EXHIBIT 10.1
Execution Copy
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MORTGAGE LOAN PURCHASE AGREEMENT
Between
HEADLANDS MORTGAGE COMPANY,
as Seller
and
HEADLANDS MORTGAGE SECURITIES INC.,
as Purchaser
Dated as of March 13, 1998
Table of Contents
Page
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ARTICLE I Definitions........................................ 1
ARTICLE II Procedures for Purchases of Mortgage Loans;
Conditions Precedent;
Settlements........................................ 7
Section 2.01. Purchase and Sale.................................. 7
Section 2.02. Delivery of Documents; Purchase of Initial
Mortgage Loans..................................... 7
Section 2.03. Delivery of Documents; Purchases of Subsequent
Mortgage Loans..................................... 8
Section 2.04. Purchase Requests.................................. 8
Section 2.05. Survival of Representations........................ 9
Section 2.06. Proceeds of Mortgage Loans......................... 9
Section 2.07. Defective Mortgage Loans........................... 9
ARTICLE III Intent of Parties; Security Interest............... 9
Section 3.01. Intent of Parties; Security Interest............... 9
ARTICLE IV Representations and Warranties..................... 10
Section 4.01. Representations and Warranties of Seller........... 10
Section 4.02. Representations and Warranties Regarding Mortgage
Loans.............................................. 11
Section 4.03. Representations and Warranties of Purchaser........ 15
Section 4.04. Remedies for Breach of Representations and
Warranties; Repurchase
Obligation......................................... 16
ARTICLE V Covenants and Warranties of Seller................. 17
Section 5.01. Affirmative Covenants.............................. 17
Section 5.02. Negative Covenants................................. 19
ARTICLE VI Sale of Mortgage Loans from the Purchaser to the
Trust.............................................. 20
Section 6.01. Sale and Servicing Agreement....................... 20
ARTICLE VII Seller's Servicing Obligations..................... 21
Section 7.01. Seller's Servicing Obligations..................... 21
ARTICLE VIII Fees and other Costs............................... 21
Section 8.01. Fees and Expenses.................................. 21
ARTICLE IX Termination; Additional Remedies.................. 22
Section 9.01. Termination of Commitment to Purchase.............. 22
Section 9.02. Additional Remedies................................ 22
ARTICLE X Payment of Purchase Price.......................... 22
Section 10.01. Purchase Price Payments............................ 22
Section 10.02. The Purchaser Note................................. 22
ARTICLE XI Confidentiality.................................... 23
ARTICLE XII Term............................................... 24
ARTICLE XIII Exclusive Benefit of Parties; Assignment........... 24
ARTICLE XIV Amendment; Waivers................................. 24
ARTICLE XV Execution in Counterparts.......................... 24
ARTICLE XVI Effect of Invalidity of Provisions................. 25
ARTICLE XVII Governing Law...................................... 25
ARTICLE XVIII Notices............................................ 25
ARTICLE XIX Entire Agreement................................... 25
ARTICLE XX Indemnities........................................ 25
ARTICLE XXI RESPA Obligations.................................. 27
ARTICLE XXII Survival........................................... 27
ARTICLE XXIII Right of Set-off................................... 27
ARTICLE XXIV Consent to Service................................. 27
ARTICLE XXV Submission to Jurisdiction; Waiver of Trial by
Jury............................................... 28
ARTICLE XXVI Construction....................................... 28
ARTICLE XXVII Further Agreements................................. 28
EXHIBIT A
EXHIBIT B
ii
MORTGAGE LOAN PURCHASE AGREEMENT ("Agreement") dated as of March 13,
1998 between Headlands Mortgage Company, a California corporation ("Seller"),
and Headlands Mortgage Securities Inc., a Delaware corporation ("Purchaser").
WHEREAS, Seller desires to sell from time to time to Purchaser the
Initial Mortgage Loans and Subsequent Mortgage Loans (each as hereinafter
defined), and Purchaser desires to purchase such Initial Mortgage Loans and
Subsequent Mortgage Loans, each in accordance with the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, the parties, in consideration of good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, and
intending to be legally bound, hereby agree as follows:
ARTICLE I
Definitions.
Capitalized terms not defined herein shall have the meanings set forth
in the Sale and Servicing Agreement. As used in this Agreement, the following
terms shall have the following meanings:
"Additional Balance": As to any HELOC and day, the aggregate amount
of all Draws conveyed to the Trust pursuant to Section 2.01 of the Sale and
Servicing Agreement.
"Asset Balance": As to any Mortgage Loan, other than a Liquidated
Mortgage Loan, and day, the related Cut-Off Date Asset Balance, plus, any
Additional Balance in respect of such Mortgage Loan minus (ii) all collections
credited as principal against the Asset Balance of any such Mortgage Loan in
accordance with the related Loan Agreement. For purposes of this definition, a
Liquidated Mortgage Loan shall be deemed to have an Asset Balance equal to the
Asset Balance of the related Mortgage Loan immediately prior to the final
recovery of related Liquidation Proceeds and an Asset Balance of zero
thereafter.
"Assignment of Mortgage": With respect to any Mortgage, an
assignment, notice of transfer or equivalent instrument, in recordable form,
sufficient under the laws of the jurisdiction in which the related Mortgaged
Property is located to reflect the sale of the Mortgage to the Trust, which
assignment, notice of transfer or equivalent instrument may be in the form of
one or more blanket assignments covering the Mortgage Loan secured by Mortgaged
Properties located in the same jurisdiction.
"Business Day": A day on which banks are open for business in New
York, California or Delaware and on which dealings in United States dollars are
carried on in the London interbank market.
"Class A Note": Any note executed and authenticated by the Indenture
Trustee substantially in the form set forth in Exhibit A to the Indenture.
"Class A Noteholder": The holder of a Class A Note.
"Class S Note": Any note executed and authenticated by the Indenture
Trustee substantially in the form set forth in Exhibit B to the Indenture.
"Class S Noteholder": The holder of a Class S Note.
"Closed End Loan": Each Mortgage Loan originated under a Loan
Agreement providing for a single advance of funds on the date of origination and
no additional advances during the term of such Mortgage Loans.
"Closing Date": March 25, 1998.
"Collateral": As defined in Article III hereof.
"Collection Account": The custodial account or accounts created and
maintained for the benefit of the Noteholders and the Credit Enhancer pursuant
to Section 3.02(b) of the Sale and Servicing Agreement. The Collection Account
shall be an Eligible Account.
"Collection Period": With respect to any Distribution Date and any
Mortgage Loan, the calendar month preceding such Distribution Date.
"Credit Line Agreement": With respect to any Mortgage Loan, all of
the Seller's rights under the related credit line account agreement and
promissory note executed by the related Mortgagor and any amendment or
modification thereof but none of the Seller's obligations thereunder.
"Cut-Off Date": With respect to each Initial Mortgage Loan, the close
of business March 12, 1998 and with respect to each Subsequent Mortgage Loan,
the date on which such Subsequent Mortgage Loan was transferred to the Trust.
"Cut-Off Date Asset Balance": With respect to any Mortgage Loan, the
unpaid principal balance thereof as of the applicable Cut-Off Date.
"Distribution Date": The fifteenth day of each month, or if such day
is not a Business Day, then the next Business Day, beginning in the month
immediately following the month of the initial issuance of the Class A and Class
S Notes.
"Due Date": The twenty-fifth day of the month.
"Draw": An additional borrowing by the Mortgagor subsequent to the
Cut-Off Date in accordance with the related Mortgage Note.
"Event of Termination": As defined in Article IX hereof.
"FHA": The Federal Housing Administration or its successors in
interest.
"FHLMC": The Federal Home Loan Mortgage Corporation or its successors
in interest.
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"FNMA": The Federal National Mortgage Association or its successors
in interest.
"GAAP": means generally accepted accounting principles, consistently
applied.
"HELOC ": The adjustable rate home equity revolving credit line loans
sold by the Seller to the Purchaser pursuant to this Agreement, as set forth on
the initial Mortgage Loan Schedule and all subsequent Mortgage Loan Schedules,
including any Subsequent Mortgage Loans.
"HUD": The United States Department of Housing and Urban Development.
"Indenture": The Indenture dated as of March 1, 1998 between the
Issuer and the Indenture Trustee.
"Indenture Trustee": The First National Bank of Chicago or any
successor Indenture Trustee appointed in accordance with the Indenture that has
accepted such appointment in accordance with the Indenture.
"Initial Mortgage Loan": Each Mortgage Loan transferred and assigned
to the Indenture Trustee on the Closing Date, together with any Eligible
Substitute Mortgage Loans delivered for Defective Mortgage Loans.
"Issuer": Headlands Home Equity Loan Trust 1998-1.
"Liquidated Mortgage Loan": As to any Distribution Date, any Mortgage
Loan in respect of which the Servicer has determined, in accordance with the
servicing procedures specified herein, as of the end of the related Collection
Period, that all Liquidation Proceeds which it expects to recover with respect
to the disposition of such Mortgage Loan or the related REO have been recovered.
"Loan Rate": As defined in the Sale and Servicing Agreement.
"Losses": Any and all out-of-pocket losses, claims, damages,
liabilities or expenses (including reasonable attorneys' fees and disbursements)
directly incurred by any person specified in this Agreement, resulting from
transactions entered into under this Agreement (other than liability for taxes).
Losses must be accounted for and presented for reimbursement documented in
reasonable detail and within a reasonable time.
"Mortgage": The mortgage, deed of trust or other instrument creating
a first or second lien on an estate in fee simple interest in real property
securing a Mortgage Loan.
"Mortgage Loan": Has the meaning given to it in the Sale and Servicing
Agreement. The term "Mortgage Loan" includes the terms "Initial Mortgage Loan"
and "Subsequent Mortgage Loan."
"Mortgage Loan File": With respect to each Mortgage Loan:
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(i) the original Mortgage Note endorsed in blank;
(ii) an original Assignment of Mortgage in blank in recordable form;
(iii) the original recorded Mortgage or, if, in connection with any
Mortgage Loan, the original recorded Mortgage with evidence of recording thereon
cannot be delivered on or prior to the Closing Date (or the relevant Subsequent
Transfer Date with respect to Subsequent Mortgage Loans) because of a delay
caused by the public recording office where such original Mortgage has been
delivered for recordation or because such original Mortgage has been lost, the
Seller shall deliver or cause to be delivered to the Purchaser, a true and
correct copy of such Mortgage, together with (i) in the case of a delay caused
by the public recording office, an Officer's Certificate of the Seller stating
that such original Mortgage has been dispatched to the appropriate public
recording official or (ii) in the case of an original Mortgage that has been
lost, a certificate by the appropriate county recording office where such
Mortgage is recorded;
(iv) if applicable, the original intervening assignments, if any
("Intervening Assignments"), with evidence of recording thereon, showing a
complete chain of title to the Mortgage from the originator to the Indenture
Trustee or, if any such original Intervening Assignment has not been returned
from the applicable recording office or has been lost, a true and correct copy
thereof, together with (i) in the case of a delay caused by the public recording
office, an Officer's Certificate of the Seller stating that such original
Intervening Assignment has been dispatched to the appropriate public recording
official for recordation or (ii) in the case of an original Intervening
Assignment that has been lost, a certificate by the appropriate county recording
office where such Mortgage is recorded;
(v) either a title policy, a title search or guaranty of title
(vi) with respect to the related Mortgaged Property;
(vii) the original of any guaranty executed in connection with the
Mortgage Note;
(viii) the original of each assumption, modification, consolidation or
substitution agreement; if any, relating to the Mortgage Loan; and
(ix) any security agreement, chattel mortgage or equivalent instrument
executed in connection with the Mortgage;
provided, however, that if, as to any Mortgage Loan, (x) an optical image or
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other representation of the related documents specified in clauses (i) through
(viii) above are enforceable in the relevant jurisdictions to the same extent as
the original of such document and (y) such optical image or other representation
does not impair the ability of an owner of such Mortgage Loan to transfer its
interest in such Mortgage Loan, and does not result in a reduction in the then
current rating of the Class A and Class S Notes, such optical image or other
representation may be transferred to the Purchaser in lieu of the physical
documents specified above.
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"Mortgage Loan Schedules": The schedule of Initial Mortgage Loans
attached hereto as Schedule 1, and any additional Mortgage Loan Schedules in
connection with the transfer of any Subsequent Mortgage Loans.
"Mortgage Note": The Credit Line Agreement and related promissory
note to which the related mortgagor agrees to pay the indebtedness evidenced
thereby and secured by the related Mortgage.
"Mortgaged Property": The underlying property, including any real
property and improvements thereon, securing a Mortgage Loan.
"Mortgagor": The obligor or obligors under a Loan Agreement.
"Officer's Certificate": A certificate signed by the President, an
Executive Vice President, a Senior Vice President, a Vice President, an
Assistant Vice President, the Treasurer, Assistant Treasurer, Controller or
Assistant Controller of the Seller or the Purchaser, as the case may be.
"Original Pool Balance": $156,395,696.03.
"Policy": The financial guaranty insurance policy number AB00161BE,
dated as of the Closing Date, issued by Ambac Assurance Corporation to the
Indenture Trustee for the benefit of the Class A and Class S Noteholders.
"PUD": A planned unit development.
"Purchase": Any purchase of Subsequent Mortgage Loans by Purchaser
from Seller pursuant to the terms hereof and of the applicable Purchase Request.
"Purchase Date": With respect to the Subsequent Mortgage Loans, the
Subsequent Transfer Date.
"Purchase Price": With respect to the Asset Balance of the Initial
Mortgage Loans as of the Cut-Off Date (and any Eligible Substitute Mortgage Loan
as of the date delivered) 100%; with respect to the Asset Balances of all
Additional Balances and all Subsequent Mortgage Loans 100%.
"Purchase Request": A request for the purchase of Subsequent Mortgage
Loans in the form of Exhibit A hereto.
"Purchaser Note": As defined in Section 10.02.
"Reference Bank": Three major banks that are engaged in the London
interbank market, as selected by the Purchaser.
"Reference Bank Rate": The arithmetic mean (rounded upwards, if
necessary, to the nearest one sixteenth of a percent) of the offered rates for
United States dollar deposits for one month which are offered by the Reference
Banks as of 11:00 a.m., London time, on the
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second Business Day prior to the date of determination to prime banks in the
London interbank market for a period of one month.
"Related Documents": As defined in Section 2.01 of the Sale and
Servicing Agreement.
"REO": A Mortgaged Property that is acquired by the Trust in
foreclosure or by deed in lieu of foreclosure.
"Repurchase Price": The sum of (a) product of (i) the outstanding
principal balance of the related Mortgage Loan as of such date of repurchase and
(ii) the related Purchase Price, plus (b) any accrued interest as of such date.
"Sale and Servicing Agreement": The Sale and Servicing Agreement
dated as of March 13, 1998 among the Seller, the Purchaser, the Issuer and the
Indenture Trustee.
"SEC": The Securities and Exchange Commission and any successor
thereto.
"Servicer": Headlands Mortgage Company, a California corporation, any
successor thereto and, after its termination as Servicer, any successor
hereunder.
"Shareholder's Equity": The aggregate "assets" of Seller less the
aggregate "liabilities" of Seller, with the term "asset" having the meaning
ascribed to such term by GAAP and the term "liabilities" being those obligations
or liabilities of the Seller which, in accordance with GAAP, would be included
on the liability side of the Seller's balance sheet.
"Sponsor": Headlands Mortgage Securities Inc.
"Subsequent Mortgage Loans": Mortgage Loans sold by the Seller to the
Purchaser on any Subsequent Transfer Date.
"Subsequent Transfer Date": Any date on which the Seller transfers to
the Purchaser Subsequent Mortgage Loans in accordance with the Sale and
Servicing Agreement.
"Termination Date": The date of termination of the Trust in
accordance with the Trust Agreement.
"Trust": The trust created by the Trust Agreement, the corpus of
which consists of the Mortgage Loans, such other assets as shall from time to
time be identified as deposited in a Collection Account in accordance with the
Sale and Servicing Agreement (and with respect to the interest payments on the
Initial Mortgage Loans, an amount equal to interest at the Class A Note Rate,
interest at the Class S Note Rate, fee paid to the Servicer, the Indenture
Trustee fee, the Owner Trustee's fee and the Premium Fee for a period of 21
days), property that secured a Mortgage Loan and that has become REO, the rights
of the Sponsor in certain hazard insurance policies maintained by the Mortgagors
or the Servicer in respect of the Mortgage Loans, the Policy, an assignment of
certain rights of the Sponsor under this Agreement, such assets as may be
deposited from time to time in a funding account, rights to certain amounts in a
spread account and a deferred interest account and all proceeds of each of the
foregoing (exclusive of
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payments of accrued interest on the Mortgage Loans which are due on or prior to
the Cut-Off Date).
"Trust Agreement": The Trust Agreement dated as of March 13, 1998
between the Sponsor and Wilmington Trust Company, as Owner Trustee.
ARTICLE II
Procedures for Purchases of Mortgage Loans; Conditions Precedent; Settlements.
Section 2.01. Purchase and Sale. (a) On the Closing Date in
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consideration for the Purchase Price the Seller hereby sells, transfers,
assigns, sets over and otherwise conveys to the Purchaser, without recourse, all
of its right, title and interest in and to (i) each Initial Mortgage Loan,
including its Asset Balance and all collections in respect thereof received on
or after the Cut-Off Date (excluding payments in respect of accrued interest due
prior to the Cut-Off Date and with respect to interest payments on the Initial
Mortgage Loans, interest at the Class A Note Rate, interest at the Class S Note
Rate, fee paid to the Servicer, the Indenture Trustee fee, the Owner Trustee's
fee and the Premium Fee for a period in excess of 21 days); (ii) property that
secured an Initial Mortgage Loan that is acquired by foreclosure or deed in lieu
of foreclosure; (iii) the Seller's rights under the hazard insurance policies
and (iv) all proceeds with respect to the foregoing. From time to time, with
respect to any Subsequent Mortgage Loan pursuant to the terms of this Agreement,
Seller shall, on the related Subsequent Transfer Date transfer, assign, set over
and otherwise convey to the Purchaser without recourse all of its right, title
and interest in and to the Asset Balances of the Subsequent Mortgage Loan and
all collections in respect thereof received after the Cut-Off Date for the
Subsequent Mortgage Loan with respect to any Additional Balances with respect
thereto, on or after the date of transfer to the Trust.
(b) Each such purchase with respect to the Subsequent Mortgage Loans,
shall be initiated by Seller pursuant to the delivery to Purchaser of a Purchase
Request in the manner set forth in Section 2.04.
Section 2.02. Delivery of Documents; Purchase of Initial Mortgage
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Loans. Prior to the purchase of Initial Mortgage Loans:
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(a) Seller shall have delivered to the Purchaser or any agent
appointed by the Purchaser the Mortgage Loan File for each of the Mortgage
Loans.
(b) Purchaser shall have received a Mortgage Loan Schedule pertaining
to the related Mortgage Loans.
(c) Purchaser shall have received copies of the resolutions of the
Board of Directors of Seller, certified by its respective Secretary, approving
this Agreement.
(d) Purchaser shall have received the Articles of Incorporation of
Seller certified by the Secretary of State of the State of California.
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(e) Purchaser shall have received a certificate of the Secretary or
Assistant Secretary of Seller certifying (i) the names and signatures of the
officers authorized on its behalf to execute this Agreement, and any other
documents to be delivered by it hereunder and (ii) a copy of Seller's By-laws.
(f) Purchaser shall have received an opinion of counsel to Seller as
to the due authorization, execution and delivery by the Seller of this Agreement
and as to the validity and enforceability of the transfers contemplated
hereunder and addressing such other matters as the Purchaser may reasonably
request.
(g) Seller shall have instructed the applicable debtor, trustee,
paying agent, authenticating agent, transfer agent, registrar, predecessor in
interest, owner (if the Mortgage Loans are in the form of a security agreement),
or servicer, if any, in respect of the related Mortgage Loans to reflect on
their books and records the transfer of such Mortgage Loans to Purchaser, as
owner or secured party (if the Mortgage Loans are in the form of a security
agreement).
(h) Purchaser shall have received the most recent available standard
servicing or lien reports in summary form, if any, with respect to all of the
mortgages in Seller's portfolio similar to the Mortgage Loans.
(i) The Purchaser shall be permitted to perform its standard loan
review of each Mortgage Loan to be purchased.
(j) UCC-1 financing statements duly executed by Seller as debtor shall
have been filed in California naming the Purchaser as secured party and the
Indenture Trustee on behalf of the Trust as assignee.
Section 2.03. Delivery of Documents; Purchases of Subsequent
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Mortgage Loans. Prior to any purchase of Subsequent Mortgage Loans after the
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purchase of Initial Mortgage Loans, the actions, conditions and deliveries
specified in Section 2.02 shall have been taken or made, as the case may be with
respect to the Subsequent Mortgage Loans.
Section 2.04. Purchase Requests. Seller shall deliver to Purchaser a
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Purchase Request at least three Business Days prior to the proposed Purchase
Date for any Purchase (unless otherwise agreed by the parties). Purchaser shall
indicate its acceptance or declination of each Purchase Request by completing
the appropriate section of the Purchase Request and returning the copy thereof
to Seller; provided, however, that Purchaser hereby agrees to accept each
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Purchase Request if all of the conditions to such Purchase provided for in this
Agreement (including, without limitation, Section 2.02 hereof and the conditions
with respect to the purchase of Subsequent Mortgage Loans) have been satisfied.
With respect to all Purchase Requests, if Purchaser does not send a
copy of a completed Purchase Request to Seller within at least three Business
Days prior to the proposed Purchase Date (five Business Days, if the related
Purchase Request was received by Purchaser at least two calendar weeks prior to
the proposed Purchase Date), Purchaser shall be deemed to have accepted such
Purchase Request. Each Purchase Request accepted by Purchaser shall be
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irrevocable and binding on Purchaser and Seller. Seller shall indemnify
Purchaser and hold it harmless against any Losses incurred by Purchaser as a
result of any failure by Seller to timely deliver the Subsequent Mortgage Loans
subject to such Purchase. On the applicable Purchase Date, the Purchaser shall
pay Seller the Purchase Price for the related Subsequent Mortgage Loans against
receipt of the documents required to be delivered by Seller pursuant to Section
2.03.
Section 2.05. Survival of Representations. The terms and conditions
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of the purchase of each Mortgage Loan shall be as set forth in this Agreement.
Seller will be deemed on the Closing Date and on each Purchase Date to have made
to Purchaser the representations and warranties set forth in Article IV hereof
and such representations and warranties of Seller shall be true and correct on
and as of the Closing Date and on and as of such Purchase Date. Each Purchase
Request made by Seller shall be deemed to be a restatement of each of the
covenants of Seller made pursuant to Article V of this Agreement. In addition,
Seller shall reaffirm the representations and warranties contained in Article IV
on the date of disposition of the Mortgage Loans by the Purchaser pursuant to
the Sale and Servicing Agreement.
Section 2.06. Proceeds of Mortgage Loans. The transfer and sale
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hereby of all of the Seller's right, title and interest in and to each Mortgage
Loan shall include all proceeds, products and profits derived therefrom,
including, without limitation, all scheduled payments of principal of and
interest on such Mortgage Loans and other amounts due or payable or to become
due or payable in respect thereof and proceeds thereof, including, without
limitation, all moneys, goods and other tangible or intangible property received
upon the liquidation or sale thereof, except any payments in respect of accrued
interest due prior to the Cut-Off Date and with respect to interest payments on
the Initial Mortgage Loans, an amount equal to interest at the Class A Note
Rate, interest at the Class S Note Rate, the fee paid to the Servicer, the Owner
Trustee's Fee, the Indenture Trustee's Fee and the Premium Fee for 21 days.
Section 2.07. Defective Mortgage Loans. If any Mortgage Loan is
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re-transferred to the Purchaser pursuant to Section 2.03 of the Sale and
Servicing Agreement, the Seller shall, at the Purchaser's option, either (a)
repurchase such Mortgage Loan at the Repurchase Price, or (b) provide an
Eligible Substitute Mortgage Loan if the Seller has any such loans available for
sale at the time, subject to the terms and conditions of the Sale and Servicing
Agreement.
ARTICLE III
Intent of Parties; Security Interest
Section 3.01. Intent of Parties; Security Interest. Purchaser and
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Seller confirm that the transactions contemplated herein are intended as
purchases and sales rather than as loan transactions. In the event, for any
reason, and solely in such event, any transaction hereunder is construed by any
court or regulatory authority as a loan or other purchase and sale of the
related Mortgage Loans, Seller shall be deemed to have hereby pledged to
Purchaser as security for the performance by Seller of all of its obligations
from time to time arising hereunder and under any and all Purchases effected
pursuant thereto, and shall be deemed to have granted to Purchaser a
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security interest in, the related Mortgage Loans and all distributions in
respect thereof, and the proceeds of any and all of the foregoing (collectively,
the "Collateral"). In furtherance of the foregoing, (i) this Agreement shall
constitute a security agreement, (ii) Purchaser shall have all of the rights of
a secured party with respect to the Collateral pursuant to applicable law and
(iii) Seller shall execute all documents, including, but not limited to,
financing statements under the Uniform Commercial Code as in effect in any
applicable jurisdictions, as the Purchaser may reasonably require to effectively
perfect and evidence Purchaser's first priority security interest in the
Collateral. Seller also covenants not to pledge, assign or grant any security
interest to any other party in any Mortgage Loan sold to Purchaser.
ARTICLE IV
Representations and Warranties.
Section 4.01. Representations and Warranties of Seller. The Seller
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represents, warrants and covenants to the Purchaser as of the Closing Date and
with respect to the Subsequent Mortgage Loans as of each related Subsequent
Transfer Date that:
(i) the Seller is duly organized, validly existing and in good
standing under the laws of the State of California and is duly authorized and
qualified to transact any and all business contemplated by this Agreement to be
conducted by the Seller in any state in which a Mortgaged Property is located to
the extent necessary to ensure the enforceability of each Mortgage Loan and the
servicing of the Mortgage Loan in accordance with the terms of this Agreement;
(ii) the Seller has the full corporate power and authority to
service each Mortgage Loan, and to execute, deliver and perform, and to enter
into and consummate the transactions contemplated by this Agreement and the
execution, delivery and performance of this Agreement by the Seller has been
duly authorized by all necessary corporate action on the part of the Seller; and
this Agreement, assuming the due authorization, execution and delivery thereof
by the Purchaser, constitutes a legal, valid and binding obligation of the
Seller, enforceable against the Seller in accordance with its respective terms,
except to the extent that (a) the enforceability thereof may be limited by
federal or state bankruptcy, insolvency, moratorium, receivership and other
similar laws relating to creditors' rights generally and (b) the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to the equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought;
(iii) the execution and delivery of this Agreement by the
Seller, the servicing of the Mortgage Loans by the Seller hereunder, the
consummation by the Seller of the transactions herein contemplated, and the
fulfillment by the Seller of or compliance by the Seller with the terms hereof
will not (A) result in a breach of any term or provision of the charter or by-
laws of the Seller or (B) conflict with, result in a breach, violation or
acceleration of, or result in a default under, the terms of any other material
agreement or instrument to which the Seller is a party or by which it may be
bound, or any statute, order or regulation applicable to the Seller of any
court, regulatory body, administrative agency or governmental body having
jurisdiction over
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the Seller, which breach, violation, default or non-compliance would have a
material adverse effect on (a) the business, operations, financial condition,
properties or assets of the Seller taken as a whole or (b) the ability of the
Seller to perform its obligations under this Agreement; and the Seller is not a
party to, bound by, or in breach or violation of any material indenture or other
material agreement or instrument, or subject to or in violation of any statute,
order or regulation of any court, regulatory body, administrative agency or
governmental body having jurisdiction over it, which materially and adversely
affects or, to the Seller's knowledge, would in the future reasonably be
expected to materially and adversely affect, (x) the ability of the Seller to
perform its obligations under this Agreement or (y) the business, operations,
financial condition, properties or assets of the Seller taken as a whole;
(iv) the Seller is, and currently intends to remain, in good
standing and qualified to do business in each jurisdiction where failure to be
so qualified or licensed would have a material adverse effect on (a) the
business, operations, financial condition, properties or assets of the Seller
taken as a whole or (b) the enforceability of any Mortgage Loan or the servicing
of the Mortgage Loans in accordance with the terms of this Agreement;
(v) there is no litigation pending or, to the Seller's actual
knowledge, overtly threatened against the Seller that would materially and
adversely affect the execution, delivery or enforceability of this Agreement or
the ability of the Seller to service the Mortgage Loans or for the Seller to
perform any of its other obligations hereunder in accordance with the terms
hereof;
(vi) no consent, approval, authorization or order of any court
or governmental agency or body is required for the execution, delivery and
performance by the Seller of, or compliance by the Seller with, this Agreement
or the consummation of the transactions contemplated hereby (except for such
consents, approvals, authorizations, or orders to be obtained in connection with
each Purchase Date with respect to future transactions to be consummated
hereunder), or if any such consent, approval, authorization or order not
relating to a future transaction is required, the Seller has obtained the same;
and
(vii) the Seller has caused to be performed any and all acts
required to preserve the rights and remedies of the Purchaser in any insurance
policies of the Seller or a mortgagee applicable to the Mortgage Loans sold by
the Seller.
Section 4.02. Representations and Warranties Regarding Mortgage Loans.
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(a) With respect to the Mortgage Loans, Seller represents and warrants to
Purchaser as of the Closing Date with respect to each Initial Mortgage Loan and
as of the related Subsequent Transfer Date with respect to each Subsequent
Mortgage Loan as follows:
(i) As of the Closing Date with respect to the Initial
Mortgage Loans and the applicable Transfer Date with respect to any Subsequent
Mortgage Loans and any Eligible Substitute Mortgage Loans and, with respect to
any HELOC, as of the date any Additional Balance is created, the information set
forth in the Mortgage Loan Schedule for such Mortgage Loans is true and correct
in all material respects;
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(ii) The applicable Cut-Off Date Asset Balance has not been
assigned or pledged, and the Sponsor is the sole owner and holder of such Cut-
Off Date Asset Balance free and clear of any and all liens, claims,
encumbrances, participation interests, equities, pledges, charges or security
interests of any nature, and has full right and authority, under all
governmental and regulatory bodies having jurisdiction over the ownership of the
applicable Mortgage Loans, to sell, assign or transfer the same pursuant to this
Agreement;
(iii) As of the Closing Date with respect to the Initial
Mortgage Loans and the applicable Transfer Date with respect to any Subsequent
Mortgage Loans and any Eligible Substitute Mortgage Loans, the related Mortgage
Note and the Mortgage with respect to each Mortgage Loan have not been assigned
or pledged, and the Sponsor is the sole owner and holder of the Mortgage Loan
free and clear of any and all liens, claims, encumbrances, participation
interests, equities, pledges, charges or security interests of any nature, and
has full right and authority, under all governmental and regulatory bodies
having jurisdiction over the ownership of the applicable Mortgage Loans, to sell
and assign the same pursuant to this Agreement;
(iv) As of the Closing Date with respect to the Initial Mortgage
Loans and the applicable Transfer Date with respect to any Subsequent Mortgage
Loans and any Eligible Substitute Mortgage Loans, the related Mortgage is a
valid and subsisting first or second lien, as set forth on the Mortgage Loan
Schedule with respect to each related Mortgaged Property, and as of the
applicable Cut-Off Date the related Mortgaged Property is free and clear of all
encumbrances and liens having priority over the first or second lien, as
applicable, of such Mortgage except for liens for (i) real estate taxes and
special assessments not yet delinquent; (ii) any first mortgage loan secured by
such Mortgaged Property and specified on the Mortgage Loan Schedule; (iii)
covenants, conditions and restrictions, rights of way, easements and other
matters of public record as of the date of recording that are acceptable to
mortgage lending institutions generally; and (iv) 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 such Mortgage;
(v) As of the Closing Date with respect to the Initial
Mortgage Loans and the applicable Transfer Date with respect to any Subsequent
Mortgage Loans and any Eligible Substitute Mortgage Loans, there is no valid
offset, defense or counterclaim of any obligor under any Loan Agreement or
Mortgage;
(vi) To the best knowledge of the Sponsor, as of the Closing
Date with respect to the Initial Mortgage Loans and the applicable Transfer Date
with respect to any Subsequent Mortgage Loans and any Eligible Substitute
Mortgage Loans, there is no delinquent recording or other tax or fee or
assessment lien against any related Mortgaged Property;
(vii) As of the Closing Date with respect to the Initial
Mortgage Loans and the applicable Transfer Date with respect to any Subsequent
Mortgage Loans and any Eligible Substitute Mortgage Loans, there is no
proceeding pending or, to the best knowledge of the Sponsor, threatened for the
total or partial condemnation of the related Mortgaged Property, and such
property is free of material damage;
(viii) To the best knowledge of the Sponsor, as of the Closing
Date with respect to the Initial Mortgage Loans and the applicable Transfer Date
with respect to any Subsequent
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Mortgage Loans and any Eligible Substitute Mortgage Loans, there are no
mechanics' or similar liens or claims which have been filed for work, labor or
material affecting the related Mortgaged Property which are, or may be, liens
prior or equal to the lien of the related Mortgage, except liens which are fully
insured against by the title insurance policy referred to in clause (xiii);
(ix) No Minimum Monthly Payment is more than 89 days delinquent
(measured on a contractual basis);
(x) As of the Closing Date with respect to the Initial
Mortgage Loans and the applicable Transfer Date with respect to any Subsequent
Mortgage Loans and any Eligible Substitute Mortgage Loans, for each Mortgage
Loans, the related Mortgage File contains each of the documents and instruments
specified to be included therein ;
(xi) The related Mortgage Note and the related Mortgage at
origination complied in all material respects with applicable state and federal
laws, including, without limitation, usury, truth-in-lending, real estate
settlement procedures, consumer credit protection, equal credit opportunity or
disclosure laws applicable to the Mortgage Loans;
(xii) On the Closing Date with respect to the Initial Mortgage
Loans and, to the extent not already included in such filing, on the applicable
Transfer Date with respect to any Subsequent Mortgage Loans and any Eligible
Substitute Mortgage Loans, the Sponsor has filed UCC-1 financing statements with
respect to such Mortgage Loans.
(xiii) Either a lender's title insurance policy or binder was
issued on the date of origination of the Mortgage Loans and each such policy is
valid and remains in full force and effect, or a title search or guaranty of
title customary in the relevant jurisdiction was obtained with respect to a
Mortgage Loans as to which no title insurance policy or binder was issued;
(xiv) As of the Closing Date with respect to the Initial
Mortgage Loans and the applicable Transfer Date with respect to any Subsequent
Mortgage Loans and any Eligible Substitute Mortgage Loans, none of the Mortgaged
Properties is a mobile home or a manufactured housing unit;
(xv) As of the Cut-Off Date for the Initial Mortgage Loans no
more than 1.41% of such Mortgage Loans (by Initial Cut-Off Date Pool Balance),
are secured by Mortgaged Properties located in one United States postal zip
code;
(xvi) The Combined Loan-to-Value Ratio for each Mortgage Loan
was not in excess of 100%;
(xvii) No selection procedure reasonably believed by the Sponsor
to be adverse to the interests of the Securityholders or the Credit Enhancer was
utilized in selecting the Mortgage Loans;
(xviii) The Sponsor has not transferred the Mortgage Loans to
the Trust with any intent to hinder, delay or defraud any of its creditors;
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(xix) The Minimum Monthly Payment with respect to any Mortgage
Loan is not less than the interest accrued at the applicable Loan Rate on the
average daily Asset Balance during the interest period relating to the date on
which such Minimum Monthly Payment is due;
(xx) As of the Closing Date with respect to the Initial
Mortgage Loans and the applicable Transfer Date with respect to any Subsequent
Mortgage Loans and any Eligible Substitute Mortgage Loans, each Loan Agreement
and each Mortgage Loans is an enforceable obligation of the related Mortgagor,
except as the enforceability thereof may be limited by the bankruptcy,
insolvency or similar laws affecting creditors' rights generally;
(xxi) As of the Closing Date with respect to the Initial
Mortgage Loans and the applicable Transfer Date with respect to any Subsequent
Mortgage Loans and any Eligible Substitute Mortgage Loans, there has been no
default of any senior mortgage loan related to a Mortgaged Property that has not
been cured by a party other than the Servicer;
(xxii) The definition of "prime rate" in each Credit Line
Agreement relating to a HELOC does not differ materially from the definition in
the form of Credit Line Agreement in Exhibit D;
(xxiii) The weighted average remaining term to maturity of the
Initial Mortgage Loans on a contractual basis as of the Cut-Off Date is
approximately 215.7 months. On each date that the Loan Rates relating to HELOCs
have been adjusted, interest rate adjustments on the HELOCs were made in
compliance with the related Mortgages and Credit Line Agreement and applicable
law. Over the term of each HELOC, the Loan Rate may not exceed the related Loan
Rate Cap, if any. With respect to the Initial HELOCs, the Loan Rate Cap is 18%.
With respect to the Initial Mortgage Loans, the margins range between 0% and 6%
and the weighted average margin is approximately 3.29% as of the related Cut-Off
Date. The Loan Rates on the Initial Mortgage Loans range between 5.75% and
14.99% and the weighted average Loan Rate is approximately 7.2452%;
(xxiv) As of the Closing Date with respect to the Initial
Mortgage Loans and the applicable Transfer Date with respect to any Subsequent
Mortgage Loans and any Eligible Substitute Mortgage Loans, each Mortgaged
Property consists of a single parcel of real property with a one-to-four unit
single family residence erected thereon, or an individual condominium unit,
planned unit development unit or townhouse;
(xxv) No more than 2.31% (by Initial Cut-Off Date Pool Balance)
of the Initial Mortgage Loans are secured by real property improved by
individual condominium units, planned development units, townhouses or two-to-
four family residences erected thereon, and approximately 97.69% (by Initial
Cut-Off Date Pool Balance) of the Initial Mortgage Loans are secured by real
property with a detached one-family residence erected thereon;
(xxvi) The Credit Limits on the Initial HELOCs range between
$8,000 and $400,000 with an average of $47,833.61. As of the applicable Cut-Off
Date, no Initial Mortgage Loans had a principal balance in excess of
approximately $394,517.93 and the average principal balance of the Initial
Mortgage Loans is equal to approximately $37,703.88 and the average Credit Limit
Utilization Rate (weighted by credit line) of the Initial HELOCs is 76.03%;
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(xxvii) 100% of the Initial Mortgage Loans are second liens;
(xxviii) Either (A) this Agreement constitutes a valid transfer
and assignment to the Trust of all right, title and interest of the Sponsor in
and to the Cut-Off Date Asset Balances with respect to the applicable Mortgage
Loans, all monies due or to become due with respect thereto (excluding payments
in respect of accrued interest due prior to the Cut-Off Date and with respect to
interest payments on the Initial Mortgage Loans, an amount equal to the Class A
Note Rate, the Class S Note Rate, the fee paid to the Servicer, the Owner
Trustee's fee, the Indenture Trustee's fee and the Premium Fee for a period of
21 days), and all proceeds of such Cut-Off Date Asset Balances with respect to
the Mortgage Loans and such funds as are from time to time deposited in the
Collection Account (excluding any investment earnings thereon) and all other
property specified in the definition of "Trust" as being part of the corpus of
the Trust conveyed to the Trust, and upon payment for the Additional Balances,
will constitute a valid transfer and assignment to the Indenture Trustee of all
right, title and interest of the Sponsor in and to the Additional Balances, all
monies due or to become due with respect thereto, and all proceeds of such
Additional Balances and all other property specified in the definition of
"Trust" relating to the Additional Balances or (B) this Agreement constitutes a
grant of a security interest (as defined in the UCC as in effect in New York) in
such property to the Indenture Trustee on behalf of the Trust. If this Agreement
constitutes the grant of a security interest to the Trust in such property, and
if the Indenture Trustee obtains and maintains possession of the Mortgage File
for each Mortgage Loans, the Trust shall have a first priority perfected
security interest in such property, subject to the effect of Section 9-306 of
the UCC with respect to collections on the Mortgage Loans that are deposited in
the Collection Account in accordance with the next to last paragraph of Section
3.02(b) of the Sale and Servicing Agreement; and
(xxix) Each Mortgagor as of the Closing Date with respect to
the Initial Mortgage Loans or the Transfer Date with respect to any Subsequent
Mortgage Loans is not insolvent or bankrupt.
(b) Seller represents and warrants to Purchaser that each
Mortgage Loan shall have been originated in conformity with and meets, as of the
Purchase Date, the underwriting standards for the Seller's home equity loans
described in the Prospectus Supplement dated March 20, 1998 with respect to the
Class A and Class S Notes.
(c) Each Mortgage Loan conforms to the representations and
warranties set forth in Section 2.05 of the Sale and Servicing Agreement.
Section 4.03. Representations and Warranties of Purchaser.
-------------------------------------------
Purchaser hereby makes the following representations and warranties, each of
which representations and warranties (i) is material and being relied upon by
Seller and (ii) is true in all respects as of the date of this Agreement:
(i) Purchaser has been duly organized and is validly
existing as a corporation under the laws of the State of Delaware.
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(ii) Purchaser has the requisite power and authority and
legal right to execute and deliver, engage in the transactions contemplated by,
and perform and observe the terms and conditions of, this Agreement to be
performed by it.
(iii) This Agreement has been duly authorized and executed by
Purchaser, is valid, binding and enforceable against Purchaser in accordance
with its terms, and the execution, delivery and performance by Purchaser of this
Agreement does not conflict with any material term or provision of any other
agreement to which Purchaser is a party or any term or provision of the
Certificate of Incorporation or the By-laws of the Purchaser, or any law, rule,
equation, order, judgment, writ, injunction or decree applicable to Purchaser of
any court, regulatory body, administrative agency or governmental body having
jurisdiction over Purchaser.
(iv) No consent, approval, authorization or order of,
registration or filing with, or notice to any governmental authority or court is
required under applicable law in connection with the execution and delivery by
Purchaser of this agreement.
(v) To the best knowledge of Purchaser, there is no action,
proceeding or investigation pending or threatened against Purchaser before any
court, administrative agency or other tribunal (i) asserting the invalidity of
this Agreement, (ii) seeking to prevent the consummation of any of the
transactions contemplated by this Agreement, or (iii) which is likely to
materially and adversely affect the performance by Purchaser of its obligations
under, or the validity or enforceability of, this Agreement.
(vi) Each purchase of Initial Mortgage Loans and, Subsequent
Mortgage Loans hereunder shall constitute a representation by Purchaser to
Seller that Purchaser understands, and that Purchaser has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of, its investment in the relevant Mortgage Loans.
Section 4.04. Remedies for Breach of Representations and
------------------------------------------
Warranties; Repurchase Obligation. It is understood and agreed that the
---------------------------------
representations and warranties set forth in Section 4.01 and 4.02 shall survive
each sale of Mortgage Loans to the Purchaser and shall inure to the benefit of
the Purchaser and subsequent transferees notwithstanding any restrictive or
qualified endorsement on any Mortgage Note or Assignment of Mortgage or the
examination or failure to examine any Mortgage Loan File. With respect to the
representations and warranties contained in Sections 4.01 and 4.02 which are
made to the best of the Seller's knowledge or to the actual knowledge of the
Seller, if it is discovered by either the Seller or the Purchaser that the
substance of such representation and warranty is inaccurate and such inaccuracy
materially and adversely affects the value of the related Mortgage Loan or the
Purchaser's interest therein, then notwithstanding the Seller's lack of
knowledge with respect to the inaccuracy at the time the representation or
warranty was made, the Seller shall repurchase the related Mortgage Loan in
accordance with this Section 4.04 as if the applicable representation or
warranty was breached, subject to the terms and conditions of the Sale and
Servicing Agreement. Upon discovery by either the Seller or the Purchaser of a
breach of any of the foregoing representations and warranties which materially
and adversely affects the value of the Mortgage Loans or the interest of the
Purchaser (or which materially and adversely affects the interests of the
Purchaser in the related Mortgage Loan in the case of a representation and
16
warranty relating to a particular Mortgage Loan), the party discovering such
breach shall give prompt written notice to the others.
Within 60 days of the earlier of either discovery by or notice to the
Seller of any breach of a representation or warranty which materially and
adversely affects the value of any Mortgage Loan or the Purchaser's interest
therein, the Seller shall use its best efforts promptly to cure such breach in
all material respects and, if such breach cannot be cured or is not cured or is
not being diligently pursued as evidenced by a notice acceptable to the
Purchaser, as evidenced by the Purchaser's agreement thereto, at the end of such
60-day period, the Seller shall, at the Purchaser's option, either (a)
repurchase such Mortgage Loan at the Repurchase Price, or (b) provide an
Eligible Substitute Mortgage Loan, if the Seller has any such loans available
for sale at the time subject to the terms and conditions of the Sale and
Servicing Agreement.
At the time of repurchase or substitution, the Purchaser and the
Seller shall arrange for the assignment of such Mortgage Loan to the Seller and
the delivery by the Purchaser to the Seller of the related Mortgage Loan Files.
In addition to such cure and repurchase obligation, the Seller shall
indemnify the Purchaser and hold it harmless against any losses, damages,
penalties, fines, forfeitures, reasonable and necessary legal fees and related
costs, judgments, and other costs and expenses resulting from any claim, demand,
defense or assertion based on or grounded upon, or resulting from, a breach of
the representations and warranties contained in this Article IV (notwithstanding
any limitation in such representation and warranty as to the Seller's
knowledge). It is understood and agreed that the obligations of the Seller set
forth in this Section 4.04 to cure or repurchase a defective Mortgage Loan and
to indemnify the Purchaser as provided in this Section 4.04 constitute the sole
remedies of the Purchaser respecting a breach of the foregoing representations
and warranties.
Any cause of action against the Seller relating to or arising out of
the breach of any representations and warranties made in Sections 4.01 or 4.02
shall accrue as to any Mortgage Loan upon (i) discovery of such breach by the
Purchaser or notice thereof by the Seller to the Purchaser, (ii) failure by the
Seller to cure such breach or repurchase such Mortgage Loan as specified above,
and (iii) demand upon the Seller by the Purchaser for compliance with the
relevant provisions of this Agreement.
ARTICLE V
Covenants and Warranties of Seller.
So long as this Agreement remains in effect or Seller shall have any
obligations hereunder, Seller hereby covenants and agrees with Purchaser as
follows:
Section 5.01. Affirmative Covenants. (a) Until the later to occur of
---------------------
(i) the discharge and payment of all of Seller's obligations under this
Agreement and (ii) the Termination Date of this Agreement, Seller shall,
promptly upon preparation, but in no event later than 60 days following the end
of each such party's first three fiscal quarters, deliver to Purchaser its
unaudited company-prepared financial statements as of the end of each such
fiscal quarter,
17
prepared in accordance with GAAP. Seller shall, promptly upon preparation, but
in no event later than 90 days following the end of such party's fourth fiscal
quarter, deliver to Purchaser its audited and certified financial statements,
prepared in accordance with GAAP, as of the end of the most recently ended
fiscal year, which audits and certifications shall each be prepared by a
nationally recognized independent accounting firm or by a regionally recognized
independent accounting firm with the prior written consent of Purchaser, which
consent shall not be unreasonably withheld. In all cases, financial statements
shall include, without limitation, a balance sheet, a profit and loss statement
and a statement of cash flows. Notwithstanding anything in this Agreement to the
contrary, if (x) the audited and certified financial statements described in the
immediately preceding sentence are not delivered within the above-specified 90
days, (y) Seller is diligently using its best efforts to deliver such financial
statements, and (z) Seller provides Purchaser with a notice specifying the
reason for the delay and a date, within a reasonable time period (as determined
by Purchaser), on which such financial statements will be delivered, and they
are so delivered; then failure to deliver such financial statements within the
above-specified 90 days, as the case may be, shall not be deemed to be an Event
of Termination of this Agreement.
(b) Upon request of Purchaser, Seller shall, to the extent lawful,
promptly upon filing, deliver to Purchaser copies of all material public filings
made by Seller with any governmental or quasi-governmental body.
(c) Seller shall (i) with respect to any Mortgage Loans serviced by
Seller or any of its affiliates or otherwise use its best efforts to cause to be
delivered to Purchaser monthly, the report, if any, prepared by the relevant
trustee or servicer setting forth payment activity, defaults and delinquencies
with respect to each Mortgage Loan acquired by Purchaser and (ii) prepare and
deliver reports each month, detailing, with respect to all Purchases, such
information as the Purchaser may from time to time reasonably request.
(d) Seller shall do all things necessary to remain duly
incorporated, validly existing and in good standing as a domestic corporation in
its jurisdiction of incorporation and maintain all requisite authority to
conduct its business in each jurisdiction in which its business is conducted
except where failure to maintain such authority would not have a material
adverse effect on the ability of Seller to conduct its business or to perform
its obligations under this Agreement.
(e) At all times during this Agreement, Seller shall possess
sufficient net capital and liquid assets (or ability to access the same) to
satisfy its obligations as they become due in the normal course of business.
(f) Seller will notify Purchaser in writing of any of the following
promptly upon learning of the occurrence thereof, describing the same and, if
applicable, any remedial steps being taken with respect thereto;
(i) The occurrence or likelihood of occurrence of an Event of
Termination hereunder;
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(ii) The institution of any litigation, arbitration proceeding or
governmental proceeding which, in the opinion of counsel to Seller, will have a
material adverse effect on Seller or the Mortgage Loans;
(iii) The entry of any judgment or decree against Seller if the
aggregate amount of all judgments and decrees then outstanding against Seller
exceeds $10,000,000 after deducting (A) the amount with respect to which Seller
is insured and with respect to which the insurer has assumed responsibility in
writing, and (B) the amount for which Seller is otherwise indemnified if the
terms of such indemnification are reasonably satisfactory to Purchaser; or
(iv) The occurrence or likelihood of any event which would allow the
obligee under any material loan agreement to which Seller is bound to declare an
event of default or accelerate the obligations of Seller thereunder.
(g) Seller shall permit the Purchaser or its accountants,
attorneys or other agents access to all of the books and records relating to
Mortgage Loans purchased and retained by Purchaser for inspection and copying
during normal business hours at all places where Seller conducts business.
Section 5.02. Negative Covenants. (a) Seller shall not assign or
------------------
attempt to assign this Agreement or any rights hereunder, without first
obtaining the specific written consent of Purchaser.
(b) Seller shall not amend its Articles of Incorporation or By-laws,
which amendment shall have or is likely to have an adverse effect upon Purchaser
or its interests under this Agreement, without the prior written consent of
Purchaser.
(c) During the term of this Agreement, Seller shall not engage in
any business other than as a consumer and mortgage finance lender and servicer,
except with the prior written consent of Purchaser.
(d) Seller shall not (i) dissolve or terminate its existence or (ii)
transfer any assets to any affiliate except as otherwise expressly permitted or
contemplated hereby.
(e) Except with the written consent of the Purchaser, the Seller
shall not guarantee, endorse or otherwise in any way become or be responsible
for any obligations of any other person, entity or affiliate, including, without
limitation, whether directly or indirectly by agreement to purchase the
indebtedness of any other person or through the purchase of goods, supplies or
services, or maintenance of working capital or other balance sheet covenants or
conditions, or by way of stock purchase, capital contribution, advance or loan
for the purposes of paying or discharging any indebtedness or obligation of such
other person or otherwise; provided, however, that nothing contained herein
shall prevent Seller from indemnifying its officers, directors and agents
pursuant to its By-laws and its Articles of Incorporation.
(f) Seller will not commit any act in violation of applicable laws,
or regulations promulgated pursuant thereto that relate to the Mortgage Loans or
that materially and adversely affect the operations or financial conditions of
Seller.
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ARTICLE VI
Sale of Mortgage Loans from the Purchaser to the Trust.
Section 6.01. Sale and Servicing Agreement. It is the intent of the
----------------------------
Seller and the Purchaser that with respect to the Mortgage Loans, the Purchaser
shall concurrently sell all of its right, title and interest to the Mortgage
Loans and all other property conveyed to it hereunder to the Trust pursuant to
the Sale and Servicing Agreement.
With respect to such sale, the Seller agrees:
(i) to cooperate fully with the Purchaser and the Trust with respect
to all reasonable requests and due diligence procedures including participating
in meetings with rating agencies, credit enhancers and such other parties as the
Purchaser shall designate and participating in meetings with the Trust and
providing information reasonably requested by the Trust;
(ii) to execute the Sale and Servicing Agreement and all other
necessary documents to effect the transactions contemplated therein;
(iii) the Seller shall make the representations and warranties set
forth herein regarding the Seller and the Mortgage Loans as of the date of the
transfer to the Trust;
(iv) to deliver to the Purchaser for inclusion in any prospectus or
other offering material such publicly available information regarding the
Seller, its financial condition and the mortgage loan delinquency, foreclosure
and loss experience of its portfolio as is customarily set forth in a prospectus
supplement with respect to a comparable mortgage pool, the underwriting of
mortgage loans, the servicer, the servicing and collection of mortgage loans,
lending activities and loan sales of the servicer, regulatory matters and
delinquency and loss experience and any additional information reasonably
requested by the Purchaser, and to deliver to the Purchaser unaudited
consolidated financial statements of the Seller, in which case the Purchaser
shall bear the cost of having such statements audited by certified public
accountants if the Purchaser desires such an audit, or as is otherwise
reasonably requested by the Purchaser and which the Seller is capable of
providing without unreasonable effort or expense, and to indemnify the Purchaser
and its affiliates for material misstatements or omissions contained in such
information;
(v) to deliver to the Purchaser and to any person designated by the
Purchaser, at the Purchaser's expense, such statements and audit letters issued
by reputable, certified public accountants pertaining to information provided by
the Seller pursuant to clause (iv) above as shall be reasonably requested by the
Purchaser (it being acknowledged by Purchaser that the delivery of such
statements and letters is subject to the consent of such accountants);
(vi) to deliver to the Purchaser, and to any Person designated by the
Purchaser, such legal documents and in-house opinions of counsel as are
customarily delivered by originators or servicers, as the case may be, and
reasonably determined by the Purchaser to be necessary in connection with the
transactions contemplated by the Sale and Servicing
20
Agreement, it being understood that the cost of any opinions of outside special
counsel that may be required shall be the responsibility of the Seller;
(vii) to cooperate fully with the Purchaser and any prospective
Purchaser with respect to the preparation of Mortgage Loan documents and other
documents and with respect to servicing requirements reasonably requested by the
rating agencies and credit enhancers; and
(viii) to negotiate and execute one or more custodial and servicing
agreements among the Purchaser, the Seller and a third party custodian/trustee
which is generally considered to be a prudent custodian/trustee in the secondary
mortgage market designated by the Purchaser in its sole discretion after
consultation with the Seller, in either case for the purpose of securitizing the
Mortgage Loans.
ARTICLE VII
Seller's Servicing Obligations.
Section 7.01. Seller's Servicing Obligations. The Seller, as
------------------------------
independent contract servicer, shall service and administer the Mortgage Loans
in accordance with the terms and provisions set forth in Articles III, IV, V,
VII and VIII of the Sale and Servicing Agreement which sections are hereby
incorporated in this Agreement in their entirety (with, however, the changes and
adjustments as provided in this Agreement) as if the same were contained in this
Article VII.
To the extent any provision of any definition set forth in the Sale and
Servicing Agreement shall conflict with any provision set forth in this
Agreement, the provision or definition in this Agreement shall govern.
ARTICLE VIII
Fees and other Costs.
Section 8.01. Fees and Expenses. The Purchaser shall pay any salaries
-----------------
and other compensation due its employees and the legal fees and expenses of its
attorneys and accountants. All other costs and expenses incurred in connection
with the transfer and delivery of the Mortgage Loans pursuant to this Agreement
or the Sale and Servicing Agreement, including, without limitation, recording
fees, fees for title policy endorsements and continuations, and fees for
recording intervening assignments of Mortgage, shall be paid by the Seller. To
the extent not paid out of the Trust pursuant to Section 8.3(a)(x) of the
Indenture, the Seller shall pay the on-going fees of any custodian or trustee
under the Sale and Servicing Agreement, the Trust Agreement or the Indenture.
The Seller shall pay (i) the acceptance and file review fees of any custodian or
trustee under this Agreement, the Indenture, the Trust Agreement or the Sale and
Servicing Agreement and (ii) the costs of legal counsel and legal opinions,
accounting comfort letters and fees, printing of disclosure documents, rating
agency fees, credit enhancement provider up-front fees, SEC filing fees and the
costs of any and all related document preparations associated with the Sale and
Servicing Agreement, the Trust Agreement, the Indenture or this
21
Agreement unless stated otherwise in the Purchase Request with respect to any
Subsequent Mortgage Loans. The Seller also agrees to pay the fees and other
amounts for which the Seller or Servicer is obligated under the Insurance
Agreement.
ARTICLE IX
Termination; Additional Remedies.
Section 9.01. Termination of Commitment to Purchase. The agreement of
-------------------------------------
the Purchaser to purchase Mortgage Loans from the Seller hereunder, and the
agreement of the Seller to sell Mortgage Loans hereunder, shall terminate
automatically on the first day of the Rapid Amortization Period. All other
provisions hereof shall continue in force and effect until the Termination Date.
Section 9.02. Additional Remedies. Upon the occurrence of a Rapid
-------------------
Amortization Event under the Indenture due to an act or omission of the Seller
(an "Event of Termination"), the Purchaser and its assignees shall have, in
addition to all other rights and remedies under this Agreement or otherwise, all
other rights and remedies provided under the UCC of each applicable jurisdiction
and other applicable laws, which rights shall be cumulative. Without limiting
the foregoing, the occurrence of an Event of Termination shall not deny to the
Purchaser or its assignees any remedy in addition to termination of its
obligations to make purchases hereunder to which the Purchaser or its assignee
may be otherwise appropriately entitled, whether by statute or applicable law,
at law or in equity.
ARTICLE X
Payment of Purchase Price.
Section 10.01. Purchase Price Payments. On the Closing Date, and on
-----------------------
the Business Day following each other day on which any Mortgage Loans are
purchased from the Seller by the Purchaser pursuant to Article II hereof or
Additional Balances relating to Mortgage Loans are funded by the Seller, on the
terms and subject to the conditions of this Agreement, the Purchaser shall pay
to the Seller the applicable Purchase Price by (i) making or causing to be made
a cash payment to the Seller or its designee in such amount determined by the
Purchaser, and (ii) automatically increasing the principal amount outstanding
under the Purchaser Note by the amount of the excess of the Purchase Price to be
paid to the Seller for such purchased assets over the amount of any cash payment
made on such day to the Seller and/or any capital contribution made by the
Seller to the Purchaser, subject to a cap on such note at any time equal to $10
million. Such $10 million cap may be increased upon the occurrence of and in the
amount of any cash capital contributions made by the Seller to the Purchaser.
Section 10.02. The Purchaser Note. (a) On the Closing Date, the
------------------
Purchaser shall deliver to the Seller a promissory note, substantially in the
form of Exhibit B, payable to the order of the Seller (such promissory note,
---------
as the same has been or hereafter may be amended, supplemented, endorsed or
otherwise modified from time to time, together with any promissory
22
note issued from time to time in substitution therefor or renewal thereof in
accordance with this Agreement, being herein called the "Purchaser Note"), which
--------------
Purchaser Note shall, in accordance with its terms, be subordinated to all
interests of the Trust, all claims to the cash flows from Trust assets and all
obligations of the Purchaser, of any nature, now or hereafter arising under or
in connection with the Sale and Servicing Agreement. The Purchaser Note shall
evidence all amounts outstanding thereunder as of the Closing Date in addition
to amounts subsequently incurred thereunder as provided in this Agreement.
Subject to the foregoing, the Purchaser Note shall be payable in full on the
date which is one year and one day after the Termination Date. The Purchaser
Note shall bear interest at the "prime rate" as determined by the Indenture
Trustee from time to time in effect. The Purchaser may prepay all or part of the
outstanding balance of the Purchaser Note and interest accrued thereon from time
to time without any premium or penalty, unless a Rapid Amortization Event has
occurred and is continuing or would result from such prepayment or payment.
(b) The Servicer shall hold the Purchaser Note for the benefit of
the Seller, and shall make all appropriate recordkeeping entries with respect to
the Purchaser Note or otherwise to reflect the payments on and adjustments of
the Purchaser Note. The Servicer's books and records shall constitute rebuttable
presumptive evidence of the principal amount of and accrued interest on the
Purchaser Note at any time. The Seller hereby irrevocably authorizes the
Servicer to xxxx the Purchaser Note "CANCELLED" and to return the Purchaser Note
to the Purchaser upon the full and final payment thereof after the Termination
Date.
(c) The Seller hereby agrees not to transfer, assign, exchange or
otherwise convey or pledge, hypothecate or otherwise grant a security interest
in the Purchaser Note or any interest represented thereby, and any attempt to
transfer, assign, exchange, convey, pledge, hypothecate or grant a security
interest in the Purchaser Note or any interest represented thereby shall be void
and of no effect. Notwithstanding anything to the contrary herein, the Seller
may pledge the Purchaser Note to secure its obligations under the Master
Repurchase Facility between Greenwich Capital Financial Products Inc. and
Headlands Mortgage Company.
ARTICLE XI
Confidentiality.
Purchaser and Seller each acknowledges that the information heretofore
provided to them pursuant to the operation of this Agreement, is highly
confidential, proprietary information of Seller or Purchaser, as the case may
be. Purchaser and Seller each agrees that it will hold such information in
strict confidence and will not disclose any part of such information to any
person or entity, other than to its accountants and lawyers to the extent
necessary for the performance of their duties and as required by law and other
than to such other persons to the extent necessary, as determined by the
Purchaser in its sole discretion, to complete the transactions contemplated
hereunder and in the Sale and Servicing Agreement including the offering and
issuance of the Class A and Class S Notes; provided, however, that copies of
-------- -------
this Agreement may be included as part of any filing made pursuant to the
Securities Act of 1933 and the Securities Exchange Act of 1934 and any
regulations promulgated thereunder. In furtherance of the foregoing, Purchaser
and Seller each covenants that it will adhere to its established procedures for
the maintenance of confidentiality with respect to such information. Purchaser
23
and Seller each further agrees that it will not distribute such information
within its own organization except to persons with a need to know such
information in connection with the transactions contemplated by this Agreement.
ARTICLE XII
Term.
This Agreement shall terminate on the Termination Date.
ARTICLE XIII
Exclusive Benefit of Parties; Assignment.
This Agreement is for the exclusive benefit of the parties hereto and
their respective successors and assigns and shall not be deemed to give any
legal or equitable right to any other person except the Sponsor, the Trust, the
holders of the Class A and Class S Notes and the Credit Enhancer. This
Agreement may not be assigned by any party hereto without the prior written
consent of the other party hereto except to the Trust.
ARTICLE XIV
Amendment; Waivers.
This Agreement may be amended from time to time only by written
agreement of Seller and Purchaser with the prior written consent of the Credit
Enhancer, which consent shall not be unreasonably withheld. Any forbearance,
failure, or delay by a party in exercising any right, power, or remedy hereunder
shall not be deemed to be a waiver thereof, and any single or partial exercise
by a party of any right, power or remedy hereunder shall not preclude the
further exercise thereof. Every right, power and remedy of a party shall
continue in full force and effect until specifically waived by it in writing.
No right, power or remedy shall be exclusive, and each such right, power or
remedy shall be cumulative and in addition to any other right, power or remedy,
whether conferred hereby or hereafter available at law or in equity or by
statute or otherwise.
ARTICLE XV
Execution in Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, and all of which shall constitute one and the
same instrument.
24
ARTICLE XVI
Effect of Invalidity of Provisions.
In case any one or more of the provisions contained in this Agreement
should be or become invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall in no way be affected, prejudiced or disturbed thereby.
ARTICLE XVII
Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without regard to its rules regarding
conflict of laws.
ARTICLE XVIII
Notices.
Any notices, consents, directions, demands and other communications
given under this Agreement (unless otherwise specified herein) shall be in
writing and shall be deemed to have been duly given when personally delivered at
or telecopied to the respective addresses or facsimile numbers, as the case may
be, set forth on the signature page hereof for Seller and Purchaser, or to such
other address or facsimile number as either party shall give notice to the other
party pursuant to this Section. Notices, consents, etc., may also be effected
by first class mail, postage prepaid sent to the foregoing addresses and will be
effective upon receipt by the intended recipient.
ARTICLE XIX
Entire Agreement.
This Agreement, including the Exhibits and Schedules hereto, contains
the entire agreement of the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements between them,
whether oral or written, of any nature whatsoever with respect to the subject
matter hereof.
ARTICLE XX
Indemnities.
Without limiting any other rights which Purchaser or Seller may have
hereunder or under applicable law, and in addition to any other indemnity
provided hereunder, Seller hereby agrees to indemnify Purchaser and its
respective officers, directors, agents and employees
25
(each, an "Indemnified Party") from and against any and all Losses incurred by
any of them relating to or resulting from:
(1) any representation or warranty made by Seller (or any officers,
employees or agents of Seller) under or in connection with this Agreement,
any periodic report required to be furnished thereunder or any other
information or document delivered by Seller pursuant hereto, which shall
have been false or incorrect in any material respect when made or deemed
made;
(2) the failure by Seller to (a) comply with any applicable law,
rule or regulation with respect to any Purchase or (b) perform or observe
any material obligation or covenant hereunder; or
(3) the failure by Seller (if so requested by Purchaser) to execute
and properly file, or any delay in executing and properly filing, financing
statements or other similar instruments or documents under the Uniform
Commercial Code of any applicable jurisdiction or other applicable laws
with respect to the Mortgage Loans.
Promptly after receipt by an Indemnified Party under this Article XX
of notice of the commencement of any action, such Indemnified Party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Article XX, notify the indemnifying party in writing of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability that it may have to any Indemnified Party otherwise than
under this Article XX. In case any such action is brought against any
Indemnified Party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein, and to
the extent that it may elect by written notice delivered to the Indemnified
Party promptly after receiving the aforesaid notice from such Indemnified Party,
to assume the defense thereof, with counsel satisfactory to such Indemnified
Party; provided, however, that if the defendants in any such action include both
-------- -------
the Indemnified Party and the indemnifying party and the Indemnified Party or
parties shall have reasonably concluded that there may be legal defenses
available to it or them and/or other Indemnified Parties that are different from
or additional to those available to the indemnifying party, the Indemnified
Party or parties shall have the right to elect separate counsel to assert such
legal defenses and to otherwise participate in the defense of such action on
behalf of such Indemnified Party or parties. Upon receipt of notice from the
indemnifying party to such Indemnified Party of its election so to assume the
defense of such action and approval by the Indemnified Party of counsel, the
indemnifying party will not be liable for any legal or other expenses
subsequently incurred by such Indemnified Party in connection with the defense
thereof, unless (i) the Indemnified Party shall have employed separate counsel
in connection with the assertion of legal defenses in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel, approved by you in the case of Article XX, representing the
Indemnified Parties under this Article XX, who are parties to such action), (ii)
the indemnifying party shall not have employed counsel satisfactory to the
Indemnified Party to represent the Indemnified Party within a reasonable time
after notice of commencement of the action or (iii) the indemnifying party has
authorized the employment of counsel for the Indemnified Party at the expense of
the indemnifying party; and except that, if clause (i) or (iii) is applicable,
such liability shall only be in respect of the counsel referred to in such
clause (i) or (iii).
26
ARTICLE XXI
RESPA Obligations.
Seller agrees to discharge on Purchaser's behalf all obligations,
including, without limitation, all disclosure obligations, which Purchaser may
have under the Real Estate Settlement Procedures Act of 1974, as amended, in
connection with Purchaser's purchases of Mortgage Loans hereunder. Purchaser
agrees to provide Seller with such information as is reasonably necessary for
Seller to discharge such obligations and hereby appoints Seller as its agent in
its name for the purposes of, and only for the purposes of, performing such
obligations. Seller hereby agrees to indemnify Purchaser and its respective
officers, directors, agents and employees from any losses suffered by any such
party in connection with Seller's obligations under this Article XXI.
ARTICLE XXII
Survival.
All indemnities and undertakings of Seller and Purchaser hereunder
shall survive the termination of this Agreement.
ARTICLE XXIII
Right of Set-off.
Upon the occurrence of any event or circumstance which requires Seller
to make a payment hereunder, Purchaser is hereby authorized then or at any time
or times thereafter, without notice to Seller (any such notice being expressly
waived by Seller), to set-off and apply any and all deposits (general or
special, time or demand, provisional or final), at any time held and other
indebtedness at any time owing by Purchaser to or for the credit or the account
of Seller against any and all of the obligations of Seller now or hereafter
existing hereunder, irrespective of whether or not Purchaser shall have made any
demand hereunder. Purchaser agrees promptly to notify Seller after any such
set-off and application made by Purchaser; provided that the failure to give
such notice shall not affect the validity of such set-off and application. The
rights of Purchaser under this Article XXIII are in addition to other rights and
remedies which Purchaser may have.
ARTICLE XXIV
Consent to Service.
Each party irrevocably consents to the service of process by
registered or certified mail, postage prepaid, to it at its address given
pursuant to Article XVIII hereof.
27
ARTICLE XXV
Submission to Jurisdiction; Waiver of Trial by Jury.
With respect to any claim arising out of this Agreement each party
irrevocably submits to the exclusive jurisdiction of the courts of the State of
New York and the United States District Court located in the Borough of
Manhattan, City of New York, and each party irrevocably waives any objection
which it may have at any time to the laying of venue of any suit, action or
proceeding arising out of or relating hereto brought in any such court,
irrevocably waives any claim that any such suit, action or proceeding brought in
any such court has been brought in any inconvenient forum and further
irrevocably waives the right to object, with respect to such claim, suit, action
or proceeding brought in any such court, that such court does not have
jurisdiction over such party; provided that service of process is made as set
forth in Article XXIV hereof, or by any other lawful means. To the extent
permitted by applicable law, Purchaser and Seller each irrevocably waive all
right of trial by jury in any action, proceeding or counterclaim arising out of
or in connection with this Agreement or any matter arising hereunder.
ARTICLE XXVI
Construction.
The headings in this Agreement are for convenience only and are not
intended to influence its construction. References to Articles, Sections,
Schedules and Exhibits in this Agreement are to the Articles, Sections of and
Schedules and Exhibits to this Agreement. The Schedules and Exhibits are hereby
incorporated into and form a part of this Agreement. In this Agreement, the
singular includes the plural, the plural the singular, the words "and" and "or"
are used in the conjunctive or disjunctive as the sense and circumstances may
require and the word "including" means "including, but not limited to." Unless
otherwise stated in this Agreement, in the computation of a period of time from
a specified date to a later specified date, the word "from" means "from and
including" and the words "to" and "until" each means "to but excluding."
ARTICLE XXVII
Further Agreements.
The Seller and the Purchaser each agree to execute and deliver to the
other such reasonable and appropriate additional documents, instruments or
agreements as may be necessary or appropriate to effectuate the purposes of this
Agreement.
28
IN WITNESS WHEREOF, the Purchaser and the Seller have caused their
names to be signed hereto by their respective officers thereunto duly
authorized, all as of the date first written above.
HEADLANDS MORTGAGE SECURITIES
INC., as Purchaser
000 Xxxxxxxx Xxxxxxx
Xxxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxxxxx 00000
By: /s/ Xxxxxxx Xxxxxx
-----------------------------------
Name: Xxxxxxx Xxxxxx
Title: Vice President
HEADLANDS MORTGAGE COMPANY,
as Seller
000 Xxxxxxxx Xxxxxxx
Xxxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxxxxx 00000
By: /s/ Xxxxx Xxxxxxx
-----------------------------------
Name: Xxxxx Xxxxxxx
Title: Executive Vice President
[Mortgage Loan Purchase Agreement]
EXHIBIT A
Mortgage Loan Purchase Agreement
[Form of Purchase Request]
Headlands Mortgage Securities Inc.
000 Xxxxxxxx Xxxxxxx Xxxxxx
Xxxxx 000
Xxxxxxxx, Xxxxxxxxxx 00000
Pursuant to Section 2.04 of the Mortgage Loan Purchase Agreement dated
as of March 13, 1998 between Headlands Mortgage Company and you, we hereby offer
to sell, transfer and assign to you all of Headlands Mortgage Company's right,
title and interest in and to the Subsequent Mortgage Loans identified in the
attached schedule on the following date (the "Purchase Date"): ____________,
including any Additional Balances thereto.
Please acknowledge your acceptance of such offer by executing this
Purchase Request in the space provided below and returning it to Headlands
Mortgage Company at ___________ by facsimile with an original acceptance to
follow by first class mail.
The failure of Headlands Mortgage Securities Inc. to return this
Purchase Request after execution by Headlands Mortgage Securities Inc., to
Headlands Mortgage Company in the manner provided above within three Business
Days prior to the Purchase Date (five business days, if this Purchase Request
was received by you at least two calendar weeks prior to the above-referenced
Purchase Date) shall constitute an acceptance of the offer communicated hereby.
Very truly yours,
Headlands Mortgage Company
By:___________________________
Name:
Title:
Agreed to and acknowledged
this ____ day of, ____________, _____.
Headlands Mortgage Securities Inc.
By:____________________________
Name:
Title:
EXHIBIT B
FORM OF NON-NEGOTIABLE HEADLANDS MORTGAGE
SECURITIES INC. PROMISSORY NOTE
March __, 1998
EXCEPT TO THE EXTENT PROVIDED IN THE PURCHASE AGREEMENT REFERRED TO
BELOW, THIS PROMISSORY NOTE AND ANY INTEREST REPRESENTED HEREBY SHALL
NOT BE TRANSFERRED, ASSIGNED, EXCHANGED, CONVEYED, PLEDGED,
HYPOTHECATED OR OTHERWISE THE SUBJECT OF THE GRANT OF A SECURITY
INTEREST AND ANY ATTEMPT TO TRANSFER, ASSIGN, EXCHANGE, CONVEY,
PLEDGE, HYPOTHECATE OR GRANT A SECURITY INTEREST IN THIS PROMISSORY
NOTE OR ANY INTEREST REPRESENTED HEREBY SHALL BE VOID AND OF NO
EFFECT.
For VALUE RECEIVED, the undersigned, HEADLANDS MORTGAGE SECURITIES
INC., a Delaware corporation (the "Purchaser"), promises to pay to HEADLANDS
---------
MORTGAGE COMPANY, a California corporation (the "Seller"), on the terms and
------
subject to the conditions set forth herein and in the Purchase Agreement
referred to below, the aggregate unpaid Purchase Price of all assets purchased
and to be purchased by the Purchaser pursuant to the Purchase Agreement. Such
amount as shown in the records of the Seller will be rebuttable presumptive
evidence of the principal amount owing under this Note.
1. Purchase and Sale Agreement. This Note is the Purchaser Note described
---------------------------
in, and is subject to the terms and conditions set forth in, that certain
Mortgage Loan Purchase Agreement dated as of March 13, 1998 (as the same may be
amended, supplemented, restated or otherwise modified in accordance with its
terms, the "Purchase Agreement"), between the Seller and the Purchaser.
Reference is hereby made to the Purchase Agreement for a statement of certain
other rights and obligations of the Purchaser and the Seller.
2. Definitions. Capitalized terms used (but not defined) herein have the
-----------
meanings ascribed thereto in the Purchase Agreement. In addition, as used
herein, the following terms have the following meanings:
"Bankruptcy Proceedings" has the meaning set forth in clause (a) of
----------------------
paragraph 7 hereof."
"Final Maturity Date" means the date that falls one year and one day
-------------------
after the Termination Date.
"Junior Liabilities" means all obligations of the Purchaser to the
------------------
Seller under this Note and under all similar Notes issued by the Purchaser to
the Seller in connection with any previous or future securitization
transactions.
"Senior Liabilities" means all obligations of the Purchaser to the
------------------
Trust and any other obligations of the Purchaser arising under or in connection
with the Sale and Servicing Agreement, howsoever created, arising or evidenced,
whether direct or indirect, absolute or contingent, now or thereafter existing,
or due or to become due on or before the Final Maturity Date.
"Subordination Provisions" means, collectively, clauses (a) through
------------------------
(i) of paragraph 7 hereof.
3. Interest. Subject to the Subordination Provisions and paragraph 10
--------
hereof, the Purchaser promises to pay interest on the aggregate unpaid principal
amount of this Note outstanding on each day, at a variable rate equal to the
rate publicly announced by the Indenture Trustee from time to time as its "prime
lending rate."
4. Interest Payment Dates. Subject to the Subordination Provisions,
----------------------
paragraph 10 hereof and Section 10.02 of the Purchase Agreement, the Purchaser
shall pay accrued interest on this Note on each Distribution Date and on the
Final Maturity Date. The Purchaser also shall pay accrued interest on the
principal amount of each prepayment hereof on the date of each such prepayment.
5. Basis of Computation. Interest accrued hereunder shall be computed for
--------------------
the actual number of days elapsed on the basis of a 360-day year.
6. Principal Payment Dates. Subject to the Subordination Provisions, any
-----------------------
unpaid principal of this Note shall be paid on the Final Maturity Date (or, if
such date is not a Business Day, the next succeeding Business Day). Subject to
the Subordination Provisions, paragraph 10 hereof and Section 10.02 of the
Purchase Agreement, the principal amount of and accrued interest on this Note
may be prepaid on any Business Day without premium or penalty.
7. Subordination Provisions. The Purchaser covenants and agrees, and the
------------------------
Seller, by its acceptance of this Note, likewise covenants and agrees, that the
payment of all Junior Liabilities is hereby expressly subordinated in right of
payment to the payment and performance of the Senior Liabilities to the extent
and in the manner set forth in the following clauses of this paragraph 7:
(a) (i) In the event of any dissolution, winding up, liquidation,
readjustment, reorganization or other similar event relating to the Purchaser,
whether voluntary or involuntary, partial or complete, and whether in
bankruptcy, insolvency, receivership or other similar proceedings, or upon an
assignment for the benefit of creditors, or any other marshalling of the assets
and liabilities of the Purchaser or any sale of all or substantially all of the
assets of the Purchaser except pursuant to the Sale and Servicing Agreement
(such proceedings being herein collectively called "Bankruptcy Proceedings"),
and (ii) on and after the occurrence of a Rapid Amortization Event, the Senior
Liabilities shall first be paid and performed in full and in cash before the
Seller shall be entitled to receive and to retain any payment or distribution in
respect of the Junior Liabilities. In order to implement the foregoing: (x) all
payments and distributions of any kind or character in respect of the Junior
Liabilities to which the Seller would be entitled
B-2
except for this clause (a) shall be made directly to the Indenture Trustee
------
(for the benefit of the Noteholders); and (y) the Seller hereby irrevocably
agrees that the Indenture Trustee (on behalf of the Noteholders), in the name of
the Seller or otherwise, may demand, xxx for, collect, receive and receipt for
any and all such payments or distributions, and file, prove and vote or consent
in any such Bankruptcy Proceedings with respect to any and all claims of the
Seller relating to the Junior Liabilities, in each case until the Senior
Liabilities shall have been paid and performed in full and in cash.
(b) following the occurrence of any of the events described in
clause (a)(i) or (ii), in the event that the Seller receives any payment or
--------------------
other distribution of any kind or character from the Purchaser or from any other
source whatsoever, in respect of the Junior Liabilities, such payment or other
distribution shall be received in trust for the Indenture Trustee and shall be
turned over by the Seller to the Indenture Trustee (for the benefit of the
Noteholders) forthwith. All payments and distributions received by the Indenture
Trustee in respect of this Note, to the extent received in or converted into
cash, may be applied by the Indenture Trustee (for the benefit of the
Noteholders) first to the payment of any and all reasonable expenses (including
reasonable attorneys' fees and legal expenses) paid or incurred by the Indenture
Trustee or the Noteholders in enforcing these Subordination Provisions, or in
endeavoring to collect or realize upon the Junior Liabilities, and any balance
thereof shall, solely as between the Seller and the Noteholders, be applied by
the Indenture Trustee toward the payment of the Senior Liabilities in a manner
determined by the Indenture Trustee to be in accordance with the Indenture; but
as between the Purchaser and its creditors, no such payments or distributions of
any kind or character shall be deemed to be payments or distributions in respect
of the Senior Liabilities.
(c) Upon the final payment in full and in cash of all Senior
Liabilities, the Seller shall be subrogated to the rights of the Indenture
Trustee to receive payments or distributions from the Purchaser that are
applicable to the Senior Liabilities until the Junior Liabilities are paid in
full.
(d) These Subordination Provisions are intended solely for the purpose
of defining the relative rights of the Seller, on the one hand, and the
Indenture Trustee (on behalf of Noteholders), on the other hand. Nothing
contained in these Subordination Provisions or elsewhere in this Note (subject
to paragraph 10 hereof) is intended to or shall impair, as between the
Purchaser, its creditors (other than the Noteholders) and the Seller, the
Purchaser's obligation, which is unconditional and absolute, to pay the Junior
Liabilities as and when the same shall become due and payable in accordance with
the terms hereof (subject to paragraph 10 hereof) and of the Purchase Agreement
or to affect the relative rights of the Seller and creditors of the Purchaser
(other than the Noteholders).
(e) The Seller shall not, until the Senior Liabilities have been
finally paid and performed in full and in cash, (i) cancel, waive, forgive,
transfer or assign, or commence legal proceedings to enforce or collect, or
subordinate to any obligation of the Purchaser, howsoever created, arising or
evidenced, whether direct or indirect, absolute or contingent, or now or
thereafter existing, or due or to become due (other than the Senior
Liabilities), the Junior Liabilities or any rights in respect hereof or (ii)
convert the Junior Liabilities into an equity interest in the Purchaser, unless,
in the case of each of clauses (i) and (ii) above, the Seller shall
-------------------
B-3
have received the prior written consent of the Indenture Trustee and the Credit
Enhancer in each case.
(f) The Seller shall not, except without the advance written consent
of the Indenture Trustee and the Credit Enhancer, commence, or join with any
other Person in commencing, any Bankruptcy Proceedings with respect to the
Purchaser until at least one year and one day have passed since the Termination
Date.
(g) If, at any time, any of the payment (in whole or in part) made
with respect to any Senior Liabilities is rescinded or must be restored or
returned by the Indenture Trustee or Noteholders (whether in connection with any
Bankruptcy Proceedings or otherwise), these Subordination Provisions shall
continue to be effective or shall be reinstated, as the case may be, as though
such payment had not been made.
(h) The Indenture Trustee (on behalf of Noteholders) may, from time to
time, with the consent of the Credit Enhancer without notice to the Seller, and
without waiving any of its rights under these Subordination Provisions, take any
or all of the following actions: retain or obtain an interest in any property to
secure any of the Senior Liabilities; (ii) retain or obtain the primary or
secondary obligations of any other obligor or obligors with respect to any of
the Senior Liabilities; (iii) extend or renew for one or more periods (whether
or not longer than the original period), alter or exchange any of the Senior
Liabilities, or release or compromise any obligation of any nature with respect
to any of the Senior Liabilities; (iv) amend, supplement, amend and restate, or
otherwise modify the Sale and Servicing Agreement or any related document; and
(v) release its security interest in or surrender, release or permit any
substitution or exchange for all or any part of any rights or property securing
any of the Senior Liabilities, or extend or renew for one or more periods
(whether or not longer than the original period) or release, compromise, alter
or exchange any obligations of any nature of any obligor with respect to any
such rights or property.
(i) The Seller hereby waives: (i) notice of acceptance of these
Subordination Provisions by any of the Noteholders, (ii) notice of the
existence, creation, non-payment or non-performance of all or any of the Senior
Liabilities; and (iii) all diligence in enforcement, collection or protection
of, or realization upon, the Senior Liabilities, or any thereof, or any security
therefor.
(j) These Subordination Provisions constitute a continuing offer from
the Purchaser to all Persons who become the holders of, or who continue to hold,
Senior Liabilities; and these Subordination Provisions are made for the benefit
of the Noteholders, and the Indenture Trustee may proceed to enforce such
provisions on behalf of each of such Persons.
8. General. No failure or delay on the part of the Seller in
-------
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power or right preclude any
other or further exercise thereof or the exercise of any other power or right.
No amendment, modification or waiver of, or consent with respect to, any
provision of this Note shall in any event be effective unless (a) the same shall
be in writing and signed and delivered by the Purchaser and the Seller, and (b)
all consents required for such actions under the Purchase Agreement and the Sale
B-4
and Servicing Agreement shall have been received by the appropriate Persons. The
rights and remedies granted hereunder to the Indenture Trustee and the
Noteholders are subject to exercise as provided in the Purchase Agreement and
the Sale and Servicing Agreement.
9. Limitation on Interest. Notwithstanding anything in this Note
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to the contrary, the Purchaser shall never be required to pay unearned interest
on any amount outstanding hereunder, and shall never be required to pay interest
on the principal amount outstanding hereunder at a rate in excess of the maximum
interest rate that may be contracted for, charged or received without violation
of applicable federal or state law.
10. Acknowledgment. The Seller acknowledges and agrees that it has
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no rights to payment under this Note, and will not make any claim for payment
hereunder, unless funds are available for payment by the Purchaser in excess of
amounts due and payable by it at the time under the Sale and Servicing
Agreement.
11. No Negotiation. This Note is not negotiable.
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12. GOVERNING LAW. THIS NOTE SHALL BE DEEMED TO BE A CONTRACT
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MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO CONFLICT OF LAWS PRINCIPLES.
13. Captions. Paragraph captions used in this Note are provided
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solely for convenience of reference only and shall not affect the meaning or
interpretation of any provision of this Note
HEADLANDS MORTGAGE SECURITIES
INC.
By:_________________________________
Name:______________________________
Title:_______________________________
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