EXHIBIT 10.7.1
MORTGAGE LOAN WAREHOUSING AGREEMENT
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THIS MORTGAGE LOAN WAREHOUSING AGREEMENT (the "Agreement") is made as of
the _____ day of _______________, 1997, by and between NOVASTAR MORTGAGE, INC.,
a Virginia corporation ("NovaStar Mortgage"), NOVASTAR FINANCIAL, INC., a
Maryland corporation ("NovaStar Financial" and, together with NovaStar Mortgage,
the "Companies") and FIRST UNION NATIONAL BANK (formerly known as First Union
National Bank of North Carolina), a national banking corporation (the "Lender").
STATEMENT OF PURPOSE
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The Companies have requested the Lender to extend to the Companies a
mortgage warehousing line of credit to fund the Companies' purchase and
accumulation of single-family residential mortgage loans for sale to secondary
market investors or for securitization purposes, and the Lender has agreed to do
so on the terms and subject to the conditions set forth herein. All capitalized
terms not otherwise defined herein are defined in Paragraph 10 hereof.
Now, therefore, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
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1. Credit Facility.
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1(a) Lending Limit. Subject to the conditions set forth herein, the
Lender agrees that it shall from time to time up to and including the Business
Day immediately preceding the Maturity Date, advance loans (the "Loans" or a
"Loan") to the Companies in amounts not to exceed, in the aggregate at any one
time outstanding (determined after giving effect to the other transactions
contemplated by the Loan Request pursuant to which said Loan was requested), the
lesser of:
(1) The Credit Limit; and
(2) The Collateral Value of the Borrowing Base.
1(b) Interest Rate. Loans shall bear interest at a rate equal to the
Applicable Fed-Funds Based Rate unless the Companies elect to have a Loan bear
interest at the Applicable LIBOR-Based Rate as permitted herein; provided,
however, that in the event the Lender and the Company agree that the Lender is
holding Buy-Down Deposits, the interest rate on the Loans made by the Lender
during any month may be reduced to the Buy-Down Rate for that portion of the
daily average aggregate principal balance of such Loans which is less than or
equal to the amount of the Available Buy-Down Deposits held by the Lender during
such month.
1(c) Payment of Interest. The Companies shall pay to the Lender
interest on
Loans outstanding hereunder from the date disbursed to but not including the
date of payment. Interest on Fed Funds Loans shall be payable monthly, in
arrears, as provided in Paragraph 2(d) below, and interest on Eurodollar Loans
shall be payable at the end of the applicable Interest Period and, in the event
the applicable Interest Period exceeds one month, monthly in arrears, as
provided in Paragraph 2(d) below.
1(d) Conversion and Continuation.
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(1) The Companies may elect from time to time to convert
Eurodollar Loans to Fed Funds Loans by giving the Lender at least one
Business Day's prior irrevocable notice of such election. Any conversion of
Eurodollar Loans may only be made on the last day of the applicable
Interest Period. Subject to the limitation set forth in the last sentence
of Paragraph 2(b)(2) hereof, the Companies may elect from time to time to
convert Fed Funds Loans to Eurodollar Loans by giving the Lender at least
three Eurodollar Business Days' prior irrevocable notice of such election.
All such elections shall be made by means of a Loan Request. No Fed Funds
Loan shall be converted into a Eurodollar Loan if an Event of Default or
Potential Default has occurred and is continuing on the day occurring three
Eurodollar Business Days prior to the date of the conversion requested by
the Companies or on the date of conversion. All or any part of outstanding
Loans may be converted as provided herein, provided that partial
conversions shall be in a principal amount of $1,000,000.00 or whole
multiples of $100,000.00 in excess thereof.
(2) Any Eurodollar Loan may be continued as such upon the
expiration of the Interest Period with respect thereto by the Companies
giving the Lender at least three Eurodollar Business Days' prior
irrevocable notice of such election as set forth in a Loan Request;
provided, however, that no Eurodollar Loan may be continued as such when
any Event of Default or Potential Default has occurred and is continuing on
the day occurring three Eurodollar Business Days prior to the proposed date
of such continuation or on the date of conversion, but shall be
automatically converted to a Fed Funds Rate Loan on the last day of the
then current Interest Period applicable thereto, and the Lender shall
notify the Companies promptly that such automatic conversion will occur. If
the Companies shall fail to give notice as provided above, the Companies
shall be deemed to have elected to convert the affected Eurodollar Loan to
a Fed Funds Loan on the last day of the relevant Interest Period.
1(e) Inability to Determine Rate. If the Lender determines (which
determination shall be conclusive and binding upon the Companies) that by reason
of circumstances affecting the London interbank eurodollar market adequate and
reasonable means do not exist for ascertaining the LIBOR Rate for any Interest
Period, the Lender shall forthwith give facsimile notice of such determination,
confirmed in writing, to the Companies. If such notice is given: (1) no Loan may
be funded as a Eurodollar Loan, (2) any Loan that was to have been converted to
a Eurodollar Loan shall, subject to the provisions hereof, be continued as a Fed
Funds Loan and (3) any outstanding Eurodollar Loan shall be converted on the
last day of the then current Interest Period with respect thereto to a Fed Funds
Loan. Until such notice has been
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withdrawn by the Lender, the Companies shall not have the right to convert a
Loan to a Eurodollar Loan or fund any Loan as a Eurodollar Loan or to continue a
Eurodollar Loan as such. The Lender shall withdraw such notice in the event that
the circumstances giving rise thereto no longer obtain and that adequate and
reasonable means exist for ascertaining the LIBOR Rate for the Interest Period
requested by the Companies, and following withdrawal of such notice by the
Lender, the Companies shall have the right to fund any Loan as a Eurodollar Loan
or convert a Loan to a Eurodollar Loan or to continue a Eurodollar Loan in
accordance with the terms and conditions of this Agreement.
1(f) Illegality. Notwithstanding any other provisions herein, if any
law, regulation, treaty or directive or any change therein or in the
interpretation or application thereof, shall make it unlawful for the Lender to
make or maintain Eurodollar Loans as contemplated by this Agreement: (1) the
commitment of the Lender hereunder to continue Eurodollar Loans or to convert
Fed Funds Loans to Eurodollar Loans shall forthwith be canceled and (2) all
Loans then outstanding as Eurodollar Loans, if any, shall be converted
automatically to Fed Funds Loans at the end of their respective Interest Periods
or within such earlier period as required by law. In the event of a conversion
of any such Loan prior to the end of its applicable Interest Period the
Companies hereby agree, jointly and severally, to promptly to pay the Lender,
upon demand, the amounts required pursuant to Paragraph 1(i) below, it being
agreed and understood that such conversion shall constitute a prepayment for all
purposes hereof. The provisions hereof shall survive the termination of this
Agreement and payment of the outstanding Loans and all other amounts payable
hereunder.
1(g) Requirements of Law; Increased Costs. In the event that any
change subsequent to the date hereof in any applicable law, order, regulation,
treaty or directive issued by any central bank or other Governmental Authority,
or in the governmental or judicial interpretation or application thereof, or
compliance by the Lender with any request or directive (whether or not having
the force of law) by any central bank or other Governmental Authority:
(1) subjects the Lender to any tax of any kind whatsoever with
respect to this Agreement or any Loans made hereunder, or change the basis
of taxation of payments to the Lender of principal, fee, interest or any
other amount payable hereunder (except for change in the rate of tax on the
overall net income of the Lender);
(2) imposes, modifies or holds applicable any reserve, capital
requirement, special deposit, compulsory loan or similar requirements
against assets held by, or deposits or other liabilities in or for the
account of, advances or loans by, or other credit extended by, or any other
acquisition of funds by, any office of the Lender which are not otherwise
included in the determination of the Fed Funds Rate or the LIBOR Rate; or
(3) imposes on the Lender any other condition;
and the result of any of the foregoing is to increase the cost to the Lender of
making, renewing or maintaining any Loan or to reduce any amount receivable in
respect thereof or to reduce the rate
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of return on the capital of the Lender or any Person controlling the Lender,
then, in any such case, the Companies shall promptly pay to the Lender, upon its
written demand, any additional amounts necessary to compensate the Lender for
such additional cost or reduced amounts receivable or rate of return as
determined by the Lender with respect to this Agreement or Loans made hereunder.
If the Lender becomes entitled to claim any additional amounts pursuant to this
Paragraph 1(g), it shall promptly notify the Companies of the event by reason of
which it has become so entitled. A certificate as to any additional amounts
payable pursuant to the foregoing sentence containing the calculation thereof in
reasonable detail submitted by the Lender to the Companies shall be conclusive
in the absence of manifest error. The provisions hereof shall survive the
termination of this Agreement and payment of the outstanding Loans and all other
amounts payable hereunder.
1(h) Funding. The Lender shall be entitled to fund all or any portion
of the Loans in any manner it may determine in its sole discretion, but all
calculations and transactions hereunder shall be conducted as though the Lender
actually funds all Eurodollar Loans through the purchase in London of offshore
dollar deposits in the amount of the relevant Eurodollar Loan in maturities
corresponding to the applicable Interest Period.
1(i) Funding Indemnification -- Prepayment. In addition to all other
payment obligations hereunder, in the event any Loan which is outstanding as a
Eurodollar Loan is prepaid prior to the last day of the applicable Interest
Period, whether following a voluntary prepayment or a mandatory prepayment,
notwithstanding that the Loan may have borne interest at the Eurodollar Rate,
such Loan shall be deemed to have borne interest as though it were a Fed Funds
Loan from the first day of the applicable Interest Period through the date of
such prepayment and the Companies shall immediately pay to the Lender interest
at the Applicable Fed Funds-Based Rate for such period, and shall also
immediately pay to the Lender an additional amount compensating the Lender for
losses and expenses incurred by the Lender in connection with such prepayment,
including, without limitation, such as may arise out of a re-employment of funds
obtained by the Lender and from fees payable to terminate the deposits from
which such funds were obtained, such losses, and expenses and the method of
calculation thereof being set forth in reasonable detail and a statement
delivered to the Companies by the Lender. Under no circumstances shall the
Lender have any obligation to remit monies to the Companies upon prepayment of
any Eurodollar Loan even under circumstances which do not result in the
necessity of the payment by the Companies of any amount hereunder. The
provisions hereof shall survive termination of this Agreement and payment of the
outstanding Loans and all amounts payable hereunder.
1(j) Funding Indemnification -- Default or Failure to Continue or
Convert. In addition to all other payment obligations hereunder, in the event
the Companies shall fail to continue or to make a conversion to a Eurodollar
Loan after the Companies have given notice thereof as provided in Paragraph 1(d)
above, or if after giving a notice to have the Lender make a Eurodollar Loan,
the Lender is not obligated to do so due to the existence of an Event of Default
or Potential Default, then the Companies shall immediately pay to the Lender an
additional amount compensating the Lender for losses and expenses incurred by
the Lender in connection with such failure to continue or convert a Eurodollar
Loan, or the occurrence of an Event of
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Default or Potential Default including, without limitation, such as may arise
out of re-employment of funds obtained by the Lender and from fees payable to
terminate the deposits from which such funds were obtained, such losses and
expenses and the method of calculation thereof being set forth in reasonable
detail in a statement delivered to the Companies by the Lender. The provisions
hereof shall survive termination of this Agreement and payment of the
outstanding Loans and all other amounts payable hereunder.
2. Miscellaneous Lending Provisions.
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2(a) Use of Proceeds. The proceeds of all Loans shall be used by the
Companies solely for the purpose of originating and acquiring Mortgage Loans or
acquiring Mortgage-Backed Securities.
2(b) Request For Loans; Making of Loans.
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(1) If the Companies desire to borrow a Fed Funds Loan hereunder,
the Companies shall make a Loan Request to the Lender no later than 2:00
p.m. (Charlotte, North Carolina time) on the proposed funding date. The
Lender shall make available the proposed Loan by crediting the amount
thereof in immediately available same day funds to the Funding Account no
later than 3:30 p.m. (Charlotte, North Carolina time) on such date.
(2) If the Companies desire to borrow or continue a Eurodollar
Loan or to convert a Fed Funds Loan to a Eurodollar Loan as provided in
Paragraph 1(d) above, the Companies shall make a Loan Request to the Lender
no later than 2:00 p.m. (Charlotte, North Carolina time) on the day
occurring at least three Eurodollar Business Days prior to the date of the
borrowing, conversion or continuation requested therein. Notwithstanding
any provision hereof to the contrary, the parties agree that the Companies
may have only four (4) outstanding Eurodollar Loans at any time and that
each Eurodollar Loan shall be in a principal amount of $1,000,000.00 or
whole multiples of $100,000.00 in excess thereof.
2(c) Notes. The joint and several obligations of the Companies to
repay the Loans shall be evidenced by a note payable to the order of the Lender
in the form attached hereto as Exhibit A (the "Note").
2(d) Interest and Fee Billing and Payment. The Lender shall (1) in
the case of Fed Funds Loans and Eurodollar Loans having an Interest Period in
excess of one month, on or before the fifth Business Day of each month, and (2)
in the case of Eurodollar Loans, also on the last day of the applicable Interest
Period, deliver to the Companies an interest and fee billing for the immediately
preceding month or Interest Period, as the case may be, which billing shall set
forth interest accrued and payable on Loans and fees payable hereunder for such
period and which billing shall be payable, in the case of a billing delivered
pursuant to subparagraph (1) above, no later than the second Business Day
following receipt thereof by the Companies and, in the case of a billing
delivered pursuant to subparagraph (2) above, on the last day of the
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applicable Interest Period.
2(e) Repayment of Principal. Subject to the prepayment requirements
of Paragraph 2(j) below and the required application of proceeds from the sale
or other disposition of Mortgage Loans as provided in the Security Agreement,
the Companies shall pay the principal amount of each Eurodollar Loan on the last
day of the applicable Interest Period relating thereto and shall pay the
principal amount of all other Loans on the Maturity Date.
2(f) Borrowing Base Conformity.
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(1) The Companies shall cause to be maintained with the Lender a
Borrowing Base such that the Collateral Value of the Borrowing Base is not
less than, at any date, the sum of the aggregate dollar amount of
outstanding Loans.
(2) The Companies shall prepay Loans to the Lender, upon
telephonic or facsimile demand by the Lender, on any day in the amount by
which the aggregate principal amount of outstanding Loans exceeds the
Collateral Value of the Borrowing Base, said prepayment to be made on the
date on which demand is made by the Lender if made prior to 4:00 p.m.
(Charlotte, North Carolina time) or, if made later than 4:00 p.m.
(Charlotte, North Carolina time), before 9:00 a.m. (Charlotte, North
Carolina time) on the next Business Day.
(3) If at such time as the Companies shall be required to prepay
Loans under this Paragraph 2(f) there shall not have occurred and be
continuing an Event of Default or Potential Default hereunder, in lieu of
prepaying the Loans as required, the Companies may deliver to the Lender
additional Eligible Mortgage Loans such that the Collateral Value of the
Borrowing Base, after giving effect to the inclusion of such Eligible
Mortgage Loans in the Borrowing Base, shall be in compliance with the
requirements of subparagraphs (1) and (2) above.
2(g) Nature and Place of Payments. All payments made on account of
the Obligations shall be made to the Lender and the Lender is hereby irrevocably
authorized to debit the Settlement Account on account thereof. All payments
made on account of the Obligations shall be made without set-off or counterclaim
in lawful money of the United States of America in immediately available same
day funds, free and clear of and without deduction for any taxes, fees or other
charges of any nature whatsoever imposed by any taxing authority and if received
by the Lender by 4:00 p.m. (Charlotte, North Carolina time) such payment will be
credited on the Business Day received. If a payment is received after 4:00 p.m.
(Charlotte, North Carolina time) by the Lender, such payment will be credited on
the next succeeding Business Day and interest thereon shall be payable at the
then applicable rate until credited. If any payment required to be made by the
Companies hereunder becomes due and payable on a day other than a Business Day,
the due date thereof shall be extended to the next succeeding Business Day and
interest thereon shall be payable at the then applicable rate during such
extension.
2(h) Post-Maturity Interest. Any Obligations not paid when due
(whether at
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stated maturity, upon acceleration or otherwise) shall bear interest from the
date due until paid in full at a per annum rate equal to two percent (2%) above
the interest rate otherwise applicable thereto, or, if such Obligations do not
otherwise bear interest, two percent (2%) above the Corporate Base Rate.
2(i) Computations. All computations of interest and fees payable
hereunder shall be based upon a year of 360 days for the actual number of days
elapsed.
2(j) Prepayments.
(1) The Companies may voluntarily prepay Loans hereunder
(including a Eurodollar Loan subject to Paragraph 1(i)) in whole or in part
at any time.
(2) Loans hereunder are subject to mandatory prepayment pursuant
to Paragraph 2(f) above and, in addition, by application of proceeds of the
sale or other disposition of Collateral as provided in the Security
Agreement.
(3) The Companies shall pay in connection with any prepayment
hereunder all interest accrued but unpaid on Loans to which such prepayment
is applied and any amounts payable pursuant to Paragraph 1(i) above
concurrently with payment to the Lender of any principal amounts.
2(k) Allocation of Payments Received.
(1) Prior to the occurrence of an Event of Default and
acceleration of all Loans outstanding hereunder or termination of the
commitment of the Lender to advance Loans hereunder, all amounts received
by the Lender shall be applied against the outstanding Obligations.
(2) Following the occurrence of an Event of Default and
acceleration of all Loans outstanding hereunder or termination of the
commitments of the Lender to advance Loans hereunder, all amounts received
by the Lender on account of the Obligations shall be applied by the Lender
as follows:
(i) First, to the payment of reasonable costs and expenses
incurred by the Lender in the enforcement of its rights under the
Credit Documents, including, without limitation, all costs and
expenses of collection, attorneys' fees, court costs and foreclosure
expenses;
(ii) Second, to the Lender to be applied against the
Obligations until the Obligations shall have been paid in full; and
(iii) Third, to such Persons as may be legally entitled
thereto.
2(l) Fees. The Companies shall pay the following fees to the Lender:
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(1) Such closing fees as are agreed to in writing by the
Companies and the Lender, said fees to be payable on or before the date of
making the first Loan hereunder.
(2) A non-refundable non-usage fee, such fee to be payable in
quarterly installments, in arrears, on the last Business Day of each March,
June, September and December during the term of this Agreement, each such
installment to be in an amount equal to the product of: (i) the amount by which
the Credit Limit exceeded the average daily amount of Loans outstanding during
the previous calendar quarter, multiplied by (ii) 0.125%, divided by (iii) 4;
provided, however, that no non-usage fee shall be owed by the Companies to the
Lender under this Paragraph 2(l)(2) for any quarter during which the average
daily amount of Loans outstanding during such calendar quarter equals or exceeds
fifty percent (50%) of the Credit Limit.
(3) An aged loan fee, such fee to be payable monthly in arrears
on the applicable dates specified in Paragraph 2(d) hereof, each such
installment to be in an amount equal to the product of (i) the average daily
aggregate principal balance of all Mortgage Loans included in the Borrowing Base
during said month of the type described in the first proviso to subsection (p)
of the definition of "Eligible Mortgage Loan," multiplied by (ii) 0.125%,
divided by (iii) 12.
(4) A collateral handling fee with respect to each Mortgage Loan
(and related Required Documents) submitted to the Lender for inclusion in the
Borrowing Base, such fee to be payable monthly in arrears on the applicable date
specified in Paragraph 2(d) hereof, and to be in the amount of (i) for any month
during which one hundred (100) or fewer Mortgage Loans (and related Required
Documents) are delivered to the Lender, $10.00 for each Mortgage Loan delivered
in such month, and (ii) for any month during which more than one hundred (100)
Mortgage Loans (and related Required Documents) are delivered to the Lender,
$7.00 for each Mortgage Loan delivered in such month.
(5) For the period beginning October 1, 1997 through and
including December 29, 1997, a delinquent loan fee, such fee to be computed on a
per annum basis payable in monthly installments, in arrears, on those dates set
forth for payment of interest in Paragraph 2(d) hereof, each such installment to
be in an amount equal to the product of: (i) the average daily aggregate
principal amount of Loans outstanding during the preceding month; multiplied by
(ii) the quotient of (A) the average daily aggregate Unit Collateral Values for
all Eligible Delinquent Mortgage Loans included in the Borrowing Base during the
preceding month; divided by (B) the average daily aggregate Unit Collateral
Values of all Eligible Mortgage Loans included in the Borrowing Base during the
preceding month; multiplied by (iii) 0.65%; divided by (iv) 12.
To the extent that the Lender and the Company agree that the Lender is holding
Available Buy-Down Deposits in any month in an amount in excess of the daily
average aggregate principal balance of the Loans outstanding during such month,
such excess Available Buy-Down Deposits shall be applied by Lender, at the
Company's request, to the payment of any fees owed by the Company for such
month.
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3. Security Agreement; Guaranty; Additional Documents.
3(a) Security Agreement and Financing Statements. On or before the
date hereof, the Companies shall execute and deliver to the Lender: (1) a
security agreement in the form of that attached hereto as Exhibit B (the
"Security Agreement"), pursuant to which the Companies shall pledge, assign and
grant to the Lender a perfected, first priority security interest in and lien
upon the Collateral, and (2) such UCC financing statements as the Lender may
request.
3(b) Guaranty. On or before the date hereof, the Companies shall cause
to be executed and delivered to the Lender by NFI Holding a continuing guaranty
in the form of that attached hereto as Exhibit C (the "Guaranty").
3(c) Further Documents. The Companies agree to execute and deliver and
to cause to be executed and delivered to the Lender from time to time such
confirmatory and supplementary security agreements, financing statements and
other documents, instruments and agreements as the Lender may reasonably
request, which are in the Lender's judgment necessary or desirable to obtain for
the Lender the benefit of the Credit Documents and the Collateral.
4. Conditions to Making of Loans.
4(a) First Loan. As conditions precedent to the Lender's obligation to
make the first Loan hereunder:
(1) The Companies shall have delivered to the Lender, in form
and substance satisfactory to the Lender and its counsel, each of the
following:
(i) A duly executed copy of this Agreement;
(ii) A duly executed copy of the Security Agreement and of
the Guaranty;
(iii) A duly executed copy of the Note;
(iv) Duly executed copies of all financing statements and
other documents, instruments and agreements, properly executed, deemed
necessary or appropriate by the Lender, in its reasonable discretion,
to obtain for the Lender a perfected, first priority security interest
in and lien upon the Collateral;
(v) Such credit applications, financial statements,
authorizations and such information concerning the Companies and their
respective businesses, operations and conditions (financial and
otherwise) as the Lender may reasonably request;
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(vi) Certified copies of resolutions of the Board of
Directors of each of the Companies and of NFI Holding approving the
execution and delivery of the Credit Documents to which such Company
or NFI Holding, as applicable, is a party, the performance of the
Obligations thereunder and the consummation of the transactions
contemplated thereby;
(vii) A certificate of the Secretary or an Assistant
Secretary of each of the Companies and of NFI Holding certifying the
names and true signatures of the officers of such Company or NFI
Holding, as applicable, authorized to execute and deliver the Credit
Documents to which such Company or NFI Holding, as applicable, is a
party;
(viii) A copy of the Articles of Incorporation of each of
the Companies and of NFI Holding, certified by the respective
Secretary or an Assistant Secretary of such Company or NFI Holding, as
applicable, as of the date of this Agreement as being accurate and
complete;
(ix) A copy of the Bylaws of each of the Companies and of
NFI Holding, certified by the respective Secretary or an Assistant
Secretary of such Company or NFI Holding, as applicable, as of the
date of this Agreement as being accurate and complete;
(x) (A) A certificate of the Secretary of State of the
Commonwealth of Virginia, certifying as of a recent date that NovaStar
Mortgage is in good standing and (B) a certificate of the Secretary of
State of the State of California certifying as of a recent date that
NovaStar Mortgage is in good standing as a foreign corporation in such
jurisdiction;
(xi) (A) A certificate of the Secretary of State of the
State of Maryland, certifying as of a recent date that NovaStar
Financial is in good standing and (B) a certificate of the Secretary
of State of the State of Kansas certifying as of a recent date that
NovaStar Financial is in good standing as a foreign corporation in
such jurisdiction;
(xii) A certificate of the Secretary of State of the State
of Delaware, certifying as of a recent date that NFI Holding is in
good standing;
(xiii) An opinion of counsel for the Companies and NFI
Holding substantially in the form of Exhibit D attached hereto and
covering such other matters as the Lender may reasonably request;
(xiv) Evidence satisfactory to the Lender that each of the
Funding Account and the Settlement Account has been opened;
(xv) A schedule of the initial Approved Investors duly
approved
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by the Lender;
(xvi) A duly completed Borrowing Base Schedule dated as of
the date of the first Loan hereunder and certified by the Companies to
be true in all respects; and
(xvii) A Covenant Compliance Certificate demonstrating in
detail satisfactory to the Lender that the Companies are in compliance
with the covenants set forth in Paragraphs 7(h) and 7(i) below.
(2) All acts and conditions (including, without limitation, the
obtaining of any necessary regulatory approvals and the making of any
required filings, recordings or registrations) required to be done and
performed and to have happened precedent to the execution, delivery and
performance of the Credit Documents and to constitute the same legal, valid
and binding obligations, enforceable in accordance with their respective
terms, shall have been done and performed and shall have happened in due
and strict compliance with all applicable laws.
(3) All documentation, including, without limitation,
documentation for corporate and legal proceedings in connection with the
transactions contemplated by the Credit Documents shall be satisfactory in
form and substance to the Lender and its counsel.
(4) All fees required to be paid on or before the date hereof
pursuant to Paragraph 2(l) above shall have been paid prior to (or will be
paid concurrently with) the making of the first Loan hereunder.
4(b) Ongoing Loans. As conditions precedent to the Lender's obligation
to make any Loan hereunder, including the first Loan and including the
conversion of any Loan to another type of Loan, at and as of the date of
advance, conversion or continuance thereof;
(1) There shall have been delivered to the Lender a Loan Request
therefor;
(2) The representations and warranties of the Companies or
either of them contained in the Credit Documents shall be accurate and
complete in all respects as if made on and as of the date of such advance,
conversion or continuance;
(3) There shall not have occurred an Event of Default or
Potential Default;
(4) Following the funding of the requested Loan, the aggregate
principal amount of Loans outstanding will not exceed the lesser of: (i)
the Credit Limit and (ii) the Collateral Value of the Borrowing Base;
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(5) There shall not have occurred any material adverse change in
the financial condition, assets, nature of assets, operations or prospects
of the Companies taken as a whole or either of them from that represented
in this Agreement, the other Credit Documents, or the documents or
information furnished to the Lender in connection herewith or therewith;
and
(6) The Required Documents for the Mortgage Loan(s) being funded
therewith shall have been received by the Lender (except as otherwise
provided in subsection (o) of the definition of Eligible Mortgage Loan).
By making a Loan Request to the Lender hereunder, the Companies shall be deemed
to have represented and warranted the accuracy and completeness of the
statements set forth in subparagraphs (b)(2) through (b)(6) above.
5. Representations and Warranties of the Companies.
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Each of the Companies represents and warrants to the Lender that:
5(a) Financial Condition. The (i) financial statements of NovaStar
Financial, and (ii) consolidated and consolidating financial statements of
Guarantor and its consolidated Subsidiaries, in each case dated the Interim
Date, copies of which have been furnished to the Lender, are complete and
correct and have been prepared to present fairly, in accordance with GAAP (or
with such non-GAAP principles as are disclosed to and approved by Lender from
time to time), the financial condition of NovaStar Financial, and the Guarantor
and its consolidated Subsidiaries, as the case may be, at such dates and the
results of their operations and changes in financial position for the fiscal
periods then ended.
5(b) No Change. As of the date hereof, there has been no material
adverse change in the business, operations, assets or financial or other
condition of NovaStar Financial, the Guarantor and its consolidated
Subsidiaries, or NovaStar Financial and Guarantor (and its consolidated
Subsidiaries) taken as a whole, as the case may be, from that shown on the
financial statements dated as of the Interim Date referred to in Paragraph 5(a)
above.
5(c) Corporate Existence; Compliance with Law. Each of the Companies:
(1) is duly organized, validly existing and in good standing as a corporation
under the laws of (A) with respect to NovaStar Mortgage, the Commonwealth of
Virginia and (B) with respect to NovaStar Financial, the State of Maryland, and
is qualified to do business in each jurisdiction where its ownership of property
or conduct of business requires such qualification and where failure to qualify
could have a material adverse effect on such Company or its property or business
or on the ability of such Company to pay or perform the Obligations, (2) has the
corporate power and authority and the legal right to own and operate its
property and to conduct business in the manner in which it does and proposes so
to do, and (3) is in compliance with all Requirements of Law and Contractual
Obligations, the failure to comply with which could have a material adverse
effect on the business, operations, assets or financial or other condition of
such Company or the Companies taken as a whole or on the Collateral or the
Collateral Value of the
12
Borrowing Base.
5(d) Corporate Power; Authorization; Enforceable Obligations. Each of
the Companies has the corporate power and authority and the legal right to
execute, deliver and perform the Credit Documents and has taken all necessary
corporate action to authorize the execution, delivery and performance of the
Credit Documents. The Credit Documents have been duly executed and delivered on
behalf of each of the Companies and constitute legal, valid and binding
obligations of each such Company enforceable against such Company in accordance
with their respective terms, subject to the effect of applicable bankruptcy and
other similar laws affecting the rights of creditors generally and the effect of
equitable principles whether applied in an action at law or a suit in equity.
5(e) No Legal Bar. The execution, delivery and performance of the
Credit Documents, the borrowing hereunder and the use of the proceeds thereof,
will not violate any Requirement of Law or any Contractual Obligation of either
Company the violation of which could have a material adverse effect on the
business, operations, assets or financial or other condition of such Company or
the Companies taken as a whole or on the Collateral or the Collateral Value of
the Borrowing Base or create or result in the creation of any Lien (except the
Lien created by the Security Agreement) on any assets of either Company.
5(f) No Material Litigation. Except as disclosed on Exhibit E hereto,
no litigation, investigation or proceeding of or before any court, arbitrator or
Governmental Authority is pending or, to the knowledge of either Company,
threatened by or against either Company or against any of its properties or
revenues which is likely to be adversely determined and which, if adversely
determined, is likely to have a material adverse effect on the business,
operations, property or financial or other condition of such Company or the
Companies taken as a whole or on the Collateral or the Collateral Value of the
Borrowing Base.
5(g) Taxes. To the best of each Company's knowledge, all tax returns
that are required to be filed by or on behalf of such Company have been filed
and all taxes shown to be due and payable on said returns or on any assessments
made against such Company or any of its property (other than taxes which are
being contested in good faith by appropriate proceedings and as to which such
Company has established adequate reserves in conformity with GAAP) have been
paid and taxes which unknown to such Company were not paid.
5(h) Investment Companies Act. Neither of the Companies is an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
5(i) Federal Reserve Board Regulations. Neither of the Companies is
engaged, and neither of the Companies will engage, principally or as one of its
important activities, in the business of extending credit for the purpose of
"purchasing" or "carrying" any "margin stock" within the respective meanings of
such terms under Regulation U. No part of the proceeds of any Loan issued
hereunder will be used, directly or indirectly, for "purchasing" or "carrying"
"margin stock" as so defined or for any purpose which violates, or which would
be inconsistent
13
with, the provisions of the Regulations of the Board of Governors of the Federal
Reserve System.
5(j) ERISA. Each of the Companies and each of its ERISA Affiliates are
in compliance in all respects with the requirements of ERISA and no Reportable
Event has occurred under any Plan maintained by either Company or any of its
ERISA Affiliates which is likely to result in the termination of such Plan for
purposes of Title IV of ERISA.
5(k) Assets. Each of the Companies has good and marketable title to
all property and assets owned by such Company and reflected in the financial
statements referred to in Paragraph 5(a) above, except property and assets sold
or otherwise disposed of in the ordinary course of business subsequent to the
respective dates thereof. Neither of the Companies has any outstanding Liens on
any of its properties or assets and there are no security agreements to which
either Company is a party, nor any title retention agreements, whether in the
form of leases or otherwise, of any personal property except as permitted under
Paragraph 7(a) below.
5(l) Securities Acts. Neither of the Companies has issued any
unregistered securities in violation of the registration requirements of
Paragraph 5 of the Securities Act of 1933, as amended, or any other law, and
neither of the Companies is violating any rule, regulation or requirement under
the Securities Act of 1933, as amended, or the Securities and Exchange Act of
1934, as amended. Neither of the Companies is required to qualify an indenture
under the Trust Indenture Act of 1939, as amended, in connection with its
execution and delivery of the Note.
5(m) Consents, etc. No consent, approval, authorization of, or
registration, declaration or filing with, any Governmental Authority is required
on the part of either Company in connection with the execution and delivery of
the Credit Documents (other than filings to perfect the security interests
granted by it) or the performance of or compliance with the terms, provisions
and conditions hereof or thereof.
5(n) Ownership and Subsidiaries. As of the date hereof, (i) ninety-
nine percent (99%) of the economic interests in the Guarantor are owned by
NovaStar Financial, and (ii) one hundred percent (100%) of the outstanding stock
of NovaStar Mortgage is owned by the Guarantor. NovaStar Mortgage has no
Subsidiaries, the Guarantor has no Subsidiaries other than NovaStar Mortgage,
and NovaStar Financial has no Subsidiaries other than the Guarantor and NovaStar
Assets Corp.
5(o) Joint Benefit. Each of the Companies represents and warrants to
the Lender that the Companies engage in complementary lines of business, and
therefore each Loan made hereunder to either of the Companies benefits both of
the Companies and each Loan made hereunder to both of the Companies benefits
each of the Companies.
6. Affirmative Covenants. Each of the Companies hereby covenants and
agrees with the Lender that, as long as any Obligations remain unpaid or the
Lender has any obligation to make Loans hereunder, the Companies shall:
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6(a) Financial Statements. Furnish or cause to be furnished to the
Lender:
(1) Within ninety (90) days after the last day of each fiscal
year of NovaStar Financial, (A) statements of income and cash flows for
such year, and balance sheets as of the end of such year, of NovaStar
Financial, and (B) consolidated and consolidating statements of income and
cash flow for such year, and consolidated and consolidating balance sheets
as of the end of such year, of Guarantor and its consolidated Subsidiaries,
in each case presented fairly in accordance with GAAP (or with such non-
GAAP principles as are disclosed to and approved by Lender from time to
time) and, in each case accompanied by an unqualified report of a firm of
independent certified public accountants acceptable to the Lender and
including therewith a copy of any management letter from such certified
public accountants;
(2) Within forty-five (45) days after the last day of each
calendar month, (A) statements of income for such month, and balance sheets
as of the end of such month, of NovaStar Financial, and (B) consolidated
and consolidating statements of income for such month, and consolidated and
consolidating balance sheets as of the end of such month, of Guarantor and
its consolidated Subsidiaries, accompanied in each case by a Covenant
Compliance Certificate of the appropriate officer of NovaStar Financial,
stating that all such financial statements are prepared fairly in
accordance with GAAP (or with such non-GAAP principles as are disclosed to
and approved by Lender from time to time) and demonstrating in detail
satisfactory to the Lender compliance with the financial covenants set
forth in Paragraphs 7(h) and 7(i) below (as calculated with reference to
the combined position of NovaStar Financial and of Guarantor and its
consolidated Subsidiaries, as more specifically shown on the form of such
Covenant Compliance Certificate attached as Exhibit H hereto) as of and at
the end of such month.
6(b) Certificates; Reports; Other Information. Furnish or cause to be
furnished to the Lender:
(1) Within forty-five (45) days after the last day of each
calendar month a collateral report, a commitment report, a Hedging Report
and a pipeline management report, all for said calendar month and each in a
form approved by Lender and containing such other information as may be
reasonably requested by Lender;
(2) Promptly, such additional financial and other information,
including, without limitation, financial statements of either Company or of
Guarantor or any Approved Investor and information regarding the Collateral
as the Lender may from time to time reasonably request;
(3) Promptly, and in any event within five (5) business days
after received or sent by either Company, (i) true and complete copies of
all audits, reports, studies and similar documentation prepared by, or on
behalf of FHA, VA or the Department of Housing and Urban Development or
similar agency relating to either Company's operations, servicing or
lending practices or which have been done in
15
connection with a review, extension or conditioning of any licenses and
approvals issued to either Company by FHA or VA; and (ii) copies of all
correspondence between any of the foregoing departments and agencies and
either Company related to any such audits, reports, studies and similar
documents; and
(4) Promptly, copies of any and all forms, reports, supplements
or other documents of any kind filed by either Company with the Securities
and Exchange Commission.
(5) With respect to each Eligible Delinquent Mortgage Loan
included in the Borrowing Base during the period beginning October 1, 1997
through and including December 29, 1997, (i) monthly delinquency and
progress reports for such Eligible Delinquent Mortgage Loan in form and
content acceptable to the Lender; and (ii) in the event that an Eligible
Delinquent Mortgage Loan becomes more than ninety (90) days past due, a
"drive-by" appraisal of the Property which is the subject of such Eligible
Delinquent Mortgage Loan, which appraisal shall be acceptable to the Lender
in its sole discretion.
6(c) Payment of Indebtedness. Pay or otherwise satisfy at or before
maturity or before it becomes delinquent or accelerated, as the case may be, all
its Indebtedness (including taxes), except Indebtedness being contested in good
faith by appropriate proceedings and for which provision is made to the
satisfaction of the Lender for the payment thereof in the event either Company
is found to be obligated to pay such Indebtedness and which Indebtedness is
thereupon promptly paid by such Company.
6(d) Maintenance of Existence and Properties. Maintain its corporate
existence and obtain and maintain all rights, privileges, licenses, approvals,
franchises, properties and assets necessary or desirable in the normal conduct
of its business, including but not limited to all approvals with respect to FHA
and VA, and comply with all Contractual Obligations and Requirements of Law
(including, without limitation, any Requirements of Law under or in connection
with ERISA), except where the failure to so comply is not likely to have a
material adverse effect on the business, operations, assets or financial or
other condition of such Company or the Companies taken as a whole or on the
Collateral or the Collateral Value of the Borrowing Base.
6(e) Inspection of Property; Books and Records; Audits.
(1) Keep proper books of record and account in which full, true
and correct entries in conformity with GAAP (or with such non-GAAP
principles as are disclosed to and approved by Lender from time to time)
and all Requirements of Law shall be made of all dealings and transactions
in relation to its business and activities; and
(2) Permit: (i) representatives of the Lender to (A) visit and
inspect any of its properties and examine and make abstracts from any of
its books and records at any reasonable time and as often as may reasonably
be desired by the Lender (but, prior
16
to the occurrence of an Event of Default, only upon not less than two
Business Days' prior notice), and (B) discuss the business, operations,
properties and financial and other condition of the Companies or either of
them with officers and employees of either Company, and with the
independent certified public accountants of either Company, and (ii)
representatives of the Lender to conduct periodic operational audits of
either Company's business and operations of either Company.
6(f) Notices. Promptly give written notice to the Lender of:
(1) The occurrence of any Potential Default or Event of Default
known to responsible management personnel of either Company and the
proposed method of cure thereof;
(2) Any litigation or proceeding affecting either Company or the
Companies taken as a whole or the Collateral which could have a material
adverse effect on the Collateral, the Collateral Value of the Borrowing
Base or the business, operations, property, or financial or other condition
of either Company or the Companies taken as a whole;
(3) A material adverse change known to responsible management
personnel of either Company in the business, operations, property or
financial or other condition of either Company or the Companies taken as a
whole; and
(4) Any changes in the following senior management positions of
either Company: Chairman, President, Chief Financial Officer or any Senior
Vice President.
6(g) Expenses. Pay all reasonable out-of-pocket costs and expenses
(including fees and disbursements of legal counsel) of the Lender: (1) incident
to the preparation, negotiation and administration of the Credit Documents,
including with respect to or in connection with any waiver or amendment thereof
or thereto, (2) associated with any periodic audits conducted pursuant to
Paragraph 6(e)(2)(ii) above, and (3) incident to the enforcement of payment of
the Obligations, whether by judicial proceedings or otherwise, including,
without limitation, in connection with bankruptcy, insolvency, liquidations
reorganization moratorium or other similar proceedings involving the Companies
or a "workout" of the Obligations. The joint and several obligations of the
Companies under this Paragraph 6(g) shall be effective and enforceable whether
or not any Loan is advanced by the Lender hereunder and shall survive payment of
all other Obligations.
6(h) Credit Documents. Comply with and observe all terms and
conditions of the Credit Documents.
6(i) Insurance. Obtain and maintain insurance with responsible
companies in such amounts and against such risks as are usually carried by
corporations engaged in similar businesses similarly situated, including,
without limitation, errors and omissions coverage and
17
fidelity coverage in form and substance acceptable under FNMA, FHLMC or GNMA
guidelines, and furnish the Lender on request full information as to all such
insurance, and to provide within five (5) days after receipt, certificates or
other documents evidencing the renewal of each such policy.
6(j) Wet Funding Mortgage Loan Transmittal Form. Furnish or cause to
be furnished to the Lender, with each Eligible Mortgage Loan shipped or
delivered which is of the type described in the proviso contained in subsection
(o) of the definition of Eligible Mortgage Loan, a Wet Funding Mortgage Loan
Transmittal Form substantially in the form attached as Exhibit K hereto.
7. Negative Covenants. Each of the Companies hereby agrees that, as long
as any Obligations remain unpaid or the Lender has any obligation to make Loans
hereunder, the Companies shall not at any time, directly or indirectly:
7(a) Liens. Create, incur, assume or suffer to exist, any Lien upon
the Collateral except as contemplated by the Security Agreement, or create,
incur, assume or suffer to exist any Lien upon any of the other property and
assets (including servicing rights) of either Company except:
(1) Liens for current taxes, assessments or other governmental
charges which are not delinquent or which remain payable without penalty,
or the validity of which are contested in good faith by appropriate
proceedings upon stay of execution of the enforcement thereof, provided the
applicable Company shall have set aside on its books and shall maintain
adequate reserves for the payment of same in conformity with GAAP;
(2) Liens, deposits or pledges made to secure statutory
obligations, surety or appeal bonds, or bonds for the release of
attachments or for stay of execution, or to secure the performance of bids,
tenders, contracts (other than for the payment of borrowed money), leases
or for purposes of like general nature in the ordinary course of the
Companies' business;
(3) Purchase money security interests for property (except
Mortgage Loans) hereafter acquired, conditional sale agreements, or other
title retention agreements, with respect to property hereafter acquired;
provided, however, that no such security interest or agreement shall affect
any servicing rights or extend to any property other than the property
acquired; and
(4) Liens securing Permitted Secured Debt.
7(b) Indebtedness. Create, incur, assume or suffer to exist, or
otherwise become or be liable in respect of any Indebtedness except:
(1) The Obligations;
18
(2) Indebtedness reflected in the financial statements referred
to in Paragraph 5(a) above;
(3) Trade debt incurred in the ordinary course of business, paid
within thirty (30) days after the same has become due and payable or which
is being contested in good faith, provided provision is made to the
satisfaction of the Lender for the eventual payment thereof in the event it
is found that such contested trade debt is payable by either Company;
(4) Indebtedness secured by Liens permitted under Paragraph 7(a)
above;
(5) Liabilities incurred as "seller/repurchaser" under
repurchase agreements covering Mortgage-Backed Securities or Mortgage Loans
in customary form;
(6) Capitalized Lease Obligations in an aggregate amount not to
exceed at any one time outstanding $250,000.00;
(7) Liabilities arising out of collateralized mortgage
obligations created by either Company or entities created by either
Company; and
(8) Permitted Other Debt.
7(c) Consolidation and Merger; Change of Business. Liquidate or
dissolve or enter into any consolidation, merger, partnership, joint venture,
syndicate or other combination or make any change in the nature of its business
as presently conducted.
7(d) Acquisitions. Purchase or acquire or incur liability for the
purchase or acquisition of any or all of the assets or business of any Person,
other than in the normal course of business as currently conducted (it being
expressly agreed and understood that the acquisition of non-recourse servicing
is a normal course of business activity and that the acquisition of recourse
servicing is not a normal course of business activity).
7(e) Transfer of Stock. (i) Permit the acquisition, purchase,
redemption, retirement, transfer or issuance of any shares of the capital stock
of NovaStar Mortgage now or hereafter outstanding which would result in the
Guarantor owning less than one hundred percent (100%) of its outstanding capital
stock, or (ii) permit the acquisition, purchase, redemption, retirement,
transfer or issuance of any shares of the capital stock of the Guarantor now or
hereafter outstanding which would result in NovaStar Financial owning less than
ninety-nine percent (99%) of the economic interest in the Guarantor.
7(f) Investments; Advances; Guaranties. Make or commit to make any
advance, loan or extension of credit (other than Mortgage Loans made in the
ordinary course of the Companies' business) or capital contribution to, or
purchase any stocks, bonds, notes,
19
debentures or other securities of, or make any other investment in, or guaranty
the indebtedness or other obligations of, any Person.
7(g) Sale of Assets. Sell, lease, assign, transfer or otherwise
dispose of any of its assets (other than obsolete or worn out property), whether
now owned or hereafter acquired, other than in the ordinary course of business
as currently conducted and at fair market value (it being expressly agreed and
understood that the sale or other disposition of Mortgage-Backed Securities and
Mortgage Loans with or without servicing released and of mortgage servicing
rights is in the ordinary course of business).
7(h) Required Equity Ratio. Permit the ratio at any date of Required
Equity to Shareholder Equity to be less than 1.0:1.0.
7(i) Minimum Adjusted Tangible Net Worth. Permit Adjusted Tangible
Net Worth as of the last day of any fiscal quarter to be less than the greater
of (i) eighty percent (80%) of the net proceeds from the Equity Issuance, and
(ii) $30,000,000.
8. Events of Default. Upon the occurrence of any of the following events
(an "Event of Default"):
8(a) The Companies shall fail to pay principal or interest on any
Loan or any fee payable pursuant to Paragraph 2(l) above or any amount payable
pursuant to Paragraph 2(f)(2) above when due; or
8(b) Any representation or warranty made or deemed made by either
Company or the Guarantor in any Credit Document or in connection with any Credit
Document shall be inaccurate or incomplete in any respect on or as of the date
made or deemed made; or
8(c) Either Company shall fail to maintain its corporate existence or
shall default in the observance or performance of any covenant or agreement
contained in Paragraph 7 above or in the Security Agreement; or
8(d) Either Company shall fail to observe or perform any other term or
provision contained in the Credit Documents and such failure shall continue for
thirty (30) days; or
8(e) Either Company shall default in any payment of principal of or
interest on any Indebtedness in the aggregate principal amount of $100,000.00 or
more (and without regard for the dollar amount of the defaulted payment), or any
other event shall occur, the effect of which is to permit such Indebtedness to
be declared or otherwise to become due prior to its stated maturity; or
8(f) (1) Either Company or the Guarantor shall commence any case,
proceeding or other action (i) relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect to either Company or the Guarantor, or seeking to adjudicate either
Company or the Guarantor a bankrupt or insolvent, or seeking reorganization,
20
arrangement, adjustment, winding-up, liquidation, dissolution, composition or
other relief with respect to either Company or the Guarantor or the debts of any
of them, or (ii) seeking appointment of a receiver, trustee, custodian or other
similar official for either Company or for all or any substantial part of the
assets of either Company, or either Company or the Guarantor shall make a
general assignment for the benefit of its or their creditors; or (2) there shall
be commenced against either Company or the Guarantor any case, proceeding or
other action of a nature referred to in clause (1) above which (i) results in
the entry of an order for relief or any such adjudication or appointment, or
(ii) remains undismissed, undischarged or unbonded for a period of sixty (60)
days; or (3) there shall be commenced against either Company or the Guarantor
any case, proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or substantially
all of the assets of any of them which results in the entry of an order for any
such relief which shall not have been vacated, discharged, stayed, satisfied or
bonded pending appeal within sixty (60) days from the entry thereof; or (4)
either Company or the Guarantor shall take any action in furtherance of, or
indicating its or their consent to, approval of, or acquiescence in (other than
in connection with a final settlement), any of the acts set forth in clauses
(1), (2) or (3) above; or (5) either Company or the Guarantor shall generally
not, or shall be unable to, or shall admit in writing its or their inability to
pay its or their debts as they become due; or
8(g) (1) Either of the Companies or any of its ERISA Affiliates shall
engage in any "prohibited transaction" (as defined in Section 406 of ERISA or
Section 4975 of the Code) involving any Plan, (2) any "accumulated funding
deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall
exist with respect to any Plan, (3) a Reportable Event shall occur with respect
to, or proceedings shall commence to have a trustee appointed, or a trustee
shall be appointed, to administer or to terminate, any Single Employer Plan,
which Reportable Event or institution of proceedings is, in the reasonable
opinion of the Lender, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, and, in the case of a Reportable Event, the
continuance of such Reportable Event unremedied for ten days after notice of
such Reportable Event pursuant to Section 4043(a), (c) or (d) of ERISA is given
or the continuance of such proceedings for ten days after commencement thereof,
as the case may be, (4) any Single Employer Plan shall terminate for purposes of
Title IV of ERISA, (5) any withdrawal liability to a Multi-Employer Plan shall
be incurred by either Company or any of its ERISA Affiliates or (6) any other
event or condition shall occur or exist; and in each case in clauses (1) through
(6) above, such event or condition, together with all other such events or
conditions, if any, is likely to subject either Company or any of its respective
ERISA Affiliates to any tax, penalty or other liabilities in the aggregate
material in relation to the business, operations, property or financial or other
condition of either Company or any of its ERISA Affiliates; or
8(h) One or more judgments or decrees in an aggregate amount in
excess of $500,000.00 shall be entered against either Company and all such
judgments or decrees shall not have been vacated, discharged, stayed, satisfied
or bonded pending appeal within sixty (60) days from the entry thereof; or
8(i) The Guarantor shall fail to observe or perform any term or
provision of the Guaranty or shall attempt to rescind or revoke the Guaranty,
with respect to future transactions or
21
otherwise; or
8(j) Any acquisition, purchase, redemption, retirement, transfer or
issuance of either Company's capital stock shall occur in violation of Paragraph
7(e) above; or
8(k) Either W. Xxxxx Xxxxxxxx or Xxxxx X. Xxxxxxx is removed from his
current position with either Company or his duties in any such position are
diminished in any material respect.
THEN:
(1) Automatically upon the occurrence of an Event of Default
under Paragraph 8(f) above; and
(2) In all other cases, at the option of the Lender,
the Lender's obligation to make Loans hereunder shall terminate and the
principal balance of outstanding Loans and interest accrued but unpaid thereon
shall become immediately due and payable, without demand upon or presentment to
the Companies, which are expressly waived by the Companies.
9. Miscellaneous Provisions.
9(a) Assignment. Neither of the Companies may assign its rights or
obligations under this Agreement without the prior written consent of the
Lender. The Lender shall not assign its rights and obligations under this
Agreement to any other party not a party to this Agreement as of the date
hereof; provided, however, that the Lender may at any time pledge or assign all
or any portion of the Lender's rights under this Agreement and the other Credit
Documents to a Federal Reserve Bank. Subject to the foregoing, all provisions
contained in this Agreement or any document or agreement referred to herein or
relating hereto shall inure to the benefit of the Lender, its successors and
assigns, and shall be binding upon the Companies, their successors and assigns.
9(b) Amendment. Neither this Agreement nor any of the other Credit
Documents may be amended or terms or provisions hereof or thereof waived unless
such amendment or waiver is in writing and signed by the Lender and the
Companies. It is expressly agreed and understood that the failure by the Lender
to elect to accelerate amounts outstanding hereunder or to terminate the
obligation of the Lender to make Loans hereunder shall not constitute an
amendment or waiver of any term or provision of this Agreement.
9(c) Cumulative Rights; No Waiver. The rights, powers and remedies
of the Lender under the Credit Documents are cumulative and in addition to all
rights, powers and remedies provided under any and all agreements among the
Companies and the Lender relating
22
hereto, at law, in equity or otherwise. Any delay or failure by the Lender to
exercise any right, power or remedy shall not constitute a waiver thereof by the
Lender, and no single or partial exercise by the Lender of any right, power or
remedy shall preclude other or further exercise thereof or any exercise of any
other rights, powers or remedies.
9(d) Entire Agreement. This Agreement and the documents and
agreements referred to herein embody the entire agreement and understanding
between the parties hereto and supersede all prior agreements and understandings
relating to the subject matter hereof and thereof.
9(e) Survival. All representations, warranties, covenants and
agreements on the part of the Companies and the Guarantor contained in the
Credit Documents shall survive the termination of this Agreement and shall be
effective until the Obligations are paid and performed in full or longer as
expressly provided herein.
9(f) Notices. All notices given by any party to the others under the
Credit Documents shall be in writing unless otherwise provided for herein,
delivered personally or by depositing the same in the United States mail,
registered, with postage prepaid, addressed to the party at the address set
forth on Schedule I attached hereto. Any party may change the address to which
notices are to be sent by notice of such change to each other party given as
provided herein. Such notices shall be effective on the date received or, if
mailed, on the third Business Day following the date mailed.
9(g) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of North Carolina.
9(h) Sub-Participation by Lender. The Lender may at any time sell to
one or more financial institutions (each of such financial institutions being
herein called a "Participant") participating interests in any of the Obligations
held by the Lender and its commitments hereunder; provided, however, that: (1)
no participation contemplated by this Paragraph 9(h) shall relieve the Lender
from its obligations hereunder or under any other Credit Document; (2) the
Lender shall remain solely responsible for the performance of such obligations;
and (3) the Companies shall continue to deal solely and directly with the Lender
in connection with the Lender's rights and obligations under the Credit
Documents.
9(i) Counterparts. This Agreement and the other Credit Documents may
be executed in any number of counterparts, all of which together shall
constitute one agreement.
9(j) Exculpatory Provisions. Neither the Lender nor any of its
officers, directors, employees, agents, counsel, attorneys-in-fact or Affiliates
shall be liable to the Companies or either of them for any action taken or
omitted to be taken by it or such Person under or in connection with the Credit
Documents or with respect to the Collateral (except for its or such Person's own
gross negligence or willful misconduct).
9(k) Indemnification. The Companies jointly and severally agree to
indemnify,
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defend and hold harmless the Lender from and against any and all claims,
obligations, penalties, actions, suits, judgments, costs, disbursements, losses,
liabilities and damages (including, without limitation, reasonable attorneys'
fees) of any kind whatsoever which may at any time be imposed on, assessed
against or incurred by the Lender in any way relating to or arising out of the
Credit Documents or any documents contemplated by or referred to therein or the
transactions contemplated thereby or any action taken or omitted to be taken by
the Lender in connection with the foregoing; provided, the Companies shall not
be liable for any portion of any such claims, obligations, etc., arising out of
or resulting from the gross negligence or willful misconduct of the Lender. The
joint and several indemnification obligations of the Companies under this
Paragraph 9(k) shall survive termination of this Agreement and payment in full
of the Obligations.
10. Definitions. For purposes of this Agreement, the terms set forth
below shall have the following meanings:
"A Paper" shall have the meaning set forth on Exhibit L attached hereto.
"Additional Required Documents" shall mean for any Mortgage Loan those
items described on Exhibit F attached hereto.
"Adjusted Tangible Net Worth" shall mean at any date:
(a) Book Net Worth, minus
(b) The sum of (1) all assets which would be classified as intangible
assets of NovaStar Financial and its consolidated Subsidiaries under GAAP,
including, without limitation, purchased and capitalized value of servicing
rights, goodwill (whether representing the excess cost over book value of assets
acquired or otherwise), patents, trademarks, trade names, copyrights, franchises
and deferred charges (including, without limitation, unamortized debt discount
and expense, organization costs and research and product development costs) plus
(2) all receivables from directors, officers and shareholders of NovaStar
Financial and its consolidated Subsidiaries, plus
(c) The amount of combined reserves of NovaStar Financial and any
Subsidiaries of Guarantor for credit losses, minus
(d) The amount of unrealized gains on debt securities (as defined in
FASB 115) of NovaStar Financial and any Subsidiaries of Guarantor, plus
(e) The amount of unrealized losses on debt securities (as defined in
FASB 115) of NovaStar Financial and any Subsidiaries of Guarantor.
Provided that in all cases such amounts shall be determined by combining the
relevant figures for NovaStar Financial and for Guarantor and its consolidated
Subsidiaries, in the form shown on the example Covenant Compliance Certificate
attached as Exhibit H hereto.
24
"Affiliate" shall mean, as to any Person, any other Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with, such Person. "Control" as used herein means the power to direct the
management and policies of such Person.
"Agreement" shall mean this Agreement, as the same may be amended, extended
or replaced from time to time.
"Applicable Fed Funds-Based Rate" shall mean a rate of interest equal to
the Fed Funds Rate plus one and one-quarter percent (1.25%) per annum.
"Applicable LIBOR-Based Rate" shall mean, with respect to any Eurodollar
Loan for the Interest Period applicable to such Eurodollar Loan, the rate per
annum (rounded upward, if necessary, to the next higher 1/32 of one percent
(.03125%)) calculated in accordance with the following formula:
LR + 1.125
------
Applicable LIBOR-Based Rate = 1-LRP
where
LR = LIBOR Rate
LRP = LIBOR Reserve Percentage
"Approved Investor" shall mean FNMA, FHLMC or any other Person pre-approved
in writing (which pre-approval may be limited in dollar amounts by type and
otherwise) by the Lender (including those shown on Schedule II) and which
approval has not been revoked by the Lender in its sole discretion (such
revocation to be effective on the tenth Business Day following notice thereof
given to the Companies in writing).
"Available Buy-Down Deposits" shall mean, with respect to any calendar
month, the amount of Buy-Down Deposits held by the Lender and used to support
the reduction of the interest rate on Loans or the payment of fees under this
Agreement.
"Book Net Worth" shall mean the excess of total assets of NovaStar
Financial and its consolidated Subsidiaries over Total Liabilities of NovaStar
Financial and its consolidated Subsidiaries determined in accordance with GAAP
(or such non-GAAP principles as may be disclosed to and approved by Lender from
time to time) (in each case determined by combining the relevant figures for
NovaStar Financial and for Guarantor and its consolidated Subsidiaries, in the
form shown on the example Covenant Compliance Certificate attached as Exhibit H
hereto.
"Borrowing Base" shall mean at any date all Eligible Mortgage Loans
delivered to and held by the Lender or otherwise identified as Collateral under
the Security Agreement as collateral security for the Obligations.
25
"Borrowing Base Schedule" shall mean a schedule prepared by the Lender and
certified to by the Companies in the form of that attached hereto as Exhibit G.
"Bulk Acquisition" shall mean the acquisition by the Companies or either of
them of a seasoned loan pool consisting of Mortgage Loans with an aggregate
outstanding principal balance equal to or greater than $2,000,000.
"Business Day" shall mean any day other than a Saturday, a Sunday or a day
on which banks in Charlotte, North Carolina are authorized or obligated to close
their regular banking business.
"Buy-Down Deposits" shall mean, with respect to any calendar month, the
average daily amount of free collected balances maintained in non-interest
bearing accounts in the name of the Company (other than those amounts held by
the Company in trust for third parties) with the Lender (after deducting float
balances required by the Lender under its normal practices to compensate the
Lender for the maintenance of such accounts and taking into consideration
reserve requirements (including but not limited to any FDIC premium applicable
to such accounts)) and which balances are not included in determining "Buy-Down
Deposits" under any other credit arrangements between the Lender and the
Company.
"Buy-Down Rate" shall mean one and one-quarter percent (1.25%) per annum.
"Capitalized Lease Obligations" of any Person shall mean the obligations of
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP
and, for the purposes of this Agreement, the amount of such obligations at any
time shall be the capitalized amount thereof at such time determined in
accordance with GAAP.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Collateral" shall have the meaning given such term in the Security
Agreement.
"Collateral Value of the Borrowing Base" shall mean at any date the sum of
the Unit Collateral Values of all Eligible Mortgage Loans included in the
Borrowing Base at such date (including Eligible Mortgage Loans shipped into
pools supporting Warehouse Related MBSs pending sale of such Warehouse Related
MBSs and delivery of the sale proceeds thereof to the Settlement Account).
"Commonly Controlled Entity" of a Person shall mean a Person, whether or
not incorporated, which is under common control with such Person within the
meaning of Section 414(c) of the Internal Revenue Code.
"Companies" and "Company" shall have the meanings given such terms in the
26
introductory paragraph hereof.
"Consolidated Subsidiary" shall mean, for the purpose of this Agreement,
either (i) a Subsidiary which is required by GAAP to be consolidated for the
purposes of financial statement preparation and reporting, or (ii) any
corporation, partnership, or joint venture more than fifty percent (50%) of the
economic interest in which shall, at the time as of which any determination is
made, be owned, either directly or through Subsidiaries.
"Contact Office" shall mean the office of the Lender at One First Union
Center, 000 Xxxxx Xxxxxxx Xxxxxx, Xxxxxxxxx, Xxxxx Xxxxxxxx 00000.
"Contractual Obligation" as to any Person shall mean any provision of any
security issued by such Person or of any agreement, instrument or undertaking to
which such Person is a party or by which it or any of its property is bound.
"Corporate Base Rate" shall mean a fluctuating rate per annum announced
from time to time by the Lender to be its "Prime Rate" as such "Prime Rate" may
change from time to time, said changes to occur on the first date the "Prime
Rate" changes; it being understood that the "Prime Rate" is the rate announced
by the Lender from time to time as its "Prime Rate" and is not necessarily the
lowest interest rate charged by the Lender to its customers.
"Covenant Compliance Certificate" shall mean a certificate in the form of
Exhibit H attached hereto.
"Credit Documents" shall mean this Agreement, the Security Agreement, the
Guaranty, the Note and each other document, instrument and agreement executed by
either Company or the Guarantor in connection herewith, as any of the same may
be amended, extended or replaced from time to time.
"Credit Limit" shall mean $50,000,000.00.
"Eligible Delinquent Mortgage Loan" shall have the meaning set forth in
subparagraph (d) of the definition of `Eligible Mortgage Loan'.
"Eligible Mortgage Loan" shall mean a Mortgage Loan with respect to which
each of the following statements shall be accurate and complete (and the
Companies by confirming the inclusion of such Mortgage Loan in any computation
of the Collateral Value of the Borrowing Base shall be deemed to so represent
and warrant to the Lender at and as of the date of such computation):
(a) Said Mortgage Loan is a binding and valid obligation of the
Obligor thereon, in full force and effect and enforceable in accordance with its
terms.
(b) Said Mortgage Loan is genuine in all respects as appearing on its
face and as represented in the books and records of the applicable Company and
all information set forth
27
therein is true and correct.
(c) Said Mortgage Loan is free of any default of any party thereto
(including the applicable Company), other than as expressly permitted pursuant
to subparagraph (d) below, counterclaims, offsets and defenses and from any
rescission, cancellation or avoidance, whether by operation of law or otherwise.
(d) No payment under said Mortgage Loan is more than sixty (60) days
past due the payment due date set forth in the underlying promissory note and
deed of trust (or mortgage); provided, however, that a Mortgage Loan which is
more than sixty (60) days delinquent may be an Eligible Mortgage Loan so long as
(A) for the period beginning October 1, 1997 through and including December 29,
1997, (i) said Mortgage Loan is a delinquent Mortgage Loan which is either the
subject of an ongoing attempt by the applicable Company to work out said
Mortgage Loan or the subject of an ongoing foreclosure proceeding which has not
yet resulted in the sale of the underlying Property; (ii) said Mortgage Loan has
been specifically approved on a Mortgage Loan-by-Mortgage Loan basis, by the
Lender in its sole discretion, for inclusion in the Borrowing Base; (iii) the
Companies have delivered to the Lender such appraisal and reports with respect
to said Mortgage Loan as are required under Paragraph 6(b)(5) above; and (iv)
the Unit Collateral Value of said Mortgage Loan, when added to the aggregate
Unit Collateral Values of all Eligible Mortgage Loans included in the Borrowing
Base by virtue of this proviso to subparagraph (d) of the definition of
"Eligible Mortgage Loan" does not exceed ten percent (10%) of the Credit Limit;
and (B) at all times thereafter; (i) said Mortgage Loan is not more than ninety
(90) days delinquent, and (ii) said Mortgage Loan, when added to the Unit
Collateral Values of all other Mortgage Loans which are more than sixty (60)
days delinquent, does not exceed five percent (5%) of the Credit Limit (Eligible
Mortgage Loans of the type referred to in either clause (A) or clause (B) of
this subsection (d) shall be referred to herein as "Eligible Delinquent Mortgage
Loans").
(e) Said Mortgage Loan contains the entire agreement of the parties
thereto with respect to the subject matter thereof, has not been modified or
amended in any respect and is free of concessions or understandings with the
Obligor thereon of any kind not expressed in writing therein.
(f) Said Mortgage Loan is in all respects as required by and in
accordance with all applicable laws and regulations governing the same,
including, without limitation, the federal Consumer Credit Protection Act and
the regulations promulgated thereunder and all applicable usury laws and
restrictions, and all notices, disclosures and other statements or information
required by law or regulation to be given, and any other act required by law or
regulation to be performed, in connection with said Mortgage Loan have been
given and performed as required.
(g) All advance payments and other deposits on said Mortgage Loan
have been paid in cash, and no part of said sums has been loaned, directly or
indirectly, by either Company to the Obligor and there have been no prepayments
on account of said Mortgage Loan.
28
(h) At all times said Mortgage Loan will be free and clear of all
Liens, except in favor of the Lender.
(i) The Property covered by said Mortgage Loan is insured against
loss or damage by fire and all other hazards normally included within standard
extended coverage in accordance with the provisions of said Mortgage Loan with
the applicable Company named as a loss payee thereon.
(j) The Property covered by said Mortgage Loan is free and clear of
all Liens except the Lien securing the Mortgage Loan subject only to (1) the
Lien of current real property taxes and assessments not yet due and payable; (2)
covenants, conditions and restrictions, rights of way, easements and other
matters of the public record, as of the date of recording, as are acceptable to
mortgage lending institutions generally and specifically referred to in a
lender's title insurance policy delivered to the originator of the Mortgage Loan
and (i) referred to or otherwise considered in the appraisal made for the
originator of the Mortgage Loan or (ii) which do not materially adversely affect
the appraised value of the Property as set forth in such appraisal; (3) other
matters to which like properties are commonly subject which do not materially
interfere with the benefits of the security intended to be provided by the
Mortgage Loan or the use, enjoyment, value or marketability of the related
Property; (4) Liens subordinate in priority to the Lien securing the Mortgage
Loan, and (5) if the Lien securing such Mortgage Loan is a second priority Lien,
one Lien securing indebtedness which is prior to the Lien securing the Mortgage
Loan.
(k) If said Mortgage Loan has been withdrawn from the possession of
the Lender and:
(1) If said Mortgage Loan was withdrawn by either Company for
purposes of correcting clerical or other non-substantive documentation
problems pursuant to a trust receipt, as permitted under Paragraph 6 of the
Security Agreement, the Unit Collateral Value of said Mortgage Loan when
added to the Unit Collateral Value of other Mortgage Loans included in the
calculation of the Collateral Value of the Borrowing Base the promissory
notes for which have been similarly withdrawn by either Company does not
exceed one percent (1%) of the Credit Limit, and the promissory note and
other documents relating to said Mortgage Loan are returned to the Lender
within fifteen (15) Business Days from the date of withdrawal;
(2) If said Mortgage Loan was shipped by the Lender directly to
a permanent investor for purchase, the full purchase price therefor has
been received by the Lender (or said Mortgage Loan has been returned to the
Lender) within forty-five (45) days from the date of shipment by the
Lender; and
(3) If said Mortgage Loan was shipped by the Lender directly to
a custodian for purposes of formation of a pool supporting a Mortgage-
Backed Security, the Mortgage-Backed Security is issued, sold and the
purchase price therefor has been received by the Lender (or said Mortgage
Loan has been returned to the Lender) within
29
forty-five (45) days from the date of shipment by the Lender.
(l) (i) In the case of a Mortgage Loan which is considered to be A
Paper and which was not acquired as part of a Bulk Acquisition, the date of the
underlying promissory note is no earlier than three hundred and sixty-five (365)
days prior to the date said Mortgage Loan is first included in the Borrowing
Base; and (ii) in the case of a Mortgage Loan which is considered to be Non-A
Paper and which was not acquired as part of a Bulk Acquisition, the date of the
underlying promissory note is no earlier than one hundred and eighty (180) days
prior to the date said Mortgage Loan is first included in the Borrowing Base
(provided, that a Mortgage Loan acquired as part of a Bulk Acquisition may have
an underlying promissory note of any date).
(m) If said Mortgage Loan is FHA insured or VA guaranteed, such
insurance or guaranty (or a binding commitment to issue such insurance or
guaranty) is in full force and effect.
(n) The improvements on the Property consist of a completed one-to-
four unit single family residence, including but not limited to a condominium,
planned unit development or townhouse but excluding in any event a co-op.
(o) There has been delivered to the Lender the Required Documents for
said Mortgage Loan; provided, however, that the Required Documents for said
Mortgage Loan may be delivered to the Lender within ten (10) Business Days of
the inclusion of said Mortgage Loan in the Borrowing Base so long as the Unit
Collateral Value of said Mortgage Loan for which the Required Documents are
delivered within ten (10) Business Days after its inclusion in the Borrowing
Base, when added to the Unit Collateral Value of all other such Mortgage Loans
for which the Required Documents are delivered within ten (10) Business Days
after its inclusion in the Borrowing Base, does not exceed thirty percent (30%)
of the Credit Limit during the first five (5) Business Days and the last five
(5) Business Days of each month, and (ii) twenty percent (20%) of the Credit
Limit at all other times.
(p) Said Mortgage Loan has not been included in the Borrowing Base
for more than one hundred and eighty (180) days; provided, however that a
Mortgage Loan which is included in the Borrowing Base for more than one hundred
and eighty (180) days may be an Eligible Mortgage Loan so long as (i) (A) Said
Eligible Mortgage Loan is an Eligible Delinquent Mortgage Loan and (B) (1)
during the period beginning October 1, 1997 through and including December 29,
1997, said Mortgage Loan is not included in the Borrowing Base for more than 360
days from the date of the underlying promissory note related thereto, or (2) at
all times thereafter, said Mortgage Loan is not included in the Borrowing Base
for more than 360 days, or (ii) (A) said Mortgage Loan is not included in the
Borrowing Base for more than three hundred and sixty (360) days, and (B) said
Mortgage Loan, when added to the Unit Collateral Values of all other Mortgage
Loans which are included in the Borrowing Base for more than one hundred and
eighty (180) days subject to this section (B) of this proviso of this subsection
(p), does not exceed twenty percent (20%) of the Credit Limit.
(q) Said Mortgage Loan has not previously been included in the
Borrowing
30
Base, then shipped to an investor or certifying custodian and returned, for
whatever reason, to the Lender.
(r) The applicable Company obtained such appraisal in connection with
the origination of said Mortgage Loan as would satisfy all appraisal
requirements for said Mortgage Loan if such had been originated by a federally
insured depositary institution.
(s) During the period beginning October 1, 1997 through and including
December 29, 1997, with respect to any Eligible Delinquent Mortgage Loan on any
date of determination of initial or continued eligibility, the underlying
promissory note related thereto is not dated more than three hundred sixty (360)
days prior to such date.
"Equity Issuance" shall mean that certain initial issuance by NovaStar
Financial of convertible preferred stock which occurred on December 9, 1996.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
the same may from time to time be supplemented or amended.
"ERISA Affiliate" shall mean, with respect to any Person, any trade or
business (whether or not incorporated) that is a member of the group of which
such Person is a member and which is treated as a single employer under Section
414 of the Internal Revenue Code of 1986, as amended, and the rules and
regulations thereunder in effect from time to time.
"Eurodollar Business Day" shall mean a Business Day upon which commercial
banks in London, England are open for domestic and international business.
"Eurodollar Loans" shall mean Loans hereunder at such time as they are
bearing interest at the Applicable LIBOR-Based Rate.
"Event of Default" shall have the meaning set forth in Paragraph 8 above.
"FHA" shall mean the Federal Housing Administration and any successor
agency.
"Fair Market Value" shall mean, with respect to any Mortgage Loan, the
market value of such Mortgage Loan as determined by Lender in its sole
discretion from time to time but no less frequently than monthly.
"Fed Funds Loans" shall mean Loans hereunder at such time as they are
bearing interest at the Applicable Fed Funds-Based Rate or at the Buy-Down Rate.
"Fed Funds Rate" shall mean, for any day, a fluctuating interest rate per
annum equal to the weekly weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers for each seven-day period ending on Wednesday of each week
which includes such day, as published in Statistical Release H.15 by the Federal
Reserve System, or, if such rate is not so published for any week, the
31
average of the quotations for such day on such transactions received by Lender
from three Federal funds brokers of recognized standing selected by Lender.
"Funding Account" shall mean, collectively, Accounts No. 20000010969300 and
No. 2000000850203 maintained in Lender's name alone with the Lender at the
Contact Office.
"GAAP" shall mean generally accepted accounting principles in the United
States of America in effect from time to time.
"Governmental Authority" shall mean any nation or governments any state or
other political subdivision thereof, or any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Guaranty" shall have the meaning given such term in Paragraph 3(b) above,
as such instrument may be amended, extended or replaced from time to time.
"Guarantor" shall mean NFI Holding.
"Hedging Report" shall mean a report prepared by the Companies in the form
of that attached hereto as Exhibit M.
"Indebtedness" of any Person shall mean all items of indebtedness which, in
accordance with GAAP and practices thereof, would be included in determining
liabilities as shown on the liability side of a statement of condition of such
Person as of the date as of which indebtedness is to be determined, including:
without limitation, all obligations for money borrowed and Capitalized Lease
Obligations, all amounts for which such Person may be obligated under gestation
or other repurchase facilities, and shall also include all indebtedness and
liabilities of others assumed or guaranteed by such Person or in respect of
which such Person is secondarily or contingently liable (other than by
endorsement of instruments in the course of collection) whether by reason of any
agreement to acquire such indebtedness or to supply or advance sums or
otherwise.
"Interim Date" shall mean June 30, 1997.
"Interest Period" shall mean with respect to any Loan which is a Eurodollar
Loan, the period commencing on the date advanced and ending one month, two
months or three months thereafter, as designated in the related Loan Request;
provided, however, that (a) any Interest Period which would otherwise end on a
day which is not a Eurodollar Business Day shall be extended to the next
succeeding Eurodollar Business Day unless by such extension it would fall in
another calendar month, in which case such Interest Period shall end on the
immediately preceding Eurodollar Business Day; (b) any Interest Period
applicable to a Eurodollar Loan which begins on a day for which there is no
numerically corresponding day in the calendar month during which such Interest
Period is to end shall, subject to the provisions of clause (a) hereof, end on
the last day of such calendar month; and (c) no such Interest Period shall
extend beyond the Maturity Date.
32
"Lender" shall have the meaning given such term in the introductory
paragraph hereof.
"LIBOR Rate" shall mean, with respect to any Eurodollar Loan for the
Interest Period applicable to such Eurodollar Loan, the arithmetic average of
the rates at which deposits in immediately available U.S. dollars in an amount
equal to the aggregate amount of Eurodollar Loans proposed to be subject to such
rates having a maturity approximately equal to such Interest Period are offered
to or by reference banks in the London interbank market, as determined by the
Lender in accordance with its standard practices at approximately 11:00 a.m.
(London time) two Eurodollar Business Days prior to the first day of such
Interest Period.
"LIBOR Reserve Percentage" shall mean for any day, that percentage
expressed as a decimal, which is in effect on such day, as specified by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum aggregate reserve requirement (including all basis,
supplemental, marginal and other reserves) which is imposed on eurocurrency
liabilities.
"Lien" shall mean any security interest, mortgage, pledge, lien, claim on
property, charge or encumbrance (including any conditional sale or other title
retention agreement), any lease in the nature thereof, and the filing of or
agreement to give any financing statement under the Uniform Commercial Code of
any jurisdiction.
"Loan" shall have the meaning given such term in Paragraph 1(a) above.
"Loan Request" shall mean a request for a Loan conveyed to the Lender from
a duly authorized officer of the Companies, with such request to be confirmed in
writing upon the request of the Lender.
"Maturity Date" shall mean the earlier of: (a) February 19, 1998, as such
date may be extended from time to time in writing by the Lender, in its sole
discretion, and (b) the date the Lender terminates its obligation to make
further Loans pursuant to the provisions hereof.
"Mortgage-Backed Security" shall mean (a) any security (including, without
limitation, a participation certificate) that represents an interest in a pool
of mortgages, deeds of trusts or other instruments creating a Lien on Property
which is improved by a completed single family residence, including but not
limited to a condominium, planned unit development or townhouse.
"Mortgage Loan" shall mean a residential real estate secured loan,
including, without limitation: (a) a promissory note, any reformation thereof
and related deed of trust (or mortgage) and security agreement; (b) all
guaranties and insurance policies, including, without limitation, all mortgage
and title insurance policies and all fire and extended coverage insurance
policies and rights of the applicable Company to return premiums or payments
with respect thereto; and (c) all right, title and interest of the applicable
Company in the Property covered by said deed of trust (or mortgage).
33
"Multi-Employer Plan" shall mean, as to either Company or any of its ERISA
Affiliates, a Plan of such Person which is a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"NFI Holding" shall mean NFI Holding Corporation, a Delaware corporation.
"Non-A Paper" shall have the meaning set forth on Exhibit L attached
hereto.
"Note" shall mean have the meaning given such term in Paragraph 2(c)
hereof.
"NovaStar Financial" shall mean NovaStar Financial, Inc., a Maryland
corporation.
"NovaStar Mortgage" shall mean NovaStar Mortgage, Inc., a Virginia
corporation.
"Obligations" shall mean any and all debts, obligations and liabilities of
the Companies or either of them to the Lender (whether now existing or hereafter
arising, voluntary or involuntary, whether or not jointly owed with others,
direct or indirect, absolute or contingent, liquidated or unliquidated, and
whether or not from time to time decreased or extinguished and later increased,
created or incurred), arising out of or related to the Credit Documents.
"Obligor" shall mean the Person or Persons obligated to pay the
Indebtedness which is the subject of a Mortgage Loan.
"Participant" shall have the meaning given such term in Paragraph 9(h)
above.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA and any successor thereto.
"Permitted Other Debt" shall mean that Indebtedness described as "Permitted
Other Debt" on Exhibit I attached hereto.
"Permitted Secured Debt" shall mean that Indebtedness which is the subject
of a Lien and described as "Permitted Secured Debt" on Exhibit I attached
hereto.
"Person" shall mean any corporation, natural person, firm, joint venture,
partnerships, trust, unincorporated organization or Governmental Authority.
"Plan" shall mean, as either Company or any of its ERISA Affiliates, any
pension plan that is covered by Title IV of ERISA and in respect of which such
Person or a Commonly Controlled Entity of such Person is an "employer" as
defined in Section 3(5) of ERISA.
"Potential Default" shall mean an event which but for the lapse of time or
the giving of notice, or both, would constitute an Event of Default.
"Proceeds" shall mean whatever is receivable or received when Collateral or
proceeds are sold, collected, exchanged or otherwise disposed of, whether such
disposition is voluntary or
34
involuntary, and includes, without limitation, all rights to payment, including
return premiums, with respect to any insurance relating thereto.
"Property" shall mean the real property, including the improvements
thereon, and the personal property (tangible and intangible) which are
encumbered pursuant to a Mortgage Loan.
"Reportable Event" shall mean a reportable event as defined in Title IV of
ERISA, except actions of general applicability by the Secretary of Labor under
Section 110 of ERISA.
"Required Documents" shall mean for any Mortgage Loan those items described
on Exhibit J attached hereto.
"Required Equity" shall mean, with respect to NovaStar Financial together
with Guarantor (and its consolidated Subsidiaries), the sum of the dollar
amounts calculated after multiplying the amount determined by combining the
relevant figures for NovaStar Financial and for Guarantor and its consolidated
Subsidiaries, as more specifically shown in the example Covenant Compliance
Certificate attached as Exhibit H hereto, for each asset class set forth in the
table below (or if such asset class is owned by NovaStar Financial or a
consolidated Subsidiary but cannot be determined by combining the relevant
figures for NovaStar Financial and for Guarantor and its consolidated
Subsidiaries as more specifically shown in the example Covenant Compliance
Certificate attached as Exhibit H hereto, the fair market value thereof as
calculated by the Companies subject, however, to the approval of the Lender
which will not be unreasonably withheld) by the percentage amounts set forth
opposite such asset class in the table below:
Percentage
Asset Class Multiplier
----------- ----------
Cash 0%
Property, Plant and Equipment 50%
Intangible Assets 100%
AAA-Rated Agency Issued Conventional ARM Mortgage-Backed Securities 4.75%
AAA-Rated Agency Issued GNMA ARM Mortgage-Backed Securities 5.25%
AAA-Rated Agency Issued Conventional 30 Year Current Coupon 6.00%
Mortgage-Backed Securities
AAA-Rated Agency Issued Conventional 30 Year Discount Mortgage-Backed 6.50%
Securities
AAA-Rated Agency Issued Conventional 30 Year Premium Mortgage-Backed 4.50%
Securities
35
Percentage
Asset Class Multiplier
----------- ----------
AAA-Rated Agency Issued Conventional 15 Year Current Coupon 5.50%
Mortgage-Backed Securities
AAA-Rated Agency Issued Conventional Fixed Balloon Mortgage-Backed 5.00%
Securities
AAA-Rated Private Label Short Term Mortgage-Backed Securities 6.20%
AAA-Rated Private Label Medium Term Mortgage-Backed Securities 7.60%
AAA-Rated Private Label Long Term Mortgage-Backed Securities 9.20%
AA-Rated Private Label Short Term Mortgage-Backed Securities 6.40%
AA-Rated Private Label Medium Term Mortgage-Backed Securities 8.00%
AA-Rated Private Label Long Term Mortgage-Backed Securities 9.80%
A-Rated Mortgage-Backed Securities 25%
BBB-Rated Mortgage-Backed Securities 25%
BB-Rated Mortgage-Backed Securities 50%
B-Rated Mortgage-Backed Securities 50%
Non-Rated Mortgage-Backed Securities 50%
Agency Issued "Principal Only" Mortgage-Backed Securities 25%
Agency Issued "Interest Only" Mortgage-Backed Securities 25%
Excess Cash Flows 50%
Warehouse Mortgage Loans 4%
Servicing Agreements 45%
Hedging Agreements 100%
Other Receivables 35%
"Requirements of Law" shall mean, as to any Person, the Articles or
Certificate of Incorporation and Bylaws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation, or a final
and binding determination of an arbitrator or a determination of a court or
other Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.
"Security Agreement" shall have the meaning given such term in Paragraph
3(a) above, as the same may be amended, extended or replaced from time to time.
36
"Settlement Account" shall mean Account No. 2000001097010 maintained in the
name of the Lender at the Contact Office.
"Shareholders Equity" shall mean the combined net worth of NovaStar
Financial and Guarantor (and its consolidated Subsidiaries) as determined in
accordance with GAAP (or with such non-GAAP principles as may be disclosed to
and approved by Lender from time to time) by combining the relevant figures for
NovaStar Financial and for Guarantor and its consolidated Subsidiaries, as more
specifically shown on the example Covenant Compliance Certificate attached as
Exhibit H hereto.
"Single Employer Plan" shall mean, as to either Company or any of its ERISA
Affiliates, any Plan of such Person which is not a Multiemployer Plan.
"Subsidiary" shall mean any corporation, partnership or joint venture more
than fifty percent (50%) of the stock or other ownership interest of which
having by the terms thereof ordinary voting power to elect the board of
directors, managers or trustees of such corporation, partnership or joint
venture (irrespective of whether or not at the time stock of any other class or
classes of such corporation, partnership or joint venture shall have or might
have voting power by reason of the happening of any contingency) shall, at the
time as of which any determination is being made, be owned, either directly or
through Subsidiaries.
"Take-Out Commitment" with respect to any Mortgage Loan shall mean a bona
fide current, unused and unexpired whole loan commitment or forward sale
Mortgage Backed Security commitment issued in favor of and held by the
applicable Company made by an Approved Investor, under which said Approved
Investor agrees, prior to the expiration thereof, upon the satisfaction of
certain terms and conditions therein, to purchase such Mortgage Loan or related
Mortgage Backed Security at a Take-Out Price, which commitment is not subject to
any term or condition which is not customary in commitments of like nature or
which, in the reasonably anticipated course of events, cannot be fully complied
with prior to the expiration thereof.
"Take-Out Price" with respect to any Mortgage Loan shall mean the specified
price to be paid for such Mortgage Loan under the applicable Take-Out Commitment
covering said Mortgage Loan.
"Total Liabilities" shall mean total liabilities of NovaStar Financial and
its consolidated Subsidiaries determined in accordance with GAAP (or with such
non-GAAP principles as may be disclosed to and approved by Lender from time to
time).
"Unit Collateral Value" shall mean, with respect to each Eligible Mortgage
Loan contained in the Borrowing Base:
(a) If said Mortgage Loan is an Eligible Delinquent Mortgage Loan, then
(i) during the period beginning October 1, 1997 through and including December
29, 1997, the lesser of: (A) seventy-five percent (75%) of the original
principal balance thereof, and (B) sixty percent (60%)
37
of the appraised value of the underlying Property as shown on the most recent
appraisal thereof delivered to the Lender; and (ii) at all times thereafter,
eighty percent (80%) of the lesser of (A) the unpaid principal balance thereof
at the time the Mortgage Loan is included in the Borrowing Base; and (B) the
Fair Market Value thereof.
(b) For all other Mortgage Loans, ninety-eight percent (98%) of the lesser
of (i) the unpaid principal balance thereof at the time the Mortgage Loan is
included in the Borrowing Base; and (2) the Fair Market Value thereof.
"VA" shall mean the Veterans Administration and any successor agency.
"Warehouse Related MBS" shall have the meaning given such term in the
Security Agreement.
38
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and sealed as of the day and year first above written.
NOVASTAR MORTGAGE, INC., a
Virginia corporation
By
-----------------------------------
Name
---------------------------------
Title
--------------------------------
NOVASTAR FINANCIAL, INC., a
Maryland corporation
By
-----------------------------------
Name
---------------------------------
Title
--------------------------------
FIRST UNION NATIONAL BANK (formerly known as First
Union National Bank of North Carolina), a national
banking association
By
-----------------------------------
Name
---------------------------------
Title
--------------------------------
39
LIST OF SCHEDULES AND EXHIBITS
------------------------------
Schedule I Schedule of Addresses
Schedule II Approved Investors
Exhibit A Form of Promissory Note
Exhibit B Form of Security Agreement
Exhibit C Form of Guaranty
Exhibit D Form of Legal Opinion of Counsel for the Companies and Guarantor
Exhibit E Litigation Schedule
Exhibit F Schedule of Additional Required Documents
Exhibit G Form of Borrowing Base Schedule
Exhibit H Form of Covenant Compliance Certificate
Exhibit I Schedule of Permitted Other Debt (Including Permitted Secured Debt)
Exhibit J Schedule of Required Documents
Exhibit K Form of Wet Funding Mortgage Loan Transmittal Form
Exhibit L Definitions of "A Paper" and "Non-A Paper"
Exhibit M Form of Hedging Report
40
