UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1998
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
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
As of August 12, 1998, there were 6,669,751 shares of common stock of
Litchfield Financial Corporation outstanding.
FORM 10-Q
1
LITCHFIELD FINANCIAL CORPORATION
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 35
SIGNATURES 36
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LITCHFIELD FINANCIAL CORPORATION
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
<TABLE>
<S> <C> <C>
June 30, December 31,
1998 1997
--------- ----
(unaudited)
ASSETS
Cash and cash equivalents...................... $ 14,568 $ 19,295
Restricted cash................................ 27,472 23,496
Loans held for sale, net of allowance for loan
losses of
$942 in 1998 and $1,388 in 1997............. 13,546 16,366
Other loans, net of allowance for loan losses of
$2,459 in 1998 and $2,044 in 1997........... 137,147 86,307
Retained interests in loan sales, net of 31,007 30,299
allowance for loan loses of
$3,062 in 1998 and $2,445 in 1997...........
Other.......................................... 12,941 11,027
------ ------
Total assets............................. $233,681 $186,790
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Lines of credit............................. $ 22,601 $ 177
Term note payable........................... 3,717 5,210
Accounts payable and accrued liabilities.... 9,671 6,479
Dealer/developer reserves................... 10,444 10,655
Deferred income taxes....................... 8,178 6,851
------ ------
54,611 29,372
9.3% Notes.................................. 20,000 20,000
8.45% Notes due 2002........................ 51,750 51,750
8.875% Notes due 2003....................... 15,066 15,317
10% Notes due 2004.......................... 18,240 18,280
------ ------
105,056 105,347
Stockholders' equity
Preferred stock, $.01 par value; authorized
1,000,000 shares, none
issued and outstanding................... --- ---
Common stock, $.01 par value; authorized
12,000,000 shares,
6,669,751 shares issued and outstanding in
1998 and 5,656,609
shares issued and outstanding in 1997.... 66 56
Additional paid in capital.................. 54,575 36,681
Accumulated other comprehensive income...... 1,251 1,071
Retained earnings........................... 18,122 14,263
------ ------
Total stockholders' equity............... 74,014 52,071
------ ------
Total liabilities and stockholders' equity $233,681 $186,790
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
<TABLE>
LITCHFIELD FINANCIAL CORPORATION
Consolidated Statements of Income
(In thousands, except share and per share amounts)
Unaudited
<S> <C> <C>
Three Months Ended June 30,
1997 1998
Revenues:
Interest and fees on loans................... $6,055 $4,783
Gain on sale loans.......................... 3,452 2,563
Servicing and other fee income............... 466 345
9,973 7,691
Expenses:
Interest expense............................ 3,695 2,648
Salaries and employee benefits.............. 1,147 833
Other operating expenses.................... 916 853
Provision for loan losses................... 460 300
6,218 4,634
Income before income taxes.................... 3,755 3,057
Provision for income taxes.................... 1,446 1,177
Net income.................................... $2,309 $1,880
Earnings per common share:
Basic...................................... $ .40 $ .34
Diluted.................................... $ .38 $ .32
Weighted average number of shares:
Basic...................................... 5,754,018 5,560,167
Diluted.................................... 6,117,832 5,857,176
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
<TABLE>
LITCHFIELD FINANCIAL CORPORATION
Consolidated Statements of Income
(In thousands, except share and per share amounts)
Unaudited
<S> <C> <C>
Six Months Ended June 30,
1998 1997
Revenues:
Interest and fees on loans................... $11,288 $9,329
Gain on sale of loans........................ 5,679 4,067
Servicing and other fee income............... 959 702
17,926 14,098
Expenses:
Interest expense............................. 6,692 5,042
Salaries and employee benefits............... 2,280 1,646
Other operating expenses..................... 1,869 1,756
Provision for loan losses.................... 810 735
11,651 9,179
Income before income taxes...................... 6,275 4,919
Provision for income taxes...................... 2,416 1,894
Net income...................................... $3,859 $3,025
Earnings per common share:
Basic........................................ $ .68 $ .55
Diluted...................................... $ .64 $ .52
Weighted average number of shares:
Basic........................................ 5,706,887 5,503,736
Diluted...................................... 6,069,164 5,824,947
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<TABLE>
LITCHFIELD FINANCIAL CORPORATION
Consolidated Statements of Comprehensive Income
(In thousands)
Unaudited
<S> <C> <C>
Three Months Ended June 30,
1998 1997
Net income..................................... $2,309 $1,880
Other comprehensive income, net of tax:
Net unrealized gain on retained interests in
loan sales..................................... 204 288
Comprehensive income $2,513 $2,168
</TABLE>
<TABLE>
<S> <C> <C>
Six Months Ended June 30,
1998 1997
------ ------
Net income....................................... $3,859 $3,025
Other comprehensive income, net of tax:
Net unrealized gain on retained interests in
loan sales..................................... 180 523
Comprehensive income.............................. $4,039 $3,548
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<TABLE>
LITCHFIELD FINANCIAL CORPORATION
Consolidated Statement of Stockholders' Equity
(In thousands, except share amounts)
Unaudited
<S> <C> <C> <C> <C> <C>
Accumulated
Additional Other
Common Paid In Comprehensive Retained
Stock Capital Income Earnings Total
Balance, December 31, 1997. $56 $36,681 $1,071 $14,263 $52,071
Issuance of 1,013,142
shares of common stock... 10 17,855 --- --- 17,865
Accumulated other
comprehensive income..... -- --- 180 --- 180
Tax benefit from
stock options exercised.. -- 39 --- --- 39
Net income................. -- --- --- 3,859 3,859
--- --- --- ----- -----
Balance, June 30, 1998..... $66 $54,575 $1,251 $18,122 $74,014
=== ======= ====== ======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
<TABLE>
LITCHFIELD FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(In thousands)
Unaudited
<S> <C> <C>
Six Months Ended June 30,
1998 1997
---- ----
Cash flows from operating activities:
Net income..................................... 3,859 $3,025
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Gain on sale of loans...................... (5,679) (4,067)
Amortization and depreciation.............. 484 332
Amortization of retained interests in loan
sales...................................... 2,905 2,061
Provision for loan losses.................. 810 735
Deferred income taxes...................... 1,327 955
Net changes in operating assets and
liabilities:
Restricted cash........................ (3,976) (2,441)
Loans held for sale.................... 3,879 (8,300)
Retained interests in loan sales....... (872) 470
Dealer/developer reserves.............. (211) (2)
Net change in other assets and liabilities 1,723 753
----- -----
Net cash provided by (used in) operating activities 4,249 (6,479)
----- ------
Cash flows from investing activities:
Net originations, purchases and principal payments
on other loans.................................... (73,114) (27,379)
Other loans sold.................................. 25,159 15,325
Collections on retained interests in loan sales... 1,866 2,534
Capital expenditures and other assets............. (1,157) (447)
Purchase of investmet............................. (235) ---
Net cash used in investing activities (47,481) (9,967)
Cash flows from financing activities:
Net borrowings (payments) on lines of credit..... 22,424 (2,012)
Proceeds from issuance of 9.3% Notes............. --- 20,000
Retirement of long-term Notes.................... (291) (613)
Payments on term note............................... (1,493) (1,032)
Net proceeds from issuance of common stock.......... 17,865 1,607
Net cash provided by financing activities........... 38,505 17,950
Net (decrease) increase in cash and cash equivalents (4,727) 1,504
Cash and cash equivalents, beginning of period...... 19,295 5,557
Cash and cash equivalents, end of period............ $14,568 $ 7,061
Supplemental Schedule on Noncash Financing and
Investing Activities:
Exchange of loans for retained interests in
loan sales...................................... $ 529 $ 364
Transfers from loans to real estate acquired
through foreclosure.............................. $ 1,005 $ 516
Supplemental Cash Flow Information:
Interest paid 6,053 4,339
Income taxes paid 239 937
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
FORM 10-Q
LITCHFIELD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
A. Basis of Presentation
The accompanying unaudited consolidated interim financial statements as of
June 30, 1998 and for the three and six month periods ended June 30, 1998 and
1997, have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal accruals) considered necessary for a fair
presentation have been included. Operating results for the three and six month
periods ended June 30, 1998, are not necessarily indicative of the results
expected for the year ending December 31, 1998. For further information, refer
to the consolidated financial statements and footnotes thereto included in
Litchfield Financial Corporation's annual report on Form 10-K for the year ended
December 31, 1997.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 130, "Reporting Comprehensive Income." The
Company adopted the requirements of this Statement in the first quarter. This
Statement established standards for reporting comprehensive income and its
components and requires this disclosure be added as a new item in the financial
statements.
B. Gain on Sale of Loans and Retained Interests in Loan Sales
Gains on sales of loans are based on the difference between the allocated
cost basis of the assets sold and the proceeds received, which includes the fair
value of any assets or liabilities that are newly created as a result of the
transaction. Newly created interests, which consist primarily of interest only
strips and recourse obligations, are initially recorded at fair value. The
previous carrying amount is allocated between the assets sold and any retained
interests based on their relative fair values at the date of transfer. Retained
interests in transferred assets consist primarily of subordinate portions of the
principal balance of transferred assets and interest only strips.
The Company estimates fair value using discounted cash flow analysis (using
discount rates commensurate with the risks involved), because quoted market
prices are not readily 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 return on investment, 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.
There is generally no servicing asset or liability because the Company
estimates that the benefits of servicing are offset by the related costs
associated with its servicing responsibilities.
Since its inception, the Company has sold $417,081,000 of loans at face
value ($348,198,000 through December 31, 1997). The principal amount remaining
on the loans sold was $219,809,000 at June 30, 1998 and $179,790,000 at December
31, 1997. In connection with certain loan sales, the
<PAGE>
FORM 10-Q
LITCHFIELD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Company
guarantees, through replacement or repayment, loans that default up to a
specified percentage of loans sold. Dealer/developer guaranteed loans are
secured by repurchase or replacement guarantees in addition to, in most
instances, dealer/developer reserves.
The Company's exposure to loss on loans sold in the event of nonperformance
by the consumer, default by the dealer/developer on its guarantee, and the
determination that the collateral is of no value was $10,570,000 at June 30,
1998 ($9,238,000 at December 31, 1997). Such amounts have not been discounted.
The Company repurchased $26,000 and $119,000 of loans under the recourse
provisions of loan sales during the three months ended June 30, 1998 and 1997.
Loans purchased during the six months ended June 30, 1998 and 1997 were $144,000
and $454,000, respectively, and $740,000 during the year ended December 31,
1997. In addition, when the Company sells loans through securitization programs,
the Company commits either to replace or repurchase any loans that do not
conform to the requirements thereof in the operative loan sale documents. As of
June 30, 1998, $25,830,000 of the Company's cash was restricted as credit
enhancements in connection with certain securitization programs. To date, the
Company has participated $8,568,000 of A&D and Other Loans without recourse to
the Company ($6,936,000 through December 31, 1997).
The Company's Serviced Portfolio is geographically diversified with
collateral and consumers located in 46 and 50 states, respectively. 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. At June
30, 1998, 16.6% of the Serviced Portfolio by collateral location was located in
Texas (19.1% at December 31, 1997), and 18.9% and 16.3% of the Serviced
Portfolio by borrower location was located in Florida and Texas (12.9% and 19.1%
at December 31, 1997), respectively. No other state accounted for more than
11.0% of the total by either collateral or borrower location.
C. Allowance for loan losses and recourse obligations
<TABLE>
The total allowance for loan losses consists of the following:
<S> <C> <C>
June 30, December 31,
1998 1997
Allowance for losses on loans held for sale $942,000 $1,388,000
Allowance for losses on other loans........ 2,459,000 2,044,000
Recourse obligation on retained interests
in loan sales.............................. 3,062,000 2,445,000
$6,463,000 $5,877,000
</TABLE>
D. Debt
In January 1997, the Company amended a line of credit, secured by consumer
receivables and other secured loans, to increase the line from $5,000,000 to
$8,000,000. This line of credit matures in January 1999. There were no
outstanding borrowings at June 30, 1998 or December 31, 1997.
In March 1997, the Company entered into an additional $25,000,000 secured
line of credit. The outstanding borrowings under this line of credit at June 30,
1998 were $5,738,000 and there were no outstanding borrowings at December 31,
1997. The facility is secured by loans to developers of vacation ownership
interest resorts ("VOI resorts"), popularly known as timeshare 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 May 1997, the Company renewed and amended an additional secured line of
credit to increase the line from $30,000,000 to $50,000,000 and extend the
maturity to April 2000. The outstanding borrowings under this line of credit at
June 30, 1998 were $6,427,000. There were no outstanding borrowings at December
31, 1997. This line of credit is secured by consumer receivables and other
secured loans.
In December 1997, the Company amended an additional line of credit to
increase the line from $20,000,000 to $30,000,000. Outstanding borrowings under
this line of credit at June 30, 1998, were $8,850,000. There were no outstanding
borrowings at December 31, 1997. 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 1998, the Company renewed an additional $3,000,000 line of credit,
which is secured by consumer receivables and other secured loans. This line of
credit matures in March 1999. There were no outstanding borrowings under this
line of credit at June 30, 1998 and December 31, 1997.
In March 1998, the Company amended the $1,500,000 construction mortgage,
secured by certain assets of the Company, extending the maturity date to March
2009. Outstanding borrowings under this construction mortgage were $1,500,000
and $8,000 at June 30, 1998 and December 31, 1997, respectively.
Interest rates on the above lines of credit range from the Eurodollar or
LIBOR rates plus 2% to the prime rate plus 1.25%. The Company is not required to
maintain compensating balances or forward sales commitments under the terms of
these lines of credit.
As of June 30, 1998 and December 31, 1997, the Company had no unsecured
lines of credit.
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 June 1998, the Company amended the facility to increase
the facility to $150,000,000, subject to certain terms and conditions. The
facility expires in June 2001.
In connection with the facility, the Company formed a wholly-owned
subsidiary, Litchfield Mortgage Securities Corporation 1994 ("LMSC"), to
purchase loans from the Company. LMSC either pledges the loans on a revolving
line of credit with Conduit A or sells the loans to Conduit A. Conduit A issues
commercial paper or other indebtedness to fund the purchase or pledge of loans
from LMSC. Conduit A is not affiliated with the Company or its affiliates. As of
June 30, 1998 and December 31, 1997, the outstanding balance of the sold or
pledged loans securing this facility was $124,447,000 and $108,625,000,
respectively. Outstanding borrowings under the line of credit at June 30, 1998
and December 31, 1997 were $86,000 and $169,000, respectively. Interest is
payable on the line of credit at an interest rate based on certain commercial
paper rates.
In March 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 June 30, 1998 and
December 31, 1997, the outstanding aggregate balance of the loans sold under the
facility was $12,267,000 and $12,517,000, respectively. There were no
outstanding borrowings under the line of credit as of June 30, 1998 or December
31, 1997. Interest is payable on the line of credit at an interest rate based on
certain commercial paper rates.
The term note is payable monthly based on collections from the underlying
collateral. The note is currently 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
$3,717,000 and $5,210,000 at June 30, 1998 and December 31, 1997, 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 are unsecured obligations 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. 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 debt 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. In April of 1998, the noteholders redeemed, and the Company paid $40,000
of the 1995 Notes. In June of 1998, the noteholders redeemed, and the Company
paid $251,000 of the 1993 Notes.
E. 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 income or expense (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, which at June 30, 1998 was $4,057,000, 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.
This 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>
FORM 10-Q
1
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-looking Statements
Except for the historical information contained or incorporated by reference
in this Form 10-Q, 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. Refer to form 10-K for the year ended 1997 for a
complete list of factors as discussed under "Risk Factors".
Overview
Litchfield Financial Corporation (the "Company") is a diversified finance
company that provides financing to creditworthy borrowers for assets not
typically financed by banks. The Company provides such financing by purchasing
consumer loans and by making loans to businesses secured by consumer receivables
or other assets.
The Company purchases consumer loans (the "Purchased Loans") consisting
primarily of loans to purchasers of rural and vacation properties ("Land Loans")
and vacation ownership interests popularly known as timeshare interests ("VOI
Loans"). The Company also provides financing to rural land dealers, timeshare
resort developers and other finance companies secured by receivables
("Hypothecation Loans") and to dealers and developers for the acquisition and
development of rural land and timeshare resorts ("A&D Loans"). In addition, the
Company purchases other loans, such as consumer home equity loans and consumer
construction loans, and provides financing to other businesses secured by
receivables or other assets ("Other Loans").
Land Loans are typically secured by one to twenty acre rural parcels. Land
Loans are secured by property located in 35 states, predominantly in the
southern United States. VOI Loans typically finance the purchase of ownership
interests in fully furnished vacation properties. VOI Loans are secured by
property located in 18 states, predominantly in California, Florida and
Pennsylvania. The Company requires most dealers or developers from whom it buys
loans to guarantee repayment or replacement of any loan in default. Ordinarily,
the Company retains a percentage of the purchase price as a reserve until the
loan is repaid.
The Company extends Hypothecation Loans to land dealers, resort developers
and other finance companies secured by receivables. Hypothecation Loans
typically have advance rates of 75% to 90% of the current balance of the pledged
receivables and variable interest rates based on the prime rate plus 2% to 4%.
The Company also makes A&D Loans to land dealers and resort developers for
the acquisition and development of rural land and timeshare resorts in order to
finance additional receivables generated by the A&D Loans. At the time the
Company makes A&D Loans, it typically receives an exclusive right to purchase or
finance the related consumer receivables generated by the sale of the subdivided
land or timeshare interests. A&D Loans typically have loan to value ratios of
60% to 80% and variable interest rates based on the prime rate plus 2% to 4%.
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.
Results of Operations
The following table sets forth the percentage relationship to revenues,
unless otherwise indicated, of certain items included in the Company's
statements of income.
<TABLE>
<S> <C> <C> <C> <C>
Three Months Six Months Ended
Ended
June 30, June, 30
1998 1997 1998 1997
------ ------ ---- ----
Revenue
Interest and fees on loans 60.7% 62.2% 63.0% 66.2%
Gain on sale of loans.... 34.6 33.3 31.7 28.8
Servicing and other fee 4.7 4.5 5.3 5.0
---- ---- ---- ----
income
100.0 100.0 100.0 100.0
----- ----- ----- -----
Expenses
Interest expense......... 37.0 34.4 37.4 35.8
Salaries and employee 11.5 10.9 12.7 11.7
benefits.....................
Other operating expenses. 9.2 11.1 10.4 12.4
Provision for loan losses 4.6 3.9 4.5 5.2
---- ---- ---- ----
62.3 60.3 65.0 65.1
---- ---- ---- ----
Income before income taxes... 37.7 39.7 35.0 34.9
Provision for income taxes... 14.5 15.3 13.5 13.4
---- ---- ---- ----
Net income................... 23.2 24.4 21.5 21.5
==== ==== ==== ====
</TABLE>
Revenues increased 29.7% and 27.2% to $9,973,000 and $17,926,000 for the
three and six months ended June 30, 1998, from $7,691,000 and $14,098,000 for
the same periods in 1997. Net income for the three and six months ended June 30,
1998 increased 22.8% and 27.6% to $2,309,000 and $3,859,000 compared to
$1,880,000 and $3,025,000 for the same periods in 1997. Loan originations grew
100.2% and 95.7% to $95,585,000 and $163,078,000 for the three and six months
ended June 30, 1998 from $47,249,000 and $83,311,000 for the same periods in
1997. The Serviced Portfolio increased 36.4% to $384,663,000 at June 30, 1998
from $281,965,000 at June 30, 1997.
Interest and fees on loans increased 26.6% and 21.0% to $6,055,000 and
$11,288,000 for the three and six months ended June 30, 1998 from $4,783,000 and
$9,329,000 for the same periods in 1997, primarily as the result of the higher
average balance of other loans during the 1998 period. The average rate earned
on the Serviced Portfolio decreased to 12.2% at June 30, 1998 from 12.4% at June
30, 1997, primarily due to the effect of the growth in Hypothecation Loans as a
percentage of the portfolio. Hypothecation Loan yields are usually less than
Land Loan or VOI Loan yields, but Hypothecation Loan servicing costs and loan
losses are generally less as well.
Gain on the sale of loans increased 34.7% and 39.6% to $3,452,000 and
$5,679,000 for the three and six months ended June 30, 1998 from $2,563,000 and
$4,067,000 in the same periods in 1997. The volume of loans sold increased 83.5%
and 74.4% to $50,380,000 and $68,882,000 for the three and six months ended June
30, 1998 from $27,458,000 and $39,501,000 during the corresponding periods in
1997 primarily due to the growth in originations. The percentage increase in the
gain on sale of loans was less than the percentage increase in the volume
of loans sold primarily due to the increase in Hypothecation Loans sold.
Hypothecation Loan sales typically yield less than Land Loans or VOI Loans.
Servicing and other fee income increased 35.1% and 36.6% to $466,000 and
$959,000 for the three and six months ended June 30, 1998, from $345,000 and
$702,000 for the same periods in 1997 mostly due to the increase in the other
fee income including certain processing fees and a prepayment penalty from a
Hypothecation Loan. Although loans serviced for others increased 58.4% to
$219,809,000 as of June 30, 1998 from $138,771,000 at June 30, 1997, servicing
income remained relatively constant due to an increase in Hypothecation Loans
serviced for others and a decrease in the average servicing fee per loan.
Interest expense increased 39.5% and 32.7% to $3,695,000 and $6,692,000
during the three and six months ended June 30, 1998 from $2,648,000 and
$5,042,000 for the same periods in 1997. The increase in interest expense
primarily reflects an increase in average borrowings which was only partially
offset by lower rates. During the three and six months ended June 30, 1998,
borrowings averaged $158,531,000 and $139,503,000 at an average rate of 8.7% and
8.8%, respectively, as compared to $107,934,000 and $103,551,000 at an average
rate of 9.0% and 9.1% during the same periods in 1997. Interest expense includes
the amortization of deferred debt issuance costs.
Salaries and employee benefits increased 37.7% and 38.5% to $1,147,000 and
$2,280,000 for the three and six months ended June 30, 1998 from $833,000 and
$1,646,000 for the same periods in 1997 because of an increase in the number of
employees in 1998 and, to a lesser extent, an increase in salaries. Personnel
costs as a percentage of revenues increased to 11.5% and 12.7% for the three and
six months ended June 30, 1998 compared to 10.8% and 11.7% for the same periods
in 1997. As a percentage of the Serviced Portfolio, personnel costs remained
constant at 1.2% for both the three and six months ended June 30, 1998 and for
the same periods in 1997.
Other operating expenses increased 7.4% and 6.4% to $916,000 and $1,869,000
for the three and six months ended June 30, 1998 from $853,000 and $1,756,000
for the same periods in 1997. As a percentage of revenues, other operating
expenses decreased to 9.2% and 10.4% for the three and six months ended June 30,
1998 compared to 11.1% and 12.4% for the corresponding periods in 1997. As a
percentage of the Serviced Portfolio, other operating expenses decreased to 1.0%
for both the three and six months ended June 30, 1998 from 1.2% and 1.3% for the
same periods in 1997.
During the three and six months ended June 30, 1998, the provision for loan
losses increased 53.3% and 10.2% to $460,000 and $810,000 from $300,000 and
$735,000 for the same periods in 1997 primarily due to the growth of the
Serviced Portfolio.
Liquidity and Capital Resources
The Company's business requires continued access to short and long-term
sources of debt financing and equity capital. The Company's principal cash
requirements arise from loan originations, repayment of debt on maturity,
payments of operating and interest expenses and loan repurchases. The Company's
primary sources of liquidity are loan sales, short-term borrowings under secured
lines of credit, long-term debt and equity offerings and cash flows from
operations.
Since its inception, the Company has sold $417,081,000 of loans at face
value ($348,198,000 through December 31, 1997). The principal amount remaining
on the loans sold was $219,809,000 at June 30, 1998 and $179,790,000 at December
31, 1997. In connection with certain loan sales, the Company commits to
repurchase from investors any loans that become 90 days or more past due. This
obligation is subject to various terms and conditions, including, in some
instances, a limitation on the amount of loans that may be required to be
repurchased. There were approximately $10,570,000 of loans at June 30, 1998
which the Company could be required to repurchase in the future should such
loans become 90 days or more past due. The Company repurchased $26,000 and
$144,000 as compared to $119,000 and $454,000 of such loans under the recourse
provisions of loan sales during the three and six months ended June 30, 1998 and
1997, respectively. As of June 30, 1998, $25,830,000 of the Company's cash was
restricted as credit enhancement for certain securitization programs. To date,
the Company has participated $8,568,000 of A&D and Other Loans without recourse
to the Company ($6,936,000 through December 31, 1997).
The Company funds its loan purchases in part with borrowings under various
lines of credit. Lines are paid down when the Company receives the proceeds from
the sale of the loans or when cash is otherwise available. These lines of credit
totaled $116,000,000 at June 30, 1998 and December 31, 1997. Outstanding
borrowings on the lines of credit were $21,015,000 at June 30, 1998. Interest
rates on these 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. At June 30, 1998 and December 31, 1997, lines of credit also
included outstanding borrowings of $1,500,000 and $8,000, respectively, on the
$1,500,000 construction mortgage.
The Company also finances its loan purchases with two revolving line of
credit and sale facilities as part of asset backed commercial paper facilities
with multi-seller commercial paper issuers. Such facilities totaled $175,000,000
at June 30, 1998 and $150,000,000 at December 31, 1997. As of June 30, 1998 and
December 31, 1997, the outstanding balances of loans sold or pledged under these
facilities were $136,714,000 and $121,142,000, respectively. Outstanding
borrowings under these lines of credit were $86,000 at June 30, 1998 and
$169,000 at December 31, 1997. Interest is payable on these lines of credit
based on certain commercial paper rates.
In June 1998, the Company issued 1,000,000 shares of common stock at $19
per share. The net proceeds of the offering were $17,695,000 and were used to
pay down certain lines of credit. In connection with the underwriters' option to
purchase additional shares to cover over allotments, the Company issued an
additional 166,500 shares in July 1998. Net proceeds of these shares totaled
$2,990,000 and were also used to pay down certain lines of credit.
The Company also finances its liquidity needs with long-term debt.
Long-term debt totaled $105,056,000 at June 30, 1998 and $105,347,000 at
December 31, 1997.
The Company also has a term note payable monthly based on the 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
$3,717,000 and $5,210,000 at June 30, 1998 and December 31, 1997, 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.
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, which at June 30, 1998 was $4,057,000, 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.
This agreement expires in July 2003.
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 estimated 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 as of June 30, 1998, decreased to 1.10% from 1.20% at December 31,
1997. 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 obligations on retained interests
in loan sales increased to $6,463,000 at June 30, 1998 compared to $5,877,000 at
December 31, 1997. The allowance ratio (the allowances for loan losses divided
by the amount of the Serviced Portfolio) at June 30, 1998 decreased to 1.68%
from 1.93% at December 31, 1997 primarily as a result of the increase in
Hypothecation Loans as a percentage of the Serviced Portfolio.
As part of the Company's financing of Purchased Loans, arrangements are
entered into with dealers and resort developers, whereby reserves are
established to protect the Company from potential losses associated with such
loans. As part of the Company's agreement with the dealers and resort
developers, a portion of the amount payable to each dealer and resort developer
for a Purchased Loan is retained by the Company and is available to the Company
to absorb loan losses for those loans. The Company negotiates the amount of the
reserves with the dealers and developers based upon various criteria, two of
which are the financial strength of the dealer or developer and credit risk
associated with the loans being purchased. Dealer/developer reserves amounted to
$10,444,000 and $10,655,000 at June 30, 1998 and December 31, 1997,
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.
However, there can be no assurance the Company's operations will not be
affected by Year 2000 problems incurred by entities with which the Company
conducts business such as servicers, vendors or other financial institutions.
Inflation
Inflation has not had a significant effect on the Company's operating
results to date.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
<TABLE>
Item 5. Other Information
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Six Months Ended
Year Ended December 31, June 30,
Statement of Income
--------------------------- --------------------------
Data (1): 1993 1994 1995 1996 1997 1997 1998
----- ----- ----- ---- ----- ----- -----
Revenues:
Interest and fees
on loans......... $4,330 $5,669 $11,392 $14,789 $19,374 $9,329 $11,288
Gain on sale of
loans............. 4,550 4,847 5,161 7,331 8,564 4,067 5,679
Servicing and
other fee income.. 501 459 908 1,576 1,753 702 959
------ ------ ------ ------ ------ ------ ------
Total revenues... 9,381 10,975 17,461 23,696 29,691 14,098 17,926
----- ------ ------ ------ ------ ------ ------
Expenses:
Interest expense... 2,717 3,158 6,138 7,197 10,675 5,042 6,692
Salaries and
employee benefits. 1,350 1,776 2,798 2,824 3,399 1,646 2,280
Other operating
expenses....... 1,017 1,164 2,120 3,147 3,480 1,756 1,869
Provision for
loan losses...... 620 559 890 1,954 1,400 735 810
------ ------ ------ ------ ------ ------ ------
Total expenses.. 5,704 6,657 11,946 15,122 18,954 9,179 11,651
----- ------ ------ ------ ------ ------ ------
Income before
income taxes and
extraordinary item.3,677 4,318 5,515 8,574 10,737 4,919 6,275
Provision for
income taxes........ 1,426 1,619 2,066 3,301 4,134 1,894 2,416
------ ------ ------ ------ ------ ------ ------
Income before
extraordinary item...2,251 2,699 3,449 5,273 6,603 3,025 3,859
Extraordinary item
(2)................... -- (126) -- -- (220) -- --
------ ------ ------ ------ ------- ------ ------
Net income..... $2,251 $2,573 $3,449 $5,273 $6,383 $3,025 $3,859
====== ====== ====== ====== ====== ====== ======
Basic per common share amounts:
Income before
extraordinary item..$ .55 $ .66 $ .80 $ .97 $ 1.19 $ .52 $ .68
Extraordinary item... -- (.03) -- -- (.04) -- --
---- ------- ------ ------ -------- ------ ------
Net income per
share................$ .55 $ .63 $ .80 $ .97 $ 1.15 $ .52 $ .68
====== ====== ====== ======= ======== ======= ======
Basic weighted
average number
of shares
outstanding.....4,065,688 4,116,684 4,315,469 5,441,636 5,572,465 5,840,526 5,706,887
Diluted per common
share amounts:
Income before
extraordinary item...$ .53 $ .63 $.76 $.93 $ 1.12 $ .52 $ .64
Extraordinary item... -- (.03) -- -- (.04) -- --
---- ------- ------ ---- ------ ------ ------
Net income per
share.............. $ .53 $ .60 $.76 $.93 $ 1.08 $ .52 $ .64
======= ======= ======= ==== ====== ======= =======
Diluted weighted
average number
of shares
outstanding.....4,216,151 4,282,884 4,524,607 5,682,152 5,909,432 5,861,180 6,069,164
Cash dividends
declared per
common share........$ .02 $ .03 $ .04 $ .05 $ .06 $ -- $ --
Other Statement of
Income Data:
Income before
extraordinary item
as a percentage
of revenues........ 24.0% 24.6% 19.8% 22.3% 22.3% 21.5% 21.5%
Ratio of EBITDA to
interest expense
(3)...................2.81 3.31 2.44 2.90 2.17 2.88 2.13
Ratio of earnings
to fixed charges(4)....2.35 2.37 1.90 2.19 2.01 1.98 1.94
Return on average
assets (5).............5.0% 4.6% 3.7% 4.0% 3.8% 3.7% 3.6%
Return on average
equity (5)............17.0% 17.2% 16.6% 13.3% 14.1% 13.4% 13.8%
</TABLE>
- ----------
(1) Certain amounts in the 1993 through 1996 financial information have been
restated to conform to the 1997 and 1998 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) The ratio of
EBITDA to interest expense is required to be calculated for the twelve month
period immediately preceding each calculation date, pursuant to the terms of the
indentures to which the Company is subject. EBITDA is defined as earnings before
deduction of taxes, depreciation, amortization, and interest expense (but after
deduction for any extraordinary item). (4) For purposes of calculating the ratio
of earnings to fixed charges, earnings consist of income before income taxes and
extraordinary items and fixed charges. Fixed charges consist of interest charges
and the amortization of debt expense. (5) The return on average assets and
average equity for the six month periods are calculated on an annualized basis.
Calculations are based on income before extraordinary item.
<TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION - (Continued)
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
December 31, June 30,
Balance Sheet Data(6): 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
Total assets.......... $54,444 $63,487 $112,459 $152,689 $186,790 $233,681
Loans held for sale(7) 5,931 11,094 14,380 12,260 16,366 13,546
Other loans (7)....... 10,306 15,790 33,613 79,996 86,307 137,147
Retained interests in
loan sales (7)........ 11,764 11,996 22,594 28,912 30,299 31,007
Secured debt.......... -- 5,823 9,836 43,727 5,387 26,318
Unsecured debt........ 32,302 29,896 47,401 46,995 105,347 105,056
Stockholders' equity.. 14,722 16,610 37,396 42,448 52,071 74,014
Six
Months
Ended
Year Ended, December 31, June
30,
Other Financial Data: 1993 1994 1995 1996 1997 1998
------ ------ ------- ------- ------- -----
Loans purchased and
originated (8)........ $42,410 $59,798 $121,046 $133,750 $ 184,660 $163,078
Loans sold (8)........ 28,099 40,116 65,115 54,936 98,747 68,882
Loans participated (8) -- -- -- -- 6,936 1,631
Serviced Portfolio (9) 84,360 105,013 176,650 242,445 304,102 384,663
Loans serviced for
others................ 59,720 72,731 111,117 129,619 179,790 219,809
Dealer/developer
reserves.............. 4,926 6,575 9,644 10,628 10,655 10,444
Allowance for loan
losses (10)........... 1,064 1,264 3,715 4,528 5,877 6,463
Allowance ratio (11).. 1.26% 1.20% 2.10% 1.87% 1.93% 1.68%
Delinquency ratio (12) .61% .93% 1.73% 1.34% 1.20% 1.10%
Net charge-off ratio
(8)(13)............... .69% .38% .67% .94% .74% .56%
Non-performing asset
ratio (14)............ 1.48% 1.02% 1.35% 1.57% 1.03% .78%
</TABLE>
- ----------
(6) 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 and 1998 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."
(7) Amount indicated is net of allowance for losses and recourse obligation on
retained interests in loan sales.
(8) During the relevant period.
(9) 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.
(10)The allowance for loan losses includes allowance for losses under the
recourse provisions of loans sold. See Note C to financial statements.
(11)The allowance ratio is the allowances for loan losses divided by the amount
of the Serviced Portfolio.
(12)The delinquency ratio is the amount of delinquent loans divided by the
amount of the Serviced Portfolio. 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.
(13)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.
The June 30, 1998 amount is calculated on an annualized basis.
(14)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.
<PAGE>
BUSINESS
Overview
Litchfield Financial Corporation (the "Company") is a diversified finance
company that provides financing to creditworthy borrowers for assets not
typically financed by banks. The Company provides such financing by purchasing
consumer loans and by making loans to businesses secured by consumer receivables
or other assets.
The Company purchases consumer loans (the "Purchased Loans") consisting
primarily of loans to purchasers of rural and vacation properties ("Land Loans")
and vacation ownership interests popularly known as timeshare interests ("VOI
Loans"). The Company also provides financing to rural land dealers, timeshare
resort developers and other finance companies secured by receivables
("Hypothecation Loans") and to dealers and developers for the acquisition and
development of rural land and timeshare resorts ("A&D Loans"). In addition, the
Company purchases other loans, such as consumer home equity loans and consumer
construction loans, and provides financing to other businesses secured by
receivables or other assets ("Other Loans").
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.
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>
<S> <C> <C> <C> <C> <C> <C>
December 31, June
30,
1993 1994 1995 1996 1997 1998
------ ------ ------ ------ ------ -----
Purchased Loans..........89.0% 85.3% 81.6% 67.1% 56.6% 46.8%
Hypothecation Loans.......5.0 9.0 12.5 20.7 26.9 29.8
A&D Loans.................4.3 3.3 3.1 8.7 13.7 12.6
Other Loans...............1.7 2.4 2.8 3.5 2.8 10.8
--- ----- ----- ----- ----- ----
Total.........100.0% 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>
<S> <C> <C> <C> <C> <C> <C> <C>
Six Months
Year Ended December 31, Ended
June 30,
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
Purchased Loans..... 77.8% 67.6% 71.4% 49.9% 30.3% 39.2% 19.8%
Hypothecation Loans. 11.8 22.2 20.9 29.6 37.1 35.8 40.7
A&D Loans........... 7.1 6.0 3.1 14.4 24.0 17.6 13.2
Other Loans......... 3.3 4.2 4.6 6.1 8.6 7.4 26.3
----- ----- ----- ----- ----- ---- ----
Total.............. 100.0% 100.0% 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 dealers and resort developers make loans
to consumers generally using the Company's standard forms and subject to the
Company's underwriting criteria. The Company then purchases such loans from the
land dealers and resort developers on an individually approved basis in
accordance with its credit guidelines.
Each land dealer and resort developer from whom the Company purchases loans
is interviewed by the Company and approved by its credit committee. Management
evaluates each land dealer's and resort developer's experience, financial
statements and credit references and inspects a substantial portion of the land
dealer's and resort developer's inventory of land and VOIs prior to approval of
loan purchases.
In order to enhance the creditworthiness of loans purchased from land
dealers and resort developers, the Company typically requires land dealers and
resort developers to guarantee payment of the loans and typically retains a
portion of the amount payable by the Company to each land dealer and resort
developer on 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 it's 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 typically
guarantee the loans sold and the Company typically 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 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
38 states.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Principal Amount of Loans
December 31, June 30,
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
Southwest..............18% 19% 16% 26% 30% 31%
South..................33 37 31 31 31 30
West....................2 3 20 20 17 19
Mid-Atlantic...........17 16 16 10 10 9
Northeast..............30 25 17 13 12 11
-- -- -- -- --- ---
Total............100%. 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 six
months ended June 30, 1998 varied significantly from a low of approximately
$6,300 to a high of approximately $4.7 million. As of June 30, 1998 and December
31, 1997, the five largest dealers accounted for approximately 20.7% and 18.4%,
respectively, of the principal amount of the Land Loans in the Serviced
Portfolio. No single dealer accounted for more than 5.2% and 5.0% at June 30,
1998 and at December 31, 1997.
As of June 30, 1998 and December 31, 1997, 40.7% and 47.0%, respectively, of
the Serviced Portfolio consisted of Land Loans. The average principal balance of
such Land Loans was approximately $12,800 and $13,000, respectively, at June 30,
1998 and December 31, 1997. The following table sets forth as of June 30, 1998
the distribution of Land Loans in the Company's Serviced Portfolio:
<TABLE>
<S> <C> <C> <C> <C>
Percentage
Principal Balance of Percentage of
Principal Principal Number of Number of
Amount Amount Loans Loans
Less than $10,000....... $29,704,000 19.0% 5,766 47.3%
10,000-$19,999.......... 60,745,000 38.8 4,256 35.0
20,000 and greater...... 66,058,000 42.2 2,157 17.7
---------- ----- ----- -----
Total..............$156,507,000 100.0% 12,179 100.0%
</TABLE>
As of June 30, 1998 and December 31, 1997, the weighted average
interest rate of the Land Loans included in the Company's Serviced Portfolio was
12.0% and 12.1%, respectively. The weighted average remaining maturity was 11.9
and 12.1 years, respectively, at June 30, 1998 and December 31, 1997. The
following table sets forth as of June 30, 1998 the distribution of interest
rates payable on the Land Loans:
<TABLE>
<S> <C> <C>
Percentage of
Principal Principal
Interest Rate Amount Amount
Less than 12.0%..........................$56,444,000 36.0%
12.0%-13.9%.............................. 74,128,000 47.4
14.0% and greater........................ 25,935,000 16.6
---------- -----
Total............................. $156,507,000 100.0%
============ =====
</TABLE>
As of June 30, 1998 and December 31, 1997, the Company's Land Loan borrowers
resided in 50 states, the District of Columbia and four 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 timeshare intervals for
timeshare intervals in other resorts around the world. During the six months
ended June 30, 1998, the Company acquired approximately $1,312,000 of VOI Loans.
As of June 30, 1998 and December 31, 1997, the five largest developers accounted
for approximately 36.8% and 36.6%, respectively, of the principal amount of the
VOI Loans in the Serviced Portfolio. No single developer accounted for more than
9.0% at June 30, 1998 or at December 31, 1997.
As of June 30, 1998 and December 31, 1997, 6.1% and 9.6%, respectively, of
the Serviced Portfolio consisted of VOI Loans. The average principal balance of
such VOI Loans was approximately $3,500 and $3,600, respectively. The following
table sets forth as of June 30, 1998 the distribution of VOI Loans:
<TABLE>
<S> <C> <C> <C> <C>
Percentage of Percentage of
Principal Balance Principal Principal Number of Number of
Amount Amount Loans Loans
Less than $4,000...... $8,729,000 37.2% 4,186 62.7%
$4,000-$5,999......... 7,724,000 32.9 1,562 23.4
$6,000 and greater.... 7,009,000 29.9 926 13.9
--------- ----- ---- ----
Total............$23,462,000 100.0% 6,674 100.0%
=========== ===== ===== =====
</TABLE>
As of June 30, 1998 and 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 June 30, 1998 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%.................... $ 9,941,000 42.4%
14.0%-15.9%.......................... 5,886,000 25.1
16.0% and greater.....................7,635,000 32.5
--------- -----
Total......................... $23,462,000 100.0%
=========== =====
</TABLE>
As of June 30, 1998 and December 31, 1997, the Company's VOI borrowers
resided in 50 states, the District of Columbia and four territories or foreign
countries.
(2) Hypothecation Loans
The Company extends Hypothecation Loans to land dealers and resort
developers and other businesses secured by receivables. 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. During the six months ended
June 30, 1998, the Company extended or acquired approximately $66.4 million of
Hypothecation Loans, of which $9.6 million, or 14.5%, were secured by Land
Loans, $33.2 million, or 50.0%, were secured by VOI Loans and $23.6 million, or
35.5%, were secured by other types of collateral such as tax lien certificates,
accounts receivable and mortgages.
The Company typically extends Hypothecation Loans based on advance rates of
75% to 90% of the eligible 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 June 30, 1998 and December 31, 1997, the
Company had $114.6 million and $81.9 million of Hypothecation Loans outstanding,
none of which were 30 days or more past due. During the three months ended March
31, 1998, the Company acquired a $17.0 million participation interest in an
Hypothecation Loan from another financial institution. As planned, in May of
1998, the Company purchased the underlying receivables, which the Company has
reclassified as Other Loans. The proceeds of the receivables purchased were
applied to pay off the Company's participation interest. At June 30, 1998,
Hypothecation Loans ranged in size from $6,000 to $19.0 million with an average
principal balance of $1,381,000. At December 31, 1997, Hypothecation Loans
ranged in size from $7,800 to $8.7 million with an average balance of
$1,204,000. The five largest Hypothecation Loans represented 11.7% and 10.7% of
the Serviced Portfolio at June 30, 1998 and December 31, 1997, respectively.
(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 six months ended
June 30, 1998, the Company made $21.4 million of A&D Loans to land dealers and
resort developers, of which $9.1 million, or 42.6%, were secured by land, $12.3
million, or 56.3%, 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 June 30, 1998 and December 31, 1997, the Company had
$48.6 million and $41.7 million, respectively, of A&D Loans outstanding, none of
which were 30 days or more past due. At June 30, 1998 and December 31, 1997, A&D
Loans were secured by timeshare resort developments and rural land subdivisions
in 21 states and one foreign territory and 18 states and one foreign territory,
respectively. A&D Loans ranged in size from $1,700 to $8.4 million with an
average principal balance of $559,000 at June 30, 1998. A&D Loans ranged in size
from $7,800 to $7.3 million with an average principal balance of $622,000 at
December 31, 1997. The five largest A&D Loans represented 5.2% and 6.1%, of the
Serviced Portfolio at June 30, 1998 and December 31, 1997, respectively.
(4) Other Loans
At June 30, 1998, Other Loans consisted primarily of consumer home equity
loans, consumer construction loans, builder 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. In May of 1998, the Company purchased 232 builder
construction loans totalling $32.7 million, a portion of which had previously
been collateral for the Hypothecation Loan in which the Company owned a
participation interest. At June 30, 1998, the Company had 221 of the builder
construction loans totalling $32.7 million. The Company had $41.4 million and
$8.5 million of Other Loans, 0.75% and 1.97% of which were 90 days or more past
due at June 30, 1998 and December 31, 1997, respectively. At June 30, 1998,
Other Loans ranged in size from less than $500 to $821,500 with an average
principal balance of $55,900. At December 31, 1997, Other Loans ranged in size
from less than $500 to $151,000 with an average principal balance of $13,800.
The five largest Other Loans represent 0.2% of the Serviced Portfolio at June
30, 1998 and December 31, 1997.
Loan Underwriting
The Company 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, the Company'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.
The Company'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 June 30, 1998, the Company had 160 Land Loans
exceeding $50,000 representing 1.3% 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 June 30, 1998. 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 dealer guarantees and reserves withheld
from dealers and 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 nonaccrual 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 (90 days in some cases) past due, in addition to
the Company's collection procedures, the Company generally 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 from the Company. For extensions
of four to six months, the customer must make four to six timely payments,
respectively, without any intervention from 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 1.1% of its loans through June
30, 1998. 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> <C>
Six Months
Ended
Year Ended December 31, June 30,
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
Serviced
Portfolio......$84,360,000 $105,013,000 $176,650,000 $242,445,000 $304,102,000 $384,663,000
Delinquent
loans(1)....... 511,000 981,000 3,062,000 3,255,000 3,642,000 4,251,000
Delinquency
as a Percentage
of Serviced
Portfolio...... .61% .93% 1.73% 1.34% 1.20% .10%
- ----------
</TABLE>
(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.
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> <C>
Six
Months
Ended
Year Ended December 31, June 30,
1993 1994 1995 1996 1997 1998
Land Loans in
Serviced
Portfolio......$77,258,000 $90,502,000 $97,266,000 $119,370,000 $142,828,000 $156,507,000
Delinquent Land
Loans(1)..... 511,000 981,000 1,059,000 1,920,000 2,453,000 2,893,000
Delinquency as a
Percentage of
Land Loans in
Serviced
Portfolio...... .66% 1.08% 1.09% 1.61% 1.72% 1.85%
- ----------
</TABLE>
(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.
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>
<S> <C> <C> <C> <C> <C> <C>
Six Months
Ended
Year Ended December 31, June 30,
1993 1994 1995 1996 1997 1998
------- ------ ------- ---- ---- -------
VOI Loans in
Serviced
Portfolio.... $1,434,000 $2,851,000 $46,700,000 $43,284,000 $29,232,000 $23,462,000
Delinquent VOI
Loans(1)..... -- -- 1,958,000 1,316,000 739,000 552,000
Delinquency as a
percentage of
VOI Loans in
Serviced
Portfolio.... -- -- 4.19% 3.04% 2.53% 2.35%
- ----------
</TABLE>
(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.
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 or for the six
months ended June 30, 1998. 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. At June 30, 1998, there were $41.4 million of Other Loans of which
$806,000 or 2.0% were 30 days or more past due and not covered by
dealer/developer reserves or guarantees and not included in other real estate
owned.
Allowance for Loan Losses, Net Charge-offs and Dealer Reserves
The following is an analysis of the total allowances for all loan losses:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Six
Months
Ended
Year Ended December 31, June 30,
1993 1994 1995 1996 1997 1998
Allowance,
beginning of
year.............$ 498,000 $1,064,000 $1,264,000 $3,715,000 $4,528,000 $5,877,000
Provision for
loan losses........ 620,000 559,000 890,000 1,954,000 1,400,000 810,000
Net charge-offs of
uncollectible
accounts........... (493,000) (359,000) (946,000) (1,965,000) (2,010,000) (968,000)
Allocation of
purchase
adjustment(1).... 439,000 -- 2,507,000 824,000 1,959,000 744,000
Allowance, end of
year...............$1,064,000 $1,264,000 $3,715,000 $4,528,000 $5,877,000 $6,463,000
- ----------
</TABLE>
(1)Represents allocation of purchase adjustment related to purchase of certain
nonguaranteed loans.
The following is an analysis of net charge-offs by major loan and collateral
types experienced by the Company:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Six
Months
Ended
Year Ended December 31, June 30,
1993 1994 1995 1996 1997 1998
------ ----- ----- ----- ----- -----
Land Loans............. $493,000 $359,000 $546,000 $669,000 $986,000 $525,000
VOI Loans.............. -- -- 45,000 1,284,000 939,000 266,000
Hypothecation Loans.... -- -- -- -- -- --
A&D Loans.............. -- -- 352,000 (8,000) (2,000) --
Other Loans............ -- -- 3,000 20,000 87,000 178,000
Total net charge-offs.. $493,000 $359,000 $946,000 $1,965,000 $2,010,000 $969,000
Net charge-offs as a
percentage
of the average
Serviced Portfolio..... .69% .38% .67% .94% .74% .56%
</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 a dealer when purchasing a Land Loan or a VOI Loan and uses the amount
retained to absorb loan losses. 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, and $8,488,000 at June 30, 1998.
Developer reserves for VOI Loans amounted to $3,224,000, $3,072,000 and
$2,299,000 at December 31, 1995, 1996 and 1997, respectively, and $1,931,000 at
June 30, 1998. 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 purchases or
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.
Historically, the Company subcontracted the servicing of its loans to an
unaffiliated third party. In July 1998, the Company resumed certain customer
service and collection functions. the unaffiliated third party will continue to
provide certain data processing and payment processing functions. The Company
retains responsibility for servicing all loans as a master servicer.
In 1990, the Company began privately placing issues of pass-through
certificates evidencing an undivided beneficial ownership interest in pools of
mortgage 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 June 30,1998, the Company had sold or securitized a total of
approximately $417.1 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 guarantees and reserves are not available.
The Company also has a $150.0 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 2001.
As of June 30, 1998, the outstanding balance of the sold or pledged loans
securing this facility was $124.4 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
June 30, 1998, the outstanding aggregate balance of the sold loans under the
facility was $12.3 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 Lakewood,
Colorado, six marketing executives based in Williamstown, Massachusetts and 2
marketing executives based in Hoover, AL. In the last 5 years the Company has
closed loans with over 300 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 lender, mortgage banker or mortgage broker in
21 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 consumer loans purchased or financed by the Company 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 its purchase
or financing activities are in substantial compliance in all material respects
with the Truth-in-Lending Act.
Origination of the loans also requires compliance 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 other finance
companies, many of which have considerably greater financial, technical and
marketing resources than the Company. There can be no assurance that the Company
will not face increased competition from existing or new financial institutions
or finance companies. 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.
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 June 30, 1998, the Company had 95 full-time equivalent employees. None
of the Company's employees is covered by a collective bargaining agreement. The
Company considers its relations with its employees to be good.
Facilities
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. A subsidiary of the
Company occupies an aggregate of approximately 6,100 square feet of office space
in Hoover, Alabama, pursuant to a lease expiring in December 1999, providing for
an annual rental of approximately $60,000.
Item 6. Exhibits
The following exhibits are filed herewith:
10.172 Indenture of Trust dated as of June 1, 1998,
between Litchfield Hypothecation Corp. 1998-A and
The Chase Manhattan Bank.
10.173 Servicing agreement dated as of June 1, 1998
among the Company, Litchfield Hypothecation Corp.
1998-A and The Chase Manhattan Bank.
10.174 Indenture of Trust dated as of June 1, 1998,
between Litchfield Hypothecation Corp. 1998-B and
The Chase Manhattan Bank.
10.175 Servicing agreement dated as of June 1, 1998 among the
Company, Litchfield Hypothecation Corp. 1998-B and
the Chase Manhattan Bank.
10.176 Amendment No. 5 to Receivable Purchase Agreement dated
September 29, 1995, dated as of May 27, 1998
among the Company, Litchfield Mortgage Securities
Corporation 1994, Holland Limited Securities, Inc.
and Internationale Nederlanden (U.S.) Capital
Markets, Inc.
10.177 Amendment No. 5 to Receivable Loan and Security
Agreement dated September 29, 1995, dated as of
May 27, 1998 among the Company, Litchfield
Mortgage Securities Corporation 1994, Holland
Limited Securities, Inc. and Internationale
Nederlanden (U.S.) Capital Markets, Inc.
11.1 Statement re: computation of earnings per share
27.1 Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LITCHFIELD FINANCIAL CORPORATION
DATE: August 12, 1998 /s/ Richard A. Stratton
-----------------------
RICHARD A. STRATTON
Chief Executive Officer,
President and Director
DATE: August 12, 1998 /s/ Ronald E. Rabidou
---------------------
RONALD E. RABIDOU
Chief Financial Officer
<PAGE>
Exhibit 10.172
INDENTURE OF TRUST (herein, as amended or supplemented from time to time as
permitted hereby, the "Indenture"), dated as of June 1, 1998, by and between
LITCHFIELD HYPOTHECATION CORP. 1998-A, 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 $30,000,000 (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, 1998 (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 1
DEFINITIONS AND ASSUMPTIONS
SECTION 1.1 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 1.2 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 2
THE NOTES
SECTION 2.1 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. 1998-A 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. 1998-A 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 $10,027,636.73.
(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. 1998-A 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. 1998-A 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 2.2 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 2.3 Authorized Principal Amount. The aggregate principal amount of
the Notes that may be authenticated, delivered and Outstanding under this
Indenture is $30,000,000. 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 2.4 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 2.5 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 2.6 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 2.7 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 2.8 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 2.9 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) June 26, 1998 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 by the Master Servicer 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 2.10 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 2.11 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 2.12 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 2.13 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.
<PAGE>
ARTICLE 3
ISSUANCE OF NOTES
SECTION 3.1 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 initial 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
Document;
(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.
SECTION 3.2 Additional Document Deliveries; Post Closing Matters
(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 (vii) 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 4
COVENANTS OF THE ISSUER
SECTION 4.1 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 4.2 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 corporation 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 4.3 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 4.4 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. The Master Servicer agrees that in the event of the
termination of the Master Servicer as a result of an Event of Default by the
Master Servicer under the Servicing Agreement, the Master Servicer shall pay the
Servicing Fee of the successor servicer in the event such successor servicer is
paid compensation in excess of that payable to the Master Servicer under the
Servicing Agreement to the extent of the difference between a market servicing
rate and the rate theretofore payable to the Master Servicer under the Servicing
Agreement
(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 4.5 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 4.6 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 4.7 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 4.8 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 4.9 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 4.10 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 5
ACCOUNTS, DISBURSEMENTS AND RELEASES
SECTION 5.1 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 5.2 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. 1998-A 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 5.4 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 5.3 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 5.4 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 5.5 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 5.6 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 6
[RESERVED]
ARTICLE 7
EVENTS OF DEFAULT AND REMEDIES
SECTION 7.1 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 7.2 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 7.3 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 7.4 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 7 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 7.5 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 7.6 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 7.7 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 7.8 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 7 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 7.9 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 7.10 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 7.11 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 7.12 Issuer Waiver of Stay or Extension Laws; Waiver of Jury Trial
(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 7.13 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 7.14 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 8
SATISFACTION AND DISCHARGE
SECTION 8.1 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, (d) rights of substitution of new Notes for mutilated,
destroyed, lost or stolen Notes, (e) rights of Noteholders to receive payments
of principal thereof and interest thereon, (f) the rights, obligations and
immunities of the Trustee hereunder, and (g) 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 8.2 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 8.3 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
VIII 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 9
THE TRUSTEE
SECTION 9.1 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:
(iii) this subsection shall not be construed to
limit the effect of subsection (a) of this
Section 9.1;
(ii) the 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
(iii) the 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 9.2 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 9.3 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;
(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; and
(i) the Trustee shall not be responsible for
recalculating, recomputing, or verifying any information provided to
it by the Master Servicer of and Sub-Servicer.
SECTION 9.4 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 9.5 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 9.6 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 9.7 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 9.8 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 9.9 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 9.10 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 9.11 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 9.12 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.
(1) 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.
(2) 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 10
AMENDMENTS
SECTION 10.1 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 10.2 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 modify or
alter the provisions of the proviso to the definition of the term "outstanding";
or
(3) 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
(4) 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
(5) 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
(6) 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 10.3 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 10.4 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 11
MISCELLANEOUS
SECTION 11.1 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 11.2 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. 1998-A
c/o Litchfield Financial Corporation
430 Main Street
Williamstown, MA 01267
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:
BankBoston, N.A.
15 Westminster Street
Providence, Rhode Island 02903
Attention: Mr. Thomas Morris
(d) If to the Originator or the Master Servicer:
Litchfield Financial Corporation
430 Main Street
Williamstown, MA 01267
Attention: President
(e) 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 11.3 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 11.4 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 11.5 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 11.6 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 11.7 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 11.8 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 11.9 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 11.10 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 11.11 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 11.12 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 11.13 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.
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: /s/ Cynthia Kerpen
Title: Assistant vice President
Title: ________________________________________
LITCHFIELD HYPOTHECATION CORP. 1998-A
By: /s/ Heather A. Sica
Title: Executive Vice President
Exhibit 10.173
SERVICING AGREEMENT, dated as of June 1, 1998 (the "Agreement"), by and among
LITCHFIELD HYPOTHECATION CORP. 1998-A, 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 Commonwealth 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.
(e) Within one hundred twenty (120) days of the Closing Date, the
Master Servicer shall establish that each Sub-Servicer complies with such
servicing standards as may reasonably be established by the Purchaser, such
standards to be delivered in writing by the Purchaser within ten (10) days of
the Closing Date. If in the reasonable judgment of the Purchaser any
Sub-Servicer fails to meet such standards, the Master Servicer agrees, upon
written request of the Purchaser, to replace such Sub-Servicer with a
Sub-Servicer satisfactory to the Purchaser in the exercise of its reasonable
discretion.
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. In
connection with any amendment, modification or waiver relating to the Loan
Collateral consented to by the Master Servicer, the Master Servicer shall
provide the Trustee with a certificate to the effect that such amendment,
modification or waiver does not violate the provisions of this subsection (i).
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 4.3. 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) hereof 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 5.2. 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 5.3. 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 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: (i) if to the Issuer, c/o Litchfield Financial
Corporation, 430 Main Street, Williamstown, Massachusetts 01267, Attention:
Executive Vice President, (ii) if to the Master Servicer, to the Master Servicer
at Litchfield Financial Corporation, 430 Main Street, Williamstown,
Massachusetts 01267, Attention: Executive Vice 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 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. 1998-A
By: /s/ Heather A. Sica
Name: Heather A. Sica
Title: Executive Vice President
LITCHFIELD FINANCIAL CORPORATION
By: /s/ Heather A. Sica
Name: Heather A. Sica
Title: Executive Vice President
THE CHASE MANHATTAN BANK, as Trustee
By: /s/ Cynthia Kerpen
Name: Cynthia Kerpen
Title: Assistant Vice President
Exhibit 10.174
INDENTURE OF TRUST (herein, as amended or supplemented from time to time as
permitted hereby, the "Indenture"), dated as of June 1, 1998, by and between
LITCHFIELD HYPOTHECATION CORP. 1998-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 $50,000,000 (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, 1998 (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.
<PAGE>
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 1
DEFINITIONS AND ASSUMPTIONS
SECTION 1.1 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 1.2 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.
(c) 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 2
THE NOTES
SECTION 2.1 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. 1998-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. 1998-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 $15,841,431.90.
(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. 1998-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. 1998-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 2.2 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 2.3 Authorized Principal Amount. The aggregate principal amount of
the Notes that may be authenticated, delivered and Outstanding under this
Indenture is $50,000,000. 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 2.4 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 2.5 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 2.6 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 2.7 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 2.8 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 2.9 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) June 29, 1998 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 by the Master Servicer 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.
(C)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. As a
condition to granting such consent the Noteholders shall be entitled to conduct
a credit review of the proposed substitute substitute 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 2.10 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 2.11 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 2.12 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 2.13 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.
(f) Any Notes owned by the Issuer, the Master Servicer , or any of their
respective Affiliates (other than Notes which have been pledged or collaterally
assigned by any of them) shall not be considered outstanding for the purposes of
determining whether any act of the Noteholders hereunder has been validly taken,
whether it shall be providing consent, granting waivers or otherwise.
ARTICLE 3
ISSUANCE OF NOTES
SECTION 3.1 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 initial 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
Document;
(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 and , to the
extent obtained by the Originator, a title insurance policy insuring the lien of
the 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.
SECTIONVI3.2 Additional Document Deliveries; Post Closing Matters
(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 (vii) 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 4
COVENANTS OF THE ISSUER
SECTION 4.1 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 4.2 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 corporation 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 4.3 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 4.4 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. The Noteholders shall be provided with notice of any
amendment of the Servicing Agreement pursuant to the preceding sentence. 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 4.5 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 4.6 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 4.7 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 (i) 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; and (ii) Noteholders representing
51% of the outstanding principal amount of the Notes consent to such
consolidation, merger or transfer of assets;
(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 4.8 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 4.9 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 4.10 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 5
ACCOUNTS, DISBURSEMENTS AND RELEASES
SECTION 5.1 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 5.2 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. 1998-B 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 5.4 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 5.3 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 5.4 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 5.5 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 5.6 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 6
[RESERVED]
ARTICLE 7
EVENTS OF DEFAULT AND REMEDIES
SECTION 7.1 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;
or
(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 7.2 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 7.3 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 7.4 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 7 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 7.5 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 7.6 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 7.7 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 7.8 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 7 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 7.9 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 7.10 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 7.11 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 7.12 Issuer Waiver of Stay or Extension Laws; Waiver of Jury Trial
(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 7.13 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. Any Noteholder may bid for
and purchase any portion of the Trust Estate at any private or public sale
thereof.
(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 7.14 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 8
SATISFACTION AND DISCHARGE
SECTION 8.1 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, (d) rights of substitution of new Notes for mutilated,
destroyed, lost or stolen Notes, (e) rights of Noteholders to receive payments
of principal thereof and interest thereon, (f) the rights, obligations and
immunities of the Trustee hereunder, and (g) 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 8.2 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 8.3 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
VIII 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 9
THE TRUSTEE
SECTION 9.1 Certain Duties and Responsibilities
(a) Except during the continuance of an Event of
Default:
(ii) 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
(iii) 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:
(i) this subsection shall not be construed to
limit the effect of subsection (a) of this
Section 9.1;
(ii) the 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
(iii) the 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 9.2 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 9.3 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;
(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; and
(i) the Trustee shall not be responsible for recalculating ,
recomputing, or verifying any information provided to it by the Master Servicer
or any Sub-Servicer.
SECTION 9.4 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 9.5 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 9.6 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 9.7 Compensation and Reimbursement
(b) The Issuer agrees:
(4) 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);
(5) 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
(6) 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:
(j) 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;
(v) 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;
(vi) 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
(vii) 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 9.8 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 $250,000,000, 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 9.9 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:
(i) 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
(b) (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 9.10 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 9.11 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 9.12 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:
3. 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.
4. 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 10
AMENDMENTS
SECTION 10.1 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 10.2 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:
(2) 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 modify or
alter the provisions of the proviso to the definition of the term "outstanding";
or
(3) 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
(4) 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
(5) 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
(6) 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 10.3 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 10.4 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 11
MISCELLANEOUS
SECTION 11.1 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 11.2 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. 1998-B
c/o Litchfield Financial Corporation
430 Main Street
Williamstown, MA 01267
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:
BankAtlantic, a Federal Savings Bank
1750 East Sunrise Boulevard
Fort Lauderdale, Florida 33304-3013
Attention: Marcia K. Synder
(d) If to the Originator or the Master Servicer:
Litchfield Financial Corporation
430 Main Street
Williamstown, MA 01267
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 11.3 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 11.4 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 11.5 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 11.6 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 11.7 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 11.8 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 11.9 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 11.10 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 11.11 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 11.12 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 11.13 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.
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: /s/ Cynthia Kerpen
Title: Assistant Vice President
Title:
LITCHFIELD HYPOTHECATION CORP. 1998-B
By: /s/ Heather A. Sica
Title: Executive Vice President
Exhibit 10.175
SERVICING AGREEMENT, dated as of June 1, 1998 (the "Agreement"), by and
among LITCHFIELD HYPOTHECATION CORP. 1998-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 Commonwealth 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. In
connection with any amendment, modification or waiver relating to the Loan
Collateral consented to by the Master Servicer, the Master Servicer shall
provide the Trustee with a certificate to the effect that such amendment,
modification or waiver does not violate the provisions of this subsection (i).
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 4.3. 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) hereof 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 5.2. 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 5.3. 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 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: (i) if to the Issuer, c/o Litchfield Financial
Corporation, 430 Main Street, Williamstown, Massachusetts 01267, Attention:
Executive Vice President, (ii) if to the Master Servicer, to the Master Servicer
at Litchfield Financial Corporation, 430 Main Street, Williamstown,
Massachusetts 01267, Attention: Executive Vice 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 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. 1998-B
By: /s/Heather A. Sica
Name: Heather A. Sica
Title: Executive Vice President
LITCHFIELD FINANCIAL CORPORATION
By: /s/ Heather A. Sica
Name: Heather A. Sica
Title: Executive Vice President
THE CHASE MANHATTAN BANK, as Trustee
By: /s/ Cynthia Kerpen
Name: Cynthia Kerpen
Title: Assistant Vice President
Exhibit 10.176
AMENDMENT NO. 5
Dated as of May 27, 1998
to
Receivables Purchase Agreement
Dated as of September 29, 1995
THIS AMENDMENT NO. 5 dated as of May 27, 1998 ("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 "$125,000,000" set forth therein and
to substitute "$150,000,000" therefor.
1.2 The defined term "Termination Date" contained in Section 1.01 of
the Agreement is amended to delete the date "June 15, 1998" set forth therein
and to substitute "June 15, 2001" 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, (ii) the
Agent shall have received $250,000 representing the first installment of the
structuring fee, and (iii) 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.
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/ Richard A. Stratton
Title: President and Chief Executive
Officer
LITCHFIELD FINANCIAL CORPORATION
By: /s/ Richard A. Stratton
Title: President and Chief Executive
Officer
ING BARING (U.S.) CAPITAL MARKETS, INC.
By: /s/ Richard J. Wisniewski
Title: Vice President
HOLLAND LIMITED SECURITIZATION, INC.
By: ING BARING (U.S.) CAPITAL
MARKETS, INC., as attorney-in-fact
By: /s/ Richard J. Wisniewski
Title: Vice President
Exhibit 10.177
AMENDMENT NO. 5
Dated as of May 27, 1998
to
Receivables Loan and Security Agreement
Dated as of September 29, 1995
THIS AMENDMENT NO. 5 dated as of May 27, 1998 ("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 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 "$125,000,000" set forth therein and
to substitute "$150,000,000" therefor.
1.2 The defined term "Termination Date" contained in Section
1.01 of the
Agreement is amended to delete the date "June 15, 1998" set forth therein and to
substitute "June 15, 2001" 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, (ii) the
Agent shall have received $250,000 representing the first installment of the
structuring fee, and (iii) 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 Agreement, 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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
LITCHFIELD MORTGAGE SECURITIES
CORPORATION 1994
By: /s/ Richard A. Stratton
Title: President and Chief Executive
Officer
LITCHFIELD FINANCIAL CORPORATION
By: /s/ Richard A. Stratton
Title: President and Chief Executive
Officer
ING BARING (U.S.) CAPITAL MARKETS, INC.
By: /s/ Richard J. Wisniewski
Title: Vice President
HOLLAND LIMITED SECURITIZATION, INC.
By: ING BARING (U.S.) CAPITAL
MARKETS, INC., as attorney-in-fact
By: /s/ Richard J. Wisniewski
Title: Vice President
<TABLE>
Exhibit 11.1
Litchfield Financial Corporation
Computation of Earnings Per Share
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Basic:
Weighted average number of
common shares outstanding....... 5,754,018 5,560,167 5,706,887 5,503,736
Net income.................. $2,309,000 $1,880,000 $3,859,000 $3,025,000
Net income per common share. $ .40 $ .34 $ .68 $ .55
Diluted:
Weighted average number of
common shares outstanding....... 5,754,018 5,560,167 5,706,887 5,503,736
Weighted average number of
common stock equivalents outstanding:
Stock options............ 363,814 297,009 362,277 321,211
-------- --------- -------- --------
Weighted average common and
common equivalent shares
outstanding.............. 6,117,832 5,857,176 6,069,164 5,824,947
========= ========= ========= =========
Net income..................$2,309,000 $1,880,000 $3,859,000 $3,025,000
Net income per common share. $ .38 $ .32 $ .64 $ .52
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 42,040
<SECURITIES> 31,007
<RECEIVABLES> 147,693
<ALLOWANCES> 6,463
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 233,681
<CURRENT-LIABILITIES> 0
<BONDS> 105,056
<COMMON> 66
0
0
<OTHER-SE> 73,948
<TOTAL-LIABILITY-AND-EQUITY> 233,681
<SALES> 0
<TOTAL-REVENUES> 9,973
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 460
<INTEREST-EXPENSE> 3,695
<INCOME-PRETAX> 3,755
<INCOME-TAX> 1,446
<INCOME-CONTINUING> 2,309
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,309
<EPS-PRIMARY> .40
<EPS-DILUTED> .38
</TABLE>
