-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KyppWlJLtqAW+P3uv+B0m9jxHkkdgYsSJYdKd5w3jNVIVN0L0tn1e3xWTbsiwTAx j/MaRC/b7nzurcKB7js2GQ== 0000922423-99-001369.txt : 19991117 0000922423-99-001369.hdr.sgml : 19991117 ACCESSION NUMBER: 0000922423-99-001369 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONTIFINANCIAL CORP CENTRAL INDEX KEY: 0001002130 STANDARD INDUSTRIAL CLASSIFICATION: MORTGAGE BANKERS & LOAN CORRESPONDENTS [6162] IRS NUMBER: 133852588 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14074 FILM NUMBER: 99756939 BUSINESS ADDRESS: STREET 1: 277 PARK AVE CITY: NEW YORK STATE: NY ZIP: 10172 BUSINESS PHONE: 2122072822 MAIL ADDRESS: STREET 1: 277 PARK AVE CITY: NEW YORK STATE: NY ZIP: 10172 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) of the SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______to_________ 1-14074 ------------------------ (Commission File Number) ContiFinancial Corporation ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 13-3852588 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 277 Park Avenue New York, New York 10172 - ------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 207-2800 -------------- no change ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No|_| The Company had 46,661,592 shares of common stock outstanding as of November 10, 1999. ContiFinancial Corporation Table of Contents PART I Page ---- Item 1. Financial Statements (unaudited) Consolidated Balance Sheets 3 Consolidated Statements of Operations 4 Condensed Consolidated Statements of Cash Flows 5 Notes to Unaudited Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Recent Developments, Financial Results and Liquidity 17 Selected Financial Data 20 Results of Operations 23 Liquidity and Capital Resources 28 Year 2000 30 Forward-looking Statements 30 Item 3. Quantitative and Qualitative Disclosures About Market Risk 32 PART II Item 1. Legal Proceedings 34 Item 4. Submission of Matters to a Vote of Security Holders 34 Item 6. Exhibits and Reports on Form 8-K 36 Signatures 37 2 CONTIFINANCIAL CORPORATION Consolidated Balance Sheets as of September 30, 1999 and March 31, 1999 (in thousands, except share data)
September 30, March 31, 1999 1999 ----------- ----------- Assets (unaudited) Cash and cash equivalents $ 64,278 $ 112,839 Restricted cash 1,531 4,072 Receivables held for sale: Receivables held for sale 252,643 1,089,410 Allowance for loan losses (5,312) (7,364) ----------- ----------- Receivables held for sale, net 247,331 1,082,046 Other receivables 122,836 95,984 Due from affiliates 2,317 53,680 Interest-only and residual certificates 400,989 722,012 Capitalized servicing rights 70,579 105,273 Premises and equipment, net of accumulated depreciation of $13,441 and $13,454 as of September 30, 1999 and March 31, 1999, respectively 20,291 23,792 Cost in excess of equity acquired 12,627 85,388 Equity investments in unconsolidated subsidiaries 1,258 4,978 Taxes receivable -- 13,024 Other assets 34,130 52,076 ----------- ----------- Total assets $ 978,167 $ 2,355,164 =========== =========== Liabilities and Stockholders' Equity Liabilities: Accounts payable $ 53,689 $ 90,412 Receivables sold under agreements to repurchase 138,244 804,524 Due to affiliates 139 8,918 Short-term debt 422,262 512,797 Taxes payable 4,327 -- Long-term debt 699,191 699,225 Other liabilities 18,835 31,316 ----------- ----------- Total liabilities 1,336,687 2,147,192 ----------- ----------- Commitments and contingencies Minority interest in subsidiaries 4,157 4,721 Stockholders' equity (deficit): Preferred stock (par value $0.01 per share; 25,000,000 shares authorized; none issued at September 30, 1999 and March 31, 1999) -- -- Common stock (par value $0.01 per share; 250,000,000 shares authorized; 47,657,539 shares issued at September 30, 1999 and March 31, 1999) 477 477 Paid-in capital 396,771 398,209 Accumulated deficit (734,725) (163,301) Treasury stock (978,511 and 910,169 shares of common stock, at cost, at September 30, 1999 and March 31, 1999, respectively) (25,200) (25,106) Deferred compensation -- (7,028) ----------- ----------- Total stockholders' equity (deficit) (362,677) 203,251 ----------- ----------- Total liabilities and stockholders' equity (deficit) $ 978,167 $ 2,355,164 =========== ===========
The accompanying notes to the unaudited condensed consolidated financial statements are an integral part of these statements. 3 CONTIFINANCIAL CORPORATION Consolidated Statements of Operations for the three and six months ended September 30, 1999 and 1998 (in thousands, except share data) (unaudited)
Three Months Ended Six Months Ended September 30, September 30, ------------- ------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ Gross income (loss): Gain (loss) on sale of receivables $ (187,876) $ 16,316 $ (296,827) $ 53,888 Commercial real estate valuation adjustments -- (129,034) -- (129,034) Interest 32,443 90,899 84,632 162,879 Net servicing income 1,430 28,966 14,337 55,686 Gain on sale of subsidiary (Note 5) -- -- 22,121 -- Other income 1,084 3,708 4,097 9,552 ------------ ------------ ------------ ------------ Total gross income (loss) (152,919) 10,855 (171,640) 152,971 ------------ ------------ ------------ ------------ Expenses: Compensation and benefits 44,735 51,842 95,791 95,166 Interest 38,103 66,140 80,769 121,522 Provision for loan losses 2,605 2,329 4,558 3,051 General and administrative 41,827 40,071 84,965 72,582 Other charges (Note 3) 53,465 36,090 123,394 36,090 ------------ ------------ ------------ ------------ Total expenses 180,735 196,472 389,477 328,411 ------------ ------------ ------------ ------------ Loss before income taxes and minority interest (333,654) (185,617) (561,117) (175,440) Provision (benefit) for income taxes (Note 6) 74 (71,362) 10,342 (67,261) ------------ ------------ ------------ ------------ Loss before minority interest (333,728) (114,255) (571,459) (108,179) Minority interest in earnings (losses) of subsidiaries (21) (4) (35) 52 ------------ ------------ ------------ ------------ Net loss $ (333,707) $ (114,251) $ (571,424) $ (108,231) ============ ============ ============ ============ Basic loss per common share $ (7.18) $ (2.48) $ (12.30) $ (2.33) ============ ============ ============ ============ Diluted loss per common share $ (7.18) $ (2.48) $ (12.30) $ (2.33) ============ ============ ============ ============ Basic weighted average number of shares outstanding 46,467,695 46,153,506 46,458,192 46,419,684 ============ ============ ============ ============ Diluted weighted average number of shares outstanding 46,467,695 46,153,506 46,458,192 46,419,684 ============ ============ ============ ============
The accompanying notes to the unaudited condensed consolidated financial statements are an integral part of these statements. 4 CONTIFINANCIAL CORPORATION Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 1999 and 1998 (in thousands) (unaudited)
Six Months Ended September 30, 1999 1998 --------- --------- Net cash provided by (used in) operating activities $ 7,817 $(290,309) --------- --------- Cash flows from investing activities: Proceeds from sale of majority-owned subsidiary, net (Note 5) 34,196 -- Acquisitions of majority-owned subsidiaries (net of cash acquired) (804) (22,086) Acquisitions of minority-owned subsidiaries -- (1,140) Purchase of premises and equipment, net (2,534) (8,375) Proceeds from sale of unconsolidated subsidiaries 3,000 -- Other, net 473 -- --------- --------- Net cash provided by (used in) investing activities 34,331 (31,601) --------- --------- Cash flows from financing activities: Increase (decrease) in short-term debt (90,709) 158,340 Increase in long-term debt -- 199,778 Debt issuance costs -- (11,692) Repurchase of common stock -- (22,052) Other, net -- (12) --------- --------- Net cash provided by (used in) financing activities (90,709) 324,362 --------- --------- Net increase (decrease) in cash and cash equivalents (48,561) 2,452 Cash and cash equivalents at beginning of period 112,839 173,588 --------- --------- Cash and cash equivalents at end of period $ 64,278 $ 176,040 ========= =========
The accompanying notes to the unaudited condensed consolidated financial statements are an integral part of these statements. 5 CONTIFINANCIAL CORPORATION Notes to Unaudited Condensed Consolidated Financial Statements September 30, 1999 (in thousands, except share data and where noted) 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of ContiFinancial Corporation and its majority-owned subsidiaries (collectively, "ContiFinancial" or the "Company") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and, in the opinion of management, reflect all normal recurring adjustments which are necessary for a fair presentation of the financial position, results of operations, and cash flows for each period shown. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the results of operations. Actual results could differ from these estimates. In addition, results for interim periods are not necessarily indicative of results for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1999 (the "Annual Report"). All significant intercompany accounts and transactions have been eliminated in consolidation. 2. RECENT DEVELOPMENTS, FINANCIAL RESULTS AND LIQUIDITY In fiscal 1999 and continuing in the first two quarters of fiscal 2000 the Company has incurred significant losses of $426.3 million and $571.4 million, respectively. Over this period the Company has experienced a significant decline in liquidity. As a result of these factors there is substantial doubt as to the Company's ability to continue as a going concern. At September 30, 1999 stockholders' equity has been reduced to a deficit balance of $362.7 million. During fiscal 1999 and fiscal 2000, the Company recorded fair value adjustments to interest-only and residual certificates totaling approximately $329 million and $325 million, respectively, resulting from higher-than-estimated credit losses and prepayment speeds, and an increase in the discount rate used in the valuation from 10% to 12% to reflect the capital market's deteriorating view of the "sub-prime" industry in which the Company operates. The Company believes its interest-only and residual certificates are fairly valued at September 30, 1999 but can provide no assurances that future prepayment and loss experience or changes in the required market discount rate will not necessitate additional write-downs. If there are such additional write-downs in future periods, the Company's income would be reduced, likely resulting in a net loss for such period. The Company's operations were also significantly and adversely affected by difficult capital market conditions that commenced in the second quarter of fiscal 1999, with the effects of these events, and their repercussions, continuing to affect the Company's results through the first two quarters of fiscal 2000. During the second quarter of fiscal 1999, the economic instability in Asia and Russia precipitated a global debt crisis (the "Debt Crisis") which caused a "flight to quality" by investors. During this period, fixed income investors purchased large amounts of U.S. Treasury securities, causing U.S. Treasury yields to decrease significantly. As investor demand for U.S. Treasury securities increased, the demand for other fixed income securities declined dramatically, causing yields on such other securities to rise relative to U.S. Treasury securities. Since almost all of the Company's loan originations were ultimately funded by the issuance of securities backed by the loans it originates (securitization), these unusual interest rate movements affected the market value of all of the Company's originations, causing significant losses and leading to a critical loss of liquidity. 6 CONTIFINANCIAL CORPORATION Notes to Unaudited Condensed Consolidated Financial Statements September 30, 1999 (in thousands, except share data and where noted) While the Debt Crisis abated for other sectors of the economy in fiscal 1999, its impact and subsequent repercussions continued to affect the "sub-prime" industry in which the Company operates. The sudden and significant loss of liquidity experienced throughout the industry, occurring within the context of increasing market skepticism about the quality of earnings reported under "gain-on-sale accounting", intensified capital market concerns about the industry and severely curtailed access to the capital markets as a source of new liquidity. In order to attempt to strengthen the Company's ability to operate in this difficult environment, in the third quarter of fiscal 1999, the Company began to search for an investor who could contribute additional equity capital to the Company or a buyer who would be interested in purchasing the Company's business. On May 14, 1999, the Company signed an indication of interest letter with Residential Funding Corporation ("RFC") under which RFC indicated its interest in acquiring all of the outstanding common stock of the Company. On July 2, 1999, a second indication of interest letter was signed with RFC, again for the acquisition of all of the outstanding common stock of the Company, but on revised business terms. Definitive documentation for the acquisition was then negotiated with RFC. On July 14, 1999, just prior to the expected signing of the definitive documentation, RFC informed the Company that it had determined not to proceed with the acquisition. In light of the failure to consummate the transaction with RFC, and the impending expiration of certain of the Company's credit facilities, the Company's Board of Directors hired Mr. Alan Fishman as the new Chief Executive Officer of the Company on July 20, 1999. Following a review of the Company's situation, Mr. Fishman and other members of the Company's senior management pursued a plan (the "Restructuring Plan") of focusing the Company's operations on the most promising of its origination channels, reducing the size of the Company, negotiating for the restructuring or extension of the Company's credit facilities and then recommencing the search for an equity investor in the Company, a buyer of the Company's business or of certain of the Company's assets. Pursuant to the Restructuring Plan, in August 1999, the Company entered into a definitive agreement with Greenwich Capital Financial Products, Inc. ("Greenwich"), an affiliate of Greenwich Capital Markets, Inc., to provide ContiFinancial with a $500 million revolving servicing-released whole loan purchase facility with a maximum aggregate purchase commitment of up to $1.5 billion, at ContiFinancial's option, through March 31, 2000. Greenwich also agreed to provide a warehouse facility of up to $250 million on a revolving basis. This facility also expires on March 31, 2000. In addition to the two facilities, Greenwich purchased on a whole loan basis, through an affiliate, approximately $772 million of home equity loans which were funded under ContiFinancial's prior warehouse facilities. The Company expects these arrangements with Greenwich will provide the Company with the necessary warehouse financing to support the reduced amount of originations contemplated as the Restructuring Plan is being implemented. Also in August 1999, the Company began the implementation of a workforce reduction plan which will result in the reduction of approximately 30% of the Company's employees by the end of the Company's fiscal year in order to achieve the strategic goals of focusing the Company's origination in the channels with the greatest potential and reducing the overall size of the Company. See Note 3. 7 CONTIFINANCIAL CORPORATION Notes to Unaudited Condensed Consolidated Financial Statements September 30, 1999 (in thousands, except share data and where noted) On August 19, 1999, the Company agreed with the lenders under its Revolving Credit Facility and Commercial Paper Program (collectively, the "Bank Facilities") to extend the maturity date of the Bank Facilities from August 20, 1999 to March 31, 2000 and to convert both facilities into term arrangements. The Company also agreed to certain modifications of the Bank Facilities including a $20 million minimum liquidity covenant. The agreement also included providing collateral to the lenders in the form of a lien on certain Excess Spread Receivables with a June 30, 1999 book value of approximately $147 million. The book value of these Excess Spread Receivables as of September 30, 1999 was approximately $103 million. The interest rate on each facility remains at LIBOR plus 300 basis points. The Company was in compliance with the amended covenants of the Bank Facilities as of September 30, 1999. With the objectives of the Restructuring Plan of refocusing the Company's operations, reducing the size of the Company and restructuring and extending the Company's credit facilities being substantially accomplished, the Company has re-launched its efforts to explore strategic alternatives. The Company has retained financial advisors Lehman Brothers, Inc. and The Blackstone Group L.P. (the "Advisors") as advisors in the process. With the assistance of the Advisors, the Company is pursuing various strategic alternatives including but not limited to a sale of the Company, sales of one or more of the business operations and/or assets of the Company or a recapitalization of the Company with additional equity capital. During the restructuring process, the Company expects that it will be cash flow negative and will operate at a loss. The Company's continued operations during the restructuring process are dependent on the continued availability of the Bank Facilities and the warehouse financing and the supplemental servicer agreement under the Greenwich arrangements (see Note 9). During this period, the Company's cash reserves may not be sufficient to meet the Company's cash needs. There can be no assurance that an equity investor or buyer of the Company's business or its assets can be found on a timely basis. As a result of the developments described above, the Company determined, during the first quarter of fiscal 2000, that the carrying value of Cost in excess of equity acquired on the Company's balance sheet has been impaired and should be written-down (see Note 3 and Management's Discussion and Analysis of Financial Condition and Results of Operations). During the first and second quarters, the Company has also determined that it may not be able to achieve the results assumed in its prior loan loss projections; therefore, assumptions as to future loss frequencies and severities were increased, resulting in fair value adjustments to interest-only and residual certificates (see Note 4 and Management's Discussion and Analysis of Financial Condition and Results of Operations). For the six months ended September 30, 1999, the Company incurred a net loss of $571.4 million, primarily due to the fair value adjustment to interest-only and residual certificates, the write-down of Cost in excess of equity acquired, and restructuring and severance costs as discussed above. As a result of this net loss, stockholders' equity has been reduced to a deficit balance of $362.7 million. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. Accordingly, the financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. 8 CONTIFINANCIAL CORPORATION Notes to Unaudited Condensed Consolidated Financial Statements September 30, 1999 (in thousands, except share data and where noted) 3. OTHER CHARGES Other charges included in the Company's Consolidated Statements of Operations for the three and six months ended September 30, 1999 and 1998 consisted of the following:
------------------------------------------- Three Months Ended Six Months Ended September 30, September 30, ------------------------------------------ 1999 1998 1999 1998 ---- ---- ---- ---- Other Charges: Write-down of cost in excess of equity acquired $ 2,569 $ 2,782 $ 62,522 $ 2,782 Restructuring charges (excluding compensation related) 12,056 5,340 18,715 5,340 Severance for approximately 760 employees 8,653 -- 8,653 -- Staff retention costs 17,143 -- 17,143 -- Write-offs and reserves of receivables from affiliates and others 13,044 27,968 14,227 27,968 Other -- -- 2,134 -- -------- -------- -------- -------- Total Other Charges $ 53,465 $ 36,090 $123,394 $ 36,090 ======== ======== ======== ========
Based on the recent developments discussed in Note 2, management made a determination that the carrying value of cost in excess of equity acquired related to most of the Company's operations had been significantly impaired and appropriate write-downs of $2.6 million and $62.5 million for the three and six months ended September 30, 1999, respectively, had to be recorded. For the three months ended September 30, 1999, the writedown of $2.6 million primarily relates to a majority owned subsidiary of the Company based on the Company's expectation of the net proceeds to be realized from the sale of this entity. The restructuring charges of $12.1 and $18.7 million, for the three and six months ended September 30, 1999, respectively, primarily represent legal and consulting fees related to restructuring. In August 1999, the Company began the implementation of a workforce reduction plan which has resulted in a reduction of the workforce of approximately 11% as of September 30, 1999, and is expected to result in the reduction of approximately 30% of the Company's employees by the end of the Company's fiscal year in order to achieve the strategic goals of the Company's restructuring plan as discussed in Note 2. A charge of $8.7 million for severance costs was recorded for approximately 760 employees representing a cross section of individuals from all operations of the Company. At September 30, 1999, $4.3 million of this charge remains in Other liabilities. In July 1999 and August 1999, the Company established the CFN and CMC 1999 Retention Bonus Plans (the "Plans") for the purpose of retaining the valuable services of the Company's key employees through certain dates. In order to guarantee payment to employees of amounts that will become due to them under the Plans, the Company established and funded irrevocable trusts with the amount necessary to satisfy the Company's maximum liability under the Plans. 9 CONTIFINANCIAL CORPORATION Notes to Unaudited Condensed Consolidated Financial Statements September 30, 1999 (in thousands, except share data and where noted) 4. INTEREST-ONLY AND RESIDUAL CERTIFICATES Interest only and residual certificates (also referred to as excess spread receivables or ESR) represents the present value of the estimated stream of future cash flows that the Company expects to receive over the life of a securitization, taking into consideration estimated prepayment speeds and credit losses. At September 30, 1999 and March 31, 1999, the Company's ESR portfolio consisted of the following: September 30, March 31, 1999 1999 ---- ---- Home equity: ContiMortgage/ContiWest $344,581 $611,320 Other servicers 17,760 24,800 -------- -------- Total home equity 362,341 636,120 Home improvement 20,488 4,046 Commercial real estate 6,935 6,263 Auto 6,142 69,804 Other 5,083 5,779 -------- -------- Total ESR portfolio $400,989 $722,012 ======== ======== 10 CONTIFINANCIAL CORPORATION Notes to Unaudited Condensed Consolidated Financial Statements September 30, 1999 (in thousands, except share data and where noted) The changes in ESR from March 31, 1999 to September 30, 1999 are presented in the table below: Interest-only and residual certificates: Balance as of March 31, 1999 $ 722,012 New securitizations 43,543 ESR received in strategic alliance asset swap 17,964 Net cash distributions from REMICs and trusts (42,604) Sale of subsidiary (62,446) Accruals of interest income 25,112 Clean-up call on previously sold ESR 22,076 Fair value adjustments (324,668) -------- Balance as of September 30, 1999 $ 400,989 ========= In accordance with SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise", the Company continues to classify ESR as "trading securities". As such, they are carried at fair value in the Consolidated Balance Sheets. Unrealized changes in ESR fair value are included in Gain (loss) on sale of receivables on the accompanying Consolidated Statements of Operations in the period of the change. The Company has, from time to time, completed sales of ESR as either sales with limited recourse or Net Interest Margin Securities ("NIMS") sales. Nevertheless, there is only a limited market for the sale of ESR. Consequently, the Company estimates the fair value of ESR through the application of a discounted cash flow analysis, which requires the use of various assumptions, specifically regarding prepayments, losses and discount data. A significant factor affecting the level of estimated future ESR cash flows is the rate at which the underlying principal of the securitized loans is reduced. Prepayments represent principal reductions in excess of contractually scheduled reductions, and prepayment speeds are generally expressed as an annualized Conditional (or Constant) Prepayment Rate ("CPR"). In determining the fair value of the ContiMortgage/ContiWest ESR portfolio as of September 30, 1999, the Company's weighted average estimated future CPR was approximately 29% as compared to approximately 28% at March 31, 1999. Another significant factor that is considered in estimating the fair value of ESR is the estimate of future credit losses. As credit enhancement, the ESR is subordinate to the rights of the holders of the senior pass-through securities. Aggregate lifetime credit losses (historical plus future) as a percentage of the original pool balances for the ContiMortgage/ContiWest ESR portfolio was estimated to be 4.50% at September 30, 1999 as compared to 2.91% at March 31, 1999. Based on the developments during the first quarter of fiscal 2000, as discussed in Note 2, management made a determination that the Company most likely would not be able to achieve the results in its prior loan loss projections; therefore, assumptions as to future loss severities were increased, resulting in a fair value adjustment to interest-only and residual certificates of $151.2 million for the three months ended June 30, 1999. During the second quarter of fiscal 2000, management made a further determination that assumptions as to future loss frequencies should be increased, resulting in a fair value adjustment to interest-only and residual certificates of $173.5 million. The basis for this increased expectation in loss frequency was driven by the following factors: (i) the recent performance of the Company's more seasoned REMICs resulted in management increasing its assumptions of loss frequencies across the entire portfolio, and (ii) new data from third parties regarding loss frequency expecta- 11 CONTIFINANCIAL CORPORATION Notes to Unaudited Condensed Consolidated Financial Statements September 30, 1999 (in thousands, except share data and where noted) tions on subprime collateral in general. The cumulative impact of the fair value adjustments to interest-only and residual certificates for the six months ended September 30, 1999 is $324.7 million. The Company determines the discount rate used in estimating fair value by selecting a rate that it believes is commensurate with the risks involved. The Company recognizes that the ESR discount rate when interacting with the other two assumptions, losses and prepayment, is a "risk-adjusted" rate. In determining this rate the Company considers many factors including a comparison to the yields on other financial instruments with prepayment or credit risk. The future cash flows estimated as of September 30, 1999 and March 31, 1999, taking into consideration estimated prepayment rates and credit losses, were discounted at 12% to arrive at the fair value amounts presented in the accompanying Consolidated Balance Sheets. Assumptions regarding future CPR and credit losses are subject to volatility that could materially affect operating results. Both the amount and timing of estimated ESR cash flows are dependent on the performance of the underlying loans, and actual cash flows may vary significantly from expectations. If actual prepayment speeds or credit losses in future periods were to be higher than the assumptions used in the Company's fair value estimate, or if the estimated market discount rate were to increase, the ESR carrying value would have to be written down through a charge to earnings, which could cause the Company to report losses in future periods. Given the size of ContiMortgage/ContiWest's servicing portfolio, even a modest change in ESR fair value assumptions can have a relatively large impact on the ESR fair value. The table below illustrates the impact of a positive or negative change in a single assumption used to determine fair value for the ContiMortgage/ContiWest related ESR while keeping the absolute value of the other two assumptions constant. The impact of changes in these assumptions are not linear. As of September 30, 1999, changes in the assumptions would have approximately the following impact on fair value: Factor Change Fair ------ ------ ---- value ----- impact ------ Annual CPR +100 basis points $(21.3 million) Annual CPR - 100 basis points $ 25.0 million Lifetime credit losses + 10 basis points $(15.4 million) Lifetime credit losses - 10 basis points $ 16.6 million Discount rate +100 basis points $(24.5 million) Discount rate - 100 basis points $ 27.1 million 12 CONTIFINANCIAL CORPORATION Notes to Unaudited Condensed Consolidated Financial Statements September 30, 1999 (in thousands, except share data and where noted) 5. GAIN ON SALE OF SUBSIDIARY On June 11, 1999, the Company sold its interest in its wholly-owned subsidiary, Triad Financial Corporation ("Triad") to Fairlane Credit LLC, a wholly-owned subsidiary of Ford Motor Credit Company. The sale of Triad resulted in a gain of approximately $22 million and provided gross proceeds of approximately $134 million through sale proceeds, repayment of intercompany debt and net return of intercompany warehouse financing. Of this amount, approximately $95 million was used to pay down the Company's Bank Facilities. 6. TAXES SFAS No. 109 requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion of the deferred tax assets will not be realized. The Company has provided a valuation allowance for the entire amount of the net deferred tax asset since it is more likely than not that the net deferred tax asset will not be realized. Due to the Company's ownership of REMIC residual certificates, the Federal tax provision for the three and six months ended September 30, 1999 is based on excess inclusion generated by the ownership of these certificates. 7. EARNINGS PER SHARE For the three and six months ended September 30, 1999 and 1998, diluted loss per share equals basic loss per share, as the dilutive calculation would have an antidilutive impact as a result of the net loss incurred in those periods. 13 CONTIFINANCIAL CORPORATION Notes to Unaudited Condensed Consolidated Financial Statements September 30, 1999 (in thousands, except share data and where noted) 8. DEBT Short-term and long-term debt at September 30, 1999 and March 31, 1999 consisted of the following:
September 30, March 31, 1999 1999 Short-term debt: Commercial paper $258,925 $312,477 Revolving Credit Facility 163,000 200,000 Current portion of long-term debt 337 320 -------- -------- Total short-term debt $422,262 $512,797 ======== ======== Long-term debt: 8 3/8% Senior Notes, $300 million face amount, due 2003 $299,463 $299,405 7 1/2% Senior Notes, $200 million face amount, due 2002 199,618 199,547 8 1/8% Senior Notes, $200 million face amount, due 2008 199,800 199,792 Capitalized lease 310 481 -------- -------- Total long-term debt $699,191 $699,225 ======== ========
The Company is required to comply with various financial covenants under its outstanding Senior Notes and Bank Facilities. As of December 31, 1998 and continuing through September 30, 1999, the Company's leverage ratio exceeded the leverage ratio test under the covenants of its outstanding Senior Notes. As a result, the Company is prevented from issuing additional unsecured debt until its leverage ratio is below such test. As of December 31, 1998, amended financial covenants were received changing the leverage and fixed charge ratios and the minimum net worth test in the Bank Facilities, and lenders agreed to exclude certain charges from the covenant ratio calculations. As of March 31, 1999, the Bank Facilities were amended to eliminate the financial covenants and borrowing base provisions, among other things. As part of the bank amendment, the Company agreed to reduce commitments under the Bank Facilities by 75% of the total proceeds received by the Company for the sale of Triad Financial Corporation ("Triad"). On June 11, 1999, the sale of Triad was closed, and the Bank Facilities commitments were reduced by approximately $95 million. If the above mentioned amendments had not been obtained, the Company would not have been in compliance with the covenants. As part of the December amendments to the Revolving Credit Facility, the Company had agreed to prepay the Revolving Credit Facility on August 20, 1999, which made the Revolving Credit Facility coterminous with the Commercial Paper Program. As part of the March amendments, the interest rate of the Revolving Credit Facility and the Commercial Paper Program were increased to LIBOR plus 300 basis points. On August 19, 1999, the Company agreed with the lenders under its Bank Facilities to extend the maturity date of the Bank Facilities from August 20, 1999 to March 31, 2000 and to convert both facilities into term arrangements ("Term Facility"). The Company also agreed to certain modifications of the Bank Facilities including a $20 million minimum liquidity covenant. The agreement also includes providing collateral to the lenders in the form of a lien on certain Excess Spread Receivables with a June 30, 1999 book value of approximately $147 million. The book value of these Excess Spread Receivables as of September 30, 1999 14 CONTIFINANCIAL CORPORATION Notes to Unaudited Condensed Consolidated Financial Statements September 30, 1999 (in thousands, except share data and where noted) was approximately $103 million. The interest rate on each facility remains at LIBOR plus 300 basis points. The Company was in compliance with the amended covenants of the Bank Facilities as of September 30, 1999. 9. SUBSEQUENT EVENTS Servicing Advance Financing On November 10, 1999, the Company entered into a new arrangement with Greenwich to provide monthly servicer advances, up to an aggregate outstanding amount of $125 million, to certain REMICs for which ContiMortgage is the servicer. This arrangement replaced the ContiGroup arrangement which expired on October 15, 1999. Greenwich has agreed to make these advances, for a fee, through November 9, 2000. Litigation On or about October 21, 1999, a purported class action entitled O'Hopp v. ContiFinancial Corporation, et al., No. 99cv06794, was filed in the United States District Court for the Eastern District of New York on behalf of Dea O'Hopp, a stockholder of the Company, and similarly situated individuals, against the Company, Continental Grain Corporation (sued in its capacity as a "controlling person") and former Company officers and/or directors James E. Moore and Daniel J. Willett. On or about October 29, 1999, a virtually identical complaint was filed against the same defendants in the United States District Court for the Southern District of New York in an action entitled I&M Associates v. ContiFinancial Corporation, et al., No. 99 Civ. 10941. Both actions allege, among other things, violations of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, based on allegedly false or misleading statements and failures to disclose allegedly material information in Company press releases, SEC filings and statements made to analysts during the period from January 19, 1998 through July 21, 1999. These misstatements and omissions, plaintiffs allege, artificially inflated the Company's stock price during the relevant time period. The plaintiffs seek damages in an unspecified amount. The Company intends to defend these actions vigorously. Given the preliminary stage of the litigation, the Company is unable to evaluate the potential materiality of such suits, if any. New York Stock Exchange Listing The Company recently received notification from the New York Stock Exchange that the Company currently does not meet listing standards of the Exchange requiring a minimum average share price of $1.00 over a consecutive 30 trading day period, and total market capitalization of not less than $50 million in conjunction with stockholders' equity of not less than $50 million. The Company is required to bring its average share price to the minimum specified by the Exchange within six months and, in accordance with the rules of the Exchange, the Company is working with the Exchange on a business plan to address the market capitalization and stockholders' equity issue within the applicable time frame. However, it is unlikely that the Company will be successful in meeting these requirements. The Company will examine alternatives to the Exchange for the continued trading of the Company's common stock. 15 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. This discussion should be read in conjunction with the accompanying unaudited Condensed Consolidated Financial Statements and notes thereto included herein, and the Company's audited Consolidated Financial Statements and notes thereto included in the Company's Annual Report. Certain statements under this caption constitute "forward-looking statements" under federal securities laws. See "Forward-looking Statements." Recent Developments, Financial Results and Liquidity In fiscal 1999 and continuing in the first two quarters of fiscal 2000 the Company has incurred significant losses of $426.3 million and $571.4 million, respectively. Over this period the Company has experienced a significant decline in liquidity. As a result of these factors there is substantial doubt as to the Company's ability to continue as a going concern (see Note 2 to the Consolidated Financial Statements). At September 30, 1999 stockholders' equity has been reduced to a deficit balance of $362.7 million. During fiscal 1999 and fiscal 2000, the Company recorded fair value adjustments to interest-only and residual certificates totaling approximately $329 million and $325 million, respectively, resulting from higher-than-estimated credit losses and prepayment speeds, and an increase in the discount rate used in the valuation from 10% to 12% to reflect the capital market's deteriorating view of the "sub-prime" industry in which the Company operates. The Company believes its interest-only and residual certificates are fairly valued at September 30, 1999 but can provide no assurances that future prepayment and loss experience or changes in the required market discount rate will not necessitate additional write-downs. If there are such additional write-downs in future periods, the Company's income would be reduced, likely resulting in a net loss for such period. The Company's operations were also significantly and adversely affected by difficult capital market conditions that commenced in the second quarter of fiscal 1999, with the effects of these events, and their repercussions, continuing to affect the Company's results through the first two quarters of fiscal 2000. During the second quarter of fiscal 1999, the economic instability in Asia and Russia precipitated a global debt crisis (the "Debt Crisis") which caused a "flight to quality" by investors. During this period, fixed income investors purchased large amounts of U.S. Treasury securities, causing U.S. Treasury yields to decrease significantly. As investor demand for U.S. Treasury securities increased, the demand for other fixed income securities declined dramatically, causing yields on such other securities to rise relative to U.S. Treasury securities. Since almost all of the Company's loan originations were ultimately funded by the issuance of securities backed by the loans it originates (securitization), these unusual interest rate movements affected the market value of all of the Company's originations, causing significant losses and leading to a critical loss of liquidity. While the Debt Crisis abated for other sectors of the economy in fiscal 1999, its impact and subsequent repercussions continued to affect the "sub-prime" industry in which the Company operates. The sudden and significant loss of liquidity experienced throughout the industry, occurring within the context of increasing market skepticism about the quality of earnings reported under "gain-on-sale accounting", intensified capital market concerns about the industry and severely curtailed access to the capital markets as a source of new liquidity. 16 In order to attempt to strengthen the Company's ability to operate in this difficult environment, in the third quarter of fiscal 1999, the Company began to search for an investor who could contribute additional equity capital to the Company or a buyer who would be interested in purchasing the Company's business. On May 14, 1999, the Company signed an indication of interest letter with Residential Funding Corporation ("RFC") under which RFC indicated its interest in acquiring all of the outstanding common stock of the Company. On July 2, 1999, a second indication of interest letter was signed with RFC, again for the acquisition of all of the outstanding common stock of the Company, but on revised business terms. Definitive documentation for the acquisition was then negotiated with RFC. On July 14, 1999, just prior to the expected signing of the definitive documentation, RFC informed the Company that it had determined not to proceed with the acquisition. In light of the failure to consummate the transaction with RFC, and the impending expiration of certain of the Company's credit facilities, the Company's Board of Directors hired Mr. Alan Fishman as the new Chief Executive Officer of the Company on July 20, 1999. Following a review of the Company's situation, Mr. Fishman and other members of the Company's senior management pursued a plan (the "Restructuring Plan") of focusing the Company's operations on the most promising of its origination channels, reducing the size of the Company, negotiating for the restructuring or extension of the Company's credit facilities and then recommencing the search for an equity investor in the Company, a buyer of the Company's business or of certain of the Company's assets. Pursuant to the Restructuring Plan, in August 1999, the Company entered into a definitive agreement with Greenwich Capital Financial Products, Inc. ("Greenwich"), an affiliate of Greenwich Capital Markets, Inc., to provide ContiFinancial with a $500 million revolving servicing-released whole loan purchase facility with a maximum aggregate purchase commitment of up to $1.5 billion, at ContiFinancial's option, through March 31, 2000. Greenwich also agreed to provide a warehouse facility of up to $250 million on a revolving basis. This facility also expires on March 31, 2000. In addition to the two facilities, Greenwich purchased on a whole loan basis, through an affiliate, approximately $772 million of home equity loans which were funded under ContiFinancial's prior warehouse facilities. The Company expects these arrangements with Greenwich will provide the Company with the necessary warehouse financing to support the reduced amount of originations contemplated as the Restructuring Plan is being implemented. Also in August 1999, the Company began the implementation of a workforce reduction plan which will result in the reduction of approximately 30% of the Company's employees by the end of the Company's fiscal year in order to achieve the strategic goals of focusing the Company's origination in the channels with the greatest potential and reducing the overall size of the Company. See Note 3 to the Consolidated Financial Statements. On August 19, 1999, the Company agreed with the lenders under its Revolving Credit Facility and Commercial Paper Program (collectively, the "Bank Facilities") to extend the maturity date of the Bank Facilities from August 20, 1999 to March 31, 2000 and to convert both facilities into term arrangements. The Company also agreed to certain modifications of the Bank Facilities including a $20 million minimum liquidity covenant. The agreement also included providing collateral to the lenders in the form of a lien on certain Excess Spread Receivables with a June 30, 1999 book value of approximately $147 million. The book value of these Excess Spread Receivables as of September 30, 1999 was approximately $103 million. The interest rate on each facility remains at LIBOR plus 300 basis points. The Company was in compliance with the amended covenants of the Bank Facilities as of September 30, 1999. 17 With the objectives of the Restructuring Plan of refocusing the Company's operations, reducing the size of the Company and restructuring and extending the Company's credit facilities being substantially accomplished, the Company has re-launched its efforts to explore strategic alternatives. The Company has retained financial advisors Lehman Brothers, Inc. and The Blackstone Group L.P. (the "Advisors") as advisors in the process. With the assistance of the Advisors, the Company is pursuing various strategic alternatives including but not limited to a sale of the Company, sales of one or more of the business operations and/or assets of the Company or a recapitalization of the Company with additional equity capital. During the restructuring process, the Company expects that it will be cash flow negative and will operate at a loss. The Company's continued operations during the restructuring process are dependent on the continued availability of the Bank Facilities and the warehouse financing and supplemental servicer agreement under the Greenwich arrangements (see Note 9 to the Consolidated Financial Statements). During this period, the Company's cash reserves may not be sufficient to meet the Company's cash needs. There can be no assurance that an equity investor or buyer of the Company's business or its assets can be found on a timely basis. As a result of the developments described above, the Company determined, during the first quarter of fiscal 2000, that the carrying value of Cost in excess of equity acquired on the Company's balance sheet has been impaired and should be written-down (see Note 3 to the Consolidated Financial Statements). During the first and second quarters, the Company has also determined that it may not be able to achieve the results assumed in its prior loan loss projections; therefore, assumptions as to future loss frequencies and severities were increased, resulting in fair value adjustments to interest-only and residual certificates (see Note 4 to the Consolidated Financial Statements). For the six months ended September 30, 1999, the Company incurred a net loss of $571.4 million, primarily due to the fair value adjustment to interest-only and residual certificates, the write-down of Cost in excess of equity acquired, and restructuring and severance costs as discussed above. As a result of this net loss, stockholders' equity has been reduced to a deficit balance of $362.7 million. 18 Selected Financial Data ContiFinancial Corporation Loan Originations, Securitizations and Sales (dollars in thousands) (unaudited)
For the three months For the six months ended % ended % September 30, Incr. September 30, Incr. ------------------- --------------- 1999 1998 (Decr.) 1999 1998 (Decr.) ---- ---- ------- ---- ---- ------- Loan Originations Home equity, home improvement and other residential mortgage loans: Brokers ............................. $ 208,425 $ 401,301 (48.1%) $ 609,540 $ 777,196 (21.6%) Correspondents ...................... 142,095 1,585,875 (91.0%) 700,307 2,935,304 (76.1%) Direct retail ....................... 425,490 498,906 (14.7%) 942,574 964,831 (2.3%) ---------- ---------- ----- ---------- ---------- ----- Total home equity, home improvement and other residential mortgage loans ... 776,010 2,486,082 (68.8%) 2,252,421 4,677,331 (51.8%) ---------- ---------- ---------- ---------- ----- Commercial real estate mortgage loans: Conduit (ContiMAP(R)and affiliates) . -- 656,524 (100.0%) -- 1,375,307 (100.0%) Keystone ............................ 248,716 269,543 (7.7%) 568,041 487,495 16.5% ---------- ---------- ---------- ---------- ----- Total commercial real estate loans ..... 248,716 926,067 (73.1%) 568,041 1,862,802 (69.5%) ---------- ---------- ---------- ---------- ----- Triad auto loans ....................... -- 102,407 (100.0%) 88,675 172,953 (48.7%) ---------- ---------- ---------- ---------- ----- Total loan originations .......... $1,024,726 $3,514,556 (70.8%) $2,909,137 $6,713,086 (56.7%) ========== ========== ========== ========== ===== Securitizations and Sales Whole loan sales to Greenwich affiliate $ 771,801 $ -- n/a $ 771,801 $ -- n/a ContiMortgage/ContiWest securitizations -- 2,100,000 (100.0%) 800,000 3,850,000 (79.2%) Other home equity, home improvement and other residential mortgage sales .... 539,123 193,360 178.8% 1,123,488 389,543 188.4% ---------- ---------- ---------- ---------- ----- Total home equity, home improvement and other residential mortgage sales .... 1,310,924 2,293,360 (42.8%) 2,695,289 4,239,543 (36.4%) ---------- ---------- ---------- ---------- ----- Commercial real estate mortgage loans: Whole loan sales .................... 81,248 -- n/a 461,900 -- n/a Conduit (ContiMAP(R)and affiliates) . -- 581,343 (100.0%) -- 581,343 (100.0%) Keystone ............................ 248,716 269,543 (7.7%) 568,041 487,495 16.5% ---------- ---------- ---------- ---------- ----- Total commercial real estate mortgage loans ................................. 329,964 850,886 (61.2%) 1,029,941 1,068,838 (3.6%) ---------- ---------- ---------- ---------- ----- Triad auto loans ....................... -- 80,007 (100.0%) -- 137,674 (100.0%) Strategic alliances .................... -- 56,939 (100.0%) 12,783 157,188 (91.9%) ---------- ---------- ---------- ---------- ----- Total securitizations and sales .. $1,640,888 $3,281,192 (50.0%) $3,738,013 $5,603,243 (33.3%) ========== ========== ========== ========== =====
n/a - not applicable 19 ContiMortgage Corporation Delinquencies, Defaults and Losses (dollars in thousands) (unaudited)
ContiMortgage September 30, March 31, September 30, Servicing Portfolio 1999 1999 1998 ---- ---- ---- Number of loans serviced (at period end) 179,692 194,032 188,625 Serviced loan portfolio (at period end) $ 11,981,339 $ 12,966,131 $ 12,535,874 ============== ============== ============== Weighted Average Seasoning (age in months) (1) 21 17 15 Delinquencies: 30 - 59 days 2.11% 1.39% 2.02% 60 - 89 days 0.65% 0.51% 0.74% 90 days and over 0.05% 0.44% 0.57% -------------- -------------- -------------- Total delinquencies (%) 2.81% 2.34% 3.33% ============== ============== ============== Total delinquencies ($) $ 336,138 $ 303,802 $ 417,862 ============== ============== ============== Defaults: Foreclosure 2.79% 2.29% 1.95% Bankruptcy 2.03% 1.65% 1.53% Real estate owned 1.31% 1.04% 0.93% Loss mitigation and legal (2) 1.38% 1.24% 0.91% -------------- -------------- -------------- Total defaults (%) 7.51% 6.22% 5.32% ============== ============== ============== Total defaults ($) $ 899,973 $ 806,656 $ 666,687 ============== ============== ==============
(1) This caption has been added to illustrate the significant change in the age of the portfolio and provide a frame of reference for the location of the portfolio within the default cycle. (2) This category includes non-performing accounts specifically identified for accelerated resolution under the Company's loss mitigation program. Resolution strategies include refinances, reinstatements, and full payoffs; forbearance plans; pre-foreclosure sales for less than full payoff; third party foreclosure sales; deed-in-lieu (or "cash for keys"); and charge-offs. 20 ContiMortgage Corporation Delinquencies, Defaults and Losses Continued (dollars in thousands) (unaudited)
For the three For the twelve ContiMortgage months ended months ended Loan Loss Experience September 30, September 30, 1999 1999 ---- ---- Average serviced loan portfolio $12,327,641 $12,687,135 =========== =========== Net losses: REMICs and loans held pending securitization 49,116 180,019 Loans and properties purchased out of REMICs 3,002 5,951 ----------- ----------- Total net losses $ 52,118 $ 185,970 =========== =========== Realized net losses as a percentage of average amount outstanding (2): REMICs and loans held pending securitization 1.59% 1.42% Loans and properties purchased out of REMICs 0.10% .05% ----------- ----------- Total realized net losses as a percentage of average amount outstanding 1.69% 1.47% =========== ===========
(2) Amounts for the three months ended September 30, 1999 are annualized. 21 Results of Operations Three and Six Months Ended September 30, 1999 Compared with the Three and Six Months Ended September 30, 1998 The Company incurred a net loss of $333.7 million and $571.4 million for the three and six months ended September 30, 1999 compared to a net loss of $114.3 million and $108.2 million for the three and six months ended September 30, 1998, a decrease of $219.5 million and $463.2 million, respectively. The Company's total gross income (loss) decreased to a loss of $152.9 million and $171.6 million for the three and six months ended September 30, 1999, respectively, from income of $10.9 million and $153.0 million for the comparable periods last year. Total expenses decreased to $180.7 million for the three months ended September 30, 1999 from $196.5 million for the comparable period last year, and increased to $389.5 million for the six months ended September 30, 1999 from $328.4 million for the comparable period last year. Explanation of the significant revenue and expense captions and the drivers of those changes are described below. Gain (Loss) on Sale of Receivables: The following table sets forth the components of gain (loss) on sale of receivables for the three and six months ended September 30, 1999 and 1998:
Three Months Ended Six Months Ended September 30, September 30, ------------- ------------- (dollars in thousands) 1999 1998 1999 1998 ---- ---- ---- ---- Home equity/home improvement $ (15,928) $ 83,591 $ 24,479 $ 171,112 Commercial real estate 1,538 1,490 3,362 2,752 Auto and Other -- 9,542 -- 17,879 --------- --------- --------- --------- Gain (loss) before fair value adjustments (14,390) 94,623 27,841 191,743 Fair value adjustments (173,486) (78,307) (324,668) (137,855) --------- --------- --------- --------- Gain (loss) after fair value adjustments $(187,876) $ 16,316 $(296,827) $ 53,888 ========= ========= ========= =========
Gain (loss) before fair value adjustments was unfavorable by $109.0 million for the three months ended September 30, 1999 as compared to the same three months of fiscal 1999, whereas total securitizations and sales decreased 50%, from $3.3 billion to $1.6 billion for the same respective periods. Gain (loss) before fair value adjustments was unfavorable by $163.9 million for the six months ended September 30, 1999 as compared to the same six months of fiscal 1999, whereas total securitizations and sales decreased 33%, from $5.6 billion to $3.7 billion for the same respective periods. In the three months ended September 30, 1999 Greenwich purchased on a whole loan basis, through an affiliate, approximately $772 million of home equity loans which were funded under ContiFinancial's prior warehouse facilities. The consideration for the sale was the net cash proceeds and the residual from the securitization Greenwich's affiliate subsequently executed with the purchased collateral. The loss on this transaction was $20.3 million. The loss was primarily the result of both the prefunding and higher level of overcollateralization levels required by the monoline insurer supporting the transaction due to the Company's impaired financial condition and the perceived quality of the collateral securitized, and the higher level of transaction costs to execute the securiti- 22 zation. For ContiMortgage/ContiWest transactions, gain (loss) before fair value adjustments expressed as a percentage of total securitizations and sales resulted in a loss of 1.22% compared to a gain of 3.6% for the respective three months ended September 30, 1999 and 1998. For the six months ended September 30, 1999 and 1998, ContiMortgage/ContiWest transactions gain (loss) before fair value adjustments expressed as a percentage of total securitizations and sales resulted in a gain of 0.9% compared to a gain of 4.0%, respectively. This decrease in profitability between the two periods reflects higher loss assumptions (see below) and higher investor spread requirements. For the three months ended June 30, 1999, the Company recorded fair value write-downs of $151.2 million on Interest-only and residual certificates, primarily reflecting increased estimates of credit losses in the ContiMortgage/ContiWest portfolio. In response to events occurring in the first fiscal quarter, as more fully described in Note 2 to the Consolidated Financial Statements, management made a determination that the Company most likely would not be able to achieve the results assumed in its prior loan loss projections; therefore, assumptions as to future loss severities were increased. For the three months ended June 30, 1998, the fair value adjustments of $59.5 million resulted primarily due to increased estimates of future prepayment speeds and losses in the ContiMortgage/ContiWest portfolio. During the second quarter of fiscal 2000, management made a further determination that assumptions as to future loss frequencies should be increased, resulting in a fair value adjustment to interest-only and residual certificates of $173.5 million for the three months ended September 30, 1999. The basis for this increased expectation in loss frequency was driven by the following factors: (i) the recent performance of the Company's more seasoned REMICs resulted in management increasing its assumptions of loss frequencies across the entire portfolio, and (ii) new data from third parties regarding loss frequency expectations on subprime collateral in general. The cumulative impact of the fair value adjustments to interest-only and residual certificates for the six months ended September 30, 1999 is $324.7 million. Interest Income and Expense: In the normal course of its activities, the Company carries inventories of loans pending sale or securitization and earns a positive spread between the interest income earned on those loans and the cost of financing such loans. Interest income also includes accrued imputed interest on Excess Spread Receivables ("ESR"). In addition to the cost of financing loans pending sale or securitization, interest expense includes the cost of financing the Company's longer term capital requirements, including the cost of strategic acquisitions. Interest income during the three and six months ended September 30, 1999 declined $58.5 million or 64.3%, and $78.2 million or 48.0%, respectively, compared to the three and six months ended September 30, 1998. Interest expense fell $28.0 million or 42.4%, and $40.8 million or 33.5%, respectively, for the three and six months ended September 30, 1999 compared to the comparable period in the prior year. These decreases reflect the decline in loan originations that began in the second half of fiscal 1999 and continued during the first quarter of fiscal 2000, the elimination of substantially all financing commitments to strategic alliance clients, and the reduction in the balance of ESR. 23 Net servicing Income: Net servicing income consists of servicing fees and prepayment penalties collected from borrowers, and capitalized servicing activity. Net servicing income declined $27.5 million and $41.3 million or 95.1% and 74.3% in the three and six months ended September 30, 1999 compared to the three and six months ended September 30, 1998. The following table presents the components of servicing income for the two periods:
Three months ended Six months ended September 30, September 30, ------------- ------------- (in thousands) 1999 1998 1999 1998 ---- ---- ---- ---- Capitalized servicing created $ -- $ 31,651 7,052 $ 52,653 Premiums paid for capitalized prepayment penalties -- (13,954) (1,736) (18,621) Amortization of capitalized servicing (15,344) (9,787) (31,361) (17,872) Fees and prepayment penalty collections 24,774 21,056 53,882 39,526 Impairment of capitalized servicing (8,000) -- (13,500) -- ------------ ------------ ------------ ------------ Net servicing income $ 1,430 $ 28,966 $ 14,337 $ 55,686 ============ ============ ============ ============ Total ContiMortgage/ContiWest securitization volume $ -- $ 2,100,000 $ 800,000 $ 3,850,000 Average ContiMortgage servicing portfolio (excluding warehouse) $ 11,302,293 $ 10,220,169 $ 11,539,326 $ 9,687,734
The absence of capitalized servicing created during the quarter ended September 30, 1999 was attributable to the appointment of a servicer other than the Company on a loan sale to Greenwich during that quarter. The appointment of another servicer, because of the Company's impaired financial condition, was necessary to obtain the monoline insurance guaranty on the transaction. The increase in amortization of capitalized servicing of $5.6 million in the quarter ended September 30, 1999 versus the comparable fiscal 1999 quarter was due predominantly to the 20% increase in the amount of capitalized servicing created during fiscal 1999, which affects the level of subsequent amortization, as compared to the amount of capitalized servicing created in fiscal 1998 (such capitalized amounts being $76.6 million and $63.6 million, respectively). Further, the prepayment penalty component of capitalized servicing created was higher in fiscal 1999 than fiscal 1998, and since prepayment penalties have set expiration dates that may be as short as six months, capitalized prepayment penalties are, on average, amortized over a much shorter period than normal servicing fees. The Company recorded an estimated impairment reserve of $5.5 million during the first quarter of fiscal 1999 because certain securitized portfolios have reached delinquency levels that may trigger the loss of the servicing rights related to those pools. The Company also recorded an estimated impairment reserve of $8.0 million in the second quarter of fiscal 2000 due to the expectation that servicing costs on a per loan basis will increase in the future. Given its current financial condition, the Company is unable to increase its servicing portfolio and as a result the portfolio will increase in age. As the portfolio ages, the portion of the portfolio that is delinquent, which is more costly to service, will increase. Fees and prepayment penalties collected in the three and six months ended September 30, 1999 increased by $3.7 million and $14.4 million, respectively, compared to the three and six months ended September 30, 1998 24 primarily due to an increase in the average balance of the ContiMortgage/ContiWest portfolio of loans serviced for others and a higher level of ancillary income such as prepayment penalties and late fees. The following table presents an analysis of capitalized servicing rights activity during the six months ended September 30, 1999: (in thousands) Balance as of March 31, 1999 $ 105,273 New securitization 7,052 Capitalized servicing received in strategic alliance asset swap 3,115 Amortization of capitalized servicing rights (31,361) Impairment of capitalized servicing (13,500) ---------- Balance as of September 30, 1999 $ 70,579 ========= Compensation and Benefits and General and Administrative Expenses:
Three Months Ended Six Months Ended September 30, September 30, (dollars in thousands) 1999 1998 1999 1998 ---- ---- ---- ---- Compensation and benefits $ 44,735 $ 51,842 $ 95,791 $ 95,166 ========= ======== ======== ======== General and administrative expenses $ 41,827 $ 40,071 $ 84,965 $ 72,582 ========= ======== ======== ======== Quarter-end head count 2,766 3,583 Average head count for the quarter 2,898 3,394
In the three months ended September 30, 1999 compensation and benefits decreased by $7.1 million or 13.7% due to a workforce reduction of approximately 11%. General and administrative expenses increased in the three and six months ended September 30, 1999 by $1.8 million and $12.4 million, respectively, or 4.4% and 17.1%, respectively. The increase for the six months ended September 30, 1999 compared to the prior comparable period primarily reflects the expansion of the Company's direct-to-consumer retail operations during fiscal 1999 and the expansion of the Company's servicing operations due to the increase in the size of the servicing portfolio. Direct-to-consumer retail operations require a higher level of G&A Expense than non-retail operations that are conducted through correspondents and brokers. 25 Other Charges: Other charges for the three and six months ended September 30, 1999 and 1998 consisted of the following:
------------------- -------------------- Three Months Ended Six Months Ended September 30, September 30, -------------------- -------------------- (dollars in thousands) 1999 1998 1999 1998 ----- ----- ------ -------- Other Charges: Write-down of cost in excess of equity acquired $ 2,569 $ 2,782 $ 62,522 $ 2,782 Restructuring charges (excluding compensation related) 12,056 5,340 18,715 5,340 Severance for approximately 760 employees 8,653 -- 8,653 -- Staff retention costs 17,143 -- 17,143 -- Write-offs and reserves of receivables from affiliates and others 13,044 27,968 14,227 27,968 Other -- -- 2,134 -- Total Other Charges $ 53,465 $ 36,090 $123,394 $ 36,090
Based on the recent developments discussed in Note 2, management made a determination that the carrying value of cost in excess of equity acquired related to most of the Company's operations had been significantly impaired and appropriate write-downs of $2.6 million and $62.5 million for the three and six months ended September 30, 1999, respectively, had to be recorded. For the three months ended September 30, 1999, the writedown of $2.6 million primarily relates to a majority owned subsidiary of the Company based on the Company's expectation of the net proceeds to be realized from the sale of this entity. The restructuring charges of $12.1 and $18.7 million, for the three and six months ended September 30, 1999, respectively, primarily represent legal and consulting fees related to restructuring. In August 1999, the Company began the implementation of a workforce reduction plan which has resulted in a reduction of the workforce of approximately 11% as of September 30, 1999, and is expected to result in the reduction of approximately 30% of the Company's employees by the end of the Company's fiscal year in order to achieve the strategic goals of the Company's restructuring plan as discussed in Note 2 to the Consolidated Financial Statements. A charge of $8.7 million for severance costs was recorded for approximately 760 employees representing a cross section of individuals from all operations of the Company. At September 30, 1999, $4.3 million of this charge remains in Other liabilities. In July 1999 and August 1999, the Company established the CFN and CMC 1999 Retention Bonus Plans (the "Plans") for the purpose of retaining the valuable services of the Company's key employees through certain dates. In order to guarantee payment to employees of amounts that will become due to them under the Plans, the Company established and funded irrevocable trusts with the amount necessary to satisfy the Company's maximum liability under the Plans. 26 Liquidity and Capital Resources The following discussion of Liquidity and Capital Resources should be read in conjunction with "Recent Developments, Financial Results and Liquidity" at the beginning of this Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations". Funding Requirements The Company requires continued access to short- and long-term sources of funding for its operations. The Company's primary cash requirements include the funding of (i) mortgage loan originations and purchases pending their pooling and sale, (ii) on going administrative and other operating expenses which will include payments relating to the Restructuring Plan, (iii) payments related to tax obligations, (iv) interest and principal payments relating to the Company's long-term debt and short-term borrowed funds, (v) the costs of sales under the Company's Purchase and Sale Facilities and Repurchase Agreements (collectively, the "Warehouse Facilities"), and (vi) the cost of any subsequent contingent purchase price payments on prior acquisitions. The Company has taken steps to improve the cash flow characteristics of its business activities by shedding businesses that required significant capital outlays and focusing its financial resources on its core home equity business. Within the home equity business, the Company took further steps to reduce the capital requirements by implementing a whole loan sale strategy to accelerate recapture of origination costs. Furthermore, development of the Company's retail home equity origination platform provides a source of cash income through origination points and fees. The reduction in correspondent origination volume has significantly reduced the total amount of premiums paid to originate a loan. As competition has decreased, the cost of originating correspondent loans has also dropped significantly, benefiting the Company through lower purchase premiums. Sources of Liquidity and Capital During the quarter ended September 30, 1999, the Company's primary sources of liquidity were whole loan sales to the Greenwich purchase facilities and to other third party loan purchasers. On August 12, 1999, the Company entered into a definitive agreement with Greenwich to provide the Company with a $500 million revolving servicing-released whole loan purchase facility of up to $1.5 billion, at ContiFinancial's option, through March 31, 2000. Greenwich provides a warehouse facility of up to $250 million on a revolving basis. Both facilities ("Greenwich Facilities") expire on March 31, 2000. In addition to the two facilities, Greenwich purchased on a whole loan basis, through an affiliate, approximately $772 million of home equity loans which were funded under ContiFinancial's prior warehouse facilities. As of September 30, 1999 the Company had $250 million of committed and $60 million of uncommitted capacity under the warehouse facilities. As of September 30, 1999, the Company had utilized $200 million of the capacity under the Warehouse Facilities. As discussed in the "Recent Developments, Financial Results and Liquidity", the Company is operating on a negative cash flow basis and is dependent on the Greenwich Facilities for its continued operations. In order to fund new loans and asset originations and purchases, the Company is dependent on its ability to 27 fund loans under the Greenwich Facilities. The Company is also dependent on continued access to the Bank Facilities or obtaining new bank facilities in order to meet its cash needs. The Company is required to comply with various financial covenants under its outstanding Senior Notes and Bank Facilities. As of December 31, 1998 and continuing through September 30, 1999, the Company's leverage ratio exceeded the leverage ratio test under the covenants of its outstanding Senior Notes. As a result, the Company is prevented from issuing additional unsecured debt until its leverage ratio is below such test. As of December 31, 1998, amended financial covenants were received changing the leverage and fixed charge ratios and the minimum net worth test in the Bank Facilities, and lenders agreed to exclude certain charges from the covenant ratio calculations. As of March 31, 1999, the Bank Facilities were amended to eliminate the financial covenants and borrowing base provisions, among other things. As part of the bank amendment, the Company agreed to reduce commitments under the Bank Facilities by 75% of the total proceeds received by the Company for the sale of Triad Financial Corporation ("Triad"). On June 11, 1999, the sale of Triad was closed, and the Bank Facilities commitments were reduced by approximately $95 million. If the above mentioned amendments had not been obtained, the Company would not have been in compliance with the covenants. As part of the December amendments to the Revolving Credit Facility, the Company had agreed to prepay the Revolving Credit Facility on August 20, 1999, which made the Revolving Credit Facility coterminous with the Commercial Paper Program. As part of the March amendments, the interest rate of the Revolving Credit Facility and the Commercial Paper Program were increased to LIBOR plus 300 basis points. On August 19, 1999, the Company agreed with the lenders under its Bank Facilities to extend the maturity date of the Bank Facilities from August 20, 1999 to March 31, 2000 and to convert both facilities into term arrangements. The Company also agreed to certain modifications of the Bank Facilities including a $20 million minimum liquidity covenant. The agreement also includes providing collateral to the lenders in the form of a lien on certain Excess Spread Receivables with a June 30, 1999 book value of approximately $147 million. The book value of these Excess Spread Receivables as of September 30, 1999 was approximately $87 million. The interest rate on each facility remains at LIBOR plus 300 basis points. The Company was in compliance with the amended covenants of the Bank Facilities as of September 30, 1999. At September 30, 1999, the Company had outstanding $422.0 million on its Bank Facilities. On November 10, 1999, the Company entered into a new arrangement with Greenwich to provide monthly servicer advances, up to an aggregate outstanding amount of $125 million, to certain REMICs for which ContiMortgage is the servicer. This arrangement replaced the ContiGroup arrangement which expired on October 15, 1999. Greenwich has agreed to make these advances, for a fee, through November 9, 2000. On June 11, 1999, the Company sold its interest in Triad to Fairlane Credit LLC, a wholly-owned subsidiary of Ford Motor Credit Company. The sale of Triad resulted in a gain to the Company of approximately $22 million and provided gross proceeds of approximately $134 million through sale proceeds, repayment of intercompany debt and net return of intercompany warehouse financing. Of this amount, approximately $95 million was used to pay down the Company's Bank Facilities, thereby reducing the commitments under the Bank Facilities by the pay down amount. 28 On July 15, 1999, Standard & Poor's lowered its senior unsecured debt and long-term debt credit ratings to CC, Moody's Investors Service downgraded the Company's long-term debt ratings to Caa2 and Fitch IBCA reduced the Company's long-term debt rating to C. The Company recently received notification from the New York Stock Exchange that the Company currently does not meet listing standards of the Exchange requiring a minimum average share price of $1.00 over a consecutive 30 trading day period, and total market capitalization of not less than $50 million in conjunction with stockholders' equity of not less than $50 million. The Company is required to bring its average share price to the minimum specified by the Exchange within six months and, in accordance with the rules of the Exchange, the Company is working with the Exchange on a business plan to address the market capitalization and stockholders' equity issue within the applicable time frame. However, it is unlikely that the Company will be successful in meeting these requirements. The Company will examine alternatives to the Exchange for the continued trading of the Company's common stock. Year 2000 The "Year 2000" issue, the ability of systems to identify dates in the 21st century, is a critical business and operational issue being addressed by the Company's ongoing entities. During the three months ended September 30, 1999 the Company's Year 2000 Project Team continued to monitor and implement changes to upgrade the Company's facilities, computer systems and applications for Year 2000 compliance. As of September 30, 1999, the Company believes that all material hardware, software and computerized systems are Year 2000 compliant. The Company will continue to monitor and test critical applications through 1999. Modifications will be implemented, as required, to ensure Year 2000 compliance. The Company estimates that the direct cost of its Year 2000 remediation, including contingency planning, will be approximately $2.0 million. To date, the Company has spent approximately $1.7 million on the Year 2000 issue. The Company's contingency plan documentation covers a broad range of problems that could occur relative to the turn of the century. In addition, ContiMortgage has a disaster recovery plan in place to support a computer related outage. The Company presently believes, based on the information obtained during the systems inventory and assessment phase, that the Year 2000 issue will not have a material adverse impact on its computer systems or operations. However, the interdependent nature of the Company's operations, in particular its substantial reliance on third party vendors, makes it impossible to say with certainty that the Year 2000 issue will not have a material adverse impact on those computer systems and operations. Forward-looking Statements Certain statements contained in this Quarterly Report on Form 10-Q, including, but not limited to, statements relating to the Company's strategic objectives, raising additional equity and future performance, which are not historical fact, may be deemed to be forward-looking statements under the federal securities laws. There are many important factors that could cause the Company's actual results to differ materially from those indicated in the forward-looking statements, including the ability of the Company to successfully complete a transaction with a buyer or equity investor. Such factors also include, but are not limited to, general economic conditions; interest rate risk; prepayment speeds; delinquency and default rates; credit 29 losses; changes (legislative and otherwise) in the asset securitization industry; demand for the Company's services; residential and commercial real estate values; the ability of the Company to negotiate agreements to sell whole loans; the impact of certain covenants in debt agreements of the Company; the degree to which the Company is leveraged; its needs for financing; the continued availability of the Company's credit facilities; the risk of margin calls on the Company's credit facilities and hedge positions; capital markets conditions, including the markets for asset-backed securities and commercial mortgage loans; the performance of the Company's subsidiaries and affiliates; the Company's Year 2000 issues; and other risks identified in the Company's Securities and Exchange Commission filings. In addition, it should be noted that past financial and operational performance of the Company is not necessarily indicative of future financial and operational performance. 30 Item 3. Quantitative and Qualitative Disclosures About Market Risk The primary market risk exposure that the Company faces is interest rate risk. The Company is most vulnerable to changes in U.S. Treasury yields, LIBOR yields, and the yield spread requirements of the investors who buy the Company's securities and loans. The Company's material exposures of interest rate sensitive financial instruments, which are entered into for other than trading purposes, are its committed pipeline of loans, its loan inventories (including off-balance-sheet exposures), its interest-only and residual certificates, its capitalized servicing rights, and the various derivative financial instruments that the Company uses to manage the interest rate risk related to the aforementioned other financial instruments. The overall objective of the Company's interest rate risk management policies is to mitigate the effect of changing interest rates on the fair value of its other financial instruments. The Company does not have an ongoing hedging program to manage interest rate risk associated with its interest-only and residual certificates and its capitalized servicing rights. The primary risk involved is that a decline in interest rates could result in an acceleration of prepayment speeds that would adversely impact the fair value of these assets. However, because of the relatively short average lives of the Company's home equity loans, prepayment speeds related to the Company's portfolios are not as interest rate sensitive as those of traditional mortgage products; therefore, the Company believes it would require a substantial and sustained decline in interest rates, beyond what the Company would consider to be a "reasonably possible near-term change," to impact prepayment speeds to a material extent. The Company is also exposed to basis risk in its portfolio of interest-only and residual certificates in that a portion of the Company's securities have interest rates that adjust on a monthly basis, whereas the interest rates on the loans that collateralize the securities may be fixed or have adjustment intervals and indices that are different than those of the underlying securities. As part of its interest rate risk management process, the Company performs various sensitivity analyses that attempt to quantify the net change in fair value of its interest rate sensitive financial instruments. These analyses assume hypothetical scenarios of instantaneous and permanent shifts in the U.S. Treasury and/or LIBOR yield curves. The Company employs various discounted cash flow models to determine the fair value of its interest rate sensitive financial instruments under these scenarios. The primary assumptions used in the discounted cash flow models are prepayment rates, credit losses, discount rates and investor yield spread requirements. See Note 4 to the Consolidated Financial Statements. Using the sensitivity analysis described above, as of September 30, 1999, the Company estimates that a parallel, instantaneous and permanent increase in the U.S. Treasury yield curve of 50 basis points (.50%), all else being constant, would result in an aggregate decrease in the fair value of its interest rate sensitive financial instruments (derivative and other) of approximately $2 million; an instantaneous and permanent increase in the LIBOR yield curve of 50 basis points (.50%), all else being constant, would result in an aggregate decrease in the fair value of its interest rate sensitive financial instruments (derivative and other) of approximately $13 million; an instantaneous and permanent increase in the discount rate of 120 basis points (1.20%), all else being constant, would result in an aggregate decrease in the fair value of its interest rate sensitive financial instruments (derivative and other) of approximately $34 million; and an instantaneous and permanent increase in the investor yield spread requirement of 50 basis points (.50%), all else being constant, would result in an aggregate decrease in the fair value of its interest rate sensitive financial instruments (derivative and other) of approximately $3 million. The Company assumed there would be no material change in prepayment speeds under the interest rate change scenarios presented above. The Company estimates that a 100 basis points (1.0%) increase in pre- 31 payment speeds would decrease the fair value of the interest-only and residual certificates by approximately $26 million and would decrease the fair value of the capitalized servicing rights by $1.0 million (net of the estimated benefit from increased prepayment penalty income). See Note 4 to the Consolidated Financial Statements for the effect of changes in prepayment speeds and other assumptions on the interest-only and residual certificates. These sensitivity analyses are limited by the fact that that they are performed at a particular point in time and do not incorporate other factors that may impact the fair value of the Company's interest rate sensitive financial instruments in each scenario. The above scenarios do not reflect the Company's expectations regarding future movements in interest rates or prepayment speeds. Consequently, the preceding estimates should not be viewed as a forecast. 32 PART II OTHER INFORMATION Item 1. Legal Proceedings On or about October 21, 1999, a purported class action entitled O'Hopp v. ContiFinancial Corporation, et al., No. 99cv06794, was filed in the United States District Court for the Eastern District of New York on behalf of Dea O'Hopp, a stockholder of the Company, and similarly situated individuals, against the Company, Continental Grain Corporation (sued in its capacity as a "controlling person") and former Company officers and/or directors James E. Moore and Daniel J. Willett. On or about October 29, 1999, a virtually identical complaint was filed against the same defendants in the United States District Court for the Southern District of New York in an action entitled I&M Associates v. ContiFinancial Corporation, et al., No. 99 Civ. 10941. Both actions allege, among other things, violations of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, based on allegedly false or misleading statements and failures to disclose allegedly material information in Company press releases, SEC filings and statements made to analysts during the period from January 19, 1998 through July 21, 1999. These misstatements and omissions, plaintiffs allege, artificially inflated the Company's stock price during the relevant time period. The plaintiffs seek damages in an unspecified amount. The Company intends to defend these actions vigorously. Given the preliminary stage of the litigation, the Company is unable to evaluate the potential materiality of such suits, if any. Item 4. Submission of Matters to a Vote of Security Holders. (a) The annual meeting of shareholders of the Company was held September 14, 1999. (b) Directors whose term of office as a director continued after the meeting including the Class I Directors elected (see (c)(i) below): Class I Directors Class II Directors Class III Directors - ----------------- ------------------ ------------------- Mark R. Baker Paul J. Fribourg John P. Tierney Alan H. Fishman John W. Spiegel Michael J. Zimmerman Donald L. Staheli Lawrence G. Weppler (c) Holders of common shares voted at this meeting on the following matters, which were set forth in full in the registrant's proxy statement dated August 25, 1999: (i) Election of Class I Directors Nominee For Withheld ------- --- -------- Mark R. Baker 37,611,976 42,420 Alan H. Fishman 37,612,376 42,020 33
For Against Abstain --- ------- ------- (ii) Amend the 1995 Long-Term Stock Incentive Plan (Re: Limits): 37,544,226 96,670 13,500 (iii) Amend the 1995 Long-Term Stock Incentive Plan (Re: Increase): 37,018,185 623,526 12,685 (iv) Amend the 1995 Long-Term Stock Incentive Plan (Re: Goals): 37,420,625 221,686 12,085 (v) Amend the Section 162(m) Bonus Plan: 37,574,144 69,052 11,200 (vi) Appointment of Auditors: 37,626,613 25,583 2,200
Appointment of the firm of Arthur Andersen LLP as the independent accountants for the Company for the fiscal year ending March 31, 2000. (d) Subsequent to the vote, on October 13, 1999, the following directors resigned from the board: Donald Staheli John P. Tierney Lawrence Weppler (e) Subsequent to the vote, on October 13, 1999, the following persons have been elected as directors by the board of directors to fill vacancies on the board of directors: James Larocca Thomas Robards 34 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits Exhibit No. Description 10.33 Fourth Amendment to the Credit Agreement 10.34 Fourth Amendment to the Amended and Restated Letter of Credit and Reimbursement Agreement 10.35 Pledge and Security Agreement between the Company and Credit Suisse First Boston 10.36 Master Repurchase Agreement between Greenwich Capital Financial Products, Inc. and the Company 10.37 Master Mortgage Loan Purchase Facility between Greenwich Capital Financial Products, Inc. and the Company 10.38 Amended and Restated Pledge and Security Agreement between the Company and Greenwich Capital Financial Products, Inc., et al 11.1 Computation of the Company's Earnings Per Common Share 12.1 Ratio of Earnings to Fixed Charges 27.1 Financial Data Schedule (b)Reports on Form 8-K. None. 35 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ContiFinancial Corporation Signature Title Date /s/ William P. Higgins Senior Vice President and November 15, 1999 - ------------------------ Controller (Principal Accounting ----------------- William P. Higgins Officer) /s/ Frank W. Baier Senior Vice President and Chief November 15, 1999 - ------------------------ Financial Officer (Principal ----------------- Frank W. Baier Financial Officer) EX-10.33 2 EXHIBIT 10.33 FOURTH AMENDMENT dated as of August 19, 1999 (this "Amendment") to the Credit Agreement (as previously amended, the "Credit Agreement") dated as of January 7, 1997, among ContiFinancial Corporation, a Delaware corporation (the "Borrower"), the Lenders party thereto and Credit Suisse First Boston, New York Branch, as Administrative Agent. A. Pursuant to the Credit Agreement, the Lenders have extended credit to the Borrower on the terms and subject to the conditions set forth therein. B. The Borrower has requested that the Lenders extend the Maturity Date and amend certain other provisions of the Credit Agreement as set forth herein. The undersigned Lenders are willing to amend such provisions on the terms and subject to the conditions set forth herein. Accordingly, in consideration of the mutual agreements contained herein and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties hereto hereby agree as follows: SECTION 1. Definitions. Each capitalized term used but not defined herein shall have the meaning assigned to it in the Credit Agreement as amended hereby. The principles of construction set forth in Section 1.03 of the Credit Agreement shall apply equally to this Amendment. SECTION 2. Amendments to Article I. (a) Amendment of Section 1.01. Section 1.01 of the Credit Agreement is hereby amended by: (i) inserting in the appropriate alphabetical order the following definitions: "Act of Insolvency" means, with respect to the Borrower and its Restricted Subsidiaries, (i) the filing of a petition, commencing, or authorizing the commencement of any case or proceeding under any bankruptcy, insolvency, reorganization, liquidation, dissolution or similar law relating to the protection of creditors of the Borrower or any of its Restricted Subsidiaries, or suffering any such petition or proceeding to be commenced by another; provided, however, that any involuntary proceeding filed against the Borrower or a Restricted Subsidiary shall not constitute an Act of Insolvency unless such petition or proceeding is not dismissed within 30 days of its commencement, (ii) seeking the appointment of a receiver, trustee, custodian or similar official for the Borrower or a Restricted Subsidiary or any substantial part of its property, (iii) the appointment of a receiver, conservator, or manager for the Borrower or a Restricted Subsidiary or any substantial part of the property of either by any governmental agency or authority having the jurisdiction to do so, (iv) the making or offering by the Borrower or a Restricted Subsidiary of a composition with its respective creditors or a general assignment for the benefit of creditors, (v) the admission in writing by the Borrower or a Restricted Subsidiary of such party's inability to pay its ordinary course trade debts as they become due or mature, or (vi) any Governmental Authority or agency or any person, agency or entity acting or purporting to act under Governmental Authority shall have taken any action to condemn, seize or appropriate, or to assume custody or control of, all or any substantial part of the property of the Borrower or a Restricted Subsidiary, or shall have taken any action to displace the management of such party or to curtail its authority in the conduct of the business of such party. "Affiliate Transaction" shall have the meaning assigned thereto in Section 6.06 hereof. "Average Liquidity Test" means for any month (A) the sum of (i) the Borrower's consolidated cash plus unencumbered mortgage loans on the last Business Day of such month and (ii) the Borrower's consolidated cash plus unencumbered mortgage loans on the first Business Day of the following month, (B) divided by two. "Collateral" has the meaning specified in the Security Agreement. "Consolidated Restricted Subsidiary" means a Restricted Subsidiary (i) 80% of the Capital Stock and 80% of the Voting Stock of which is owned by the Borrower or one or more Consolidated Restricted Subsidiaries and (ii) which is treated as a consolidated subsidiary for the purpose of the Borrower's U.S. Federal income tax reporting. "Contractual Obligation" means as to any Person, any provision of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound or any provision of any security issued by such Person. "Excluded Subsidiary" means each of Royal Mortgage Partners, L.P., Resource One Consumer Discount Company, Inc., Resource One Mortgage of Oxford Valley, Inc., Resource One of Delaware Valley, Inc., Resource Corporation Financial Inc., Crystal Mortgage Company, Inc., Lenders M.D., Inc., Keystone Mortgage Partners LLC, Keystone Mortgage Partners, Inc., Keystone Mortgage Funding, Inc., Keystone Mortgage Investments, Inc., Keystone Capital Group, Inc. and California Lending Group. "Fourth Amendment Date" means August 19, 1999. 2 "Greenwich" means Greenwich Capital Financial Products, Inc. "Indentures" means the Indenture, dated as of August 15, 1996, between the Borrower and The Chase Manhattan Bank, as Trustee, the Indenture, dated as of March 1, 1997, between the Borrower and The Chase Manhattan Bank, as Trustee, and the Indenture, dated as of March 4, 1998, between the Borrower and The Bank of New York, as Trustee, pursuant to the terms of each of which the Borrower has issued Senior Notes. "Material Adverse Effect" means a material adverse effect upon (i) the business operations, properties or assets of the Borrower and its Subsidiaries, taken as a whole, (ii) the ability of the Borrower to perform its obligations, or of the Administrative Agent or the Lenders to enforce any of their respective rights or remedies, under this Agreement or any of documents to be executed and/or delivered hereunder, (iii) the validity or enforceability of any of the Security Documents or (iv) the Collateral taken as a whole (provided that any fair value adjustments to Excess Spread Receivables as required by GAAP shall not be deemed a "Material Adverse Effect"), in the case of clauses (i), (ii), (iii) and (iv) above (A) taking into consideration the financial condition of the Borrower and its Subsidiaries as of the date of this Agreement and (B) without taking into consideration any further deterioration of the financial condition of the Borrower and its Subsidiaries after the date of this Agreement. "Permitted Holders" means lineal descendants of Jules Fribourg, including any individual legally adopted; spouses of such descendants; trusts, the beneficiaries of which are any of the foregoing; partnerships, corporations, or other entities in which any of the foregoing (individually or collectively) has a controlling interest; and charitable organizations established by any of the foregoing. "Requirement of Law" means as to any Person, the certificate of incorporation and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its Property or to which such Person or any of its property is subject. "Responsible Officer" means, as to any Person, the chief executive officer, vice president and treasurer, or with respect to financial matters, the chief financial officer or treasurer of such Person; provided, however, that in the event any such officer is unavailable at any time he or she is required to take any action hereunder, Responsible Officer shall mean any officer authorized to act on such officer's behalf as demonstrated to the Buyer to its reasonable satisfaction. 3 "Restricted Payment" means (i) the declaration or payment of any dividends or any other distributions of any sort in respect of its Capital Stock or similar payment to the direct or indirect holders of its Capital Stock (other than (A) dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock), (B) dividends or distributions payable solely to the Borrower or a Subsidiary and (C) pro rata dividends or other distributions made by an Unrestricted Subsidiary to minority shareholders (or owners of an equivalent interest in the case of a Subsidiary that is an entity other than a corporation)), (ii) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of the Borrower held by any Person or of any Capital Stock of a Subsidiary held by any Affiliate of the Borrower (other than a Subsidiary), including the exercise of any option to exchange any Capital Stock (other than into Capital Stock of the Borrower that is not Disqualified Stock), (iii) the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment of any Subordinated Obligations (other than the purchase, repurchase or other acquisition of such Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition). "Secured Parties" has the meaning given to such term in the Security Agreement. "Security Agreement" means the Pledge and Security Agreement, dated as of the Fourth Amendment Date, by the Borrower in favor of Credit Suisse First Boston, New York Branch, as Collateral Agent. "Security Documents" means the Security Agreement and all other documents executed and delivered in connection therewith. "Senior Indebtedness" means (i) Indebtedness of any Person and (ii) accrued and unpaid interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Borrower to the extent post-filing interest is allowed in such proceeding) in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable unless, in the case of either clause (i) or (ii), in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such obligations are subordinate in right of payment to the Borrower's obligations hereunder; provided, however, that Senior Indebtedness shall not include (1) any obligation of such Person to any Subsidiary of such Person, (2) any liability for Federal, state, local or other taxes owed or owing by such Persons, (3) any accounts payable or other 4 liability to trade creditors arising in the ordinary course of business (including guarantees thereof or instruments evidencing such liabilities), (4) any obligation in respect of Capital Stock of such Person or (5) that portion of any Indebtedness which at the time of Incurrence is Incurred in violation of this Agreement. "Senior Notes" means any and all notes issued by the Borrower under the terms of the Indentures. "Subordinated Obligation" means any Indebtedness of the Borrower (whether outstanding on the date hereof or thereafter incurred) which is subordinate or junior in right of payment to the obligations of the Borrower under this Agreement pursuant to a written agreement to that effect. "Temporary Cash Investments" means any of the following: (i) any investment in direct obligations of the United States of America or any agency thereof or obligations guaranteed by the United States of America or any agency thereof, (ii) investments in time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company that is not an Affiliate of the Borrower and which is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States, and which bank or trust company has capital, surplus and undivided profits aggregating in excess of $50,000,000 (or the foreign currency equivalent thereof) and has outstanding debt which is rated "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act) or any money-market fund sponsored by a registered broker dealer or mutual fund distributor, (iii) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (i) above entered into with a bank meeting the qualifications described in clause (ii) above, (iv) investments in commercial paper, maturing not more than 90 days after the date of acquisition, issued by a corporation (other than an Affiliate of the Borrower) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings Group, and (v) investments in securities with maturities of six months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by Standard & Poor's Ratings Group or "A" by Moody's Investors Service, Inc. 5 (ii) Deleting the definition of "Asset Disposition" in its entirety and replacing it with the following: "Asset Disposition" means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions) by the Borrower or any Restricted Subsidiary, including any disposition by means of a merger, consolidation or similar transaction (each referred to for the purposes of this definition as a "disposition"), of (i) any shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares or shares required by applicable law to be held by a Person other than the Borrower or a Restricted Subsidiary), (ii) all or substantially all the assets of any division or line of business of the Borrower or any Restricted Subsidiary, (iii) any other assets of the Borrower or any Restricted Subsidiary outside of the ordinary course of business of the Borrower or such Restricted Subsidiary, (iv) any Investment in a Strategic Alliance Client or (v) any Excess Spread Receivables (other than, in the case of (i), (ii), (iii), (iv) and (v) above, (x) a disposition by a Restricted Subsidiary to the Borrower or by the Borrower or a Restricted Subsidiary to a Consolidated Restricted Subsidiary, (y) a disposition that constitutes a permitted Restricted Payment or (z) a disposition of assets (including related assets) for an aggregate consideration of $1.0 million or less). (iii) Deleting the definition of "Change of Control" in its entirety and replacing it with the following: "Change in Control" means the occurrence of any of the following events: (i) Any "person" (as such term is used in Section 13(d) and 14(d) of the Exchange Act), other than any Permitted Holder, is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that such person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 35% of the total voting power of the Voting Stock of such Person; provided, however, that the Permitted Holders beneficially own (as defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, in the aggregate a lesser percentage of the total voting power of the Voting Stock of the Borrower or any Restricted Subsidiary than such other person and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors (for the purposes of this clause (i), such other person shall be deemed to beneficially own any Voting Stock of a corporation held by another corporation (a "parent corporation"), if such other person is the beneficial owner (as defined above for such person), directly or indirectly, of more 6 than 35% of the voting power of the Voting Stock of such parent corporation and the Permitted Holders beneficially own (as defined above for the Permitted Holders), directly or indirectly, in the aggregate a lesser percentage of the voting power of the Voting Stock of such parent corporation and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the board of directors of such parent corporation); (ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Borrower or any Restricted Subsidiary was approved by a vote of 66-2/3% of the directors of the Borrower or any Restricted Subsidiary then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors then in office; or (iii) the merger or consolidation of the Borrower or any Restricted Subsidiary with or into another Person or the merger of another Person with or into the Borrower or any Restricted Subsidiary, as the case may be, or the liquidation, wind-up or dissolution of the Borrower or any Restricted Subsidiary, as the case may be, or the sale of all or substantially all the assets of the Borrower or any Restricted Subsidiary, as the case may be, to another Person (other than a Person that is controlled by the Permitted Holders), and, in the case of any such merger or consolidation, the securities of the Borrower or any Restricted Subsidiary, as the case may be, that are outstanding immediately prior to such transaction and which represent 100% of the aggregate voting power of the Voting Stock of the Borrower or any Restricted Subsidiary, as the case may be, are changed into or exchanged for cash, securities or property, unless pursuant to such transaction such securities are changed into or exchanged for, in addition to any other consideration, securities of the surviving corporation that represent immediately after such transaction, at least a majority of the aggregate voting power of the Voting Stock of the surviving corporation; provided, however, that the sale by the Borrower or its Subsidiaries from time to time solely of receivables to a trust for the purpose solely of effecting one or more securitizations shall not be treated hereunder as a sale of all or substantially all the assets of the Borrower. Notwithstanding anything contained in this Agreement to the contrary, a Change of Control accompanied by an equity infusion in the Borrower of not less than $100,000,000 shall not constitute an Event of Default under this Agreement for 60 days after the date of such equity infusion, unless an additional Change of Control shall occur during such 60-day period. 7 (iv) Deleting the definition of "Interest Payment Date" in its entirety and replacing it with the following: "Interest Payment Date" means with respect to any Loan, the third Business Day of each month. (v) Deleting the words "one, two or three months" in the definition of "Interest Period" and replacing them with the words "one month." (vi) Deleting the definition of "Maturity Date" in its entirety and replacing it with the following: "Maturity Date" means March 31, 2000, as such date may be extended from time to time pursuant to Section 2.11. (vii) Deleting the definition of "Net Available Cash" in its entirety and replacing it with the following: "Net Available Cash" from an Asset Disposition means cash payments received therefrom (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to such properties or assets or received in any other noncash form) in each case net of (i) all legal, title and recording tax expenses, commissions and other fees and expenses incurred, and all Federal, state, provincial, foreign and local taxes required to be accrued as a liability under GAAP, as a consequence of such Asset Disposition, (ii) all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon or other security agreement of any kind with respect to such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law be, repaid out of the proceeds from such Asset Disposition, (iii) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition and (iv) the deduction of appropriate amounts provided by the Borrower as a reserve, in accordance with GAAP, against any liabilities associated with the property or other assets disposed in such Asset Disposition and retained by the Borrower or any Restricted Subsidiary after such Asset Disposition. SECTION 3. Amendments to Article II. Article II of the Credit Agreement is hereby amended by: 8 (a) Deleting the first sentence of Section 2.02(b) in its entirety and replacing it with the following words: "Each Revolving Borrowing shall be comprised of Eurodollar Loans only." (b) Deleting Section 2.02(c) and (d) in their entirety and replacing it with the following words "(c) [Reserved]." and "(d) [Reserved].", respectively. (c) Deleting the following words in Section 2.03: "or (b) in the case of an ABR Borrowing, not later than 12:00 noon, New York City time, one Business Day before the date of the proposed Borrowing," deleting clause (iii) of section 2.03 in its entirety and replacing it with the words "(iii) stating that the Borrowing is a Eurodollar Borrowing;" and deleting the first sentence in the paragraph following Section 2.03(v). (d) Deleting Section 2.04 in its entirety and replacing it with the following: SECTION 2.04. Swingline Loans. The Swingline Lender shall not make any Swingline Loans to the Borrower after the Fourth Amendment Date. (e) Deleting clause (ii) in Section 2.05 in its entirety and replacing it with the following words: "(ii) in the case of the Borrower, the interest rate then applicable to Eurodollar Loans with a one-month Interest Period." (f) Deleting Section 2.06(a) in its entirety and replacing it with the following words: "After the Fourth Amendment Date, each Revolving Borrowing shall be a Eurodollar Borrowing with a one-month Interest Period." (g) Deleting Section 2.06(b), (c), (d) and (e) in their entirety. (h) Deleting the number "(i)" in Section 2.08(a) and deleting clause (ii) thereof in its entirety. (i) Deleting the parenthetical in the first sentence of Section 2.09(b) in its entirety, deleting the number "(i)" in Section 2.09(b), deleting clauses (ii) and (iii) of Section 2.09(b) in their entirety and deleting the last sentence of Section 2.09(b) in its entirety. (j) Deleting Section 2.11(a) in its entirety and replacing it with the words "(a) [Reserved]." (k) Adding the following proviso immediately before the proviso in Section 2.11(e): "provided, however, that the Borrower shall not be required to pay any such accrued interest on any Interest Payment Date when the Average Liquidity Test for the prior month is less than $40,000,000; any such unpaid interest shall be due and payable on the Termination Date (provided further that no interest shall accrue on and 9 such deferred interest)" and adding the word "further" after the word "provided" in such provision. (l) Deleting Section 2.11(c) in its entirety and replacing it with the words "(c) [Reserved]." (m) Deleting clause (ii) of Section 2.11(d) in its entirety and replacing it with the following words: "(ii) in the case of any other amount, 2% plus the Alternate Base Rate." (n) Deleting clause (iii) of Section 2.11(e) in its entirety and renumbering clause (iv) so that it is clause (iii). (o) Deleting the following words in Section 2.11(f): "and (solely with respect to the determination of interest payable on any Swingline Loan) the applicable Federal Funds Effective Rate shall be determined by the Swingline Lender." (p) Deleting Section 2.12 in its entirety and replacing it with the words "SECTION 2.12. [Reserved]." (q) Deleting clause (b) of Section 2.14 in its entirety and renumbering clauses (c) and (d) so that they are clauses (b) and (c), respectively. SECTION 4. Amendments to Article III. Article III of the Credit Agreement is hereby amended to delete the words "September 30, 1996" in clause (ii) of Section 3.04(a) and replacing it with the words "March 31, 1999" and to add the words "and subject to any qualifications contained therein" at the end of Section 3.04(a). Section 3.04(b) is hereby in its entirety and replaced with the words: "(b) Since March 31, 1999, there has been no Material Adverse Effect, except as otherwise disclosed to the Lenders." SECTION 5. Amendments to Article V. Article V of the Credit Agreement is hereby amended by: (a) Deleting the following words in the parenthetical in Section 5.01(a)(i): "without a "going concern" or like qualification or exception and"; and adding the following at the end of the Section 5.01: "(i) the following additional financial information (A) the Borrower's consolidated cash flow information for each month within 15 Business Days after the end of such month; (B) rolling three month financial projections for the Borrower at the beginning of each month starting on December 1, 1999 through the Termination Date; (C) the Borrower's actual cash position as of the preceding Business Day on the first Business Day of each week; (D) quarterly Excess Spread Receivables valuations when 10 quarterly financial statements are provided pursuant to Section 5.01(a) or (b), as applicable; (E) monthly static pool performance summaries on a pool-by-pool basis with respect to each Excess Spread Receivables comprising the Collateral within five Business Days of receipt thereof by the Borrower and (F) monthly deal trigger report (including, without limitation, loss and delinquency triggers) on or before the 25th day of the month or the next Business Day thereafter. (j) on the second Business Day of each month, a certificate of a Financial Officer setting forth reasonably detailed calculations of the Average Liquidity Test for the prior month." (b) Deleting the number "(i)" in Section 5.01(a) and also deleting the following words in such Section: ", and (ii) a letter from such independent public accountants certifying that during the course of their audit nothing came to their attention that would indicate that the Borrowing Base Certificate, if any, relating to the last day of such fiscal year is inaccurate in any material respect." (c) Deleting Section 5.01(g) in its entirety and replacing it with the words "(g) [Reserved]." SECTION 6. Amendments to Article VI. Article VI of the Credit Agreement is hereby amended by deleting Section 6.01 and Sections 6.03 through 6.10 thereof in their entirety and substituting therefor the following: SECTION 6.01. Restricted Payments. Neither the Borrower nor any Restricted Subsidiary shall make any Restricted Payment. SECTION 6.03. Collateral. Neither the Borrower nor any Restricted Subsidiary shall take any action which would directly or indirectly impair or adversely affect (i) the Administrative Agent's lien on any Collateral or (ii) the value of such Collateral except, in the case of this clause (ii), (x) any action solely relating to, resulting solely from, or arising solely out of the financial condition of the Borrower or (y) any action taken in the ordinary course of business. SECTION 6.04. Material Adverse Effect. Neither the Borrower nor any Restricted Subsidiary shall take any action which could reasonably be expected to have a Material Adverse Effect. SECTION 6.05. Business Activities. Neither the Borrower nor any Restricted Subsidiary shall engage, to any substantial extent, in any line or lines of business activity other than the businesses now generally carried out by it, or cease or take any action to cease (or permit any Subsidiary which is not an Excluded Subsidiary of the Borrower to cease) to be in the business of originating mortgage loans. 11 SECTION 6.06. Affiliate Transactions. (A) The Borrower shall not permit any of its Subsidiaries to sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates (an "Affiliate Transaction") unless the terms thereof (i) are no less favorable to the Borrower or such Subsidiary than those that could be obtained at the time of such transaction in arm's-length dealings with a Person who is not such an Affiliate, (ii) if such Affiliate Transaction involves an amount in excess of $2,000,000 (or the equivalent amount in any foreign currency), (x) are set forth in writing and (y) have been approved by a majority of the members of the Board of Directors having no personal stake in such Affiliate Transaction and (iii) if such Affiliate Transaction involves an amount in excess of $10,000,000 (or the equivalent amount in any foreign currency), have been determined by a nationally recognized investment banking firm to be fair from a financial standpoint, to the Borrower and its Subsidiaries. (B) Without limiting the generality of any other provisions set forth in this Agreement, the provisions of Section 6.06(A)(i) shall not prohibit (i) any Permitted Investment, (ii) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors, (iii) the grant of stock options or similar rights to employees and directors of the Borrower pursuant to plans approved by the Board of Directors, (iv) loans or advances to employees in the ordinary course of business in accordance with the past practices of the Borrower or its Subsidiaries, but in any event not to exceed $1,000,000 (or the equivalent amount in any foreign currency) in aggregate principal amount outstanding at any one time; provided that the $2,882,488 of employee loans -------- existing as of June 30, 1999 shall not be included in calculating such $1,000,000 limit, (v) the payment of reasonable fees to directors of the Borrower and its Subsidiaries who are not employees of the Borrower or its Subsidiaries, (vi) any Affiliate Transactions between the Borrower and a Subsidiary or between consolidated Subsidiaries (in each case other than any Subsidiary that is an "affiliate" (as such term is defined in the Exchange Act)) of any Affiliate (other than any Subsidiary) of the Borrower and (vii) transactions pursuant to any agreement as in existence as of the date hereof between the Borrower or its Subsidiaries and Continental Grain Company, a Delaware corporation, or one of its Subsidiaries or any extensions or renewals thereof. SECTION 6.07. Investment Company. Neither the Borrower nor any Restricted Subsidiary shall become an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act, as amended. SECTION 6.08. Average Liquidity Test. The Borrower shall not permit the Average Liquidity Test for any month to be less than $20,000,000. 12 SECTION 6.09. Asset Dispositions. The Borrower shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, consummate any Asset Disposition unless (i) the Borrower or such Restricted Subsidiary receives consideration at the time of such Asset Disposition at least equal to the fair market value (including as to the value of all non-cash consideration), as determined in good faith by the Board of Directors of the Borrower, of the shares and assets subject to such Asset Disposition and at least 85% of the consideration thereof received by the Borrower or such Restricted Subsidiary is in the form of cash or cash equivalents and (ii) an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by the Borrower (or such Restricted Subsidiary, as the case may be) either (x) for working capital purposes or (y) to prepay, repay, redeem or purchase, on a ratable basis, Senior Indebtedness of the Borrower or any Indebtedness of a Restricted Subsidiary, as the case may be (other than in either case Indebtedness owed to the Borrower or an Affiliate of the Borrower), provided that the Borrower may prepay, repay, redeem or purchase any Senior Indebtedness owed to the Borrower's warehouse lenders without such ratable payments to the holders of any other Senior Indebtedness, in either case within 180 days from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; provided, however, that in connection with any prepayment, repayment or purchase of Indebtedness pursuant to this Section, the Borrower or such Restricted Subsidiary shall retire such Indebtedness and shall cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased, and (iii) at the time of such Asset Disposition no Default shall have occurred and be continuing (or would result therefrom). Notwithstanding the foregoing provisions of this Section 6.09, the Borrower and the Restricted Subsidiaries shall not be required to apply any Net Available Cash in accordance with this Section except to the extent that the aggregate Net Available Cash from all Asset Dispositions which are not applied in accordance with this paragraph exceeds $10 million; provided, however, pending application of Net Available Cash pursuant to this Section 6.09, such Net Available Cash shall be invested in Temporary Cash Investments. For the purposes of this Section 6.09, the following are deemed to be cash or cash equivalents: (x) the assumption of Indebtedness of the Borrower or any Restricted Subsidiary, and the release of the Borrower and its continuing Restricted Subsidiaries from all liability on such Indebtedness, in connection with such Asset Disposition and (y) securities received by the Borrower or any Restricted Subsidiary from the transferee that are promptly converted by the Borrower or such Restricted Subsidiary into cash. SECTION 6.10. Senior Note Payments. The Borrower shall timely make all required payments to holders of its Senior Notes that are due in each of September and October 1999. 13 SECTION 7. Amendments to Article VII. (a) Article VII of the Credit Agreement is hereby amended by deleting clauses (f) through (m) thereof in their entirety and substituting therefor the following: (f) an Act of Insolvency occurs with respect to the Borrower; (g) any governmental, regulatory, or self-regulatory authority takes any action to remove, limit, restrict, suspend or terminate the rights, privileges, or operations of the Borrower or any of its Restricted Subsidiaries which in any case has a Material Adverse Effect; (h) any Change of Control of the Borrower shall have occurred without the prior consent of the Required Banks which consent shall not be unreasonably withheld; (i) the Required Lenders, in their good faith judgment, believe that there has been a Material Adverse Effect; (j) the occurrence and continuance of a material "event of default" or of an "event of termination" on the part of the Borrower (x) under any agreement between the Borrower (or an Affiliate thereof) on the one hand, and Greenwich (or an Affiliate thereof) on the other hand, which has not been waived by Greenwich (or its Affiliate), or (y) under any of the Indentures; (k) there ceases to be a valid, first priority perfected security interest in the Collateral (as defined in the Security Agreement)." (b) Article VII of the Credit Agreement is hereby amended by deleting the words "and in the case of any event with respect to the Borrower described in clause (h) or (i)" in the provision following paragraph (m) and inserting the words "and in the case of any event with respect to the Borrower in clause (f)." SECTION 8. Amendments to Article VIII. The first paragraph of Article VIII of the Credit Agreement is hereby amended so that the words "and as Collateral Agent (as defined in the Security Agreement)" are inserted after the word "agent" in the third sentence of such paragraph and so that the words "and of the Security Agreement" are added after the word "hereof" in the fifth sentence of such paragraph. 14 SECTION 9. Amendments to Article IX. Article IX of the Credit Agreement is hereby amended by (a) deleting the words "each of the Borrower and" from clauses (i) and (ii) of the proviso to Section 9.04(b) and adding the following proviso at the end of clause (i) in such Section 9.04(b): "; provided that the Borrower receives prior written notice of any such assignment"; and (b) Article IX of the Credit Agreement is hereby amended by adding the following Section 9.13 to the end thereof: "SECTION 9.13. Collateral Proceeds. Each Lender agrees that if it receives greater than its pro rata share of the proceeds of Collateral (as defined in the Security Agreement), such Lender shall return such excess proceeds to the Collateral Agent (as defined in the Security Agreement) for redistribution among the Secured Parties so that each Secured Party receives proceeds of Collateral equal to the same percentage of the total Obligations (as defined in the Security Agreement) owed to it. This Section 9.13 may not be amended without the written consent of all of the Secured Parties." SECTION 10. Representations and Warranties. The Borrower represents and warrants to the Administrative Agent and each Lender that: (a) The representations and warranties set forth in the Credit Agreement and the Security Documents are true and correct in all material respects as of and with the same effect as if made on the date hereof (except to the extent such representations and warranties expressly relate to an earlier date) after giving effect to this Amendment, and with all references in such representations to (i) the "Transactions" being deemed to include the execution, delivery and performance by the Borrower of this Amendment and (ii) "this Agreement" being deemed to include this Amendment. (b) (i) The Borrower's identification and description is a complete listing of all Eligible Excess Spread Receivable pools as of June 30, 1999 and (ii) subject to retention by the Borrower of reasonable reserves, the Borrower cannot grant a security interest in favor of the Administrative Agent and the Lenders in more than $147,004,342 in book value of the Borrower's Eligible Excess Spread Receivables pursuant to the terms of the Indentures without also granting a ratable Lien to the holders of Senior Notes. (c) The Borrower has made a full and complete assessment of all issues which may be related to the occurrence of the year 2000, including all issues related to its computer program and software (the "Year 2000 Issues"), and has a realistic and achievable program for remediating the Year 2000 Issues on a timely basis (the "Year 2000 Program"). Based on such assessment and on the Year 2000 Program, the Borrower does not reasonably anticipate that Year 2000 Issues will have a Material Adverse Effect. 15 (d) After giving effect to this Amendment, the Borrower is in compliance in all material respects with all the terms and provisions contained in the Credit Agreement required to be observed or performed by it. (e) After giving effect to this Amendment, no Default has occurred and is continuing to the best of the Borrower's knowledge. The foregoing representations and warranties shall survive the execution and delivery of this Amendment. SECTION 11. Effectiveness. This Amendment shall become effective on the date (the "Amendment Effective Date") on which each of the following conditions is met: (a) the Administrative Agent shall have received counterparts of this Amendment that, when taken together, bear the signatures of the Borrower and the Lenders; (b) the Administrative Agent shall have received an opinion of Borrower's in-house counsel and Dewey Ballantine LLP, in form and substance satisfactory to the Administrative Agent and covering such matters relating to this Amendment and the Security Documents, as the Administrative Agent shall reasonably request; (c) the Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of the Borrower or the authorization of this Amendment and the Security Documents, and any other legal matters relating to the Borrower or this Amendment or the Security Documents, all in form and substance reasonably satisfactory to the Administrative Agent and its counsel; and (d) an amendment to the Reimbursement Agreement, substantially in the form of this Amendment, shall have been executed and delivered by the Borrower and of all the "Participating Banks" (as defined in the Reimbursement Agreement), and the amendments set forth therein shall have become effective (or shall become effective concurrently with the effectiveness of the amendments set forth herein). (e) the Collateral Agent shall have received the Security Agreement, dated as of the date hereof, duly executed by an authorized officer of the Borrower, together with certificates evidencing all of the Collateral, which certificates shall be accompanied by undated certificate powers duly executed in blank. 16 The Administrative Agent shall promptly notify the Borrower and the Lenders of the Amendment Effective Date, and such notice shall be conclusive and binding on all parties hereto. SECTION 12. Fees and Expenses. Without limiting the Borrower's obligations under Section 9.03 of the Credit Agreement, the Borrower agrees to pay all reasonable out-of-pocket expenses incurred by the Administrative Agent, the Co-Arrangers identified on the cover page of the Credit Agreement and their respective Affiliates, including the reasonable fees and disbursements of all counsel and advisors for such parties, in connection with the preparation, negotiation, execution and delivery of this Amendment and the Security Documents and the evaluation by such parties of their rights and the rights of the Lenders under the Credit Agreement, the Security Documents or any related documentation. SECTION 13. Miscellaneous. (a) Except as expressly set forth herein, this Amendment shall not by implication or otherwise limit, impair, constitute a waiver of or otherwise affect the rights and remedies of the Lenders or the Administrative Agent under the Credit Agreement, and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement, all of which are ratified and affirmed in all respects and shall continue in full force and effect. Nothing herein shall be deemed to entitle the Borrower or any Subsidiary to a consent to, or a waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement in similar or different circumstances. This Amendment shall apply and be effective only with respect to the provisions of the Credit Agreement specifically referred to herein. The Borrower hereby ratifies, affirms, acknowledges and agrees that the Credit Agreement and the Loans and reimbursement obligations thereunder represent the valid, enforceable and collectible obligations of the Borrower, and acknowledges that there are no existing claims, defenses, personal or otherwise, or rights of setoff whatsoever with respect to the Credit Agreement or the Loans or reimbursement obligations thereunder. (b) As used in the Credit Agreement, the terms "Agreement", "herein", "hereinafter", "hereunder", "hereto", and words of similar import shall mean, from and after the date hereof, the Credit Agreement as amended by this Amendment. (c) Section headings used herein are for convenience of reference only and are not to affect the construction of, or to be taken into consideration in interpreting, this Amendment. 17 (d) THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. (e) This Amendment may be executed in any number of counterparts, each of which shall be an original but all of which, when taken together, shall constitute but one instrument. (f) The Lenders hereby waive any Default resulting from (i) the failure by the Borrower to timely provide to the Administrative Agent the Borrower's March 31, 1999 financial statements as required in Section 5.01(a) of the Credit Agreement and (ii) the "going concern" qualification contained in the report of the Borrower's independent public accountants given in connection with such financial statements. 18 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective duly authorized officers as of the date first above written. CONTIFINANCIAL CORPORATION by ----------------------------------- Name:/s/ Alan Fishman Title: Authorized Signatory by ----------------------------------- Name:/s/ Frank Baier Title: Authorized Signatory CREDIT SUISSE FIRST BOSTON, NEW YORK BRANCH Individually and as Administrative Agent, by ----------------------------------- Name:/s/ Robert N. Finney Title: Managing Director by ----------------------------------- Name:/s/ Jay Chall Title: Director DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES, by ----------------------------------- Name:/s/ J. Curtin Beaudouin Title: First Vice President by ----------------------------------- Name:/s/ Anthony C. Valencourt Title: Senior Vice President CORESTATES BANK, N.A., by ----------------------------------- Name: Title: THE BANK OF NEW YORK, by ----------------------------------- Name:/s/ Richard P. Hebner Title: Vice President DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLAND BRANCHES, by ----------------------------------- Name:/s/ Gayma Z. Shivnarain Title: Director by ----------------------------------- Name:/s/ John S. McGill Title: Director DG BANK, by ----------------------------------- Name:/s/ Wolfgang Bollmann Title: Senior Vice President by ----------------------------------- Name:/s/ Norah McCann Title: Senior Vice President THE BANK OF NOVA SCOTIA, by ----------------------------------- Name:/s/ A.T.D. Clarke Title: Senior Manager CREDIT LYONNAIS NEW YORK BRANCH, by ----------------------------------- Name:/s/ David Bonington Title: Vice President SOCIETE GENERALE, NEW YORK BRANCH by ----------------------------------- Name:/s/ Charles D. Fischer, Jr. Title: Vice President COMERICA BANK, by ----------------------------------- Name:/s/ Von L. Ringger Title: First Vice President FIRST UNION NATIONAL BANK OF NORTH CAROLINA, by ----------------------------------- Name:/s/ Helen F. Wessling Title: Vice President MORGAN GUARANTY TRUST COMPANY OF NEW YORK, by ----------------------------------- Name:/s/ Anna Marie Fallon Title: Vice President PNC BANK NATIONAL ASSOCIATION, by ----------------------------------- Name:/s/ Robert E. Bjoahul Title: Vice President THE SUMITOMO BANK, LIMITED, NEW YORK BRANCH, by ----------------------------------- Name:/s/ Suresh S. Tata Title: Senior Vice President EX-10.34 3 EXHIBIT 10.34 FOURTH AMENDMENT dated as of August 19, 1999 (this "Amendment") to the Amended and Restated Letter of Credit and Reimbursement Agreement, dated as of August 21, 1998 (as heretofore amended, the "Reimbursement Agreement"), among ContiFinancial Corporation, a Delaware corporation (the "Company"), the Participating Banks party thereto, Credit Suisse First Boston, New York Branch, as Agent, and Dresdner Bank AG, New York Branch, as Issuing Bank. A. Pursuant to the Reimbursement Agreement, the Participating Banks have extended credit to the Company on the terms and subject to the conditions set forth therein. B. The Company has requested that the Participating Banks extend the Termination Date and amend certain other provisions of the Reimbursement Agreement as set forth herein. The undersigned Participating Banks are willing to amend such provisions on the terms and subject to the conditions set forth herein. Accordingly, in consideration of the mutual agreements contained herein and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties hereto hereby agree as follows: SECTION 1. Definitions. Each capitalized term used but not defined herein shall have the meaning assigned to it in the Reimbursement Agreement as amended hereby. The principles of construction set forth in Section 1.03 of the Reimbursement Agreement shall apply equally to this Amendment. SECTION 2. Amendments to Article I. (a) Amendment of Section 1.01. Section 1.01 of the Reimbursement Agreement is hereby amended by: (i) inserting in the appropriate alphabetical order the following definitions: "Act of Insolvency" means, with respect to the Company and its Restricted Subsidiaries, (i) the filing of a petition, commencing, or authorizing the commencement of any case or proceeding under any bankruptcy, insolvency, reorganization, liquidation, dissolution or similar law relating to the protection of creditors of the Company or any of its Restricted Subsidiaries, or suffering any such petition or proceeding to be commenced by another; provided, however, that any involuntary proceeding filed against the Company or a Restricted Subsidiary shall not constitute an Act of Insolvency unless such petition or proceeding is not dismissed within 30 days of its commencement, (ii) seeking the appointment of a receiver, trustee, custodian or similar official for the Company or a Restricted Subsidiary or any substantial part of its property, (iii) the appointment of a receiver, conservator, or manager for the Company or a Restricted Subsidiary or any substantial part of the property of either by any governmental agency or authority having the jurisdiction to do so, (iv) the making or offering by the Company or a Restricted Subsidiary of a composition with its respective creditors or a general assignment for the benefit of creditors, (v) the admission in writing by the Company or a Restricted Subsidiary of such party's inability to pay its ordinary course trade debts as they become due or mature, or (vi) any Governmental Authority or agency or any person, agency or entity acting or purporting to act under Governmental Authority shall have taken any action to condemn, seize or appropriate, or to assume custody or control of, all or any substantial part of the property of the Company or a Restricted Subsidiary, or shall have taken any action to displace the management of such party or to curtail its authority in the conduct of the business of such party. "Affiliate Transaction" shall have the meaning assigned thereto in Section 6.06 hereof. "Average Liquidity Test" means for any month (A) the sum of (i) the Company's consolidated cash plus unencumbered mortgage loans on the last Business Day of such month and (ii) the Company's consolidated cash plus unencumbered mortgage loans on the first Business Day of the following month, (B) divided by two. "Collateral" has the meaning specified in the Security Agreement. "Consolidated Restricted Subsidiary" means a Restricted Subsidiary (i) 80% of the Capital Stock and 80% of the Voting Stock of which is owned by the Company or one or more Consolidated Restricted Subsidiaries and (ii) which is treated as a consolidated subsidiary for the purpose of the Company's U.S. Federal income tax reporting. "Contractual Obligation" means as to any Person, any provision of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound or any provision of any security issued by such Person. "Excluded Subsidiary" means each of Royal Mortgage Partners, L.P., Resource One Consumer Discount Company, Inc., Resource One Mortgage of Oxford Valley, Inc., Resource One of Delaware Valley, Inc., Resource Corporation Financial Inc., Crystal Mortgage Company, Inc., Lenders M.D., Inc., Keystone Mortgage Partners LLC, Keystone Mortgage Partners, Inc., Keystone Mortgage Funding, Inc., Keystone 2 Mortgage Investments, Inc., Keystone Capital Group, Inc. and California Lending Group. "Fourth Amendment Date" means August 19, 1999. "Greenwich" means Greenwich Capital Financial Products, Inc. "Indentures" means the Indenture, dated as of August 15, 1996, between the Company and The Chase Manhattan Bank, as Trustee, the Indenture, dated as of March 1, 1997, between the Company and The Chase Manhattan Bank, as Trustee, and the Indenture, dated as of March 4, 1998, between the Company and The Bank of New York, as Trustee, pursuant to the terms of each of which the Company has issued Senior Notes. "Material Adverse Effect" means a material adverse effect upon (i) the business operations, properties or assets of the Company and its Subsidiaries, taken as a whole, (ii) the ability of the Company to perform its obligations, or of the Agent, the Issuing Bank or the Participating Banks to enforce any of their respective rights or remedies, under this Agreement or any of documents to be executed and/or delivered hereunder, (iii) the validity or enforceability of any of the Security Documents or (iv) the Collateral taken as a whole (provided that any fair value adjustments to Excess Spread Receivables as required by GAAP shall not be deemed a "Material Adverse Effect"), in the case of clauses (i), (ii), (iii) and (iv) above (A) taking into consideration the financial condition of the Company and its Subsidiaries as of the date of this Agreement and (B) without taking into consideration any further deterioration of the financial condition of the Company and its Subsidiaries after the date of this Agreement. "Permitted Holders" means lineal descendants of Jules Fribourg, including any individual legally adopted; spouses of such descendants; trusts, the beneficiaries of which are any of the foregoing; partnerships, corporations, or other entities in which any of the foregoing (individually or collectively) has a controlling interest; and charitable organizations established by any of the foregoing. "Requirement of Law" means as to any Person, the certificate of incorporation and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its Property or to which such Person or any of its property is subject. 3 "Responsible Officer" means, as to any Person, the chief executive officer, vice president and treasurer, or with respect to financial matters, the chief financial officer or treasurer of such Person; provided, however, that in the event any such officer is unavailable at any time he or she is required to take any action hereunder, Responsible Officer shall mean any officer authorized to act on such officer's behalf as demonstrated to the Buyer to its reasonable satisfaction. "Restricted Payment" means (i) the declaration or payment of any dividends or any other distributions of any sort in respect of its Capital Stock or similar payment to the direct or indirect holders of its Capital Stock (other than (A) dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock), (B) dividends or distributions payable solely to the Company or a Subsidiary and (C) pro rata dividends or other distributions made by an Unrestricted Subsidiary to minority shareholders (or owners of an equivalent interest in the case of a Subsidiary that is an entity other than a corporation)), (ii) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of the Company held by any Person or of any Capital Stock of a Subsidiary held by any Affiliate of the Company (other than a Subsidiary), including the exercise of any option to exchange any Capital Stock (other than into Capital Stock of the Company that is not Disqualified Stock), (iii) the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment of any Subordinated Obligations (other than the purchase, repurchase or other acquisition of such Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition). "Secured Parties" has the meaning given to such term in the Security Agreement. "Security Agreement" means the Pledge and Security Agreement, dated as of the Fourth Amendment Date, by the Company in favor of Credit Suisse First Boston, New York Branch, as Collateral Agent. "Security Documents" means the Security Agreement and all other documents executed and delivered in connection therewith. "Senior Indebtedness" means (i) Indebtedness of any Person and (ii) accrued and unpaid interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company to the extent post-filing interest is allowed in such proceeding) in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar 4 instruments for the payment of which such Person is responsible or liable unless, in the case of either clause (i) or (ii), in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such obligations are subordinate in right of payment to the Company's obligations hereunder; provided, however, that Senior Indebtedness shall not include (1) any obligation of such Person to any Subsidiary of such Person, (2) any liability for Federal, state, local or other taxes owed or owing by such Persons, (3) any accounts payable or other liability to trade creditors arising in the ordinary course of business (including guarantees thereof or instruments evidencing such liabilities), (4) any obligation in respect of Capital Stock of such Person or (5) that portion of any Indebtedness which at the time of Incurrence is Incurred in violation of this Agreement. "Senior Notes" means any and all notes issued by the Company under the terms of the Indentures. "Subordinated Obligation" means any Indebtedness of the Company (whether outstanding on the date hereof or thereafter incurred) which is subordinate or junior in right of payment to the obligations of the Company under this Agreement pursuant to a written agreement to that effect. "Temporary Cash Investments" means any of the following: (i) any investment in direct obligations of the United States of America or any agency thereof or obligations guaranteed by the United States of America or any agency thereof, (ii) investments in time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company that is not an Affiliate of the Company and which is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States, and which bank or trust company has capital, surplus and undivided profits aggregating in excess of $50,000,000 (or the foreign currency equivalent thereof) and has outstanding debt which is rated "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act) or any money-market fund sponsored by a registered broker dealer or mutual fund distributor, (iii) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (i) above entered into with a bank meeting the qualifications described in clause (ii) above, (iv) investments in commercial paper, maturing not more than 90 days after the date of acquisition, issued by a corporation (other than an Affiliate of the Company) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is 5 made of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings Group, and (v) investments in securities with maturities of six months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by Standard & Poor's Ratings Group or "A" by Moody's Investors Service, Inc. (ii) Deleting the definition of "Asset Disposition" in its entirety and replacing it with the following: "Asset Disposition" means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions) by the Company or any Restricted Subsidiary, including any disposition by means of a merger, consolidation or similar transaction (each referred to for the purposes of this definition as a "disposition"), of (i) any shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares or shares required by applicable law to be held by a Person other than the Company or a Restricted Subsidiary), (ii) all or substantially all the assets of any division or line of business of the Company or any Restricted Subsidiary, (iii) any other assets of the Company or any Restricted Subsidiary outside of the ordinary course of business of the Company or such Restricted Subsidiary, (iv) any Investment in a Strategic Alliance Client or (v) any Excess Spread Receivables (other than, in the case of (i), (ii), (iii), (iv) and (v) above, (x) a disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Consolidated Restricted Subsidiary, (y) a disposition that constitutes a permitted Restricted Payment or (z) a disposition of assets (including related assets) for an aggregate consideration of $1.0 million or less). (iii) Deleting the definition of "Change of Control" in its entirety and replacing it with the following: "Change in Control" means the occurrence of any of the following events: (i) Any "person" (as such term is used in Section 13(d) and 14(d) of the Exchange Act), other than any Permitted Holder, is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that such person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 35% of the total voting power of the Voting Stock of such Person; provided, however, that the Permitted Holders beneficially own (as defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, in the aggregate a 6 lesser percentage of the total voting power of the Voting Stock of the Company or any Restricted Subsidiary than such other person and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors (for the purposes of this clause (i), such other person shall be deemed to beneficially own any Voting Stock of a corporation held by another corporation (a "parent corporation"), if such other person is the beneficial owner (as defined above for such person), directly or indirectly, of more than 35% of the voting power of the Voting Stock of such parent corporation and the Permitted Holders beneficially own (as defined above for the Permitted Holders), directly or indirectly, in the aggregate a lesser percentage of the voting power of the Voting Stock of such parent corporation and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the board of directors of such parent corporation); (ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Company or any Restricted Subsidiary was approved by a vote of 66-2/3% of the directors of the Company or any Restricted Subsidiary then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors then in office; or (iii) the merger or consolidation of the Company or any Restricted Subsidiary with or into another Person or the merger of another Person with or into the Company or any Restricted Subsidiary, as the case may be, or the liquidation, wind-up or dissolution of the Company or any Restricted Subsidiary, as the case may be, or the sale of all or substantially all the assets of the Company or any Restricted Subsidiary, as the case may be, to another Person (other than a Person that is controlled by the Permitted Holders), and, in the case of any such merger or consolidation, the securities of the Company or any Restricted Subsidiary, as the case may be, that are outstanding immediately prior to such transaction and which represent 100% of the aggregate voting power of the Voting Stock of the Company or any Restricted Subsidiary, as the case may be, are changed into or exchanged for cash, securities or property, unless pursuant to such transaction such securities are changed into or exchanged for, in addition to any other consideration, securities of the surviving corporation that represent immediately after such transaction, at least a majority of the aggregate voting power of the Voting Stock of the surviving corporation; provided, however, that the sale by the Company or its Subsidiaries from 7 time to time solely of receivables to a trust for the purpose solely of effecting one or more securitizations shall not be treated hereunder as a sale of all or substantially all the assets of the Company. Notwithstanding anything contained in this Agreement to the contrary, a Change of Control accompanied by an equity infusion in the Company of not less than $100,000,000 shall not constitute an Event of Default under this Agreement for 60 days after the date of such equity infusion, unless an additional Change of Control shall occur during such 60-day period. (iv) Deleting the definition of "Interest Payment Date" in its entirety and replacing it with the following: "Interest Payment Date" means with respect to any Loan, the third Business Day of each month. (v) Deleting the words "one, two or three months" in the definition of "Interest Period" and replacing them with the words "one month." (vi) Deleting the definition of "Net Available Cash" in its entirety and replacing it with the following: "Net Available Cash" from an Asset Disposition means cash payments received therefrom (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to such properties or assets or received in any other noncash form) in each case net of (i) all legal, title and recording tax expenses, commissions and other fees and expenses incurred, and all Federal, state, provincial, foreign and local taxes required to be accrued as a liability under GAAP, as a consequence of such Asset Disposition, (ii) all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon or other security agreement of any kind with respect to such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law be, repaid out of the proceeds from such Asset Disposition, (iii) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition and (iv) the deduction of appropriate amounts provided by the Company as a reserve, in accordance with GAAP, against any liabilities associated with the property or other assets disposed in such Asset Disposition and retained by the Company or any Restricted Subsidiary after such Asset Disposition. 8 (vii) deleting the definition of "Termination Date" in its entirety and replacing it with the following: "Termination Date" means March 31, 2000, as such date may be extended from time to time pursuant to Section 2.11. SECTION 3. Amendments to Article II. (a) Section 2.04(a) is hereby amended by deleting the words "(a "Loan")" at the end of the first sentence and adding the words ", and on the Fourth Amendment Date, amounts outstanding under Section 2.03 of this Agreement shall be deemed converted by the Company into a term loan (each such loan pursuant to this Section 2.04(a), a "Loan")" at the end of the first sentence. (b) The second and third sentences of Section 2.04(b) are hereby deleted in their entirety. (c) Section 2.04(c) is hereby amended by (i) deleting the words from "The Company shall pay interest on the unpaid principal amounts" through "(ii) Eurodollar Loans;" and (ii) deleting clause (B) in the proviso thereto and lettering clause (C) so that it is clause (B). (d) Section 2.04(c)(ii) is hereby amended by adding the following proviso at the end of such clause: "; provided, however, that the Company shall not be required to pay any such accrued interest on any Interest Payment Date when the Average Liquidity Test for the prior month is less than $40,000,000; any such unpaid interest shall be due and payable on the Termination Date (provided further that no interest shall accrue on any such deferred interest). (e) Section 2.04(d) and (e) are hereby deleted in their entirety. SECTION 4. Amendments to Article III. Article III of the Reimbursement Agreement is hereby amended to delete the words "September 30, 1996" in clause (ii) of Section 3.04(a) and replacing it with the words "March 31, 1999" and to add the words "and subject to any qualifications contained therein" at the end of Section 3.04(a). Section 3.04(b) is amended by deleting it in its entirety and replacing it with the following clause: "(b) Since March 31, 1999, there has been no Material Adverse Effect, except as otherwise disclosed to the Participating Banks." SECTION 5. Amendments to Article V. Article V of the Reimbursement Agreement is hereby amended by: (a) Deleting the following words in the parenthetical in Section 5.01(a)(i): "without a "going concern" or like qualification or exception and"; and adding the following at the end of the Section 5.01: 9 "(i) the following additional financial information (A) the Company's consolidated cash flow information for each month within 15 Business Days after the end of such month; (B) rolling three month financial projections for the Company at the beginning of each month starting on December 1, 1999 through the Termination Date; (C) the Company's actual cash position as of the preceding Business Day on the first Business Day of each week; (D) quarterly Excess Spread Receivables valuations when quarterly financial statements are provided pursuant to Section 5.01(a) or (b), as applicable; (E) monthly static pool performance summaries on a pool-by-pool basis with respect to each Excess Spread Receivable comprising the Collateral within five Business Days of receipt thereof by the Company and (F) monthly deal trigger report (including, without limitation, loss and delinquency triggers) on or before the 25th day of the month or the next Business Day thereafter. (j) on the second Business Day of each month, a certificate of a Financial Officer setting forth reasonably detailed calculations of the Average Liquidity Test for the prior month." (b) Deleting the number "(i)" in Section 5.01(a) and also deleting the following words in such Section: ", and (ii) a letter from such independent public accountants certifying that during the course of their audit nothing came to their attention that would indicate that the Borrowing Base Certificate, if any, relating to the last day of such fiscal year is inaccurate in any material respect." (c) Deleting Section 5.01(g) in its entirety and replacing it with the words "(g) [Reserved]." SECTION 6. Amendments to Article VI. Article VI of the Reimbursement Agreement is hereby amended by deleting Section 6.01 and Sections 6.03 through 6.13 thereof in their entirety and substituting therefor the following: SECTION 6.01. Restricted Payments. Neither the Company nor any Restricted Subsidiary shall make any Restricted Payment. SECTION 6.03. Collateral. Neither the Company nor any Restricted Subsidiary shall take any action which would directly or indirectly impair or adversely affect (i) the Agent's lien on any Collateral or (ii) the value of such Collateral except, in the case of this clause (ii), (x) any action solely relating to, resulting solely from, or arising solely out of the financial condition of the Company or (y) any action taken in the ordinary course of business. 10 SECTION 6.04. Material Adverse Effect. Neither the Company nor any Restricted Subsidiary shall take any action which could reasonably be expected to have a Material Adverse Effect. SECTION 6.05. Business Activities. Neither the Company nor any Restricted Subsidiary shall engage, to any substantial extent, in any line or lines of business activity other than the businesses now generally carried out by it, or cease or take any action to cease (or permit any Subsidiary which is not an Excluded Subsidiary of the Company to cease) to be in the business of originating mortgage loans. SECTION 6.06. Affiliate Transactions. (A) The Company shall not permit any of its Subsidiaries to sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates (an "Affiliate Transaction") unless the terms thereof (i) are no less favorable to the Company or such Subsidiary than those that could be obtained at the time of such transaction in arm's-length dealings with a Person who is not such an Affiliate, (ii) if such Affiliate Transaction involves an amount in excess of $2,000,000 (or the equivalent amount in any foreign currency), (x) are set forth in writing and (y) have been approved by a majority of the members of the Board of Directors having no personal stake in such Affiliate Transaction and (iii) if such Affiliate Transaction involves an amount in excess of $10,000,000 (or the equivalent amount in any foreign currency), have been determined by a nationally recognized investment banking firm to be fair from a financial standpoint, to the Company and its Subsidiaries. (B) Without limiting the generality of any other provisions set forth in this Agreement, the provisions of Section 6.06(A)(i) shall not prohibit (i) any Permitted Investment, (ii) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors, (iii) the grant of stock options or similar rights to employees and directors of the Company pursuant to plans approved by the Board of Directors, (iv) loans or advances to employees in the ordinary course of business in accordance with the past practices of the Company or its Subsidiaries, but in any event not to exceed $1,000,000 (or the equivalent amount in any foreign currency) in aggregate principal amount outstanding at any one time; provided that the $2,882,488 of employee loans existing as of June 30, 1999 shall not be included in calculating such $1,000,000 limit, (v) the payment of reasonable fees to directors of the Company and its Subsidiaries who are not employees of the Company or its Subsidiaries, (vi) any Affiliate Transactions between the Company and a Subsidiary or between consolidated Subsidiaries (in each case other than any Subsidiary that is an "affiliate" (as such term is defined in the Exchange Act)) of any Affiliate (other than any Subsidiary) of the Company and (vii) transactions pursuant to any agreement as in existence as of the date hereof 11 between the Company or its Subsidiaries and Continental Grain Company, a Delaware corporation, or one of its Subsidiaries or any extensions or renewals thereof. SECTION 6.07. Investment Company. Neither the Company nor any Restricted Subsidiary shall become an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act, as amended. SECTION 6.08. Average Liquidity Test. The Company shall not permit the Average Liquidity Test for any month to be less than $20,000,000. SECTION 6.09. Asset Dispositions. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, consummate any Asset Disposition unless (i) the Company or such Restricted Subsidiary receives consideration at the time of such Asset Disposition at least equal to the fair market value (including as to the value of all non-cash consideration), as determined in good faith by the Board of Directors of the Company, of the shares and assets subject to such Asset Disposition and at least 85% of the consideration thereof received by the Company or such Restricted Subsidiary is in the form of cash or cash equivalents and (ii) an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by the Company (or such Restricted Subsidiary, as the case may be) either (x) for working capital purposes or (y) to prepay, repay, redeem or purchase, on a ratable basis, Senior Indebtedness of the Company or any Indebtedness of a Restricted Subsidiary, as the case may be (other than in either case Indebtedness owed to the Company or an Affiliate of the Company), provided that the Company may prepay, repay, redeem or purchase any Senior Indebtedness owed to the Company's warehouse lenders without such ratable payments to the holders of any other Senior Indebtedness, in either case within 180 days from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; provided, however, that in connection with any prepayment, repayment or purchase of Indebtedness pursuant to this Section, the Company or such Restricted Subsidiary shall retire such Indebtedness and shall cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased, and (iii) at the time of such Asset Disposition no Default shall have occurred and be continuing (or would result therefrom). Notwithstanding the foregoing provisions of this Section 6.09, the Company and the Restricted Subsidiaries shall not be required to apply any Net Available Cash in accordance with this Section except to the extent that the aggregate Net Available Cash from all Asset Dispositions which are not applied in accordance with this paragraph exceeds $10 million; provided, however, pending application of Net Available Cash pursuant to this Section 6.09, such Net Available Cash shall be invested in Temporary Cash Investments. 12 For the purposes of this Section 6.09, the following are deemed to be cash or cash equivalents: (x) the assumption of Indebtedness of the Company or any Restricted Subsidiary, and the release of the Company and its continuing Restricted Subsidiaries from all liability on such Indebtedness, in connection with such Asset Disposition and (y) securities received by the Company or any Restricted Subsidiary from the transferee that are promptly converted by the Company or such Restricted Subsidiary into cash. SECTION 6.10. Senior Note Payments. The Company shall timely make all required payments to holders of its Senior Notes that are due in each of September and October 1999. SECTION 7. Amendments to Article VII. (a) Article VII of the Reimbursement Agreement is hereby amended by deleting clauses (f) through (n) thereof in their entirety and substituting therefor the following: "(f) an Act of Insolvency occurs with respect to the Company; (g) any governmental, regulatory, or self-regulatory authority takes any action to remove, limit, restrict, suspend or terminate the rights, privileges, or operations of the Company or any of its Restricted Subsidiaries which in any case has a Material Adverse Effect; (h) any Change of Control of the Company shall have occurred without the prior consent of the Required Banks which consent shall not be unreasonably withheld; (i) the Required Banks, in their good faith judgment, believe that there has been a Material Adverse Effect; (j) the occurrence and continuance of a material "event of default" or of an "event of termination" on the part of the Company (x) under any agreement between the Company (or an Affiliate thereof) on the one hand, and Greenwich (or an Affiliate thereof) on the other hand, which has not been waived by Greenwich (or its Affiliate) or (y) under any of the Indentures; (k) there ceases to be a valid, first priority perfected security interest in the Collateral (as defined in the Security Agreement)." (b) Article VII of the Reimbursement Agreement is hereby amended by deleting the words "and in the case of any event with respect to the Company described in clause (h) or (i)" in the provision following paragraph (n) and inserting the words "and in the case of any event with respect to the Company in clause (f)." SECTION 8. Amendments to Article VIII. The first paragraph of Article VIII of the Reimbursement Agreement is hereby amended so that the words "and as 13 Collateral Agent (as defined in the Security Agreement)" are inserted after the word "agent" in the third sentence of such paragraph and so that the words "and of the Security Agreement" are added after the word "hereof" in the fifth sentence of such paragraph. SECTION 9. Amendments to Article IX. Article IX of the Reimbursement Agreement is hereby amended by (a) deleting the words "each of the Borrower and" from clauses (i) and (ii) of the proviso to Section 9.04(b) and adding the following proviso at the end of clause (i) in such Section 9.04(b): "; provided that the Borrower receives prior written notice of such assignment."; and (b) adding the following Section 9.13 to the end thereof: "SECTION 9.13. Collateral Proceeds. Each Participating Bank agrees that if it receives greater than its pro rata share of the proceeds of Collateral (as defined in the Security Agreement), such Participating Bank shall return such excess proceeds to the Collateral Agent (as defined in the Security Agreement) for redistribution among the Secured Parties so that each Secured Party receives proceeds of Collateral equal to the same percentage of the total Obligations (as defined in the Security Agreement) owed to it. This Section 9.13 may not be amended without the written consent of all of the Secured Parties." SECTION 10. Representations and Warranties. The Company represents and warrants to the Agent and each Participating Bank that: (a) The representations and warranties set forth in the Reimbursement Agreement and the Security Documents are true and correct in all material respects as of and with the same effect as if made on the date hereof (except to the extent such representations and warranties expressly relate to an earlier date) after giving effect to this Amendment, and with all references in such representations to (i) the "Transactions" being deemed to include the execution, delivery and performance by the Company of this Amendment and (ii) "this Agreement" being deemed to include this Amendment. (b) (i) The Company's identification and description is a complete listing of all Eligible Excess Spread Receivable pools as of June 30, 1999 and (ii) subject to retention by the Company of reasonable reserves, the Company cannot grant a security interest in favor of the Agent and the Participating Banks in more than $147,004,342 in book value of the Company's Eligible Excess Spread Receivables pursuant to the terms of the Indentures without also granting a ratable Lien to the holders of Senior Notes. (c) The Company has made a full and complete assessment of all issues which may be related to the occurrence of the year 2000, including all issues related to its computer program and software (the "Year 2000 Issues"), and has a realistic and achievable program for remediating the Year 2000 Issues on a timely basis (the "Year 2000 Program"). Based on such assessment and on the 14 Year 2000 Program, the Company does not reasonably anticipate that Year 2000 Issues will have a Material Adverse Effect. (d) After giving effect to this Amendment, the Company is in compliance in all material respects with all the terms and provisions contained in the Reimbursement Agreement required to be observed or performed by it. (e) After giving effect to this Amendment, no Default has occurred and is continuing to the best of the Company's knowledge. The foregoing representations and warranties shall survive the execution and delivery of this Amendment. SECTION 11. Effectiveness. This Amendment shall become effective on the date (the "Amendment Effective Date") on which each of the following conditions is met: (a) the Agent shall have received counterparts of this Amendment that, when taken together, bear the signatures of the Company and the Participating Banks; (b) the Agent shall have received an opinion of the Company's in-house counsel and Dewey Ballantine LLP, in form and substance satisfactory to the Agent and the Issuing Bank and covering such matters relating to this Amendment and the Security Documents, as the Agent shall reasonably request; (c) the Agent shall have received such documents and certificates as the Agent or its counsel may reasonably request relating to the organization, existence and good standing of the Company or the authorization of this Amendment and Security Documents and any other legal matters relating to the Company or this Amendment or the Security Documents, all in form and substance reasonably satisfactory to the Agent and its counsel; and (d) an amendment to the Credit Agreement, substantially in the form of this Amendment, shall have been executed and delivered by the Company and of all the "Lenders" (as defined in the Credit Agreement), and the amendments set forth therein shall have become effective (or shall become effective concurrently with the effectiveness of the amendments set forth herein). (e) the Collateral Agent shall have received the Security Agreement, dated as of the date hereof, duly executed by an authorized officer of the Company, together with certificates evidencing all of the Collateral, which certificates shall be accompanied by undated certificate powers duly executed in blank. 15 The Agent shall promptly notify the Company and the Participating Banks of the Amendment Effective Date, and such notice shall be conclusive and binding on all parties hereto. SECTION 12. Fees and Expenses. Without limiting the Company's obligations under Section 9.03 of the Reimbursement Agreement, the Company agrees to pay all reasonable out-of-pocket expenses incurred by the Agent, the Issuing Bank, the Co-Arrangers identified on the cover page of the Reimbursement Agreement and their respective Affiliates, including the reasonable fees and disbursements of all counsel and advisors for such parties, in connection with the preparation, negotiation, execution and delivery of this Amendment and the Security Documents and the evaluation by such parties of their rights and the rights of the Participating Banks under the Reimbursement Agreement, the Security Documents or any related documentation. SECTION 13. Miscellaneous. (a) Except as expressly set forth herein, this Amendment shall not by implication or otherwise limit, impair, constitute a waiver of or otherwise affect the rights and remedies of the Participating Banks, the Agent or the Issuing Bank under the Reimbursement Agreement, and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Reimbursement Agreement, all of which are ratified and affirmed in all respects and shall continue in full force and effect. Nothing herein shall be deemed to entitle the Company or any Subsidiary to a consent to, or a waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Reimbursement Agreement in similar or different circumstances. This Amendment shall apply and be effective only with respect to the provisions of the Reimbursement Agreement specifically referred to herein. The Company hereby ratifies, affirms, acknowledges and agrees that the Reimbursement Agreement and the Loans and reimbursement obligations thereunder represent the valid, enforceable and collectible obligations of the Company, and acknowledges that there are no existing claims, defenses, personal or otherwise, or rights of setoff whatsoever with respect to the Reimbursement Agreement or the Loans or reimbursement obligations thereunder. (b) As used in the Reimbursement Agreement, the terms "Agreement", "herein", "hereinafter", "hereunder", "hereto", and words of similar import shall mean, from and after the date hereof, the Reimbursement Agreement as amended by this Amendment. (c) Section headings used herein are for convenience of reference only and are not to affect the construction of, or to be taken into consideration in interpreting, this Amendment. 16 (d) THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. (e) This Amendment may be executed in any number of counterparts, each of which shall be an original but all of which, when taken together, shall constitute but one instrument. (f) The Participating Banks hereby waive any Default resulting from (i) the failure by the Company to timely provide to the Agent the Company's March 31, 1999 financial statements as required in Section 5.01(a) of the Reimbursement Agreement and (ii) the "going concern" qualification contained in the report of the Company's independent public accountants given in connection with such financial statements. 17 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective duly authorized officers as of the date first above written. CONTIFINANCIAL CORPORATION by ----------------------------------- Name:/s/ Alan Fishman Title: Authorized Signatory by ----------------------------------- Name:/s/ Frank Baier Title: Authorized Signatory CREDIT SUISSE FIRST BOSTON, NEW YORK BRANCH Individually and as Administrative Agent, by ----------------------------------- Name:/s/ Robert N. Finney Title: Managing Director by ----------------------------------- Name:/s/ Jay Chall Title: Director DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES, by ----------------------------------- Name:/s/ J. Curtin Beaudouin Title: First Vice President by ----------------------------------- Name:/s/ Anthony C. Valencourt Title: Senior Vice President THE BANK OF NOVA SCOTIA, by ----------------------------------- Name:/s/ A.T.D. Clarke Title: Senior Manager THE CHASE MANHATTAN BANK, by ----------------------------------- Name:/s/ Elizabeth A. Kelley Title: Managing Director BANK OF AMERICA, N.A. (formerly NATIONSBANK, N.A.) by ----------------------------------- Name:/s/ Garrett Dolt Title: Vice President CREDIT LYONNAIS NEW YORK BRANCH, by ----------------------------------- Name:/s/ David Bonington Title: Vice President SOCIETE GENERALE, by ----------------------------------- Name:/s/ Charles D. Fischer, Jr. Title: Vice President COMERICA BANK, by ----------------------------------- Name:/s/ Von L. Ringger Title: First Vice President UBS AG, NEW YORK BRANCH, by ----------------------------------- Name:/s/ W. Scott James Title: Managing Director by ----------------------------------- Name:/s/ Phil Cartularo Title: Associate Director THE SUMITOMO BANK, LIMITED, NEW YORK BRANCH, by ----------------------------------- Name:/s/Suresh S. Tata Title: Senior Vice President BADEN-WUERTTEMBERGISCHE BANK AG, by ----------------------------------- Name:/s/ Robert B. Herber Title: Authorized Signatory by ----------------------------------- Name:/s/ Thomas A. Lowe Title: Authorized Signatory SOUTHTRUST BANK, NATIONAL ASSOCIATION, by ----------------------------------- Name:/s/ Andy Raine Title: Assistant Vice President MANUFACTURERS AND TRADERS TRUST COMPANY, by ----------------------------------- Name:/s/ Kevin B. Quinn Title: Assistant Vice President CREDIT AGRIEOLE INDOSUEZ, by ----------------------------------- Name:/s/ Richard Manix Title: First Vice President ----------------------------------- Name:/s/ Wha Kyung Lee Title: Vice President EX-10.35 4 EXHIBIT 10.35 ================================================================================ PLEDGE AND SECURITY AGREEMENT made by CONTIFINANCIAL CORPORATION in favor of CREDIT SUISSE FIRST BOSTON, NEW YORK BRANCH, as Collateral Agent Dated as of August 19, 1999 ================================================================================ TABLE OF CONTENTS Page ---- SECTION 1.DEFINED TERMS ................................................... 1 1.1 Definitions ......................................................... 1 1.2 Other Definitional Provisions ....................................... 3 SECTION 2 GRANT OF SECURITY INTEREST ....................................... 4 2.1 Collateral ........................................................... 4 2.2 Grant of Security Interest in Collateral ............................. 4 SECTION 3 REPRESENTATIONS AND WARRANTIES ................................... 5 3.1 Representations in Credit Agreement .................................. 5 3.2 Title; No Other Liens ................................................ 5 3.3 Perfection; Priority ................................................. 5 3.4 Chief Executive Office; Books and Records ............................ 5 SECTION 4 COVENANTS ........................................................ 6 4.1 Generally ............................................................ 6 4.2 Covenants in Credit Agreement ........................................ 6 4.3 Payment of Obligations ............................................... 6 4.4 Maintenance of Perfected Security Interest; Further Documentation .... 6 4.5 Changes in Locations, Name, Etc ...................................... 7 4.6 Notices ............................................................. 8 4.7 Certificates, Instruments and Investment Property ................... 8 SECTION 5 REMEDIAL PROVISIONS .............................................. 9 5.1 Sale of Collateral .................................................. 9 5.2 Voting Rights ....................................................... 10 5.3 Proceeds to be Turned Over To Collateral Agent ...................... 11 5.4 Code and Other Remedies ............................................. 11 5.5 Waiver; Deficiency .................................................. 12 SECTION 6 THE COLLATERAL AGENT ............................................ 12 6.1 Collateral Agent's Appointment as Attorney-in-Fact, Etc ............. 12 6.2 Duty of Collateral Agent ............................................ 14 6.3 Execution of Financing Statements ................................... 14 6.4 Authority of Collateral Agent ....................................... 15 SECTION 7 MISCELLANEOUS ................................................... 15 i TABLE OF CONTENTS (continued) Page ---- 7.1 Amendments in Writing ............................................... 15 7.2 Notices ............................................................. 15 7.3 No Waiver by Course of Conduct; Cumulative Remedies ................. 15 7.4 Enforcement Expenses; Indemnification ............................... 15 7.5 Successors and Assigns .............................................. 16 7.6 Set-Off ............................................................. 16 7.7 Counterparts ........................................................ 17 7.8 Severability ........................................................ 17 7.9 Section Headings .................................................... 17 7.10 Integration ........................................................ 17 7.11 GOVERNING LAW ...................................................... 17 7.12 Submission To Jurisdiction; Waivers ................................ 17 7.13 Acknowledgements ................................................... 18 7.14 Releases ........................................................... 18 7.15 WAIVERS OF JURY TRIAL .............................................. 19 Annex 1 to Pledge and Security Agreement ................................... 1 Pledge and Security Agreement .............................................. 1 Annex 3 to Pledge and Security Agreement ................................... 2 Annex 4 to Pledge and Security Agreement ................................... 1 Annex 5 to Pledge and Security Agreement ................................... 1 ii PLEDGE AND SECURITY AGREEMENT PLEDGE AND SECURITY AGREEMENT, dated as of August 19, 1999, made by ContiFinancial Corporation, a Delaware corporation (the "Grantor"), in favor of Credit Suisse First Boston, New York Branch ("CSFB"), as agent for the banks, financial institutions and other entities from time to time party to either or both of the Credit Agreement and the Reimbursement Agreement referred to below (the "Secured Parties" and CSFB, in such capacity, the "Collateral Agent"). W I T N E S S E T H: WHEREAS, the Secured Parties have made extensions of credit to the Grantor pursuant to (i) the Credit Agreement dated as of January 7, 1997 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Grantor, the lenders party thereto and CSFB, as Administrative Agent, and (ii) the Amended and Restated Letter of Credit and Reimbursement Agreement dated as of September 9, 1997, as amended and restated as of August 21, 1998 (as further amended, amended and restated, supplemented or otherwise modified from time to time, the "Reimbursement Agreement" and together with the Credit Agreement, the "Agreements"), among the Grantor, the participating banks party thereto, CSFB, as Agent, and Dresdner Bank AG, New York Branch, as Issuing Bank; and WHEREAS, the proceeds of the extensions of credit under the Agreements have been used in part to enable the Grantor to make valuable transfers to one or more of its Subsidiaries in connection with the operation of their respective businesses; and WHEREAS, the Grantor has derived substantial direct and indirect benefit from the making of the extensions of credit under the Agreements; and WHEREAS, it is a condition precedent to the obligation of the Secured Parties to amend the Agreements that the Grantor shall have executed and delivered this Agreement to the Collateral Agent; NOW, THEREFORE, in consideration of the premises and to induce the Secured Parties to amend the Agreements, the Grantor hereby agrees with the Collateral Agent, for the ratable benefit of the Secured Parties, as follows: SECTION 1. DEFINED TERMS 1.1 Definitions. (a) Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. (b) The following terms shall have the following meanings: "Agreement" means this Pledge and Security Agreement. "Collateral" has the meaning specified in Section 2. "Control" has the meaning specified in the Uniform Commercial Code in effect in the State of New York on the date hereof and, to the extent the category of property or rights is expanded by any subsequent amendment of such statute, as so expanded from and after the date such amendment becomes effective. "General Intangibles" means all "general intangibles" as such term is defined in Section 9-106 of the Uniform Commercial Code in effect in the State of New York on the date hereof and, to the extent the category of property or rights is expanded by any subsequent amendment of such statute, as so expanded from and after the date such amendment becomes effective and, General Intangibles in any event, includes with respect to the Grantor, all contracts, agreements, instruments and indentures in any form, and portions thereof, to which the Grantor is a party or under which the Grantor has any right, title or interest or to which the Grantor or any property of the Grantor is subject, as the same may from time to time be amended, supplemented or otherwise modified, including (i) all rights of the Grantor to receive moneys due and to become due to it thereunder or in connection therewith, (ii) all rights of the Grantor to damages arising thereunder and (iii) all rights of the Grantor to perform and to exercise all remedies thereunder, in each case to the extent the grant by the Grantor of a security interest pursuant to this Agreement in its right, title and interest in such contract, agreement, instrument or indenture is not prohibited by such contract, agreement, instrument or indenture without the consent of any other party thereto, would not give any other party to such contract, agreement, instrument or indenture the right to terminate its obligations thereunder, or is permitted with consent if all necessary consents to such grant of a security interest have been obtained from the other parties hereto (it being understood that the foregoing shall not be deemed to obligate the Grantor to obtain such consents); provided, however, that the foregoing limitation shall not affect, limit, restrict or impair the grant by the Grantor of a security interest pursuant to this Agreement in any receivable or any money or other amounts due or to become due under any such contract, agreement, instrument or indenture. "Instruments" has the meaning specified in the Uniform Commercial Code in effect in the State of New York on the date hereof and, to the extent the category of property or rights is expanded by any subsequent amendment of such statute, as so expanded from and after the date such amendment becomes effective. "Investment Property" means all "investment property" as such term is specified in the Uniform Commercial Code in effect in the State of New York on the date hereof and, to the extent the category of property or rights is expanded by any subsequent amendment of such statute, as so expanded from and after the date such amendment becomes effective. "New York UCC" means the Uniform Commercial Code as from time to time in effect in the State of New York; provided, however, in the event that, by reason of 2 mandatory provisions of law, any or all of the attachment, perfection or priority of the Collateral Agent's and the Secured Parties' security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, the term "New York UCC" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection or priority and for purposes of definitions related to such provisions. "Obligations" means the Loans (as defined in the Credit Agreement or the Reimbursement Agreement), obligations under any Letter of Credit and all other advances, debts, liabilities, obligations, covenants and duties owing by the Grantor to the Agent under the Reimbursement Agreement, the Administrative Agent under the Credit Agreement, the Collateral Agent, any other Secured Party, the Issuing Bank (as defined in the Reimbursement Agreement), the Swingline Lender, any Affiliate of any of them or any indemnitee, of every type and description, present or future, whether or not evidenced by any note, guaranty or other instrument, arising under this Agreement or under the Agreements, whether or not for the payment of money, whether arising by reason of an extension of credit, opening or amendment of a Letter of Credit or payment of any draft drawn thereunder, loan, guaranty, indemnification, foreign exchange transaction or in any other manner, whether direct or indirect (including, without limitation, those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired. The term "Obligations" includes, without limitation, all interest, charges, expenses, fees, attorneys' fees and disbursements and any other sum chargeable to the Grantor under this Agreement or the Agreements and all obligations of the Grantor to cash collateralize obligations under a Letter of Credit, if any. "Proceeds" means all "proceeds" as such term is defined in Section 9-306(1) of the Uniform Commercial Code in effect in the State of New York on the date hereof and, in any event, shall include, without limitation, (a) all dividends or other income from the Collateral, collections thereon or distributions or payments with respect thereto, including any Instruments, General Intangibles and Investment Property received in connection therewith, and any amounts deposited in any overcollateralization account or reserve account which is payable with respect to any Collateral (b) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to the Grantor from time to time with respect to any of the Collateral, (c) any and all payments (in any form whatsoever) made or due and payable to the Grantor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any Governmental Authority (or any Person acting under color of Governmental Authority) and (d) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. "Securities Act" means the Securities Act of 1933, as amended. 1.2 Other Definitional Provisions. (a) The words "hereof," "herein," "hereto" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular section, subsection or clause 3 in this Agreement, and Section and Schedule references are to this Agreement unless otherwise specified. (b) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. (c) Where the context requires, terms relating to the Collateral or any part thereof, when used in relation to the Grantor, shall refer to the Grantor's Collateral or the relevant part thereof. (d) References herein to an Exhibit, Schedule, Article, Section, subsection or clause refer to the appropriate Exhibit or Schedule to, or Article, Section, subsection or clause in this Agreement. (e) Any reference in this Agreement to the Agreements shall include all appendices, exhibits and schedules thereto, and, unless specifically stated otherwise all amendments, restatements, supplements or other modifications thereto, and as the same may be in effect at any and all times such reference becomes operative. (f) The term "including" when used herein means "including without limitation" unless the context otherwise requires. (g) The terms "Secured Parties" and "Collateral Agent" include their respective successors. SECTION 2. GRANT OF SECURITY INTEREST 2.1 Collateral. For the purposes of this Agreement, all of the following property now owned or at any time hereafter acquired by the Grantor or in which the Grantor now has or at any time in the future may acquire any right, title or interests is collectively referred to as the "Collateral": (a) those certain Excess Spread Receivables listed on Annex 2 hereto and all certificates and documents, if any, representing any such Collateral or relating thereto; (b) all books and records pertaining to the Collateral; and (c) to the extent not otherwise included, all Proceeds and products of each of the foregoing and all accessions to, substitutions and replacements for, and rents, profits and products of, each of the foregoing, all dividends, cash, interest, all instruments and other property and Proceeds and products from time to time received, receivable or otherwise distributed in respect of the Collateral or in exchange therefore. 2.2 Grant of Security Interest in Collateral. As collateral security for the full, prompt and complete payment and performance when due (whether at stated maturity, by acceleration or otherwise) of the Obligations, the Grantor hereby collaterally assigns, conveys, mortgages, pledges, hypothecates and transfers to the Collateral Agent, 4 and grants to the Collateral Agent, for the ratable benefit of the Secured Parties, a security interest in all of its right, title and interest in, to and under the Collateral. SECTION 3. REPRESENTATIONS AND WARRANTIES To induce the Secured Parties to amend the Agreements, the Grantor hereby represents and warrants to the Secured Parties that: 3.1 Representations in Credit Agreement. The representations and warranties set forth in Article III of the Credit Agreement and Article III of the Reimbursement Agreement are hereby incorporated herein by reference, are true and correct, and the Collateral Agent and each Secured Party shall be entitled to rely on each of them as if they were fully set forth herein. 3.2 Title; No Other Liens. (a) Except for the security interests granted to the Collateral Agent for the ratable benefit of the Secured Parties pursuant to this Agreement, the Grantor is the legal and beneficial owner of and has good and marketable title to the Collateral on Annex 2 and owns each item of such Collateral free and clear of any and all Liens, or options in favor of, or claims of any other Person. No financing statement or other public notice with respect to all or any part of the Collateral is on file or of record in any public office, except such as have been filed in favor of the Collateral Agent, for the benefit of the Secured Parties, pursuant to this Agreement or as are permitted by the Agreements. (b) All Collateral in certificated form has been delivered to the Collateral Agent. 3.3 Perfection; Priority. (a) Upon (i) the completion of the filings and other actions specified on Annex 1 (which, in the case of all filings and other documents referred to on said Schedule, have been delivered to the Collateral Agent in completed and duly executed form), (ii) the delivery to the Collateral Agent of all certificates representing Collateral that consist of certificated securities and (iii) the Collateral Agent having obtained Control over such Investment Property, the security interests granted pursuant to this Agreement will constitute valid and continuing perfected security interests in the Collateral in favor of the Collateral Agent, for the benefit of the Secured Parties, having the priority ascribed to such security interests in Section 3.3(b). (b) Upon the completion of the filings and other actions specified in Section 3.3(a) and on Annex 1 (which, in the case of all filings and other documents referred to on said Schedule, have been delivered to the Collateral Agent in completed and duly executed form), the security interests granted pursuant to this Agreement are prior to all other Liens on the Collateral in existence on the date hereof. 3.4 Chief Executive Office; Books and Records. On the date hereof, the Grantor's jurisdiction of organization, the location of the Grantor's chief executive office 5 or sole place of business and the place where its records concerning the Collateral are kept are specified on Annex 4. SECTION 4. COVENANTS The Grantor covenants and agrees with the Secured Parties that, from and after the date of this Agreement until the obligations under the Credit Agreement and the Reimbursement Agreement shall have been paid in full, no Letter of Credit (as defined in the Reimbursement Agreement) shall be outstanding and the Commitments shall have terminated: 4.1 Generally. The Grantor shall (i) except for the security interest created by this Agreement, not create or suffer to exist any Lien upon or with respect to any of the Collateral; (ii) not use or permit any Collateral to be used unlawfully or in violation of any provision of this Agreement or any applicable statute, regulation or ordinance or any policy of insurance covering the Collateral; and (iii) pay promptly when due all property and other taxes, assessments and governmental charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, the Collateral, except to the extent the validity thereof is being contested in good faith; provided, however, that the Grantor shall in any event pay such taxes, assessments, charges, levies or claims not later than five days prior to the date of any proposed sale under any judgment, writ or warrant of attachment entered or filed against the Grantor or any of the Collateral as a result of the failure to make such payment. The Grantor shall not sell, transfer or assign (by operation of law or otherwise) any Collateral except as contemplated in this Agreement. 4.2 Covenants in Credit Agreement. The Grantor shall take, or shall refrain from taking, as the case may be, each action that is necessary to be taken or not taken, as the case may be, so that no Default or Event of Default under the Agreements is caused by the failure to take such action or to refrain from taking such action by the Grantor. 4.3 Payment of Obligations. The Grantor will pay and discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all taxes, assessments and governmental charges or levies imposed upon the Collateral or in respect of income or profits therefrom, as well as all claims of any kind (including claims for labor, materials and supplies) against or with respect to the Collateral, except that no such charge need be paid if the amount or validity thereof is currently being contested in good faith by appropriate proceedings, reserves in conformity with GAAP with respect thereto have been provided on the books of the Grantor and such proceedings could not reasonably be expected to result in the sale, forfeiture or loss of any material portion of the Collateral or any interest therein. 4.4 Maintenance of Perfected Security Interest; Further Documentation. (a) The Grantor shall maintain the security interests created by this Agreement as perfected security interests having at least the priorities described in 6 Section 3.3 and shall defend such security interests against the claims and demands of all Persons. (b) The Grantor will furnish to the Collateral Agent from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Collateral Agent may reasonably request, all in reasonable detail. (c) At any time and from time to time, upon the written request of the Collateral Agent, and at the sole expense of the Grantor, the Grantor will promptly and duly execute and deliver, and have recorded, such further instruments and documents and take such further actions as the Collateral Agent may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including the filing of any financing or continuation statements under the Uniform Commercial Code (or other similar laws) in effect in any jurisdiction with respect to the security interests created hereby. (d) The Grantor hereby authorizes the Collateral Agent to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of the Grantor. The Grantor agrees that a carbon, photographic or other reproduction of this Agreement or of a financing statement signed by Grantor shall be sufficient as a financing statement and may be filed as a financing statement in any and all jurisdictions. 4.5 Changes in Locations, Name, Etc. (a) The Grantor will not, except upon 30 days' prior written notice to the Collateral Agent and delivery to the Collateral Agent of all additional executed financing statements and other documents reasonably requested by the Collateral Agent to maintain the validity, perfection and priority of the security interests provided for herein: (i) change the location of its chief executive office or sole place of business from that referred to in Section 3.4; or (ii) change its name, identity or corporate structure to such an extent that any financing statement filed by the Collateral Agent in connection with this Agreement would become misleading. (b) The Grantor will keep and maintain at its own cost and expense satisfactory and complete records of the Collateral, including a record of all payments received and all credits granted with respect to the Collateral and all other dealings with the Collateral. The Grantor will, if so requested by the Collateral Agent, furnish to the Collateral Agent, as often as the Collateral Agent reasonably requests, statements and schedules further identifying and describing the Collateral and the transaction generating the Collateral related thereto, such other reports in connection with the Collateral as the Collateral Agent may reasonably request and any information that the Collateral Agent may reasonably request in order to perform an evaluation of the Collateral, all in 7 reasonable detail. The Grantor will mark its books and records pertaining to the Collateral to evidence this Agreement and the Lien and security interests granted hereby. For the Secured Parties' further security, the Grantor agrees that the Secured Parties shall have a special property interest in all of the Grantor's books and records pertaining to the Collateral. At any time, upon reasonable notice from the Collateral Agent, the Grantor shall permit any representative of the Collateral Agent to inspect such books and records and will provide photocopies thereof to the Collateral Agent. 4.6 Notices. The Grantor will advise the Collateral Agent, promptly and in reasonable detail, of any Lien (other than security interests created hereby or Liens permitted under the Agreements) on any of the Collateral. 4.7 Certificates, Instruments and Investment Property. (a) The Grantor will deliver all certificates or Instruments representing or evidencing the Collateral or, subject to Section 5, any amounts payable under or in connection therewith, whether now arising or hereafter acquired or arising to the Collateral Agent, and held by or on behalf of the Collateral Agent pursuant hereto, in suitable form for transfer by delivery or, as applicable, accompanied by the Grantor's endorsement, where necessary, or duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Collateral Agent. The Collateral Agent shall have the right, at any time in its discretion and without notice to the Grantor, to transfer to or to register in its name or in the name of its nominees any or all certificates, Instruments or Investment Property constituting Collateral. The Collateral Agent shall have the right at any time to exchange certificates or instruments representing or evidencing any Collateral for certificates or instruments of smaller or larger denominations. (b) Subject to Section 5, the Grantor shall be entitled to exercise all voting, consent and corporate rights with respect to the Collateral; provided, however, that no vote shall be cast, no consent shall be given, no corporate right shall be exercised and no other action shall be taken by the Grantor which, in the Collateral Agent's reasonable judgment, would impair the Collateral or which would be inconsistent with or result in any violation of any provision of the Credit Agreement, the Reimbursement Agreement or this Agreement. (c) The Grantor hereby agrees that it shall not grant Control over any Collateral to any Person other than the Collateral Agent. (d) Subject to Section 5, the Grantor shall be entitled to receive all payments, including any and all dividends, made in respect of the Collateral paid in the normal course of business of the relevant issuer thereof and consistent with past practice, to the extent permitted in the Agreements. Any sums paid or other property distributed upon or in respect of the Collateral upon the liquidation or dissolution of any issuer thereof shall be paid over to the Collateral Agent to be held by it hereunder as additional collateral security for the Obligations, and in case any distribution of capital shall be made on or in respect of the Collateral or any property shall be distributed upon or with 8 respect to such Collateral pursuant to the recapitalization or reclassification of the capital of any issuer thereof or pursuant to the reorganization thereof, the property so distributed shall be delivered to the Collateral Agent to be held by it hereunder as additional collateral security for the Obligations. If any sums of money or property so paid or distributed in respect of the Collateral shall be received by the Grantor, the Grantor shall, until such money or property is paid or delivered to the Collateral Agent, hold such money or property in trust for the Secured Parties, segregated from other funds of the Grantor, as additional collateral security for the Obligations. (e) Without the prior written consent of the Collateral Agent, the Grantor will not (i) vote to enable, or take any other action to permit, any issuer of Investment Property or other Collateral to issue any stock or other equity securities of any nature or to issue any other securities convertible into or granting the right to purchase or exchange for any stock or other equity securities of any nature of any issuer thereof, (ii) sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, any Collateral or the Proceeds thereof (except pursuant to a transaction expressly permitted by the Agreements), (iii) create, incur or permit to exist any Lien or option in favor of, or any claim of any Person with respect to, any of the Collateral or the Proceeds thereof, or any interest therein, except for the security interests created by this Agreement or (iv) enter into any agreement or undertaking restricting the right or ability of the Grantor or the Collateral Agent to sell, assign or transfer any of the Collateral or Proceeds thereof. (f) Upon request of the Collateral Agent, the Grantor shall cause each Person which is an issuer of an uncertificated security included in the Collateral to execute and deliver all instruments and documents, and take all further action that the Collateral Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted in such uncertificated securities, to establish Control by the Collateral Agent over such Collateral or to enable the Collateral Agent to exercise and enforce its rights and remedies hereunder with respect to such Collateral, including and as applicable, (i) register the security interest granted hereby upon the books of such Person in accordance with Article 8 of the New York UCC and (ii) deliver to the Collateral Agent an Acknowledgment of Pledge, duly executed by such the issuer of the applicable uncertificated security, in substantially the form of Annex 3. SECTION 5. REMEDIAL PROVISIONS 5.1 Sale of Collateral. The Grantor recognizes that the Collateral Agent may be unable to effect a public sale of any or all the Collateral, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws or otherwise, and may be compelled to resort to one or more private sales thereof to a restricted group of purchasers which will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. The Grantor acknowledges and agrees that any such private sale may result in prices and other terms less favorable than if such sale were a public sale. The Collateral Agent shall be under no obligation to delay a sale of any of the Collateral for the period of time necessary to permit the issuer thereof to register such 9 securities for public sale under the Securities Act, or under applicable state securities laws, even if such issuer would agree to do so. 5.2 Voting Rights. (a) If an Event of Default under the Credit Agreement or the Reimbursement Agreement shall occur and be continuing (other than an Event of Default arising under clause (f) of Article VII of the Agreements) and the Collateral Agent shall have provided notice to the Grantor of the acceleration of the obligations outstanding under the Agreements and shall have commenced enforcement action in respect thereof, (i) the Collateral Agent shall have the right to receive any and all cash dividends, payments or other Proceeds paid in respect of the Collateral and make application thereof to the Obligations in the order set forth in the Agreements, and (ii) the Collateral Agent or its nominee may exercise (x) all voting, consent, corporate and other rights pertaining to such Collateral at any meeting of shareholders of the relevant issuer or issuers thereof or otherwise and (y) any and all rights of conversion, exchange and subscription and any other rights, privileges or options pertaining to such Collateral as if it were the absolute owner thereof (including the right to exchange at its discretion any and all of the Collateral upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the corporate structure of any issuer thereof, or upon the exercise by the Grantor or the Collateral Agent of any right, privilege or option pertaining to such Collateral, and in connection therewith, the right to deposit and deliver any and all of the Collateral with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Collateral Agent may determine), all without liability except to account for property actually received by it, but the Collateral Agent shall have no duty to the Grantor to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing. IN ORDER TO PERMIT THE COLLATERAL AGENT TO EXERCISE THE VOTING AND OTHER CONSENSUAL RIGHTS WHICH IT MAY BE ENTITLED TO EXERCISE PURSUANT HERETO AND TO RECEIVE ALL DIVIDENDS AND OTHER DISTRIBUTIONS WHICH IT MAY BE ENTITLED TO RECEIVE HEREUNDER, (I) THE GRANTOR SHALL PROMPTLY EXECUTE AND DELIVER (OR CAUSE TO BE EXECUTED AND DELIVERED) TO THE COLLATERAL AGENT ALL SUCH PROXIES, DIVIDEND PAYMENT ORDERS AND OTHER INSTRUMENTS AS THE COLLATERAL AGENT MAY FROM TIME TO TIME REASONABLY REQUEST AND (II) WITHOUT LIMITING THE EFFECT OF CLAUSE (I) ABOVE, THE GRANTOR HEREBY GRANTS TO THE COLLATERAL AGENT AN IRREVOCABLE PROXY TO VOTE THE INVESTMENT PROPERTY OR OTHER COLLATERAL AND TO EXERCISE ALL OTHER RIGHTS, POWERS, PRIVILEGES AND REMEDIES TO WHICH A HOLDER OF SUCH COLLATERAL WOULD BE ENTITLED (INCLUDING GIVING OR WITHHOLDING WRITTEN CONSENTS OF SHAREHOLDERS, CALLING SPECIAL MEETINGS OF SHAREHOLDERS AND VOTING AT SUCH MEETINGS), WHICH PROXY SHALL BE EFFECTIVE, AUTOMATICALLY AND WITHOUT THE NECESSITY OF ANY ACTION (INCLUDING ANY TRANSFER OF ANY INVESTMENT PROPERTY 10 OR OTHER COLLATERAL ON THE RECORD BOOKS OF THE ISSUER THEREOF) BY ANY OTHER PERSON (INCLUDING THE ISSUER OF SUCH INVESTMENT PROPERTY OR OTHER COLLATERAL OR ANY OFFICER OR AGENT THEREOF), UPON THE OCCURRENCE AND DURING THE CONTINUATION OF AN EVENT OF DEFAULT UNDER THE CREDIT AGREEMENT OR THE REIMBURSEMENT AGREEMENT, AND WHICH PROXY SHALL ONLY TERMINATE UPON THE PAYMENT IN FULL OF THE OBLIGATIONS. (b) The Grantor hereby authorizes and instructs each issuer of any Collateral pledged by the Grantor hereunder to (i) comply with any instruction received by it from the Collateral Agent in writing that (x) states that an Event of Default under the Credit Agreement or the Reimbursement Agreement has occurred and is continuing and (y) is otherwise in accordance with the terms of this Agreement, without any other or further instructions from the Grantor, and the Grantor agrees that each such issuer shall be fully protected in so complying and (ii) unless otherwise expressly permitted hereby, pay any dividends or other payments with respect to such Investment Property directly to the Collateral Agent. 5.3 Proceeds to be Turned Over To Collateral Agent. If an Event of Default under the Credit Agreement or the Reimbursement Agreement shall occur and be continuing (other than an Event of Default arising under clause (f) of Article VII of the Agreements) and the Collateral Agent shall have provided notice to the Grantor of the acceleration of the obligations outstanding under the Agreements and shall have commenced enforcement action in respect thereof, all Proceeds received by the Grantor consisting of cash, checks and other near-cash items shall be held by the Grantor in trust for the Collateral Agent and the other Secured Parties, segregated from other funds of the Grantor, and shall, forthwith upon receipt by the Grantor, be turned over to the Collateral Agent in the exact form received by the Grantor (duly indorsed by the Grantor to the Collateral Agent, if required). All Proceeds received by the Collateral Agent hereunder shall be held by the Collateral Agent in a deposit account maintained under its sole dominion and control. All Proceeds, while held by the Collateral Agent in such deposit account (or by the Grantor in trust for the Collateral Agent and the other Secured Parties), shall continue to be held as collateral security for all the Obligations and shall not constitute payment thereof until applied as provided in the Credit Agreement or the Reimbursement Agreement, as applicable. 5.4 Code and Other Remedies. If an Event of Default under the Credit Agreement or the Reimbursement Agreement shall occur and be continuing, the Collateral Agent, on behalf of the Secured Parties, may exercise, in addition to all other rights and remedies granted to them in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the New York UCC or any other applicable law. Without limiting the generality of the foregoing, the Collateral Agent, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon the Grantor or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof 11 (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker's board or office of the Collateral Agent or any other Secured Party or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Collateral Agent or any other Secured Party shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in the Grantor, which right or equity is hereby waived and released. The Grantor further agrees, at the Collateral Agent's request, to assemble the Collateral and make it available to the Collateral Agent at places which the Collateral Agent shall reasonably select, whether at the Grantor's premises or elsewhere. The Collateral Agent shall apply the net proceeds of any action taken by it pursuant to this Section 5.4, after deducting all reasonable costs and expenses of every kind incurred in connection therewith or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Collateral Agent and any other Secured Party hereunder, including reasonable attorneys' fees and disbursements, to the payment in whole or in part of the Obligations, in such order as the Credit Agreement or the Reimbursement Agreement, as applicable, shall proscribe, and only after such application and after the payment by the Collateral Agent of any other amount required by any provision of law, including Section 9-504(1)(c) of the New York UCC, need the Collateral Agent account for the surplus, if any, to the Grantor. To the extent permitted by applicable law, the Grantor waives all claims, damages and demands it may acquire against the Collateral Agent or any other Secured Party arising out of the exercise by them of any rights hereunder. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition. 5.5 Waiver; Deficiency. The Grantor waives and agrees not to assert any rights or privileges which it may acquire under Section 9-112 of the New York UCC. The Grantor shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay its Obligations and the fees and disbursements of any attorneys employed by the Collateral Agent or any other Secured Party to collect such deficiency. SECTION 6. THE COLLATERAL AGENT 6.1 Collateral Agent's Appointment as Attorney-in-Fact, Etc. (a) The Grantor hereby irrevocably constitutes and appoints the Collateral Agent and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of the Grantor and in the name of the Grantor or in its own name, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, the Grantor hereby gives the Collateral Agent the power and right, on behalf 12 of the Grantor, without notice to or assent by the Grantor, to do any or all of the following: (i) in the name of the Grantor or in its own name, or otherwise, take possession of and indorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due with respect to any Collateral and file any claim or take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Collateral Agent for the purpose of collecting any and all such moneys due with respect to any Collateral whenever payable; (ii) pay or discharge taxes and Liens levied or placed on or threatened against the Collateral, effect any repairs or any insurance called for by the terms of this Agreement and pay all or any part of the premiums therefor and the costs thereof; (iii) execute, in connection with any sale provided for in Section 5.4, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral; and (iv) (1) direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due or to become due thereunder directly to the Collateral Agent or as the Collateral Agent shall direct; (2) ask or demand for, collect, and receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (3) sign and indorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of the Collateral; (4) commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any portion thereof and to enforce any other right in respect of any Collateral; (5) defend any suit, action or proceeding brought against the Grantor with respect to any Collateral; (6) settle, compromise or adjust any such suit, action or proceeding and, in connection therewith, give such discharges or releases as the Collateral Agent may deem appropriate; and (7) generally, sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Collateral Agent were the absolute owner thereof for all purposes, and do, at the Collateral Agent's option and the Grantor's expense, at any time, or from time to time, all acts and things which the Collateral Agent deems necessary to protect, preserve or realize upon the Collateral and the Collateral Agent's and the other Secured Parties' security interests therein and to effect the intent of this Agreement, all as fully and effectively as the Grantor might do. Anything in this Section 6.1(a) to the contrary notwithstanding, the Collateral Agent agrees that it will not exercise any rights under the power of attorney provided for in this 13 Section 6.1(a) unless an Event of Default under the Credit Agreement or the Reimbursement Agreement shall be continuing. (b) If the Grantor fails to perform or comply with any of its agreements contained herein, the Collateral Agent, at its option, but without any obligation so to do, may perform or comply, or otherwise cause performance or compliance, with such agreement. (c) The expenses of the Collateral Agent incurred in connection with actions undertaken as provided in this Section 6.1, together with interest thereon at a rate per annum equal to the rate per annum at which interest would then be payable on past due Loans that are ABR Loans under the Credit Agreement, from the date of payment by the Collateral Agent to the date reimbursed by the relevant Grantor, shall be payable by the Grantor to the Collateral Agent on demand. (d) The Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until this Agreement is terminated and the security interests created hereby are released. 6.2 Duty of Collateral Agent. The Collateral Agent's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the New York UCC or otherwise, shall be to deal with it in the same manner as the Collateral Agent deals with similar property for its own account. Neither the Collateral Agent or any other Secured Party nor any of their respective officers, directors, employees or agents shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of the Grantor or any other Person or to take any other action whatsoever with regard to the Collateral or any part thereof. The powers conferred on the Collateral Agent and the other Secured Parties hereunder are solely to protect the Collateral Agent's and the other Secured Parties' interests in the Collateral and shall not impose any duty upon the Collateral Agent or other Secured Party to exercise any such powers. The Collateral Agent and the other Secured Parties shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of their officers, directors, employees or agents shall be responsible to the Grantor for any act or failure to act hereunder, except for their own gross negligence or willful misconduct. 6.3 Execution of Financing Statements. Pursuant to Section 9-402 of the New York UCC and any other applicable law, the Grantor authorizes the Collateral Agent to file or record financing statements and other filing or recording documents or instruments with respect to the Collateral without the signature of the Grantor in such form and in such offices as the Collateral Agent reasonably determines appropriate to perfect the security interests of the Collateral Agent under this Agreement. A photographic or other reproduction of this Agreement shall be sufficient as a financing 14 statement or other filing or recording document or instrument for filing or recording in any jurisdiction. 6.4 Authority of Collateral Agent. The Grantor acknowledges that the rights and responsibilities of the Collateral Agent under this Agreement with respect to any action taken by the Collateral Agent or the exercise or non-exercise by the Collateral Agent of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement shall, as between the Collateral Agent and the other Secured Parties, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Collateral Agent and the Grantor, the Collateral Agent shall be conclusively presumed to be acting as agent for the Collateral Agent and the other Secured Parties with full and valid authority so to act or refrain from acting, and the Grantor shall not be under any obligation, or entitlement, to make any inquiry respecting such authority. SECTION 7. MISCELLANEOUS 7.1 Amendments in Writing. None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except in accordance with 9.02 of the Credit Agreement. 7.2 Notices. All notices, requests and demands to or upon the Collateral Agent or the Grantor hereunder shall be effected in the manner provided for in Section 9.01 of the Credit Agreement or Section 9.01 of the Reimbursement Agreement; provided, however, that any such notice, request or demand to or upon the Grantor shall be addressed to the Grantor at its notice address set forth on Annex 5. 7.3 No Waiver by Course of Conduct; Cumulative Remedies. Neither the Collateral Agent nor any other Secured Party shall by any act (except by a written instrument pursuant to Section 7.1), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default under the Credit Agreement or the Reimbursement Agreement, as applicable. No failure to exercise, nor any delay in exercising, on the part of the Collateral Agent or any other Secured Party, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Collateral Agent or any other Secured Party of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Collateral Agent or such other Secured Party would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. 7.4 Enforcement Expenses; Indemnification. (a) The Grantor agrees to pay or reimburse the Collateral Agent and each other Secured Party for all its costs and expenses incurred in enforcing or preserving any 15 rights under this Agreement and the Agreements, including the reasonable fees and disbursements of counsel (including the allocated reasonable fees and expenses of in-house counsel) to each Secured Party. (b) The Grantor agrees to pay, and to save the Collateral Agent and each other Secured Party harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Agreement. (c) The Grantor agrees to pay, and to save the Collateral Agent and each other Secured Party and each Affiliate of the Collateral Agent and any other Secured Party harmless from, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement to the extent the Grantor would be required to do so pursuant to the Credit Agreement or the Reimbursement Agreement, as applicable. (d) The agreements in this Section 7.4 shall survive repayment of the Obligations and all other amounts payable under the Agreements. 7.5 Successors and Assigns. This Agreement shall be binding upon the successors and assigns of the Grantor and shall inure to the benefit of the Collateral Agent and each other Secured Party and their successors and assigns; provided, however, that the Grantor may not assign, transfer or delegate any of its rights or obligations under this Agreement without the prior written consent of the Collateral Agent. 7.6 Set-Off. The Grantor hereby irrevocably authorizes the Collateral Agent, each other Secured Party and each of their respective Affiliates at any time and from time to time, without notice to the Grantor , any such notice being expressly waived by the Grantor, to set-off and appropriate and apply any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by the Collateral Agent, such other Secured Party or any of their respective Affiliates to or for the credit or the account of the Grantor, or any part thereof in such amounts as the Collateral Agent, such other Secured Party or any of their respective Affiliates, as the case may be, may elect, against and on account of the obligations and liabilities of the Grantor to the Collateral such Agent such other Secured Party or any such Affiliate hereunder and claims of every nature and description of the Collateral Agent, such other Secured Party or any of their 16 respective Affiliates, as the case may be, against the Grantor, in any currency, whether arising hereunder, under the Credit Agreement, the Reimbursement Agreement or otherwise, as the Collateral Agent, such other Secured Party or any of their respective Affiliates, as the case may be, may elect, whether or not the Collateral Agent, such other Secured Party or any of their respective Affiliates, as the case may be, has made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. The Collateral Agent, such other Secured Party or any of their respective Affiliates, as the case may be, shall notify the Grantor promptly of any such set-off and the application made by the Collateral Agent, such other Secured Party or any of their respective Affiliates, as the case may be, of the proceeds thereof, provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Collateral Agent, such other Secured Party or any of their respective Affiliates, as the case may be, under this Section 7.6 are in addition to other rights and remedies (including other rights of set-off) which the Collateral Agent, such other Secured Party or any of their respective Affiliates, as the case may be, may have. 7.7 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. 7.8 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 7.9 Section Headings. The Section headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 7.10 Integration. This Agreement and the Agreements represent the agreement of the Grantor, the Collateral Agent and each other Secured Party with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by the Collateral Agent or other Secured Party relative to subject matter hereof and thereof not expressly set forth or referred to herein or in the Agreements. 7.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 7.12 Submission To Jurisdiction; Waivers. The Grantor hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement and the Credit Agreement and the Reimbursement Agreement to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any 17 such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid; to the Grantor at its address referred to in Section 7.2 or at such other address of which the Collateral Agent shall have been notified pursuant thereto; (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damage. 7.13 Acknowledgements. The Grantor hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the Credit Agreement and the Reimbursement Agreement; (b) neither the Collateral Agent nor any Secured Party has any fiduciary relationship with or duty to the Grantor arising out of or in connection with this Agreement or any of the Credit Agreement and the Reimbursement Agreement, and the relationship between the Grantor, on the one hand, and the Collateral Agent and Secured Parties, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the Credit Agreement or the Reimbursement Agreement or otherwise exists by virtue of the transactions contemplated hereby among the Secured Parties or among the Grantor and the Secured Parties. 7.14 Releases. (a) At such time as the Loans and the Obligations shall have been paid in full, the Commitments have been terminated and no Letters of Credit (as defined in the Reimbursement Agreement) shall be outstanding which are not cash collateralized or backstopped to the satisfaction of the Secured Parties, the Collateral shall be released from the Liens created hereby, and this Agreement and all obligations (other than those expressly stated to survive such termination) of the Collateral Agent and the Grantor hereunder shall terminate, all without delivery of any instrument or performance of any act by any party, and all rights to the Collateral shall revert to the Grantor. At the request and sole expense of the Grantor following any such termination, the Collateral Agent shall deliver to the Grantor any Collateral held by the Collateral Agent hereunder, and execute and deliver to the Grantor such documents as the Grantor shall reasonably request to evidence such termination. 18 (b) If any of the Collateral shall be sold, transferred or otherwise disposed of by the Grantor in a transaction permitted by the Agreements, then the Collateral Agent, at the request and sole expense of the Grantor, shall execute and deliver to the Grantor all releases or other documents reasonably necessary or desirable for the release of the Liens created hereby on such Collateral. 7.15 WAIVERS OF JURY TRIAL. THE SECURED PARTIES AND THE GRANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR THE CREDIT AGREEMENT OR THE REIMBURSEMENT AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN. 19 IN WITNESS WHEREOF, each of the undersigned has caused this Pledge and Security Agreement to be duly executed and delivered as of the date first above written. CONTIFINANCIAL CORPORATION By: ________________________________ Name:/s/Alan Fishman Title: Authorized Signatory By: ________________________________ Name:/s/Frank Baier Title: Authorized Signatory 20 Annex 1 to Pledge and Security Agreement UCC FILINGS AND OTHER NECESSARY ACTION UCC-1 Financing Statements to be filed in the following jurisdictions: New York State New York County A1-1 Annex 2 to Pledge and Security Agreement EXCESS SPREAD RECEIVABLES - -------------------------------------------------------------------------------- CERTIFICATE PERCENTAGE INTEREST - -------------------------------------------------------------------------------- ContiMortgage Home Equity Loan Trust 1997-4, Home Equity Loan 48.18% Pass-Through Certificate, Interest Only Class C Certificate, issued pursuant to that certain Pooling and Servicing Agreement dated as of September 1, 1997 among ContiSecurities Asset Funding Corp., as Depositor, ContiMortgage Corporation, as Seller and Servicer, ContiWest Corporation, as Seller, and Manufacturers and Traders Trust Company, as Trustee, as the same may be amended from time to time. - -------------------------------------------------------------------------------- ContiMortgage Home Equity Loan Trust 1997-4, Home Equity Loan 14.6771% Pass-Through Certificate, Interest Only Class C Certificate, issued pursuant to that certain Pooling and Servicing Agreement dated as of September 1, 1997 among ContiSecurities Asset Funding Corp., as Depositor, ContiMortgage Corporation, as Seller and Servicer, ContiWest Corporation, as Seller, and Manufacturers and Traders Trust Company, as Trustee, as the same may be amended from time to time. - -------------------------------------------------------------------------------- ContiMortgage Home Equity Loan Trust 1998-1, Home Equity Loan 48.18%* Pass-Through Certificate, Interest Only Class C Certificate, issued pursuant to that certain Pooling and Servicing Agreement dated as of March 1, 1998 among ContiSecurities Asset Funding Corp., as Depositor, ContiMortgage Corporation, as Seller and Servicer, ContiWest Corporation, as Seller, and Manufacturers and Traders Trust Company, as Trustee, as the same may be amended from time to time. - -------------------------------------------------------------------------------- ContiMortgage Home Equity Loan Trust 1998-1, Home Equity Loan 51.82%* Pass-Through Certificate, Interest Only Class C Certificate, issued pursuant to that certain Pooling and Servicing Agreement dated as of March 1, 1998 among ContiSecurities Asset Funding Corp., as Depositor, ContiMortgage Corporation, as Seller and Servicer, ContiWest Corporation, as Seller, and Manufacturers and Traders Trust Company, as Trustee, as the same may be amended from time to time. - -------------------------------------------------------------------------------- ContiMortgage Home Equity Loan Trust 1999-1, Home Equity Loan 100% Pass-Through Certificate, Interest Only Class C Certificate, issued pursuant to that certain Pooling and Servicing Agreement dated as of March 1, 1999 among ContiSecurities Asset Funding Corp., as Depositor, ContiMortgage Corporation, as Seller and Servicer, ContiWest Corporation, as Seller, and Manufacturers and Traders Trust Company, as Trustee, as the same may be amended from time to time. - -------------------------------------------------------------------------------- ContiMortgage Home Equity Loan Trust 1999-2, Home Equity Loan 100% Pass-Through Certificate, Interest Only Class C Certificate, issued pursuant to that certain Pooling and Servicing Agreement dated as of March 1, 1999 among ContiSecurities Asset Funding Corp., as Depositor, ContiMortgage Corporation, as Seller and Servicer, ContiWest Corporation, as Seller, and Manufacturers and Traders Trust Company, as Trustee, as the same may be amended from time to time. - -------------------------------------------------------------------------------- ContiMortgage Home Equity Loan Trust 1999-3, Home Equity Loan 100% Pass-Through Certificate, Interest Only Class C Certificate, issued pursuant to that certain Pooling and Servicing Agreement dated as of June 1, 1999 among ContiSecurities Asset Funding Corp., as Depositor, ContiMortgage Corporation, as Seller and Servicer, ContiWest Corporation, as Seller, Norwest Bank Minnesota, National Association, as Master Servicer, and Manufacturers and Traders Trust Company, as Trustee, as the same may be amended from time to time. - -------------------------------------------------------------------------------- - -------- * The percentage interests of these two certificates represent 100% of the Class C certificates for the 1998-1 series. The total percentage interest being pledged to the Secured Parties is 86.602%. The remaining 13.398% shall be retained by the Grantor. Annex 3 to Pledge and Security Agreement Acknowledgment Of Pledge The undersigned hereby acknowledges receipt of a copy of the Pledge and Security Agreement, dated as of August 19, 1999 (the "Agreement"), made by the Grantors party thereto in favor of Credit Suisse First Boston, New York Branch as Collateral Agent. The undersigned agrees for the benefit of the Secured Parties as follows: 1. The undersigned will be bound by the terms of the Agreement and will comply with such terms insofar as such terms are applicable to the undersigned. 2. The terms of Section 5.2(b) of the Agreement shall apply to it, mutatis mutandis, with respect to all actions that may be required of it pursuant to Section 5.2(b) of the Agreement. [NAME OF ISSUER] By: Name: Title: Address for Notices Annex 4 to Pledge and Security Agreement CHIEF EXECUTIVE OFFICE AND LOCATION OF RECORDS ContiFinancial Corporation 277 Park Avenue New York, New York 10172 Annex 5 to Pledge and Security Agreement ----------------------------- ADDRESS FOR NOTICES ContiFinancial Corporation 277 Park Avenue New York, New York 10172 Attention: Allan Fishman Fax #: (212) 207-2868 with a copy to: Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019-6092 Attention: Rich Miller Fax #: (212) 259-6333 EX-10.36 5 EXHIBIT-10.36 MASTER REPURCHASE AGREEMENT GOVERNING PURCHASES AND SALES OF ASSETS Dated as of August 9, 1999 Between: GREENWICH CAPITAL FINANCIAL PRODUCTS, INC., as Buyer and CONTIFINANCIAL CORPORATION, as Seller 1. APPLICABILITY From time to time, the parties hereto shall, subject to the terms of this Agreement, enter into transactions in which ContiFinancial Corporation ("Seller"), a Delaware corporation, agrees to transfer to Greenwich Capital Financial Products, Inc. ("Buyer"), a Delaware corporation, certain Assets against the transfer of funds by Buyer, with a simultaneous agreement by Buyer to transfer to Seller such Assets at a date certain not later than thirty (30) days after the date of transfer, as specified in the Purchase Request, against the transfer of funds by Seller. Each such transaction shall be referred to herein as a "Transaction" and shall be governed by this Agreement, unless otherwise agreed in writing. Buyer shall, at the request of the Seller in accordance with the provisions set forth in this Agreement, upon the completion of a Transaction and receipt or giving, as applicable, of a Purchase Request, enter additional Transactions with respect to the Assets, provided that the duration of the Transactions shall not extend beyond the Final Repurchase Date and the terms and conditions in this Agreement shall otherwise be satisfied. 2. DEFINITIONS "Accepted Servicing Practices" means, with respect to any Purchased Asset, those loan servicing practices set forth in the Interim Servicing Addendum attached hereto as Exhibit XI, which Interim Servicing Addendum is incorporated herein by reference. "Acquisition Agreement" means, with respect to any Eligible Asset and Fallout Asset, the document governing the acquisition of such Asset by the Seller. "Act of Insolvency" means, with respect to Seller and its Material Subsidiaries, (i) the filing of a petition, commencing, or authorizing the commencement of any case or proceeding under any bankruptcy, insolvency, reorganization, liquidation, dissolution or similar law relating to the protection of creditors of the Seller or any of its Material Subsidiaries, or suffering any such petition or proceeding to be commenced by another; provided that any actively disputed petition or proceeding commenced by another shall not constitute an Act of Insolvency unless such petition or proceeding is not dismissed within 30 days of its commencement, (ii) seeking the appointment of a receiver, trustee, custodian or similar official for Seller or a Material Subsidiary or any substantial part of the property of either, (iii) the appointment of a receiver, conservator, or manager for Seller or a Material Subsidiary or any substantial part of the property of either by any governmental agency or authority having the jurisdiction to do so, (iv) the making or offering by Seller or a Material Subsidiary of a composition with its respective creditors or a general assignment for the benefit of creditors, (v) the admission in writing by Seller or a Material Subsidiary of such party's inability to pay its ordinary course trade debts as they become due or mature, or (vi) any Governmental Authority or agency or any person, agency or entity acting or purporting to act under Governmental Authority shall have taken any action to condemn, seize or appropriate, or to assume custody or control of, all or any substantial part of the property of Seller or a Material Subsidiary, or shall have taken any action to displace the management of such party or to curtail its authority in the conduct of the business of such party. "Additional Eligible Asset" means an Eligible Asset provided by Seller to Buyer or its designee pursuant to Section 4(a). "Affiliate" means, with respect to any Person, any other Person that directly or indirectly controls, or is under common control with, or is controlled by, such Person. As used in this definition, "control" (together with the correlative meanings of "controlled by" and "under common control with") means possession, directly or indirectly, of the power (a) to vote 10% or more of the securities (on a fully diluted basis) having ordinary voting power for the directors or managing general partners (or their equivalent) of such Person, or (b) to direct or cause the direction of the management or policies of such Person, whether through ownership of securities or partnership or other ownership interests, by contract or otherwise. "Affiliate Transaction" shall have the meaning assigned thereto in Section 11(h) hereto. "Agreement" means this Master Repurchase Agreement Governing Purchases and Sales of Assets, as amended, supplemented or otherwise modified from time to time. "American General" means American General Finance, Inc., a Delaware corporation. "American General Loan" means a Mortgage Loan the origination of which has been financed by American General pursuant to a certain warehouse financing agreement or repurchase agreement by and between the Seller (or one of its Affiliates) and American General (or one of its Affiliates). "Appraised Value" means the reconciled value of the Mortgaged Property as set forth in the appraisal prepared in accordance with the Underwriting Guidelines made in connection with the origination of the related Eligible Asset. "Asset" means an Eligible Asset, a Fallout Asset or any other asset as mutually agreed upon by Buyer and Seller. - 2 - "Asset Disposition" means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions) by the Seller or any Subsidiary, including any disposition by means of a merger, consolidation or similar transaction (each referred to for the purposes of this definition as a "disposition"), of (i) any shares of Capital Stock of a Subsidiary (other than directors' qualifying shares or shares required by applicable law to be held by a Person other than the Seller or a Subsidiary), (ii) all or substantially all the assets of any division or line of business of the Seller or any Subsidiary, (iii) any other assets of the Seller or any Subsidiary outside of the ordinary course of business of the Seller or such Subsidiary, (iv) any Investment in a Strategic Alliance Client or (v) any Excess Spread Receivables (other than in the case of (i), (ii), (iii), (iv) and (v) above, (x) a disposition by a Subsidiary to the Seller or the Seller or a Subsidiary to a Subsidiary, (y) a disposition that constitutes a Restricted Payment permitted hereunder, or (z) a disposition of assets (including related assets) for an aggregate consideration of $1.0 million or less). "Asset Documents" means the documents comprising the Asset File. "Asset File" means the documents and information required to be delivered to the Custodian by the Seller for each Eligible Asset and Fallout Asset, pursuant to the related Custodial Agreement, together with any additional documents and information required to be delivered to Buyer or its designee (including the Custodian). "Asset Representations" means the Mortgage Loan Representations set forth in Exhibit V hereto, and any other representations required for additional Eligible Assets or Fallout Assets that may be accepted by Buyer from time to time. "Asset Schedule" means the schedule attached hereto as Exhibit I. "Asset Tape" means a computer-readable magnetic transmission containing the information with respect to each Asset, to be delivered by the Seller to the Buyer pursuant to Section 3(b)(v) hereof and with the fields indicated on Exhibit X attached hereto. "Assignment and Conveyance" shall mean that certain agreement in the form of Exhibit VII attached hereto by and between the Seller, the Buyer and the Servicer, pursuant to which the Seller shall assign and convey to the Buyer all of its right title and interest in and to the applicable Acquisition Agreement and the applicable Servicing Agreement to the extent related to the Purchased Assets hereunder. "Assignment of Mortgage" means, with respect to any Mortgage, an assignment of the Mortgage, notice of transfer or equivalent instrument in recordable form, sufficient under the laws of the jurisdiction wherein the related property is located to reflect the assignment and pledge of the Mortgage. "Available Amount" shall mean the Committed Amount minus the sum of the aggregate Purchase Price with respect to Transactions outstanding hereunder. - 3 - "Board of Directors" means the Board of Directors of the Seller or any committee thereof duly authorized to act on behalf of such Board of Directors. "Breach", as that term relates to any representation, warranty or covenant in this Agreement, means that such representation or warranty was incorrect or untrue in any material respect when made or repeated or deemed to have been made or repeated, or Seller has failed to comply with a covenant in any material respect. "Breakage Costs" has the meaning specified in Section 3(f)(iii). "Business Day" means any day other than (i) a Saturday or Sunday or (ii) a day on which the New York Stock Exchange, the Federal Reserve Bank of New York or the Custodian is authorized or obligated by law or executive order to be closed or (iii) a day on which the Buyer is closed for business. "Buyer" means Greenwich Capital Financial Products, Inc. "Buyer's Account" has the meaning specified in Section 25(f). "Capital Stock" of any Person means any and all shares, interests, share capital, rights to subscribe for or purchase, warrants, options, participations, or other equivalents of or interests or membership interests in (however designated) equity of such Person, including any Preferred Stock, any limited or general partnership interest and any limited liability company membership interest (but excluding any debt securities convertible into such equity), any rights to subscribe for or purchase any thereof. "Cash Equivalents" means (a) securities with maturities of 90 days or less from the date of acquisition issued or fully guaranteed or insured by the United States Government or any agency thereof, (b) certificates of deposit and eurodollar time deposits with maturities of 90 days or less from the date of acquisition and overnight bank deposits of any commercial bank having capital and surplus in excess of $500,000,000, (c) repurchase obligations of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than seven days with respect to securities issued or fully guaranteed or insured by the United States Government, (d) commercial paper of a domestic issuer rated at least A-1 or the equivalent thereof by Standard and Poor's Ratings Group ("S&P") or P-1 or the equivalent thereof by Moody's Investors Service, Inc. ("Moody's") and in either case maturing within 90 days after the day of acquisition, (e) securities with maturities of 90 days or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody's, (f) securities with maturities of 90 days or less from the date of acquisition backed by standby letters of credit issued by any commercial bank satisfying the requirements of clause (b) of this definition or (g) shares of money market mutual or similar funds which invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition. - 4 - "Change in Control" means the occurrence of any of the following events: (i) Any "person" (as such term is used in Section 13(d) and 14(d) of the Exchange Act), other than any Permitted Holder, is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that such person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 35% of the total voting power of the Voting Stock of such Person; provided, however, that the Permitted Holders beneficially own (as defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, in the aggregate a lesser percentage of the total voting power of the Voting Stock of the Seller or any Material Subsidiary than such other person and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors (for the purposes of this clause (i), such other person shall be deemed to beneficially own any Voting Stock of a corporation held by another corporation (a "parent corporation"), if such other person is the beneficial owner (as defined above for such person), directly or indirectly, of more than 35% of the voting power of the Voting Stock of such parent corporation and the Permitted Holders beneficially own (as defined above for the Permitted Holders), directly or indirectly, in the aggregate a lesser percentage of the voting power of the Voting Stock of such parent corporation and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the board of directors of such parent corporation); (ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Seller or any Material Subsidiary was approved by a vote of 66-2/3% of the directors of the Seller or any Material Subsidiary then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors then in office; or (iii) the merger or consolidation of the Seller or any Material Subsidiary with or into another Person or the merger of another Person with or into the Seller or any Material Subsidiary, as the case may be, or the liquidation, wind-up or dissolution of the Seller or any Material Subsidiary, as the case may be, or the sale of all or substantially all the assets of the Seller or any Material Subsidiary, as the case may be, to another Person (other than a Person that is controlled by the Permitted Holders), and, in the case of any such merger or consolidation, the securities of the Seller or any Material Subsidiary, as the case may be, that are outstanding immediately prior to such transaction and which represent 100% of the aggregate voting power of the Voting Stock of the Seller or any Material Subsidiary, as the case may be, are changed into or exchanged for cash, securities or property, unless pursuant to such transaction such securities are changed into or exchanged for, in addition to any other consideration, securities of the surviving - 5 - corporation that represent immediately after such transaction, at least a majority of the aggregate voting power of the Voting Stock of the surviving corporation; provided, however, that the sale by the Seller or its Subsidiaries from time to time solely of Receivables to a trust for the purpose solely of effecting one or more securitizations shall not be treated hereunder as a sale of all or substantially all the assets of the Seller. Notwithstanding the foregoing, if at any time (i) Buyer shall have no obligation to purchase Assets hereunder that were previously financed by ContiTrade Services L.L.C. or California Lending Group, Inc. and (ii) no Purchased Assets subject to Transactions constitute Assets previously financed by ContiTrade Services L.L.C. or California Lending Group, Inc., then ContiTrade Services L.L.C. or California Lending Group, Inc. shall not be considered Material Subsidiaries for purposes of the definition of the term "Change of Control". Notwithstanding anything contained in this Agreement to the contrary, a Change of Control accompanied by an equity infusion in the Seller of not less than $100,000,000 shall not constitute an Event of Default under this Agreement for 60 days after the date of such equity infusion, unless an additional Change of Control shall occur during such 60 day period. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Collateral" has the meaning specified in Section 6. "Collateral Amount" means, with respect to any Transaction, the amount obtained by application of the Collateral Amount Percentage to the Market Value of the Purchased Assets for such Transaction. "Collateral Amount Percentage" means (i) with respect to each Eligible Asset (other than Collateralized Notes) (A) for the period from the date of this Agreement until August 23, 1999, the percentage specified by the Buyer in its sole discretion and (B) from and after August 23, 1999, 95%, (ii) with respect to each Fallout Asset, the percentage applicable to such Asset that is specified in Schedule 4 attached hereto, (iii) with respect to Collateralized Notes, the percentage specified by the Buyer, if Buyer approves such Assets for purchase hereunder, and (iv) with respect to all other Assets, the percentage specified in writing by Buyer, if Buyer approves such Assets for purchase hereunder; provided, however, that (A) each of the following categories of Assets set forth below as a percentage of all Assets subject to Transactions hereunder shall not exceed the applicable sublimits set forth below and (B): (1) On and after August 23, 1999, Collateral Amount Percentage shall be zero with respect to all Assets which in the aggregate exceed the following applicable sublimits based on the aggregate Collateral Amount of all Assets subject to Transactions hereunder: Fixed Rate Loan Adjustable Rate Loan Sublimit Sublimit -------- -------- - 6 -
LTV: >85% 20% until August 31, 1999; 15% until August 31,1999; 15% thereafter, provided Buyer may 10% thereafter, provided Buyer may increase the percentage to 20% increase the percentage to 15% following Seller's development of following Seller's development of a High LTV/FICO program a High LTV/FICO program satisfactory to Buyer satisfactory to Buyer >90% 1% 0% >100% 0% 0%
(2) On and after August 23, 1999, Collateral Amount Percentage shall be zero with respect to all Assets that are Second Lien Mortgage Loans which in the aggregate exceed 10% of the aggregate Collateral Amount of all such Assets subject to Transactions hereunder. (3) On and after August 23, 1999, Collateral Amount Percentage shall be zero with respect to all Assets that are Second Lien Mortgage Loans which in the aggregate exceed the following applicable sublimits based on the aggregate Collateral Amount of all such Assets subject to Transactions hereunder: CLTV Sublimit >85% 25% >90% 1% >95% 0% (4) On and after August 23, 1999, Collateral Amount Percentage shall be zero with respect to all Assets that have FICO scores less than 550 (to the extent a FICO score is available for such Asset) which in the aggregate exceed the following applicable sublimits based on the aggregate Collateral Amount of all such Assets subject to Transactions hereunder: Fixed Rate Loan Adjustable Rate Loan Sublimit Sublimit --------------------------- -------------------------------- 10% until August 31, 1999; 10% until August 31, 1999; 5% 5% thereafter thereafter (5) Collateral Amount Percentage shall be zero with respect to all Assets that constitute American General Loans which in the aggregate exceed 10% of the aggregate Collateral Amount of all Assets subject to Transactions hereunder. - 7 - (6) On and after August 23, 1999, Collateral Amount Percentage shall be zero with respect to all Assets that constitute Section 32 Mortgage Loans which in the aggregate exceed 10% of the aggregate Collateral Amount of all Assets subject to Transactions hereunder. (7) Collateral Amount Percentage shall be zero with respect to all Empire Collateralized Notes (I) that exceed the applicable Collateralized Note Sublimit or (II) which have not been repurchased by Seller hereunder by the earlier of (x) 45 days after the applicable Purchase Date and (y) November 3, 1999. (8) Collateral Amount Percentage shall be zero with respect to all Collateralized Notes that exceed the applicable Collateralized Note Sublimit. (9) Collateral Amount Percentage shall be zero (I) with respect to all Eligible Assets that cease to qualify as either Eligible Assets or Fallout Assets and (II) with respect to all Fallout Assets that cease to qualify as Fallout Assets or exceed the Fallout Loan Sublimit. "Collateral Deficit" has the meaning specified in Section 4(a). "Collateralized Note" means a promissory note made in favor of the Seller, or a Subsidiary of Seller and endorsed by such subsidiary to the Seller, and secured by pools of Underlying Mortgage Loans; provided, however, that the obligor under such Collateralized Note has pledged and hypothecated to the Seller, and has granted a continuing lien and first priority security interest in favor of the Seller in collateral compromised of Eligible Assets; and provided further, however, that the Seller has pledged such collateral to the Buyer, has granted to Buyer a continuing lien on and first priority security interest in such collateral, as of the related Purchase Date, and has delivered to Buyer each of the documents set forth in Section 3(b)(xi), in form and substance satisfactory to Buyer and its counsel. "Collateralized Note Sublimit" means (i) with respect to all Empire Collateralized Notes, $25,000,000, and (ii) with respect to all Collaterized Notes other than Empire Collateralized Notes, $50,000,000. "Combined LTV" or "CLTV" shall mean with respect to any Mortgage Loan, the ratio of (a) the Par Amount as of the related date of origination of such Second Lien Mortgage Loan of (i) the Second Lien Mortgage Loan plus (ii) the mortgage loan constituting the first lien (if any) to (b) the Appraised Value of the Mortgaged Property. "Committed Amount" means $200,000,000 (provided that during the Overadvance Period the amount shall be $250,000,000). "Commitment Fee" means the commitment fee specified in the Master Facilities Agreement. - 8 - "Commonly Controlled Entity" means an entity, whether or not incorporated, which is under common control with Seller within the meaning of Section 4001 of ERISA or is part of a group which includes Seller and which is treated as a single employer under Section 414 of the Code. "Contractual Obligation" means as to any Person, any provision of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound or any provision of any security issued by such Person. "Custodial Agreement" means that certain custodial agreement, dated as of August 9, 1999, among the Custodian, Buyer and Seller, as the same shall be modified and supplemented and in effect from time to time. "Custodian" means Manufacturers and Traders Trust Company, as custodian under the Custodial Agreement, and its successors and permitted assigns thereunder. "Default" means an event that with notice or lapse of time or both would become an Event of Default. "Delinquent" means, with respect to any Asset, the period of time from the date on which an Obligor fails to pay an obligation under the terms of such Asset (without regard to any applicable grace periods) to the date on which such payment is made. "Disqualified Stock" means, with respect to any Person, any Capital Stock which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) or upon the happening of any event (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or (iii) is redeemable at the option of the holder thereof, in each case in whole or in part on or prior to the first anniversary of the Stated Maturity of the Securities; provided, however, that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring prior to the first anniversary of the Stated Maturity of the Securities shall not constitute Disqualified Stock if the "asset sale" or "change of control" provisions applicable to such Capital Stock are not more favorable to the holders of such Capital Stock that the provisions of the Indenture. "Eligible Asset" means a Mortgage Loan secured by a first or second Mortgage lien on a one-to-four family residential Mortgaged Property or Mixed Use Mortgaged Property as to which the Mortgage Loan Representations are true and correct, and (i) which has not been subject to Transactions for a period in excess of 90 days from the date on which it is first made subject to a Transaction, (ii) which is not 29 days or more Delinquent, (iii) which was originated not more than (A) sixty (60) days prior to the date the Mortgage Loan is first subject to a Transaction provided such Mortgage Loan was originated by the Seller or a Qualified Originator affiliated with the Seller or (B) seventy-five (75) days prior to the date the Mortgage Loan is first subject to a Transaction provided such Mortgage Loan was originated by a Qualified Originator - 9 - not affiliated with the Seller, (iv) which has not been released from the possession of the Custodian to the Seller or its designee in excess of the time permitted by the Custodial Agreement, (v) which is not subject to a Material Exception (as defined in the Custodial Agreement), (vi) which complies in all material respects with the Underwriting Guidelines, (vii) which has been originated by the Seller or a Qualified Originator, (viii) which has not been subject to any prior financing or previously purchased by any Person other than the Buyer pursuant to this Agreement or the Seller pursuant to an Acquisition Agreement, except for American General Loans, and (ix) which, in the case of a Second Lien Mortgage Loan, does not bear interest at an adjustable rate. Eligible Asset shall also mean certain Collateralized Notes which Buyer has approved for purchase hereunder. "Empire Collateralized Note" means that certain Collateralized Note secured by the Collateral defined in the Amended and Restated Interim Warehouse and Security Agreement, dated as of March 29, 1995, among ContiTrade Services Corporation (the "Lender") and Empire Funding Corp. (the "Borrower"), amending and restating the Interim Warehouse and Security Agreement dated as of October 15, 1993, as amended by an agreement dated as of August 18, 1994 (the "Original Warehouse Agreement") and conforming to the representations and warranties set forth in Exhibit V(A) hereto. "Empire Collateralized Note Representations" means the representations and warranties set forth in Exhibit V(A) hereto. "Engagement Letter" means that certain engagement letter, dated the date of this Agreement, among Seller, ContiMortgage Corporation, ContiWest Corporation, Greenwich Capital Markets, Inc. and Buyer relating to, among other things, the securitization, after the date hereof, of certain mortgage loans originated or purchased by Seller and its Affiliates. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" means any corporation or trade or business that is a member of any group of organizations (i) described in Section 414(b) or (c) of the Code of which the Seller is a member and (ii) solely for purposes of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of which the Seller is a member. "Event of Default" has the meaning specified in Section 13. "Exception" has the meaning specified in the Custodial Agreement. "Excess Spread" means, over the life of a "pool" of Receivables that have been sold by a Person to a trust or other Person in a securitization or sale, the rights retained by such Person or its Subsidiaries at or subsequent to the closing of such securitization or sale to receive cash flows attributable to such "pool". - 10 - "Excess Spread Receivable" of a Person means the contractual or certificated right to Excess Spread capitalized on such Person's consolidated balance sheet (the amount of which shall be the present value of the Excess Spread, calculated in accordance with GAAP). "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Existing Repo Facility" means the Master Repurchase Agreement Governing Purchases and Sales of Eligible Assets, dated as of December 21, 1998, between Seller and Buyer, as amended, supplemented or otherwise modified from time to time. "Exit Fee" means, (i) with respect to each Purchased Asset repurchased by the Seller and sold by the Seller to a third party without the Buyer's guaranty of or assumption of responsibility for the representations and warranties relating to such Asset, an amount equal to 0.25% of the Par Amount of such Asset on the applicable Repurchase Date, and (ii) with respect to each Purchased Asset repurchased by the Seller and sold by the Seller to a third party with the Buyer's guaranty of or assumption of responsibility for the representations and warranties relating to such Asset, an amount equal to 1% of the Par Amount of such Asset on the applicable Repurchase Date. "Facility Documents" has the meaning specified in Section 3(a). "Fallout Asset" means certain Mortgage Loans each of which (a)(i) does not qualify as an Eligible Asset on the applicable Purchase Date or (ii) qualifies as an Eligible Asset on the applicable Purchase Date but thereafter ceases to be an Eligible Asset and (b) falls into one of the categories listed on Schedule 4 hereto. "Fallout Asset Sublimit" means $50,000,000. "Federal Funds Rate" means, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Buyer from three federal funds brokers of recognized standing selected by it. "Final Repurchase Date" means the earlier of (i) March 31, 2000 and (ii) the date of the occurrence of an uncured Event of Default. "First Lien Mortgage Loan" means a Mortgage Loan secured by the lien on the Mortgaged Property, subject to no prior liens on such Mortgaged Property. "GAAP" means generally accepted accounting principles in effect in the United States as amended from time to time. "Governmental Authority" means any nation or government, any state, agency, instrumentality or other political subdivision thereof, any entity exercising executive, legislative, - 11 - judicial, regulatory or administrative functions of or pertaining to government and any court or arbitrator having jurisdiction over the Seller, any of its Subsidiaries or any of its properties. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness or other obligation of any Person and any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take-or-pay or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "HOEPA" means the Home Ownership and Equity Protection Act of 1994. "Income" means, with respect to any Asset at any time, any principal thereof then payable and all interest or dividends or other distributions payable thereon less any related servicing fee(s) charged by the Servicer, as approved by Buyer. "Indebtedness" shall mean, of any Person at any date, without duplication, (a) all indebtedness of such Person for borrowed money (whether by loan or the issuance and sale of debt securities) or for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices), (b) any other indebtedness of such Person which is evidenced by a note, bond, debenture or similar instrument, (c) all obligations of such Person under financing leases, (d) all obligations of such Person in respect of letters of credit, acceptances or similar instruments issued or created for the account of such Person and (e) all liabilities secured by any lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof. "Indenture" means the Indenture, dated as of August 15, 1996 between Seller and Chase Manhattan Bank. "Interest Period" means, with respect to any Transaction, (i) initially, the period commencing on the Purchase Date and ending on the day immediately preceding the next Payment Date (the "Interest Reset Date"), and (ii) thereafter, each period commencing on the Payment Date of a month and ending on the calendar day prior to the Payment Date of the next succeeding month. Notwithstanding the foregoing: (A) no Interest Period may end after the Final Repurchase Date; and (B) each Interest Period that would otherwise end on a day that is not a Business Day shall end on the next succeeding Business Day. "Interest Reset Date" has the meaning set forth in the definition of Interest Period. - 12 - "Interim Servicer" means ContiMortgage Corporation in its capacity as the party obligated to maintain or cause the Purchased Assets to be serviced in accordance with Accepted Serving Practices during the Interim Servicing Period in accordance with Section 25. "Interim Servicing Period" means, with respect to any Purchased Asset, the period commencing on the related Purchase Date and ending on the earlier to occur of (i) the successful completion of the transfer to the servicer of servicing of such Purchased Asset, including all applicable system transfers, document transfers and mailing of required notices, and (ii) 30 days after such Purchase Date; provided, that Buyer shall have the option to extend the Interim Servicing Period for one or more 30-day periods upon written notice to the Interim Servicer. The Buyer and Seller contemplate that such transfer of servicing will be completed within 30 days after the Purchase Date of each Purchased Asset. "Investment" in any Person means any direct or indirect advance, loan (other than advances to customers in the ordinary course of business that are recorded as trade accounts on the balance sheet of the lender) or other extensions of credit (including by way of Guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by such Person. "Investment Company Act" means the Investment Company Act of 1940, as amended. "LIBO Base Rate" means for any Transaction, with respect to each day during each Interest Period pertaining to such Transaction, the rate per annum equal to the rate appearing at page 3750 of the Telerate Screen as one-month "LIBOR" on the first day of such Interest Period, and if such rate shall not be so quoted, the rate equal to the average of the rates per annum at which deposits in dollars are offered for the relevant Interest Period to major banks in the London interbank market by any three major banks, and if such rate is unascertainable the rate per annum at which the Buyer is offered dollar deposits at or about 11:00 a.m., New York City time, on such date by prime banks in the interbank eurodollar market where the eurodollar and foreign currency exchange operations in respect of its Transactions are then being conducted for delivery on such day for a period of one month, and in an amount comparable to the amount of the Transactions to be outstanding on such day. "LIBO Rate" means with respect to each day during each Interest Period pertaining to a Transaction, a rate per annum determined by the Buyer in accordance with the following formula (rounded upwards to the nearest 1/100th of one percent), which rate as determined by the Buyer shall be conclusive, absent manifest error by the Buyer: LIBO Base Rate -------------------------------- 1.00 - LIBO Reserve Requirements "LIBO Reserve Requirements" means for any Interest Period for any Transaction, the aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve - 13 - requirements in effect on such day or during such Interest Period, as applicable (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve System or other Governmental Authority having jurisdiction with respect thereto), dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of such Board) maintained by a member bank of such Governmental Authority. As of the date hereof, such reserve requirement is equal to zero. "Lien" means any mortgage, lien, pledge, charge, security interest or similar encumbrance. "LTV" means with respect to any Asset, the ratio of (a) the Par Amount of the Asset as of the date of origination (unless otherwise indicated) to (b) the Appraised Value of the Mortgaged Property or if the loan was made in connection with the purchase of the related Mortgaged Property, the lesser of the Appraised Value and the sales price of such property. "Losses" means, with respect to any Person (and its officers, directors, agents and employees), any and all liabilities, losses, claims, damages, judgments, costs and expenses of any kind (including reasonable attorneys' fees and disbursements) which may be imposed on, incurred by, or asserted against such Person (and its officers, directors, agents and employees), relating to or arising out of, this Agreement, any other document or agreement entered into between or among any of the parties to this Agreement in connection herewith or any transaction contemplated hereby or thereby, and costs and expenses incurred in connection with the enforcement or the preservation of rights under this Agreement, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, any such other document or agreement entered into between or among any of the parties to this Agreement in connection herewith or any transaction contemplated hereby or thereby, including, without limitation, those Losses resulting from a Breach. Losses must be accounted for, documented in reasonable detail, and presented for reimbursement. "Market Value" means the value, determined by Buyer in its sole good faith discretion, of the Mortgage Loans as if sold in their entirety to a single third-party purchaser. Seller acknowledges that Buyer's determination of Market Value is for the limited purpose of determining value hereunder without the ability to perform customary purchaser's due diligence and is not necessarily equivalent to a determination of the fair market value of the Mortgage Loans achieved by obtaining competing bids in an orderly market in which the originator/servicer is not in default and the bidders have adequate opportunity to perform customary loan and servicing due diligence. "Master Facilities Agreement" means that certain master facilities agreement, dated the date of this Agreement, among Buyer, Greenwich Capital Markets, Inc., Seller, ContiMortgage Corporation and ContiWest Corporation. "Material Adverse Effect" means a material adverse effect upon (i) the business operations, properties or assets of Seller and its Subsidiaries, taken as a whole, (ii) the ability of Seller to perform its obligations, or of Buyer to enforce any of its rights or remedies, under this - 14 - Agreement or any of documents to be executed and/or delivered hereunder, (iii) the validity or enforceability of any of the Facility Documents; or (iv) the Collateral taken as a whole, in the case of (i), (ii), (iii) and (iv) above (A) taking into consideration the financial condition of the Seller and its Subsidiaries as of the date of this Agreement and (B) without taking into consideration any further deterioration of the financial condition of the Seller and its Subsidiaries after the date of this Agreement. "Material Subsidiary" means (a) any Subsidiary identified as a Material Subsidiary on Schedule 1 attached hereto, and (b) any Subsidiary created or acquired after the date of this Agreement that is a Significant Subsidiary of the Seller. "Maximum Transaction Amount" means, at any time, the sum of (i) the aggregate Purchase Price for Purchased Assets subject to Transactions and (ii) the aggregate initial purchase price of mortgage loans subject to the Purchase Facility. "Mixed Use Mortgaged Property" means a Mortgage Loan secured by a Mortgaged Property that is used primarily for residential purposes, but which is also used for non-residential purposes. "Monoline Insurance Company" means Ambac Assurance Corporation, Municipal Bond Investors Assurance Corporation, Financial Guaranty Insurance Company, Capital Markets Assurance Corporation, Financial Security Assurance Inc. or GE Mortgage Insurance Company. "Monthly Payment" means the scheduled monthly payment of principal and interest on an Asset as adjusted in accordance with changes in the Note Interest Rate pursuant to the provisions of the Note for an adjustable rate Asset. "Moody's" means Moody's Investor Service, Inc. "Mortgage" means a mortgage, deed of trust, deed to secure debt or other instrument, creating a valid and enforceable first or second lien (as identified in the related Asset Tape) on an estate in fee simple in real property and the improvements thereon, securing a Mortgage Note or similar evidence of indebtedness (or, with respect to multifamily or commercial Mortgage Loans, if accepted hereunder, the fee or leasehold estate, in real property securing the Mortgage Note; and the assignment of rents and leases related thereto). "Mortgage Loan" means a mortgage loan which the Custodian has been instructed to hold for the Buyer pursuant to the Custodial Agreement, and which Mortgage Loan includes, without limitation, a Mortgage Note and related Mortgage. "Mortgage Loan Representations" means the representations set forth in Exhibit V hereto. "Mortgage Note" means a note or other evidence of indebtedness of a Mortgagor secured by a Mortgage. - 15 - "Mortgaged Property" means the real property securing repayment of the debt evidenced by a Mortgage Note. "Mortgagee" means the record holder of a Mortgage Note secured by a Mortgage. "Mortgagor" means the obligor on a Mortgage Note and the grantor of the related Mortgage. "Multiemployer Plan" means a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Non-Excluded Taxes" has the meaning provided in Section 29(f) hereof. "Note" means a Mortgage Note or other promissory note or other evidence of indebtedness of an Obligor. "Note Interest Rate" means the annual rate of interest borne on a Note, which shall be adjusted from time to time with respect to an adjustable rate Mortgage Loan or other Asset. "Obligor" means, with respect to an Asset, the mortgagor/borrower thereunder. "Officer's Certificate" means, with respect to any Person, a certificate of its Responsible Officer. "Overadvance Period" means, with respect to each calendar month, the last three Business Days of such month and the first two Business Days of the succeeding month. "Par Amount" means, in respect of an Asset at any time, the outstanding principal balance of such Asset at such time. "Payment Date" means the first day of each calendar month, or if such day is not a Business Day, the next succeeding ------------ Business Day. "PBGC" means the Pension Benefit Guaranty Corporation established pursuant to subtitle A of Title IV of ERISA. "Periodic Payment" has the meaning specified in Section 5(b). "Permitted Holders" means lineal descendants of Jules Fribourg, including any individual legally adopted; spouses of such descendants; trusts, the beneficiaries of which are any of the foregoing; partnerships, corporations, or other entities in which any of the foregoing (individually or collectively) has a controlling interest; and charitable organizations established by any of the foregoing. "Permitted Investment" means an Investment by the Seller or any Subsidiary in (i) a Subsidiary or a Person that will, upon the making of such Investment, become a Subsidiary; provided, however, that the primary business of such Subsidiary is a Related Business; (ii) a - 16 - Strategic Alliance Client to the extent that such Investment consists of options, warrants or other securities that are convertible or exchangeable for equity securities of such Strategic Alliance Client and is received by the Seller or a Subsidiary without the payment of any consideration other than the concurrent provision by the Seller or such Subsidiary to such Strategic Alliance Client of financing or asset securitization expertise on terms determined by the Seller to be fair and reasonable to the Seller or such Subsidiary from a financial point of view without taking into consideration any value that may inhere in such option, warrant or convertible or exchangeable security; (iii) another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all of its assets to, the Seller or a Subsidiary; provided, however, that such Person's primary business is a Related Business; (iv) Temporary Cash Investments; (v) receivables owing to the Seller or any Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (vi) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (vii) loans or advances to employees made in the ordinary course of business consistent with past practices of the Seller or such Subsidiary; (viii) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Seller or any Subsidiary or in satisfaction of judgments; (ix) any Person to the extent such Investment represents the non-cash portion of the consideration received for an Asset Disposition as permitted pursuant to the Indenture; (x) Receivables; (xi) a Strategic Alliance Client to the extent such Investment consists of (A) Indebtedness of such Strategic Alliance Client that is secured by Receivables owned by such Strategic Alliance Client in an aggregate principal amount at any time outstanding not to exceed 100% of the aggregate market value of such Receivables; provided, however, that such Receivables are eligible to be characterized under GAAP as held for sale on the balance sheet of such Strategic Alliance Client and such Indebtedness has not been outstanding in excess of 364 days; and (B) Indebtedness of such Strategic Alliance Client that is secured by Excess Spread Receivables owned by such Strategic Alliance Client; provided, however, that such Excess Spread Receivables are attributed solely to one or more "pools" of Receivables that were securitized in one or more transactions in which the Seller or its Subsidiaries either acted as underwriters or placement agent or provided all or a portion of the financing for such "pool" prior to such securitization; and (xii) Excess Spread Receivables; provided, however, that such Excess Spread Receivables represent interests in one or more "pools" of Receivables that were securitized in one or more transactions in which the Seller or its Subsidiaries acted as sponsor, underwriter or placement agent or provided all or a portion of the financing for such "pool" prior to such securitization. "Person" means any individual, corporation, company, voluntary association, partnership, joint stock company, joint venture, limited liability company, trust, unincorporated organization or association, Governmental Authority, or any other entity of whatever nature. "Plan" means at a particular time, any employee benefit plan which is covered by ERISA and in respect of which Seller or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. - 17 - "Post-Default Rate" means, in respect of any principal of any Transaction or any other amount under this Agreement or any other Facility Document that is not paid when due to the Buyer (whether at stated maturity, by acceleration, by optional or mandatory prepayment or otherwise), a rate per annum during the period from and including the due date to but excluding the date on which such amount is paid in full equal to 2% per annum plus the Pricing Rate otherwise applicable to such Transaction or other amount. "Preferred Stock", as applied to the Capital Stock of any Person, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person. "Price Differential" means, with respect to any Transaction hereunder as of any date, the aggregate amount obtained by daily application of the Pricing Rate for such Transaction to the Purchase Price for such Transaction on a 360 day per year basis for the actual number of days during the period commencing on (and including) the Purchase Date for such Transaction and ending on (but excluding) the Repurchase Date (reduced by any amount of such Price Differential previously paid by Seller to Buyer with respect to such Transaction). "Pricing Rate" means LIBO Rate plus 200 basis points or such rate as otherwise mutually agreed to by the parties herein. "Prime Rate" means the rate of interest published by The Wall Street Journal, northeast edition, as the "prime rate". "Property" means any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible. "Purchase Date" means the date on which Purchased Assets are transferred by Seller to Buyer or its designee (including the Custodian) as specified in the related Purchase Request. "Purchase Facility" means that certain Master Mortgage Loan Purchase Facility by and between the Buyer and the Seller dated as of August 9, 1999, as the same may be amended, supplemented or otherwise modified from time to time. "Purchase Price" means on each Purchase Date, the price at which Assets are purchased by Buyer from Seller equal to the lesser of (a) 95% of Par Amount, or (b) the Collateral Amount. "Purchase Request" means a written notice to the Buyer of Seller's request for a purchase of Eligible Assets by the Buyer, in the form of Exhibit I hereto. "Purchased Assets" means the Assets sold by Seller to Buyer in a Transaction and any Substituted Assets. - 18 - "Qualified Insurer" means an insurance company duly qualified as such under the laws of the states in which the Mortgaged Property is located, duly authorized and licensed in such states to transact the applicable insurance business and to write the insurance provided and whose claims paying ability at the time of determination is (i) rated not less than A3 by Moody's or A- or better by Standard & Poor's or (ii) if such insurance company is not rated by either Moody's or Standard & Poor's, rated A VII by Best's Insurance Reports. "Qualified Originator" means the Seller, ContiMortgage Corporation, ContiWest Corporation or another originator of Assets acceptable to the Buyer, in its sole discretion. "Receivables" means consumer and commercial loans, leases and receivables purchased or originated by the Seller, any Subsidiary or a Strategic Alliance Client in the ordinary course of business; provided, however, that for purposes of determining the amount of a Receivable at any time, such amount shall be determined in accordance with GAAP, consistently applied, as of the most recent practicable date. "Regulations T, U and X" means Regulations T, U and X of the Board of Governors of the Federal Reserve System (or any successor), as the same may be modified and supplemented and in effect from time to time. "Related Business" means any consumer or commercial finance business or any financial service business. "Reorganization" means, with respect to any Multiemployer Plan, the condition that such Plan is in reorganization within the meaning of Section 4241 of ERISA. "Replacement Assets" has the meaning specified in Section 14(b)(ii). "Reportable Event" means any of the events set forth in Section 4043(b) of ERISA, other than those events as to which the thirty day notice period is waived under Sections .13, .14, .16, .18, .19 or .20 of PBGC Reg. ss. 4043. "Repurchase Date" means the date on which Seller is to repurchase the Purchased Assets from Buyer, including any date determined by application of the provisions of Sections 3 or 14 hereof, or the Final Repurchase Date, accelerated or otherwise, whichever date is earlier. "Repurchase Price" means the price at which Purchased Assets are to be transferred from Buyer or its designee (including the Custodian) to Seller upon termination of a Transaction, which will be determined in each case as the sum of (i) the Purchase Price, (ii) the Exit Fee (if any) and (iii) the Price Differential as of the date of such determination decreased by all cash, Income and Periodic Payments actually received by Buyer pursuant to Sections 4(a), 5(a) and 5(b), respectively. "Requirement of Law" means as to any Person, the certificate of incorporation and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in - 19 - each case applicable to or binding upon such Person or any of its Property or to which such Person or any of its property is subject. "Responsible Officer" means, as to any Person, the chief executive officer, vice president and treasurer, or with respect to financial matters, the chief financial officer or treasurer of such Person; provided, that in the event any such officer is unavailable at any time he or she is required to take any action hereunder, Responsible Officer shall mean any officer authorized to act on such officer's behalf as demonstrated to the Buyer to its reasonable satisfaction. "Restricted Payment" means (i) the declaration or payment of any dividends or any other distributions of any sort in respect to its Capital Stock or similar payment to the direct or indirect holders of its Capital Stock (other than (A) dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock), (B) dividends or distributions payable solely to the Seller or a Subsidiary and (C) pro rata dividends or other distributions made by a Subsidiary that is not a Wholly Owned Subsidiary to minority shareholders (or owners of an equivalent interest in the case of a Subsidiary that is an entity other than a corporation)), (ii) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of the Seller held by any Person or of any Capital Stock of a Subsidiary held by any Affiliate of the Seller (other than a Subsidiary), including the exercise of any option to exchange any Capital Stock (other than into Capital Stock of the Seller that is not Disqualified Stock), (iii) the purchase, repurchase, redemption defeasance or other acquisition or retirement for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment of any Subordinated Obligations in respect to such series (other than the purchase, repurchase or other acquisition of such Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition). "Second Lien Mortgage Loan" means a Mortgage Loan secured by the lien on the Mortgaged Property, subject to only one prior lien on such Mortgaged Property. "Section 32 Mortgage Loan" means a Mortgage Loan secured by a Mortgage on a one- to four-family residence which is subject to HOEPA and which shall bear either fixed or adjustable rates of interest and shall have been underwrittent in accordance with the Underwriting Guidelines. "Securities" means the Securities issued under the Indenture. "Security Agreement" means the Pledge and Security Agreement, dated the date of this Agreement, made by Seller in favor of Buyer, as amended, supplemented or otherwise modified from time to time. "Seller" means ContiFinancial Corporation. "Seller/Affiliate Agreement" shall have the meaning specified in Section 25. - 20 - "Servicer" means (i) Seller, provided that a Monoline Insurance Company and its related rating agencies commit in writing to permit Seller to act as Servicer in a securitization of Assets without unreasonable restrictions, conditions or credit enhancement levels, as determined by Buyer in its reasonable discretion, or (ii) if no such commitment is obtained or Seller declines to undertake such function, any servicer expressly approved by Buyer in writing in its sole discretion. "Servicing Agreement" has the meaning specified in Section 25. "Servicing Records" has the meaning specified in Section 25. "Significant Subsidiary" means any Subsidiary that would be a "Significant Subsidiary" of the Seller within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC. "Single Employer Plan" means any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date specified in such security as the fixed date on which the final payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency unless such contingency has occurred). "Standard & Poor's" means Standard & Poor's Rating Services, a division of the McGraw Hill Companies, Inc. "Strategic Alliance Client" means any Person (other than a Subsidiary) engaged in a Related Business to which the Seller provides, or reasonably expects to provide, financing or asset securitization expertise in return for asset-backed underwriting or placement agent commitments. "Subordinated Obligation" means any Indebtedness of the Seller (whether outstanding on the date hereof or thereafter incurred) which is subordinate or junior in right of payment to the Securities pursuant to a written agreement to that effect. "Subservicer" means ContiMortgage Corporation or any subservicer expressly approved by Buyer in writing in its sole discretion. "Subservicing Notification Letter" has the meaning specified in Section 25. "Subsidiary" means, with respect to any Person, any other Person of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions of such corporation, partnership or other entity (irrespective of whether or not at the - 21 - time securities or other ownership interests of any other class or classes of such corporation, partnership or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person. "Substituted Asset" means (i) with respect to any Eligible Asset, another Eligible Asset, and (ii) with respect to any Fallout Asset, another Fallout Asset or an Eligible Asset, in each case substituted for a Purchased Asset in accordance with Section 9 hereof. "Takeout Commitment" means an agreement by an investor or financial institution to purchase Purchased Assets on a forward delivery basis. "Takeout Investor" means the investor or financial institution which agrees to purchase Purchased Assets pursuant to a Takeout Commitment. "Temporary Cash Investments" means any of the following: (i) any investment in direct obligations of the United States of America or any agency thereof or obligations guaranteed by the United States of America or any agency thereof, (ii) investments in time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company that is not an Affiliate of the Seller and which is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States, and which bank or trust company has capital, surplus and undivided profits aggregating in excess of $50,000,000 (or the foreign currency equivalent thereof) and has outstanding debt which is rate "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities and Exchange Act) or any money-market fund sponsored by a registered broker dealer or mutual fund distributor, (iii) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (i) above entered into with a bank meeting the qualifications described in clause (ii) above, (iv) investments in commercial paper, maturing not more than 90 days after the date of acquisition, issued by a corporation (other than an Affiliate of the Seller) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or higher) "Transaction" has the meaning specified in Section 1 hereof. "Trust Receipt" shall have the meaning assigned thereto in the Custodial Agreement. "Underlying Mortgage Loans" means, with respect to each Collateralized Note, the Mortgage Loans securing such Note which qualify as Eligible Assets, and (i) which, in the case of a Mortgage Loan securing an Empire Collateralized Note, (A) has a FICO score of at least (x) 660 if the LTV of such Mortgage Loan is 100% or greater or (y) 620 if its LTV is less than 100%, (B) the weighted average FICO score of all such Mortgage Loans is at least 685 and - 22 - (C) is not Delinquent, and (ii) which, in the case of Mortgage Loans securing a Collateralized Note other than an Empire Collateralized Note, (A) no more than $15,000,000 of such Mortgage Loans shall be from 45 to 60 days Delinquent and (B) no more than $3,000,000 of such Mortgage Loans shall be from 60 to 90 days Delinquent. "Underwriting Guidelines" means the underwriting guidelines attached as Exhibit IX hereto, as modified by the Underwriting Guideline modifications attached as Exhibit IX(A) hereto, or such other guidelines mutually agreed upon by Seller and Buyer. "Uniform Commercial Code" or "UCC" means the Uniform Commercial Code as in effect on the date hereof in the State of New York; provided that if by reason of mandatory provisions of law, the perfection or the effect of perfection or non-perfection of the security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than New York, "Uniform Commercial Code" or "UCC" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection. "Voting Stock" of a Person means all classes of Capital Stock or other interests (including partnership interests or membership interests) of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof. "Warehouse Indebtedness" means, as to any Person, such Person's obligations under repurchase agreements or other similar arrangements. "Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of which (other than directors' qualifying shares and shares held by other Persons to the extent such shares are required by applicable law to be held by a Person other than the Seller or a Subsidiary) is owned by the Seller or one or more Wholly Owned Subsidiaries. "Year 2000 Program" shall have the meaning provided thereto in Section 10(b)(xxiv). 3. CONDITIONS PRECEDENT; INITIATION; PURCHASE REQUEST; TERMINATION; COMMITMENT FEE; MAXIMUM TRANSACTION AMOUNT (a) Conditions Precedent to Initial Transaction. Buyer's obligation to enter into the initial Transaction hereunder is subject to the satisfaction, immediately prior to or concurrent with such Transaction, of the conditions precedent that Buyer shall have received the Commitment Fee, which shall be non-refundable, and any other fees and expenses due from Seller and all of the following documents, each of which shall be satisfactory to Buyer and its counsel in form and substance (collectively, the "Facility Documents"): (i) Agreement. This Agreement, duly completed, and executed and delivered by Seller and the Interim Servicer; - 23 - (ii) Custodial Agreement. The Custodial Agreement, duly executed and delivered by Seller and the Custodian; (iii) Security Agreement. The Security Agreement, duly executed and delivered by Seller; (iv) [Intentionally Omitted] (v) Uniform Commercial Code Filings and Searches. Any filings requested by Buyer or required under the Uniform Commercial Code, duly completed, executed and delivered by Seller, and such evidence as required by Buyer that all other actions have been taken that are necessary or, in the sole discretion of the Buyer, desirable to perfect and protect the security interests and Liens created pursuant to this Agreement; and delivery of UCC searches; (vi) Opinions of Seller's Counsel. An opinion or opinions of counsel to the Seller and the Interim Servicer, addressing the matters set forth in the form attached hereto as Exhibit VIII, dated the initial Purchase Date and otherwise in form and substance acceptable to the Buyer and covering such other matters incident to the transactions contemplated by this Agreement as the Buyer may reasonably request; (vii) Subservicing Notification Letter. The Subservicing Notification Letter; (viii) Organizational Documents. The Seller shall deliver to Buyer a certificate of good standing and a certificate of its Secretary or Assistant Secretary certifying: (A) a copy of its articles of incorporation, (B) a copy of its by-laws; (C) the names and signatures of the officers authorized on its behalf to execute, deliver and perform under the Facility Documents, as applicable, and any other documents to be delivered by it from time to time in connection therewith (on which the Buyer may conclusively rely until such time as the Buyer shall receive from the Seller a duly authorized revised certificate); and (D) a copy of the resolutions of the Board of Directors of the Seller, authorizing Seller to execute, perform, and deliver the Facility Documents, as applicable; (ix) Officer's Certificate. An Officer's Certificate of Seller, regarding representations and warranties; (x) Power of Attorney. A fully executed omnibus power of attorney, substantially in the form of Exhibit III attached hereto, irrevocably appointing Buyer its attorney-in-fact with full power to complete and record the assignment of Purchased Assets, complete the endorsement of the related Note or instrument and take such other steps as may be necessary or desirable to enforce Buyer's rights against such Purchased Assets and the related Trust Receipts, Asset Files, and Servicing Records upon three (3) Business Days' written notice to Seller and if Seller fails to act in a manner acceptable to - 24 - Buyer, then Buyer may so act, provided that such notice need not be given if an Event of Default has occurred; (xi) Income Payment Letters. Fully executed irrevocable letters of instructions to Subservicer, substantially in the form of Exhibit IV attached hereto, directing such Subservicer to make all payments of Income directly to Buyer; (xii) True Sale Opinion. With respect to any Asset that was funded in the name of or acquired by a Qualified Originator which is an Affiliate of the Seller, the Buyer may, in its sole discretion, require the Seller to provide evidence sufficient to satisfy the Buyer that such Asset was acquired in a legal sale, including without limitation, an opinion of counsel with respect thereto, in form and substance and from an attorney, in both cases, acceptable to the Buyer in its sole discretion, UCC financing statements, Acquisition Agreements, Affiliates' organizational documents, etc.; (xiii) Year 2000 Diligence. Satisfactory results of Year 2000 Program diligence; (xiv) Insurance Policies. Insurance policies, or other evidence of insurance acceptable to Buyer; (xv) Related Documents. The Purchase Facility, the Engagement Letter and the Master Facilities Agreement, duly completed, and executed and delivered by Seller and each applicable Affiliate thereof; (xvi) Other Documents. Such other documents as Buyer may reasonably request, in form and substance reasonably acceptable to Buyer. (b) Conditions Precedent to all Transactions. Buyer's obligation to enter into each Transaction (including the initial Transaction) is subject to the satisfaction of the following further conditions precedent, both immediately prior to entering into such Transaction and also after giving effect thereto to the intended use thereof: (i) Seller shall have delivered to Buyer or its designee, documents evidencing the transfer of the ownership of the related Assets from Seller to Buyer, including delivery to Custodian of the Assets File(s) and deliver of a duly executed bond power or transfer instrument for the related Asset; (ii) Seller shall have instructed the applicable Custodian, debtor, trustee, paying agent, authenticating agent, transfer agent, registrar, predecessor in interest, owner, and Servicer, if any, in respect of the related Assets to: (A) reflect on their books and records the transfer of such Assets to Buyer, as owner or secured party (if the Assets are in the form of a security agreement), and (B) re-register in the name of Buyer all Trust Receipts, collateral receipts or other applicable instruments relating to each Purchased Asset on or prior to the related Purchase Date; - 25 - (iii) Custodian shall have delivered to Buyer all Trust Receipt(s) relating to the Purchased Assets, and an Asset Schedule noting such Exceptions as are acceptable to Buyer in its sole discretion in respect of Assets to be sold hereunder on such Business Day, in each case dated such Business Day and duly completed; (iv) Seller shall have delivered a Purchase Request to Buyer, at least two (2) Business Days prior to the proposed Purchase Date specified in such Purchase Request; (v) Seller shall have delivered to Buyer, no later than 2:00 p.m. New York time at least one (1) Business Day prior to the Purchase Date, the Asset Schedule, and an Asset Tape with respect to each Asset to be purchased on such Purchase Date and the Custodian shall have received the Asset Schedule no later than 12:00 noon New York time one (1) Business Day prior to such Purchase Date; (vi) In the event Buyer has provided Seller with written notice at least two (2) Business Days prior to its receipt of any Purchase Request of its intent to conduct pre-funding due diligence prior to any Purchase Date, Buyer shall have completed its due diligence to its satisfaction with respect to each Asset to be purchased on the relevant Purchase Date, and the results of such investigation (and all other legal and documentary matters with respect to such Asset) supports the Mortgage Loan Representations and shall be satisfactory to Buyer in its sole discretion in accordance with Section 15 hereof. (vii) No Event of Default or Default shall have occurred and be continuing, and there shall not have occurred one or more events that, in the reasonable judgment of the Buyer, constitutes or could reasonably be expected to constitute a Material Adverse Effect; (viii) Seller shall have provided Buyer with a copy of any changes to Seller's Underwriting Guidelines prior to Buyer's purchase of any Asset affected by such change and Buyer shall have approved such changes; (ix) Buyer shall have received the most recent available servicing or like reports, if any, with respect to the Assets; and (x) If requested by Buyer due to a question arising as to validity, enforceability or compliance with law, an opinion or opinions of counsel to the Seller and the Interim Servicer, addressing the matters set forth in the form attached hereto as Exhibit VIII, then Seller shall, upon the request of Buyer, deliver an opinion of counsel in such state acceptable to the Buyer, substantially in the form of items number 11, 13 and 14 of Exhibit VIII. (xi) With respect to any Collateralized Note, the Buyer shall have received (1) the original Collateralized Note endorsed to the Buyer, (2) the original certification and trust receipt issued by the applicable Custodian with respect to the Mortgage Loans securing such Collateralized Note, (3) a "notice of pledge" executed by - 26 - the Seller and the applicable Custodian, and (4) a "notice and consent" executed by the maker and each endorsee of the Collateralized Note. (xii) All terms and conditions set forth in the Master Facilities Agreement shall be satisfied to the reasonable satisfaction of the Buyer. (c) Initiation; Purchase Request. (i) An agreement to enter into a Transaction shall be initiated by Seller's delivery of an irrevocable Purchase Request to Buyer; provided, however, that Buyer shall have no obligation to enter into any Transaction hereunder, except as provided in subsection (g) of this Section 3. Seller shall deliver to Buyer a Purchase Request at least two (2) Business Days prior to the proposed Purchase Date for any Transaction (unless otherwise agreed by the parties). Such Purchase Request shall (A) specify the requested Purchase Date and Repurchase Date and the other matters specified on the form attached hereto as Exhibit I, and (B) include the Asset Schedule containing information with respect to Assets that the Seller proposes to sell to Buyer in connection with such Transaction. Each Purchase Request accepted by Buyer shall be irrevocable and binding on Buyer and Seller. The Seller shall not be entitled to initiate a Transaction hereunder and the Buyer shall have no obligation to purchase any Assets hereunder if a Default or an Event of Default has occurred or will result from such Transaction. (ii) Notwithstanding anything set forth in Section 17 hereof, any Purchase Request shall be deemed to have been received by Buyer upon telephonic confirmation by Seller that Buyer has actually received such Purchase Request. (d) Limitation on Pricing Rate Used; Illegality. Anything herein to the contrary notwithstanding, if, on or prior to the determination of the Pricing Rate: (i) the Buyer determines, which determination shall be conclusive, that quotations of interest rates for the relevant deposits referred to in the definition of "LIBO Base Rate" in Section 2 hereof are not being provided in the relevant amounts or for the relevant maturities for purposes of determining the Pricing Rates as provided herein; or (ii) the Buyer determines, which determination shall be conclusive, that the relevant rate of interest referred to in the definition of "Pricing Rate" in Section 2 hereof upon the basis of which the Pricing Rate is to be determined is not likely adequately to cover the cost to the Buyer of purchasing the Assets using such Pricing Rate; or (iii) it becomes unlawful for the Buyer to honor its obligation to purchase Assets hereunder using a Pricing Rate based upon the LIBO Rate; then Buyer shall give the Seller prompt notice thereof and, so long as such condition remains in effect, Seller shall, either repurchase all Purchased Assets then subject to a Transaction or the - 27 - Pricing Rate shall be determined based upon the rate selected by Buyer in a manner that is reasonably satisfactory to Buyer so as to adequately reflect the cost to Buyer of purchasing the Purchased Assets using such substituted Pricing Rate (in which case Buyer shall continue to be obligated to enter into additional Transactions using that substituted Pricing Rate). (e) Additional Costs. (i) If Buyer determines that additional amounts are necessary to compensate Buyer for any costs that Buyer determines are attributable to its using a LIBO Rate for the Pricing Rate or its obligation to use a the LIBO Rate Pricing Rate hereunder, or any reduction in any amount receivable by Buyer hereunder in respect of the Pricing Rate (such increases in costs and reductions in amounts receivable being herein called "Additional Costs"), resulting from any change that: (A) shall subject Buyer to any tax, duty or other charge in respect of such Pricing Rate or changes the basis of taxation of any amounts payable to such Buyer under this Agreement in respect of any of such Pricing Rate (excluding changes in the rate of tax on the overall net income of such Buyer by the jurisdiction in which Buyer has its principal office); or (B) imposes or modifies any reserve, special deposit or similar requirements relating to any Pricing Rate; or (C) imposes any other condition affecting this Agreement materially and adversely affecting Buyer's rights or the transactions contemplated hereby or thereby, then Buyer shall give prompt notice thereof and Seller shall either repurchase all Purchased Assets subject to a Transaction or pay such Additional Costs. (ii) If any Requirement of Law (other than with respect to any amendment made to the Buyer's certificate of incorporation and by-laws or other organizational or governing documents) or any change in the interpretation or application thereof or compliance by the Buyer with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof: (A) shall subject the Buyer to any tax of any kind whatsoever with respect to this Agreement or any Transaction made hereunder (excluding net income taxes) or change the basis of taxation of payments to the Buyer in respect thereof; (B) shall impose, modify or hold applicable any reserve, special deposit, compulsory advance or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances or other extensions of credit by, or any other acquisition of funds by, any office of the Seller which is not otherwise included in the determination of the LIBO Base Rate hereunder, and which is deemed applicable to Transactions; (C) shall impose on the Buyer any other condition; - 28 - and the result of any of the foregoing is to increase the cost to the Buyer, by an amount which the Buyer deems to be material, of making, continuing or maintaining any Transaction or to reduce any amount receivable hereunder in respect thereof, then, in any such case, Buyer shall give prompt notice thereof and the Seller shall either repurchase all Purchased Assets subject to a Transaction or pay such Additional Costs promptly, as will compensate the Buyer for such increased cost or reduced amount receivable. (iii) If the Buyer shall have determined that the adoption of or any change in any Requirement of Law (other than with respect to any amendment made to the Buyer's certificate of incorporation and by-laws or other organizational or governing documents) regarding capital adequacy or in the interpretation or application thereof or compliance by the Buyer or any corporation controlling the Buyer with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof shall have the effect of reducing the rate of return on the Buyer's or such corporation's capital as a consequence of its obligations hereunder to a level below that which the Buyer or such corporation (taking into consideration the Buyer's or such corporation's policies with respect to capital adequacy) by an amount deemed by the Buyer to be material, then from time to time, Buyer shall give prompt notice thereof and the Seller shall either repurchase all Purchased Assets subject to a Transaction or promptly pay such Additional Costs as will compensate the Buyer for such reduction. (iv) If the Buyer becomes entitled to claim any additional amounts pursuant to this subsection, it shall promptly notify the Seller of the event by reason of which it has become so entitled. Buyer shall deliver to Seller a statement setting forth the amount and basis of determination of any Additional Costs in such detail as determined in good faith by Buyer to be adequate, it being agreed that such statement and the method of its calculation shall be adequate and shall be conclusive and binding upon Seller, absent manifest error. (v) Notwithstanding anything in this subsection (e) to the contrary, to the extent any notice or request pursuant to this subsection (e) is given by Buyer more than five (5) Business Days after Buyer has obtained or should have obtained knowledge of the occurrence of an event giving rise to Additional Costs as described hereunder, Buyer shall not be entitled to compensation under this subsection (e) for any Additional Costs incurred or accruing prior to the giving of such notice to Seller. (vi) Buyer will, to the extent of Additional Costs or reductions in the amounts receivable referred to above relate to Buyer's loans or commitments in general and are not specifically attributable to amounts owing hereunder, use averaging and attribution methods which cover all loans and commitments similar to the Transactions hereunder in similar circumstances for comparable customers whether or not the documentation for such other loans or commitments permits Buyer to make the determination specified in this clause (vi). (f) Termination and Repurchase. (i) On the Repurchase Date, termination of the Transaction will be effected by transfer to Seller or its designee of the Purchased Assets (and any Income in - 29 - respect thereof received by Buyer not previously credited or transferred to, or applied to the obligations of, Seller pursuant to Section 5) against the simultaneous transfer of the Repurchase Price plus any Breakage Costs, as defined below, payable by Seller to Buyer pursuant to paragraph 3(f)(iii) hereof, to an account of Buyer. Seller is obligated to obtain the Asset Files from Buyer or its designee at Seller's expense on the Repurchase Date. (ii) Seller may at any time and from time to time repurchase the Purchased Assets on other than a scheduled Repurchase Date, in whole or in part, upon at least one (1) Business Day's irrevocable notice to Buyer, specifying the new Repurchase Date for such repurchase and the Repurchase Price. Such demand shall be made by Seller by telephone or otherwise, no later than 1:00 p.m. New York time on the Business Day immediately prior to the day on which such termination will be effective. If any such notice is given, the Repurchase Price specified in such notice shall be due and payable on the new Repurchase Date specified therein, together with any amounts payable pursuant to the succeeding paragraph. (iii) If Seller repurchases the Purchased Assets on any day which is not a Repurchase Date for such Purchased Assets, Seller shall indemnify Buyer and hold Buyer harmless from any loss or expense which Buyer may sustain or incur arising from the reemployment of funds obtained by Buyer hereunder or from fees payable to terminate the deposits from which such funds were obtained, but not including loss of profit ("Breakage Costs"). Buyer shall deliver to Seller a statement setting forth the amount and basis of determination of any Breakage Costs in such detail as determined in good faith by Buyer to be adequate, it being agreed that such statement and the method of its calculation shall be adequate and shall be conclusive and binding upon Seller, absent manifest error. This Section shall survive termination of this Agreement and repurchase of all Purchased Assets subject to Transactions hereunder. (iv) The Seller shall repurchase from the Buyer all Purchased Assets outstanding on the Final Repurchase Date. (v) With respect to any Purchased Asset repurchased by the Seller pursuant to this Section 3(f), the Seller shall not resell any such Asset to any Person for a purchase price less than the purchase price applicable to such Assets set forth in the Purchase Facility. (g) Commitment Fee; Maximum Transaction Amount. In consideration of the Commitment Fee, Buyer shall, for the term of this Agreement, commit to purchase Assets from Seller so long as (i) the Purchase Price for Assets to be purchased on any single Purchase Date shall be at least $5,000,000, (ii) the aggregate Purchase Price for Purchased Assets subject to Transactions at any one time does not exceed the Committed Amount; (iii) the aggregate Purchase Price for Fallout Assets subject to Transactions at any one time does not exceed the Fallout Asset Sublimit; (iv) the aggregate Purchase Price for Empire Collateralized Notes and all other Collateralized Notes subject to Transactions at any one time does not exceed the applicable - 30 - Collateralized Note Sublimit; (v) the Assets comply with the representations and warranties set forth herein, or in the case of each Fallout Asset, the Seller identifies on the applicable Asset Schedule each representation and warranty that such Asset does not satisfy; and (vi) the conditions precedent set forth in 3(b) are satisfied. Buyer shall have no obligation to enter into any Transaction if, as a result of such transaction, (i) the aggregate Purchase Price for all Transactions subject to then outstanding Transactions under this Agreement shall exceed the Committed Amount or (ii) the Maximum Transaction Amount shall exceed $650,000,000. Buyer shall not enter into any Transaction if the aggregate Purchase Price of such Purchased Assets exceeds the Available Amount. 4. COLLATERAL AMOUNT MAINTENANCE (a) If at any time the aggregate Repurchase Price of Purchased Assets subject to then outstanding Transactions is greater than the Collateral Amount for such Transaction (a "Collateral Deficit"), then Buyer may by notice to Seller, require Seller to transfer to Buyer or its designee (including the Custodian) (at Buyer's option) additional Eligible Assets, ("Additional Eligible Assets"), or cash, so that the Collateral Amount equals or exceeds the Repurchase Price. Any cash remitted by Seller to Buyer pursuant to this Section 4(a) shall be deemed a payment of all or part of the Repurchase Price. (b) Notice required pursuant to subsection (a) above may be given by means of facsimile transmission. A notice for the payment or delivery in respect of a Collateral Deficit received before 12:00 noon New York time on a Business Day must be met not later than 4:00 p.m. New York time on the next Business Day on which the notice was given. Any notice given on a Business Day after 12:00 noon New York time shall be met not later than 4:00 p.m. New York time on the second Business Day following such notice. The failure of Buyer, on any one or more occasions, to exercise its rights under subsection (a) of this Section shall not change or alter the terms and conditions to which Seller is subject under this Agreement or limit the right of the Buyer to exercise its rights at a later date. Buyer agrees that a failure or delay to exercise its rights under subsection (a) of this Section shall not limit its rights under this Agreement or otherwise existing by law or in any way create additional rights for Seller. (c) In the event that Seller fails to comply with the provisions of this Section 4, Buyer shall have the option not to enter any additional Transactions hereunder from the date of such failure, and to terminate this Agreement. 5. INCOME PAYMENTS (a) Where a particular Transaction's term extends over an Income payment date for Purchased Assets subject to a Transaction, such Income shall be the property of Buyer. All Income attributable to the Purchased Assets subject to Transactions which is collected and received by the Seller or the Interim Servicer, as the case may be, shall be remitted by the Seller or the Interim Servicer, as the case may be, within two Business Days of such receipt, directly to the Buyer's Account in accordance with the Accepted Servicing Practices, until and unless Buyer directs Seller or Interim Servicer, as the case may be, that such Income should be remitted as directed by Buyer for and on behalf of Buyer or to remit such Income directly to Seller. - 31 - (b) Notwithstanding that Buyer and Seller intend that the Transactions hereunder be sales to Buyer of the Purchased Assets, Seller shall pay by wire transfer to Buyer the accreted value of the Price Differential (less any amount of such Price Differential previously paid by Seller to Buyer) (each such payment, a "Periodic Payment") on the first Business Day of each month (the "Payment Date"). 6. SECURITY INTEREST (a) Buyer and Seller intend that the Transactions hereunder be sales to Buyer of the Purchased Assets and not loans from Buyer to Seller secured by the Purchased Assets. However, in order to preserve Buyer's rights under this Agreement in the event that a court or other forum recharacterizes the Transactions hereunder as loans and as security for the performance by Seller of all of Seller's obligations to Buyer under this Agreement and the Transactions entered into pursuant to this Agreement, Seller grants Buyer, as collateral security for any obligations outstanding under this Agreement, any outstanding Transactions, any asset backed warehouse financing agreements or any other repurchase agreements between Buyer or any of its Affiliates on the one hand and Seller or any of its Affiliates on the other hand, a first priority security interest in the Purchased Assets and all distributions in respect thereof, the proceeds of any and all of the foregoing, Servicing Agreements and any other arrangement for the servicing of the Purchased Assets (including the right to contract for servicing), Servicing Records, servicing fees, insurance, guarantees, indemnities and warranties and proceeds thereof, relating to the Purchased Assets, Income, collections, custodial accounts and escrow accounts relating to the Purchased Assets and any other contract rights (including the right to receive principal and interest payments or finance charges with respect to the Purchased Assets and the right to enforce such payments, and the collateral securing such obligation), the Asset Documents and other agreements or arrangements of whatever character from time relating to the Purchased Assets, security agreements, financing statements, general intangibles, investment property, inventory, instruments, chattel paper, equipment, goods, accounts and other assets, whether real or personal property, relating to the Purchased Assets or any interest in the Purchased Assets (including, without limitation, the Collateralized Notes and the indebtedness evidenced thereby and all collateral security therefor including, without limitation, all security agreements, mortgage loans, deeds of trusts and all other assets and properties securing such Collateralized Notes), securities backed by or representing an interest in such Purchased Assets, Takeout Commitments and all collateral of Seller, however defined, held from time to time by Buyer, and any and all replacements, substitutions, distributions on or proceeds of any and all of the foregoing (collectively, the "Collateral"). Seller represents that with respect to all Purchased Assets in the form of a participation certificate or other instrument evidencing ownership of an underlying pool of assets there has been a UCC-1 financing statement filed evidencing the security interest of the issuer, for the benefit of the holders of such certificate or instrument, in such pool of assets, including any chattel paper related to such assets. Seller also represents that, with respect to all Collateralized Notes subject to Transactions, a UCC-1 financing statement has been filed and is in effect naming Seller the secured party with respect to the collateral securing such Collateralized Notes. - 32 - (b) Seller shall pay all fees and expenses associated with perfecting Buyer's security interest in the Collateral, or establishing Buyer's Lien on Assets, including, without limitation, the cost of filing financing statements under the Uniform Commercial Code and recording assignments of Mortgage, as and when required by Buyer in its sole discretion. 7. PAYMENT, TRANSFER AND CUSTODY (a) Unless otherwise mutually agreed in writing, all transfers of funds hereunder shall be in immediately available funds. (b) In connection with each sale, transfer, conveyance and assignment, or pledge, on or prior to each Purchase Date with respect to each Purchased Asset, the Seller shall deliver or cause to be delivered and released to the Custodian the original documents consisting of the Asset File pertaining to each of the Purchased Assets identified in the Asset Schedule delivered therewith. On the Purchase Date, upon receipt of the Trust Receipt and Asset Schedule containing no Material Exceptions (as defined in the Custodial Agreement) or as otherwise acceptable to Buyer in its sole discretion, Buyer shall transfer the Purchase Price for the Transaction to Seller to the account specified by Seller in the Purchase Request (the "Seller's Account"). (c) On the Purchase Date for each Transaction, ownership of the Purchased Assets shall be transferred to Buyer or its designee (including the Custodian) simultaneous with the transfer of the Purchase Price to Seller's Account. Seller, simultaneously with the delivery to Buyer or its designee (including the Custodian) of the Purchased Assets relating to each Transaction hereby sells, transfers, conveys and assigns to Buyer or its designee (including the Custodian), all the right, title and interest of Seller in and to the Purchased Assets together with all right, title and interest in and to the proceeds of any related insurance policies. Upon transfer of the Purchased Assets to Buyer as set forth-herein and until termination of any Transactions as set forth in this Agreement, record title in the name of Seller to each Purchased Asset shall be retained by Seller in trust, for the benefit of Buyer, for the sole purpose of facilitating the servicing and the supervision of the servicing of the Purchased Assets by Seller in accordance with Section 25 hereof. (d) Buyer may deposit the Trust Receipts representing the Purchased Assets, or direct that the Trust Receipts be deposited directly, with a designee acting in the capacity of bailee for Buyer. If the Trust Receipts are delivered to Buyer or its designee, Buyer or its designee shall exercise reasonable and prudent care in the maintenance thereof, during the term of this Agreement. (e) Any Asset Files not delivered to Buyer or its designee (including the Custodian) are and shall be held in trust by Seller or its designee for the benefit of Buyer as the owner thereof. Seller or its designee shall maintain a complete copy of the Asset File and any originals of the Asset Documents not delivered to Buyer or its designee. The possession of the Asset File by Seller or its designee is at the will of the Buyer for the sole purpose of servicing the related Purchased Asset, and such retention and possession by the Seller or its designee is in a custodial capacity only. Each Asset File retained or held by Seller or its designee shall be - 33 - segregated on Seller's books and records from the other assets of Seller or its designee and the books and records (including, without limitation, any computer records or tapes) of Seller or its designee and shall be marked appropriately to reflect clearly the sale of the related Purchased Asset to Buyer. Seller or its designee (including the Custodian) shall release its custody of the Asset File only in accordance with written instructions from Buyer and in accordance with the Custodial Agreement, unless such release is required as incidental to the servicing of the Purchased Assets or is in connection with a repurchase of any Purchased Assets by Seller. 8. HYPOTHECATION OR PLEDGE OF PURCHASED ASSETS Title to all Purchased Assets shall pass to Buyer and Buyer shall have free and unrestricted use of all Purchased Assets. Nothing in this Agreement shall preclude Buyer from engaging in repurchase transactions with the Purchased Assets or otherwise pledging, repledging, hypothecating, or rehypothecating the Purchased Assets, but no such transaction shall relieve Buyer of its obligations to transfer Purchased Assets to Seller pursuant to Section 3. Nothing contained in this Agreement shall obligate Buyer to segregate any Purchased Assets delivered to Buyer by Seller. 9. SUBSTITUTION (a) Subject to Section 9(b), Seller may, upon one (1) Business Day's written notice to Buyer, with a copy to Custodian, substitute (i) other Eligible Assets for any Eligible Assets or Fallout Assets subject to Transactions or (ii) other Fallout Assets for any Fallout Assets subject to Transactions. Such substitution shall be made by (i) transfer to the related Custodian of the Asset Files for such other Eligible Assets, together with an Asset Schedule and transfer to Seller or its designee of the Purchased Assets requested for release, and (ii) wire transfer to Buyer of the Exit Fee related to the released Assets to the extent such Assets are sold by the Seller to a Person other than the Buyer on or after the substitution date. After substitution, the Substituted Assets, shall be deemed to be Purchased Assets subject to the same Transaction as the released Asset. The Custodian shall issue a new Asset Schedule to Buyer, deleting the released Asset, and adding the substituted Purchased Asset. (b) Notwithstanding anything to the contrary in this Agreement, Seller may not substitute other Assets for any Purchased Assets if (i) after taking into account such substitution, a Collateral Deficit were to occur, or (ii) such substitution would cause a Breach of any provision of this Agreement, or (iii) Buyer does not consent to such substitution. (c) In the case of any Transaction for which the Repurchase Date is other than the Business Day immediately following the Purchase Date and with respect to which Seller does not have any existing right to substitute substantially the same Assets for the Purchased Assets, Seller shall have the right, subject to the proviso to this sentence, upon notice to Buyer, which notice shall be given at or prior to 10 am (New York time) on such Business Day, to substitute substantially the same Assets for any Purchased Asset; provided, however, that Buyer may elect, by the close of business on the Business Day notice is received, or by the close of the next Business Day if notice is given after 10 am (New York time) on such day, not to accept such substitution. In the event such substitution is accepted by Buyer, such substitution shall be made - 34 - by Seller's transfer to Buyer of such other Assets and Buyer's transfer to Seller of such Purchased Assets, and after such substitution, the Substituted Assets shall be deemed to be Purchased Assets. In the event Buyer elects not to accept such substitution, Buyer shall offer Seller the right to terminate the Transaction. (d) In the event Seller exercises its rights to substitute or terminate under sub-paragraph (c), Seller shall be obligated to pay to Buyer, by the close of the Business Day of such substitution or termination, as the case may be, an amount equal to (A) Buyer's actual cost (including all fees, expenses and commissions) of (i) entering into replacement transactions; (ii) entering into or terminating hedge transactions; and/or (iii) terminating transactions or substituting securities in like transactions with third parties in connection with or as a result of such substitution or termination, and (B) to the extent Buyer determines not to enter into replacement transactions, the loss incurred by Buyer directly arising or resulting from such substitution or termination. The foregoing amounts shall be solely determined and calculated by Buyer in good faith, absent manifest error. 10. REPRESENTATIONS AND WARRANTIES (a) Buyer and Seller Representations and Warranties. As of each Purchase Date, each of Buyer and Seller represents and warrants to the other that (i) it is duly authorized to execute and deliver this Agreement, to enter into the Transactions contemplated hereunder and to perform its obligations hereunder and it has taken all necessary action to authorize such execution, delivery and performance; (ii) it will engage in such Transactions as principal (or, if agreed in writing in advance of any Transaction by the other party hereto, as agent for a disclosed principal); (iii) the person signing this Agreement on its behalf is duly authorized to do so on its behalf (or on behalf of any such disclosed principal); (iv) no approval, consent, authorization, notice to, filing with, or other act by, or in respect of, any Governmental Authority or any other Person is required or necessary in connection with the Transactions contemplated by this Agreement, or with the execution, delivery, performance, validity or enforceability of this Agreement or any Facility Document (other than filings and recordings in respect of the Liens created hereunder), or, if required, such approval, consent, authorization, notice, or filing has been or will, prior to the Purchase Date, be obtained and will be in full force and effect; (v) the execution, delivery, and performance of this Agreement and the Transactions hereunder will not violate any law, regulation, order, judgment, decree, ordinance, charter, by-law, or rule applicable to it or its property or constitute a default (or an event which, with notice or lapse of time, or both would constitute a default) under or result in a breach of any material agreement or other instrument by which it is bound or by which any of its assets are affected; (vi) it has received approval and authorization to enter into this Agreement and each and every Transaction actually entered into hereunder pursuant to its internal policies and procedures; and (vii) neither this Agreement nor any Transaction or transfer of any Asset pursuant hereto is entered into in contemplation of insolvency or with any intent to hinder, delay or defraud any creditor. (b) Seller Representations and Warranties. Seller represents and warrants to Buyer that as of the Purchase Date for the purchase of any Assets by Buyer from Seller and as of - 35 - the date of this Agreement and any Transaction hereunder and at all times while this Agreement and any Transaction thereunder is in full force and effect: (i) All Documents True and Correct. All representations and warranties made and all information, reports, financial statements, exhibits, schedules, and documents or copies of documents furnished to Buyer by or on behalf of Seller pursuant to or in connection with the negotiation, preparation, delivery or performance of this Agreement and the other Facility Documents, or with the transactions contemplated hereby, are and will be true, correct, and complete in every material respect or (in the case of projections, based on reasonable estimates), at the time when made and at all times thereafter under this Agreement or, if limited to a specific date, as of the date to which they refer, and no such writing or information contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading. There is no fact known to a Responsible Officer of the Seller that, after due inquiry, should reasonably be expected to have a Material Adverse Effect that has not been disclosed herein, in the other Facility Documents or in a report, financial statement, exhibit, schedule, disclosure letter or other writing furnished to the Buyer for use in connection with the transactions contemplated hereby or thereby. (ii) Due Authority and Organization. Seller is duly organized and validly existing, and in good standing under the laws and regulations of the state of Delaware, and is duly licensed, qualified to do business, and in good standing under the laws of each jurisdiction in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify could be reasonably expected (either individually or in the aggregate) to have a Material Adverse Effect. Seller has the authority under its charter and by-laws and applicable law to enter into this Agreement and to perform all acts contemplated hereby or in connection herewith, and to borrow money, sell Assets, and grant Liens hereunder; and has taken all corporate action necessary to authorize the execution, delivery and performance of this Agreement and the other Facility Documents to which it is a party and to authorize the sale, the borrowings, and the granting of Liens on the terms and conditions of the Agreement and the other Facility Documents, and is in compliance in all material respects with all Requirements of Law, and has all governmental licenses, authorizations, consents and approvals necessary to own and operate its Property, to lease the Property it operates as lessee, and to carry on its business as now being or as proposed to be conducted. (iii) Binding Obligations. This Agreement and every other document to be executed by Seller pursuant to this Agreement, is and will be, duly and validly executed and delivered by the Seller and constitutes a legal, valid, binding and subsisting obligation of Seller, enforceable against the Seller in accordance with its respective terms, except that (a) such enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws (whether statutory, regulatory or decisional) now or hereafter in effect relating to creditors' rights generally and (b) the remedy of specific performance and injunctive and other forms of equitable relief may be - 36 - subject to certain equitable defenses and to the discretion of the court before which any proceeding therefor may be brought, whether a proceeding at law or in equity; (iv) No Litigation. There is no action, suit, proceeding, inquiry, investigation, arbitration or investigation, at law or in equity, or before, or by any court, Governmental Authority, arbitrator, public board or body pending, in each case, as to which Seller has received service of process, or, to Seller's knowledge, threatened against or affecting Seller or any of its Subsidiaries or against any of its or their respective Properties or revenues, which, either in any one instance or in the aggregate, which if adversely determined would individually or in the aggregate result in any Material Adverse Effect, or in any material impairment of the right or ability of Seller to carry on its business substantially as now conducted, or to fulfill its obligations hereunder, or in any material liability on the part of the Seller. (v) Financial Statements. (A) (i) The audited financial statements of the Seller and its consolidated Subsidiaries as of March 31, 1999, heretofore furnished to Buyer and as of the end of Seller's fiscal year, thereafter furnished to Buyer, fairly present the financial position of Seller and its consolidated subsidiaries on a consolidated basis as of March 31 of such year and for the one year period then ended, subject to any qualifications set forth therein. (ii) The unaudited quarterly financial statements of the Seller and its consolidated Subsidiaries as of the most recent date of delivery, are true complete and correct, and present fairly the consolidated financial position of the Seller and its consolidated Subsidiaries as at such dates and the consolidated results of their operations and their consolidated cash flows for the fiscal quarter then ended, subject to any qualifications set forth therein. (B) Such financial statements, including the related schedules and notes thereto, has been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by such accountants or Responsible Officer, as the case may be, and as disclosed therein). (C) Neither the Seller nor any of its consolidated Subsidiaries had, at the date of the financial statement referred to above, any material guarantee obligation, contingent liability or liability for taxes, or any long-term lease or unusual forward or long-term commitment, including, without limitation, any interest rate or foreign currency swap or exchange transaction, or other financial derivative of the nature required to be disclosed by GAAP in such financial statements, which is not reflected in the foregoing statements or in the notes thereto. (vi) [Intentionally Omitted.] (vii) Investment Company Act and Other Limits on Incurring Indebtedness. Seller is not required to be registered as an "investment company" under the - 37 - Investment Company Act of 1940, as amended, and Seller is not a company "controlled" by an "investment company". Seller is not subject to regulation under any Federal or state statute or regulation which limits its ability to incur Indebtedness. (viii) Transfer of Assets. All actions necessary to transfer to Buyer the interests in the Eligible Assets and the Fallout Assets to be purchased have been or are currently being taken and Seller has not offered or sold, and will not offer or sell, any such Assets in any manner that would render the issuance and sale of the such Assets a violation of Section 5 of the Securities Act of 1933, as amended, or any state securities or "Blue Sky" laws or require registration pursuant thereto, nor has it authorized, nor will it authorize, any person to act in such manner; (ix) Chief Executive Office; Chief Operating Office. The Seller's chief executive office and Chief Operating Office on the date hereof is, and for the immediately preceding four months, was located at 277 Park Ave., New York, New York 10172. (x) Location of Books and Records. The location where the Seller keeps its books and records (excluding all computer tapes and records relating to the Assets which are held by the Subservicer) is its chief executive office or its chief operating office. (xi) Subsidiaries. Seller has identified on Schedule 1 of this Agreement, each Material Subsidiary which exists on the date hereof. (xii) No Legal Bar. The execution, delivery and performance of this Agreement and the Facility Documents, the sale and borrowings hereunder and the use of the proceeds thereof will not violate any Requirement of Law or Contractual Obligation of the Seller or of any of its Material Subsidiaries and will not result in, or require, the creation or imposition of any Lien (other than the Liens created hereunder) on any of its or their respective Properties or revenues pursuant to any such Requirement of Law or Contractual Obligation. (xiii) Margin Regulations. No part of the proceeds of any Transactions will be used for "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under, or for any other purpose which violates or would be inconsistent with the provisions of Regulations T, U, or X. (xiv) Taxes. Each of the Seller and its Subsidiaries has filed all Federal and state income tax returns and all other material tax returns that are required to be filed by them and has paid all taxes due pursuant to such returns or pursuant to any assessment received by any of them, except for any such taxes or assessments, if any, that are being appropriately contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves in conformity with GAAP have been provided. The charges, accruals and reserves on Seller's books in respect of taxes and other governmental charges are, in Seller's opinion, adequate. No tax Lien has been filed, and, to the knowledge of the Seller, no claim is being asserted, with respect to any such tax or assessment. - 38 - (xv) ERISA. Each Plan to which Seller, or any of its Subsidiaries make direct contributions, and, to the knowledge of Seller, each other Plan and each Multiemployer Plan, is in compliance in all material respects with, and has been administered in all material respects in compliance with, the applicable provisions of ERISA, the Code and any other federal or state law. (xvi) No Broker. Seller has not dealt with any broker, investment banker, agent, or other person, except for Buyer, who may be entitled to any commission or compensation in connection with the sale of Purchase Assets pursuant to this Agreement. (xvii) Collateral. (A) The provisions of this Agreement, together with delivery of the Asset Files as contemplated herein are effective to either (i) convey to the Buyer ownership of each Purchased Assets, or (ii) create in favor of the Buyer a valid first priority perfected security interest in all right, title and interest of the Seller, in, to, and under the Collateral. (B) Seller represents and warrants to Buyer (i) with respect to each Collateralized Note (other than any Empire Collateralized Note) purchased hereunder that such Collateralized Note is secured by Mortgage Loans which conform in all respects to the appropriate representations and warranties set forth above, including, without limitation, the representations and warranties set forth in Exhibit V hereto and all other representations and warranties that Buyer shall reasonably require from time to time, and (ii) with respect to each Empire Collateralized Note purchased hereunder that such Empire Collateralized Note is secured by Mortgage Loans which conform in all respects to the representations and warranties set forth in Exhibit V(A) hereto. (xviii) UCC Filing. Upon (1) receipt by the Custodian of each Note, and (2) the filing of financing statements on Form UCC-1 naming the Buyer as "Secured Party" and the Seller as "Debtor", and describing the Collateral, in the jurisdictions and recording offices listed on Schedule 2 attached hereto, in both instances, the security interests granted hereunder in the Collateral will constitute fully perfected first-priority security interests (to the extent such interest can be perfected by filing under the Uniform Commercial Code) under the Uniform Commercial Code in all right, title and interest of the Seller in, to and under such Collateral. (xix) Origination Practices. The origination and collection practices used by Seller or the Qualified Originator, if applicable, with respect to each Asset (i) have been and are in all respects legal, proper, prudent and customary in the origination and loan servicing business for that type of asset, and (ii) are materially in accordance with the Underwriting Guidelines attached hereto and the documentation is consistent in form and substance with the Seller's loan documents approved by Buyer for use under this Agreement, and each deviation therefrom would not be deemed to be material by a prudent lender experienced in originating Assets of that nature, and in no event will have a Material Adverse Effect. (xx) [Intentionally Omitted] - 39 - (xx) No Event of Default. Neither the Seller nor any of its Subsidiaries is in default under or with respect to any of its Contractual Obligations in any respect which could reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing hereunder. (xxi) No Violation of Environmental Laws. Neither Seller nor any of its Subsidiaries has received any notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with any environmental laws with regard to any of its Properties, nor does Seller have knowledge or reason to believe that any such notice will be received or is being threatened. (xxii) True Sales. Any Asset funded in the name of or acquired by a Qualified Originator which is an Affiliate of the Seller has been conveyed to the Seller pursuant to a legal sale, and if so requested by the Buyer, is covered by an opinion of counsel to that effect in form and substance acceptable to the Buyer. (xxiii) Selection Process. The Purchased Assets were selected from among the Assets in Seller's portfolio as to which the representations and warranties set forth in this Agreement could be made and such selection was not intentionally made in a manner so as to result in a Material Adverse Effect upon Buyer, or so as to intentionally result in Assets less desirable or less valuable than other comparable assets owned by the Seller. (xxiv) Computer System. Seller and Subservicer have each made a full and complete assessment of all issues which may be related to the occurrence of the year 2000, including all issues related to its computer program and software (the "Year 2000 Issues"), and has a realistic and achievable program for remediating the Year 2000 Issues on a timely basis (the "Year 2000 Program"). Based on such assessment and on the Year 2000 Program, Seller does not reasonably anticipate that Year 2000 Issues will have a material adverse effect on Seller's operations or financial condition. (c) Interim Servicer Representations and Warranties. Interim Servicer represents and warrants to Buyer that, as of the Purchase Date for the purchase of any Assets by Buyer from Seller and as of the date of this Agreement and any Transaction hereunder and at all times while this Agreement and any Transaction thereunder is in full force and effect, each of the representations and warranties set forth in Subsection 7.01(b) of the Purchase Facility are true and correct in all material respects. 11. NEGATIVE COVENANTS OF SELLER On and as of the date of this Agreement and each Purchase Date and until this Agreement is no longer in force with respect to any Transaction, Seller covenants that it will not: (a) exercise any right to change or consent to a change in a Servicer of Purchased Assets without the prior written consent of the Buyer, or permit any Person other than the Servicer or the Subservicer, as the case may be, to service Purchased Assets without the prior written consent of Buyer; - 40 - (b) after the occurrence and during the continuation of an Event of Default make any Restricted Payment; (c) take any action which would directly or indirectly impair or adversely affect (i) Buyer's title to or lien on any Purchased Assets or any other Collateral or (ii) the value of any Purchased Assets or any other Collateral except, in the case of this clause (ii), any action solely relating to, resulting solely from, or arising solely out of the financial condition of the Seller; (d) pledge, assign, convey, grant, bargain, sell, set over, deliver or otherwise transfer any interest in the Purchased Assets to any Person other than Buyer, nor will Seller create, incur, or permit to exist any Lien, encumbrance or security interest in or on the Purchased Assets or any of the Collateral; (e) permit or allow others to amend, modify, terminate, or waive any provision of any Purchased Asset in any manner which should reasonably be expected to materially and adversely affect the value of such Purchased Asset; (f) take any action which could reasonably be expected to result in a Material Adverse Effect; (g) engage, to any substantial extent, in any line or lines of business activity other than the businesses now generally carried out by it, or cease or take any action to cease (or permit any Subsidiary of Seller to cease or to take any action to cease) to be in the business of originating Mortgage Loans; (h) (A) permit any of its Subsidiaries to sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates (an "Affiliate Transaction") unless the terms thereof (i) are no less favorable to the Seller or such Subsidiary than those that could be obtained at the time of such transaction in arm's-length dealings with a Person who is not such an Affiliate, (ii) if such Affiliate Transaction involves an amount in excess of $2,000,000 (or the equivalent amount in any foreign currency) (x) are set forth in writing and (y) have been approved by a majority of the members of the Board of Directors having no personal stake in such Affiliate Transaction and (iii) if such Affiliate Transaction involves an amount in excess of $10,000,000 (or the equivalent amount in any foreign currency), have been determined by a nationally recognized investment banking firm to be fair from a financial standpoint, to the Seller and its Subsidiaries. (B) Without limiting the generality of any other provisions set forth in this Agreement, the provisions of this Section (A)(i) shall not prohibit (i) any Permitted Investment, (ii) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors, (iii) the grant of stock options or similar rights to employees and directors of the Seller pursuant to plans approved by the Board of Directors, (iv) loans or advances to employees in the ordinary course of business in accordance - 41 - with the past practices of the Seller or its Subsidiaries, but in any event not to exceed $10,000,000 (or the equivalent amount in any foreign currency) in aggregate principal amount outstanding at any one time, (v) the payment of reasonable fees to directors of the Seller and its Subsidiaries who are not employees of the Seller or its Subsidiaries, (vi) any Affiliate Transactions between the Seller and a Subsidiary or between consolidated Subsidiaries (in each case other than any Subsidiary that is an "affiliate" (as such term is defined in the Securities and Exchange Act) of any Affiliate (other than any Subsidiary) of the Seller and (vii) transactions pursuant to any agreement as in existence as of the date between the Seller or its Subsidiaries and Continental Grain Company, a Delaware corporation, or one of its Subsidiaries. (i) become an "investment company" or a company "controlled" by an "investment company, within the meaning of the Investment Company Act, as amended. (j) move its chief executive office from its address as of the date hereof unless it shall have provided Buyer 30 days' prior written notice of such change and an amendment to the UCC-1 filed pursuant thereto. 12. AFFIRMATIVE COVENANTS OF SELLER (a) Financial Statements. Seller covenants that promptly upon preparation, but in no event later than 90 days following the end of each fiscal quarter (other than the end of each fiscal year which is expressly addressed below), Seller shall deliver to Buyer the financial statements of Seller and its consolidated Subsidiaries as of the end of each fiscal quarter. In the event the parties hereto agree to extend the term of this Agreement, Seller shall deliver to Buyer promptly upon preparation, but in no event later than 105 days following the end of such fiscal year, the audited financial statements of Seller and its consolidated Subsidiaries as of the end of each fiscal year. Each financial statement delivered pursuant to this Section 12(a) shall be accompanied by a certificate of a Responsible Officer of the Seller, which certificate shall state that said consolidated financial statement fairly presents the consolidated and consolidating financial condition and results of operations of the Seller and its consolidated Subsidiaries in accordance with GAAP, consistently applied, as at the end of, and for, such period (subject to normal year-end audit adjustments and any relevant qualifications) and which shall also set forth the calculations demonstrating compliance with the covenants set forth in Section 12(e) hereof. (b) Reports. Seller, with respect to any Purchased Assets serviced by Seller, Subservicer or any of Seller's Affiliates, shall periodically deliver, or with respect to any other Purchased Assets, otherwise use its best efforts to cause to be periodically delivered, to Buyer, the report, if any, prepared by the relevant trustee or servicer setting forth payment activity including the last paid-to date, defaults and delinquencies with respect to the underlying loans or receivables in respect of each Purchased Asset and shall prepare and deliver reports each month, detailing, with respect to all Transactions, such information as Buyer may, from time to time, reasonably request, including, but not limited to, purchase activity and valuation of Purchased Assets, which reports shall be rendered no later than the 15th calendar day of any month; provided, however, that such information (i) is of the type usually provided by servicers and - 42 - master servicers of such type of Purchased Asset and (ii) is available without undue hardship or expenses being incurred by Seller, any of its Affiliates or any servicer of the Purchased Assets. (c) Compliance With Laws. Seller will comply in all material respects with all laws, rules and regulations to which it is or may become subject. (d) Conduct of Business. Seller will do, and will cause each of its Material Subsidiaries to do, all things necessary to remain duly incorporated, validly existing and in good standing in its jurisdiction of incorporation and will maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted, except where such failure to maintain such authority or be in good standing could not reasonably be expected to have a Material Adverse Effect. (e) [Intentionally Omitted] (f) Year 2000 Compliance. The Seller shall take and shall cause each of its Material Subsidiaries and Subservicer to take all such actions as are reasonably necessary to successfully implement the Year 2000 Program and to assure that the Year 2000 Issues will not have a material adverse effect on the Seller's operations or financial condition. By September 30, 1999, the Seller will provide written assurance that it is Year 2000 compliant (i.e., completed all testing satisfactorily and taken all other steps reasonably necessary to ensure Year 2000 readiness). If satisfactory assurances can not be made, Buyer will have the right to cease further Transactions. After a 30 calendar day remedy period, the non-compliance will constitute an Event of Default. (g) Taxes. Each of the Seller and its Subsidiaries shall file all Federal and state income tax returns and all other material tax returns that are required to be filed by them and shall pay all taxes due pursuant to such returns or pursuant to any assessment received by any of them, except for any such taxes or assessments, if any, that may be appropriately contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves in conformity with GAAP have been provided. (h) Notifications. Seller will notify Buyer 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 of an Event of Default or Default hereunder; (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; (iii) The occurrence of any event which would allow the obligee under any material loan agreement to which Seller or any of its Material Subsidiaries is bound to declare an event of default or accelerate the obligations of Seller or any of its Material Subsidiaries thereunder; - 43 - (iv) The occurrence of an event of default under any servicing agreement which relates to Purchased Assets to which the Seller or Subservicer is a party; (v) Promptly upon receipt of notice or knowledge that an underlying Mortgaged Property has been damaged by waste, fire, earthquake or earth movement, windstorm, flood, tornado or other casualty, or otherwise damaged so as to affect adversely its Market Value; (vi) Promptly upon receipt of notice or knowledge of (i) any default related to any Purchased Asset, (ii) any Lien or security interest (other than security interests created hereby) on, or claim asserted against, any of the Purchased Assets or (iii) any event or change in circumstances which could reasonably be expected to have a Material Adverse Effect; (vii) Promptly upon discovery that any representation or warranty contained herein is untrue or incorrect in any material respect; (viii) Promptly upon receipt of notice or knowledge of the occurrence of Seller's inability or failure to meet the terms of any covenant in any of the Facility Documents; (ix) Promptly upon the entry of any judgment or decree against Seller or any Material Subsidiary of Seller if the aggregate amount of all judgments and decrees then outstanding against Seller or Seller's Material Subsidiary exceeds $2,500,000; (x) Promptly upon receipt of notice or knowledge that the arrival of the year 2000 will materially and adversely affect Seller's business or any Transactions executed herewith; and (xi) Promptly upon the acquisition or formation of any additional Material Subsidiaries. (i) The Seller will defend the Purchased Assets against, and will take such other action as is necessary to remove, any Lien, security interest or claim on or to the Purchased Assets, other than the security interests created hereunder, and the Seller will defend the right, title and interest of the Buyer in and to any of the Purchased Assets against the claims and demands of all Persons whomsoever. (j) If at any time there exists a Collateral Deficiency, the Seller shall cure same in accordance with Section 4(a) hereof. (k) In the event that the Assets to be purchased would cause the aggregate outstanding principal balance of Assets to consist of Mortgaged Property from any state to exceed such concentration percentage as determined by the Buyer in its sole good faith discretion then, upon request by the Buyer, the Seller deliver an opinion of counsel acceptable to the Buyer in such state, substantially in the form of items #12 and 13 of Exhibit VIII. - 44 - (l) Within one (1) Business Day following a Change of Control of the Seller, the Seller shall pay the Repurchase Price for all Transactions then outstanding plus all other amounts due and owing to the Buyer hereunder. (m) Within one (1) Business Day following a Default hereunder, the Seller shall deliver to Buyer a duly executed Assignment and Conveyance. 13. EVENTS OF DEFAULT (a) If any of the following events (each an "Event of Default") occur, Seller and Buyer shall have the rights set forth in Section 14, as applicable: (i) Seller fails to pay the Repurchase Price in full when due or Buyer fails to deliver the Purchased Assets against full payment therefor; (ii) Seller or Buyer fails to satisfy or perform any material obligation or covenant under this Agreement (including any breach of the obligations set forth in Section 4), or Seller or Buyer shall fail to satisfy or perform any payment or purchase or repurchase obligation when due hereunder; (iii) an Act of Insolvency occurs with respect to Seller or Buyer; (iv) any Breach, occurs, other than a Breach of an Asset Representation, or any Breach of an Asset Representation occurs, and such Breach is not corrected within five (5) Business Days, or any certificate furnished to the Buyer shall prove to have been false or misleading in any material respect as of the time made or furnished; (v) Seller or Buyer shall admit its inability to, or its intention not to, perform any of its obligations hereunder; (vi) any governmental, regulatory, or self-regulatory authority takes any action to remove, limit, restrict, suspend or terminate the rights, privileges, or operations of Seller or any of its Material Subsidiaries, including suspension as an issuer, lender or seller/servicer of related types of assets, which in each case materially adversely affects the value of the Purchased Assets or Buyer's interest in the Purchase Assets; (vii) any Change of Control of the Seller or any Material Subsidiary shall have occurred without the prior consent of the Buyer which consent with respect to any Change of Control of a Material Subsidiary shall not be unreasonably withheld; (viii) Buyer, in its good faith judgment, believes that a Material Adverse Effect has occurred; (ix) The occurrence and continuance of a material "event of default" or of an "event of termination" on the part of Seller under the Purchase Facility or any other agreement between Seller (or an - 45 - Affiliate thereof) on the one hand, and Buyer (or an Affiliate thereof) on the other hand, which has not been waived by Buyer (or its Affiliate), provided that such event of default or event of termination does not arise solely as a result of a default under an agreement to which Seller (or its Affiliate) is not a party; (x) This Agreement shall for any reason cease to create a valid, first priority security interest in any of the Purchased Assets purported to be covered hereby. (b) In making a determination as to whether an Event of Default has occurred, Buyer shall be entitled to rely on reports published or broadcast by media sources believed by Buyer to be generally reliable and on information provided to it by any other sources believed by it to be generally reliable, provided that Buyer reasonably and in good faith believes such information to be accurate and has taken such steps as may be reasonable in the circumstances to attempt to verify such information. 14. REMEDIES (a) If an Event of Default occurs with respect to Seller, the following rights and remedies are available to Buyer: (i) At the option of Buyer, exercised by written notice to Seller (which option shall be deemed to have been exercised, even if no notice is given, immediately upon the occurrence of an Act of Insolvency), the Repurchase Date for each Transaction hereunder shall be deemed immediately to occur. Notwithstanding that the Repurchase Date shall be deemed immediately to have occurred upon the exercise or deemed exercise of such option by Buyer, for purposes of determining the Repurchase Price, the Repurchase Date shall be the date specified in the Purchase Request for such Transaction. (ii) If Buyer exercises or is deemed to have exercised the option referred to in subsection (a)(i) of this Section: (A) Seller's obligations hereunder to repurchase all Purchased Assets in such Transactions shall thereupon become immediately due and payable; (B) to the extent permitted by applicable law, the Pricing Rate shall be the Post Default Rate; and (C) all Income actually received by Buyer pursuant to Section 5 shall be applied to the aggregate unpaid Repurchase Price owed by Seller. (iii) After two (2) Business Days' notice to Seller (which notice need not be given if an Act of Insolvency shall have occurred, and which may be the notice given under subsection (a)(i) of this Section), Buyer may (A) immediately sell, without notice or demand of any kind, at a public or private sale, on a servicing-released basis, and at such price or prices as Buyer may reasonably deem satisfactory any or all Purchased Assets subject to a Transaction hereunder or (B) in its sole discretion elect, in lieu of selling all or a portion of such Purchased Assets, give Seller credit for such - 46 - Purchased Assets in an amount equal to the Market Value of the Purchased Assets against the aggregate unpaid Repurchase Price and any other amounts owing by Seller hereunder. The proceeds of any disposition of Purchased Assets shall be applied first to the costs and expenses incurred by Buyer in connection with Seller's Default; second to consequential damages, including, but not limited to, costs of cover and/or related hedging transactions; third to the Repurchase Price; and fourth to any other outstanding obligation of Seller to Buyer or its Affiliates. (iv) Buyer or an Affiliate thereof may deliver the Purchased Assets which are subject to a Takeout Commitment, or a purchase commitment by a purchaser, to the Takeout Investor, or such other purchaser, as the case may be, in exchange for securities or cash, which securities or cash shall then be treated as Purchased Assets, and Seller hereby irrevocably appoints Buyer to act as its attorney-in-fact and agent to take such action upon the occurrence of an Event of Default as may be necessary to obtain such securities or cash. (v) The parties recognize that it may not be possible to purchase or sell all of the Purchased Assets on a particular Business Day, or in a transaction with the same purchaser, or in the same manner because the market for such Purchased Assets may not be liquid. In view of the nature of the Purchased Assets, the parties agree that liquidation of a Transaction or the underlying Purchased Assets does not require a public purchase or sale and that a good faith private purchase or sale shall be deemed to have been made in a commercially reasonable manner. Accordingly, Buyer may elect, in its sole discretion, the time and manner of liquidating any Purchased Asset and nothing contained herein shall (A) obligate Buyer to liquidate any Purchased Asset on the occurrence of an Event of Default or to liquidate all Purchased Assets in the same manner or on the same Business Day or (B) constitute a waiver of any right or remedy of Buyer. However, in recognition of the parties' agreement that the Transactions hereunder have been entered into in consideration of and in reliance upon the fact that all Transactions hereunder constitute a single business and contractual relationship and that each Transaction has been entered into in consideration of the other Transactions, the parties further agree that Buyer shall use its best efforts to liquidate all Transactions hereunder upon the occurrence of an Event of Default as quickly as is prudently possible in the sole good faith discretion of Buyer. (vi) Buyer shall, without regard to the adequacy of the security for Seller's obligations under this Agreement, be entitled to the appointment of a receiver by any court having jurisdiction, without notice, to take possession of and protect, collect, manage, liquidate, and sell the Collateral or any portion thereof, and collect the payments due with respect to the Collateral or any portion thereof. Seller shall pay all costs and expenses incurred by Buyer in connection with the appointment and activities of such receiver, including, without limitation, reasonable out-of-pocket legal fees. (vii) Seller agrees that Buyer may obtain an injunction or an order of specific performance to compel Seller, as the Interim Servicer, to fulfill its obligations as - 47 - set forth in Section 25, if Seller, as the Interim Servicer, fails or refuses to perform its obligations as set forth therein. (viii) Seller shall be liable to Buyer for (A) the amount of all expenses, including reasonable legal or other expenses incurred by Buyer in connection with or as a consequence of an Event of Default, and (B) actual damages, including, without limitation, all reasonable legal fees and expenses and other costs incurred in connection with hedging or covering transactions. (ix) Buyer shall have all the rights and remedies provided herein, provided by applicable federal, state, foreign, and local laws (including, without limitation, the rights and remedies of a secured party under the Uniform Commercial Code of the State of New York, to the extent that the Uniform Commercial Code is applicable, and the right to offset any mutual debt and claim), in equity, and under any other agreement between Buyer and Seller. (x) Buyer may exercise one or more of the remedies available to Buyer immediately upon the occurrence of an Event of Default and, except to the extent provided in subsections (a)(i) and (iii) of this Section, at any time thereafter without notice to Seller. All rights and remedies arising under this Agreement as amended from time-to-time hereunder are cumulative and not exclusive of any other rights or remedies which Buyer may have. (xi) In addition to its rights hereunder, Buyer shall have the right to proceed against any assets of Seller which may be in the possession of Buyer, its Affiliates or their designee (including the Custodian), including the right to liquidate such assets and to set off the proceeds against monies owed by Seller to Buyer pursuant to this Agreement. Buyer may set off cash, the proceeds of the liquidation of the Purchased Assets, any Collateral or its proceeds, and all other sums or obligations owed by Buyer or its Affiliates to Seller against all of Seller's obligations to Buyer, whether under this Agreement, under a Transaction, or under any other agreement between the parties, or otherwise, whether or not such obligations are then due, without prejudice to Buyer's right to recover any deficiency. Any cash, proceeds, or property in excess of any amounts due, or which Buyer reasonably believes may become due, to it from Seller shall be returned to Seller after satisfaction of all obligations of Seller to Buyer. (xii) Buyer may enforce its rights and remedies hereunder without prior judicial process or hearing, and Seller hereby expressly waives any defenses Seller might otherwise have to require Buyer to enforce its rights by judicial process. Seller also waives any defense Seller might otherwise have arising from the use of nonjudicial process, enforcement and sale of all or any portion of the Collateral, or from any other election of remedies. Seller recognizes that nonjudicial remedies are consistent with the usages of the trade, are responsive to commercial necessity and are the result of a bargain at arm's length. - 48 - (b) Upon the occurrence of one or more Events of Default, and in addition to the remedies otherwise provided herein, Buyer shall have the right to obtain physical possession of the Servicing Records and all other files of Seller relating to the Purchased Assets and all documents relating to the Purchased Assets which are then or may thereafter come in to the possession of Seller or any third party acting for Seller and Seller shall deliver to Buyer such assignments as Buyer shall request. Seller shall be responsible for paying any fees of any Subservicer resulting from the termination of a Subservicer due to an Event of Default. Buyer shall be entitled to specific performance of all agreements of Seller contained in this Agreement. (c) If an Event of Default occurs with respect to Buyer, the following rights and remedies are available to Seller: (i) Upon tender by Seller of payment of the aggregate Repurchase Price for all such Transactions, Buyer's right, title and interest in all Purchased Assets subject to such Transactions shall be deemed transferred to Seller, and Buyer shall deliver or cause to be transferred all such Purchased Assets to Seller or its designee at Buyer's expense. (ii) If Seller exercises the option referred to in subsection (b)(i) of this Section and Buyer fails to deliver or cause to be delivered the Purchased Assets to Seller or its designee, after three (3) Business Day's notice to Buyer, Seller may (A) purchase Assets or securities ("Replacement Assets") that are as similar as is reasonably practicable in characteristics, outstanding principal amounts (as a pool) and Note Interest Rate to any Purchased Assets that are not delivered by Buyer to Seller or its designee as required hereunder or (B) in its sole discretion elect, in lieu of purchasing Replacement Assets, to be deemed to have purchased Replacement Assets at a price therefor on such date, equal to the Market Value of the Purchased Assets. (iii) Buyer shall be liable to Seller (A) with respect to Purchased Assets (other than Additional Eligible Assets), for any excess of the price paid (or deemed paid) by Seller for Replacement Assets therefor over the Repurchase Price for such Purchased Assets, (B) with respect to Additional Eligible Assets, for the price paid (or deemed paid) by Seller for the Replacement Assets therefor, and (C) for actual damages, including, without limitation, all costs incurred in connection with hedging or covering transactions. In addition, Buyer shall be liable to Seller for interest on such remaining liability with respect to each such purchase (or deemed purchase) of Replacement Assets calculated on a 360-day year basis for the actual number of days during the period from and including the date of such purchase (or deemed purchase) until paid in full by Buyer. Such interest shall be at the greater of the Pricing Rate or the Prime Rate. 15. DUE DILIGENCE (a) Seller acknowledges that Buyer has the right to perform continuing due diligence reviews with respect to the Assets for purposes of verifying compliance with the representations, warranties and specifications made hereunder, or otherwise (the "Due Diligence Review"), and Seller agrees that upon prior notice to Seller, provided that, if a Default or Event - 49 - of Default shall have occurred, then without notice, Buyer or its authorized representatives will be permitted during normal business hours to examine, inspect, and make copies and extracts of, the Asset Files, Servicing Records and any and all documents, records, agreements, instruments or information relating to such Assets in the possession or under the control of Seller, any other Servicer or subservicer and/or the Custodian. Seller agrees that Buyer may, at Buyer's sole expense and with prior notice to Seller, conduct additional Due Diligence Reviews. Seller also shall make available to Buyer a knowledgeable financial or accounting officer for the purpose of answering questions respecting the Asset Files and the Assets. Without limiting the generality of the foregoing, Seller acknowledges that Buyer may enter into Transactions with the Seller based solely upon the information provided by Seller to Buyer and the representations, warranties and covenants contained herein, and that Buyer, at its option, has the right at any time to conduct a partial or complete due diligence review on some or all of the Assets. Buyer may underwrite such Assets itself or engage a mutually agreed upon third party underwriter to perform such underwriting. Seller agrees to cooperate with Buyer and any third party underwriter in connection with such underwriting, including, but not limited to, providing Buyer and any third party underwriter with access to any and all documents, records, agreements, instruments or information relating to such Assets in the possession, or under the control, of Seller. Seller further agrees that Seller shall reimburse Buyer for any and all out-of-pocket costs and expenses reasonably incurred by Buyer in connection with Buyer's activities pursuant to this Section 15. 16. SINGLE AGREEMENT Buyer and Seller acknowledge that, and have entered hereunto and will enter into each Transaction hereunder in consideration of and in reliance upon the fact that, all Transactions hereunder constitute a single business and contractual relationship and that each has been entered into in consideration of the other Transactions. Accordingly, each of Buyer and Seller agrees (i) to perform all of its obligations in respect of each Transaction hereunder, and that a Default in the performance of any such obligations shall constitute a Default by it in respect of all Transactions hereunder, (ii) that each of them shall be entitled to set off claims and apply property held by them in respect of any Transaction against obligations owing to them in respect of any other Transactions hereunder and (iii) that payments, deliveries, and other transfers made by either of them in respect of any Transaction shall be deemed to have been made in consideration of payments, deliveries, and other transfers in respect of any other Transactions hereunder, and the obligations to make any such payments, deliveries, and other transfers may be applied against each other and netted. 17. NOTICES AND OTHER COMMUNICATIONS Unless another address is specified in writing by the respective party to whom any written notice or other communication is to be given hereunder, all such notices or communications shall be in writing or confirmed in writing and delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof. Any notices or other communications permitted or required hereunder shall be in writing and shall be deemed conclusively to have been given if (a) personally delivered, (b) mailed by registered or certified mail, postage prepaid, and return receipt requested, (c) sent by express - 50 - courier delivery service and received by the party to whom it is sent, or (d) transmitted by confirmed telex or facsimile transmission (or any other type of electronic transmission agreed upon by the parties). 18. ENTIRE AGREEMENT; SEVERABILITY This Agreement constitutes the entire understanding between Buyer and Seller with respect to the subject matter it covers and shall supersede any existing agreements (including any summary of terms and conditions) between the parties containing general terms and conditions for repurchase transactions involving Assets. By acceptance of this Agreement, Buyer and Seller acknowledge that they have not made, and are not relying upon, any statements, representations, promises or undertakings not contained in this Agreement. Each provision and agreement herein shall be treated as separate and independent from any other provision or agreement herein and shall be enforceable notwithstanding the unenforceability of any such other provision or agreement. 19. EFFECTIVENESS; BINDING EFFECT; ASSIGNABILITY This Agreement shall become effective when it shall have been executed by the Buyer and Seller and thereafter shall be binding upon and inure to the benefit of the Buyer and Seller and their respective successors and permitted assigns. The Seller may not assign or transfer any of its rights or obligations hereunder without the prior written consent of the Buyer, which consent may be granted or withheld in the Buyer's sole discretion. The Buyer may assign all or any portion of its rights and obligations hereunder with the prior consent of the Seller which shall not be unreasonably withheld or delayed. Any request by Buyer for consent hereunder shall be deemed consented to by Seller if not objected to by Seller in writing within two (2) Business Days' following receipt thereof. If the Buyer so sells or assigns all or a portion of its rights hereunder, any reference in this Agreement to the Buyer shall thereafter refer to the Buyer and to the respective assignee to the extent of their respective interests and the assignee shall have, to the extent of such assignment (unless otherwise provided therein) the same rights and benefits as it would if it were the Buyer. Each assignment pursuant to this Section shall be effected by the Buyer (or its successor) and the assignee executing an assignment agreement (appropriately completed) satisfactory to the Buyer. The Seller agrees to execute such documents (including, without limitation, amendments to this Agreement and the other Facility Documents) as shall be necessary to effect the foregoing. Nothing in this Agreement, express or implied, shall give to any Person, other than the parties to this Agreement and their successor hereunder, any benefit or any legal or equitable right, power, remedy, or claim under this Agreement. 20. TERMINABILITY This Agreement shall be terminated on the Final Repurchase Date, and any outstanding Transactions shall become due on such date. Notwithstanding any such termination or the occurrence of an Event of Default, all of the representations, warranties and covenants, and indemnities hereunder (including those made in the Asset Representations) shall continue and survive. - 51 - 21. GOVERNING LAW THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF. 22. CONSENT TO JURISDICTION The parties irrevocably agree to submit to the personal jurisdiction of the United States District Court for the Southern District of New York, the parties irrevocably waiving any objection thereto and waive all rights to a trial by jury. If, for any reason, federal jurisdiction is not available, and only if federal jurisdiction is not available, the parties irrevocably agree to submit to the personal jurisdiction of the Supreme Court of the State of New York, the parties irrevocably waiving any objection thereto and waive all rights to a trial by jury. 23. NO WAIVERS, ETC. No express or implied waiver of any Event of Default by either party shall constitute a waiver of any other Event of Default and no exercise of any remedy hereunder by any party shall constitute a waiver of its right to exercise any other remedy hereunder. No modification or waiver of any provision of this Agreement and no consent by any party to a departure herefrom shall be effective unless and until such shall be in writing and duly executed by both of the parties hereto. Any such waiver or modification shall be effective only in the specific instance and for the specific purpose for which it was given. 24. INTENTIONALLY OMITTED 25. SERVICING (a) The Interim Servicer, at the Buyer's option and request, as independent contract interim servicer, shall interim service and administer the Purchased Assets during the Interim Servicing Period in accordance with the Accepted Servicing Practices. Upon the termination of the Interim Servicing Period, the Interim Servicer shall cooperate fully with the Buyer and any servicer to whom servicing or master servicing of any Purchased Asset is to be transferred and shall promptly provide Buyer or such successor servicer, as applicable, all documents and records reasonably requested by it to enable it to assume the Interim Servicer's functions as servicer hereunder and shall within one (1) Business Day of receipt transfer to the Buyer or such successor servicer, as applicable, all amounts which should have been deposited in the Buyer's Account by the Interim Servicer or which are thereafter received with respect to the Purchased Assets, it being agreed that the Seller will pay all fees and expenses incurred in connection with such transfer. A servicing transfer shall be complete when the Buyer or its designated servicer confirms to the Interim Servicer that it has received all necessary data and documents to perform its primary servicing or master servicing function, as applicable, and all required notices have been mailed by the Interim Servicer. Notwithstanding the purchase of Purchased Assets by Buyer, during the Interim Servicing Period the Interim Servicer shall continue to service the Purchased Assets for the benefit of Buyer, and, if Buyer shall exercise its - 52 - rights to pledge or hypothecate the Purchased Assets prior to the related Repurchase Date pursuant to Section 8, for the benefit of Buyer's assigns. The Interim Servicer may retain legal title to the Purchased Assets solely for the purpose of servicing or supervising the servicing of such Purchased Assets during the Interim Servicing Period. Any beneficial or equitable interest in Purchased Assets shall remain in Buyer. The Buyer will pay the Interim Servicer a monthly interim servicing fee to service the Purchased Assets to be calculated in accordance with the terms and provisions of the Purchase Facility. To the extent the Interim Servicer (or an Affiliate thereof) is authorized to sub-service the Purchased Assets on behalf of the Servicer after the termination of the Interim Servicing Period, the Buyer will pay such Subservicer a monthly sub-servicing fee to be calculated in accordance with the terms and provisions of the Purchase Facility. All servicing fees and compensation with respect to the servicing of the Assets shall be customary, reasonable and consistent with industry practice. (b) The Seller agrees that the Seller assigns to the Buyer, and the Buyer is the owner of the entire right, title and interest of the Seller, if any, in and to all servicing rights and Servicing Records relating to the Purchased Assets, including, but not limited to, any and all Servicing Agreements, files, documents, records, data bases, computer tapes, copies of computer tapes, proof of insurance coverage, insurance policies, appraisals, other closing documentation, payment history records, and any other records relating to or evidencing the servicing, of Purchased Assets (the "Servicing Records"). Seller grants Buyer a security interest in all servicing fees and rights relating to the Purchased Assets and all Servicing Records to secure the obligation of Seller or its designee to service in conformity with this Section and any other obligation of Seller to Buyer. Seller covenants to safeguard such Servicing Records and to deliver them promptly to Buyer or its designee (including the Custodian) at Buyer's request. (c) If the Purchased Assets are serviced by a third party Subservicer (including an Affiliate of Interim Servicer), Interim Servicer (i) shall provide a copy of the servicing agreement to Buyer (the "Servicing Agreement"); (ii) hereby irrevocably assigns to Buyer and Buyer's successors and assigns all right, title, interest and the benefits of the Servicing Agreements with respect to the Purchased Assets; and (iii) shall provide to Buyer a letter from the Subservicer in the form attached hereto as Exhibit II (the "Subservicing Notification Letter") to the effect that upon the earlier to occur of (i) the termination of the Interim Servicing Period or (ii) the occurrence of an Event of Default, Buyer may terminate the Servicing Agreement and transfer such servicing to its designee, at no cost or expense to Buyer, it being agreed that Seller will pay any and all fees required to terminate the Servicing Agreement and will cooperate to effectuate the transfer of servicing to Buyer or its designee including paying the costs of shipping the Servicing Records to Buyer or its designee. If an Affiliate of Interim Servicer is servicing the Purchased Assets, such Affiliate, Interim Servicer and Buyer shall enter a Seller/Affiliate Agreement in the form of Exhibit VI hereto. (d) Interim Servicer shall not employ sub-servicers other than the Subservicer to service the Purchased Assets during the Interim Servicing Period or thereafter without the prior written approval of Buyer. Seller shall cause any sub-servicers engaged by Interim Servicer to execute a letter agreement with Buyer acknowledging Buyer's ownership of the Purchased Assets and agreeing that, upon notice from Buyer (or the Custodian on its behalf) that the Interim - 53 - Servicing Period has terminated or an Event of Default has occurred and is continuing hereunder, it shall deposit all Income with respect to the Purchased Assets in the account specified in Section 5. (e) Upon the earlier to occur of (i) the termination of the Interim Servicing Period or (ii) the occurrence and continuance of an Event of Default or (iii) the failure of the Interim Servicer or any sub-servicer to meet Accepted Servicing Practices, Buyer may, in its sole discretion, (i) sell its right to the Purchased Assets on a servicing-released basis or (ii) terminate the Interim Servicer or any Subservicer or sub-servicer as servicer of the Purchased Assets with or without cause, in each case without payment of any termination fee, in which case Interim Servicer will promptly, within one (1) Business Day, transfer servicing, or cause servicing to be transferred, to the servicer designated by Buyer. (f) The Interim Servicer shall use one or more of the following types of accounts, in each case maintained at an institution that is independent of and unaffiliated with Seller, into which all sums collected in respect of Assets shall be deposited and maintained (the "Buyer's Account"): (i) a trust account or accounts maintained for the benefit of Buyer with the trust department of a federally chartered depository institution or trust company acting in its fiduciary capacity or (ii) a trust account or accounts maintained for the benefit of Buyer with the trust department of a state chartered depository institution or trust company acting in its fiduciary capacity and subject to regulations regarding fiduciary funds on deposit therein substantially similar to 12 CFR ss. 9.10(b), or (iii) an account or accounts (a) maintained with a depository institution the debt obligations of which are rated by Standard & Poor's Ratings Group in one of its two highest rating categories at the time of any deposit therein or (b) the deposits of which are insured by the FDIC, to the limits established by the FDIC, and the uninsured deposits in which are otherwise secured such that, as evidenced by an opinion of counsel, Buyer has a claim with respect to the funds in such account or a perfected first security interest against any collateral securing such funds that is superior to claims of any other depositor or creditors of the depository institution with which such account is maintained. (g) Interim Servicer shall provide to Buyer on the 15th calendar day of each month, (i) a remittance report with respect to all Purchased Assets subject to any Transaction hereunder containing all of the information necessary for Buyer to determine the Market Value of such Purchased Assets, and (ii) all other reports specified in the Interim Servicing Addendum attached hereto as Exhibit XI. (h) Each of the terms and provisions contained in Exhibit 9 to the Purchase Facility (together with all related definitions and ancillary provisions) are hereby incorporated by reference as if set forth herein in their entirety; provided, that (i) references to "Purchaser" shall mean and be a reference to the Buyer as defined herein, (ii) references to "this Agreement", "herein", "hereunder", and words of similar import shall mean and be a reference to this Agreement, (iii) references to "Mortgage Loans" shall mean and be a reference to Purchased Assets as defined herein, and (iv) references to Sections in such incorporated Sections shall be references to Sections of the Purchase Facility, provided that to the extent such referenced - 54 - Sections are themselves incorporated in this Agreement by reference, references herein to such Sections shall be such Sections as they are incorporated. 26. DISCLOSURE RELATING TO CERTAIN FEDERAL PROTECTIONS The parties acknowledge that they have been advised that in the case of Transactions in which one of the parties is an "insured depository institution" as that term is defined in Section 1831 (a) of Title 12 of the United States Code, as amended, funds held by the financial institution pursuant to a Transaction hereunder are not a deposit and therefore are not insured by the Federal Deposit Insurance Corporation, the Savings Association Insurance Fund or the Bank Insurance Fund, as applicable. 27. NETTING If Buyer and Seller are "financial institutions" as now or hereinafter defined in Section 4402 of Title 12 of the United States Code ("Section 4402") and any rules or regulations promulgated thereunder: (a) All amounts to be paid or advanced by one party to or on behalf of the other under this Agreement or any Transaction hereunder shall be deemed to be "payment obligations" and all amounts to be received by or on behalf of one party from the other under this Agreement or any Transaction hereunder shall be deemed to be "payment entitlements" within the meaning of Section 4402, and this Agreement shall be deemed to be a "netting contract" as defined in Section 4402. (b) The payment obligations and the payment entitlements of the parties hereto pursuant to this Agreement and any Transaction hereunder shall be netted as follows. In the event that either party (the "Defaulting Party") shall fail to honor any payment obligation under this Agreement or any Transaction hereunder, the other party (the "Nondefaulting Party") shall be entitled to reduce the amount of any payment to be made by the Nondefaulting Party to the Defaulting Party by the amount of the payment obligation that the Defaulting Party failed to honor. 28. CONFIDENTIALITY This Agreement and its terms and contents are proprietary to Buyer and to Seller and shall be held by Buyer and Seller in strict confidence and shall not be disclosed to any third party without the consent of the other except for (i) disclosure to such party's attorneys or accountants, provided that such attorneys and accountants likewise agree to be bound by this covenant of confidentiality or (ii) disclosure required by law, rule, regulation or order of a court or other regulatory body. 29. COSTS, EXPENSES, TAXES AND INDEMNIFICATION (a) The Seller agrees to pay on demand (i) all reasonable out-of-pocket costs and expenses of the Buyer in connection with the preparation, execution and delivery of this - 55 - Agreement, and the administration, modification and amendment of this Agreement (including, without limitation, (A) all due diligence costs pursuant to Section 15 hereof, collateral review, syndication, transportation, computer, duplication, appraisal, audit, insurance, consultant, search, filing and recording fees and expenses and (B) the reasonable fees and expenses of counsel for the Buyer with respect thereto with respect to advising the Buyer as to its rights and responsibilities, or the perfection, protection or preservation of rights or interests, under this Agreement, with respect to negotiations with the Seller or with other creditors of the Seller arising out of any Default or any events or circumstances that may give rise to a Default and with respect to presenting claims in or otherwise participating in or monitoring any bankruptcy, insolvency or other similar proceeding involving creditors' rights generally and any proceeding ancillary thereto with respect to the Seller) and (ii) all costs and expenses of the Buyer in connection with the enforcement of this Agreement, whether in any action, suit or litigation, any bankruptcy, insolvency or other similar proceeding affecting creditors' rights generally (including, without limitation, the reasonable fees and expenses of counsel for the Buyer with respect thereto). (b) Seller shall indemnify Buyer and hold it harmless against any Losses incurred by Buyer as a result of any failure by Seller to timely deliver the Assets subject to such Transaction, which Losses shall be limited to costs reasonably incurred by Buyer by reason of the liquidation or re-employment of funds acquired by Buyer to fund such Transaction. In addition, Buyer shall undertake to take all commercially reasonable steps to mitigate Seller's indemnity hereunder. (c) Without limiting any other rights which Buyer or Seller have hereunder or under applicable law, and in addition to any other indemnity provided hereunder, (a) Seller hereby agrees to hold Buyer harmless from and indemnify Buyer and its respective officers, directors, agents and employees (each, an "Indemnified Party") any and all claims, damages, losses, liabilities and expenses from and against any and all Losses incurred by or asserted or awarded against any Indemnified Party directly arising out of, related to, or as a result of this Agreement or any Transaction involving Assets, including any investigation, proceeding or preparation of any defense in connection therewith, whether or not such investigation, litigation or proceeding is brought by the Seller, its members, or creditors or an Indemnified Party or any Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated hereby are consummated, and Seller will reimburse each Indemnified Party as the same is incurred upon receipt by the Seller of documentation evidencing the same, excluding, however, Losses to the extent arising from the gross negligence or willful misconduct on the part of Buyer. Without limiting the generality of the foregoing, Seller agrees to pay on demand, and shall indemnify Buyer for Losses relating to or resulting from: (i) any representation or warranty made by Seller (or any Responsible Officer or authorized agent of Seller) under or in connection with this Agreement, any periodic report required to be furnished hereunder 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, or any other Breach hereunder; - 56 - (ii) the failure by Seller to comply with any applicable law, rule or regulation with respect to any Transaction; (iii) violations of any environmental law, rule or regulation or any consumer credit laws, including without limitation ERISA, the Truth in Lending Act and/or the Real Estate Settlement Procedures Act; or (iv) the failure by Seller (if so requested by Buyer) 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 Purchased Assets. (v) the actual or alleged presence of Hazardous Materials on any Mortgaged Property or any Environmental Action relating in any way to any Mortgaged Property, except to the extent such claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. (d) In any suit, proceeding or action brought by Buyer in connection with any Purchased Asset for any sum owing thereunder, or to enforce any provisions of any Purchased Asset, Seller will save, indemnify and hold Buyer harmless from and against all expense, loss or damage suffered by reason of any defense, set-off, counterclaim, recoupment or reduction or liability whatsoever of the account debtor or obligor thereunder, arising out of a breach by Seller of any obligation thereunder or arising out of any other agreement, Indebtedness or liability at any time owing to or in favor of such account debtor or obligor or its successors from Seller. Seller hereby acknowledges that, the obligation of Seller hereunder is a recourse obligation of Seller. (e) All payments made by the Seller under this Agreement shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, or other assessments, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, including without limitation, excise, property, sale and franchise taxes (including in each such case, any interest, penalties or additions attributable to or imposes on or with respect to any such assessment) (all such assessments, "Non-Excluded Taxes"), but excluding net income taxes and franchise taxes imposed in lieu of net income taxes imposed on the Buyer as a result of a present or former connection between the Buyer and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from the Buyer having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement). If any such Non-Excluded Taxes are required to be withheld from any amounts payable to the Buyer hereunder, the amounts so payable to the Buyer shall be increased to the extent necessary to yield to the Buyer, based on Buyer's effective tax rate in effect from time to time, (after payment of all Non-Excluded Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement; provided, however, that the Seller shall not - 57 - be required to increase any such amounts payable to the Buyer that is not organized under the laws of the United States of America or a state thereof if the Buyer fails to comply with the requirements of clause (f)(i) of this Section. Whenever any Non-Excluded Taxes are payable by the Seller, as promptly as possible thereafter the Seller shall send to the Buyer, as the case may be, a certified copy of an original official receipt received by the Seller showing payment thereof. If the Seller fails to pay any Non-Excluded Taxes when due to the appropriate taxing authority or fails to remit to the Buyer the required receipts or other required documentary evidence, the Seller shall indemnify the Buyer for any incremental taxes, interest or penalties that may become payable by the Buyer as a result of any such failure. The agreements in this Section shall survive the termination of this Agreement and the payment of all amounts payable hereunder. (g) Without prejudice to the survival of any other agreement of the Seller hereunder, the agreements and obligations of the Seller contained in this Section shall survive the payment in full of the Repurchase Price and all other amounts payable hereunder and delivery of the Purchased Assets by the Buyer against full payment therefor. 30. SET-OFF In addition to any rights and remedies of Buyer provided by this Agreement and by law, Buyer shall have the right, without prior notice to Seller, any such notice being expressly waived by Seller to the extent permitted by applicable law, upon any amount becoming due and payable by Seller under this Agreement, the Existing Repo Facility, the Purchase Facility, the Engagement Letter or the Master Facilities Agreement (whether at the stated maturity, by acceleration or otherwise) to set-off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by Buyer or any Affiliate thereof to or for the credit or the account of Seller. Buyer agrees promptly to notify Seller after any such set-off and application made by Buyer; provided that the failure to give such notice shall not affect the validity of such set-off and application. 31. MISCELLANEOUS (a) Time is of the essence under this Agreement and all Transactions and all references to a time shall mean New York time in effect on the date of the action unless otherwise expressly stated in this Agreement. (b) Buyer shall be authorized to accept orders and take any other action affecting any accounts of Seller in response to instructions given in writing or orally by telephone or otherwise by any person with apparent authority to act on behalf of Seller, and Seller shall indemnify Buyer, defend, and hold Buyer harmless from and against any and all Losses arising out of or in connection with any action taken by Buyer in response to such instructions received or reasonably believed to have been received from Seller. - 58 - (c) If there is any conflict between the terms of this Agreement or any Transaction entered into hereunder and the Custodial Agreement or any other Facility Document, this Agreement shall prevail. - 59 - (d) This Agreement may be executed in counterparts, each of which so executed shall be deemed to be an original, but all of such counterparts shall together constitute but one and the same instrument. (f) The headings in this Agreement are for convenience of reference only and shall not affect the interpretation or construction of this Agreement. [THIS SPACE INTENTIONALLY LEFT BLANK] - 60 - IN WITNESS WHEREOF, the parties have entered into this Agreement as of the date set forth above. GREENWICH CAPITAL FINANCIAL PRODUCTS, INC., Buyer By: --------------------------------- Name: Title: ADDRESS FOR NOTICES: 600 Steamboat Road Greenwich, Connecticut 06830 Telephone: (203) 625-7921 Facsimile: (203) 618-2132 With a copy to: Attention: General Counsel Telephone: (203) 625-2700 Facsimile: (203) ____________ CONTIFINANCIAL CORPORATION, Seller By: /s/ Alan Fishman --------------------------------- Name: Alan Fishman Title: By: /s/ Frank Baier --------------------------------- Name: Frank Baier Title: ADDRESS FOR NOTICES: 277 Park Avenue New York, New York 10172 Telephone: (212) 207-2808 Facsimile: (212) 207-5975 - 61 - With a copy to: Attention: Alan Langus, General Counsel Telephone: (212) 207-2822 Facsimile: (212) 207-2937 CONTIMORTGAGE CORPORATION, Interim Servicer By: /s/ Robert J. Babjak --------------------------------- Name: Robert J. Babjak Title: By: /s/ Margaret M. Curry --------------------------------- Name: Margaret M. Curry Title: ADDRESS FOR NOTICES: 338 South Warminster Rd Hatboro, PA 19404-3430 Telephone: (212) 207-2808 Facsimile: (212) 207-5975 With a copy to: Attention: Mary L. Gibbons, Chief Counsel Telephone: (215) 347-3404 Facsimile: (215) 347-3400 - 62 - SCHEDULES --------- SCHEDULE 1 SELLER'S MATERIAL SUBSIDIARIES SCHEDULE 2 FILING JURISDICTIONS SCHEDULE 3 INDEBTEDNESS DOCUMENTS SCHEDULE 4 FALLOUT ASSETS EXHIBITS -------- EXHIBIT I Form of Purchase Request including the Eligible Asset Schedule EXHIBIT II Interim Servicing Notification Letter EXHIBIT III Form of Power of Attorney EXHIBIT IV Letter of Instruction to Master Servicer and Servicers EXHIBIT V Representations and Warranties Regarding Mortgage Loans EXHIBIT V(A) Representations and Warranties Regarding Empire Mortgage Loans EXHIBIT VI Seller/Affiliate Agreement EXHIBIT VII Assignment and Conveyance Agreement EXHIBIT VIII Opinion of Seller's Counsel EXHIBIT IX Underwriting Guidelines EXHIBIT IX(A) Modifications to Underwriting Guidelines EXHIBIT X Asset Tape Fields EXHIBIT XI Interim Servicing Addendum - 63 - Schedule 1 ---------- Seller's Material Subsidiaries ------------------------------ ContiMortgage Corporation ContiWest Corporation ContiTrade Services L.L.C. California Lending Group, Inc. [SPC that owns Excess Spread Receivable to be Pledged to Greenwich] [Affiliates of Conti that are counterparties to swaps with Greenwich] - 64 - Schedule 2 ---------- Filing Jurisdictions -------------------- Secretary of State of the State of New York Secretary of County of New York County Secretary of State of the State of Pennsylvania Secretary of County of Montgomery County - 65 - Schedule 3 ---------- Indebtedness Documents ---------------------- Indenture, dated as of August 15, 1996, relating to the ContiFinancial Corporation 8 3/8% Senior Notes Due 2003, as amended, supplemented or otherwise modified from time to time Credit Agreement, dated as of January 7, 1997, among ContiFinancial Corporation and Credit Suisse First Boston, as amended, supplemented or otherwise modified from time to time Indenture, dated as of March 1, 1997, relating to the ContiFinancial Corporation 7-1/2% Senior Notes Due 2002, as amended, supplemented or otherwise modified from time to time Amended and Restated Letter of Credit and Reimbursement Agreement, dated as of September 9, 1997, among ContiFinancial Corporation, Credit Suisse First Boston, New York Branch and Dresdner Bank AG, New York Branch, as amended, supplemented or otherwise modified from time to time Indenture, dated March 4, 1998, relating to certain securities issuable by ContiFinancial Corporation, as amended, supplemented or otherwise modified from time to time - 66 - Schedule 4 Fallout Assets Collateral Amount Mortgage Loan Category Time Period Percentage - ---------------------- ----------- ---------- Delinquent Loan 30 - 59 days 90% 60 - 89 days 80% 90 - 119 days 50% 120+ days 0% Sublimit Exception Loan 1st 60 days 90% Next 30 days 85% Thereafter 0% Exception Loan in excess 1st 60 days 80% of Exception Limit Next 30 days 75% Thereafter 0% Repurchased Loan 1st 60 days following repurchase 70% Next 30 days 60% Thereafter 0% Category 4 Loan 1st 60 days 70% Next 30 days 60% Thereafter 0% As used herein, the following terms shall have the following meanings: "Category 4 Loan" means a Mortgage Loan that would qualify as an Exception Loan except that it has an implied purchase price of less than 80% of the unpaid principal balance thereof. "Delinquent Loan" means a Mortgage Loan which is more than 29 days Delinquent. "Sublimit Exception Loan" means a Mortgage Loan the Collateral Amount Percentage of which would be zero as a result of one or more of the sublimits set forth in the definition of the term "Collateral Amount Percentage", except that a Mortgage Loan the Collateral Amount Percentage of which would be zero as a result of paragraph (9) of the definition of the term "Collateral Amount Percentage" shall not qualify as a Sublimit Exception Loan. "Exception Limit" shall have the meaning for such term that is set forth in the Purchase Facility. "Exception Loan" shall have the meaning for such term that is set forth in the Purchase Facility. - 67 - "Repurchased Loan" means a Mortgage Loan (a) which has been repurchased by the Seller (i) from the Buyer under the terms of the Purchase Facility or (ii) from a securitization trust in accordance with Seller's obligation to repurchase certain securitized mortgage loans, and (b) which has a Market Value greater than 50% of the Par Amount of such Mortgage Loan. - 68 - EXHIBIT I Form of Purchase Request [Date] Greenwich Capital Financial Products, Inc. 600 Steamboat Road Greenwich, Connecticut 06830 Ladies and Gentlemen: Pursuant to Section 3(a) of the Master Repurchase Agreement Governing Purchases and Sale of Assets dated as of August 9, 1999 (the "Agreement") between you ("Buyer") and us ("Seller"), Seller hereby irrevocably requests that Buyer enter into a repurchase transaction involving the following Eligible Assets, to be governed by the Agreement: Buyer: Greenwich Capital Financial Products, Inc. Seller: ContiFinancial Corporation Type of [Eligible] [Fallout] Assets: Specific Assets to be Sold: Attached on Asset Schedule Requested Purchase Date: Par Amount (UPB): Requested by CONTIFINANCIAL CORPORATION By: -------------------------------- Name: Title: By: -------------------------------- Name: Title: Exh I.1 GREENWICH CAPITAL FINANCIAL PRODUCTS, INC. By: -------------------------------- Name: Title: Exh I.2 EXHIBIT I Asset Schedule -------------- [Note: If any Asset to be sold to the Buyer constitutes a Fallout Asset, the Seller shall list on this Schedule the reasons why such Asset does not qualify as an Eligible Asset] (1) the Seller's Mortgage Loan identifying number; (2) the Mortgagor's first andlast name; (3) the street address of the Mortgaged Property including the state and zip code; (4) a code indicating whether the Mortgaged Property is owner-occupied; (5) the type of residential dwelling constituting the Mortgaged Property; (6) the original months to maturity; (7) the original date of the Mortgage Loan and the remaining months to maturity from the Purchase Date, based on the original amortization schedule; (8) the Loan-to-Value Ratio at origination; (9) the Mortgage Interest Rate in effect immediately following the Purchase Date; (10) the date on which the first Monthly Payment was due on the Mortgage Loan; (11) the stated maturity date; (12) the amount of the Monthly Payment at origination; (13) with respect to each adjustable rate Mortgage Loan, the amount of the Monthly Payment as of the Purchase Date; (14) the last due date on which a Monthly Payment was actually applied to the unpaid stated principal balance; (15) the original principal amount of the Mortgage Loan; (16) the stated principal balance of the Mortgage Loan as of the close of business on the Purchase Date; (17) with respect to each adjustable rate Mortgage Loan, the first adjustment date; (18) with respect to each adjustable rate Mortgage Loan, the gross margin; (19) a code indicating the purpose of the loan (i.e., purchase financing, refinancing); (20) with respect to each adjustable rate Mortgage Loan, the maximum mortgage interest rate under the terms of the Mortgage Note; (21) with respect to each adjustable rate Mortgage Loan, the minimum mortgage interest rate under the terms of the Mortgage Note; (22) the mortgage interest rate at origination; (23) with respect to each adjustable rate Mortgage Loan, the periodic rate cap; (24) with respect to each adjustable rate Mortgage Loan, the first adjustment date immediately following the Purchase Date; (25) with respect to each adjustable rate Mortgage Loan, the index; (26) the date on which the first Monthly Payment was due on the Mortgage Loan and, if such date is not consistent with the due date currently in effect, such due date; (27) a code indicating whether the Mortgage Loan is an adjustable rate Mortgage Loan or a fixed rate Mortgage Loan; (28) a code indicating the documentation style (i.e., full, alternative or reduced); Exh I.3 (29) a code indicating if the Mortgage Loan is subject to the provisions of HOEPA; (30) the Appraised Value of the Mortgaged Property; (31) the sale price of the Mortgaged Property, if applicable; (32) a code indicating whether the Mortgage is a First Lien or Second Lien; (33) the Mortgagor's FICO score (to the extent a FICO score is available); (34) a code indicating whether the Mortgage Loan is a retention mortgage loan; (35) a code indicating if interest on such Mortgage Loan is calculated on a 30/360 basis; (36) the Mortgagor's social security number; (37) a code identifying origination source; (38) a code indicating if the Mortgage Loan is a balloon Mortgage Loan; (39) a code indicating the Mortgage Note class (borrower grade); (40) with respect to each adjustable rate Mortgage Loan, the adjustment frequency; (41) the ratio of original principal balance of the Mortgage Loan to the Mortgagor's income; (42) a code indicating the prepayment penalty, if any; and (43) with respect to any Second Lien Mortgage Loan, the outstanding principal balance of the First Lien on the date of origination of such Second Lien Mortgage Loan. With respect to the Asset Schedules in the aggregate, the Asset Schedule shall set forth the following information, as of the related Purchase Date: (1) the number of Mortgage Loans; (2) the stated principal balance (or Par Amount) of the Mortgage Loans; (3) the weighted average mortgage interest rate of the Mortgage Loans; and (4) the weighted average maturity of the Mortgage Loans. Exh I.4 EXHIBIT II INTERIM SERVICING NOTIFICATION LETTER INTERIM SERVICING NOTIFICATION CONTIFINANCIAL CORPORATION 277 Park Avenue New York, New York 10172 August 9, 1999 To the Parties Receiving this Notification Ladies and Gentlemen: Reference is made to (i) the Master Repurchase Agreement Governing Purchases and Sales of Assets ("Master Repurchase Agreement") dated as of August 9, 1999, between Greenwich Capital Financial Products, Inc. ("Buyer") and ContiFinancial Corporation ("Seller"). This letter of notification ("Notification") confirms the Seller's acknowledgment of Buyer's rights and interest as to the matters set forth below. Capitalized terms used herein but not defined shall have the meaning ascribed to such terms in the Master Repurchase Agreement. 1. The Seller hereby acknowledges and agrees that the Buyer is the owner of the Mortgage Loans set forth on Exhibit A attached hereto (the "Mortgage Loans") and that in the event that such interest is recharacterized as a loan, the Buyer has a perfected first lien priority interest in the Mortgage Loans. 2. Upon receipt by you of this Notification, signed by Seller (which may be in the form of a photocopy) certified by Buyer that the Interim Servicing Period has terminated or an Event of Default has occurred, (a) you shall make all remittances with respect to the Mortgage Loans in accordance with the instructions of the Buyer and (b) in no event shall you remit any funds in connection with the Mortgage Loans to the Seller. 3. You shall continue to service the Mortgage Loans serviced by you for the benefit of the Buyer and its successors and assigns (as owner) in accordance with the terms of the related servicing agreement. 4. This Notification may not be withdrawn, revoked, nullified or modified without the written consent of the Buyer. Exh II.1 5. This Notification may be assigned in whole or in part by Buyer; and shall inure to the benefit of the Buyer and their respective successors and assigns. Very truly yours, CONTIFINANCIAL CORPORATION By: ------------------------------- Name: ------------------------------- Title: ------------------------------- THE UNDERSIGNED HEREBY CERTIFIES THAT (i) THE INTERIM SERVICING PERIOD HAS TERMINATED OR (ii) AN EVENT OF DEFAULT HAS OCCURRED AND HEREBY INSTRUCTS YOU TO FOLLOW THE INSTRUCTIONS SET FORTH HEREIN IN ADDITION TO ANY OTHER INSTRUCTIONS OF THE UNDERSIGNED HEREAFTER: GREENWICH CAPITAL FINANCIAL PRODUCTS, INC. By: ------------------------------- Name: ------------------------------- Title: ------------------------------- Please acknowledge receipt and acceptance of the terms of this Notification by signing below and returning a copy to Greenwich Capital Financial Products, Inc. By: ------------------------------- Name: ------------------------------- Title: ------------------------------- Exh II.2 EXHIBIT III Exh III.2 Form of Power of Attorney Notice: The powers granted by this document are broad and sweeping. They are defined in New York General Obligations Law, Article 5, Title 15, sections 5-1502A through 51503, which expressly permits the use of any other different form of power of attorney desired by the parties concerned. Know All Men by These Presents, which are intended to constitute a GENERAL POWER OF ATTORNEY pursuant to Article 5, Title 15 of the New York General Obligations Law: That ContiFinancial Corporation ("Seller"), does hereby appoint Greenwich Capital Financial Products, Inc. ("Buyer"), its attorney-in-fact to act in Seller's name, place and stead in any way which Seller could do with respect to (i) completing endorsements and recording instruments relating to the Assets purchased by Buyer pursuant to a Master Repurchase Agreement Governing Purchases and Sales of Assets dated as of August 9, 1999 between Seller and Buyer (the "Repurchase Agreement") and to take such other steps as may be necessary or desirable to enforce Buyer's rights under the Repurchase Agreement, and against such Assets, the related Asset Files and the Servicing Records, to the extent that Seller is permitted by law to act through an agent. TO INDUCE ANY THIRD PARTY TO ACT HEREUNDER, SELLER HEREBY AGREES THAT ANY THIRD PARTY RECEIVING A DULY EXECUTED COPY OR FACSIMILE OF THIS INSTRUMENT MAY ACT HEREUNDER, AND THAT REVOCATION OR TERMINATION HEREOF SHALL BE INEFFECTIVE AS TO SUCH THIRD PARTY UNLESS AND UNTIL ACTUAL NOTICE OR KNOWLEDGE OF SUCH REVOCATION OR TERMINATION SHALL HAVE BEEN RECEIVED BY SUCH THIRD PARTY, AND SELLER ON ITS OWN BEHALF AND ON BEHALF OF SELLER'S LEGAL REPRESENTATIVES AND ASSIGNS, HEREBY AGREES TO INDEMNIFY AND HOLD HARMLESS ANY SUCH THIRD PARTY FROM AND AGAINST ANY AND ALL CLAIMS THAT MAY ARISE AGAINST SUCH THIRD PARTY BY REASON OF SUCH THIRD PARTY HAVING RELIED ON THE PROVISIONS OF THIS INSTRUMENT. Exh III.1 IN WITNESS WHEREOF, Seller has caused this Power of Attorney to be executed and Seller's seal to be affixed this _____ day of __________, 1999. CONTIFINANCIAL CORPORATION By: --------------------------------------- Name: Title: By: --------------------------------------- Name: Title: Exh III.2 EXHIBIT IV Letter of Instructions to Master Servicer and Subservicers [Servicer] Ladies/Gentlemen: On August 9, 1999, ContiFinancial Corporation ("Seller") sold to Greenwich Capital Financial Products, Inc. ("Buyer") all of Seller's right, title and interest in and to the assets identified on Appendix A attached to this letter and made a part hereof (the "Assets"). Accordingly, Seller hereby unconditionally and irrevocably instructs you to pay to Buyer, pursuant to the terms of our existing servicing arrangements, any and all monies received by you on or after __________, 199__ which would have been payable from time to time by you to Seller on account of or otherwise in connection with the Assets, including, without limitation, any and all principal, interest, partial prepayments, prepayments in full, penalties, advance payments, or expenses; provided, however, that any such monies representing scheduled payments of principal of or interest on such Assets due prior to __________, 199__ shall be paid to Seller. All such monies should be paid by you to the order of Buyer in the manner and on the date such monies would have been payable to Seller, as follows: ABA #__________ for the account of Greenwich Capital Financial Products, Inc. Acct. #__________ Attn.: __________ Seller further instructs you that all rights and powers of Seller under the existing servicing arrangements with respect to the Assets have been transferred to Buyer and that Buyer has the sole right as the owner of the Assets to direct your actions under such servicing arrangements with respect to the Assets and to exercise such rights and powers. Very truly yours, CONTIFINANCIAL CORPORATION By: --------------------------------------- Name: Title: By: --------------------------------------- Name: Title: Exh IV.1 EXHIBIT V Representations and Warranties Regarding Mortgage Loans Reference is hereby made to the Purchase Facility for a statement of the terms thereof. All terms used in this Exhibit V which are defined in the Purchase Facility and which are not otherwise defined in this Agreement shall have the same meanings herein as set forth therein. Seller shall be deemed to make the following representations and warranties (and such additional representations and warranties set forth in the Confirmation with respect thereto) to the Buyer with respect to each Purchased Asset which is a residential Mortgage Loan sold in a Transaction hereunder, as of the related Purchase Date and as of each day such Transaction is in effect and except as shall be specifically disclosed in the schedule attached to the Purchase Request. With respect to any representations and warranties made to the best of Seller's knowledge, to Seller's knowledge or in reliance on or based on information, in the event that it is discovered that the circumstances with respect to the related Mortgage Loan are not accurately reflected in such representation and warranty notwithstanding the actual knowledge or lack of knowledge of Seller, then, notwithstanding that such representation and warranty is made to the best of Seller's knowledge, to Seller's knowledge or in reliance on or based on information, the Market Value of such Mortgage Loans may, in the Buyer's sole good faith discretion, be reduced to zero. It is understood and agreed that the representations and warranties set forth in the Asset Representations and the Confirmation, if any, shall survive delivery of the Assets to Buyer or its designee (including the Custodian). 1. Mortgage Loans as Described. The information set forth in the Asset Schedule with respect to the Mortgage Loan is complete, true, complete and correct in all material respects. 2. Payments Current. On the applicable Purchase Date, and all other times, all payments required to be made for the Mortgage Loan under the terms of the Mortgage Note have been made and credited, provided that such Mortgage Loan may be Delinquent for no more than 29 days. 3. No Outstanding Charges. There are no defaults in complying with the terms of the Mortgage securing the Mortgage Loan, and all taxes, governmental assessments, insurance premiums, water, sewer and municipal charges, leasehold payments or ground rents which previously became due and owing have been paid, or an escrow of funds has been established in an amount sufficient to pay for every such item which is delinquent and which has been assessed but is not yet due and payable. Neither the Seller nor the Qualified Originator from which the Seller acquired the Mortgage Loan has advanced funds, or induced, solicited or knowingly received any advance of funds by a party other than the Mortgagor, directly or indirectly, for the payment of any amount required under the Mortgage Loan, except for interest accruing from the date of the Mortgage Note or date of disbursement of the proceeds of the Mortgage Loan, whichever is earlier, to the day which precedes by one (1) month the due date of the first installment of principal and interest thereunder. 4. Original Terms Unmodified. The terms of the Mortgage Note and Mortgage have not been impaired, waived, altered or modified in any respect, from the date of origination; except by a written instrument which has been recorded, if necessary to protect the interests of the Buyer, and which has been delivered to the Buyer or its designee and the terms of which are reflected in the Asset Schedule. The substance of any such waiver, alteration or modification has been approved by the title insurer, to the extent required, and its terms are reflected on the Asset Schedule. No Mortgagor in respect of the Mortgage Loan has been released, in whole or in part, except in connection with an assumption agreement approved by the title insurer, to the extent required by such policy, and which assumption agreement is part of the Asset File delivered to the Buyer or its designee and the terms of which are reflected in the Asset Schedule. 5. No Defenses. The Mortgage Loan is not subject to any right of rescission, set-off, counterclaim or defense, nor will the operation of any of the terms of the Mortgage Note or the Mortgage, or the exercise of any right thereunder, render either the Mortgage Note or the Mortgage unenforceable, in whole or in part and no such right of rescission, set-off, counterclaim or defense has been asserted with respect thereto, and no Mortgagor in respect of the Mortgage Loan was a debtor in any state or Federal bankruptcy or insolvency proceeding at the time the Mortgage Loan was originated. The Seller has no knowledge nor has it received any notice that any Mortgagor in respect of the Mortgage Loan is a debtor in any state or Federal bankruptcy or insolvency proceeding. 6. Hazard Insurance. A hazard insurance policy covering the Mortgaged Property in an amount not less than the amount of the Mortgage Loan, plus any senior liens, is in full force. 7. Compliance with Applicable Laws. Any and all requirements of any Federal, state or local law including, without limitation, usury, truth-in-lending, real estate settlement procedures, consumer credit protection, equal credit opportunity or disclosure laws applicable to the Mortgage Loan have been complied with by the Qualified Originator and the Seller and the consummation by the Seller of the transactions contemplated hereby will not involve the violation of any such laws or regulations. 8. No Satisfaction of Mortgage. The Mortgage has not been satisfied, canceled, subordinated (other than, if a Second Lien Mortgage Loan, as expressly set forth herein) or rescinded, in whole or in part, and the Mortgaged Property has not been released from the lien of the Mortgage, in whole or in part, nor has any instrument been executed that would effect any such release, cancellation, subordination (other than, if a Second Lien Mortgage Loan, in connection with the first lien referenced herein) or rescission. The Seller has not waived the performance by the Mortgagor of any action, if the Mortgagor's failure to perform such action would cause the Mortgage Loan to be in default, nor has the Seller waived any default resulting from any action or inaction by the Mortgagor. 9. Location and Type of Mortgaged Property. The Mortgaged Property consists of a single parcel of real property with a detached single family residence erected thereon, or a two- to four-family dwelling, or an individual condominium unit in a low-rise condominium project, or an individual unit in a planned unit development or a de minimis planned unit development, provided, however, that no residence or dwelling is a mobile home or a manufactured dwelling. Except with respect to the Mortgaged Property securing a Mixed-Use Mortgage Loan, which may have a partial commercial use, no portion of the Mortgaged Property is used for commercial purposes. 10. Valid Lien. The Mortgage is a valid, subsisting, enforceable and perfected (A) first lien or second lien on the Mortgaged ---------- Property, including all buildings on the Mortgaged Property and all installations and mechanical, electrical, plumbing, heating and air conditioning systems located in or annexed to such buildings, and all additions, alterations and replacements made at any time with respect to the foregoing. The lien of the Mortgage is subject only to (i) the lien of current real property taxes and assessments not yet due and payable; (ii) covenants, conditions and restrictions, rights of way, easements and other matters of the public record as of the date of recording acceptable to prudent mortgage lending institutions generally and specifically referred to in the lender's title insurance policy delivered to the originator of the Mortgage Loan and (a) referred to or otherwise considered in the appraisal made for the originator of the Mortgage Loan or (b) which do not adversely affect the Appraised Value of the Mortgaged Property set forth in such appraisal; (iii) other matters to which like properties are commonly subject which do not materially interfere with the benefits of the security intended to be provided by the Mortgage or the use, enjoyment, value or marketability of the related Mortgaged Property; and (iv) in the case of a Second Lien Mortgage Loan, a first lien on the Mortgaged Property. 11. Security Agreement. Any security agreement, chattel mortgage or equivalent document related to and delivered in connection with the Mortgage Loan establishes and creates a valid, subsisting and enforceable (A) first lien and first priority security interest with respect to each Mortgage Loan which is indicated to be a First Lien Mortgage Loan (as indicated on the Asset Tape), or (B) second lien and second priority security interest with respect to each Mortgage Loan which is indicated by Seller to be a Second Lien Mortgage Loan (as reflected on the Asset Tape), in either case, on the property described therein and Seller has full right to sell, pledge and assign the same to Buyer. To the best of Seller's knowledge, the Mortgaged Property was not, as of the date of origination of the Mortgage Loan, subject to a mortgage, deed of trust, deed to secure debt or other security instrument creating a lien subordinate to the lien of the Mortgage. 12. Validity of Mortgage Documents. The Mortgage Note and the Mortgage and any other agreement executed and delivered by a Mortgagor or guarantor, if applicable, in connection with a Mortgage Loan are genuine, and each is the legal, valid and binding obligation of the maker thereof enforceable in accordance with its terms, except only as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (whether considered in a proceeding or action in equity or at law). All parties to the Mortgage Note, the Mortgage and any other such related agreement had legal capacity to enter into the Mortgage Loan and to execute and deliver the Mortgage Note, the Mortgage and any such agreement and to convey the estate therein purported to be conveyed, and the Mortgage Note, the Mortgage and any other such related agreement have been duly and properly executed by such related parties. No fraud, error, omission, misrepresentation, negligence or similar occurrence with respect to a Mortgage Loan has taken place on the part of any Person, including, without limitation, the Mortgagor, any appraiser, any builder or developer, or any other party involved in the origination of the Mortgage Loan. The Seller has reviewed all of the documents constituting the Servicing File and has made such inquiries as it deems necessary to make and confirm the accuracy of the representations set forth herein. 13. First Lien Consent. With respect to each Mortgage Loan which is a Second Lien Mortgage Loan, (i) if the related first lien provides for negative amortization, the LTV was calculated at the maximum principal balance of such first lien that could result upon application of such negative amortization feature, and (ii) either no consent for the Mortgage Loan is required by the holder of the first lien or such consent has been obtained and is contained in the Asset File. 14. Full Disbursement of Proceeds. The Mortgage Loan has been closed and the proceeds of the Mortgage Loan have been fully disbursed and there is no further requirement for future advances thereunder, and any and all requirements as to completion of any on-site or off-site improvement and as to disbursements of any escrow funds therefor have been complied with. All costs, fees and expenses incurred in making or closing the Mortgage Loan and the recording of the Mortgage were paid, and the Mortgagor is not entitled to any refund of any amounts paid or due under the Mortgage Note or Mortgage. 15. Ownership. The Seller is the sole owner and holder of the Mortgage Loan. The Mortgage Loan is not assigned or pledged or otherwise conveyed or encumbered except to Buyer, and the Seller has good, indefeasible and marketable title thereto, and has full right to sell, transfer, pledge and assign the Mortgage Loan to the Buyer free and clear of any encumbrance, equity, participation interest, lien, pledge, charge, claim or security interest, and has full right and authority subject to no interest or participation of, or agreement with, any other party, to assign, transfer and pledge each Mortgage Loan pursuant to this Agreement and following the pledge of each Mortgage Loan, the Buyer will hold such Mortgage Loan free and clear of any encumbrance, equity, participation interest, lien, pledge, charge, claim or security interest except any such security interest created pursuant to the terms of Agreement. 16. Doing Business. All parties which have had any interest in the Mortgage Loan, whether as mortgagee, assignee, pledgee or otherwise, are (or, during the period in which they held and disposed of such interest, were) (i) in compliance with any and all applicable licensing requirements of the laws of the state wherein the Mortgaged Property is located, and (ii) either (A) organized under the laws of such state, (B) qualified to do business in such state, (C) a Federal savings and loan association, a savings bank or a national bank having a principal office in such state, or (D) not doing business in such state. 17. Title Insurance. The Seller holds a title insurance policy or a marked-up title commitment, title insurance binder or title certificate which is in full force and effect; which has an insurance limit at least as great as the outstanding principal balance of the Mortgage Loan; which names the Seller, its successors and assigns, as the insured party and which is issued by an Qualified Insurer that is qualified to do business in the jurisdiction where the Mortgaged Property is located. Said policy shall: o Insure the lien of the Mortgage consistent with the agreed-upon lien priority; o Insure the absence of any prior lien of taxes or other assessments; o Disclose whether all taxes and other lienable assessments due as of the date of the policy have been paid-in-full; and o Disclose all other matters to which the Mortgaged Property is subject. 18. No Defaults; Right to Cure; No Failure to Cure. If a First Lien Mortgage Loan, there is no default, breach, violation or event of acceleration existing under the Mortgage or the Mortgage Note and no event has occurred which, with the passage of time or with notice and the expiration of any grace or cure period, would constitute a default, breach, violation or event of acceleration other than those payment delinquencies permitted by paragraph 2 hereof, and neither the Seller nor its predecessors have waived any default, breach, violation or event of acceleration. With respect to each Mortgage Loan which is indicated by Seller to be a Second Lien Mortgage Loan (as reflected on the Asset Schedule) (i) the prior mortgage is in full force and effect, (ii) there is no default, breach, violation or event of acceleration existing under such prior mortgage or the related mortgage note, (iii) no event has occurred which, with the passage of time or with notice and the expiration of any grace or cure period, would constitute a default, breach, violation or event of acceleration thereunder other than those payment delinquencies permitted by paragraph 2 hereof, and either (A) the prior mortgage contains a provision which allows or (B) applicable law requires, the mortgagee under the Second Lien Mortgage Loan to receive notice of, and affords such mortgagee an opportunity to cure any default under the First Lien Mortgage Loan, by payment in full or otherwise under the prior mortgage, and Seller has not received notice of any such default which has not been cured. 19. No Mechanics' Liens. There are no mechanics' or similar liens or claims which have been filed for work, labor or material (and no rights are outstanding that under the law could give rise to such liens) affecting the Mortgaged Property which are or may be liens prior to, or equal or coordinate with, the lien of the Mortgage. 20. Location of Improvements; No Encroachments. All improvements which were considered in determining the Appraised Value of the Mortgaged Property lie wholly within the boundaries and building restriction lines of the Mortgaged Property, and no improvements on adjoining properties encroach upon the Mortgaged Property. No improvement located on or being part of the Mortgaged Property is in violation of any applicable zoning and building law, ordinance or regulation. 21. Origination; Payment Terms. The Mortgage Loan was originated or purchased by or in conjunction with a mortgagee approved by the Secretary of Housing and Urban Development pursuant to Sections 203 and 211 of the National Housing Act, a savings and loan association, a savings bank, a commercial bank, credit union, insurance company or similar banking institution which is supervised and examined by a Federal or state authority. Principal payments on the Mortgage Loan commenced no more than 60 days after funds were disbursed in connection with the Mortgage Loan. The Note Interest Rate is adjusted, with respect to adjustable rate Mortgage Loans, on each Interest Rate Adjustment Date to equal the Index plus the Gross Margin (rounded up or down to the nearest .125%), subject to the Interest Rate Cap. The Mortgage Note is payable each month in equal monthly installments of principal and interest, which installments of interest, with respect to adjustable rate Mortgage Loans, are subject to change due to the adjustments to the Note Interest Rate on each Interest Rate Adjustment Date, with interest calculated and payable in arrears, sufficient to amortize the Mortgage Loan fully by the stated maturity date, over an original term of not more than 30 years from commencement of amortization. The due date of the first payment under the Mortgage Note is no more than 60 days from the date of the Mortgage Note. 22. Customary Provisions. The Mortgage Note has a stated maturity. The Mortgage contains customary and enforceable provisions such as to render the rights and remedies of the holder thereof adequate for the realization against the Mortgaged Property of the benefits of the security provided thereby, including, (i) in the case of a Mortgage designated as a deed of trust, by trustee's sale, and (ii) otherwise by judicial foreclosure. Upon default by a Mortgagor on a Mortgage Loan and foreclosure on, or trustee's sale of, the Mortgaged Property pursuant to the proper procedures, the holder of the Mortgage Loan will be able to deliver good and merchantable title to the Mortgaged Property. There is no homestead or other exemption available to a Mortgagor which would interfere with the right to sell the Mortgaged Property at a trustee's sale or the right to foreclose the Mortgage. 23. Conformance with Underwriting Guidelines. The Mortgage Loan was generally underwritten in accordance with the applicable Qualified Originator's Underwriting Guidelines applicable to Mortgage Loans. 24. Occupancy of the Mortgaged Property. As of the Purchase Date, the Mortgaged Property is lawfully occupied under applicable law. All inspections, licenses and certificates required to be made or issued with respect to all occupied portions of the Mortgaged Property and, with respect to the use and occupancy of the same, including but not limited to certificates of occupancy and fire underwriting certificates, have been made or obtained from the appropriate authorities. The Seller has not received notification from any Governmental Authority that the Mortgaged Property is in material non-compliance with such laws or regulations, is being used, operated or occupied unlawfully or has failed to have or obtain such inspection, licenses or certificates, as the case may be. The Seller has not received notice of any violation or failure to conform with any such law, ordinance, regulation, standard, license or certificate. The Mortgagor represented at the time of origination of the Mortgage Loan that the Mortgagor would occupy the Mortgaged Property as the Mortgagor's primary residence. 25. No Additional Collateral. Except as otherwise disclosed to the Buyer, the Mortgage Note is not and has not been secured by any collateral except the lien of the corresponding Mortgage and the security interest of any applicable security agreement or chattel mortgage. 26. Deeds of Trust. In the event the Mortgage constitutes a deed of trust, a trustee, authorized and duly qualified under applicable law to serve as such, has been properly designated and currently so serves and is named in the Mortgage, and no fees or expenses are or will become payable by the Buyer or its designee or the Buyer to the trustee under the deed of trust, except in connection with a trustee's sale after default by the Mortgagor. 27. Delivery of Mortgage Documents. The Mortgage Note, the Mortgage, the Assignment of Mortgage and any other documents required to be delivered under the Custodial Agreement for each Mortgage Loan have been delivered to the Buyer or its designee. The Custodian is in possession of a complete, true and accurate Asset File with respect to each Eligible Asset which is to be purchased. 28. Transfer of Mortgage Loans. The Assignment of Mortgage is in recordable form and is acceptable for recording under the laws of the jurisdiction in which the Mortgaged Property is located. 29. Due-On-Sale. The Mortgage contains an enforceable provision for the acceleration of the payment of the unpaid principal balance of the Mortgage Loan in the event that the Mortgaged Property is sold or transferred without the prior written consent of the mortgagee thereunder. 30. No Buydown Provisions; No Graduated Payments or Contingent Interests. The Mortgage Loan does not contain provisions pursuant to which Monthly Payments are paid or partially paid with funds deposited in any separate account established by the Seller, the Mortgagor, or anyone on behalf of the Mortgagor, or paid by any source other than the Mortgagor nor does it contain any other similar provisions which may constitute a "buydown" provision. The Mortgage Loan is not a graduated payment mortgage loan and the Mortgage Loan does not have a shared appreciation or other contingent interest feature. 31. Consolidation of Future Advances. Any future advances made to the Mortgagor prior to the Purchase Date have been consolidated with the outstanding principal amount secured by the Mortgage, and the secured principal amount, as consolidated, bears a single interest rate and single repayment term. The lien of the Mortgage securing the consolidated principal amount is expressly insured as having (A) first lien priority with respect to each Mortgage Loan which is indicated by such Seller to be a First Lien Mortgage Loan (as reflected on the Asset Schedule), or (B) second lien priority with respect to each Mortgage Loan which is indicated by Seller to be a Second Lien Mortgage Loan (as reflected on the Asset Schedule), in either case, by a title insurance policy, an endorsement to the policy insuring the mortgagee's consolidated interest or by other title evidence. The consolidated principal amount does not exceed the original principal amount of the Mortgage Loan. 32. Mortgaged Property Undamaged. The Mortgaged Property is undamaged by waste, fire, earthquake or earth movement, windstorm, flood, tornado or other casualty so as to affect adversely the value of the Mortgaged Property as security for the Mortgage Loan or the use for which the premises were intended and each Mortgaged Property is in good repair. There have not been any condemnation proceedings with respect to the Mortgaged Property and the Seller has no knowledge of any such proceedings. 33. Collection Practices; Escrow Deposits; Interest Rate Adjustments. To the best of the Seller's knowledge, the origination and collection practices used by the originator, each servicer of the Mortgage Loan and the Seller with respect to the Mortgage Loan have been in all respects materially in compliance with Accepted Servicing Practices, applicable laws and regulations, and have been in all respects legal and proper. With respect to escrow deposits and escrow payments (other than with respect to each Mortgage Loan which is indicated by such Seller to be a Second Lien Mortgage Loan and for which the mortgagee under the prior mortgage lien is collecting escrow payments (as reflected on the Asset Schedule), all such payments are in the possession of, or under the control of, the Seller and there exist no deficiencies in connection therewith for which customary arrangements for repayment thereof have not been made. All escrow payments have been collected in full compliance with state and federal law. An escrow of funds is not prohibited by applicable law and has been established in an amount sufficient to pay for every item that remains unpaid and has been assessed but is not yet due and payable. No escrow deposits or escrow payments or other charges or payments due the Seller have been capitalized under the Mortgage or the Mortgage Note. All Note Interest Rate adjustments have been made in strict compliance with state and federal law and the terms of the related Mortgage Note. Any interest required to be paid pursuant to state, federal and local law has been properly paid and credited. The Mortgage Loan is denominated in U.S. Dollars. 34. Conversion to Fixed Interest Rate. With respect to adjustable rate Mortgage Loans, the Mortgage Loan is not convertible to a fixed interest rate Mortgage Loan. 35. Other Insurance Policies. No action, inaction or event has occurred and no state of facts exists or has existed that has resulted or will result in the exclusion from, denial of, or defense to coverage under any applicable special hazard insurance policy or bankruptcy bond, irrespective of the cause of such failure of coverage. In connection with the placement of any such insurance, no commission, fee, or other compensation has been or will be received by the Seller or by any officer, director, or employee of the Seller or any designee of the Seller or any corporation in which the Seller or any officer, director, or employee had a financial interest at the time of placement of such insurance. 36. Soldiers' and Sailors' Civil Relief Act. The Mortgagor has not notified the Seller, and the Seller has no knowledge, of any relief requested or allowed to the Mortgagor under the Soldiers' and Sailors' Civil Relief Act of 1940. 37. Appraisal. All required documentation has been received by the Servicer. Each of the documents and instruments included in the Asset File and in the Servicing File is duly executed and in due and proper form and each such document or instrument is in a form generally acceptable to prudent institutional mortgage lenders that regularly originate and purchase Mortgage Loans. The Servicing File contains an appraisal of the related Mortgaged Property signed prior to the approval of the Mortgage Loan application by a qualified appraiser, duly appointed by the Seller, who had no interest, direct or indirect in the Mortgaged Property or in any loan made on the security thereof, and whose compensation is not affected by the approval or disapproval of the Mortgage Loan, and the appraisal and appraiser both satisfy the requirements of Title XI of the Federal Institutions Reform, Recovery, and Enforcement Act of 1989 as amended and the regulations promulgated thereunder, as in effect on the date the Mortgage Loan was originated. In the event that the Mortgage Loan had a principal balance at origination equal to or greater than (a) $300,000 with respect to each Mortgage Loan as to which the related Mortgaged Property is located in California, and (b) $250,000 in all other cases, the Servicing File contains a drive-by appraisal performed not more than 30 days prior to the applicable Purchase Date which confirms the Appraised Value of the Mortgaged Property. 38. Disclosure Materials. The Mortgagor has executed a statement to the effect that the Mortgagor has received all disclosure materials required by applicable law with respect to the making of adjustable rate mortgage loans, and the Seller maintains such statement in the Servicing File. 39. Construction or Rehabilitation of Mortgaged Property. No Mortgage Loan was made in connection with the construction or rehabilitation of a Mortgaged Property or facilitating the trade-in or exchange of a Mortgaged Property. 40. No Defense to Insurance Coverage. No action has been taken or failed to be taken, no event has occurred and no state of facts exists or has existed on or prior to the Purchase Date (whether or not known to the Seller on or prior to such date) which has resulted or will result in an exclusion from, denial of, or defense to coverage under any private mortgage insurance (including, without limitation, any exclusions, denials or defenses which would limit or reduce the availability of the timely payment of the full amount of the loss otherwise due thereunder to the insured) whether arising out of actions, representations, errors, omissions, negligence, or fraud of the Seller, the related Mortgagor or any party involved in the application for such coverage, including the appraisal, plans and specifications and other exhibits or documents submitted therewith to the insurer under such insurance policy, or for any other reason under such coverage, but not including the failure of such insurer to pay by reason of such insurer's breach of such insurance policy or such insurer's financial inability to pay. 41. Capitalization of Interest. The Mortgage Note does not by its terms provide for negative amortization or forbearance of interest. 42. No Equity Participation. No document relating to the Mortgage Loan provides for any contingent or additional interest in the form of participation in the cash flow of the Mortgaged Property or a sharing in the appreciation of the value of the Mortgaged Property. The indebtedness evidenced by the Mortgage Note is not convertible to an ownership interest in the Mortgaged Property or the Mortgagor and the Seller has not financed nor does it own directly or indirectly, any equity of any form in the Mortgaged Property or the Mortgagor. 43. Proceeds of Mortgage Loan. The proceeds of the Mortgage Loan have not been and shall not be used to satisfy, in whole or in part, any debt owed or owing by the Mortgagor to the Seller or any Affiliate or correspondent of Seller. 44. Origination Date. The Origination Date is no earlier than (A) sixty (60) days prior to the date the Mortgage Loan is first subject to a Transaction provided such Mortgage Loan was originated by the Seller or a Qualified Originator affiliated with the Seller or (B) seventy-five (75) days prior to the date the Mortgage Loan is first subject to a Transaction provided such Mortgage Loan was originated by a Qualified Originator not affiliated with the Seller. 45. Qualified Originator. The Mortgage Loan has been originated by, and, if applicable, purchased by the Seller from, a Qualified Originator. 46. Mortgage Submitted for Recordation. The Mortgage either has been or will promptly be submitted for recordation in the appropriate governmental recording office of the jurisdiction where the Mortgaged Property is located. 47. LTV; CLTV. No adjustable rate First Lien Mortgage Loan or Second Lien Mortgage Loan has an LTV or a CLTV, as applicable, greater than 90%, and no fixed rate First Lien Mortgage Loan or Second Lien Mortgage Loan has an LTV or a CLTV, as applicable, greater than 100%. 48. Signatures and Statements. All signatures, names, addresses, amounts and other statements entered in the documentation referred to above, are, to the best knowledge of Seller, true and correct. 49. Securitizable Asset. The Eligible Asset shall be of a type and quality which the Buyer determines, in its reasonable discretion, is eligible for sale in the secondary market or for securitization without unreasonable credit enhancement. 50. No Foreclosure. There has been no default by a Mortgagor on a Mortgage Loan resulting in the foreclosure on, or trustee's sale of, the Mortgaged Property. 51. True Sale. Any Mortgage Loan funded in the name of or acquired by a Qualified Originator which is an Affiliate of the Seller has been conveyed to the Seller pursuant to a legal sale, and if so requested by the Buyer, is covered by an opinion of counsel to that effect in form and substance acceptable to the Buyer. Purchase Facility: (i) The information with respect to each Mortgage Loan and the information set forth in the related Mortgage Loans Schedule is true and correct as of the Cut-off Date; (ii) The Mortgage Note, the Mortgage, the Assignment of Mortgage and any other documents required to be delivered with respect to each Mortgage Loan pursuant to the Custodial Agreement, have been delivered to the Custodian all in compliance with the specific requirements of the Custodial Agreement. With respect to each Mortgage Loan, the Seller is in possession of a complete Mortgage File in compliance with Exhibit 5, except for such documents as have been delivered to the Custodian and except for the Servicing File, which has been delivered to the Interim Servicer; (iii) Each Mortgage Loan is an Eligible Mortgage Loan or an Exception Loan within the applicable Exception Limit; (iv) Each Mortgaged Property is improved by a Residential Dwelling. If the Residential Dwelling on the Mortgaged Property is a condominium unit or a unit in a planned unit development (other than a de minimis planned unit development) such condominium or planned unit development project meets the eligibility requirements of Fannie Mae and Freddie Mac; (v) No Second Lien Mortgage Loan had a CLTV at origination equal to or greater than 95%. No Mortgage Loan had a combined LTV (including the amount of all liens senior to or subordinate to the lien of the related Mortgage) greater than 100%; (vi) Each Mortgage Note with respect to the Mortgage Loans will provide for a schedule of substantially level and equal Monthly Payments which are sufficient to amortize fully the principal balance of such Mortgage Note on or before its maturity date. Unless stated on the Mortgage Loan Schedule, no Mortgage Loan has a balloon payment feature; (vii) As of the Closing Date, each Mortgage is a valid and subsisting first lien on the Mortgaged Property with respect to each Mortgage Loan which is indicated to be a First Lien (as reflected on the related Mortgage Loan Schedule) or second lien on the Mortgaged Property with respect to each Mortgage Loan which is indicated to be a Second Lien Mortgage Loan (as reflected on the related Mortgage Loan Schedule) and subject in all cases to the exceptions to title set forth in the title insurance policy or attorney's opinion of title with respect to the related Mortgage Loan, which exceptions are generally acceptable to banking institutions in connection with their regular mortgage lending activities, and such other exceptions to which similar properties are commonly subject and which do not individually, or in the aggregate, materially and adversely affect the benefits of the security intended to be provided by such Mortgage; (viii) Immediately prior to the transfer and assignment of the Mortgage Loans, the Seller held good and indefeasible title to, and was the sole owner of, each Mortgage Loan (including the related Mortgage Note) conveyed by such Seller subject to no liens, charges, mortgages, encumbrances or rights of others except as set forth in clause (vii) or other liens which will be released simultaneously with such transfer and assignment; and immediately upon the transfer and assignment herein contemplated, the Purchaser will hold good and indefeasible title to, and be the sole owner of, each Mortgage Loan subject to no liens, charges, mortgages, encumbrances or rights of others except as set forth in paragraph (vii) or other liens which will be released simultaneously with such transfer and assignment; (ix) No payment required to be made on the Mortgage Loan is more than 29 days delinquent from its contractual Due Date as of the close of business on the related Closing Date; the Seller has not advanced funds, or induced, solicited or knowingly received any advance of funds from a party other than the owner of the related Mortgaged Property, directly or indirectly, for the payment of any amount required by the Mortgage Note or Mortgage; such Mortgage Loan was originated no later than 60 days prior to the related Closing Date; and there has been no delinquency, exclusive of any period of grace, in any payment by the Mortgagor thereunder since origination; (x) There is no delinquent tax or assessment lien on any Mortgaged Property, and each Mortgaged Property is free of substantial damage and is in good repair; (xi) There is no valid and enforceable offset, defense or counterclaim to any Mortgage Note or Mortgage, including the obligation of the related Mortgagor to pay the unpaid principal of or interest on such Mortgage Note; (xii) There is no mechanics' lien or claim for work, labor or material affecting any Mortgaged Property which is or may be a lien prior to, or equal with, the lien of the related Mortgage except those which are insured against by any title insurance policy referred to in paragraph (xiv) below; (xiii) Each Mortgage Loan at the time it was made complied in all material respects with applicable state and federal laws and regulations, including, without limitation, the federal Truth-in-Lending Act and other consumer protection laws, usury, equal credit opportunity, disclosure and recording laws; (xiv) With respect to each Mortgage Loan either (a) an attorney's opinion of title has been obtained but no title policy has been obtained, or (b) a lender's title insurance policy, issued in standard American Land Title Association form by a title insurance company authorized to transact business in the state in which the related Mortgaged Property is situated, in an amount at least equal to the original balance of such Mortgage Loan, insuring the mortgagee's interest under the related Mortgage Loan as the holder of a valid first or second mortgage lien of record on the real property described in the related Mortgage, subject only to exceptions of the character referred to in paragraph (vii) above, was effective on the date of the origination of such Mortgage Loan, and, as of the Closing Date, such policy is valid and thereafter such policy shall continue in full force and effect; (xv) The improvements upon each Mortgaged Property are covered by a valid and existing hazard insurance policy with a generally acceptable carrier that provides for fire and extended coverage representing coverage not less than the least of (A) the outstanding principal balance of the related Mortgage Loan (together, in the case of a Second Lien Mortgage Loan, with the outstanding principal balance of the Senior Lien), (B) the minimum amount required to compensate for damage or loss on a replacement cost basis or (C) the full insurable value of the Mortgaged Property; (xvi) If any Mortgaged Property is in an area identified in the Federal Register by the Federal Emergency Management Agency as having special flood hazards, a flood insurance policy in a form meeting the requirements of the current guidelines of the Flood Insurance Administration is in effect with respect to such Mortgaged Property with a generally acceptable carrier in an amount representing coverage not less than the least of (A) the outstanding principal balance of the related Mortgage Loan (together, in the case of a Second Lien Mortgage Loan, with the outstanding principal balance of the Senior Lien), (B) the minimum amount required to compensate for damage or loss on a replacement cost basis or (C) the maximum amount of insurance that is available under the Flood Disaster Protection Act of 1973; (xvii) Each Mortgage and Mortgage Note is the legal, valid and binding obligation of the maker thereof and is enforceable in accordance with its terms, except only as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (whether considered in a proceeding or action in equity or at law), and all parties to each Mortgage Loan had full legal capacity to execute all documents relating to such Mortgage Loan and convey the estate therein purported to be conveyed; (xviii) The Seller has caused and will cause to be performed any and all acts required to be performed to preserve the rights and remedies of the Purchaser in any insurance policies applicable to any Mortgage Loans including, without limitation, any necessary notifications of insurers, assignments of policies or interests therein, and establishments of co-insured, joint loss payee and mortgagee rights in favor of the Purchaser; (xix) As of the Closing Date, no more than 1.0% of the aggregate Stated Principal Balance of the Mortgage Loans will be secured by Mortgaged Properties located within any single zip code area; (xx) Each original Mortgage was recorded or is in the process of being recorded, and all subsequent assignments of the original Mortgage have been delivered for recordation or have been recorded in the appropriate jurisdictions wherein such recordation is necessary to perfect the lien thereof as against creditors of or purchasers from the Seller delivering the related Mortgage Loan; (xxi) The terms of each Mortgage Note and each Mortgage have not been impaired, altered or modified in any respect, except by a written instrument which has been recorded, if necessary, to maintain the lien priority of the Mortgage, and which have been delivered to the Custodian; the substance of any such waiver, alteration or modification is reflected on the related Mortgage Loan Schedule. No instrument of waiver, alteration or modification has been executed, and no Mortgagor has been released, in whole or in part, except in connection with an assumption agreement, which assumption agreement has been delivered to the Custodian and the terms of which are reflected in the related Mortgage Loan Schedule; (xxii) The proceeds of each Mortgage Loan have been fully disbursed, and there is no obligation on the part of the mortgagee to make future advances thereunder. Any and all requirements as to completion of any onsite or off-site improvements and as to disbursements of any escrow funds therefor have been complied with. All costs, fees and expenses incurred in making or closing or recording such Mortgage Loans were paid; (xxiii) The related Mortgage Note is not and has not been secured by any collateral, pledged account or other security except the lien of the corresponding Mortgage; (xxiv) No Mortgage Loan was originated under a buydown plan; (xxv) No Mortgage Loan has a shared appreciation feature, or other contingent interest feature; (xxvi) Each Mortgaged Property is located in the state identified in the respective Schedule of Mortgage Loans and consists of one or more parcels of real property with a residential dwelling erected thereon; (xxvii) Each Mortgage contains a provision for the acceleration of the payment of the unpaid principal balance of the related Mortgage Loan in the event the related Mortgaged Property is sold without the prior consent of the mortgagee thereunder; (xxviii) Any advances made after the date of origination of a Mortgage Loan but prior to the Cut-off Date have been consolidated with the outstanding principal amount secured by the related Mortgage, and the secured principal amount, as consolidated, bears a single interest rate and single repayment term reflected on the respective Schedule of Mortgage Loans. The consolidated principal amount does not exceed the original principal amount of the related Mortgage Loan. No Mortgage Note permits or obligates the Seller to make future advances to the related Mortgagor at the option of the Mortgagor; (xxix) There is no proceeding pending or threatened for the total or partial condemnation of any Mortgaged Property, nor is such a proceeding currently occurring, and each Mortgaged Property is undamaged by waste, fire, water, flood, earthquake or earth movement; (xxx) All of the improvements which were included for the purposes of determining the Appraised Value of any Mortgaged Property lie wholly within the boundaries and building restriction lines of such Mortgaged Property, and no improvements on adjoining properties encroach upon such Mortgaged Property, unless any such improvements and are stated in the title insurance policy and affirmatively insured; (xxxi) No improvement located on or being part of any Mortgaged Property is in violation of any applicable zoning law or regulation. All inspections, licenses and certificates required to be made or issued with respect to all occupied portions of each Mortgaged Property and, with respect to the use and occupancy of the same, including but not limited to certificates of occupancy and fire underwriting certificates, have been made or obtained from the appropriate authorities and such Mortgaged Property is lawfully occupied under the applicable law; (xxxii) With respect to each Mortgage constituting a deed of trust, a trustee, duly qualified under applicable law to serve as such, has been properly designated and currently so serves and is named in such Mortgage, and no fees or expenses are or will become payable by the Purchaser to the trustee under the deed of trust, except in connection with a trustee's sale after default by the related Mortgagor; (xxxiii) Each Mortgage contains customary and enforceable provisions which render the rights and remedies of the holder thereof adequate for the realization against the related Mortgaged Property of the benefits of the security, including (A) in the case of a Mortgage designated as a deed of trust, by trustee's sale and (B) otherwise by judicial foreclosure. There is no homestead or other exemption available to the related Mortgagor which would materially interfere with the right to sell the related Mortgaged Property at a trustee's sale or the right to foreclose the related Mortgage. The Mortgagor has not notified the Seller and the Seller has no knowledge of any relief requested or allowed to the Mortgagor under the Soldiers and Sailors Civil Relief Act of 1940; (xxxiv) There is no default, breach, violation or event of acceleration existing under any Mortgage or the related Mortgage Note and no event which, with the passage of time or with notice and the expiration of any grace or cure period, would constitute a default, breach, violation or event of acceleration; and the Seller has not waived any default, breach, violation or event of acceleration. With respect to each Mortgage Loan which is indicated to be a Second Lien Mortgage Loan (as reflected on the related Mortgage Loan Schedule) (i) the Mortgage Note is in full force and effect, (ii) there is no default, breach, violation or event of acceleration existing under such Mortgage Note mortgage or the related mortgage note, (iii) no event which, with the passage of time or with notice and the expiration of any grace or cure period, would constitute a default, breach, violation or event of acceleration thereunder, and either (A) the Mortgage Note mortgage contains a provision which allows or (B) applicable law requires, the mortgagee under the second lien Mortgage Loan to receive notice of, and affords such mortgagee an opportunity to cure any default by payment in full or otherwise under the Mortgage Note mortgage; (xxxv) No instrument of release or waiver has been executed in connection with any Mortgage Loan, and no Mortgagor has been released, in whole or in part, except in connection with an assumption agreement which has been approved by the primary mortgage guaranty insurer, if any, and which has been delivered to the Purchaser; (xxxvi) Each Mortgage Loan was originated based upon a full appraisal, which included an interior inspection of the subject property and was made and signed, prior to the approval of the Mortgage Loan application, by a qualified appraiser, duly appointed by the originator, who had no interest, direct or indirect in the Mortgaged Property or in any loan made on the security thereof, whose compensation is not affected by the approval or disapproval of the Mortgage Loan. Each appraisal of the Mortgage Loan was made in accordance with the relevant provisions of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989; (xxxvii) The Mortgage Loans were not selected for inclusion in the related Mortgage Loan Package by the Seller on any basis intended to adversely affect the Purchaser; (xxxviii) The Seller has any actual knowledge that there exist any hazardous substances, hazardous wastes or solid wastes, as such terms are defined in the Comprehensive Environmental Response Compensation and Liability Act, the Resource Conservation and Recovery Act of 1976, or other federal, state or local environmental legislation on any Mortgaged Property; (xxxix) Seller was properly licensed or otherwise authorized, to the extent required by applicable law, to originate or purchase each Mortgage Loan; and the consummation of the transactions herein contemplated, including, without limitation, the receipt of the ownership of the Mortgage Loans by the Purchaser will not involve the violation of such laws; (xl) With respect to each Mortgaged Property subject to a ground lease (i) the current ground lessor has been identified and all ground rents which have previously become due and owing have been paid; (ii) the ground lease term extends, or is automatically renewable, for at least five years beyond the maturity date of the related Mortgage Loan; (iii) the ground lease has been duly executed and recorded; (iv) the amount of the ground rent and any increases therein are clearly identified in the lease and are for predetermined amounts at predetermined times; (v) the ground rent payment is included in the borrower's monthly payment as an expense item; (vi) the Purchaser has the right to cure defaults on the ground lease; and (vii) the terms and conditions of the leasehold do not prevent the free and absolute marketability of the Mortgaged Property; (xli) All taxes, governmental assessments, insurance premiums, water, sewer and municipal charges, leasehold payments or ground rents which previously became due and owing have been paid, or an escrow of funds has been established in an amount sufficient to pay for every such item which remains unpaid and which has been assessed but is not yet due and payable; (xlii) As of the Closing Date, neither Seller has received a notice of default of any Mortgage Loan secured by any Mortgaged Property which has not been cured by a party other than such Seller; (xliii) All of the Adjustable Rate Mortgage Loans are in a first lien position; (xliv) The Seller shall, at its own expense, cause each Mortgage Loan to be covered by a Tax Service Contract which is assignable to the Purchaser or its designee; provided however, that if the Seller fails to purchase such Tax Service Contract, the Seller shall be required to reimburse the Purchaser for all costs and expenses incurred by the Purchaser in connection with the purchase of any such Tax Service Contract; (xlv) Each Mortgage Loan was originated by an affiliate of Seller and was conveyed to Seller pursuant to a legal sale, and if so requested by the Purchaser, is covered by an opinion of counsel to that effect in form and substance acceptable to the Purchaser; (xlvi) In the event that the Mortgage Loan had a principal balance at origination equal to or greater than (a) $300,000 with respect to each Mortgage Loan as to which the related Mortgaged Property is located in California, and (b) $250,000 in all other cases, the Mortgage File contains a drive-by appraisal performed not more than 30 days prior to the Closing Date which confirms that the LTV of the Mortgage Loan satisfies the Underwriting Guidelines for the applicable loan program; (xlvii) Except to the extent that the Mortgage Loan is an AmGen Mortgage Loan, the Mortgage Loan has not been previously financed or purchased by any third party. Following the purchase of such Mortgage Loan, the aggregate unpaid principal balance of the AmGen Mortgage Loans shall not exceed 10% of the aggregate unpaid principal balance of all of the Portfolio Mortgage Loans purchased hereunder; (xlviii) No Mortgage Loan was made in connection with (a) the construction or rehabilitation of a Mortgaged Property; (b) facilitating the trade-in or exchange of a Mortgaged Property; (c) facilitating the sale of an REO property or (d) the refinancing of a delinquent mortgage loan originated or acquired by Seller which was more than 60 days delinquent; (xlix) No Fixed Rate Mortgage Loan has an LTV greater than 100% and no Adjustable Rate Mortgage Loan has an LTV greater than 90%; (l) All parties which have had any interest in the Mortgage Loan, whether as mortgagee, assignee, pledgee or otherwise, are (or, during the period in which they held and disposed of such interest, were) in compliance with any and all applicable "doing business" and licensing requirements of the laws of the state wherein the Mortgaged Property is located; (li) The Mortgage Loan was originated (within the meaning of the Secondary Mortgage Market Enhancement Act of 1984) by a savings and loan association, a savings bank, a commercial bank or similar banking institution which is supervised and examined by a federal or state authority, or by a mortgagee approved as such by the Secretary of HUD; (lii) The origination and collection practices used by the Seller and any other originator with respect to each Mortgage Note and Mortgage have been in all respects legal, proper, prudent and customary in the mortgage origination and servicing industry. The Mortgage Loan has been serviced by the Seller and any predecessor servicer in accordance with the terms of the Mortgage Note. [With respect to escrow deposits and Escrow Payments, if any, (other than with respect to each Mortgage Loan which is indicated to be a Second Lien Mortgage Loan and for which the mortgagee under the Mortgage Note is collecting Escrow Payments), all such payments are in the possession of, or under the control of, the Seller and there exist no deficiencies in connection therewith for which customary arrangements for repayment thereof have not been made.] No escrow deposits or Escrow Payments or other charges or payments due the Seller have been capitalized under any Mortgage or the related Mortgage Note and no such escrow deposits or Escrow Payments are being held by the Seller for any work on a Mortgaged Property which has not been completed; (liii) The Mortgage Loan was underwritten in accordance with the Underwriting Guidelines in effect at the time the Mortgage Loan was originated; (liv) No error, omission, misrepresentation, negligence, fraud or similar occurrence with respect to a Mortgage Loan has taken place on the part of any person, including without limitation the Mortgagor, any appraiser, any builder or developer, or any other party involved in the origination of the Mortgage Loan or in the application of any insurance in relation to such Mortgage Loan; (lv) The Assignment of Mortgage is in recordable form and is acceptable for recording under the laws of the jurisdiction in which the Mortgaged Property is located; (lvi) No Mortgage Loan which is a Cash-out Refinancing was originated in the State of Texas; (lvii) With respect to each Mortgage Loan which is a Second Lien, (i) if the related Mortgage Note provides for negative amortization, the LTV was calculated at the maximum principal balance of such Mortgage Note that could result upon application of such negative amortization feature, and (ii) either no consent for the Mortgage Loan is required by the holder of the Mortgage Note or such consent has been obtained and is contained in the Mortgage File; and (lviii) With respect to each Mortgage Loan which is subject to the provisions of HOEPA, the Mortgage Loan is identified as such on the Mortgage Loan Schedule, and the related Mortgage File contains a notice from the originator and a copy of a notice to each entity which was a purchaser or assignee of the Mortgage Loan satisfying the provisions of HOEPA and the regulations issued thereunder to the effect that the Mortgage Loan is subject to special truth-in-lending rules. EXHIBIT V(A) Representations and Warranties Regarding Empire Mortgage Loans (a) The Borrower represents and warrants to the Lender that: (1) It has been duly organized and is validly existing as a corporation under the laws of its state of incorporation. (2) It is duly qualified in each state in which it transacts business and is not in default of such state's applicable laws, rules and regulations. (3) It has the requisite power and authority and legal right to own and grant a lien on all of its right, title and interest in and to the Collateral and to execute and deliver, engage in the transactions contemplated by, and perform and observe the terms and conditions of, this Agreement, the Secured Note and the Custodial Agreement. (4) It is solvent and is not in default under any mortgage, borrowing agreement or other instrument or agreement pertaining to indebtedness for borrowed money, and the execution and delivery by it of this Agreement and the Custodial Agreement and the execution by it of the Secured Note will not result in any violation of any such mortgage, instrument or agreement. (5) All of its audited and unaudited financial statements, budgets and certificates or any certificates of its officers furnished to the Lender are true and complete and do not omit to disclose any material liabilities, contingent or otherwise, or other facts relevant to its condition. All such audited and unaudited financial statements have been prepared in accordance with GAAP. (6) This Agreement, the Secured Note and the Custodial Agreement have each been duly authorized and executed by it and each is valid, binding and enforceable against it in accordance with its terms, and the execution, delivery and performance by it of this Agreement and the Custodial Agreement and the execution by it of the Secured Note do not conflict with, or will not result in a breach of, any term or provision of its certificate of incorporation or by-laws or any material agreement or instrument to which it is bound (including, without limitation, its license from HUD as an authorized originator and servicer of Title I Loans) or any law, rule, regulation, order, judgment, writ, injunction or decree applicable to it of any court, regulatory body, administrative agency or governmental body having jurisdiction over it. (7) 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, delivery and performance by it of this Agreement, the Custodial Agreement and the Secured Note. Exh V(A)-1 (8) There is no action, proceeding or investigation pending or, to the best knowledge of it, threatened against it before any court, administrative agency or other tribunal (A) asserting the invalidity of this Agreement, the Custodial Agreement or the Secured Note, (B) seeking to prevent the consummation of any of the transactions contemplated by this Agreement, the Custodial Agreement or the Secured Note, or (C) which might materially and adversely affect the validity of the Home Improvement Loans or the performance by it of its obligations under, or the validity or enforceability of, this Agreement, the Custodial Agreement or the Secured Note. (9) Since the date of this Agreement, there has been no change in the business, operations, financial condition, properties or prospects of it which would have a material adverse affect on its ability to perform its obligations under this Agreement, the Custodial Agreement or the Secured Note. (b) With respect to each Title I Loan delivered by the Borrower to the Custodian, the Borrower represents and warrants to the Lender that: (1) Such Title I Loan and all accompanying documents are complete and authentic and all signatures thereon are genuine. (2) Such Title I Loan arose from a bona fide dealer or direct loan, as defined in the Title I Regulations, complying with all applicable state and Federal laws and regulations, to persons having legal capacity to contract and is not subject to any defense, set-off or counterclaim (3) All amounts represented to be payable on such Title I Loan are, in fact, payable in accordance with the provisions of such Title I Loan. (4) No default has occurred in any provisions of such Title I Loan. (5) The terms of the Note and the Mortgage, if a Mortgage is required by the Title I Regulations, relating to such Title I Loan have not been impaired, waived, altered or modified in any respect, except by written instruments reflected in the documents delivered to the Custodian pursuant to Section 2 of the Custodial Agreement, and no provision of such Note or Mortgage has been "whited out" or erased unless such modification has been initialed by each of the parties to such Title I Loan. No instrument of waiver, alteration or modification has been executed, and the Obligor has not been released from the related Mortgage, if any, in whole or in part, except in connection with an assumption agreement, which assumption agreement is part of the mortgage file and the terms of which are reflected in the documents delivered to the Custodian pursuant to Section 2 of the Custodial Agreement, and the Borrower shall allow no assumption of any Mortgage. (6) Any property subject to any security interest given in connection with such Title I Loan is not subject to any encumbrance other than a stated mortgage or mortgages. Exh V(A)-2 (7) It has good and indefeasible title to, and was the sole owner of, such Title I Loan subject to no liens, charges, mortgages, participations, encumbrances or rights of others other than liens released simultaneously with such pledge. (8) Such Title I Loan conforms to the description thereof as set forth on the related Title I Loan Schedule. (9) All payments required to be made up to the date 30 days prior to the date such Title I Loan is pledged hereunder (the "Pledge Date") on such Title I Loan under the terms of the Note have been made. The Borrower has not advanced funds, or induced, solicited or knowingly received any advance of funds from a party other than the Obligor, directly or indirectly, for the payment of any amount required by such Title I Loan. (10) The Note and the Mortgage, if any, relating to such Title I Loan are not subject to any litigation, including, without limitation, any bankruptcy or insolvency proceeding, set-off, counterclaim or defense, including the defense of usury, nor will the operation of any of the terms of the Note and the Mortgage, if any, or the exercise of any right thereunder, render either the Note or the Mortgage, if any, unenforceable, in whole or in part, or subject to any right of rescission, set-off, counterclaim or defense, including the defense of usury, and no such right of rescission, set-off, counterclaim or defense has been asserted with respect thereto. (11) Any and all requirements of any federal, state or local law applicable to such Title I Loan have been complied with including, without limitation, all consumer laws. (12) The Mortgage, if any, relating to such Title I Loan has not been satisfied, cancelled or subordinated, in whole, or rescinded, and the Mortgaged Property has not been released from the lien of the Mortgage, in whole or in part, nor has any instrument been executed that would effect any such release, cancellation, subordination or rescission. (13) The Mortgage, if any, relating to such Title I Loan is a valid, subsisting and enforceable lien on the Mortgaged Property, including the land and all buildings on the Mortgaged Property. (14) The Note and the related Mortgage, if any, relating to such Title I Loan are genuine and each is the legal, valid and binding obligation of the maker thereof, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting creditors' rights in general and by general principles of equity. (15) All parties to the Note and the Mortgage, if any, relating to such Title I Loan had legal capacity at the time to enter into the Title I Loan and to execute and deliver the Note and the Mortgage, if a mortgage is required by the Title I Regulations, and the Note and the Mortgage, if any, have been duly and properly executed by such parties. Exh V(A)-3 (16) As of the Pledge Date, the proceeds of such Title I Loan have been fully disbursed and there is no requirement for future advances thereunder, and any and all requirements set forth in the Title I Loan documents have been complied with. (17) If a mortgage is required by the Title I Regulations with respect to such Title I Loan, it has possession of a title document with respect to such Title I Loan reflecting that title to the Mortgaged Property is vested at least 50% in the Obligor under such Title I Loan. (18) To the best of its knowledge, there is no default, breach, violation or event of acceleration existing under the Mortgage, if any, or the Note relating to such Title I Loan and there is no event which, with the passage of time or with notice and/or the expiration of any grace or cure period, would constitute a default, breach, violation or event of acceleration, and it has not waived any default, breach, violation or event of acceleration. (19) If a mortgage is required by the Title I Regulations with respect to such Title I Loan, to the best of its knowledge, there is no proceeding pending for the total or partial condemnation of the related Mortgaged Property. (20) The related Mortgage, if any, contains customary and enforceable provisions such as to render the rights and remedies of the holder thereof adequate for the realization against the Mortgaged Property of the benefits of the security provided thereby, including, (i) in the case of a Mortgage designated as a deed of trust, by trustee's sale, and (ii) otherwise, by judicial foreclosure. (21) Such Title I Loan is a FHA Title I property improvement loan (as defined in 24 C.F.R. Parts 201 and 202) underwritten by the Borrower in accordance with FHA requirements for the Title I loan program as set forth in 24 C.F.R. Parts 201 and 202, and the Borrower has submitted such Title I Loan to FHA for inclusion in the Title I program. (22) Such Title I Loan is a fixed rate mortgage loan; the stated fixed rate of interest on such Title I Loan is at least equal the Interest Rate plus 300 basis points; the Note shall mature within not less than 24 months nor more than 20 years and 32 days; the Note is payable in monthly installments of principal and interest, with interest payable in arrears, and requires a monthly payment which is sufficient to amortize the original principal balance over the original term and to pay interest at the related annual interest rate; and the Note does not provide for any extension of the original term. (23) If a mortgage is required by the Title I Regulations with respect to such Title I Loan, the related Note is not, and has not been, secured by any collateral except the lien of the corresponding Mortgage. (24) If a mortgage is required by the Title I Regulations with respect to such Title I Loan and if the Mortgage constitutes a deed of trust, a trustee, duly qualified under applicable law to serve as such, has been properly designated and currently so serves and is named in the Mortgage, or a valid substitution of trustee has been recorded or may be recorded and no extraordinary fees or expenses are, or will become, payable by the Lender to the trustee Exh V(A)-4 under the deed of trust, except in connection with default proceedings and a trustee's sale after default by the Obligor. (25) The Borrower has no knowledge of any circumstances or conditions not reflected in the representations set forth herein, or in the documents delivered to the Custodian pursuant to Section 2 of the Custodial Agreement, or, if a mortgage is required by the Title I Regulations with respect to such Title I Loan, in the mortgage file with respect to the Mortgage, the Mortgaged Property or the Obligor which in its opinion could reasonably be expected to materially and adversely affect the value of the Mortgaged Property, or the marketability of such Title I Loan or cause such Title I Loan to become delinquent or otherwise in default. (26) Such Title I Loan is serviced by the Borrower or by a subservicer pursuant to the terms and conditions of a subservicing agreement to which the Lender has consented in writing. (27) All disclosures required by the Real Estate Settlement Procedures Act, by Regulation X promulgated thereunder and by Regulation Z of the Board of Governors of the Federal Reserve System promulgated pursuant to the statute commonly known as the Truth-in-Lending Act and the Notice of the Right of Rescission required by said statute and regulation have been properly made and given with respect to such Title I Loan. (28) Such Title I Loan is in respect of a home improvement loan (including improvements to existing manufactured or mobile homes that qualify as real property) and is not a loan in respect of the purchase of manufactured homes or mobile homes or the land on which such manufactured homes or mobile homes will be placed. (29) Such Title I Loan is not more than 29 days contractually delinquent. (30) The proceeds of such Title I Loan have been or, with respect to Direct Loans, will be used for improvements on the Obligor's Mortgaged Property in compliance with the Title I Regulations. (c) With respect to every Conventional Home Improvement Loan delivered to the Custodian, the Borrower represents and warrants to the Lender that: (1) Such Conventional Home Improvement Loan and all accompanying documents are complete and authentic and all signatures thereon are genuine. (2) Such Conventional Home Improvement Loan arose from a bona fide loan, complying with all applicable state and Federal laws and regulations, to persons having legal capacity to contract and is not subject to any defense, set-off or counterclaim. (3) All amounts represented to be payable on such Conventional Home Improvement Loan are, in fact, payable in accordance with the provisions of such Conventional Home Improvement Loan. Exh V(A)-5 (4) No default has occurred in any provisions of such Conventional Home Improvement Loan. (5) The terms of the Note and the Mortgage, if a Mortgage is required by the Conventional Home Improvement Loan Underwriting Guidelines, have not been impaired, waived, altered or modified in any respect, except by written instruments reflected in the documents delivered to the Custodian pursuant to Section 2 of the Custodial Agreement, and no provision of such Note or Mortgage has been "whited out" or erased unless such modification has been initialed by each of the parties to such Conventional Home Improvement Loan. No instrument of waiver, alteration or modification has been executed, and the Obligor has not been released from the related Mortgage, if any, in whole or in part, except in connection with an assumption agreement, which assumption agreement is part of the mortgage file and the terms of which are reflected in the documents delivered to the Custodian pursuant to Section 2 of the Custodial Agreement, and the Borrower shall allow no assumption of any Mortgage. (6) Any property subject to any security interest given in connection with such Conventional Home Improvement Loan is not subject to any encumbrance other than a stated mortgage or mortgages. (7) It has good and indefeasible title to, and was the sole owner of, such Conventional Home Improvement Loan subject to no liens, charges, mortgages, participations, encumbrances or rights of others other than liens released simultaneously with such pledge. description thereof as set forth on the related Conventional Home Improvement Loan Schedule. (9) All payments required to be made up to the date 30 days prior to the date such Conventional Home Improvement Loan is pledged hereunder (the "Pledge Date") on such Conventional Home Improvement Loan under the terms of the Note have been made. The Borrower has not advanced funds, or induced, solicited or knowingly received any advance of funds from a party other than the Obligor, directly or indirectly, for the payment of any amount required by such Conventional Home Improvement Loan. (10) The Note and the Mortgage, if any, relating to such Conventional Home Improvement Loan are not subject to any litigation, including, without limitation, any bankruptcy or insolvency proceeding, set-off, counterclaim or defense, including the defense of usury, nor will the operation of any of the terms of the Note and the Mortgage, if any, or the exercise of any right thereunder, render either the Note or the Mortgage, if any, unenforceable, in whole or in part, or subject to any right of rescission, set-off, counterclaim or defense, including the defense of usury, and no such right of rescission, set-off, counterclaim or defense has been asserted with respect thereto. (11) Any and all requirements of any federal, state or local law applicable to such Conventional Home Improvement Loan have been complied with including, without limitation, all consumer laws. Exh V(A)-6 (12) The Mortgage, if any, relating to such Conventional Home Improvement Loan has not been satisfied, cancelled or subordinated, in whole, or rescinded, and the Mortgaged Property has not been released from the lien of the Mortgage, in whole or in part, nor has any instrument been executed that would effect any such release, cancellation, subordination or rescission. (13) The Mortgage, if any, relating to such Conventional Home Improvement Loan is a valid, subsisting and enforceable lien on the Mortgaged Property, including the land and all buildings on the Mortgaged Property. (14) The Note and the related Mortgage, if any, relating to such Conventional Home Improvement Loan are genuine and each is the legal, valid and binding obligation of the maker thereof, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting creditors' rights in general and by general principles of equity. (15) All parties to the Note and the Mortgage, if any, relating to such Conventional Home Improvement Loan had legal capacity at the time to enter into the Conventional Home Improvement Loan and to execute and deliver the Note and the Mortgage, if a mortgage is required by the Conventional Home Improvement Loan Underwriting Guidelines, and the Note and the Mortgage, if any, have been duly and properly executed by such parties. (16) As of the Pledge Date, the proceeds of such Conventional Home Improvement Loan have been fully disbursed and there is no requirement for future advances thereunder, and any and all requirements set forth in the Conventional Home Improvement Loan documents have been complied with. (17) If a mortgage is required by the Conventional Home Improvement Loan Underwriting Guidelines with respect to such Conventional Home Improvement Loan, it has possession of a title document with respect to such Conventional Home Improvement Loan reflecting that title to the Mortgaged Property is fully vested in the Obligor under such Conventional Home Improvement Loan. (18) To the best of its knowledge, there is no default, breach, violation or event of acceleration existing under the Mortgage, if any, or the Note relating to such Conventional Home Improvement Loan and there is no event which, with the passage of time or with notice and/or the expiration of any grace or cure period, would constitute a default, breach, violation or event of acceleration, and it has not waived any default, breach, violation or event of acceleration. (19) If a mortgage is required by the Conventional Home Improvement Loan Underwriting Guidelines with respect to such Conventional Home Improvement Loan, to the best of its knowledge, there is no proceeding pending for the total or partial condemnation of the related Mortgaged Property. Exh V(A)-7 (20) The related Mortgage, if any, contains customary and enforceable provisions such as to render the rights and remedies of the holder thereof adequate for the realization against the Mortgaged Property of the benefits of the security provided thereby, including, (i) in the case of a Mortgage designated as a deed of trust, by trustee's sale, and (ii) otherwise, by judicial foreclosure. (21) Such Conventional Home Improvement Loan is a home improvement loan underwritten by the Borrower in accordance with the Conventional Home Improvement Loan Underwriting Guidelines. (22) Such Conventional Home Improvement Loan is a fixed rate mortgage loan; the stated fixed rate of interest on such Conventional Home Improvement Loan is at least equal the Interest Rate plus 300 basis points; the Note shall mature within not less than 24 months nor more than 20 years and 32 days; the Note is payable in monthly installments of principal and interest, with interest payable in arrears, and requires a monthly payment which is sufficient to amortize the original principal balance over the original term and to pay interest at the related annual interest rate; and the Note does not provide for any extension of the original term. (23) If a mortgage is required by the Conventional Home Improvement Loan Underwriting Guidelines with respect to such Conventional Home Improvement Loan, the related Note is not, and has not been, secured by any collateral except the lien of the corresponding Mortgage. (24) If a mortgage is required by the Conventional Home Improvement Loan Underwriting Guidelines with respect to such Conventional Home Improvement Loan and if the Mortgage constitutes a deed of trust, a trustee, duly qualified under applicable law to serve as such, has been properly designated and currently so serves and is named in the Mortgage, or a valid substitution of trustee has been recorded or may be recorded and no extraordinary fees or expenses are, or will become, payable by the Lender to the trustee under the deed of trust, except in connection with default proceedings and a trustee's sale after default by the Obligor. (25) The Borrower has no knowledge of any circumstances or conditions not reflected in the representations set forth herein, or in the documents delivered to the Custodian pursuant to Section 2 of the Custodial Agreement, or, if a mortgage is required by the Conventional Home Improvement Loan Underwriting Guidelines with respect to such Conventional Home Improvement Loan, in the mortgage file with respect to the Mortgage, the Mortgaged Property or the Obligor which in its opinion could reasonably be expected to materially and adversely affect the value of the Mortgaged Property, or the marketability of such Conventional Home Improvement Loan or cause such Conventional Home Improvement Loan to become delinquent or otherwise in default. (26) Such Conventional Home Improvement Loan is serviced by the Borrower or by a subservicer pursuant to the terms and conditions of a subservicing agreement to which the Lender has consented in writing. Exh V(A)-8 (27) All disclosures required by the Real Estate Settlement Procedures Act, by Regulation X promulgated thereunder and by Regulation Z of the Board of Governors of the Federal Reserve System promulgated pursuant to the statute commonly known as the Truth-in-Lending Act and the Notice of the Right of Rescission required by said statute and regulation have been properly made and given with respect to such Conventional Home Improvement Loan. (28) Such Conventional Home Improvement Loan is in respect of a home improvement loan (including improvements to existing manufactured or mobile homes that qualify as real property) and is not a loan in respect of the purchase of manufactured homes or mobile homes or the land on which such manufactured homes or mobile homes will be placed. (29) Such Conventional Home Improvement Loan is not more than 29 days contractually delinquent. (30) The proceeds of such Conventional Home Improvement Loan have been or, with respect to Direct Loans, will be used for improvements on the Obligor's Mortgaged Property. Exh V(A)-9 EXHIBIT VI SELLER/AFFILIATE AGREEMENT GREENWICH CAPITAL FINANCIAL PRODUCTS, INC. 600 Steamboat Road Greenwich, Connecticut 06830 As of August 9, 1999 ContiFinancial Corporation 277 Park Avenue New York, New York 10172 Attention: Gentlemen: Reference is made to (i) the Master Repurchase Agreement Governing Purchases and Sales of Assets ("Master Repurchase Agreement") dated as of August 9, 1999, between Greenwich Capital Financial Products, Inc. ("Buyer") and ContiFinancial Corporation ("Seller"). This letter agreement ("Letter Agreement") confirms the agreement among Seller and ContiMortgage Corporation each in its capacity as servicer ("Subservicer") and Buyer as to the matters set forth below. Capitalized terms used herein but not defined shall have the meaning ascribed to such terms in the Master Repurchase Agreement. 1. The Subservicer hereby represents and warrants to the Buyer that as of the date of execution of this Letter Agreement and at each Purchase Date, the representations and warranties on Exhibit A hereto are true and correct. 2. The Subservicer hereby acknowledges and agrees that the Buyer is the owner of the Mortgage Loans and all of the servicing rights thereto and, in connection therewith, the Subservicer has no rights in the Mortgage Loans, including the servicing rights thereto, with the exception of those limited servicing rights granted to it by Buyer pursuant to this Letter Agreement. 3. (a) The Subservicer is hereby appointed as servicer of the Mortgage Loans pursuant to the terms of this Letter Agreement, which servicing rights shall be immediately terminable by Buyer upon the earlier of (i) the termination of the Interim Servicing Period, (ii) the occurrence of an Event of Default under the Repurchase Agreement, whether or not the Subservicer is in any way implicated in such Event of Default, (iii) a Subservicer Termination Event (as such term is defined in Exhibit B hereto), or (iv) 30 days prior written notice. 4. (b) Upon such termination, the Subservicer will promptly arrange for the transfer of servicing (including all funds and Servicing Records held) of the specified Mortgage Exh VI.1 Loans to the designee of the Buyer in accordance with customary mortgage banking standards for such transfers. 5. The Subservicer shall service the Mortgage Loans serviced by it for the benefit of the Buyer and their successors and assigns (as owner) in accordance with the terms of the Master Repurchase Agreement and Custodial Agreement, the terms of which are incorporated herein, and Accepted Servicing Practices. "Accepted Servicing Practices" shall mean those servicing practices set forth in the Interim Servicing Addendum attached as Exhibit XI to the Master Repurchase Agreement, which Interim Servicing Addendum is incorporated herein by reference. Buyer is aware that the Subservicer may be entitled to a servicing fee payable by the Seller. Subservicer acknowledges that Buyer is not liable to Subservicer for such or any other fees or expenses. 6. If requested by either (a) Buyer at any time following an Event of Default of Seller under the Master Repurchase Agreement or (b) a person or entity ("Subsequent Owner"), (at its sole option) which has acquired ownership of the related Mortgage Loans, through or from Buyer, the Subservicer shall promptly enter into a market-standard whole loan servicing agreement substantially in the form typically entered into by affiliates of New York investment banks as owners of whole loans with respect to the Mortgage Loans then serviced by it. 7. Subservicer hereby indemnifies and holds harmless Buyer and its successors assigns from and against any losses, liabilities, damages, judgments, costs (including attorney fees) and expenses incurred by Buyer or such successors or assigns in any way related to a breach by Subservicer of any covenant, representation or warranty of Subservicer herein. 8. This letter Agreement is not assignable by Subservicer; may be assigned in whole or in part by Buyer; and shall inure to the benefit of Subservicer and Buyer and their respective successors and assigns. 9. This Letter Agreement shall not be changed except by a written instrument signed by each of the parties, shall be governed by and construed in accordance with the internal laws of the State of New York without reference to principles of conflicts of laws, and shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, provided, however that neither this Letter Agreement nor any rights in respect of the servicing of the Mortgage Loans (including, without limitation, the right to possession of any Servicing Records) shall be assignable by Subservicer to any Person other than an affiliate of the Subservicer without the prior written consent of Buyer, and Subservicer shall give Buyer prior written notice of any assignment to an affiliate. The Subservicer, at its sole cost, may subcontract its obligations hereunder or portions thereof provided it remains liable for all obligations hereunder but shall continue either (a) to retain all Servicing Records and documentation necessary to service the Mortgage Loans hereunder, or (b) to maintain authority over such Servicing Records and documentation in cases where transferring possession of such Servicing Records and Exh VI.2 documentation is necessary to do business with outside counsel, leasing agents and other similar third party contractors, unless, in either case, Buyer otherwise agrees. Very truly yours, GREENWICH CAPITAL FINANCIAL PRODUCTS, INC. By: ---------------------------- ACCEPTED AND AGREED TO: CONTIFINANCIAL CORPORATION By: ---------------------------- Name: Title: CONTIMORTGAGE CORPORATION By: ---------------------------- Name: Title: Exh VI.3 EXHIBIT A REPRESENTATIONS AND WARRANTIES OF SERVICER 1. The Subservicer is duly organized, validly existing and in good standing under the laws of the state of its organization and is qualified to transact business in and is in good standing under the laws of each state in which it is necessary for it to be so qualified in order to carry on its business as now being conducted and has all licenses necessary to carry on its business as now being conducted expect where the failure to so qualify or have such license would not have a material adverse effect on the Subservicer's ability to enter into this Letter Agreement and to consummate the transactions contemplated hereby, on the Mortgage Loans or on the ability of Subservicer or its assigns to enforce the Mortgage Loans; the Subservicer has full corporate power and authority to execute, deliver and perform under this Letter Agreement, and to consummate the transactions set forth herein, this Letter Agreement has been fully executed and delivered by the Subservicer and constitutes the valid and legally binding obligation of the Subservicer enforceable against the Subservicer in accordance with its respective terms, except that (i) the enforceability thereof may be limited by bankruptcy, insolvency, moratorium, receivership and other similar laws relating to creditors' rights generally and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and such remedies may be subject to the discretion of the court which any proceeding therefor may be brought; 2. The Subservicer is not required to obtain the consent of any other party or obtain the consent, license (except those licenses already obtained by the Subservicer prior to the date of this Letter Agreement), approval or authorization of, or make any registration or declaration with, any governmental authority, bureau or agency in connection with the execution, delivery, performance, validity or enforceability of this Letter Agreement. 3. The consummation of the transactions contemplated by this Letter Agreement will not result in the breach of any term or provision of the certificate of incorporation or by-laws of the Subservicer or result in the violation of any law, rule, regulation, order, judgment or decree to which the Subservicer or its property or the Mortgage Loans are subject; 4. The Subservicer is not a party to, bound by or in breach or violation of any indenture or other agreement or instrument, or subject to or in violation of any statute, order or regulation of any court, regulatory body, administrative agency or governmental body having jurisdiction over it, which materially and adversely affects, or may in the future materially and adversely affect, the ability of the Subservicer to perform its obligations under this Letter Agreement or the interest of the Buyer in any material respect; and 5. There are no actions, suits proceedings or investigations pending or, to the Subservicer's knowledge, threatened against the Subservicer, before any court, regulatory body, administrative agency or other tribunal or governmental instrumentality (A) asserting the invalidity of this Letter Agreement, (B) seeking to prevent the consummation of any of the transactions contemplated by this letter Agreement, (C) seeking any determination or ruling that might materially and adversely affect the performance by the Subservicer of its obligations under, or the validity or enforceability of, this Letter Agreement, or (D) that could have a material adverse effect on the Mortgage Loans. 6. The Subservicer's fidelity bond and errors and omissions insurance policy, a copy of which was furnished to Buyer, is in full force and effect, and Subservicer shall give Buyer at least 30 days' prior written notice of any change in such status. EXH. A-1 EXHIBIT B SERVICER TERMINATION EVENT: "Subservicer Termination Event" means the occurrence of any of the following: 1. Any failure by Subservicer to make any material deposit into an account required to be made hereunder and the continuance of such failure for a period of one (1) Business Day after Subservicer has become aware, or should have become aware, that such deposit was required; 2. Failure on Subservicer's part to observe or perform in any material respect any covenant or agreement in this Letter Agreement, which failure continues unremedied for fifteen (15) days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to Subservicer by Custodian or Buyer or to Subservicer and Custodian by Buyer or, if such remedy cannot reasonably be cured within fifteen (15) days, failure on the part of the Subservicer to commence or pursue a remedy within such fifteen days, or failure of the Subservicer to reasonably pursue such remedy thereafter; 3. Any representation or warranty made by the Servicer in this Letter Agreement or any related agreement is incorrect or untrue in any material respect (to the extent that any such representation or warranty does not incorporate a materiality limitation in its terms); 4. Any assignment by Subservicer of its duties or rights hereunder, or any attempt to make such an assignment except as permitted by this Letter Agreement; 5. Any failure by Subservicer to maintain its rating, if any, as a servicer or originator of mortgage loans or land contracts; 6. Any independent certified public accountant shall have issued an opinion to the effect that the Subservicer's servicing practices have not been conducted in compliance with the Uniform Single Audit Program for Mortgage Bankers and that there are material exceptions; 7. A court or other governmental authority having jurisdiction in the premises shall have entered a decree or order for relief in respect of Subservicer in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall have appointed a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of Subservicer, as the case may be, for any substantial liquidation of its affairs, and such order remains undischarged and unstayed for at least 60 days; 8. Subservicer shall have commenced a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall have consented to the entry of an order for relief in an involuntary case under any such law, or shall have consented to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian or sequestrator (or other similar official) of Subservicer or for any substantial part of its property, or shall have made any general assignment for the benefit of its creditors, or shall have failed to, or admitted in writing its inability to, pay its debts as they become due, or shall have taken any corporate action in furtherance of the foregoing. EXH. B-1 EXHIBIT VII Assignment and Conveyance Agreement This is an Assignment and Conveyance Agreement ("Conveyance Agreement") made this 9th day of August, 1999, among Greenwich Capital Financial Products, Inc., ContiFinancial Corporation (the "Seller") and ContiMortgage Corporation (the "Servicer"). The Buyer and the Seller wish to enter, from time to time, into transactions (each, a "Transaction") pursuant to which the Buyer shall agree to purchase Assets (defined in the Master Repurchase Agreement referred to below) originated by ContiMortgage Corporation, ContiWest Corporation or ContiTrade Services, L.L.C. (each as applicable, the "Company") and thereafter purchased by the Seller pursuant to the Agreement for Sale, Purchase and Servicing of Assets by and between Seller and ContiTrade Services, L.L.C. dated as of March 1, 1998, the Master Agreement for Sale, Purchase and Servicing of Mortgages by and between Seller and ContiWest Corporation dated as of September 18, 1998, and the Master Agreement for Sale, Purchase and Servicing of Mortgages by and between Seller and Servicer, as seller, dated as of September 18, 1998 (each as applicable, the "Acquisition and Servicing Agreement"), between the Seller and each Company, as applicable and serviced by the Servicer pursuant to the applicable Acquisition and Servicing Agreement, such Assets purchased by the Buyer, "Purchased Assets"), with a simultaneous agreement by the Seller to repurchase such Purchased Assets on the Repurchase Date, in accordance with the terms and conditions of the Master Repurchase Agreement Governing Purchases and Sales of Assets (the "Master Repurchase Agreement"), dated as of August 9, 1999, between the Buyer and the Seller and a request for purchase (the "Purchase Request") by the Seller (as to each Transaction, the related Purchase Request, the related Transaction Notice (as defined below) and the Master Repurchase Agreement are referred to collectively herein as the "Repurchase Agreement"). The custody of the Purchased Assets shall be maintained by Manufacturers and Traders Trust Company (the "Custodian") pursuant to that certain Custodial Agreement dated as of August 9, 1999 among Buyer, Seller and Custodian. All terms not otherwise defined herein shall have the meanings set forth in the Master Repurchase Agreement. In consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that the Purchased Assets identified on the schedule attached hereto shall be subject to the terms of this Conveyance Agreement. WARRANTIES 1. The Company and the Seller warrant and represent that attached hereto as Exhibit One is a true, accurate and complete copy of each Purchase and Servicing Agreement which agreements are in full force and effect as of the date hereof and have not been waived, amended or modified in any respect nor have any notices of termination been given thereunder. ASSIGNMENT 2. The Seller hereby assigns to the Buyer all of its right, title, and interest in, to, and under the Acquisition and Servicing Agreement to the extent of the Purchased Assets. Notwithstanding the Seller's assignment herein of all of its right, title and interest, in, to, and under the Acquisition and Servicing Agreement to the extent of the Purchased Assets, the Seller shall not be relieved of its obligations under the Acquisition and Servicing Agreement (as incorporated hereunder and made a part hereof) to the extent of the Purchased Assets and shall be the sole obligor to the Servicer thereunder with respect to the Purchased Assets. 3. From and after the date hereof and until the Seller repurchases the Purchased Assets from the Buyer pursuant to the Repurchase Agreement, the Buyer hereby authorizes and directs the Servicer to remit all Income from, and all proceeds of, the Purchased Assets to the Seller, and to otherwise deal with the Seller in all respects pursuant to the applicable Acquisition and Servicing Agreement (each as incorporated hereunder and made a part hereof), in each case until otherwise notified by the Buyer. The Buyer shall so notify the Servicer only in the event that the Buyer determines that the Seller is in default under the Master Repurchase Agreement or the related agreements. The receipt of such Income and proceeds by the Seller shall not create nor imply any interest or right whatsoever of the Seller in or to the Purchased Assets or such Income or proceeds. The Seller shall have no right to terminate the Servicer as Servicer of the Purchased Assets or amend the applicable Acquisition and Servicing Agreement without the prior written consent of the Buyer (which consent shall not be unreasonably withheld). GOVERNING LAW 4. THIS CONVEYANCE AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY CONFLICTS OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT PREEMPTED BY FEDERAL LAW. IN WITNESS WHEREOF, the parties hereto have executed this Conveyance Agreement the day and year first above written. GREENWICH CAPITAL FINANCIAL PRODUCTS, INC. By: -------------------------------- Name: Title: CONTIFINANCIAL CORPORATION By: -------------------------------- its Member By: -------------------------------- Name: Title: ACKNOWLEDGED AND AGREED TO BY: CONTIMORTGAGE CORPORATION By: -------------------------------- Name: Title: Schedule 1 to Assignment and Conveyance Agreement Asset Schedule Exhibit One to Assignment and Conveyance Agreement Purchase and Servicing Agreements EXHIBIT VIII Opinion of Counsel (date) Greenwich Capital Financial Products, Inc. address Dear Sirs and Mesdames: We have acted as counsel to ContiFinancial, a [_________] corporation (the "Seller"), with respect to certain matters in connection with that certain Master Repurchase Agreement Governing Purchases and Sales of Assets, dated as of August 9, 1999 (the "Agreement"), by and between the Seller and Greenwich Capital Financial Products, Inc. (the "Buyer"), provided for under the Transaction Documents described below, whereby Seller may sell to Buyer, and Buyer will purchase from, and agree to retransfer to, Seller, upon certain terms and conditions set forth in the Agreement, Asset [originated or acquired by Seller]. Capitalized terms used in this Opinion not otherwise defined herein have the same meanings set forth in the Agreement. In [our] [my] capacity as counsel to Seller, [we] [I] have examined the following documents as executed in connection with the Agreement: 1. Master Repurchase Agreement Governing Purchases and Sales of Assets, dated as of _______________, 199_ (defined above as the "Agreement"); 2. Custodial Agreement dated _______________, 199_ between Buyer and the related Custodian; 3. Uniform Commercial Code ("UCC") Financing Statements listed on Schedule 1 (collectively, the "Financing Statements"), attached to this letter, naming the Seller as debtor and the Buyer as secured party and describing the Collateral (as defined in the Agreement) as to which security interests may be perfected by filing under the UCC of the States listed on Schedule 1 (the "Filing Collateral"), which I understand will be filed in the filing offices listed on Schedule 1 (the "Filing Offices"); 4. Power of Attorney from Seller to Buyer (the form of which is attached to the Agreement as Exhibit III); 5. Servicing Agreement dated _______________, 199_, between Seller and Servicer; and 6. UCC Search Reports listed on Schedule 2, attached to this letter, as to UCC Financing Statements (collectively, the "UCC Search Report"); 7. Articles of Incorporation of [ ] , certified by.... 8. Certificate of Good Standing for Seller issued by the 9. Bylaws and Minute Book of Seller 10. Such other documents, records and papers as we have deemed necessary and relevant as a basis for this opinion. The documents listed in paragraphs 1-6 are collectively referred to as the "Transaction Documents." The documents list in paragraphs 8-11 are collectively referred to as the "Organizational Documents." All the documents listed in paragraph 1-11 are collectively referred to as the "Documents." [We] [I] have assumed the authenticity of all documents submitted to us/me as originals, the genuineness of all signatures, the legal capacity of natural persons and the conformity to the originals of all documents. Based upon the foregoing and upon such investigation as we have deemed necessary, it is [our] [my] opinion that: 1. The Seller is a [________] corporation duly organized, validly existing and in good standing under the laws of [__________] and is qualified to transact business in, and is in good standing under, the laws of the state[s] of [ states ]. 2. The Seller has the corporate power and authority to carry on its business as presently conducted, to own and operate the property and assets now being operated by it, to engage in the transactions contemplated by the Transaction Documents and all requisite corporate power, authority and legal right to execute, perform and deliver Transaction Documents and observe the terms and conditions of such instruments. The Seller has all requisite corporate power sell and pledge assets, to borrow and to grant a security interest in the Collateral pursuant to the Agreement, and to perform all of its obligations under the Agreement. 3. The execution and delivery of the Transaction Documents by the Seller, and the performance of the obligations contemplate therein, including the sale of Purchased Assets by the Seller and the pledge of the Collateral under the Agreement, have been duly and validly authorized by all necessary corporate action on the part of the Seller. Each of Transaction Documents have been executed and delivered by the Seller and are legal, valid and binding agreements enforceable in accordance with their respective terms against the Seller, subject to bankruptcy laws and other similar laws of general application affecting rights of creditors and subject to the application of the rules of equity, including those respecting the availability of specific performance, none of which will materially interfere with the realization of the benefits provided thereunder or with the Buyer's security interest in the Purchased Assets. 4. No approval, consent, authorization, order of, notice to, or filing or registration with or other act by or in respect of any Governmental Authority or any other Person is required or necessary in connection with the Transactions contemplated by this Agreement or the granting of a security interest thereunder, or with the execution, delivery, performance, validity or enforceability of this Agreement or any Facility Document. No approval of holders of capital stock of Seller other than such as have been obtained and are in effect are required under applicable law to consummate the Agreement, and no approvals are required pursuant to a shareholders agreement or other Contractual Obligation which is binding on Seller in order to consummate the Agreement. 5. Each of the Transaction Documents to which Seller is a party is the valid and binding obligation of Seller, enforceable against Seller in accordance with its respective terms, except as may be limited by: (i) bankruptcy, insolvency, reorganization, moratorium and other laws affecting the rights of creditors generally of the collection of debtor's obligations generally, and (ii) general principles of equity (regardless of whether considered in a proceeding in equity or at law). 6. The execution, delivery and performance by the Seller of, and the consummation of the transactions contemplated by, the Transaction Documents do not and will not (a) violate or conflict with any provision of the Seller's Articles of Incorporation or by-laws, (b) violate, conflict with or require the authorization, consent, approval or action of any governmental or regulatory agency or authority under any applicable law, rule or regulation or ordinance, (c) violate or conflict with any order, writ, injunction or decree of any court or Governmental Authority or agency or any arbitral award applicable to the Seller of which I/we have knowledge (after due inquiry) or (d) conflict with, result in a breach of, constitute a default under, require any consent under, or result in the acceleration or required prepayment of any Indebtedness pursuant to the terms of, mortgage, indenture, contract, agreement, lease, instrument, restriction, judgment, ruling, injunction, decree or other obligation or court order of which I/we have knowledge (after due inquiry) to which the Seller is a party or by which it is bound or to which it or any of its properties or assets is subject, or (except for the Liens created pursuant to the Agreement) result in the creation or imposition of any Lien, charge or encumbrance upon any Property of the Seller pursuant to the terms of any such agreement or instrument to which the Seller is a party or by which any of its properties is bound. 7. There is no action, suit, proceeding or investigation or litigation before any court, public board or body pending or, to the best of [our] [my] knowledge, after due inquiry, threatened against the Seller which, in [our] [my] judgment, either in any one instance or in the aggregate, would be reasonably likely to result in any material adverse change in the properties, business or financial condition, or prospects of the Seller or in any material impairment of the right or ability of the Seller to carry on its business substantially as now conducted or in any material liability on the part of the Seller or which would draw into question the validity of Transaction Documents or the Assets or of any action taken or to be taken in connection with the transactions contemplated thereby, or which would be reasonably likely to impair materially the ability of the Seller to perform under the terms of the Transaction Documents or the Assets. 8. The Agreement is effective to create, in favor of the Buyer, a valid security interest under the UCC in all of the right, title and interest of the Seller in, to and under the Collateral as collateral security for all obligations of the payment or performance of Seller under or pursuant to the Transaction Documents, which security interests, upon filing of the UCC Financing Statements will be perfected under the UCC, except that (a) such security interests will continue in Collateral after its sale, exchange or other disposition only to the extent provided in Section 9-306 of the UCC, (b) the security interests in Collateral in which the Seller acquires rights after the commencement of a case under the Bankruptcy Code in respect of the Seller may be limited by Section 552 of the Bankruptcy Code. 9. When the Mortgage Notes are delivered to the Custodian, endorsed in blank by a duly authorized officer of the Seller, the security interest referred to in paragraph 8 above in the Mortgage Notes will constitute a fully perfected first priority security interest in all right, title and interest of the Seller therein, in the Mortgage Note. 10. (a) Upon the filing of financing statements on Form UCC-1 naming the Buyer as "Secured Party" and the Seller as "Debtor", and describing the Collateral, in the jurisdictions and recording offices listed on Schedule 1 attached hereto, the security interests referred to in paragraph 9 above are in the appropriate form for filing with the states listed on Schedule 1 and will constitute fully perfected security interests under the UCC in all right, title and interest of the Seller in, to and under such Collateral, which can be perfected by filing under the UCC. (b) The UCC Search Report sets forth the proper filing offices and the proper debtors necessary to identify those Persons who have on file in the jurisdictions listed on Schedule 1 financing statements covering the Filing Collateral as of the dates and times specified on Schedule 2. Except for the matters listed on Schedule 2, the UCC Search Report identifies no Person who has filed in any Filing Office a financing statement describing the Filing Collateral prior to the effective dates of the UCC Search Report. [11. The Assignments of Mortgage are in recordable form, except for the insertion of the name of the assignee, and upon the name of the assignee being inserted, are acceptable for recording under the laws of the state where each related Mortgaged Property is located.] 12. The Seller is duly registered as a [____________] in each state in which Assets were originated to the extent such registration is required by applicable law, and has obtained all other licenses and governmental approvals in each jurisdiction to the extent that the failure to obtain such licenses and approvals would render any Asset unenforceable or would materially and adversely affect the ability of the Seller to perform any of its obligations under, or the enforceability of, the Asset Documents. [13. Assuming that all other elements necessary to render a Mortgage Loan legal, valid, binding and enforceable were present in connection with the execution, delivery and performance of each Mortgage Loan (including completion of the entire Mortgage Loan fully, accurately and in compliance with all applicable laws, rules and regulations) and assuming further that no action was taken in connection with the execution, delivery and performance of each Mortgage Loan (including in connection with the sale of the related Mortgaged Property) that would give rise to a defense to the legality, validity, binding effect and enforceability of such Mortgage Loan, nothing in the forms of such Mortgage Loans, as attached hereto as Exhibit A, would render such Mortgage Loans other than legal, valid, binding and enforceable.] [14. Assuming their validity, binding effect and enforceability in all other respects (including completion of the entire Mortgage Loan fully, accurately and in compliance with all applicable laws, rules and regulations), the forms of Mortgage Loans attached hereto as Exhibit A are in sufficient compliance with ________ law and Federal consumer protection laws so as not to be rendered void or voidable at the election of the Mortgagor thereunder.] Very truly yours, Seller's Underwriting Guidelines EXHIBIT IX EXHIBIT IX(A) Underwriting Guidelines Modifications 1. No loans to facilitate REO or to rewrite loans delinquent more than 60 days. 2. Homes listed for sale are not eligible for refinancing transactions. 3. Property conditions must be average or better as reported by the appraiser or as observable from photos in file. 4. No mixed use after 8/31/99. 5. Retention Loans (as defined in the Purchase Facility) must meet Underwriting Guidelines (as modified) except that the appraisal may be up to 18 months old. 6. Purchase money transactions require verification of downpayment and verification of source. 7. No escrow holdbacks for completion or repair of property. 8. If the proposed mortgagor owns the property under a land contract, the appraised value used to compute the LTV for the proposed loan may not be higher than the mortgagor's land contract purchase price unless it can be demonstrated (via utility or tax invoices or otherwise) that the mortgagor has owned the property for at least 12 months. 9. If credit is to be given for mortgagor payments under a lease option or land contract, the payments must be independently verified via a source other than the lessor or the seller under the land contract (e.g., cancelled checks). EXH. IX(A)-1 EXHIBIT X Asset Tape Fields EXHIBIT XI Interim Servicing Addendum Reference is hereby made to the Purchase Facility for a statement of the terms thereof. All terms used in this Exhibit XI which are defined in the Purchase Facility and which are not otherwise defined in this Agreement shall have the same meanings herein as set forth therein. Subsection 11.01 Interim Servicer. The Interim Servicer, as independent contract servicer, shall interim service and administer the Mortgage Loans in accordance with this Agreement during the Interim Servicing Period and shall have full power and authority, acting alone, to do or cause to be done any and all things in connection with such interim servicing and administration which the Interim Servicer may deem necessary or desirable and consistent with the terms of this Agreement. Consistent with the terms of this Agreement, the Interim Servicer may waive, modify or vary any term of any Mortgage Loan or consent to the postponement of strict compliance with any such term or in any manner grant indulgence to any Mortgagor if in the Interim Servicer's reasonable and prudent determination such waiver, modification, postponement or indulgence is not materially adverse to the Purchaser; provided, however, that unless the Interim Servicer has obtained the prior written consent of the Purchaser, the Interim Servicer shall not permit any modification with respect to any Mortgage Loan that would change the Mortgage Interest Rate, defer or forgive the payment thereof or of any principal or interest payments, reduce the outstanding principal amount (except for actual payments of principal), make additional advances of additional principal or extend the final maturity date on such Mortgage Loan. Without limiting the generality of the foregoing, the Interim Servicer shall continue, and is hereby authorized and empowered, to execute and deliver on behalf of itself, and the Purchaser, all instruments of satisfaction or cancellation, or of partial or full release, discharge and all other comparable instruments, with respect to the Mortgage Loans and with respect to the Mortgaged Property. If reasonably required by the Interim Servicer, the Purchaser shall furnish the Interim Servicer with any powers of attorney at the Purchaser's option and other documents necessary or appropriate to enable the Interim Servicer to carry out its interim servicing and administrative duties under this Agreement. In interim servicing and administering the Mortgage Loans, the Interim Servicer shall employ procedures including collection procedures and exercise the same care that it customarily employs and exercises in servicing and administering mortgage loans for its own account and mortgage loans which are securitized by Purchaser in a rated transaction, giving due consideration to accepted mortgage servicing practices of prudent lending institutions (such practices, "Accepted Servicing Practices"). If Interim Servicer elects to utilize a subservicer to perform any or all of Interim Servicer's duties hereunder, Interim Servicer shall remain liable as though such duties were performed directly by Interim Servicer and Interim Servicer shall be responsible for the payment of any and all fees of any such subservicer. Subsection 11.02 Collection of Mortgage Loan Payments. Continuously from the date hereof until the principal and interest on all Mortgage Loans are paid in full, the Interim Servicer shall proceed diligently to collect all payments due under each Mortgage Loan when the same shall become due and payable and shall, to the extent such procedures shall be consistent with this Agreement, follow such collection procedures as it follows with respect to mortgage loans comparable to the Mortgage Loans and held for its own account. Further, the Interim Servicer shall take special care in ascertaining and estimating annual ground rents, taxes, assessments, water rates, fire and hazard insurance premiums and all other charges that, as provided in the Mortgage, will become due and payable to the end that the installments payable by the Mortgagors will be sufficient to pay such charges as and when they become due and payable. Subsection 11.03 Realization Upon Defaulted Mortgage Loans. (a) The Interim Servicer shall use its best efforts, consistent with the procedures that the Interim Servicer would use in servicing loans for its own account, to foreclose upon or otherwise comparably convert the ownership of such Mortgaged Properties as come into and continue in default and as to which no satisfactory arrangements can be made for collection of delinquent payments pursuant to Subsection 11.01. The Interim Servicer shall use its best efforts to realize upon defaulted Mortgage Loans in such a manner as will maximize the receipt of principal and interest by the Purchaser, taking into account, among other things, the timing of foreclosure proceedings. The foregoing is subject to the provisions that, in any case in which Mortgaged Property shall have suffered damage, the Interim Servicer shall not be required to expend its own funds toward the restoration of such property in excess of $2,000 unless it consults with the Purchaser with respect to a course of action to be taken and determines in its discretion (i) that such restoration will increase the proceeds of liquidation of the related Mortgage Loan to the Purchaser after reimbursement to itself for such expenses, and (ii) that such expenses will be recoverable by the Interim Servicer through Insurance Proceeds or Liquidation Proceeds from the related Mortgaged Property, as contemplated in Subsection 11.05. In the event that any payment due under any Mortgage Loan is not paid when the same becomes due and payable, or in the event the Mortgagor fails to perform any other covenant or obligation under the Mortgage Loan and such failure continues beyond any applicable grace period, the Interim Servicer shall take such action as it shall deem to be in the best interest of the Purchaser. In the event that any payment due under any Mortgage Loan remains delinquent for a period of ninety (90) days or more, the Interim Servicer shall notify the Purchaser and receive instruction as to whether to commence foreclosure proceedings in accordance with Accepted Servicing Practices. The Interim Servicer shall be responsible for all costs and expenses incurred by it in any such proceedings; provided, however, that it shall be entitled to reimbursement thereof from the related Mortgaged Property, as contemplated in Subsection 11.05. (b) Notwithstanding the foregoing provisions of this Subsection 11.03, with respect to any Mortgage Loan as to which the Interim Servicer has received actual notice of, or has actual knowledge of, the presence of any toxic or hazardous substance on the related Mortgaged Property the Interim Servicer shall not either (i) obtain title to such Mortgaged Property as a result of or in lieu of foreclosure or otherwise, or (ii) otherwise acquire possession of, or take any other action, with respect to, such Mortgaged Property if, as a result of any such action, the Purchaser would be considered to hold title to, to be a mortgagee-in-possession of, or to be an owner or operator of such Mortgaged Property within the meaning of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time, or any comparable law, unless the Interim Servicer has immediately consulted with the Purchaser with respect to a course of action to be taken in accordance with Accepted Servicing Practices. The cost of the environmental audit report contemplated by this Subsection 11.03 shall be advanced by the Interim Servicer, subject to the Interim Servicer's right to be reimbursed therefor from the Custodial Account as contemplated in Subsection 11.05. If the Interim Servicer determines, as described above, that it is in the best economic interest of the Purchaser to take such actions as are necessary to bring any such Mortgaged Property into compliance with applicable environmental laws, or to take such action with respect to the containment, clean-up or remediation of hazardous substances, hazardous materials, hazardous wastes, or petroleum-based materials affecting any such Mortgaged Property, then the Interim Servicer shall take such action as it deems to be in the best economic interest of the Purchaser. The cost of any such compliance, containment, cleanup or remediation shall be advanced by the Interim Servicer, subject to the Interim Servicer's right to be reimbursed therefor from the Custodial Account as contemplated in Subsection 11.05. (c) Proceeds received in connection with any Final Recovery Determination, as well as any recovery resulting from a partial collection of Insurance Proceeds or Liquidation Proceeds in respect of any Mortgage Loan, will be applied in the following order of priority: first, to reimburse the Interim Servicer for any related unreimbursed Servicing Advances; second, to accrued and unpaid interest on the Mortgage Loan, to the date of the Final Recovery Determination; and third, as a recovery of principal of the Mortgage Loan. Subsection 11.04 Establishment of Custodial Accounts; Deposits in Custodial Accounts. The Interim Servicer shall segregate and hold all funds collected and received pursuant to each Mortgage Loan separate and apart from any of its own funds and general assets. The Interim Servicer shall deposit in the Custodial Account within 24 hours of receipt, and retain therein the following payments and collections received by it subsequent to the Cut-off Date, or received by it prior to the Cut-off Date but allocable to a period subsequent thereto, other than in respect of principal and interest on the Mortgage Loans due on or before the Cut-off Date: (i) all payments on account of principal on the Mortgage Loans including any Principal Prepayments and any prepayment penalties or premiums; (ii) all payments on account of interest on the Mortgage Loans; (iii) all Liquidation Proceeds; (iv) all Insurance Proceeds including amounts required to be deposited pursuant to Subsections 11.10 and 11.11, other than proceeds to be held in the Escrow Account and applied to the restoration or repair of the Mortgaged Property or released to the Mortgagor in accordance with the Interim Servicer's normal servicing procedures, the loan documents or applicable law; (v) all Condemnation Proceeds affecting any Mortgaged Property which are not released to the Mortgagor in accordance with the Interim Servicer's normal servicing procedures, the loan documents or applicable law; (vi) all proceeds of any Mortgage Loan repurchased in accordance with Subsections 7.03 and 7.04 and all amounts required to be deposited by the Seller in connection with shortfalls in principal amount of Qualified Substitute Mortgage Loans pursuant to Subsection 7.03; (vii) any amounts required to be deposited by the Interim Servicer pursuant to Subsection 11.11 in connection with the deductible clause in any blanket hazard insurance policy. Such deposit shall be made from the Interim Servicer's own funds, without reimbursement therefor; (viii) any amounts required to be deposited by the Interim Servicer in connection with any REO Property pursuant to Subsection 11.13; and (ix) any amounts required to be deposited in the Custodial Account pursuant to Subsections 11.19 or 11.20. The foregoing requirements for deposit in the Custodial Account shall be exclusive, it being understood and agreed that, without limiting the generality of the foregoing, payments in the nature of late payment charges, assumption fees, to the extent permitted by Subsection 11.01, and the Interim Servicing Fee as permitted by Section 11.21, need not be deposited by the Interim Servicer in the Custodial Account. Such Custodial Account shall be an Eligible Account. Any interest or earnings on funds deposited in the Custodial Account by the depository institution shall accrue to the benefit of the Purchaser. The Interim Servicer shall give notice to the Purchaser of the location of the Custodial Account when established and prior to any change thereof. Subsection 11.05 Permitted Withdrawals From the Custodial Account. The Purchaser, as owner of the Custodial Account, shall be entitled to withdraw any and all funds deposited in the Custodial Account as owner thereto. All withdrawals from the Custodial Account shall be made by the Purchaser and the Interim Servicer shall have no withdrawal rights with respect thereto. Simultaneously with the delivery of the Remittance Report, the Interim Servicer shall deliver an invoice to the Purchaser, along with reasonable documentation, requesting payment for the following: (i) to pay the Interim Servicer for unreimbursed Servicing Advances, the Interim Servicer's right to payment pursuant to this subclause (i) with respect to any Mortgage Loan being limited to related Liquidation Proceeds, Condemnation Proceeds, Insurance Proceeds and such other amounts as may be collected by the Interim Servicer from the Mortgagor or otherwise relating to the Mortgage Loan, it being understood that, in the case of such reimbursement, the Interim Servicer's right thereto shall be prior to the rights of the Purchaser, except that, where the Interim Servicer is required to repurchase a Mortgage Loan, pursuant to Subsection 7.03, the Interim Servicer's right to such payment shall be subsequent to the payment to the Purchaser of the Repurchase Price pursuant to Subsection 7.03 and all other amounts required to be paid to the Purchaser with respect to such Mortgage Loans; (ii) to pay the Interim Servicer with respect to each Mortgage Loan that has been repurchased pursuant to Subsection 7.03 all amounts received thereon and not distributed as of the date on which the related Repurchase Price is determined; and (iii) to pay, or to reimburse the Interim Servicer for advances in respect of, expenses incurred in connection with any Mortgage Loan pursuant to Subsection 11.03(b), but only to the extent of amounts received in respect of the Mortgage Loans to which such expense is attributable. Absent a good faith dispute on the amount set forth on such invoice, the Purchaser shall remit to the Interim Servicer the amount specified in such invoice within five (5) Business Days of receipt thereof by the Purchaser. In the event that any amount is mistakenly deposited into the Custodial Account by the Interim Servicer, the Purchaser shall withdraw such amount from the Custodial Account and remit it to the Interim Servicer as quickly as possible, and if possible on the date the Purchaser receives notification from the Interim Servicer of such mistaken deposit. Subsection 11.06 Establishment of Escrow Accounts; Deposits in Escrow Accounts. The Interim Servicer shall segregate and hold all funds collected and received pursuant to each Mortgage Loan which constitute Escrow Payments separate and apart from any of its own funds and general assets and shall establish and maintain one or more Escrow Accounts, in the form of time deposit or demand accounts. The creation of any Escrow Account shall be evidenced by Escrow Account Letter Agreement in the form of Exhibit 8. The Interim Servicer shall deposit in the Escrow Account or Accounts within 24 hours of receipt, and retain therein, (i) all Escrow Payments collected on account of the Mortgage Loans, for the purpose of effecting timely payment of any such items as required under the terms of this Agreement, and (ii) all Insurance Proceeds which are to be applied to the restoration or repair of any Mortgaged Property. The Interim Servicer shall make withdrawals therefrom only to effect such payments as are required under this Agreement, and for such other purposes as shall be as set forth or in accordance with Subsection 11.08. The Interim Servicer shall be entitled to retain any interest paid on funds deposited in the Escrow Account by the depository institution other than interest on escrowed funds required by law to be paid to the Mortgagor and, to the extent required by law, the Interim Servicer shall pay interest on escrowed funds to the Mortgagor notwithstanding that the Escrow Account is non-interest bearing or that interest paid thereon is insufficient for such purposes. Subsection 11.07 Permitted Withdrawals From Escrow Account. Withdrawals from the Escrow Account may be made by the Interim Servicer (i) to effect timely payments of ground rents, taxes, assessments, water rates, hazard insurance premiums and comparable items, (ii) to reimburse the Interim Servicer for any Servicing Advance made by the Interim Servicer with respect to a related Mortgage Loan but only from amounts received on the related Mortgage Loan which represent late payments or collections of Escrow Payments thereunder, (iii) to refund to the Mortgagor any funds as may be determined to be overages, (iv) for transfer to the Custodial Account in accordance with the terms of this Agreement, (v) for application to restoration or repair of the Mortgaged Property, (vi) to pay to the Interim Servicer, or to the Mortgagor to the extent required by law, any interest paid on the funds deposited in the Escrow Account, or (vii) to clear and terminate the Escrow Account on the termination of this Agreement. Subsection 11.08 Payment of Taxes, Insurance and Other Charges. With respect to each Mortgage Loan, the Interim Servicer shall maintain accurate records reflecting the status of ground rents, taxes, assessments, water rates and other charges which are or may become a lien upon the Mortgaged Property and the status of fire and hazard insurance coverage and shall obtain, from time to time, all bills for the payment of such charges, including insurance renewal premiums and shall effect payment thereof prior to the applicable penalty or termination date and at a time appropriate for securing maximum discounts allowable, employing for such purpose deposits of the Mortgagor in the Escrow Account which shall have been estimated and accumulated by the Interim Servicer in amounts sufficient for such purposes, as allowed under the terms of the Mortgage and applicable law. To the extent that the Mortgage does not provide for Escrow Payments, the Interim Servicer shall determine that any such payments are made by the Mortgagor at the time they first become due. The Interim Servicer assumes full responsibility for the timely payment of all such bills and shall effect timely payments of all such bills irrespective of the Mortgagor's faithful performance in the payment of same or the making of the Escrow Payments and shall make advances from its own funds to effect such payments. Upon the termination of the Interim Servicing Period or the transfer of servicing with respect to any Mortgage Loan, the successor servicer shall reimburse the Interim Servicer for amounts the Interim Servicer actually expended as interim servicer pursuant to this Agreement for which the Interim Servicer would have otherwise been entitled to be reimbursed and which would otherwise have been recovered by the Interim Servicer pursuant to this Agreement but for the appointment of the successor servicer. Subsection 11.09 Transfer of Accounts. The Interim Servicer may transfer the Custodial Account or the Escrow Account to a different depository institution from time to time. Such transfer shall be made only upon obtaining the consent of the Purchaser, which consent shall not be unreasonably withheld. In any case, the Custodial Account and Escrow Account shall be Eligible Accounts. Subsection 11.10 Maintenance of Hazard Insurance. The Interim Servicer shall cause to be maintained for each Mortgage Loan fire and hazard insurance with extended coverage as is customary in the area where the Mortgaged Property is located in an amount which is at least equal to the lesser of (i) the amount necessary to fully compensate for any damage or loss to the improvements which are a part of such property on a replacement cost basis or (ii) the outstanding principal balance of the Mortgage Loan, in each case in an amount not less than such amount as is necessary to prevent the Mortgagor and/or the Mortgagee from becoming a co-insurer. If the Mortgaged Property is in an area identified on a Flood Hazard Boundary Map or Flood Insurance Rate Map issued by the Flood Emergency Management Agency as having special flood hazards and such flood insurance has been made available, the Interim Servicer will cause to be maintained a flood insurance policy meeting the requirements of the current guidelines of the Federal Insurance Administration with a generally acceptable insurance carrier, in an amount representing coverage not less than the lesser of (i) the outstanding principal balance of the Mortgage Loan or (ii) the maximum amount of insurance which is available under the National Flood Insurance Act of 1968 or the Flood Disaster Protection Act of 1973, as amended. The Interim Servicer also shall maintain on any REO Property, fire and hazard insurance with extended coverage in an amount which is at least equal to the lesser of (i) the maximum insurable value of the improvements which are a part of such property and (ii) either (A) the outstanding principal balance of the related Mortgage Loan at the time it became an REO Property plus accrued interest at the Mortgage Interest Rate and related Servicing Advances with respect to each First Lien Mortgage Loan or (B) with respect to each Second Lien Mortgage Loan, the sum of the outstanding principal balance of the First Lien Mortgage Loan and the outstanding principal balance of the Second Lien Mortgage Loan plus accrued interest at the Mortgage Interest Rate and related Servicing Advances, liability insurance and, to the extent required and available under the National Flood Insurance Act of 1968 or the Flood Disaster Protection Act of 1973, as amended, flood insurance in an amount as provided above. Pursuant to Subsection 11.04, any amounts collected by the Interim Servicer under any such policies other than amounts to be deposited in the Escrow Account and applied to the restoration or repair of the Mortgaged Property or REO Property, or released to the Mortgagor in accordance with the Interim Servicer's normal servicing procedures, shall be deposited in the Custodial Account. Any cost incurred by the Interim Servicer in maintaining any such insurance shall not, for the purpose of calculating distributions to the Purchaser, be added to the unpaid principal balance of the related Mortgage Loan, notwithstanding that the terms of such Mortgage Loan so permit. It is understood and agreed that no earthquake or other additional insurance need be required by the Interim Servicer of the Mortgagor or maintained on property acquired in respect of the Mortgage Loan, other than pursuant to such applicable laws and regulations as shall at any time be in force and as shall require such additional insurance. All such policies shall be endorsed with standard mortgagee clauses with loss payable to the Interim Servicer, or upon request to the Purchaser, and shall provide for at least thirty days prior written notice of any cancellation, reduction in the amount of, or material change in, coverage to the Interim Servicer. The Interim Servicer shall not interfere with the Mortgagor's freedom of choice in selecting either his insurance carrier or agent, provided, however, that the Interim Servicer shall not accept any such insurance policies from insurance companies unless such companies currently reflect a General Policy Rating of A:VI or better in Best's Key Rating Guide and are licensed to do business in the state wherein the property subject to the policy is located. Subsection 11.11 Maintenance of Mortgage Impairment Insurance Policy. In the event that the Interim Servicer shall obtain and maintain a mortgage impairment or blanket policy issued by an insurer that has a Best rating of A:VI insuring against hazard losses on all of Mortgaged Properties securing the Mortgage Loans, then, to the extent such policy provides coverage in an amount equal to the amount required pursuant to Subsection 11.10 and otherwise complies with all other requirements of Subsection 11.10, the Interim Servicer shall conclusively be deemed to have satisfied its obligations as set forth in Subsection 11.10, it being understood and agreed that such policy may contain a deductible clause, in which case the Interim Servicer shall, in the event that there shall not have been maintained on the related Mortgaged Property or REO Property a policy complying with Subsection 11.10, and there shall have been one or more losses which would have been covered by such policy, deposit in the Custodial Account the amount not otherwise payable under the blanket policy because of such deductible clause. In connection with its activities as servicer of the Mortgage Loans, the Interim Servicer agrees to prepare and present, on behalf of the Purchaser, claims under any such blanket policy in a timely fashion in accordance with the terms of such policy. Upon request of the Purchaser, the Interim Servicer shall cause to be delivered to the Purchaser a certified true copy of such policy and a statement from the insurer thereunder that such policy shall in no event be terminated or materially modified without thirty days prior written notice to the Purchaser. Subsection 11.12 Fidelity Bond, Errors and Omissions Insurance. The Interim Servicer shall maintain, at its own expense, a blanket fidelity bond and an errors and omissions insurance policy, with broad coverage with responsible companies that would meet the requirements of Fannie Mae or Freddie Mac on all officers, employees or other persons acting in any capacity with regard to the Mortgage Loans to handle funds, money, documents and papers relating to the Mortgage Loans. The fidelity bond and errors and omissions insurance shall be in the form of the Mortgage Banker's Blanket Bond and shall protect and insure the Interim Servicer against losses, including forgery, theft, embezzlement, fraud, errors and omissions and negligent acts of such persons. Such fidelity bond shall also protect and insure the Interim Servicer against losses in connection with the failure to maintain any insurance policies required pursuant to this Agreement and the release or satisfaction of a Mortgage Loan without having obtained payment in full of the indebtedness secured thereby. No provision of this Subsection 11.12 requiring the fidelity bond and errors and omissions insurance shall diminish or relieve the Interim Servicer from its duties and obligations as set forth in this Agreement. The minimum coverage under any such bond and insurance policy shall be at least equal to the corresponding amounts required by Fannie Mae in the Fannie Mae Servicing Guide or by Freddie Mac in the Freddie Mac Interim Servicers' and Servicers' Guide. Upon request of the Purchaser, the Interim Servicer shall cause to be delivered to the Purchaser a certified true copy of the fidelity bond and insurance policy and a statement from the surety and the insurer that such fidelity bond or insurance policy shall in no event be terminated or materially modified without thirty days' prior written notice to the Purchaser. Subsection 11.13 Title, Management and Disposition of REO Property. In the event that title to the Mortgaged Property is acquired in foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale shall be taken in the name of the person designated by the Purchaser, or in the event such person is not authorized or permitted to hold title to real property in the state where the REO Property is located, or would be adversely affected under the "doing business" or tax laws of such state by so holding title, the deed or certificate of sale shall be taken in the name of such Person or Persons as shall be consistent with an opinion of counsel obtained by the Interim Servicer from an attorney duly licensed to practice law in the state where the REO Property is located. Any Person or Persons holding such title other than the Purchaser shall acknowledge in writing that such title is being held as nominee for the benefit of the Purchaser. The Interim Servicer shall either itself or through an agent selected by the Interim Servicer, manage, conserve, protect and operate each REO Property (and may temporarily rent the same) in the same manner that it manages, conserves, protects and operates other foreclosed property for its own account, and in the same manner that similar property in the same locality as the REO Property is managed. The Interim Servicer shall cause each REO Property to be inspected promptly upon the acquisition of title thereto and shall cause each REO Property to be inspected at least annually thereafter. The Interim Servicer shall make or cause to be made a written report of each such inspection. Such reports shall be retained in the Mortgage File and copies thereof shall be forwarded by the Interim Servicer to the Purchaser. The Interim Servicer shall use its best efforts to dispose of the REO Property as soon as possible and shall sell such REO Property in any event within one year after title has been taken to such REO Property, unless the Interim Servicer determines, and gives appropriate notice to the Purchaser, that a longer period is necessary for the orderly liquidation of such REO Property. If a period longer than one year is necessary to sell any REO property, (i) the Interim Servicer shall report monthly to the Purchaser as to the progress being made in selling such REO Property and (ii) if, with the written consent of the Purchaser, a purchase money mortgage is taken in connection with such sale, such purchase money mortgage shall name the Interim Servicer as mortgagee, and a separate servicing agreement between the Interim Servicer and the Purchaser shall be entered into with respect to such purchase money mortgage. The Interim Servicer shall deposit or cause to be deposited, within twenty four (24) hours of receipt, in the Custodial Account all revenues received with respect to the related REO Property and shall advance funds necessary for the proper operation, management and maintenance of the REO Property, including the cost of maintaining any hazard insurance pursuant to Subsection 11.10 hereof and the fees of any managing agent acting on behalf of the Interim Servicer. The Purchaser shall reimburse any such advance pursuant to Subsection 11.05. The Interim Servicer shall separately account for each REO Property and any amounts received with respect thereto. The Interim Servicer shall furnish to the Purchaser on the fifteenth calendar day of each month or the next following Business Day if such fifteenth day is not a Business Day, an operating statement for each REO Property covering the operation of each REO Property for the previous month. Such operating statement shall be accompanied by such other information as the Purchaser shall reasonably request. Each REO Disposition shall be carried out by the Interim Servicer at such price and upon such terms and conditions as the Interim Servicer deems to be in the best interest of the Purchaser only with the prior written consent of the Purchaser. If as of the date title to any REO Property was acquired by the Interim Servicer there were outstanding unreimbursed Servicing Advances with respect to the REO Property, the Interim Servicer, upon an REO Disposition of such REO Property, shall be entitled to reimbursement for any related unreimbursed Servicing Advances from proceeds received in connection with such REO Disposition. The proceeds from the REO Disposition shall be deposited in the Custodial Account within twenty four hours of receipt and the Purchaser shall thereafter reimburse such unreimbursed Servicing Advances to the Interim Servicer. Subsection 11.14 [Reserved] Subsection 11.15 Remittance Reports. No later than the fifteenth calendar day of each month or the next following Business Day if such 15th calendar day is not a Business Day, the Interim Servicer shall furnish to the Purchaser or its designee in electronic form, and by hard copy, the monthly data for the prior month in form and substance acceptable to the Purchaser, together with such other information with respect to the Mortgage Loans as the Purchaser may reasonably require to allocate distributions made pursuant to this Agreement and provide appropriate statements with respect to such distributions. Subsection 11.16 Statements to the Purchaser. Upon request of the Purchaser, and not later than the fifteenth day of each month, the Interim Servicer shall forward to the Purchaser or its designee a statement prepared by the Interim Servicer setting forth the status of the Custodial Account as of the close of business on such date and showing, for the period covered by such statement, the aggregate amount of deposits into the Custodial Account of each category of deposit specified in Subsection 11.04. Subsection 11.17 Real Estate Owned Reports. Together with the statement furnished pursuant to Subsection 11.02, with respect to any REO Property, the Interim Servicer shall furnish to the Purchaser a statement covering the Interim Servicer's efforts in connection with the sale of such REO Property and any rental of such REO Property incidental to the sale thereof for the previous month, together with the operating statement. Such statement shall be accompanied by such other information as the Purchaser shall reasonably request. Subsection 11.18 Liquidation Reports. Upon the foreclosure sale of any Mortgaged Property or the acquisition thereof by the Purchaser pursuant to a deed-in-lieu of foreclosure, the Interim Servicer shall submit to the Purchaser a liquidation report with respect to such Mortgaged Property. Subsection 11.19 Assumption Agreements. The Interim Servicer shall, to the extent it has knowledge of any conveyance or prospective conveyance by any Mortgagor of the Mortgaged Property (whether by absolute conveyance or by contract of sale, and whether or not the Mortgagor remains or is to remain liable under the Mortgage Note and/or the Mortgage), exercise its rights to accelerate the maturity of such Mortgage Loan under any "due-on-sale" clause applicable thereto; provided, however, that the Interim Servicer shall not exercise any such rights if prohibited by law from doing so. If the Interim Servicer reasonably believes it is unable under applicable law to enforce such "due-on-sale" clause, the Interim Servicer shall enter into an assumption agreement with the person to whom the Mortgaged Property has been conveyed or is proposed to be conveyed, pursuant to which such person becomes liable under the Mortgage Note and, to the extent permitted by applicable state law, the Mortgagor remains liable thereon. Where an assumption is allowed pursuant to this Subsection 11.01, the Interim Servicer is authorized to enter into a substitution of liability agreement with the person to whom the Mortgaged Property has been conveyed or is proposed to be conveyed pursuant to which the original Mortgagor is released from liability and such Person is substituted as Mortgagor and becomes liable under the related Mortgage Note. Any such substitution of liability agreement shall be in lieu of an assumption agreement. In connection with any such assumption or substitution of liability, the Interim Servicer shall follow the underwriting practices and procedures of prudent mortgage lenders in the state in which the related Mortgaged Property is located and Accepted Servicing Practices. With respect to an assumption or substitution of liability, Mortgage Interest Rate, the amount of the Monthly Payment, and the final maturity date of such Mortgage Note may not be changed. The Interim Servicer shall notify the Purchaser that any such substitution of liability or assumption agreement has been completed by forwarding to the Purchaser the original of any such substitution of liability or assumption agreement, which document shall be added to the related Mortgage File and shall, for all purposes, be considered a part of such Mortgage File to the same extent as all other documents and instruments constituting a part thereof. Notwithstanding the foregoing paragraphs of this Subsection or any other provision of this Agreement, the Interim Servicer shall not be deemed to be in default, breach or any other violation of its obligations hereunder by reason of any assumption of a Mortgage Loan by operation of law or any assumption which the Interim Servicer may be restricted by law from preventing, for any reason whatsoever. For purposes of this Subsection 11.19, the term "assumption" is deemed to also include a sale of the Mortgaged Property subject to the Mortgage that is not accompanied by an assumption or substitution of liability agreement. Subsection 11.20 Satisfaction of Mortgages and Release of Mortgage Files. Upon the payment in full of any Mortgage Loan, or the receipt by the Interim Servicer of a notification that payment in full will be escrowed in a manner customary for such purposes the Interim Servicer will act in accordance with Accepted Servicing Practices. In addition, upon the request of the Purchaser at any time, the Interim Servicer shall notify the Purchaser of any Mortgage Loans which have been paid in full or as to which the Interim Servicer has received notification that a payoff in full will be made. Upon request by the Interim Servicer, the Purchaser, shall promptly release the related mortgage documents to the Interim Servicer and the Interim Servicer shall prepare and process any satisfaction or release. No expense incurred in connection with any instrument of satisfaction or deed of reconveyance shall be chargeable to the Custodial Account or the Purchaser. In the event the Interim Servicer satisfies or releases a Mortgage without having obtained payment in full of the indebtedness secured by the Mortgage or should it otherwise prejudice any right the Purchaser may have under the mortgage instruments, the Interim Servicer, upon written demand, shall remit to the Purchaser the then outstanding principal balance of the related Mortgage Loan by deposit thereof in the Custodial Account. The Interim Servicer shall maintain the fidelity bond insuring the Interim Servicer against any loss it may sustain with respect to any Mortgage Loan not satisfied in accordance with the procedures set forth herein. From time to time and as appropriate for the servicing or foreclosure of the Mortgage Loan the Purchaser shall, upon request of the Interim Servicer and delivery to the Purchaser of a servicing receipt signed by a Servicing Officer, release the requested portion of the Mortgage File held by the Purchaser to the Interim Servicer. Such servicing receipt shall obligate the Interim Servicer to return the related Mortgage documents to the Purchaser when the need therefor by the Interim Servicer no longer exists, unless the Mortgage Loan has been liquidated and the Liquidation Proceeds relating to the Mortgage Loan have been deposited in the Custodial Account or the Mortgage File or such document has been delivered to an attorney, or to a public trustee or other public official as required by law, for purposes of initiating or pursuing legal action or other proceedings for the foreclosure of the Mortgaged Property either judicially or non-judicially, and the Interim Servicer has delivered to the Purchaser a certificate of a Servicing Officer certifying as to the name and address of the Person to which such Mortgage File or such document was delivered and the purpose or purposes of such delivery. Upon receipt of a certificate of a Servicing Officer stating that such Mortgage Loan was liquidated, the servicing receipt shall be released by the Purchaser to the Interim Servicer. Subsection 11.21 Servicing Compensation. As compensation for its services hereunder, the Interim Servicer shall be entitled to retain from interest payments on the Mortgage Loans the amounts provided for as the Interim Servicing Fee for such calendar month. The Interim Servicer shall be required to pay all expenses incurred by it in connection with its servicing activities hereunder and shall not be entitled to reimbursement therefor except as specifically provided for. Subsection 11.22 Notification of Adjustments. On each Adjustment Date, the Interim Servicer shall make interest rate adjustments for each Adjustable Rate Mortgage Loan in compliance with the requirements of the related Mortgage and Mortgage Note. The Interim Servicer shall execute and deliver the notices required by each Mortgage and Mortgage Note regarding interest rate adjustments. The Interim Servicer also shall provide timely notification to the Purchaser of all applicable data and information regarding such interest rate adjustments and the Interim Servicer's methods of implementing such interest rate adjustments. Upon the discovery by the Interim Servicer or the Purchaser that the Interim Servicer has failed to adjust a Mortgage Interest Rate or a Monthly Payment pursuant to the terms of the related Mortgage Note and Mortgage, the Interim Servicer shall immediately deposit in the Custodial Account from its own funds the amount of any interest loss caused thereby without reimbursement therefor. Subsection 11.23 Statement as to Compliance. The Interim Servicer will deliver to the Purchaser not later than 90 days following the end of each fiscal year of the Interim Servicer, which as of the Closing Date ends on the last day in December in each calendar year, an Officers' Certificate stating, as to each signatory thereof, that (i) a review of the activities of the Interim Servicer during the preceding year and of performance under this Agreement has been made under such officers' supervision and (ii) to the best of such officers' knowledge, based on such review, the Interim Servicer has fulfilled all of its obligations under this Agreement throughout such year, or, if there has been a default in the fulfillment of any such obligation, specifying each such default known to such officer and the nature and status thereof. Copies of such statement shall be provided by the Purchaser to any Person identified as a prospective purchaser of the Mortgage Loans. Subsection 11.24 Independent Public Accountants' Servicing Report. Not later than 90 days following the end of each fiscal year of the Interim Servicer, the Interim Servicer at its expense shall cause a firm of independent public accountants (which may also render other services to the Interim Servicer) which is a member of the American Institute of Certified Public Accountants to furnish a statement to the Purchaser or its designee to the effect that such firm has examined certain documents and records relating to the servicing of the Mortgage Loans under this Agreement or of mortgage loans under pooling and servicing agreements (including the Mortgage Loans and this Agreement) substantially similar one to another (such statement to have attached thereto a schedule setting forth the pooling and servicing agreements covered thereby) and that, on the basis of such examination conducted substantially in compliance with the Uniform Single Attestation Program for Mortgage Bankers, such firm confirms that such servicing has been conducted in compliance with such pooling and servicing agreements except for such significant exceptions or errors in records that, in the opinion of such firm, the Uniform Single Attestation Program for Mortgage Bankers requires it to report. Copies of such statement shall be provided by the Purchaser to any Person identified as a prospective purchaser of the Mortgage Loans. Subsection 11.25 Access to Certain Documentation. The Interim Servicer shall provide to the Office of Thrift Supervision, the FDIC and any other federal or state banking or insurance regulatory authority that may exercise authority over the Purchaser access to the documentation regarding the Mortgage Loans serviced by the Interim Servicer required by applicable laws and regulations. Such access shall be afforded without charge, but only upon reasonable request and during normal business hours at the offices of the Interim Servicer. In addition, access to the documentation will be provided to the Purchaser and any Person identified to the Interim Servicer by the Purchaser without charge, upon reasonable request during normal business hours at the offices of the Interim Servicer. Subsection 11.26 Reports and Returns to be Filed by Interim Servicer. The Interim Servicer shall comply with Code rules and regulations and other applicable laws and prepare and report information, statements or other filings required to be delivered to any governmental taxing authority or to any Purchaser pursuant to any applicable law with respect to the Mortgage Loans and the transactions contemplated hereby in accordance with Accepted Servicing Practices. In addition, the Interim Servicer shall provide the Purchaser with such information concerning the Mortgage Loans as is necessary for the Purchaser to prepare its federal income tax return as any Purchaser may reasonably request from time to time. In accordance with Accepted Servicing Practices, the Interim Servicer shall file information reports with respect to the receipt of mortgage interest received in a trade or business, reports of foreclosures and abandonments of any Mortgaged Property and information returns relating to cancellation of indebtedness income with respect to any Mortgaged Property. EX-10.37 6 EXHIBIT 10.37 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- MASTER MORTGAGE LOAN PURCHASE FACILITY CONTIFINANCIAL CORPORATION Seller CONTIMORTGAGE CORPORATION Interim Servicer GREENWICH CAPITAL FINANCIAL PRODUCTS, INC. Purchaser ---------------- Dated as of August 9, 1999 Fixed and Adjustable Rate First and Second Lien Residential Mortgage Loans - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS Page ---- SECTION 1. Definitions........................................................1 SECTION 2. Purchase and Sale of Mortgage Loans...............................18 SECTION 3. Mortgage Loan Schedules...........................................19 SECTION 4. Purchase Price....................................................19 Subsection 4.01 Initial Purchase Price ....................................19 Subsection 4.02 Deferred Purchase Price ...................................20 Subsection 4.03 Purchase Price Adjustment .................................22 Subsection 4.04 Purchased Interest 23 SECTION 5. Examination of Mortgage Files ....................................23 SECTION 6. Conveyance from Seller to Purchaser...............................23 Subsection 6.01 Conveyance of Mortgage Loans; Possession of Servicing Files ...........................................24 Subsection 6.02 Books and Records .........................................24 Subsection 6.03 Delivery of Mortgage Loan Documents .......................24 SECTION 7. Representations, Warranties and Covenants of the Seller: Remedies for Breach...............................................25 Subsection 7.01 Representations and Warranties Respecting the Seller ......25 Subsection 7.02 Representations and Warranties Regarding Individual Mortgage Loans .................................28 Subsection 7.03 Remedies for Breach of Representations and Warranties .....28 Subsection 7.04 Repurchase of Certain Mortgage Loans ......................31 SECTION 8. Closing; Conditions Precedent.....................................31 SECTION 9. Closing Documents.................................................33 SECTION 10.Costs.............................................................35 SECTION 11.Interim Servicer's Servicing Obligations..........................35 SECTION 12.Removal of Mortgage Loans from Inclusion under This Agreement Upon a Whole Loan Transfer or a Pass-Through Transfer...35 SECTION 13.The Seller........................................................38 Subsection 13.01 Indemnification by the Seller ...........................38 Subsection 13.02 Merger or Consolidation of the Seller and Interim Servicer ................................................38 Subsection 13.03 Limitation on Liability of the Interim Servicer and Others ..................................................39 -i- Subsection 13.04 Interim Servicer Not to Resign ..........................39 Subsection 13.05 No Transfer of Servicing ................................40 Subsection 13.06 Joint and Several Liability .............................40 Subsection 13.07 Right of Set-off ........................................40 SECTION 14. DEFAULT .........................................................40 Subsection 14.01 Events of Default .......................................40 Subsection 14.02 Waiver of Defaults ......................................42 SECTION 15. Termination......................................................42 SECTION 16. Successor to the Interim Servicer................................43 SECTION 17. Financial Statements.............................................44 SECTION 18. Mandatory Delivery: Grant of Security Interest...................44 SECTION 19. Notices..........................................................45 SECTION 20. Severability Clause..............................................45 SECTION 21. Counterparts.....................................................46 SECTION 22. Governing Law....................................................46 SECTION 23. Intention of the Parties.........................................46 SECTION 24. Successors and Assigns...........................................46 SECTION 25. Waivers..........................................................47 SECTION 26. Exhibits.........................................................47 SECTION 27. Nonsolicitation..................................................47 SECTION 28. General Interpretive Principles..................................47 SECTION 29. Reproduction of Documents........................................48 SECTION 30. Further Agreements...............................................48 -ii- Page ---- EXHIBITS -------- EXHIBIT 1 SELLER'S OFFICER'S CERTIFICATE EXHIBIT 2 FORM OF OPINION OF COUNSEL TO THE SELLERS EXHIBIT 3 SECURITY RELEASE CERTIFICATION EXHIBIT 4 ASSIGNMENT AND CONVEYANCE EXHIBIT 5 CONTENTS OF EACH MORTGAGE FILE EXHIBIT 6 FORM OF CUSTODIAL AGREEMENT EXHIBIT 7 [RESERVED] EXHIBIT 8 FORM OF ESCROW ACCOUNT LETTER AGREEMENT EXHIBIT 9 SERVICING ADDENDUM EXHIBIT 10 FORM OF CONFIRMATION EXHIBIT 11 BUY-UP/BUY-DOWN SCHEDULE EXHIBIT 12 UNDERWRITING GUIDELINES EXHIBIT 13 MODIFICATIONS TO UNDERWRITING GUIDELINES EXHIBIT 14 REPRESENTATIONS AND WARRANTIES SCHEDULE I MORTGAGE LOAN SCHEDULE SCHEDULE 2 MATERIAL SUBSIDIARIES -iii- MASTER MORTGAGE LOAN PURCHASE FACILITY This is a MASTER MORTGAGE LOAN PURCHASE FACILITY, dated as of August 9, 1999, by and among Greenwich Capital Financial Products, Inc., having an office at 600 Steamboat Road, Greenwich, Connecticut 06830 (the "Purchaser"), ContiFinancial Corporation, having an office at 277 Park Avenue, New York, New York 10172 (the "Seller") and ContiMortgage Corporation having an address at One ContiPark, 338 South Warminster Road, Hatboro, Pennsylvania 19040 (the "Interim Servicer"). W I T N E S S E T H : WHEREAS, subject to the terms and conditions of this Agreement, the Seller shall sell, from time to time, to the Purchaser, and, the Purchaser shall purchase, from time to time, from the Seller, certain conventional fixed and adjustable rate residential first and second lien mortgage loans, (the "Mortgage Loans") as described herein on a servicing-released basis, and which shall be delivered in groups of whole loans on various dates as provided herein (each, a "Closing Date"); WHEREAS, each Mortgage Loan is secured by a mortgage, deed of trust or other security instrument creating a first or second lien on a residential dwelling located in the jurisdiction indicated on the Mortgage Loan Schedule for the related Mortgage Loan Package, which is to be annexed hereto on each Closing Date as Schedule I; and WHEREAS, the Purchaser, the Seller and the Interim Servicer wish to prescribe the manner of the conveyance, interim servicing and control of the Mortgage Loans; NOW, THEREFORE, in consideration of the premises and mutual agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Purchaser, the Seller and the Interim Servicer agree as follows: SECTION 1. Definitions. For purposes of this Agreement the following capitalized terms shall have the respective meanings set forth below. Act of Insolvency: With respect to Seller or Interim Servicer and their Material Subsidiaries, (i) the filing of a petition, commencing, or authorizing the commencement of any case or proceeding under any bankruptcy, insolvency, reorganization, liquidation, dissolution or similar law relating to the protection of creditors of the Seller or the Interim Servicer or one of its Material Subsidiaries, or suffering any such petition or proceeding to be commenced by another; provided that any actively disputed petition or proceeding commenced by another shall not constitute an Act of Insolvency unless such petition or proceeding is not dismissed within 30 days of its commencement, (ii) seeking the appointment of a receiver, trustee, custodian or similar official for Seller, Interim Servicer or a Material Subsidiary or any substantial part of the property of either, (iii) the appointment of a receiver, conservator, or manager for Seller or Interim Servicer or a Material Subsidiary or any substantial part of the property of either by any governmental agency or authority -2- having the jurisdiction to do so, (iv) the making or offering by Seller or Interim Servicer or a Material Subsidiary of a composition with its respective creditors or a general assignment for the benefit of creditors, (v) the admission in writing by Seller or Interim Servicer or a Material Subsidiary of such party's inability to pay its ordinary course trade debts as they become due or mature, or (vi) any Governmental Authority or agency or any person, agency or entity acting or purporting to act under Governmental Authority shall have taken any action to condemn, seize or appropriate, or to assume custody or control of, all or any substantial part of the property of Seller or Interim Servicer or a Material Subsidiary, or shall have taken any action to displace the management of such party or to curtail its authority in the conduct of the business of such party. Adjustable Rate Mortgage Loan: A Mortgage Loan which provides for the adjustment of the Mortgage Interest Rate payable in respect thereto. Adjustment Date: With respect to each Adjustable Rate Mortgage Loan, the date set forth in the related Mortgage Note on which the Mortgage Interest Rate on such Adjustable Rate Mortgage Loan is adjusted in accordance with the terms of the related Mortgage Note. Agreement: This Master Mortgage Loan Purchase Facility including all exhibits, schedules, amendments and supplements hereto. American General: American General Finance, Inc., a Delaware corporation. AmGen Mortgage Loan: Any Mortgage Loan that was previously financed by American General pursuant to any facility with American General, or one of its affiliates, as lender or purchaser. Applicable Sublimit Percent Limitations: As of any date of determination, the maximum percentage (as measured by unpaid principal balance as of such date) of the aggregate unpaid principal balance of the Mortgage Loans purchased by Purchaser under this Agreement and not previously sold pursuant to a Whole Loan Transfer or a Pass-Through Transfer, which are represented by the product categories set forth below: Product Maximum Percentage Fixed Rate, Second Lien Mortgage Loans 10% of the unpaid principal balance of the Fixed RateMortgage Loans Fixed Rate Mortgage Loans with an LTV 15% of the unpaid principal balance in excess of 85% of the Fixed Rate Mortgage Loans Fixed Rate Mortgage Loans with an LTV 1% of the unpaid principal balance in excess of 90% of the Fixed Rate Mortgage Loans Adjustable Rate Mortgage Loans with 10% of the unpaid principal balance of the -3- an LTV in excess of 85% Adjustable Rate Mortgage Loans Second Lien Mortgage Loans with a 25% of the unpaid principal balance CLTV in excess of 85% of the Second Lien Mortgage Loans Second Lien Mortgage Loans with a 1% of the unpaid principal balance CLTV in excess of 90% Second Lien Mortgage Loans Mortgage Loans with a FICO Prior to August 31, 1999, l0% of the less than 550 unpaid score principal balance of the Mortgage Loans for which a FICO score is available, and thereafter 5% of the unpaid principal balance of the Mortgage Loan for which a FICO score is available HOEPA Mortgage Loans 10% of the unpaid principal balance of the Portfolio Mortgage Loans Appraised Value: With respect to any Mortgaged Property, the lesser of (i) the value thereof as determined by an appraisal made for the originator of the Mortgage Loan at the time of origination of the Mortgage Loan, and (ii) the purchase price paid for the related Mortgaged Property by the Mortgagor with the proceeds of the Mortgage Loan, provided, however, in the case of a Refinanced Mortgage Loan, such value of the Mortgaged Property is based solely upon the value determined by an appraisal made for the originator of such Refinanced Mortgage Loan at the time of origination of such Refinanced Mortgage Loan; provided further, that notwithstanding the foregoing, with respect to any Retention Mortgage Loan the appraisal described in clause (i) may have been obtained not more than 18 months prior to the origination date for such Retention Mortgage Loan. Assignment and Conveyance: An assignment and conveyance of the Mortgage Loans purchased on a Closing Date in the form annexed hereto as Exhibit 4. Assignment of Mortgage: An individual assignment of the Mortgage, notice of transfer or equivalent instrument in recordable form, sufficient under the laws of the jurisdiction wherein the related Mortgaged Property is located to give record notice of the sale of the Mortgage to the Purchaser. Business Day: Any day other than (a) a Saturday or Sunday, or (b) a day on which the New York Stock Exchange, the Federal Reserve Bank of New York, the Custodian or savings and loan institutions in the State of New York, Pennsylvania or Connecticut are authorized or obligated by law or executive order to be closed or (c) a day on which the Purchaser is closed for business. -4- Capital Stock: With respect to any Person means any and all shares, interests, share capital, rights to subscribe for or purchase, warrants, options, participations, or other equivalents of or interests or membership interests in (however designated) equity of such Person, including any Preferred Stock, any limited or general partnership interest and any limited liability company membership interest (but excluding any debt securities convertible into such equity), any rights to subscribe for or purchase any thereof. Carve-out Mortgage Loan: Any Eligible Mortgage Loan (a) which a Seller is required to sell to American General pursuant to the terms of the Commitment Agreement, dated as of January 29, 1999 among the Seller, ContiMortgage Corporation and American General (the "American General Purchase Agreement") in order to satisfy the minimum delivery requirements under such agreement as in effect on the date hereof, (b) which the Seller, with the prior written consent of the Purchaser, sells to any third party or to American General in excess of the minimum delivery requirements under the American General Purchase Agreement as in effect on the date hereof or (c) which the Seller sells to any third party as part of a pool of mortgage loans with a purchase price which is equal to or greater than the prevailing Initial Purchase Price specified under this Agreement. Cash-out Refinancing: A Refinanced Mortgage Loan the proceeds of which were in excess of the principal balance of any existing senior mortgage on the related Mortgaged Property and related closing costs, and were used to pay any existing first mortgage, related closing costs and subordinate mortgages on the related Mortgaged Property. Change in Control: With respect to the Seller or any Material Subsidiary the occurrence of any of the following events: (i) Any "person" (as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than any Permitted Holder, is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that such person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 35% of the total voting power of the Voting Stock of such Person; provided, however, that the Permitted Holders beneficially own (as defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, in the aggregate a lesser percentage of the total voting power of the Voting Stock of the Seller or such Material Subsidiary than such other person and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors of the Seller or such Material Subsidiary (for the purposes of this clause (i), such other person shall be deemed to beneficially own any Voting Stock of a corporation -5- held by another corporation (a "parent corporation"), if such other person is the beneficial owner (as defined above for such person), directly or indirectly, of more than 35% of the voting power of the Voting Stock of such parent corporation and the Permitted Holders beneficially own (as defined above for the Permitted Holders), directly or indirectly, in the aggregate a lesser percentage of the voting power of the Voting Stock of such parent corporation and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the board of directors of such parent corporation); (ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Seller or such Material Subsidiary, as the case may be, (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Seller or such Material Subsidiary, as the case may be, was approved by a vote of 66-2/3% of the directors of the Seller or such Material Subsidiary, as the case may be, then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors then in office; or (iii) the merger or consolidation of the Seller or such Material Subsidiary, as the case may be, with or into another Person or the merger of another Person with or into the Seller or such Material Subsidiary, as the case may be, or the liquidation, wind-up or dissolution of the Seller or such Material Subsidiary, as the case may be, or the sale of all or substantially all the assets of the Seller or such Material Subsidiary, as the case may be, to another Person (other than a Person that is controlled by the Permitted Holders), and, in the case of any such merger or consolidation, the securities of the Seller or such Material Subsidiary, as the case may be, that are outstanding immediately prior to such transaction and which represent 100% of the aggregate voting power of the Voting Stock of the Seller or such Material Subsidiary, as the case may be, are changed into or exchanged for cash, securities or property, unless pursuant to such transaction such securities are changed into or exchanged for, in addition to any other consideration, securities of the surviving corporation that represent immediately after such transaction, at least a majority of the aggregate voting power of the Voting Stock of the surviving corporation; provided, however, that the sale by the Seller or its Subsidiaries from time to time solely of the consumer and commercial loans, leases and receivables purchased or originated or acquired by the Seller to a trust for the purpose solely of effecting one -6- or more securitizations shall not be treated hereunder as a sale of all or substantially all the assets of the Seller. For purposes of this definition of Change of Control, neither ContiTrade Services, L.L.C. nor California Lending Group shall constitute a Material Subsidiary. Notwithstanding anything contained in this Agreement to the contrary, a Change in Control accompanied by an equity infusion in the Seller of not less than $100,000,000 shall not constitute an Event of Default under this Agreement for 60 days after the date of such equity infusion, unless an additional Change of Control shall occur during such 60 day period. Closing Date: The date or dates on which the Purchaser from time to time shall purchase and a Seller from time to time shall sell to the Purchaser, the Mortgage Loans listed on the related Mortgage Loan Schedule with respect to the related Mortgage Loan Package. Closing Documents: With respect to the initial Closing Date, the documents required pursuant to Section 9(a) and 9(b) and with respect to any other Closing Date, the documents required pursuant to Section 9(b). Code: The Internal Revenue Code of 1986, or any successor statute thereto. Combined Loan-to-Value Ratio or CLTV: As of any date for any Second Lien Mortgage Loan, the fraction, expressed as a percentage, the numerator of which is the sum of (a) the original principal balance of the Mortgage Loan, plus (b) the unpaid principal balance of any first mortgage loan secured by the Mortgaged Property as of such date, and the denominator of which is the Appraised Value of the related Mortgaged Property. Condemnation Proceeds: All awards, compensation and settlements in respect of a taking of all or part of a Mortgaged Property by exercise of the power of condemnation or the right of eminent domain. Confirmation: With respect to any Mortgage Loan Package purchased and sold on any Closing Date, the letter agreement between the Purchaser and the Seller, in the form annexed hereto as Exhibit 10 (including any exhibits, schedules and attachments thereto), setting forth the terms and conditions of such transaction and describing the Mortgage Loans to be purchased by the Purchaser on such Closing Date. A Confirmation may relate to more than one Mortgage Loan Package to be purchased on one or more Closing Dates hereunder. Custodial Account: The separate account established by Purchaser, in its own name and for its own benefit, as identified to the Seller by the Purchaser. -7- Custodial Agreement: The agreement governing the retention of the originals of each Mortgage Note, Mortgage, Assignment of Mortgage and other Mortgage Loan Documents, a form of which agreement is annexed hereto as Exhibit 6. Custodian: Manufacturers and Traders Trust Company, a New York banking corporation, in its capacity as the custodian under the Custodial Agreement, or its successor in interest or assigns, or any successor custodian. Cut-off Date: With respect to each Mortgage Loan Package, a date to be mutually agreed upon between the Seller and the Purchaser, as set forth in the related Confirmation. Deferred Purchase Price: Shall have the meaning set forth in Subsection 4.02. Deleted Mortgage Loan: A Mortgage Loan replaced or to be replaced by a Qualified Substitute Mortgage Loan. Disposed Mortgage Loan: Shall have the meaning set forth in Subsection 4.02. Disposition Expenses: With respect to each Mortgage Loan, an amount equal to the excess of (i) all reasonable out-of-pocket expenses incurred by Purchaser in connection with the purchase and resale of such Mortgage Loans (including out-of-pocket legal, due diligence, servicing transfer expenses and any hedging losses (offset by any hedging gains)) over (ii) 0.25% of the unpaid principal balance of such Mortgage Loan as of the related Cut-off Date. Due Date: With respect to each Mortgage Loan, the day of the calendar month on which the related Monthly Payment is due on a Mortgage Loan, exclusive of any days of grace. Eligible Account: Either (i) an account or accounts maintained with a federal or state chartered depository institution or trust company the short-term unsecured debt obligations of which (or, in the case of a depository institution or trust company that is the principal subsidiary of a holding company, the short-term unsecured debt obligations of such holding company) are rated A-1 by S&P or Prime-1 by Moody's (or a comparable rating if another rating agency is specified by the Purchaser by written notice to the Interim Servicer) at the time any amounts are held on deposit therein, (ii) an account or accounts the deposits in which are fully insured by the FDIC or (iii) a trust account or accounts maintained with a federal or state chartered depository institution or trust company acting in its fiduciary capacity. Eligible Accounts may bear interest. Eligible Mortgage Loan: A first or second lien residential mortgage loan originated by ContiMortgage Corporation or acquired by ContiMortgage Corporation (i) that is not more than 29 days delinquent; (ii) that was underwritten in accordance with the Underwriting Guidelines acceptable to the Purchaser as verified in accordance with Section 4 hereof; (iii) that was originated by ContiMortgage Corporation not more than 60 days prior to the proposed Closing Date or if such Mortgage Loan was not originated by ContiMortgage Corporation, that was originated not more than 75 days prior to the proposed Closing Date, and (iv) that meets the criteria of established -8- purchasers of loans of such type as reasonably determined by Purchaser in good faith and in consultation with the Seller. Escrow Account: The separate trust account or accounts created and maintained pursuant to this Agreement which shall be entitled "ContiMortgage Corporation, as servicer, in trust for the Purchaser and various Mortgagors, Fixed and Adjustable Rate Mortgage Loans," established at a financial institution acceptable to the Purchaser. Escrow Payments: The amounts constituting ground rents, taxes, assessments, water charges, sewer rents, fire and hazard insurance premiums and other payments required to be escrowed by the Mortgagor with the Mortgagee pursuant to the terms of any Mortgage Note or Mortgage. Event of Default: Any one of the events enumerated in Subsection 14.01. Exception Limit: With respect to each Mortgage Loan Package, the maximum amount of Exception Loans which Purchaser shall be obligated to purchase on the related Closing Date at the standard Initial Purchase Price, which amount shall be equal to (a) with respect to each Closing Date occurring prior to the date which is 60 days following the date hereof, 10% of the unpaid principal balance of the Mortgage Loans constituting the Mortgage Loan Package, not more than 50% of which shall consist of Exception Loans with material appraised value or LTV exceptions showing a variance of 10% (which percentage shall be raised to 15% if the Seller demonstrates to the reasonable satisfaction of the Purchaser that whole loan purchasers of loans similar to the Eligible Loans generally accept a variance in appraised value or LTV exceptions equal to or greater than 15%) or more as determined by the Purchaser; and (b) thereafter, 5% of the unpaid principal balance of the Mortgage Loans constituting the Mortgage Loan Package. Exception Loan: Any mortgage loan that a Seller offers to sell to the Purchaser hereunder which has a material exception to the Underwriting Guidelines as determined by the Purchaser without appropriate compensating factors but which the Purchaser determines in its reasonable discretion has an implied Initial Purchase Price of not less than 80% of the outstanding principal balance of such mortgage loan; provided, however, that any such mortgage loan which Purchaser has determined, following its underwriting, is an Eligible Mortgage Loan shall not constitute an Exception Loan without demonstrable evidence presented to the Seller that such mortgage loan is an Exception Loan and without the Seller having had reasonable opportunity to consult with Purchaser regarding such categorization. No Mortgage Loan with an implied Initial Purchase Price of less than 80% shall be eligible for sale hereunder unless the Seller and the Purchaser mutually agree to revise the Initial Purchase Price for such Mortgage Loan. Facility Limit: Shall have the meaning set forth in Section 2. Facility Termination Date: The earliest of (i) the date on which the Purchaser purchases Mortgage Loans pursuant to this Agreement with aggregate outstanding principal balance -9- equal to the Maximum Purchase Amount, (ii) March 31, 2000, or (iii) the date on which an Event of Default occurs. Fannie Mae: Fannie Mae, a federally chartered and privately owned corporation existing under the Federal National Mortgage Association Charter Act or any successor thereto. FDIC: The Federal Deposit Insurance Corporation, or any successor thereto. First Lien: With respect to each Mortgaged Property, the lien of the mortgage, deed of trust or other instrument securing a mortgage note which creates a first lien on the Mortgaged Property. Final Recovery Determination: With respect to any defaulted Mortgage Loan or any REO Property (other than a Mortgage Loan or REO Property purchased by the Seller pursuant to this Agreement), a determination made by the Interim Servicer that all Insurance Proceeds, Liquidation Proceeds and other payments or recoveries which the Interim Servicer, in its reasonable good faith judgment, expects to be finally recoverable in respect thereof have been so recovered. The Interim Servicer shall maintain records, prepared by a servicing officer of the Interim Servicer, of each Final Recovery Determination. Fixed Rate Mortgage Loan: A Mortgage Loan with respect to which the Mortgage Interest Rate set forth in the Mortgage Note is fixed for the term of such Mortgage Loan. Freddie Mac: The Federal Home Loan Mortgage Corporation or any successor thereto. Funding Limit: As defined in Section 2 hereof. Governmental Authority: Any nation or government, any state, agency, instrumentality or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any court or arbitrator having jurisdiction over the Seller or Interim Servicer, any of their Subsidiaries or any of their properties. Gross Margin: With respect to any Adjustable Rate Mortgage Loan, the fixed percentage amount set forth in the related Mortgage Note and the related Mortgage Loan Schedule that is added to the Index on each Adjustment Date in accordance with the terms of the related Mortgage Note to determine the new Mortgage Interest Rate for such Mortgage Loan. HOEPA: The Home Ownership and Equity Protection Act of 1994. Holdback: As defined in Subsection 4.01(b). -10- HUD: The United States Department of Housing and Urban Development or any successor thereto. Indebtedness Documents: Those document listed on Schedule 3 hereto. Index: With respect to any Adjustable Rate Mortgage Loan, the index identified on the Mortgage Loan Schedule and set forth in the related Mortgage Note for the purpose of calculating the interest rate thereon. Initial Closing Date: The Closing Date on which the Purchaser purchases and the Seller sells the first Mortgage Loan Package hereunder. Initial Purchase Price: As defined in Subsection 4.01. Insurance Proceeds: With respect to each Mortgage Loan, proceeds of insurance policies insuring the Mortgage Loan or the related Mortgaged Property. Interim Servicer Material Adverse Effect: A material adverse effect upon (i) the business operations, properties or assets of the Interim Servicer, (ii) the ability of the Interim Servicer to perform its obligations, or of the Purchaser to enforce any of its rights or remedies, under this Agreement with respect to servicing or any of documents to be executed and/or delivered hereunder which relate to servicing, or (iii) the validity or enforceability of this Agreement, in the case of (i), (ii) and (iii) above (a) taking into consideration the financial condition of the Interim Servicer and its Subsidiaries as of the date of this Agreement and (b) without taking into consideration any further deterioration of the financial condition of the Interim Servicer and its Subsidiaries after the date of this Agreement. Interim Servicer Termination Event: Either (a) the breach of any representation, warranty, covenant or agreement under this Agreement or the Custodial Agreement by the Interim Servicer in its capacity as interim servicer, or (b) any action is taken by any governmental, regulatory, or self-regulatory authority to remove, limit, restrict, suspend or terminate the rights, privileges, or operations of the Interim Servicer, including suspension as an issuer, lender or seller/servicer of related types of assets, or (c) an Interim Servicer Material Adverse Effect shall occur, which in the case of (a) or (b) above results in a material adverse effect on the value of any Mortgage Loan, the Purchaser's interest in any Mortgage Loan or the Interim Servicer's ability to perform its obligations under this Agreement. Interim Servicing Fee: With respect to each Mortgage Loan, the amount of the annual servicing fee the Purchaser shall pay to the Interim Servicer, which shall, for each month, be equal to one-twelfth of the product of (a) the Interim Servicing Fee Rate and (b) the unpaid principal balance of the Mortgage Loan. If the Interim Servicing Period includes any partial month, the Interim Servicing Fee for such month shall be pro rated at a per diem rate based upon a 30-day month. Interim Servicing Fee Rate: The per annum rate at which the Interim Servicing Fee accrues, which rate shall be equal to (i) during the period that the Interim Servicer provides interim servicing, 0.50% per annum and (ii) during the period the Interim Servicer acts as subservicer pursuant to Section 12(b)(7) of this Agreement, 0.50% per annum less the annual fee payable to the related servicer. -11- Interim Servicing Period: With respect to any Mortgage Loan, the period commencing on the related Closing Date and ending on the earlier of the thirtieth day following the Closing Date and completion of a servicing transfer with respect to such Mortgage Loan; provided, however that the Interim Servicing Period may be extended for additional periods of thirty days by written notice to the Interim Servicer from the Purchaser. Liquidation Proceeds: Amounts, other than Insurance Proceeds and Condemnation Proceeds, received in connection with the liquidation of a defaulted Mortgage Loan through trustee's sale, foreclosure sale or otherwise, other than amounts received following the acquisition of REO Property. Loan-to-Value Ratio or LTV: With respect to any Mortgage Loan as of any date of determination, the ratio on such date of the outstanding principal amount of the Mortgage Loan, to the Appraised Value of the Mortgaged Property. Material Adverse Effect: A material adverse effect upon (i) the business operations, properties or assets of the Seller and its Subsidiaries, taken as a whole or of ContiMortgage Corporation, in its capacity as orginator of the Mortgage Loans, (ii) the ability of Seller or ContiMortgage Corporation, in its capacity as orginator of the Mortgage Loans, to perform its obligations, or of the Purchaser to enforce any of its rights or remedies, under this Agreement or any of documents to be executed and/or delivered hereunder, (iii) the validity or enforceability of this Agreement; or (iv) the Mortgage Loans taken as a whole, in the case of (i), (ii), (iii) and (iv) above (a) taking into consideration the financial condition of the Seller and ContiMortgage Corporation, in its capacity as orginator of the Mortgage Loans, and their Subsidiaries as of the date of this Agreement and (b) without taking into consideration any further deterioration of the financial condition of the Seller or ContiMortgage Corporation, in its capacity as orginator of the Mortgage Loans, and their Subsidiaries after the date of this Agreement. Material Subsidiary: means (a) any Subsidiary identified as a Material Subsidiary on Schedule 2 attached hereto, and (b) any Subsidiary created or acquired after the date hereof that would be a "Significant Subsidiary" of the Seller within the meaning of Rule 1-02 under Regulation S-X promulgated by the Securities Exchange Commission. Maximum Mortgage Interest Rate: With respect to each Adjustable Rate Mortgage Loan, a rate that is set forth on the related Mortgage Loan Schedule and in the related Mortgage Note and is the maximum interest rate to which the Mortgage Interest Rate on such Mortgage Loan may be increased on any Adjustment Date. -12- Maximum Purchase Amount: One billion dollars ($1,000,000,000), subject to increase as provided in Section 2(c). Minimum Mortgage Interest Rate: With respect to each Adjustable Rate Mortgage Loan, a rate that is set forth on the related Mortgage Loan Schedule and in the related Mortgage Note and is the minimum interest rate to which the Mortgage Interest Rate on such Mortgage Loan may be decreased on any Adjustment Date. Monthly Payment: With respect to any Mortgage Loan, the scheduled combined payment of principal and interest payable by a Mortgagor under the related Mortgage Note on each Due Date. Moody's: Moody's Investors Service, Inc. or its successor in interest. Mortgage: The mortgage, deed of trust or other instrument creating a first or second lien (as indicated on the Mortgage Loan Schedule) on Mortgaged Property securing the Mortgage Note. Mortgage File: The items pertaining to a particular Mortgage Loan referred to in Exhibit 5 annexed hereto, and any additional documents required to be added to the Mortgage File pursuant to this Agreement or the related Confirmation. Mortgage Interest Rate: With respect to each Fixed Rate Mortgage Loan, the fixed annual rate of interest provided for in the related Mortgage Note and, with respect to each Adjustable Rate Mortgage Loan, the annual rate that interest accrues on such Adjustable Rate Mortgage Loan from time to time in accordance with the provisions of the related Mortgage Note. Mortgage Loan: Each first or second lien, residential mortgage loan, sold, assigned and transferred to the Purchaser pursuant to this Agreement and the related Confirmation and identified on the Mortgage Loan Schedule annexed to this Agreement on such Closing Date, which Mortgage Loan includes without limitation the Mortgage File, the Monthly Payments, Principal Prepayments, Liquidation Proceeds, Condemnation Proceeds, Insurance Proceeds, REO Disposition proceeds, and all other rights, benefits, proceeds and obligations arising from or in connection with such Mortgage Loan. Mortgage Loan Documents: The documents listed in Section 2 of the Custodial Agreement pertaining to any Mortgage Loan. Mortgage Loan Package: The Mortgage Loans listed on a Mortgage Loan Schedule, delivered to the Custodian and the Purchaser at least five (5) Business Days prior to the related Closing Date (or such lesser period mutually agreed upon) and attached to this Agreement as Schedule I on the related Closing Date. -13- Mortgage Loan Schedule: With respect to each Mortgage Loan Package, the schedule of Mortgage Loans to be annexed hereto as Schedule I (or a supplement thereto) on each Closing Date for the Mortgage Loan Package delivered on such Closing Date in both hard copy and electronic modem, such schedule setting forth the following information with respect to each Mortgage Loan in the Mortgage Loan Package: (1) the Seller's Mortgage Loan identifying number; (2) the Mortgagor's first and last name; (3) the street address of the Mortgaged Property including the state and zip code; (4) a code indicating whether the Mortgaged Property is owner-occupied; (5) the type of Residential Dwelling constituting the Mortgaged Property; (6) the original months to maturity; (7) the original date of the Mortgage Loan and the remaining months to maturity from the Cut-off Date, based on the original amortization schedule; (8) the Loan-to-Value Ratio at origination; (9) the Mortgage Interest Rate in effect immediately following the Cut-off Date; (10) the date on which the first Monthly Payment was due on the Mortgage Loan; (11) the stated maturity date; (12) the amount of the Monthly Payment at origination; (13) with respect to each Adjustable Rate Mortgage Loan, the amount of the Monthly Payment as of the Cut-off Date; (14) the last Due Date on which a Monthly Payment was actually applied to the unpaid Stated Principal Balance; (15) the original principal amount of the Mortgage Loan; (16) the Stated Principal Balance of the Mortgage Loan as of the close of business on the Cut-off Date; (17) with respect to each Adjustable Rate Mortgage Loan, the first Adjustment Date; (18) with respect to each Adjustable Rate Mortgage Loan, the Gross Margin; (19) a code indicating the purpose of the loan (i.e., purchase financing, refinancing); (20) with respect to each Adjustable Rate Mortgage Loan, the Maximum Mortgage Interest Rate under the terms of the Mortgage Note; (21) with respect to each Adjustable Rate Mortgage Loan, the Minimum Mortgage Interest Rate under the terms of the Mortgage Note; (22) the Mortgage Interest Rate at origination; (23) with respect to each Adjustable Rate Mortgage Loan, the Periodic Rate Cap; (24) with respect to each Adjustable Rate Mortgage Loan, the first Adjustment Date immediately following the Cut-off Date; (25) with respect to each Adjustable Rate Mortgage Loan, the Index; (26) the date on which the first Monthly Payment was due on the Mortgage Loan and, if such date is not consistent with the Due Date currently in effect, such Due Date; (27) a code indicating whether the Mortgage Loan is an Adjustable Rate Mortgage Loan or a Fixed Rate Mortgage Loan; (28) a code indicating the documentation style (i.e., full, alternative or reduced); (29) a code indicating if the Mortgage Loan is subject to the provisions of HOEPA; (30) the Appraised Value of the Mortgaged Property; (31) the sale price of the Mortgaged Property, if applicable; (32) a code indicating whether the Mortgage is a First Lien or Second Lien; (33) the Mortgagor's FICO score (to the extent a FICO score is available); (34) a code indicating whether the Mortgage Loan is a Retention Mortgage Loan; (35) a code indicating if interest on such Mortgage Loan is calculated on a 30/360 basis; (36) the Mortgagor's social security number; (37) a code identifying origination source; (38) a code indicating if the Mortgage Loan is a balloon Mortgage Loan; (39) a code indicating the Mortgage Note class (borrower grade); (40) with respect to each Adjustable Rate Mortgage Loan, the adjustment frequency; (41) the ratio of original principal balance of the Mortgage Loan to the Mortgagor's income; (42) a code indicating the prepayment penalty, if any; and (43) with respect to any Second Lien Mortgage Loan, the outstanding principal balance of the First Line on the date of origination of such Second Lien Mortgage Loan. With respect to the Mortgage Loan Package in the aggregate, the Mortgage Loan Schedule shall set forth the following information, as of the related Cut-off Date: (1) the number of Mortgage Loans; (2) the Stated Principal Balance of the Mortgage Loans; (3) the weighted average Mortgage Interest Rate -14- of the Mortgage Loans; and (4) the weighted average maturity of the Mortgage Loans. Schedule I hereto shall be supplemented as of each Closing Date to reflect the addition of the Mortgage Loan Schedule with respect to the related Mortgage Loan Package. Mortgage Note: The original executed note or other evidence of the Mortgage Loan indebtedness of a Mortgagor. Mortgaged Property: The Mortgagor's real property securing repayment of a related Mortgage Note, consisting of a fee simple interest in a single parcel of real property improved by a Residential Dwelling. Mortgagee: The mortgagee or beneficiary named in the Mortgage and the successors and assigns of such mortgagee or beneficiary. Mortgagor: The obligor on a Mortgage Note, the owner of the Mortgaged Property and the grantor or mortgagor named in the related Mortgage and such grantor's or mortgagor's successor's in title to the Mortgaged Property. Officer's Certificate: A certificate signed by the Chairman of the Board or the Vice Chairman of the Board or a President or a Vice President and by the Treasurer or the Secretary or one of the Assistant Treasurers or Assistant Secretaries of the Person on behalf of whom such certificate is being delivered. One Month LIBOR: The rate per annum equal to the rate published by Bloomberg or if such rate is not available, the rate appearing at page 3750 of the Telerate Screen as one-month LIBOR on such date, and if such rate shall not be so quoted, the rate per annum at which the Purchaser is offered Dollar deposits at or about 11:00 A.M., eastern time, on such date by prime banks in the interbank eurodollar market where the eurodollar and foreign currency and exchange operations are then being conducted for delivery on such day for a period of one month. Opinion of Counsel: A written opinion of counsel, who may be salaried counsel for the Person on behalf of whom the opinion is being given, reasonably acceptable to each Person to whom such opinion is addressed. Pass-Through Transfer: The sale or transfer of some or all of the Mortgage Loans by the Purchaser to a trust to be formed as part of a publicly issued or privately placed mortgage-backed securities transaction. Periodic Rate Cap: With respect to each Adjustable Rate Mortgage Loan and any Adjustment Date therefor, a number of percentage points per annum that is set forth in the related Mortgage Loan Schedule and in the related Mortgage Note, which is the maximum amount by which the Mortgage Interest Rate for such Adjustable Rate Mortgage Loan may increase (without regard to the Maximum Mortgage -15- Interest Rate) or decrease (without regard to the Minimum Mortgage Interest Rate) on such Adjustment Date from the Mortgage Interest Rate in effect immediately prior to such Adjustment Date. Permitted Holders: The lineal descendants of Jules Fribourg, including any individual legally adopted; spouses of such descendants; trusts, the beneficiaries of which are any of the foregoing; partnerships, corporations, or other entities in which any of the foregoing (individually or collectively) has a controlling interest; and charitable organizations established by any of the foregoing. Person: An individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. Portfolio Mortgage Loan: As defined in Section 2 hereof. Preferred Stock: As applied to the Capital Stock of any Person, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person. Principal Prepayment: Any payment or other recovery of principal on a Mortgage Loan which is received in advance of its scheduled Due Date, including any prepayment penalty or premium thereon, which is not accompanied by an amount of interest representing scheduled interest due on any date or dates in any month or months subsequent to the month of prepayment. Qualified Substitute Mortgage Loan: A mortgage loan substituted for a Deleted Mortgage Loan pursuant to the terms of this Agreement which must, on the date of such substitution, (i) have an outstanding principal balance, after application of all scheduled payments of principal and interest due during or prior to the month of substitution, not in excess of the Stated Principal Balance of the Deleted Mortgage Loan as of the Due Date in the calendar month during which the substitution occurs, (ii) have a Mortgage Interest Rate not less than (and not more than one percentage point in excess of) the Mortgage Interest Rate of the Deleted Mortgage Loan, (iii) have a remaining term to maturity not greater than (and not more than one year less than) that of the Deleted Mortgage Loan, (iv) have a Due Date acceptable to Purchaser, (v) have a Loan-to-Value Ratio as of the date of substitution equal to or lower than the Loan-to-Value Ratio of the Deleted Mortgage Loan as of such date, (vi) conform to each representation and warranty set forth in Subsection 7.02 of this Agreement and (vii) be the same type of mortgage loan (i.e. fixed or adjustable rate with the same Gross Margin and Index as the Deleted Mortgage Loan). In the event that one or more mortgage loans are substituted for one or more Deleted Mortgage Loans, the amounts described in clause (i) hereof shall be determined on the basis of aggregate principal balances, the Mortgage Interest Rates described in clause (ii) hereof shall be determined on the basis of weighted average Mortgage Interest Rates and shall be satisfied as to each such mortgage loan, the terms described in clause (iii) shall be determined on the basis of weighted average remaining terms to maturity, the Loan-to-Value Ratios described in clause (v) hereof shall be satisfied as to -16- each such mortgage loan and, except to the extent otherwise provided in this sentence, the representations and warranties described in clause (vi) hereof must be satisfied as to each Qualified Substitute Mortgage Loan or in the aggregate, as the case may be. Refinanced Mortgage Loan: A Mortgage Loan the proceeds of which were not used to purchase the related Mortgaged Property. REO Disposition: The final sale by the Interim Servicer of any REO Property. REO Property: A Mortgaged Property acquired as a result of the liquidation of a Mortgage Loan. Repurchase Price: With respect to any Mortgage Loan, a price equal to (i) the product of the Stated Principal Balance of such Mortgage Loan times the purchase price percentage previously paid for the Mortgage Loan (including the Initial Purchase Price (taking into account any retained Holdback) and with respect to any Mortgage Loan sold pursuant to a Whole Loan Transfer the Deferred Purchase Price to the extent paid), plus (ii) interest on such Stated Principal Balance at the Mortgage Interest Rate from and including the last Due Date through which interest has been paid by or on behalf of the Mortgagor to the first day of the month following the date of repurchase, less amounts received in respect of such repurchased Mortgage Loan which are being held in the Custodial Account for distribution in connection with such Mortgage Loan. Residential Dwelling: A single (one-to-four) family residential dwelling, which may include condominiums and townhouses, manufactured housing which is real property under applicable state law or small multifamily or mixed-use property, but shall not include co-operatives or mobile homes. Retention Mortgage Loan: A Mortgage Loan which was originated by ContiMortgage Corporation to refinance an existing mortgage loan which was originated or acquired by ContiMortgage Corporation and as to which the Seller or servicer of the Mortgage Loan received a request for payoff or other indication that the mortgage loan will be paid off. Second Lien: With respect to each Mortgaged Property, the lien of the mortgage, deed of trust or other instrument securing a mortgage note which creates a second lien on the Mortgaged Property. Second Lien Mortgage Loan: A Mortgage Loan secured by the lien on the Mortgaged Property, subject to one prior lien on such Mortgaged Property securing financing obtained by the related Mortgagor. Servicing Addendum: The terms and conditions attached hereto as Exhibit 9 which will govern the servicing of the Mortgage Loans by the Interim Servicer during the Interim Servicing Period. -17- Servicing Advances: All customary, reasonable and necessary "out-of-pocket" costs and expenses incurred by the Interim Servicer in the performance of its servicing obligations, including, but not limited to, the cost of (i) preservation, restoration and repair of a Mortgaged Property, (ii) any enforcement or judicial proceedings with respect to a Mortgage Loan, including foreclosure actions and (iii) the management and liquidation of REO Property. Servicing File: With respect to each Mortgage Loan, the file retained by the Interim Servicer consisting of originals of all documents in the Mortgage File which are not delivered to the Purchaser or the Custodian and copies of the Mortgage Loan Documents set forth in Section 2 of the Custodial Agreement. S&P: Standard & Poor's Ratings Group or its successor in interest. Stated Principal Balance: As to each Mortgage Loan as of any date of determination, (i) the principal balance of the Mortgage Loan as of the Cut-off Date after giving effect to payments of principal received on or before such date, minus (ii) all amounts previously distributed to the Purchaser with respect to the related Mortgage Loan representing payments or recoveries of principal. Subsidiary: With respect to any Person, any other Person of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation, partnership or other entity (irrespective of whether or not at the time securities or other ownership interests of any other class or classes of such corporation, partnership or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person. Tax Service Contract: A transferable contract maintained for the Mortgaged Property with a tax service provider for the purpose of obtaining current information from local taxing authorities relating to such Mortgaged Property. Underwriting Guidelines: The general underwriting guidelines dated February, 1999 attached hereto as Exhibit 12, as modified by the Underwriting Guideline modifications attached as Exhibit 13 hereto, or such other mutually agreed guidelines. Voting Stock: With respect to any Person means all classes of Capital Stock or other interests (including partnership interests or membership interests) of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof. Whole Loan Transfer: Any sale or transfer of some or all of the Mortgage Loans by the Purchaser to a third party, which sale or transfer is not a Pass-Through Transfer. -18- SECTION 2. Purchase and Sale of Mortgage Loans. (a) From time to time prior to the Facility Termination Date, the Seller hereby agrees to offer to sell to the Purchaser all Eligible Mortgage Loans which are not Carve-out Mortgage Loans, and upon satisfaction of the conditions precedent set forth in Section 8 herein and subject to the terms of this Agreement, the Purchaser agrees to purchase such Eligible Mortgage Loans having an aggregate principal balance on the related Cut-off Date in an amount as set forth in the related Confirmation. Notwithstanding the foregoing, the Purchaser shall not have any obligation to purchase any Mortgage Loans to the extent that, after taking into account the Mortgage Loans to be purchased on any proposed Closing Date, (i) the aggregate principal amount of Mortgage Loans (as of their representative Cut-off Dates) purchased by the Purchaser hereunder and held by the Purchaser as of such proposed Closing Date and not sold or transferred in connection with a Whole Loan Transfer or a Pass-Through Transfer (such Mortgage Loans, the "Portfolio Mortgage Loans") would exceed $500,000,000 (the "Funding Limit"); (ii) the aggregate principal amount of Mortgage Loans (as of their representative Cut-off Dates) purchased by the Purchaser from the Seller under this Agreement would exceed the Maximum Purchase Amount; or (iii) the sum of the amount determined under clause (i) above, plus the aggregate amount of the advances outstanding under (a) the Master Repurchase Agreement Governing Purchases and Sales of Assets (the "Master Repurchase Agreement") dated as of August 9, 1999 among the Seller and the Purchaser plus (b) any financing or repurchase facility between the Seller and the Purchaser relating to assets of Empire Funding Corp. or California Lending Group, Inc. doing business as United Lending Group, Inc., would collectively exceed $650,000,000 (the "Facility Limit"). The Seller shall not offer more than one Mortgage Loan Package for sale to the Purchaser in any one week period or such shorter period as mutually agreed. The Purchaser agrees to provide not less than 30 days prior notice of any change in the criteria considered by the Purchaser in connection with determining whether any Mortgage Loan is an Eligible Mortgage Loan pursuant to clause (ii) and (iv) of the definition of Eligible Mortgage Loan; provided that, the Seller shall use best efforts to implement any changes in its program which are requested by the Purchaser sooner than such 30 day period to the extent reasonably practicable. The Purchaser and the Seller agree that upon the occurrence of an Interim Servicer Termination Event, the Purchaser, may, but shall have no obligation to, purchase any Mortgage Loans hereunder prior to the date a successor servicer assumes the responsibilities of the Interim Servicer hereunder; provided that, in the event a successor servicer has not assumed the responsibilities of the Interim Servicer hereunder within two weeks of its occurrence, the Purchaser shall have the right to terminate its obligation to purchase Mortgage Loans hereunder pursuant to Section 14.02. (b) As of each Closing Date, after giving effect to the purchase of the related Mortgage Loan Package to be made on such date, the Mortgage Loans will comply with the Applicable Sublimit Percent Limitations. (c) The Seller shall have the right, in their sole discretion, to increase the Maximum Purchase Amount hereunder from one billion dollars ($1,000,000,000) to one and one half billion dollars ($1,500,000,000) by providing written notice to the Purchaser of such election -19- and by delivering to the Purchaser a commitment increase fee equal to $625,000. In order to make such election, such written notice and the commitment increase fee must be received by the Purchaser not later than January 31, 2000. (d) The Seller agrees that prior to the Facility Termination Date, neither the Seller nor any affiliate shall commit to sell any Eligible Mortgage Loan other than a Carve-out Mortgage Loan for sale to any third party without the prior written consent of the Purchaser. (e) In the event that any Eligible Mortgage Loan purchased hereunder was originated by any third party and subsequently sold to the Purchaser hereunder, in addition to the Seller making the representations and warranties provided in Section 7 of this Agreement, the Seller shall use its reasonable best efforts to assign to the Purchaser any representations and warranties made by such third party and the related remedies with respect to the breach of any such representations and warranties. SECTION 3. Mortgage Loan Schedules. The Seller shall deliver the Mortgage Loan Schedule for a Mortgage Loan Package to be purchased on a particular Closing Date to the Purchaser at least five (5) Business Days (or such lesser period mutually agreed upon) prior to the related Closing Date. SECTION 4. Purchase Price. Subsection 4.01. Initial Purchase Price (a) Subject to the Holdback set forth in Subsection 4.01(b), the initial purchase price for each Eligible Mortgage Loan and each Exception Loan which would not cause the Exception Limit to be exceeded shall be equal to the Initial Purchase Price Percentage multiplied by the Stated Principal Balance of such Mortgage Loan as of the related Cut-off Date (the "Initial Purchase Price"). The Initial Purchase Price Percentage for each Eligible Mortgage Loan and each Exception Loan which would not cause the Exception Limit to be exceeded shall be determined pursuant to the pricing matrix attached hereto as Exhibit 11. The percentage of par used to calculate the Initial Purchase Price with respect to any Mortgage Loan which is not an Eligible Mortgage Loan or which is an Exception Loan which would cause the Exception Limit with respect to any Mortgage Loan Package to be exceeded shall be an amount mutually agreed upon between the Purchaser and the Seller without regard to the percentage determined pursuant to such pricing matrix. In addition to the Initial Purchase Price as described above, the Purchaser shall pay to the Seller, at closing, accrued interest on the Stated Principal Balance of each Mortgage Loan as of the related Cut-off Date at its Mortgage Interest Rate, net of the Interim Servicing Fee Rate, from the last paid through date for such Mortgage Loan through the day prior to the related Closing Date, both inclusive and determined on an actual over 360 basis. (b) An amount equal to four percent (4%) of the outstanding principal balance of each Mortgage Loan purchased on any Closing Date (the "Holdback") will be deferred -20- and paid to the Seller as follows: (i) two percent (2%) of the outstanding principal balance of such Mortgage Loan shall be paid on the date that Purchaser verifies that each Mortgage Loan in the Mortgage Loan Package either conforms to the Underwriting Guidelines or is an Exception Loan included within the related Exception Limit, and (ii) two percent (2%) of the outstanding principal balance of such Mortgage Loan shall be paid within five (5) Business Days following successful completion of the transfer of servicing with respect to such Mortgage Loan to the designee of the Purchaser as provided in Section 11 hereof. The Purchaser agrees to use reasonable efforts to complete the verification contemplated in clause (i) above within 2 to 3 Business Days during regular flow periods and within 5 Business Days during peak flow periods. In the event that the Purchaser determines that any Mortgage Loan does not conform to the Underwriting Guidelines, the Purchaser shall have the right to retain the related Holdback and require the Seller to repurchase such Mortgage Loan at the Initial Purchase Price minus the amount of any retained Holdback. Notwithstanding anything to the contrary in this Section 4, in the event that transfer of servicing with respect to any Mortgage Loan has not occurred prior to the date the Purchaser determines that such Mortgage Loan does not conform to the Underwriting Guidelines and is not an Exception Loan included within the related Exception Limit, then, in the event that the Seller does not repurchase such Mortgage Loan pursuant to Section 7.03, the Purchaser shall determine the market value of such Mortgage Loan in its sole reasonable discretion and may apply and set off the entire Holdback to the extent necessary to appropriately reflect the market value of such Mortgage Loan. Subsection 4.02. Deferred Purchase Price Upon the disposition of a Mortgage Loan by the Purchaser pursuant to a Whole Loan Transfer or Pass-Through Transfer (a "Disposed Mortgage Loan"), the Purchaser shall pay to the Seller a deferred purchase price (the "Deferred Purchase Price") from the proceeds of such Whole Loan Transfer or Pass-Through Transfer (including the proceeds from the sale of the servicing rights with respect to such Mortgage Loan) in an amount as set forth in this Subsection 4.02. (a) Subject to the provisions of Subsection 4.02(c), with respect to any Disposed Mortgage Loan sold pursuant to a Whole Loan Transfer, the Deferred Purchase Price shall equal (i) 75%, times (ii) the cash proceeds received by Purchaser in excess of the sum of (A) 102.25% of the unpaid principal balance of such Disposed Mortgage Loan, plus (B) Disposition Expenses. (b) Subject to the provisions of Subsection 4.02(c), with respect to any Disposed Mortgage Loan sold pursuant to a Pass-Through Transfer, the Deferred Purchase Price shall be calculated as follows: (i) If the cash proceeds of such sale exceed 102.25% of the unpaid principal balance of the Disposed Mortgage Loan plus Disposition Expenses (as defined below), such cash and non-cash consideration shall be distributed in the following amounts and priority: -21- (A) to the Purchaser, all cash proceeds up to 102.25% of the unpaid principal balance of such Disposed Mortgage Loan plus Disposition Expenses; (B) to the Seller and the Purchaser pro rata, 75% and 25%, respectively, of all cash proceeds from the sale of such Disposed Mortgage Loan in excess of the amount distributed to the Purchaser in clause (b) (i) (A) above; (C) to the Purchaser, a security representing 25% of any remaining non-cash consideration received and proceeds thereon; provided, however, that the Purchaser shall instead receive a security representing 50% of any remaining non-cash consideration received and proceeds thereon (in lieu of the lien or security interest specified under clause (b)(i)(D)) in the event that the Seller is prohibited to grant the lien or security interest specified under clause (b)(i)(D) due to the provisions of any of the Indebtedness Documents; and (D) to the Seller, a security representing 75% of any remaining non-cash consideration received and proceeds; provided, that such security shall be pledged to the securitization trust or to the Purchaser, as applicable, to secure any obligation to repurchase Disposed Mortgage Loans from the trust or the Purchaser; provided further, however, that the Seller shall instead receive a security representing 50% of any remaining non-cash consideration received and proceeds thereon in the event that the Seller is prohibited to grant the lien or security interest specified under this clause (b)(i)(D) due to the provisions of any of the Indebtedness Documents; provided, further, that in either case the Purchaser's and the Seller's interest under clauses (b)(i)(C) and (b)(i)(D) shall be pari passu. (ii) If the cash proceeds from the sale of such Disposed Mortgage Loan are less than 102.25% plus Disposition Expenses, such cash and non-cash consideration shall be distributed in the following amounts and priority: (A) to the Purchaser, all cash received; (B) to the Purchaser, a security in an amount equal to the difference between (i) 102.25% plus Disposition Expenses and (ii) gross cash proceeds received pursuant to subclause (b)(ii)(A) above. Such security shall bear interest at the rate of One Month LIBOR plus 5%, with interest to be compounded monthly; -22- (C) to the Purchaser, a security representing 25% of any remaining non-cash consideration received and proceeds thereon; provided, however, that the Purchaser shall instead receive a security representing 50% of any remaining non-cash consideration received and proceeds thereon (in lieu of the lien or security interest specified under clause (b)(ii)(D)) in the event that the Seller is prohibited to grant the lien or security interest specified under clause (b)(ii)(D) due to the provisions of any of the Indebtedness Documents; and (D) to the Seller, a security representing 75% of any remaining non-cash consideration received and proceeds; provided, that such security shall be pledged to the securitization trust or to the Purchaser, as applicable, to secure any obligation to repurchase Disposed Mortgage Loans from the trust or the Purchaser; provided further, however, that the Seller shall instead receive a security representing 50% of any remaining non-cash consideration received and proceeds thereon in the event that the Seller is prohibited to grant the lien or security interest specified under this clause (b)(ii)(D) due to the provisions of any of the Indebtedness Documents; provided, further, that in either case the Purchaser's and the Seller's interest under clauses (b)(ii)(C) and (b)(ii)(D) shall be pari passu. (c) Notwithstanding the provisions of this Subsection 4.02, in no event shall the Deferred Purchase Price with respect to any Mortgage Loan exceed an amount equal to six percent (6%) of the Initial Purchase Price paid by the Purchaser for such Mortgage Loan. Subsection 4.03. Purchase Price Adjustment On the date which is 18 months following the date on which any Mortgage Loan is subject to a Pass-Through Transfer or a Whole Loan Transfer in which the Purchaser received cash and non-cash consideration in excess of 102.25% of the unpaid principal balance of such Mortgage Loan plus Disposition Expenses, the Purchaser shall pay to the Seller a purchase price adjustment equal to (i) one-eighth of one percent (0.125%) times the aggregate unpaid principal balance of such Mortgage Loan as of the pool disposition cut-off date of such Pass-Through Transfer or Whole Loan Transfer less (ii) the total amount of the losses actually realized by the Purchaser or reasonably estimated by the Purchaser to be realized as a result of any repurchases by the Purchaser of such Mortgage Loans resulting from a breach of a representation or warranty in Section 7 hereof or in any document entered into in connection with a Pass-Through Transfer or Whole Loan Transfer pursuant to Section 12(b)(3) or any obligations or claims resulting from a breach of such a representation or warranty that exist on behalf of the Purchaser to repurchase such Mortgage Loan or any other Mortgage Loan which was subject to such Pass-Through Transfer or Whole Loan Transfer. For purposes of this Section 4.03, the Purchaser's losses on any Mortgage Loan shall be equal to the sum of (a) any unreimbursed indemnification expenses incurred or to be incurred by the Purchaser in connection with such Mortgage Loan, and (b) the excess, if any, of (i) the amount paid or to be paid -23- by the Purchaser in connection with any such repurchase, over (ii) the total proceeds received by the Purchaser with respect to such Mortgage Loan pursuant to such Whole Loan Transfer or Pass-Through Transfer, net of the expenses of such sale or other disposition and the reasonable expenses of the repurchase and resale of such Mortgage Loan. Subsection 4.04. Purchased Interest. The Purchaser shall own and be entitled to receive with respect to each Mortgage Loan purchased, (1) all recoveries of principal collected after the Cut-off Date, (2) all payments of interest on the Mortgage Loans net of the Interim Servicing Fee during the Interim Servicing Period and any subservicing fee payable pursuant to Section 12(b)(7) of this Agreement, and (3) all rights to service the Mortgage Loan (it being understood that the Purchaser may from time to time at its option retain the Interim Servicer to service the Mortgage Loan as set forth in this Agreement during the Interim Servicing Period as provided herein or as provided pursuant to Section 12(b)(7)). The Stated Principal Balance of each Mortgage Loan as of the related Cut-off Date is determined after application to the reduction of principal of payments of principal received on or before the related Cut-off Date. SECTION 5. Examination of Mortgage Files. In addition to the rights granted to the Purchaser under the related Confirmation to underwrite the Mortgage Loans and review the Mortgage Files prior to the Closing Date, prior to the related Closing Date, the Seller shall (a) deliver to the Custodian in escrow, for examination with respect to each Mortgage Loan to be purchased on such Closing Date, the related Mortgage File, including the Assignment of Mortgage, pertaining to each Mortgage Loan, or (b) make the related Mortgage File available to the Purchaser for examination at the Seller's offices or such other location as shall otherwise be agreed upon by the Purchaser and the Seller. Such examination may be made by the Purchaser or its designee at any reasonable time before or after the related Closing Date. If the Purchaser makes such examination prior to the related Closing Date and identifies any Mortgage Loans that do not conform to the terms of the related Confirmation or the Underwriting Guidelines, such Mortgage Loans may, at the Purchaser's option, be rejected for purchase by the Purchaser. If not purchased by the Purchaser, such Mortgage Loans shall be deleted from the related Mortgage Loan Schedule. The Purchaser may, at its option and without notice to the Seller, purchase all or part of any Mortgage Loan Package without conducting any partial or complete examination. The fact that the Purchaser has conducted or has determined not to conduct any partial or complete examination of the Mortgage Files shall not affect the Purchaser's (or any of its successors') rights to demand repurchase or other relief or remedy provided for in this Agreement. SECTION 6. Conveyance from Seller to Purchaser. Subsection 6.01. Conveyance of Mortgage Loans; Possession of Servicing Files. The Seller, simultaneously with the payment of the Initial Purchase Price, shall execute and deliver to the Purchaser an Assignment and Conveyance with respect to the related -24- Mortgage Loan Package in the form attached hereto as Exhibit 4. The Servicing File retained by the Interim Servicer with respect to each Mortgage Loan pursuant to this Agreement shall be appropriately identified in the Interim Servicer 's computer system to reflect clearly the sale of such related Mortgage Loan to the Purchaser. The Interim Servicer shall release from its custody the contents of any Servicing File retained by it only in accordance with this Agreement, except when such release is required in connection with a repurchase of any such Mortgage Loan pursuant to Subsection 7.03 or 7.04. Subsection 6.02. Books and Records. Record title to each Mortgage and the related Mortgage Note as of the related Closing Date shall be in the name of the Seller or an affiliate, the Purchaser, the Custodian or one or more designees of the Purchaser, as the Purchaser shall designate. Notwithstanding the foregoing, beneficial ownership of each Mortgage and the related Mortgage Note shall be vested solely in the Purchaser or the appropriate designee of the Purchaser, as the case may be. All rights arising out of the Mortgage Loans including, but not limited to, all funds received by the Seller or the Interim Servicer after the related Cut-off Date on or in connection with a Mortgage Loan as provided in Section 4 shall be vested in the Purchaser or one or more designees of the Purchaser; provided, however, that all such funds received on or in connection with a Mortgage Loan as provided in Section 4 shall be received and held by the Seller in trust for the benefit of the Purchaser or the assignee of the Purchaser, as the case may be, as the owner of the Mortgage Loans pursuant to the terms of this Agreement. It is the express intention of the parties that the transactions contemplated by this Agreement be, and be construed as, a sale of the Mortgage Loans by the Seller and not a pledge of the Mortgage Loans by the Seller to the Purchaser to secure a debt or other obligation of the Seller. Consequently, the sale of each Mortgage Loan shall be reflected as a sale on the Seller's business records, tax returns and financial statements. Subsection 6.03. Delivery of Mortgage Loan Documents. Pursuant to the Custodial Agreement to be executed among and delivered by the Purchaser, the Custodian and the Seller prior to the Initial Closing Date, the Seller shall from time to time in connection with each Closing Date, at least five (5) Business Days prior to such Closing Date, deliver and release to the Custodian those Mortgage Loan Documents as required by the Custodial Agreement with respect to each Mortgage Loan to be purchased and sold on the related Closing Date and set forth on the related Mortgage Loan Schedule delivered with such Mortgage Loan Documents. The Custodian shall certify its receipt of all such Mortgage Loan Documents required to be delivered pursuant to the Custodial Agreement for the related Closing Date, as evidenced by the Trust Receipt and Initial Certification of the Custodian in the form annexed to the Custodial Agreement. The Interim Servicer shall be responsible for maintaining the Custodial Agreement -25- during the Interim Servicing Period. The fees and expenses of the Custodian shall be paid by the Seller. The Seller shall forward to the Custodian original documents evidencing an assumption, modification, consolidation or extension of any Mortgage Loan entered into in accordance with this Agreement within two weeks of their execution, provided, however, that the Seller shall provide the Custodian with a certified true copy of any such document submitted for recordation within two weeks of its execution, and shall provide the original of any document submitted for recordation or a copy of such document certified by the appropriate public recording office to be a true and complete copy of the original reasonably promptly upon receipt and in any case within 180 days of its submission for recordation. SECTION 7. Representations, Warranties and Covenants of the Seller: Remedies for Breach. Subsection 7.01. Representations and Warranties Respecting the Seller. (a) The Seller represents, warrants and covenants to the Purchaser as of the initial Closing Date and each subsequent Closing Date or as of such date specifically provided herein or in the applicable Assignment and Conveyance that: (i) The Seller is duly organized, validly existing and in good standing under the laws of the state of its incorporation and is in compliance with any and all applicable "doing business" and licensing requirements of the laws of each state in which the conduct of its business requires it to do so; (ii) The Seller has the full power and authority to hold each Mortgage Loan, to sell each Mortgage Loan, and to execute, deliver and perform, and to enter into and consummate, all transactions contemplated by this Agreement. The Seller has duly authorized the execution, delivery and performance of this Agreement, has duly executed and delivered this Agreement, and this Agreement, assuming due authorization, execution and delivery by the Purchaser, constitutes a legal, valid and binding obligation of the Seller, enforceable against it in accordance with its terms except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors rights generally and by principles of equity (whether considered in a proceeding or action in equity or at law); (iii) The execution and delivery of this Agreement by the Seller and the performance of and compliance with the terms of this Agreement will not violate the Seller's articles of incorporation or by-laws or constitute a default under or result in a breach or acceleration of, any material contract, agreement or other instrument to which the Seller is a party or which may be applicable to the Seller or its assets; (iv) The Seller is not in violation of, and the execution and delivery of this Agreement by the Seller and its performance and compliance with the terms of this Agreement will -26- not constitute a violation with respect to, any order or decree of any court or any order or regulation of any federal, state, municipal or governmental agency having jurisdiction over the Seller or its assets, which violation might have consequences that would materially and adversely affect the condition (financial or otherwise) or the operation of the Seller or its assets or might have consequences that would materially and adversely affect the performance of its obligations and duties hereunder; (v) There are no actions or proceedings against, or investigations of, the Seller before any court, administrative or other tribunal (A) that might prohibit its entering into this Agreement, (B) seeking to prevent the sale of the Mortgage Loans or the consummation of the transactions contemplated by this Agreement or (C) that might prohibit or materially and adversely affect the performance by the Seller of its obligations under, or the validity or enforceability of, this Agreement; (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 by this Agreement, except for such consents, approvals, authorizations or orders, if any, that have been obtained prior to the Closing Date; (vii) The consummation of the transactions contemplated by this Agreement are in the ordinary course of business of the Seller, and the transfer, assignment and conveyance of the Mortgage Notes and the Mortgages by the Seller pursuant to this Agreement are not subject to the bulk transfer or any similar statutory provisions; (viii) The information delivered by the Seller to the Purchaser with respect to the Seller's loan loss, foreclosure and delinquency experience for the twelve (12) months immediately preceding the Initial Closing Date on mortgage loans underwritten to the same standards as the Mortgage Loans and covering mortgaged properties similar to the Mortgaged Properties, is true and correct in all material respects; and (ix) Neither this Agreement nor any written statement, report or other document prepared and furnished or to be prepared and furnished by the Seller pursuant to this Agreement or in connection with the transactions contemplated hereby contains any untrue statement of material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading. (b) The Interim Servicer represents, warrants and covenants to the Purchaser as of the initial Closing Date and each subsequent Closing Date or as of such date specifically provided herein or in the applicable Assignment and Conveyance: (i) The Interim Servicer is duly organized, validly existing and in good standing under the laws of the state of Delaware and is and will remain in compliance with the laws of each -27- state in which any 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 Interim Servicer has the full power and authority to execute, deliver and perform, and to enter into and consummate, all transactions contemplated by this Agreement. The Interim Servicer has duly authorized the execution, delivery and performance of this Agreement, has duly executed and delivered this Agreement, and this Agreement, assuming due authorization, execution and delivery by the Purchaser, constitutes a legal, valid and binding obligation of the Interim Servicer, enforceable against it in accordance with its terms except as the enforceability thereof may be limited by bankruptcy, insolvency or reorganization; (iii) The execution and delivery of this Agreement by the Interim Servicer and the performance of and compliance with the terms of this Agreement will not violate the Interim Servicer's articles of incorporation or by-laws or constitute a default under or result in a breach or acceleration of, any material contract, agreement or other instrument to which the Interim Servicer is a party or which may be applicable to the Interim Servicer or its assets; (iv) The Interim Servicer is not in violation of, and the execution and delivery of this Agreement by the Interim Servicer and its performance and compliance with the terms of this Agreement will not constitute a violation with respect to, any order or decree of any court or any order or regulation of any federal, state, municipal or governmental agency having jurisdiction over the Interim Servicer or its assets, which violation might have consequences that would materially and adversely affect the condition (financial or otherwise) or the operation of the Interim Servicer or its assets or might have consequences that would materially and adversely affect the performance of its obligations and duties hereunder; (v) With respect to any Mortgage Loan, in the event that the Interim Servicer retains record title, the Interim Servicer shall retain such record title to each Mortgage, each related Mortgage Note and the related Mortgage Files with respect thereto in trust for the Purchaser as the owner thereof and only for the purpose of servicing and supervising the servicing of each Mortgage Loan; (vi) There are no actions or proceedings against, or investigations of, the Interim Servicer before any court, administrative or other tribunal (A) that might prohibit its entering into this Agreement, (B) seeking to prevent the consummation of the transactions contemplated by this Agreement or (C) that might prohibit or materially and adversely affect the performance by the Interim Servicer of its obligations under, or the validity or enforceability of, this Agreement; (vii) No consent, approval, authorization or order of any court or governmental agency or body is required for the execution, delivery and performance by the Interim Servicer of, or compliance by the Interim Servicer with, this Agreement or the consummation of the transactions contemplated by this Agreement, except for such consents, approvals, authorizations or orders, if any, that have been obtained prior to the Closing Date; -28- (viii) The information delivered by the Interim Servicer to the Purchaser with respect to the Interim Servicer's loan loss, foreclosure and delinquency experience for the twelve (12) months immediately preceding the Initial Closing Date on mortgage loans underwritten to the same standards as the Mortgage Loans and covering mortgaged properties similar to the Mortgaged Properties, is true and correct in all material respects; and (ix) Neither this Agreement nor any written statement, report or other document prepared and furnished or to be prepared and furnished by the Interim Servicer pursuant to this Agreement or in connection with the transactions contemplated hereby contains any untrue statement of material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading. Subsection 7.02. Representations and Warranties Regarding Individual Mortgage Loans. The Seller hereby represents and warrants to the Purchaser that, as to each Mortgage Loan, as of the related Closing Date for such Mortgage Loan, the representations and warranties set forth on Exhibit 14 hereto are true and correct. Subsection 7.03. Remedies for Breach of Representations and Warranties. It is understood and agreed that the representations and warranties set forth in Subsections 7.01 and 7.02 shall survive the sale of the Mortgage Loans to the Purchaser and shall inure to the benefit of the Purchaser, notwithstanding any restrictive or qualified endorsement on any Mortgage Note or Assignment of Mortgage or the examination or lack of examination of any Mortgage File. Upon discovery by the Seller, the Interim Servicer 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 warranty relating to a particular Mortgage Loan), the party discovering such breach shall give prompt written notice to the others. Within 45 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 a Mortgage Loan or the Mortgage Loans, the Seller shall use its best efforts promptly to cure such breach in all material respects and, if such breach cannot be cured, the Seller shall, at the Purchaser's option, repurchase such Mortgage Loan at the Repurchase Price. In the event that a breach shall involve any representation or warranty set forth in Subsection 7.01(a) and such breach cannot be cured within 45 days of the earlier of either discovery by or notice to the Seller of such breach, all of the Mortgage Loans shall, at the Purchaser's option, be repurchased by the Seller at the Repurchase Price. The Seller shall, at the request of the Purchaser and assuming that the Seller has a Qualified Substitute Mortgage Loan, rather than repurchase the Mortgage Loan as provided above, remove such Mortgage Loan and substitute in its place a Qualified Substitute Mortgage Loan or -29- Loans; provided that such substitution shall be effected not later than 120 days after the related Closing Date. If the Seller has no Qualified Substitute Mortgage Loan, it shall repurchase the deficient Mortgage Loan. Any repurchase of a Mortgage Loan(s) pursuant to the foregoing provisions of this Subsection 7.03 shall occur on a date designated by the Purchaser and shall be accomplished (i) during the Interim Servicing Period by deposit in the Custodial Account of the amount of the Repurchase Price and (ii) following the Interim Servicing Period, by wire transfer of immediately available funds on the repurchase date to an account designated by the Purchaser. Notwithstanding the foregoing, in the event that the Purchaser, in its reasonable discretion, determines that any breach of a representation or warranty is not curable, the Purchaser may by written notice direct the Seller to repurchase such Mortgage Loan within 5 Business Days. At the time of repurchase of any deficient Mortgage Loan, the Purchaser shall reassign the repurchased Mortgage Loan to the Seller and direct the Custodian to deliver to the Seller any documents held by the Custodian relating to the repurchased Mortgage Loan and shall represent and warrant to the Seller that the Purchaser has full right to convey the Mortgage Loan to the Seller free of any claims, liens and encumbrances and that the Purchaser has taken no action to impair the value of such Mortgage Loan. In addition, the Purchaser shall use reasonable best efforts to cause the Servicer to represent and warrant that it has serviced such Mortgage Loans in accordance with applicable law and customary servicing procedures. In the event the Repurchase Price is deposited in the Custodial Account, the Seller shall, simultaneously with such deposit, give written notice to the Purchaser that such deposit has taken place. Upon such repurchase, the related Mortgage Loan Schedule shall be amended to reflect the withdrawal of the repurchased Mortgage Loan from this Agreement. As to any Deleted Mortgage Loan for which the Seller substitutes a Qualified Substitute Mortgage Loan or Loans, the Seller shall effect such substitution by delivering to the Purchaser for such Qualified Substitute Mortgage Loan or Loans the Mortgage Note, the Mortgage, the Assignment of Mortgage and such other documents and agreements as are required by the Custodial Agreement, with the Mortgage Note endorsed as required therein. The Seller shall (i) during the Interim Servicing Period deposit in the Custodial Account the Monthly Payment due on such Qualified Substitute Mortgage Loan or Loans in the month following the date of such substitution and (ii) following the Interim Servicing Period, shall remit to the Purchaser by wire transfer of immediately available funds the Monthly Payment due on such Qualified Substitute Mortgage Loan or Loans in the month following the date of such substitution. Monthly Payments due with respect to Qualified Substitute Mortgage Loans in the month of substitution will be retained by the Seller. For the month of substitution, distributions to the Purchaser will include the Monthly Payment due on such Deleted Mortgage Loan in the month of substitution, and the Seller shall thereafter be entitled to retain all amounts subsequently received by the Seller in respect of such Deleted Mortgage Loan. The Seller shall give written notice to the Purchaser that such substitution has taken place and shall amend the Mortgage Loan Schedule to reflect the removal of such Deleted Mortgage Loan from the terms of this Agreement and the substitution of the Qualified Substitute Mortgage Loan. Upon such substitution, such Qualified Substitute Mortgage Loan or Loans shall be subject to the terms of this Agreement in all respects, and the Seller shall be deemed to have -30- made with respect to such Qualified Substitute Mortgage Loan or Loans, as of the date of substitution, the covenants, representations and warranties set forth in Subsections 7.01 and 7.02. For any month in which the Seller substitutes one or more Qualified Substitute Mortgage Loans for one or more Deleted Mortgage Loans, the Seller will determine the amount (if any) by which the aggregate principal balance of all such Qualified Substitute Mortgage Loans as of the date of substitution is less than the aggregate Stated Principal Balance of all such Deleted Mortgage Loans (after application of scheduled principal payments due in the month of substitution). An amount equal to the product of the amount of such shortfall multiplied by the Repurchase Price shall be distributed by the Seller in the month of substitution pursuant to the Servicing Addendum. Accordingly, on the date of such substitution, the Seller will (i) during the Interim Servicing Period deposit in the Custodial Account from its own funds an amount equal to such amount and (ii) following the Interim Servicing Period, remit to the Purchaser from its own funds by wire transfer of immediately available funds an amount equal to such amount. In addition to such cure, repurchase and substitution 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 of any third party based on or grounded upon, or resulting from, a breach of the Seller's representations and warranties contained in this Section 7. It is understood and agreed that the obligations of the Seller set forth in this Subsection 7.03 to cure or repurchase a defective Mortgage Loan and to indemnify the Purchaser as provided in this Subsection 7.03, and the obligations of the Seller as provided in this Agreement including, but not limited to Subsection 13.07, 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 Subsections 7.01 or 7.02 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. In the event that the Seller fails to repurchase or substitute for a defective Mortgage Loan pursuant to this Section 7.03, in addition to any other remedies available to the Purchaser hereunder, the Purchaser shall have the right to offset amounts owed with respect thereto from future purchases of Mortgage Loans from the Seller and may apply such amount directly against any Holdback with respect to any Mortgage Loan. Subsection 7.04 Repurchase of Certain Mortgage Loans. In the event that the first or second contractually due Monthly Payment on any Mortgage Loan is not made within 45 days of the related Due Date for such Monthly Payment, then, the Seller shall, within three (3) Business Days, repurchase such Mortgage Loan at the Repurchase -31- Price, which shall be accomplished (i) during the Interim Servicing Period by deposit in the Custodial Account of the amount of the Repurchase Price and (ii) following the Interim Servicing Period, by wire transfer of immediately available funds on the repurchase date to an account designated by the Purchaser. In the event that the Seller fails to repurchase any Mortgage Loan pursuant to this Section 7.04, in addition to any other remedies available to the Purchaser hereunder, the Purchaser shall have the right to offset amounts owed with respect thereto from future purchases of Mortgage Loans from the Seller and may apply such amount directly against any Holdback with respect to any Mortgage Loan. SECTION 8. Closing; Conditions Precedent. The closing for each Mortgage Loan Package shall take place on the related Closing Date. At the Purchaser's option, the closing shall be either: by telephone, confirmed by letter or wire as the parties shall agree, or conducted in person, at such place as the parties shall agree. The closing for the Mortgage Loans to be purchased on each Closing Date shall be subject to each of the following conditions precedent: (a) all of the representations and warranties of the Seller under this Agreement shall be true and correct in all material respects as of the related Closing Date and no event shall have occurred which, with notice or the passage of time, would constitute a default under this Agreement; (b) the Purchaser shall have received, or the Purchaser's attorneys shall have received in escrow, all Closing Documents as specified in Section 9(b), in such forms as are agreed upon and acceptable to the Purchaser, duly executed by all signatories other than the Purchaser as required pursuant to the terms hereof; (c) the Seller shall have delivered and released to the Custodian all documents required pursuant to the Custodial Agreement; (d) the Seller shall have delivered and released to the Purchaser five days (or such shorter mutually agreed upon period) prior to such Closing Date with respect to each Mortgage Loan being purchased, a file that contains Seller's Mortgage Loan number, the outstanding principal balance, interest paid-to-date and delinquency status as of the end of business on the Cut-Off-Date, and such other information reasonably requested by Purchaser; (e) the Purchaser's satisfactory completion of a pre-funding due diligence investigation with respect to the Mortgage Loans, including a review of credit and legal files, as set forth in Section 5 and the Seller shall have substituted new mortgage loans with regard to any Mortgage Loans that Purchaser identified as not meeting the Underwriting Guidelines; -32- (f) following such purchase, the aggregate amount of Mortgage Loans purchased by Purchaser under this Agreement but not removed pursuant to a Whole Loan Transfer or a Pass-Through Transfer (measured by unpaid principal balance of the date of purchase by Purchaser) shall not exceed the Funding Limit or the Facility Limit; (g) following such purchase, the aggregate amount of Mortgage Loans purchased by Purchaser under this Agreement (measured by unpaid principal balance of the date of purchase by Purchaser) shall not exceed the Maximum Purchase Amount; (h) No Event of Default shall exist and be continuing; (i) following such purchase, the Applicable Sublimit Percent Limitations of the aggregate amount of Mortgage Loans purchased by Purchaser under this Agreement but not removed pursuant to a Whole Loan Transfer or a Pass-Through Transfer (measured as a percentage of the unpaid principal balance of the date of purchase by Purchaser) will not be exceeded; (j) The Purchaser shall have received all fees and expenses due and payable to the Purchaser prior to such Closing Date as to which Purchaser has provided an invoice not less than five (5) Business Days prior to the Closing Date; (k) all other terms and conditions of that certain Master Facilities Agreement, dated August 9, 1999 among the Seller, the Purchaser, Greenwich Capital Markets, Inc., ContiMortgage Corporation, ContiSecurities Asset Funding Corp. III, and ContiSecurities Asset Funding Corp. IV; and (l) all other terms and conditions of this Agreement shall have been complied with. Subject to the foregoing conditions, the Purchaser shall pay to the Seller on the related Closing Date the Initial Purchase Price, plus accrued interest pursuant to Section 4, by wire transfer of immediately available funds to the account designated by the Seller. SECTION 9. Closing Documents. (a) On or before the Initial Closing Date, the Seller and the Interim Servicer, as applicable, shall submit to the Purchaser fully executed originals of the following documents: 1. this Agreement, in four counterparts; -33- 2. the Custodial Agreement, in six counterparts, in the form attached as Exhibit 6 hereto; 3. as Escrow Account Letter Agreement in the form attached as Exhibit 8 hereto; 4. an Officer's Certificate, in the form of Exhibit 1 hereto, including all attachments thereto; 5. an Opinion of Counsel to the Seller and the Interim Servicer, in the form of Exhibit 2 hereto; 6. an "true sale" opinion from counsel to the Seller, in a form reasonably acceptable to the Purchaser; 7. an Opinion of Counsel to the Custodian, in a form acceptable to the Purchaser; 8. the Underwriting Guidelines; 9. the Master Repurchase Agreement, in four counterparts; 10. the Pledge and Security Agreement, made by the Seller and ContiMortgage Corporation in favor of the Purchaser and Greenwich Capital Markets, Inc., in four counterparts, in form and substance acceptable to the Purchaser; 11. that certain Master Facilities Agreement, dated August 9, 1999 among the Seller, the Purchaser, Greenwich Capital Markets, Inc., ContiFunding Corporation, ContiSecurities Asset Funding Corp. III, and ContiSecurities Asset Funding Corp. IV; 12. that certain engagement letter, dated August 9, 1999, among the Seller, ContiMortgage Corporation, ContiSecurities Asset Funding Corp. III, ContiSecurities Asset Funding Corp. IV, Greenwich Capital Markets, Inc. and the Purchaser; and 13. such other documents as the Purchaser may reasonably request, in form and substance reasonably acceptable to the Purchaser. (b) The Closing Documents for the Mortgage Loans to be purchased on each Closing Date (including the initial Closing Date) shall consist of fully executed originals of the following documents: 1. the related Confirmation; -34- 2. the related Mortgage Loan Schedule, one copy to be attached hereto and one copy to be attached to the Custodian's counterpart of the Custodial Agreement, as the Mortgage Loan Schedule thereto; 3. a Custodian's Trust Receipt and Initial Certification, as required under the Custodial Agreement, in a form acceptable to the Purchaser; 4. an Officer's Certificate from the Seller, in the form of Exhibit 1 hereto, including all attachments thereto; 5. if requested by the Purchaser due to a question arising as to validity, enforceability or compliance with law, an Opinion of Counsel to the Seller and the Interim Servicer, in the form of Exhibit 2 hereto and in the event that the Mortgage Loans to be sold would cause the aggregate outstanding principal balance of Mortgage Loans sold hereunder and secured by Mortgaged Properties from any state to exceed 10% of the aggregate outstanding principal balance of Mortgage Loans sold hereunder, then the Seller shall, upon request by the Purchaser, deliver an opinion of counsel acceptable to the Purchaser in such state, substantially in the form of items number 8, 9 and 10 of Exhibit 2; 6. if requested by the Purchaser, an Opinion of Counsel to the Custodian, in a form acceptable to the Purchaser; 7. a Security Release Certification, in the form of Exhibit 3 hereto executed by any Person, as requested by the Purchaser, if any of the Mortgage Loans has at any time been subject to any security interest, pledge or hypothecation for the benefit of such Person; 8. a certificate or other evidence of merger or change of name, signed or stamped by the applicable regulatory authority, if any of the Mortgage Loans were acquired by the Seller by merger or acquired or originated by the Seller while conducting business under a name other than its present name, if applicable; and 9. an Assignment and Conveyance in the form of Exhibit 4 hereto. SECTION 10. Costs. All other costs and expenses incurred in connection with the transfer and delivery of the Mortgage Loans, including without limitation recording fees, fees for title policy endorsements and continuations, fees for recording Assignments of Mortgage, the fees of the Custodian during the Interim Servicing Period and the Seller's attorney's fees, shall be paid by the Seller. The Seller agrees to pay the legal, due diligence and other costs and expenses incurred -35- in connection with the preparation and negotiation of documentation related to this Agreement (including fees and expenses of Purchaser's counsel). SECTION 11. Interim Servicer's Servicing Obligations. The Interim Servicer, as independent interim servicer, shall interim service and administer the Mortgage Loans during the Interim Servicing Period in accordance with the terms and provisions set forth in the Servicing Addendum attached as Exhibit 9, which Servicing Addendum is incorporated herein by reference. The obligations and responsibilities of the Interim Servicer, as interim servicer, shall terminate upon the termination of the Interim Servicing Period unless terminated with respect to all or a portion of the Mortgage Loans on an earlier date at the option of the Purchaser in accordance with the terms of this Agreement. The Interim Servicer shall cooperate fully with the Purchaser and any servicer to whom the servicing or master servicing of any Mortgage Loan is to be transferred and shall promptly provide the Purchaser or such successor servicer, as applicable, all documents and records reasonably requested by it to enable it to assume the Interim Servicer's functions as servicer hereunder and shall within one (1) Business Day of receipt transfer to the Purchaser or such successor servicer, as applicable, all amounts which then have been or should have been deposited in the Custodial Account by the Interim Servicer or which are thereafter received with respect to the Mortgage Loans. A servicing transfer shall be complete when the Purchaser or its designated servicer confirms to the Interim Servicer that it has received all necessary data and documents to perform its primary servicing or master servicing function, as applicable, and all required notices have been mailed by the Interim Servicer. The Purchaser and the Seller contemplate that the servicing transfer with respect to any Mortgage Loan shall be completed within 30 days following the related Closing Date and the Purchaser agrees to cooperate with the Interim Servicer to effect such transfer as promptly as possible. SECTION 12. Removal of Mortgage Loans from Inclusion under This Agreement Upon a Whole Loan Transfer or a Pass-Through Transfer. (a) The Seller, the Interim Servicer and the Purchaser agree that with respect to the Mortgage Loans purchased by the Purchaser hereunder, the Purchaser shall use its reasonable best efforts to effect either: (1) one or more Whole Loan Transfers; and/or (2) one or more Pass-Through Transfers. (b) With respect to each Whole Loan Transfer or Pass-Through Transfer, as the case may be, entered into by the Purchaser, the Seller and the Interim Servicer agrees: (1) to cooperate fully with the Purchaser and any prospective purchaser with respect to all reasonable requests and due diligence procedures including participating in meetings with rating agencies, bond insurers and such other -36- parties as the Purchaser shall designate and participating in meetings with prospective purchasers of the Mortgage Loans or interests therein and providing information reasonably requested by such purchasers; (2) to execute all agreements and documents necessary or appropriate in order to effect such Whole Loan Transfer or Pass-Through Transfer provided that each party thereto is given an opportunity to review and reasonably negotiate in good faith the content of such documents not specifically referenced or provided for herein; (3) with respect to any Whole Loan Transfer or Pass-Through Transfer, the Seller and the Interim Servicer shall make the representations and warranties regarding itself and the Seller shall remake the representations and warranties regarding the Mortgage Loans as of the related Closing Date for such Mortgage Loans, modified to the extent necessary to accurately reflect the pool statistics of the Mortgage Loans which are actually subject to such Whole Loan Transfer or Pass-Through Transfer. The Seller acknowledges that the representations and warranties provided pursuant to this Agreement are intended to satisfy the requirements of monoline insurance companies in connection with any Pass-Through Transfers or the requests of any third party purchasers of the Mortgage Loans in connection with any Whole Loan Transfers of the Mortgage Loans and agrees to make any additional representations and warranties (to the extent that the Seller has made such representations and warranties in any prior transaction) as of the related Closing Date for such Mortgage Loan as any such insurer or third party purchaser shall require; (4) to deliver to the Purchaser for inclusion in any prospectus or other offering material such publicly available information regarding the Seller and the Interim Servicer, their financial condition and their mortgage loan delinquency, foreclosure and loss experience and any additional information requested by the Purchaser, and to deliver to the Purchaser any similar non public, unaudited financial information, in which case the Purchaser shall bear the cost of having such information 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 or the Interim Servicer is capable of providing without unreasonable effort or expense, and to indemnify the Purchaser and its affiliates for material misstatements contained in such information; (5) to deliver to the Purchaser and to any Person designated by the Purchaser, at the Purchaser's expense, such statements and audit letters of reputable, certified public accountants pertaining to information provided by the Seller -37- or the Interim Servicer pursuant to clause 4 above as shall be reasonably requested by the Purchaser; (6) 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 Whole Loan Transfers or Pass-Through Transfers, as the case may be, such in-house Opinions of Counsel for a Pass-Through Transfer to be in the form reasonably acceptable to the Purchaser; and (7) if requested by the Purchaser, to negotiate and execute one or more subservicing agreements between the Seller and any master servicer which is generally considered to be a prudent master servicer in the secondary mortgage market, designated by the Purchaser in its sole discretion after consultation with the Seller and/or 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 pooling the Mortgage Loans with other Mortgage Loans for resale or securitization. The subservicing fee rate payable to the Seller in connection with any such subservicing agreement shall be equal to 0.50% per annum minus the applicable fee payable to the master servicer in the related Pass-Through Transfer. The Interim Servicer may decline to act as subservicer in any transaction if it deems the subservicing fee payable in connection therewith to be uneconomical and it provides reasonable prior notice to the Purchaser of such determination. In addition, the Interim Servicer may request that it be the subservicer pursuant to any Pass-Through Transfer, provided that such request is accompanied by a written commitment from a monoline insurance company and any related rating agencies permitting the Interim Servicer to act as subservicer in a securitization which would include mortgage loans of a type similar to the Mortgage Loans. With respect to each Whole Loan Transfer or Pass-Through Transfer, as the case may be, entered into by the Purchaser, the Purchaser shall, to the extent that the Purchaser, in its sole discretion, deems necessary to maximize value on the related Mortgage Loans, (a) directly restate the representations and warranties with respect to such Mortgage Loans or (b) agree to repurchase any Mortgage Loan which the Seller fails to repurchase due to the breach of a representation or warranty by the Seller. In no event shall such restatement or backup by the Purchaser be deemed to relieve the Seller of its obligation to restate representations and warranties under this Section 12 or to repurchase any Mortgage Loan as a result of a breach of a representation and warranty. In addition, in no event shall the Purchaser make any representation or warranty, or have any other responsibility hereunder, with respect to any Carve-out Mortgage Loan. -38- SECTION 13. The Seller and the Interim Servicer. Subsection 13.01. Additional Indemnification by the Seller and the Interim Servicer. In addition to the indemnification provided in Subsection 7.03, the Seller and the Interim Servicer, shall jointly and severally indemnify the Purchaser and hold the Purchaser harmless against any and all claims, losses, damages, penalties, fines, forfeitures, reasonable and necessary legal fees and related costs, judgments, and any other costs, fees and expenses that the Purchaser may sustain in any way related to the failure of the Seller or the Interim Servicer, to perform its obligations under this Agreement including but not limited to the Interim Servicer's obligation to service and administer the Mortgage Loans in compliance with the terms of this Agreement. Subsection 13.02. Merger or Consolidation of the Seller and Interim Servicer. The Seller and the Interim Servicer shall each keep in full force and effect its existence, rights and franchises as a corporation under the laws of the state of its incorporation except as permitted herein, and shall obtain and preserve its qualification to do business as a foreign corporation in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of this Agreement or any of the Mortgage Loans, and to enable the Seller or Interim Servicer to perform its duties under this Agreement. Any Person into which the Seller or the Interim Servicer may be merged or consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Seller or the Interim Servicer shall be a party, or any Person succeeding to the business of the Seller or the Interim Servicer, shall be the successor of such party hereunder, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding; provided, however, that the successor or surviving Person shall be the Seller or the Interim Servicer, as applicable, or an institution whose deposits are insured by FDIC or a company whose business is the origination and servicing of mortgage loans and, if applicable, shall satisfy any requirements of Section 16 with respect to the qualifications of a successor to the Interim Servicer. Subsection 13.03. Limitation on Liability of the Interim Servicer and Others. Neither the Interim Servicer nor any of the officers, employees or agents of the Interim Servicer shall be under any liability to the Purchaser for any action taken or for refraining from the taking of any action in good faith in connection with the servicing of the Mortgage Loans pursuant to this Agreement, or for errors in judgment; provided, however, that this provision shall not protect the Interim Servicer or any such person against any breach of warranties or representations made herein, or failure to perform its obligations in compliance with any standard of care set forth in this Agreement, or any liability which would otherwise be imposed by reason of any breach of the terms and conditions of this Agreement. The Interim Servicer and any officer, -39- employee or agent of the Interim Servicer may rely in good faith on any document of any kind prima facie properly executed and submitted by any Person respecting any matters arising hereunder. The Interim Servicer shall not be under any obligation to appear in, prosecute or defend any legal action which is not incidental to its obligation to sell or duty to service the Mortgage Loans in accordance with this Agreement and which in its opinion may result in its incurring any expenses or liability; provided, however, that the Interim Servicer may, with the consent of the Purchaser, undertake any such action which it may deem necessary or desirable in respect to this Agreement and the rights and duties of the parties hereto. In such event, the legal expenses and costs of such action and any liability resulting therefrom shall be expenses, costs and liabilities for which the Purchaser shall be liable, the Interim Servicer shall be entitled to reimbursement therefor from the Purchaser upon written demand except when such expenses, costs and liabilities are subject to the Interim Servicer's indemnification under Subsections 7.03 or 13.01. Subsection 13.04. Interim Servicer Not to Resign. The Interim Servicer shall not assign this Agreement or resign from the obligations and duties hereby imposed on it except by mutual consent of the Interim Servicer and the Purchaser or upon the determination that its servicing duties hereunder are no longer permissible under applicable law and such incapacity cannot be cured by the Interim Servicer in which event the Interim Servicer may resign as interim servicer. Any such determination permitting the resignation of the Interim Servicer as interim servicer shall be evidenced by an Opinion of Counsel to such effect delivered to the Purchaser which Opinion of Counsel shall be in form and substance acceptable to the Purchaser. No such resignation shall become effective until a successor shall have assumed the Interim Servicer 's responsibilities and obligations hereunder in the manner provided in Section 16. Subsection 13.05. No Transfer of Servicing. With respect to the retention of the Interim Servicer to service the Mortgage Loans during the Interim Servicing Period, the Interim Servicer acknowledges that the Purchaser has acted in reliance upon the Interim Servicer 's independent status, the adequacy of its servicing facilities, plan, personnel, records and procedures, its integrity, reputation and financial standing and the continuance thereof. Without in any way limiting the generality of this Section, the Interim Servicer shall not either assign this Agreement or the servicing hereunder or delegate its rights or duties hereunder or any portion thereof, or sell or otherwise dispose of all or substantially all of its property or assets, without the prior written approval of the Purchaser, which consent will not be unreasonably withheld. Subsection 13.06. Joint and Several Liability. The Seller and the Interim Servicer are jointly and severally liable for all representations, warranties, covenants, indemnities and obligations (including repurchase obligations) of the Seller or the Interim Servicer under this Agreement. Purchaser may deal exclusively with the Seller or the Interim Servicer in connection with any claims for repurchase and/or indemnification pursuant to the terms of this Agreement. -40- Subsection 13.07. Right of Set-off. In addition to its rights hereunder, in the event that the Seller fails to repurchase a Mortgage Loan pursuant to Subsection 7.03 or Subsection 7.04, or either the Seller or the Interim Servicer fails to indemnify the Purchaser pursuant to Subsection 7.03 or Subsection 13.01 of this Agreement, or upon the occurrence of any Event of Default, the Purchaser shall have the right, without prior notice to the Seller, any such notice being expressly waived by the Seller to the extent permitted by applicable law, to proceed against any of the Seller's or the Interim Servicers' assets (including without limitation any right to any Initial Purchase Price, Holdback, Deferred Purchase Price, Purchase Price Adjustment, or Interim Servicing Fee and any collateral held pursuant to any warehouse, repurchase or other financing facility) which may be in the possession of the Purchaser, any of the Purchaser's affiliates or its designee (including the Custodian), including the right to set-off such amounts against monies owed by the Seller or the Interim Servicer to the Purchaser pursuant to this Agreement, without prejudice to the Purchaser's right to recover any deficiency. Notwithstanding the foregoing, the Purchaser agrees to provide prior notice of a set-off against the Initial Purchase Price of any Mortgage Loans to be delivered to the Purchaser following the Purchaser's decision to effect such set-off. SECTION 14. DEFAULT. Subsection 14.01. Events of Default. In case one or more of the following Events of Default by the Seller or the Interim Servicer shall occur and be continuing, that is to say: (i) failure on the part of the Seller duly to observe or perform any material covenants or agreements on its part set forth in this Agreement or in the Custodial Agreement which continues unremedied for a period of three Business Days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Seller by the Purchaser or by the Custodian; or (ii) an Act of Insolvency occurs with respect to the Seller or the Interim Servicer; (iii) The Seller or the Interim Servicer shall admit its inability to, or its intention not to, perform any of its obligations hereunder; (iv) any governmental, regulatory, or self-regulatory authority takes any action to remove, limit, restrict, suspend or terminate the rights, privileges, or operations of the Seller or any of its Material Subsidiaries, including suspension as an issuer, lender or seller/servicer of related types of assets, which suspension materially adversely affects the value of the Mortgage Loans or Purchaser's interest in the Mortgage Loans; -41- (v) The Seller or the Interim Servicer dissolves, merges or consolidates with another entity unless it is the surviving party, or sells, transfers, or otherwise disposes of a material portion of its business or assets, without the Purchaser's prior written consent; (vi) The Purchaser, in its good faith judgment, believes that a Material Adverse Effect has occurred; (vii) An Interim Servicer Termination Event has occurred and a successor servicer has not assumed the responsibilities of the Interim Servicer hereunder within two weeks of such occurrence; or (viii) the Interim Servicer knowingly and willfully fails to deposit any amount required to be deposited in the Custodial Account at the time required under this Agreement, or the Interim Servicer fails to deposit any amount required to be deposited in the Custodial Account within two (2) Business Days of notice by the Purchaser of its failure to deposit such amount (and which initial failure was not knowing and willful) or the Interim Servicer is determined to have failed to deposit any amount required to be deposited in the Custodial Account for a second time (whether or not knowing and willful); or (ix) the Interim Servicer attempts to assign its right to servicing compensation hereunder; or (x) any Change in Control of the Seller or any Material Subsidiary shall have occurred without the prior consent of the Purchaser which consent with respect to any Change of Control of a Material Subsidiary shall not be unreasonably withheld; or (xi) The occurrence and continuance of a material "event of default" or of an "event of termination" on the part of Seller or the Interim Servicer under any agreement between the Seller or the Interim Servicer (or an affiliate thereof) on the one hand, and the Purchaser (or an affiliate thereof) on the other hand, which has not been waived by the Purchaser (or its affiliate), provided that such event of default or event of termination does not arise solely as a result of a default under an agreement to which the Seller or the Interim Servicer (or its affiliate) is not a party; or (xii) The Seller's failure to repurchase any Mortgage Loan or indemnify the Purchaser as required under this Agreement which continues unremedied for a period of two (2) Business Days following notice to the Seller; then, and in each and every such case, following such Event of Default, the Purchaser, by notice in writing to the Seller and the Interim Servicer may, in addition to whatever rights the Purchaser may have at law or equity (or as otherwise set forth in this Agreement) to damages, including injunctive relief and specific performance, (a) terminate all the rights and obligations of the Interim Servicer as interim servicer under this Agreement, and (b) terminate Purchaser's commitment to purchase any further Mortgage Loans pursuant to this Agreement. On or after the receipt by the Interim Servicer -42- of such written notice, all authority and power of the Interim Servicer to interim service the Mortgage Loans under this Agreement shall on the date set forth in such notice pass to and be vested in the successor appointed pursuant to Section 16. Subsection 14.02. Waiver of Defaults. The Purchaser may waive any default by the Seller or the Interim Servicer in the performance of its obligations hereunder and its consequences. Upon any such waiver of a past default, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been remedied for every purpose of this Agreement. No such waiver shall extend to any subsequent or other default or impair any right consequent thereon except to the extent expressly so waived. SECTION 15. Termination. The respective obligations and responsibilities of the Interim Servicer , as interim servicer, shall terminate at the expiration of the Interim Servicing Period unless terminated on an earlier date at the option of the Purchaser or pursuant to Section 14. Upon written request from the Purchaser in connection with any such termination, the Seller or the Interim Servicer shall prepare, execute and deliver, any and all documents and other instruments, place in the Purchaser's possession all Mortgage Files, and do or accomplish all other acts or things necessary or appropriate to effect the purposes of such notice of termination, whether to complete the transfer and endorsement or assignment of the Mortgage Loans and related documents, or otherwise, at the Seller's sole expense. The Interim Servicer agrees to cooperate with the Purchaser and such successor in effecting the termination of the Interim Servicer's responsibilities and rights hereunder as interim servicer, including, without limitation, the transfer to such successor for administration by it of all cash amounts which shall at the time be credited by the Interim Servicer to the Custodial Account or Escrow Account or thereafter received with respect to the Mortgage Loans. SECTION 16. Successor to the Interim Servicer. Prior to termination of the Interim Servicer's responsibilities and duties under this Agreement pursuant to Section 12, 14 or 15, the Purchaser shall (i) succeed to and assume all of the Interim Servicer's responsibilities, rights, duties and obligations under this Agreement, or (ii) appoint a successor which shall succeed to all rights and assume all of the responsibilities, duties and liabilities of the Interim Servicer as interim servicer under this Agreement. In connection with such appointment and assumption, the Purchaser may make such arrangements for the compensation of such successor out of payments on Mortgage Loans as it and such successor shall agree. In the event that the Interim Servicer's duties, responsibilities and liabilities as interim servicer under this Agreement should be terminated pursuant to the aforementioned Sections, the Interim Servicer shall discharge such duties and responsibilities during the period from the date it acquires knowledge of such termination until the effective date thereof with the same degree of diligence and prudence which it is obligated to exercise under this Agreement, and shall take no action whatsoever that might impair or prejudice the rights or financial condition of the Purchaser or such successor. The termination of the Interim Servicer as interim servicer pursuant to the aforementioned Sections shall not become effective until a successor shall be appointed pursuant to this Section 16 and shall in no event relieve the Seller or the Interim Servicer of the representations and warranties made pursuant to Subsections 7.01 and -43- 7.02 and the remedies available to the Purchaser under Subsection 7.03 or 7.04, it being understood and agreed that the provisions of such Subsections 7.01, 7.02 and 7.03 and 7.04 shall be applicable to the Seller and the Interim Servicer notwithstanding any such resignation or termination of the Interim Servicer, or the termination of this Agreement. Any successor appointed as provided herein shall execute, acknowledge and deliver to the Interim Servicer and to the Purchaser an instrument accepting such appointment, whereupon following a completion of the servicing transfer (as contemplated in Section 11 hereof) such successor shall become fully vested with all the rights, powers, duties, responsibilities, obligations and liabilities of the Interim Servicer, with like effect as if originally named as a party to this Agreement and the Custodial Agreement provided, however, that such successor shall not assume, and Interim Servicer shall indemnify such successor for, any and all liabilities arising out of the Interim Servicer's acts as servicer. Any termination of the Interim Servicer as servicer pursuant to Section 12, 14 or 15 shall not affect any claims that the Purchaser may have against the Interim Servicer arising prior to any such termination or resignation or remedies with respect to such claims. The Interim Servicer shall timely deliver to the successor the funds in the Custodial Account and the Escrow Account and the Mortgage Files and related documents and statements held by it hereunder and the Interim Servicer shall account for all funds. The Interim Servicer shall execute and deliver such instruments and do such other things all as may reasonably be required to more fully and definitely vest and confirm in the successor all such rights, powers, duties, responsibilities, obligations and liabilities of the Interim Servicer as servicer. The successor shall make arrangements as it may deem appropriate to reimburse the Interim Servicer for amounts the Interim Servicer actually expended as servicer pursuant to this Agreement which the successor is entitled to retain hereunder and which would otherwise have been recovered by the Interim Servicer pursuant to this Agreement but for the appointment of the successor servicer. SECTION 17. Financial Statements. The Seller understands that in connection with the Purchaser's marketing of the Mortgage Loans, the Purchaser may make available to prospective purchasers the Seller's and the Interim Servicer's financial statements for the most recently completed three fiscal years respecting which such statements are available. The Seller and the Interim Servicer also shall make available any comparable interim statements to the extent any such statements have been prepared by the Seller or the Interim Servicer (and are available upon request to members or stockholders of the Seller or the public at large). The Seller and the Interim Servicer, if it has not already done so, agrees to furnish promptly to the Purchaser copies of the statements specified above. The Interim Servicer also shall make available information on its servicing performance with respect to mortgage loans serviced for others, including delinquency ratios. The Seller and the Interim Servicer also agrees to allow access at reasonable times, and upon reasonable notice, to knowledgeable financial, accounting, origination and servicing officers of the Interim Servicer or Seller, as applicable, for the purpose of answering questions asked by any prospective purchaser regarding recent developments affecting the Seller or the Interim Servicer, its loan origination or servicing practices, as applicable, or the financial statements of the Seller or the Interim Servicer. -44- SECTION 18. Mandatory Delivery: Grant of Security Interest. The sale and delivery of each Mortgage Loan on or before the related Closing Date is mandatory from and after the date of the execution of the related Confirmation, it being specifically understood and agreed that each Mortgage Loan is unique and identifiable on the date hereof and that an award of money damages would be insufficient to compensate the Purchaser for the losses and damages incurred by the Purchaser (including damages to prospective purchasers of the Mortgage Loans) in the event of the Seller's failure to deliver each of the related Mortgage Loans or one or more Mortgage Loans otherwise acceptable to the Purchaser on or before the related Closing Date. The Seller hereby grants to the Purchaser a lien on and a continuing security interest in each Mortgage Loan and each document and instrument evidencing each such Mortgage Loan to secure the performance by the Seller of its obligation hereunder, and the Seller agrees that it holds such Mortgage Loans in custody for the Purchaser subject to the Purchaser's (i) right to reject any Mortgage Loan under the terms of this Agreement and the related Confirmation, and (ii) obligation to pay the related Initial Purchase Price for the Mortgage Loans. All rights and remedies of the Purchaser under this Agreement are distinct from, and cumulative with, any other rights or remedies under this Agreement or afforded by law or equity and all such rights and remedies may be exercised concurrently, independently or successively. SECTION 19. Notices. All demands, notices and communications hereunder shall be in writing and shall be deemed to have been duly given if mailed, by registered or certified mail, return receipt requested, or, if by other means, when received by the other party at the address as follows: (i) if to the Purchaser: Greenwich Capital Financial Products, Inc. 600 Steamboat Road Greenwich, Connecticut 06830 Attn: John C. Anderson with a copy to: Greenwich Capital Financial Products, Inc. 600 Steamboat Road Greenwich, Connecticut 06830 Attn: General Counsel (ii) if to the Seller or the Interim Servicer: c/o ContiFinancial Corporation 277 Park Avenue -45- New York, New York 10172 Attn: Chief Counsel With a copy to: ContiMortgage Corporation One ContiPark 338 South Warminster Road Hatboro, Pennsylvania 19040 or such other address as may hereafter be furnished to the other party by like notice. Any such demand, notice or communication hereunder shall be deemed to have been received on the date delivered to or received at the premises of the addressee (as evidenced, in the case of registered or certified mail, by the date noted on the return receipt). SECTION 20. Severability Clause. Any part, provision, representation or warranty of this Agreement which is prohibited or which is held to be void or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. Any part, provision, representation or warranty of this Agreement which is prohibited or unenforceable or is held to be void or unenforceable in any jurisdiction shall be ineffective, as to such jurisdiction, to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction as to any Mortgage Loan shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, the parties hereto waive any provision of law which prohibits or renders void or unenforceable any provision hereof. If the invalidity of any part, provision, representation or warranty of this Agreement shall deprive any party of the economic benefit intended to be conferred by this Agreement, the parties shall negotiate, in good-faith, to develop a structure the economic effect of which is nearly as possible the same as the economic effect of this Agreement without regard to such invalidity. SECTION 21. Counterparts. This Agreement may be executed simultaneously in any number of counterparts. Each counterpart shall be deemed to be an original, and all such counterparts shall constitute one and the same instrument. SECTION 22. Governing Law. THE AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY CONFLICTS OF LAW PROVISIONS AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT PREEMPTED BY FEDERAL LAW. SECTION 23. Intention of the Parties. It is the intention of the parties that the Purchaser is purchasing, and the Seller is selling, the Mortgage Loans and not a debt instrument of -46- the Seller or another security. Accordingly, the parties hereto each intend to treat the transaction for Federal income tax purposes as a sale by the Seller, and a purchase by the Purchaser, of the Mortgage Loans. The Purchaser shall have the right to review the Mortgage Loans and the related Mortgage Loan Files to determine the characteristics of the Mortgage Loans which shall affect the Federal income tax consequences of owning the Mortgage Loans and the Seller shall cooperate with all reasonable requests made by the Purchaser in the course of such review. SECTION 24. Successors and Assigns. This Agreement shall bind and inure to the benefit of and be enforceable by the Seller, the Interim Servicer and the Purchaser and the respective successors and assigns of the Seller, the Interim Servicer and the Purchaser. The Purchaser may assign this Agreement (except the Purchaser's obligation to purchase Mortgage Loans, which may only be assigned as set forth below) to any Person to whom any Mortgage Loan is transferred whether pursuant to a sale or financing and to any Person to whom the servicing or master servicing of any Mortgage Loan is sold or transferred. Upon any such assignment, the Person to whom such assignment is made shall succeed to all rights and obligations of the Purchaser under this Agreement to the extent of the related Mortgage Loan or Mortgage Loans and this Agreement, to the extent of the related Mortgage Loan or Loans, shall be deemed to be a separate and distinct Agreement among the Seller, the Interim Servicer and such Purchaser, and a separate and distinct Agreement between the Seller, the Interim Servicer and each other Purchaser to the extent of the other related Mortgage Loan or Loans. In the event that this Agreement is assigned to any Person to whom the servicing or master servicing of any Mortgage Loan is sold or transferred, the rights and benefits under this agreement which inure to the Purchaser shall inure to the benefit of both the Person to whom such Mortgage Loan is transferred and the Person to whom the servicing or master servicing of the Mortgage Loan has been transferred; provided that, the right to require a Mortgage Loan to be repurchased by the Seller pursuant to Subsection 7.03 or 7.04 shall be retained solely by the Purchaser. The obligation of the Purchaser to purchase Mortgage Loans under this Agreement shall not be assigned by the Purchaser to a third party without the consent of the Seller; provided, however, that Seller's consent shall not be required in the case where the assignee of Purchaser's obligation to purchase Mortgage Loans under this Agreement is an affiliate of Purchaser. This Agreement shall not be assigned, pledged or hypothecated by the Seller or the Interim Servicer to a third party without the consent of the Purchaser. SECTION 25. Waivers. No term or provision of this Agreement may be waived or modified unless such waiver or modification is in writing and signed by the party against whom such waiver or modification is sought to be enforced. SECTION 26. Exhibits. The exhibits to this Agreement are hereby incorporated and made a part hereof and are an integral part of this Agreement. SECTION 27. Nonsolicitation. The Seller and the Interim Servicer covenants and agrees that it shall not take any action to solicit the refinancing of any Mortgage Loan following the date hereof or provide information to any other entity to solicit the refinancing of any Mortgage Loan; provided that, the foregoing shall not preclude the Seller or the Interim Servicer from engaging in solicitations to the general public by newspaper, radio, television or other media which -47- are not directed toward the Mortgagors or from refinancing the Mortgage Loan of any Mortgagor who, without solicitation, contacts the Seller or the Interim Servicer to request the refinancing of the related Mortgage Loan. SECTION 28. General Interpretive Principles. For purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Agreement have the meanings assigned to them in this Agreement and include the plural as well as the singular, and the use of any gender herein shall be deemed to include the other gender; (b) accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles; (c) references herein to "Articles," "Sections," "Subsections," "Paragraphs," and other Subdivisions without reference to a document are to designated Articles, Sections, Subsections, Paragraphs and other subdivisions of this Agreement; (d) reference to a Subsection without further reference to a Section is a reference to such Subsection as contained in the same Section in which the reference appears, and this rule shall also apply to Paragraphs and other subdivisions; (e) the words "herein," "hereof," "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular provision; and (f) the term "include" or "including" shall mean without limitation by reason of enumeration. SECTION 29. Reproduction of Documents. This Agreement and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications which may hereafter be executed, (b) documents received by any party at the closing, and (c) financial statements, certificates and other information previously or hereafter furnished, may be reproduced by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process. The parties agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. SECTION 30. Further Agreements. The Seller, the Interim Servicer 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. -48- IN WITNESS WHEREOF, the Seller, the Interim Servicer and the Purchaser have caused their names to be signed hereto by their respective officers thereunto duly authorized as of the date first above written. CONTIFINANCIAL CORPORATION (Seller) By: /s/ Alan Fishman ---------------------------- Name: Alan Fishman -------------------------- Title: President & CEO ------------------------- By: /s/ Frank W. Baier ---------------------------- Name: Frank W. Baier -------------------------- Title: SVP & CEO ------------------------- CONTIMORTGAGE CORPORATION (Interim Servicer) By: /s/ Robert J. Babjak ---------------------------- Name: Robert J. Babjak -------------------------- Title: Executive Vice President ------------------------- By: /s/ Margaret M. Curry ---------------------------- Name: Margaret M. Curry -------------------------- Title: Senior Vice President ------------------------- GREENWICH CAPITAL FINANCIAL PRODUCTS, INC. (Purchaser) By: /s/ John C. Anderson ---------------------------- Name: John C. Anderson -------------------------- Title: Senior Vice President ------------------------- By: ---------------------------- Name: -------------------------- Title: ------------------------- EXHIBIT 1 OFFICER'S CERTIFICATE I, ________________________, hereby certify that I am the duly elected ______________ of [SELLER OR INTERIM SERVICER], a ________________ (the "Seller"), and further certify, on behalf of the Seller as follows: 1. Attached hereto as Attachment I are a true and correct copy of the Certificate of Incorporation and by-laws of the Seller as are in full force and effect on the date hereof. 2. Each person who, as an officer or attorney-in-fact of the Seller, signed (a) the Master Mortgage Loan Purchase Facility (the "Purchase Agreement"), dated as of _____ 1, 1999, by and among ContiFinancial Corporation and ContiMortgage Corporation and Greenwich Capital Financial Products, Inc. (the "Purchaser"); (b) the Confirmation, dated _____________ 1999, between the Seller and the Purchaser (the "Confirmation"); (c) the Custodial Agreement, dated as of ____ 1, 1999, among the Purchaser, ContiFinancial Corporation and ContiMortgage Corporation and Manufacturers and Traders Trust Company (the "Custodial Agreement"); and (d) any other document delivered prior hereto or on the date hereof in connection with the sale and servicing of the Mortgage Loans in accordance with the Purchase Agreement and the Confirmation was, at the respective times of such signing and delivery, and is as of the date hereof, duly elected or appointed, qualified and acting as such officer or attorney-in-fact, and the signatures of such persons appearing on such documents are their genuine signatures. 3. Attached hereto as Attachment II is a true and correct copy of the resolutions duly adopted by the board of directors of the Seller on ________________, 1999 (the "Resolutions") with respect to the authorization and approval of the sale and servicing of the Mortgage Loans; said Resolutions have not been amended, modified, annulled or revoked and are in full force and effect on the date hereof. 4. Attached hereto as Attachment III is a Certificate of Good Standing of the Seller dated ______________, 1999. No event has occurred since ___________________, 1999 which has affected the good standing of the Seller under the laws of the State of ___________. 5. All of the representations and warranties of the Seller contained in Subsections 7.01 and 7.02 of the Purchase Agreement were true and correct in all material respects as of the date of the Purchase Agreement and are true and correct in all material respects as of the date hereof. Exhibit 1-1 6. The Seller has performed all of its duties and has satisfied all the material conditions on its part to be performed or satisfied prior to the related Closing Date pursuant to the Purchase Agreement and the related Confirmation. All capitalized terms used herein and not otherwise defined shall have the meaning assigned to them in the Purchase Agreement. IN WITNESS WHEREOF, I have hereunto signed my name and affixed the seal of the Seller. Dated:___________ [SELLER OR INTERIM SERVICER] (Seller) By: ___________________________ Name:__________________________ Title: I, _______________________, Secretary of the Seller, hereby certify that _________________________ is the duly elected, qualified and acting of the Seller and that the signature appearing above is his genuine signature. IN WITNESS WHEREOF, I have hereunto signed my name. Dated:__________ [Seal] [SELLER OR INTERIM SERVICER] (Seller) By:__________________________ Name:________________________ Title: [Assistant] Secretary Exhibit 1-2 EXHIBIT 2 [FORM OF OPINION OF COUNSEL TO THE SELLER AND THE INTERIM SERVICER] ------------------------------ (Date) Greenwich Capital Financial Products, Inc. 600 Steamboat Road Greenwich, Connecticut 06830 Re: Master Mortgage Loan Purchase Facility, dated as of ______ 1, 1999 Gentlemen: I have acted as counsel to ContiFinancial Corporation (the "Seller"), and ___________ ContiMortgage Corporation, a __________ (the "Interim Servicer"), in connection with the sale of certain mortgage loans by the Seller to Greenwich Capital Financial Products, Inc. (the "Purchaser") pursuant to (i) a Master Mortgage Loan Purchase Facility, dated as of ______ 1, 1999, among the Seller, the Interim Servicer and the Purchaser (the "Purchase Agreement"), the Custodial Agreement, dated as of ________ 1, 1999, among the Seller, the Purchaser, and _________________ (the "Custodial Agreement") [and the Confirmation, dated __________, 1999, between the Seller and the Purchaser (the "Confirmation")]. Capitalized terms not otherwise defined herein have the meanings set forth in the Purchase Agreement. In connection with rendering this opinion letter, I, or attorneys working under my direction, have examined, among other things, originals, certified copies or copies otherwise identified to my satisfaction as being true copies of the following: A. The Purchase Agreement; B. [The Confirmation;] C. The Custodial Agreement; D. The Seller's and Interim Servicer's Certificate of Incorporation and by-laws, as amended to date; and E. Resolutions adopted by the Board of Directors of the Seller with specific reference to actions relating to the transactions covered by this opinion (the "Board Resolutions"). For the purpose of rendering this opinion, I have made such documentary, factual and legal examinations as I deemed necessary under the circumstances. As to factual matters, I have relied upon statements, certificates and other assurances of public officials and of officers and other Exhibit 2-1 representatives of the Seller and the Interim Servicer, and upon such other certificates as I deemed appropriate, which factual matters have not been independently established or verified by me. I have also assumed, among other things, the genuineness of all signatures, the legal capacity of all natural persons, the authenticity of all documents submitted to me as originals, and the conformity to original documents of all documents submitted to me as copies and the authenticity of the originals of such copied documents. On the basis of and subject to the foregoing examination, and in reliance thereon, and subject to the assumptions, qualifications, exceptions and limitations expressed herein, I am of the opinion that: 1. The Seller and the Interim Servicer has been duly incorporated and is validly existing and in good standing under the laws of the State of _______ with corporate power and authority to own its properties and conduct its business as presently conducted by it. The Interim Servicer has the corporate power and authority to service the Mortgage Loans, and the Seller and the Interim Servicer has the corporate power and authority to execute, deliver, and perform its obligations under the Purchase Agreement, the Custodial Agreement [and the Confirmation] (sometimes collectively, the "Agreements"). 2. The Purchase Agreement, the Custodial Agreement [and the Confirmation] have been duly and validly authorized, executed and delivered by the Seller and the Interim Servicer. 3. The Purchase Agreement, the Custodial Agreement [and the Confirmation] constitute valid, legal and binding obligations of the Seller and the Interim Servicer, enforceable against the Seller and the Interim Servicer in accordance with their respective terms. 4. No consent, approval, authorization or order of any state or federal court or government agency or body is required for the execution, delivery and performance by Seller or the Interim Servicer of the Purchase Agreement, the Custodial Agreement [and the Confirmation], or the consummation of the transactions contemplated by the Purchase Agreement, the Custodial Agreement [and the Confirmation], except for those consents, approvals, authorizations or orders which previously have been obtained. 5. Neither the servicing of the Mortgage Loans by the Interim Servicer as provided in the Purchase Agreement [and the Confirmation,] nor the fulfillment of the terms of or the consummation of any other transactions contemplated in the Purchase Agreement, the Custodial Agreement [and the Confirmation] will result in a breach of any term or provision of the certificate of incorporation or by-laws of the Seller or the Interim Servicer, or, to the best of my knowledge, will conflict with, result in a breach or violation of, or constitute a default under, (i) the terms of any material indenture or other material agreement or instrument known to me to which the Seller or the Interim Servicer is a party or by which it is bound, (ii) any State of _______ or federal statute or regulation applicable to the Seller or the Interim Servicer, or (iii) any order of any State of _______ or federal court, regulatory body, administrative agency or governmental body having jurisdiction over the Seller or the Interim Servicer, except in any such case where the default, breach Exhibit 2-2 or violation would not have a material adverse effect on the Seller or the Interim Servicer or their ability to perform their respective obligations under the Purchase Agreement and the Custodial Agreement. 6. To the best of my knowledge there is no action, suit, proceeding or investigation pending or threatened against the Seller or the Interim Servicer which, in my judgment, either in any one instance or in the aggregate, would draw into question the validity of the Purchase Agreement or the Custodial Agreement or which would be likely to impair materially the ability of the Seller or the Interim Servicer to perform under the terms of the Purchase Agreement or the Custodial Agreement. 7. The sale of each Mortgage Note and Mortgage as and in the manner contemplated by the Purchase Agreement is sufficient fully to transfer to the Purchaser all right, title and interest of the Seller thereto as noteholder and mortgagee. 8. The Assignments of Mortgage are in recordable form and upon completion will be acceptable for recording under the laws of the State of _______. When endorsed, as provided in the Custodial Agreement, the Mortgage Notes will be duly endorsed under _______ law. 9. Assuming that all other elements necessary to render a Mortgage Loan legal, valid, binding and enforceable were present in connection with the execution, delivery and performance of each Mortgage Loan (including completion of the entire Mortgage Loan fully, accurately and in compliance with all applicable laws, rules and regulations) and assuming further that no action was taken in connection with the execution, delivery and performance of each Mortgage Loan (including in connection with the sale of the related Mortgaged Property) that would give rise to a defense to the legality, validity, binding effect and enforceability of such Mortgage Loan, nothing in the forms of such Mortgage Loans, as attached hereto as Exhibit A, would render such Mortgage Loans other than legal, valid, binding and enforceable. 10. Assuming their validity, binding effect and enforceability in all other respects (including completion of the entire Mortgage Loan fully, accurately and in compliance with all applicable laws, rules and regulations), the forms of Mortgage Loans attached hereto as Exhibit A are in sufficient compliance with ________ law and Federal consumer protection laws so as not to be rendered void or voidable at the election of the Mortgagor thereunder. The opinions above are subject to the following additional assumptions, exceptions, qualifications and limitations: A. I have assumed that all parties to the Agreements other than the Seller and the Interim Servicer have all requisite power and authority to execute, deliver and perform their respective obligations under each of the Agreements, and that the Agreements have been duly authorized by all necessary corporate action on the part of such parties, have been executed and delivered by such parties and constitute the legal, valid and binding obligations of such parties. Exhibit 2-4 B. My opinion expressed in paragraphs 3 and 7 above is subject to the qualifications that (i) the enforceability of the Agreements may be limited by the effect of laws relating to (1) bankruptcy, reorganization, insolvency, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, including, without limitation, the effect of statutory or other laws regarding fraudulent conveyances or preferential transfers, and (2) general principles of equity upon the specific enforceability of any of the remedies, covenants or other provisions of the Agreements and upon the availability of injunctive relief or other equitable remedies and the application of principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) as such principles relate to, limit or affect the enforcement of creditors' rights generally and the discretion of the court before which any proceeding for such enforcement may be brought; and (ii) I express no opinion herein with respect to the validity, legality, binding effect or enforceability of (a) provisions for indemnification in the Agreements to the extent such provisions may be held to be unenforceable as contrary to public policy or (b) Section 18 of the Purchase Agreement. C. I have assumed, without independent check or certification, that there are no agreements or understandings among the Seller, the Interim Servicer, the Purchaser and any other party which would expand, modify or otherwise affect the terms of the documents described herein or the respective rights or obligations of the parties thereunder. I am admitted to practice in the State of _______, and I render no opinion herein as to matters involving the laws of any jurisdiction other than the State of _______ and the Federal laws of the United States of America. Very truly yours, Exhibit 2-2 EXHIBIT 3 SECURITY RELEASE CERTIFICATION I. Release of Security Interest ___________________________, hereby relinquishes any and all right, title and interest it may have in and to the Mortgage Loans described in Exhibit A attached hereto upon purchase thereof by Greenwich Capital Financial Products, Inc. from the Seller named below pursuant to that certain Master Mortgage Loan Purchase Facility, dated as of _______ 1, 1999, as of the date and time of receipt by ______________________________ of $__________ for such Mortgage Loans (the "Date and Time of Sale"), and certifies that all notes, mortgages, assignments and other documents in its possession relating to such Mortgage Loans have been delivered and released to the Seller named below or its designees as of the Date and Time of Sale. Name and Address of Financial Institution (Name) (Address) By:________________________ Exhibit 3-1 II. Certification of Release The Seller named below hereby certifies to Greenwich Capital Financial Products, Inc. that, as of the Date and Time of Sale of the above mentioned Mortgage Loans to Greenwich Capital Financial Products, Inc., the security interests in the Mortgage Loans released by the above named corporation comprise all security interests relating to or affecting any and all such Mortgage Loans. The Seller warrants that, as of such time, there are and will be no other security interests affecting any or all of such Mortgage Loans. ________________________________________ Seller By: ____________________________________ Name:___________________________________ Title:__________________________________ By: ____________________________________ Name:___________________________________ Title:__________________________________ Exhibit 3-2 EXHIBIT 4 ASSIGNMENT AND CONVEYANCE On this _______ day of ________, 1999, CONTIFINANCIAL CORPORATION ("Seller") as the Seller under that certain Master Mortgage Loan Purchase Facility, dated as of August 9, 1999 (the "Agreement") does hereby sell, transfer, assign, set over and convey to Greenwich Capital Financial Products, Inc. as Purchaser under the Agreement, without recourse, but subject to the terms of the Agreement, all rights, title and interest of the Seller in and to the Mortgage Loans listed on the Mortgage Loan Schedule attached hereto, together with the related Mortgage Files and all rights and obligations arising under the documents contained therein. Pursuant to Subsection 6.03 of the Agreement, the Seller has delivered to the Custodian the documents for each Mortgage Loan to be purchased as set forth in the Custodial Agreement. The contents of each related Servicing File required to be retained by the Interim Servicer to service the Mortgage Loans pursuant to the Agreement and thus not delivered to the Purchaser are and shall be held in trust by the Interim Servicer for the benefit of the Purchaser as the owner thereof. The Interim Servicer's possession of any portion of each such Servicing File is at the will of the Purchaser for the sole purpose of facilitating servicing of the related Mortgage Loan pursuant to the Agreement, and such retention and possession by the Seller or the Interim Servicer shall be in a custodial capacity only. The ownership of each of the Mortgage Loan Documents and the contents of the Mortgage File and Servicing File is vested in the Purchaser and the ownership of all records and documents with respect to the related Mortgage Loan prepared by or which come into the possession of the Seller or the Interim Servicer shall immediately vest in the Purchaser and shall be retained and maintained, in trust, by the Seller or the Interim Servicer at the will of the Purchaser in such custodial capacity only. The Seller confirms to the Purchaser that the representation and warranties set forth in Subsections 7.01 and 7.02 of the Agreement are true and correct as of the date hereof, and that all statements made in the Seller's Officer's Certificates and all Attachments thereto remain complete, true and correct in all respects as of the date hereof, and makes the following additional representations and warranties to the Purchaser, which additional representations and warranties are hereby incorporated into Subsection 7.02 of the Agreement: (1) When measured by aggregate Stated Principal Balance as of the Cut-off Date, (i) no less than ______________ percent (__%) of the Mortgage Loans are secured by detached one-family dwellings or detached one-family dwellings in planned unit developments, (ii) no more than ____________ percent (__%) of the Mortgage Loans are secured by attached one-family dwellings in a planned unit development, (iii) no more than ______ percent (__%) of the Mortgage Loans are secured by individual condominium units, and (iv) no more than _____ percent (__%) of the Mortgage Loans are secured by detached two-to-four family dwellings; Exhibit 4-1 (2) When measured by aggregate Stated Principal Balance as of the Cut-off Date, no more than ______ percent (--%) of the Mortgage Loans had Loan-to-Value Ratio at origination in excess of %, and the weighted average Loan-to-Value Ratio for all Mortgage Loans at origination did not exceed __%; (3) With respect to all of the Mortgage Loans, at the time that the Mortgage Loan was made, the Mortgagor represented that the Mortgagor would occupy the Mortgaged Property as Mortgagor's primary residence; (4) No Mortgage Loan had a principal balance at origination in excess of $______ and the average principal balance of the Mortgage Loans on the Cut-off Date was not in excess of $______. When measured by the aggregate Stated Principal Balance as of the Cut-off Date, no more than __% of the Mortgage Loans had a principal balance at origination in excess of $_________; (5) Each Mortgage Loan has a Mortgage Interest Rate of at least ______%. The Mortgage Loans have a weighted average Mortgage Interest Rate of ______% as of the Cut-off Date and the Adjustable Rate Mortgage Loans have a weighted average margin of _____% as of the Cut-off Date; (6) When measured by aggregate Closing Date Principal Balance as of the Cut-off Date, no more than five percent (5%) of the Mortgage Loans are secured by Mortgaged Properties located in the same United States postal zip code. Exhibit 4-2 Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Agreement. CONTIFINANCIAL CORPORATION (Seller) By: ____________________________________ Name:___________________________________ Title:__________________________________ By: ____________________________________ Name:___________________________________ Title:__________________________________ CONTIMORTGAGE CORPORATION (Interim Servicer) By: ____________________________________ Name:___________________________________ Title:__________________________________ By: ____________________________________ Name:___________________________________ Title:__________________________________ Exhibit 4-3 EXHIBIT 5 CONTENTS OF EACH MORTGAGE FILE With respect to each Mortgage Loan, the Mortgage File shall include each of the following items, which shall be available for inspection by the Purchaser and which shall be retained by the Interim Servicer or delivered to the Custodian: 1. Mortgage Loan Documents. 2. Residential loan application. 3. Mortgage Loan closing statement. 4. Verification of employment and income. 5. Verification of acceptable evidence of source and amount of downpayment. 6. Credit report on Mortgagor. 7. Residential appraisal report. 8. Photograph of the Mortgaged Property. 9. Copy of each instrument necessary to complete identification of any exception set forth in the exception schedule in the title policy, i.e., map or plat, restrictions, easements, sewer agreements, home association declarations, etc. 10. All required disclosure statements and statement of Mortgagor confirming receipt thereof. 11. If available, termite report, structural engineer's report, water potability and septic certification. 12. Sales Contract, if applicable. 13. Hazard insurance policy in effect as of the date of origination of the Mortgage Loan. 14. Tax receipts, insurance premium receipts, ledger sheets, payment history from date of origination, insurance claim files, correspondence, current and historical computerized data files, and all other processing, underwriting and closing papers and records which are customarily contained in a mortgage Exhibit 5-1 loan file and which are required to document the Mortgage Loan or to service the Mortgage Loan. 15. Amortization schedule, if available. 16. Payment history for Mortgage Loans that have been closed for more than 90 days. 17. Recent drive-by appraisal for Mortgage loans with original principal balance greater than $250,000 (greater than $300,000 for California Mortgage Loans). 18. With respect to each Mortgage Loan which is subject to the provisions of HOEPA, a copy of a notice to each entity which was a purchaser or assignee of the Mortgage Loan satisfying the provisions of HOEPA and the regulations issued thereunder to the effect that the Mortgage Loan is subject to special truth-in-lending rules. Exhibit 5-2 EXHIBIT 6 CUSTODIAL AGREEMENT Exhibit 6-1 EXHIBIT 7 [RESERVED] Exhibit 7-2 EXHIBIT 8 ESCROW ACCOUNT LETTER AGREEMENT ______, 1999 To: _____________________ (the "Depository") As Interim Servicer under the Master Mortgage Loan Purchase Facility, dated as of ______ 1, 1999, we hereby authorize and request you to establish an account, as an Escrow Account, to be designated as "CONTIMORTGAGE CORPORATION in trust for the Purchaser and various Mortgagors, Fixed and Adjustable Rate Mortgage Loans." All deposits in the account shall be subject to withdrawal therefrom by order signed by the Interim Servicer. You may refuse any deposit which would result in violation of the requirement that the account be fully insured as described below. This letter is submitted to you in duplicate. Please execute and return one original to us. CONTIMORTGAGE CORPORATION (Interim Servicer) By: ____________________________________ Name:___________________________________ Title:__________________________________ Date:__________________________________ By: ____________________________________ Name:___________________________________ Title:__________________________________ Date:__________________________________ Exhibit 8-1 The undersigned, as Depository, hereby certifies that the above-described account has been established under Account Number ___________ at the office of the Depository indicated above, and agrees to honor withdrawals on such account as provided above. The full amount deposited at any time in the account will be insured by the Federal Deposit Insurance Corporation through the Bank Insurance Fund ("BIF") or the Savings Association Insurance Fund ("SAIF"). _________________________________________ Depository By: ____________________________________ Name:___________________________________ Title:__________________________________ Date:__________________________________ Exhibit 8-2 EXHIBIT 9 SERVICING ADDENDUM Subsection 11.01 Interim Servicer. The Interim Servicer, as independent contract servicer, shall interim service and administer the Mortgage Loans in accordance with this Agreement during the Interim Servicing Period and shall have full power and authority, acting alone, to do or cause to be done any and all things in connection with such interim servicing and administration which the Interim Servicer may deem necessary or desirable and consistent with the terms of this Agreement. Consistent with the terms of this Agreement, the Interim Servicer may waive, modify or vary any term of any Mortgage Loan or consent to the postponement of strict compliance with any such term or in any manner grant indulgence to any Mortgagor if in the Interim Servicer's reasonable and prudent determination such waiver, modification, postponement or indulgence is not materially adverse to the Purchaser; provided, however, that unless the Interim Servicer has obtained the prior written consent of the Purchaser, the Interim Servicer shall not permit any modification with respect to any Mortgage Loan that would change the Mortgage Interest Rate, defer or forgive the payment thereof or of any principal or interest payments, reduce the outstanding principal amount (except for actual payments of principal), make additional advances of additional principal or extend the final maturity date on such Mortgage Loan. Without limiting the generality of the foregoing, the Interim Servicer shall continue, and is hereby authorized and empowered, to execute and deliver on behalf of itself, and the Purchaser, all instruments of satisfaction or cancellation, or of partial or full release, discharge and all other comparable instruments, with respect to the Mortgage Loans and with respect to the Mortgaged Property. If reasonably required by the Interim Servicer, the Purchaser shall furnish the Interim Servicer with any powers of attorney at the Purchaser's option and other documents necessary or appropriate to enable the Interim Servicer to carry out its interim servicing and administrative duties under this Agreement. In interim servicing and administering the Mortgage Loans, the Interim Servicer shall employ procedures including collection procedures and exercise the same care that it customarily employs and exercises in servicing and administering mortgage loans for its own account and mortgage loans which are securitized by Purchaser in a rated transaction, giving due consideration to accepted mortgage servicing practices of prudent lending institutions (such practices, "Accepted Servicing Practices"). If Interim Servicer elects to utilize a subservicer to perform any or all of Interim Servicer's duties hereunder, Interim Servicer shall remain liable as though such duties were performed directly by Interim Servicer and Interim Servicer shall be responsible for the payment of any and all fees of any such subservicer. Subsection 11.02 Collection of Mortgage Loan Payments. Continuously from the date hereof until the principal and interest on all Mortgage Loans are paid in full, the Interim Servicer shall proceed diligently to collect all payments due under each Exhibit 9-1 Mortgage Loan when the same shall become due and payable and shall, to the extent such procedures shall be consistent with this Agreement, follow such collection procedures as it follows with respect to mortgage loans comparable to the Mortgage Loans and held for its own account. Further, the Interim Servicer shall take special care in ascertaining and estimating annual ground rents, taxes, assessments, water rates, fire and hazard insurance premiums and all other charges that, as provided in the Mortgage, will become due and payable to the end that the installments payable by the Mortgagors will be sufficient to pay such charges as and when they become due and payable. Subsection 11.03 Realization Upon Defaulted Mortgage Loans. (a) The Interim Servicer shall use its best efforts, consistent with the procedures that the Interim Servicer would use in servicing loans for its own account, to foreclose upon or otherwise comparably convert the ownership of such Mortgaged Properties as come into and continue in default and as to which no satisfactory arrangements can be made for collection of delinquent payments pursuant to Subsection 11.01. The Interim Servicer shall use its best efforts to realize upon defaulted Mortgage Loans in such a manner as will maximize the receipt of principal and interest by the Purchaser, taking into account, among other things, the timing of foreclosure proceedings. The foregoing is subject to the provisions that, in any case in which Mortgaged Property shall have suffered damage, the Interim Servicer shall not be required to expend its own funds toward the restoration of such property in excess of $2,000 unless it consults with the Purchaser with respect to a course of action to be taken and determines in its discretion (i) that such restoration will increase the proceeds of liquidation of the related Mortgage Loan to the Purchaser after reimbursement to itself for such expenses, and (ii) that such expenses will be recoverable by the Interim Servicer through Insurance Proceeds or Liquidation Proceeds from the related Mortgaged Property, as contemplated in Subsection 11.05. In the event that any payment due under any Mortgage Loan is not paid when the same becomes due and payable, or in the event the Mortgagor fails to perform any other covenant or obligation under the Mortgage Loan and such failure continues beyond any applicable grace period, the Interim Servicer shall take such action as it shall deem to be in the best interest of the Purchaser. In the event that any payment due under any Mortgage Loan remains delinquent for a period of ninety (90) days or more, the Interim Servicer shall notify the Purchaser and receive instruction as to whether to commence foreclosure proceedings in accordance with Accepted Servicing Practices. The Interim Servicer shall be responsible for all costs and expenses incurred by it in any such proceedings; provided, however, that it shall be entitled to reimbursement thereof from the related Mortgaged Property, as contemplated in Subsection 11.05. (b) Notwithstanding the foregoing provisions of this Subsection 11.03, with respect to any Mortgage Loan as to which the Interim Servicer has received actual notice of, or has actual knowledge of, the presence of any toxic or hazardous substance on the related Mortgaged Property the Interim Servicer shall not either (i) obtain title to such Mortgaged Property as a result of or in lieu of foreclosure or otherwise, or (ii) otherwise acquire possession of, or take any other action, with respect to, such Mortgaged Property if, as a result of any such action, the Purchaser would be considered to hold title to, to be a mortgagee-in-possession of, or to be an owner or operator of such Mortgaged Property within the meaning of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time, or any Exhibit 9-2 comparable law, unless the Interim Servicer has immediately consulted with the Purchaser with respect to a course of action to be taken in accordance with Accepted Servicing Practices. The cost of the environmental audit report contemplated by this Subsection 11.03 shall be advanced by the Interim Servicer, subject to the Interim Servicer's right to be reimbursed therefor from the Custodial Account as contemplated in Subsection 11.05. If the Interim Servicer determines, as described above, that it is in the best economic interest of the Purchaser to take such actions as are necessary to bring any such Mortgaged Property into compliance with applicable environmental laws, or to take such action with respect to the containment, clean-up or remediation of hazardous substances, hazardous materials, hazardous wastes, or petroleum-based materials affecting any such Mortgaged Property, then the Interim Servicer shall take such action as it deems to be in the best economic interest of the Purchaser. The cost of any such compliance, containment, cleanup or remediation shall be advanced by the Interim Servicer, subject to the Interim Servicer's right to be reimbursed therefor from the Custodial Account as contemplated in Subsection 11.05. (c) Proceeds received in connection with any Final Recovery Determination, as well as any recovery resulting from a partial collection of Insurance Proceeds or Liquidation Proceeds in respect of any Mortgage Loan, will be applied in the following order of priority: first, to reimburse the Interim Servicer for any related unreimbursed Servicing Advances; second, to accrued and unpaid interest on the Mortgage Loan, to the date of the Final Recovery Determination; and third, as a recovery of principal of the Mortgage Loan. Subsection 11.04 Establishment of Custodial Accounts; Deposits in Custodial Accounts. The Interim Servicer shall segregate and hold all funds collected and received pursuant to each Mortgage Loan separate and apart from any of its own funds and general assets. The Interim Servicer shall deposit in the Custodial Account within 24 hours of receipt, and retain therein the following payments and collections received by it subsequent to the Cut-off Date, or received by it prior to the Cut-off Date but allocable to a period subsequent thereto, other than in respect of principal and interest on the Mortgage Loans due on or before the Cut-off Date: (i) all payments on account of principal on the Mortgage Loans including any Principal Prepayments and any prepayment penalties or premiums; (ii) all payments on account of interest on the Mortgage Loans; (iii) all Liquidation Proceeds; (iv) all Insurance Proceeds including amounts required to be deposited pursuant to Subsections 11.10 and 11.11, other than proceeds to be held in the Escrow Account and applied Exhibit 9-3 to the restoration or repair of the Mortgaged Property or released to the Mortgagor in accordance with the Interim Servicer's normal servicing procedures, the loan documents or applicable law; (v) all Condemnation Proceeds affecting any Mortgaged Property which are not released to the Mortgagor in accordance with the Interim Servicer's normal servicing procedures, the loan documents or applicable law; (vi) all proceeds of any Mortgage Loan repurchased in accordance with Subsections 7.03 and 7.04 and all amounts required to be deposited by the Seller in connection with shortfalls in principal amount of Qualified Substitute Mortgage Loans pursuant to Subsection 7.03; (vii) any amounts required to be deposited by the Interim Servicer pursuant to Subsection 11.11 in connection with the deductible clause in any blanket hazard insurance policy. Such deposit shall be made from the Interim Servicer's own funds, without reimbursement therefor; (viii) any amounts required to be deposited by the Interim Servicer in connection with any REO Property pursuant to Subsection 11.13; and (ix) any amounts required to be deposited in the Custodial Account pursuant to Subsections 11.19 or 11.20. The foregoing requirements for deposit in the Custodial Account shall be exclusive, it being understood and agreed that, without limiting the generality of the foregoing, payments in the nature of late payment charges, assumption fees, to the extent permitted by Subsection 11.01, and the Interim Servicing Fee as permitted by Section 11.21, need not be deposited by the Interim Servicer in the Custodial Account. Such Custodial Account shall be an Eligible Account. Any interest or earnings on funds deposited in the Custodial Account by the depository institution shall accrue to the benefit of the Purchaser. The Interim Servicer shall give notice to the Purchaser of the location of the Custodial Account when established and prior to any change thereof. Subsection 11.05 Permitted Withdrawals From the Custodial Account. The Purchaser, as owner of the Custodial Account, shall be entitled to withdraw any and all funds deposited in the Custodial Account as owner thereto. All withdrawals from the Custodial Account shall be made by the Purchaser and the Interim Servicer shall have no withdrawal rights with respect thereto. Simultaneously with the delivery of the Remittance Report, the Interim Servicer shall deliver an invoice to the Purchaser, along with reasonable documentation, requesting payment for the following: (i) to pay the Interim Servicer for unreimbursed Servicing Advances, the Interim Servicer's right to payment pursuant to this subclause (i) with respect to any Mortgage Loan being limited to related Liquidation Proceeds, Condemnation Proceeds, Insurance Proceeds and such other amounts as may be collected by the Interim Servicer from the Mortgagor or otherwise relating to the Exhibit 9-4 Mortgage Loan, it being understood that, in the case of such reimbursement, the Interim Servicer's right thereto shall be prior to the rights of the Purchaser, except that, where the Interim Servicer is required to repurchase a Mortgage Loan, pursuant to Subsection 7.03, the Interim Servicer's right to such payment shall be subsequent to the payment to the Purchaser of the Repurchase Price pursuant to Subsection 7.03 and all other amounts required to be paid to the Purchaser with respect to such Mortgage Loans; (ii) to pay the Interim Servicer with respect to each Mortgage Loan that has been repurchased pursuant to Subsection 7.03 all amounts received thereon and not distributed as of the date on which the related Repurchase Price is determined; and (iii) to pay, or to reimburse the Interim Servicer for advances in respect of, expenses incurred in connection with any Mortgage Loan pursuant to Subsection 11.03(b), but only to the extent of amounts received in respect of the Mortgage Loans to which such expense is attributable. Absent a good faith dispute on the amount set forth on such invoice, the Purchaser shall remit to the Interim Servicer the amount specified in such invoice within five (5) Business Days of receipt thereof by the Purchaser. In the event that any amount is mistakenly deposited into the Custodial Account by the Interim Servicer, the Purchaser shall withdraw such amount from the Custodial Account and remit it to the Interim Servicer as quickly as possible, and if possible on the date the Purchaser receives notification from the Interim Servicer of such mistaken deposit. Subsection 11.06 Establishment of Escrow Accounts; Deposits in Escrow Accounts. The Interim Servicer shall segregate and hold all funds collected and received pursuant to each Mortgage Loan which constitute Escrow Payments separate and apart from any of its own funds and general assets and shall establish and maintain one or more Escrow Accounts, in the form of time deposit or demand accounts. The creation of any Escrow Account shall be evidenced by Escrow Account Letter Agreement in the form of Exhibit 8. The Interim Servicer shall deposit in the Escrow Account or Accounts within 24 hours of receipt, and retain therein, (i) all Escrow Payments collected on account of the Mortgage Loans, for the purpose of effecting timely payment of any such items as required under the terms of this Agreement, and (ii) all Insurance Proceeds which are to be applied to the restoration or repair of any Mortgaged Property. The Interim Servicer shall make withdrawals therefrom only to effect such payments as are required under this Agreement, and for such other purposes as shall be as set forth or in accordance with Subsection 11.08. The Interim Servicer shall be entitled to retain any interest paid on funds deposited in the Escrow Account by the depository institution other than interest on escrowed funds required by law to be paid to the Mortgagor and, to the extent required by law, the Interim Servicer shall pay interest on escrowed funds to the Mortgagor notwithstanding that the Escrow Account is non-interest bearing or that interest paid thereon is insufficient for such purposes. Exhibit 9-5 Subsection 11.07 Permitted Withdrawals From Escrow Account. Withdrawals from the Escrow Account may be made by the Interim Servicer (i) to effect timely payments of ground rents, taxes, assessments, water rates, hazard insurance premiums and comparable items, (ii) to reimburse the Interim Servicer for any Servicing Advance made by the Interim Servicer with respect to a related Mortgage Loan but only from amounts received on the related Mortgage Loan which represent late payments or collections of Escrow Payments thereunder, (iii) to refund to the Mortgagor any funds as may be determined to be overages, (iv) for transfer to the Custodial Account in accordance with the terms of this Agreement, (v) for application to restoration or repair of the Mortgaged Property, (vi) to pay to the Interim Servicer, or to the Mortgagor to the extent required by law, any interest paid on the funds deposited in the Escrow Account, or (vii) to clear and terminate the Escrow Account on the termination of this Agreement. Subsection 11.08 Payment of Taxes, Insurance and Other Charges. With respect to each Mortgage Loan, the Interim Servicer shall maintain accurate records reflecting the status of ground rents, taxes, assessments, water rates and other charges which are or may become a lien upon the Mortgaged Property and the status of fire and hazard insurance coverage and shall obtain, from time to time, all bills for the payment of such charges, including insurance renewal premiums and shall effect payment thereof prior to the applicable penalty or termination date and at a time appropriate for securing maximum discounts allowable, employing for such purpose deposits of the Mortgagor in the Escrow Account which shall have been estimated and accumulated by the Interim Servicer in amounts sufficient for such purposes, as allowed under the terms of the Mortgage and applicable law. To the extent that the Mortgage does not provide for Escrow Payments, the Interim Servicer shall determine that any such payments are made by the Mortgagor at the time they first become due. The Interim Servicer assumes full responsibility for the timely payment of all such bills and shall effect timely payments of all such bills irrespective of the Mortgagor's faithful performance in the payment of same or the making of the Escrow Payments and shall make advances from its own funds to effect such payments. Upon the termination of the Interim Servicing Period or the transfer of servicing with respect to any Mortgage Loan, the successor servicer shall reimburse the Interim Servicer for amounts the Interim Servicer actually expended as interim servicer pursuant to this Agreement for which the Interim Servicer would have otherwise been entitled to be reimbursed and which would otherwise have been recovered by the Interim Servicer pursuant to this Agreement but for the appointment of the successor servicer. Subsection 11.09 Transfer of Accounts. The Interim Servicer may transfer the Custodial Account or the Escrow Account to a different depository institution from time to time. Such transfer shall be made only upon obtaining the consent of the Purchaser, which consent shall not be unreasonably withheld. In any case, the Custodial Account and Escrow Account shall be Eligible Accounts. Exhibit 9-6 Subsection 11.10 Maintenance of Hazard Insurance. The Interim Servicer shall cause to be maintained for each Mortgage Loan fire and hazard insurance with extended coverage as is customary in the area where the Mortgaged Property is located in an amount which is at least equal to the lesser of (i) the amount necessary to fully compensate for any damage or loss to the improvements which are a part of such property on a replacement cost basis or (ii) the outstanding principal balance of the Mortgage Loan, in each case in an amount not less than such amount as is necessary to prevent the Mortgagor and/or the Mortgagee from becoming a co-insurer. If the Mortgaged Property is in an area identified on a Flood Hazard Boundary Map or Flood Insurance Rate Map issued by the Flood Emergency Management Agency as having special flood hazards and such flood insurance has been made available, the Interim Servicer will cause to be maintained a flood insurance policy meeting the requirements of the current guidelines of the Federal Insurance Administration with a generally acceptable insurance carrier, in an amount representing coverage not less than the lesser of (i) the outstanding principal balance of the Mortgage Loan or (ii) the maximum amount of insurance which is available under the National Flood Insurance Act of 1968 or the Flood Disaster Protection Act of 1973, as amended. The Interim Servicer also shall maintain on any REO Property, fire and hazard insurance with extended coverage in an amount which is at least equal to the lesser of (i) the maximum insurable value of the improvements which are a part of such property and (ii) either (A) the outstanding principal balance of the related Mortgage Loan at the time it became an REO Property plus accrued interest at the Mortgage Interest Rate and related Servicing Advances with respect to each First Lien Mortgage Loan or (B) with respect to each Second Lien Mortgage Loan, the sum of the outstanding principal balance of the First Lien Mortgage Loan and the outstanding principal balance of the Second Lien Mortgage Loan plus accrued interest at the Mortgage Interest Rate and related Servicing Advances, liability insurance and, to the extent required and available under the National Flood Insurance Act of 1968 or the Flood Disaster Protection Act of 1973, as amended, flood insurance in an amount as provided above. Pursuant to Subsection 11.04, any amounts collected by the Interim Servicer under any such policies other than amounts to be deposited in the Escrow Account and applied to the restoration or repair of the Mortgaged Property or REO Property, or released to the Mortgagor in accordance with the Interim Servicer's normal servicing procedures, shall be deposited in the Custodial Account. Any cost incurred by the Interim Servicer in maintaining any such insurance shall not, for the purpose of calculating distributions to the Purchaser, be added to the unpaid principal balance of the related Mortgage Loan, notwithstanding that the terms of such Mortgage Loan so permit. It is understood and agreed that no earthquake or other additional insurance need be required by the Interim Servicer of the Mortgagor or maintained on property acquired in respect of the Mortgage Loan, other than pursuant to such applicable laws and regulations as shall at any time be in force and as shall require such additional insurance. All such policies shall be endorsed with standard mortgagee clauses with loss payable to the Interim Servicer, or upon request to the Purchaser, and shall provide for at least thirty days prior written notice of any cancellation, reduction in the amount of, or material change in, coverage to the Interim Servicer. The Interim Servicer shall not interfere with the Mortgagor's freedom of choice in selecting either his insurance carrier or agent, provided, however, that the Interim Servicer shall not accept any such insurance policies from insurance companies unless such Exhibit 9-7 companies currently reflect a General Policy Rating of A:VI or better in Best's Key Rating Guide and are licensed to do business in the state wherein the property subject to the policy is located. Subsection 11.11 Maintenance of Mortgage Impairment Insurance Policy. In the event that the Interim Servicer shall obtain and maintain a mortgage impairment or blanket policy issued by an insurer that has a Best rating of A:VI insuring against hazard losses on all of Mortgaged Properties securing the Mortgage Loans, then, to the extent such policy provides coverage in an amount equal to the amount required pursuant to Subsection 11.10 and otherwise complies with all other requirements of Subsection 11.10, the Interim Servicer shall conclusively be deemed to have satisfied its obligations as set forth in Subsection 11.10, it being understood and agreed that such policy may contain a deductible clause, in which case the Interim Servicer shall, in the event that there shall not have been maintained on the related Mortgaged Property or REO Property a policy complying with Subsection 11.10, and there shall have been one or more losses which would have been covered by such policy, deposit in the Custodial Account the amount not otherwise payable under the blanket policy because of such deductible clause. In connection with its activities as servicer of the Mortgage Loans, the Interim Servicer agrees to prepare and present, on behalf of the Purchaser, claims under any such blanket policy in a timely fashion in accordance with the terms of such policy. Upon request of the Purchaser, the Interim Servicer shall cause to be delivered to the Purchaser a certified true copy of such policy and a statement from the insurer thereunder that such policy shall in no event be terminated or materially modified without thirty days prior written notice to the Purchaser. Subsection 11.12 Fidelity Bond, Errors and Omissions Insurance. The Interim Servicer shall maintain, at its own expense, a blanket fidelity bond and an errors and omissions insurance policy, with broad coverage with responsible companies that would meet the requirements of Fannie Mae or Freddie Mac on all officers, employees or other persons acting in any capacity with regard to the Mortgage Loans to handle funds, money, documents and papers relating to the Mortgage Loans. The fidelity bond and errors and omissions insurance shall be in the form of the Mortgage Banker's Blanket Bond and shall protect and insure the Interim Servicer against losses, including forgery, theft, embezzlement, fraud, errors and omissions and negligent acts of such persons. Such fidelity bond shall also protect and insure the Interim Servicer against losses in connection with the failure to maintain any insurance policies required pursuant to this Agreement and the release or satisfaction of a Mortgage Loan without having obtained payment in full of the indebtedness secured thereby. No provision of this Subsection 11.12 requiring the fidelity bond and errors and omissions insurance shall diminish or relieve the Interim Servicer from its duties and obligations as set forth in this Agreement. The minimum coverage under any such bond and insurance policy shall be at least equal to the corresponding amounts required by Fannie Mae in the Fannie Mae Servicing Guide or by Freddie Mac in the Freddie Mac Interim Servicers' and Servicers' Guide. Upon request of the Purchaser, the Interim Servicer shall cause to be delivered to the Purchaser a certified true copy of the fidelity bond and insurance policy and a statement from the surety and the insurer that such fidelity bond or insurance policy shall in no event be terminated or materially modified without thirty days' prior written notice to the Purchaser. Exhibit 9-8 Subsection 11.13 Title, Management and Disposition of REO Property. In the event that title to the Mortgaged Property is acquired in foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale shall be taken in the name of the person designated by the Purchaser, or in the event such person is not authorized or permitted to hold title to real property in the state where the REO Property is located, or would be adversely affected under the "doing business" or tax laws of such state by so holding title, the deed or certificate of sale shall be taken in the name of such Person or Persons as shall be consistent with an opinion of counsel obtained by the Interim Servicer from an attorney duly licensed to practice law in the state where the REO Property is located. Any Person or Persons holding such title other than the Purchaser shall acknowledge in writing that such title is being held as nominee for the benefit of the Purchaser. The Interim Servicer shall either itself or through an agent selected by the Interim Servicer, manage, conserve, protect and operate each REO Property (and may temporarily rent the same) in the same manner that it manages, conserves, protects and operates other foreclosed property for its own account, and in the same manner that similar property in the same locality as the REO Property is managed. The Interim Servicer shall cause each REO Property to be inspected promptly upon the acquisition of title thereto and shall cause each REO Property to be inspected at least annually thereafter. The Interim Servicer shall make or cause to be made a written report of each such inspection. Such reports shall be retained in the Mortgage File and copies thereof shall be forwarded by the Interim Servicer to the Purchaser. The Interim Servicer shall use its best efforts to dispose of the REO Property as soon as possible and shall sell such REO Property in any event within one year after title has been taken to such REO Property, unless the Interim Servicer determines, and gives appropriate notice to the Purchaser, that a longer period is necessary for the orderly liquidation of such REO Property. If a period longer than one year is necessary to sell any REO property, (i) the Interim Servicer shall report monthly to the Purchaser as to the progress being made in selling such REO Property and (ii) if, with the written consent of the Purchaser, a purchase money mortgage is taken in connection with such sale, such purchase money mortgage shall name the Interim Servicer as mortgagee, and a separate servicing agreement between the Interim Servicer and the Purchaser shall be entered into with respect to such purchase money mortgage. The Interim Servicer shall deposit or cause to be deposited, within twenty four (24) hours of receipt, in the Custodial Account all revenues received with respect to the related REO Property and shall advance funds necessary for the proper operation, management and maintenance of the REO Property, including the cost of maintaining any hazard insurance pursuant to Subsection 11.10 hereof and the fees of any managing agent acting on behalf of the Interim Servicer. The Purchaser shall reimburse any such advance pursuant to Subsection 11.05. The Interim Servicer shall separately account for each REO Property and any amounts received with respect thereto. The Interim Servicer shall furnish to the Purchaser on the fifteenth calendar day of each month or the next following Business Day if such fifteenth day is not a Business Day, an operating statement for each REO Property covering the operation of each REO Property for the previous month. Such operating statement shall be accompanied by such other information as the Purchaser shall reasonably request. Exhibit 9-9 Each REO Disposition shall be carried out by the Interim Servicer at such price and upon such terms and conditions as the Interim Servicer deems to be in the best interest of the Purchaser only with the prior written consent of the Purchaser. If as of the date title to any REO Property was acquired by the Interim Servicer there were outstanding unreimbursed Servicing Advances with respect to the REO Property, the Interim Servicer, upon an REO Disposition of such REO Property, shall be entitled to reimbursement for any related unreimbursed Servicing Advances from proceeds received in connection with such REO Disposition. The proceeds from the REO Disposition shall be deposited in the Custodial Account within twenty four hours of receipt and the Purchaser shall thereafter reimburse such unreimbursed Servicing Advances to the Interim Servicer. Subsection 11.14 [Reserved] Subsection 11.15 Remittance Reports. No later than the fifteenth calendar day of each month or the next following Business Day if such 15th calendar day is not a Business Day, the Interim Servicer shall furnish to the Purchaser or its designee in electronic form, and by hard copy, the monthly data for the prior month in form and substance acceptable to the Purchaser, together with such other information with respect to the Mortgage Loans as the Purchaser may reasonably require to allocate distributions made pursuant to this Agreement and provide appropriate statements with respect to such distributions. Subsection 11.16 Statements to the Purchaser. Upon request of the Purchaser, and not later than the fifteenth day of each month, the Interim Servicer shall forward to the Purchaser or its designee a statement prepared by the Interim Servicer setting forth the status of the Custodial Account as of the close of business on such date and showing, for the period covered by such statement, the aggregate amount of deposits into the Custodial Account of each category of deposit specified in Subsection 11.04. Subsection 11.17 Real Estate Owned Reports. Together with the statement furnished pursuant to Subsection 11.02, with respect to any REO Property, the Interim Servicer shall furnish to the Purchaser a statement covering the Interim Servicer's efforts in connection with the sale of such REO Property and any rental of such REO Property incidental to the sale thereof for the previous month, together with the operating statement. Such statement shall be accompanied by such other information as the Purchaser shall reasonably request. Subsection 11.18 Liquidation Reports. Upon the foreclosure sale of any Mortgaged Property or the acquisition thereof by the Purchaser pursuant to a deed-in-lieu of foreclosure, the Interim Servicer shall submit to the Purchaser a liquidation report with respect to such Mortgaged Property. Exhibit 9-10 Subsection 11.19 Assumption Agreements. The Interim Servicer shall, to the extent it has knowledge of any conveyance or prospective conveyance by any Mortgagor of the Mortgaged Property (whether by absolute conveyance or by contract of sale, and whether or not the Mortgagor remains or is to remain liable under the Mortgage Note and/or the Mortgage), exercise its rights to accelerate the maturity of such Mortgage Loan under any "due-on-sale" clause applicable thereto; provided, however, that the Interim Servicer shall not exercise any such rights if prohibited by law from doing so. If the Interim Servicer reasonably believes it is unable under applicable law to enforce such "due-on-sale" clause, the Interim Servicer shall enter into an assumption agreement with the person to whom the Mortgaged Property has been conveyed or is proposed to be conveyed, pursuant to which such person becomes liable under the Mortgage Note and, to the extent permitted by applicable state law, the Mortgagor remains liable thereon. Where an assumption is allowed pursuant to this Subsection 11.01, the Interim Servicer is authorized to enter into a substitution of liability agreement with the person to whom the Mortgaged Property has been conveyed or is proposed to be conveyed pursuant to which the original Mortgagor is released from liability and such Person is substituted as Mortgagor and becomes liable under the related Mortgage Note. Any such substitution of liability agreement shall be in lieu of an assumption agreement. In connection with any such assumption or substitution of liability, the Interim Servicer shall follow the underwriting practices and procedures of prudent mortgage lenders in the state in which the related Mortgaged Property is located and Accepted Servicing Practices. With respect to an assumption or substitution of liability, Mortgage Interest Rate, the amount of the Monthly Payment, and the final maturity date of such Mortgage Note may not be changed. The Interim Servicer shall notify the Purchaser that any such substitution of liability or assumption agreement has been completed by forwarding to the Purchaser the original of any such substitution of liability or assumption agreement, which document shall be added to the related Mortgage File and shall, for all purposes, be considered a part of such Mortgage File to the same extent as all other documents and instruments constituting a part thereof. Notwithstanding the foregoing paragraphs of this Subsection or any other provision of this Agreement, the Interim Servicer shall not be deemed to be in default, breach or any other violation of its obligations hereunder by reason of any assumption of a Mortgage Loan by operation of law or any assumption which the Interim Servicer may be restricted by law from preventing, for any reason whatsoever. For purposes of this Subsection 11.19, the term "assumption" is deemed to also include a sale of the Mortgaged Property subject to the Mortgage that is not accompanied by an assumption or substitution of liability agreement. Subsection 11.20 Satisfaction of Mortgages and Release of Mortgage Files. Upon the payment in full of any Mortgage Loan, or the receipt by the Interim Servicer of a notification that payment in full will be escrowed in a manner customary for such purposes the Interim Servicer will act in accordance with Accepted Servicing Practices. In addition, upon the request of the Purchaser at any time, the Interim Servicer shall notify the Purchaser of any Mortgage Exhibit 9-11 Loans which have been paid in full or as to which the Interim Servicer has received notification that a payoff in full will be made. Upon request by the Interim Servicer, the Purchaser, shall promptly release the related mortgage documents to the Interim Servicer and the Interim Servicer shall prepare and process any satisfaction or release. No expense incurred in connection with any instrument of satisfaction or deed of reconveyance shall be chargeable to the Custodial Account or the Purchaser. In the event the Interim Servicer satisfies or releases a Mortgage without having obtained payment in full of the indebtedness secured by the Mortgage or should it otherwise prejudice any right the Purchaser may have under the mortgage instruments, the Interim Servicer, upon written demand, shall remit to the Purchaser the then outstanding principal balance of the related Mortgage Loan by deposit thereof in the Custodial Account. The Interim Servicer shall maintain the fidelity bond insuring the Interim Servicer against any loss it may sustain with respect to any Mortgage Loan not satisfied in accordance with the procedures set forth herein. From time to time and as appropriate for the servicing or foreclosure of the Mortgage Loan the Purchaser shall, upon request of the Interim Servicer and delivery to the Purchaser of a servicing receipt signed by a Servicing Officer, release the requested portion of the Mortgage File held by the Purchaser to the Interim Servicer. Such servicing receipt shall obligate the Interim Servicer to return the related Mortgage documents to the Purchaser when the need therefor by the Interim Servicer no longer exists, unless the Mortgage Loan has been liquidated and the Liquidation Proceeds relating to the Mortgage Loan have been deposited in the Custodial Account or the Mortgage File or such document has been delivered to an attorney, or to a public trustee or other public official as required by law, for purposes of initiating or pursuing legal action or other proceedings for the foreclosure of the Mortgaged Property either judicially or non-judicially, and the Interim Servicer has delivered to the Purchaser a certificate of a Servicing Officer certifying as to the name and address of the Person to which such Mortgage File or such document was delivered and the purpose or purposes of such delivery. Upon receipt of a certificate of a Servicing Officer stating that such Mortgage Loan was liquidated, the servicing receipt shall be released by the Purchaser to the Interim Servicer. Subsection 11.21 Servicing Compensation. As compensation for its services hereunder, the Interim Servicer shall be entitled to retain from interest payments on the Mortgage Loans the amounts provided for as the Interim Servicing Fee for such calendar month. The Interim Servicer shall be required to pay all expenses incurred by it in connection with its servicing activities hereunder and shall not be entitled to reimbursement therefor except as specifically provided for. Subsection 11.22 Notification of Adjustments. On each Adjustment Date, the Interim Servicer shall make interest rate adjustments for each Adjustable Rate Mortgage Loan in compliance with the requirements of the related Mortgage and Mortgage Note. The Interim Servicer shall execute and deliver the notices required by each Mortgage and Mortgage Note regarding interest rate adjustments. The Interim Servicer also shall provide timely notification to the Purchaser of all applicable data and information regarding such Exhibit 9-12 interest rate adjustments and the Interim Servicer's methods of implementing such interest rate adjustments. Upon the discovery by the Interim Servicer or the Purchaser that the Interim Servicer has failed to adjust a Mortgage Interest Rate or a Monthly Payment pursuant to the terms of the related Mortgage Note and Mortgage, the Interim Servicer shall immediately deposit in the Custodial Account from its own funds the amount of any interest loss caused thereby without reimbursement therefor. Subsection 11.23 Statement as to Compliance. The Interim Servicer will deliver to the Purchaser not later than 90 days following the end of each fiscal year of the Interim Servicer, which as of the Closing Date ends on the last day in December in each calendar year, an Officers' Certificate stating, as to each signatory thereof, that (i) a review of the activities of the Interim Servicer during the preceding year and of performance under this Agreement has been made under such officers' supervision and (ii) to the best of such officers' knowledge, based on such review, the Interim Servicer has fulfilled all of its obligations under this Agreement throughout such year, or, if there has been a default in the fulfillment of any such obligation, specifying each such default known to such officer and the nature and status thereof. Copies of such statement shall be provided by the Purchaser to any Person identified as a prospective purchaser of the Mortgage Loans. Subsection 11.24 Independent Public Accountants' Servicing Report. Not later than 90 days following the end of each fiscal year of the Interim Servicer, the Interim Servicer at its expense shall cause a firm of independent public accountants (which may also render other services to the Interim Servicer) which is a member of the American Institute of Certified Public Accountants to furnish a statement to the Purchaser or its designee to the effect that such firm has examined certain documents and records relating to the servicing of the Mortgage Loans under this Agreement or of mortgage loans under pooling and servicing agreements (including the Mortgage Loans and this Agreement) substantially similar one to another (such statement to have attached thereto a schedule setting forth the pooling and servicing agreements covered thereby) and that, on the basis of such examination conducted substantially in compliance with the Uniform Single Attestation Program for Mortgage Bankers, such firm confirms that such servicing has been conducted in compliance with such pooling and servicing agreements except for such significant exceptions or errors in records that, in the opinion of such firm, the Uniform Single Attestation Program for Mortgage Bankers requires it to report. Copies of such statement shall be provided by the Purchaser to any Person identified as a prospective purchaser of the Mortgage Loans. Subsection 11.25 Access to Certain Documentation. The Interim Servicer shall provide to the Office of Thrift Supervision, the FDIC and any other federal or state banking or insurance regulatory authority that may exercise authority over the Purchaser access to the documentation regarding the Mortgage Loans serviced by the Interim Servicer required by applicable laws and regulations. Such access shall be afforded without charge, but only upon reasonable request and during normal business hours at the offices of the Interim Exhibit 9-13 Servicer. In addition, access to the documentation will be provided to the Purchaser and any Person identified to the Interim Servicer by the Purchaser without charge, upon reasonable request during normal business hours at the offices of the Interim Servicer. Subsection 11.26 Reports and Returns to be Filed by Interim Servicer. The Interim Servicer shall comply with Code rules and regulations and other applicable laws and prepare and report information, statements or other filings required to be delivered to any governmental taxing authority or to any Purchaser pursuant to any applicable law with respect to the Mortgage Loans and the transactions contemplated hereby in accordance with Accepted Servicing Practices. In addition, the Interim Servicer shall provide the Purchaser with such information concerning the Mortgage Loans as is necessary for the Purchaser to prepare its federal income tax return as any Purchaser may reasonably request from time to time. In accordance with Accepted Servicing Practices, the Interim Servicer shall file information reports with respect to the receipt of mortgage interest received in a trade or business, reports of foreclosures and abandonments of any Mortgaged Property and information returns relating to cancellation of indebtedness income with respect to any Mortgaged Property. Exhibit 9-14 EXHIBIT 10 FORM OF CONFIRMATION Greenwich Capital Financial Products, Inc. 600 Steamboat Road Greenwich, Connecticut 06830 ____ __, 1999 ContiFinancial Corporation 277 Park Avenue New York, New York 10172 Attention: _____________ Re: Purchase of Fixed and Adjustable Rate Mortgage Loans by Greenwich Capital Financial Products, Inc. Ladies and Gentlemen: Greenwich Capital Financial Products, Inc. ("Greenwich") hereby confirms our agreement to purchase and your agreement to sell, pursuant to the terms of that certain Master Mortgage Loan Purchase Facility dated as August 9, 1999 among Contimortgage Corporation, you and Greenwich (the "Agreement") on a mandatory delivery basis, and without recourse (subject to the express terms of the Agreement), the fixed and adjustable rate mortgage loans identified on Exhibit A hereto (the "Mortgage Loans") having an aggregate unpaid principal balance as of the Settlement Date (herein defined) of $_____________, after application of principal payments made or due, and whether or not collected, on or before the Settlement Date. The settlement will occur on or before ____ __, 199_ (the "Settlement Date") and the Cut-off Date shall be _____ __ , 199_ (the "Cut-off Date"). The terms and provisions of the agreement for the purchase and sale of the Mortgage Loans are as described below. 1. Terms of this Commitment: The Mortgage Loans are to be sold in a whole loan format on a servicing-released basis. At the option of and pursuant to criteria established by Greenwich, the Mortgage Loans may be divided into two or more groups (each group individually, a "Loan Package") and in such event the purchase and sale of each Loan Package will be separately documented if requested by Greenwich. At your expense, and as a condition to the closing on the Settlement Date, the original mortgage notes properly endorsed, mortgages, modification, extension and/or assumption agreements, assignments of mortgage, intervening assignments of mortgage, title insurance policies and mortgage insurance policies shall be delivered to Manufacturers and Traders Trust Company (the "Custodian"), at least three (3) business days prior to the Settlement Date ("Delivery Date"). 2. The Mortgage Loans: On the Settlement Date, the Mortgage Loans shall have a weighted average gross coupon of _________%, and shall comply with the characteristics described on Exhibit B hereto and in this Section 2. The Mortgage Loans will be fixed and adjustable rate mortgage loans, payable monthly. As of the Closing Date the Mortgage Loans shall comply with the terms and conditions of the Agreement. 3. Servicing of the Mortgage Loans: The Mortgage Loans will be interim serviced by you in accordance with the terms and provisions of the Agreement. 4. Purchase Price: The purchase price for the Mortgage Loans shall be [as set forth in the Agreement][as set forth in the attached pricing schedule]. 5. Underwriting; Review of the Mortgage Loan Files: With respect to each Mortgage Loan, you shall make all documents and instruments relating to each Mortgage Loan (the "Mortgage Files"), available for review in accordance with the terms of the Agreement. 6. Original Mortgage Loan Documents. For the purpose of expediting Greenwich's review of the Mortgage Loan legal files, prior to the Closing Date you will deliver to the Custodian, as bailee, the original mortgage notes, mortgages/deeds of trust, Assignments, title policies and other loan documents (the "Loan Documents") required to be delivered pursuant to the Agreement and in the form required pursuant to the Agreement. Greenwich is under no obligation to purchase any Mortgage Loan for which there is incomplete or missing documentation material as to the enforceability of the Mortgage Loan. Upon payment of the purchase price, the Custodian shall release the Loan Documents to Greenwich. Subsequent to such release, the Loan Documents shall be retained by the Custodian for the benefit of Greenwich pursuant to the Custodial Agreement. 7. Mandatory Delivery: The sale and delivery of all of the Mortgage Loans on the Settlement Date is mandatory, it being specifically understood and agreed that each Mortgage Loan is unique and identifiable on the date hereof and that an award of money damages would be insufficient to compensate Greenwich for the losses and damages incurred by Greenwich (including damages to prospective purchasers of the Mortgage Loans) in the event of your failure to deliver each of the Mortgage Loans or one or more Mortgage Loans otherwise acceptable to Greenwich on or before the Settlement Date. 8. Intention of the Parties. It is the intention of the parties that Greenwich is purchasing, and you are selling, the Mortgage Loans and not a debt instrument of you or any other security. Accordingly, each party intends to treat the transaction for federal income tax purposes as a sale by you, and a purchase by Greenwich, of the Mortgage Loans and will be held consistent with the classification of such arrangement as a grantor trust in the event that it is not found to represent direct ownership of the related Mortgage Loans. Prior to the Closing Date, Greenwich shall have the right to review the Mortgage Loans and the related Loan Documents to determine the characteristics of the Mortgage Loans which will affect the federal income tax consequences Exhibit 10-2 of owning the Mortgage Loans. You shall cooperate with all reasonable requests made by Greenwich in the course of such review. This letter and the Agreement contains the entire agreement relating to the subject matter hereof between us and supersedes any prior oral or written agreement between us. This letter may only be amended by a written document signed by both of us. This letter shall become part of the Agreement. This letter shall be governed in accordance with the laws of the state of New York, without regard to conflict of laws rules. Please confirm that the foregoing specifies the terms of our agreement by signing and returning the enclosed copy of this letter by ____ __, 199__ to Greenwich Capital Financial Products, Inc., 600 Steamboat Road, Greenwich, Connecticut 06830, Attention: Anthony Palmisano. Greenwich, at its option, may terminate this transaction and have no further obligations in connection with the transaction herein described if you have failed to acknowledge this agreement by such date. Very truly yours, GREENWICH CAPITAL FINANCIAL PRODUCTS, INC. By:________________________________ Name:______________________________ Title:_____________________________ Confirmed and Agreed to: CONTIFINANCIAL CORPORATION By:___________________________ Name:_________________________ Title:________________________ By:___________________________ Name:_________________________ Title:________________________ EXHIBIT A Mortgage Loan Schedule EXHIBIT B Mortgage Loan Characteristics EXHIBIT 11 BUY-UP/BUY-DOWN SCHEDULE EXHIBIT 12 UNDERWRITING GUIDELINES EXHIBIT 13 MODIFICATIONS TO UNDERWRITING GUIDELINES 1. No loans to facilitate REO or to rewrite loans delinquent more than 60 days. 2. Homes listed for sale are not eligible for refinancing transactions. 3. Property conditions must be average or better as reported by the appraiser or as observable from photos in file. 4. No mixed use after 8/31/99. 5. Retention Loans must meet Underwriting Guidelines (as modified) except that the appraisal may be up to 18 months old. 6. Purchase money transactions require verification of downpayment and verification of source. 7. No escrow holdbacks for completion or repair of property. 8. If the proposed mortgagor owns the property under a land contract, the appraised value used to compute the LTV for the proposed loan may not be higher than the mortgagor's land contract purchase price unless it can be demonstrated (via utility or tax invoices or otherwise) that the mortgagor has owned the property for at least 12 months. 9. If credit is to be given for mortgagor payments under a lease option or land contract, the payments must be independently verified via a source other than the lessor or the seller under the land contract (e.g., cancelled checks). Exhibit 13-1 EXHIBIT 14 REPRESENTATIONS AND WARRANTIES (i) The information with respect to each Mortgage Loan and the information set forth in the related Mortgage Loans Schedule is true and correct as of the Cut-off Date; (ii) The Mortgage Note, the Mortgage, the Assignment of Mortgage and any other documents required to be delivered with respect to each Mortgage Loan pursuant to the Custodial Agreement, have been delivered to the Custodian all in compliance with the specific requirements of the Custodial Agreement. With respect to each Mortgage Loan, the Seller is in possession of a complete Mortgage File in compliance with Exhibit 5, except for such documents as have been delivered to the Custodian and except for the Servicing File, which has been delivered to the Interim Servicer; (iii) Each Mortgage Loan is an Eligible Mortgage Loan or an Exception Loan within the applicable Exception Limit; (iv) Each Mortgaged Property is improved by a Residential Dwelling. If the Residential Dwelling on the Mortgaged Property is a condominium unit or a unit in a planned unit development (other than a de minimis planned unit development) such condominium or planned unit development project meets the eligibility requirements of Fannie Mae and Freddie Mac; (v) No Second Lien Mortgage Loan had a CLTV at origination equal to or greater than 95%. No Mortgage Loan had a combined LTV (including the amount of all liens senior to or subordinate to the lien of the related Mortgage) greater than 100%; (vi) Each Mortgage Note with respect to the Mortgage Loans will provide for a schedule of substantially level and equal Monthly Payments which are sufficient to amortize fully the principal balance of such Mortgage Note on or before its maturity date. Unless stated on the Mortgage Loan Schedule, no Mortgage Loan has a balloon payment feature; (vii) As of the Closing Date, each Mortgage is a valid and subsisting first lien on the Mortgaged Property with respect to each Mortgage Loan which is indicated to be a First Lien (as reflected on the related Mortgage Loan Schedule) or second lien on the Mortgaged Property with respect to each Mortgage Loan which is indicated to be a Second Lien Mortgage Loan (as reflected on the related Mortgage Loan Schedule) and subject in all cases to the exceptions to title set forth in the title insurance policy or attorney's opinion of title with respect to the related Mortgage Loan, which exceptions are generally acceptable to banking institutions in connection with their regular mortgage lending activities, and such other exceptions to which similar properties are commonly subject and which do not individually, or in the aggregate, materially and adversely affect the benefits of the security intended to be provided by such Mortgage; (viii) Immediately prior to the transfer and assignment of the Mortgage Loans, the Seller held good and indefeasible title to, and was the sole owner of, each Mortgage Loan (including the related Mortgage Note) conveyed by such Seller subject to no liens, charges, mortgages, encumbrances or rights of others except as set forth in clause (vii) or other liens which will be released simultaneously with such transfer and assignment; and immediately upon the transfer and assignment herein contemplated, the Purchaser will hold good and indefeasible title to, and be the sole owner of, each Mortgage Loan subject to no liens, charges, mortgages, encumbrances or rights of others except as set forth in paragraph (vii) or other liens which will be released simultaneously with such transfer and assignment; (ix) No payment required to be made on the Mortgage Loan is more than 29 days delinquent from its contractual Due Date as of the close of business on the related Closing Date; the Seller has not advanced funds, or induced, solicited or knowingly received any advance of funds from a party other than the owner of the related Mortgaged Property, directly or indirectly, for the payment of any amount required by the Mortgage Note or Mortgage; such Mortgage Loan was originated no later than 60 days prior to the related Closing Date; and there has been no delinquency, exclusive of any period of grace, in any payment by the Mortgagor thereunder since origination; (x) There is no delinquent tax or assessment lien on any Mortgaged Property, and each Mortgaged Property is free of substantial damage and is in good repair; (xi) There is no valid and enforceable offset, defense or counterclaim to any Mortgage Note or Mortgage, including the obligation of the related Mortgagor to pay the unpaid principal of or interest on such Mortgage Note; (xii) There is no mechanics' lien or claim for work, labor or material affecting any Mortgaged Property which is or may be a lien prior to, or equal with, the lien of the related Mortgage except those which are insured against by any title insurance policy referred to in paragraph (xiv) below; (xiii) Each Mortgage Loan at the time it was made complied in all material respects with applicable state and federal laws and regulations, including, without limitation, the federal Truth-in-Lending Act and other consumer protection laws, usury, equal credit opportunity, disclosure and recording laws; (xiv) With respect to each Mortgage Loan either (a) an attorney's opinion of title has been obtained but no title policy has been obtained, or (b) a lender's title insurance policy, issued in standard American Land Title Association form by a title insurance company authorized to transact business in the state in which the related Mortgaged Property is situated, in an amount at least equal to the original balance of such Mortgage Loan, insuring the mortgagee's interest under the related Mortgage Loan as the holder of a valid first or second mortgage lien of record on the real property described in the related Mortgage, subject only to exceptions of the character referred to in paragraph (vii) above, was effective on the date of the origination of such Mortgage Loan, and, as of the Closing Date, such policy is valid and thereafter such policy shall continue in full force and effect; (xv) The improvements upon each Mortgaged Property are covered by a valid and existing hazard insurance policy with a generally acceptable carrier that provides for fire and extended coverage representing coverage not less than the least of (A) the outstanding principal balance of the related Mortgage Loan (together, in the case of a Second Lien Mortgage Loan, with the outstanding principal balance of the Senior Lien), (B) the minimum amount required to compensate for damage or loss on a replacement cost basis or (C) the full insurable value of the Mortgaged Property; (xvi) If any Mortgaged Property is in an area identified in the Federal Register by the Federal Emergency Management Agency as having special flood hazards, a flood insurance policy in a form meeting the requirements of the current guidelines of the Flood Insurance Administration is in effect with respect to such Mortgaged Property with a generally acceptable carrier in an amount representing coverage not less than the least of (A) the outstanding principal balance of the related Mortgage Loan (together, in the case of a Second Lien Mortgage Loan, with the outstanding principal balance of the Senior Lien), (B) the minimum amount required to compensate for damage or loss on a replacement cost basis or (C) the maximum amount of insurance that is available under the Flood Disaster Protection Act of 1973; (xvii) Each Mortgage and Mortgage Note is the legal, valid and binding obligation of the maker thereof and is enforceable in accordance with its terms, except only as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (whether considered in a proceeding or action in equity or at law), and all parties to each Mortgage Loan had full legal capacity to execute all documents relating to such Mortgage Loan and convey the estate therein purported to be conveyed; (xviii) The Seller has caused and will cause to be performed any and all acts required to be performed to preserve the rights and remedies of the Purchaser in any insurance policies applicable to any Mortgage Loans including, without limitation, any necessary notifications of insurers, assignments of policies or interests therein, and establishments of co-insured, joint loss payee and mortgagee rights in favor of the Purchaser; (xix) As of the Closing Date, no more than 1.0% of the aggregate Stated Principal Balance of the Mortgage Loans will be secured by Mortgaged Properties located within any single zip code area; (xx) Each original Mortgage was recorded or is in the process of being recorded, and all subsequent assignments of the original Mortgage have been delivered for recordation or have been recorded in the appropriate jurisdictions wherein such recordation is necessary to perfect the lien thereof as against creditors of or purchasers from the Seller delivering the related Mortgage Loan; (xxi) The terms of each Mortgage Note and each Mortgage have not been impaired, altered or modified in any respect, except by a written instrument which has been recorded, if necessary, to maintain the lien priority of the Mortgage, and which have been delivered to the Custodian; the substance of any such waiver, alteration or modification is reflected on the related Mortgage Loan Schedule. No instrument of waiver, alteration or modification has been executed, and no Mortgagor has been released, in whole or in part, except in connection with an assumption agreement, which assumption agreement has been delivered to the Custodian and the terms of which are reflected in the related Mortgage Loan Schedule; (xxii) The proceeds of each Mortgage Loan have been fully disbursed, and there is no obligation on the part of the mortgagee to make future advances thereunder. Any and all requirements as to completion of any onsite or off-site improvements and as to disbursements of any escrow funds therefor have been complied with. All costs, fees and expenses incurred in making or closing or recording such Mortgage Loans were paid; (xxiii) The related Mortgage Note is not and has not been secured by any collateral, pledged account or other security except the lien of the corresponding Mortgage; (xxiv) No Mortgage Loan was originated under a buydown plan; (xxv) No Mortgage Loan has a shared appreciation feature, or other contingent interest feature; (xxvi) Each Mortgaged Property is located in the state identified in the respective Schedule of Mortgage Loans and consists of one or more parcels of real property with a residential dwelling erected thereon; (xxvii) Each Mortgage contains a provision for the acceleration of the payment of the unpaid principal balance of the related Mortgage Loan in the event the related Mortgaged Property is sold without the prior consent of the mortgagee thereunder; (xxviii) Any advances made after the date of origination of a Mortgage Loan but prior to the Cut-off Date have been consolidated with the outstanding principal amount secured by the related Mortgage, and the secured principal amount, as consolidated, bears a single interest rate and single repayment term reflected on the respective Schedule of Mortgage Loans. The consolidated principal amount does not exceed the original principal amount of the related Mortgage Loan. No Mortgage Note permits or obligates the Seller to make future advances to the related Mortgagor at the option of the Mortgagor; (xxix) There is no proceeding pending or threatened for the total or partial condemnation of any Mortgaged Property, nor is such a proceeding currently occurring, and each Mortgaged Property is undamaged by waste, fire, water, flood, earthquake or earth movement; (xxx) All of the improvements which were included for the purposes of determining the Appraised Value of any Mortgaged Property lie wholly within the boundaries and building restriction lines of such Mortgaged Property, and no improvements on adjoining properties encroach upon such Mortgaged Property, unless any such improvements and are stated in the title insurance policy and affirmatively insured; (xxxi) No improvement located on or being part of any Mortgaged Property is in violation of any applicable zoning law or regulation. All inspections, licenses and certificates required to be made or issued with respect to all occupied portions of each Mortgaged Property and, with respect to the use and occupancy of the same, including but not limited to certificates of occupancy and fire underwriting certificates, have been made or obtained from the appropriate authorities and such Mortgaged Property is lawfully occupied under the applicable law; (xxxii) With respect to each Mortgage constituting a deed of trust, a trustee, duly qualified under applicable law to serve as such, has been properly designated and currently so serves and is named in such Mortgage, and no fees or expenses are or will become payable by the Purchaser to the trustee under the deed of trust, except in connection with a trustee's sale after default by the related Mortgagor; (xxxiii) Each Mortgage contains customary and enforceable provisions which render the rights and remedies of the holder thereof adequate for the realization against the related Mortgaged Property of the benefits of the security, including (A) in the case of a Mortgage designated as a deed of trust, by trustee's sale and (B) otherwise by judicial foreclosure. There is no homestead or other exemption available to the related Mortgagor which would materially interfere with the right to sell the related Mortgaged Property at a trustee's sale or the right to foreclose the related Mortgage. The Mortgagor has not notified the Seller and the Seller has no knowledge of any relief requested or allowed to the Mortgagor under the Soldiers and Sailors Civil Relief Act of 1940; (xxxiv) There is no default, breach, violation or event of acceleration existing under any Mortgage or the related Mortgage Note and no event which, with the passage of time or with notice and the expiration of any grace or cure period, would constitute a default, breach, violation or event of acceleration; and the Seller has not waived any default, breach, violation or event of acceleration. With respect to each Mortgage Loan which is indicated to be a Second Lien Mortgage Loan (as reflected on the related Mortgage Loan Schedule) (i) the Mortgage Note is in full force and effect, (ii) there is no default, breach, violation or event of acceleration existing under such Mortgage Note mortgage or the related mortgage note, (iii) no event which, with the passage of time or with notice and the expiration of any grace or cure period, would constitute a default, breach, violation or event of acceleration thereunder, and either (A) the Mortgage Note mortgage contains a provision which allows or (B) applicable law requires, the mortgagee under the second lien Mortgage Loan to receive notice of, and affords such mortgagee an opportunity to cure any default by payment in full or otherwise under the Mortgage Note mortgage; (xxxv) No instrument of release or waiver has been executed in connection with any Mortgage Loan, and no Mortgagor has been released, in whole or in part, except in connection with an assumption agreement which has been approved by the primary mortgage guaranty insurer, if any, and which has been delivered to the Purchaser; (xxxvi) Each Mortgage Loan was originated based upon a full appraisal, which included an interior inspection of the subject property and was made and signed, prior to the approval of the Mortgage Loan application, by a qualified appraiser, duly appointed by the originator, who had no interest, direct or indirect in the Mortgaged Property or in any loan made on the security thereof, whose compensation is not affected by the approval or disapproval of the Mortgage Loan. Each appraisal of the Mortgage Loan was made in accordance with the relevant provisions of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989; (xxxvii) The Mortgage Loans were not selected for inclusion in the related Mortgage Loan Package by the Seller on any basis intended to adversely affect the Purchaser; (xxxviii) The Seller has any actual knowledge that there exist any hazardous substances, hazardous wastes or solid wastes, as such terms are defined in the Comprehensive Environmental Response Compensation and Liability Act, the Resource Conservation and Recovery Act of 1976, or other federal, state or local environmental legislation on any Mortgaged Property; (xxxix) Seller was properly licensed or otherwise authorized, to the extent required by applicable law, to originate or purchase each Mortgage Loan; and the consummation of the transactions herein contemplated, including, without limitation, the receipt of the ownership of the Mortgage Loans by the Purchaser will not involve the violation of such laws; (xl) With respect to each Mortgaged Property subject to a ground lease (i) the current ground lessor has been identified and all ground rents which have previously become due and owing have been paid; (ii) the ground lease term extends, or is automatically renewable, for at least five years beyond the maturity date of the related Mortgage Loan; (iii) the ground lease has been duly executed and recorded; (iv) the amount of the ground rent and any increases therein are clearly identified in the lease and are for predetermined amounts at predetermined times; (v) the ground rent payment is included in the borrower's monthly payment as an expense item; (vi) the Purchaser has the right to cure defaults on the ground lease; and (vii) the terms and conditions of the leasehold do not prevent the free and absolute marketability of the Mortgaged Property; (xli) All taxes, governmental assessments, insurance premiums, water, sewer and municipal charges, leasehold payments or ground rents which previously became due and owing have been paid, or an escrow of funds has been established in an amount sufficient to pay for every such item which remains unpaid and which has been assessed but is not yet due and payable; (xlii) As of the Closing Date, neither Seller has received a notice of default of any Mortgage Loan secured by any Mortgaged Property which has not been cured by a party other than such Seller; (xliii) All of the Adjustable Rate Mortgage Loans are in a first lien position; (xliv) The Seller shall, at its own expense, cause each Mortgage Loan to be covered by a Tax Service Contract which is assignable to the Purchaser or its designee; provided however, that if the Seller fails to purchase such Tax Service Contract, the Seller shall be required to reimburse the Purchaser for all costs and expenses incurred by the Purchaser in connection with the purchase of any such Tax Service Contract; (xlv) Each Mortgage Loan was originated by an affiliate of Seller and was conveyed to Seller pursuant to a legal sale, and if so requested by the Purchaser, is covered by an opinion of counsel to that effect in form and substance acceptable to the Purchaser; (xlvi) In the event that the Mortgage Loan had a principal balance at origination equal to or greater than (a) $300,000 with respect to each Mortgage Loan as to which the related Mortgaged Property is located in California, and (b) $250,000 in all other cases, the Mortgage File contains a drive-by appraisal performed not more than 30 days prior to the Closing Date which confirms that the LTV of the Mortgage Loan satisfies the Underwriting Guidelines for the applicable loan program; (xlvii) Except to the extent that the Mortgage Loan is an AmGen Mortgage Loan, the Mortgage Loan has not been previously financed or purchased by any third party. Following the purchase of such Mortgage Loan, the aggregate unpaid principal balance of the AmGen Mortgage Loans shall not exceed 10% of the aggregate unpaid principal balance of all of the Portfolio Mortgage Loans purchased hereunder; (xlviii) No Mortgage Loan was made in connection with (a) the construction or rehabilitation of a Mortgaged Property; (b) facilitating the trade-in or exchange of a Mortgaged Property; (c) facilitating the sale of an REO property or (d) the refinancing of a delinquent mortgage loan originated or acquired by Seller which was more than 60 days delinquent; (xlix) No Fixed Rate Mortgage Loan has an LTV greater than 100% and no Adjustable Rate Mortgage Loan has an LTV greater than 90%; (l) All parties which have had any interest in the Mortgage Loan, whether as mortgagee, assignee, pledgee or otherwise, are (or, during the period in which they held and disposed of such interest, were) in compliance with any and all applicable "doing business" and licensing requirements of the laws of the state wherein the Mortgaged Property is located; (li) The Mortgage Loan was originated (within the meaning of the Secondary Mortgage Market Enhancement Act of 1984) by a savings and loan association, a savings bank, a commercial bank or similar banking institution which is supervised and examined by a federal or state authority, or by a mortgagee approved as such by the Secretary of HUD; (lii) The origination and collection practices used by the Seller and any other originator with respect to each Mortgage Note and Mortgage have been in all respects legal, proper, prudent and customary in the mortgage origination and servicing industry. The Mortgage Loan has been serviced by the Seller and any predecessor servicer in accordance with the terms of the Mortgage Note. [With respect to escrow deposits and Escrow Payments, if any, (other than with respect to each Mortgage Loan which is indicated to be a Second Lien Mortgage Loan and for which the mortgagee under the Mortgage Note is collecting Escrow Payments), all such payments are in the possession of, or under the control of, the Seller and there exist no deficiencies in connection therewith for which customary arrangements for repayment thereof have not been made.] No escrow deposits or Escrow Payments or other charges or payments due the Seller have been capitalized under any Mortgage or the related Mortgage Note and no such escrow deposits or Escrow Payments are being held by the Seller for any work on a Mortgaged Property which has not been completed; (liii) The Mortgage Loan was underwritten in accordance with the Underwriting Guidelines in effect at the time the Mortgage Loan was originated; (liv) No error, omission, misrepresentation, negligence, fraud or similar occurrence with respect to a Mortgage Loan has taken place on the part of any person, including without limitation the Mortgagor, any appraiser, any builder or developer, or any other party involved in the origination of the Mortgage Loan or in the application of any insurance in relation to such Mortgage Loan; (lv) The Assignment of Mortgage is in recordable form and is acceptable for recording under the laws of the jurisdiction in which the Mortgaged Property is located; (lvi) No Mortgage Loan which is a Cash-out Refinancing was originated in the State of Texas; (lvii) With respect to each Mortgage Loan which is a Second Lien, (i) if the related Mortgage Note provides for negative amortization, the LTV was calculated at the maximum principal balance of such Mortgage Note that could result upon application of such negative amortization feature, and (ii) either no consent for the Mortgage Loan is required by the holder of the Mortgage Note or such consent has been obtained and is contained in the Mortgage File; and (lviii) With respect to each Mortgage Loan which is subject to the provisions of HOEPA, the Mortgage Loan is identified as such on the Mortgage Loan Schedule, and the related Mortgage File contains a notice from the originator and a copy of a notice to each entity which was a purchaser or assignee of the Mortgage Loan satisfying the provisions of HOEPA and the regulations issued thereunder to the effect that the Mortgage Loan is subject to special truth-in-lending rules. SCHEDULE 2 Seller's Material Subsidiaries ContiMortgage Corporation ContiWest Corporation ContiTrade Services L.L.C. California Lending Group, Inc. ContiSecurities Holding Corporation ContiFunding Corporation SCHEDULE 3 INDEBTEDNESS DOCUMENTS Indenture, dated as of August 15, 1996, relating to the ContiFinancial Corporation 8 3/8% Senior Notes Due 2003, as amended, supplemented or otherwise modified from time to time Credit Agreement, dated as of January 7, 1997, among ContiFinancial Corporation and Credit Suisse First Boston, as amended, supplemented or otherwise modified from time to time Indenture, dated as of March 1, 1997, relating to the ContiFinancial Corporation 7-1/2% Senior Notes Due 2002, as amended, supplemented or otherwise modified from time to time Amended and Restated Letter of Credit and Reimbursement Agreement, dated as of September 9, 1997, among ContiFinancial Corporation, Credit Suisse First Boston, New York Branch and Dresdner Bank AG, New York Branch, as amended, supplemented or otherwise modified from time to time Indenture, dated March 4, 1998, relating to certain securities issuable by ContiFinancial Corporation, as amended, supplemented or otherwise modified from time to time EX-10.38 7 EXHIBIT 10.38 AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT dated August 31, 1999 (this "Agreement"), made by CONTIFINANCIAL CORPORATION (the "Grantor"), in favor of GREENWICH CAPITAL FINANCIAL PRODUCTS, INC. ("GCFP"), GREENWICH CAPITAL MARKETS, INC. ("GCM") and each affiliate of GCFP and GCM which is party to any agreement or document entered into in connection with any of the Facilities (as defined below) (such affiliates together with GCFP and GCM are collectively, "Greenwich"), amending and restating that certain Pledge and Security Agreement dated August 9, 1999 (the "Original Pledge and Security Agreement") made by Grantor in favor of Greenwich. W I T N E S S E T H: WHEREAS, CFC, ContiMortgage Corporation ("CMC") and GCFP are parties to a Master Mortgage Loan Purchase Facility dated as of August 9, 1999 (such Agreement, as amended or otherwise modified from time to time, being hereinafter referred to as the "Purchase Facility"); WHEREAS, CFC and GCFP are parties to a Master Repurchase Agreement Governing Purchases and Sales of Eligible Assets dated as of December 21, 1998 (such Agreement, as amended or otherwise modified from time to time, together with any successor purchase facility, being hereinafter referred to as the "Existing Repurchase Facility"); WHEREAS, CFC, CMC and GCFP are parties to a Master Repurchase Agreement Governing Purchases and Sales of Assets dated as of August 9, 1999 (such Agreement, as amended or otherwise modified from time to time, being hereinafter referred to as the "New Repurchase Facility" and together with the Existing Repurchase Facility, each a "Repurchase Facility" and collectively, the "Repurchase Facilities"); WHEREAS, pursuant to an engagement letter dated as of August 9, 1999 (such letter, as amended or otherwise modified from time to time, being hereinafter referred to as the "Engagement Letter"), CFC, CMC, ContiSecurities Asset Funding Corp. III and ContiSecurities Asset Funding Corp. IV (collectively, the "Conti Affiliates") have requested GCM, and GCM has agreed, to act as the sole and exclusive securitization agent and underwriter in connection with a securitization and/or selling agent in connection with a whole loan sale of certain mortgage loans; WHEREAS, in connection with the Purchase Facility, the New Repurchase Facility and the Engagement Letter, the Conti Affiliates and Greenwich have entered into a Master Facilities Agreement dated as of August 9, 1999 (such Agreement, as amended or otherwise modified from time to time, being hereinafter referred to as the "Master Facilities Agreement" and together with the Purchase Facility, the New Repurchase Facility and the Engagement Letter, the "New Facilities") pursuant to which the Conti Affiliates have agreed to pay to Greenwich certain fees and expenses in connection with the New Facilities; and WHEREAS, it is a condition precedent to Greenwich maintaining the New Facilities and the Existing Repurchase Facility (collectively, the "Facilities") that the Grantor shall have executed and delivered to Greenwich this Agreement which amends and restates the Original Pledge and Security Agreement and provides for the grant to Greenwich of a security interest in certain personal property of the Grantor; NOW, THEREFORE, in consideration of the premises and the agreements herein and in order to induce Greenwich to maintain the Facilities, the Grantor hereby agrees with Greenwich as follows: SECTION 1. Definitions. Reference is hereby made to the Facilities for a statement of the terms thereof. All terms used in this Agreement that are defined in the Facilities or in Article 8 or Article 9 of the Uniform Commercial Code (the "Code") currently in effect in the State of New York and that are not otherwise defined herein shall have the same meanings herein as set forth therein, and the following terms shall have the following meanings: "Distributions" has the meaning specified therefor in Section 5(b) of this Agreement. "Final Reserve Period" means the period from and after the first day of the 61st month following the date of this Agreement. "Initial Reserve Period" means the period beginning on the date of this Agreement and ending on the last day of the 12th month thereafter. "Maximum Cumulative Reserve Fund Deposit" means, with respect to the aggregate amount of Distributions deposited in the Reserve Fund, $25,000,000, provided that, upon the occurrence of a Trigger Event, the amount shall be automatically increased to $45,000,000. "Obligation Payment Event" means (a) the failure to pay an Obligation when due, (b) the receipt by Greenwich of a claim for repurchase of a mortgage loan due to a breach of a representation or warranty by any Conti Affiliate, (c) the receipt by Greenwich of any claim from any third party servicer or the applicable Monoline Insurance Company to reimburse any such Person for losses (other than losses resulting solely and directly from (i) information provided by and related to Greenwich or any of its Affiliates or (ii) Greenwich's gross negligence or willful misconduct) pursuant to indemnification or guaranty obligations of Greenwich arising from, related to, or in connection with any of the Facilities, or (d) the receipt by Greenwich of a request by the Custodian to pay the Custodian's fees and expenses under the respective Custodial Agreements. "Reserve Fund" means the account maintained by Greenwich with the Custodian for the deposit of Distributions (a) which account and all amounts on deposit therein shall, pursuant to the terms of a custody agreement between Greenwich and the Custodian (in form and substance satisfactory to Greenwich), be held as Collateral for the Obligations and be subject to (i) the sole and exclusive dominion and control of Greenwich and (ii) the sole right of withdrawal by Greenwich, and (b) which amounts shall be invested by Greenwich in investments mutually agreed upon by Greenwich and Grantor, and all investment earnings relating to such investments -2- shall be treated as "Distributions" and retained in the Reserve Fund until the amount on deposit therein is equal to the Reserve Fund Required Amount. "Reserve Fund Required Amount" means the aggregate amount of Distributions, not exceeding the Maximum Cumulative Reserve Fund Deposit, to be deposited in the Reserve Fund equal to: (a) during the Initial Reserve Period (i) if no Obligation Payment Event has occurred since the date of this Agreement, $5,000,000 or (ii) if an Obligation Payment Event has occurred since the date of this Agreement (whether or not such Obligation Payment Event ceases to exist), $15,000,000, provided that (A) upon the occurrence of a Trigger Event (other than as a result of clause (iv) of the definition of Trigger Event), each of the amounts set forth in clauses (i) and (ii) of this subparagraph shall be automatically increased by $5,000,000, and (B) upon the occurrence of a Trigger Event as a result of clause (iv) of the definition of Trigger Event, the amounts set forth in clauses (i) and (ii) of this subparagraph shall be automatically increased by $15,000,000 and $5,000,000, respectively, (b) during the Second Reserve Period (i) if no Obligation Payment Event has occurred since the date of this Agreement, $10,000,000, or (ii) if an Obligation Payment Event has occurred since the date of this Agreement (whether or not such Obligation Payment Event ceases to exist), $15,000,000, provided that (A) upon the occurrence of a Trigger Event (other than as a result of clause (iv) of the definition of Trigger Event), each of the amounts set forth in clauses (i) and (ii) of this subparagraph shall be automatically increased by $5,000,000, and (B) upon the occurrence of a Trigger Event as a result of clause (iv) of the definition of Trigger Event, amounts set forth in clauses (i) and (ii) of this subparagraph shall be automatically increased by $10,000,000 and $5,000,000, respectively, and (c) during the Final Reserve Period (i) if no Obligation Payment Event has occurred since the date of this Agreement, $5,000,000, (ii) if an Obligation Payment Event has occurred but no longer exists, $7,500,000, or (iii) if an Obligation Payment Event has occurred and continues to exist, $15,000,000, provided that (A) in the case of clause (iii) of this subparagraph, if such Obligation Payment Event ceases to exist then the Reserve Fund Required Amount shall be reduced to $7,500,000, (B) upon the occurrence of a Trigger Event (other than as a result of clause (iv) of the definition of Trigger Event), each of the amounts set forth in clauses (i), (ii) and (iii) of this subparagraph shall be automatically increased by $5,000,000, and (C) upon the occurrence of a Trigger Event as a result of clause (iv) of the definition of Trigger Event, the amounts set forth in clauses (i), (ii) and (iii) of this subparagraph shall be automatically increased by $15,000,000, $5,000,000 and $5,000,000, respectively. "Second Reserve Period" means the period beginning on the first day of the 13th month following the date of this Agreement and ending on the last day of the 60th month thereafter. "Trigger Event" means the occurrence of any of the following: (i) the filing in a court of competent jurisdiction of a motion, pursuant to Rule 23 of the Federal Rules of Civil Procedure or any other comparable state or local rule of civil procedure relating to the -3- maintenance of class actions, seeking authority for a civil action brought by a representative plaintiff or plaintiffs to be maintained as a class action on behalf of a class of similarly situated plaintiffs claiming that a Person improperly excluded certain settlement agent fees (or other similar fees) in the calculation of the mortgage loan annual percentage rate or closing fees in connection with the origination of mortgage loans by such Person; (ii) the rendering by a court of competent jurisdiction of a decision or the entry of an order approving a settlement agreement, in which a Person is found liable for, or agrees to pay, monetary damages arising out of claims which include an allegation that such Person failed to include certain settlement agent fees (or other similar fees) in the calculation of the mortgage loan annual percentage rate or closing fees in connection with the origination of mortgage loans by such Person; (iii) any Governmental Authority issues new regulations, rules, commentary or interpretations, or amends, supplements or modifies existing regulations, rules, commentary or interpretations, the effect of which is, among other things, to require certain settlement agent fees (or other similar fees) to be included in the calculation of the mortgage loan annual percentage rate or closing fees in connection with the origination of mortgage loans; or (iv) the failure by the Grantor to repurchase any mortgage loan required to be repurchased due to a breach of a representation or warranty by the Grantor as a result of the failure to include certain settlement agent fees (or other similar fees) in the calculation of the mortgage loan annual percentage rate or closing fees in connection with the origination of such mortgage loans. SECTION 2. Grant of Security Interest. As collateral security for all of the Obligations (as defined in Section 3 hereof), the Grantor hereby pledges and collaterally assigns to Greenwich, and grants to Greenwich a continuing security interest in, all of such Grantor's right, title and interest in and to the following (the "Collateral"): (a) all of the Grantor's rights in and to any Deferred Purchase Price and Purchase Price Adjustment under the terms of the Purchase Facility, whether now or hereafter existing, including, without limitation, all contract rights and general intangibles arising from or relating thereto and all proceeds arising therefrom; (b) with respect to any Purchased Assets subject to Transactions under the Repurchase Facilities, all of the Grantor's rights to (i) any such Purchased Assets, including, without limitation, all contract rights and general intangibles arising from or related thereto, (ii) all commitments issued by third parties (other than American General) to purchase such Purchased Assets from the Grantor and all rights of the Grantor with respect thereto, (iii) all cash from time to time deposited into any deposit account of the Grantor with the Custodian in connection with any Repurchase Facilities, and (iv) all other rights of the Grantor now or hereafter existing in and to all agreements, documents and instruments securing or otherwise relating to any Repurchase Facilities; (c) (i) (A) the Excess Spread Receivable described in Schedule III hereto (the "Designated ESR"), (B) all Excess Spread Receivables issued by any securitization trust or other Person formed to securitize mortgage loans in accordance with the Engagement Letter (the "Engagement ESRs"), and (C) all Excess Spread Receivables arising from, related to or comprising the Grantor's Deferred Purchase Price (other than the Excess Spread Receivables described in the provisos to Subsection 4.02(b)(i)(C) and (D) and Subsection 4.02(b)(ii)(C) and -4- (D) of the Purchase Facility under which the Grantor and Greenwich each have a parri passu interest in 50% of such Excess Spread Receivables) issued by any securitization trust or other Person formed to securitize mortgage loans purchased by Greenwich under the Purchase Facility (the "Deferred Purchase Price ESRs" and together with the Engagement ESRs and the Designated ESR, the "Pledged Residuals"), and the instruments or certificates representing such Pledged Residuals, and (ii) the security (if any) evidencing the amount of all prepayment penalties relative to the securitization of mortgage loans described in the Engagement Letter to the extent such prepayment penalties are not required to reduce the overcollateralization requirements of the applicable Monoline Insurance Company (the "Prepayment Bond") (the Pledged Residuals and the Prepayment Bond are collectively referred to herein as, the "Pledged Assets"); (d) all Investment Property of the Grantor arising from or related to the foregoing, including without limitation, the Pledged Assets that have been, or will be, delivered, transferred or assigned to, or deposited or credited to an account with, or otherwise is in the possession or under the control or recorded on the books of, Greenwich; (e) all distributions, cash, Investment Property, instruments, Financial Assets and other property from time to time received, receivable or otherwise distributed in respect of, or in exchange for, the Grantor's interest in the Pledged Assets and delivered or transferred to Greenwich or the Grantor; and (f) all proceeds of any and all of the foregoing Collateral (including, without limitation, all payments under insurance (whether or not Greenwich is the loss payee thereof), any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral); in each case howsoever such Grantor's interest therein may arise or appear (whether by ownership, security interest, claim or otherwise); provided that, nothing hereunder constitutes or shall be deemed to constitute the grant of a security interest in favor of Greenwich in the Grantor's interest in the Collateral described in paragraph (b) above (hereinafter referred to as "Excluded Property"), if the granting of a security interest therein by the Grantor with respect to such Excluded Property to Greenwich is prohibited by the terms and provisions of, or would constitute a breach or default under, the Indenture or any other indenture or credit agreement listed on Schedule 3 to the New Repurchase Facility; provided, however, that if and when the prohibition which prevents the granting by a Grantor to Greenwich of a security interest in any Excluded Property is removed or otherwise terminated, Greenwich will be deemed to have, and at all times to have had, a security interest in such Excluded Property. Notwithstanding anything set forth herein to the contrary, Greenwich will be deemed to have, and at all times to have had, a security interest in the proceeds of such Excluded Property. SECTION 3. Security for Obligations. The security interest created hereby in the Collateral constitutes continuing collateral security for all of the following obligations, whether now existing or hereafter incurred (the "Obligations"): -5- (a) the obligation of the Grantor to cure or repurchase Mortgage Loans and to substitute Qualified Substitute Mortgage Loans in respect of Mortgage Loans, in each case in accordance with the terms and conditions set forth in the Purchase Facility, all obligations of CMC as Interim Servicer under the Purchase Facility, all indemnification obligations of Grantor under the Purchase Facility and the Custodial Agreement relating to the Purchase Facility, and all other obligations of Grantor under the Purchase Facility with respect to the payment of fees, expense reimbursements, indemnifications and all other amounts due or to become due under the Purchase Facility; (b) the prompt payment by Grantor, as and when due and payable, of all amounts from time to time owing by it in respect of the Repurchase Facilities, including, without limitation, the payment when due of the Repurchase Price for all Transactions outstanding under the Repurchase Facilities (including, without limitation, all interest that accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Grantor, whether or not a claim for post-filing interest is allowed in such proceeding), and the payment of all Additional Costs and Periodic Payments, the performance of Grantor's obligation to transfer Additional Eligible Assets to Greenwich under the Repurchase Facilities, all obligations of CMC as Interim Servicer under the Repurchase Facilities, all indemnification obligations of Grantor under the Repurchase Facilities and the Custodial Agreement relating to the Repurchase Facilities, and all obligations of the Grantor under the Repurchase Facilities with respect to the payment of fees, expense reimbursements, indemnifications and all other amounts due or to become due under the Repurchase Facilities; (c) the payment when due of all fees and other amounts payable by Grantor and its Affiliates under the Master Facilities Agreement; (d) the due performance and observance by the Grantor and its Affiliates of all covenants, agreements, obligations and liabilities under the Facilities, including without limitation, the obligation to securitize and/or sell mortgage loans in accordance with the terms of the Engagement Letter and any repurchase obligations of the Grantor (including any reimbursement or indemnification obligation of the Grantor in favor of Greenwich in connection with Greenwich incurring such Obligations on behalf of the Grantor or backstopping any such obligation of the Grantor arising from or in connection with any securitization and/or whole loan sale of any mortgage loans); and (e) the due performance and observance by the Grantor and its Affiliates of all of their other obligations from time to time existing in respect of the Facilities and the agreements and documents entered into by the Grantor and/or its Affiliates or Greenwich in connection with any of the Facilities, including, without limitation, the obligation of the Grantor to reimburse Greenwich for any amounts paid by it to any third party servicer or the applicable Monoline Insurance Company pursuant to any indemnification or guaranty obligations of Greenwich arising from, related to, or in connection with any of the Facilities. -6- SECTION 4. Representations and Warranties. The Grantor represents and warrants as follows: (a) There is no pending or, to its knowledge, threatened action, suit, proceeding or claim before any court or other Governmental Authority or any arbitrator, or any order, judgment or award by any court or other Governmental Authority or arbitrator, that may adversely affect the grant by such Grantor, or the perfection, of the security interest purported to be created hereby in the Collateral, or the exercise by Greenwich of any of its rights or remedies hereunder. (b) All taxes, assessments and other governmental charges imposed upon such Grantor or any property of such Grantor (including, without limitation, all federal income and social security taxes on employees' wages) and that have become due and payable on or prior to the date hereof have been paid, except to the extent contested in good faith by proper proceedings that stay the imposition of any penalty, fine and Lien resulting from the non-payment thereof and with respect to which adequate reserves in accordance with generally accepted accounting principles have been established for the payment thereof. (c) The Grantor's chief place of business and chief executive office, the place where the Grantor keeps its records concerning the Collateral are located at the addresses specified therefor in Schedule I hereto, as such Schedule may be modified in accordance with Section 5(f) hereof. (d) The Grantor is not prohibited from pledging to Greenwich any Engagement ESRs, provided that the securitization contemplated by the Engagement Letter closes by September 30, 1999. (e) The Grantor is and will be at all times the sole and exclusive owner of the Collateral free and clear of any Lien, security interest or other charge or encumbrance except (i) for the security interest created by this Agreement, and (ii) junior and subordinate Liens on the Collateral consented to by Greenwich in writing, which Liens shall be subject to a subordination agreement, in form and substance satisfactory to the Greenwich (the "Subordination Agreement"). No effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any recording or filing office except such as may have been filed in favor of Greenwich relating to this Agreement. (f) The terms and provisions of this Agreement, including, without limitation, the rights and remedies available to Greenwich hereunder, will not contravene any law or any contractual restriction binding on or otherwise affecting the Grantor or any of such Grantor's properties and will not result in or require the creation of any Lien, security interest or other charge or encumbrance upon or with respect to any of such Grantor's properties other than any Liens in favor of Greenwich. (g) No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority or other regulatory body, or any other Person, is required for (i) the grant by the Grantor, or the perfection, of the security interest purported to be created -7- hereby in the Collateral or (ii) the exercise by Greenwich of any of its rights and remedies hereunder, except the filing under the Uniform Commercial Code as in effect in the applicable jurisdiction of the financing statements described in Schedule II hereto, all of which financing statements have been duly filed and are in full force and effect. (h) This Agreement creates valid security interests in favor of Greenwich in the Collateral, as security for the Obligations. Greenwich's having possession of all instruments and cash constituting Collateral from time to time, and the filing of the financing statements described in Schedule II hereto, result in the perfection of such security interests to the extent that a security interest in the Collateral can be perfected under the Code by taking possession thereof or filing a financing statement with respect thereto. Such security interests are, or in the case of Collateral in which the Grantor obtains rights after the date hereof, will be, perfected, first priority security interests. Such recordings and filings and all other action necessary or desirable to perfect and protect such security interest have been duly taken, except for Greenwich's having possession of instruments and cash constituting Collateral after the date hereof and the other filings and recordations described in Schedule II hereto. SECTION 5. Covenants as to the Collateral. So long as any of the Obligations shall remain outstanding, unless Greenwich shall otherwise consent in writing: (a) Further Assurances. The Grantor shall at its expense, at any time and from time to time, promptly execute and deliver all further instruments and documents and take all further action that may be reasonably necessary or desirable or that Greenwich may request in order (i) to perfect and protect the security interest purported to be created hereby; (ii) to enable Greenwich to exercise and enforce its rights and remedies hereunder in respect of the Collateral; or (iii) otherwise to effect the purposes of this Agreement, including, without limitation: (A) marking conspicuously, at the request of Greenwich, each of its records pertaining to the Collateral with a legend, in form and substance satisfactory to Greenwich, indicating that such Collateral is subject to the security interest created hereby, (B) if any Collateral shall be evidenced by a promissory note or a certificate, immediately delivering and pledging to Greenwich hereunder such note or certificate duly endorsed and accompanied by executed instruments of transfer or assignment, all in form and substance satisfactory to Greenwich, and (C) executing and filing such financing or continuation statements, or amendments thereto, as may be necessary or desirable or that Greenwich may request in order to perfect and preserve the security interest purported to be created hereby. (b) Distributions in Respect of the Pledged Assets. Unless and until an Event of Default shall have occurred and be continuing, all dividends, interest and other payments or distributions (collectively, the "Distributions") payable in respect of the Pledged Assets shall be paid and applied as follows in accordance with the following priorities: (i) with respect to the Designated ESR, (A) first, all Distributions shall be deposited in the Reserve Fund until the amount on deposit therein equals the applicable Reserve Fund Required Amount, -8- (B) second, in the event the aggregate amount of Distributions deposited in the Reserve Fund equal the Maximum Cumulative Reserve Fund Deposit, all Distributions shall be applied to pay all Obligations then due and payable, including, without limitation, all Obligations of the Grantor arising from or related to any repurchases by Greenwich of Mortgage Loans resulting from a breach of a representation or warranty by the Grantor or Greenwich (or any Affiliate of such Person) under the Facilities, including all Obligations which are not then due and payable but are reasonably estimated by Greenwich to be incurred as a result of such repurchases, and (C) second, to the Grantor hereof or to such other Person as may be lawfully entitled to receive such Distributions, (ii) with respect to the Engagement ESRs and the Prepayment Bond (if any): (A) first, to all Obligations then due and payable, including, without limitation, all Obligations of the Grantor arising from or related to any repurchases by Greenwich of Mortgage Loans resulting from a breach of a representation or warranty by the Grantor or Greenwich (or any Affiliate of such Person) under the Facilities, including all Obligations which are not then due and payable but are reasonably estimated by Greenwich to be incurred as a result of such repurchases, (B) second, after all Distributions have been deposited in the Reserve Fund pursuant to Section 5(b)(i)(A) above, all Distributions shall be deposited in the Reserve Fund until the amount on deposit therein equals the Reserve Fund Required Amount, and (C) third, to the Grantor or to such other Person as may be lawfully entitled to receive such Distributions. (iii) with respect to the Deferred Purchase Price ESRs, (A) first, to all Obligations then due and payable including without limitation, all Obligations of the Grantor arising from or related to any repurchases by Greenwich of Mortgage Loans resulting from a breach of a representation or warranty by the Grantor or Greenwich (or any Affiliate of such Person) under the Facilities, including all Obligations which are not then due and payable but are reasonably estimated by Greenwich to be incurred as a result of such repurchases, (B) second, after all Distributions have been deposited in the Reserve Fund pursuant to Section 5(b)(i)(A) and Section 5(b)(ii)(B) above, all Distributions shall be deposited in the Reserve Fund until the amount on deposit therein equals the Reserve Fund Required Amount, and -9- (C) third, to the Grantor or to such other Person as may be lawfully entitled to receive such Distributions. Notwithstanding anything to the contrary, no Distributions in respect of any Pledged Assets shall be paid to the Grantor pursuant to clauses (ii) or (iii) above to the extent any claim is pending for which Greenwich in good faith reasonably determines that it may realize a loss as a result of any repurchase by Greenwich of Mortgage Loans resulting from a breach of a representation or warranty by the Grantor under the Facilities. Greenwich may apply any Distributions deposited in the Reserve Fund pursuant to Section 5(b)(i) or paid to it pursuant to Sections 5(b)(ii) and (iii) to satisfy any Obligations then due and payable by the Grantor, in such order as Greenwich shall determine in its sole discretion. After applying any amounts on deposit in the Reserve Fund to pay outstanding Obligations, Distributions (not exceeding the Maximum Cumulative Reserve Fund Deposit) shall be deposited in the Reserve Fund to replenish the applicable Reserve Fund Required Amount in accordance with clauses (i), (ii) and (iii) above. During the Final Reserve Period, Greenwich shall cause all funds on deposit in the Reserve Fund in excess of the applicable Reserve Fund Required Amount to be remitted to the Grantor or to such other Person as may be lawfully entitled to receive such excess funds. All Distributions which are received by the Grantor contrary to the provisions of Section 5(b) shall be received in trust for the benefit of Greenwich, shall be segregated from other property or funds of such Grantor and shall be forthwith paid over to Greenwich as Collateral in the same form as so received (with any necessary endorsement). (d) Taxes, Etc. The Grantor shall pay promptly when due all property and other taxes, assessments and governmental charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, any Collateral, except to the extent the validity thereof is being contested in good faith by proper proceedings that stay the imposition of any penalty, fine or Lien resulting from the non-payment thereof and with respect to which adequate reserves have been set aside for the payment thereof. (e) Excess Spread Receivables. (i) Grantor shall directly own each Pledged Residual and shall cause all Pledged Residuals to be pledged to Greenwich free of any assignment, transfer or registration restrictions other than transfer requirements consistent with industry custom. (ii) In the event that the Grantor shall be prohibited under the terms of any of the documents listed on Schedule 3 to the New Repurchase Facility from pledging to Greenwich any Engagement ESRs or Deferred Purchase Price ESRs, Greenwich will execute and deliver to the Grantor such documents as Grantor shall reasonably request to evidence the release of Greenwich's Lien on such Engagement ESRs or Deferred Purchase Price ESRs, as the case may be, provided that the Grantor shall provide Greenwich, and Greenwich shall accept, an alternative securitization structure or other collateral which provides Greenwich with substantially equivalent value and is otherwise reasonably acceptable to Greenwich. -10- (f) Place of Business. The Grantor shall (i) give Greenwich at least 30 days' prior written notice of any change in such Grantor's name, identity or organizational structure, and (ii) keep its chief place of business and chief executive office at the location(s) specified therefor in Schedule I hereof. (g) Transfers and Other Liens. (i) No Grantor shall sell, assign (by operation of law or otherwise), lease, exchange or otherwise transfer or dispose of any of the Collateral. (ii) No Grantor shall create or suffer to exist any Lien, security interest or other charge or encumbrance upon or with respect to any Collateral except (A) for the security interests created hereby and (B) any Lien granted by such Grantor to any Subordinate Lender on such Grantor's Collateral, subject to the execution and delivery of a Subordination Agreement described in Section 4(e) hereof. (h) Inspection and Reporting. The Grantor shall permit representatives of Greenwich, upon reasonable notice and at any time during normal business hours, to inspect and make abstracts from its books and records pertaining to the Collateral, and permit representatives of Greenwich to be present at such Grantor's place of business to receive copies of all communications and remittances relating to the Collateral, and to forward copies of any notices or communications received or made by such Grantor with respect to the Collateral, all in such manner as Greenwich may require. SECTION 6. Additional Provisions Concerning the Collateral. (a) The Grantor hereby authorizes Greenwich to file, without the signature of such Grantor where permitted by law, one or more financing or continuation statements, and amendments thereto, relating to the Collateral. A photocopy or other reproduction of this Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. (b) The Grantor hereby irrevocably appoints Greenwich the Grantor's attorney-in-fact and proxy, with full authority in the place and stead of the Grantor and in the name of the Grantor or otherwise, from time to time in Greenwich's discretion, to take any action and to execute any instrument which Greenwich may reasonably deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, (i) to receive, endorse and collect all instruments made payable to the Grantor representing any dividend or other distribution in respect of any Collateral and to give full discharge for the same, (ii) to execute and file such financing or continuation statements, or amendments thereto, as may be reasonably necessary or desirable or that Greenwich may reasonably request in order to perfect and preserve the security interest purported to be created hereby, and (iii) to affix to any certificates and documents representing the Collateral, the stock or bond powers delivered with respect thereto, and to transfer or re-register or cause the transfer or re-registration of the Collateral, or any part thereof, on the books of the entity issuing such Collateral, to the name of Greenwich or any nominee, and thereafter to exercise with respect to such Collateral, all the rights, powers and -11- remedies of an owner. The power of attorney granted pursuant to this Agreement and all authority hereby conferred are granted and conferred solely to protect Greenwich's interest in the Collateral and shall not impose any duty upon Greenwich to exercise any power. This power of attorney shall be irrevocable as one coupled with an interest until the payment in full in cash of the Obligations and the termination of all Facilities. (c) If the Grantor fails to perform any agreement contained herein, Greenwich may itself perform, or cause performance of, such agreement or obligation, in the name of such Grantor or Greenwich, and the expenses of Greenwich incurred in connection therewith shall be payable by such Grantor pursuant to Section 8 hereof. (d) Other than the exercise of reasonable care to assure the safe custody of the Collateral while held hereunder, Greenwich (and the designated custodians and nominees of Greenwich) shall have no duty or liability to preserve rights pertaining thereto and shall be relieved of all responsibility for the Collateral upon surrendering it or tendering surrender of it to the applicable Grantor. Greenwich (and the designated custodians and nominees of Greenwich) shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which such Person accords its own property, it being understood that neither Greenwich nor any of its custodians or nominees shall have responsibility for (i) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relating to any Collateral, whether or not such Person has or is deemed to have knowledge of such matters, or (ii) taking any necessary steps to preserve rights against any parties with respect to any Collateral. (e) Greenwich may at any time in its discretion (i) without notice to the Grantor, transfer or register in the name of Greenwich or any of its nominees any or all of the Collateral, and (ii) exchange certificates or instruments constituting Collateral for certificates or instruments of smaller or larger denominations. SECTION 7. Remedies Upon Default. If any Event of Default shall have occurred and be continuing: (a) Greenwich may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all of the rights and remedies of a secured party on default under the Code (whether or not the Code applies to the affected Collateral), and also may (i) require the Grantor to, and the Grantor hereby agrees that it shall at its expense and upon request of Greenwich forthwith, assemble all or part of the Collateral as directed by Greenwich and make it available to Greenwich at a place or places to be designated by Greenwich that is reasonably convenient to both parties and (ii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of Greenwich's offices or elsewhere, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as Greenwich may deem commercially reasonable. The Grantor agrees that, to the extent notice of sale shall be required by law, at least 10 days' notice to such Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. Greenwich shall not be -12- obligated to make any sale of Collateral regardless of notice of sale having been given. Greenwich may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. The Grantor hereby waives any claims against Greenwich arising by reason of the fact that the price at which the Collateral may have been sold at a private sale was less than the price that might have been obtained at a public sale or was less than the aggregate amount of the Obligations, even if Greenwich accepts the first offer received and does not offer the Collateral to more than one offere