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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20594
------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NUMBER 1-11011
THE FINOVA GROUP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 86-0695381
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1850 NORTH CENTRAL AVE., P.O. BOX 2209 PHOENIX, AZ 85002-2209
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 602-207-4900
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
COMMON STOCK, $0.01 PAR VALUE NEW YORK STOCK EXCHANGE
JUNIOR PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Registration S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10K or any
amendment of this Form 10-K. [ ]
As of February 26, 1999, approximately 56,045,000 shares of Common Stock
($0.01 par value) were outstanding, and the aggregate market value of the Common
Stock (based on its closing price per share on such date of $50 13/16) held by
nonaffiliates was approximately $2,794,608,000.
DOCUMENTS INCORPORATED BY REFERENCE
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PART WHERE
DOCUMENT INCORPORATED
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<S> <C> <C>
1. Proxy Statement relating to 1999 Annual Meeting of
Shareowners of The FINOVA Group Inc. (but excluding
information contained therein furnished pursuant to items
402(k) and (l) of SEC Regulation S-K). III
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TABLE OF CONTENTS
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ITEM # NAME OF ITEM PAGE
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Part I
Item 1 Business:
Introduction.............................................. 1
General................................................... 1
Business Groups........................................ 1
Portfolio Composition.................................. 3
Investment in Financing Transactions................... 3
Cost and Use of Borrowed Funds......................... 11
Matched Funding Policy................................. 12
Credit Ratings......................................... 13
Residual Realization Experience........................ 13
Business Development and Competition................... 14
Credit Quality......................................... 15
Risk Management........................................ 15
Portfolio Management................................... 16
Delinquencies and Workouts............................. 16
Governmental Regulation................................ 16
Employees................................................. 17
Special Note Regarding Forward-Looking Statements......... 17
Item 2 Properties.................................................. 18
Item 3 Legal Proceedings........................................... 18
Item 4 Submission of Matters to a Vote of Security Holders......... 18
Optional Executive Officers of Registrant............................ 19
Part II
Item 5 Market Price of and Dividends on the Registrant's Common
Equity & Related Shareowner Matters......................... 20
Item 6 Selected Financial Data..................................... 21
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 22
Item 7A Quantitative and Qualitative Disclosures About Market
Risk........................................................ 22
Item 8 Financial Statements & Supplementary Data................... 22
Item 9 Changes in and Disagreements with Accountants on Accounting
& Financial Disclosure...................................... 22
Part III
Item 10 Directors & Executive Officers of the Registrant............ 22
Item 11 Executive Compensation...................................... 22
Item 12 Security Ownership of Certain Beneficial Owners &
Management.................................................. 23
Item 13 Certain Relationships & Related Transactions................ 23
Part IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 23
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PART I
ITEM 1. BUSINESS.
INTRODUCTION
The following discussion relates to The FINOVA Group Inc. and its
subsidiaries (collectively
"FINOVA" or the "Company"), including FINOVA Capital Corporation and its
subsidiaries ("FINOVA Capital").
GENERAL
The FINOVA Group Inc. is a financial services holding company. Through its
principal subsidiary, FINOVA Capital, the Company provides a broad range of
financing and capital market products. FINOVA concentrates on lending to
mid-size businesses. FINOVA Capital has been in operation since 1954.
FINOVA extends revolving credit facilities, term loans and equipment and
real estate financing primarily to "middle-market" businesses with financing
needs falling generally between $500,000 and $35 million.
FINOVA operates in 18 specific industry or market niches under three market
groups. FINOVA selected these niches because its expertise in evaluating the
creditworthiness of prospective customers and its ability to provide value-added
services enables the Company to differentiate itself from its competitors. That
expertise and ability also enable FINOVA to command pricing that provides a
satisfactory spread over its borrowing costs.
FINOVA seeks to maintain a high quality portfolio and to minimize
non-earning assets and write-offs. FINOVA uses clearly defined underwriting
criteria and stringent portfolio management techniques. The Company diversifies
its lending activities geographically and among a range of industries, customers
and loan products.
Due to the diversity of FINOVA's portfolio, the Company believes it is
better able to manage competitive changes in its markets and to withstand the
impact of deteriorating economic conditions on a regional or national basis.
There can be no assurance, however, that competitive changes, borrowers'
performance, economic conditions or other factors will not result in an adverse
impact on FINOVA's results of operations or financial condition.
FINOVA generates interest, leasing, fees and other income through charges
assessed on outstanding loans, loan servicing, leasing, brokerage and other
activities. FINOVA's primary expenses are the costs of funding the loan and
lease business, including interest paid on debt, provisions for credit losses,
marketing expenses, salaries and employee benefits, servicing and other
operating expenses and income taxes.
FINOVA's principal executive offices are located at 1850 North Central
Avenue, P.O. Box 2209, Phoenix, Arizona 85002-2209, telephone (602) 207-4900.
FINOVA also has business development offices throughout the U.S. and in London,
U.K. and Toronto, Canada.
BUSINESS GROUPS
FINOVA operates the following principal lines of business under three
market groups:
Commercial Finance
- Business Credit offers collateral-oriented revolving credit facilities
and term loans for manufacturers, distributors, wholesalers and service
companies. Typical transaction sizes range from $500,000 to $3 million.
1
<PAGE> 4
- Commercial Services (formerly Factoring Services) offers full service
factoring and accounts receivable management services for entrepreneurial
and larger firms, primarily in the textile and apparel industries. The
annual factored volume of these companies is generally between $5 million
and $25 million. This line provides accounts receivable financing and
loans secured by equipment and real estate.
- Corporate Finance provides a full range of cash flow-oriented and
asset-based term and revolving loan products for manufacturers,
wholesalers, distributors, specialty retailers and commercial and
consumer service businesses. Typical transaction sizes range from $2
million to $35 million.
- Distribution & Channel Finance (formerly Inventory Finance) provides
inbound and outbound inventory financing, combined inventory/accounts
receivable lines of credit and purchase order financing for equipment
distributors, value-added resellers and dealers nationwide. Transaction
sizes generally range from $500,000 to $30 million.
- Growth Finance provides collateral based working capital financing
primarily secured by accounts receivable. Typical transaction sizes range
from $100,000 to $1 million and are made to small and midsize businesses
with annual sales under $10 million.
- Rediscount Finance offers revolving credit facilities to the independent
consumer finance industry including sales, automobile, mortgage and
premium finance companies. Typical transaction sizes range from $1
million to $35 million.
Specialty Finance
- Commercial Equipment Finance offers equipment leases, loans and "turnkey"
financing to a broad range of midsize companies. Specialty markets
include the corporate aircraft and emerging growth technology industries,
primarily biotechnology and electronics. Typical transaction sizes range
from $500,000 to $15 million.
- Communications Finance specializes in term financing to advertising and
subscriber-supported businesses, including radio and television stations,
cable operators, outdoor advertising firms and publishers. Typical
transaction sizes range from $1 million to $40 million.
- Franchise Finance offers equipment, real estate and acquisition financing
for operators of established franchise concepts. Transaction sizes
generally range from $500,000 to $15 million.
- Healthcare Finance offers a full range of working capital, equipment and
real estate financing products for the U.S. healthcare industry.
Transaction sizes typically range from $500,000 to $25 million.
- Portfolio Services provides customized receivable servicing and
collections for timeshare developers and other generators of consumer
receivables.
- Public Finance provides tax-exempt term financing to state and local
governments, non-profit corporations and entities using industrial
revenue or development bonds. Typical transaction sizes range from
$100,000 to $5 million.
- Resort Finance focuses on construction, acquisition and receivables
financing of timeshare resorts worldwide as well as term financing for
established golf resort hotels and receivables funding for developers of
second home communities. Typical transaction sizes range from $5 million
to $35 million.
- Specialty Real Estate Finance provides term financing for hotel, anchored
retail office and owner-occupied properties. Typical transaction sizes
range from $5 million to $30 million.
2
<PAGE> 5
- Transportation Finance structures equipment loans, leases, acquisition
financing and leveraged lease equity investments for commercial and cargo
airlines worldwide, railroads and operators of other transportation
related equipment. Typical transaction sizes range from $5 million to $30
million. Through FINOVA Aircraft Investors, LLC, FINOVA also seeks to use
its market expertise and industry presence to purchase, upgrade and
resell used commercial aircraft.
Capital Markets
- Realty Capital specializes in providing capital markets-funded commercial
real estate financing products and commercial mortgage banking services.
Typical transaction sizes range from $1 million to $5 million.
- Investment Alliance provides equity and debt financing for midsize
businesses in partnership with institutional investors and selected fund
sponsors. Typical transaction sizes range from $2 million to $15 million.
- Loan Administration provides in-house servicing for FINOVA's commercial
loan products as well as servicing and sub-servicing of other mortgage
and consumer loans, including residential real estate, mobile homes,
automobiles and other consumer products.
FINOVA is a Delaware corporation. The Company was incorporated in 1991 to
serve as the successor to The Dial Corp's financial services businesses. In
March 1992, Dial transferred those businesses to FINOVA in a spin-off. Since
that time, FINOVA has increased its total assets from $2.6 billion at December
31, 1992 to $10.5 billion at December 31, 1998. Income from continuing
operations increased from $36.8 million in 1992 to $169.7 million in 1998.
Management believes FINOVA ranks among the largest independent commercial
finance companies in the U.S., based on total assets. FINOVA's common stock is
traded on the New York Stock Exchange under the symbol "FNV."
PORTFOLIO COMPOSITION
The total assets under management consist of FINOVA's net investment in
financing transactions plus certain assets that are owned by others but managed
by the Company and are not reported on the Company's balance sheet (securitized
assets and participations sold). The Company's investment in financing
transactions is primarily settled in U.S. dollars.
INVESTMENT IN FINANCING TRANSACTIONS
The following tables detail FINOVA's investment in financing transactions
(before reserve for credit losses) at December 31, 1998, 1997, 1996, 1995 and
1994.
3
<PAGE> 6
INVESTMENT IN FINANCING TRANSACTIONS
BY TYPES OF FINANCING
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------------
1998 % 1997 % 1996 % 1995 %
----------- ----- ---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans and other financing
contracts:
Commercial.................. $ 5,668,375 56.6 $4,299,909 51.2 $3,592,193 49.2 $3,389,363 53.4
Real estate................. 1,648,935 16.5 1,656,075 19.7 1,713,485 23.5 1,534,177 24.1
Leveraged leases.............. 780,836 7.8 619,557 7.4 514,573 7.1 366,196 5.8
Operating leases.............. 648,185 6.5 712,927 8.5 517,690 7.1 460,798 7.3
Fee-based receivables......... 626,499 6.2 750,399 8.9 564,430 7.7 189,486 3.0
Direct financing leases....... 396,759 4.0 360,589 4.3 396,388 5.4 408,059 6.4
Financing contracts held for
sale........................ 241,947 2.4
----------- ----- ---------- ----- ---------- ----- ---------- -----
Investment in financing
transactions.............. 10,011,536 100.0 8,399,456 100.0 7,298,759 100.0 6,348,079 100.0
===== ===== ===== =====
Securitized assets............ 436,064 336,607 300,000 200,000
Participations sold........... 101,532 121,360 64,546
----------- ---------- ---------- ----------
Total managed assets(1)....... $10,549,132 $8,857,423 $7,663,305 $6,548,079
=========== ========== ========== ==========
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DECEMBER 31,
------------------
1994 %
---------- -----
<S> <C> <C>
Loans and other financing
contracts:
Commercial.................. $2,732,734 51.1
Real estate................. 1,237,488 23.2
Leveraged leases.............. 287,518 5.4
Operating leases.............. 412,782 7.7
Fee-based receivables......... 157,862 3.0
Direct financing leases....... 514,595 9.6
Financing contracts held for
sale........................
---------- -----
Investment in financing
transactions.............. 5,342,979 100.0
=====
Securitized assets............
Participations sold...........
----------
Total managed assets(1)....... $5,342,979
==========
</TABLE>
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NOTES:
(1) Excludes managed assets serviced under the mini-CMBS structure due to the
expected short-term nature of the servicing rights. For further discussion
see Annex A, Note C.
4
<PAGE> 7
INVESTMENT IN FINANCING TRANSACTIONS
BY LINE OF BUSINESS
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
REVENUE ACCRUING NONACCRUING
----------------------------------- -------------------------------- TOTAL
MARKET REPOSSESSED REPOSSESSED LEASE & CARRYING
RATE(1) IMPAIRED ASSETS(2) IMPAIRED ASSETS OTHER AMOUNT %
---------- -------- ----------- -------- ----------- ------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Transportation
Finance(3).............. $2,140,541 $ 61,895 $ $ $ $ $ 2,202,436 22.0
Resort Finance............ 1,209,062 16,415 24,800 1,250,277 12.5
Corporate Finance......... 729,461 16,183 41,007 1,115 787,766 7.9
Rediscount Finance........ 766,250 999 3,762 771,011 7.7
Commercial Equipment
Finance................. 712,854 1,526 4,858 10,884 17,855 4,135 752,112 7.5
Communications Finance.... 694,863 7,169 24,264 726,296 7.3
Specialty Real Estate
Finance................. 635,952 16,966 34,230 9,799 7,620 194 704,761 7.0
Healthcare Finance........ 597,201 7,018 5,902 1,102 611,223 6.1
Franchise Finance......... 597,916 1,619 1,741 1,763 2,120 274 605,433 6.0
Distribution & Channel
Finance................. 561,734 6,029 567,763 5.7
Business Credit........... 292,696 7,416 300,112 3.0
Realty Capital............ 265,125 265,125 2.6
Public Finance............ 183,099 183,099 1.8
Commercial Services....... 160,012 648 8,912 936 170,508 1.7
Other(5).................. 30,072 25,344 55,416 0.6
Growth Finance............ 45,901 45,901 0.5
Investment Alliance....... 12,297 12,297 0.1
---------- -------- ------- -------- ------- ------- ----------- -----
TOTAL(4).................. $9,635,036 $106,006 $65,261 $119,738 $54,446 $31,049 $10,011,536 100.0
========== ======== ======= ======== ======= ======= =========== =====
</TABLE>
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NOTES:
(1) Represents original or renegotiated market rate terms, excluding impaired
transactions.
(2) The Company earned income totaling $4.7 million on repossessed assets during
1998, including $2.4 million in Specialty Real Estate Finance, $1.0 million
in Resort Finance, $0.9 million in Healthcare Finance, $0.2 million in
Rediscount Finance and $0.2 million in Commercial Equipment Finance.
(3) Transportation Finance includes $419.7 million of aircraft financing
business booked through the London office.
(4) Excludes $537.6 million of assets securitized and participations sold which
the Company manages, including securitizations of $300.0 million in
Corporate Finance and $136.1 million in Franchise Finance and participations
of $49.3 million in Corporate Finance, $21.4 million in Communications
Finance, $5.4 million in Resort Finance, $6.9 million in Rediscount Finance,
$3.8 million in Business Credit, $12.6 million in Transportation Finance and
$2.1 million in Distribution & Channel Finance.
(5) Primarily includes other assets retained from disposed or discontinued
operations.
5
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INVESTMENT IN FINANCING TRANSACTIONS
BY LINE OF BUSINESS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
REVENUE ACCRUING NONACCRUING
----------------------------------- -------------------------------- TOTAL
MARKET REPOSSESSED REPOSSESSED LEASE & CARRYING
RATE(1) IMPAIRED ASSETS(2) IMPAIRED ASSETS OTHER AMOUNT %
---------- -------- ----------- -------- ----------- ------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Transportation
Finance(3)............. $1,631,685 $ $ $ $ $ $1,631,685 19.4
Resort Finance........... 1,166,199 14,450 3,974 26,240 1,210,863 14.4
Corporate Finance........ 791,733 981 26,888 819,602 9.8
Specialty Real Estate
Finance................ 610,711 24,120 38,055 7,648 10,853 196 691,583 8.2
Communications Finance... 628,947 8,724 24,452 662,123 7.9
Commercial Equipment
Finance................ 614,712 1,816 11,802 4,030 632,360 7.5
Rediscount Finance....... 609,641 993 610,634 7.3
Distribution & Channel
Finance................ 544,108 4,333 548,441 6.5
Healthcare Finance....... 525,846 1,515 666 528,027 6.3
Franchise Finance........ 430,651 808 2,171 305 433,935 5.2
Commercial Services...... 196,843 30,205 227,048 2.7
Business Credit.......... 195,897 7,559 203,456 2.4
Public Finance........... 135,826 135,826 1.6
Other(5)................. 40,347 23,526 63,873 0.8
---------- ------- ------- -------- ------- ------- ---------- -----
TOTAL(4)................. $8,123,146 $36,449 $52,505 $121,540 $37,093 $28,723 $8,399,456 100.0
========== ======= ======= ======== ======= ======= ========== =====
</TABLE>
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NOTES:
(1) Represents original or renegotiated market rate terms, excluding impaired
transactions.
(2) The Company earned income totaling $4.1 million on repossessed assets during
1998, including $3.1 million in Specialty Real Estate Finance and $1.0
million in Resort Finance.
(3) Transportation Finance includes $302.9 million of aircraft financing
business booked through the London office.
(4) Excludes assets securitized and participations sold which the Company
manages, including securitizations of $300.0 million in Corporate Finance
and $36.6 million in Franchise Finance and participations of $40.2 million
in Corporate Finance, $61.0 million in Communications Finance, $8.5 million
in Transportation Finance, $4.6 million in Rediscount Finance, $5.1 million
in Resort Finance and $1.9 million in Distribution & Channel Finance.
(5) Primarily includes other assets retained from disposed or discontinued
operations.
6
<PAGE> 9
INVESTMENT IN FINANCING TRANSACTIONS
BY LINE OF BUSINESS
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
REVENUE ACCRUING NONACCRUING
----------------------------------- -------------------------------- TOTAL
MARKET REPOSSESSED REPOSSESSED LEASE & CARRYING
RATE(1) IMPAIRED ASSETS(2) IMPAIRED ASSETS OTHER AMOUNT %
---------- -------- ----------- -------- ----------- ------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Transportation
Finance(3).......... $1,330,578 $ $ $ $ $ $1,330,578 18.2
Resort Finance........ 1,124,462 2,963 13,878 77 25,136 1,166,516 16.0
Corporate Finance..... 630,399 3,211 14,695 335 648,640 8.9
Specialty Real Estate
Finance............. 700,932 30,245 46,068 6,748 9,853 940 794,786 10.9
Communications
Finance............. 535,701 8,796 14,129 3,095 561,721 7.7
Commercial Equipment
Finance............. 570,574 7,900 6,564 585,038 8.0
Rediscount Finance.... 421,232 245 421,477 5.8
Distribution & Channel
Finance............. 314,446 1,273 315,719 4.3
Healthcare Finance.... 497,540 1,304 1,194 500,038 6.9
Franchise Finance..... 366,202 1,104 1,985 996 370,287 5.0
Commercial Services... 220,701 3,419 224,120 3.1
Business Credit....... 160,006 11,963 171,969 2.3
Public Finance........ 150,361 13 150,374 2.1
Other................. 52,998 4,498 57,496 0.8
---------- ------- ------- ------- ------- ------- ---------- -----
Total Continuing
Operations(4)....... $7,076,132 $46,319 $59,946 $63,751 $38,419 $14,192 $7,298,759 100.0
========== ======= ======= ======= ======= ======= ========== =====
Discontinued
Operations(5)....... 39,143
-------
TOTAL................. $53,335
=======
</TABLE>
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NOTES:
(1) Represents original or renegotiated market rate terms, excluding impaired
transactions.
(2) The Company earned income totaling $5.1 million on repossessed assets during
1996, including $4.4 million in Specialty Real Estate Finance and $0.7
million in Resort Finance.
(3) Transportation Finance includes $160.8 million of aircraft financing
business booked through the London office.
(4) Excludes assets securitized and participations sold which the Company
manages, including securitizations of $300.0 million in Corporate Finance
and participations of $24.6 million in Corporate Finance, $27.5 million in
Communications Finance, $4.8 million in Rediscount Finance, $4.4 million in
Resort Finance and $3.2 million in Distribution & Channel Finance.
(5) Reflects assets retained by FINOVA subsequent to the sale of the
Manufacturer and Dealer Services' line of business.
7
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INVESTMENT IN FINANCING TRANSACTIONS
BY LINE OF BUSINESS
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
REVENUE ACCRUING NONACCRUING
----------------------------------- -------------------------------- TOTAL
MARKET REPOSSESSED REPOSSESSED LEASE & CARRYING
RATE(1) IMPAIRED ASSETS(2) IMPAIRED ASSETS OTHER AMOUNT %
---------- -------- ----------- -------- ----------- ------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Transportation
Finance(3).............. $ 929,043 $ $ $ $ $ $ 929,043 14.6
Resort Finance............ 943,661 2,849 12,064 2,583 26,559 987,716 15.6
Corporate Finance(4)...... 631,295 5,274 19,592 335 656,496 10.3
Specialty Real Estate
Finance................. 703,018 3,898 42,304 15,264 18,231 988 783,703 12.3
Communications Finance.... 662,191 2,502 2,217 16,817 4,863 688,590 10.8
Commercial Equipment
Finance................. 345,039 69 6,079 351,187 5.5
Rediscount Finance........ 345,264 345,264 5.4
Distribution & Channel
Finance................. 202,879 430 203,309 3.2
Healthcare Finance........ 451,503 81 1,231 452,815 7.2
Franchise Finance......... 327,356 1,462 6,408 1,850 337,076 5.3
Commercial Services....... 188,892 594 189,486 3.0
Business Credit........... 200,365 12,685 213,050 3.4
Public Finance............ 121,956 47 122,003 1.9
Other..................... 78,645 1,275 2,360 6,061 88,341 1.5
---------- ------- ------- ------- ------- ------- ---------- -----
Total Continuing
Operations(4)........... $6,131,107 $17,260 $56,585 $76,883 $49,988 $16,256 $6,348,079 100.0
========== ======= ======= ======= ======= ======= ========== =====
</TABLE>
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NOTES:
(1) Represents original or renegotiated market rate terms, excluding impaired
transactions.
(2) The Company earned income totaling $4.2 million on repossessed assets during
1995, including $3.2 million in Specialty Real Estate Finance, $0.6 million
in Resort Finance and $0.4 million in Communications Finance.
(3) Transportation Finance includes $144 million of aircraft financing business
booked through the London office.
(4) Excludes $200 million of securitized assets which are managed by the
Company.
8
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INVESTMENT IN FINANCING TRANSACTIONS
BY LINE OF BUSINESS
DECEMBER 31, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
REVENUE ACCRUING NONACCRUING
------------------------------------ ----------------------------------- TOTAL
ORIGINAL REWRITTEN REPOSSESSED DELINQUENT REPOSSESSED LEASES & CARRYING
RATE CONTRACTS ASSETS(1) LOANS ASSETS OTHER AMOUNT %
---------- --------- ----------- ---------- ----------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Transportation
Finance(2)............. $ 706,242 $14,620 $ $ $ $ $ 720,862 13.5
Resort Finance........... 634,735 4,506 7,314 2,582 30,393 679,530 12.7
Corporate Finance........ 746,671 21,275 6,952 2,674 777,572 14.5
Specialty Real Estate
Finance................ 672,522 7,237 40,510 7,622 21,519 749,410 14.0
Communications Finance... 551,218 6,288 7,282 17,377 5,863 671 588,699 11.0
Commercial Equipment
Finance................ 293,609 769 7,589 301,967 5.6
Rediscount Finance....... 99,353 99,353 1.9
Distribution & Channel
Finance................ 58,595 642 59,237 1.1
Healthcare Finance....... 467,131 1,719 468,850 8.8
Franchise Finance........ 281,890 7,632 12,242 301,764 5.6
Commercial Services...... 157,090 772 157,862 3.0
Business Credit.......... 181,741 12,003 193,744 3.6
Public Finance........... 93,491 144 93,635 1.8
FINOVA Capital
Limited(3)............. 93,700 1,561 4,265 2 4,800 104,328 2.0
Other.................... 36,951 8,918 297 46,166 0.9
---------- ------- ------- ------- ------- ------- ---------- -----
Total Continuing
Operations............. $5,074,939 $63,888 $55,106 $73,519 $60,451 $15,076 $5,342,979 100.0
========== ======= ======= ======= ======= ======= ========== =====
</TABLE>
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NOTES:
(1) The Company earned income totaling $3.3 million on repossessed assets during
1994, including $2.0 million in Specialty Real Estate Finance, $0.8 million
in Communications Finance and $0.5 million in Resort Finance.
(2) Transportation Finance includes $66.9 million of aircraft finance business
booked through the London office.
(3) Includes transactions in Europe and elsewhere (including the U.S.)
originated from the Company's London office. Also, includes $39.2 million of
Consumer Finance assets, of which $4.8 million were nonaccruing. Consumer
Finance accounts were generally considered nonaccruing after being 180 days
delinquent.
9
<PAGE> 12
The Company's geographic portfolio diversification at December 31, 1998 was
as follows:
<TABLE>
<CAPTION>
STATE TOTAL PERCENT
- ----- ---------------------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
California.................................... $ 1,541,692 14.6%
Florida....................................... 1,065,801 10.1
Texas......................................... 827,422 7.9
New York...................................... 726,834 6.9
Illinois...................................... 467,083 4.4
Arizona....................................... 442,734 4.2
Georgia....................................... 370,541 3.5
New Jersey.................................... 330,958 3.1
Virginia...................................... 285,969 2.7
Nevada........................................ 283,520 2.7
Pennsylvania.................................. 274,323 2.6
Missouri...................................... 233,053 2.2
Other(1)...................................... 3,699,202 35.1
----------- -----
$10,549,132 100.0%
=========== =====
</TABLE>
- ---------------
NOTE:
(1) Other includes all other states which, on an individual basis, represent
less than 2% of the total and international, which represents approximately
6% of the total.
The following is an analysis of the reserve for credit losses for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, beginning of
year.................. $177,088 $148,693 $129,077 $110,903 $ 64,280
Provision for credit
losses................ 82,200 69,200 41,751 37,568 10,439
Write-offs.............. (59,037) (45,487) (32,017) (25,631) (28,109)
Recoveries.............. 2,279 2,287 3,296 2,104 1,780
Acquisitions and
other................. 5,088 2,395 6,586 4,133 62,513
-------- -------- -------- -------- --------
Balance, end of year.... $207,618 $177,088 $148,693 $129,077 $110,903
======== ======== ======== ======== ========
</TABLE>
Included above is a specific impairment reserve of $37.1 million at
December 31, 1998, which applies to $98.7 million of the $225.7 million of
impaired loans. The remaining $170.5 million of the reserve for credit losses is
designated for general purposes and represents management's best estimate of
potential losses in the portfolio considering delinquencies, loss experience and
collateral. At December 31, 1997, the specific impairment reserve was $20.2
million, which applied to $52.3 million of the $158.0 million of impaired loans.
Additions to general and specific reserves are reflected in current operations.
Management may transfer reserves between the general and specific reserves as
appropriate.
10
<PAGE> 13
Write-offs and recoveries by line of business, during the years ended
December 31, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
WRITE-OFFS
Commercial Services.................. $36,286 $24,382 $ 5,098 $ 3,728 $ 1,148
Corporate Finance.................... 6,728 6,577 9,470 4,660 4,233
Commercial Equipment Finance......... 3,845 3,722 3,207 2,271 1,257
Franchise Finance.................... 3,035 696 3,267 3,448 2,247
Distribution & Channel Finance....... 2,609 1,777 201 442
Specialty Real Estate Finance........ 1,785 2,106 1,793 2,275 1,461
Rediscount Finance................... 1,500
Healthcare Finance................... 1,502 1,798 1,018 314 377
Business Credit...................... 1,253 452 774
Communications Finance............... 494 750 2,994 4,037 8,300
Resort Finance....................... 2,700 4,275 2,000 2,730
Other(1)............................. 979 895 2,245 5,140
------- ------- ------- ------- -------
Total write-offs..................... 59,037 45,487 32,017 25,631 28,109
------- ------- ------- ------- -------
RECOVERIES
Commercial Services.................. 623 1,127 1,488 482 376
Corporate Finance.................... 48 99 10 247 86
Commercial Equipment Finance......... 200 514 829 116 428
Franchise Finance.................... 255 263 422 115 66
Distribution & Channel Finance....... 33 20
Specialty Real Estate Finance........ 177 80
Healthcare Finance................... 542 94 8 52 63
Business Credit...................... 434
Communications Finance............... 250
Resort Finance....................... 26 22 10
Other(1)............................. 177 190 303 720 751
------- ------- ------- ------- -------
Total recoveries..................... 2,279 2,287 3,296 2,104 1,780
------- ------- ------- ------- -------
Total net write-offs................. $56,758 $43,200 $28,721 $23,527 $26,329
======= ======= ======= ======= =======
Net write-offs as a percentage of
average managed assets(2).......... 0.60% 0.54% 0.41% 0.40% 0.62%
======= ======= ======= ======= =======
</TABLE>
- ---------------
NOTES:
(1) Includes FINOVA Capital Ltd. (UK).
(2) Excludes average participations sold in which FINOVA has transferred credit
risk.
------------------------
A further breakdown of the portfolio by line of business can be found in
Annex A, Notes C and D.
COST AND USE OF BORROWED FUNDS
FINOVA Capital relies on borrowed funds as well as internal cash flow to
finance its operations. It also has raised funds through the sale or
securitization of assets, but does not rely on those methods as a primary source
of capital.
11
<PAGE> 14
The following table reflects the approximate average pre-tax effective cost
of borrowed funds and pre-tax equivalent rate earned on accruing assets for
FINOVA Capital for each of the periods listed:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Short-term and variable rate long-term
debt(1)..................................... 6.1% 6.4% 6.5% 7.2% 5.5%
Fixed-rate long-term debt(1).................. 7.0% 7.1% 7.2% 7.3% 8.1%
Aggregate borrowed funds(1)................... 6.4% 6.6% 6.8% 7.2% 6.3%
Rate earned on average earning assets(2)(3)... 12.1% 11.9% 11.6% 11.9% 11.3%
Operating margin percentage(4)................ 6.4% 6.2% 5.8% 5.7% 5.9%
</TABLE>
- ---------------
NOTES:
(1) Includes the effects of interest rate swap and hedge agreements.
(2) Earning assets are net of average nonaccruing assets and average deferred
taxes applicable to leveraged leases.
(3) Earned amounts are net of depreciation.
(4) Represents operating margin as a percentage of average earning assets.
------------------------
The effective costs presented above include costs of commitment fees and
related borrowing costs. They do not necessarily predict future costs of funds.
For further information on FINOVA Capital's cost of funds, refer to Annex A,
Notes E and F.
Following are the ratios of income to combined fixed charges and preferred
stock dividends ("ratio") for each of the past five years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
1.56.. 1.52 1.50 1.44 1.58
==== ==== ==== ==== ====
</TABLE>
Variations in interest rates generally do not have a substantial impact on
the ratio because fixed-rate and floating-rate assets are generally matched with
liabilities of similar rate and term.
Income for combined fixed charges, for purposes of the computation of the
above ratio, consists of income from continuing operations before income taxes
and fixed charges. Combined fixed charges include interest and related debt
expense, a portion of rental expense representative of interest, and preferred
stock dividends grossed up to a pre-tax basis.
MATCHED FUNDING POLICY
FINOVA Capital follows a "matched funding" policy. Under that policy, it
funds its floating-rate assets (loans and leases to FINOVA's borrowers) with
floating-rate liabilities (FINOVA's debt) and fixed-rate assets with fixed-rate
liabilities, to the extent feasible. This policy helps protect FINOVA from
changes in interest rates. For further discussion on FINOVA Capital's debt and
matched funding policy, see Annex A, Notes E and F.
12
<PAGE> 15
CREDIT RATINGS
FINOVA Capital currently has investment-grade credit ratings from the
following rating agencies:
<TABLE>
<CAPTION>
COMMERCIAL SENIOR
PAPER DEBT
---------- ------
<S> <C> <C>
Duff & Phelps Credit Rating Co. ........................ D1 A
Fitch Investors Services, Inc. ......................... F1 A
Moody's Investors Service, Inc. ........................ P2 Baa1
Standard & Poor's Ratings Group......................... A2 A-
</TABLE>
In addition, FINOVA Finance Trust, a subsidiary trust of the Company,
issued mandatory redeemable convertible preferred securities ("TOPrS") in
December 1996 having investment-grade ratings as follows:
<TABLE>
<S> <C>
Duff & Phelps Credit Rating Co. ............................ BBB+
Fitch Investors Services, Inc. ............................. A-
Moody's Investors Services, Inc. ........................... Baa2
Standard & Poor's Ratings Group............................. BBB
</TABLE>
For further information relating to the TOPrS, refer to Annex A, Note G.
Standard & Poor's Ratings Group changed on February 26, 1999 its rating of
the TOPrS from BBB+ to BBB. The rating change was not a downgrade, but resulted
from the new rating scale under which Standard & Poor's Ratings Group rates
preferred stock two notches below the corporate or counter party credit rating
of an investment-grade issuer such as FINOVA.
There can be no assurance that these ratings will be maintained. The
ratings can be modified at any time. A credit rating is not a recommendation to
buy, sell or hold securities. Each rating should be evaluated independently of
any other rating. None of FINOVA Capital's subsidiaries have applied for credit
ratings.
RESIDUAL REALIZATION EXPERIENCE
Each year since its inception, FINOVA Capital and its predecessors have
earned total proceeds from the sale of assets upon lease termination (other than
foreclosures) in excess of carrying amounts. There can be no assurance, however,
that those results can be achieved in future years. Actual proceeds will depend
on current market values for those assets at the time of sale. While market
values are generally beyond the control of FINOVA, the Company has some
discretion in the timing of sales of the assets. Sales proceeds on lease
terminations in excess of carrying amounts are reported as gains on disposal of
assets when the assets are sold.
Income from leasing transactions is affected by gains from asset sales on
lease termination and, hence, can be somewhat less predictable than income from
non-leasing activities. During the five years ended December 31, 1998, the
proceeds to FINOVA Capital from sales of assets on early
13
<PAGE> 16
termination of leases and at the expiration of leases have exceeded the carrying
amounts and estimated residual values as follows:
<TABLE>
<CAPTION>
EARLY TERMINATIONS (1) TERMINATIONS AT END OF LEASE TERM
---------------------------------- ----------------------------------
PROCEEDS
PROCEEDS ESTIMATED AS A % OF
CARRYING AS A % OF RESIDUAL ESTIMATED
SALES AMOUNT CARRYING SALES VALUE OF RESIDUAL
YEAR PROCEEDS OF ASSETS AMOUNT PROCEEDS ASSETS VALUE
- ---- -------- --------- --------- -------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1998................. $ 82,671 $67,650 122% $40,571 $35,647 114%
1997................. 114,680 96,656 119% 63,733 58,127 110%
1996................. 87,311 75,910 115% 15,634 13,872 113%
1995................. 1,402 905 155% 44,395 37,053 120%
1994................. 6,477 5,865 110% 15,287 14,164 108%
</TABLE>
- ---------------
NOTE:
(1) Excludes foreclosures for credit reasons, which are immaterial.
The estimated residual value of direct finance and leveraged lease assets
in the accounts of FINOVA Capital at December 31, 1998 was 37.3% of the original
cost of those assets (30.1% excluding the original costs of the assets and
residuals applicable to real estate leveraged leases, which typically have
higher residuals than other leases). The financing contracts and leases
outstanding at that date had initial terms ranging generally from one to 25
years. The average initial term weighted by carrying amount at inception and the
average remaining term weighted by remaining carrying amount of financing
contracts at December 31, 1998 for financing contracts excluding leveraged
leases were 7.5 and 5.4 years, respectively, and for leveraged leases were
approximately 18.9 and 11.4 years, respectively. The comparable average initial
term and remaining term at December 31, 1997 for financing contracts excluding
leveraged leases were 7.6 and 5.1 years, respectively, and for leveraged leases
were approximately 17.5 and 11.9 years, respectively. FINOVA Capital uses either
employed or outside appraisers to determine the collateral value of assets to be
leased or financed and the estimated residual or collateral value thereof at the
expiration of each lease. Actual proceeds could differ from those appraised
values.
For a discussion of accounting for lease transactions, refer to Annex A,
Notes A and C.
BUSINESS DEVELOPMENT AND COMPETITION
FINOVA Capital develops business primarily through direct solicitation by
its own sales force. Customers are also introduced by independent brokers and
referred by other financial institutions and other sources.
FINOVA Capital is engaged in an extremely competitive activity. It competes
with banks, insurance companies, leasing companies, the credit units of
equipment manufacturers and other finance companies. Some of these competitors
have substantially greater financial resources and are able to borrow at costs
below those of FINOVA Capital. FINOVA Capital's principal means of competition
is through a combination of service, structure and innovation in transactions,
the interest rate charged for money and concentration in focused market niches.
The interest rate FINOVA Capital charges for money is a function of its
borrowing costs, its operating costs and other factors. While many of FINOVA
Capital's larger competitors are able to offer lower interest rates based upon
their lower borrowing costs, FINOVA Capital seeks to maintain the
competitiveness of the interest rates it offers by emphasizing strict control of
its operating costs. FINOVA's ability to manage costs is, in part, dependent on
factors beyond the Company's control, such as the cost of funds, outside
litigation expenses and competitive salaries.
14
<PAGE> 17
CREDIT QUALITY
FINOVA Capital has maintained a high-quality asset base through the use of
clearly defined underwriting standards, portfolio management techniques,
monitoring of covenant compliance and active collections and workout efforts.
RISK MANAGEMENT
FINOVA Capital generally investigates its prospective customers through a
review of historical financial statements, published credit reports, credit
references, discussions with management, analysis of location feasibility,
personal visits and collateral appraisals and inspections. In many cases,
depending upon the results of its credit investigations and the nature of the
financing being provided, FINOVA Capital obtains additional collateral or
guarantees from others. As part of its underwriting process, FINOVA Capital
considers the management, industry, financial position and collateral being
provided by a proposed borrower or lessee. The purpose, term, amortization and
amount of any proposed transaction generally must be clearly defined and within
established corporate guidelines. In addition, FINOVA attempts to avoid undue
concentrations in any one customer, industry or geographic region.
- Management. FINOVA Capital considers the reputation, experience and
depth of management; quality of product or service; adaptability to
changing markets and demand; and prior banking, finance and trade
relationships.
- Industry. FINOVA Capital evaluates critical aspects of each industry to
which it lends, including general trend, seasonality and cyclicality;
governmental regulation; the effects of taxes; the economic value of
goods or services provided; and potential environmental or other
liabilities.
- Financial. FINOVA Capital's review of a prospective borrower normally
includes a thorough analysis of the borrower's financial performance.
Items considered include net worth; composition of assets and
liabilities; debt service coverage; liquidity; sales growth and earning
power; and cash flow generation and reliability.
- Collateral. FINOVA Capital regards collateral as an important factor in
a credit evaluation and, for collateral dependent transactions, has
established maximum loan to value ratios, normally ranging from 60%-90%,
for each of its lines of business.
The underwriting process includes, in addition to the analysis of the
factors noted above, the design and implementation of transaction structures and
strategies to mitigate identified risks; a review of transaction pricing
relative to product-specific return requirements and acknowledged risk elements;
a multi-step, interdepartmental review and approval process with varying levels
of authority based on the size of the transaction; and periodic
interdepartmental reviews and revision of underwriting guidelines.
FINOVA Capital also monitors portfolio concentrations in the areas of total
exposure to a single borrower and related entities, within a given geographical
area and with respect to an industry and/or product type within an industry.
FINOVA Capital has established concentration guidelines for each line of
business. Geographic concentrations are reviewed periodically and evaluated
based on historic loan experience and prevailing market and economic conditions.
FINOVA Capital's financing contracts and leases generally require the
customer to pay taxes, license fees and insurance premiums and to perform
maintenance and repairs at the customer's expense. Contract payment rates are
based on several factors, including the cost of borrowed funds, term of
contract, credit-worthiness of the prospective customer, type and nature of
collateral and other security and, in leasing transactions, the timing of tax
effects and estimated residual values. In direct finance lease transactions,
lessees generally are granted an option to purchase the equipment at the end of
the lease term at its then fair market value or, in some cases, are granted an
15
<PAGE> 18
option to renew the lease at its then fair rental value. The extent to which
lessees exercise their options to purchase leased equipment varies from year to
year, depending on, among other factors, the state of the economy, the financial
condition of the lessee, interest rates and technological developments.
PORTFOLIO MANAGEMENT
In addition to the review at the time of original underwriting, FINOVA
Capital attempts to preserve and enhance the earnings quality of its portfolio
through proactive management of its financing relationships with its clients.
This process includes the periodic appraisal or verification of the collateral
to determine loan exposure and residual values; sales of residuals and warrants
to generate supplemental income; and review and management of covenant
compliance. The Portfolio Management department or dedicated personnel within
the business units regularly review financial statements to assess customer cash
flow performance and trends; periodically confirm operations of the customer;
conduct periodic reappraisals of the underlying collateral; seek to identify
issues concerning the vulnerabilities of the customer; seek to resolve
outstanding issues with the borrower; periodically review and address covenant
compliance issues; and prepare periodic summaries of the aggregate portfolio
quality and concentrations for management review.
Evaluation for loan impairment is performed as a part of the portfolio
management review process. When a loan is determined to be impaired, a
write-down is taken or an impairment reserve is established based on the
difference between the recorded balance of the loan ("carrying amount") and the
fair value of the asset.
DELINQUENCIES AND WORKOUTS
FINOVA Capital monitors the timing of payments on its accounts. For term
loans and leases, when an invoice is 10 days past due, the customer is generally
contacted, and a determination is made as to the extent of the problem, if any.
A commitment for immediate payment is pursued and the account is observed
closely. If satisfactory results are not obtained in communication with the
customer, the guarantor(s) are usually contacted to advise them of the situation
and the potential obligation under the guarantee agreement. If an invoice
becomes 31 days past due, it is reported as delinquent. A notice of default is
generally sent prior to an invoice becoming 45 days past due and, between 60 and
90 days past the due date, if satisfactory negotiations are not underway,
outside counsel generally is retained to help protect FINOVA Capital's rights
and to pursue its remedies.
When accounts become more than 90 days past due income recognition is
usually suspended, and FINOVA Capital vigorously pursues its legal remedies.
Foreclosed or repossessed assets are considered to be nonperforming, and are
reported as such unless the assets generate sufficient cash to result in a
reasonable rate of return. Those accounts are continually reviewed, and write-
downs are taken as deemed necessary. While pursuing collateral and obligors,
FINOVA Capital generally continues to negotiate the restructuring or other
settlement of the debt, as appropriate.
Management believes that collateral values significantly reduce loss
exposure and that the reserve for credit losses is adequate. For additional
information regarding the reserve for credit losses, see Annex A, Note D.
GOVERNMENTAL REGULATION
FINOVA Capital's domestic activities, including the financing of its
operations, are subject to a variety of federal and state regulations such as
those imposed by the Federal Trade Commission, the Securities and Exchange
Commission, the Consumer Credit Protection Act, the Equal Credit Opportunity Act
and the Interstate Land Sales Full Disclosure Act. Additionally, a majority of
states have ceilings on interest rates chargeable to customers in financing
transactions. Some of FINOVA Capital's financing transactions and mortgage
broker activities are subject to additional government regulation. For example,
aircraft leasing is regulated by the Federal Aviation Administration , and
16
<PAGE> 19
Communications Finance is regulated by the Federal Communication Commission.
FINOVA Capital's international activities are also subject to a variety of laws
and regulations of the countries in which the business is conducted.
EMPLOYEES
At December 31, 1998, the Company had 1,262 employees compared to 958 at
December 31, 1997. The increase primarily included employees from FINOVA Realty
Capital ("FRC"), which was not consolidated until 1998, and employees from
companies acquired in 1998. None of the employees were covered by collective
bargaining agreements. FINOVA believes its employee relations are satisfactory.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this report are "forward-looking," in that they do
not discuss historical fact but instead note future expectations, projections,
intentions or other items. These forward-looking statements include matters in
the sections of this report captioned "Business" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Quantitative
and Qualitative Disclosures About Market Risk". They are also made in documents
incorporated in this report by reference, or in which this report may be
incorporated, such as a prospectus.
Forward-looking statements are subject to known and unknown risks,
uncertainties and other factors that may cause FINOVA's actual results or
performance to differ materially from those contemplated by the forward-looking
statements. Many of those factors are noted in conjunction with the
forward-looking statements in the text. Other important factors that could cause
actual results to differ include:
- The results of FINOVA's efforts to implement its business strategy.
Failure to fully implement its business strategy might result in
decreased market penetration, adverse effects on results of operations
and other adverse results.
- The effect of economic conditions and the performance of FINOVA's
borrowers. Economic conditions in general or in particular market
segments could impact the ability of FINOVA's borrowers to operate or
expand their businesses, which might result in decreased performance for
repayment of their obligations or reduce demand for additional financing
needs. The rate of borrower defaults or bankruptcies may increase.
- Actions of FINOVA's competitors and FINOVA's ability to respond to those
actions. As noted in "Business Development and Competition," FINOVA seeks
to remain competitive without sacrificing prudent lending standards.
Doing business under those standards becomes more difficult, however,
when competitors offer financing with lower pricing or less stringent
criteria. FINOVA may not be successful in maintaining and continuing
asset growth at historic levels.
- The cost of FINOVA's capital. That cost depends on many factors, some of
which are beyond FINOVA's control, such as its portfolio quality,
ratings, prospects and outlook. Changes in the interest rate environment
may reduce or eliminate profit margins.
- Changes in government regulations, tax rates and similar matters. For
example, government regulations could significantly increase the cost of
doing business or could eliminate certain tax advantages of some of
FINOVA's financing products.
- Necessary technological changes (including those addressing "Year 2000"
data systems issues) may be more difficult, expensive or time consuming
than anticipated.
- Costs or difficulties related to integration of acquisitions.
- Other risks detailed in FINOVA's other SEC reports or filings.
17
<PAGE> 20
FINOVA does not intend to update forward-looking information to reflect
actual results or changes in assumptions or other factors that could affect
those statements. FINOVA cannot predict the risk from reliance on
forward-looking statements in light of the many factors that could affect their
accuracy.
ITEM 2. PROPERTIES.
FINOVA's principal executive offices are located in premises leased from FP
Arizona, Inc. in Phoenix, Arizona. FINOVA Capital operates various additional
offices in the United States, one in Canada and one in Europe. All these
properties are leased. Alternative office space could be obtained without
difficulties in the event leases are not renewed. FINOVA has entered into a
lease agreement for new executive offices which are presently under
construction. Those facilities are expected to be completed in the fourth
quarter of 1999.
ITEM 3. LEGAL PROCEEDINGS.
FINOVA is a party either as plaintiff or defendant to various actions,
proceedings and pending claims, including legal actions, some of which involve
claims for compensatory, punitive or other damages in significant amounts.
Litigation often results from FINOVA's attempts to enforce its lending
agreements against borrowers and other parties to those transactions. Litigation
is subject to many uncertainties. It is possible that some of the legal actions,
proceedings or claims could be decided against FINOVA. Although the ultimate
amount for which FINOVA may be held liable, if any, is not ascertainable, FINOVA
believes that any resulting liability would not materially affect its financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of 1998.
18
<PAGE> 21
OPTIONAL ITEM. EXECUTIVE OFFICERS OF REGISTRANT.
Set forth below is information with respect to those individuals who serve
as executive officers of FINOVA, including those officers of FINOVA Capital who
are responsible for its principal business units.
<TABLE>
<CAPTION>
NAME AGE POSITION AND BACKGROUND
---- --- ------------------------------------------------------
<S> <C> <C>
Samuel L. Eichenfield............. 61 Chairman, President and Chief Executive Officer of
FINOVA and FINOVA Capital for more than five years.
Matthew M. Breyne................. 41 Executive Vice President of FINOVA since 1998. Before
that he was Group Vice President -- Communications
Finance and Franchise Finance or similar positions of
FINOVA Capital for more than five years.
Derek C. Bruns.................... 39 Senior Vice President -- Internal Audit or similar
positions of FINOVA for more than five years.
William J. Hallinan............... 56 Senior Vice President -- General Counsel and Secretary
or similar positions of FINOVA and FINOVA Capital for
more than five years.
Bruno A. Marszowski............... 57 Senior Vice President -- Controller and Chief
Financial Officer of FINOVA and FINOVA Capital since
1994. Before that he was Vice President -- Controller
of FINOVA and FINOVA Capital for more than five years.
William C. Roche.................. 45 Senior Vice President -- Human Resources & Facilities
Planning of FINOVA and FINOVA Capital for more than
five years.
Meilee Smythe..................... 43 Senior Vice President -- Treasurer of FINOVA and
FINOVA Capital since 1998. Before that she was Vice
President -- Assistant Treasurer for FINOVA and FINOVA
Capital for more than five years.
John J. Bonano.................... 56 Executive Vice President or similar positions of
FINOVA Capital for more than five years.
Jack Fields, III.................. 44 Executive Vice President or similar positions of
FINOVA Capital for more than five years.
Robert M. Korte................... 43 Executive Vice President of FINOVA Capital since 1998.
Before that he was Senior Vice President -- Strategy
and Technology of FINOVA since 1994 and Vice
President-Human and Corporate Development of FINOVA
and FINOVA Capital since 1991.
Gregory C. Smalis................. 46 Executive Vice President -- Portfolio Management or
similar positions for more than five years and a
Director of FINOVA Capital since 1993.
</TABLE>
19
<PAGE> 22
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY &
RELATED SHAREOWNER MATTERS.
The FINOVA Group Inc.'s common stock trades on the New York Stock Exchange.
The following tables summarize the high and low market prices as reported on the
New York Stock Exchange Composite Tape and the cash dividends declared from
January 1, 1997 through December 31, 1998. Amounts have been restated to give
effect to a stock split effective October 1, 1997.
<TABLE>
<CAPTION>
SALES PRICE RANGE OF COMMON STOCK
---------------------------------
1998 1997
-------------- --------------
QUARTERS: HIGH LOW HIGH LOW
- --------- ----- ---- ----- ----
<S> <C> <C> <C> <C>
First................................................ $60 1/4 $45 1/2 $39 1/2 $31 7/8
Second............................................... 63 1/2 53 5/16 38 7/8 32 1/16
Third................................................ 65 1/8 41 1/16 48 1/4 37 7/8
Fourth............................................... 56 3/8 35 9/16 50 40 1/4
</TABLE>
<TABLE>
<CAPTION>
DIVIDENDS
DECLARED ON
COMMON STOCK
--------------
1998 1997
----- -----
<S> <C> <C>
February.................................................... $0.14 $0.12
May......................................................... 0.14 0.12
August...................................................... 0.16 0.14
November.................................................... 0.16 0.14
----- -----
$0.60 $0.52
===== =====
</TABLE>
Quarterly dividends have been paid on the first business day of each
calendar quarter. FINOVA anticipates it will continue to pay regular quarterly
dividends on the first business day of January, April, July and October. In
February 1999, the Board of Directors declared a dividend of $0.16 per share,
payable April 1, 1999, for shareowners of record on February 26, 1999. The
declaration of dividends and their amounts are at the discretion of the Board of
Directors of FINOVA, and there can be no assurance that additional dividends
will be declared.
FINOVA Capital is restricted in its ability to pay dividends to The FINOVA
Group Inc. The agreements pertaining to long-term debt include various
restrictive covenants and require the maintenance of certain defined financial
ratios with which FINOVA and FINOVA Capital have complied. Under one of these
covenants, dividend payments from FINOVA Capital to FINOVA Group are limited to
50 percent of accumulated earnings after December 31, 1991.
As of February 26, 1999, there were approximately 22,200 holders of record
of The FINOVA Group Inc.'s common stock. The closing price of the common stock
on that date was $50 13/16.
20
<PAGE> 23
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes selected financial data of FINOVA, which
have been derived from the audited Consolidated Financial Statements of FINOVA
for each of the years ended December 31, 1998, 1997, 1996, 1995 and 1994. The
information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Consolidated Financial Statements of FINOVA and the Notes included in Annex A,
as well as the remainder of this report. Prior years have been reclassified to
conform to 1998 presentation and restated to exclude operations which were
discontinued in 1996 and to reflect a two-for-one stock split in 1997; for
further detail, see Annex A, Note H.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Income earned from
financing
transactions............ $ 1,021,977 $ 897,996 $ 769,346 $ 680,912 $ 463,404
Interest margins earned... 472,536 408,914 340,517 287,880 216,667
Volume-based fees......... 77,723 46,728 28,588 21,204 10,796
Provision for credit
losses.................. 82,200 69,200 41,751 37,568 10,439
Gains on disposal of
assets.................. 55,024 30,261 12,949 10,889 3,877
Income from continuing
operations.............. 169,737 139,098 116,493 93,798 73,770
Net income................ 169,737 139,098 117,000 97,629 74,313
Basic earnings from
continuing operations
per share............... 3.03 2.56 2.14 1.72 1.48
Basic earnings per share.. 3.03 2.56 2.15 1.79 1.49
Basic adjusted weighted
average outstanding
shares.................. 55,946,000 54,405,000 54,508,000 54,633,000 49,765,000
Diluted earnings from
continuing operations
per share............... $ 2.86 $ 2.42 $ 2.08 $ 1.69 $ 1.46
Diluted earnings per
share................... 2.86 2.42 2.09 1.76 1.47
Diluted adjusted weighted
average shares.......... 60,705,000 59,161,000 56,051,000 55,469,000 50,436,000
Dividends declared per
common share............ $ 0.60 $ 0.52 $ 0.46 $ 0.42 $ 0.37
Dividend payout ratio..... 19.9% 20.5% 21.7% 24.6% 26.3%
FINANCIAL POSITION:
Investment in financing
transactions............ $10,011,536 $ 8,399,456 $ 7,298,759 $ 6,348,079 $ 5,342,979
Nonaccruing assets........ 205,233 187,356 155,505 143,127 149,046
Reserve for credit
losses.................. 207,618 177,088 148,693 129,077 110,903
Total assets.............. 10,450,314 8,719,840 7,526,734 7,036,514 5,821,343
Deferred income taxes..... 347,373 274,761 244,208 209,512 188,887
Total debt................ 8,394,578 6,764,581 5,850,223 5,649,368 4,573,354
Company-obligated
mandatory redeemable
convertible preferred
securities of subsidiary
trust solely holding
convertible debentures
of FINOVA ("TOPrS")..... 111,550 111,550 111,550
Shareowners' equity....... 1,177,345 1,090,454 929,591 825,184 770,252
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
RATIOS:
Reserve for credit losses/managed assets(1)(2).............. 2.0% 2.0% 2.0% 2.0% 2.1%
Nonaccruing assets/managed assets(1)........................ 2.0% 2.1% 2.0% 2.2% 2.8%
Total debt to equity(3)..................................... 6.5x 5.6x 5.6x 6.8x 5.9x
Return on average common equity(4).......................... 14.9% 14.3% 13.3% 11.8% 11.1%
Return on average funds employed(4)(5)...................... 1.9% 1.8% 1.8% 1.7% 1.8%
Equity to assets(3)......................................... 12.3% 13.8% 13.8% 11.7% 13.2%
</TABLE>
- ---------------
NOTES:
(1) Managed assets exclude participations.
(2) Managed assets exclude financing contracts held for sale.
(3) Equity in 1998, 1997 and 1996 includes the TOPrS noted above.
(4) Return represents income from continuing operations.
(5) Average funds employed excludes deferred taxes applicable to leveraged
leases.
------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
See pages 3 -- 12 of Annex A.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See pages 12 -- 13 of Annex A.
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA.
1. Financial Statements -- See Item 14 hereof and Annex A.
2. Supplementary Data -- See Condensed Quarterly Results included in
Supplemental Selected Financial Data of Notes to Consolidated Financial
Statements included in Annex A.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING & FINANCIAL
DISCLOSURE.
NONE.
PART III
ITEM 10. DIRECTORS & EXECUTIVE OFFICERS OF THE REGISTRANT.
The information concerning FINOVA's directors is incorporated by reference
from FINOVA's Proxy Statement issued in connection with its 1999 Annual Meeting
of Shareowners (the "Proxy Statement").
For information regarding FINOVA's executive officers, see the Optional
Item in Part I, following Item 4.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference from the
Proxy Statement.
22
<PAGE> 25
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS & MANAGEMENT.
The information required by this item is incorporated by reference from the
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS & RELATED TRANSACTIONS.
The information required by this item is incorporated by reference from the
Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed.
1. Financial Statements.
(i) The following financial statements of FINOVA are included in
Annex A:
<TABLE>
<CAPTION>
ANNEX A
PAGE
-------
<S> <C>
Financial Highlights............................... 1-2
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 3-12
Quantitative and Qualitative Disclosures about
Market Risk...................................... 12-13
Report of Management and Independent Auditors'
Report........................................... 14-15
Consolidated Balance Sheets........................ 16
Statements of Consolidated Income.................. 17
Statements of Consolidated Shareowners' Equity..... 18
Statements of Consolidated Cash Flows.............. 19
Notes to Consolidated Financial Statements......... 20-43
Supplemental Selected Financial Data............... 44-45
</TABLE>
2. All Schedules have been omitted because they are not applicable or
the required information is shown in the financial statements or
related notes.
3. Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
(3.A) Certificate of Incorporation, as amended through the date of
this filing (incorporated by reference from FINOVA's report
on Form 10-K for the year ended December 31, 1994 (the "1994
10-K"), Exhibit 3.A).
(3.B) Proposed amendment to the Certificate of Incorporation to
increase the number of authorized shares, which is subject
to shareowner approval (incorporated by reference from the
1999 Proxy Statement).
(3.C) Bylaws, as amended through the date of this filing
(incorporated by reference from FINOVA's report on Form 10-K
for the year ended December 31, 1995 (the "1995 10-K")
Exhibit 3.B).
(4.A) Form of FINOVA's Common Stock Certificate (incorporated by
reference from the 1994 10-K, Exhibit 4.B).
(4.B) Relevant portions of FINOVA's Certificate of Incorporation
and Bylaws included in Exhibits 3.A, 3.B and 3.C above are
incorporated by reference.
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
(4.C) Rights Agreement dated as of February 15, 1992 between
FINOVA and the Rights Agent named therein, as amended
(incorporated by reference from FINOVA's report on Form 8-K
dated September 21, 1995, Exhibit 4.1).
(4.C.1) Acceptance of Successor Trustee to Appointment under Rights
Agreement noted in 4.C above (incorporated by reference from
FINOVA's report on Form 8-K, dated November 30, 1995,
Exhibit 4).
(4.D) Long-term debt instruments with principal amounts not
exceeding 10% of FINOVA's total consolidated assets are not
filed as exhibits to this report. FINOVA will furnish a copy
of those agreements to the SEC upon its request.
(4.E) Form of Indenture dated as of September 1, 1992 between
FINOVA Capital and the Trustee named therein (incorporated
by reference from the Greyhound Financial Corporation
Registration Statement on Form S-3, Registration No.
33-51216, Exhibit 4).
(4.F) Form of Indenture dated as of October 1, 1995 between FINOVA
Capital and the Trustee named therein (incorporated by
reference from FINOVA Capital's report on Form 8-K dated
October 25, 1995, Exhibit 4.1).
(4.G) Indenture, dated as of December 11, 1996, between FINOVA and
Fleet National Bank as trustee (incorporated by reference
from FINOVA's report on Form 8-K dated December 20, 1996,
(the "December 1996 8-K"), Exhibit 4.1).
(4.G.1) Amended and Restated Declaration of Trust, dated as of
December 11, 1996, among Bruno A. Marszowski and Robert J.
Fitzsimmons, as Regular Trustees, First Union Bank of
Delaware, as Delaware Trustee, Fleet National Bank, as
Property Trustee, and FINOVA (incorporated by reference from
the December 1996 8-K, Exhibit 4.2).
(4.G.2) Preferred Security Guarantee, dated as of December 11, 1996,
between FINOVA and Fleet National Bank, as trustee
(incorporated by reference from the December 1996 8-K,
Exhibit 4.3).
(4.G.3) Form of 5 1/2% Convertible Subordinated Debenture
(incorporated by reference from the December 1996 8-K,
Exhibit 4.4).
(4.G.4) Form of Preferred Security (TOPrS) (incorporated by
reference from the December 1996 8-K, Exhibit 4.5).
(4.H) Form of Indenture, dated as of March 20, 1998, between
FINOVA, FINOVA Capital and The First National Bank of
Chicago as Trustee (incorporated by reference from FINOVA
and FINOVA Capital's registration statement on Form S-3,
Registration No. 333-38171, Exhibit 4.8).
(4.I) Announcement of 2-for-1 Stock Split (incorporated by
reference from FINOVA's August 14, 1998 8-K, Exhibit 28).
(4.I.1) Letter to shareowners regarding FINOVA's 2-for-1 Stock Split
(incorporated by reference from FINOVA's October 1, 1998
8-K, Exhibit 28.A).
(4.I.2) Letter to holders of Preferred Securities regarding the
2-for-1 common stock split and resulting adjustment in
conversion price applicable to the Convertible Trust
Originated Preferred Securities of FINOVA Finance Trust
(incorporated by reference from FINOVA's October 1, 1998
8-K, Exhibit 28.B).
(4.J) 1992 Stock Incentive Plan, as amended through the date of
this filing (incorporated by reference from the 1997 10-K,
Exhibit 4.J).+
(4.K) Sirrom Capital Corporation Amended and Restated 1994 Stock
Option Plan.*
(4.L) Sirrom Capital Corporation Amended and Restated 1995 Stock
Option Plan for Non-employee Directors.*
</TABLE>
24
<PAGE> 27
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
(4.M) Sirrom Capital Corporation Amended and Restated 1996
Incentive Stock Option Plan.*
(4.N) Director resolutions dated February 11, 1999, regarding
adoption of the Sirrom stock option plans.*
(10.A) Sixth Amendment and Restatement dated as of May 16, 1994 of
the Credit Agreement dated as of May 31, 1976 among FINOVA
Capital and the lender parties thereto, and Bank of America
National Trust and Savings Association, Bank of Montreal,
Chemical Bank, Citibank, N.A. and National Westminister Bank
USA, as agents (the "Agents") and Citibank, N.A., as
Administrative Agent (incorporated by reference from
FINOVA's report on Form 8-K dated May 23, 1994, Exhibit
10.1).
(10.A.1) First Amendment dated as of September 30, 1994, to the Sixth
Amendment and Restatement, noted in 10.A above (incorporated
by reference from the 1994 10-K, Exhibit 10.A.1).
(10.A.2) Second Amendment dated as of May 11, 1995 to the Sixth
Amendment and Restatement noted in 10.A above (incorporated
by reference from FINOVA's Quarterly Report on Form 10-Q for
the period ending September 30, 1995 ( the "3Q95 10-Q"),
Exhibit 10.A).
(10.A.3) Third Amendment dated as of November 1, 1995 to Sixth
Amendment noted in 10.A above (incorporated by reference
from the 3Q95 10-Q, Exhibit 10.B).
(10.A.4) Fourth Amendment dated as of May 15, 1996, to Sixth
Amendment noted in 10.A above (incorporated by reference
from the 1996 10-K, Exhibit 10.A.4).
(10.A.5) Fifth Amendment dated as of May 20, 1998 to Sixth Amendment
noted in 10.A above (incorporated by reference from the 1997
10-K, Exhibit 10.A.5).
(10.B) Credit Agreement (Short-Term Facility) dated as of May 16,
1994 among FINOVA Capital, the Lender parties thereto, the
Agents and Citibank, N.A., as Administrative Agent
(incorporated by reference from FINOVA's report on Form 8-K
dated May 23, 1994, Exhibit 10.2).
(10.B.1) First Amendment dated as of September 30, 1994 to the Credit
Agreement noted in 10.B above (incorporated by reference
from the 1994 10-K, Exhibit 10.B.1).
(10.B.2) Second Amendment to Short-Term Facility noted in 10.B above
(incorporated by reference from the 3Q95 10-Q, Exhibit
10.C).
(10.B.3) Third Amendment to Short-Term Facility noted in 10.B above
(incorporated by reference from the 3Q95 10-Q, Exhibit
10.D).
(10.B.4) Fourth Amendment to Short-Term Facility noted in 10.B above
(incorporated by reference from 1996 10-K, Exhibit B.4).
(10.B.5) Fifth Amendment to Short-Term Facility noted in 10.B above
(incorporated by reference from the 1997 10-K, Exhibit
10.B.5).+
(10.C) 1998 Management Incentive Plan (incorporated by reference
from the 1997 10-K, Exhibit 10.C.)+
(10.D) 1999 Management Incentive Plan.*+
(10.E.1) 1996 -- 1998 Performance Share Incentive Plan (incorporated
by reference from 1996 10-K, Exhibit 10.E.3).+
(10.E.2) 1997 -- 1999 Performance Share Incentive Plan (incorporated
by reference from the 1997 10-K, Exhibit 10.E.3).+
(10.E.3) 1998 -- 2000 Performance Share Incentive Plan (incorporated
by reference from the 1997 10-K, Exhibit 10.E.4).+
(10.E.4) 1999 -- 2001 Performance Share Incentive Plan.*+
</TABLE>
25
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
(10.F) Employment Agreement with Samuel L. Eichenfield dated March
16, 1996 (incorporated by reference from the 1995 10-K,
Exhibit 10.F.3).+
(10.F.1) Amendment to Employment Agreement referenced in 10.F above
(incorporated by reference from the 1996 10-K, Exhibit
10.F.2).+
(10.F.2) Second Amendment to Employment Agreement referenced in 10.F
above (incorporated by reference from the 2Q97 10-Q, Exhibit
10).+
(10.G) Employment Agreement with William J. Hallinan, dated
February 25, 1992 (incorporated by reference from the 1992
10-K, Exhibit 10.1).+
(10.H) Amended and Restated Supplemental Pension Plan,
(incorporated by reference from the 1996 10-K, Exhibit
10.1).+
(10.I) A description of FINOVA's policies regarding compensation of
directors is incorporated by reference from the 1999 Proxy
Statement.+
(10.J) Directors Deferred Compensation Plan (incorporated by
reference from the 1992 10-K, Exhibit 10.O).+
(10.K) Directors' Retirement Benefit Plan (incorporated by
reference from FINOVA's report on Form 10-K for the year
ended December 31, 1993 (the "1993 10-K"), Exhibit 10.OO).+
(10.L) Directors' Charitable Awards Program (incorporated by
reference from the 1994 10-K, Exhibit 10.CC).+
(10.M) Deferred Compensation Plan (incorporated by reference from
the 1995 10-K, Exhibit 10.N).+
(10.N) Bonus KEYSOP Plan (incorporated by reference from the 1997
10-K, Exhibit 10.N).+
(10.N.1) Bonus KEYSOP Trust Agreement (incorporated by reference from
the 1997 10-K, Exhibit 10.N.1).+
(10.O) FINOVA's Executive Officer Loan Program Policies and
Procedures, (incorporated by reference from the 1996 10-K,
Exhibit 10.U).+
(10.P.1) FINOVA's Executive Severance Plan for Tier 1 Employees
(incorporated by reference from the 1995 10-K, Exhibit
10.C.1).+
(10.P.2) FINOVA's Executive Severance Plan for Tier 2 Employees
(incorporated by reference from the 1995 10-K, Exhibit
10.C.2).+
(10.Q.1) Value Sharing Plan for the Chief Executive Officer
(incorporated by reference from the 3Q95 10-Q, Exhibit
10.L).+
(10.Q.2) Value Sharing Plan for Executive Officers and Key Employees
(incorporated by reference from the 3Q95 10-Q, Exhibit
10.K).+
(10.R) Tax Sharing Agreement dated February 19, 1992 among FINOVA,
The Dial Corp and others (incorporated by reference from the
1992 10-K, Exhibit 10.KK).
(10.S) 1992 Stock Incentive Plan (incorporated by reference from
the 1997 10-K, Exhibit 4.J).+
(10.T) Documents relating to the mini-CMBS Program:
FINOVA Commercial Mortgage Loan Owner Trust 1998-1.
Commercial Mortgage Loan Asset Backed Certificates 1998-1.*
(10.T.1) Certificate Purchase Agreement dated as of September 29,
1998.*
(10.T.2) Trust and Servicing Agreement dated as of September 1,
1998.*
(10.T.3) Loan Purchase Agreement dated as of September 1, 1998.*
(10.T.4) Amendment No. 1 to the Trust and Servicing Agreement dated
as of December 8, 1998.*
(10.T.5) Amendment No. 2 to the Trust and Servicing Agreement dated
as of December 29, 1998.*
(10.T.6) Custodial Agreement dated as of September 1, 1998.*
(10.T.7) Administration Agreement dated as of September 1, 1998.*
</TABLE>
26
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
(12) Computation of Ratio of Income to Combined Fixed Charges and
Preferred Stock Dividends.*
(21) Subsidiaries.*
(23) Independent Auditors' Consent.*
(24) Powers of Attorney.*
(27) Financial Data Schedule for the year ended December 31,
1998.*
</TABLE>
- ---------------
* Filed with this report.
+ Relating to management compensation.
(b) Reports on Form 8-K.
A report on Form 8-K, dated January 14, 1999, was filed by FINOVA which
reported under Items 5 and 7 the revenues, net income and selected financial
data and ratios for the fourth quarter and year ended December 31, 1998
(unaudited).
A report on Form 13-D, dated January 6, 1999, was filed by FINOVA which
reported under Item 4 the Agreement and Plan of Merger between FINOVA and Sirrom
Capital Corporation.
27
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Section 13 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 in the capacities indicated, in
Phoenix, Arizona on March 1, 1999.
THE FINOVA GROUP INC.
By: /s/ SAMUEL L. EICHENFIELD
------------------------------------
Samuel L. Eichenfield
Chairman, President and Chief
Executive Officer
(Chief Executive Officer)
By: /s/ BRUNO A. MARSZOWSKI
------------------------------------
Bruno A. Marszowski
Senior Vice President -- Controller
and
Chief Financial Officer
(Chief Accounting and Financial
Officer)
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated:
<TABLE>
<S> <C>
* *
--------------------------------------------------- -----------------------------------------------------
Robert H. Clark, Jr. (Director) G. Robert Durham (Director)
March 1, 1999 March 1, 1999
/s/ SAMUEL L. EICHENFIELD *
- ----------------------------------------------------- -----------------------------------------------------
Samuel L. Eichenfield (Chairman) James L. Johnson (Director)
March 1, 1999 March 1, 1999
* *
- ----------------------------------------------------- -----------------------------------------------------
Kenneth R. Smith (Director) Shoshana B. Tancer (Director)
March 1, 1999 March 1, 1999
* *
- ----------------------------------------------------- -----------------------------------------------------
John W. Teets (Director) Constance R. Curran (Director)
March 1, 1999 March 1, 1999
</TABLE>
- ---------------
* Signed pursuant to Powers of Attorney dated February 11, 1999.
<TABLE>
<S> <C>
/s/ BRUNO A. MARSZOWSKI
- -----------------------------------------------------
Bruno A. Marszowski
Attorney-in-Fact
March 1, 1999
</TABLE>
28
<PAGE> 31
ANNEX A
<PAGE> 32
THE FINOVA GROUP INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Highlights........................................ A-1
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. A-3
Quantitative and Qualitative Disclosure about Market Risk... A-12
Management's Report on Responsibility for Financial
Reporting................................................. A-14
Independent Auditors' Report................................ A-15
Consolidated Balance Sheets................................. A-16
Statements of Consolidated Income........................... A-17
Statements of Consolidated Shareowners' Equity.............. A-18
Statements of Consolidated Cash Flows....................... A-19
Notes to Consolidated Financial Statements.................. A-20
Supplemental Selected Financial Data........................ A-44
</TABLE>
A-ii
<PAGE> 33
THE FINOVA GROUP INC.
FINANCIAL HIGHLIGHTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
OPERATIONS:
Interest margins earned.................................. $ 472,536 $ 408,914 $ 340,517
Volume-based fees........................................ 77,723 46,728 28,588
Operating expenses....................................... 241,074 190,525 154,481
Income from continuing operations........................ 169,737 139,098 116,493
Net income............................................... 169,737 139,098 117,000
FINANCIAL POSITION:
Ending funds employed.................................... 10,011,536 8,399,456 7,298,759
Ending managed assets(1)................................. 10,549,132 8,857,423 7,663,305
Average managed assets(2)................................ 9,500,539 8,153,076 7,041,708
Average earning assets(3)................................ 8,544,431 7,356,845 6,324,545
Reserve for credit losses................................ 207,618 177,088 148,693
Nonaccruing assets(4).................................... 205,233 187,356 155,505
Funded new business...................................... 3,979,265 3,311,105 2,740,353
Fee-based volume......................................... 7,257,003 4,532,494 2,937,311
Net write-offs........................................... 56,758 43,200 28,721
CAPITALIZATION:
Total debt............................................... 8,394,578 6,764,581 5,850,223
Company-obligated mandatory redeemable convertible
preferred securities of subsidiary trust solely holding
convertible debentures of FINOVA ("TOPrS")............. 111,550 111,550 111,550
Shareowners' equity...................................... 1,177,345 1,090,454 929,591
PORTFOLIO QUALITY:
Net write-offs as a % of average managed assets(5)....... 0.60% 0.54% 0.41%
Nonaccruing assets as a % of ending managed assets(5).... 2.0% 2.1% 2.0%
Reserve for credit losses as a % of:
Ending managed assets(5)(6)............................ 2.0% 2.0% 2.0%
Nonaccruing assets..................................... 101.2% 94.5% 95.6%
As a multiple of net write-offs........................ 3.7x 4.1x 5.2x
PERFORMANCE HIGHLIGHTS:
Return from continuing operations as a % of average funds
employed(7)............................................ 1.9% 1.8% 1.8%
Operating margin earned as a % of average earning
assets(3).............................................. 6.4% 6.2% 5.8%
Interest margins earned as a % of average earning
assets(3).............................................. 5.5% 5.6% 5.4%
Operating expenses as a % of operating margin............ 43.8% 41.8% 41.9%
Operating expenses as a % of operating margin plus
gains.................................................. 39.8% 39.2% 40.4%
Aggregate cost of funds.................................. 6.4% 6.6% 6.8%
Ratio of income to combined fixed charges and preferred
stock dividends........................................ 1.56x 1.52x 1.50x
Return from continuing operations on average equity...... 14.9% 14.3% 13.3%
Basic earnings per common share:
Continuing operations.................................. $3.03 $2.56 $2.14
Net income............................................. $3.03 $2.56 $2.15
Adjusted weighted average shares(8).................... 55,946,000 54,405,000 54,508,000
Diluted earnings per share(9):
Continuing operations.................................. $2.86 $2.42 $2.08
Net income............................................. $2.86 $2.42 $2.09
Adjusted weighted average shares(8).................... 60,705,000 59,161,000 56,051,000
Cash earnings per share(10).............................. $4.40 $3.68 $3.06
Book value per share outstanding......................... $21.13 $19.37 $16.88
Shares outstanding(8).................................... 55,721,000 56,282,000 55,058,000
=========== =========== ===========
</TABLE>
A-1
<PAGE> 34
- ---------------
(1) Includes assets sold under securitization and participation agreements that
are managed by the Company; however, excludes managed assets serviced under
the mini-CMBS structure due to the expected short-term nature of the
servicing rights.
(2) Includes average securitizations and participations of $484.5 million,
$388.9 million and $327.4 million for 1998, 1997 and 1996, respectively.
(3) Represents average funds employed excluding average deferred taxes on
leveraged leases of $275.9 million, $234.4 million and $237.8 million for
1998, 1997 and 1996, respectively, and average nonaccruing assets.
(4) Includes nonaccruing assets classified as discontinued operations at
December 31, 1996.
(5) Excludes participations sold of $101.5 million, $121.4 million and $64.5
million for 1998, 1997 and 1996, respectively, in which the Company has
transferred credit risk.
(6) Excludes financing contracts held for sale of $241.9 million for 1998.
(7) Average funds employed excludes average deferred taxes on leveraged leases.
(8) Shares for 1997 and 1996 have been adjusted to reflect a two-for-one stock
split on October 1, 1997.
(9) Diluted earnings per share include the dilutive potential of options,
restricted stock and convertible preferred stock.
(10) Represents net income before preferred dividends plus non-cash taxes, loss
provision and goodwill amortization. Excluding non-cash mini-CMBS
transactions, cash earnings per share were $4.24 for 1998. See Note C of
Notes to Consolidated Financial Statements for a further discussion of the
mini-CMBS transactions.
A-2
<PAGE> 35
THE FINOVA GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion relates to The FINOVA Group Inc. and its
subsidiaries (collectively, "FINOVA" or the "Company"), including FINOVA Capital
Corporation and its subsidiaries (collectively, "FINOVA Capital").
RESULTS OF OPERATIONS
The following table summarizes FINOVA's operating results for the years
ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
PERCENT PERCENT
1998 1997 CHANGE 1997 1996 CHANGE
------- ------- ------- ------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Interest margins earned... $ 472.5 $ 408.9 15.6% $ 408.9 $ 340.5 20.1%
Volume-based fees......... 77.7 46.7 66.3% 46.7 28.6 63.5%
------- ------- ------- -------
Operating margin.......... 550.3 455.6 20.8% 455.6 369.1 23.4%
Provision for credit
losses.................. (82.2) (69.2) 18.8% (69.2) (41.8) 65.7%
Gains on disposal of
assets.................. 55.0 30.3 81.8% 30.3 12.9 133.7%
Operating expenses........ (241.1) (190.5) 26.5% (190.5) (154.5) 23.3%
Income taxes.............. (108.5) (83.1) 30.6% (83.1) (69.3) 19.8%
Preferred dividends,
net..................... (3.8) (4.0) (5.3%) (4.0) n/a
------- ------- ------- -------
Income from continuing
operations.............. 169.7 139.1 22.0% 139.1 116.5 19.4%
Income and gain from
discontinued
operations.............. n/a 0.5 n/a
------- ------- ------- -------
Net Income................ $ 169.7 $ 139.1 22.0% $ 139.1 $ 117.0 18.9%
======= ======= ======= =======
</TABLE>
1998 COMPARED TO 1997
Net income for 1998 increased 22.0% to $169.7 million from $139.1 million
in 1997. The increase was due to the growth in average earning assets, the
expansion of the fee-related businesses and higher gains on disposal of assets.
Partially offsetting these increases were a higher provision for credit losses,
increased operating expenses and a higher effective tax rate. Net income in 1998
included a full year of FINOVA Realty Capital ("FRC") and AT&T Capital's
Inventory Finance unit, both of which were acquired in the fourth quarter of
1997. See Note B of Notes to Consolidated Financial Statements for further
discussion.
INTEREST MARGINS EARNED. The net spread from the portfolio is represented
by interest margins earned, which is the difference between (a) income earned
from financing transactions and (b) interest expense and depreciation on
operating leases and other owned assets. Interest margins earned increased 15.6%
to $472.5 million in 1998 from $408.9 million in 1997, due primarily to a 16.1%
increase in average earning assets in 1998.
Average earning assets, which represents the average of FINOVA's investment
in financing transactions less nonaccruing assets and deferred taxes related to
leveraged leases, increased to $8.54 billion in 1998 from $7.36 billion in 1997.
The increase was primarily due to a 20.2% increase in funded new business of
$3.98 billion compared to $3.31 billion in 1997, partially offset by normal
amortization of the portfolio and prepayments during the year.
A-3
<PAGE> 36
VOLUME-BASED FEES. Volume-based fees are generated by FINOVA's
Distribution & Channel Finance (formerly Inventory Finance), Commercial Services
(formerly Factoring Services) and FRC lines of business. These fees are
predominantly based on volume-originated business rather than the balance of
outstanding financing transactions during the year. The 66.3% increase in
volume-based fees to $77.7 million in 1998 from $46.7 million in 1997 was
primarily due to fee-based volume increasing by 60.1% to $7.26 billion in 1998
compared to $4.53 billion in 1997. The increased volume was attributable to the
addition of FRC and AT&T Capital's Inventory Finance unit.
The increase in volume-based fees in 1998 was the major reason for the
growth of FINOVA's operating margin as a percentage of average earning assets to
6.4% in 1998 from 6.2% in 1997. The interest rate spread portion of this margin
declined slightly to 5.5% from 5.6% principally due to the increase in the
Company's debt leverage during 1998.
PROVISION FOR CREDIT LOSSES. The provision for credit losses increased
18.8% to $82.2 million in 1998 compared to $69.2 million in 1997. The increase
in the provision reflected the growth in managed assets of 19.1% to $10.55
billion in 1998 from $8.86 billion in 1997 and an increase in net write-offs in
1998 to $56.8 million compared to $43.2 million in 1997. The higher level of
write-offs in 1998 was primarily due to prior credit problems experienced in
FINOVA's Commercial Services line of business which had write-offs of $35.7
million in 1998 principally related to the business' wholesale textile
customers. The 1998 Commercial Services write-offs represent problems identified
in 1997 that the Company believed could be worked out. Unfortunately, the
results of those efforts were unsuccessful, resulting in increased write-offs
for 1998. Commercial Services is refocusing its portfolio to include more retail
customers and other industries. Net write-offs by line of business and other
changes in the reserve for credit losses can be found in Note D of Notes to
Consolidated Financial Statements.
GAINS ON DISPOSAL OF ASSETS. Gains on disposal of assets were $55.0
million in 1998 compared to $30.3 million in 1997. Gains on disposal of assets
include the sale of loans via the commercial mortgage backed securities ("CMBS")
market, the sale of assets coming off lease and the sale of other assets. Net
gains from the CMBS market totaled $18.9 million in 1998 and included gross
gains of $51.7 million partially offset by hedge losses, commissions and
expenses of $24.3 million and $8.5 million of reserves. The other $36.1 million
of net gains in 1998 resulted from the sale of assets coming off lease,
Franchise Finance loans and other assets. While, in the aggregate, FINOVA has
historically recognized gains on the disposal of assets it holds, the timing and
amount of these gains are sporadic in nature. There can be no assurance FINOVA
will recognize such gains in the future, depending, in part, on market
conditions at the time of disposal. See Note C of Notes to Consolidated
Financial Statements for further discussion of gains on disposal of assets.
OPERATING EXPENSES. Operating expenses, which include selling,
administrative and other expenses were generally higher in all major categories
and increased to $241.1 million in 1998 compared to $190.5 million in 1997. This
increase was partially attributable to the growth in managed assets during the
year and to incentives paid to employees based on performance criteria such as
new business, profitability and the increased value of FINOVA's stock. Also
contributing to the increase was the addition of FRC, which has a higher
operating cost structure than other FINOVA lines of business, including over 80
business development officers and support staff. Operating expenses were 43.8%
of operating margin for 1998 compared to 41.8% in 1997. Due to FINOVA's
expansion into activities that use gains from the sale of assets to cover
operating expenses, a more appropriate ratio to measure efficiency is operating
expenses as a percentage of operating margin plus gains. Using this measurement,
operating expenses were 39.8% of operating margin plus gains for 1998 compared
to 39.2% in 1997. See Note O of Notes to Consolidated Financial Statements for
additional detail.
INCOME TAXES. Income taxes were $108.5 million in 1998 compared to $83.1
million in 1997. The increase was primarily due to higher pre-tax income and a
higher effective tax rate in 1998 due
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<PAGE> 37
to the realization of certain tax credits in 1997. See Note J of Notes to
Consolidated Financial Statements for further discussion of income taxes.
PREFERRED DIVIDENDS. Dividends, net of tax, paid on $111.6 million of
outstanding Company-obligated mandatory redeemable convertible preferred
securities ("TOPrS") was $3.8 million in 1998 compared to $4.0 million in 1997.
1997 COMPARED TO 1996
Net income for 1997 increased 18.9% to $139.1 million from $117.0 million
in 1996. The increase reflected growth in managed assets, increased fee-related
business, higher gains on disposal of assets and a lower effective income tax
rate, partially offset by higher provisions for credit losses and increased
operating expenses. Income from continuing operations for 1997 increased to
$139.1 million from $116.5 million in 1996. Continuing operations in 1996
excluded the operating results of FINOVA's discontinued Manufacturer & Dealer
Services line of business ("MDS") and FINOVA Medical Systems and a $6 million
gain resulting from the sale of MDS.
INTEREST MARGINS EARNED. Interest margins earned increased 20.1% to $408.9
million in 1997 from $340.5 million in 1996 due primarily to a higher level of
average earning assets.
Average earning assets increased 16.3% to $7.36 billion in 1997 from $6.32
billion a year earlier. This increase primarily resulted from a 20.8% increase
in funded new business of $3.31 billion compared to $2.74 billion in 1996, and,
to a lesser extent, from portfolios purchased during 1997 (totaling $122
million). These increases were partially offset by the normal amortization of
the portfolio and prepayments during the year.
VOLUME-BASED FEES. Volume-based fees increased 63.5% to $46.7 million in
1997 compared to $28.6 million in 1996. The increase was primarily due to
fee-based volume of $4.53 billion in 1997 that was 54.3% higher than the
fee-based volume of $2.94 billion in 1996. Contributing to the increase in
fee-based business were the acquisitions of FRC (formerly Belgravia Capital
Corporation) and AT&T Capital's Inventory Finance unit in the fourth quarter of
1997.
The 54.3% increase in fee-based volume in 1997 was a primary factor in the
improvement of FINOVA's operating margin as a percentage of average earning
assets to 6.2% in 1997 from 5.8% in 1996. Lower aggregate borrowing costs and
lower leverage in 1997 also contributed to the improvement in the operating
margin.
PROVISION FOR CREDIT LOSSES. The provision for credit losses increased
65.7% to $69.2 million in 1997 compared to $41.8 million in 1996. In addition to
growth in FINOVA's managed assets, the increase in the provision for credit
losses primarily resulted from an increase in net write-offs to $43.2 million in
1997 from $28.7 million in 1996. The higher net write-offs in 1997 were
primarily attributable to FINOVA's Commercial Services line of business, due to
credit problems experienced among the line's wholesale textile customers. Total
net write-offs for FINOVA's other lines of business were lower in 1997 than in
1996.
FINOVA's net write-offs during 1997 represented 0.54% of average managed
assets (excluding average participations) compared to 0.41% in 1996. Details of
net write-offs and other changes in the reserve for credit losses can be found
in Note D of Notes to Consolidated Financial Statements.
GAINS ON DISPOSAL OF ASSETS. Gains on disposal of assets totaled $30.3
million in 1997, higher than the $12.9 million in 1996. In addition to the sale
of assets coming off lease, FINOVA recognized a significant gain from the early
termination of a real estate leveraged lease transaction in 1997.
OPERATING EXPENSES. Operating expenses were higher in 1997 than in 1996,
primarily as a result of increased costs necessary to manage FINOVA's larger
portfolio. Also contributing to the increase in operating expenses were
incentives paid to employees based on performance criteria such as new business,
profitability and the increased value of FINOVA's stock (which increased by
54.7% to $49 11/16 per share at year-end). The Company also incurred additional
costs in administer-
A-5
<PAGE> 38
ing problem loan accounts in 1997, including an increase with respect to the
Commercial Services line of business.
As a percentage of operating margin, operating expenses declined slightly
to 41.8% in 1997 from 41.9% in 1996. See Note O of Notes to Consolidated
Financial Statements for further detail of operating expenses.
INCOME TAXES. Income taxes were higher in 1997 than in 1996 due to the
increase in pre-tax income. Partially offsetting the increase was a lower
effective tax rate in 1997 of 36.7% compared to 37.3% in 1996, principally
caused by FINOVA's ability to use certain capital loss carryforwards in 1997.
See Note J of Notes to Consolidated Financial Statements for further discussion
of income taxes.
PREFERRED DIVIDENDS. During 1997, a subsidiary trust sponsored and wholly
owned by FINOVA had $111.6 million (net of transaction costs) outstanding of
TOPrS. FINOVA paid dividends of $4.0 million, after tax, on these securities
during 1997.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Managed assets at December 31, 1998 increased 19.1% to $10.55 billion from
$8.86 billion at December 31, 1997. The increase was the result of a 20.2%
increase in funded new business of $3.98 billion in 1998 compared to $3.31
billion in 1997, partially offset by normal loan and lease amortization and
prepayments.
FINOVA's reserve for credit losses increased to $207.6 million at December
31, 1998 from $177.1 million at year-end 1997 that primarily consisted of
provisions of $82.2 million partially offset by net write-offs totaling $56.8
million. At December 31, 1998 the reserve represented 2.0% of managed assets
(excluding participations sold and financing contracts held for sale) the same
level as one year ago. Nonaccruing assets increased to $205.2 million at
December 31, 1998 representing 2.0% of ending managed assets compared to $187.4
million in nonaccruing assets as of December 31, 1997 which constituted 2.1% of
ending managed assets. The single most significant increase in nonaccruing
assets was the addition of a paper-manufacturing customer in the Commercial
Equipment Finance line of business. At December 31, 1998, the reserve
represented 101.2% of nonaccruing assets compared to 94.5% at December 31, 1997.
See Note D of Notes to Consolidated Financial Statements for more information on
the reserves, net write-offs and nonaccruing assets.
The Company had total debt outstanding of $8.39 billion at December 31,
1998 or 6.5 times its equity base (shareowners' equity plus convertible
preferred securities) of $1.29 billion (FINOVA Capital's leverage as of December
31, 1998 was 6.3 to 1). At December 31, 1997, the Company had debt leverage of
5.6 times its equity base ($6.76 billion debt outstanding to $1.20 billion of
equity). Deferred income taxes, which are used to finance a portion of FINOVA's
assets, grew 26.4% during 1998 to $347.4 million from $274.8 million at year-end
1997.
Growth in managed assets is generally financed by internally generated cash
flow and borrowings. During 1998, FINOVA Capital issued $1.6 billion in new
senior debt and increased its commercial paper and other short-term borrowings
by $739.5 million. These funds were used to finance new business and to redeem
or retire $689 million of debt. During 1997, the Company also issued
approximately 1.7 million shares of its common stock as the primary
consideration for the acquisition of FRC. See Note B of Notes to Consolidated
Financial Statements for further detail.
FINOVA satisfies a significant portion of its cash requirements from a
diversified group of worldwide funding sources and is not dependent on any one
lender. FINOVA also relies on the issuance of commercial paper as a major
funding source. During 1998, FINOVA Capital issued $18.4 billion of commercial
paper, at a weighted average cost of 5.67% (with an average of $3.5 billion
outstanding during the year) and raised $1.6 billion, as noted above, through
new long-term financings of one to twelve year durations. At December 31, 1998
and 1997, commercial paper and short-term bank borrowings totaled $3.9 billion
and $3.1 billion, respectively, and were supported by
A-6
<PAGE> 39
available unused revolving credit lines which, if not renewed, are convertible
to long-term debt at FINOVA's option.
FINOVA Capital currently maintains a five-year revolving credit facility
and a 364-day facility with numerous lenders, in the aggregate principal amount
of $2.0 billion. Separately, FINOVA Capital also has two five-year facilities
with numerous lenders for $700 million each, one 364-day facility with numerous
lenders for $600 million and three 364-day facilities with three separate
lenders for an aggregate principal amount of $400 million. These $4.4 billion of
credit facilities support FINOVA's outstanding commercial paper and short-term
borrowings. The Company intends to borrow under the domestic revolving credit
agreements to refinance commercial paper and short-term bank loans if it
encounters significant difficulties in rolling over its outstanding commercial
paper and short-term bank loans. The Company rarely borrows under these
facilities. The 364-day $1.0 billion and $600 million revolving credit
agreements are subject to renewal in 1999, while the two $700 million and the
other $1.0 billion credit facilities are subject to renewal in 2002. The 364-
day facilities totaling $400 million are subject to renewal in 1999; however,
the Company does not anticipate extending these facilities. In addition to the
above, The FINOVA Group Inc. has a revolving credit facility with one lender for
$25 million, which is subject to renewal in 1999.
The Company, through one subsidiary, uses a five-year multi-currency
facility with a small group of lenders for $100 million. Through another
subsidiary, the Company maintains a 364-day revolving credit facility with three
lenders in Canada for 100 million Canadian dollars. FINOVA Capital is the
guarantor of these credit facilities, which are subject to renewal in 1999.
In 1998, FINOVA Capital commenced a Euro Medium-Term Note Program allowing
for the issuance of up to $1 billion of debt securities. As of December 31, 1998
there was $750 million available under the program.
In 1997, FINOVA and FINOVA Capital jointly filed a universal shelf
registration statement with the SEC allowing for the issuance of $2 billion of
senior debt securities, common stock, preferred stock, depositary shares and
warrants to purchase common stock or debt securities, $830 million of which
remained available as of December 31, 1998, of which $105 million had been
designated for the issuance of medium term notes.
The agreements pertaining to long-term debt include various restrictive
covenants and require the maintenance of certain defined financial ratios with
which FINOVA and FINOVA Capital have complied. Under one covenant, dividend
payments by FINOVA Capital to FINOVA are limited to 50 percent of accumulated
earnings after December 31, 1991.
FINOVA Capital's aggregate cost of funds decreased to 6.4% for 1998 from
6.6% for 1997 as a result of declining interest rates and the elimination of
costs associated with $1.15 billion of maturing interest rate hedges. FINOVA's
cost of and access to capital is dependent, in large part, on its credit
ratings. FINOVA Capital has maintained investment-grade ratings since 1976.
FINOVA Capital currently has investment-grade ratings from the following
agencies:
<TABLE>
<CAPTION>
COMMERCIAL SENIOR
PAPER DEBT
---------- ------
<S> <C> <C>
Duff & Phelps Credit Rating Co. ....................... D1 A
Fitch Investors Services, Inc.......................... F1 A
Moody's Investors Service, Inc......................... P2 Baa1
Standard & Poor's Ratings Group........................ A2 A-
</TABLE>
In addition, FINOVA Finance Trust, a subsidiary trust of FINOVA, has issued
TOPrS with investment-grade ratings as follows:
<TABLE>
<CAPTION>
TOPRS
-----
<S> <C>
Duff & Phelps Credit Rating Co.............................. BBB+
Fitch Investors Services, Inc. ............................. A-
Moody's Investors Service, Inc. ............................ Baa2
Standard & Poor's Ratings Group............................. BBB
</TABLE>
None of FINOVA Capital's subsidiaries have applied for credit ratings.
A-7
<PAGE> 40
Standard & Poor's Ratings Group changed on February 26, 1999, its rating of
the (TOPrS) from BBB+ to BBB. The rating change was not a downgrade, but
resulted from the new rating scale under which Standard & Poor's Ratings Group
rates preferred stock two notches below the corporate or counter party credit
rating of an investment-grade issuer such as FINOVA.
To provide further liquidity, the Company utilized a private CMBS structure
("mini-CMBS") to sell loans warehoused by FRC. Under the structure, the Company
sold loans to a trust with limited recourse. The Trust issued a senior security
interest to an investment banking company and a subordinated security interest
that was retained by the Company. The Company also retained the servicing rights
and obligations on the assets transferred to the trust. The intent of the trust
is to sell the loans into the permanent CMBS market. Until the loans are sold,
interest rate risk is hedged using various instruments including Treasury rate
locks. The Company recognized gains on the transfer of the loans in accordance
with SFAS 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". No gains were recorded on the subordinated
interest retained by the Company.
This structure differs from many transfer and securitization vehicles in
that the intent is to sell the loans in the trust within a short period of time
rather than holding the loans throughout the amortization period. Once the sale
of the loans by the trust is completed, there will be no further recourse or
assumption risks.
FINOVA periodically repurchases its securities on the open market to fund
its obligations pursuant to employee stock options, benefit plans and similar
obligations. During the years 1998 and 1997, FINOVA repurchased 1,299,200 and
1,035,800 shares, respectively. This program may be discontinued at any time.
DERIVATIVE FINANCIAL INSTRUMENTS
FINOVA enters into interest rate and basis swap agreements as part of its
interest rate risk management policy of match funding its assets and
liabilities. The derivative instruments used are straightforward. FINOVA
continually monitors its derivative position and uses derivative instruments for
non-trading and non-speculative purposes only.
At December 31, 1998, FINOVA Capital had outstanding interest rate
conversion agreements with notional principal amounts totaling $1.80 billion.
Agreements with notional principal amounts of $700 million were arranged to
effectively convert certain floating interest rate obligations into fixed
interest rate obligations. These agreements require interest payments on the
stated principal amount at rates ranging from 5.84% to 8.09% (remaining terms of
one to ten years) in return for receipts calculated on the same notional amounts
at floating interest rates. In addition, agreements with notional principal
amounts of $1.10 billion were arranged to effectively convert certain fixed
interest rate obligations into floating interest rate obligations. They require
interest payments on the stated principal amount at the three month or six month
London interbank offered rates ("LIBOR") (remaining terms of one to eight years)
in return for receipts calculated on the same notional amounts at fixed interest
rates of 5.77% to 7.71%.
FINOVA also enters into short-term treasury rate locks, options, swaptions
and other derivative instruments to hedge interest rate risks associated with
the warehousing of loans primarily for FINOVA Realty Capital. See Note F of
Notes to Consolidated Financial Statements for further discussion of FINOVA's
derivatives.
A-8
<PAGE> 41
SEGMENT REPORTING
Information for FINOVA's reportable segments reconciles to FINOVA's
consolidated totals as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
TOTAL NET REVENUE:
Commercial Finance.............................. $ 187,461 $ 154,981
Specialty Finance............................... 344,541 313,841
Capital Markets................................. 50,188 9,449
Corporate and other............................. 23,093 7,632
----------- ----------
Consolidated total.............................. $ 605,283 $ 485,903
=========== ==========
INCOME BEFORE ALLOCATIONS:
Commercial Finance.............................. $ 67,013 $ 72,454
Specialty Finance............................... 273,674 248,793
Capital Markets................................. 23,243 9,449
Corporate and other, overhead and unallocated
provision for credit losses................... (81,921) (104,518)
----------- ----------
Income from continuing operations before income
taxes......................................... $ 282,009 $ 226,178
=========== ==========
MANAGED ASSETS:
Commercial Finance.............................. $ 3,005,130 $2,755,826
Specialty Finance............................... 7,211,164 6,037,725
Capital Markets................................. 277,422
Corporate and other............................. 55,416 63,872
----------- ----------
Consolidated total.............................. $10,549,132 $8,857,423
=========== ==========
</TABLE>
FINOVA's business is organized into three market groups, which are also its
reportable segments: Commercial Finance, Specialty Finance and Capital Markets.
Management relies on total net revenue, income before allocations and managed
assets in evaluating the business performance of each reportable segment. See
Note Q of Notes to Consolidated Financial Statements for additional detail.
Total net revenue is the total of operating margin and gains on disposal of
assets. Income before allocations is income before income taxes, preferred
dividends, corporate overhead expenses and the unallocated portion of the
provision for credit losses. Managed assets include each segment's investment in
financing transactions plus securitizations and participations sold.
COMMERCIAL FINANCE. Commercial Finance includes traditional asset-based
businesses that lend against collateral such as cash flows, inventory,
receivables and leased assets. This segment includes the following lines of
business: Business Credit, Commercial Services, Corporate Finance, Distribution
& Channel Finance, Growth Finance and Rediscount Finance.
Total net revenue was $187.5 million in 1998 compared to $155.0 million in
1997, an increase of 21.0%. The increase in 1998 was primarily due to 16.9%
growth in fee-based volume, which rose to $4.45 billion from $3.80 billion and
24.0% growth in average earnings assets for the group in 1998. The 1998 results
include a full year of activity from AT&T Capital's Inventory Finance unit,
which became part of Distribution & Channel Finance's line of business in the
fourth quarter of 1997.
Income before allocations was $67.0 million in 1998 compared to $72.5
million in 1997. The decrease in 1998 was primarily due to previously reported
problems experienced in the Commercial
A-9
<PAGE> 42
Services line of business related to its wholesale textile customers, which
resulted in net write-offs of $35.7 million in 1998 compared to $23.3 million in
1997. As a result of the Commercial Services portfolio problems, the unit
experienced higher operating expenses and a decline in fee-based volume.
Commercial Services is currently refocusing its portfolio towards more retail
customers and other industries. Excluding the net effects of Commercial
Services, income before allocations of the Commercial Finance group would have
increased 20.2% in 1998.
Managed assets grew to $3.01 billion in 1998 from $2.76 billion in 1997, an
increase of 9.0%. The growth in managed assets was slowed due to compression in
the Commercial Services unit, partially offset by strong growth in the
Rediscount Finance operation. Fee-based businesses, which make up a portion of
Commercial Finance, rely more on volume growth to increase income than asset
growth. Therefore, half of the income growth (20.2% excluding Commercial
Services) was due to increased fee-based volume.
SPECIALTY FINANCE. Specialty Finance includes businesses that lend to a
variety of highly focused industry-specific niches. This segment includes the
following lines of business: Commercial Equipment Finance, Communications
Finance, Franchise Finance, Healthcare Finance, Portfolio Services, Public
Finance, Resort Finance, Specialty Real Estate Finance and Transportation
Finance.
Total net revenue increased 9.8% to $344.5 million in 1998 compared to
$313.8 million in 1997, while income before allocations grew 10.0% to $273.7
million in 1998 compared to $248.8 million in 1997. Both increases were
primarily due to 10.7% growth in average earning assets. The unit was able to
keep net write-offs and operating expenses at a relatively constant rate.
Managed assets grew to $7.21 billion in 1998 from $6.04 billion in 1997, an
increase of 19.4%. The growth in managed assets was driven by new business
growth of $3.08 billion in 1998 compared to $2.40 billion in 1997. Much of the
growth in new business occurred in the second half of 1998. The growth was
spread across all business units with Transportation Finance and Franchise
Finance contributing the most to the growth in managed assets.
CAPITAL MARKETS. Capital Markets, in conjunction with institutional
investors, provides commercial mortgage banking services and debt and equity
capital funding. This segment includes Realty Capital, Investment Alliance and
Loan Administration.
FINOVA Realty Capital was acquired in the fourth quarter of 1997, but per
the acquisition agreement would not be consolidated into FINOVA until 1998.
Therefore in 1997, FINOVA received a management fee equal to the net results of
the unit from the time of the acquisition. This fee ($9.4 million) was reported
in volume-based fees in 1997 and represented all revenues net of expenses.
Total net revenue was $50.2 million in 1998 compared to the net management
fee of $9.4 million in 1997. Income before allocations was $23.2 million in 1998
compared to $9.4 million in 1997. The growth in income before allocations was
primarily attributable to a higher level of originations ($2.8 billion in 1998
compared to $731 million in 1997) and an increased level of sales into the CMBS
market, resulting in higher gains. See Note C of Notes to Consolidated Financial
Statements for further discussion of the mini-CMBS structure.
Capital Markets was able to grow its managed asset base to $277.4 million,
of which $241.9 million represents financing contracts held for sale.
YEAR 2000 COMPLIANCE
FINOVA continues to implement changes necessary to help assure accurate
date recognition and data processing with respect to the year 2000. To be year
2000 compliant means (1) significant computer systems in use by FINOVA
demonstrate performance and functionality that is not materially affected by
processing dates on or after January 1, 2000, (2) customers and collateral
A-10
<PAGE> 43
included in FINOVA's portfolio of business are year 2000 compliant and (3)
vendors of services critical to FINOVA's business processes are year 2000
compliant.
Primary internal activities related to this issue are modifications to
existing computer programs and conversions to new programs. FINOVA has a
five-phase plan for assuring year 2000 compliance of its internal systems:
(1) Identifying each area, function and application that could be affected
by the change in date.
(2) Determining the extent to which each area, function or application will
be affected by the change in date and identifying the proper course of
action to eliminate adverse effects.
(3) Making the changes necessary to bring the system into year 2000
compliance.
(4) Testing the integrated system.
(5) Switching to year 2000 compliant applications.
At December 31, 1998, FINOVA estimated that 95% of the changes necessary to
make mission critical systems year 2000 compliant were complete. All remaining
changes are expected to be made and the systems should be tested and implemented
by the end of the first quarter of 1999. Acquisitions made during 1998 are being
reviewed using the same five-phase plan. The necessary modifications to make
those new businesses year 2000 compliant are expected to be complete by the end
of the second quarter of 1999. Similarly, acquisitions made or proposed to be
made in 1999 are being reviewed with year 2000 compliance issues to be addressed
in a prompt manner.
Costs incurred to bring FINOVA's internal systems into year 2000 compliance
are not expected to have a material impact on FINOVA's results of operations.
Maintenance and modification costs are expensed as incurred, while the costs of
new hardware and software are capitalized and amortized over their estimated
useful lives. FINOVA estimates it will incur approximately $300,000 in expenses
and $1.8 million in capital costs related to year 2000 compliance. Estimates are
reviewed and revised as necessary on a quarterly basis. Through December 31,
1998, FINOVA has incurred expenses of $158,000 and capital costs of $1.4
million.
FINOVA's aggregate cost estimate does not include time and costs that may
be incurred as a result of the failure of any third parties to become year 2000
compliant. FINOVA is communicating with customers, software vendors and others
to determine if their applications or services are year 2000 compliant and to
assess the potential impact on FINOVA related to this issue.
Risks to FINOVA include that third parties may not have accurately assessed
their state of readiness. Similarly, FINOVA cannot assure that the systems of
other companies and government agencies on which FINOVA relies will be converted
in a timely manner. While FINOVA believes all necessary work on internal systems
will be completed in a timely fashion, there can be no guarantee that all
systems will be compliant by the year 2000 and within the estimated cost. Any of
these occurrences could cause a material adverse effect on FINOVA's results of
operations.
FINOVA is assessing the need for contingency plans related to year 2000
compliance in the first half of 1999. It plans to develop additional contingency
plans as necessary throughout 1999. FINOVA maintains and deploys contingency
plans designed to address various other potential business interruptions. In
some respects, these plans may address interruptions resulting from FINOVA or a
third party's failure to be year 2000 compliant, but the plans have not been
updated to specifically address the year 2000 issue as of December 31, 1998.
RECENT DEVELOPMENTS AND BUSINESS OUTLOOK
In October 1998, FINOVA acquired United Credit Corporation, a New
York-based provider of commercial financing to small and midsize businesses, and
its Patriot Funding Division. The addition formed a new division named FINOVA
Growth Finance, which provides collateral-based working capital financing,
primarily secured by accounts receivable. The new division provides financing
A-11
<PAGE> 44
ranging from $100,000 to $1 million to small and midsize businesses with annual
sales under $10 million. FINOVA anticipates that this new division will serve a
market segment of smaller, growth-oriented customers earlier in their maturation
cycle.
In October 1998, FINOVA acquired Electronic Payment Systems, Inc. a
commercial receivables servicing business headquartered in Salt Lake City, Utah,
to support the activities of its Realty Capital business.
In January 1999, FINOVA reached a definitive agreement to acquire Sirrom
Capital Corporation ("Sirrom"), a specialty finance company headquartered in
Nashville, Tennessee, for approximately $343 million in FINOVA common stock.
Sirrom provides secured loans to small, fast growing companies in the U.S. and
Canada with revenues between $5 million and $50 million, for expansions,
acquisitions, buyouts and other strategic ventures. The completion of the Sirrom
acquisition is expected to result in an increase in the outstanding equity of
FINOVA which is expected to lower the debt to equity ratio to approximately 5.2x
at the time the acquisition is consummated as compared to FINOVA's leverage of
6.5x at December 31, 1998.
In February 1999, FINOVA acquired Preferred Business Credit Inc. ("PBC"), a
west coast provider of commercial financing to small and mid-size businesses.
At the 1999 annual shareowners meeting, FINOVA's shareowners will consider
approval of an amendment to its certificate of incorporation to increase the
number of authorized shares of capital stock. If approved, the proposal will
increase the number of common shares from 100 million to 400 million, and the
number of preferred shares from 5 million to 20 million. The Board of Directors
recommends approval of that proposal for the reasons noted in the 1999 Proxy
Statement. Those reasons include:
- permitting future stock splits
- assisting in capital raising activities
- providing appropriate incentive compensation to its employees
- fulfilling its obligations to issue stock under existing contractual
arrangements
- facilitating FINOVA's growth strategy.
Shareowners are urged to approve that proposal for the reasons noted above.
NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," ("SFAS No. 133") which is effective for
fiscal years beginning after June 15, 1999. This statement standardizes the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, by recognition of those items as assets or
liabilities in the statement of financial position and measurement at fair
value. FINOVA will adopt this standard effective January 1, 2000, as required.
The impact of SFAS No. 133 on the Company's financial position and results of
operations has not yet been determined.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
FINOVA's primary market risk exposure is the volatility of interest rates.
FINOVA seeks to manage interest rate risk and preserve income through a
diversified borrowing base and a matched-funding policy. A diversified borrowing
base consists of short and long-term debt with a fixed or variable rate.
FINOVA's matched-funding policy, set by the Board of Directors or Audit
Committee and administered by the Finance Committee, requires that floating-rate
assets be financed with similar floating-rate liabilities and fixed-rate assets
be financed with similar fixed-rate liabilities.
A-12
<PAGE> 45
Under the matched-funding policy, the difference between floating-rate assets
and floating-rate liabilities should not exceed 3% of total assets for any
extended period.
FINOVA engages in hedging transactions using primarily interest rate swaps,
and to a lesser extent, other derivative instruments to lower its interest costs
and to manage its interest rate risk. Derivative instruments are used for
non-trading and non-speculative purposes only. A hedge consists of a position
that is substantially equal and opposite of the asset or liability being hedged.
It is structured to provide a high degree of correlation at the inception of the
hedge and throughout the hedge period so that hedging results will substantially
offset the effects of interest rate changes on the exposed item.
Hedge transactions are authorized to be entered into with financial
institutions rated "A" or better by Standard & Poors Rating Group or Moody's
Investors Service, Inc., who must also be lenders or credit support providers to
FINOVA or its subsidiaries. Without approval from the Finance Committee, the
notional principal amount of aggregate hedges on a net basis with a given
counter party cannot exceed 10% of FINOVA's total debt outstanding as of the
time of entering into the derivative transaction.
FINOVA uses a sensitivity analysis model to measure the exposure of net
income to increases or decreases in interest rates. The model measures the
change in annual net income if interest rates on floating-rate assets,
liabilities and derivative instruments increased or decreased by 100 basis
points (1%), assuming no prepayments. Based on the model used, a 100 basis point
shift in interest rates would affect net income by less than 6.5%.
Certain limitations are inherent in the model used in the above interest
rate risk measurements. Modeling changes require certain assumptions that may
oversimplify the manner in which actual yields and costs respond to changes in
market interest rates. For example, the model assumes a more static composition
of FINOVA's interest sensitive assets, liabilities and derivative instruments
than would actually exist over the period being measured. The model also assumes
that a particular change in interest rates is reflected uniformly across the
yield curve regardless of the duration to maturity or repricing of specific
assets and liabilities. Although the sensitivity analysis model provides an
indication of FINOVA's interest rate risk exposure at a particular point in
time, the model is not intended to and does not provide a precise forecast of
the effect of changes in market interest rates on FINOVA's net income and will
likely differ from actual results.
A-13
<PAGE> 46
MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
The management of The FINOVA Group Inc. is responsible for the preparation,
integrity and objectivity of the financial statements and other financial
information included in this Annual Report. The financial statements are
presented in accordance with generally accepted accounting principles
reflecting, where applicable, management's best estimates and judgments.
FINOVA's management has established and maintains a system of internal
controls to reasonably assure the fair presentation of the financial statements,
the safeguarding of FINOVA's assets and the prevention or detection of
fraudulent financial reporting. The internal control structure is supported by
careful selection and training of personnel, policies and procedures and regular
review by both internal auditors and the independent auditors.
The Board of Directors, through its Audit Committee, also oversees the
financial reporting of FINOVA and its adherence to established procedures and
controls. Periodically, the Audit Committee meets, jointly and separately, with
management, the internal auditors and the independent auditors to review
auditing, accounting and financial reporting matters.
FINOVA's financial statements have been audited by Deloitte & Touche LLP,
independent auditors. Management has made available to Deloitte & Touche LLP all
of FINOVA's financial records and related data and has made valid and complete
written and oral representations and disclosures in connection with the audit.
Management believes it is essential to conduct its business in accordance
with the highest ethical standards, which are characterized and set forth in
FINOVA's written Code of Conduct. These standards are communicated to and
acknowledged by all of FINOVA's employees.
/s/ SAMUEL L. EICHENFIELD
--------------------------------------
Samuel L. Eichenfield
Chairman, President and Chief
Executive Officer
/s/ BRUNO A. MARSZOWSKI
--------------------------------------
Bruno A. Marszowski
Senior Vice President -- Controller
and Chief Financial Officer
/s/ DEREK C. BRUNS
--------------------------------------
Derek C. Bruns
Senior Vice President -- Internal
Audit
A-14
<PAGE> 47
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareowners of The FINOVA Group Inc.
We have audited the accompanying consolidated balance sheets of The FINOVA Group
Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income, shareowners' equity and cash flows for the
years then ended. These financial statements are the responsibility of The
FINOVA Group Inc's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of The FINOVA Group Inc. and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
- ---------------------------------------------------------
Deloitte & Touche LLP
Phoenix, Arizona
February 10, 1999
A-15
<PAGE> 48
THE FINOVA GROUP INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1997
----------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 49,518 $ 33,190
Investment in financing transactions:
Loans and other financing contracts....................... 7,317,310 5,955,984
Leveraged leases.......................................... 780,836 619,557
Operating leases.......................................... 648,185 712,927
Fee-based receivables..................................... 626,499 750,399
Direct financing leases................................... 396,759 360,589
Financing contracts held for sale......................... 241,947
----------- ----------
10,011,536 8,399,456
Less reserve for credit losses............................ (207,618) (177,088)
----------- ----------
Net investment in financing transactions.................... 9,803,918 8,222,368
Goodwill and other assets................................... 596,878 464,282
----------- ----------
$10,450,314 $8,719,840
=========== ==========
LIABILITIES AND SHAREOWNERS' EQUITY
Liabilities:
Accounts payable and accrued expenses..................... $ 148,588 $ 147,280
Due to clients............................................ 205,655 278,571
Interest payable.......................................... 65,225 52,643
Senior debt............................................... 8,394,578 6,764,581
Deferred income taxes..................................... 347,373 274,761
----------- ----------
9,161,419 7,517,836
----------- ----------
Company-obligated mandatory redeemable convertible preferred
securities of subsidiary trust solely holding convertible
debentures of FINOVA, net of expenses ("TOPrS")........... 111,550 111,550
Shareowners' equity:
Common stock, $0.01 par value, 100,000,000 shares
authorized, 58,555,000 shares issued................... 585 585
Additional capital........................................ 765,050 764,525
Retained income........................................... 522,653 386,665
Accumulated other comprehensive income (deficit).......... 3,204 (10)
Common stock in treasury, 2,834,000 and 2,273,000 shares,
respectively........................................... (114,147) (61,311)
----------- ----------
1,177,345 1,090,454
----------- ----------
$10,450,314 $8,719,840
=========== ==========
</TABLE>
See notes to consolidated financial statements.
A-16
<PAGE> 49
THE FINOVA GROUP INC.
STATEMENTS OF CONSOLIDATED INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Interest, fees and other income............... $ 811,395 $ 704,027 $ 611,544
Financing lease income........................ 94,380 77,049 61,985
Operating lease income........................ 116,202 116,920 95,817
----------- ----------- -----------
Income earned from financing transactions..... 1,021,977 897,996 769,346
Interest expense.............................. 479,360 416,093 366,543
Operating lease depreciation.................. 70,081 72,989 62,286
----------- ----------- -----------
Interest margins earned....................... 472,536 408,914 340,517
Volume-based fees............................. 77,723 46,728 28,588
----------- ----------- -----------
Operating margin.............................. 550,259 455,642 369,105
Provision for credit losses................... 82,200 69,200 41,751
----------- ----------- -----------
Net interest margins earned................... 468,059 386,442 327,354
Gains on disposal of assets................... 55,024 30,261 12,949
----------- ----------- -----------
523,083 416,703 340,303
Operating expenses............................ 241,074 190,525 154,481
----------- ----------- -----------
Income from continuing operations before
income taxes................................ 282,009 226,178 185,822
Income taxes.................................. 108,490 83,088 69,329
----------- ----------- -----------
Income from continuing operations before
preferred dividends......................... 173,519 143,090 116,493
Preferred dividends, net of tax............... 3,782 3,992
----------- ----------- -----------
Income from continuing operations............. 169,737 139,098 116,493
Income and gain from sale of discontinued
operations, net of tax...................... 507
----------- ----------- -----------
NET INCOME.................................... $ 169,737 $ 139,098 $ 117,000
=========== =========== ===========
Basic earnings per share:
Income from continuing operations........... $3.03 $2.56 $2.14
Income and gain from discontinued
operations............................... .01
----------- ----------- -----------
Net income.................................... $3.03 $2.56 $2.15
=========== =========== ===========
Adjusted weighted average shares
outstanding................................. 55,946,000 54,405,000 54,508,000
=========== =========== ===========
Diluted earnings per share:
Income from continuing operations........... $2.86 $2.42 $2.08
Income and gain from discontinued
operations............................... .01
----------- ----------- -----------
Net income.................................... $2.86 $2.42 $2.09
=========== =========== ===========
Adjusted weighted average shares
outstanding................................. 60,705,000 59,161,000 56,051,000
=========== =========== ===========
Dividends per common share.................... $0.60 $0.52 $0.46
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
A-17
<PAGE> 50
THE FINOVA GROUP INC.
STATEMENTS OF CONSOLIDATED SHAREOWNERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER COMMON
COMMON ADDITIONAL RETAINED COMPREHENSIVE STOCK IN SHAREOWNERS' COMPREHENSIVE
STOCK CAPITAL INCOME (DEFICIT)/INCOME TREASURY EQUITY INCOME
------ ---------- -------- ---------------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996...... $568 $686,098 $184,381 $(5,686) $ (40,177) $ 825,184
---- -------- -------- ------- --------- ----------
Comprehensive income:
Net income.................. 117,000 117,000 $117,000
--------
Foreign currency
translation............... 6,694
--------
Other comprehensive
income.................... 6,694 6,694 6,694
--------
Comprehensive income.......... $123,694
========
Net change in unamortized
amount of restricted
stock....................... (1,816) (1,816)
Dividends..................... (25,230) (25,230)
Shares issued in connection
with employee benefit
plans....................... (21) 7,780 7,759
---- -------- -------- ------- --------- ----------
BALANCE, DECEMBER 31, 1996.... 568 684,261 276,151 1,008 (32,397) 929,591
---- -------- -------- ------- --------- ----------
Comprehensive income:
Net income.................. 139,098 139,098 $139,098
--------
Foreign currency
translation............... (1,018)
--------
Other comprehensive
income.................... (1,018) (1,018) (1,018)
--------
Comprehensive income.......... $138,080
========
Issuance of common stock...... 17 77,521 77,538
Net change in unamortized
amount of restricted
stock....................... (1,558) (1,558)
Dividends..................... (28,584) (28,584)
Purchase of shares............ (37,296) (37,296)
Shares issued in connection
with employee benefit
plans....................... 4,301 8,382 12,683
---- -------- -------- ------- --------- ----------
BALANCE, DECEMBER 31, 1997.... 585 764,525 386,665 (10) (61,311) 1,090,454
---- -------- -------- ------- --------- ----------
Comprehensive income:
Net income.................. 169,737 169,737 $169,737
--------
Unrealized holding gains.... 3,422
Foreign currency
translation............... (208)
--------
Other comprehensive
income.................... 3,214 3,214 3,214
--------
Comprehensive income.......... $172,951
========
Net change in unamortized
amount of restricted
stock....................... (1,053) (1,053)
Dividends..................... (33,749) (33,749)
Purchase of shares............ (63,271) (63,271)
Shares issued in connection
with employee benefit
plans....................... 1,578 10,435 12,013
---- -------- -------- ------- --------- ----------
BALANCE, DECEMBER 31, 1998.... $585 $765,050 $522,653 $ 3,204 $(114,147) $1,177,345
==== ======== ======== ======= ========= ==========
</TABLE>
See notes to consolidated financial statements.
A-18
<PAGE> 51
THE FINOVA GROUP INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income...................................... $ 169,737 $ 139,098 $ 117,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses................... 82,200 69,200 41,751
Depreciation and amortization................. 93,830 90,396 76,471
Gains on disposal of assets................... (55,024) (30,261) (12,949)
Deferred income taxes......................... 72,612 30,553 29,356
Gains on dispositions of discontinued
operations, net............................ (3,521)
Change in assets and liabilities, net of effects
from acquisitions:
Increase in other assets...................... (134,559) (48,610) (61,694)
(Decrease) increase in accounts payable and
accrued expenses........................... (1,180) 20,800 (16,009)
Increase (decrease) in interest payable....... 12,582 (34) 5,853
Other........................................... 1,819 (603) 6,153
----------- ----------- -----------
Net cash provided by operating
activities............................... 242,017 270,539 182,411
----------- ----------- -----------
INVESTING ACTIVITIES:
Proceeds from sales of assets................... 129,324 178,413 102,945
Proceeds from sales of securitized assets....... 99,967 36,565 100,000
Proceeds from sales of commercial mortgage
backed securities ("CMBS") assets............. 869,296
Principal collections on financing
transactions.................................. 2,181,364 2,087,619 1,781,985
Expenditures for financing transactions......... (3,282,348) (2,507,822) (2,221,363)
Expenditures for CMBS transactions.............. (1,005,373)
Net change in short-term financing
transactions.................................. (631,478) (844,584) (624,952)
Acquisitions, net of cash acquired.............. (61,164) (120,883) (7,455)
Sales of discontinued operations................ 616,434
Other........................................... 2,307 2,399 3,296
----------- ----------- -----------
Net cash used for investing activities..... (1,698,105) (1,168,293) (249,110)
----------- ----------- -----------
FINANCING ACTIVITIES:
Net borrowings under commercial paper and
short-term loans.............................. 739,515 649,653 62,156
Long-term borrowings............................ 1,580,000 1,080,625 564,988
Repayment of long-term borrowings............... (689,176) (817,892) (681,401)
Proceeds from exercise of stock options......... 12,013 12,683 7,759
Net proceeds from sale of company-obligated
mandatory redeemable convertible preferred
securities of subsidiary trust solely holding
convertible debentures of FINOVA ("TOPrS").... 111,550
Common stock purchased for treasury............. (63,271) (37,296)
Dividends....................................... (33,749) (28,584) (25,230)
Net change in due to clients.................... (72,916) 40,495 (32,143)
----------- ----------- -----------
Net cash provided by financing
activities............................... 1,472,416 899,684 7,679
----------- ----------- -----------
Increase (decrease) in cash and cash
equivalents................................... 16,328 1,930 (59,020)
Cash and cash equivalents, beginning of year.... 33,190 31,260 90,280
----------- ----------- -----------
Cash and cash equivalents, end of year.......... $ 49,518 $ 33,190 $ 31,260
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
A-19
<PAGE> 52
THE FINOVA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS IN TABLES, EXCEPT PER SHARE DATA)
NOTE A SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION -- The consolidated
financial statements present the financial position, results of operations and
cash flows of The FINOVA Group Inc. and its subsidiaries (collectively, "FINOVA"
or the "Company"), including FINOVA Capital Corporation and its subsidiaries
(collectively, "FINOVA Capital").
The FINOVA Group Inc. is a financial services company engaged in providing
capital and collateralized financing products to commercial enterprises focusing
on mid-size businesses in various market niches, principally in the United
States.
These consolidated financial statements are prepared in accordance with
generally accepted accounting principles. Described below are those accounting
policies particularly significant to FINOVA, including those selected from
acceptable alternatives:
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION -- For loans and other financing contracts, earned
income is recognized over the life of the contract, using the interest method.
Leases that are financed by nonrecourse borrowings and meet certain other
criteria are classified as leveraged leases. For leveraged leases, aggregate
rental receivables are reduced by the related nonrecourse debt service
obligation including interest ("net rental receivables"). The difference between
(a) the net rental receivables and (b) the cost of the asset less estimated
residual value at the end of the lease term is recorded as unearned income.
Earned income is recognized over the life of the lease at a constant rate of
return on the positive net investment, which includes the effects of deferred
income taxes.
For operating leases, earned income is recognized on a straight-line basis
over the lease term and depreciation is taken on a straight-line basis over the
estimated useful lives of the leased assets.
For direct financing leases, unearned income is the difference between (a)
aggregate lease rentals and (b) the cost of the related assets less estimated
residual value at the end of the lease term. Earned income is recognized over
the life of the contracts using the interest method.
Fees received in connection with loan commitments are deferred in accounts
payable and accrued expenses until the loan is advanced and are then recognized
over the term of the loan as an adjustment to the yield. Fees on commitments
that expire unused are recognized at expiration.
Fees are also generated on the volume of purchased accounts receivable and
mortgage loan originations. Fees on the volume of purchased accounts receivable
represent discounts or commissions to FINOVA in return for handling the accounts
receivable collection process. These fees are recognized as income in the period
the receivables are purchased due to the short-term nature of the accounts
receivable, which are generally collected from one to three months after
purchase. Fees on mortgage loan originations represent broker commissions on the
loan originations and are recognized as income in the period of origination.
A-20
<PAGE> 53
THE FINOVA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS IN TABLES, EXCEPT PER SHARE DATA)
Income recognition is generally suspended for leases, loans and other
financing contracts at the earlier of the date at which payments become 90 days
past due or when, in the opinion of management, a full recovery of income and
principal becomes doubtful. Income recognition is resumed when the loan, lease
or other financing contract becomes contractually current and performance is
demonstrated to be resumed or when foreclosed or repossessed assets generate a
reasonable rate of return.
CASH EQUIVALENTS -- FINOVA classifies highly liquid investments with
original maturities of three months or less from date of purchase as cash
equivalents.
MARKETABLE SECURITIES -- As discussed in Note K, FINOVA owns certain
marketable securities, which are considered trading securities. Trading
securities are stated at fair value with gains or losses recorded in income in
the period they occur.
FINANCING CONTRACTS HELD FOR SALE -- Financing contracts held for sale are
composed of assets held for sale and retained interest from sales to a private
CMBS ("mini-CMBS") structure that are available for sale. Assets held for sale
are carried at lower of cost or market with adjustment, if any, recorded in
operations. Assets available for sale are carried at fair value using the
specific identification method with unrealized gains and losses being recorded
as a component of accumulated other comprehensive income within the equity
section of the balance sheet. See Notes C and P.
RESERVE FOR CREDIT LOSSES -- The reserve for credit losses is available to
absorb credit losses and is not provided for financing contracts held for sale
and other owned assets, including assets on operating lease. The provision for
credit losses is the charge to income to increase the reserve for credit losses
to the level that management estimates to be adequate considering delinquencies,
loss experience and collateral. Other factors considered include changes in
geographic and product diversification, size of the portfolio and current
economic conditions. Accounts are either written-off or written-down when the
loss is considered probable and determinable, after giving consideration to the
customer's financial condition and the value of the underlying collateral,
including any guarantees. Any deficiency between the carrying amount of an asset
and the net sales price of repossessed collateral is charged to the reserve for
credit losses. Recoveries of amounts previously written-off as uncollectible are
credited to the reserve for credit losses.
REPOSSESSED ASSETS -- Repossessed assets are carried at the lower of cost
or fair value less estimated selling expenses.
RESIDUAL VALUES -- FINOVA has a significant investment in residual values
in its leasing portfolios. These residual values represent estimates of the
value of leased assets at the end of the contract terms and are initially
recorded based upon appraisals and estimates. Residual values are periodically
reviewed to determine that recorded amounts are appropriate. Actual residual
values realized could differ from these estimates and updates.
GOODWILL -- FINOVA amortizes the excess of cost over the fair value of net
assets acquired ("goodwill") on a straight-line basis primarily over 20 to 25
years. Goodwill at December 31, 1998 and 1997 was $299.0 million and $288.2
million (net of amortization), respectively. Amortization totaled $15.2 million
($11.1 million after-tax), $10.1 million ($6.3 million after-tax) and $9.6
million ($5.7 million after-tax) for the years ended December 31, 1998, 1997 and
1996, respectively. FINOVA periodically evaluates the carrying value of its
intangible assets for impairment. This evaluation is based on projected,
undiscounted cash flows generated by the underlying assets. At
A-21
<PAGE> 54
THE FINOVA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS IN TABLES, EXCEPT PER SHARE DATA)
December 31, 1998, approximately $197.6 million of goodwill (net of
amortization) was deductible for federal income tax purposes over 15 years under
Section 197 of the Internal Revenue Code.
PENSION AND OTHER BENEFITS -- Trusteed, noncontributory pension plans cover
substantially all employees. Benefits are based primarily on final average
salary and years of service. Funding policies provide that payments to pension
trusts shall be at least equal to the minimum funding required by applicable
regulations.
Other post-retirement benefit costs are recorded during the period the
employees provide service to FINOVA. Post-retirement benefit obligations are
funded as benefits are paid.
Post-employment benefits are any benefits other than retirement benefits.
FINOVA records post-employment benefit costs at the time employees leave active
service.
SAVINGS PLAN -- FINOVA maintains The FINOVA Group Inc. Savings Plan (the
"Savings Plan"), a qualified 401(k) program. The Savings Plan is available to
substantially all employees. The employee may elect voluntary wage reductions
ranging from 0% to 15% of taxable compensation. The Company's matching
contributions are based on employee pre-tax salary reductions, up to a maximum
of 100% of the first 6% of salary contributions, the first 3% of which are
matched in FINOVA stock through the Employee Stock Ownership Plan, discussed
below.
EMPLOYEE STOCK OWNERSHIP PLAN -- Employees of FINOVA are eligible to
participate in the Employee Stock Ownership Plan in the month following the
first 12 consecutive month period during which they have at least 1,000 hours of
service with FINOVA. Company contributions are made in the form of matching
stock contributions of 100% of the first 3% of salary reduction contributions
made by participants of the Savings Plan.
Expenses under the Savings Plan and Employee Stock Ownership Plan were $3.1
million, $2.5 million and $2.1 million in 1998, 1997 and 1996, respectively.
INCOME TAXES -- Deferred tax assets and liabilities are recognized for the
estimated future tax effects attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax law.
EARNINGS PER SHARE -- Basic earnings per share exclude the effects of
dilution and are computed by dividing income available to common shareowners by
the weighted average amount of common stock outstanding for the period. Diluted
earnings per share reflect the potential dilution that could occur if options,
convertible preferred stock or other contracts to issue stock were exercised or
converted into common stock. These calculations are presented for the
years-ended December 31, 1998, 1997 and 1996 on the Statements of Consolidated
Income and are more fully discussed in Note L.
DERIVATIVE FINANCIAL INSTRUMENTS -- As more fully described in Note F,
FINOVA uses derivative financial instruments as part of its interest rate risk
management policy of match funding its assets and liabilities. The derivative
instruments used include interest rate swaps, which are accounted for using
settlement or matched swap accounting, and to a lesser extent treasury locks,
options and swaptions which are subject to hedge accounting determination.
Each derivative used as a hedge is matched with an asset or liability with
which it has a high correlation. The swap agreements are generally held to
maturity and FINOVA does not use derivative financial instruments for trading or
speculative purposes. Upon early termination of the
A-22
<PAGE> 55
THE FINOVA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS IN TABLES, EXCEPT PER SHARE DATA)
designated matched asset or liability, the related derivative is matched to
another appropriate item or marked to fair market value.
SECURITIZATIONS -- In accordance with SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
receivable transfers are accounted for as sales when legal and effective control
over the transferred receivables is surrendered.
RECLASSIFICATIONS -- Certain reclassifications have been made to the prior
years financial statements to conform to the 1998 presentation.
NOTE B ACQUISITIONS
During 1998 and 1997, FINOVA Capital, in transactions accounted for as
purchases, acquired various businesses and portfolios having initial funds
employed totaling $44 million and $122 million, respectively.
In October 1998, FINOVA acquired United Credit Corporation, a New York
based provider of commercial financing to small and mid-size businesses, and its
Patriot Funding Division. The addition formed a new division named FINOVA Growth
Finance which provides collateral-based working capital financing, primarily
secured by accounts receivable. The new division provides financing ranging from
$100,000 to $1 million to small and mid-size businesses with annual sales under
$10 million. This new division is serving a market segment of smaller,
growth-oriented customers earlier in their maturation cycle.
In October 1998, FINOVA acquired Electronic Payment Systems, Inc., a
commercial receivables servicing business headquartered in Salt Lake City, Utah,
to support the activities of FINOVA Realty Capital ("FRC").
In October 1997, FINOVA purchased Belgravia Capital Corporation, a
commercial mortgage banking organization, for $77.5 million of the Company's
common stock (1.7 million shares), $10.0 million in cash and an agreement to pay
additional amounts up to approximately $30 million per year for the next three
years, contingent upon future results of the operations. To date, no additional
amounts have been paid under the contingency agreement. Once assets currently
held under the mini-CMBS structure, including the retained interest, have been
sold into the permanent CMBS market, the Company will evaluate the contingency
agreement and make payments due thereunder as appropriate. The acquisition was
comprised of $91.5 million in assets, including $88.0 million in goodwill and
$4.0 million in liabilities and acquisition costs. The results of these
operations have been included in FINOVA's results since the date of acquisition.
Goodwill related to this transaction is being amortized over 25 years.
In December 1997, FINOVA acquired the Inventory Finance unit of AT&T
Capital Corporation. The acquisition, which joined FINOVA's Distribution &
Channel Finance line of business, provided an opportunity for FINOVA to expand
into the fast-growing telecommunications market.
A-23
<PAGE> 56
THE FINOVA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS IN TABLES, EXCEPT PER SHARE DATA)
NOTE C INVESTMENT IN FINANCING TRANSACTIONS
FINOVA provides secured financing to commercial and real estate enterprises
principally under financing contracts (such as loans and other financing
contracts, direct financing leases, operating leases, leveraged leases,
fee-based receivables and financing contracts held for sale). At December 31,
1998 and 1997, the carrying amount of the investment in financing transactions,
including the estimated residual value of leased assets upon lease termination,
was $10.0 billion and $8.4 billion (before reserve for credit losses),
respectively, and consisted of the following percentage of carrying amount by
line of business:
<TABLE>
<CAPTION>
PERCENT OF TOTAL
CARRYING AMOUNT
----------------
1998 1997
------ ------
<S> <C> <C>
Transportation Finance...................................... 22.0% 19.4%
Resort Finance.............................................. 12.5 14.4
Corporate Finance........................................... 7.9 9.8
Rediscount Finance.......................................... 7.7 7.3
Commercial Equipment Finance................................ 7.5 7.5
Communications Finance...................................... 7.3 7.9
Specialty Real Estate Finance............................... 7.0 8.2
Healthcare Finance.......................................... 6.1 6.3
Franchise Finance........................................... 6.0 5.2
Distribution & Channel Finance.............................. 5.7 6.5
Business Credit............................................. 3.0 2.4
Realty Capital.............................................. 2.6
Public Finance.............................................. 1.8 1.6
Commercial Services......................................... 1.7 2.7
Other....................................................... 0.6 0.8
Growth Finance.............................................. 0.5
Investment Alliance......................................... 0.1
----- -----
100.0% 100.0%
===== =====
</TABLE>
Aggregate installments on investments in financing transactions at December
31, 1998 (excluding nonaccruing repossessed assets of $54.4 million and
estimated residual values of $922.6
A-24
<PAGE> 57
THE FINOVA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS IN TABLES, EXCEPT PER SHARE DATA)
million) are contractually due or anticipated during each of the years ending
December 31, 1999 to 2003 and thereafter as follows:
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 THEREAFTER
---------- ---------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Loans and other financing
contracts:
Commercial:
Fixed interest
rate.............. $ 408,821 $ 442,892 $ 448,212 $282,927 $231,971 $ 766,461
Floating interest
rate.............. 1,063,606 934,396 220,715 347,006 291,059 204,595
Real estate:
Fixed interest
rate.............. 99,368 100,513 72,716 37,213 41,192 168,911
Floating interest
rate.............. 303,790 283,831 228,791 76,935 103,239 123,132
Leases, primarily at
fixed interest
rates:
Operating leases.... 102,182 86,339 61,330 39,908 28,636 33,891
Leveraged leases.... 45,860 41,943 10,491 8,069 23,706 376,237
Direct financing
leases............ 93,212 73,397 59,183 46,434 33,475 92,602
Fee-based
receivables......... 626,499
Financing contracts
held for sale....... 241,947
---------- ---------- ---------- -------- -------- ----------
$2,985,285 $1,963,311 $1,101,438 $838,492 $753,278 $1,765,829
========== ========== ========== ======== ======== ==========
</TABLE>
The investment in operating leases at December 31 consisted of the
following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cost of assets................................. $ 757,921 $ 855,670
Accumulated depreciation....................... (109,736) (142,743)
----------- -----------
Investment in operating leases................. $ 648,185 $ 712,927
=========== ===========
</TABLE>
The net investment in leveraged leases at December 31 consisted of the
following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Rental receivables............................. $ 2,909,929 $ 2,287,233
Less principal and interest payable on
nonrecourse debt............................. (2,403,623) (1,790,987)
----------- -----------
Net rental receivables......................... 506,306 496,246
Estimated residual values...................... 796,466 575,234
Less unearned income........................... (521,936) (451,923)
----------- -----------
Investment in leveraged leases................. 780,836 619,557
Less deferred taxes from leveraged leases...... (317,015) (249,710)
----------- -----------
Net investment in leveraged leases............. $ 463,821 $ 369,847
=========== ===========
</TABLE>
A-25
<PAGE> 58
THE FINOVA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS IN TABLES, EXCEPT PER SHARE DATA)
The components of income from leveraged leases, after the effects of
interest on nonrecourse debt and other related expenses, for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Lease and other income, net................. $59,083 $41,605 $30,230
Income tax expense.......................... 23,500 19,476 11,321
</TABLE>
The investment in direct financing leases at December 31 consisted of the
following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Rental receivables................................. $ 398,303 $ 367,780
Estimated residual values.......................... 126,095 120,020
Unearned income.................................... (127,639) (127,211)
--------- ---------
Investment in direct financing leases.............. $ 396,759 $ 360,589
========= =========
</TABLE>
FINOVA has a substantial number of loans and leases with payments that
fluctuate with changes in index rates, primarily prime interest rates and the
London interbank offered rates ("LIBOR"). The investment in loans and leases
with floating interest rates (excluding nonaccruing contracts and repossessed
assets) was $4.75 billion and $4.34 billion at December 31, 1998 and 1997,
respectively.
Income earned from financing transactions with floating interest rates was
approximately $562 million in 1998, $491 million in 1997 and $436 million in
1996. The adjustments which arise from changes in index rates can have a
significant effect on income earned from financing transactions; however, the
effects on interest margins earned and net income are substantially offset by
related interest expense changes on debt obligations with floating interest
rates. FINOVA's matched funding policy is more fully described in Note F.
At December 31, 1998, FINOVA had a committed backlog of new business of
approximately $1.9 billion compared to $1.6 billion at December 31, 1997. The
committed backlog includes unused lines of credit totaling $549 million and $666
million at December 31, 1998 and 1997, respectively. Historically, FINOVA has
booked a substantial portion of its backlog, although there can be no assurance
that the trend will continue. Loan commitments and lines of credit have
generally the same credit risk as extending loans to borrowers. These
commitments are generally subject to the same credit quality and collateral
requirements involved in lending transactions. Commitments generally have a
fixed expiration and usually require payment of a fee.
SECURITIZATIONS -- In 1998 and 1997, under a separate securitization
agreement, FINOVA sold loan receivables totaling $103.2 million and $36.8
million, respectively, with limited recourse. Outstanding securitized assets
under this agreement were $136.1 million at December 31, 1998. FINOVA will
service these loan contracts for the transferee and has deferred a portion of
the proceeds to be recognized as service fee income over the term of the
agreements.
During 1998, the Company utilized the mini-CMBS structure to sell loans
warehoused by FRC. Under the structure, the Company sold loans to a trust with
limited recourse. The trust issued a senior security interest to an investment
banking company and a subordinated security interest that was retained by the
Company. The Company also retained the servicing rights and obligations on the
assets transferred to the trust. The intent of the trust is to sell the loans
into the permanent CMBS market. Until the loans are sold, interest rate risk is
hedged using various instruments including Treasury rate locks. The Company
recognized gains on the transfer of the loans in
A-26
<PAGE> 59
THE FINOVA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS IN TABLES, EXCEPT PER SHARE DATA)
accordance with SFAS 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities". No gains were recorded on the
subordinated interest retained by the Company.
In determining the fair value of assets sold and interests retained, the
Company inherently employs a variety of financial assumptions, including
defaults, prepayments and discount rates. The Company assumed minimal defaults
and prepayments due to the nature of the commercial mortgages and the
anticipated period before sale into the permanent CMBS market. FINOVA also used
discount rates ranging from approximately 6.0% to 7.0%
This structure differs from many transfer and securitization vehicles in
that the intent is to sell the loans in the trust within a short period of time
rather than holding the loans throughout the amortization period. Once the sale
of the loans by the trust is completed, there will be no further recourse or
assumption risks.
In 1998, the Company sold $724.3 million of loans into the private CMBS
structure. The Company received $678.7 million in cash proceeds and retained a
subordinated interest valued at $91.7 million. The Company recognized gross
gains of $46.1 million. The gains were reduced by hedge losses, commissions and
expenses of $21.6 million and an $8.5 million reserve resulting in net non-cash
gains of $16.0 million.
In 1996 and 1995, FINOVA, under a securitization agreement, sold a total of
$300 million in undivided proportionate interests in a revolving loan portfolio
totaling approximately $694.5 million as of December 31, 1998. Under this
agreement, there is recourse to FINOVA based on the outstanding balance of the
proportionate interest sold.
In general, the servicing fees earned on securitizations are approximately
equal to the cost of servicing; therefore, no material servicing assets or
liabilities have been recognized.
NOTE D RESERVE FOR CREDIT LOSSES
The following is an analysis of the reserve for credit losses for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year.............. $177,088 $148,693 $129,077
Provision for credit losses............. 82,200 69,200 41,751
Write-offs.............................. (59,037) (45,487) (32,017)
Recoveries.............................. 2,279 2,287 3,296
Acquisitions and other.................. 5,088 2,395 6,586
-------- -------- --------
Balance, end of year.................... $207,618 $177,088 $148,693
======== ======== ========
</TABLE>
A-27
<PAGE> 60
THE FINOVA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS IN TABLES, EXCEPT PER SHARE DATA)
Net write-offs by line of business for the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Commercial Services..................... $ 35,663 $ 23,255 $ 3,610
Corporate Finance....................... 6,680 6,478 9,460
Commercial Equipment Finance............ 3,645 3,208 2,378
Franchise Finance....................... 2,780 433 2,845
Distribution & Channel Finance.......... 2,609 1,777 (33)
Specialty Real Estate Finance........... 1,785 2,106 1,616
Rediscount Finance...................... 1,500
Healthcare Finance...................... 960 1,704 1,010
Business Credit......................... 819
Communications Finance.................. 494 750 2,994
Resort Finance.......................... 2,700 4,249
Other................................... (177) 789 592
-------- -------- --------
Total net write-offs by line
of business................. $ 56,758 $ 43,200 $ 28,721
======== ======== ========
Net write-offs as a percentage of
average managed assets (excluding
average participations)............... 0.60% 0.54% 0.41%
======== ======== ========
</TABLE>
An analysis of nonaccruing assets included in the investment in financing
transactions at December 31 is as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Contracts............................................ $150,787 $150,263
Repossessed assets................................... 54,446 37,093
-------- --------
Total nonaccruing assets................... $205,233 $187,356
======== ========
Nonaccruing assets as a percentage of managed assets
(excluding participations)......................... 2.0% 2.1%
======== ========
</TABLE>
In addition to the repossessed assets included in the above table, FINOVA
had repossessed assets with a total carrying amount of $65.3 million and $52.5
million at December 31, 1998 and 1997, respectively, which earned income of $4.7
million and $4.1 million during 1998 and 1997, respectively.
At December 31, 1998, the total carrying amount of impaired loans was
$225.7 million, of which $106.0 million were revenue accruing. A reserve for
credit losses of $30.9 million has been established for $74.3 million of
nonaccruing impaired loans and $6.2 million has been established for $24.4
million of accruing impaired loans. At December 31, 1997, the total carrying
amount of impaired loans was $158.0 million, of which $36.4 million were revenue
accruing. At December 31, 1997, a reserve for credit losses of $17.8 million was
established for $39.0 million of nonaccruing impaired loans and $2.4 million was
established for $13.3 million of accruing impaired loans. For the three years
ended December 31, 1998, 1997 and 1996, the average carrying amount of impaired
loans was $172.0 million, $130.3 million and $85.1 million, respectively. Income
earned on accruing impaired loans was approximately $4.0 million in all three
years. Income earned on impaired loans is
A-28
<PAGE> 61
THE FINOVA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS IN TABLES, EXCEPT PER SHARE DATA)
recognized in the same manner as it is on other accruing loans. Cash collected
on all nonaccruing loans is applied to the carrying amount.
Had all nonaccruing assets outstanding at December 31, 1998, 1997 and 1996
remained accruing, pre-tax income earned would have increased by approximately
$19 million, $22 million and $19 million, respectively.
NOTE E DEBT
The Company satisfies its short-term financing requirements from the
issuance of commercial paper supported by bank lines of credit, other bank loans
and public notes. The Company's commercial paper borrowings are supported by
unused revolving bank credit agreements totaling $4.4 billion. FINOVA Capital
currently maintains a five-year revolving credit facility and a 364-day facility
with numerous lenders, in the aggregate principal amount of $2.0 billion.
Separately, FINOVA Capital also has two five-year facilities with numerous
lenders for $700 million each, one 364-day facility with numerous lenders for
$600 million and three 364-day facilities with three separate lenders for an
aggregate principal amount of $400 million. The Company intends to borrow under
the domestic revolving credit agreements to refinance commercial paper and
short-term bank loans if it encounters significant difficulties in rolling over
its outstanding commercial paper and short-term bank loans. The Company rarely
borrows under these facilities. Under the terms of these agreements, the Company
has the option to periodically select either domestic dollars or Eurodollars as
the basis of borrowings. Interest is based on the lenders' prime rate for
domestic dollar advances or London interbank offered rates ("LIBOR") for
Eurodollar advances. The agreements also provide for a commitment fee on the
unused credit. The 364-day $1.0 billion and $600 million revolving credit
agreements are subject to renewal in 1999, while the two $700 million and the
other $1.0 billion credit facilities are subject to renewal in 2002. The 364-day
facilities totaling $400 million are subject to renewal in 1999; however, the
Company does not anticipate extending these facilities. In addition to the
above, the FINOVA Group Inc. has a 364-day revolving credit facility with one
lender for $25 million, which is subject to renewal in 1999.
The Company, through one subsidiary, utilizes a five-year multi-currency
facility with a small group of lenders for $100 million. Under the terms of this
agreement, the subsidiary has the option to periodically select multiple
currencies as the basis of borrowings. Interest is based on the Eurocurrency
rate per annum for deposits in the relevant designated currency. Through another
subsidiary, the Company maintains one 364-day revolving credit facility with
three lenders in Canada for $100 million Canadian, supporting the issuance of
Canadian commercial paper. Under the terms of this agreement, the subsidiary has
the option to borrow Canadian dollars through either bankers' acceptances or a
prime rate advance. Interest is based on the lenders' prime rate for prime
advances or bankers' acceptance rates. FINOVA Capital is the guarantor of this
credit facility, which is subject to renewal in 1999.
In 1998, FINOVA Capital commenced a Euro Medium-Term Note Program allowing
for the issuance of up to $1 billion of debt securities. As of December 31, 1998
there was $750 million available under the program.
A-29
<PAGE> 62
THE FINOVA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS IN TABLES, EXCEPT PER SHARE DATA)
The following information pertains to all short-term financing, primarily
commercial paper, issued by FINOVA Capital for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Maximum amount of short-term debt
outstanding during year.......... $4,006,576 $3,284,118 $3,087,876
Average short-term debt outstanding
during year...................... 3,529,528 2,886,668 2,551,316
Weighted average short-term
interest rates at end of year:
Short-term borrowings............ 5.6% 5.6% 5.4%
Commercial paper*................ 5.7% 5.7% 5.6%
Weighted average interest rate on
short-term debt outstanding
during year*..................... 5.7% 5.7% 5.6%
</TABLE>
- ---------------
* Exclusive of the cost of maintaining bank lines in support of outstanding
commercial paper and the effects of interest rate conversion agreements.
Senior debt at December 31 was as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Commercial paper and short-term bank loans
supported by unused long-term bank revolving
credit agreements, less unamortized discount.... $3,871,350 $3,132,109
Medium-term notes due to 2010, 5.9% to 10.3%...... 1,717,544 1,343,148
Term loans payable to banks due to 1999, 5.3% to
5.8%............................................ 190,000 190,000
Senior notes due to 2007, 5.9% to 16.0%, less
unamortized discount............................ 2,604,762 2,083,761
Nonrecourse installment notes due to 2002, 10.6%
(assets of $22,838 and $58,064, respectively,
pledged as collateral).......................... 10,922 15,563
---------- ----------
Total senior debt................................. $8,394,578 $6,764,581
========== ==========
</TABLE>
Annual maturities of senior debt outstanding at December 31, 1998 due
through June 2007 (excluding the amount supported by the revolving credit
agreements expected to be renewed) approximate $775.2 million (1999), $821.3
million (2000), $951.0 million (2001), $839.4 million (2002), $504.9 million
(2003) and $631.4 million (thereafter).
The agreements pertaining to senior debt and revolving credit agreements
include various restrictive covenants and require the maintenance of certain
defined financial ratios with which FINOVA and FINOVA Capital have complied.
Under one covenant, dividend payments by FINOVA Capital are limited to 50% of
accumulated earnings after December 31, 1991. As of December 31, 1998, FINOVA
Capital had $118.1 million of excess accumulated earnings available for
distribution.
Total interest paid is not significantly different from interest expense.
A-30
<PAGE> 63
THE FINOVA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS IN TABLES, EXCEPT PER SHARE DATA)
NOTE F DERIVATIVE FINANCIAL INSTRUMENTS
FINOVA enters into interest rate and basis swap agreements as part of its
interest rate risk management policy of match funding its assets and
liabilities. The derivative instruments used are straightforward. The Company
continually monitors its derivative position and uses derivative instruments for
non-trading and non-speculative purposes only.
FINOVA uses derivative instruments to minimize its exposure to fluctuations
in interest rates. FINOVA strives to minimize its overall debt costs while
limiting the short-term variability of interest expense and funds required for
debt service. To achieve this objective, FINOVA diversifies its borrowing
sources (short and long-term debt with a fixed or a variable rate) and seeks to
maintain a portfolio that is matched funded. FINOVA's matched funding policy
generally requires that floating-rate assets be financed with floating-rate
liabilities and fixed-rate assets be financed with fixed-rate liabilities.
FINOVA's matched funding policy also requires that the difference between
floating-rate liabilities and floating-rate assets, measured as a percent of
total assets, should not vary by more than 3% for any extended period. The
amount of derivatives used is a function of this 3% gap policy with the
maturities of the derivatives being correlated to the maturities of the assets
being financed.
The notional amounts of derivatives do not represent amounts exchanged by
the parties and, thus, are not a measure of FINOVA's exposure through its use of
derivatives. The amounts exchanged are determined by reference to the notional
amounts and the other terms of the derivatives.
Under interest rate swaps, FINOVA agrees to exchange with the other party,
at specified intervals, the payment streams calculated on a specified notional
amount, with at least one stream based on a floating interest rate. Generic swap
notional amounts do not change for the life of the contract. Basis swaps involve
the exchange of floating-rate indices, such as the prime rate, the commercial
paper composite rate and LIBOR and are used primarily to protect FINOVA's
margins on floating-rate transactions by locking in the spread between FINOVA's
lending and borrowing rates.
FINOVA's off-balance sheet derivative instruments involve credit and
interest rate risks. The credit risk would be the nonperformance by the other
parties to the financial instruments. All financial instruments have been
entered into with major financial institutions, which are expected to fully
perform under the terms of the agreements, thereby mitigating the credit risk
from the transactions, although there can be no assurance that any such
institution will perform under its agreement. FINOVA's derivative policy
stipulates that the maximum exposure to any one counter-party, relative to the
derivative products, is limited on a net basis to 10% of FINOVA's outstanding
debt at the time of that transaction. Interest rate risks relate to changes in
interest rates and the impact on earnings. FINOVA mitigates interest rate risks
through its matched funding policy.
The use of derivatives decreased interest expense by $5.3 million in 1998,
a decrease in the aggregate cost of funds of 0.07%. The use of derivatives in
1997 decreased interest expense by $1.0 million, a decrease in the aggregate
cost of funds of 0.03%, whereas the use of derivatives increased interest
expense $3.0 million in 1996, an increase in the aggregate cost of funds of
0.05%. These changes in interest expense from off-balance sheet derivatives
effectively alter on-balance sheet costs and must be viewed as total interest
rate management. There were no deferred gains or losses associated with
derivatives.
FINOVA also enters into short-term treasury rate locks, options, swaptions
and other derivative investments to hedge interest rate risks associated with
the warehousing of loans, primarily for FRC.
A-31
<PAGE> 64
THE FINOVA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS IN TABLES, EXCEPT PER SHARE DATA)
In a treasury rate lock, FINOVA agrees to lock in an interest rate on a
U.S. Treasury security until a specified date in the future. Prior to the
expiration date, if treasury rates decrease, there is an associated loss on the
hedge. If treasury rates increase, FINOVA will immediately benefit from an
increase in the hedge value.
In a treasury put option, FINOVA pays an up-front fee (premium) to have the
right, but not the obligation to sell a pre-determined treasury security at an
agreed-upon strike rate. Prior to the expiration date of the option, if treasury
rates decrease, the option expires worthless and there is no additional hedge
loss. If treasury rates increase and surpass the strike rate, the value of the
option will increase. In addition to the level of interest rates, the option
value also depends on other variables including volatility and the time to
maturity.
A swaption gives FINOVA the right, but not the obligation, to enter into a
swap on the exercise date. An up-front premium is the only cost incurred by
FINOVA. If swap rates rise above the strike rate, the option value will
increase. If swap rates decrease, the option will not be exercised and will
expire worthless. In addition to the level of swap rates, the option value also
depends on other variables including volatility and time to maturity.
The following table provides annual maturities and weighted-average
interest rates for each significant derivative product type in place at December
31, 1998. The rates presented are as of December 31, 1998. To the extent that
rates change, variable interest information will change:
<TABLE>
<CAPTION>
OUTSTANDING AT
DECEMBER 31, MATURITIES OF DERIVATIVE PRODUCTS
-------------- ---------------------------------------------------
1998 1999 2000 2001 2002 2003 THEREAFTER
-------------- ------ ----- ----- ----- ----- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
RECEIVE FIXED-RATE SWAPS:
Notional value.................. $1,077 $ 377 $ 150 $ 150 $ 200 $200
Weighted average receive rate... 6.75% 6.45% 7.24% 6.66% 6.51% 7.26%
Weighted average pay rate....... 5.35% 5.32% 5.39% 5.29% 5.30% 5.47%
PAY FIXED-RATE SWAPS:
Notional value.................. $ 700 $ 150 $ 100 $ 100 $ 150 $200
Weighted average receive rate... 5.37% 5.30% 5.42% 5.34% 5.42% 5.37%
Weighted average pay rate....... 6.49% 7.06% 7.38% 6.70% 5.98% 5.90%
TREASURY RATE LOCKS:
Notional value.................. $ 153 $ 153
Weighted average rate........... 4.71% 4.71%
OPTIONS AND SWAPTIONS:
Notional value.................. $ 64 $ 64
Weighted average strike rate.... 5.72% 5.72%
------ ------ ----- ----- ----- ----- ----
TOTAL NOTIONAL VALUE............ $1,994 $ 744 $ 250 $ 250 $ 200 $ 150 $400
====== ====== ===== ===== ===== ===== ====
Total weighted average rates on
swaps:
Receive rate.................. 6.21% 6.12% 6.51% 6.13% 6.51% 5.42% 6.32%
====== ====== ===== ===== ===== ===== ====
Pay rate........................ 5.80% 5.82% 6.19% 5.85% 5.30% 5.98% 5.69%
====== ====== ===== ===== ===== ===== ====
</TABLE>
For the benefit of its customers, FINOVA enters into interest rate cap
agreements. The total notional amount of these agreements at December 31, 1998
was $25.0 million, none of which was in
A-32
<PAGE> 65
THE FINOVA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS IN TABLES, EXCEPT PER SHARE DATA)
a pay or receive position. These agreements will mature as follows: $15.9
million in 1999, $1.5 million in 2000 and $7.6 million in 2001.
Derivative product activity for the three years ended December 31, 1998 is
as follows:
<TABLE>
<CAPTION>
PAY INTEREST
RECEIVE PAY FIXED-RATE RATE
FIXED-RATE FIXED-RATE AMORTIZING BASIS HEDGE
SWAPS SWAPS SWAPS SWAPS AGREEMENTS TOTAL
---------- ---------- ---------- ----- ---------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996......... $1,300 $ 800 $ 95 $ 878 $ 750 $ 3,823
Expired.......................... (100) (325) (95) (750) (1,270)
Additions........................ 150 350 500
------ ----- ---- ----- ----- -------
Balance, December 31, 1996....... 1,350 825 878 3,053
Expired.......................... (275) (275) (250) (800)
Additions........................ 327 327
------ ----- ---- ----- ----- -------
Balance, December 31, 1997....... 1,402 550 628 2,580
Expired.......................... (325) (200) (628) (1,153)
Additions........................ 350 217 567
------ ----- ---- ----- ----- -------
Balance, December 31, 1998....... $1,077 $ 700 $ -- $ -- $ 217 $ 1,994
====== ===== ==== ===== ===== =======
</TABLE>
NOTE G COMPANY-OBLIGATED MANDATORY REDEEMABLE CONVERTIBLE PREFERRED SECURITIES
OF SUBSIDIARY TRUST SOLELY HOLDING CONVERTIBLE DEBENTURES OF FINOVA
In December 1996, FINOVA Finance Trust, a subsidiary trust sponsored and
wholly-owned by FINOVA, issued (a) 2,300,000 shares of convertible trust
originated preferred securities (the "Preferred Securities" or "TOPrS") to the
public for gross proceeds of $115 million (before transaction costs of $3.5
million) and (b) 71,135 shares of common securities to FINOVA. The gross
proceeds from these transactions were invested by the trust in $118.6 million
aggregate principal amount of 5 1/2% convertible subordinated debentures due
2016 (the "Debentures") newly issued by FINOVA. The Debentures represent all of
the assets of the trust. The proceeds from the issuance of the Debentures were
contributed by FINOVA to FINOVA Capital, which used the proceeds to repay
commercial paper and other indebtedness.
The Preferred Securities accrue and pay cash distributions quarterly when
declared by FINOVA at a rate of 5 1/2% per annum of the stated liquidation
amount of $50 per preferred security. FINOVA has guaranteed, on a subordinated
basis, distributions and other payments due on the Preferred Securities (the
"Guarantee"). The Guarantee, when taken together with FINOVA's obligations under
the Debentures, the indenture under which the Debentures were issued and
FINOVA's obligations under the Amended and Restated Declaration of Trust
governing the trust, provides a full and unconditional guarantee on a
subordinated basis of amounts due on the Preferred Securities. FINOVA can defer
making distributions on the Debentures for up to 20 consecutive quarters, but
does not anticipate doing so. The Preferred Securities are mandatory redeemable
upon the maturity of the Debentures on December 31, 2016, or earlier to the
extent of any redemption by FINOVA of any Debentures. The redemption price in
either case will be $50 per share plus accrued and unpaid distributions to the
date fixed for redemption.
A-33
<PAGE> 66
THE FINOVA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS IN TABLES, EXCEPT PER SHARE DATA)
Prior to their maturity, the Preferred Securities are convertible into
FINOVA's common stock at the election of the holders of the Preferred Securities
individually. Each debenture is convertible into 1.2774 shares of FINOVA's
common stock (equivalent to a conversion price of $39.14 per share), subject to
adjustment in specified circumstances. FINOVA can terminate the conversion
rights noted above on 30 days notice on or after December 31, 1999 if it is
current on its payments for the Debentures and the closing prices of its common
stock trade at or above 120% of the conversion price of the Preferred Securities
($46.97, assuming no adjustments).
NOTE H SHAREOWNERS' EQUITY
On August 14, 1997, the Board of Directors declared a two-for-one stock
split of FINOVA's common stock effected as a stock distribution on October 1,
1997 to shareowners of record as of September 1, 1997. All share and per share
data have been restated to reflect the split.
At December 31, 1998, 1997 and 1996, The FINOVA Group Inc. had 58,555,000,
58,555,000 and 56,844,000 shares of common stock issued, with 55,721,000,
56,282,000 and 55,058,000 shares of common stock outstanding, respectively.
Approximately 6,917,000, 7,972,000 and 8,632,000 common shares were reserved for
issuance under the 1992 Stock Incentive Plan at December 31, 1998, 1997 and
1996, respectively.
In addition to the convertible preferred securities issued by FINOVA
Finance Trust in 1996, FINOVA has 5,000,000 shares of preferred stock
authorized, none of which was issued at December 31, 1998. The Board of
Directors is authorized to provide for the issuance of shares of preferred stock
in series, to establish the number of shares to be included in each series and
to fix the designation, powers, preferences and rights of the shares of each
series. In connection with FINOVA's stock incentive plan, 250,000 shares of
preferred stock are reserved for issuance of awards under that plan.
Each outstanding share of FINOVA's common stock has a tandem junior
participating preferred stock purchase right ("Right") attached to it. The
Rights contain provisions to protect shareowners in the event of an unsolicited
acquisition or attempted acquisition of 20% or more of FINOVA's common stock,
which is not believed by the Board of Directors to be in the best interest of
shareowners. The Rights are represented by the common share certificates and are
not exercisable or transferable apart from the common stock until such a
situation arises. The Rights may be redeemable by FINOVA at $0.01 per right
prior to the time any person or group has acquired 20% or more of FINOVA's
shares. FINOVA has reserved 600,000 shares of Junior Participating Preferred
Stock for issuance in connection with the Rights.
FINOVA periodically repurchases its securities on the open market to fund
its obligations pursuant to employee stock options, benefit plans and similar
obligations. During the years ended December 31, 1998 and 1997, FINOVA
repurchased 1,299,200 and 1,035,800 shares, respectively. No shares were
repurchased in 1996. The program may be discontinued at any time.
In 1999, the Board of Directors approved and recommended to the shareowners
that they approve an amendment to FINOVA's certificate of incorporation. That
amendment would increase the authorized common stock from 100 million to 400
million shares and the preferred stock from 5 million to 20 million shares. The
shareowners are expected to vote on the measure at the 1999 annual meeting. The
Board recommends approval of the proposal.
A-34
<PAGE> 67
THE FINOVA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS IN TABLES, EXCEPT PER SHARE DATA)
NOTE I STOCK OPTIONS
During 1992, the Board of Directors of FINOVA adopted The FINOVA Group Inc.
1992 Stock Incentive Plan (the "Plan") for the grant of options, restricted
stock and stock appreciation rights to officers, directors and employees. The
Plan provides for the following types of awards: (a) stock options (both
incentive and non-qualified stock options), (b) stock appreciation rights and
(c) restricted stock. The Plan generally authorizes the issuance of awards for
up to 2 1/2% of the total number of shares of common stock outstanding as of the
first day of each year, with some modifications. In addition, 250,000 shares of
preferred stock are reserved for awards under the Plan.
The stock options outstanding at December 31, 1998 were granted for terms
of 10 years and generally become exercisable between one month to five years
from the date of grant. Stock options are issued at market value at the date of
grant, unless a higher exercise price is established. Since 1993, the Board has
issued multi-year, multi-priced stock options to senior executives. The exercise
price of those option grants range in price from the fair market value on the
grant date to prices up to 58.7% in excess of the grant date value. Those option
grants are intended to cover anticipated grants during the years the grants are
scheduled to vest, although the Board may issue additional grants at its
discretion. In 1998, premium-priced options were granted with exercise prices
ranging from $54.47 to $83.21.
Information with respect to options granted and exercised for the three
years ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
AVERAGE OPTION
SHARES PRICE PER SHARE
--------- ---------------
<S> <C> <C>
Options outstanding at January 1, 1996........... 3,047,018 $15.31
Granted.......................................... 1,011,740 29.05
Exercised........................................ (359,408) 13.37
Canceled......................................... (262,172) 20.45
--------- ------
Options outstanding at December 31, 1996......... 3,437,178 19.17
Granted.......................................... 781,108 43.57
Exercised........................................ (442,049) 15.57
Canceled......................................... (191,094) 28.05
--------- ------
Options outstanding at December 31, 1997......... 3,585,143 24.45
Granted.......................................... 1,197,032 58.22
Exercised........................................ (626,853) 18.13
Canceled......................................... (197,680) 42.00
--------- ------
Options outstanding at December 31, 1998......... 3,957,642 $34.79
========= ======
</TABLE>
At December 31, 1998, stock options with respect to 3,957,642 common shares
were outstanding at exercise prices ranging from $6.35 to $83.21 per share.
A-35
<PAGE> 68
THE FINOVA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS IN TABLES, EXCEPT PER SHARE DATA)
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE NUMBER
NUMBER REMAINING WEIGHTED EXERCISABLE WEIGHTED
RANGE OF OUTSTANDING CONTRACTUAL AVERAGE AT AVERAGE
EXERCISE PRICES AT 12/31/98 LIFE EXERCISE PRICE 12/31/98 EXERCISE PRICE
- --------------- ----------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 6.35 - $16.45 844,033 3.76 $12.22 844,033 $12.22
16.56 - 26.38 1,011,726 6.22 21.53 879,208 20.90
27.25 - 46.86 816,505 8.20 37.90 476,869 35.92
48.06 - 54.47 835,906 9.29 53.30 37,947 53.73
54.97 - 83.21 449,472 9.57 66.36
--------- ---- ------ --------- ------
$ 6.35 - $83.21 3,957,642 7.13 $34.79 2,238,057 $21.39
========= ==== ====== ========= ======
</TABLE>
Since April 1992, the Board of Directors has only granted performance based
restricted stock to employees. Performance based restricted stock awards (78,985
shares in 1998, 90,100 shares in 1997 and 138,160 shares in 1996), vest
generally over five years from the date of grant. The holder of the performance
based restricted stock, like restricted stock, has the right to receive
dividends and vote the target number of shares but may not sell, assign,
transfer, pledge or otherwise encumber the performance based restricted stock.
All performance based restricted stock grants since 1992 were based on FINOVA
share performance and may result in greater or lesser numbers of shares
ultimately being delivered to the holder, depending on that performance. The
target number of shares are deemed received on the grant date. Additional
vesting over the target are reported as new grants as of the vesting dates.
Vestings below target would be reported as a forfeiture of amounts below the
target number of shares.
The Company applies APB Opinion 25 and related Interpretations in
accounting for its plans. No compensation cost has been recognized for its fixed
stock option plans because FINOVA grants options at market price on the date of
grant. The compensation cost that has been charged against income for its
performance-based plan was $5.5 million, $7.9 million and $2.9 million for 1998,
1997 and 1996, respectively. Had compensation cost for the Company's stock based
compensation plans been determined based on the fair value at the grant dates
for awards under those plans consistent with the fair market value method,
FINOVA's net income would have been $162.7 million, $135.6 million and $115.0
million for 1998, 1997 and 1996, respectively. Basic earnings per share would
have been $2.91, $2.49 and $2.11 and diluted earnings per share would have been
$2.74, $2.36 and $2.05 for 1998, 1997 and 1996, respectively.
The fair value of the options was estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1998: dividend yield of 1.75%, expected
volatility of 26%, risk-free interest rates of 5.7% and 5.8% and expected lives
of five to seven years.
A-36
<PAGE> 69
THE FINOVA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS IN TABLES, EXCEPT PER SHARE DATA)
NOTE J INCOME TAXES
The consolidated provision for income taxes consists of the following for
the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Current:
United States:
Federal............................... $ 25,308 $34,936 $30,574
State................................. 8,700 13,973 7,654
Foreign.................................. 1,870 3,626 1,745
-------- ------- -------
35,878 52,535 39,973
-------- ------- -------
Deferred:
United States:
Federal............................... 56,550 31,051 24,294
State................................. 8,112 (498) 5,062
Foreign.................................. 7,950
-------- ------- -------
72,612 30,553 29,356
-------- ------- -------
Provision for income taxes................. $108,490 $83,088 $69,329
======== ======= =======
</TABLE>
Income taxes paid in 1998, 1997 and 1996 were approximately $26.0 million,
$30.3 million and $31.3 million, respectively.
The significant components of deferred tax liabilities and deferred tax
assets at December 31, 1998 and 1997 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Deferred income from leveraged leases.............. $399,343 $308,465
Deferred income from lease financing............... 108,883 89,196
Goodwill........................................... 26,530 24,343
Other.............................................. 17,933 3,498
-------- --------
Gross deferred tax liability......................... 552,689 425,502
-------- --------
Deferred tax assets:
Reserve for credit losses.......................... 90,372 75,670
Foreign............................................ 10,792 16,802
Alternative minimum tax............................ 52,442 26,153
Accrued expenses................................... 400 9,739
Net operating loss carryforward/carryback.......... 20,625 4,875
Other.............................................. 30,685 17,502
-------- --------
Gross deferred tax asset............................. 205,316 150,741
-------- --------
Net deferred tax liability........................... $347,373 $274,761
======== ========
</TABLE>
A-37
<PAGE> 70
THE FINOVA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS IN TABLES, EXCEPT PER SHARE DATA)
The federal statutory income tax rate is reconciled to the effective income
tax rate as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal statutory income tax rate..................... 35.0% 35.0% 35.0%
State income taxes.................................... 3.9 2.6 4.4
Foreign tax effects................................... 0.1 (0.1) (0.9)
Municipal and ESOP income............................. (1.5) (2.0) (2.2)
Other................................................. 1.0 1.2 1.0
---- ---- ----
Provision for income taxes............................ 38.5% 36.7% 37.3%
==== ==== ====
</TABLE>
NOTE K PENSION AND OTHER BENEFITS
Net periodic pension costs were $3.0 million, $1.9 million and $1.7 million
for the years ended December 31, 1998, 1997 and 1996, respectively. FINOVA's
pension costs were accrued at $5.5 million at December 31, 1998 and $2.8 million
at December 31, 1997.
Net periodic other postretirement benefit costs were $0.7 million, $0.5
million and $0.7 million for each of the years ended December 31, 1998, 1997 and
1996, respectively. FINOVA's accrued postretirement benefit costs were $3.5
million at December 31, 1998 and $2.8 million at December 31, 1997.
FINOVA's investment of $49 million in trust for nonqualified compensation
plans consists of securities held for trading and is recorded at market.
NOTE L EARNINGS PER SHARE
Basic earnings per share exclude the effects of dilution and are computed
by dividing income available to common shareowners by the weighted average
amount of common stock outstanding for the period. Diluted earnings per share
reflect the potential dilution that could occur if options, convertible
preferred stock or other contracts to issue stock were exercised or converted
into common stock. These per share calculations are presented for the years
ended December 31, 1998, 1997 and 1996 on the Statements of Consolidated Income
and are detailed below:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE COMPUTATION:
Income from continuing operations....... $ 169,737 $ 139,098 $ 116,493
=========== =========== ===========
Net income.............................. $ 169,737 $ 139,098 $ 117,000
=========== =========== ===========
Weighted average shares outstanding..... 56,232,000 54,748,000 54,816,000
Contingently issued shares.............. (286,000) (343,000) (308,000)
----------- ----------- -----------
Adjusted weighted average shares........ 55,946,000 54,405,000 54,508,000
=========== =========== ===========
Earnings from continuing operations per
share................................. $3.03 $2.56 $2.14
=========== =========== ===========
Net income per share.................... $3.03 $2.56 $2.15
=========== =========== ===========
</TABLE>
A-38
<PAGE> 71
THE FINOVA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS IN TABLES, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
DILUTED EARNINGS PER SHARE COMPUTATION:
Income from continuing operations....... $ 169,737 $ 139,098 $ 116,493
Preferred dividends, net of tax......... 3,782 3,992
----------- ----------- -----------
Income from continuing operations
available to common shareowners....... $ 173,519 $ 143,090 $ 116,493
=========== =========== ===========
Net income.............................. $ 169,737 $ 139,098 $ 117,000
Preferred dividends, net of tax......... 3,782 3,992
----------- ----------- -----------
Net income available to common
shareowners........................... $ 173,519 $ 143,090 $ 117,000
=========== =========== ===========
Weighted average shares outstanding..... 56,232,000 54,748,000 54,816,000
Contingently issued shares.............. (171,000) (184,000) (183,000)
Incremental shares from assumed
conversions:
Stock options......................... 1,706,000 1,659,000 1,257,000
Convertible preferred securities...... 2,938,000 2,938,000 161,000
----------- ----------- -----------
Total potential dilutive common
shares................................ 4,644,000 4,597,000 1,418,000
----------- ----------- -----------
Adjusted weighted average shares........ 60,705,000 59,161,000 56,051,000
=========== =========== ===========
Earnings from continuing operations per
share................................. $2.86 $2.42 $2.08
=========== =========== ===========
Earnings per share...................... $2.86 $2.42 $2.09
=========== =========== ===========
</TABLE>
NOTE M LITIGATION AND CLAIMS
FINOVA is party either as plaintiff or defendant to various actions,
proceedings and pending claims, including legal actions, some of which involve
claims for compensatory, punitive or other damages in significant amounts. That
litigation often results from FINOVA's attempts to enforce its lending
agreements against borrowers and other parties to those transactions. Litigation
is subject to many uncertainties and it is possible that some of the legal
actions, proceedings or claims referred to above could be decided against
FINOVA. Although the ultimate amount for which FINOVA may be held liable, if
any, is not ascertainable, FINOVA believes that any resulting liability should
not materially affect FINOVA's financial position, results of operations or cash
flows.
NOTE N FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments has been determined by FINOVA using market information obtained by
FINOVA and the valuation methodologies described below. However, considerable
judgment is required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein may not be indicative of
the amounts that FINOVA could realize in a current market exchange. The use of
different market assumptions or valuation methodologies may have a material
effect on the estimated fair value amounts.
A-39
<PAGE> 72
THE FINOVA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS IN TABLES, EXCEPT PER SHARE DATA)
The carrying amounts and estimated fair values of FINOVA's financial
instruments are as follows for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997
------------------------ ------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE SHEET
Financial Instruments:
Assets:
Loans and other financing
contracts..................... $7,077,865 $7,151,296 $5,744,846 $5,872,082
Liabilities:
Senior debt..................... 8,394,578 8,472,603 6,764,581 6,832,327
OFF-BALANCE SHEET
Financial Instruments:
Interest rate swaps................ -- 17,558 -- 15,893
Interest rate hedge agreements..... -- (459) -- --
</TABLE>
The carrying values of cash and cash equivalents, fee-based receivables,
financing contracts held for sale, accounts payable and accrued expenses, due to
clients and interest payable (including accrued amounts related to interest rate
swaps and interest rate hedge agreements) approximate fair values due to the
short-term maturity of these items.
The methods and assumptions used to estimate the fair values of other
financial instruments are summarized as follows:
LOANS AND OTHER FINANCING CONTRACTS:
The fair value of loans and other financing contracts was estimated by
discounting expected cash flows using the current rates at which loans of
similar credit quality, size and remaining maturity would be made as of
December 31, 1998 and 1997. Management believes that the risk factor
embedded in the current interest rates on performing loans results in a
fair valuation of performing loans. As of December 31, 1998 and 1997, the
fair value of nonaccruing impaired contracts with a carrying amount of
$119.7 million and $121.5 million, respectively, was not estimated because
it is not practical to reasonably assess the credit adjustment that would
be applied in the marketplace for such loans. As of December 31, 1998 and
1997, the carrying amount of loans and other financing contracts excludes
repossessed assets with a total carrying amount of $119.7 million and $89.6
million, respectively.
SENIOR DEBT:
The fair value of senior debt was estimated by discounting future cash
flows using rates currently available for debt of similar terms and
remaining maturities. The carrying values of commercial paper and
borrowings under revolving credit facilities, if any, were assumed to
approximate fair values due to their short maturities.
A-40
<PAGE> 73
THE FINOVA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS IN TABLES, EXCEPT PER SHARE DATA)
INTEREST RATE SWAPS:
The fair values of interest rate swaps are based on quoted market
prices obtained from participating banks and dealers.
INTEREST RATE HEDGE AGREEMENTS:
The fair value of interest rate hedge agreements in place at December
31, 1998 are based on quoted market prices obtained from participating
loans and dealers for transactions of similar remaining durations.
The fair value estimates presented herein were based on information
obtained by FINOVA as of December 31, 1998 and 1997. Although management is not
aware of any factors that would significantly affect the estimated fair values,
such values have not been updated since December 31, 1998 and 1997. Therefore,
current estimates of fair value may differ significantly from the amounts
presented herein.
NOTE O OPERATING EXPENSES
The following represents a summary of the major components of operating
expenses for the three years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Salaries and employee benefits............ $140,939 $112,980 $94,272
Depreciation and amortization............. 23,749 17,407 14,185
Travel and entertainment.................. 16,045 11,917 8,953
Occupancy expenses........................ 11,562 8,368 7,104
Problem account costs..................... 10,343 11,586 7,753
Professional services..................... 9,982 7,654 5,738
</TABLE>
NOTE P COMPREHENSIVE INCOME
Effective for the year ended December 31, 1998, FINOVA adopted the
provisions of SFAS No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"),
which establishes standards for reporting and display of comprehensive income
and its components in the financial statements.
Accumulated other comprehensive income activity for the three years ended
December 31, 1998 is as follows:
<TABLE>
<CAPTION>
ACCUMULATED
FOREIGN UNREALIZED OTHER
CURRENCY HOLDING GAINS ON COMPREHENSIVE
TRANSLATION SECURITIES INCOME
----------- ---------------- -------------
<S> <C> <C> <C>
Balance, January 1, 1996........ $(5,686) $ $(5,686)
Change during 1996.............. 6,694 6,694
------- ------ -------
Balance, December 31, 1996...... 1,008 1,008
Change during 1997.............. (1,018) (1,018)
------- ------ -------
Balance, December 31, 1997...... (10) (10)
Change during 1998.............. (208) 3,422 3,214
------- ------ -------
Balance, December 31, 1998...... $ (218) $3,422 $ 3,204
======= ====== =======
</TABLE>
A-41
<PAGE> 74
THE FINOVA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS IN TABLES, EXCEPT PER SHARE DATA)
For comparative purposes, financial statements presented for prior years
have been reclassified to conform to the requirements of SFAS No. 130. The
adoption of SFAS No. 130 had no impact on FINOVA's consolidated results of
operations, financial position, or cash flows.
NOTE Q SEGMENT REPORTING
Management's Policy for Identifying Reportable Segments
FINOVA's reportable business segments are strategic business units that
offer distinctive products and services that are marketed through different
channels.
Types of Products and Services
FINOVA has three market groups that are also its reportable segments:
Commercial Finance, Specialty Finance and Capital Markets. Commercial Finance
includes traditional asset-based businesses that lend against collateral such as
cash flows, inventory, receivables and leased assets. Specialty Finance includes
businesses which lend to a variety of highly focused, industry-specific niches.
Capital Markets, in conjunction with institutional investors, provides
commercial mortgage banking services and debt and equity capital funding.
Reconciliation of Segment Information to Consolidated Amounts
Management evaluates the business performance of each group based on total
net revenue, income before allocations and managed assets. Total net revenue is
operating margin plus gains on disposals of assets. Income before allocations is
income before income taxes and preferred dividends, excluding allocation of
corporate overhead expenses and the unallocated portion of provision for credit
losses. Managed assets includes each segment's investment in financing
transactions plus securitizations and participations sold.
Information for FINOVA's reportable segments reconciles to FINOVA's
consolidated totals as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
TOTAL NET REVENUE:
Commercial Finance.............................. $ 187,461 $ 154,981
Specialty Finance............................... 344,541 313,841
Capital Markets................................. 50,188 9,449
Corporate and other............................. 23,093 7,632
----------- ----------
Consolidated total.............................. $ 605,283 $ 485,903
=========== ==========
INCOME BEFORE ALLOCATIONS:
Commercial Finance.............................. $ 67,013 $ 72,454
Specialty Finance............................... 273,674 248,793
Capital Markets................................. 23,243 9,449
Corporate and other, overhead and unallocated
provision for credit losses................... (81,921) (104,518)
----------- ----------
Income from continuing operations before income
taxes......................................... $ 282,009 $ 226,178
=========== ==========
</TABLE>
A-42
<PAGE> 75
THE FINOVA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS IN TABLES, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
MANAGED ASSETS:
Commercial Finance.............................. $ 3,005,130 $2,755,826
Specialty Finance............................... 7,211,164 6,037,725
Capital Markets................................. 277,422
Corporate and other............................. 55,416 63,872
----------- ----------
Consolidated total.............................. $10,549,132 $8,857,423
=========== ==========
</TABLE>
Segment information was not presented for 1996 due to restructuring within
the Company which made such presentation impracticable.
GEOGRAPHIC INFORMATION
FINOVA attributes income earned from financing transactions and managed
assets to geographic areas based on the location of the customer. Income earned
from financing transactions and managed assets at December 31, 1998 by
geographic area are as follows:
<TABLE>
<CAPTION>
INCOME
EARNED
FROM FINANCING
TRANSACTIONS MANAGED ASSETS
-------------- --------------
<S> <C> <C>
United States................................ $ 956,479 $10,021,393
Canada....................................... 2,646 94,035
United Kingdom............................... 62,852 433,704
---------- -----------
$1,021,977 $10,549,132
========== ===========
</TABLE>
MAJOR CUSTOMER INFORMATION
FINOVA has no single customer that accounts for 10% or more of revenue.
NOTE R NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," (SFAS No. 133) which is effective for
fiscal years beginning after June 15, 1999. This statement standardizes the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, by recognition of those items as assets or
liabilities in the statement of financial position and measurement at fair
value. FINOVA will adopt this standard effective January 1, 2000, as required.
The impact of SFAS No. 133 on the Company's financial position and results of
operations has not yet been determined.
NOTE S SUBSEQUENT EVENT -- DEFINITIVE AGREEMENT TO ACQUIRE SIRROM
CAPITAL CORPORATION
On January 7, 1999, The FINOVA Group Inc. announced that it had reached a
definitive agreement to acquire Sirrom Capital Corporation ("Sirrom"), a
specialty finance company headquartered in Nashville, Tenn.
Under the terms of the agreement, Sirrom shareholders will receive 0.1634
shares of FINOVA common stock for each share of Sirrom common stock they own,
subject to possible increases. Based on the conversion rate and FINOVA's share
value when the agreement was signed, the aggregated purchase price of the Sirrom
common stock will be approximately $343 million.
A-43
<PAGE> 76
THE FINOVA GROUP INC.
SUPPLEMENTAL SELECTED FINANCIAL DATA
CONDENSED QUARTERLY RESULTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following represents the condensed quarterly results for the three
years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
FOURTH
FIRST SECOND THIRD QUARTER
QUARTER QUARTER QUARTER --------
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income earned from financing transactions:
1998...................................... $236,399 $249,624 $256,854 $279,100
1997...................................... 209,293 219,904 227,810 240,989
1996...................................... 183,921 186,255 197,402 201,768
- ------------------------------------------------------------------------------------------
Interest expense:
1998...................................... 110,572 114,987 122,235 131,566
1997...................................... 97,172 101,883 105,592 111,446
1996...................................... 88,224 89,718 91,629 96,972
- ------------------------------------------------------------------------------------------
Volume-based fees:
1998...................................... 22,156 19,103 16,687 19,777
1997...................................... 7,784 8,583 9,546 20,815
1996...................................... 6,731 6,380 7,570 7,907
- ------------------------------------------------------------------------------------------
Gains on disposal of assets:
1998...................................... 1,223 9,582 13,438 30,781
1997...................................... 3,233 10,468 8,706 7,854
1996...................................... 6,730 1,315 397 4,507
- ------------------------------------------------------------------------------------------
Non-interest expenses:
1998...................................... 83,628 94,274 93,972 121,482
1997...................................... 70,327 82,522 84,500 95,365
1996 66,489 56,989 65,480 69,560
- ------------------------------------------------------------------------------------------
Income from continuing operations:
1998...................................... 39,077 41,035 43,132 46,492
1997...................................... 31,658 33,751 34,921 38,768
1996...................................... 26,756 28,852 30,489 30,396
- ------------------------------------------------------------------------------------------
Net income:
1998...................................... 39,077 41,035 43,132 46,492
1997...................................... 31,658 33,751 34,921 38,768
1996...................................... 27,121 28,121 29,763 31,995
- ------------------------------------------------------------------------------------------
Basic earnings per share:
1998...................................... 0.70 0.73 0.77 0.84
1997...................................... 0.59 0.62 0.65 0.70
1996...................................... 0.50 0.52 0.54 0.59
- ------------------------------------------------------------------------------------------
Diluted earnings per share:
1998...................................... 0.66 0.69 0.73 0.79
1997...................................... 0.56 0.59 0.61 0.66
1996...................................... 0.49 0.51 0.53 0.56
- ------------------------------------------------------------------------------------------
</TABLE>
A-44
<PAGE> 77
THE FINOVA GROUP INC.
AVERAGE BALANCES/OPERATING MARGIN/AVERAGE ANNUAL RATES
(UNAUDITED)(1)
(DOLLARS IN THOUSANDS)
The following represents the breakdown of FINOVA's average balance sheet,
operating margin and average annual rates for the years ended December 31, 1998
and 1997:
<TABLE>
<CAPTION>
1998 1997
------------------------------------ ------------------------------------
INTEREST & INTEREST &
AVERAGE VOLUME-BASED AVERAGE AVERAGE VOLUME-BASED AVERAGE
BALANCE FEES RATE BALANCE FEES RATE
---------- ------------ ------- ---------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents... $ 38,304 $ 36,873
Investment in financing
transactions.............. 9,016,067 $1,029,619(4) 12.05% 7,764,224 $871,735(4) 11.85%(2)
Less reserve for credit
losses.................... (184,162) (160,241)
---------- ---------- ----- ---------- -------- -----
Net investment in financing
transactions.............. 8,831,905 7,603,983
Goodwill and other assets... 522,356 365,885
Investment in discontinued
operations................ 2,703
---------- ---------- ----- ---------- -------- -----
$9,392,565 $8,009,444
========== ========== ===== ========== ======== =====
LIABILITIES AND SHAREOWNERS'
EQUITY
Liabilities:
Other liabilities......... $ 386,105 $ 408,640
Senior debt............... 7,452,245 $ 479,360 5.71% 6,253,588 $416,093 6.65%
Deferred income taxes..... 304,870 260,027
---------- ---------- ----- ---------- -------- -----
8,143,220 6,922,255
Company-obligated mandatory
redeemable convertible
preferred securities of
subsidiary trust solely
holding convertible
debentures of FINOVA...... 111,550 111,550
Shareowners' equity......... 1,137,795 975,639
---------- ---------- ----- ---------- -------- -----
$9,392,565 $8,009,444
========== ========== ===== ========== ======== =====
Interest income/average
earning assets (2)........ $1,029,619 12.05% $871,735 11.85%
Interest expense/average
earning assets(2)(3)...... 479,360 5.61% 416,093 5.66%
---------- ---------- ----- ---------- -------- -----
Operating margin(3)......... $ 550,259 6.44% $455,642 6.19%
========== ========== ===== ========== ======== =====
</TABLE>
- ---------------
(1) Averages are calculated based on monthly balances.
(2) The average rate is calculated based on average earning assets ($8,544,431
and $7,356,845 for 1998 and 1997, respectively) which are net of average
deferred taxes on leveraged leases and average nonaccruing assets.
(3) For the year ended December 31, 1998, excluding the impact of derivatives,
interest expense would have been $474,076 or 5.55% of average earning assets
and operating margin would have been $554,543 or 6.50% of average earning
assets. For the year ended December 31, 1997, excluding the impact of
derivatives, interest expense would have been $417,140 or 5.67% of average
earning assets and operating margin would have been $454,595 or 6.18% of
average earning assets.
(4) For the years ended December 31, 1998 and 1997 interest income is shown net
of operating lease depreciation.
A-45
<PAGE> 78
THE FINOVA GROUP INC.
COMMISSION FILE NUMBER 1-11011
EXHIBIT INDEX
DECEMBER 31, 1998 FORM 10-K
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
(3.A) Certificate of Incorporation, as amended through the date of
this filing (incorporated by reference from FINOVA's report
on Form 10-K for the year ended December 31, 1994 (the "1994
10-K"), Exhibit 3.A).
(3.B) Proposed amendment to the Certificate of Incorporation to
increase the number of authorized shares, which is subject
to shareowner approval (incorporated by reference from the
1999 Proxy Statement).
(3.C) Bylaws, as amended through the date of this filing
(incorporated by reference from FINOVA's report on Form 10-K
for the year ended December 31, 1995 (the "1995 10-K")
Exhibit 3.B).
(4.A) Form of FINOVA's Common Stock Certificate (incorporated by
reference from the 1994 10-K, Exhibit 4.B).
(4.B) Relevant portions of FINOVA's Certificate of Incorporation
and Bylaws included in Exhibits 3.A, 3.B and 3.C above are
incorporated by reference.
(4.C) Rights Agreement dated as of February 15, 1992 between
FINOVA and the Rights Agent named therein, as amended
(incorporated by reference from FINOVA's report on Form 8-K
dated September 21, 1995, Exhibit 4.1).
(4.C.1) Acceptance of Successor Trustee to Appointment under Rights
Agreement noted in 4.C above (incorporated by reference from
FINOVA's report on Form 8-K, dated November 30, 1995,
Exhibit 4).
(4.D) Long-term debt instruments with principal amounts not
exceeding 10% of FINOVA's total consolidated assets are not
filed as exhibits to this report. FINOVA will furnish a copy
of those agreements to the SEC upon its request.
(4.E) Form of Indenture dated as of September 1, 1992 between
FINOVA Capital and the Trustee named therein (incorporated
by reference from the Greyhound Financial Corporation
Registration Statement on Form S-3, Registration No.
33-51216, Exhibit 4).
(4.F) Form of Indenture dated as of October 1, 1995 between FINOVA
Capital and the Trustee named therein (incorporated by
reference from FINOVA Capital's report on Form 8-K dated
October 25, 1995, Exhibit 4.1).
(4.G) Indenture, dated as of December 11, 1996, between FINOVA and
Fleet National Bank as trustee (incorporated by reference
from FINOVA's report on Form 8-K dated December 20, 1996,
(the "December 1996 8-K"), Exhibit 4.1).
(4.G.1) Amended and Restated Declaration of Trust, dated as of
December 11, 1996, among Bruno A. Marszowski and Robert J.
Fitzsimmons, as Regular Trustees, First Union Bank of
Delaware, as Delaware Trustee, Fleet National Bank, as
Property Trustee, and FINOVA (incorporated by reference from
the December 1996 8-K, Exhibit 4.2).
(4.G.2) Preferred Security Guarantee, dated as of December 11, 1996,
between FINOVA and Fleet National Bank, as trustee
(incorporated by reference from the December 1996 8-K,
Exhibit 4.3).
(4.G.3) Form of 5 1/2% Convertible Subordinated Debenture
(incorporated by reference from the December 1996 8-K,
Exhibit 4.4).
(4.G.4) Form of Preferred Security (TOPrS) (incorporated by
reference from the December 1996 8-K, Exhibit 4.5).
</TABLE>
A-46
<PAGE> 79
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
(4.H) Form of Indenture, dated as of March 20, 1998, between
FINOVA, FINOVA Capital and The First National Bank of
Chicago as Trustee (incorporated by reference from FINOVA
and FINOVA Capital's registration statement on Form S-3,
Registration No. 333-38171, Exhibit 4.8).
(4.I) Announcement of 2-for-1 Stock Split (incorporated by
reference from FINOVA's August 14, 1998 8-K, Exhibit 28).
(4.I.1) Letter to shareowners regarding FINOVA's 2-for-1 Stock Split
(incorporated by reference from FINOVA's October 1, 1998
8-K, Exhibit 28.A)
(4.I.2) Letter to holders of Preferred Securities regarding the
2-for-1 common stock split and resulting adjustment in
conversion price applicable to the Convertible Trust
Originated Preferred Securities of FINOVA Finance Trust
(incorporated by reference from FINOVA's October 1, 1998
8-K, Exhibit 28.B).
(4.J) 1992 Stock Incentive Plan, as amended through the date of
this filing (incorporated by reference from the 1997 10-K,
Exhibit 4.J).+
(4.K) Sirrom Capital Corporation Amended and Restated 1994 Stock
Option Plan.*
(4.L) Sirrom Capital Corporation Amended and Restated 1995 Stock
Option Plan for Non-employee Directors.*
(4.M) Sirrom Capital Corporation Amended and Restated 1996
Incentive Stock Option Plan.*
(4.N) Director resolutions dated February 11, 1999, regarding
adoption of the Sirrom stock option plans.*
(10.A) Sixth Amendment and Restatement dated as of May 16, 1994 of
the Credit Agreement, dated as of May 31, 1976 among FINOVA
Capital and the lender parties thereto, and Bank of America
National Trust and Savings Association, Bank of Montreal,
Chemical Bank, Citibank, N.A. and National Westminister Bank
USA, as agents (the "Agents") and Citibank, N.A., as
Administrative Agent (incorporated by reference from
FINOVA's report on Form 8-K dated May 23, 1994, Exhibit
10.1).
(10.A.1) First Amendment dated as of September 30, 1994, to the Sixth
Amendment and Restatement, noted in 10.A above (incorporated
by reference from the 1994 10-K, Exhibit 10.A.1).
(10.A.2) Second Amendment dated as of May 11, 1995 to the Sixth
Amendment and Restatement noted in 10.A above (incorporated
by reference from FINOVA's Quarterly Report on Form 10-Q for
the period ending September 30, 1995 ( the "3Q95 10-Q"),
Exhibit 10.A).
(10.A.3) Third Amendment dated as of November 1, 1995 to Sixth
Amendment noted in 10.A above (incorporated by reference
from the 3Q95 10-Q, Exhibit 10.B).
(10.A.4) Fourth Amendment dated as of May 15, 1996, to Sixth
Amendment noted in 10.A above (incorporated by reference
from the 1996 10-K, Exhibit 10.A.4).
(10.A.5) Fifth Amendment dated as of May 20, 1998 to Sixth Amendment
noted in 10.A above (incorporated by reference from the 1997
10-K, Exhibit 10.A.5).
(10.B) Credit Agreement (Short-Term Facility) dated as of May 16,
1994 among FINOVA Capital, the Lender parties thereto, the
Agents and Citibank, N.A., as Administrative Agent
(incorporated by reference from FINOVA's report on Form 8-K
dated May 23, 1994, Exhibit 10.2).
</TABLE>
A-47
<PAGE> 80
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
(10.B.1) First Amendment dated as of September 30, 1994 to the Credit
Agreement noted in 10.B above (incorporated by reference
from the 1994 10-K, Exhibit 10.B.1).
(10.B.2) Second Amendment to Short-Term Facility noted in 10.B above
(incorporated by reference from the 3Q95 10-Q, Exhibit
10.C).
(10.B.3) Third Amendment to Short-Term Facility noted in 10.B above
(incorporated by reference from the 3Q95 10-Q, Exhibit
10.D).
(10.B.4) Fourth Amendment to Short-Term Facility noted in 10.B above
(incorporated by reference from 1996 10-K, Exhibit B.4).
(10.B.5) Fifth Amendment to Short-Term Facility noted in 10.B above
(incorporated by reference from the 1997 10-K, Exhibit
10.B.5).+
(10.C) 1998 Management Incentive Plan (incorporated by reference
from the 1997 10-K, Exhibit 10.C.)+
(10.D) 1999 Management Incentive Plan.*+
(10.E.1) 1996 -- 1998 Performance Share Incentive Plan (incorporated
by reference from 1996 10-K, Exhibit 10.E.3).+
(10.E.2) 1997 -- 1999 Performance Share Incentive Plan (incorporated
by reference from the 1997 10-K, Exhibit 10.E.3).+
(10.E.3) 1998 -- 2000 Performance Share Incentive Plan (incorporated
by reference from the 1997 10-K, Exhibit 10.E.4).+
(10.E.4) 1999 -- 2001 Performance Share Incentive Plan.*+
(10.F) Employment Agreement with Samuel L. Eichenfield dated March
16, 1996 (incorporated by reference from the 1995 10-K,
Exhibit 10.F.3).+
(10.F.1) Amendment to Employment Agreement referenced in 10.F above
(incorporated by reference from the 1996 10-K, Exhibit
10.F.2).+
(10.F.2) Second Amendment to Employment Agreement referenced in 10.F
above (incorporated by reference from the 2Q97 10-Q, Exhibit
10).+
(10.G) Employment Agreement with William J. Hallinan, dated
February 25, 1992 (incorporated by reference from the 1992
10-K, Exhibit 10.1).+
(10.H) Amended and Restated Supplemental Pension Plan,
(incorporated by reference from the 1996 10-K, Exhibit
10.1).+
(10.I) A description of FINOVA's policies regarding compensation of
directors is incorporated by reference from the 1999 Proxy
Statement.+
(10.J) Directors Deferred Compensation Plan (incorporated by
reference from the 1992 10-K, Exhibit 10.O).+
(10.K) Directors' Retirement Benefit Plan (incorporated by
reference from FINOVA's report on Form 10-K for the year
ended December 31, 1993 (the "1993 10-K"), Exhibit 10.OO).+
(10.L) Directors' Charitable Awards Program (incorporated by
reference from the 1994 10-K, Exhibit 10.CC).+
(10.M) Deferred Compensation Plan (incorporated by reference from
the 1995 10-K, Exhibit 10.N).+
(10.N) Bonus KEYSOP Plan (incorporated by reference from the 1997
10-K, Exhibit 10.N).+
(10.N.1) Bonus KEYSOP Trust Agreement (incorporated by reference from
the 1997 10-K, Exhibit 10.N.1).+
(10.O) FINOVA's Executive Officer Loan Program Policies and
Procedures, (incorporated by reference from the 1996 10-K,
Exhibit 10.U).+
(10.P.1) FINOVA's Executive Severance Plan for Tier 1 Employees
(incorporated by reference from the 1995 10-K, Exhibit
10.C.1).+
(10.P.2) FINOVA's Executive Severance Plan for Tier 2 Employees
(incorporated by reference from the 1995 10-K, Exhibit
10.C.2).+
</TABLE>
A-48
<PAGE> 81
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
(10.Q.1) Value Sharing Plan for the Chief Executive Officer
(incorporated by reference from the 3Q95 10-Q, Exhibit
10.L).+
(10.Q.2) Value Sharing Plan for Executive Officers and Key Employees
(incorporated by reference from the 3Q95 10-Q, Exhibit
10.K).+
(10.R) Tax Sharing Agreement dated February 19, 1992 among FINOVA,
The Dial Corp and others (incorporated by reference from the
1992 10-K, Exhibit 10.K).
(10.S) 1992 Stock Incentive Plan (incorporated by reference from
the 1997 10-K, Exhibit 4.J).+
(10.T) Documents relating to the mini-CMBS Program:
FINOVA Commercial Mortgage Loan Owner Trust 1998-1:
Commercial Mortgage Loan Asset Backed Certificates 1998-1.*
(10.T.1) Certificate Purchase Agreement dated as of September 29,
1998.*
(10.T.2) Trust and Servicing Agreement dated as of September 1,
1998.*
(10.T.3) Loan Purchase Agreement as of September 1, 1998.*
(10.T.4) Amendment No. 1 to the Trust and Servicing Agreement dated
as of December 8, 1998.*
(10.T.5) Amendment No. 2 to the Trust and Servicing Agreement dated
as of December 29, 1998.*
(10.T.6) Custodial Agreement dated as of September 1, 1998.*
(10.T.7) Administration Agreement dated as of September 1, 1998.*
(12) Computation of Ratio of Income to Combined Fixed Charges and
Preferred Stock Dividends.*
(21) Subsidiaries.*
(23) Independent Auditors' Consent.*
(24) Powers of Attorney.*
(27) Financial Data Schedule for the year ended December 31,
1998.*
</TABLE>
- ---------------
* Filed with this report.
+ Relating to management compensation.
A-49
<PAGE> 1
Exhibit 4.K
SIRROM CAPITAL CORPORATION
AMENDED AND RESTATED 1994 STOCK OPTION PLAN
WHEREAS, the 1994 Stock Option Plan adopted by the Board of Directors of
Sirrom Capital Corporation by Action Taken On Written Consent of the Board of
Directors on November 18, 1994 is hereby amended and restated by the Stock
Option Committee.
1. Purpose. The purpose of the Sirrom Capital Corporation 1994 Stock
Option Plan (the "Plan") is to advance the growth and prosperity of Sirrom
Capital Corporation (the "Company") by providing key employees with an
additional incentive to contribute to the best interests of the Company. Without
prejudice to other compensation programs approved from time to time by the Board
of Directors (the "Board") and/or shareholders of the Company, such additional
incentive is to be given key employees by means of stock options provided for
under the Plan.
2. Administration of the Plan.
(a) The Plan shall be administered by a special Stock Option Committee
(the "Committee") comprised of at least two (2) members of the Company's Board
of Directors who are "disinterested persons" as defined in Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended. The Board at
any time may remove members from or add members to the Committee or may abolish
the Committee and revest in the Board the administration of the Plan. Vacancies
on the Committee, howsoever caused, shall be filled by the Board.
(b) The Committee shall have the power, subject to, and within, the
limits of the express provisions of the Plan:
(i) To determine from time to time which of the eligible
persons shall be granted options under the Plan, the term of each
granted option, the time or times during the term of each option within
which all or portions of each option may be exercised and the number of
shares for which each option shall be granted.
(ii) To construe and interpret the Plan and options granted
under it, and to establish, amend and revoke rules and regulations for
its administration. The Committee, in the exercise of this power, shall
generally determine all questions of policy and expediency that may
arise and may correct and defect, omission or inconsistency in the Plan
or in any option agreement in a manner and to the extent it shall deem
necessary or expedient to make the Plan fully effective.
(iii) To prescribe the terms and provisions of each option granted
(which need not be identical).
(iv) To amend the Plan as provided herein.
(v) Generally, to exercise such powers and to perform such acts
as are deemed necessary or expedient to promote the best interests of
the Company.
<PAGE> 2
(c) The interpretation and construction by the Committee of any
provisions of the Plan or of any option granted under it shall be final. No
member of such Committee or of the Board shall be liable for any action or
determination made in good faith with respect to the Plan or any option granted
under it.
3. Eligible Employees. The Committee shall determine from time to time
those officers and key employees of the Company to whom options shall be
granted and, pursuant to the provisions of the Plan, the amount thereof and the
terms and conditions, including requirements as to continued employment by the
participant, upon which such options or rights are granted and are exercisable.
Directors of the Company who are not also employees of the Company shall not be
eligible to participate in the Plan.
4. The Stock. The stock subject to the options and other provisions of
the Plan shall be shares of the Company's authorized and unissued Common Stock,
or reacquired Common Stock held in the treasury. Subject to the provisions
hereof concerning adjustment, the total number of shares of the Company's
Common Stock that may be transferred pursuant to the exercise of stock options
under the Plan shall not exceed in the aggregate 500,000 shares. Shares subject
to options which terminate or expire prior to exercise shall be available for
further option hereunder.
5. Terms and Conditions of Options. All stock options granted pursuant
to the Plan shall be in such form as the Committee shall from time to time
determine and shall be subject to the following terms and conditions:
(a) Option Price. The price per share for Common Stock under each
option granted under the Plan shall be no less than 100% of the fair market
value of the Common Stock on the date of grant of such option.
(b) Option Period. The period during which an option may be
exercised shall be determined by the Committee, provided, however, that in no
event shall an option granted hereunder be exercisable after the expiration of
10 years from the date such option was granted. Options may be made exercisable
in installments, and such options or installments thereof may be exercised in
part from time to time after they become exercisable. The maturity of any
installment or installments may be accelerated at the discretion of the
Committee. Options may be subject to a vesting schedule in the discretion of
the Committee.
In the event that a participant shall cease to be employed by the Company
or one of its subsidiaries for any reason (including disability and retirement
with the consent of the Company) other than his death, all options held by him
pursuant to the Plan and not previously exercised at the date of such
termination shall be exercisable for three months following the date of
termination of the participant's employment, subject to the further condition,
however, that no option shall be exercisable after the expiration of 10 years
from the date it is granted. Whether termination of employment is due to
disability or is to be considered retirement with the consent of the Company
shall be determined by the Committee which determination shall be final and
conclusive.
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<PAGE> 3
If the participant should die while in the employ of the Company or within
a period of three months after the termination of his employment by retirement
and shall not have fully exercised options granted under the Plan, such options
may be exercised in whole or in part at any time within 12 months after the
participant's death by the executors or administrators of the participant's
estate or by any person or persons who shall have acquired the options directly
from the participant by bequest or inheritance, subject to the condition that
no option shall be exercisable after the expiration of 10 years from the date
it is granted, and subject to the further condition that in the case of the
grant of an option to an individual who, at the time of the grant, owns more
than 10% of the total combined voting power of all classes of stock of the
Company, in no event shall such option be exercisable more than five years from
the date of the grant.
The exercise of an option granted under the Plan shall not affect the
optionee's right or ability to exercise any other option granted under the Plan
or any other stock option plan of the Company or its subsidiaries.
(c) Holding Period. Upon such time as the Company has a class of
equity security registered under Section 12 of the Exchange Act, in order for
the grant of an option under the Plan to be exempt from Section 16(b) of the
Exchange Act, the optionee must make no disposition of the option (other than
upon exercise) or the shares acquired pursuant to the exercise of the option,
for a period of six months after the date of grant of such option.
6. Payment for Stock. Payment for shares subject to options granted
under the Plan shall be made by the optionee in the form of cash or by means of
unrestricted shares of the Company's Common Stock or any combination thereof.
Payment shall be made upon the exercise of the option. Payment in currency or
by check, bank draft, cashier's check or postal money order shall be considered
payment in cash. In the event of payment in the Company's Common Stock, the
shares used in payment of the purchase price shall be considered payment to
the extent of their fair market value on the date of exercise of the option.
Upon the exercise of any option, the Company may, at the request of the
optionee and subject to the approval of the Company's Board of Directors, lend
to such optionee, as of the date of exercise, an amount equal to the exercise
price of such option, provided that such loan (a) has a term of not more than
ten years, (b) becomes due within sixty days after the recipient of the loan
ceases to be an employee of the Company, (c) bears interest at a rate not less
than the prevailing applicable federal rate at the time the loan is made, and
(d) if fully collateralized at all times, which collateral may include
securities issued by the Company. Loan terms and conditions may be changed by
the Company's Board of Directors to comply with applicable regulations of the
Internal Revenue Service and Securities and Exchange Commission.
7. Non-Assignability. No option shall be transferable otherwise than by
will or by the laws of descent and distribution and an option is exercisable
during the lifetime of the optionee only by the optionee.
8. Adjustment Upon Changes in Stock.
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<PAGE> 4
(a) The number of shares of Common Stock available for the granting
of options under the Plan and the number of shares and price per share of Common
Stock subject to outstanding options granted pursuant to the Plan may be
adjusted by the Committee in an equitable manner to reflect changes in the
capitalization of the Company, including, but not limited to, such changes as
result from merger, consolidation, reorganization, recapitalization, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares and change in corporate
structure. If any adjustment under this subparagraph 8(a) would create a
fractional share of Common Stock or a right to acquire a fractional share of
Common Stock, such fractional share shall be disregarded and the number of
shares available under the Plan and the number covered under any options granted
pursuant to the Plan shall be the next lower number of shares, rounding all
fractions downward.
(b) The Committee may provide in the terms of an option that, in the
event of: (1) a dissolution or liquidation of the Company; (2) a sale of all or
substantially all of the assets of the Company; (3) a merger or share exchange
in which the Company is not the surviving corporation; (4) other capital
reorganization in which more than fifty percent (50%) of the shares of the
Company entitled to vote are exchanged; or (5) such other corporate
reorganization as may be described by the Committee, any outstanding options
thereunder immediately shall be fully exercisable by an optionee.
(c) Any adjustment made by the Committee under this paragraph 8 shall
be conclusive and binding on all affected persons.
9. Amendment. The Board from time to time may amend this Plan, but except
as provided above with respect to dilutions or other adjustments or mergers or
share exchanges, or with the approval of the Company's shareholders, may not
(a) increase the aggregate number of shares available for option hereunder, (b)
change the price at which options may be granted, (c) extend the maximum period
during which an option may be exercised, (d) materially increase the benefits
accruing to participants under the Plan, or (e) materially change the
eligibility requirements for options hereunder. Rights and obligations under
any option granted before amendment of the Plan shall not be altered or
impaired by amendment of the Plan, except with the consent of the person to
whom the option was granted.
10. Fair Market Value of Stock. Whenever pursuant to the terms of the
Plan the fair market value of the Company's Common Stock is required to be
determined as of a particular date, such fair market value shall equal the last
sale price of the Common Stock on the principal exchange on which the Common
Stock is then listed, or if the Common Stock is not then listed on any
exchange, on the National Association of Securities Dealers Automated Quotation
National Market System ("NMS"), or, if price quotations for the Common Stock
are not available on NMS, the mean between the closing bid and asked price of
the Common Stock on the National Association of Securities Dealers Automated
Quotation System ("NASDAQ"), or if no bid quotation is available on NASDAQ, the
fair value of such Common Stock as determined by the Board, in each case, on
the business day immediately preceding the date on which the determination is
made.
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<PAGE> 5
11. No Rights as Shareholder. A participant in the Plan shall have no
rights as a shareholder with respect to any shares covered by his option until
the date of the issuance of a stock certificate to him. No adjustment shall be
made for dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distributions or other rights for which the record date is
prior to the date such stock certificate is issued.
12. Indemnification of Committee. In addition to such other rights of
indemnification as they may have as directors or as members of the Committee,
the members of the Committee shall be indemnified by the Company against the
reasonable expenses, including attorneys' fees actually and necessarily
incurred in connection with the defense of any action, suit or proceeding, or
in connection with any appeal therein, to which they or any of them may be a
party by reason of any action taken or failure to act under or in connection
with the Plan or any option granted thereunder, and against all amounts paid by
them in settlement thereof (provided such settlement is approved by independent
legal counsel selected by the Company) or paid by them in satisfaction of a
judgment in any such action, suit or proceeding, except in relation to matters
as to which it shall be adjudged in such action, suit or proceeding that such
Committee member is liable for negligence or misconduct in the performance of
his duties; provided that within 60 days after institution of any such action,
suit or proceeding, the Committee member shall in writing offer the Company the
opportunity, at its own expense, to handle and defend the same.
13. Termination. This Plan shall terminate ten years from the date on
which the Board adopts this Plan or the shareholders of the Company approve the
Plan, whichever is earlier, unless sooner terminated by action of the Board. No
option may be granted hereunder after termination of the Plan, but such
termination shall not affect the validity of any option then outstanding.
14. Effective Date. This Plan shall become effective upon adoption by the
Board of Directors.
15. Miscellaneous.
(a) No option may be issued if exercise of all warrants, options and
rights of the Company outstanding immediately after issuance of such option
would result in the issuance of voting securities in excess of twenty percent
(20%) of the Company's outstanding voting securities.
(b) This plan and all actions taken by those acting for the Plan
shall be governed by the laws of the State of Tennessee without regard to
conflicts of law regulations.
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<PAGE> 1
Exhibit 4.L
SIRROM CAPITAL CORPORATION
AMENDED AND RESTATED
1995 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
1. Purpose
-------
The purposes of this Plan are to advance the interests of the Company and
its shareholders by attracting and retaining the highest quality of experienced
persons as Outside Directors and to align the interests of the Outside Directors
more closely with the interests of the Company's shareholders.
2. Definitions
-----------
For purposes of this Plan, the following terms shall have the meanings
indicated below:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.
(c) "Committee" shall mean those members of the Board that are not eligible
to participate in this Plan.
(d) "Company" shall mean Sirrom Capital Corporation, a corporation
organized under the laws of the State of Tennessee, or any successor
corporation.
(e) "Disability" means permanent and total disability within the meaning of
Section 22(e)(3) of the Code, as determined by the Committee.
(f) "Exercise Date" shall mean the date on which the Company receives the
notice of exercise of an Option from an Optionee as set forth in
Section 7(b).
(g) "Current Market Value" shall mean, as of a given date, (i) the average
of the bid and asked prices for the Stock at closing on The Nasdaq
Stock Market's National Market for the last preceding date on which
there was a sale of the Stock, or (ii) if the Stock is no longer
authorized for quotation on The Nasdaq Stock Market's National Market,
the then
<PAGE> 2
current net asset value of a share of Stock as determined by the
Committee in good faith.
(h) "Option" shall mean an option granted to an Outside Director pursuant
to this Plan.
(i) "Optionee" shall mean an Outside Director who has been granted an
Option pursuant to this Plan.
(j) "Outside Director" shall mean any member of the Board who has not
served as an employee of the Company at any time during the two-year
period preceding the date on which an Option is granted to such
Optionee.
(k) "Plan" shall mean this Amended and Restated Sirrom Capital Corporation
1995 Stock Option Plan for Non-Employee Directors, as adopted by the
Board (subject to the approvals described in Section 10) on December
19, 1997.
(l) "Stock" shall mean the Common Stock, no par value, of the Company.
3. ADMINISTRATION
This Plan shall be administered by the Committee. The Committee is
authorized to interpret this Plan and may from time to time adopt such rules
and regulations, not inconsistent with the provisions of this Plan, as it may
deem advisable to carry out this Plan; provided, however, that the Committee
shall have no discretion with respect to designating the recipient of an
Option, the number of shares of Stock that are subject to an Option or the per
share exercise price for an Option. All decisions made by the Committee in
construing the provisions of this Plan shall be final.
The Company intends that this Plan shall comply with the requirements of
Rule 16b-3 of the Securities Exchange Act of 1934. Should any provision of this
Plan not comply with the requirements of such Rule (as the same may be
amended), the Board may amend this Plan to add to or modify the provisions of
this Plan accordingly.
4. ELIGIBILITY
Each Outside Director shall be eligible to participate in this Plan.
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<PAGE> 3
5. STOCK SUBJECT TO THIS PLAN
Subject to adjustment as provided in Section 9, not more than 246,000
shares of Stock may be issued with respect to the Options granted under this
Plan. Such shares that are reserved for issuance under this Plan are authorized
but unissued shares of Stock. Shares of Stock subject to an Option shall, upon
the expiration or termination of any such Option to the extent unexercised,
again be available for grant under this Plan.
6. GRANT OF OPTIONS
(a) Initial Grants
Except for John A. Morris, Jr., M.D., each director who is an Outside
Director as of April 19, 1996 (the "Initial Effective Date"), shall
automatically, as of the Initial Effective Date, be granted an award of Options
under this Plan as follows: (i) each Outside Director who was elected to the
Company's Board of Directors before December 1, 1994 shall automatically
receive an Option grant for the purchase of 18,000 shares of Stock (subject to
adjustment as provided in Section 9); and (ii) each Outside Director who was
elected to the Company's Board of Directors after December 1, 1994, but prior
to the date of adoption of this Plan by the Board, shall automatically receive
an Option grant for the purchase of 12,000 shares of Stock (subject to
adjustment as provided in Section 9). Each Outside Director elected after the
Initial Effective Date shall automatically receive as of the date of his or her
election to the Board of Directors an Option grant for the purchase of 6,000
shares of Stock (subject to adjustment as provided in Section 9).
(b) Grants Upon Re-election
Except for John A. Morris, Jr., M.D., (i) each Outside Director who
was re-elected to the Company's Board of Directors on April 4, 1997 shall
automatically receive on the Effective Date (as defined in Section 10) an
Option grant for the purchase of 2,000 shares of Stock (subject to adjustment
as provided in Section 9); and (ii) each Outside Director who is re-elected to
the Company's Board of Directors in the future, commencing with the annual
meeting of shareholders of the Company in 1998, shall automatically receive, as
of the date of his or her re-election to the Board of Directors, an Option
grant for the purchase of 2,000 shares of Stock (subject to adjustment, as
provided in Section 9).
(c) Exercise Price
The exercise price of each Option granted under this Plan shall be
the Current Market Value on the date of grant.
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<PAGE> 4
7. TERMS AND CONDITIONS OF OPTIONS
-------------------------------
(a) Term
----
Subject to the provisions hereof, options shall vest on the first
anniversary of the date of grant and shall be exercisable in whole or
part at any time upon fulfillment of the vesting period. In no event
may an Option be exercised after ten years from the date of grant.
In the event of the death or Disability of an Optionee during his
service as a director, all his unexercised Options shall immediately
become exercisable and may be exercised (by his personal
representative in the event of such death) for a period of three
years following the date of such death or one year following the date
of such Disability, but in no event after the respective expiration
dates of such Options. In the event of the termination of an
Optionee's service as a director for cause, any Options held by him
under this Plan not theretofore exercised shall terminate immediately
upon such termination of service as a director and may not be
exercised thereafter, unless otherwise determined by the Committee.
The Committee in its sole discretion may determine that an Optionee's
service as a director was terminated for cause, if it finds that the
Optionee willfully violated any of the Company's policies on ethical
business conduct or engaged in any activity or conduct during his
service as a director which was inimical to the best interests of the
Company. If an Optionee's service as a director is terminated for any
reason other than by his death or Disability or by the Company for
cause, his Options, to the extent then exercisable, may be exercised
within one year immediately following the date of termination, but in
no event after the respective expiration dates of such Options.
(b) Exercise of Options
-------------------
An Option shall be exercised by delivering to the Corporate Secretary
of the Company a written notice of exercise in the form prescribed by
the Corporate Secretary for use from time to time. Such notice of
exercise shall indicate the number of shares for which the Option is
to be exercised and shall be accompanied by the full exercise price
for the portion of the Option to be exercised.
(c) Form of Payment
---------------
The exercise price may be paid in cash (including certified or
cashier's check, bank draft or money order), Stock which is free and
clear of all liens, claims or other encumbrances by third parties, or
a combination of Stock and cash. The Stock so delivered shall be
valued at the Current Market Value as of the
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<PAGE> 5
Exercise Date. No shares of Stock shall be issued or delivered until
full payment therefor has been made.
(d) Non-Transferability
No Option shall be assignable or transferable by the Optionee, except
by will or pursuant to applicable laws of descent and distribution.
During the life of an Optionee, an Option shall be exercisable only by
such Optionee or such Optionee's legal representative.
(e) No Rights as Shareholders
Neither an Optionee nor an Optionee's legal representative shall have
any rights as shareholders of the Stock unless and until certificates
for shares of Stock are registered in his or her name in satisfaction
of a duly exercised Option.
8. WITHHOLDING TAXES
Whenever the Company grants, issues or transfers shares of Stock under
this Plan, the Company shall have the right to require the Optionee to remit to
the Company an amount sufficient to satisfy any federal, state and local
withholding tax requirements prior to the delivery of any certificate for such
shares. The Company shall have the right to retain sufficient shares of Stock
to cover the amount of any tax required by any government to be withheld or
otherwise deducted or paid with respect to the exercise of the Options. The
Stock so retained shall be valued at the Current Market Value as of the date of
such retention.
9. CAPITAL ADJUSTMENTS AND CORPORATE REORGANIZATIONS
In the event of any change in the outstanding shares of Stock by reason of
a stock dividend, split or combination, or recapitalization or
reclassification, or reorganization, merger or consolidation, in which the
Company is the surviving corporation, or other similar change affecting the
Stock, the number of shares then subject to Options and for which Options may
thereafter be granted and the price per share of Stock payable upon exercise or
surrender of such Options shall be appropriately adjusted by the Committee to
reflect such change. No fractional shares shall be issued as a result of such
adjustment. In the event of a dissolution of the Company or a reorganization,
merger or consolidation in which the Company is not the surviving corporation,
the Company by action of its Board shall either (i) terminate outstanding and
unexercised Options as of the effective date of such dissolution, merger or
consolidation by giving notice to each Optionee of its intention to do so and
permitting the exercise, during the period prior to such effective date to be
specified by the Board, of all outstanding and unexercised Options or portions
thereof (provided, however, that no Option shall become exercisable hereunder
either after the expiration date thereof or prior to six (6) months from the
date of grant thereof), or (ii) in the case of such reorganization, merger or
consolidation, arrange for an appropriate substitution of shares or other
securities of the corporation with
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<PAGE> 6
which the Company is reorganized, merged or consolidated in lieu of the shares
which are subject to any outstanding and unexercised Options.
10. EFFECTIVE DATE AND TERM OF THIS PLAN
The Plan shall be effective as of the later of (a) the date of approval of
the amendments reflected in this Plan, which were approved by the Board on
December 19, 1997 (the "Amendments") by the shareholders of the Company, and
(b) the date of the approval of the Amendments by order of the Securities and
Exchange Commission (the "Effective Date"). Subject to Section 11 hereof, the
Board in its discretion may terminate this Plan at any time with respect to any
shares for which Options have not theretofore been granted. Except with respect
to Options then outstanding, if not sooner forfeited or terminated, this Plan
shall terminate upon, and no Options shall be granted after, ten years from the
Effective Date.
11. AMENDMENTS
The Board shall have the right to alter or amend this Plan or any part
thereof from time to time provided that:
(a) no change in any Option theretofore granted may be made which would
impair the rights of an Optionee without the consent of such Optionee;
(b) Plan provisions may not be amended more than once every (6) six months,
other than to comport with changes in the Code, the Employee Retirement
Income Security Act, or the rules thereunder; and
(c) the Board may not make any alteration or amendment which would
materially increase the benefits accruing to participants under this
Plan, increase the aggregate number of shares of Stock which may be
issued pursuant to provisions of this Plan or extend the terms of this
Plan, without the approval of the shareholders of the Company.
6
<PAGE> 1
EXHIBIT 4.M
SIRROM CAPITAL CORPORATION
AMENDED AND RESTATED
1996 INCENTIVE STOCK OPTION PLAN
SECTION 1. PURPOSE; DEFINITIONS.
(a) PURPOSE. The purpose of the Plan is to advance the growth and
prosperity of the Company by providing key employees with an additional
incentive to contribute to the best interests of the Company and its
Subsidiaries, and strengthen the mutuality of interests between such individuals
and the Company's shareholders, by offering such key employees Options with
respect to shares of Common Stock of the Company. The creation of the Plan shall
not diminish or prejudice other compensation programs approved from time to time
by the Board.
Except as otherwise provided herein, Options granted under the Plan are
intended to qualify as Incentive Stock Options under Section 422 of the Code.
(b) DEFINITIONS. For purposes of the Plan, the following terms are defined
as set forth below:
(i) "Board" means the Board of Directors of the Company.
(ii) "Cause" has the meaning provided in Section 5(b)(v) of the Plan.
(iii) "Common Stock" means the Company's Common Stock, without par value.
(iv) "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.
(v) "Commission" means the Securities and Exchange Commission.
(vi) "Committee" has the meaning provided in Section 2 of the Plan.
(vii) "Company" means Sirrom Capital Corporation, a corporation organized
under the laws of the State of Tennessee, or any successor corporation.
(viii) "Current Market Value" means the last sale price of the Common Stock
on the principal exchange on which the Common Stock is then listed, or if the
Common Stock is not then listed on any exchange, on the National Association of
Securities Dealers Automated Quotation National Market System ("NMS"), or, if
price quotations for the Common Stock are not available on NMS, the mean between
the closing bid and asked price of the Common Stock on the National Association
of Securities Dealers Automated Quotation System ("NASDAQ"), or if no bid
quotation is available on NASDAQ, the fair value of such Common Stock as
determined by the Committee, in each case, on the date the determination is
made, or if such day is not a business day, the business day immediately
preceding the date on which the determination is made.
<PAGE> 2
(ix) "Disability" means disability as determined under the Company's
long-term disability insurance policy or, if there is no such definition, as
reasonably determined by the Committee.
(x) "Disinterested Person" has the meaning set forth in Rule
16b-3(c)(2)(i) as promulgated by the Commission under the Exchange Act, or any
successor definition adopted by the Commission.
(xi) "Early Retirement" means retirement, for purposes of this Plan with
the express consent of the Company at or before the time of such retirement,
from active employment with the Company and any Subsidiary prior to age 65, in
accordance with any applicable early retirement policy of the Company then in
effect.
(xii) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
(xiii) "Incentive Stock Option" means any Option granted under the Plan
that qualifies as an "Incentive Stock Option" within the meaning of Section 422
of the Code.
(xiv) "Non-Qualified Stock Option" means any Option that is not an
Incentive Stock Option.
(xv) "Normal Retirement" means retirement from active employment with the
Company and any Subsidiary or Affiliate on or after age 65.
(xvi) "Option" means any option to purchase shares of Common Stock granted
pursuant to Section 5 below.
(xvii) "Plan" means this Sirrom Capital Corporation 1996 Incentive Stock
Option Plan, as amended from time to time in accordance herewith.
(xviii) "Retirement" means Normal Retirement or Early Retirement.
(xix) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
SECTION 2. Administration.
(a) The Committee. The Plan shall be administered by a special Stock
Option Committee (the "Committee") of not less than two Disinterested Persons,
who shall be appointed by the Board and who shall serve at the pleasure of the
Board. The functions of the Committee specified in the Plan may be exercised by
an existing Committee of the Board composed exclusively of Disinterested
Persons.
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<PAGE> 3
(b) Authority of the Committee. The Committee shall have the power,
subject to, and within, the limits of the express provisions of the Plan:
(i) To determine from time to time which of the eligible persons shall
be granted options under the Plan, the term of each Option, and the
number of shares for which each Option shall be granted.
(ii) To determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder (including, but not
limited to, the time or times during the term of each Option within
which all or portions of each Option may be exercised and any
restriction or limitation, or any vesting, acceleration of vesting or
waiver of forfeiture restrictions regarding any Option, based in each
case on such factors as the Committee shall determine, in its sole
discretion) and to amend or waive any such terms and conditions to the
extent permitted by Section 6 hereof.
(iii) To construe and interpret the Plan and Options granted under it,
and to establish, amend and revoke rules and regulations for its
administration. The Committee, in the exercise of this power, shall
generally determine all questions of policy and expediency that may
arise and may correct any defect, omission or inconsistency in the
Plan or in any option agreement in a manner and to the extent it shall
deem necessary or expedient to make the Plan fully effective.
(iv) Generally, to exercise such powers and to perform such acts as
are deemed necessary or expedient to promote the best interests of the
Company.
All decisions made by the Committee pursuant to the provisions of the Plan
shall be made in the Committee's sole discretion and shall be final and binding
on all persons, including the Company and Plan participants. No members of the
Committee or the Board shall be liable for any action or determination made in
good faith with respect to the Plan or any Option granted under it.
SECTION 3. Shares of Common Stock Subject to Plan.
(a) Shares of Common Stock Reserved Upon Plan. The aggregate number of
shares of Common Stock reserved and available for distribution under the Plan
shall be 5,707,098 shares. Such shares of Common Stock may consist, in whole or
in part, of authorized and unissued shares or treasury shares.
If any Option expires or is forfeited without exercise, the shares of
Common Stock subject to such Option immediately prior to its expiration or
forfeiture shall again be available for distribution in connection with future
awards under the Plan.
(b) Adjustment Upon Changes in Stock. The number of shares of Common Stock
available for the granting of Options under the Plan and the number of shares
and price per share of Common Stock subject to outstanding Options granted
pursuant to the Plan may be adjusted by the Committee in an equitable manner to
reflect changes in the capitalization of the Company, including,
3
<PAGE> 4
but not limited to, such changes as result from merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange
of shares and change in corporate structure. If any adjustment under this
Section 3(b) would create a fractional share of Common Stock or a right to
acquire a fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares available under the Plan and the number
covered under any options granted pursuant to the Plan shall be the next lower
number of shares, rounding all fractions downward. In the event of any dispute
as to any substitution or adjustment made under this Section 3(b), the decision
of the Committee shall be final and binding on all persons, including the
Company and Plan participants.
(c) ACCELERATION ON THE OCCURRENCE OF CERTAIN EVENTS. The Committee may
provide in the terms of an Option that, in the event of: (1) a dissolution or
liquidation of the Company; (2) a sale of all or substantially all of the
assets of the Company; (3) a merger or share exchange in which the Company is
not the surviving corporation; (4) other capital reorganization in which more
than fifty percent (50%) of the shares of the Company entitled to vote are
exchanged; or (5) such other corporate reorganization as may be described by
the Committee, any outstanding Options thereunder immediately shall be fully
exercisable by an optionee.
SECTION 4. ELIGIBILITY.
Officers and other key employees of the Company and its Subsidiaries (but
excluding members of the Committee and any person who serves only as a director
or who is an officer but not an employee of either the Company or one of its
Subsidiaries) who are responsible for or contribute to the management, growth
or profitability of the business of the Company and its Subsidiaries are
eligible to be granted Options under the Plan.
SECTION 5. OPTIONS.
(a) ADMINISTRATION. Any Option granted under the Plan shall be in such
form as the Committee may from time to time approve and, except as otherwise
provided in Section 5(b)(xi) below, shall clearly indicate that such Option is
intended to qualify as an Incentive Stock Option under Section 422 of the Code.
(b) TERMS AND CONDITIONS. Options granted under the Plan shall be
subject to the following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of the Plan, as the
Committee shall deem desirable. The provisions of Options need not be the same
with respect to each recipient or each award.
(i) Option Price. The option price per share of Common Stock
purchasable under an Option shall be determined by the Committee at
the time of grant but shall be not less than 100% (or, in the case of
any employee who owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or of any of its
subsidiary or parent corporations, not less than 110%) of the Current
Market Value of the Common Stock at grant. The day on which the Committee
approves the granting of an Option to a particular individual shall be
considered the date on which such Option is granted, except that if an
Option is granted to a prospective employee conditioned on his or
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<PAGE> 5
her acceptance of an offer of employment, the date the employment relationships
commences shall be deemed to be the date of grant.
(ii) Option Term. The term of each Option shall be fixed by the Committee,
but no Option shall be exercisable more than ten years (or, in the case of an
employee who owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any of its subsidiary or parent
corporations, more than five years) after the date the Option is granted.
(iii) Exercisability. Options shall be exercisable at such time or times
and subject to such terms and conditions as shall be determined by the
Committee at or after grant. The Committee may provide that an Option shall
vest over a period of future service at a rate specified at the time of grant,
or that the Option is exercisable only in installments. If the Committee
provides, in its sole discretion, that any Option is exercisable only in
installments, the Committee may waive such installment exercise provisions at
any time at or after grant in whole or in part, based on such factors as the
Committee shall determine, in its sole discretion. The Committee may condition
the exercise of any Option upon the attainment of specified performance goals
or other factors as the Committee may determine, in its sole discretion. Unless
specifically provided in the Option agreement, any such conditional Option
shall vest immediately prior to its expiration if the conditions to exercise
have not therefore been satisfied.
(iv) Method of Exercise. Subject to whatever installment or other
exercise restrictions apply under Section 5(b)(iii) hereof, Options may be
exercised in whole or in part at any time during the option period, by giving
written notice of exercise to the Company specifying the number of shares to be
purchased.
(v) Payment for Stock. Payment for shares subject to Options granted
under the Plan shall be made by the optionee in the form of cash or by means of
unrestricted shares of Common Stock already owned by the optionee or any
combination of cash and any such unrestricted shares of Common Stock. Payment
shall be made upon the exercise of the Option. Payment in currency or by check,
bank draft, cashier's check or postal money order shall be considered payment
in cash. In the event of payment in Common Stock, the shares used in payment of
the purchase price shall be considered payment to the extent of their fair
market value on the date of exercise of the Option. Upon the exercise of any
Option, the Company may, at the request of the optionee and subject to the
approval of the Company's Board of Directors, lend to such optionee, as of the
date of exercise, an amount equal to the exercise price of such Option,
provided that such loan (a) has a term of not more than ten years, (b) becomes
due within sixty days after the recipient of the loan ceases to be an employee
of the Company, (c) bears interest at a rate not less than the prevailing
applicable federal rate at the time the loan is made, and (d) is fully
collateralized at all times, which collateral may include securities issued by
the Company. Loan terms and conditions may be changed by the Company's Board of
Directors to comply with applicable regulations of the Internal Revenue Service
and the Commission.
(vi) Non-Transferability of Options. No Option shall be transferable by
the optionee otherwise than by will or by laws of descent and distribution, and
all Options
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<PAGE> 6
shall be exercisable, during the optionee's lifetime, only by the optionee.
Notwithstanding the foregoing, the Committee shall have the authority to permit
transfer of options to family members or trusts established for the benefit of
family members in accordance with federal income tax laws.
(vii) Termination by Death. If an optionee's employment by the Company
terminates by reason of death, any Option held by such optionee may thereafter
be exercised, to the extent it was exercisable at the time of death (or to any
greater extent determined by the Committee in its sole and absolute discretion),
by the legal representative of the estate or by the legatee of the optionee
under the will of the optionee, for a period of one year (or such shorter period
as the Committee may specify at grant) from the date of such death or until the
expiration of the stated term of such Option, whichever period is the shorter.
(viii) Termination by Reason of Disability. If an optionee's employment by
the Company and any Subsidiary terminates by reason of Disability, any Option
held by such optionee may thereafter be exercised by the optionee, to the extent
it was exercisable at the time of termination (or to any greater extent
determined by the Committee in its sole and absolute discretion), for a period
of one year from the date of termination of employment or until the expiration
of the stated term of such Option, whichever period is the shorter.
(ix) Termination by Reason of Retirement. Subject to Section 5(b)(xi)(C)
hereof, if an optionee's employment by the Company terminates by reason of
Normal or Early Retirement, any Option held by such optionee may thereafter be
exercised by the optionee, to the extent it was exercisable at the time of such
Retirement (or to any greater extent determined by the Committee in its sole and
absolute discretion), for a period of three months from the date of such
termination of employment or the expiration of the stated term of such Option,
whichever period is the shorter.
(x) Other Termination. Subject to Section 5(b)(xi)(C) hereof, if an
optionee's employment by the Company is involuntarily terminated for any reason
other than death, Disability or Normal or Early Retirement, the Option shall
thereupon terminate, except that such Option may be exercised, to the extent
otherwise than exercisable (or to any greater extent determined by the Committee
in its sole and absolute discretion), for the lesser of three months or the
balance of such Option's term if the involuntary termination is without Cause.
For purposes of this Plan, "Cause" means (A) a felony conviction of a
participant or the failure of a participant to contest prosecution for a felony,
or (B) a participant's willful misconduct or dishonesty, which is directly and
materially harmful to the business or reputation of the Company or any
Subsidiary. If an optionee voluntarily terminates employment with the Company
(except for Disability, or Normal or Early Retirement), the Option shall
thereupon terminate; provided, however, that the Committee at grant may extend
the exercise period in this situation for the lesser of three months or the
balance of such Option's term.
(xi) Qualification as Incentive Stock Options. Anything in the Plan to
the contrary notwithstanding, no term of this Plan relating to Options shall be
interpreted, amended or altered, nor shall any discretion or authority granted
under the Plan be so exercised, so as to
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<PAGE> 7
disqualify the Plan under Section 422 of the Code, or, without the consent of
the optionee(s) affected, to disqualify any Option under such Section 422.
No Option shall be granted to any participant under the Plan if such grant
would cause the aggregate Current Market Value (as of the date the Option is
granted) of the shares of Common Stock with respect to which all Options that
are exercisable for the first time by such optionee during any calendar year
(under all such plans of the Company and any Subsidiary) to exceed $100,000;
provided, however, that the Committee may grant such an Option if the optionee
so consents and acknowledges that such Option will not qualify as an Incentive
Stock Option under Section 422 of the Code.
To the extent permitted under Section 422 of the Code or the applicable
regulations thereunder or any applicable Internal Revenue Service pronouncement:
(A) if the exercise of an Option is accelerated pursuant to
Section 3(c) hereof, any portion of such Option that is not
exercisable as an Incentive Stock Option under Section 422 of the Code
by reason of the $100,000 limitation contained in Section 422(d) of
the Code shall be treated as a Non-Qualified Stock Option;
(B) if for any other reason the portion of any Option that is
otherwise exercisable without regard to the $100,000 limitation
contained in Section 422(d) of the Code, is greater than the portion
of such Option that is immediately exercisable as an Incentive Stock
Option under Section 422 of the Code, such excess shall be treated as
a Non-Qualified Stock Option;
(C) if an Option cannot be exercised following termination of
employment (other than for Cause) as a result of the provisions of
Section 5(b)(ix) or Section 5(b)(x) hereof, the Committee in its sole
and absolute discretion shall have the right to extend the
exercisability of the Option for a period of up to one year following
termination of employment, and the Option shall thereupon be treated
as a Non-Qualified Stock Option to the extent required under Section
422 of the Code; and
(D) the Committee shall have the right, with the consent of the
optionee, to treat an Option that cannot be exercised, for any other
reason, as an "incentive stock option" under Section 422 of the Code
as a Non-Qualified Stock Option.
(xii) Employment by a Subsidiary. For purposes of this Section 5,
employment by a Subsidiary shall be deemed to be employment by the Company
and transfers of employment status between the Company and any Subsidiary,
or between two Subsidiaries, shall not be deemed to be a termination of
employment.
(c) NO PREJUDICE TO OTHER RIGHTS. The exercise of an option granted under
the Plan shall not affect the optionee's right or ability to exercise any other
option granted under the Plan or any other stock option plan of the Company or
its Subsidiaries.
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<PAGE> 8
(d) LIMITATIONS ON DISPOSITION. To obtain tax benefits associated with
Incentive Stock Options, the optionee must make no disposition of shares
acquired pursuant to the exercise of an Incentive Stock Option within two years
from the granting of such Incentive Stock Option or within one year from the
date of the exercise of such Incentive Stock Option.
(e) HOLDING PERIOD. An optionee who is subject to Section 16(a) of the
Exchange Act must make no disposition of any shares acquired pursuant to the
exercise of the Option for a period of six months after the date of grant of
such option. The shares of Common Stock acquired pursuant to any Option that is
exercisable only upon the occurrence of certain conditions (other than the
passage of time or continued employment) shall not be transferable for a period
of six months after the date the Option first became exercisable.
SECTION 6. AMENDMENTS.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made which would impair the rights of
an optionee under an Option, theretofore granted, without the optionee's
consent except as provided in Section 3(b) of the Plan. In addition, no
amendment or alteration shall be made without the approval of the Company's
shareholders, if such amendment or alteration would:
(a) except as provided in Section 3(b) of the Plan, increase the total
number of shares of Common Stock reserved for the purpose of the Plan;
(b) change the exercise price at which Options may be granted;
(c) extend the maximum period during which an Option may be exercised;
(d) materially increase the benefits accruing to participants under the
Plan; or
(e) materially modify the requirements as to eligibility for participation
in the Plan.
The Committee may amend the terms of any Option or other award theretofore
granted, prospectively or retroactively, but, subject to Section 3(b) above, no
such amendment shall impair the rights of any holder without the holder's
consent. The Committee may also substitute new Options for previously granted
Options (on a one for one or other basis), including previously granted Options
having higher Option exercise prices.
Subject to the above provisions, the Board shall have broad authority to
amend the Plan to take into account changes in applicable securities and tax
laws and accounting rules, as well as other developments.
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<PAGE> 9
SECTION 7. GENERAL PROVISIONS.
(a) SECURITIES LAW RESTRICTIONS. The Committee may require each
person purchasing shares of Common Stock pursuant to an Option under the Plan
to represent to and agree with the Company in writing that the optionee or is
acquiring the shares without a view to distribution thereof. The certificates
for such shares may include any legend which the Committee deems appropriate to
reflect any restrictions on transfer.
All certificates for shares of Common Stock or other securities
delivered under the Plan shall be subject to such stock-transfer orders and
other restrictions as the Committee may deem advisable under the rules,
regulations, and other requirements of the Commission, any stock exchange upon
which the Common Stock is then listed, and any applicable Federal or state
securities law, and the Committee may cause a legend or legends to be put on
any such certificates to make appropriate reference to such restrictions.
(b) NO RIGHT TO CONTINUED EMPLOYMENT. The adoption of the Plan shall
not confer upon any employee of the Company or any Subsidiary any right to
continued employment with the Company or a Subsidiary, as the case may be, nor
shall it interfere in any way with the right of the Company or a Subsidiary to
terminate the employment of any of its employees at any time.
(c) WITHHOLDING. No later than the date as of which an amount first
becomes includible in the gross income of the participant for Federal income
tax purposes with respect to any Option under the Plan, the participant shall
pay to the Company, or make arrangements satisfactory to the Committee
regarding the payment of, any Federal, state, or local taxes of any kind
required by law to be withheld with respect to such amount. The obligations of
the Company under the Plan shall be conditional on such payment or arrangements
and the Company and its Subsidiaries shall, to the extent permitted by law,
have the right to deduct any such taxes from any payment of any kind otherwise
due to the participant.
(d) GOVERNING LAW. The Plan and all awards made and actions taken
thereunder shall be governed by and construed in accordance with the laws of
the State of Tennessee, without regard to the principles of conflicts of law
thereof.
(e) LIABILITY AND INDEMNIFICATION OF BOARD AND COMMITTEE MEMBERS. The
members of the Committee and the Board shall not be liable to any employee or
other person with respect to any determination made hereunder in a manner that
is not inconsistent with their legal obligations as members of the Board. In
addition to such other rights of indemnification as they may have as directors
or as members of the Committee, the members of the Committee shall be
indemnified by the Company against the reasonable expenses, including
attorney's fees actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any Option
granted thereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such Committee member is
liable for negligence or misconduct in the
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<PAGE> 10
performance of his duties; provided that within 60 days after institution of
any such action, suit or proceeding, the Committee member shall in writing
offer the Company the opportunity, at its own expense, to handle and defend the
same.
(f) NO RIGHTS AS SHAREHOLDER. A participant in the Plan shall have no
rights as a shareholder with respect to any shares covered by an Option until
the date of the issuance of a stock certificate to such participant. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights for which
the record date is prior to the date such stock certificate is issued, except
as otherwise provided in Section 3(b) hereof.
(g) TWENTY PERCENT LIMITATION. No Option may be issued if exercise of all
warrants, options and rights of the Company outstanding immediately after
issuance of such option would result in the issuance of voting securities in
excess of twenty percent (20%) of the Company's outstanding voting securities.
(h) INVESTMENT COMPANY ACT LIMITATION. No Option granted hereunder shall
violate the provisions of the Investment Company Act of 1940, as amended.
Section 9. Termination
This Plan shall terminate ten years from the date on which the Board
adopts this Plan or the shareholders of the Company approve the Plan, whichever
is earlier, unless sooner terminated by action of the Board. No Option may be
granted hereunder after termination of the Plan, but such termination shall not
affect the validity of any Option then outstanding.
Section 10. Shareholder Approval
This Plan shall become effective upon (a) adoption by the Board of
Directors, and (b) approval of the Plan by the shareholders of the Company.
Approval by the shareholders must occur during the period beginning 12 months
before and ending 12 months after the date of this Plan is adopted by the Board.
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<PAGE> 1
Director Resolutions dated Feb. 11, 1999 regarding adoption of Sirrom Capital
Corporation Stock Option Plans.
EXHIBIT 4.N
WHEREAS, the merger agreement among this Corporation, Sirrom Capital
Corporation and FINOVA Newco Inc. dated January 6, 1999 (the "Merger
Agreement") requires this Corporation to reissue stock options to Sirrom's
employees on the same terms as exist immediately before the closing of that
merger, adjusted for the exchange ratio; and
WHEREAS, to issue those options as noted above, FINOVA will adopt Sirrom's
three existing stock option plans, together with those changes to those Plans
noted below.
NOW, THEREFORE, BE IT RESOLVED that upon consummation of the merger
contemplated by the Merger Agreement (the "Merger"), this Corporation adopts
the following stock option plans, which will be renamed with the name appearing
next to the name of the original plan:
Original Plan: New Name:
- ------------- --------
Sirrom Capital Corporation Amended and The FINOVA Group Inc./Sirrom
Restated 1994 Stock Option Plan 1994 Stock Option Plan
Sirrom Capital Corporation Amended and The FINOVA Group Inc./Sirrom 1995
Restated Stock Option Plan for Non- Directors' Stock Option Plan
Employee Directors
Sirrom Capital Corporation Amended and The FINOVA Group Inc./Sirrom
Restated 1996 Incentive Stock Option 1996 Stock Option Plan
Plan
RESOLVED FURTHER, that from and after the effective date of the Merger,
each of those plans is amended as follows:
1. The term "Board" means this Board.
2. The term "Committee" means the Human Resources Committee of The FINOVA
Group Inc. Board of Directors or any other committee designated by
this Board to administer that plan.
3. The term "Company" means the FINOVA Group Inc.
4. The term "Current Market Value" or comparable terms will be determined
with reference to the price of this Corporation's stock as quoted on
the New York Stock Exchange, rather than NASDAQ, so long as the stock
is quoted on the NYSE.
<PAGE> 2
5. The term "Stock" or "shares" means the common stock of The FINOVA Group
Inc., as it may be adjusted from time to time.
6. The plans shall be governed by the laws of the State of Delaware,
without regard to that state's conflict of laws principles.
7. Any restrictions in those plans requiring compliance with the
Investment Company Act of 1940 will cease to the extent those
restrictions no longer govern the activities of this Corporation.
FURTHER RESOLVED, that the officers of this Corporation and any one or more
of them are authorized to make such further changes, additions and deletions to
the plans as they deem necessary or appropriate to further carry out the
implementation of the plans by this Corporation.
FURTHER RESOLVED, that those officers are authorized to undertake all
actions necessary to adopt and perform their and this Corporation's obligations
under those plans and the Merger Agreement, including without limitation
obtaining any required or appropriate governmental or shareowner approvals or
consents, making any filings, registrations, listings, or other declarations
which they deem necessary or appropriate, and executing, delivering and
performing any agreements, grants, instruments, payments and other documents in
connection with those plans.
<PAGE> 1
Exhibit 10D
THE FINOVA GROUP INC.
1999 MANAGEMENT INCENTIVE PLAN
I. PURPOSE:
The purpose of the Management Incentive Plan ("MIP") is to give key management
employees an incentive to fully contribute to annual improvement of our
historical operating results through effective leadership and action. By
operating as efficiently and effectively as possible, The FINOVA Group Inc. and
its subsidiaries (the "Company") can continue to position itself as the
"low-cost producer" among its peers, a valuable competitive advantage.
II. PARTICIPANTS:
The Human Resources Committee of The FINOVA Group Inc. ("the Committee") is
provided a list of Executive Officer participants (Securities Exchange Act of
1934 Section 16(b) insiders) at its first meeting of the year (other
participants may be designated by the Chairman and Chief Executive Officer). The
list includes the proposed current year target MIP percentage, target MIP award
and estimated earnings for each participant. New hires, promotions, and
acquisitions will increase this estimate. Terminations, demotions, deaths,
retirements, disabilities, and divestitures will decrease this estimate. Some of
these events may result in pro-rata awards at the same time regular awards are
made at the beginning of the following year.
The target percentage for each participant is established at the beginning of
each year. Target percentages are based on responsibilities and do not generally
change from year to year except for promotions and adjustments resulting from
market survey data.
Each participant shall prepare a list of individual objectives at the beginning
of the plan year. The objectives cover financial, task, leadership, development
and innovation goals. Each objective is weighted based on relative importance.
III. FINANCIAL OBJECTIVES:
Critical financial objectives are determined by appropriate senior managers of
the Company. These financial objectives are then weighted.
For 1999 these objective and percentage weightings are:
<TABLE>
<CAPTION>
PERFORMANCE MEASURE FINOVA FINOVA
------------------- ------ ------
GROUP CAPITAL
----- -------
<S> <C> <C>
Earnings Per Share from Cont. Ops.. 30%
Relative Shareholder 10%
Performance
Net income from Cont. Ops. 30% 40%
Return on Average Equity 30% 40%
Average Managed Assets 20%
</TABLE>
The target, minimum and maximum performance level for each measurement are
presented to the Committee at its first meeting of the year. Minimum performance
results in 50% achievement, target performance results in 100% achievement and
maximum performance results in 187% achievement with consideration given for
over achievement of any measure. However, maximum pool may not exceed 187% of
target pool. Performance less than minimum results in zero achievement. Other
results are interpolated.
Extraordinary and unusual events will generally be excluded from results.
Accruals under this Plan are added back for earnings calculations.
<PAGE> 2
IV. RELATIVE SHAREHOLDER PERFORMANCE:
This measure is a comparison of the Company's total shareholder return ("TSR")
as compared to the market TSR. TSR is the dividend yield added to the share
price appreciation (depreciation). The market TSR is the lesser of the TSR for
the S&P 500 or the S&P Financial Index. The measurement is based on the average
of the daily high and low share price for December of the previous year and
December of the plan year. The minimum performance level, which results in 50%
achievement, is for the Company's TSR to equal the market TSR. The target
performance level, 100% achievement, is for the Company's TSR to exceed the
market TSR by 2%. The maximum performance level, 187% achievement, is for the
Company's TSR to exceed the market TSR by 5% (e.g. the Company's TSR = 20%;
Market TSR = 15%).
V. MIP POOLS AND AWARDS:
The target MIP Pool for the Company is the sum of each participant's target
award (earnings multiplied by target percentage). The MIP pool available for the
Company is the target MIP pool multiplied by the achievement level of all
financial objectives (0% or 50%-187%).
At the end of the plan year, each MIP participant will be reviewed to assess
their level of completion of their individual objectives. The individual
objectives performance, the individual target percentage and the financial
objective achievement are all considered when determining recommended awards.
Individual awards may not exceed 200% of their target award. The sum of all
individual awards may not exceed the MIP pool available.
An alternate MIP pool is available to The FINOVA Group Inc. participants. The
pool is 25% of subsidiary pools achieved.
VI. SPECIAL ACHIEVEMENT AWARDS AND POOLS:
Exempt Employees. Special Achievement awards are available for exempt employees
who do not have job responsibilities which allow them to be an MIP participant.
The amount of each award is based on the individual's accomplishments of their
objectives detailed at the beginning of the year and the achievement level of
the financial objectives. The awards may be up to 15% of base earnings during
the plan year for exempt employees.
Non-Exempt Employees. Special Achievement Awards are available for non-exempt
employees at the sole discretion of the Company. The amount of each award may be
up to 10% of plan year base earnings (excluding overtime pay). Although
non-exempt employee awards are generally based upon accomplishment of certain
objectives, the award is determined at the sole discretion of the Company.
Unused MIP awards are available for Special Achievement awards. However, unused
Special Achievement awards are not available for MIP awards.
VII. APPROVAL AND DISTRIBUTION:
The Committee is responsible for approving any partial or full awards to
Executive Officers (Section 16(b) insiders). The Chief Executive Officer of The
FINOVA Group Inc. is responsible for approving all other partial or full awards.
The exercise of discretion in the evaluation of executive performance and the
establishment of individual awards shall be guided by this MIP, but shall not be
fettered by the provisions hereof. For example, the Committee may consider
matters such as extensive changes in the environment, significant increases in
stockholder value while earnings are below target, and significant excess
accruals from prior years.
VIII. COMPENSATION ADVISORY COMMITTEE:
<PAGE> 3
The Compensation Advisory Committee is appointed by the Chief Executive Officer
of The FINOVA Group Inc. to assist in the implementation and administration of
this MIP. The Compensation Advisory Committee shall propose administrative
guidelines to govern interpretations of this MIP and to resolve ambiguities, if
any, but will not have the power to terminate, alter, amend, or modify this MIP
or any actions hereunder in any way at any time.
IX. SPECIAL COMPENSATION STATUS:
All bonuses paid under this MIP shall be deemed to be special compensation and,
therefore, unless otherwise provided for in another plan or agreement, will not
be included in determining the earnings of the recipients for the purposes of
any pension, group insurance or other plan or agreement of the Company.
X. PLAN TERMINATION:
This MIP shall continue in effect until such time as it is canceled or otherwise
terminated by action of the Committee. While it is contemplated that incentive
awards for the MIP will be made, the Committee may terminate, amend, alter, or
modify this MIP at any time and from time to time. The Committee shall also have
the right to alter by addition or deletion, the participants in this MIP and
their target awards. Participation in this MIP shall create no right to
participate in any future year's plan.
XI. EMPLOYEE RIGHTS:
No participant in this MIP shall be deemed to have a right to any part or share
of this MIP. This MIP does not create for any employee or participant any right
to be retained in service by any company, nor affect the right of any such
company to discharge any employee or participant from employment.
<PAGE> 1
EXHIBIT 10.E.4
THE FINOVA GROUP INC.
1999-2001 PERFORMANCE SHARE INCENTIVE PLAN
1. PURPOSE
The purpose of this Plan is to promote the long term interests of the Company
and its shareholders by providing (i) a means for attracting and retaining, and
(ii) a system of cash reward for the accomplishment of long term predefined
objectives by designated key officers of the Company and its Affiliates.
2. DEFINITIONS:
The following definitions are applicable to the Plan:
"Affiliate" - Any "Parent Corporation" or "Subsidiary Corporation" of
the Company as such terms are defined in Section 425 (e) and (f), or
the successor provisions, if any, respectively, of the Code (as
defined herein).
"Award" - The grant by the Board of a Performance Share or Shares as
provided in the plan.
"Board" - The Board of Directors of The FINOVA Group Inc. or a duly
authorized Committee of such Board.
"Code" - The Internal Revenue Code of 1986, as amended, or its
successor general income tax law of the United States.
"Company" - The FINOVA Group Inc.
"Company Achievement Percentage" - The actual performance of the
Financial Measures during the relevant period weighted proportionately
as determined by the Plan.
"Financial Measures" - The performance measures established by the
Board for the Plan objectives, such as return on equity, net income or
level of nonperforming assets, for example.
"Participant" - Any officer of the Company or any of its Affiliates
who is selected by the Board to receive an award.
"Performance Period" - The period of time selected by the Board for
the purpose of determining performance goals and measuring the degree
of accomplishment.
"Performance Share Award" - An Award.
"Plan" - The Performance Share Incentive Plan of the Company.
"Share" - A Performance Share shall serve as the basis for any Award
under the Plan.
"Target Company Achievement Percentage" - Company Achievement
Percentage assuming that target performance of the Financial Measures
was achieved.
3. ADMINISTRATION
The Plan shall be administered by the Board. Except as limited by the express
provisions of the Plan, the Board shall have sole and complete authority and
discretion to (i) select Participants and grant Awards; (ii) determine the
number of Shares to be subject to Awards generally, as well as to individual
Awards
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<PAGE> 2
granted under the Plan; (iii) determine the terms and conditions upon which
Awards shall be granted under the Plan; (iv) prescribe the form and terms of
instruments evidencing such grants; and (v) establish from time to time
regulations for the administration of the Plan, interpret the Plan, and make all
determinations deemed necessary or advisable for the administration of the Plan.
4. PARTICIPATION:
The Board may select from time to time Participants for the Plan. Participants
shall be key executives of the Company or its Affiliates who, in the opinion of
the Board, contribute in a substantial measure to the successful performance of
the Company or its Affiliates. The Company shall have the authority to add new
participants on a prorata basis if hired during the first year of a performance
period. In all cases, the Human Resources Committee must approve participants
with target levels greater than 30% or Securities Exchange Act of 1934 Section
16(b) individuals.
5. PERFORMANCE SHARE AWARDS:
The Chairman and Chief Executive Officer of the Company annually during the life
of the Plan will determine and recommend to the Board in writing (i) the Company
and which among its Affiliates are to participate in the Plan for that year,
(ii) the names of those key executives who should participate in the Plan for
that year, (iii) the performance measurement factors to be used in the
determination of degree of accomplishment for purposes of the Plan for that
year, and (iv) the Performance Period to be used as a basis for the measurement
of performance for Awards under the Plan for that year.
6. GENERAL TERMS AND CONDITIONS:
The Board shall have full and complete authority and discretion, except as
expressly limited by the Plan, to grant Shares and to provide the terms and
conditions (which need not be identical among Participants) thereof. No
participant or any person claiming under or through such person shall have any
right or interest, whether vested or otherwise, in the Plan or in any Award
thereunder, contingent or otherwise, unless and until all the terms, conditions,
and provisions of the Plan and its approved administrative requirements that
affect such Participant or such other person shall have been complied with.
Nothing contained in the Plan or its administrative guidelines shall (i) require
the Company to segregate cash or other property on behalf of any Participant or
(ii) affect the rights and power of the Company or its Affiliates to dismiss
and/or discharge any officer or employee at any time.
7. CALCULATION AND PAYMENT OF AWARDS:
(a) Performance Share Awards which may be payable under this Plan shall
be calculated as determined by the Board but any resulting Performance Share
Award Payable shall be subject to the following calculation: each Share payable
shall be multiplied by the average of the daily means of the market prices of
the Company's Common Stock during the last month of the Performance Period.
Performance Share Awards earned will be determined within sixty (60) days
following the close of the Performance Period and distribution of the Award will
be made within ninety (90) days following the close of the Performance Period.
(b) Performance Share Awards granted under this Plan shall be payable
during the lifetime of the Participant to whom such Award was granted and only
to such Participant; and, except as provided in (d) and (e) of this Section 7,
no such Award will be payable unless at the time of payment such Participant is
an employee of and has continuously since the grant thereof been an employee of,
the Company or an Affiliate. Neither absence on leave, if approved by the
Company, nor any transfer of employment between Affiliates or between Affiliate
and the Company shall be considered an interruption or termination of employment
for purposes of this Plan.
(c) Beginning Period Target Share Units (Target Share Units) shall be
calculated for each participant at the beginning of the Performance Period by
dividing 1) the product of participant Target Percents of Salary and Base
Salaries in effect on the December 31 immediately preceding the beginning
2
<PAGE> 3
of the Performance Period by 2) the average of the daily means of share prices
of FINOVA Common Stock for the December preceding the Performance Period.
(d) Subject to Section 11, Target Share Units represent the middle of a
Discretionary Range of Beginning Period Share Units bounded by Low End Share
Units and High End Share Units. The calculation for Low End Share Units shall be
the same as for Target Share Units (paragraph 7c, above) except the Target
Percents of Salary are reduced by 5 percentage points (e.g., from 25% to 20%).
The calculation for High End Share Units shall be the same as for Target Share
Units (paragraph 7c, above) except the Target Percents of Salary are increased
by 5 percentage points (e.g., from 25% to 30%).
(e) At the end of the Performance Period, company performance is
determined relative to the preestablished minimums, targets and maximums of the
Financial Measures. Minimum performance or less results in no awards. Target
performance results in 100% (target) awards. Maximum performance results in 200%
awards. Performance levels between Minimum and Maximum are interpolated. These
percentages are referred to as Company Achievement Percentages.
(f) Target Final Awards are calculated by multiplying all three of the
following: 1) Beginning Period Target Share Units, 2) Company Achievement
Percentage and 3) the average of the daily means of share prices of FINOVA
Common Stock for the last December in the Performance Period. As with Target
Share Units (paragraph 7.d, above), Subject to Section 11, Target Final Awards
represent the middle of a Discretionary Range of Awards. The calculation for the
Low End of the Discretionary Range of Awards is the same as the calculation for
Target Final Awards except Beginning Period Low End Share Units should be
substituted for Beginning Period Target Share Units. Similarly, The calculation
for the High End of the Discretionary Range of Awards is the same as the
calculation for Target Final Awards except Beginning Period High End Share Units
should be substituted for Beginning Period Target Share Units.
(g) Subject to Section 11, notwithstanding the existence of a Low End
of a Discretionary Range, the Committee has the authority to grant awards of
less than the Low End of the Discretionary Range or no awards at all if
individual performance so warrants.
(h) At the beginning of (and for each year in) the Performance Period,
Financial Measures, minimums, targets and maximums will be determined for each
business group and line of business. If FINOVA Capital Corporation achieves at
least its minimum objectives for the Performance Period, 25% of each award for
leaders of business groups and lines of business shall be based upon the FINOVA
Capital Corporation achievement level and 75% will be based on the level of
achievement of the participant's business group or line of business.
(i) Ninety (90) days before the expiration of the Performance Period,
all participants will be provided an irrevocable option to defer all or a
portion of any earned Performance Share Award, if there be one, but not less
than $1,000, in written form as prescribed by the Board under the provisions of
a deferred compensation plan for executives of the Company and its Affiliates,
if one be adopted.
(j) Subject to the provisions of Section 11, if a Participant to whom a
Performance Share Award was granted shall cease to be employed by the Company or
its Affiliate for any reason (other than death, disability, or retirement) prior
to the completion of any applicable Performance Period, said Performance Share
Award will be withdrawn and subsequent payment in any form or at any time will
not be made.
(k) If a Participant to whom a Performance Share Award was granted
shall cease to be employed by the Company or its Affiliate due to early, normal,
or deferred retirement (other than within twenty-four months of or as a result
of a Change in Control, which event shall be governed by Section 11), or in the
event of the death or disability of the Participant during the Performance
Period stipulated in the Performance Share Award, such Award shall be prorated
for the period of time from date of grant to date of retirement, disability or
death, as applicable, and become payable within ninety (90) days to the
Participant or the person to whom interest therein is transferred by will or by
the laws of descent and distribution.
3
<PAGE> 4
(l) There shall be deducted from all payment of Awards any taxes
required to be withheld by any Federal, State, or local government and paid over
to any such government in respect to any such payment.
8. ASSIGNMENTS AND TRANSFERS:
No Award to any Participant under the provisions of the Plan may be assigned,
transferred, or otherwise encumbered except, in the event of death of a
Participant, by will or the laws of descent and distribution. Participants may
complete a beneficiary designation form in accordance with then-current Company
policies.
9. AMENDMENT OR TERMINATION:
The Board may amend, suspend, or terminate the Plan or any portion thereof at
any time provided, however, that no such amendment, suspension, or termination
shall invalidate the Awards already made to any Participant pursuant to the
Plan, without his or her consent.
10. EFFECTIVE DATE AND TERM OF PLAN:
The Plan shall be effective the first of the year indicated on the first page
hereof. No Awards shall be made under the Plan after December 31 of the tenth
year following its adoption.
11. CHANGE OF CONTROL:
(a) Impact of Event. Notwithstanding any other provision of this Plan to the
contrary, after or as a result of a Change in Control and one of the following
events occurs:
(i) the Participant is terminated (except for Cause) during
the life of the Plan;
(ii) participant's employment is terminated for Good Reason
within twenty-four months after or as a result of a Change
in Control; or
(iii) the Plan is terminated or amended so that it is less
favorable to the Participant.
Participant shall be paid by the Company, within 60 days of the termination or
amendment, whichever occurs sooner, a pro rata portion of the sums to be paid
under this Plan (from the beginning of any unpaid Performance Periods to the end
of the last full calendar month on or before the termination or amendment date,
as the case may be), the greater of:
(x) Participant's Target Final Award based on achievement of
Target Company Achievement Percentage, or
(y) Participant's Target Final Award based on actual Company
Achievement Percentage annualized using the most recently
available audited or unaudited financial results on or
before the payment date, including the higher of Change in
Control Price or actual share price, as provided in Section
7(a) for the Company's common stock, as applicable.
Actual Company Achievement Percentages shall be used in calculating Awards for
any completed years. For uncompleted years, in the event of a Change in Control,
High End Share Units shall be awarded if the Company Achievement Percentage is
equal to or in excess of 50% over the Target Company Achievement Percentage
(compared to maximum Company Achievement Percentage) level. Otherwise, Target
Share Units shall be awarded, unless the Board, in its discretion, awards
greater than Target Share Units. The Board shall not have discretion to award
less than Target Share Units in the event of a Change in Control.
4
<PAGE> 5
(b) Definitions: For purposes of this Plan, the following terms shall have the
meanings noted below, unless the context clearly requires otherwise:
(i) Change in Control. Any of the following events shall constitute a
Change in Control:
(A) the acquisition by an individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"))(a "Person") of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of either (I) the then outstanding shares of common stock
of the Company (the "Outstanding Company Common Stock") or
(II) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this
subsection (A), the following acquisitions shall not
constitute a Change of Control: (W) any acquisition directly
from the Company other than an acquisition by virtue of the
exercise of a conversion privilege unless the security being
so converted was itself acquired directly from the Company,
(X) any acquisition by the Company, (Y) any acquisition by any
employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the
Company or (Z) any acquisition by any corporation pursuant to
a transaction which complies with clauses (I), (II) and (III)
of subsection (C) of this Section 11(b)(i); or
(B) individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a
vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or
removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(C) approval by the shareholders of the Company of a
reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless,
following such Business Combination, (I) all or substantially
all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities immediately prior to
such Business Combination beneficially own, directly or
indirectly, more than 60% of, respectively, the then
outstanding shares of common stock and the combined voting
power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may
be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation
which as a result of such transaction owns the Company or all
or substantially all of the Company's assets either directly
or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Company Common Stock
and Outstanding Company Voting Securities, as the case may be,
(II) no Person (excluding any employee benefit plan (or
related trust) of the Company or such corporation resulting
from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then
outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business
Combination and (III) at least a majority of the members of
the board of directors of the corporation resulting from such
Business
5
<PAGE> 6
Combination were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination;
or
(D) approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
(ii) Change in Control Price. For purposes of this Plan, "Change in
Control Price" shall have the same meaning for such term as in effect in the
Company's 1992 Stock Incentive Plan, as amended from time to time; provided,
however, that if that plan is terminated, the definition in that plan
immediately preceding such termination shall continue to apply to this Plan;
provided, further, that no amendment of the definition of such term shall apply
to this Plan with respect to a participant if such amendment would have an
adverse impact on the aggregate benefits available to a participant in this Plan
and such amendment was made during the period from six months preceding a Change
in Control (if a Change in Control event was contemplated by the Company at that
time) to twenty four months after such an event.
(iii) Cause. For purposes of this Plan, "Cause" shall mean:
(A) the willful and continued failure of the Participant to
perform substantially the Participant's duties with the
Company or one of its affiliates (other than any such failure
resulting from incapacity due to physical or mental illness),
after a written demand for substantial performance is
delivered to the Participant by the Board or the Chairman of
the Company which specifically identifies the manner in which
the Board or Chairman believes that the Participant has not
substantially performed the Participant's duties, or
(B) the willful engaging by the Participant in illegal conduct
or gross misconduct which is materially and demonstrably
injurious to the Company.
For purposes of this provision, no act or failure to act on the part of
the Participant shall be considered "willful" unless it is done or
omitted to be done by the Participant in bad faith or without
reasonable belief that the Participant's action or omission was in the
best interests of the Company. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or
upon the instructions of the Chairman or a senior officer of the
Company or based upon the advice of counsel for the Company shall be
conclusively presumed to be done or omitted to be done by the
Participant in good faith and in the best interests of the Company. The
cessation of employment of the Participant shall not be deemed to be
for Cause unless and until there shall have been delivered to the
Participant a copy of a resolution duly adopted by the affirmative vote
of not less than three-quarters of the entire membership of the Board
at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Participant and the Participant is
given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the
Participant is guilty of the conduct described in subparagraph (A) or
(B) above, and specifying the particulars thereof in detail.
(iv) Good Reason. For purposes of this Plan, "Good Reason" shall mean:
(A) the assignment to the Participant of any duties
inconsistent in any respect with the Participant's position
(including status, offices, titles and reporting
requirements), authority, duties or responsibilities
immediately prior to the Change of Control, or any other
action by the Company which results in a diminution in such
position, authority, duties or responsibilities, excluding for
this purpose an isolated, insubstantial and inadvertent action
not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the
Participant,
(B) any reduction by the Company of the Participant's
base salary, annual bonus, incentive opportunities, retirement
benefits, welfare or fringe benefits below the
6
<PAGE> 7
highest level enjoyed by the Participant during the 120-day
period prior to the Change of Control;
(C) the Company's requiring the Participant to be
based at any office or location other than that at which he or
she was based immediately prior to the Change of Control or
the Company's requiring the Participant to travel on Company
business to a substantially greater extent than required
immediately prior to the Change of Control;
(D) any purported termination by the Company of the
Participant's employment otherwise than as expressly permitted
by this Agreement; or
(E) any failure by the Company to comply with and
satisfy Section 11(d) of this Plan.
For purposes of this Agreement, any good faith determination of "Good Reason"
made by the Participant shall be conclusive.
(c). Excise Taxes. Anything in this Plan to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of the Participant who also is
a participant in either of the Company's Executive Severance Plans (Tier 1 or
Tier 2 Employees) (whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise, but determined without
regard to any additional payments required under this Section XII (c)) (a
"Payment") would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended, or any comparable successor
provision, or any interest or penalties are incurred by the Participant with
respect to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Participant shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Participant of all taxes
(including any interest and penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Participant retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Payments.
(d). The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Plan in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Plan, Company shall mean the Company as
hereinbefore defined and any entity which assumes and agrees to perform this
Plan by operation of law, or otherwise.
7
<PAGE> 1
EXHIBIT 10.T
FINOVA COMMERCIAL MORTGAGE LOAN OWNER TRUST 1998-1
Instruction to Owner Trustee
Reference is made to that certain Trust and Servicing Agreement, dated
as of September 1, 1998 (the "Trust and Servicing Agreement") among FINOVA
COMMERCIAL MORTGAGE LOAN OWNER TRUST 1998-1, a Delaware business trust (the
"Issuer" or the "Trust"), FINOVA REALTY CAPITAL WAREHOUSE FUNDING, L.P., a
Delaware partnership, as Depositor (the "Depositor"), FINOVA CAPITAL
CORPORATION, a Delaware corporation, as Loan Originator (the "Loan Originator"),
FINOVA CAPITAL CORPORATION, as Servicer (the "Servicer"), FINOVA CAPITAL
CORPORATION, as Transfer Obligor (the "Transfer Obligor") and WILMINGTON TRUST
COMPANY, a Delaware banking corporation, as Owner Trustee (the "Owner Trustee").
Capitalized terms not defined herein shall have the meanings ascribed to such
terms in the Trust and Servicing Agreement.
1. Morgan Stanley Securitization Funding Inc. hereby certifies that it
is the Initial Class A Certificateholder and is the holder of 100% of the
Percentage Interests of the Class A Certificate.
2. The Depositor hereby certifies that it is the holder of 100% of the
Percentage Interests of the Class B Certificates.
3. Section 17.02 of the Trust and Servicing Agreement provides, among
other things, that the Trust and Servicing Agreement may be amended from time to
time by the parties thereto with the prior written consent of the Majority
Certificateholders.
Morgan Stanley Securitization Funding Inc. and the Depositor, as the
holders of 100% of the Percentage Interests of the Class A Certificates and the
Class B Certifcates, respectively, hereby direct the Owner Trustee to execute
Amendment No. 1 to the Trust and Servicing Agreement, attached hereto as Exhibit
A.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 2
As of December 8, 1998
FINOVA REALTY CAPITAL WAREHOUSE FUNDING,
L.P., as holder of 100% of the Percentage
Interests of the Class B Certificates
By: FINOVA Warehouse Funding Inc., as General
Partner
By: /s/ Melissa Huckins
______________________________________
Name: Melissa Huckins
Title: Vice President - Assistant
Treasurer
MORGAN STANLEY SECURITIZATION FUNDING
INC., as holder of 100% of the Percentage
Interests of the Class A Certificates
By: /s/ J. Douglas Van Ness
______________________________________
Name: J. Douglas Van Ness
Title: Vice President
<PAGE> 1
EXHIBIT 10.T.1
CERTIFICATE PURCHASE AGREEMENT
FINOVA COMMERCIAL MORTGAGE LOAN OWNER TRUST 1998-1
among
FINOVA COMMERCIAL MORTGAGE LOAN OWNER TRUST 1998-1,
as Trust,
FINOVA REALTY CAPITAL LOAN WAREHOUSE FUNDING, L.P.,
as Depositor
and
MORGAN STANLEY SECURITIZATION FUNDING INC.
as Purchaser
dated as of September 29, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
DEFINITIONS
<S> <C>
Section 1.01. Certain Defined Terms.............................................................................. 1
Section 1.02. Other Definitional Provisions...................................................................... 2
ARTICLE II
COMMITMENT AND CLOSING
Section 2.01. Commitment......................................................................................... 3
Section 2.02. Closing............................................................................................ 3
ARTICLE III
TRANSFER DATES AND COLLATERAL VALUE EXCESS DATES
Section 3.01. Transfer Dates and Purchase Value Excess Dates..................................................... 4
ARTICLE IV
CONDITIONS PRECEDENT TO EFFECTIVENESS OF COMMITMENT
Section 4.01. Closing Subject to Conditions Precedent............................................................ 5
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE TRUST AND THE DEPOSITOR
Section 5.01. Trust.............................................................................................. 7
Section 5.02. Securities Act..................................................................................... 9
Section 5.03. No Fee............................................................................................ 10
Section 5.04. Information....................................................................................... 10
Section 5.05. The Purchased Certificates........................................................................ 10
Section 5.06. Use of Proceeds................................................................................... 10
Section 5.07. The Depositor..................................................................................... 10
Section 5.08. Taxes, etc........................................................................................ 10
Section 5.09. Financial Condition............................................................................... 11
ARTICLE VI
REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE PURCHASER
Section 6.01. Organization...................................................................................... 11
Section 6.02. Authority, etc.................................................................................... 11
Section 6.03. Securities Act.................................................................................... 11
Section 6.04. Investment Company Act............................................................................ 12
Section 6.05. Conflicts With Law................................................................................ 12
Section 6.06. Conflicts With Agreements, etc.................................................................... 12
</TABLE>
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<PAGE> 3
ARTICLE VII
COVENANTS OF THE TRUST AND THE DEPOSITOR
<TABLE>
<S> <C>
Section 7.01. Information from the Trust........................................................................ 12
Section 7.02. Access to Information............................................................................. 12
Section 7.03. Ownership and Security Interests; Further Assurances.............................................. 13
Section 7.04. Covenants......................................................................................... 13
Section 7.05. Amendments........................................................................................ 13
Section 7.06. With Respect to the Exempt Status of the Purchased Certificates................................... 13
Section 7.07. Option to Acquire Future Class A Certificates..................................................... 14
ARTICLE VIII
ADDITIONAL COVENANTS
Section 8.01. Legal Conditions to Closing....................................................................... 14
Section 8.02. Expenses.......................................................................................... 14
Section 8.03. Mutual Obligations................................................................................ 15
Section 8.04. Restrictions on Transfer.......................................................................... 15
Section 8.05. Confidentiality................................................................................... 15
Section 8.06. Information Provided by the Purchaser............................................................. 15
Section 8.07. Opinions.......................................................................................... 15
Section 8.08. Agents............................................................................................ 15
ARTICLE IX
INDEMNIFICATION
Section 9.01. Indemnification of Purchaser...................................................................... 16
Section 9.02. Procedure and Defense............................................................................. 16
ARTICLE X
MISCELLANEOUS
Section 10.01. Amendments....................................................................................... 17
Section 10.02. Notices.......................................................................................... 17
Section 10.03. No Waiver; Remedies.............................................................................. 17
Section 10.04. Binding Effect; Assignability.................................................................... 17
Section 10.05. Provision of Documents and Information........................................................... 18
Section 10.06. Governing Law; Jurisdiction...................................................................... 18
Section 10.07. No Proceedings................................................................................... 19
Section 10.08. Execution in Counterparts........................................................................ 19
Section 10.09. No Recourse - Purchaser.......................................................................... 19
Section 10.10. Survival......................................................................................... 19
Section 10.11. Tax Characterization............................................................................. 19
</TABLE>
Schedule I - Purchaser Account Information
Schedule II - Information for Notices
- ii -
<PAGE> 4
CERTIFICATE PURCHASE AGREEMENT ("Certificate Purchase
Agreement") dated as of September 29, 1998, among FINOVA COMMERCIAL MORTGAGE
LOAN OWNER TRUST 1998-1 (the "Trust"), FINOVA REALTY CAPITAL WAREHOUSE FUNDING,
L.P. (the "Depositor"), and MORGAN STANLEY SECURITIZATION FUNDING INC. ("MSSFI,"
and in its capacity as Purchaser hereunder, the "Purchaser").
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. Capitalized terms used
herein without definition shall have the meanings set forth in the Trust and
Servicing Agreement (as defined below). Additionally, the following terms shall
have the following meanings:
"Closing" shall have the meaning set forth in Section 2.02.
"Closing Date" shall have the meaning set forth in Section
2.02.
"Commitment" means the commitment of the Purchaser to purchase
Additional Class A Certificate Principal Balances pursuant to Section 2.01.
"Commitment Amount" means an amount equal to, at any date of
determination, $1,000,000,000.
"Confidential Information" means the Basic Documents, the
Purchased Certificates, all marketing information, financial information, terms
sheets and other information concerning the transactions contemplated thereby,
prepared by the Purchaser and its Affiliates.
"Default" shall have the meaning provided in Section 3.01.
"Exchange Act" shall mean the Securities Exchange Act of 1934.
"Governmental Actions" means any and all consents, approvals,
permits, orders, authorizations, waivers, exceptions, variances, exemptions or
licenses of, or registrations, declarations or filings with, any Governmental
Authority required under any Governmental Rules.
"Governmental Authority" means the United States of America,
any state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government and having jurisdiction over the applicable Person.
-1-
<PAGE> 5
"Governmental Rules" means any and all laws, statutes, codes,
rules, regulations, ordinances, orders, writs, decrees and injunctions, of any
Governmental Authority and any and all legally binding conditions, standards,
prohibitions, requirements and judgments of any Governmental Authority.
"Increase" means the increase of the Class A Certificate
Principal Balance through the purchase by the Purchaser of Additional Class A
Certificate Principal Balances sold pursuant to the terms hereof.
"Indemnified Party" means the Purchaser and any of its
officers, directors, employees, agents, representatives, assignees and
Affiliates and any Person who controls the Purchaser or its Affiliates within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act.
"Investment Company Act" shall have the meaning provided in
Section 5.01(i).
"Lien" means, with respect to any asset, (a) any mortgage,
lien, pledge, charge, security interest, hypothecation, option or encumbrance of
any kind in respect of such asset or (b) the interest of a vendor or lessor
under any conditional sale agreement, financing lease or other title retention
agreement relating to such asset.
"Loan Originator" means FINOVA Capital Corporation, a Delaware
corporation.
"Purchased Certificates" means the Class A Certificates issued
by the Trust pursuant to the Trust and Servicing Agreement.
"Purchaser" means the Purchaser and its permitted successors
and assigns.
"Transfer Obligor" means FINOVA Capital Corporation, a
Delaware corporation.
"Trust and Servicing Agreement" means the Trust and Servicing
Agreement dated as of September 1, 1998 among FINOVA Commercial Mortgage Loan
Owner Trust 1998-1, as Trust, FINOVA Capital Corporation, as Loan Originator,
FINOVA Capital Corporation as Transfer Obligor, FINOVA Capital Corporation as
Servicer and Wilmington Trust Company, as Owner Trustee, as the same may be
amended, modified or supplemented from time to time.
"Third Party Claim" has the meaning specified in Section 9.02
hereof.
SECTION 1.02. Other Definitional Provisions.
(a) All terms defined in this Certificate Purchase Agreement
shall have the defined meanings when used in any certificate or other document
made or delivered pursuant hereto unless otherwise defined therein.
-2-
<PAGE> 6
(b) As used herein and in any certificate or other document
made or delivered pursuant hereto or thereto, accounting terms not defined in
Section 1.01, and accounting terms partially defined in Section 1.01 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 herein are inconsistent with the meanings of such terms under
generally accepted accounting principles, the definitions contained herein shall
control.
(c) The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Certificate Purchase Agreement shall refer to
this Certificate Purchase Agreement as a whole and not to any particular
provision of this Certificate Purchase Agreement; and Section, subsection,
Schedule and Exhibit references contained in this Certificate Purchase Agreement
are references to Sections, subsections, and Exhibits in or to this Certificate
Purchase Agreement unless otherwise specified.
ARTICLE II
COMMITMENT AND CLOSING
SECTION 2.01. Commitment.
(a) On each Transfer Date and Purchase Value Excess Date
during the Revolving Period, to the extent that the Outstanding Class A
Certificate Principal Balance (after giving effect to the proposed Increase) is
less than the Commitment Amount, and subject to the terms and conditions hereof
and in accordance with the other Basic Documents, the Purchaser agrees to fund
such Increases in the Purchased Certificates pursuant to this Section 2.01(a)
subject to the terms and conditions and in reliance upon the covenants,
representations and warranties set forth herein and in the other Basic
Documents, provided that the Outstanding Class A Certificate Principal Balance
(after giving effect to the proposed Increase) of all Certificates for which
Increases were effected pursuant to this Section 2.01(a) is less than
$1,000,000,000.
(b) The Commitment Amount may be irrevocably reduced in whole
or in part by the Trust upon 5 Business Days prior written notice to the
Purchaser, with a copy to the Owner Trustee.
SECTION 2.02. Closing. The closing (the "Closing") of the
execution of the Basic Documents and Purchased Certificates shall take place at
10:00 a.m. at the offices of Cadwalader, Wickersham & Taft, 100 Maiden Lane, New
York, New York 10038, on September 29, 1998, or if the conditions to closing set
forth in Article IV of this Certificate Purchase Agreement shall not have been
satisfied or waived by such date, as soon as practicable after such conditions
shall have been satisfied or waived, or at such other time, date and place as
the parties shall agree upon (the date of the Closing being referred to herein
as the "Closing Date").
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ARTICLE III
TRANSFER DATES AND COLLATERAL VALUE EXCESS DATES
SECTION 3.01. Transfer Dates and Purchase Value Excess Dates.
(a) Subject to the conditions and terms set forth herein and
in Section 3.06(a) of the Trust and Servicing Agreement with respect to each
Transfer Date and Section 3.06(b) of the Trust and Servicing Agreement with
respect to each Purchase Value Excess Date, the Trust may request, and the
Purchaser agrees to purchase Additional Class A Certificate Principal Balances
from the Trust from time to time in accordance with, and upon the satisfaction,
as of the applicable Transfer Date or Purchase Value Excess Date, as the case
may be, of each of the following additional conditions:
(i) With respect to each Transfer Date, each condition set
forth in Section 3.06(a) of the Trust and Servicing Agreement shall have been
satisfied and with respect to each Purchase Value Excess Date, each condition
set forth in Section 3.06(b) of the Trust and Servicing Agreement shall have
been satisfied;
(ii) Each of the representations and warranties of the
Trust, the Loan Originator, the Transfer Obligor, the Servicer and the Depositor
made in the Basic Documents shall be true and correct as of such date (except to
the extent they expressly relate to an earlier or later time);
(iii) The Trust, the Loan Originator, the Transfer
Obligor, the Servicer and the Depositor shall be in compliance with all of their
respective covenants contained in the Basic Documents and the Purchased
Certificates;
(iv) No Event of Default and no Default shall have
occurred or shall be occurring; and
(v) With respect to each Transfer Date, the Purchaser
shall have received evidence satisfactory to it of the completion of all
recordings, registrations, and filings as may be necessary or, in the reasonable
opinion of the Purchaser, desirable to perfect or evidence the assignments
required to be effected on such Transfer Date including, without limitation, the
assignment of the Loans and the proceeds thereof required to be assigned
pursuant to the related LPA Assignment and the T&SA Assignment.
(b) The Purchaser shall determine in its sole discretion
whether each of the above conditions have been met and its determination shall
be binding on the parties hereto.
(c) (i) The price paid by the Purchaser on each Transfer Date
for the related Additional Class A Certificate Principal Balance shall be equal
to 100% of such Additional Class A Certificate Principal Balance, and shall be
remitted not later than 4:00 p.m. New York City time on the Transfer Date by
wire transfer of immediately available funds to the Advance Account.
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(ii) The price paid by the Purchaser on each Purchase
Value Excess Date for the related Additional Class A Certificate Principal
Balance shall be equal to 100% of the amount of Additional Class A Certificate
Principal Balance requested by the Trust, which amount shall not exceed the
Purchase Value Excess as of such Purchase Value Excess Date, and shall be
remitted not later than 4:00 p.m. New York City time on the Purchase Value
Excess Date by wire transfer of immediately available funds to (A) the Transfer
Obligation Account, in an amount equal to the lesser of (1) the Additional Class
A Certificate Principal Balance and (2) the Transfer Obligation Target Amount
and (B) the Advance Account the excess (if any) of the Additional Class A
Certificate Principal Balance over the amount deposited in the Transfer
Obligation Account pursuant to clause (A) above.
(d) The Purchaser shall record on the schedule attached to the
Purchased Certificates, the date and amount of any Additional Class A
Certificate Principal Balance purchased by it; provided, that failure to make
such recordation on such schedule or any error in such schedule shall not
adversely affect the Purchaser's rights with respect to its Class A Certificate
Principal Balance and its right to receive interest payments in respect of the
Class A Certificate Principal Balance actually held. Absent manifest error, the
Class A Certificate Principal Balance of the Purchased Certificates as set forth
in the Purchaser's records shall be binding upon the parties hereto,
notwithstanding any notation or record made or kept by any other party hereto.
ARTICLE IV
CONDITIONS PRECEDENT TO
EFFECTIVENESS OF COMMITMENT
SECTION 4.01 Closing Subject to Conditions Precedent. The
effectiveness of the Commitment hereunder is subject to the satisfaction at the
time of the Closing of the following conditions (any or all of which may be
waived by the Purchaser in its sole discretion):
(a) Performance by the Trust, the Depositor, the Servicer, the
Transfer Obligor and the Loan Originator. All the terms, covenants, agreements
and conditions of the Basic Documents to be complied with and performed by the
Trust, the Depositor, the Servicer, the Transfer Obligor and the Loan Originator
on or before the Closing Date shall have been complied with and performed in all
material respects.
(b) Representations and Warranties. Each of the
representations and warranties of the Trust, the Depositor, the Servicer, the
Transfer Obligor and the Loan Originator made in the Basic Documents shall be
true and correct in all material respects as of the Closing Date (except to the
extent they expressly relate to an earlier or later time).
(c) Officer's Certificate. The Purchaser shall have received
in form and substance satisfactory to the Purchaser, an Officer's Certificate
from the Depositor, the Servicer, the Transfer Obligor and the Loan Originator
and a certificate of an Authorized
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Officer of the Trust, dated the Closing Date, certifying to the satisfaction of
the conditions set forth in the preceding paragraphs (a) and (b).
(d) Opinions of Counsel to the Trust, Loan Originator,
Transfer Obligor, Servicer and Depositor. Counsel to the Trust, Loan Originator,
Transfer Obligor, Servicer and Depositor shall have delivered to the Purchaser
favorable opinions, dated as of the Closing Date and satisfactory in form and
substance to the Purchaser and its counsel.
(e) Opinions of Counsel to the Owner Trustee. Delaware counsel
to the Owner Trustee of the Trust shall have delivered to the Purchaser
favorable opinions regarding the formation, existence and standing of the Trust
and of the Trust's execution, authorization and delivery of each of the Basic
Documents to which it is a party and such other matters as the Purchaser may
request, dated as of the Closing Date and satisfactory in form and substance to
the Purchaser and its counsel.
(f) Filings and Recordations. The Purchaser shall have
received evidence satisfactory to it of (i) the completion of all recordings,
registrations, and filings as may be necessary or, in the opinion of the
Purchaser, desirable to perfect or evidence the assignment by the Loan
Originator to the Depositor of the Loan Originator's ownership interest in the
Owner Trust Estate including, without limitation, the Loans and the proceeds
thereof, and (ii) the completion of all recordings, registrations and filings as
may be necessary or, in the opinion of the Purchaser, desirable to perfect or
evidence the assignment by the Depositor to the Trust of the Depositor's
ownership interest in the Owner Trust Estate including, without limitation, the
Loans and the proceeds thereof.
(g) Documents. The Purchaser shall have received a duly
executed counterpart of each of the Basic Documents, the Purchased Certificates
and each and every document or certification delivered by any party in
connection with any of the Basic Documents or the Purchased Certificates, and
each such document shall be in full force and effect.
(h) Actions or Proceedings. No action, suit, proceeding or
investigation by or before any Governmental Authority shall have been instituted
to restrain or prohibit the consummation of, or to invalidate, any of the
transactions contemplated by the Basic Documents, the Purchased Certificates and
the documents related thereto in any material respect.
(i) Approvals and Consents. All Governmental Actions of all
Governmental Authorities required with respect to the transactions contemplated
by the Basic Documents, the Purchased Certificates and the documents related
thereto shall have been obtained or made.
(j) Accounts. The Purchaser shall have received evidence
satisfactory to it that each Trust Account has each been established in
accordance with the terms of the Trust and Servicing Agreement.
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(k) Fees and Expenses. The fees and expenses payable pursuant
to Section 8.02(b) shall have been paid.
(l) Other Documents. The Trust, the Loan Originator, the
Transfer Obligor, the Servicer and the Depositor shall have furnished to the
Purchaser such other opinions, information, certificates and documents as the
Purchaser may request.
(m) Proceedings in Contemplation of Sale of Purchased
Certificates. All actions and proceedings undertaken by the Trust, the Loan
Originator, the Transfer Obligor, the Servicer and the Depositor in connection
with the issuance and sale of the Purchased Certificates as herein contemplated
shall be satisfactory in all respects to the Purchaser and its counsel.
If any condition specified in this Section 4.01 shall not have
been fulfilled when and as required to be fulfilled, this Agreement may be
terminated by the Purchaser by notice to the Transfer Obligor at any time at or
prior to the Closing Date, and the Purchaser shall incur no liability as a
result of such termination.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE TRUST AND THE DEPOSITOR
The Trust and the Depositor hereby jointly and severally make
the following representations and warranties to the Purchaser, as of the Closing
Date, and as of each Transfer Date and Purchase Value Excess Date, and the
Purchaser shall be deemed to have relied on such representations and warranties
in making (or committing to make) purchases of Additional Class A Certificate
Balances on each Transfer Date and Purchase Value Excess Date:
SECTION 5.01. Trust.
(a) The Trust has been duly organized and is validly existing
and in good standing as a business trust under the laws of the State of
Delaware, with requisite trust power and authority to own its properties and to
transact the business in which it is now engaged, and is duly qualified to do
business and is in good standing (or is exempt from such requirements) in each
State of the United States where the nature of its business requires it to be so
qualified and the failure to be so qualified and in good standing would have a
material adverse effect on the Trust or any adverse effect on the interests of
the Purchaser.
(b) The issuance, sale, assignment and conveyance of the
Purchased Certificates, the performance of the Trust's obligations under each
Basic Document to which it is a party and the consummation of the transactions
therein contemplated will not conflict with or result in a breach of any of the
terms or provisions of, or constitute a default under, or result in the creation
or imposition of any Lien (other than any Lien created by the Basic Documents),
charge or encumbrance upon any of the property or assets of the Trust or any of
its Affiliates pursuant to the terms of, any indenture, mortgage, deed of trust,
loan agreement
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or other agreement or instrument to which it or any of its Affiliates is bound
or to which any of its property or assets is subject, nor will such action
result in any violation of the provisions of its organizational documents or any
Governmental Rule applicable to the Trust, in each case which could be expected
to have a material adverse effect on the transactions contemplated therein.
(c) No Governmental Action which has not been obtained is
required by or with respect to the Trust in connection with the execution and
delivery of the Purchased Certificates to the Purchaser. No Governmental Action
which has not been obtained is required by or with respect to the Trust in
connection with the execution and delivery of any of the Basic Documents to
which the Trust is a party or the consummation by the Trust of the transactions
contemplated thereby.
(d) The Trust possesses all material licenses, certificates,
authorities or permits issued by the appropriate state, federal or foreign
regulatory agencies or bodies necessary to conduct the business now operated by
it, and has not received any notice of proceedings relating to the revocation or
modification of any such license, certificate, authority or permit which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would materially and adversely affect its condition, financial or
otherwise, or its earnings, business affairs or business prospects.
(e) Each of the Basic Documents to which the Trust is a party
has been duly authorized, executed and delivered by the Trust and is a valid and
legally binding obligation of the Trust, enforceable against the Trust in
accordance with its terms, subject to enforcement to bankruptcy, insolvency,
reorganization, moratorium and other similar laws of general applicability
relating to or affecting creditors' rights and to general principles of equity.
(f) The execution, delivery and performance by the Trust of
each of its obligations under each of the Basic Documents to which it is a party
will not result in a breach or violation of any of the terms and provisions of,
or constitute a default under, any agreement or instrument to which the Trust is
a party or by which the Trust is bound or to which any of the its properties are
subject or of any statute, order or regulation applicable to the Trust of any
court, regulatory body, administrative agency or governmental body having
jurisdiction over the Trust or any of its properties, in each case which could
be expected to have a material adverse effect on any of the transactions
contemplated therein.
(g) The Trust is not in violation of its organizational
documents or in default under any agreement, indenture or instrument the effect
of which violation or default would be material to the Trust or the transactions
contemplated by the Basic Documents. The Trust is not a party to, bound by or in
breach or violation of any indenture or other agreement or instrument, or
subject to or in violation of any statute, order or regulation of any court,
regulatory body, administrative agency or governmental body having jurisdiction
over the Trust that materially and adversely affects, or may in the future
materially and adversely affect (i) the ability of the Trust to perform its
obligations under any of the Basic Documents to
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which it is a party or (ii) the business, operations, financial condition,
properties, assets or prospects of the Trust.
(h) There are no actions or proceedings against, or
investigations of, the Trust pending, or, to the knowledge of the Trust
threatened, before any Governmental Authority, court, arbitrator, administrative
agency or other tribunal (i) asserting the invalidity of any of the Basic
Documents, or (ii) seeking to prevent the issuance of the Purchased Certificates
or the consummation of any of the transactions contemplated by the Basic
Documents or the Purchased Certificates, or (iii) that, if adversely determined,
could materially and adversely affect the business, operations, financial
condition, properties, assets or prospects of the Trust or the validity or
enforceability of, or the performance by the Trust of its respective obligations
under, any of the Basic Documents to which it is a party or (iv) seeking to
affect adversely the income tax attributes of the Purchased Certificates.
(i) The Trust is not, and neither the issuance and sale of the
Purchased Certificates to the Purchaser nor the activities of the Trust pursuant
to the Basic Documents, shall render the Trust an "investment company" or under
the "control" of an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act").
(j) It is not necessary to qualify the Trust and Servicing
Agreement under the Trust Indenture Act of 1939, as amended.
(k) The Trust is solvent and has adequate capital for its
business and undertakings.
(l) The chief executive offices of the Trust are located at
FINOVA Commercial Mortgage Loan Owner Trust 1998-1, c/o Wilmington Trust
Company, as Owner Trustee, Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890, Attention: Corporate Trust Administration, telecopy
number: (302) 651-8882, telephone number (302) 651-1000.
(m) There are no contracts, agreements or understandings
between the Trust and any Person granting such Person the right to require the
filing at any time of a registration statement under the Act with respect to the
Purchased Certificates.
SECTION 5.02. Securities Act. Assuming the accuracy of the
representations and warranties of and compliance with the covenants of the
Purchaser contained herein, the sale of the Purchased Certificates pursuant to
this Agreement and the sale of Additional Class A Certificate Principal Balances
are each exempt from the registration and prospectus delivery requirements of
the Act. In the case of the offer or sale of the Purchased Certificates, no form
of general solicitation or general advertising was used by the Trust, any
Affiliates of the Trust or any person acting on its or their behalf, including,
but not limited to, advertisements, articles, notices or other communications
published in any newspaper, magazine or similar medium or broadcast over
television or radio, or any seminar or meeting whose attendees have been invited
by any general solicitation or general advertising. Neither the Trust, any
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Affiliates of the Trust nor any Person acting on its or their behalf has offered
or sold, nor will the Trust or any Person acting on its behalf offer or sell
directly or indirectly, the Purchased Certificates or any other security in any
manner that, assuming the accuracy of the representations and warranties and the
performance of the covenants given by each Purchaser and compliance with the
applicable provisions of the Trust and Servicing Agreement with respect to each
transfer of the Purchased Certificates, would render the issuance and sale of
any of the Purchased Certificates as contemplated hereby a violation of Section
5 of the Act or the registration or qualification requirements of any state
securities laws, nor has any such Person authorized, nor will it authorize, any
Person to act in such manner.
SECTION 5.03. No Fee. Neither the Trust, the Depositor nor any
of their Affiliates has paid or agreed to pay to any Person any compensation for
soliciting another to purchase the Purchased Certificates.
SECTION 5.04. Information. The information provided pursuant
to Section 7.01(a) hereof will, at the date thereof, be true and correct in all
material respects.
SECTION 5.05. The Purchased Certificates. The Purchased
Certificates have been duly and validly authorized, and, when executed and
authenticated in accordance with the terms of the Trust and Servicing Agreement,
and delivered to and paid for in accordance with this Certificate Purchase
Agreement, will be duly and validly issued and outstanding and will be entitled
to the benefits of the Trust and Servicing Agreement.
SECTION 5.06. Use of Proceeds. No proceeds of a purchase
hereunder will be used (i) for a purpose that violates or would be inconsistent
with Regulations G, T, U or X promulgated by the Board of Governors of the
Federal Reserve System from time to time or (ii) to acquire any security in any
transaction in violation of Section 13 or 14 of the Securities Exchange Act of
1934, as amended.
SECTION 5.07. The Depositor. The Depositor hereby makes to the
Purchaser each of the representations, warranties and covenants set forth in
Section 4.01 of the Trust and Servicing Agreement as of the Closing Date, as of
each Transfer Date and as of each Purchase Value Excess Date (except to the
extent that any such representation, warranty or covenant is expressly made as
of another date).
SECTION 5.08. Taxes, etc. Any taxes, fees and other charges of
Governmental Authorities applicable to the Trust and the Depositor, except for
franchise or income taxes, in connection with the execution, delivery and
performance by the Trust and the Depositor of each Basic Document to which they
are parties, the issuance of the Purchased Certificates or otherwise applicable
to the Trust or the Depositor in connection with the Owner Trust Estate have
been paid or will be paid by the Trust or the Depositor, as applicable, at or
prior to the Closing Date, Transfer Date or Purchase Value Excess Date, as
applicable, to the extent then due.
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SECTION 5.09. Financial Condition. On the date hereof, on each
Transfer Date and on each Purchase Value Excess Date, neither the Trust nor the
Depositor is or will be insolvent or the subject of any voluntary or involuntary
bankruptcy proceeding.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
WITH RESPECT TO THE PURCHASER
The Purchaser hereby makes the following representations and
warranties, as to itself, to the Trust and the Depositor on which the same may
rely in entering into this Certificate Purchase Agreement.
SECTION 6.01. Organization. The Purchaser has been duly
organized and is validly existing and in good standing under the laws of the
jurisdiction of its organization with power and authority to own its properties
and to transact the business in which it is now engaged.
SECTION 6.02. Authority, etc. The Purchaser has all requisite
power and authority to enter into and perform its obligations under this
Certificate Purchase Agreement and to consummate the transactions herein
contemplated. The execution and delivery by the Purchaser of this Certificate
Purchase Agreement and the consummation by the Purchaser of the transactions
contemplated hereby have been duly and validly authorized by all necessary
organizational action on the part of the Purchaser. This Certificate Purchase
Agreement has been duly and validly executed and delivered by the Purchaser and
constitutes a legal, valid and binding obligation of the Purchaser, enforceable
against the Purchaser in accordance with its terms, subject as to enforcement to
bankruptcy, reorganization, insolvency, moratorium and other similar laws of
general applicability relating to or affecting creditors' rights and to general
principles of equity. Neither the execution and delivery by the Purchaser of
this Certificate Purchase Agreement nor the consummation by the Purchaser of any
of the transactions contemplated hereby, nor the fulfillment by the Purchaser of
the terms hereof, will conflict with, or violate, result in a breach of or
constitute a default under any term or provision of the Purchaser's
organizational documents or any Governmental Rule applicable to the Purchaser.
SECTION 6.03. Securities Act. The Purchaser will acquire the
Purchased Certificates pursuant to this Certificate Purchase Agreement without a
view to any public distribution thereof, and will not offer to sell or otherwise
dispose of the Purchased Certificates (or any interest therein) in violation of
any of the registration requirements of the Act or any applicable state or other
securities laws, or by means of any form of general solicitation or general
advertising (within the meaning of Regulation D under the Act) and will comply
with the requirements of the Trust and Servicing Agreement. The Purchaser
acknowledges that it has no right to require the Trust to register the Purchased
Certificates under the Act or any other securities law.
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SECTION 6.04. Investment Company Act. The Purchaser is not
required to register as an "investment company" nor is the Purchaser controlled
by an "investment company" within the meaning of the Investment Company Act.
SECTION 6.05. Conflicts With Law . The execution, delivery and
performance by the Purchaser of its obligations under this Certificate Purchase
Agreement will not result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any agreement or instrument to
which the Purchaser is a party or by which the Purchaser is bound or of any
statute, order or regulation applicable to the Purchaser of any court,
regulatory body, administrative agency or governmental body having jurisdiction
over the Purchaser, in each case which could be expected to have a material
adverse effect on the transactions contemplated therein.
SECTION 6.06. Conflicts With Agreements, etc. The Purchaser is
not in violation of its organizational documents or in default under any
agreement, indenture or instrument the effect of which violation or default
would be materially adverse to the Purchaser in the performance of its
obligations or duties under any of the Basic Documents to which it is a party.
The Purchaser is not a party to, bound by or in breach or violation of any
indenture or other agreement or instrument, or subject to or in violation of any
statute, order or regulation of any court, regulatory body, administrative
agency or governmental body having jurisdiction over the Purchaser that
materially and adversely affects, or may in the future materially and adversely
affect the ability of the Purchaser to perform its obligations under this
Certificate Purchase Agreement.
ARTICLE VII
COVENANTS OF THE TRUST AND THE DEPOSITOR
SECTION 7.01. Information from the Trust. So long as the
Purchased Certificates remain outstanding, the Trust and the Depositor shall
each furnish to the Purchaser:
(a) such information (including financial information),
documents, records or reports with respect to the Owner Trust Estate, the Loans,
the Trust, the Loan Originator, the Transfer Obligor the Servicer or the
Depositor as the Purchaser may from time to time request;
(b) as soon as possible and in any event within five Business
Days after the occurrence thereof, notice of each Event of Default under the
Trust and Servicing Agreement, and each Default; and
(c) promptly and in any event within 30 days after the
occurrence thereof, written notice of a change in address of the chief executive
office of the Trust or the Depositor.
SECTION 7.02. Access to Information. So long as the Purchased
Certificates remain outstanding, each of the Trust and the Depositor shall, at
any time and from time to
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time during regular business hours, or at such other times upon reasonable
notice to the Trust or the Depositor, as applicable, permit the Purchaser, or
its agents or representatives to:
(a) examine all books, records and documents (including
computer tapes and disks) in the possession or under the control of the Trust,
or the Depositor relating to the Loans as may be requested, and
(b) visit the offices and property of the Trust and the
Depositor for the purpose of examining such materials described in clause (a)
above.
Except as provided in Section 10.05, any information obtained
by the Purchaser pursuant to this Section 7.02 shall be held in confidence
unless and to the extent such information (i) has become available to the
public, (ii) is required or requested by any Governmental Authority or in any
court proceeding or (iii) is required by any Governmental Rule.
SECTION 7.03. Ownership and Security Interests; Further
Assurances. The Depositor will take all action necessary to maintain the Trust's
ownership interest in the Loans and the other items sold pursuant to Article III
of the Trust and Servicing Agreement.
The Trust and the Depositor agree to take any and all acts and
to execute any and all further instruments necessary or requested by the
Purchaser to more fully effect the purposes of this Certificate Purchase
Agreement.
SECTION 7.04. Covenants. The Trust and the Depositor shall
each duly observe and perform each of their respective covenants set forth in
each of the Basic Documents to which they are parties.
SECTION 7.05. Amendments. Neither the Trust or the Depositor
shall make, or permit any Person to make, any amendment, modification or change
to, or provide any waiver under any Basic Document to which the Trust or the
Depositor, as applicable, is a party without the prior written consent of the
Purchaser to the extent that such amendment, modification, change or waiver
would materially and adversely affect the interests, rights or powers of the
Purchaser under any of the Basic Documents.
SECTION 7.06. With Respect to the Exempt Status of the
Purchased Certificates.
(a) Neither the Trust or the Depositor, nor any of their
respective Affiliates, nor any Person acting on their behalf will, directly or
indirectly, make offers or sales of any security, or solicit offers to buy any
security, under circumstances that would require the registration of the
Purchased Certificates under the Securities Act.
(b) Neither the Trust or the Depositor, nor any of their
Affiliates, nor any Person acting on their behalf will engage in any form of
general solicitation or general
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advertising (within the meaning of Regulation D promulgated under the Securities
Act) in connection with any offer or sale of the Purchased Certificates.
(c) On or prior to any Transfer Date or Purchase Value Excess
Date, the Trust and the Depositor will furnish or cause to be furnished to the
Purchaser and any subsequent purchaser therefrom of Additional Class A
Certificate Principal Balance, if the Purchaser or such subsequent purchaser so
request, a letter from each Person furnishing a certificate or opinion on the
Closing Date as described in Section 4.01 hereof or on or before any such
Transfer Date or Purchase Value Excess Date in which such Person shall state
that such subsequent purchaser may rely upon such original certificate or
opinion as though delivered and addressed to such subsequent purchaser and made
on and as of the Closing Date or such Transfer Date or Purchase Value Excess
Date, as the case may be, except for such exceptions set forth in such letter as
are attributable to events occurring after the Closing Date or such Transfer
Date or Purchase Value Excess Date.
SECTION 7.07. Option to Acquire Future Class A Certificates.
In consideration of the Commitment hereunder and for other good and valuable
consideration the receipt and sufficiency of which is hereby acknowledged, the
Depositor covenants and agrees to, at the request of the Purchaser, sell to the
Purchaser class A certificates issued by trusts to be formed by the Depositor on
terms and conditions identical to those set forth herein, provided, however that
this option shall not apply to trusts formed by Affiliates of Depositor.
ARTICLE VIII
ADDITIONAL COVENANTS
SECTION 8.01. Legal Conditions to Closing. The parties hereto
will take all reasonable action necessary to obtain (and will cooperate with one
another in obtaining) any consent, authorization, permit, license, franchise,
order or approval of, or any exemption by, any Governmental Authority or any
other Person, required to be obtained or made by it in connection with any of
the transactions contemplated by this Certificate Purchase Agreement.
SECTION 8.02. Expenses.
(a) The Trust and the Depositor jointly and severally covenant
that, whether or not the Closing takes place, except as otherwise expressly
provided herein, all costs and expenses incurred in connection with this
Certificate Purchase Agreement and the transactions contemplated hereby shall be
paid by the Trust or the Depositor.
(b) The Trust and the Depositor jointly and severally covenant
to pay as and when billed by the Purchaser all of the out-of-pocket costs and
expenses incurred in connection with the consummation and administration of the
transactions contemplated hereby and in the other Basic Documents including,
without limitation, (i) all reasonable fees, disbursements and expenses of
counsel to the Purchaser, (ii) all reasonable fees and expenses of the Owner
Trustee and their counsel and (iii) all reasonable fees and expenses of the
Custodian and its counsel.
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<PAGE> 18
SECTION 8.03. Mutual Obligations. On and after the Closing,
each party hereto will do, execute and perform all such other acts, deeds and
documents as the other party may from time to time reasonably require in order
to carry out the intent of this Certificate Purchase Agreement.
SECTION 8.04. Restrictions on Transfer. The Purchaser agrees
that it will comply with the restrictions on transfer of the Purchased
Certificates set forth in the Trust and Servicing Agreement and resell the
Purchased Certificates only in compliance with such restrictions.
SECTION 8.05. Confidentiality. Each of the Trust and the
Depositor shall hold in confidence all Confidential Information and shall not,
at any time hereafter, use disclose or divulge any such information, knowledge
or data to any Person except:
(a) Information which at the time of disclosure is a part of the
public knowledge or literature and readily accessible;
(b) Information required to be disclosed by a Governmental
Authority or applicable law or regulation; or
(c) Disclosure to a Person that has entered into a
confidentiality agreement, acceptable to the Purchaser.
Any Confidential Information shall be held in confidence unless
and to the extent such information (i) has become available to the public, (ii)
is required or requested by any Governmental Authority or in any court
proceeding or (iii) is required by any Governmental Rule.
SECTION 8.06. Information Provided by the Purchaser. The
Purchaser hereby covenants to determine LIBOR in accordance with the definition
thereof in the Basic Documents and shall give notice to the Servicer of the
Interest Payment Amount on each Determination Date. The Purchaser shall cause
the Market Value Agent to give notice to the Servicer of any Hedge Funding
Requirement on or before the Determination Date related to any Distribution
Date. In addition, on each Determination Date, the Purchaser hereby covenants to
give notice to the Servicer of (i) the Trust/Depositor Indemnities, (ii) Due
Diligence Fees and (iii) the Purchase Value for each Loan for the related
Distribution Date.
SECTION 8.07. Opinions. When obtained by the Loan Originator, the
Loan Originator shall cause its counsel to deliver to the Purchaser, favorable
opinions, dated as of the date of such delivery the effect that the Trust will
not be treated as an association (or publicly traded partnership) taxable as a
corporation or as a taxable mortgage pool, for federal income tax purposes.
Section 8.08. Agents. The Initial Class A Certificateholder
agrees to cause its Affiliate, Morgan Stanley and Co. Incorporated, to act as
Market Value Agent and Disposition Agent in accordance with the terms of the
Basic Documents.
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<PAGE> 19
ARTICLE IX
INDEMNIFICATION
SECTION 9.01. Indemnification of Purchaser. Each of the Trust,
the Servicer and the Depositor hereby agree to, jointly and severally, indemnify
and hold harmless each Indemnified Party against any and all losses, claims,
reasonable damages, liabilities, expenses or judgments (including reasonable
accounting fees and legal fees and other expenses incurred in connection with
this Certificate Purchase Agreement or any other Basic Document and any action,
suit or proceeding or any claim asserted) (collectively, "Losses"), as incurred
(payable promptly upon written request), for or on account of or arising from or
in connection with any information prepared by and furnished or to be furnished
by any of the Trust, Loan Originator, Servicer or the Depositor pursuant to or
in connection with the transactions contemplated hereby including, without
limitation, such written information as may have been and may be furnished in
connection with any due diligence investigation with respect to the business,
operations, financial condition of the Trust, Loan Originator, the Servicer, the
Depositor or with respect to the Loans, to the extent such information contains
any untrue statement of material fact or omits to state a material fact
necessary to make the statements contained herein or therein not misleading;
provided, however, that the Trust, Loan Originator, Servicer or the Depositor
shall not be so required to indemnify an Indemnified Party or to otherwise be
liable to an Indemnified Party for any losses in respect of the performance of
the Loans, the creditworthiness of the Borrowers under the Loans, changes in the
market value of the Loans or other, similar investment risks associated with the
Loans or for any losses arising from a breach of any representation or warranty
set forth in Sections 4.02 or 4.04 of the Trust and Servicing Agreement hereof,
to the extent that a remedy for the breach of which is provided in Sections 3.05
or 4.05 of the Trust and Servicing Agreement. The indemnities contained in this
Section 9.01 will be in addition to any liability which the Trust, the Servicer
or the Depositor may otherwise have pursuant to this Certificate Purchase
Agreement and any other Basic Document.
SECTION 9.02. Procedure and Defense. In case any action or
proceeding (including any governmental or regulatory investigation or
proceeding) shall be instituted involving any Indemnified Party in respect of
which indemnity may be sought pursuant to Section 9.01, such Indemnified Party
shall promptly notify the Trust, the Servicer and the Depositor in writing and,
upon request of the Indemnified Party, the Trust, the Servicer and the Depositor
shall assume the defense thereof, including the employment of counsel reasonably
satisfactory to such Indemnified Party to represent such Indemnified Party and
any others the indemnifying party may designate and shall pay the reasonable
fees and disbursements of such counsel related to such proceeding; provided that
no failure to give such notice or deliver such documents shall effect the rights
to indemnity hereunder. The Indemnified Party will have the right to employ its
own counsel in any such action in addition to the counsel of the Servicer, but
the fees and expenses of such counsel will be at the expense of such Indemnified
Party, unless (i) the employment of counsel by the Indemnified Party at its
expense has been reasonably authorized in writing by the Depositor, Trust or
Servicer, (ii) the Depositor, Trust or Servicer has not in fact employed counsel
to assume the defense of such
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<PAGE> 20
action within a reasonable time after receiving notice of the commencement of
the action, or (iii) the named parties to any such action or proceeding
(including any impleaded parties) including the Depositor, Trust or Servicer and
one or more Indemnified Parties, and the Indemnified Parties shall have been
advised by counsel that there may be one or more legal defenses available to
them which are different from or additional to those available to the Depositor,
Trust or Servicer. Expenses of counsel to any Indemnified Party shall be
reimbursed by the Trust, the Servicer and the Depositor as they are incurred.
The Trust, the Servicer and the Depositor shall not be liable for any settlement
of any proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the Indemnified Party from and against any loss or
liability by reason of such settlement or judgment. Neither the Trust, the
Servicer nor the Depositor will, without the prior written consent of the
Indemnified Party, effect any settlement of any pending or threatened proceeding
in respect of which any Indemnified Party is or could have been a party and
indemnity could have been sought hereunder by such Indemnified Party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such proceeding.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Amendments. No amendment or waiver of any
provision of this Certificate Purchase Agreement shall in any event be effective
unless the same shall be in writing and signed by all of the parties hereto, and
then such amendment, waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 10.02. Notices. All notices and other communications
provided for hereunder shall, unless otherwise stated herein, be in writing
(including telecopies) and mailed, telecopied or delivered (with a copy
delivered by overnight courier), as to each party hereto, at its address as set
forth in Schedule II hereto or at such other address as shall be designated by
such party in a written notice to the other parties hereto. All such notices and
communications shall be deemed effective upon receipt thereof, and in the case
of telecopies, when receipt is confirmed by telephone.
SECTION 10.03. No Waiver; Remedies. No failure on the part of
any party hereto to exercise, and no delay in exercising, any right hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right hereunder preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
SECTION 10.04. Binding Effect; Assignability.
(a) This Certificate Purchase Agreement shall be binding upon
and inure to the benefit of the Trust, the Depositor and the Purchaser and their
respective permitted successors and assigns (including any subsequent holders of
the Purchased Certificates);
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<PAGE> 21
provided, however, neither the Trust or the Depositor shall have any right to
assign their respective rights hereunder or interest herein (by operation of law
or otherwise) without the prior written consent of the Purchaser.
(b) The Purchaser may, in the ordinary course of its business
and in accordance with applicable law, including applicable securities laws, at
any time sell to one or more Persons (each, a "Participant"), participating
interests in all or a portion of its rights and obligations under this
Certificate Purchase Agreement. Notwithstanding any such sale by the Purchaser
of participating interests to a Participant, the Purchaser's rights and
obligations under this Certificate Purchase Agreement shall remain unchanged,
the Purchaser shall remain solely responsible for the performance thereof, and
the Trust and the Depositor shall continue to deal solely and directly with the
Purchaser and shall have no obligations to deal with any Participant in
connection with the Purchaser's rights and obligations under this Certificate
Purchase Agreement. Each of the Trust and the Depositor also agrees that each
Participant shall be entitled to the benefits of Article IX hereof; provided,
however, that all amounts payable by the Trust or the Depositor to the
Participant shall be limited to the amounts which would have been payable
directly to the Purchaser with respect to such participating interest had the
Purchaser, rather than the participant, held such participating interest.
(c) This Certificate Purchase Agreement shall create and
constitute the continuing obligation of the parties hereto in accordance with
its terms, and shall remain in full force and effect until such time as all
amounts payable with respect to the Purchased Certificates shall have been paid
in full.
SECTION 10.05. Provision of Documents and Information. Each of
the Trust and the Depositor acknowledges and agrees that the Purchaser is
permitted to provide to any subsequent Purchaser, permitted assignees and
Participants, opinions, certificates, documents and other information relating
to the Trust, the Depositor and the Loans delivered to the Purchaser pursuant to
this Certificate Purchase Agreement.
SECTION 10.06. GOVERNING LAW; JURISDICTION. THIS CERTIFICATE
PURCHASE AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW
PROVISIONS. EACH OF THE PARTIES TO THIS CERTIFICATE PURCHASE AGREEMENT HEREBY
AGREES TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK AND ANY APPELLATE COURT HAVING JURISDICTION TO REVIEW THE
JUDGMENTS THEREOF. EACH OF THE PARTIES HEREBY WAIVES ANY OBJECTION BASED ON
FORUM NON CONVENIENS AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED
HEREUNDER IN ANY OF THE AFOREMENTIONED COURTS AND CONSENTS TO THE GRANTING OF
SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.
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SECTION 10.07. No Proceedings. Until the date that is one year
and one day after the last day on which any amount is outstanding under this
Certificate Purchase Agreement, the Depositor and the Purchaser hereby covenant
and agree that they will not institute against the Trust, or join in any
institution against the Trust of, any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings, or other proceedings under any United
States federal or state bankruptcy or similar law.
SECTION 10.08. Execution in Counterparts. This Certificate
Purchase Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which when taken together
shall constitute one and the same agreement.
SECTION 10.09. No Recourse - Purchaser.
(a) The obligations of the Purchaser under this Certificate
Purchase Agreement, or any other agreement, instrument, document or certificate
executed and delivered by or issued by the Purchaser or any officer thereof are
solely the partnership or corporate obligations of the Purchaser, as the case
may be. No recourse shall be had for payment of any fee or other obligation or
claim arising out of or relating to this Certificate Purchase Agreement or any
other agreement, instrument, document or certificate executed and delivered or
issued by the Purchaser or any officer thereof in connection therewith, against
any stockholder, limited partner, employee, officer, director or incorporator of
the Purchaser.
(b) The Purchaser by accepting the Certificate acknowledges
that such Certificate represents an obligation of the Trust and does not
represent an interest in or an obligation of the Loan Originator, the Servicer,
the Transfer Obligor, the Depositor, the Administrator, the Owner Trustee or any
Affiliate thereof and no recourse may be had against such parties or their
assets, except as may be expressly set forth or contemplated in this Agreement,
the Certificate or the Basic Documents.
SECTION 10.10. Survival. All representations, warranties,
covenants, guaranties and indemnifications contained in this Certificate
Purchase Agreement and in any document, certificate or statement delivered
pursuant hereto or in connection herewith shall survive the sale, transfer or
repayment of the Purchased Certificates.
SECTION 10.11. Tax Characterization. Each party to this
Certificate Purchase Agreement (a) acknowledges and agrees that it is the intent
of the parties to this Certificate Purchase Agreement that for all purposes,
including federal, state and local income, single business and franchise tax
purposes, the trust created under the Trust and Servicing Agreement will not be
characterized as an association (or publicly traded partnership) taxable as a
corporation, (b) agrees to treat the Purchased Certificates for federal, state
and local income and franchise tax purposes as partnership interests and (c)
agrees that the provisions of all Basic Documents shall be construed to further
these intentions of the parties.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 23
IN WITNESS WHEREOF, the parties have caused this Certificate
Purchase Agreement to be executed by their respective officers hereunto duly
authorized, as of the date first above written.
FINOVA COMMERCIAL MORTGAGE LOAN
OWNER TRUST 1998-1,
as Trust
By: Wilmington Trust Company, not in its
individual capacity but solely as Owner
Trustee
By: /s/James P. Lawler
---------------------------------------
Name: James P. Lawler
Title: Vice President
MORGAN STANLEY SECURITIZATION
FUNDING INC.,
as Purchaser
By: /s/J. Douglas Van Ness
---------------------------------------
Name: Douglas Van Ness
Title:
FINOVA REALTY CAPITAL WAREHOUSE
FUNDING, L.P.,
as Depositor
By: FINOVA Warehouse Funding
Inc., as General Partner
By: /s/Melissa Huckins
---------------------------------------
Name: Melissa Huckins
Title: Vice President - Assistant Treasurer
-20-
<PAGE> 24
ACCEPTED AND AGREED
WILMINGTON TRUST COMPANY, as Owner Trustee
By: /s/ James P. Lawler
---------------------------
Name:
Title:
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<PAGE> 25
SCHEDULE I
[PURCHASER ACCOUNT INFORMATION]
Citibank: ABA Routing number: 021000089.
For the Account of MSSFI: Account number: 40739088.
I-1
<PAGE> 26
SCHEDULE II
[INFORMATION FOR NOTICES]
1. if to the Trust:
FINOVA Commercial Mortgage Loan Owner Trust 1998-1
c/o Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust Administration
Telecopy: (302) 651-8882
Telephone:(302) 651-1000
2. if to the Loan Originator:
FINOVA Capital Corporation
1850 N. Central Ave.
Phoenix, AZ 85004
Attention: Frederick C. Bauman
Telecopy number: (602) 207-5036
Telephone number: (602) 207-6904
3. if to the Depositor:
FINOVA Realty Capital Warehouse Funding, L.P.
c/o FINOVA Realty Capital Funding Inc.,
1850 N. Central Ave.
Phoenix, AZ 85004
Attention: Frederick C. Bauman
Telecopy number: (602) 207-5036
Telephone number: (602) 207-6904
II-1
<PAGE> 27
4. if to the Purchaser:
Morgan Stanley Securitization Funding Inc.
1585 Broadway
New York, New York 10036
Attention: J. Douglas Van Ness
Telecopy:(212) 761-0782
Telephone:(212) 761-1779
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<PAGE> 1
EXHIBIT 10.T.2
TRUST AND SERVICING AGREEMENT
Dated as of September 1, 1998
among
FINOVA COMMERCIAL MORTGAGE LOAN OWNER TRUST 1998-1
(Trust)
FINOVA REALTY CAPITAL WAREHOUSE FUNDING, L.P.
(Depositor)
FINOVA CAPITAL CORPORATION
(Loan Originator)
FINOVA CAPITAL CORPORATION
(Servicer)
FINOVA CAPITAL CORPORATION
(Transfer Obligor)
and
WILMINGTON TRUST COMPANY
(Owner Trustee)
FINOVA COMMERCIAL MORTGAGE LOAN OWNER TRUST 1998-1
COMMERCIAL MORTGAGE LOAN ASSET-BACKED CERTIFICATES
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
DEFINITIONS
Section 1.01 Definitions....................................................................................... 1
Section 1.02 Other Definitional Provisions..................................................................... 30
ARTICLE II
ORGANIZATION
Section 2.01 Name .............................................................................................. 31
Section 2.02 Office ............................................................................................ 31
Section 2.03 Purposes and Powers................................................................................ 31
Section 2.04 Appointment of Owner Trustee....................................................................... 32
Section 2.05 Initial Capital Contribution of Owner Trust Estate................................................. 32
Section 2.06 Declaration of Trust............................................................................... 32
Section 2.07 Title to Trust Property............................................................................ 33
Section 2.08 Situs of Trust..................................................................................... 33
ARTICLE III
CONVEYANCE OF THE OWNER TRUST ESTATE;
ADDITIONAL CLASS A CERTIFICATE PRINCIPAL
BALANCES
Section 3.01 Conveyance of the Owner Trust Estate; Additional Class A Certificate Principal Balances............ 34
Section 3.02 Ownership and Possession of Loan Files............................................................. 35
Section 3.03 Books and Records; Intention of the Parties........................................................ 36
Section 3.04 Delivery of Loan Documents......................................................................... 36
Section 3.05 Acceptance by the Owner Trustee of the Loans; Certain
Substitutions and Repurchases; Certification by the Custodian................................ ..... 39
Section 3.06 Conditions Precedent to Transfer Dates and Purchase Value Excess Dates............................. 40
Section 3.07 Termination of Revolving Period.................................................................... 42
</TABLE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
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<TABLE>
<S> <C>
Section 4.01 Representations and Warranties of the Depositor.................................................... 43
Section 4.02 Representations and Warranties of the Loan Originator.............................................. 46
Section 4.03 Representations, Warranties and Covenants of the Servicer.......................................... 49
Section 4.04 Representations and Warranties Regarding Loans..................................................... 52
Section 4.05 Purchase and Substitution.......................................................................... 62
Section 4.06 Dispositions....................................................................................... 65
Section 4.07 Loan Originator Put; Servicer Call................................................................. 67
Section 4.08 Modification of Underwriting Guidelines............................................................ 68
Section 4.09 Covenants of Trust................................................................................. 68
Section 4.10 Representations and Warranties of the Transfer Obligor............................................. 74
ARTICLE V
ADMINISTRATION AND SERVICING OF THE LOANS
Section 5.01 Duties of the Servicer............................................................................. 76
Section 5.02 Authority of the Servicer.......................................................................... 78
Section 5.03 Subservicing Agreements Between Servicer and Subservicers.......................................... 79
Section 5.04 Escrow Accounts; Collection of Taxes, Assessments and Similar
Items............................................................................................ 80
Section 5.05 Maintenance of Insurance Policies.................................................................. 81
Section 5.06 Inspections........................................................................................ 82
Section 5.07 "Due-on-Sale" Clauses; Assumption Agreements....................................................... 82
Section 5.08 Servicing Advances................................................................................. 83
Section 5.09 Periodic Advances.................................................................................. 83
Section 5.10 Realization Upon Mortgaged Properties.............................................................. 84
Section 5.11 Sale of Foreclosure Properties..................................................................... 86
Section 5.12 Management of Foreclosure Property................................................................. 86
Section 5.13 Release of Files................................................................................... 88
Section 5.14 Access to Information.............................................................................. 88
Section 5.15 Release of Loan Files.............................................................................. 89
Section 5.16 Servicing Compensation............................................................................. 90
Section 5.17 Statement as to Compliance and Financial Statements................................................ 90
Section 5.18 Independent Public Accountants' Servicing Report................................................... 92
Section 5.19 Modifications, Waivers, Amendments and Consents.................................................... 92
Section 5.20 Administration of Lockbox Accounts by the Servicer................................................. 92
Section 5.21 Collections Lockbox Account........................................................................ 93
Section 5.22 Year 2000 Compliance............................................................................... 94
ARTICLE VI
CERTIFICATES AND TRANSFER OF INTERESTS
Section 6.01 Initial Ownership.................................................................................. 94
Section 6.02 The Certificates................................................................................... 94
</TABLE>
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<TABLE>
<S> <C>
Section 6.03 Execution, Authentication and Delivery of Certificates............................................. 95
Section 6.04 Additional Class A Certificate Principal Balance................................................... 95
Section 6.05 Mutilated, Destroyed, Lost or Stolen Certificates.................................................. 96
Section 6.06 Persons Deemed Certificateholders.................................................................. 96
Section 6.07 Access to List of Certificateholders' Names and Addresses.......................................... 96
Section 6.08 Maintenance of Office or Agency.................................................................... 96
Section 6.09 Restrictions on Transfer of Certificates........................................................... 97
Section 6.10 Registration; Registration of Transfer and Exchange................................................ 98
Section 6.11 Distribution of Principal and/or Interest; Defaulted Interest...................................... 99
Section 6.12 Reserved.......................................................................................... 100
Section 6.13 144A Information.................................................................................. 100
ARTICLE VII
ESTABLISHMENT OF TRUST ACCOUNTS
Section 7.01 Collection Account and Distribution Account....................................................... 101
Section 7.02 Distributions to Certificateholders............................................................... 105
Section 7.03 Trust Accounts; Trust Account Property............................................................ 105
Section 7.04 Advance Account................................................................................... 108
Section 7.05 Transfer Obligation Account....................................................................... 108
Section 7.06 Transfer Obligation............................................................................... 109
ARTICLE VIII
STATEMENTS AND REPORTS
Section 8.01 Statements........................................................................................ 111
Section 8.02 Reserved.......................................................................................... 114
Section 8.03 Valuation of Loans, Hedge Value and Retained Securities Value;
Market Value Agent............................................................................. 114
ARTICLE IX
HEDGING
Section 9.01 Hedging Instruments............................................................................... 115
ARTICLE X
ACTIONS BY OWNER TRUSTEE
Section 10.01 Prior Notice to Certificateholders with Respect to Certain Matters............................... 116
Section 10.02 Action by Certificateholders with Respect to Certain Matters..................................... 119
Section 10.03 Restrictions on Certificateholders' Power........................................................ 119
</TABLE>
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<TABLE>
<S> <C>
Section 10.04 Majority Control................................................................................. 120
ARTICLE XI
AUTHORITY AND DUTIES OF OWNER TRUSTEE
Section 11.01 General Authority................................................................................ 120
Section 11.02 General Duties................................................................................... 120
Section 11.03 Action Upon Instruction.......................................................................... 120
Section 11.04 No Duties Except as Specified in this Agreement, the Basic Documents or in Instructions.......... 121
Section 11.05 No Action Except Under Specified Documents or Instructions....................................... 122
Section 11.06 Restrictions..................................................................................... 122
Section 11.07 Accounting of Trust Funds; Withholding........................................................... 122
Section 11.08 Accounting and Reports to Certificateholders, the Internal Revenue Service and Others............ 123
ARTICLE XII
CONCERNING THE OWNER TRUSTEE; COMPENSATION
Section 12.01 Acceptance of Trusts and Duties.................................................................. 123
Section 12.02 Furnishing of Documents.......................................................................... 124
Section 12.03 Representations and Warranties................................................................... 125
Section 12.04 Reliance; Advice of Counsel...................................................................... 125
Section 12.05 Not Acting in Individual Capacity................................................................ 126
Section 12.06 Owner Trustee Not Liable for Certificates or Loans............................................... 126
Section 12.07 Licenses......................................................................................... 126
Section 12.08 Fees and Expenses................................................................................ 126
Section 12.09 Indemnification.................................................................................. 127
Section 12.10 Payments to the Owner Trustee.................................................................... 127
ARTICLE XIII
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL
OWNER TRUSTEES
Section 13.01 Eligibility Requirements for Owner Trustee....................................................... 127
Section 13.02 Resignation or Removal of Owner Trustee.......................................................... 128
Section 13.03 Successor Owner Trustee.......................................................................... 128
Section 13.04 Merger or Consolidation of Owner Trustee......................................................... 129
Section 13.05 Appointment of Co-Owner Trustee or Separate Owner Trustee........................................ 129
</TABLE>
ARTICLE XIV
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<PAGE> 6
THE SERVICER
<TABLE>
<S> <C>
Section 14.01 Indemnification; Third Party Claims.............................................................. 130
Section 14.02 Merger or Consolidation of the Servicer.......................................................... 132
Section 14.03 Limitation on Liability of the Servicer and Others............................................... 132
Section 14.04 Servicer Not to Resign; Assignment............................................................... 132
Section 14.05 Relationship of Servicer to Trust and the Owner Trustee.......................................... 133
Section 14.06 Servicer May Own Certificates.................................................................... 133
Section 14.07 Indemnification of the Initial Class A Certificateholder......................................... 133
ARTICLE XV
SERVICER EVENTS OF DEFAULT; CERTIFICATE EVENTS
OF DEFAULT; REMEDIES
Section 15.01 Events of Default................................................................................ 134
Section 15.02 Appointment of Successor......................................................................... 135
Section 15.03 Performance and Enforcement of Certain Obligations............................................... 136
Section 15.04 Accounting Upon Termination of Servicer.......................................................... 137
Section 15.05 Certificate Events of Default.................................................................... 137
Section 15.06 Acceleration of Maturity; Rescission and Annulment............................................... 139
Section 15.07 Collection of Indebtedness and Suits for Enforcement by Owner Trustee............................ 140
Section 15.08 Remedies; Priorities............................................................................. 142
Section 15.09 Reserved......................................................................................... 144
Section 15.10 Limitation of Suits.............................................................................. 144
Section 15.11 Unconditional Rights of Class A Certificateholders to Receive Principal and/or Interest.......... 145
Section 15.12 Restoration of Rights and Remedies............................................................... 145
Section 15.13 Rights and Remedies Cumulative................................................................... 145
Section 15.14 Delay or Omission Not a Waiver................................................................... 146
Section 15.15 Control by Certificateholders.................................................................... 146
Section 15.16 Waiver of Past Defaults.......................................................................... 146
Section 15.17 Undertaking for Costs............................................................................ 147
Section 15.18 Waiver of Stay or Extension Laws................................................................. 147
Section 15.19 Action on Certificates........................................................................... 147
ARTICLE XVI
TERMINATION; PUT OPTION
Section 16.01 Termination...................................................................................... 148
Section 16.02 Optional Termination............................................................................. 148
Section 16.03 Notice of Termination; Cancellation of Certificate of Trust...................................... 150
Section 16.04 Put Option....................................................................................... 150
</TABLE>
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<TABLE>
<S> <C>
Section 16.05 Form of Put Option Notice........................................................................ 150
Section 16.06 Class A Certificates Mature on Put Date.......................................................... 150
ARTICLE XVII
MISCELLANEOUS PROVISIONS
Section 17.01 Acts of Certificateholders....................................................................... 151
Section 17.02 Amendment........................................................................................ 151
Section 17.03 Recordation of Agreement......................................................................... 152
Section 17.04 Duration of Agreement............................................................................ 152
Section 17.05 Governing Law.................................................................................... 152
Section 17.06 Notices.......................................................................................... 152
Section 17.07 Severability of Provisions....................................................................... 153
Section 17.08 No Legal Title to Owner Trust Estate in Certificateholders....................................... 153
Section 17.09 Counterparts..................................................................................... 153
Section 17.10 Successors and Assigns........................................................................... 154
Section 17.11 Headings......................................................................................... 154
Section 17.12 Actions of Certificateholders.................................................................... 154
Section 17.13 Non-Petition Agreement........................................................................... 154
Section 17.14 Holders of the Certificates...................................................................... 155
Section 17.15 Due Diligence Fees, Due Diligence................................................................ 155
</TABLE>
EXHIBIT A Form of Notice of Additional Class A Certificate Principal
Balance
EXHIBIT B Form of Servicer's Remittance Report to Owner Trustee
EXHIBIT C Form of T&SA Assignment
EXHIBIT D [Reserved]
EXHIBIT E-1 Form of Class A Certificate
EXHIBIT E-2 Form of Class B Certificate
EXHIBIT F Form of Certificate of Trust
EXHIBIT G Bailee Agreement
EXHIBIT H-1 Form of Transferor Affidavit (144A)
EXHIBIT H-2 Form of Transferee Affidavit (Accredited Investor)
EXHIBIT H-3 Form of Transfer Affidavit
ANNEX A Tax Considerations
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<PAGE> 8
This Trust and Servicing Agreement is entered into effective
as of September 1, 1998, among FINOVA COMMERCIAL MORTGAGE LOAN OWNER TRUST
1998-1, a Delaware business trust (the "Trust"), FINOVA REALTY CAPITAL WAREHOUSE
FUNDING, L.P., a Delaware limited partnership, as Depositor (the "Depositor"),
FINOVA CAPITAL CORPORATION, a Delaware corporation, as Loan Originator (the
"Loan Originator"), FINOVA CAPITAL CORPORATION, a Delaware corporation, as
Transfer Obligor (the "Transfer Obligor"), FINOVA CAPITAL CORPORATION, as
Servicer (the "Servicer") and WILMINGTON TRUST COMPANY, a Delaware banking
corporation, as Owner Trustee on behalf of the Certificateholders (in such
capacity, the "Owner Trustee").
W I T N E S S E T H:
In consideration of the mutual agreements herein contained,
the Trust, the Depositor, the Loan Originator, the Transfer Obligor, the
Servicer and the Owner Trustee hereby agree as follows for the benefit of each
of them and for the benefit of the holders of Certificates issued hereunder:
ARTICLE I
DEFINITIONS
Section 1.01 Definitions.
Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the meanings
specified in this Article. Unless otherwise specified, all calculations of
interest described herein shall be made on the basis of a 360-day year and the
actual number of days elapsed in each Accrual Period.
Accrual Period: With respect to the Class A Certificates, the
period commencing on and including the preceding Distribution Date (or, in the
case of the first Distribution Date, the period commencing on and including the
first Transfer Date) and ending on the day preceding the related Distribution
Date.
Act or Securities Act: The Securities Act of 1933, as amended.
Additional Class A Certificate Principal Balance:
(a) With respect to each Transfer Date, the aggregate Purchase
Value of all Loans conveyed on such date less any Overcollateralization
Shortfall as of such date.
(b) With respect to each Purchase Value Excess Date, an amount
equal to the Additional Class A Certificate Principal Balance that the
Trust sells to the Initial Class A Certificateholder pursuant to the
Certificate Purchase Agreement on such Purchase Value Excess Date.
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Adjustable Rate Loan: Any Loan, the Loan Interest Rate with
respect to which is subject to adjustment.
Administration Agreement: The Administration Agreement, dated
as of September 1, 1998, among the Trust and FINOVA Capital Corporation, as
Administrator and as Servicer.
Administrator: FINOVA Capital Corporation, or any successor in
interest thereto, in its capacity as Administrator under the Administration
Agreement.
Advance Account: The account established and maintained
pursuant to Section 7.04.
Advance Factor: With respect to each Loan, 85%. The Loan
Originator and Initial Class A Certificateholder may agree to such lower Advance
Factor as is specified in a supplemental writing with respect to a Loan.
Affiliate: With respect to any specified Person, any other
Person controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, the term "control", when used with
respect to any specified Person, means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise, and the terms "controlling" and
"controlled" have corresponding meanings.
Agreement: This Agreement, as the same may be amended and
supplemented from time to time.
ALTA: The American Land Title Association and its successors
in interest.
Appraised Value: The value set forth in an appraisal made in
connection with the origination of the related Loan as the value of the
Mortgaged Property.
Assignment: A LPA Assignment or T&SA Assignment.
Assignment of Mortgage: With respect to any Loan, an
assignment in blank of the related Mortgage, notice of transfer or equivalent
instrument in recordable form, sufficient under the laws of the jurisdiction
wherein the related Mortgaged Property is located to reflect the assignment and
pledge of such Mortgage.
Bailee: An entity approved by the Initial Class A
Certificateholder in its sole discretion to act as a bailee under the Bailee
Agreement.
Bailee Agreement: A Bailee Agreement, among the Loan
Originator, the Initial Class A Certificateholder, and a Bailee, substantially
in the form of Exhibit G attached hereto as the same may be amended,
supplemented, or otherwise modified from time to time.
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Bailee Loan: A Loan (i) which has been designated as such by
the Initial Class A Certificateholder in its sole discretion and (ii) for which
the associated Custodial Loan Files will be held by a Bailee under the Bailee
Agreement and will be delivered to the Custodian as required by Section
3.05(b)(i).
Basic Documents: This Agreement, the Administration Agreement,
the Custodial Agreement, the Loan Purchase Agreement, the Certificate Purchase
Agreement, each Hedging Instrument, the Master Loan Purchase Agreement and, as
and when required to be executed and delivered, the Assignments and the Lockbox
Agreement.
Benefit Plan Investor: Shall have the meaning assigned to such
term in Section 6.09(b).
Best's: Best's Key Rating Guide, as the same shall be amended
from time to time.
Borrower: The obligor or obligors on a Promissory Note.
Business Day: Any day other than (i) a Saturday or Sunday, or
(ii) a day on which banking institutions in New York City or in the city in
which the corporate trust office of the Owner Trustee is located or the city in
which the Servicer's servicing operations are located are authorized or
obligated by law or executive order to be closed.
Business Trust Statute: Chapter 38 of Title 12 of the Delaware
Code, 12 Del. Code Section 3801 et seq., as the same may be amended from time to
time.
CERCLA: The Comprehensive Environmental Response, Compensation
and Liability Act, or any successor statute thereto.
Certificate: Any one of the Class A Certificates or Class B
Certificates.
Certificate Event of Default: shall have the meaning provided
in Section 15.05 hereof.
Certificate of Trust: The Certificate of Trust in the form of
Exhibit F to be filed for the Trust pursuant to Section 3810(a) of the Business
Trust Statute.
Certificate Purchase Agreement: The Certificate Purchase
Agreement among MSSFI, the Trust and the Depositor, dated as of September 29,
1998.
Certificate Register and Certificate Registrar have the
respective meanings specified in Section 6.10 hereof.
Certificateholder or Holder: The Person in whose name a
Certificate is registered.
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Class A Certificate: Any one of the Class A Certificates
executed by the Trust and authenticated by the Owner Trustee in substantially
the form set forth in Exhibit E-1 hereto.
Class A Certificate Interest Rate: Interest will accrue on the
Class A Certificates on each day at a per annum interest rate equal to LIBOR for
the related LIBOR Determination Date plus the LIBOR Margin for such day.
Class A Certificate Principal Balance: With respect to the
Class A Certificates, as of any date of determination (a) the sum of the
Additional Class A Certificate Principal Balances of all Class A Certificates
transferred on or prior to such date pursuant to the Certificate Purchase
Agreement less (b) all amounts previously distributed in respect of principal of
the Class A Certificates prior to such day.
Class A Certificate Redemption Amount: As of any date of
determination, an amount without duplication equal to the sum of (i) then
outstanding Class A Certificate Principal Balance plus all accrued and unpaid
interest thereon (ii) any Trust Fees and Expenses due and unpaid on such date,
(iii) any Servicing Advance Reimbursement Amount and (iv) any Nonrecoverable
Periodic Advances.
Class A Certificateholder: The person in whose name a Class A
Certificate is registered.
Class B Certificate: Any one of the Class B Certificates
executed by the Trust and authenticated by the Owner Trustee in substantially
the form set forth in Exhibit E-2 hereto.
Class B Certificateholder: The person in whose name a Class B
Certificate is registered.
Clean-up Call Date: The first Distribution Date occurring on
or after the end of the Revolving Period on which the Class A Certificate
Principal Balance declines to 10% or less of the aggregate Class A Certificate
Principal Balance as of the end of the Revolving Period.
Closing Date: September 29, 1998.
Code: The Internal Revenue Code of 1986, as amended from time
to time, and the regulations promulgated by the United States Treasury
thereunder.
Collection Account: The account designated as such,
established and maintained by the Servicer in accordance with Section 7.01(a)(1)
hereof.
Collection Account Trigger Event: In the event the Servicer
does not have a long term unsecured debt rating from Moody's of at least "Baa2"
and a long term unsecured debt rating of at least "BBB" by S&P.
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Collections Lockbox Account: An Eligible Account held by the
Collections Lockbox Bank acceptable to the Majority Certificateholders.
Collections Lockbox Agreement: An agreement acceptable to the
Owner Trustee and the Majority Certificateholders among the Collections Lockbox
Bank, the Servicer, the Depositor, the Trust and the Owner Trustee.
Collections Lockbox Bank: A depository institution named by
the Servicer and agreed to by the Majority Certificateholders.
Collections Lockbox Trigger Event: The Majority
Certificateholders, in their sole discretion may declare the occurrence of a
Collections Lockbox Trigger Event at any time after Midland Loan Services, Inc.
(or another Subservicer acceptable to the Majority Certificateholders) ceases to
be a Subservicer hereunder. The foregoing notwithstanding, the Majority
Certificateholders shall not be entitled to declare the occurrence of a
Collections Lockbox Trigger Event (1) if Servicer services the Loans directly
without a Subservicer or (2) if FINOVA Portfolio Services Inc. is Subservicer.
Commercial Loan: A Loan secured by a first mortgage lien on a
retail, office, hotel or other commercial property.
Commission: The Securities and Exchange Commission.
Condemnation Proceeds: With respect to a Loan, all awards or
settlements in respect of the related Mortgaged Property, whether permanent or
temporary, partial or entire, by exercise of the power of eminent domain or
condemnation.
Corporate Trust Office: With respect to the Owner Trustee, the
principal corporate trust office of the Owner Trustee located at Rodney Square
North , Attention: Corporate Trust Administration, telecopy number: (302)
651-8882, telephone number: (302) 651-1000; or at such other address in the
State of Delaware as the Owner Trustee may designate by notice to the
Certificateholders and the Depositor, or the principal corporate trust office of
any successor Owner Trustee (the address (which shall be in the State of
Delaware) of which the successor Owner Trustee will notify the Owners).
Custodial Agreement: The custodial agreement dated as of
September 1, 1998, among the Trust, the Owner Trustee, the Servicer and the
Custodian, providing for the retention of the Custodial Loan Files by the
Custodian on behalf of the Owner Trustee.
Custodial Loan File: As defined in Section 3.04.
Custodian: Any custodian pursuant to the Custodial Agreement,
which custodian shall not be affiliated with the Servicer, the Loan Originator,
any Subservicer or the Depositor. LaSalle National Bank, a national banking
association, shall be the initial Custodian pursuant to the terms of the
Custodial Agreement.
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Custodian Fee: If applicable, the annual fee payable to the
Custodian, calculated and payable monthly on each Distribution Date pursuant to
Section 7.01(c)(3)(i) hereof equal to the fee, if any, set forth in the
Custodial Agreement.
Daily Interest Accrual Amount: With respect to each day,
interest accrued at the Class A Certificate Interest Rate with respect to such
day on the Class A Certificate Principal Balance as of the preceding Business
Day after giving effect to all changes to the Class A Certificate Principal
Balance on or prior to such preceding day.
Deemed Cured: A Performance Trigger or Rapid Amortization
Trigger shall be Deemed Cured on the 31st consecutive day on which the condition
that originally gave rise to such event has not continued, provided, however, if
all Put/Call Loans that are 30 or more days Delinquent are purchased as the
result of the exercise of a Servicer Call, then a Performance Trigger or a Rapid
Amortization Trigger, as the case may be, shall be Deemed Cured as of the date
of the receipt of the Purchase Price therefor.
Default: Any occurrence that is, or with notice or the lapse
of time or both would become, an Servicer Event of Default or a Certificate
Event of Default.
Defaulted Loan: With respect to any date of determination, any
Loan, including, without limitation, any Liquidated Loan with respect to which
any of the following has occurred as of the end of the preceding Due Period: (a)
foreclosure or similar proceedings have been commenced; (b) any portion of a
Monthly Payment becomes 59 days past due by the related Borrower; or (c) the
Servicer or any Subservicer has determined in good faith and in accordance with
the Servicing Standard that such Loan is in default or imminent default.
Defective Loan: As defined in Section 4.05(a) hereof.
Deleted Loan: A Loan replaced or to be replaced by one or more
than one Qualified Substitute Loan.
Delinquent: A Loan is "Delinquent" if any Monthly Payment due
thereon is not made by the close of business on the day such Monthly Payment is
required to be paid. A Loan is "30 days Delinquent" if any Monthly Payment due
thereon has not been received by the close of business on the corresponding day
of the month immediately succeeding the month in which such Monthly Payment was
required to be paid or, if there is no such corresponding day (e.g., as when a
30-day month follows a 31-day month in which a payment was required to be paid
on the 31st day of such month), then on the last day of such immediately
succeeding month. The determination of whether a Loan is "60 days Delinquent,"
"90 days Delinquent", etc., shall be done in like manner.
Delivery: When used with respect to Trust Account Property
means:
(a) with respect to bankers' acceptances, commercial paper,
negotiable certificates of deposit and other obligations that
constitute "instruments" within the meaning of Section 9-105(1)(i) of
the UCC and are susceptible of physical delivery
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(except with respect to Trust Account Property consisting of
certificated securities (as defined in Section 8-102(a)(4) of the
UCC)), physical delivery to the Owner Trustee or its custodian
endorsed to the Owner Trustee or its custodian or endorsed in blank;
(b) with respect to a certificated security (i) delivery of
such certificated security endorsed to, or registered in the name of,
the Owner Trustee or endorsed in blank to a securities intermediary (as
defined in Section 8-102(a)(14) of the UCC) and the making by such
securities intermediary of appropriate entries in its records
identifying such certificated securities as credited to the securities
account (as defined in Section 8-501(a) of the UCC) of the Owner
Trustee, or (ii) by delivery thereof to a "clearing corporation" (as
defined in Section 8-102(5) of the UCC) and the making by such clearing
corporation of appropriate entries in its records crediting the
securities account of a securities intermediary by the amount of such
certificated security and the making by such securities intermediary of
appropriate entries in its records identifying such certificated
securities as credited to the securities account of the Owner Trustee
(all of the Trust Account Property described in subsections (a) and
(b), "Physical Property");
and, in any event, any such Physical Property in registered
form shall be registered in the name of the Owner Trustee or its
nominee or custodian; and such additional or alternative procedures as
may hereafter become appropriate to effect the complete transfer of
ownership of any such Trust Account Property (as defined herein) to the
Owner Trustee or its nominee or custodian, consistent with then
applicable law or regulations or the interpretation thereof;
(c) with respect to any security issued by the U.S. Treasury,
FNMA or FHLMC that is a book-entry security held through the Federal
Reserve System pursuant to federal book-entry regulations, the
following procedures, all in accordance with applicable law, including
applicable federal regulations and Articles 8 and 9 of the UCC: the
making by a Federal Reserve Bank of an appropriate entry crediting such
Trust Account property to an account of a securities intermediary that
is also a "participant" pursuant to applicable federal regulations; the
making by such securities intermediary of appropriate entries in its
records crediting such book-entry security held through the Federal
Reserve System pursuant to federal book-entry regulations and Articles
8 and 9 of the UCC to the securities account of the Owner Trustee; and
such additional or alternative procedures as may hereafter become
appropriate to effect complete transfer of ownership of any such Trust
Account Property to the Owner Trustee or its nominee or custodian,
consistent with then applicable law or regulations or the
interpretation thereof; and
(d) with respect to any item of Trust Account Property that is
an uncertificated security (as defined in Section 8-102(a)(18) of the
UCC) and that is not governed by clause (c) above, registration in the
records of the Trust thereof in the name of the securities
intermediary, and the making by such securities intermediary of
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appropriate entries in its records crediting such uncertificated
certificates to the Owner Trustee.
Depositor: FINOVA Realty Capital Warehouse Funding, L.P., a
Delaware limited partnership, and any successor thereto.
Determination Date: With respect to any Distribution Date, the
second Business Day immediately preceding such Distribution Date.
Disclosure Certificates: means the loan disclosure
certificates prepared by the Loan Originator's counsel for each Loan and
included in the Due Diligence Package for each Loan and any separate disclosure
certificates with respect to any Loan which has been prepared by the Loan
Originator and is included in the Due Diligence Package for such Loan.
Disposition: A Securitization, Whole Loan Sale transaction, or
other disposition of Loans, in each case by the Trust.
Disposition Agent: Morgan Stanley & Co. Incorporated and its
successors and assigns acting at the direction of the Majority
Certificateholders.
Disposition Participant: With respect to a Disposition, any
"depositor" with respect to such Disposition, the Disposition Agent, the
Majority Certificateholders, the Trust, the Servicer, the trustee and the
custodian thereunder, any nationally recognized credit rating agency, the
related underwriters, the related placement agent, the related credit enhancer,
the related whole-loan purchaser, the related purchaser of securities and/or any
other party necessary or, in the good faith belief of any of the foregoing,
desirable to effect a Disposition.
Disposition Proceeds: With respect to a Disposition, (x) the
proceeds of the Disposition remitted to the Trust in respect of the Loans
transferred on the date of and with respect to such Disposition, including
without limitation, any cash and Retained Securities created in any related
Securitization less all costs, fees and expenses incurred in connection with
such Disposition, including, without limitation, all amounts deposited into any
reserve funds upon the closing thereof plus or minus (y) the net positive or net
negative value of all Hedging Instruments terminated in connection with such
Disposition minus (z) all other amounts agreed upon in writing by the Initial
Class A Certificateholder, the Trust and the Servicer.
Distribution Account: The account established and maintained
pursuant to Section 7.01(a)(2) hereof.
Distribution Date: The 11th day of each calendar month
commencing on the first such 11th day to occur after the first Transfer Date, or
if any such day is not a Business Day, the first Business Day immediately
following such day, provided that the final Distribution Date will be the Put
Date or date of a Disposition. From time to time, the Majority
Certificateholders and the Trust may agree, upon written notice to the Owner
Trustee, to additional Distribution Dates in accordance with Section 7.01(c)(4).
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Due Date: The day of the month on which the Monthly Payment is
due from the Borrower with respect to a Loan.
Due Diligence Fees: Shall have the meaning provided in Section
17.15 hereof.
Due Diligence Package: With respect to Loans transferred on a
Transfer Date: (i) the Disclosure Certificate, (ii) a credit committee approval,
including: (a) a summary of the transaction, (b) a summary of the appraisal, (c)
a summary of the environmental report, (d) a summary of the engineering report,
(e) a summary of any other third party reports, if applicable, and (f) the
Initial Class A Certificateholder reserves the right to request originals of any
of the foregoing documents.
Due Period: With respect to any Determination Date or
Distribution Date, the period commencing on and including the preceding
Determination Date (or, in the case of the first Distribution Date, the period
commencing on and including the first Transfer Date) and ending on the day
preceding the related Determination Date.
Eligible Account: At any time, an account which is: (i)
maintained with a depository institution or trust company (A) the long-term debt
obligations of which are at such time rated by each Rating Agency in one of
their three highest long-term rating categories or (B) the short-term debt
obligations of which are then rated by each Rating Agency in their highest
short-term rating category; (ii) fully insured by either the Bank Insurance Fund
or the Savings Association Insurance Fund of the FDIC; (iii) a trust account
(which shall be a "segregated trust account") maintained with the corporate
trust department of a federal or state chartered depository institution or trust
company with trust powers and acting in its fiduciary capacity for the benefit
of the Owner Trustee and the Trust, which depository institution or trust
company shall have capital and surplus of not less than $50,000,000; or (iv)
with the prior written consent of the Majority Certificateholders, any other
account. (Each reference in this definition of "Eligible Account" to the Rating
Agency shall be construed as a reference to Moody's and S&P).
Eligible Servicer: A Person that (a) (i) has demonstrated the
ability professionally and competently to service a portfolio of commercial
mortgage loans similar to the Loans and (ii) has a net worth calculated in
accordance with GAAP of at least $5,000,000 or (b) any other Person to which the
Majority Certificateholders may consent in writing.
Environmental Laws: Any environmental law, ordinance, rule,
regulation or order of a federal, state or local governmental authority,
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (42 U.S.C. Sections
9601 et seq.), the Hazardous Material Transportation Act, as amended (49 U.S.C.
Sections 1801 et seq.), the Resource Conservation and Recovery Act, as
amended (42 U.S.C. Sections 6901 et seq.), the Federal Water Pollution
Control Act, as amended (33 U.S.C. Sections 1251 et seq.), the Clean Air
Act (42 U.S.C. Sections 7401 et seq.) and the regulations promulgated
pursuant thereto.
ERISA: The Employee Retirement Income Security Act of 1974, as
amended.
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Escrow Account: As defined in Section 5.04.
Escrow Payments: With respect to any Loan, the amounts
constituting ground rents, taxes, assessments, water rates, sewer rents,
municipal charges, fire, hazard, liability and other insurance premiums,
condominium charges, and any other payments required to be escrowed by the
related Borrower with the lender pursuant to the Mortgage or any other document.
Event of Default: Either a Servicer Event of Default or a
Certificate Event of Default.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Expected Final Distribution Date: The Expected Final
Distribution Date with respect to the Class A Certificates shall be October 1,
2019, or, if such day is not a Business Day, then the next Business Day, or such
later date as may be agreed in writing by the Majority Certificateholders,
provided that if the Majority Certificateholders shall exercise the Put Option
or a Disposition shall occur, the Expected Final Distribution Date shall be the
earlier of the Put Date and the date of a Disposition.
Expenses: Shall have the meaning assigned to such term in
Section 12.09.
FDIC: The Federal Deposit Insurance Corporation and any
successor thereto.
FHLMC: The Federal Home Loan Mortgage Corporation and any
successor thereto.
Final Put Date: As defined in Section 16.05 hereof.
FNMA: The Federal National Mortgage Association and any
successor thereto.
Foreclosed Loan: As of any date of determination, any Loan
that as of the end of the preceding Due Period has been discharged as a result
of (i) the completion of foreclosure or comparable proceedings by the Servicer,
on behalf of the Trust; (ii) the Owner Trustee's acceptance of the deed or other
evidence of title to the related Mortgaged Property in lieu of foreclosure or
other comparable proceeding; or (iii) the acquisition by the Owner Trustee of
title to the related Mortgaged Property by operation of law.
Foreclosure Property: Any real property securing a Foreclosed
Loan that has been acquired by the Servicer on behalf of the Trust through
foreclosure, deed in lieu of foreclosure or similar proceedings in respect of
the related Loan.
GAAP: Generally accepted accounting principles as in effect in
the United States.
General Partner: FINOVA Warehouse Funding Inc., the general
partner of the Depositor.
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Ground Lease: A lease for all or any portion of the real
property comprising the Mortgaged Property, the lessee's interest in which is
held by the Borrower of the related Loan.
Gross Margin: With respect to each Adjustable Rate Loan, the
fixed percentage amount set forth in the related Promissory Note.
Hazardous Materials: Any substance or material as may be
defined as a hazardous or toxic substance under any applicable Environmental
Law, including, without limitation, gasoline, petroleum products, explosives,
radioactive materials, polychlorinated biphenyls or related or similar
materials, or asbestos or any material containing asbestos.
Hedge Funding Requirement: With respect to any day, all
amounts required to be paid or delivered by the Trust under any Hedging
Instrument, whether in respect of payments thereunder or in order to meet
margin, collateral or other requirements thereof.
Hedge Value: With respect to any Business Day and a specific
Hedging Instrument, the positive amount, if any, that is equal to the amount
that would be paid to the Trust in consideration of an agreement between the
Trust and an unaffiliated third party, that would have the effect of preserving
for the Trust the net economic equivalent, as of such Business Day, of all
payment and delivery requirements payable to and by the Trust under such Hedging
Instrument until the termination thereof, as determined by the Market Value
Agent in accordance with Section 8.03 hereof.
Hedging Counterparty: A Person (i) (A) the long-term and
commercial paper or short-term deposit ratings of which are acceptable to the
Majority Certificateholders and (B) which shall agree in writing that, in the
event that any of its long-term or commercial paper or short-term deposit
ratings cease to be at or above the levels deemed acceptable by the Majority
Certificateholders, it shall secure its obligations in accordance with the
reasonable request of the Majority Certificateholders, (ii) that has entered
into a Hedging Instrument and (iii) that is acceptable to the Majority
Certificateholders.
Hedging Instrument: Any interest rate cap agreement, interest
rate floor agreement, interest rate swap agreement or other interest rate
hedging agreement entered into by the Trust with a Hedging Counterparty, and
which requires the Hedging Counterparty to deposit all amounts payable thereby
directly to the Collection Account. Each Hedging Instrument shall meet the
requirements set forth in Article IX hereof with respect thereto.
Indemnified Party: Any Person whom the Trust or the Depositor
is required to indemnify under any Trust/Depositor Indemnity.
Independent: When used with respect to any specified Person,
such Person (i) is in fact independent of the Loan Originator, the Transfer
Obligor, the Servicer, the Depositor or any of their respective Affiliates, (ii)
does not have any direct financial interest in, or any material indirect
financial interest in, any of the Loan Originator, the Transfer Obligor, the
Servicer, the Depositor or any of their respective Affiliates and (iii) is not
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connected with any of the Loan Originator, the Transfer Obligor, the Servicer,
the Depositor or any of their respective Affiliates, as an officer, employee,
promoter, underwriter, trustee, partner, director or Person performing similar
functions; provided, however, that a Person shall not fail to be Independent of
the Loan Originator, the Transfer Obligor, the Servicer, the Depositor or any of
their respective Affiliates merely because such Person is the beneficial owner
of 1% or less of any class of securities issued by the Loan Originator, the
Transfer Obligor, the Servicer, the Depositor or any of their respective
Affiliates, as the case may be.
Index: With respect to each Adjustable Rate Loan, the index
set forth in the related Promissory Note for the purpose of calculating the
interest rate thereon.
Initial Class A Certificateholder: MSSFI.
Insurance Policies: With respect to any Mortgaged Property,
any related insurance policy.
Insurance Proceeds: With respect to any Mortgaged Property,
all amounts collected in respect of Insurance Policies and not required either
pursuant to applicable law or the related Loan Documents to be applied to the
restoration of the related Mortgaged Property or paid to the related Borrower.
Interest Carry-Forward Amount: With respect to any
Distribution Date, the excess, if any, of (A) the Interest Payment Amount for
such Distribution Date plus the Interest Carry-Forward Amount for the prior
Distribution Date over (B) the amount in respect of interest that is actually
distributed from the Distribution Account on such Distribution Date in respect
of the interest for such Distribution Date.
Interest Distribution Amount: With respect to any Distribution
Date, the sum of the Daily Interest Accrual Amounts for all days in the related
Accrual Period.
Interest Rate Adjustment Date means, with respect to each
Adjustable Rate Loan, the date, specified in the related Promissory Note and the
Loan Schedule, on which the Loan Interest Rate is adjusted.
Large Balance Loans: Multifamily Loans or Commercial Loans
which have an outstanding principal balance equal to or greater than
$25,000,000.
LIBOR: With respect to each day, the rate for United States
dollar deposits for one month that appears on the Telerate Screen Page 3750 as
of 11:00 a.m., London time, on the related LIBOR Determination Date. If such
rate does not appear on such page (or such other page as may replace that page
on that service, or if such service is no longer offered, such other service for
displaying LIBOR or comparable rates as may be reasonably selected by the
Initial Class A Certificateholder), LIBOR for the applicable day will be the
Reference Bank Rate. If no such quotations can be obtained by the Initial Class
A Certificateholder and no Reference Bank Rate is available, LIBOR will be LIBOR
applicable to the first preceding day on which LIBOR has been determined in
accordance with this definition.
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LIBOR Business Day: Any day on which banks are open for
dealing in foreign currency and exchange in London and New York City.
LIBOR Determination Date: With respect to each day that is a
LIBOR Business Day, such LIBOR Business Day, and with respect to any day that is
not a LIBOR Business Day, the LIBOR Business Day preceding such day, as
determined by the Initial Class A Certificateholder.
LIBOR Margin: With respect to each day, the percentage
corresponding to the Value Shortfall Percentage as of such day, as set forth in
the following table:
LIBOR Margin: Value Shortfall Percentage:
0.65% >= 8.00%
1.15% >=5.00%, but <8.00%
2.15% <5.00%
provided that the LIBOR Margin shall be equal to 2.15% upon the occurrence of an
Event of Default or for the period commencing on the Clean-up Call Date
Liquidated Loan: With respect to any date of determination,
any Foreclosure Property or any Loan in respect of which a Monthly Payment is in
excess of 30 days past due and as to which the Servicer has determined, in
accordance with the Servicing Standard, that all amounts which it reasonably and
in good faith expects to collect have been recovered from or on account of such
Loan or the related Foreclosure Property; provided, however, that in any event
such Loan or the related Foreclosure Property shall be deemed uncollectible and
therefore be a Liquidated Loan upon the earliest to occur of: (a) the
liquidation of the related Foreclosure Property, (b) the determination by the
Servicer, in accordance with the Servicing Standard, that no further amounts are
collectible from the Loan and any related Mortgaged Property, or (c) the date on
which any portion of a Monthly Payment on any Loan is in excess of 59 days past
due (without regard to any applicable grace periods).
Liquidated Loan Losses: With respect to any date of
determination, the difference between (i) the aggregate Principal Balances as of
such date of all Loans that became Liquidated Loans and (ii) all Liquidation
Proceeds allocable to principal received prior to such date.
Liquidation Proceeds: With respect to a Liquidated Loan, any
cash amounts received in connection with the liquidation of such Liquidated
Loan, whether through trustee's sale, foreclosure sale or other disposition, any
cash amounts received in connection with the management of the Mortgaged
Property from Defaulted Loans and any other amounts required to be deposited in
the Collection Account pursuant to Section 7.01(b)(1) hereof, in each case other
than Insurance Proceeds and Released Mortgaged Property Proceeds.
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Loan: Any Commercial Loan or Multifamily Loan sold to the
Trust hereunder, which loan includes, without limitation, (i) a Promissory Note
and related Mortgage and (ii) all right, title and interest of the Loan
Originator in and to the Mortgaged Property covered by such Mortgage. The term
Loan shall be deemed to include the related Promissory Note, related Mortgage
and related Foreclosure Property, if any. The term Loan shall exclude any Loan
which has been removed from the Trust pursuant to the terms of the Basic
Documents.
Loan Documents: With respect to a Loan, the documents
comprising the Custodial Loan File for such Loan.
Loan File: With respect to each Loan, the Custodial Loan File
and the Servicer's Loan File.
Loan Interest Rate: With respect to each Loan, the annual rate
of interest borne by the related Promissory Note, as shown on the Loan Schedule,
as the same may be modified by the Servicer in accordance with Section 5.01
hereof and, in the case of an Adjustable Rate Loan, as the same may be
periodically adjusted in accordance with the terms of such Loan.
Loan Interest Rate Cap: With respect to an Adjustable Rate
Loan, the limit on each Loan Interest Rate adjustment as set forth in the
related Promissory Note.
Loan Originator: FINOVA Capital Corporation, in its capacity
as the Loan Originator hereunder.
Loan Originator Put: The mandatory repurchase by the Loan
Originator, at the option of the Majority Certificateholders, of a Loan pursuant
to Section 4.07(a) hereof.
Loan Pool: As of any date of determination, the pool of all
Loans conveyed to the Trust pursuant to this Agreement on all Transfer Dates up
to and including such date of determination, which Loans have not been conveyed
by the Trust pursuant to the terms of the Basic Documents, together with the
rights and obligations of a holder thereof, and the payments thereon and
proceeds therefrom received after the applicable Transfer Cutoff Date, as
identified from time to time on the Loan Schedule.
Loan Purchase Agreement: The Loan Purchase Agreement between
the Loan Originator and the Depositor, dated as of September 1, 1998, and all
supplements thereto.
Loan Schedule: The schedule of Loans conveyed to the Trust and
delivered to the Initial Class A Certificateholder in the form of a
computer-readable transmission specifying the following information with respect
to each Loan conveyed on such date: (i) the Loan identifying number, (ii) the
Borrower's name, (iii) the street address, city, county, state and zip code of
the related Mortgaged Property, (iv) the Transfer Cutoff Date Principal Balance,
(v) the Loan Interest Rate as of the Transfer Cutoff Date, (vi) if such Loan is
an Adjustable Rate Loan, the Index thereof, the Gross Margin thereof, the Loan
Interest Rate of the Loan, the Loan Interest Rate Cap, the loan interest floor,
if any, and the Interest Rate Adjustment Date of the Loan, (vii) if such Loan is
an Adjustable Rate Loan converting to a fixed rate
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Loan, or vice versa, the conversion date thereof, (viii) whether the Loan is a
Commercial Loan or a Multifamily Loan, (ix) the origination date of the Loan,
(x) the maturity date of the Loan, (xi) the amount of the Monthly Payment, (xii)
the current Loan Interest Rate, (xiii) a flag indicating a balloon payment,
(xiv) the Appraised Value, (xv) the LTV, (xvi) whether a "lockout" period
exists, and if so, the duration thereof, (xvii) the property type, i.e. office
or retail, (xviii) a code indicating whether the Loan is a Bailee Loan, (xix)
the Advance Factor, and (xx) such other information as may be reasonably
requested by the Majority Certificateholders.
Loan Schedule and Exceptions Report: The meaning set forth in
the Custodial Agreement.
Loan Servicing: As defined in Section 5.01.
Loan-to-Value Ratio or LTV: With respect to any Loan, the
ratio of the original outstanding principal amount of the Loan to the lesser of
(a) the Appraised Value of the Mortgaged Property at origination or (b) if the
Mortgaged Property was purchased within 12 months of the origination of the
Loan, the purchase price of the Mortgaged Property.
Lockbox Account: A "lockbox" or similar account required to be
established under the terms of any Loan for the collection of rents, accounts
receivable or other funds or amounts, with respect to the related Mortgaged
Property.
LPA Assignment: An Assignment of Loans from the Loan
Originator to the Depositor under the Loan Purchase Agreement.
Majority Certificateholders: The holder or holders of in
excess of 50% of the Class A Certificate Principal Balance.
Market Value: With respect to each Loan and each Business Day,
the Market Value of such Loan as of such Business Day as determined by the
Market Value Agent in accordance with Section 8.03 hereof.
Market Value Agent: Morgan Stanley & Co. Incorporated and its
successors and assigns.
Master Loan Purchase Agreement: The Master Loan Purchase
Agreement among the Loan Originator, FINOVA Realty Capital, Inc. and FINOVA
Realty Capital of Greater Florida, Inc., dated as of September 1, 1998, and all
supplements thereto.
Maximum Certificate Principal Balance: $1,000,000,000.
Monthly Payment: The scheduled monthly payment of principal
and/or interest required to be made by an Borrower on the related Loan, as set
forth in the related Promissory Note.
Moody's: Moody's Investors Service, Inc., or any successor
thereto.
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Mortgage: With respect to any Loan, the mortgage, deed of
trust or other instrument securing the related Promissory Note, which creates a
first lien on the fee in real property and/or a first lien on the leasehold
estate in real property securing the Promissory Note and the assignment of rents
and leases related thereto.
Mortgaged Property: With respect to a Loan, the related
Borrower's fee and/or leasehold interest in the real property (and/or all
improvements, buildings, fixtures, building equipment and personal property
thereon (to the extent applicable) and all additions, alterations and
replacements made at any time with respect to the foregoing) and all other
collateral securing repayment of the debt evidenced by the related Promissory
Note.
MSSFI: Morgan Stanley Securitization Funding Inc.
Multifamily Loan: A Loan secured by a first mortgage lien on a
five-or-more family residential property.
Net Liquidation Proceeds: With respect to any Distribution
Date, Liquidation Proceeds received during the period commencing on the
preceding Distribution Date and ending on the Business Day immediately prior to
such Distribution Date, net of any reimbursements to the Servicer made from such
amounts for any unreimbursed Servicing Compensation, Servicing Advances and
Periodic Advances (including Nonrecoverable Servicing Advances and
Nonrecoverable Periodic Advances) made and any other fees and expenses paid in
connection with the foreclosure, conservation and liquidation of the related
Liquidated Loans or Foreclosure Properties pursuant to Section 5.11 hereof.
Net Loan Interest Rate: With respect to each Loan, the related
Loan Interest Rate, less the rate at which the Servicing Fee is calculated.
Net Loan Losses: With respect to any Defaulted Loan that is
subject to a modification pursuant to Section 5.19 hereof, an amount equal to
the portion of the Principal Balance, if any, released in connection with such
modification.
Non-permitted Foreign Holder: Shall have the meaning set forth
in Section 6.09.
Nonrecoverable Periodic Advance: Any portion of a Periodic
Advance previously made or proposed to be made in respect of a Loan which has
not been previously reimbursed to the Servicer and which, in the good faith
judgment of the Servicer, will not, or in the case of a proposed Periodic
Advance would not, be ultimately recoverable from Liquidation Proceeds or other
recoveries in respect of the related Loan. The determination by the Servicer
that (i) it has made a Nonrecoverable Periodic Advance or (ii) that any proposed
advance, if made, would constitute a Nonrecoverable Periodic Advance, shall be
evidenced by a certificate of a Servicing Officer promptly delivered to the
Initial Class A Certificateholder detailing the reasons for such determination.
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<PAGE> 24
Nonrecoverable Servicing Advance: With respect to any
Foreclosure Property, (a) any Servicing Advance previously made and not
reimbursed from late collections, Liquidation Proceeds, Insurance Proceeds or
the Released Property Proceeds or (b) a Servicing Advance proposed to be made in
respect of a Loan or Foreclosure Property either of which, in the good faith
business judgment of the Servicer, as evidenced by an Officer's Certificate
delivered to the Initial Class A Certificateholder, would not be ultimately
recoverable.
Non-U.S. Person: A person other than a "U.S. Person."
Officer's Certificate: A certificate signed by a Responsible
Officer of the Depositor, the Servicer, the Trust, the Transfer Obligor or the
Loan Originator, in each case, as required by this Agreement.
Opinion of Counsel: A written opinion of counsel who may be
employed by the Transfer Obligor, Loan Originator, the Servicer, the Depositor
or any of their respective Affiliates.
Origination Date: With respect to each Loan, the date of the
Promissory Note relating to such Loan, unless such information is not provided
by the Loan Originator with respect to such Loan, in which case the Origination
Date shall be deemed to be the date that is 40 days prior to the date of the
first payment under the Promissory Note relating to such Loan.
Outstanding: With respect to any Certificate and as of the
date of determination, any Certificate theretofore authenticated and delivered
under this Agreement except:
(i) Certificates theretofore canceled by the Certificate
Registrar or delivered to the Certificate Registrar for cancellation;
(ii) Certificates or portions thereof the payment for which
money in the necessary amount has theretofore been deposited with the
Owner Trustee or any Paying Agent in trust for the Certificateholders
(provided, however, that if such Certificates are to be redeemed,
notice of such redemption has been duly given pursuant to this
Agreement or provision for such notice satisfactory to the Owner
Trustee has been made); and
(iii) Certificates in exchange for or in lieu of which other
Certificates have been authenticated and delivered pursuant to this
Agreement unless proof satisfactory to the Owner Trustee is presented
that any such Certificates are held by a bona fide purchaser; provided,
however, that in determining whether the Certificateholders
representing the requisite Percentage Interests of the Outstanding
Certificates have given any request, demand, authorization, direction,
notice, consent or waiver hereunder or under any Basic Document,
Certificates owned by the Depositor, any other obligor upon the
Certificates, the Loan Originator or any Affiliate of any of the
foregoing Persons shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Owner Trustee
shall be protected in relying upon any such
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<PAGE> 25
request, demand, authorization, direction, notice, consent or waiver,
only Certificates that the Owner Trustee actually knows to be owned in
such manner shall be disregarded. Certificates owned in such manner
that have been pledged in good faith may be regarded as Outstanding if
the pledgee certifies to the Owner Trustee (i) that the pledgee has the
right so to act with respect to such Certificates and (ii) that the
pledgee is not the Trust, any other obligor upon the Certificates, the
Loan Originator or any Affiliate of any of the foregoing Persons.
Overcollateralization Shortfall: With respect to any Business
Day, an amount equal to the positive difference, if any, between (a) the Class A
Certificate Principal Balance on such Business Day and (b) (i) the aggregate
Purchase Value of all Loans in the Loan Pool on such Business Day, or (ii) in
the event that a Performance Trigger shall have occurred and not been Deemed
Cured, the aggregate Purchase Value of all Loans in the Loan Pool on such
Business Day multiplied by 0.98, provided, however, that on (A) the Expected
Final Distribution Date, (B) the occurrence of a Rapid Amortization Trigger, or
(C) the Distribution Date on which the Trust is to be terminated pursuant to
Section 16.02 hereof, the Overcollateralization Shortfall shall be equal to the
Class A Certificate Principal Balance. Notwithstanding anything to the contrary
herein, in no event shall the Overcollateralization Shortfall with respect to
any Distribution Date exceed the Class A Certificate Principal Balance as of
such date. With the written consent of the Majority Certificateholders in their
sole discretion, if as of such Business Day, no Rapid Amortization Trigger or
Event of Default shall be in effect, the Overcollateralization Shortfall shall
be reduced (but in no event to an amount below zero) by all or any portion of
the aggregate Hedge Value as of such Business Day as the Majority
Certificateholders may, in their sole discretion, designate in writing.
Owner Trustee: Wilmington Trust Company, a Delaware banking
corporation, not in its individual capacity but solely as Owner Trustee under
this Agreement, and any successor Owner Trustee hereunder.
Owner Trustee Fee: The annual fee calculated for each year
during the term of this Agreement. Such fee shall be $4,000 if the Class A
Certificate Principal Balance on September 30th of such year is less than or
equal to $500,000,000, and shall be $5,000 if the Class A Certificate Principal
Balance on September 30th of such year is greater than $500,000,000, such fee
shall be payable in equal monthly installments to the Servicer which shall in
turn pay, in one lump sum, such fee to the Owner Trustee on September 30th each
year during the term of this Agreement. The fee payable on September 30, 1999
shall be $4,000.
Owner Trust Estate: The contribution of $1 referred to in
Section 2.05 and the assets subject to this Agreement and assigned to the Trust,
which assets consist of: (i) such Loans as from time to time are subject to this
Agreement as listed in the Loan Schedule, as the same may be amended or
supplemented on each Transfer Date, by the removal of Deleted Loans and by the
addition of Qualified Substitute Loans, together with the Servicer's Loan Files
and the Custodial Loan Files relating thereto and all proceeds thereof, (ii) the
Mortgages and security interests in Mortgaged Property, (iii) all payments in
respect of interest due with
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respect to each Loan on or after the related Transfer Cutoff Date and all
payments in respect of principal received after such Transfer Cutoff Date, (iv)
such assets as from time to time are identified as Foreclosure Property, (v)
such assets and funds as are from time to time deposited in the Distribution
Account, Collection Account, the Transfer Obligation Account, the Lockbox
Account, if any, and each REO Account, if any, including, without limitation,
amounts on deposit in such accounts that are invested in Permitted Investments,
(vi) lenders' rights under all Insurance Policies and to any Insurance Proceeds,
(vii) lenders' rights to any Condemnation Proceeds, (viii) Net Liquidation
Proceeds and Released Mortgaged Property Proceeds, (ix) all right, title and
interest of the Loan Originator in and to the obligations of Hedging
Counterparties under Hedging Instruments and (x) all right, title and interest
of the Depositor and Trust in and under the Basic Documents including, without
limitation, the obligations of the Loan Originator under the Loan Purchase
Agreement pursuant to which the Depositor acquired the Loans from the Loan
Originator, and all proceeds of any of the foregoing.
Paying Agent: The Wilmington Trust Company or any other Person
that meets the eligibility standards for the Owner Trustee specified in Section
4.09(c) hereof and is authorized by the Trust to make payments to and
distributions from the Collection Account and the Distribution Account,
including distribution of principal of or interest on the Certificates on behalf
of the Trust.
Payment Statement: As defined in Section 8.01(b) hereof.
Percentage Interest: With respect to the Class A Certificates
or Class B Certificates, the Percentage Interest as set forth on the face
thereof.
Performance Trigger: With respect to any Business Day, a
Performance Trigger shall mean the existence of one or more of the following
conditions as of such Business Day:
(i) the aggregate Principal Balance of all Loans that are
30 or more days Delinquent as of such Business Day
divided by the Pool Principal Balance as of such
Business Day is greater than 1.0%;
(ii) the aggregate Principal Balance of all Loans that are
60 or more days Delinquent as of such Business Day
divided by the Pool Principal Balance as of such
Business Day is greater than 0.05%;
(iii) the aggregate Liquidated Loan Losses from the Closing
Date are greater than $100,000; and
(iv) (x) the aggregate Liquidated Loan Losses for the
three calendar month period preceding such Business
Day divided by (y) the average Pool Principal Balance
of the Loans during such three calendar month period
is greater than 0.10%.
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<PAGE> 27
A Performance Trigger shall continue to exist until Deemed
Cured.
Periodic Advance: The aggregate of the advances made by the
Servicer on any Distribution Date pursuant to Section 5.09, the amount of any
such advances being equal to the total of all Monthly Payments (net of the
related Servicing Fee) on the Loans, that (x) were Delinquent as of the related
Remittance Date and (y) have not been determined by the Servicer to be
Nonrecoverable Periodic Advances.
Permitted Investments: Each of the following:
(1) obligations of, or guaranteed as to principal and interest
by, the United States or any agency or instrumentality thereof if
backed by the full faith and credit of the United States;
(2) direct U.S. government obligations or obligations of a
federal agency that are backed by the full faith and credit of the U.S.
government or by FNMA or FHLMC which are subject to a repurchase
agreement that satisfies the following criteria: (A) it must be between
the Owner Trustee and either (x) primary dealers on the Federal Reserve
reporting dealer list which are rated in one of the three highest
categories for long-term unsecured debt obligations by each Rating
Agency or (y) banks rated in one of the three highest categories for
long-term unsecured debt obligations by each Rating Agency; and (B) it
must be in writing and include the following terms: (a) a term no
greater than 60 days for any repurchase transaction; (b) the collateral
must be delivered to the Owner Trustee or a third party custodian
acting as agent for the Owner Trustee by appropriate book entries and
confirmation statements, and must have been delivered before or
simultaneously with payment (i.e., perfection by possession of
certificated securities); and (c) the securities sold thereunder must
be valued weekly, marked-to-market at current market price plus accrued
interest and the value of the collateral must be equal to at least 104%
of the amount of cash transferred by or on behalf of the Owner Trustee
under the repurchase agreement and, if the value of the securities held
as collateral declines to an amount below 104% of the cash transferred
by or on behalf of the Owner Trustee plus accrued interest (i.e., a
margin call), then additional cash and/or acceptable securities must be
transferred to the Owner Trustee to satisfy such margin call; provided,
however, that if the securities used as collateral are obligations of
FNMA or FHLMC, then the value of the securities held as collateral must
equal at least 105% of the cash transferred by or on behalf of the
Owner Trustee under such repurchase agreement;
(3) certificates of deposit, time deposits and bankers
acceptances of any United States depository institution or trust
company incorporated under the laws of the United States or any state
thereof, including the Owner Trustee; provided, however, that the debt
obligations of such depository institution or trust company at the date
of the acquisition thereof have been rated by each Rating Agency in one
of its three highest long-term rating categories;
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(4) deposits, including deposits with the Owner Trustee, that
are fully insured by the Bank Insurance Fund or the Savings Association
Insurance Fund of the FDIC;
(5) commercial paper of any corporation incorporated under the
laws of the United States or any state thereof, including corporate
Affiliates of the Owner Trustee, which at the time the investment is
made is rated by each Rating Agency in its highest short-term rating
category and which has an original maturity of not more than 365 days;
(6) debt obligations rated by each Rating Agency at the time
the investment is made in one of its three highest long-term rating
categories (or those investments specified in paragraph (3) above with
depository institutions which have debt obligations rated by each
Rating Agency in one of its three highest long-term rating categories);
(7) money market funds that are rated by each Rating Agency at
the time the investment is made in one of its three highest long-term
rating categories; provided, that money market funds that allow for
withdrawals on demand shall be deemed to satisfy any maturity
requirements for Permitted Investments set forth in this Agreement; or
(8) any other investments that the Majority Certificateholders
may consent to in writing prior to the time at which such investment is
made;
provided, however, that no instrument described in foregoing subparagraphs (1)
through (7) shall evidence either the right to receive (a) only interest with
respect to the obligations underlying such instrument or (b) both principal and
interest payments derived from obligations underlying such instrument where the
interest and principal payments with respect to such instrument provide a yield
to maturity at par greater than 120% of the yield to maturity at par of the
underlying obligations; and provided, further, that no instrument described in
the foregoing subparagraphs may be purchased at a price greater than par if such
instrument may be prepaid or called at a price less than its purchase price
prior to its stated maturity.
Each reference in this definition of "Permitted Investments"
to the Rating Agency shall be construed, in the case of each subparagraph above
referring to each Rating Agency, as a reference to each of S&P and Moody's.
Person: Any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company, trust,
national banking association, unincorporated organization or government or any
agency or political subdivision thereof.
Physical Property: As defined in clause (b) the definition of
"Delivery" above.
Pool Principal Balance: With respect to any date of
determination, the aggregate Principal Balances of the Loans as of the end of
the preceding day; provided,
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however, that the Pool Principal Balance on any Distribution Date on which the
Termination Price is to be distributed to Certificateholders will be deemed to
have been equal to zero as of such date.
Principal Balance: With respect to any Loan or related
Foreclosure Property, (i) at the Transfer Cutoff Date, the outstanding unpaid
principal balance of the Loan as of the Transfer Cutoff Date and (ii) with
respect to any other date of determination, the outstanding unpaid principal
balance of the Loan as of the prior Business Day (after giving effect to all
payments received thereon and the allocation of any Net Loan Losses with respect
thereto for a Defaulted Loan on such Business Day); provided, however, that any
Liquidated Loan shall be deemed to have a Principal Balance of zero.
Principal Carry-Forward Amount: With respect to any
Distribution Date, the excess, if any, of (A) the Overcollateralization
Shortfall for such Distribution Date plus the Principal Carry-Forward Amount for
the prior Distribution Date over (B) the amount in respect of principal that is
actually distributed from the Distribution Account on such Distribution Date.
Proceeding: Means any suit in equity, action at law or other
judicial or administrative proceeding.
Promissory Note: With respect to a Loan, the original executed
promissory note or other evidence of the indebtedness of the related Borrower or
Borrowers.
Purchase Percentage: With respect to each Loan and any
Business Day, a percentage determined as follows:
(i) with respect to any Loan that is 0 to 29 days
Delinquent as of the most recent Determination Date,
the Advance Factor relating thereto;
(ii) with respect to any Loan that is 30 or more days
Delinquent as of the most recent Determination Date,
0%; and
(iii) with respect to any Loan that as of the most recent
Determination Date is in litigation or which is
Foreclosure Property, 0%.
Purchase Price: With respect to a Loan, the Principal Balance
thereof as of the date of purchase or repurchase, plus all accrued and unpaid
interest on such Loan to and including the date of purchase or repurchase
computed at the applicable Loan Interest Rate, plus the amount of any
unreimbursed Servicing Advances and any unreimbursed Periodic Advances made by
the Servicer with respect to such Loan (after deducting therefrom any amounts
received in respect of such purchased or repurchased Loan and being held in the
Collection Account for future distribution to the extent such amounts represent
recoveries of principal not yet applied to reduce the related Principal Balance
or interest (net of the Servicing Fee) for the period from and after the date of
repurchase), plus if such Loan is being purchased by the Loan Originator
pursuant to Section 4.05 or Section 3.05, all reasonable out-of-pocket
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expenses reasonably incurred or to be incurred by the Trust, the Depositor and
the Owner Trustee in respect of the breach or defect giving rise to the
repurchase obligation, including any expenses arising out of the enforcement of
the repurchase obligation. The Purchase Price shall be (i) increased by the net
negative value or (ii) decreased by the net positive value of all Hedging
Instruments terminated with respect to the purchase of such Loan. To the extent
the Servicer does not reimburse itself for amounts, if any, in respect of the
Servicing Advance Reimbursement Amount or Nonrecoverable Periodic Advances
pursuant to Section 7.01(c)(1) hereof, with respect to such Loan, the Purchase
Price shall be reduced by such amounts.
Purchase Value: With respect to each Loan and each Business
Day, an amount equal to (i) the Purchase Percentage of 100% of the Principal
Balance of such Loan after giving effect to all payments received in respect of
principal thereon prior to such Business Day less (ii) the aggregate
unreimbursed Servicing Advances and Periodic Advances attributable to such Loan
as of the most recent Determination Date; provided, however, that the Purchase
Value shall be zero with respect to each Loan (i) which the Loan Originator is
required to repurchase pursuant to Section 3.05 or Section 4.05 hereof and (ii)
for which the related Promissory Note has been released from the possession of
the Custodian under the Custodial Agreement to the Servicer or its Affiliates
for a period in excess of 10 days, (iii) is a Bailee Loan and for which the
Custodian has failed to receive the related Loan Documents by the third Business
Day following the applicable Transfer Date or (iv) which is a Bailee Loan for
which the Custodian has failed to receive a copy of the related Promissory Note
and such other documents as are prescribed in Section 3.04(a)(B) on or prior to
the related Transfer Date.
Purchase Value Excess: With respect to any Business Day, an
amount equal to the positive difference, if any, between (a) (i) the aggregate
Purchase Value of all Loans in the Loan Pool on such Business Day, or (ii) in
the event that a Performance Trigger shall have occurred and not been Deemed
Cured, the aggregate Purchase Value of all Loans in the Loan Pool on such
Business Day multiplied by 0.98 and (b) the Class A Certificate Principal
Balance on such Business Day.
Purchase Value Excess Date: Any Business Day on which a
Purchase Value Excess exists and on which the Initial Class A Certificateholder
purchases Additional Class A Certificate Principal Balance in respect thereof
pursuant to Section 3.01 hereof.
Put Date: The date on which the Class A Certificates are to be
purchased by the Trust as a result of the exercise of the Put Option.
Put Option: The right of the Majority Certificateholders to
require the Trust to repurchase the Class A Certificates in accordance with
Section 16.04 herein.
Qualified Originator: Means an originator of Loans acceptable
to the Initial Class A Certificateholder.
Qualified Substitute Loan: A Loan or Loans substituted for a
Deleted Loan pursuant to Section 4.05 hereof, which (i) has or have been
approved in writing by the
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<PAGE> 31
Majority Certificateholders and (ii) complies or comply as of the date of
substitution with each representation and warranty set forth in Section 4.04
hereof and is or are not more than 29 days Delinquent as of the date of
substitution for such Deleted Loan or Loans.
Rapid Amortization Trigger: With respect to any Business Day,
a Rapid Amortization Trigger shall mean the existence of one or more of the
following conditions as of such Business Day:
(i) the aggregate Principal Balance of all Loans that are 30 or more days
Delinquent as of such Business Day divided by the Pool Principal
Balance as of such Business Day is greater than 2.5%;
(ii) the aggregate Principal Balance of all Loans that are 60 or more days
Delinquent as of such Business Day divided by the Pool Principal
Balance as of such Business Day is greater than 1.0%;
(iii) the aggregate Liquidated Loan Losses since the Closing Date are
greater than $250,000;
(iv) (x) the aggregate Liquidated Loan Losses for the three calendar month
period preceding such Business Day divided by (y) the average Pool
Principal Balance of the Loans during such three calendar month
period is greater than 0.20%; and
(v) on any day, the Market Value Agent shall have determined the
aggregate Market Value of the Loans is less than 112% of the
aggregate Class A Certificate Principal Balance.
A Rapid Amortization Trigger shall continue to exist until it
is Deemed Cured.
Rating Agencies: S&P and Moody's or such other nationally
recognized credit rating agencies as may from time to time be designated in
writing by the Majority Certificateholders in their sole discretion.
Record Date: With respect to each Distribution Date, the close
of business on the prior Business Day.
Redemption Date: In the case of a redemption of the Class A
Certificates pursuant to Section 16.02 hereof, the Distribution Date specified
by the Servicer or the Trust pursuant to such Section 16.02.
Reference Bank Rate: With respect to any day, the arithmetic
mean (rounded upwards, if necessary, to the nearest one sixteenth of a percent)
of the offered rates for United States dollar deposits for one month that are
offered by the Reference Banks as of 11:00 a.m., New York City time, on the
related LIBOR Determination Date to prime banks in the London interbank market
for a period of one month in amounts approximately equal to the Class A
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Certificate Principal Balance, provided that at least two such Reference Banks
provide such rate. If fewer than two offered rates appear, the Reference Bank
Rate will be arithmetic mean of the rates quoted by one or more major banks in
New York City, selected by the Initial Class A Certificateholder, as of 11:00
a.m., New York City time, on such day for loans in U.S. Dollars to leading
European Banks for a period of one month in amounts approximately equal to the
outstanding Class A Certificate Principal Balance. If no such quotation can be
obtained, the Reference Bank Rate will be the Reference Bank Rate applicable to
the preceding day.
Reference Banks: Three money center banks selected by the
Initial Class A Certificateholder.
Released Mortgaged Property Proceeds: With respect to any
Loan, proceeds received by the Servicer in connection with (i) a taking of an
entire Mortgaged Property by exercise of the power of eminent domain or
condemnation or (ii) any release of part of the Mortgaged Property from the lien
of the related Mortgage, whether by partial condemnation, sale or otherwise;
which proceeds in either case are not released to the Borrower in accordance
with applicable law, the Servicing Standard or this Agreement.
Remittance Date: With respect to any Distribution Date, the
Business Day immediately preceding such Distribution Date.
REO Account: As defined in Section 5.12 (a).
Responsible Officer: When used with respect to the Owner
Trustee or Custodian, any officer within the corporate trust office of such
Owner Trustee or Custodian, including any Vice President, Assistant Vice
President, Secretary, Assistant Secretary or any other officer of such Owner
Trustee or Custodian customarily performing functions similar to those performed
by any of the above designated officers and also, with respect to a particular
matter, any other officer to whom such matter is referred because of such
officer's knowledge of and familiarity with the particular subject. When used
with respect to the Trust, any officer of the Owner Trustee who is authorized to
act for the Owner Trustee in matters relating to the Trust and who is identified
on the list of Authorized Officers delivered by the Owner Trustee on the Closing
Date (as such list may be modified or supplemented from time to time thereafter)
and, so long as the Administration Agreement is in effect, any Vice President or
more senior officer of the Administrator who is authorized to act for the
Administrator in matters relating to the Trust and to be acted upon by the
Administrator pursuant to the Administration Agreement and who is identified on
the list of Responsible Officers delivered by the Administrator to the Owner
Trustee on the Closing Date (as such list may be modified or supplemented from
time to time thereafter). When used with respect to the Depositor, the Loan
Originator, the Transfer Obligor or the Servicer, the President, any Vice
President, the Treasurer, or General Partner, as applicable.
Retained Securities: With respect to a Securitization, any
subordinated securities issued or expected to be issued, or excess collateral
value retained or expected to be retained, in connection therewith to the extent
the Loan Originator or an Affiliate thereof decides in its sole discretion to
retain, instead of sell, such securities.
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Retained Securities Value: With respect to any Business Day
and a Retained Certificate, the market value thereof as determined by the Market
Value Agent in accordance with Section 8.03(d) hereof.
Revolving Period: The period commencing on the Closing Date
and ending on the earlier of (i) the date on which the Revolving Period is
terminated pursuant to Section 3.07, (ii) 540 days after the Closing Date and
(iii) the occurrence of a Disposition.
Sale Agent: Has the meaning assigned to such term in Section
15.15 hereof.
Secretary of State: The Secretary of State of the State of
Delaware.
Securitization: A sale or transfer of loans, including Loans,
to an Affiliate of the Depositor in order to effect one or a series of
structured-finance securitization transactions.
Servicer: FINOVA Capital Corporation, in its capacity as the
servicer hereunder, or any successor appointed as herein provided.
Servicer Call: The optional repurchase by the Servicer of a
Loan pursuant to Section 4.07(b) hereof.
Servicer Event of Default: As described in Section 15.01
hereof.
Servicer's Fiscal Year: January 1st through December 31st of
each year.
Servicer's Loan File: With respect to each Loan, the file held
by the Servicer, consisting of all documents (or electronic images thereof)
relating to such Loan, including, without limitation, (i) copies of all of the
Loan Documents included in the related Custodial Loan File and (ii) all
servicing agreements, files, documents, records, data bases, computer tapes,
copies of computer tapes, proof of insurance coverage, insurance policies,
appraisals, other closing documentation, payment history records, and any other
records relating to or evidencing the servicing of the Loans.
Servicer's Remittance Report: A report prepared and computed
by the Servicer in substantially the form of Exhibit B attached hereto.
Servicer Termination Event: The termination of the Servicer
pursuant to Section 15.01(b) hereof.
Servicing Advance Reimbursement Amount: With respect to any
Determination Date, the amount of any Servicing Advances that have not been
reimbursed as of such date, including Nonrecoverable Servicing Advances.
Servicing Advances: All insurance premiums, real estate taxes,
assessments, ground rents and similar charges or assessments paid or incurred in
connection with the Servicer's obligations hereunder, and any expense included
within the definition of Servicing
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Expenses, to the extent the Servicer, consistent with the Servicing Standard,
deems to be in the best economic interests of the Certificateholders.
Servicing Compensation: The Servicing Fee and other amounts to
which the Servicer is entitled pursuant to Section 5.16.
Servicing Expenses: All customary, reasonable and necessary
out-of-pocket costs and expenses paid or incurred in connection with the
Servicer's obligations hereunder, including without limitation:
(a) any expense necessary in order to prevent or cure
any violation of applicable laws, regulations, codes,
ordinances, rules, orders, judgments, decrees, injunctions or
restrictive covenants;
(b) any cost or expense necessary in order to
maintain or release the lien on each Mortgaged Property and
related collateral, including any mortgage registration taxes,
release fees, or recording or filing fees;
(c) customary expenses for the collection,
enforcement or foreclosure of the Loans and the collection of
deficiency judgments against Borrowers and guarantors
(including but not limited to the fees and expenses of any
trustee under a deed of trust, foreclosure title searches and
other lien searches);
(d) costs and expenses of any appraisals, valuations,
inspections, environmental assessments (including but not
limited to the fees and expenses of environmental
consultants), audits or consultations, engineers, architects,
accountants, on-site property managers, market studies, title
and survey work and financial investigating services;
(e) customary expenses for liquidation,
restructuring, modification or loan workouts, such as sales
brokerage expenses and other costs of conveyance; and
(f) any other reasonable costs and expenses,
including without limitation, legal fees and expenses,
incurred by the Servicer under this Agreement in connection
with the enforcement, collection, foreclosure, disposition,
condemnation or destruction of the Loans or related Mortgaged
Properties, as applicable, the maintenance, leasing,
operation, management and sale of the Foreclosure Properties,
and the performance of Loan Servicing by the Servicer under
this Agreement.
Servicing Fee: As to each Loan (including any Loan that has
been foreclosed and has become a Foreclosure Property, but excluding any
Liquidated Loan), the fee payable monthly to the Servicer on each Distribution
Date, which shall be deemed to be equal to the monthly compensation that would
be payable to the servicer under the Midland Servicing
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Agreement, between the Servicer and Midland Loan Services, Inc. as in effect on
the date hereof as if such servicer was servicing such Loan.
Servicing Officer: Any officer of the Servicer or Subservicer
involved in, or responsible for, the administration and servicing of the Loans
whose name and specimen signature appears on a list of servicing officers
annexed to an Officer's Certificate furnished by the Servicer or the
Subservicer, respectively, on the Closing Date to the Trust and the Owner
Trustee, on behalf of the Certificateholders, as such list may from time to time
be amended.
Servicing Standard: As defined in Section 5.01.
S&P: Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc.
State: Means any one of the States of the United States of
America or the District of Columbia.
Subservicer: Any Person with which the Servicer has entered
into a Subservicing Agreement and which is an Eligible Servicer and satisfies
any requirements set forth in Section 5.03 hereof in respect of the
qualifications of a Subservicer.
Subservicing Agreement: Any agreement between the Servicer and
any Subservicer relating to subservicing and/or administration of any or all
Loans as provided in Section 5.03 hereof, copies of which shall be made
available, along with any modifications thereto, to the Initial Class A
Certificateholder.
Substitution Adjustment: As to any date on which a
substitution occurs pursuant to Section 3.05 or Section 4.05 hereof, the amount,
if any, by which (a) the sum of the aggregate principal balance (after
application of principal payments received on or before the date of
substitution) of any Qualified Substitute Loans as of the date of substitution,
plus any accrued and unpaid interest thereon to the date of substitution, is
less than (b) the sum of the aggregate of the Principal Balances, together with
accrued and unpaid interest thereon to the date of substitution, of the related
Deleted Loans.
Termination Price: With respect to any Distribution Date, an
amount without duplication equal to the greater of (A) the Class A Certificate
Redemption Amount and (B) the sum of (i) the Principal Balance of each Loan
included in the Trust as of the end of the preceding Due Period; (ii) all unpaid
interest accrued on the Principal Balance of each such Loan at the related Net
Loan Interest Rate to the end of the preceding Due Period; and (iii) the
aggregate fair market value of each Foreclosure Property included in the Trust
as of the end of the preceding Due Period, as determined by an Independent
appraiser acceptable to the Majority Certificateholders as of a date not more
than 30 days prior to such Distribution Date.
Transfer Cutoff Date: With respect to each Loan, the first day
of the month in which the Transfer Date with respect to such Loan occurs.
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Transfer Cutoff Date Principal Balance: As to each Loan, its
Principal Balance as of the opening of business on the Transfer Cutoff Date
(after giving effect to any payments received on the Loan on or before the
Transfer Cutoff Date).
Transfer Date: With respect to each Loan, the day such Loan is
sold to the Depositor pursuant to the Loan Purchase Agreement and to the Trust
pursuant to Section 3.01 hereof.
Transfer Obligation: The obligation of the Transfer Obligor
under Section 7.06 to make certain payments in connection with Dispositions and
other related matters.
Transfer Obligation Account: The account designated as such,
established and maintained pursuant to Section 7.05 hereof.
Transfer Obligation Target Amount: With respect to any date of
determination, the cumulative total of all withdrawals pursuant to Section
7.05(e), 7.05(f), 7.05(g) and 7.05(h) hereof from the Transfer Obligation
Account since the Closing Date minus any amount withdrawn from the Transfer
Obligation Account to return to the Transfer Obligor pursuant to Section
7.05(i)(A).
Transfer Obligor: FINOVA Capital Corporation, a Delaware
corporation.
Treasury Regulations: The regulations, including proposed or
temporary regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
Trust: FINOVA Commercial Mortgage Loan Owner Trust 1998-1, the
Delaware business trust created pursuant to this Agreement.
Trust Account Property: The Trust Accounts, all amounts and
investments held from time to time in the Trust Accounts and all proceeds of the
foregoing.
Trust Accounts: The Distribution Account, the Collection
Account, the Transfer Obligation Account, the Lockbox Account, if any, and each
Escrow Account and REO Account, if any.
Trust Fees and Expenses: As of each Distribution Date, an
amount equal to the Servicing Compensation, the Owner Trustee Fee and the
Custodian Fee, if any.
Trust Order and Trust Request: A written order or request
signed in the name of the Trust by any one of its Responsible Officers and
delivered to the Owner Trustee.
Trust/Depositor Indemnity: Each obligation of the Trust or the
Depositor to indemnify any Person under Section 9.01 of the Certificate Purchase
Agreement.
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T&SA Assignment: An Assignment, in the form of Exhibit C
hereto, of Loans and other property from the Depositor to the Trust pursuant to
this Agreement.
UCC: The Uniform Commercial Code as in effect in the State of
New York.
UCC Assignment: A form "UCC-2" or "UCC-3" statement meeting
the requirements of the Uniform Commercial Code of the relevant jurisdiction to
reflect an assignment of a secured party's interest in collateral.
UCC-1 Financing Statement: A financing statement meeting the
requirements of the Uniform Commercial Code of the relevant jurisdiction.
Underwriting Guidelines: The underwriting guidelines
(including the loan origination guidelines) provided to the Initial Class A
Certificateholder on or prior to the Closing Date by the Loan Originator or an
Affiliate thereof.
U.S. Person: A citizen or resident of the United States, a
corporation, partnership (except as provided in applicable Treasury regulations)
or other entity created or organized in or under the laws of the United States
or any political subdivision thereof, an estate that is subject to United States
federal income tax regardless of the source of its income, or a trust if a court
within the United States is able to exercise primary supervision over the
administration of the trust and one or more such U.S. Persons have authority to
control all substantial decisions of the trust (or, to the extent provided in
Treasury Regulations, certain trusts in existence on August 20, 1996 which are
eligible to be treated as U.S. Persons).
Value Shortfall: With respect to any date of distribution, an
amount equal to (x) the sum of (A) 10% less $1,000 of the aggregate Purchase
Value (as of the related Transfer Date) of all Loans sold hereunder, plus (B)
any amounts withdrawn from the Transfer Obligation Account for return to the
Transfer Obligor pursuant to Section 7.05(i)(A) hereof since the Closing Date
and prior to such Distribution Date, less (y) the sum of (i) the aggregate
amount of payments actually made by the Transfer Obligor in respect of the
Transfer Obligation pursuant to Section 5.06 and (ii) the aggregate amount of
the Purchase Prices paid by the Loan Originator in respect of any Loan
Originator Puts, since the Closing Date.
Value Shortfall Percentage: As of any date of determination,
an amount equal to (x) the Value Shortfall as of such date, divided by (y) 100%
of the aggregate Purchase Value as of the related Transfer Date of all Loans
sold hereunder since the Closing Date.
Whole Loan Sale: A Disposition of Loans pursuant to a
whole-loan sale.
Section 1.02 Other Definitional Provisions.
(a) 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
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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.
(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 GAAP. 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 GAAP, 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; Article, Section,
Schedule and Exhibit references contained in this Agreement are references to
Articles, Sections, Schedules 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.
ARTICLE II
ORGANIZATION
Section 2.01 Name.
The Trust created hereby shall be known as "FINOVA Commercial
Mortgage Loan Owner Trust 1998-1," in which name the Owner Trustee may conduct
the business of the Trust, make and execute contracts and other instruments on
behalf of the Trust and sue and be sued.
Section 2.02 Office.
The office of the Trust shall be in care of the Owner Trustee
at the Corporate Trust Office or at such other address in Delaware as the Owner
Trustee may designate by written notice to the Certificateholders.
Section 2.03 Purposes and Powers.
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(a) The purpose of the Trust is to engage in the following
activities:
(i) to issue the Certificates pursuant to this
Agreement and to sell such Certificates;
(ii) with the proceeds of the sale of the Class A
Certificates, to pay the organizational, start-up and
transactional expenses of the Trust;
(iii) to purchase, hold, assign, grant, transfer,
pledge, mortgage and convey the Owner Trust Estate pursuant to
this Agreement and to hold, manage and distribute to the
Certificateholders pursuant to the terms of this Agreement any
portion of the Owner Trust Estate released from the lien of,
and remitted to the Trust pursuant to, this Agreement;
(iv) to enter into and perform its obligations under
the Basic Documents to which it is to be a party;
(v) to engage in those activities, including entering
into agreements, that are necessary, suitable or convenient to
accomplish the foregoing or are incidental thereto or
connected therewith;
(vi) subject to compliance with the Basic Documents,
to engage in such other activities as may be required in
connection with conservation of the Owner Trust Estate and the
making of distributions to the Certificateholders; and
(vii) to issue the Certificates pursuant to this
Agreement.
The Trust is hereby authorized to engage in the foregoing
activities. The Trust shall not engage in any activity other than in connection
with the foregoing or other than as required or authorized by the terms of this
Agreement or the Basic Documents.
Section 2.04 Appointment of Owner Trustee.
The Depositor hereby appoints the Owner Trustee as trustee of
the Trust effective as of the date hereof, to have all the rights, powers and
duties set forth herein.
Section 2.05 Initial Capital Contribution of Owner Trust
Estate.
The Depositor hereby sells, assigns, transfers, conveys and
sets over to the Owner Trustee, as of the date hereof, the sum of $1. The Owner
Trustee hereby acknowledges receipt in trust from the Depositor, as of the date
hereof, of the foregoing contribution, which shall constitute the initial Owner
Trust Estate. The Depositor or the Servicer shall pay reasonable organizational
expenses of the Trust as they may arise or shall, upon the request of the Owner
Trustee, promptly reimburse the Owner Trustee for any such expenses paid by the
Owner Trustee.
Section 2.06 Declaration of Trust.
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The Owner Trustee hereby declares that it will hold the Owner
Trust Estate in trust upon and subject to the conditions set forth herein for
the use and benefit of the Certificateholders, subject to the obligations of the
Trust under the Basic Documents. It is the intention of the parties hereto that
the Trust constitute a business trust under the Business Trust Statute and that
this Agreement constitute the governing instrument of such business trust. It is
the intention of the parties hereto that, solely for federal, state and local
income and franchise tax purposes the Trust shall be treated as a partnership,
with the assets of the partnership being the Loans and other assets held by the
Trust and the partners of the partnership being the holders of the Class A
Certificates and the Class B Certificates. The Trust shall not elect to be
treated as an association under Treasury Regulations Section 301.7701-3(a) for
federal income tax purposes. The parties agree that, unless otherwise required
by appropriate tax authorities, the Trust will file or cause to be filed annual
or other necessary returns, reports and other forms consistent with the
characterization of the Trust as provided in the second preceding sentence for
such tax purposes. Effective as of the date hereof, the Owner Trustee shall have
all rights, powers and duties set forth herein and in the Business Trust Statute
with respect to accomplishing the purposes of the Trust.
Section 2.07 Title to Trust Property.
(a) Legal title to all the Owner Trust Estate shall be vested
at all times in the Trust as a separate legal entity except where applicable law
in any jurisdiction requires title to any part of the Owner Trust Estate to be
vested in a trustee or trustees, in which case title shall be deemed to be
vested in the Owner Trustee and/or a separate trustee, as the case may be.
(b) The Certificateholders shall not have legal title to any
part of the Owner Trust Estate. No transfer by operation of law or otherwise of
any interest of the Certificateholders shall operate to terminate this Agreement
or the trusts hereunder or entitle any transferee to an accounting or to the
transfer to it of any part of the Owner Trust Estate.
Section 2.08 Situs of Trust.
The Trust will be located and administered in the State of
Delaware. All bank accounts maintained by the Owner Trustee on behalf of the
Trust shall be located in the State of Delaware or the State of New York. The
Trust shall not have any employees; provided, however, that nothing herein shall
restrict or prohibit the Owner Trustee from having employees within or without
the State of Delaware. Payments will be received by the Trust only in Delaware
or New York, and payments will be made by the Trust only from Delaware or New
York. The only office of the Trust will be at the Corporate Trust Office in
Delaware.
ARTICLE III
CONVEYANCE OF THE OWNER TRUST ESTATE; ADDITIONAL CLASS A
CERTIFICATE PRINCIPAL BALANCES
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Section 3.01 Conveyance of the Owner Trust Estate; Additional
Class A Certificate Principal Balances.
(a) (i) On the terms and conditions of this Agreement, on each
Transfer Date, the Depositor agrees to offer for sale and to sell Loans and
deliver related Loan Documents to or at the direction of the Trust. To the
extent the Trust has or is able to obtain sufficient funds for the purchase
thereof, the Trust agrees to purchase such Loans offered for sale by the
Depositor.
(ii) In consideration of the distribution of the Additional
Class A Certificate Principal Balance pursuant to Section 3.06 hereof, the
Depositor, as of the Closing Date and concurrently with the execution and
delivery hereof, does hereby sell, transfer, assign, set over and otherwise
convey to the Trust, without recourse, but subject to the other terms and
provisions of this Agreement, all of the right, title and interest of the
Depositor in and to the Owner Trust Estate.
(iii) During the Revolving Period, on each Transfer Date,
subject to the conditions precedent set forth in Section 3.06(a) and in
accordance with the procedures set forth in Section 3.01(c), the Depositor,
pursuant to a T&SA Assignment, will assign to the Trust without recourse all the
right, title and interest of the Depositor in and to the Loans and all proceeds
thereof listed on the Loan Schedule attached to such T&SA Assignment, including
all interest and principal received by the Loan Originator, the Depositor or the
Servicer on or with respect to the Loans after the related Transfer Cutoff Date
(and including Monthly Payments due after the related Transfer Cutoff Date but
received by the Loan Originator on or before the related Transfer Cutoff Date
and held for application on the related scheduled Due Dates, but not including
Monthly Payments due on the Loans on or before the related Transfer Cutoff
Date), together with all right, title and interest in and to the proceeds of any
related Insurance Policies and all of the Depositor's right, title and interest
in and to (but none of its obligations under) the Loan Purchase Agreement and
all proceeds of the foregoing.
(iv) The foregoing sales, transfers, assignments, set overs
and conveyances do not, and are not intended to, result in a creation or an
assumption by the Trust of any obligation of the Depositor, the Loan Originator
or any other Person in connection with the Owner Trust Estate or under any
agreement or instrument relating thereto except as specifically set forth
herein.
(b) As of the Closing Date and as of each Transfer Date, the
Trust acknowledges (or will acknowledge pursuant to the T&SA Assignment) the
conveyance to it of the Owner Trust Estate, including all right, title and
interest of the Depositor in and to the Owner Trust Estate, receipt of which is
hereby acknowledged by the Trust (or will be acknowledged by the Trust pursuant
to the T&SA Assignment). In addition, concurrently with such delivery and in
exchange therefor, the Owner Trustee, pursuant to the instructions of the
Depositor, has executed (not in its individual capacity, but solely as Owner
Trustee on behalf of the Trust) and caused the Class A Certificates to be
authenticated and delivered to the Initial Class A Certificateholder and the
Class B Certificates to the Depositor.
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(c) (i) Pursuant to and subject to the Certificate Purchase
Agreement, the Trust may, at its sole option, from time to time request that the
Initial Class A Certificateholder advance on any Transfer Date and on any
Purchase Value Excess Date, Additional Class A Certificate Principal Balances
and the Initial Class A Certificateholder shall remit on such Transfer Date or
Purchase Value Excess Date, as the case may be, to the Advance Account an amount
equal to the Additional Class A Certificate Principal Balance.
(ii) Notwithstanding anything to the contrary herein, in no
event shall the Initial Class A Certificateholder be required to advance
Additional Class A Certificate Principal Balances on a Transfer Date if the
conditions precedent to a transfer of the Loans under Section 3.06(a) and the
conditions precedent to the purchase of Additional Class A Certificate Principal
Balances set forth in Section 3.01 of the Certificate Purchase Agreement have
not been fulfilled.
(iii) Notwithstanding anything to the contrary herein, in no
event shall the Initial Class A Certificateholder be required to advance
Additional Class A Certificate Principal Balance on a Purchase Value Excess Date
if the conditions precedent thereto set forth in Section 3.06(b) and the
conditions precedent to the purchase of Additional Class A Certificate Principal
Balances set forth in Section 3.01 of the Certificate Purchase Agreement have
not been fulfilled.
(iv) The Servicer shall appropriately note such Additional
Class A Certificate Principal Balance (and the increased Class A Certificate
Principal Balance) in the next succeeding Payment Statement; provided, however,
that failure to make any such notation in such Payment Statement or any error in
such notation shall not adversely affect any Certificateholder's rights with
respect to its Class A Certificate Principal Balance and its right to receive
interest and principal payments in respect of the Class A Certificate Principal
Balance held by such Certificateholder. The Initial Class A Certificateholder
shall record on the schedule attached to such Certificateholder's Class A
Certificate, the date and amount of any Additional Class A Certificate Principal
Balance advanced by it; provided, that failure to make such recordation on such
schedule or any error in such schedule shall not adversely affect any
Certificateholder's rights with respect to its Class A Certificate Principal
Balance and its right to receive interest payments in respect of the Class A
Certificate Principal Balance held by such Certificateholder.
(v) Absent manifest error, the Class A Certificate Principal
Balance of each Class A Certificate as set forth in the Initial Class A
Certificateholder's records shall be binding upon the Certificateholders and the
Trust, notwithstanding any notation made by the Servicer in its Payment
Statement pursuant to the preceding paragraph.
Section 3.02 Ownership and Possession of Loan Files.
With respect to each Loan, as of the related Transfer Date the
ownership of the related Promissory Note, the related Mortgage and the contents
of the related Servicer's Loan File and Custodial Loan File shall be vested in
the Trust for the benefit of the Certificateholders, although possession of the
Servicer's Loan File (other than items required
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to be maintained in the Custodial Loan Files) on behalf of and for the benefit
of the Certificateholders shall remain with the Servicer, and the Custodian
shall take possession of the Custodial Loan Files as contemplated in Section
3.05 hereof.
Section 3.03 Books and Records; Intention of the Parties.
(a) As of each Transfer Date, the sale of each of the Loans
conveyed on such Transfer Date shall be reflected on the balance sheets and
other financial statements of the Depositor or the Loan Originator, as the case
may be, as a sale of assets by the Depositor or the Loan Originator, as the case
may be, under GAAP. Each of the Servicer and the Custodian shall be responsible
for maintaining, and shall maintain, a complete set of books and records for
each Loan which shall be clearly marked to reflect the ownership of each Loan,
as of the related Transfer Date, by the Owner Trustee and for the benefit of the
Certificateholders.
(b) It is the intention of the parties hereto that, other than
for federal, state and local income or franchise tax purposes, the transfers and
assignments of the Owner Trust Estate on the Closing Date, on each Transfer Date
and as otherwise contemplated by the Basic Documents and the Assignments shall
constitute a sale of the Owner Trust Estate including, without limitation, the
Loans and all other property comprising the Owner Trust Estate specified in
Section 3.01(a) hereof, from the Depositor to the Trust and such property shall
not be property of the Depositor.
(c) If any of the assignments and transfers of the Loans and
the other property of the Owner Trust Estate specified in Section 3.01(a) hereof
to the Owner Trustee pursuant to this Agreement or the conveyance of the Loans
or any of such other property of the Owner Trust Estate to the Owner Trustee, is
held or deemed not to be a sale or is held or deemed to be a pledge of security
for a loan, the Depositor intends that the rights and obligations of the parties
shall be established pursuant to the terms of this Agreement and that, in such
event, with respect to such property, (i) consisting of Loans and related
property, the Depositor hereby grants, as of the related Transfer Date, to the
Owner Trustee a first priority security interest in the entire right, title and
interest of the Depositor in and to such Loans and proceeds and all other
property conveyed to the Owner Trustee as of such Transfer Date, (ii) consisting
of any other property specified in Section 3.01(a), the Depositor hereby grants,
as of the Closing Date, to the Owner Trustee a first priority security interest
in the entire right, title and interest of the Depositor in and to such property
and the proceeds thereof. In such event, with respect to such property, this
Agreement shall constitute a security agreement under applicable law.
(d) Within ten (10) days of the date first above written, the
Depositor shall, at Depositor's sole expense, cause to be filed UCC-1 Financing
Statements naming the Owner Trustee as "secured party" and describing the Owner
Trust Estate being sold by the Depositor to the Trust with the office of the
Secretary of State of the state in which the Depositor is located.
Section 3.04 Delivery of Loan Documents.
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(a)(A) With respect to each Loan that is not a Bailee Loan,
the Loan Originator and/or the Depositor, as the case may be, shall, on or
before the related Transfer Date, deliver or cause to be delivered to the
Custodian, as the designated agent of the Owner Trustee, each of the following
documents (collectively, the "Custodial Loan File"):
(1) The original Promissory Note bearing all intervening
endorsements, endorsed "Pay to the order of _________ without recourse" and
signed in the name of the last endorsee (the "Last Endorsee") by an authorized
Person (in the event that the Loan was acquired by the Last Endorsee in a
merger, the signature must be in the following form: "[Last Endorsee], successor
by merger to [name of predecessor]"; in the event that the Loan was acquired or
originated by the Last Endorsee while doing business under another name, the
signature must be in the following form: "[Last Endorsee], formerly known as
[previous name]").
(2) The original of any guarantee executed in connection with
the Promissory Note (if any).
(3) The original Mortgage with evidence of recording thereon,
or a copy thereof together with an Officer's Certificate of the Loan Originator
certifying that such represents a true and correct copy of the original and that
such original has been submitted for recordation in the appropriate governmental
recording office of the jurisdiction where the Mortgaged Property is located.
(4) The originals of all assumption, modification,
consolidation or extension agreements with evidence of recording thereon, or
copies thereof together with an Officer's Certificate of the Loan Originator
certifying that such represent true and correct copies of the originals and that
such originals have each been submitted for recordation in the appropriate
governmental recording office of the jurisdiction where the Mortgaged Property
is located.
(5) The original Assignment of Mortgage in blank for each
Loan, in form and substance acceptable for recording and signed in the name of
the Last Endorsee (in the event that the Loan was acquired by the Last Endorsee
in a merger, the signature must be in the following form: "[Last Endorsee],
successor by merger to [name of predecessor]"; in the event that the Loan was
acquired or originated while doing business under another name, the signature
must be in the following form: "[Last Endorsee], formerly known as [previous
name]").
(6) The originals of all intervening assignments of mortgage
with evidence of recording thereon, or copies thereof together with an Officer's
Certificate of the Loan Originator certifying that such represent true and
correct copies of the originals and that such originals have each been submitted
for recordation in the appropriate governmental recording office of the
jurisdiction where the Mortgaged Property is located.
(7) The original attorney's opinion of title and abstract of
title or the original mortgagee title insurance policy, or if the original
mortgagee title insurance policy has not been issued, the irrevocable commitment
to issue the same.
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(8) The original of any security agreement, chattel mortgage
or equivalent document executed in connection with the Loan.
(9) The original assignment of leases and rents, if any, with
evidence of recording thereon, or a copy thereof together with an Officer's
Certificate of the Loan Originator certifying that such copy represents a true
and correct copy of the original that has been submitted for recordation in the
appropriate governmental recording office of the jurisdiction where the
Mortgaged Property is located.
(10) The original assignment of assignment of leases and
rents, if any, from the Loan Originator in blank, in form and substance
acceptable for recording.
(11) A copy of the UCC-1 Financing Statements, certified as
true and correct by the Loan Originator, and all necessary UCC-3 Continuation
Statements with evidence of filing thereon or copies thereof certified by the
Loan Originator to have been sent for filing, and UCC-3 Assignments executed by
the Loan Originator in blank, which UCC-3 Assignments shall be in form and
substance acceptable for filing.
(12) An environmental indemnity agreement (if any).
(13) An omnibus assignment in blank (if any).
(14) A disbursement letter from the Borrower to the original
mortgagee (if any).
(15) Borrower's certificate or title affidavit (if any).
(16) A survey of the Mortgaged Property (if any).
(17) A copy of the Borrower's opinion of counsel (if any).
(B) With respect to each Bailee Loan:
(i) By no later than 10:00 a.m., New York City Time, on the
Transfer Date, the Loan Originator shall cause the Bailee to deliver to the
Custodian by facsimile copies of:
(1) a fully executed Bailee Agreement and a trust receipt
issued thereunder (as required in the Bailee Agreement) (to the extent that the
Promissory Notes and Assignment of Mortgage have not been previously delivered
to the Custodian); and
(2) the fully executed Promissory Note (to the extent that the
original Promissory Note has not been previously delivered to the Custodian);
and
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(3) the Assignment of Mortgage (to the to the extent that
the original Assignment of Mortgage has not been previously delivered to the
Custodian.
(ii) Within three Business Days following the Transfer Date,
the Loan Originator shall have delivered or caused to be delivered to the
Custodian, by fully insured courier service reasonably acceptable to the Initial
Class A Certificateholders, the Custodial Loan File documents not previously
delivered pursuant hereto.
(b) With respect to each Loan, the Loan Originator and the
Depositor shall, on the related Transfer Date, deliver or cause to be delivered
to the Servicer for the benefit of the Owner Trustee, as secured party on behalf
of the Certificateholders, the related Servicer's Loan File.
(c) The Owner Trustee shall cause the Custodian to take and
maintain continuous physical possession of the Custodial Loan Files in the State
of Illinois and, in connection therewith, shall act solely as agent for the
Certificateholders in accordance with the terms hereof and not as agent for the
Loan Originator, the Servicer or any other party.
Section 3.05 Acceptance by the Owner Trustee of the
Loans; Certain Substitutions and
Repurchases; Certification by the Custodian.
(a) The Owner Trustee declares that it will cause the
Custodian to hold the Custodial Loan Files and any additions, amendments,
replacements or supplements to the documents contained therein, as well as any
other assets included in the Owner Trust Estate and delivered to the Custodian,
in trust, upon and subject to the conditions set forth herein. The Owner Trustee
further agrees to cause the Custodian to execute and deliver such certifications
as are required under the Custodial Agreement and to otherwise direct the
Custodian to perform all of its obligations with respect to the Custodial Loan
Files in strict accordance with the terms of the Custodial Agreement.
(b) (i) With respect to any Loans which are set forth as
exceptions in the Loan Schedule and Exceptions Report, the Loan Originator shall
cure such exception by delivering such missing documents to the Custodian or
otherwise curing the defect no later than (A) 5 Business Days after the receipt
of the Initial Certification or the first Loan Schedule and Exceptions Report
with respect to such Loan (or in the case of a Bailee Loan, 5 Business days
after the related Transfer Date with respect thereto) or (B) in the case of Loan
Documents which have been delivered to recording or filing offices and have not
been returned to the Loan Originator to permit their delivery to the Custodian
at the time required, 90 days after the related Transfer Date.
(ii) In the event that, with respect to any Loan, the Loan
Originator does not comply with the document delivery requirements of this
Section 3.05, the Loan Originator shall purchase such Loan at the Purchase Price
with respect to such Loan by depositing such Purchase Price in the Collection
Account. The Loan Originator shall provide the Servicer, the Owner Trustee, the
Trust and the Initial Class A Certificateholder with a certification of a
Responsible Officer prior to such repurchase indicating that the Loan
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Originator intends to repurchase such Loan. In lieu of such a repurchase, the
Depositor and Loan Originator may comply with the substitution provisions of
Section 3.05 hereof.
(iii) It is understood and agreed that the obligation
of the Loan Originator to repurchase any such Loan
pursuant to this Section 3.05(b) shall constitute the sole remedy against it
with respect to such failure to comply with the foregoing delivery requirements.
(c) In performing its reviews of the Custodial Loan Files
pursuant to the Custodial Agreement, the Custodian shall have no responsibility
to determine the genuineness of any document contained therein and any signature
thereon. The Custodian shall not have any responsibility for determining whether
any document is valid and binding, whether the text of any assignment or
endorsement is in proper or recordable form, whether any document has been
recorded in accordance with the requirements of any applicable jurisdiction or
whether a blanket assignment is permitted in any applicable jurisdiction.
(d) The Servicer's Loan File shall be held in the custody of
the Servicer (i) for the benefit of, and as agent for, the Certificateholders
and (ii) for the benefit of the Owner Trustee, on behalf of the Class A
Certificateholders, for so long as the Class A Certificates are outstanding;
after the Class A Certificates are not outstanding, the Servicer's Loan File
shall be held in the custody of the Servicer for the benefit of, and as agent
for, the Class B Certificateholders. It is intended that, by the Servicer's
agreement pursuant to this Section 3.05(d), the Owner Trustee shall be deemed to
have possession of the Servicer's Loan Files for purposes of Section 9-305 of
the UCC of the state in which such documents or instruments are located. The
Servicer shall promptly report to the Owner Trustee any failure by it to hold
the Servicer's Loan File as herein provided and shall promptly take appropriate
action to remedy any such failure. In acting as custodian of such documents and
instruments, the Servicer agrees not to assert any legal or beneficial ownership
interest in the Loans or such documents or instruments. The Servicer agrees to
indemnify the Certificateholders and the Owner Trustee, its officers, directors,
employees, agents and "control persons" as such term is used under the Act and
under the Securities Exchange Act of 1934, as amended for any and all
liabilities, obligations, losses, damages, payments, costs or expenses of any
kind whatsoever which may be imposed on, incurred by or asserted against the
Certificateholders or the Owner Trustee as the result of any act or omission by
the Servicer relating to the maintenance and custody of such documents or
instruments which have been delivered to the Servicer; provided, however, that
the Servicer will not be liable for any portion of any such amount resulting
from the negligence or willful misconduct of any Certificateholders or the Owner
Trustee; and provided, further, that the Servicer will not be liable for any
portion of any such amount resulting from the Servicer's compliance with any
instructions or directions consistent with this Agreement issued to the Servicer
by the Owner Trustee. The Owner Trustee shall have no duty to monitor or
otherwise oversee the Servicer's performance as custodian hereunder.
Section 3.06 Conditions Precedent to Transfer Dates and
Purchase Value Excess Dates.
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(a) On each Transfer Date, the Depositor shall convey to the
Trust, the Loans and the other property and rights related thereto described in
the related T&SA Assignment. The Trust, only upon the satisfaction of each of
the conditions set forth below on or prior to such Transfer Date, shall deposit
or cause to be deposited cash in the amount of the Additional Class A
Certificate Principal Balance in the Advance Account in respect thereof, and the
Servicer shall, promptly after such deposit, withdraw the amount deposited in
respect of applicable Additional Class A Certificate Principal Balance from the
Advance Account, and distribute such amount to or at the direction of the
Depositor.
(i) the Depositor shall have delivered to the
Trust and the Initial Class A
Certificateholder duly executed Assignments,
which shall have attached thereto a Loan
Schedule setting forth the appropriate
information with respect to all Loans
conveyed on such Transfer Date and shall
have delivered to the Initial Class A
Certificateholder a computer readable
transmission of such Loan Schedule;
(ii) the Depositor shall have deposited in the
Collection Account all collections received
with respect to each of the Loans after but
not including the applicable Transfer Cutoff
Date;
(iii) as of such date, neither the Loan
Originator, the Trust nor the Depositor
shall (A) be insolvent, (B) be made
insolvent by its respective sale of Loans or
(C) have reason to believe that its
insolvency is imminent;
(iv) the Revolving Period shall not have
terminated;
(v) the Initial Class A Certificateholder shall
have received the Due Diligence Packages for
such Loans as are to be transferred on such
Transfer Date at least five Business Days
prior to the related Transfer Date, shall
have completed its due diligence
investigation of such Loans and shall have
approved, in its sole discretion, each such
Loan;
(vi) the Trust shall have delivered the Custodial
Loan File to the Custodian in accordance
with the Custodial Agreement and the Initial
Class A Certificateholder shall have
received a copy of the Loan Schedule and
Exceptions Report reflecting such delivery;
(vii) each of the representations and warranties
made by the Loan Originator pursuant to
Section 4.04 with respect to the Loans shall
be true and correct as of the related
Transfer Date with the same effect as if
then made, and the Depositor shall have
performed all obligations to be performed by
it under the Basic Documents on or prior to
such Transfer Date;
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(viii) the Depositor shall, at its own expense, on
or prior to the Transfer Date, indicate in
its computer files that the Loans identified
in the LPA Assignment and T&SA Assignment
have been sold to the Trust pursuant to this
Agreement and the T&SA Assignment;
(ix) the Depositor shall have taken any action
required to maintain the ownership interest
of the Trust in the Owner Trust Estate;
(x) no selection procedures believed by the
Depositor to be adverse to the interests of
the Certificateholders shall have been
utilized in selecting the Loans to be
conveyed on such Transfer Date;
(xi) the Depositor shall have provided the Trust,
the Owner Trustee and the Initial Class A
Certificateholder no later than two Business
Days prior to such date a Notice of
Additional Class A Certificate Principal
Balance in the form of Exhibit A hereto;
(xii) after giving effect to the Additional Class
A Certificate Principal Balance associated
therewith, the Class A Certificate Principal
Balance will not exceed the Maximum Class A
Certificate Principal Balance;
(xiii) all conditions precedent to the Depositor's
purchase of Loans pursuant to the Loan
Purchase Agreement shall have been fulfilled
as of such Transfer Date; and
(xiv) all conditions precedent to the
Certificateholders' purchase of Additional
Class A Certificate Principal Balance
pursuant to the Certificate Purchase
Agreement shall have been fulfilled as of
such date.
(b) On each Purchase Value Excess Date, upon the satisfaction
of conditions set forth in subclauses (iii), (iv), (ix), (xi), (xii), (xiii) and
(xiv) of Section 3.06(a) on such Purchase Value Excess Date, the Trust shall
deposit or cause to be deposited into (i) the Transfer Obligation Account, cash
in the amount equal to the lesser of (A) the Additional Class A Certificate
Principal Balance and (B) the Transfer Obligation Target Amount and (ii) the
Advance Account the excess (if any) of the Additional Class A Certificate
Principal Balance over the amount deposited into the Transfer Obligation Account
pursuant to clause (i) above. The Servicer shall withdraw the amount deposited
in respect of Additional Class A Certificate Principal Balance from the Advance
Account in respect of such deposit and distribute such amount to or at the
direction of the Depositor.
Section 3.07 Termination of Revolving Period.
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Upon the occurrence of (i) an Event of Default or Default
under this Agreement or (ii) a Rapid Amortization Trigger, the Initial Class A
Certificateholder (if still a Certificateholder) may, in its sole discretion,
terminate the Revolving Period.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01 Representations and Warranties of the Depositor.
The Depositor hereby represents, warrants and covenants to the
other parties hereto and the Certificateholders that as of the Closing Date, as
of each Transfer Date and as of each Purchase Value Excess Date:
(a) The Depositor is a Delaware limited partnership duly
organized, validly existing and in good standing under the laws of the
State of Delaware and has, and had at all relevant times, full power to
own its property, to carry on its business as currently conducted, to
enter into and perform its obligations under each Basic Document to
which it is a party;
(b) The execution and delivery of each Basic Document to which
it is a party by the Depositor and its performance of and compliance
with all of the terms thereof will not violate the Depositor's
organizational documents or constitute a default (or an event which,
with notice or lapse of time, or both, would constitute a default)
under, or result in the breach or acceleration of, any material
contract, agreement or other instrument to which the Depositor is a
party or which may be applicable to the Depositor or any of its assets;
(c) The Depositor has the full power and authority to enter
into and consummate the transactions contemplated by each Basic
Document to which it is a party, has duly authorized the execution,
delivery and performance of each Basic Document to which it is a party
and has duly executed and delivered each Basic Document to which it is
a party. Each Basic Document to which it is a party, assuming due
authorization, execution and delivery by the other party or parties
thereto, constitutes a valid, legal and binding obligation of the
Depositor, enforceable against it in accordance with the terms thereof,
except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, receivership, moratorium or other similar laws relating
to or affecting the rights of creditors generally, and by general
equity principles (regardless of whether such enforcement is considered
in a proceeding in equity or at law);
(d) The Depositor is not in violation of, and the execution
and delivery of each Basic Document to which it is a party by the
Depositor and its performance and compliance with the terms of each
Basic Document to which it is a party will not constitute a violation
with respect to, any order or decree of any court or any order or
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regulation of any federal, state, municipal or governmental agency
having jurisdiction, which violation would materially and adversely
affect the condition (financial or otherwise) or operations of the
Depositor or its properties or materially and adversely affect the
performance of its duties hereunder;
(e) There are no actions or proceedings against, or
investigations of, the Depositor currently pending with regard to which
the Depositor has received service of process and no action or
proceeding against, or investigation of, the Depositor is, to the
knowledge of the Depositor, threatened or otherwise pending before any
court, administrative agency or other tribunal that (A) if determined
adversely to the Depositor, would prohibit its entering into any of the
Basic Documents to which it is a party or render the Certificates
invalid, (B) seek to prevent the issuance of the Certificates or the
consummation of any of the transactions contemplated by any of the
Basic Documents to which it is a party or (C) if determined adversely
to the Depositor, would prohibit or materially and adversely affect the
performance by the Depositor of its obligations under, or the validity
or enforceability of, any of the Basic Documents to which it is a party
or the Certificates;
(f) No consent, approval, authorization or order of any court
or governmental agency or body is required for the execution, delivery
and performance by the Depositor of, or compliance by the Depositor
with, any of the Basic Documents to which it is a party or the
Certificates, or for the consummation of the transactions contemplated
by any of the Basic Documents to which it is a party, except for such
consents, approvals, authorizations and orders, if any, that have been
obtained prior to the Closing Date;
(g) The Depositor is solvent, is able to pay its debts as they
become due and has capital sufficient to carry on its business and its
obligations hereunder; it will not be rendered insolvent by the
execution and delivery of any of the Basic Documents to which it is a
party or the assumption of any of its obligations thereunder; no
petition of bankruptcy (or similar insolvency proceeding) has been
filed by or against the Depositor;
(h) As of the Transfer Date related thereto, the Depositor did
not sell the Loans sold thereon to the Trust with any intent to hinder,
delay or defraud any of its creditors; nor will the Depositor be
rendered insolvent as a result of such sale;
(i) As of the Transfer Date related thereto, the Depositor had
good title to, and was the sole owner of, each Loan sold thereon free
and clear of any lien other than any such lien released simultaneously
with the sale contemplated herein, and, immediately upon each transfer
and assignment herein contemplated, the Depositor will have delivered
to the Trust good title to, and the Trust will be the sole owner of,
each Loan transferred thereon free and clear of any lien;
(j) As of the Transfer Date related thereto, the Depositor
acquired title to each of the Loans sold thereon in good faith, without
notice of any adverse claim;
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(k) The information, reports, financial statements, exhibits
and schedules furnished in writing by or on behalf of the Depositor to
the Initial Class A Certificateholder in connection with the
negotiation, preparation or delivery of the Basic Documents to which it
is a party, or delivered pursuant thereto, when taken as a whole, do
not contain any untrue statement of material fact or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. All written
information furnished after the date hereof by or on behalf of the
Depositor to the Initial Class A Certificateholder in connection with
the Basic Documents to which it is a party and the transactions
contemplated thereby will be true, complete and accurate in every
material respect, or (in the case of projections) based on reasonable
estimates, on the date as of which such information is stated or
certified. There is no fact known to a Responsible Officer of the
Depositor, after due inquiry, that could reasonably be expected to have
a material adverse effect on (a) the property, business, operations,
financial condition or prospects of the Depositor, (b) the ability of
the Depositor to perform its obligations under any Basic Document to
which it is a party, (c) the validity or enforceability of any of the
Basic Documents, (d) the rights and remedies of the Initial Class A
Certificateholder and the Owner Trustee under any of the Basic
Documents, (e) the timely distribution of the principal of or interest
on the Certificates or other amounts distributable in connection
therewith or (f) the Owner Trust Estate that has not been disclosed to
the Initial Class A Certificateholder in a report, financial statement,
exhibit, schedule, disclosure letter or other writing furnished to the
Initial Class A Certificateholder for use in connection with the
transactions contemplated thereby;
(l) The Depositor is not required to be registered as an
"investment company" under the Investment Company Act of 1940, as
amended;
(m) As of the Transfer Date related thereto, the transfer,
assignment and conveyance of the Loans by the Depositor thereon
pursuant to this Agreement is not subject to the bulk transfer laws or
any similar statutory provisions in effect in any applicable
jurisdiction;
(n) The Depositor's principal place of business and chief
executive offices are located at 1850 N. Central Ave., Phoenix, AZ
85004;
(o) The Depositor covenants with the Owner Trustee that during
the continuance of this Agreement it will comply in all respects with
the provisions of its organizational documents in effect from time to
time;
(p) The General Partner is a Delaware corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware and has, and had at all relevant times, full power to
own its property, to carry on its business as currently conducted, to
enter into and perform its obligations under each Basic Document to
which it is a party;
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(q) The execution and delivery of each Basic Document on
behalf of the Depositor which the Depositor is a party will not violate
the General Partner's certificate of incorporation or by-laws or
constitute a default (or an event which, with notice or lapse of time,
or both, would constitute a default) under, or result in the breach or
acceleration of, any material contract, agreement or other instrument
to which the General Partner is a party or which may be applicable to
the General Partner or any of its assets;
(r) The General Partner has the full power and authority to
cause the Depositor to enter into and consummate the transactions
contemplated by each Basic Document to which the Depositor is a party,
has duly authorized the execution, delivery and performance on behalf
of the Depositor of each Basic Document to which the Depositor is a
party and has duly executed and delivered on behalf of the Depositor
each Basic Document to which the Depositor is a party;
(s) The General Partner is not in violation of, and the
execution and delivery of each Basic Document to which it is a party by
the General Partner and its performance and compliance with the terms
of each Basic Document to which it is a party will not constitute a
violation with respect to, any order or decree of any court or any
order or regulation of any federal, state, municipal or governmental
agency having jurisdiction, which violation would materially and
adversely affect the condition (financial or otherwise) or operations
of the General Partner or its properties or materially and adversely
affect the performance of its duties hereunder;
(t) The General Partner is solvent, is able to pay its debts
as they become due and has capital sufficient to carry on its business
and its obligations; no petition of bankruptcy (or similar insolvency
proceeding) has been filed by or against the General Partner; and
(u) The General Partner covenants with the Owner Trustee that
during the continuance of this Agreement it will comply in all respects
with the provisions of its organizational documents in effect from time
to time.
Section 4.02 Representations and Warranties of the Loan
Originator.
The Loan Originator hereby represents and warrants to the
other parties hereto and the Certificateholders that as of the Closing
Date, as of each Transfer Date and as of each Purchase Value Excess
Date:
(a) The Loan Originator is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware and (i) is duly qualified, in good standing and if required by
law, licensed to carry on its business in each state where any
Mortgaged Property is located to the extent required under applicable
law and (ii) is in compliance with the laws of any such state, in both
cases, to the extent necessary to ensure the enforceability of the
Loans in accordance with the terms thereof and had at all relevant
times, full corporate power to originate the Loans, to own its
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property, to carry on its business as currently conducted and to enter
into and perform its obligations under each Basic Document to which it
is a party;
(b) The execution and delivery by the Loan Originator of each
Basic Document to which it is a party and its performance of and
compliance with the terms thereof will not violate the Loan
Originator's articles of incorporation or by-laws or constitute a
default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, or result in the breach or
acceleration of, any contract, agreement or other instrument to which
the Loan Originator is a party or which may be applicable to the Loan
Originator or any of its assets;
(c) The Loan Originator has the full power and authority to
enter into and consummate all transactions contemplated by the Basic
Documents to be consummated by it, has duly authorized the execution,
delivery and performance of each Basic Document to which it is a party
and has duly executed and delivered each Basic Document to which it is
a party. Each Basic Document to which it is a party, assuming due
authorization, execution and delivery by each of the other parties
thereto, constitutes a valid, legal and binding obligation of the Loan
Originator, enforceable against it in accordance with the terms hereof,
except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, receivership, moratorium or other similar laws relating
to or affecting the rights of creditors generally, and by general
equity principles (regardless of whether such enforcement is considered
in a proceeding in equity or at law);
(d) The Loan Originator is not in violation of, and the
execution and delivery of each Basic Document to which it is a party by
the Loan Originator and its performance and compliance with the terms
of each Basic Document to which it is a party will not constitute a
violation with respect to, any order or decree of any court or any
order or regulation of any federal, state, municipal or governmental
agency having jurisdiction, which violation would materially and
adversely affect the condition (financial or otherwise) or operations
of the Loan Originator or its properties or materially and adversely
affect the performance of its duties under any Basic Document to which
it is a party;
(e) There are no actions or proceedings against, or
investigations of, the Loan Originator currently pending with regard to
which the Loan Originator has received service of process and no action
or proceeding against, or investigation of, the Loan Originator is, to
the knowledge of the Loan Originator, threatened or otherwise pending
before any court, administrative agency or other tribunal that (A) if
determined adversely to the Loan Originator, would prohibit its
entering into any Basic Document to which it is a party or render the
Certificates invalid, (B) seek to prevent the issuance of the
Certificates or the consummation of any of the transactions
contemplated by any Basic Document to which it is a party or (C) if
determined adversely to the Loan Originator, would prohibit or
materially and adversely affect the sale of the Loans to the Depositor,
the performance by the Loan Originator of its obligations under, or the
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validity or enforceability of, any Basic Document to which it is a
party or the Certificates;
(f) No consent, approval, authorization or order of any court
or governmental agency or body is required for: (1) the execution,
delivery and performance by the Loan Originator of, or compliance by
the Loan Originator with, any Basic Document to which it is a party,
(2) the issuance of the Certificates, (3) the sale of the Loans under
the Loan Purchase Agreement or (4) the consummation of the transactions
required of it by any Basic Document to which it is a party, except
such as shall have been obtained before such date;
(g) Immediately prior to the Transfer Date related thereto,
the Loan Originator had good title to the Loans sold on such Transfer
Date without notice of any adverse claim;
(h) The information, reports, financial statements, exhibits
and schedules furnished in writing by or on behalf of the Loan
Originator to the Initial Class A Certificateholder in connection with
the negotiation, preparation or delivery of the Basic Documents to
which it is a party or delivered pursuant thereto, when taken as a
whole, do not contain any untrue statement of material fact or omit to
state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
All written information furnished after the date hereof by or on behalf
of the Loan Originator to the Initial Class A Certificateholder in
connection with the Basic Documents to which it is a party and the
transactions contemplated thereby will be true, complete and accurate
in every material respect, or (in the case of projections) based on
reasonable estimates, on the date as of which such information is
stated or certified. There is no fact known to a Responsible Officer of
the Loan Originator, after due inquiry, that could reasonably be
expected to have a material adverse effect on (a) the property,
business, operations, financial condition or prospects of the Loan
Originator, (b) the ability of the Loan Originator to perform its
obligations under any Basic Document to which it is a party, (c) the
validity or enforceability of any of the Basic Documents, (d) the
rights and remedies of the Initial Class A Certificateholder and the
Owner Trustee under any of the Basic Documents, (e) the timely
distribution of the principal of or interest on the Certificates or
other amounts distributable in connection therewith or (f) the Owner
Trust Estate that has not been disclosed to the Initial Class A
Certificateholder in a report, financial statement, exhibit, schedule,
disclosure letter or other writing furnished to the Initial Class A
Certificateholder for use in connection with the transactions
contemplated thereby;
(i) The Loan Originator is solvent, is able to pay its debts
as they become due and has capital sufficient to carry on its business
and its obligations under each Basic Document to which it is a party;
it will not be rendered insolvent by the execution and delivery of this
Agreement or by the performance of its obligations under each Basic
Document to which it is a party; no petition of bankruptcy (or similar
insolvency proceeding) has been filed by or against the Loan Originator
prior to the date hereof;
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(j) As of the Transfer Date related thereto, the Loan
Originator has transferred the Loans transferred on or prior to such
Transfer Date without any intent to hinder, delay or defraud any of its
creditors;
(k) As of the Transfer Date related thereto, the Loan
Originator has received fair consideration and reasonably equivalent
value in exchange for the Loans sold on such Transfer Date to the
Depositor; and
(l) The Loan Originator's principal place of business and
chief executive offices are located at 1850 N. Central Ave., Phoenix,
AZ 85004.
It is understood and agreed that the representations and
warranties set forth in this Section 4.02 shall survive delivery of the
respective Custodial Loan Files to the Custodian (as the agent of the Owner
Trustee) and shall inure to the benefit of the Certificateholders, the
Depositor, the Servicer, the Owner Trustee and the Trust. Upon discovery by any
of the Loan Originator, the Depositor, the Servicer, the Owner Trustee or the
Trust of a breach of any of the foregoing representations and warranties that
materially and adversely affects the value of any Loan or the interests of the
Certificateholders therein, the party discovering such breach shall give prompt
written notice (but in no event later than five Business Days following such
discovery) to the other parties. The obligations of the Loan Originator set
forth in Sections 3.05 and 4.05 hereof to cure any breach or to substitute for
or repurchase an affected Loan shall constitute the sole remedies available
hereunder to the Certificateholders, the Depositor, the Servicer, the Owner
Trustee or the Trust respecting a breach of the representations and warranties
contained in this Section 4.02. The fact that the Initial Class A
Certificateholder has conducted or has failed to conduct any partial or complete
due diligence investigation of the Loan Files shall not affect the
Certificateholders' rights to demand repurchase or substitution as provided
under this Agreement.
Section 4.03 Representations, Warranties and Covenants of the
Servicer.
The Servicer hereby represents and warrants to and covenants
with the other parties hereto and the Certificateholders that as of the Closing
Date, as of each Transfer Date and as of each Purchase Value Excess Date:
(a) The Servicer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware
and (i) is duly qualified, in good standing and licensed to carry on
its business in each state where any Mortgaged Property is located, and
(ii) is in compliance with the laws of any such state, in both cases,
to the extent necessary to ensure the enforceability of the Loans in
accordance with the terms thereof and to perform its duties under each
Basic Document to which it is a party and had at all relevant times,
full corporate power to own its property, to carry on its business as
currently conducted, to service the Loans and to enter into and perform
its obligations under each Basic Document to which it is a party;
(b) The execution and delivery by the Servicer of each Basic
Document to which it is a party and its performance of and compliance
with the terms thereof will
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not violate the Servicer's articles of incorporation or by-laws or
constitute a default (or an event which, with notice or lapse of time,
or both, would constitute a default) under, or result in the breach or
acceleration of, any material contract, agreement or other instrument
to which the Servicer is a party or which may be applicable to the
Servicer or any of its assets;
(c) The Servicer has the full power and authority to enter
into and consummate all transactions contemplated by each Basic
Document to which it is a party, has duly authorized the execution,
delivery and performance of each Basic Document to which it is a party
and has duly executed and delivered each Basic Document to which it is
a party. Each Basic Document to which it is a party, assuming due
authorization, execution and delivery by each of the other parties
thereto, constitutes a valid, legal and binding obligation of the
Servicer, enforceable against it in accordance with the terms hereof,
except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, receivership, moratorium or other similar laws relating
to or affecting the rights of creditors generally, and by general
equity principles (regardless of whether such enforcement is considered
in a proceeding in equity or at law);
(d) The Servicer is not in violation of, and the execution and
delivery of each Basic Document to which it is a party by the Servicer
and its performance and compliance with the terms of each Basic
Document to which it is a party will not constitute a violation with
respect to, any order or decree of any court or any order or regulation
of any federal, state, municipal or governmental agency having
jurisdiction, which violation would materially and adversely affect the
condition (financial or otherwise) or operations of the Servicer or
materially and adversely affect the performance of its duties under any
Basic Document to which it is a party;
(e) There are no actions or proceedings against, or
investigations of, the Servicer currently pending with regard to which
the Servicer has received service of process and no action or
proceeding against, or investigation of, the Servicer is, to the
knowledge of the Servicer, threatened or otherwise pending before any
court, administrative agency or other tribunal that (A) if determined
adversely to the Servicer, would prohibit its entering into any Basic
Document to which it is a party, (B) seek to prevent the consummation
of any of the transactions contemplated by any Basic Document to which
it is a party or (C) if determined adversely to the Servicer, would
prohibit or materially and adversely affect the performance by the
Servicer of its obligations under, or the validity or enforceability
of, any Basic Document to which it is a party or the Certificates;
(f) No consent, approval, authorization or order of any court
or governmental agency or body is required for the execution, delivery
and performance by the Servicer of, or compliance by the Servicer with,
any Basic Document to which it is a party or the Certificates, or for
the consummation of the transactions contemplated
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by any Basic Document to which it is a party, except for such consents,
approvals, authorizations and orders, if any, that have been obtained
prior to such date;
(g) The information, reports, financial statements, exhibits
and schedules furnished in writing by or on behalf of the Servicer to
the Initial Class A Certificateholder in connection with the
negotiation, preparation or delivery of the Basic Documents to which it
is a party or delivered pursuant thereto, when taken as a whole, do not
contain any untrue statement of material fact or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. All written
information furnished after the date hereof by or on behalf of the
Servicer to the Initial Class A Certificateholder in connection with
the Basic Documents to which it is a party and the transactions
contemplated thereby will be true, complete and accurate in every
material respect, or (in the case of projections) based on reasonable
estimates, on the date as of which such information is stated or
certified. There is no fact known to a Responsible Officer of the
Servicer, after due inquiry, that could reasonably be expected to have
a material adverse effect on (a) the property, business, operations,
financial condition or prospects of the Servicer, (b) the ability of
the Servicer to perform its obligations under any Basic Document to
which it is a party, (c) the validity or enforceability of any of the
Basic Documents, (d) the rights and remedies of the Initial Class A
Certificateholder and the Owner Trustee under any of the Basic
Documents, (e) the timely distribution of the principal of or interest
on the Certificates or other amounts distributable in connection
therewith or (f) the Owner Trust Estate that has not been disclosed to
the Initial Class A Certificateholder in a report, financial statement,
exhibit, schedule, disclosure letter or other writing furnished to the
Initial Class A Certificateholder for use in connection with the
transactions contemplated thereby;
(h) The Servicer is solvent and will not be rendered insolvent
as a result of the performance of its obligations pursuant to under the
Basic Documents to which it is a party;
(i) The Servicer acknowledges and agrees that the Servicing
Fee represents reasonable compensation for the performance of its
services hereunder and that the entire Servicing Fee shall be treated
by the Servicer, for accounting purposes, as compensation for the
servicing and administration of the Loans pursuant to this Agreement;
and
(j) The Servicer is an Eligible Servicer and covenants to
remain an Eligible Servicer or, if not an Eligible Servicer, each
Subservicer is an Eligible Servicer and the Servicer covenants to
utilize Subservicers that are Eligible Servicers.
It is understood and agreed that the representations,
warranties and covenants set forth in this Section 4.03 shall survive delivery
of the respective Custodial Loan Files to the Owner Trustee or the Custodian on
its behalf and shall inure to the benefit of the Depositor, the
Certificateholders, the Owner Trustee and the Trust. Upon discovery by any of
the Loan
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Originator, the Depositor, the Servicer, the Owner Trustee or the Trust of a
breach of any of the foregoing representations, warranties and covenants that
materially and adversely affects the value of any Loans or the interests of the
Certificateholders therein, the party discovering such breach shall give prompt
written notice (but in no event later than five Business Days following such
discovery) to the other parties. The fact that the Initial Class A
Certificateholder has conducted or has failed to conduct any partial or complete
due diligence investigation shall not affect the Certificateholders' rights to
exercise their remedies as provided under this Agreement.
Section 4.04 Representations and Warranties Regarding Loans.
The Loan Originator hereby represents and warrants to the
Depositor, the Trust, the Owner Trustee and the Certificateholders, with respect
to each Loan as of the related Transfer Date (except as otherwise expressly
agreed in writing by the Majority Certificateholders).
(a) The information set forth in the Loan Schedule as to the
Loan is complete, true and correct in all material respects;
(b) The Loan Originator is the sole owner and holder of the
Loan and has good and marketable title thereto, has full right, power and
authority to sell and assign such Loan free and clear of any interest or claim
of a third party;
(c) The Loan has not been since the date of origination by the
applicable Qualified Originator, and currently is not, thirty or more days
delinquent, and the Borrower is not in default thereunder beyond any applicable
grace period for the payment of any obligation to pay principal and interest,
taxes, insurance premiums and required reserves;
(d) The Loan Originator has not advanced funds, or knowingly
received any advance of funds from a party other than the Borrower subject to
the related Mortgage, directly or indirectly, for the payment of any amount
required by the Loan;
(e) The Loan Documents have been duly and properly executed,
and the Loan Documents are legal, valid and binding obligations of the Borrower,
and their terms are enforceable against the Borrower, subject only to
bankruptcy, insolvency, moratorium, fraudulent transfer, fraudulent conveyance
and similar laws affecting rights of creditors generally and to the application
of general principles of equity;
(f) The lien of each Mortgage is insured by an ALTA lender's
title insurance policy or its equivalent as adopted in the applicable
jurisdiction issued by one or more nationally recognized title insurance
companies, insuring the Qualified Originator, its successors and assigns, as to
the first priority lien of the Mortgage in the original principal amount of the
Loan after all advances of principal, subject only to (a) the lien of current
real property taxes, ground rents, water charges, sewer rents and assessments
not yet due and payable, (b) covenants, conditions and restrictions, rights of
way, easements and other matters of public record, none of which, individually
or in the aggregate, in the reasonable judgment of the Loan Originator,
materially interferes with the current use of the related Mortgaged Property or
the security intended to be provided by such Mortgage or with the Borrower's
ability to pay its obligations when they become due or the value of the related
Mortgaged Property and (c) the exceptions (general and specific) set forth in
such policy, none of which, individually or in the aggregate, in the reasonable
judgment
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of the Loan Originator, materially interferes with the current use of the
related Mortgaged Property or security intended to be provided by such Mortgage,
with the Borrower's ability to pay its obligations when they become due or the
value of the related Mortgaged Property (or if a title insurance policy has not
yet been issued in respect of the Loan, a policy meeting the foregoing
description is evidenced by a commitment for title insurance "marked-up" at the
closing of the Loan). No material claims have been made under such title policy
and no claims have been made thereunder;
(g) As of the date of origination of the Loan there were no,
and there are no, mechanics', materialman's or other similar liens or claims
which have been filed for work, labor or materials affecting the Mortgaged
Property which are or may be liens prior to, or equal or coordinate with, the
lien of the Mortgage, unless such lien is insured against under the related
title insurance policy;
(h) Each building or other improvement located on any
Mortgaged Property was insured by a fire and extended perils insurance policy,
issued by an insurer or reinsured by an insurer meeting the requirements of the
Loan Documents, in an amount not less than the replacement cost of the Mortgaged
Property; each Mortgaged Property was also covered by business interruption
insurance and comprehensive general liability insurance in amounts generally
required by institutional lenders for similar properties; all premiums on such
insurance policies required to be paid as of the date hereof have been paid;
such insurance policies require prior notice to the insured of termination or
cancellation, and no such notice has been received; and (B) the Loan Documents
obligate the Borrower to maintain all such insurance and, at the Borrower's
failure to do so, authorize the mortgagee to maintain such insurance at the
Borrower's cost and expense and to seek reimbursement therefor from such
Borrower;
(i) No building or other improvement on any Mortgaged Property
has been affected in any material manner or suffered any material loss as a
result of any fire, wind, explosion, accident, riot, war, or act of God or the
public enemy, and each Mortgaged Property is free of any material damage that
would affect materially and adversely the value of the Mortgaged Property as
security for the Loan and is in good repair. The Loan Originator has neither
received notice, nor is otherwise aware, of any proceedings pending for the
total condemnation of any Mortgaged Property or a partial condemnation of any
portion material to the Loan Originator's ability to perform its obligations
under its related Loan;
(j) None of the improvements included for the purpose of
determining the Appraised Value of each Mortgaged Property at the time of the
origination of the Loan lies outside of the boundaries and building restriction
lines of the Mortgaged Property, and no improvements on adjoining properties
materially encroach upon the Mortgaged Property except
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those which are insured against by the title insurance policy (including
endorsements thereto) issued in connection with the Loan and all improvements on
the Mortgaged Property comply with the applicable zoning laws and/or set-back
ordinances in force when improvements were added (except as disclosed in the
Disclosure Certificates);
(k) The Loan, and all parties involved in the origination and
servicing of the Loan (to the extent required for the purpose required for usury
exemption), complied as of the date of origination with, or is exempt from,
applicable state or federal laws, regulations and other requirements pertaining
to usury. To the extent applicable to the Loan, any and all other requirements
of any federal, state or local laws, including, without limitation,
truth-in-lending, real estate settlement procedures, equal credit opportunity or
disclosure laws, applicable to the Loan have been complied with;
(l) Since the date of origination of the Loan, the terms of
the Loan have not been impaired, waived, altered, satisfied, canceled,
subordinated or modified in any respect (except with respect to modifications
the economic terms of which are reflected in the mortgage loan schedule and
which are evidenced by documents in the Custodial Loan File and except as
required by the Loan Documents or as disclosed in the Disclosure Certificates)
and no portion of the Mortgaged Property has been released from the lien of the
Mortgage in any manner;
(m) All applicable Mortgage recording taxes and other filing
fees have been paid in full or deposited with the issuer of the title insurance
policy issued in connection with the Loan for payment upon recordation of the
relevant documents;
(n) Each assignment of leases and rents, if any, creates a
valid assignment of, or a valid security interest in, certain rights under the
related leases, subject only to a license granted to the relevant mortgagor to
exercise certain rights and to perform certain obligations of the lessor under
such leases, including the right to operate the related Mortgaged Property,
subject only to those exceptions described in clause (f) above. No person other
than the relevant Borrower owns any interest in any payments due under such
leases that is superior to or of equal priority with the mortgagee's interest
therein, subject only to those exceptions described in clause (f) above;
(o) Each Mortgage, upon due recordation, is a valid and
enforceable first lien on the related Mortgaged Property, subject only to those
exceptions described in clause (f) above;
(p) The Loan Originator has not taken any action, nor to the
Loan Originator's knowledge has the Borrower, except as disclosed in the
Disclosure Certificates, taken any action, that would cause the representations
and warranties made by the Borrower in the Loan Documents not to be true;
(q) Except as expressly set forth in the Loan Documents and in
the Disclosure Certificates, the proceeds of the Loan have been fully disbursed
and there is no requirement for future advances thereunder and the Loan
Originator covenants that it will not
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make any future advances under the Loan to the Borrower. Except for the escrows
and disbursements therefrom as contemplated by the Loan Documents, any Borrower
requirements for on or off-site improvements as to disbursement of any escrow
funds therefor have been complied with;
(r) The Loan Originator has inspected or caused to be
inspected each Mortgaged Property within the past twelve months preceding the
date hereof. The Loan File includes a title survey, certified to the Loan
Originator, its successors and assigns, and the title insurance company,
reciting that it is in accordance with most recent minimum standards for title
surveys as determined by the American Land Title Association, with the signature
and seal of a licensed engineer or surveyor affixed thereto;
(s) The Loan does not have a shared appreciation feature,
other contingent interest feature or negative amortization. The indebtedness
evidenced by the Promissory Note is not convertible to an ownership interest in
the Mortgaged Property or the Mortgage and the Loan Originator has not financed,
nor does it own, directly or indirectly, any equity of any form in the Mortgaged
Property or the Borrower. The Promissory Note does not by its terms provide for
the capitalization or forbearance of interest;
(t) The Loan is not cross-collateralized with other mortgaged
properties not subject to this Loan Agreement is a whole loan and contains no
equity participation by the lender;
(u) No fraudulent acts were committed by the Loan Originator
in connection with the origination process of the Loan;
(v) All taxes, ground rents, water charges, sewer rates,
governmental assessments, insurance premiums, leasehold payments and any other
outstanding fees or charges that prior to the date of origination of the Loan
became due and owing in respect of each Mortgaged Property have been paid, or an
escrow of funds in an amount sufficient to cover such payments has been
established or are insured against by the title insurance policy issued in
connection with the origination of the Loan;
(w) To the extent required under applicable law, the Loan
Originator was authorized to transact and do business in each jurisdiction in
which a Mortgaged Property is located at all times when it held the Loan;
(x) There is no material default, breach, violation or event
of acceleration existing under any of the Loan Documents and the Loan Originator
has not received actual notice of any event (other than payments due but not yet
delinquent) which, with the passage of time or with notice and the expiration of
any grace or cure period, would and does constitute a default, breach, violation
or event of acceleration; no waiver of the foregoing exists and no person other
than the Initial Class A Certificateholder may declare any of the foregoing;
(y) Each Mortgage contains customary and enforceable
provisions such as to render the rights and remedies of the holder thereof
adequate for the practical realization
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against each related Mortgaged Property of the material benefits of the security
upon the occurrence of a material default under the Mortgage, including
realization by judicial or, if applicable, non-judicial foreclosure, and there
is no exemption available to the mortgagor which would materially interfere with
such right to foreclosure provided, the Mortgage is enforced in accordance with
applicable laws;
(z) With respect to each Mortgaged Property, a Phase I
environmental report and, in certain cases, a Phase II environmental report or
an update to such Phase I report was conducted by a licensed qualified engineer.
The Loan Originator has reviewed each such report and update. The Loan
Originator, having made no independent inquiry other than reviewing the
environmental reports and updates referenced herein and without other
investigation or inquiry, has no knowledge of any material and adverse
environmental condition or circumstance affecting any Mortgaged Property that
was not disclosed in the related report and/or update. Except as disclosed in
the Disclosure Certificates, the Loan Originator has not received any actual
notice of a material violation of CERCLA or any applicable federal, state or
local environmental law with respect to any Mortgaged Property that was not
disclosed in the related report and/or update. The Loan Originator has not taken
any actions which would cause any Mortgaged Property not to be in compliance
with all federal, state and local laws pertaining to environmental hazards;
(aa) The Mortgage contains provisions for the acceleration of
the payment of the unpaid principal balance of the Loan if (A) the Borrower
voluntarily transfers or encumbers all or any portion of any related Mortgaged
Property, or (B) any direct or indirect interest in the Borrower is voluntarily
transferred or assigned, other than, in each case, as permitted under the terms
and conditions of the Loan Documents;
(bb) To the Loan Originator's knowledge, there is no pending
action, suit or proceeding, arbitration or governmental investigation against
the Borrower or any Mortgaged Property an adverse outcome of which could
materially affect the Borrower's performance of its obligations under the Loan
Documents;
(cc) The servicing and collection practices used by the Loan
Originator, and the origination practices of the related Qualified Originator,
have been in all respects legal, proper and prudent and have met customary
industry standards except to the extent that, in connection with its
origination, such standards were modified by the applicable Qualified Originator
in its reasonable discretion;
(dd) In connection with the assignment, transfer or conveyance
of any individual Mortgage, the Promissory Note and Mortgage contain no
provision limiting the right or ability of the applicable Qualified Originator
to assign, transfer and convey the Mortgage to any other person or entity;
(ee) If any Mortgaged Property is subject to any leases (other
than any Ground Lease referred to in (ii) below), the Borrower is the owner and
holder of the landlord's interest under any leases, and the related Mortgage and
assignment of leases, rents and profits, if any, provides for the appointment of
a receiver for rents or allows the mortgagee to enter
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into possession to collect rent or provide for rents to be paid directly to
mortgagee in the event of a default, subject to the exceptions described in
clause (f) hereof;
(ff) If a Mortgage is a deed of trust, a trustee, duly
qualified under applicable law to serve as such, has been properly designated
and currently so serves and is named in the deed of trust, and no fees or
expenses are or will become payable to the trustee under the deed of trust,
except in connection with the sale or release of the Mortgaged Property
following default or payment of the loan;
(gg) Any insurance proceeds in respect of a casualty loss or
taking will be applied either to the repair or restoration of all or part of the
related Mortgaged Property, with the mortgagee or a trustee appointed by it
having the right to hold and disburse such proceeds (provided that such proceeds
exceed the threshold amount described in the loan documents) as the repair or
restoration progresses, or to the payment of the outstanding principal balance
of the Loan together with any accrued interest thereon, except to the extent of
any excess proceeds after restoration;
(hh) Except as disclosed in the Disclosure Certificates, no
Mortgaged Property is located in a special flood hazard area as defined by the
Federal Emergency Management Agency. If any portion of the Mortgaged Property is
in an area identified by any federal Governmental Authority as having special
flood hazards, and flood insurance is available, a flood insurance policy
meeting the current guidelines of the Federal Insurance Administration is in
effect with a generally acceptable insurance carrier, in an amount representing
coverage not less than the least of (1) the outstanding Principal Balance of the
Loan, (2) the full insurable value of the Mortgaged Property, and (3) the
maximum amount of insurance available under the Flood Disaster Protection Act of
1973, as amended;
(ii) With respect to any Mortgage which is secured in whole or
in part by the interest of a borrower as a lessee under a Ground Lease and based
upon the terms of the Ground Lease or an estoppel letter from the ground lessor
the following apply to such Ground Lease:
(1)The Ground Lease or a memorandum thereof has been duly
recorded, the Ground Lease permits the interest of the
lessee thereunder to be encumbered by the related
Mortgage, does not restrict the use of the Mortgaged
Property by the lessee or its successors and assigns in
a manner that would adversely affect the security
provided by the related Mortgage, and there has not
been a material change in the terms of the Ground Lease
since its recordation, with the exception of written
instruments which are part of the related Loan
Documents delivered to the Custodian.
(2)The Ground Lease is not subject to any liens or
encumbrances superior to, or of equal priority with,
the related Mortgage, other than the related ground
lessor's related fee interest.
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(3)The Loan Originator's interest in the Ground Lease is
assignable to the holder of the Mortgage upon notice
to, but without the consent of (except as disclosed in
the Disclosure Certificates), the lessor thereunder
and, in the event that it is so assigned, it is further
assignable by the trustee and its successors and
assigns upon notice to, but without a need to obtain
the consent of, such lessor.
(4)As of the Origination Date of the Loan, the Ground
Lease was in full force and effect and no material
default had occurred under the Ground Lease and there
was no existing condition which, but for the passage of
time or the giving of notice, would result in a default
under the terms of the Ground Lease. No notice of
default under the Ground Lease has been received by the
Loan Originator.
(5)The Ground Lease requires the lessor thereunder to
give notice of any default by the lessee to the
mortgagee; and the Ground Lease, or an estoppel letter
received by the mortgagee from the lessor, further
provides that notice of termination given under the
Ground Lease is not effective against the mortgagee
unless a copy of the notice has been delivered to the
mortgagee in the manner described in such Ground Lease
or estoppel letter.
(6)The mortgagee is permitted a reasonable opportunity
(including, where necessary, sufficient time to gain
possession of the interest of the lessee under the
Ground Lease) to cure any default under the Ground
Lease which is curable after the receipt of notice of
any default, before the lessor thereunder may terminate
the Ground Lease.
(7)The Ground Lease either (i) has a term which extends
not less than 10 years beyond the maturity date of the
related Loan or (ii) grants the lessee the option to
extend the term of the lease for a period (in the
aggregate) which exceeds ten years beyond the maturity
date of the related Loan.
(8)Except as disclosed in the Disclosure Certificates,
the Ground Lease requires the lessor to enter into a
new lease with the mortgagee upon termination of the
Ground Lease for any reason, including rejection of the
Ground Lease in a bankruptcy proceeding, provided the
mortgagee cures the lessee's defaults to the extent
they are curable and succeeds to the interest of the
mortgagee.
(9)Except as disclosed in the Disclosure Certificates,
under the terms of the Ground Lease and the related
Mortgage, taken together, any related insurance
proceeds will be applied either to the repair or
restoration of all or part of the related Mortgaged
Property, with the mortgagee or a trustee appointed by
it having the right to hold and disburse the proceeds
as the
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repair or restoration progresses, or to the payment
of the outstanding principal balance of the Loan
together with any accrued interest thereon.
(10) Except as disclosed in the Disclosure Certificates,
such Ground Lease does not impose any material
restrictions on subletting.
(11) Either the Ground Lease or the related Mortgage
contains the Loan Originator's covenant that such
Ground Lease shall not be amended, canceled, or
terminated without the prior written consent of the
mortgagee.
(12) Either the Ground Lease or an estoppel letter
contains a covenant that the lessor thereunder is not
permitted in the absence of an uncured default under
the Ground Lease, to disturb the possession, interest
or quiet enjoyment of any lessee in the relevant
portion of the Mortgaged Property subject to such
Ground Lease for any reason, or in any manner, which
would materially adversely affect the security provided
by the related Mortgage;
(jj) (1) The Loan is directly secured by a Mortgage on a
commercial or multifamily real property, and (2) the fair market value of such
real property, as evidenced by an appraisal conducted within 12 months of the
origination of the Loan, or as determined by the Loan Originator based on market
studies and pursuant to its Underwriting Guidelines, was at least equal to 80%
of the principal amount of the Loan (I) at origination (or if the Loan has been
modified in a manner that constituted a deemed exchange under Section 1001 of
the Code at a time when the Loan was not in default or default with respect
thereto was not reasonably foreseeable, the date of the last such modification)
or (II) at the related Transfer Date; provided that the fair market value of the
real property interest must first be reduced by (a) the amount of any lien on
the real property interest that is senior to the Loan (unless such senior lien
also secures a Loan, in which event the computation described in (I) and (II)
shall be made on an aggregated basis) and (b) a proportionate amount of any lien
that is in parity with the Loan (unless such other lien secures a Loan that is
cross-collateralized with such Loan, in which event the computation described in
(I) and (II) shall be made on an aggregate basis);
(kk) Certificates of occupancy (or its equivalent) and
building permits, as applicable, have been issued with respect to the Mortgaged
Property (except as disclosed in the Disclosure Certificates);
(ll) Any escrow accounts for taxes or other reserves required
to be funded on the date of origination of the Loan pursuant to the Loan
Documents have been funded and all such escrow accounts required to have been
funded as of the Transfer Date (taking into account any applicable notice and
grace period) have been funded;
(mm) The related Assignment of Mortgage constitutes a legal,
valid and binding assignment of such Mortgage to the Trust, and the related
reassignment of assignment of leases, rents and profits, if any, constitutes a
legal, valid and binding assignment thereof to the Trust;
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(nn) The related Promissory Note is not, and has not been
since the date of origination of the Loan, secured by any collateral except the
lien of the related Mortgage, any related assignment of leases, rents and
profits and any related security agreement and escrow agreement; the security
for the Loan consists only of the related Mortgaged Property or Properties, any
leases (including without limitation any credit leases) thereof, and any
appurtenances, fixtures and other property located thereon; and such Mortgaged
Property or Properties do not secure any mortgage loan other than the Loan being
transferred and assigned to the Trust hereunder (except for Loans, if any, which
are cross-collateralized with other Loans being conveyed to the Trust or
subsequent transferee hereunder and identified on the Loan Schedule);
(oo) Except as disclosed in the Disclosure Certificates, as of
the date of origination of each Loan, the related Borrower was in possession of
all material licenses, permits and franchises required by applicable law for the
ownership and operation of the related Mortgaged Property as it was then
operated;
(pp) The Loan is directly secured by a first lien on one or
more parcels of real estate upon which is located one or more commercial
structures; and the Loan was originated by a savings and loan association,
savings bank, commercial bank, credit union, insurance company, or similar
institution which is supervised and examined by a Federal or State authority, or
by a mortgagee approved by the Secretary of Housing and Urban Development
pursuant to sections 203 and 211 of the National Housing Act;
(qq) With respect to each Large Balance Loan (or groups of
Loans that have an aggregate original principal balance in excess of
$25,000,000, as described in clauses (2) and (3) below):
(1) The Borrower is an entity whose organizational documents
provide that it is, and at least so long as the Loan is outstanding will
continue to be, a single-purpose entity. (For this purpose, "single-purpose
entity" shall mean a person, other than an individual, which is formed or
organized solely for the purpose of owning and operating a single property, does
not engage in any business unrelated to such property and its financing, does
not have any assets other than those related to its interest in the property or
its financing, or any indebtedness other than as permitted by the related
Mortgage or the other Loan Documents, has its own books and records and accounts
separate and apart from any other person, and holds itself out as being a legal
entity, separate and apart from any other person);
(2) A non-consolidation opinion was obtained for the Borrower
or affiliated group of the Borrower of Loans or groups of Loans with an original
principal balance in excess of $25,000,000;
(3) The general partners or managing members of the Borrower
or Affiliates of the Borrower of Loans or groups of Loans having an original
principal balance in excess of $25,000,000 have an independent director;
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(rr) To the extent required under applicable law, each holder
of the Loan was authorized to transact and do business in the jurisdiction in
which the related Mortgaged Property is located at all times when it held the
Loan;
(ss) The Loan-to-Value Ratio for the Loan does not exceed 80%,
except as otherwise pre-approved in writing by the Initial Class A
Certificateholder;
(tt) With respect to Mortgaged Property occupied by commercial
tenants under leases: (i) each such tenant is conducting business only in that
portion of the Mortgaged Property covered by its lease; (ii) no leases contain
any option to purchase, any right of first refusal to lease or purchase, any
right to terminate the lease or vacate the premises prior to expiration of the
lease term, or any other similar provisions which adversely affect the Mortgaged
Property or which might adversely affect the rights of any holder of the Loan;
and (iii) a non-disturbance or similar recognition agreement exists, or if such
agreement exists, there are no circumstances or conditions with respect to such
tenant or the applicable lease that could cause a prudent lender to refuse to
grant such agreement;
(uu) As to each Loan secured by Mortgaged Property which is
leased to tenants:
(i) the Mortgaged Property is not subject to any
leases other than the leases described in the rent roll contained in
the Loan Documents (hereinafter referred to as the "Leases"), and such
rent roll is accurate and complete in all material respects, including
description of the rent and term and any extraordinary rights of
tenants (such as option, rights of first refusal and rights of
termination). No Person has any possessory interest in the Mortgaged
Property or right to occupy the same except under and pursuant to the
provisions of the Leases. Each Lease of all or any portion of the
Mortgaged Property is subordinate to the Mortgage, unless otherwise
approved by the Initial Class A Certificateholder; and
(ii) except as provided in subsection (z), no Lease
contains a non-disturbance or similar recognition agreement; and
(iii)(A) there are no prior recorded assignments of
the Leases or of any portion of the rents, additional rents, charges,
issues or profits due and payable or to become due and payable
thereunder (hereinafter collectively referred to as the "Rents") which
are now outstanding and have priority over the assignment of leases
contained in the Loan Documents and given in connection with the Loan,
(B) except as may be disclosed in the rent roll contained in the Loan
Documents, no tenant is more than twenty-nine (29) days delinquent in
the payment of rent nor in default under any material provision of its
Lease, all material conditions and obligations on the Borrower's part
to be fulfilled under the terms of any Lease of the Mortgaged Property
have been satisfied or fully performed, and all Leases are in full
force and effect, (C) each Lease relating to a Mortgaged Property in a
mobile home community provides for the tenant to acquire, locate and
maintain on the pad constituting the leased premises a
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mobile home or manufactured housing residential unit affixed to the
Mortgaged Property in compliance with applicable law, and (D) each
Lease provides for payment of rent by check on a monthly basis; no
tenant has advanced more than one (1) month's payment under any Lease;
and no Person affiliated with the Borrower is a tenant under any Lease;
(vv) The Loan Originator has not been served with notice that
any mortgagor is a debtor in any state or federal bankruptcy or insolvency
proceeding;
(ww) Except as disclosed in the Disclosure Certificates, ,at
the time of origination, (i) all amenities, access routes or other items crucial
to the related appraised value of the Mortgaged Property were under the direct
control of the Borrower or, subject to easements for the benefit of the
Borrower, are public property, and (ii) the Mortgaged Property was contiguous to
a physically open, dedicated all-weather public street, had all necessary
permits and approvals for ingress and egress, was adequately serviced by public
water, sewer systems and utilities and was on a separate tax parcel, separate
and apart from any other property owned by the Borrower or any other person.
Each Mortgaged Property has all necessary access by public roads or by easements
which in each case are not terminable and are not subordinated to any mortgage
other the related Mortgage;
(xx) The Loan File contains an appraisal of the related
Mortgaged Property which appraisal is signed by a qualified appraiser, duly
appointed by the Loan Originator, who, to the Loan Originator's knowledge, had
no interest, direct or indirect, in the Mortgaged Property or in any loan made
on the security thereof, and whose compensation is not affected by the approval
or disapproval of the Loan, and the appraisal and appraiser both satisfy the
requirements of Title XI of the Federal Institutions Reform, Recovery, and
Enforcement Act of 1989 and the regulations promulgated thereunder, all as in
effect on the date the Loan was originated; and
(yy) The Promissory Note, Mortgage, the Assignment of Mortgage
and any other documents in the Custodial Loan File with respect to each Loan
pursuant to Section 3.04, have been or shall be delivered to the Custodian all
in compliance with the specific requirements of Section 3.04. With respect to
each Loan, a complete Servicer's Loan File has been delivered to the Servicer or
its designee, except that the Loan File contains copies of those documents which
have been or will be delivered to the Custodian.
(zz) The Loan was underwritten in accordance with the
Underwriting Guidelines.
Section 4.05 Purchase and Substitution.
(a) It is understood and agreed that the representations and
warranties set forth in Section 4.04 hereof shall survive the conveyance of the
Loans to the Owner Trustee on behalf of the Trust, and the delivery of the
Certificates to the Certificateholders. Upon discovery by the Depositor, the
Servicer, the Loan Originator, the Custodian, the Trust, the Owner Trustee or
any Certificateholder of a breach of any of such representations and
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warranties or the representations and warranties set forth in Section 4.02 which
materially and adversely affects the value of the Loans or the interests of the
Certificateholders in the related Loan (notwithstanding that such representation
and warranty was made to the Loan Originator's best knowledge), the party
discovering such breach shall give prompt written notice to the others. The Loan
Originator shall within 5 Business Days of any breach of a representation or
warranty as a result of an attribute of the aggregate Loan Pool which would not
otherwise cause a breach of any other representation or warranty, promptly cure
such breach in all material respects. If within 5 Business Days after the
earlier of the Loan Originator's discovery of such breach or the Loan
Originator's receiving notice thereof such breach has not been remedied by the
Loan Originator and such breach materially and adversely affects the interests
of the Certificateholders or in the related Loan (the "Defective Loan"), the
Loan Originator shall promptly upon receipt of written instructions from the
Majority Certificateholders either (i) remove such Defective Loan from the Trust
(in which case it shall become a Deleted Loan) and substitute one or more
Qualified Substitute Loans in the manner and subject to the conditions set forth
in this Section 4.05 or (ii) purchase such Defective Loan at a purchase price
equal to the Purchase Price with respect to such Defective Loan by depositing
such Purchase Price in the Collection Account. The Loan Originator shall provide
the Servicer, the Owner Trustee, the Initial Class A Certificateholder and the
Trust with a certification of a Responsible Officer on the Determination Date
next succeeding the end of such 5 Business Days period indicating whether the
Loan Originator is purchasing the Defective Loan or substituting in lieu of such
Defective Loan a Qualified Substitute Loan.
Any substitution of Loans pursuant to this Section 4.05(a)
shall be accompanied by payment by the Loan Originator of the Substitution
Adjustment, if any, to be deposited in the Collection Account pursuant to
Section 7.01(b)(1) hereof.
It is understood and agreed that the obligation of the Loan
Originator to repurchase or substitute any such Loan pursuant to this Section
4.05 shall constitute the sole remedy against it with respect to such breach of
the foregoing representations or warranties or the existence of the foregoing
conditions. With respect to representations and warranties made by the Loan
Originator pursuant to Section 4.04 hereof that are made to the Loan
Originator's best knowledge, if it is discovered by any of the Depositor, the
Loan Originator, the Owner Trustee or the Trust that the substance of such
representation and warranty is inaccurate and such inaccuracy materially and
adversely affects the value of the related Loan, notwithstanding the Loan
Originator's lack of knowledge, such inaccuracy shall be deemed a breach of the
applicable representation and warranty.
(b) As to any Deleted Loan for which the Loan Originator
substitutes a Qualified Substitute Loan or Loans, the Loan Originator shall
effect such substitution by delivering to the Owner Trustee and Initial Class A
Certificateholder (i) a certification executed by a Responsible Officer of the
Loan Originator to the effect that the Substitution Adjustment has been credited
to the Collection Account and (ii) the documents constituting the Custodial Loan
File for such Qualified Substitute Loan or Loans.
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The Servicer shall deposit in the Collection Account all
payments received in connection with such Qualified Substitute Loan or Loans
after the date of such substitution. Monthly Payments received with respect to
Qualified Substitute Loans on or before the date of substitution will be
retained by the Loan Originator. The Trust will be entitled to all payments
received on the Deleted Loan on or before the date of substitution and the Loan
Originator shall thereafter be entitled to retain all amounts subsequently
received in respect of such Deleted Loan. The Loan Originator shall give written
notice to the Trust, the Servicer, the Owner Trustee and Initial Class A
Certificateholder that such substitution has taken place and the Servicer shall
amend the Loan Schedule to reflect (i) the removal of such Deleted Loan from the
terms of this Agreement and (ii) the substitution of the Qualified Substitute
Loan. The Loan Originator shall promptly deliver to the Trust, the Servicer (if
the Loan Originator is not then acting as such), the Owner Trustee and Initial
Class A Certificateholder, a copy of the amended Loan Schedule. Upon such
substitution, such Qualified Substitute Loan or Loans shall be subject to the
terms of this Agreement in all respects, and the Loan Originator shall be deemed
to have made with respect to such Qualified Substitute Loan or Loans, as of the
date of substitution, the covenants, representations and warranties set forth in
Section 4.04 hereof. On the date of such substitution, the Loan Originator will
deposit into the Collection Account an amount equal to the related Substitution
Adjustment, if any. In addition, on the date of such substitution, the Servicer
shall cause such Qualified Substitute Loan to be transferred and assigned to the
Owner Trustee as part of the Owner Trust Estate.
(c) With respect to all Defective Loans or other Loans
repurchased by the Loan Originator pursuant to this Agreement, upon the deposit
of the Purchase Price therefor into the Collection Account, the Owner Trustee
shall assign to the Loan Originator, without recourse, representation or
warranty, all the Owner Trustee's right, title and interest in and to such
Defective Loans or Loans, which right, title and interest were conveyed to the
Owner Trustee pursuant to Section 3.01 hereof. The Owner Trustee shall, at the
expense of the Loan Originator, take any actions as shall be reasonably
requested by the Loan Originator to effect the repurchase of any such Loans.
(d) It is understood and agreed that the obligations of the
Loan Originator set forth in this Section 4.05 to cure, purchase or substitute
for a Defective Loan (and to indemnify the Trust for certain losses as described
herein in connection with a Defective Loan) constitute the sole remedies
hereunder of the Depositor, the Trust, the Owner Trustee and the
Certificateholders respecting a breach of the representations and warranties
contained in Section 4.02 and Section 4.04 hereof. Any cause of action against
the Loan Originator relating to or arising out of a defect in a Custodial Loan
File as contemplated by Section 3.05 hereof or against the Loan Originator
relating to or arising out of a breach of any representations and warranties
made in Section 4.04 hereof shall accrue as to any Loan upon (i) discovery of
such defect or breach by any party and notice thereof to the Loan Originator or
notice thereof by the Loan Originator to the Owner Trustee, (ii) failure by the
Loan Originator to cure such defect or breach or purchase or substitute such
Loan as specified above, and (iii) demand upon the Loan Originator, as
applicable, by the Trust or the Majority Certificateholders for all amounts
payable in respect of such Loan.
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(e) Neither the Trust nor the Owner Trustee shall have any
duty to conduct any affirmative investigation other than as specifically set
forth in this Agreement as to the occurrence of any condition requiring the
repurchase or substitution of any Loan pursuant to this Section or the
eligibility of any Loan for purposes of this Agreement.
Section 4.06 Dispositions.
(a) (i) In consideration of the consideration received from
the Depositor under the Loan Purchase Agreement, the Loan Originator hereby
agrees and covenants that in connection with each Disposition it shall effect
the following at the direction of the Disposition Agent with respect to the
Loans it sold to the Trust:
(A) make such representations and warranties concerning the
Loans as of the "cutoff date" of the related Disposition to the
Disposition Participants as may be necessary to effect the Disposition
and such additional representations and warranties as may be necessary,
in the reasonable opinion of any of the Disposition Participants, to
effect such Disposition; provided, that the Loan Originator shall not
be required to make any representation or warranty beyond the scope or
substance of the representations and warranties delineated herein;
(B) supply such information, opinions of counsel, letters from
law and/or accounting firms and other documentation and certificates
regarding the origination of the Loans as any Disposition Participant
shall reasonably request to effect a Disposition and enter into such
indemnification agreements relating to or in connection with the
Disposition as the Disposition Agent may reasonably require;
(C) make itself available for and engage in good faith
consultation with the Disposition Participants concerning information
to be contained in any document, agreement, private placement
memorandum, or filing with the Securities and Exchange Commission
relating to the Loan Originator or the Loans in connection with a
Disposition and shall use reasonable efforts to compile any information
and prepare any reports and certificates, into a form, whether written
or electronic, suitable for inclusion in such documentation;
(D) to implement the foregoing and to otherwise effect a
Disposition, enter into, or cause its Affiliates to enter into
insurance and indemnity agreements, underwriting or placement
agreements, servicing agreements, purchase agreements and any other
documentation which may be required of or deemed appropriate by the
Disposition Participants in order to effect a Disposition; and
(E) take such further actions as may be reasonably necessary
to effect the foregoing;
provided, that notwithstanding anything to the contrary, (a)
the Loan Originator shall have no liability for the Loans arising from
or relating to the ongoing ability of the related Borrowers to pay
under the Loans; (b) none of the indemnities hereunder shall
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constitute a guarantee by the Loan Originator of collectibility of the
Loans; (c) the Loan Originator shall have no obligation with respect to
the financial inability of any Borrower to pay principal, interest or
other amount owing by such Borrower under a Loan and (d) the Loan
Originator shall only be required to enter into documentation in
connection with Dispositions that is consistent with the prior public
securitizations of affiliates of the Loan Originator, provided that the
indemnities and informational representations and warranties shall be
consistent with those in the Basic Documents and, to the extent
requested by the Loan Originator, shall be set forth in a separate
agreement between an Affiliate of the Initial Class A Certificateholder
and the Loan Originator.
(ii) In connection with Dispositions the Loan Originator (A)
may participate as a concurrent bidder for the Loans subject to such
Whole Loan Sale, but may not pay a price higher than the fair market
value thereof (as reasonably determined by the Market Value Agent), and
(B) shall retain such underwriters or sales agents as shall be agreed
in writing between the Servicer and the Disposition Agent.
(iii) Conditions to Dispositions. The following conditions
shall apply to all Dispositions:
(A) There shall occur only one Disposition (or multiple
simultaneous Dispositions) either as a result of the exercise of the
Put Option or the Disposition Agent's decision to effect a Disposition.
(B) After receiving notice of the exercise of the Put Option,
the Loan Originator, the Trust and the Depositor shall use commercially
reasonable efforts to effect a Disposition at the direction of the
Disposition Agent prior to the Final Put Date.
(b) In accordance with the terms of Section 4.06(a) or upon
the exercise of the Put Option, the Trust shall effect Dispositions at the
direction of the Disposition Agent. In connection therewith, the Trust agrees to
assist the Loan Originator in such Dispositions and accordingly it shall, at the
request and direction of the Disposition Agent:
(i) transfer, deliver and sell all or a portion of the
Loans, as of the "cutoff dates" of the related
Dispositions, to such Disposition Participants as may
be necessary to effect the Dispositions; provided,
that any such sale shall be for "fair market value,"
as determined by the Disposition Agent in its
reasonable discretion;
(ii) deposit the cash Disposition Proceeds into the
Collection Account pursuant to Section 7.01(b)(1) and
retain any Retained Securities created in any
Securitizations in accordance with the terms of this
Agreement;
(iii) to the extent that a Securitization creates any
Retained Securities, to accept such Retained
Securities as a part of the Disposition Proceeds; and
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(iv) take such further actions as may be reasonably
necessary to effect such Dispositions.
(c) The Servicer hereby covenants that it will take such
actions as may be reasonably necessary to effect Dispositions as the Disposition
Agent may request and direct, including without limitation providing the Loan
Originator such information as may be required to make representations and
warranties required hereunder.
(d) The Disposition Agent may effect Whole Loan Sales upon
written notice to the Servicer of their intent to cause the Trust to effect a
Whole Loan Sale at least 5 Business Days in advance thereof. The Disposition
Agent shall serve as agent for Whole Loan Sales and will receive a reasonable
fee for such services. The Loan Originator or its Affiliates may concurrently
bid to purchase Loans in a Whole Loan Sale; however, it shall not pay a price in
excess of the fair market value thereof as reasonably determined by the
Disposition Agent.
(e) The parties' obligations to incur an obligation under this
Section 4.06 shall continue notwithstanding the occurrence of an Event of
Default.
(f) The Disposition Agent (and the Majority Certificateholders
to the extent directing the Disposition Agent) shall be an independent
contractor to the Trust and shall have no fiduciary obligations thereto. In that
connection, the Disposition Agent shall not be liable for any error of judgment
made in good faith and shall not be liable with respect to any action it takes
or omits to take in good faith in the performance of its duties.
Section 4.07 Loan Originator Put; Servicer Call.
(a) Loan Originator Put. The Loan Originator shall promptly
repurchase, upon the written demand of the Majority Certificateholders,
(i) any Loan that has become 30 or more days Delinquent, (ii) any
Defaulted Loan, (iii) any Loan that has been in default for a period of
30 days or more, (iv) any Loan that is in litigation or is a
Foreclosure Property, (v) any Loan that has been determined to be
ineligible for a Securitization (or otherwise unacceptable to any
Disposition Participant) by mutual agreement of the Majority
Certificateholders and the Servicer or (vi) any Loan that is
inconsistent with the intended tax status of the Securitization (each
such Loan, a "Put/Call Loan").
(b) Servicer Call. At any time the Transfer Obligor is
required to make a payment under the Transfer Obligation, the Servicer
may repurchase any Put/Call Loan (as defined in Section 4.07(a)
hereof). Such Servicer Calls shall be solely at the option of the
Servicer. Prior to exercising a Servicer Call, the Servicer shall
deliver written notice to the Majority Certificateholders and the Owner
Trustee which notice shall identify each Loan to be repurchased and the
Purchase Price therefor.
(c) In connection with each Loan Originator Put, the Loan
Originator shall remit to the Servicer for deposit into the Collection
Account, the Purchase Price for the Loans to be repurchased. In
connection with each Servicer Call, the Servicer shall
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deposit into the Collection Account the Purchase Price for the Loans to
be repurchased. The aggregate Purchase Price of all Loans transferred
pursuant to Section 4.07(a) shall in no event exceed the Value
Shortfall at the time of such Loan Originator Put.
Section 4.08 Modification of Underwriting Guidelines.
The Loan Originator shall give the Initial Class A Certificateholder
prompt written notification of any modification or change to the Underwriting
Guidelines.
Section 4.09 Covenants of Trust.
(a) Distribution of Principal and/or Interest. The Trust will
duly and punctually distribute (or will cause to be distributed duly and
punctually) the principal of and interest on the Class A Certificates in
accordance with the terms of the Class A Certificates and this Agreement.
Without limiting the foregoing, subject to and in accordance with Section 7.01
hereof, the Trust will cause to be distributed all amounts on deposit in the
Collection Account and the Distribution Account on each applicable Distribution
Date deposited therein pursuant to this Agreement. Amounts properly withheld
under the Code by any Person from a distribution to any Class A
Certificateholder of interest and/or principal shall be considered as having
been distributed by the Trust to such Class A Certificateholder for all purposes
of this Agreement. The Certificates shall be non-recourse obligations of the
Trust and shall be limited in right of distribution to amounts available from
the Owner Trust Estate, as provided in this Agreement. The Trust shall not
otherwise be liable for payments on the Class A Certificates. If any other
provision of this Agreement shall be deemed to conflict with the provisions of
this Section 4.09(a), the provisions of this Section 4.09(a) shall control.
(b) Maintenance of Office or Agency. The Owner Trustee shall
maintain at the Corporate Trust Office an office or agency where Class A
Certificates may be surrendered for registration of transfer or exchange and
where notices and demands to or upon the Trust in respect of the Class A
Certificates and this Agreement may be served. The Trust hereby initially
appoints the Owner Trustee to serve as its agent for the foregoing purposes and
to serve as Paying Agent with respect to the Certificates. The Owner Trustee
shall give prompt written notice to the Trust of the location, and of any change
in the location, of any such office or agency.
(c) Money for Payments to Be Held in Trust. As provided in
Section 7.03 hereof, all payments of amounts due and distributable with respect
to any Certificate that are to be made from amounts withdrawn from the
Distribution Account pursuant to Section 7.01 hereof shall be made on behalf of
the Trust by the Owner Trustee or by the Paying Agent, and no amounts so
withdrawn from the Distribution Account for payments on Certificates shall be
paid over to the Trust except as provided in this Section 4.09(c).
Any Paying Agent shall be appointed by Trust Order with
written notice thereof to the Owner Trustee. Any Paying Agent appointed by the
Trust shall be a Person which would be eligible to be Owner Trustee hereunder as
provided in Section 13.01 hereof.
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The Trust will cause each Paying Agent other than the Owner
Trustee to execute and deliver to the Owner Trustee an instrument in which such
Paying Agent shall agree with the Owner Trustee (and if the Owner Trustee acts
as Paying Agent, it hereby so agrees), subject to the provisions of this Section
4.09(c), that such Paying Agent will:
(i) hold all sums held by it for the distribution of amounts
due with respect to the Certificates in trust for the benefit of the
Persons entitled thereto until such sums shall be distributed to such
Persons or otherwise disposed of as herein provided and distribute such
sums to such Persons as herein provided;
(ii) give the Owner Trustee notice of any Default by the Trust
(or any other obligor upon the Certificates) of which it has actual
knowledge in the making of any distribution required to be made with
respect to the Certificates;
(iii) at any time during the continuance of any such Default,
upon the written request of the Owner Trustee, forthwith pay to the
Owner Trustee all sums so held in trust by such Paying Agent;
(iv) immediately resign as a Paying Agent and forthwith pay to
the Owner Trustee all sums held by it in trust for the distribution of
Certificates if at any time it ceases to meet the standards required to
be met by a Paying Agent at the time of its appointment; and
(v) comply with all requirements of the Code with respect to
the withholding from any payments made by it on any Certificate of any
applicable withholding taxes imposed thereon and with respect to any
applicable reporting requirements in connection therewith; provided,
however, that with respect to withholding and reporting requirements
applicable to original issue discount (if any) on the Certificates, the
Trust shall have first provided the calculations pertaining thereto to
the Owner Trustee.
The Trust may at any time, for the purpose of obtaining the
satisfaction and discharge of this Agreement or for any other purpose, by Trust
Order direct any Paying Agent to pay to the Owner Trustee all sums held in trust
by such Paying Agent, such sums to be held by the Owner Trustee upon the same
trusts as those upon which the sums were held by such Paying Agent; and upon
such payment by any Paying Agent to the Owner Trustee, such Paying Agent shall
be released from all further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds or
abandoned property, any money held by the Owner Trustee or any Paying Agent in
trust for the distribution of any amount due with respect to any Certificate and
remaining unclaimed for two years after such amount has become due and
distributable shall be discharged from such trust and be distributed to the
Trust on Trust Request; and the Holder of such Certificate shall thereafter, as
an unsecured general creditor, look only to the Trust for distribution thereof
(but only to the extent of the amounts so distributed to the Trust), and all
liability of the Owner Trustee or such Paying Agent with respect to such trust
money shall thereupon cease;
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provided, however, that the Owner Trustee or such Paying Agent, before being
required to make any such repayment, shall at the expense and direction of the
Trust cause to be published, once in a newspaper of general circulation in the
City of New York customarily published in the English language on each Business
Day, notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such publication,
any unclaimed balance of such money then remaining will be repaid to the Trust.
The Owner Trustee shall also adopt and employ, at the expense and direction of
the Trust, any other reasonable means of notification of such repayment
(including, but not limited to, mailing notice of such repayment to
Certificateholders whose Certificates have been called but have not been
surrendered for redemption or whose right to or interest in moneys due and
distributable but not claimed at the last address of record for each such
Certificateholder determinable from the records of the Owner Trustee or of any
Paying Agent.
(d) Existence. (i) Subject to clause (ii) of this Section
4.09(d), the Trust will keep in full effect its existence, rights and franchises
as a business trust under the laws of the State of Delaware (unless it becomes,
or any successor Trust hereunder is or becomes, organized under the laws of any
other State or of the United States of America, in which case the Trust will
keep in full effect its existence, rights and franchises under the laws of such
other jurisdiction) 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 Basic Documents to
which it is a party, the Certificates and the Owner Trust Estate.
(ii) Any successor to the Owner Trustee appointed pursuant to
Section 13.03 of this Agreement shall be the successor Owner Trustee under this
Agreement without the execution or filing of any paper, instrument or further
act to be done on the part of the parties hereto.
(iii) Upon any consolidation or merger of or other succession
to the Owner Trustee, the Person succeeding to the Owner Trustee under this
Agreement may exercise every right and power of the Owner Trustee under this
Agreement with the same effect as if such Person had been named as the Owner
Trustee herein.
(e) Protection of Owner Trust Estate. The Trust will from time
to time execute and deliver all such reasonable supplements and 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) maintain or preserve the Owner Trust Estate under this
Agreement or carry out more effectively the purposes hereof;
(ii) perfect, publish notice of or protect the validity of any
transfer and assignment made or to be made by this Agreement;
(iii) enforce any rights with respect to the Owner Trust
Estate; or
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(iv) preserve and defend title to the Owner Trust Estate and
the rights of the Owner Trustee and the Certificateholders in the Owner
Trust Estate against the claims of all Persons and parties.
The Trust hereby designates the Administrator, its agent and
attorney-in-fact to execute any financing statement, continuation statement or
other instrument required to be executed pursuant to this Section 4.09(e).
(f) Performance of Obligations; Servicing of Loans.
(i) The Trust will not take any action and will use its best
efforts not to permit any action to be taken by others that would release any
Person from any of such Person's material covenants or obligations under any
instrument or agreement included in the Owner Trust Estate or that would result
in the amendment, hypothecation, subordination, termination or discharge of, or
impair the validity or effectiveness of, any such instrument or agreement,
except as expressly provided in the Basic Documents or such other instrument or
agreement.
(ii) The Trust may contract with or otherwise obtain the
assistance of other Persons (including, without limitation, the Administrator
under the Administration Agreement) to assist it in performing its duties under
this Agreement, and any performance of such duties by a Person identified to the
Owner Trustee in an Officer's Certificate of the Trust shall be deemed to be
action taken by the Trust. Initially, the Trust has contracted with the Servicer
and the Administrator to assist the Trust in performing its duties under this
Agreement.
(iii) The Trust will punctually perform and observe all of its
obligations and agreements contained in this Agreement, in the Basic Documents
and in the instruments and agreements included in the Owner Trust Estate,
including but not limited to (A) filing or causing to be filed all UCC Financing
Statements and continuation statements required to be filed by the terms of this
Agreement and (B) recording or causing to be recorded all Mortgages, Assignments
of Mortgage, all intervening assignments of mortgage and all assumption and
modification agreements required to be recorded by the terms of this Agreement,
in accordance with and within the time periods provided for in this Agreement.
Except as otherwise expressly provided therein, the Trust shall not waive,
amend, modify, supplement or terminate any Basic Document or any provision
thereof without the consent of the Owner Trustee and the Majority
Certificateholders.
(iv) If the Trust shall have knowledge of the occurrence of an
Event of Default, the Trust shall promptly notify the Owner Trustee and the
Majority Certificateholders thereof, and shall specify in such notice the
action, if any, the Trust is taking with respect to such default.
(v) The Trust agrees (A) that it will not, without the prior
written consent of the Owner Trustee, amend, modify, waive, supplement,
terminate or surrender, or agree to any amendment, modification, supplement,
termination, waiver or surrender of, the terms of any part of the Owner Trust
Estate (except to the extent otherwise permitted by the Basic
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Documents), or waive timely performance or observance by the Loan Originator,
the Servicer or the Depositor under this Agreement; and (B) that any such
amendment shall not (1) increase or reduce in any manner the amount of, or
accelerate or delay the timing of, distributions that are required to be made
for the benefit of the Certificateholders or (2) reduce the percentage of the
Certificates that is required to consent to any such amendment, without the
consent of Certificateholders evidencing 100% Percentage Interests of the
Outstanding Certificates. If any such amendment, modification, supplement or
waiver shall so be consented to by the Majority Certificateholders, the Trust
agrees, promptly following a request by the Owner Trustee to do so, to execute
and deliver, in its own name and at its own expense, such agreements,
instruments, consents and other documents as the Owner Trustee may deem
necessary or appropriate in the circumstances.
(g) Negative Covenants. So long as any Class A Certificates
are Outstanding, the Trust shall not:
(i) except as expressly permitted by the Basic Documents,
sell, transfer, exchange or otherwise dispose of any of the properties
or assets of the Trust, including those included in any part of the
Owner Trust Estate, unless directed to do so by the Initial Class A
Certificateholder;
(ii) claim any credit on, or make any deduction from the
principal or interest distributable in respect of, the Class A
Certificates (other than amounts properly withheld from such payments
under the Code) or assert any claim against any present or former Class
A Certificateholder by reason of the payment of the taxes levied or
assessed upon any part of the Owner Trust Estate;
(iii) engage in any business or activity other than as
expressly permitted by this Agreement and the other Basic Documents,
other than in connection with, or relating to, the issuance of
Certificates pursuant to this Agreement, or amend this Agreement as in
effect on the Closing Date other than in accordance with Section 17.02
thereof;
(iv) issue any certificates or other obligations except as
under this Agreement;
(v) incur or assume any indebtedness or guaranty any
indebtedness of any Person, except for such indebtedness as may be
incurred by the Trust in connection with the issuance of the
Certificates pursuant to this Agreement;
(vi) dissolve or liquidate in whole or in part or merge or
consolidate with any other Person;
(vii) (A) permit the validity or effectiveness of this
Agreement to be impaired, or permit the lien of this Agreement to be
amended, hypothecated, subordinated, terminated or discharged, or
permit any Person to be released from any covenants or obligations with
respect to the Certificates under this Agreement except as may
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expressly be permitted hereby, (B) except as provided in the Basic
Documents, permit any lien, charge, excise, claim, security interest,
mortgage or other encumbrance to be created on or extend to or
otherwise arise upon or burden the Owner Trust Estate or any part
thereof or any interest therein or the proceeds thereof (other than tax
liens, mechanics' liens and other liens that arise by operation of law,
in each case, on any Mortgaged Property and arising solely as a result
of an action or omission of the related Borrowers) or (C) permit any
Person other than itself, the Owner Trustee and the Certificateholders
to have any right, title or interest in the Owner's Trust Estate;
(viii) remove the Administrator without the prior written
consent of the Majority Certificateholders; or
(ix) take any other action or fail to take any action which
may cause the Trust to be taxable as a taxable mortgage pool pursuant
to Section 7701(i) of the Code.
(h) Annual Statement as to Compliance. The Trust will deliver
to the Owner Trustee, within 120 days after the end of each fiscal year of the
Trust (commencing in the fiscal year 1998), an Officer's Certificate stating, as
to the best knowledge of the Responsible Officer signing such Officer's
Certificate, that:
(i) a review of the activities of the Trust during such year
and of its performance under this Agreement has been made under such
Responsible Officer's supervision; and
(ii) to the best of such Responsible Officer's knowledge,
based on such review, the Trust has complied with all conditions and
covenants under this Agreement throughout such year, or, if there has
been a default in its compliance with any such condition or covenant,
specifying each such default known to such Responsible Officer and the
nature and status thereof.
(i) Servicer's Obligations. The Trust shall cause the Servicer
to comply with this Agreement.
(j) Restricted Payments. The Trust shall not, directly or
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the Trust
or otherwise with respect to any ownership or equity interest or security in or
of the Trust or to the Servicer, (ii) redeem, purchase, retire or otherwise
acquire for value any such ownership or equity interest or security or (iii) set
aside or otherwise segregate any amounts for any such purpose; provided,
however, that the Trust may make, or cause to be made, distributions to the
Servicer, the Owner Trustee, the Custodian, the Hedging Counterparties and the
Certificateholders as contemplated by, and to the extent funds are available for
such purpose under this Agreement. The Trust will not, directly or indirectly,
make or cause to be made payments to or distributions from the Distribution
Account except in accordance with this Agreement and the Basic Documents.
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(k) Notice of Events of Default. The Trust shall give the
Owner Trustee and the Class A Certificateholders prompt written notice of each
Servicer Event of Default hereunder, each default on the part of the Servicer or
the Loan Originator of its obligations under this Agreement.
(l) Further Instruments and Acts. Upon request of the Owner
Trustee, the Trust will execute and deliver such further instruments and do such
further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Agreement.
Section 4.10 Representations and Warranties of the Transfer
Obligor.
The Transfer Obligor hereby represents, warrants and covenants
to the other parties hereto and the Certificateholders that as of the Closing
Date, as of each Transfer Date and as of each Purchase Value Excess Date:
(a) The Transfer Obligor is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has, and had at all relevant times, full power to own its property, to carry
on its business as currently conducted, to enter into and perform its
obligations under each Basic Document to which it is a party;
(b) The execution and delivery of each Basic Document to which
it is a party by the Transfer Obligor and its performance of and compliance with
all of the terms thereof will not violate the Transfer Obligor's articles of
incorporation or by-laws or constitute a default (or an event which, with notice
or lapse of time, or both, would constitute a default) under, or result in the
breach or acceleration of, any material contract, agreement or other instrument
to which the Transfer Obligor is a party or which is applicable to the Transfer
Obligor or any of its material assets;
(c) The Transfer Obligor has the full power and authority to
enter into and consummate the transactions contemplated by each Basic Document
to which it is a party, has duly authorized the execution, delivery and
performance of each Basic Document to which it is a party and has duly executed
and delivered each Basic Document to which it is a party. Each Basic Document to
which it is a party, assuming due authorization, execution and delivery by the
other party or parties thereto, constitutes a valid, legal and binding
obligation of the Transfer Obligor, enforceable against it in accordance with
the terms thereof, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization, receivership, moratorium or other similar laws
relating to or affecting the rights of creditors generally, and by general
equity principles (regardless of whether such enforcement is considered in a
proceeding in equity or at law);
(d) The Transfer Obligor is not in violation of, and the
execution and delivery of each Basic Document to which it is a party by the
Transfer Obligor and its performance and compliance with the terms of each Basic
Document to which it is a party will not constitute a violation with respect to,
any order or decree of any court or any order or regulation of any federal,
state, municipal or governmental agency having jurisdiction, which violation
would materially and adversely affect the condition (financial or otherwise) or
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operations of the Transfer Obligor or its properties or materially and adversely
affect the performance of its duties hereunder;
(e) There are no actions or proceedings against, or
investigations of, the Transfer Obligor currently pending with regard to which
the Transfer Obligor has received service of process and no action or proceeding
against, or investigation of, the Transfer Obligor is, to the knowledge of the
Transfer Obligor, threatened or otherwise pending before any court,
administrative agency or other tribunal that (A) if determined adversely to the
Transfer Obligor, would prohibit its entering into any of the Basic Documents to
which it is a party or render the Securities invalid, (B) seek to prevent the
issuance of the Securities or the consummation of any of the transactions
contemplated by any of the Basic Documents to which it is a party or (C) if
determined adversely to the Transfer Obligor, would prohibit or materially and
adversely affect the performance by the Transfer Obligor of its obligations
under, or the validity or enforceability of, any of the Basic Documents to which
it is a party or the Securities;
(f) No consent, approval, authorization or order of any court
or governmental agency or body is required for the execution, delivery and
performance by the Transfer Obligor of, or compliance by the Transfer Obligor
with, any of the Basic Documents to which it is a party or the Securities, or
for the consummation of the transactions contemplated by any of the Basic
Documents to which it is a party, except for such consents, approvals,
authorizations and orders, if any, that have been obtained prior to the Closing
Date;
(g) The Transfer Obligor is solvent, is able to pay its debts
as they become due and has capital sufficient to carry on its business and its
obligations hereunder; it will not be rendered insolvent by the execution and
delivery of any of the Basic Documents to which it is a party or the assumption
of any of its obligations thereunder; no petition of bankruptcy (or similar
insolvency proceeding) has been filed by or against the Transfer Obligor; and
(h) The information, reports, financial statements, exhibits
and schedules furnished in writing by or on behalf of the Transfer Obligor to
the Initial Class A Certificateholder in connection with the negotiation,
preparation or delivery of the Basic Documents to which it is a party or
delivered pursuant thereto, when taken as a whole, do not contain any untrue
statement of material fact or omit to state any material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. All written information furnished after the date hereof by
or on behalf of the Transfer Obligor to the Initial Class A Certificateholder in
connection with the Basic Documents to which and the transactions contemplated
thereby will be true, complete and accurate in every material respect, or (in
the case of projections) based on reasonable estimates, on the date as of which
such information is stated or certified. There is no fact known to a Responsible
Officer of the Transfer Obligor, after due inquiry, that could reasonably be
expected to have a material adverse effect on (a) the property, business,
operations, financial condition or prospects of the Transfer Obligor, (b) the
ability of the Transfer Obligor to perform its obligations under any Basic
Document to which it is a party, (c) the validity or enforceability of any of
the Basic Documents, (d) the rights and remedies of
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the Certificateholders and Owner Trustee under any of the Basic Documents, (e)
the timely distribution of the principal of or interest on the Certificates or
other amounts distributable in connection therewith or (f) the Owner Trust
Estate that has not been disclosed to the Initial Class A Certificateholder in a
report, financial statement, exhibit, schedule, disclosure letter or other
writing furnished to the Initial Class A Certificateholder for use in connection
with the transactions contemplated thereby.
ARTICLE V
ADMINISTRATION AND SERVICING OF THE LOANS
Section 5.01 Duties of the Servicer.
(a) Acting directly or through one or more Subservicers as
provided in Section 5.03, the Servicer, as an independent contract servicer,
shall service and administer the Loans in accordance with this Agreement and
shall have full power and authority, acting alone, to do or cause to be done any
and all things in connection with such servicing and administration which it may
deem necessary or desirable and consistent with the terms of this Agreement.
Notwithstanding any provision to the contrary elsewhere in this Agreement, the
Servicer shall not have any duties, responsibilities, or fiduciary relationship
with the parties hereto except those expressly set forth herein, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or shall otherwise exist against the Servicer.
(b) The Servicer hereby agrees to serve as the loan servicer
with respect to each of the Loans and to perform Loan Servicing as described
herein and as otherwise provided herein, upon and subject to the terms of this
Agreement. Subject to any limitation of authority under Section 5.02, "Loan
Servicing" shall mean those services pertaining to the Loans which, applying the
Servicing Standard, are required hereunder to be performed by the Servicer, and
which shall include:
(i) reviewing all available documents pertaining to
the Loans, organizing, administering and maintaining the
Servicing Files, and inputting all relevant information into
the Servicer's loan servicing computer system;
(ii) preparing and filing or recording all financing
statements, continuation statements and other documents or
instruments and taking such other action necessary to maintain
the lien of any Mortgage on the related Mortgaged Property;
(iii) monitoring each Borrower's maintenance of
insurance coverage on each Mortgaged Property as required by
the related Loan Documents and causing to be maintained
adequate insurance coverage on each Mortgaged Property in
accordance with Section 5.05;
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(iv) monitoring the status of real estate taxes,
assessments, ground rents and other similar items and
verifying the payment of such items for each Mortgaged
Property in accordance with Section 5.04;
(v) preparing and delivering all reports and
information required hereunder;
(vi) procuring and supervising the services of third
parties (other than subservicers pursuant to Section 5.03)
necessary or appropriate in connection with the servicing of
the Loans by the Servicer;
(vii) performing payment processing, record keeping,
administration of escrow and other accounts, interest rate
adjustment, and other routine customer service functions;
(viii) determining and notifying each Borrower of the
amount of each payment of principal and interest due under the
terms of the related Loan, including without limitation
determining and notifying the related Borrower of the interest
rate for any Adjustable Rate Loan;
(ix) administering Lockbox Accounts in accordance
with Section 5.20;
(x) monitoring any casualty losses or condemnation
proceedings and administering any proceeds related thereto in
accordance with the related Loan Documents, provided, that if
such Loan Documents provide for any decision or discretion
with respect to application of such proceeds, Servicer shall
notify the Initial Class A Certificateholder with respect to
such application;
(xi) notifying all Borrowers of the appropriate place
for communications and payments, and collecting and
continuously monitoring all payments made with respect to the
Loans;
(xii) administering any requests for assumptions of a
Loan or transfers of ownership of or placement of subordinate
financing on a Mortgaged Property, in accordance with Section
5.07;
(xiii) commencing on behalf of the Trust any
litigation or proceeding relating to the foreclosure or other
realization upon the collateral under any of the Loans, and
retaining legal counsel in connection therewith, all in
accordance with Section 5.10.
(xiv) selling any Foreclosure Property in accordance
with Section 5.11;
(xv) managing and operating each Foreclosure Property
in accordance with Section 5.12; and
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(xvi) administering any proposals for modifications,
waivers, amendments or consents with respect to any term of a
Loan, in accordance with Section 5.19.
(c) The Servicer shall perform its services hereunder (a) in
accordance with (i) applicable laws, (ii) the terms and provisions of the Loan
Documents, (iii) the express terms hereof, and (iv) the customary and usual
standards of practice of prudent institutional commercial mortgage loan
servicers with respect to commercial mortgage loans, and (b) to the extent
consistent with the foregoing requirements, in the same manner in which the
Servicer services and administers commercial mortgage loans, warehouse loans and
hotel loans, as applicable, for other third party portfolios of such loans
similar to the Loans, but without regard to any relationship which the Servicer
or any Affiliate of the Servicer may have with the related Borrower or any
Affiliate of such Borrower or to the Servicer's right to receive compensation
for its services hereunder or to the ownership or servicing by the Servicer of
any other property or loans. The servicing standards described in the preceding
sentence are herein referred to as "Servicing Standard".
(d) Termination of Servicing. (i) In the event of a
Disposition or other removal of a Loan from the Owner Trust Estate, the Servicer
shall be terminated hereunder with respect to such Loan.
(ii) The Servicer agrees that in the event that any
Certificates are outstanding after the Expected Final Distribution Date, the
Servicer will resign and the Majority Certificateholders shall appoint a
successor in accordance with provisions of Section 15.02. The Majority
Certificateholders may, by written notice to the Servicer and the Owner Trustee,
elect to have the Servicer continue its duties hereunder.
Section 5.02 Authority of the Servicer.
In performing its Loan Servicing obligations hereunder, the
Servicer shall, except as otherwise provided herein and subject to the terms of
this Agreement, have full power and authority, acting alone or through others,
to take any and all actions in connection with such Loan Servicing that it deems
necessary or appropriate and, consistent with the Servicing Standard, in the
best economic interests of the Certificateholders. Without limiting the
generality of the foregoing, the Servicer is hereby authorized and empowered by
the Trust and the Certificateholders when the Servicer deems it appropriate in
its best judgment, to execute and deliver, on behalf of such Persons, (a) any
and all financing statements, continuation statements and other documents or
instruments necessary to maintain the lien of each Mortgage on the related
Mortgaged Property and any other related collateral; and (b) any and all
instruments of satisfaction or cancellation, or of partial or full release or
discharge and all other comparable instruments with respect to each of the
Loans; provided, however, that the Servicer shall notify the Initial Class A
Certificateholder in writing in the event that the Servicer intends to execute
and deliver any such instrument referred to in clause (b) above, except in
connection with any payment in full of any Loan. The Trust and Owner Trustee
will cooperate with the Servicer by either executing and delivering to the
Servicer from time to time (i) powers of
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attorney evidencing the Servicer's authority and power under this Section, or
(ii) such documents or instruments deemed necessary or appropriate by the
Servicer to enable the Servicer to carry out its Loan Servicing obligations
hereunder.
Section 5.03 Subservicing Agreements Between Servicer and
Subservicers.
(a) Until the Servicer becomes an Eligible Servicer, the
Servicer shall, and after becoming an Eligible Servicer, the Servicer may, enter
into Subservicing Agreements for any servicing and administration of Loans with
any Subservicer which is in compliance with the laws of each state necessary to
enable it to perform its obligations under such Subservicing Agreement and is
approved by the Majority Certificateholders. The Servicer shall give notice to
the Owner Trustee and the Majority Certificateholders of the appointment of any
Subservicer. For purposes of this Agreement, the Servicer shall be deemed to
have received payments on Loans when any Subservicer has received such payments.
Unless otherwise consented to by the Initial Class A Certificateholder, any such
Subservicing Agreement shall be consistent with and not violate the provisions
of this Agreement.
(b) The Servicer shall be entitled to terminate any
Subservicing Agreement in accordance with the terms and conditions of such
Subservicing Agreement and to either itself directly service the related Loans
or enter into a Subservicing Agreement with a successor Subservicer which
qualifies under Section 5.03.
(c) The Servicer shall not be relieved of its obligations
under this Agreement notwithstanding any Subservicing Agreement or any of the
provisions of this Agreement relating to agreements or arrangements between the
Servicer and a Subservicer or otherwise, and the Servicer shall be obligated to
the same extent and under the same terms and conditions as if it alone were
servicing and administering the Loans. The Servicer shall be entitled to enter
into any agreement with a Subservicer for indemnification of the Servicer by
such Subservicer and nothing contained in such Subservicing Agreement shall be
deemed to limit or modify this Agreement.
(d) The Servicer shall be responsible for the servicing of all
of the Loans. The Servicer shall not be relieved of its obligations under this
Agreement notwithstanding the fact that the Loans may be serviced prior to a
Transfer Date by a party other than the Servicer or a Subservicer and the
Servicer shall be obligated to the same extent and under the same terms and
conditions as if it were servicing and administering all of the Loans.
(e) Any Subservicing Agreement and any other transactions or
services relating to the Loans involving a Subservicer shall be deemed to be
between the Subservicer and the Servicer alone and no party hereto nor the
Certificateholders shall not be deemed parties thereto and shall have no claims,
rights, obligations, duties or liabilities with respect to any Subservicer
except as set forth in Section 5.03(f).
(f) In connection with the assumption of the responsibilities,
duties and liabilities and of the authority, power and rights of the Servicer
hereunder by a successor Servicer pursuant to Section 15.02, it is understood
and agreed that the Servicer's rights and
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obligations under any Subservicing Agreement then in force between the Servicer
and a Subservicer may be assumed or terminated by the successor Servicer at its
option without the payment of any fee (notwithstanding any contrary provision in
any Subservicing Agreement).
The Servicer shall, upon request of the successor Servicer,
but at the expense of the Servicer, deliver to the assuming party documents and
records relating to each Subservicing Agreement and an accounting of amounts
collected and held by it and otherwise use its best reasonable efforts to effect
the orderly and efficient transfer of the Subservicing Agreements to the
assuming party.
Section 5.04 Escrow Accounts; Collection of Taxes, Assessments
and Similar Items.
(a) Subject to and as required by the terms of the related
Loan Documents, the Servicer shall establish and maintain one or more segregated
custodial accounts (each, an "Escrow Account") into which any or all Escrow
Payments shall be deposited promptly after receipt and identification. Escrow
Accounts shall be Eligible Accounts and shall be denominated "Escrow Account,
[Servicer] in trust for Wilmington Trust Company, as Owner Trustee, for the
benefit of the FINOVA Commercial Mortgage Loan Asset-Backed Certificates 1998-1
and certain Borrowers." The Servicer shall notify the Initial Class A
Certificateholder in writing of the location and account number of each Escrow
Account it establishes and shall notify the Initial Class A Certificateholder
prior to any change thereof. Withdrawals of amounts from an Escrow Account may
be made, subject to any express provisions to the contrary herein, applicable
laws, and to the terms of the related Loan Documents governing the use of the
Escrow Payments, only: (i) to effect payment of taxes, assessments, insurance
premiums, ground rents and other items required or permitted to be paid from
escrow; (ii) to refund to the Borrowers any sums determined to be in excess of
the amounts required to be deposited therein; (iii) to pay interest, if required
under the Loan Documents, to the Borrowers on balances in the Escrow Accounts;
(iv) to pay to the Servicer from time to time any interest or investment income
earned on funds deposited therein provided such funds are invested in Permitted
Investments; (v) to apply funds to the indebtedness or outstanding capital
contribution, as applicable, of the Loan in accordance with the terms thereof;
(vi) to reimburse the Servicer for any Servicing Expense or Servicing Advance
for which Escrow Payments should have been made by the Borrowers, but only from
amounts received on the Loan which represent late collections of Escrow Payments
thereunder; (vii) to withdraw any amount deposited in the Escrow Accounts which
was not required to be deposited therein; or (viii) to clear and terminate the
Escrow Accounts at the termination of this Agreement.
(b) The Servicer shall maintain accurate records with respect
to each Mortgaged Property reflecting the status of taxes, assessments and other
similar items that are or may become a lien thereon and the status of insurance
premiums payable with respect thereto as well as the payment of ground rents
with respect to each Ground Lease (to the extent such information is reasonably
available). To the extent that the related Loan Documents require Escrow
Payments to be made by a Borrower, the Servicer shall obtain, from time to time,
all bills for the payment of such items, and shall effect payment prior to the
applicable penalty or
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termination date, employing for such purpose Escrow Payments paid by the
Borrower pursuant to the terms of the Loan and deposited in the related Escrow
Account by the Servicer. To the extent that the Loan does not require a Borrower
to make Escrow Payments, the Servicer shall use its best efforts to require that
any such payment be made by the Borrowers prior to the applicable penalty or
termination date. Subject to Section 5.05 with respect to the payment of
insurance premiums, if a Borrower fails to make any such payment on a timely
basis or collections from the Borrower are insufficient to pay any such item
when due, the amount of any shortfall shall be paid by the Servicer as a
Servicing Advance.
Section 5.05 Maintenance of Insurance Policies.
(a) The Servicer shall use its best efforts to cause each
Borrower to maintain or to cause to be maintained for each Loan such insurance
as is required to be maintained pursuant to the related Loan Documents. If the
Borrower fails to maintain such insurance, then the Servicer shall notify the
Initial Class A Certificateholder of such breach and, to the extent available at
commercially reasonable rates, cause to be maintained (i) fire and hazard
insurance with extended coverage in an amount which is at least equal to the
lesser of the current principal balance of such Loan and the replacement cost of
the improvements which are a part of the related Mortgaged Property and (ii) to
the extent that the Mortgaged Property is located in a federally designated
special flood hazard area, flood insurance in respect thereof. Such flood
insurance shall be in an amount equal to the lesser of (y) the unpaid principal
balance of the related Loan or (z) the maximum amount of such insurance as is
available for the related Mortgaged Property under the National Flood Insurance
Act. After notifying the Initial Class A Certificateholder pursuant to the
second preceding sentence, the Servicer shall take such action as the Servicer
deems to be in the best economic interests of the Certificateholders with
respect to the maintenance of any other forms of insurance which are required to
be maintained pursuant to the related Loan Documents, except to the extent that
such insurance is not available or the mortgagee, does not have an insurable
interest. The Servicer shall, to the extent available at commercially reasonable
rates, maintain for each Foreclosure Property no less insurance coverage than
was previously required with respect to the related Mortgaged Property. All such
policies shall be endorsed with standard mortgagee clauses with loss payable to
the Owner Trustee, and shall be in an amount sufficient to avoid the application
of any co-insurance clause. The costs of maintaining the insurance policies
which the Servicer is required to maintain pursuant to this Section shall be
paid by the Servicer as a Servicing Advance; provided, however, that the costs
of maintaining insurance with respect to each Foreclosure Property shall be paid
pursuant to Section 5.12.
(b) The Servicer may fulfill its obligation to maintain
insurance, as provided in Section 5.05(a), through a master force placed
insurance policy, the cost of which shall be paid by the Servicer as a Servicing
Advance, provided that such cost is limited to the incremental cost of such
policy allocable to such Mortgaged Property or Foreclosure Property (i.e., other
than any minimum or standby premium payable for such policy whether or not any
Mortgaged Property is then covered thereby, which shall be paid by the
Servicer). Such master force placed insurance policy may contain a deductible
clause, in which case the Servicer shall, in the event that there shall not have
been maintained on the related Mortgaged Property or
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Foreclosure Property a policy otherwise complying with the provisions of Section
5.05(a), and there shall have been one or more losses which would have been
covered by such a policy had it been maintained, immediately (or, prior to a
Collection Account Trigger Event, in the Distribution Account as permitted by
Section 7.01(b)(1) and 7.01(c)(1)) deposit into the Collection Account from its
own funds the amount not otherwise payable under the master force placed
insurance policy because of such deductible to the extent that such deductible
exceeds the deductible limitation required under the related Loan Documents, or,
in the absence of such deductible limitation, the deductible limitation which is
consistent with the Servicing Standard.
(c) The Servicer shall maintain at its own expense a fidelity
bond in form and amount that is consistent with the Servicing Standard. In
addition, the Servicer shall keep in force or cause the Subservicer, at its own
expense during the term of this Agreement, a policy or policies of insurance in
form and amounts that are consistent with the Servicing Standard, covering loss
occasioned by the errors and omissions of the Servicer's officers and employees
in connection with its obligations hereunder. The Servicer will promptly report
in writing to the Initial Class A Certificateholder any material changes that
may occur in their fidelity bond, if any, and/or their errors and omissions
insurance policy or policies, as the case may be, and will furnish to the
Initial Class A Certificateholder certificates evidencing that such bond, if
any, and insurance policies are in full force and effect.
Section 5.06 Inspections.
The Servicer shall perform a physical inspection of each
Mortgaged Property or Foreclosure Property at least annually, to the extent that
the Loan has a Transfer Cutoff Date Principal Balance of $1,500,000 or more and
every two years, to the extent that the Loan has a Transfer Cutoff Date
Principal Balance less than $1,500,000 or if (a) the related Loan becomes
delinquent for a period of 60 days or more, or (b) the Servicer determines that
it is prudent to conduct such an inspection. The Servicer shall prepare a
written report of each such inspection and shall promptly deliver a copy of such
report to the Initial Class A Certificateholder. The reasonable out-of-pocket
expenses incurred by the Servicer in connection with any such inspections
(including any out-of-pocket expenses related to travel and lodging and any
charges incurred through the use of a qualified third party to perform such
services) shall be paid as a Servicing Expense; provided, however, that with
respect to the scheduled inspection of any Mortgaged Property, such expenses
shall be borne by the Servicer.
Section 5.07 "Due-on-Sale" Clauses; Assumption Agreements.
When any Borrower proposes to convey or encumber all or any
portion of its interests in a Mortgaged Property or if such conveyance or
encumbrance has actually occurred, to the extent that the Servicer has actual
knowledge of such conveyance or encumbrance, the Servicer shall give notice
within Five (5) Business Days thereof to the Initial Class A Certificateholder
and consistent with the Servicing Standard, shall take such actions as it deems
in the best economic interests of the Certificateholders, including (i) waiving
or enforcing any due-on-sale clause or due-on-encumbrance clause contained in
the related Loan Documents, to the extent permitted under the terms of the
related Loan Documents and applicable law, (ii)
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taking or entering into an assumption or substitution agreement from or with the
Person to whom such Mortgaged Property has been or is about to be conveyed, and
(iii) releasing the original Borrower from liability upon the related Loan and
substituting the new Borrower as obligor thereon. The Servicer shall immediately
give notice of any such action to the Initial Class A Certificateholder.
The Servicer may, as a condition to granting any such request
require (to the extent permitted by applicable law) that such Borrower pay to
it, as Servicing Compensation, a reasonable and customary fee consistent with
the Servicing Standard in connection with such request, together with any
related costs and expenses incurred by the Servicer.
Section 5.08 Servicing Advances.
(a) The Servicer shall make Servicing Advances in the
performance of the Loan Servicing hereunder. Notwithstanding any obligation by
the Servicer to make a Servicing Advance hereunder with respect to a Loan,
before making any Servicing Advance, the Servicer shall assess the reasonable
likelihood of (i) recovering such Servicing Advance and any prior Servicing
Advances for such Loan and (ii) recovering any amounts attributable to
outstanding interest and principal owing on such Loan for the benefit of the
Certificateholders in excess of the costs, expenses and other deductions to
obtain such recovery, including without limitation any Servicing Advances
therefor and, if applicable, the outstanding indebtedness of all. The Servicer
shall only make a Servicing Advance with respect to a Loan to the extent that
the Servicer determines in its reasonable, good faith judgment that such
Servicing Advance would likely be recovered as aforesaid; provided, however,
that the Servicer will be entitled to be reimbursed for any Nonrecoverable
Servicing Advances in accordance with the terms of this Agreement. The Servicer
may recover Servicing Advances from the Borrowers to the extent permitted by the
Loans or, if not theretofore recovered from the Borrower on whose behalf such
Servicing Advance was made, from Liquidation Proceeds realized upon the
liquidation of the related Loan. In no case may the Servicer recover Servicing
Advances from the principal and interest payments on any other Loan or from any
amounts relating to any other Loan.
(b) Notwithstanding any other provision hereof, the Servicer
shall notify the Initial Class A Certificateholder prior to incurring any
Servicing Expense or Servicing Advance, except for any Servicing Expense or
Servicing Advance which is (i) incurred by the Servicer pursuant to Section
5.04(b) or 5.05, (ii) made for any purposes other than those described in item
(i) above, and is not over $25,000.00 and is made in an emergency situation to
preserve and protect the Mortgaged Property or the safety of the public in
connection with such Mortgaged Property, or (iii) made for any purpose other
than those described in items (i) and (ii) above and is not over $5,000.00 per
item. Unless otherwise provided herein, no Majority Certificateholder approval
shall be required prior to the Servicer making any Servicing Advance or
incurring any Servicing Expense.
Section 5.09 Periodic Advances.
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(a) If, on any Remittance Date, the Servicer determines that
any Monthly Payments due in the Due Period immediately preceding such
Distribution Date have not been received as of the related Remittance Date, the
Servicer shall determine the amount of any Periodic Advance required to be made
with respect to the related Distribution Date. The Servicer shall, on or prior
to such Distribution Date, furnish a statement to the Owner Trustee (the
information in such statement to be made available to the Initial Class A
Certificateholder upon request) setting forth the amount of such Monthly
Payments which were not received as of the related Remittance Date preceding the
related Distribution Date, and shall include in the amount to be deposited in
the Collection Account on such Distribution Date an amount equal to the Periodic
Advance, if any, from its own funds.
(b) The Servicer shall be permitted to fund its payment of
Periodic Advances on any Remittance Date from collections on any Loan deposited
to the Collection Account subsequent to the related Due Period, and shall
deposit to such Collection Account with respect to Periodic Advances funded from
amounts on deposit in such Collection Account (i) collections from the Borrower
whose Delinquency gave rise to the shortfall which resulted in such Periodic
Advance and (ii) Liquidation Proceeds recovered on account of the related Loan
to the extent of the amount of aggregate Periodic Advances related thereto. In
any event, to the extent the Servicer uses such funds, the Servicer must
reimburse the Collection Account by the next Remittance Date to the extent
necessary to provide for payments pursuant to Section 7.01(c)(3)(i)-(vi).
(c) The Servicer shall designate on its records the specific
Loans and related installments (or portions thereof) as to which such Periodic
Advance shall be deemed to have been made for purposes of withdrawals from the
Collection Account pursuant to Section 7.01(c)(1).
Section 5.10 Realization Upon Mortgaged Properties.
(a) Upon the failure of any Borrower to make any required
payment of principal, interest or other amounts due under a Loan, or otherwise
to perform fully any material obligations under any of the related Loan
Documents, in either case within any applicable grace period, the Servicer
shall, upon discovery of such failure, promptly notify the Initial Class A
Certificateholder in writing. Consistent with the Servicing Standard, the
Servicer shall take such actions as it deems in the best economic interests of
the Certificateholders, including without limitation, issuing notices of
default, declaring events of default, declaring due the entire outstanding
principal balance, and otherwise taking all reasonable actions under the related
Loan, as the case may be, in preparation for the realization upon the underlying
Mortgaged Property. The Servicer shall, consistent with the Servicing Standard,
and as permitted under the provisions of each related Mortgage, foreclose upon
or otherwise comparably convert the ownership of the related Mortgaged Property.
In connection with such foreclosure or other conversion, the Servicer shall
follow such practices and procedures as it shall deem necessary or advisable and
as shall be consistent with the Servicing Standard. All costs and expenses
incurred by the Servicer in any such proceedings shall be
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paid by the Servicer as a Servicing Expense. The Servicer shall give notice
within one (1) Business Day of the commencement of any such action to the
Initial Class A Certificateholder.
(b) If title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall be taken in the name of the Trust or its nominee, but in no event shall
such deed or certificate be taken in the name of the Servicer. Notwithstanding
any such acquisition of title and cancellation of the related Loan, such Loan
shall be considered to be a Foreclosed Loan until such time as the related
Foreclosure Property shall be sold, transferred or conveyed. Consistent with the
foregoing, for purposes of all calculations hereunder, so long as such
Foreclosed Loan shall be considered to be an outstanding Loan, payments and
collections with respect to the related Foreclosure Property received in any
month (net of related expenses) shall be applied to amounts which would have
been payable under the related Promissory Note in accordance with the terms of
such Promissory Note.
(c) The Servicer shall not obtain title to any Mortgaged
Property as a result or in lieu of foreclosure or otherwise, and shall not
otherwise acquire possession of, or take other action with respect to, any
Mortgaged Property, if, as a result of any such action, the Certificateholders
or Owner Trustee would be considered to hold title to, to be a
"mortgagee-in-possession" of, or to be an "owner" or "operator" of such
Mortgaged Property within the meaning of any Environmental Law, or a
"discharger" or "responsible party" thereunder, unless the Servicer has also
previously determined, based on a report, prepared by a Person who regularly
conducts environmental site assessments, that:
(i) such Mortgaged Property is in compliance with
applicable Environmental Laws or, if not, that taking such
actions as are necessary to bring such Mortgaged Property into
compliance therewith is reasonably likely to produce a greater
recovery on a present value basis than not taking such
actions; and
(ii) there are no circumstances present on such
Mortgaged Property relating to the use, management or disposal
of any Hazardous Materials for which investigation, testing,
monitoring, containment, clean-up or remediation could be
required under any applicable Environmental Law, or that, if
any such Hazardous Materials are present for which such action
could be required, taking such actions with respect to the
affected Mortgaged Property is reasonably likely to produce a
greater recovery on a present value basis than not taking such
actions.
If the Servicer has so determined based on satisfaction of the
criteria in clauses (i) and (ii) above that it would be in the best economic
interest of the Certificateholders to take any such actions, the Servicer shall
notify the Initial Class A Certificateholder of such proposed action. The
Servicer shall take such action only if authorized by the Majority
Certificateholders in writing. The costs of any such compliance, containment,
clean-up or remediation shall be paid by the Servicer as a Servicing Expense.
The Servicer shall give
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notice within one (1) Business Day of the completion of any such action to the
Initial Class A Certificateholder.
If the environmental assessment first obtained by the Servicer
with respect to a Mortgaged Property indicates that such Mortgaged Property may
not be in compliance with applicable Environmental Laws or that Hazardous
Materials may be present but does not definitively establish such fact, the
Servicer shall cause such further environmental assessments to be conducted.
(d) The environmental site assessments contemplated by Section
5.10(c) shall be prepared by any Person who is approved by the Servicer in
accordance with the Servicing Standard. The cost of preparation of any
environmental assessment shall be paid by the Servicer as a Servicing Expense.
(e) If the Servicer determines, pursuant to Section 5.10(c),
that taking such actions as are necessary to bring any Mortgaged Property into
compliance with applicable Environmental Laws, or taking such actions with
respect to the containment, clean-up, removal or remediation of hazardous
substances, hazardous materials, hazardous wastes, or petroleum-based materials
affecting any such Mortgaged Property, is not reasonably likely to produce a
greater recovery on a present value basis than not taking such actions, then the
Servicer shall take such action it would be in the best economic interest of the
Certificateholders, including, without limitation, releasing the lien of the
related Mortgage with respect to the affected Mortgaged Property. The Servicer
shall give notice within one (1) Business Day of any such action to the Initial
Class A Certificateholder.
Section 5.11 Sale of Foreclosure Properties.
(a) With respect to any Foreclosure Property, the Servicer
shall use its best efforts to sell to any Person (other than an Affiliate of the
Servicer) such Foreclosure Property on commercially reasonable terms which are
consistent with the Servicing Standard; provided, however, that any such sale
must be approved in writing by the Majority Certificateholders in their
reasonable discretion.
(b) Subject to Section 5.11(a), the Servicer shall act on
behalf of the Trust and Certificateholders in negotiating and taking any such
action necessary or appropriate in connection with the sale of any defaulted
Loan or Foreclosure Property, including the collection of all amounts payable in
connection therewith. Any sale of any defaulted Loan or Foreclosure Property
shall be without recourse to, or representation or warranty by, the Trust, the
Servicer, or any other Person (except that any contract of sale and conveyance
documents may contain customary warranties of title and condition). The Net
Liquidation Proceeds shall be promptly deposited by the Servicer in the
Collection Account (or, prior to a Collection Account Trigger Event, in the
Distribution Account as permitted by Sections 7.01(b)(1) and 7.01(c)(1)).
Section 5.12 Management of Foreclosure Property.
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(a) Upon the acquisition by the Trust of any Foreclosure
Property, the Servicer shall have full power and authority, subject to the
specific requirements and prohibitions of this Agreement, to do or authorize to
be done any and all things in connection therewith as are consistent with the
manner in which the Servicer manages and operates similar properties owned or
managed by the Servicer or any of its Affiliates, all on terms and for such
period as the Servicer deems to be in the best economic interest of the
Certificateholders. The Servicer shall segregate and hold all revenues received
by it with respect to any Foreclosure Property separate and apart from its own
funds and general assets and shall establish and maintain with respect to any
Foreclosure Property one or more segregated custodial accounts (each, an "REO
Account") for the purposes set forth herein. REO Accounts shall be Eligible
Accounts held at the Owner Trustee and shall be denominated "REO Account,
Wilmington Trust Company as Owner Trustee for the benefit of the FINOVA
Commercial Mortgage Loan Asset-Backed Certificates 1998-1" or in such other
manner as the Majority Certificateholders prescribe. Funds on deposit in an REO
Account shall be invested pursuant to Section 7.03. In connection therewith, the
Servicer shall deposit or cause to be deposited in the REO Account on a daily
basis within two Business Days after receipt all revenues received by it with
respect to any Foreclosure Property (except for any Net Liquidation Proceeds),
and the Owner Trustee at the direction of the Servicer shall withdraw therefrom
funds necessary for the proper maintenance, leasing, operation, management and
sale of any Foreclosure Property, including:
(i) all insurance premiums due and payable in respect
of such Foreclosure Property;
(ii) all taxes and assessments in respect of such
Foreclosure Property that could result or have resulted in the
imposition of a lien thereon;
(iii) all ground rental payments, if applicable, with
respect to such Foreclosure Property; and
(iv) all costs and expenses necessary to maintain,
lease, operate, manage and sell such Foreclosure Property,
including the management fee payable to the property manager
engaged by Servicer pursuant to Section 5.12(b).
To the extent that amounts on deposit in any REO Account are
insufficient for the purposes set forth above, the Servicer shall pay the amount
of such shortfall as a Servicing Expense. The Owner Trustee, at the direction of
the Servicer shall withdraw from each REO Account and deposit into the
Collection Account on a monthly basis (or, prior to a Collection Account Trigger
Event, into the Distribution Account as permitted by Sections 7.01(b)(1) and
7.01(c)(1)) prior to the related Remittance Date the income, net of expenses,
received or collected from each Foreclosure Property; provided, however, that
the Servicer may retain in each REO Account funds sufficient for the payment of
the items set forth in clauses (i) through (iv) above, including, without
limitation, the creation of reasonable reserves for repairs, replacements, and
necessary capital improvements and other related expenses.
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(b) The Servicer may contract with any Person as a property
manager for the operation and management of any Foreclosure Property; provided,
however, that:
(i) the terms and conditions of any such contract
shall not be inconsistent herewith;
(ii) none of the provisions of this Section relating
to any such contract or to actions taken through any such
Person shall be deemed to relieve the Servicer of any of its
duties and obligations to the Trust with respect to the
operation and management of such Foreclosure Property; and
(iii) the Servicer shall be obligated with respect
thereto to the same extent as if it alone were performing all
duties and obligations in connection with the operation and
management of such Foreclosure Property.
Section 5.13 Release of Files.
Upon the payment in full of any Loan (including the repurchase
of any Loan or any liquidation of such Loan through foreclosure or otherwise),
or the receipt by the Servicer of a notification that payment in full will be
escrowed in a manner customary for such purposes, the Servicer shall deliver to
the Custodian a Request for Release and Receipt in accordance with the terms of
the Custodial Agreement. The Servicer shall either hold such Custodial File in
trust or deliver it to (i) an escrow agent or (ii) any employee, agent or
attorney of the Owner Trustee, in each case pending its release by the Servicer,
such escrow agent or such employee, agent or attorney of the Owner Trustee, as
the case may be. Upon any such payment in full, or the receipt of such
notification that such funds have been placed in escrow, the Servicer is
authorized to give, as attorney-in-fact for the Trust and the Owner Trustee and
the mortgagee under the Mortgage which secured the Promissory Note, an
instrument of satisfaction (or assignment of Mortgage without recourse)
regarding the Mortgaged Property relating to such Mortgage, which instrument of
satisfaction or assignment, as the case may be, shall be delivered to the Person
or Persons entitled thereto against receipt therefor of payment in full, it
being understood and agreed that no expense incurred in connection with such
instrument of satisfaction or assignment, as the case may be, shall be
chargeable to the Collection Account. In lieu of executing any such satisfaction
or assignment, as the case may be, the Servicer may prepare and submit to the
Owner Trustee, a satisfaction (or assignment without recourse, if requested by
the Person or Persons entitled thereto) in form for execution by the Owner
Trustee with all requisite information completed by the Servicer; in such event,
the Owner Trustee shall execute and acknowledge such satisfaction or assignment,
as the case may be, and deliver the same with the related Custodial File, as
aforesaid.
Section 5.14 Access to Information.
(a) The Servicer understands that, in connection with the
transfer of the Certificates, Certificateholders may request that the Servicer
make available to the
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Certificateholders and to prospective Certificateholders annual audited
financial statements of the Servicer for any or all of the most recently
completed five fiscal years for which such statements are available, which
request shall not be unreasonably denied.
(b) So long as any Certificates remain outstanding, each of
the Trust and any Certificateholder shall, at any time and from time to time
during regular business hours, upon reasonable notice to the Servicer and the
Servicer shall permit the Trust and any Certificateholder, or its agents or
representatives to:
(i) examine all books, records and documents
(including computer tapes and disks) in the possession or
under the control of the Servicer relating to the Loans, the
servicing of the Loans and the compliance of the terms of the
Basic Documents, as may be reasonably requested;
(ii) visit the offices and property of the Servicer
for the purpose of examining such materials described in
clause (b)(i) above;
(iii) consult with such professionals as may
reasonably be aware of the operations or condition of the
Servicer, including, without limitation, accountants and
auditors, and the Servicer shall cause such professionals to
cooperate with any examination conducted in accordance with
the terms of this Section 5.14 and to provide access to those
materials listed in subclause (b)(i) above in the possession
or under the control of such professionals.
The Servicer agrees that in the event that a Default shall
have occurred and be continuing, the Servicer shall reimburse the Initial Class
A Certificateholder for the reasonable costs and expenses incurred by the
Initial Class A Certificateholder in connection with the Initial Class A
Certificateholder's activities pursuant to this Section 5.14.
Section 5.15 Release of Loan Files.
If with respect to any Loan:
(i) the outstanding Principal Balance of such Loan plus
all interest accrued thereon shall have been paid;
(ii) such Loan has become a Defective Loan and has been
repurchased or a Qualified Substitute Loan has been
conveyed to the Trust pursuant to Section 4.05
hereof;
(iii) such Loan or the related Foreclosure Property has
been sold in connection with the termination of the
Trust pursuant to Section 16.01 hereof;
(iv) such Loan has been purchased by the Loan Originator
in accordance with the terms of Section 4.07;
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(v) the related Foreclosure Property has been sold
pursuant to Section 5.12 hereof; or
(vi) such Loan has been included in a Disposition and
concurrently with such release the cash Disposition
Proceeds associated therewith will be deposited into
the Collection Account.
In each such case, the Servicer shall deliver a certificate to
the effect that the Servicer has complied with all of its obligations under this
Agreement with respect to such Loan and requesting that the Owner Trustee
release to the Servicer the related Custodial Loan File, and the Owner Trustee
shall, within five Business Days or such shorter period as may be required by
applicable law, release, or cause the Custodian to release (unless such
Custodial Loan File has previously been released), the related Custodial Loan
File to the Servicer and execute and deliver such instruments of transfer or
assignment prepared and delivered to it by the Servicer, in each case without
recourse, representation or warranty as shall be necessary to vest ownership of
such Loan in the Servicer or such other Person as may be specified in such
certificate, the forms of any such instrument to be appended to such
certificate.
Section 5.16 Servicing Compensation.
As compensation for its services hereunder, the Servicer shall
be entitled to retain from collections on the Loans or otherwise withdraw from
the Collection Account the Servicing Fee, out of which the Servicer shall pay
any servicing fees owed or payable to any Subservicer to the extent such amount
would be otherwise payable pursuant to Section 7.01(c)(3). Additional servicing
compensation in the form of assumption fees, modification fees, and other
administrative fees, and any prepayment premiums, insufficient funds charges,
amounts remitted pursuant to Section 7.01 hereof and late payment charges shall
be part of the Servicing Compensation payable to the Servicer hereunder and
shall be paid either by the Servicer's retaining such additional servicing
compensation prior to deposit into the Collection Account pursuant to Section
7.01(b) hereof or, if deposited into the Collection Account, as part of the
Servicing Compensation withdrawn therefrom pursuant to Section 7.01 hereof.
The Servicer shall be required to pay all expenses incurred by
it in connection with its servicing activities hereunder and shall not be
entitled to reimbursement therefor except as specifically provided for herein.
The Servicer also agrees to pay all reasonable costs and expenses incurred by
any successor Servicer or the Owner Trustee in replacing the Servicer in the
event of a default by the Servicer in the performance of its duties under the
terms and conditions of this Agreement.
Section 5.17 Statement as to Compliance and Financial
Statements.
The Servicer will deliver to the Initial Class A
Certificateholder:
(a) as soon as available and in any event within 45 days after
the end of each of the first three quarterly fiscal periods of each fiscal year
of the Servicer, Depositor, Loan Originator and Transfer Obligor the
consolidated balance sheets of such Persons and their
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consolidated subsidiaries as at the end of such period and the related unaudited
consolidated statements of income and retained earnings and of cash flows for
such Persons and their consolidated subsidiaries for such period and the portion
of the fiscal year through the end of such period, setting forth in each case in
comparative form the figures for the previous year, accompanied by a certificate
of a Responsible Officer of such Persons, which certificate shall state that
said consolidated financial statements fairly present the consolidated financial
condition and results of operations of such Persons and their subsidiaries in
accordance with GAAP, consistently applied, as at the end of, and for, such
period (subject to normal year-end audit adjustments);
(b) as soon as available and in any event within 90 days after
the end of each fiscal year of the Servicer, Depositor, Loan Originator and
Transfer Obligor the consolidated balance sheets of such Persons and their
consolidated subsidiaries as at the end of such fiscal year and the related
consolidated statements of income and retained earnings and of cash flows for
such Persons and their consolidated subsidiaries for such year, setting forth in
each case in comparative form the figures for the previous year, accompanied by
an opinion thereon of independent certified public accountants of recognized
national standing, which opinion shall not be qualified as to scope of audit or
going concern and shall state that said consolidated financial statements fairly
present the consolidated financial condition and results of operations of such
Persons and their consolidated subsidiaries as at the end of, and for, such
fiscal year in accordance with GAAP, and a certificate of such accountants
stating that, in making the examination necessary for their opinion, they
obtained no knowledge, except as specifically stated, of any Default or Event of
Default;
(c) from time to time such other information regarding the
financial condition, operations, or business of the Servicer, Depositor, Loan
Originator and Transfer Obligor as the Initial Class A Certificateholder may
reasonably request;
(d) the Servicer, Depositor, Loan Originator and Transfer
Obligor will furnish to the Initial Class A Certificateholder, at the time it
furnishes each set of financial statements pursuant to paragraphs (a) and (b)
above, a certificate of a Responsible Officer of such Persons to the effect
that, to the best of such Responsible Officer's knowledge, such Persons during
such fiscal period or year have observed or performed all of their covenants and
other agreements, and satisfied every condition, contained in the Basic
Documents to be observed, performed or satisfied by them, and that such
Responsible Officer has obtained no knowledge of any Default or Event of Default
except as specified in such certificate (and, if any Default or Event of Default
has occurred and is continuing, describing the same in reasonable detail and
describing the action such Persons have taken or proposes to take with respect
thereto); and
(e) within 10 days after service of process on any of the
following, notice of all legal or arbitrable proceedings affecting the Servicer
or any of its subsidiaries that questions or challenges the validity or
enforceability of any of the Basic Documents or as to which there is a
reasonable likelihood of adverse determination which would result in a material
adverse
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effect with respect to the value of the Loans or the interests of any of the
Certificateholders therein.
Section 5.18 Independent Public Accountants' Servicing Report.
On or before March 30 of each year, beginning with March 30,
1999, the Servicer and any Subservicer at their expense shall cause a nationally
recognized firm of Independent public accountants (who may also render other
services to the Servicer or a Subservicer, as applicable) to furnish to the
Owner Trustee, the Depositor and the Initial Class A Certificateholder a
statement to the effect that such firm has examined certain documents and
records relating to the servicing of the Loans under this Agreement or the
servicing of mortgage loans similar to the Loans under substantially similar
agreements for the preceding 12 months and that the assertion of management of
the Servicer or of management of a Subservicer, as applicable, that it
maintained an effective internal control system over the servicing of such
mortgage loans is fairly stated in all material respects, based upon established
criteria, which statement meets the standards applicable to accountant's reports
intended for general distribution; provided that each of the Servicer or the
Subservicer, as applicable, shall not be required to cause the delivery of such
statement until April 30 in any given year.
Section 5.19 Modifications, Waivers, Amendments and Consents.
(a) When any Borrower proposes any modification, waiver or
amendment of any term of any Loan or requests any consents related thereto, the
Servicer shall promptly give notice thereof to the Initial Class A
Certificateholder and shall take such action as the Servicer deems to be in the
best economic interest of the Certificateholders. All modifications, waivers or
amendments of any Loan or consents related thereto shall be in writing. The
Servicer shall promptly give notice of any such action to the Initial Class A
Certificateholder.
(b) The Servicer may, as a condition to granting any request
by a Borrower for any consent, modification, waiver or amendment require (to the
extent permitted by applicable law) that such Borrower pay to it, as Servicing
Compensation, a reasonable and customary fee consistent with Servicing Standard
in connection with such request, together with any related costs and expenses
incurred by the Servicer.
Section 5.20 Administration of Lockbox Accounts by the
Servicer.
Whenever the terms of the Loan provide for the maintenance of
a Lockbox Account (whether at all times or upon certain contingencies), the
Servicer shall take the following actions with respect to such Lockbox Account,
except to the extent otherwise required under applicable law or expressly
provided by the terms of such Loan:
(a) The Servicer shall establish and maintain such Lockbox
Account as an Eligible Account in the name of Midland Loan Services, Inc., or
such other entity as is acceptable to the Initial Class A Certificateholder,
promptly after receipt of the appropriate Loan Documents requiring such account
and thereafter shall maintain such account as an Eligible Account. In the event
that a Lockbox Account for the related Loan has been
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established prior to the Transfer Date for such Loan, the Servicer shall cause
all funds therein to be transferred to the Lockbox Account maintained by Midland
Loan Services, Inc., or such other entity as is acceptable to the Initial Class
A Certificateholder. The Servicer may transfer the Lockbox Accounts to a
different Eligible Account from time to time. The Servicer shall promptly notify
the Initial Class A Certificateholder of such transfer.
(b) (i) The Servicer shall monitor the Borrower's, as the case
may be, compliance with its obligation to cause all Persons making payments that
are required to be deposited into a Lockbox Account to mail or otherwise
transmit such payments directly to the Lockbox Account; to the extent that such
compliance can be reasonably ascertained by the Servicer, (ii) promptly notify
the Initial Class A Certificateholder if the Servicer has knowledge that the
Borrower is not in compliance with such obligation, and (iii) take such action
with respect to such noncompliance as the Servicer deems to be in the best
economic interest of the Certificateholders. The Servicer shall give notice
within one (1) Business Day of any such action to the Initial Class A
Certificateholder.
(c) The Servicer shall make transfers and payments from the
Lockbox Account in accordance with the terms of the related Loan Documents to
the extent that the Owner Trustee or its designee is permitted to make such
transfers and payments; provided, however, that the Servicer may not make any
discretionary transfer or payment from any Lockbox Account without prior written
direction of the Majority Certificateholders.
(d) The Servicer shall maintain accurate records of each
deposit to and withdrawal from each Lockbox Account, and upon request, shall
provide the Certificateholders with copies of any statements or information
provided by the related Borrower, with respect to such account or amounts
required to be deposited therein not later than the later of (A) the Remittance
Date following the calendar month to which such statements or information relate
and (B) promptly after the Servicer's receipt of such statements or information.
(e) Upon the occurrence of a default under the related Loans
as to which the Servicer has actual knowledge or has received notice, the
Servicer shall not release any funds in a Lockbox Account to the related
Borrower, or any Affiliate thereof, except as permitted by the Loan Documents,
and shall apply such funds in accordance with the Servicing Standard.
(f) The Servicer shall (i) monitor the Borrower's compliance
with its obligation to maintain a first priority perfected security interest in
favor of the Owner Trustee in each Lockbox Account; and the cash and Permitted
Investments therein, (ii) promptly notify the Initial Class A Certificateholder
if the Servicer has knowledge that the Borrower is not in compliance with such
obligation, (iii) take such action with respect to such noncompliance as the
Servicer deems to be in the best economic interest of the Certificateholders;
and (iv) take all actions as may be taken by the mortgagee under the Loan
Documents to maintain the perfection and priority of such security interest,
including the filing of Uniform Commercial Code continuation statements. The
Servicer shall give notice within one (1) Business Day of any such action to the
Initial Class A Certificateholder.
Section 5.21 Collections Lockbox Account.
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In the event of the occurrence of a Collections Lockbox
Trigger Event:
(a) The Servicer, Depositor and Trust shall each promptly
execute and deliver the Collections Lockbox Agreement.
(b) The Servicer shall promptly cause Borrowers to make all
payments on the Loans irrespective of method of payment, directly to the
Collections Lockbox Bank pursuant to the Collections Lockbox Agreement. Amounts
received by a Collections Lockbox Bank in respect of the Loans may initially be
deposited into a demand deposit account maintained by the Collections Lockbox
Bank for the benefit of the Owner Trustee, as secured party on behalf of the
Certificateholders. The Collections Lockbox Agreement shall require the
Collections Lockbox Bank to deposit all payments on the Loans in the Collections
Lockbox Account no later than the Business Day after receipt, and to cause all
amounts credited to the Collections Lockbox Account on account of such payments
to be transferred to the Collection Account or Escrow Account, as the case may
be, in accordance with the written instructions of the Servicer, no later than
the second Business Day after receipt of such payments. The Servicer shall pay
all fees and costs incurred in connection with the entering into of the
Collections Lockbox Agreement, the establishment of the Collections Lockbox
Account and the administration of the provisions of the Collections Lockbox
Agreement.
Section 5.22 Year 2000 Compliance.
The Servicer will maintain all hardware, firmware or software,
or any system consisting of one or more thereof, including, without limitation,
any and all enhancements, upgrades, customizations, modifications, maintenance
and the like (collectively, the "System"), used by or for the benefit of the
Servicer in order for the Servicer to perform its obligations under the Basic
Documents to which it is a party in a manner that permits the Servicer to
record, store, process, provide and where appropriate, insert, true and accurate
dates and calculations for dates and spans, including and following January 1,
2000 (herein referred to as "Year 2000 Compliant"). In addition, "Year 2000
Compliant" shall mean that the System will support the ability for its continued
normal usage such that neither the performance nor the correct functioning of
the System will be affected by the approach, and passing into, the year 2000.
ARTICLE VI
CERTIFICATES AND TRANSFER OF INTERESTS
Section 6.01 Initial Ownership.
Upon the formation of the Trust by the contribution of the
Depositor pursuant to Section 2.05, the Initial Class A Certificateholder shall
be the sole Class A Certificateholder and the Depositor shall be the sole Class
B Certificateholder of the Trust.
Section 6.02 The Certificates.
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The Certificates shall be executed on behalf of the Trust by manual or
facsimile signature of a Trust Officer of the Owner Trustee. Certificates
bearing the manual or facsimile signatures of individuals who were, at the time
when such signatures shall have been affixed, authorized to sign on behalf of
the Trust, shall be valid and binding obligations of the Trust, notwithstanding
that such individuals or any of them shall have ceased to be so authorized prior
to the authentication and delivery of such Certificates or did not hold such
offices at the date of authentication and delivery of such Certificates. The
Class B Certificates shall not be issued with a principal amount and shall not
bear interest.
A transferee of a Certificate shall become an Certificateholder, and
shall be entitled to the rights and subject to the obligations of an
Certificateholder hereunder and under this Agreement, upon such transferee's
acceptance of a Certificate duly registered in such transferee's name pursuant
to Section 6.04.
Section 6.03 Execution, Authentication and Delivery of Certificates.
On the first Closing Date, the Owner Trustee shall cause the Class A
Certificates and Class B Certificates, each representing 100% of the Percentage
Interests of such Class to be executed on behalf of the Trust, authenticated and
delivered to or upon the written order of the Depositor, signed by its chairman
of the board, its president or any vice president, without further corporate
action by the Depositor, in authorized denominations. No Certificate shall
entitle its holder to any benefit under this Agreement, or shall be valid for
any purpose, unless there shall appear on such Certificate a certificate of
authentication substantially in the form set forth in Exhibit E, executed by the
Owner Trustee or the Administrator, as the Owner Trustee's authenticating agent,
by manual or facsimile signature; such authentication shall constitute
conclusive evidence that such Certificate shall have been duly authenticated and
delivered hereunder. All Class A Certificates shall be dated the date of their
authentication.
Section 6.04 Additional Class A Certificate Principal Balance.
In the event of an advance of Additional Class A Certificate Principal
Balance by the Class A Certificateholders as provided in Section 3.01(c), each
Class A Certificateholder shall, and is hereby authorized to, record on the
schedule attached to its Class A Certificate the date and amount of any
Additional Class A Certificate Principal Balance advanced by it and each
repayment thereof; provided that failure to make any such recordation on such
schedule or any error in such schedule shall not adversely affect any Class A
Certificateholder's rights with respect to its Additional Class A Certificate
Principal Balance and its right to receive interest payments in respect of the
Additional Class A Certificate Principal Balance held by such Class A
Certificateholder.
Absent manifest error, the Class A Certificate Principal Balance of
each Class A Certificate as set forth in the notations made by the related Class
A Certificateholder on such Class A Certificate shall be binding upon the Owner
Trustee and the Trust; provided that failure by a Class A Certificateholder to
make such recordation on its Class A Certificate or any error in such notation
shall not adversely affect any Class A Certificateholder's rights with
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respect to its Class A Certificate Principal Balance and its right to receive
principal and interest payments in respect thereof.
Section 6.05 Mutilated, Destroyed, Lost or Stolen Certificates.
If (a) any mutilated Certificate shall be surrendered to the
Certificate Registrar, or if the Certificate Registrar shall receive evidence to
its satisfaction of the destruction, loss or theft of any Certificate and (b)
there shall be delivered to the Certificate Registrar and the Owner Trustee such
security or indemnity as may be required by them to save each of them harmless,
then in the absence of notice that such Certificate shall have been acquired by
a bona fide purchaser, the Owner Trustee on behalf of the Trust shall execute,
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Certificate, a new Certificate of like tenor and
denomination. In connection with the issuance of any new Certificate under this
Section, the Owner Trustee or the Certificate Registrar may require the payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection therewith. Any duplicate Certificate issued pursuant to
this Section shall constitute conclusive evidence of ownership in the Trust, as
if originally issued, whether or not the lost, stolen or destroyed Certificate
shall be found at any time.
Section 6.06 Persons Deemed Certificateholders.
Prior to due presentation of a Certificate for registration of
transfer, the Owner Trustee or the Certificate Registrar may treat the Person in
whose name any Certificate shall be registered in the Certificate Register as
the owner of such Certificate for the purpose of receiving distributions
pursuant to Section 7.01 of this Agreement and for all other purposes
whatsoever, and neither the Owner Trustee nor the Certificate Registrar shall be
bound by any notice to the contrary.
Section 6.07 Access to List of Certificateholders' Names and Addresses.
The Owner Trustee shall furnish or cause to be furnished to the Initial
Class A Certificateholder, the Paying Agent, the Servicer and the Depositor,
within 5 days after receipt by the Owner Trustee of a request therefor from any
such Person in writing, a list, in such form as the Owner Trustee, the Paying
Agent, the Servicer or the Depositor may reasonably require, of the names and
addresses of the Certificateholders as of the most recent Record Date. Each
Certificateholder, by receiving and holding a Certificate, shall be deemed to
have agreed not to hold any of the Depositor, the Servicer, the Certificate
Registrar or the Owner Trustee accountable by reason of the disclosure of its
name and address, regardless of the source from which such information was
derived.
Section 6.08 Maintenance of Office or Agency.
The Owner Trustee shall maintain an office or offices or agency or
agencies where Certificates may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Owner Trustee in respect
of the Certificates and the Basic Documents may be served. The Owner Trustee
initially designates its Corporate Trust Office
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as its principal corporate trust office for such purposes. The Owner Trustee
shall give prompt written notice to the Servicer and to the Certificateholders
of any change in the location of the Certificate Register or any such office or
agency.
Section 6.09 Restrictions on Transfer of Certificates.
(a) The Certificates have not been and will not be registered under the
Securities Act and will not be listed on any exchange. No transfer of a
Certificate shall be made unless such transfer is made pursuant to an effective
registration statement under the Securities Act and all applicable state
securities laws or is exempt from the registration requirements under the
Securities Act and such state securities laws. In order to assure compliance
with the Securities Act and state securities laws, any transfer of a Certificate
shall be made (A) in reliance on Rule 144A under the Securities Act, in which
case, the Owner Trustee shall require that the transferor deliver a
certification substantially in the form of Exhibit H-1 hereto, or (B) to an
institutional "accredited investor" within the meaning of Rule 501(a)(1), (2),
(3) or (7) of Regulation D under the Securities Act that is not a "qualified
institutional buyer," in which case the Owner Trustee shall require that the
transferee deliver a certification substantially in the form of Exhibit H-2
hereto. In the event of a transfer of a Certificate, other than pursuant to an
effective registration statement under the Securities Act and all applicable
state securities laws, the Owner Trustee shall require that the transferee
deliver a certification substantially in the form of Exhibit H-3 hereto.
(b) Each prospective Certificateholder, other than the Depositor or its
Affiliates, shall either:
(i) represent and warrant, in writing, to the Owner Trustee and the
Certificate Registrar and any of their respective successors that the
prospective Certificateholder is not (A) an "employee benefit plan"
within the meaning of Section 3(3) of ERISA, or (B) a "plan" within the
meaning of Section 4975(e)(1) of the Code or (C) an entity, including
an insurance company separate account or general account, whose
underlying assets include plan assets by reason of a plan's investment
in the entity (each, a "Benefit Plan Investor") and is not directly or
indirectly purchasing such Certificate on behalf of, as investment
manager of, as named fiduciary of, as trustee of, or with the assets of
a Benefit Plan Investor; or
(ii) furnish to the Owner Trustee and the Certificate Registrar and
any of their respective successors an opinion of counsel acceptable to
such persons that (A) the proposed transfer of the Certificate to such
Prospective Certificateholder will not cause any assets of the Trust to
be deemed "plan assets" within the meaning of United States Department
of Labor Regulation Section 2510.3-101, or (B) the proposed transfer of
the Certificate will not give rise to a transaction described in
Section 406 of ERISA or Section 4975(c)(1) of the Code for which a
statutory or administrative exemption is unavailable.
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(c) By its acceptance of a Class B Certificate, each prospective
Certificateholder acknowledges that it is not a Non-Permitted Foreign Holder and
agrees to execute a Rule 144A Transfer Certificate in the form of Exhibit H-1
hereto and acknowledges that no legal or beneficial interest in all or any
portion of the Class B Certificate may be transferred directly or indirectly to
an individual, corporation, partnership or other person who is a Non-U.S.
Person, unless such person holds the Class B Certificate in connection with the
conduct of a trade or business within the United States, as evidenced by a duly
completed and submitted Form 4224 or successor form, updated at the time or
times and in the manner specified by the Code (any such Non-U.S. Person who does
not meet such exception being referred to herein as a "Non-permitted Foreign
Holder"), and any such purported transfer shall be void and have no effect.
(d) The Owner Trustee shall not execute, and shall not countersign and
deliver, a Class B Certificate in connection with any transfer thereof unless
the transferor shall have provided to the Owner Trustee a certificate, signed by
the transferee, which certificate shall contain the consent of the transferee to
any amendments of this Agreement as may be required to effectuate further the
foregoing restrictions on transfer of the Class B Certificates, and an agreement
by the transferee that it will not transfer a Class B Certificate without
providing to the Owner Trustee a substantially identical certificate, signed by
the prospective Certificateholder to whom the Class B Certificate is to be
transferred.
(e) Prior to such execution, authentication and delivery of a Class B
Certificate, the Owner Trustee shall have received an Opinion of Counsel to the
effect that the proposed transfer will not (i) cause the Trust to be
characterized as an association (or a publicly traded partnership) taxable as a
corporation, or (ii) alter the tax characterization of the Class A Certificates
for federal income tax purposes.
(f) No transfer of any Certificate shall be permitted if such transfer
shall, after giving effect to such transfer, cause the number of direct or
indirect holders of an interest in Certificates ("Targeted Holders") to exceed a
number equal to ninety-five. Further, there shall not at any time be more than
ninety-five Targeted Holders of Certificates. Finally, any transfer of a
Certificate to the Servicer, (including participants or assignees thereof) shall
be a void transfer.
(g) The Certificates shall bear an additional legend referring to the
foregoing restrictions contained in paragraphs (c) through (f) above.
Section 6.10. Registration; Registration of Transfer and Exchange.
The Trust shall cause to be kept a register (the "Certificate
Register") in which, subject to such reasonable regulations as it may prescribe,
the Trust shall provide for the registration of Certificates and the
registration of transfers of Certificates. The Owner Trustee initially shall be
the "Certificate Registrar" for the purpose of registering Certificates and
transfers of Certificates as herein provided. Upon any resignation of any
Certificate Registrar, the Trust shall promptly appoint a successor or, if it
elects not to make such an appointment, assume the duties of Certificate
Registrar.
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If a Person other than the Owner Trustee is appointed by the Trust as
Certificate Registrar, the Trust will give the Owner Trustee prompt written
notice of the appointment of such Certificate Registrar and of the location, and
any change in the location, of the Certificate Register, and the Owner Trustee
shall have the right to inspect the Certificate Register at all reasonable times
and to obtain copies thereof, and the Owner Trustee shall have the right to rely
upon a certificate executed on behalf of the Certificate Registrar by an
Responsible Officer thereof as to the names and addresses of the
Certificateholders and the principal amounts and number of the Certificates.
Upon surrender for registration of transfer of any Certificate at the
office or agency of the Trust to be maintained as provided in Section 6.08
hereof, the Trust shall execute, and the Owner Trustee shall authenticate and
the Certificateholder shall obtain from the Owner Trustee, in the name of the
designated transferee or transferees, one or more new Certificates in any
authorized denominations, of a like aggregate Class A Certificate Principal
Balance or Percentage Interest.
At the option of the Holder, Certificates may be exchanged for other
Certificates in any authorized denominations, of a like aggregate principal
amount, upon surrender of the Certificates to be exchanged at such office or
agency. Whenever any Certificates are so surrendered for exchange, the Trust
shall execute, and the Owner Trustee shall authenticate and the
Certificateholder shall obtain from the Owner Trustee, the Certificates which
the Certificateholder making the exchange is entitled to receive.
All Certificates issued upon any registration of transfer or exchange
of Certificates shall be the valid obligations of the Trust, evidencing the same
debt, and entitled to the same benefits under this Agreement, as the
Certificates surrendered upon such registration of transfer or exchange.
Every Certificate presented or surrendered for registration of transfer
or exchange shall be duly endorsed by, or be accompanied by a written instrument
of transfer in the form attached to the form of Certificate attached as Exhibit
E hereto duly executed by, the Holder thereof or such Holder's attorney duly
authorized in writing, with such signature guaranteed by an "eligible guarantor
institution" meeting the requirements of the Securities Transfer Agents'
Medallion Program ("STAMP").
No service charge shall be made to a Certificateholder for any
registration of transfer or exchange of Certificates, but the Trust may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any registration of transfer or exchange of
Certificates.
The preceding provisions of this Section 6.10 notwithstanding, the
Trust shall not be required to make, and the Certificate Registrar need not
register, transfers or exchanges of Certificates selected for redemption or of
any Certificate for a period of 15 days preceding the due date for any
distribution with respect to such Certificate.
Section 6.11. Distribution of Principal and/or Interest; Defaulted
Interest.
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(a) The Certificates shall accrue interest at the Class A Certificate
Interest Rate, and such interest shall be distributable on each Distribution
Date, subject to Section 4.09 hereof. The Class B Certificates shall have no
principal balance and no interest rate and shall entitle the Holder thereof only
to distributions when and to the extent provided in this Agreement. Any
installment of interest, principal, if any, or other distribution distributable
on any Certificate that is punctually distributed or duly provided for by the
Trust on the applicable Distribution Date shall be distributed to the Person in
the name of which such Certificate is registered on the Record Date by wire
transfer if written instructions therefor are provided to the Owner Trustee no
later than five Business Days prior to such Distribution Date, and otherwise by
check mailed first-class postage prepaid to such Person's address as it appears
on the Certificate Register on such Record Date, except that with respect to
Certificates registered on the Record Date in the name of the nominee of the
Initial Class A Certificateholder or Depositor, distribution will be made by
wire transfer in immediately available funds to the account designated by such
nominee and except for the final installment of principal distributable with
respect to such Certificate on a Distribution Date or on the Expected Final
Distribution Date (and except for the Termination Price for any Certificate
called for redemption pursuant to Section 16.01) hereof, which shall be
distributable as provided in Section 6.11(b) below. The funds represented by any
such checks returned undelivered shall be held in accordance with Section
4.09(c) hereof.
(b) The principal of each Class A Certificate shall be distributable in
installments on each Distribution Date as provided in the form of the
Certificates set forth in Exhibit E hereto. Notwithstanding the foregoing, the
entire unpaid principal amount of the Certificates shall be due and
distributable, if not previously distributed, on the earlier of (i) the Expected
Final Distribution Date, (ii) the Redemption Date or (iii) the date on which an
Event of Default shall have occurred and be continuing, if the Owner Trustee or
the Majority Certificateholders shall have declared the Certificates to be
immediately distributable in the manner provided in Section 15.06 hereof.
All principal payments on the Certificates shall be made pro rata to
the Certificateholders based on their respective Percentage Interests. The Owner
Trustee shall notify the Person in the name of which a Certificate is registered
at the close of business on the Record Date preceding the Distribution Date on
which the Trust expects that the final installment of principal of and interest
on such Certificate will be distributed. Such notice shall be mailed or
transmitted by facsimile prior to such final Distribution Date and shall specify
that such final installment will be distributable only upon presentation and
surrender of such Certificate and shall specify the place where such Certificate
may be presented and surrendered for distribution of such installment. Notices
in connection with redemptions of Certificates shall be provided to
Certificateholders as set forth in Section 16.02 hereof.
Section 6.12. Reserved.
Section 6.13. 144A Information.
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(a) The Servicer shall provide to the Owner Trustee, upon its request,
information regarding the Certificates and the Loans and such other information
as the Owner Trustee shall be required to deliver to any Certificateholder and
any prospective transferee designated by a Certificateholder to satisfy a
condition of eligibility set forth under Rule 144A(d)(4) under the Securities
Act of 1933, as amended (the "Securities Act").
(b) The Owner Trustee, to the extent it has any such information in its
possession, shall provide to any Certificateholder and any prospective
transferee designated by any such Certificateholder information regarding the
Certificates and the Loans and such other information as shall be necessary to
satisfy the condition to eligibility set forth in Rule 144A(d)(4) under the
Securities Act for transfer of any such Certificate without registration thereof
under the Securities Act pursuant to the registration exemption provided by Rule
144A under the Securities Act.
ARTICLE VII
ESTABLISHMENT OF TRUST ACCOUNTS
Section 7.01 Collection Account and Distribution Account.
(a) (1) Establishment of Collection Account. The Servicer, for the
benefit of the Certificateholders, shall cause to be established and maintained
one or more Collection Accounts (collectively, the "Collection Account"), which
shall be separate Eligible Accounts entitled "Collection Account, Wilmington
Trust Company, as Owner Trustee, for the benefit of the FINOVA Commercial
Mortgage Loan Asset-Backed Certificates, Series 1998-1". The Collection Account
may be maintained with the Owner Trustee or any other depository institution
which satisfies the requirements set forth in the definition of Eligible
Account. The creation of any Collection Account other than one maintained with
the Owner Trustee shall be evidenced by a letter agreement between the Servicer
and the depository institution acceptable to the Majority Certificateholders. A
copy of such letter agreement shall be furnished to the Majority
Certificateholders and the Owner Trustee and, upon request of any
Certificateholder, to such Certificateholder. Funds in the Collection Account
shall not be invested.
The Collection Account shall be established, as of the date hereof, as
an Eligible Account pursuant to the definition thereof. The Collection Account
may, upon written notice to the Trust and the Owner Trustee, be transferred by
the Servicer to a different depository institution so long as such transfer is
to an Eligible Account acceptable to the Majority Certificateholders.
(2) Establishment of Distribution Account. No later than the date
hereof, the Servicer, for the benefit of the Certificateholders, shall cause to
be established and maintained with Wilmington Trust Company one or more
Distribution Accounts (collectively, the "Distribution Account"), which shall be
separate Eligible Accounts, entitled "Distribution Account, Wilmington Trust
Company, as Owner Trustee, for the benefit of the FINOVA
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Commercial Mortgage Loan Asset-Backed Certificates, Series 1998-1." Funds in the
Distribution Account shall be invested in accordance with Section 7.03 hereof.
(b) (1) Deposits to Collection Account. Prior to the occurrence of a
Collection Account Trigger Event, the Servicer shall retain all collections
specified in clauses (i) through (iv) below and shall remit such amounts to the
Distribution Account on the succeeding Remittance Date. The Servicer shall
deposit or cause to be deposited (without duplication) into the Collection
Account:
(i) on or after the occurrence of a Collection Account Trigger
Event, all payments on or in respect of each Loan collected
after the related Transfer Cutoff Date net of any Servicing
Compensation retained therefrom) within two (2) Business Days
after receipt thereof;
(ii) on or after the occurrence of a Collection Account Trigger
Event, all Net Liquidation Proceeds pursuant to Section 5.11
hereof in accordance with the last sentence of this Section
7.01(b) and all amounts required to be deposited pursuant to
Section 5.12(a) hereof concurrently with receipt thereof;
(iii) on or after the occurrence of a Collection Account Trigger
Event, all Insurance Proceeds not required to be applied to
restoration or repair of Mortgaged Property pursuant to
Section 5.05 in accordance with the last sentence of this
Section 7.01(b);
(iv) on or after the occurrence of a Collection Account Trigger
Event, all Released Mortgaged Property Proceeds in accordance
with the last sentence of this Section 7.01(b);
(v) any amounts payable in connection with the repurchase of any
Loan and the amount of any Substitution Adjustment pursuant to
Sections 3.05 and 4.05 hereof in accordance with the last
sentence of this Section 7.01(b);
(vi) any Purchase Price payable in connection with a Servicer Call
pursuant to Section 4.07 hereof concurrently with payment
thereof;
(vii) the deposit of the Termination Price under Section 16.02
hereof concurrently with payment thereof;
(viii) any Periodic Advances pursuant to Section 5.09 concurrently
with payment thereof;
(ix) any cash Disposition Proceeds pursuant to Section 4.06 or
Class A Certificate Redemption Amount, pursuant to Section
16.04(b) in accordance with the last sentence of this Section
7.01(b);
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(x) any payments received under Hedging Instruments or the return
of amounts by the Hedging Counterparty pledged pursuant to
prior Hedge Funding Requirements in accordance with the last
sentence of this Section 7.01(b); and
(xi) any Purchase Price payable in connection with a Loan
Originator Put remitted by the Loan Originator pursuant to
Section 4.07 hereof in accordance with the last sentence of
this Section 7.01(b).
The Servicer agrees that it will cause the Loan Originator, Borrower or
other appropriate Person paying such amounts, as the case may be, to remit
directly to the Owner Trustee for deposit into the Collection Account all
amounts referenced in clauses (ii) (but only on or after the occurrence of a
Collection Account Trigger Event), (iii) (but only on or after the occurrence of
a Collection Account Trigger Event), (iv) (but only on or after the occurrence
of a Collection Account Trigger Event), (v), (ix), (x) and (xi) to the extent
such amounts are in excess of a Monthly Payment on the related Loan. To the
extent the Servicer receives any such amounts, it will deposit them into the
Collection Account on the same Business Day as receipt thereof.
(c) Withdrawals From Collection Account; Deposits to Distribution
Account.
(1) Withdrawals From Collection Account -- Reimbursement Items.
Periodically, the Owner Trustee, at the direction of the Servicer, shall
make the following withdrawals from the Collection Account (to the extent
the Servicer has not otherwise reimbursed itself from collections
retained) prior to any other withdrawals, in no particular order of
priority:
(i) to withdraw any amount not required to be deposited in the
Collection Account or deposited therein in error;
(ii) to withdraw the Servicing Advance Reimbursement Amount;
(iii) to clear and terminate the Collection Account in connection
with the termination of this Agreement; and
(iv) to reimburse the Servicer for any Nonrecoverable Periodic
Advances (but only to the extent made from the Servicer's own
funds).
(2) Owner Trustee Deposits to Distribution Account - Distribution
Dates.
(a) On the Business Day prior to each Distribution Date, the
Owner Trustee shall deposit into the Distribution Account such amounts
as are required from the Transfer Obligation Account pursuant to
Section 7.05(e), 7.05(f) and 7.05(g).
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(b) After making all withdrawals specified in Section
7.01(c)(1) above, on each Business Day, the Owner Trustee, (based on
information provided by the Servicer for such Distribution Date) shall
withdraw from the Collection Account not later than 12:00 Noon, New
York City time and deposit into the Distribution Account all remaining
funds on deposit therein. On each Remittance Date prior to the
occurrence of a Collection Account Trigger Event, the Servicer shall
deposit into the Distribution Account all collections specified in
Section 7.01(b)(1) clauses (i) through (iv) that it shall have retained
and shall remit such amounts to the Owner Trustee for deposit into the
Distribution Account not later than 12:00 Noon, New York City time.
(3) Withdrawals From Distribution Account -- Distribution Dates.
On each Distribution Date, to the extent funds are available in the
Distribution Account, the Owner Trustee (based on the information
provided by the Servicer contained in the Servicer's Remittance Report
for such Distribution Date) shall make withdrawals therefrom by 1:00
p.m. (New York City time), for application in the following order of
priority:
(i) to distribute on such Distribution Date the following
amounts in the following order: (a) to the Owner
Trustee, an amount equal to the Owner Trustee Fee and
all unpaid Owner Trustee Fees from prior Distribution
Dates, (b) to the Custodian, an amount equal to the
Custodian Fee, if any, and all unpaid Custodian Fees
from prior Distribution Dates, (c) to the Servicer,
(x) only if the Servicer is not FINOVA Capital
Corporation or any Affiliate thereof, an amount equal
to the Servicing Compensation and all unpaid
Servicing Compensation from prior Distribution Dates
and (y) all Nonrecoverable Servicing Advances not
previously reimbursed and (d) to the Servicer, in
trust for the Owner Trustee, an amount equal to the
Owner Trustee Fee and all unpaid Owner Trustee Fees
from prior Distribution Dates.
(ii) to distribute on such Distribution Date, the Hedge
Funding Requirement to the appropriate Hedging
Counterparties; provided, that only cash on or in
respect of fixed rate Loans (including cash
Disposition Proceeds received therefrom) shall be
distributed for such purpose and; provided, further,
that amounts distributed pursuant to clause (i) above
to the extent not attributable to a specific Loan
shall be deemed paid from fixed rate or hybrid Loans,
pro rata based on their aggregate Principal Balances
relative to the Pool Principal Balance on such
Distribution Date;
(iii) to the holders of the Class A Certificates pro rata,
the sum of the Interest Distribution Amount for such
Distribution Date and the Interest Carry-Forward
Amount for the preceding Distribution Date;
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(iv) to the holders of the Class A Certificates pro rata,
the sum of the Overcollateralization Shortfall for
such Distribution Date and the Principal
Carry-Forward Amount for the preceding Distribution
Date; provided, however, that if (a) a Rapid
Amortization Trigger shall have occurred and not been
Deemed Cured or (b) an Event of Default or Default
shall have occurred, the holders of the Class A
Certificates shall receive, in respect of principal,
all remaining amounts on deposit in the Distribution
Account.
(v) to the appropriate Person, amounts in respect of
Trust/Depositor Indemnities and Due Diligence Fees
until such amounts are paid in full;
(vi) to the Transfer Obligation Account, all remaining
amounts until the balance therein equals the Transfer
Obligation Target Amount;
(vii) to the Servicer if the Servicer is the Loan
Originator or an Affiliate thereof, an amount equal
to the unpaid Servicing Compensation for the related
Distribution Date and all unpaid Servicing
Compensation from prior Distribution Dates; and
(viii) to the holders of the Class B Certificates of record
on the next preceding Record Date, pro rata, all
amounts remaining therein.
(4) To the extent that there is deposited in the Collection
Account any amounts referenced in Section 7.01(b), (ii), (iii), (iv),
(v), (ix), (x) or (xi), the Majority Certificateholders and the Trust
may agree, upon written notice to the Owner Trustee, to additional
Distribution Dates. The Trust and the Majority Certificateholders shall
give the Owner Trustee at least one (1) Business Day's written notice
prior to such additional Distribution Date and such notice shall
specify each amount in Section 7.01(c) to be withdrawn from the
Collection Account and Distribution Account on such day.
Section 7.02 Distributions to Certificateholders.
All distributions made on the Certificates on each
Distribution Date will be made on a pro rata basis among the Certificateholders
of record of the Certificates on the next preceding Record Date based on the
Percentage Interest represented by their respective Certificates, without
preference or priority of any kind.
Section 7.03 Trust Accounts; Trust Account Property.
(a) Control of Trust Accounts. The Depositor has conveyed all
of its right, title and interest in each of the Trust Accounts established
hereunder to the Owner Trustee for the benefit of the Certificateholders.
Amounts distributed from each Trust Account in accordance with the terms of this
Agreement shall be released from the Owner Trust Estate upon such distribution
thereunder or hereunder. The Owner Trustee shall possess all right,
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title and interest in and to all funds on deposit from time to time in the Trust
Accounts and in all proceeds thereof (including all income thereon) and all such
funds, investments, proceeds and income shall be part of the Trust Account
Property and the Owner Trust Estate. If, at any time, any Trust Account ceases
to be an Eligible Account, the Owner Trustee (or the Servicer on its behalf)
shall, within ten Business Days (or such longer period, not to exceed 30
calendar days, with the prior written consent of the Majority
Certificateholders) (i) establish a new Trust Account as an Eligible Account,
(ii) terminate the ineligible Trust Account, and (iii) transfer any cash and
investments from such ineligible Trust Account to such new Trust Account.
With respect to the Trust Accounts, the Owner Trustee agrees, by its
acceptance hereof, that each such Trust Account shall be subject to the sole and
exclusive dominion, custody and control of the Owner Trustee for the benefit of
the Certificateholders, and, except as may be consented to in writing by the
Majority Certificateholders, the Owner Trustee shall have sole signature and
withdrawal authority with respect thereto.
The Servicer shall have the power, revocable by the Majority
Certificateholder or by the Owner Trustee, to instruct the Owner Trustee to make
withdrawals and payments from the Trust Accounts for the purpose of permitting
the Servicer to carry out its duties hereunder.
(b) (1) Investment of Funds. Funds held in the Distribution Account,
the Transfer Obligation Account and the REO Account may be invested (to
the extent practicable and consistent with any requirements of the
Code) in Permitted Investments, as directed by the Servicer prior to
the occurrence and continuation of an Event of Default, and by the
Majority Certificateholders thereafter, in writing or by telephone or
facsimile transmission confirmed in writing by the Servicer or Majority
Certificateholders, as applicable. In any case, funds in the
Distribution Account and the Transfer Obligation Account must be
available for withdrawal without penalty, and any Permitted Investments
must mature or otherwise be available for withdrawal one Business Day
prior to the next Distribution Date and shall not be sold or disposed
of prior to its maturity subject to subsection (b)(2) of this Section.
All interest and any other investment earnings on amounts or
investments held in the Distribution Account and the Transfer
Obligation Account shall be deposited into the Distribution Account or
the Transfer Obligation Account, as the case may be, immediately upon
receipt by the Owner Trustee. All Permitted Investments in which funds
in the Distribution Account or the Transfer Obligation Account are
invested must be held by or registered in the name of "Wilmington Trust
Company, as Owner Trustee, in trust for the FINOVA Commercial Mortgage
Loan Asset-Backed Certificates, Series 1998-1."
(2) Insufficiency and Losses in Trust Accounts. If any amounts
are needed for disbursement from the Distribution Account or the
Transfer Obligation Account held by or on behalf of the Owner Trustee
and sufficient uninvested funds are not available to make such
disbursement, the Owner Trustee (or the Servicer, as applicable) shall
cause to be sold or otherwise converted to cash a sufficient amount of
the
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investments in the Distribution Account or the Transfer Obligation
Account, as the case may be. The Owner Trustee shall not be liable for
any investment loss or other charge resulting therefrom, unless such
loss or charge is caused by the failure of the Owner Trustee to perform
in accordance with written directions provided pursuant to this Section
7.03.
If any losses are realized in connection with any investment
in the Distribution Account or the Transfer Obligation Account pursuant to this
Agreement, then the Servicer shall deposit the amount of such losses (to the
extent not offset by income from other investments in the Distribution Account
or the Transfer Obligation Account, as the case may be) into the Distribution
Account or the Transfer Obligation Account, as the case may be, immediately upon
the realization of such loss. All interest and any other investment earnings on
amounts held in the Distribution Account and the Transfer Obligation Account
shall be taxed to the Trust and for federal and state income tax purposes the
Trust shall be deemed to be the owner of the Distribution Account and/or the
Transfer Obligation Account, as the case may be.
(c) Subject to Section 12.01 hereof, the Owner Trustee shall
not in any way be held liable by reason of any insufficiency in any Trust
Account held by the Owner Trustee resulting from any investment loss on any
Permitted Investment included therein (except to the extent that the Owner
Trustee is an obligor and has defaulted thereon).
(d) With respect to the Trust Account Property, the Owner
Trustee acknowledges and agrees that:
(1) any Trust Account Property that is held in deposit
accounts shall be held solely in the Eligible Accounts, subject to the
last sentence of subsection (a) of this Section 7.03; and each such
Eligible Account shall be subject to the sole and exclusive dominion,
custody and control of the Owner Trustee; and, without limitation on
the foregoing, the Owner Trustee shall have sole signature authority
with respect thereto;
(2) any Trust Account Property that constitutes Physical
Property shall be delivered to the Owner Trustee in accordance with
paragraph (a) of the definition of "Delivery" in Section 1.01 hereof
and shall be held, pending maturity or disposition, solely by the Owner
Trustee or a financial intermediary (as such term is defined in section
8-102(a)(14) of the UCC) acting solely for the Owner Trustee;
(3) any Trust Account Property that is a book-entry security
held through the Federal Reserve System pursuant to federal book-entry
regulations shall be delivered in accordance with paragraph (b) of the
definition of "Delivery" in Section 1.01 hereof and shall be maintained
by the Owner Trustee, pending maturity or disposition, through
continued book-entry registration of such Trust Account Property as
described in such paragraph; and
(4) any Trust Account Property that is an "uncertificated
security" under Article 8 of the UCC and that is not governed by clause
(3) above shall be delivered to
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the Owner Trustee in accordance with paragraph (c) of the definition of
"Delivery" in Section 1.01 hereof and shall be maintained by the Owner
Trustee, pending maturity or disposition, through continued
registration of the Owner Trustee's (or its nominee's) ownership of
such security.
(e) The Servicer shall have the power, revocable by the
Majority Certificateholders, to instruct the Owner Trustee to make withdrawals
and payments from the Trust Accounts for the purpose of permitting the Servicer
or the Trust to carry out their respective duties under the Basic Documents or
permitting the Owner Trustee to carry out its duties under the Basic Documents.
Section 7.04 Advance Account.
(a) The Servicer shall cause to be established and maintained
in its name, an Advance Account (the "Advance Account"), which need not be a
segregated account. The Advance Account shall be maintained with any financial
institution the Servicer elects.
(b) Deposits and Withdrawals. Amounts in respect of the
transfer of Additional Class A Certificate Principal Balances and Loans shall be
deposited in and withdrawn from the Advance Account as provided in Sections
3.01(c) and 3.06 hereof, Section 3.01 of the Certificate Purchase Agreement and
Section 2.1 of the Loan Purchase Agreement.
Section 7.05 Transfer Obligation Account.
(a) The Servicer, for the benefit of the Class A
Certificateholders, shall cause to be established and maintained in the name of
the Owner Trustee a Transfer Obligation Account (the "Transfer Obligation
Account"), which shall be a separate Eligible Account and may be
interest-bearing, entitled "Transfer Obligation Account, Wilmington Trust
Company, as Owner Trustee, in trust for the FINOVA Commercial Mortgage Loan
Asset-Backed Certificates, Series 1998-1." The Transfer Obligation Account may
be maintained with the Owner Trustee or any other depository institution which
satisfies the requirements set forth in the definition of Eligible Account. The
establishment of a Transfer Obligation Account with a depositary institution
other than the Owner Trustee shall be evidenced by a letter agreement between
the Servicer and such depository institution acceptable to the Owner Trustee. A
copy of such letter agreement shall be furnished to the Owner Trustee and, upon
request of any Certificateholder, to such Certificateholder. Amounts in the
Transfer Obligation Account shall be invested in accordance with Section 7.03.
(b) In accordance with Section 2.3(b) of the Loan Purchase
Agreement, the Loan Originator shall deposit into the Transfer Obligation
Account such amounts as may be required thereby.
(c) On each Distribution Date, the Owner Trustee will deposit
in the Transfer Obligation Account any amounts required to be deposited therein
pursuant to Section 7.01(c)(3)(v).
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(d) On the date of each Disposition, the Owner Trustee shall
withdraw from the Transfer Obligation Account such amount on deposit therein as
may be requested by the Majority Certificateholders in writing to effect such
Disposition.
(e) On each Distribution Date, the Owner Trustee, upon the
written direction of the Servicer shall withdraw from the Transfer Obligation
Account and deposit into the Distribution Account on such Distribution Date the
lesser of (x) the amount then on deposit in the Transfer Obligation Account and
(y) the Interest Carry-Forward Amount as of such date.
(f) If with respect to any Distribution Date the
Overcollateralization Shortfall exceeds the lesser of (x) 1% of the aggregate
Principal Balance of all Loans as of the prior Business Day and (y) $250,000,
the Owner Trustee, upon the written direction of the Servicer shall withdraw
from the Transfer Obligation Account and deposit into the Distribution Account
on the Business Day prior to such Distribution Date the lesser of the amount
then on deposit in the Transfer Obligation Account and the amount of such
Overcollateralization Shortfall as of such date.
(g) If with respect to any Distribution Date there shall exist
a Hedge Funding Requirement, the Owner Trustee, upon the written direction of
the Servicer shall withdraw from the Transfer Obligation Account and deposit
into the Distribution Account on the Business Day prior to such Distribution
Date the lesser of (x) the amount then on deposit in the Transfer Obligation
Account (after making all other required withdrawals therefrom with respect to
such Distribution Date) and (y) the amount of such Hedge Funding Requirement as
of such date.
(h) In the event of the occurrence of an Event of Default, the
Owner Trustee shall withdraw all remaining funds from the Transfer Obligation
Account and apply such funds in satisfaction of the Class A Certificates as
provided in Section 15.08(b) hereof.
(i) (A) The Owner Trustee shall return to the Transfer Obligor
(as the Transfer Obligor shall agree) all amounts on deposit in the Transfer
Obligation Account (after making all other withdrawals pursuant to this Section
7.05) until the Majority Certificateholders provide written notice to the Owner
Trustee (with a copy to the Transfer Obligor) of the occurrence of a default or
event of default (however defined) under any Basic Document with respect to the
Trust, Transfer Obligor, the Depositor, Servicer or any of their Affiliates and
(B) upon the date of the termination of this Agreement pursuant to Article XVI,
the Owner Trustee, at the written direction of the Transfer Obligor, shall
withdraw any remaining amounts from the Transfer Obligation Account and remit
all such amounts to the Transfer Obligor.
Section 7.06 Transfer Obligation.
(a) In consideration of the transactions contemplated by the
Basic Documents, the Transfer Obligor hereby agrees and covenants with the
Depositor that:
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(i) In connection with each Securitization it shall fund, or
cause to be funded, reserve funds, pay credit enhancer fees, pay, or
cause to be paid, underwriting fees (or with respect to a Whole Loan
Sale, any agency fees), and in the case of all Dispositions, it shall
fund any difference between the cash Disposition Proceeds and the
aggregate Class A Certificate Principal Balance at the time of such
Disposition, and make, or cause to be made, such other payments as may
be, in the reasonable opinion of the Disposition Agent, necessary to
effect Dispositions, in each case to the extent that Disposition
Proceeds are insufficient to pay such amounts;
(ii) In connection with Hedging Instruments, on the Business
Day prior to each Distribution Date, it shall deliver to the Owner
Trustee for deposit into the Transfer Obligation Account any Hedge
Funding Requirement (to the extent amounts available on the related
Distribution Date pursuant to Section 7.01 are insufficient to make
such payment), when as and if due to any Hedging Counterparty;
(iii) If any Interest Carry-Forward Amount shall occur, it
shall deposit into the Transfer Obligation Account any such Interest
Carry-Forward Amount on or before the Business Date preceding such
related Distribution Date;
(iv) If on any Business Day, the Overcollateralization
Shortfall exceeds the lesser of (x) 1% of the aggregate Principal
Balance of all Loans in the Loan Pool as of the prior Business Day and
(y) $250,000, it shall, on the following Business Day, deposit into the
Transfer Obligation Account the full amount of the
Overcollateralization Shortfall as of such date; and
(v) Notwithstanding anything to the contrary herein, in the
event of the occurrence of an Event of Default under the Indenture, the
Transfer Obligor shall promptly deposit into the Transfer Obligation
Account the entire amount of the Value Shortfall;
provided, that notwithstanding anything to the contrary contained herein, the
Transfer Obligor's cumulative payments under or in respect of the Transfer
Obligations (after subtracting therefrom any amounts returned to the Transfer
Obligor pursuant to Section 7.05(i)(A)) together with the Loan Originator's
payments in respect of any Loan Originator Puts shall not in the aggregate
exceed the Value Shortfall.
(b) The Transfer Obligor shall pay such amounts upon one
Business Day's notice from either the Servicer or the Majority
Certificateholders.
(c) The Transfer Obligor agrees that the Certificateholders,
as ultimate assignee of the rights of the Depositor under this Agreement and the
other Basic Documents, may enforce the rights of the Depositor directly against
the Transfer Obligor.
ARTICLE VIII
STATEMENTS AND REPORTS
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Section 8.01 Statements.
(a) On each Determination Date, the Servicer shall deliver to
the Owner Trustee and the Initial Class A Certificateholder by facsimile, the
receipt and legibility of which shall be confirmed by telephone, and with hard
copy thereof to be delivered no later than one (1) Business Day after such
Determination Date, the Servicer's Remittance Report, setting forth the date of
such Report (day, month and year), the name of the Trust (i.e., "FINOVA
Commercial Mortgage Loan Owner Trust 1998-1"), and the date of this Agreement,
all in substantially the form set out in Exhibit B hereto. Furthermore, on each
Determination Date, the Servicer shall deliver to the Owner Trustee and the
Initial Class A Certificateholder a magnetic tape or computer disk providing,
with respect to each Loan in the Loan Pool as of the last day of the related Due
Period: (i) the Loan Originator's internal loan identifying number; (ii) if such
Loan is an Adjustable Rate Loan, the current Loan Interest Rate; (iii) the
current Principal Balance with respect to such Loan; (iv) the date of the last
Monthly Payment paid in full; and (v) such other information as may be
reasonably requested by the Initial Class A Certificateholder.
(b) (i) On any Business Day, upon the request of the Initial
Class A Certificateholder, the Servicer shall prepare and provide a statement
setting forth the following information as of the close of business on the prior
Business Day:
(1) for each Loan with respect to which a Servicing Advance
or Periodic Advance is outstanding, (i) the aggregate
amount of Servicing Advances outstanding, (ii) the
aggregate amount of Periodic Advances outstanding and
(iii) the outstanding Principal Balance of such Loan;
and
(2) the Pool Principal Balance.
(ii) On each Determination Date, the Servicer shall prepare
and provide to the Owner Trustee, the Initial Class A Certificateholder and each
Certificateholder, a statement (the "Payment Statement"), stating each date of a
purchase of Additional Class A Certificate Principal Balance (day, month and
year), the name of the Trust (i.e., "FINOVA Commercial Mortgage Loan Owner Trust
1998-1"), the date of this Agreement and the following information:
(1) the aggregate amount of collections in respect of
principal of the Loans received by the Servicer during
the preceding Due Period;
(2) the aggregate amount of collections in respect of
interest on the Loans received by the Servicer during
the preceding Due Period;
(3) all Insurance Proceeds received by the Servicer and not
required to be applied to restoration or repair of the
related Mortgaged Property during the preceding Due
Period;
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(4) all Net Liquidation Proceeds deposited by the Servicer
into the Collection Account during the preceding Due
Period;
(5) all Released Mortgaged Property Proceeds deposited by
the Servicer into the Collection Account during the
preceding Due Period;
(6) the aggregate amount of all Periodic Advances and all
Servicing Advances, set forth separately, made by the
Servicer during the preceding Due Period;
(7) the aggregate of all amounts deposited into the
Collection Account in respect of the repurchase of
Defective Loans and the repurchase of Loans pursuant to
Section 3.05 hereof during the preceding Due Period;
(8) the aggregate Principal Balance of all Loans for which a
Servicer Call was exercised during the preceding Due
Period;
(9) the aggregate Principal Balance of all Loans for which a
Loan Originator Put was exercised during the preceding
Due Period;
(10) the aggregate amount of all payments received under
Hedging Instruments during the preceding Due Period;
(11) the aggregate amount of all withdrawals from the
Collection Account pursuant to Section 7.01(c)(1)(i)
hereof during the preceding Due Period;
(12) the aggregate amount of cash Disposition Proceeds
received during the preceding Due Period;
(13) withdrawals from the Collection Account in respect of
the Servicing Advance Reimbursement Amount during the
preceding Due Period;
(14) withdrawals from the Collection Account in respect of
Nonrecoverable Periodic Advances during the preceding
Due Period;
(15) the number and aggregate Principal Balance of all Loans
that are (i) 30-59 days Delinquent, (ii) 60-89 days
Delinquent, (iii) 90 or more days Delinquent as of the
related Distribution Date;
(16) the aggregate amount of Liquidated Loan Losses incurred
(i) during the preceding Due Period and (ii) during the
preceding three Due Periods;
(17) the aggregate of the Principal Balances of all Loans in
the Loan Pool as of the related Distribution Date;
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(18) the aggregate amount of all deposits into the
Distribution Account from the Transfer Obligation
Account pursuant to Section 7.05(e), 7.05(f) and 7.05(g)
on the preceding Distribution Date;
(19) if the Servicer is not FINOVA Capital Corporation or an
Affiliate thereof, the aggregate amount of distributions
in respect of Servicing Compensation to the Servicer,
and unpaid Servicing Compensation from prior
Distribution Dates for the related Distribution Date;
(20) the aggregate amount of distributions in respect of
Owner Trustee Fees and unpaid Owner Trustee Fees from
prior Distribution Dates for the related Distribution
Date;
(21) the aggregate amount of distributions in respect of the
Custodian Fee and unpaid Custodian Fees from prior
Distribution Dates for the related Distribution Date;
(22) if a Rapid Amortization Trigger shall have occurred and
not been Deemed Cured or a Default or Event of Default
shall have occurred, the aggregate amount of
distributions on the Class A Certificates in respect of
the Overcollateralization Shortfall and the Principal
Carry-Forward Amount for the related Distribution Date;
(23) the aggregate amount of distributions in respect of
Servicing Compensation and unpaid Servicing Compensation
from prior Distribution Dates, to the Servicer, if
FINOVA Capital Corporation or an Affiliate thereof is
the Servicer, for the related Distribution Date;
(24) the aggregate amount of distributions to the Transfer
Obligation Account for the related Distribution Date;
(25) the aggregate amount of distributions in respect of
Trust/Depositor Indemnities for the related Distribution
Date;
(26) the aggregate amount of distributions to the holders of
the Class B Certificates for the related Distribution
Date; and
(27) the Class A Certificate Principal Balance of the Class A
Certificates before and after giving effect to
distributions made to the holders of the Class A
Certificates for the related Distribution Date.
Such Payment Statement shall be in the form of a magnetic tape
or computer disk in a form mutually agreed to by and between
the Initial Class A Certificateholder and the Servicer.
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(iii) On each Business Day, the Servicer shall cause to be
delivered to the Initial Class A Certificateholder by facsimile, the receipt and
legibility of which shall be confirmed by telephone, and with hard copy thereof
to be delivered no later than one (1) Business Day after such Business Day, a
statement setting forth the total deposits into the Collection Account on the
prior Business Day and the balance in the Collection Account as of the close of
business on the prior Business Day.
(c) If the Collection Account is not maintained with the Owner
Trustee, then not later than 25 days after each Record Date, the Servicer shall
forward to the Owner Trustee a statement, certified by a Servicing Officer,
setting forth the status of the Collection Account as of the close of business
on the preceding Record Date and showing, for the period covered by such
statement, the aggregate of deposits into the Collection Account for each
category of deposit specified in Section 7.01(b)(1) hereof, the aggregate of
withdrawals from the Collection Account for each category of withdrawal
specified in Section 7.01(c)(1) hereof, in each case, for the related Due
Period.
(d) On each Distribution Date, the Owner Trustee shall forward
to the holders of the Certificates a copy of the Payment Statement in respect of
such Distribution Date and a statement setting forth the amounts actually
distributed to such holders of the Certificates on such Distribution Date,
together with such other information as the Owner Trustee deems necessary or
appropriate.
Section 8.02 Reserved.
Section 8.03. Valuation of Loans, Hedge Value and Retained
Securities Value; Market Value Agent.
(a) The Trust hereby irrevocably appoints the Market Value
Agent to determine the Market Value of each Loan, the Hedge Value of each
Hedging Instrument and the Retained Securities Value of all Retained Securities.
(b) The Market Value Agent shall determine the Market Value of
each Loan in its sole judgment. In determining the Market Value of each Loan,
the Market Value Agent may consider any information that it may deem relevant
and shall base such determination on primarily on the lesser of its estimate of
the projected proceeds from such Loan's inclusion in a (i) a Securitization
(inclusive of the projected Retained Securities Value of any Retained Securities
to be issued in connection with such Securitization) and (ii) a Whole Loan Sale,
in each case, net of such Loan's ratable share of all costs and fees associated
with such Disposition, including, without limitation, any costs of issuance,
sale, underwriting and funding reserve accounts. The Market Value Agent's
determination, in its sole judgment, of Market Value shall be conclusive and
binding upon the parties hereto.
(c) On each Business Day the Market Value Agent shall
determine in its sole judgment the Hedge Value of each Hedging Instrument as of
such Business Day. In making such determination the Market Value Agent may rely
exclusively on quotations provided by the Hedging Counterparty, by leading
dealers in instruments similar to such Hedging Instrument,
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which leading dealers may include the Market Value Agent and its Affiliates and
such other sources of information as the Market Value Agent may deem
appropriate.
(d) On each Business Day, the Market Value Agent shall
determine in its sole judgment the Retained Securities Value of the Retained
Securities, if any, expected to be issued pursuant to such Securitization as of
the closing date of such Securitization. In making such determination the Market
Value Agent may rely exclusively on quotations provided by leading dealers in
instruments similar to such Retained Securities, which leading dealers may
include the Market Value Agent and its Affiliates and such other sources of
information as the Market Value Agent may deem appropriate.
ARTICLE IX
HEDGING
Section 9.01 Hedging Instruments.
(a) The Trust, with the approval of the Market Value Agent on
behalf of the Majority Certificateholders, shall enter into or assume such
Hedging Instruments as it deems necessary in order to hedge the interest rate
with respect to the fixed rate or hybrid Loans relative to the expected
Disposition Proceeds therefrom. Such Hedging Instruments shall be transferred by
the Loan Originator to the Depositor and by the Depositor to the Trust. In
deciding to approve any Hedging Instrument hereunder, the Market Value Agent
shall determine, in its sole discretion, whether any Hedging Instrument conforms
to the requirements of Section 9.01(b), (c) and (d).
(b) Each Hedging Instrument shall expressly provide that in
the event of a Disposition or other removal of the loan from the Trust, such
portion of the Hedging Instrument shall terminate as the Disposition Agent deems
appropriate to facilitate the hedging of the risks specified in Section 9.01(a).
In the event that the Hedging Instrument is not otherwise terminated, it shall
contain provisions that allow the position of the Trust to be assumed by an
Affiliate of the Trust upon the liquidation of the Trust. The terms of the
assignment documentation and the credit quality of the successor to the Trust
shall be subject to the Hedging Counterparty's approval.
(c) Any Hedging Instrument that provides for any payment
obligation on the part of the Trust must (i) be without recourse to the assets
of the Trust, (ii) contain a non-petition covenant provision in the form of
Section 17.l3, (iii) limit payment dates thereunder to Distribution Dates and
(iv) contain a provision limiting any cash payments due on any day under such
Hedging Instrument solely to funds available therefor in the Collection Account
on such day pursuant to Section 7.01(c)(3)(ii) hereof and funds available
therefor in the Transfer Obligation Account.
(d) Each Hedging Instrument must (i) provide for the direct
payment of any amounts thereunder to the Collection Account pursuant to Section
7.01(b)(1)(x), (ii) provide
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that in the event of the occurrence of an Event of Default, such Hedging
Instrument shall terminate upon the direction of the Majority
Certificateholders, (iii) prohibit the Hedging Counterparty from "setting-off"
or "netting" other obligations of the Trust or its Affiliates against such
Hedging Counterparty's payment obligations thereunder, (iv) provide that the
appropriate portion of the Hedging Instrument will terminate upon the removal of
the related Loans from the Owner Trust Estate and (v) have economic terms that
are fixed and not subject to alteration after the date of assumption or
execution.
(e) If agreed to by the Majority Certificateholders, the Trust
may pledge its assets in order to secure its obligations in respect of Hedge
Funding Requirements, provided that such right shall be limited solely to
Hedging Instruments for which an Affiliate of the Initial Class A
Certificateholder is a Hedging Counterparty.
ARTICLE X
ACTIONS BY OWNER TRUSTEE
Section 10.01 Prior Notice to Certificateholders with Respect
to Certain Matters. (a) With respect to the following matters, the Owner Trustee
shall not take action, and the Certificateholders shall not direct the Owner
Trustee to take any action, unless at least 30 days before the taking of such
action, the Owner Trustee shall have notified the Certificateholders and the
Initial Class A Certificateholder in writing of the proposed action and the
Majority Certificateholders shall not have notified the Owner Trustee in writing
prior to the 30th day after such notice is given that such Certificateholders
have withheld consent or the Certificateholders have provided alternative
direction:
(i) the initiation of any claim or lawsuit by the
Trust (except claims or lawsuits brought in connection with the
collection of the Loans) and the compromise of any action, claim or
lawsuit brought by or against the Trust (except with respect to the
aforementioned claims or lawsuits for collection of the Loans);
(ii) the election by the Trust to file an amendment
to the Certificate of Trust (unless such amendment is required to be
filed under the Business Trust Statute);
(iii) the amendment or other change to this Agreement
or any Basic Document in circumstances where the consent of any
Certificateholder is required;
(iv) the amendment or other change to this Agreement
or any Basic Document in circumstances where the consent of any
Certificateholder is not required and such amendment materially
adversely affects the interest of the Certificateholders;
(v) the appointment of a successor Certificate
Registrar or Payment Agent;
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(vi) the consent to the calling or waiver of any
default of any Basic Document;
(vii) the consent to the assignment by the Owner
Trustee or Servicer of their respective obligations under any Basic
Document;
(viii) except as provided in Article XVI hereof, the
dissolution, termination or liquidation of the Trust in whole or in
part;
(ix) the merger or consolidation of the Trust with or
into any other entity, or the conveyance or transfer all or
substantially all of the Trust's assets to any other entity;
(x) causing the Trust to incur, assume or guaranty
any indebtedness other than as set forth in this Agreement;
(xi) the performance of any act that conflicts with
any other Basic Document;
(xii) the performance of any act which would make it
impossible to carry on the ordinary business of the Trust;
(xiii) the confession of a judgment against the
Trust;
(xiv) the possession of Trust assets, or assignment
of the Trust's right to property, for other than a Trust purpose;
(xv) causing the Trust to lend any funds to any
entity; or
(xvi) changing the Trust's purpose and powers from
those set forth in this Agreement.
(b) The Trust agrees to abide by the following
restrictions:
(i) Other than as contemplated by the Basic Documents
and related documentation, the Trust shall not incur any indebtedness.
(ii) Other than as contemplated by the Basic
Documents and related documentation, the Trust shall not engage in any
dissolution, liquidation, consolidation, merger or sale of assets.
(iii) The Trust shall not engage in any business
activity in which it is not currently engaged other as contemplated by
the Basic Documents and related documentation.
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(iv) The Trust shall not form, or cause to be formed,
any subsidiaries and shall not own or acquire any asset other than as
contemplated by the Basic Documents and related documentation.
(v) Other than as contemplated by the Basic Documents
and related documentation, the Trust shall not follow the directions or
instructions of FINOVA Capital Corporation.
(c) The Trust shall:
(i) Maintain books and records separate from any
other person or entity.
(ii) Maintain its bank accounts separate from any
other person or entity.
(iii) Not commingle its assets with those of any
other person or entity.
(iv) Conduct its own business in its own name.
(v) Other than as contemplated by the Basic Documents
and related documentation, pay its own liabilities and expenses only
out of its own funds.
(vi) Observe all formalities required under the
Business Trust Statute.
(vii) Enter into transactions with Affiliates of
FINOVA Capital Corporation only if each such transaction is
intrinsically fair, commercially reasonable, and on the same terms as
would be available in an arm's length transaction with a person or
entity that is not an Affiliate.
(viii) Not guarantee or become obligated for the
debts of any other entity or person.
(ix) Not hold out its credit as being available to
satisfy the obligation of any other person or entity.
(x) Not acquire the obligations or securities of
FINOVA Capital Corporation or its Affiliates.
(xi) Other than as contemplated by the Basic
Documents and related documentation, not make loans to any other person
or entity or buy or hold evidence of indebtedness issued by any other
person or entity.
(xii) Other than as contemplated by the Basic
Documents and related documentation, not pledge its assets for the
benefit of any other person or entity.
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(xiii) Hold itself out as a separate entity from
FINOVA Capital Corporation and not conduct any business in the name of
FINOVA Capital Corporation.
(xiv) Correct any known misunderstanding regarding
its separate identity.
(xv) Not identify itself as a division of any other
person or entity.
So long as the Class A Certificates are Outstanding or any
amounts are owed under this Agreement to the Class A Certificateholders, the
Trust shall not amend this Section 4.1 without the prior written consent of 100%
of the Voting Interests of the Certificates, in addition to the requirements
under Section 11.1.
(d) The Owner Trustee shall not have the power, except upon
the direction of the Certificateholders acting with the prior written consent of
the Majority Certificateholders, and to the extent otherwise consistent with the
Basic Documents, to (i) cause the Trust to admit in writing its inability to pay
its debts generally as they become due, (ii) institute proceedings to have the
Trust declared or adjudicated a bankrupt or insolvent, (iii) consent to the
institution of bankruptcy or insolvency proceedings against the Trust, (iv) file
a petition or consent to a petition seeking reorganization or relief on behalf
of the Trust under any applicable federal or state law relating to bankruptcy,
(v) consent to the appointment of a receiver, liquidator, assignee, trustee,
sequestrator (or any similar official) of the Trust or a substantial portion of
the property of the Trust, (vi) make any assignment for the benefit of the
Trust's creditors, or (vii) take any action, or cause the Trust to take any
action, in furtherance of any of the foregoing (any of the above, a "Bankruptcy
Action"). So long as this Agreement remains in effect, no Certificateholder
shall have the power to take, and shall not take, any Bankruptcy Action with
respect to the Trust or the Depositor or direct the Owner Trustee to take any
Bankruptcy Action with respect to the Trust or the Depositor.
Section 10.02 Action by Certificateholders with Respect to
Certain Matters. The Owner Trustee shall not have the power, except upon the
direction of the Majority Certificateholders, to (a) remove the Administrator
under the Administration Agreement pursuant to Section 8 thereof, (b) appoint a
successor Administrator pursuant to Section 8 of the Administration Agreement,
(c) remove the Servicer under this Agreement pursuant to Section 15.01 thereof.
The Owner Trustee shall take the actions referred to in the preceding sentence
only upon written instructions signed by the Certificateholders and consented to
in a prior writing by the Majority Certificateholders.
Section 10.03 Restrictions on Certificateholders' Power. The
Certificateholders shall not direct the Owner Trustee to take or refrain from
taking any action if such action or inaction would be contrary to any obligation
of the Trust or the Owner Trustee under this Agreement or any of the Basic
Documents or would be contrary to Section 2.03 nor shall the Owner Trustee be
obligated to follow any such direction, if given.
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Section 10.04 Majority Control. Except as expressly provided
herein, any action that may be taken by the Certificateholders under this
Agreement may be taken by the Majority Certificateholders. Except as expressly
provided herein, any written notice of the Certificateholders delivered pursuant
to this Agreement shall be effective if signed by the Majority
Certificateholders at the time of the delivery of such notice.
ARTICLE XI
AUTHORITY AND DUTIES OF OWNER TRUSTEE
Section 11.01 General Authority. The Owner Trustee is
authorized and directed to execute and deliver or cause to be executed and
delivered the Certificates and each Basic Document to which the Trust is to be a
party and each certificate or other document attached as an exhibit to or
contemplated by each Basic Document to which the Trust is to be a party and any
amendment or other agreement or instrument described in Article II, in each
case, in such form as the Loan Originator shall approve, as evidenced
conclusively by the Owner Trustee's execution thereof, and, on behalf of the
Trust, to direct the Owner Trustee to authenticate and deliver the Certificates.
The Owner Trustee shall authenticate and deliver, or cause to be authenticated
and delivered, the Certificates. In addition to the foregoing, the Owner Trustee
is authorized, but shall not be obligated, to take all actions required of the
Trust, pursuant to the Basic Documents.
Section 11.02 General Duties. It shall be the duty of the
Owner Trustee:
(a) to discharge (or cause to be discharged) all of its
responsibilities pursuant to the terms of this Agreement and the Basic Documents
to which the Trust is a party and to administer the Trust in the interest of the
Certificateholders, subject to the Basic Documents and in accordance with the
provisions of this Agreement. Notwithstanding the foregoing, the Owner Trustee
shall be deemed to have discharged its duties and responsibilities hereunder and
under the Basic Documents to the extent the Administrator or the Servicer has
agreed in the Administration Agreement or this Agreement, respectively, to
perform any act or to discharge any duty of the Owner Trustee or the Trust
hereunder or under any Basic Document, and the Owner Trustee shall not be held
liable for the default or failure of the Administrator or the Servicer to carry
out its obligations under the Administration Agreement or this Agreement,
respectively; and
(b) to obtain and preserve, the Trust's qualification to do
business in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of the Certificates, the
Owner Trust Estate and each other instrument and agreement included in the Owner
Trust Estate.
Section 11.03 Action Upon Instruction.
(a) Subject to Article X and in accordance with the terms of
the Basic Documents, the Majority Certificateholders may by written instruction
direct the Owner
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Trustee in the management of the Trust but only to the extent consistent with
the limited purpose of the Trust. Such direction may be exercised at any time by
written instruction of the Majority Certificateholders pursuant to Article X.
(b) The Owner Trustee shall not be required to take any action
hereunder or under any Basic Document if the Owner Trustee shall have reasonably
determined, or shall have been advised by counsel in writing, that such action
is likely to result in liability on the part of the Owner Trustee or is contrary
to the terms hereof or of any Basic Document or is otherwise contrary to law.
(c) Whenever the Owner Trustee is unable to decide between
alternative courses of action permitted or required by the terms of this
Agreement or under any Basic Document, the Owner Trustee shall promptly give
notice (in such form as shall be appropriate under the circumstances) to the
Certificateholders and the Initial Class A Certificateholder requesting
instruction from the Certificateholders as to the course of action to be
adopted, and to the extent the Owner Trustee acts in good faith in accordance
with any written instruction of the Majority Certificateholders, the Owner
Trustee shall not be liable on account of such action to any Person. If the
Owner Trustee shall not have received appropriate instruction within 10 days of
receipt of such notice (or within such shorter period of time as reasonably may
be specified in such notice or may be necessary under the circumstances) it may,
but shall be under no duty to, take or refrain from taking such action, not
inconsistent with this Agreement or the Basic Documents, as it shall deem to be
in the best interests of the Certificateholders, and shall have no liability to
any Person for such action or inaction.
(d) In the event that the Owner Trustee is unsure as to the
application of any provision of this Agreement or any Basic Document or any 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 Owner Trustee or is silent or is
incomplete as to the course of action that the Owner Trustee is required to take
with respect to a particular set of facts, the Owner Trustee may give notice (in
such form as shall be appropriate under the circumstances) to the
Certificateholders requesting instruction and, to the extent that the Owner
Trustee acts or refrains from acting in good faith in accordance with any such
instruction of the Majority Certificateholders, received, the Owner Trustee
shall not be liable, on account of such action or inaction, to any Person. If
the Owner Trustee shall not have received appropriate instruction within 10 days
of receipt of such notice (or within such shorter period of time as reasonably
may be specified in such notice or may be necessary under the circumstances) it
may, but shall be under no duty to, take or refrain from taking such action, not
inconsistent with this Agreement or the Basic Documents, as it shall deem to be
in the best interests of the Certificateholders, and shall have no liability to
any Person for such action or inaction.
Section 11.04 No Duties Except as Specified in this Agreement,
the Basic Documents or in Instructions. The Owner Trustee shall not have any
duty or obligation to manage, make any payment with respect to, register,
record, sell, dispose of, or otherwise deal with the Owner Trust Estate, or to
otherwise take or refrain from taking any action under, or
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in connection with, any document contemplated hereby to which the Owner Trustee
is a party, except as expressly provided by the terms of this Agreement, any
Basic Document or in any document or written instruction received by the Owner
Trustee pursuant to Section 11.03; and no implied duties or obligations shall be
read into this Agreement or any Basic Document against the Owner Trustee. The
Owner Trustee shall have no responsibility for filing any financing or
continuation statement in any public office at any time or to otherwise perfect
or maintain the perfection of any security interest or lien granted to it
hereunder or to prepare or file any Securities and Exchange Commission filing
for the Trust or to record this Agreement or any Basic Document. The Owner
Trustee nevertheless agrees that it will, at its own cost and expense, promptly
take all action as may be necessary to discharge any liens on any part of the
Owner Trust Estate that result from actions by, or claims against, the Owner
Trustee that are not related to the ownership or the administration of the Owner
Trust Estate.
Section 11.05 No Action Except Under Specified Documents or
Instructions. The Owner Trustee shall not manage, control, use, sell, dispose of
or otherwise deal with any part of the Owner Trust Estate except (i) in
accordance with the powers granted to and the authority conferred upon the Owner
Trustee pursuant to this Agreement, (ii) in accordance with the Basic Documents
and (iii) in accordance with any document or instruction delivered to the Owner
Trustee pursuant to Section 11.03.
Section 11.06 Restrictions. The Owner Trustee shall not take
any action (a) that is inconsistent with the purposes of the Trust set forth in
Section 2.03 or (b) that, to the actual knowledge of the Owner Trustee, would
result in the Trust's becoming taxable as a corporation for Federal income tax
purposes. The Certificateholders shall not direct the Owner Trustee to take
action that would violate the provisions of this Section.
Section 11.07 Accounting of Trust Funds; Withholding.
(a) On or prior to each Distribution Date, the Owner Trustee
shall cause the Servicer to deliver to each Certificateholder the statement
provided by the Servicer pursuant to Section 8.01(b) of this Agreement with
respect to such Distribution Date.
(b) In the event that any withholding tax is imposed on the
Trust's distribution (or allocations of income) to a Certificateholder, such tax
shall reduce the amount otherwise distributable to the Certificateholder in
accordance with this Section. The Owner Trustee is hereby authorized and
directed to retain or cause the Paying Agent to retain from amounts otherwise
distributable to the Certificateholders sufficient funds for the payment of any
tax that is legally owed by the Trust (but such authorization shall not prevent
the Owner Trustee from contesting any such tax in appropriate proceedings, and
withholding payment of such tax, if permitted by law, pending the outcome of
such proceedings). The amount of any withholding tax imposed with respect to an
Certificateholder shall be treated as cash distributed to such Certificateholder
at the time it is withheld by the Trust and remitted to the appropriate taxing
authority. In the event of any claimed overwithholding, Certificateholders shall
have no claim for recovery against the Trust or other Certificateholders. If the
amount withheld was not withheld from actual distributions, the Trust may, at
its option, (i) require the Certificateholder to
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reimburse the Trust for such withholding (and each Certificateholder agrees to
reimburse the Trust promptly following such request) or (ii) reduce any
subsequent distributions by the amount of such withholding. If there is a
possibility that withholding tax is payable with respect to a distribution (such
as a distribution to a Non-U.S. Person), the Owner Trustee may in its sole
discretion withhold or cause to be withheld such amounts in accordance with this
paragraph (b). In the event that an Certificateholder wishes to apply for a
refund of any such withholding tax, the Owner Trustee shall reasonably cooperate
with such owner in making such claim so long as such Certificateholder agrees to
reimburse the Owner Trustee for any out-of-pocket expenses incurred.
Section 11.08 Accounting and Reports to the
Certificateholders, the Internal Revenue Service and Others. The Owner Trustee
shall deliver or cause to be delivered to each Certificateholder, as may be
required by the Code and applicable Treasury Regulations, or as may be requested
by such Certificateholder, such information, reports or statements as may be
necessary to enable each Certificateholder to prepare its federal and state
income tax returns. Consistent with the Trust's characterization for tax
purposes as a partnership between the Class A Certificateholders and Class B
Certificateholders, the Owner Trustee shall prepare or shall cause to be
prepared federal and, if applicable, state or local partnership tax returns
required to be filed by the Trust and shall remit such returns to the Depositor
(or if the Depositor no longer owns any Class B Certificates, the Class B
Certificateholder designated for such purpose by the Depositor to the Owner
Trustee in writing) at least five (5) days before such returns are due to be
filed, and (y) capital accounts shall be maintained for each Certificateholder
in accordance with the Treasury Regulations under Section 704(b) of the Code
reflecting each such Class A Certificateholder's and Class B Certificateholder's
share of the income, gains, deductions, and losses of the Trust and
contributions to, and distributions from, the Trust (as set forth in Annex A
hereto). The Depositor (or such designee Class B Certificateholder, as
applicable) shall promptly sign such returns and deliver such returns after
signature to the Owner Trustee and such returns shall be filed or cause to be
filed by the Owner Trustee with the appropriate tax authorities.
ARTICLE XII
CONCERNING THE OWNER TRUSTEE; COMPENSATION
Section 12.01 Acceptance of Trusts and Duties. The Owner
Trustee accepts the trusts hereby created and agrees to perform its duties
hereunder with respect to such trusts but only upon the terms of this Agreement
and the Basic Documents. The Owner Trustee also agrees to disburse all moneys
actually received by it constituting part of the Owner Trust Estate upon the
terms of the Basic Documents and this Agreement. The Owner Trustee shall not be
answerable or accountable hereunder or under any Basic Document under any
circumstances, except (i) for its own willful misconduct or negligence or (ii)
in the case of the inaccuracy of any representation or warranty contained in
Section 12.03 expressly made by the Owner Trustee. In particular, but not by way
of limitation (and subject to the exceptions set forth in the preceding
sentence):
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(a) the Owner Trustee shall not be liable for any error of
judgment made by a responsible officer of the Owner Trustee;
(b) the Owner Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in accordance with the instructions of
the Administrator or the Certificateholders;
(c) no provision of this Agreement or any Basic Document shall
require the Owner Trustee to expend or risk funds or otherwise incur any
financial liability in the performance of any of its rights or powers hereunder
or under any Basic Document if the Owner Trustee 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;
(d) under no circumstances shall the Owner Trustee be liable
for indebtedness evidenced by or arising under any of the Basic Documents,
including the principal of and interest on the Certificates;
(e) the Owner Trustee shall not be responsible for or in
respect of the validity or sufficiency of this Agreement or for the due
execution hereof by the other parties hereto or for the form, character,
genuineness, sufficiency, value or validity of any of the Owner Trust Estate or
for or in respect of the validity or sufficiency of the Basic Documents, other
than the certificate of authentication on the Certificates, and the Owner
Trustee shall in no event assume or incur any liability, duty, or obligation to
any Certificateholder, other than as expressly provided for herein and in the
Basic Documents;
(f) the Owner Trustee shall not be liable for the default or
misconduct of any other party under any of the Basic Documents or otherwise and
the Owner Trustee shall have no obligation or liability to perform the
obligations of the Trust under this Agreement or the Basic Documents that are
required to be performed by the Administrator under the Administration Agreement
or the Servicer under this Agreement; and
(g) the Owner Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Agreement, or to institute,
conduct or defend any litigation under this Agreement or otherwise or in
relation to this Agreement or any Basic Document, at the request, order or
direction of any of the Certificateholders, unless such Certificateholders have
offered to the Owner Trustee security or indemnity satisfactory to it in its
reasonable discretion against the costs, expenses and liabilities that may be
incurred by the Owner Trustee therein or thereby. The right of the Owner Trustee
to perform any discretionary act enumerated in this Agreement or in any Basic
Document shall not be construed as a duty, and the Owner Trustee shall not be
answerable for other than its negligence or willful misconduct in the
performance of any such act provided, that the Owner Trustee shall be liable for
its negligence or willful misconduct in the event that it assumes the duties and
obligations of the Owner Trustee under this Agreement pursuant to Section 13.05.
Section 12.02 Furnishing of Documents. The Owner Trustee shall
furnish (a) to the Certificateholders promptly upon receipt of a written request
therefor, duplicates or
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copies of all reports, notices, requests, demands, certificates, financial
statements and any other instruments furnished to the Owner Trustee under the
Basic Documents and (b) to Certificateholders promptly upon written request
therefor, copies of this Agreement and the Administration Agreement.
Section 12.03 Representations and Warranties.
The Owner Trustee hereby represents and warrants to the other
parties hereto, for the benefit of the Certificateholders, that:
(i) It is a banking corporation duly organized and
validly existing in good standing under the laws of the State of
Delaware. It has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement.
(ii) It has taken all corporate action necessary to
authorize the execution and delivery by it of this Agreement, and this
Agreement will be executed and delivered by one of its officers who is
duly authorized to execute and deliver this Agreement on its behalf.
(iii) Neither the execution nor the delivery by it of
this Agreement nor the consummation by it of the transactions
contemplated hereby nor compliance by it with any of the terms or
provisions hereof will contravene any Federal or Delaware law,
governmental rule or regulation governing the banking or trust powers
of the Owner Trustee or any judgment or order binding on it, or
constitute any default under its charter documents or by-laws or any
indenture, mortgage, contract, agreement or instrument to which it is a
party or by which any of its properties may be bound.
Section 12.04 Reliance; Advice of Counsel.
(a) The Owner Trustee shall incur no liability to anyone in
acting upon 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 Owner Trustee 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 method of the
determination of which is not specifically prescribed herein, the Owner Trustee
may for all purposes hereof rely on a certificate, signed by a Responsible
Officer, as to such fact or matter and such certificate shall constitute full
protection to the Owner Trustee for any action taken or omitted to be taken by
it in good faith in reliance thereon.
(b) In the exercise or administration of the trusts hereunder
and in the performance of its duties and obligations under this Agreement or the
Basic Documents, the Owner Trustee (i) may act directly or through its agents or
attorneys pursuant to agreements entered into with any of them, and the Owner
Trustee shall not be liable for the conduct or
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misconduct of such agents or attorneys if such agents or attorneys shall have
been selected by the Owner Trustee with reasonable care, and (ii) may consult
with counsel, accountants and other skilled persons to be selected with
reasonable care and employed by it. The Owner Trustee shall not be liable for
anything done, suffered or omitted in good faith by it in accordance with the
written opinion or advice of any such counsel, accountants or other such persons
and not contrary to this Agreement or any Basic Document.
Section 12.05 Not Acting in Individual Capacity. Except as
provided in this Article XII, in accepting the trusts hereby created Wilmington
Trust Company acts solely as Owner Trustee hereunder and not in its individual
capacity and all Persons having any claim against the Owner Trustee by reason of
the transactions contemplated by this Agreement or any Basic Document shall look
only to the Owner Trust Estate for payment or satisfaction thereof.
Section 12.06 Owner Trustee Not Liable for Certificates or
Loans. The recitals contained herein and in the Certificates (other than the
signature and countersignature of the Owner Trustee on the Certificates) shall
be taken as the statements of the Depositor, and the Owner Trustee assumes no
responsibility for the correctness thereof. The Owner Trustee makes no
representations as to the validity or sufficiency of this Agreement, of any
Basic Document or of the Certificates (other than the signature and
countersignature of the Owner Trustee on the Certificates and as specified in
Section 12.03), or of any Loans or related documents. The Owner Trustee shall at
no time have any responsibility or liability for or with respect to the
legality, validity and enforceability of any Loan, or the perfection and
priority of any security interest created by any Loan or the maintenance of any
such perfection and priority, or for or with respect to the sufficiency of the
Owner Trust Estate or its ability to generate the payments to be distributed to
Certificateholders under this Agreement, including, without limitation: the
existence, condition and ownership of any Mortgaged Property; the existence and
enforceability of any insurance thereon; the existence and contents of any Loan
on any computer or other record thereof, the validity of the assignment of any
Loan to the Trust or of any intervening assignment; the completeness of any
Loan; the performance or enforcement of any Loan; the compliance by the
Depositor, the Loan Originator or the Servicer with any warranty or
representation made under any Basic Document or in any related document or the
accuracy of any such warranty or representation or any action of the
Administrator, the Owner Trustee or the Servicer or any subservicer taken in the
name of the Owner Trustee.
Section 12.07 Licenses. The Owner Trustee shall cause the
Trust to use its best efforts to obtain and maintain the effectiveness of any
licenses required in connection with this Agreement and the Basic Documents and
the transactions contemplated hereby and thereby until such time as the Trust
shall terminate in accordance with the terms hereof.
Section 12.08 Fees and Expenses. The Owner Trustee shall
receive as compensation for its services hereunder such fees as have been
separately agreed upon before the date hereof between the Servicer and the Owner
Trustee, which fees may not be altered without the prior written consent of the
Majority Certificateholders. The Owner Trustee shall look solely to the Servicer
for reimbursement for its other reasonable expenses hereunder,
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including the reasonable compensation, expenses and disbursements of such
agents, representatives, experts and counsel as the Owner Trustee may employ in
connection with the exercise and performance of its rights and its duties
hereunder unless and to the extent the Owner Trustee is reimbursed for such
expenses by the Trust or other Person.
Section 12.09 Indemnification. The Servicer shall be liable
for, and shall indemnify the Owner Trustee and its successors, assigns, agents
and servants (collectively, the "Indemnified Parties") from and against, any and
all liabilities, obligations, losses, damages, taxes, claims, actions and suits,
and any and all reasonable costs, expenses and disbursements (including
reasonable legal fees and expenses) of any kind and nature whatsoever
(collectively, "Expenses") which may at any time be imposed on, incurred by, or
asserted against the Owner Trustee or any Indemnified Party in any way relating
to or arising out of this Agreement, the other Basic Documents, the Owner Trust
Estate, the administration of the Owner Trust Estate or the action or inaction
of the Owner Trustee hereunder, except only that the Servicer shall not be
liable for or required to indemnify an Indemnified Party from and against
Expenses arising or resulting from such Indemnified Party's willful misfeasance,
bad faith or negligence in the performance of the duties, or by reason of
reckless disregard of its duties under the Basic Documents. The indemnities
contained in this Section shall survive the resignation or termination of the
Owner Trustee or the termination of this Agreement. In any event of any claim,
action or proceeding for which indemnity will be sought pursuant to this
Section, the Owner Trustee's choice of legal counsel shall be subject to the
approval of the Servicer, which approval shall not be unreasonably withheld.
Section 12.10 Payments to the Owner Trustee . Any amounts paid
to the Owner Trustee pursuant to this Article XII shall be deemed not to be a
part of the Owner Trust Estate immediately after such payment.
ARTICLE XIII
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
Section 13.01 Eligibility Requirements for Owner Trustee. The
Owner Trustee shall at all times be a corporation satisfying the provisions of
Section 3807(a) of the Business Trust Statute; authorized to exercise corporate
powers having a combined capital and surplus of at least $50,000,000 and subject
to supervision or examination by Federal or state authorities; and having (or
having a parent which has) a long-term rating of at least "A" by S&P and
Moody's. If such corporation shall publish reports of condition at least
annually, pursuant to law or to the requirements of the aforesaid supervising or
examining authority, then for the purpose of this Section, the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. In
case at any time the Owner Trustee shall cease to be eligible in accordance with
the provisions of this Section, the Owner Trustee shall resign immediately in
the manner and with the effect specified in Section 13.02.
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Section 13.02 Resignation or Removal of Owner Trustee. The
Owner Trustee may at any time resign and be discharged from the trusts hereby
created by giving written notice thereof to the Administrator. Upon receiving
such notice of resignation, the Administrator shall promptly appoint a successor
Owner Trustee by written instrument, in duplicate, one copy of which instrument
shall be delivered to the resigning Owner Trustee and one copy to the successor
Owner Trustee. If no successor Owner Trustee shall have been so appointed and
have accepted appointment within 30 days after the giving of such notice of
resignation, the resigning Owner Trustee may petition any court of competent
jurisdiction for the appointment of a successor Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 13.01 and shall fail to resign after
written request therefor by the Administrator, or if at any time the Owner
Trustee shall be legally unable to act, or shall be adjudged bankrupt or
insolvent, or a receiver of the Owner Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Owner
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then the Administrator may remove the Owner
Trustee. If the Administrator shall remove the Owner Trustee under the authority
of the immediately preceding sentence, the Administrator shall promptly appoint
a successor Owner Trustee by written instrument in duplicate, one copy of which
instrument shall be delivered to the outgoing Owner Trustee so removed and one
copy to the successor Owner Trustee and payment of all fees owed to the outgoing
Owner Trustee.
Any resignation or removal of the Owner Trustee and
appointment of a successor Owner Trustee pursuant to any of the provisions of
this Section shall not become effective until acceptance of appointment by the
successor Owner Trustee pursuant to Section 13.03 and payment of all fees and
expenses owed to the outgoing Owner Trustee. The Administrator shall provide
notice of such resignation or removal of the Owner Trustee to the Initial Class
A Certificateholder.
Section 13.03 Successor Owner Trustee. Any successor Owner
Trustee appointed pursuant to Section 13.02 shall execute, acknowledge and
deliver to the Administrator and to its predecessor Owner Trustee an instrument
accepting such appointment under this Agreement, and thereupon the resignation
or removal of the predecessor Owner Trustee shall become effective and such
successor Owner Trustee, without any further act, deed or conveyance, shall
become fully vested with all the rights, powers, duties, and obligations of its
predecessor under this Agreement, with like effect as if originally named as
Owner Trustee. The predecessor Owner Trustee shall upon payment of its fees and
expenses deliver to the successor Owner Trustee all documents and statements and
monies held by it under this Agreement; and the Administrator and the
predecessor Owner Trustee shall execute and deliver such instruments and do such
other things as may reasonably be required for fully and certainly vesting and
confirming in the successor Owner Trustee all such rights, powers, duties, and
obligations.
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No successor Owner Trustee shall accept appointment as
provided in this Section 13.03 unless at the time of such acceptance such
successor Owner Trustee shall be eligible pursuant to Section 13.01.
Upon acceptance of appointment by a successor Owner Trustee
pursuant to this Section, the Administrator shall mail notice of the successor
of such Owner Trustee to the Owner Trustee and the Certificateholders. If the
Administrator fails to mail such notice within 10 days after acceptance of
appointment by the successor Owner Trustee, the successor Owner Trustee shall
cause such notice to be mailed at the expense of the Administrator.
Section 13.04 Merger or Consolidation of Owner Trustee. Any
corporation into which the Owner Trustee may be merged or with which it may be
consolidated or any corporation resulting from any merger or consolidation to
which the Owner Trustee shall be a party, or any corporation succeeding to all
or substantially all of the corporate trust business of the Owner Trustee, shall
be the successor of the Owner Trustee hereunder, provided such corporation shall
be eligible pursuant to Section 13.01, without the execution or filing of any
instrument or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding; provided further that the Owner Trustee
shall mail notice of such merger or consolidation to the Initial Class A
Certificateholder.
Section 13.05 Appointment of Co-Owner Trustee or Separate
Owner Trustee. Notwithstanding any other provisions of this Agreement, at any
time, for the purpose of meeting any legal requirements of any jurisdiction in
which any part of the Owner Trust Estate or any Mortgaged Property may at the
time be located, and for the purpose of performing certain duties and
obligations of the Owner Trustee with respect to the Trust and the Certificates
under this Agreement, the Administrator and the Owner Trustee acting jointly
shall have the power and shall execute and deliver all instruments to appoint
one or more Persons approved by the Owner Trustee to act as co-Owner Trustee,
jointly with the Owner Trustee, or separate trustee or separate trustees, of all
or any part of the Owner Trust Estate, and to vest in such Person, in such
capacity, such title to the Trust, or any part thereof, and, subject to the
other provisions of this Section, such powers, duties, obligations, rights and
trusts as the Administrator and the Owner Trustee may consider necessary or
desirable. If the Administrator shall not have joined in such appointment within
25 days after the receipt by it of a request so to do, the Owner Trustee shall
have the power to make such appointment. No co-Owner Trustee or separate Owner
Trustee under this Agreement shall be required to meet the terms of eligibility
as a successor trustee pursuant to Section 13.01 and no notice of the
appointment of any co-trustee or separate Owner Trustee shall be required
pursuant to Section 13.01.
Each separate Owner Trustee and co-Owner Trustee shall, to the
extent permitted by law, be appointed and act subject to the following provision
and conditions:
(i) all rights, powers, duties and obligations
conferred or imposed upon the Owner Trustee shall be conferred upon and
exercised or performed by the Owner Trustee and such separate Owner
Trustee or co-Owner Trustee jointly (it being
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understood that such separate Owner Trustee or co-Owner Trustee is not
authorized to act separately without the Owner Trustee joining in such
act), except to the extent that under any law of any jurisdiction in
which any particular act or acts are to be performed, the Owner Trustee
shall be incompetent or unqualified to perform such act or acts, in
which event such rights, powers, duties, and obligations (including the
holding of title to the Trust or any portion thereof in any such
jurisdiction) shall be exercised and performed singly by such separate
Owner Trustee or co-Owner Trustee, but solely at the direction of the
Owner Trustee;
(ii) no Owner Trustee under this Agreement shall be
personally liable by reason of any act or omission of any other Owner
Trustee under this Agreement; and
(iii) the Administrator and the Owner Trustee acting
jointly may at any time accept the resignation of or remove any
separate Owner Trustee or co-Owner Trustee.
Any notice, request or other writing given to the Owner
Trustee shall be deemed to have been given to the separate Owner Trustees and
co-Owner Trustees, as if given to each of them. Every instrument appointing any
separate Owner Trustee or co-Owner Trustee, other than this Agreement, shall
refer to this Agreement and to the conditions of this Article. Each separate
Owner Trustee and co-Owner Trustee, upon its acceptance of appointment, shall be
vested with the estates specified in its instrument of appointment, either
jointly with the Owner Trustee or separately, as may be provided therein,
subject to all the provisions of this Agreement, specifically including every
provision of this Agreement relating to the conduct of, affecting the liability
of, or affording protection to, the Owner Trustee. Each such instrument shall be
filed with the Owner Trustee and a copy thereof given to the Administrator.
Any separate Owner Trustee or co-Owner Trustee may at any time
appoint the Owner Trustee as its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Agreement on its behalf and in its name. If any separate Owner
Trustee or co-Owner Trustee shall die, become incapable of acting, resign or be
removed, all of its estates, properties, rights, remedies and trusts shall vest
in and be exercised by the Owner Trustee, to the extent permitted by law,
without the appointment of a new or successor trustee.
ARTICLE XIV
THE SERVICER
Section 14.01 Indemnification; Third Party Claims.
(a) The Servicer shall indemnify the Loan Originator, the
Owner Trustee, the Trust, the Depositor, the Owner Trustee and the
Certificateholders, their respective
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officers, directors, employees, agents and "control persons," as such term is
used under the Act and under the Securities Exchange Act of 1934 as amended
(each an "Indemnified Party") and hold harmless each of them against any and all
claims, losses, damages, penalties, fines, forfeitures, reasonable legal fees
and related costs, judgments, and other costs and expenses resulting from any
claim, demand, defense or assertion based on or grounded upon, or resulting
from, a breach of any of the Servicer's representations and warranties and
covenants contained in this Agreement or in any way relating to the failure of
the Servicer to perform its duties and service the Loans in compliance with the
terms of this Agreement; provided, however, that if the Servicer is not liable
pursuant to the provisions of Section 14.01(d) hereof for its failure to perform
its duties and service the Loans in compliance with the terms of this Agreement,
then the provisions of this Section 14.01 shall have no force and effect with
respect to such failure.
(b) The Loan Originator, the Depositor, the Owner Trustee or
the Certificateholders, as the case may be, shall promptly notify the Servicer
if a claim is made by a third party with respect to a breach of any of the
Servicer's representations and warranties and covenants contained in this
Agreement or in any way relating to the failure of the Servicer to perform its
duties and service the Loans in compliance with the terms of this Agreement. The
Servicer shall promptly notify the Owner Trustee and the Depositor of any claim
of which it has been notified pursuant to this Section 14.01 by a Person other
than the Depositor, and, in any event, shall promptly notify the Depositor of
its intended course of action with respect to any claim.
(c) The Servicer shall be entitled to participate in and, upon
notice to the Indemnified Party, assume the defense of any such action or claim
in reasonable cooperation with, and with the reasonable cooperation of, the
Indemnified Party. The Indemnified Party will have the right to employ its own
counsel in any such action in addition to the counsel of the Servicer, but the
fees and expenses of such counsel will be at the expense of such Indemnified
Party, unless (i) the employment of counsel by the Indemnified Party at its
expense has been authorized in writing by the Servicer, (ii) the Servicer has
not in fact employed counsel to assume the defense of such action within a
reasonable time after receiving notice of the commencement of the action, or
(iii) the named parties to any such action or proceeding (including any
impleaded parties) include both the Servicer and one or more Indemnified
Parties, and the Indemnified Parties shall have been advised by counsel that
there may be one or more legal defenses available to them which are different
from or additional to those available to the Servicer. The Servicer shall not be
liable for any settlement of any such claim or action unless the Servicer shall
have consented thereto or be in default on its obligations hereunder. Any
failure by an Indemnified Party to comply with the provisions of this Section
14.01 shall relieve the Servicer of liability only if such failure is materially
prejudicial to the defense of the Servicer of such claim or action and then only
to the extent of such prejudice.
(d) None of the Loan Originator, the Depositor or the Servicer
or any of their respective Affiliates, directors, officers, employees or agents
shall be under any liability to the Owner Trustee, the Trust, the Owner Trustee
or the Certificateholders for any action
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taken, or for refraining from the taking of any action, in good faith pursuant
to this Agreement, or for errors in judgment; provided, however, that this
provision shall not protect the Loan Originator, the Depositor, the Servicer or
any of their respective Affiliates, directors, officers, employees, agents
against the remedies provided herein for the breach of any warranties,
representations or covenants made herein, or against any expense or liability
specifically required to be borne by such party without right of reimbursement
pursuant to the terms hereof, or against any expense or liability which would
otherwise be imposed by reason of misfeasance, bad faith or negligence in the
performance of the respective duties of the Servicer, the Depositor or the Loan
Originator, as the case may be. The Loan Originator, the Depositor, the Servicer
and any of their respective Affiliates, directors, officers, employees, agents
may rely in good faith on any document of any kind which, prima facie, is
properly executed and submitted by any Person respecting any matters arising
hereunder.
Section 14.02 Merger or Consolidation of the Servicer.
The Servicer shall keep in full effect its existence, rights
and franchises as a corporation, and will obtain and preserve its qualification
to do business as a foreign corporation and maintain such other licenses and
permits in each jurisdiction necessary to protect the validity and
enforceability of each Basic Document to which it is a party and each of the
Loans and to perform its duties under each Basic Document to which it is a
party; provided, however, that the Servicer may merge or consolidate with any
other corporation upon the satisfaction of the conditions set forth in the
following paragraph.
Any Person into which the Servicer may be merged or
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Servicer shall be a party, or any Person succeeding
to the business of the Servicer, shall be an Eligible Servicer and shall be the
successor of the Servicer, as applicable hereunder, without the execution or
filing of any paper or any further act on the part of any of the parties hereto,
anything herein to the contrary notwithstanding. The Servicer shall send notice
of any such merger, conversion, consolidation or succession to the Owner Trustee
and the Trust.
Section 14.03 Limitation on Liability of the Servicer and
Others.
The Servicer and any director, officer, employee or agent of
the Servicer may rely on any document of any kind which it in good faith
reasonably believes to be genuine and to have been adopted or signed by the
proper authorities respecting any matters arising hereunder. Subject to the
terms of Section 14.01 hereof, the Servicer shall have no obligation to appear
with respect to, prosecute or defend any legal action which is not incidental to
the Servicer's duty to service the Loans in accordance with this Agreement.
Section 14.04 Servicer Not to Resign; Assignment.
The Servicer shall not resign from the obligations and duties
hereby imposed on it except (a) with the consent of the Majority
Certificateholders or (b) upon determination that its duties hereunder are no
longer permissible under applicable law. Any such determination pursuant to
clause (b) of the preceding sentence permitting the resignation of the Servicer
shall
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be evidenced by an independent opinion of counsel to such effect delivered (at
the expense of the Servicer) to the Owner Trustee and Majority
Certificateholders. No resignation of the Servicer shall become effective until
a successor servicer, appointed pursuant to the provisions of Section 15.02
hereof and satisfying the requirements of Section 5.03 hereof with respect to
the qualifications of a successor Servicer, shall have assumed the Servicer's
responsibilities, duties, liabilities (other than those liabilities arising
prior to the appointment of such successor) and obligations under this
Agreement.
Except as expressly provided herein, the Servicer shall not
assign or transfer any of its rights, benefits or privileges hereunder to any
other Person, or delegate to or subcontract with, or authorize or appoint any
other Person to perform any of the duties, covenants or obligations to be
performed by the Servicer hereunder and any agreement, instrument or act
purporting to effect any such assignment, transfer, delegation or appointment
shall be void.
The Servicer agrees to cooperate with any successor Servicer
in effecting the transfer of the Servicer's servicing responsibilities and
rights hereunder pursuant to the first paragraph of this Section 14.04,
including, without limitation, the transfer to such successor of all relevant
records and documents (including any Loan Files in the possession of the
Servicer) and all amounts received with respect to the Loans and not otherwise
permitted to be retained by the Servicer pursuant to this Agreement. In
addition, the Servicer, at its sole cost and expense, shall prepare, execute and
deliver any and all documents and instruments to the successor Servicer
including all Loan Files in its possession and do or accomplish all other acts
necessary or appropriate to effect such termination and transfer of servicing
responsibilities.
Section 14.05 Relationship of Servicer to Trust and the Owner
Trustee.
The relationship of the Servicer (and of any successor to the
Servicer as servicer under this Agreement) to the Trust and the Owner Trustee
under this Agreement is intended by the parties hereto to be that of an
independent contractor and not of a joint venturer, agent or partner of the
Trust or the Owner Trustee.
Section 14.06 Servicer May Own Certificates.
Each of the Servicer and any Affiliate of the Servicer may in
its individual or any other capacity become the owner or pledgee of Certificates
with the same rights as it would have if it were not the Servicer or an
Affiliate thereof except as otherwise specifically provided herein. Certificates
so owned by or pledged to the Servicer or such Affiliate shall have an equal and
proportionate benefit under the provisions of this Agreement, without
preference, priority, or distinction as among all of the Certificates; provided,
however, that any Certificates owned by the Servicer or any Affiliate thereof,
during the time such Certificates are owned by them, shall be without voting
rights for any purpose set forth in this Agreement. The Servicer shall notify
the Owner Trustee promptly after it or any of its Affiliates becomes the owner
or pledgee of a Certificate.
Section 14.07 Indemnification of the Initial Class A
Certificateholder.
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The Servicer agrees to indemnify the Initial Class A
Certificateholder in accordance with Section 9.01 of the Certificate Purchase
Agreement as if it were a signatory thereto.
ARTICLE XV
SERVICER EVENTS OF DEFAULT; CERTIFICATE EVENTS OF DEFAULT; REMEDIES
Section 15.01 Servicer Events of Default.
(a) In case one or more of the following Servicer Events of
Default shall occur and be continuing, that is to say:
(i) any failure by Servicer to deposit (A) into the Collection
Account in accordance with Section 7.01(b) any amount required to be
deposited by it under any Basic Document to which it is a party, which
failure continues unremedied for two days following the date on which
such deposit was first requested to be made or (B) the full amount of
any Periodic Advance required to be made on the day such Periodic
Advances are required to be made, which failure continues unremedied
until 12:00 p.m. New York City time on the Business Day following such
day; or
(ii) any failure on the part of the Servicer duly to observe
or perform in any material respect any other of the material covenants
or agreements on the part of the Servicer, contained in any Basic
Document to which it is a party, which continues unremedied for a
period of 30 days (or, in the case of payment of insurance premiums,
for a period of 15 days) after the date on which written notice of such
failure, requiring the same to be remedied, shall have been given to
the Servicer by any other party hereto or to the Servicer (with copy to
each other party hereto), by Holders of 25% of the Percentage Interests
of the Class A Certificates or the Certificates; or
(iii) any breach on the part of the Servicer of any
representation or warranty contained in any Basic Document to which it
is a party that materially and adversely affects the interests of any
of the parties hereto or any Certificateholder and which continues
unremedied for a period of 30 days after the date on which notice of
such breach, requiring the same to be remedied, shall have been given
to the Servicer by any other party hereto or to the Servicer (with copy
to each other party hereto), by the Initial Class A Certificateholder
or Holders of 25% of the Percentage Interests of the Class A
Certificates; or
(iv) there shall have been commenced before a court or agency
or supervisory authority having jurisdiction in the premises an
involuntary proceeding against the Servicer under any present or future
federal or state bankruptcy, insolvency or similar law for the
appointment of a conservator, receiver, liquidator, trustee or similar
official in any bankruptcy, insolvency, readjustment of debt,
marshalling of
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assets and liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, which action shall not have been dismissed
for a period of 60 days; or
(v) the Servicer shall consent to the appointment of a
conservator, receiver, liquidator, trustee or similar official in any
bankruptcy, insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings of or relating to it or of or
relating to all or substantially all of its property; or
(vi) the Servicer shall admit in writing its inability to pay
its debts generally as they become due, file a petition to take
advantage of any applicable bankruptcy, insolvency or reorganization
statute, make an assignment for the benefit of its creditors,
voluntarily suspend payment of its obligations, or take any corporate
action in furtherance of the foregoing.
(b) Then, and in each and every such case, so long as an
Servicer Event of Default shall not have been remedied, the Owner Trustee or the
Majority Certificateholders, by notice in writing to the Servicer may, in
addition to whatever rights such Person may have at law or in equity to damages,
including injunctive relief and specific performance, may terminate all the
rights and obligations of the Servicer under this Agreement and in and to the
Loans and the proceeds thereof, as servicer under this Agreement. Upon receipt
by the Servicer of such written notice, all authority and power of the Servicer
under this Agreement, whether with respect to the Loans or otherwise, shall,
subject to Section 15.02 hereof, pass to and be vested in a successor servicer,
and the successor servicer is hereby authorized and empowered to execute and
deliver, on behalf of the Servicer, as attorney-in-fact or otherwise, any and
all documents and other instruments and do or cause to be done all other acts or
things necessary or appropriate to effect the purposes of such notice of
termination, including, but not limited to, the transfer and endorsement or
assignment of the Loans and related documents. The Servicer agrees to cooperate
with the successor servicer in effecting the termination of the Servicer's
responsibilities and rights hereunder, including, without limitation, the
transfer to the successor servicer for administration by it of all amounts which
shall at the time be credited by the Servicer to each Collection Account or
thereafter received with respect to the Loans.
Section 15.02 Appointment of Successor.
On and after the date the Servicer receives a notice of
termination pursuant to Section 15.01 hereof, or the Owner Trustee receives the
resignation of the Servicer evidenced by an Opinion of Counsel or accompanied by
the consents required by Section 14.04 hereof, or the Servicer is removed as
servicer pursuant to this Article XV or Section 5.01, then, the Majority
Certificateholders shall appoint a successor servicer to be the successor in all
respects to the Servicer in its capacity as Servicer under this Agreement and
the transactions set forth or provided for herein and shall be subject to all
the responsibilities, duties and liabilities relating thereto placed on the
Servicer by the terms and provisions hereof; provided, however, that the
successor servicer shall not be liable for any actions of any servicer prior to
it.
The successor servicer shall be obligated to make Servicing
Advances hereunder. As compensation therefor, the successor servicer appointed
pursuant to the
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following paragraph, shall be entitled to all funds relating to the Loans which
the Servicer would have been entitled to receive from the Collection Account
pursuant to Section 7.01(c) hereof as if the Servicer had continued to act as
servicer hereunder, together with other Servicing Compensation in the form of
assumption fees, late payment charges or otherwise as provided in Section 5.16
hereof. The Servicer shall not be entitled to any termination fee if it is
terminated pursuant to Section 15.01 hereof but shall be entitled to any accrued
and unpaid Servicing Fee to the date of termination.
Any collections received by the Servicer after removal or
resignation shall be endorsed by it to the Owner Trustee and remitted directly
to the successor servicer. The compensation of any successor servicer appointed
shall be the Servicing Fee, together with other Servicing Compensation provided
for herein. The Owner Trustee, the Trust, any Custodian, the Servicer and any
such successor servicer shall take such action, consistent with this Agreement,
as shall be reasonably necessary to effect any such succession. Any costs or
expenses incurred by the Owner Trustee in connection with the termination of the
Servicer and the succession of a successor servicer shall be an expense of the
outgoing Servicer and, to the extent not paid thereby, an expense of such
successor servicer. The Servicer agrees to cooperate with the Owner Trustee and
any successor servicer in effecting the termination of the Servicer's servicing
responsibilities and rights hereunder and shall promptly provide the successor
servicer all documents and records reasonably requested by it to enable it to
assume the Servicer's functions hereunder and shall promptly also transfer to
the successor servicer all amounts which then have been or should have been
deposited in any Trust Account maintained by the Servicer or which are
thereafter received with respect to the Loans. Upon the occurrence of an Event
of Default, the Majority Certificateholders shall have the right to order the
Servicer's Loan Files and all other files of the Servicer relating to the Loans
and all other records of the Servicer and all documents relating to the Loans
which are then or may thereafter come into the possession of the Servicer or any
third party acting for the Servicer (including, without limitation, computer
programs, tapes, disks, data processing software and related property and
rights) to be delivered to such custodian or servicer as it selects and the
Servicer shall deliver to such custodian or servicer such assignments as the
Majority Certificateholders shall request. No successor servicer shall be held
liable by reason of any failure to make, or any delay in making, any
distribution hereunder or any portion thereof caused by (i) the failure of the
Servicer to deliver, or any delay in delivering, cash, documents or records to
it or (ii) restrictions imposed by any regulatory authority having jurisdiction
over the Servicer hereunder. No appointment of a successor to the Servicer
hereunder shall be effective until written notice of such proposed appointment
shall have been provided by the Owner Trustee to the Initial Class A
Certificateholder, the Trust and the Depositor and the Depositor, the Majority
Certificateholders and the Trust shall have consented in writing thereto.
In connection with such appointment and assumption, the
Majority Certificateholder may make such arrangements for the compensation of
such successor servicer out of payments on the Loans as they and such successor
servicer shall agree.
Section 15.03. Performance and Enforcement of Certain
Obligations.
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(a) Promptly following a request from the Owner Trustee to do
so and at the Servicer's expense, the Trust shall take all such lawful action as
the Owner Trustee may request to compel or secure the performance and observance
by the Loan Originator and the Servicer, as applicable, of each of their
obligations to the Trust under or in connection with this Agreement, and to
exercise any and all rights, remedies, powers and privileges lawfully available
to the Trust under or in connection with this Agreement to the extent and in the
manner directed by the Owner Trustee, including the transmission of notices of
default on the part of the Loan Originator or the Servicer thereunder and the
institution of legal or administrative actions or proceedings to compel or
secure performance by the Loan Originator or the Servicer of each of their
obligations under this Agreement.
(b) If an Event of Default has occurred and is continuing, the
Owner Trustee may, and at the direction (which direction shall be in writing or
by telephone, confirmed in writing promptly thereafter) of the Majority
Certificateholders shall, subject to Section 15.10(c) exercise all rights,
remedies, powers, privileges and claims of the Trust against the Loan Originator
or the Servicer under or in connection with this Agreement, including the right
or power to take any action to compel or secure performance or observance by the
Loan Originator or the Servicer, as the case may be, of each of their
obligations to the Trust thereunder and to give any consent, request, notice,
direction, approval, extension, or waiver under this Agreement, and any right of
the Trust to take such action shall be suspended.
Section 15.04 Accounting Upon Termination of Servicer.
Upon termination of the Servicer under this Article XV, the
Servicer shall, at its own expense:
(a) deliver to its successor or, if none shall yet have been
appointed, to the Owner Trustee the funds in any Trust Account maintained by the
Servicer;
(b) deliver to its successor or, if none shall yet have been
appointed, to the Owner Trustee all Loan Files and related documents and
statements held by it hereunder and a Loan portfolio computer tape;
(c) deliver to its successor or, if none shall yet have been
appointed, to the Owner Trustee and to the Trust and the Certificateholders a
full accounting of all funds, including a statement showing the Monthly Payments
collected by it and a statement of monies held in trust by it for payments or
charges with respect to the Loans; and
(d) execute and deliver such instruments and perform all acts
reasonably requested in order to effect the orderly and efficient transfer of
servicing of the Loans to its successor and to more fully and definitively vest
in such successor all rights, powers, duties, responsibilities, obligations and
liabilities of the Servicer under this Agreement.
Section 15.05. Certificate Events of Default.
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"Certificate Events of Default," wherever used herein, means
any one of the following events (whatever the reason for such Certificate 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) notwithstanding any insufficiency of funds in the
Distribution Account for distribution thereof on the related Distribution Date,
default in the distribution of any interest on any Certificate when the same
becomes distributable, and continuance of such default for a period of five (5)
days; or
(b) notwithstanding any insufficiency of funds in the
Distribution Account for distribution thereof on the related Distribution Date,
default in the distribution of any installment of the Overcollateralization
Shortfall of any Class A Certificate (i) on any Distribution Date or (ii) on the
Expected Final Distribution Date; or
(c) the occurrence of a Servicer Event of Default; or
(d) default in the observance or performance of any covenant
or agreement of the Trust made in any Basic Document to which it is a party
(other than a covenant or agreement, a default in the observance or performance
of which is elsewhere in this Section 5.01 specifically dealt with), or any
representation or warranty of the Trust made in any Basic Document to which it
is a party or in any certificate or other writing delivered pursuant thereto or
in connection therewith proving to have been incorrect in any material respect
as of the time when the same shall have been made, and such default shall
continue or not be cured, or the circumstance or condition in respect of which
such misrepresentation or warranty was incorrect shall not have been eliminated
or otherwise cured, for a period of 30 days after there shall have been given,
by registered or certified mail, to the Trust by the Owner Trustee, or to the
Trust, the Depositor and the Owner Trustee by Class A Certificateholders
evidencing at least 25% Percentage Interests, a written notice specifying such
default or incorrect representation or warranty and requiring it to be remedied
and stating that such notice is a notice of Default hereunder; or
(e) default in the observance or performance of any covenant
or agreement of the Transfer Obligor, Depositor or Loan Originator made in any
Basic Document to which it is a party or any representation or warranty of the
Transfer Obligor, Depositor or Loan Originator made in any Basic Document to
which it is a party, proving to have been incorrect in any material respect as
of the time when the same shall have been made, and such default shall continue
or not be cured, or the circumstance or condition in respect of which such
misrepresentation or warranty was incorrect shall not have been eliminated,
otherwise cured or remedied, for a period of 30 days (or such other time as
specified with respect to such representation or warranty) after there shall
have been given, by registered or certified mail, to the Transfer Obligor, Trust
and the Depositor by the Owner Trustee, or to the Trust, the Depositor and the
Owner Trustee by Class A Certificateholders evidencing at least 25% Percentage
Interests, a written notice specifying such Default or incorrect representation
or
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warranty and requiring it to be remedied and stating that such notice is a
notice of Default hereunder; or
(f) the filing of a decree or order for relief by a court
having jurisdiction over the Transfer Obligor, Loan Originator, Trust or the
Depositor in an involuntary case under any applicable federal or state
bankruptcy, insolvency or other similar law now or hereafter in effect, or the
appointing of a receiver, liquidator, assignee, custodian, trustee, sequestrator
or similar official of the Transfer Obligor, Loan Originator, Trust or the
Depositor, or the ordering of the winding-up or liquidation of the affairs of
the Transfer Obligor, Loan Originator, Trust or the Depositor, and such decree
or order shall remain unstayed and in effect for a period of 60 consecutive
days; or
(g) the commencement by the Transfer Obligor, Loan Originator,
Trust or the Depositor of a voluntary case under any applicable federal or state
bankruptcy, insolvency or other similar law now or hereafter in effect, or the
consent by the Transfer Obligor, Loan Originator, Trust or the Depositor to the
entry of an order for relief in an involuntary case under any such law, or the
consent by the Trust to the appointment or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
the Transfer Obligor, Loan Originator, Trust or the Depositor or for any
substantial part of the Owner Trust Estate, or the making by the Trust or the
Depositor of any general assignment for the benefit of creditors, or the failure
by the Transfer Obligor, Loan Originator, Trust or the Depositor generally to
pay its respective debts as such debts become due, or the taking of any action
by the Transfer Obligor, Loan Originator, Trust or the Depositor in furtherance
of any of the foregoing; or
(h) the Certificates shall be Outstanding on the day after the
Final Put Date; or
(i) on any day after the Closing Date, the Value Shortfall is
equal to or less than two percent of the Pool Principal Balance;
or
(j) on any day, the Market Value Agent shall have determined
the aggregate Market Value of the Loans is less than 112% of the aggregate Class
A Certificate Principal Balance;
The Trust shall deliver to the Owner Trustee, within five days
after the occurrence thereof, written notice in the form of an Officer's
Certificate of any event which with the giving of notice and the lapse of time
would become an Certificate Event of Default under clauses (d), (f) or (g)
above, the status of such event and what action the Trust or the Depositor, as
applicable, is taking or proposes to take with respect thereto.
Section 15.06. Acceleration of Maturity; Rescission and
Annulment.
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If an Certificate Event of Default should occur and be
continuing, then and in every such case the Owner Trustee, at the direction or
upon the prior written consent of the Majority Certificateholders, may declare
all the Class A Certificates to be immediately due and distributable, by a
notice in writing to the Trust (and to the Owner Trustee if given by Class A
Certificateholders), and upon any such declaration the unpaid principal amount
of such Class A Certificates, together with accrued and unpaid interest thereon
through the date of acceleration, shall become immediately due and
distributable.
At any time after such declaration of acceleration of maturity
has been made and before a judgment or decree for distribution of the moneys due
has been obtained by the Owner Trustee as hereinafter in this Article XV
provided, the Majority Certificateholders, by written notice to the Trust and
the Owner Trustee, may rescind and annul such declaration and its consequences
if:
(a) the Trust has paid or deposited with the Owner Trustee a
sum sufficient to pay:
1. all payments of principal of and/or interest on all Class A
Certificates and all other amounts that would then be due
hereunder or upon such Class A Certificates if the Certificate
Event of Default giving rise to such acceleration had not
occurred; and
2. all sums paid or advanced by the Owner Trustee hereunder and
the reasonable compensation, expenses, disbursements and
advances of the Owner Trustee and its agents and counsel; and
(b) all Certificate Events of Default, other than the
nonpayment of the Class A Certificates that has become due solely by such
acceleration, have been cured or waived as provided in Section 15.16 hereof. No
such rescission shall affect any subsequent default or impair any right
consequent thereto.
Section 15.07. Collection of Indebtedness and Suits for
Enforcement by Owner Trustee.
(a) The Trust covenants that if (i) default is made in the
distribution of any interest on any Class A Certificate when the same becomes
due and distributable, and such default continues for a period of five days, or
(ii) default is made in the distribution of the principal of or any installment
of the principal of any Class A Certificate when the same becomes due and
distributable, the Trust will, upon demand of the Owner Trustee, pay to the
Owner Trustee, for the benefit of the Class A Certificateholders, the whole
amount then due and distributable on such Class A Certificates for principal
and/or interest, with interest upon the overdue principal and, to the extent
distribution at such rate of interest shall be legally enforceable, upon overdue
installments of interest at the rate borne by the Class A Certificates and in
addition thereto such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Owner Trustee and its agents and counsel.
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(b) In case the Trust shall fail forthwith to distribute such
amounts upon such demand, the Owner Trustee shall at the direction of the
Majority Certificateholders, subject to Section 15.10(c) institute a Proceeding
for the collection of the sums so due and unpaid, and may prosecute such
Proceeding to judgment or final decree, and may enforce the same against the
Trust or other obligor upon such Class A Certificates and collect in the manner
provided by law out of the property of the Trust or other obligor upon such
Class A Certificates, wherever situated, the moneys adjudged or decreed to be
distributable.
(c) If an Certificate Event of Default occurs and is
continuing, the Owner Trustee shall at the direction of the Majority
Certificateholders, as more particularly provided in Section 15.08 hereof,
subject to Section 15.10(c) hereof, proceed to protect and enforce its rights
and the rights of the Certificateholders by such appropriate Proceedings as the
Owner Trustee shall deem most effective to protect and enforce any such rights,
whether for the specific enforcement of any covenant or agreement in this
Agreement or in aid of the exercise of any power granted herein, or to enforce
any other proper remedy or legal or equitable right vested in the Owner Trustee
by this Agreement or by law.
(d) In case there shall be pending, relative to the Trust or
any other obligor upon the Certificates or any Person having or claiming an
ownership interest in the Owner Trust Estate, Proceedings under Title 11 of the
United States Code or any other applicable federal or state bankruptcy,
insolvency or other similar law, or in case a receiver, assignee or trustee in
bankruptcy or reorganization, liquidator, sequestrator or similar official shall
have been appointed for or taken possession of the Trust or its property or such
other obligor or Person, or in case of any other comparable judicial Proceedings
relative to the Trust or other obligor upon the Class A Certificates, or to the
creditors or property of the Trust or such other obligor, the Owner Trustee,
irrespective of whether the principal of any Class A Certificates shall then be
due and distributable as therein expressed or by declaration or otherwise and
irrespective of whether the Owner Trustee shall have made any demand pursuant to
the provisions of this Section 15.07, shall be entitled and empowered by
intervention in such Proceedings or otherwise:
(i) to file and prove a claim or claims for the whole amount
of principal and/or interest owing and unpaid in respect of the Class A
Certificates and to file such other papers or documents as may be
necessary or advisable in order to have the claims of the Owner Trustee
(including any claim for reasonable compensation to the Owner Trustee,
each predecessor Owner Trustee, and its agents, attorneys and counsel,
and for reimbursement of all expenses and liabilities incurred, and all
advances made, by the Owner Trustee and each predecessor Owner Trustee,
except as a result of negligence or bad faith) and of the Class A
Certificateholders allowed in such Proceedings;
(ii) unless prohibited by applicable law and regulations, to
vote on behalf of the Class A Certificateholders in any election of a
trustee, a standby trustee or Person performing similar functions in
any such Proceedings;
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(iii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute all amounts
received with respect to the claims of the Class A Certificateholders
and the Owner Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims
of the Owner Trustee or the Class A Certificateholders allowed in any
judicial proceedings relative to the Trust, its creditors and its
property; and any trustee, receiver, liquidator, custodian or other
similar official in any such Proceeding is hereby authorized by each of
such Class A Certificateholders to make payments to the Owner Trustee
and, in the event that the Owner Trustee shall consent to the making of
payments directly to such Class A Certificateholders, to pay to the
Owner Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Owner Trustee, each predecessor Owner Trustee and
their respective agents, attorneys and counsel, and all other expenses
and liabilities incurred and all advances made by the Owner Trustee and
each predecessor Owner Trustee except as a result of negligence or bad
faith.
(e) Nothing herein contained shall be deemed to authorize the
Owner Trustee to authorize or consent to or vote for or accept or adopt on
behalf of any Class A Certificateholder any plan of reorganization, arrangement,
adjustment or composition affecting the Class A Certificates or the rights of
any Holder thereof or to authorize the Owner Trustee to vote in respect of the
claim of any Class A Certificateholder in any such proceeding except, as
aforesaid, to vote for the election of a trustee in bankruptcy or similar
Person.
(f) All rights of action and of asserting claims under this
Agreement, or under any of the Class A Certificates, may be enforced by the
Owner Trustee without the possession of any of the Class A Certificates or the
production thereof in any trial or other Proceedings relative thereto, and any
such action or Proceedings instituted by the Owner Trustee shall be brought in
its own name as trustee of an express trust, and any recovery of judgment,
subject to the payment of the expenses, disbursements and compensation of the
Owner Trustee, each predecessor Owner Trustee and their respective agents,
attorneys and counsel, shall be for the ratable benefit of the Class A
Certificateholders.
(g) In any Proceedings brought by the Owner Trustee (and also
any Proceedings involving the interpretation of any provision of this Agreement
to which the Owner Trustee shall be a party), the Owner Trustee shall be held to
represent all the Class A Certificateholders, and it shall not be necessary to
make any Class A Certificateholder a party to any such Proceedings.
Section 15.08. Remedies; Priorities.
(a) If a Certificate Event of Default shall have occurred and
be continuing, the Owner Trustee, at the direction of the Majority
Certificateholders, shall do one or more of the following (subject to Section
15.09 hereof):
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(i) institute Proceedings in its own name for the collection
of all amounts then distributable on the Class A Certificates or under
this Agreement with respect thereto, whether by declaration or
otherwise, enforce any judgment obtained, and collect from the Trust
and any other obligor upon such Certificates moneys adjudged due;
(ii) institute Proceedings from time to time for the complete
or partial foreclosure of this Agreement with respect to the Owner
Trust Estate;
(iii) exercise any remedies of a secured party under the UCC
and take any other appropriate action to protect and enforce the rights
and remedies of the Owner Trustee or the Class A Certificateholders;
and
(iv) sell the Owner Trust Estate or any portion thereof or
rights or interest therein in a commercially reasonable manner, at one
or more public or private sales called and conducted in any manner
permitted by law; provided, however, that the Owner Trustee may not
sell or otherwise liquidate the Owner Trust Estate following an Event
of Default, unless the Holders of 100% Percentage Interests of the
Outstanding Class A Certificates consent thereto, (B) the proceeds of
such sale or liquidation distributable to the Class A
Certificateholders are sufficient to discharge in full all amounts then
due and unpaid upon such Class A Certificates for principal and/or
interest or (C) the Owner Trustee determines that the Owner Trust
Estate will not continue to provide sufficient funds for the
distribution of principal of and interest on the Class A Certificates
as they mature if the early maturity of the Class A Certificates had
not been declared, and the Owner Trustee obtains the consent of Holders
of not less than 66-2/3% Percentage Interests of the Outstanding Class
A Certificates. In determining such sufficiency or insufficiency with
respect to clause (B) and (C) of this subsection (a)(iv), the Owner
Trustee may, but need not, obtain and rely upon an opinion of an
Independent investment banking or accounting firm of national
reputation as to the feasibility of such proposed action and as to the
sufficiency of the Owner Trust Estate for such purpose.
(b) If the Owner Trustee collects any money or property
pursuant to this Article XV, it shall pay out the money or property in the
following order:
FIRST: in the following order of priority: (a) to the Owner
Trustee, an amount equal to all unreimbursed Owner Trustee Fees and
indemnities and any other amounts payable to the Owner Trustee pursuant
to the Basic Documents and to the Owner Trustee or Sale Agents, as
applicable, all reasonable fees and expenses incurred by them and their
agents and representatives in connection with the enforcement of the
remedies provided for in this Article XV, (b) to the Custodian, an
amount equal to all unpaid Custodian Fees and indemnities and any other
amounts payable to the Custodian pursuant to the Basic Documents, (c)
to the Servicer, but only if the Servicer is not FINOVA Capital
Corporation or any Affiliate thereof, an amount equal to (i) all
unreimbursed Servicing Compensation and (ii) all unreimbursed
Nonrecoverable
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Servicing Advances, and (d) to the Servicer, in trust for the Owner
Trustee, an amount equal to the Owner Trustee Fee and all unpaid Owner
Trustee Fees from prior Distribution Dates;
SECOND: to distribute on a Distribution Date, the Hedge
Funding Requirement to the appropriate Hedging Counterparties;
provided, that only cash on or in respect of fixed rate or hybrid Loans
(including cash Disposition Proceeds received therefrom) shall be
distributed for such purpose and; provided, further, that amounts
distributed pursuant to clause FIRST above shall be deemed paid from
Loans bearing a fixed Loan Interest Rate, pro rata based on their
aggregate Principal Balances relative to the Pool Principal Balance on
such Distribution Date;
THIRD: to the Class A Certificateholders pro rata, all amounts
in respect of interest due and owing under the Class A Certificates;
FOURTH: to the Class A Certificateholders pro rata, all
amounts in respect of unpaid principal of the Class A Certificates;
FIFTH: to the appropriate Person, amounts in respect of
Trust/Depositor Indemnities and Due Diligence Fees until such amounts
are paid in full;
SIXTH: to the Servicer if the Servicer is the Loan Originator
or an Affiliate thereof, an amount equal to any unreimbursed Servicing
Compensation; and
SEVENTH: to the Owner Trustee, for any amounts to be
distributed pro rata to the holders of the Class B Certificates
pursuant to this Agreement.
The Owner Trustee may fix a record date and Distribution Date
for any distribution to be made to the Certificateholders pursuant to this
Section 15.08. At least 15 days before such record date, the Owner Trustee shall
mail to each Certificateholder and the Trust a notice that states the record
date, the Distribution Date and the amount to be distributed.
Section 15.09. Reserved.
Section 15.10. Limitation of Suits. No Class A
Certificateholder shall have any right to institute any Proceeding, judicial or
otherwise, with respect to this Agreement or for the appointment of a receiver
or trustee, or for any other remedy hereunder, unless:
(a) such Class A Certificateholder has previously given
written notice to the Owner Trustee of a continuing Certificate Event
of Default;
(b) the Class A Certificateholders evidencing not less than
25% Percentage Interests of the Outstanding Class A Certificates have
made written request to the Owner Trustee to institute such Proceeding
in respect of such Certificate Event of Default in its own name as
Owner Trustee hereunder;
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(c) such Class A Certificateholders have offered to the Owner
Trustee reasonable indemnity against the costs, expenses and
liabilities to be incurred in complying with such request;
(d) the Owner Trustee for 30 days after its receipt of such
notice, request and offer of indemnity has failed to institute such
Proceeding; and
(e) no direction inconsistent with such written request has
been given to the Owner Trustee during such 30-day period by the
Majority Certificateholders.
It is understood and intended that no one or more
Certificateholders shall have any right in any manner whatever by virtue of, or
by availing of, any provision of this Agreement to affect, disturb or prejudice
the rights of any other Certificateholders or to obtain or to seek to obtain
priority or preference over any other Certificateholders or to enforce any right
under this Agreement, except in the manner herein provided.
In the event the Owner Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Class A
Certificateholders, neither of which evidences Percentage Interests of the
Outstanding Class A Certificates greater than 50%, the Owner Trustee in its sole
discretion may determine what action, if any, shall be taken, notwithstanding
any other provisions of this Agreement and shall have no obligation or liability
to any such group of Certificateholders for such action or inaction.
Section 15.11. Unconditional Rights of Class A
Certificateholders to Receive Principal and/or Interest.
Notwithstanding any other provisions in this Agreement, any
Class A Certificateholder shall have the right, which is absolute and
unconditional, to receive distribution of the principal of and interest, if any,
on such Class A Certificate on or after the applicable Expected Final
Distribution Date thereof expressed in such Class A Certificate or in this
Agreement (or, in the case of redemption, on or after the Redemption Date) and
to institute suit for the enforcement of any such distribution, and such right
shall not be impaired without the consent of such Class A Certificateholder.
Section 15.12. Restoration of Rights and Remedies.
If the Owner Trustee or any Class A Certificateholder has
instituted any Proceeding to enforce any right or remedy under this Agreement
and such Proceeding has been discontinued or abandoned for any reason or has
been determined adversely to the Owner Trustee or to such Class A
Certificateholder, then and in every such case the Trust, the Owner Trustee and
the Class A Certificateholders shall, subject to any determination in such
Proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Trustee and the Class A
Certificateholders shall continue as though no such Proceeding had been
instituted.
Section 15.13. Rights and Remedies Cumulative.
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No right or remedy herein conferred upon or reserved to the
Owner Trustee or to the Certificateholders 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 15.14. Delay or Omission Not a Waiver.
No delay or omission of Owner Trustee or any Certificateholder
to exercise any right or remedy accruing upon any Default or Event of Default
shall impair any such right or remedy or constitute a waiver of any such Default
or Event of Default or an acquiescence therein. Every right and remedy given by
this Article XV or by law to the Owner Trustee or to the Certificateholders may
be exercised from time to time, and as often as may be deemed expedient, by the
Owner Trustee or by the Certificateholders, as the case may be.
Section 15.15. Control by Certificateholders.
The Majority Certificateholders shall have the right to direct
the time, method and place of conducting any Proceeding for any remedy available
to the Owner Trustee with respect to the Certificates or exercising any trust or
power conferred on the Owner Trustee; provided, however, that:
(a) such direction shall not be in conflict with any rule of
law or with this Agreement;
(b) subject to the express terms of Section 15.08(a)(iv)
hereof, any direction to the Owner Trustee to sell or liquidate the
Owner Trust Estate shall be by Holders of Certificates representing
Percentage Interests of the Outstanding Certificates of not less than
100%; and
(c) the Owner Trustee may take any other action deemed proper
by the Owner Trustee that is not inconsistent with such direction.
In connection with any sale of the Owner Trust Estate, the
Majority Certificateholders may, in their sole discretion appoint agents to
effect the sale of the Collateral (such agents, "Sale Agents"), which Sale
Agents may be Affiliates of any Certificateholder. The Sale Agents shall be
entitled to reasonable compensation in connection with such activities from the
proceeds of such sale.
Notwithstanding the rights of the Class A Certificateholders
set forth in this Section 15.15, subject to Section 12.01 hereof, the Owner
Trustee need not take any action that it determines might involve it in
liability or might materially adversely affect the rights of any Class A
Certificateholders not consenting to such action.
Section 15.16. Waiver of Past Defaults.
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The Majority Certificateholders may waive any past Default or
Event of Default and its consequences, except a Default (a) in the distribution
of principal of or interest on any of the Class A Certificates or (b) in respect
of a covenant or provision hereof that cannot be modified or amended without the
consent of each Class A Certificateholder. In the case of any such waiver, the
Trust, the Owner Trustee and Class A Certificateholders shall be restored to
their former positions and rights hereunder, respectively; but no such waiver
shall extend to any subsequent or other Default or impair any right consequent
thereto.
Upon any such waiver, such 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 Agreement; but no such waiver shall extend to any
subsequent or other Default or Event of Default or impair any right consequent
thereto.
Section 15.17. Undertaking for Costs.
All parties to this Agreement agree, and each
Certificateholder by such Certificateholder's acceptance thereof 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 Agreement, or in any suit
against the Owner Trustee for any action taken, suffered or omitted by it as
Owner 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 15.17 shall not apply to (a) any suit instituted by the Owner Trustee,
(b) any suit instituted by any Class A Certificateholder, or group of Class A
Certificateholders, in each case holding in the aggregate Percentage Interests
of the Outstanding Class A Certificates of more than 10% or (c) any suit
instituted by any Class A Certificateholder for the enforcement of the
distribution of principal of or interest on any Class A Certificate on or after
the respective due dates expressed in such Class A Certificate and in this
Agreement (or, in the case of redemption, on or after the Redemption Date).
Section 15.18. Waiver of Stay or Extension Laws.
The Trust covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, or 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, that may affect the covenants or
the performance of this Agreement; and the Trust (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 Owner Trustee, but will suffer and permit the
execution of every such power as though no such law had been enacted.
Section 15.19. Action on Certificates.
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The Owner Trustee's right to seek and recover judgment on the
Class A Certificates or under this Agreement shall not be affected by the
seeking, obtaining or application of any other relief under or with respect to
this Agreement. Neither the lien of this Agreement nor any rights or remedies of
the Owner Trustee or the Certificateholders shall be impaired by the recovery of
any judgment by the Owner Trustee against the Trust or by the levy of any
execution under such judgment upon any portion of the Owner Trust Estate. Any
money or property collected by the Owner Trustee shall be applied in accordance
with Section 15.08(b) hereof.
ARTICLE XVI
TERMINATION; PUT OPTION
Section 16.01 Termination.
(a) This Agreement shall terminate upon either: (a) the later
of (i) the distribution to the Class A Certificateholders of all amounts
distributable in accordance with the provisions hereof or (ii) the disposition
of all funds with respect to the last Loan and the remittance of all funds due
hereunder and the payment of all amounts due and payable, including, in both
cases, without limitation, indemnification payments payable pursuant to any
Basic Document to the Owner Trustee, the Trust and the Custodian, written notice
of the occurrence of either of which shall be provided to the Owner Trustee by
the Servicer; or (b) the mutual consent of the Servicer, the Depositor, the Loan
Originator and all Certificateholders in writing and delivered to the Owner
Trustee by the Servicer.
(b) This Agreement (other than Article XII) and the Trust
shall terminate and be of no further force or effect on the earlier of: (i) the
termination of this Agreement; and (ii) the expiration of 21 years from the
death of the last survivor of the descendants of Joseph P. Kennedy (the late
ambassador of the United States to the Court of St. James's) alive on the date
hereof. The bankruptcy, liquidation, dissolution, death or incapacity of any
Certificateholder shall not (x) operate to terminate this Agreement or the
Trust, nor (y) entitle such Certificateholder's legal representatives or heirs
to claim an accounting or to take any action or proceeding in any court for a
partition or winding up of all or any part of the Trust or Owner Trust Estate
nor (z) otherwise affect the rights, obligations and liabilities of the parties
hereto.
(c) The Certificates shall be subject to an early redemption
or termination at the option of the Majority Certificateholders in the manner
and subject to the provisions of Section 16.02 of this Agreement.
(d) Except as provided in Sections 16.01 and 16.02, none of
the Depositor, the Servicer nor any Certificateholder shall be entitled to
revoke or terminate the Trust.
Section 16.02 Optional Termination.
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(a) Class B Certificateholders evidencing a majority of the
Percentage Interest (the "Class B Majority") may, at their option, effect an
early termination of the Trust on any Distribution Date on or after the Clean-up
Call Date. The Class B Majority shall effect such early termination by providing
notice thereof to the Owner Trustee and by purchasing all of the Loans at a
purchase price, payable in cash, equal to or greater than the Termination Price.
The expense of any Independent appraiser required under this Section 16.02 shall
be a nonreimbursable expense of the Class B Majority.
Any such early termination by the Class B Majority shall be
accomplished by depositing into the Collection Account on the third Business Day
prior to the Distribution Date on which the purchase is to occur the amount of
the Termination Price to be distributed. The Termination Price and any amounts
then on deposit in the Collection Account (other than any amounts withdrawable
pursuant to Section 7.01(c)(1) hereof) shall be distributed by the Owner Trustee
pursuant to Section 7.01(c)(3) of this Agreement on the next succeeding
Distribution Date; and any amounts received with respect to the Loans and
Foreclosure Properties subsequent to the final Distribution Date shall belong to
the purchaser thereof.
(b) Form of Redemption Notice. Notice of redemption under
Section 16.02 hereof shall be by first-class mail, postage prepaid, or by
facsimile mailed or transmitted not later than 10 days prior to the applicable
Redemption Date to each Certificateholder, as of the close of business on the
Record Date preceding the applicable Redemption Date, at such
Certificateholder's address or facsimile number appearing in the Certificate
Register.
All notices of redemption shall state:
(i) the Redemption Date;
(ii) that on the Redemption Date Class A Certificateholders
shall receive the Class A Certificate Redemption Amount; and
(iii) the place where such Class A Certificates are to be
surrendered for distribution of the Termination Price (which shall be
the office or agency of the Trust to be maintained as provided in
Section 4.09(b) hereof).
Notice of redemption of the Class A Certificates shall be
given by the Owner Trustee in the name of the Trust and at the expense of the
Servicer. Failure to give to any Class A Certificateholder notice of redemption,
or any defect therein, shall not impair or affect the validity of the redemption
of any other Class A Certificate.
(c) Class A Certificates Mature on Redemption Date; Provision
for Payment of Owner Trustee. The Class A Certificates to be redeemed shall,
following notice of redemption as required by Section 16.02 hereof, on the
Redemption Date shall mature in an amount equal to the Class A Certificate
Redemption Amount and (unless the Trust shall default in the distribution of the
Class A Certificate Redemption Amount) no interest shall accrue thereon for any
period after the date to which accrued interest is calculated for purposes of
calculating the Class A Certificate Redemption Amount. The Trust may not redeem
the Class
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A Certificates unless (i) all outstanding obligations under the Class A
Certificates have been fulfilled and (ii) the Owner Trustee has been paid all
amounts to which it is entitled hereunder.
Section 16.03 Notice of Termination; Cancellation of
Certificate of Trust.
(a) Notice of termination of this Agreement or of early
redemption and termination of the Trust shall be sent by the Owner Trustee to
the Certificateholders in accordance with Section 16.02 of this Agreement.
(b) Upon the winding up of the Trust and its termination, the
Owner Trustee shall cause the Certificate of Trust to be canceled by filing a
certificate of cancellation with the Secretary of State in accordance with the
provisions of Section 3810 of the Business Trust Statute.
Section 16.04 Put Option.
(a) The Majority Certificateholders may, at their option, put
the Class A Certificates to the Trust on any date upon giving notice in the
manner set forth in Section 16.05. On the Put Date, the Trust shall purchase the
Certificates in the manner specified in and subject to the provisions of Section
16.04(b).
(b) On the Business Day prior to the Distribution Date on
which the exercise of the Put Option is to occur the Trust shall deposit the
Class A Certificate Redemption Amount into the Collection Account and any
amounts then on deposit in the Collection Account (other than any amounts
withdrawable pursuant to Section 7.01(c)(1) hereof) shall be distributed by the
Owner Trustee pursuant to Section 7.01(c)(3) of this Agreement on the next
succeeding Distribution Date; and any amounts received with respect to the Loans
and Foreclosure Properties subsequent to the final Distribution Date shall
belong to the Trust.
Section 16.05 Form of Put Option Notice.
Notice of exercise of the Put Option under Section 16.04
hereof shall be given by the Majority Certificateholders by first-class mail,
postage prepaid, or by facsimile mailed or transmitted not later than 15 days
prior to the date on which the Class A Certificates shall be repurchased by the
Trust (the "Final Put Date"). The Final Put Date may be extended with the
consent of the Majority Certificateholders. All notices of exercise of the Put
Option shall state the Final Put Date. The Put Date will be subject to mutual
agreement between the Trust and the Majority Certificateholders, but in any case
will not be later than the Final Put Date.
Section 16.06 Class A Certificates Mature on Put Date.
The Class A Certificates to be put to the Trust shall,
following notice of the exercise of the Put Option as required by Section 16.05
hereof, on the Put Date shall mature in an amount equal to the Class A
Certificate Redemption Amount and (unless the Trust shall default in the
distribution of the Class A Certificate Redemption Amount) no interest shall
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accrue thereon for any period after the date to which accrued interest is
calculated for purposes of calculating the Class A Certificate Redemption
Amount.
ARTICLE XVII
MISCELLANEOUS PROVISIONS
Section 17.01 Acts of Certificateholders.
Except as otherwise specifically provided herein, whenever
action, consent or approval of the Certificateholders is required under this
Agreement, such action, consent or approval shall be deemed to have been taken
or given on behalf of, and shall be binding upon, all Certificateholders if the
Majority Certificateholders agree to take such action or give such consent or
approval.
Section 17.02 Amendment.
(a) This Agreement may be amended from time to time by the
Depositor, the Servicer, the Loan Originator, the Owner Trustee and the Trust by
written agreement with notice thereof to the Certificateholders, without the
consent of any of the Certificateholders, to cure any error or ambiguity, to
correct or supplement any provisions hereof which may be defective or
inconsistent with any other provisions hereof or to add any other provisions
with respect to matters or questions arising under this Agreement; provided,
however, that such action will not adversely affect in any material respect the
interests of the Certificateholders. An amendment described above shall be
deemed not to adversely affect in any material respect the interests of the
Certificateholders if an Opinion of Counsel is obtained to such effect.
(b) This Agreement may also be amended from time to time by
the Depositor, the Servicer, the Loan Originator, the Owner Trustee and the
Trust by written agreement, with the prior written consent of the Majority
Certificateholders, for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Agreement, or of
modifying in any manner the rights of the Certificateholders; provided, however,
that no such amendment shall (i) reduce in any manner the amount of, or delay
the timing of, collections of payments on Loans or distributions which are
required to be made on any Certificate, without the consent of the holders of
100% of the Certificates, (ii) adversely affect in any material respect the
interests of any of the holders of the Certificates in any manner other than as
described in clause (i), without the consent of the holders of 100% of the
Certificates, or (iii) reduce the percentage of the Certificates, the consent of
which is required for any such amendment, without the consent of the holders of
100% of the Certificates.
(c) It shall not be necessary for the consent of
Certificateholders under this Section to approve the particular form of any
proposed amendment, but it shall be sufficient if such consent shall approve the
substance thereof.
Prior to the execution of any amendment to this Agreement, the
Trust and the Owner Trustee shall be entitled to receive and rely upon an
Opinion of Counsel stating that the
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execution of such amendment is authorized or permitted by this Agreement. The
Trust and the Owner Trustee may, but shall not be obligated to, enter into any
such amendment which affects the Trust's own rights, duties or immunities of the
Trust or the Owner Trustee, as the case may be, under this Agreement.
Section 17.03 Recordation of Agreement.
To the extent permitted by applicable law, this Agreement, or
a memorandum thereof if permitted under applicable law, is subject to
recordation in all appropriate public offices for real property records in all
of the counties or other comparable jurisdictions in which any or all of the
Mortgaged Property is situated, and in any other appropriate public recording
office or elsewhere, such recordation to be effected by the Servicer at the
Certificateholders' expense on direction of the Majority Certificateholders but
only when accompanied by an Opinion of Counsel to the effect that such
recordation materially and beneficially affects the interests of the
Certificateholders or is necessary for the administration or servicing of the
Loans.
Section 17.04 Duration of Agreement.
This Agreement shall continue in existence and effect until
terminated as herein provided.
Section 17.05 Governing Law.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF DELAWARE AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
Section 17.06 Notices.
All demands, notices and communications hereunder shall be in
writing and shall be deemed to have been duly given if (i) delivered personally,
mailed by overnight mail, certified mail or registered mail, postage prepaid, or
(ii) transmitted by telecopy, upon telephone confirmation of receipt thereof
(with a copy delivered by overnight courier), as follows: (I) in the case of the
Depositor, to FINOVA Realty Capital Warehouse Funding, L.P., c/o FINOVA Realty
Capital Funding Inc., 1850 N. Central Ave., Phoenix, AZ 85004, Attention:
Frederick C. Bauman, telecopy number: (602) 207-5036, telephone number: (602)
207-6904 or such other addresses or telecopy or telephone numbers as may
hereafter be furnished to the Certificateholders and the other parties hereto in
writing by the Depositor; (II) in the case of the Trust, to FINOVA Commercial
Mortgage Loan Owner Trust 1998-1, c/o Wilmington Trust Company, Rodney Square
North, 1100 North Market Street, Wilmington, Delaware 19890, Attention:
Corporate Trust Administration, telecopy number: (302) 651-8882, telephone
number: (302) 651-1000 or such other address or telecopy or telephone numbers as
may hereafter be furnished to the Certificateholders and the other parties
hereto in
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writing by the Depositor; (III) in the case of the Loan Originator, to FINOVA
Capital Corporation, 1850 N. Central Ave., Phoenix, AZ 85004, Attention:
Frederick C. Bauman, telecopy number: (602) 207-5036, telephone number: (602)
207-6904 or such other addresses or telecopy or telephone numbers as may
hereafter be furnished to the Certificateholders and the other parties hereto in
writing by the Loan Originator or Servicer, (IV) in the case of the Owner
Trustee, to Wilmington Trust Company, Rodney Square North, 1100 North Market
Street, Wilmington, Delaware 19890, Attention: Corporate Trust Administration,
telecopy number: (302) 651-8882, telephone number: (302) 651-1000 or such other
addresses or telecopy or telephone numbers as may hereafter be furnished to the
Certificateholders and the other parties hereto in writing by the Owner Trustee
(V) in the case of the Transfer Obligor, to FINOVA Capital Corporation, 1850 N.
Central Ave., Phoenix, AZ 85004, Attention: Frederick C. Bauman, telecopy
number: (602) 207-5036, telephone number: (602) 207-6904 or such other addresses
or telecopy or telephone numbers as may hereafter be furnished to the
Certificateholders and the other parties hereto in writing by the Transfer
Obligor (VI) in the case of the Servicer, to FINOVA Capital Corporation, 1850 N.
Central Ave., Phoenix, AZ 85004, Attention: Frederick C. Bauman, telecopy
number: (602) 207-5036, telephone number: (602) 207-6904 or such other addresses
or telecopy or telephone numbers as may hereafter be furnished to the
Certificateholders and the other parties hereto in writing by the Servicer; and
(VII) in the case of the Certificateholders, as set forth in the Certificate
Register. Any such notices shall be deemed to be effective with respect to any
party hereto upon the receipt of such notice or telephone confirmation thereof
by such party, except; provided, that notices to the Certificateholders shall be
effective upon mailing or personal delivery.
Section 17.07 Severability of Provisions.
If any one or more of the covenants, agreements, provisions or
terms of this Agreement shall be held invalid for any reason whatsoever, then
such covenants, agreements, provisions or terms shall be deemed severable from
the remaining covenants, agreements, provisions or terms of this Agreement and
shall in no way affect the validity or enforceability of the other covenants,
agreements, provisions or terms of this Agreement.
Section 17.08 No Legal Title to Owner Trust Estate in
Certificateholders.
The Certificateholders shall not have legal title to any part
of the Owner Trust Estate. The Certificateholders shall be entitled to receive
distributions with respect to their undivided ownership interest therein only in
accordance with the terms of this Agreement. No transfer, by operation of law or
otherwise, of any right, title, or interest of the Certificateholders to and in
their ownership interest in the Owner Trust Estate shall operate to terminate
this Agreement or the trusts hereunder or entitle any transferee to an
accounting or to the transfer to it of legal title to any part of the Owner
Trust Estate.
Section 17.09 Counterparts.
This Agreement may be executed in one or more counterparts and
by the different parties hereto on separate counterparts, each of which, when so
executed, shall be
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deemed to be an original; such counterparts, together, shall constitute one and
the same Agreement.
Section 17.10 Successors and Assigns.
This Agreement shall inure to the benefit of and be binding
upon the Servicer, the Loan Originator, the Depositor, the Owner Trustee, the
Trust and the Certificateholders and their respective successors and permitted
assigns.
Section 17.11 Headings.
The headings of the various sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed to be
part of this Agreement.
Section 17.12 Actions of Certificateholders.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Agreement to be given or taken
by Certificateholders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Certificateholders in
person or by 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 Depositor, the Servicer or the Trust. Proof of
execution of any such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this Agreement and conclusive in favor of the
Depositor, the Servicer and the Trust if made in the manner provided in this
Section 17.12.
(b) The fact and date of the execution by any
Certificateholder of any such instrument or writing may be proved in any
reasonable manner which the Depositor, the Servicer or the Trust deems
sufficient.
(c) Any request, demand, authorization, direction, notice,
consent, waiver or other act by a Certificateholder shall bind every holder of
every Certificate 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 Depositor, the Servicer or the Trust in reliance thereon,
whether or not notation of such action is made upon such Certificate.
(d) The Depositor, the Servicer or the Trust may require
additional proof of any matter referred to in this Section 17.12 as it shall
deem necessary.
Section 17.13 Non-Petition Agreement.
Notwithstanding any prior termination of any Basic Document,
the Loan Originator, the Servicer, the Depositor and the Owner Trustee each
severally and not jointly covenants that it shall not, prior to the date which
is one year and one day after the distribution in full of the all of the Class A
Certificates, acquiesce, petition or otherwise, directly or indirectly, invoke
or cause the Trust or the Depositor to invoke the process of any
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governmental authority for the purpose of commencing or sustaining a case
against the Trust or Depositor under any Federal or state bankruptcy, insolvency
or similar law or appointing a receiver, liquidator, assignee, trustee,
custodian, sequestrator or other similar official of the Trust or Depositor or
any substantial part of their respective property or ordering the winding up or
liquidation of the affairs of the Trust or the Depositor.
Section 17.14 Holders of the Certificates.
(a) Any sums to be distributed or otherwise distributed
hereunder or under this Agreement to the holders of the Certificates shall be
distributed to such holders pro rata based on their Percentage Interests;
(b) Where any act or event hereunder is expressed to be
subject to the consent or approval of the holders of the Certificates, such
consent or approval shall be capable of being given by the holder or holders
evidencing in the aggregate not less than 51% of the Percentage Interests.
Section 17.15 Due Diligence Fees, Due Diligence.
(a) The Trust agrees to pay the Initial Class A
Certificateholder in accordance with Section 7.01(c)(3)(vi) all of the
reasonable out-of-pocket costs and expenses incurred in connection with the
administration of the transactions contemplated by the Basic Documents including
without limitation all the due diligence, inspection, testing and review costs
and expenses incurred by the Initial Class A Certificateholder with respect to
Loans conveyed under this Agreement, including, but not limited to, those costs
and expenses incurred by the Initial Class A Certificateholder pursuant to
Section 17.15 hereof (the "Due Diligence Fees"), provided that unless a Trigger
Event (as defined below) shall have occurred with respect to the applicable
Loans, such Due Diligence Fees shall be limited to $25,000 per annum with
respect to all Loans other than the Loans listed in clause (1) above.
(b) For purposes of this Section, a "Trigger Event" shall mean
(A) with respect to all Loans, either (i) an Event of Default, or (ii) greater
than 10% of the Loans (measured by number of Loans) reviewed pursuant to this
Section during any period of time materially and adversely fail to conform to
Loan Originator's Underwriting Guidelines.
(c) Each of the Servicer, Loan Originator and Trust
acknowledge that the Initial Class A Certificateholder has the right to perform
continuing due diligence reviews with respect to the Loans, for purposes of
verifying compliance with the representations, warranties and specifications
made hereunder, or otherwise, and the Servicer, Loan Originator and the Trust
agree that upon reasonable (but no less than one (1) Business Day's) prior
notice to the Servicer, the Loan Originator and the Trust, the Initial Class A
Certificateholder or its authorized representatives will be permitted during
normal business hours to examine, inspect, and make copies and extracts of, the
Custodial Loan Files and any and all documents, records, agreements, instruments
or information relating to such Loans in the possession or under the control of
the Servicer, the Loan Originator and the Trust and/or the Custodian including
without limitation, copies of all internal credit analysis and professional
reports. The Servicer,
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the Loan Originator and the Trust also shall make available to the Initial Class
A Certificateholder a knowledgeable financial or accounting officer for the
purpose of answering questions respecting the Custodial Loan Files and the
Loans. Without limiting the generality of the foregoing, the Servicer, Loan
Originator and the Trust acknowledge that the Initial Class A Certificateholder
may purchase the Class A Certificates based solely upon the information provided
by each of the Servicer, Loan Originator and the Trust to the Initial Class A
Certificateholder in the Servicer's Loan Files and the representations,
warranties and covenants contained herein, and that the Initial Class A
Certificateholder, at its option, has the right at any time to conduct a partial
or complete due diligence review on some or all of the Loans securing such
purchase, including without limitation ordering new credit reports and new
appraisals on the related Mortgaged Properties and otherwise re-generating the
information used to originate such Loan. The Initial Class A Certificateholder
may underwrite such Loans itself or engage a mutually agreed upon third party
underwriter to perform such underwriting. The Servicer, the Loan Originator and
the Trust agree to cooperate with the Initial Class A Certificateholder and any
third party underwriter in connection with such underwriting, including, but not
limited to, providing the Initial Class A Certificateholder and any third party
underwriter with access to any and all documents, records, agreements,
instruments or information relating to such Loans in the possession or under the
control, of the Servicer, the Loan Originator and the Trust.
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IN WITNESS WHEREOF, the Trust, the Depositor, the Servicer,
the Loan Originator, the Transfer Obligor and the Owner Trustee have caused
their names to be signed by their respective officers thereunto duly authorized,
as of the day and year first above written, to this TRUST AND SERVICING
AGREEMENT.
FINOVA COMMERCIAL MORTGAGE LOAN OWNER TRUST 1998-1,
By: Wilmington Trust Company,
not in its individual capacity
but solely as Owner Trustee
By: /s/ James P. Lawler
------------------------------------------
Name: James P. Lawler
Title: Vice President
FINOVA REALTY CAPITAL WAREHOUSE FUNDING, L.P.,
as Depositor
By: FINOVA Warehouse Funding Inc.,
as General Partner
By: /s/ Melissa Huckins
------------------------------------------
Name: Melissa Huckins
Title: Vice President - Assistant Treasurer
FINOVA CAPITAL CORPORATION,
as Loan Originator
By: /s/ Meilee Smythe
------------------------------------------
Name: Meilee Smythe
Title: Senior Vice President - Treasurer
FINOVA CAPITAL CORPORATION,
as Transfer Obligor
By: /s/ Meilee Smythe
------------------------------------------
Name: Meilee Smythe
Title: Senior Vice President - Treasurer
<PAGE> 165
FINOVA CAPITAL CORPORATION,
as Servicer
By: /s/ Bruno A. Marzowski
------------------------------------------
Name: Bruno A. Marzowski
Title: Senior Vice President - Controller
& Chief Financial Officer
WILMINGTON TRUST COMPANY,
as Owner Trustee
By: /s/ James P. Lawler
------------------------------------------
Name: James P. Lawler
Title: Vice President
FINOVA WAREHOUSE FUNDING INC.,
as to Sections 4.01(p) to 4.01(u)
By: /s/ Virginia Nelson
------------------------------------------
Name: Virginia Nelson
Title: Vice President - Cash Management &
Treasury Operations
<PAGE> 166
THE STATE OF New York )
---------------- )
COUNTY OF New York )
-------------------
BEFORE ME, the undersigned authority, a Notary Public, on this
24th day of September 1998 personally appeared James Lawler, known to me to be a
person and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said Wilmington Trust
Company, not in its individual capacity but in its capacity as Responsible
Officer of FINOVA COMMERCIAL MORTGAGE LOAN OWNER TRUST 1998-1 as Trust, and that
he executed the same as the act of such corporation for the purpose and
consideration therein expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF WILMINGTON TRUST COMPANY this
the 24th day of September, 1998.
/s/ Patricia A. Keogh
Notary Public, State of New York
<PAGE> 167
THE STATE OF Arizona )
)
COUNTY OF Maricopa )
BEFORE ME, the undersigned authority, a Notary Public, on this
29th day of September 1998 personally appeared Melissa Huckins, known to me to
be the person and officer whose name is subscribed to the foregoing instrument
and acknowledged to me that the same was the act of the said FINOVA Warehouse
Funding Inc., the general partner of the Depositor, FINOVA Realty Capital
Warehouse Funding, L.P., and that she executed the same as the act of such
corporate for the purpose and consideration therein expressed, and in the
capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF this the 29th day of
September, 1998.
/s/Gail B. McCollum
Notary Public, State of Arizona
<PAGE> 168
THE STATE OF Arizona )
)
COUNTY OF Maricopa )
BEFORE ME, the undersigned authority, a Notary Public, on this
29th day of September 1998 personally appeared Meilee Smythe, known to me to be
the person and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said FINOVA CAPITAL
CORPORATION as the Transfer Obligor, and that she executed the same as the act
of such entity for the purposes and consideration therein expressed, and in the
capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF this the 29th day of
September, 1998.
/s/Gail B. McCollum
Notary Public, State of Arizona
<PAGE> 169
THE STATE OF Arizona )
)
COUNTY OF Maricopa )
BEFORE ME, the undersigned authority, a Notary Public, on this
29th day of September 1998 personally appeared Virginia Nelson, known to me to
be the person and officer whose name is subscribed to the foregoing instrument
and acknowledged to me that the same was the act of the said FINOVA WAREHOUSE
FUNDING INC., and that she executed the same as the act of such entity for the
purposes and consideration therein expressed, and in the capacity therein
stated.
GIVEN UNDER MY HAND AND SEAL OF this the 29th day of
September, 1998.
/s/ Gail B. McCollum
Notary Public, State of Arizona
<PAGE> 170
EXHIBIT D
[Reserved]
D-1
<PAGE> 171
EXHIBIT E-1
TO THE TRUST AND SERVICING AGREEMENT
FORM OF CLASS A CERTIFICATE
E-1
<PAGE> 172
EXHIBIT F
TO THE TRUST AND SERVICING AGREEMENT
CERTIFICATE OF TRUST OF
FINOVA COMMERCIAL MORTGAGE LOAN OWNER TRUST 1998-1
THIS Certificate of Trust of FINOVA Commercial Mortgage Loan Owner
Trust 1998-1 (the "Trust"), dated September __, 1998, is being duly executed and
filed by Wilmington Trust Company, a Delaware banking corporation, as trustee,
to form a business trust under the Delaware Business Trust Act (12 Del. Code,
Section 3801 et seq.).
1. Name. The name of the business trust formed hereby is FINOVA
Commercial Mortgage Loan Owner Trust 1998-1.
2. Delaware Trustee. The name and business address of the trustee of
the Trust in the State of Delaware is Wilmington Trust Company, 1100 North
Market Street, Wilmington, Delaware, Attention: Corporate Trust Administration,
telecopy number: (302) 651-8882, telephone number: (302) 651-1000.
* * *
F-1
<PAGE> 173
IN WITNESS WHEREOF, the undersigned, being the owner trustee of the
Trust, has executed this Certificate of Trust as of the date first above
written.
WILMINGTON TRUST COMPANY,
not in its individual capacity but
solely as owner trustee under a
Trust and Servicing Agreement
dated as of September 1, 1998
By: ________________________________
Name:
Title:
F-2
<PAGE> 174
EXHIBIT G
TO THE TRUST AND SERVICING AGREEMENT
BAILEE AGREEMENT
September ___, 1998
[NAME OF BAILEE]
[ADDRESS OF BAILEE]
Attention: ______________________
Re: Bailee Agreement (the "Bailee Agreement") in connection with
the sale of certain Loans by FINOVA Capital Corporation (the
"Loan Originator") and FINOVA Realty Capital Warehouse
Funding, L.P. (the "Depositor") to FINOVA Commercial Mortgage
Loan Owner Trust 1998-1 (the "Trust").
Gentlemen and Mesdames:
In consideration of the mutual promises set forth herein and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Loan Originator, Morgan Stanley Securitization Funding Inc.
(the "Initial Class A Certificateholder") and ________________________ (the
"Bailee") hereby agree as follows:
1. The Loan Originator shall deliver to the Bailee in connection with
any Loans delivered to the Bailee hereunder an Identification Certificate in the
form of Attachment A attached hereto to which shall be attached a Loan Schedule
identifying which Loans are being delivered to the Bailee hereunder. Such Loan
Schedule shall contain the following fields of information: (i) the Loan
identifying number, (ii) the Borrower's name, (iii) the street address, city,
county, state and zip code of the related Mortgaged Property, (iv) the Transfer
Cutoff Date Principal Balance, (v) the Loan Interest Rate as of the Transfer
Cutoff Date, (vi) if such Loan is an Adjustable Rate Loan, the Index thereof,
the Gross Margin thereof, the Loan Interest Rate of the Loan, the Loan Interest
Rate Cap, the loan interest floor, if any, and the Interest Rate Adjustment Date
of the Loan, (vii) if such Loan is an Adjustable Rate Loan converting to a fixed
rate Loan, or vice versa, the conversion date thereof, (viii) whether the Loan
is a Commercial Loan or a Multifamily Loan, (ix) the origination date of the
Loan, (x) the maturity date of the Loan, (xi) the amount of the Monthly Payment,
(xii) the current Loan Interest Rate, (xiii) a flag indicating a balloon
payment, (xiv) the Appraised Value, (xv) the LTV, (xvi) whether a "lockout"
period exists, and if so, the duration thereof, and (xvii) the property type,
i.e. office or retail.
2. On or prior to the date indicated on the Identification Certificate
delivered by the Loan Originator (the "Transfer Date"), the Loan Originator
shall have caused to be delivered to the Bailee, as bailee for hire, the
following original documents (collectively,
G-1
<PAGE> 175
the "Custodial Loan File") for each loan (the "Loans") listed in Exhibit 1
attached hereto (the "Loan Schedule"):
(a) The original Promissory Note bearing all intervening
endorsements, endorsed "Pay to the order of _________ without
recourse" and signed in the name of the last endorsee (the
"Last Endorsee") by an authorized Person (in the event that
the Loan was acquired by the Last Endorsee in a merger, the
signature must be in the following form: "[Last Endorsee],
successor by merger to [name of predecessor]"; in the event
that the Loan was acquired or originated by the Last Endorsee
while doing business under another name, the signature must be
in the following form: "[Last Endorsee], formerly known as
[previous name]").
(b) The original of any guarantee executed in connection with the
Promissory Note (if any).
(c) The original Mortgage with evidence of recording thereon, or a
copy thereof together with an Officer's Certificate of the
Loan Originator certifying that such represents a true and
correct copy of the original and that such original has been
submitted for recordation in the appropriate governmental
recording office of the jurisdiction where the Mortgaged
Property is located.
(d) The originals of all assumption, modification, consolidation
or extension agreements with evidence of recording thereon, or
copies thereof together with an Officer's Certificate of the
Loan Originator certifying that such represent true and
correct copies of the originals and that such originals have
each been submitted for recordation in the appropriate
governmental recording office of the jurisdiction where the
Mortgaged Property is located.
(e) The original Assignment of Mortgage in blank for each Loan, in
form and substance acceptable for recording and signed in the
name of the Last Endorsee (in the event that the Loan was
acquired by the Last Endorsee in a merger, the signature must
be in the following form: "[Last Endorsee], successor by
merger to [name of predecessor]"; in the event that the Loan
was acquired or originated while doing business under another
name, the signature must be in the following form: "[Last
Endorsee], formerly known as [previous name]").
(f) The originals of all intervening assignments of mortgage with
evidence of recording thereon, or copies thereof together with
an Officer's Certificate of the Loan Originator certifying
that such represent true and correct copies of the originals
and that such
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<PAGE> 176
originals have each been submitted for recordation in the
appropriate governmental recording office of the jurisdiction
where the Mortgaged Property is located.
(g) The original attorney's opinion of title and abstract of title
or the original mortgagee title insurance policy, or if the
original mortgagee title insurance policy has not been issued,
the irrevocable commitment to issue the same.
(h) The original of any security agreement, chattel mortgage or
equivalent document executed in connection with the Loan.
(i) The original assignment of leases and rents, if any, with
evidence of recording thereon, or a copy thereof together with
an Officer's Certificate of the Loan Originator certifying
that such copy represents a true and correct copy of the
original that has been submitted for recordation in the
appropriate governmental recording office of the jurisdiction
where the Mortgaged Property is located.
(j) The original assignment of assignment of leases and rents, if
any, from the Loan Originator in blank, in form and substance
acceptable for recording.
(k) A copy of the UCC-1 Financing Statements, certified as true
and correct by the Loan Originator, and all necessary UCC-3
Continuation Statements with evidence of filing thereon or
copies thereof certified by the Loan Originator to have been
sent for filing, and UCC-3 Assignments executed by the Loan
Originator in blank, which UCC-3 Assignments shall be in form
and substance acceptable for filing.
(l) An environmental indemnity agreement (if any).
(m) An omnibus assignment in blank (if any).
(n) A disbursement letter from the Borrower to the original
mortgagee (if any).
(o) Borrower's certificate or title affidavit (if any).
(p) A survey of the Mortgaged Property (if any).
(q) A copy of the Borrower's opinion of counsel (if any).
3. The Bailee shall issue and deliver to the Owner Trustee and the
Custodian prior to 10:00 a.m. New York City time on the Transfer Date by
facsimile (a) in the
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<PAGE> 177
name of the Owner Trustee, an initial trust receipt and certification in the
form of Attachment B attached hereto (the "Trust Receipt") which Trust Receipt
shall state that the Bailee has received the documents comprising each Custodial
Loan File as listed in Paragraph 2 hereof for each Loan listed on the Loan
Schedule except for such documents listed on the Loan Schedule and Exception
report attached thereto and (b) a copy of the executed documents listed in
Paragraph 2(a), and (e).
For purposes of this Bailee Agreement:
(a) the "Loan Schedule and Exception Report" shall mean a list of Loans
delivered by the Bailee to the Initial Class A Certificateholder and the Owner
Trustee on the Transfer Date, reflecting the Loans held by the Bailee for the
benefit of the Owner Trustee, which includes codes indicating any Exceptions
with respect to each Loan listed thereon. Each Loan Schedule and Exception
Report shall set forth (a) the Loans being conveyed to the Owner Trustee on the
Transfer Date as well as the Loans previously conveyed to the Owner Trustee (if
any) and held by the Bailee under this Bailee Agreement, and (b) all Exceptions
with respect thereto, with any updates thereto from the time last delivered; and
(b) an "Exception" shall mean, with respect to any Loan, any of the
following: (i). the variances from the requirements of Section 2 hereof with
respect to the Custodial Loan Files (giving effect to the Loan Originator's
right to deliver certified copies in lieu of original documents in certain
circumstances), and (ii) any Loan with respect to which the Bailee receives
written notice or has actual knowledge of a lien or security interest in favor
of a person other than the Owner Trustee with respect to such Loan.
4. On the applicable Transfer Date, in the event that the Initial Class
A Certificateholder fails to Purchase Class A Certificates secured by the Loans
identified in the related Identification Certificate, the Initial Class A
Certificateholder shall deliver by facsimile to the Bailee at ( ) ____-______ to
the attention of ______________ an authorization (the "Facsimile Authorization")
to release the Custodial Loan Files with respect to the Loans identified therein
to the Loan Originator. Upon receipt of such Facsimile Authorization, the Bailee
shall release the Custodial Loan Files to the Loan Originator in accordance with
the Loan Originator's instructions.
5. Following the Transfer Date, the Bailee shall forward the Custodial
Loan Files to (i) LaSalle National Bank, 135 South LaSalle Street, Suite 1625,
Chicago, Illinois 60674-4107 Attention: FINOVA Commercial Mortgage Loan Owner
Trust 1998-1 c/o Mark Henrikson (the "Custodian") by insured overnight courier
for receipt by the Custodian or (ii) the Loan Originator at the direction of the
Initial Class A Certificateholder with respect to Loans for which the Bailee
received a Facsimile Authorization, in each case no later than three (3)
Business Days following the applicable Transfer Date (the "Delivery Date").
6. From and after the applicable Transfer Date until the time of
receipt of the Facsimile Authorization, the Bailee (a) shall maintain continuous
custody and control of the related Custodial Loan Files as bailee for the Owner
Trustee unless the same are delivered to the Custodian in accordance with
paragraph 5, and (b) is holding the related Loans as sole and
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<PAGE> 178
exclusive bailee for the Owner Trustee unless and until otherwise instructed in
writing by the Owner Trustee.
7. The Loan Originator agrees to indemnify and hold the Bailee and its
directors, officers, agents and employees harmless against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever, including
reasonable attorney's fees, that may be imposed on, incurred by, or asserted
against it or them in any way relating to or arising out of this Bailee
Agreement or any action taken or not taken by it or them hereunder unless such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements were imposed on, incurred by or asserted
against the Bailee because of the breach by the Bailee of its obligations
hereunder, which breach was caused by negligence, lack of good faith or willful
misconduct on the part of the Bailee or any of its directors, officers, agents
or employees. The foregoing indemnification shall survive any resignation or
removal of the Bailee or the termination or assignment of this Bailee Agreement.
8. (a) In the event that the Bailee fails to deliver a Promissory Note,
Assignment of Mortgage or any other document related to a Loan that was in its
possession (a "Custodial Delivery Failure"), and provided that the Bailee
previously delivered to the Owner Trustee a Trust Receipt which did not list
such document as an Exception on the Transfer Date; the Bailee shall indemnify
the Owner Trustee or Loan Originator in accordance with the succeeding paragraph
of this Section 8.
(b) The Bailee agrees to indemnify and hold the Owner Trustee and
Loan Originator, and their respective affiliates and designees harmless against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever, including reasonable attorney's fees, that may be imposed on,
incurred by, or asserted against it or them in any way relating to or arising
out of a Custodial Delivery Failure or the Bailee's negligence, lack of good
faith or willful misconduct. The foregoing indemnification shall survive any
termination or assignment of this Bailee Agreement.
9. The Bailee hereby represents, warrants and covenants that the Bailee
is not an affiliate of or otherwise controlled by the Loan Originator or its
Affiliates.
10. The agreement set forth in this Bailee Agreement letter may not be
modified, amended or altered, except by written instrument, executed by all of
the parties hereto.
11. This Bailee Agreement may not be assigned by the Loan Originator or
the Bailee without the prior written consent of the Initial Class A
Certificateholder.
12. For the purpose of facilitating the execution of this Bailee
Agreement letter as herein provided and for other purposes, this Bailee
Agreement letter may be executed in any number of counterparts, each of which
counterparts shall be deemed to be an original, and such counterparts shall
constitute and be one and the same instrument.
G-5
<PAGE> 179
13. Capitalized words used and not otherwise defined herein have the
meanings assigned to them in the Trust and Servicing Agreement.
G-6
<PAGE> 180
14. THIS BAILEE AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE CHOICE OF LAWS PROVISIONS
THEREOF, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL
BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
FINOVA CAPITAL CORPORATION,
Loan Originator
By: ________________________________
Name:
Title:
MORGAN STANLEY SECURITIZATION FUNDING
INC.,
Initial Class A Certificateholder
By: ________________________________
Name:
Title:
[NAME OF BAILEE],
Bailee
By: _____________________________
Name:
Title:
G-7
<PAGE> 181
Attachment A
IDENTIFICATION CERTIFICATE
On this _____ day of ____ __, 1998, FINOVA Capital Corporation
(the "Loan Originator"), under that certain Bailee Agreement, dated as of ____
__, 1998 (the "Bailee Agreement"), among the Loan Originator, ________________
(the "Bailee"), and Morgan Stanley Securitization Funding Inc., does hereby
instruct the Bailee to hold, in its capacity as Bailee, the Custodial Loan Files
with respect to the Loans listed on Exhibit 1 hereto, which Loans shall be
subject to the terms of the Bailee Agreement as of the date hereof. The Transfer
Date relating to the Custodial Loan File is___________.
Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Bailee Agreement.
IN WITNESS WHEREOF, the Loan Originator has caused this Identification
Certificate to be executed and delivered by its duly authorized officer as of
the day and year first above written.
FINOVA CAPITAL CORPORATION
By: ___________________________
Name:
Title:
<PAGE> 182
Exhibit 1 to Attachment A
[Loan Schedule]
<PAGE> 183
Attachment B
TRUST RECEIPT AND CERTIFICATION
____ __, 1998
LaSalle National Bank, as Custodian
135 South LaSalle Street, Suite 1625
Chicago, Illinois 60674-4107
Attention: FINOVA Commercial Mortgage
Loan Owner Trust 1998-1
c/o Mark Henrikson
Re: Bailee Letter, dated as of ______, 1998 (the "Bailee
Agreement") among FINOVA Capital Corporation, Morgan Stanley
Securitization Funding Inc., and ________________________ (the
"Bailee")
Gentlemen and Mesdames:
In accordance with the provisions of Paragraph 3 of the
above-referenced Bailee Agreement, the undersigned, as the Bailee, hereby
certifies that as to each loan described in the loan schedule (Exhibit 1), a
copy of which is attached hereto, it has reviewed the Custodial Loan File and
has determined that (subject to the exceptions listed in the Loan Schedule and
Exception Report attached hereto) (i) all documents listed in Paragraph 2 of the
Bailee Agreement are in its possession and (ii) such documents have been
reviewed by it and appear regular on their face and relate to such loan, and
(iii) based on its examination, the foregoing documents on their face satisfy
the requirements set forth in Paragraph 2 of the Bailee Agreement.
The Bailee hereby confirms that it is holding each such Custodial Loan
File as agent and bailee for the exclusive use and benefit of the Owner Trustee
pursuant to the terms of the Bailee Agreement.
All initially capitalized terms used herein shall have the meanings
ascribed to them in the above-referenced Bailee Agreement.
________________________________________
BAILEE
By: ____________________________________
Name:
Title:
<PAGE> 184
\ EXHIBIT H-1
TO THE TRUST AND SERVICING AGREEMENT
FORM OF RULE 144A TRANSFER CERTIFICATE
Re: FINOVA Commercial Mortgage Loan Asset-Backed Owner Trust
1998-1 Commercial Mortgage Loan Asset-Backed Certificates
Series
Reference is hereby made to the Trust and Servicing Agreement dated as
of September 1, 1998 (the "Trust and Servicing Agreement") among FINOVA
Commercial Mortgage Loan Owner Trust 1998-1 (the "Trust") FINOVA Capital
Corporation as Loan Originator, FINOVA Capital Corporation, as Transfer Obligor,
FINOVA Capital Corporation, as Servicer and Wilmington Trust Company (the "Owner
Trustee"). Capitalized terms used but not defined herein shall have the meanings
given to them in the Trust and Servicing Agreement.
The undersigned (the "Transferor") has requested a transfer of
$_________ current principal balance Certificates to [insert name of
transferee].
In connection with such request, and in respect of such Certificates,
the Transferor hereby certifies that:
(a) Such Certificates are being transferred in accordance with
(i) the transfer restrictions set forth in the Trust and Servicing Agreement and
the Certificates and (ii) Rule 144A under the Securities Act of 1933, as amended
to a purchaser that the Transferor reasonably believes is a "qualified
institutional buyer" within the meaning of Rule 144A purchasing for its own
account or for the account of a "qualified institutional buyer," which purchaser
is aware that the sale to it is being made in reliance upon Rule 144A, in a
transaction meeting the requirements of Rule 144A and in accordance with any
applicable securities laws of any state of the United States or any other
applicable jurisdiction.
(b) We have neither acquired nor will we transfer any
Certificate we purchase (or any interest therein) or cause any such
Certificates (or any interest therein) to be marketed on or through an
"established securities market" within the meaning of section
7704(b)(1) of the Internal Revenue Code of 1986, as amended (the
"Code"), including, without limitation, an over-the-counter market or
an interdealer quotation system that regularly disseminates firm buy or
sell quotations.
(c) We either (i) are not, and will not become, a partnership,
Subchapter S corporation, or grantor trust for U.S. federal income tax
purposes or (ii) are such an entity, but none of the direct or indirect
beneficial owners of any of the interests in us have allowed or caused,
or will allow or cause, 50% or more (or such other percentage as the
Trust may establish prior to the time of such proposed transfer) of the
value of such interests to be attributable to our ownership of
Certificates.
H-1-1
<PAGE> 185
(d) We understand that the opinion of counsel that the Trust
is not a publicly traded partnership taxable as a corporation is
dependent in part on the accuracy of the representations in paragraphs
(c) and (d).
(e) We are a person who is either (A)(i) a citizen or resident
of the United States, (ii) a corporation, partnership, or other entity
organized in or under the laws of the United States or any political
subdivision thereof or (iii) a person not described in (A)(i) or (ii)
whose ownership of the Certificates is effectively connected with such
person's conduct of a trade or business within the United States
(within the meaning of the Code) and its ownership of any interest in a
Certificate will not result in any withholding obligation with respect
to any payments with respect to the Certificates by any person (other
than withholding, if any, under Section 1446 of the Code) or (B) an
estate the income of which is subject to United States federal income
tax, regardless of source or a trust if a court within the United
States is able to exercise primary supervision over the administration
of such trust and one or more persons described in this paragraph have
the authority to control all substantial decisions of such trust. We
agree that we will provide a certification of non-foreign status signed
under penalties of perjury and, alternatively, that if we are a person
described in clause (A)(iii) above, we will furnish to the Trust a
properly executed IRS Form 4224 and a new Form IRS 4224 upon the
expiration or obsolescence of any previously delivered form (and such
other certifications, representations or opinions of counsel as may be
requested by the Trust).
(f) We understand that any purported transfer of any
Certificate (or any interest therein) in contravention of the
restrictions and conditions above will be null and void (each, a "Void
Transfer"), and the purported transferee in a Void Transfer will not be
recognized by the Trust or any other person as a Certificateholder for
any purpose.
(g) We agree that if we determine to transfer any of the
Certificates we will cause our proposed transferee to provide the Trust
and the Certificate Registrar a letter substantially in the form of
this Exhibit H-1 or Exhibit H-2 to the Trust and Servicing Agreement,
as applicable or such other written statement as the Trust shall
prescribe.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Depositor.
______________________________________
[Name of Transferor]
By: _________________________________
Name:
Title:
Dated: ________________, _______
H-1-2
<PAGE> 186
EXHIBIT H-2
TO THE TRUST AND SERVICING AGREEMENT
FORM OF PURCHASER'S LETTER FOR
INSTITUTIONAL ACCREDITED INVESTOR
[Date]
Dear Sirs:
In connection with our proposed purchase of $_________________ Class A
Certificate Principal Balance Commercial Mortgage Loan Asset-Backed
Certificates, Series _________ (the "Offered Certificates") issued by FINOVA
Commercial Mortgage Loan Owner Trust 1998-1 (the "Trust"), we confirm that:
(1) We understand that the Offered Certificates have not been, and will not
be, registered under the Securities Act of 1933, as amended (the "1933
Act") or any state securities laws, and may not be sold except as
permitted in the following sentence. We agree, on our own behalf and on
behalf of any accounts for which we are acting as hereinafter stated,
that if we should sell any Offered Certificates we will do so only (A)
pursuant to a registration statement which has been declared effective
under the 1933 Act, (B) for so long as the Offered Certificates are
eligible for resale pursuant to Rule 144A under the 1933 Act, to a
Person we reasonably believe is a "qualified institutional buyer" as
defined in Rule 144A that purchases for its own account or for the
account of a qualified institutional buyer to whom notice is given that
the transfer is being made in reliance on Rule 144A, (C) to an
institutional "accredited investor" within the meaning of subparagraph
(a)(1), (2), (3) or (7) of Rule 501 under the 1933 Act (an
"Institutional Accredited Investor") that is acquiring the Offered
Certificates for its own account, or for the account of such an
Institutional Accredited Investor, for investment purposes and not with
a view to, or for offer or sale in connection with, any distribution in
violation of the 1933 Act, in each case in compliance with the
requirements of the Trust and Servicing Agreement dated as of September
1, 1998 among FINOVA Commercial Mortgage Loan Owner Trust 1998-1,
FINOVA Capital Corporation, as Loan Originator, FINOVA Capital
Corporation, as Transfer Obligor, FINOVA Capital Corporation, as
Servicer, FINOVA Realty Capital Warehouse Funding, L.P., as Depositor
and Wilmington Trust Company, as Owner Trustee, and applicable state
securities laws; and we further agree, in the capacities stated above,
to provide to any person purchasing any of the Offered Certificates
from us a notice advising such purchaser that resales of the Offered
Certificates are restricted as stated herein.
(2) We understand that, in connection with any proposed resale of any
Offered Certificates to an Institutional Accredited Investor, we will
be required to furnish to the Owner Trustee and the Depositor a
certification from such transferee as provided in Section 6.13 of the
Trust and Servicing Agreement to confirm that the proposed sale is
being made pursuant to an exemption from, or in a transaction not
subject to, the
H-2-1
<PAGE> 187
registration requirements of the 1933 Act and applicable state
securities laws. We further understand that the Offered Certificates
purchased by us will bear a legend to the foregoing effect.
(3) We are acquiring the Offered Certificates for investment purposes and
not with a view to, or for offer or sale in connection with, any
distribution in violation of the 1933 Act. We have such knowledge and
experience in financial and business matters as to be capable of
evaluating the merits and risks of our investment in the Offered
Certificates, and we and any account for which we are acting are each
able to bear the economic risk of such investment.
(4) We are an Institutional Accredited Investor and we are acquiring the
Offered Certificates purchased by us for our own account or for one or
more accounts (each of which is an Institutional Accredited Investor)
as to each of which we exercise sole investment discretion.
(5) We have received such information as we deem necessary in order to make
our investment decision.
(a) We have neither acquired nor will we transfer any
Certificate we purchase (or any interest therein) or cause any such
Certificates (or any interest therein) to be marketed on or through an
"established securities market" within the meaning of section
7704(b)(1) of the Internal Revenue Code of 1986, as amended (the
"Code"), including, without limitation, an over-the-counter market or
an interdealer quotation system that regularly disseminates firm buy or
sell quotations.
(b) We either (i) are not, and will not become, a partnership,
Subchapter S corporation, or grantor trust for U.S. federal income tax
purposes or (ii) are such an entity, but none of the direct or indirect
beneficial owners of any of the interests in us have allowed or caused,
or will allow or cause, 50% or more (or such other percentage as the
Trust may establish prior to the time of such proposed transfer) of the
value of such interests to be attributable to our ownership of
Certificates.
(c) We understand that the opinion of counsel that the Trust
is not a publicly traded partnership taxable as a corporation is
dependent in part on the accuracy of the representations in paragraphs
(c) and (d).
(d) We are a person who is either (A)(i) a citizen or resident
of the United States, (ii) a corporation, partnership, or other entity
organized in or under the laws of the United States or any political
subdivision thereof or (iii) a person not described in (A)(i) or (ii)
whose ownership of the Certificates is effectively connected with such
person's conduct of a trade or business within the United States
(within the meaning of the Code) and its ownership of any interest in a
Certificate will not result in any withholding obligation with respect
to any payments with respect to the Certificates by any person (other
than withholding, if any, under Section 1446 of the Code) or (B) an
estate the income of which is subject to United States federal income
tax, regardless of
H-2-2
<PAGE> 188
source or a trust if a court within the United States is able to
exercise primary supervision over the administration of such trust and
one or more persons described in this paragraph have the authority to
control all substantial decisions of such trust. We agree that we will
provide a certification of non-foreign status signed under penalties of
perjury and, alternatively, that if we are a person described in clause
(A)(iii) above, we will furnish to the Trust a properly executed IRS
Form 4224 and a new Form IRS 4224 upon the expiration or obsolescence
of any previously delivered form (and such other certifications,
representations or opinions of counsel as may be requested by the
Trust).
(e) We understand that any purported transfer of any Certificate
(or any interest therein) in contravention of the restrictions
and conditions above will be null and void (each, a "Void
Transfer"), and the purported transferee in a Void Transfer
will not be recognized by the Trust or any other person as a
Certificateholder for any purpose.
(f) We agree that if we determine to transfer any of the
Certificates we will cause our proposed transferee to provide
the Trust and the Certificate Registrar a letter substantially
in the form of this Exhibit H-1 or Exhibit H-2 to the Trust
and Servicing Agreement, as applicable or such other written
statement as the Trust shall prescribe.
Terms used in this letter which are not otherwise defined herein have
the respective meanings assigned thereto in the Trust and Servicing Agreement.
You and the Depositor are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.
Very truly yours,
-------------------------------------
[Purchaser]
By: ---------------------------------
Name:
Title:
H-2-3
<PAGE> 189
EXHIBIT H-3
TO THE TRUST AND SERVICING AGREEMENT
[FORM OF TRANSFER AFFIDAVIT]
STATE OF _____________ )
) ss.:
COUNTY OF ___________ )
The undersigned, being first duly sworn, deposes and says as follows:
1. The undersigned is the __________ of ________________________ (the
"Investor"), a [corporation duly organized] and existing under the laws of
_____________ on behalf of which he makes this affidavit.
2. The Investor either (i) is not, and is not acquiring the Offered
Certificates on behalf of or with the assets of, an employee benefit plan or
other retirement plan or arrangement subject to Title I of ERISA or Section 4975
of the Code, or (b) is, or is acquiring the Offered Certificates on behalf of or
with the assets of, an employee benefit plan or other retirement plan or
arrangement subject to Title I of ERISA of Section 4975 of the Code and the
conditions for exemptive relief under at least one of the following prohibited
transaction class exemptions have been satisfied: Prohibited Transaction Class
Exemption ("PTCE") 96-23 (relating to transactions effected by an "in-house
asset manager"), PTCE 95-60 (relating to transactions involving insurance
company general accounts, PTCE 91-38 (relating to transactions involving bank
collective investment funds), PTCE 90-1 (relating to transactions involving
insurance company pooled separate accounts), and PTCE 84-14 (relating to
transactions effected by a "qualified professional asset manager").
3. The Investor hereby acknowledges that under the terms of the Trust
and Servicing Agreement (the "Agreement") between FINOVA Commercial Mortgage
Loan Owner Trust 1998-1 and Wilmington Trust Company, as owner trustee, dated as
of September __, 1998, no transfer of the Class A Certificates shall be
permitted to be made to any person unless the Depositor and Owner Trustee have
received a certificate from such transferee in the form hereof.
[FOR TRANSFERS IN RELIANCE UPON RULE 144A]
4. The Investor is a "qualified institutional buyer" (as such term is
defined under Rule 144A under the Securities Act of 1933, as amended (the "1933
Act"), and is acquiring the Offered Certificates for its own account or as a
fiduciary or agent for others (which others also are "qualified institutional
buyers"). The Investor is familiar with Rule 144A under the 1933 Act, and is
aware that the transferor of the Offered Certificates and other parties intend
to rely on the statements made herein and the exemption from the registration
requirements of the 1933 Act provided by Rule 144A.
H-3-1
<PAGE> 190
IN WITNESS WHEREOF, the Investor has caused this instrument to be
executed on its behalf, pursuant to proper authority, by its duly authorized
officer, duly attested, this_______ day of _____________, ____.
_______________________________________
[Investor]
By: __________________________________
Name:
Title:
ATTEST:
______________________
H-3-2
<PAGE> 191
STATE OF _____________ )
) ss.:
COUNTY OF ___________ )
Personally appeared before me the above-named _________________, known
or proved to me to be the same person who executed the foregoing
instrument and to be the ___________ of the Investor, and acknowledged
that he executed the same as his free act and deed and the free act and
deed of the Investor.
Subscribed and sworn before me this ______ day of _______________, 199__.
______________________________________
NOTARY PUBLIC
My commission expires the
__________ day of ______________, ____
H-3-3
<PAGE> 192
ANNEX A
TAX CONSIDERATIONS
SECTION 1 Characterization of Trust for Tax Purposes. For
United States federal and state income tax purposes, it is the intention of the
Depositor and of each Holder that Trust shall be treated as a partnership (the
"Tax Partnership") whose partners are the Class A Certificateholders and the
Class B Certificateholders (which are hereinafter collectively referred to as
the "Tax Partners").
SECTION 2 Capital Contributions and Capital Accounts.
(a) The value of the interests represented by the Class A
Certificates shall equal the amount paid by the Class A Certificateholders for
such interests on the date of initial issuance thereof (the "Formation Date"),
or if such Class A Certificates are issued for property, the fair market value
of such property on the Formation Date, and such amounts shall constitute the
opening balance in their Capital Accounts (as hereinafter defined). The value of
the interests represented by the Class B Certificates shall equal the aggregate
fair market value of the Owner Trust Estate on the Formation Date less the value
attributed to the Class A Certificates as described above. Such amount shall
constitute the opening balance in the Class B Certificateholders' Capital
Accounts.
(b) An individual capital account (a "Capital Account") shall
be maintained for each Tax Partner in compliance with Treasury Regulations
Sections 1.704-1(b)(2)(iv) and 1.704-2 and accordingly, except as otherwise
provided herein:
(i) The Capital Account of each Tax Partner shall be credited
by (A) the amount of cash and the fair market value of property other
than cash contributed (or deemed contributed pursuant to Code Section
708) by such Tax Partner to the Tax Partnership (net of any liabilities
assumed by the Tax Partnership upon such contribution or to which such
property is subject at the time of such contribution); and (B) the
amount of any item of taxable income or gain and the amount of any item
of income or gain exempt from tax allocated to such Tax Partner.
(ii) The Capital Account of each Tax Partner shall be debited
by (A) the amount of any item of tax deduction or loss allocated to
such Tax Partner; (B) such Tax Partner's allocable share of
expenditures not deductible in computing taxable income and not
properly chargeable as capital expenditures; and (C) the amount of cash
and the fair market value of any property other than cash (net of any
liabilities assumed by such Tax Partner or to which such property is
subject at the time of distribution) distributed to such Tax Partner.
(iii) Immediately prior to any distribution of property in
kind, the Tax Partners' Capital Accounts shall be adjusted by assuming
that the distributed properties were sold for cash at their respective
fair market values as of the date of distribution
AN-1
<PAGE> 193
and crediting or debiting each Tax Partner's Capital Account
with its respective share of the hypothetical gains or losses
resulting from such assumed sales in the same manner as gains
or losses on actual sales of such properties would be
allocated under Section 4 below.
(iv) The Owner Trustee or the Tax Matters Partner (as defined
herein) shall not make or cause to be made the election
provided under Section 754 of the Code.
SECTION 3 Federal and State Income Tax Returns and Elections.
(a) The Tax Partners agree that the Depositor (or if the
Depositor or an Affiliate thereof is not a Holder, the holder of the
largest Percentage Interest in the Class B Certificates) shall serve as
the "tax matters partner" (as such term is defined in Code Section
6231(a)(7)) (the "Tax Matters Partner") of the Tax Partnership. The Tax
Matters Partner shall (i) apply or cause application to be made to the
Internal Revenue Service for a taxpayer identification number for the
Tax Partnership, (ii) elect or cause an election to be made to adopt
the accrual method of accounting and, if permitted by applicable
federal tax law, the calendar year as the Tax Partnership's fiscal
year, (iii) except as otherwise provided herein, make or cause to be
made such other elections as it deems proper, and (iv) prepare, execute
and file or cause to be prepared, executed and filed the necessary
federal and state partnership income tax returns for the Tax
Partnership. Each Tax Partner agrees to furnish the Tax Matters Partner
with all pertinent information relating to activities under the Trust
Agreement which is necessary for the Tax Matters Partner to prepare and
file federal and state partnership returns. In acting as Tax Matters
Partner, the Tax Matters Partner shall use its best efforts, but shall
incur no liability to the other Tax Partners.
(b) Within 60 days after the end of each of the Tax
Partnership's taxable years, the Tax Matters Partner shall send or
cause to be sent to each Tax Partner who has been a Tax Partner at any
time during the taxable year then ended such tax information as shall
be necessary for the preparation by such Tax Partner of its federal
income tax return and state income and other tax returns, if any, in
states where the Tax Partnership is organized or is doing business.
SECTION 4 Allocations.
(a) (i) "Net Income" and "Net Loss" respectively, for any
period, means the income or losses of the Tax Partnership as
determined in accordance with the method of accounting
followed by the Tax Partnership for federal income tax
purposes, including, for all purposes, any income exempt from
tax and any expenditures of the Tax Partnership described in
Code Section 705(a)(2)(B); provided, however, (i) that any
item allocated under Section 4(c) shall be excluded from the
computation of Net Income and Net Loss and (ii) that if, as a
result of the contribution of an asset whose fair market value
differs from its adjusted basis for federal income tax
purposes or as a result of the revaluation of the Tax
Partnership's assets, the book value of any Tax Partnership
asset differs from its adjusted basis for federal income tax
purposes, gain, loss, depreciation and amortization with
respect to such asset shall be computed using
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the asset's book value consistently with the requirements of
Treasury Regulations Section 1.704-1(b)(2)(iv)(g).
(ii) "Period" shall mean the calendar month; provided, that as
to the month in which the Formation Date occurs, "Period"
shall mean the period commencing on the Formation Date and
ending on the last day of that calendar month, and as to the
month in which the Tax Partnership terminates, "Period" shall
mean the period beginning on the first day of such month and
ending on the date of the Tax Partnership's termination.
(b) The Tax Partners agree that the Tax Partnership's Net
Income and Net Loss and each item of income, gain, loss or deduction
entering into the computation thereof for any Fiscal Year shall be
allocated by first allocating the Tax Partnership's Net Income and Net
Loss (and each item of income, gain, loss, or deduction entering into
the computation thereof) for each Period within such Fiscal Year (as if
such Period were a complete fiscal year) and then aggregating the
allocations for each Period within the Fiscal Year. In the case of the
transfer of any interest in the Tax Partnership, the items of Net
Income and Net Loss allocated for any Period with respect to the
transferred interest shall be allocated to the holder of that interest
on the first business day of the month following the end of such Period
(or in the case of the Period in which the Tax Partnership terminates,
the last day of such Period). If the Tax Matters Partner determines
that this method of allocation of items of Net Income and Net Loss is
not consistent with the requirements of the Code and applicable
Treasury Regulations, it may revise such method of allocation to
conform with such requirements. The Tax Partnership's Net Income and
Net Loss for each Period within a Fiscal Year shall be allocated as
follows:
(i) Net Income for such Period shall be allocated as follows:
(A)(I) An amount of Net Income equal to the excess of
(x) the sum for such Period and each preceding period up to
the Period beginning with the Formation Date of (1) the
product of the Class A Certificate Interest Rate and (2) the
Class A Certificate Principal Balance for such Period (and
each such preceding period) LESS, if the initial issue price
of the Class A Certificates exceeded their initial Class A
Certificate Principal Balance, an amount equal to the excess
of the sum for such Period and each preceding Period up to the
Period beginning with the Formation Date, of that portion of
any excess of the initial issue price of the Class A
Certificates over their Class A Certificate Principal Balance
that would have accrued with respect to such Periods if the
Class A Certificates were indebtedness and such excess were
amortizable bond premium, over (y) all amounts previously
allocated to the Class A Certificateholders pursuant to this
Section 5.8(b)(1)(A)(I) shall be allocated 100% to the Class A
Certificateholders, in proportion to their holdings of Class A
Certificates; provided that the product of (1) and (2) in
clause (x) shall be computed on the basis of the actual number
of days
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in a calendar month [and a 360 day year], and that any such
product shall be appropriately prorated for any Period that is
not a full calendar month in a manner consistent with the
computation of cash distributions with respect to such Periods
as provided by the Sale and Servicing Agreement.
(II) If the Imputed Principal Balance of the Class A
Certificates exceeded their initial issue price, an amount of
Net Income equal to the excess of (x) the sum for such Period
and each preceding Period up to the Period beginning with the
Formation Date, of that portion of any excess of the Class A
Certificate Principal Balance of the Class A Certificates over
their initial issue price that would have accrued with respect
to such Periods if the Class A Certificates were indebtedness
and such excess were original issue discount over (y) all
amounts previously allocated to the Class A Certificateholders
pursuant to this Section 4(b)(1)(a)(II) shall be allocated
100% to the Class A Certificateholders, in proportion to their
holders of Class A Certificates.
(B) Any remaining Net Income shall be allocated 100%
to the Class B Certificateholders.
(ii) Net Losses for such Periods shall be allocated as
follows:
(A) 100% to the Class B Certificateholders until the
Adjusted Capital Account (as hereinafter defined) balance of
the Class B Certificateholders equals zero.
(B) 100% to the Class A Certificateholders, in
proportion to their holdings of Class A Certificates, until
the Adjusted Capital Account balances of the Class A
Certificateholders equal zero.
(C) Any remaining Net Losses shall be allocated 100%
to the Class B Certificateholders.
(c) (i) Any deductions attributable to (x) payments to the Owner Trustee and (y)
payments to the Servicer shall be specially allocated to the Class B
Certificateholders.
(ii) If there is a net decrease in "partnership minimum gain" (within
the meaning of Treasury Regulations Section 1.704-2(d)) for a Fiscal Year, then
there shall be allocated to each Tax Partner items of income and gain for that
year equal to that Tax Partner's share of the net decrease in partnership
minimum gain (within the meaning of Treasury Regulations Section 1.704-2(g)(2)),
subject to the exceptions set forth in Treasury Regulations Sections
1.704-2(f)(2), (3) and (5), provided, that if the Tax Partnership has any
discretion as to an exception set forth pursuant to Treasury Regulations Section
1.704-2(f)(5), the Tax Matters Partner may exercise such discretion
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on behalf of the Tax Partnership. In the event the application of the minimum
gain chargeback requirement would cause a distortion in the economic arrangement
among the Tax Partners, the Tax Matters Partner shall request the Internal
Revenue Service to waive the minimum gain chargeback requirement pursuant to
Treasury Regulations Section 1.704-2(f)(4). The foregoing is intended to be a
"minimum gain chargeback" provision as described in Treasury Regulations Section
1.704-2(f) and shall be interpreted and applied in all respects in accordance
with that Treasury Regulation.
If during a Fiscal Year there is a net decrease in partner nonrecourse
debt minimum gain (as determined in accordance with Treasury Regulations Section
1.704-2(i)(3)), then, in addition to the amounts, if any, allocated pursuant to
the preceding paragraph, any Tax Partner with a share of that partner
nonrecourse debt minimum gain (determined in accordance with Treasury
Regulations Section 1.704-2(i)(5)) as of the beginning of the Fiscal Year shall,
subject to the exceptions set forth in Treasury Regulations Section
1.704-2(i)(4), including exceptions analogous to those provided pursuant to
Treasury Regulations Sections 1.704-2(f)(2), (3) and (5) (provided, that if the
Tax Partnership has any discretion as to an exception set forth pursuant to
Treasury Regulations Section 1.704-2(f)(5) as made applicable by Treasury
Regulations Section 1.704-2(i)(4), the Tax Matters Partner may exercise such
discretion on behalf of the Tax Partnership) be allocated items of income and
gain for the year (and, if necessary, for succeeding years) equal to that Tax
Partner's share of the net decrease in the partner nonrecourse minimum gain. If
the event the application of the minimum gain chargeback requirement would cause
a distortion in the economic arrangement among the Tax Partners, the Tax Matters
Partner shall request the Internal Revenue Service to waive the minimum gain
chargeback requirement pursuant to Treasury Regulations Sections 1.704-2(i)(4)
and 1.704-2(f)(4). The foregoing is intended to be the "chargeback of partner
nonrecourse debt minimum gain" required by Treasury Regulations Section
1.704-2(i)(4) and shall be interpreted and applied in all respects in accordance
with that Treasury Regulation.
(iii) If during any Fiscal Year of the Tax Partnership a Tax Partner
unexpectedly receives an adjustment, allocation or distribution described in
Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6), which causes
or increases a deficit balance in the Tax Partner's Adjusted Capital Account (as
defined below), there shall be allocated to the Tax Partner items of income and
gain (consisting of a pro rata portion of each item of Tax Partnership income,
including gross income, and gain for such year) in an amount and manner
sufficient to eliminate such deficit as quickly as possible. The foregoing is
intended to be a "qualified income offset" provision as described in Treasury
Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted and applied in
all respects in accordance with the Treasury Regulations.
A Tax Partner's "Adjusted Capital Account," at any time, shall
equal the Tax Partner's Capital Account at such time (x) increased by the sum of
(A) the amount of the Tax Partner's share of partnership minimum gain (as
defined in Treasury Regulations Section 1.704-1(g)(1) and (3)), (B) the amount
of the Tax Partner's share
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of partner nonrecourse debt minimum gain (as defined in Treasury Regulations
Section 1.704-2(i)(5)), and (C) any amount of the deficit balance in its Capital
Account that the Tax Partner is obligated to restore on liquidation of the Tax
Partnership and (y) decreased by reasonably expected adjustments, allocations
and distributions described in Treasury Regulations Sections
1.704-1(b)(2)(ii)(d)(4), (5) and (6).
(iv) Notwithstanding anything to the contrary in this Section 4, Tax
Partnership losses, deductions, or Code Section 705(a)(2)(B) expenditures that
are attributable to a particular partner nonrecourse liability shall be
allocated to the Tax Partner that bears the economic risk of loss for the
liability in accordance with the rules of Treasury Regulations Section
1.704-2(i).
(v) Notwithstanding any provision of Sections 4(b) and 4(c)(i), no
allocation of items of loss or deduction shall be made to a Tax Partner if it
would cause the Tax Partner to have a negative balance in its Adjusted Capital
Account. Allocations of items of loss or deduction that would be made to a Tax
Partner but for this Section 4(c)(v) shall instead be made first to the Class B
Certificateholders to the extent not inconsistent with this Section 4(c)(v), and
second, to the Class A Certificateholders. To the extent allocations of items of
loss or deduction cannot be made to any Tax Partner because of this Section
4(c)(v), such allocations shall be made to the Tax Partners in accordance with
Section 4(b) and Section 4(c)(i) notwithstanding this Section 4(c)(v).
(vi) To the extent that any item of income, gain, loss or deduction has
been specially allocated pursuant to Sections 4(c)(iii) and (v) and such
allocation is inconsistent with the way in which the same amount otherwise would
have been allocated under Sections 4(b) and 4(c)(i), subsequent allocations
under Section 4(b) and 4(c)(i) shall be made, to the extent possible and without
duplication, in a manner consistent with Section 4(c)(ii), (iii), (iv) and (v)
which negate as rapidly as possible the effect of all such inconsistent
allocations.
(vii) Any allocations made pursuant to this Section 4 shall be made in
the following order:
(1) Section 4(c)(ii)
(2) Section 4(c)(iii)
(3) Section 4(c)(iv)
(4) Section 4(c)(vi)
(5) Section 4(c)(i)
(6) Section 4(b)(i) and (ii)
These provisions shall be applied as if all distributions and allocations were
made at the end of the Fiscal Year. Where any provision depends on the Capital
Account of any Tax Partner, that Capital Account shall be determined after the
operation of all preceding provisions for the year. These allocations shall be
made consistently with the requirements of Treasury Regulations Section
1.704-2(j).
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(d) The income, gains, losses, deductions and credits of the
Tax Partnership for federal, state and local income tax purposes shall be
allocated in the same manner as the corresponding items entering into the
computation of Net Income and Net Losses were allocated pursuant to Sections
4(b) and (c); provided that solely for federal, local and state income and
franchise tax purposes and not for book or Capital Account purposes, income,
gain, loss and deduction with respect to property properly carried on the Tax
Partnership's books at a value other than its tax basis shall be allocated (i)
in the case of property contributed in kind, in accordance with the requirements
of Code Section 704(c) and such Treasury Regulations as may be promulgated
thereunder from time to time, and (ii) in the case of other property, in
accordance with the principles of Code Section 704(c) and the Treasury
Regulations thereunder as incorporated among the requirements of the relevant
provisions of the Treasury Regulations under Code Section 704(b).
SECTION 5 Sale of Interests. The Tax Partners agree that any
sale by a Tax Partner of any ownership interest in a Trust Certificate shall be
deemed to be a sale of all or a portion of such Tax Partner's interest in the
Tax Partnership.
SECTION 6 Termination of a Tax Partner's Interest. Any
distribution by the Tax Partnership in termination of any Tax Partner's interest
in the Tax Partnership other than pursuant to Section 7 below shall be in an
amount of cash or property other than cash having a net fair market value equal
to the positive Capital Account balance of such Tax Partner at the time such
interest is terminated, after such Capital Account balance has been adjusted in
accordance with Sections 2 and 4 above for all operations preceding such
distribution and the applicable Treasury Regulations under Code Section 704(b),
and shall be made by the later of: (a) the end of the Tax Partnership's taxable
year in which such termination occurs; or (b) within 90 days after the date of
such termination.
SECTION 7 Distributions upon Termination. Upon termination of
the Agreement pursuant to its terms, the activities of the Tax Partners shall be
concluded and the assets subject to the Agreement shall be distributed to the
Tax Partners in the manner and in the order set forth below:
(a) Debts of the Tax Partnership created pursuant to the
Agreement, other than to the Tax Partners, shall be paid.
(b) Debts owed among the Tax Partners created pursuant to the
Agreement shall be paid.
(c) All cash on hand representing unexpended contributions by
any Tax Partner shall be returned to the contributor.
(d) The Tax Partners' Capital Accounts shall be adjusted by:
(i) assuming the sale of all remaining assets at their fair market
values as of the date of termination of the Agreement; and (ii)
debiting or crediting each Tax Partner's Capital Account with the Tax
Partner's respective share of the hypothetical gains or losses
resulting from such assumed sales in the same manner as such Tax
Partner's Capital Account
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would be debited or credited under Section 4 above for gains or losses on actual
sales of such properties.
(e) All Tax Partnership assets shall be distributed to the Tax
Partners in accordance with their respective Capital Account balances
as so adjusted by the later of (i) the end of the tax Partnership's
taxable year in which the termination occurs, or (ii) within 90 days
after the date of such termination, in the following order or priority:
(i) to the Class A Certificateholders; and
(ii) to the Class B Certificateholders.
If property subject to the Agreement is distributed pursuant
to this paragraph, the amount of the distribution shall be equal to the net fair
market value of the distributed property.
SECTION 8 Liability for Tax Matters. In no event shall the
Owner Trustee, the Depositor (or other Tax Matters Partner, as applicable) the
Servicer or the Transfer Obligor be liable for any liabilities, costs or
expenses of the Trust arising out of the application of any tax law, including
federal, state, foreign or local income or excise taxes or any other tax imposed
on or measured by income (or any interest, penalty or addition with respect
thereto or arising from a failure to comply therewith) except for any such
liability, cost or expense attributable to any act or omission by the Owner
Trustee, the Depositor (or other Tax Matters Partner, as applicable), the
Servicer or the Transfer Obligor as the case may be, in breach of its
obligations under this Agreement.
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================================================================================
EXHIBIT 10.T.3
FINOVA REALTY CAPITAL WAREHOUSE FUNDING, L.P.,
as Depositor,
and
FINOVA CAPITAL CORPORATION,
as Loan Originator,
LOAN PURCHASE AGREEMENT
================================================================================
Dated as of September 1, 1998
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I.
DEFINITIONS
Section 1.1 Definitions...................................................1
ARTICLE II.
SALE OF LOANS; PAYMENT OF PURCHASE PRICE
Section 2.1 Sale of Loans to Depositor...................................1
Section 2.2 Obligations of Loan Originator...............................3
Section 2.3 Dispositions; Transfer Obligation............................4
ARTICLE III.
REPRESENTATIONS AND WARRANTIES; REMEDIES FOR BREACH
Section 3.1 Loan Originator Representations and Warranties...............5
ARTICLE IV.
LOAN ORIGINATOR'S COVENANTS
Section 4.1 Covenants of the Loan Originator.............................5
ARTICLE V.
INDEMNIFICATION BY THE LOAN ORIGINATOR
Section 5.1 Indemnification..............................................6
Section 5.2 Limitation on Liability of the Loan Originator...............6
Section 5.3 Procedure....................................................7
Section 5.4 Defense of Claims............................................7
ARTICLE VI.
TERMINATION
Section 6.1 Termination..................................................8
ARTICLE VII.
MISCELLANEOUS PROVISIONS
Section 7.1 Amendment....................................................8
Section 7.2 Governing Law................................................8
Section 7.3 Notices......................................................8
Section 7.4 Severability of Provisions...................................9
Section 7.5 Counterparts.................................................9
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Section 7.6 Further Agreements...........................................9
Section 7.7 Intention of the Parties.....................................9
Section 7.8 Successors and Assigns; Assignment of Purchase Agreement ....9
Section 7.9 Survival....................................................10
Section 7.10 Successors and Assigns......................................10
EXHIBIT
Exhibit A Form of LPA Assignment
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<PAGE> 4
LOAN PURCHASE AGREEMENT (the "Purchase Agreement"), dated as
of September 1, 1998, between FINOVA CAPITAL CORPORATION (the "Loan Originator")
and FINOVA REALTY CAPITAL WAREHOUSE FUNDING, L.P. (the "Depositor").
W I T N E S S E T H
WHEREAS, the Loan Originator owns and from time to time
acquires Loans secured primarily by mortgages, deeds of trust and security deeds
on certain Mortgaged Properties and the Loan Documents related thereto;
WHEREAS, the parties hereto desire that on each Transfer Date
the Loan Originator sell all its right, title and interest in and to the Loans
and the related Loan Documents to Depositor pursuant to the terms of this
Purchase Agreement; and
WHEREAS, pursuant to the terms of a Trust and Servicing
Agreement, dated as of September 1, 1998 (the "Trust and Servicing Agreement"),
among FINOVA Commercial Mortgage Loan Owner Trust 1998-1, as Trust (the
"Trust"), the Depositor, the Loan Originator, Wilmington Trust Company, as Owner
Trustee (the "Owner Trustee"), FINOVA Capital Corporation, as Transfer Obligor,
and FINOVA Capital Corporation, as Servicer (the "Servicer") will sell,
transfer, assign and otherwise convey to the Trust all of its right, title and
interest in and to the Loans and related Loan Documents and this Purchase
Agreement;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1 Definitions. Capitalized terms used but not
defined herein have the meanings assigned thereto in the Trust and Servicing
Agreement.
ARTICLE II.
SALE OF LOANS; PAYMENT OF PURCHASE PRICE
Section 2.1 Sale of Loans to Depositor. (a) On the terms and
conditions of this Purchase Agreement, on each Transfer Date, the Loan
Originator, in consideration of the partnership interests which it is receiving
in the Depositor and the other consideration described below, agrees to offer
for sale and sell Loans and deliver the related Loan Documents to or at the
direction of the Depositor. To the extent the Depositor has or is able to obtain
sufficient funds for the purchase thereof, the Depositor agrees to purchase such
Loans offered for sale by the Loan Originator.
(b) The price paid by the Depositor for the Loans sold on
each Transfer Date (the "Sale Price") shall be equal to the aggregate Purchase
Value with respect to the Loans conveyed on such date, subtracting any
Overcollateralization Shortfall as of such date.
<PAGE> 5
(c) On each Transfer Date, the Loan Originator shall convey
to the Depositor the Loans and the other property and rights related thereto
described in the related LPA Assignment, the Depositor shall cause the deposit
of cash in the amount of the Sale Price in the Advance Account, and the Servicer
shall, promptly after such deposit, withdraw the Sale Price deposited in respect
of applicable Additional Class A Certificate Principal Balance from the Advance
Account, and distribute such amount to or at the direction of the Loan
Originator, only upon the satisfaction of each of the following conditions on or
prior to such Transfer Date:
(i) the Loan Originator shall have delivered to the Trust, the
Depositor and the Initial Class A Certificateholder duly executed
Assignments, which shall have attached thereto a Loan Schedule setting
forth the appropriate information with respect to all Loans conveyed on
such Transfer Date and shall have delivered to the Initial Class A
Certificateholder a computer readable transmission of such Loan
Schedule;
(ii) the Loan Originator shall have deposited in the
Collection Account, all collections received with respect to each of
the Loans after but not including the applicable Transfer Cutoff Date;
(iii) as of such date, neither the Loan Originator nor the
Depositor shall (A) be insolvent, (B) be made insolvent by its
respective sale of Loans or (C) have reason to believe that its
insolvency is imminent;
(iv) the Revolving Period shall not have terminated;
(v) the Loan Originator shall have delivered to the Initial
Class A Certificateholder the Due Diligence Packages for such Loans as
are to be transferred on such Transfer Date at least five Business Days
prior to such Transfer Date, and the Initial Class A Certificateholder
shall have completed its due diligence investigation of such Loans and
shall have approved, in its sole discretion, each such Loan;
(vi) the Loan Originator shall have delivered the Custodial
Loan File to the Custodian in accordance with the Custodial Agreement
and the Initial Class A Certificateholder shall have received a copy of
the Loan Schedule and Exceptions Report reflecting such delivery;
(vii) each of the representations and warranties made by the
Loan Originator pursuant to Section 4.04 of the Trust and Servicing
Agreement with respect to the Loans shall be true and correct as of the
related Transfer Date with the same effect as if then made, and the
Loan Originator shall have performed all obligations to be performed by
it under each of the Basic Documents on and prior to such Transfer
Date;
(viii) the Loan Originator shall, at its own expense, on or
prior to the Transfer Date, indicate in its computer files that the
Loans identified in the related LPA Assignment have been sold to the
Depositor pursuant to this Purchase Agreement;
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(ix) the Loan Originator shall have taken any action required
to maintain the ownership interest of the Depositor in the Owner Trust
Estate;
(x) no selection procedures believed by the Loan Originator to
be adverse to the interests of the Certificateholders shall have been
utilized in selecting the Loans to be conveyed on such Transfer Date;
(xi) the Loan Originator shall have provided the Depositor,
the Trust, the Owner Trustee and the Initial Class A Certificateholder
no later than two Business Days prior to such date, a Notice of
Additional Class A Certificate Principal Balance;
(xii) after giving effect to the Additional Class A
Certificate Principal Balance purchased on such date, the Class A
Certificate Principal Balance will not exceed the Maximum Class A
Certificate Principal Balance; and
(xiii) all conditions precedent to the Initial Class A
Certificateholder's purchase of Additional Class A Certificate
Principal Balance pursuant to the Certificate Purchase Agreement shall
have been fulfilled as of such date.
(d) Subject to Section 7.7 hereof, the parties hereto intend
that each of the conveyances contemplated hereby be sales from the Loan
Originator to the Depositor of all of the Loan Originator's right, title and
interest in and to the Loans and other property described above. In the event
the transactions set forth herein are deemed not to be a sale, the Loan
Originator hereby grants to the Depositor a security interest in all of the Loan
Originator's right, title and interest in, to and under the Loans and other
property described above, whether now existing or hereafter created, to secure
all of the Loan Originator's obligations hereunder; and this Purchase Agreement
shall constitute a security agreement under applicable law.
Section 2.2 Obligations of Loan Originator.
(a) On or prior to the Closing Date and each Transfer Date,
the Initial Class A Certificateholder shall have received evidence satisfactory
to it of (i) the completion of all recordings, registrations and filings as may
be necessary or, in the reasonable opinion of the Initial Class A
Certificateholder, desirable to perfect or evidence the assignment by the Loan
Originator to the Depositor of the Loan Originator's ownership interest in the
Owner Trust Estate including, without limitation, the Loans and related property
and the proceeds thereof, and (ii) the completion of all recordings,
registrations and filings as may be necessary or, in the reasonable opinion of
the Initial Class A Certificateholder, desirable to perfect or evidence the
assignment by the Depositor to the Trust of the Depositor's ownership interest
in the Owner Trust Estate including, without limitation, the Loans and the
proceeds thereof. The Loan Originator agrees to file all necessary continuation
statements and any amendments to the UCC-1 financing statements required to
reflect a change in the name or corporate or partnership structure of the Loan
Originator, Depositor or Trust and to file any additional UCC-1 financing
statements required due to a change in the principal office of the Loan
Originator, Depositor or Trust as are necessary to perfect the interest of the
Depositor and the Trust in and to the Owner Trust Estate and to take such other
action as may be necessary or, in
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<PAGE> 7
the reasonable opinion of the Depositor or the Initial Class A
Certificateholder, desirable to perfect or evidence the Depositor's and Trust's
interest in the Loans and Loan Documents conveyed under the Basic Documents.
(b) In connection with each sale of a Loan hereunder, the
Loan Originator shall deliver to, and deposit with the Custodian, on behalf of
the Owner Trustee, as assignee of the Depositor, on or before the related
Transfer Date the Custodial Loan File with respect to each Loan conveyed on such
Transfer Date.
It is understood and agreed that the obligations set forth in
this Section 2.2(b) shall survive delivery of the respective Custodial Loan
Files to the Custodian and shall inure to the benefit of the Certificateholders,
the Depositor, the Servicer, and the Owner Trustee, for the benefit of the
Trust.
With respect to any Loans which are set forth as exceptions
in the Loan Schedule and Exceptions Report, the Loan Originator shall cure such
exception, repurchase such Loan or provide a Qualified Substitute Loan in
accordance with Sections 3.05 and 4.05 of the Trust and Servicing Agreement. The
obligations of the Loan Originator set forth in Sections 3.05 and 4.05 of the
Trust and Servicing Agreement to cure any breach or to substitute for or
repurchase an affected Loan shall constitute the sole remedies available
hereunder to the Depositor respecting a breach of the Loan Originator's
obligations contained in this Section 2.2(b).
(c) In connection with each sale of a Loan hereunder, the
Loan Originator shall deliver to, and deposit with the Servicer, as assignee of
the Depositor, on or before the related Transfer Date the Servicer's Loan File
with respect to each Loan conveyed on such Transfer Date.
(d) The Loan Originator hereby further confirms to the
Depositor that, on or prior to each Transfer Date it shall cause the portions of
the Loan Originator's electronic ledger relating to the Loans to be clearly and
unambiguously marked to indicate that the Loans have been sold to the Depositor.
(e) On and after each Transfer Date, the Depositor shall own
the Loans which have been identified as being sold to the Depositor under
Section 2.1 hereof and the Loan Originator shall not take any action
inconsistent with such ownership and shall not claim any ownership interest in
any such conveyed Loan.
Section 2.3 Dispositions; Transfer Obligation.
(a) In consideration of the consideration received from the
Depositor under this Purchase Agreement, the Loan Originator hereby agrees and
covenants that in connection with each Disposition it shall perform such duties
as specified in Section 4.06 of the Trust and Servicing Agreement.
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(b) In consideration of the consideration received from the
Depositor under this Purchase Agreement, the Loan Originator hereby agrees and
covenants that it shall perform the duties of Transfer Obligor under the Trust
and Servicing Agreement.
ARTICLE III.
REPRESENTATIONS AND
WARRANTIES; REMEDIES FOR BREACH
Section 3.1 Loan Originator Representations and Warranties.
(a) The Loan Originator makes each of the representations and warranties to the
Depositor as of the Closing Date and as of each Transfer Date as are set forth
in Section 4.02 of the Trust and Servicing Agreement.
(b) The Loan Originator further makes each of the
representations and warranties as of each Transfer Date as are set forth in
Section 4.04 of the Trust and Servicing Agreement with respect to the Loans
conveyed on such Transfer Date.
(c) It is understood and agreed that the representations and
warranties set forth in this Section 3.1 shall survive delivery of the
respective Custodial Loan Files to the Custodian (as the agent of the Trust) and
shall inure to the benefit of the Certificateholders, the Depositor, the
Servicer, the Owner Trustee and the Trust. Upon the discovery by the Servicer,
the Custodian, the Loan Originator, the Depositor or any Certificateholder that
any of the representations and warranties of the Loan Originator in Sections
4.02 and 4.04 of the Trust and Servicing Agreement are determined to be untrue
in a manner that materially and adversely affects the value of the Loans, or the
interests of the Certificateholders in, any Loan with respect to which such
representation or warranty is made and the Loan Originator shall fail to cure
such breach within the time period specified in Section 4.05 of the Trust and
Servicing Agreement, the Loan Originator shall be obligated to repurchase or
substitute the affected Loan(s) in accordance with the provisions of Sections
3.05 and 4.05 of the Trust and Servicing Agreement promptly upon receipt of
written instructions from the Majority Certificateholders. The obligations of
the Loan Originator set forth in Sections 3.05 and 4.05 of the Trust and
Servicing Agreement to cure any breach or to substitute for or repurchase an
affected Loan shall constitute the sole remedies available hereunder to the
Depositor respecting a breach of the representations and warranties contained in
this Section 3.1(b).
ARTICLE IV.
LOAN ORIGINATOR'S COVENANTS
Section 4.1 Covenants of the Loan Originator. The Loan
Originator hereby covenants that except for the sales hereunder, the Loan
Originator will not sell, pledge, assign or transfer to any other Person, or
grant, create, incur, assume or suffer to exist any lien on, any Loan, or any
interest therein; and the Loan Originator will defend the right, title and
-5-
<PAGE> 9
interest of the Trust, as assignee of the Depositor, in, to and under the Loans,
against all claims of third parties claiming through or under the Loan
Originator.
Whenever and so often as requested by the Depositor or the
Initial Class A Certificateholder, the other party promptly will execute and
deliver or cause to be executed and delivered all such other and further
instruments, documents, or assurances, and promptly do or cause to be done all
such other things, as may be necessary and reasonably required to vest more
fully in the requesting party all rights, interests, powers, benefits,
privileges and advantages conferred or intended to be conferred upon it by this
Purchase Agreement.
ARTICLE V.
INDEMNIFICATION BY THE LOAN ORIGINATOR
Section 5.1 Indemnification. The Loan Originator agrees to
indemnify and hold harmless the Depositor and the Certificateholders, as the
ultimate assignees from the Depositor (each an "Indemnified Party"), from and
against any loss, liability, expense, damage, claim or injury arising out of or
based on (i) any breach of any representation, warranty or covenant of the Loan
Originator, the Servicer or their Affiliates, in this Purchase Agreement or any
other Basic Document, including, without limitation, the origination or prior
servicing of the Loans by reason of any acts, omissions, or alleged acts or
omissions arising out of activities of the Loan Originator, the Servicer or
their Affiliates, and (ii) any untrue statement by the Loan Originator, the
Servicer or its Affiliates of any material fact or any such Person's failure to
state a material fact necessary to make such statements not misleading with
respect to any such Person's statements contained in this Purchase Agreement or
any other Basic Document, including, without limitation, any Officer's
Certificate, statement, report or other document or information prepared by any
such Person and furnished or to be furnished by it pursuant to or in connection
with the transactions contemplated thereby including, without limitation, such
written information as may have been and may be furnished in connection with any
due diligence investigation with respect to the Loans or any such Person's
business, operations or financial condition, including reasonable attorneys'
fees and other costs or expenses incurred in connection with the defense of any
actual or threatened action, proceeding or claim; provided that the Loan
Originator shall not indemnify an Indemnified Party if such loss, liability,
expense, damage or injury is due to either an Indemnified Party's willful
misfeasance, bad faith or negligence or by reason of an Indemnified Party's
reckless disregard of its obligations hereunder; provided, further, that the
Loan Originator shall not be so required to indemnify an Indemnified Party or to
otherwise be liable to an Indemnified Party for any losses in respect of the
performance of the Loans, the creditworthiness of the Borrowers under the Loans,
changes in the market value of the Loans or other, similar investment risks
associated with the Loans or for any losses arising from a breach of any
representation or warranty set forth in Section 3.1(a) or (b) hereof, a remedy
for the breach of which is provided in Section 3.1(c) hereof. The provisions of
this indemnity shall run directly to and be enforceable by an Indemnified Party
subject to the limitations hereof.
Section 5.2 Limitation on Liability of the Loan Originator.
None of the directors or trustees or officers or employees or agents of the Loan
Originator shall be under
-6-
<PAGE> 10
any liability to the Depositor or the Certificateholders, it being expressly
understood that all such liability is expressly waived and released as a
condition of, and as consideration for, the execution of this Purchase
Agreement. Except as expressly provided herein and in the other Basic Documents,
the Loan Originator shall not be under any liability to the Trust, the Owner
Trustee or the Certificateholders. The Loan Originator and any director or
officer or employee or agent of the Loan Originator may rely in good faith on
any document of any kind prima facie properly executed and submitted by any
Person respecting any matters arising hereunder.
Section 5.3 Procedure. With respect to a claim subject to
indemnity hereunder made by any Person against an Indemnified Party (a "Third
Party Claim"), such Indemnified Party shall notify the Loan Originator in
writing of the Third Party Claim within a reasonable time after receipt by such
Indemnified Party of written notice of the Third Party Claim unless the Loan
Originator shall have previously obtained actual knowledge thereof. Thereafter,
the Indemnified Party shall deliver to the Loan Originator, within a reasonable
time after the Indemnified Party's receipt thereof, copies of all notices and
documents (including court papers) received by the Indemnified Party relating to
the Third Party Claim. No failure to give such notice or deliver such documents
shall effect the rights to indemnity hereunder.
Section 5.4 Defense of Claims. If a Third Party Claim is made
against an Indemnified Party, (a) the Loan Originator will be entitled to
participate in the defense thereof and, (b) if it so chooses, to assume the
defense thereof with counsel selected by the Loan Originator, provided that in
connection with such assumption (i) such counsel is not reasonably objected to
by the Indemnified Party and (ii) the Loan Originator first admits in writing
its liability to indemnify the Indemnified Party with respect to all elements of
such claim in full. Should the Loan Originator so elect to assume the defense of
a Third Party Claim, the Loan Originator will not be liable to the Indemnified
Party for any legal expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof. If the Loan Originator elects to assume the
defense of a Third Party Claim, the Indemnified Party will (i) cooperate in all
reasonable respects with the Loan Originator in connection with such defense and
(ii) not admit any liability with respect to, or settle, compromise or
discharge, such Third Party Claim without the Loan Originator's prior written
consent, as the case may be. If the Loan Originator shall assume the defense of
any Third Party Claim, the Indemnified Party shall be entitled to participate in
(but not control) such defense with its own counsel at its own expense. If the
Loan Originator does not assume the defense of any such Third Party Claim, the
Indemnified Party may defend the same in such manner as it may deem appropriate,
including settling such claim or litigation after giving notice to the Loan
Originator of such terms and the Loan Originator will promptly reimburse the
Indemnified Party upon written request. Anything contained in this Purchase
Agreement to the contrary notwithstanding, the Loan Originator shall not be
entitled to assume the defense of any part of a Third Party Claim that seeks an
order, injunction or other equitable relief or relief for other than money
damages against an Indemnified Party unless the Loan Originator has demonstrated
to such Indemnified Party reasonable financial capacity to meet its obligations
with respect to such Third Party Claim.
-7-
<PAGE> 11
ARTICLE VI.
TERMINATION
Section 6.1 Termination. The respective obligations and
responsibilities of the Loan Originator and Depositor created hereby shall
terminate, except for the Loan Originator's and Depositor's indemnity
obligations as provided herein, upon the termination of the Trust as provided in
Article XVI of the Trust and Servicing Agreement.
ARTICLE VII.
MISCELLANEOUS PROVISIONS
Section 7.1 Amendment. This Purchase Agreement may be amended
from time to time with the prior written consent of the Majority
Certificateholders, in their sole discretion, by a written agreement signed by
the Loan Originator and the Depositor.
Section 7.2 Governing Law. This Purchase Agreement shall be
governed by and construed in accordance with the laws of the State of New York
and the obligations, rights and remedies of the parties hereunder shall be
determined in accordance with such laws.
Section 7.3 Notices. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given upon
receipt thereof if (i) personally delivered or mailed by registered mail,
postage prepaid, or (ii) transmitted by facsimile (with a copy delivered by
overnight courier) upon telephone confirmation of receipt of such transmission,
as follows:
(a) if to the Loan Originator:
FINOVA Capital Corporation
1850 N. Central Ave.
Phoenix, AZ 85004
Attention: Frederick C. Bauman
Telecopy number: (602) 207-5036
Telephone number: (602) 207-6904
or, such other addresses, facsimile numbers and confirmation numbers as may
hereafter be furnished to the Depositor in writing by the Loan Originator.
(b) if to the Depositor:
FINOVA Realty Capital Warehouse Funding, L.P.
c/o FINOVA Warehouse Funding Inc.,
1850 N. Central Ave., Phoenix, AZ 85004
-8-
<PAGE> 12
Attention: Frederick C. Bauman
Telecopy number: (602) 207-5036
Telephone number: (602) 207-6904
or such other addresses, facsimile numbers and confirmation numbers as may
hereafter be furnished to the Loan Originator in writing by the Depositor.
Section 7.4 Severability of Provisions. If any one or more of
the covenants, agreements, provisions of terms of this Purchase Agreement shall
be held invalid for any reason whatsoever, then such covenants, agreements,
provisions or terms shall be deemed severable from the remaining covenants,
agreements, provisions or terms of this Purchase Agreement and shall in no way
affect the validity of enforceability of the other provisions of this Purchase
Agreement.
Section 7.5 Counterparts. This Purchase Agreement may be
executed in one or more counterparts and by the different parties hereto on
separate counterparts, each of which, when so executed, shall be deemed to be an
original and such counterparts, together, shall constitute one and the same
agreement.
Section 7.6 Further Agreements. The Loan Originator and the
Depositor each agree to execute and deliver to the other such amendments to
documents and such additional documents, instruments or agreements as may be
necessary or appropriate to effectuate the purposes of this Purchase Agreement
or in connection with the offering of securities representing interests in the
Loans.
Section 7.7 Intention of the Parties. It is the intention of
the parties, other than for federal, state and local income and franchise tax
purposes, that the Depositor is purchasing, and the Loan Originator is selling,
the Loans rather than pledging the Loans to secure a loan by the Depositor to
the Loan Originator. The parties hereto each intend to treat the transaction for
accounting purposes as a sale by the Loan Originator, and a purchase by the
Depositor, of the Loans. The Depositor will have the right to review the Loans
and the related Loan Files to determine the characteristics of the Loans which
will affect the federal income tax consequences of owning the Loans and the Loan
Originator will cooperate with all reasonable requests made by the Depositor in
the course of such review.
Section 7.8 Successors and Assigns; Assignment of Purchase
Agreement. The Agreement shall bind and inure to the benefit of and be
enforceable by the Loan Originator, the Depositor, the Owner Trustee and the
Certificateholders. The obligations of the Loan Originator under this Purchase
Agreement cannot be assigned or delegated to a third party without the consent
of the Depositor, which consent shall be at the Depositor's sole discretion,
except that the Depositor acknowledges and agrees that the Loan Originator may
assign its obligations hereunder to any Person into which the Loan Originator is
merged or any
-9-
<PAGE> 13
corporation resulting from any merger, conversion or consolidation to which the
Loan Originator is a party or any Person succeeding to the business of the Loan
Originator. The parties hereto acknowledge that the Depositor is acquiring the
Loans for the purpose of contributing them to the Trust that will issue the
Certificates representing undivided interests in such Loans. As an inducement to
the Depositor to purchase the Loans, the Loan Originator acknowledges and
consents to the assignment by the Depositor to the Trust of all of the
Depositor's rights against the Loan Originator pursuant to this Purchase
Agreement and to the enforcement or exercise of any right or remedy against the
Loan Originator pursuant to this Purchase Agreement by the Owner Trustee, for
the benefit of the Trust, under the Trust and Servicing Agreement. Such
enforcement of a right or remedy by the Owner Trustee, for the benefit of the
Trust, shall have the same force and effect as if the right or remedy had been
enforced or exercised by the Depositor directly.
Section 7.9 Survival. The representations and warranties set
forth in Article III and the provisions of Article V shall survive the purchase
of the Loans hereunder.
Section 7.10 Successors and Assigns. This Purchase Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns.
[SIGNATURE PAGE FOLLOWS]
-10-
<PAGE> 14
IN WITNESS WHEREOF, the Loan Originator and the Depositor have caused
this Loan Purchase Agreement to be duly executed on their behalf by their
respective officers thereunto duly authorized as of the day and year first above
written.
FINOVA REALTY CAPITAL WAREHOUSE
FUNDING, L.P.,
as Depositor
By: FINOVA WAREHOUSE FUNDING INC., as
General Partner
By: /s/ Melissa Huckins
-------------------------------------
Name: Melissa Huckins
Title: Vice President - Assistant
Treasurer
FINOVA CAPITAL CORPORATION,
as Loan Originator
By: /s/ Meilee Smythe
-------------------------------------
Name: Meilee Smythe
Title: Senior Vice President -
Treasurer
<PAGE> 15
THE STATE OF Arizona )
) ss.:
COUNTY OF Maricopa )
BEFORE ME, the undersigned authority, a Notary Public, on
this 29th day of September 1998 personally appeared Melissa Huckins, known to me
to be a person and officer whose name is subscribed to the foregoing instrument
and acknowledged to me that the same was the act of the said FINOVA WAREHOUSE
FUNDING INC., the general partner of the Depositor, FINOVA REALTY CAPITAL
WAREHOUSE FUNDING, L.P., and that he executed the same as the act of such
corporation for the purpose and consideration therein expressed, and in the
capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 29th day of
September, 1998.
/s/ Gail B. McCollum
---------------------------------
Notary Public, State of Arizona
<PAGE> 16
THE STATE OF Arizona )
) ss.:
COUNTY OF Maricopa )
BEFORE ME, the undersigned authority, a Notary Public, on
this 29th day of September, 1998 personally appeared Meilee Smythe, known to me
to be a person and officer whose name is subscribed to the foregoing instrument
and acknowledged to me that the same was the act of the said FINOVA CAPITAL
CORPORATION, as the Loan Originator, and that he executed the same as the act of
such corporation for the purposes and consideration therein expressed, and in
the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 29th day of
September, 1998.
/s/ Gail B. McCollum
-------------------------------
Notary Public, State of Arizona
<PAGE> 17
EXHIBIT A
FORM OF LPA ASSIGNMENT
ASSIGNMENT NO.____ OF LOANS ("LPA Assignment"), dated
____________________ (the "Transfer Date"), by FINOVA CAPITAL CORPORATION, (the
"Loan Originator") to FINOVA REALTY CAPITAL WAREHOUSE FUNDING, L.P. (the
"Depositor") pursuant to the Loan Purchase Agreement referred to below.
WITNESSETH:
WHEREAS, the Loan Originator and the Depositor are the
parties to the Loan Purchase Agreement dated as of September 1, 1998 (the
"Purchase Agreement"), hereinafter as such agreement may have been, or may from
time to time be, amended, supplemented or otherwise modified;
WHEREAS, pursuant to the Purchase Agreement, the Loan
Originator wishes to sell, convey, transfer and assign Loans to the Depositor in
exchange for cash consideration and other good and valid consideration the
receipt and sufficiency of which is hereby acknowledged; and
WHEREAS, the Depositor is willing to acquire such Loans
subject to the terms and conditions hereof and of the Purchase Agreement;
NOW THEREFORE, the Loan Originator and the Depositor hereby
agree as follows:
1. Defined Terms. All capitalized terms defined in the
Purchase Agreement and used herein shall have such defined meanings when used
herein, unless otherwise defined herein.
2. Designation of Loans. The Loan Originator does hereby
deliver herewith a Loan Schedule containing a true and complete list of each
Loan to be conveyed on the Transfer Date. Such list is marked as Schedule A to
this LPA Assignment and is hereby incorporated into and made a part of this LPA
Assignment.
3. Conveyance of Loans. The Loan Originator hereby sells,
transfers, assigns and conveys to the Depositor, without recourse, all of the
right, title and interest of the Loan Originator in and to the Loans and all
proceeds thereof listed on the Loan Schedule attached hereto, including all
interest and principal received by the Loan Originator, or the Servicer on or
with respect to the Loans on or after the related Transfer Cutoff Date (and
including Monthly Payments due on or after the related Transfer Cutoff Date but
received by the Loan Originator or the Servicer on or before the related
Transfer Cutoff Date and held for application on the related scheduled Due
Dates, but not including Monthly Payments due on
A-1
<PAGE> 18
the Loans before the related Transfer Cutoff Date), together with all right,
title and interest in and to the proceeds of any related Insurance Policies.
4. Depositor Acknowledges Assignment. As of the Transfer
Date, pursuant to this LPA Assignment and Section 2.1(a) of the Purchase
Agreement, the Depositor acknowledges its receipt of the Loans listed on the
attached Loan Schedule and all other related property in the Trust Estate.
5. Acceptance of Rights But Not Obligations. The foregoing
sale, transfer, assignment, set over and conveyance does not, and is not
intended to, result in a creation or an assumption by the Depositor of any
obligation of the Loan Originator or any other Person in connection with this
LPA Assignment or under any agreement or instrument relating thereto except as
specifically set forth herein.
6. Loan Originator Acknowledges Receipt of Sale Price. The
Loan Originator hereby acknowledges receipt of the Sale Price or that is
otherwise distributed at its direction.
[TO BE INSERTED WHEN APPLICABLE] [7. Assignment of Certain
Swap Agreements. The Loan Originator hereby sells, transfers and assigns all of
its right title and interest in to and under, its rights and obligations and the
Depositor does hereby accept and assume all of the Loan Originator's rights and
obligations under the following confirmation(s) issued under that certain master
agreement between the Loan Originator and Morgan Stanley Capital Services, Inc.
[ ] (the "Swap Agreement"); provided, that it is understood by the parties
hereto that the Trust, as ultimate owner of the Loans, shall assume and shall be
delegated all of Depositor's rights and obligations under the Swap Agreement.]
[7./8.] Conditions Precedent. The conditions precedent in
Section 2.1(c) of the Purchase Agreement have been satisfied.
[8./9.] Amendment of the Purchase Agreement. The Purchase
Agreement is hereby amended by providing that all references to the "Purchase
Agreement", "this Agreement" and "herein" shall be deemed from and after the
Transfer Date to be a dual reference to the Purchase Agreement as supplemented
by this LPA Assignment. Except as expressly amended hereby, all of the
representations, warranties, terms, covenants and conditions of the Purchase
Agreement shall remain unamended and the Purchase Agreement shall continue to
be, and shall remain, in full force and effect in accordance with its terms and
except as expressly provided herein, this LPA Assignment shall not constitute or
be deemed to constitute a waiver of compliance with or consent to noncompliance
with any term or provision of the Purchase Agreement.
[9./10.] Counterparts. This LPA Assignment may be executed in
any number of counterparts all of which taken together shall constitute one and
the same instrument.
A-2
<PAGE> 19
IN WITNESS WHEREOF, the undersigned have caused this LPA
Assignment to be duly executed and delivered by their respective duly authorized
officers on the day and year first above written.
FINOVA CAPITAL CORPORATION,
as Loan Originator
By: _____________________________
Name:
Title:
FINOVA REALTY CAPITAL FUNDING, L.P.,
as Depositor
By: FINOVA Warehouse Funding Inc., the
General Partner of FINOVA REALTY
CAPITAL FUNDING, L.P.
By: _____________________________
Name:
Title:
A-3
<PAGE> 20
SCHEDULE A
[LOAN SCHEDULE]
<PAGE> 1
EXHIBIT 10.T.4
AMENDMENT NO. 1
TO THE
TRUST AND SERVICING AGREEMENT
dated as of December 8, 1998
AMENDMENT NO. 1 TO THE TRUST AND SERVICING AGREEMENT, dated as of
December 8, 1998 ("Amendment No. 1") to that certain Trust and Servicing
Agreement, dated as of September 1, 1998 (the "Trust and Servicing Agreement")
among FINOVA COMMERCIAL MORTGAGE LOAN OWNER TRUST 1998-1, a Delaware business
trust (the "Issuer" or the "Trust"), FINOVA REALTY CAPITAL WAREHOUSE FUNDING,
L.P., a Delaware partnership, as Depositor (the "Depositor"), FINOVA CAPITAL
CORPORATION, a Delaware corporation, as Loan Originator (the "Loan Originator"),
FINOVA CAPITAL CORPORATION, as Servicer (the "Servicer"), FINOVA CAPITAL
CORPORATION, as Transfer Obligor (the "Transfer Obligor") and WILMINGTON TRUST
COMPANY, a Delaware banking corporation, as Owner Trustee (the "Owner Trustee").
PRELIMINARY STATEMENTS
WHEREAS, the parties hereto have entered into the Trust and Servicing
Agreement,
WHEREAS, Section 17.02 provides that the Trust and Servicing Agreement
may be amended in writing by the parties thereto; and
WHEREAS, the parties hereto wish to make certain amendments to the
Trust and Servicing Agreement;
NOW, THEREFORE, in consideration of the promises and the mutual
agreements hereinafter set forth, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Definitions. Unless otherwise defined herein, all capitalized terms
shall have the meaning set forth in the Trust and Servicing Agreement.
2. Amendment to the Trust and Servicing Agreement. Section 1.01 is
hereby amended as follows:
Deleting the definition of "Accrual Period" and by replacing such
definition with the following:
"Accrual Period" With respect to the Class A Certificates and any
Distribution Date, the period commencing on and including the first day
after the end of the
<PAGE> 2
prior Accrual Period (or in the case of the December 11, 1998,
Distribution Date, the period commencing on and including November 12,
1998) and ending on the related Determination Date; provided, however,
that the Accrual Period relating to the final Distribution Date will
end on the final Distribution Date.
3. Full Force and Effect. Except as modified by this Amendment No. 1,
the Trust and Servicing Agreement shall other wise remain in full force and
effect against any and all of the parties thereunder.
4. Governing Law. This Amendment No. 1 shall be governed by, and
construed in accordance with, the laws of the State of New York, without
reference to its conflicts of laws provisions, and the obligations, rights and
remedies of the parties hereunder shall be determined in accordance therewith.
5. Counterparts. This Amendment No. 1 may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts together constitute but one and
the same instrument.
<PAGE> 3
IN WITNESS WHEREOF the parties have executed this Amendment No. 1 as of the date
first above written.
FINOVA COMMERCIAL MORTGAGE LOAN OWNER
TRUST 1998-1, as Issuer
By: Wilmington Trust Company, not in its
individual capacity but solely as Owner
Trustee
By: /s/ Rosemary Pantano
--------------------------------------
Name: Rosemary Pantano
Title: Financial Services Officer
FINOVA REALTY CAPITAL WAREHOUSE FUNDING,
L.P., as Depositor
By: FINOVA Warehouse Funding Inc., as
General Partner
By: /s/ Michael Bender
--------------------------------------
Name: Michael Bender
Title: Vice President
FINOVA CAPITAL CORPORATION, as Loan
Originator
By: /s/ Michael Bender
--------------------------------------
Name: Michael Bender
Title: Vice President
FINOVA CAPITAL CORPORATION, as Transfer
Obligor
By: /s/ Michael Bender
--------------------------------------
Name: Michael Bender
Title: Vice President
<PAGE> 4
FINOVA CAPITAL CORPORATION, as Servicer
By: /s/ Michael Bender
--------------------------------------
Name: Michael Bender
Title: Vice President
WILMINGTON TRUST COMPANY, as Owner Trustee
By: /s/ Rosemary Pantano
--------------------------------------
Name: Rosemary Pantano
Title: Financial Services Officer
<PAGE> 1
EXHIBIT 10.T.5
- --------------------------------------------------------------------------------
AMENDMENT NO. 2
dated as of December 29, 1998
to the
TRUST AND SERVICING AGREEMENT
among
FINOVA COMMERCIAL MORTGAGE LOAN OWNER TRUST 1998-1
(Trust)
FINOVA REALTY CAPITAL WAREHOUSE FUNDING, L.P.
(Depositor)
FINOVA CAPITAL CORPORATION
(Loan Originator)
FINOVA CAPITAL CORPORATION
(Servicer)
FINOVA CAPITAL CORPORATION
(Transfer Obligor)
and
WILMINGTON TRUST COMPANY
(Owner Trustee)
FINOVA COMMERCIAL MORTGAGE LOAN OWNER TRUST 1998-1
COMMERCIAL MORTGAGE LOAN ASSET-BACKED CERTIFICATES
Dated as of September 1, 1998
- --------------------------------------------------------------------------------
<PAGE> 2
AMENDMENT NO. 2
TO THE
TRUST AND SERVICING AGREEMENT
dated as of December 29, 1998
AMENDMENT NO. 2 TO THE TRUST AND SERVICING AGREEMENT, dated as
of December 29, 1998 ("Amendment No. 2") to that certain Trust and Servicing
Agreement, dated as of September 1, 1998 (the "Trust and Servicing Agreement")
among FINOVA COMMERCIAL MORTGAGE LOAN OWNER TRUST 1998-1, a Delaware business
trust (the "Trust"), FINOVA REALTY CAPITAL WAREHOUSE FUNDING, L.P., a Delaware
limited partnership, as Depositor (the "Depositor"), FINOVA CAPITAL CORPORATION,
a Delaware corporation, as Loan Originator (the "Loan Originator"), FINOVA
CAPITAL CORPORATION, a Delaware corporation, as Transfer Obligor (the "Transfer
Obligor"), FINOVA CAPITAL CORPORATION, as Servicer (the "Servicer") and
WILMINGTON TRUST COMPANY, a Delaware banking corporation, as Owner Trustee on
behalf of the Certificateholders (in such capacity, the "Owner Trustee").
PRELIMINARY STATEMENTS
WHEREAS, the parties hereto have entered into the Trust and
Servicing Agreement, whereby the Owner Trust Estate was conveyed to the Trustee;
WHEREAS, Section 17.02 provides the Trust and Servicing
Agreement may be amended in writing by the parties thereto; and
WHEREAS the parties hereto wish to make certain amendments to
the Trust and Servicing Agreement;
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter set forth, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Definitions. Unless otherwise defined herein, all
capitalized terms shall have the meaning set forth in the Trust and Servicing
Agreement.
2
<PAGE> 3
2. Amendment to Trust and Servicing Agreement.
(a) Section 1.01 is hereby amended by:
(i) deleting the definition of "Advance Factor" and
by replacing such definition with the following:
Advance Factor: With respect to each Loan,
95%. The Loan Originator and Initial Class A
Certificateholder may agree to such lower Advance
Factor as is specified in a supplemental writing with
respect to a Loan.
With respect to each Loan currently owned by
the Trust, the parties hereto agree that each Loan
indicated thereon shall have a revised Advance Factor
as set forth in Exhibit A.
(ii) deleting the definition of "LIBOR Margin" and by
replacing such definition with the following:
LIBOR Margin: With respect to each day, the
percentage corresponding to the Weighted Average
Purchase Value Factor as of such day, as set forth in
the following table:
Weighted Average
LIBOR Margin: Purchase Value Factor:
1.50% <12%
1.00% = >12%
provided that the LIBOR Margin shall:
(a) increase by an additional 0.50% to the extent
that the Value Shortfall Percentage is less than
8.00% as of such day; and
(b) increase by an additional 1.00% (in addition to
the increase specified in clause (a) above) to the
extent that the Value Shortfall Percentage is less
than 5.00% as of such day or an Event of Default or
the Clean-up Call Date shall have occurred.
(iii) deleting the last sentence of
"Overcollateralization Shortfall".
(iv) adding at the end of the definition of "Purchase
Value" the following two sentences:
The aggregate Purchase Value of the Loans
shall be determined taking into consideration the
aggregate Hedge Value (or any
3
<PAGE> 4
aggregate net negative value) of each Hedging
Instrument (as determined by the Market Value Agent
in accordance with Section 8.03(c)) entered into by
the Trust as of such Business Day. With the written
consent of the Majority Certificateholders in their
sole discretion, as of such Business Day, the
aggregate Purchase Value shall be increased (but in
no event to an amount greater than par value of all
Loans) or decreased, as the case may be, by all or
any portion of the aggregate Hedge Value or aggregate
net negative value of all Hedging Instruments entered
into by the Trust of such Business Day, as the
Majority Certificateholders may, in their sole
discretion, designate in writing.
(v) deleting the definition of "Value Shortfall" and
by replacing such definition with the following:
Value Shortfall: With respect to any date of
determination, an amount equal to (x) the sum of (A) 10% less
$1,000 of the aggregate Purchase Value (as specified below) of
all Loans sold hereunder, plus (B) any amounts withdrawn from
the Transfer Obligation Account for return to the Transfer
Obligor pursuant to Section 7.05(i)(A) hereof since the
Closing Date and prior to such Distribution Date, less (y) the
sum of (i) the aggregate amount of payments actually made by
the Transfer Obligor in respect of the Transfer Obligation
pursuant to Section 7.06 and (ii) the aggregate amount of the
Purchase Prices paid by the Loan Originator in respect of any
Loan Originator Puts, since the Closing Date. The Purchase
Value shall be based on the Advance Factor most recently
agreed upon by the Initial Class A Certificateholder and the
Loan Originator provided that the Advance Factor shall be as
of the Transfer Date for all Loans sold to the Trust prior to
December 29, 1998.
(vi) adding the definition of "Weighted Average
Purchase Value Factor" as follows:
"Weighted Average Purchase Value Factor"
with respect to each day, a percentage equivalent of
(I) the sum of for each Loan of (a) the Market Value
of all Loans as of such day less (b) the Class A
Certificate Principal Balance as of such day divided
by (II) the aggregate Principal Balance for all Loans
as of such day. To the extent that clause (I) is
negative for the aggregate of all Loans, the Weighted
Average Purchase Value Factor shall be deemed zero.
The computation of Market Value in clause (I) shall
be adjusted, in the Majority Certificateholder's sole
discretion, for the value of Hedge Instruments, as
provided in the definition of Market Value.
4
<PAGE> 5
(b) Section 8.03(b) is hereby amended by adding the following
immediately before the last sentence thereof:
The aggregate Market Value of the Loans shall be determined
taking into consideration the aggregate Hedge Value (or any
aggregate net negative value) of each Hedging Instrument (as
determined by the Market Value Agent in accordance with
Section 8.03(c)) entered into by the Trust as of such Business
Day. With the written consent of the Majority
Certificateholders in their sole discretion, as of such
Business Day, the aggregate Market Value shall be increased
(but in no event to an amount greater than par value of all
Loans) or decreased, as the case may be, by all or any portion
of the aggregate Hedge Value or aggregate net negative value
of all Hedging Instruments entered into by the Trust of such
Business Day, as the Majority Certificateholders may, in their
sole discretion, designate in writing.
(c) Section 15.05(j) is hereby amended by deleting the first
sentence of current Section 15.05(j) and replacing such section with the
following:
(j) on any day, the Market Value Agent shall have determined
the aggregate Market Value of the Loans is less than 104% of
the aggregate Class A Certificate Principal Balance. The
computation of aggregate Market Value shall be adjusted, in
the Majority Certificateholder's sole discretion, for the
value of Hedge Instruments, as provided in the definition of
Market Value.
(d) Section 16.05 is hereby amended by deleting the words "15
days" and inserting in its place "7 days".
2. Attorneys Fees. The Servicer agrees to pay as and when
billed by the Initial Class A Certificateholder the reasonable fees,
disbursements and expenses of counsel to the Initial Class A Certificateholder
in connection with the amendments to the Basic Documents effected on the date
hereof.
3. Full Force and Effect. Except as modified by this
Amendment No. 2, the Trust and Servicing Agreement shall otherwise remain in
full force and effect against any and all of the parties thereunder.
4. Governing Law. This Amendment No. 2 shall be governed by,
and construed in accordance with, the laws of the State of Delaware, without
reference to its conflicts of laws provisions, and the obligations, rights and
remedies of the parties hereunder shall be determined in accordance therewith.
5. Counterparts. This Amendment No. 2 may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
5
<PAGE> 6
IN WITNESS WHEREOF the parties have executed this Amendment No. 2 as of the date
first above written.
FINOVA COMMERCIAL MORTGAGE LOAN OWNER
TRUST 1998-1,
By: Wilmington Trust Company,
not in its individual capacity
but solely as Owner Trustee
By: /s/Rosemary Pantano
------------------------------------
Name: Rosemary Pantano
Title: Financial Services Officer
FINOVA REALTY CAPITAL WAREHOUSE FUNDING,
L.P.,
as Depositor
By: FINOVA WAREHOUSE FUNDING INC.,
as General Partner
By: /s/ Michael Bender
------------------------------------
Name: Michael Bender
Title: Vice President
FINOVA CAPITAL CORPORATION,
as Loan Originator
By: /s/ Michael Bender
------------------------------------
Name: Michael Bender
Title: Vice President
FINOVA CAPITAL CORPORATION,
as Transfer Obligor
By: /s/ Michael Bender
------------------------------------
Name: Michael Bender
Title: Vice President
6
<PAGE> 7
FINOVA CAPITAL CORPORATION,
as Servicer
By: /s/ Michael Bender
------------------------------------
Name: Michael Bender
Title: Vice President
WILMINGTON TRUST COMPANY,
as Owner Trustee
By: /s/ Rosemary Pantano
------------------------------------
Name: Rosemary Pantano
Title: Financial Services Officer
7
<PAGE> 8
EXHIBIT A
<PAGE> 1
Exhibit 10.T.6
CUSTODIAL AGREEMENT
CUSTODIAL AGREEMENT (this "Custodial Agreement") dated as of
September 1, 1998, made by and among:
(i) FINOVA CAPITAL CORPORATION, a Delaware corporation, as
Servicer (the "Servicer");
(ii) LaSalle National Bank, as Custodian (in such capacity, the
"Custodian");
(iii) FINOVA COMMERCIAL MORTGAGE LOAN OWNER TRUST 1998-1, as Trust
(the "Trust"); and
(iv) WILMINGTON TRUST COMPANY as Owner Trustee (the "Owner
Trustee").
RECITALS
The Servicer, FINOVA CAPITAL CORPORATION, as Loan Originator
(the "Loan Originator"), FINOVA CAPITAL CORPORATION, as Transfer Obligor, the
Owner Trustee, the Trust and FINOVA Realty Capital Funding, L.P., as Depositor
(the "Depositor"), are parties to the Trust and Servicing Agreement, dated as of
the date hereof (as amended, supplemented or otherwise modified and in effect
from time to time, the "Trust and Servicing Agreement"), pursuant to which the
Trust has agreed, subject to the terms and conditions thereof, to purchase Loans
(as defined in the Trust and Servicing Agreement) from the Depositor and upon
purchase to convey such Loans to Trust.
It is a condition precedent to the issuance of the
Certificates that the parties hereto execute and deliver this Custodial
Agreement to provide for the appointment of the Custodian as custodian of the
Custodial Loan Files (as defined in the Trust and Servicing Agreement) conveyed
to the Trust for the benefit of the Holders of the Certificates. Accordingly,
the parties hereto agree as follows:
Section 1. Definitions.
Unless otherwise defined herein, terms defined in the Trust
and Servicing Agreement, as modifications to such terms are approved by the
Custodian, shall have their respective assigned meanings when used herein, and
the following terms shall have the following meanings:
"Authorized Representative" shall have the meaning specified
in Section 18 hereof.
<PAGE> 2
"Custodial Delivery Failure" shall have the meaning specified
in Section 13 hereof.
"Exception" shall mean, with respect to any Custodial Loan
File, any of the following: (i) any variance from the requirements of Section
3(c) hereof with respect to such Custodial Loan File (giving effect to the Loan
Originator's right to deliver certified copies in lieu of original documents in
certain circumstances), (ii) a Custodial Loan File that has been temporarily
released to the Loan Originator pursuant to Section 5(a) hereof or to the
Servicer pursuant to Section 5(b)(iii) hereof, (iii) a Loan for which an officer
of the Custodian with particular responsibility for the transactions
contemplated by this Agreement (such officer, a "Responsible Officer") receives
written notice or has actual knowledge of a lien or security interest in respect
of the related Loan in favor of a Person other than the Trust and (iv) a Bailee
Loan for which the Custodian has failed to receive the related Custodial Loan
File by the third Business Day following the applicable Transfer Date.
"Governmental Authority" shall mean the United States of
America, any state or other political subdivision thereof and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government and having jurisdiction over the
applicable Person.
"Loan Schedule and Exceptions Report" shall mean a list
generated by the Custodian in accordance with Section 3 hereof, of Loans with
respect to which the Custodian holds the Custodial Loan File for the benefit of
the Trust as of the close of business on the prior Business Day, which list
includes codes indicating all Exceptions with respect to each Custodial Loan
File listed thereon. Each Loan Schedule and Exceptions Report shall set forth
(a) all Loans, (b) the related Transfer Date for each Loan, (c) all Loans
released by the Custodian since the prior Loan Schedule and Exceptions Report
and (d) all Exceptions, with any updates thereto from the prior Loan Schedule
and Exceptions Report.
"Review Procedures" shall mean the procedures regarding the
Custodian's review of the Custodial Loan Files attached as Annex I hereto.
Section 2. Appointment of Custodian; Delivery of Custodial
Loan File.
By executing and delivering this Custodial Agreement, the
Owner Trustee has appointed the Custodian to act as agent and custodian for the
exclusive benefit of the Trust with respect to the Loan Documents. The Custodian
hereby accepts such appointment and agrees to maintain and hold all Loan
Documents at any time delivered to it as bailee and custodian for the exclusive
benefit of the Trust. The Custodian acknowledges and agrees that the Custodian
is acting and will act with respect to the Loan Documents for the exclusive
benefit of the Trust and is not, and shall not at any time in the future be,
subject with respect to the Loan Documents, in any manner or to any extent, to
the direction or control of the Loan Originator, Servicer or Depositor except as
expressly permitted hereby. The Custodian agrees to act in accordance with this
Custodial Agreement and in accordance with any written instructions from the
Trust delivered pursuant hereto consistent herewith. Under no circumstances
shall the Custodian deliver possession of any Loan Documents to the Loan
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<PAGE> 3
Originator, the Servicer or the Depositor or any Person other than the Trust
except in accordance with the express terms of this Custodial Agreement or
otherwise upon the written instruction of the Majority Certificateholders.
Section 3. LPA Assignment; Loan Schedule and Exceptions
Report.
(a) With respect to each Transfer Date, no later than 10:30
a.m. New York City time one (1) Business Day prior to such Transfer Date, the
Loan Originator shall provide the Custodian and the Initial Class A
Certificateholder with an LPA Assignment and a related Loan Schedule (such
information contained on the Loan Schedule shall be delivered to the Custodian
and the Initial Certificateholder in computer-readable form acceptable to the
Custodian and Initial Class A Certificateholder) with respect to the Loans to be
delivered to the Custodian on such Transfer Date. If the Custodian has received
such LPA Assignment and Loan Schedule by the time set forth above, and has
received a Custodial Loan File for each Loan identified on the Loan Schedule on
or prior to such Transfer Date, then on such Transfer Date, the Custodian will
deliver, via facsimile and by modem, no later than 2:00 p.m., New York City
time, to the Owner Trustee, with a copy to the Initial Class A
Certificateholder, the Loan Originator and the Trust, a Loan Schedule and
Exceptions Report with respect to such Loans.
(b) With respect to the substitution by the Loan Originator of
a Qualified Substitute Loan pursuant to Section 3.05 or 4.05 of the Trust and
Servicing Agreement, the Loan Originator shall provide the Custodian with an
updated Loan Schedule (such information contained on the Loan Schedule shall be
delivered to the Custodian in computer-readable form) with respect to such
Qualified Substitute Loans to be conveyed to the Owner Trustee. The Custodian
shall, no later than 2:00 p.m., New York City time on the second Business Day
after the Custodian's receipt of the Custodial Loan File with respect thereto,
deliver, via facsimile and by modem, to the Owner Trustee, with a copy to the
Initial Class A Certificateholder, the Loan Originator and the Trust, a Loan
Schedule and Exceptions Report with respect to each such Loan.
(c) Each Loan Schedule and Exceptions Report shall list all
Exceptions using such codes as shall be in form and substance agreed to by the
Custodian and the Initial Class A Certificateholder. The delivery of each Loan
Schedule and Exceptions Report to the Owner Trustee and the Initial Class A
Certificateholder shall be the Custodian's representation that, other than the
Exceptions listed therein: (A) the Custodial Loan File for the related Loan has
been delivered and is in the possession of the Custodian (except as specifically
permitted by the Basic Documents with respect to Bailee Loans), (B) all Loan
Documents delivered to it have been reviewed by the Custodian in accordance with
the Review Procedures and appear on their face to be regular and to relate to
such Loan, (C) based upon a review of the Promissory Note, items (i), (ii),
(iii), (ix), (xi) and (xii) as of the origination date of the Loan with respect
to such Loan, as set forth in the Loan Schedule delivered by the Loan Originator
to the Custodian are the same as shown in the Promissory Note and (D) each Loan
identified on such Loan Schedule and Exceptions Report is being held by the
Custodian as the bailee for the Owner Trustee pursuant to this Custodial
Agreement.
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<PAGE> 4
(d) In connection with each Loan Schedule and Exceptions
Report delivered hereunder by the Custodian, the Custodian shall make no
representations as to and shall not be responsible to verify (A) the validity,
legality, enforceability, due authorization, recordability, sufficiency, or
genuineness of any of the documents contained in each Custodial Loan File or (B)
the collectability, insurability, effectiveness or suitability of any such Loan.
Subject to the preceding sentence, the Loan Originator hereby gives the
Custodian notice that from and after each Transfer Date, the Trust is the sole
owner of each Loan identified on a Loan Schedule and Exceptions Report until
such time that the Custodian receives written notice from the Initial Class A
Certificateholder that the Trust no longer owns such Loan.
(e) Notwithstanding and in addition to the foregoing, in the
event that the Custodian identifies a change to the Exceptions listed on the
prior Loan Schedule and Exceptions Report, the Custodian shall perform any
Review Procedures required with respect thereto and deliver an updated Loan
Schedule and Exceptions Report reflecting such change to the Loan Originator,
the Owner Trustee and the Initial Class A Certificateholder, via facsimile or
modem, no later than 2:00 p.m., New York City time on the next succeeding
Business Day. Each Loan Schedule and Exceptions Report delivered by the
Custodian to the Initial Class A Certificateholder shall supersede and cancel
the Loan Schedule and Exceptions Report previously delivered by the Custodian to
the Initial Class A Certificateholder hereunder.
Section 4. Obligations of the Custodian.
(a) The Custodian shall maintain continuous custody of all
items constituting the Custodial Loan Files in secure facilities in accordance
with customary standards for such custody and shall reflect in its records the
interest of the Trust therein. Each Promissory Note and Assignment of Mortgage
shall be maintained in fire resistant facilities.
(b) With respect to the Loan Documents constituting each
Custodial Loan File, the Custodian shall (i) act exclusively as the bailee of,
and custodian for, the Owner Trustee, (ii) hold all documents constituting such
Custodial Loan File received by it for the exclusive use and benefit of the
Trust, and (iii) transfer Loan Documents to the Loan Originator and Servicer or
at their direction, only in accordance with the terms of this Custodial
Agreement.
(c) In the event that (i) the Owner Trustee, the Loan
Originator, the Servicer or the Custodian shall be served by a third party with
any type of levy, attachment, writ or court order with respect to any Custodial
Loan File or any Loan Document included therein or (ii) a third party shall
institute any court proceeding by which any Custodial Loan File or any Loan
Document included therein shall be required to be delivered otherwise than in
accordance with the provisions of this Custodial Agreement, the party receiving
such service shall promptly deliver or cause to be delivered to the other
parties to this Custodial Agreement and the Initial Class A Certificateholder
copies of all court papers, orders, documents and other materials concerning
such proceedings. The Custodian shall, to the extent permitted by law, continue
to hold and maintain all the Loan Documents that are the subject of such
proceedings pending an order of a court of competent jurisdiction permitting or
directing disposition
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<PAGE> 5
thereof. Upon final determination of such court, the Custodian shall dispose of
such Custodial Loan File or any Loan Document included therein as directed by
such court. Expenses of the Custodian incurred as a result of such proceedings
shall be borne by the Servicer and reimbursed to the Custodian on a current
basis.
(d) The parties hereto hereby acknowledge that the Custodian
shall not be responsible for the validity and perfection of the Owner Trustee's
security interest in the Loan Documents hereunder, other than the Custodian's
obligation to take possession of Loan Documents as set forth in Section 2
hereof.
Section 5. Release of Loan Documents.
(a) To the Loan Originator. The Custodian is hereby authorized
to release Loan Documents relating to Loans in the possession of the Custodian
to the Loan Originator, or its designee, against a Request for Release and
Receipt executed by the Loan Originator and consented to by the Initial Class A
Certificateholder in the form of Annex 2-A hereto, for the purpose of (i)
effecting repurchases or substitutions of Loans by the Loan Originator in
accordance with Sections 3.05 and 4.05 of the Trust and Servicing Agreement or
(ii) correcting documentary deficiencies relating thereto.
In the Request for Release and Receipt, the Loan Originator or
its designee shall agree to return to the Custodian each document previously
released from the Custodial Loan File pursuant to subclause (ii) of the
preceding paragraph within 10 calendar days of receipt thereof. In the Request
for Return and Receipt, the Loan Originator shall represent and warrant to the
Owner Trustee that any such request by the Loan Originator for release of Loan
Documents for correction of documentary deficiencies shall be solely for the
purposes of correcting such deficiencies in preparation for returning such Loan
Documents to the Custodian and that the Loan Originator has requested such
release in compliance with all terms and conditions of such release set forth in
the Trust and Servicing Agreement.
(b) To the Servicer. From time to time until otherwise
notified by the Majority Certificateholders, the Custodian is hereby authorized
upon receipt of Request for Release and Receipt of the Servicer and written
notice thereof to the Initial Class A Certificateholder in the Form of Annex 2-B
hereto, to release Loan Documents in the related Custodial Loan File in the
possession of the Custodian to or at the direction of the Servicer for any Loan
with respect to which (i) foreclosure proceedings have been or are being brought
by the Servicer pursuant to the Trust and Servicing Agreement or the Loan is
otherwise being liquidated pursuant to Accepted Servicing Procedures and the
Trust and Servicing Agreement (ii) all amounts owing thereunder have been paid
and deposited into the Collection Account or (iii) a temporary release may be
necessary in order to facilitate the servicing of such Loan in accordance with
the Servicing Standard and the terms of the Trust and Servicing Agreement. Such
release and delivery shall not exceed five (5) Custodial Loan Files on any one
date. In connection with any temporary release pursuant to subclause (iii), the
Servicer shall return all released Loan Documents to the Custodian promptly
after the need for possession of such
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<PAGE> 6
documentation has ceased. The Custodian shall note the return of such Loan
Documents on the Loan Schedule and Exceptions Report on the Business Day
following such return.
(c) To the Trust. The Custodian is hereby authorized upon
receipt of a Request for Release and Receipt of the Trust and consent thereto by
the Initial Class A Certificateholder in the Form of Annex 2-C hereto, to
release the Custodial Loan File in the possession of the Custodian with respect
to each Loan listed on such request.
(d) Following notification by any Certificateholder or the
Owner Trustee (which may be by facsimile) to the Custodian that a Default or
Event of Default has occurred and is continuing, the Custodian shall not
release, or incur any liability to the Loan Originator, the Servicer, the Trust
or any other Person for refusing to release, any Loan Document without the
express prior written consent of the Majority Certificateholders, which consent
shall not be unreasonably withheld.
(e) The parties hereto hereby acknowledge that the Custodian's
obligations with respect to any documents released pursuant to this Section 5
shall be limited to verifying the authenticity of a Request for Release and
Receipt and consent thereto by comparing the signatures on such documents to
those provided on Annexes 3, 4, 6 and 7 attached hereto and accurately recording
each release on the next Business Day following receipt of such Request for
Release and Receipt. The Custodian will effect a release no later than 5:00
p.m., New York City time, one Business Day following the day on which such
request was made after the Custodian has certified to the compliance with the
terms of this Section 5(a)-(c).
Section 6. Fees and Expenses of Custodian.
The Custodian shall charge such fees for its services under
this Custodial Agreement as are set forth in a separate agreement between the
Custodian and the Servicer, which fees shall not be altered without the prior
written consent of the Majority Certificateholders. The expenses of the
Custodian (exclusive of its fees) under this Custodial Agreement shall be the
obligation of the Servicer to the extent not paid pursuant to Section
7.01(c)(3)(i) of the Trust and Servicing Agreement.
Section 7. Removal or Resignation of Custodian.
(a) The Custodian may at any time resign and terminate its
obligations under this Custodial Agreement upon at least 60 days' prior written
notice to the Servicer, the Initial Class A Certificateholder, the Trust and the
Owner Trustee. Promptly after receipt of notice of the Custodian's resignation,
the Majority Certificateholders shall appoint, by written instrument, a
successor custodian, acceptable to them in their sole discretion. One original
counterpart of such instrument of appointment shall be delivered to each of the
Loan Custodian and the successor custodian.
(b) The Majority Certificateholders, upon at least 60 days'
prior written notice to the Custodian, the Servicer and the Trust, may remove
and discharge the Custodian (or any successor custodian thereafter appointed)
from the performance of its obligations under
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<PAGE> 7
this Custodial Agreement. Promptly after the giving of notice of removal of the
Custodian, the Majority Certificateholders shall appoint, by written instrument,
a successor custodian acceptable to them in their sole discretion.
(c) In the event of any such resignation or removal, the
Custodian shall promptly transfer to the successor custodian, as directed in
writing, all the Custodial Loan Files being administered under this Custodial
Agreement and, if any endorsements on the Promissory Notes, the Assignments of
Mortgage or Assignments of Loan Documents have been completed in the name of the
Custodian, assign such Mortgages, Loan Documents and endorse without recourse,
representation or warranty such Promissory Notes as directed by the Owner
Trustee. The cost of the shipment of Custodial Loan Files arising out of the
resignation of the Custodian shall be at the expense of the Custodian; and any
cost of shipment arising out of the removal of the Custodian shall be at the
expense of the Servicer. The Servicer shall be responsible for the fees and
expenses of the successor custodian and the fees and expenses for endorsing the
Promissory Notes and assigning the Mortgages if required pursuant to this
paragraph. If no successor Custodian is appointed within the 60 days written
notice period, the Custodian may petition a court of competent jurisdiction to
appoint a successor Custodian.
Section 8. Examination of Custodial Loan Files.
Upon reasonable prior notice to the Custodian and at the
Servicer's expense, any Certificateholder, the Servicer, the Trust, the Owner
Trustee and each of their respective agents, accountants, attorneys and auditors
will be permitted during normal business hours to examine the Custodial Loan
Files, documents, records and other papers in the possession of or under the
control of the Custodian relating to any or all of the Loans.
Section 9. Insurance of Custodian.
At its own expense, the Custodian shall maintain at all times
during the existence of this Custodial Agreement and keep in full force and
effect fidelity insurance, theft of documents insurance, forgery insurance and
errors and omissions insurance. All such insurance shall be in amounts, with
standard coverage and subject to deductibles, all as is customary for insurance
typically maintained by banks which act as custodian of collateral substantially
similar to the Loan Documents. Upon request, the Owner Trustee shall be entitled
to receive a certificate of the respective insurer that such insurance is in
full force and effect.
Section 10. Representations and Warranties.
The Custodian represents and warrants to the Owner Trustee
that:
(i) the Custodian has the corporate power and authority and
the legal right to execute and deliver, and to perform its obligations
under, this Custodial Agreement, and has taken all necessary corporate
action to authorize its execution, delivery and performance of this
Custodial Agreement;
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<PAGE> 8
(ii) no consent or authorization of, filing with, or other act
by or in respect of, any arbitrator or Governmental Authority and no
consent of any other Person (including, without limitation, any
stockholder or creditor of the Custodian) is required in connection
with the execution, delivery, performance, validity or enforceability
of this Custodial Agreement;
(iii) this Custodial Agreement has been duly executed and
delivered on behalf of the Custodian and constitutes a legal, valid and
binding obligation of the Custodian enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general principles of
equity (whether enforcement is sought in a proceeding in equity or at
law); and
(iv) the Custodian is not an Affiliate of the Loan Originator,
the Servicer, the Depositor or the Trust.
Section 11. Statements.
Promptly following the request from time to time of any
Certificateholder, the Owner Trustee, the Loan Originator, the Servicer or the
Trust, the Custodian shall provide to such requesting party a list of all of the
Loans for which the Custodian holds a Custodial Loan File pursuant to this
Custodial Agreement. Such list shall be in the form of a Loan Schedule and
Exceptions Report. Upon the reasonable prior written request of such requesting
party, the Custodian shall make copies (at the expense of the Servicer) of any
documents relating to such Loans for such requesting party.
Section 12. No Adverse Interest of Custodian or Owner Trustee.
By execution of this Custodial Agreement, the Custodian
represents and warrants that it currently holds, and during the existence of
this Custodial Agreement shall hold, no adverse interest, by way of security or
otherwise, in any Loan, and hereby waives and releases any such interest which
it may have in any Loan as of the date hereof. The Loans shall not be subject to
any security interest, lien or right to set-off by the Custodian or any third
party claiming through the Custodian, and the Custodian shall not convey,
pledge, encumber, hypothecate, transfer, dispose of, or otherwise grant any
third party interest in, any Loan or Loan Document. The Custodian hereby
represents and warrants that it has no knowledge of any adverse claim with
respect to the Owner Trust Estate.
Section 13. Indemnification of Custodian.
(a) The Servicer hereby agrees to indemnify and hold the
Custodian and its directors, officers, agents, employees and "control persons"
within the meaning of the Act and the Securities Exchange Act of 1934, as
amended, harmless against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever, including reasonable attorney's fees, that may be
imposed on, incurred by, or asserted against it or them in any way relating to
or arising out
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<PAGE> 9
of this Custodial Agreement or any action taken or not taken by it or them
hereunder unless such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements were imposed on,
incurred by or asserted against the Custodian relating to or arising out of a
Custodial Delivery Failure or the Custodian's negligence, bad faith or willful
misconduct. The foregoing indemnification shall survive any resignation or
removal of the Custodian or the termination or assignment of this Custodial
Agreement.
(b) In the event that the Custodian fails to produce a
Promissory Note that was in its possession pursuant to Section 2 within two (2)
Business Days after required or requested by the Loan Originator, Servicer,
Trust or Owner Trustee, and provided that (i) Custodian's most recent Loan
Schedule and Exceptions Report did not list such Promissory Note as an Exception
thereon; (ii) such Promissory Note is not released pursuant to a Request for
Release and Receipt in the form annexed hereto as Annex 2-A, B or C; and (iii)
such Promissory Note was held by the Custodian on behalf of the Owner Trustee (a
"Custodial Delivery Failure"), then the Custodian shall at its sole cost and
expense, with respect to any such missing Promissory Note, promptly deliver to
the Trust with a copy to the Initial Class A Certificateholder, the Loan
Originator, the Servicer and the Trust, a Lost Note Affidavit in the form of
Annex 8 hereto.
(c) The Custodian agrees to indemnify and hold the Owner
Trustee, the Loan Originator, the Trust and their respective Affiliates and
designees harmless against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever, including reasonable attorney's fees, that may
be imposed on, incurred by, or asserted against it or them in any way relating
to or arising out of a Custodial Delivery Failure or the Custodian's negligence,
bad faith or willful misconduct. The foregoing indemnification shall survive any
termination or assignment of this Custodial Agreement.
Section 14. Reliance of Custodian.
In the absence of bad faith on the part of the Custodian, the
Custodian may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any request, instruction,
certificate, opinion or other document furnished to the Custodian, reasonably
believed by the Custodian to be genuine and to have been signed or presented by
the proper party or parties and conforming to the requirements of this Custodial
Agreement; but in the case of any Loan Document or other request, instruction,
document or certificate which by any provision hereof is specifically required
to be furnished to the Custodian, the Custodian shall be under a duty to examine
the same in accordance with the requirements of this Custodial Agreement to the
extent specifically set forth herein.
Section 15. Term of Custodial Agreement.
Promptly after written notice from the Initial Class A
Certificateholder of the termination of the Trust and Servicing Agreement and
the payment in full of all amounts owing to the Class A Certificateholders
thereunder, the Custodian shall deliver all documents
-9-
<PAGE> 10
remaining in the Custodial Loan Files to or at the direction of the Trust, and
this Custodial Agreement shall thereupon terminate.
Section 16. Notices.
All demands, notices and communications hereunder shall be in
writing and shall be deemed to have been duly given when received by the
recipient party at the address shown on its signature page hereto, or at such
other addresses as may hereafter be furnished to each of the other parties by
like notice. The Custodian's office is located at the address set forth on its
signature page hereto, and the Custodian shall notify the Owner Trustee, the
Servicer and the Initial Class A Certificateholder if such address should
change.
Section 17. Governing Law.
This Custodial Agreement shall be construed in accordance with
the laws of the State of New York, and the obligations, rights, and remedies of
the parties hereunder shall be determined in accordance with such laws without
regard to the conflict of laws doctrine applied in such state.
Section 18. Authorized Representatives.
Each individual designated as an authorized representative of
the Initial Class A Certificateholder, the Loan Originator, the Custodian, the
Servicer and the Trust, respectively (an "Authorized Representative"), is
authorized to give and receive notices, requests and instructions and to deliver
certificates and documents in connection with this Custodial Agreement on behalf
of the Initial Class A Certificateholder, the Loan Originator, the Custodian,
the Servicer and the Trust, as the case may be, and the specimen signature for
each such Authorized Representative, initially authorized hereunder, is set
forth on Annexes 3, 4, 5, 6 and 7 hereof, respectively. From time to time,
Initial Class A Certificateholder, the Loan Originator, the Custodian, the
Servicer and the Trust or their respective successors or permitted assigns may,
by delivering to the others a revised annex, change the information previously
given pursuant to this Section 18, but each of the parties hereto shall be
entitled to rely conclusively on the then current annex until receipt of a
superseding annex. To determine the identity of the Majority Certificateholders
for purposes of receiving instructions therefrom, the Custodian shall be
entitled to conclusively rely on a certification from the party or parties
purporting to be the Majority Certificateholders as to their status as Majority
Certificateholders.
Section 19. Amendment.
This Custodial Agreement may be amended from time to time with
the prior written consent of the Majority Certificateholders by written
agreement signed by the Servicer, the Owner Trustee and the Custodian.
-10-
<PAGE> 11
Section 20. Cumulative Rights.
The rights, powers and remedies of the Custodian and the Trust
under this Custodial Agreement shall be in addition to all rights, powers and
remedies given to the Custodian and the Owner Trustee by virtue of any statute
or rule of law, the other Basic Documents or any other agreement, all of which
rights, powers and remedies shall be cumulative and may be exercised
successively or concurrently without impairing the Owner Trustee's security
interest in the Loan Documents.
Section 21. Binding Upon Successors.
All of the respective rights and obligations of each of the
parties to this Custodial Agreement shall inure to the benefit of and bind each
party hereto and their respective successors and permitted assigns.
Section 22. Entire Agreement; Severability.
This Custodial Agreement and the other Basic Documents contain
the entire agreement with respect to the Custodian and the Custodial Loan Files.
If any of the provisions of this Custodial Agreement shall be held invalid or
unenforceable, this Custodial Agreement shall be construed as if not containing
such provisions, and the rights and obligations of the parties hereto shall be
construed and enforced accordingly.
Section 23. Execution In Counterparts.
This Custodial Agreement may be executed in counterparts, each
of which when so executed shall be deemed to be an original and all of which
when taken together shall constitute one and the same agreement.
Section 24. Tax Reports.
The Custodian shall not be responsible for the preparation or
filing of any reports or returns relating to federal, state or local income
taxes with respect to this Custodial Agreement, other than in respect of the
Custodian's compensation or for reimbursement of expenses.
Section 25. Transmission of Custodial Files.
Written instructions as to the method of shipment and
shipper(s) the Custodian is directed to utilize in connection with transmission
of mortgage files and loan documents in the performance of the Custodian's
duties hereunder shall be delivered by the Servicer to the Custodian prior to
any shipment of any mortgage files and loan documents hereunder. The Servicer
will arrange for the provision of such services at its sole cost and expense
(or, at the Custodian's option, reimburse the Custodian for all costs and
expenses incurred by the Custodian consistent with such instructions) and will
maintain such insurance against loss or damage to Custodial Loan Files as the
Servicer deems appropriate. Without limiting the
-11-
<PAGE> 12
generality of the provisions of Section 13 above, it is expressly agreed that in
no event shall the Custodian have any liability for any losses or damages to any
person, including without limitation, the Servicer, arising out of actions of
the Custodian consistent with instructions of the Servicer.
Section 26. Procedures for Bailee Loans.
The Trust, the Owner Trustee, and Custodian agree as follows:
(a) Bailee Agreement. The Loan Originator shall deliver a
fully executed Bailee Agreement and an Identification Certificate to the Bailee
pursuant to the related Bailee Agreement ("Identification Certificate") and on
or prior to the Transfer Date indicated on the Identification Certificate
delivered by the Loan Originator, the Loan Originator shall have caused to be
delivered to the Bailee the documents required pursuant to the Bailee Agreement,
upon which the Bailee shall be required to (i) hold the Custodial Loan File in
connection with such Bailee Loan as bailee and agent for the Initial Class A
Certificateholder and (ii) forward the Custodial Loan File in connection with
such Bailee Loan to the Custodian, via fully insured courier reasonably
acceptable to Initial Class A Certificateholder, for receipt no later than the
third Business Day following the related Transfer Date.
(b) Transfer Date Delivery to Custodian. Bailee shall have
delivered by facsimile to the Custodian those documents listed in Section
3.04(a)(B)(i) of the Trust and Servicing Agreement.
[SIGNATURE PAGE FOLLOWS]
-12-
<PAGE> 13
IN WITNESS WHEREOF, this Custodial Agreement was duly executed
by the parties hereto as of the day and year first above written.
FINOVA CAPITAL CORPORATION,
as Servicer
By: /s/ Meilee Smythe
------------------------------------------------
Name: Meilee Smythe
Title: Senior Vice President- Treasurer
Address for Notices:
FINOVA Capital Corporation
1850 N. Central Ave.
Phoenix, AZ 85004
Attention: Frederick C. Bauman
Telecopy number: (602) 207-5036
Telephone number: (602) 207-6904
1850 N. Central Ave.
Phoenix, AZ 85002
FINOVA COMMERCIAL MORTGAGE
LOAN OWNER TRUST 1998-1,
as the Trust
By: Wilmington Trust Company,
not in its individual capacity
but solely as Owner Trustee
By: /s/ James P. Lawler
------------------------------------------------
Name: James P. Lawler
Title: Vice President
Address for Notices:
FINOVA Commercial Mortgage Loan Owner
Trust 1998-1
c/o Wilmington Trust Company
Rodney Square North
1100 North Market Street
<PAGE> 14
Wilmington, Delaware 19890
Attention: Corporate Trust Administration
Telecopy: (302) 651-8882
Telephone:(302) 651-1000
LASALLE NATIONAL BANK,
as Custodian
By: /s/ Mary Anne Ashmore
------------------------------------------------
Name: Mary Anne Ashmore
Title: Vice President
Address for Notices:
135 South LaSalle Street, Suite 1625
Chicago, Illinois 60674-4107
Attention: FINOVA Commercial Mortgage
Loan Owner Trust 1998-1
c/o Mark Henrikson
Telecopier No.: (312) 904-2084
Telephone No.: (312) 904-0335
Wilmington Trust Company,
as Owner Trustee
By: /s/ James P. Lawler
------------------------------------------------
Name: James P. Lawler
Title: Vice President
Address for Notices:
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust Administration
Telecopy: (302) 651-8882
Telephone:(302) 651-1000
<PAGE> 15
Annex 1
to Custodial Agreement
REVIEW PROCEDURES
This Annex sets forth the Custodian's review procedures for each item
listed below delivered by the Loan Originator pursuant to the Custodial
Agreement (the "Agreement") to which this Annex is attached. Capitalized terms
used herein and not defined herein shall have the meanings ascribed to them in
the Agreement.
1. the Promissory Note and the Mortgage, each appear to bear an
original signature or signatures purporting to be the signature or signatures of
the Person or Persons named as the maker and Borrower or grantor, or in the case
of copies of the Mortgage permitted under Section 3.04(a)(3) of the Trust and
Servicing Agreement, that such copies bear a reproduction of such signature;
2. the amount of the Promissory Note is the same as the amount
specified on the related Mortgage, as applicable;
3. the mortgagee is the same as the payee on the Promissory Note;
4. the Mortgage contains a legal description other than address, city
and state on the first page;
5. the notary section (acknowledgment) is present and attached to the
related Mortgage, and is signed;
6. neither the original Promissory Note, nor the Mortgage, delivered
pursuant to the Agreement, nor the original Assignment of Mortgage contain any
notations on their face which appear in the good faith judgment of the Custodian
to evidence any claims, liens, security interests, encumbrances or restrictions
on transfer;
7. the Promissory Note is endorsed in blank by the named holder or
payee thereof;
8. each original Assignment of Mortgage, and any intervening assignment
of mortgage appears to bear the original signature of the named mortgagee or
beneficiary including any subsequent assignors, as applicable, from the
originating Person to the Loan Originator;
9. the date of each intervening assignment is on or after the date of
the related Mortgage and/or the immediately preceding assignment, as the case
may be;
10. the notary section (acknowledgment) is present and attached to each
intervening assignment and is signed; and
11. based upon a review of the Promissory Note, items (i), (ii), (iii),
(ix), (xi) and (xii) as of the origination date of the Loan with respect to such
Loan, as set forth in the Loan
Annex 1-1
<PAGE> 16
Schedule delivered by the Loan Originator to the Custodian are the same as shown
in the Promissory Note.
Annex 1-2
<PAGE> 17
Annex 2-A
to Custodial Agreement
LOAN ORIGINATOR'S REQUEST FOR RELEASE AND RECEIPT
[Date]
LaSalle National Bank, as Custodian
135 South LaSalle Street, Suite 1625
Chicago, Illinois 60674-4107
Attention: FINOVA Commercial Mortgage
Loan Owner Trust 1998-1
c/o Mark Henrikson
Telecopier No.: (312) 904-2084
Telephone No.: (312) 904-0335
Re: Custodial Agreement dated as of September 1, 1998 (the
"Custodial Agreement"), among FINOVA CAPITAL CORPORATION, as
Servicer, LASALLE NATIONAL BANK, as Custodian, WILMINGTON
TRUST COMPANY, as Owner Trustee and FINOVA COMMERCIAL MORTGAGE
LOAN OWNER TRUST 1998-1, as Trust
In connection with the Custodial Loan Files held by the Custodian, we
request the release, and acknowledge receipt, of the (Custodial Loan
File/[specify document]) for the Loan described below, for the reason indicated.
Borrower's Name, Address & Zip Code:
Loan Number:
Reason for Requesting Documents (check one)
Reason for Requesting Documents (check one)
_____ 1. Loan repurchased pursuant to Section 3.05 or 4.05 of the Trust
and Servicing Agreement. (Loan Originator hereby certifies
that the Purchase Price has been credited to the Collection
Account).
_____ 2. Loan substituted pursuant to Section 3.05 or 4.05 of the Trust
and Servicing Agreement. (Loan Originator hereby certifies
that a Custodial Loan File with respect to a Qualified
Substitute Loan or Loans have been deposited with the
Annex 2A-1
<PAGE> 18
Custodian and any applicable Substitution Adjustment has been
credited to the Collection Account).
Annex 2A-2
<PAGE> 19
_____ 3. Loan subject to documentation corrections for errors and
ambiguities. (Loan Originator hereby certifies that the
documentation released pursuant to this Request for Release
and Receipt has errors or ambiguities that require correction
and that such documentation shall be corrected in a prompt
manner and returned to the Custodian within 14 days in
accordance with the terms of the Custodial Agreement.
Please release to us the specified documents, as well as any additional
documents in your possession relating to the above specified Loan[s].
We will return each aforementioned document within 10 calendar days of
receipt thereof. We as Loan Originator hereby further represent and warrant to
the Owner Trustee that our request for release of these Loan Documents for
correction of documentary deficiencies is solely for the purposes of correcting
such deficiencies in preparation for returning such Loan Documents to the
Custodian and that we have requested such release in compliance with all terms
and conditions of such release set forth in the Trust and Servicing Agreement.
Capitalized words used and not otherwise defined herein have the
meanings assigned to them in the Trust and Servicing Agreement.
FINOVA CAPITAL CORPORATION,
as Loan Originator
By:_______________________________
Name:
Title:
Date:
SUCH RELEASE APPROVED BY
THE INITIAL CLASS A CERTIFICATEHOLDER:
By:_______________________________
Name:
Title:
Annex 2A-3
<PAGE> 20
Annex 2-B
to Custodial Agreement
SERVICER'S REQUEST FOR RELEASE AND RECEIPT
[Date]
LaSalle National Bank, as Custodian
135 South LaSalle Street, Suite 1625
Chicago, Illinois 60674-4107
Attention: FINOVA Commercial Mortgage
Loan Owner Trust 1998-1
c/o Mark Henrikson
Telecopier No.: (312) 904-2084
Telephone No.: (312) 904-0335
Re: Custodial Agreement dated as of September 1, 1998 (the
"Custodial Agreement"), among FINOVA CAPITAL CORPORATION, as
Servicer, LASALLE NATIONAL BANK, as Custodian, WILMINGTON
TRUST COMPANY, as Owner Trustee and FINOVA COMMERCIAL MORTGAGE
LOAN OWNER TRUST 1998-1, as Trust
In connection with the Custodial Loan Files held by the Custodian, we
request the release, and acknowledge receipt, of the (Custodial Loan
File/[specify document]) for the Loan described below, for the reason indicated.
Borrower's Name, Address & Zip Code:
Loan Number:
Reason for Requesting Documents (check one)
_____ 1. Loan paid in full. (Servicer hereby certifies that all amounts
received in connection therewith have been credited to the Collection Account).
_____ 2. Loan liquidated. (Servicer hereby certifies that all Insurance
Proceeds of foreclosure, or other liquidation have been finally received and
credited to the Collection Account).
_____ 3. Loan in foreclosure or another method of liquidation pursuant to
Accepted Servicing Procedures and the Trust and Servicing Agreement.
Annex 2B-1
<PAGE> 21
_____ 4. Release for servicing, to be returned to the Custodian promptly
after the need for possession of such documents has ceased in accordance with
the Custodial Agreement. (explain):
_______________________________________________________
_______________________________________________________
Please release to us the specified documents, as well as any additional
documents in your possession relating to the above specified Loan[s].
If line 4 above is checked, upon our return of all of the above
documents to you, as Custodian, please acknowledge your receipt by signing in
the space indicated below, and returning this form.
Servicer represents and warrants that such release and delivery to
Servicer shall note cause the Custodial Loan Files held by the Servicer to
exceed five (5) Custodial Loan Files on any one date.
Capitalized words used and not otherwise defined herein have the
meanings assigned to them in the Trust and Servicing Agreement.
FINOVA CAPITAL CORPORATION,
as Servicer
By:_______________________________
Name:
Title:
Date:
cc: Morgan Stanley Securitization
Funding Incorporated
Annex 2B-2
<PAGE> 22
Annex 2-C
to Custodial Agreement
TRUST'S REQUEST FOR RELEASE AND RECEIPT
[Date]
LaSalle National Bank, as Custodian
135 South LaSalle Street, Suite 1625
Chicago, Illinois 60674-4107
Attention: FINOVA Commercial Mortgage
Loan Owner Trust 1998-1
c/o Mark Henrikson
Telecopier No.: (312) 904-2084
Telephone No.: (312) 904-0335
Attention: FINOVA Commercial Mortgage Loan Owner Trust 1998-1
Re: Custodial Agreement dated as of September 1, 1998 (the
"Custodial Agreement"), among FINOVA CAPITAL CORPORATION, as
Servicer, LASALLE NATIONAL BANK, as Custodian, WILMINGTON
TRUST COMPANY, as Owner Trustee and FINOVA COMMERCIAL MORTGAGE
LOAN OWNER TRUST 1998-1, as Trust
In connection with the Custodial Loan Files held by the Custodian, we
request the release, and acknowledge receipt, of the (Custodial Loan
File/[specify document]) for the Loan described below, for the reason indicated.
Borrower's Name, Address & Zip Code:
Loan Number:
Reason for Requesting Documents:
The Loans corresponding to such Custodial Loan Files are subject to
sale in a Securitization.
Please release to us the specified documents, as well as any additional
documents in your possession relating to the above specified Loans.
Capitalized words used and not otherwise defined herein have the
meanings assigned to them in the Trust and Servicing Agreement.
Annex 2C-1
<PAGE> 23
FINOVA COMMERCIAL MORTGAGE LOAN
OWNER TRUST 1998-1, as Trust
By: Wilmington Trust Company,
not in its individual capacity but solely as
Owner Trustee
By:_________________________________
Name:
Title:
SUCH RELEASE APPROVED BY
THE INITIAL CLASS A CERTIFICATEHOLDER:
By:_________________________________
Name:_______________________________
Title:______________________________
Annex 2C-2
<PAGE> 24
Annex 3
to Custodial Agreement
AUTHORIZED REPRESENTATIVES OF INITIAL CLASS A CERTIFICATEHOLDER
Name Specimen Signature
_________________________ __________________________
_________________________ __________________________
_________________________ __________________________
_________________________ __________________________
_________________________ __________________________
Annex 3-1
<PAGE> 25
Annex 4
to Custodial Agreement
AUTHORIZED REPRESENTATIVES OF LOAN ORIGINATOR
Name Specimen Signature
_________________________ __________________________
_________________________ __________________________
_________________________ __________________________
_________________________ __________________________
_________________________ __________________________
Annex 4-1
<PAGE> 26
Annex 5
to Custodial Agreement
AUTHORIZED REPRESENTATIVES OF CUSTODIAN
Name Specimen Signature
_________________________ __________________________
_________________________ __________________________
_________________________ __________________________
_________________________ __________________________
_________________________ __________________________
Annex 5-1
<PAGE> 27
Annex 6
to Custodial Agreement
AUTHORIZED REPRESENTATIVES OF SERVICER
Name Specimen Signature
_________________________ __________________________
_________________________ __________________________
_________________________ __________________________
_________________________ __________________________
_________________________ __________________________
Annex 6-1
<PAGE> 28
Annex 7
to Custodial Agreement
AUTHORIZED REPRESENTATIVES OF TRUST
Name Specimen Signature
_________________________ __________________________
_________________________ __________________________
_________________________ __________________________
_________________________ __________________________
_________________________ __________________________
Annex 7-1
<PAGE> 29
Annex 8
to Custodial Agreement
FORM OF LOST NOTE AFFIDAVIT
I, as ___________________________ (title) of LaSalle National
Bank (the "Custodian"), am authorized to make this Affidavit on behalf of the
Custodian. In connection with the administration of the Loans held by the
Custodian on behalf of Wilmington Trust Company (the "Owner Trustee"),
_______________ (hereinafter called "Deponent"), being duly sworn, deposes and
says that:
1. Custodian's address is:
_______________________
_______________________
_______________________
2. Custodian previously delivered to the Trust a Loan Schedule
and Exceptions Report with respect to the Promissory Note, executed by
_____________ in favor of _______________ in the amount of $____________________
which did not indicate such Promissory Note is missing;
3. Such Promissory Note is not outstanding pursuant to a
Request for Release of Documents;
4. Aforesaid Promissory Note (hereinafter called the
"Original") has been lost;
5. Deponent has made or has caused to be made diligent search
for the Original and has been unable to find or recover same;
6. The Custodian was the Custodian of the Original at the
time of loss; and
7. Deponent agrees that, if said Original should ever come
into Custodian's possession, custody or power, Custodian will immediately and
without consideration surrender the Original to the Owner Trustee.
8. Attached hereto is a true and correct copy of the
Promissory Note, endorsed in blank by the Loan Originator, as provided by FINOVA
COMMERCIAL MORTGAGE LOAN OWNER TRUST 1998-1 or its designee and (ii) the
Mortgage which secures the Promissory Note, which is recorded at
___________________.
<PAGE> 30
9. This Affidavit is intended to be relied on by the Trust,
its successors, and assigns and LaSalle National Bank, as Custodian represents
and warrants that it has the authority to perform its obligations under this
Affidavit.
EXECUTED THIS ____ day of
_______, 199_, on behalf of
the Custodian by:
____________________________
Signature
____________________________
Typed Name
<PAGE> 31
On this _________ day of _______________________, 199_, before
me appeared ____________________________________________, to me personally know,
who being duly sworn did say that she/he is the ______________________________
of ______________________, and that said Affidavit of Lost Note was signed and
sealed on behalf of such corporation and said _____________________________
acknowledged this instrument to be the free act and deed of said corporation.
_____________________________________
Notary Public in and for the
State of ____________________________.
My Commission expires: _______________.
<PAGE> 1
Exhibit 10.T.7
================================================================================
ADMINISTRATION AGREEMENT
dated as of September 1, 1998
between
FINOVA COMMERCIAL MORTGAGE LOAN OWNER TRUST 1998-1
(the "Trust")
and
FINOVA CAPITAL CORPORATION
(the "Administrator" and the "Servicer")
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Section 1. Duties of the Administrator.................................................. 2
Section 2. Duties of the Servicer with Respect to the Trust and Servicing Agreement..... 4
Section 3. Records...................................................................... 5
Section 4. Compensation................................................................. 5
Section 5. Additional Information to Be Furnished to the Trust.......................... 5
Section 6. Independence of the Administrator............................................ 5
Section 7. No Joint Venture............................................................. 5
Section 8. Other Activities of Administrator and Servicer............................... 5
Section 9. Term of Agreement; Resignation and Removal of Administrator or Servicer...... 6
Section 10. Action upon Termination, Resignation or Removal of the Administrator........ 7
Section 11. Notices..................................................................... 7
Section 12. Amendments.................................................................. 8
Section 13. Successor and Assigns....................................................... 9
Section 14. Governing Law............................................................... 9
Section 15. Headings.................................................................... 9
Section 16. Counterparts................................................................ 9
Section 17. Severability................................................................ 9
Section 18. Limitation of Liability of Owner Trustee.................................... 9
Section 19. Benefit of Agreement........................................................ 10
Section 20. Bankruptcy Matters.......................................................... 10
Section 21. Capitalized Terms........................................................... 10
</TABLE>
-i-
<PAGE> 3
ADMINISTRATION AGREEMENT
ADMINISTRATION AGREEMENT dated as of September 1,1998, between
FINOVA COMMERCIAL MORTGAGE LOAN OWNER TRUST 1998-1, a Delaware business trust
(the "Trust"), FINOVA CAPITAL CORPORATION, a Delaware corporation, as the
Administrator (in such capacity, the "Administrator") and as the Servicer (in
such capacity, the "Servicer").
W I T N E S S E T H:
WHEREAS, the Trust is a business trust (the "Trust") under the
Delaware Business Trust Act (12 Del. C. Section 3801 et seq.) created by a Trust
and Servicing Agreement relating to the Trust dated as of September 1, 1998 (the
"Trust and Servicing Agreement"), among FINOVA Realty Capital Warehouse Funding,
L.P., as Depositor (the "Depositor"), FINOVA Capital Corporation, as Loan
Originator (the "Loan Originator"), the Servicer, FINOVA Capital Corporation, as
Transfer Obligor and Wilmington Trust Company, as Owner Trustee; and
WHEREAS, the Trust will issue Certificates (the
"Certificates"); and
WHEREAS, the Certificates will represent undivided interests
in the Owner Trust Estate, as more particularly set forth in the Trust and
Servicing Agreement; and
WHEREAS, the Trust has entered into certain agreements in
connection with the issuance of the Certificates, including the Trust and
Servicing Agreement, the Custodial Agreement, and the Certificate Purchase
Agreement being hereinafter referred to collectively as the "Related
Agreements"); and
WHEREAS, pursuant to the Related Agreements, the Trust is
required to perform certain duties in connection with the Certificates and the
Owner Trust Estate therefor; and
WHEREAS, the Trust desires to have the Administrator and the
Servicer, respectively, perform certain of the duties of the Trust referred to
in the preceding clause, and to provide such additional services consistent with
the terms of this Agreement and the Related Agreements as the Trust may from
time to time request; and
WHEREAS, the Administrator and the Servicer have the capacity
to provide the respective services required hereby and are willing to perform
such services for the Trust on the terms set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties agree as follows:
-1-
<PAGE> 4
Section 1. Duties of the Administrator.
(a) Duties with Respect to the Certificate Purchase
Agreement and the Trust and Servicing Agreement.
(i) The Administrator agrees to perform all of the
duties of the Trust under the Certificate Purchase Agreement. In
addition, the Administrator shall consult with the Owner Trustee
regarding the duties of the Trust under the Trust and Servicing
Agreement and the Certificate Purchase Agreement. The Administrator
shall monitor the performance of the Trust and shall notify the Owner
Trustee when action is necessary to comply with the Trust's duties
under the Trust and Servicing Agreement and the Certificate Purchase
Agreement. In addition to the foregoing, the Administrator shall take
all appropriate action that is the duty of the Trust to take with
respect to the following matters under the Trust and Servicing
Agreement (parenthetical section references are to sections of the
Trust and Servicing Agreement):
(A) the preparation of the Certificates and
the execution of the Certificates upon their issuance and upon
the registration of any transfer or exchange of the
Certificates (Sections 6.03, 6.09 and 6.10);
(B) the duty to cause the Certificate
Register to be kept and to give the Owner Trustee notice of
any appointment of a new Certificate Registrar and the
location, or change in location, of the Certificate Register
(Section 6.10);
(C) the notification of Certificateholders
of the final principal payment on the Certificates or of the
redemption of the Certificates or the duty to cause the Owner
Trustee to provide such notification (Section 16.02);
(D) the preparation of or obtaining of the
documents and instruments required for authentication of the
Certificates and delivery of the same to the Owner Trustee
(Section 6.03);
(E) the delivery to the Owner Trustee and
the Class A Certificateholders of prompt written notice of
each Event of Default, each Servicer Event of Default, and
each default of the Loan Originator under the Trust and
Servicing Agreement (Section 4.09(k));
(F) the duty to cause newly appointed Paying
Agents, if any, to deliver to the Owner Trustee the instrument
specified in the Trust and Servicing Agreement regarding funds
held in trust (Section 4.09(c));
(G) directing the Owner Trustee to deposit
moneys with Paying Agents, if any, other than the Owner
Trustee (Section 4.09(c));
-2-
<PAGE> 5
(H) monitoring the Trust's obligations as to
the performance of its duties under the Basic Documents
(Section 4.09(f));
(I) causing the Servicer to open accounts in
the name of the Owner Trustee for the benefit of the
Certificateholders (Section 7.01);
(J) notifying each Certificateholder of a
redemption of the Certificates (Section 16.02(b)) and the duty
to cause the Majority Class B Certificateholders to deposit
the Termination Price into the Collection Account in
accordance with Section 16.02 of the Trust and Servicing
Agreement (Section 16.02(a));
(K) recording the Trust and Servicing
Agreement, if required, pursuant to Section 17.03 of the Trust
and Servicing Agreement (Section 17.03);
(L) performing the duties of the
Administrator specified in Section 13.02 of the Trust and
Servicing Agreement required to be performed in connection
with the resignation or removal of the Owner Trustee;
(M) performing such matters with respect to
the conveyance and pledge of Loans under the Basic Documents
as may be required on any Transfer Date;
(N) insuring that each Hedging Instrument
complies with the requirements set forth in Sections 9.01(a)
and (e) of the Trust and Servicing Agreement; and
(O) performing any other duties expressly
required to be performed by the Administrator under the Trust
and Servicing Agreement.
(ii) Notwithstanding anything in this Agreement or
the Related Agreements to the contrary, the Administrator shall be
responsible for performance of the duties of the Owner Trustee set
forth in the Trust and Servicing Agreement with respect to, among other
things, accounting and reports to Certificateholders; provided,
however, that the Owner Trustee shall retain responsibility for the
distribution of the Schedule K-1's necessary to enable each
Certificateholder to prepare its federal and state income tax returns.
(b) Administrator to Take Direction of Trust. In carrying out
the foregoing duties or any of its other obligations under this
Agreement, the Administrator may enter into transactions with or
otherwise deal with any of its affiliates; provided, however, that the
terms of any such transactions or dealings shall be in accordance with
any directions received from the Trust and shall be, in the
Administrator's reasonable judgment, no less favorable to the Trust
than would be available from unaffiliated parties.
-3-
<PAGE> 6
Section 2. Duties of the Servicer with Respect to the Trust and
Servicing Agreement.
(a) The Servicer shall take all appropriate action that is the
duty of the Trust to take with respect to the following matters under the Trust
and Servicing Agreement (parenthetical section references are to sections of the
Trust and Servicing Agreement):
(i) preparation and execution of all supplements,
amendments, financing statements, continuation statements, instruments
of further assurance and other instruments, in accordance with Section
4.09 of the Trust and Servicing Agreement, necessary to protect the
interest of the Owner Trustee and the Certificateholders in the Owner
Trust Estate (Section 4.09);
(ii) annual delivery of the Officers' Certificate and
certain other statements, in accordance with Section 4.09(h) of the
Trust and Servicing Agreement, as to the Trust's compliance with the
Trust and Servicing Agreement (Section 4.09);
(iii) monitoring the Trust's compliance with its
negative covenants (Section 4.09(g)) and the compliance of the Servicer
with certain of its obligations under the Trust and Servicing Agreement
(Section 4.09(i));
(iv) compliance with any directive of the Owner
Trustee with respect to the sale of the Owner Trust Estate in a
commercially reasonable manner if an Event of Default shall have
occurred and be continuing under the Trust and Servicing Agreement
(Section 15.08);
(v) preparing Trust Orders and obtaining of Opinions
of Counsel with respect to any proposed amendment of the Trust and
Servicing Agreement or amendment to or waiver of any provision of any
other document relating to the Trust Agreement (Section 17.02).
(b) Additional Duties. In addition to the duties of the
Servicer set forth above, the Servicer shall prepare for execution by the Trust
or shall cause the preparation by other appropriate persons of all such
documents, reports, filings, instruments, certificates and opinions as it shall
be the duty of the Trust to prepare, file or deliver pursuant to the Related
Agreements, and at the request of the Owner Trustee shall take all appropriate
action that it is the duty of the Trust to take pursuant to the Related
Agreements. Subject to Section 5 hereof and in accordance with the directions of
the Owner Trustee, the Servicer shall administer, perform or supervise the
performance of such other activities in connection with the Owner Trust Estate
(including the Related Agreements) as are not covered by any of the foregoing
provisions and as are expressly requested by the Owner Trustee and are
reasonably within the capability of the Servicer.
(c) Withholding Tax. Notwithstanding anything in this
Agreement or the Related Agreements to the contrary, the Administrator shall be
responsible for promptly notifying the Owner Trustee in the event that any
withholding tax is imposed on the Trust's
-4-
<PAGE> 7
payments (or allocations of income) to a Certificateholder as contemplated in
Section 11.07(b) of the Trust and Servicing Agreement. Any such notice shall
specify the amount of any withholding tax required to be withheld by the Owner
Trustee pursuant to such provision.
Section 3. Records.
The Administrator shall maintain appropriate books of account
and records relating to services performed hereunder, which books of account and
records shall be accessible for inspection by the Trust, any Certificateholder
and the Servicer at any time during normal business hours.
Section 4. Compensation.
The Administrator will perform the duties and provide the
services called for under Section 1 hereof for such compensation as shall be
agreed upon among the Administrator and the Servicer. The Servicer shall pay the
reasonable expenses of the Administrator incurred in the performance of its
duties hereunder. The Administrator agrees to perform all its duties under this
Agreement regardless of any non-payment of fees or expenses by the Servicer.
Section 5. Additional Information to Be Furnished to the Trust.
The Administrator shall furnish to the Trust from time to time
such additional information regarding the Owner Trust Estate as the Trust shall
reasonably request.
Section 6. Independence of the Administrator.
For all purposes of this Agreement, the Administrator shall be
an independent contractor and shall not be subject to the supervision of the
Trust or the Owner Trustee with respect to the manner in which it accomplishes
the performance of its obligations hereunder. Unless expressly authorized by the
Trust, the Administrator shall have no authority to act for or represent the
Trust or the Owner Trustee in any way and shall not otherwise be deemed an agent
of the Trust or the Owner Trustee.
Section 7. No Joint Venture.
Nothing contained in this Agreement (i) shall constitute the
Administrator or the Servicer, respectively, and either the Trust or the Owner
Trustee as members of any partnership, joint venture, association, syndicate,
unincorporated business or other separate entity, (ii) shall be construed to
impose any liability as such on any of them or (iii) shall be deemed to confer
on any of them any express, implied or apparent authority to incur any
obligation or liability on behalf of the others.
Section 8. Other Activities of Administrator and Servicer.
Nothing herein shall prevent the Administrator, the Servicer
or their respective Affiliates from engaging in other businesses or, in its sole
discretion, from acting in a similar
-5-
<PAGE> 8
capacity as an administrator for any other person or entity even though such
person or entity may engage in business activities similar to those of the Trust
or the Owner Trustee.
Section 9. Term of Agreement; Resignation and Removal of Administrator
or Servicer.
(a) This Agreement shall continue in force until the
termination of the Trust and Servicing Agreement in accordance with its terms,
upon which event this Agreement shall automatically terminate.
(b) Subject to Section 9(e) hereof, the Administrator or the
Servicer may resign their respective duties hereunder by providing the Trust
with at least 60 days' prior written notice.
(c) Subject to Section 9(e) hereof, the Trust may remove the
Administrator without cause by providing the Administrator with at least 60
days' prior written notice.
(d) Subject to Section 9(e) hereof, the Trust may remove the
Administrator immediately upon written notice of termination from the Trust to
the Administrator if any of the following events occurs:
(i) the Administrator defaults in the performance of
any of its duties under this Agreement and, after notice of such
default, does not cure such default within 30 days (or, if such default
cannot be cured in such time, does not give within ten days such
assurance of cure as shall be reasonably satisfactory to the Trust);
(ii) a court having jurisdiction in the premises
enters a decree or order for relief, and such decree or order shall not
have been vacated within 60 days, in respect of the Administrator in
any involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or appoints a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar
official for the Administrator or any substantial part of its property
or orders the winding-up or liquidation of its affairs; or
(iii) the Administrator commences a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, consents to the entry of an order for relief in an
involuntary case under any such law, consents to the appointment of a
receiver, liquidator, assignee, trustee, custodian, sequestrator or
similar official for the Administrator or any substantial part of its
property, consents to the taking of possession by any such official of
any substantial part of its property, makes any general assignment for
the benefit of creditors or fails generally to pay its debts as they
become due.
The Administrator agrees that if any of the events specified
in clause (ii) or clause (iii) of this Section 9(d) shall occur, it shall give
written notice thereof to the Trust and the Owner Trustee within seven days
after the happening of such event.
-6-
<PAGE> 9
(e) No resignation or removal of the Administrator or
Servicer, respectively, pursuant to this Section 9 shall be effective until (i)
a successor Administrator or Servicer, as the case may be, acceptable in writing
to the Majority Certificateholders in their sole discretion, shall have been
appointed by the Trust and (ii) such successor Administrator or Servicer shall
have agreed in writing to be bound by the terms of this Agreement in the same
manner as the Administrator or Servicer is bound hereunder.
(f) The Servicer's appointment hereunder will terminate
automatically on the Servicer's resignation or removal under the Trust and
Servicing Agreement.
Section 10. Action upon Termination, Resignation or Removal of the
Administrator.
Promptly upon the effective date of termination of this
Agreement pursuant to Section 9(a) or the resignation or removal of the
Administrator pursuant to Section 9(b) or (c), respectively, the Administrator
shall be entitled to be paid all reimbursable expenses accruing to it to the
date of such termination, resignation or removal. The Administrator shall
forthwith upon such termination pursuant to Section 9(a) deliver to the Trust
all property and documents of or relating to the Collateral then in the custody
of the Administrator and, in the event of the resignation or removal of the
Administrator pursuant to Section 9(b), (c) or (d), the Administrator shall
cooperate with the Trust and take all reasonable steps requested to assist the
Trust in making an orderly transfer of the duties of the Administrator.
Section 11. Notices.
Any notice, report or other communication given hereunder shall
be in writing and addressed as follows:
(a) if to the Trust, to
FINOVA Commercial Mortgage Loan Owner Trust 1998-1
c/o Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust Administration
Telecopy: (302) 651-8882
Telephone:(302) 651-1000
with a copy to the Servicer, to
FINOVA Capital Corporation
1850 N. Central Ave.
Phoenix, AZ 85004
-7-
<PAGE> 10
Attention: Frederick C. Bauman
Telecopy number: (602) 207-5036
Telephone number: (602) 207-6904
(b) if to the Administrator or to the Servicer, to
FINOVA Capital Corporation
1850 N. Central Ave.
Phoenix, AZ 85004
Attention: Frederick C. Bauman
Telecopy number: (602) 207-5036
Telephone number: (602) 207-6904
or to such other address, telecopy number or telephone number as any party shall
have provided to the other parties in writing. Any notice required to be in
writing hereunder shall be deemed given upon receipt, if such notice is mailed
by certified mail, postage prepaid, or hand delivered to the address of such
party as provided above and, in the case of notices provided by facsimile
transmission (with a copy delivered by overnight courier), upon telephone
confirmation of receipt thereof.
Section 12. Amendments.
This Agreement may be amended from time to time by a written
amendment duly executed and delivered by the Trust, the Administrator and the
Servicer, with the prior written consent of the Owner Trustee and the
Certificateholders, for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Agreement or of
modifying in any manner, the rights of the Certificateholders. This Agreement
may also be amended by the Trust, the Administrator and the Servicer with the
prior written consent of the Owner Trustee and the Majority Certificateholders
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Agreement or of modifying in any
manner the rights of Certificateholders; provided, however, that no such
amendment may (i) increase or reduce in any manner the amount of, or accelerate
or delay the timing of, collections of payments in respect of the Loans or
distributions that are required to be made for the benefit of the
Certificateholders or (ii) reduce the aforesaid Percentage Interests of the
Holders of Certificates which are required to consent to any such amendment, in
the case of either clause (i) or clause (ii) hereof, without the unanimous
consent of the Certificateholders. Notwithstanding the foregoing, the
Administrator may not amend this Agreement without the permission of the
Servicer, which permission shall not be withheld unreasonably.
-8-
<PAGE> 11
Section 13. Successor and Assigns.
This Agreement may not be assigned by the Administrator unless
such assignment is previously consented to in writing by the Majority
Certificateholders, the Owner Trustee and the Servicer. An assignment with such
consent and satisfaction, if accepted by the assignee, shall bind the assignee
hereunder in the same manner as the Administrator is bound hereunder.
Notwithstanding the foregoing, this Agreement may be assigned by the
Administrator without the consent of the Majority Certificateholders, the Owner
Trustee or the Servicer to a corporation or other organization that is a
successor (by merger, consolidation or purchase of assets) to the Administrator;
provided, however, that such successor organization executes and delivers to the
Initial Class A Certificateholder, the Trust, the Owner Trustee and the Servicer
an agreement in which such corporation or other organization agrees to be bound
hereunder by the terms of said assignment in the same manner as the
Administrator is bound hereunder. Subject to the foregoing, this Agreement shall
bind any successors or assigns of the parties hereto.
Section 14. Governing Law.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS,
AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 15. Headings.
The section headings hereof have been inserted for convenience
of reference only and shall not be construed to affect the meaning, construction
or effect of this Agreement.
Section 16. Counterparts.
This Agreement may be executed in any number of counterparts,
each of which when so executed shall together constitute but one and the same
agreement.
Section 17. Severability.
Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other jurisdiction.
Section 18. Limitation of Liability of Owner Trustee.
Notwithstanding anything contained herein to the contrary,
this Agreement has been countersigned by Wilmington Trust Company not in its
individual capacity but solely in
-9-
<PAGE> 12
its capacity as Owner Trustee of the Trust and in no event shall Wilmington
Trust Company in its individual capacity or any beneficial owner of the Trust
have any liability for the representations, warranties, covenants, agreements or
other obligations of the Trust hereunder, as to all of which recourse shall be
had solely to the assets of the Trust. For all purposes of this Agreement, in
the performance of any duties or obligations of the Trust hereunder, the Owner
Trustee shall be subject to, and entitled to the benefits of, the terms and
provisions of Articles XI and XII of the Trust and Servicing Agreement.
Section 19. Benefit of Agreement.
It is expressly agreed that in performing its duties under
this Agreement, the Administrator will act for the benefit of the
Certificateholders as well as for the benefit of the Trust, and that such
obligations on the part of the Administrator shall be enforceable by the Owner
Trustee or the Trust.
Section 20. Bankruptcy Matters.
No party to this Agreement shall take any action to cause the
Trust to dissolve in whole or in part or file a voluntary petition or otherwise
initiate proceedings to have the Trust adjudicated bankrupt or insolvent, or
consent to the institution of bankruptcy or insolvency proceedings against the
Trust, or file a petition seeking or consenting to reorganization or relief of
the Trust as debtor under any applicable federal or state law relating to
bankruptcy, insolvency or other relief for debtors with respect to the Trust; or
seek or consent to the appointment of any trustee, receiver, conservator,
assignee, sequestrator, custodian, liquidator (or other similar official) of the
Trust or of all or any substantial part of the properties and assets of the
Trust, or cause the Trust to make any general assignment for the benefit of
creditors of the Trust or take any action in furtherance of any of the above
actions.
Section 21. Capitalized Terms.
Capitalized terms used and not defined herein have the
meanings assigned to them in the Indenture. Capitalized terms used and not
defined herein have the meanings assigned to them in the Trust and Servicing
Agreement.
[SIGNATURE PAGE FOLLOWS]
-10-
<PAGE> 13
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed and delivered as of the day and year first above written.
FINOVA COMMERCIAL MORTGAGE LOAN OWNER TRUST 1998-1,
as the Trust
By: Wilmington Trust Company,
not in its individual capacity
but solely as Owner Trustee
By: /s/ James P. Lawler
______________________________________
Name: James P. Lawler
Title: Vice President
FINOVA CAPITAL CORPORATION,
as the Servicer and as the Administrator
By: /s/ Meilee Smythe
______________________________________
Name: Meilee Smythe
Title: Senior Vice President - Treasurer
<PAGE> 1
EXHIBIT 12
THE FINOVA GROUP INC.
COMPUTATION OF RATIO OF INCOME TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income from continuing operations before
income taxes $282,009 $226,178 $185,822 $150,834 $122,863
Add fixed charges:
Interest expense 479,360 416,093 366,543 337,814 210,001
One-third of rent expense 3,854 2,789 2,368 2,084 2,053
- ----------------------------------------------------------------------------------------------------------
Total fixed charges 483,214 418,882 368,911 339,898 212,054
- ----------------------------------------------------------------------------------------------------------
Income as adjusted $765,223 $645,060 $554,733 $490,732 $334,917
- ----------------------------------------------------------------------------------------------------------
Ratio of income to fixed charges 1.58 1.54 1.50 1.44 1.58
==========================================================================================================
Preferred stock dividends on a pre-tax basis $ 6,325 $ 6,676
Total combined fixed charges and
preferred stock dividends $489,539 $425,558 $368,911 $339,898 $212,054
- ----------------------------------------------------------------------------------------------------------
Ratio of income to combined fixed charges
and preferred stock dividends 1.56 1.52 1.50 1.44 1.58
==========================================================================================================
</TABLE>
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF THE FINOVA GROUP INC.
(December 31, 1998)
FINOVA CAPITAL CORPORATION (Delaware)
Ambre Realty, Inc. (New York)
BATCL - 1991 - III, Inc. (Delaware)
Cactus Resort Properties, Inc. (Delaware)
Commonwealth Avenue Warehouse, Inc. (Florida)
DBF Management I, LLC @
Desert Communications I, Inc. (Delaware)
Desert Communications II, Inc. (Delaware)
Desert Communications III, Inc. (Delaware)
Desert Communications V, Inc. (Delaware)
Desert Communications VI, Inc. (Delaware)
Desert Communications VII, Inc. (Delaware)
Desert Island Capital Corporation (Delaware)
Desert Hospitality II, Inc. (Florida)
Doyle & Boissiere Fund I, LLC @
FCS 505, Inc. (Delaware)
FCS 525, Inc. (Delaware)
FCS 517, Inc. (Delaware)
FINOVA Aircraft Investors, LLC@
FINOVA Aircraft Management, Inc. (Delaware)
The FINOVA (Canada) Group Inc. (Canada)
FINOVA Capital (Canada) Corporation (Canada)
FINOVA Capital Funding, Inc. (Delaware)
FINOVA Capital Funding, L.P. (Delaware)
FINOVA Capital Funding (II) Corporation (Delaware)
FINOVA Capital Limited (United Kingdom)
Greyfin Services Limited (United Kingdom)
Greyhound Equipment Finance Limited (United Kingdom)*#
Greyhound Guaranty Limited (United Kingdom)*
Greyhound Credit Limited (United Kingdom)*
Greyhound Finance International Limited (United
Kingdom)*
Greyhound Nominees Limited (United Kingdom)*
Greyhound Property Investment Limited (United Kingdom)*#
Hookgold Limited (United Kingdom)*
Secured Advances Limited (United Kingdom)
Townmead Garages Limited (United Kingdom)*
FINOVA Capital Markets, Inc. (Delaware)
FINOVA Realty Capital Inc. (Delaware)
FINOVA Realty Capital of Greater Florida Inc. (Delaware)
FINOVA (Cayman) Capital Ltd (Cayman Islands)
FINOVA Denmark, Inc. (Delaware)
FINOVA Fund Investments, Inc. (Delaware)
FINOVA Fund Investments II, Inc. (Delaware)
FINOVA Fund Investments III, Inc. (Delaware)
FINOVA Public Finance, Inc. (Delaware)
FINOVA Portfolio Services, Inc. (Arizona)
FINOVA Resort Assets Company, L.L.C. (Delaware)
FINOVA Resort Investments Company (Delaware)
FINOVA Stamford LLC (Delaware)
FINOVA Technology Finance, Inc. (Delaware)
Denton Imaging, Inc. (Texas)
F S & I (UK) Limited (United Kingdom)
FSI Funding Corp. I (Delaware)
FSI Funding Corp. II (Delaware)
Highland Park Medical Imaging, Inc. (Texas)
Melville Holding Co., Inc. (Delaware)
Greycas, Inc. (Arizona)
New Jersey Realty Corporation II (California)
New York Realty Corporation II (California)
Greyfin (Nassau) Limited (Bahamas)*
Greyfin Corporation (Liberia)*
Greyhound Shipping Corporation (Liberia)
Greyhound Real Estate Finance Company (Arizona)*
Greyhound Real Estate Investment BRB Inc. (Arizona)
Greyhound Real Estate Investment Eight Inc. (Delaware)
Greyhound Real Estate Investment Eleven Inc. (Delaware)
Greyhound Real Estate Investment Nine Inc. (Delaware)
Greyhound Real Estate Investment One Inc. (Arizona)
Greyhound Real Estate Investment S Inc. (Arizona)
Greyhound Real Estate Investment Seven Inc. (Delaware)
Greyhound Real Estate Investment Two Inc. (Arizona)
Interim Funding Corporation (Arizona)
Libra Capital Partners, L.P. @
Libra Mezanine Partners LP @
LFM, LLC. @
Pine Top Insurance Company Limited (United Kingdom)#
Resort Capital Corporation (Delaware)
TriContinental Leasing of Puerto Rico, Inc. (Delaware)
Wisconsin Hotel Operating Corporation (Wisconsin)
* INACTIVE
** SHELL CORPORATION
# IN LIQUIDATION
@ LESS THAN 50% OWNED BY FINOVA
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-38171 and 333-39383 of The FINOVA Group Inc. on Form S-3 of our report dated
February 10, 1999, appearing in this Annual Report on Form 10-K of The FINOVA
Group Inc. for the year ended December 31, 1998.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
March 1, 1999
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes and appoints
Samuel L. Eichenfield and Bruno A. Marszowski, and each of them severally, as
his or her attorneys-in-fact, with full power of substitution and
resubstitution, to sign and file on his or her behalf individually and in each
such capacity stated below, The FINOVA Group Inc.'s Annual Report on Form 10-K,
and any amendments thereto, to be filed with the Securities and Exchange
Commission, the New York Stock Exchange, and otherwise, as fully as such person
could do in person, hereby verifying and confirming all that said
attorneys-in-fact, or their or his substitutes or substitute, may lawfully do or
cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
PRINCIPAL EXECUTIVE OFFICER
/s/ SAMUEL L. EICHENFIELD Chairman of the Board, February 11, 1999
- --------------------------------------------------- President and Chief
Samuel L. Eichenfield Executive Officer
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER
/s/ BRUNO A. MARSZOWSKI Senior Vice President- February 11, 1999
- --------------------------------------------------- Controller and Chief
Bruno A. Marszowski Financial Officer
DIRECTORS
/s/ ROBERT H. CLARK, JR. February 11, 1999
- ---------------------------------------------------
Robert H. Clark, Jr.
/s/ CONSTANCE R. CURRAN February 11, 1999
- ---------------------------------------------------
Constance R. Curran
/s/ ROBERT DURHAM February 11, 1999
- ---------------------------------------------------
Robert Durham
/s/ JAMES L. JOHNSON February 11, 1999
- ---------------------------------------------------
James L. Johnson
/s/ KENNETH R. SMITH February 11, 1999
- ---------------------------------------------------
Kenneth R. Smith
/s/ SHOSHANA B. TANCER February 11, 1999
- ---------------------------------------------------
Shoshana B. Tancer
/s/ JOHN W. TEETS February 11, 1999
- ---------------------------------------------------
John W. Teets
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 49,518
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 10,011,536
<ALLOWANCE> 207,618
<TOTAL-ASSETS> 10,450,314
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 766,841
<LONG-TERM> 8,394,578
111,550
0
<COMMON> 585
<OTHER-SE> 1,176,760
<TOTAL-LIABILITIES-AND-EQUITY> 10,450,314
<INTEREST-LOAN> 1,021,977
<INTEREST-INVEST> 0
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 0
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 479,360
<INTEREST-INCOME-NET> 472,536
<LOAN-LOSSES> 82,200
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 241,074
<INCOME-PRETAX> 282,009
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 169,737
<EPS-PRIMARY> 3.03
<EPS-DILUTED> 2.86
<YIELD-ACTUAL> 6.4
<LOANS-NON> 205,233
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 177,088
<CHARGE-OFFS> 59,037
<RECOVERIES> 2,279
<ALLOWANCE-CLOSE> 207,618
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
