of Defenses. Each Borrower agrees that the joint and several
-------------------
liability of Borrowers provided for in Section 4.14 hereof shall not be impaired
or affected by (i) any modification, supplement, extension or amendment of any
of the Loan Documents or any other contract or agreement to which the other
Borrowers may hereafter agree (other than an agreement signed by Lender
specifically releasing such liability), (ii) any delay, extension of time,
renewal, compromise or other indulgence granted by Lender with respect to any of
the Obligations, (iii) any release or subordination of Lender's Liens with
respect to any or all of the Collateral or any alteration of any rights of any
Borrower with respect thereto, (iv) any increase or decrease in the rate of
interest with respect to any of the Obligations, the amount of fees charged
under the Loan Documents or the amount of the Obligations, (v) any release of
any Borrower, any Guarantor or any other Loan Party, or (vi) any other
agreements or arrangements whatever with any Borrower or with any other Person,
each Borrower hereby waiving all notices of such delay, extension, release,
subordination, renewal, compromise, increase or other indulgence, and hereby
consenting to be bound thereby as fully and effectively as if it had expressly
agreed thereto in advance. The liability of each Borrower is direct and
unconditional as to all of the Revolver Loans, and may be enforced without
requiring Lender first to resort to any other right, remedy or security. Each
Borrower expressly waives promptness, diligence, notice of acceptance and any
other notice with respect to any of the Obligations, this Agreement or any other
Loan Documents and any requirement that Lender protect, secure, perfect or
insure any Lien or any property subject thereto or exhaust any right or take any
action against any Borrower or any Person or any Collateral, including any
rights either Borrower may otherwise have under O.C.G.A. ss. 10-7-24 or any
similar statute.
11.15. Governing Law; Consent To Forum. This Agreement has been
------------------------------------
negotiated, executed and delivered at and shall be deemed to have been made in
Atlanta, Georgia. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia; provided, however, that if any
of the Collateral shall be located in any jurisdiction other than Georgia, the
laws of such jurisdiction shall govern the method, manner and procedure for
foreclosure of Lender's Lien upon such Collateral and the enforcement of
Lender's other remedies in respect of such Collateral to the extent that the
laws of such jurisdiction are different from or inconsistent with the laws of
Georgia. As part of the consideration for new value received, and regardless of
<PAGE>
any present or future domicile or principal place of business of either Borrower
or Lender, each Borrower hereby consents and agrees that the Superior Court of
Fulton County, Georgia, or, at Lender's option, the United States District Court
for the Northern District of Georgia, Atlanta Division, shall have jurisdiction
to hear and determine any claims or disputes between Borrowers and Lender
pertaining to this Agreement or to any matter arising out of or related to this
Agreement. Each Borrower expressly submits and consents in advance to such
jurisdiction in any action or suit commenced in any such Court, and each
Borrower hereby waives any objection which such Borrower may have based upon
lack of personal jurisdiction, improper venue or forum non conveniens and hereby
----- --- ----------
consents to the granting of such legal or equitable relief as is deemed
appropriate by such Court. Nothing in this Agreement shall be deemed or operate
to affect the right of Lender to serve legal process in any other manner
permitted by law, or to preclude the enforcement by Lender of any judgment or
order obtained in such forum or the taking of any action under this Agreement to
enforce same in any other appropriate forum or jurisdiction.
11.16. Waivers by Borrowers. Each Borrower waives (i) the right to trial
---------------------
by jury (which Lender hereby also waives) in any action, suit, proceeding or
counterclaim of any kind arising out of or related to any of the Loan Documents,
the Obligations or the Collateral; (ii) presentment, demand and protest and
notice of presentment, protest, default, non payment, maturity, release,
compromise, settlement, extension or renewal of any or all commercial paper,
accounts, contract rights, documents, instruments, chattel paper and guaranties
at any time held by Lender on which such Borrower may in any way be liable and
hereby ratifies and confirms whatever Lender may do in this regard; (iii) notice
prior to taking possession or control of the Collateral; and (iv) notice of
acceptance hereof. Each Borrower acknowledges that the foregoing waivers are a
material inducement to Lender's entering into this Agreement and that Lender is
relying upon the foregoing waivers in its future dealings with Borrowers. Each
Borrower warrants and represents that it has reviewed the foregoing waivers with
its legal counsel and has knowingly and voluntarily waived its jury trial rights
following consultation with legal counsel. In the event of litigation, this
Agreement may be filed as a written consent to a trial by the Court.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed in Atlanta,
Georgia, on the day and year specified at the beginning of this Agreement.
ATTEST: LITCHFIELD FINANCIAL CORPORATION
("Litchfield")
/s/ Amy S. Backiel By: /s/ Heather A. Sica
- ------------------------------ -------------------------------
Amy S. Backiel, Vice President Heather A. Sica, Executive
Vice President
[CORPORATE SEAL]
ATTEST: GREEN MOUNTAIN FUNDING CORP.
("Green Mountain")
/s/ Amy S. Backiel By: /s/ Heather A. Sica
- ------------------------------ -------------------------------
Amy S. Backiel, Vice President Heather A. Sica, Executive
Vice President
[CORPORATE SEAL]
Accepted in Atlanta, Georgia:
GREEN TREE FINANCIAL SERVICING
CORPORATION
("Lender")
By: /s/ Chris Gouskos
-----------------------------
Title: Vice President
<PAGE>
Exhibit 10.155
SECOND AMENDED AND RESTATED LOAN AND
------------------------------------
SECURITY AGREEMENT
------------------
SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT dated May 28, 1997,
among BANKBOSTON, N.A., f/k/a The First National Bank of Boston, a national
banking association with its head office at 100 Federal Street, Boston,
Massachusetts 02110 and with a place of business in Pittsfield, Massachusetts,
as agent (the "Agent"), various financial institutions as are or may become
parties hereto (collectively, the "Lenders"), and LITCHFIELD FINANCIAL
CORPORATION, a Massachusetts corporation with a principal place of business in
Stamford, Vermont ("Borrower").
The Lenders as of the date of this Agreement are BANKBOSTON, N.A. f/k/a The
First National Bank of Boston ("BankBoston") and FLEET BANK-NH ("Fleet").
his Second Amended and Restated Loan and Security Agreement, the Notes, the
Collateral Assignment of Contracts, the Financing Statements, all as defined
herein, and all other documents and instruments executed in connection with this
Agreement, are collectively referred to as the "Loan Documents".
PRELIMINARY STATEMENT
---------------------
Pursuant to an Amended and Restated Loan and Security Agreement dated October 2,
1996, as amended by Amendment No. 1 dated December 26, 1996 and Amendment No. 2
dated April 4, 1997 (collectively, the "Prior Agreement"), the Lenders provided
to Borrower a revolving credit facility in the original principal amount of up
to $30,000,000.
Borrower desires to increase Borrower's revolving credit facility to
$50,000,000, and the Lenders have agreed to offer Borrower revolving credit
facilities in the aggregate amount of up to $50,000,000 (the "Loans").
This Agreement sets forth the terms and conditions of the Loans and amends and
restates in its entirety the Prior Agreement.
AGREEMENT
---------
IT IS THEREFORE AGREED AS FOLLOWS:
1. DEFINED TERMS. In addition to terms defined elsewhere in this Agreement, the
--------------
following terms shall have the meanings indicated in this Section 1. The
singular shall include the plural and the masculine gender shall include the
feminine and neuter and vice-versa as the context requires. Accounting terms
used herein shall be given their customary meaning in accordance with generally
accepted accounting principles, unless such terms are otherwise defined herein.
Terms defined in the Uniform Commercial Code as in effect in the Commonwealth of
Massachusetts (the "UCC") shall be used herein as defined therein, unless such
terms are otherwise defined herein.
1.1 "Assignee Lender" shall have the meaning provided in Section 11.7.1 herein.
---------------
<PAGE>
1.2 "Authorized Officer" shall mean an officer of Borrower who has been duly
-------------------
authorized by Borrower to execute and deliver to Agent Borrowing Base
Certificates and other certificates, each of whom is listed on Schedule 1.2
attached hereto, as such schedule may be amended by Borrower from time to time.
1.3 "Available Consumer Loan Collateral Amount" shall mean the aggregate
---------------------------------------------
principal amount outstanding from time to time of Uncommitted Consumer Loans
pledged as Consumer Loan Collateral.
1.4 "Available Dealer Loan Collateral Amount" shall mean the sum of the Dealer
-----------------------------------------
Loan Collateral Amounts for all Eligible Dealers.
1.5 "BankBoston Note" shall have the meaning provided in Section 2.1 herein.
---------------
1.6 "Borrowing Base" shall mean at any time the sum of (i) 80 percent of the
---------------
aggregate of the Available Dealer Loan Collateral Amount and (ii) 80 percent of
the aggregate of the Available Consumer Loan Collateral Amount and (iii) the
Excess Principal.
1.7 "Borrowing Base Certificate" shall mean a certificate substantially in the
--------------------------
form of Exhibit 1.7 attached hereto or in such form as shall be acceptable to
Agent and certifying (a) the Available Dealer Loan Collateral Amount (in the
aggregate and by individual dealer), the Available Consumer Loan Collateral
Amount and the Excess Principal; (b) that all loans constituting Dealer Loan
Collateral and Consumer Loan Collateral are not in default; and (c) that
Borrower knows of no defenses assertable against any loans constituting the
Dealer Loan Collateral or Consumer Loan Collateral. Any Borrowing Base
Certificate delivered on the first day of a month shall be accompanied by a
trial balance of the Consumer Loan Collateral acceptable to Agent.
1.8 "Collateral" shall have the meaning provided in Section 3.1 herein.
----------
1.9 "Collateral Assignment of Contracts" shall have the meaning provided in
------------------------------------
Section 3.3 herein.
1.10 "Collection Account" shall have the meaning provided in Section 2.9 herein.
------------------
1.11 "Committed Consumer Loan Collateral" shall mean Consumer Loan Collateral
------------------------------------
securing a dealer loan pledged as Dealer Loan Collateral.
1.12 "Consolidated Interest Expense" shall mean, with reference to any period,
------------------------------
all interest charges (excluding amortization of debt discount and expense and
imputed interest on capitalized lease obligations) for such period, determined
on a consolidated basis for Borrower and its Subsidiaries in accordance with
generally accepted accounting principles consistently applied.
1.13 "Consolidated Net Income" for any period shall mean the net income of
-------------------------
Borrower and its Subsidiaries for such period as computed on a consolidated
basis in accordance with generally accepted accounting principles consistently
applied, and, without limiting the foregoing, after deduction from gross income
of all expenses and reserves, including reserves for taxes on or measured by
income, but excluding any extraordinary profits or losses and also excluding any
taxes on such extraordinary profit or loss.
<PAGE>
1.14 "Consumer Loan Collateral" shall have the meaning provided in Section 3.1.2
------------------------
herein.
1.15 "Consumer Loan Cover Sheet" shall mean a document prepared by Borrower and
-------------------------
executed by an Authorized Officer of Borrower indicating the outstanding
principal amount of such consumer loan and certifying that (a) attached to such
cover sheet are the Required Consumer Loan Documents, (b) all submitted
documents are consistent as to borrower name, property address, loan amount,
interest rate and loan term, (c) the note or comparable instrument or
installment sales contract evidencing such loan bears an original signature or
signatures which appear to be those of the maker or makers, (d) except for
endorsements to Borrower or Agent or in blank, none of the documents contain any
irregular writings which appear to affect the validity thereof, (e) the loan has
all of the characteristics of an Eligible Consumer Loan; and (f) (1) if the
collateral securing the loan shall be real property, the assignment of the
mortgage or equivalent security instrument is in proper form for recording or
filing in the jurisdiction where the collateral is located and would be
effective upon recording or filing, or (2) if the collateral securing such loan
shall not be real property, the assignment of the security instrument creating
such security interest is (i) in proper form for filing in the jurisdiction
where the Collateral is located and would be effective upon recording or filing
or (ii) effective without recording or filing. On each Consumer Loan Cover Sheet
related to any Uncommitted Consumer Loans, Borrower shall add the following
language: "Borrower has good and marketable title to the consumer loans pledged
herewith free and clear of all liens, mortgages, pledges, security interests,
encumbrances or charges of any kind." Borrower shall be entitled to deliver a
Consumer Loan Cover Sheet or Sheets relating to multiple consumer loans;
provided that Borrower shall, at the time of delivery of any Collateral, deliver
at least one Consumer Loan Cover Sheet for each Eligible Dealer Loan relating to
Committed Consumer Loan Collateral securing such Eligible Dealer Loan.
1.16 "Dealer Loan Collateral" shall have the meaning provided in Section 3.1.1
-----------------------
herein.
1.17 "Dealer Loan Collateral Amount" shall mean with respect to each Eligible
-------------------------------
Dealer the principal amount outstanding from time to time of any Eligible Dealer
Loan pledged as Dealer Loan Collateral, provided that the amount included in the
calculation of Dealer Loan Collateral Amount for any Eligible Dealer shall not
exceed the lesser of (a) such dealer's Maximum Dealer Amount or (b) the greater
of (1) $1,000,000 or (2) the product of (i) 20% times (ii) the outstanding
principal balance of the Loans.
1.18 "Dealer Loan Cover Sheet" shall mean a document prepared by Borrower and
-------------------------
executed by an Authorized Officer of Borrower indicating (i) the outstanding
principal amount of such dealer loan and (ii) the outstanding principal amount
of Consumer Loan Collateral securing such dealer loan and certifying that (a)
attached to such cover sheet are the Required Dealer Loan Documents, (b) all
submitted documents are consistent as to dealer name and loan amount, (c) the
note evidencing such loan bears an original signature, (d) except for
endorsements to Borrower or Agent or in blank, none of the documents contain any
irregular writings which appear to affect the validity thereof and (e) the loan
has all of the characteristics of an Eligible Dealer Loan.
1.19 "Delinquency Ratio" shall mean for any period the ratio of Total Gross
------------------
Delinquencies to Total Loan Portfolio.
1.20 "EBITDA" shall mean, with reference to any period, Consolidated Net Income
------
for such period plus all amounts deducted in arriving at such Consolidated Net
Income in respect of (i) Consolidated Interest Expense for such period, plus
<PAGE>
(ii) federal, state and local income taxes for such period, plus (iii) all
charges for depreciation of fixed assets and amortization or organizational and
financing costs for such period, determined in each case on a consolidated basis
for Borrower and its Subsidiaries in accordance with generally accepted
accounting principles consistently applied.
1.21 "Eligible Consumer Loan" shall mean a loan to a consumer borrower with all
-----------------------
of the following characteristics:
1.21.1 The loan shall be made to a resident of the United States who is the
occupant or owner of the collateral securing such loan, shall be payable in U.S.
dollars, and shall be in accordance with Borrower's general underwriting
criteria;
1.21.2 (i) The collateral securing such loan shall be one of the following:
undeveloped real property, real property improved by completed single-family
residences, real property improved by mobile homes or manufactured housing, or
interests in so-called time share units acceptable to Agent and (ii) all
improvements located at the property shall be constructed in compliance with all
applicable laws and serviced by utilities necessary for their intended use;
1.21.3 (i) If the collateral securing such loan shall be real property, the loan
shall be secured by a valid first mortgage lien of record on the mortgaged
property (or similar first priority lien created by deed of trust or equivalent
security instrument) or (ii) if the Collateral securing such loan shall not be
real property, the loan shall be secured by a valid perfected first priority
security interest; in either case, subject only to (a) liens for taxes not yet
due and payable, and (b) easements, restrictions and encumbrances acceptable to
Agent and which do not materially affect the value of the collateral for such
loan;
1.21.4 If pledged to Agent as Consumer Loan Collateral, the pledge by
Borrower to Agent of such loan and related rights is effective to grant to Agent
a first priority security interest in such loan and related rights free and
clear of any liens or claims of any other person;
1.21.5 All agreements in connection with such loan are the legal, valid and
binding obligations of the consumer borrower, in full force and effect and
enforceable in accordance with their terms;
1.21.6 The loan complies in all respects with all requirements of all applicable
state and Federal law, including, without limitation, state laws and regulations
governing sales of time share units, applicable usury limitations, real estate
settlement procedures, the Securities Act of 1933, the Securities Exchange Act
of 1934, the Interstate Land Sales Full Disclosure Act, the Consumer Credit
Protection Act of 1968, the Consumer Leasing Act of 1976, the Equal Credit
Opportunity Act, the Truth in Lending Act, and Regulation Z of the Board of
Governors of the Federal Reserve System;
1.21.7 All applicable recission or cancellation periods relating to such
consumer loan shall have expired, no payments shall be more than 60 days late
and no other defaults shall have occurred with respect to such loan;
1.21.8 Borrower has no knowledge or notice of any of the following conditions
existing or in connection with the collateral securing such loan: hazardous
wastes or hazardous substances prohibited by applicable law or regulation,
asbestos or urea formaldehyde insulation, or any release of any of the foregoing
prohibited by applicable law or regulation;
<PAGE>
1.21.9 In connection with each such loan pledged as Consumer Loan Collateral,
Borrower shall have delivered the Required Consumer Loan Documents; and
1.21.10 Such other characteristics as Agent may require from time to time.
1.22 "Eligible Dealer" shall mean each dealer approved by Agent from time to
----------------
time in Agent's sole discretion to whom Borrower has or may loan money secured
by Eligible Consumer Loans. The Eligible Dealers as of the date hereof are
listed on Schedule 1.22 attached hereto. Borrower shall be entitled to propose
and Agent shall be entitled to accept new Eligible Dealers without the need for
further amendment of this Second Restated Loan and Security Agreement. Borrower
shall submit such documents and opinions as Agent in its sole discretion shall
require prior to Agent's acceptance of any new Eligible Dealer. The Collateral
protocol for such additional Eligible Dealers shall be established by Agent from
time to time.
1.23 "Eligible Dealer Loan" shall mean a loan made by the Borrower to an
----------------------
Eligible Dealer with all of the following characteristics:
1.23.1 The dealer loan has been made in the ordinary course of Borrower's
business and is in accordance with Borrower's general underwriting criteria;
1.23.2 The amount outstanding on such dealer loan shall not exceed 85 percent of
the outstanding principal amount in the aggregate of Eligible Consumer Loans in
which Borrower has a first priority perfected security interest securing such
dealer loan;
1.23.3 The pledge to Borrower by the dealer of Eligible Consumer Loans and
related rights as security for such dealer loan is effective to grant to
Borrower a perfected first priority security interest in such Eligible Consumer
Loans and related rights free and clear of any liens or claims of any other
person;
1.23.4 All agreements entered into by the dealer in connection with such dealer
loan are the legal, valid and binding obligations of the dealer, in full force
and effect and enforceable in accordance with their terms;
1.23.5 The agreements between the dealer and Borrower related to such dealer
loan provide that any loan for which a payment shall be more than 60 days late
shall be excluded from dealer's borrowing base and shall not be included in
calculation of collateral used to determine availability of credit under such
dealer loan;
1.23.6 No defaults in payment or otherwise shall have occurred with respect to
such loan;
1.23.7 The loan complies in all respects with all requirements of all applicable
state and Federal law, including, without limitation, if applicable, state laws
and regulations governing sales of time share units, usury limitations, real
estate settlement procedures, the Securities Act of 1933, the Securities
Exchange Act of 1934, the Interstate Land Sales Full Disclosure Act, the
Consumer Credit Protection Act of 1968, the Consumer Leasing Act of 1976, the
Equal Credit Opportunity Act, the Truth in Lending Act and Regulation Z of the
Board of Governors of the Federal Reserve System;
<PAGE>
1.23.8 In connection with each such dealer loan pledged as Dealer Loan
Collateral, Borrower shall have delivered to Agent the Required Dealer Loan
Documents; and
1.23.9 Such other characteristics as Agent may require from time to time.
1.24 "Event of Default" shall have the meaning provided in Section 8 herein.
----------------
1.25 "Excess Principal" shall have the meaning provided in Section 2.9 herein.
----------------
1.26 "Financial Statements" shall have the meaning provided in Section 5.1.3
---------------------
herein.
1.27 "Financing Statements" shall have the meaning provided in Section 3.5
---------------------
herein.
1.28 "Fleet Note" shall have the meaning provided in Section 2.1 herein.
----------
1.29 "Indebtedness" shall have the meaning provided in Section 3.1 herein.
------------
1.30 "Interest Coverage Ratio" shall have the meaning provided in Section 5.15
------------------------
herein.
1.31 "Leverage" shall mean the ratio of total indebtedness as reflected on
--------
Borrower's Financial Statements to Tangible Net Worth.
1.32 "Lender's Percentage" shall mean, with respect to any Lender, a percentage
--------------------
which shall be equal to the amount of such Lender's Loan divided by $50,000,000.
1.33 "Lock-Box Accounts" shall have the meaning provided in Section 2.8 herein.
-----------------
1.34 "Loss Coverage Ratio" shall mean for any period the ratio of (i) NIBT plus
--------------------
(ii) Provision for Losses to Net Charge-Offs for the same period.
1.35 "Maturity Date" shall mean April 30, 2000, unless extended as provided in
--------------
Section 2.7 herein.
1.36 "Maximum Dealer Amount" shall mean with respect to each Eligible Dealer,
-----------------------
the lesser of (1) the lesser of (a) the principal amount outstanding of any
Eligible Dealer Loan pledged as Dealer Loan Collateral, or (b) 80% times the
Eligible Consumer Loans securing such dealer loan pledged as Consumer Loan
Collateral, (2) the greater of (c) $1,000,000 or (d) the product of (i) 20%
times (ii) the outstanding principal balance of the Loans and (3) the limit on
the Dealer Loan Collateral Amount from such dealer determined by Agent from time
to time in its sole discretion. The establishment of a Maximum Dealer Amount for
any dealer shall in no way limit the amount of dealer loans which Borrower may
pledge hereunder or impair the effectiveness of the pledge or grant of security
interest in Collateral related to any dealer loans.
1.37 "Net Charge-Offs" shall mean the amount of net charge offs as reflected on
---------------
Borrower's Financial Statements, less amounts charged to the purchase allocation
as reported to Agent in writing from time to time.
1.38 "NIBT" shall mean net income before taxes as reflected on Borrower's
----
Financial Statements.
<PAGE>
1.39 "Notes" shall have the meaning provided in Section 2.1 herein.
-----
1.40 "Provision for Losses" shall mean provision for losses as reflected on
---------------------
Borrower's Financial Statements.
1.41 "Required Consumer Loan Documents" shall mean with respect to each loan
----------------------------------
included within Consumer Loan Collateral, the following:
1.41.1 (i) Original promissory note or comparable instrument, endorsed in blank
by the respective dealer or other payee, or if endorsed to Borrower, endorsed in
blank by an Authorized Officer of Borrower or (ii) original installment sales
contract (a) in which Borrower has a perfected first priority security interest
(b) accompanied by a copy of a recorded UCC financing statement or statements in
favor of Borrower evidencing Borrower's perfected security interest in such
contract, (c) in which Agent has a perfected first priority security interest,
and (d) which is adequately described in recorded UCC financing statement or
statements in favor of Agent evidencing Agent's perfected security interest in
such contract;
1.41.2 (i) If the collateral securing such loan shall be real property, the
original or copy time-stamped by appropriate recording office (or in lieu
thereof other evidence of recording consistent with Borrower's underwriting
practices and acceptable to Agent, to be replaced as soon as reasonably
practicable with an original or time-stamped copy) of the recorded mortgage or
deed of trust or equivalent security instrument acceptable to Agent, securing
the note or installment sales contract referred to in Section 1.419.1, and
original or copy time-stamped by appropriate recording office of all amendments
and assignments of such mortgage or deed of trust or equivalent security
instrument showing an unbroken chain of title from the originator to Borrower(or
in lieu thereof copies of title reports or other evidence of an unbroken chain
of title consistent with Borrower's underwriting practices and acceptable to
Agent), or (ii) if the collateral securing such loan shall not be real property,
original assignment of such collateral acceptable to Agent, securing the note or
installment sales contract referred to in Section 1.41.1, and any amendments or
assignments of the same showing an unbroken chain of ownership from the
originator to Borrower;
1.41.3 (i) If the collateral securing such loan shall be real property, original
assignment(s) of mortgage or equivalent security instrument in blank, or (ii) if
the collateral securing such loan shall not be real property, (a) original
assignment of non-real estate collateral in blank, in form ready for filing or
recording if applicable, and accompanied by UCC-1 or UCC-3 financing statement
if applicable, and acceptable to Agent or (b) if the collateral securing such
loan shall be governed by a certificate of title, the original certificate of
title (x) endorsed in blank and in proper form for filing or recording or (y)
accompanied by executed assignment of title or change in ownership form;
1.41.4 (i) If the collateral securing such loan shall be real property, title
insurance policy, if obtained by the dealer or Borrower, insuring Agent's
interest as first mortgagee in the mortgaged property, in the full amount of the
pledged note, from a title company approved by Agent, or equivalent acceptable
to Agent (such as opinion from a attorney acceptable to Agent that the mortgage
or equivalent creates a first priority lien on the underlying property subject
only to exceptions acceptable to Agent), or (ii) if the collateral securing such
loan shall not be real property, if requested by Agent an opinion from an
attorney acceptable to Agent that the grant of security interest is effective to
grant to Agent a first priority lien subject only to exceptions acceptable to
Agent;
<PAGE>
1.41.5 If requested by Agent, original notice to consumer borrower signed by
payee of note that payments shall be made to Agent or its designee ("Notice to
Maker");
1.41.6 If requested by Agent in connection with each such loan which has at any
time been subject to any security interest, pledge or hypothecation for the
benefit of any person, a certification or release by the former secured party in
form acceptable to Agent that such security interest has been released;
1.41.7 Consumer Loan Cover Sheet; and
1.41.8 Other documents required by Agent from time to time.
1.42 "Required Dealer Loan Documents" shall mean with respect to each loan
---------------------------------
included within Dealer Loan Collateral, the following:
1.42.1 Original promissory note, endorsed in blank by the respective dealer, or
if endorsed to Borrower, endorsed in blank by an Authorized Officer of Borrower;
1.42.2 Originals of the following documents related to the note referred to in
Section 1.42.1: loan agreements, guaranties, and if applicable custodial
agreements;
1.42.3 Copies or originals of all other documents related to the note referred
to in Section 1.42.1 as may be requested by Agent from time to time, including,
without limitation, assignments of purchase agreements, mortgages, deeds of
trust, collateral assignment of agreements, insurance policies, title insurance
policies, subordination agreements, agency agreements, insurance policies,
assignments of insurance policies, servicing agreements, corporate documents and
opinions of counsel;
1.42.4 If requested by Agent, original consent by dealer to pledge and
assignment of dealer loan to Agent in form acceptable to Agent;
1.42.5 If requested by Agent, original consents by any custodians or agents who
hold collateral securing such loan or who collect money related to such loan;
1.42.6 Original unrecorded UCC-3 assignments in blank in form suitable for
recording for any UCC-1 financing statements filed by dealer and original
unrecorded assignments of mortgage or equivalent security instrument in blank
and in form suitable for recording for any mortgages in favor of Borrower
granted by dealer;
1.42.7 Dealer Loan Cover Sheet; and
1.42.8 Other documents required by Agent from time to time.
1.43 "Required Lenders" shall mean at any time Lenders holding at least 66 2/3%
-----------------
of the then outstanding principal amount of the Notes.
<PAGE>
1.44 "Subsidiary" shall mean any corporation or other entity of which more than
----------
fifty percent (50%) of the outstanding voting stock or comparable equity
interests (including interests as a limited partner in a limited partnership) is
at the time directly or indirectly owned by Borrower, by one or more of its
Subsidiaries, or by Borrower and one or more of its Subsidiaries.
1.45 "Tangible Net Worth" shall mean net worth as reflected on Borrower's
-------------------
Financial Statements, excluding goodwill and all intangibles, but including
retained interests in loan sales.
1.46 "Total Gross Delinquencies" shall mean the aggregate principal amount of
--------------------------
loans contained in the Total Loan Portfolio for which payments shall be 30 or
more days in arrears.
1.47 "Total Serviced Portfolio" shall mean the aggregate principal amount of the
------------------------
Borrower's entire loan portfolio, including loans serviced for others.
1.48 "Uncommitted Consumer Loans" shall mean Eligible Consumer Loans not
----------------------------
constituting Committed Consumer Loan Collateral. In addition to the requirements
for Eligible Consumer Loans, for any Uncommitted Consumer Loans secured by a
pledge of collateral which shall (a) be real property related to a so-called
time share interest or (b) not be real property, the first required monthly
payment shall have been made in a timely manner. The Required Consumer Loan
Documents for Uncommitted Consumer Loans pledged as Consumer Loan Collateral
shall include, in addition to those documents specified in Section 1.41, (i) an
appraisal of the Collateral securing such loan (or a statement that an appraisal
is not required by Borrower's general underwriting criteria); (ii) closing
opinion of an attorney acceptable to Agent addressed to Agent or upon which
Agent shall be entitled to rely, if obtained by Borrower, (iii) a title
insurance policy or equivalent as described in Section 1.41.4(i), if obtained by
Borrower; and (iv) in connection with each Eligible Consumer Loan with an
outstanding principal balance of $100,000 or greater, a Notice to Maker.
2. TERMS OF THE LOANS.
-------------------
2.1 The Notes. Simultaneously with the execution of this Agreement, (a) Borrower
----------
is executing a Revolving Line of Credit Promissory Note payable to BankBoston in
the original principal amount of up to $30,000,000 (the "BankBoston Note"), and
(b) Borrower is executing a Revolving Line of Credit Promissory Note payable to
Fleet in the original principal amount of up to $20,000,000 (the "Fleet Note"
and collectively with the BankBoston Note, the "Notes").
2.2 Advances on the Loans. Balances outstanding on the date hereof on the
------------------------
$20,000,000 revolving credit facility from BankBoston to Borrower (and any
overlines from BankBoston to Borrower) and on the $10,000,000 revolving credit
facility from Fleet to Borrower (and any overlines from Fleet to Borrower) shall
be paid on the date hereof by advances on the Loans. Borrower shall request
further advances from time to time in any manner acceptable to Borrower and
Agent, and Agent shall credit advances by depositing such sums in Borrower's
account at Agent, Account Number 51233985. Immediately upon notice from Agent of
an advance, each Lender shall reimburse Agent in an amount equal to the total
advance times such Lender's Percentage. Advances on the Loans shall be limited
in amount to no more than the Borrowing Base as reported in a Borrowing Base
Certificate delivered to Agent and each Lender simultaneously with each request
<PAGE>
for an advance. By requesting an advance, Borrower shall be deemed to represent
and warrant that the information in the most recent Borrowing Base Certificate
remains true and accurate as of the time of such request, and that after giving
effect to the requested advance, the outstanding principal amount of the Loans
shall not exceed the Borrowing Base. In the event that the aggregate outstanding
principal amount of the Loans shall at any time exceed the Borrowing Base as
determined by Agent, Borrower shall immediately and without notice or demand pay
to Agent the amount of such excess. Borrower shall make payments on the Loans to
Agent, and Agent shall immediately pay to each Lender an amount equal to the
total payment times such Lender's Percentage.
2.3 Nonreceipt of Funds by Agent from Lender. Unless Agent shall have received
-----------------------------------------
notice from any Lender prior to the date on which such Lender is to provide
funds to Agent for an advance to Borrower that such Lender shall have demanded
its Note, Agent may assume that all Lenders shall make such funds available to
Agent on the date of such advance, and Agent in its sole discretion may, but
shall not be obligated to, in reliance upon such assumption, make available to
Borrower on such date a corresponding amount. If and to the extent that Agent
shall make an advance to Borrower and any Lender shall not immediately reimburse
Agent, such Lender shall repay to Agent forthwith on demand such Lender's
Percentage of such advance together with interest thereon, for each day from the
date such amount is made available to Borrower until the date such amount is
repaid to Agent, at the customary rate set by Agent for the correction of errors
among banks for three business days and thereafter at the Agent's base rate as
announced from time to time. If any Lender shall not pay such Lender's
Percentage of any advance forthwith upon Agent's demand therefor, Agent shall
promptly notify Borrower, and Borrower shall immediately repay to Agent such
amount with interest thereon, for each day from the date such amount is made
available to Borrower until the date such amount is repaid to Agent, at the rate
of interest provided in the Notes.
2.4Nonreceipt of Funds by Agent from Borrower. Unless Agent shall have received
-------------------------------------------
notice from Borrower prior to the date on which any payment is due to Agent or
Lenders hereunder that Borrower will not make such payment in full, Agent may
assume that Borrower has made such payment in full to Agent on such date and
Agent in its sole discretion may, but shall not be obligated to, in reliance
upon such assumption, cause to be distributed to each Lender on such due date an
amount equal to the amount then due such Lender. If and to the extent Borrower
shall not have so made such payment in full to the Agent, each Lender shall
repay to Agent forthwith on demand such amount distributed to such Lender
together with interest thereon, for each day from the date such amount is
distributed to such Lender until the date such Lender repays such amount to
Agent, at the customary rate set by Agent for the correction of errors among
banks for three business days and thereafter at the Agent's base rate as
announced from time to time.
2.5 Borrowing Base Certificates. Borrower shall submit to Agent and each Lender
----------------------------
a Borrowing Base Certificate (a) from time to time as requested by Agent; (b)
simultaneously with each request for an advance on the Loans, (c) simultaneously
with each request for a release of Collateral, and (d) weekly at any time that
any amounts are outstanding on the Loans.
2.6 Commitment Fee. On January 1, April 1, July 1 and October 1 of each year,
----------------
Borrower shall pay to Agent a commitment fee equal to one-quarter of one percent
(.25%) per annum times the average daily unused balance of the Loans for the
preceding quarter, as calculated by Agent.
2.7 Extension. At least ninety days prior to (i) the first anniversary of this
----------
Agreement and (ii) each anniversary of this Agreement thereafter, Borrower shall
be entitled to request by notice to Agent and Lenders that the Maturity Date be
<PAGE>
extended for an additional year. Agent and Lenders in their sole discretion may
extend the Maturity Date. Unless the Agent notifies Borrower that Agent and
Lenders shall extend the Maturity Date within sixty days after receipt of a
request to extend the Maturity Date, then the Loans shall be due and payable on
the Maturity Date or earlier as provided herein or in the Notes without any
extension.
2.8 Lock-Box Accounts. Pursuant to lock-box agreements acceptable to Agent,
-------------------
Agent shall establish two lock-box accounts (the "Lock-Box Accounts") at Bank
One or other financial institution acceptable to Agent into which all payments
or proceeds with respect to any Collateral shall be deposited. Borrower shall
deposit any payments or proceeds with respect to the Collateral received by
Borrower into one of the Lock-Box Accounts or the Collection Account. Borrower
shall cause each servicer which collects or processes payments with respect to
the Collateral to deposit such payments into one of the Lock-Box Accounts.
Borrower and Agent shall cause the financial institution at which the Lock-Box
Accounts shall be located to transfer to the Collection Account by wire transfer
on a schedule approved by Agent but no less frequently than once each week all
funds in the Lock-Box Accounts.
2.9 Collection Account. Pursuant to a Collection Account Agreement between
--------------------
Borrower and Agent entered into simultaneously herewith, Borrower shall
establish a collection account with Agent (the "Collection Account"). Borrower
shall ensure that all payments and proceeds from the Collateral from time to
time shall be paid into the Collection Account.
2.9.1 All payments into the Collection Account which constitute principal
payments shall be applied to reduce the principal balance of the Loans; provided
that for any Loans for which the Borrower has selected the Adjusted Eurodollar
Rate (as defined in the Note), such principal amounts ("Excess Principal
Amounts") shall be retained in the Collection Account, and such Excess Principal
Amounts shall be applied to reduce the Loans only at the end of an Interest
Period (as defined in the Notes). All payments into the Collection Account which
constitute interest payments shall be applied to the monthly payments of
interest and other charges due pursuant to the Notes and this Agreement.
2.9.2 Borrower shall provide to Agent such reports as Agent shall require to
identify the allocations of funds paid into the Collection Account between
interest and principal, including, without limitation, monthly reports from
servicers of the loans which constitute Collateral. Any amounts paid into the
Collection Account and not identified to Agent's satisfaction to be interest
payments shall be considered to be principal payments and the Agent shall apply
such payments to reduce the principal balance of the Loans.
2.9.3 After each monthly payment of interest on the Loans as provided in the
Notes, Borrower shall be entitled to withdraw excess interest amounts from the
Collection Account with Agent's approval and by such procedures as Agent and
Borrower shall determine from time to time.
3. SECURITY INTERESTS; COLLATERAL; GUARANTIES
------------------------------------------
3.1 Grants of Security Interest. In order to secure payment of the Notes and the
----------------------------
performance of the obligations of the Borrower under this Agreement and all
other Loan Documents and all liability to Agent and each Lender jointly and
severally, now existing or which may hereafter be incurred or arise by future
advances or otherwise, direct or indirect, absolute or contingent (collectively,
the "Indebtedness"), simultaneously with the execution of this Agreement,
Borrower is granting to Agent individually and as Agent for each Lender security
interests in the following (collectively, the "Collateral"):
<PAGE>
3.1.1 Dealer Loans. From time to time Borrower shall deliver to Agent the
--------------
Required Dealer Loan Documents for dealer loans selected by Borrower, and
Borrower hereby pledges to Agent and grants to Agent a security interest in all
of Borrower's right, title and interest in each such dealer loan, now existing
or hereafter arising, the original promissory note for which shall from time to
time be in the possession of Agent (collectively, "Dealer Loan Collateral").
3.1.2 Consumer Loans. From time to time Borrower shall deliver to Agent the
----------------
Required Consumer Loan Documents for consumer loans selected by Borrower, and
Borrower hereby pledges to Agent and grants to Agent a security interest in all
of Borrower's right, title and interest in each such consumer loan, now existing
or hereafter arising, the original promissory note, comparable instrument or
installment sales contract for which shall from time to time be in the
possession of Agent or its agents (collectively, "Consumer Loan Collateral").
3.1.3 Related Rights. Borrower hereby grants to Agent a security interest in the
---------------
following rights now existing or hereafter arising related to Dealer Loan
Collateral and Consumer Loan Collateral (collectively, the "Related Rights"):
3.1.3.1 Rights Under Related Documents. All of Borrower's right, title and
---------------------------------
interest in and under any documents related to each such loan, including,
without limitation, all promissory notes or other agreements for payment (and
specifically including the right to collect all payments due pursuant to such
notes or agreements), loan agreements, mortgages, deeds of trust or other
security documents, guaranties, insurance policies (and specifically including
the right to assert and collect any claims thereunder), title insurance
policies, subordinations, custodial agreements, agency agreements, servicing
agreements, corporate documents, appraisals, site assessments, surveys,
opinions, instruments, drafts, acceptances, and chattel paper;
3.1.3.2 Rights in Collateral Securing Loans. All of Borrower's right, title and
-------------------------------------
interest in any collateral pledged to Borrower or in which Borrower has any
lien, mortgage or security interest in connection with each such loan.
3.1.3.3 Take-Out Commitments. To the extent that such rights are assignable, all
---------------------
of Borrower's rights (but not obligations) under any agreements related to each
such loan under which any party agrees to purchase such loan or any underwriting
agreements related to such loan and all rights to deliver such loan to investors
and purchasers pursuant thereto and all proceeds resulting therefrom;
3.1.3.4 Servicing Rights. To the extent that such rights are assignable, all of
-----------------
Borrower's rights to administer, service and collect each such loan and all
rights to payment therefor;
3.1.3.5 Dealer Claims. All of Borrower's rights against dealers or others from
--------------
whom it has acquired each such loan or security interests in such loan,
including, without limitation, all payments, rights to receive payment or retain
money on account of loans returned, charged back or repurchased by the dealer or
others from whom Borrower has acquired such loan, and rights under any related
guaranties or letters of credit;
<PAGE>
3.1.3.6 Records and Cabinets. All of Borrower's related documentation and other
---------------------
supporting evidence related to each such loan or other Collateral, including,
without limitation, computer programs, disks, tapes and related electronic data
processing media, applications, account cards, payment records, correspondence,
insurance certificates, books of account, ledgers, and cabinets in which the
same are reflected or maintained;
3.1.3.7 Collection Account; Lock-Box Accounts. The Collection Account and all
----------------------------------------
funds and proceeds from time to time in each of the Collection Account and the
Lock-Box Accounts; and
3.1.3.8 Other Related Rights and Receivables. All of Borrower's right, title and
-------------------------------------
interest in any other rights related to each such loan, including, without
limitation, accounts, accounts receivable, contract rights, pre-authorized
account debit agreements, and general intangibles.
3.1.4 Proceeds, Etc. With respect to each of the Dealer Loan Collateral,
---------------
Consumer Loan Collateral, and Related Rights, all accessions thereto,
substitutions and replacements therefor, additions, renewals and replacements
thereof, all proceeds and products from the sale, exchange, collection,
foreclosure, liquidation or other disposition of any of the foregoing and from
any such proceeds or products, and any proceeds of insurance related thereto.
3.2 Collateral Procedures.
----------------------
3.2.1 Delivery of Collateral. Borrower shall deliver to Agent Required Dealer
-----------------------
Loan Documents and Required Consumer Loan Documents from time to time to such
locations and in such manner acceptable to Agent as Borrower and Agent shall
determine. With the prior consent of Agent in each instance, in its sole
discretion, Borrower shall be entitled to effect delivery to Agent by delivery
to a custodian approved by Agent acting on Agent's behalf. All dealer loans and
consumer loans delivered by Borrower to Agent shall be accompanied by the
Required Dealer Loan Documents or the Required Consumer Loan Documents,
respectively, and Borrower shall be deemed to represent and warrant in
connection with all such loans delivered to Agent that the certifications
required to be included in the Dealer Loan Cover Sheet and the Consumer Loan
Cover Sheet, respectively, are true even if no such cover sheet shall be
delivered by Borrower. Borrower shall promptly deliver to Bank any additional
documents related to any Dealer Loan Collateral or Consumer Loan Collateral
which Borrower acquires after delivery to Agent of the Required Dealer Loan
Documents or the Required Consumer Loan Documents. After delivery to Agent,
Agent shall utilize custodial services acceptable to Agent, and Borrower shall
reimburse Agent for all of Agent's costs and expenses therefor. Some of the
procedures for delivery of Dealer Loan Collateral and Consumer Loan Collateral
are set out more fully on Schedule 3.2.1 attached hereto and incorporated
---------------
herein, as amended from time to time.
3.2.2 Agent's Obligations. Agent shall be under no obligation to review or in
- ----------------------------
any manner approve any Collateral delivered to Agent from time to time, although
nothing herein shall preclude Agent from conducting whatever review it deems
appropriate. Agent may in its discretion require Collateral to be delivered
three business days prior to any advance for which such Collateral shall be part
of the Borrowing Base. Agent shall have no responsibility for taking any steps
necessary to preserve rights against other parties or any other rights
pertaining to Collateral. Agent shall not be required to perfect or maintain the
perfection of its security interests. No loss of or damage to any Collateral
shall release Borrower from the Indebtedness. At any time after an Event of
Default, Agent shall be entitled to, but shall not be obligated to, take such
action as it shall deem appropriate at Borrower's expense to collect or enforce
<PAGE>
any loan pledged to Agent hereunder which shall be in default and Agent shall
not be liable to Borrower for any action or omission taken by Agent in the
collection or enforcement of such loans. Agent shall not be liable or
responsible in any way for any loss or damage to the Collateral or any
diminution in the value thereof, except if caused by Agent's gross negligence or
willful misconduct. Agent shall not be liable or responsible in any way for any
act of any custodian, carrier or any other person whatsoever, and all of the
same shall be at Borrower's sole risk. Agent shall not be responsible for any
excise, property or other taxes related to the Collateral or the sale thereof
and all such taxes shall be the responsibility of Borrower. The grants of
security interest herein shall not obligate or be construed to obligate Agent to
perform any of the terms contained in the agreements constituting Dealer Loan
Collateral or Consumer Loan Collateral or otherwise to impose any duty upon
Agent with respect to the same.
3.2.3 Release of Collateral. At Borrower's request and in the absence of a
-----------------------
default or event of default, Agent shall release Collateral in Agent's
possession from time to time in the manner instructed by Borrower, but only if
after such release the outstanding principal balance of the Loans shall not
exceed the Borrowing Base, as shown on a Borrowing Base Certificate delivered
simultaneously with a request for release.
3.2.4 Servicing; Collection of Payments. Prior to an Event of Default, Borrower
-----------------------------------
and its agents shall continue to service and administer loans constituting
Collateral in the ordinary course of business; provided that proceeds and
payments are paid as required by Section 2.9 herein. Upon the occurrence and
continuation of an Event of Default, Agent shall be entitled (but not obligated)
to assume the administration and servicing of such loans (after giving required
notices to borrowers).
3.3 Assignment of Contracts. Simultaneously with the execution of this
--------------------------
Agreement, Borrower shall assign to Agent individually and as Agent for each
Lender all of Borrower's rights in contracts constituting Collateral, including
without limitation, contracts with dealers, pursuant to a Second Amended and
Restated Collateral Assignment of Contracts (the "Collateral Assignment of
Contracts") acceptable to Agent.
3.4 Further Security. Borrower hereby grants to Agent and each Lender a first
------------------
lien security interest in any and all property which is or may hereafter be in
the possession of Agent or any Lender in any capacity, including, without
limitation, all moneys owed, or to be owed, by Agent or any Lender to Borrower.
Without limiting any other right of Agent or any Lender, and without requiring
Agent or any Lender to first proceed against any other security interest,
whenever Agent or any Lender has the right to declare the Notes, or any of them
to be immediately due and payable (whether or not it has so declared), Agent or
Lenders, at their option, may set off against the Indebtedness any and all
moneys then owed by Agent or any Lender to Borrower in any capacity, whether or
not due; and Agent or Lenders shall be deemed to have exercised such right of
set off immediately at the time of such election even though any charge therefor
is made or entered on Agent's or Lender's records subsequent thereto.
3.5 Filing and Recording. Borrower shall, at its cost and expense, cause all
---------------------
instruments and documents evidencing the security interests given pursuant to
this Agreement, including, without limitation, UCC-1 financing statements (the
"Financing Statements") to be duly recorded and/or filed in all places
necessary, in the opinion of Agent, to perfect and protect the lien or security
interest of Agent and Lenders . At Agent's request, Borrower shall, at its
expense, cause all assignments of mortgages or equivalent and UCC-3 assignments
included in the Required Dealer Loan Documents and the Required Consumer Loan
<PAGE>
Documents to be recorded or filed in all places necessary in the opinion of
Agent to perfect the interests of Agent and Lenders. Borrower hereby irrevocably
designates Agent, its agents, representatives and designees as agents and
attorneysinfact for Borrower to sign on behalf of Borrower and file any
financing statement or extension of financing statement in respect of any
security interest created pursuant to this Loan and Security Agreement which may
at any time be required or which, in the opinion of Agent, may at any time be
desirable. In the event that any rerecording or refiling thereof (or the filing
of any statement) is required to protect or preserve such lien or security
interest hereunder, Borrower shall at its cost and expense, cause the same to be
rerecorded and/or refiled at the time and in the manner requested by Agent.
Borrower shall pay on demand all reasonable costs and expenses of Agent in
connection with any such filing and recording.
4. REPRESENTATIONS AND WARRANTIES
------------------------------
In connection with the execution of this Loan and Security Agreement and the
Loan Documents and to induce the Lenders to make the Loans, and to induce the
Agent to act as agent, Borrower represents and warrants (and, so long as any
Indebtedness shall remain outstanding shall be deemed to represent and warrant
continuously) to Agent and Lenders jointly and severally as follows:
4.1 Authority; No Violation of Agreements. Borrower is duly organized, validly
--------------------------------------
existing and in good standing under the laws of the Commonwealth of
Massachusetts and under the laws of every state in which the conduct of its
business requires it to so qualify or be licensed, except where the failure to
be so qualified and in good standing does not have a material adverse affect on
Borrower's financial condition or on Borrower's ability to exercise its rights
in any Consumer Loan Collateral or Dealer Loan Collateral. Borrower has filed
all documents and registrations, including tradename registrations, required by
the laws of the Commonwealth of Massachusetts, the State of Vermont and all
other states in which the conduct of its business requires it to so qualify or
be licensed, except where the failure to be so qualified and in good standing
does not have a material adverse affect on Borrower's financial condition or on
Borrower's ability to exercise its rights in any Consumer Loan Collateral or
Dealer Loan Collateral. Schedule 4.1, attached hereto and incorporated herein
------------
contains a list of all locations where Borrower is qualified and duly licensed
to conduct business. Borrower has the power and authority to (a) own and operate
its properties and conduct its business and (b) execute and deliver the Loan
Documents and perform the transactions contemplated thereby. The execution and
delivery of the Loan Documents and the performance of the transactions
contemplated thereby (i) have been duly authorized by all necessary corporate
action and (ii) do not and will not constitute a breach or violation of (a) any
mortgage, deed of trust, lease, loan or credit agreement, trust agreement,
bylaws, shareholders agreement or other instrument or contract to which Borrower
is a party or by which it may be bound or affected or (b) any law,
administrative regulation or court decree or any obligation by which Borrower is
bound. The consent or approval of any governmental authority is not required for
Borrower to execute and deliver the Loan Documents and perform the transactions
contemplated thereby. Borrower is not in default under any indenture, mortgage,
deed of trust, agreement or other instrument to which it is a party or by which
it may be bound or affected.
4.2 Shareholders; Subsidiaries. Schedule 4.2 attached hereto and incorporated
----------------------------
herein contains a list of all Borrower's Subsidiaries and the percentage of
issued and outstanding shares of each class of capital stock owned by Borrower.
Each Subsidiary is duly organized, validly existing and in good standing under
<PAGE>
the laws of its state of incorporation and in every state in which the conduct
of its business requires it to so qualify or be licensed, except where the
failure to be so qualified and in good standing does not have a material adverse
affect on Borrower's financial condition or on Borrower's ability to exercise
its rights in any Consumer Loan Collateral or Dealer Loan Collateral. No such
subsidiary has any ownership or security interest in the Collateral.
4.3 Validity of Loan Documents. This Loan and Security Agreement and all other
---------------------------
Loan Documents contemplated hereby are valid, binding and enforceable in
accordance with their terms.
4.4 Absence of Actions. There is no pending or threatened action or proceeding
-------------------
against or affecting Borrower before any court, governmental agency, arbitrator,
or otherwise which may, in one case or in the aggregate, materially adversely
affect the validity or enforceability of this Loan and Security Agreement, or
the priority of the lien thereof, or the financial condition, operations,
properties, or business of Borrower, or which would prevent or impair Borrower
from complying with or performing any of the provisions of this Loan Agreement
or the other Loan Documents. Borrower is not in default with respect to any
statute, rule, judgment, decision, order, writ, injunction, decree, or demand of
any court or any governmental authority.
4.5 Good Title to Borrower's Property. Borrower has good and marketable title to
----------------------------------
the Collateral free and clear of all liens, mortgages, pledges, security
interests, encumbrances and charges of any kind, except for security interests
granted hereunder or disclosed on Schedule 4.5 attached hereto and incorporated
herein, and Borrower shall defend the Collateral against all claims and demands
of all persons at any time claiming the same or any interest therein adverse to
Agent or Lenders. Except for liens disclosed on Schedule 4.5, this Agreement,
the Collateral Assignment of Contracts, the Financing Statements and the
delivery to Agent from time to time of Required Dealer Loan Documents and
Required Consumer Loan Documents create valid, perfected first priority security
interests in the Collateral. Upon recording or filing of the assignments of
mortgage, UCC-3 financing statements, or other documents delivered to Agent,
Agent will have a valid, perfected first priority security interest in all
collateral securing the loans pledged as Consumer Loan Collateral and Dealer
Loan Collateral.
4.6 Assignability. Each Required Dealer Loan Document delivered and/or assigned
--------------
to Agent in connection with each loan pledged as Dealer Loan Collateral and each
Required Consumer Loan Document delivered and/or assigned to Agent in connection
with each loan pledged as Consumer Loan Collateral contains no prohibitions on
assignment (other than prohibitions which have been waived with all necessary
consents obtained), and upon the exercise of Agent's or Lenders' rights as
secured party, Agent or Lenders shall be entitled to the same benefits pursuant
to each such document as Borrower is entitled.
4.7 Taxes. Borrower has filed or caused to be filed all federal, state, and
------
local tax returns required to be filed and has paid or caused to be paid all
taxes, assessments, and governmental charges and levies thereon, including any
interest and penalties, to the extent the same have been due. Borrower has set
up reserves which are believed by Borrower to be adequate for the payment of
such taxes for the years that have not been audited by the respective tax
authorities. Nothing contained in this subsection shall prevent Borrower from
contesting in good faith any tax assessment assessed against Borrower so long as
adequate reserves for payment of the same have been made and verified to Agent.
4.8 Financial Condition. The balance sheets, statements of income and retained
--------------------
earnings, federal tax returns, and other financial statements and financial data
of Borrower furnished to Agent to induce Agent and Lenders to enter into this
Loan and Security Agreement are complete and correct and fairly present the
<PAGE>
financial condition of Borrower, as of the dates thereof and the results of the
operations of Borrower and its Subsidiaries, if any, for the periods covered by
such statements, all in accordance with generally accepted accounting principles
consistently applied. There are no liabilities of Borrower or any subsidiary,
fixed or contingent, which are material but are not reflected in the financial
statements and notes thereto supplied to Agent and Lenders. Borrower has paid no
dividends and has made no distributions (of cash or property) to its
shareholders or partners since the date of such financial statements, which
distributions are not reflected in the financial statements. There has been no
material adverse change in the business, operations or condition, financial or
otherwise, of Borrower since the date of the most recent financial statements
delivered to Agent.
4.9 No Untrue or Omitted Statements. No part of the Loan Documents or any
------------------------------------
certificate or statement furnished by or on behalf of Borrower to Agent or any
Lender contains or shall contain any material misstatement of fact or omits to
state a material fact or any fact necessary in order to make the statements
contained herein or therein not misleading. To the best knowledge of Borrower
there is no fact (other than facts relating to general economic conditions)
which materially adversely affects the business, operations, affairs,
conditions, properties or assets of Borrower which has not been set forth in a
document, certificate or statement furnished to Agent prior to or on the date of
delivery hereof.
4.10 Location of Borrower's Offices and Records. The chief place of business of
-------------------------------------------
Borrower and the office where Borrower keeps its records concerning any of the
Collateral is located at Stamford, Vermont.
4.11 Operation of Business. Borrower possesses all licenses, permits,
------------------------
franchises, patents, copyrights, trademarks, and tradenames, or rights thereto,
necessary to conduct Borrower's business substantially as now conducted and as
presently proposed to be conducted, and is not in violation of any valid rights
of others with respect to any of the foregoing. The operation of Borrower's
business complies with all zoning, environmental, public health and safety,
banking, securities, lending and other similar laws and regulations.
4.12 Financing Statement Filing Locations. Schedule 4.12 attached hereto and
----------------------------------------
incorporated herein lists the locations where the Financing Statements have been
or will be filed. Those locations are the only locations necessary for filing
the Financing Statements in order to perfect the security interests in the
Collateral described therein capable of being perfected by the filing of
financing statements.
4.13 Survival. Borrower understands and agrees that Agent and each Lender are
---------
relying upon the above representations and warranties in extending the Loans to
Borrower. The foregoing representations and warranties shall be continuing in
nature and shall remain in full force and effect until such time as the
Indebtedness shall be paid in full, or until this Agreement shall be terminated,
whichever is the last to occur.
5. AFFIRMATIVE COVENANTS.
----------------------
Borrower covenants and agrees with Agent and each Lender that, except with the
prior written consent of Agent (which shall not be unreasonably withheld), so
long as any of the Notes or any Indebtedness shall remain outstanding, in whole
or in part, or Agent or any Lender shall have any commitment under this Loan
Agreement, Borrower shall comply with each of the following covenants:
<PAGE>
5.1 Financial Statements and Other Information. Borrower shall furnish to Agent:
-------------------------------------------
5.1.1 Audited Annual Statement of Borrower. Within 90 days after the close of
---------------------------------------
each fiscal year, audited consolidated financial statements relating to
Borrower, including a balance sheet, statement of income and retained earnings
as at the end of that fiscal year setting forth corresponding figures for the
previous fiscal year in comparative form, all such statements to be prepared in
accordance with generally accepted accounting principles consistently applied by
an independent certified public accountant acceptable to Agent, and accompanied
within 120 days after the close of each fiscal year by copies of all management
letters from such accountant to Borrower.
5.1.2 Quarterly Statement of Borrower. Within 45 days after the close of eac
---------------------------------
fiscal quarter, copies of 10Q reports, or if such reports shall no longer be
prepared, unaudited financial statements in the form described in Section 5.1.1.
5.1.3 Tax Returns. Within 30 days after filing, Borrower shall furnish to Agent
------------
a copy of its federal income tax return, with all schedules. The financial
statements referred to in Sections 5.1.1, 5.1.2 and 5.1.3 are collectively
referred to herein as "Financial Statements".
5.1.4 Dealer Credit Information. Promptly after completion, Borrower shall
---------------------------
deliver to Agent copies of its internal credit write-ups and dealer financial
statements and regular updates of the same and such other information as Agent
may request from time to time regarding Eligible Dealers. Promptly upon receipt,
Borrower shall deliver to Agent all borrowing base certificates delivered to
Borrower by dealers related to loans pledged as Dealer Loan Collateral.
5.1.5 Additional Information. With reasonable promptness, such other information
-----------------------
relating to the Collateral, and the business, operations and financial condition
of Borrower as Agent or any Lender may reasonably request from time to time.
Agent and each Lender, pursuant to an authorized request and after prior
notification to Borrower, are hereby authorized to deliver a copy of any
financial statement or any other information relating to the business,
operations or financial condition of Borrower which may be furnished to them or
come to their attention pursuant to this Agreement or otherwise, to any
regulatory body or agency having jurisdiction over Agent or any Lender or to any
person which has, or shall have any right or obligation to succeed to all or any
part of Agent's or Lender's interest in this Loan and Security Agreement.
5.2 Statements as to Defaults and Computations. With each of the statements
---------------------------------------------
referred to in Sections 5.1.1 and 5.1.2 hereof, an Authorized Officer of
Borrower shall certify to Agent (1) the Interest Coverage Ratio; (2) Borrower's
Leverage; (3) Borrower's Loss Coverage Ratio; (4) Borrower's Delinquency Ratio
and (5) that (a), as of the date of the such statements, no event has occurred
and is continuing to occur and no condition exists which constitutes or, after
notice or lapse of time or both, would constitute a default or event of default
under any of the Loan Documents or (b), if any such event has occurred and is
continuing or such condition exists, such statement shall specify the nature and
period of existence thereof and the action proposed to be taken with respect
thereto. Borrower shall immediately give notice to Agent upon the occurrence of
an Event of Default.
5.3 Taxes and Claims. Borrower shall duly pay and discharge (a) all taxes,
------------------
assessments and governmental charges upon or against it or its properties or
assets prior to the date on which penalties attach thereto, unless and to the
<PAGE>
extent that such taxes are being diligently contested in good faith by
appropriate proceedings, and appropriate reserves therefor have been established
with the consent of Agent, and (b) all lawful claims, whether for labor,
materials, supplies, services or anything else which could, if unpaid, become a
lien or charge upon the Collateral, unless and to the extent that the same are
being diligently contested in good faith and by appropriate proceedings and
appropriate reserves therefor have been established with the consent of Agent.
5.4 Insurance.
----------
5.4.1 Public Liability Insurance; Etc. During the following times Borrower shall
--------------------------------
maintain the following insurance coverage:
(a)At all times during the term of this Agreement, broad form coverage public
liability insurance with minimum coverage of Five Million Dollars. The amount of
such coverage shall be reviewed annually by Agent and may, in Agent's sole
discretion and at Borrower's expense, be increased or decreased during the term
of this Agreement. Borrower shall obtain a new or revised policy within 20 days
of receipt of notice from Agent of a revision in the amount of public liability
insurance required;
(b)Workers' compensation insurance and such other insurance as shall be
necessary or prudent for the operation of Borrower's business, all with minimum
coverage at least equal to that in effect on the date of this Agreement.
5.4.2 Terms of Insurance. Each such policy of insurance shall be with insurance
-------------------
carriers and in form and amount acceptable to Agent.
5.4.3 Evidence of Insurance. Borrower shall, from time to time upon Agent's or
----------------------
any Lender's request, promptly furnish or cause to be furnished to Agent,
evidence of the maintenance of the insurance required by this Section 5.4,
including, without limitation, such originals or copies as Agent may request of
policies, certificates of insurance, riders and endorsements relating to such
insurance and proof of premium payments.
5.5 Books and Reserves. Borrower shall (a) maintain at all times true and
---------------------
complete books, records and accounts in which true and correct entries shall be
made of all business transactions in accordance with generally accepted
accounting principles; and (b), by means of appropriate entries, reflect in its
accounts and in all Financial Statements, prior liabilities and reserves for all
taxes from which Borrower is not otherwise exempt and proper reserves for
depreciation, renewals and replacements, obsolescence and amortization of its
properties and bad debts, all in accordance with generally accepted accounting
principles consistently applied.
5.6 Inspection of Books and Records. Borrower shall permit Agent or any Lender,
--------------------------------
or its authorized attorneys, accountants, and representatives to examine the
books, accounts, records, ledgers and assets of every kind and description of
Borrower at all reasonable times upon oral or written request of Agent or any
Lender, such examination to include the making of copies and abstracts of such
materials at Borrower's expense.
5.7 Preserve Collateral. Borrower shall: (a) keep the Collateral in good repair,
--------------------
working order and condition; (b) from timetotime make all necessary and proper
<PAGE>
repairs, renewals, replacements, additions and improvements to the Collateral,
so that the business carried on by Borrower may be properly and advantageously
conducted at all times in accordance with prudent business management; (c) use
the Collateral and operate its business in compliance with all applicable laws,
statutes, ordinances, rules and regulations; (d) not waste or destroy the
Collateral; (e) defend the Collateral against the claims and demands of all
other parties; (f) permit Agent or its representatives or designee to inspect
the Collateral at all times upon prior notice to Borrower; and (g) prevent the
Collateral or any part thereof from being or becoming an accession to other
goods not covered by a security interest in favor of Agent and Lenders created
by the Loan Documents or from being or becoming a fixture, except at Borrower's
business.
5.8 Notification of Litigation. Borrower shall promptly inform Agent of the
----------------------------
commencement of any action, suit, proceeding or investigation against it or the
making of any counterclaim against it in any action, suit or proceeding.
5.9 Preserve Existence. Borrower shall preserve and maintain its name, existence
-------------------
and good standing in the jurisdiction of its organization and qualify and remain
qualified as a foreign corporation in each jurisdiction in which such
qualification is required.
5.10 Permits. Borrower shall obtain and maintain all necessary licenses and
--------
permits to operate its business.
5.11 Underwriting Criteria. All Eligible Dealer Loans and Eligible Consumer
-----------------------
Loans pledged to Agent pursuant to this Loan and Security Agreement will be
consistent with Borrower's general underwriting criteria as of the date of this
Agreement. Borrower shall not alter its general underwriting criteria without
prior notice to Agent.
5.12 Agreements Constituting Collateral. Borrower shall comply with all terms of
-----------------------------------
any agreements related to any Dealer Loan Collateral or Consumer Loan
Collateral, and Borrower shall immediately notify Agent of any defaults or
events of defaults under any such agreements. Except for prepayments in the
ordinary course of business, Borrower shall not modify, compromise, extend,
rescind or cancel any agreements related to Dealer Loan Collateral or Consumer
Loan Collateral without the prior consent of Agent, which shall not be
unreasonably withheld.
5.13 Additional Costs, Etc. If any present or future applicable law, which
------------------------
expression, as used herein, includes statutes, rules and regulations thereunder
and interpretations thereof by any competent court or by any governmental or
other regulatory body or official charged with the administration or the
interpretation thereof and policies, requests, directives, instructions,
guidelines and notices at any time or from time to time thereafter made upon or
otherwise issued to Agent or any Lender by any central bank or other fiscal,
monetary or other authority (whether or not having the force of law), shall:
(a)subject Agent or any Lender to any tax, levy, impost, duty, charge,
fee, deduction or withholding of any nature with respect to this Loan and
Security Agreement, the other Loan Documents or the Loans (other than
taxes based upon or measured by the income or profits of Agent or any
Lender); or
(b)materially change the basis of taxation (except for changes in taxes on
income or profits) of payments to Agent or any Lender of the principal of
or the interest on the Loans or any other amounts payable to Agent or any
Lender under this Loan and Security Agreement or the other Loan Documents;
or
<PAGE>
(c)impose or increase or render applicable (other than to the extent
specifically provided for elsewhere in this Loan and Security Agreement)
any special deposit, reserve, assessment, liquidity, capital adequacy or
other similar requirements (whether or not having the force of law)
against assets held by, or deposits in or for the account of, or loans by,
or commitments of an office of Agent or any Lender; or
(d)impose on Agent or any Lender any other conditions or requirements with
respect to this Loan and Security Agreement, the other Loan Documents, or
the Loans; and the result of any of the foregoing is:
(i) to increase the cost to Agent or any Lender of making, funding,
issuing, renewing, extending or maintaining the Loans; or
(ii) to reduce the amount of principal, interest or other amount
payable to Agent or any Lender hereunder on account of the Loans; or
(iii) to require Agent or any Lender to make any payment or to
forego any interest or other sum payable hereunder, the amount of
which payment or foregone interest or other sum is calculated by
reference to the gross amount of any sum receivable or deemed
received by Agent or any Lender from Borrower hereunder, then, and
in each such case, Borrower shall, upon demand made by Agent or any
Lender at any time and from time to time and as often as the
occasion therefor may arise, pay to Agent such additional amounts as
will be sufficient to compensate Agent or any Lender for such
additional cost, reduction, payment or foregone interest or other
sum.
5.14 Capital Adequacy. If any present or future law affects the amount of
------------------
capital required or expected to be maintained by Agent or any Lender or any
corporation controlling Agent or any Lender and Agent or any Lender determines
that the amount of capital required to be maintained by it is increased by or
based upon the existence of the Loans made or deemed to be made pursuant hereto,
then Agent or any Lender may notify Borrower of such fact, and Borrower shall
pay to Agent or any Lender from time to time on demand, as an additional fee
payable hereunder, such amount as Agent or any Lender shall determine in good
faith and certify in a notice to Borrower to be an amount that will adequately
compensate Agent or any Lender in light of these circumstances for Agent's or
any Lender's increased costs of maintaining such capital. Agent and Lenders
shall allocate such cost increases among their customers in good faith and on an
equitable basis.
5.15 Interest Coverage Ratio. Borrower shall, as of the end of each fiscal
--------------------------
quarter, maintain the ratio of EBITDA for the four fiscal quarters of Borrower
then ended to Consolidated Interest Expense for the same period (the "Interest
Coverage Ratio") of greater than 2.0 to 1.0.
5.16 Leverage. Until the Indebtedness shall have been paid in full, Borrower
---------
shall maintain Leverage of not more than 4.0 to 1.
5.17 Minimum Loss Coverage Ratio. As of the end of each fiscal quarter for the
-----------------------------
four fiscal quarters then ended, Borrower shall maintain a Loss Coverage Ratio
equal to or greater than 5.0 to 1.
<PAGE>
5.18 Maximum Delinquency. As of the end of each fiscal quarter, Borrower shall
--------------------
maintain a Delinquency Ratio of (a) no more than an average of 10.0% as of the
end of any month for the previous three months then ended; and (b) no more than
an average of 9.25% as of the end of any month for the previous twelve months
then ended.
6. NEGATIVE COVENANTS.
-------------------
6.1 Agent Consent Required. From the date hereof until the Indebtedness shall
------------------------
have been paid in full, without the prior written consent of Agent which shall
not be unreasonably withheld:
6.1.1 Liens. Borrower shall not in any way create, incur, assume, or suffer to
------
exist any security interest, mortgage, pledge, lien or other encumbrance upon
the Collateral other than those created by or referred to in this Agreement.
6.1.2 Covenant Against Alienation. Borrower shall not in any way (a) sell,
------------------------------
convey, lease or transfer any of its assets other than in the ordinary course of
its business; (b) enter into any transaction of merger, consolidation or
reorganization; or (c) reclassify its capital stock.
6.1.3 Management. Borrower shall not make any change in the management personnel
-----------
of its business without notice to Agent, and shall not make any change in the
chairman, president or other officer having substantial control over the
operations of the Borrower's business.
6.1.4 Indebtedness. Borrower shall not incur any additional indebtedness of any
-------------
kind, except (a) customary trade debt and obligations in the ordinary course of
business; (b) so-called "off balance sheet" indebtedness in the form of loan
sales or increases in the Borrower's commercial paper facilities; and (c) other
new secured financing not to exceed $5,000,000 in the aggregate annually.
6.2 Notice to Agent Required. From the date hereof until the Indebtedness shall
-------------------------
have been paid in full, without prior notice to Agent, Borrower shall not in any
way (a) become a guarantor (other than for loan sales with recourse), surety or
otherwise liable for the debts or other obligations of any other person, firm,
corporation or company; or (b) make any investment in or loan or advance to any
other person, firm, corporation or company, in excess of $1,000,000 (or
$10,000,000 in the case of loans to dealers secured by pledges of loans to
consumer borrowers).
6.3 Other Secured Indebtedness. Nothing in this Loan and Security Agreement
-----------------------------
shall operate or be construed to prevent Borrower from incurring indebtedness
and securing such indebtedness with a pledge of loan receivables; provided that
(1) the collateral for such indebtedness shall not be Dealer Loan Collateral,
Consumer Loan Collateral and the Related Rights hereunder and (2) the
requirements of Section 6.1.4 are met. In connection with such a pledge of loan
receivables, Borrower shall be entitled to grant to a secured lender a security
interest in the rights related to any loan the promissory note for which is in
the possession of such lender free and clear of any lien created by this Loan
and Security Agreement.
7. CONDITIONS PRECEDENT TO ADVANCE.
--------------------------------
7.1 Agent and Lenders shall have no obligation to make any advance under the
Loans unless:
<PAGE>
7.1.1 Representations and Warranties True. All of the representations,
---------------------------------------
warranties, covenants, terms and conditions contained in this Loan and Security
Agreement and the other Loan Documents are true and correct as of the date of
making such advance, with the same effect as if such representations and
warranties were made on and as of the date of such advance.
7.1.2 No Default. No default or event of default under any Loan Documents or any
-----------
other agreements between Agent or any Lender and Borrower shall exist on the
date of such advance, and no condition, omission, or act shall have occurred or
come into existence which, upon the giving of notice or the passage of time,
would ripen into a default or Event of Default.
7.1.3 No Adverse Change. No material adverse change shall have occurred in the
------------------
financial condition of Borrower, in the business operations of Borrower, or in
the condition of the Collateral or Borrower's business from the date of the most
recent financial statements delivered to Agent.
7.1.4 Acceptance of Advances. Each acceptance by Borrower of an advance under
-----------------------
the Loans shall constitute a representation by Borrower that the foregoing
conditions in Sections 7.1.1, 7.1.2 and 7.1.3 have been satisfied.
7.2 Audits. Agent and each Lender shall have the right to audit Borrower'
-------
operations and the Collateral from time to time at Borrower's expense and Agent
and each Lender shall be entitled to condition advances on the Loans on the
results of such audits. Agent and each Lender shall be entitled to conduct due
diligence audits at Borrower's expense at least twice each year, and Agent shall
be entitled to conduct due diligence audits at Borrower's expense at any time
when the Delinquency Ratio shall exceed (a) an average of 8.00% as of the end of
any month for the previous three months then ended or (b) an average of 7.25% as
of the end of month for the previous twelve months then ended. At the direction
of Agent, Agent's counsel shall be entitled to conduct a fair lending review at
Borrower's expense at least once each year.
8. EVENTS OF DEFAULT.
------------------
Each of the following events shall constitute an "Event of Default" hereunder:
8.1 Payment Default. Borrower shall default in making any payment of principal,
----------------
interest or other charges when the same shall become due under the Notes or the
Loan Documents.
8.2 Other Default. Borrower shall default in the performance of any covenant,
--------------
agreement, term or condition of this Loan and Security Agreement or any other
Loan Document, other than as set forth in Section 8.1 above, or in any other
subsection of this Section 8 other than this subsection 8.2, within any
applicable grace period provided therefor or, if no grace period is provided,
and provided Borrower has not intentionally concealed or negligently failed to
report such default to Agent, such default shall continue for ten (10) days
after Agent shall give written notice of such default to Borrower.
8.3 Default in Other Obligations. Borrower shall default (and such default shall
-----------------------------
not be cured within any applicable grace period) in making any payments for
borrowed money or in respect of any extensions of credit or accommodations or
under any lease, in each case where the total obligation of Borrower shall
exceed $200,000.
<PAGE>
8.4 Insolvency; Suspension of Business. Commencement of proceedings under any
------------------------------------
bankruptcy or insolvency law by or against Borrower or the admission by Borrower
of Borrower's inability to pay its debts as they mature or become due; or the
general failure by Borrower to pay its debts as they mature or become due; or
the making of a general assignment for the benefit of creditors by Borrower; or
the suspension of business of Borrower; or the appointment of a trustee, trust
mortgagee, custodian or receiver of all or any portion of the property of
Borrower.
8.5 Representations. Any representation or warranty, statement or information
----------------
under any instrument or agreement constituting or relating to any Collateral or
made by Borrower herein, in the Loan Documents or in any other certificate,
statement, information or document delivered to Agent or any Lender by, on
behalf of or at the request of Borrower or relating to the Loans shall fail to
be true and correct when made or furnished.
8.6 Adverse Change. Any material adverse change in the business, operations,
----------------
properties or condition (financial or otherwise) of Borrower or the Collateral,
which, in the opinion of Agent or any Lender, impairs its security or increases
its risk, including, without limitation, if any financial information furnished
to Agent or any Lender shall indicate any operating loss or total liabilities in
excess of total assets, as determined in accordance with generally accepted
accounting principles.
8.7 Levy. Commencement of any levy, seizure, attachment or sale upon execution
-----
against any Collateral or other proceedings of any nature whereby Borrower shall
or may be deprived of title or right of possession to the Collateral or any part
thereof.
8.8 Dissolution; Termination. The dissolution or termination of existence of
--------------------------
Borrower.
8.9 Uninsured Loss. Any loss, theft, or damage to the Collateral which is not
---------------
fully covered by insurance and which, in the opinion of Agent or any Lender,
impairs its security or increases its risk.
8.10 Tax Law Changes. The enactment after the date hereof of any law amending or
----------------
changing in any way the laws with respect to the taxation of mortgages or debts
secured thereby, or the manner of the collection of any such taxes, so as to
materially affect adversely the interests of Agent or any Lender as determined
in good faith by Agent or any Lender.
8.11 Conveyance of Collateral. The conveyance, assignment, sale, pledge,
---------------------------
transfer, hypothecation or other disposition (which shall include execution of a
contract for sale) of legal or equitable ownership of any part of the Collateral
other than in the ordinary course of business.
9. REMEDIES UPON DEFAULT.
----------------------
9.1 Remedies Upon Default. If an Event of Default shall occur, Agent and Lenders
----------------------
shall not have any obligation to permit any further borrowing hereunder and may
declare the Indebtedness, including the Notes, immediately due and payable,
without presentment, protest, demand or notice of any kind, all of which are
hereby expressly waived by Borrower; and shall have all rights and remedies of a
secured party under the UCC and any other applicable law then in effect; and may
pursue any and all remedies provided for hereunder and in any one or more of the
Loan Documents or at law or in equity, including, without limitation, the
following:
<PAGE>
9.1.1 Exercise all rights of a secured party under the UCC, or otherwise, with
respect to the Collateral;
9.1.2 Deliver Notices to Maker and other notices to account debtors and
servicers that payments should be made directly to Agent, record or file
assignments of mortgages and UCC-3 financing statements, complete blank
endorsements and take such other actions as Agent shall deem necessary to
exercise rights in the Collateral or assign the Collateral;
9.1.3 Require Borrower to pay over to Agent all sums collected with respect to
the Collateral, to be applied in Agent's sole discretion to such costs and
expenses as Agent shall determine;
9.1.4 Require Borrower to give notice to account debtors and servicers that
payment should be made directly to Agent;
9.1.5 Require Borrower to assemble Collateral and make it available to Agent at
a place designated by Agent which is reasonably convenient;
9.1.6 If in the event of the sale or other disposition of the Collateral, the
proceeds thereof are insufficient to pay all amounts to which Agent or any
Lender is legally entitled, Borrower shall be liable for the deficiency and the
reasonable fees of any agents and attorneys employed by Agent or any Lender to
collect such deficiency. Borrower agrees that if any notification of intended
disposition of any of the Collateral is required by law, such notification shall
be deemed reasonably and properly given if deposited in the mails, first class
postage prepaid, addressed as provided in Section 11.9 of this Loan and Security
Agreement and at least ten (10) days before such intended disposition; and
9.1.7 Set off and apply against any Indebtedness any indebtedness owing from
Agent or any Lender to Borrower or Borrower at any time and from time to time
either before or after maturity and without demand upon or notice to anyone.
No remedy conferred upon or reserved to Agent or any Lender in the Loan
Documents is intended to be exclusive of any other available remedy or remedies,
but each and every such remedy shall be cumulative and shall be in addition to
any other remedy given hereunder or in any other Loan Document or now or
hereafter existing at law or in equity or by statute and the exercise of any
remedy or remedies shall not be an election of the remedies. The remedies and
rights of Agent and Lenders may be exercised concurrently, alone or in any
combination. The inclusion of Events of Default in this Agreement and the
occurrence of non-occurrence of an Event of Default shall in no manner restrict
the Agent's or any Lender's ability to demand amounts due pursuant to the Notes
or any other demand obligation.
9.2 Cooperation of Borrower. Borrower shall cooperate with Agent and each Lender
------------------------
in effectuating the purposes hereof notwithstanding any unanticipated inability
of Borrower to pay the Notes or otherwise perform the obligations of this Loan
and Security Agreement or any other Loan Document.
9.3 Payment of Costs. Borrower shall pay all of the costs and expenses incurred
-----------------
by Agent (including reasonable attorney's fees) in (1) enforcing the Loan
Documents, (2) resorting to the Collateral, (3) the care, processing and
preservation of the Collateral, and (4) collecting the outstanding balance of
principal, interest and delinquent charges under the Notes. All such costs and
expenses shall be deemed additional principal due under the Notes and may be
<PAGE>
deducted from the proceeds of disposition of the Collateral, or any other
security interests held by Agent and Lenders. Agent and Lenders may apply any or
all of the proceeds of disposition of the Collateral to the payment or reduction
of the Notes in such amounts as Agent and Lenders may, in their sole discretion,
determine even if that portion of the Notes shall be contingent and unmatured;
and in the case of any deficiency Borrower shall remain liable therefor.
9.4 Preservation; Notice. Agent and Lenders shall have no obligation to take,
----------------------
and Borrower shall have the responsibility for taking, any and all steps to
preserve rights against any and all prior parties to any instrument of chattel
paper whether in Borrower's possession or in Agent's or any Lender's possession.
Borrower waives protest of any instrument constituting Collateral at any time
held by Agent or any Lender on which Borrower is in any way liable and waives
notice of any other action taken by Agent or any Lender. Borrower shall have the
responsibility for notifying Agent or any Lender in writing that it wishes to
take advantage of any redemption, conversion or other similar right with respect
to any Collateral held by Agent or any Lender.
9.5 Right to Possession. Unless otherwise provided by law, Agent shall have the
--------------------
right at all times to the immediate possession of all Collateral and its
products and proceeds, and in its sole discretion may operate and use the
Collateral, complete work in process, or sell the Collateral without being
liable to the Borrower on account of any losses, damage, or depreciation that
any occur as a result thereof. Unless otherwise provided by law, Agent may at
all times, at the expense of Borrower, enter upon any premises on which
Collateral may be situated and remove any Collateral to such other places as
Agent determines. Unless otherwise provided by law, Agent may at any time
transfer any Collateral into its own name or that of its nominee and receive the
income thereon and hold the same, as security for liabilities or apply it to
principal or interest due on the Indebtedness.
10. THE AGENT.
----------
10.1 Actions. Each Lender hereby appoints BankBoston as its agent under and for
--------
purposes of this Agreement, the Notes and each other Loan Document. Each Lender
hereby irrevocably appoints and authorizes Agent to take such action as agent on
its behalf and to exercise such powers under this Agreement as are delegated to
Agent by the terms hereof, together with such powers as are reasonably
incidental thereto. Without limiting the generality of the foregoing, each
Lender hereby irrevocably authorizes Agent to hold and exercise control of the
Collateral, to file as Agent for Lenders financing statements, and to be named
as Agent for the Lenders in assignments of collateral, and to exercise
discretion with regard to the acceptance of Collateral and inclusion of
Collateral in the Borrowing Base from time to time. Notwithstanding the
foregoing, each Lender shall be entitled to review Collateral and Agent's files
with respect to Collateral from time to time upon reasonable prior notice to
Agent, and Agent shall cooperate with each Lender in each such review. The grant
of particular powers and authority to Agent in some circumstances and to Agent
and Lenders in others shall not be deemed to limit the power and authority of
Agent in any instance. The duties of Agent shall be mechanical and
administrative in nature and Agent shall not by reason of this Agreement be a
trustee or fiduciary for any Lender. Agent shall have no duties or
responsibilities except those expressly set forth herein. As to any matters not
expressly provided for by this Agreement, Agent shall not be required to
exercise any discretion or take any action. Except for actions described in
Section 11.12 herein, Agent shall be required to act or to refrain from acting
upon the instructions of the Required Lenders, and such instructions shall be
binding upon all Lenders and all holders of Notes; provided, however, that Agent
shall not be required to take any action which exposes the Agent to personal
liability or which is contrary to this Agreement or applicable law.
<PAGE>
10.2 Actions Requiring Consent. Notwithstanding the grant of authority to Agent
--------------------------
hereunder, the following actions by Agent shall require the consent of the
Required Lenders:
10.2.1 A declaration of an Event of Default hereunder;
10.2.2 A demand for payment of all Indebtedness; or
10.2.3 The commencement of any actions to exercise rights to sell Collateral or
to take any other actions authorized under Section 9.1 herein (except for any
rights to set-off, which each Lender shall be entitled to exercise
independently).
Each Lender shall be entitled to declare an event of default or demand payment
of amounts due pursuant to its Note without the consent of the Agent or other
Lenders, but in the absence of consent of the Required Lenders, the Agent shall
not take the actions specified in Sections 10.2.1, 10.2.2, or 10.2.3 herein.
10.3 Liability of Agent. Neither Agent nor any of its directors, officers,
--------------------
agents, or employees shall be liable for any action taken or omitted to be taken
by it or them under or in connection with this Agreement or any other Loan
Document in the absence of its or their own gross negligence or willful
misconduct. Without limiting the foregoing, Agent: (1) may treat the payee of
any Note as the holder thereof until the Agent receives written notice of the
assignment or transfer thereof signed by such payee and in form satisfactory to
Agent; (2) may consult with legal counsel (including counsel for Borrower),
independent public accountants, and other experts selected by it and shall not
be liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants, or experts; (3) makes
no warranty or representation to any Lender and shall not be responsible to any
Lender for any statements, warranties, or representations made in or in
connection with this Agreement; (4) 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 Borrower, or to inspect the property
(including the books and records) of Borrower, and any such inquiry or
inspection shall not obligate the Agent to make any further inquiry or
inspection; (5) shall not be responsible to any Lender for the due execution,
legality, validity, enforceability, genuineness, perfection, sufficiency, or
value of this Agreement or any other instrument or document furnished pursuant
thereto: and (6) shall incur no liability under or in respect of this Agreement
by acting upon any notice, consent, certificate, or other instrument or writing
(which may be by telegram, telex, or facsimile transmission) believed by it to
be genuine and signed or sent by the proper party or parties. Each Lender hereby
indemnifies (which indemnity shall survive any termination of this Agreement)
and holds harmless the Agent, pro rata according to such Lender's Percentage,
--------
from and against any and all liabilities, obligations, losses, damages, claims,
costs or expenses of any kind or nature whatsoever which may at any time be
imposed on, incurred by, or asserted against, Agent in any way relating to or
arising out of this Agreement, the Notes and any other Loan Document, including
reasonable attorneys' fees and expenses, and as to which the Agent is not
reimbursed by the Borrower; provided that no Lender shall be liable for the
payment of any portion of such liabilities, obligations, losses, damages,
claims, costs or expenses which are determined by a court of competent
jurisdiction in a final proceeding to have resulted solely from Agent's gross
negligence or willful misconduct. Agent shall not be required to take any action
<PAGE>
hereunder, under the Notes or under any other Loan Document or to prosecute or
defend any suit in respect of this Agreement, the Notes or any other Loan
Document, unless Agent is indemnified hereunder to its satisfaction. If any
indemnity in favor of Agent shall be or become, in Agent's determination,
inadequate, Agent may call for additional indemnification from Lenders and cease
to do the acts indemnified against hereunder until such additional indemnity is
given. Without limitation of the foregoing, each Lender shall to reimburse Agent
(to the extent not reimbursed by Borrower) promptly upon demand for its ratable
share of any out-of-pocket expenses (including reasonable counsel fees) incurred
by Agent in connection with the preparation, administration, or enforcement of,
or legal advice in respect of rights or responsibilities under this Agreement.
10.4 Successor. Agent may resign as such at any time upon at least 30 days'
----------
prior notice to Borrower and all Lenders. If the Agent at any time shall resign,
the Required Lenders may appoint another Lender as a successor Agent which shall
thereupon become the Agent hereunder. If no successor Agent shall have been so
appointed by the Required Lenders, and shall have accepted such appointment,
within 30 days after the retiring Agent's giving notice of resignation, then the
retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which
shall be one of the Lenders or a commercial banking institution organized under
the laws of the U.S. (or any State thereof) or a U.S. branch or agency of a
commercial banking institution, and having a combined capital and surplus of at
least $5,000,000,000. Upon the acceptance of any appointment as Agent hereunder
by a successor Agent, such successor Agent shall be entitled to receive from the
retiring Agent such documents of transfer and assignment as such successor Agent
may reasonably request, and shall thereupon succeed to and become vested with
all rights, powers, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations under this
Agreement. After any retiring Agent's resignation hereunder as the Agent, the
provisions of this Section shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was the Agent under this Agreement.
10.5 Loans by BankBoston and Lenders. BankBoston shall have the same rights and
--------------------------------
powers with respect to (x) the Loans made by it, and (y) the Notes held by it as
any other Lender and may exercise the same as if it were not the Agent.
BankBoston may accept deposits from, lend money to, and generally engage in any
kind of business with Borrower or any subsidiary or affiliate of the Borrower as
if BankBoston were not the Agent hereunder. Each Lender shall be entitled to
accept deposits from, lend money to, and generally engage in any banking
business with Borrower or any subsidiary or affiliate of Borrower independently
of the Loans. Each Lender shall be entitled to apply proceeds from any
collateral to the Loans or to any other indebtedness from Borrower in its sole
discretion.
10.6 Credit Decisions. Each Lender acknowledges that it has, independently of
-----------------
Agent and each other Lender, and based on such Lender's review of the financial
information of Borrower, this Agreement, the other Loan Documents (the terms and
provisions of which being satisfactory to such Lender) and such other documents,
information and investigation as such Lender has deemed appropriate, made its
own credit decision to make the Loans. Each Lender also acknowledges that it
will, independently of Agent and each other Lender, and based on such other
documents, information and investigations as it shall deem appropriate at any
time, continue to make its own credit decisions as to exercising or not
exercising from time to time any rights and privileges available to it under
this Agreement or any other Loan Document.
10.7 Copies, etc. Agent shall give prompt notice to each Lender of each notice
-------------
or request required or permitted to be given to Agent by Borrower pursuant to
the terms of this Agreement (unless concurrently delivered to Lenders by
<PAGE>
Borrower), and Agent shall deliver to each Lender within 10 days of receipt
copies of Financial Statements and other documents (excluding the Collateral)
provided by Borrower. Agent will distribute to each Lender from time to time as
requested by each Lender each document or instrument received for its account
and copies of all other communications received by Agent from Borrower for
distribution to Lenders by Agent in accordance with the terms of this Agreement.
Except for notices, reports, and other documents and information expressly
required to be furnished to Lenders by the Agent hereunder, the Agent shall have
no duty or responsibility to provide any Lender with any credit or other
information concerning the affairs, financial condition or business of Borrower
which may come into the possession of the Agent or any of its affiliates.
10.8 Sharing of Payments. If any Lender shall obtain any payment (whether
---------------------
voluntary, involuntary, through the exercise of any right of setoff, or
otherwise) on account of the Notes held by it in excess of its Lender's
Percentage of payment on account of all of the Notes, such Lender shall
distribute the excess payment ratably to each of the other Lenders, provided,
however, that if all or any portion of such excess payment is thereafter
recovered by Borrower from the Lender making such a distribution, such
distribution to each other Lender shall be rescinded and each such other Lender
shall repay to the distributing Lender its ratable share of the distribution.
11. MISCELLANEOUS.
--------------
11.1 Power of Attorney. Borrower hereby appoints and irrevocably designates
------------------
Agent and each Lender, its agents, representatives and designees as agents and
attorneysinfact for Borrower, granting unto said attorneys full power to do all
things and acts necessary to implement and fully execute any power or rights
granted to Agent and each Lender under this Agreement, including the right to
give written notice, at any time, to such office and officials at the United
States Post Office to effect such change of address so that all mail addressed
to such Borrower may be delivered directly to Agent or any Lender, and the right
to execute trust receipts, conditional sale contracts or other title retention
or security instruments.
11.2 Indemnity. Borrower hereby indemnifies (which indemnity shall survive any
----------
termination of this Agreement) and holds Agent and each Lender harmless from and
against all liabilities, obligations, losses, damages, claims, costs or expenses
(including reasonable attorney's fees and expenses) of any kind whatsoever which
may at any time be imposed on, incurred by or asserted against Agent or any
Lender in any way relating to or arising out of this Loan and Security Agreement
or any of the Loan Documents (including, without limitation, any claim for a
commission or fee in connection with any Loan Documents), any Agent or Lender
actions taken in good faith thereunder, or the operation of Borrower's business.
11.3 Expenses. Borrower shall pay all costs and expenses incurred by Agent and
---------
each Lender in connection with the preparation, execution, delivery, filing and
administration of the Loan and any Loan Documents including, but not limited to,
reasonable fees of counsel to Agent and each Lender and any local counsel
retained by them, with respect to the Loans and with respect to advising Agent
and each Lender as to their rights and responsibilities under the Loan
Documents, all reasonable costs and expenses in connection with protecting,
storing, warehousing, insuring, handling, maintaining and shipping the
Collateral, in connection with enforcement of the Loan Documents, title
insurance premiums, survey and site assessment costs, appraisal fees, brokerage
fees or commissions, mortgage and financing statements recording and filing
fees, syndication fees (with prior notice to Borrower), and any other expenses
<PAGE>
whether incurred before or after the closing of the Loans. Borrower shall hold
Agent and each Lender harmless from any liabilities with respect to or resulting
from any delay in paying or omission to pay such fees and expenses.
If Borrower shall fail to maintain the insurance required by Section 5.4, or pay
the taxes, assessments, charges or claims referred to in Section 5.3 hereof, or
fail to perform any of its obligations hereunder Agent, at its option, may
maintain such insurance or pay such taxes, assessments, charges or claims or
perform any or all such obligations and Borrower shall pay on demand any
premiums, taxes, assessments, charges or claims so paid by Agent or expenses
incurred by Agent or such amounts shall be deemed additional indebtedness due
under the Notes, in Agent's sole discretion.
Agent shall be entitled, at Borrower's sole cost and expense, to obtain
appraisals of the Collateral, from time to time, as Agent deems necessary or as
may be required by applicable law.
All references to attorneys in the Loan Documents shall include, without
limitation, Agent's or any Lender's inhouse counsel.
11.4 Further Assurances. Borrower shall, at Borrower's cost and expense, upon
--------------------
request of Agent or any Lender, duly execute and deliver, or cause to be duly
executed and delivered, to Agent or any Lender such further instruments and do
and cause to be done such further acts as may be reasonably necessary or proper
in the opinion of Agent or any Lender to carry out more effectually the
provisions and purposes of the Loan Documents.
11.5 Severability. If any provision of any Loan Document is deemed by any court
-------------
having jurisdiction thereon invalid or unenforceable, the balance of that Loan
Document shall remain in effect; if any provision of that Loan Document is
deemed by any such court to be unenforceable because such provision is too broad
in scope such provisions thereafter shall be read to be consistent with such
Court's decision to make it enforceable; and if any provision is deemed
inapplicable by any such Court to any person or circumstance it shall
nevertheless be construed to apply to all other persons and circumstance.
11.6 Governing Law; Effect. This Agreement and the other Loan Documents shall be
----------------------
governed by and construed in accordance with the substantive law of the
Commonwealth of Massachusetts and shall have the effect of a sealed instrument.
11.7 Sale and Transfer of Loans and Note; Participations in Loans and Note. Each
----------------------------------------------------------------------
Lender may assign, or sell participations in, its Loans to one or more other
persons in accordance with this Section 11.7.
11.7.1 Assignments. Any Lender, (a) with the written consent of (i) Agent and
------------
(ii), in the absence of an Event of Default, Borrower (which consents shall not
be unreasonably withheld) may at any time assign and delegate to one or more
commercial banks or other financial institutions, and (b) with notice to
Borrower and Agent, but without the consent of the Borrower or the Agent, may
assign and delegate to any of its affiliates or to any other Lender (each Person
described in either of the foregoing clauses as being the person to whom such
assignment and delegation is to be made, being hereinafter referred to as an
"Assignee Lender"), all or any fraction of such Lender's total Loans (which
assignment and delegation shall be of a constant, and not a varying, percentage
of all the assigning Lender's Loans) in a minimum aggregate amount of
$5,000,000; provided, that any such Assignee Lender will comply, if applicable,
<PAGE>
with the provisions of this Agreement and all other Loan Documents. Borrower,
each other Lender and the Agent shall be entitled to continue to deal solely and
directly with such Lender in connection with the interests so assigned and
delegated to a Assignee Lender until (c) written notice of such assignment and
delegation, together with payment instructions, addresses and related
information with respect to such Assignee Lender, shall have been given to the
Borrower and the Agent by such Lender and such Assignee Lender, and (d) such
Assignee Lender shall have executed and delivered to Borrower and Agent such
documents as Agent shall reasonably request to confirm such Assignee Lender's
agreement to comply with the terms of the Loan Documents.
From and after the date that the Agent accepts such Lender as Assignee Lender,
(x) the Assignee Lender thereunder shall be deemed automatically to have become
a party hereto and to the extent that rights and obligations hereunder have been
assigned and delegated to such Assignee Lender, shall have the rights and
obligations of a Lender hereunder and under the other Loan Documents, and (y)
the assignor Lender, to the extent that rights and obligations hereunder have
been assigned and delegated by it in connection with such assignment, shall be
released from its obligations hereunder and under the other Loan Documents.
Within five business days after its receipt of notice from Agent of a new
Assignee Lender, Borrower shall, upon delivery to Borrower of the predecessor
Note marked "exchanged", execute and delivered to Agent (for delivery to the
relevant Assignee Lender) a new Note evidencing such Assignee Lender's assigned
Loans and, if the assignor Lender has retained Loans hereunder, a replacement
Note in the principal amount of the Loans and retained by the assignor Lender
hereunder (such Note to be in exchange for, but not in payment of, that Note
then held by such assignor Lender). Each such Note shall be dated the date of
the predecessor Note. Any attempted assignment and delegation not made in
accordance with this Section 11.7.1 shall be null and void.
11.7.2 Participations. Any Lender may at any time sell to one or more commercial
---------------
banks or other persons participating interests in any of the Loans, or other
interests of such Lender hereunder; provided, that (a) no participation
contemplated in this Section 11.7 shall relieve such Lender from its Commitment
or its other obligations hereunder or under any other Loan Documents, (b) such
Lender shall remain solely responsible for the performance of its obligations
hereunder, and (c) Borrower and Agent shall continue to deal solely and directly
with such Lender in connection with such Lender's rights and obligations under
this Agreement and each of the other Loan Documents.
11.8 Assignment of Loan Agreement by Borrower. Neither this Loan and Security
------------------------------------------
Agreement nor the proceeds of the Loans shall be assignable by Borrower without
Agent's and each Lender's prior written consent which shall not be unreasonably
withheld, and any attempted assignment without Agent's and each Lender's prior
written consent shall, after closing, create a default in the Loans.
11.9 Notices. Any demand upon or notice to Borrower hereunder shall be effective
--------
when delivered by hand or when properly deposited in the mails postage prepaid,
or sent by telex, answerback received, or electronic facsimile transmission,
receipt acknowledged, or delivered to a telegraph company or overnight courier,
in each case addressed to Borrower at the address shown below or as it appears
on the books and records of Agent. Demands or notices addressed to any other
address at which Agent or any Lender customarily communicates with Borrower also
shall be effective. Any notice by Borrower to Agent or Lenders shall be given as
aforesaid, addressed at the addresses shown below or such other address as Agent
or any Lender may advise Borrower in writing.
<PAGE>
Agent:
BankBoston, N.A.
99 West Street
Pittsfield, MA 01201
Attention: Thomas Morris
Telecopier: 4134426983
Copy to:
Steven Taylor Smith, Esquire
Cain, Hibbard, Myers & Cook
66 West Street
Pittsfield, MA 01201
Telecopier: 413-443-7964
BankBoston:
Thomas Morris, Vice President
99 West Street
Pittsfield, MA 01201
Telecopier: 413-442-6983
Copy to:
Steven Taylor Smith, Esquire
Cain, Hibbard, Myers & Cook
66 West Street
Pittsfield, MA 01201
Telecopier: 413-443-7694
Fleet Bank: Fleet Bank-NH
1155 Elm Street
Manchester, NH 03101
Attention: David Canedy
Copy to:
Curtis W. Little, Jr.
Cook, Little, Rosenblatt & Manson, PLLC
650 Elm Street
Manchester, NH 03101
Telecopier: 603-621-7111
Borrower:
Litchfield Financial Corporation
789 Main Road
Stamford, VT 05352
Telecopier: 802-694-1552
<PAGE>
Copy to:
Thomas Camp, Essquire
Hutchins, Wheeler and Dittmar
101 Federal Street
Boston, MA 02110
Telecopier: 617-951-1295
11.10 Successors. This Loan and Security Agreement shall be binding upon and
-----------
inure to the benefit of the parties hereto, their successors and assigns and all
other subsequent holders of the Notes.
11.11 Entire Agreement. This Loan and Security Agreement and the other documents
-----------------
referred to herein contain a complete statement of the undertakings between the
parties with respect to its subject matter, and supersedes all prior agreements
and undertakings. There are no representations not set forth in this Loan and
Security Agreement (including the Exhibits and Schedules attached hereto) or the
other Loan Documents which have been relied upon by the parties.
11.12 Modification. No modification, rescission, waiver, release or amendment of
any provision of the Loan Documents, shall be effective unless made in writing
and signed by a duly authorized officer of Agent and each Lender and the same
shall then be effective only for the period and on the conditions and for the
specific purposes specified in such writing, it being expressly understood by
the parties hereto that no such amendment, modification or waiver which would:
11.12.1 modify any requirement hereunder that any particular action be taken by
all the Lenders or by the Required Lenders shall be effective unless consented
to by each Lender;
11.12.2 modify this Section 11.12, change the definition of "Required Lenders",
reduce any fees, or release any substantial amount of collateral security,
except as otherwise specifically provided in any Loan Document, shall be made
without the consent of each Lender and each holder of a Note;
11.12.3 increase the amount of commitment for any of the Loans, or extend the
Maturity Date of, or extend the due date for or reduce the amount of any
scheduled repayment or prepayment of principal of or interest on the Loans (or
reduce the principal amount of or rate of interest on the Loans) shall be made
without the consent of the holder of that Note evidencing such Loan; or
11.12.4 affect adversely the interests, rights or obligations of the Agent as
the Agent shall be made without the consent of the Agent.
11.13 Captions. The captions of the various sections and paragraphs of this Loan
---------
and Security Agreement have been inserted only for the purpose of convenience;
such captions are not a part of this Loan and Security Agreement and shall not
be deemed in any manner to modify, explain, enlarge or restrict any of the
provisions of this Loan and Security Agreement.
11.14 Counterparts. This Loan and Security Agreement may be executed by the
-------------
parties hereto individually or in any combination, in one or more counterparts,
each of which shall be an original and all of which shall together constitute
one and the same agreement.
<PAGE>
11.15 Waiver of Rights of Agent or any Lender. Neither the failure of Agent or
-----------------------------------------
any Lender to exercise, nor the delay of Agent or any Lender in exercising any
right, power, or privilege under this Loan and Security Agreement or any Loan
Document shall operate as a waiver thereof, nor shall any single or partial
exercise or any right, power or privilege preclude any other or further exercise
of any other right, power or privilege.
11.16 Agreement not Intended as Partnership or Agency. The parties expressly
-------------------------------------------------
disclaim any intention to create a partnership or joint venture pertaining to
the subject matter of this Loan and Security Agreement. The parties intend that
their relationship shall be that of borrower and lenders, whether that
relationship is relevant for purposes of the parties' dealings between
themselves or with third persons. Neither Borrower nor Agent nor Lenders shall
be deemed an agent of any other for any purpose, except that Agent shall be
agent for Lenders on the terms and conditions set forth in this Agreement.
11.17 Survival. This Loan and Security Agreement shall survive the closing of
---------
the Loans and each and every one of the obligations and undertakings of Borrower
set forth in this Loan and Security Agreement shall be continuing obligations
and undertakings and shall not cease or terminate until the entire outstanding
principal amount of the Loans, together with all interest and fees due thereon
and any other amounts which may be due pursuant to this Loan and Security
Agreement, shall have been paid in full, and until the obligations and
undertakings of Borrower shall have been fully completed and discharged.
11.18 WAIVER OF JURY TRIAL. BORROWER, AGENT AND EACH LENDER HEREBY WAIVE TRIAL
--------------------
BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR
ARISING OUT OF: (A) THIS LOAN AND SECURITY AGREEMENT, THE NOTES, THE OTHER LOAN
DOCUMENTS, OR ANY OTHER INSTRUMENT OR DOCUMENT DELIVERED IN CONNECTION WITH THE
LOANS; (B) THE VALIDITY, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF; OR
(C) ANY OTHER CLAIM OR DISPUTE HOWEVER ARISING AMONG BORROWER, AGENT OR LENDERS.
NONE OF THE BORROWER, AGENT OR LENDERS NOR ANY ASSIGNEE OR SUCCESSOR SHALL (1)
SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER ACTION
BASED UPON OR ARISING OUT OF THE FOREGOING OR (2) SEEK TO CONSOLIDATE ANY SUCH
ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT OR HAS NOT BEEN
WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED BY BORROWER
AND AGENT AND LENDERS, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS.
NEITHER AGENT NOR ANY LENDER NOR BORROWER HAS AGREED WITH OR REPRESENTED TO THE
OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.
<PAGE>
Signed and sealed on the date first above written.
WITNESS: LITCHFIELDFINANCIAL CORPORATION
By: /s/ Heather A.Sica
- --------------------------- ----------------------------
Its: Executive Vice President
BANKBOSTON, N.A., AS AGENT
By: /s/ Thomas J. Morris
- --------------------------- ----------------------------
Its: Vice President
BANKBOSTON, N.A.
By: /s/ Thomas J. Morris
- --------------------------- ----------------------------
Its: Vice President
FLEET BANK-NH
/s/ Curtis W. Little Jr. By: /s/ David Canedy
- --------------------------- ----------------------------
Its: Vice President
<PAGE>
Exhibit 10.156
EXECUTION COPY
LITCHFIELD FINANCIAL CORPORATION
$20,000,000 IN AGGREGATE PRINCIPAL AMOUNT
OF
9.30% NOTES DUE MARCH 31, 2004
NOTE PURCHASE AGREEMENT
Dated as of April 7, 1997
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. ISSUANCE OF NOTES. 1
ss.1.1 Authorization of Notes 1
ss.1.2 Purchase and Sale of Notes 2
ss.1.3 Use of Proceeds 2
ss.1.4 Definitions, etc. 2
SECTION 2. GENERAL REPRESENTATIONS AND WARRANTIES. 3
ss.2.1 Capital Stock; Subsidiaries 3
ss.2.2 Organization and Authority 3
ss.2.3 Business 3
ss.2.4 Financial Statements and Other Information; Financial
Condition 4
ss.2.5 No Material Adverse Change 5
ss.2.6 Licenses, Registrations, etc. 5
ss.2.7 Title to Properties; Leases 5
ss.2.8 Compliance with Other Instruments, etc. 6
ss.2.9 No Materially Adverse Contracts, etc. 6
ss.2.10 Compliance with Law, etc. 7
ss.2.11 Compliance with ERISA; Multiemployer Plans 7
ss.2.12 Pending Litigation, etc. 8
ss.2.13 Taxes 8
ss.2.14 Holding Company Act; Investment Company Act 9
ss.2.15 No Foreign Assets Control Regulation Violation 9
ss.2.16 No Margin Regulation Violation 10
ss.2.17 Outstanding Securities 10
ss.2.18 Corporate Proceedings 10
ss.2.19 Consent, etc. 10
ss.2.20 No Event of Default 11
ss.2.21 Compliance with Environmental Laws 11
ss.2.22 Validity of Agreement, Notes 12
ss.2.23 Labor Relations 13
ss.2.24 Broker's or Finder's Commissions 13
ss.2.25 Insurance 13
ss.2.26 Offerees 13
ss.2.27 Solvency 13
ss.2.28 Ranking 14
ss.2.29 Full Disclosure 14
SECTION 3. REPRESENTATIONS OF THE PURCHASERS. 15
ss.3.1 Investment Intent, etc. 15
ss.3.2 ERISA Representations 15
<PAGE>
SECTION 4. CONDITIONS OF OBLIGATION TO PURCHASE NOTES. 16
ss.4.1 Opinion of Special Counsel for You 16
ss.4.2 Opinions of Counsel for the Company 16
ss.4.3 Performance of Obligations 17
ss.4.4 Representations True; No Event of Default 17
ss.4.5 Private Placement Number 17
ss.4.6 Fees and Disbursements of Special Counsel for You 17
ss.4.7 Legality 17
ss.4.8 Consents and Approvals 17
ss.4.9 Taxes. 18
ss.4.10 Dissolution; No Merger or Change in Control 18
ss.4.11 Funding Instructions 18
ss.4.12 Changes of Law 18
ss.4.13 Proceedings, Instruments, etc 18
SECTION 5. EXPENSES. 18
SECTION 6. CERTAIN SPECIAL RIGHTS. 20
ss.6.1 Home Office Payment 20
ss.6.2 Delivery Expenses 20
ss.6.3 Issuance Taxes 20
SECTION 7. NOTE PREPAYMENTS. 20
ss.7.1 Required Prepayments. 20
ss.7.2 Optional Prepayments with Premium 21
ss.7.3 Mandatory Offer to Prepay in a Put Event 22
ss.7.4 Notice of Determination of Make-Whole Amount 2
ss.7.5 Partial Prepayment Pro Rata 24
ss.7.6 Acquisition of Notes 24
SECTION 8. REGISTRATION, EXCHANGE AND REPLACEMENT OF NOTES. 24
ss.8.1 Registration 24
ss.8.2 Exchange 24
ss.8.3 Replacement 25
SECTION 9. CERTAIN COVENANTS OF THE COMPANY. 25
ss.9.1 Maintenance of Office 25
ss.9.2 Corporate Existence 25
ss.9.3 General Maintenance of Properties and Business, etc 26
ss.9.4 Notice of Certain Events and Conditions 27
ss.9.5 Inspection 27
ss.9.6 Compliance with Law, etc 28
ss.9.7 Payment of Taxes and Claims 28
ss.9.8 ERISA 29
ss.9.9 Transactions with Affiliates 29
ss.9.10 Consolidation and Merger 29
ss.9.11 Consolidated Tangible Net Worth 30
ss.9.12 Consolidated Net Earnings Available for Fixed Charges 30
<PAGE>
ss.9.13 Limitations on Indebtedness 30
ss.9.14 Limitation on Restricted Payments 31
ss.9.15 Restricted Investments 31
ss.9.16 Liens 31
ss.9.17 Restrictions on Distributions and Issuances of Equity
Interests 32
ss.9.18 Maintenance of Allowance for Loan Losses 32
ss.9.19 Maintenance of Unencumbered Assets to Total Unsecured
Indebtedness 32
ss.9.20 Limitation on Gain on Sales of Loans 32
ss.9.21 Repurchase of Notes 32
ss.9.22 Tax Consolidation 33
ss.9.23 Environmental Law Compliance 33
ss.9.24 Ranking 34
SECTION 10. INFORMATION TO BE FURNISHED TO HOLDERS OF NOTES. 33
ss.10.1 Financial Statements of the Company 33
ss.10.2 Other Information 35
ss.10.3 Officer's Certificates 37
ss.10.4 Accountants' Certificates. 37
SECTION 11. DEFAULTS AND REMEDIES. 38
ss.11.1 Events of Default; Acceleration of Notes 38
ss.11.2 Default Remedies 42 ss.11.3 Notice of Claimed Default 42
ss.11.4 Annulment of Acceleration of Notes 43
SECTION 12. INTERPRETATION OF AGREEMENT AND NOTES. 43
ss.12.1 Definitions 43
ss.12.2 Directly or Indirectly 59
ss.12.3 Accounting Terms 59
ss.12.4 GOVERNING LAW 59
ss.12.5 Independence of Covenants 59
ss.12.6 Saturdays, Sundays, Holidays, etc. 60
ss.12.7 Headings. 60
SECTION 13. MISCELLANEOUS. 60
ss.13.1 Notices 60
ss.13.2 Survival 60
ss.13.3 Successors and Assigns; Transfer of Notes 61
ss.13.4 Amendment and Waiver 61
ss.13.5 Confidentiality 62
ss.13.6 Indemnification Against Claims, etc. 62
ss.13.7 Indemnity for Funds Availability at Closing 63
ss.13.8 Counterparts 64
ss.13.9 Reproduction of Documents 64
ss.13.10 Consent to Jurisdiction and Venue 64
<PAGE>
SCHEDULE I Purchaser of the Notes
SCHEDULE II Information to be Furnished to the Purchaser
SCHEDULE III-A Opinion of Special Counsel to the Purchaser
SCHEDULE III-B Opinion of Special Counsel to the Company
EXHIBIT A Form of Note
EXHIBIT B Form of Subordination Provisions
<PAGE>
LITCHFIELD FINANCIAL CORPORATION
789 Main Road
Stamford, Vermont 05352
Telephone: (802) 694-1200
Telecopier: (802) 694-1237
- -----------------------
NOTE PURCHASE AGREEMENT
- -----------------------
Dated as of April 7, 1997
To the Purchaser of the
Notes (as defined herein)
Named in Schedule I hereto
Ladies and Gentlemen:
The undersigned, Litchfield Financial Corporation, a Massachusetts
corporation, having its principal office at the address set forth above (said
corporation, together with its permitted successors and assigns, being
hereinafter called the "Company"), hereby agrees with you as follows:
-------
SECTION 1. ISSUANCE OF NOTES.
ss.1.1 Authorization of Notes. The Company has authorized the issuance and
-----------------------
sale of up to $20,000,000 in aggregate principal amount of its 9.30% Notes, due
March 31, 2004, substantially in the form annexed hereto as Exhibit A (the
---------
"Notes"). Each Note shall bear interest from the date thereof until such Note
-----
shall become due and payable in accordance with the terms thereof and hereof
(whether at maturity, by acceleration or otherwise) at the rate of 9.30% per
annum, payable semi-annually on each March 31 and September 30 (each an
"Interest Payment Date"), commencing September 30, 1997 and shall have a stated
---------------------
maturity of March 31, 2004. Interest on each Note shall be computed on the basis
of a three hundred sixty (360) day year of twelve (12) thirty (30) day months.
Each Note shall bear interest on any overdue principal, including any overdue
payment or prepayment of principal and premium, if any, and (to the extent
permitted by applicable law) on any overdue installment of interest, at the rate
of two percent (2%) above the interest rate applicable to timely payments
thereon. If the Company shall have paid or agreed to pay any interest or premium
on any Note in excess of that permitted by law, then it is the express intent of
the Company and the holder thereof that all excess amounts previously paid or to
be paid by the Company be applied to reduce the principal balance of such Note,
and the provisions thereof immediately be deemed reformed and the amounts
<PAGE>
thereafter collectable thereunder reduced, without the necessity of the
execution of any new document, so as to comply with the then applicable law, but
so as to permit the recovery of the fullest amount otherwise called for
thereunder.
ss.1.2 Purchase and Sale of Notes. In reliance on your representations set
---------------------------
forth in Section 3 hereof, the Company agrees to sell to you, and upon and
subject to the terms and conditions hereof and in reliance upon the
representations and warranties of the Company contained herein, you agree to
purchase from the Company, Notes in the aggregate principal amount specified
opposite your name in Schedule I hereto at a purchase price equal to the
principal amount thereof (the "Purchase Price"). The Notes are to be sold and
delivered at one closing to be held on April 7, 1997 at 10:00 A.M., New York
City time, or such other date and time as shall be agreed upon by you and the
Company, and in any event not later than April 7, 1997 unless the parties hereto
agree otherwise in writing (such date and time being hereinafter called the
"Closing Date"), at the offices of Orrick, Herrington & Sutcliffe LLP, 666 Fifth
Avenue, Eighteenth Floor, New York, New York 10103. On the Closing Date, the
Company will deliver to you one or more duly executed Notes dated the Closing
Date, registered in your name or the name of your nominee and in the principal
amount or amounts specified opposite your name in Schedule I hereto.
If at the closing the Company shall fail to tender any of the Notes to you
as provided above in this ss.1.2, or any of the conditions specified in Section
4 hereof shall not have been fulfilled to your satisfaction, at your election
you shall be relieved of all obligations under this Agreement, without thereby
waiving any other rights you may have by reason of such failure or such
nonfulfillment.
ss.1.3 Use of Proceeds. The proceeds of the sale of the Notes on the
-----------------
Closing Date shall be used by the Company to originate loans, temporarily reduce
borrowings under existing lines of credit with senior lenders of the Company and
for general corporate purposes.
ss.1.4 Definitions, etc. Certain terms used in this Agreement are defined
------------------
in Section 12 hereof; references to a "Schedule" or "Exhibit" are, unless
otherwise specified, to the Schedules and Exhibits attached to this Agreement.
All of the Schedules and Exhibits attached to this Agreement are hereby
incorporated by reference herein in their entirety.
SECTION 2. GENERAL REPRESENTATIONS AND WARRANTIES.
Prior to giving effect to the transactions contemplated herein, the Company
hereby represents and warrants to you as follows:
ss.2.1 Capital Stock; Subsidiaries. (a) The authorized capital stock of the
----------------------------
Company consists of 8,000,000 shares of common stock, par value $.01 per share,
of which 5,444,731 shares are issued and outstanding and 1,000,000 shares of
preferred stock, par value $.01 per share, none of which are outstanding. All
such outstanding shares have been duly authorized, validly issued and are fully
paid, nonassessable and free of preemptive rights. No shares of voting common
stock or non-voting common stock are held in the treasury of the Company. There
are no subscriptions, options, warrants or calls relating to the issuance by the
Company of any shares of its capital stock, including any right of conversion or
exchange under any outstanding security or other instrument, other than as set
forth in Part I of Item 2.1(a) of Schedule II hereto. There are no voting trusts
-----------
or other agreements or understandings with respect to the voting of the capital
stock of the Company.
<PAGE>
(b) The only Subsidiaries of the Company are as listed in Part 1 of Item
2.1(b) of Schedule II hereto. Part 1 of said Item 2.1(b) correctly sets forth as
to each Subsidiary its name and jurisdiction of its formation.
ss.2.2 Organization and Authority. Each of the Company and its
------------------------------
Subsidiaries:
(i) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation;
(ii) has all requisite power and authority (corporate and other) to
own and operate its properties and to conduct its business as currently
conducted and as currently proposed to be conducted; and
(iii) has duly qualified to do business as a foreign corporation and
is in good standing in each jurisdiction in which the failure to so
qualify, either individually or in the aggregate, would reasonably be
likely to have a Material Adverse Effect.
ss.2.3 Business. (a) The Private Placement Memorandum distributed in
---------
January 1997 and supplemented in March 1997 (the "Offering Memorandum") contains
accurate descriptions of the general nature of the business of the Company and
its Subsidiaries as presently conducted and the major properties owned or leased
by the Company and its Subsidiaries. Neither the Company nor any of its
Subsidiaries is presently engaged in any material line of business not disclosed
in such documents, and none of them owns or leases any significant properties
not so disclosed.
(b) The address of the principal place of business and chief executive
office of the Company is accurately set forth at the head of this Agreement.
ss.2.4 Financial Statements and Other Information; Financial Condition.
----------------------------------------------------------------
(a) The Company has furnished to you complete and accurate copies of
consolidated financial statements of the Company and its Subsidiaries for the
Fiscal Year ended December 31, 1996, including the consolidated balance sheet of
the Company and its Subsidiaries as of the end of such Fiscal Year and the
consolidated statements of income, stockholders' equity and cash flows of the
Company and its Subsidiaries for such Fiscal Year (the financial statements of
the Company and its Subsidiaries and other information referred to in this
ss.2.4 being referred to as the "Financial Statements"). The Financial
Statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the respective periods, except
as noted in the Offering Memorandum. The Financial Statements so provided are a
complete copy of such Financial Statements and present fairly in all material
respects the consolidated financial position of the Company and its Subsidiaries
as of such dates and the results of their operations and cash flows, as the case
may be, for such periods. Neither the Company nor any of its Subsidiaries has
any material obligation or liability, individually or in the aggregate, of the
nature required to be disclosed on a balance sheet prepared in accordance with
generally accepted accounting principles that is not disclosed by the Financial
Statements referred to above, except as noted in the Offering Memorandum. Item
2.4(a) of Schedule II hereto sets forth a complete and correct list of (i) all
outstanding Indebtedness of the Company or any of its Subsidiaries in excess of
$500,000, (ii) all bank facilities and revolving credit agreements the aggregate
amount available under which is in excess of $500,000 and (iii) the aggregate
amount of all other outstanding Indebtedness of the Company or any of its
Subsidiaries.
<PAGE>
(b) The Company has furnished to you copies of certain forward-looking
financial information for the Company and its Subsidiaries telecopied to you on
February 5, 1997, consisting of projected financial statements of the Company
and its Subsidiaries for each of the Fiscal Years ended December 31, 1997
through December 31, 1999, including forecasted balance sheets of the Company
and its Subsidiaries as of the end of each such Fiscal Year and forecasted
statements of income of the Company and its Subsidiaries for each such Fiscal
Year (collectively, the "Projections"). The Projections have been prepared by
the Company in good faith, based on assumptions which were reasonable when made;
provided, however, that the Projections are subject to uncertainty inherent in
all forward-looking statements, and there is no representation or warranty that
the results reflected therein will in fact be achieved. No fact has come to the
attention of the Company which causes it to believe that such assumptions are no
longer reasonable.
ss.2.5 No Material Adverse Change. Since December 31, 1996, there has been
---------------------------
no material adverse change in the business, earnings, properties or condition
(financial or other) of any of the Company and its Subsidiaries, taken as a
whole. Since December 31, 1996, neither the Company nor any of its Subsidiaries
has directly or indirectly declared, ordered, paid, made or set apart any sum or
property for any Restricted Payment or agreed to do so, except as expressly
disclosed in the Financial Statements.
ss.2.6 Licenses, Registrations, etc. Each of the Company and its
---------------------------------
Subsidiaries owns or possesses, and holds free from burdensome restrictions or
known material conflicts with the rights of others, all licenses, registrations,
permits, copyrights, trademarks, service marks, trade names and patents, and all
rights with respect to the foregoing, (collectively "Intellectual Property
Rights"), necessary for the conduct of its business as now conducted and as
proposed to be conducted, except to the extent that the failure to so own or
possess any such Intellectual Property Right, either individually or in the
aggregate, would not reasonably be likely to have a Material Adverse Effect.
ss.2.7 Title to Properties; Leases. Each of the Company and its
--------------------------------
Subsidiaries has good and marketable title to all assets and properties
reflected as being owned by it in the Financial Statements for the Fiscal Year
ended December 31, 1996, as well as to all assets and properties acquired since
said date (except property disposed of since said date in the ordinary course of
business). Except for the Liens set forth on Item 2.7 of Schedule II hereto and
Liens of the type described in clauses (a), (b) and (c) of the definition of
"Permitted Liens" in ss.12.1 hereof, there are no Liens on any of such assets or
properties. Each of the Company and its Subsidiaries has the right to, and does,
enjoy peaceful and undisturbed possession under all material leases under which
it is leasing property as a lessee. All such leases are valid, subsisting and in
full force and effect, and none of such leases is in default, except where such
default, either individually or in the aggregate, could not have a Material
Adverse Effect.
ss.2.8 Compliance with Other Instruments, etc. Neither the Company nor any
----------------------------------------
of its Subsidiaries is: (a) in violation of its certificate of incorporation or
bylaws; or (b) in default in the performance, observance or fulfillment of any
of the obligations, covenants or conditions contained in, and is not otherwise
in default under, (i) any evidence of Indebtedness or any instrument or
agreement under or pursuant to which any evidence of Indebtedness or other
evidence of Indebtedness has been issued; or (ii) any other instrument or
agreement to which it is a party or by which it is bound or any of its
<PAGE>
properties is affected. Neither the Company nor any of its Subsidiaries has
defaulted in, nor has any of them failed to make at the time contemplated,
payment of any dividends or any mandatory redemption payments of any preferred
stock, distributions or any principal of, or premium or interest on, any
Indebtedness. Neither the execution, delivery or performance of this Agreement,
nor the offer, issuance, sale or delivery of the Notes by the Company nor the
performance of the Notes by the Company does or will: (A) conflict with or
violate the certificate of incorporation or bylaws; (B) conflict with or result
in a breach of any of the terms, conditions or provisions of, or constitute a
default under, or result in the creation of any Lien on any of the properties or
assets of the Company or any of its Subsidiaries pursuant to the terms of any
evidence of Indebtedness, or any instrument or agreement under or pursuant to
which any evidence of Indebtedness has been issued, or any other instrument or
agreement referred to in this ss.2.8 to which the Company or any of its
Subsidiaries is a party or by which it is bound; or (C) require the consent of,
or other action by, any stockholder, trustee or any creditor of, any lessor to
or any investor in, the Company or any of its Subsidiaries or any other
non-governmental Person, which have not been obtained.
ss.2.9 No Materially Adverse Contracts, etc. (a) Neither the Company nor
----------------------------------------
any of its Subsidiaries is a party to or bound by (nor is any of their
respective properties affected by) any contract or agreement, or subject to any
order, writ, injunction or decree or other action of any court or any
governmental department, commission, bureau, board or other administrative
agency or official, or any charter or other corporate or contractual
restriction, which, either individually or in the aggregate, would reasonably be
likely to have a Material Adverse Effect, or in the future would reasonably be
likely to have a Material Adverse Effect.
(b) Except as set forth in Item 2.9 of Schedule II, neither the Company nor
-----------
any of its Subsidiaries is a party to any contract or agreement with any
Affiliate the terms of which are not commercially reasonable or are less
favorable to it than it would obtain in a comparable arm's length transaction
with a Person other than an Affiliate.
ss.2.10 Compliance with Law, etc. Each of the Company and its Subsidiaries
-------------------------
is in full compliance with all laws and ordinances and all governmental rules
and regulations to which it is subject, except to the extent that non-compliance
therewith, either individually or in the aggregate, could not have a Material
Adverse Effect. Neither the execution, delivery or performance of this
Agreement, nor the offer, issuance, sale or delivery of the Notes by the Company
or the performance of the Notes by the Company does or will cause the Company or
any of its Subsidiaries to be in violation of any statute, law or ordinance or
any judgment, decree, writ, injunction, order, award or other action of any
court or governmental authority or arbitrator or any order, rule or regulation,
of any federal, state, county, municipal or other governmental or public
authority or agency.
ss.2.11 Compliance with ERISA; Multiemployer Plans. (a) Neither the
-----------------------------------------------
execution and delivery of this Agreement by the Company, the offer, issuance,
sale and delivery of the Notes by the Company, the acquisition of the Notes by
you, the application by the Company of the proceeds of the sale of the Notes,
nor the consummation of any of the other transactions contemplated by this
Agreement will constitute a "prohibited transaction" (within the meaning of
-----------------------
Section 4975 of the Code or Section 406 of ERISA). The representation by the
Company in the preceding sentence is made in reliance upon and subject to the
accuracy of the representations made by you in ss.3.2 hereof. The Company has
delivered to you a complete and correct list of all Plans with respect to which
the Company, any of its Subsidiaries or any ERISA Affiliate is a "party in
--------
interest" (within the meaning of Section 3(14) of ERISA) or with respect to
- --------
which its securities are "employer securities" (within the meaning of Section
--------------------
407(d)(1) of ERISA).
<PAGE>
(b) Each Plan of each of the Company and its Subsidiaries is in compliance
in all material respects with applicable provisions of ERISA, the Code and
applicable foreign law. Each of the Company and its Subsidiaries has made all
contributions to the Plans required to be made by it.
(c) Except for liabilities to make contributions and to pay PBGC premiums
and administrative costs, neither the Company nor any of its Subsidiaries has
incurred any material liability to or on account of any Plan under applicable
provisions of ERISA, the Code or applicable foreign law, and no condition exists
which presents a material risk to the Company or any of its Subsidiaries of
incurring any such liability.
(d) None of the Plans is a Pension Plan or Multiemployer Plan, and none of
the Company, any of its Subsidiaries or any ERISA Affiliate has maintained any
Pension Plan or has contributed or been obligated to contribute to any Pension
Plan or Multiemployer Plan at any time within the preceding six (6) years.
ss.2.12 Pending Litigation, etc. There is no action at law, suit in equity
-------------------------
or other proceeding or investigation, including, without limitation, Metroplex
Homesteads Inc., et al. v. Litchfield Financial Corporation, (whether or not
purportedly on behalf of the Company or any of its Subsidiaries) in any court or
by or before any other governmental or public authority or agency, or any
arbitrator or arbitration panel pending or, to the best knowledge of the
Company, threatened against or affecting the Company, any of its Subsidiaries or
any of their respective properties that, either individually or in the
aggregate, (a) would reasonably be likely to have a Material Adverse Effect or
(b) could question the validity or enforceability of this Agreement or the
Notes. None of the Company and its Subsidiaries is in default with respect to
any order, writ, injunction, judgment or decree of any court or other
governmental or public authority or agency or arbitrator or arbitration panel.
Item 2.12 of Schedule II hereto sets forth a description of all material
litigation in which the Company or any of its Subsidiaries is currently
involved.
ss.2.13 Taxes. All federal, state and other tax returns of the Company and
------
each of its Subsidiaries required by law to be filed have been duly filed or a
valid extension for such filing has been obtained, and all federal, state and
other taxes, assessments, fees and other governmental charges upon the Company
or any of its Subsidiaries or upon any of their properties, income or assets
that are due and payable have been paid. No extensions of the time for the
assessment of deficiencies have been granted by the Company. The Company does
not know of any proposed, asserted or assessed tax deficiency against the
Company or any of its Subsidiaries. Neither the Company nor any of its
Subsidiaries is a party to or bound by or obligated under any tax sharing or
similar agreement. Except as set forth in Item 2.13 of Schedule II hereto, there
are no Liens on any properties or assets of the Company or any of its
Subsidiaries imposed or arising as a result of the delinquent payment or the
non-payment of any tax, assessment, fee or other governmental charge. Federal
income tax returns for the Company and each of its Subsidiaries have been
audited by the Internal Revenue Service or the applicable statutes of limitation
with respect to such obligations have expired for the Fiscal Year ended December
31, 1994 and all prior Fiscal Years; to the knowledge of the Company, no federal
or state income tax return of the Company or any of its Subsidiaries is
currently under audit by the Internal Revenue Service or any other taxing
authority. None of the Company or any of its Subsidiaries (a) has assumed or is
liable for any federal, state or other income tax liability of any other Person,
<PAGE>
including any predecessor corporation, as a result of any purchase of assets or
other business acquisition transaction (other than a merger in which the Company
or any Subsidiary was the surviving corporation or a consolidation) or (b) has
indemnified any other Person or otherwise agreed to pay on behalf of any other
Person any tax liability growing out of or which may be asserted on the basis of
any tax treatment adopted with respect to all or any aspect of such a business
acquisition transaction. The charges, accruals and reserves, if any, on the
books of each of the Company and its Subsidiaries in respect of federal, state
and local corporate franchise and income taxes for all fiscal periods to date
are adequate and have been prepared in accordance with generally accepted
accounting principles, and the Company knows of no additional unpaid assessments
for such periods or of any basis therefore. There are no applicable taxes, fees
or other governmental charges payable by the Company or any of its Subsidiaries
in connection with the execution and delivery of this Agreement or the offer,
issuance, sale and delivery of the Notes.
ss.2.14 Holding Company Act; Investment Company Act. (a) Neither the
-------------------------------------------------
Company nor any of its Subsidiaries is a "public utility company" or a "holding
company", or a "subsidiary company" of a "holding company", or an "affiliate" of
a "holding company" or of a "subsidiary company" of a "holding company", as such
terms are defined in the Public Utility Holding Company Act of 1935, as amended;
or a "public utility" within the meaning of the Federal Power Act, as amended.
(b) Neither the Company nor any of its Subsidiaries is an "investment
company" or an "affiliated person" of an "investment company" or a company
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended. Neither the Company nor any of its
Subsidiaries is an "investment adviser" or an "affiliated person" of an
"investment adviser" as such terms are defined in the Investment Advisers Act of
1940, as amended.
ss.2.15 No Foreign Assets Control Regulation Violation. None of the
----------------------------------------------------
transactions contemplated by this Agreement will result in a violation of any of
the foreign assets control regulations of the United States Treasury Department,
31 C.F.R., Subtitle B, Chapter V, as amended (including, without limitation, the
Foreign Assets Control Regulations, the Regulations Prohibiting Transactions
Involving the Shipment of Certain Merchandise Between Foreign Countries, the
Cuban Assets Control Regulations, the Libyan Sanctions Regulations, the Iranian
Assets Control Regulations, the Iranian Transactions Regulations, the Iraqi
Sanctions Regulations, the Federal Republic of Yugoslavia (Serbia and
Montenegro) and Bosnian Serb - Controlled Areas of the Republic of Bosnia and
Herzegovina Sanctions Regulations and Unita (Angola) Sanctions Regulations
contained in said Chapter V), or any ruling issued thereunder or any enabling
legislation or Presidential Executive Order granting authority therefor, nor
will the proceeds of the sale of the Notes be used by the Company in a manner
that would violate any thereof.
ss.2.16 No Margin Regulation Violation. None of the transactions
------------------------------------
contemplated by this Agreement (including, without limitation, the direct or
indirect use of the proceeds from the sale of the Notes) will violate or result
in a violation of Section 7 of the Exchange Act or any regulations issued
pursuant thereto, including, without limitation, Regulation G (12 C.F.R., Part
207), as amended, Regulation T (12 C.F.R., Part 220), as amended, Regulation U
(12 C.F.R., Part 221), as amended, and Regulation X (12 C.F.R., Part 224), as
amended, of the Board of Governors of the Federal Reserve System. The assets of
the Company do not include any "margin securities" within the meaning of such
------------------
Regulation G, and the Company does not have any present intention of acquiring
any such margin securities.
<PAGE>
ss.2.17 Outstanding Securities. All securities (as defined in the
-------------------------
Securities Act) of each of the Company and its Subsidiaries have been offered,
issued, sold and delivered in compliance with, or pursuant to exemptions from,
all applicable federal and state laws, and the rules and regulations of federal
and state regulatory bodies governing the offering, issuance, sale and delivery
of securities.
ss.2.18 Corporate Proceedings. The Company has taken all corporate action
-----------------------
necessary to be taken by it to authorize the execution and delivery of this
Agreement, the offer, issuance, sale and delivery of the Notes and the
performance of all obligations to be performed by it under this Agreement and
the Notes.
ss.2.19 Consent, etc. Any prior consent, approval or authorization of,
--------------
registration, qualification, designation, declaration or filing with, or notice
to any federal, state or local governmental or public authority or agency that
is or will be required for the valid execution, delivery or performance of this
Agreement by the Company or the valid offer, issuance, sale or delivery of the
Notes or the performance of the Notes by the Company has been obtained. Each of
the Company and its Subsidiaries has obtained all consents, approvals or
authorizations of, made all declarations or filings with, and given all notices
to, all federal, state or local governmental or public authorities or agencies
which are necessary for the continued conduct by the Company and its
Subsidiaries of their respective businesses as now conducted or as proposed to
be conducted, other than such consents, approvals, authorizations, declarations,
filings and notices, which either individually or in the aggregate, could not
have a Material Adverse Effect.
ss.2.20 No Event of Default. No event has occurred and is continuing, and
--------------------
no condition exists, that, if the Notes had been issued and were outstanding on
the date hereof, would constitute a Default or an Event of Default.
ss.2.21 Compliance with Environmental Laws. (a) Each of the Company and its
-----------------------------------
Subsidiaries is, and will continue to be, in full compliance with all applicable
federal, state and local environmental laws, regulations and ordinances
governing its business, products, properties or assets with respect to all
discharges into the ground and surface water, emissions into the ambient air and
generation, accumulation, storage, treatment, transportation, labeling or
disposal of waste materials or process by-products (collectively, "Environmental
-------------
Laws") for which failure to comply, either individually or in the aggregate,
- ----
would reasonably be likely to have a Material Adverse Effect, and to the best
knowledge of the Company, none of the Company and its Subsidiaries is liable for
any penalties, fines or forfeitures for failure to comply with any of the
foregoing. All licenses, permits or registrations required for the respective
businesses of the Company and its Subsidiaries, as presently conducted and
proposed to be conducted, under federal, state or local environmental laws,
regulations or ordinances have been secured and each of the Company and its
Subsidiaries is in compliance therewith, except to the extent that
non-compliance, either individually or in the aggregate, could not have a
Material Adverse Effect.
(b) As used herein, the term "Hazardous Material" shall mean any hazardous
-------------------
or toxic substance, material, pollutant or waste which is regulated by any
federal, state or local governmental authority, including, but not limited to,
the following: hazardous substances as defined under the Comprehensive
<PAGE>
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
ss. 9601 et seq.; hazardous waste as defined under the Solid Waste Disposal Act,
as amended, 42 U.S. C. ss. 6901 et seq.; air pollutants regulated under the
------
Clean Air Act as amended, 42 U.S.C. ss. 7401 et seq.; pollutants as defined
------
under the Clean Water Act, as amended, 33 U.S.C. ss. 1251 et seq.; any pesticide
------
as defined by the Federal Insecticide, Fungicide, and Rodenticide Act, as
amended, 7 U.S.C. ss. 136 et seq.; any hazardous chemical substance or mixture
------
or imminently hazardous substance or mixture regulated by the Toxic Substances
Control Act, as amended, 15 U.S.C. ss. 2601 et seq.; any substance listed in the
------
United States Department of Transportation Table at 49 CFR 172.101; any
petroleum product, any explosives, any radioactive material and any asbestos
containing material.
(c) No release, emission or discharge of any Hazardous Material into the
environment (including the soil, groundwater, surface water or waterways, and
air) is presently occurring or has in the past occurred on or from any property
owned, leased or operated by the Company or any of its Subsidiaries except
pursuant to and in compliance with a federal, state or local permit, and except
to the extent that liability therefor, either individually or in the aggregate,
could not have a Material Adverse Effect.
(d) No Hazardous Material is located or is suspected to be located in the
soil, groundwater, surface water, or waterways at or under any property owned,
leased or operated by the Company or any of its Subsidiaries in quantities or
concentrations sufficient to require investigation, removal or remediation under
the above-referenced Comprehensive Environmental Response, Compensation and
Liability Act, as amended, or any other federal, state or local law, the
existence or liability for which, either individually or in the aggregate, would
reasonably be likely to have a Material Adverse Effect.
(e) Neither the Company nor any of its Subsidiaries has ever (i) owned,
occupied or operated a site or structure on or in which any Hazardous Material
was or is stored, transported or disposed of; (ii) transported or arranged for
the transportation of any Hazardous Material for recycling or disposal; (iii)
caused or been held legally responsible for any release or threatened release of
any Hazardous Material; (iv) received notification from any federal, state or
other governmental authority of potential liability for any release or
threatened release of Hazardous Material; or (v) been required to pay the costs
or expenses incurred for the release or threatened release of any Hazardous
Material, except to the extent that such action did not and, either individually
or in the aggregate, could not have a Material Adverse Effect.
ss.2.22 Validity of Agreement, Notes. This Agreement has been duly executed
-----------------------------
and delivered by the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms. Upon receipt by the Company of payment for the Notes, the Notes will
be duly issued by the Company and will constitute legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms.
ss.2.23 Labor Relations. Neither the Company nor any of its Subsidiaries is
----------------
engaged in any unfair labor practice which would reasonably be likely to have a
Material Adverse Effect. There is (a) no unfair labor practice complaint pending
or, to the best knowledge of the Company, threatened against the Company or any
of its Subsidiaries before the National Labor Relations Board which would
reasonably be likely to have a Material Adverse Effect and no grievance or
arbitration proceeding arising out of or under a collective bargaining agreement
is so pending or threatened; (b) no strike, labor dispute, slowdown or stoppage
pending or, to the best knowledge of the Company, threatened against the Company
or any of its Subsidiaries; and (c) no union representation question existing
with respect to the employees of the Company or any of its Subsidiaries and no
union organizing activities are taking place with respect to any thereof.
<PAGE>
ss.2.24 Broker's or Finder's Commissions. No broker's or finder's placement
---------------------------------
fee or commission will be payable by the Company with respect to the issuance,
sale and delivery of the Notes or with respect to any of the transactions
contemplated hereby.
ss.2.25 Insurance. The Company and its Subsidiaries have, with respect to
----------
the properties and businesses of the Company and its Subsidiaries, insurance of
the types, with the insurers and in the amounts set forth in Item 2.25 of
Schedule II hereto, all of which satisfy the requirements of ss.9.3 hereof.
ss.2.26 Offerees. The Company represents that none of the Company, any of
---------
its Subsidiaries, the Agent nor any other Person authorized by the Company to
act as an agent, broker, dealer or otherwise in connection with the offering or
sale of the Notes has, either directly or through any agent, offered any of the
Notes or any similar securities for sale to, or solicited any offers to buy any
thereof from, or otherwise approached or negotiated in respect thereof with, any
Person or Persons other than you and not more than fifteen (15) other
Institutional Investors. The Company agrees that neither it, nor any agent will
on behalf of it, sell or offer any of the Notes or any similar securities to, or
solicit offers to buy any thereof from, or otherwise approach or negotiate in
respect thereof with, any other Person or Persons whomsoever, or take any other
action, so as to bring the issuance and sale of any of the Notes within the
provisions of Section 5 of the Securities Act or the provisions of any state
securities law requiring registration of securities, notification of the
issuance and sale thereof or confirmation of the availability of any exemption
from registration thereof.
ss.2.27 Solvency. Each of the Company and its Subsidiaries is and,
---------
immediately after giving effect to the issue and sale of the Notes and the
consummation of the other transactions contemplated by this Agreement, will be,
Solvent.
For purposes of this ss.2.27, the term "Solvent" shall mean, with respect
-------
to any Person, that:
(a) the assets of such Person, at a fair valuation, exceed the total
liabilities (including contingent, subordinated, unmatured and unliquidated
liabilities) of such Person;
(b) based on current projections, which are based on underlying
assumptions which provide a reasonable basis for the projections and which
reflect such Person's judgment based on present circumstances of the most
likely set of conditions and such Person's most likely course of action for
the period projected, such Person believes it has sufficient cash flow to
enable it to pay its debts as they mature;
(c) such Person does not have an unreasonably small capital with
which to engage in its anticipated business; and
(d) the obligations of such Person, if any, are not in default as to
principal and interest.
<PAGE>
For purposes of this ss.2.27, the "fair valuation" of the assets of any
---------------
Person shall be determined on the basis of the amount which may be realized
within a reasonable time, either through collection or sale of such assets at
the regular market value, conceiving the latter as the amount which could be
obtained for the property in question within such period by a capable and
diligent businessman from an interested buyer who is willing to purchase under
ordinary selling conditions.
ss.2.28 Ranking. All obligations and liabilities of the Company under this
--------
Agreement and the Notes will constitute direct, unconditional and general
obligations of the Company and will rank in right of payment pari passu to all
---- -----
other Indebtedness of the Company, except for such Indebtedness to the extent
preferred as a result of being secured (but then only to the extent of such
security).
ss.2.29 Full Disclosure. This Agreement, the Offering Memorandum (as
-----------------
updated by this Agreement, including all Exhibits and Schedules hereto and any
other agreements or documents delivered on the Closing Date) reports and all
financial statements referred to in ss.2.4 hereof, and those items previously
delivered to you and set forth in Item 2.29 of Schedule II hereto, taken as a
whole, do not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements contained herein or therein not
misleading; provided, however, that no representation is made with respect to
the projections contained in the Offering Memorandum. There is no fact known to
the Company or any of its Subsidiaries that has not been disclosed to you in
writing that (a) has a Material Adverse Effect or would reasonably be likely to
have a Material Adverse Effect, or (b) adversely effects or would be reasonably
likely to adversely affect the ability of the Company to perform its obligations
under this Agreement or the Notes.
SECTION 3. REPRESENTATIONS OF THE PURCHASERS.
ss.3.1 Investment Intent, etc. You represent that you are purchasing the
-------------------------
Notes to be purchased by you hereunder on the Closing Date without a view to the
distribution of such Notes, but subject, nevertheless, to the disposition of all
of your assets (including, without limitation, the Notes) being at all times
within your control to the fullest extent required by any applicable law
including, without limitation, applicable insurance law. The Company and you
each acknowledge that each of the Notes are securities (as defined in the
Securities Act and the Exchange Act).
ss.3.2 ERISA Representations. You represent that, with respect to the
-----------------------
source of funds to be used by you to purchase the Notes (the "Source"):
------
(a) you are an insurance company and either (i) the Source is an
"insurance company general account" (within the meaning of Department of
Labor Prohibited Transaction Class Exemption ("PTCE") 95-60) and there is
no "employee benefit plan" (within the meaning of Section 3(3) of ERISA) or
"plan" (within the meaning of Section 4975(e)(1) of the Code), treating as
a single plan all plans maintained by the same employer (or its
"affiliates" as defined in PTCE 95-60 ss. V(a)(1)) or employee organization
----
(each, a "Plan"), with respect to which (A) the amount of reserves and
----
liabilities, as defined by the annual statement for life insurance
companies approved by the National Association of Insurance Commissioners
(the "NAIC Statement"), for all general account contracts held by or on
---------------
behalf of such Plan exceeds (B) ten percent (10%) of the total reserves and
liabilities of such general account (excluding separate account
liabilities), plus surplus as set forth in the NAIC Statement filed with
your state of domicile; (ii) the Source is a "governmental plan" (within
the meaning of Section 3(32) of ERISA); (iii) the Source is an "insurance
<PAGE>
company pooled separate account" (within the meaning of PTCE 90-1) and you
have identified in writing to the Company each Plan whose assets in such
pooled separate account exceed 10% of the total assets in that account;
(iv) the Source is an "investment fund" (within the meaning of Part V(b) of
PTCE 84-14) managed by an identified "qualified professional asset manager"
(within the meaning of Part V(a) of PTCE 84-14); or (v) the Source is a
specific Plan and you have provided in writing to the Company complete and
accurate information as to the identity of that Plan; or
(b) you are an entity other than an insurance company and either (i)
the Source is not a Plan or an entity whose underlying assets include "plan
assets" by reason of the investment in the entity by a Plan and the
application of the Department of Labor's "plan asset regulations," 29
C.F.R. ss. 2510.3-101 (1995); (ii) the Source is a "governmental plan"
(within the meaning of Section 3(32) of ERISA); (iii) the Source is a
"collective investment fund maintained by a bank" (within the meaning of
PTCE 91-38) and you have identified in writing to the Company each Plan
whose assets in such bank collective investment fund exceed ten percent
(10%) of the total assets in that fund; (iv) the Source is an "investment
fund" (within the meaning of Part V(b) of PTCE 84-14) managed by an
identified "qualified professional asset manager" (within the meaning of
Part V(a) of PTCE 84-14); or (v) the Source is a specific Plan and you have
provided in writing to the Company complete and accurate information as to
the identity of that Plan.
SECTION 4. CONDITIONS OF OBLIGATION TO PURCHASE NOTES.
Your obligation to purchase and pay for the Notes to be purchased by you
hereunder on the Closing Date shall be subject to the satisfaction, prior to or
concurrently with such purchase and payment, of the following conditions:
ss.4.1 Opinion of Special Counsel for You. You shall have received from
------------------------------------
Orrick, Herrington & Sutcliffe LLP, who are acting as special counsel for you in
connection with the transactions contemplated by this Agreement ("Special
-------
Counsel"), an opinion, dated the Closing Date, in form and substance reasonably
- -------
satisfactory to you, to the effect set forth in Schedule III-A hereto.
--------------
ss.4.2 Opinions of Counsel for the Company. You shall have received from
------------------------------------
Hutchins, Wheeler & Dittmar, A Professional Corporation, special counsel for the
Company, an opinion, dated the Closing Date, in form and substance satisfactory
to you and your Special Counsel, to the effect set forth in Schedule III-B
---------------
hereto. The Company hereby covenants and agrees to instruct such counsel to
prepare and deliver to you pursuant to this ss.4.2 its opinion referred to
above.
ss.4.3 Performance of Obligations. The Company shall have performed all of
---------------------------
its obligations to be performed hereunder prior to or on the Closing Date, and
you shall have received an Officer's Certificate of the Company, dated the
Closing Date, to such effect.
ss.4.4 Representations True; No Event of Default. The representations and
-------------------------------------------
warranties of the Company contained herein shall be true on and as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of the Closing Date. There shall exist on the Closing
Date no Event of Default or Default, assuming for this purpose that the Notes
had been outstanding at all times from and after the date hereof. You shall have
received an Officer's Certificate of the Company, dated the Closing Date, to the
effect of each of the foregoing sentences.
<PAGE>
ss.4.5 Private Placement Number. The CUSIP Service Bureau of Standard &
---------------------------
Poor's Ratings Group, a division of McGraw-Hill, shall have assigned to the
Notes a private placement number, and evidence thereof shall have been delivered
to you and your Special Counsel.
ss.4.6 Fees and Disbursements of Special Counsel for You. Your Special
-----------------------------------------------------
Counsel shall have received payment by wire transfer of the invoice rendered for
its fees and disbursements posted through the date of such invoice (with the
understanding that a supplemental statement for fees and disbursements
subsequently posted is to be rendered at a later date) in connection with your
purchase of the Notes hereunder.
ss.4.7 Legality. The Notes shall qualify as a legal investment for you
---------
under all applicable laws of any jurisdiction to which you are subject (without
reference to any so-called "basket clause" of any such law or any clause that
imposes limitations on particular investments, whether in the aggregate or
individually), and the Company shall have delivered to you any evidence thereof
which you or your Special Counsel may reasonably request.
ss.4.8 Consents and Approvals. The Company shall have delivered to you an
-----------------------
Officer's Certificate, dated the Closing Date, certifying that any necessary
consents, waivers, approvals, authorizations, registrations, filings and
notifications of the character referred to in ss.2.19 hereof, have been obtained
or made and are in full force and effect.
ss.4.9 Taxes. Any taxes, fees and other charges due in connection with the
------
issuance and sale of the Notes shall have been paid in full by the Company.
ss.4.10 Dissolution; No Merger or Change in Control. The Company shall not
---------------------------------------------
have dissolved nor shall the Company have consolidated or merged with, been
wound up into or sold, leased or otherwise disposed of its properties as an
entirety or substantially as an entirety to, any Person.
ss.4.11 Funding Instructions. At least two (2) Business Days prior to the
----------------------
Closing Date, you shall have received written payment instructions addressed to
you and executed by an authorized officer of the Company setting forth the
Purchase Price of the Notes to be purchased by you on the Closing Date and
directing the manner of payment of such Purchase Price by setting forth (a) the
name of the bank to which such payment is to be made (the "Transferee Bank"),
(b) the ABA number of the Transferee Bank, (c) the account name and number at
the Transferee Bank into which the Purchase Price for the Notes is to be
deposited and (d) the name and telephone number of the account representative at
the Transferee Bank responsible for verifying receipt of such funds.
ss.4.12 Changes of Law. There shall have occurred no change in any law
---------------
which would reasonably be likely to have a Material Adverse Effect.
ss.4.13 Proceedings, Instruments, etc. All proceedings and actions taken on
------------------------------
or prior to the Closing Date in connection with the transactions contemplated by
this Agreement and all instruments incident thereto shall be in form and
substance satisfactory to you and your Special Counsel, and you and your special
counsel shall have received copies of all documents that you or they may request
in connection with such proceedings, actions and transactions (including,
without limitation, copies of court documents, certifications and evidence of
the correctness of the representations and warranties contained herein and
certifications and evidence of the compliance with the terms and the fulfillment
of the conditions of this Agreement, in form and substance satisfactory to you
and your Special Counsel).
<PAGE>
ss.4.14 Release of Liens. The First National Bank of Boston shall have
-----------------
released the lien on the Company's assets pursuant to the Loan and Security
Agreement dated March 31, 1995 between The First National Bank of Boston and the
Company.
SECTION 5. EXPENSES.
Whether or not the Notes shall be sold or this Agreement shall be
terminated, the Company agrees to pay, and to hold you harmless against
liability for, all costs and expenses relating to this Agreement, any other
documents prepared in connection herewith and the Notes and to any modification,
amendment, alteration or enforcement of this Agreement, any additional documents
prepared in connection herewith, the Notes or any agreement or instrument
contemplated hereby (whether or not the same shall have come into effect),
including, without limitation:
(a) the cost of preparing and reproducing this Agreement, any other
documents prepared in connection herewith, the Notes and every instrument
of modification, amendment or alteration hereof or thereof;
(b) the fees and disbursements of Special Counsel for you (including
local counsel, if any), which fees and disbursements the Company will pay
on the Closing Date to the extent reflected on any invoices delivered on or
prior to such date, and of all counsel for the Company;
(c) the cost of delivering to your home office, to your depository
or as you may otherwise instruct in writing, insured to your reasonable
satisfaction, the Notes purchased by you on the Closing Date;
(d) all costs and expenses (including, without limitation, legal
fees of special counsel and any disbursements and other out-of-pocket
expenses) relating to any modifications, amendments, waivers or consents
involving the provisions of this Agreement, any other documents prepared in
connection herewith, or the Notes or relating to the enforcement of this
Agreement, any other documents prepared in connection herewith or the
Notes; provided, that, the Company shall not be required to pay legal fees
for any in-house counsel;
(e) all costs and expenses (including, without limitation, legal
fees of special counsel and investment advisor fees and any disbursements
and other out-of-pocket expenses) relating to any Default or Event of
Default or during any workout or restructuring;
(f) the broker's or finder's fees of any Person in connection with
the sale of the Notes; and
(g) the fees of the CUSIP Service Bureau of Standard & Poor's
Ratings Group required to be paid in connection with the assignment of a
private placement number by it with respect to the Notes.
<PAGE>
The obligations of the Company under this Section 5 shall survive the payment or
prepayment of the Notes and the termination of this Agreement.
SECTION 6. CERTAIN SPECIAL RIGHTS.
ss.6.1 Home Office Payment. Notwithstanding any provision to the contrary
--------------------
in this Agreement or the Notes, the Company will punctually pay in immediately
available funds by 11:00 A.M. New York City time, on the date payment is due all
amounts payable to you with respect to any Notes held by you or your nominee
(without the necessity for any presentation or surrender thereof or any notation
of such payment thereon) in the manner and at the address for such purpose
specified below your name in Schedule I hereto, or at any other address as you
----------
may from time to time direct in writing. You agree that, as promptly as
practicable after the payment or prepayment in whole of any Note held by you or
your nominee and receipt by you of a written request from the Company to
surrender such Note to the Company for cancellation, you will surrender such
Note at the office of the Company maintained pursuant to ss.9.1 hereof. You
agree that if you sell, assign or transfer any Note, you will, prior to any such
sale, assignment or transfer, make a proper notation thereon of the amount of
principal paid thereon as of the date of such sale, assignment or transfer.
ss.6.2 Delivery Expenses. If you shall surrender any Note to the Company
-------------------
pursuant to this Agreement, or if the Company shall issue any new Note pursuant
to this Agreement, the Company will pay all reasonable costs and expenses of
delivery of the surrendered Note and any Note or Notes issued in exchange or
replacement for, or on registration of transfer of, the surrendered Note or any
such new Note, as the case may be, in each case insured to your reasonable
satisfaction. The obligations of the Company under this ss.6.2 shall survive the
payment or prepayment of the Notes and the termination of this Agreement.
ss.6.3 Issuance Taxes. The Company will pay all taxes in connection with
----------------
the execution and delivery of this Agreement, the issuance and sale of the Notes
by the Company, and any modification of this Agreement or the Notes issued by
it, and will save you and any subsequent holder of the Notes harmless, without
limitation as to time, against any and all liabilities (including, without
limitation, any interest or penalty for nonpayment or delay in payment, or any
income taxes paid by you by reason of any reimbursement by the Company of any
such taxes paid by you) with respect to all such taxes. The obligations of the
Company under this ss.6.3 shall survive the payment or prepayment of the Notes
and the termination of this Agreement.
SECTION 7. NOTE PREPAYMENTS.
ss.7.1 Required Prepayments. The Company shall, without notice, prepay,
----------------------
without premium, on March 31, 2001 Notes in an aggregate principal amount of
$7,500,000 million and on each March 31, thereafter until and including March
31, 2003, Notes in an aggregate principal amount of $6,000,000 million and will
pay at maturity Notes in an aggregate principal amount of $500,000 (or such
lesser principal amount as may then be outstanding), together, in each case,
with interest accrued on the amount to be prepaid or paid to the date of
prepayment or payment. Except as otherwise provided in this Agreement, no
payments of principal of the Notes are required prior to March 31, 2001. Any
amounts prepaid pursuant to ss.7.2 hereof shall be applied in an inverse order
of maturity to reduce each of the then remaining prepayments required under this
ss.7.1 and the payment of the Notes required at maturity and any amounts prepaid
pursuant to ss.7.3 hereof shall be applied pro rata to reduce each of the then
remaining prepayments required under this ss.7.1 and the payment of the Notes
required at maturity. Notwithstanding anything contained in this ss.7.1, on the
maturity date of the Notes, the full principal amount of the Notes then
outstanding, if any, together with accrued interest thereon, shall be due and
payable.
ss.7.2 Optional Prepayments with Premium. (a) Upon the terms and subject to
----------------------------------
the conditions hereinafter set forth, the Company, at its option, upon notice as
provided in ss.ss.7.2(b) and 7.4 hereof, may prepay the Notes beginning one year
after the Closing Date either in whole or from time to time in any part (but if
in part, then in units of $5,000,000 or integral multiples of $100,000 in excess
thereof), at a prepayment price equal to the aggregate principal amount of the
Notes so to be prepaid, plus interest accrued on the amount to be prepaid to the
date fixed for prepayment, plus a premium equal to the Make-Whole Amount.
(b) Notice of any prepayment of Notes pursuant to this ss.7.2 shall be
given to each holder of the Notes not less than thirty (30) nor more than sixty
(60) days before the date fixed for prepayment (the "Optional Prepayment Date")
-------------------------
and shall be accompanied by an Officer's Certificate of the Company certifying
as to: (i) the Optional Prepayment Date; (ii) the aggregate principal amount of
the Notes to be prepaid on such Optional Prepayment Date; (iii) the aggregate
principal amount of the Notes and the principal amount of each such Note held by
such holder to be prepaid; (iv) the aggregate amount of accrued interest
applicable to such prepayment; and (v) the aggregate amount of the premium (if
any) that the Company would be required to pay if such prepayment were made on
the date notice is being given under this ss.7.2, together with the detailed
calculations used in determining the amount of such premium (which calculations
shall be provided whether or not a premium is calculated to be due and payable).
In addition, the Company shall subsequently provide notice of the final
determination of any Make-Whole Amount as required by ss.7.3 hereof. Any notice
of prepayment pursuant to this ss.7.2 having been so given, the aggregate
principal amount of Notes specified in such notice, together with the premium,
if any, and accrued interest thereon, shall become due and payable on such
Optional Prepayment Date.
ss.7.3 Mandatory Offer to Prepay in a Put Event.
-----------------------------------------
(a) In the event of the occurrence of a Put Event (as defined in ss.7.3(d)
hereof), the Company shall (i) deliver to each holder of a Note a ss.7.3 Notice
and Offer to Prepay pursuant to ss.7.3(b) hereof and (ii) unless such holder
declines prepayment as to one or more Notes it holds by delivering a ss.7.3(c)
Response pursuant to ss.7.3(c) hereof, prepay all, but not less than all, of the
Notes held by such holder as to which prepayment is not declined, as hereinafter
provided. Any prepayment of Notes pursuant to this ss.7.3 shall be made at a
prepayment price (the "Special Prepayment Price") equal to 101% of the par value
of the Notes to be prepaid, together with interest accrued thereon to the date
of prepayment.
(b) On a date more than thirty (30) days and not more than sixty (60) days
following the occurrence of a Put Event, the Company shall give written notice
to each Noteholder of the occurrence thereof and of such holder's right to elect
to be prepaid hereunder arising as a result thereof (a "ss.7.3 Notice and Offer
-----------------------
to Prepay"). Such ss.7.3 Notice and Offer to Prepay shall state: (i) that such
- ---------
notice is delivered pursuant to this ss.7.3(b); (ii) the date of and a
description of the circumstances surrounding such Put Event; (iii) the date by
which a Noteholder must deliver a ss.7.3(c) Response pursuant to ss.7.3(c)
hereof in order to decline prepayment; and (iv) the date on which the Company
will prepay the Notes held by such Noteholder if the Noteholder does not deliver
a ss.7.3(c) Response pursuant to ss.7.3(c) hereof, which prepayment date shall
<PAGE>
be a Business Day not more than twenty-five (25) days after the date on which
such ss.7.3 Notice and Offer to Prepay is delivered by the Company (the "ss.7.3
------
Special Prepayment Date"). No failure by the Company to deliver a ss.7.3 Notice
- ------------------------
and Offer to Prepay to any Noteholder shall limit such Noteholder's right to
exercise such election. In the event that the Company fails to deliver a ss.7.3
Notice and Offer to Prepay to any Noteholder within sixty (60) days after the
occurrence of the Put Event, such Noteholder shall be deemed for the purposes of
this ss.7.3 to have received such ss.7.3 Notice and Offer to Prepay on the
earlier of (i) date on which it first obtains actual knowledge of a Put Event or
(ii) the date which is sixty (60) days after the occurrence of such Put Event
and the ss.7.3 Special Prepayment Date shall be deemed to be the fifteenth
(15th) Business Day following such date. Unless such Noteholder delivers a
ss.7.3(c) Response pursuant to ss.7.3(c) hereof, the Company shall prepay the
Notes held by such Noteholder on the deemed ss.7.3 Special Prepayment Date.
(c) To decline prepayment pursuant to this ss.7.3 of one or more of the
Notes held by it, a Noteholder shall deliver to the Company, such holder's
notice that it declines prepayment pursuant to this ss.7.3 with respect to the
Notes designated therein (a "ss.7.3(c) Response "). Such ss.7.3(c) Response
-------------------
shall be delivered to the Company (i) on or before the fifteenth (15th) day
prior to the ss.7.3 Special Prepayment Date designated in the ss.7.3 Notice and
Offer to Prepay or (ii) at any time on or prior to the deemed ss.7.3 Special
Prepayment Date if the Company fails to delivery a ss.7.3 Notice and Offer to
Prepay. The ss.7.3(c) Response shall set forth the name of such holder and the
statement that it declines prepayment pursuant to this ss.7.3 with respect to
the Notes designated therein. Promptly and in any event within two (2) Business
Days after receipt of a Noteholder's ss.7.3(c) Response, the Company shall, by
written notice to such Noteholder, acknowledge receipt thereof. If the Company
has delivered a ss.7.3 Notice and Offer to Prepay to each Noteholder and, on or
prior to the fifteenth (15th) day prior to the ss.7.3 Special Prepayment Date,
the Company shall not have received a ss.7.3(c) Response from a Noteholder (or
shall have received a ss.7.3(c) Response with respect to some but not all the
Notes held by such Noteholder), (i) the Company shall promptly, but in any case
within one Business Day after the expiration of such 15-day period, deliver
written notice to such Noteholder that all of the Notes held by such Noteholder
(or all of the Notes held by such Noteholder with respect to which such
Noteholder shall not have declined prepayment in such Noteholder's ss.7.3(c)
Response) will be prepaid pursuant to this ss.7.3 on the ss.7.3 Special
Prepayment Date and (ii) the Special Prepayment Price shall become due and
payable on the ss.7.3 Special Prepayment Date.
(d) For purposes of this ss.7.3, a "Put Event" shall be deemed to have
----------
occurred if any two (2) or more of the five (5) Key Persons cease to be employed
by the Company (other than, in the case of Mr. Greenholtz, upon his retirement,
so long as he is replaced within forty-five days of the date he retires) with
management responsibilities substantially comparable to their responsibilities
at the Closing Date (or, in the case of any person substituted as a Key Person,
with management responsibilities substantially comparable to his or her
responsibilities as of the date so substituted in accordance with the definition
of "Key Person"), unless (i) after taking into account the substitution of one
or more new Key Persons for the departing Key Persons, at least four (4) Key
Persons continue to be employed by the Company with the applicable management
responsibilities, or (ii) the Required Noteholders shall have agreed in writing
that, notwithstanding the departure of such Key Persons, a Put Event shall not
have occurred.
ss.7.4 Notice of Determination of Make-Whole Amount. Additional notice
------------------------------------------------
shall be given in the case of any prepayment pursuant to ss.7.2 hereof or any
<PAGE>
acceleration pursuant to ss.11.1 hereof promptly upon the Company becoming able
to calculate the premium, if any, that the Company shall be required to pay in
connection with such prepayment or acceleration, but in no event less than five
(5) days prior to the appropriate prepayment date or payment date, and shall be
accompanied by an Officer's Certificate certifying the premium, if any, and
setting forth the calculation thereof that the Company is required to pay in
connection with such prepayment or acceleration and certifying that the amount
of such premium was calculated in accordance with the provisions of ss.7.2 or
ss.11.1 hereof, as the case may be, the definition of the term "Make-Whole
Amount" in ss.12.1 hereof and the other defined terms used in such definition.
Any Noteholder shall have the right to contest the methodology or the arithmetic
accuracy of any calculation of any premium calculated by the Company pursuant to
the provisions of this Agreement or any prepayment received by any Noteholder
pursuant to such provisions of this Section 7 or in connection with any
acceleration pursuant to the provisions of ss.11.1 hereof by delivering written
notice to the Company setting forth such Noteholder's objection. Within five (5)
days of receipt by the Company of such notice, the Company shall respond to such
objection and shall notify each Noteholder of the nature of such objection and
of the Company's response thereto. Any adjustment to the premium as a result of
such objection and response shall be made to each Noteholder in proportion to
the amount prepaid or to be prepaid to such Noteholder. The acceptance by any
Noteholder of any prepayment shall not be deemed to be a waiver by such
Noteholder or the Company of any rights to contest the amount of such prepayment
hereunder.
ss.7.5 Partial Prepayment Pro Rata. The aggregate principal amount of each
----------------------------
partial prepayment of Notes pursuant to ss.7.1 or ss.7.2 hereof shall be
allocated among the holders of the Notes in proportion, as nearly as
practicable, to the respective unpaid principal amounts of such Notes then held
thereby, with adjustments, to the extent practicable, to compensate for any
prior prepayments not made in exactly such proportion.
ss.7.6 Acquisition of Notes. The Company will not, and will not permit any
---------------------
Subsidiary or Affiliate to, purchase, prepay, redeem or otherwise acquire any
Note except as expressly permitted by the terms hereof and of such Note.
SECTION 8. REGISTRATION, EXCHANGE AND REPLACEMENT OF NOTES.
ss.8.1 Registration. The Notes issuable under this Agreement shall be
-------------
registered notes. The Company will keep, at its office required to be maintained
pursuant to ss.9.1 hereof, books for the registration and registration of
transfer of the Notes. Prior to presentation of any Note for registration of
transfer, the Company shall treat the Person in whose name such Note is
registered as the owner and holder of such Note for all purposes whatsoever,
whether or not such Note shall be overdue, and the Company shall not be affected
by notice to the contrary.
ss.8.2 Exchange. The holder of any Note, at its option, may in person or by
---------
duly authorized attorney surrender the same for exchange at the office
maintained pursuant to ss.9.1 hereof, and promptly thereafter and at the
Company's expense, except as provided below, receive in exchange therefor one or
more new Note or Notes of the same Series, each in the denomination requested by
such holder, dated the date to which interest shall have been paid on the Note
so surrendered or, if no interest shall have yet been so paid, dated the date of
the Note so surrendered and registered in the name of such Person or Persons as
shall have been designated in writing by such holder or its attorney for the
same principal amount as the then unpaid principal amount of the Note so
surrendered. Subject to ss.9.1 hereof, the Company may require payment of a sum
sufficient to cover any stamp or other tax or governmental charge imposed in
respect of any transfer involved in such exchange.
<PAGE>
ss.8.3 Replacement. Upon receipt by the Company of evidence reasonably
------------
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of any Note and (a) in the case of loss, theft or destruction, of
indemnity reasonably satisfactory to it; provided, however, that if the holder
of such Note is the original purchaser of the Note listed on Schedule I hereto
or any Affiliate or nominee thereof or any Institutional Investor or any nominee
thereof, its own unsecured agreement of indemnity shall be deemed to be
satisfactory; or (b) in the case of mutilation, upon surrender thereof, the
Company, at its expense, will execute and deliver in lieu thereof a new Note
executed in the same manner as the Note being replaced, in the same principal
amount as the unpaid principal amount of such Note and dated the date to which
interest shall have been paid on such Note or, if no interest shall have yet
been so paid, dated the date of such Note.
SECTION 9. CERTAIN COVENANTS OF THE COMPANY.
The Company covenants and agrees that so long as any of the Notes shall
remain outstanding:
ss.9.1 Maintenance of Office. The Company will maintain at the office
-----------------------
located at the address for notices to the Company provided in ss.13.1 hereof an
office where notices, presentations and demands in respect of this Agreement and
the Notes may be given to and made upon it; provided, however, that the Company
-------- -------
may, upon fifteen (15) Business Days' prior written notice to the holders of the
Notes, move such office to any other location within the continental boundaries
of the United States. The Company hereby agrees that it will pay, and will save
any Noteholder harmless against liability for, any stamp or other tax or
governmental charge imposed in respect of any transfer of a Note resulting from
such change in office; and said obligation of the Company shall survive the
payment or prepayment of the Notes and the termination of this Agreement.
ss.9.2 Corporate Existence. The Company will, and will cause its
----------------------
Subsidiaries to, take and fulfill, or cause to be taken and fulfilled, all
actions and conditions necessary to preserve and keep in full force and effect
its existence, rights and privileges as a corporation, and will not liquidate or
dissolve and will take and fulfill, or cause to be taken and fulfilled, all
actions and conditions necessary to qualify, and to preserve and keep in full
force and effect its qualification, to do business as a foreign corporation, as
the case may be, in the jurisdictions in which the conduct of its business or
the ownership or leasing of its properties requires such qualification
provided, however, that this ss.9.2 shall not be deemed to prohibit any
- -------- -------
transaction permitted by ss.9.10 hereof and shall not be deemed to prohibit the
dissolution or liquidation of any Subsidiary which is immaterial to the
operations or financial condition of the Company and its Subsidiaries, taken as
a whole.
ss.9.3 General Maintenance of Properties and Business, etc. (a) The
----------------------------------------------------------
Company will, and will cause its Subsidiaries to:
(i) maintain or cause to be maintained in good repair,
working order and condition, usual wear and tear excepted, all
properties used or useful in its business and make all reasonable
and necessary renewals, replacements, additions, betterments and
improvements thereof and thereto, so that the business carried on in
connection therewith may be conducted in the ordinary course at all
times;
<PAGE>
(ii) maintain or cause to be maintained, with financially
sound insurers of nationally recognized stature and responsibility,
insurance with respect to its property and business of such a
nature, with such terms and in such amounts, as a prudent person
would maintain with respect to similar properties and a similar
business, and, in any event, will maintain insurance on all its
property of a character usually insured by Persons engaged in the
same or a similar business similarly situated against loss or damage
of the kinds and in the amounts customarily insured against by such
Persons, and carry or cause to be carried, with such insurers in
customary amounts, such other insurance, including public liability
insurance, as is usually carried by Persons engaged in the same or a
similar business similarly situated; provided, however, that all
-------- -------
insurance maintained pursuant to this clause (ii) shall be carried
in amounts sufficient to prevent it from incurring liability as a
co-insurer under law or the terms of the applicable policy or
policies;
(iii) keep proper books of record and accounts in which
entries will be made of its business transactions in accordance with
and to the extent required by generally accepted accounting
principles; and
(iv) set aside on its books from its earnings for each Fiscal
Year, in amounts deemed adequate in the reasonable opinion of the
Company, all proper accruals and reserves that, in accordance with
generally accepted accounting principles, should be set aside from
such earnings in connection with its business, including reserves
for depreciation, obsolescence and/or amortization, third-party
insurance payment and claims and accruals for taxes based on or
measured by income or profits and for all other taxes.
(b) Neither the Company nor any Subsidiary will engage in any line
of business other than (i) providing financing for consumer debt to individuals
with credit characteristics substantially similar to those of the Company's
historic consumer base, (ii) providing financing to lenders and to developers
secured by loans to individuals described in clause (i), (iii) providing
financing to developers for the acquisition and development of property for
resale and (iv) any related business of the same general type.
(c) Neither the Company nor any Subsidiary will apply underwriting
criteria in evaluating prospective loans which are materially less stringent
than those used by the Company on the Closing Date.
ss.9.4 Notice of Certain Events and Conditions. The Company will give
------------------------------------------
prompt written notice to each Noteholder of any event of default (including,
without limitation, any Event of Default) or any event which with notice or
lapse of time or both would constitute an event of default (including, without
limitation, any Default) under any evidence or evidences of Indebtedness
(including the Notes) in an aggregate principal amount of $1,000,000 or more of
the Company and/or any Subsidiary or under any indenture, mortgage or other
agreement or instrument relating to any such evidence of Indebtedness (including
this Agreement) or under any other agreement or instrument relating to preferred
stock (or comparable equity interest) of the Company or any Subsidiary or under
any material lease for or in respect of which the Company or any Subsidiary may
be liable.
<PAGE>
ss.9.5 Inspection. The Company and its Subsidiaries each will permit the
-----------
Required Noteholders, by their representative, agent or attorney, to examine all
books of account, records, reports and other papers of it, to make copies and
take extracts from any thereof, to discuss the affairs, finances and accounts of
it with its officers and independent certified public accountants (and by this
provision the Company hereby authorizes said accountants to discuss with any
such holders the finances and accounts of the Company and its Subsidiaries;
provided that representatives of the Company shall be present at any such
meeting with the accountants unless an Event of Default shall have occurred and
be continuing) and to visit and inspect, at reasonable times during normal
business hours and following reasonable notice, the properties of the Company
and its Subsidiaries. Each such inspection shall be made during the continuance
of a Default or an Event of Default (in which event, the expense of such
inspection shall be borne by the Company). Notwithstanding the foregoing
sentence, it is understood and agreed by the Company that all expenses in
connection with any such inspection incurred by the Company or any Subsidiary,
any officers and employees thereof and the attorneys and independent certified
public accountants therefor shall be expenses payable by the Company and shall
not be expenses of the Person making the inspection. Prior to the occurrence of
an Event of Default, inspections pursuant to this Section 9.5 shall not exceed
two per calendar year.
ss.9.6 Compliance with Law, etc. Neither the Company nor any Subsidiary
--------------------------
will (a) violate any laws, ordinances or governmental rules or regulations to
which it is or may become subject, the violation of which could, in the
aggregate, have a Material Adverse Effect or (b) fail to obtain or maintain any
patents, trademarks, service marks, trade names, copyrights, design patents,
licenses, permits, franchises or other governmental authorizations necessary to
the ownership of its property or to the conduct of its business, except where
the failure so to obtain or maintain the foregoing, either individually or in
the aggregate, could not have a Material Adverse Effect.
ss.9.7 Payment of Taxes and Claims. The Company and its Subsidiaries each
----------------------------
will pay and discharge promptly when due:
(a) all taxes, assessments and governmental charges and levies
imposed upon it, its income or profits or any of its properties, before the
same shall become delinquent; and
(b) all lawful claims of materialmen, mechanics, carriers,
warehousemen, landlords and other similar Persons for labor, materials,
supplies and rentals that, if unpaid, might by law become a Lien (other
than a Permitted Lien) upon any of its property;
provided, however, that no amount due with respect to clause (a) or clause (b)
- -------- -------
above need be paid while the same is being contested in good faith by
appropriate proceedings diligently conducted so long as (i) adequate reserves
shall have been established and maintained in accordance with generally accepted
accounting principles with respect thereto, (ii) title of the Company or any
Subsidiary, as the case may be, to the particular property shall not be divested
thereby, and (iii) the right of the Company or such Subsidiary to use the
particular property shall not be materially adversely affected thereby. The
Company and its Subsidiaries each will file within the period prescribed by
applicable law and regulations (including any extensions legally provided for
and validly obtained) all federal, state and local tax returns and all other tax
reports as required by applicable law.
ss.9.8 ERISA. (a) Each of the Company, its Subsidiaries and the ERISA
------
Affiliates will take all actions and fulfill all conditions necessary to
<PAGE>
maintain any and all Plans in substantial compliance with applicable
requirements of ERISA, the Code and applicable foreign law until such Plans are
terminated, and the liabilities thereof discharged, in accordance with
applicable law.
(b) No domestic Pension Plan will incur any "accumulated funding
deficiency" (within the meaning of Section 412(a) of the Code), and no foreign
Pension Plan will be in violation of any funding requirement imposed by
applicable foreign law, which deficiency or violation would reasonably be likely
to have a Material Adverse Effect.
ss.9.9 Transactions with Affiliates. Neither the Company nor any Subsidiary
-----------------------------
will enter into any transaction (including, without limitation, the purchase,
sale or exchange of property, the rendering of any services or the payment of
management fees) with any Affiliate, except in the ordinary course of, and
pursuant to the reasonable requirements of, its business, and in good faith and
upon commercially reasonable terms that are no less favorable to it than would
obtain in a comparable arm's-length transaction with a Person other than an
Affiliate.
ss.9.10 Consolidation and Merger. Neither the Company nor any Subsidiary
--------------------------
will merge into or consolidate with any other Person or permit any other Person
to merge into or consolidate with it except:
(a) the Company may permit any Person to merge into it so long as
(i) the Company shall be the surviving entity, and (ii) immediately before
and after giving effect to the transaction, no Default or Event of Default
shall exist; and
(b) the Company may merge into or consolidate with any other
corporation so long as (i) the corporation which survives such merger or
results from such consolidation (the "surviving corporation") shall be
organized under the laws of the United States of America or a jurisdiction
thereof; (ii) the surviving corporation shall assume, by an instrument
reasonably satisfactory in form and substance to the Required Noteholders,
the obligations of the Company under the Notes and this Agreement; (iii)
immediately before and after giving effect to the transaction, no Default
or Event of Default shall exist; and (iv) an opinion of counsel (which
counsel and the form and substance of which opinion shall be reasonably
satisfactory to the Required Noteholders) shall be delivered to each
Noteholder upon consummation of the transaction to the effect that, subject
to such exceptions and limitations as are customarily contained in similar
opinions of counsel, (A) this Agreement, the Notes and the instrument
referred to in the foregoing subclause (ii) are legal, valid and binding
obligations of the surviving corporation, enforceable against the surviving
corporation in accordance with their respective terms and (B) as to such
other matters as the Required Noteholders may reasonably request that are
reasonably related to the issue of the enforceability of the obligations
under the Notes, this Agreement and the instrument referred to in the
foregoing subclause; and
(c) any Wholly-Owned Subsidiary may merge into or consolidate with
the Company if the Company is the surviving entity, or with another
Wholly-Owned Subsidiary, in each case, so long as, immediately before and
after giving effect to the transaction, no Default or Event of Default
shall exist.
ss.9.11 Consolidated Tangible Net Worth. The Company will not at any time
---------------------------------
permit Consolidated Tangible Net Worth to be less than the sum of (i)
$34,000,000 plus (ii) fifty percent (50%) of Cumulative Net Earnings.
<PAGE>
ss.9.12 Consolidated Net Earnings Available for Fixed Charges. The Company
------------------------------------------------------
will not at any time permit the ratio of Consolidated Net Earnings Available for
Fixed Charges for the period of four (4) most recently ended consecutive Fiscal
Quarters to Fixed Charges for such period to be less than 2.00 to 1.00.
ss.9.13 Limitations on Indebtedness. (a) The Company will not permit the
-----------------------------
ratio of Total Indebtedness to the sum of Consolidated Tangible Net Worth plus
Total Subordinated Indebtedness (the "Leverage Ratio") as of December 31 of any
Fiscal Year to exceed 4.00 to 1.00; provided, however, that if at any such time
-------- -------
the sum of Consolidated Net Tangible Worth plus Total Subordinated Indebtedness
is equal to or greater than $55,000,000, the Company will not permit the
Leverage Ratio at such time to exceed 5.00 to 1.00. Any such Indebtedness shall
be maintained in accordance with ss.9.17.
(b) The Company will not, and will not permit any Subsidiary to,
directly or indirectly, incur, create, assume, guarantee or become liable in any
manner with respect to any Indebtedness unless after giving effect thereto the
Leverage Ratio will not exceed 4.00 to 1.00 and no Default or Event of Default
will exist; provided, however, that if at any such time the sum of Consolidated
-------- -------
Net Tangible Worth plus Total Subordinated Indebtedness is equal to or greater
than $55,000,000, the Company may, and may permit any Subsidiary to, incur,
create, assume, guarantee or become liable in any manner with respect to any
Indebtedness so long as after giving effect thereto the Leverage Ratio will not
exceed 5.00 to 1.00 and no Default or Event of Default shall exist.
(c) The Company will not permit any one or more of its
Subsidiaries to incur unsecured Indebtedness in excess of $1,000,000 in the
aggregate other than Indebtedness owing to the Company or another Subsidiary.
ss.9.14 Limitation on Restricted Payments. (a) Neither the Company nor any
----------------------------------
Subsidiary will at any time, directly or indirectly, declare, make or pay, or
incur any liability to make or pay, or cause or permit to be declared, made or
paid, any Restricted Payment unless the aggregate amount of such Restricted
Payment and all other Restricted Payments made by the Company or any Subsidiary
on or after the date hereof would not exceed 50% of Cumulative Net Earnings
(excluding Consolidated Net Earnings for any Fiscal Quarter for which
Consolidated Net Earnings is a loss) plus net proceeds received by the Company
or any Subsidiary on or after the date hereof in respect of any issuance and
sale by the Company or any Subsidiary of any equity securities.
(b) The Company shall not declare any Restricted Payment payable more than
sixty (60) days after the date of declaration thereof. For purposes of any
calculation pursuant to the foregoing clause (a), any Restricted Payment which
is declared and paid in compliance with the first sentence of this clause (b)
shall be deemed to have been paid at the date of declaration thereof, after
giving effect to any Indebtedness incurred through the date of determination and
the subsequent payment of such Restricted Payment shall not be treated as a
separate and additional Restricted Payment.
ss.9.15 Restricted Investments. Neither the Company nor any Subsidiary
------------------------
will make any Restricted Investment.
<PAGE>
ss.9.16 Liens. Neither the Company nor any Subsidiary shall grant, create
------
or assume a Lien on substantially all of the assets of the Company and its
Subsidiaries taken as a whole (determined without regard to the assets described
in clauses (a) through (d) of the definition of "Consolidated Net Tangible
Assets" in ss.12.1 below) for the benefit of one or more holders of Indebtedness
under a single credit facility.
ss.9.17 Restrictions on Distributions and Issuances of Equity Interests.
-----------------------------------------------------------------
(a) After the date hereof, the Company will not permit any Subsidiary to enter
into any agreement, instrument or other document which prohibits or restricts in
any way the payment of dividends or other distributions on or with respect to
the capital stock (or other comparable indicia of ownership if such Person is a
business entity other than a corporation) of any Subsidiary.
(b) No Subsidiary shall issue Voting Stock, non-voting stock, or any other
equity interest in such Subsidiary, except to the Company or a Wholly-Owned
Subsidiary; provided, however, that in connection with the acquisition of the
-------- -------
business and assets of another Person, the Company may create a Wholly-Owned
Subsidiary and permit such Subsidiary to issue shares of common stock of such
Subsidiary to one or more Persons to be employed as a member of the management
team of such Subsidiary so long as the aggregate number of shares so issued does
not at any time exceed five (5%) of the number of outstanding shares of Voting
Stock of such Subsidiary; and, provided further, that notwithstanding the
-------- -------
foregoing, but subject to the foregoing limitation on the issuance of capital
stock, any such Subsidiary shall be deemed to be a Wholly-Owned Subsidiary for
all purposes of this Agreement; and, provided, further, that notwithstanding the
-------- -------
foregoing, a Subsidiary may issue not in excess of 20% of its Voting Stock,
non-voting stock, or any other equity interest in such Subsidiary, to one or
more Persons with which the Company pursues a joint venture or other business
opportunities; and, provided, further, that notwithstanding the foregoing, a
-------- -------
Subsidiary which has been formed solely for the purpose of facilitating the
securitization and sale of assets of the Company may sell equity interests to
the purchasers of such securitization interests.
ss.9.18 Maintenance of Allowance for Loan Losses. The Company will
----------------------------------------------
maintain, on the last day of each month, a ratio of Allowances for Loan Losses
to Net Write-offs for the most recently ended Fiscal Year of 1.50 to 1.00.
ss.9.19 Maintenance of Unencumbered Assets to Total Unsecured
----------------------------------------------------------------
Indebtedness. The Company will maintain, on the last day of each month, a ratio
- -------------
of Unencumbered Assets to Total Unsecured Indebtedness of 1.40 to 1.00.
ss.9.20 Limitation on Gain on Sales of Loans. The Company will not at any
-------------------------------------
time permit the aggregate amount of consolidated revenues of the Company and its
Subsidiaries constituting Gain on Sale of Loans for the period of four
consecutive Fiscal Quarters then most recently ended to exceed 45% of
consolidated revenues of the Company and its Subsidiaries for such period.
ss.9.21 Repurchase of Notes. Except as otherwise required or permitted
---------------------
under Section 7 hereof, neither the Company nor any Subsidiary nor any Affiliate
will, directly or indirectly, repurchase or make any offer to repurchase any
Notes.
ss.9.22 Tax Consolidation. The Company will not file or consent to the
-------------------
filing of any consolidated income tax return with any Person other than a
Subsidiary, and if the Company and any Subsidiary file a consolidated income tax
<PAGE>
return, the Company will not pay an amount of the taxes payable in respect of
such return (net of any amount of such taxes paid or reimbursed by such other
Person) in excess of the amount which the Company would have been required to
pay in respect of such taxes if the Company had filed an income tax return for
the Company.
ss.9.23 Environmental Law Compliance. (a) Hazardous Substances. The
------------------------------- ----------------------
Company shall at all times comply and cause each Subsidiary to comply with all
Environmental Laws the failure to comply with which, individually or in the
aggregate, would reasonably be likely to have a Material Adverse Effect and
indemnify, pay and hold each Noteholder harmless from and against any and all
losses, costs (including attorneys' fees), liabilities and damages whatsoever
incurred by such Noteholder by reason of (i) any liability of the Company or any
of its Subsidiaries under any applicable Environmental Laws, or (ii) any
violation of any applicable Environmental Laws for which the Company or any of
its Subsidiaries is liable or which is related to any real estate or other
facility owned, leased or operated by the Company or any of its Subsidiaries, or
(iii) the imposition of any governmental Lien for the recovery of environmental
cleanup or response costs expended by reason of any such liability or violation.
(b) Cleanup Orders; Further Assurance. The Company shall provide each
-------------------------------------
Noteholder promptly with a copy of any notice received by the Company or any
Subsidiary from any governmental agency stating that the Company or such
Subsidiary has become liable for the cost of investigating, removing or
remediating Hazardous Materials or subject to a cleanup order or decree, or a
fine or penalty issued or imposed, by an agency having jurisdiction over the
Company or any such Subsidiary if the Company believes or reasonably should
believe that the matter that is the subject of such notice is, individually or
in the aggregate, would reasonably be likely to have a Material Adverse Effect.
Upon receipt of such notice, or if any Noteholder at any time has a reasonable
basis to believe that any facility owned, leased or operated by the Company or
any of its Subsidiaries has become contaminated or subject to a cleanup or
mitigation order or decree, or a fine or penalty, issued or imposed by any
federal, state or local governmental agency, then the Company agrees, upon
request from such Noteholder, to provide such Noteholder, at the Company's
expense, with such reports, certificates, engineering studies or other written
material or data as such Noteholder may reasonably require.
ss.9.24 Ranking. The Company shall ensure that, at all times, all
--------
obligations and liabilities of the Company under this Agreement and the Notes
will constitute direct, unconditional and general obligations of the Company and
will rank in right of payment pari passu to all other Indebtedness of the
---- -----
Company except for such Indebtedness to the extent preferred as a result of
being secured (but then only to the extent of such security).
SECTION 10. INFORMATION TO BE FURNISHED TO HOLDERS OF NOTES.
ss.10.1 Financial Statements of the Company. The Company shall deliver to
-------------------------------------
each holder of any Note two (2) copies of the following:
(a) as soon as practicable and, in any case, within sixty (60) days
after the end of each of the first three Fiscal Quarters in each Fiscal
Year, unaudited consolidated financial statements of the Company and the
Subsidiaries setting forth the consolidated balance sheets of the Company
and the Subsidiaries as at the end of each such Fiscal Quarter and the
<PAGE>
consolidated income statements and statements of cash flows of the Company
and the Subsidiaries for each such Fiscal Quarter and for the year to date,
and setting forth in comparative form figures as of the corresponding date
and for the corresponding periods of the preceding Fiscal Year, all in
reasonable detail and certified by the Company's chief financial officer as
to the fairness of such financial statements and that the same have been
prepared in accordance with generally accepted accounting principles
consistently applied (except as specifically set forth therein), subject to
changes resulting from normal year-end audit adjustments; provided,
however, that at such time and so long as the Company shall be required to
file reports with the Commission pursuant to the Exchange Act, the delivery
of its quarterly reports on Form 10-Q shall satisfy the requirements of
this 10.1(a) with respect to consolidated financial statements;
(b) as soon as practicable and, in any case, within one hundred
twenty (120) days after the end of each Fiscal Year, audited consolidated
financial statements of the Company and its Subsidiaries, setting forth the
consolidated balance sheets of the Company and its Subsidiaries as of the
end of such Fiscal Year and the consolidated income statements and
statements of retained earnings and cash flows of the Company and its
Subsidiaries for such Fiscal Year, setting forth in each case, in
comparative form, the figures for the preceding Fiscal Year, all in
reasonable detail, such financial statements to be accompanied by an
opinion thereon of Ernst & Young LLP or other independent certified public
accountants selected by the Company of good and recognized national
standing in the United States or other independent certified public
accountants reasonably acceptable to you, relating to such consolidated
financial statements, which report and opinion shall be prepared in
accordance with generally accepted accounting standards relating to
reporting and not subject to any material qualifications; provided,
however, that at such time and so long as the Company shall be required to
file reports with the Commission pursuant to the Exchange Act, the delivery
of its annual report on Form 10-K shall satisfy the requirements of this
ss.10.1(b) with regard to consolidated financial statements to the extent
that the consolidated financial statements of the Company and its
Subsidiaries are audited and the opinion with respect thereto is
unqualified;
(c) as soon as practicable and, in any case, within sixty (60) days
after the end of each of the first three Fiscal Quarters in each Fiscal
Year in which the Company has a material operating Subsidiary,
consolidating financial statements of the Company and the Subsidiaries
setting forth the consolidating balance sheet of the Company and the
Subsidiaries as at the end of each such Fiscal Quarter and the
consolidating income statements of the Company and the Subsidiaries for
each such Fiscal Quarter, and setting forth in comparative form figures as
of the corresponding date and for the corresponding periods of the
preceding Fiscal Year, all in reasonable detail and certified by the
Company's chief financial officer as to the fairness of such financial
statements and that the same have been prepared in accordance with
generally accepted accounting principles;
(d) as soon as practicable and, in any case, within one hundred
twenty (120) days after the end of each Fiscal Year in which the Company
has a material operating subsidiary, consolidating financial statements of
the Company and its Subsidiaries, setting forth the consolidating balance
sheet of the Company and its Subsidiaries as of the end of such Fiscal Year
and the consolidating income statements of the Company and its Subsidiaries
for such Fiscal Year, all in reasonable detail and certified by the
Company's chief financial officer as to the fairness of such financial
statements and that the same have been prepared in accordance with
generally accepted accounting principles.
<PAGE>
ss.10.2 Other Information. The Company shall deliver to each holder of any
------------------
Note the following:
(a) promptly after the submission thereof to the Company copies of
any detailed reports (including the auditors' comment letter to management,
if any such letter is prepared) submitted to the Company, respectively, by
its independent auditors in connection with each annual or interim audit of
the accounts of the Company made by such accountants;
(b) promptly upon distribution thereof, copies of all financial or
other statements (including proxy statements), reports and notices as the
Company or any Subsidiary shall send to any class of its shareholders, any
of its bank lenders or any holder of any of its Indebtedness;
(c) promptly after filing thereof, copies of all regular and
periodic reports and registration statements, and current reports on Form
8-K, which the Company may file with the Commission or any governmental
agency substituted therefor and, promptly upon written request therefor,
copies of any financial statements which the Company may file annually with
any state regulatory agency or agencies;
(d) promptly and, in any event, within thirty (30) days after,
notice of the institution of any suit, action or proceeding against the
Company or any Subsidiary which could, either individually or in the
aggregate, have a Material Adverse Effect;
(e) promptly upon and, in any event within five (5) Business Days
after, any Officer of the Company shall have knowledge of any condition or
event which constitutes a Default or an Event of Default and in no event
more than twenty (20) Business Days after the occurrence of such Default or
Event of Default, an Officer's Certificate of the Company specifying the
nature and period of existence thereof, what action the Company has taken
or is taking or proposes to take with respect thereto, and an estimate of
the time necessary to cure such condition or event;
(f) promptly upon becoming aware of the occurrence of any (i) ERISA
Termination Event; (ii) "prohibited transaction" (within the meaning of
-----------------------
Section 4975 of the Code or Section 406 of ERISA), other than one to which
an exemption applies; (iii) failure to make a timely contribution to any
Plan, if such failure has given rise to a lien under Section 412(n) of the
Code or any comparable provision of applicable foreign law; or (iv) actual,
asserted or alleged violation of ERISA, the Code or applicable foreign law,
that, with respect to any of the events set forth in the foregoing clauses
(i) through (iv), is reasonably likely to result in the imposition of a tax
or other penalty on the Company or any Subsidiary in connection with any
Plan, a written notice specifying the nature thereof, what action the
Company is taking or proposes to take with respect thereto;
(g) promptly upon the formation or the acquisition thereof, notice
of the formation or acquisition, as the case may be, of any new material
operating Subsidiary of the Company;
(h) at any time that the Company is not subject to the reporting
requirements of Section 13 or Section 15(d) of the Exchange Act (having
been previously subject to such requirement), promptly upon the written
<PAGE>
request of the holder of any Note and to the extent not previously
provided, (i)(x) a brief statement of the nature of the business of the
Company and its Subsidiaries and the products and services they offer and
(y) the Company's most recent balance sheet and profit and loss and
retained earnings statements, together with similar financial statements
for its two (2) preceding Fiscal Years, in each case audited by an
independent certified public accountant to the extent reasonably available;
the most recent balance sheet to be as of a date less than sixteen (16)
months prior to the date of such request and the profit and loss and
retained earnings statements to be for the twelve (12) months preceding the
date of such balance sheet and, if such balance sheet is not as of a date
less than six (6) months before the date of such request, it shall be
accompanied by additional statements of profit and loss and retained
earnings for a period from the date of such balance sheet to a date less
than six (6) months before the date of such request, or (ii) such other
information as shall then be required to permit a resale of Notes by such
holder pursuant to Rule 144A of the Securities Act (or any superseding rule
providing an exemption from registration under the Securities Act for
resales to Qualified Institutional Buyers); provided, however, that, if
such request shall so indicate, the statement and financial statements or
other information shall be delivered to any named prospective purchaser of
a Note as well as to the requesting holder, so long as the request states
that such holder reasonably believes such prospective purchaser to be a
Qualified Institutional Buyer;
(i) promptly, and in any event within ten (10) days after
transmission thereof, copies of all press releases and other statements
made available generally by the Company or any of its Subsidiaries to the
public;
(j) within one hundred twenty (120) days after the end of each
Fiscal Year, a description of any changes in the employment of any Key
Person and the reasons for any such changes;
(k) promptly upon request therefor, such other date, filings and
information as any Noteholder may from time to time reasonably request.
ss.10.3 Officer's Certificates. The Company will deliver with each set of
------------------------
financial statements delivered pursuant to subsection (a) or (b) of ss.10.1
hereof an Officer's Certificate (i) stating, in the opinion of each officer
executing such Officer's Certificate and to the best of his knowledge and
belief, that upon the date of such certificate no Default or Event of Default
exists (provided, however, that, in the event that any such Default or Event of
Default exists, such certificate shall so specify and shall state whether such
Default or Event of Default has been cured or is continuing and, if continuing,
what steps the Company has taken or is taking or proposes to take to cure such
Default or Event of Default and an estimate of the time necessary to cure such
Default or Event of Default) and (ii) setting forth in reasonable detail the
calculations made during such period and as of the end of such period in
determining compliance with the provisions of ss.ss.9.9, 9.11, 9.12, 9.13, 9.14,
9.15, 9.17, 9.18, 9.19 and 9.20 hereof.
ss.10.4 Accountants' Certificates. Each set of financial statements
---------------------------
delivered pursuant to subsection (b) of ss.10.1 hereof shall be accompanied by a
report of the independent certified public accountants who shall have reported
on such financial statements (i) setting forth in reasonable detail the
calculations made as of the end of such period in determining compliance with
the provisions of ss.ss.9.9, 9.11, 9.12, 9.13, 9.14, 9.15, 9.17, 9.18, 9.19 and
9.20 hereof, including, in the event of a change in generally accepted
accounting principles applied in the preparation of the Company's financial
statements, a reconciliation of those principles and the generally accepted
accounting principles previously applied and the changes, if any, to the
calculations made in determining compliance with the provisions of said
ss.ss.9.9, 9.11, 9.12, 9.13, 9.14, 9.15, 9.17, 9.18, 9.19 and 9.20 hereof.
<PAGE>
SECTION 11. DEFAULTS AND REMEDIES.
ss.11.1 Events of Default; Acceleration of Notes. If any of the following
-------------------------------------------
conditions or events ("Events of Default") shall occur and be continuing:
-----------------
(a) any payment or prepayment of principal of or premium on any Note
shall not be made by the Company when the same becomes due and payable,
whether at maturity, at a date fixed for prepayment, upon acceleration or
otherwise; or
(b) any payment of interest on any Note shall not be made by the
Company when the same becomes due and payable and such default shall
continue for five (5) days following the date on which such payment was due
and payable; or
(c) any representation or warranty of the Company or any of its
Subsidiaries contained in this Agreement or in any agreement, instrument,
certificate, statement or other writing furnished in connection herewith or
therewith or pursuant hereto or thereto shall prove to have been false or
inaccurate in any material respect on the date as of which such
representation or warranty was made;
(d) the Company shall default in the due and punctual performance of
or compliance with any covenant, condition or agreement to be performed or
observed by it under ss.ss.9.9, 9.11, 9.12, 9.13, 9.14, 9.15, 9.17, 9.18,
9.19 and 9.20, inclusive, and ss.10.2(e) hereof or shall use the proceeds
of sale of the Notes other than as described in ss.1.3 hereof; or
(e) the Company shall default in the due and punctual performance of
or compliance with any covenant, condition or agreement (other than any
referred to in clause (d) of this ss.11.1) to be performed or observed by
it under any provision hereof and any such failure shall continue
unremedied for thirty (30) days; or
(f) the Company shall, in respect of any of its Indebtedness which
is outstanding in a principal amount, individually or in the aggregate, of
at least $1,000,000 (excluding the Notes), (i) fail to pay any amount when
due, whether at maturity, at a date fixed for prepayment, upon acceleration
or otherwise after any applicable grace period, or (ii) default in the
performance or observance of any other provision contained in any
instrument or agreement evidencing such Indebtedness or pursuant to which
such Indebtedness was issued or incurred (which default shall not have been
waived), if the effect of such default described in clause (ii) (or the
existence of any condition) is to cause the holder of such Indebtedness or
a trustee or agent thereof to cause, such Indebtedness to become or be
declared due and payable prior to its scheduled maturity; or
(g) a final judgment or judgments entered by a court of competent
jurisdiction for the payment of money in excess of $2,000,000 in the
aggregate shall be rendered against the Company or any of its Subsidiaries
and shall remain in force undischarged and unstayed for a period of more
than sixty (60) days; or
<PAGE>
(h) the Company or any Subsidiary shall (i) commence a voluntary
case under any chapter of the Federal Bankruptcy Code as now or hereafter
in effect, or shall consent to (or fail to controvert in a timely manner)
the commencement of an involuntary case against the Company or any
Subsidiary under said Code; (ii) institute proceedings for liquidation,
rehabilitation, readjustment or composition (or for any related or similar
purpose) under any law (other than the Federal Bankruptcy Code as now or
hereafter in effect) relating to financially distressed debtors, their
creditors or property, or shall consent to (or fail to controvert in a
timely manner) the institution of any such proceedings against the Company
or any Subsidiary; (iii) make an assignment for the benefit of creditors or
enter into any arrangement for the adjustment or composition of debts or
claims; (iv) apply for or consent to the appointment of, or the taking
possession by, a receiver, liquidator, assignee, trustee, custodian or
sequestrator (or other similar official) of itself or any of its property;
or (v) take corporate action for the purpose or with the effect of
authorizing, acknowledging or confirming the taking or existence of any
action or condition specified in clause (i), (ii), (iii) or (iv) above; or
(i) the Company or any Subsidiary shall be insolvent (within the
meaning of any applicable law), or shall be unable, or shall admit in
writing its inability, to pay its debts as they become due, or take
corporate action for the purpose or with the effect of authorizing or
confirming the taking or existence of any action or condition specified in
this subsection (i); or
(j) a court or other governmental authority or agency having
jurisdiction in the premises shall enter a decree or order (i) for the
appointment of a receiver, liquidator, assignee, trustee, custodian or
sequestrator (or other similar official) of the Company or any Subsidiary
or of any part of its property, or for the winding-up or liquidation of its
affairs, and such decree or order shall remain in force undischarged and
unstayed for a period of more than sixty (60) days or (ii) for the
sequestration or attachment of any material part of the property of the
Company or any Subsidiary without its unconditional return to the
possession of the Company or any Subsidiary or its unconditional release
from such sequestration or attachment within sixty (60) days thereafter; or
(k) a court having jurisdiction in the premises shall enter an order
for relief in any involuntary case commenced against the Company or any
Subsidiary under the Federal Bankruptcy Code as now or hereafter in effect,
and such order shall remain in force undischarged and unstayed for a period
of more than ninety (90) days; or
(l) a court or other governmental authority or agency having
jurisdiction in the premises shall enter a decree or order approving or
acknowledging as properly filed or commenced against the Company or any
Subsidiary a petition or proceedings for liquidation, rehabilitation,
readjustment or composition (or for any related or similar purpose) under
any law (other than the Federal Bankruptcy Code as now or hereafter in
effect) relating to financially distressed debtors, their creditors or
property, and such petition or proceedings shall not be dismissed within
ninety (90) days of the date of filing or commencement; or
(m) (i) any domestic Plan (other than a Multiemployer Plan) shall
incur an "accumulated funding deficiency" (within the meaning of Section
--------------------------------
412 of the Code) with respect to any plan year; or (ii) any waiver shall be
sought or granted under Section 412(d) of the Code; or (iii) any foreign
Pension Plan shall violate any funding requirement imposed by applicable
foreign law; or (iv) any Pension Plan shall be or have been terminated or
the subject of termination proceedings under ERISA; or (v) the Company or
<PAGE>
any Subsidiary shall incur or have incurred a liability to or on account of
a Pension Plan under Section 4062, 4063, 4064 or 4201 of ERISA or any
comparable provision of applicable foreign law, and there shall result from
one or more of the events set forth in the foregoing clauses (i) through
(v) either a liability or a material risk of incurring a liability to the
PBGC, any foreign governmental entity or a Plan, which could, either
individually or in the aggregate, have a Material Adverse Effect;
then
(i) upon the occurrence and continuance of any of the Events
of Default set forth in clauses (h) through (l), inclusive, of this
ss.11.1, the Notes shall automatically mature and become due and
payable, together with interest accrued thereon, plus any premium,
without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived;
(ii) upon the occurrence and continuance of any of the Events
of Default set forth in clauses (a) or (b) of this ss.11.1, any
holder or holders of Notes may, in respect of the Notes then held by
such holder or holders, at any time (unless all defaults shall
theretofore have been waived or remedied) at its or their option, by
written notice or notices to the Company, declare the Notes held by
such holder or holders, as the case may be, to be due and payable,
whereupon the same shall mature and become due and payable, together
with interest accrued thereon, plus any premium, without
presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived; or
(iii) upon the occurrence and continuance of any of the Events
of Default set forth in clauses (a) through (g), inclusive, or
clause (m) of this ss.11.1, the Required Holders, by written notice
or notices to the Company, may declare all of the Notes, as the case
may be, to be due and payable, whereupon the same shall mature and
become due and payable, together with interest accrued thereon, plus
any premium, without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived; or
If the maturity of any Note shall be accelerated under this ss.11.1 by reason of
the occurrence of an Event of Default, there shall become due and payable (and
the Company will pay), as compensation to the holder of such Note for the loss
of its investment opportunity and not as a penalty, an amount equal to the
difference between (i) the optional prepayment price that would have been due
and payable if such Note had been prepaid in full pursuant to ss.7.2 hereof upon
the date of such acceleration and (ii) the unpaid principal amount of such Note.
ss.11.2 Default Remedies. If an Event of Default shall occur and be
------------------
continuing, the holder of any Note then outstanding may exercise any right,
power or remedy permitted to it by law, either by suit in equity or by action at
law, or both, whether for specific performance of any covenant or agreement
contained in this Agreement or in such Note, or for an injunction against a
violation of any of the terms of this Agreement or such Note, or in aid of the
exercise of any power granted in this Agreement or in such Note, or may proceed
to enforce payment of such Note or to enforce any other legal or equitable right
<PAGE>
of the holder of such Note. No remedy herein conferred upon any holder of a Note
is intended to be exclusive of any other remedy and each and every remedy shall
be cumulative and shall be in addition to every other remedy given hereunder or
now or hereafter existing at law, in equity, by statute or otherwise. No course
of dealing on the part of any holder of any Note, or any delay or failure on the
part of any holder of any Note to exercise any right or power, shall operate as
a waiver of such right or power or otherwise prejudice the rights, powers and
remedies of such holder or of any other holder. No failure to insist upon strict
compliance with any covenant, term, condition or other provision of this
Agreement or the Notes shall constitute a waiver by any holder of any of the
Notes of any such covenant, term, condition or other provision or of any Default
or Event of Default in connection therewith. To the extent effective under
applicable law, the Company hereby agrees to waive, and does hereby absolutely
and irrevocably waive and relinquish, the benefit and advantage of any
valuation, stay, appraisement, extension or redemption laws now existing or that
may hereafter exist that, but for this provision, might be applicable to any
sale made under any judgment, order or decree of any court, or otherwise, based
on the Notes or on any claim for interest on the Notes. If an Event of Default
shall occur, the Company will pay to the holders of the Notes, to the extent not
prohibited by applicable law, such further amount as shall be sufficient to
cover the reasonable costs and expenses of collection and of the taking of
remedial actions and the maintenance of enforcement proceedings, including,
without limitation, attorneys' fees and expenses. All sums payable by the
Company under the Notes shall be paid without counterclaim, setoff, deduction or
defense and without abatement, suspension, deferment, diminution or reduction.
ss.11.3 Notice of Claimed Default. If the holder of any Note shall give any
--------------------------
notice or take any other action with respect to a claimed Default, the Company
shall forthwith give written notice thereof to all holders of Notes then
outstanding, describing the notice or action and the nature of the claimed
Default.
ss.11.4 Annulment of Acceleration of Notes. If notice is delivered (a)
-------------------------------------
pursuant to clause (ii) of ss.11.1 hereof by any holder or holders of a Note or
Notes then such holder or each of such holders, as the case may be, may, by
written instrument filed with the Company, rescind and annul its respective
declaration and the consequences thereof; and (b) pursuant to clause (iii) of
ss.11.1 hereof, the holders of more than sixty six and two-thirds percent (66
2/3%) of the aggregate principal amount of the Notes then outstanding (excluding
any Notes directly or indirectly owned by the Company or any Affiliate thereof)
may, by written instrument filed with the Company, rescind and annul such
declaration and the consequences thereof or of such Event of Default pursuant to
this Agreement; provided, however, that at the time of an annulment and
-------- -------
rescission pursuant to this ss.11.4(b):
(i) no judgment or decree shall have been entered for payment of any
monies due pursuant to the Notes or this Agreement;
(ii) all arrears of principal, premium and interest upon all the
Notes and all other sums payable under the Notes and this Agreement
(including reasonable costs and expenses of the holders incurred in
connection with such notice under ss.11.1 hereof or annulment under this
ss.11.4, but excluding any principal or interest on the Notes that shall
have become due and payable by reason of such notice under ss.11.1 hereof
or the happening of such Event of Default) shall have been duly paid; and
<PAGE>
(iii) each and every other Default hereunder and Event of Default
shall have been waived pursuant to this ss.11.4 or cured.
No such rescission or annulment pursuant to this ss.11.4 shall extend to or
affect any subsequent Default or Event of Default or impair any right or power
consequent thereon.
SECTION 12. INTERPRETATION OF AGREEMENT AND NOTES.
ss.12.1 Definitions. Except as the context shall otherwise require, the
------------
following terms shall have the following meanings for all purposes of this
Agreement (the definitions to be applicable to both the singular and the plural
form of the terms defined, where either such form is used in this Agreement):
The term "Affiliate", with respect to any Person, shall mean (a) any
---------
director, officer or employee of such Person, (b) any Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such Person, and (c) any Person beneficially owning or holding
5% or more of the Voting Stock (or other comparable indicia of ownership if
such Person is a business entity other than a corporation) of such Person
on a Fully Diluted Basis or any business entity of which such Person
beneficially owns or holds, in the aggregate, 5% or more of the Voting
Stock; provided, however, that neither you nor any Person directly or
indirectly controlled by you nor any other Person which is an institution
shall be deemed to be an Affiliate of the Company or any Subsidiary solely
by reason of ownership of the Notes or by reason of having the benefits of
any agreements or covenants of the Company contained in this Agreement. The
term "control" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a
Person, whether through the ownership of Voting Stock, by contract or
otherwise. The term "Affiliate",when used herein without reference to any
Person, shall mean an Affiliate of the Company.
The term "Allowances for Loan Losses" shall mean, as of any date of
--------------------------
determination, that portion of losses of the Company and its Subsidiaries,
determined on a consolidated basis and in accordance with generally
accepted accounting principles, constituting losses on outstanding mortgage
loans and reported as "Allowances for Loan Losses" in the financial
statements filed by the Company with the Commission as part of the
Company's most recently filed Form 10-Q or 10-K, as the case may be;
provided, however, that with respect to any date of determination occurring
on a date other than the last day of a Fiscal Quarter, "Allowances for Loan
Losses" shall be calculated and reported in the same manner and shall be
based on the same assumptions as the "Allowances for Loan Losses" so
reported in the Company's financial statements.
The term "Business Day" shall mean any day on which commercial banks
------------
are not authorized or required to close in New York, New York,
Williamstown, Massachusetts or Stamford, Vermont.
The term "Closing Date" shall have the meaning set forth in ss.1.2
-------------
hereof.
The term "Code" shall mean the Internal Revenue Code of 1986, as
----
amended from time to time. Reference to a specific section of the Code
shall include such section, any regulations promulgated thereunder and any
comparable provision of any future legislation amending, supplementing or
superseding such section.
<PAGE>
The term "Commission" shall mean the Securities and Exchange
----------
Commission (or any successor thereto performing similar functions).
The term "Company" shall have the meaning set forth in the preamble
-------
hereto.
The term "Consolidated", when used with reference to Current Assets
------------
or Current Liabilities shall mean the aggregate of Current Assets or
Current Liabilities, as the case may be, of the Company and its
Subsidiaries, after eliminating all offsetting debits and credits between
the Company and its Subsidiaries and all other items required to be
eliminated in accordance with generally accepted accounting principles.
The term "Consolidated Net Earnings" shall mean, for any period, the
-------------------------
consolidated net income (or loss) of the Company and its Subsidiaries for
such period determined in accordance with generally accepted accounting
principles applied on a consistent basis (except for express changes in
generally accepted accounting principles), after excluding net income (or
loss) attributable to Minority Interests and eliminating all offsetting
debits and credits between the Company and its Subsidiaries and other items
to be eliminated in accordance with generally accepted accounting
principles, but, in any event, excluding:
(a) any gains or losses on the sale or other disposition of
investments or fixed or capital assets other than in the ordinary course of
business, and any taxes on such excluded gains and any tax deductions or
credits on account of any such excluded losses;
(b) net earnings and losses of any Subsidiary accrued prior to
the date it became a Subsidiary;
(c) net earnings and losses of any Person (other than a
Subsidiary), substantially all the assets of which have been acquired by
the Company or any Subsidiary in any manner, realized by such other Person
prior to the date of such acquisition;
(d) net earnings and losses of any Person (other than a
Subsidiary) which shall have been merged into or consolidated with the
Company or any Subsidiary prior to the date of such merger or
consolidation;
(e) net earnings and losses of any Person (other than a
Subsidiary) in which the Company or any Subsidiary has an ownership
interest except to the extent such net earnings shall have actually been
received by the Company or such Subsidiary in the form of cash
distributions;
(f) any portion of the net earnings of any Subsidiary which
for any reason is unavailable for payment of dividends to the Company;
(g) earnings resulting from any reappraisal, revaluation or
write-up of assets during such period;
(h) any income resulting from any excess of the equity in any
Person at the date of acquisition thereof over the amount invested in such
Person;
<PAGE>
(i) any gain arising from the acquisition of any capital stock
or other securities of the Company or any Subsidiary;
(j) any net gain from the collection of the proceeds of life
insurance policies; and
(k) an amount equal to the aggregate amount of consolidated
revenues of the Company and its Subsidiaries for each Fiscal Quarter in
such period constituting Gain on Sale of Loans to the extent, with respect
to each Fiscal Quarter, that such portion of consolidated revenues exceeds
35% of consolidated revenues of the Company and its Subsidiaries for such
Fiscal Quarter.
The term "Consolidated Net Earnings Available for Fixed Charges"
--------------------------------------------------------
shall mean, for any period, (a) Consolidated Net Earnings for such period,
plus (b) to the extent actually deducted in determining Consolidated Net
Earnings for such period, (i) Fixed Charges for such period and (ii)
provision for taxes imposed on or measured by income or excess profits for
such period.
The term "Consolidated Net Tangible Assets" shall mean, as of the
----------------------------------
date of any determination thereof, all assets of the Company and its
Subsidiaries, on a consolidated basis, (less depreciation, depletion,
obsolescence, amortization and all other reserves properly established in
accordance with generally accepted accounting principles) except (a)
goodwill (whether representing the excess of cost over book value of assets
acquired or otherwise), patents, trade names, trademarks, copyrights,
franchises, research and development expense, organization expense,
unamortized debt discount and expense, deferred assets other than prepaid
insurance, prepaid taxes and deferred taxes, the excess of cost of shares
acquired over book value of related assets and such other assets as are
properly classified as "intangible assets" in accordance with generally
accepted accounting principles, (b) treasury stock of the Subsidiaries, (c)
all items (other than capital stock of any class, capital surplus, retained
earnings, deferred income taxes and Funded Debt) which in accordance with
generally accepted accounting principles would be included in determining
total liabilities of the Company and its Subsidiaries as shown on the
liability side of the consolidated balance sheet of the Company and its
Subsidiaries as at the date of determination and (d) any write-up of the
book value of any assets of the Company and its Subsidiaries resulting from
revaluation thereof subsequent to December 31, 1996, in each case after
eliminating all offsetting debits and credits between the Company and its
Subsidiaries and all other items required to be eliminated in accordance
with generally accepted accounting principles.
The term "Consolidated Tangible Net Worth" shall mean, as of the date of
--------------------------------
determination thereof, after excluding Minority Interests and eliminating
all offsetting debits and credits between the Company and its Subsidiaries
and all other items to be eliminated in accordance with generally accepted
accounting principles, (a) the value of Consolidated Net Tangible Assets as
shown on the latest balance sheet submitted pursuant to ss.10.1 hereof,
less (b) Total Indebtedness, less (c) an amount equal to the aggregate
amount of consolidated revenues of the Company and its Subsidiaries for
each Fiscal Quarter ending on or after April 1, 1997, constituting Gain on
Sale of Loans to the extent, with respect to each Fiscal Quarter, that such
portion of consolidated revenues exceeds 35% of consolidated revenues of
the Company and its Subsidiaries for such Fiscal Quarter.
<PAGE>
The term "Cumulative Net Earnings" shall mean, as of the date of any
-----------------------
determination thereof, the sum of Consolidated Net Earnings for each
Fiscal Quarter during the period beginning April 1, 1997, and ending on
the last day of the most recently ended Fiscal Quarter.
The term "Current Assets", with respect to any Person, shall mean,
--------------
as of the date of any determination thereof, the current assets of such
Person determined in accordance with generally accepted accounting
principles applied on a consistent basis (except for express changes in
generally accepted accounting principles).
The term "Current Liabilities", with respect to any Person, shall
--------------------
mean, as of the date of any determination thereof, the current liabilities
of such Person determined in accordance with generally accepted accounting
principles applied on a consistent basis (except for express changes in
generally accepted accounting principles).
The term "Default" shall mean an event which, with the passage of
-------
time or the giving of notice, or both, would become an Event of Default.
The term "Environmental Laws" shall have the meaning set forth in
-------------------
ss.2.21(a) hereof.
The term "ERISA" shall mean the Employee Retirement Income Security
-----
Act of 1974, as amended from time to time. Reference to a specific section
of ERISA shall include such section, any regulations promulgated
thereunder and any comparable provision of any future legislation
amending, supplementing or superseding such section.
The term "ERISA Affiliate" shall mean any Person which is under
----------------
"common control" (within the meaning of Section 414(b) or (c) of the Code
or Section 4001(a)(14) of ERISA) with the Company or any Subsidiary
thereof.
The term "ERISA Termination Event" shall mean (a) a "reportable
-------------------------
event" (within the meaning of Section 4043(b) of ERISA) with respect to a
Pension Plan (other than a "reportable event" as to which the PBGC has by
regulation waived the 30-day notice requirement under Section 4043(a) of
ERISA); provided, however, that a failure to meet the minimum funding
standards of Section 412 of the Code shall be an ERISA Termination Event
regardless of the issuance of any waiver under Section 412(d) of the Code;
(b) the withdrawal of the Company, any Subsidiary or any ERISA Affiliate
from a Pension Plan during a plan year in which it was a "substantial
employer" (within the meaning of Section 4001(a)(2) of ERISA); (c) the
complete or partial withdrawal of the Company, any Subsidiary or any ERISA
Affiliate from a Multiemployer Plan under Section 4201 or 4204 or ERISA;
(d) the receipt by the Company, any Subsidiary or any ERISA Affiliate of
notice from a Multiemployer Plan that is in reorganization or insolvent
under Section 4241 or 4245 of ERISA or that it intends to terminate or has
terminated under Section 4041A of ERISA; (e) the providing of a notice of
intent to terminate a Pension Plan pursuant to Section 4041(a)(2) of ERISA
or the treatment of a Pension Plan amendment as a termination under
Section 4041(e) of ERISA; (f) the institution of proceedings by the PBGC
to terminate a Pension Plan or the appointment of a trustee to administer
any Pension Plan under Section 4042 of ERISA; (g) the receipt by the
Company, any Subsidiary or any ERISA Affiliate of a notice from any
Multiemployer Plan that any action described in clause (f) has been taken
with respect to that Multiemployer Plan; or (h) any event or condition
which constitutes or is reasonably likely to constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Pension Plan.
<PAGE>
The term "Event of Default" shall have the meaning set forth in
-----------------
ss.11.1 hereof.
The term "Exchange Act" shall mean the Securities Exchange Act of
-------------
1934, as amended from time to time.
The term "Financial Statements" shall have the meaning set forth in
---------------------
ss.2.4 hereof.
The term "Fiscal Quarter" shall mean a fiscal quarter of the
---------------
Company, which shall be any quarterly period ending on March 31, June 30,
September 30 or December 31 of any year.
The term "Fiscal Year" shall mean a fiscal year of the Company,
------------
which as at the Closing Date is the fiscal year ending December 31.
The term "Fixed Charges" shall mean, for any period, the aggregate
--------------
amount of (a) Interest Expense for such period, (b) Rental Expense for
such period, and (c) fees payable by the Company and its Subsidiaries in
respect of letters of credit, revolving credit facilities, bankers
acceptances and other similar arrangements for such period.
The term "Fully Diluted Basis" shall mean, as of any date, with
---------------------
respect to calculations involving the capital stock of any Person (or an
individual class or series thereof), making the assumption that all
securities of such Person then outstanding which are convertible into such
capital stock (or shares of such class or series, as the case may be) were
converted on such date, that all options, warrants and similar rights to
acquire shares of capital stock of such Person (or shares of such class or
series) were exercised on such date.
The term "Gain on Sale of Loans" shall mean, for any Fiscal Quarter,
---------------------
that portion of consolidated revenues of the Company and its Subsidiaries
for such Fiscal Quarter constituting gain on the sale of loans determined
on a consolidated basis in accordance with generally accepted accounting
principles.
The term "generally accepted accounting principles" shall mean, as
------------------------------------------
of the date of any determination with respect thereto, generally accepted
accounting principles as used by the Financial Accounting Standards Board
and/or the American Institute of Certified Public Accountants.
The term "guaranty", with respect to any Person, shall mean all
--------
obligations of such Person guaranteeing or in effect guaranteeing any
Indebtedness, dividend or other obligation or investment of any other
Person (the "primary obligor") in any manner, whether directly or
indirectly, including without limitation, obligations for which such
Person is liable by reason of such Person being a partner in or of the
primary obligor or a member of a joint venture that is the primary
obligor, and obligations incurred through an agreement, contingent or
otherwise, (a) to purchase such Indebtedness, obligation or investment or
any property or assets constituting security therefor; (b) to advance or
supply funds (i) for the purchase or payment of such Indebtedness,
obligation or investment or (ii) to maintain working capital or equity
<PAGE>
capital, or otherwise to advance or make available funds for the purchase
or payment of such Indebtedness, obligation or investment; (c) to purchase
property, securities or services primarily for the purpose of assuring the
owner of such Indebtedness, obligation or investment of the ability of the
primary obligor to make payment of such Indebtedness, obligation or
investment; or (d) otherwise to assure the owner of such Indebtedness,
obligation or investment against loss in respect thereof.
The term "Hazardous Material" shall have the meaning set forth in
-------------------
ss.2.21 hereof.
The terms "hereof", "herein", "hereunder" and other words of similar
------ ------ ---------
import shall be construed to refer to this Agreement as a whole and not to
any particular Section or other subdivision.
The term "holder", with respect to any of the Notes, shall mean the
------
Person in whose name such Notes shall be registered.
The term "Indebtedness", with respect to any Person, shall mean and
------------
include the aggregate amount of, without duplication: (a) all obligations
of such Person for borrowed money; (b) all obligations of such Person
evidenced by bonds, debentures, notes, or other similar instruments, and
all reimbursement or other obligations of such Person in respect of
letters of credit, banker's acceptances, interest rate swaps or other
financial products; (c) all obligations of such Person to pay the deferred
purchase price of assets or services, exclusive of (i) deferred payments
due to former or current employees, (ii) trade payables which, by their
terms, are due and payable within ninety (90) calendar days of the
creation thereof and (iii) dealer/developer reserves; (d) all Capitalized
Lease Obligations of such Person; (e) all obligations or liabilities of
others secured by a Lien on any asset owned by such Person, irrespective
of whether such obligation or liability is assumed, to the extent of the
lesser of such obligation or liability or the fair market value of such
asset; and (f) any guaranties of such Person of any Indebtedness of
another Person.
The term "Indemnified Party" shall have the meaning set forth in
------------------
ss.13.6 hereof.
The term "Institutional Investor" shall mean any one or more of the
-----------------------
following Persons: (a) any bank, savings institution, trust company or
national banking association, acting for its own account or in a fiduciary
capacity; (b) any charitable foundation; (c) any insurance company or
Affiliate thereof or fraternal benefit association; (d) any pension,
retirement or profit-sharing trust or fund; (e) any public employees'
pension or retirement system or any other governmental agency supervising
the investment of public funds; or (f) any investment fund owned or
managed by a Person described in clause (a), (b), (c), (d) or (e) above,
or by an Affiliate of such Person.
The term "Intellectual Property Rights" shall have the meaning set
-----------------------------
forth in ss.2.6 hereof.
The term "Interest Expense" shall mean, for any period, without
-----------------
duplication, the aggregate of all interest accrued by the Company and its
Subsidiaries and amortization of debt discount during such period,
determined on a consolidated basis, including, without limitation,
interest paid in cash with respect to the Notes and the interest portion
of Capitalized Lease Obligations, all as determined in accordance with
generally accepted accounting principles.
<PAGE>
The term "Interest Payment Date" shall have the meaning set forth in
---------------------
ss.1.1 hereof.
The term "Key Persons" shall mean five members of the Company's
------------
senior management selected in accordance with this definition. As of the
Closing Date, the Key Persons shall be Richard A. Stratton, Heather A.
Sica, Ronald E. Rabidou, Wayne H. Greenholtz, and James H. Shippee. After
the Closing Date, the Key Persons shall include the initial Key Persons
listed above, except to the extent replaced as provided in this
definition, and such other members of the Company's senior management as
may be substituted therefor from time to time, at the Company's written
request and with the consent of the Required Noteholders, which consent
may be given or withheld by the Required Noteholders in their sole
discretion; provided, however, that the Company shall have the right, in
its sole discretion, to determine the Key Person to succeed Mr. Greenholtz
in the event of Mr. Greenholtz's retirement from the Company.
The term "Leverage Ratio" shall have the meaning set forth in
---------------
ss.9.13 hereof.
The term "Lien" shall mean any interest in property securing an
----
obligation owed to, or a claim by, any Person other than the owner of the
property, whether such interest shall be based on the common law, statute
or contract, whether or not such interest shall be recorded or perfected
and whether or not such interest shall be contingent upon the occurrence
of some future event or events or the existence of some future
circumstance or circumstances, and including the lien or security interest
arising from a mortgage, encumbrance, pledge, adverse claim or charge,
conditional sale or trust receipt, or from a lease, consignment or
bailment for security purposes. The term "Lien" shall also include
reservations, exceptions, encroachments, easements, rights-of-way,
covenants, conditions, restrictions, leases and other title exceptions and
encumbrances affecting property. For the purposes of this Agreement, a
Person shall be deemed to be the owner of any property that such Person
shall have acquired or shall hold subject to a conditional sale agreement
or other arrangement (including a leasing arrangement) pursuant to which
title to the property shall have been retained by or vested in some other
Person for security purposes.
The term "Make-Whole Amount" shall mean (a) in connection with the
------------------
prepayment of any Note pursuant to ss.7.2 hereof, an amount equal to the
greater of (i) zero or (ii) the excess of (x) the sum of the present
values, as at the prepayment date, of the amount of each remaining
scheduled payment of interest (excluding any interest accrued to the
prepayment date) on and principal of such Note, which will not be required
to be made as a result of such prepayment (each such amount discounted
separately at the Treasury Rate, plus seventy-five (75) basis points,
determined as at the date three (3) days before the prepayment date,
compounded semiannually, from the date such amount would be due), over (y)
the principal amount of such Note to be prepaid, and (b) in connection
with any Note becoming or being declared to be due and payable pursuant to
ss.11.1 hereof, an amount equal to the greater of (i) zero or (ii) the
excess of (x) the sum of the present values, as at the date such Note
became or was declared to be due and payable, of the amount of each
remaining payment of interest (excluding any interest accrued to the date
such Note became or was declared to be due and payable) on and principal
of such Note (each such amount discounted separately at the Treasury Rate,
plus seventy-five (75) basis points, determined as at the date on which
such Note became or was declared to be due and payable, compounded
semiannually, from the date such amount would have been due), over (y) the
outstanding principal amount of such Note.
<PAGE>
The term "Material Adverse Effect" shall mean (A) a material adverse
-----------------------
effect on the financial condition, business, properties or profits of the
Company or of the Company and its Subsidiaries, taken as a whole, (B) an
adverse effect on the ability of the Company to perform its obligations
under this Agreement or the Notes, or (C) an adverse effect on the
legality, validity or enforceability of this Agreement or the Notes or the
rights and remedies of the holders of the Notes thereunder.
The term "Minority Interests" shall mean, with respect to a Person,
-------------------
any shares of stock of any class of a Subsidiary (other than directors'
qualifying shares as required by law) that are not owned by that Person
and/or one or more of its Subsidiaries. "Minority Interests" shall be
-------------------
valued by valuing "Minority Interests" constituting preferred stock at the
------------------
voluntary or involuntary liquidation value of such preferred stock,
whichever is greater, and by valuing "Minority Interests" constituting
-------------------
common stock at the book value of capital and surplus applicable thereto
adjusted, if necessary, to reflect any changes from the book value of such
common stock required by the foregoing method of valuing "Minority
--------
Interests" in preferred stock.
---------
The term "Moody's" shall mean Moody's Investors Service, Inc.
-------
The term "Multiemployer Plan" shall mean any Plan that is a
-------------------
"multiemployer plan" (within the meaning of Section 3(37) of ERISA).
The term "NAIC Statement" shall have the meaning set forth in ss.3.2
--------------
hereof.
The term "Net Write-offs" shall mean, for any Fiscal Year, the
---------------
write-offs of the Company and its Subsidiaries determined on a
consolidated basis as reported by the Company to the Commission in the
Company's financial statements filed as part of its most recently filed
Form 10-K.
The term "Noteholder" shall mean each holder from time to time of an
----------
outstanding Note.
The term "Notes" shall have the meaning set forth in ss.1.1 hereof.
-----
The term "Offering Memorandum" shall have the meaning set forth in
--------------------
ss.2.3(a) hereof.
The term "Officer's Certificate" shall mean a certificate executed
----------------------
on behalf of the Company by any of its chief executive officer, president,
chief operating officer or chief financial officer.
The term "Optional Prepayment Date" shall have the meaning set forth
------------------------
in ss.7.2(b) hereof.
The term "outstanding", with respect to any of the Notes shall mean,
-----------
as of the date of determination, all Notes theretofore delivered pursuant
to this Agreement, except (i) Notes theretofore cancelled or delivered for
cancellation, and (ii) Notes in exchange or replacement for which other
<PAGE>
Notes have been delivered pursuant to this Agreement; provided, however,
that in determining whether the holders of the requisite aggregate unpaid
principal amount of the Notes, outstanding have given any notice or taken
any action hereunder, the Notes, held or owned, directly or indirectly, by
the Company, or by any Subsidiary or any Affiliate, shall be disregarded
and deemed not to be outstanding.
The term "PBGC" shall mean the Pension Benefit Guaranty Corporation
----
or any successor thereto.
The term "Pension Plan" shall mean any Plan that is an "employee
-------------
pension benefit plan" (within the meaning of Section 3(2) of ERISA)
subject to Title IV of ERISA.
The term "Permitted Liens" shall mean:
---------------
(a) Liens incurred or deposits made in the ordinary course of
business (i) in connection with workers' compensation, unemployment
insurance and other types of social security, or (ii) to secure (or to
obtain letters of credit that secure) the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, performance
bonds, purchase, construction or sales contracts and other similar
obligations; provided, however, that (A) any obligation secured by any
-------- -------
such Lien shall not be overdue or, if overdue, is being contested in good
faith by appropriate actions or proceedings during which there is no right
to exercise remedies and adequate book reserves have been established in
accordance with generally accepted accounting principles; and (B) all such
Liens, pledges and deposits shall not in the aggregate materially impair
the use or value of the properties of the Company and its Subsidiaries,
taken as a whole, in the operation of the respective businesses of the
Company and its Subsidiaries; and, provided further, that this clause (B)
-------- -------
shall not be deemed to permit any Liens which may be imposed pursuant to
Section 4068 of ERISA;
(b) Liens securing taxes, assessments, governmental charges or
levies, statutory Liens of landlords and Liens of carriers, warehousemen,
materialmen, mechanics and other like Persons not yet due or the payment
of which is not then required by ss.9.7 hereof; provided, however, that
this clause (e) shall not be deemed to permit any Liens which may be
imposed pursuant to Section 4068 of ERISA; and
(c) minor survey exceptions and minor encumbrances, easements
or reservations, or rights of others for rights-of-way, utilities and
other similar purposes, or zoning or other restrictions as to the use of
real properties, which are necessary for the conduct of the activities of
the obligor or which customarily exist on properties of Persons engaged in
similar activities and similarly situated and which do not in any event
materially impair the use of any of such properties in the operation of
the businesses of the Company and its Subsidiaries.
The term "Person" shall mean any individual, corporation,
------
partnership, joint venture, association, joint stock company, trust,
estate, unincorporated organization or government (or any agency or
political subdivision thereof).
The term "Plan" shall have the meaning set forth in ss.3.2 hereof.
----
<PAGE>
The term "Projections" shall have the meaning set forth in ss.2.4
-----------
hereof.
The term "PTCE" shall have the meaning set forth in ss.3.2 hereof.
----
The term "Purchase Price" shall have the meaning set forth in ss.1.2
--------------
hereof.
The term "Purchasers" shall mean the purchasers of the Notes named
----------
in Schedule I hereto.
The term "Put Event" shall have the meaning set forth in ss.7.3(d)
---------
hereof.
The term "Qualified Institutional Buyer" shall have the meaning set
------------------------------
forth in Rule 144A of the Securities Act.
The term "Rental Expense" shall mean, for any period, the aggregate
--------------
amount of rentals paid by the Company and its Subsidiaries under operating
leases for which the Company or any Subsidiary is directly or indirectly
liable, determined on a consolidated basis in accordance with generally
accepted accounting principles.
The term "Required Noteholders" shall mean the holders of at least
---------------------
(66 2/3%) of the aggregate outstanding principal amount of the Notes.
The term "Restricted Investments" shall mean, with respect to the
-----------------------
Company or any Subsidiary, any direct or indirect purchase or other
acquisition by such Person of stock or other securities of any other
Person (other than the Company or a Subsidiary), or any other direct or
indirect loan, advance (other than advances to officers and employees for
moving and travel expenses, made in the ordinary course of business) or
capital contribution by such Person to any other Person, including all
Indebtedness and accounts receivable for such other Person which are not
current assets or did not arise from sales to such other Person in the
ordinary course of business (in each case, an "Investment"); provided,
---------- --------
however, that the following Investments shall not be deemed to be
-------
Restricted Investments:
(a) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency thereof and
maturing within one (1) year from the date of acquisition thereof;
(b) certificate of deposit, maturing no more than one (1) year
from the date of creation thereof, issued by commercial banks
organized under the laws of the United States or any state of the
United States, each such commercial bank having membership in the
Federal Deposit Insurance Corporation and each having (x) combined
capital, surplus and undivided profits of not less than $500,000,000
and (y) an unsecured long-term debt rating of at least "A" or better
by S&P and Moody's;
(c) commercial paper of corporations organized under the laws
of a jurisdiction within the United States of America maturing not
more than 270 days from the date of issuance thereof and having a
rating of at least "A-1" or better by S&P or "P-1" or better by
Moody's;
<PAGE>
(d) Investments held on the Closing Date which would otherwise
constitute Restricted investments and are (i) listed or aggregated
in Item 2.1 of Schedule II, or (ii) Investments acquired by the
Company or a Subsidiary that are permitted by clause (e) of this
definition;
(e) any Investment acquired by the Company or a Subsidiary in
the ordinary course of its business, as described in ss.9.3(b)
above, and in compliance with applicable legal investment laws and
regulations;
(f) Investments by the Company or any Subsidiary in a newly
formed entity or through the acquisition of an existing entity, in
either case where such entity is engaged in a business described
under Section 9.3(b) and where, after giving effect to such
investment or acquisition, the Company or a Subsidiary owns at least
80% of the voting equity of securities of such entity;
(g) any Investments consisting of loans or portfolios of loans
acquired by the Company or a Subsidiary of a type described in
ss.9.3(b) above, and in compliance with applicable legal investment
laws and regulations;
(h) any Investment acquired by the Company as partial
consideration for the transfer to one or more real estate investment
trusts (REITs) of loans previously acquired by the Company, provided
that the consideration for such transfer shall be primarily paid in
cash and provided further that such Investment shall not exceed 20%
of the issued and outstanding capital stock (or comparable equity
interest) of such REIT; and
(i) any other Investments purchased after the Closing Date the
purchase price of which does not, as of the date of any
determination hereunder, in the aggregate exceed five percent (5%)
of Consolidated Net Tangible Assets as of such date of
determination.
In computing the amount of any Restricted Investment, unrealized increases
or decreases in value, or write-ups, write-downs or write-offs of such
Restricted Investment shall be disregarded.
The term "Restricted Payment" shall mean (a) any dividend or other
-------------------
distribution, direct or indirect, in respect of any shares of the capital
stock of the Company or any Subsidiary other than dividends or other
distributions payable solely in shares of its capital stock, or warrants,
rights, or options therefor, and dividends or other distributions by any
Subsidiary to the Company or a Wholly-Owned Subsidiary; or (b) any
purchase, redemption, retirement or other acquisition of any shares of
capital stock of the Company or any Subsidiary, now or hereafter
outstanding, or of any warrants, rights or options evidencing a right to
purchase or acquire any such shares. The amount of any Restricted Payment
declared or paid or distributed in property shall be deemed to be the
greater of its net book value or its fair value (as determined in good
faith by the Company) at the time of making the Restricted Payment.
<PAGE>
The term "Rule 144A" shall mean Rule 144A under the Securities Act,
---------
as presently in effect and as hereafter amended from time to time, or any
superseding or substituted rule adopted by the Commission from time to
time.
The term "S&P" shall mean Standard & Poors Ratings Group.
---
The term "SEC" shall mean the Securities and Exchange Commission and
---
any successor organizations.
The term "ss.7.3 Notice and Offer to Prepay" shall have the meaning
----------------------------------
set forth in ss.7.3(b) hereof.
The term "ss.7.3(c) Response" shall have the meaning set forth in
-------------------
ss.7.4(c) hereof.
The term "ss.7.3 Special Prepayment Date" shall have the meaning set
------------------------------
forth in ss.7.3(b) hereof.
The term "Securities Act" shall mean the Securities Act of 1933, as
--------------
amended from time to time.
The term "Series" or "Series of Notes" shall have the meaning set
------ ---------------
forth in ss.1.1 hereof.
The term "Solvent" shall have the meaning set forth in ss.2.27
-------
hereof.
The term "Source" shall have the meaning set forth in ss.3.2 hereof.
------
The term "Special Counsel" shall have the meaning set forth in
----------------
ss.4.1 hereof.
The term "Special Prepayment Price" shall have the meaning set forth
------------------------
in ss.7.3 hereof.
The term "Subordinated Indebtedness" shall mean any Indebtedness of
--------------------------
the Company subordinated to the Notes and other Indebtedness of the
Company pursuant to provisions in the form set forth in Exhibit B hereto.
---------
The term "Subsidiary", with respect to any Person, shall mean any
----------
corporation or partnership organized under the laws of the United States
of America or a jurisdiction thereof, the financial statements of which
are consolidated with the financial statements of such Person for
generally accepted accounting principles financial reporting purposes. The
term "Subsidiary", when used herein without reference to any particular
----------
Person, shall mean a Subsidiary of the Company.
The term "this Agreement" shall mean this Note Purchase Agreement
---------------
(including the annexed Exhibits and Schedules), as it may from time to
time be amended, supplemented or modified in accordance with its terms.
The term "Total Indebtedness" shall mean, as of the date of any
-------------------
determination thereof, the aggregate of all Indebtedness of the Company
and its Subsidiaries, determined on a consolidated basis, after
<PAGE>
eliminating all offsetting debits and credits between the Company and its
Subsidiaries and all other items required to be eliminated in accordance
with generally accepted accounting principles.
The term "Total Subordinated Indebtedness" shall mean, as of the
---------------------------------
date of determination thereof, all Subordinated Indebtedness then
outstanding.
The term "Transferee Bank" shall have the meaning set forth in
----------------
ss.4.12 hereof.
The term "Treasury Rate" shall mean for purposes of any
---------------
determination of the Make-Whole Amount in respect of any principal amount
of any Note, the yield to maturity for the actively traded marketable
United States Treasury fixed interest rate securities with a maturity
equal to the remaining Weighted Average Life to Maturity (rounded to the
nearest month) of the Notes as of the date such Make-Whole Amount becomes
due and payable, as set forth on page "USD" of the Bloomberg Financial
Markets Service (or, if not available, any other nationally recognized
trading screen reporting on-line intraday trading in United States
Treasury fixed interest rate securities) at 9:00 a.m. (New York City time)
as of the third Business Day preceding the date such Make-Whole Amount
becomes due and payable. In the event that no such nationally recognized
trading screen reporting on-line trading in United States Treasury fixed
interest rate securities is available, "Treasury Rate" shall mean the
arithmetic mean of the yields reported as weekly averages for the two most
recently ended weeks so reported under the heading "Week Ending" published
in the Statistical Release under the caption "Treasury Constant
Maturities" for the maturity corresponding to the remaining Weighted
Average Life to Maturity (rounded to the nearest month) of the Notes as of
the date such Make-Whole Amount becomes due and payable. For purposes of
calculating the Treasury Rate, the most recent Statistical Release
published prior to the date of determination of the Make-Whole Amount
shall be used. If no possible maturity for United States Treasury fixed
interest rate securities exactly corresponds to such rounded Weighted
Average Life to Maturity, yields for the two most closely corresponding
published maturities shall be calculated and the Treasury Rate shall be
interpolated from such yields on a straight-line basis, rounding in each
of such relevant periods to the nearest month. For purposes hereof,
"Statistical Release" shall mean the statistical release designated
--------------------
"H.15(519)" (or any successor publication which is published weekly by the
Federal Reserve System and which establishes yields on actively traded
United States Treasury fixed interest rate securities adjusted to constant
maturities) or such other reasonably comparable index which shall be
designated by the Required Holders.
The term "Total Unsecured Indebtedness" shall mean the aggregate
------------------------------
amount Indebtedness of the Company and its Subsidiaries included in Total
Indebtedness and not secured by any Lien on any assets or properties of
the Company or any of its Subsidiaries.
The term "Unencumbered Assets" shall mean an amount equal to
--------------------
Consolidated Net Tangible Assets less that portion of Total Indebtedness
which is secured by any Lien on assets of the Company or any Subsidiary.
The term "Voting Stock", with respect to a corporation, shall mean
------------
the stock of such corporation the holders of which are ordinarily, in the
absence of contingencies, entitled to elect members of the Board of
Directors (or other governing body) of such corporation.
<PAGE>
The term "Weighted Average Life to Maturity" of any borrowed funds,
----------------------------------
as of the date of the determination thereof, shall mean the number of
years obtained by dividing the then Remaining Dollar-years of such
borrowed funds by the then outstanding principal amount thereof. The term
"Remaining Dollar-years" of any borrowed funds shall mean the amount
-----------------------
obtained by (a) multiplying the amount of each then remaining sinking
fund, serial maturity or other required repayment, including repayment at
final maturity, by the number of years (calculated to the nearest
one-twelfth) which will elapse between the time in question and the date
of the repayment and (b) totaling all of the products obtained in (a).
The term "Wholly-Owned" shall mean, as applied to any Subsidiary of
------------
the Company, a Subsidiary of the Company, all the outstanding shares
(other than directors' qualifying shares, if required by law) of every
class of stock of which are at the time owned by the Company, by one or
more Wholly-Owned Subsidiaries or by the Company, and one or more
Wholly-Owned Subsidiaries; provided, however, that any Subsidiary of the
-------- -------
type referred to in the last proviso of ss.9.15(b) also shall be deemed to
be a Wholly-Owned Subsidiary for all purposes of this Agreement.
ss.12.2 Directly or Indirectly. Any provision in this Agreement referring
-----------------------
to action to be taken by any Person, or that such Person if prohibited from
taking, shall be applicable whether such action is taken directly or indirectly
by such Person.
ss.12.3 Accounting Terms. All accounting terms used herein that are not
------------------
otherwise expressly defined shall have the respective meanings given to them in
accordance with generally accepted accounting principles at the particular time.
ss.12.4 GOVERNING LAW. THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY
---------------
AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.
ss.12.5 Independence of Covenants. Each covenant made by the Company
----------------------------
herein is independent of each other covenant so made. The fact that the
operation of any such covenant permits a particular action to be taken or
condition to exist does not mean that such action or condition is not
prohibited, restricted or conditioned by the operation of the provisions of any
other covenant herein.
ss.12.6 Saturdays, Sundays, Holidays, etc. If the last or appointed day
-------------------------------------
for the taking of any action required or permitted hereby or by the Notes
(including, but not limited to, the payment of principal of, or interest or
premium, if any, on, the Notes) shall be a Saturday, Sunday or a day which is
not a Business Day in New York, New York, then such action may be taken on the
next succeeding day which is a Business Day in such city; provided, however,
that if, pursuant to the provisions of this ss.12.6, the time for the payment of
any amount in respect of the Notes is postponed, interest on such amount shall
continue to accrue during the period of such postponement.
ss.12.7 Headings. The headings of the Sections and other subsections of
---------
this Agreement have been inserted for convenience of reference only and shall
not be deemed to constitute a part hereof.
<PAGE>
SECTION 13. MISCELLANEOUS.
ss.13.1 Notices. All communications under this Agreement or any of the
--------
Notes shall be in writing and shall be delivered by (a) registered or certified
mail with return receipt requested if the sender on the same days sends a
confirming copy of such notice by telecopy or (b) by overnight air courier (i)
if to you, to you at your address set forth in Schedule I hereto, marked for
attention as there indicated, or at such other address as you may have furnished
to the Company in writing, (ii) if to any other holder of a Note, to it at its
address listed in the books for the registration and registration of transfer of
Notes to be maintained by the Company pursuant to ss.8.1 hereof, or at such
other address as such holder shall have furnished to the Company in writing, and
(iii) if to the Company, to it at the address shown at the head of this
Agreement, or at such other address as it shall have given notice of to you and
all other holders of Notes issued by it and at the time outstanding in
accordance with the terms of this ss.13.1. All such written communications shall
be deemed to have been given upon receipt thereof.
ss.13.2 Survival. All representations, warranties and covenants made by
---------
the Company herein or by the Company in any certificate or other instrument
delivered under or in connection with this Agreement shall be considered to have
been relied upon by you and shall survive the delivery to you of the Notes
regardless of any investigation made by you or on your behalf. All statements in
any such certificate or other instrument shall constitute representations and
warranties of the Company, as the case may be, as applicable hereunder.
ss.13.3 Successors and Assigns; Transfer of Notes. This Agreement shall be
------------------------------------------
binding upon the parties hereto and their respective successors and assigns, and
shall inure to the benefit of and be enforceable by the parties hereto and their
respective successors and assigns permitted hereunder; provided, however, that
-------- -------
you shall not have any obligation to purchase Notes of any Person other than the
Company. Whether or not expressly so stated and subject to the restrictions set
forth therein, the provisions of Sections 5 through 12 of this Agreement are
intended to be for your benefit and for the benefit of all holders from time to
time of any of the Notes and shall be enforceable by you and any other such
holder whether or not an express assignment to such holder of rights under this
Agreement shall have been made by you or your successors or assigns; and
provided, further, that the provisions of Section 5 and ss.ss.6.2, 6.3, 9.1 and
- -------- -------
9.5 hereof shall also be for the benefit of, and shall be enforceable by, any
Person who shall no longer be a holder of any Note but who shall have incurred
any expense or been subjected to any liability referred to therein while, or on
the basis of being, such a holder.
ss.13.4 Amendment and Waiver. (a) This Agreement and the Notes may be
----------------------
amended or supplemented, and the observance of any term hereof or thereof may be
waived, with the written consent of the Company and (i) on or prior to the
Closing Date, you and (ii) after the Closing Date, the Required Holders;
provided, however, that no such amendment, supplement or waiver shall, without
- -------- -------
the written consent of the holders of all the Notes then outstanding, (x)
change, with respect to the Notes, the amount or time of any required prepayment
or payment of principal or premium or the rate or time of payment of interest,
or change the funds in which any prepayment or payment on the Notes is required
to be made; or (y) reduce the percentage of the aggregate principal amount of
Notes required for any amendment, consent or waiver hereunder.
(b) Any amendment, supplement or waiver effected in accordance with this
ss.13.4 shall be binding upon each holder of any Note at the time outstanding,
each future holder of any Note and the Company. Notwithstanding any other
<PAGE>
provision of this Agreement, no consent to any such amendment, supplement or
waiver by any Noteholder, shall have any effect for the purposes of this ss.13.4
if such amendment, supplement or waiver was obtained in connection with or in
anticipation of the purchase by the Company, any Affiliate of the Company or any
other Person of any Note from the holder thereof, unless the holder of each Note
at the time outstanding has executed an amendment, supplement or waiver, as the
case may be, to substantially the same effect as the amendment, supplement or
waiver obtained from such Noteholder.
(c) The Company will not solicit, request or negotiate for or with respect
to any proposed waiver or amendment of any of the provisions of this Agreement
or the Notes unless each Noteholder (irrespective of the amount of Notes then
owned by it) shall be informed thereof by the Company and shall be afforded the
opportunity of considering the same and shall be supplied by the Company with
sufficient information to enable it to make an informed decision with respect
thereof. Executed or true and correct copies of any waiver effected pursuant to
the provisions of this ss.13.4 shall be delivered by the Company to each holder
of outstanding Notes forthwith following the date on which the same shall have
been executed and delivered by the holder or holders of the requisite percentage
of outstanding Notes. The Company will not, directly or indirectly, pay or cause
to be paid any remuneration, whether by way of supplemental or additional
interest, fee or otherwise, to any Noteholder as consideration for or as an
inducement to the entering into by any Noteholder of any waiver or amendment or
any of the terms and provisions of this Agreement or the Notes unless such
remuneration is concurrently paid, on the same terms ratably to the holders of
all of the Notes then outstanding.
ss.13.5 Confidentiality. Any information contained in any document and
----------------
delivered by the Company to, and any other information received by, the holder
of any Note pursuant to this Agreement that shall have been designated in
writing as confidential shall be held in confidence by such holder in accordance
with such internal procedures as such holder shall apply generally to
confidential information; provided, however, that such holder may disclose any
-------- -------
such information (a) as has become generally available to the public, (b) as may
be required in any report, statement or testimony required to be submitted to
any municipal, state or federal regulatory body having or claiming to have
jurisdiction over such holder including, without limitation, the National
Association of Insurance Commissioners or similar organizations or their
successors, (c) as may be required in response to any summons or subpoena or in
connection with any litigation, (d) to the extent that such holder believes it
appropriate in order to comply with any law, order, regulation or ruling
applicable to such holder, (e) to a prospective transferee in connection with
any contemplated transfer of a Note by such holder, and (f) otherwise as may be
reasonably necessary to the enforcement of such holder's rights with respect to
any Notes or under this Agreement.
ss.13.6 Indemnification Against Claims, etc. (a) The Company will
---------------------------------------
indemnify and hold harmless each of you, your directors, officers, employees and
each Person, if any, who controls you within the meaning of the Securities Act
or the Exchange Act (any and all of whom are referred to as the "Indemnified
-----------
Party") from and against any and all losses, claims, damages and liabilities,
- -----
joint or several (including, without limitation, all legal fees or other
expenses reasonably incurred by any Indemnified Party in connection with the
preparation for or defense of any pending or threatened claim, action or
proceeding, whether or not resulting in any liability), to which such
Indemnified Party may become subject (whether or not such Indemnified Party is a
party thereto) under any applicable federal or state law or otherwise caused by
or arising out of, or allegedly caused by or arising out of, this Agreement or
any transaction contemplated hereby, other than losses, claims, damages or
liabilities resulting from any representation made by you in Section 3 hereof,
any breach by you of the terms of this Agreement, or any failure by you to
comply with government regulations applicable to and to be complied with by you.
<PAGE>
(b) Promptly after receipt by an Indemnified Party of notice of any claim,
action or proceeding with respect to which an Indemnified Party is entitled to
indemnity hereunder, such Indemnified Party will notify the Company of such
claim or the commencement of such action or proceeding; provided, however, that
-------- -------
the failure of an Indemnified Party to give notice as provided herein shall not
relieve the Company of its obligations under this ss.13.6 with respect to such
Indemnified Party, except to the extent that the Company is actually prejudiced
by such failure. The Company will assume the defense of such claim, action or
proceeding and will employ counsel satisfactory to the Indemnified Party and
will pay the fees and expenses of such counsel. Notwithstanding the preceding
sentence, the Indemnified Party will be entitled, at the expense of the Company,
to employ counsel separate from counsel for the Company and for any other party
in such action if the Indemnified Party reasonably determines that a conflict of
interest or other reasonable basis exists which makes representation by counsel
chosen by the Company not advisable; provided, however, that the Company shall
-------- -------
not be obligated to pay for the fees and expenses of more than one counsel of
all Indemnified Parties. In the event an Indemnified Party (or any of its
officers, directors or employees) appears as a witness in any action or
proceeding brought against the Company in which an Indemnified Party is not
named as a defendant, the Company agrees to reimburse such Indemnified Party for
all out-of-pocket expenses incurred by it (including fees and expenses of
counsel) in connection with its appearing as a witness. The obligations of the
Company under this ss.13.6 shall survive the payment or prepayment of the Notes
and the termination of this Agreement.
ss.13.7 Indemnity for Funds Availability at Closing. In connection with
---------------------------------------------
the closing under this Agreement, the Company is requesting that you make
available for funding an amount equal to the Purchase Price. If, for any reason,
the closing does not occur as scheduled on the Closing Date, the Company hereby
agrees to protect, indemnify and hold you harmless from and against any and all
losses, liabilities, obligations, expenses (including, with limitation,
reasonable attorneys' fees and expenses) imposed upon or incurred by or asserted
against you in any way resulting from, caused by or arising out of the failure
of the closing to occur as scheduled on the Closing Date, including, without
limitation, any and all losses resulting from the inability to reinvest any
amounts reserved, set aside or otherwise to be made available at the scheduled
closing at a rate of interest equal to or greater than the rate of interest on
the Notes. The obligations of the Company under this ss.13.7 shall survive the
payment or prepayment of the Notes and the termination of this Agreement.
ss.13.8 Counterparts. This Agreement may be executed and delivered to you
-------------
simultaneously in one or more counterparts, each of which shall be deemed an
original, but all such counterparts shall together constitute but one and the
same instrument.
ss.13.9 Reproduction of Documents. This Agreement, and all documents
----------------------------
relating hereto (other than the Notes), including, without limitation, (a)
consents, waivers and modifications that may hereafter be executed, (b)
documents received by you at the closing of your purchase of Notes, and (c)
financial statements, certificates and other information heretofore or hereafter
furnished to you, may be reproduced by you by any photographic or other similar
process and you may destroy any original document so reproduced. The Company
agrees and stipulates that, to the extent permitted by applicable law and court
<PAGE>
or agency rules, any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made by you in
the regular course of business) and that any enlargement, facsimile or further
reproduction of such reproduction shall be admissible in evidence to the same
extent.
ss.13.10 Consent to Jurisdiction and Venue. The Company hereby irrevocably
----------------------------------
(i) agrees that any suit, action or other legal proceeding arising out of or
relating to this Agreement or any Note may be brought in a court of record in
the State of New York or in the courts of the United States of America located
in such State, (ii) consents to the jurisdiction of each such court in any such
suit, action or proceeding, and (iii) waives any objection which it may have to
the laying of venue of any such claim that any such suit, action or proceeding
has been brought in an inconvenient forum and covenants that it will not seek to
challenge the jurisdiction of any such court or seek to oust the jurisdiction of
any such court, whether on the basis of inconvenient forum or otherwise. The
Company irrevocably consents to the service of any and all process in any such
suit, action or proceeding by mail copies of such process to the Company at its
address for notices provided in ss.13.10 hereof. The Company agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. All mailings under this ss.13.10 shall be by registered or
certified mail, return receipt requested. Nothing in this ss.13.7 shall affect
your right to serve legal process in any other manner permitted by law or affect
your right to bring any suit, action or proceeding against the Company or any of
its properties in the courts of any other jurisdiction.
<PAGE>
If the foregoing is satisfactory to you, please sign the form of
acceptance on the enclosed counterparts hereof and return the same to the
Company, whereupon this Note Purchase Agreement, as so accepted, shall become a
binding contract between you and the undersigned.
Very truly yours,
LITCHFIELD FINANCIAL CORPORATION
By: /s/ Ronald Rabiodu
-----------------------------
Name: Ronald Rabidou
Title: Chief Financial Officer
The foregoing Note Purchase Agreement is hereby accepted.
TEACHERS INSURANCE AND ANNUITY ASSOCIATION
OF AMERICA
By: /s/ Sanjeev Handa
--------------------------
Name: Sanjeev Handa
Title: Associate Director
Private Placements
Exhibit 11.1
Litchfield Financial Corporation
Computation of Earnings Per Share
Three months ended Six months ended
--------------------- ---------------------
June 30, June 30,
--------------------- ---------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
Net income.......................$1,880,000 $1,564,000 $3,025,000 $2,362,000
========== ========== ========== ==========
Net income per common share......$ .32 $ .27 $ .52 $ .41
========== ========== ========== ==========
Weighted average number of
common shares outstanding.....5,560,167 5,442,768 5,503,423 5,439,459
Weighted average number of common
stock equivalents outstanding:
Stock options.................. 357,744 265,423 357,757 259,407
--------- --------- --------- ---------
Fully-diluted weighted average
common and common equivalent
shares outstanding (1)........5,917,911 5,708,191 5,861,180 5,698,866
========= ========= ========= =========
----------------------
(1) Primary weighted average number of common stock equivalents were
5,888,994 and 5,840,526 for the three and six months ended June 30, 1997
and 5,708,160 and 5,672,999 for the three and six months ended June 30,
1996. The difference between primary and fully diluted shares outstanding
did not have a material effect on the calculation of earnings per share.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 28,425 28,425
<SECURITIES> 27,759 27,759
<RECEIVABLES> 112,225 112,225
<ALLOWANCES> 5,541 5,541
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 175,310 175,310
<CURRENT-LIABILITIES> 0 0
<BONDS> 66,382 66,382
0 0
0 0
<COMMON> 56 56
<OTHER-SE> 47,547 47,547
<TOTAL-LIABILITY-AND-EQUITY> 175,310 175,310
<SALES> 0 0
<TOTAL-REVENUES> 7,691 14,098
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 300 735
<INTEREST-EXPENSE> 2,648 5,042
<INCOME-PRETAX> 3,057 4,919
<INCOME-TAX> 1,177 1,894
<INCOME-CONTINUING> 1,880 3,025
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,880 3,025
<EPS-PRIMARY> .32 .52
<EPS-DILUTED> .32 .52
</TABLE>
