UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT to SECTION 13 or 15(d) of THE SECURITIES EXCHANGE ACT of
1934
For the fiscal year ended DECEMBER 31, 1997
Commission File Number: 0-19822
LITCHFIELD FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3023928
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
430 MAIN STREET, WILLIAMSTOWN, MA 01267
---------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (413) 458-1000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($.01 par value)
(Title of class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulations S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. [ X ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 12, 1998 was $130,906,000 (based on the closing price of
the Company's common stock on The Nasdaq Stock Market's National Market.)
The number of outstanding shares of common stock as of March 12, 1998 was
5,660,790 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual stockholders report for the year ended December 31, 1997
are incorporated by reference into Parts I and II.
Portions of the proxy
statement for the Annual Meeting of Stockholders to be held April 24, 1998 are
incorporated by reference into Part III.
LITCHFIELD FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-K
FISCAL YEAR ENDED DECEMBER 31, 1997
INDEX
PART I
PAGE
Item 1. Business........................................................ 3
Item 2. Properties...................................................... 18
Item 3. Legal Proceedings............................................... 18
Item 4. Submission of Matters to a Vote of Security Holders............. 18
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 19
Item 6. Selected Financial Data......................................... 19
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations .................................................... 19
Item 8. Financial Statements and Supplementary Data..................... 19
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure...............................................19
PART III
Item 10. Directors and Executive Officers of the Registrant 20
Item 11. Executive Compensation
20
Item 12. Security Ownership of Certain Beneficial Owners and Management 20
Item 13. Certain Relationships and Related Transactions 20
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 21
FORWARD-LOOKING STATEMENTS
Except for the historical information contained or incorporated by reference
in this Form 10-K, the matters discussed or incorporated by reference herein are
forward-looking statements. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the risk factors set forth under "Risk Factors" as well as the
following: general economic and business conditions; industry trends; changes in
business strategy or development plans; availability and quality of management;
and availability, terms and deployment of capital. Special attention should be
paid to such forward-looking statements including, but not limited to,
statements relating to (i) the Company's ability to execute its growth
strategies and to realize its growth objectives and (ii) the Company's ability
to obtain sufficient resources to finance its working capital needs and provide
for its known obligations.
PART I
Item 1. BUSINESS
Overview
...Litchfield Financial Corporation (the "Company" or "Litchfield") is
a specialty finance company that provides financing to creditworthy borrowers
for assets not typically financed by banks. The Company provides such financing
by purchasing consumer loans, by making loans to businesses secured by consumer
receivables and by making other secured loans to businesses.
Currently, the Company provides financing for the purchase of
rural and vacation properties and vacation ownership interests, popularly known
as timeshare interests ("Purchased Loans"). The Company also provides financing
to rural land dealers, timeshare resort developers and others secured by
receivables ("Hypothecation Loans"), to dealers and developers for the
acquisition and development of rural land and timeshare resorts ("A & D Loans")
and for other secured loans ("Other Loans").
Purchased loans consist primarily of "Land Loans" and "VOI Loans." Land
Loans are typically secured by one to twenty acre rural parcels. VOI Loans
finance the purchase of ownership interests in fully furnished vacation
properties.
The principal sources of the Company's revenues are (i) interest and fees
on loans, (ii) gains on sales 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.
<PAGE>
Business Strategy
..The Company was founded in November 1988. The Company's strategy has
been to build its serviced portfolio (the "Serviced Portfolio") consisting of
the principal amount of loans serviced by or on behalf of the Company (except
loans participated without recourse to the company) by acquiring loan portfolios
from rural land dealers, resort developers and financial institutions and by
providing loans to such dealers and developers and other businesses secured by
consumer receivables. The Company also provides A & D Loans in order to have
the opportunity to finance additional receivables generated by these A & D
Loans. As part of its business and financing strategy, the Company seeks niche
markets where its underwriting expertise and ability to provide value-added
services enable it to distinguish itself from its competitors and earn an
attractive rate of return on its invested capital. Initially, the Company
pursued this strategy by financing consumer Land Loans through a land dealer
network and portfolio acquisitions. Subsequently, the Company extended its
strategy to financing consumer VOI Loans and providing Hypothecation Loans to
land dealers and resort developers. In 1995, the Company significantly expanded
its financing of VOI Loans when it acquired approximately $41.5 million of VOI
related loans and assets as part of its purchase of the Government Employees
Financial Corporation ("GEFCO") portfolio. In 1997, the Company expanded its
financing of Hypothecation Loans to other finance companies ("Specialty Finance
Loans") secured by other types of collateral. The Company expects to continue to
expand its Specialty Finance lending. These loans may be larger than the
Company's average Hypothecation Loans and may provide the Company an option to
take an equity position in the borrower. The Company's objective is to identify
other lending opportunities or lines of business to diversify its portfolio as
it did with VOI Loans and Hypothecation Loans.
Management believes that the marketing and operating strategies
implemented by the Company have enabled it to provide financing to parties
whose needs have been historically underserved in a highly fragmented and
inefficient market. In doing so, the Company has increased its earnings per
share during each of its full years of operations.
Characteristics of the Serviced Portfolio, Loan Purchases and Originations
The following table shows the growth in the diversity of the
Serviced Portfolio from primarily Purchased Loans to a mix of Purchased Loans,
Hypothecation Loans, A & D Loans and Other Loans:
<TABLE>
December 31,
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997
---- ------ ---- ---- ----
Purchased Loans................... 89.0% 85.3% 81.6% 67.1% 56.6%
Hypothecation Loans............... 5.0 9.0 12.5 20.7 26.9
A&D Loans......................... 4.3 3.3 3.1 8.7 13.7
Other Loans....................... 1.7 2.4 2.8 3.5 2.8
------- ------- ------ ------- -------
Total.............. 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
The following table shows the growth in the diversity of the Company's
originations from primarily Purchased Loans to a mix of Purchased Loans,
Hypothecation Loans, A & D Loans and Other Loans:
<TABLE>
December 31,
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
Purchased Loans................... 77.8% 67.6% 71.4% 49.9% 30.3%
Hypothecation Loans............... 11.8 22.2 20.9 29.6 37.1
A&D Loans......................... 7.1 6.0 3.1 14.4 24.0
Other Loans....................... 3.3 4.2 4.6 6.1 8.6
----- ----- ----- ----- -----
Total........................ 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
(1) Purchased Loans
The Company provides indirect financing to consumers through a large number
of experienced land dealers and resort developers from which it regularly
purchases land loans and VOI loans. The land dealers and resort developers make
loans to consumers generally using the Company's standard forms and sub-
ject to the Company's underwriting criteria. The Company then purchases such
loans from the land dealer or resort developer on an individually approved basis
in accordance with the Company's credit guidelines.
Each land dealer and resort developer from whom the Company purchases loans
is interviewed by the Company's management and approved by its credit committee.
Management evaluates each land dealer's and resort developer's experience,
financial statements and credit references and personally inspects a substantial
portion of the land dealer's and resort developer's inventory of land or VOIs
prior to approval of loan purchases.
In order to enhance the creditworthiness of loans purchased from land dealers
and resort developers, the Company requires most land dealers and resort
developers to guarantee payment of the loans and ordinarily retains a portion of
the amount payable by the Company to each land dealer and resort developer on
the purchase of the loan. The retained portion, or reserve, is released to the
land dealer or resort developer as the related loan is repaid.
Prior to purchasing land loans or VOI loans, the Company evaluates the credit
and payment history of each borrower in accordance with its underwriting
guidelines, performs borrower interviews on a sample of loans, reviews the
documentation supporting the loans for completeness and obtains an appropriate
opinion from local legal counsel. The Company purchases only those loans which
meet its credit standards.
The Company also purchases portfolios of seasoned loans primarily from
land dealers and resort developers. The land dealers or resort developers
generally guarantee the loans sold and the Company ordinarily withholds a
reserve as described above. Management believes that the portfolio acquisition
program is attractive to land dealers and resort developers because it provides
them with liquidity to purchase additional inventory. The Company also
<PAGE>
purchases portfolios of seasoned loans from financial institutions and others.
Sellers generally do not guarantee such loans, but the Company sets aside a
portion of the purchase discount as an allowance for future loan losses.
In evaluating such seasoned portfolios, the Company conducts its normal
review of the borrower's documentation, payment history and underlying
collateral. However, the Company may not always be able to reject individual
loans.
The Company's portfolio of Purchased Loans is secured by property located in
40 states.
<TABLE>
Principal Amount of Loans
December 31,
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
Southwest.................. 18% 19% 16% 26% 30%
South...................... 33 37 31 31 31
West....................... 2 3 20 20 17
Mid-Atlantic............... 17 16 16 10 10
Northeast.................. 30 25 17 13 12
--- ---- --- --- ----
Total............... 100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
a. Land Loans
Dealers from whom the Company purchases Land Loans are typically closely-held
firms with annual revenues of less than $3.0 million. Dealers generally purchase
large rural tracts (generally 100 or more acres) from farmers or other owners
and subdivide the property into one to twenty acre parcels for resale to
consumers. Generally, the subdivided property is not developed significantly
beyond the provision of graded access roads. In recreational areas, sales are
made primarily to urban consumers who wish to use the property for a vacation or
retirement home or for recreational purposes such as fishing, hunting or
camping. In other rural areas, sales are more commonly made to persons who will
locate a manufactured home on the parcel. The aggregate principal amount of Land
Loans purchased from individual dealers during the twelve months ended December
31, 1997 varied from a low of approximately $2,000 to a high of approximately
$5.2 million. As of December 31, 1997, the five largest dealers accounted for
approximately 18.4% of the principal amount of the Land Loans in the Serviced
Portfolio, and no single dealer accounted for more than 5.4%.
As of December 31, 1997, 47.0% of the Serviced Portfolio consisted of
Land Loans with an average principal balance of approximately $13,000. The
following table sets forth as of December 31, 1997, the distribution of Land
Loans in the Company's Serviced Portfolio:
<TABLE>
<S> <C> <C> <C> <C>
Percentage of Percentage of
Principal Principal Number of Number of
Principal Balance Amount Amount Loans Loans
Less than $10,000 ............ 26,905,000 18.9% 5,142 46.7%
$10,000-$19,999................ 55,891,000 39.1 3,949 35.8
$20,000 and greater............ 60,032,000 42.0 1,933 17.5
------------- ------ ------- ------
Total....................... $142,828,000 100.0% 11,024 100.0%
============ ===== ====== =====
</TABLE>
As of December 31, 1997, the weighted average interest rate of the Land Loans
included in the Company's Serviced Portfolio was 12.1% and the weighted average
remaining maturity was 12.1 years. The following table sets forth as of December
31, 1997 the distribution of interest rates payable on the Land Loans:
<TABLE>
<S> <C> <C>
Percentage of
Principal
Interest Rate Amount Amount
Less than 12.0%.............................. $ 49,844,000 34.9%
12.0%-13.9%.................................. 67,202,000 47.0
14.0% and greater......................... 25,782,000 18.1
------------- ----------- -----
Total................................... $142,828,000 100.0%
============ ===========
</TABLE>
As of December 31, 1997, the Company's Land Loan borrowers resided in 50
states, the District of Columbia and two territories or foreign countries.
b. VOI Loans
The Company purchases VOI Loans from various resort developers. The Company
generally targets small to medium size resorts with completed amenities and
established property owners associations. These resorts participate in programs
that permit purchasers of VOIs to exchange their time intervals for time
intervals in other resorts around the world. During the twelve months ended
December 31, 1997, the Company acquired approximately $4.3 million of VOI Loans.
As of December 31, 1997, the five largest developers accounted for approximately
36.6% of the principal amount of the VOI Loans in the Serviced Portfolio, and no
single developer accounted for more than 9.0%.
As of December 31, 1997, 9.6% of the Serviced Portfolio consisted of VOI
Loans, with an average principal balance of approximately $3,600. The following
table sets forth as of December 31, 1997 the distribution of VOI Loans.
<TABLE>
<S> <C> <C> <C> <C>
Percentage of Percentage of
Principal Principal Number of Number of
Principal Balance Amount Amount Loans Loans
------ ----- ----- -----
Less than $4,000............... $10,198,000 34.9% 4,827 60.0%
$4,000-$5,999.................. 9,778,000 33.4 1,979 24.6
$6,000 and greater............. 9,256,000 31.7 1,235 15.4
------------- ------ ----- ------
Total....................... $29,232,000 100.0% 8,041 100.0%
=========== ===== ===== =====
</TABLE>
As of December 31, 1997, the weighted average interest rate of the VOI
Loans included in the Company's Serviced Portfolio was 14.6% and the weighted
average remaining maturity was 3.7 years. The following table sets forth as of
December 31, 1997 the distribution of interest rates payable on the VOI Loans:
<TABLE>
<S> <C> <C>
Percentage of
Principal Principal
Interest Rate Amount Amount
Less than 14.0%................................ $11,864,000 40.6%
14.0%-15.9%.................................... 7,824,000 26.8
16.0% and greater.............................. 9,544,000 32.6
----------- ------
Total....................................... $29,232,000 100.0%
=========== =====
</TABLE>
As of December 31, 1997, the Company's VOI borrowers resided in 50
states, the District of Columbia and seven territories or foreign countries.
(2) Hypothecation Loans
The Company extends Hypothecation Loans to land dealers and resort developers
and other businesses secured by consumer receivables. During the twelve months
ended December 31, 1997, the Company extended or acquired approximately $68.6
million of Hypothecation Loans, of which $16.8 million, or 24.5%, were secured
by Land Loans, $39.8 million, or 58.0%, were secured by VOI Loans and $12.0
million, or 17.5% were secured by Other Loans.
The Company typically extends Hypothecation Loans to land dealers and resort
developers based on advance rates of 75% to 85% of the eligible consumer
receivables which serve as collateral. The Company's Hypothecation Loans are
typically made at variable rates based on the prime rate of interest plus 2% to
4%. As of December 31, 1997, the Company had $81.9 million of Hypothecation
Loans outstanding, none of which were 30 days or more past due. Hypothecation
Loans are secured by receivables from the sale of timeshare resorts or rural
land in 28 states and one foreign country. Hypothecation Loans range in size
from $7,800 to $8.7 million with an average principal balance of $1,204,000. The
five largest Hypothecation Loans represent 10.7% of the Serviced Portfolio.
In addition, the Company has recently expanded its marketing of Hypothecation
Loans to include loans to other finance companies secured by other types of
collateral. These loans may be larger than the Company's average Hypothecation
Loans and may provide the Company with an option to take an equity position in
the borrower.
(3) A & D Loans
The Company also makes A & D Loans to dealers and developers for the
acquisition and development of rural and timeshare resorts in order to finance
additional receivables generated by the A & D Loans. During the twelve months
ended December 31, 1997, the Company made $44.4 million of A&D Loans to land
dealers and resort developers, of which $15.8 million, or 35.6%, were secured by
land and $28.6 million, or 64.4%, were secured by resorts under development.
The Company generally makes A & D Loans to land dealers and resort developers
based on loan to value ratios of 60% to 80% at variable rates based on the prime
rate plus 2% to 4%. As of December 31, 1997, the Company had
<PAGE>
$41.7 million of A & D Loans outstanding, none of which were 30 days or more
past due. A & D Loans are secured by timeshare resort developments and rural
land subdivisions in 18 states. A & D Loans range in size from $7,800 to $7.3
million with an average principal balance of $622,000. The five largest
A & D Loans represent 6.1% of the Serviced Portfolio.
(4) Other Loans
Other Loans consist primarily of consumer home improvement loans, consumer
construction loans and other secured commercial loans. Historically, the Company
has made or acquired certain other secured and unsecured loans to identify
additional lending opportunities or lines of business for possible future
expansion as it did with VOI Loans and Hypothecation Loans. As of December 31,
1997, the Company had $8.5 million of such loans, 1.97% of which were 90 days or
more past due. Other Loans range in size from $34 to $151,000 with an average
principal balance of $13,800. The five largest Other Loans represent 0.2% of the
Serviced Portfolio.
Loan Underwriting
...Litchfield has established loan underwriting criteria and procedures
designed to reduce credit losses on its Serviced Portfolio. The loan
underwriting process includes reviewing each borrower's credit history. In
addition, Litchfield's underwriting staff routinely conducts telephone
interviews with a sample of borrowers. The primary focus of the Company's
underwriting is to assess the likelihood that the borrower will repay the loan
as agreed by examining the borrower's credit history through credit reporting
bureaus.
Litchfield's loan policy is to purchase Land and VOI Loans from
$3,000 to $50,000. On a case by case basis, the Company will also consider
purchasing such loans in excess of $50,000. As of December 31, 1997, the
Company had 155 Land Loans exceeding $50,000 representing 3.0% of the number of
such loans in the Serviced Portfolio, for a total of $11.5 million. There were
no VOI Loans exceeding $50,000 as of December 31, 1997. The Company will
originate Hypothecation Loans up to $15 million and A & D Loans up to $10
million. From time to time, the Company may have an opportunity to originate
larger Hypothecation Loans or A & D Loans in which case the Company would seek
to participate such loans with other financial institutions. Construction loans
greater than $200,000 and any other loans greater than $100,000 must be
approved by the Credit Committee which is comprised of the Chief Executive
Officer, Executive Vice President, Chief Financial Officer and two Senior Vice
Presidents.
Collections and Delinquencies
...Management believes that the relatively low delinquency rate for the
Serviced Portfolio is attributable primarily to the application of its
underwriting criteria, as well as to guarantees and reserves withheld from
dealers or developers. No assurance can be given that these delinquency rates
can be maintained in the future.
....Collection efforts are managed and delinquency information is
analyzed at the Company's headquarters. Unless circumstances otherwise dictate,
collection efforts are generally made by mail and telephone. Collection efforts
begin when an account is four days past due, at which time the Company sends out
a late notice. When an account is sixteen days past due the Company attempts to
contact the borrower to determine the reason for the delinquency and to attempt
to cause the account to become current. If the status of the account continues
to deteriorate, an analysis of that delinquency is undertaken by the collection
supervisor to determine the appropriate action. When the loan is 90 days past
due in accordance with its original terms and it is determined that the amounts
cannot be collected from the dealer or developer guarantees or reserves, the
loan is generally placed on a non-accrual status and the collection supervisor
determines the action to be taken. The determination of how to work out a
delinquent loan is based upon many factors, including the borrower's payment
history and the reason for the current inability to make timely payments. The
Company has not restructured a material number of problem loans. When a
guaranteed loan becomes 60 days past due, in addition to the Company's
collection procedures, the Company generally also obtains the assistance of the
dealer or developer in collecting the loan.
...The Company extends a limited number of its loans for reasons the
Company considers acceptable such as temporary loss of employment or serious
illness. In order to qualify for a one to three month extension, the customer
must make three timely payments without any intervention by the Company. For
extensions of four to six months, the customer must make four to six timely
payments, respectively, without any intervention by the Company. The Company
will not extend a loan more than two times for an aggregate six months over the
life of the loan. The Company has extended approximately one percent of its
loans through December 31, 1997. The Company does not generally modify any other
loan terms such as interest rates or payment amounts.
Regulations and practices regarding the rights of the mortgagor in default
vary greatly from state to state. To the extent permitted by applicable law,
the Company collects late charges and return-check fees and records these items
as additional revenue. Only if a delinquency cannot otherwise be cured will the
Company decide that foreclosure is the appropriate course of action. If the
Company determines that purchasing a property securing a mortgage loan will
minimize the loss associated with such defaulted loan, the Company may accept a
deed in lieu of foreclosure, take legal action to collect on the underlying
note or bid at the foreclosure sale for such property.
Serviced Portfolio
The following table shows the Company's delinquencies and
delinquency rates, net of dealer/developer reserves and guarantees for the
Serviced Portfolio:
<TABLE>
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
1993 1994 1995 1996 1997
Serviced Portfolio..$84,360,000 $105,013,000 $176,650,000 $242,445,000 $304,102,000
Delinquent Loans (1) 511,000 981,000 3,062,000 3,255,000 3,642,000
Delinquency as a
percentage of
Serviced Portfolio .61% .93% 1.73% 1.34% 1.20%
- -----------
(1). Delinquent loans are those which are 30 days or more past due
which are not covered by dealer/developer reserves or guarantees and not
included in other real estate owned.
</TABLE>
Land Loans
...... The following table shows the Company's delinquencies and
delinquency rates, net of dealer/developer reserves and guarantees for Land
Loans in the Serviced Portfolio:
<TABLE>
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
Land Loans in Serviced Portfolio $77,258,000 $90,502,000 $97,266,000 $119,370,000 $142,828,000
Delinquent Land Loans (1) 511,000 981,000 1,059,000 1,920,000 2,453,000
Delinquency as a percentage of Land
Loans in Serviced Portfolio 0.66% 1.08% 1.09% 1.61% 1.72%
- ----------
(1)Delinquent loans are those which are 30 days or more past due which are not
covered by dealer/developer reserves or guarantees and not included in other
real estate owned.
</TABLE>
VOI Loans
The following table shows the Company's delinquencies and
delinquency rates, net of dealer/developer reserves and guarantees for VOI Loans
in the Serviced Portfolio:
<TABLE>
Year ended December 31,
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
VOI Loans in Serviced Portfolio $1,434,000 $2,851,000 $46,700,000 $43,284,000 $29,232,000
Delinquent VOI Loans (1).. --- --- 1,958,000 1,316,000 739,000
Delinquency as a percentage of VOI
Loans in Serviced Portfolio --- --- 4.19% 3.04% 2.53%
- ----------
(1)Delinquent loans are those which are 30 days or more past due which are not
covered by dealer/developer reserves or guarantees and not included in other
real estate owned.
</TABLE>
Hypothecation, A & D and Other Loans
The Company did not have any delinquent Hypothecation Loans or
A & D Loans for the years ended December 31, 1993 through December 31, 1997. The
Company did not have significant amounts of delinquent Other Loans for the years
ended December 31, 1993 through December 31, 1996. At December 31, 1997, there
were $8.5 million of Other Loans of which $450,000 or 5.3% were 30 days or more
past due and not covered by dealer/developer reserves or guarantees and not
included in other real estate owned.
Allowance for Loan Losses, Net Charge-offs and Dealer Reserves
The following is an analysis of the total allowances for all loan losses:
<TABLE>
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1993 1994 1995 1996 1997
Allowance, beginning of year....... $498,000 $1,064,000 $1,264,000 $3,715,000 $4,528,000
Provision for loan losses.......... 620,000 559,000 890,000 1,954,000 1,400,000
Net charge-offs of uncollectible
accounts (1)................... (493,000) (359,000) (946,000) (1,965,000) (2,010,000)
Allocation of purchase adjustment (2) 439,000 --- 2,507,000 824,000 1,959,000
----------- ----------- ----------- ---------- -----------
Allowance, end of year............. $1,064,000 $1,264,000 $3,715,000 $4,528,000 $5,877,000
========== ========== ========== ========== ==========
- ----------
(1) Net of recoveries of $10,000, $47,000, $11,000, $310,000 and $424,000 in
1993, 1994, 1995, 1996 and 1997, respectively.
(2) Represents allocation of purchase adjustment related to purchase of
certain non-guaranteed loans.
</TABLE>
The following is an analysis of net charge-offs by major loan and collateral
types experienced by the Company:
<TABLE>
Year ended December 31,
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
Land Loans............... $493,000 $359,000 $546,000 $669,000 $986,000
VOI loans................ --- --- 45,000 1,284,000 939,000
Hypothecation Loans...... --- --- --- --- ---
A&D Loans................ --- --- 352,000 (8,000) (2,000)
Other Loans.............. --- --- 3,000 20,000 87,000
--------- --------- --------- ----------- --------
$493,000 $359,000 $946,000 $1,965,000 $2,010,000
======== ======== ======== ========== ==========
Net charge-offs as a percentage of
the average Serviced Portfolio .69% .38% .67% .94% .74%
</TABLE>
As part of the Company's financing of Land Loans and VOI Loans, the
Company enters into arrangements with most land dealers and resort developers
whereby the Company establishes reserves to protect the Company from potential
losses associated with such loans. The Company retains a portion of the amount
payable to them for a Land Loan or a VOI Loan which the Company uses to absorb
loan losses for those loans. The Company negotiates the amount of the reserves
with the land dealers and resort developers based upon various criteria, two of
which are the financial strength of the land dealer or resort developer and the
credit risk associated with the loans being purchased. Dealer reserves for Land
Loans were $6,420,000, $7,555,000 and $8,321,000 at December 31, 1995, 1996 and
1997, respectively. Developer reserves for VOI Loans were $3,224,000, $3,072,000
and $2,299,000 at December 31, 1995, 1996 and 1997, respectively. Most dealers
and developers provide personal and, when relevant, corporate guarantees to
further protect the Company from loss.
Loan Servicing and Sales
The Company retains the right to service all the loans it originates.
Servicing includes collecting payments from borrowers, remitting payments to
investors who have purchased the loans, accounting for principal and interest,
contacting delinquent borrowers and supervising foreclosure and bankruptcies in
the event of unremedied defaults. Substantially all servicing results from the
origination and purchase of loans by the Company, and the Company has not
historically purchased loan servicing rights except in connection with the
purchase of loans. Servicing rates generally approximate .5% to 2% of the
principal balance of a loan.
In connection with the Company's continuing growth, the Company
decided to subcontract its servicing rights in order to avoid incurring
additional fixed overhead costs associated with such servicing. Accordingly, the
Company subcontracted to an unaffiliated third party the servicing of VOI Loans
in 1995 and the remaining loans in April 1996. The Company retains
responsibility for servicing all loans as master servicer.
In 1990, the Company began privately placing issues of
pass-through certificates evidencing an undivided beneficial ownership interest
in pools of loans which have been transferred to trusts. The principal and part
of the interest payments on the loans transferred to the trust are collected by
the Company, as the servicer of the loan pool, remitted to the trust for the
benefit of the investors, and then distributed by the trust to the investors in
the pass-through certificates.
As of December 31, 1997, the Company had sold or securitized a
total of approximately $348.2 million in loans. In certain of the Company's
issues of pass-through certificates, credit enhancement was achieved by dividing
the issue into a senior portion which was sold to the investors and a
subordinated portion which was retained by the Company. In certain other of the
Company's private placements, credit enhancement was achieved through cash
collateral. If borrowers default in the payment of principal or interest on the
loans underlying these issues of pass-through certificates, losses would be
absorbed first by the subordinated portion or cash collateral account retained
by the Company and might, therefore, have to be charged against the allowance
for loan losses to the extent dealer/developer guarantees and reserves are not
available.
The Company also has a $125.0 million revolving line of credit and
sale facility for its land loans as part of an asset backed commercial paper
facility with a multi-seller commercial paper conduit. The facility expires in
June 1998. As of December 31, 1997, the outstanding balance of the sold or
pledged loans securing this facility was $108.6 million. The Company has an
additional revolving line of credit and sale facility for its VOI loans of $25.0
million with another multi-seller commercial paper conduit. The facility expires
in March 2000. As of December 31, 1997, the outstanding aggregate balance of the
sold loans under the facility was $12.5 million.
Marketing and Advertising
The Company markets its program to rural land dealers and resort
developers through brokers, referrals, dealer and developer solicitation, and
targeted direct mail. The Company employs three marketing executives based in
Denver, Colorado and six marketing executives based in Williamstown,
Massachusetts. In the last 5 years the Company has closed loans with over 250
different dealers and developers.
Management believes that the Company benefits from name recognition
as a result of its referral, advertising and other marketing efforts. Referrals
have been the strongest source of new business for the Company and are generated
in the states in which the Company operates by dealers, brokers, attorneys and
financial institutions. Management and marketing representatives also conduct
seminars for dealers and brokers and attend trade shows to improve awareness and
understanding of the Company's programs.
Regulation
The Company is licensed as a mortgage banker in 15 of the states
in which it operates, and in those states its operations are subject to
supervision by state authorities (typically state banking or consumer credit
authorities). Expansion into other states may be dependent upon a finding of
financial responsibility, character and fitness of the Company and various other
matters. The Company is generally subject to state regulations, examination and
reporting requirements, and licenses are revocable for cause. The Company is
subject to state usury laws in all of the states in which it operates.
The Company's consumer finance activities are subject to the
Truth-in-Lending Act. The Truth-in-Lending Act contains disclosure requirements
designed to provide consumers with uniform, understandable information with
respect to the terms and conditions of loans and credit transactions in order to
give them the ability to compare credit terms. Failure to comply with the
requirements of the Truth-in-Lending Act may give rise to a limited right of
rescission on the part of the borrower. The Company believes that it is in
compliance in all material respects with the Truth-in-Lending Act.
The Company is also required to comply with the Equal Credit
Opportunity Act of 1974, as amended ("ECOA"), which prohibits creditors from
discriminating against applicants on the basis of race, color, sex, age or
marital status. Regulation B promulgated under ECOA restricts creditors from
obtaining certain types of information from loan applicants. It also requires
certain disclosures by the lender regarding consumer rights and requires lenders
to advise applicants of the reasons for any credit denial. In instances where
the applicant is denied credit or the interest rate charged increases as a
result of information obtained from a consumer credit agency, another statute,
the Fair Credit Reporting Act of 1970, as amended, requires the lenders to
supply the applicant with a name and address of the reporting agency.
Competition
The finance business is highly competitive, with competition
occurring primarily on the basis of customer service and the term and interest
rate of the loans. Traditional competitors in the finance business include
commercial banks, credit unions, thrift institutions, industrial banks and
finance companies, many of which have considerably greater financial, technical
and marketing resources than the Company. As a result of consolidation and the
failure of certain financial institutions, the number of financial institutions
is being reduced. There can be no assurance that the Company will not face
increased competition from remaining institutions or new financial institutions.
The Company believes that it competes on the basis of providing
competitive rates and prompt, efficient and complete service, and by emphasizing
customer service on a timely basis to attract borrowers whose needs are not met
by traditional financial institutions.
Employees
As of December 31, 1997, the Company had 71 full-time equivalent
employees. None of the Company's employees are covered by a collective
bargaining agreement. The Company considers its relations with its employees to
be good.
Risk Factors
General Business Risks. The Company's business is subject to various business
risks. The level of the Company's revenues is dependent upon demand for the type
of loans purchased, sold and serviced by the Company from both potential
borrowers and investors. Future declines in real estate values, changes in
prevailing interest rates and changes in the availability of attractive returns
on alternative investments each could make loans of the type originated and
purchased by the Company less attractive to borrowers and investors.
Funding and Liquidity. The Company has a constant need for working capital to
fund its lending, purchasing and securitization activities and, as a result,
generally has experienced negative cash flows from operations. Historically, the
Company has funded any negative cash flows from operations by borrowing under
secured lines of credit and issuing long-term debt and equity securities. The
Company's lines of credit are renewable on one to three year bases. The Company
had secured lines of credit totaling $116.0 million with five financial
institutions as of December 31, 1997. To date, the Company has issued $122.8
million of long-term debt and has publicly issued $25.6 million of equity
securities.
The Company also has a $125.0 million revolving line of credit and sale
facility as part of an asset backed commercial paper facility with a
multi-seller commercial paper conduit. The facility expires in June, 1998. As of
December 31, 1997, the outstanding balance of the sold or pledged loans securing
this facility was $108.6 million. The Company has an additional revolving line
of credit and sale facility of $25.0 million with another multi-seller
commercial paper conduit. The facility expires in March 2000. As of December 31,
1997, the outstanding aggregate balance of the sold or pledged loans under the
facility was $12.5 million.
There can be no assurance that the Company will continue to be able to obtain
financing or raise capital on terms satisfactory to the Company. To the extent
the company cannot raise additional funds, it could have a material adverse
impact on its operations and its ability to repay the Notes.
Impact of Economic Cycles. The business risks associated with the Company's
business become more acute in an economic slowdown. Such an environment is
generally characterized by decreased demand for rural and vacation real estate
and VOIs and declining real estate values in many areas of the country.
Delinquencies, foreclosures and loan losses generally increase during economic
slowdowns or recessions, and any such future slowdowns could adversely affect
future operations of the Company.
Interest Rate Risk. The Company's interest and fees on loans, gain on sale of
loans and interest expense are affected by changes in interest rates. The
Company could be adversely affected by interest rate increases if its variable
rate liabilities exceed its variable rate assets or if the rates on its variable
rate liabilities increase sooner or to a greater extent than the rates on its
variable rate assets.
The Company seeks to mitigate a portion of its interest rate risk by
attempting to match fixed and variable rate assets and liabilities, instituting
interest rate floors and by entering into interest rate swaps on certain of its
variable rate assets, and purchasing interest rate caps on certain of its
variable rate liabilities.
There can be no assurance that the Company's attempts to mitigate its
interest rate risk will be effective.
Competition. The financing of VOIs is highly competitive and many of the
Company's competitors have greater financial resources. In addition, the Company
may enter new lines of business that may be highly competitive and may have
competitors with greater financial resources than the Company.
Credit Risks. The Company's loans are subject to delinquency and default
risk. General downturns in the economy and other factors beyond the Company's
control may have an adverse effect on the Company's delinquency and default
rates. The Company's A & D Loans and, to a lesser extent, its Hypothecation
Loans have a greater concentration of credit risk due to their larger size and,
in the case of A & D Loans, their development and marketing risk.
The Company's VOI business is subject to certain risks associated with VOI
ownership. Although individual VOI owners are obligated to make payments under
their notes irrespective of any defect in, damage to, or change in conditions of
the vacation resort (such as erosion, construction of adjacent or nearby
properties, or environmental problems) or of any breach of contract by the
property owners association to provide certain services to the VOI borrowers
(including any such breach resulting from a destruction of the resort) or of any
other loss of benefits of ownership of their unit week(s) (including cessation
of the ability of the borrowers to exchange their time intervals in the resort
for time intervals in other unaffiliated resorts), any such material defect,
damage, change, breach of contract, or loss of benefits is likely to result in a
delay in payment or default by a substantial number of the borrowers whose VOIs
are affected. The costs of foreclosure and resale of unit weeks securing
defaulted loans are likely to be substantially higher than such costs for
traditional mortgage loans, and this may materially affect the amounts realized
by the Company on defaulted loans.
Estimates of Future Prepayment and Default Rates. A significant portion of
the Company's revenues historically has been comprised of gains on sales of
loans. The gains are recorded in the Company's revenues and on its balance sheet
(as retained interests on loan sales) at the time of sale, and the amount of
gains recorded is based in part on management's estimates of future prepayment
and default rates and other considerations in light of then-current conditions.
If actual prepayments with respect to loans occur more quickly than was
projected at the time such loans were sold, as can occur when interest rates
decline, interest would be less than expected and earnings would be charged in
the current period. If actual defaults with respect to loans sold are greater
than estimated, charge-offs would exceed previously estimated amounts and
earnings would be charged in the current period.
Expansion of Business. The Company has increased the number and average
principal amount of its Hypothecation and A & D Loans. A & D Loans are larger
commercial loans to land dealers and resort developers and, consequently, have a
greater concentration of credit risk than the company's Purchased Loans. A & D
Loans for timeshare resorts are also subject to greater risk because their
repayment depends on the successful completion of the development of the resort
and the subsequent successful sale of a substantial portion of the resort's
timeshare interests. The Company may seek to limit its exposure to any one
developer by participating a portion of an A & D Loan with another lender.
The Company has historically made Hypothecation Loans to land dealers and
resort developers secured by Land Loans and VOI Loans, respectively.
Hypothecation Loans are commercial loans that have significantly larger balances
than the Company's Purchased Loans and, consequently, have a greater
concentration of credit risk which is only partially offset by the lesser
concentration of credit risk of the underlying collateral.
In addition, the Company has recently expanded its marketing of Hypothecation
Loans to include loans to other finance companies secured by other types of
collateral. These loans may be subject to additional risk because the Company
has relatively less experience with these other types of collateral than with
Land Loans or VOI Loans. In addition, these loans may be larger than the
Company's average Hypothecation Loans and may provide the Company with an option
to take an equity position in the borrower.
Fluctuations in Quarterly Results of Operations. Since gains on sales of
loans are a significant portion of the Company's revenues, the timing of loan
sales has a significant effect on the Company's quarterly results of operations,
and the results of one quarter are not necessarily indicative of results for the
next quarter.
Contingent Repurchase Obligations. In connection with certain of the
Company's whole loan sales to investors, the Company has committed to repurchase
such loans that become 90 days past due. These contingent obligations are
subject to various terms and conditions, including limitations on the amounts of
loans which must be repurchased. The Company has also guaranteed payment of
mortgage loans included in certain of its mortgage securitization programs. As
of December 31, 1997, the Company had outstanding contingent repurchase
obligations in the aggregate amount of approximately $9.2 million. In addition,
when the Company sells mortgage loans through mortgage securitization programs,
the Company commits to replace any loans that do not conform to certain
representations and warranties included in the operative loan sale documents.
Regulation. The operations of the Company are subject to extensive regulation
by federal, state and local government authorities and are subject to various
laws and judicial and administrative decisions imposing various requirements and
restrictions, including among other things, regulating credit granting
activities, establishing maximum interest rates and finance charges, requiring
disclosures to customers, governing secured transactions and setting collection,
repossession and claims handling procedures and other trade practices. In
addition, certain states have enacted legislation which restricts the
subdivision of rural land and numerous states have enacted regulations in
connection with VOIs. Although the Company believes that it is in compliance in
all material respects with applicable federal, state and local laws, rules and
regulations, there can be no assurance that more restrictive laws, rules and
regulations or interpretations thereof will not be adopted in the future which
could make compliance much more difficult or expensive, restrict the Company's
ability to originate or sell loans, further limit or restrict the amount of
interest and other charges earned under loans originated or purchased by the
Company, or otherwise adversely affect the business or prospects of the Company.
Environmental Liabilities. In the course of its business, the Company has
acquired, and may in the future acquire, properties securing defaulted loans.
Although substantially all of the Company's Land Loans are secured by mortgages
on rural land, there is a risk that hazardous substances or waste could be
discovered on such properties after foreclosure by the Company. In such event,
the Company might be required to remove such substances from the affected
properties at its sole cost and expense. There can be no assurances that the
cost of such removal would not substantially exceed the value of the affected
properties or the loans secured by the properties or that the Company would have
adequate remedies against the prior owner or other responsible parties, or that
the Company would not find it difficult or impossible to sell the affected
properties either prior to or following any such removal.
Dependence on Senior Management. The Company's success depends upon the
continued contributions of its senior management. The loss of services of
certain of the Company's executive officers could have an adverse effect upon
the Company's business. The Company maintains key man insurance on the life of
one member of its senior management, Chief Executive Officer and President,
Richard A. Stratton.
Item 2. PROPERTIES
The Company owns a leasehold interest in approximately 26,000 square
feet of office space in Williamstown, Massachusetts, which is used as the
Company's headquarters. The initial ten year lease term expires in May 2007 and
is renewable at the Company's option for two additional ten year periods. The
initial land lease provides for an annual rental of $20,000. The Company also
occupies an aggregate of approximately 5,100 square feet of office space in
Lakewood, Colorado, pursuant to a lease expiring in January 2001, with an option
to renew until 2004, providing for an annual rental of approximately $56,000,
including utilities and exterior maintenance expenses. The Company also owns, in
Stamford, Vermont, an aggregate of approximately 13,000 square feet of office
space, which is currently for sale or lease.
Item 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded on The Nasdaq Stock Market's
National Market under the symbol "LTCH." At March 12, 1998, there were
approximately 1,100 holders of record of the Company's common stock. Common
Stock Market Prices and Dividends on pages 9 and 10 of the Annual Report to
Stockholders for the year ended December 31, 1997 are incorporated herein by
reference.
Item 6. SELECTED FINANCIAL DATA
The Selected Consolidated Financial Information on pages 2 and 3
of the Annual Report to stockholders for the year ended December 31, 1997 is
incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Management's Discussion and Analysis of Financial Condition
and Results of Operations on pages 4 through 10 of the Annual Report to
Stockholders for the year ended December 31, 1997 is incorporated herein by
reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and report of independent
auditors included on pages 11 through 26 of the Annual Report of Stockholders
for the year ended December 31, 1997 are incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
Item10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information
contained on pages 4 through 8 of Litchfield Financial
Corporation's Proxy Statement dated March 24, 1998, with respect to directors
and executive officers of the Company, is incorporated herein by reference in
response to this item.
Item 11. EXECUTIVE COMPENSATION
The information contained on pages 9 through 16 of Litchfield Financial
Corporation's Proxy Statement dated March 24, 1998, with respect to executive
compensation and transactions, is incorporated herein by reference in response
to this item.
Item12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The
information contained on pages 2 through 4 of Litchfield Financial
Corporation's Proxy Statement dated March 24, 1998, with respect to security
ownership of certain beneficial owners and management, is incorporated herein by
reference in response to this item.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained on page 8 of Litchfield Financial Corporation's
Proxy Statement dated March 24, 1998, with respect to certain relationships and
transactions, is incorporated herein by reference in response to this item.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements
The following consolidated financial statements of Litchfield Financial
Corporation and subsidiaries, included in the annual report of the registrant to
its stockholders for the year ended December 31, 1997 are incorporated by
reference in Item 8:
Consolidated balance sheets - December 31, 1997 and 1996
Consolidated statements of income - Years ended December 31, 1997, 1996
and 1995
Consolidated statements of stockholders' equity - Years ended December 31,
1997, 1996 and 1995
Consolidated statements of cash flows - Years ended December 31, 1997,
1996 and 1995
Notes to consolidated financial statements - December 31,
1997
(2) Financial statement schedules
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
(3) Listing of Exhibits
A. Exhibits Incorporated by Reference.
(i) The following exhibits are incorporated herein by reference to the
Company's Registration Statement on Form S-1 (No. 33-44915), as
amended, filed with the Securities and Exchange Commission (exhibit
numbers indicated below correspond to those used for exhibits
originally filed with such Registration Statement) (No. 33-44915):
3.1 Restated Articles of Organization of the Company.
3.2 Restated By-Laws of the Company.
10.1 1990 Stock Option Plan adopted and approved on May 30, 1990 and form
of Stock Option Agreement
10.2 Securities Purchase Agreement dated as of November 21, 1988.
10.28 Pooling and Trust Agreement dated as of December 31, 1990 between the
Company and State Street Bank and Trust Company of Connecticut, N.A.,
as trustee of Litchfield Financial Mortgage Trust II.
10.29 Servicing Agreement dated December 31, 1990 between State Street Bank
and Trust Company of Connecticut, N.A., as trustee of Litchfield
Financial Mortgage Trust II, and the Company.
10.30 Purchase Agreement dated December 31, 1990 with respect to the sale of
Mortgage Pass Through Certificates Series 1990-2 by Litchfield
Financial Mortgage Trust II.
10.31 Class B and Class B-1 Purchase Agreement dated December 31, 1990 with
respect to the sale of Mortgage Pass-Through Certificate Series 1990-2
by Litchfield Financial Mortgage Trust II.
10.35 Pooling and Trust Agreement as of December 20, 1991 between the
Company and James C. Farrington, as trustee of Litchfield Financial
Mortgage Trust V.
10.36 Servicing Agreement dated as of December 14, 1991 between the Company
and James C. Farrington, as trustee of Litchfield Financial Mortgage
Trust V.
10.37 Purchase Agreement dated December 20, 1991 with respect to the sale of
Mortgage Pass-Through Certificates Series 1991-1 of Litchfield
Financial Mortgage Trust V.
10.38 Class B Purchase Agreement dated December 20, 1991 with respect to the
sale of Mortgage Pass-Through Certificates Series 1991-1 of Litchfield
Financial Mortgage Trust V.
10.48 Amendment to the 1990 Stock Option Plan dated February 18, 1992.
(ii) The following exhibits are incorporated by reference to the
Company's Registration Statement on Form S-1 (No. 33-52390), as
amended, filed with the Securities and Exchange Commission (exhibit
numbers indicated below correspond to those exhibits originally filed
with such Registration Statement No. 33-52390):
4.1 Form of Indenture pursuant to which the Company's 10% Notes due 2002
were issued.
4.2 Form of 10% Note due 2002.
10.51 Pooling and Servicing Agreement dated as of March 31, 1992 among the
Company, Litchfield Mortgage Securities Corporation I, and Thomas P.
McHugh, Esquire, as trustee of Litchfield Financial Mortgage Trust VII.
10.57 Pooling and Servicing Agreement dated as of September 14, 1992 among
the Company, Litchfield Mortgage Securities Corporation 1992-2, and the
Chase Manhattan Bank, N.A., as trustee of Litchfield Financial Mortgage
Trust 1992-2.
10.58 Mortgage Purchase Agreement dated as of September 24, 1992 between the
Company and Litchfield Mortgage Securities Corporation 1992-2.
(iii) The following exhibits are incorporated by reference to the
Company's annual report on Form 10-K for the year ended December 31,
1992 as filed with the Securities and Exchange Commission (exhibit
numbers indicated below correspond to those used for exhibits
originally filed with such annual report on Form 10-K):
10.59 Second Amendment to the 1990 Stock Option Plan.
10.61 Mortgage Purchase Agreement dated as of March 19, 1993 between the
Company and Litchfield Mortgage Securities Corporation I.
10.62 Pooling and Servicing Agreement dated as of February 23, 1993
among the Company, Litchfield Mortgage Securities Corporation I, and
Thomas P. McHugh, Esquire, as trustee of Litchfield Financial
Mortgage Trust 1993-1.
(iv) The following exhibits are incorporated by reference to the
Company's Registration Statement No. 33-60788, as amended, filed with
the Securities and Exchange Commission (exhibit numbers indicated below
correspond to those exhibits originally filed with such Registration
Statement No. 33- 60788):
4.3 Form of Indenture pursuant to which the Company's 8 7/8% Notes due
2003 were issued.
4.4 Form of 8 7/8% Note due 2003.
(v) The following exhibits are incorporated by reference to the
Company's annual report on Form 10-K for the year ended December 31,
1993 as filed with the Securities and Exchange Commission (exhibit
numbers indicated below correspond to those used for exhibits
originally filed with such annual report on Form 10-K)
10.64 Pooling and Servicing Agreement, dated as of August 27, 1993, among the
Company, Litchfield Mortgage Securities Corporation and Harris Trust
and Savings Bank, as Trustee of the Litchfield Financial Mortgage Trust
1993-2.
10.65 Mortgage Purchase Agreement, dated as of September 28, 1993, between
the Company and Litchfield Mortgage Securities Corporation.
10.66 Pooling and Servicing Agreement, dated as of November 30, 1993, among
the Company, Litchfield Mortgage Securities Corporation and Harris
Trust and Savings Bank, as Trustee of the Litchfield Financial Mortgage
Trust 1993-3.
10.67 Mortgage Purchase Agreement, dated as of December 21, 1993, between the
Company and Litchfield Mortgage Securities Corporation. (vi) The
following exhibits are incorporated by reference to the Company's
Registration Statement No. 33-89488, as amended, filed with the
Securities and Exchange Commission (exhibit numbers indicated below
correspond to those exhibits originally filed with such Registration
Statement No. 33- 89488):
4.5 Form of Indenture pursuant to which the Company's 10% Notes due 2004
were issued.
4.6 Form of 10% Notes due 2004.
10.68 Pooling and Servicing Agreement, dated as of June 1, 1994, among the
Company, Litchfield Mortgage Securities Corporation 1994, and The
Chase Manhattan Bank, N.A., as trustee.
10.69 Series Trust Agreement, dated as of June 16, 1994, between the Company,
Litchfield Mortgage Securities Corporation 1994, and The Chase
Manhattan Bank, N.A., as trustee.
10.70 Mortgage Purchase Agreement, dated as of June 16, 1994, between the
Company and Litchfield Mortgage Securities Corporation 1994.
10.71 Pledge and Collateral Agency Agreement, dated as of June 16, 1994,
among the Company, Litchfield Mortgage Securities Corporation 1994,
Internationale Nederlanden (U.S.) Finance Corporation and The Chase
Manhattan Bank, N.A., as collateral agent.
10.72 Sinking Fund Account Agreement, dated as of June 16, 1994, among the
Company, Internationale Nederlanden (U.S.) Finance Corporation, The
Chase Manhattan Bank, N.A. and Internationale Nederlanden (U.S.)
Capital Markets.
10.73 Rate Stabilization Agreement, dated as of June 16, 1994, between the
Company and Internationale Nederlanden (U.S.) Finance Corporation.
10.74 Series Trust Agreement, dated as September 27, 1994, among the
Company Litchfield Mortgage Securities Corporation 1994, and The
Chase Manhattan Bank, N.A., as trustee.
10.75 Mortgage Purchase Agreement, dated as of September 27, 1994, between
the Company and Litchfield Mortgage Securities Corporation 1994.
10.76 Pledge and Collateral Agency Agreement, dated as of September 27, 1994,
among the Company, Litchfield Mortgage Securities Corporation 1994,
Internationale Nederlanden (U.S.) Finance Corporation and The Chase
Manhattan Bank, N.A., as collateral agent.
10.77 Sinking Fund Account Agreement, dated as of September 27, 1994, among
the Company, Internationale Nederlanden (U.S.) Finance Corporation,
The Chase Manhattan Bank, N.A. and Internationale Nederlanden (U.S.)
Capital Markets.
10.78 Rate Stabilization Agreement, dated as of September 27, 1994, between
the Company and Internationale Nederlanden (U.S.) Finance Corporation.
10.79 Pooling and Servicing Agreement, dated as of August 31, 1994, among the
Company, Litchfield Mortgage Securities Corporation and Thomas P.
McHugh, Esquire, as trustee.
10.80 Mortgage Purchase Agreement, dated as of September 12, 1994 between the
Company and Litchfield Mortgage Securities Corporation.
10.81 Lease, dated as of February 1, 1995, between the Company and Fox Point
Property L.L.C.
10.84 Employment Agreement, date as of December 23, 1994, between the
Company and Wayne M. Greenholtz.
10.85 Third Amendment to the 1990 Stock Option Plan.
(vii) The following exhibits are incorporated by reference to the
Company's annual report on Form 10-K for the year ended December 31,
1994 as filed with the Securities and Exchange Commission (exhibit
numbers indicated below correspond to those used for exhibits
originally filed with such annual report on Form 10-K)
10.91 Series Trust Agreement, dated as of December 28, 1994, among the
Company, Litchfield Mortgage Securities Corporation 1994, and The Chase
Manhattan Bank, N.A., as trustee.
10.92 Mortgage Purchase Agreement, dated as of December 28, 1994, between the
Company and Litchfield Mortgage Securities Corporation 1994.
10.93 Certificate Purchase Agreement, dated as of December 28, 1994, among
Litchfield Mortgage Securities Corporation 1994, the Company, Holland
Limited Securitizations, Inc., and Internationale Nederlanden (U.S.)
Capital Markets.
10.94 Pledge and Collateral Agency Agreement, dated as of December 28,
1994, among the Company, Litchfield Mortgage Securities Corporation
1994, Holland Limited Securitization, Inc. and The Chase Manhattan
Bank, N.A., as collateral agent.
10.95 Sinking Fund Account Agreement, dated as of December 28, 1994,
among the Company, Holland Limited Securitization, Inc., The Chase
Manhattan Bank, N.A. and Internationale Nederlanden (U.S.) Capital
Markets.
10.97 Amendment No. 1 to Pooling and Servicing Agreement, dated as of
December 1, 1994, among the Company, Litchfield Mortgage Securities
Corporation 1994, and The Chase Manhattan Bank, N.A., as trustee.
10.98 Amendment No. 1 to Series Trust Agreement Dated June 16, 1994, dated as
of December 28, 1994, among the Company, Litchfield Mortgage Securities
Corporation 1994, and The Chase Manhattan Bank, N.A., as trustee.
10.99 Amendment to Sinking Fund Account Agreement (Litchfield Mortgage
Trust 1994-1), dated as of December 28, 1994, among the Company,
Internationale Nederlanden (U.S.) Finance Corporation, The Chase
Manhattan Bank, N.A., Internationale Nederlanden (U.S.) Capital
Markets.
10.100 Amendment No. 1 to Series Trust Agreement Dated September 27,
1994, dated as of December 28, 1994, among the Company, Litchfield
Mortgage Securities Corporation 1994, and The Chase Manhattan Bank,
N.A., as trustee.
10.101 Amendment to Sinking Fund Account Agreement (Litchfield Mortgage
Trust 1994-2), dated as of December 28, 1994, among the Company,
Internationale Nederlanden (U.S.) Finance Corporation, The Chase
Manhattan Bank, N.A., Internationale Nederlanden (U.S.) Capital
Markets.
10.102 Indenture, dated as of January 9, 1995, between Litchfield
Residual Securities Corporation and The Chase Manhattan Bank, N.A.,
as note trustee.
10.103Note Purchase Agreement, dated as of January 9, 1995, among Litchfield
Residual Securities Corporation, Connecticut General Life Insurance
Company and Connecticut General Life Insurance Company on behalf of one
or more accounts.
10.104 10.43% Secured Notes, due May 1, 2024.
10.105 Agreement and Certificate, dated as of January 9, 1995, between the
Company and the Chase Manhattan Bank, N.A., as Note Trustee.
10.106 Amendment No. 1 to Pooling and Trust Agreement, dated as January 6,
1995, among the Company, State Street Bank and Trust Company of
Connecticut, National Association, as trustee, and those
Certificateholders on the signature pages thereto.
10.107 Amendment No. 1 to Servicing Agreement, dated as of January 6,
1995, among the Company, State Street Bank and Trust Company of
Connecticut, National Association, as trustee, and those
Certificateholders on the signature pages thereto.
10.108 Amendment No. 1 to Pooling and Trust Agreement, dated as of
January 6, 1995, among the Company, James C. Farrington, as trustee,
and those Certificateholders on the signature pages thereto.
10.109Intercreditor Agreement, dated as of January 9, 1995, in connection
with the Litchfield Mortgage Trust 1994-1, among the Chase Manhattan
Bank, N.A., as trustee under an Indenture, the Chase Manhattan Bank,
N.A., as collateral agent under a Pledge and Collateral Agency
Agreement for the benefit of Internationale Nederlanden (U.S.) Finance
Corporation, The Chase Manhattan Bank, N.A., as agent there under and
the Company.
10.110 Mortgage Loan Pledge Agreement, dated as of January 9, 1995, in
connection with the Litchfield Mortgage Trust 1994-1, among the
Company, Internationale Nederlanden (U.S.) Finance Corporation, and The
Chase Manhattan Bank, N.A., as collateral agent.
10.111Amendment No. 1 to Pledge and Collateral Agency Agreement, dated as of
January 9, 1995, in connection with the Litchfield Mortgage Trust
1994-1, among the Company, Litchfield Mortgage Securities Corporation
1994, Internationale Nederlanden (U.S.) Finance Corporation, and The
Chase Manhattan Bank, N.A., as collateral agent.
10.112 Amendment No. 1 Rate Stabilization Agreement, dated as of January
9, 1995, in connection with the Litchfield Mortgage Trust 1994-1,
between the Company, and Internationale Nederlanden (U.S.) Finance
Corporation.
10.113Intercreditor Agreement, dated as of January, 9, 1995, in connection
with the Litchfield Mortgage Trust 1994-2, among The Chase Manhattan
Bank, N.A., as trustee under an Indenture, The Chase Manhattan Bank,
N.A., as collateral agent under a Pledge and Collateral Agency
Agreement for the benefit of Internationale Nederlanden (U.S.) Finance
Corporation and The Chase Manhattan Bank, N.A., as collateral agent.
10.114Mortgage Loan Pledge Agreement, dated as of January 9, 1995, in
connection with the Litchfield Mortgage Trust 1994-2, among the
Company, Internationale Nederlanden (U.S.) Finance Corporation, and The
Chase Manhattan Bank, N.A., as agent thereunder and the Company.
10.115Amendment No. 1 to Pledge and Collateral Agency Agreement, dated as of
January 9, 1995, in connection with the Litchfield Mortgage Trust
1994-2, among the Company, Litchfield Mortgage Securities Corporation
1994, Internationale Nederlanden (U.S.) Finance Corporation, and The
Chase Manhattan Bank, N.A., as collateral agent.
10.116 Amendment No. 1 Rate Stabilization Agreement, dated as of January
9, 1995, in connection with the Litchfield Mortgage Trust 1994-2,
between the Company and Internationale Nederlanden (U.S.) Finance
Corporation.
10.117 Certificate Purchase Agreement (for Litchfield Mortgage Trust
1994-1), dated as of January 26, 1995, among Litchfield Mortgage
Securities Corporation 1994, the Company, Holland Limited
Securitizations, Inc., and Internationale Nederlanden (U.S.) Capital
Markets.
10.118 Certificate Purchase Agreement (for Litchfield Mortgage Trust
1994-2), dated as of January 26, 1995, among Litchfield Mortgage
Securities Corporation 1994, the Company, Holland Limited
Securitizations, Inc., and Internationale Nederlanden (U.S.) Capital
Markets.
10.119Amended and Restated Pledge and Collateral Agency Agreement Dated June
16, 1994, dated as of January 26, 1995, among the Company, Litchfield
Mortgage Securities Corporation 1994, Holland Limited Securitization,
Inc., and The Chase Manhattan Bank, N.A., as
collateral agent.
10.120 Amendment No. 1 to Mortgage Loan Pledge Agreement (Litchfield
Mortgage Trust 1994-1), dated as of January 26, 1995, among the
Company, Holland Limited Securitization, Inc., and The Chase Manhattan
Bank, N.A., as collateral agent.
10.121 Amendment No. 2 to Pooling and Servicing Agreement, dated as of
January 26, 1995, among the Company, Litchfield Mortgage Securities
Corporation 1994, and The Chase Manhattan Bank, N.A., as trustee.
10.122Amendment No. 2 to Series Trust Agreement Dated June 16, 1994, dated
as of January 26, 1995, among the Company, Litchfield Mortgage
Securities Corporation 1994, and The Chase Manhattan Bank, N.A., as
trustee.
10.123Amended and Restated Pledge and Collateral Agency Agreement Dated
September 27, 1994, dated as of January 26, 1995, among the Company,
Litchfield Mortgage Securities Corporation 1994, Holland Limited
Securitization, Inc., and The Chase Manhattan Bank, N.A., as
collateral agent.
10.124 Amendment No. 1 to Mortgage Loan Pledge Agreement (Litchfield
Mortgage Trust 1994-2), dated as of January 26, 1995, among the
Company, Holland Limited Securitization, Inc., and The Chase Manhattan
Bank, N.A., as collateral agent.
10.125 Amendment No. 2 to Series Trust Agreement Dated September 27,
1994, dated as of January 26, 1995, among the Company, Litchfield
Mortgage Securities Corporation 1994, and The Chase Manhattan Bank,
N.A., as trustee.
(viii)The following exhibits are incorporated by reference to the Company's
quarterly report on Form 10-Q for the quarter ended June 30, 1995 as
filed with the Securities and Exchange Commission (exhibit numbers
indicated below correspond to those used for exhibits originally filed
with such quarterly report on Form 10-Q)
10.126Asset Purchase Agreement dated as of March 30, 1995 between GEICO
Corporation, Government Employees Financial Corporation, GEICO
Financial Services, Inc., GEICO Financial Company, Willow Valley
Associates, LTD., Variproperties, Inc. as sellers and Litchfield
Financial Corporation as purchaser (excluding exhibits and schedules).
10.127 Litchfield Financial Corporation 1995 Stock Option Plan for
Non-Employee Directors.
10.128Sale and Servicing Agreement dated as of March 22, 1995 between
Litchfield Timeshare Securities Corporation as depositor and Litchfield
Financial Corporation as servicer and Litchfield Timeshare Trust
1995-1.
10.129Amended and Restated Sale and Servicing Agreement dated as of March
22, 1995 between Litchfield Timeshare Securities Corporation as
depositor and Litchfield Financial Corporation as servicer and
Litchfield Timeshare Trust 1995-1.
10.130 Litchfield Timeshare Trust 1995-1 Trust Agreement dated as of March
22, 1995 between Litchfield Timeshare Securities Corporation 1995-1
and the Chase Manhattan Bank, N.A. as trustee.
10.131 Amended and Restated Litchfield Timeshare Trust 1995-1 Trust
Agreement dated as of March 22, 1995 between Litchfield Timeshare
Securities Corporation 1995-1 and the Chase Manhattan Bank, N.A. as
trustee.
10.133Litchfield Timeshare Trust 1995-1 Class A Certificates Purchase
Agreement dated April 27, 1995 between Litchfield Timeshare Securities
Corporation 1995-1 as depositor, Litchfield Financial Corporation as
initial servicer, and Teachers Insurance and Annuity Association of
America as purchaser.
10.134Litchfield Timeshare Trust 1995-1 Class A Certificates Purchase
Agreement dated June 22, 1995 between Litchfield Timeshare Securities
Corporation 1995-1 as depositor, Litchfield Financial Corporation as
initial servicer, and Teachers Insurance and Annuity Association of
America as purchaser.
10.135 Subservicing Agreement between Concord Servicing Corporation,
Litchfield Financial Corporation, and Litchfield Timeshare Trust
1995-1, as amended.
(ix) The following exhibits are incorporated by reference to the Company's
quarterly report on Form 10-Q for the quarter ended September 30, 1995
as filed with the Securities and Exchange Commission (exhibit numbers
indicated below correspond to those used for exhibits originally filed
with such quarterly report on Form 10-Q)
10.136 Receivables Financing facility extended by Holland Limited
Securitization, Inc. and Internationale Nederlanden (U.S.) capital
Markets, Inc., to Litchfield Financial Corporation and Litchfield
Mortgage Securities Corporation 1994 dated September 29, 1995.
(x) The following exhibits are incorporated by reference to the Company's
annual report on Form 10-K for the year ended December 31, 1997, as
filed with the Securities and Exchange Commission. (exhibit numbers
indicated below correspond to those used for exhibits originally filed
with such annual report on Form 10-K):
10.137 Amended and Restated Employment Agreement, dated as of July 19,
1996, between the Company and Richard A. Stratton.
10.138 Amended and Restated Employment Agreement, dated as of July 19,
1996, between the Company and Heather A. Sica.
10.139 Employment Agreement, dated as of July 19, 1996, between the
Company and Ronald E. Rabidou.
10.140Commercial Security Agreement dated as of July 23, 1996, in the
principal amount of $5,000,000 between the Company and BSB Bank and
Trust Co.
10.142Loan Agreement, dated as of September 13, 1996, in the principal
amount of $15,000,000 between the Company and Bank of Scotland.
10.143Pledge Agreement, dated as of September 13, 1996 between the Company
and Bank of Scotland.
10.144Security Agreement, dated as of September 13, 1996 between the Company
and Bank of Scotland.
10.145 Amendment No. 1 to Receivable Purchase Agreement dated September
29, 1995, dated as of December 18, 1995 among the Company, Litchfield
Mortgage Securities Corporation 1994, Holland Limited Securities, Inc.
and Internationale Nederlanden (U.S.) Capital Markets, Inc.
10.146 Amendment No. 1 to Receivable Loan and Security Agreement dated
September 29, 1995, dated as of December 18, 1995 among the Company,
Litchfield Mortgage Securities Corporation 1994, Holland Limited
Securities, Inc. and Internationale Nederlanden (U.S.) Capital
Markets, Inc.
10.147 Amendment No. 2 to Receivable Purchase Agreement dated September
29, 1995, dated as of September 27, 1996 among the Company, Litchfield
Mortgage Securities Corporation 1994, Holland Limited Securities, Inc.
and Internationale Nederlanden (U.S.) Capital Markets, Inc.
10.148 Amendment No. 2 to Receivable Loan and Security Agreement dated
September 29, 1995, dated as of September 27, 1996 among the Company,
Litchfield Mortgage Securities Corporation 1994, Holland Limited
Securities, Inc. and Internationale Nederlanden (U.S.) Capital
Markets, Inc.
10.149Revolving Credit Note, dated as of April 26, 1996, in the principal
amount of $20,000,000 between the Company and the First National Bank
of Boston.
10.150Revolving Credit Note, dated as of October 26, 1996, in the principal
amount of $10,000,000 between the Company and Fleet Bank-NH.
10.151Promissory Note, dated as of January 23, 1997, in the principal amount
of $8,000,000 between the Company and BSB Bank and Trust Co.
(xi) The following exhibits are incorporated by reference to the Company's
quarterly report on Form 10-Q for the quarter ended March 31, 1997 as
filed with the Securities and Exchange Commission (exhibit numbers
indicated below correspond to those used for exhibits originally filed
with such quarterly report on Form 10-Q):
10.152Master revolving credit promissory note dated as of March 21, 1997
between Litchfield Financial Corporation and Republic Bank in the
principal amount of $3,000,000.
10.153Wholesale warehouse loan and mortgage security agreement dated as of
March 21, 1997 between Litchfield Financial Corporation and Republic
Bank in the principal amount of $3,000,000.
(xii) The following exhibits are incorporated by reference to the Company's
quarterly report on Form 10-Q for the quarter ended June 30, 1997 as
filed with the Securities and Exchange Commission (exhibit numbers
indicated below correspond to those used for exhibits originally filed
with such quarterly report on Form 10-Q):
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.
10.155Second 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.
(xiii)The following exhibits are incorporated by reference to the Company's
quarterly report on Form 10-Q for the quarter ended September 30, 1997
as filed with the Securities and Exchange Commission (exhibit numbers
indicated below correspond to those used for exhibits originally filed
with such quarterly report on Form 10-Q):
10.157 Employment agreement, dated as of March 17, 1997 between the
Company and Joseph S. Weingarten.
10.158Asset Purchase Agreement, dated March 21, 1997 among the Company,
Litchfield Capital Corporation, Eaglefunding Capital Corporation and
The First National Bank of Boston, as deal agent.
(xiv) The following exhibits are incorporated by reference to the Company's
Registration Statement No. 333-37963, as amended, filed with the
Securities and Exchange Commission (exhibit numbers indicated below
correspond to those exhibits originally filed with
such Registration Statement No. 333-37963):
4.7 Form of Indenture pursuant to which the Company's 8.45% Notes were
issued.
4.8 Form of 8.45% Note due 2002
B. Exhibits filed with this Report on Form 10-K.
The following exhibits are filed herewith:
10.159 Ground and building lease, dated May 28, 1997, between the Company and
David Mandelbaum, as Trustee, for Williamstown Property Trust.
10.160 Indenture of Trust dated as of June 1, 1997, between Litchfield
Hypothecation Corporation and The Chase Manhattan Bank.
10.161Servicing agreement dated as of June 1, 1997 among the Company,
Litchfield Hypothecation Corporation and The Chase Manhattan Bank.
10.162Indenture of Trust dated as of August 1, 1997 between Litchfield
Hypothecation Corporation 1997-B and The Chase Manhattan Bank.
10.163Servicing agreement dated as of August 1, 1997, among the Company,
Litchfield Hypothecation Corporation 1997-B and The Chase Manhattan
Bank.
10.164 Amendment No. 4 to Receivables Purchase Agreement dated September
29, 1995, dated as of November 27, 1997 among the Company,
Litchfield Mortgage Securities Corporation
1994, Holland Limited Securities, Inc. and
ING Barings (U.S.) Capital Markets, Inc.
10.165 Amendment No. 4 to Receivables Loan Agreement dated September 29,
1995, dated as of November 27, 1997 among the Company, Litchfield
Mortgage Securities Corporation 1994,
Holland Limited Securities, Inc. and ING Barings (U.S.) Capital
Markets, Inc.
10.166 Employment agreement, dated as of January 1, 1998, between the Company
and John J. Malloy.
11.1 Statement Re: Computation of Earnings per Share.
13.1 Annual Report to Stockholders for the Year Ended December 31,
1997.
21.1 List of Subsidiaries.
23.1 Consent of Independent Auditors.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
None
(c) Exhibits required by Item 601 of Regulation S-K
Such exhibits are either filed herewith or incorporated by reference, as
described above.
(d) Financial Statement Schedules.
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and therefore have been omitted.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LITCHFIELD FINANCIAL CORPORATION
/s/ Richard A. Stratton
RICHARD A. STRATTON
Chief Executive Officer and Director
March 27, 1997
/s/ Ronald E. Rabidou
RONALD E. RABIDOU
Chief Financial Officer
March 27, 1997
/s/ David M. Pascale
DAVID M. PASCALE
Chief Accounting Officer and Controller
March 27, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ John Costa /s/ Heather Sica
JOHN COSTA HEATHER A. SICA
Director Executive Vice President and Director
March 27, 1997 March 27, 1997
/s/ Donald R. Dion, Jr. /s/ Richard A. Stratton
DONALD R. DION, JR. RICHARD A. STRATTON
Director Chief Executive Officer and Director
March 27, 1997 March 27, 1997
/s/ David J. Ferrari /s/ James Westra
DAVID J. FERRARI JAMES WESTRA
Director Director
March 27, 1997 March 27, 1997
/s/ Gerald Segel
GERALD SEGEL
Director
March 27, 1997
<PAGE>
Exhibit 10.159
GROUND AND BUILDING LEASE
LEASE dated as of May 28, 1997 between DAVID MANDELBAUM, as he is Trustee
of WILLIAMSTOWN PROPERTY TRUST under Declaration of Trust dated June 10, 1968
and recorded with Berkshire Northern District Registry of Deeds, having a
principal office at Mandelbaum & Mandelbaum, 80 Main Street, West Orange, New
Jersey, 07052 ("Landlord") and LITCHFIELD FINANCIAL CORPORATION, a
Massachusetts business corporation having a principal office in Stamford,
Vermont ("Tenant").
PRELIMINARY STATEMENT
Landlord is the owner of the land located at Route 2, Williamstown,
Massachusetts described on Exhibit A attached hereto (the "Land"). Tenant
desires to lease the Land and the existing buildings on the Land
("Buildings"), for use by Tenant or a any sublessee for any lawful business
purpose including, without limitation, financial and general business office
purposes and accessory and related purposes thereto ("Allowed Uses"). The
Land and the Buildings are collectively referred to herein as the "Premises".
IT IS THEREFORE AGREED AS FOLLOWS:
1. LEASE OF THE PREMISES. Landlord hereby leases to Tenant and
Tenant hereby leases from Landlord for the Term specified in Section 2
and the Rental specified in Section 3, the Premises.
2. TERM.
2.1 Definitions. As used herein, the following terms shall
have the meanings indicated:
2.1.1 "Commencement Date" shall mean June 1, 1997.
2.1.2 "Lease Year" shall mean the period of twelve (12)
consecutive months commencing on the Commencement Date and each succeeding
12-month period.
2.1.3 "Partial Lease year" shall mean, in the event of
termination of this Lease on a date other than the last day of any Lease
year, the period from the Commencement Date of anniversary of the
Commencement Date, as the case may be, through the date of termination. For
any Partial Lease Year, Rental (as defined in Section 3) shall be prorated on
a per diem basis using a 365-day year.
2.2 Initial Term. The initial term of this Lease (the "Initial
Term") shall commence on the Commencement Date and shall continue for a
period of ten (10) Lease Years.
2.3 Extension Terms. Tenant shall have the right to extend the term
of this Lease for two (2) additional consecutive ten (10) year terms
("Extension Terms"). Tenant may exercise its right to extend the term of this
Lease by giving Landlord written notice on or before the date six (6) months
prior to the expiration of the immediately preceding term of this Lease. The
term of this Lease (the "Term") shall refer to and include the Initial Term
and any Extension Terms unless otherwise required specifically or by context.
Upon the timely giving of such notice, the Term of this Lease shall be
extended, as aforesaid, without the need for further act of deed of either
party. Each such Extension Term shall be upon the same terms and conditions
of the Lease in effect during the Initial Term, except that Rental payable
during each year of each Extension Term shall be determined as set forth in
Section 3.
3. RENTAL. Tenant shall pay Landlord Rental as follows (as used
herein, "Rental" shall mean Basic Rental and Additional Rental as defined
in this Section 3):
3.1 Basic Rental. During the Initial Term, Tenant shall pay Landlord
a fixed annual rental for each Lease Year of the Initial Term ("Basic
Rental") of Twenty Thousand Four Hundred Twenty Five Dollars ($20,425), per
annum payable in advance in monthly installments of One Thousand Seven
Hundred and Two Dollars and Eight Cents ($1,702.08) on the first day of each
month.
3.2 Rent Adjustment - Extension Terms. The Basic Rental for the
first year of the first Extension Term (being the 11th year of the Lease)
shall be increased to Twenty-Seven Thousand Four Hundred Forty-Seven Dollars
($27,447), effective on the anniversary of the Commencement Date. Thereafter,
the Basic Rental for each year of each Extension Term shall be increased by
an amount equal to the change in the Consumer Price Index from the previous
anniversary date. Provided, however, the Basic Rental for each year after the
11th year of the lease shall be increased by an amount not less than 3% per
year and not exceeding 6% over the Basic Rental of the prior year. The
minimum and Maximum rents for years 12 through 20 and years 21 through 30 are
shown on Exhibit B. Exhibit B is incorporated herein by reference.
3.3 Additional Rental. Intending that this Lease be "triple net",
so-called, during the Term, Tenant shall pay to or on behalf of the Landlord
as additional rental (the "Additional Rental") the amounts specified in this
Section 3.3. Additional Rental to be paid to or on behalf of the Landlord
shall be paid within fifteen (15) days after Landlord shall give Tenant an
invoice specifying the Additional Rental due.
3.3.1 Taxes. Commencing as of the Commencement Date, and
continuing thereafter throughout the term of this Lease, Tenant shall pay to
the taxing authority all real estate taxes assessed or imposed on the
premises, including any special assessments or betterments, which become due
and payable in respect of each fiscal/tax year occurring during the term of
this Lease. Such payments by Tenant shall be made on or before any payments
are due and payable to the taxing authority without interest or penalty.
3.3.1.1 Proration of Taxes. Tenant's payment of
real estate taxes shall be prorated for periods at the beginning (i.e.., in
respect of the fiscal/tax year in which the Commencement Date occurs) and end
of the Term which do not constitute full fiscal/tax years.
3.3.1.2 Tenant's Right to Contest Assessed
Valuation of Premises. Tenant may require Landlord, at Tenant's cost and
expense, to appeal or contest any tax assessment for which Tenant is
responsible through all administrative and judicial tribunals having
jurisdiction in real estate tax appeal cases. If Landlord shall fail or
refuse, upon the request of Tenant, to take any necessary steps to contest
the validity or amount of the real estate taxes or of the assessed valuation,
Tenant may undertake, by appropriate proceedings in the name of Landlord or
Tenant, to contest the same. Within a reasonable time after demand therefor,
Landlord shall execute and deliver to Tenant any documents which re required
to enable Tenant to prosecute any such proceeding. If an abatement is
obtained, the costs incurred by either party shall first be reimbursed out of
abatement proceeds; Tenant shall be entitled to receive the remainder of said
abatement proceeds relating to the fiscal/tax years occurring during the term
of the Lease.
Landlord recognizes that the Premises are in an Economic Opportunity Area
as that term is described in 402 CMR 2.00 et seq. As a result, Tenant is
eligible to apply through the Town of Williamstown for Tax Increment
Financing as described in 751 CMR 11 et seq. Tenant may require Landlord, at
Tenant's cost and expense, to apply or cooperate in Tenant's application for
Tax Increment Financing or any other benefit available because the Premises
are within an Economic Opportunity Area. Within a reasonable time after
demand therefor, Landlord shall execute and deliver to Tenant any documents
which are required to prosecute such application. If Landlord shall fail or
refuse, upon request of Tenant, to take any steps to apply for and obtain Tax
Increment Financing, Tenant may undertake such steps in the name of Landlord
or Tenant to complete such application and obtain such benefits.
3.3.2 Utilities. Tenant shall be solely responsible for and
promptly pay all charges for utilities used on the Premises, including,
without limitation, heat, electricity, oil and water.
3.3.4 Maintenance. The Tenant shall be solely responsible for
the maintenance of the Premises, including snow removal, sweeping and
striping of parking lots and maintenance of the Buildings and any
improvements made thereto by Tenant, all of which shall become the property
of the Landlord at the expiration of the term.
3.4 Late Payment. In the event that Tenant shall be more than five
(5) days late in the payment of Rental there shall be charged a late fee of
5% or any unpaid Rental.
4. INSURANCE; MUTUAL WAIVER OF SUBROGATION; RISK OF LOSS.
4.1 Tenant's Insurance. During the Term, Tenant shall maintain with
respect to the Premises, public liability insurance with a minimum combined
single limit of $1,000,000 per occurrence of bodily injury of death and
$1,000,000 for property damage with Landlord listed as an additional insured.
In addition, Tenant shall maintain fire and extended coverage insurance on
the Building in an amount which shall be adjusted annually to equal the full
replacement cost of the Building, naming the Landlord as additional insured.
Tenant shall provide Landlord with certificates or other evidence of such
insurance acceptable to Landlord. Each insurance policy maintained by Tenant
shall contain a provision that it cannot be canceled without at least 20
days' prior notice to Landlord.
4.2 Tenant's Risk of Loss. All property of any kind that may be on
the Premises shall be at the sole risk of Tenant, and Landlord shall not be
liable to Tenant or any other persons for any injury, loss or damage to any
persons or property on the Premises from causes other than Landlord's
omission, fault, negligence or other misconduct. Landlord shall not be liable
for any damage to persons or property by water, which may be sustained by
reason of breakage, leakage, or obstruction of any pipes or other leakage in
or about the Premises arising from causes other than Landlord's omission,
fault, negligence or other misconduct.
5. ACCESS TO THE PREMISES. Landlord and its agents shall have the right to
enter into and upon the Premises, or any part thereof, at all reasonable
times upon reasonable prior advance notice (except that no notice shall be
required in an emergency) and subject to Tenant's security and
confidentiality requirements and provided Landlord does not unreasonably
interfere with Tenant's business, for any of the following purposes: (a) to
determine the condition of the Premises and whether Tenant is complying with
Tenant's obligations under this Lease; (b) to perform any repair permitted
hereunder; or (c) to show the Premises to prospective tenants within the last
six (6) months of the Initial Term in the event that Tenant has not exercised
the option for the applicable Extension Term. In exercising any rights of
access to the Premises, Landlord shall use reasonable efforts to minimize any
interference with Tenant's use of the Premises.
6. TENANT'S ALTERATIONS. Tenant shall be entitled to make such
improvements, alterations (structural or otherwise), restorations, changes,
replacements, installations, enlargements or additions to the Premises as
Tenant deems necessary or desirable ("Improvements"), provided that all
Improvements shall require the prior consent of Landlord, which consent shall
not be unreasonably withheld or delayed. Prior to the Commencement Date,
Tenant shall obtain or cause to be obtained all building permits, licenses,
variances and other governmental approvals which may be required in
connection with the making of Improvements ("Approvals"). Landlord shall
cooperate with Tenant in the obtaining of Approvals and shall execute any
documents required in furtherance thereof. All Improvements constructed or
installed on the Premises by Tenant at any time prior to the expiration or
earlier termination of this Lease shall be the property of the Tenant. Upon
the expiration or earlier termination of this Lease, title to the
Improvements shall vest in Landlord so that the Improvements and the entire
Premises shall vest in Landlord without notice or execution of further
instruments and without cost, expense or obligation of any kind or nature to
Landlord. Any trade fixtures or unaffixed personal property owned by Tenant
shall remain the property of Tenant; provided that if Tenant shall make any
Improvements to accommodate such fixtures or property, Tenant must restore
the Premises to its original condition with respect to such Improvements
prior to removing any such fixtures or property.
7. MECHANICS' LIENS. If any mechanics' or materialmens' lien shall be
filed against the Premises as a result of any work or act of Tenant, Tenant
shall discharge the lien within thirty (30) days after the filing of the
lien. If Tenant shall fail to discharge the lien as required by this Section
7, Landlord shall be entitled to bond or pay the lien or claim for the
account of the Tenant, without inquiring into the validity thereof, and all
costs incurred by landlord to bond or pay to discharge the lien shall be paid
by Tenant upon demand and shall be treated in the same manner as rent in
arrears.
8. COMPLIANCE WITH LAW; MAINTENANCE; ETC. Tenant hereby covenants
and agrees that:
8.1 Use of Premises; Compliance with Law. Tenant shall (a) unless
otherwise agreed to by Landlord, use the Premises only for the allowed Uses,
(b) observe and comply with all applicable present and future laws,
ordinances, requirements, orders, directives, rules and regulations of
federal state, city and town governments pertaining to such Allowed Uses,
and, (c) prior to the Commencement Date, obtain at Tenant's own expenses
every permit, license or certificate required for Tenant's operation at the
Premises by any governmental agency having jurisdiction thereon.
Prior to the Commencement Date, Tenant shall receive a satisfactory review
of (a) the zoning laws and regulations applicable to the Premises or to any
proposed use of the Premises by Tenant and (b) any permits, licenses or
certificates issued to Landlord or Assignor by any governmental agency having
jurisdiction upon the Premises.
Prior to the Commencement Date, Tenant shall obtain a satisfactory review
of (a) Landlord's title to the Premises, and (b) proof by survey of the
boundaries of the Premises and any easements, covenants or restrictions which
burden the Premises. Tenant will not use, or permit the use of, the Premises
for any improper, offensive or unlawful purpose. Tenant will observe and
comply with all applicable present and future laws, ordinances, requirements,
orders, directives, rules and regulations of federal, state, city and town
governments relating to the operation or occupancy of the Premises.
8.2 Maintenance and Repair. Tenant shall, at Tenant's own expense,
(a) make all necessary interior repairs in and to the Premises, (b) make any
and all replacements of plate door, window and any other glass (with glass of
the same kind and quality), whether interior or exterior, which shall become
broken by any means whatsoever, (c) make any and all repairs to or
replacements of the Mechanical Systems servicing the Premises, (d) perform
all necessary exterior maintenance and repairs (including structural repairs)
to the Premises and all other improvements on the Premises (including,
without limitation, maintenance and repair of access roads, driveways,
parking lots, loading areas, landscaped and planted areas, lighting fixtures
and pedestrian sidewalks,), (e) provide adequate policing, sanding, sweeping,
cleaning and such other acts as may be necessary to keep the access roads,
driveways, parking lots and sidewalks in a safe, clean and sanitary
condition, (e) remove all snow, ice and other obstructions from the access
roads, driveways, parking lots and sidewalks, (f) make all other repairs and
tenantable condition, reasonable and ordinary wear and tear and damage by
fire and other casualty excepted, and all repairs, alterations and
modifications required by any governmental laws, ordinance or regulation, (g)
not permit, suffer of commit any waste of, or nuisance on, the Premises, (h)
not permit any act or thing to be done on the Premises which may void any
insurance carried by Landlord on the Premises and (i) upon expiration of the
Term or earlier termination of this Lease, vacate the Premises, remove all
Tenant's goods and effects, and leave the Premises in good repair and
tenantable condition, reasonable and ordinary wear and tear, and damage by
fire and other casualty excepted. If Tenant shall fail to make repairs and
replacements as required by this Section 8.2 within thirty (30) days after
Landlord shall give Tenant notice demanding that such repairs and
replacements be made, Landlord shall be entitled to make such repairs and
replacements and all costs incurred by Landlord to make such repairs and
replacements shall be paid by Tenant upon demand and shall be treated in the
same manner as rent in arrears.
8.3 Indemnification. Tenant shall indemnify and hold Landlord
harmless from and against all costs, losses, damages, liabilities and
expenses (including reasonable attorneys' fees), arising out of or based upon
(i) damage to property or injury to persons resulting from any accident or
other occurrence in the Premises (ii) damage to property or injury to persons
outside of the Premises to the extent caused by the negligence of the Tenant
or its agents, servants, or employees; provided, however, in any such
instances, the Tenant shall no be deemed to be required to indemnify and hold
Landlord harmless with respect to any damage to property of injury to persons
to the extent caused by the negligent act or omission or willful misconduct
of the Landlord, its agents, servants, employees or contractors.
9. ENVIRONMENTAL MATTERS.
9.1 Site Assessment. Prior to the Commencement Date, Tenant shall
obtain a satisfactory site assessment, including such subsurface inspection
or testing as Tenant deems appropriate to determine that the Premises are
free from environmental contamination, addressed to Landlord and Tenant.
9.2 Environmental Indemnification. Contingent upon Tenant's delivery
to Landlord of the site assessment referred to in paragraph 9.1 above, which
site assessment shall in all respects be satisfactory to Landlord, Landlord
shall indemnify and hold Tenant harmless for any (a) "releases" or unlawful
"threats of release" on the Premises of any "hazardous materials" or "oils"
(as such terms are defined in the Massachusetts Oil and hazardous Material
Release Prevention and Response Act, Chapter 21E of Massachusetts General
Laws, as amended ("Chapter 21E"), or (b) violations of any and all applicable
federal, state and municipal statutes, ordinances, by-laws, rules and
regulations relating to the environment, including, without limitation,
Chapter 21E, the Federal Resource Conservation and Recovery act, the
Massachusetts Hazardous Waste Management Act, the Federal Water Pollution
Control Act, the Federal Clean Air Act and the Massachusetts Wetlands
Protection Act, occurring at or about the Premises and predating the
execution of this Lease.
9.3 Environmental Conditions. Without limiting the any of the
provisions of this Section 9.3, Tenant shall (a) not "release" or cause any
unlawful "threat of release" on the Premises of any "hazardous materials" or
"oils" (as such terms are defined in the Massachusetts Oil and Hazardous
Material Release Prevention and Response Act, chapter 21E of Massachusetts
General laws, as amended (Chapter 21E")), (b) not receive notice from the
Massachusetts Department of Environmental Protection or any other
governmental authority claiming violation on the Premises of Chapter 21E or
any similar law dealing with hazardous materials or oils, (c) not incur
during the Term any liability to the Commonwealth of Massachusetts under
Chapter 21E on the Premises, (d) maintain and use the Premises, at Tenant's
own expense, in accordance with all applicable federal, state and municipal
statutes, ordinances, by-laws, rules and regulation relating to the
environment, including, without limitation, Chapter 21E, the federal Resource
Conservation and Recovery Act, the Massachusetts Hazardous Waste Management
Act, the Federal Water Pollution Control Act, the Federal Clean Air Act and
the Massachusetts Wetlands Protection Act.
10. DESTRUCTION BY FIRE OR OTHER CASUALTY. In the event that:
(a) the Buildings shall be damaged by fire or other casualty to the
extent of 25% or more of the cost of the replacement thereof; or
(b) the Buildings shall be damaged in whole or in part during the last two
years of the Initial Term or any Extension Term; then, in any such event
(referred to herein as "Substantial Destruction"), Tenant shall have the
right to terminate this Lease by notice given to Landlord within sixty (60)
days after such event, and upon the date specified in such notice (which date
shall not be less than thirty (30) days after the giving of said notice), (i)
this Lease shall terminate, (ii) Tenant shall vacate and surrender the
Premises to Landlord, and (iii) all insurance proceeds payable on the
Premises shall be applied first to refund to Tenant any rental paid for any
period subsequent to such Substantial Destruction, and the balance of such
proceeds shall belong to Landlord. If Tenant shall not elect to terminate
this Lease, Tenant shall restore Landlord. If Tenant shall not elect to
terminate this Lease, Tenant shall restore the Premises as nearly as possible
to the condition they were in prior to the Substantial Destruction. Tenant
shall commence restoration of the Premises upon receipt of the insurance
proceeds and the Basic Rental shall be reduced for the period when the
Premises are unrestored in the same proportion that the floor area of the
unrestored portion of the Premises bears to the total floor area of the
Premises prior to such damage. In the event that the Premises are damaged but
not the extent of Substantial Destruction, the Premises shall be restored and
insurance proceeds applied as provided herein without any rebate of Rental.
11. EMINENT DOMAIN.
11.1 Total Condemnation. If during the Term all of the Premises is
taken for, or damages as a result of, any public or quasi-public use under
any statue, or by the right of eminent domain whether by a condemnation
proceeding or otherwise, or any transfer of all of the Premises is made in
avoidance of the exercise of the power of eminent domain (referred to below,
in any such event, as a "Taking"), then this Lease shall terminate on the
date that possession of the Premises is taken, and the rent and other charges
provided herein to be paid by Tenant shall be apportioned and paid by Tenant
through such termination date. In the event of a Taking of any part of the
Premises such termination date. In the event of a Taking of any part of the
Premises either party may elect to terminate this Lease by giving written
notice to the other, and the Term shall expire and come to an end as of the
last day of the calendar month in which such notice is given. Upon such
termination, the rent shall be adjusted to the date of termination and
neither party shall have any further rights or liabilities hereunder. The
total award or payment made in such proceeding or in lieu of settlement
thereof (referred to below, in any such event, as an "Award") shall be
divided between Landlord and Tenant in the manner set forth below. the
parties shall be in good faith attempt to agree upon the division of the
Award within the thirty (30) days immediately following the date of the
determination of the amount of the Award. In the event of a Taking resulting
in the termination of this Lease pursuant to the provisions of this Section,
the parties hereto agree to cooperate in applying for and in prosecuting any
claim for such Taking and further agrees that is there is one (1) award
covering both Landlord's and Tenant's interests in the Premises that the
aggregate net award, after deducting the reasonable expenses of Landlord, and
Tenant, including attorneys' fees, incurred in connection therewith, shall be
distributed as follows, and in the following order of priority:
(i) Landlord shall be entitled to an amount equal to the
value, on the vesting date, of the land taken as improved as to building,
parking and utilities and available for its best of most economic use as of
the Commencement Date, giving effect to the existence of this Lease.
(ii) Tenant shall be entitled to an amount of the award equal
to the then fair market value of the improvements erected by or for Tenant.
For such purposes the fair market value of Tenant's improvements shall mean
the product of (a) the sum of one hundred (100%) percent of all of Tenant's
costs and expenses in construction of the Premises as certified from time to
time by Tenant, including the cost of labor and materials; architectural,
engineering and permit fees; attorneys' fees; title insurance premises, (b) a
fraction, the numerator of which shall be the number of years or part thereof
between the vesting date pursuant to the Taking and the Expiration Date and
the denominator of which shall be the Term. For purposes hereof, the Term
shall be determined as if the Lease had been renewed by Tenant for all of the
Extension Terms.
(iii) Landlord and Tenant shall be entitled to the
balance of the award, 50-50.
11.2 (i) In the case of a Taking of less than substantially all of
the Premises and if this Lease is not terminated as provided in Section (a)
hereof, Tenant, at its expense, shall proceed with diligence to repair or
reconstruct the Premises to a complete architectural unit or units (all such
repairs, reconstruction and work being referred to in this Section as
"Tenant's Reconstruction Work") and the award in the condemnation proceedings
allocable to the Premises (hereinafter called "Tenant's Award"), after
deduction of the expenses of Landlord, and Tenant incurred in connection with
the Taking, shall be made available to Tenant for purposes of paying the cost
and expense of the Reconstruction Work.
(ii) Neither party shall, without the consent o the other
party hereto, make any settlement with the condemning authority of convey any
portion of the Premises or building to such authority in lieu of condemnation
or consent to any Taking.
11.3 In the event of a temporary Taking of all or any portion of the
Premises, this Lease shall not terminate and Tenant shall continue to perform
and observe all of its Obligations as though the Taking had not occurred,
except only to extent that Tenant may be prevented from doing so by the terms
of the order of the authority which made the Taking. In the event of such
Taking, Tenant shall be entitled to receive the entire amount of any Award
therefor, whether paid by way of damages, rent or otherwise, unless the
period of governmental occupancy extends beyond the termination of the Term
(as same may be extended), in which case the amount of the Award, after
payment to Landlord therefrom of the estimated cost of restoration of the
Premises, shall be considered as rent from the Taking authority for the
entire period of its occupancy and shall be apportioned between Landlord and
Tenant as of the rate of such termination.
11.4 If the parties are unable to agree upon the division of the
total Award within the prescribed time, then such division shall be
determined by arbitration in accordance with Massachusetts General Laws
Chapter 251. The cost of the arbitration shall be paid by the parties in
equal shares.
12. ASSIGNMENT; SUBLETTING. Tenant may at any time, and from time to time,
assign its interest in the Lease, in the Premises, or sublease, or permit the
occupancy of, all or any part of the premises, without Landlord's consent to
any successor in interest of Tenant or to any present or future parent,
affiliated or subsidiary corporation or other entity, whether direct or
indirect, and whether arising pursuant to a sale of stock, sale of assets,
merger, consolidation or otherwise ( the aforesaid permitted assignees and
sublessees are hereinafter collectively referred to as the "Related
Parties"). Tenant agrees to promptly notify in writing Landlord of any such
assignment or subletting. Tenant agrees not to assign its interest in this
lease or in the Premises to any third party (other than Related Parties)
without first obtaining Landlord's written consent, which consent shall not
be unreasonably withheld or delayed. Tenant may sublet the Premises, or
portions thereof, without Landlord's prior written consent, upon written
notice to Landlord. No permitted assignment or subleasing will in any way
affect of reduce any of the obligations of Tenant under this Lease.
13. ATTORNMENT; SUBORDINATION; REMEDIES.
13.1 Attornment. In the event of (a) a sale, transfer or assignment
of Landlord's interest in the Premises, or (b) any proceedings that are
brought for the foreclosure of, or for the exercise of any power of sale
under, any mortgage made by Landlord covering the Premises or any part
thereof, Tenant agrees to attorn to and to recognize such transferee,
purchaser or mortgagee as Landlord under this Lease.
13.2 Collateral Assignment; Subordination. Tenant shall, upon the
written request of Landlord, enter into a written agreement with any bank,
trust company or other lending institution or individual ("Bank") which shall
provide that, upon the request of Bank, Tenant shall make all payments of
Rental and other sums thereafter due under this Lease directly to Bank.
tenant shall, upon notice from Landlord, (a) agree that this Lease shall be
subject and subordinate to any mortgage or deed of trust granted to a Bank
with respect to the Premises and (ii) agree upon request to execute,
acknowledge and deliver at any time hereafter, any and all instruments which
the Landlord may deem necessary to acknowledge this subordination, provided
however, that Landlord shall furnish to Tenant from the holder of any
mortgage to which this Lease is or may hereafter become subject and
subordinate, as a condition thereof, an agreement reasonably acceptable to
Tenant whereby such holder agrees, regardless of the foreclosure of such
mortgage or any other enforcement of the holder's rights thereunder, to
recognize Tenant's right under this Lease and not to disturb Tenant's use and
occupancy of the Premises hereunder so long as no Default (as defined in
Section 15) remains outstanding.
13.3 Remedies. Failure of Tenant to execute any of the above
instruments within thirty (30) days after notice, shall constitute a breach
of this Lease and Landlord shall in such event have the right, at its option,
to cancel this Lease and terminate Tenant's interest hereunder.
14. HOLDOVER. Should Tenant remain in possession of the Premises after the
expiration of the Term, or any extension thereof, such holding over shall be
deemed to have created and construed to be a tenancy from month to month on
the terms and conditions set forth in this Lease. Monthly rent during such
holdover period shall be equal to the monthly rent due and payable by Tenant
to Landlord immediately prior to the expiration of the term of this Lease.
15. DEFAULT; REMEDIES.
15.1 Default. For purposes of this Section 15, a "Default"
shall mean:
(a) default in the payment of Rental or other costs to be paid by
Tenant, if such default shall continue for seven (7) days after default
notice by Landlord to Tenant, provided, however, that Landlord shall be
obliged to provide Tenant with only one (1) such payment default notice per
calendar year; and
(b) any other default by Tenant under this Lease if such default
shall continue for a period of fifteen (15) days after default notice form
landlord to Tenant; provided, however, if Tenant could not with reasonable
diligence cure such default within said 15-day period but shall have
commenced in good faith curing such default within such 15-day period, and
proceeded with reasonable diligence, Tenant shall have a reasonable time to
cure such default.
15.2 Remedies. In the event (a) of any Default under this Lease, (b)
the estate hereby created in Tenant shall be taken by process of law, (c)
Tenant shall file a voluntary petition in bankruptcy, (d) any involuntary
petition initiating a bankruptcy proceeding shall be filed against Tenant and
is not dismissed within 60 days, (e) Tenant shall make an assignment for the
benefit of creditors or take the benefit of any insolvency law, or (f) a
receiver shall be appointed for Tenant (any Default and the occurrence of any
of the events referred to in paragraphs (b) through (f) of this Section 15.2
being hereinafter referred to as an "event of Default"), then Landlord shall
have all of the following rights:
(i) At Landlord's option, to elect to declare the entire Rental for the
balance of the Term or any part thereof due and payable forthwith.
(ii) To collect or bring action for the whole Rental or such part thereof
as aforesaid, as being rent in arrears or file proofs of claim in any
bankruptcy or insolvency proceedings for such Rental, or institute any other
proceedings to enforce payment thereof.
(iii) To re-enter and repossess the Premises or any part thereof and
attempt to relet all or any part of the Premises for the account of Tenant
for such rental and upon such terms and to such persons, firms or
corporations and for such period or periods as Landlord, in its sole
discretion, shall determine, including a term beyond the termination of this
Lease, and Landlord shall not be required to accept any tenant offered by
Tenant or observe any instructions given by Tenant about such reletting, or
do any act or exercise any care for diligence with respect to such reletting
or the mitigation of damages for the purpose of such reletting. Landlord may
make such repairs, changes, alterations or additions in or to the Premises to
the extent Landlord shall deem desirable or convenient, and the cost of such
repair, changes, alterations or additions, as well as any reasonable
brokerage and legal fees expended by Landlord in connection as any reasonable
brokerage and legal fees expended by Landlord in connection with a reletting,
shall be charged to and be payable by Tenant as additional rent hereunder,
and any sums collected by Landlord from any new tenant shall be credited
against the balance of the Rental due hereunder as aforesaid.
(iv) To give Tenant notice that this Lease shall cease and expire and
become absolutely void on the date specified in such notice, which shall not
be less than five (5) days after the date of such notice, and thereupon this
Lease shall terminate with the same force and effect (except as to Tenant's
liability) as if the date fixed in such notice were the date herein specified
for the expiration of the Term.
16. SIGNS.
16.1 Permitted Signs. Subject to applicable governmental regulations
and permits, Tenant shall have the right to erect any signs on the Premises
or to affix any signs to the outside of the Buildings. The erection or
affixation of such signs by Tenant shall be subject to Landlord's approval,
which approval shall not be unreasonably withheld. Said signs (including the
sign boxes) and affixed designed features shall, at all times, remain the
personal property of Tenant, may be removed by Tenant at any time during the
Term, and shall be removed by Tenant upon the expiration or earlier
termination of this Lease, unless otherwise agreed by Landlord and Tenant.
Upon Tenant's removal of any such signs, Tenant shall repair the Premises to
the condition they were in prior to the erection or affixation of such signs.
17. TENANT'S RIGHT OF FIRST REFUSAL. If at any time during the term of the
Lease, Landlord shall desire to sell the Premises (other than a transfer
among present partners of Williamstown Property Trust and their families),
Tenant shall have a right to first refusal to purchase the same, to be
exercised as follows:
In the event Landlord shall receive any offer for the purchase or
conveyance of the Premises, or transfer of Landlord's interest in the
Premises to a person, firm or entity including, without limitation,
subsidiaries or affiliates of Landlord (the "bona fida third party
prospective purchaser"), which offer Landlord is prepared to accept (the
"Acceptable Offer"), Landlord shall immediately notify Tenant in writing of
the receipt of the Acceptable Offer, stating the following terms and
conditions of sale: quality of title, form of deed, purchase price, method of
payment, amount of deposit, time and place of closing, condition of premises,
extension to perfect title or make Premises conform, adjustments, persons to
hold deposit, and remedies in case of default (the "Landlord's Notice").
Tenant may exercise its right of first refusal to purchase the Premises upon
the same terms and conditions contained in the Acceptable Offer by sending
written notice of the exercise of its right of first refusal to Landlord
within thirty (30) days after Tenant's receipt of Landlord's Notice. Landlord
and Tenant shall enter into a purchase and sale agreement in a form mutually
acceptable to their respective attorneys within thirty (30) days of Tenant's
exercise of the herein right of first refusal. If Tenant shall fail to
exercise its right of first refusal by giving Landlord the notice required
hereunder, Landlord may sell the Premises to said bona fide third party
prospective purchaser upon the same terms and conditions as offered to
Tenant. Notwithstanding anything to the contrary herein contained, in the
event Landlord and said bona fide third party prospective purchaser fail to
consummate the sale of the Premises, then immediately upon Landlord's receipt
of any subsequent offer by the same bona fide third party prospective
purchaser, or any other bona fide third party prospective purchaser, Landlord
shall notify Tenant as aforesaid and Tenant shall have a right of first
refusal with respect to such subsequent offers as aforesaid. The provisions
of this Section 17 shall not be construed to apply to bona fide mortgages to
recognized lending institutions of the demised premises, or any part thereof,
or to sales or other proceedings for the foreclosure thereof. In no event
shall Tenant be required to purchase the Premises together with any other
property.
In the event Tenant purchases the Premises and takes title thereto in
accordance with this Section 17 pursuant to a Landlord's Notice given to
Tenant during the Initial term or first Extension Term, then, upon payment of
the purchase price in full Landlord shall pay a broker commission of five
(5%) percent of the purchase price to Harsch Associates.
18. NON-WAIVER. The failure on the part of Landlord to act upon a breach
of any of the covenants or agreements in this Lease shall in no way
constitute a waiver of the rights of Landlord to act upon such breach any
item in the future or to act upon any other or future breach of Tenant. Any
and all rights and remedies created for Landlord herein shall be cumulative
and the use of one remedy shall not be taken to exclude the right to use any
other.
19. SEVERABILITY. If any provision of this Lease shall be deemed invalid
or unenforceable, the balance of this Lease shall remain in effect; and if
any provision shall be deemed inapplicable to any person or circumstances, it
shall nevertheless be construed to apply to all other persons and
circumstances.
20. LANDLORD AND TENANT RELATIONSHIP. It is understood and agreed that
Landlord shall never be treated as a partner or associate of Tenant in the
conduct of Tenant's business, nor shall Landlord be liable for any debts
incurred by Tenant in the conduct of Tenant's business or otherwise; it is
understood that the relationship is and at all times shall remain that to
Landlord and Tenant.
21. DEFINITION OF LANDLORD; LIABILITY OF LANDLORD. The term "Landlord" as
used in this Lease means only the owner or the mortgagee in possession for
the time being of the Premises, so that in the event of any sale of the
Premises or any assignment of this Lease, Landlord named herein shall be and
hereby is entirely relieved of all obligations of Landlord hereunder and it
shall be deemed without further agreement between the parties and such
purchaser(s) or assignee(s) that the purchaser(s) or assignee(s) have assumed
and agreed to observe and perform all obligations of Landlord hereunder; it
being understood that the provisions of the preceding sentence shall be
applicable to any successor Landlord. Notwithstanding anything to the
contrary provided in this Lease, if Landlord or any successor in interest of
Landlord shall be a mortgagee, or an individual, joint venture, tenancy in
common, firm or partnership, general or limited, there shall be no personal
liability on the part of Landlord or such mortgagee or individual, or on the
part of any member of such joint venture, tenancy in common, firm or
partnership, with respect to any of the Lease Provisions; and in all events,
irrespective of who or what person(s) or entity(ies) comprise Landlord,
Tenant shall look solely to the equity of Landlord (or of such successor in
interest) in the Premises for the satisfaction of each and every remedy of
Tenant in the event of any breach by Landlord or by such successor in
interest of any of the Lease Provisions, such exculpation of personal
liability to be absolute and without any expectations whatsoever (provided,
however, Landlord agrees for itself, its successors and assigns that the
Landlord shall not encumber the Premises or permit the encumbrance of the
Premises with any mortgage, lien or other debt in an amount in excess of, in
the aggregate, fifty (50%) percent of its then fair market value; for the
purposes of this Section 21 "fair market value" shall mean the value of the
Premises as determined by an appraisal by a real estate appraiser having the
designation Member of the Appraisal Institute which appraisal shall be at the
sole expense of Landlord.
22. INTEGRATION; MODIFICATION. This Lease contains a complete
statement of all representations, warranties, covenants and agreements by
and between the parties with respect to the Premises and cannot be
modified except by written agreement signed by both Landlord and Tenant.
23. SUCCESSORS. This Lease shall be binding upon and inure to the
benefit of the parties hereto, their heirs, successors, legal
representatives and assigns.
24. GOVERNING LAW; EFFECT. This Lease shall be governed by and construed
in accordance with the substantive law of the Commonwealth of Massachusetts,
without giving effect to the conflicts or choice of law provisions of
Massachusetts or any other jurisdiction, and shall have the effect of a
sealed instrument.
25. RECORDING. Tenant shall not record this Lease. The parties
will, at the request of either, enter into a short form notice of lease,
in a form suitable for recording.
26. NOTICE. Any notice, approval, consent or other communication under
this Lease shall be in writing and shall be considered give when (a)
delivered personally, (b) mailed by registered or certified mail, return
receipt requested, or (c) transmitted by telecopy with a confirming copy sent
by overnight mail or courier service, to the parties at the addresses
indicated below (or at such other address as a party may specify by notice to
the others pursuant hereto). Notice given by a party's counsel shall be
considered notice given by that party.
(a) If to Landlord, to it at:
Attn: David Mandelbaum
Mandelbaum & Mandelbaum
80 Main Street
West Orange, New Jersey 07052-5497
Telecopy: (210)325-8201
(b) If to Tenant, to it at:
430 Main Street
Williamstown, MA 01267
(c) In each case, with a copy to:
F. Sydney Smithers
Cain, Hibbard, Myers & Cook
66 West Street
Pittsfield, MA 01201
Telecopy: (413)443-7694
and to:
Thomas P. McHugh
84 Spring Street
Williamstown, MA 01267
Telecopy: (413)458-2657
<PAGE>
Signed and sealed on the date first above written.
LANDLORD:
WILLIAMSTOWN PROPERTY TRUST
By: /s/ David Mandelbaum
Its: Trustee
TENANT:
LITCHFIELD FINANCIAL CORPORATION
By: /s/ Richard A. Stratton
Its: President
<PAGE>
Exhibit 10.160
INDENTURE OF TRUST (herein, as amended or supplemented from time
to time as permitted hereby, the "Indenture"), dated as of June 1, 1997, by
and between Litchfield Hypothecation Corp., a corporation organized under the
laws of the State of Delaware (the "Issuer"), and The Chase Manhattan Bank, a
New York banking corporation, as trustee (together with its permitted
successors in the trusts hereunder, the "Trustee").
W I T N E S S E T H:
WHEREAS, the Issuer proposes to issue from time to time its
Hypothecation Loan Collateralized Notes in an aggregate outstanding principal
amount not to exceed $33,181,000 (collectively, the "Notes") pursuant to this
Indenture and to deliver the net proceeds of the sale thereof to the
Originator (as such term and such other capitalized terms used herein and not
otherwise defined are defined in Article I hereof) in consideration of the
purchase of the Loans by the Issuer from the Originator;
WHEREAS, Litchfield Financial Corporation, a Massachusetts
corporation, in its capacity as servicer (the "Master Servicer") pursuant to
a Servicing Agreement, dated as of June 1, 1997 (herein, as amended or
supplemented from time to time as permitted thereby, the "Servicing
Agreement"), by and among the Issuer, the Master Servicer, and the Trustee,
will service the Loans;
WHEREAS, as security for the Notes, the Issuer proposes to pledge
and assign all of the Issuer's right, title and interest in and to the Loans
and the Loan Collateral (other than the Unassigned Rights) to the Trustee
pursuant to this Indenture;
WHEREAS, the Issuer has duly authorized the execution and
delivery of this Indenture to provide for the issuance, payment,
administration and securing of the Notes for the benefit of the Holders
thereof;
WHEREAS, the Issuer and the Trustee agree that the Trustee be
appointed under this Indenture and be charged with and accept the trusts and
duties set forth in this Indenture in connection with the issuance, payment,
administration and securing of the Notes under this Indenture for the benefit
of the Holders of the Notes;
WHEREAS, the Trustee has duly authorized the execution and
delivery of this Indenture and is duly authorized to accept the trusts and to
perform its obligations under this Indenture;
WHEREAS, all things necessary to make this Indenture a valid
agreement of the Issuer and the Trustee in accordance with its terms have
been done; and
WHEREAS, all things necessary to make the Notes, when executed
and delivered by the Issuer and authenticated by the Trustee and issued as in
this Indenture provided, the valid, binding and legal obligations of the
Issuer according to the import thereof, have been done and performed.
GRANTING CLAUSE
NOW, THEREFORE, in order to secure the payment of the principal
of, interest on, and all other amounts payable with respect to, the Notes to
be issued pursuant to this Indenture, and in order to secure the performance
and observance of all the covenants and conditions contained herein and in
such Notes, and in order to declare the terms and conditions upon which the
Notes are executed, authenticated, issued, delivered, secured and accepted by
all Persons who shall from time to time be or become Holders thereof, and for
and in consideration of the mutual covenants contained herein, of acceptance
by the Trustee of the trusts hereby created, and of the purchase and
acceptance of the Notes by the Holders thereof, the Issuer has executed and
delivered this Indenture and by these presents:
The Issuer does hereby pledge, bargain, sell, warrant, alienate,
remise, convey, assign, transfer, create and grant a lien upon and a security
interest in and a right of set-off against (collectively, "Grant") unto the
Trustee, its successor or successors and its or their assigns forever, in
trust and as collateral security for the benefit of the Holders of the Notes,
the Issuer's entire right, title, interest and estate, whether now or
hereafter acquired, in, to and under (i) the Loans; (ii) the Loan Collateral;
(iii) all monies and other property of any kind that relate to any of the
Loans and that are now or at any time or times hereafter in the possession or
under the control of the Issuer, the Master Servicer, any Sub-Servicer or the
Trustee or any bailee of the Trustee, including without limitation, the Lock
Box Account and all monies therein; (iv) the Servicing Agreement, each
Subservicing Agreement, each Agency Agreement, the Purchase and Sale
Agreement, the Deposit Account Assignment and the Payment Direction
Agreement; (v) all books and records of the Issuer to the extent pertaining
to any of (i) through (iv) above, including all computer programs, disks,
tapes and related electronic data processing media, credit files, account
cards, payment records, correspondence and ledgers in which any of the
foregoing are reflected or maintained; (vi) all moneys and securities from
time to time held by the Trustee in any Account created under the terms of
this Indenture and all interest, profits, proceeds, or other income derived
from such moneys and securities; (vii) the present and continuing exclusive
right, power and authority, subject to the provisions of the Servicing
Agreement, to give and receive notices and other communications, to make
waivers or other agreements subject to the provisions of the Servicing
Agreement, to make claims for and demand performance on, under or pursuant to
any of the Loan Collateral, to bring actions and proceedings thereunder or
for the enforcement thereof or the Loans, and to exercise all remedies,
powers, privileges and options and to do any and all things which the Issuer
is or may become entitled to do under the Loans or the Loan Collateral;
(viii) any and all property of every name and nature, now or hereafter
transferred, mortgaged, pledged or assigned as security or additional
security for payment or performance of any obligation of the Hypothecation
Borrowers to the Issuer under the Loans or any of the Loan Collateral or
otherwise (other than the Unassigned Rights), and the liabilities,
obligations and indebtedness evidenced thereby or reflected therein; and (ix)
all income, revenues, issues, products, revisions, substitutions,
replacements, profit and proceeds of and from all of the foregoing, including
proceeds of and unearned premiums with respect to insurance policies insuring
any of the Loan Collateral (collectively, the "Trust Estate").
TO HAVE AND TO HOLD IN TRUST all and singular the Trust Estate
whether now or hereafter acquired, unto the Trustee and its successor or
successors and its or their assigns forever for the benefit of the Holders of
the Notes, but:
IN TRUST NEVERTHELESS, upon the terms, trusts and conditions
hereinafter set forth for the equal and proportionate benefit, security and
protection of all present and future Holders of the Notes without preference,
privilege, priority or distinction as to the lien or otherwise of any of the
Notes over any of the other Notes, except as otherwise may be provided in
this Indenture.
PROVIDED, HOWEVER, that if the Issuer, its successors or assigns,
(i) shall pay, or cause to be paid, the principal of and interest payable
with respect to, the Notes due or to become due thereon, at the times and in
the manner mentioned in the Notes, or shall provide, as permitted hereby, for
the payment thereof, (ii) shall keep, perform and observe all the covenants
and conditions pursuant to the terms of this Indenture to be kept, performed
and observed by it, and (iii) shall pay or cause to be paid to the Trustee
all sums of money due or to become due to it and any other fiduciary
appointed hereunder in accordance with the terms and provisions hereof, then,
upon the final payment thereof, this Indenture, all rights of the Holders of
the Notes under this Indenture and the rights hereby granted for the benefit
thereof shall cease, determine and be void; otherwise this Indenture shall be
and remain in full force and effect.
The Trustee, for itself and its successors and assigns, hereby
declares that it shall hold all the estate, right, title and interest in any
property received by it under this Indenture, including, without limitation,
the Trust Estate, in trust for the benefit of all present and future Holders
of the Notes, subject to the terms of this Indenture. The Trustee
acknowledges the Grant of the Trust Estate hereunder, accepts the trusts
hereunder in accordance with the provisions hereof and agrees to perform
fully the duties herein required of it to the end that the interests of the
Holders of the Notes may be adequately and effectively protected in
accordance with the provisions of this Indenture.
THIS TRUST INDENTURE FURTHER WITNESSETH, and it is expressly
declared that all Notes issued and secured hereunder are to be issued,
authenticated and delivered and all said property, rights and interests and
other amounts hereby assigned and pledged, are to be dealt with and disposed
of under, upon and subject to the terms, conditions, stipulations, covenants,
agreements, trusts, uses and purposes as hereinafter expressed, and the
Issuer has agreed and covenanted, and does hereby agree and covenant with the
Trustee and with the respective Holders of the Notes, as follows:
ARTICLE I
DEFINITIONS AND ASSUMPTIONS
SECTION I.1 Definitions. For all purposes of this Indenture,
except as otherwise expressly provided herein or unless the context otherwise
requires, capitalized terms not otherwise defined herein shall have the
meanings ascribed to such terms in Appendix A hereto which is incorporated by
reference herein. All other capitalized terms used herein shall have the
meanings specified herein.
SECTION I.2 Construction. In this Indenture, unless the context
otherwise requires:
(a) The terms "hereby," "hereof," "hereto," "herein," "hereunder"
and any similar terms, as used in this Indenture, refer to this Indenture,
and the term "hereafter" shall mean after, and the term "heretofore" shall
mean before, the date of the execution and delivery of this Indenture.
(b) Words of the masculine gender shall mean and include
correlative words of the feminine and neuter genders and words importing the
singular number shall mean and include the plural number and vice versa.
(c) Words importing persons shall include firms, associations,
partnerships (including limited partnerships), trusts, corporations and other
legal entities, including public bodies, as well as natural persons.
(d) Any headings preceding the texts of the several Articles and
Sections of this Indenture, and any table of contents appended to copies
hereof, shall be solely for convenience of reference and shall not constitute
a part of this Indenture, nor shall they affect its meaning, construction or
effect.
ARTICLE II
THE NOTES
SECTION II.1 Authorization of Notes; Notes to Constitute
Full Recourse Obligations.
(a) The Notes issuable hereunder shall be issued as registered
Notes, without coupons, in one or more series as from time to time shall be
authorized by the Issuer. The Notes of all series shall be known and entitled
generally as the "Litchfield Hypothecation Corp. Hypothecation Loan
Collateralized Notes." The Notes of each series shall have such further
particular designation as the Issuer may adopt for each series, and each Note
issued hereunder shall bear upon the face thereof the designation so adopted
for the series to which it belongs;
(b) The Trustee is hereby authorized and directed to authenticate
and deliver a series of Notes of the Issuer which shall be designated as
"Litchfield Hypothecation Corp. Hypothecation Loan Collateralized Notes,
Series A" (the "Series A Notes"). The Trustee is hereby authorized to
authenticate and deliver to the Purchaser on the Closing Date Series A Notes
in the initial principal amount of $15,325,159.07.
(c) The Trustee is hereby authorized to authenticate and deliver
a series of Notes of the Issuer which shall be designated from time to time
as "Litchfield Hypothecation Corp. Hypothecation Loan Collateralized Notes,
Series B Variable Funding Notes (the "Variable Funding Notes") at any time
and from time to time on or after the Closing Date, the Trustee is hereby
authorized upon the direction of the Issuer to authenticate and deliver
Variable Funding Notes in any principal amount in excess of $25,000;
provided, however, that no authorization and delivery of Variable Funding
Notes shall be authorized if, after giving effect to the principal amount of
Variable Funding Notes to be issued, the aggregate principal amount of all
Notes outstanding would exceed the Note Limit. The Variable Funding Notes
shall be revolving variable amount funding Notes issued by the Issuer for the
purpose of funding Future Advances made by the Originator to the
Hypothecation Borrowers and assigned to the Issuer. Any Noteholder of
Variable Funding Notes that purchases additional Variable Funding Notes (or
at such Holder's direction, the Trustee) may, and is hereby authorized to,
record on the grid attached to such Noteholder's Note the date and amount of
any additional principal to be evidenced thereby; provided, however, that the
failure to make any such recordation on such grid or any error on such grid
shall not affect any Noteholder's rights with respect to the principal amount
of such Note, or interest thereon. At any time and from time to time after
the Closing Date, any Holder of Variable Funding Notes shall have the right,
upon written notice to the Trustee and the Issuer and delivery of the
Variable Funding Note to be converted to the Trustee, to convert not less
than $750,000 in aggregate outstanding principal amount of Variable Funding
Notes into Series C Notes of a like aggregate principal amount. Any Variable
Funding Note so converted shall be cancelled by the Trustee.
(d) The Trustee is hereby authorized to authenticate and deliver
a series of Notes of the Issuer which shall be designated from time to time
as "Litchfield Hypothecation Corp. Hypothecation Loan Collateralized Notes,
Series C" (the "Series C Notes"). At any time and from time to time on or
after the Closing Date, the Trustee is hereby authorized upon receipt from a
Holder of Variable Funding Notes of written notice requesting conversion of
such Variable Funding Notes pursuant to Section 2.1(c) hereof (which
conversion shall be effective as of a Payment Date specified in the request
for conversion) and the Variable Funding Notes to be converted, to
authenticate and deliver Series C Notes to such Holder in a like aggregate
principal amount as the aggregate outstanding amount of the Variable Funding
Notes converted.
(e) The Notes shall constitute full recourse obligations of the
Issuer. The Notes when issued shall not constitute direct or indirect
indebtedness or obligations of the Master Servicer or the Originator. Neither
the Master Servicer nor the Originator shall be liable to the Holders of the
Notes for the payment of the principal thereof and interest thereon for any
liability under this Indenture. The foregoing shall not diminish the
Originator's obligations under the Guarantee. Neither the Notes nor the Loans
are insured by any governmental agency.
SECTION II.2 Forms of Notes and Certificate of Authentication.
The Notes and the Trustee's certificate of authentication shall be in
substantially the forms set forth in Exhibit A attached hereto, with
necessary or appropriate variations, omissions and insertions, as permitted
or required by this Indenture and may have such letters, numbers or other
marks of identification and such legends or endorsements placed thereon as
may, consistent herewith, be determined by the Authorized Officers of the
Issuer executing such Notes, as evidenced by their execution of such Notes.
The definitive Notes shall be typed, photocopied, printed, lithographed or
engraved or produced by any combination of these methods (with or without
steel engraved borders), all as determined by the Authorized Officers of the
Issuer executing such Notes, as evidenced by their execution of such Notes.
SECTION II.3 Authorized Principal Amount. The aggregate principal
amount of the Notes that may be authenticated, delivered and Outstanding
under this Indenture is $33,181,000. All Notes shall be identical in all
respects except for the maturity thereof, the interest rate thereon, the
denominations thereof and such differences to reflect the revolving nature of
the Variable Funding Notes. All Notes issued under this Indenture shall in
all respects be equally and ratably entitled to the benefits hereof without
preference, priority or distinction on account of the actual time or times of
authentication and delivery, all in accordance with the terms and provisions
of this Indenture.
SECTION II.3 Date of Notes; Denominations. (i) Notes which are
authenticated and delivered by the Trustee to or upon the order of the Issuer
on the Closing Date shall be dated as of the Closing Date. Other series of
Notes which are authenticated after the Closing Date shall be dated as of the
respective Closing date therefor. All other Notes which are authenticated for
any other purpose hereunder shall be dated the date of their authentication.
The Series A Notes shall be issued in minimum denominations of $100,000, the
Variable Funding Notes shall be issued in minimum denominations of $25,000
and the Series C Notes shall be issued in minimum denominations of $750,000.
(ii) Notes issued upon transfer, exchange, conversion or
replacement of other Notes shall be issued in authorized denominations
reflecting the original aggregate principal amount of the Notes so
transferred, exchanged, converted or replaced, but shall represent only the
then current outstanding principal amount of the Notes so transferred,
converted, exchanged or replaced. In the event that any Note is divided into
more than one Note in accordance with the provisions hereof, the principal
amount of such Note shall be proportionately divided among the Notes
delivered in exchange therefor.
SECTION II.4 Execution, Authentication, Delivery and
Dating. (i) Each Note shall be executed on behalf of the Issuer with the
manual or facsimile signature of an Authorized Officer of the Issuer.
(ii) Notes bearing the manual or facsimile signature of
individuals who were at any time Authorized Officers of the Issuer shall bind
the Issuer, notwithstanding that such individuals or any of them have ceased
to hold such offices prior to the authentication and delivery of such Notes
or did not hold such offices at the date of such Notes.
(iii) At any time and from time to time after the execution and
delivery of this Indenture, the Issuer may deliver Notes executed by the
Issuer to the Trustee for authentication. Upon a written order from the
Issuer (which order shall be in the form of Exhibit B hereto) the Trustee
shall authenticate and deliver such Notes as in this Indenture provided and
not otherwise. No Note shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose, unless there appears on such Note
a certificate of authentication substantially in the form set forth in
Exhibit A hereto executed by the Trustee by the manual signature of an
Authorized Officer of the Trustee, and such certificate upon any Note shall
be conclusive evidence, and the only evidence, that such Note has been duly
authenticated and delivered hereunder.
SECTION II.5 Transfer and Registry; Exchange; Negotiability.
(a) (i) Each Note shall be transferable only upon the books of
the Issuer (the "Note Register"), which shall be kept for that purpose at the
office of the Person acting as registrar of the Issuer (the "Note
Registrar"). The Trustee is hereby designated as the Note Registrar. Subject
to the provisions of paragraph (b) of this Section 2.6, the transfers of any
Note may be effected on the books of the Issuer by the Holder thereof in
person or by his attorney duly authorized in writing, upon surrender thereof
together with a written instrument of transfer satisfactory to the Note
Registrar duly executed by the Holder or its duly authorized attorney. Upon
the transfer of any such Note, the Issuer shall issue in the name of the
transferee a new Note or Notes of the same aggregate principal amount, the
same series, interest rate and maturity as the surrendered Note.
(ii) At the option of the Holder, Notes may be exchanged for
other Notes of any authorized denominations, and of a like aggregate
principal amount, series, interest rate and maturity, upon surrender of the
Notes to be exchanged at such office or agency. Whenever any Notes are so
surrendered for exchange, the Issuer shall execute, and the Trustee shall
authenticate and deliver, the Notes which the Noteholder making the exchange
is entitled to receive.
(iii) All Notes issued upon any registration of transfer or
exchange of Notes shall be the valid obligations of the Issuer, evidencing
the same debt, and entitled to the same benefits under this Indenture, as the
Notes surrendered upon such registration of transfer or exchange.
(iv) Every Note presented or surrendered for registration of
transfer or exchange shall (if so required by the Issuer or the Trustee) be
duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Trustee, duly executed, by the Holder thereof or his
attorney duly authorized in writing.
(b) Each Note shall bear the following legend:
"THE NOTES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 ("1933
ACT"), OR THE SECURITIES LAWS OR "BLUE SKY" LAWS OF ANY STATE AND HAVE BEEN
SOLD IN RELIANCE UPON AN EXEMPTION PROVIDED IN THE 1933 ACT AND APPLICABLE
STATE SECURITIES AND BLUE SKY LAW. THE NOTES MAY NOT BE SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUBSEQUENTLY REGISTERED
UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES AND BLUE SKY LAW OR AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE."
(c) No Note or any beneficial interest therein may be sold or
transferred (including, without limitation, by pledge or hypothecation)
unless such transfer is exempt from the registration requirements of the 1933
Act and any applicable state securities and blue sky laws or is made in
accordance with said Act and state laws. As a condition precedent to any such
transfer, a certificate or certificates in the form of Exhibit C hereto, as
appropriate, shall be delivered to the Trustee.
(d) None of the Issuer, the Note Registrar or the
Trustee is obligated to register the Notes under the 1933 Act or any
other securities law.
SECTION II.6 Regulations With Respect to Exchanges and Transfers
. In all cases in which the privilege of exchanging or transferring Notes is
exercised, the Issuer shall execute and the Trustee shall authenticate and
deliver Notes in accordance with the provisions of this Indenture. For every
such exchange or registration of transfer of Notes, whether temporary or
definitive, the Issuer and the Trustee may require the payment of a sum
sufficient to cover any tax or other governmental charge required to be paid
with respect to such exchange or registration of transfer. Neither the Issuer
nor the Trustee shall be required to register the transfer of or exchange
Notes for a period beginning on the Record Date next preceding a Payment Date
and ending on such Payment Date.
SECTION II. Mutilated, Destroyed, Stolen or Lost Notes
(a) In case any Note shall become mutilated or be destroyed,
stolen or lost, the Issuer shall execute, and thereupon the Trustee shall
authenticate and deliver, a new Note of like aggregate principal amount,
series, interest rate and maturity as the Note so mutilated, destroyed,
stolen or lost, in exchange and substitution for such mutilated Note, upon
surrender and cancellation of such mutilated Note or in lieu of and
substitution for the Note destroyed, stolen or lost, upon filing with the
Trustee evidence satisfactory to the Issuer and the Trustee that such Note
has been destroyed, stolen or lost and proof of ownership thereof, and upon
furnishing the Issuer and Trustee with such security or indemnity as may be
required by them to save each of them harmless (an unsecured agreement of
indemnity of a Purchaser being deemed sufficient for this purpose) and upon
payment of any tax or governmental charge the Issuer and Trustee may incur.
All Notes so surrendered to the Trustee shall be canceled by it. Any such new
Notes issued pursuant to this Section 2.8 in substitution for Notes alleged
to be destroyed, stolen or lost shall constitute original additional
contractual obligations on the part of the Issuer, whether or not the Notes
so alleged to be destroyed, stolen or lost shall be found at any time, or be
enforceable by anyone, and shall be equally secured by, and entitled to equal
and proportionate benefits with all other Notes issued under the Indenture.
(b) Notwithstanding the foregoing provisions of this Section 2.8,
in the event any such Note shall have matured, and no default has occurred
which is then continuing in the payment of the principal of or interest on
the Notes, the Issuer may authorize the payment of the same (upon surrender
thereof as provided in Section 2.9) instead of issuing a substitute Note,
provided security or indemnification is furnished as above provided in this
Section 2.8.
(c) The provisions of this Section 2.8 are exclusive and shall
preclude (to the extent lawful) all of the rights and remedies with respect
to the payment of mutilated, lost, stolen or destroyed Notes, including those
granted by any law or statute now existing or hereafter enacted.
SECTION II.7 Medium of Payment; Payment of Principal and Interest
.
(a) The Notes shall be payable in lawful currency of the United
States of America and shall be payable by check mailed by first class mail to
the Person entitled thereto at such Person's address as it appears on the
Note Register on the applicable Record Date except that payments to Holders
of in excess of one million dollars ($1,000,000) of original principal amount
of the Notes shall be made in immediately available funds to an account at a
banking institution in the United States; provided that such Holder has
provided to the Trustee no later than two Business Days prior to the relevant
Payment Date its wire transfer instructions (the wire transfer instructions
of the Purchaser set forth in the Note Purchase Agreement are deemed
sufficient for all payments on the Notes held by the Purchaser).
(b) Each Note shall bear interest on the outstanding principal
amount thereof from and including (i) June 24, 1997, in the case of the
Series A Notes, and (ii) in the case of the Variable Funding Notes, the
Series C Notes and any subsequent series of Notes, from and including the
Closing date therefor, and, in each case, the most recent date to which
interest has been paid until paid. Interest shall accrue on the principal
amount of the Series A Notes and the Variable Funding Notes at the end of
each day at a rate per annum equal to 2.10% plus the LIBOR Rate, as
determined by the Master Servicer and set forth in the Master Servicer's
Certificate. Interest shall accrue on the Series C Notes and any subsequent
series of Notes at a rate to be determined on or before the Closing for such
series of Notes. 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 the Trustee may from time to time specify) as the
average of the interbank offered rates for U.S. 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 Payment Period shall be the rate so
published on the first Business Day of such Payment Period. Interest shall
accrue at the Default Rate with respect to the principal amount of any
portion of the Notes that is not paid on the Payment Date for such principal
(whether due at stated maturity, on demand, upon acceleration or otherwise)
until paid in full. Interest shall be calculated daily and shall be computed
on the basis of a 360-day year of twelve months of 30 days each.
(c) (i) On each Payment Date, payments of principal of the Notes
will be due in an amount equal to the Principal Payment Amount in respect of
the aggregate Loans as of such Payment Date.
(ii) (A) If any of the representations or warranties contained in
Section 3 of the Purchase and Sale Agreement shall prove to be, in any
material and adverse respect, false, incorrect or misleading as to any Loan,
the Issuer, at its expense, shall promptly take such action as is necessary
and use its best efforts to cause such false, incorrect or misleading
representation or warranty to be, in all material respects, true, correct and
not misleading, within 30 days following the giving of written notice to the
Issuer by the Trustee of such false, incorrect or misleading representation
or warranty (provided, however, that the Trustee shall have no obligation to
investigate or determine whether any such representation is false, incorrect
or misleading) or following the discovery thereof by the Issuer.
(B) If within the applicable time period set forth in paragraph
(A) above the Issuer fails to cure, in all material respects, any such
representation or warranty with respect to a Loan which is, in any material
respect, false, incorrect or misleading, then, the Issuer shall as soon as
possible but in no event later than 60 days following notice or discovery of
the false, incorrect or misleading representation or warranty, take all
actions necessary or advisable under this Indenture and the Purchase and Sale
Agreement to (i) cause the Trustee to redeem (pursuant to the exercise of the
Repurchase Option set forth in Section 4(b) of the "Purchase and Sale
Agreement"), on a pro rata basis among the outstanding Notes, an aggregate
principal amount of the Notes equal to the outstanding principal amount of
the Loan with respect to which the false, incorrect or misleading
representation or warranty was made, and to pay accrued interest on such
redeemed Notes to the date of redemption or (ii), with the consent of the
Holders of at least 66 2/3% of the aggregate outstanding principal amount of
the Notes, substitute a new Loan for such Loan.
(iii) The Issuer shall have the right to prepay all, but not less
than all, of any series of outstanding Notes at any time after the date on
which the aggregate outstanding principal amount of such series of Notes
equals or is less than 10% of the initial aggregate principal amount of such
series of Notes.
(iv) In the event that, pursuant to the terms of the Purchase and
Sale Agreement, the Originator has notified the Issuer that (A) the
Originator intends to exercise Unassigned Rights in respect of a Loan and (B)
such exercise of Unassigned Rights requires the release of such Loan from the
Lien of the Trust Estate hereunder, the Issuer shall have the right to prepay
an aggregate outstanding principal amount of the Notes equal to the principal
amount of the Loan released hereunder. Upon such prepayment, together with
accrued interest on such prepaid Notes to the date of prepayment, the Trustee
shall release the related Loan in accordance with Section 8.3 hereof.
(v) All unpaid principal of the Notes shall mature and be
immediately due and payable at Stated Maturity.
(vi) Payments of principal (as a result of prepayments or
otherwise) to be made will be allocated pro rata among the Notes in the
proportion which the outstanding principal amount of each Note bears to the
aggregate outstanding principal amount of the Notes of all series as of the
first day of the month in which the Payment Date occurs.
(vii) All reductions in the principal amount of a Note effected
by payments of installments of principal made on any Payment Date shall be
binding upon all future Holders of the Note and of any Note issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof,
whether or not such payment is noted on such Note.
(viii) Whenever the entire remaining unpaid principal amount of
the Notes will become due and payable on the next Payment Date, the Trustee
shall notify the Person in whose name such Note is registered as of the close
of business on the Record Date prior to such Payment Date that such final
installment is expected to be paid on such Payment Date. Such notice shall be
given by the Trustee in the name and at the expense of the Issuer by
first-class mail, postage prepaid, mailed no later than the Business Day
following the day on which the Trustee receives the Master Servicer's
Certificate with respect to such Payment Date. Such notice shall set forth
the following information: the fact of such expectation of payment in full,
restating the requirement set forth in this Indenture that such payment shall
be payable only upon presentation of such Note (or in the case of mutilated,
destroyed, lost or stolen Notes, a certificate to that effect and an
indemnity (or unsecured agreement of indemnity) as provided in Section 2.8
hereof) on or after the Payment Date therefor at the corporate trust office
of the Trustee for payment, the place where such Notes are to be surrendered
for payment and that no interest shall accrue on the principal of such Notes
for any period after such Payment Date.
(ix) The final installment of principal of any Note made on any
Payment Date shall be payable, subject to Section 2.8(b) hereof, only upon
presentation of such Note (or in the case of mutilated, destroyed, lost or
stolen Notes, a certificate to that effect and an indemnity (or unsecured
agreement of indemnity) as provided in Section 2.8 hereof) on or after the
Payment Date therefor at the corporate trust office of the Trustee for
payment; provided, however, that this requirement of presentation shall not
apply to the Purchaser if it furnishes to the Trustee its unsecured agreement
of indemnity in the same manner as is permitted by Section 2.8 hereof.
SECTION II.8 Persons Deemed Owners. The Issuer, the Trustee and
the Note Registrar may deem and treat the Person in whose name any Note
shall be registered upon the Note Register as the absolute owner of such
Note, whether such Note shall be overdue or not, for the purpose of receiving
payment of, or on account of, the principal of and interest on such Note and
for all other purposes, and all such payments so made to any such Holder or
upon his order shall be valid and effective to satisfy and discharge the
liability upon such Note to the extent of the sum or sums so paid, and
neither the Issuer, the Trustee nor the Note Registrar shall be affected by
any notice to the contrary.
SECTION II.9 Cancellation. All Notes surrendered upon payment of
the final installment of principal pursuant to Section 2.9(c) hereof or
otherwise surrendered for registration of transfer, conversion or exchange
shall be delivered to the Trustee and shall be promptly canceled by it.
The Issuer may at any time deliver to the Trustee for cancellation any Notes
previously authenticated and delivered hereunder which the Issuer may have
acquired in any manner whatsoever, and all Notes so delivered shall be
promptly canceled by the Trustee. No Notes shall be authenticated in lieu
of or in exchange for any Notes canceled as provided in this Section, except
as expressly permitted by this Indenture.
SECTION II.10 Access to List of Noteholders' Names and Addresses
. The Note Registrar will furnish or cause to be furnished to the Trustee,
the Issuer or any Noteholder promptly after receipt by the Note Registrar of
a request therefor from the Trustee, the Issuer or such Noteholder in
writing, a list, in such form as the Trustee, the Issuer or such Noteholder
may reasonably require, of the primary contacts, names and addresses of the
Noteholders as of the most recent Record Date. Every Noteholder by receiving
and holding Notes, agrees with the Issuer, the Registrar and the Trustee that
neither the Issuer, the Note Registrar nor the Trustee shall be held
accountable by reason of the disclosure of any such information as to the
names and addresses of the Noteholders hereunder, regardless of the source
from which such information was derived.
SECTION II.11 Acts of Noteholders
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or
taken by Noteholders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Noteholders in
person or by an agent duly appointed in writing, and, except as herein
otherwise expressly provided, such action shall become effective when such
instrument or instruments are delivered to the Trustee and where required to
the Issuer. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Issuer if made in
the manner provided in this Section 2.13.
(b) The fact and date of the execution by any Noteholder
of any such instrument or writing may be proven in any reasonable manner
which the Trustee deems sufficient.
(c) The ownership of Notes shall be proven by the Note
Register.
(d) Any request, demand, authorization, direction, notice,
consent, waiver or other act by a Noteholder shall bind every Holder of Notes
issued upon the registration of transfer thereof or in exchange therefor or
in lieu thereof, in respect of anything done, or omitted to be done by the
Trustee or the Issuer in reliance thereon, whether or not notation of such
action is made upon such Notes.
(e) The Trustee may require such additional proof of any matter
referred to in this Section 2.13 as it shall deem necessary.
ARTICLE III
ISSUANCE OF NOTES
SECTION III.1 Conditions to Authentication and Delivery of Notes
. Following execution and delivery of this Indenture by the Issuer and the
Trustee, Notes shall from time to time be executed by the Issuer and
delivered to the Trustee for authentication and delivery together with the
written order required pursuant to Section 2.5 hereof, and, thereupon, the
same shall be authenticated; provided, however, that on or before the
authentication and delivery of Notes on the Closing Date, and, as a condition
to such authentication and delivery, the Trustee, or the Collateral Agent on
behalf of the Trustee, shall have received the following:
(i)A List of Loans, certified by an Authorized Officer of the Master Servicer;
(ii)The originals of each Loan Document relating to each Loan;
(iii)If any of the Transaction Documents include an instrument executed by
a Hypothecation Borrower or a Consumer, the original instrument endorsed in
blank by the Hypothecation Borrower or Consumer, or, if endorsed to the
Originator or the Issuer, endorsed in blank by an Authorized Officer of the
Originator or the Issuer;
(iv) The originals of all Consumer Financing Documents;
(v)If any of the Loan Collateral consists of real estate encumbered by a
Mortgage, an original or copy time-stamped by the appropriate recording
office of the recorded Mortgage and an original or copy time-stamped by the
appropriate recording office of all amendments to such Mortgage;
(vi)A copy of an officially certified document, dated not more than 30
days prior to the Closing Date (and, if available, confirmed on the Business
Day prior to the Closing Date by telegram, telephone or other similar means),
evidencing the due organization and good standing of the Issuer;
(vii)A certificate of an Authorized Officer of the Issuer dated as of the
Closing Date, certifying that (a) the Issuer is not in Default under this
Indenture; (b) the issuance of the Notes applied for will not result in any
breach of any of the terms, conditions or provisions of, or constitute a
default under any indenture, mortgage, deed of trust or other agreement or
instrument to which the Issuer is a party or by which it or its property is
bound or any order of any court or administrative agency entered in any
Proceeding to which the Issuer is a party or by which it or its property may
be bound or may be subject; (c) the Issuer is the owner of each Loan Granted
to the Trustee; the Issuer has not assigned any interest or participation in
any such Loan; and the Issuer has full right to Grant each such Loan to the
Trustee; (d) the Issuer has Granted to the Trustee all of its right, title,
and interest in each Loan Granted to the Trustee; (e) other than liens
created under or pursuant to the Indenture, the Trust Estate is free and
clear of any pledge, charge or encumbrance thereon or with respect thereto
created by or through the Issuer, and all action on the part of the Issuer to
that end has been duly and validly taken; (f) after giving effect to the
issuance of the Notes, the aggregate outstanding principal amount of the
Notes will not exceed the Note Limit; and (g) all conditions precedent
provided in this Indenture relating to the issuance, authentication and
delivery of the Notes applied for have been complied with;
(viii)An Opinion of Counsel (or Opinions of Counsel) to the Issuer,
addressed to the Trustee and the Purchaser and dated as of the date of
authentication of the Notes applied for, in the form attached hereto as
Exhibit D;
(ix)A fully executed copy of each of the following agreements:
(A) this Indenture;
(B) the Servicing Agreement;
(C) the Agency Agreements;
(D) the Purchase and Sale Agreement;
(E) the Deposit Account Assignment; and
(F) the Payment Direction Agreement.
(x)A certificate of an Authorized Officer of the Issuer, dated as of the
date of authentication of the Notes applied for, that the Issuer has filed or
caused to be filed UCC-1 financing statements in the appropriate recording
offices executed by the Issuer, as debtor, and naming the Trustee, as secured
party, and the Loans and Loan Collateral as collateral;
(xi)Copies of resolutions of the Board of Directors of the Master Servicer
approving the execution, delivery and performance of the Servicing Agreement
and the transactions contemplated thereby, certified by the Clerk or an
Assistant Clerk of the Master Servicer;
(xii)A copy of an officially certified document, dated not more than 30
days prior to the date of authentication of the Notes applied for (and, if
available, confirmed on the Business Day prior to such date by telegram,
telephone or other similar means), evidencing the due organization and good
standing of the Master Servicer in the state of its organization; and
(xiii)Other. Such other documents as may be reasonably requested by the
Trustee or the Purchaser.
SECTION III.2 Additional Document Deliveries; Post Closing
Matters.SECTION III.2 Additional Document Deliveries; Post Closing Matter (a)
Within 90 days of the Closing Date, the Issuer shall deliver to the Trustee
(or the Collateral Agent) with respect to each Mortgage received by a
Hypothecation Borrower from a Consumer and collaterally assigned to the
Originator, the original or copy time-stamped by the appropriate recording
office of such collateral assignment and the original or copy time-stamped by
the appropriate recording office of collateral reassignments of such Mortgage
(which may be contained in one instrument) from the Originator to the Issuer
and from the Issuer to the Trustee.
(b) On or before any Closing after the Closing Date, as a condition to
the authentication and delivery of Notes on the date of such Closing, the
Trustee, or the Collateral Agent on behalf of the Trustee, shall have
received (i) the documents specified in Sections 3.1(i) through 3.1(v) above,
and (ii) a certificate of an Authorized Officer of the Issuer dated the date
of such Closing, certifying as to the matters set forth in Section 3.1 (vi)
above.
(c) Within 90 days of the Closing Date, the Issuer shall cause all
lock-box or collection accounts in respect of the Loans or the Loan
Collateral which on the Closing Date are owned or in the name of the "Master
Servicer" to be transferred to an account or accounts in the name of the
Trustee. The Trustee shall not have any obligations with respect to any such
account, including, without limitation, any obligation to direct investments
in such account or to respond to any inquiry with respect to any such
account.
ARTICLE IV
COVENANTS OF THE ISSUER
SECTION IV.1 Payment of Principal and Interest. The Issuer will duly
and punctually pay the principal of and interest on the Notes in accordance
with the terms of the Notes and this Indenture.
SECTION IV.2 Maintenance of Existence
(a) Except as permitted by Section 4.2(b), the Issuer will keep in
full effect its existence, rights and franchises as a business trust under
the laws of the State of its organization and the Issuer or any permitted
successor hereunder will obtain and preserve its qualification to do business
as a foreign corporation in each jurisdiction in which such qualification is
or shall be necessary to protect the validity and enforceability of this
Indenture, the Notes, the Servicing Agreement or any of the Loan Documents.
The Issuer at all times shall hold itself out as having an existence separate
from that of the Master Servicer, and shall keep books and records separate
from those of the Master Servicer.
(b) Any Person into which the Issuer hereunder may be merged or
with which it may be consolidated on an involuntary basis, or any Person
resulting from any such merger or consolidation to which the Issuer hereunder
shall be a party, shall be the successor Issuer under this Indenture without
the execution or filing of any paper, instrument or further act to be done on
the part of the parties hereto, anything herein, or in any agreement relating
to such merger or consolidation, by which any such successor Issuer may seek
not to retain certain powers, rights and privileges theretofore obtaining for
any period of time following such merger or consolidation, to the contrary
notwithstanding.
SECTION IV.3 Protection of Trust Estate
(a) The Issuer will from time to time execute and deliver or cause
to be delivered all amendments hereto and all such financing statements,
continuation statements, instruments of further assurance and other
instruments, and will take such other action necessary or advisable to:
(i)Grant more effectively all or any portion of the
Trust Estate;
(ii)maintain or preserve the lien (and the priority thereof) of this
Indenture or carry out more effectively the purposes hereof;
(iii)perfect, publish notice of, or protect the validity of any Grant
made or to be made by this Indenture;
(iv)preserve and defend title to the Trust Estate and the rights of the
Trustee, and of the Noteholders secured thereby, in such Trust Estate against
the claims of all Persons and parties; and
(v)pay any and all taxes levied or assessed upon all or any part of the
Trust Estate.
(b) The Issuer hereby designates the Trustee its agent and
attorney-in-fact to execute, upon the Issuer's failure to do so in a timely
manner, any financing statement, continuation statement or other instrument
required pursuant to this Section 4.3. Such power of attorney is coupled with
an interest and irrevocable, and the Issuer hereby ratifies and confirms all
that the Trustee may do by virtue thereof. Such designation shall not be
deemed to create a duty in the Trustee to monitor the compliance by the
Issuer with the foregoing covenants, and the duty of the Trustee to execute
any instrument required pursuant to this Section 4.3 shall arise only if the
Trustee has knowledge of the type described in Section 9.1(e) hereof of any
Default by the Issuer in complying with the provisions of this Section 4.3.
SECTION IV.4 Enforcement of Servicing Agreement
(a) The Noteholders agree that (i) the Issuer and the Trustee are
hereby authorized to engage the Master Servicer to service the Loans pursuant
to the Servicing Agreement, and (ii) the Trustee shall be entitled to rely on
the services of the Master Servicer for purposes of servicing the Loans.
Notwithstanding the foregoing, if the Trustee is notified by the Issuer or
any of the Noteholders that action is necessary (x) for the enforcement of
the Loans and the Loan Collateral, including without limitation, the prompt
payment of all principal and interest and all other amounts due thereunder,
consistent with the provisions of the Servicing Agreement, or (y) to defend,
enforce, preserve and protect the rights and privileges of the Issuer and of
the Noteholders under or with respect to the Loans and the related Loan
Collateral, or (z) to preserve the Liens of the Loans and the Loan
Collateral, the Trustee shall notify the Master Servicer and request that the
Master Servicer take such action.
The Issuer will punctually perform and observe all of its obligations
and agreements contained in the Servicing Agreement. The Issuer shall cause
the Master Servicer to diligently enforce all terms and covenants and to
satisfy all conditions of the Servicing Agreement, including, without
limitation, the prompt payment of all principal and interest and all other
amounts due thereunder. The Issuer at all times shall cause to be defended,
enforced, preserved and protected the rights and interests of the Issuer, the
Trustee and the Noteholders under or with respect to the Servicing Agreement.
(b) If the Issuer shall have knowledge of the occurrence of an
Event of Default under the Servicing Agreement, the Issuer shall promptly
notify the Trustee thereof, and shall specify in such notice the action, if
any, the Issuer is taking in respect of such Event of Default. If such Event
of Default arises from the failure of the Master Servicer to perform any of
its duties or obligations under the Servicing Agreement with respect to the
Loans securing the Notes, the Issuer may remedy such failure. So long as any
such Event of Default under the Servicing Agreement shall be continuing, the
Trustee may, and upon the direction of (i) the Purchaser while the Purchaser
is a Holder of Notes, or (ii) the Holders of Notes representing not less than
51% of the then aggregate outstanding principal amount of the Notes (other
than Notes owned by the Originator or any Affiliate of the Originator), the
Trustee shall terminate all of the rights and powers of the Master Servicer
under the Servicing Agreement pursuant to Section 6.1 of the Servicing
Agreement. Unless directed or permitted by the Trustee or the Holders of
Notes representing not less than 51% of the then aggregate outstanding
principal amount of the Notes (other than Notes owned by the Originator or
any Affiliate of the Originator), the Issuer may not waive any such Event of
Default under the Servicing Agreement or terminate the rights and powers of
the Master Servicer under the Servicing Agreement.
(c) Upon any termination of the Master Servicer's rights and
powers pursuant to Section 5.1 of the Servicing Agreement, all rights,
powers, duties, obligations and responsibilities of the Master Servicer with
respect to the related Loans shall vest in and be assumed by a Successor
Master Servicer appointed by the Issuer with the consent of (i) the
Purchaser, while the Purchaser is a Holder of Notes, and (ii) the then
Holders of Notes representing not less than 51% of the then aggregate
outstanding principal amount of the Notes (provided, that the Holder of any
Notes owned by the Originator or any Affiliate of the Originator shall not be
entitled to participate in any consent of the proposed Successor Master
Servicer as an affiliate of the Originator), and such Successor Master
Servicer shall be the successor in all respects to the Master Servicer in its
capacity as servicer with respect to such Loans under the Servicing
Agreement. No resignation or termination of the Master Servicer under the
Servicing Agreement shall be effective until a Successor Master Servicer has
been appointed and assumed the duties of the Master Servicer. Upon such
appointment, such Successor Master Servicer shall enter into a servicing
agreement with the Issuer and the Trustee, such agreement to be substantially
similar to the Servicing Agreement. If, within 15 days after the termination
or resignation of the Master Servicer, the Issuer shall not have obtained
such a new servicer acceptable to the Noteholders as provided above, the
Trustee may appoint, or may petition a court of competent jurisdiction to
appoint, a successor servicer to service the Loans. In connection with any
such appointment, the Trustee may make such arrangements for the compensation
of such successor as it and such successor shall agree, and the Issuer shall
enter into an agreement with such successor for the servicing of such Loans,
such agreement to be in form and substance satisfactory to the Trustee and
(i) the Purchaser while the Purchaser is a Holder of Notes and (ii) the then
Holders of Notes representing not less than 51% of the then aggregate
outstanding principal amount of the Notes. Any such compensation of the
successor servicer shall not be in excess of that payable to the Master
Servicer under the Servicing Agreement, unless the Master Servicer or some
other Person agrees to pay such additional compensation.
(d) If any of the Noteholders or the Issuer notifies the Trustee
that action is necessary in order to defend, enforce, preserve or protect the
rights and interests of the Issuer and the Noteholders under or with respect
to the Servicing Agreement, the Trustee shall notify the Issuer or the Master
Servicer, as the case may be, and direct the notified party to diligently
enforce all terms and covenants and satisfy all conditions of the Servicing
Agreement. The Trustee may, without the consent of any Noteholder, enter into
or consent to any amendment or supplement to the Servicing Agreement for the
purpose of increasing the obligations or duties of any party other than the
Trustee or the Noteholders. Except as provided above in this paragraph, the
Trustee shall not consent or agree to or permit any amendment, modification
or waiver of the Servicing Agreement without the prior consent thereto of the
Holders of 66-2/3% of the aggregate outstanding principal amount of the Notes
(without regard to any Notes owned by the Master Servicer or any of its
Affiliates). The Trustee may, in its discretion, decline to enter into or
consent to any such supplement or amendment if its own rights, duties or
immunities shall be adversely affected.
SECTION IV.5 Books of Account. The Issuer covenants that the books of
record and account of the Issuer and, pursuant to the provisions of the
Servicing Agreement, the Master Servicer shall at all times be subject to
the inspection and use of the Trustee and any Holder of Notes and of their
respective agents and attorneys.
SECTION IV.6 Performance of Obligations. The Issuer will punctually
perform and observe all of its obligations and agreements under the terms of
this Indenture and the Notes. The Issuer will not take any action, and will
use its best efforts not to permit any action to be taken by others, which
would release any Person's covenants or obligations under any instrument
included in the Trust Estate, or which would result in the hypothecation,
subordination, termination or discharge of, or impair the validity or
effectiveness of, any such instrument, except as expressly provided in
this Indenture.
SECTION IV. Negative Covenants. Except as expressly permitted by this
Indenture or contemplated by the Servicing Agreement, the Issuer will not:
(a) sell, transfer, exchange or otherwise dispose of any
of the Trust Estate;
(b) claim any credit on, make any deduction from the principal or
interest payable in respect of the Notes (other than amounts required to be
withheld from such payments under the Code or any other applicable state or
federal law) or assert any claim against any present or former Noteholder by
reason of the payment of any taxes levied or assessed upon any of the Trust
Estate;
(c) engage in any business or activity or create, incur, assume
or in any manner become liable on any debt other than in connection with, or
relating to, the issuance of the Notes pursuant to this Indenture;
(d) amend the certificate of incorporation of the Issuer
without the prior written consent of the Purchaser;
(e) dissolve or liquidate in whole or in part;
(f) consolidate with or merge into any other Person or convey,
transfer or lease substantially all of its assets as an entirety to any
Person unless the Person formed by such consolidation or into which the
Issuer has been merged or the Person which acquires substantially all of the
assets of the Issuer as an entirety is an organization organized under the
laws of a state in the United States, can lawfully perform the obligations of
the Issuer hereunder and executes and delivers to the Trustee an agreement,
in form and substance reasonably satisfactory to the Trustee, which contains
an assumption by such successor entity of the due and punctual performance
and observance of each representation, warranty, covenant and obligation to
be made, performed or observed by the Issuer under this Indenture;
(g) (i) permit the validity or effectiveness of this Indenture to
be impaired or permit the lien of this Indenture with respect to the Trust
Estate to be subordinated, terminated or discharged, or permit any Person to
be released from any covenants or obligations under this Indenture, the Loans
or the Loan Collateral, (ii) permit any lien, pledge, charge, adverse claim,
security interest, mortgage or other encumbrance (other than liens created
under or pursuant to this Indenture) to be created on or extend to or
otherwise arise upon or burden the Trust Estate or any part thereof or any
interest therein or the proceeds thereof, or (iii) permit the lien of this
Indenture not to constitute a perfected security interest in the Trust
Estate;
(h) permit any material amendment to the Loan Documents or
waive any payment default thereunder;
(i) permit any amendment or modification to the Servicing
Agreement; or
(j) permit any amendment or modification to any Consumer
Financing Document.
SECTION IV.7 Protection of Security: Power to Issue Notes and Grant
Trust . The Issuer represents, warrants and covenants that:
(a) The Issuer is, and at all times during the term of this
Indenture will be, a corporation duly organized and validly existing in good
standing under the laws of the State of Delaware; and the Issuer is, and at
all times during the term of this Indenture will be, duly qualified to do
business as a foreign corporation and in good standing under the laws of each
jurisdiction where the character of its property, the nature of its business
or the performance of its obligations under this Indenture makes such
qualification necessary except where the failure to be so qualified will not
have a material adverse effect on the business of the Issuer or its ability
to perform its obligations under this Indenture or any other documents or
transactions contemplated hereunder or the validity or enforceability of the
Loans;
(b) The Issuer holds, and at all times during the term of this
Indenture will hold, all material licenses, certificates, franchises and
permits from all governmental authorities necessary for the conduct of its
business and has received no notice of proceedings relating to the revocation
of any such license, certificate, franchise or permit, which singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would materially and adversely affect its ability to perform its obligations
under this Indenture or any other documents or transactions contemplated
hereunder or the validity or enforceability of the Loans;
(c) The Issuer has, and at all times during the term of this
Indenture will have, all requisite power and authority to own its properties,
to conduct its business, to execute and deliver this Indenture and all
documents and transactions contemplated hereunder, to perform all of its
obligations under this Indenture and any other documents or transactions
contemplated hereunder, to issue the Notes and to Grant the Trust Estate in
the manner and to the extent provided herein. The Issuer has all requisite
power and authority to acquire, own, sell and convey to the Trustee the Trust
Estate;
(d) This Indenture, the Notes and all other documents and
instruments required or contemplated hereby to be executed and delivered by
the Issuer have been duly authorized, executed and delivered by the Issuer
and, assuming the due execution and delivery by the other party or parties
hereto and thereto, if any, constitute legal, valid and binding agreements
enforceable against the Issuer in accordance with their respective terms
subject, as to the enforcement of remedies, to bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting the
enforceability of creditors' rights generally applicable in the event of the
bankruptcy, insolvency or reorganization of the Issuer and to general
principles of equity;
(e) The execution, delivery and performance by the Issuer of this
Indenture, the Notes and any other documents and transactions in connection
herewith to which the Issuer is a party do not and will not (i) violate any
of the provisions of the organizational documents or by-laws of the Issuer;
(ii) violate any provision of any law, governmental rule or regulation
currently in effect applicable to the Issuer or its properties or by which
the Issuer or its properties may be bound or affected, (iii) violate any
judgment, decree, writ, injunction, award, determination or order currently
in effect applicable to the Issuer or its properties or by which the Issuer
or its properties are bound or affected, (iv) conflict with, or result in a
breach of, or constitute a default under, any of the provisions of any
indenture, mortgage, deed of trust, contract or other instrument to which the
Issuer is a party or by which it is bound or (v) except for the Grant
hereunder, result in the creation or imposition of any lien upon any of its
properties pursuant to the terms of any such indenture, mortgage, deed of
trust, contract or other instrument;
(f) Except for the filing of financing statements and the
recording of assignments contemplated hereby, no consent, approval, order or
authorization of, and no filing with or notice to, any court or other
governmental authority in respect of the Issuer is required in connection
with the authorization, execution, delivery or performance by the Issuer of
this Indenture, the Notes or any of the other documents or transactions
contemplated hereunder;
(g) The Issuer is not in default under any agreement, contract,
instrument or indenture to which the Issuer is a party or by which it or its
properties is or are bound, or with respect to any order of any court,
administrative agency, arbitrator or governmental body which would have a
material adverse effect on the transactions contemplated hereunder; and no
event has occurred which with notice or lapse of time or both would
constitute such a default with respect to any such agreement, contract,
instrument or indenture, or with respect to any such order of any court,
administrative agency, arbitrator or governmental body;
(h) There is no pending or, to the best of the Issuer's
knowledge, threatened action, suit, proceeding or investigation before any
court, administrative agency, arbitrator or governmental body against or
affecting the Issuer which, if decided adversely, would materially and
adversely affect (i) the condition (financial or otherwise), business or
operations of the Issuer, (ii) the ability of the Issuer to perform its
obligations under, or the validity or enforceability of, this Indenture or
any other documents or transactions contemplated under this Indenture, (iii)
any Loan Collateral, (iv) the Master Servicer's ability to service the Loans;
(i) No document, certificate or report furnished or required to
be furnished by the Issuer pursuant to this Indenture contains or will
contain when furnished any untrue statement of a material fact or fails or
will fail to state a material fact necessary in order to make the statements
contained therein not misleading;
(j) Other than liens created under or pursuant to this Indenture,
the Trust Estate is and will be free and clear of any pledge, charge or
encumbrance thereon or with respect thereto created by or through the Issuer,
and all action on the part of the Issuer to that end has been duly and
validly taken;
(k) The Issuer shall at all times, to the extent permitted by
law, defend, preserve and protect the Grant of the Trust Estate and all the
rights of Noteholders under this Indenture against all claims and demands of
all Persons whomsoever claiming by, through or under the Issuer (except
claims and demands of the Trustee under or pursuant to this Indenture);
(l) The Issuer shall at all times hold itself out to the public,
including creditors of the Originator, and carry out its business and conduct
its affairs under the Issuer's own name and as a separate and distinct entity
from the Originator or any of its Affiliates;
(m) The Issuer shall at all times be responsible for the payment
of all its obligations and indebtedness, shall at all times maintain a
business office, records, books of account and funds separate from the
Originator and shall observe all customary formalities of independent
existence;
(n) The Issuer shall make its books and records and the Note
Register available to the Noteholders and the Trustee, at their own expense,
for purposes of inspection and copying and shall, at the Issuer's expense,
furnish, or cause to be furnished, to the Trustee or any Noteholder, promptly
after receipt by the Issuer of a request therefor from the Trustee or such
Noteholder in writing, a list of the primary contacts, names and addresses of
the Noteholders as of the Record Date immediately preceding such request;
(o) As long as any Note is outstanding, the Issuer shall not
issue, incur, assume or guarantee any indebtedness or other obligation except
for such indebtedness as may be incurred by the Issuer pursuant to this
Indenture and related documents or instruments;
(p) Each of the representations and warranties of the Originator
set forth in the Purchase and Sale Agreement are true and correct as of the
date when made, and the Issuer hereby makes such representations and
warranties to the Trustee for the benefit of the Noteholders; and
(q) The Issuer shall provide to each Noteholder (i) within 60
days of the end of each fiscal quarter the unaudited financial statements of
the Issuer as of the end of such fiscal quarter, and (ii) within 135 days of
the end of each fiscal year of the Issuer, the unaudited financial statements
of the Issuer as of the end of such fiscal year.
SECTION IV.8 Maintenance of Offices or Agency. The Issuer will maintain
an office or agency, which may be changed in the discretion of the Issuer,
within the United States of America at which Notes may be presented or
surrendered for payment, Notes may be surrendered for registration of
transfer or exchange and notices and demands to or upon the Issuer in respect
of the Notes and this Indenture may be served. The Issuer hereby initially
appoints the Trustee at its corporate trust office such office or agency.
The Issuer will give prompt written notice to the Trustee of the location,
and of any change in the location, of any such office or agency. If at any
time the Issuer shall fail to maintain any such office or agency or shall
fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the corporate trust
office, and the Issuer hereby appoints the Trustee at its corporate trust
office its agent to receive all such presentations, surrenders, notices
and demands.
SECTION IV.10 Further Assurances. The Issuer will execute and deliver,
or cause to be executed and delivered, all such additional instruments and
do, or cause to be done, all such additional actions as (i) may be necessary
or proper, consistent with the Granting Clause hereof, to carry out the
purposes of this Indenture and to make subject to the lien hereof any
property intended so to be subject, (ii) may be necessary or proper to
transfer to any successor trustee the estate, powers, instruments and funds
held in trust hereunder and to confirm the lien of this Indenture with
respect to any series of the Notes, or (iii) the Trustee may reasonably
request for any of the foregoing purposes. The Issuer hereby authorizes
the Trustee to execute and file all such financing statements, continuation
statements and other documents as the Trustee may deem necessary or advisable
to make or keep effective the lien of this Indenture or any supplemental
indenture and the priority thereof. The Trustee shall have no duty to monitor
compliance by the Issuer with the foregoing covenants or to determine
whether the execution or filing of any financing statements or any other
document is necessary or advisable in connection with the foregoing.
ARTICLE V
ACCOUNTS, DISBURSEMENTS AND RELEASES
SECTION V.1 Collection of Money. Except as otherwise expressly provided
herein, the Trustee may demand payment or delivery of, and shall receive and
collect, directly and without intervention or assistance from any fiscal
agent or other intermediary, pursuant to the terms hereof, all money and
other property payable to or receivable by the Trustee pursuant to this
Indenture, including all payments due on the Loans, in accordance with the
respective terms and conditions of such Loans and the Loan Collateral.
Except as otherwise expressly provided herein, the Trustee shall hold all
such money and property received by it as part of the Trust Estate and shall
apply it as provided in this Indenture.
SECTION V.2 Payment Account
(a) On or prior to the Closing Date, the Trustee shall establish
and thereafter maintain a separate trust account under the sole control of
the Trustee entitled "The Chase Manhattan Bank, as trustee, in trust for the
benefit of the holders of the Litchfield Hypothecation Corp. Hypothecation
Loan Collateralized Notes--Payment Account." The Trustee shall make
withdrawals from the Payment Account only as provided in this Indenture.
Monies on deposit in the Payment Account shall be invested in accordance with
Section 5.3 hereof.
(b) Not later than the Business Day immediately following receipt
thereof, the Trustee shall deposit or cause to be deposited into the Payment
Account all monies received by the Trustee in respect of the Loans (including
all payments, insurance proceeds, condemnation proceeds, recoveries and
Servicer Advances, if any) in immediately available funds;
(c) On each Payment Date, the Trustee, in accordance with the
Master Servicer's Certificate, shall withdraw and distribute or cause to be
distributed all monies received in the related Collection Period on deposit
in the Payment Account (including any Investment Income with respect to such
monies on deposit in the Payment Account) in the following order of priority:
(i) To the Trustee, all accrued and unpaid fees and reimbursable
expenses due and payable to the Trustee pursuant to Section 9.7 hereof;
(ii) If the Master Servicer is not the Originator or an Affiliate of
the Originator, to the Master Servicer by wire transfer of immediately
available funds, an amount equal to the Servicing Fee due and payable on such
Payment Date plus all Servicer Advances made by the Master Servicer on
previous Payment Dates to the extent the Master Servicer has not been
reimbursed for such Servicer Advances;
(iii)To the Holders of Notes on the Record Date relating to such Payment
Date, interest accrued on the Notes in the related Payment Period;
(iv)Pro rata to the Holders of Notes on the Record Date relating to such
Payment Date, the Principal Payment Amount due and payable, if any, with
respect to the Notes;
(v)If the Master Servicer is the Originator or an Affiliate of the
Originator, to the Master Servicer by wire transfer of immediately available
funds, an amount equal to the Servicing Fee due and payable on such Payment
Date plus all Servicer Advances made by the Master Servicer on previous
Payment Dates to the extent the Master Servicer has not been reimbursed for
such Servicer Advances; and
(vi)Provided no Payment Default has occurred and is continuing, to the
Issuer, all remaining amounts on deposit in the Payment Account, plus all
Investment Income, if any, then held in the Payment Account to the extent not
needed to make the distributions required by clauses (i) through (v) of this
Section 5.2(c);
SECTION V.3 Servicer Advances. If on the date which is two Business
Days prior to a Payment Date, amounts on deposit in the Payment Account
are insufficient to make the distributions required to be made on such
Payment Date pursuant to paragraphs (iii) and (iv) of Section 5.2 hereof,
the Master Servicer shall be required to make a deposit in the amount of such
shortfall into the Payment Account(each, a "Servicer Advance") on such date;
provided, however, that the Master Servicer shall not be obligated to make
any Servicer Advance if the Master Servicer determines that the Master
Servicer will not be able to ultimately recover the full amount of such
Servicer Advance; and, provided, further that at no time shall outstanding
unreimbursed Future Advances in respect of any particular Loan exceed
$100,000. The Master Servicer shall be entitled to reimbursement for any
Servicer Advance as provided in Section 5.2 hereof.
SECTION V.4 Investment of Funds. Amounts on deposit in the Payment
Account shall, if and to the extent then permitted by law, be invested by the
Trustee in Eligible Investments, at the written direction of an Authorized
Officer of the Issuer. Such investments shall mature on or before the
Business Day preceding the Payment Date following the date of such
investment. Net income or gain received and collected from such investments
shall be credited and losses charged to the Payment Account.
SECTION V.4 Repayment to the Issuer from the Accounts. After payment in
full of the principal of, interest on, and all other amounts due and payable
with respect to the Notes (in accordance with Section 7.1 hereof) and the
payment of all fees, reimbursable charges and expenses of or other amounts
owed to the Issuer, the Trustee, and the Note Registrar and all other amounts
required to be paid hereunder, all amounts remaining in the Payment Account
shall be paid to the Issuer on its written order.
SECTION V.5 Reports to the Noteholders. On each Payment Date, the
Trustee will furnish to the Issuer and will include with each distribution
to the Noteholders the Master Servicer's Certificate delivered pursuant to
Section 3.1(a) of the Servicing Agreement.
ARTICLE VI
[RESERVED]
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
SECTION VII.1 Events of Default. Each of the events described in
clauses (a) through (l) below shall constitute an "Event of Default" with
respect to the Notes (whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or be effected by operation
of law or pursuant to any judgment, decree or order of any court or any
order, rule or regulation of any administrative or governmental body):
(a) The Issuer shall fail to make any payment of principal on the
Notes within two Business Days of the day the same becomes due and payable;
or
(b) The Issuer shall fail to make any payment of interest on the
Notes within two Business Days of the day the same becomes due and payable;
or
(c) The Issuer shall fail to observe or perform in any material
respects any of the covenants of the Issuer under Sections 4.2, 4.3, 4.4,
4.5, 4.6 or 4.9 hereof, which failure has continued for a period of 30 days;
or
(d) The Issuer shall fail to observe or perform its
covenants under Section 4.7 hereof; or
(e) Any representation or warranty of the Issuer set forth in
Section 4.8 of this Indenture shall prove to be false in any material respect
as of the date when made; or
(f) The Issuer makes an assignment for the benefit of
creditors or is generally not paying its debts as such debts become due;
or
(g) The Issuer petitions or applies to any tribunal for, or
consents to, the appointment of, or taking possession by, a trustee,
receiver, custodian, liquidator or similar official of the Issuer, or of any
substantial part of the assets of the Issuer, or commences a voluntary case
under the Bankruptcy Law of the United States or any proceedings relating to
the Issuer, under the Bankruptcy Law of any other jurisdiction; or
(h) Any such petition or application is filed, or any such
proceedings are commenced, against the Issuer and the Issuer by any act
indicates its approval thereof, consent thereto or acquiescence therein, or
any order, judgment or decree is entered appointing any such trustee,
receiver, custodian, liquidator or similar official, or approving the
petition in any such proceedings and such order, judgment or decree remains
unstayed and in effect for more than 30 days; or
(i) Any order, judgment or decree is entered in any proceedings
against the Issuer decreeing the dissolution of the Issuer and such order,
judgment or decree remains unstayed and in effect for more than 60 days; or
(j) A final judgment in an amount in excess of $50,000 is
rendered against the Issuer, and within 60 days after entry thereof, such
judgment is not discharged or execution thereof stayed pending appeal, or
within 60 days after the expiration of any such stay, such judgment is not
discharged;
(k) Any assignment by the Issuer to a delegate of its
duties or rights hereunder, except as specifically permitted hereunder,
or any attempt to make such an assignment; or
(l) Any occurrence or existence of any Event of
Default (as defined in the Servicing Agreement) under the
Servicing Agreement.
SECTION VII.2 Acceleration of Maturity. (a) Upon the occurrence
and continuance of an Event of Default, (i) if such event is an Event of
Default specified in clause (h), (i), (j) or (k) of Section 7.1, all of
the Notes at the time outstanding shall automatically become immediately
due and payable at par together with interest accrued thereon, without
presentment, demand, protest or notice of any kind, all of which are hereby
waived by the Issuer, and (ii) if such event is any other Event of Default,
the Trustee may, and, upon the written request of over 25% in aggregate
outstanding principal amount of the Notes (by notice in writing to the
Issuer and the Trustee), shall declare all of the Notes to be, and all
of the Notes shall thereupon be and become, immediately due and payable
together with interest accrued thereon, without presentment, demand, protest
or other notice of any kind, all of which are hereby waived by the Issuer.
(b) At any time after a declaration pursuant to Section 7.2(a),
but before any judgment or decree for the payment of monies due shall have
been obtained or entered, unless the same has been discharged, and before the
Notes have matured by their terms, or as otherwise provided herein, if all
overdue payments of principal and interest upon such Notes, together with the
reasonable and proper charges, expenses and liabilities of the Trustee and
the Holders of such Notes and their respective agents and attorneys and all
other sums then payable by the Issuer under this Indenture (except the
principal of and interest accrued since the next preceding Payment Date on
such Notes or due and payable solely by virtue of such declaration) shall
either be paid by or for the account of the Issuer or provisions satisfactory
to the Holders of 51% of the aggregate outstanding principal amount of the
Notes shall be made for such payment, and all Events of Default under such
Notes and under this Indenture (other than the payment of principal and
interest due and payable solely by reason of such declaration) have been
cured to the satisfaction of the Holders of 51% of the aggregate outstanding
principal amount of the Notes or provision deemed by the Holders of 51% of
the aggregate outstanding principal amount of the Notes to be adequate has
been made therefor, then and in every such case the Holders of 51% of the
aggregate outstanding principal amount of the Notes by written notice to the
Issuer and to the Trustee, shall have the right, but not be obligated to,
rescind such declaration and annul such Event of Default in its entirety. For
purposes of the foregoing sentence, the Holders of 51% of the aggregate
outstanding principal amount of the Notes shall be determined without regard
to any Notes owned by the Originator or any of its Affiliates. No such
rescission and annulment shall extend to or affect any subsequent Event of
Default or impair or exhaust any right or power consequent thereon.
SECTION VII.3 Enforcement of Remedies. (a) If an Event of Default
shall have occurred and be continuing and the Notes have been declared due
and payable and such declaration and its consequences have not been rescinded
and annulled, the Trustee may, and upon the written request of the Holders of
over 25% in aggregate outstanding principal amount of the Notes shall,
proceed to protect and enforce its rights and the rights of the Noteholders
under the Notes and this Indenture and take one or more of the following
actions without limitation:
(i)proceed to protect and enforce its rights and the rights of the
Noteholders by appropriate Proceedings whether by the specific enforcement of
any covenant or agreement in this Indenture or in the aid of the exercise of
any power granted herein, or to enforce any other property remedy;
(ii)institute Proceedings for the collection of all amounts then payable
on the Notes, whether by declaration or otherwise, enforce any judgment
obtained, and collect any monies adjudged due;
(iii)in accordance with Section 7.13, sell the Trust Estate or any portion
thereof or rights or interest therein, at one or more public or private sales
called and conducted in any manner permitted by law;
(iv)institute Proceedings from time to time for the complete or partial
foreclosure of this Indenture with respect to the Trust Estate; and
(v)exercise any remedies of a secured party under the Uniform Commercial
Code and take any other appropriate action or protect and enforce the rights
and remedies of the Trustee or the Noteholders hereunder.
(b) In the enforcement of any right or remedy under the Notes or
this Indenture, the Trustee shall be entitled to sue for, enforce payment on
and receive any and all amounts then or during any Event of Default becoming,
and any time remaining, due from the Issuer, for principal and interest, or
otherwise, under any of the provisions of the Notes or this Indenture, and
unpaid, with interest on overdue payments at the rate or rates of interest
specified in the Notes, together with any and all costs and expenses of
collection and of all Proceedings under the Notes or the Indenture, without
prejudice to any other right or remedy of the Trustee or the Noteholders and
to recover and enforce judgments or decrees against the Issuer, but solely as
provided in this Indenture and in the Notes for any amounts remaining unpaid,
with interest, costs and expenses, and to collect (but solely from moneys
available therefor to the extent provided in this Indenture) in any manner
provided by law, the moneys adjudged or decreed to be payable. The Trustee
shall file such proof of claim and other papers or documents as may be
necessary or advisable in order to have the claims of the Trustee and the
Noteholders allowed in any judicial proceeding, relative to the Issuer or its
creditors or property.
(c) The Trustee may, and if requested in writing by the Holders
of over 51% in aggregate outstanding principal amount of the Notes and
furnished with reasonable security and indemnity (an unsecured agreement of
indemnity of the Purchaser being deemed sufficient for such purpose), shall,
institute and maintain such suits and proceedings or take such other acts as
it may be advised shall be necessary or expedient to prevent any impairment
of the security under this Indenture or under any Loan Collateral by any acts
which may be unlawful or in violation of this Indenture or of such Loan
Collateral, and such suits and proceedings as the Trustee may be advised
shall be necessary or expedient to preserve or protect its interests and the
interests of the Noteholders; provided, that such request shall not be
otherwise than in accordance with the provisions of law and of this
Indenture.
SECTION VII.2 Application of Money Collected Upon Acceleration.
If the Notes have been declared due and payable pursuant on to Section 7.2
hereof, any moneys collected by the Trustee pursuant to this Article VII
or otherwise held by the Trustee as part of the Trust Estate shall be
applied in the following order at the date or dates fixed by the Trustee
and, in case of the distribution of such moneys on account of principal
of and interest on the Notes upon presentation and surrender thereof:
FIRST: To the payment of amounts due the Trustee pursuant to
Section 9.7 hereof including amounts payable to the Trustee acting as
Master Servicer;
SECOND: To the payment of all the amounts then due and
unpaid upon the Notes for:
(a) all interest payable on the Notes through the
Acceleration Date;
(b) interest from the first day following the
Acceleration Date to the date of payment in full of the aggregate
principal amount of the Notes; and
(c) interest on any overdue installments of interest on the Notes
from the due date of any such installments to the date of payment but only to
the extent that payment of such interest shall be legally enforceable;
such funds to be allocated in proportion to the total amount of interest
otherwise payable on the Notes;
THIRD: To the payment of all amounts then due and unpaid
upon the Notes for principal ratably, without preference or priority of
any kind;
FOURTH: To the payment of all other amounts to the persons
entitled thereto in accordance with this Indenture.
SECTION VII.3 Unconditional Rights of Noteholders To Receive
Principal an. Notwithstanding any other provision in this Indenture, the
Holder of any Note shall have an absolute and unconditional right to receive
payment of the principal of and interest on such Note (subject to Section 2.9
hereof) on or after the respective Payment Dates expressed in such Note, and
such right shall not be impaired without the consent of such Holder.
SECTION VII.4 Restoration of Rights and Remedies. If the Trustee
or any Noteholder has instituted any Proceeding to enforce any right or
remedy under this Indenture and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to the Trustee
or to such Noteholder, then and in every such case the Issuer, the Trustee
and the Noteholders shall, subject to any determination in such
proceedings, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Trustee and the
Noteholders shall continue as though no such Proceeding had been instituted.
SECTION VII.5 Rights and Remedies Cumulative. No right or remedy
herein conferred upon or reserved to the Trustee or to the Noteholders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition
to every other right and remedy given hereunder or now or hereafter existing
at law or in equity or otherwise; the assertion or employment of any right
or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION VII.6 Delay or Omission Not Waiver. No delay or omission
of the Trustee or any Holder to exercise any right or remedy accruing upon
any Event of Default shall impair any such right or remedy or constitute a
waiver of any such Event of Default or an acquiescence therein. Every such
right and remedy given by this Article VII or by law to the Trustee or to the
Noteholders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Noteholders, as the case may be.
SECTION VII.9 Control by Noteholders. Subject to the provisions
of Section 7.2, Section 7.3 and Section 7.7, the Holders of at least
51% of the aggregate outstanding principal amount of the Notes shall have the
right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee with respect to the Notes or
exercising any trust or power conferred on the Trustee with respect to the
Notes; provided that:
(a) such direction shall not be in conflict with any
rule of law or with this Indenture;
(b) the Trustee shall have been provided with indemnity
reasonably satisfactory to it;
(c) subject to (d) below, any direction to the Trustee to
undertake a sale of the Trust Estate or any part thereof shall be by the
Holders of Notes representing not less than 66-2/3% of the aggregate
outstanding principal amount of the Notes; and
(d) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction; provided, however,
that, subject to Section 9.1 hereof, the Trustee need not take any action
which it determines might involve it in liability or may be unjustly
prejudicial to the Noteholders not consenting.
SECTION VII.7 Waiver of Past Events of Default. Prior to the time
a judgment or decree for payment of the money due has been obtained by the
Trustee, as provided in this Article VII, the Trustee may waive any past
Event of Default with respect to the Notes and its consequences except an
Event of Default (a) in the payment of principal of or interest on any of the
Notes or (b) in respect of a covenant or provision hereof which cannot be
modified or amended without the consent of the Holder of each Note affected.
Upon any such waiver, such Event of Default shall cease to exist and be
deemed to have been cured and not to have occurred, and any Event of Default
arising therefrom shall be deemed to have been cured, and not to have
occurred for every purpose of this Indenture. In the case of any such
waiver, the Issuer, the Trustee and the Holders of the Notes shall be
restored to their former positions and rights hereunder, respectively; but no
such waiver shall extend to any subsequent or other Event of Default or
impair any right consequent thereon.
SECTION VII.8 Undertaking for Costs. The Issuer and the Trustee
agree, and each Noteholder by such Noteholder's acceptance of a Note shall
be deemed to have agreed, that any court may in its discretion require, in
any suit for the enforcement of any right or remedy under this Indenture
undertaken by the Trustee at the direction of the Noteholders, or in any
suit against the Trustee for any action taken, suffered or omitted by it as
Trustee, the filing by any party litigant in such suit of an undertaking
to pay the costs of such suit, and that such court may in its discretion
assess reasonable costs, including reasonable attorneys' fees, against
any party litigant in such suit, having due regard to the merits and good
faith of the claims or defenses made by such party litigant; but the
provisions of this Section 7.11 shall not apply to any suit instituted by
the Trustee, to any suit instituted by any Noteholder, or group of
Noteholders, holding in the aggregate at least 51% of the aggregate
outstanding principal amount of the Notes, or to any suit instituted by
any Noteholder for the enforcement of the payment of principal of or interest
on any Note, which principal or interest is due and payable.
SECTION VII.12 Issuer Waiver of Stay or Extension Laws; Waiver of
Ju. (i) The Issuer covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the
covenants or the performance of this Indenture; and the Issuer (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage
of any such law, and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and
permit the execution of every such power as though no such law had been
enacted.
(ii) The Issuer and the Trustee each hereby waives the right to
trial by jury in any Proceeding of any kind arising out of or in respect of
this Indenture or any Note.
SECTION VII.9 Sale of Trust Estate.
(a) The power to effect any sale of any portion of the Trust
Estate pursuant to Section 7.3 hereof shall not be exhausted by any one or
more sales as to any portion of the Trust Estate remaining unsold, but shall
continue unimpaired until either the entire Trust Estate shall have been sold
or all amounts payable on the Notes and under this Indenture shall have been
paid pursuant to Section 7.4. The Trustee may from time to time postpone any
sale by public announcement made at the time and place of such sale. The
Trustee hereby expressly waives its right to any amount fixed by law as
compensation for any sale; provided, however, that such waiver does not apply
to any amounts to which the Trustee is otherwise entitled under Section 9.7
hereof.
(b) The Trustee may bid for and acquire any portion of the Trust
Estate in connection with a public sale or, to the extent permitted by law, a
private sale thereof, and in lieu of paying cash to the Issuer therefor, may
make settlement for the purchase price by applying to the gross sale price in
payment therefor the sum of (i) the amount of unpaid principal of and accrued
interest on the Notes, and (2) the expenses of the sale and of any
proceedings in connection therewith which are reimbursable to it pursuant to
Section 9.7 hereof and other amounts due hereunder and secured by the Trust
Estate. The Notes need not be produced to complete any such sale.
(c) The Trustee shall execute and deliver an appropriate
instrument of conveyance transferring its interest in any portion of the
Trust Estate in connection with a sale hereof. In addition, the Trustee is
hereby irrevocably appointed an agent and attorney-in-fact of the Issuer to
transfer and convey the Issuer's interest in any portion of the Trust Estate
in connection with a sale thereof, and to take all action necessary to effect
such sale. No purchaser or transferee at such a sale shall have any
obligation to ascertain the Trustee's authority, inquire into the
satisfaction of any conditions precedent or see to the application of any
moneys.
SECTION VII.10 Action on Notes. The Trustee's right to seek and
recover judgment on the Notes or under this Indenture shall not be affected
by the seeking, obtaining or application of any other relief under or with
respect to this Indenture. Neither the lien of this Indenture nor any rights
or remedies of the Trustee or the Noteholders shall be impaired by the
recovery of any judgment by the Trustee against the Issuer or by the
levy of any execution under such judgment upon any portion of the Trust
Estate or upon any of the assets of the Issuer.
ARTICLE VIII
SATISFACTION AND DISCHARGE
SECTION VIII.1 Satisfaction and Discharge of Indenture. This
Indenture shall cease to be of further effect except as to (a rights of
registration of transfer and exchange, (b) rights of substitution of
new Notes for mutilated, destroyed, lost or stolen Notes, (c) rights of
Noteholders to receive payments of principal thereof and interest thereon,
(d) the rights, obligations and immunities of the Trustee hereunder, and (e)
the rights of Noteholders as beneficiaries hereof with respect to the
property so deposited with the Trustee and payable to them, and the Trustee,
on demand of and at the expense of the Issuer, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture, when:
(a) all Notes theretofore authenticated and delivered (other than
Notes which have been mutilated, destroyed, stolen and which have been
replaced, or paid as provided in Section 2.8 hereof) have been delivered to
the Trustee for cancellation; and
(b) the Issuer has delivered to the Trustee an Officer's
Certificate stating that there has been compliance with all conditions
precedent herein provided for the satisfaction and discharge of this
Indenture.
Notwithstanding the satisfaction and discharge of this Indenture,
the obligations of the Issuer to the Trustee under Section 9.7 hereof and of
the Trustee to the Issuer and the Noteholders, as the case may be, under
Section 8.2 hereof and the provisions of Article II hereof with respect to
lost, stolen, destroyed or mutilated Notes, registration of transfer and
exchange of Notes, and rights to receive payments of principal of or interest
on the Notes shall survive.
SECTION VIII.2 Application of Trust Money. All moneys deposited
with the Trustee pursuant to Article V hereof shall be held in trust by the
Trustee, in its trust capacity and not in its commercial capacity, and
applied by the Trustee in accordance with the provisions of the Notes and
this Indenture, to the payment to the Holders of the Notes, and, if required
hereunder, to the Issuer.
SECTION VIII.3 Release of Trust Estate
(a Subject to the payment of its fees and expenses pursuant to
Section 9.7 hereof and only when and to the extent required by the provisions
of this Indenture, the Trustee shall execute instruments to release property
from the lien of this Indenture, or convey the Trustee's interest in the
same, in a manner and under circumstances which are not inconsistent with the
provisions of this Indenture. No party relying upon an instrument executed by
the Trustee as provided in this Article V shall be bound to ascertain the
Trustee's authority, inquire into the satisfaction of any conditions
precedent or see to the application of any moneys.
(b The Trustee shall, at such time as there are no Notes
outstanding and all sums due the Trustee pursuant to Section 9.7 hereof have
been paid, release the Trust Estate from the lien of this Indenture.
(c Upon receipt of an Officer's Certificate of the Master
Servicer stating either (i) that all payments of principal and interest have
been made upon any Loan held by the Trustee, or the Collateral Agent on
behalf of the Trustee, hereunder and deposited into the Payment Account or
(ii) that the Trustee has received an amount sufficient to prepay a principal
amount of the Notes equal to the outstanding principal amount of a Loan in
accordance with Section 2.9(c)(ii)(B)(iv) hereof, the Trustee, or the
Collateral Agent on behalf of the Trustee, shall promptly release, reassign
without representation or recourse and deliver the Loan Documents with
respect to such Loan to the Issuer.
<PAGE>
ARTICLE IX
THE TRUSTEE
SECTION IX.1 Certain Duties and Responsibilities
(a Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only those
duties and no others; the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(ii0 in the absence of bad faith on its part, the Trustee may
conclusively rely upon certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture, including investment
instructions received pursuant to Section 5.4 hereof, as to the truth of the
statements and the correctness of the opinions expressed therein; but in the
case of any such certificates or opinions which by any provision of this
Indenture are specifically required to be furnished to the Trustee, the
Trustee shall be under a duty to examine the same to determine whether or not
they conform as to form to the requirements of this Indenture.
(b In case an Event of Default has occurred and is continuing,
the Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of
his own affairs.
(c No provision of this Indenture, including, without limitation,
Section 9.7, shall be construed to relieve the Trustee from liability for its
own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i0this subsection shall not be construed to limit the effect of
subsection (a) of this Section 9.1;
(ii0the Trustee shall not be liable for any error of judgment made in good
faith by an Authorized Officer of the Trustee, unless it shall be proved that
the Trustee was negligent in ascertaining the pertinent facts; and
(iii0the Trustee shall not be personally liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with any
direction received by the Trustee in accordance with the terms of this
Indenture from the Holders of at least 51% (or such other percentage as may
be required by the terms hereof) of the then aggregate outstanding principal
amount of the Notes relating to the time, method and place of conducting any
Proceeding for any remedy available to the Trustee, or exercising any trust
or power conferred upon the Trustee, under this Indenture.
(d Whether or not therein expressly so provided, every provision
of this Indenture relating to the conduct of, affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of
this Section.
(e For all purposes under this Indenture, the Trustee shall not
be deemed to have notice of any Default or Event of Default (other than an
Event of Default described in Sections 7.1(a) or (b) hereof) or a Default or
Event of Default under any document included in the Trust Estate, unless an
Authorized Officer of the Trustee has actual knowledge thereof or unless the
Trustee has received written notice thereof at the Trust Office and such
notice references the Notes generally, the Issuer, the Trust Estate or this
Indenture. For purposes of determining the Trustee's responsibility and
liability hereunder, whenever reference is made in this Indenture to a
Default or an Event of Default, such reference shall be construed to refer
only to the Default or the Event of Default of which the Trustee is deemed to
have notice pursuant to this Section 9.1(e).
(f No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if there shall be reasonable ground for believing that
repayment of such funds or adequate indemnity against such risk or liability
is not reasonably assured to it, the Trustee having the right to require an
indemnity pursuant to subparagraph (g) below.
(g The Trustee shall not be under any obligation to institute any
suit, or to take any remedial Proceeding under this Indenture, or to enter
any appearance in or in any way defend any suit in which it may be made
defendant, or to take any steps in the execution of the trusts hereby
created, the performance of any of its duties hereunder or in the enforcement
of any rights and powers hereunder until it shall be indemnified to its
reasonable satisfaction against any and all costs and expenses, outlays and
counsel fees and other reasonable disbursements and against all liability,
except liability which is adjudicated to have resulted from its own
negligence or willful misconduct, in connection with any action so taken.
(h Notwithstanding any extinguishment of all right, title and
interest of the Issuer in and to the Trust Estate following an Event of
Default and a consequent declaration of acceleration of the maturity of the
Notes, whether such extinguishment occurs through a sale of the Trust Estate
to another person, the acquisition of the Trust Estate by the Trustee or
otherwise, the rights, powers and duties of the Trustee with respect to the
Trust Estate (or the proceeds thereof) and the Noteholders and the rights of
the Noteholders shall continue to be governed by the terms of this Indenture.
(i The Trustee shall keep and maintain proper books of record and
accounts relating to the Notes in which full, true and correct entries will
be made of all dealings or transactions of the Trustee in relation to the
Notes, the Accounts and the Issuer. The Trustee shall keep such books of
record and accounts available for inspection by the Issuer or by any Holder
of Notes during reasonable business hours and under reasonable circumstances.
For purposes of preparing such books and records, the Trustee is authorized
to retain outside accountants at the expense of the Issuer.
SECTION IX Notice of Events of Default. Promptly after the
Trustee shall have notice of the occurrence of any Default or Event of
Default, the Trustee shall transmit by mail to all Holders and the Issuer
notice of such Event of Default known to the Trustee.
SECTION IX.4 Certain Rights of the Trustee. Except as otherwise
expressly provided in Section 9.1 hereof:
(a in the absence of bad faith or negligence the Trustee
conclusively may rely on and shall be protected in acting or refraining from
acting when doing so, in each case in accordance with any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, note or other paper or document believed by
the Trustee to be genuine and to have been signed or presented by the proper
party or parties, and the Trustee need not investigate any facts stated
therein;
(b whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad faith
on its part, rely upon an Officer's Certificate;
(c before the Trustee acts or refrains from acting, it may
require an Officer's Certificate or Opinion of Counsel, or both, and the
Trustee shall not be liable for any action it takes, suffers or omits in
reliance on either thereof; the Trustee may consult with counsel, and the
written advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of the legality of any
action taken, suffered or omitted by the Trustee hereunder in good faith and
in reliance thereon;
(d the Trustee shall not be under any obligation to exercise any
of the rights or powers vested in it by this Indenture at the request or
direction of any of the Noteholders pursuant to this Indenture, unless such
Noteholders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be incurred
by it in compliance with such request or direction;
(e the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, note or other paper or document, but the Trustee in its discretion may
make such further inquiry or investigation into such facts or matters as it
may see fit, and if the Trustee shall determine to make such further inquiry
or investigation, it shall be entitled, on reasonable prior notice to the
Issuer, to examine the books, records and premises of the Issuer, personally
or by agent or attorney, during the Issuer's normal business hours; provided
that the Trustee shall and shall cause its agents to hold in confidence all
such information except to the extent disclosure may be required by law and
except to the extent that the Trustee, in its sole judgment, may determine
that such disclosure is consistent with its obligations hereunder;
(f the Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder;
(g the Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within the
rights or powers conferred upon it by this Indenture; and
(h to the extent a Person other than the Trustee is appointed by
the Issuer to act as Note Registrar, such Person shall be an agent of the
Issuer, and the Trustee shall not be liable or responsible by reason of any
act or omission of any such Person.
SECTION IX.5 Not Responsible for Recitals or Issuance of Notes.
The recitals contained herein and in the Notes, except any such recitals
relating to the Trustee, shall be taken as the statements of the Issuer,
and the Trustee assumes no responsibility for their correctness. The Trustee
shall not be responsible for and makes no representation as to the validity
or sufficiency of this Indenture, the Notes or the Trust Estate. The Trustee
shall not be accountable for the Issuer's issue of the Notes or application
of the proceeds thereof or for any money paid to the Issuer or upon the
Issuer's direction under any of the provisions of this Indenture. The
Trustee is not responsible for the use or application of any moneys by any
agent other than the Trustee, including, without limitation, the Master
Servicer. The Trustee shall not be responsible for any statement in the Notes
or in any other document prepared, executed or delivered in connection with
the sale and issuance of the Notes or the execution and delivery of this
Indenture except its certificate of authentication.
. The Trustee, in its individual or any other capacity, may
become the owner or pledgee of Notes and may otherwise deal with the Issuer
with the same rights it would have if it were not Trustee.
. Money held by the Trustee in trust hereunder will be held by
the Trustee in its trust capacity and not in its commercial capacity, in a
segregated account in accordance with the Indenture. The Trustee shall be
under no liability for interest on any money received by it hereunder except
as otherwise agreed in writing with the Issuer and except to the extent of
income or other gain on Eligible Investments which are obligations of the
Trustee (excluding obligations of Affiliates of the Trustee) and income or
other gain actually received by the Trustee on Eligible Investments which are
obligations of a third party.
.ECTION IX.8 Compensation and Reimbursement
(a The Issuer agrees:
(1) subject to any separate written agreement with the Trustee, to pay
the Trustee from time to time reasonable compensation for all services
rendered by it or any of its agents, including, without limitation, the
Collateral Agent (each, the "Trustee" for the purposes of this Section
9.7(a)) hereunder (which compensation shall not be limited by any provision
of law in regard to the compensation of a trustee of an express trust);
(2) to reimburse the Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture; and
(3) to indemnify the Trustee for, and to hold the Trustee harmless
against, any loss, liability or expense incurred without negligence or bad
faith on its part, arising out of or in connection with the acceptance or
administration of this trust (other than taxes, penalties or other
liabilities arising in connection with the Trustee's failure to withhold from
payments with respect to the Notes amounts required to be withheld under the
Code, or the Trustee's withholding from such payments amounts not required or
permitted to be withheld under the Code), including the reasonable costs and
expenses, including reasonable attorneys' fees, of defending themselves
against any claim or liability in connection with the exercise or performance
of any of their powers or duties hereunder; provided that:
(i0with respect to any such claim, the Trustee shall have given the Issuer
written notice thereof promptly after the Trustee shall have knowledge
thereof, provided, however, that the failure of the Trustee to so notify the
Issuer shall not relieve the Issuer of its obligations pursuant to this
subparagraph;
(ii0the Issuer shall assume the defense of any such claim, provided that
if the Issuer shall not have employed counsel reasonably satisfactory to the
Trustee to direct the defense of such claim within a reasonable time after
such notice of the claim pursuant to paragraph (i) above, the Trustee shall
have the right to direct the defense of such claim;
(iii0the Trustee shall have the right to employ separate counsel with
respect to any claim and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the Trustee unless
the payment of such counsel has been specifically authorized by the Issuer;
provided further, however, that if the Trustee shall assume the defense of
any claim as a result of the Issuer's failure to assume the defense of such
claim as described in paragraph (ii) above, the Issuer shall pay the
reasonable fees and expenses of Trustee's counsel in connection with the
defense of such claim; and
(iv0notwithstanding anything to the contrary in this Section 9.7(a)(3),
the Issuer shall not be liable for settlement of any such claim by the
Trustee entered into without the prior consent of the Issuer.
Nothing in this Section 9.7 shall be construed to limit the
exercise by the Trustee of any right or remedy permitted under this Indenture
or otherwise in the event of the Issuer's failure to pay any sums due the
Trustee pursuant to this Section 9.7.
(b The provisions of this Section 9.7 shall govern all other
provisions of this Indenture regarding the payment of the fees and expenses
of the Trustee.
(c To secure the Issuer's payment obligations under this Section
9.7, the Trustee shall have a lien prior to the Noteholders on the Trust
Estate, except with respect to such moneys as are held in trust to pay
principal of and interest on particular Notes. Such lien shall survive the
satisfaction and discharge of this Indenture.
(d The payment obligations of the Issuer under this Section 9.7
shall survive the satisfaction and discharge of this Indenture.
. The Trustee shall be a corporation or national banking
association or trust company organized and doing business under the laws of
the United States of America or of any State, authorized under such laws to
exercise corporate trust powers, having a combined capital and surplus of at
least $50,000,000, subject to supervision or examination by any federal or
state banking authority (except as provided in Section 9.9 hereof). If such
Trustee publishes reports of condition annually, or more frequently, pursuant
to law or to the requirements of the aforesaid supervising or examining
authority, then for the purposes of this Section 9.8, the combined capital
and surplus of such corporation shall be deemed to be the respective amount
set forth in its most recently published report of condition. The Trustee
shall provide copies of such reports to the Issuer or any Noteholder upon
request at the requesting party's expense. If at any time the Trustee shall
cease to be eligible in accordance with the provisions of this Section 9.8,
it shall resign immediately in the manner and with the effect hereinafter
specified in this Article IX.
SECTION IX.10 Resignation and Removal; Appointment of Successor .
(a No resignation or removal of the Trustee and no appointment of
a successor trustee pursuant to this Article IX shall become effective until
the acceptance of appointment by the successor trustee under Section 9.10
hereof. Any successor Trustee appointed hereunder is subject to the approval
of the Holders of at least 51% of the aggregate outstanding principal amount
of the Notes, which approval, in neither case, shall be unreasonably withheld
or delayed.
(b The Trustee or any trustee hereafter appointed may resign at
any time by giving written notice of resignation to the Issuer, and by
mailing notice of resignation by first-class mail, postage prepaid, to all of
the Noteholders, at their addresses appearing on the Note Register. Upon
receiving notice of resignation of the Trustee, the Issuer shall promptly
appoint a successor trustee, by written instrument, in duplicate, one copy of
which instrument shall be delivered to the resigning Trustee and one copy to
the successor trustee or trustees. The Trustee shall serve as trustee
hereunder until a successor trustee shall have been appointed and shall have
accepted such appointment; provided, however, that if no successor trustee
shall have been appointed and have accepted appointment within 30 days after
the giving of such notice of resignation, the resigning Trustee may, or any
Noteholder who has been a bona fide Holder for at least six months may on
behalf of himself or herself and all others similarly situated, petition any
such court of competent jurisdiction for the appointment of a successor
trustee. Such court may thereupon, after such notice, if any, as it may deem
proper and prescribe, appoint a successor trustee.
(c If at any time:
(1) the Trustee shall cease to be eligible under Section 9.8 hereof and
shall fail to resign, after written request therefor by the Issuer or by any
Noteholder who has been a bona fide Holder for at least six months; or
(2) (A) the Trustee shall become incapable of acting, (B) a court
having jurisdiction in the premises in respect of the Trustee in an
involuntary case under the federal bankruptcy laws, as now or hereafter
constituted, or any other applicable federal or state bankruptcy, insolvency
or other similar law, shall have entered a decree or order granting relief or
appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator
(or similar official) for the Trustee or for any substantial part of the
Trustee's property, or ordering the winding-up or liquidation of the
Trustee's affairs, provided any such decree or order shall have continued
unstayed and in effect for a period of 60 consecutive days or (C) the Trustee
commences a voluntary case under the federal bankruptcy laws, as now or
hereafter constituted, or any other applicable federal or state bankruptcy,
insolvency or other similar law, or consents to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) for the Trustee or for any
substantial part of the Trustee's property, or makes any assignment for the
benefit of creditors or fails generally to pay its debts as such debts become
due or takes any corporate action in furtherance of any of the foregoing;
then, in any such case the Issuer hereby agrees with the Noteholders that it
shall remove the Trustee by written request and appoint a successor trustee
by written instrument, in duplicate, one copy of which instrument shall be
delivered to the Trustee so removed and one copy to the successor trustee, or
any Noteholder who has been a bona fide Holder for at least six months may,
on behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee and for the appointment
of a successor trustee. Such court may hereupon, after such notice, if any,
as it may prescribe, remove the Trustee and appoint a successor trustee.
(d The Trustee may also be removed at any time by act of the
Holders of at least 51% of the aggregate outstanding principal amount of the
Notes.
(e The Issuer shall give notice of the resignation or removal of
the Trustee by mailing notice of such event by first-class mail, postage
prepaid, to the Holders of the Notes as their names and addresses appear in
the Note Register. Each notice shall include the name of the successor
trustee and the address of its trust division or department. The notice
required by this paragraph (e) may be given at the same time as the notice
required by Section 9.10.
. Every successor trustee appointed hereunder shall execute,
acknowledge and deliver to the Issuer and its predecessor trustee an
instrument accepting such appointment hereunder. Upon the delivery and
execution of the required instruments, the resignation or removal of the
predecessor trustee shall become effective and such successor trustee,
without any further act, need or conveyance, shall become vested with all the
rights, powers, trusts, duties and obligations of its predecessor hereunder.
Notwithstanding the foregoing, on request of the Issuer or the successor
trustee, such predecessor trustee shall, upon payment of its then unpaid
charges due and payable under Section 9.7 hereof, execute and deliver an
instrument transferring to such successor trustee all of the rights, powers
and trusts of the predecessor trustee and shall duly assign, transfer and
deliver to such successor trustee all property and money held by such
predecessor trustee hereunder. Upon request of any such successor trustee,
the Issuer shall execute any and all instruments providing for more full and
certain vesting in and confirming to such successor trustee all such rights,
powers and trusts of this Indenture.
Upon acceptance of appointment by a successor trustee as provided
in this Section 9.10, the Issuer shall mail notice thereof by first-class
mail, postage prepaid, to the Holders at the Holders' addresses appearing
upon the Note Register. If the Issuer fails to mail such notice within 10
days after acceptance of appointment by the successor trustee, the successor
trustee shall cause such notice to be mailed at the expense of the Issuer.
Any successor trustee must, at the time of such successor's
acceptance of its appointment, meet the eligibility requirements set forth in
this Article IX, and otherwise exercise the rights, remedies, powers and
authority of the predecessor trustee with respect to the Trust Estate.
Notwithstanding the replacement of the Trustee or any successor
trustee pursuant to the provisions of this Indenture, the Issuer's
obligations set forth in Section 9.7 hereof shall survive such replacement
and continue for the benefit of the resigning or replaced trustee.
SECTION IX. Merger, Conversion, Consolidation or Succession to
Business . Any corporation into which the Trustee may be merged or converted
or with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation succeeding to all or substantially all of the corporate trust
business of the Trustee shall be the successor of the Trustee hereunder
without the execution or filing of any paper or any further act on the part
of any of the parties hereto; provided such corporation shall be otherwise
qualified and eligible under this Article IX. In case any Notes have been
authenticated, but not delivered, by the Trustee then in office, any
successor by merger, conversion or consolidation to such authenticating
Trustee may deliver the Notes so authenticated with the same effect as if
such successor trustee had itself authenticated such Notes.
. The Trustee shall have power, with the consent of the Holders
of Notes representing at least 51% of the then aggregate outstanding
principal amount of the Notes, to appoint, one or more Persons approved by
the Issuer either to act as Collateral Agent or co-trustee of all or any part
of the Trust Estate, or to act as separate trustee of any such property, in
either case with such powers as may be provided in the instrument of
appointment, and to vest in such Person or Persons in the capacity aforesaid,
any property, title, right or power deemed necessary or desirable, subject to
the other provisions of this Section. The Issuer hereby directs the Trustee
to appoint BankBoston as the initial Collateral Agent pursuant to the
Collateral Agent Agreement. If the Issuer does not approve such appointment
within 15 days after the receipt by it of a request so to do, or in case an
Event of Default has occurred and is continuing, the Trustee alone shall have
power to make such appointment.
Should any written instrument from the Issuer be required by any
Collateral Agent, co-trustee or separate trustee so appointed for more fully
confirming to such Collateral Agent, co-trustee or separate trustee such
property, title, right or power, any and all such instruments shall, on
request, be executed, acknowledged and delivered by the Issuer.
Every Collateral Agent, co-trustee or separate trustee shall, to
the extent permitted by law, but to such extent only, be appointed subject to
the following terms, namely:
(1) The Notes shall be authenticated and delivered and all rights,
powers, duties and obligations hereunder in respect of the custody of
securities or cash held by or required to be deposited with the Trustee in an
Account hereunder, shall be exercised, solely by the Trustee.
(2) The rights, powers, duties and obligations hereby conferred or
imposed upon the Trustee shall be conferred or imposed upon and exercised or
performed by the Trustee or by the Trustee and such Collateral Agent,
co-trustee or separate trustee jointly, as shall be provided in the
instrument appointing such Collateral Agent, co-trustee or separate trustee,
except to the extent that under any law of any jurisdiction in which any
particular act is to be performed, the Trustee shall be incompetent or
unqualified to perform such act, in which event such rights, powers, duties
and obligations shall be exercised and performed by such Collateral Agent,
co-trustee or separate trustee.
(3) The Trustee at any time, by an instrument in writing executed by
it, with the concurrence of the Issuer, may accept the resignation of or
remove any Collateral Agent, co-trustee or separate trustee appointed under
this Section 9.12, and, in case an Event of Default has occurred and is
continuing, the Trustee shall have power to accept the resignation of, or
remove, any such Collateral Agent, co-trustee or separate trustee without the
concurrence of the Issuer. Upon the written request of the Trustee, the
Issuer shall join with the Trustee in the execution, delivery and performance
of all instruments and agreements necessary or proper to effectuate such
resignation or removal. A successor to any Collateral Agent, co-trustee or
separate trustee so resigned or removed may be appointed in the manner
provided in this Section 9.12.
(4) No Collateral Agent, co-trustee or separate trustee hereunder shall
be personally liable by reason of any act or omission of the Trustee, or any
other such trustee hereunder.
(5) Any act of Noteholders delivered to the Trustee shall be deemed to
have been delivered to each such Collateral Agent, co-trustee and separate
trustee.
ARTICLE X
AMENDMENTS
. Without the consent of, or notice to, the Holders of any Notes,
the Issuer and the Trustee, may amend this Indenture at any time and from
time to time for any of the following purposes:
(a to correct or amplify the description of any property at any
time subject to the lien of this Indenture, or better to assure, convey and
confirm unto the Trustee any property subject or required to be subjected to
the lien of this Indenture, or to subject to the lien of this Indenture
additional property; or
(b to evidence the succession, in compliance with the provisions
of Section 4.2(b) hereof, of another person to the Issuer, and the assumption
by any such successor of the covenants of the Issuer contained herein and in
the Notes; or
(c to add to the covenants of the Issuer or the
Trustee, for the benefit of the Noteholders, or to surrender any right or
power herein conferred upon the Issuer; or
(d to convey, transfer, assign, mortgage or pledge any
property to the Trustee to constitute additional Trust Estate; or
(e to cure any ambiguity, correct or supplement any provision
herein which may be defective or inconsistent with any other provisions
herein or amend any other provisions with respect to matters or questions
arising under this Indenture, provided that such action shall not adversely
affect the interests of the Holders; or
(f to evidence and provide for the acceptance of
appointment hereunder by a successor trustee or note registrar, pursuant
to the requirements of Sections 9.9 or 9.10 hereof.
The Trustee is hereby authorized to join in the execution of any
such amendment and to make any further appropriate agreements and
stipulations which may be therein contained or required.
. With the consent of the Holders of at least 66-2/3% of the
aggregate outstanding principal amount of the Notes delivered to the Issuer
and the Trustee, the Issuer, pursuant to a written request, and the Trustee
may amend this Indenture for the purpose of adding to, changing or
eliminating any of the provisions of this Indenture or of modifying the
rights of Holders under this Indenture; provided, however, that no such
amendment shall, without the consent of the Holder of each outstanding Note:
(1) change the maturity of the principal of, or any installment of
principal of or interest on, any Note, or reduce the principal amount
thereof, the interest rate thereon, or change the provisions of this
Indenture relating to the application of the Trust Estate to payment of
principal of Notes, or change any place of payment where, or the coin or
currency in which, the principal of or the interest of any Note is payable,
or impair the right to institute Proceedings for the enforcement of the
provisions of the Indenture requiring the application of funds available
therefor, as provided in Article VII, to the payment of any amount due on the
Notes on or after the maturity thereof; or
(2) reduce the percentage of the aggregate outstanding principal amount
of the Notes, the consent of the Holders of which is required for any
amendment, or the consent of the Holders of which is required for any waiver
of compliance with certain provisions of this Indenture or certain defaults
hereunder and their consequences provided for in this Indenture; or
(3) modify or alter the provisions of the proviso to the
definition of the term "outstanding"; or
(4) permit the creation of any lien ranking prior to or on a parity
with the lien of this Indenture with respect to any part of a Trust Estate or
terminate the lien of this Indenture on any property at any time subject
hereto or deprive any Holder of the security afforded by the lien of this
Indenture except as expressly otherwise permitted hereby; or
(5) reduce the percentage of the aggregate outstanding principal amount
of the Notes, the consent of the Holders of which is required to direct the
Trustee to sell the Trust Estate pursuant to Section 7.13 hereof; or
(6) modify any of the provisions of this Section 10.2, except to
increase any percentage specified herein or to provide that certain
additional provisions of this Indenture cannot be modified or waived without
the consent of each Holder of an outstanding Note affected thereby; or
(7) modify any of the provisions of this Indenture in such a manner as
to affect the calculation of the amount of any payment of interest or
Principal Payment Amount due on any Note on any Payment Date (including the
calculation of any of the individual components of such calculation).
Promptly after the execution by the Issuer and the Trustee of any
amendment pursuant to this Section, the Trustee shall mail to the Holders a
notice setting forth in general terms the substance of such amendment. Any
failure of the Trustee to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amendment.
. Upon the execution of any amendment of this Indenture pursuant
to the provisions hereof, this Indenture shall be, and be deemed to be,
modified and amended in accordance therewith with respect to each Note and
the respective rights, limitations, obligations, duties, liabilities and
immunities under this Indenture of the Trustee, the Issuer and the Holders
shall thereafter be determined, exercised and enforced hereunder subject in
all respects to such modifications and amendments, and all the terms and
conditions of any such amendment shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.
. Notes authenticated and delivered after the execution of any
amendment of this Indenture pursuant to this Article X may, and, if required
by the Issuer shall, bear a notation in form approved by the Trustee as to
any matter provided for in such amendment. If the Issuer shall so require,
new Notes so modified as to conform, in the opinion of the Trustee and the
Issuer, to any such amendment may be prepared and executed by the Issuer and
authenticated and delivered by the Trustee in exchange for outstanding Notes.
ARTICLE XI
MISCELLANEOUS
. In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary
that all such matters be certified by, or covered by the opinion of, only one
such Person, or that they be so certified or covered by only one document,
but one such Person may certify or give an opinion with respect to some
matters and one or more other such Persons as to other matters, and any such
Person may certify or give an opinion as to such matters in one or several
documents. Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Any certificate or opinion may be based, insofar as it relates to
legal matters, upon an opinion of, or representations by, counsel, unless the
Issuer knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to the matters upon
which his certificate or opinion is based are erroneous. Any Officer's
Certificate or Opinion of Counsel may be based, without independent
investigation, insofar as it relates to factual matters, upon a certificate
or opinion of, or representations by the Trustee or other appropriate Person,
stating that the information with respect to such factual matters is in the
possession of the Issuer, the Trustee or other appropriate Person, as the
case may be, unless such Person knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect
to such matters are erroneous. Any opinion of counsel may be based upon such
assumptions as shall be deemed appropriate by counsel rendering such Opinion
of Counsel.
In connection with any application, certificate or report to the
Trustee, whenever this Indenture provides that the Issuer shall deliver any
document as a condition of the granting of such application, or as evidence
of the Issuer's compliance with any terms hereof, it is intended that the
truth and accuracy of the facts and opinions stated in such document, at the
time of the granting of such application or at the effective date of such
certificate or report (as the case may be), shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to
the sufficiency of such certificate or report. The foregoing shall not,
however, be construed to affect the Trustee's right to rely upon the truth
and accuracy of any statement or opinion contained in any such document as
provided in Article IX hereof or to impose a duty on the Trustee to ascertain
such truth or inaccuracy.
Whenever this Indenture provides that the absence of the
occurrence and continuation of a Default or Event of Default as a condition
precedent to the taking of any action by the Trustee at the request or
direction of the Issuer, then, notwithstanding that the satisfaction of such
condition is a condition precedent to the Issuer's right to make such request
or direction, the Trustee shall be protected in acting in accordance with
such request or direction if it does not have knowledge of the occurrence and
continuance of such Default or Event of Default as provided in Section 9.1(e)
hereof.
. All notices, requests or other communications desired or
required to be given under this Indenture shall be in writing and shall be
sent by (a certified or registered mail, return receipt requested, postage
prepaid, (b) national prepaid overnight delivery service, (c
telecopy or other facsimile transmission (following with hard copies to be
sent by national prepaid overnight delivery service) or (d) personal delivery
with receipt acknowledged in writing, as follows:
(a) If to the Trustee:
The Chase Manhattan Bank
450 West 33rd Street
New York, New York 10001
Attention: Global Trust Services,
Structured Finance Services
(b) If to the Issuer:
Litchfield Hypothecation Corp.
c/o Litchfield Financial Corporation
789 Main Road
Stamford, Vermont 05352
Attention: President
with a copy of any letter, notice, communication or direction hereunder to
the Originator at the address set forth below.
(c) If to the Purchaser:
Liberty Bank
315 Main Street
Middletown, Connecticut 06457
Attention: Mr. James Bishop
(d) If to the Originator or the Master Servicer:
Litchfield Financial Corporation
789 Main Road
Stamford, Vermont 05352
Attention: President
(f) Notices required under this Indenture to be sent to
the Noteholders shall in addition be sent to the Issuer.
All notices shall be deemed given when actually received or refused by the
party to whom the same is directed (except to the extent sent by certified or
registered mail, return receipt requested, postage prepaid, in which event
such notice shall be deemed given three days after the date of mailing). Each
party may designate a change of address or supplemental addressee(s) by
notice to the other parties, given at least 15 days before such change of
address is to become effective. Any notice received from any Noteholder by
any party listed in this Section 11.2 shall be promptly transmitted by such
party to all other parties listed in this Section 11.2.
. Upon the request of any Noteholder holding 51% or more of the
aggregate outstanding principal amount of all Notes, the Trustee shall
deliver promptly to such Noteholder such information with respect to the Loan
Collateral as such Noteholder shall request.
Where this Indenture provides for notice to Noteholders of any
event, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed, first-class, postage prepaid,
to each Noteholder affected by such event, at its address as it appears on
the Note Register, not later than the latest date, and not earlier than the
earliest date, prescribed for the giving of such notice. In any case where
notice to Noteholders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Noteholder
shall affect the sufficiency of such notice with respect to other
Noteholders, and any notice which is mailed in the manner herein provided
shall conclusively be presumed to have been duly given.
Where this Indenture provides for notice in any manner, such
notice may be waived in writing by any Person entitled to receive such
notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Noteholders shall be filed
with the Trustee but such filing shall not be a condition precedent to the
validity of any action taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be
impractical to mail notice of any event to Noteholders when such notice is
required to be given pursuant to any provision of this Indenture, then any
manner of giving such notice as shall be satisfactory to the Trustee shall be
deemed to be a sufficient giving of such notice.
. The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the construction
hereof.
. All covenants and agreements in this Indenture by the Issuer
shall bind its successors and assigns, whether so expressed or not.
. In case any provision in this Indenture or in the Notes shall
be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
. If any Payment Date or other date for the payment of principal
of or interest on any Note is proposed to be paid, or any date on which
mailing of notices by the Trustee to any Person is required pursuant to any
provision of this Indenture, shall not be a Business Day, then
(notwithstanding any other provision of the Notes or this Indenture) payment
or mailing of such notice need not be made on such date, but may be made or
mailed on the next succeeding Business Day with the same force and effect,
and in the case of payments, but no interest shall accrue for the period from
and after the date on which such payment was due to the next succeeding
Business Day when paid.
. This Indenture, each indenture supplemental hereto and each
Note shall be construed in accordance with and governed by the laws of the
State of New York, without regard to the conflict-of-law provisions thereof.
. This instrument may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
. If this Indenture is subject to recording in any appropriate
public recording office, such recording is to be effected by the Issuer at
its expense.
. No recourse for obligations hereunder or any other obligation
running directly for the benefit of the Trustee may be taken, directly or
indirectly, against (i) any holder of a beneficial interest in the Issuer,
(ii) any partner, beneficiary, agent, officer, director, employee, or
successor or assign of a holder of a beneficial interest in the Issuer, or
(iii) any incorporator, subscriber to the capital stock, stockholder,
officer, director or employee of the Trustee with respect to the predecessor
or successor of the Trustee with respect to the Issuer's obligations with
respect to the Notes or the obligation of the Issuer or the Trustee under
this Indenture or any certificate or other writing delivered in connection
herewith or therewith.
. The Issuer agrees that, on reasonable prior notice, during the
Issuer's normal business hours it will permit any representative of the
Trustee or any Noteholder to examine all the books of account, records,
reports and other papers of the Issuer, to make copies and extracts
therefrom, to cause such books to be audited by independent accountants
selected by the Issuer with the consent of (i) the Purchaser, so long as it
owns any Notes, and (ii) the Holders of not less than 51% of the aggregate
outstanding principal amount of the Notes; and to discuss the Issuer's
affairs, finances and accounts with the Issuer's officers, employees and
independent accountants all at such reasonable times and as often as may be
reasonably requested; provided that the Issuer shall be entitled to have its
representatives present at any such discussion. The Trustee and the Purchaser
shall hold, and shall cause their respective representatives to hold, in
confidence all such information except to the extent disclosure may be
required by law and except to the extent that the Trustee or the Purchaser,
in its respective sole judgment, may determine that such disclosure is
consistent with its obligations hereunder. Any expenses incident to the
exercise by the Trustee or a Noteholder of any right under this Section 11.12
shall be borne by the Issuer.
. The amount of interest payable or paid on any Note under the
terms of this Indenture shall be limited to any amount which shall not exceed
the maximum nonusurious rate of interest permitted by the applicable laws of
the State of New York (or the laws of any other jurisdiction determined to be
applicable laws of the United States permitting a higher maximum nonusurious
rate that preempts such applicable New York (or other) laws, which could
lawfully be contracted for, charged or received (the "Highest Lawful Rate")).
In the event any payment of interest on any Note exceeds the Highest Lawful
Rate, the Issuer stipulates that such excess amount will be deemed to have
been paid as a result of an error on the part of both the Trustee, acting on
behalf of the Holder, and the Issuer, and the Holder receiving such excess
payment shall promptly, upon discovery of such error or upon notice thereof
from the Issuer or the Trustee, refund the amount of such excess or, at the
option of the Trustee, apply the excess to the payment of principal of such
Note, if any, remaining unpaid. In addition, all sums paid or agreed to be
paid for the use, forbearance or detention of money shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of such Notes.
<PAGE>
622283.3
-132-
IN WITNESS WHEREOF, the Issuer and the Trustee have caused this
Indenture to be duly executed by their duly authorized officers all as of the
day and year first above written.
THE CHASE MANHATTAN BANK,
as Trustee
By:
Title:
LITCHFIELD HYPOTHECATION CORP.
By:
Title:
<PAGE>
APPENDIX A
DEFINITIONS
The definitions contained herein are incorporated into and made a part of
the Indenture, the Servicing Agreement, the Purchase and Sale Agreement and
the Note Purchase Agreement, each as defined below.
Acceleration Date shall mean the date on which occurs the
acceleration of the maturity of the Notes pursuant to Section 7.2 of the
Indenture.
Account shall mean any account or fund, and any subaccount thereof,
established under Article V of the Indenture.
Affiliate shall mean with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under direct or indirect
common control with such specified Person. For the purposes of this
definition, "control", when used with respect to any specified Person, means
the power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
Agency Agreement shall mean for each Sub-Servicer, a Collateral
Agent and Bailee Agreement to be executed on or about the Closing Date by the
Issuer, the Trustee and such Sub-Servicer.
Applicable Laws shall mean all laws, rules and regulations
applicable to the Person, conduct, transaction, covenant, Loan Documents,
Transaction Documents, Consumer 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.
Assigned Assets shall have the meaning ascribed to such term in the
Purchase and Sale Agreement.
Authorized Officer shall mean in the case of the Master Servicer or
the Issuer, any Vice President or more senior officer, and in the case of the
Trustee, a trust officer or other officer in the Global Trust Services,
Structured Finance Services Department of the Trustee customarily performing
functions similar to those of a trust officer.
Bankruptcy Law shall mean any bankruptcy, reorganization,
compromise, arrangement, insolvency, readjustment of debt, dissolution, or
liquidation or similar law, whether now or hereafter in effect.
Business Day shall mean any day that is not a Saturday, Sunday or a
day on which banking institutions located in the City of New York, New York,
or in the city and state where the principal offices of each of the Trustee
and the Master Servicer are located, are authorized or obligated by law or
executive order to be closed.
Claims shall mean 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 shall mean each closing of the issuance and delivery of
Notes pursuant to the Indenture.
Closing Date shall mean the date on which the Notes are first
executed, authenticated and delivered.
Code shall mean the Internal Revenue Code of 1986, as amended, or
any successor statute thereto, including the regulations promulgated
thereunder.
Collateral Agency Agreement shall mean the Collateral Agency
Agreement, dated as of June 1, 1997, among BankBoston, N.A., as Collateral
Agent, the Trustee, the Issuer and the Originator.
Collateral Agent shall mean the Person appointed by the Trustee
pursuant authority set forth in Section 9.12 of the Indenture to act as
collateral agent for the Loans and Loan Collateral, initially BankBoston,
N.A.
Collection Period shall mean with respect to a Payment Date, the
period commencing on the first day and ending on the last day of the month
preceding such Payment Date.
Consumer shall mean a Timeshare Purchaser or a Land Purchaser.
Consumer Financing Documents shall mean all instruments and
agreements executed by a Consumer in favor of a Hypothecation Borrower that
evidences or secures the financing of a sale of Land or a Timeshare Interval
by such Hypothecation Borrower to such Consumer.
Consumer Laws shall mean 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 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.
Consumer Receivable shall mean an amount or amounts at any time due,
payable or owing by a Consumer to a Hypothecation Borrower in connection with
the sale of land or a Timeshare Interval by such Hypothecation Borrower to
such Consumer.
Default shall mean any occurrence which is, or with notice or the
lapse of time or both would become, an Event of Default.
Default Rate shall mean with respect to all Notes at any time, the
then highest interest rate applicable to any Series of Notes, plus (two) 2
percentage points per annum.
Deposit Account Assignment shall mean the Collateral Assignment of
Deposit Account, dated as of June 1, 1997, executed by the Issuer in favor of
the Trustee by which the Issuer collaterally assigns its rights in the Lock
Box Account to the Trustee.
Eligible Investments shall mean (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 or 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; (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; and (v) investments in money market funds (including
funds of the Trustee or its Affiliates as well as funds for which the Trustee
and its Affiliates may receive compensation) rated in the highest investment
category by each of Standard & Poor's Corporation and Moody's Investors
Services, Inc.
Environmental Laws shall mean 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.
Event of Default shall have the meaning specified in Section 7.1 of
the Indenture.
Federal Reserve Board shall mean the Board of Governors of the
Federal Reserve System.
Future Advances shall mean the right and the obligation of the
Originator to fund any loan or advance to a Hypothecation Borrower after May
31, 1997, pursuant to the Loan Documents or otherwise.
Grant shall have the meaning specified in the Granting Clauses of
the Indenture.
Guarantee shall mean the Guarantee, dated as of June 1, 1997, by the
Originator in favor of the Purchaser.
Highest Lawful Rate shall have the meaning specified in Section
11.14 of the Indenture.
Hypothecation Borrower shall mean a Person who is liable for the
payment, in whole or in part, of a Loan, including any guarantor of such
Hypothecation Loan.
Indenture shall mean the Indenture of Trust, dated as of June 1,
1997, between the Issuer and the Trustee, as from time to time supplemented
or amended by one or more amendments or supplements.
Instrument shall have the meaning ascribed to the term "instrument"
in the UCC.
Investment Income shall mean any interest or other earnings on
Accounts that are part of the Trust Estate.
Issuer shall mean Litchfield Hypothecation Corp., a corporation
organized under the laws of the State of Delaware, and its successors and
assigns.
Land Purchaser shall mean a Person who purchases one or more land
lots from a Hypothecation Borrower.
Land Sales Laws shall mean 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 land or Timeshare Intervals to
Consumers.
LIBOR Rate shall have the meaning ascribed to such term in Section
2.9(b) of the Indenture.
Lien shall mean 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 the property.
List of Loans shall mean the schedule, attached to the Indenture as
Schedule I, of all Loans constituting a part of the Trust Estate thereunder,
which schedule shall set forth or include for each Loan (i) the name of the
Hypothecation Borrower under such Loan, (ii) the account number assigned to
such loan by the Originator, (iii) the outstanding principal balance of the
Loan as of May 31, 1997, and (iv) the aggregate revolving commitment of the
Originator to make advances in respect of the Loan.
Loan shall mean the loan or loans made by the Originator pursuant to
a revolving credit facility, in each case specified on Schedule I to the
Indenture, to a Hypothecation Borrower for the purpose of financing all or
part of the Hypothecation Borrower's Consumer Receivables derived from the
sale of land or Timeshare Intervals, including, without limitation, all
Future Advances made by the Originator to a Hypothecation Borrower after the
Closing Date and sold to the Issuer pursuant to the terms of the Purchase and
Sale Agreement; but excluding all Unassigned Rights.
Loan Collateral shall mean with respect to each Loan, the Issuer's
entire right, title, interest and estate in, to and under all property and
interests in property to the extent the Issuer holds a Lien in such property
to secure the whole or any part of a Loan, including all Consumer Financing
Documents, Transaction Documents, Payment Rights and
Remedies in respect of such Loan.
Loan Documents shall mean with respect to a Loan, those instruments,
agreements, guaranty documents, certificates or other writings, now or
hereafter executed and delivered by the Hypothecation Borrower that evidence
or secure the payment of such Loan, as the same may be modified, amended,
consolidated, continued or extended from time to time.
Lock Box Account shall mean the bank account established by the
Issuer at the Lock Box Bank, which account shall constitute the depository
account for all payments and proceeds with respect to the Loans and Loan
Collateral, shall be collaterally assigned to the Trustee pursuant to the
Deposit Account Assignment, and shall be the subject of the Payment Direction
Agreement.
Lock Box Bank shall mean Bank One, Arizona, N.A., a national banking
association.
Master Servicer shall mean Litchfield Financial Corporation, a
Massachusetts corporation, in its capacity as servicer under the Servicing
Agreement, together with its successors and assigns as permitted thereunder.
Master Servicer's Certificate shall mean a certificate to be
provided by the Master Servicer in accordance with Section 3.1 of the
Servicing Agreement and signed by an Authorized Officer of the Master
Servicer and furnished to the Issuer and the Trustee by the Master Servicer.
Mortgage shall mean 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.
1933 Act shall mean the Securities Act of 1933, as amended, and the
applicable published rules and regulations thereunder.
Note or Notes shall mean any note or notes, as the case may be,
issued pursuant to the Indenture.
Noteholder or Holder shall mean the registered owner of a Note as
evidenced by the Note Register.
Note Limit shall mean $33,181,000.
Note Purchase Agreement shall mean the Note Purchase Agreement,
dated June 24, 1997, among the Purchaser, the Issuer and the Master Servicer.
Note Register and Note Registrar shall have the respective meanings
specified in Section 2.6 of the Indenture.
Officer's Certificate shall mean, unless otherwise specified, a
certificate signed by any Authorized Officer of the party delivering such
certificate, delivered to the Trustee and complying with the applicable
requirements of Section 11.1 of the Indenture.
Opinion of Counsel shall mean one or more written opinions of
counsel who may, except as otherwise expressly provided in the Indenture, be
counsel for the Issuer or its Affiliates.
Originator shall mean Litchfield Financial Corporation, a
Massachusetts corporation, in its capacity as originator of the Loans.
outstanding shall mean, as of the date of determination, all Notes
theretofore authenticated and delivered hereunder except:
a) Notes theretofore canceled by the Note Registrar or
delivered to the Note Registrar for cancellation;
b) Notes for the payment of which money in the necessary
amount has been theretofore deposited with the Trustee in trust for the
Holders of such Notes;
c) Notes in exchange for or in lieu of which other Notes have
been authenticated and delivered hereunder; and
d) Notes alleged to have been mutilated, destroyed, lost or
stolen for which replacement Notes have been issued as provided for in
Section 2.7 of the Indenture;
provided, however, that in determining whether the Holders of the requisite
aggregate outstanding principal amount of the Notes have given any request,
demand, authorization, direction, notice, consent or waiver hereunder, Notes
owned by the Issuer or any other obligor upon the Notes or any Affiliate of
the Issuer or such other obligor shall be disregarded and deemed not to be
outstanding, except that, in determining whether the Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Notes which the Trustee knows to be so owned
shall be so disregarded. Notes so owned which have been pledged in good faith
may be regarded as outstanding if the pledgee establishes to the satisfaction
of the Trustee the pledgee's right so to act with respect to such Notes and
that the pledgee is not the Issuer or any other obligor upon the Notes or any
Affiliate of the Issuer or such other obligor.
Payment Account shall mean the Account by that name established,
maintained and disbursed pursuant to Article V of the Indenture.
Payment Date shall mean the 25th day of each month in each year, or
if such day is not a Business Day, the next succeeding Business Day,
commencing July 25, 1997.
Payment Default shall mean an Event of Default specified in
paragraph (a) or (b) of Section 7.1 of the Indenture.
Payment Direction Agreement shall mean the Payment Direction
Agreement, dated as of June 1, 1997 among the Issuer, the Trustee and the
Lock Box Bank.
Payment Period shall mean with respect to a Payment Date, the period
from and including the immediately preceding Payment Date and to but not
including such Payment Date.
Payment Right shall mean the right of the Originator or the Issuer,
as the case may be, to the payment of money from a Hypothecation Borrower or
from any other Person at any time under any Transaction Document, including
the right to the repayment of a Loan.
Person shall mean any legal person, including any individual,
corporation, partnership, joint venture, association, joint stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
Principal Payment Amount shall mean with respect to each Payment
Date, an amount equal to the aggregate payments of principal due and payable
on the Loans, and principal prepaid in respect of the Loans, by all
Hypothecation Borrowers, whether regularly scheduled amortization payments or
by acceleration, prepayment, mandatory or optional redemption, maturity or
otherwise, in the Collection Period relating to such Payment Date.
Proceeding shall mean any suit in equity, action at law or other
judicial or administrative proceeding.
Purchase and Sale Agreement shall mean the Purchase and Sale
Agreement, dated as of June 1, 1997, between the Originator and the Issuer.
Purchase Price shall mean in respect of any Loan or Future Advance
and related Loan Collateral, the outstanding principal amount of such Loan or
Future Advance plus accrued interest, if any, as of the date of such
purchase.
Purchaser shall mean Liberty Bank, a Connecticut banking
corporation.
Record Date shall mean, with respect to a Payment Date, (i) the last
day of the immediately preceding calendar month or (ii) with respect to the
initial Payment Date, the Closing Date.
Remedies shall mean all rights, remedies, privileges and powers of
the Originator or the Issuer, as the case may be, arising under or in
connection with any of the Transaction Documents.
Servicer Advances shall have the meaning accorded such term in
Section 5.3 of the Indenture.
Servicing Agreement shall mean the servicing agreement to be dated
as of June 1, 1997, among the Issuer, the Trustee and the Master Servicer
wherein the Master Servicer has agreed to provide administrative, servicing
and collection services in respect of the Loans.
Servicing Fee shall mean with respect to each Payment Date, an
amount equal to $150.00 per outstanding Loan on such date.
State shall mean any one of the states of the United States of
America, or the District of Columbia.
Stated Maturity shall mean June 30, 2002.
Sub-Servicer shall mean such Person or Persons as may be retained by
the Master Servicer to fulfill the role of Master Servicer for one or more
Loans pursuant to Section 4.3 of the Servicing Agreement.
Sub-Servicing Agreement shall mean each Servicing Agreement which is
entered into between the Master Servicer and a Sub-Servicer and which sets
forth the responsibility of the Sub-Servicer to the Master Servicer with
respect to one or more Loans.
Timeshare Interval shall mean 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 shall mean a vacation or resort property that is
dedicated to Timeshare Interval ownership pursuant to a timeshare plan.
Timeshare Purchaser shall mean a Person who purchases one or more
Timeshare Intervals from a Hypothecation Borrower.
Timeshare Unit shall mean 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 shall mean with respect to a Loan, all
Instruments, agreements, documents and other writings that now or hereafter
(i) evidence a 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 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 a Hypothecation Borrower,
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 a Hypothecation Borrower, any guarantor or surety
of a Payment Right or any other Person. The term "Transaction Documents"
shall include the Loan Documents and the Consumer Financing Documents.
Trustee shall mean The Chase Manhattan Bank, until a successor
Person shall have become the Trustee pursuant to the applicable provisions of
the Indenture, and thereafter "Trustee" shall mean such successor Person.
Trust Estate shall have the meaning specified in the Granting
Clauses of the Indenture.
Trust Office shall mean the office of the Trustee located at 450
West 33rd Street, New York, New York 10001.
Unassigned Rights shall mean (i) the Originator's right and
obligation to fund any Future Advances, (ii) any loan or advances made by the
Originator to a Hypothecation Borrower which does not constitute a Loan, and
(iii) any collateral pledged by a Hypothecation Borrower to the Originator
which does not directly secure a Loan (i.e., collateral pledged by means of
cross-collateralization).
Variable Funding Notes shall mean the Notes of that designation
issued pursuant to Section 2.1 of the Indenture.
<PAGE>
Exhbit 10.161
SERVICING AGREEMENT, dated as of June 1, 1997 (the "Agreement"), by and
among LITCHFIELD HYPOTHECATION CORP., a corporation organized and existing
under the laws of the State of Delaware (herein, together with its successors
and assigns, called the "Issuer"), LITCHFIELD FINANCIAL CORPORATION, a
corporation organized and existing under the laws of the State of
Massachusetts (herein, together with its successors and assigns, called the
"Master Servicer"), and THE CHASE MANHATTAN BANK, a New York banking
corporation, as trustee (the "Trustee").
PRELIMINARY STATEMENT
WHEREAS, the Issuer has entered into an Indenture of Trust (the
"Indenture") dated as of the date of this Agreement with the Trustee, as
trustee, pursuant to which the Issuer shall issue its Hypothecation Loan
Collateralized Notes (collectively, the "Notes"), on the terms and in the
amounts described therein. Pursuant to the Indenture, as security for the
indebtedness represented by the Notes, the Issuer is and will be Granting to
the Trustee on behalf of the Noteholders, the Trust Estate, which includes,
among other things, the Loans and the Loan Collateral, its rights under this
Agreement, the Payment Account and all proceeds of the foregoing.
WHEREAS, the parties desire to enter into this Agreement to provide,
among other things, for the servicing of the Loans and Loan Collateral by the
Master Servicer. The Master Servicer acknowledges that, in order to further
secure the Notes, the Issuer is and will be Granting to the Trustee, among
other things, this Agreement, and the Master Servicer agrees that all
covenants and agreements made by the Master Servicer herein with respect to
the Loans securing the Notes shall also be for the benefit and security of
the Trustee and the Noteholders. For its services hereunder, the Master
Servicer will receive the Servicing Fee.
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the Issuer, the Servicer and the Trustee
agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1. Defined Terms.
(a) For all purposes of this Agreement, except as otherwise expressly
provided herein or unless the context otherwise requires, capitalized terms
not otherwise defined herein shall have the meanings ascribed to such terms
in the Appendix A hereto which is incorporated by reference herein. All other
capitalized terms used herein shall have the meanings specified herein.
(b) All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant
hereto unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other document
made or delivered pursuant hereto or thereto, accounting terms not defined in
this Agreement or in any such certificate or other document, and accounting
terms partly defined in this Agreement or in any such certificate or other
document to the extent not defined, shall have the respective meanings given
to them under generally accepted accounting principles. To the extent that
the definitions of accounting terms in this Agreement or in any such
certificate or other document are inconsistent with the meanings of such
terms under generally accepted accounting principles, the definitions
contained in this Agreement or in any such certificate or other document
shall control.
(d) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole
and not to any particular provision of this Agreement; Section and Exhibit
references contained in this Agreement are references to Sections and
Exhibits in or to this Agreement unless otherwise specified; and the term
"including" shall mean "including without limitation".
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms.
(f) Any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means
such agreement, instrument or statute as from time to time amended, modified
or supplemented and includes (in the case of agreements or instruments)
references to all attachments thereto and instruments incorporated therein;
references to a Person are also to its permitted successors and assigns.
ARTICLE 2
ADMINISTRATION AND SERVICING OF LOANS
SECTION 2.1. The Master Servicer to Act as the Servicer.
(a) Engagement of the Master Servicer. The Master Servicer is hereby
authorized to and shall service and administer the Loans and Loan Collateral
in accordance with the terms of this Agreement. Subject to the provisions
herein, including, without limitation, Sections 2.6 hereof and subject to the
Master Servicer's obligations and the covenants of the Issuer under the
Indenture, the Master Servicer shall have full power and authority, acting
alone and subject only to the specific requirements and prohibitions of this
Agreement, to do and take any and all actions, or to refrain from taking any
such actions and to do any and all things in connection with such servicing
and administration which it may deem necessary or desirable, including,
without limitation, calculating and compiling information required in
connection with any report to be delivered pursuant to this Agreement.
Without limiting the generality of the foregoing, but subject to the
provisions of the Indenture and this Agreement, the Master Servicer is hereby
authorized and empowered by the Issuer to execute and deliver, in the Master
Servicer's own name, on behalf of the Issuer and Trustee, any and all
instruments of satisfaction or cancellation, or of partial or full release or
discharge, and all other comparable instruments, with respect to the Loans
and the Loan Collateral, including, without limitation, consenting to sales,
transfers or encumbrances of the Loan Collateral or assignments and
assumptions of the Loans, all in accordance with the terms of the Loans and
the Loan Collateral. The Master Servicer agrees that (i) its servicing of the
Loans and Loan Collateral shall be carried out in accordance with prudent,
customary and usual procedures of financial institutions which service loans
and collateral similar to the Loans and Loan Collateral and, (ii) to the
extent more exacting, the procedures which the Master Servicer would use if
the Loans were owned by the Master Servicer (the "Servicing Standard").
(b) List of the Master Servicer's Officers. Promptly after the
execution and delivery of this Agreement, the Master Servicer shall deliver
to the Issuer and the Trustee a list of officers of the Master Servicer
involved in, or responsible for, the administration and servicing of the
Loans and the Loan Collateral, which list shall from time to time be updated
by the Master Servicer on request of the Trustee.
(c) Actions to Perfect Security Interests. The Master Servicer shall
promptly take all actions that are necessary or desirable to maintain
continuous perfection and priority of the security interests granted by the
Hypothecation Borrowers in the Loan Collateral subject to the terms of the
Indenture and this Agreement, including, but not limited to, obtaining the
execution by the Hypothecation Borrowers and Consumers and the recording,
registering, filing, re-recording, re-registering and refiling of all
mortgages, assignments, security agreements, financing statements,
continuation statements or other instruments as are necessary to maintain the
security interests granted by the Hypothecation Borrowers under the
respective Loans. Without limiting the foregoing, the Master Servicer shall
file or cause to be filed the financing statements on Form UCC-1 and
assignments of financing statements on Form UCC-3 required to be filed in
connection with the Purchase and Sale Agreement and the Indenture relating to
the Loans and the transactions contemplated thereby.
(d) Servicer Advances. The Master Servicer hereby agrees to
make Servicer Advances at the times and in the amounts specified in
Section 5.3 of the Indenture. The obligation of the Master Servicer
shall be subject to the provisions of said Section 5.3 of the Indenture.
(e) Limitation on the Master Servicer's Obligations. Notwithstanding
anything to the contrary herein, other than Section 4.3(e) hereof, the Master
Servicer may but shall not be obligated to incur any cost or expense (whether
for maintaining insurance, protecting or maintaining collateral, or
otherwise) if the Master Servicer, in its reasonable discretion, determines
that such advances may not be recovered from the Hypothecation Borrowers.
SECTION 2.2. Collection of Loan Payments and Remittances;
Protection of Loan Collateral; Payment Account.
(a) Collection of Payments; Protection of Loan Collateral.
The Master Servicer shall perform (or shall cause a Sub-Servicer to
perform) the following servicing, collection supervision and collateral
protection activities:
(1) perform standard accounting services and general recordkeeping
services with respect to the Loans and Loan Collateral;
(2) respond to any telephone and written inquiries of Hypothecation
Borrowers and Consumers concerning the Loans and Loan Collateral;
(3) keep Hypothecation Borrowers and Consumers informed of the
proper place and method for making payments with respect to the Loans and
Consumer Receivables;
(4) contact Hypothecation Borrowers and Consumers to effect collection and to
discourage delinquencies in the payment of Loans and Consumer Receivables,
doing so by any lawful means, including, but not limited to, the following:
(i) transmittal of routine past due notices;
(ii) preparing and mailing collection letters;
(iii) contacting delinquent Hypothecation Borrowers and Consumers by
telephone to encourage payment;
(iv) transmittal of reminder notices to delinquent Hypothecation
Borrowers and Consumers; and
(v) initiating and pursuing termination or foreclosure actions
deemed necessary by the Master Servicer;
(5) be responsible for the receipt and disbursement of monies paid
by Hypothecation Borrowers and Consumers as follows:
(i) the receipt and collection of all amounts due and payable with respect
to each Loan and the proceeds of any Loan Collateral, including all monies
remitted by Consumers with respect to Consumer Receivables forming a part of
the Loan Collateral; in connection herewith the Master Servicer shall use its
best efforts to cause the collection of all payments called for under the
terms and provisions of each Loan and Consumer Receivable, and shall use its
best efforts to cause each Hypothecation Borrower to make all payments
required to be made in respect of its Loan pursuant to the Loan Documents
directly to the Lock Box Account at the Lockbox Bank.
(ii) the deposit of all such payments and proceeds in the Lock Box
Account in accordance with Section 2.2(b) below;
(iii) the maintenance of accurate and timely books and records relating to
the Master Servicer's receipt and collection of all such payments
and proceeds and the balance due in respect of the Loans and
Consumer Receivables;
(iv) the rendering to Hypothecation Borrowers and to Trustee, of periodic
reports (not less frequently than monthly) in which the Master
Servicer shall set forth such information as is customarily reported
to such borrowers under a servicing agreement or as is otherwise
reasonably requested by the Trustee; and
(v) the maintenance of records concerning the status of all of the
Consumer Receivables.
(6) take such other action as may be necessary or appropriate to carry out
the duties and obligations imposed upon the Master Servicer pursuant to the
terms of this Section and of Section 4.4(a) of the Indenture which is
incorporated herein by reference.
(b) Deposit of Misdirected Funds; No Commingling. The Master Servicer
shall promptly remit, or cause to be remitted, to the Lock Box Bank for
deposit in the Lock Box Account on the Business Day immediately following
receipt thereof by the Master Servicer and in the form received all payments
received by the Master Servicer in respect of the Loans or Consumer
Receivables incorrectly sent to the Master Servicer by, or on behalf of, a
Hypothecation Borrower or Consumer, respectively. The Master Servicer shall
not commingle with its own assets and shall keep separate, segregated and
appropriately marked and identified all Loans, Loan Collateral or any
property comprising any part of the Trust Estate, and for such time, if any,
as such Loans, Loan Collateral or property are in the possession or control
of the Master Servicer, the Master Servicer shall hold the same in trust for
the benefit of the Trustee, the Noteholders (or, following termination of the
Indenture, the Issuer).
SECTION 2.3. Records.
The Master Servicer shall retain (or cause to be retained, at the
principal servicing offices of the Sub-Servicers) all data (including,
without limitation, computerized records) relating directly to or maintained
in connection with the servicing of the Loans and Loan Collateral, and shall
give the Trustee access to all data at all reasonable times upon reasonable
notice, and, while an Event of Default shall be continuing, the Master
Servicer shall, on demand of the Trustee, immediately deliver to the Trustee
(or, at the Trustee's written instruction, to the Successor Master Servicer)
all data (including, without limitation, computerized records) necessary for
the servicing of the Loans and Loan Collateral. If the rights of the Master
Servicer shall have been terminated in accordance with Section 5.1 or if this
Agreement shall have been terminated pursuant to Section 6.1(b), the Master
Servicer shall, upon demand of the Trustee or of the successor to the rights
of the Issuer, in the case of Section 6.1(b), deliver (or cause to be
delivered) to the Trustee all data (including, without limitation,
computerized records) necessary for the servicing of the Loans and Loan
Collateral. In addition to delivering such data, the Master Servicer shall,
at its expense (or at the expense of the Issuer's successor in the event of
termination under Section 6.1(b)), use its best efforts to effect the orderly
and efficient transfer of the servicing of the Loans and Loan Collateral with
respect to which such termination shall have occurred to the party which will
be assuming responsibility for such servicing, including, without limitation,
directing Hypothecation Borrowers and Consumers to remit scheduled payments
and all other payments in respect of the Loans and Consumer Receivables to an
account or address designated by, with the consent of the Trustee or such new
servicer. Upon request of the Trustee while an Event of Default shall be
continuing, the Master Servicer also shall send (or cause to be sent) to the
Trustee copies of all invoices, statements or other directions with respect
to payments that are sent to the Hypothecation Borrowers and Consumers. The
provisions of this paragraph shall not require the Master Servicer to
transfer any proprietary material or computer programs unrelated to the
servicing of the Loans and Loan Collateral.
SECTION 2.4. No Offset.
Prior to the termination of this Agreement, the obligations of the
Master Servicer under this Agreement shall not be subject to, and the Master
Servicer hereby waives, any defense, counterclaim or right of offset which
the Master Servicer has or may have against the Issuer or the Trustee,
whether in respect of this Agreement, any Loan or otherwise.
SECTION 2.5. Servicing Compensation; Reimbursement for Advances.
As compensation for the performance of its obligations under this
Agreement, the Master Servicer shall be entitled to receive the Servicing Fee
from the Issuer on each Payment Date out of amounts released by the Trustee
from the Payment Account on such Payment Date pursuant to Section 5.2(c) of
the Indenture. The Servicing Fee shall include amounts in respect of funds
advanced by the Master Servicer in respect of the Loans (whether for
maintaining insurance, protecting or maintaining collateral, or otherwise),
if any. In addition, the Master Servicer shall be entitled to reimbursements
for advances made by the Master Servicer from recoveries. Such reimbursements
from recoveries may be made by the Master Servicer netting the unreimbursed
advanced amount from recoveries or by remittance from the Trustee in respect
of recoveries received by the Trustee.
SECTION 2.6. Sub-Servicing Agreements.
The Master Servicer may engage Sub-Servicers to perform some or all of
the Master Servicer's responsibilities under this Agreement, subject to the
following terms and conditions:
(a) On or prior to the Closing Date, the Master Servicer shall
enter into one or more subservicing agreements (each a "Sub-Servicing
Agreement") with one or more Sub-Servicers, and the Master Servicer shall not
amend, supplement or terminate the Sub-Servicing Agreement, or agree to any
assignment of any rights or obligations thereunder by the Sub-Servicer, or
terminate the Sub-Servicer, without the consent of the Holders of Notes
representing at least 51% of the aggregate outstanding principal amount of
the Notes.
(b) If the Sub-Servicing Agreement with a Sub-Servicer is terminated,
the Master Servicer may enter into one or more Sub-Servicing Agreements with
another Sub-Servicer reasonably acceptable to the Holders of Notes
representing at least 51% or the aggregate outstanding principal amount of
the Notes and the Issuer to assist the Master Servicer in the performance of
its duties under this Agreement.
(c) The Master Servicer shall be entitled to terminate any
Sub-Servicing Agreement that may exist in accordance with the terms and
conditions of such Sub-Servicing Agreement; provided, however, that in the
event of the termination of any Sub-Servicing Agreement by the Master
Servicer or the related Sub-Servicer, the Master Servicer shall either act
directly as servicer in accordance with its duties hereunder or shall enter
into a Sub-Servicing Agreement with a successor Sub-Servicer.
(d) References in this Agreement to actions taken or to be taken by the
Master Servicer in servicing the Loans and Loan Collateral include actions
taken or to be taken by a Sub-Servicer on behalf of the Master Servicer.
Notwithstanding any Sub-Servicing Agreement, or any of the provisions of this
Agreement relating to agreements or arrangements between the Master Servicer
and a Sub-Servicer, the Master Servicer shall remain obligated and liable for
the servicing and administering of the Loans and Loan Collateral in
accordance with the provisions of this Agreement without diminution of such
obligation or liability by virtue of such Sub-Servicing Agreement and to the
same extent and under the same terms and conditions as if the Master Servicer
alone were servicing and administering the Loans and Loan Collateral. Any
funds received by any Sub-Servicer shall be deemed to be received by the
Master Servicer.
ARTICLE 3
STATEMENTS AND REPORTS
SECTION 3.1. Reporting by the Master Servicer.
(a) Not later than 11:00 am on the third Business Day preceding each
Payment Date, the Master Servicer shall transmit to the Issuer and the
Trustee and upon receipt the Trustee shall forward to the Noteholders a
certificate (the "Master Servicer's Certificate") setting forth the
information in respect of the Loans set forth in Exhibit A hereto.
ARTICLE 4
THE MASTER SERVICER
SECTION 4.1. Representations and Warranties Concerning the
Master Servicer.
The Master Servicer represents and warrants, effective as of the
Closing Date, as follows:
(a) The Master Servicer (i) has been duly organized and is validly
existing and in good standing under the laws of the state of its formation
and organization, (ii) has qualified to do business and is in good standing
in each jurisdiction where the character of its properties or the nature of
its activities makes such qualification necessary and where failure to so
qualify would have a material and adverse effect on its ability to perform
its obligations hereunder, and (iii) has full power, authority and legal
right to own its property, to carry on its business as presently conducted,
and to enter into and perform its obligations under this Agreement.
(b) The execution and delivery by the Master Servicer of this Agreement
are within the power of the Master Servicer and have been duly authorized by
all necessary action on the part of the Master Servicer. Neither the
execution and delivery of this Agreement, nor the consummation of the
transactions herein contemplated, nor compliance with the provisions hereof,
will conflict with or result in a breach of, or constitute a default under,
any of the provisions of any law, governmental rule, regulation, judgment,
decree or order binding on the Master Servicer or its properties or the
charter or bylaws or other organizational documents and agreements of the
Master Servicer, or any of the provisions of any indenture, mortgage,
contract or other instrument to which the Master Servicer is a party or by
which it is bound or result in the creation or imposition of any lien, charge
or encumbrance upon any of its property pursuant to the terms of any such
indenture, mortgage, contract or other instrument.
(c) The Master Servicer is not required to obtain the consent of any
other party or consent, license, approval or authorization, or registration
or declaration with, any governmental authority, bureau or agency in
connection with the execution, delivery, performance by the Master Servicer
of this Agreement, or validity or enforceability of this Agreement against
the Master Servicer.
(d) This Agreement has been duly executed and delivered by the Master
Servicer and constitutes a legal, valid and binding instrument enforceable
against the Master Servicer in accordance with its terms (subject to
applicable bankruptcy laws and to general principles of equity).
(e) There are no actions, suits or proceedings pending or, to the
knowledge of the Master Servicer, threatened against or affecting the Master
Servicer, before or by any court, administrative agency, arbitrator or
governmental body with respect to any of the transactions contemplated by
this Agreement or the Indenture, or which will, if determined adversely to
the Master Servicer, materially and adversely affect it or its business,
assets, operations or condition, financial or otherwise, or adversely affect
the Master Servicer's ability to perform its obligations under this
Agreement. The Master Servicer is not in default with respect to any order of
any court, administrative agency, arbitrator or governmental body so as to
materially and adversely affect the transactions contemplated by the
above-mentioned documents.
(f) The Master Servicer has obtained or made all necessary licenses,
registrations, consents, approvals, waivers and notifications of creditors,
lessors and other persons, in each case, in connection with the execution and
delivery of this Agreement by the Master Servicer, and the consummation by
the Master Servicer of all the transactions herein contemplated to be
consummated by the Master Servicer and the performance of its obligations
hereunder.
(g) The Master Servicer is not in default under any agreement,
contract, instrument or indenture to which the Master Servicer is a party or
by which it or its properties is or are bound, or with respect to any order
of any court, administrative agency, arbitrator or governmental body, which
would have a material adverse effect on the transactions contemplated
hereunder; and no event has occurred which with notice or lapse of time or
both would constitute such a material default with respect to any such
agreement, contract, instrument or indenture, or with respect to any such
order of any court, administrative agency, arbitrator or governmental body.
(h) The collection and servicing practices used by the Master Servicer
with respect to each Loan and related Loan Collateral shall be consistent in
all material respects with those customarily employed by the Master Servicer
servicing loans which are owned by the Master Servicer.
(i) The Master Servicer (i) shall not extend or shorten, amend or
otherwise modify the terms of any Loan, or amend, modify or waive any term or
condition of any Loan Collateral related thereto, in any manner which would
have a material adverse effect on the interests of the Noteholders or the
Issuer, including, but not limited to, extending or shortening the due date,
or impairing the collectibility of such Loan and (ii) shall not take any
action that could reasonably be expected to have a material adverse effect on
(x) the collectibility of the Loans taken as a whole or (y) the realization
on the related Loan Collateral, taken as a whole, or (z) the ability of the
Master Servicer to perform its obligations hereunder, in each case without
obtaining the prior written consent of the Trustee, the Purchaser and the
Issuer.
SECTION 4.2. Existence; Status as the Master Servicer
The Master Servicer shall keep in full effect its existence, rights and
franchises under the laws of the state of its formation and organization, and
will obtain and preserve its qualification to do business in each
jurisdiction in which such qualification is or shall be necessary to protect
the validity and enforceability of the Loans and Loan Collateral, the
Indenture and this Agreement or to perform its obligations hereunder.
SECTION 4.2. Performance of Obligations.
(a) Timely Performance. The Master Servicer shall punctually
perform and observe all of its obligations and agreements contained in
this Agreement in accordance with the terms hereof.
(b) Prohibited Actions. The Master Servicer shall not take any action,
or permit any action to be taken by others, which would excuse any person
from any of its covenants or obligations under any of the Loans or Loan
Collateral or under any other instrument included in the Trust Estate, or
which would result in the amendment, hypothecation, subordination,
termination or discharge of, or impair the validity, enforceability or
effectiveness of, any of the Loans or Loan Collateral, except as expressly
provided herein and therein or as contemplated by the Indenture.
(c) Limitations of Responsibility of the Master Servicer. The Master
Servicer will have no responsibility under this Agreement other than to
render the services called for hereunder in good faith. The Master Servicer,
its affiliates, its directors, officers, shareholders and employees will not
be liable to the Issuer, the Trustee, the Noteholders or others, except by
reason of acts constituting bad faith, willful misfeasance, negligence or
reckless disregard of its duties.
(d) Right to Receive Instructions. In the event that the Master
Servicer is unable to decide between alternative courses of action, or is
unsure as to the application of any provision of this Agreement, or such
provision is ambiguous as to its application, or is, or appears to be, in
conflict with any other applicable provision, or in the event that this
Agreement permits any determination by the Master Servicer or is silent or is
incomplete as to the course of action which the Master Servicer is required
to take with respect to a particular set of facts, the Master Servicer may
give notice (in such form as shall be appropriate under the circumstances) to
the Trustee requesting instructions in accordance with the Indenture and, to
the extent that the Master Servicer shall have acted or refrained from acting
in good faith in accordance with any such instructions received from the
Trustee, the Master Servicer shall not be liable on account of such action or
inaction to any Person. Subject to the Servicing Standard set forth in
Section 2.1(a), if the Master Servicer shall not have received appropriate
instructions within ten days of such notice (or within such shorter period of
time as may be specified in such notice) the Master Servicer may, but shall
be under no duty to, take or refrain from taking such action, not
inconsistent with this Agreement, as the Master Servicer shall deem to be in
the best interests of the Trustee and the Issuer, and the Master Servicer
shall have no liability to any Person for such action or inaction except for
the Master Servicer's own willful misconduct or negligence.
(e) No Duties Except as Specified in this Agreement or in Instructions.
Except as expressly provided by the terms of this Agreement, the Master
Servicer shall not have any duty or obligation to manage, make any payment in
respect of, register, record, sell, reinvest, dispose of, create, perfect or
maintain title or any security interest in, or otherwise deal with the Trust
Estate, to prepare or file any report or other document, or to otherwise take
or refrain from taking any action under, or in connection with, any document
contemplated hereby to which the Master Servicer is a party. The Master
Servicer nevertheless agrees that it will, at its own cost and expense,
promptly take all action as may be necessary to discharge any asserted liens
on any part of the Trust Estate which result from asserted claims against the
Master Servicer personally that are not related to the ownership or the
administration of the Trust Estate or the transactions contemplated by the
Indenture.
(f) No Action Except Under Specified Documents or Instructions. The
Master Servicer shall not manage, control, use, sell, reinvest, dispose of or
otherwise deal with any part of the Trust Estate except (1) in accordance
with the powers granted to and the authority conferred upon the Master
Servicer pursuant to this Agreement, or (2) in accordance with instructions
delivered to the Master Servicer pursuant hereto.
(g) Limitations on the Master Servicer Liability. Subject to the
Servicing Standards set forth in Section 2.1(a), and except for the Master
Servicer's own willful misconduct or negligence, the Master Servicer shall
not be personally liable under any circumstances, including, without
limitation:
(1) for any action taken or omitted to be taken by the Master
Servicer in good faith in accordance with the instructions of the Trustee
made in accordance herewith;
(2) for any representation, warranty, covenant, agreement or
indebtedness of the Trust under the Notes, or for any other liability or
obligation of the Trust;
(3) for or in respect of the validity or sufficiency of this
Agreement or for the due execution hereof by any party hereto other than the
Master Servicer, or for the form, character, genuineness, sufficiency, value
or validity of any part of the Trust Estate, including but not limited to the
Loans and Loan Collateral; and
(4) for any action or inaction of the Trustee, and the Master
Servicer shall not be responsible for performing or supervising the
performance of any obligation under this Agreement or the Indenture that is
required to be performed by the Trustee.
(h) Limitation on Expenditure of Personal Funds. No provision of this
Agreement (other than Section 2.1(d) and paragraph (e) above) shall require
the Master Servicer to expend or risk its personal funds or otherwise incur
any financial liability in the performance of any of its rights or powers
hereunder, if the Master Servicer shall have reasonable grounds for believing
that repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured or provided to it.
(i) Furnishing of Documents. The Master Servicer shall furnish to the
Trustee, promptly upon receipt thereof, duplicates or copies of all material
reports, notices, requests, demands, certificates, financial statements and
any other instruments furnished to the Master Servicer hereunder.
(j) Reliance; Advice of Counsel. In performing its duties hereunder the
Master Servicer may conclusively rely on and shall be protected in acting or
refraining from acting when doing so, in each case in accordance with any
signature, instrument, notice, resolution, request, consent, order,
certificate, report, opinion, bond or other document or paper believed by it
to be genuine and believed by it to be signed by the proper party or parties.
The Master Servicer may accept a certified copy of a resolution of the board
of directors or other governing body of any corporate party as conclusive
evidence that such resolution has been duly adopted by such body and that the
same is in full force and effect. As to any fact or matter the manner or
ascertainment of which is not specifically prescribed herein, the Master
Servicer may for all purposes hereof rely on a certificate, signed by the
president or any vice president or by the treasurer or any assistant
treasurer or the secretary or any assistant secretary of the relevant party,
as to such fact or matter, and such certificate shall constitute full
protection to the Master Servicer for any action taken or omitted to be taken
by it in good faith in reliance thereon without specific knowledge to the
contrary.
(k) Reliance on Third Parties. Subject to the Servicing Standard, in
the exercise and performance of its duties and obligations under this
Agreement, the Master Servicer may, at the expense of the Master Servicer,
consult with counsel, accountants and other skilled persons to be selected
with reasonable care and employed by it, and the Master Servicer shall not be
liable for anything done, suffered or omitted in good faith by it in
accordance with the advice or opinion of any such counsel, accountants or
other skilled persons.
(l) Independent Contractor. In performing its obligations as servicer
hereunder the Master Servicer acts solely as an independent contractor of the
Issuer and Trustee. Nothing in this Agreement shall, or shall be deemed to,
create or constitute any joint venture, partnership employment, or any other
relationship between the Issuer and the Trustee on the one hand and the
Master Servicer on the other hand, other than the independent contractor
contractual relationship established hereby. The Master Servicer shall not be
and shall not be deemed to be liable for any acts or obligations of the
Issuer or the Trustee, and, without limiting the foregoing, the Master
Servicer shall not be liable under or in connection with the Notes and all
Persons having any claim under or in respect of this Agreement or the
Indenture shall look only to the Trust Estate for payment or satisfaction
thereof.
SECTION 4.4. Merger; Resignation and Assignment.
(a) The Master Servicer may not merge into any corporation or convey,
transfer or lease substantially all of its assets as an entity, unless and
until the Master Servicer's successor or a new servicer is approved in
writing by the Issuer and the Holders of Notes representing at least 51% of
the aggregate outstanding principal amount of the Notes and is willing to
service the Loans and Loan Collateral and enter into a servicing agreement
with the Issuer and the Trustee in form and substance reasonably satisfactory
to such parties.
(b) Except as provided in Section 2.6 hereinabove with respect to
Sub-Servicers, the Master Servicer may not assign this Agreement or any of
its rights, powers, duties or obligations hereunder.
(c) Except as provided in Sections 4.4(a) and (b), the duties and
obligations of the Master Servicer under this Agreement shall continue until
this Agreement shall have been terminated as provided in Section 6.1, and
shall survive the exercise by the Issuer or the Trustee of any right or
remedy under this Agreement, or the enforcement by the Issuer, the Trustee,
or any Noteholder of any provision of the Indenture, the Notes or this
Agreement.
SECTION 4.5. Indemnities.
(a) The Master Servicer shall indemnify and hold harmless the Trustee
and the Noteholders from and against any losses, damages, claims or
liabilities arising out of the Master Servicer's breach of this Agreement.
(b) The Master Servicer agrees to indemnify the Trustee for, and to
hold the Trustee harmless against, any loss, liability or expense incurred
without negligence or bad faith on its part, arising out of or in connection
with the acceptance or administration of the trust created by the Indenture
(other than taxes, penalties or other liabilities arising in connection with
the Trustee's failure to withhold from payments with respect to the Notes
amounts required to be withheld under the Code, or the Trustee's withholding
from such payments amounts not required or permitted to be withheld under the
Code), including the reasonable costs and expenses, including reasonable
attorneys' fees, of defending themselves against any claim or liability in
connection with the exercise or performance of any of their powers or duties
under the Indenture provided that:
(i)with respect to any such claim, the Trustee shall have given the Master
Servicer written notice thereof promptly after the Trustee shall have
knowledge thereof, provided, however, that the failure of the Trustee to so
notify the Master Servicer shall not relieve the Master Servicer of its
obligations pursuant to this subparagraph;
(ii)the Master Servicer shall assume the defense of any such claim,
provided that if the Master Servicer shall not have employed counsel
reasonably satisfactory to the Trustee to direct the defense of such claim
within a reasonable time after such notice of the claim pursuant to paragraph
(i) above, the Trustee shall have the right to direct the defense of such
claim;
(iii)the Trustee shall have the right to employ separate counsel with
respect to any claim and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the Trustee unless
the payment of such counsel has been specifically authorized by the Master
Servicer; provided further, however, that if the Trustee shall assume the
defense of any claim as a result of the Master Servicer's failure to assume
the defense of such claim as described in paragraph (ii) above, the Master
Servicer shall pay the reasonable fees and expenses of Trustee's counsel in
connection with the defense of such claim; and
(iv)notwithstanding anything to the contrary in this Section 4.5(b), the
Master Servicer shall not be liable for settlement of any such claim by the
Trustee entered into without the prior consent of the Master Servicer.
(c) The Provisions of Section 4.5(a) and (b) shall survive the
termination of this Agreement and the Indenture.
ARTICLE 5
DEFAULT
SECTION 5.1. Events of Default.
(a) Any of the following acts or occurrences shall constitute an Event
of Default by the Master Servicer under this Agreement:
(i) any failure by the Master Servicer to remit any payments
received by it in respect of the Loans or Loan Collateral to the Lock Box
Bank in accordance with any provision hereof within two (2) Business Days
after receipt thereof; or
(ii) the Trustee shall not have received a report in accordance
with Section 3.1(a) of the Indenture within two (2) Business Days of the date
required to be delivered or the Master Servicer shall have defaulted in the
due observance of any provision of Section 4.2 or Section 4.4 hereof and such
default shall have continued for five (5) Business Days after it has obtained
knowledge of, or has been notified by the Trustee of such default; or
(iii) the Master Servicer shall default in the due performance
and observance of any other provision of this Agreement and such default
shall have continued for a period of 30 days after it has obtained knowledge
of, or has been notified by the Trustee of such default; or
(iv) any representation, warranty or statement of the Master
Servicer made in this Agreement or by the Master Servicer in its capacity as
servicer in any certificate, report or other writing delivered pursuant
hereto shall prove to be incorrect in any material respect as of the time
when the same shall have been made; or
(v) the Master Servicer makes an assignment for the
benefit of creditors or is generally not paying its debts as such debts
become due; or
(vi) the Master Servicer petitions or applies to any tribunal
for, or consents to, the appointment of, or taking possession by, a trustee,
receiver, custodian, liquidator or similar official of the Master Servicer,
or of any substantial part of the assets of the Master Servicer, or commences
a voluntary case under the bankruptcy law of the United States or any
proceedings relating to the Master Servicer, under the bankruptcy law of any
other jurisdiction; or
(vii) any such petition or application is filed, or any such
proceedings are commenced, against the Master Servicer and the Master
Servicer by any act indicates its approval thereof, consent thereto or
acquiescence therein, or any order, judgment or decree is entered appointing
any such trustee, receiver, custodian, liquidator or similar official, or
approving the petition in any such proceedings and such order, judgment or
decree remains unstayed and in effect for more than 45 days; or
(viii) any order, judgment or decree is entered in any
proceedings against the Master Servicer decreeing the dissolution of the
Master Servicer and such order, judgment or decree remains unstayed and in
effect for more than 60 days; or
(ix) a final judgment for an amount in excess of $500,000
(exclusive of any portion thereof which is insured) is rendered against the
Master Servicer, and within 60 days after the entry thereof, such judgment is
not discharged or the execution thereof is stayed pending appeal, or within
60 days after the expiration of any such stay, such judgment is not
discharged.
(b) Upon the occurrence and continuance of an Event of Default
specified in clause (v) or (vi) above, all of the rights and powers of the
Master Servicer under this Agreement shall automatically terminate, including
without limitation all rights of the Master Servicer to receive from and
after such termination the servicing compensation provided for in Section
2.5, or any compensation or expense reimbursement hereunder, other than to
the extent accrued prior to such termination and not previously paid. Upon
the occurrence and continuance of any other Event of Default, the Issuer upon
direction of the Holders representing at least 51% of the aggregate
outstanding principal amount of the Notes may, by notice given to the Master
Servicer (with copies to the Issuer and the Trustee), terminate all of the
rights and powers of the Master Servicer under this Agreement, including
without limitation all rights of the Master Servicer to receive the servicing
compensation provided for in Section 2.5. Upon any automatic termination or
the giving of the notice referred to in the preceding sentence, all rights,
powers, duties and responsibilities of the Master Servicer under this
Agreement, whether with respect to the related Loans and Loan Collateral,
Payment Account, any Servicing Fee or otherwise shall vest in and be assumed
by a new servicer as provided in Section 4.4(c) of the Indenture. From and
during the continuation of an Event of Default, the Issuer upon the direction
of the Holders representing at least 51% of the aggregate outstanding
principal amount of the Notes (without regard to any Notes owned by the
Master Servicer or any of its Affiliates), are each hereby irrevocably
authorized and empowered to execute and deliver, on behalf of the Master
Servicer, as attorney-in-fact or otherwise, all documents and other
instruments (including any notices to Hypothecation Borrowers and Consumers
deemed necessary or advisable by the Holders representing at least 51% of the
aggregate outstanding principal amount of the Notes (without regard to any
Notes owned by the Master Servicer or any of its Affiliates)), and to do or
accomplish all other acts or things necessary or appropriate to effect such
vesting and assumption. Except as otherwise expressly provided in the
Indenture, the Issuer shall not have any right to waive any Event of Default
by the Master Servicer under this Agreement.
(c) Promptly after the Trustee shall have notice of the occurrence of
any Event of Default, the Trustee shall transmit by mail to all Noteholders
notice of such Event of Default known to the Trustee.
SECTION 5.3. No Effect on Other Parties.
Upon any termination of the rights and powers of the Master Servicer
from time to time pursuant to Section 5.1 or upon any appointment of a
successor to the Master Servicer, all the rights, powers, duties and
obligations of the Issuer or the Trustee under this Agreement or under the
Indenture shall remain unaffected by such termination or appointment and
shall remain in full force and effect thereafter, except as otherwise
expressly provided in this Agreement or in the Indenture.
SECTION 5.4. Rights Cumulative
All rights and remedies from time to time conferred upon or reserved to
the Issuer, the Trustee, or the Noteholders or to any or all of the foregoing
are cumulative, and none is intended to be exclusive of another or any right
or remedy which they may have at law or in equity. No delay or omission in
insisting upon the strict observance or performance of any provision of this
Agreement, or in exercising any right or remedy, shall be construed as a
waiver or relinquishment of such provision, nor shall it impair such right or
remedy. Every right and remedy may be exercised from time to time and as
often as deemed expedient.
ARTICLE 6
MISCELLANEOUS PROVISIONS
SECTION 6.1. Termination of Agreement
(a) The respective duties and obligations of the Master Servicer and
the Issuer created by this Agreement shall terminate upon the latest to occur
of (i) the final payment or other liquidation of the last outstanding Loan
included in the Trust Estate, (ii) the satisfaction and discharge of the
Indenture pursuant to Article VIII of the Indenture, and (iii) with respect
to any Loan, the disposition of all property acquired upon foreclosure of any
Loan Collateral. Upon termination of this Agreement pursuant to this Section
6.1(a), the Master Servicer shall pay over to the Issuer or any other Person
entitled thereto all monies received from the Hypothecation Borrowers and
Consumers and held by the Servicer.
(b) Following an Event of Default under the Indenture, the successor to
the rights of the Issuer in respect of the Loans and Loan Collateral
(including, without limitation, the Trustee or any or all of the related
Noteholders) shall have the right to terminate this Agreement, by notice to
the Master Servicer and the Issuer. Upon such termination, the Master
Servicer shall be entitled to receive only the accrued and unpaid servicing
compensation provided for in Section 2.5 to the date of such termination and
any other reimbursement to which it would otherwise be entitled of amounts
theretofore advanced by it.
SECTION 6.2. Amendment.
(a) This Agreement may only be amended from time to time by the Issuer,
the Servicer and the Trustee, with the consent of the Holders representing at
least 51% of the aggregate outstanding principal amount of the Notes (without
giving regard to any Notes owned by the Master Servicer or its Affiliates)
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Agreement, provided, however, that
no such amendment shall, without consent of each Noteholder, (i) reduce in
any manner the amount of, or the timing of, payments received on the related
Loans which are required to be deposited in the Payment Account; (ii) alter
the priorities with which any allocation of funds shall be made under this
Agreement; (iii) permit the creation of any lien (other than the lien or
permitted by the Indenture) on the Trust Estate for the Notes or any portion
thereof or deprive any such Holder of the benefit of this Agreement with
respect to the Trust Estate or any portion thereof; or (iv) modify this
Section 6.2 or Section 4.2, 4.3(b) or 4.4.
(b) Promptly after the execution of any amendment, the Master Servicer
shall send to the Trustee a conformed copy of each such amendment, but the
failure to do so will not impair or affect its validity. Promptly after the
execution of any amendment pursuant to Section 6.2(a) the Issuer shall cause
to be sent to each Noteholder a copy of such amendment. Any failure to do so
shall not affect the validity of such amendment.
(c) It shall not be necessary, in any consent of Noteholders under this
Section 6.2, to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents and of evidencing the authorization of the
execution thereof by Noteholders shall be subject to such reasonable
regulations as the Trustee may prescribe.
(d) Any amendment or modification effected contrary to the
provisions of this Section 6.2 shall be void.
SECTION 6.3. Governing Law.
This Agreement shall be construed in accordance with and governed by
the laws of the State of New York, without regard to the conflict of law
provisions thereof.
SECTION 6.4. Notices.
All notices, requests or other communications desired or required to be
given under this Agreement shall be in writing and shall be sent by (a)
certified or registered mail, return receipt requested, postage prepaid, (b)
national prepaid overnight delivery service, (c) telecopy or other facsimile
transmission (following with hard copies to be sent by national prepaid
overnight delivery service) or (d) personal delivery with receipt
acknowledged in writing, as follows: (a) if to the Issuer, c/o Litchfield
Financial Corporation, 789 Main Road, Stamford, Vermont 05352, Attention:
President, (b) if to the Master Servicer, to the Master Servicer at
Litchfield Financial Corporation, 789 Main Road, Stamford, Vermont 05352,
Attention: President, (c) if to the Trustee, at 450 West 33rd Street, New
York, New York 10001, Attention: Global Trust Services, Structured Finance
Services. Any of the persons in subclauses (a) through (d) above may change
its address for notices hereunder by giving notice of such change to the
other persons. Any change of address shown on a Note Register shall, after
the date of such change, be effective to change the address for such
Noteholder hereunder. All notices and demands shall be deemed to have been
given either at the time of the delivery thereof to any officer of the Person
entitled to receive such notices and demands at the address of such person
for notices hereunder, or on the third day after the mailing thereof to such
address, as the case may be.
SECTION 6.5. Severability of Provisions.
If one or more of the provisions of this Agreement shall be for any
reason whatever held invalid or unenforceable, such provisions shall be
deemed severable from the remaining covenants, agreements and provisions of
this Agreement and such invalidity or unenforceability shall in no way affect
the validity or enforceability of such remaining provisions, the rights of
any parties hereto, or the rights of the Trustee or any Noteholders. To the
extent permitted by law, the parties hereto waive any provision of law which
renders any provision of this Agreement invalid or unenforceable in any
respect.
SECTION 6.6. Binding Effect; Limited Rights of Others.
The provisions of this Agreement shall be binding upon and inure to the
benefit of the respective successors and assigns of the parties hereto, and
all such provisions shall inure to the benefit of the Trustee and the related
Noteholders, provided that following an Event of Default under the Indenture
and foreclosure of the Trust Estate pursuant thereto, the successor to the
rights of the Issuer in respect of the related Loans and Loan Collateral
(including without limitation the Trustee or any or all of the related
Noteholders) shall not be bound by the provisions of this Agreement unless,
within 90 days after the date on which such successor shall have succeeded to
such rights of the Issuer, such successor shall not have terminated this
Agreement pursuant to Section 6.1(b). Nothing in this Agreement expressed or
implied, shall be construed to give any Person other than the parties hereto
any legal or equitable right, remedy or claim under or in respect of this
Agreement or any covenants, agreements, representations or provisions
contained herein.
SECTION 6.7. Article and Section Headings.
The article and section headings herein are for convenience of
reference only, and shall not limit or otherwise affect the meaning hereof.
SECTION 6.8. Counterparts.
This Agreement may be executed in several counterparts, each of which
shall be an original and all of which shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as of
the day and year first above written.
LITCHFIELD HYPOTHECATION CORP.
By:
By:
LITCHFIELD FINANCIAL CORPORATION
By:
Name:
Title:
THE CHASE MANHATTAN BANK, as Trustee
By:
Name:
Title:
<PAGE>
Exhibit 10.162
INDENTURE OF TRUST (herein, as amended or supplemented from time to
time as permitted hereby, the "Indenture"), dated as of August 1, 1997, by
and between LITCHFIELD HYPOTHECATION CORP. 1997-B, a corporation organized
under the laws of the State of Delaware (the "Issuer"), and THE CHASE
MANHATTAN BANK, a New York banking corporation, as trustee (together with its
permitted successors in the trusts hereunder, the "Trustee").
W I T N E S S E T H:
WHEREAS, the Issuer proposes to issue from time to time its
Hypothecation Loan Collateralized Notes in an aggregate outstanding principal
amount not to exceed $45,295,000 (collectively, the "Notes") pursuant to this
Indenture and to deliver the net proceeds of the sale thereof to the
Originator (as such term and such other capitalized terms used herein and not
otherwise defined are defined in Article I hereof) in consideration of the
purchase of the Loans by the Issuer from the Originator;
WHEREAS, Litchfield Financial Corporation, a Massachusetts
corporation, in its capacity as servicer (the "Master Servicer") pursuant to
a Servicing Agreement, dated as of August 1, 1997 (herein, as amended or
supplemented from time to time as permitted thereby, the "Servicing
Agreement"), by and among the Issuer, the Master Servicer, and the Trustee,
will service the Loans;
WHEREAS, as security for the Notes, the Issuer proposes to pledge
and assign all of the Issuer's right, title and interest in and to the Loans
and the Loan Collateral (other than the Unassigned Rights) to the Trustee
pursuant to this Indenture;
WHEREAS, the Issuer has duly authorized the execution and
delivery of this Indenture to provide for the issuance, payment,
administration and securing of the Notes for the benefit of the Holders
thereof;
WHEREAS, the Issuer and the Trustee agree that the Trustee be
appointed under this Indenture and be charged with and accept the trusts and
duties set forth in this Indenture in connection with the issuance, payment,
administration and securing of the Notes under this Indenture for the benefit
of the Holders of the Notes;
WHEREAS, the Trustee has duly authorized the execution and
delivery of this Indenture and is duly authorized to accept the trusts and to
perform its obligations under this Indenture;
WHEREAS, all things necessary to make this Indenture a valid
agreement of the Issuer and the Trustee in accordance with its terms have
been done; and
WHEREAS, all things necessary to make the Notes, when executed
and delivered by the Issuer and authenticated by the Trustee and issued as in
this Indenture provided, the valid, binding and legal obligations of the
Issuer according to the import thereof, have been done and performed.
GRANTING CLAUSE
NOW, THEREFORE, in order to secure the payment of the principal
of, interest on, and all other amounts payable with respect to, the Notes to
be issued pursuant to this Indenture, and in order to secure the performance
and observance of all the covenants and conditions contained herein and in
such Notes, and in order to declare the terms and conditions upon which the
Notes are executed, authenticated, issued, delivered, secured and accepted by
all Persons who shall from time to time be or become Holders thereof, and for
and in consideration of the mutual covenants contained herein, of acceptance
by the Trustee of the trusts hereby created, and of the purchase and
acceptance of the Notes by the Holders thereof, the Issuer has executed and
delivered this Indenture and by these presents:
The Issuer does hereby pledge, bargain, sell, warrant, alienate,
remise, convey, assign, transfer, create and grant a lien upon and a security
interest in and a right of set-off against (collectively, "Grant") unto the
Trustee, its successor or successors and its or their assigns forever, in
trust and as collateral security for the benefit of the Holders of the Notes,
the Issuer's entire right, title, interest and estate, whether now or
hereafter acquired, in, to and under (i) the Loans; (ii) the Loan Collateral;
(iii) all monies and other property of any kind that relate to any of the
Loans and that are now or at any time or times hereafter in the possession or
under the control of the Issuer, the Master Servicer, any Sub-Servicer or the
Trustee or any bailee of the Trustee, including without limitation, the Lock
Box Account and all monies therein; (iv) the Servicing Agreement, each
Subservicing Agreement, each Agency Agreement, the Purchase and Sale
Agreement, the Deposit Account Assignment and the Payment Direction
Agreement; (v) all books and records of the Issuer to the extent pertaining
to any of (i) through (iv) above, including all computer programs, disks,
tapes and related electronic data processing media, credit files, account
cards, payment records, correspondence and ledgers in which any of the
foregoing are reflected or maintained; (vi) all moneys and securities from
time to time held by the Trustee in any Account created under the terms of
this Indenture and all interest, profits, proceeds, or other income derived
from such moneys and securities; (vii) the present and continuing exclusive
right, power and authority, subject to the provisions of the Servicing
Agreement, to give and receive notices and other communications, to make
waivers or other agreements subject to the provisions of the Servicing
Agreement, to make claims for and demand performance on, under or pursuant to
any of the Loan Collateral, to bring actions and proceedings thereunder or
for the enforcement thereof or the Loans, and to exercise all remedies,
powers, privileges and options and to do any and all things which the Issuer
is or may become entitled to do under the Loans or the Loan Collateral;
(viii) any and all property of every name and nature, now or hereafter
transferred, mortgaged, pledged or assigned as security or additional
security for payment or performance of any obligation of the Hypothecation
Borrowers to the Issuer under the Loans or any of the Loan Collateral or
otherwise (other than the Unassigned Rights), and the liabilities,
obligations and indebtedness evidenced thereby or reflected therein; and (ix)
all income, revenues, issues, products, revisions, substitutions,
replacements, profit and proceeds of and from all of the foregoing, including
proceeds of and unearned premiums with respect to insurance policies insuring
any of the Loan Collateral (collectively, the "Trust Estate").
TO HAVE AND TO HOLD IN TRUST all and singular the Trust Estate
whether now or hereafter acquired, unto the Trustee and its successor or
successors and its or their assigns forever for the benefit of the Holders of
the Notes, but:
IN TRUST NEVERTHELESS, upon the terms, trusts and conditions
hereinafter set forth for the equal and proportionate benefit, security and
protection of all present and future Holders of the Notes without preference,
privilege, priority or distinction as to the lien or otherwise of any of the
Notes over any of the other Notes, except as otherwise may be provided in
this Indenture.
PROVIDED, HOWEVER, that if the Issuer, its successors or assigns,
(i) shall pay, or cause to be paid, the principal of and interest payable
with respect to, the Notes due or to become due thereon, at the times and in
the manner mentioned in the Notes, or shall provide, as permitted hereby, for
the payment thereof, (ii) shall keep, perform and observe all the covenants
and conditions pursuant to the terms of this Indenture to be kept, performed
and observed by it, and (iii) shall pay or cause to be paid to the Trustee
all sums of money due or to become due to it and any other fiduciary
appointed hereunder in accordance with the terms and provisions hereof, then,
upon the final payment thereof, this Indenture, all rights of the Holders of
the Notes under this Indenture and the rights hereby granted for the benefit
thereof shall cease, determine and be void; otherwise this Indenture shall be
and remain in full force and effect.
The Trustee, for itself and its successors and assigns, hereby
declares that it shall hold all the estate, right, title and interest in any
property received by it under this Indenture, including, without limitation,
the Trust Estate, in trust for the benefit of all present and future Holders
of the Notes, subject to the terms of this Indenture. The Trustee
acknowledges the Grant of the Trust Estate hereunder, accepts the trusts
hereunder in accordance with the provisions hereof and agrees to perform
fully the duties herein required of it to the end that the interests of the
Holders of the Notes may be adequately and effectively protected in
accordance with the provisions of this Indenture.
THIS TRUST INDENTURE FURTHER WITNESSETH, and it is expressly
declared that all Notes issued and secured hereunder are to be issued,
authenticated and delivered and all said property, rights and interests and
other amounts hereby assigned and pledged, are to be dealt with and disposed
of under, upon and subject to the terms, conditions, stipulations, covenants,
agreements, trusts, uses and purposes as hereinafter expressed, and the
Issuer has agreed and covenanted, and does hereby agree and covenant with the
Trustee and with the respective Holders of the Notes, as follows:
ARTICLE I
DEFINITIONS AND ASSUMPTIONS
SECTION I.1 Definitions. For all purposes of this Indenture,
except as otherwise expressly provided herein or unless the context otherwise
requires, capitalized terms not otherwise defined herein shall have the
meanings ascribed to such terms in Appendix A hereto which is incorporated by
reference herein. All other capitalized terms used herein shall have the
meanings specified herein.
SECTION I.2 Construction. In this Indenture, unless the context
otherwise requires:
(a) The terms "hereby," "hereof," "hereto," "herein," "hereunder"
and any similar terms, as used in this Indenture, refer to this Indenture,
and the term "hereafter" shall mean after, and the term "heretofore" shall
mean before, the date of the execution and delivery of this Indenture.
(b) Words of the masculine gender shall mean and include
correlative words of the feminine and neuter genders and words importing the
singular number shall mean and include the plural number and vice versa.
(c) Words importing persons shall include firms, associations,
partnerships (including limited partnerships), trusts, corporations and other
legal entities, including public bodies, as well as natural persons.
(d) Any headings preceding the texts of the several Articles and
Sections of this Indenture, and any table of contents appended to copies
hereof, shall be solely for convenience of reference and shall not constitute
a part of this Indenture, nor shall they affect its meaning, construction or
effect.
ARTICLE II
THE NOTES
SECTION II.1 Authorization of Notes; Notes to Constitute
Full Recourse Obligations.
(a) The Notes issuable hereunder shall be issued as registered
Notes, without coupons, in one or more series as from time to time shall be
authorized by the Issuer. The Notes of all series shall be known and entitled
generally as the "Litchfield Hypothecation Corp. 1997-B Hypothecation Loan
Collateralized Notes." The Notes of each series shall have such further
particular designation as the Issuer may adopt for each series, and each Note
issued hereunder shall bear upon the face thereof the designation so adopted
for the series to which it belongs;
(b) The Trustee is hereby authorized and directed to authenticate
and deliver a series of Notes of the Issuer which shall be designated as
"Litchfield Hypothecation Corp. 1997-B Hypothecation Loan Collateralized
Notes, Series A" (the "Series A Notes"). The Trustee is hereby authorized to
authenticate and deliver to the Purchaser on the Closing Date Series A Notes
in the initial principal amount of $25,465,228.47.
(c) The Trustee is hereby authorized to authenticate and deliver
a series of Notes of the Issuer which shall be designated from time to time
as "Litchfield Hypothecation Corp. 1997-B Hypothecation Loan Collateralized
Notes, Series B Variable Funding Notes (the "Variable Funding Notes") at any
time and from time to time on or after the Closing Date, the Trustee is
hereby authorized upon the direction of the Issuer to authenticate and
deliver Variable Funding Notes in any principal amount in excess of $25,000;
provided, however, that no authorization and delivery of Variable Funding
Notes shall be authorized if, after giving effect to the principal amount of
Variable Funding Notes to be issued, the aggregate principal amount of all
Notes outstanding would exceed the Note Limit. The Variable Funding Notes
shall be revolving variable amount funding Notes issued by the Issuer for the
purpose of funding Future Advances made by the Originator to the
Hypothecation Borrowers and assigned to the Issuer. Any Noteholder of
Variable Funding Notes that purchases additional Variable Funding Notes (or
at such Holder's direction, the Trustee) may, and is hereby authorized to,
record on the grid attached to such Noteholder's Note the date and amount of
any additional principal to be evidenced thereby; provided, however, that the
failure to make any such recordation on such grid or any error on such grid
shall not affect any Noteholder's rights with respect to the principal amount
of such Note, or interest thereon. At any time and from time to time after
the Closing Date, any Holder of Variable Funding Notes shall have the right,
upon written notice to the Trustee and the Issuer and delivery of the
Variable Funding Note to be converted to the Trustee, to convert not less
than $750,000 in aggregate outstanding principal amount of Variable Funding
Notes into Series C Notes of a like aggregate principal amount. Any Variable
Funding Note so converted shall be cancelled by the Trustee.
(d) The Trustee is hereby authorized to authenticate and deliver
a series of Notes of the Issuer which shall be designated from time to time
as "Litchfield Hypothecation Corp. 1997-B Hypothecation Loan Collateralized
Notes, Series C" (the "Series C Notes"). At any time and from time to time on
or after the Closing Date, the Trustee is hereby authorized upon receipt from
a Holder of Variable Funding Notes of written notice requesting conversion of
such Variable Funding Notes pursuant to Section 2.1(c) hereof (which
conversion shall be effective as of a Payment Date specified in the request
for conversion) and the Variable Funding Notes to be converted, to
authenticate and deliver Series C Notes to such Holder in a like aggregate
principal amount as the aggregate outstanding amount of the Variable Funding
Notes converted.
(e) The Notes shall constitute full recourse obligations of the
Issuer. The Notes when issued shall not constitute direct or indirect
indebtedness or obligations of the Master Servicer or the Originator. Neither
the Master Servicer nor the Originator shall be liable to the Holders of the
Notes for the payment of the principal thereof and interest thereon for any
liability under this Indenture. The foregoing shall not diminish the
Originator's obligations under the Guarantee. Neither the Notes nor the Loans
are insured by any governmental agency.
SECTION II.2 Forms of Notes and Certificate of Authentication.
The Notes and the Trustee's certificate of authentication shall be in
substantially the forms set forth in Exhibit A attached hereto, with
necessary or appropriate variations, omissions and insertions, as permitted
or required by this Indenture and may have such letters, numbers or other
marks of identification and such legends or endorsements placed thereon as
may, consistent herewith, be determined by the Authorized Officers of the
Issuer executing such Notes, as evidenced by their execution of such Notes.
The definitive Notes shall be typed, photocopied, printed, lithographed or
engraved or produced by any combination of these methods (with or without
steel engraved borders), all as determined by the Authorized Officers of the
Issuer executing such Notes, as evidenced by their execution of such Notes.
SECTION II.3 Authorized Principal Amount. The aggregate principal
amount of the Notes that may be authenticated, delivered and Outstanding
under this Indenture is $45,295,000. All Notes shall be identical in all
respects except for the maturity thereof, the interest rate thereon, the
denominations thereof and such differences to reflect the revolving nature of
the Variable Funding Notes. All Notes issued under this Indenture shall in
all respects be equally and ratably entitled to the benefits hereof without
preference, priority or distinction on account of the actual time or times of
authentication and delivery, all in accordance with the terms and provisions
of this Indenture.
SECTION II.4 Date of Notes; Denominations. (i) Notes which are
authenticated and delivered by the Trustee to or upon the order of the Issuer
on the Closing Date shall be dated as of the Closing Date. Other series of
Notes which are authenticated after the Closing Date shall be dated as of the
respective Closing date therefor. All other Notes which are authenticated for
any other purpose hereunder shall be dated the date of their authentication.
The Series A Notes shall be issued in minimum denominations of $100,000, the
Variable Funding Notes shall be issued in minimum denominations of $25,000
and the Series C Notes shall be issued in minimum denominations of $750,000.
(ii) Notes issued upon transfer, exchange, conversion or
replacement of other Notes shall be issued in authorized denominations
reflecting the original aggregate principal amount of the Notes so
transferred, exchanged, converted or replaced, but shall represent only the
then current outstanding principal amount of the Notes so transferred,
converted, exchanged or replaced. In the event that any Note is divided into
more than one Note in accordance with the provisions hereof, the principal
amount of such Note shall be proportionately divided among the Notes
delivered in exchange therefor.
SECTION II.5 Execution, Authentication, Delivery and
Dating. (i) Each Note shall be executed on behalf of the Issuer with the
manual or facsimile signature of an Authorized Officer of the Issuer.
(ii) Notes bearing the manual or facsimile signature of
individuals who were at any time Authorized Officers of the Issuer shall bind
the Issuer, notwithstanding that such individuals or any of them have ceased
to hold such offices prior to the authentication and delivery of such Notes
or did not hold such offices at the date of such Notes.
(iii) At any time and from time to time after the execution and
delivery of this Indenture, the Issuer may deliver Notes executed by the
Issuer to the Trustee for authentication. Upon a written order from the
Issuer (which order shall be in the form of Exhibit B hereto) the Trustee
shall authenticate and deliver such Notes as in this Indenture provided and
not otherwise. No Note shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose, unless there appears on such Note
a certificate of authentication substantially in the form set forth in
Exhibit A hereto executed by the Trustee by the manual signature of an
Authorized Officer of the Trustee, and such certificate upon any Note shall
be conclusive evidence, and the only evidence, that such Note has been duly
authenticated and delivered hereunder.
SECTION II.6 Transfer and Registry; Exchange; Negotiability.
(a) (i) Each Note shall be transferable only upon the books of
the Issuer (the "Note Register"), which shall be kept for that purpose at the
office of the Person acting as registrar of the Issuer (the "Note
Registrar"). The Trustee is hereby designated as the Note Registrar. Subject
to the provisions of paragraph (b) of this Section 2.6, the transfers of any
Note may be effected on the books of the Issuer by the Holder thereof in
person or by his attorney duly authorized in writing, upon surrender thereof
together with a written instrument of transfer satisfactory to the Note
Registrar duly executed by the Holder or its duly authorized attorney. Upon
the transfer of any such Note, the Issuer shall issue in the name of the
transferee a new Note or Notes of the same aggregate principal amount, the
same series, interest rate and maturity as the surrendered Note.
(ii) At the option of the Holder, Notes may be exchanged for
other Notes of any authorized denominations, and of a like aggregate
principal amount, series, interest rate and maturity, upon surrender of the
Notes to be exchanged at such office or agency. Whenever any Notes are so
surrendered for exchange, the Issuer shall execute, and the Trustee shall
authenticate and deliver, the Notes which the Noteholder making the exchange
is entitled to receive.
(iii) All Notes issued upon any registration of transfer or
exchange of Notes shall be the valid obligations of the Issuer, evidencing
the same debt, and entitled to the same benefits under this Indenture, as the
Notes surrendered upon such registration of transfer or exchange.
(iv) Every Note presented or surrendered for registration of
transfer or exchange shall (if so required by the Issuer or the Trustee) be
duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Trustee, duly executed, by the Holder thereof or his
attorney duly authorized in writing.
(b) Each Note shall bear the following legend:
"THE NOTES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 ("1933
ACT"), OR THE SECURITIES LAWS OR "BLUE SKY" LAWS OF ANY STATE AND HAVE BEEN
SOLD IN RELIANCE UPON AN EXEMPTION PROVIDED IN THE 1933 ACT AND APPLICABLE
STATE SECURITIES AND BLUE SKY LAW. THE NOTES MAY NOT BE SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUBSEQUENTLY REGISTERED
UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES AND BLUE SKY LAW OR AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE."
(c) No Note or any beneficial interest therein may be sold or
transferred (including, without limitation, by pledge or hypothecation)
unless such transfer is exempt from the registration requirements of the 1933
Act and any applicable state securities and blue sky laws or is made in
accordance with said Act and state laws. As a condition precedent to any such
transfer, a certificate or certificates in the form of Exhibit C hereto, as
appropriate, shall be delivered to the Trustee.
(d) None of the Issuer, the Note Registrar or the
Trustee is obligated to register the Notes under the 1933 Act or any
other securities law.
SECTION II.7 Regulations With Respect to Exchanges and Transfers.
In all cases in which the privilege of exchanging or transferring Notes is
exercised, the Issuer shall execute and the Trustee shall authenticate and
deliver Notes in accordance with the provisions of this Indenture. For every
such exchange or registration of transfer of Notes, whether temporary or
definitive, the Issuer and the Trustee may require the payment of a sum
sufficient to cover any tax or other governmental charge required to be paid
with respect to such exchange or registration of transfer. Neither the Issuer
nor the Trustee shall be required to register the transfer of or exchange
Notes for a period beginning on the Record Date next preceding a Payment Date
and ending on such Payment Date.
SECTION II.8 Mutilated, Destroyed, Stolen or Lost Notes.
(a) In case any Note shall become mutilated or be destroyed,
stolen or lost, the Issuer shall execute, and thereupon the Trustee shall
authenticate and deliver, a new Note of like aggregate principal amount,
series, interest rate and maturity as the Note so mutilated, destroyed,
stolen or lost, in exchange and substitution for such mutilated Note, upon
surrender and cancellation of such mutilated Note or in lieu of and
substitution for the Note destroyed, stolen or lost, upon filing with the
Trustee evidence satisfactory to the Issuer and the Trustee that such Note
has been destroyed, stolen or lost and proof of ownership thereof, and upon
furnishing the Issuer and Trustee with such security or indemnity as may be
required by them to save each of them harmless (an unsecured agreement of
indemnity of a Purchaser being deemed sufficient for this purpose) and upon
payment of any tax or governmental charge the Issuer and Trustee may incur.
All Notes so surrendered to the Trustee shall be canceled by it. Any such new
Notes issued pursuant to this Section 2.8 in substitution for Notes alleged
to be destroyed, stolen or lost shall constitute original additional
contractual obligations on the part of the Issuer, whether or not the Notes
so alleged to be destroyed, stolen or lost shall be found at any time, or be
enforceable by anyone, and shall be equally secured by, and entitled to equal
and proportionate benefits with all other Notes issued under the Indenture.
(b) Notwithstanding the foregoing provisions of this Section 2.8,
in the event any such Note shall have matured, and no default has occurred
which is then continuing in the payment of the principal of or interest on
the Notes, the Issuer may authorize the payment of the same (upon surrender
thereof as provided in Section 2.9) instead of issuing a substitute Note,
provided security or indemnification is furnished as above provided in this
Section 2.8.
(c) The provisions of this Section 2.8 are exclusive and shall
preclude (to the extent lawful) all of the rights and remedies with respect
to the payment of mutilated, lost, stolen or destroyed Notes, including those
granted by any law or statute now existing or hereafter enacted.
SECTION II.9 Medium of Payment; Payment of Principal and Interest.
(a) The Notes shall be payable in lawful currency of the United
States of America and shall be payable by check mailed by first class mail to
the Person entitled thereto at such Person's address as it appears on the
Note Register on the applicable Record Date except that payments to Holders
of in excess of one million dollars ($1,000,000) of original principal amount
of the Notes shall be made in immediately available funds to an account at a
banking institution in the United States; provided that such Holder has
provided to the Trustee no later than two Business Days prior to the relevant
Payment Date its wire transfer instructions (the wire transfer instructions
of the Purchaser set forth in the Note Purchase Agreement are deemed
sufficient for all payments on the Notes held by the Purchaser).
(b) Each Note shall bear interest on the outstanding principal
amount thereof from and including (i) August 28, 1997, in the case of the
Series A Notes, and (ii) in the case of the Variable Funding Notes, the
Series C Notes and any subsequent series of Notes, from and including the
Closing date therefor, and, in each case, the most recent date to which
interest has been paid until paid. Interest shall accrue on the principal
amount of the Series A Notes and the Variable Funding Notes at the end of
each day at a rate per annum equal to 2.10% plus the LIBOR Rate, as
determined by the Master Servicer and set forth in the Master Servicer's
Certificate. Interest shall accrue on the Series C Notes and any subsequent
series of Notes at a rate to be determined on or before the Closing for such
series of Notes. 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 the Trustee may from time to time specify) as the
average of the interbank offered rates for U.S. 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 Payment Period shall be the rate so
published on the first Business Day of such Payment Period. Interest shall
accrue at the Default Rate with respect to the principal amount of any
portion of the Notes that is not paid on the Payment Date for such principal
(whether due at stated maturity, on demand, upon acceleration or otherwise)
until paid in full. Interest shall be calculated daily and shall be computed
on the basis of a 360-day year of twelve months of 30 days each.
(c) (i) On each Payment Date, payments of principal of the Notes
will be due in an amount equal to the Principal Payment Amount in respect of
the aggregate Loans as of such Payment Date.
(ii) (A) If any of the representations or warranties contained in
Section 3 of the Purchase and Sale Agreement shall prove to be, in any
material and adverse respect, false, incorrect or misleading as to any Loan,
the Issuer, at its expense, shall promptly take such action as is necessary
and use its best efforts to cause such false, incorrect or misleading
representation or warranty to be, in all material respects, true, correct and
not misleading, within 30 days following the giving of written notice to the
Issuer by the Trustee of such false, incorrect or misleading representation
or warranty (provided, however, that the Trustee shall have no obligation to
investigate or determine whether any such representation is false, incorrect
or misleading) or following the discovery thereof by the Issuer.
(B) If within the applicable time period set forth in paragraph
(A) above the Issuer fails to cure, in all material respects, any such
representation or warranty with respect to a Loan which is, in any material
respect, false, incorrect or misleading, then, the Issuer shall as soon as
possible but in no event later than 60 days following notice or discovery of
the false, incorrect or misleading representation or warranty, take all
actions necessary or advisable under this Indenture and the Purchase and Sale
Agreement to (i) cause the Trustee to redeem (pursuant to the exercise of the
Repurchase Option set forth in Section 4(b) of the "Purchase and Sale
Agreement"), on a pro rata basis among the outstanding Notes, an aggregate
principal amount of the Notes equal to the outstanding principal amount of
the Loan with respect to which the false, incorrect or misleading
representation or warranty was made, and to pay accrued interest on such
redeemed Notes to the date of redemption or (ii), with the consent of the
Holders of at least 66 2/3% of the aggregate outstanding principal amount of
the Notes, substitute a new Loan for such Loan.
(iii) The Issuer shall have the right to prepay all, but not less
than all, of any series of outstanding Notes at any time after the date on
which the aggregate outstanding principal amount of such series of Notes
equals or is less than 10% of the initial aggregate principal amount of such
series of Notes.
(iv) In the event that, pursuant to the terms of the Purchase and
Sale Agreement, the Originator has notified the Issuer that (A) the
Originator intends to exercise Unassigned Rights in respect of a Loan and (B)
such exercise of Unassigned Rights requires the release of such Loan from the
Lien of the Trust Estate hereunder, the Issuer shall have the right to prepay
an aggregate outstanding principal amount of the Notes equal to the principal
amount of the Loan released hereunder. Upon such prepayment, together with
accrued interest on such prepaid Notes to the date of prepayment, the Trustee
shall release the related Loan in accordance with Section 8.3 hereof.
(v) All unpaid principal of the Notes shall mature and be
immediately due and payable at Stated Maturity.
(vi) Payments of principal (as a result of prepayments or
otherwise) to be made will be allocated pro rata among the Notes in the
proportion which the outstanding principal amount of each Note bears to the
aggregate outstanding principal amount of the Notes of all series as of the
first day of the month in which the Payment Date occurs.
(vii) All reductions in the principal amount of a Note effected
by payments of installments of principal made on any Payment Date shall be
binding upon all future Holders of the Note and of any Note issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof,
whether or not such payment is noted on such Note.
(viii) Whenever the entire remaining unpaid principal amount of
the Notes will become due and payable on the next Payment Date, the Trustee
shall notify the Person in whose name such Note is registered as of the close
of business on the Record Date prior to such Payment Date that such final
installment is expected to be paid on such Payment Date. Such notice shall be
given by the Trustee in the name and at the expense of the Issuer by
first-class mail, postage prepaid, mailed no later than the Business Day
following the day on which the Trustee receives the Master Servicer's
Certificate with respect to such Payment Date. Such notice shall set forth
the following information: the fact of such expectation of payment in full,
restating the requirement set forth in this Indenture that such payment shall
be payable only upon presentation of such Note (or in the case of mutilated,
destroyed, lost or stolen Notes, a certificate to that effect and an
indemnity (or unsecured agreement of indemnity) as provided in Section 2.8
hereof) on or after the Payment Date therefor at the corporate trust office
of the Trustee for payment, the place where such Notes are to be surrendered
for payment and that no interest shall accrue on the principal of such Notes
for any period after such Payment Date.
(ix) The final installment of principal of any Note made on any
Payment Date shall be payable, subject to Section 2.8(b) hereof, only upon
presentation of such Note (or in the case of mutilated, destroyed, lost or
stolen Notes, a certificate to that effect and an indemnity (or unsecured
agreement of indemnity) as provided in Section 2.8 hereof) on or after the
Payment Date therefor at the corporate trust office of the Trustee for
payment; provided, however, that this requirement of presentation shall not
apply to the Purchaser if it furnishes to the Trustee its unsecured agreement
of indemnity in the same manner as is permitted by Section 2.8 hereof.
SECTION II.10 Persons Deemed Owners. The Issuer, the Trustee
and the Note Registrar may deem and treat the Person in whose name any
Note shall be registered upon the Note Register as the absolute owner
of such Note, whether such Note shall be overdue or not, for the purpose
of receiving payment of, or on account of, the principal of and interest
on such Note and for all other purposes, and all such payments so made to
any such Holder or upon his order shall be valid and effective to satisfy
and discharge the liability upon such Note to the extent of the sum or
sums so paid, and neither the Issuer, the Trustee nor the Note Registrar
shall be affected by any notice to the contrary.
SECTION II.11 Cancellation. All Notes surrendered upon payment
of the final installment of principal pursuant to Section 2.9(c) hereof
or otherwise surrendered for registration of transfer, conversion or
exchange shall be delivered to the Trustee and shall be promptly canceled
by it. The Issuer may at any time deliver to the Trustee for cancellation
any Notes previously authenticated and delivered hereunder which the
Issuer may have acquired in any manner whatsoever, and all Notes so
delivered shall be promptly canceled by the Trustee. No Notes shall be
authenticated in lieu of or in exchange for any Notes canceled as provided
in this Section, except as expressly permitted by
this Indenture.
SECTION II.12 Access to List of Noteholders' Names and Addresses.
The Note Registrar will furnish or cause to be furnished to the Trustee,
the Issuer or any Noteholder promptly after receipt by the Note Registrar of
a request therefor from the Trustee, the Issuer or such Noteholder in
writing, a list, in such form as the Trustee, the Issuer or such Noteholder
may reasonably require, of the primary contacts, names and addresses of the
Noteholders as of the most recent Record Date. Every Noteholder by receiving
and holding Notes, agrees with the Issuer, the Registrar and the Trustee that
neither the Issuer, the Note Registrar nor the Trustee shall be held
accountable by reason of the disclosure of any such information as to the
names and addresses of the Noteholders hereunder, regardless of the source
from which such information was derived.
SECTION II.13 Acts of Noteholders.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or
taken by Noteholders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Noteholders in
person or by an agent duly appointed in writing, and, except as herein
otherwise expressly provided, such action shall become effective when such
instrument or instruments are delivered to the Trustee and where required to
the Issuer. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Issuer if made in
the manner provided in this Section 2.13.
(b) The fact and date of the execution by any Noteholder
of any such instrument or writing may be proven in any reasonable manner
which the Trustee deems sufficient.
(c) The ownership of Notes shall be proven by the Note
Register.
(d) Any request, demand, authorization, direction, notice,
consent, waiver or other act by a Noteholder shall bind every Holder of Notes
issued upon the registration of transfer thereof or in exchange therefor or
in lieu thereof, in respect of anything done, or omitted to be done by the
Trustee or the Issuer in reliance thereon, whether or not notation of such
action is made upon such Notes.
(e) The Trustee may require such additional proof of any matter
referred to in this Section 2.13 as it shall deem necessary.
ARTICLE III
ISSUANCE OF NOTES
SECTION III.1 Conditions to Authentication and Delivery of Notes.
Following execution and delivery of this Indenture by the Issuer and the
Trustee, Notes shall from time to time be executed by the Issuer and
delivered to the Trustee for authentication and delivery together with the
written order required pursuant to Section 2.5 hereof, and, thereupon, the
same shall be authenticated; provided, however, that on or before the
authentication and delivery of Notes on the Closing Date, and, as a condition
to such authentication and delivery, the Trustee, or the Collateral Agent on
behalf of the Trustee, shall have received the following:
(i)A List of Loans, certified by an Authorized Officer of the Master
Servicer;
(ii)The originals of each Loan Document relating to each Loan;
(iii)If any of the Transaction Documents include an instrument executed by
a Hypothecation Borrower or a Consumer, the original instrument endorsed in
blank by the Hypothecation Borrower or Consumer, or, if endorsed to the
Originator or the Issuer, endorsed in blank by an Authorized Officer of the
Originator or the Issuer;
(iv)The originals of all Consumer Financing Documents (other than Consumer
Financing Documents relating to the Atlantic Gulf Loan (which Loan is
identified as Loan # 20100000672 on the List of Loans) which may be retained
in microfiche form at the Servicer or related Subservicer);
(v)If any of the Loan Collateral consists of real estate encumbered by a
Mortgage, an original or copy time-stamped by the appropriate recording
office of the recorded Mortgage and an original or copy time-stamped by the
appropriate recording office of all amendments to such Mortgage;
(vi)A copy of an officially certified document, dated not more than 30
days prior to the Closing Date (and, if available, confirmed on the Business
Day prior to the Closing Date by telegram, telephone or other similar means),
evidencing the due organization and good standing of the Issuer;
(vii)A certificate of an Authorized Officer of the Issuer dated as of the
Closing Date, certifying that (a) the Issuer is not in Default under this
Indenture; (b) the issuance of the Notes applied for will not result in any
breach of any of the terms, conditions or provisions of, or constitute a
default under any indenture, mortgage, deed of trust or other agreement or
instrument to which the Issuer is a party or by which it or its property is
bound or any order of any court or administrative agency entered in any
Proceeding to which the Issuer is a party or by which it or its property may
be bound or may be subject; (c) the Issuer is the owner of each Loan Granted
to the Trustee; the Issuer has not assigned any interest or participation in
any such Loan; and the Issuer has full right to Grant each such Loan to the
Trustee; (d) the Issuer has Granted to the Trustee all of its right, title,
and interest in each Loan Granted to the Trustee; (e) other than liens
created under or pursuant to the Indenture, the Trust Estate is free and
clear of any pledge, charge or encumbrance thereon or with respect thereto
created by or through the Issuer, and all action on the part of the Issuer to
that end has been duly and validly taken; (f) after giving effect to the
issuance of the Notes, the aggregate outstanding principal amount of the
Notes will not exceed the Note Limit; and (g) all conditions precedent
provided in this Indenture relating to the issuance, authentication and
delivery of the Notes applied for have been complied with;
(viii)An Opinion of Counsel (or Opinions of Counsel) to the Issuer,
addressed to the Trustee and the Purchaser and dated as of the date of
authentication of the Notes applied for, in the form attached hereto as
Exhibit D;
(ix)A fully executed copy of each of the following agreements:
(A) this Indenture;
(B) the Servicing Agreement;
(C) the Agency Agreements;
(D) the Purchase and Sale Agreement;
(E) the Deposit Account Assignment; and
(F) the Payment Direction Agreement.
(x)A certificate of an Authorized Officer of the Issuer, dated as of the
date of authentication of the Notes applied for, that the Issuer has filed or
caused to be filed UCC-1 financing statements in the appropriate recording
offices executed by the Issuer, as debtor, and naming the Trustee, as secured
party, and the Loans and Loan Collateral as collateral;
(xi)Copies of resolutions of the Board of Directors of the Master Servicer
approving the execution, delivery and performance of the Servicing Agreement
and the transactions contemplated thereby, certified by the Clerk or an
Assistant Clerk of the Master Servicer;
(xii)A copy of an officially certified document, dated not more than 30
days prior to the date of authentication of the Notes applied for (and, if
available, confirmed on the Business Day prior to such date by telegram,
telephone or other similar means), evidencing the due organization and good
standing of the Master Servicer in the state of its organization; and
(xiii)Other. Such other documents as may be reasonably requested by the
Trustee or the Purchaser.
Notwithstanding the foregoing, for each Loan constituting a Participation
Interest, in lieu of the foregoing documents, the Trustee, or the Collateral
Agent on behalf of the Trustee, shall have received a copy of the Loan
Documents and the original participation certificate endorsed in blank by an
Authorized Officer of the Originator.
(a) Within 90 days of the Closing Date, the Issuer shall deliver to
the Trustee (or the Collateral Agent) with respect to each Mortgage received
by a Hypothecation Borrower from a Consumer and collaterally assigned to the
Originator, the original or copy time-stamped by the appropriate recording
office of such collateral assignment and an original collateral reassignment
of such Mortgage (which may be contained in a blanket reassignment) from the
Originator to the Issuer and from the Issuer to the Trustee (which may be
contained in one instrument), executed in blank and in form suitable for
recording by the Trustee (or the Collateral Agent) at any time an Event of
Default exists.
(b) On or before any Closing after the Closing Date, as a condition to
the authentication and delivery of Notes on the date of such Closing, the
Trustee, or the Collateral Agent on behalf of the Trustee, shall have
received (i) the documents specified in Sections 3.1(i) through 3.1(v) above,
and (ii) a certificate of an Authorized Officer of the Issuer dated the date
of such Closing, certifying as to the matters set forth in Section 3.1 (vi)
above.
(c) Within 90 days of the Closing Date, the Issuer shall cause all
lock-box or collection accounts in respect of the Loans or the Loan
Collateral which on the Closing Date are owned or in the name of the "Master
Servicer" to be transferred to an account or accounts in the name of the
Trustee. The Trustee shall not have any obligations with respect to any such
account, including, without limitation, any obligation to direct investments
in such account or to respond to any inquiry with respect to any such
account.
ARTICLE IV
COVENANTS OF THE ISSUER
SECTION IV.1 Payment of Principal and Interest. The Issuer will duly
and punctually pay the principal of and interest on the Notes in accordance
with the terms of the Notes and this Indenture.
SECTION IV.2 Maintenance of Existence.
(a) Except as permitted by Section 4.2(b), the Issuer will keep in
full effect its existence, rights and franchises as a business trust under
the laws of the State of its organization and the Issuer or any permitted
successor hereunder will obtain and preserve its qualification to do business
as a foreign corporation in each jurisdiction in which such qualification is
or shall be necessary to protect the validity and enforceability of this
Indenture, the Notes, the Servicing Agreement or any of the Loan Documents.
The Issuer at all times shall hold itself out as having an existence separate
from that of the Master Servicer, and shall keep books and records separate
from those of the Master Servicer.
(b) Any Person into which the Issuer hereunder may be merged or
with which it may be consolidated on an involuntary basis, or any Person
resulting from any such merger or consolidation to which the Issuer hereunder
shall be a party, shall be the successor Issuer under this Indenture without
the execution or filing of any paper, instrument or further act to be done on
the part of the parties hereto, anything herein, or in any agreement relating
to such merger or consolidation, by which any such successor Issuer may seek
not to retain certain powers, rights and privileges theretofore obtaining for
any period of time following such merger or consolidation, to the contrary
notwithstanding.
SECTION IV.3 Protection of Trust Estate.
(a) The Issuer will from time to time execute and deliver or cause
to be delivered all amendments hereto and all such financing statements,
continuation statements, instruments of further assurance and other
instruments, and will take such other action necessary or advisable to:
(i)Grant more effectively all or any portion of the
Trust Estate;
(ii)maintain or preserve the lien (and the priority thereof) of this
Indenture or carry out more effectively the purposes hereof;
(iii)perfect, publish notice of, or protect the validity of any Grant
made or to be made by this Indenture;
(iv)preserve and defend title to the Trust Estate and the rights of the
Trustee, and of the Noteholders secured thereby, in such Trust Estate against
the claims of all Persons and parties; and
(v)pay any and all taxes levied or assessed upon all or any part of the
Trust Estate.
(b) The Issuer hereby designates the Trustee its agent and
attorney-in-fact to execute, upon the Issuer's failure to do so in a timely
manner, any financing statement, continuation statement or other instrument
required pursuant to this Section 4.3. Such power of attorney is coupled with
an interest and irrevocable, and the Issuer hereby ratifies and confirms all
that the Trustee may do by virtue thereof. Such designation shall not be
deemed to create a duty in the Trustee to monitor the compliance by the
Issuer with the foregoing covenants, and the duty of the Trustee to execute
any instrument required pursuant to this Section 4.3 shall arise only if the
Trustee has knowledge of the type described in Section 9.1(e) hereof of any
Default by the Issuer in complying with the provisions of this Section 4.3.
SECTION IV.4 Enforcement of Servicing Agreement.
(a) The Noteholders agree that (i) the Issuer and the Trustee are
hereby authorized to engage the Master Servicer to service the Loans pursuant
to the Servicing Agreement, and (ii) the Trustee shall be entitled to rely on
the services of the Master Servicer for purposes of servicing the Loans.
Notwithstanding the foregoing, if the Trustee is notified by the Issuer or
any of the Noteholders that action is necessary (x) for the enforcement of
the Loans and the Loan Collateral, including without limitation, the prompt
payment of all principal and interest and all other amounts due thereunder,
consistent with the provisions of the Servicing Agreement, or (y) to defend,
enforce, preserve and protect the rights and privileges of the Issuer and of
the Noteholders under or with respect to the Loans and the related Loan
Collateral, or (z) to preserve the Liens of the Loans and the Loan
Collateral, the Trustee shall notify the Master Servicer and request that the
Master Servicer take such action.
The Issuer will punctually perform and observe all of its obligations
and agreements contained in the Servicing Agreement. The Issuer shall cause
the Master Servicer to diligently enforce all terms and covenants and to
satisfy all conditions of the Servicing Agreement, including, without
limitation, the prompt payment of all principal and interest and all other
amounts due thereunder. The Issuer at all times shall cause to be defended,
enforced, preserved and protected the rights and interests of the Issuer, the
Trustee and the Noteholders under or with respect to the Servicing Agreement.
(b) If the Issuer shall have knowledge of the occurrence of an
Event of Default under the Servicing Agreement, the Issuer shall promptly
notify the Trustee thereof, and shall specify in such notice the action, if
any, the Issuer is taking in respect of such Event of Default. If such Event
of Default arises from the failure of the Master Servicer to perform any of
its duties or obligations under the Servicing Agreement with respect to the
Loans securing the Notes, the Issuer may remedy such failure. So long as any
such Event of Default under the Servicing Agreement shall be continuing, the
Trustee may, and upon the direction of (i) the Purchaser while the Purchaser
is a Holder of Notes, or (ii) the Holders of Notes representing not less than
51% of the then aggregate outstanding principal amount of the Notes (other
than Notes owned by the Originator or any Affiliate of the Originator), the
Trustee shall terminate all of the rights and powers of the Master Servicer
under the Servicing Agreement pursuant to Section 6.1 of the Servicing
Agreement. Unless directed or permitted by the Trustee or the Holders of
Notes representing not less than 51% of the then aggregate outstanding
principal amount of the Notes (other than Notes owned by the Originator or
any Affiliate of the Originator), the Issuer may not waive any such Event of
Default under the Servicing Agreement or terminate the rights and powers of
the Master Servicer under the Servicing Agreement.
(c) Upon any termination of the Master Servicer's rights and
powers pursuant to Section 5.1 of the Servicing Agreement, all rights,
powers, duties, obligations and responsibilities of the Master Servicer with
respect to the related Loans shall vest in and be assumed by a Successor
Master Servicer appointed by the Issuer with the consent of (i) the
Purchaser, while the Purchaser is a Holder of Notes, and (ii) the then
Holders of Notes representing not less than 51% of the then aggregate
outstanding principal amount of the Notes (provided, that the Holder of any
Notes owned by the Originator or any Affiliate of the Originator shall not be
entitled to participate in any consent of the proposed Successor Master
Servicer as an affiliate of the Originator), and such Successor Master
Servicer shall be the successor in all respects to the Master Servicer in its
capacity as servicer with respect to such Loans under the Servicing
Agreement. No resignation or termination of the Master Servicer under the
Servicing Agreement shall be effective until a Successor Master Servicer has
been appointed and assumed the duties of the Master Servicer. Upon such
appointment, such Successor Master Servicer shall enter into a servicing
agreement with the Issuer and the Trustee, such agreement to be substantially
similar to the Servicing Agreement. If, within 15 days after the termination
or resignation of the Master Servicer, the Issuer shall not have obtained
such a new servicer acceptable to the Noteholders as provided above, the
Trustee may appoint, or may petition a court of competent jurisdiction to
appoint, a successor servicer to service the Loans. In connection with any
such appointment, the Trustee may make such arrangements for the compensation
of such successor as it and such successor shall agree, and the Issuer shall
enter into an agreement with such successor for the servicing of such Loans,
such agreement to be in form and substance satisfactory to the Trustee and
(i) the Purchaser while the Purchaser is a Holder of Notes and (ii) the then
Holders of Notes representing not less than 51% of the then aggregate
outstanding principal amount of the Notes. Any such compensation of the
successor servicer shall not be in excess of that payable to the Master
Servicer under the Servicing Agreement, unless the Master Servicer or some
other Person agrees to pay such additional compensation.
(d) If any of the Noteholders or the Issuer notifies the Trustee
that action is necessary in order to defend, enforce, preserve or protect the
rights and interests of the Issuer and the Noteholders under or with respect
to the Servicing Agreement, the Trustee shall notify the Issuer or the Master
Servicer, as the case may be, and direct the notified party to diligently
enforce all terms and covenants and satisfy all conditions of the Servicing
Agreement. The Trustee may, without the consent of any Noteholder, enter into
or consent to any amendment or supplement to the Servicing Agreement for the
purpose of increasing the obligations or duties of any party other than the
Trustee or the Noteholders. Except as provided above in this paragraph, the
Trustee shall not consent or agree to or permit any amendment, modification
or waiver of the Servicing Agreement without the prior consent thereto of the
Holders of 66-2/3% of the aggregate outstanding principal amount of the Notes
(without regard to any Notes owned by the Master Servicer or any of its
Affiliates). The Trustee may, in its discretion, decline to enter into or
consent to any such supplement or amendment if its own rights, duties or
immunities shall be adversely affected.
SECTION IV.5 Books of Account. The Issuer covenants that the books
of record and account of the Issuer and, pursuant to the provisions of the
Servicing Agreement, the Master Servicer shall at all times be subject to
the inspection and use of the Trustee and any Holder of Notes and of their
respective agents and attorneys.
SECTION IV.6 Performance of Obligations. The Issuer will punctually
perform and observe all of its obligations and agreements under the terms of
this Indenture and the Notes. The Issuer will not take any action, and will
use its best efforts not to permit any action to be taken by others, which
would release any Person's covenants or obligations under any instrument
included in the Trust Estate, or which would result in the hypothecation,
subordination, termination or discharge of, or impair the validity or
effectiveness of, any such instrument, except as expressly provided in
this Indenture.
SECTION IV.7 Negative Covenants. Except as expressly permitted by this
Indenture or contemplated by the Servicing Agreement, the Issuer will not:
(a) sell, transfer, exchange or otherwise dispose of any
of the Trust Estate;
(b) claim any credit on, make any deduction from the principal or
interest payable in respect of the Notes (other than amounts required to be
withheld from such payments under the Code or any other applicable state or
federal law) or assert any claim against any present or former Noteholder by
reason of the payment of any taxes levied or assessed upon any of the Trust
Estate;
(c) engage in any business or activity or create, incur, assume
or in any manner become liable on any debt other than in connection with, or
relating to, the issuance of the Notes pursuant to this Indenture;
(d) amend the certificate of incorporation of the Issuer
without the prior written consent of the Purchaser;
(e) dissolve or liquidate in whole or in part;
(f) consolidate with or merge into any other Person or convey,
transfer or lease substantially all of its assets as an entirety to any
Person unless the Person formed by such consolidation or into which the
Issuer has been merged or the Person which acquires substantially all of the
assets of the Issuer as an entirety is an organization organized under the
laws of a state in the United States, can lawfully perform the obligations of
the Issuer hereunder and executes and delivers to the Trustee an agreement,
in form and substance reasonably satisfactory to the Trustee, which contains
an assumption by such successor entity of the due and punctual performance
and observance of each representation, warranty, covenant and obligation to
be made, performed or observed by the Issuer under this Indenture;
(g) (i) permit the validity or effectiveness of this Indenture to
be impaired or permit the lien of this Indenture with respect to the Trust
Estate to be subordinated, terminated or discharged, or permit any Person to
be released from any covenants or obligations under this Indenture, the Loans
or the Loan Collateral, (ii) permit any lien, pledge, charge, adverse claim,
security interest, mortgage or other encumbrance (other than liens created
under or pursuant to this Indenture) to be created on or extend to or
otherwise arise upon or burden the Trust Estate or any part thereof or any
interest therein or the proceeds thereof, or (iii) permit the lien of this
Indenture not to constitute a perfected security interest in the Trust
Estate;
(h) permit any material amendment to the Loan Documents or
waive any payment default thereunder;
(i) permit any amendment or modification to the Servicing
Agreement; or
(j) permit any amendment or modification to any Consumer
Financing Document.
SECTION IV.8 Protection of Security: Power to Issue Notes and
Grant Trust Estate; Indenture to Constitute Contract. The Issuer represents,
warrants and covenants that:
(a) The Issuer is, and at all times during the term of this
Indenture will be, a corporation duly organized and validly existing in good
standing under the laws of the State of Delaware; and the Issuer is, and at
all times during the term of this Indenture will be, duly qualified to do
business as a foreign corporation and in good standing under the laws of each
jurisdiction where the character of its property, the nature of its business
or the performance of its obligations under this Indenture makes such
qualification necessary except where the failure to be so qualified will not
have a material adverse effect on the business of the Issuer or its ability
to perform its obligations under this Indenture or any other documents or
transactions contemplated hereunder or the validity or enforceability of the
Loans;
(b) The Issuer holds, and at all times during the term of this
Indenture will hold, all material licenses, certificates, franchises and
permits from all governmental authorities necessary for the conduct of its
business and has received no notice of proceedings relating to the revocation
of any such license, certificate, franchise or permit, which singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would materially and adversely affect its ability to perform its obligations
under this Indenture or any other documents or transactions contemplated
hereunder or the validity or enforceability of the Loans;
(c) The Issuer has, and at all times during the term of this
Indenture will have, all requisite power and authority to own its properties,
to conduct its business, to execute and deliver this Indenture and all
documents and transactions contemplated hereunder, to perform all of its
obligations under this Indenture and any other documents or transactions
contemplated hereunder, to issue the Notes and to Grant the Trust Estate in
the manner and to the extent provided herein. The Issuer has all requisite
power and authority to acquire, own, sell and convey to the Trustee the Trust
Estate;
(d) This Indenture, the Notes and all other documents and
instruments required or contemplated hereby to be executed and delivered by
the Issuer have been duly authorized, executed and delivered by the Issuer
and, assuming the due execution and delivery by the other party or parties
hereto and thereto, if any, constitute legal, valid and binding agreements
enforceable against the Issuer in accordance with their respective terms
subject, as to the enforcement of remedies, to bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting the
enforceability of creditors' rights generally applicable in the event of the
bankruptcy, insolvency or reorganization of the Issuer and to general
principles of equity;
(e) The execution, delivery and performance by the Issuer of this
Indenture, the Notes and any other documents and transactions in connection
herewith to which the Issuer is a party do not and will not (i) violate any
of the provisions of the organizational documents or by-laws of the Issuer;
(ii) violate any provision of any law, governmental rule or regulation
currently in effect applicable to the Issuer or its properties or by which
the Issuer or its properties may be bound or affected, (iii) violate any
judgment, decree, writ, injunction, award, determination or order currently
in effect applicable to the Issuer or its properties or by which the Issuer
or its properties are bound or affected, (iv) conflict with, or result in a
breach of, or constitute a default under, any of the provisions of any
indenture, mortgage, deed of trust, contract or other instrument to which the
Issuer is a party or by which it is bound or (v) except for the Grant
hereunder, result in the creation or imposition of any lien upon any of its
properties pursuant to the terms of any such indenture, mortgage, deed of
trust, contract or other instrument;
(f) Except for the filing of financing statements and the
recording of assignments contemplated hereby, no consent, approval, order or
authorization of, and no filing with or notice to, any court or other
governmental authority in respect of the Issuer is required in connection
with the authorization, execution, delivery or performance by the Issuer of
this Indenture, the Notes or any of the other documents or transactions
contemplated hereunder;
(g) The Issuer is not in default under any agreement, contract,
instrument or indenture to which the Issuer is a party or by which it or its
properties is or are bound, or with respect to any order of any court,
administrative agency, arbitrator or governmental body which would have a
material adverse effect on the transactions contemplated hereunder; and no
event has occurred which with notice or lapse of time or both would
constitute such a default with respect to any such agreement, contract,
instrument or indenture, or with respect to any such order of any court,
administrative agency, arbitrator or governmental body;
(h) There is no pending or, to the best of the Issuer's
knowledge, threatened action, suit, proceeding or investigation before any
court, administrative agency, arbitrator or governmental body against or
affecting the Issuer which, if decided adversely, would materially and
adversely affect (i) the condition (financial or otherwise), business or
operations of the Issuer, (ii) the ability of the Issuer to perform its
obligations under, or the validity or enforceability of, this Indenture or
any other documents or transactions contemplated under this Indenture, (iii)
any Loan Collateral, (iv) the Master Servicer's ability to service the Loans;
(i) No document, certificate or report furnished or required to
be furnished by the Issuer pursuant to this Indenture contains or will
contain when furnished any untrue statement of a material fact or fails or
will fail to state a material fact necessary in order to make the statements
contained therein not misleading;
(j) Other than liens created under or pursuant to this Indenture,
the Trust Estate is and will be free and clear of any pledge, charge or
encumbrance thereon or with respect thereto created by or through the Issuer,
and all action on the part of the Issuer to that end has been duly and
validly taken;
(k) The Issuer shall at all times, to the extent permitted by
law, defend, preserve and protect the Grant of the Trust Estate and all the
rights of Noteholders under this Indenture against all claims and demands of
all Persons whomsoever claiming by, through or under the Issuer (except
claims and demands of the Trustee under or pursuant to this Indenture);
(l) The Issuer shall at all times hold itself out to the public,
including creditors of the Originator, and carry out its business and conduct
its affairs under the Issuer's own name and as a separate and distinct entity
from the Originator or any of its Affiliates;
(m) The Issuer shall at all times be responsible for the payment
of all its obligations and indebtedness, shall at all times maintain a
business office, records, books of account and funds separate from the
Originator and shall observe all customary formalities of independent
existence;
(n) The Issuer shall make its books and records and the Note
Register available to the Noteholders and the Trustee, at their own expense,
for purposes of inspection and copying and shall, at the Issuer's expense,
furnish, or cause to be furnished, to the Trustee or any Noteholder, promptly
after receipt by the Issuer of a request therefor from the Trustee or such
Noteholder in writing, a list of the primary contacts, names and addresses of
the Noteholders as of the Record Date immediately preceding such request;
(o) As long as any Note is outstanding, the Issuer shall not
issue, incur, assume or guarantee any indebtedness or other obligation except
for such indebtedness as may be incurred by the Issuer pursuant to this
Indenture and related documents or instruments;
(p) Each of the representations and warranties of the Originator
set forth in the Purchase and Sale Agreement are true and correct as of the
date when made, and the Issuer hereby makes such representations and
warranties to the Trustee for the benefit of the Noteholders; and
(q) The Issuer shall provide to each Noteholder (i) within 60
days of the end of each fiscal quarter the unaudited financial statements of
the Issuer as of the end of such fiscal quarter, and (ii) within 135 days of
the end of each fiscal year of the Issuer, the unaudited financial statements
of the Issuer as of the end of such fiscal year.
SECTION IV.9 Maintenance of Offices or Agency. The Issuer will maintain
an office or agency, which may be changed in the discretion of the Issuer,
within the United States of America at which Notes may be presented or
surrendered for payment, Notes may be surrendered for registration of
transfer or exchange and notices and demands to or upon the Issuer in
respect of the Notes and this Indenture may be served. The Issuer hereby
initially appoints the Trustee at its corporate trust office such office
or agency. The Issuer will give prompt written notice to the Trustee of
the location, and of any change in the location, of any such office or
agency. If at any time the Issuer shall fail to maintain any such office or
agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served
at the corporate trust office, and the Issuer hereby appoints the
Trustee at its corporate trust office its agent to receive all such
presentations, surrenders, notices and demands.
SECTION IV.10 Further Assurances. The Issuer will execute and deliver,
or cause to be executed and delivered, all such additional instruments and
do, or cause to be done, all such additional actions as (i) may be necessary
or proper, consistent with the Granting Clause hereof, to carry out the
purposes of this Indenture and to make subject to the lien hereof any
property intended so to be subject, (ii) may be necessary or proper to
transfer to any successor trustee the estate, powers, instruments and
funds held in trust hereunder and to confirm the lien of this Indenture with
respect to any series of the Notes, or (iii) the Trustee may reasonably
request for any of the foregoing purposes. The Issuer hereby authorizes
the Trustee to execute and file all such financing statements, continuation
statements and other documents as the Trustee may deem necessary or
advisable to make or keep effective the lien of this Indenture or any
supplemental indenture and the priority thereof. The Trustee shall have no
duty to monitor compliance by the Issuer with the foregoing covenants or
to determine whether the execution or filing of any financing statements
or any other document is necessary or advisable in connection with
the foregoing.
ARTICLE V
ACCOUNTS, DISBURSEMENTS AND RELEASES
SECTION V.1 Collection of Money. Except as otherwise expressly provided
herein, the Trustee may demand payment or delivery of, and shall receive and
collect, directly and without intervention or assistance from any fiscal
agent or other intermediary, pursuant to the terms hereof, all money and
other property payable to or receivable by the Trustee pursuant to this
Indenture, including all payments due on the Loans, in accordance with the
respective terms and conditions of such Loans and the Loan Collateral.
Except as otherwise expressly provided herein, the Trustee shall hold all
such money and property received by it as part of the Trust Estate and shall
apply it as provided in this Indenture.
SECTION V.2 Payment Account.
(a) On or prior to the Closing Date, the Trustee shall establish
and thereafter maintain a separate trust account under the sole control of
the Trustee entitled "The Chase Manhattan Bank, as trustee, in trust for the
benefit of the holders of the Litchfield Hypothecation Corp. Hypothecation
Loan Collateralized Notes--Payment Account." The Trustee shall make
withdrawals from the Payment Account only as provided in this Indenture.
Monies on deposit in the Payment Account shall be invested in accordance with
Section 5.3 hereof.
(b) Not later than the Business Day immediately following receipt
thereof, the Trustee shall deposit or cause to be deposited into the Payment
Account all monies received by the Trustee in respect of the Loans (including
all payments, insurance proceeds, condemnation proceeds, recoveries and
Servicer Advances, if any) in immediately available funds;
(c) On each Payment Date, the Trustee, in accordance with the
Master Servicer's Certificate, shall withdraw and distribute or cause to be
distributed all monies received in the related Collection Period on deposit
in the Payment Account (including any Investment Income with respect to such
monies on deposit in the Payment Account) in the following order of priority:
(i) To the Trustee, all accrued and unpaid fees and reimbursable
expenses due and payable to the Trustee pursuant to Section 9.7 hereof;
(ii) If the Master Servicer is not the Originator or an Affiliate of
the Originator, to the Master Servicer by wire transfer of immediately
available funds, an amount equal to the Servicing Fee due and payable on such
Payment Date plus all Servicer Advances made by the Master Servicer on
previous Payment Dates to the extent the Master Servicer has not been
reimbursed for such Servicer Advances;
(iii)To the Holders of Notes on the Record Date relating to such Payment
Date, interest accrued on the Notes in the related Payment Period;
(iv)Pro rata to the Holders of Notes on the Record Date relating to such
Payment Date, the Principal Payment Amount due and payable, if any, with
respect to the Notes;
(v)If the Master Servicer is the Originator or an Affiliate of the
Originator, to the Master Servicer by wire transfer of immediately available
funds, an amount equal to the Servicing Fee due and payable on such Payment
Date plus all Servicer Advances made by the Master Servicer on previous
Payment Dates to the extent the Master Servicer has not been reimbursed for
such Servicer Advances; and
(vi)Provided no Payment Default has occurred and is continuing, to the
Issuer, all remaining amounts on deposit in the Payment Account, plus all
Investment Income, if any, then held in the Payment Account to the extent not
needed to make the distributions required by clauses (i) through (v) of this
Section 5.2(c);
SECTION V.3 Servicer Advances. If on the date which is two Business
Days prior to a Payment Date, amounts on deposit in the Payment Account
are insufficient to make the distributions required to be made on such
Payment Date pursuant to paragraphs (iii) and (iv) of Section 5.2 hereof,
the Master Servicer shall be required to make a deposit in the amount of
such shortfall into the Payment Account (each, a "Servicer Advance") on
such date; provided, however, that the Master Servicer shall not be obligated
to make any Servicer Advance if the Master Servicer determines that the
Master Servicer will not be able to ultimately recover the full amount of
such Servicer Advance; and, provided, further that at no time shall
outstanding unreimbursed Future Advances in respect of any particular
Loan exceed $100,000. The Master Servicer shall be entitled to reimbursement
for any Servicer Advance as provided in Section 5.2 hereof.
SECTION V.4 Investment of Funds. Amounts on deposit in the Payment
Account shall, if and to the extent then permitted by law, be invested by the
Trustee in Eligible Investments, at the written direction of an
Authorized Officer of the Issuer. Such investments shall mature on or
before the Business Day preceding the Payment Date following the date of such
investment. Net income or gain received and collected from such investments
shall be credited and losses charged to the
Payment Account.
SECTION V.5 Repayment to the Issuer from the Accounts. After payment in
full of the principal of, interest on, and all other amounts due and payable
with respect to the Notes (in accordance with Section 7.1 hereof) and the
payment of all fees, reimbursable charges and expenses of or other amounts
owed to the Issuer, the Trustee, and the Note Registrar and all other amounts
required to be paid hereunder, all amounts remaining in the Payment Account
shall be paid to the Issuer on its written order.
SECTION V.6 Reports to the Noteholders. On each Payment Date, the
Trustee will furnish to the Issuer and will include with each distribution to
the Noteholders the Master Servicer's Certificate delivered pursuant to
Section 3.1(a) of the Servicing Agreement.
ARTICLE VI
[RESERVED]
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
SECTION VII.1 Events of Default. Each of the events described in
clauses (a) through (l) below shall constitute an "Event of Default" with
respect to the Notes (whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or be effected by operation
of law or pursuant to any judgment, decree or order of any court or any
order, rule or regulation of any administrative or governmental body):
(a) The Issuer shall fail to make any payment of principal on the
Notes within two Business Days of the day the same becomes due and payable;
or
(b) The Issuer shall fail to make any payment of interest on the
Notes within two Business Days of the day the same becomes due and payable;
or
(c) The Issuer shall fail to observe or perform in any material
respects any of the covenants of the Issuer under Sections 4.2, 4.3, 4.4,
4.5, 4.6 or 4.9 hereof, which failure has continued for a period of 30 days;
or
(d) The Issuer shall fail to observe or perform its
covenants under Section 4.7 hereof; or
(e) Any representation or warranty of the Issuer set forth in
Section 4.8 of this Indenture shall prove to be false in any material respect
as of the date when made; or
(f) The Issuer makes an assignment for the benefit of
creditors or is generally not paying its debts as such debts become due;
or
(g) The Issuer petitions or applies to any tribunal for, or
consents to, the appointment of, or taking possession by, a trustee,
receiver, custodian, liquidator or similar official of the Issuer, or of any
substantial part of the assets of the Issuer, or commences a voluntary case
under the Bankruptcy Law of the United States or any proceedings relating to
the Issuer, under the Bankruptcy Law of any other jurisdiction; or
(h) Any such petition or application is filed, or any such
proceedings are commenced, against the Issuer and the Issuer by any act
indicates its approval thereof, consent thereto or acquiescence therein, or
any order, judgment or decree is entered appointing any such trustee,
receiver, custodian, liquidator or similar official, or approving the
petition in any such proceedings and such order, judgment or decree remains
unstayed and in effect for more than 30 days; or
(i) Any order, judgment or decree is entered in any proceedings
against the Issuer decreeing the dissolution of the Issuer and such order,
judgment or decree remains unstayed and in effect for more than 60 days; or
(j) A final judgment in an amount in excess of $50,000 is
rendered against the Issuer, and within 60 days after entry thereof, such
judgment is not discharged or execution thereof stayed pending appeal, or
within 60 days after the expiration of any such stay, such judgment is not
discharged;
(k) Any assignment by the Issuer to a delegate of its
duties or rights hereunder, except as specifically permitted hereunder,
or any attempt to make such an assignment; or
(l) Any occurrence or existence of any Event of
Default (as defined in the Servicing Agreement) under the
Servicing Agreement.
SECTION VII.2 Acceleration of Maturity. (a) Upon the occurrence
and continuance of an Event of Default,(i) if such event is an Event of
Default specified in clause (h), (i), (j) or (k) of Section 7.1, all of
the Notes at the time outstanding shall automatically become immediately
due and payable at par together with interest accrued thereon, without
presentment, demand, protest or notice of any kind, all of which are hereby
waived by the Issuer, and (ii) if such event is any other Event of Default,
the Trustee may, and, upon the written request of over 25% in aggregate
outstanding principal amount of the Notes (by notice in writing to the
Issuer and the Trustee), shall declare all of the Notes to be, and all of
the Notes shall thereupon be and become, immediately due and payable
together with interest accrued thereon, without presentment, demand, protest
or other notice of any kind, all of which are hereby waived by the Issuer.
(b) At any time after a declaration pursuant to Section 7.2(a),
but before any judgment or decree for the payment of monies due shall have
been obtained or entered, unless the same has been discharged, and before the
Notes have matured by their terms, or as otherwise provided herein, if all
overdue payments of principal and interest upon such Notes, together with the
reasonable and proper charges, expenses and liabilities of the Trustee and
the Holders of such Notes and their respective agents and attorneys and all
other sums then payable by the Issuer under this Indenture (except the
principal of and interest accrued since the next preceding Payment Date on
such Notes or due and payable solely by virtue of such declaration) shall
either be paid by or for the account of the Issuer or provisions satisfactory
to the Holders of 51% of the aggregate outstanding principal amount of the
Notes shall be made for such payment, and all Events of Default under such
Notes and under this Indenture (other than the payment of principal and
interest due and payable solely by reason of such declaration) have been
cured to the satisfaction of the Holders of 51% of the aggregate outstanding
principal amount of the Notes or provision deemed by the Holders of 51% of
the aggregate outstanding principal amount of the Notes to be adequate has
been made therefor, then and in every such case the Holders of 51% of the
aggregate outstanding principal amount of the Notes by written notice to the
Issuer and to the Trustee, shall have the right, but not be obligated to,
rescind such declaration and annul such Event of Default in its entirety. For
purposes of the foregoing sentence, the Holders of 51% of the aggregate
outstanding principal amount of the Notes shall be determined without regard
to any Notes owned by the Originator or any of its Affiliates. No such
rescission and annulment shall extend to or affect any subsequent Event of
Default or impair or exhaust any right or power consequent thereon.
SECTION VII.3 Enforcement of Remedies. (a) If an Event of Default
shall have occurred and be continuing and the Notes have been
declared due and payable and such declaration and its consequences have not
been rescinded and annulled, the Trustee may, and upon the written request of
the Holders of over 25% in aggregate outstanding principal amount of the
Notes shall, proceed to protect and enforce its rights and the rights of the
Noteholders under the Notes and this Indenture and take one or more of the
following actions without limitation:
(i)proceed to protect and enforce its rights and the rights of the
Noteholders by appropriate Proceedings whether by the specific enforcement of
any covenant or agreement in this Indenture or in the aid of the exercise of
any power granted herein, or to enforce any other property remedy;
(ii)institute Proceedings for the collection of all amounts then payable
on the Notes, whether by declaration or otherwise, enforce any judgment
obtained, and collect any monies adjudged due;
(iii)in accordance with Section 7.13, sell the Trust Estate or any portion
thereof or rights or interest therein, at one or more public or private sales
called and conducted in any manner permitted by law;
(iv)institute Proceedings from time to time for the complete or partial
foreclosure of this Indenture with respect to the Trust Estate; and
(v)exercise any remedies of a secured party under the Uniform Commercial
Code and take any other appropriate action or protect and enforce the rights
and remedies of the Trustee or the Noteholders hereunder.
(b) In the enforcement of any right or remedy under the Notes or
this Indenture, the Trustee shall be entitled to sue for, enforce payment on
and receive any and all amounts then or during any Event of Default becoming,
and any time remaining, due from the Issuer, for principal and interest, or
otherwise, under any of the provisions of the Notes or this Indenture, and
unpaid, with interest on overdue payments at the rate or rates of interest
specified in the Notes, together with any and all costs and expenses of
collection and of all Proceedings under the Notes or the Indenture, without
prejudice to any other right or remedy of the Trustee or the Noteholders and
to recover and enforce judgments or decrees against the Issuer, but solely as
provided in this Indenture and in the Notes for any amounts remaining unpaid,
with interest, costs and expenses, and to collect (but solely from moneys
available therefor to the extent provided in this Indenture) in any manner
provided by law, the moneys adjudged or decreed to be payable. The Trustee
shall file such proof of claim and other papers or documents as may be
necessary or advisable in order to have the claims of the Trustee and the
Noteholders allowed in any judicial proceeding, relative to the Issuer or its
creditors or property.
(c) The Trustee may, and if requested in writing by the Holders
of over 51% in aggregate outstanding principal amount of the Notes and
furnished with reasonable security and indemnity (an unsecured agreement of
indemnity of the Purchaser being deemed sufficient for such purpose), shall,
institute and maintain such suits and proceedings or take such other acts as
it may be advised shall be necessary or expedient to prevent any impairment
of the security under this Indenture or under any Loan Collateral by any acts
which may be unlawful or in violation of this Indenture or of such Loan
Collateral, and such suits and proceedings as the Trustee may be advised
shall be necessary or expedient to preserve or protect its interests and the
interests of the Noteholders; provided, that such request shall not be
otherwise than in accordance with the provisions of law and of this
Indenture.
SECTION VII.4 Application of Money Collected Upon Acceleration.
If the Notes have been declared due and payable pursuant to Section 7.2
hereof, any moneys collected by the Trustee pursuant to this Article VII or
otherwise held by the Trustee as part of the Trust Estate shall be applied in
the following order at the date or dates fixed by the Trustee and, in case of
the distribution of such moneys on account of principal of and interest on
the Notes upon presentation and surrender thereof:
FIRST: To the payment of amounts due the Trustee pursuant to
Section 9.7 hereof including amounts payable to the Trustee acting as
Master Servicer;
SECOND: To the payment of all the amounts then due and
unpaid upon the Notes for:
(a) all interest payable on the Notes through the
Acceleration Date;
(b) interest from the first day following the
Acceleration Date to the date of payment in full of the aggregate
principal amount of the Notes; and
(c) interest on any overdue installments of interest on the Notes
from the due date of any such installments to the date of payment but only to
the extent that payment of such interest shall be legally enforceable;
such funds to be allocated in proportion to the total amount of interest
otherwise payable on the Notes;
THIRD: To the payment of all amounts then due and unpaid
upon the Notes for principal ratably, without preference or priority of
any kind;
FOURTH: To the payment of all other amounts to the persons
entitled thereto in accordance with this Indenture.
SECTION VII.5 Unconditional Rights of Noteholders To Receive
Principal and Interest. Notwithstanding any other provision in this
Indenture, the Holder of any Note shall have an absolute and unconditional
right to receive payment of the principal of and interest on such Note
(subject to Section 2.9 hereof) on or after the respective Payment Dates
expressed in such Note, and such right shall not be impaired without the
consent of such Holder.
SECTION VII.6 Restoration of Rights and Remedies. If the Trustee
or any Noteholder has instituted any Proceeding to enforce any right or
remedy under this Indenture and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to the Trustee or
to such Noteholder, then and in every such case the Issuer, the Trustee
and the Noteholders shall, subject to any determination in such
proceedings, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Trustee and the
Noteholders shall continue as though no such Proceeding had been instituted.
SECTION VII.7 Rights and Remedies Cumulative. No right or remedy
herein conferred upon or reserved to the Trustee or to the Noteholders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition
to every other right and remedy given hereunder or now or hereafter existing
at law or in equity or otherwise; the assertion or employment of any right
or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION VII. 8 Delay or Omission Not Waiver. No delay or omission
of the Trustee or any Holder to exercise any right or remedy accruing upon
any Event of Default shall impair any such right or remedy or constitute
a waiver of any such Event of Default or an acquiescence therein. Every
such right and remedy given by this Article VII or by law to the Trustee or
to the Noteholders may be exercised from time to time, and as often as may
be deemed expedient, by the Trustee or by the Noteholders, as the case
may be.
SECTION VII9 Control by Noteholders. Subject to the provisions
of Section 7.2, Section 7.3 and Section 7.7, the Holders of at least
51% of the aggregate outstanding principal amount of the Notes shall have
the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee with respect to the Notes or
exercising any trust or power conferred on the Trustee with respect to the
Notes; provided that:
(a) such direction shall not be in conflict with any
rule of law or with this Indenture;
(b) the Trustee shall have been provided with indemnity
reasonably satisfactory to it;
(c) subject to (d) below, any direction to the Trustee to
undertake a sale of the Trust Estate or any part thereof shall be by the
Holders of Notes representing not less than 66-2/3% of the aggregate
outstanding principal amount of the Notes; and
(d) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction; provided, however,
that, subject to Section 9.1 hereof, the Trustee need not take any action
which it determines might involve it in liability or may be unjustly
prejudicial to the Noteholders not consenting.
SECTION VII.10 Waiver of Past Events of Default. Prior to the
time a judgment or decree for payment of the money due has been obtained by
the Trustee, as provided in this Article VII, the Trustee may waive any past
Event of Default with respect to the Notes and its consequences except an
Event of Default (a) in the payment of principal of or interest on any of the
Notes or (b) in respect of a covenant or provision hereof which cannot be
modified or amended without the consent of the Holder of each Note affected.
Upon any such waiver, such Event of Default shall cease to exist and be
deemed to have been cured and not to have occurred, and any Event of Default
arising therefrom shall be deemed to have been cured, and not to have
occurred for every purpose of this Indenture. In the case of any such waiver,
the Issuer, the Trustee and the Holders of the Notes shall be restored to
their former positions and rights hereunder, respectively; but no such waiver
shall extend to any subsequent or other Event of Default or impair any
right consequent thereon.
SECTION VII.11 Undertaking for Costs. The Issuer and the Trustee
agree, and each Noteholder by such Noteholder's acceptance of a Note shall
be deemed to have agreed, that any court may in its discretion require,
in any suit for the enforcement of any right or remedy under this
Indenture undertaken by the Trustee at the direction of the Noteholders,
or in any suit against the Trustee for any action taken, suffered or omitted
by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 7.11 shall not apply to any suit instituted by
the Trustee, to any suit instituted by any Noteholder, or group of
Noteholders, holding in the aggregate at least 51% of the aggregate
outstanding principal amount of the Notes, or to any suit instituted by
any Noteholder for the enforcement of the payment of principal of or interest
on any Note, which principal or interest is due and payable.
SECTION VII.12 Issuer Waiver of Stay or Extension Laws; Waiver of
Ju. (i) The Issuer covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the
covenants or the performance of this Indenture; and the Issuer (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage
of any such law, and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and
permit the execution of every such power as though no such law had been
enacted.
(ii) The Issuer and the Trustee each hereby waives the right to
trial by jury in any Proceeding of any kind arising out of or in respect of
this Indenture or any Note.
SECTION VII.13 Sale of Trust Estate.
(a) The power to effect any sale of any portion of the Trust
Estate pursuant to Section 7.3 hereof shall not be exhausted by any one or
more sales as to any portion of the Trust Estate remaining unsold, but shall
continue unimpaired until either the entire Trust Estate shall have been sold
or all amounts payable on the Notes and under this Indenture shall have been
paid pursuant to Section 7.4. The Trustee may from time to time postpone any
sale by public announcement made at the time and place of such sale. The
Trustee hereby expressly waives its right to any amount fixed by law as
compensation for any sale; provided, however, that such waiver does not apply
to any amounts to which the Trustee is otherwise entitled under Section 9.7
hereof.
(b) The Trustee may bid for and acquire any portion of the Trust
Estate in connection with a public sale or, to the extent permitted by law, a
private sale thereof, and in lieu of paying cash to the Issuer therefor, may
make settlement for the purchase price by applying to the gross sale price in
payment therefor the sum of (i) the amount of unpaid principal of and accrued
interest on the Notes, and (2) the expenses of the sale and of any
proceedings in connection therewith which are reimbursable to it pursuant to
Section 9.7 hereof and other amounts due hereunder and secured by the Trust
Estate. The Notes need not be produced to complete any such sale.
(c) The Trustee shall execute and deliver an appropriate
instrument of conveyance transferring its interest in any portion of the
Trust Estate in connection with a sale hereof. In addition, the Trustee is
hereby irrevocably appointed an agent and attorney-in-fact of the Issuer to
transfer and convey the Issuer's interest in any portion of the Trust Estate
in connection with a sale thereof, and to take all action necessary to effect
such sale. No purchaser or transferee at such a sale shall have any
obligation to ascertain the Trustee's authority, inquire into the
satisfaction of any conditions precedent or see to the application of any
moneys.
SECTION VIII.1 Satisfaction and Discharge of Indenture. The
Trustee's right to seek and recover judgment on the Notes or under this
Indenture shall not be affected by the seeking, obtaining or application
of any other relief under or with respect to this Indenture. Neither the
lien of this Indenture nor any rights or remedies of the Trustee or the
Noteholders shall be impaired by the recovery of any judgment by the Trustee
against the Issuer or by the levy of any execution under such judgment
upon any portion of the Trust Estate or upon any of the assets of
the Issuer.
ARTICLE VIII
SATISFACTION AND DISCHARGE
SECTION VIII.1 Satisfaction and Discharge of Indenture. This
Indenture shall cease to be of further effect except as to (a) rights of
registration of transfer and exchange, (b) rights of substitution
of new Notes for mutilated, destroyed, lost or stolen Notes, (c) rights of
Noteholders to receive payments of principal thereof and interest thereon,
(d) the rights, obligations and immunities of the Trustee hereunder, and (e)
the rights of Noteholders as beneficiaries hereof with respect to the
property so deposited with the Trustee and payable to them, and the Trustee,
on demand of and at the expense of the Issuer, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture, when:
(a) all Notes theretofore authenticated and delivered (other than
Notes which have been mutilated, destroyed, stolen and which have been
replaced, or paid as provided in Section 2.8 hereof) have been delivered to
the Trustee for cancellation; and
(b) the Issuer has delivered to the Trustee an Officer's
Certificate stating that there has been compliance with all conditions
precedent herein provided for the satisfaction and discharge of this
Indenture.
Notwithstanding the satisfaction and discharge of this Indenture,
the obligations of the Issuer to the Trustee under Section 9.7 hereof and of
the Trustee to the Issuer and the Noteholders, as the case may be, under
Section 8.2 hereof and the provisions of Article II hereof with respect to
lost, stolen, destroyed or mutilated Notes, registration of transfer and
exchange of Notes, and rights to receive payments of principal of or interest
on the Notes shall survive.
SECTION VIII.2 Application of Trust Money. All moneys deposited
with the Trustee pursuant to Article V hereof shall be held in trust by the
Trustee, in its trust capacity and not in its commercial capacity, and
applied by the Trustee in accordance with the provisions of the Notes and
this Indenture, to the payment to the Holders of the Notes, and, if required
hereunder, to the Issuer.
SECTION VIII.3 Release of Trust Estate.
(a) Subject to the payment of its fees and expenses pursuant to
Section 9.7 hereof and only when and to the extent required by the provisions
of this Indenture, the Trustee (or any Collateral Agent on its behalf) shall
execute instruments to release property from the lien of this Indenture, or
convey the Trustee's interest in the same, in a manner and under
circumstances which are not inconsistent with the provisions of this
Indenture. No party relying upon an instrument executed by the Trustee as
provided in this Article V shall be bound to ascertain the Trustee's
authority, inquire into the satisfaction of any conditions precedent or see
to the application of any moneys.
(b) The Trustee shall, at such time as there are no Notes
outstanding and all sums due the Trustee pursuant to Section 9.7 hereof have
been paid, release the Trust Estate from the lien of this Indenture.
(c) Upon receipt of an Officer's Certificate of the Master
Servicer substantially in the form of Exhibit E stating either (i) that all
payments of principal and interest have been made upon any Loan held by the
Trustee, or the Collateral Agent on behalf of the Trustee, hereunder and
deposited into the Payment Account or (ii) that the Trustee has received an
amount sufficient to prepay a principal amount of the Notes equal to the
outstanding principal amount of a Loan in accordance with Section
2.9(c)(ii)(B)(iv) hereof, the Trustee, or the Collateral Agent on behalf of
the Trustee, shall promptly release, reassign without representation or
recourse and deliver the Loan Documents with respect to such Loan to the
Issuer.
ARTICLE IX
THE TRUSTEE
SECTION IX.1 Certain Duties and Responsibilities
(a) Except during the continuance of an Event of
Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only those
duties and no others; the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(ii in the absence of bad faith on its part, the Trustee may
conclusively rely upon certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture, including investment
instructions received pursuant to Section 5.4 hereof, as to the truth of the
statements and the correctness of the opinions expressed therein; but in the
case of any such certificates or opinions which by any provision of this
Indenture are specifically required to be furnished to the Trustee, the
Trustee shall be under a duty to examine the same to determine whether or not
they conform as to form to the requirements of this Indenture.
(b In case an Event of Default has occurred and is continuing,
the Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of
his own affairs.
(c No provision of this Indenture, including, without limitation,
Section 9.7, shall be construed to relieve the Trustee from liability for its
own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i0this subsection shall not be construed to limit the effect of
subsection (a) of this Section 9.1;
(ii0the Trustee shall not be liable for any error of judgment made in good
faith by an Authorized Officer of the Trustee, unless it shall be proved that
the Trustee was negligent in ascertaining the pertinent facts; and
(iii0the Trustee shall not be personally liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with any
direction received by the Trustee in accordance with the terms of this
Indenture from the Holders of at least 51% (or such other percentage as may
be required by the terms hereof) of the then aggregate outstanding principal
amount of the Notes relating to the time, method and place of conducting any
Proceeding for any remedy available to the Trustee, or exercising any trust
or power conferred upon the Trustee, under this Indenture.
(d Whether or not therein expressly so provided, every provision
of this Indenture relating to the conduct of, affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of
this Section.
(e For all purposes under this Indenture, the Trustee shall not
be deemed to have notice of any Default or Event of Default (other than an
Event of Default described in Sections 7.1(a) or (b) hereof) or a Default or
Event of Default under any document included in the Trust Estate, unless an
Authorized Officer of the Trustee has actual knowledge thereof or unless the
Trustee has received written notice thereof at the Trust Office and such
notice references the Notes generally, the Issuer, the Trust Estate or this
Indenture. For purposes of determining the Trustee's responsibility and
liability hereunder, whenever reference is made in this Indenture to a
Default or an Event of Default, such reference shall be construed to refer
only to the Default or the Event of Default of which the Trustee is deemed to
have notice pursuant to this Section 9.1(e).
(f No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if there shall be reasonable ground for believing that
repayment of such funds or adequate indemnity against such risk or liability
is not reasonably assured to it, the Trustee having the right to require an
indemnity pursuant to subparagraph (g) below.
(g The Trustee shall not be under any obligation to institute any
suit, or to take any remedial Proceeding under this Indenture, or to enter
any appearance in or in any way defend any suit in which it may be made
defendant, or to take any steps in the execution of the trusts hereby
created, the performance of any of its duties hereunder or in the enforcement
of any rights and powers hereunder until it shall be indemnified to its
reasonable satisfaction against any and all costs and expenses, outlays and
counsel fees and other reasonable disbursements and against all liability,
except liability which is adjudicated to have resulted from its own
negligence or willful misconduct, in connection with any action so taken.
(h Notwithstanding any extinguishment of all right, title and
interest of the Issuer in and to the Trust Estate following an Event of
Default and a consequent declaration of acceleration of the maturity of the
Notes, whether such extinguishment occurs through a sale of the Trust Estate
to another person, the acquisition of the Trust Estate by the Trustee or
otherwise, the rights, powers and duties of the Trustee with respect to the
Trust Estate (or the proceeds thereof) and the Noteholders and the rights of
the Noteholders shall continue to be governed by the terms of this Indenture.
(i The Trustee shall keep and maintain proper books of record and
accounts relating to the Notes in which full, true and correct entries will
be made of all dealings or transactions of the Trustee in relation to the
Notes, the Accounts and the Issuer. The Trustee shall keep such books of
record and accounts available for inspection by the Issuer or by any Holder
of Notes during reasonable business hours and under reasonable circumstances.
For purposes of preparing such books and records, the Trustee is authorized
to retain outside accountants at the expense of the Issuer.
SECTION IX.2 Notice of Events of Default. Promptly after the
Trustee shall have notice of the occurrence of any Default or Event of
Default, the Trustee shall transmit by mail to all Holders and the Issuer
notice of such Event of Default known to the Trustee.
SECTION IX.3 Certain Rights of the Trustee. Except as otherwise
expressly provided in Section 9.1 hereof:
(a in the absence of bad faith or negligence the Trustee
conclusively may rely on and shall be protected in acting or refraining from
acting when doing so, in each case in accordance with any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, note or other paper or document believed by
the Trustee to be genuine and to have been signed or presented by the proper
party or parties, and the Trustee need not investigate any facts stated
therein;
(b whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad faith
on its part, rely upon an Officer's Certificate;
(c before the Trustee acts or refrains from acting, it may
require an Officer's Certificate or Opinion of Counsel, or both, and the
Trustee shall not be liable for any action it takes, suffers or omits in
reliance on either thereof; the Trustee may consult with counsel, and the
written advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of the legality of any
action taken, suffered or omitted by the Trustee hereunder in good faith and
in reliance thereon;
(d the Trustee shall not be under any obligation to exercise any
of the rights or powers vested in it by this Indenture at the request or
direction of any of the Noteholders pursuant to this Indenture, unless such
Noteholders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be incurred
by it in compliance with such request or direction;
(e the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, note or other paper or document, but the Trustee in its discretion may
make such further inquiry or investigation into such facts or matters as it
may see fit, and if the Trustee shall determine to make such further inquiry
or investigation, it shall be entitled, on reasonable prior notice to the
Issuer, to examine the books, records and premises of the Issuer, personally
or by agent or attorney, during the Issuer's normal business hours; provided
that the Trustee shall and shall cause its agents to hold in confidence all
such information except to the extent disclosure may be required by law and
except to the extent that the Trustee, in its sole judgment, may determine
that such disclosure is consistent with its obligations hereunder;
(f the Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder;
(g the Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within the
rights or powers conferred upon it by this Indenture; and
(h to the extent a Person other than the Trustee is appointed by
the Issuer to act as Note Registrar, such Person shall be an agent of the
Issuer, and the Trustee shall not be liable or responsible by reason of any
act or omission of any such Person.
SECTION IX.4 Not Responsible for Recitals or Issuance of Notes.
The recitals contained herein and in the Notes, except any such recitals
relating to the Trustee, shall be taken as the statements of the Issuer, and
the Trustee assumes no responsibility for their correctness. The Trustee
shall not be responsible for and makes no representation as to the validity
or sufficiency of this Indenture, the Notes or the Trust Estate. The Trustee
shall not be accountable for the Issuer's issue of the Notes or application
of the proceeds thereof or for any money paid to the Issuer or upon the
Issuer's direction under any of the provisions of this Indenture. The Trustee
is not responsible for the use or application of any moneys by any agent
other than the Trustee, including, without limitation, the Master Servicer.
The Trustee shall not be responsible for any statement in the Notes or in any
other document prepared, executed or delivered in connection with the sale
and issuance of the Notes or the execution and delivery of this Indenture
except its certificate of authentication.
SECTION IX.5 May Hold Notes. The Trustee, in its individual or
any other capacity, may become the owner or pledgee of Notes and may
otherwise deal with the Issuer with the same rights it would have if it were
not Trustee.
SECTION IX.6 Money Held in Trust. Money held by the Trustee in
trust hereunder will be held by the Trustee in its trust capacity and not in
its commercial capacity, in a segregated account in accordance with the
Indenture. The Trustee shall be under no liability for interest on any money
received by it hereunder except as otherwise agreed in writing with the
Issuer and except to the extent of income or other gain on Eligible
Investments which are obligations of the Trustee (excluding obligations
of Affiliates of the Trustee) and income or other gain actually received by
the Trustee on Eligible Investments which are obligations of a third party.
SECTION IX.7 Compensation and Reimbursement.
(a The Issuer agrees:
(1) subject to any separate written agreement with the Trustee, to pay
the Trustee from time to time reasonable compensation for all services
rendered by it or any of its agents, including, without limitation, the
Collateral Agent (each, the "Trustee" for the purposes of this Section
9.7(a)) hereunder (which compensation shall not be limited by any provision
of law in regard to the compensation of a trustee of an express trust);
(2) to reimburse the Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture; and
(3) to indemnify the Trustee for, and to hold the Trustee harmless
against, any loss, liability or expense incurred without negligence or bad
faith on its part, arising out of or in connection with the acceptance or
administration of this trust (other than taxes, penalties or other
liabilities arising in connection with the Trustee's failure to withhold from
payments with respect to the Notes amounts required to be withheld under the
Code, or the Trustee's withholding from such payments amounts not required or
permitted to be withheld under the Code), including the reasonable costs and
expenses, including reasonable attorneys' fees, of defending themselves
against any claim or liability in connection with the exercise or performance
of any of their powers or duties hereunder; provided that:
(i with respect to any such claim, the Trustee shall have given the Issuer
written notice thereof promptly after the Trustee shall have knowledge
thereof, provided, however, that the failure of the Trustee to so notify the
Issuer shall not relieve the Issuer of its obligations pursuant to this
subparagraph;
(ii the Issuer shall assume the defense of any such claim, provided that
if the Issuer shall not have employed counsel reasonably satisfactory to the
Trustee to direct the defense of such claim within a reasonable time after
such notice of the claim pursuant to paragraph (i) above, the Trustee shall
have the right to direct the defense of such claim;
(iii the Trustee shall have the right to employ separate counsel with
respect to any claim and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the Trustee unless
the payment of such counsel has been specifically authorized by the Issuer;
provided further, however, that if the Trustee shall assume the defense of
any claim as a result of the Issuer's failure to assume the defense of such
claim as described in paragraph (ii) above, the Issuer shall pay the
reasonable fees and expenses of Trustee's counsel in connection with the
defense of such claim; and
(iv notwithstanding anything to the contrary in this Section 9.7(a)(3),
the Issuer shall not be liable for settlement of any such claim by the
Trustee entered into without the prior consent of the Issuer.
Nothing in this Section 9.7 shall be construed to limit the
exercise by the Trustee of any right or remedy permitted under this Indenture
or otherwise in the event of the Issuer's failure to pay any sums due the
Trustee pursuant to this Section 9.7.
(b The provisions of this Section 9.7 shall govern all other
provisions of this Indenture regarding the payment of the fees and expenses
of the Trustee.
(c To secure the Issuer's payment obligations under this Section
9.7, the Trustee shall have a lien prior to the Noteholders on the Trust
Estate, except with respect to such moneys as are held in trust to pay
principal of and interest on particular Notes. Such lien shall survive the
satisfaction and discharge of this Indenture.
(d The payment obligations of the Issuer under this Section 9.7
shall survive the satisfaction and discharge of this Indenture.
SECTION IX.8 Trustee Eligibility. The Trustee shall be a
corporation or national banking association or trust company organized
and doing business under the laws of the United States of America or of any
State, authorized under such laws to exercise corporate trust powers,
having a combined capital and surplus of at least $50,000,000, subject to
supervision or examination by any federal or state banking authority
(except as provided in Section 9.9 hereof). If such Trustee publishes reports
of condition annually, or more frequently, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then
for the purposes of this Section 9.8, the combined capital and surplus of
such corporation shall be deemed to be the respective amount set forth in
its most recently published report of condition. The Trustee shall
provide copies of such reports to the Issuer or any Noteholder upon request
at the requesting party's expense. If at any time the Trustee shall cease to
be eligible in accordance with the provisions of this Section 9.8, it shall
resign immediately in the manner and with the effect hereinafter specified in
this Article IX.
SECTION IX.9 Resignation and Removal; Appointment of Successor .
(a No resignation or removal of the Trustee and no appointment of
a successor trustee pursuant to this Article IX shall become effective until
the acceptance of appointment by the successor trustee under Section 9.10
hereof. Any successor Trustee appointed hereunder is subject to the approval
of the Holders of at least 51% of the aggregate outstanding principal amount
of the Notes, which approval, in neither case, shall be unreasonably withheld
or delayed.
(b The Trustee or any trustee hereafter appointed may resign at
any time by giving written notice of resignation to the Issuer, and by
mailing notice of resignation by first-class mail, postage prepaid, to all of
the Noteholders, at their addresses appearing on the Note Register. Upon
receiving notice of resignation of the Trustee, the Issuer shall promptly
appoint a successor trustee, by written instrument, in duplicate, one copy of
which instrument shall be delivered to the resigning Trustee and one copy to
the successor trustee or trustees. The Trustee shall serve as trustee
hereunder until a successor trustee shall have been appointed and shall have
accepted such appointment; provided, however, that if no successor trustee
shall have been appointed and have accepted appointment within 30 days after
the giving of such notice of resignation, the resigning Trustee may, or any
Noteholder who has been a bona fide Holder for at least six months may on
behalf of himself or herself and all others similarly situated, petition any
such court of competent jurisdiction for the appointment of a successor
trustee. Such court may thereupon, after such notice, if any, as it may deem
proper and prescribe, appoint a successor trustee.
(c If at any time:
(1) the Trustee shall cease to be eligible under Section 9.8 hereof and
shall fail to resign, after written request therefor by the Issuer or by any
Noteholder who has been a bona fide Holder for at least six months; or
(2) (A) the Trustee shall become incapable of acting, (B) a court
having jurisdiction in the premises in respect of the Trustee in an
involuntary case under the federal bankruptcy laws, as now or hereafter
constituted, or any other applicable federal or state bankruptcy, insolvency
or other similar law, shall have entered a decree or order granting relief or
appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator
(or similar official) for the Trustee or for any substantial part of the
Trustee's property, or ordering the winding-up or liquidation of the
Trustee's affairs, provided any such decree or order shall have continued
unstayed and in effect for a period of 60 consecutive days or (C) the Trustee
commences a voluntary case under the federal bankruptcy laws, as now or
hereafter constituted, or any other applicable federal or state bankruptcy,
insolvency or other similar law, or consents to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) for the Trustee or for any
substantial part of the Trustee's property, or makes any assignment for the
benefit of creditors or fails generally to pay its debts as such debts become
due or takes any corporate action in furtherance of any of the foregoing;
then, in any such case the Issuer hereby agrees with the Noteholders that it
shall remove the Trustee by written request and appoint a successor trustee
by written instrument, in duplicate, one copy of which instrument shall be
delivered to the Trustee so removed and one copy to the successor trustee, or
any Noteholder who has been a bona fide Holder for at least six months may,
on behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee and for the appointment
of a successor trustee. Such court may hereupon, after such notice, if any,
as it may prescribe, remove the Trustee and appoint a successor trustee.
(d The Trustee may also be removed at any time by act of the
Holders of at least 51% of the aggregate outstanding principal amount of the
Notes.
(e The Issuer shall give notice of the resignation or removal of
the Trustee by mailing notice of such event by first-class mail, postage
prepaid, to the Holders of the Notes as their names and addresses appear in
the Note Register. Each notice shall include the name of the successor
trustee and the address of its trust division or department. The notice
required by this paragraph (e) may be given at the same time as the notice
required by Section 9.10.
SECTION IX.10 Acceptance of Appointment by Successor. Every
successor trustee appointed hereunder shall execute, acknowledge and
deliver to the Issuer and its predecessor trustee an instrument
accepting such appointment hereunder. Upon the delivery and execution
of the required instruments, the resignation or removal of the predecessor
trustee shall become effective and such successor trustee, without any
further act, need or conveyance, shall become vested with all the rights,
powers, trusts, duties and obligations of its predecessor hereunder.
Notwithstanding the foregoing, on request of the Issuer or the successor
trustee, such predecessor trustee shall, upon payment of its then unpaid
charges due and payable under Section 9.7 hereof, execute and deliver an
instrument transferring to such successor trustee all of the rights, powers
and trusts of the predecessor trustee and shall duly assign, transfer and
deliver to such successor trustee all property and money held by such
predecessor trustee hereunder. Upon request of any such successor trustee,
the Issuer shall execute any and all instruments providing for more full and
certain vesting in and confirming to such successor trustee all such rights,
powers and trusts of this Indenture.
Upon acceptance of appointment by a successor trustee as provided
in this Section 9.10, the Issuer shall mail notice thereof by first-class
mail, postage prepaid, to the Holders at the Holders' addresses appearing
upon the Note Register. If the Issuer fails to mail such notice within 10
days after acceptance of appointment by the successor trustee, the successor
trustee shall cause such notice to be mailed at the expense of the Issuer.
Any successor trustee must, at the time of such successor's
acceptance of its appointment, meet the eligibility requirements set forth in
this Article IX, and otherwise exercise the rights, remedies, powers and
authority of the predecessor trustee with respect to the Trust Estate.
Notwithstanding the replacement of the Trustee or any successor
trustee pursuant to the provisions of this Indenture, the Issuer's
obligations set forth in Section 9.7 hereof shall survive such replacement
and continue for the benefit of the resigning or replaced trustee.
SECTION IX.11 Merger, Conversion, Consolidation or Succession to
Business of Trustee. Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all of the
corporate trust business of the Trustee shall be the successor of the
Trustee hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto; provided such
corporation shall be otherwise qualified and eligible under this Article IX.
In case any Notes have been authenticated, but not delivered, by the Trustee
then in office, any successor by merger, conversion or consolidation to
such authenticating Trustee may deliver the Notes so authenticated with the
same effect as if such successor trustee had itself authenticated such Notes.
SECTION IX.12 Co-trustees and Separate Trustees. The Trustee
shall have power, with the consent of the Holders of Notes representing
at least 51% of the then aggregate outstanding principal amount of the
Notes, to appoint, one or more Persons approved by the Issuer either to act
as Collateral Agent or co-trustee of all or any part of the Trust Estate, or
to act as separate trustee of any such property, in either case with such
powers as may be provided in the instrument of appointment, and to vest
in such Person or Persons in the capacity aforesaid, any property, title,
right or power deemed necessary or desirable, subject to the other provisions
of this Section. The Issuer hereby directs the Trustee to appoint BankBoston
as the initial Collateral Agent pursuant to the Collateral Agent Agreement.
If the Issuer does not approve such appointment within 15 days after the
receipt by it of a request so to do, or in case an Event of Default has
occurred and is continuing, the Trustee alone shall have power to make such
appointment.
Should any written instrument from the Issuer be required by any
Collateral Agent, co-trustee or separate trustee so appointed for more fully
confirming to such Collateral Agent, co-trustee or separate trustee such
property, title, right or power, any and all such instruments shall, on
request, be executed, acknowledged and delivered by the Issuer.
Every Collateral Agent, co-trustee or separate trustee shall, to
the extent permitted by law, but to such extent only, be appointed subject to
the following terms, namely:
(1) The Notes shall be authenticated and delivered and all rights,
powers, duties and obligations hereunder in respect of the custody of
securities or cash held by or required to be deposited with the Trustee in an
Account hereunder, shall be exercised, solely by the Trustee.
(2) The rights, powers, duties and obligations hereby conferred or
imposed upon the Trustee shall be conferred or imposed upon and exercised or
performed by the Trustee or by the Trustee and such Collateral Agent,
co-trustee or separate trustee jointly, as shall be provided in the
instrument appointing such Collateral Agent, co-trustee or separate trustee,
except to the extent that under any law of any jurisdiction in which any
particular act is to be performed, the Trustee shall be incompetent or
unqualified to perform such act, in which event such rights, powers, duties
and obligations shall be exercised and performed by such Collateral Agent,
co-trustee or separate trustee.
(3) The Trustee at any time, by an instrument in writing executed by
it, with the concurrence of the Issuer, may accept the resignation of or
remove any Collateral Agent, co-trustee or separate trustee appointed under
this Section 9.12, and, in case an Event of Default has occurred and is
continuing, the Trustee shall have power to accept the resignation of, or
remove, any such Collateral Agent, co-trustee or separate trustee without the
concurrence of the Issuer. Upon the written request of the Trustee, the
Issuer shall join with the Trustee in the execution, delivery and performance
of all instruments and agreements necessary or proper to effectuate such
resignation or removal. A successor to any Collateral Agent, co-trustee or
separate trustee so resigned or removed may be appointed in the manner
provided in this Section 9.12.
(4) No Collateral Agent, co-trustee or separate trustee hereunder shall
be personally liable by reason of any act or omission of the Trustee, or any
other such trustee hereunder.
(5) Any act of Noteholders delivered to the Trustee shall be deemed to
have been delivered to each such Collateral Agent, co-trustee and separate
trustee.
ARTICLE X
AMENDMENTS
SECTION X.1 Amendments Without Consent of Noteholders. Without
the consent of, or notice to, the Holders of any Notes, the Issuer and the
Trustee, may amend this Indenture at any time and from
time to time for any of the following purposes:
(a to correct or amplify the description of any property at any
time subject to the lien of this Indenture, or better to assure, convey and
confirm unto the Trustee any property subject or required to be subjected to
the lien of this Indenture, or to subject to the lien of this Indenture
additional property; or
(b to evidence the succession, in compliance with the provisions
of Section 4.2(b) hereof, of another person to the Issuer, and the assumption
by any such successor of the covenants of the Issuer contained herein and in
the Notes; or
(c to add to the covenants of the Issuer or the
Trustee, for the benefit of the Noteholders, or to surrender any right or
power herein conferred upon the Issuer; or
(d to convey, transfer, assign, mortgage or pledge any
property to the Trustee to constitute additional Trust Estate; or
(e to cure any ambiguity, correct or supplement any provision
herein which may be defective or inconsistent with any other provisions
herein or amend any other provisions with respect to matters or questions
arising under this Indenture, provided that such action shall not adversely
affect the interests of the Holders; or
(f to evidence and provide for the acceptance of
appointment hereunder by a successor trustee or note registrar, pursuant
to the requirements of Sections 9.9 or 9.10 hereof.
The Trustee is hereby authorized to join in the execution of any
such amendment and to make any further appropriate agreements and
stipulations which may be therein contained or required.
SECTION X.2 Amendments With Consent of Noteholders. With the
consent of the Holders of at least 66-2/3% of the aggregate outstanding
principal amount of the Notes delivered to the Issuer and the Trustee, the
Issuer, pursuant to a written request, and the Trustee may amend this
Indenture for the purpose of adding to, changing or eliminating
any of the provisions of this Indenture or of modifying the rights of
Holders under this Indenture; provided, however, that no such amendment
shall, without the consent of the Holder of each outstanding Note:
(1) change the maturity of the principal of, or any installment of
principal of or interest on, any Note, or reduce the principal amount
thereof, the interest rate thereon, or change the provisions of this
Indenture relating to the application of the Trust Estate to payment of
principal of Notes, or change any place of payment where, or the coin or
currency in which, the principal of or the interest of any Note is payable,
or impair the right to institute Proceedings for the enforcement of the
provisions of the Indenture requiring the application of funds available
therefor, as provided in Article VII, to the payment of any amount due on the
Notes on or after the maturity thereof; or
(2) reduce the percentage of the aggregate outstanding principal amount
of the Notes, the consent of the Holders of which is required for any
amendment, or the consent of the Holders of which is required for any waiver
of compliance with certain provisions of this Indenture or certain defaults
hereunder and their consequences provided for in this Indenture; or
(3) modify or alter the provisions of the proviso to the
definition of the term "outstanding"; or
(4) permit the creation of any lien ranking prior to or on a parity
with the lien of this Indenture with respect to any part of a Trust Estate or
terminate the lien of this Indenture on any property at any time subject
hereto or deprive any Holder of the security afforded by the lien of this
Indenture except as expressly otherwise permitted hereby; or
(5) reduce the percentage of the aggregate outstanding principal amount
of the Notes, the consent of the Holders of which is required to direct the
Trustee to sell the Trust Estate pursuant to Section 7.13 hereof; or
(6) modify any of the provisions of this Section 10.2, except to
increase any percentage specified herein or to provide that certain
additional provisions of this Indenture cannot be modified or waived without
the consent of each Holder of an outstanding Note affected thereby; or
(7) modify any of the provisions of this Indenture in such a manner as
to affect the calculation of the amount of any payment of interest or
Principal Payment Amount due on any Note on any Payment Date (including the
calculation of any of the individual components of such calculation).
Promptly after the execution by the Issuer and the Trustee of any
amendment pursuant to this Section, the Trustee shall mail to the Holders a
notice setting forth in general terms the substance of such amendment. Any
failure of the Trustee to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amendment.
SECTION X.3 Effect of Amendment. Upon the execution of any
amendment of this Indenture pursuant to the provisions hereof, this Indenture
shall be, and be deemed to be, modified and amended in accordance therewith
with respect to each Note and the respective rights, limitations,
obligations, duties, liabilities and immunities under this Indenture of the
Trustee, the Issuer and the Holders shall thereafter be determined, exercised
and enforced hereunder subject in all respects to such modifications and
amendments, and all the terms and conditions of any such amendment shall
be and be deemed to be part of the terms and conditions of this Indenture for
any and all purposes.
SECTION X.4 Reference in Notes to Amendments. Notes authenticated
and delivered after the execution of any amendment of this Indenture
pursuant to this Article X may, and, if required by the Issuer shall, bear
a notation in form approved by the Trustee as to any matter provided for in
such amendment. If the Issuer shall so require, new Notes so modified as to
conform, in the opinion of the Trustee and the Issuer, to any such amendment
may be prepared and executed by the Issuer and authenticated and delivered by
the Trustee in exchange for outstanding Notes.
ARTICLE XI
MISCELLANEOUS
SECTION XI.1 Form of Documents Delivered to Trustee. In any case
where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters
be certified by, or covered by the opinion of, only one such Person, or that
they be so certified or covered by only one document, but one such Person
may certify or give an opinion with respect to some matters and one or
more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents. Where any
Person is required to make, give or execute two or more applications,
requests, consents, certificates, statements, opinions or other instruments
under this Indenture, they may, but need not, be consolidated and form one
instrument.
Any certificate or opinion may be based, insofar as it relates to
legal matters, upon an opinion of, or representations by, counsel, unless the
Issuer knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to the matters upon
which his certificate or opinion is based are erroneous. Any Officer's
Certificate or Opinion of Counsel may be based, without independent
investigation, insofar as it relates to factual matters, upon a certificate
or opinion of, or representations by the Trustee or other appropriate Person,
stating that the information with respect to such factual matters is in the
possession of the Issuer, the Trustee or other appropriate Person, as the
case may be, unless such Person knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect
to such matters are erroneous. Any opinion of counsel may be based upon such
assumptions as shall be deemed appropriate by counsel rendering such Opinion
of Counsel.
In connection with any application, certificate or report to the
Trustee, whenever this Indenture provides that the Issuer shall deliver any
document as a condition of the granting of such application, or as evidence
of the Issuer's compliance with any terms hereof, it is intended that the
truth and accuracy of the facts and opinions stated in such document, at the
time of the granting of such application or at the effective date of such
certificate or report (as the case may be), shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to
the sufficiency of such certificate or report. The foregoing shall not,
however, be construed to affect the Trustee's right to rely upon the truth
and accuracy of any statement or opinion contained in any such document as
provided in Article IX hereof or to impose a duty on the Trustee to ascertain
such truth or inaccuracy.
Whenever this Indenture provides that the absence of the
occurrence and continuation of a Default or Event of Default as a condition
precedent to the taking of any action by the Trustee at the request or
direction of the Issuer, then, notwithstanding that the satisfaction of such
condition is a condition precedent to the Issuer's right to make such request
or direction, the Trustee shall be protected in acting in accordance with
such request or direction if it does not have knowledge of the occurrence and
continuance of such Default or Event of Default as provided in Section 9.1(e)
hereof.
SECTION XI.2 Notices, etc., to Parties. All notices, requests or
other communications desired or required to be given under this Indenture
shall be in writing and shall be sent by (a certified or registered mail,
return receipt requested, postage prepaid, (b) national prepaid overnight
delivery service, (c) telecopy or other facsimile transmission (following
with hard copies to be sent by national prepaid overnight delivery service)
or (d) personal delivery with receipt acknowledged in writing, as follows:
(a) If to the Trustee:
The Chase Manhattan Bank
450 West 33rd Street
New York, New York 10001
Attention: Global Trust Services,
Structured Finance Services
(b) If to the Issuer:
Litchfield Hypothecation Corp. 1997-B
c/o Litchfield Financial Corporation
789 Main Road
Stamford, Vermont 05352
Attention: President
with a copy of any letter, notice, communication or direction hereunder to
the Originator at the address set forth below.
(c) If to the Purchaser:
Green Tree Financial Servicing Corporation
100 North Point Center East
Suite 200
Alpharetta, Georgia 30022
Attention: Vice President
(d) If to the Originator or the Master Servicer:
Litchfield Financial Corporation
789 Main Road
Stamford, Vermont 05352
Attention: President
(f) Notices required under this Indenture to be sent to
the Noteholders shall in addition be sent to the Issuer.
All notices shall be deemed given when actually received or refused by the
party to whom the same is directed (except to the extent sent by certified or
registered mail, return receipt requested, postage prepaid, in which event
such notice shall be deemed given three days after the date of mailing). Each
party may designate a change of address or supplemental addressee(s) by
notice to the other parties, given at least 15 days before such change of
address is to become effective. Any notice received from any Noteholder by
any party listed in this Section 11.2 shall be promptly transmitted by such
party to all other parties listed in this Section 11.2.
SECTION XI.3 Notices and Information to Noteholders; Waiver. Upon
the request of any Noteholder holding 51% or more of the aggregate
outstanding principal amount of all Notes, the Trustee shall deliver
promptly to such Noteholder such information with respect to the Loan
Collateral as such Noteholder shall request.
Where this Indenture provides for notice to Noteholders of any
event, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed, first-class, postage prepaid,
to each Noteholder affected by such event, at its address as it appears on
the Note Register, not later than the latest date, and not earlier than the
earliest date, prescribed for the giving of such notice. In any case where
notice to Noteholders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Noteholder
shall affect the sufficiency of such notice with respect to other
Noteholders, and any notice which is mailed in the manner herein provided
shall conclusively be presumed to have been duly given.
Where this Indenture provides for notice in any manner, such
notice may be waived in writing by any Person entitled to receive such
notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Noteholders shall be filed
with the Trustee but such filing shall not be a condition precedent to the
validity of any action taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be
impractical to mail notice of any event to Noteholders when such notice is
required to be given pursuant to any provision of this Indenture, then any
manner of giving such notice as shall be satisfactory to the Trustee shall be
deemed to be a sufficient giving of such notice.
SECTION XI.4 Effect of Headings and Table of Contents. The
Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION XI.5 Successors and Assigns. All covenants and agreements
in this Indenture by the Issuer shall bind its successors and assigns,
whether so expressed or not.
SECTION XI.6 Severability. In case any provision in this
Indenture or in the Notes shall be invalid, illegal or unenforceable,
the validity, legality and enforceability of the remaining provisions
shall not in any way be affected or impaired thereby.
SECTION XI.7 Legal Holidays. If any Payment Date or other date
for the payment of principal of or interest on any Note is proposed to be
paid, or any date on which mailing of notices by the Trustee to any Person is
required pursuant to any provision of this Indenture, shall not be
a Business Day, then (notwithstanding any other provision of the Notes
or this Indenture) payment or mailing of such notice need not be made on such
date, but may be made or mailed on the next succeeding Business Day with
the same force and effect, and in the case of payments, but no interest shall
accrue for the period from and after the date on which such payment was
due to the next succeeding Business Day when paid.
SECTION XI.8 Governing Law. This Indenture, each indenture
supplemental hereto and each Note shall be construed in accordance with
and governed by the laws of the State of New York, without regard to the
conflict-of-law provisions thereof.
SECTION XI.9 Counterparts. This instrument may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
SECTION XI.10 Recording of Indenture. If this Indenture is
subject to recording in any appropriate public recording office, such
recording is to be effected by the Issuer at its expense.
SECTION XI.11 Limited Obligations. No recourse for obligations
hereunder or any other obligation running directly for the benefit of the
Trustee may be taken, directly or indirectly, against (i) any holder of a
beneficial interest in the Issuer, (ii) any partner, beneficiary, agent,
officer, director, employee, or successor or assign of a holder of a
beneficial interest in the Issuer, or (iii) any incorporator, subscriber
to the capital stock, stockholder, officer, director or employee of the
Trustee with respect to the predecessor or successor of the Trustee with
respect to the Issuer's obligations with respect to the Notes or the
obligation of the Issuer or the Trustee under this Indenture or any
certificate or other writing delivered in connection herewith or therewith.
SECTION XI.12 Inspection. The Issuer agrees that, on reasonable
prior notice, during the Issuer's normal business hours it will permit
any representative of the Trustee or any Noteholder to examine all the
books of account, records, reports and other papers of the Issuer,
to make copies and extracts therefrom, to cause such books to be
audited by independent accountants selected by the Issuer with the consent
of (i) the Purchaser, so long as it owns any Notes, and (ii) the Holders
of not less than 51% of the aggregate outstanding principal amount of the
Notes; and to discuss the Issuer's affairs, finances and accounts with
the Issuer's officers, employees and independent accountants all at such
reasonable times and as often as may be reasonably requested; provided that
the Issuer shall be entitled to have its representatives present at any such
discussion. The Trustee and the Purchaser shall hold, and shall cause their
respective representatives to hold, in confidence all such information
except to the extent disclosure may be required by law and except to the
extent that the Trustee or the Purchaser, in its respective sole judgment,
may determine that such disclosure is consistent with its obligations
hereunder. Any expenses incident to the exercise by the Trustee or a
Noteholder of any right under this Section 11.12 shall be borne by the
Issuer.
SECTION XI.13 Usury. The amount of interest payable or paid on
any Note under the terms of this Indenture shall be limited to any amount
which shall not exceed the maximum nonusurious rate of interest permitted by
the applicable laws of the State of New York (or the laws of any other
jurisdiction determined to be applicable laws of the United States permitting
a higher maximum nonusurious rate that preempts such applicable New York
(or other) laws, which could lawfully be contracted for, charged or received
(the "Highest Lawful Rate")). In the event any payment of interest on any
Note exceeds the Highest Lawful Rate, the Issuer stipulates that such excess
amount will be deemed to have been paid as a result of an error on the part
of both the Trustee, acting on behalf of the Holder, and the Issuer, and the
Holder receiving such excess payment shall promptly, upon discovery of such
error or upon notice thereof from the Issuer or the Trustee, refund the
amount of such excess or, at the option of the Trustee, apply the excess to
the payment of principal of such Note, if any, remaining unpaid. In
addition, all sums paid or agreed to be paid for the use, forbearance or
detention of money shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term of such
Notes.
<PAGE>
142
IN WITNESS WHEREOF, the Issuer and the Trustee have caused this
Indenture to be duly executed by their duly authorized officers all as of the
day and year first above written.
THE CHASE MANHATTAN BANK,
as Trustee
By:
Title:
LITCHFIELD HYPOTHECATION CORP.
1997-B
By:
Title:
<PAGE>
APPENDIX A
DEFINITIONS
The definitions contained herein are incorporated into and made a part of
the Indenture, the Servicing Agreement, the Purchase and Sale Agreement and
the Note Purchase Agreement, each as defined below.
Acceleration Date shall mean the date on which occurs the
acceleration of the maturity of the Notes pursuant to Section 7.2 of the
Indenture.
Account shall mean any account or fund, and any subaccount thereof,
established under Article V of the Indenture.
Affiliate shall mean with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under direct or indirect
common control with such specified Person. For the purposes of this
definition, "control", when used with respect to any specified Person, means
the power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
Agency Agreement shall mean for each Sub-Servicer, a Collateral
Agent and Bailee Agreement to be executed on or about the Closing Date by the
Issuer, the Trustee and such Sub-Servicer.
Applicable Laws shall mean all laws, rules and regulations
applicable to the Person, conduct, transaction, covenant, Loan Documents,
Transaction Documents, Consumer 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.
Assigned Assets shall have the meaning ascribed to such term in the
Purchase and Sale Agreement.
Authorized Officer shall mean in the case of the Master Servicer or
the Issuer, any Vice President or more senior officer, and in the case of the
Trustee, a trust officer or other officer in the Global Trust Services,
Structured Finance Services Department of the Trustee customarily performing
functions similar to those of a trust officer.
Bankruptcy Law shall mean any bankruptcy, reorganization,
compromise, arrangement, insolvency, readjustment of debt, dissolution, or
liquidation or similar law, whether now or hereafter in effect.
Business Day shall mean any day that is not a Saturday, Sunday or a
day on which banking institutions located in the City of New York, New York,
or in the city and state where the principal offices of each of the Trustee
and the Master Servicer are located, are authorized or obligated by law or
executive order to be closed.
Claims shall mean 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 shall mean each closing of the issuance and delivery of
Notes pursuant to the Indenture.
Closing Date shall mean the date on which the Notes are first
executed, authenticated and delivered.
Code shall mean the Internal Revenue Code of 1986, as amended, or
any successor statute thereto, including the regulations promulgated
thereunder.
Collateral Agency Agreement shall mean the Collateral Agency
Agreement, dated as of August 1, 1997, among BankBoston, N.A., as Collateral
Agent, the Trustee, the Issuer and the Originator.
Collateral Agent shall mean the Person or persons appointed by the
Trustee pursuant authority set forth in Section 9.12 of the Indenture to act
as collateral agent for the Loans and Loan Collateral.
Collection Period shall mean with respect to a Payment Date, the
period commencing on the first day and ending on the last day of the month
preceding such Payment Date.
Consumer shall mean a Timeshare Purchaser or a Land Purchaser.
Consumer Financing Documents shall mean all instruments and
agreements executed by a Consumer in favor of a Hypothecation Borrower that
evidences or secures the financing of a sale of Land or a Timeshare Interval
by such Hypothecation Borrower to such Consumer.
Consumer Laws shall mean 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 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.
Consumer Receivable shall mean an amount or amounts at any time due,
payable or owing by a Consumer to a Hypothecation Borrower in connection with
the sale of land or a Timeshare Interval by such Hypothecation Borrower to
such Consumer.
Default shall mean any occurrence which is, or with notice or the
lapse of time or both would become, an Event of Default.
Default Rate shall mean with respect to all Notes at any time, the
then highest interest rate applicable to any Series of Notes, plus (two) 2
percentage points per annum.
Deposit Account Assignment shall mean the Collateral Assignment of
Deposit Account, dated as of August 1, 1997, executed by the Issuer in favor
of the Trustee by which the Issuer collaterally assigns its rights in the
Lock Box Account to the Trustee.
Eligible Investments shall mean (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 or 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; (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; and (v) investments in money market funds (including
funds of the Trustee or its Affiliates as well as funds for which the Trustee
and its Affiliates may receive compensation) rated in the highest investment
category by each of Standard & Poor's Corporation and Moody's Investors
Services, Inc.
Environmental Laws shall mean 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.
Event of Default shall have the meaning specified in Section 7.1 of
the Indenture.
Federal Reserve Board shall mean the Board of Governors of the
Federal Reserve System.
Future Advances shall mean the right and the obligation of the
Originator to fund any loan or advance to a Hypothecation Borrower after July
31, 1997, pursuant to the Loan Documents or otherwise.
Grant shall have the meaning specified in the Granting Clauses of
the Indenture.
Guarantee shall mean the Guarantee, dated as of August 1, 1997, by
the Originator in favor of the Purchaser.
Highest Lawful Rate shall have the meaning specified in Section
11.14 of the Indenture.
Hypothecation Borrower shall mean a Person who is liable for the
payment, in whole or in part, of a Loan, including any guarantor of such
Hypothecation Loan.
Indenture shall mean the Indenture of Trust, dated as of August 1,
1997, between the Issuer and the Trustee, as from time to time supplemented
or amended by one or more amendments or supplements.
Instrument shall have the meaning ascribed to the term "instrument"
in the UCC.
Investment Income shall mean any interest or other earnings on
Accounts that are part of the Trust Estate.
Issuer shall mean Litchfield Hypothecation Corp.
1997-B, a corporation organized under the laws of the State of Delaware,
and its successors and assigns.
Land Purchaser shall mean a Person who purchases one or more land
lots from a Hypothecation Borrower.
Land Sales Laws shall mean 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 land or Timeshare Intervals to
Consumers.
LIBOR Rate shall have the meaning ascribed to such term in Section
2.9(b) of the Indenture.
Lien shall mean 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 the property.
List of Loans shall mean the schedule, attached to the Indenture as
Schedule I, of all Loans constituting a part of the Trust Estate thereunder,
which schedule shall set forth or include for each Loan (i) the name of the
Hypothecation Borrower under such Loan, (ii) the account number assigned to
such loan by the Originator, (iii) the outstanding principal balance of the
Loan as of July 31, 1997, and (iv) the aggregate revolving commitment of the
Originator to make advances in respect of the Loan.
Loan shall mean (i) the loan or loans made by the Originator
pursuant to a revolving credit facility, in each case specified on Schedule I
to the Indenture, to a Hypothecation Borrower for the purpose of financing
all or part of the Hypothecation Borrower's Consumer Receivables derived from
the sale of land or Timeshare Intervals, including, without limitation, (ii)
each Participation Interest specified on Schedule 1 to the Indenture, and
(iii) all Future Advances made by the Originator to a Hypothecation Borrower
after the Closing Date and sold to the Issuer pursuant to the terms of the
Purchase and Sale Agreement; but excluding all Unassigned Rights.
Loan Collateral shall mean with respect to each Loan, the Issuer's
entire right, title, interest and estate in, to and under all property and
interests in property to the extent the Issuer holds a Lien in such property
to secure the whole or any part of a Loan, including all Consumer Financing
Documents, Transaction Documents, Payment Rights and
Remedies in respect of such Loan.
Loan Documents shall mean with respect to a Loan, those instruments,
agreements, guaranty documents, certificates or other writings, now or
hereafter executed and delivered by the Hypothecation Borrower (including,
with respect to a Participation Interest, all Participation Agreements) that
evidence or secure the payment of such Loan, as the same may be modified,
amended, consolidated, continued or extended from time to time.
Lock Box Account shall mean the bank account or accounts established
by the Issuer at the Lock Box Bank, which accounts shall constitute the
depository account or accounts for all payments and proceeds with respect to
the Loans and Loan Collateral, shall be collaterally assigned to the Trustee
pursuant to the Deposit Account Assignment, and shall be the subject of the
Payment Direction Agreement.
Lock Box Bank shall mean Bank One, Arizona, N.A., a national banking
association.
Master Servicer shall mean Litchfield Financial Corporation, a
Massachusetts corporation, in its capacity as servicer under the Servicing
Agreement, together with its successors and assigns as permitted thereunder.
Master Servicer's Certificate shall mean a certificate to be
provided by the Master Servicer in accordance with Section 3.1 of the
Servicing Agreement and signed by an Authorized Officer of the Master
Servicer and furnished to the Issuer and the Trustee by the Master Servicer.
Mortgage shall mean 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.
1933 Act shall mean the Securities Act of 1933, as amended, and the
applicable published rules and regulations thereunder.
Note or Notes shall mean any note or notes, as the case may be,
issued pursuant to the Indenture.
Noteholder or Holder shall mean the registered owner of a Note as
evidenced by the Note Register.
Note Limit shall mean $45,295,000.
Note Purchase Agreement shall mean the Note Purchase Agreement,
dated August 28, 1997, among the Purchaser, the Issuer and the Master
Servicer.
Note Register and Note Registrar shall have the respective meanings
specified in Section 2.6 of the Indenture.
Officer's Certificate shall mean, unless otherwise specified, a
certificate signed by any Authorized Officer of the party delivering such
certificate, delivered to the Trustee and complying with the applicable
requirements of Section 11.1 of the Indenture.
Opinion of Counsel shall mean one or more written opinions of
counsel who may, except as otherwise expressly provided in the Indenture, be
counsel for the Issuer or its Affiliates.
Originator shall mean Litchfield Financial Corporation, a
Massachusetts corporation, in its capacity as originator of the Loans.
outstanding shall mean, as of the date of determination, all Notes
theretofore authenticated and delivered hereunder except:
(a) Notes theretofore canceled by the Note Registrar or
delivered to the Note Registrar for cancellation;
(b) Notes for the payment of which money in the necessary amount
has been theretofore deposited with the Trustee in trust for the Holders of
such Notes;
(c) Notes in exchange for or in lieu of which other Notes have
been authenticated and delivered hereunder; and
(d) Notes alleged to have been mutilated, destroyed, lost or stolen
for which replacement Notes have been issued as provided for in Section 2.7
of the Indenture;
provided, however, that in determining whether the Holders of the requisite
aggregate outstanding principal amount of the Notes have given any request,
demand, authorization, direction, notice, consent or waiver hereunder, Notes
owned by the Issuer or any other obligor upon the Notes or any Affiliate of
the Issuer or such other obligor shall be disregarded and deemed not to be
outstanding, except that, in determining whether the Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Notes which the Trustee knows to be so owned
shall be so disregarded. Notes so owned which have been pledged in good faith
may be regarded as outstanding if the pledgee establishes to the satisfaction
of the Trustee the pledgee's right so to act with respect to such Notes and
that the pledgee is not the Issuer or any other obligor upon the Notes or any
Affiliate of the Issuer or such other obligor.
Participation Agreement shall mean all participation agreements, and
other instruments, agreements, certificates or other writings now or
hereafter evidencing a Participation Interest.
Participation Interest shall mean the Originator's interest in a
loan purchased pursuant to a Participation Agreement, in each case specified
on Schedule I to the Indenture, such interest being in a loan made to a
Hypothecation Borrower for the purpose of financing all or part of the
Hypothecation Borrower's Consumer Receivables derived from the sale of land
or Timeshare Intervals.
Payment Account shall mean the Account by that name established,
maintained and disbursed pursuant to Article V of the Indenture.
Payment Date shall mean the 25th day of each month in each year, or
if such day is not a Business Day, the next succeeding Business Day,
commencing September 25, 1997.
Payment Default shall mean an Event of Default specified in
paragraph (a) or (b) of Section 7.1 of the Indenture.
Payment Direction Agreement shall mean the Payment Direction
Agreement, dated as of August 1, 1997 among the Issuer, the Trustee and the
Lock Box Bank.
Payment Period shall mean with respect to a Payment Date, the period
from and including the immediately preceding Payment Date and to but not
including such Payment Date.
Payment Right shall mean the right of the Originator or the Issuer,
as the case may be, to the payment of money from a Hypothecation Borrower or
from any other Person at any time under any Transaction Document, including
the right to the repayment of a Loan.
Person shall mean any legal person, including any individual,
corporation, partnership, joint venture, association, joint stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
Principal Payment Amount shall mean with respect to each Payment
Date, an amount equal to the aggregate payments of principal due and payable
on the Loans, and principal prepaid in respect of the Loans, by all
Hypothecation Borrowers, whether regularly scheduled amortization payments or
by acceleration, prepayment, mandatory or optional redemption, maturity or
otherwise, in the Collection Period relating to such Payment Date.
Proceeding shall mean any suit in equity, action at law or other
judicial or administrative proceeding.
Purchase and Sale Agreement shall mean the Purchase and Sale
Agreement, dated as of August 1, 1997, between the Originator and the Issuer.
Purchase Price shall mean in respect of any Loan or Future Advance
and related Loan Collateral, the outstanding principal amount of such Loan or
Future Advance plus accrued interest, if any, as of the date of such
purchase.
Purchaser shall mean Green Tree Financial Servicing Corporation,
a Delaware corporation.
Record Date shall mean, with respect to a Payment Date, (i) the last
day of the immediately preceding calendar month or (ii) with respect to the
initial Payment Date, the Closing Date.
Remedies shall mean all rights, remedies, privileges and powers of
the Originator or the Issuer, as the case may be, arising under or in
connection with any of the Transaction Documents.
Servicer Advances shall have the meaning accorded such term in
Section 5.3 of the Indenture.
Servicing Agreement shall mean the servicing agreement to be dated
as of August 1, 1997, among the Issuer, the Trustee and the Master Servicer
wherein the Master Servicer has agreed to provide administrative, servicing
and collection services in respect of the Loans.
Servicing Fee shall mean with respect to each Payment Date, an
amount equal to $150.00 per outstanding Loan on such date.
State shall mean any one of the states of the United States of
America, or the District of Columbia.
Stated Maturity shall mean December 31, 2003.
Sub-Servicer shall mean such Person or Persons as may be retained by
the Master Servicer to fulfill the role of Master Servicer for one or more
Loans pursuant to Section 4.3 of the Servicing Agreement.
Sub-Servicing Agreement shall mean each Servicing Agreement which is
entered into between the Master Servicer and a Sub-Servicer and which sets
forth the responsibility of the Sub-Servicer to the Master Servicer with
respect to one or more Loans.
Timeshare Interval shall mean 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 shall mean a vacation or resort property that is
dedicated to Timeshare Interval ownership pursuant to a timeshare plan.
Timeshare Purchaser shall mean a Person who purchases one or more
Timeshare Intervals from a Hypothecation Borrower.
Timeshare Unit shall mean 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 shall mean with respect to a Loan, all
Instruments, agreements, documents and other writings that now or hereafter
(i) evidence a Loan or any Payment Right relating thereto, including all
promissory notes, loan agreements, and Participation Agreements (ii) secure
(whether by the grant or conveyance of a security interest or other Lien) a
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 a Hypothecation Borrower, including all guaranties, support or
contribution agreements, letters of credit, indemnifications, repurchase
agreements and participation 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 a Hypothecation Borrower, any guarantor or surety of a Payment Right or
any other Person. The term "Transaction Documents" shall include the Loan
Documents and the Consumer Financing Documents.
Trustee shall mean The Chase Manhattan Bank, until a successor
Person shall have become the Trustee pursuant to the applicable provisions of
the Indenture, and thereafter "Trustee" shall mean such successor Person.
Trust Estate shall have the meaning specified in the Granting
Clauses of the Indenture.
Trust Office shall mean the office of the Trustee located at 450
West 33rd Street, New York, New York 10001.
Unassigned Rights shall mean (i) the Originator's right and
obligation to fund any Future Advances, (ii) any loan or advances made by the
Originator to a Hypothecation Borrower which does not constitute a Loan, and
(iii) any collateral pledged by a Hypothecation Borrower to the Originator
which does not directly secure a Loan (i.e., collateral pledged by means of
cross-collateralization).
Variable Funding Notes shall mean the Notes of that designation
issued pursuant to Section 2.1 of the Indenture.
<PAGE>
Exhibit 10.163
SERVICING AGREEMENT, dated as of August 1, 1997 (the "Agreement"), by
and among LITCHFIELD HYPOTHECATION CORP. 1997-B, a corporation organized and
existing under the laws of the State of Delaware (herein, together with its
successors and assigns, called the "Issuer"), LITCHFIELD FINANCIAL
CORPORATION, a corporation organized and existing under the laws of the State
of Massachusetts (herein, together with its successors and assigns, called
the "Master Servicer"), and THE CHASE MANHATTAN BANK, a New York banking
corporation, as trustee (the "Trustee").
PRELIMINARY STATEMENT
WHEREAS, the Issuer has entered into an Indenture of Trust (the
"Indenture") dated as of the date of this Agreement with the Trustee, as
trustee, pursuant to which the Issuer shall issue its Hypothecation Loan
Collateralized Notes (collectively, the "Notes"), on the terms and in the
amounts described therein. Pursuant to the Indenture, as security for the
indebtedness represented by the Notes, the Issuer is and will be Granting to
the Trustee on behalf of the Noteholders, the Trust Estate, which includes,
among other things, the Loans and the Loan Collateral, its rights under this
Agreement, the Payment Account and all proceeds of the foregoing.
WHEREAS, the parties desire to enter into this Agreement to provide, among
other things, for the servicing of the Loans and Loan Collateral by the
Master Servicer. The Master Servicer acknowledges that, in order to further
secure the Notes, the Issuer is and will be Granting to the Trustee, among
other things, this Agreement, and the Master Servicer agrees that all
covenants and agreements made by the Master Servicer herein with respect to
the Loans securing the Notes shall also be for the benefit and security of
the Trustee and the Noteholders. For its services hereunder, the Master
Servicer will receive the Servicing Fee.
NOW THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, the Issuer, the Servicer and the Trustee agree as
follows:
ARTICLE I.
DEFINITIONS
SECTION 1. Defined Terms.
1. For all purposes of this Agreement, except as otherwise expressly
provided herein or unless the context otherwise requires, capitalized
terms not otherwise defined herein shall have the meanings ascribed to such
terms in the Appendix A hereto which is incorporated by reference herein.
All other capitalized terms used herein shall have the meanings specified
herein.
0.0.1. All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant
hereto unless otherwise defined therein.
0.0.2. As used in this Agreement and in any certificate or other document
made or delivered pursuant hereto or thereto, accounting terms not defined
in this Agreement or in any such certificate or other document, and
accounting terms partly defined in this Agreement or in any such certificate
or other document to the extent not defined, shall have the respective
meanings given to them under generally accepted accounting principles.
To the extent that the definitions of accounting terms in this Agreement
or in any such certificate or other document are inconsistent with the
meanings of such terms under generally accepted accounting principles,
the definitions contained in this Agreement or in any such certificate or
other document shall control.
1. The words "hereof," "herein," "hereunder" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not
to any particular provision of this Agreement; Section and Exhibit references
contained in this Agreement are references to Sections and Exhibits in or to
this Agreement unless otherwise specified; and the term "including" shall
mean "including without limitation".
1.0.1. The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms.
2. Any agreement, instrument or statute defined or referred to herein or
in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments)
references to all attachments thereto and instruments incorporated therein;
references to a Person are also to its permitted successors and assigns.
ARTICLE 3.
ADMINISTRATION AND SERVICING OF LOANS
SECTION 3.1. The Master Servicer to Act as the Servicer.
3.1.1 Engagement of the Master Servicer. The Master Servicer is hereby
authorized to and shall service and administer the Loans and Loan Collateral
in accordance with the terms of this Agreement. Subject to the provisions
herein, including, without limitation, Sections 2.6 hereof and subject to the
Master Servicer's obligations and the covenants of the Issuer under the
Indenture, the Master Servicer shall have full power and authority, acting
alone and subject only to the specific requirements and prohibitions of this
Agreement, to do and take any and all actions, or to refrain from taking any
such actions and to do any and all things in connection with such servicing
and administration which it may deem necessary or desirable, including,
without limitation, calculating and compiling information required in
connection with any report to be delivered pursuant to this Agreement.
Without limiting the generality of the foregoing, but subject to the
provisions of the Indenture and this Agreement, the Master Servicer is hereby
authorized and empowered by the Issuer to execute and deliver, in the Master
Servicer's own name, on behalf of the Issuer and Trustee, any and all
instruments of satisfaction or cancellation, or of partial or full release or
discharge, and all other comparable instruments, with respect to the Loans
and the Loan Collateral, including, without limitation, consenting to sales,
transfers or encumbrances of the Loan Collateral or assignments and
assumptions of the Loans, all in accordance with the terms of the Loans and
the Loan Collateral. The Master Servicer agrees that (i) its servicing of the
Loans and Loan Collateral shall be carried out in accordance with prudent,
customary and usual procedures of financial institutions which service loans
and collateral similar to the Loans and Loan Collateral and, (ii) to the
extent more exacting, the procedures which the Master Servicer would use if
the Loans were owned by the Master Servicer (the "Servicing Standard").
3.1.2. List of the Master Servicer's Officers.Promptly after the execution
and delivery of this Agreement, the Master Servicer shall deliver to the
Issuer and the Trustee a list of officers of the Master Servicer involved in,
or responsible for, the administration and servicing of the Loans and the
Loan Collateral, which list shall from time to time be updated by the Master
Servicer on request of the Trustee.
3.1.3 Actions to Perfect Security Interests. The Master Servicer shall
promptly take all actions that are necessary or desirable to maintain
continuous perfection and priority of the security interests granted by the
Hypothecation Borrowers in the Loan Collateral subject to the terms of the
Indenture and this Agreement, including, but not limited to, obtaining the
execution by the Hypothecation Borrowers and Consumers and the recording,
registering, filing, re-recording, re-registering and refiling of all
mortgages, assignments, security agreements, financing statements,
continuation statements or other instruments as are necessary to maintain the
security interests granted by the Hypothecation Borrowers under the
respective Loans. Without limiting the foregoing, the Master Servicer shall
file or cause to be filed the financing statements on Form UCC-1 and
assignments of financing statements on Form UCC-3 required to be filed in
connection with the Purchase and Sale Agreement and the Indenture relating to
the Loans and the transactions contemplated thereby.
3.1.4 Servicer Advances. The Master Servicer hereby agrees to make
Servicer Advances at the times and in the amounts specified in Section
5.3 of the Indenture. The obligation of the Master Servicer shall be
subject to the provisions of said Section 5.3 of the Indenture.
3.1.5. Limitation on the Master Servicer's Obligations. Notwithstanding
anything to the contrary herein, other than Section 4.3(e) hereof, the Master
Servicer may but shall not be obligated to incur any cost or expense (whether
for maintaining insurance, protecting or maintaining collateral, or
otherwise) if the Master Servicer, in its reasonable discretion, determines
that such advances may not be recovered from the Hypothecation Borrowers.
SECTION 3.2. Collection of Loan Payments and Remittances; Protection
of Loan Collateral; Payment Account.
3.2.1. Collection of Payments; Protection of Loan Collateral. The
Master Servicer shall perform (or shall cause a Sub-Servicer to perform)
the following servicing, collection supervision and collateral protection
activities:
3.2.1.1. perform standard accounting services and
general recordkeeping services with respect to the Loans and Loan
Collateral;
3.2.1.2. respond to any telephone and written
inquiries of Hypothecation Borrowers and Consumers concerning the Loans
and Loan Collateral;
3.2.1.3. keep Hypothecation Borrowers and
Consumers informed of the proper place and method for making payments
with respect to the Loans and Consumer Receivables;
3.2.1.4. contact Hypothecation Borrowers and
Consumers to effect collection and to discourage delinquencies in the
payment of Loans and Consumer Receivables, doing so by any lawful means,
including, but not limited to, the following:
3.2.1.4.1. transmittal of routine past due notices;
3.2.1.4.2. preparing and mailing collection letters;
3.2.1.4.3. contacting delinquent
Hypothecation Borrowers and Consumers by telephone to encourage payment;
3.2.1.4.4. transmittal of reminder notices to
delinquent Hypothecation Borrowers and Consumers; and
3.2.1.4.5. initiating and pursuing
termination or foreclosure actions deemed necessary by the Master
Servicer;
3.2.1.5. be responsible for the receipt and disbursement of
monies paid by Hypothecation Borrowers and Consumers as follows:
3.2.1.5.1. the receipt and collection of all amounts due and payable
with respect to each Loan and the proceeds of any Loan Collateral, including
all monies remitted by Consumers with respect to Consumer Receivables forming
a part of the Loan Collateral; in connection herewith the Master Servicer
shall use its best efforts to cause the collection of all payments called for
under the terms and provisions of each Loan and Consumer Receivable, and
shall use its best efforts to cause each Hypothecation Borrower to make all
payments required to be made in respect of its Loan pursuant to the Loan
Documents directly to the Lock Box Account at the Lockbox Bank.
3.2.1.5.2. the deposit of all such payments and proceeds in
the Lock Box Account in accordance with Section 2.2(b) below;
3.2.1.5.3. the maintenance of accurate and timely books
and records relating to the Master Servicer's receipt and collection of
all such payments and proceeds and the balance due in respect of the
Loans and Consumer Receivables;
3.2.1.5.4. the rendering to Hypothecation Borrowers and to
Trustee, of periodic reports (not less frequently than monthly) in which the
Master Servicer shall set forth such information as is customarily reported
to such borrowers under a servicing agreement or as is otherwise reasonably
requested by the Trustee; and
3.2.1.5.5. the maintenance of records concerning the
status of all of the Consumer Receivables.
3.2.1.6. take such other action as may be necessary or appropriate to
carry out the duties and obligations imposed upon the Master Servicer
pursuant to the terms of this Section and of Section 4.4(a) of the Indenture
which is incorporated herein by reference.
3.2.2. Deposit of Misdirected Funds; No Commingling. The Master Servicer
shall promptly remit, or cause to be remitted, to the Lock Box Bank for
deposit in the Lock Box Account on the Business Day immediately following
receipt thereof by the Master Servicer and in the form received all payments
received by the Master Servicer in respect of the Loans or Consumer
Receivables incorrectly sent to the Master Servicer by, or on behalf of, a
Hypothecation Borrower or Consumer, respectively. The Master Servicer shall
not commingle with its own assets and shall keep separate, segregated and
appropriately marked and identified all Loans, Loan Collateral or any
property comprising any part of the Trust Estate, and for such time, if any,
as such Loans, Loan Collateral or property are in the possession or control
of the Master Servicer, the Master Servicer shall hold the same in trust for
the benefit of the Trustee, the Noteholders (or, following termination of the
Indenture, the Issuer).
SECTION 3.3. Records.
The Master Servicer shall retain (or cause to be retained, at the
principal servicing offices of the Sub-Servicers) all data (including,
without limitation, computerized records) relating directly to or maintained
in connection with the servicing of the Loans and Loan Collateral, and shall
give the Trustee access to all data at all reasonable times upon reasonable
notice, and, while an Event of Default shall be continuing, the Master
Servicer shall, on demand of the Trustee, immediately deliver to the Trustee
(or, at the Trustee's written instruction, to the Successor Master Servicer)
all data (including, without limitation, computerized records) necessary for
the servicing of the Loans and Loan Collateral. If the rights of the Master
Servicer shall have been terminated in accordance with Section 5.1 or if this
Agreement shall have been terminated pursuant to Section 6.1(b), the Master
Servicer shall, upon demand of the Trustee or of the successor to the rights
of the Issuer, in the case of Section 6.1(b), deliver (or cause to be
delivered) to the Trustee all data (including, without limitation,
computerized records) necessary for the servicing of the Loans and Loan
Collateral. In addition to delivering such data, the Master Servicer shall,
at its expense (or at the expense of the Issuer's successor in the event of
termination under Section 6.1(b)), use its best efforts to effect the orderly
and efficient transfer of the servicing of the Loans and Loan Collateral with
respect to which such termination shall have occurred to the party which will
be assuming responsibility for such servicing, including, without limitation,
directing Hypothecation Borrowers and Consumers to remit scheduled payments
and all other payments in respect of the Loans and Consumer Receivables to an
account or address designated by, with the consent of the Trustee or such new
servicer. Upon request of the Trustee while an Event of Default shall be
continuing, the Master Servicer also shall send (or cause to be sent) to the
Trustee copies of all invoices, statements or other directions with respect
to payments that are sent to the Hypothecation Borrowers and Consumers. The
provisions of this paragraph shall not require the Master Servicer to
transfer any proprietary material or computer programs unrelated to the
servicing of the Loans and Loan Collateral.
SECTION 3.4. No Offset.
Prior to the termination of this Agreement, the obligations of the Master
Servicer under this Agreement shall not be subject to, and the Master
Servicer hereby waives, any defense, counterclaim or right of offset which
the Master Servicer has or may have against the Issuer or the Trustee,
whether in respect of this Agreement, any Loan or otherwise.
SECTION 3.5. Servicing Compensation; Reimbursement for Advances.
As compensation for the performance of its obligations under this
Agreement, the Master Servicer shall be entitled to receive the Servicing Fee
from the Issuer on each Payment Date out of amounts released by the Trustee
from the Payment Account on such Payment Date pursuant to Section 5.2(c) of
the Indenture. The Servicing Fee shall include amounts in respect of funds
advanced by the Master Servicer in respect of the Loans (whether for
maintaining insurance, protecting or maintaining collateral, or otherwise),
if any. In addition, the Master Servicer shall be entitled to reimbursements
for advances made by the Master Servicer from recoveries. Such reimbursements
from recoveries may be made by the Master Servicer netting the unreimbursed
advanced amount from recoveries or by remittance from the Trustee in respect
of recoveries received by the Trustee.
SECTION 2.6. Sub-Servicing Agreements.
The Master Servicer may engage Sub-Servicers to perform some or all of the
Master Servicer's responsibilities under this Agreement, subject to the
following terms and conditions:
3.5.1. On or prior to the Closing Date, the Master Servicer shall enter
into one or more subservicing agreements (each a "Sub-Servicing Agreement")
with one or more Sub-Servicers, and the Master Servicer shall not amend,
supplement or terminate the Sub-Servicing Agreement, or agree to any
assignment of any rights or obligations thereunder by the Sub-Servicer, or
terminate the Sub-Servicer, without the consent of the Holders of Notes
representing at least 51% of the aggregate outstanding principal amount of
the Notes.
4. If the Sub-Servicing Agreement with a Sub-Servicer is terminated,
the Master Servicer may enter into one or more Sub-Servicing Agreements with
another Sub-Servicer reasonably acceptable to the Holders of Notes
representing at least 51% or the aggregate outstanding principal amount of
the Notes and the Issuer to assist the Master Servicer in the performance of
its duties under this Agreement.
4.0.1. The Master Servicer shall be entitled to terminate any
Sub-Servicing Agreement that may exist in accordance with the terms and
conditions of such Sub-Servicing Agreement; provided, however, that in
the event of the termination of any Sub-Servicing Agreement by the
Master Servicer or the related Sub-Servicer, the Master Servicer shall
either act directly as servicer in accordance with its duties hereunder
or shall enter into a Sub-Servicing Agreement with a successor Sub-Servicer.
5. References in this Agreement to actions taken or to be taken by the
Master Servicer in servicing the Loans and Loan Collateral include actions
taken or to be taken by a Sub-Servicer on behalf of the Master Servicer.
Notwithstanding any Sub-Servicing Agreement, or any of the provisions of this
Agreement relating to agreements or arrangements between the Master Servicer
and a Sub-Servicer, the Master Servicer shall remain obligated and liable for
the servicing and administering of the Loans and Loan Collateral in
accordance with the provisions of this Agreement without diminution of such
obligation or liability by virtue of such Sub-Servicing Agreement and to the
same extent and under the same terms and conditions as if the Master Servicer
alone were servicing and administering the Loans and Loan Collateral. Any
funds received by any Sub-Servicer shall be deemed to be received by the
Master Servicer.
ARTICLE 6.
STATEMENTS AND REPORTS
SECTION 6.1. Reporting by the Master Servicer.
7. Not later than 11:00 am on the third Business Day preceding each
Payment Date, the Master Servicer shall transmit to the Issuer and the
Trustee and upon receipt the Trustee shall forward to the Noteholders a
certificate (the "Master Servicer's Certificate") setting forth the
information in respect of the Loans set forth in Exhibit A hereto.
ARTICLE 8.
THE MASTER SERVICER
SECTION 8.1. Representations and Warranties Concerning
the Master Servicer.
The Master Servicer represents and warrants, effective as of the Closing
Date, as follows:
8.1.0.0.0.0.1. The Master Servicer 8.1.0.0.0.0.1. has been duly
organized and is validly existing and in good standing under the laws of the
state of its formation and organization, 8.1.0.0.0.0.1. has qualified to do
business and is in good standing in each jurisdiction where the character of
its properties or the nature of its activities makes such qualification
necessary and where failure to so qualify would have a material and adverse
effect on its ability to perform its obligations hereunder, and
8.1.0.0.0.0.1. has full power, authority and legal right to own its
property, to carry on its business as presently conducted, and to enter into
and perform its obligations under this Agreement.
8.1.1. The execution and delivery by the Master Servicer of this
Agreement are within the power of the Master Servicer and have been duly
authorized by all necessary action on the part of the Master Servicer.
Neither the execution and delivery of this Agreement, nor the consummation of
the transactions herein contemplated, nor compliance with the provisions
hereof, will conflict with or result in a breach of, or constitute a default
under, any of the provisions of any law, governmental rule, regulation,
judgment, decree or order binding on the Master Servicer or its properties or
the charter or bylaws or other organizational documents and agreements of the
Master Servicer, or any of the provisions of any indenture, mortgage,
contract or other instrument to which the Master Servicer is a party or by
which it is bound or result in the creation or imposition of any lien, charge
or encumbrance upon any of its property pursuant to the terms of any such
indenture, mortgage, contract or other instrument.
8.1.2. The Master Servicer is not required to obtain the consent
of any other party or consent, license, approval or authorization, or
registration or declaration with, any governmental authority, bureau or
agency in connection with the execution, delivery, performance by the Master
Servicer of this Agreement, or validity or enforceability of this Agreement
against the Master Servicer.
8.1.3. This Agreement has been duly executed and delivered by the
Master Servicer and constitutes a legal, valid and binding instrument
enforceable against the Master Servicer in accordance with its terms (subject
to applicable bankruptcy laws and to general principles of equity).
8.1.4. There are no actions, suits or proceedings pending or, to
the knowledge of the Master Servicer, threatened against or affecting the
Master Servicer, before or by any court, administrative agency, arbitrator or
governmental body with respect to any of the transactions contemplated by
this Agreement or the Indenture, or which will, if determined adversely to
the Master Servicer, materially and adversely affect it or its business,
assets, operations or condition, financial or otherwise, or adversely affect
the Master Servicer's ability to perform its obligations under this
Agreement. The Master Servicer is not in default with respect to any order of
any court, administrative agency, arbitrator or governmental body so as to
materially and adversely affect the transactions contemplated by the
above-mentioned documents.
8.1.5. The Master Servicer has obtained or made all necessary
licenses, registrations, consents, approvals, waivers and notifications of
creditors, lessors and other persons, in each case, in connection with the
execution and delivery of this Agreement by the Master Servicer, and the
consummation by the Master Servicer of all the transactions herein
contemplated to be consummated by the Master Servicer and the performance of
its obligations hereunder.
9. The Master Servicer is not in default under any
agreement, contract, instrument or indenture to which the Master Servicer is
a party or by which it or its properties is or are bound, or with respect to
any order of any court, administrative agency, arbitrator or governmental
body, which would have a material adverse effect on the transactions
contemplated hereunder; and no event has occurred which with notice or lapse
of time or both would constitute such a material default with respect to any
such agreement, contract, instrument or indenture, or with respect to any
such order of any court, administrative agency, arbitrator or governmental
body.
9.0.1. The collection and servicing practices used by the Master
Servicer with respect to each Loan and related Loan Collateral shall be
consistent in all material respects with those customarily employed by the
Master Servicer servicing loans which are owned by the Master Servicer.
9.0.2. The Master Servicer (i) shall not extend or shorten,
amend or otherwise modify the terms of any Loan, or amend, modify or waive
any term or condition of any Loan Collateral related thereto, in any manner
which would have a material adverse effect on the interests of the
Noteholders or the Issuer, including, but not limited to, extending or
shortening the due date, or impairing the collectibility of such Loan and
(ii) shall not take any action that could reasonably be expected to have a
material adverse effect on (x) the collectibility of the Loans taken as a
whole or (y) the realization on the related Loan Collateral, taken as a
whole, or (z) the ability of the Master Servicer to perform its obligations
hereunder, in each case without obtaining the prior written consent of the
Trustee, the Purchaser and the Issuer.
SECTION 9.1. Existence; Status as the Master Servicer
The Master Servicer shall keep in full effect its existence, rights and
franchises under the laws of the state of its formation and organization, and
will obtain and preserve its qualification to do business in each
jurisdiction in which such qualification is or shall be necessary to protect
the validity and enforceability of the Loans and Loan Collateral, the
Indenture and this Agreement or to perform its obligations hereunder.
SECTION 9.2. Performance of Obligations.
9.2.1. Timely Performance. The Master Servicer shall punctually
perform and observe all of its obligations and agreements contained in
this Agreement in accordance with the terms hereof.
9.2.2. Prohibited Actions. The Master Servicer shall not take any action,
or permit any action to be taken by others, which would excuse any person
from any of its covenants or obligations under any of the Loans or Loan
Collateral or under any other instrument included in the Trust Estate, or
which would result in the amendment, hypothecation, subordination,
termination or discharge of, or impair the validity, enforceability or
effectiveness of, any of the Loans or Loan Collateral, except as expressly
provided herein and therein or as contemplated by the Indenture.
9.2.3. Limitations of Responsibility of the Master Servicer. The Master
Servicer will have no responsibility under this Agreement other than to
render the services called for hereunder in good faith. The Master Servicer,
its affiliates, its directors, officers, shareholders and employees will not
be liable to the Issuer, the Trustee, the Noteholders or others, except by
reason of acts constituting bad faith, willful misfeasance, negligence or
reckless disregard of its duties.
9.2.4. Right to Receive Instructions. In the event that the Master
Servicer is unable to decide between alternative courses of action, or is
unsure as to the application of any provision of this Agreement, or such
provision is ambiguous as to its application, or is, or appears to be, in
conflict with any other applicable provision, or in the event that this
Agreement permits any determination by the Master Servicer or is silent or
is incomplete as to the course of action which the Master Servicer is
required to take with respect to a particular set of facts, the Master
Servicer may give notice (in such form as shall be appropriate under the
circumstances) to the Trustee requesting instructions in accordance with
the Indenture and, to the extent that the Master Servicer shall have acted
or refrained from acting in good faith in accordance with any such
instructions received from the Trustee, the Master Servicer shall not be
liable on account of such action or inaction to any Person. Subject to the
Servicing Standard set forth in Section 2.1(a), if the Master Servicer shall
not have received appropriate instructions within ten days of such notice
(or within such shorter period of time as may be specified in such notice)
the Master Servicer may, but shall be under no duty to, take or refrain from
taking such action, not inconsistent with this Agreement, as the Master
Servicer shall deem to be in the best interests of the Trustee and the
Issuer, and the Master Servicer shall have no liability to any Person for
such action or inaction except for the Master Servicer's own willful
misconduct or negligence.
9.2.5. No Duties Except as Specified in this Agreement or in Instructions.
Except as expressly provided by the terms of this Agreement, the Master
Servicer shall not have any duty or obligation to manage, make any payment in
respect of, register, record, sell, reinvest, dispose of, create, perfect or
maintain title or any security interest in, or otherwise deal with the Trust
Estate, to prepare or file any report or other document, or to otherwise take
or refrain from taking any action under, or in connection with, any document
contemplated hereby to which the Master Servicer is a party. The Master
Servicer nevertheless agrees that it will, at its own cost and expense,
promptly take all action as may be necessary to discharge any asserted liens
on any part of the Trust Estate which result from asserted claims against the
Master Servicer personally that are not related to the ownership or the
administration of the Trust Estate or the transactions contemplated by the
Indenture.
9.2.5.1. No Action Except Under Specified Documents or Instructions. The
Master Servicer shall not manage, control, use, sell, reinvest, dispose of or
otherwise deal with any part of the Trust Estate except 9.2.5.1. in
accordance with the powers granted to and the authority conferred upon the
Master Servicer pursuant to this Agreement, or 9.2.5.1. in accordance with
instructions delivered to the Master Servicer pursuant hereto.
9.2.6. Limitations on the Master Servicer Liability. Subject to the
Servicing Standards set forth in Section 2.1(a), and except for the Master
Servicer's own willful misconduct or negligence, the Master Servicer shall
not be personally liable under any circumstances, including, without
limitation:
9.2.6.1. for any action taken or omitted to be taken by
the Master Servicer in good faith in accordance with the instructions of
the Trustee made in accordance herewith;
9.2.6.2. for any representation, warranty, covenant,
agreement or indebtedness of the Trust under the Notes, or for any other
liability or obligation of the Trust;
9.2.6.3. for or in respect of the validity or sufficiency of this
Agreement or for the due execution hereof by any party hereto other than the
Master Servicer, or for the form, character, genuineness, sufficiency, value
or validity of any part of the Trust Estate, including but not limited to the
Loans and Loan Collateral; and
9.2.6.4. for any action or inaction of the Trustee, and
the Master Servicer shall not be responsible for performing or
supervising the performance of any obligation under this Agreement or the
Indenture that is required to be performed by the Trustee.
9.2.7. Limitation on Expenditure of Personal Funds. No provision of
this Agreement (other than Section 2.1(d) and paragraph (e) above) shall
require the Master Servicer to expend or risk its personal funds or otherwise
incur any financial liability in the performance of any of its rights or
powers hereunder, if the Master Servicer shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such
risk or liability is not reasonably assured or provided to it.
9.0.6. Furnishing of Documents. The Master Servicer shall furnish to
the Trustee, promptly upon receipt thereof, duplicates or copies of all
material reports, notices, requests, demands, certificates, financial
statements and any other instruments furnished to the Master Servicer
hereunder.
10. Reliance; Advice of Counsel. In performing its duties hereunder
the Master Servicer may conclusively rely on and shall be protected in acting
or refraining from acting when doing so, in each case in accordance with any
signature, instrument, notice, resolution, request, consent, order,
certificate, report, opinion, bond or other document or paper believed by it
to be genuine and believed by it to be signed by the proper party or parties.
The Master Servicer may accept a certified copy of a resolution of the board
of directors or other governing body of any corporate party as conclusive
evidence that such resolution has been duly adopted by such body and that the
same is in full force and effect. As to any fact or matter the manner or
ascertainment of which is not specifically prescribed herein, the Master
Servicer may for all purposes hereof rely on a certificate, signed by the
president or any vice president or by the treasurer or any assistant
treasurer or the secretary or any assistant secretary of the relevant party,
as to such fact or matter, and such certificate shall constitute full
protection to the Master Servicer for any action taken or omitted to be taken
by it in good faith in reliance thereon without specific knowledge to the
contrary.
10.0.1. Reliance on Third Parties. Subject to the Servicing Standard,
in the exercise and performance of its duties and obligations under this
Agreement, the Master Servicer may, at the expense of the Master Servicer,
consult with counsel, accountants and other skilled persons to be selected
with reasonable care and employed by it, and the Master Servicer shall not be
liable for anything done, suffered or omitted in good faith by it in
accordance with the advice or opinion of any such counsel, accountants or
other skilled persons.
10.0.2. Independent Contractor. In performing its obligations as
servicer hereunder the Master Servicer acts solely as an independent
contractor of the Issuer and Trustee. Nothing in this Agreement shall, or
shall be deemed to, create or constitute any joint venture, partnership
employment, or any other relationship between the Issuer and the Trustee on
the one hand and the Master Servicer on the other hand, other than the
independent contractor contractual relationship established hereby. The
Master Servicer shall not be and shall not be deemed to be liable for any
acts or obligations of the Issuer or the Trustee, and, without limiting the
foregoing, the Master Servicer shall not be liable under or in connection
with the Notes and all Persons having any claim under or in respect of this
Agreement or the Indenture shall look only to the Trust Estate for payment or
satisfaction thereof.
SECTION 10.1. Merger; Resignation and Assignment.
10.1.1. The Master Servicer may not merge into any corporation or convey,
transfer or lease substantially all of its assets as an entity, unless and
until the Master Servicer's successor or a new servicer is approved in
writing by the Issuer and the Holders of Notes representing at least 51% of
the aggregate outstanding principal amount of the Notes and is willing to
service the Loans and Loan Collateral and enter into a servicing agreement
with the Issuer and the Trustee in form and substance reasonably satisfactory
to such parties.
10.1.2. Except as provided in Section 2.6 hereinabove with respect to
Sub-Servicers, the Master Servicer may not assign this Agreement or any of
its rights, powers, duties or obligations hereunder.
10.1.3. Except as provided in Sections 4.4(a) and (b), the duties and
obligations of the Master Servicer under this Agreement shall continue until
this Agreement shall have been terminated as provided in Section 6.1, and
shall survive the exercise by the Issuer or the Trustee of any right or
remedy under this Agreement, or the enforcement by the Issuer, the Trustee,
or any Noteholder of any provision of the Indenture, the Notes or this
Agreement.
SECTION 10.2. Indemnities.
10.2.1. The Master Servicer shall indemnify and hold harmless the Trustee
and the Noteholders from and against any losses, damages, claims or
liabilities arising out of the Master Servicer's breach of this Agreement.
10.2.2. The Master Servicer agrees to indemnify the Trustee for, and to
hold the Trustee harmless against, any loss, liability or expense incurred
without negligence or bad faith on its part, arising out of or in connection
with the acceptance or administration of the trust created by the Indenture
(other than taxes, penalties or other liabilities arising in connection with
the Trustee's failure to withhold from payments with respect to the Notes
amounts required to be withheld under the Code, or the Trustee's withholding
from such payments amounts not required or permitted to be withheld under the
Code), including the reasonable costs and expenses, including reasonable
attorneys' fees, of defending themselves against any claim or liability in
connection with the exercise or performance of any of their powers or duties
under the Indenture provided that:
10.2.2.0.0.0.1 with respect to any such claim, the Trustee shall have
given the Master Servicer written notice thereof promptly after the Trustee
shall have knowledge thereof, provided, however, that the failure of the
Trustee to so notify the Master Servicer shall not relieve the Master
Servicer of its obligations pursuant to this subparagraph;
10.2.2.0.0.0.2. the Master Servicer shall assume the defense of any such
claim, provided that if the Master Servicer shall not have employed counsel
reasonably satisfactory to the Trustee to direct the defense of such claim
within a reasonable time after such notice of the claim pursuant to paragraph
(i) above, the Trustee shall have the right to direct the defense of such
claim;
10.2.2.0.0.0.3. the Trustee shall have the right to employ separate
counsel with respect to any claim and to participate in the defense thereof,
but the fees and expenses of such counsel shall be at the expense of the
Trustee unless the payment of such counsel has been specifically authorized
by the Master Servicer; provided further, however, that if the Trustee shall
assume the defense of any claim as a result of the Master Servicer's failure
to assume the defense of such claim as described in paragraph (ii) above, the
Master Servicer shall pay the reasonable fees and expenses of Trustee's
counsel in connection with the defense of such claim; and
10.2.2.0.0.0.4. notwithstanding anything to the contrary in this Section
4.5(b), the Master Servicer shall not be liable for settlement of any such
claim by the Trustee entered into without the prior consent of the Master
Servicer.
11. The Provisions of Section 4.5(a) and (b) shall
survive the termination of this Agreement and the Indenture.
ARTICLE 12.
DEFAULT
SECTION 12.1. Events of Default
12.1.1. Any of the following acts or occurrences shall constitute an Event
of Default by the Master Servicer under this Agreement:
12.1.1.0.0.0.1. any failure by the Master Servicer to remit
any payments received by it in respect of the Loans or Loan Collateral to the
Lock Box Bank in accordance with any provision hereof within two (2) Business
Days after receipt thereof; or
12.1.1.0.0.0.2. the Trustee shall not have received a report
in accordance with Section 3.1(a) of the Indenture within two (2) Business
Days of the date required to be delivered or the Master Servicer shall have
defaulted in the due observance of any provision of Section 4.2 or Section
4.4 hereof and such default shall have continued for five (5) Business Days
after it has obtained knowledge of, or has been notified by the Trustee of
such default; or
12.1.1.0.0.0.3. the Master Servicer shall default in the due
performance and observance of any other provision of this Agreement and such
default shall have continued for a period of 30 days after it has obtained
knowledge of, or has been notified by the Trustee of such default; or
12.1.1.0.0.0.4. any representation, warranty or statement of
the Master Servicer made in this Agreement or by the Master Servicer in its
capacity as servicer in any certificate, report or other writing delivered
pursuant hereto shall prove to be incorrect in any material respect as of the
time when the same shall have been made; or
12.1.1.0.0.0.5. the Master Servicer makes an assignment
for the benefit of creditors or is generally not paying its debts as such
debts become due; or
12.1.1.0.0.0.6. the Master Servicer petitions or applies to
any tribunal for, or consents to, the appointment of, or taking possession
by, a trustee, receiver, custodian, liquidator or similar official of the
Master Servicer, or of any substantial part of the assets of the Master
Servicer, or commences a voluntary case under the bankruptcy law of the
United States or any proceedings relating to the Master Servicer, under the
bankruptcy law of any other jurisdiction; or
12.1.1.0.0.0.7. any such petition or application is filed, or
any such proceedings are commenced, against the Master Servicer and the
Master Servicer by any act indicates its approval thereof, consent thereto or
acquiescence therein, or any order, judgment or decree is entered appointing
any such trustee, receiver, custodian, liquidator or similar official, or
approving the petition in any such proceedings and such order, judgment or
decree remains unstayed and in effect for more than 45 days; or
12.1.1.0.0.0.8. any order, judgment or decree is entered in
any proceedings against the Master Servicer decreeing the dissolution of the
Master Servicer and such order, judgment or decree remains unstayed and in
effect for more than 60 days; or
12.1.1.0.0.0.9. a final judgment for an amount in excess of
$500,000 (exclusive of any portion thereof which is insured) is rendered
against the Master Servicer, and within 60 days after the entry thereof, such
judgment is not discharged or the execution thereof is stayed pending appeal,
or within 60 days after the expiration of any such stay, such judgment is not
discharged.
12.1.2. Upon the occurrence and continuance of an Event of
Default specified in clause (v) or (vi) above, all of the rights and powers
of the Master Servicer under this Agreement shall automatically terminate,
including without limitation all rights of the Master Servicer to receive
from and after such termination the servicing compensation provided for in
Section 2.5, or any compensation or expense reimbursement hereunder, other
than to the extent accrued prior to such termination and not previously paid.
Upon the occurrence and continuance of any other Event of Default, the Issuer
upon direction of the Holders representing at least 51% of the aggregate
outstanding principal amount of the Notes may, by notice given to the Master
Servicer (with copies to the Issuer and the Trustee), terminate all of the
rights and powers of the Master Servicer under this Agreement, including
without limitation all rights of the Master Servicer to receive the servicing
compensation provided for in Section 2.5. Upon any automatic termination or
the giving of the notice referred to in the preceding sentence, all rights,
powers, duties and responsibilities of the Master Servicer under this
Agreement, whether with respect to the related Loans and Loan Collateral,
Payment Account, any Servicing Fee or otherwise shall vest in and be assumed
by a new servicer as provided in Section 4.4(c) of the Indenture. From and
during the continuation of an Event of Default, the Issuer upon the direction
of the Holders representing at least 51% of the aggregate outstanding
principal amount of the Notes (without regard to any Notes owned by the
Master Servicer or any of its Affiliates), are each hereby irrevocably
authorized and empowered to execute and deliver, on behalf of the Master
Servicer, as attorney-in-fact or otherwise, all documents and other
instruments (including any notices to Hypothecation Borrowers and Consumers
deemed necessary or advisable by the Holders representing at least 51% of the
aggregate outstanding principal amount of the Notes (without regard to any
Notes owned by the Master Servicer or any of its Affiliates)), and to do or
accomplish all other acts or things necessary or appropriate to effect such
vesting and assumption. Except as otherwise expressly provided in the
Indenture, the Issuer shall not have any right to waive any Event of Default
by the Master Servicer under this Agreement.
12.1.3. Promptly after the Trustee shall have notice of the
occurrence of any Event of Default, the Trustee shall transmit by mail to all
Noteholders notice of such Event of Default known to the Trustee.
SECTION 12.2. No Effect on Other Parties.
Upon any termination of the rights and powers of the Master Servicer from
time to time pursuant to Section 5.1 or upon any appointment of a successor
to the Master Servicer, all the rights, powers, duties and obligations of the
Issuer or the Trustee under this Agreement or under the Indenture shall
remain unaffected by such termination or appointment and shall remain in full
force and effect thereafter, except as otherwise expressly provided in this
Agreement or in the Indenture.
SECTION 12.3. Rights Cumulative.
All rights and remedies from time to time conferred upon or reserved to
the Issuer, the Trustee, or the Noteholders or to any or all of the foregoing
are cumulative, and none is intended to be exclusive of another or any right
or remedy which they may have at law or in equity. No delay or omission in
insisting upon the strict observance or performance of any provision of this
Agreement, or in exercising any right or remedy, shall be construed as a
waiver or relinquishment of such provision, nor shall it impair such right or
remedy. Every right and remedy may be exercised from time to time and as
often as deemed expedient.
ARTICLE 13.
MISCELLANEOUS PROVISIONS
SECTION 13.1. Termination of Agreement.
13.1.0.0.0.0.1. The respective duties and obligations of the Master
Servicer and the Issuer created by this Agreement shall terminate upon the
latest to occur of 13.1.0.0.0.0.1. the final payment or other liquidation of
the last outstanding Loan included in the Trust Estate, 13.1.0.0.0.0.1. the
satisfaction and discharge of the Indenture pursuant to Article VIII of the
Indenture, and 13.1.0.0.0.0.1. with respect to any Loan, the disposition of
all property acquired upon foreclosure of any Loan Collateral. Upon
termination of this Agreement pursuant to this Section 6.1(a), the Master
Servicer shall pay over to the Issuer or any other Person entitled thereto
all monies received from the Hypothecation Borrowers and Consumers and held
by the Servicer.
13.1.1. Following an Event of Default under the Indenture, the
successor to the rights of the Issuer in respect of the Loans and Loan
Collateral (including, without limitation, the Trustee or any or all of the
related Noteholders) shall have the right to terminate this Agreement, by
notice to the Master Servicer and the Issuer. Upon such termination, the
Master Servicer shall be entitled to receive only the accrued and unpaid
servicing compensation provided for in Section 2.5 to the date of such
termination and any other reimbursement to which it would otherwise be
entitled of amounts theretofore advanced by it.
SECTION 13.2. Amendment.
13.2.0.0.0.0.1. This Agreement may only be amended from time to time by
the Issuer, the Servicer and the Trustee, with the consent of the Holders
representing at least 51% of the aggregate outstanding principal amount of
the Notes (without giving regard to any Notes owned by the Master Servicer or
its Affiliates) for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Agreement, provided,
however, that no such amendment shall, without consent of each Noteholder,
13.2.0.0.0.0.1 reduce in any manner the amount of, or the timing of,
payments received on the related Loans which are required to be deposited in
the Payment Account; 13.2.0.0.0.0.1. alter the priorities with which any
allocation of funds shall be made under this Agreement; 13.2.0.0.0.0.1.
permit the creation of any lien (other than the lien or permitted by the
Indenture) on the Trust Estate for the Notes or any portion thereof or
deprive any such Holder of the benefit of this Agreement with respect to the
Trust Estate or any portion thereof; or 13.2.0.0.0.0.1. modify this Section
6.2 or Section 4.2, 4.3(b) or 4.4.
13.2.1. Promptly after the execution of any amendment, the Master
Servicer shall send to the Trustee a conformed copy of each such amendment,
but the failure to do so will not impair or affect its validity. Promptly
after the execution of any amendment pursuant to Section 6.2(a) the Issuer
shall cause to be sent to each Noteholder a copy of such amendment. Any
failure to do so shall not affect the validity of such amendment.
13.2.2. It shall not be necessary, in any consent of Noteholders
under this Section 6.2, to approve the particular form of any proposed
amendment, but it shall be sufficient if such consent shall approve the
substance thereof. The manner of obtaining such consents and of evidencing
the authorization of the execution thereof by Noteholders shall be subject to
such reasonable regulations as the Trustee may prescribe.
13.2.3. Any amendment or modification effected contrary to
the provisions of this Section 6.2 shall be void.
SECTION 13.3. Governing Law.
This Agreement shall be construed in accordance with and governed by the
laws of the State of New York, without regard to the conflict of law
provisions thereof.
SECTION 13.4. Notices.
All notices, requests or other communications desired or required to be
given under this Agreement shall be in writing and shall be sent by 13.5.
certified or registered mail, return receipt requested, postage prepaid,
13.6. national prepaid overnight delivery service, 13.7. telecopy or other
facsimile transmission (following with hard copies to be sent by national
prepaid overnight delivery service) or 13.8. personal delivery with receipt
acknowledged in writing, as follows: (i) if to the Issuer, c/o Litchfield
Financial Corporation, 789 Main Road, Stamford, Vermont 05352, Attention:
President, (ii) if to the Master Servicer, to the Master Servicer at
Litchfield Financial Corporation, 789 Main Road, Stamford, Vermont 05352,
Attention: President, (iii) if to the Trustee, at 450 West 33rd Street, New
York, New York 10001, Attention: Global Trust Services, Structured Finance
Services. Any of the persons in subclauses (i) through (iii) above may change
its address for notices hereunder by giving notice of such change to the
other persons. Any change of address shown on a Note Register shall, after
the date of such change, be effective to change the address for such
Noteholder hereunder. All notices and demands shall be deemed to have been
given either at the time of the delivery thereof to any officer of the Person
entitled to receive such notices and demands at the address of such person
for notices hereunder, or on the third day after the mailing thereof to such
address, as the case may be.
SECTION 13.5. Severability of Provisions.
If one or more of the provisions of this Agreement shall be for any reason
whatever held invalid or unenforceable, such provisions shall be deemed
severable from the remaining covenants, agreements and provisions of this
Agreement and such invalidity or unenforceability shall in no way affect the
validity or enforceability of such remaining provisions, the rights of any
parties hereto, or the rights of the Trustee or any Noteholders. To the
extent permitted by law, the parties hereto waive any provision of law which
renders any provision of this Agreement invalid or unenforceable in any
respect.
SECTION 13.6. Binding Effect; Limited Rights of Others.
The provisions of this Agreement shall be binding upon and inure to the
benefit of the respective successors and assigns of the parties hereto, and
all such provisions shall inure to the benefit of the Trustee and the related
Noteholders, provided that following an Event of Default under the Indenture
and foreclosure of the Trust Estate pursuant thereto, the successor to the
rights of the Issuer in respect of the related Loans and Loan Collateral
(including without limitation the Trustee or any or all of the related
Noteholders) shall not be bound by the provisions of this Agreement unless,
within 90 days after the date on which such successor shall have succeeded to
such rights of the Issuer, such successor shall not have terminated this
Agreement pursuant to Section 6.1(b). Nothing in this Agreement expressed or
implied, shall be construed to give any Person other than the parties hereto
any legal or equitable right, remedy or claim under or in respect of this
Agreement or any covenants, agreements, representations or provisions
contained herein.
SECTION 13.7. Article and Section Headings.
The article and section headings herein are for convenience of reference
only, and shall not limit or otherwise affect the meaning hereof.
SECTION 13.8. Counterparts.
This Agreement may be executed in several counterparts, each of which
shall be an original and all of which shall constitute but one and the same
instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as of
the day and year first above written.
LITCHFIELD HYPOTHECATION CORP. 1997-B
By:
By:
LITCHFIELD FINANCIAL CORPORATION
By:
Name:
Title:
THE CHASE MANHATTAN BANK, as Trustee
By:
Name:
Title:
<PAGE>
Exhibit 10.164
AMENDMENT NO. 4
Dated as of November 7, 1997
to
Receivables Purchase Agreement
Dated as of September 29, 1995
THIS AMENDMENT NO. 4 dated as of November 7, 1997 ("Amendment") is entered
into by and among LITCHFIELD MORTGAGE SECURITIES CORPORATION 1994, a Delaware
corporation (the "Seller"), LITCHFIELD FINANCIAL CORPORATION, a Massachusetts
corporation ("Litchfield"), HOLLAND LIMITED SECURITIZATION, INC., a Delaware
corporation ("HLS") and ING BARING (U.S.) CAPITAL MARKETS, INC. (formerly
known as Internationale Nederlanden (U.S.) Capital Markets, Inc.), as agent
(the "Agent"). Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to such terms in the "Agreement" referred to
below.
PRELIMINARY STATEMENT
A. The Seller, Litchfield, HLS and the Agent are parties to that
certain Receivables Purchase Agreement dated as of September 29, 1995 (as
amended from time to time prior to the date hereof, the "Agreement"),
pursuant to which HLS has agreed to purchase certain assets and to make other
financial accommodations to the Seller.
B. The Seller, Litchfield, HLS and the Agent have agreed to
amend the Agreement on the terms and subject to the conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises set forth above,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Seller, Litchfield, HLS and the Agent
agree as follows:
SECTION 1. Amendment of the Agreement. Effective as of the date
first above written, subject to the fulfillment of the conditions precedent
set forth in Section 2 below, the Agreement is hereby amended as follows:
1.1. The defined term "Purchase Limit" contained in Section 1.01 of
the Agreement is amended to delete the amount "$100,000,000" set forth
therein and to substitute "$125,000,000" therefor.
SECTION 2. Conditions Precedent. This Amendment shall become
effective and shall be deemed effective as of date first above written upon
the satisfaction of the following conditions precedent: (a) no event has
occurred and is continuing which constitutes an Event of Default or would
constitute an Event of Default but for the requirement that notice be given
or time elapse or both; and (b) the Agent shall have received (i) five (5)
copies of this Amendment duly executed by the Seller, Litchfield, HLS and the
Agent and(ii) written confirmation from each of S&P and Fitch that this
Amendment will not adversely affect the rating of the commercial paper notes
issued by HLS to fund the acquisition of "Purchased Assets" (as such quoted
terms are defined in the Agreement) to the Seller.
SECTION 3. Representations and Warranties of the Seller and
Litchfield.
3.1 Each of the Seller and Litchfield hereby represents and warrants
that this Amendment constitutes a legal, valid and binding obligation of the
such Person enforceable against it in accordance with its terms.
3.2 Upon the effectiveness of this Amendment, each of the Seller and
Litchfield reaffirms all covenants, representations and warranties made in
the Agreement by such Person to the extent the same are not amended hereby
and agrees that all such covenants, representations and warranties shall be
deemed to have been remade as of the effective date of this Amendment.
SECTION 4. Reference to and Effect on the Agreement.
4.1. Upon the effectiveness of this Amendment, each reference in the
Agreement to "this Agreement", "hereunder", "hereof", "herein", or words of
like import shall mean and be a reference to the Agreement as amended hereby,
and each reference to the Agreement in any other document, instrument or
agreement executed and/or delivered in reference to the Agreement as amended
hereby.
4.2. Except as specifically amended hereby, the Agreement and other
documents, instruments and agreements executed and/or delivered in connection
therewith shall remain in full force and effect and are hereby ratified and
confirmed.
4.3. The execution, delivery and effectiveness of this Amendment
shall not (a) operate as a waiver of any right, power or remedy of the Agent
or the Seller under the Agreement or any other document, instrument or
agreement executed in connection therewith, (b) constitute a waiver of any
provision contained therein, nor (c) be deemed to be a consent to any other
or further actions or occurrences, except as specifically set forth herein.
SECTION 5. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. Paragraph Headings. The paragraph headings contained in
this Amendment are and shall be without substance, meaning or content of any
kind whatsoever and are not a part of the agreement between the parties
hereto.
SECTION 7. Counterparts. This Amendment may be executed in one
or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute
one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
LITCHFIELD MORTGAGE SECURITIES CORPORATION 1994
By__/s/ John Francis Egan__________
Title: Vice President
LITCHFIELD FINANCIAL CORPORATION
By__/s/ John Francis Egan________
Title: Vice President
ING BARING (U.S.) CAPITAL MARKETS, INC.
By_________________________________
Title:
HOLLAND LIMITED SECURITIZATION, INC.
By ING BARING (U.S.) CAPITAL MARKETS, INC., as attorney-in-fact
By_________________________________
Title:
<PAGE>
Exhibit 10.165
AMENDMENT NO. 4
Dated as of November 7, 1997
to
Receivables Loan and Security Agreement
Dated as of September 29, 1995
THIS AMENDMENT NO. 4 dated as of November 7, 1997 ("Amendment") is
entered into by and among LITCHFIELD MORTGAGE SECURITIES CORPORATION 1994, a
Delaware corporation (the "Borrower"), LITCHFIELD FINANCIAL CORPORATION, a
Massachusetts corporation ("Litchfield"), HOLLAND LIMITED SECURITIZATION,
INC., a Delaware corporation ("HLS") and ING BARING (U.S.) CAPITAL MARKETS,
INC. (formerly known as Internationale Nederlanden (U.S.) Capital Markets,
Inc.), as agent (the "Agent"). Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to such terms in
the "Agreement" referred to below.
PRELIMINARY STATEMENT
A. The Borrower, Litchfield, HLS and the Agent are parties to that
certain Receivables Loan and Security Agreement dated as of September 29,
1995 (as amended from time to time prior to the date hereof, the
"Agreement"), pursuant to which HLS has agreed to make certain loans and
other financial accommodations to the Borrower.
B. The Borrower, Litchfield, HLS and the Agent have agreed to
amend the Agreement on the terms and subject to the conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises set forth above,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Borrower, Litchfield, HLS and the Agent
agree as follows:
SECTION 1. Amendment of the Agreement. Effective as of the date
first above written, subject to the fulfillment of the conditions precedent
set forth in Section 2 below, the Agreement is hereby amended as follows:
1.1. The defined term "Borrowing Limit" contained in Section 1.01 of
the Agreement is amended to delete the amount "$100,000,000" set forth
therein and to substitute "$125,000,000" therefor.
SECTION 2. Conditions Precedent. This Amendment shall become
effective and shall be deemed effective as of date first above written upon
the satisfaction of the following conditions precedent: (a) no event has
occurred and is continuing which constitutes an Event of Default or would
constitute an Event of Default but for the requirement that notice be given
or time elapse or both; and (b) the Agent shall have received (i) five (5)
copies of this Amendment duly executed by the Borrower, Litchfield, HLS and
the Agent and (ii) written confirmation from each of S&P and Fitch that this
Amendment will not adversely affect the rating of the commercial paper notes
issued by HLS to fund "Loans" secured by interests in "Pledged Assets" (as
such quoted terms are defined in the Agreement) to the Borrower.
SECTION 3. Representations and Warranties of the Borrower and
Litchfield.
3.1 Each of the Borrower and Litchfield hereby represents and
warrants that this Amendment constitutes a legal, valid and binding
obligation of the such Person enforceable against it in accordance with its
terms.
3.2 Upon the effectiveness of this Amendment, each of the Borrower
and Litchfield reaffirms all covenants, representations and warranties made
in the Agreement by such Person to the extent the same are not amended hereby
and agrees that all such covenants, representations and warranties shall be
deemed to have been remade as of the effective date of this Amendment.
SECTION 4. Reference to and Effect on the Agreement.
4.1. Upon the effectiveness of this Amendment, each reference in the
Agreement to "this Agreement", "hereunder", "hereof", "herein", or words of
like import shall mean and be a reference to the Agreement as amended hereby,
and each reference to the Agreement in any other document, instrument or
agreement executed and/or delivered in reference to the Agreement as amended
hereby.
4.2. Except as specifically amended hereby, the Agreement and other
documents, instruments and agreements executed and/or delivered in connection
therewith shall remain in full force and effect and are hereby ratified and
confirmed.
4.3. The execution, delivery and effectiveness of this Amendment
shall not (a) operate as a waiver of any right, power or remedy of the Agent
or the Borrower under the Agreement or any other document, instrument or
agreement executed in connection therewith, (b) constitute a waiver of any
provision contained therein, nor (c) be deemed to be a consent to any other
or further actions or occurrences, except as specifically set forth herein.
SECTION 5. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. Paragraph Headings. The paragraph headings contained in
this Amendment are and shall be without substance, meaning or content of any
kind whatsoever and are not a part of the agreement between the parties
hereto.
SECTION 7. Counterparts. This Amendment may be executed in one
or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute
one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
LITCHFIELD MORTGAGE SECURITIES CORPORATION 1994
By___/s/ John Francis Egan ________
Title: Vice President
LITCHFIELD FINANCIAL CORPORATION
By___/s/ John Francis Egan_________
Title: Vice President
ING BARING (U.S.) CAPITAL MARKETS, INC.
By_________________________________
Title:
HOLLAND LIMITED SECURITIZATION, INC.
By ING BARING (U.S.) CAPITAL MARKETS,
INC., as attorney-in-fact
By_________________________________
Title:
<PAGE>
Exhibit 10.166
EMPLOYMENT AGREEMENT
AGREEMENT entered into as of the 1st day of January, 1998, by and between
Litchfield Financial Corporation, a Massachusetts corporation (the
"Company"), and John J. Malloy, an individual residing in Ridgewood,
New Jersey (the "Executive").
WHEREAS, the Board of Directors determined that it is in the best interest
of the Company to execute and deliver this Employment Agreement;
NOW, THEREFORE, for good and valuable consideration , the receipt and
sufficiency of which are hereby acknowledged, the undersigned hereby enter
into this Employment Agreement as follows:
1. Nature of Employment; Term of Employment. The Company shall employ the
Executive as its Senior Vice President and the Executive shall serve the
Company in such capacity, upon the terms and conditions contained herein. The
Executive's employment shall commence on January 1, 1998, or such later date
on or before January 15, 1998, on which the Executive shall be available for
employment hereunder and shall continue until December 31, 2000. The term of
the Executive's employment hereunder, subject to termination as herein
provided, is referred to herein as the "Term." The Executive agrees to devote
his full working time and energy and best efforts to the business of the
Company and the performance of his duties hereunder during the Term; provided
that nothing herein shall preclude the Executive from (i) managing his
personal business affairs or (ii) in his individual capacity, providing legal
services for family members and acquaintances as long as the same does not
conflict with or interfere with his services hereunder. The Executive will be
employed at the Company's headquarters in the Williamstown, Massachusetts
area and the Company shall not relocate the Executive to a location more than
25 miles from Williamstown, Massachusetts.
2. Compensation. In consideration of the services rendered by the Executive
under this Agreement, the Company shall pay the Executive a base salary (the
"Base Salary") of (i) One Hundred Fifty Thousand Dollars ($150,000) per year
during the period from the date hereof through December 31, 1998, (ii) One
Hundred Fifty Five Thousand Dollars ($155,000) for 1999 and (iii) One Hundred
Sixty Thousand Dollars ($160,000) for 2000. In addition, the Executive shall
be entitled to receive a bonus (the "Bonus") upon the terms as set forth on
Schedule 1 hereto. The Executive's Base Salary and Bonus will be reviewed not
less than annually by the Company's Board of Directors, but in no event
reduced. The Executive's Base Salary will be paid in accordance with the
Company's normal payroll practice.
3. Fringe Benefits. During the Term and thereafter to the extent provided in
Section 5.6(c), the Executive shall be entitled to participate in such
employee benefit plans as are made available generally to key executive
employees of the Company, including but not limited to 401(k) plans, pension
plans, health benefits, life insurance and three (3) weeks paid vacation per
year.
4. Expenses. The Company shall reimburse the Executive for reasonable
expenses incurred in connection with its business affairs, subject to
guidelines approved by the Board of Directors and to the receipt of
appropriate documentation therefor. The foregoing shall include, but not be
limited to, reimbursement for bar or other professional association
qualification and membership dues, premiums for malpractice insurance and
professional continuing education relevant to the Executive's position at the
Company.
5. Termination.
5.1 Death. In the event of the death of the Executive during his employment
hereunder, his employment by the Company shall be deemed to terminate at the
end of the calendar month in which his death occurs.
5.2 Disability. In the event of the physical or mental disability of the
Executive for a period in excess of ninety (90) consecutive days as
determined by a qualified physician, such that the Executive is unable to
discharge his responsibilities hereunder, then the Board of Directors may
vote to terminate the Executive's employment effective as of the end of the
calendar month which includes the last day of such ninety (90) day period.
5.3 By the Executive for Cause. In the event the Company shall fail to make
any payment owed to the Executive under Section 2 hereof when due or pay any
expenses for which the Executive is entitled to reimbursement under Section 4
hereof, or breach any of the other material covenants of the Company
hereunder, and such non-payment, non-reimbursement or breach shall continue
for a period of twenty (20) days after the Executive gives written notice
hereof to the Company, the Executive shall be entitled to terminate this
Agreement on the expiration of such twenty (20) day period.
5.4 By the Executive Without Cause. The Executive may terminate his
employment at any time without cause upon 30 days' prior written notice
to the Company.
5.5 By the Company for Cause. The Company may terminate the Executive's
employment for "reasonable cause," by which phrase is meant only one or more
of the following:
(a) If the Executive has been convicted of, or pleads guilty or nolo
contendere to a felony, the Company may terminate the Executive's employment
immediately upon the occurrence of such conviction or plea.
(b) If the Executive shall commit any embezzlement against the Company, the
Company may terminate the Executive's employment at any time after the
commission of such act.
(c) If the Executive has (i) engaged in willful misconduct with respect to
the Company other than that covered by subparagraph (b), or (ii) grossly
neglected his duties to the Company, and after written notice of the same,
specifying in reasonable detail the alleged misconduct or neglect, the
Executive fails to cease such misconduct or neglect within a reasonable
period of time not exceeding thirty (30) days following the date of such
notice, the Company may terminate the Executive's employment at any time
after expiration of such thirty (30) day period; provided that the Company
has complied with the following terms and conditions:
(A) the Executive is provided with written notice of the
proposed termination;
(B) the Executive is given the opportunity to appear with his counsel,
and to present evidence and a defense to the alleged misconduct or neglect,
at a duly called and held meeting of the Board of Directors of the Company,
the purpose of which shall be to determine whether the Executive engaged in
such willful misconduct or grossly neglected his duties and should be
terminated; and
(C) if the Executive avails himself of the opportunity set forth in
clause (B), following such meeting not less than two-thirds of the members of
the Board of Directors determine that the Executive engaged in such willful
misconduct or grossly neglected his duties and should be terminated.
5.5A By the Company Without Cause. The Company may terminate the Executive's
employment other than for "reasonable cause" upon 60 days' prior written
notice to the Executive.
5.6 Rights and Obligations of the Executive and the Company upon
Termination.
(a) In the event the Executive's employment terminates pursuant to Section
5.1 or 5.2, the Company shall continue to make, until December 31, 2000,
payments at a rate equal to the Base Salary in effect on the date of death or
disability as the case may be. The Executive shall have no liability to the
Company as a result of a termination of employment pursuant to Sections 5.1
or 5.2 hereof. In the event of termination pursuant to Sections 5.1 or 5.2
the Executive shall also be entitled to receive a pro rata share of any bonus
which otherwise would have been payable with respect to the year in which
termination occurs, but shall not be entitled to any bonus for any subsequent
year.
(b) In the event of the Executive's employment terminates or is terminated
pursuant to Sections 5.4 or 5.5, all of the Executive's rights to receive
compensation under Section 2 (other than Base Salary for services rendered
prior to the date of termination and other amounts earned but unpaid) and
other benefits (excluding any benefits which by their terms have vested)
shall cease upon the date of termination. The Executive shall have no
liability to the Company as a result of a termination of employment pursuant
to Sections 5.3 or 5.4 hereof.
(c) If the Executive terminates his employment pursuant to Section 5.3, the
Company shall, until December 31, 2000, continue to pay and provide to the
Executive the Base Salary, Bonus and fringe benefits which the Executive
would otherwise have received under Sections 2 and 3 during that period. Such
payments and benefits shall be liquidated damages for termination of
employment, and the Executive shall not be entitled to receive any further
payment or benefit.
(d) If the Company terminates the Executive's employment pursuant to Section
5.5A, the Company shall, until December 31, 2000, continue to pay and provide
to the Executive the Base Salary, Bonus and fringe benefits which the
Executive would otherwise have received under Sections 2 and 3 during that
period, in addition to any other remedies available to the Executive pursuant
to applicable law. The Executive shall have no liability to the Company as a
result of a termination of employment pursuant to Section 5.5A hereof.
6. Restrictive Covenants. In consideration of his employment
hereunder, the Executive agrees that he will observe the following
covenants. For the purposes of this Section, the term "Company" shall
include any of the Company's current or future direct or indirect
subsidiaries.
6.1 Non-disclosure. The Executive acknowledges that the technology,
research, know-how, trade secrets, marketing techniques, business plan and
other confidential information used or to be used by the Company in pursuit
of its business (collectively, the "Proprietary Information") are of value to
the Company and provide the Company with substantial competitive advantage in
its business. By virtue of his relationship to the Company, the Executive has
knowledge of and will be given access to Proprietary Information. The
Executive agrees that he will not, during the Term or at any time thereafter,
directly or indirectly divulge, transmit or otherwise disclose or cause to be
divulged, other than in the ordinary course of his employment hereunder, any
Proprietary Information. Any Proprietary Information which comes into the
public domain through no fault of the Executive's shall cease to be
Proprietary Information for purposes of this Agreement.
6.2 Non-Competition.
(a) The Executive agrees that upon any termination of his employment
pursuant to Section 5.5, he will, during the Non-Competition Period (as
defined in Section 6.2(d)) observe the non-competition covenant set forth in
Section 6.2(c).
(b) The Executive agrees that upon any termination of his employment
pursuant to any one of Sections 5.2, or 5.4, or upon expiration of the Term
on December 31, 2000, he will, during the Non-Competition Period, observe the
non-competition convenant set forth in Section 6.2 (c) provided that within
thirty days after termination pursuant to Section 5.2 or 5.4, or in the event
of termination upon expiration of the Term, at least thirty days prior to
such expiration, the Company shall have given written notice to the Executive
of its election to require the Executive to be bound by the non-competition
covenant set forth in Section 6.2(c) in exchange for the payments to be made
pursuant to Section 6.2(e).
(c) If the Executive is required under Section 6.2 (a) or (b) to observe a
non-competition covenant, he shall not engage in any business or render
services to any business in the United States, as an officer, director,
employee, agent, stockholder (excluding ownership of not more than one (1%)
percent of the outstanding shares of a publicly held corporation if such
ownership does not involve managerial or operational responsibility), manager
partner or consultant, if such business is competitive with any product or
service then being developed, produced or marketed by the Company. The
parties agree that the current business of the Company consists of the
origination, purchasing, servicing, packaging or disposing of loans,
obligations, receivables, notes or mortgages or the acquisition of or
investment in any company which engages in such services. The foregoing shall
not preclude the Executive from acting as general counsel of, or providing
legal services to, any person or entity.
(d) The term "Non-Competition Period" shall mean: (i) for purposes of
Section 6.2(a), the first to occur of (x) the date 12 months after
termination of employment and (y) December 31, 2000; and (ii) for purposes of
Section 6.2(b), the date 18 months after termination of employment or
expiration of the Term, as the case may be.
(e) If the Company wishes to require that the Executive be bound by the
non-competition covenant in Section 6.2(c) following a termination of
employment pursuant to Sections 5.2 or 5.4 or upon expiration of the Term on
December 31, 2000, it shall give the Executive written notice of such effect
as set forth in Section 6.2(b). In such event, the Company shall pay the
Executive (i) compensation at a monthly rate equal to the annual Base Salary
in effect as of the date of the termination of employment divided by 12, to
be paid monthly in advance, during the continuation of the Non-Competition
Period, and (ii) an amount equal to one-half of the Bonus paid to the
Executive under Section 2 for the year immediately preceding the year in
which termination occurs, which payment shall be made in equal monthly
payments on the first day of each month during the Non-Competition Period.
7. [Intentionally Omitted]
8. Payments Upon Change of Control. In the event of a Change of
Control Transaction (as herein defined), the provisions of this Section 8
shall apply:
(a) If within one year following consummation of a Change of Control
Transaction, the Company shall seek to (x) relocate the principal office of
the Company more than 25 miles from its current location or (y) materially
alter the Executive's authority or responsibility within the Company, and
such alteration continues for 20 days after notice thereof from the Executive
to the Company, the Executive may terminate his employment pursuant to
Section 5.3. In such event, the Executive shall receive the payments and
benefits provided under Section 5.6(c) unless he elects, by written notice to
the Company within 30 days of such termination, to receive, in a lump sum
payment, an amount equal to 150% of the Base Salary then in effect. If the
Executive elects such lump sum payment, it shall be paid within 30 days of
such election, he shall have no further obligations hereunder, except to
observe the covenants set forth in Section 6.1, and the Company shall have no
further obligations hereunder, other than to pay such lump sum payment.
(b) A "Change of Control Transaction" shall mean (i) a sale, conveyance,
lease or other transfer of all or substantially all of the assets of the
Company, (ii) a consolidation or merger of the Company with or into another
corporation in which the Company is not the surviving or resulting
corporation or after which more than 50% of the issued and outstanding shares
of voting capital stock of the surviving or resulting corporation is
thereafter owned of record or beneficially by any single Person or Group of
affiliated Persons, (iii) a sale or transfer in a single transaction of
shares of the voting capital stock of the Company, which results in more than
50% of the issued and outstanding shares of the voting capital stock of the
Company being thereafter owned of record or beneficially by any single Person
or Group of affiliated Persons, (iv) any other transaction or series of
transactions involving the issuance, sale or transfer of shares of the
capital stock of the Company, which results in more than fifty percent (50%)
of the issued and outstanding shares of the voting capital stock of the
Company being thereafter owned of record or beneficially by any single Person
or Group of affiliated Persons, or (v) a majority of the Board of Directors
of the Company ceasing to consist of individuals (A) who are currently
members of the Board or (B) for whose nomination for such membership a
majority of such current members voted in favor.
(c) "Group of affiliated Persons" shall mean a group of tow (2) or more
persons (i) in which one (1) or more of such Persons controls, is controlled
by, or is under common control with, another of such Persons, or (ii) which
is associated by agreement for the purpose of controlling the Company or any
successor corporation thereof. The term "Group of affiliated Persons" shall
not include any such group which consists entirely of Persons who are current
stockholders and/or directors of the Company which any currently be deemed to
control the Company. "Person" shall mean an individual, partnership,
corporation, trust, or other business entity.
9. Termination of this Agreement. This Agreement shall remain in full force
and effect, notwithstanding any termination of the Term, until all of the
parties' obligations hereunder have been fully performed.
10. Notices. All notices hereunder, to be effective, shall be in
writing and shall be delivered by hand or by certified mail, postage and
fees prepaid, as follows:
(i) If to the Company: Litchfield Financial Corporation
789 Main Road
Stamford, VT 05352
With a Copy to: James Westra, Esq.
Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, MA 02110
(ii) If to Executive:John J. Malloy
146 Melrose Place
Ridgewood, New Jersey 07450
unless and until notice of another or different address shall be given as
provided herein.
11. Modification. This Agreement constitutes the entire Agreement
between the parties hereto with regard to the subject matter hereof,
superseding all prior understandings and agreements, whether written or
oral. This Agreement may not be amended or revised except by a writing
signed by the parties.
12. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of both parties and their respective successors and assigns,
including any corporation with which or into which the Company or its
successor may be merged or which may succeed to its assets or business,
although the obligations of the Executive are personal and may be performed
only by him.
13. Captions. Captions herein have been inserted solely for convenience
of reference and in no way define, limit or describe the scope or
substance of any provision of this Agreement.
14. Severability. The provisions of this Agreement are severable, and
invalidity of any provision shall not affect the validity of any other
provision. In the event that any court of competent jurisdiction shall
determine that any provision of this Agreement or the application thereof is
unenforceable because of the duration or scope thereof, the parties hereto
agree that said court in making such determinations shall have the power to
reduce the duration and scope of such provision to the extent necessary to
make it enforceable, and that the Agreement in its reduced form shall be
valid and enforceable to the full extent permitted by law.
15. Governing Law. This Agreement shall be construed under and governed
by the laws of the Commonwealth of Massachusetts.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
a sealed instrument as of the day and year first above written.
LITCHFIELD FINANCIAL CORPORATION
By:/s/Heather A. Sica
Title: Executive Vice President
/s/ John J. Malloy
John J. Malloy
<PAGE>
Exhibit 11.1
<TABLE>
Litchfield Financial Corporation
Computation of Earnings per Share
Year Ended December 31,
<S> <C> <C> <C>
1997 1996 1995
--------- --------- -----------
Basic:
Weighted average number of common
shares outstanding............... 6,572,465 6,441,636 4,315,469
========== ========== ==========
Income before extraordinary item.... $6,603,000 $5,273,000 $3,449,000
Extraordinary item (net of applicable
tax benefit of $138,000)............ (220,000) --- ---
----------- ---------------- -------
Net income.......................... $6,383,000 $5,273,000 $3,449,000
========== ========== ==========
Income before extraordinary item per
common share..................... $1.19 $ .97 $ .80
Extraordinary item (net of applicable tax
benefit of $138,000) per common share (.04) --- ---
----- ------- ------
Net income per common share......... $1.15 $ .97 $ .80
===== ===== =====
Diluted
Weighted average number of common
shares outstanding............... 5,572,465 5,441,659 4,313,583
Net effect of dilutive stock options
based on the treasury stock method
using the average market price... 336,967 240,516 209,138
----------- ----------- -----------
Total............................... 5,909,432 5,682,152 4,524,607
========== ========== ==========
Income before extraordinary item.... $6,603,000 $5,273,000 $3,449,000
Extraordinary item (net of applicable
tax benefit of $138,000)......... (220,000) --- ---
----------- ----------- ------------
Net income.......................... $6,383,000 $5,273,000 $3,449,000
========== ========== ==========
Income before extraordinary item per
common share..................... $1.12 $ .93 $ .76
Extraordinary item (net of applicable tax
benefit of $138,000) per common share (.04) --- ---
----- ------- -------
Net income per common share......... $1.08 $ .93 $ .76
===== ===== =====
</TABLE>
<PAGE>
Exhibit 13.1
Company LOGO
A specialty finance company.
1997 ANNUAL REPORT
Chart of Earnings per share before extraordinary item.
Income Per Share Before Extraordinary Item
<PAGE>
LITCHFIELD FINANCIAL CORPORATION is a finance company which provides
financing to creditworthy borrowers for assets not typically financed by banks.
The Company provides such financing by purchasing consumer loans, by making
loans to businesses secured by consumer receivables and by making other secured
loans to businesses.
Through the support of its investors and dedication of its employees,
Litchfield has been able to provide quality service, maintain consistent growth
and be among the top performers in the financial services industry. Litchfield's
common stock trades on The Nasdaq Stock Market's National Market under the
symbol "LTCH" and is listed in some newspapers as "LITCHFNL".
Revenue Growth
(000's)
Chart of revenue by year by type.
<PAGE>
Dear Fellow Stockholders:
Litchfield had an outstanding year in 1997. Net income before extraordinary
item was $6.6 million, a 25% increase over 1996. Earnings per share before
extraordinary item was $1.12, up 20% over 1996. Originations were up 38% to $185
million and portfolio quality remained excellent, as delinquencies and defaults
were level with the prior year. The fourth quarter of 1997 represented our 20th
consecutive quarter as a public company where earnings per share were at or
above analysts? estimates. It is our ninth year of earnings per share growth,
before extraordinary item, in excess of 20%. In addition, our stock was up 30%
in 1997 compared to 20% for the Russell 2000 small company index.
In order to continue to be successful, our company needs four things; ideas,
great people, good loans, and fairly priced money. We made progress in all these
areas during 1997.
Ideas. We continue to have innovative ideas for growing originations. In
past years we had the idea to lend money to finance companies and have now done
so successfully for several years. In 1997 we formalized this idea and formed
our specialty finance group which acts as an incubator for future businesses
which will help us continue to grow and diversify our company.
People. In 1997 we added some outstanding people to our management team and
continued to improve our staff. We believe that employees are more satisfied and
thus more productive when they have some autonomy and ability to make changes.
We solicit ideas from employees and ask them to implement their own ideas. We
agree on specific, quantifiable goals which will enable us to achieve our
business plan. This process lets us know where we need to improve and permits us
to each set specific goals to assist in achieving our business plan.
Loans. In 1997 we expanded our portfolio from $242 million to $304 million,
an increase of 26%. We established many new customer relationships and expanded
our relationships with our existing customers. The flow of loans and the demand
for our business continues to grow as our pipeline is at its highest point ever.
We are evaluating and underwriting these requests in order to bring the highest
quality of these loans into our portfolio.
Money. In 1997 we made great progress in our liquidity. We lowered our cost
of money by refinancing long term debt and improving terms with some lenders. We
sold hypothecation loans for the first time and participated some of our
acquisition and development loans. We now have liquidity for substantially all
of the assets on our balance sheet.
We are still committed to the strategy adopted some five years ago of
increasing our recurring cash revenues and thereby improving the quality of our
earnings. Today, interest and servicing income represent more than 70% of our
revenues.
The result of all this progress and hard work is an increase in our return
on equity and an expansion of our market capitalization to over $100 million. We
will continue to work on more good ideas, building our team, acquiring high
quality loans, improving our liquidity and lowering the cost of our funds in
1998 and beyond. These attributes, plus careful expense control, are our
culture. I would like to offer a special thank you to our employees who we
believe are the best team in specialty finance. They are the primary reason for
our success. I would also like to thank all of you for your continued support.
RANDY STRATTON
Chief Executive Officer and President
January 31 , 1998
<PAGE>
<TABLE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(Dollars in thousands, except per share data)
Year Ended December 31,
<S> <C> <C> <C> <C> <C>
Statements of Income Data: (1) 1997 1996 1995 1994 1993
Revenues:
Interest and fees on loans.... $19,374 $14,789 $11,392 $5,669 $4,330
Gain on sale of loans......... 8,564 7,331 5,161 4,847 4,550
Servicing and other fee income 1,753 1,576 908 459 501
------- ------- ------- ------ ------
Total revenues........... 29,691 23,696 17,461 10,975 9,381
------- ------- ------- ------ ------
Expenses:
Interest expense.............. 10,675 7,197 6,138 3,158 2,717
Salaries and employee benefits.. 3,399 2,824 2,798 1,776 1,350
Other operating expenses...... 3,480 3,147 2,120 1,164 1,017
Provision for loan losses..... 1,400 1,954 890 559 620
------- ------- ------- ------- ------
Total expenses........... 18,954 15,122 11,946 6,657 5,704
------- ------- ------- ------- ------
Income before income taxes and
extraordinary item............ 10,737 8,574 5,515 4,318 3,677
Provision for income taxes.......... 4,134 3,301 2,066 1,619 1,426
------- ------- ------- ------- ------
Income before extraordinary item.... 6,603 5,273 3,449 2,699 2,251
Extraordinary item (2).............. (220) --- --- (126) ---
------- ------ ------ ------- -----
Net income............... $ 6,383 $ 5,273 $ 3,449 $2,573 $2,251
======= ======= ======= ====== ======
Basic per common share amounts:
Income before extraordinary item $1.19 $ .97 $ .80 $ .66 $ .55
Extraordinary item............ (.04) --- --- (.03) ---
----- ---- ---- ----- ----
Net income per share..... $1.15 $ .97 $ .80 $ .63 $ .55
===== ===== ===== ===== =====
Basic weighted average number of
shares outstanding............... 5,572,465 5,441,636 4,315,469 4,116,684 4,065,688
Diluted per common share amounts:
Income before extraordinary item $ 1.12 $ .93 $ .76 $ .63 $ .53
Extraordinary item............ (.04) --- --- (.03) ---
----- ----- ----- ----- -----
Net income per share................ $1.08 $ .93 $ .76 $ .60 $ .53
===== ===== ===== ===== =====
Diluted weighted average number
of shares outstanding........ 5,909,432 5,682,152 4,524,607 4,282,884 4,216,151
Cash dividends declared per common share $ .06 $ .05 $ .04 $ .03 $ .02
Other Statements of Income Data:
Income before extraordinary item as
a percentage of revenues......... 22.3% 22.3% 19.8% 24.6% 24.0%
Return on average assets (3)........ 3.8% 4.0% 3.7% 4.6% 5.0%
Return on average equity (3)........ 14.1% 13.3% 16.6% 17.2% 17.0%
(1)Certain amounts in the 1993 through 1996 financial information have been
reclassified to conform with the 1997 presentation.
(2)Reflects loss on early extinguishment of a portion of the 1992 Notes (as
defined herein), net of applicable tax benefit of $76,000, for 1994 and of
the remainder of the 1992 Notes, net of applicable tax benefit of $138,000,
for 1997.
(3) Before extraordinary item.
</TABLE>
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION - (Continued)
(Dollars in thousands)
<TABLE>
December 31,
<S> <C> <C> <C> <C> <C>
Balance Sheet Data (4): 1997 1996 1995 1994 1993
------- ------- ------- ------- -------
Total assets....................... $186,790 $152,689 $112,459 $63,487 $54,444
Loans held for sale (5)............. 16,366 12,260 14,380 11,094 5,931
Other loans (5)..................... 86,307 79,996 33,613 15,790 10,306
Retained interests in loan sales (5) 30,299 28,912 22,594 11,996 11,764
Secured debt........................ 5,387 43,727 9,836 5,823 ---
Unsecured debt...................... 105,347 46,995 47,401 29,896 32,302
Stockholders' equity................ 52,071 42,448 37,396 16,610 14,722
Other Financial Data:
Loans purchased and originated (6).. $184,660 $133,750 $121,046 $59,798 $42,410
Loans sold (6)...................... 98,747 54,936 65,115 40,116 28,099
Loans participated (6).............. 6,936 --- --- --- ---
Serviced Portfolio (7).............. 304,102 242,445 176,650 105,013 84,360
Loans serviced for others........... 179,790 129,619 111,117 72,731 59,720
Dealer/developer reserves........... 10,655 10,628 9,644 6,575 4,926
Allowance for loan losses (8)....... 5,877 4,528 3,715 1,264 1,064
Allowance ratio (9)................. 1.93% 1.87% 2.10% 1.20% 1.26%
Net charge-off ratio (6)(10)........ .74% .94% .67% .38% .69%
Non-performing asset ratio (11) ... 1.03% 1.57% 1.35% 1.02% 1.48%
(4)In 1997, the Company adopted Statement of Financial Accounting Standards No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." Consequently, certain amounts included in
the 1993 through 1996 financial statements have been reclassified to conform
with the 1997 presentation: "Subordinated pass- through certificates held to
maturity," "Excess servicing asset" and "Allowance for loans sold" have been
reclassified as "Retained interests in loan sales." In addition, "Loans held
for investment" have been reclassified as "Other loans."
(5)Amount indicated is net of allowance for losses and recourse obligation on
retained interests in loan sales.
(6) During the relevant period.
(7)The Serviced Portfolio consists of the principal amount of loans serviced by
or on behalf of the Company, except loans participated without recourse to
the Company.
(8)The allowance for loan losses includes allowance for losses under the
recourse provisions of loans sold.
(9)The allowance ratio is the allowances for loan losses divided by the amount
of the Serviced Portfolio.
(10) The net charge-off ratio is determined by dividing the amount of net
charge-offs for the period by the average Serviced Portfolio for the period.
(11)The non-performing asset ratio is determined by dividing the sum of the
amount of those loans which are 90 days or more past due and other real
estate owned by the amount of the Serviced Portfolio.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
Litchfield Financial Corporation (the "Company") is a specialty finance company
which provides financing to creditworthy borrowers for assets not typically
financed by banks. The Company provides such financing by purchasing consumer
loans, by making loans to businesses secured by consumer receivables and by
making other secured loans to businesses.
Currently, the Company provides financing for the purchase of rural and vacation
properties and vacation ownership interests, popularly known as timeshare
interests ("Purchased Loans"). The Company also provides financing to rural land
dealers, timeshare resort developers and others secured by receivables
("Hypothecation Loans"), to dealers and developers for the acquisition and
development of rural land and timeshare resorts ("A&D Loans") and for other
secured loans ("Other Loans").
Purchased loans consist primarily of "Land Loans" and "VOI Loans." Land Loans
are typically secured by one to twenty acre rural parcels. VOI Loans finance the
purchase of ownership interests in fully furnished vacation properties.
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 of
certain items included in the Company's statements of income.
<TABLE>
Year ended December 31,
<S> <C> <C> <C>
1997 1996 1995
------ ------ ------
Revenues:
Interest and fees on loans...... 65.3% 62.4% 65.2%
Gain on sale of loans......... 28.8 30.9 29.6
Servicing and other fee income. 5.9 6.7 5.2
----- ----- -----
100.0 100.0 100.0
----- ----- -----
Expenses:
Interest expense............... 36.0 30.4 35.2
Salaries and employee benefits. 11.4 11.9 16.0
Other operating expenses....... 11.7 13.3 12.1
Provision for loan losses...... 4.7 8.2 5.1
---- ---- ----
63.8 63.8 68.4
---- ---- ----
Income before income taxes and extraordinary
item........................... 36.2 36.2 31.6
Provision for income taxes......... 13.9 13.9 11.8
Income before extraordinary item... 22.3 22.3 19.8
Extraordinary item................. (0.8) --- ---
------- -------- --------
Net income......................... 21.5 % 22.3% 19.8%
======= ======= ======
</TABLE>
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues increased 25.3% to $29,691,000 for the year ended December 31, 1997,
from $23,696,000 for the year ended December 31, 1996. Net income for 1997
increased 21.1% to $6,383,000 compared to $5,273,000 in 1996. Net income as a
percentage of revenues was 21.5% for the year ended December 31, 1997 compared
to 22.3% for the year ended December 31, 1996. Loan purchases and originations
grew 38.1% to $184,660,000 in 1997 from $133,750,000 in 1996. The Serviced
Portfolio increased 25.4% to $304,102,000 at December 31, 1997 from $242,445,000
at December 31, 1996.
Interest and fees on loans increased 31.0% to $19,374,000 in 1997 from
$14,789,000 in 1996, primarily as the result of the higher average balance of
loans held for sale and other loans during 1997. The average rate earned on
loans owned and retained interests in loan sales decreased to 12.2% for the year
ended December 31, 1997 from 12.5% for the year ended December 31, 1996,
primarily due to the effect of the growth in Hypothecation Loans and A&D Loans
as a percentage of the Serviced Portfolio. Hypothecation Loan and A&D Loan
yields are usually less than Land Loan or VOI Loan yields, but servicing costs
and loan losses are generally less as well.
Gain on the sale of loans increased 16.8% to $8,564,000 in 1997 from $7,331,000
in 1996. The volume of loans sold increased 79.7% to $98,747,000 for the year
ended 1997 from $54,936,000 for the same period in 1996. Gain on sale of loans
increased less than the volume of loans sold for the year ended December 31,
1997 primarily due to the lower yield on the sale of Hypothecation Loans in 1997
and, to a lesser extent, the lower amount of discount relating to loans sold.
The yield on the sale of Hypothecation Loans is significantly less than the
typical yield on sales of consumer receivables primarily due to shorter average
maturities and the nature of the underlying collateral.
Servicing and other fee income increased 11.2% to $1,753,000 for the year ended
December 31, 1997, from $1,576,000 for the year ended December 31, 1996 mostly
due to the increase in other fee income resulting from the collection of
significant prepayment penalties from a Hypothecation Loan and an A&D Loan in
1997. Although loans serviced for others increased 38.7% to $179,790,000 at
December 31, 1997 from $129,619,000 at December 31, 1996, servicing income
remained relatively constant due to a decrease in the average servicing fee per
loan primarily as the result of the decrease in the number of purchased VOI
Loans in the Serviced Portfolio.
Interest expense increased 48.3% to $10,675,000 for 1997, from $7,197,000 in
1996. The increase in interest expense primarily reflects an increase in average
borrowings that were only partially offset by a decrease in average rates.
During the year ended December 31, 1997, borrowings averaged $107,900,000 at an
average rate of 9.1% compared to $71,800,000 and 9.3%, respectively, during
1996. Interest expense includes the amortization of deferred debt issuance
costs.
Salaries and employee benefits increased 20.4% to $3,399,000 for the year ended
December 31, 1997 from $2,824,000 for the year ended December 31, 1996 because
of an increase in the number of employees and, to a lesser extent, an increase
in salaries. The number of full time equivalents increased to 71 at December 31,
1997 compared to 57 at December 31, 1996. Personnel costs as a percentage of
revenues decreased slightly to 11.4% for the year ended December 31, 1997
compared to 11.9% in 1996. As a percentage of the Serviced Portfolio, personnel
costs decreased to 1.12% for the year ended December 31, 1997 from 1.16% for the
same period in 1996.
Other operating expenses increased 10.6% to $3,480,000 for the year ended
December 31, 1997 from $3,147,000 for the same period in 1996 primarily as the
result of the growth in the Serviced Portfolio. As a percentage of revenues,
other operating expenses decreased to 11.7% in 1997 compared to 13.3% in 1996.
As a percentage of the Serviced Portfolio, other operating expenses decreased to
1.14% for 1997 from 1.30% for 1996.
During 1997, the provision for loan losses decreased 28.4% to $1,400,000 from
$1,954,000 in 1996. The provision for loan losses decreased despite the increase
in loans owned and retained interests in loans sold because of the growth in
Hypothecation Loans as a percentage of the Serviced Portfolio. Hypothecation
Loans have experienced significantly lower delinquency and default rates than
Purchased Loans.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues increased 35.7% to $23,696,000 for the year ended December 31, 1996,
from $17,461,000 for the year ended December 31, 1995. Net income for the year
ended December 31, 1996 increased 52.9% to $5,273,000 compared to $3,449,000 in
1995. Net income as a percentage of revenues was 22.3% for the year ended
December 31, 1996 compared to 19.8% for the year ended December 31, 1995. Loan
originations grew 10.5% to $133,750,000 in 1996 from $121,046,000 in 1995.
Excluding the 1995 purchase of $41,500,000 of loans from the Government
Employees Financial Corporation ("GEFCO"), originations increased 68.1%. The
Serviced Portfolio increased 37.2% to $242,445,000 at December 31, 1996 from
$176,650,000 at December 31, 1995.
Interest and fees on loans increased 29.8% to $14,789,000 in 1996 from
$11,392,000 in 1995, primarily as the result of increases in other loans,
retained interests in loans sold and fees related to Hypothecation Loan
originations. The average rate earned on loans owned and retained interests in
loans sold decreased to 12.5% for the year ended December 31, 1996 from 13.2% in
1995, primarily due to the effect of the growth in Hypothecation Loans as a
percentage of the loan portfolio. Hypothecation Loan yields are usually less
than Land Loan or VOI Loan yields, but Hypothecation Loans servicing costs and
loan losses are generally less as well.
Gain on the sale of loans increased 42.0% to $7,331,000 in 1996 from $5,161,000
in 1995. The volume of loans sold decreased 15.6% to $54,936,000 for the year
ended 1996 from $65,115,000 in 1995. The primary reason for the increase in the
gain on sale of loans despite the decrease in the volume of loans sold was that
the Company did not recognize any gain on the sale of $27,155,000 of VOI Loans
purchased from GEFCO in the second quarter of 1995.
Loans serviced for others increased 16.7% to $129,619,000 at December 31, 1996
from $111,117,000 at December 31, 1995. Servicing and other fee income increased
73.6% to $1,576,000 for the year ended December 31, 1996, from $908,000 in 1995
because of the higher average Serviced Portfolio in 1996. In connection with the
Company's continued growth, the Company decided to subcontract its servicing
rights in order to avoid incurring additional fixed overhead costs associated
with such servicing. Accordingly, the Company subcontracted to an unaffiliated
third party the servicing of VOI Loans in 1995 and the remaining loans in April
1996.
Interest expense increased 17.3% to $7,197,000 for the year ended December 31,
1996, from $6,138,000 in 1995. The increase in interest expense primarily
reflects an increase in average borrowings that were only partially offset by a
decrease in average rates. During the year ended December 31, 1996, borrowings
averaged $71,800,000 at an average rate of 9.3% as compared to $60,500,000 and
9.7%, respectively, during 1995. Interest expense includes the amortization of
deferred debt issuance costs.
Salaries and employee benefits remained relatively constant at $2,824,000 for
the year ended December 31, 1996 compared to $2,798,000 in 1995 despite
increases in incentive compensation, salaries and the average number of
employees in 1996. The average number of employees increased to 56 in 1996 from
45 in 1995, primarily as the result of the GEFCO acquisition. The number of full
time equivalents increased to 57 at December 31, 1996 compared to 55 at December
31, 1995. The small increase in the number of full-time equivalents despite the
significant growth in originations and the Serviced Portfolio described above is
partially the result of subcontracting servicing to a third party. As a result,
personnel costs as a percentage of revenues decreased to 11.9% for the year
ended December 31, 1996 compared to 16.0% in 1995.
Other operating expenses increased 48.4% to $3,147,000 for the year ended
December 31, 1996 from $2,120,000 for the same period in 1995 primarily as the
result of the subcontracting of servicing to a third party. As a percentage of
revenues, other operating expenses increased to 13.3% in 1996 as compared to
12.1% in 1995.
During 1996, the Company increased its provision for loan losses 119.6% to
$1,954,000 from $890,000 in 1995, primarily as the result of the overall
increase in the Serviced Portfolio as well as the proportionate increase in the
percentage of non-guaranteed loans in the Serviced Portfolio. Historically, the
loan loss rate for non-guaranteed loans has been higher than the rate for
guaranteed 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 and long-term debt and equity offerings.
Since its inception, the Company has sold $348,198,000 of loans at face value
($249,451,000 through December 31, 1996). The principal amount remaining on the
loans sold was $179,790,000 at December 31, 1997 and $129,619,000 at December
31, 1996. In 1997, the Company sold or securitized $51,196,000 of Purchased
Loans and $47,551,000 of Hypothecation Loans. In connection with certain loan
sales, the Company commits to repurchase from investors any such loans that
become 90 days or more past due. This obligation is subject to various terms and
conditions, including, in some instances, a limitation on the amount of loans
that may be required to be repurchased. There were approximately $9,238,000 of
loans at December 31, 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 $740,000, $991,000 and $448,000 of such loans under the recourse
provisions of loan sales in 1997, 1996 and 1995, respectively. As of December
31, 1997, $21,412,000 of the Company's cash was restricted as credit enhancement
for certain securitization programs. The Company also participated $6,936,000 of
A&D and Other Loans without recourse to the Company.
The Company funds its loan purchases in part with borrowings under various
secured 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. These
lines of credit totaled $116,000,000 at December 31, 1997 and $50,000,000 at
December 31, 1996. Outstanding borrowings on these lines of credit were $8,000
at December 31, 1997 and $34,500,000 at December 31, 1996. 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 finances its loan purchases with two revolving lines of credit
and sales facilities as part of asset backed commercial paper facilities with
multi seller commercial paper issuers. Such facilities totaled $150,000,000 at
December 31, 1997 and $100,000,000 at December 31, 1996. As of December 31, 1997
and 1996, the outstanding balances of loans sold or pledged under the facilities
were $121,142,000 and $77,521,000, respectively. Outstanding borrowings under
the lines of credit were $169,000 at December 31, 1997 and $1,799,000 at
December 31, 1996. Interest is payable on the lines of credit based on certain
commercial paper rates.
The Company also finances its liquidity needs with long-term debt. Long-term
debt totaled $105,347,000 at December 31, 1997 and $46,995,000 at December 31,
1996.
The Company also has a term note payable monthly based on collection of the
underlying collateral. The note is redeemable only with the approval of the
noteholder. The note is collateralized by certain of the Company's retained
interests in loan sales and cash. The balance outstanding on the note was
$5,210,000 and $7,428,000 at December 31, 1997 and 1996, respectively.
In June 1997, the Company entered into two interest rate swap agreements. The
swap agreements involve the payment of interest to the counterparty at the prime
rate on a notional amount of $110,000,000 and the receipt of interest at the
commercial paper rate plus a spread and the LIBOR rate plus a spread on notional
amounts of $80,000,000 and $30,000,000, respectively. The swap agreements expire
in June 2000. There is no exchange of the notional amounts upon which interest
payments are based.
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 future losses on such assets. Past-due loans
(loans 30 days or more past due which are not covered by dealer/developer
reserves and guarantees) as a percentage of the Serviced Portfolio were 1.20% at
December 31, 1997 compared to 1.34% at December 31, 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. When the Company does not receive guarantees on
loan portfolios purchased, it adjusts its purchase price to reflect anticipated
losses and its required yield. This purchase adjustment is recorded as an
increase in the allowance for loan losses and is used only for the respective
portfolio. 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 obligation on retained interests in loan
sales increased to $5,877,000 at December 31, 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 December 31, 1997 increased slightly
to 1.93% from 1.87% at December 31, 1996.
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
$10,655,000 and $10,628,000 at December 31, 1997 and 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.
Impact of Year 2000
As the year 2000 approaches, an issue impacting all companies has emerged
regarding how existing application software programs and operating systems can
accommodate this date value. Substantially all of the Company's operating
systems are already year 2000 compliant. The Company does not expect to incur
any significant additional costs to make its remaining applications year 2000
compliant.
Market for Common Stock
The Company's Common Stock is traded on The Nasdaq Stock Market's National
Market under the symbol "LTCH." The following table sets forth, for the periods
indicated, the high and low stock prices of the Company's Common Stock. All
share prices have been adjusted for a 5% stock dividend in each of 1996 and
1995.
<TABLE>
<S> <C> <C> <C>
High Low Dividends
1997
1st Quarter.. 16 3/4 14 ---
2nd Quarter.. 17 13 7/8 ---
3rd Quarter.. 21 3/4 16 3/8 ---
4th Quarter.. 21 1/2 16 1/2 $.06
1996
1st Quarter.. 13 5/8 11 ---
2nd Quarter.. 14 1/4 12 7/8 ---
3rd Quarter.. 15 11 1/2 ---
4th Quarter.. 15 12 1/2 $.05
1995
1st Quarter.. 10 7/8 9 5/8 ---
2nd Quarter.. 12 7/8 10 ---
3rd Quarter.. 16 12 3/8 ---
4th Quarter.. 15 1/4 12 3/8 $.04
</TABLE>
Inflation
Inflation has not had a significant effect on the Company's operating results to
date.
Notes to Investors
This annual report may contain certain forward-looking statements which involve
a number of risks and uncertainties that could cause actual results to differ
materially. Specifically, comments related to originations, revenues, net
income, profitability, delinquencies and defaults may be considered
forward-looking and subject to a number of risks and uncertainties, including
but not limited to: demand for loans, declines in real estate value, changes in
prevailing interest rates, continued availability of various funding sources,
economic cycles, prepayment, timing of loan sales, collection and delinquency
risks, contingent repurchase obligations, dependence on senior management,
competition, regulation and environmental liabilities. Refer to Form 10-K for a
complete list of factors as discussed under "Risk Factors".
<PAGE>
181
LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<S> <C> <C>
December 31,
ASSETS 1997 1996
Cash and cash equivalents................................ $ 19,295 $ 5,557
Restricted cash.......................................... 23,496 18,923
Loans held for sale, net of allowance for loan losses of
$1,388 and $817 in 1997 and 1996, respectively........ 16,366 12,260
Other loans, net of allowance for loan losses of
$2,044 and $1,200 in 1997 and 1996, respectively...... 86,307 79,996
Retained interests in loan sales......................... 30,299 28,912
Other.................................................... 11,027 7,041
---------- --------
Total assets........................................ $186,790 $152,689
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Lines of credit....................................... $ 177 $ 36,299
Term note payable..................................... 5,210 7,428
Accounts payable and accrued liabilities.............. 6,479 3,811
Dealer/developer reserves............................. 10,655 10,628
Deferred income taxes................................. 6,851 5,080
----------- -----------
29,372 63,246
---------- ----------
9.3% Notes. . . . . . . . . . . . . . . . .. 20,000 ---
8.45% Notes due 2002. . . .. . . . . .. . . 51,750 ---
10% Notes due 2002.................................... --- 12,785
8.875% Notes due 2003................................. 15,317 15,930
10% Notes due 2004.................................... 18,280 18,280
---------- ----------
105,347 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,
5,656,609 shares issued and outstanding in 1997; 5,444,399 shares
issued and outstanding in 1996...................... 56 54
Additional paid in capital............................ 36,681 34,633
Net unrealized gain on retained interests in loan sales 1,071 ---
Retained earnings..................................... 14,263 7,761
---------- -----------
Total stockholders' equity.......................... 52,071 42,448
---------- ----------
Total liabilities and stockholders' equity.......... $186,790 $152,689
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
<S> <C> <C> <C>
Year Ended
December 31,
1997 1996 1995
---------- ---------- ------
Revenues:
Interest and fees on loans................ $19,374 $14,789 $11,392
Gain on sale of loans..................... 8,564 7,331 5,161
Servicing and other fee income............ 1,753 1,576 908
-------- --------- ----------
29,691 23,696 17,461
------- -------- --------
Expenses:
Interest expense.......................... 10,675 7,197 6,138
Salaries and employee benefits........... 3,399 2,824 2,798
Other operating expenses.................. 3,480 3,147 2,120
Provision for loan losses................. 1,400 1,954 890
-------- --------- ----------
18,954 15,122 11,946
------- -------- --------
Income before income taxes and extraordinary item 10,737 8,574 5,515
Provision for income taxes................... 4,134 3,301 2,066
-------- --------- ---------
Income before extraordinary item............. 6,603 5,273 3,449
Extraordinary item (net of applicable tax
benefit of $138).......................... (220) --- ---
--------- ------------------------
Net income................................... $ 6,383 $ 5,273 $ 3,449
======= ======== ========
Basic per common share amounts:
Income before extraordinary item.......... $1.19 $ .97 $ .80
Extraordinary item........................ (.04) --- ---
------ --------------
Net income................................ $1.15 $ .97 $ .80
===== ===== =====
Basic weighted average number of shares...... 5,572,465 5,441,636 4,315,469
Diluted per common share amounts:
Income before extraordinary item.......... $1.12 $ .93 $ .76
Extraordinary item........................ (.04) --- ---
------ --------------
Net income................................ $1.08 $ .93 $ .76
===== ===== =====
Diluted weighted average number of shares.... 5,909,432 5,682,152 4,524,607
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share and per share data)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Net
Unrealized
Gains on
Additional Retained
Common Paid In Interests in Retained Treasury
Stock Capital Loan Sales Earnings Stock Total
December 31, 1994.......... $38 $11,868$ --- $ 5,299 $(595) $16,610
Issuance of 186,819 shares in
connection with 5%
stock dividend........ 2 2,473 --- (2,475) --- ---
Issuance of 1,282,551 shares
(including reissuance of 100
shares held in treasury) 12 17,532 --- --- 1 17,545
Dividends ($.04 per share) --- --- --- (208) (208)
Net income.............. --- --- --- 3,449 --- 3,449
------- --------- ------- ------- -------- -------
December 31, 1995.......... 52 31,873 --- 6,065 (594) 37,396
Issuance of 259,124 shares in
connection with 5%
stock dividend........ 3 3,301 --- (3,304) --- ---
Issuance of 10,560 shares
(including reissuance of
10 shares held in treasury)--- 52 --- --- --- 52
Retirement of 48,990 shares
held in treasury...... (1) (593) --- 594 ---
Dividends ($.05 per share) --- --- --- (273) --- (273)
Net income.............. --- --- --- 5,273 --- 5,273
-------- -------- -------- --------- ------ ------
December 31, 1996.......... 54 34,633 --- 7,761 --- 42,448
Issuance of 212,210 shares 2 2,048 --- --- --- 2,050
Net unrealized gain on retained
interests in loan sales. --- --- 1,071 --- --- 1,071
Tax benefit from stock options
exercised............. --- --- --- 458 --- 458
Dividends ($.06 per share) --- --- --- (339) (339)
Net income.............. --- --- --- 6,383 --- 6,383
------- -------- --------- ---------- ----- -------
December 31, 1997.......... $56 $36,681 $1,071 $14,263 $--- $52,071
=== ======= ====== ========== ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<S> <C> <C> <C>
Year Ended
December 31,
1997 1996 1995
Cash flows from operating activities:
Net income...................................... $ 6,383 $ 5,273 $ 3,449
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Gain on sale of loans......................... (8,564) (7,331) (5,161)
Amortization and depreciation................. 954 520 511
Amortization of retained interests in loan sales 4,945 3,444 2,267
Provision for loan losses..................... 1,400 1,954 890
Deferred income taxes......................... 1,771 1,340 1,209
Net changes in operating assets and liabilities:
Restricted cash...................... (4,573) (2,578) (4,957)
Loans held for sale......................... (3,644) 3,008 (1,814)
Retained interests in loan sales............ (2,264) (4,868) (10,421)
Dealer /developer reserves.................. 27 984 3,069
Net change in other assets and liabilities.. 1,456 (1,373) 1,139
--------- -------- ---------
Net cash (used in) provided by operating activities (2,109) 373 (9,819)
---------- -------- ---------
Cash flows from investing activities:
Purchase of investments held to maturity........ --- --- (5,595)
Redemption of investments held to maturity...... 59 118 9,232
Net originations and principal payments on other loans(54,882) (47,170) (18,022)
Other loans sold ............................... 47,727 --- ---
Collections on retained interests in loan sales. 4,620 590 ---
Capital expenditures and other assets........... (3,400) (126) (1,676)
--------- --------- ---------
Net cash used in investing activities........ (5,876) (46,588) (16,061)
--------- ------- --------
Cash flows from financing activities:
Net (repayments) borrowings on lines of credit.. (36,122) 36,299 (5,823)
Proceeds from issuance of 9.3% Notes............ 20,000 --- 18,400
Proceeds from issuance of 8.45% Notes........... 51,750 --- ---
Retirement of long-term Notes................... (13,398) (406) (895)
Proceeds from term note......................... --- --- 12,500
Payments of term note........................... (2,218) (2,408) (2,664)
Net proceeds from issuance of common stock...... 2,050 52 17,544
Dividends paid.................................. (339) (273) (208)
---------- --------- ----------
Net cash provided by financing activities..... 21,723 33,264 38,854
-------- ------- --------
Net increase (decrease) in cash and cash equivalents 13,738 (12,951) 12,974
Cash and cash equivalents, beginning of period..... 5,557 18,508 5,534
--------- ------- ---------
Cash and cash equivalents, end of period........... $19,295 $ 5,557 $18,508
======= ======= =======
Supplemental Schedule of Noncash Financing and Investing Activities:
Exchange of loans for retained interests in loan sales $577 $3,540 $8,842
Transfers from loans to real estate acquired through
foreclosure $ 1,425 $1,654 $ 1,991
======= ======== =======
Supplemental Cash Flow Information:
Interest paid................................... $ 9,841 $ 6,674 $ 5,766
======== ======= ========
Income taxes paid............................... $ 2,656 $ 1,411 $ 1,151
======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LITCHFIELD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1. Summary of Significant Accounting Policies
Business
Litchfield Financial Corporation is a specialty finance company which provides
financing to creditworthy borrowers for assets not typically financed by banks.
The Company provides such financing by purchasing consumer loans, by making
loans to businesses secured by consumer receivables and by making other secured
loans to businesses.
Basis of Presentation
The consolidated financial statements include the accounts of Litchfield
Financial Corporation and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated upon consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Interest income
Interest income from loans and retained interests in loan sales is recognized
using the interest method. Accrual of interest is suspended when collection is
doubtful and, in any event, when a loan is contractually delinquent for ninety
days. The accrual is resumed when the loan becomes contractually current as to
principal and interest and past-due interest is recognized at that time.
Gain on sale of loans and retained interests in loan sales
As of January 1, 1997, the Company adopted the requirements of Statement of
Financial Accounting Standards No. 125 "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" for transfers of
receivables. This standard did not have a material effect on net income for the
year ended December 31, 1997. The Company has reclassified certain subordinated
pass-through certificates, excess servicing assets and allowance for loans sold
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 consists of subordinate portions of the
principal balance of transferred assets and interest only strips.
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.
On a quarterly basis, the Company assesses the carrying value of the retained
interest in loans sold by comparing actual versus assumed prepayment rates on a
disaggregated basis reflecting factors such as origination dates and types of
loans. The Company will adjust the amortized cost of the retained interest in
loan sales for any permanent unfavorable changes.
Loans
Loans held for sale are carried at the lower of aggregate cost or market value.
Market value is determined by outstanding commitments from investors or current
investor yield requirements.
Provisions for loan losses and impairment of loans
Provisions for loan losses are charged to income in amounts sufficient to
maintain the allowances at levels considered adequate to cover anticipated
losses on outstanding loans, including loans sold and retained interests in loan
sales. Management evaluates allowance requirements on a quarterly basis by
examining current delinquencies, historical loan losses, the value of the
underlying collateral and general economic conditions and trends. Management
also evaluates the availability of dealer/developer reserves to absorb loan
losses. The Company determines those loans that are uncollectible based upon
detailed review of all loans and any charge-offs are charged to the allowance
for loan losses.
Land Loans, VOI Loans and Other Loans which consist of large groups of smaller
balance loans are evaluated collectively for impairment and are stated at the
lower of cost or fair value.
Hypothecation Loans and A&D Loans are evaluated individually for impairment
based on the factors described above. No such loans were impaired at December
31, 1997 or 1996.
Loan origination fees and related costs
The Company defers the excess of loan origination fees over related direct costs
and recognizes such amount as interest income over the estimated life of the
related loans using the interest method.
Real estate acquired through foreclosure
Real estate acquired through foreclosure is carried at the lower of fair value
less estimated costs to sell or cost. On a quarterly basis, the Company
evaluates the carrying value of the real estate and establishes a valuation
allowance if the fair value of the asset less the estimated costs to sell the
asset is less than the carrying value of the asset. Subsequent increases in the
fair value less the estimated cost to sell the asset would reduce the valuation
allowance, but not below zero. There was no such valuation allowance at December
31, 1997 or 1996. Other real estate owned of $910,000 and $1,775,000 is included
in other assets at December 31, 1997 and 1996, respectively.
Dealer/developer reserves
As part of the Company's financing of loans through dealer/developers, the
Company retains a portion of the proceeds from the purchased loans as a reserve
to offset potential losses on those loans. The Company negotiates the amount of
reserves with the dealer/developers based upon various criteria, including the
credit risk associated with the dealer/developer and the loans being purchased.
The Company generally returns any excess reserves to the dealer/developer on a
quarterly basis as the related loans are repaid by borrowers.
Income taxes
The Company uses the liability method of accounting for income taxes in its
financial statements.
Net income per common share
In 1997, Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" was issued. This statement establishes standards for computing and
presenting earnings per share. The statement replaces primary earnings per share
with basic earnings per share. Basic earnings per share excludes dilution and is
computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution that could occur if stock options and
stock award grants were exercised. Diluted earnings per share also includes the
assumption that all convertible debt has been converted as of the beginning of
each period. Diluted earnings per share is computed similarly to the previously
reported fully diluted earnings per share. All prior period amounts have been
restated to conform to FASB Statement No. 128.
Cash and cash equivalents
The Company considers all highly liquid instruments purchased with an original
maturity of three months or less to be cash equivalents.
Restricted cash
Restricted cash represents accounts established as credit enhancements for
certain loan sales and escrow deposits held for customers.
Deferred debt issuance costs
Deferred debt issuance costs are amortized over the life of the related debt.
The unamortized balance of $3,336,000 and $1,820,000 is included in other assets
at December 31, 1997 and 1996, respectively. The amount of the accumulated
amortization was $1,868,000 and $1,051,000 at December 31, 1997 and 1996,
respectively.
Stock-based compensation
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation." The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Reclassification
Certain amounts in the 1995 and 1996 financial statements have been reclassified
to conform with the 1997 presentation.
New accounting standards
In 1997, Statement of Financial Accounting Standard No. 130, "Reporting
Comprehensive Income" was issued. This statement establishes standards for
reporting comprehensive income and its components and requires this disclosure
be added as a new section in a financial statement. This statement is effective
for fiscal years beginning after December 31, 1997. The Company will adopt the
new disclosures required by FASB Statement No. 130 in 1998.
In 1997, Statement of Financial Accounting Standard No. 131, "Disclosures about
Segments of an Enterprise and Related Information" was issued. This statement
establishes standards for reporting information about operating segments in
annual and interim financial statements. This statement is effective for annual
periods beginning after December 15, 1997, and for interim periods beginning
after December 31, 1998. The Company will adopt the new disclosures required by
Statement No. 131 for the year ended December 31, 1998. The Company does not
expect its current disclosures to change significantly under FASB Statement No.
131.
2. Investments and Retained Interests in Loan Sales
<TABLE>
The following is a summary of investments and retained interests in loan sales:
<S> <C> <C> <C> <C>
(Dollars in thousands) Gross Unrealized Fair
December 31, 1997 Cost Gains Losses Value
Mortgage-backed securities.... $ 83 $ --- $ --- $ 83
Retained interests in loan sales 29,228 1,071 --- 30,299
------- ------ ------ ------
Total....................... $29,311 $1,071 $ --- $30,382
======= ====== ====== ======
(Dollars in thousands) Gross Unrealized Fair
December 31, 1996 Cost Gains Losses Value
Mortgage-backed securities.... $ 142 $ --- $ --- $ 142
Retained interests in loan sales 28,912 185 --- 29,097
------- ----- ------- ---------
Total....................... $29,054 $185 $ --- $29,239
======== ===== ====== =========
The amortized cost and estimated fair value of debt securities at December 31,
1997, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because the issuers of the securities may have the
right to prepay obligations without prepayment penalties. Mortgage-backed
securities are included in other assets.
</TABLE>
<TABLE>
<S> <C> <C>
Estimated
(Dollars in thousands) Cost Fair Value
--------- ----------
Due in one year or less.............. $ 2,486 $ 2,486
Due after one year through five years 26,825 27,896
--------- ---------
Total debt securities............. $29,311 $30,382
======= =======
</TABLE>
In 1990, the Company began privately placing issues of pass-through certificates
evidencing an undivided beneficial ownership interest in pools of loans which
have been transferred to trusts. The principal and part of the interest payments
on the loans transferred to the trust are collected by the Company, as the
servicer of the loan pool, remitted to the trust for the benefit of the
investors, and then distributed by the trust to the investors in the
pass-through certificates.
In certain of the Company's issues of pass-through certificates, credit
enhancement was achieved by dividing the issue into a senior portion which was
sold to the investors and a subordinated portion which was retained by the
Company. The Company had investments in pass-through certificates of $15,747,000
and $18,004,000 at December 31, 1997 and 1996, respectively. In certain other of
the Company's private placements, credit enhancement was achieved through cash
collateral. The Company had $21,412,000 and $18,647,000 of restricted cash at
December 31, 1997 and 1996, respectively, representing credit enhancements.
If borrowers default in the payment of principal or interest on the mortgage
loans underlying these issues of pass-through certificates, losses would be
absorbed first by the subordinated portion or cash collateral account retained
by the Company and might, therefore, have to be charged against the allowance
for the loan losses to the extent dealer/developer guarantees and reserves are
not available.
<PAGE>
<TABLE>
3. Loans
Loans at December 31 consisted of the following:
<S> <C> <C>
(Dollars in thousands)
December 31,
Loans held for sale 1997 1996
Land................................... $10,333 $11,833
VOI.................................... 3,134 2,194
Other.................................. 4,520 ---
Discount, net of accretion............. (233) (950)
Allowance for loan losses.............. (1,388) (817)
--------- ----------
Loans, net............................. $16,366 $12,260
======= =======
(Dollars in thousands)
December 31,
Other loans 1997 1996
- -------
Land................................... $ 1,911 $ 1,861
VOI.................................... 793 1,313
Hypothecation.......................... 36,206 44,153
A&D.................................... 41,385 22,811
Other ................................. 8,631 12,410
Discount, net of accretion............. (575) (1,352)
Allowance for loan losses.............. (2,044) (1,200)
--------- ---------
Loans, net............................. $86,307 $79,996
======= =======
</TABLE>
Contractual maturities of loans as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
December 31,
(Dollars in thousands) 1997
1997.............................................. $ 2,739
1998.............................................. 13,904
1999.............................................. 29,040
2000.............................................. 12,488
2001 ............................................ 3,531
Thereafter........................................ 40,971
----------
$102,673
</TABLE>
It is the Company's experience that a substantial portion of the loans will be
repaid before contractual maturity dates. Consequently, the above tabulation is
not to be regarded as a forecast of future cash collections.
4. Allowances for Loan Losses and Recourse Obligations
An analysis of the total allowances for all loan losses and recourse obligations
follows:
<TABLE>
<S> <C> <C>
December 31,
(Dollars in thousands) 1997 1996
------- -----
Allowances for losses on loans held for sale $1,388 $ 817
Allowance for losses on other loans........ 2,044 1,200
Recourse obligation on retained interests in loan sales
2,445 2,511
$5,877 $4,528
</TABLE>
====== ======
The total allowance for loan losses consists of the following:
<TABLE>
<S> <C> <C> <C>
Year ended December 31,
(Dollars in thousands) 1997 1996 1995
Allowance at beginning of period.......... $4,528 $3,715 $1,264
Net charge-offs of uncollectible accounts (1) (2,010) (1,965) (946)
Provision for loan losses ................ 1,400 1,954 890
Allocation of purchase adjustment (2)..... 1,959 824 2,507
------- -------- -------
Allowance at end of period............... $5,877 $4,528 $3,715
====== ====== ======
(1) Net of recoveries of $424, $310 and $11 in 1997, 1996 and 1995,
respectively.
(2)Represents allocation of purchase adjustment related to the purchase of
certain nonguaranteed loans.
</TABLE>
Net charge-offs by major loan and collateral types experienced by the Company
are summarized as follows:
<TABLE>
<S> <C> <C> <C>
Year ended December 31,
(Dollars in thousands) 1997 1996 1995
------- ------- -----
Land...................................... $ 986 $ 669 $546
VOI....................................... 939 1,284 45
Hypothecation............................. --- --- ---
A&D....................................... (2) (8) 352
Other..................................... 87 20 3
--------- --------- -------
Total..................................... $2,010 $1,965 $946
====== ====== ====
</TABLE>
5. Derivative financial instruments held for purposes other than trading
The Company's objective in managing interest rate exposure is to match its
proportion of fixed versus variable rate assets, liabilities and loan sale
facilities. In June 1997, the Company entered into two interest rate swap
agreements. The swap agreements involve the payment of interest to the
counterparty at the prime rate on a notional amount of $110,000,000 and the
receipt of interest at the commercial paper rate plus a spread and the LIBOR
rate plus a spread on notional amounts of $80,000,000 and $30,000,000,
respectively. The swap agreements expire in June 2000. There is no exchange of
the notional amounts upon which the interest payments are based.
The differential to be paid or received as interest rates change is accrued and
recognized as an adjustment to interest expense on outstanding debt, (the
accrual accounting method.) The related amount receivable from or payable to the
counterparty is included in other assets or other liabilities. The fair values
of the swap agreements are not recognized in the financial statements. The
Company intends to keep the contracts in effect until they mature in June 2000.
In June 1994, the Company entered into an interest rate cap agreement with a
bank in order to manage its exposure to certain increases in interest rates. The
interest rate cap entitles the Company to receive an amount, based on an
amortizing notional amount, when commercial paper rates exceed 8%. If payments
were to be received as a result of the cap agreement , they would be accrued as
a reduction of interest expense. The amount was $4,471,000 at December 31, 1997
and the agreement expires in July 2003.
The Company is exposed to credit loss in the event of non-performance by the
swap counterparty or cap provider.
<PAGE>
6. Debt
Financial data relating to the Company's secured lines of credit is as follows:
<TABLE>
<S> <C> <C>
December 31,
(Dollars in thousands) 1997 1996
Lines of credit available (1).............. $117,669 $51,799
Borrowings outstanding at end of period (1) $177 $36,299
Weighted average interest rate at end of period 7.7% 7.9%
Maximum borrowings outstanding at any month end $50,577 $36,299
Average amount outstanding during the period $33,419 $15,948
Weighted average interest rate during the period (determined
by dividing interest expense by average borrowings): 8.2% 7.6%
</TABLE>
(1)Amount includes $169 and $1,799 of outstanding borrowings at December 31,
1997 and 1996, respectively, on the revolving line of credit with
multi-seller commercial paper issuer. (See Note 11.)
As of December 31, 1997 and 1996 the Company had no unsecured lines of credit.
In May 1997, the Company renewed and amended a secured line of credit to
increase the line from $30,000,000 to $50,000,000 and extend the maturity to
April 2000. There were no outstanding borrowings under this line of credit at
December 31, 1997. Outstanding borrowings under the line of credit were
$26,200,000 at December 31, 1996. This line of credit is secured by consumer
receivables and other secured loans.
In December 1997, the Company amended a line of credit to increase the line from
$20,000,000 to $30,000,000. There were no outstanding borrowings under this
facility at December 31, 1997. Outstanding borrowings on this facility were
$8,300,000 at December 31, 1996. This facility is secured by certain retained
interests in loan sales, cash collateral accounts and certain other loans and
matures in September 1999.
In March 1997, the Company entered into a $25,000,000 secured line of credit.
There were no outstanding borrowings at December 31, 1997. 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.
In January 1997, the Company amended a line of credit to increase the line from
$5,000,000 to $8,000,000, which is secured by consumer receivables and other
secured loans. This line of credit matures in January 1999. There were no
outstanding borrowings on this line of credit at December 31, 1997 and 1996.
Also in March 1997, the Company entered into a $3,000,000 line of credit secured
by consumer receivables and other secured loans which matures in March 1998.
There were no outstanding borrowings at December 31, 1997.
In December 1997, the Company entered into a $1,500,000 construction mortgage
secured by certain assets of the Company which matures in December 2008.
Outstanding borrowing under this construction mortgage was $8,000 at December
31, 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 term note is payable monthly based on collection of the underlying
collateral. The note is redeemable only with the approval of the noteholder. The
note is collateralized by certain of the Company's retained interests in loan
sales and cash. The balance outstanding on the note was $5,210,000 and
$7,428,000 at December 31, 1997 and 1996, respectively.
In April 1997, the Company issued unsecured notes with an initial principal
balance of $20,000,000. Interest is payable at 9.3% semiannually in arrears. The
notes require principal reductions of $7,500,000, $6,000,000, $6,000,000 and
$500,000 in March 2001, 2002, 2003 and 2004, respectively.
In November 1997, the Company completed a public offering of $51,750,000 of
8.45% Notes due 2002 ("1997 Notes"), which is an unsecured obligation of the
Company. The proceeds were used to repay the outstanding balance on certain of
the Company's lines of credit and to retire the 10% Notes due 2002 ("1992
Notes"). The 1992 Notes were retired at par and resulted in an extraordinary
loss of $220,000, net of applicable tax benefit of $138,000. The 1997 Notes
allow for a maximum annual redemption at the election of the noteholders of
$2,588,000 and contain certain restrictions regarding the payment of cash
dividends and require the maintenance of certain financial ratios.
Previously, the Company completed public offerings of $17,570,000 in May 1993
("1993 Notes") and $18,400,000 in March 1995 ("1995 Notes"). The 1993 Notes and
the 1995 Notes bear interest at 8 7/8% and 10%, respectively, and are due 2003
and 2004, respectively. The 1993 Notes and the 1995 Notes are unsecured
obligations of the Company and each such issuance allows for a maximum annual
redemption by noteholders of 5% of the original principal amount thereof. In
June 1997, the noteholders redeemed, and the Company paid $613,000 of the 1993
Notes.
7. Retirement Plans
Effective January 1, 1996, the Company implemented the Litchfield Financial
Corporation Employee 401(k) Plan ("the Plan"), a defined contribution plan for
all eligible employees at least 21 years of age and who have been employed by
the Company for at least six months. Participating employees may elect to defer
up to fifteen percent of their annual gross earnings. The Company will match an
amount equal to one hundred percent of the employee's pretax contributions up to
five percent of the employee's eligible compensation contributed into the Plan.
Contributions made by the Company in 1997 and 1996 were $125,000 and $101,000,
respectively.
8. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<S> <C> <C>
December 31,
(Dollars in thousands) 1997 1996
-------- -----
Deferred Tax Assets:
Loan loss allowance........................... $ 44 $ 300
Other......................................... 697 817
----- -----
Total deferred tax assets..................... 741 1,117
Valuation allowance.......................... --- ---
---------- ---------
Net deferred tax assets...................... 741 1,117
-------- ------
Deferred Tax Liabilities:
Depreciation.................................. 50 43
Mortgage loan income
recognition.................................. 6,131 4,729
Accretion income.............................. 1,360 1,425
Other......................................... 51 ---
----- ----
Total deferred tax liabilities............... 7,592 6,197
------- -------
Net deferred tax liabilities............... $6,851 $5,080
====== ======
</TABLE>
Significant components of the provision for income taxes attributable to
continuing operations are as follow:
<TABLE>
<S> <C> <C> <C>
Year ended
December 31,
(Dollars in thousands) 1997 1996 1995
-------- --------- ------
Current:
Federal................................. $2,313 $ 1,911 $ 819
State................................... 50 50 38
--------- --------- ---------
Total Current.......................... 2,363 1,961 857
------- ------- --------
Deferred:
Federal................................. 1,630 1,288 1,191
State................................... 141 52 18
-------- --------- ---------
Total Deferred......................... 1,771 1,340 1,209
------- ------- -------
$4,134 $3,301 $2,066
====== ====== ======
</TABLE>
The reconciliation of income tax attributable to continuing operations computed
at the U.S. federal statutory tax rates to income tax expense is:
<TABLE>
<S> <C> <C> <C>
Year ended
December 31,
1997 1996 1995
-------- -------- -----
Tax at U.S. statutory rates............... 35.0% 35.0% 34.0%
State income taxes, net of
federal tax benefit..................... 3.4 3.4 3.4
Other - net............................... 0.1 0.1 0.1
----- ------ -----
38.5% 38.5% 37.5%
==== ==== ====
</TABLE>
9. Earnings per Share
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<S> <C> <C> <C>
Year ended December 31,
1997 1996 1995
---------
Numerator:
Net Income.............................. $6,383,000 $5,273,000 $3,449,000
========== ========== ==========
Denominator:
Denominator for basic earnings per share
weighted-average shares............... 5,572,465 5,441,636 4,315,469
Effect of dilutive securities:
Employee stock options................. 336,967 240,516 209,138
---------- ---------- ----------
Denominator for diluted earnings per share-
adjusted weighted-average shares and
assumed conversions................... 5,909,432 5,682,152 4,524,607
========= ========= =========
Basic earnings per share................ $1.15 $ .97 $ .80
===== ===== =====
Diluted earnings per share.............. $1.08 $ .93 $ .76
===== ===== =====
</TABLE>
10. Stockholders' Equity and Stock Option Plans
Stockholders' Equity
The Company declared 5% stock dividends in 1996 and 1995. Accordingly, weighted
average share and per share amounts have been restated for periods presented.
Stock Option Plans
The Company has reserved 1,122,319 shares of common stock for issuance to
officers, directors and employees on exercise of options granted under a stock
option plan established in 1990. Options were granted at prices equal to or in
excess of the fair market value of the stock on the date of the grant. There
were 573,346 and 615,000 shares exercisable at December 31, 1997 and 1996,
respectively.
Information with respect to options granted is as follows:
<TABLE>
<S> <C> <C>
Number Exercise
of price
Shares per share
Outstanding at December 31, 1994........... 677,469
Granted.................................. 81,588 $9.98-$11.56
Canceled or exercised.................... (43,385) $1.44-$11.67
-------- ------------
Outstanding at December 31, 1995........... 715,672
Granted.................................. 204,311 $11.55 - $14.05
Canceled or exercised.................... (13,175) $1.15-$11.55
-------- --------------
Outstanding at December 31, 1996........... 906,808
Granted.................................. 46,250 $14.38 - $21.00
Canceled or exercised.................... (209,950) $4.61-$13.33
------- --------------
Outstanding at December 31, 1997........... 743,108
=======
</TABLE>
In April 1995, the Company established the Stock Option Plan for Non-Employee
Directors which provides for the grant of options to purchase 5,513 shares of
common stock to each non-employee director serving on the Board at the time the
plan was approved and to each new non-employee director elected in the five year
period commencing April 1995. The maximum number of shares for which options may
be granted under the plan is 66,150 shares. Options for 22,052 shares were
granted at an exercise price of $12.02 per share in 1995 which was the fair
market value on the date of grant. There were 18,377 and 22,052 options
outstanding at December 31, 1997 and 1996, respectively. There were 11,025 and
7,352 options that were exercisable at December 31, 1997 and 1996, respectively.
Pro forma information regarding net income and earnings per share is required by
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-based
Compensation," which also requires that the information be determined as if the
Company had accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of that Statement. The fair value
for these options was estimated at the date of grant using the Black-Scholes
option pricing model with the following weighted-average assumptions for 1997,
1996 and 1995, respectively: risk-free interest rates of 5.78%, 6.23% and 6.31%;
a dividend yield of .32%, .35% and .35%, volatility factors of the expected
market price of the Company's common stock of .23, .24 and .24; and a
weighted-average expected life of the option of 7.5 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
<PAGE>
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information that follows is presented in thousands, except per share data.
<TABLE>
<S> <C> <C> <C>
Year ended
December 31,
1997 1996 1995
-------- -------- ------
Pro forma net income before extraordinary item $6,280 $4,983 $3,363
Extraordinary item....................... (220) --- ---
-------- ---------- -------
Pro forma net income..................... $6,060 $4,983 $3,363
====== ====== ======
Pro forma basic earnings per share
Income before extraordinary item....... $ 1.13 $ .92 $ .78
Extraordinary item..................... (.04) --- ---
---------- ---------- ----------
Net income............................. $ 1.09 $ .92 $ .78
======== ======== ========
Pro forma diluted earnings
per share
Income before extraordinary item....... $ 1.06 $ .88 $ .74
Extraordinary item..................... ( .04) --- ---
--------- --------- ----------
Net income............................. $ 1.02 $ .88 $ .74
======== ======= ========
</TABLE>
11. Sale of Loans
The Company has sold $348,198,000 and $249,451,000 of loans at face value
through December 31, 1997 and 1996, respectively. The principal amount remaining
on the loans sold was $179,790,000 and $129,619,000 at December 31, 1997 and
1996, respectively. The Company guarantees, through replacement or repayment,
loans in default up to a specific percentage of loans sold. Dealer/Developer
guaranteed loans are secured by repurchase or replacement guarantees in addition
to, in most instances, dealer/developer reserves.
The Company's exposure to loss on loans sold in the event of nonperformance by
the consumer, the dealer/developer on its guarantee, and the determination that
the collateral is of no value was $9,238,000, $8,780,000, and $10,259,000 at
December 31, 1997, 1996 and 1995, respectively. Such amounts have not been
discounted. The Company repurchased $740,000, $991,000 and $448,000 of loans
under the recourse provisions of loan sales in 1997, 1996, and 1995,
respectively. 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 document.
The Company's Serviced Portfolio is geographically diversified with collateral
and consumers located in 44 and 50 states, respectively. At December 31, 1997,
19.1% and 10.4% of the portfolio by collateral location was located in Texas and
Florida, respectively, and 19.1% and 12.9% of the portfolio by borrower location
were located in Texas and Florida, respectively. No other state accounted for
more than 10.0% of the total.
The Company 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 November 1997, the Company amended the facility to increase
the facility to $125,000,000, subject to certain terms and conditions. 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 December 31, 1997,
the outstanding balance of the sold or pledged loans securing this facility was
$108,625,000. Outstanding borrowings under the line of credit at December 31,
1997 and 1996 were $169,000 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 1996 ("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 December 31, 1997, the
outstanding aggregate balance of the sold loans under the facility was
$12,517,000. There were no outstanding borrowings under the line of credit as of
December 31, 1997. Interest is payable on the line of credit at an interest rate
based on certain commercial paper rates.
<PAGE>
<TABLE>
REPORT OF MANAGEMENT
12. Quarterly Results of Operations (Unaudited)
<S> <C> <C> <C> <C> <C>
First Second Third Fourth Total
(in thousands, except share and per share data)
1995
Total revenues.................. $2,750 $4,574 $5,464 $4,673 $17,461
Total expenses.................. 2,157 3,013 3,137 3,639 11,946
Net income...................... 370 975 1,454 650 3,449
Earnings per common share:
Basic........................ .09 .24 .35 .13 .80
Diluted...................... .09 .23 .33 .13 .76
Weighted average number of shares:
Basic........................ 4,085,033 4,100,300 4,120,674 4,948,327 4,315,469
Diluted...................... 4,231,959 4,264,612 4,387,045 5,198,573 4,524,607
1996
Total revenues.................. $4,650 $6,101 $6,977 $5,968 $23,696
Total expenses.................. 3,355 3,560 3,808 4,399 15,122
Net income...................... 798 1,564 1,946 965 5,273
Earnings per common share:
Basic........................ .15 .29 .36 .18 .97
Diluted...................... .14 .27 .34 .17 .93
Weighted average number of shares:
Basic........................ 5,436,149 5,442,768 5,443,319 5,444,399 5,441,636
Diluted...................... 5,629,983 5,708,164 5,697,100 5,706,061 5,682,152
1997
Total revenues.................. $6,407 $7,691 $8,263 $7,330 $29,691
Total expenses.................. 4,545 4,634 4,749 5,026 18,954
Income before extraordinary item 1,145 1,880 2,161 1,417 6,603
Extraordinary item.............. --- --- --- (220) (220)
Net income...................... 1,145 1,880 2,161 1,197 6,383
Earnings per common share:
Basic income before extraordinary item.21 .34 .38 .25 1.19
Diluted income before extraordinary item.20 .32 .36 .24 1.12
Extraordinary item........... --- --- --- (.04) (.04)
Basic net income............. .21 .34 .38 .21 1.15
Diluted net income........... .20 .32 .36 .20 1.08
Weighted average number of shares:
Basic........................ 5,446,679 5,560,167 5,629,644 5,652,424 5,572,465
Diluted...................... 5,792,078 5,857,176 5,980,698 6,014,831 5,909,432
</TABLE>
A significant portion of the Company's revenues consists of gains on sales of
loans. Thus, the timing of loan sales has a significant effect on the Company's
results of operations. An accrual of approximately $510,000 for salary
compensation as the result of the realization of performance criteria by certain
executive and management personnel was recorded in the fourth quarter of 1995.
In 1996 and 1997, such amounts were accrued throughout the year including
$128,000 and $123,000, respectively, in the fourth quarter.
<PAGE>
REPORT OF MANAGEMENT
To the Stockholders and Noteholders of
LITCHFIELD FINANCIAL CORPORATION
ated financial statements have been prepared in conformity with generally
accepted accounting principles. They include amounts based on informed judgment
and estimates. The representations in the financial statements are the
responsibility of management. Financial information elsewhere in the Annual
Report is consistent with that in the financial statements.
To meet management's responsibility, the Company maintains a system of
internal control designed to provide reasonable assurance that errors or
irregularities that could be material to the financial statements are prevented
or would be detected within a timely period. The system of internal control
includes statements of policies and business practices, widely communicated to
employees, which are designed to require them to maintain high ethical standards
in their conduct of Company affairs. The internal controls are augmented by
organizational arrangements that provide for appropriate delegation of authority
and division of responsibility and by a program of internal audit with
management follow-up.
The financial statements have been audited by Ernst & Young LLP. Their audit
was conducted in accordance with generally accepted auditing standards and
included a review of internal controls and selective tests of transactions.
The Audit Committee of the Board of Directors, composed entirely of outside
directors, meets periodically with the independent auditors and management to
review accounting, auditing, internal accounting controls and financial
reporting matters. The independent auditors have free access to this committee
without management present.
/S/ RONALD E. RABIDOU /S/ DAVID M. PASCALE
RONALD E. RABIDOU DAVID M.PASCALE
Chief Financial OfficerChief Accounting Officer and Controller
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
LITCHFIELD FINANCIAL CORPORATION
We have audited the accompanying consolidated balance sheets of Litchfield
Financial Corporation as of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Litchfield
Financial Corporation at December 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
January 31, 1998
Corporate Officers Board of Directors
Richard A. Stratton John A. Costa
Chief Executive Officer and President Managing Director of Planning and
Business Development for Cardholder
Heather A. Sica Management Services
Executive Vice President and Treasurer
Donald R. Dion, Jr., Esq.
Ronald E. Rabidou Chairman and Chief Executive Officer
Chief Financial Officer of Dion Money Management Advisors,
Inc.
Wayne M. Greenholtz
Senior Vice President Daivd J. Ferrari
President, Argus Management
John J. Malloy Corporation
Senior Vice President
Gerald Segel
James H. Shippee Retired Chairman, Tucker Anthony &
Senior Vice President R.L. Day, Inc.
Michael A. Spadacino Heather A. Sica
Senior Vice President Executive Vice President and
Treasurer
Joseph S. Weingarten Richard A. Stratton
Senior Vice President Chief Executive Officer and President
James A. Yearwood James Westra, Esq.
First Vice President Stockholder of Hutchins, Wheeler &
Dittmar, A Professional Corporation
David M. Pascale
Chief Accounting Officer
and Controller Nasdaq Symbol
General Counsel The common stock is traded
under the symbol "LTCH".
Hutchins, Wheeler & Dittmar,
A Professional Corporation Copies of the Company's Form
Boston, MA 10-K Report, filed with the
Securities and
Exchange Commission, may be obtained
Transfer Agent from the office of the Treasurer,
Litchfield
Financial Corporation, 430 Main Street,
State Street Bank and Trust Company Williamstown, MA 01267.
c/o Boston EquiServe
Boston, MA As of January 31, 1998, there were
1,070 stockholders of record.
Independent Auditors
Ernst & Young LLP
Boston, MA
<PAGE>
Corporate Headquarters Western Regional Office
Litchfield Financial Corporation Litchfield Financial Corporation
430 Main Street 13701 West Jewell Avenue
Williamstown, MA 01267 Suite 200
Lakewood, CO 80228
Tel: (413) 458-1000 Tel: (303) 985-1030
Fax: (413) 458-1020 Fax: (303) 985-5375
E-mail: [email protected]
<PAGE>
<TABLE>
Exhibit 21.1
LITCHFIELD FINANCIAL CORPORATION
List of Subsidiaries
<S> <C> <C>
Name and Doing Business As Incorporation D/B/A
Litchfield Financial Corporation Massachusetts None
Litchfield Mortgage Securities Corporation Massachusetts None
Litchfield Mortgage Securities Corporation 1992-2 Massachusetts None
Taconic Financial Services Corporation Vermont None
Litchfield Mortgage Securities Corporation 1994 Delaware None
Litchfield Residual Securities Corporation Delaware None
Stamford Asset Recovery Corporation Delaware None
Stamford Business Credit Corporation Delaware None
Litchfield Timeshare Securities Corporation 1995 Delaware None
LTSC Real Estate Asset Corporation Delaware None
Litchfield Capital Corporation 1996 Delaware None
Green Mountain Funding Corporation Delaware None
Litchfield Hypothecation Corporation Delaware None
Litchfield Hypothecation Corporation 1997-B Delaware None
</TABLE>
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Litchfield Financial Corporation of our report dated January 31,
1998, included in the 1997 Annual Report to Stockholders of Litchfield
Financial Corporation.
We also consent to the incorporation by reference in Registration Statements
(Forms S-8 Nos. 333-11529 and 333-11531) filed with the Securities and
Exchange Commission pertaining to various Litchfield Financial Stock Option
Plans of our report dated January 31, 1998 with respect to the consolidated
financial statements of Litchfield Financial Corporation incorporated by
reference in the Annual Report (Form 10-K) for the year ended December 31,
1997.
/s/ Ernst & Young
LLP
ERNST & YOUNG LLP
Boston, Massacusetts
March 27, 1998
<PAGE>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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RESTATED RESTATED
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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RESTATED RESTATED
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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RESTATED
<S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> 5
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RESTATED
<S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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RESTATED RESTATED
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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RESTATED RESTATED
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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