-----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, QMXGxut03sfJqxY38OUi8CJxZOzSUJDB6C5BTGttu5CKXuXjyZw0zfT7FZ4d+SKN nzrlUrl0t/k212UoKEu7YQ== 0001019056-98-000299.txt : 19980518 0001019056-98-000299.hdr.sgml : 19980518 ACCESSION NUMBER: 0001019056-98-000299 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OCWEN ASSET INVESTMENT CORP CENTRAL INDEX KEY: 0001033643 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 650736120 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14043 FILM NUMBER: 98626419 BUSINESS ADDRESS: STREET 1: 1675 PALM BEACH LAKES BLVD STREET 2: STE 1000 CITY: WEST PALM BEACH STATE: FL ZIP: 33401 BUSINESS PHONE: 5616818000 MAIL ADDRESS: STREET 1: 1675 PALM BEACH LAKES BLVD CITY: WEST PALM BEACH STATE: FL ZIP: 33401 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 000-22389 OCWEN ASSET INVESTMENT CORP. ---------------------------- (Exact name of registrant as specified in its charter) Virginia 65-0736120 - -------- ---------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) THE FORUM, SUITE 1000 --------------------- 1675 PALM BEACH LAKES BOULEVARD, WEST PALM BEACH, FLORIDA 33401 --------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (561) 682-8000 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]. Number of shares of Common Stock, $.01 par value, outstanding at the close of business on May 12, 1998: 18,965,000 shares. OCWEN ASSET INVESTMENT CORP. FORM 10-Q
I N D E X ======================================================================================================== PART I - FINANCIAL INFORMATION PAGE Item 1. Interim Consolidated Financial Statements (Unaudited)................................ 3 Consolidated Statement of Financial Condition at March 31, 1998 and December 31, 1997.............................................. 3 Consolidated Statement of Operations for the three months ended March 31, 1998....... 4 Consolidated Statement of Changes in Shareholders' Equity for the three months ended March 31, 1998 and for the period from May 14, 1997 to December 31, 1997....... 5 Consolidated Statement of Cash Flows for the three months ended March 31, 1998....... 6 Notes to Consolidated Financial Statements........................................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................ 10 Item 3 Quantitative and Qualitative Disclosures About Market Risk .......................... 20 PART II - OTHER INFORMATION Item 2. Changes in Securities................................................................ 21 Item 6. Exhibits and Reports on Form 8-K..................................................... 21 Signature..................................................................................... 23
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PART I - FINANCIAL INFORMATION ITEM 1. INTERIM FINANCIAL STATEMENTS (UNAUDITED) OCWEN ASSET INVESTMENT CORP. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION March 31, December 31, 1998 1997 ------------- ------------- ASSETS: Cash and amounts due from depository institutions .............. $ 373,097 $ 331,047 Interest bearing deposits ...................................... 7,236,506 48,346,076 Securities held for trading .................................... 42,545,318 -- Securities available for sale, at market value ................. 157,991,828 146,026,907 Loan portfolio, net ............................................ 144,604,936 15,831,479 Discount loan portfolio, net ................................... 27,108,120 26,978,888 Investment in real estate, net ................................. 58,865,764 45,430,039 Principal and interest receivable .............................. 5,082,838 2,518,272 Deposits on pending asset acquisitions ......................... 3,003,500 1,000,000 Other assets ................................................... 913,363 1,540,633 ------------- ------------- $ 447,725,270 $ 288,003,341 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES: Securities sold under agreements to repurchase ............... $ 85,274,000 $ -- Obligation outstanding under line of credit .................. 81,890,207 -- Dividends and distributions payable .......................... 4,825,000 7,458,750 Accrued expenses, payables and other liabilities ............. 5,624,848 6,344,783 ------------- ------------- 177,614,055 13,803,533 ------------- ------------- Minority interest .............................................. 5,753,797 2,941,541 ------------- ------------- COMMITMENTS AND CONTINGENCIES (NOTE 7) SHAREHOLDERS' EQUITY: Preferred stock, $.01 par value; 25,000,000 shares authorized; 0 shares issued and outstanding ........................... -- -- Common Stock, $.01 par value; 200,000,000 shares authorized; 19,125,000 shares issued; 18,965,000 shares outstanding ... 191,250 191,250 Additional paid-in capital ................................... 283,496,750 283,496,750 Distributions in excess of earnings .......................... (17,352,824) (2,107,331) Unrealized gain (loss) on securities available for sale ...... 1,016,754 (7,327,890) Treasury stock at cost (160,000 shares) ...................... (2,994,512) (2,994,512) ------------- ------------- Total shareholders' equity ................................ 264,357,418 271,258,267 ------------- ------------- $ 447,725,270 $ 288,003,341 ============= ============= THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 3
OCWEN ASSET INVESTMENT CORP. CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 Interest income: Repurchase agreements and interest bearing deposits ......... $ 198,138 Securities held for trading ................................. (2,637,259) Securities available for sale ............................... 4,648,582 Loans ....................................................... 1,240,807 Discount loans .............................................. 902,777 ------------ 4,353,045 ------------ Interest expense: Securities sold under agreements to repurchase .............. 655,001 Obligations outstanding under lines of credit ............... 28,548 Other ....................................................... 10,268 ------------ 693,817 ------------ Net interest income before provision for loan losses ........ 3,659,228 Provision for loan losses ..................................... 105,073 ------------ Net interest income after provision for loan losses ......... 3,554,155 ------------ Operating income: Real estate investments, net ................................ 796,104 Other ....................................................... 7,857 ------------ 803,961 ------------ Operating expenses: Management fees ............................................. 828,881 Due diligence expenses ...................................... 192,689 Foreign currency (gain) loss ................................ (116,953) Other ....................................................... 189,655 ------------ 1,094,272 ------------ Loss on securities held for trading ........................... (13,957,628) ------------ (Loss) income before minority interest ...................... (10,693,784) Minority interest in net loss (income) of operating partnership ....................................... 189,542 ------------ Net (loss) income ........................................ $(10,504,242) ============ Earnings per share: Basic .................................................... $ (0.55) ============ Diluted .................................................. $ (0.54) ============ Weighted average shares outstanding: Basic .................................................... 18,965,000 ============ Diluted .................................................. 19,280,848 ============ THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 4
OCWEN ASSET INVESTMENT CORP. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD MAY 14, 1997 TO DECEMBER 31, 1997 Unrealized gain(loss) on Common Stock Distributions securities ----------------------- Treasury Additional in excess available Shares Amount stock paid-in-capital of earnings for sale Total ----------- ---------- ----------- --------------- ------------- ----------- ------------- Issuance of common stock ........... 19,125,000 $ 191,250 $ -- $ 283,496,750 $ -- $ -- $ 283,688,000 Repurchase of common stock ......... (160,000) -- (2,994,512) -- -- -- (2,994,512) Net income ......................... -- -- -- -- 11,791,518 -- 11,791,518 Dividends .......................... -- -- -- -- (13,898,849) -- (13,898,849) Change in unrealized gain (loss) on securities available for sale.. -- -- -- -- -- (7,327,890) (7,327,890) ----------- ---------- ----------- ------------- ------------- ----------- ------------- Balances at December 31, 1997 ...... 18,965,000 191,250 (2,994,512) 283,496,750 (2,107,331) (7,327,890) 271,258,267 Net loss ........................... -- -- -- -- (10,504,242) -- (10,504,242) Dividends .......................... -- -- -- -- (4,741,251) -- (4,741,251) Change in unrealized gain (loss) on securities available for sale.. -- -- -- -- -- 8,344,644 8,344,644 ----------- ---------- ----------- ------------- ------------- ----------- ------------- Balances at March 31, 1998 ......... 18,965,000 $ 191,250 $(2,994,512) $ 283,496,750 $ (17,352,824) $ 1,016,754 $ 264,357,418 =========== ========== =========== ============= ============= =========== ============= THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 5
OCWEN ASSET INVESTMENT CORP. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1998 Cash flows from operating activities: Net loss ....................................................... $ (10,504,242) Adjustments to reconcile net income to net cash provided by operating activities: Premium amortization (discount accretion), net ............. 8,434,965 Depreciation ............................................... 304,437 Foreign exchange gain ...................................... (116,953) Provision for loan losses .................................. 105,073 Loss on securities held for trading ........................ 13,957,628 Increase in interest receivable ............................ (2,564,566) Decrease in other assets ................................... 627,270 Decrease in accrued expenses, payables and other liabilities (719,935) Minority interest in net loss of operating partnership ..... (189,542) ------------- Net cash provided by operating activities ......................... 9,334,135 ------------- Cash flows from investing activities: Purchase of securities available for sale ...................... (72,771,240) Maturities and principal payments received on securities available for sale ........................................... 4,003,330 Purchase of loans .............................................. (129,054,935) Principal payments received from discount loans ................ 6,915 Principal payments received from loans ......................... 366,932 Investment in real estate ...................................... (13,740,162) Deposits on pending asset acquisitions ......................... (2,003,500) ------------- Net cash used by investing activities ............................. (213,192,660) ------------- Cash flows from financing activities: Dividend payments on common stock .............................. (7,458,750) Redemption of shares ........................................... (3,085,548) Proceeds from sale of operating partnership units .............. 3,085,548 Issuance of shares ............................................. 3,085,548 Increase in securities sold under agreements to repurchase ..... 85,274,000 Increase in obligations outstanding under lines of credit ...... 81,890,207 ------------- Net cash provided by financing activities ......................... 162,791,005 ------------- Net decrease in cash and cash equivalents ......................... (41,067,520) Cash and cash equivalents at beginning of period .................. 48,677,123 ------------- Cash and cash equivalents at end of period ........................ $ 7,609,603 ============= Reconciliation of cash and cash equivalents at end of period: Cash and amounts due from depository institutions .............. 373,097 Interest bearing deposits ...................................... 7,236,506 ------------- Total ........................................................ $ 7,609,603 ============= Supplemental schedule of non-cash financing activities: Common stock dividends and distributions declared but not paid.. $ 4,825,000 ============= THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
6 ITEM 2. OCWEN ASSET INVESTMENT CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 ================================================================================ NOTE 1 BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in conformity with the instructions to Form 10-Q and Article 10, Rule 10-01 of Regulation S-X for interim financial statements. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles ("GAAP") for complete financial statements. The consolidated financial statements include the accounts of Ocwen Asset Investment Corp. ("OAC" or the "Company") and its subsidiaries. OAC directly owns two qualified real estate investment trust ("REIT") subsidiaries, Ocwen General Partner, Inc. ("General Partner") and Ocwen Limited, Inc. ("Limited Partner"), among others. General Partner and Limited Partner own 1% and 97.26%, respectively of Ocwen Partnership, L.P. ("Operating Partnership"). The minority interest at March 31, 1998 represents a 1.74% interest (335,000 units) in the Operating Partnership held by Investors Mortgage Insurance Holding Company ("IMI"), a wholly owned subsidiary of Ocwen Financial Corporation ("Ocwen"). IMI also owns 1,540,000 shares, or 8.12%, of the Company's outstanding common stock. In the opinion of management, the accompanying financial statements contain all adjustments, consisting of normal and recurring accruals, necessary for a fair presentation of the Company's financial condition at March 31, 1998 and December 31, 1997, the results of its operations for the three months ended March 31, 1998, the changes in shareholders' equity for the three month period ended March 31, 1998 and for the period May 14, 1997 to December 31, 1997 and its cash flows for the three months ended March 31, 1998. Operating results for the period ended March 31, 1998 are not necessarily indicative of the results that may be expected for any other interim periods or the entire year ended December 31, 1998. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the statements of financial condition and revenues and expenses for the periods covered. Actual results could differ from those estimates and assumptions. NOTE 2 ORGANIZATION AND RELATIONSHIPS OAC was incorporated in the Commonwealth of Virginia on January 22, 1997 and was initially capitalized on February 12, 1997 through the sale of 100 shares of common stock for $1,600. On May 14, 1997, the Company completed an initial public offering ("IPO") with the sale of 19,125,000 shares of common stock, par value $.01 per share, at a price of $16.00 per share (before underwriting and offering expenses), and commenced operations thereon. The Company has entered into a management agreement with Ocwen Capital Corporation ("OCC"), a wholly owned subsidiary of Ocwen Financial Corporation ("Ocwen"), under which OCC advises the Company on various facets of its business and manages its day-to-day operations, subject to the supervision of the Company's Board of Directors. OCC has 1,912,500 options (25% of which vest each year over the next four years) to purchase, at the election of the Company, either shares of the Company or an equivalent number of units in the Operating Partnership at an exercise price of $16.00 per share. For its services, OCC receives a base management fee of 1% per annum of average invested assets, as defined in the related agreement, payable quarterly. In addition, OCC is entitled to receive incentive compensation in an amount equal to 25% of the dollar amount by which Funds From Operations ("FFO"), as adjusted, exceeds certain defined levels. 7 ITEM 2. OCWEN ASSET INVESTMENT CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 ================================================================================ NOTE 3 RECENTLY ISSUED ACCOUNTING STANDARDS In February 1997, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS No. 128 simplifies the standards found in APB No. 15 for computing earnings per share ("EPS") and makes them comparable to international standards. Under SFAS No. 128, OAC is required to present both basic and diluted EPS on the face of its statements of operations. Basic EPS, which replaces primary EPS required by APB No. 15 for entities with complex capital structures, excludes common stock equivalents and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS gives effect to all dilutive potential common shares that were outstanding during the period. SFAS No. 128 is effective for financial statements for both interim and annual periods ending after December 15, 1997 with earlier application not permitted. The Company adopted SFAS No. 128 effective December 31, 1997. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 requires the inclusion of comprehensive income, either in a separate statement for comprehensive income, or as part of a combined statement of income and comprehensive income in a full-set of general-purpose financial statements. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances, excluding those resulting from investments by and distributions to owners. SFAS No. 130 requires that comprehensive income be presented beginning with net income, adding the elements of comprehensive income not included in the determination of net income, to arrive at comprehensive income. SFAS No. 130 also requires that an enterprise display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. SFAS No. 130 is effective for the Company's fiscal year beginning January 1, 1998. SFAS No. 130 requires the presentation of information already contained in the Company's financial statements and therefore did not have an impact on the Company's financial position or results of operations upon adoption. In June 1997, the FASB also issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the reporting of information about operating segments by public business enterprises in their annual and interim financial reports issued to shareholders. SFAS No. 131 requires that a public business enterprise report financial and descriptive information, including profit or loss, certain specific revenue and expense items, and segment assets, about its reportable operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing performance. SFAS No. 131 is effective for the Company's financial statements for periods beginning after December 15, 1997. SFAS No. 131 is a disclosure requirement and therefore did not have an effect on the Company's financial position or results of operations upon adoption. NOTE 4 INCOME TAXES The Company qualifies as a REIT under Sections 856 through 860 of the Code of 1986, as amended. A REIT will generally not be subject to federal income taxation on that portion of its income that is distributed to shareholders if it distributes at least 95% of its taxable income by the due date of its federal income tax return and complies with certain other requirements. Accordingly, no provision has been made for federal income taxes for the Company and its subsidiaries in the accompanying consolidated financial statements. NOTE 5 COMPREHENSIVE INCOME Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances, excluding those resulting from investments by and distributions to owners. SFAS No. 130 requires that comprehensive income be presented beginning with net income, adding the elements of comprehensive income not included in the determination of net income, 8 ITEM 2. OCWEN ASSET INVESTMENT CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 ================================================================================ to arrive at comprehensive income. Comprehensive income for the three months ended March 31, 1998 amounts to a loss of $2.2 million. NOTE 6 INTEREST RATE RISK MANAGEMENT INSTRUMENTS In order to match-fund the Company's asset base with anticipated borrowings and thereby minimize the impact from changes in net interest income due to changes in 1-month London Interbank Offered Rate ("LIBOR"), the Company has entered into swaps. Under swaps, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated by reference to an agreed notional amount. The terms of the swaps provide for the Company to receive a floating rate of interest equal to LIBOR and to pay fixed interest rates. The notional amount of the outstanding swap is amortized (i.e., reduced) monthly based upon estimated prepayment rates of the mortgages underlying the securities being hedged. The terms of the outstanding and committed swaps at March 31, 1998 follow (Dollars in Thousands):
Notional LIBOR Floating Rate at Maturity Amount Index Fixed Rate End of Period Fair Value -------- -------- ----- ---------- ---------------- ---------- 2003 $100,000 1-month 5.75% 5.68% $ 900
The 1-month LIBOR was 5.68% on March 31, 1998. The terms of the committed swaps at March 31, 1998 follow (Dollars in Thousands):
Notional LIBOR Effective Maturity Amount Index Fixed Rate Fair Value --------- -------- -------- ----- ---------- ---------- 4/1 2001 $ 17,000 1-month 6.00% $ (44) 4/2 2001 75,000 1-month 5.99% $ 93 4/1 2002 8,780 1-month 6.04% $ (31)
NOTE 7 COMMITMENTS At March 31, 1998, outstanding commitments totaled $147.8 million and included $80.4 million related to the acquisition of two residual securities, $34.6 million related to the origination of a commercial real estate construction loan, and $32.8 million of subordinate interests in commercial mortgage-backed securities. Each of these commitments is subject to various closing conditions including, but not limited to, completion of satisfactory due diligence efforts, the negotiation of definitive purchase and sales agreements and/or conditions the borrowers or sellers must satisfy prior to OAC funding the transactions. NOTE 8 SHAREHOLDERS' EQUITY On February 17, 1998, the Company sold 175,000 shares of common stock for cash in an aggregate amount of approximately $3.1 million to certain officers and directors of the Company and Ocwen Financial Corporation ("Ocwen"). In connection with this stock issuance, a subsidiary of Ocwen sold a like number of shares of the Company's common stock to the Company and invested in a like number of limited partnership units of the Company's operating partnership in order to comply with the stock ownership restrictions imposed on REITs under the code. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ================================================================================ GENERAL The Company is a Virginia corporation that was formed in the first quarter of 1997, that has elected to be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"), and that specializes in opportunistic real estate investments. As of March 31, 1998, OAC's total closed transactions since its initial public offering, net of repayments to date, is $511.0 million. Of this amount, $432.1 million had been funded and $78.9 million is to be funded over the construction and renovation periods, which range from 6 to 30 months. The following discussion of the Company's consolidated financial condition, results from operations, and capital resources and liquidity should be read in conjunction with the Interim Consolidated Financial Statements and related Notes included in Item 1 hereof. RECENT DEVELOPMENTS On April 1, 1998, OAC purchased a $32.8 million subordinate investment in the "BB", "B" and unrated classes of a commercial mortgage-backed security issued in 1995. Ocwen Federal Bank FSB (the "Bank"), a wholly-owned subsidiary of Ocwen, is the special servicer of any loans which are 60 days or more delinquent. On April 8, 1998, the Company acquired, an existing 536,000 square foot, 22-story Class-A office building located at 225 Bush Street in the financial district of San Francisco, California for $100.2 million in cash. The building was purchased from Pacific Resources Development, Inc., an unaffiliated third party (the "Seller"). The purchase price was determined through arms length negotiations between the Seller and OCC, and the source of funds for this purchase by OAC was a $75.0 million loan from Salomon Brothers Realty Corp. and cash reserves on hand. OAC intends to continue to use the building for rentals. On April 24, 1998, OAC acquired securitized mortgage loan residuals for (pound)33.7 million (approximately $55.0 million), from Cityscape Financial Corp. In addition, OAC and Ocwen entered into an agreement for the Bank to service the securitized mortgage loan residuals. On April 30, 1998, OAC purchased a $59.7 million investment in a residual security supported by a pool of 6,946 subprime mortgage loans. The Bank is the master servicer of the loans. On May 1, 1998, OAC's common stock began trading on the New York Stock Exchange under the symbol "OAC". OAC, which had traded on the NASDAQ National Market System under the symbol "OAIC" since May, 1997, was delisted from trading on NASDAQ on the same date. On May 1, 1998, OAC purchased a $13.25 million investment in a subordinate security supported by a pool of 7,474 single-family residential mortgages the Bank is the master servicer of the loans. On May 7, 1998, OAC sold its entire portfolio of interest-only and inverse interest-only securities (together, "IOs") at amortized cost plus accrued interest for cash in the amount of $54.6 million to William C. Erbey, Chairman and Chief Executive Officer of OAC, and Barry N. Wish, a director of Ocwen. The amortized cost of the IO portfolio at April 30, 1998, exceeded the market value by approximately $14.0 million. Because the IOs are being sold to a principal shareholder and another related party, the amount by which amortized cost exceeds market value has been recorded as a charge to earnings for the quarter ended March 31, 1998, in accordance with generally accepted accounting principles. The cash received in excess of market value will be reflected on OAC's books as a capital contribution, effectively reestablishing OAC's equity position. The charge with respect to the IO portfolio 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ================================================================================ in the month of April will impact FFO by approximately $0.01 to $0.03 per share. The sale of the IO portfolio is expected to generate a capital loss for tax purposes that will be deductible in future periods against long-term capital gains. On May 7, 1998, OAC's operating partnership issued 1,495,436 additional partnership units to IMI in exchange for a capital contribution of $24.9 million. FUNDS FROM OPERATIONS Most industry analysts, including the Company, consider FFO an appropriate supplementary measure of operating performance of a REIT. However, FFO does not represent cash provided by operating activities in accordance with generally accepted accounting principles ("GAAP") and should not be considered an alternative to net income as an indication of the results of the Company's performance or to cash flows as a measure of liquidity. In 1995, the National Association of Real Estate Investment Trusts ("NAREIT") established new guidelines clarifying its definition of FFO and requested that REITs adopt this new definition beginning in 1996. The following table computes FFO under the NAREIT definition. FFO consists of net income applicable to common shareholders (computed in accordance with generally accepted accounting principles) excluding gains (losses) from debt restructuring and sales of property (including furniture and equipment) plus real estate related depreciation and amortization (excluding amortization of deferred financing costs) and after adjustments for unconsolidated partnerships and joint ventures. For the quarter ended March 31, 1998, the Company's FFO was $3.8 million or $0.19 per diluted weighted average common share. The following table sets forth the calculation of the Company's FFO for the period. For the Three Months Ended March 31, 1998 ---------------------- (Dollars in Thousands) Net income.............................................. $ (10,504) Add: Real estate related depreciation................... 304 Non-recurring loss on IO portfolio................. 13,958 ------------- FFO .................................................... $ 3,758 ============= Diluted weighted average shares outstanding............. 19,280,848 ============= RESULTS OF OPERATIONS The Company completed an initial public offering on May 14, 1997 and commenced operations thereon. The Company incurred a net loss for the quarter ended March 31, 1998 of $10.5 million, or $0.54 per diluted weighted average common share. The loss for the first quarter was attributable to a mark-to-market loss of $14.0 million on OAC's portfolio of IOs held for trading, in addition to write-downs on the IOs totaling $3.1 million for the quarter. See also "Recent Developments" in this Item 2. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ================================================================================ The Company is engaged in a variety of real estate and mortgage-related investment activities, investing primarily in mortgage-related securities, commercial real estate, commercial discount loans and commercial and residential loans. The following table presents the contribution by investment activity to the Company's net income before minority interest as of March 31, 1998. (Dollars in Thousands) Amount % - --------------------------------------------------- -------------- ------- Mortgage-related securities and other short-term investments........................... $ (12,864) (120)% Commercial real estate............................. 792 7 Commercial discount loans.......................... 562 5 Commercial and residential loans................... 816 8 ------------ --- $ (10,694) 100% ============ === INTEREST INCOME. The following table sets forth information regarding the total amount of income from interest-earning assets and the resultant average yields. Information is based on daily average balances during the reported period.
For the Three Months Ended March 31, 1998 -------------------------- Average Interest Annualized (Dollars in Thousands) Balance Income Yield - ------------------------------------------------------- ---------- ---------- ---------- Repurchase agreements and interest-bearing deposits... $ 14,035 $ 198 5.71% Securities held for trading........................... 53,950 (2,637) (19.82) Securities available for sale......................... 133,328 4,649 14.14 Loan portfolio........................................ 47,691 1,241 10.55 Discount loan portfolio............................... 26,929 902 *13.60 ---------- ---------- Total.............................................. $ 275,933 $ 4,353 * 6.40% ========== ==========
* As revised The negative yield on securities held for trading was primarily attributable to declining interest rates and resulted in increased prepayment speeds, and permanent write-downs on the IOs totaling $3.1 million for the quarter. The decline in value of the IO portfolio during the quarter stems from increased prepayments of the underlying mortgages as a result of a decrease in market interest rates. Subsequent to March 31, 1998, the Company sold its entire IO portfolio to William C. Erbey, Chairman and Chief Executive Officer of OAC, and Barry N. Wish, a director of Ocwen. See "Recent Developments" above. INTEREST EXPENSE. The following table sets forth information regarding the total amount of interest expense associated with interest-bearing liabilities and the resultant average rates. Information is based on daily average balances during the reported period.
For the Three Months Ended March 31, 1998 -------------------------- Average Interest Annualized (Dollars in Thousands) Balance Expense Yield - ------------------------------------------------------- ---------- ---------- ---------- Securities sold under agreements to repurchase and other................................ $ 39,577 $ 665 6.81% Obligation outstanding under line of credit........... 1,820 29 6.36 ---------- ---------- Total.............................................. $ 41,397 $ 694 6.79% ========== ==========
OPERATING INCOME. Operating income is comprised primarily of $796,000 in income earned on investments in real estate during the three months ended March 31, 1998. Such income represents rental income, net of operating expenses and depreciation, generated from the Company's investment in three office buildings located in California and a retail shopping center located in Florida. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ================================================================================ OPERATING EXPENSES. Management fees totaling $829,000 for the first quarter of 1998 were comprised solely of the base management fee (1% per annum of average invested assets) earned by OCC pursuant to the terms of a management agreement entered into between the Company and Ocwen. OCC advises the Company on various facets of its business and manages its day-to-day operations, subject to the supervision of the Company's Board of Directors. See Note 1 to the Interim Consolidated Financial Statements included in Item 1 hereof. In addition, the Company incurred due diligence expenses of $193,000 in connection with its asset acquisitions. Foreign currency gain for the period of $117,000 is a result of the declining U.S. dollar versus the Canadian dollar and relates to the Company's investment in a Canadian commercial discount loan. See "Discount Loan Portfolio." Other expenses of $190,000 were comprised of auditing fees, insurance premiums and other miscellaneous expenses. CHANGES IN FINANCIAL CONDITION GENERAL. From December 31, 1997 to March 31, 1998, total assets increased $159.7 million or 55% to $447.7 million. This increase was primarily due to a $128.8 million increase in the loan portfolio, a $42.5 million increase in securities held for trading, a $13.4 million increase in investments in real estate, and a $12.0 million increase in securities available for sale, offset by a $41.1 million decrease in interest-bearing deposits. Total liabilities increased $163.8 million during the period, primarily as a result of $85.3 million of securities sold under agreements to repurchase and an $81.9 million obligation outstanding under a line of credit. REPURCHASE AGREEMENTS AND INTEREST-EARNING DEPOSITS. At March 31, 1998 total interest earning deposits amounted to $7.2 million or 2% of total assets and were comprised of deposits at various banks. Interest bearing deposits declined by $41.1 million or 85% from December 31, 1997 to March 31, 1998. The change is due to the reinvestment of cash and cash equivalents into long term assets. Although the Company had no repurchase agreements at March 31, 1998 or December 31, 1997, it enters into such agreements from time to time. In these transactions, the Company purchases securities from a counterparty, and agrees to sell the securities back to the counterparty at a specified future date. Repurchase agreements are carried at the amounts at which the securities will be subsequently resold to the counterparty plus accrued interest, as specified in the respective agreements. The securities purchased are held in custody for the benefit of the Company. All of the transactions are in United States agency or investment grade securities. The Company's exposure to credit risks associated with the non-performance of counterparties in fulfilling their contractual obligations can be directly impacted by market fluctuations, which may impair the counterparties' ability to satisfy their obligations. The Company monitors the market value of the underlying securities relative to the amounts due under the agreements and, when necessary, requires prompt additional collateral or reduction in loan balance to ensure that the market value remains sufficient to protect itself in the event of default by the counterparty. The Company earned interest income of $198,000 during the three months ended March 31, 1998, from its investment in interest bearing deposits and repurchase agreements. Of such income, $43,000 was earned from investments in repurchase agreements. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ================================================================================ SECURITIES HELD FOR TRADING. Securities held for trading purposes are carried at market value with unrealized gains or losses included in earnings. The Company's investment in securities held for trading were transferred from the available for sale category on March 31, 1998 and were comprised entirely of mortgage-related IOs as follows:
March 31, December 31, 1998 1997 ------------- ------------- (Dollars in Thousands) Mortgage-related securities: Single family residential: FHLMC interest only.......................... $ 18,797 $ -- FNMA interest only........................... 22,837 -- AAA-rated interest only...................... 911 -- ------------- ------------- Total...................................... $ 42,545 $ -- ============= =============
Unrealized losses on the IO portfolio during the first quarter of 1998 amounted to $14.0 million, in addition to permanent write-downs on the IOs totaling $3.1 million for the quarter. The decline in value of the IO portfolio during the quarter stems from increased prepayments of the underlying mortgages as a result of a decrease in market interest rates. As noted above, subsequent to March 31, 1998 the Company sold its entire IO portfolio. See "Recent Developments." SECURITIES AVAILABLE FOR SALE. The Company's investment in mortgage-related securities available for sale of $158.0 million at March 31, 1998 includes $1.0 million of net unrealized gains, which was included in shareholders' equity. The Company's securities available for sale were comprised of the following at the dates indicated:
March 31, December 31, 1998 1997 ------------- ------------- (Dollars in Thousands) Mortgage-related securities: Single family residential: FHLMC interest-only.......................... $ -- $ 21,178 FNMA interest-only........................... -- 22,573 AAA-rated interest-only...................... -- 729 Subordinates................................. 69,028 9,444 ------------- ------------- 69,028 53,924 ------------- ------------- Multi-family residential and commercial: AAA-rated interest-only...................... 810 866 A-rated interest-only........................ 455 480 Non-rated interest-only...................... 4,835 4,803 Subordinates................................. 82,864 85,954 ------------- ------------- 88,964 92,103 ------------- ------------- Total...................................... $ 157,992 $ 146,027 ============= =============
The increase in securities available for sale of $12.0 million during the quarter ended March 31,1998 is due to purchases of $72.8 million and a $ 8.3 million increase in unrealized gains, offset in part by the transfer of $56.5 million of IOs to the held for trading category (see above), $4.0 million of principal payments and maturities, and $8.6 million of net premium amortization. Purchases during the quarter include a $51.6 million investment in subordinate IOs supported by a pool of 6,309 subprime mortgage loans and an $8.5 million investment in residual securities issued from a securitization of subprime mortgage loans. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ================================================================================ LOAN PORTFOLIO. The Company's investment in loans amounted to $144.6 million at March 31, 1998, a $128.8 million increase over the $15.8 million investment at December 31, 1997. The following table sets forth the composition of the Company's loan portfolio by type of loan at the dates indicated: March 31 December 31, 1998 1997 ----------- ----------- (Dollars in Thousands) Single-family residential...................... $ 105,943 $ 6,465 Multi-family residential....................... 61,335 3,455 Commercial real estate: Office...................................... 33,057 33,058 Hotel....................................... 20,952 20,952 ----------- ----------- Total loans................................ 221,287 63,930 Deferred origination fees...................... 2,348 (459) Undisbursed loan proceeds...................... (78,925) (47,640) Allowance for loan losses...................... (105) -- ----------- ----------- Loans, net................................... $ 144,605 $ 15,831 =========== =========== 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ================================================================================ The following table sets forth the activity in the Company's gross loan portfolio during the periods indicated. Three Months Ended March 31, 1998 -------------------------------- Balance No. of Loans ------------- -------------- (Dollars in thousands) Balance at beginning of period............... $ 63,930 52 Originations: Multi-family loans........................ 57,880 (1) 2 Purchases: Single family residential loans........... 99,843 (2) 995 Principal repayments......................... (366) -- ----------- ------ Net increase in loans..................... 157,357 997 ----------- ------ Balance at end of period..................... $ 221,287 1,049 =========== ====== (1) Originations of multi-family residential loans during the quarter include a $30.3 million commercial real estate construction loan to acquire and convert a 155,000 square foot office building into 52 luxury loft-style residential condominiums with a parking garage located in the historic Tribeca area of Manhattan, New York. (2) Purchases of single family residential loans during the quarter were primarily comprised of three pools (923 loans) of residential whole loans having an unpaid principal balance of $91.8 million. The following table sets forth certain information relating to the payment status of loans in the Company's loan portfolio at the dates indicated. March 31 December 31, 1998 1997 ----------- ----------- (Dollars in Thousands) Past due less than 31 days.......................... $ 219,324 $ 63,661 Past due 31 days to 89 days......................... 1,583 -- Past due 90 days or more............................ 380 269 ---------- ---------- $ 221,287 $ 63,930 =========== ========== DISCOUNT LOAN PORTFOLIO. The following table sets forth the composition of the Company's discount loan portfolio by type of loan at the dates indicated. March 31 December 31, 1998 1997 ----------- ----------- (Dollars in Thousands) Commercial real estate loans: Office........................................... $ 9,202 $ 11,893 Retail........................................... 33,510 30,636 ---------- ---------- Total unpaid principal balance................. 42,712 42,529 Unaccreted discount................................. (15,604) (15,550) ---------- ---------- Discount loans, net.............................. $ 27,108 $ 26,979 =========== ========== 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ================================================================================ The following table sets forth certain information relating to the payment status of loans in the Company's discount loan portfolio at the dates indicated. March 31 December 31, 1998 1997 ----------- ------------ (Dollars in Thousands) Past due less than 31 days......................... $ 7,957 $ 7,964 Past due 31 days to 89 days........................ -- -- Past due 90 days or more........................... 34,755 34,565 ---------- ----------- $ 42,712 $ 42,529 ========== =========== ALLOWANCES FOR LOAN LOSSES. The Company maintains an allowance for loan losses at a level which management considers adequate to provide for potential losses based upon an evaluation of known and inherent risks. At March 31, 1998, the Company had provided an allowance for loan losses in the amount of $105,000, on the loan portfolio. At December 31, 1997, no allowance for loan losses had been provided. INVESTMENT IN REAL ESTATE. The Company's net investment in real estate increased to $58.9 million at March 31, 1998 from $45.4 million at December 31, 1998 and is comprised of the following properties:
Acquisition Date Acquired Property Location Square Feet Property Type Cost ------------- -------- -------- ----------- ------------- ----------- 09/03/97 10 U.N. Plaza San Francisco, CA 68,560 Office Bldg. $ 9,095 09/23/97 450 Sansome St. San Francisco, CA 123,099 Office Bldg. 17,251 11/10/97 Cortez Plaza Bradenton, FL 289,686 Shopping Ctr. 19,288 01/23/98 690 Market St. (1) San Francisco, CA 124,688 Office Bldg. 13,715 --------- 59,349 Accumulated Depreciation (483) --------- $ 58,866 =========
(1) The building is 83% leased with 40% of the building becoming available for re-leasing by the end of 1998. The Company's current overall strategy with respect to these properties is to renovate and reposition the facilities and target full floor tenants with five to ten year lease terms. The Company estimates that over the next twelve months it will spend approximately $8.0 million in capital improvements, tenant improvements and leasing commissions to renovate and reposition the above properties. Repositioning is intended to result in rents, upon re-leasing, that are greater than the current rents at the sites. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE. Securities sold under agreements to repurchase increased to $85.3 million at March 31, 1998 from $0 at December 31, 1997. The Company periodically enters into sales of securities under agreements to repurchase the same securities (reverse repurchase agreements). Fixed coupon reverse repurchase agreements with maturities of three months or less are treated as financings, and the obligations to repurchase securities sold are reflected as a liability in the accompanying consolidated statements of financial condition. All securities underlying reverse repurchase agreements are reflected as assets in the accompanying consolidated statements of financial condition and are held in safekeeping by broker/dealers. Mortgage-related securities at amortized cost of $147.4 million and a market value of $134.8 million were posted as collateral for securities sold under agreements to repurchase at March 31, 1998. OBLIGATION OUTSTANDING UNDER LINE OF CREDIT. Obligation outstanding under a line of credit amounted to $81.9 million at March 31, 1998 as compared to $0 at December 31, 1997 and represents borrowings having a one-year term and interest rates that float in accordance with a designated prime rate. See "Capital Resources and Liquidity." MINORITY INTEREST. At March 31, 1998, minority interest totaled $5.8 million and represents Ocwen's ownership of 335,000 units in the Operating Partnership. On February 17, 1998, the Company 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ================================================================================ sold 175,000 shares of common stock for cash in an aggregate amount of approximately $3.1 million to certain officers and directors of the Company and Ocwen. In connection with this stock issuance, IMI sold a like number of shares of the Company's common stock to the Company and invested in a like number of units in the Operating Partnership in order to comply with the stock ownership restrictions imposed on real estate investment trusts under the Code. See Notes 1 and 8 to the Interim Consolidated Financial Statements included in Item 1 hereof. STOCKHOLDERS' EQUITY. Stockholders' equity decreased by $6.9 million to $264.4 million at March 31, 1998. The decrease in stockholders' equity during this period was attributable to a net loss of $10.5 million and $4.7 million of dividends on common stock, offset by an $8.3 million increase in unrealized gains on securities available for sale. See the Consolidated Statement of Changes in Stockholders' Equity in the Interim Consolidated Financial Statements included in Item 1 hereof. CAPITAL RESOURCES AND LIQUIDITY Liquidity is a measurement of the Company's ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund investments, engage in loan acquisition and lending activities and for other general business purposes. Additionally, to maintain its status as a REIT under the Code, the Company must distribute annually at least 95% of its taxable income. The primary sources of funds for liquidity during the first quarter consisted of the proceeds from the Company's initial public offering, net cash provided by operating activities, reverse repurchase agreements and other secured borrowings, maturities and principal payments on loans and securities and proceeds from loan resolutions thereof. Cash and cash equivalents were $7.6 million at March 31, 1998. The Company's operating activities provided cash flows of $9.3 million during the quarter ended March 31, 1998. The Company's investing activities used cash flows of $213.2 million during quarter ended March 31, 1998. During the foregoing period, cash flows from investing activities were used primarily to purchase securities available for sale, loans and commercial real estate. The Company's financing activities provided cash flows of $162.8 million during the quarter ended March 31, 1998 and consisted of proceeds from lines of credit and repurchase agreements of $167.2 million, $3.1 million net proceeds from the issuance of units, net of $7.5 million of dividends paid during the period. The Company expects to meet its short-term liquidity requirements generally through its working capital and net cash provided by operating and financing activities. The Company also had $43.1 million available under its existing line of credit with Merrill Lynch Mortgage Capital Inc. at March 31, 1998. Additionally, on April 24, 1998, the Company entered into an agreement for a line of credit with Greenwich Capital Financial Products Inc. in the principal amount of (pound)19.0 million ($32.1 million) to finance the Cityscape residuals. The Company believes that its net cash provided by operating activities will be sufficient to allow the Company to make the distributions necessary for continued benefit from qualification as a REIT. The Company expects to meet certain long-term liquidity requirements such as property and security acquisitions and loan originations by obtaining various third-party borrowings and has entered into discussions with respect to obtaining such borrowings. Additionally, as discussed above, the Company intends to execute a securitization of its loan portfolio and use the proceeds for further acquisitions. Further, as the Company has previously stated, it may consider seeking additional sources of equity. The Company believes that such new, as well as its existing, sources of liquidity, including third-party borrowings currently being pursued and possible additional equity infusions, will be adequate to fund planned activities for the foreseeable future, although there can be no assurances in this regard. In the event the Company was unable to effect such third-party borrowings, securitization, or additional equity infusions, its liquidity could be constrained and the impact on its results of operations, financial condition, and FFO could be significant. 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ================================================================================ REIT STATUS The Company has qualified and intends to continue to qualify as a REIT under Sections 856 through 860 of the Internal Revenue Code. Qualification for treatment as a REIT requires the Company to meet certain criteria, including certain requirements regarding the nature of its ownership, assets, income and distributions of taxable income. A REIT will generally not be subject to federal income taxation on that portion of its income that is distributed to its shareholders if it distributes at least 95 percent of its taxable income and meets certain other income and asset tests. The Company has until the filing of its tax return to satisfy the distribution requirement. Since the Company plans to distribute 100% of its taxable income, no provision has been made for federal income taxes for the Company and its subsidiaries in the accompanying interim consolidated financial statements. As taxable income is finalized and the tax return is filed, an additional distribution may be required which may be significant. The Company may be subject to tax at normal corporate rates on net income or capital gains not distributed. The Company intends to conduct its business so as not to become regulated as an investment company under the Investment Company Act of 1940 (the "Investment Company Act"). The Investment Company Act exempts entities that, directly or through majority-owned subsidiaries, are "primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate" ("Qualifying Interests"). Under current interpretation by the staff of the Securities and Exchange Commission ("SEC"), in order to qualify for this exemption, the Company, among other things, must maintain at least 55% of its assets in Qualifying Interests and also may be required to maintain an additional 25% in Qualifying Interests or other real estate-related assets. Therefore, the type and amount of assets the Company may acquire may be limited by the Investment Company Act. FORWARD-LOOKING STATEMENTS CERTAIN STATEMENTS CONTAINED HEREIN ARE NOT, AND CERTAIN STATEMENTS CONTAINED IN FUTURE FILINGS BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION, IN THE COMPANY'S PRESS RELEASES OR IN THE COMPANY'S OTHER PUBLIC OR SHAREHOLDER COMMUNICATIONS, MAY NOT BE BASED ON HISTORICAL FACTS AND ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES ACT OF 1934, AS AMENDED. THESE FORWARD-LOOKING STATEMENTS, WHICH ARE BASED ON VARIOUS ASSUMPTIONS (SOME OF WHICH ARE BEYOND THE COMPANY'S CONTROL), MAY BE IDENTIFIED BY REFERENCE TO A FUTURE PERIOD(S) OR BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "ANTICIPATE," "BELIEVE," "COMMITMENT," "CONSIDER," "CONTINUE," "COULD," "ENCOURAGE," "ESTIMATE," "EXPECT," "INTEND," "MAY," "PLAN," "PRESENT," "PROPOSE," "PROSPECT," "WILL," FUTURE OR CONDITIONAL VERB TENSES, SIMILAR TERMS, VARIATIONS ON SUCH TERMS OR NEGATIVES OF SUCH TERMS. ALTHOUGH THE COMPANY BELIEVES THE ANTICIPATED RESULTS OR OTHER EXPECTATIONS REFLECTED IN SUCH FORWARD LOOKING STATEMENTS ARE BASED ON REASONABLE ASSUMPTIONS, IT CAN GIVE NO ASSURANCE THAT THOSE RESULTS OR EXPECTATIONS WILL BE ATTAINED. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE INDICATED IN SUCH STATEMENTS DUE TO RISKS, UNCERTAINTIES AND CHANGES WITH RESPECT TO A VARIETY OF FACTORS, INCLUDING, BUT NOT LIMITED TO, INTERNATIONAL, NATIONAL, REGIONAL OR LOCAL ECONOMIC ENVIRONMENTS (PARTICULARLY IN THE MARKET AREAS WHERE THE COMPANY OPERATES), GOVERNMENT FISCAL AND MONETARY POLICIES (PARTICULARLY IN THE MARKET AREAS WHERE THE COMPANY OPERATES), PREVAILING INTEREST OR CURRENCY EXCHANGE RATES, GOVERNMENT REGULATIONS AFFECTING REAL ESTATE INVESTMENT TRUSTS, COMPETITIVE PRODUCTS AND PRICING, CREDIT, PREPAYMENT, BASIS AND ASSET/LIABILITY RISKS, LOAN SERVICING EFFECTIVENESS, THE COURSE OF NEGOTIATIONS AND THE ABILITY TO REACH AGREEMENT WITH RESPECT TO THE MATERIAL TERMS OF ANY PARTICULAR TRANSACTION, SATISFACTORY DUE DILIGENCE RESULTS, SATISFACTION OR FULFILLMENT OF AGREED UPON TERMS AND CONDITIONS OF CLOSING OR PERFORMANCE, THE TIMING OF TRANSACTION CLOSINGS, ACQUISITIONS AND THE INTEGRATION OF ACQUIRED BUSINESSES, THE FINANCIAL AND SECURITIES MARKETS, THE AVAILABILITY OF AND COSTS ASSOCIATED WITH OBTAINING ADEQUATE AND TIMELY SOURCES OF LIQUIDITY, DEPENDENCE ON EXISTING SOURCES OF FUNDING, AVAILABILITY OF DISCOUNT LOANS FOR PURCHASE, SIZE AND NATURE OF THE SECONDARY MARKET FOR MORTGAGE LOANS AND OF THE MARKET FOR SECURITIZATIONS, GEOGRAPHIC CONCENTRATIONS OF ASSETS (TEMPORARY OR OTHERWISE), OTHER FACTORS GENERALLY UNDERSTOOD TO AFFECT THE REAL ESTATE ACQUISITION, MORTGAGE AND LEASING MARKETS AND SECURITIES INVESTMENTS, AND OTHER RISKS DETAILED FROM TIME TO TIME IN THE COMPANY'S REPORTS AND FILINGS WITH THE SEC, INCLUDING ITS REGISTRATION STATEMENT ON FORM S-11 AND PERIODIC REPORTS ON FORMS 10-Q, 8-K AND 10-K. THE COMPANY DOES NOT UNDERTAKE, AND SPECIFICALLY DISCLAIMS ANY OBLIGATION, TO PUBLICLY RELEASE THE RESULT(S) OF ANY REVISIONS WHICH MAY BE MADE TO ANY FORWARD-LOOKING STATEMENTS TO REFLECT THE OCCURRENCE OF ANTICIPATED OR UNANTICIPATED EVENTS OR CIRCUMSTANCES AFTER THE DATE OF SUCH STATEMENTS. 19 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK ================================================================================ Information required by this Item appears in Note 6 to the Interim Consolidated Financial Statements included in item 1 hereof, and is incorporated herein by reference. 20 PART II OTHER INFORMATION Item 2. Changes in Securities Incorporated by reference herein is Note 8 to the Interim Financial Statements (Unaudited) included in Item 1 hereof and "Changes in Financial Condition-Minority Interest" included in Item 2 hereof. These securities were issued pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, and/or Regulation D promulgated thereunder. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 3.1 Amended and Restated Articles of Incorporation (1) 3.2 By laws (1) 4.1 Form of Common Stock Certificate (1) 10.1 First Amended and Restated Management Agreement (filed herewith) 10.2 Form of Registration Rights Agreement (1) 10.3 Third Amended and Restated Agreement of Limited Partnership of Ocwen Partnership L.P. (filed herewith) 10.4 Form of Stock Option Plan (1) 10.5 Purchase and Sale Agreement between Ocwen Capital Corporation and Pacific Resources Development, Inc. as of March 31, 1998 (2). 10.6 Assignment and Assumption Agreement, dated April 7, 1998, by and between Ocwen Capital Corporation and OAIC Bush Street, LLC (2) 10.7 Loan Agreement between OAIC Bush Street, LLC and Soloman Brothers Realty Corp. as of April 7, 1998 (2) 10.8 Loan Agreement between OAIC and Merrill Lynch Mortgage Capital Inc. as of March 30,1998 (filed herewith) 10.9 Loan Agreement between OAIC and Greenwich Financial Products Inc. as of April 24, 1998 (filed herewith). 27.1 Financial Data Schedule - For the quarter ended March 31, 1998 (1) Incorporated by reference to the similarly described exhibit filed in connection with the Company's Registration Statement on Form S-11 (File No. 333-21965), as amended, declared effective by the Commission on May 14, 1997. 21 (2) Incorporated by reference to the similarly described exhibit filed in connection with the Registrant's Current Report on Form 8-K, as filed with the Commission on April 22, 1998. (b) Reports on Form 8-K filed during the quarter ended March 31, 1998 (1) A Form 8-K was filed by the Company on January 28, 1998, which contained a news release announcing the Company's financial results for the three months ended December 31, 1997 and the period May 19, 1997 to December 31, 1997. (2) A Form 8-K was filed by the Company on February 9, 1998, which contained a news release announcing the Company's January investment activity. (3) A Form 8-K was filed by the Company on March 23, 1998, which contained a news release announcing the Company's first quarter 1998 dividend and February 1998 investment activity. (4) A form 8-K was filed by the Company on May 12,1998 which contained a news release announcing the Company's financial results for the three months ended March 31,1998 the sale of its IO portfolio, and additional capital investments. 22 SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Ocwen Asset Investment Corp. By: /s/ Mark S. Zeidman ----------------------------------------------------- Mark S. Zeidman Senior Vice President and Chief Financial Officer (On behalf of the Registrant and as its principal financial officer) Date: May 15, 1998 23 EX-10.1 2 EXHIBIT 10.1 FIRST AMENDED AND RESTATED MANAGEMENT AGREEMENT THIS AGREEMENT, dated as of May 12, 1997 by and between OCWEN ASSET INVESTMENT CORP., a Virginia corporation (the "REIT" and together with its subsidiaries, the "Company"), and OCWEN CAPITAL CORPORATION, a Florida corporation (the "Manager") and amended and restated in its entirety as of May 5, 1998; W I T N E S S E T H: WHEREAS, the Company intends to invest in Subordinated Interests, Distressed Real Property, MBS and other real estate related assets ("REIT Investments") and expects to qualify for the tax benefits accorded by Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"); and WHEREAS, the Company desires to retain the Manager to acquire, sell and otherwise manage the investments of the Company and to perform administrative services for the Company in the manner and on the terms set forth herein; NOW THEREFORE, in consideration of the mutual agreements herein set forth, the parties hereto agree as follows: SECTION 1. DEFINITIONS. Capitalized terms used but not defined herein shall have the respective meanings assigned them in the Prospectus of the REIT dated May 14, 1997. In addition, the following terms have the meanings assigned them. (a) "Agreement" means this Management Agreement, as amended from time to time. (b) "Closing Date" means the date of closing of the Company's initial public offering of common stock. (c) "Governing Instruments" means the articles of incorporation and bylaws in the case of a corporation, or the partnership agreement in the case of a partnership. (d) "Subsidiary" means any subsidiary of the Company and any partnership, the general partner of which is the Company or any subsidiary of the Company. SECTION 2. DUTIES OF THE MANAGER. (a) The Manager at all times will be subject to the supervision of the Company's Board of Directors and will have only such functions and authority as the Company may delegate to it. The Manager will be responsible for the day-to-day operations of the Company and will perform (or cause to be performed) such services and activities relating to the assets and operations of the Company as may be appropriate, including: (i) serving as the Company's consultant with respect to formulation of investment criteria and preparation of policy Guidelines by the Board of Directors; (ii) representing the Company in connection with the purchase and commitment to purchase assets, the sale and commitment to sell assets, and the maintenance and administration of its portfolio of assets; (iii) furnishing reports and statistical and economic research to the Company regarding the Company's activities and the services performed for the Company by the Manager; (iv) monitoring and providing to the Board of Directors on an ongoing basis price information and other data, obtained from certain nationally recognized dealers that maintain markets in assets identified by the Board of Directors from time to time, and providing data and advice to the Board of Directors in connection with the identification of such dealers; (v) providing the executive and administrative personnel and office space and office services required in rendering services to the Company; (vi) administering the day-to-day operations of the Company and performing and supervising the performance of such other administrative functions necessary in the management of the Company as may be agreed upon by the Manager and the Board of Directors, including the collection of revenues and the payment of the Company's debts and obligations and maintenance of appropriate computer services to perform such administrative functions; (vii) communicating on behalf of the Company with the holders of any equity or debt securities of the Company as required to satisfy the reporting and other requirements of any governmental, bodies or agencies and to maintain effective relations with such holders; (viii) to the extent not Otherwise subject to an agreement executed by the Company, designating a servicer for mortgage loans sold to the Company by originators and arranging for the monitoring and administering of such servicers; (ix) counseling the Company in connection with policy decisions to be made by the Board of Directors; (x) counseling the Company regarding the maintenance of its status as a REIT and monitoring compliance with the various REIT qualification tests and other rules set out in the Code and regulations thereunder; (xi) engaging in hedging activities on behalf of the Company, consistent with the Company's status as a REIT and with the Guidelines; and -2- (xii) upon request by and in accordance with the directions of the Board of Directors, investing or reinvesting any money of the Company. (B) REAL ESTATE ASSET PORTFOLIO MANAGEMENT. The Manager will perform portfolio management services on behalf of OAIC and the Operating Partnership with respect to the Company's REIT Investments. Such services will include, but not be limited to, consulting the Company on purchase and sale opportunities, collection of information and submission of reports pertaining to the Company's assets, interest rates, and general economic conditions, periodic review and evaluation of the performance of the Company's portfolio of assets, acting as liaison between the Company and banking, mortgage banking, investment banking and other parties with respect to the purchase, financing and disposition of assets, and other customary functions related to portfolio management. The Manager may enter into subcontracts with other parties, including its Affiliates, to provide any such services to the Company. (C) MONITORING SPECIAL SERVICING. The Manager will perform monitoring services on behalf of the Company with respect to the Company's portfolio of special servicing rights. Such monitoring services will include, but not be limited to, the following activities: negotiating special servicing agreements; serving as the Company's consultant with respect to the special servicing of mortgage loans; collection of information and submission of reports pertaining to the mortgage loans and to moneys remitted to the Manager or the Company; acting as a liaison between the servicers of the mortgage loans and the Company and working with servicers to the extent necessary to improve their servicing performance; with respect to mortgage loans for which the Company is special servicer, periodic review and evaluation of the performance of each servicer to determine its compliance with the terms and conditions of the related servicing agreement; review of and recommendations as to fire losses, easement problems and condemnation, delinquency and foreclosure procedures with regard to mortgage loans; review of servicers' delinquency, foreclosures and other reports on mortgage loans; supervising claims filed under any mortgage insurance policies; and enforcing the obligation of any servicer to repurchase mortgage loans. The Manager may enter into subcontracts with other parties, including its Affiliates, to provide any such services for the Manager. (D) MONITORING SERVICING. The Manager will monitor and administer the servicing of the Company's Mortgage Loans, other than loans pooled to back MBS or pledged to secure MBS. Such monitoring and administrative services will include, but not be limited to, the following activities: serving as the Company's consultant with respect to the servicing of loans; collection of information and submission of reports pertaining to the mortgage loans and to moneys remitted to the Manager or the Company by servicers; periodic review and evaluation of the performance of each servicer to determine its compliance with the terms and conditions of the servicing agreement and, if deemed appropriate, recommending to the Company the termination of such servicing agreement; acting as a liaison between servicers and the Company and working with servicers to the extent necessary to improve their servicing performance; review of and recommendations as to fire losses, easement problems and condemnation, delinquency and foreclosure procedures with regard to the Mortgage Loans: review of servicers' delinquency, foreclosing and other reports on Mortgage Loam; supervising claims filed under any mortgage -3- insurance policies; and enforcing the obligation of any servicer to repurchase Mortgage Loans from the Company. (E) BEST EFFORTS. The Manager agrees to use its reasonable best efforts at all times in performing services for the Company hereunder. SECTION 3. ADDITIONAL ACTIVITIES OF MANAGER. Nothing herein shall prevent the Manager or any of its Affiliates from engaging in other businesses or from rendering services of any kind to any other person or entity, including investment in, or advisory service to others investing in, any type of real estate investment, including investments which meet the principal investment objectives of the Company. Except as noted below, the Manager will not invest, and will not permit any Affiliate of the Manager to invest, in a Subordinated Interest or Distressed Real Property unless a majority of the Independent Directors of the Company decline, on behalf of the Company, to make the investment. To assist the Independent Directors' review of such a potential investment, the Manager shall make available information to assist the Independent Directors in determining whether the investment is consistent with the Guidelines, whether the price is fair and whether the investment otherwise is in the best interest of the Company. For a Distressed Real Property, such information shall include an appraisal of an MAI appraiser who is certified or licensed in the state and whose compensation is not dependent on the transaction. For a Subordinated Interest, such information shall include, to the extent available or reasonably obtainable, historical information about the collateral and securities, yield tables that assume losses on the underlying collateral and a broker's price opinion from a third party, such as the placement agent of the Subordinated Interest. Notwithstanding the foregoing, if the mortgage loans collateralizing a Subordinated Interest were owned by the Manager or an Affiliate of the Manager, then the Manager or its affiliates may retain such Subordinated Interest without offering the investment to the Company. Moreover, if a large pool of mortgage loans and REO Properties are offered for sale by a third party pursuant to a competitive bidding process, the Manager or its affiliates may bid on such pool jointly with an unaffiliated entity, as long as the Manager or its affiliates take title only to the loans and not to the REO Properties. In the alternative, the Manager may, but is not required to, invite the Company to bid jointly on such a pool. If the Manager (or its affiliates) and the Company are successful in such a bid, the Manager will take title to the loans and the Company will take title to the real estate, unless otherwise approved by a majority of the Independent Directors. If the Company and the Manager (or its affiliates) co-participate in a loan, the terms of the participation would be structured so that Ocwen Federal Bank FSB would service the loans and retain a market servicing fee, after which the remaining proceeds from the loan would be shared pari passu in accordance with the ownership interests in the loan, unless another arrangement were approved by a majority of the Independent Directors. Directors, officers, employees and agents of the Manager or Affiliates of the Manager may serve as directors, officers, employees, agents, nominees or signatories for the REIT or any -4- Subsidiary, to the extent permitted by their Governing Instruments, as from time to time amended, or by any resolutions duly adopted by the Board of Directors pursuant to the REIT's Governing Instruments. When executing documents or otherwise acting in such capacities for the Company, such persons shall use their respective titles in the Company. SECTION 4. COMMITMENTS. In order to meet the investment requirements of the Company, as determined by the Board of Directors from time to time, the Manager agrees at the direction of the Board of Directors to issue on behalf of the Company commitments on such terms as are established by the Board of Directors, including a majority of the Independent Directors, for the purchase of REIT Investments. SECTION 5. BANK ACCOUNTS. At the direction of the Board of Directors, the Manager may establish and maintain one or more bank accounts in the name of the REIT or any Subsidiary, and may collect and deposit into any such account or accounts, and disburse funds from any such account or accounts, under such terms and conditions as the Board of Directors may approve; and the Manager shall from time to time render appropriate accountings of such collections and payments to the Board of Directors and, upon request, to the auditors of the REIT or any Subsidiary. SECTION 6. RECORDS; CONFIDENTIALITY. The Manager shall maintain appropriate books of accounts and records relating to services performed hereunder, and such books of account and records shall be accessible for inspection by representatives of the REIT or any Subsidiary at any time during normal business hours. The Manager shall keep confidential any and all information obtained in connection with the services rendered hereunder and shall not disclose any such information to nonaffiliated third parties except with the prior written consent of the Board of Directors. SECTION 7. OBLIGATIONS OF MANAGER. (a) The Manager shall require each seller or transferor of REIT Investments to the Company to make such representations and warranties regarding such REIT Investments as may, in the judgment of the Manager, be necessary and appropriate. In addition, the Manager shall take such other action as it deems necessary or appropriate with regard to the protection of the Company's investments. (b) The Manager shall refrain from any action that, in its sole judgment made in good faith, would adversely affect the status of the REIT as a REIT or that, in its sole judgment made in good faith, would violate any law, rule or regulation of any governmental body or agency having jurisdiction over the REIT or any Subsidiary or that would otherwise not be permitted by the REIT's or Subsidiary's Governing Instruments. If the Manager is ordered to take any such action by the Board of Directors, the Manager shall promptly notify the Board of Directors of the Manager's judgment that such action would adversely affect such status or violate any such law, rule or regulation or the Governing Instruments. Notwithstanding the foregoing, the Manager, its directors, officers, stockholders and employees shall not be liable to the REIT, any Subsidiary, the Independent Directors, or the REIT's or a Subsidiary's stockholders or partners for any act or -5- omission by the Manager, its directors, officers, stockholders or employees except as provided in Section 11 of this Agreement. SECTION 8. COMPENSATION. (a) The REIT shall pay to the Manager, for services rendered under this Agreement, a quarterly base management fee in an amount equal to 1/4 of 1% of the Average Invested Assets of the Company during each fiscal quarter (pro rata amount based on the number of days elapsed during any partial fiscal quarter), commencing with the first fiscal quarter after the Closing Date. (b) The Manager shall be entitled to receive incentive compensation for each fiscal quarter in an amount equal to the product of (A) 25% of the dollar amount by which (1)(a) Funds from Operations (before the incentive fee but after the base management fee) of the Company per share of Common Stock (based on the weighted average number of shares) (b) plus gains (or minus losses) from debt restructuring and sales of property per share of Common Stock (based on the weighted average number of shares), exceed (2) an amount equal to (a) the weighted average of the price per share at the initial offering and the prices per share at any secondary offerings by the Company multiplied by (b) the Ten-Year U.S. Treasury Rate plus five percent per annum multiplied by (B) the weighted average number of shares of Common Stock outstanding during such period. "Funds from Operations" shall be computed in accordance with the definition thereof adopted by the National Association of Real Estate Investment Trusts ("NAREIT") and shall mean net income (computed in accordance with GAAP) excluding gains (or losses) from debt restructuring and sales of property, plus depreciation and amortization on real estate assets, and after adjustments for unconsolidated partnerships and joint ventures. As used in calculating the Manager's compensation, the term "Ten Year U.S. Treasury Rate" means the arithmetic average of the weekly average yield to maturity for actively traded current coupon U.S. Treasury fixed interest rate securities (adjusted to constant maturities of ten years) published by the Federal Reserve Board during a quarter, or, if such rate is not published by the Federal Reserve Board, any Federal Reserve Bank or agency or department of the federal government selected by the Company. If the Company determines in good faith that the Ten Year U.S. Treasury Rate cannot be calculated as provided above, then the rate shall be the arithmetic average of the per annum average yields to maturities, based upon closing asked prices on each business day during a quarter, for each actively traded marketable U.S. Treasury fixed interest rate security with a final maturity date not less than eight nor more than twelve years from the date of the closing asked prices as chosen and quoted for each business day in each such quarter in New York City by at least three recognized dealers in U.S. government securities selected by the Company. (c) The Manager shall compute the compensation payable under Sections 8(a) and 8(b) of this Agreement within 45 days after the end of each fiscal quarter. A copy of the computations made by the Manager to calculate its compensation shall thereafter promptly be delivered to the Board of Directors and, upon such delivery, payment of the compensation earned under Sections 8(a) and 8(b) of this Agreement shown therein shall be due and payable within 60 days after the end of such fiscal quarter. -6- (d) The Manager may charge the Company for any out of pocket expenses that the Manager incurs in connection with any due diligence on assets considered for purchase by the Company. Moreover, the Manager shall document the time spent by the Manager's employees in performing such due diligence and shall be entitled to reimbursement for the allocable portion of such employees' salaries and benefits. SECTION 9. EXPENSES OF THE COMPANY. The Company or any Subsidiary shall pay all of its expenses and shall reimburse the Manager for documented expenses of the Manager incurred on its behalf. SECTION 10. CALCULATIONS OF EXPENSES. Expenses incurred by the Manager on behalf of the Company shall be reimbursed quarterly to the Manager within 60 days after the end of each quarter. The Manager shall prepare a statement documenting the expenses of the Company and those incurred by the Manager on behalf of the Company during each quarter, and shall deliver such statement to the Company within 45 days after the end of each quarter. SECTION 11. LIMITS OF MANAGER RESPONSIBILITY. The Manager assumes no responsibility under this Agreement other than to render the services called for hereunder in good faith and shall not be responsible for any action of the Board of Directors in following or declining to follow any advice or recommendations of the Manager, including as set forth in Section 7(b) of this Agreement. The Manager, its directors, officers, stockholders and employees will not be liable to the Company, any Subsidiary, the Independent Directors or the Company's or any Subsidiary's stockholders or partners for any acts or omissions by the Manager, its directors, officers, stockholders or employees under or in connection with this Agreement, except by reason of acts constituting bad faith, willful misconduct, gross negligence or reckless disregard of their duties. The Company or a Subsidiary shall reimburse, indemnify and hold harmless the Manager, its stockholders, directors, officers and employees of and from any and all expenses, losses, damages, liabilities, demands, charges and claims of any nature whatsoever, (including attorneys' fees) in respect of or arising from any acts or omissions of the Manager, its stockholders, directors, officers and employees made in good faith in the performance of the Manager's duties under this Agreement and not constituting bad faith, willful misconduct, gross negligence or reckless disregard of its duties. SECTION 12. NO JOINT VENTURE. The Company and the Manager are not partners or joint venturers with each other and nothing herein shall be construed to make them such partners or joint venturers or impose any liability as such on either of them. SECTION 13. TERM; TERMINATION. This Agreement shall commence on the Closing Date and shall continue in force until the second anniversary of the Closing Date, and thereafter, it may be extended only with the consent of the Manager and by the affirmative vote of a majority of the Board of Directors, including a majority of the Independent Directors. Each extension shall be executed in writing by the parties hereto before the expiration of this Agreement or any extension thereof. Each such extension shall not exceed twelve months. -7- Notwithstanding any other provision to the contrary, this Agreement, or any extension hereof, may be terminated by the Company, upon 60 days' written notice, by majority vote of the Independent Directors or by majority vote of the Stockholders; provided that a termination fee, equal to the sum of the base management fee and incentive management fee earned during the twelve months preceding such termination, will be due. If this Agreement is terminated pursuant to this Section 13, such termination shall be without any further liability or obligation of either party to the other, except as provided in Section 16 of this Agreement. SECTION 14. ASSIGNMENTS. (a) Except as set forth in Section 14(b) of this Agreement, this Agreement shall terminate automatically in the event of its assignment, in whole or in part, by the Manager, unless such assignment is consented to in writing by the REIT with the consent of a majority of the Independent Directors. Any such assignment shall bind the assignee hereunder in the same manner as the Manager is bound. In addition, the assignee shall execute and deliver to the REIT a counterpart of this Agreement naming such assignee as Manager. This Agreement shall not be assigned by the REIT without the prior written consent of the Manager, except in the case of assignment by the REIT to another REIT or other organization which is a successor (by merger, consolidation or purchase of assets) to the REIT, in which case such successor organization shall be bound hereunder and by the terms of such assignment in the same manner as the REIT is bound hereunder. (b) Notwithstanding any provision of this Agreement, the Manager may subcontract and assign any or all of its responsibilities under Sections 2(b), 2(c) and 2(d) of this Agreement to any of its Affiliates, and the REIT hereby consents to any such assignment and subcontracting. SECTION 15. TERMINATION BY REIT FOR CAUSE. At the option of the REIT, this Agreement shall be and become terminated upon 60 days' written notice of termination from the Board of Directors to the Manager, without payment of any termination fee, if any of the following events shall occur: (a) if the Manager shall violate any provision of this Agreement and, after notice of such violation, shall not cure such violation within 30 days; or (b) there is entered an order for relief or similar decree or order with respect to the Manager by a court having competent jurisdiction in an involuntary case under the federal bankruptcy laws as now or hereafter constituted or under any applicable federal or state bankruptcy, insolvency or other similar laws; or the Manager (i) ceases, or admits in writing its inability to pay its debts as they become due and payable, or makes a general assignment for the benefit of, or enters into any composition or arrangement with, creditors; (ii) applies for, or consents (by admission of material allegations of a petition or otherwise) to the appointment of a receiver, trustee, assignee, custodian, liquidator or sequestrator (or other similar official) of the Manager or of any substantial part of its properties or assets, or authorizes such an application or consent, or proceedings seeking such appointment are commenced without such authorization, -8- consent or application against the Manager and continue undismissed for 30 days; (iii) authorizes or files a voluntary petition in bankruptcy, or applies for or consents (by admission of material allegations of a petition or otherwise) to the application of any bankruptcy, reorganization, arrangement, readjustment of debt, insolvency, dissolution, liquidation or other similar law of any jurisdiction, or authorizes such application or consent, or proceedings to such end are instituted against the Manager without such authorization, application or consent and are approved as properly instituted and remain undismissed for 30 days or result in adjudication of bankruptcy or insolvency; or (iv) permits or suffers all or any substantial part of its properties or assets to be sequestered or attached by court order and the order remains undismissed for 30 days. (c) If any of the events specified in Section 15(b) of this Agreement shall occur, the Manager shall give prompt written notice thereof to the Board of Directors upon the happening of such event. SECTION 16. ACTION UPON TERMINATION. From and after the effective date of termination of this Agreement, pursuant to Sections 13, 14, or 15 of this Agreement, the Manager shall not be entitled to compensation for further services hereunder, but shall be paid all compensation accruing to the date of termination and, if terminated pursuant to Section 13, the applicable termination fee. Upon such termination, the Manager shall forthwith: (a) after deducting any accrued compensation and reimbursement for its expenses to which it is then entitled, pay over to the Company or a Subsidiary all money collected and held for the account of the Company or a Subsidiary pursuant to this Agreement; (b) deliver to the Board of Directors a full accounting, including a statement showing all payments collected by it and a statement of all money held by it, covering the period following the date of the last accounting furnished to the Board of Directors with respect to the Company or a Subsidiary; and (c) deliver to the Board of Directors all property and documents of the Company or any Subsidiary then in the custody of the Manager. SECTION 17. RELEASE OF MONEY OR OTHER PROPERTY UPON WRITTEN REQUEST. The Manager agrees that any money or other property of the Company or Subsidiary held by the Manager under this Agreement shall be held by the Manager as custodian for the Company or Subsidiary, and the Manager's records shall be appropriately marked clearly to reflect the ownership of such money or other property by the Company or such Subsidiary. Upon the receipt by the Manager of a written request signed by a duly authorized officer of the Company requesting the Manager to release to the Company or any Subsidiary any money or other property then held by the Manager for the account of the Company or any Subsidiary under this Agreement, the Manager shall release such money or other property to the Company or any Subsidiary within a reasonable period of time, but in no event later than 60 days following such request. The Manager shall not be liable to the Company, any Subsidiary, the Independent Directors, or the Company's or a Subsidiary's stockholders or partners for any acts performed or omissions to act by the Company or any Subsidiary in connection with the money or other -9- property released to the Company or any Subsidiary in accordance with this Section. The Company and any Subsidiary shall indemnify the Manager, its directors, officers, stockholders and employees against any and all expenses, losses, damages, liabilities, demands, charges and claims of any nature whatsoever, which arise in connection with the Manager's release of such money or other property to the Company or any Subsidiary in accordance with the terms of this Section 17 of this Agreement. Indemnification pursuant to this provision shall be in addition to any right of the Manager to indemnification under Section 11 of this Agreement. SECTION 18. REPRESENTATIONS AND WARRANTIES. (a) The Company hereby represents and warrants to the Manager as follows: (i) The REIT is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, has the corporate power to own its assets and to transact the business in which it is now engaged and is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification, except for failures to be so qualified, authorized or licensed that could not in the aggregate have a material adverse effect on the business operations, assets or financial condition of the REIT and its subsidiaries, taken as a whole. The REIT does not do business under any fictitious business name. (ii) The REIT has the corporate power and authority to execute, deliver and perform this Agreement and all obligations required hereunder and has taken all necessary corporate action to authorize this Agreement on the terms and conditions hereof and the execution, delivery and performance of this Agreement and all obligations required hereunder. No consent of any other person including, without limitation, stockholders and creditors of the REIT, and no license, permit, approval or authorization of, exemption by, notice or report to, or registration, filing or declaration with, any governmental authority is required by the REIT in connection with this Agreement or the execution, delivery, performance, validity or enforceability of this Agreement and all obligations required hereunder. This Agreement has been, and each instrument or document required hereunder will be, executed and delivered by a duly authorized officer of the REIT, and this Agreement constitutes, and each instrument or document required hereunder when executed and delivered hereunder will constitute, the legally valid and binding obligation of the REIT enforceable against the REIT in accordance with its terms. (iii) The execution, delivery and performance of this Agreement and the documents or instruments required hereunder will not violate any provision of any existing law or regulation binding on the REIT, or any order, judgment, award or decree of any court, arbitrator or governmental authority binding on the REIT, or the Governing Instruments of, or any securities issued by the REIT or of any mortgage, indenture, lease, contract or other agreement, instrument or undertaking to which the REIT is a party or by which the REIT or any of its assets may be bound, the violation of which would have a material adverse effect on the business operations, assets or financial condition of the -10- REIT and its subsidiaries, taken as a whole, and will not result in, or require, the creation or imposition of any lien on any of its property, assets or revenues pursuant to the provisions of any such mortgage, indenture, lease, contract or other agreement, instrument or undertaking. (b) The Manager hereby represents and warrants to the REIT as follows: (i) the Manager is duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation, has the corporate power to own its assets and to transact the business in which it is now engaged and is duly qualified to do business and is in good standing under the laws of each jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification, except for failures to be so qualified, authorized or licensed that could not in the aggregate have a material adverse effect on the business operations, assets or financial condition of the Manager and its subsidiaries, taken as a whole. The Manager does not do business under any fictitious business name. (ii) The Manager has the corporate power and authority to execute, deliver and perform this Agreement and all obligations required hereunder and has taken all necessary partnership action to authorize this Agreement on the terms and conditions hereof and the execution, delivery and performance of this Agreement and all obligations required hereunder. No consent of any other person including, without limitation, partners and creditors of the Manager, and no license, permit, approval or authorization of, exemption by, notice or report to, or registration, filing or declaration with, any governmental authority is required by the Manager in connection with this Agreement or the execution, delivery, performance, validity or enforceability of this Agreement and all obligations required hereunder. This Agreement has been, and each instrument or document required hereunder will be, executed and delivered by a duly authorized agent of the Manager, and this Agreement constitutes, and each instrument or document required hereunder when executed and delivered hereunder will constitute, the legally valid and binding obligation of the Manager enforceable against the Manager in accordance with its terms. (iii) The execution, delivery and performance of this Agreement and the documents or instruments required hereunder, will not violate any provision of any existing law or regulation binding on the Manager, or any order, judgment, award or decree of any court, arbitrator or governmental authority binding on the Manager, or the partnership agreement of, or any securities issued by the Manager or of any mortgage, indenture, lease, contract or other agreement, instrument or undertaking to which the Manager is a party or by which the Manager or any of its assets may be bound, the violation of which would have a material adverse effect on the business operations, assets or financial condition of the Manager and its subsidiaries, taken as a whole, and will not result in, or require, the creation or imposition of any lien on any of its property, assets or revenues pursuant to the provisions of any such mortgage, indenture, lease, contract or other agreement, instrument or undertaking. -11- SECTION 19. NOTICES. Unless expressly provided otherwise herein, all notices, requests, demands and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given, made and received when delivered against receipt or upon actual receipt of registered or certified mail, postage prepaid, return receipt requested, addressed as set forth below: (a) If to the REIT: Ocwen Asset Investment Corp. The Forum, Suite 1000 1675 Palm Beach Lakes Blvd. West Palm Beach, FL 33401 Attention: Secretary with a copy given in the manner prescribed above, to: George C. Howell, III, Esquire Hunton & Williams 951 East Byrd Street Richmond, Virginia 23219-4074 (b) If to the Manager: Ocwen Capital Corporation The Forum, Suite 1000 1675 Palm Beach Lakes Blvd. West Palm Beach, FL 33401 Attention: Secretary with a copy given in the manner prescribed above, to: George C. Howell, III, Esquire Hunton & Williams 951 East Byrd Street Richmond, Virginia 23219-4074 Either party may alter the address to which communications or copies are to be sent by giving notice of such change of address in conformity with the provisions of this Section 19 for the giving of notice. SECTION 20. BINDING NATURE OF AGREEMENT; SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns as provided herein. -12- SECTION 21. ENTIRE AGREEMENT. This Agreement contains the entire agreement and understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter hereof. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing. SECTION 22. CONTROLLING LAW. This Agreement and all questions relating to its validity, interpretation, performance and enforcement shall be governed by and construed, interpreted and enforced in accordance with the laws of the Commonwealth of Virginia, notwithstanding any Virginia or other conflict-of-law provisions to the contrary. SECTION 23. INDULGENCES, NOT WAIVERS. Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver. SECTION 24. COSTS AND EXPENSES. Each party hereto shall bear its own costs and expenses (including the fees and disbursements of counsel and accountants) incurred in connection with the negotiations and preparation of and the closing under this Agreement, and all matters incident thereto. SECTION 25. TITLES NOT TO AFFECT INTERPRETATION. The titles of paragraphs and subparagraphs contained in this Agreement are for convenience only, and they neither form a part of this Agreement nor are they to be used in the construction or interpretation hereof. SECTION 26. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories. SECTION 27. PROVISIONS SEPARABLE. The provisions of this Agreement are independent of and separable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part. SECTION 28. GENDER. Words used herein regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context requires. -13- SECTION 29. COMPUTATION OF INTEREST. Interest will be computed on the basis of a 360-day year consisting of twelve months of thirty days each. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. OCWEN ASSET INVESTMENT CORP. By: -------------------------------- Name: ------------------------------ Its: ------------------------------- OCWEN CAPITAL CORPORATION By: -------------------------------- Name: ------------------------------ Its: ------------------------------- -14- EX-10.3 3 EXHIBIT 10.3 THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF OCWEN PARTNERSHIP, L.P. TABLE OF CONTENTS ARTICLE I DEFINED TERMS.......................................................1 ARTICLE II PARTNERSHIP CONTINUATION AND IDENTIFICATION........................8 2.01. CONTINUATION....................................................8 2.02. NAME, OFFICE AND REGISTERED AGENT...............................8 2.03. PARTNERS........................................................8 2.04. TERM AND DISSOLUTION............................................9 2.05. FILING OF CERTIFICATE AND PERFECTION OF LIMITED PARTNERSHIP...........................................9 2.06. CERTIFICATES DESCRIBING PARTNERSHIP UNITS......................10 ARTICLE III BUSINESS OF THE PARTNERSHIP......................................10 ARTICLE IV CAPITAL CONTRIBUTIONS AND ACCOUNTS................................11 4.01. CAPITAL CONTRIBUTIONS..........................................11 4.02. ADDITIONAL CAPITAL CONTRIBUTIONS AND ISSUANCES OF ADDITIONAL PARTNERSHIP INTERESTS..........................11 4.03. ADDITIONAL FUNDING.............................................14 4.04. CAPITAL ACCOUNTS...............................................14 4.05. PERCENTAGE INTERESTS...........................................14 4.06. NO INTEREST ON CONTRIBUTIONS...................................15 4.07. RETURN OF CAPITAL CONTRIBUTIONS................................15 4.08. NO THIRD-PARTY BENEFICIARY.....................................15 ARTICLE V PROFITS AND LOSSES; DISTRIBUTIONS..................................15 5.01. ALLOCATION OF PROFIT AND LOSS..................................15 5.02. DISTRIBUTION OF CASH...........................................17 5.03. REIT DISTRIBUTION REQUIREMENTS.................................18 5.04. DISTRIBUTIONS IN KIND..........................................18 5.05. LIMITATIONS ON RETURN OF CAPITAL CONTRIBUTIONS.................19 5.06. DISTRIBUTIONS UPON LIQUIDATION.................................19 5.07. SUBSTANTIAL ECONOMIC EFFECT....................................19 ARTICLE VI RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL PARTNER.............19 6.01. MANAGEMENT OF THE PARTNERSHIP..................................19 6.02. DELEGATION OF AUTHORITY........................................22 6.03. INDEMNIFICATION AND EXCULPATION OF INDEMNITEES.................22 6.04. LIABILITY OF THE GENERAL PARTNER...............................24 6.05. REIMBURSEMENT OF GENERAL PARTNER...............................25 -i- 6.06. OUTSIDE ACTIVITIES.............................................25 6.07. EMPLOYMENT OR RETENTION OF AFFILIATES..........................25 6.08. GENERAL PARTNER PARTICIPATION..................................26 6.9. TITLE TO PARTNERSHIP ASSETS....................................26 6.10. [INTENTIONALLY OMITTED]........................................26 ARTICLE VII CHANGES IN GENERAL PARTNER.......................................26 7.01. TRANSFER OF THE GENERAL PARTNER'S PARTNERSHIP INTEREST.........................................26 7.02. ADMISSION OF A SUBSTITUTE OR ADDITIONAL GENERAL PARTNER...................................28 7.03. EFFECT OF BANKRUPTCY, WITHDRAWAL, DEATH OR DISSOLUTION OF A GENERAL PARTNER..........................29 7.04. Removal of a General Partner...................................29 ARTICLE VIII RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS..................31 8.01. MANAGEMENT OF THE PARTNERSHIP..................................31 8.02. POWER OF ATTORNEY..............................................31 8.03. LIMITATION ON LIABILITY OF LIMITED PARTNERS....................31 8.04. OWNERSHIP BY LIMITED PARTNER OF CORPORATE GENERAL PARTNER OR AFFILIATE.................................31 8.05. EXCHANGE RIGHT.................................................32 8.06. REGISTRATION...................................................34 ARTICLE IX TRANSFER OF LIMITED PARTNERSHIP INTERESTS.........................34 9.01. PURCHASE FOR INVESTMENT........................................34 9.02. RESTRICTIONS ON TRANSFER OF LIMITED PARTNERSHIP INTERESTS................................35 9.03. ADMISSION OF A SUBSTITUTE LIMITED PARTNER......................36 9.04. RIGHTS OF ASSIGNEES OF PARTNERSHIP INTERESTS...................37 9.05. EFFECT OF BANKRUPTCY, DEATH, INCOMPETENCE OR TERMINATION OF A LIMITED PARTNER.............................37 9.06. JOINT OWNERSHIP OF INTERESTS...................................38 ARTICLE X BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS.........................38 10.01. BOOKS AND RECORDS.............................................38 10.02. CUSTODY OF PARTNERSHIP FUNDS; BANK ACCOUNTS...................38 10.03. FISCAL AND TAXABLE YEAR.......................................39 10.04. ANNUAL TAX INFORMATION AND REPORT.............................39 10.05. TAX MATTERS PARTNER; TAX ELECTIONS; SPECIAL BASIS ADJUSTMENTS...................................39 10.06. REPORTS TO LIMITED PARTNERS...................................40 ARTICLE XI AMENDMENT OF AGREEMENT; MERGER....................................40 ARTICLE XII GENERAL PROVISIONS...............................................41 12.01. NOTICES.......................................................41 12.02. SURVIVAL OF RIGHTS............................................41 12.03. ADDITIONAL DOCUMENTS..........................................41 -ii- 12.04. SEVERABILITY..................................................41 12.05. ENTIRE AGREEMENT..............................................41 12.06. PRONOUNS AND PLURALS..........................................41 12.07. HEADINGS......................................................42 12.08. COUNTERPARTS..................................................42 12.09. GOVERNING LAW.................................................42 EXHIBITS EXHIBIT A -- Partners, Capital Contributions and Percentage Interests EXHIBIT B -- Notice of Exercise of Exchange Right -iii- THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF OCWEN PARTNERSHIP, L.P. RECITALS Ocwen Partnership, L.P. (the "Partnership") was formed as a limited partnership under the laws of the Commonwealth of Virginia pursuant to a Certificate of Limited Partnership filed with the State Corporation Commission of Virginia effective as of March 3, 1997. This Third Amended and Restated Agreement of Limited Partnership is entered into as of the 5th day of May, 1998 among Ocwen General, Inc., a Virginia corporation (the "General Partner"), and the Limited Partners set forth on Exhibit A hereto, for the purpose of amending and restating the Amended and Restated Agreement of Limited Partnership and the Limited Partnership Agreement (together, the "Initial Agreement"). AGREEMENT NOW, THEREFORE, in consideration of the foregoing, of mutual covenants between the parties hereto, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree to amend the Initial Agreement to read in its entirety as follows: ARTICLE I DEFINED TERMS The following defined terms used in this Agreement shall have the meanings specified below: "ACT" means the Virginia Revised Uniform Limited Partnership Act, as it may be amended from time to time. "ADDITIONAL FUNDS" has the meaning set forth in Section 4.03 hereof. "ADDITIONAL SECURITIES" means any additional REIT Shares (other than REIT Shares issued in connection with an exchange pursuant to Section 8.05 hereof) or rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase REIT Shares, as set forth in Section 4.02(a)(ii). "ADMINISTRATIVE EXPENSES" means (i) all administrative and operating costs and expenses incurred by the Partnership, (ii) those administrative costs and expenses of the General Partner, including any salaries or other payments to directors, officers or employees of the General Partner, and any accounting and legal expenses of the General Partner, which expenses, the Partners have agreed, are expenses of the Partnership and not the General Partner, and (iii) to the extent not included in clause (ii) above, REIT Expenses; PROVIDED, HOWEVER, that Administrative Expenses shall not include any administrative costs and expenses incurred by the Company that are attributable to Properties or partnership interests in a Subsidiary Partnership that are owned by the Company directly. "AFFILIATE" means, (i) any Person that, directly or indirectly, controls or is controlled by or is under common control with such Person, (ii) any other Person that owns, beneficially, directly or indirectly, 10% or more of the outstanding capital stock, shares or equity interests of such Person, or (iii) any officer, director, employee, partner or trustee of such Person or any Person controlling, controlled by or under common control with such Person (excluding trustees and persons serving in similar capacities who are not otherwise an Affiliate of such Person). For the purposes of this definition, "control" (including the correlative meanings of the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, through the ownership of voting securities or partnership interests or otherwise. "AGREED VALUE" means the fair market value of a Partner's non-cash Capital Contribution as of the date of contribution as agreed to by such Partner and the General Partner. The names and addresses of the Partners, number of Partnership Units issued to each Partner, and the Agreed Value of non-cash Capital Contributions as of the date of contribution is set forth on EXHIBIT A. "AGREEMENT" means this Amended and Restated Agreement of Limited Partnership. "AMENDED AND RESTATED ARTICLES OF INCORPORATION" means the amended and restated articles of incorporation of the Company filed with the State Corporation Commission of Virginia, as amended or restated from time to time. "CAPITAL ACCOUNT" has the meaning provided in Section 4.04 hereof. "CAPITAL CONTRIBUTION" means the total amount of cash, cash equivalents, and the Agreed Value of any Property or other asset contributed or agreed to be contributed, as the context requires, to the Partnership by each Partner pursuant to the terms of the Agreement. Any reference to the Capital Contribution of a Partner shall include the Capital Contribution made by a predecessor holder of the Partnership Interest of such Partner. "CASH AMOUNT" means an amount of cash per Partnership Unit equal to the Value of the REIT Shares Amount on the date of receipt by the Company of a Notice of Exchange. "CERTIFICATE" means any instrument or document that is required under the laws of the Commonwealth of Virginia, or any other jurisdiction in which the Partnership conducts business, to be signed or sworn to by the Partners of the Partnership (either by themselves or 2 pursuant to the power-of-attorney granted to the General Partner in Section 8.02 hereof) and filed for recording in the appropriate public offices in the Commonwealth of Virginia or such other jurisdiction to perfect or maintain the Partnership as a limited partnership, to effect the admission, withdrawal, or substitution of any Partner of the Partnership, or to protect the limited liability of the Limited Partners as limited partners under the laws of the Commonwealth of Virginia or such other jurisdiction. "CODE" means the Internal Revenue Code of 1986, as amended, and as hereafter amended from time to time. Reference to any particular provision of the Code shall mean that provision in the Code at the date hereof and any successor provision of the Code. "COMMISSION" means the U.S. Securities and Exchange Commission. "COMPANY" means Ocwen Asset Investment Corp., a Virginia corporation organized as a real estate investment trust. "CONVERSION FACTOR" means 1.0, PROVIDED THAT, (a) in the event that the Company (i) declares or pays a dividend on its outstanding REIT Shares in REIT Shares or makes a distribution to all holders of its outstanding REIT Shares in REIT Shares, (ii) subdivides its outstanding REIT Shares, or (iii) combines its outstanding REIT Shares into a smaller number of REIT Shares, the Conversion Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the numerator of which shall be the number of REIT Shares issued and outstanding on the record date for such dividend, distribution, subdivision or combination (assuming for such purposes that such dividend, distribution, subdivision or combination has occurred as of such time), and the denominator of which shall be the actual number of REIT Shares (determined without the above assumption) issued and outstanding on such date; and (b) in the event that the Company declares or pays a dividend or other distribution on its outstanding REIT Shares (other than (A) cash dividends payable in the ordinary course of the Company's business or (B) dividends payable in REIT Shares that give rise to an adjustment in the Conversion Factor under subsection (a) hereof) and the Value of the REIT Shares on the 20th trading day following the record date ("Record Date") for such dividend or distribution (the "Post-Distribution Value") is less than the Value of the REIT Shares on the Business Day immediately preceding such Record Date (the "Pre-Distribution Value"), then the Conversion Factor in effect after the Record Date shall be adjusted by multiplying the Conversion Factor in effect prior to the Record Date by a fraction, the numerator of which is the Pre-Distribution Value and the denominator of which is the Post-Distribution Value, PROVIDED, HOWEVER, that no adjustment shall be made if (x) with respect to any cash dividend or distribution with respect to REIT shares, the Partnership distributes with respect to each Partnership Unit an amount equal to the amount of such dividend or distribution multiplied by the Conversion Factor or (y) with respect to any dividend or distribution of securities or property other than cash, the Partnership distributes with respect to each Partnership Unit an amount of securities or other property equal to the amount distributed with respect to each REIT share multiplied by the Conversion Ratio or a partnership interest or other security readily convertible into such securities or other property. Any adjustment to the Conversion Factor shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event; PROVIDED, HOWEVER, that if the Company 3 receives a Notice of Exchange after the record date, but prior to the effective date of such dividend, distribution, subdivision or combination, the Conversion Factor shall be determined as if the Company had received the Notice of Exchange immediately prior to the record date for such dividend, distribution, subdivision or combination. "EVENT OF BANKRUPTCY" as to any Person means the filing of a petition for relief as to such Person as debtor or bankrupt under the Bankruptcy Code of 1978 or similar provision of law of any jurisdiction (except if such petition is contested by such Person and has been dismissed within 90 days); insolvency or bankruptcy of such Person as finally determined by a court proceeding; filing by such Person of a petition or application to accomplish the same or for the appointment of a receiver or a trustee for such Person or a substantial part of his assets; commencement of any proceedings relating to such Person as a debtor under any other reorganization, arrangement, insolvency, adjustment of debt or liquidation law of any jurisdiction, whether now in existence or hereinafter in effect, either by such Person or by another, PROVIDED that if such proceeding is commenced by another, such Person indicates his approval of such proceeding, consents thereto or acquiesces therein, or such proceeding is contested by such Person and has not been finally dismissed within 90 days. "EXCHANGE AMOUNT" means either the Cash Amount or the REIT Shares Amount, as selected by the General Partner or the Company in its sole and absolute discretion pursuant to Section 8.05(b) hereof. "EXCHANGE RIGHT" has the meaning provided in Section 8.05(a) hereof. "EXCHANGING PARTNER" has the meaning provided in Section 8.05(a) hereof. "GENERAL PARTNER" means Ocwen General, Inc., a Virginia corporation, and any Person who becomes a substitute or additional General Partner as provided herein, and any of their successors as General Partner. "GENERAL PARTNERSHIP INTEREST" means a Partnership Interest held by the General Partner that is a general partnership interest. "INDEMNITEE" means (i) any Person made a party to a proceeding by reason of its status as the Company, the General Partner or a director, officer or employee of the Company, the Partnership or the General Partner, and (ii) such other Persons (including Affiliates of the Company, General Partner or the Partnership) as the General Partner may designate from time to time, in its sole and absolute discretion. "INDEPENDENT DIRECTOR" means a director of the Company who is not an officer or employee of the Company, any Affiliate of an officer or employee or any Affiliate of (i) any lessee of any property of the Company or any Subsidiary of the Company, (ii) any Subsidiary of the Company, or (iii) any partnership that is an Affiliate of the Company. 4 "LIMITED PARTNER" means any Person named as a Limited Partner on EXHIBIT A attached hereto, and any Person who becomes a Substitute or Additional Limited Partner, in such Person's capacity as a Limited Partner in the Partnership. "LIMITED PARTNERSHIP INTEREST" means the ownership interest of a Limited Partner in the Partnership at any particular time, including the right of such Limited Partner to any and all benefits to which such Limited Partner may be entitled as provided in this Agreement and in the Act, together with the obligations of such Limited Partner to comply with all the provisions of this Agreement and of such Act. "LOSS" has the meaning provided in Section 5.01(f) hereof. "NOTICE OF EXCHANGE" means the Notice of Exercise of Exchange Right substantially in the form attached as EXHIBIT B hereto. "NASDAQ" means the Nasdaq Stock Market. "OFFER" has the meaning set forth in Section 7.01(c) hereof. "OFFERING" means the initial offer and sale by the Company and the purchase by the Underwriters (as defined in the Prospectus) of REIT Shares for sale to the public. "ORIGINAL LIMITED PARTNER" means Ocwen Limited, Inc., a Virginia corporation. "PARTNER" means any General Partner or Limited Partner. "PARTNER NONRECOURSE DEBT MINIMUM GAIN" has the meaning set forth in Regulations Section 1.704-2(i). A Partner's share of Partner Nonrecourse Debt Minimum Gain shall be determined in accordance with Regulations Section 1.704-2(i)(5). "PARTNERSHIP INTEREST" means an ownership interest in the Partnership held by either a Limited Partner or the General Partner and includes any and all benefits to which the holder of such a Partnership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. "PARTNERSHIP MINIMUM GAIN" has the meaning set forth in Regulations Section 1.704-2(d). In accordance with Regulations Section 1.704-2(d), the amount of Partnership Minimum Gain is determined by first computing, for each Partnership nonrecourse liability, any gain the Partnership would realize if it disposed of the property subject to that liability for no consideration other than full satisfaction of the liability, and then aggregating the separately computed gains. A Partner's share of Partnership Minimum Gain shall be determined in accordance with Regulations Section 1.704-2(g)(1). "PARTNERSHIP RECORD DATE" means the record date established by the General Partner for the distribution of cash pursuant to Section 5.02 hereof, which record date shall be the same as the record date established by the Company for a distribution to its shareholders of some or all of its portion of such distribution. 5 "PARTNERSHIP UNIT" means a fractional, undivided share of the Partnership Interests of all Partners issued hereunder. The allocation of Partnership Units among the Partners shall be as set forth on EXHIBIT A, as may be amended from time to time. "PERCENTAGE INTEREST" means the percentage ownership interest in the Partnership of each Partner, as determined by dividing the Partnership Units owned by a Partner by the total number of Partnership Units then outstanding. The Percentage Interest of each Partner shall be as set forth on EXHIBIT A, as may be amended from time to time. "PERSON" means any individual, partnership, corporation, joint venture, trust or other entity. "PROFIT" has the meaning provided in Section 5.01(f) hereof. "PROPERTY" means any office or industrial property or other investment in which the Partnership holds an ownership interest. "PROSPECTUS" means the final prospectus delivered to purchasers of REIT Shares in the Offering. "REGULATIONS" means the Federal Income Tax Regulations issued under the Code, as amended and as hereafter amended from time to time. Reference to any particular provision of the Regulations shall mean that provision of the Regulations on the date hereof and any successor provision of the Regulations. "REIT" means a real estate investment trust under Sections 856 through 860 of the Code. "REIT EXPENSES" means (i) costs and expenses relating to the formation and continuity of existence and operation of the Company and any Subsidiaries thereof, including Ocwen General, Inc. (which Subsidiaries shall, for purposes hereof, be included within the definition of Company), including taxes, fees and assessments associated therewith, any and all costs, expenses or fees payable to any director, officer, or employee of the Company, (ii) costs and expenses relating to any public offering and registration of securities by the Company and all statements, reports, fees and expenses incidental thereto, including, without limitation, underwriting discounts and selling commissions applicable to any such offering of securities, and any costs and expenses associated with any claims made by any holders of such securities or any underwriters or placement agents thereof, (iii) costs and expenses associated with any repurchase of any securities by the Company, (iv) costs and expenses associated with the preparation and filing of any periodic or other reports and communications by the Company under federal, state or local laws or regulations, including filings with the Commission, (v) costs and expenses associated with compliance by the Company with laws, rules and regulations promulgated by any regulatory body, including the Commission and any securities exchange, (vi) costs and expenses associated with any 401(k) plan, incentive plan, bonus plan or other plan providing for compensation for the employees of the Company, (vii) costs and expenses incurred by the Company relating to any issuing or redemption of Partnership Interests, and (viii) all other 6 operating or administrative costs of the Company incurred in the ordinary course of its business on behalf of or in connection with the Partnership. "REIT SHARE" means a common share of beneficial interest in the Company (or successor Entity, as the case may be). "REIT SHARES AMOUNT" means a number of REIT Shares equal to the product of the number of Partnership Units offered for exchange by an Exchanging Partner, multiplied by the Conversion Factor as adjusted to and including the Specified Exchange Date; PROVIDED THAT in the event the Company issues to all holders of REIT Shares rights, options, warrants or convertible or exchangeable securities entitling the shareholders to subscribe for or purchase REIT Shares, or any other securities or property (collectively, the "rights"), and the rights have not expired at the Specified Exchange Date, then the REIT Shares Amount shall also include the rights issuable to a holder of the REIT Shares Amount of REIT Shares on the record date fixed for purposes of determining the holders of REIT Shares entitled to rights. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SERVICE" means the Internal Revenue Service. "SPECIFIED EXCHANGE DATE" means the first business day of the month that is at least 60 business days after the receipt by the Company of the Notice of Exchange. "SHARE INCENTIVE PLANS" means the Ocwen Asset Investment Corp. non-qualified stock option plan, as amended from time to time, or any stock incentive plan adopted in the future by the Company. "SUBSIDIARY" means, with respect to any Person, any corporation or other entity of which a majority of (i) the voting power of the voting equity securities or (ii) the outstanding equity interests is owned, directly or indirectly, by such Person. "SUBSIDIARY PARTNERSHIP" means any partnership of which the partnership interests therein are owned by the Company or a wholly-owned subsidiary of the Company. "SUBSTITUTE LIMITED PARTNER" means any Person admitted to the Partnership as a Limited Partner pursuant to Section 9.03 hereof. "SURVIVING GENERAL PARTNER" has the meaning set forth in Section 7.01(d) hereof. "TRANSACTION" has the meaning set forth in Section 7.01(c) hereof. "TRANSFER" has the meaning set forth in Section 9.02(a) hereof. "VALUE" means, with respect to any security, the average of the daily market price of such security for the ten consecutive trading days immediately preceding the date of such valuation. The market price for each such trading day shall be: (i) if security is listed or admitted 7 to trading on any securities exchange or NASDAQ, the sale price, regular way, on such day, or if no such sale takes place on such day, the average of the closing bid and asked prices, regular way, on such day, (ii) if security is not listed or admitted to trading on any securities exchange or NASDAQ takes place on such day, the average of the closing bid and asked prices on such day, as reported by a reliable quotation source designated by the Company, or (iii) if security is not listed or admitted to trading on any securities exchange or NASDAQ and no such last reported sale price or closing bid and asked prices are available, the average of the reported high bid and low asked prices on such day, as reported by a reliable quotation source designated by the Company, or if there shall be no bid and asked prices on such day, the average of the high bid and low asked prices, as so reported, on the most recent day (not more than ten days prior to the date in question) for which prices have been so reported; PROVIDED THAT if there are no bid and asked prices reported during the ten days prior to the date in question, the value of the security shall be determined by the Company acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate. In the event the security includes any additional rights, then the value of such rights shall be determined by the Company acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate. ARTICLE II PARTNERSHIP CONTINUATION AND IDENTIFICATION 2.01. CONTINUATION. The Partners hereby agree to continue the Partnership pursuant to the Act and upon the terms and conditions set forth in this Agreement. 2.02. NAME, OFFICE AND REGISTERED AGENT. The name of the Partnership is Ocwen Partnership, L.P. The specified office and place of business of the Partnership shall be 1675 Palm Beach Boulevard, Suite 1000, West Palm Beach, Florida 33401. The General Partner may at any time change the location of such office, provided the General Partner gives notice to the Partners of any such change. The initial registered agent is George C. Howell, III, who is a resident of Virginia and a member of the Virginia State Bar, and whose business address is Riverfront Plaza, 951 East Byrd Street in the City of Richmond. The sole duty of the registered agent as such is to forward to the Partnership any notice that is served on him as registered agent. 2.03. PARTNERS. (a) The General Partner of the Partnership is Ocwen General, Inc., a Virginia corporation. Its principal place of business is the same as that of the Partnership. (b) The Limited Partners are those Persons identified as Limited Partners on Exhibit A hereto, as amended from time to time. 8 2.04. TERM AND DISSOLUTION. (a) The term of the Partnership shall continue in full force and effect until December 31, 2050, except that the Partnership shall be dissolved upon the first to occur of any of the following events: (i) The occurrence of an Event of Bankruptcy as to a General Partner or the dissolution, death, removal or withdrawal of a General Partner unless the business of the Partnership is continued pursuant to Section 7.03(b) hereof; PROVIDED THAT if a General Partner is on the date of such occurrence a partnership, the dissolution of such General Partner as a result of the dissolution, death, withdrawal, removal or Event of Bankruptcy of a partner in such partnership shall not be an event of dissolution of the Partnership if the business of such General Partner is continued by the remaining partner or partners, either alone or with additional partners, and such General Partner and such partners comply with any other applicable requirements of this Agreement; (ii) The passage of 90 days after the sale or other disposition of all or substantially all of the assets of the Partnership (PROVIDED THAT if the Partnership receives an installment obligation as consideration for such sale or other disposition, the Partnership shall continue, unless sooner dissolved under the provisions of this Agreement, until such time as such note or notes are paid in full); (iii) The exchange of all Limited Partnership Interests (other than any of such interests held by the General Partner or Affiliates of the General Partner); or (iv) The election by the General Partner that the Partnership should be dissolved. (b) Upon dissolution of the Partnership (unless the business of the Partnership is continued pursuant to Section 7.03(b) hereof), the General Partner (or its trustee, receiver, successor or legal representative) shall amend or cancel the Certificate and liquidate the Partnership's assets and apply and distribute the proceeds thereof in accordance with Section 5.06 hereof. Notwithstanding the foregoing, the liquidating General Partner may either (i) defer liquidation of, or withhold from distribution for a reasonable time, any assets of the Partnership (including those necessary to satisfy the Partnership's debts and obligations), or (ii) distribute the assets to the Partners in kind. 2.05. FILING OF CERTIFICATE AND PERFECTION OF LIMITED PARTNERSHIP. The General Partner shall execute, acknowledge, record and file at the expense of the Partnership, the Certificate and any and all amendments thereto and all requisite fictitious name statements and notices in such places and jurisdictions as may be necessary to cause the 9 Partnership to be treated as a limited partnership under, and otherwise to comply with, the laws of each state or other jurisdiction in which the Partnership conducts business. 2.06. CERTIFICATES DESCRIBING PARTNERSHIP UNITS. At the request of a Limited Partner, the General Partner, at its option, may issue a certificate summarizing the terms of such Limited Partner's interest in the Partnership, including the number of Partnership Units owned and the Percentage Interest represented by such Partnership Units as of the date of such certificate. Any such certificate (i) shall be in form and substance as approved by the General Partner, (ii) shall not be negotiable and (iii) shall bear a legend to the following effect: This certificate is not negotiable. The Partnership Units represented by this certificate are governed by and transferable only in accordance with the provisions of the Agreement of Limited Partnership of Ocwen Partnership, L.P., as amended from time to time. ARTICLE III BUSINESS OF THE PARTNERSHIP The purpose and nature of the business to be conducted by the Partnership is (i) to conduct any business that may be lawfully conducted by a limited partnership organized pursuant to the Act, PROVIDED, however, that such business shall be limited to and conducted in such a manner as to permit the Company at all times to qualify as a REIT, unless the Company otherwise ceases to qualify as a REIT, (ii) to enter into any partnership, joint venture or other similar arrangement to engage in any of the foregoing or the ownership of interests in any entity engaged in any of the foregoing and (iii) to do anything necessary or incidental to the foregoing. In connection with the foregoing, and without limiting the Company's right in its sole and absolute discretion to cease qualifying as a REIT, the Partners acknowledge that the Company's current status as a REIT and the avoidance of income and excise taxes on the Company inures to the benefit of all the Partners and not solely to the Company. Notwithstanding the foregoing, the Limited Partners agree that the Company may terminate its status as a REIT under the Code at any time to the full extent permitted under its Amended and Restated Articles of Incorporation. The General Partner shall also be empowered to do any and all acts and things necessary or prudent to ensure that the Partnership will not be classified as a "publicly traded partnership" for purposes of Section 7704 of the Code. 10 ARTICLE IV CAPITAL CONTRIBUTIONS AND ACCOUNTS 4.01. CAPITAL CONTRIBUTIONS. The General Partner and the Limited Partners have made capital contributions to the Partnership in exchange for the Partnership Interests set forth opposite their names on Exhibit A, as amended from time to time. 4.02. ADDITIONAL CAPITAL CONTRIBUTIONS AND ISSUANCES OF ADDITIONAL PARTNERSHIP INTERESTS. Except as provided in this Section 4.02 or in Section 4.03, the Partners shall have no right or obligation to make any additional Capital Contributions or loans to the Partnership. The General Partner may contribute additional capital to the Partnership, from time to time, and receive additional Partnership Interests in respect thereof, in the manner contemplated in this Section 4.02. (a) Issuances of Additional Partnership Interests. (i) GENERAL. The General Partner is hereby authorized to cause the Partnership to issue such additional Partnership Interests in the form of Partnership Units for any Partnership purpose at any time or from time to time, to the Partners (including the General Partner and the Company) or to other Persons for such consideration and on such terms and conditions as shall be established by the General Partner in its sole and absolute discretion, all without the approval of any Limited Partners. Any additional Partnership Interests issued thereby may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties, including rights, powers and duties senior to Limited Partnership Interests, all as shall be determined by the General Partner in its sole and absolute discretion and without the approval of any Limited Partner, subject to Virginia law, including, without limitation, (i) the allocations of items of Partnership income, gain, loss, deduction and credit to each such class or series of Partnership Interests; (ii) the right of each such class or series of Partnership Interests to share in Partnership distributions; and (iii) the rights of each such class or series of Partnership Interests upon dissolution and liquidation of the Partnership; PROVIDED, HOWEVER, that no additional Partnership Interests shall be issued to the General Partner or the Company unless: (1) (A) the additional Partnership Interests are issued in connection with an issuance of REIT Shares of or other interests in the Company, which shares or interests have designations, preferences and other rights, all such that the economic interests are substantially similar to the designations, preferences and other rights of the additional Partnership 11 Interests issued to the General Partner or the Company by the Partnership in accordance with this Section 4.02 and (B) the General Partner or the Company shall make a Capital Contribution to the Partnership in an amount equal to the proceeds raised in connection with the issuance of such shares of stock of or other interests in the Company; (2) the additional Partnership Interests are issued in exchange for property owned by the Company or the General Partner with a fair market value, as determined by the General Partner, in good faith, equal to the value of the Partnership Interests; or (3) the additional Partnership Interests are issued to all Partners in proportion to their respective Percentage Interests. Without limiting the foregoing, the General Partner is expressly authorized to cause the Partnership to issue Partnership Units for less than fair market value, so long as the General Partner concludes in good faith that such issuance is in the best interests of the General Partner and the Partnership. (ii) UPON ISSUANCE OF ADDITIONAL SECURITIES. The Company shall not issue any additional REIT Shares (other than REIT Shares issued in connection with an exchange pursuant to Section 8.05 hereof) or rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase REIT Shares (collectively, "Additional Securities") other than to all holders of REIT Shares, unless (A) the General Partner shall cause the Partnership to issue to the General Partner and the Company, as the Company may designate, Partnership Interests or rights, options, warrants or convertible or exchangeable securities of the Partnership having designations, preferences and other rights, all such that the economic interests are substantially similar to those of the Additional Securities, and (B) the Company contributes the proceeds from the issuance of such Additional Securities and from any exercise of rights contained in such Additional Securities, directly and through the General Partner, to the Partnership; PROVIDED, HOWEVER, that the Company is allowed to issue Additional Securities in connection with an acquisition of a property to be held directly by the Company, but if and only if, such direct acquisition and issuance of Additional Securities have been approved and determined to be in the best interests of the Company and the Partnership by a majority of the Independent Directors. Without limiting the foregoing, the Company is expressly authorized to issue Additional Securities for less than fair market value, and to cause the Partnership to issue to the General Partner and the Company corresponding Partnership Interests, so long as (x) the General Partner concludes in good faith that such issuance is in the best interests of the General Partner, the Company and the Partnership, including without limitation, the issuance of REIT Shares and corresponding Partnership Units pursuant to an employee share purchase plan providing for employee purchases of REIT Shares at a discount from fair market value or employee stock 12 options that have an exercise price that is less than the fair market value of the REIT Shares, either at the time of issuance or at the time of exercise, and (y) the Company contributes all proceeds from such issuance, directly or through the General Partner, to the Partnership. For example, in the event the Company issues REIT Shares for a cash purchase price and contributes all of the proceeds of such issuance, directly and through the General Partner, to the Partnership as required hereunder, the General Partner and the Company, as the Company may so designate, shall be issued a number of additional Partnership Units equal to the product of (A) the number of such REIT Shares issued by the Company, the proceeds of which were so contributed, multiplied by (B) a fraction, the numerator of which is 100%, and the denominator of which is the Conversion Factor in effect on the date of such contribution. (b) CERTAIN DEEMED CONTRIBUTIONS OF PROCEEDS OF ISSUANCE OF REIT SHARES. In connection with any and all issuances of REIT Shares, the Company and the General Partner, as the Company determines, shall make Capital Contributions to the Partnership of the proceeds therefrom, PROVIDED THAT if the proceeds actually received and contributed by the Company, directly or through the General Partner, are less than the gross proceeds of such issuance as a result of any underwriter's discount or other expenses paid or incurred in connection with such issuance, then the General Partner and the Company shall be deemed to have made Capital Contributions to the Partnership in the aggregate amount of the gross proceeds of such issuance and the Partnership shall be deemed simultaneously to have paid such offering expenses in accordance with Section 6.05 hereof and in connection with the required issuance of additional Partnership Units to the General Partner and the Company for such Capital Contributions pursuant to Section 4.02(a) hereof. (c) In the event the Company purchases any REIT Shares or other shares of any class of the Company's capital stock, then the General Partner shall cause the Partnership to purchase a number of Partnership Units held, directly or indirectly, by the Company, as the Company may designate, equal to the quotient of the number of such REIT Shares or such shares of the Company's capital stock divided by the Conversion Factor and on the same terms that the Company exchanged such REIT Shares or such shares of the Company's capital stock. Moreover, if the Company makes a cash tender offer or other offer to acquire REIT Shares or other shares of any class of the Company's capital stock, then the General Partner shall cause the Partnership to make a corresponding offer to the Company, or the direct or indirect subsidiaries through which the Company holds Partnership Units, as the Company may designate, to acquire an equal number of Partnership Units held, directly or indirectly, by the Company. In the event any REIT Shares or other shares of any class of the Company's capital stock are acquired by the Company pursuant to such tender or other offer, the Partnership shall purchase an equivalent number of Partnership Units held, directly or indirectly, by the Company, as the Company may designate, for an equivalent purchase price based on the application of the Conversion Factor. Lastly, if the Company shall repurchase any REIT Shares or any shares of any class of the Company's capital stock pursuant to this section, all costs incurred in connection with such repurchase shall be reimbursed to the General Partner by the Partnership pursuant to Section 6.05 hereof. 13 4.03. ADDITIONAL FUNDING. If the General Partner determines that it is in the best interests of the Partnership to provide for additional Partnership funds ("Additional Funds") for any Partnership purpose, the General Partner may (i) cause the Partnership to obtain such funds from outside borrowings, or (ii) elect to have the General Partner or the Company provide such Additional Funds to the Partnership through loans or otherwise. 4.04. CAPITAL ACCOUNTS. A separate capital account (a "Capital Account") shall be established and maintained for each Partner in accordance with Regulations Section 1.704-1(b)(2)(iv). If (i) a new or existing Partner acquires an additional Partnership Interest in exchange for more than a DE MINIMIS Capital Contribution, (ii) the Partnership distributes to a Partner more than a DE MINIMIS amount of Partnership property as consideration for a Partnership Interest, or (iii) the Partnership is liquidated within the meaning of Regulation Section 1.704-1(b)(2)(ii)(g), the General Partner shall revalue the property of the Partnership to its fair market value (as determined by the General Partner, in its sole and absolute discretion, and taking into account Section 7701(g) of the Code) in accordance with Regulations Section 1.704-1(b)(2)(iv)(f). When the Partnership's property is revalued by the General Partner, the Capital Accounts of the Partners shall be adjusted in accordance with Regulations Sections 1.704-1(b)(2)(iv)(f) and (g), which generally require such Capital Accounts to be adjusted to reflect the manner in which the unrealized gain or loss inherent in such property (that has not been reflected in the Capital Accounts previously) would be allocated among the Partners pursuant to Section 5.01 if there were a taxable disposition of such property for its fair market value (as determined by the General Partner, in its sole and absolute discretion, and taking into account Section 7701(g) of the Code) on the date of the revaluation. 4.05. PERCENTAGE INTERESTS. If the number of outstanding Partnership Units increases or decreases during a taxable year, each Partner's Percentage Interest shall be adjusted by the General Partner effective as of the effective date of each such increase or decrease to a percentage equal to the number of Partnership Units held by such Partner divided by the aggregate number of Partnership Units outstanding after giving effect to such increase or decrease. If the Partners' Percentage Interests are adjusted pursuant to this Section 4.05, the Profits and Losses for the taxable year in which the adjustment occurs shall be allocated between the part of the year ending on the day when the Partnership's property is revalued by the General Partner and the part of the year beginning on the following day either (i) as if the taxable year had ended on the date of the adjustment or (ii) based on the number of days in each part. The General Partner, in its sole and absolute discretion, shall determine which method shall be used to allocate Profits and Losses for the taxable year in which the adjustment occurs. The allocation of Profits and Losses for the earlier part of the year shall be based on the Percentage Interests before adjustment, and the allocation of Profits and Losses for the later part shall be based on the adjusted Percentage Interests. 14 4.06. NO INTEREST ON CONTRIBUTIONS. No Partner shall be entitled to interest on its Capital Contribution. 4.07. RETURN OF CAPITAL CONTRIBUTIONS. No Partner shall be entitled to withdraw any part of its Capital Contribution or its Capital Account or to receive any distribution from the Partnership, except as specifically provided in this Agreement. Except as otherwise provided herein, there shall be no obligation to return to any Partner or withdrawn Partner any part of such Partner's Capital Contribution for so long as the Partnership continues in existence. 4.08. NO THIRD-PARTY BENEFICIARY. No creditor or other third party having dealings with the Partnership shall have the right to enforce the right or obligation of any Partner to make Capital Contributions or loans or to pursue any other right or remedy hereunder or at law or in equity, it being understood and agreed that the provisions of this Agreement shall be solely for the benefit of, and may be enforced solely by, the parties hereto and their respective successors and assigns. None of the rights or obligations of the Partners herein set forth to make Capital Contributions or loans to the Partnership shall be deemed an asset of the Partnership for any purpose by any creditor or other third party, nor may such rights or obligations be sold, transferred or assigned by the Partnership or pledged or encumbered by the Partnership to secure any debt or other obligation of the Partnership or of any of the Partners. In addition, it is the intent of the parties hereto that no distribution to any Limited Partner shall be deemed a return of money or other property in violation of the Act. However, if any court of competent jurisdiction holds that, notwithstanding the provisions of this Agreement, any Limited Partner is obligated to return such money or property, such obligation shall be the obligation of such Limited Partner and not of the General Partner. Without limiting the generality of the foregoing, a deficit Capital Account of a Partner shall not be deemed to be a liability of such Partner nor an asset or property of the Partnership. ARTICLE V PROFITS AND LOSSES; DISTRIBUTIONS 5.01. ALLOCATION OF PROFIT AND LOSS. (a) GENERAL. Profit and Loss of the Partnership for each fiscal year of the Partnership shall be allocated among the Partners in accordance with their respective Percentage Interests. (b) MINIMUM GAIN CHARGEBACK. Notwithstanding any provision to the contrary, (i) any expense of the Partnership that is a "nonrecourse deduction" within the meaning of Regulations Section 1.704-2(b)(1) shall be allocated in accordance with the Partners' respective Percentage Interests, (ii) any expense of the Partnership that is a "partner nonrecourse deduction" within the meaning of Regulations Section 1.704-2(i)(2) shall be allocated to the 15 Partner that bears the "economic risk of loss" of such deduction in accordance with Regulations Section 1.704-2(i)(1), (iii) if there is a net decrease in Partnership Minimum Gain within the meaning of Regulations Section 1.704-2(f)(1) for any Partnership taxable year, then, subject to the exceptions set forth in Regulations Section 1.704-2(f)(2),(3), (4) and (5), items of gain and income shall be allocated among the Partners in accordance with Regulations Section 1.704-2(f) and the ordering rules contained in Regulations Section 1.704-2(j), and (iv) if there is a net decrease in Partner Nonrecourse Debt Minimum Gain within the meaning of Regulations Section 1.704-2(i)(4) for any Partnership taxable year, then, subject to the exceptions set forth in Regulations Section 1.704(2)(g), items of gain and income shall be allocated among the Partners in accordance with Regulations Section 1.704-2(i)(4) and the ordering rules contained in Regulations Section 1.704-2(j). A Partner's "interest in partnership profits" for purposes of determining its share of the nonrecourse liabilities of the Partnership within the meaning of Regulations Section 1.752-3(a)(3) shall be such Partner's Percentage Interest. (c) QUALIFIED INCOME OFFSET. If a Partner receives in any taxable year an adjustment, allocation, or distribution described in subparagraphs (4), (5), or (6) of Regulations Section 1.704-1(b)(2)(ii)(d) that causes or increases a deficit balance in such Partner's Capital Account that exceeds the sum of such Partner's shares of Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain, as determined in accordance with Regulations Sections 1.704-2(g) and 1.704-2(i), such Partner shall be allocated specially for such taxable year (and, if necessary, later taxable years) items of income and gain in an amount and manner sufficient to eliminate such deficit Capital Account balance as quickly as possible as provided in Regulations Section 1.704-1(b)(2)(ii)(d). After the occurrence of an allocation of income or gain to a Partner in accordance with this Section 5.01(c), to the extent permitted by Regulations Section 1.704-1(b), items of expense or loss shall be allocated to such Partner in an amount necessary to offset the income or gain previously allocated to such Partner under this Section 5.01(c). (d) CAPITAL ACCOUNT DEFICITS. Loss shall not be allocated to a Limited Partner to the extent that such allocation would cause a deficit in such Partner's Capital Account (after reduction to reflect the items described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6)) to exceed the sum of such Partner's shares of Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain. Any Loss in excess of that limitation shall be allocated to the General Partner. After the occurrence of an allocation of Loss to the General Partner in accordance with this Section 5.01(d), to the extent permitted by Regulations Section 1.704-1(b), Profit shall be allocated to such Partner in an amount necessary to offset the Loss previously allocated to each Partner under this Section 5.01(d). (e) ALLOCATIONS BETWEEN TRANSFEROR AND TRANSFEREE. If a Partner transfers any part or all of its Partnership Interest, the distributive shares of the various items of Profit and Loss allocable among the Partners during such fiscal year of the Partnership shall be allocated between the transferor and the transferee Partner either (i) as if the Partnership's fiscal year had ended on the date of the transfer, or (ii) based on the number of days of such fiscal year that each was a Partner without regard to the results of Partnership activities in the respective portions of such fiscal year in which the transferor and the transferee were Partners. The General Partner, in its sole and absolute discretion, shall determine which method shall be used to allocate the 16 distributive shares of the various items of Profit and Loss between the transferor and the transferee Partner. (f) DEFINITION OF PROFIT AND LOSS. "Profit" and "Loss" and any items of income, gain, expense, or loss referred to in this Agreement shall be determined in accordance with federal income tax accounting principles, as modified by Regulations Section 1.704-1(b)(2)(iv), except that Profit and Loss shall not include items of income, gain and expense that are specially allocated pursuant to Sections 5.01(b), 5.01(c), or 5.01(d). All allocations of income, Profit, gain, Loss, and expense (and all items contained therein) for federal income tax purposes shall be identical to all allocations of such items set forth in this Section 5.01, except as otherwise required by Section 704(c) of the Code and Regulations Section 1.704-1(b)(4). The General Partner shall have the authority to elect the method to be used by the Partnership for allocating items of income, gain, and expense as required by Section 704(c) of the Code including a method that may result in a Partner receiving a disproportionately larger share of the Partnership tax depreciation deductions, and such election shall be binding on all Partners. 5.02. DISTRIBUTION OF CASH. (a) The Partnership shall distribute cash on a quarterly (or, at the election of the General Partner, more frequent) basis, in an amount determined by the General Partner in its sole and absolute discretion, to the Partners who are Partners on the Partnership Record Date with respect to such quarter (or other distribution period) in accordance with their respective Percentage Interests on the Partnership Record Date; PROVIDED, HOWEVER, that if a new or existing Partner acquires an additional Partnership Interest in exchange for a Capital Contribution on any date other than a Partnership Record Date, the cash distribution attributable to such additional Partnership Interest relating to the Partnership Record Date next following the issuance of such additional Partnership Interest shall be reduced in the proportion to (i) the number of days that such additional Partnership Interest is held by such Partner bears to (ii) the number of days between such Partnership Record Date and the immediately preceding Partnership Record Date. (b) Notwithstanding any other provision of this Agreement, the General Partner is authorized to take any action that it determines to be necessary or appropriate to cause the Partnership to comply with any withholding requirements established under the Code or any other federal, state or local law including, without limitation, pursuant to Sections 1441, 1442, 1445 and 1446 of the Code. To the extent that the Partnership is required to withhold and pay over to any taxing authority any amount resulting from the allocation or distribution of income to the Partner or assignee (including by reason of Section 1446 of the Code), either (i) if the actual amount to be distributed to the Partner equals or exceeds the amount required to be withheld by the Partnership, the amount withheld shall be treated as a distribution of cash in the amount of such withholding to such Partner, or (ii) if the actual amount to be distributed to the Partner is less than the amount required to be withheld by the Partnership, the amount required to be withheld shall be treated as a loan (a "Partnership Loan") from the Partnership to the Partner on the day the Partnership pays over such amount to a taxing authority. A Partnership Loan shall be repaid through withholding by the Partnership with respect to subsequent distributions to the applicable Partner or assignee. In the event that a Limited Partner (a "Defaulting Limited 17 Partner") fails to pay any amount owed to the Partnership with respect to the Partnership Loan within 15 days after demand for payment thereof is made by the Partnership on the Limited Partner, the General Partner, in its sole and absolute discretion, may elect to make the payment to the Partnership on behalf of such Defaulting Limited Partner. In such event, on the date of payment, the General Partner shall be deemed to have extended a loan (a "General Partner Loan") to the Defaulting Limited Partner in the amount of the payment made by the General Partner and shall succeed to all rights and remedies of the Partnership against the Defaulting Limited Partner as to that amount. Without limitation, the General Partner shall have the right to receive any distributions that otherwise would be made by the Partnership to the Defaulting Limited Partner until such time as the General Partner Loan has been paid in full, and any such distributions so received by the General Partner shall be treated as having been received by the Defaulting Limited Partner and immediately paid to the General Partner. Any amounts treated as a Partnership Loan or a General Partner Loan pursuant to this Section 5.02(b) shall bear interest at the lesser of (i) the base rate on corporate loans at large United States money center commercial banks, as published from time to time in THE WALL STREET JOURNAL, or (ii) the maximum lawful rate of interest on such obligation, such interest to accrue from the date the Partnership or the General Partner, as applicable, is deemed to extend the loan until such loan is repaid in full. (c) In no event may a Partner receive a distribution of cash with respect to a Partnership Unit if such Partner is entitled to receive a cash dividend as the holder of record of a REIT Share for which all or part of such Partnership Unit has been or will be exchanged. 5.03. REIT DISTRIBUTION REQUIREMENTS. The General Partner shall use its reasonable efforts to cause the Partnership to distribute amounts sufficient to enable the Company to pay shareholder dividends that will allow the Company to (i) meet its distribution requirement for qualification as a REIT as set forth in Section 857 of the Code and (ii) avoid any federal income or excise tax liability imposed by the Code. 5.04. DISTRIBUTIONS IN KIND. (a) Subject to Subsection (b) hereof, no Partner shall be entitled to demand property other than cash in connection with any distributions by the Partnership. (b) If the Company decides to securitize mortgage loans and/or leases of real estate through the issuance of collateralized mortgage obligations, each of the General Partner and the Original Limited Partner has the right to redeem a portion of its Partnership Interest in exchange for the mortgage loans and/or leases to be securitized. The portion of a Partnership Interest redeemed pursuant to this Section will be determined based on the fair market value of the mortgage loans and/or leases distributed to the General Partner or Original Limited Partner. Such fair market value will be determined by the General Partner, but will be subject to the review of the Independent Directors. 18 5.05. LIMITATIONS ON RETURN OF CAPITAL CONTRIBUTIONS. Notwithstanding any of the provisions of this Article V, no Partner shall have the right to receive and the General Partner shall not have the right to make, a distribution that includes a return of all or part of a Partner's Capital Contributions, unless after giving effect to the return of a Capital Contribution, the sum of all Partnership liabilities, other than the liabilities to a Partner for the return of his Capital Contribution, does not exceed the fair market value of the Partnership's assets. 5.06. DISTRIBUTIONS UPON LIQUIDATION. Upon liquidation of the Partnership, after payment of, or adequate provision for, debts and obligations of the Partnership, including any Partner loans, any remaining assets of the Partnership shall be distributed to all Partners with positive Capital Accounts in accordance with their respective positive Capital Account balances. For purposes of the preceding sentence, the Capital Account of each Partner shall be determined after all adjustments made in accordance with Sections 5.01 and 5.02 resulting from Partnership operations and from all sales and dispositions of all or any part of the Partnership's assets. To the extent deemed advisable by the General Partner, appropriate arrangements (including the use of a liquidating trust) may be made to assure that adequate funds are available to pay any contingent debts or obligations. 5.07. SUBSTANTIAL ECONOMIC EFFECT. It is the intent of the Partners that the allocations of Profit and Loss under the Agreement have substantial economic effect (or be consistent with the Partners' interests in the Partnership in the case of the allocation of losses attributable to nonrecourse debt) within the meaning of Section 704(b) of the Code as interpreted by the Regulations promulgated pursuant thereto. Article V and other relevant provisions of this Agreement shall be interpreted in a manner consistent with such intent. ARTICLE VI RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL PARTNER 6.01. MANAGEMENT OF THE PARTNERSHIP. (a) Except as otherwise expressly provided in this Agreement, the General Partner shall have full, complete and exclusive discretion to manage and control the business of the Partnership for the purposes herein stated, and shall make all decisions affecting the business and assets of the Partnership. Subject to the restrictions specifically contained in this Agreement, the powers of the General Partner shall include, without limitation, the authority to take the following actions on behalf of the Partnership: (i) to acquire, purchase, own, operate, lease and dispose of any real property and any other property or assets including, but not limited to notes and 19 mortgages, that the General Partner determines are necessary or appropriate or in the best interests of the business of the Partnership; (ii) to construct buildings and make other improvements on the properties owned or leased by the Partnership; (iii) to authorize, issue, sell, redeem or otherwise purchase any Partnership Interests or any securities (including secured and unsecured debt obligations of the Partnership, debt obligations of the Partnership convertible into any class or series of Partnership Interests, or options, rights, warrants or appreciation rights relating to any Partnership Interests) of the Partnership; (iv) to borrow or lend money for the Partnership, issue or receive evidences of indebtedness in connection therewith, refinance, increase the amount of, modify, amend or change the terms of, or extend the time for the payment of, any such indebtedness, and secure such indebtedness by mortgage, deed of trust, pledge or other lien on the Partnership's assets; (v) to pay, either directly or by reimbursement, for all operating costs and general administrative expenses of the Partnership to third parties or to the General Partner or its Affiliates as set forth in this Agreement, (vi) to guarantee or become a comaker of indebtedness of the Company or any Subsidiary thereof, refinance, increase the amount of, modify, amend or change the terms of, or extend the time for the payment of, any such guarantee or indebtedness, and secure such guarantee or indebtedness by mortgage, deed of trust, pledge or other lien on the Partnership's assets; (vii) to use assets of the Partnership (including, without limitation, cash on hand) for any purpose consistent with this Agreement, including, without limitation, payment, either directly or by reimbursement, of all operating costs and general administrative expenses of the Company, the General Partner, the Partnership or any Subsidiary of either, to third parties or to the General Partner as set forth in this Agreement; (viii) to lease all or any portion of any of the Partnership's assets, whether or not the terms of such leases extend beyond the termination date of the Partnership and whether or not any portion of the Partnership's assets so leased are to be occupied by the lessee, or, in turn, subleased in whole or in part to others, for such consideration and on such terms as the General Partner may determine; (ix) to prosecute, defend, arbitrate, or compromise any and all claims or liabilities in favor of or against the Partnership, on such terms and in such manner as the General Partner may reasonably determine, and similarly to prosecute, settle or defend litigation with respect to the Partners, the Partnership, or the 20 Partnership's assets; provided, HOWEVER, that the General Partner may not, without the consent of all of the Partners, confess a judgment against the Partnership that is in excess of $20,000 or is not covered by insurance; (x) to file applications, communicate, and otherwise deal with any and all governmental agencies having jurisdiction over, or in any way affecting, the Partnership's assets or any other aspect of the Partnership business; (xi) to make or revoke any election permitted or required of the Partnership by any taxing authority; (xii) to maintain such insurance coverage for public liability, fire and casualty, and any and all other insurance for the protection of the Partnership, for the conservation of Partnership assets, or for any other purpose convenient or beneficial to the Partnership, in such amounts and such types, as it shall determine from time to time; (xiii) to determine whether or not to apply any insurance proceeds for any property to the restoration of such property or to distribute the same; (xiv) to establish one or more divisions of the Partnership, to hire and dismiss employees of the Partnership or any division of the Partnership, and to retain legal counsel, accountants, consultants, real estate brokers, and such other persons, as the General Partner may deem necessary or appropriate in connection with the Partnership business and to pay therefor such reasonable remuneration as the General Partner may deem reasonable and proper; (xv) to retain other services of any kind or nature in connection with the Partnership business, and to pay therefor such remuneration as the General Partner may deem reasonable and proper; (xvi) to negotiate and conclude agreements on behalf of the Partnership with respect to any of the rights, powers and authority conferred upon the General Partner; (xvii) to maintain accurate accounting records and to file promptly all federal, state and local income tax returns on behalf of the Partnership; (xviii) to distribute Partnership cash or other Partnership assets in accordance with this Agreement; (xix) to form or acquire an interest in, and contribute property to, any further limited or general partnerships, joint ventures or other relationships that it deems desirable (including, without limitation, the acquisition of interests in, and the contributions of property to, its Subsidiaries and any other Person in which it has an equity interest from time to time); 21 (xx) to establish Partnership reserves for working capital, capital expenditures, contingent liabilities, or any other valid Partnership purpose; and (xxi) to merge, consolidate or combine the Partnership with or into another person (to the extent permitted by applicable law); (xxii) to do any and all acts and things necessary or prudent to ensure that the Partnership will not be classified as a "publicly traded partnership" for purposes of Section 7704 of the Code; and (xxiii)to take such other action, execute, acknowledge, swear to or deliver such other documents and instruments, and perform any and all other acts that the General Partner deems necessary or appropriate for the formation, continuation and conduct of the business and affairs of the Partnership (including, without limitation, all actions consistent with allowing the Company at all times to qualify as a REIT unless the Company voluntarily terminates its REIT status) and to possess and enjoy all of the rights and powers of a general partner as provided by the Act. (b) Except as otherwise provided herein, to the extent the duties of the General Partner require expenditures of funds to be paid to third parties, the General Partner shall not have any obligations hereunder except to the extent that partnership funds are reasonably available to it for the performance of such duties, and nothing herein contained shall be deemed to authorize or require the General Partner, in its capacity as such, to expend its individual funds for payment to third parties or to undertake any individual liability or obligation on behalf of the Partnership. 6.02. DELEGATION OF AUTHORITY. The General Partner may delegate any or all of its powers, rights and obligations hereunder, and may appoint, employ, contract or otherwise deal with any Person for the transaction of the business of the Partnership, which Person may, under supervision of the General Partner, perform any acts or services for the Partnership as the General Partner may approve. 6.03. INDEMNIFICATION AND EXCULPATION OF INDEMNITEES. (a) The Partnership shall indemnify an Indemnitee from and against any and all losses, claims, damages, liabilities, joint or several, expenses (including reasonable legal fees and expenses), judgments, fines, settlements, and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, that relate to the operations of the Partnership as set forth in this Agreement in which any Indemnitee may be involved, or is threatened to be involved, as a party or otherwise, unless it is established that: (i) the act or omission of the Indemnitee was material to the matter giving rise to the proceeding and either was committed in bad faith or was the result of active and deliberate dishonesty; (ii) the Indemnitee actually received an improper personal benefit in money, property or services; or 22 (iii) in the case of any criminal proceeding, the Indemnitee had reasonable cause to believe that the act or omission was unlawful. The termination of any proceeding by judgment, order or settlement does not create a presumption that the Indemnitee did not meet the requisite standard of conduct set forth in this Section 6.03(a). The termination of any proceeding by conviction or upon a plea of nolo contendere or its equivalent, or an entry of an order of probation prior to judgment, creates a rebuttable presumption that the Indemnitee acted in a manner contrary to that specified in this Section 6.03(a). Any indemnification pursuant to this Section 6.03 shall be made only out of the assets of the Partnership. (b) The Partnership shall reimburse an Indemnitee for reasonable expenses incurred by an Indemnitee who is a party to a proceeding in advance of the final disposition of the proceeding upon receipt by the Partnership of (i) a written affirmation by the Indemnitee of the Indemnitee's good faith belief that the standard of conduct necessary for indemnification by the Partnership as authorized in this Section 6.03 has been met, and (ii) a written undertaking by or on behalf of the Indemnitee to repay the amount if it shall ultimately be determined that the standard of conduct has not been met. (c) The indemnification provided by this Section 6.03 shall be in addition to any other rights to which an Indemnitee or any other Person may be entitled under any agreement, pursuant to any vote of the Partners, as a matter of law or otherwise, and shall continue as to an Indemnitee who has ceased to serve in such capacity. (d) The Partnership may purchase and maintain insurance, on behalf of the Indemnitees and such other Persons as the General Partner shall determine, against any liability that may be asserted against or expenses that may be incurred by such Person in connection with the Partnership's activities, regardless of whether the Partnership would have the power to indemnify such Person against such liability under the provisions of this Agreement. (e) For purposes of this Section 6.03, the Partnership shall be deemed to have requested an Indemnitee to serve as fiduciary of an employee benefit plan whenever the performance by it of its duties to the Partnership also imposes duties on, or otherwise involves services by, it to the plan or participants or beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect to an employee benefit plan pursuant to applicable law shall constitute fines within the meaning of this Section 6.03; and actions taken or omitted by the Indemnitee with respect to an employee benefit plan in the performance of its duties for a purpose reasonably believed by it to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose which is not opposed to the best interests of the Partnership. (f) In no event may an Indemnitee subject the Limited Partners to personal liability by reason of the indemnification provisions set forth in this Agreement. (g) An Indemnitee shall not be denied indemnification in whole or in part under this Section 6.03 because the Indemnitee had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement. 23 (h) The provisions of this Section 6.03 are for the benefit of the Indemnitees, their heirs, successors, assigns and administrators and shall not be deemed to create any rights for the benefit of any other Persons. 6.04. LIABILITY OF THE GENERAL PARTNER. (a) Notwithstanding anything to the contrary set forth in this Agreement, the General Partner shall not be liable for monetary damages to the Partnership or any Partners for losses sustained or liabilities incurred as a result of errors in judgment or of any act or omission if the General Partner acted in good faith. The General Partner shall not be in breach of any duty that the General Partner may owe to the Limited Partners or the Partnership or any other Persons under this Agreement or of any duty stated or implied by law or equity provided the General Partner, acting in good faith, abides by the terms of this Agreement. (b) The Limited Partners expressly acknowledge that the General Partner is acting on behalf of the Partnership, the Company and the Company's shareholders collectively, that the General Partner is under no obligation to consider the separate interests of the Limited Partners (including, without limitation, the tax consequences to Limited Partners or the tax consequences of same, but not all, of the Limited Partners) in deciding whether to cause the Partnership to take (or decline to take) any actions. In the event of a conflict between the interests of the shareholders of the Company on one hand and the Limited Partners on the other, the General Partner shall endeavor in good faith to resolve the conflict in a manner not adverse to either the shareholders of the Company or the Limited Partners; PROVIDED, HOWEVER, that for so long as the Company, directly or the General Partner owns a controlling interest in the Partnership, any such conflict that the General Partner, in its sole and absolute discretion, determines cannot be resolved in a manner not adverse to either the shareholders of the Company or the Limited Partners shall be resolved in favor of the shareholders. The General Partner shall not be liable for monetary damages for losses sustained, liabilities incurred, or benefits not derived by Limited Partners in connection with such decisions, PROVIDED that the General Partner has acted in good faith. (c) Subject to its obligations and duties as General Partner set forth in Section 6.01 hereof, the General Partner may exercise any of the powers granted to it under this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its agents. The General Partner shall not be responsible for any misconduct or negligence on the part of any such agent appointed by it in good faith. (d) Notwithstanding any other provisions of this Agreement or the Act, any action of the General Partner on behalf of the Partnership or any decision of the General Partner to refrain from acting on behalf of the Partnership, undertaken in the good faith belief that such action or omission is necessary or advisable in order (i) to protect the ability of the Company to continue to qualify as a REIT or (ii) to prevent the Company from incurring any taxes under Section 857, Section 4981, or any other provision of the Code, is expressly authorized under this Agreement and is deemed approved by all of the Limited Partners. 24 (e) Any amendment, modification or repeal of this Section 6.04 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the General Partner's liability to the Partnership and the Limited Partners under this Section 6.04 as in effect immediately prior to such amendment, modification or repeal with respect to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when claims relating to such matters may arise or be asserted. 6.05. REIMBURSEMENT OF GENERAL PARTNER. (a) Except as provided in this Section 6.05 and elsewhere in this Agreement (including the provisions of Articles 5 and 6 regarding distributions, payments, and allocations to which it may be entitled), the General Partner shall not be compensated for its services as general partner of the Partnership. (b) The General Partner shall be reimbursed on a monthly basis, or such other basis as the General Partner may determine in its sole and absolute discretion, for all REIT Expenses and Administrative Expenses. 6.06. OUTSIDE ACTIVITIES. The Partners and any officer, director, employee, agent, trustee, Affiliate, Subsidiary, or shareholder of any Partner shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Partnership, including business interests and activities substantially similar or identical to those of the Partnership. Neither the Partnership nor any of the Limited Partners shall have any rights by virtue of this Agreement in any such business ventures, interest or activities. None of the Limited Partners nor any other Person shall have any rights by virtue of this Agreement or the partnership relationship established hereby in any such business ventures, interests or activities, and the General Partner shall have no obligation pursuant to this Agreement to offer any interest in any such business ventures, interests and activities to the Partnership or any Limited Partner, even if such opportunity is of a character which, if presented to the Partnership or any Limited Partner, could be taken by such Person. 6.07. EMPLOYMENT OR RETENTION OF AFFILIATES. (a) Any Affiliate of the General Partner may be employed or retained by the Partnership and may otherwise deal with the Partnership (whether as a buyer, lessor, lessee, manager, furnisher of goods or services, broker, agent, lender or otherwise) and may receive from the Partnership any compensation, price, or other payment therefor which the General Partner determines to be fair and reasonable. (b) The Partnership may lend or contribute to its Subsidiaries or other Persons in which it has an equity investment, and such Persons may borrow funds from the Partnership, on terms and conditions established in the sole and absolute discretion of the General Partner. The foregoing authority shall not create any right or benefit in favor of any Subsidiary or any other Person. 25 (c) The Partnership may transfer assets to joint ventures, other partnerships, corporations or other business entities in which it is or thereby becomes a participant upon such terms and subject to such conditions as the General Partner deems are consistent with this Agreement and applicable law. (d) Except as expressly permitted by this Agreement, neither the General Partner nor any of its Affiliates shall sell, transfer or convey any property to, or purchase any property from, the Partnership, directly or indirectly, except pursuant to transactions that are on terms that are fair and reasonable to the Partnership. 6.08. GENERAL PARTNER PARTICIPATION. The General Partner agrees, on behalf of the Company that all business activities of the Company shall generally be conducted through the Partnership or one or more Subsidiary Partnerships, unless otherwise determined by the Independent Directors. 6.9. TITLE TO PARTNERSHIP ASSETS. Title to Partnership assets, whether real, personal or mixed and whether tangible or intangible, shall be deemed to be owned by the Partnership as an entity, and no Partner, individually or collectively, shall have any ownership interest in such Partnership assets or any portion thereof. Title to any or all of the Partnership assets may be held in the name of the Partnership, the General Partner or one or more nominees, as the General Partner may determine, including Affiliates of the General Partner. The General Partner hereby declares and warrants that any Partnership assets for which legal title is held in the name of the General Partner or any nominee or Affiliate of the General Partner shall be held by the General Partner for the use and benefit of the Partnership in accordance with the provisions of this Agreement; PROVIDED, HOWEVER, that the General Partner shall use its best efforts to cause beneficial and record title to such assets to be vested in the Partnership as soon as reasonably practicable. All Partnership assets shall be recorded as the property of the Partnership in its books and records, irrespective of the name in which legal title to such Partnership assets is held. 6.10. [INTENTIONALLY OMITTED]. ARTICLE VII CHANGES IN GENERAL PARTNER 7.01. TRANSFER OF THE GENERAL PARTNER'S PARTNERSHIP INTEREST. (a) The General Partner shall not transfer all or any portion of its General Partnership Interest or withdraw as General Partner except as provided in or in connection with a transaction contemplated by Section 7.01(c), (d) or (e). (b) The General Partner agree that the Percentage Interest for it and the Company will at all times be in the aggregate, at least 1%. 26 (c) Except as otherwise provided in Section 6.04(b) or Section 7.01(d) or (e) hereof, the Company shall not engage in any merger, consolidation or other combination with or into another Person or sale of all or substantially all of its assets, (other than in connection with a change in the Company's state of incorporation or organizational form) in each case which results in a change of control of the Company (a "Transaction"), unless: (i) the consent of Limited Partners (other than the General Partner or any Subsidiary) holding more than 50% of the Percentage Interests of the Limited Partners (other than those held by the General Partner or any Subsidiary) is obtained; (ii) as a result of such Transaction all Limited Partners will receive for each Partnership Unit an amount of cash, securities, or other property equal to the product of the Conversion Factor and the greatest amount of cash, securities or other property paid in the Transaction to a holder of one REIT Share in consideration of one REIT Share, PROVIDED THAT if, in connection with the Transaction, a purchase, tender or exchange offer ("Offer") shall have been made to and accepted by the holders of more than 50% of the outstanding REIT Shares, each holder of Partnership Units shall be given the option to exchange its Partnership Units for the greatest amount of cash, securities, or other property which a Limited Partner would have received had it (A) exercised its Exchange Right and (B) sold, tendered or exchanged pursuant to the Offer the REIT Shares received upon exercise of the Exchange Right immediately prior to the expiration of the Offer; or (iii) the Company is the surviving entity in the Transaction and either (A) the holders of REIT Shares do not receive cash, securities, or other property in the Transaction or (B) all Limited Partners (other than the General Partner or any Subsidiary) receive an amount of cash, securities, or other property (expressed as an amount per REIT Share) that is no less than the product of the Conversion Factor and the greatest amount of cash, securities, or other property (expressed as an amount per REIT Share) received in the Transaction by any holder of REIT Shares. (d) Notwithstanding Section 7.01(c), the Company or the General Partner may merge with or into or consolidate with another entity if immediately after such merger or consolidation (i) substantially all of the assets of the successor or surviving entity (the "Survivor"), other than Partnership Units held by the Company or the General Partner, are contributed, directly or indirectly, to the Partnership as a Capital Contribution in exchange for Partnership Units with a fair market value equal to the value of the assets so contributed as determined by the Survivor in good faith and (ii) the Survivor expressly agrees to assume all obligations of the General Partner or the Company, as appropriate, hereunder. Upon such contribution and assumption, the Survivor shall have the right and duty to amend this Agreement as set forth in this Section 7.01(d). The Survivor shall in good faith arrive at a new method for the calculation of the Cash Amount, the REIT Shares Amount and Conversion Factor for a 27 Partnership Unit after any such merger or consolidation so as to approximate the existing method for such calculation as closely as reasonably possible. Such calculation shall take into account, among other things, the kind and amount of securities, cash and other property that was receivable upon such merger or consolidation by a holder of REIT Shares or options, warrants or other rights relating thereto, and to which a holder of Partnership Units could have acquired had such Partnership Units been exchanged immediately prior to such merger or consolidation. Such amendment to this Agreement shall provide for adjustment to such method of calculation, which shall be as nearly equivalent as may be practicable to the adjustments provided for with respect to the Conversion Factor. The Survivor also shall in good faith modify the definition of REIT Shares and make such amendments to Section 8.05 hereof so as to approximate the existing rights and obligations set forth in Section 8.05 as closely as reasonably possible. The above provisions of this Section 7.01(d) shall similarly apply to successive mergers or consolidations permitted hereunder. In respect of any transaction described in the preceding Paragraph, the Company is required to use its commercially reasonable efforts to structure such transaction to avoid causing the Limited Partners to recognize a gain for federal income tax purposes by virtue of the occurrence of or their participation in such transaction, provided such efforts are consistent with the exercise of the Board of Directors' fiduciary duties to the shareholders of the Company under applicable law. (e) Notwithstanding Section 7.01(c), (i) a General Partner may transfer all or any portion of its General Partnership Interest to (A) a wholly-owned Subsidiary of such General Partner or (B) the owner of all of the ownership interests of such General Partner, and following a transfer of all of its General Partnership Interest, may withdraw as General Partner; and (ii) the Company may engage in a transaction not required by law or by the rules of any national securities exchange on which the REIT Shares are listed to be submitted to the vote of the holders of the REIT Shares. 7.02. ADMISSION OF A SUBSTITUTE OR ADDITIONAL GENERAL PARTNER. A Person shall be admitted as a substitute or additional General Partner of the Partnership only if the following terms and conditions are satisfied: (a) the Person to be admitted as a substitute or additional General Partner shall have accepted and agreed to be bound by all the terms and provisions of this Agreement by executing a counterpart thereof and such other documents or instruments as may be required or appropriate in order to effect the admission of such Person as a General Partner, and a certificate evidencing the admission of such Person as a General Partner shall have been filed for recordation and all other actions required by Section 2.05 hereof in connection with such admission shall have been performed; 28 (b) if the Person to be admitted as a substitute or additional General Partner is a corporation or a partnership it shall have provided the Partnership with evidence satisfactory to counsel for the Partnership of such Person's authority to become a General Partner and to be bound by the terms and provisions of this Agreement; and (c) counsel for the Partnership shall have rendered an opinion (relying on such opinions from other counsel and the state or any other jurisdiction as may be necessary) that the admission of the person to be admitted as a substitute or additional General Partner is in conformity with the Act, that none of the actions taken in connection with the admission of such Person as a substitute or additional General Partner will cause (i) the Partnership to be classified other than as a partnership for federal income tax purposes, or (ii) the loss of any Limited Partner's limited liability. 7.03. EFFECT OF BANKRUPTCY, WITHDRAWAL, DEATH OR DISSOLUTION OF A GENERAL PARTNER. (a) Upon the occurrence of an Event of Bankruptcy as to a General Partner (and its removal pursuant to Section 7.04(a) hereof) or the death, withdrawal, removal or dissolution of a General Partner (except that, if a General Partner is on the date of such occurrence a partnership, the withdrawal, death, dissolution, Event of Bankruptcy as to, or removal of a partner in, such partnership shall be deemed not to be a dissolution of such General Partner if the business of such General Partner is continued by the remaining partner or partners), the Partnership shall be dissolved and terminated unless the Partnership is continued pursuant to Section 7.03(b) hereof. The merger of the General Partner with or into any entity that is admitted as a substitute or successor General Partner pursuant to Section 7.02 hereof shall not be deemed to be the withdrawal, dissolution or removal of the General Partner. (b) Following the occurrence of an Event of Bankruptcy as to a General Partner (and its removal pursuant to Section 7.04(a) hereof) or the death, withdrawal, removal or dissolution of a General Partner (except that, if a General Partner is on the date of such occurrence a partnership, the withdrawal, death, dissolution, Event of Bankruptcy as to, or removal of a partner in, such partnership shall be deemed not to be a dissolution of such General Partner if the business of such General Partner is continued by the remaining partner or partners), the Limited Partners, within 90 days after such occurrence, may elect to continue the business of the Partnership for the balance of the term specified in Section 2.04 hereof by selecting, subject to Section 7.02 hereof and any other provisions of this Agreement, a substitute General Partner by consent of a majority in interest of the Limited Partners. If the Limited Partners elect to continue the business of the Partnership and admit a substitute General Partner, the relationship with the Partners and of any Person who has acquired an interest of a Partner in the Partnership shall be governed by this Agreement. 7.04. REMOVAL OF A GENERAL PARTNER. (a) Upon the occurrence of an Event of Bankruptcy as to, or the dissolution of, a General Partner, such General Partner shall be deemed to be removed automatically; provided, however, that if a General Partner is on the date of such occurrence a partnership, the 29 withdrawal, death, dissolution, Event of Bankruptcy as to or removal of a partner in such partnership shall be deemed not to be a dissolution of the General Partner if the business of such General Partner is continued by the remaining partner or partners. The Limited Partners may not remove the General Partner, with or without cause. (b) If a General Partner has been removed pursuant to this Section 7.04 and the Partnership is continued pursuant to Section 7.03 hereof, such General Partner shall promptly transfer and assign its General Partnership Interest in the Partnership to the substitute General Partner approved by a majority in interest of the Limited Partners in accordance with Section 7.03(b) hereof and otherwise admitted to the Partnership in accordance with Section 7.02 hereof. At the time of assignment, the removed General Partner shall be entitled to receive from the substitute General Partner the fair market value of the General Partnership Interest of such removed General Partner as reduced by any damages caused to the Partnership by such General Partner. Such fair market value shall be determined by an appraiser mutually agreed upon by the General Partner and a majority in interest of the Limited Partners within 10 days following the removal of the General Partner. In the event that the parties are unable to agree upon an appraiser, the removed General Partner and a majority in interest of the Limited Partners each shall select an appraiser. Each such appraiser shall complete an appraisal of the fair market value of the removed General Partner's General Partnership Interest within 30 days of the General Partner's removal, and the fair market value of the removed General Partner's General Partnership Interest shall be the average of the two appraisals; PROVIDED, HOWEVER, that if the higher appraisal exceeds the lower appraisal by more than 20% of the amount of the lower appraisal, the two appraisers, no later than 40 days after the removal of the General Partner, shall select a third appraiser who shall complete an appraisal of the fair market value of the removed General Partner's General Partnership Interest no later than 60 days after the removal of the General Partner. In such case, the fair market value of the removed General Partner's General Partnership Interest shall be the average of the two appraisals closest in value. (c) The General Partnership Interest of a removed General Partner, during the time after default until transfer under Section 7.04(b), shall be converted to that of a special Limited Partner; PROVIDED, HOWEVER, such removed General Partner shall not have any rights to participate in the management and affairs of the Partnership, and shall not be entitled to any portion of the income, expense, profit, gain or loss allocations or cash distributions allocable or payable, as the case may be, to the Limited Partners. Instead, such removed General Partner shall receive and be entitled only to retain distributions or allocations of such items that it would have been entitled to receive in its capacity as General Partner, until the transfer is effective pursuant to Section 7.04(b). (d) All Partners shall have given and hereby do give such consents, shall take such actions and shall execute such documents as shall be legally necessary and sufficient to effect all the foregoing provisions of this Section. 30 ARTICLE VIII RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS 8.01. MANAGEMENT OF THE PARTNERSHIP. The Limited Partners shall not participate in the management or control of Partnership business nor shall they transact any business for the Partnership, nor shall they have the power to sign for or bind the Partnership, such powers being vested solely and exclusively in the General Partner. 8.02. POWER OF ATTORNEY. Each Limited Partner hereby irrevocably appoints the General Partner its true and lawful attorney-in-fact, who may act for each Limited Partner and in its name, place and stead, and for its use and benefit, to sign, acknowledge, swear to, deliver, file or record, at the appropriate public offices, any and all documents, certificates, and instruments as may be deemed necessary or desirable by the General Partner to carry out fully the provisions of this Agreement and the Act in accordance with their terms, which power of attorney is coupled with an interest and shall survive the death, dissolution or legal incapacity of the Limited Partner, or the transfer by the Limited Partner of any part or all of its Partnership Interest. 8.03. LIMITATION ON LIABILITY OF LIMITED PARTNERS. No Limited Partner shall be liable for any debts, liabilities, contracts or obligations of the Partnership. A Limited Partner shall be liable to the Partnership only to make payments of its Capital Contribution, if any, as and when due hereunder. After its Capital Contribution is fully paid, no Limited Partner shall, except as otherwise required by the Act, be required to make any further Capital Contributions or other payments or lend any funds to the Partnership. 8.04. OWNERSHIP BY LIMITED PARTNER OF CORPORATE GENERAL PARTNER OR AFFILIATE. No Limited Partner shall at any time, either directly or indirectly, own any stock or other interest in the General Partner or in any Affiliate thereof, if such ownership by itself or in conjunction with other stock or other interests owned by other Limited Partners would, in the opinion of counsel for the Partnership, jeopardize the classification of the Partnership as a partnership for federal income tax purposes. The General Partner shall be entitled to make such reasonable inquiry of the Limited Partners as is required to establish compliance by the Limited Partners with the provisions of this Section. 31 8.05. EXCHANGE RIGHT. (a) Subject to Sections 8.05(b), 8.05(c), 8.05(d), 8.05(e) and 8.05(f) and the provisions of any agreements between the Partnership and one or more Limited Partners with respect to Partnership Units held by them, each Limited Partner, other than the Company, shall have the right (the "Exchange Right") to require the Partnership to redeem on a Specified Exchange Date all or a portion of the Partnership Units held by such Limited Partner at an exchange price equal to and in the form of the Cash Amount to be paid by the Partnership, PROVIDED that such Partnership Units shall have been outstanding for at least one year. The Exchange Right shall be exercised pursuant to a Notice of Exchange delivered to the Partnership (with a copy to the General Partner) by the Limited Partner who is exercising the Exchange Right (the "Exchanging Partner"); PROVIDED, HOWEVER, that the Partnership shall not be obligated to satisfy such Exchange Right if the Company and/or the General Partner elects to purchase the Partnership Units subject to the Notice of Exchange pursuant to Section 8.05(b); and PROVIDED, FURTHER, that no Limited Partner may deliver more than two Notices of Exchange during each calendar year. A Limited Partner may not exercise the Exchange Right for less than 1,000 Partnership Units or, if such Limited Partner holds less than 1,000 Partnership Units, all of the Partnership Units held by such Partner. The Exchanging Partner shall have no right, with respect to any Partnership Units so exchanged, to receive any distribution paid with respect to Partnership Units if the record date for such distribution is on or after the Specified Exchange Date. (b) Notwithstanding the provisions of Section 8.05(a), a Limited Partner that exercises the Exchange Right shall be deemed to have offered to sell the Partnership Units described in the Notice of Exchange to the General Partner and the Company, and either of the General Partner or the Company (or both) may, in its sole and absolute discretion, elect to purchase directly and acquire such Partnership Units by paying to the Exchanging Partner either the Cash Amount or the REIT Shares Amount, as elected by the General Partner or the Company (in its sole and absolute discretion), on the Specified Exchange Date, whereupon the General Partner or the Company shall acquire the Partnership Units offered for exchange by the exchanging Partner and shall be treated for all purposes of this Agreement as the owner of such Partnership Units. If the General Partner and/or the Company shall elect to exercise its right to purchase Partnership Units under this Section 8.05(b) with respect to a Notice of Exchange, they shall so notify the Exchanging Partner within five Business Days after the receipt by the General Partner of such Notice of Exchange. Unless the General Partner and/or the Company (in its sole and absolute discretion) shall exercise its right to purchase Partnership Units from the Exchanging Partner pursuant to this Section 8.05(b), neither the General Partner nor the Company shall have any obligation to the Exchanging Partner or the Partnership with respect to the Exchanging Partner's exercise of the Exchange Right. In the event the General Partner or the Company shall exercise its right to purchase Partnership Units with respect to the exercise of a Exchange Right in the manner described in the first sentence of this Section 8.05(b), the Partnership shall have no obligation to pay any amount to the Exchanging Partner with respect to such Exchanging Partner's exercise of such Exchange Right, and each of the Exchanging Partner, the Partnership, and the General Partner or the Company, as the case may be, shall treat the transaction between the General Partner or the Company, as the case may be, and the Exchanging 32 Partner for federal income tax purposes as a sale of the Exchanging Partner's Partnership Units to the General Partner or the Company, as the case may be. Each Exchanging Partner agrees to execute such documents as the General Partner may reasonably require in connection with the issuance of REIT Shares upon exercise of the Exchange Right. (c) Notwithstanding the provisions of Section 8.05(a) and 8.05(b), a Limited Partner shall not be entitled to exercise the Exchange Right if the delivery of REIT Shares to such Partner on the Specified Exchange Date by the General Partner or the Company pursuant to Section 8.05(b) (regardless of whether or not the General Partner or the Company would in fact exercise its rights under Section 8.05(b)) would (i) result in such Partner or any other person owning, directly or indirectly, REIT Shares in excess of the Ownership Limitation (as defined in the Amended and Restated Articles of Incorporation) and calculated in accordance therewith, except as provided in the Amended and Restated Articles of Incorporation, (ii) result in REIT Shares being owned by fewer than 100 persons (determined without reference to any rules of attribution), except as provided in the Amended and Restated Articles of Incorporation, (iii) result in the Company being "closely held" within the meaning of Section 856(h) of the Code, (iv) cause the Company to own, directly or constructively, 10% or more of the ownership interests in a tenant of the General Partner's, the Partnership's, or a Subsidiary Partnership's, real property, within the meaning of Section 856(d)(2)(B) of the Code, or (v) cause the acquisition of REIT Shares by such Partner to be "integrated" with any other distribution of REIT Shares for purposes of complying with the registration provisions of the Securities Act of 1933, as amended (the "Securities Act"). The General Partner or the Company, in their sole and absolute discretion, may waive the restriction on exchange set forth in this Section 8.05(c); PROVIDED, HOWEVER, that in the event such restriction is waived, the Exchanging Partner shall be paid the Cash Amount. (d) Any Cash Amount to be paid to an Exchanging Partner pursuant to this Section 8.05 shall be paid on the Specified Exchange Date; PROVIDED, HOWEVER, that the Company or the General Partner may elect to cause the Specified Exchange Date to be delayed for up to an additional 180 days to the extent required for the Company to cause additional REIT Shares to be issued to provide financing to be used to make such payment of the Cash Amount. Notwithstanding the foregoing, the Company and the General Partner agree to use their best efforts to cause the closing of the acquisition of exchanged Partnership Units hereunder to occur as quickly as reasonably possible. (e) Notwithstanding any other provision of this Agreement, the General Partner shall place appropriate restrictions on the ability of the Limited Partners to exercise their Exchange Rights as and if deemed necessary to ensure that the Partnership does not constitute a "publicly traded partnership" under section 7704 of the Code. If and when the General Partner determines that imposing such restrictions is necessary, the General Partner shall give prompt written notice thereof (a "Restriction Notice") to each of the Limited Partners, which notice shall be accompanied by a copy of an opinion of counsel to the Partnership which states that, in the opinion of such counsel, restrictions are necessary in order to avoid the Partnership being treated as a "publicly traded partnership" under section 7704 of the Code. 33 8.06. REGISTRATION. Subject to the terms of any agreement between the Company or the General Partner and one or more Limited Partners with respect to Partnership Units held by them: (a) SHELF REGISTRATION OF THE COMMON STOCK. Within two weeks prior or subsequent to the first date upon which the Partnership Units owned by any Limited Partner may be exchanged (or such later date as may be required under applicable provisions of the Securities Act), the Company agrees to file with the Securities and Exchange Commission (the "Commission"), a shelf registration statement on Form S-3 under Rule 415 of the Securities Act (a "Registration Statement"), or any similar rule that may be adopted by the Commission, with respect to all of the shares of Common Stock that may be issued upon exchange of such Partnership Units pursuant to Section 8.05 hereof ("Exchange Shares"). The Company will use its best efforts to have the Registration Statement declared effective under the Securities Act. The Company need not file a separate Registration Statement, but may file one Registration Statement covering Exchange Shares issuable to more than one Limited Partner. The Company further agrees to supplement or make amendments to each Registration Statement, if required by the rules, regulations or instructions applicable to the registration form utilized by the Company or by the Securities Act or rules and regulations thereunder for such Registration Statement. (b) LISTING ON SECURITIES EXCHANGE. If the Company shall list or maintain the listing of any shares of Common Stock on any securities exchange or national market system, it will at its expense and as necessary to permit the registration and sale of the Exchange Shares hereunder, list thereon, maintain and, when necessary, increase such listing to include such Exchange Shares. (c) REGISTRATION NOT REQUIRED. Notwithstanding the foregoing, the Company shall not be required to file or maintain the effectiveness of a registration statement relating to Exchange Shares after the first date upon which, in the opinion of counsel to the Company, all of the Exchange Shares covered thereby could be sold by the holders thereof in any period of three months pursuant to Rule 144 under the Securities Act, or any successor rule thereto. ARTICLE IX TRANSFER OF LIMITED PARTNERSHIP INTERESTS 9.01. PURCHASE FOR INVESTMENT. (a) Each Limited Partner hereby represents and warrants to the General Partner, to the Company and to the Partnership that the acquisition of his Partnership Interests is made as a principal for his account for investment purposes only and not with a view to the resale or distribution of such Partnership Interest. (b) Each Limited Partner agrees that he will not sell, assign or otherwise transfer his Partnership Interest or any fraction thereof, whether voluntarily or by operation of law or at judicial sale or otherwise, to any Person who does not make the representations and 34 warranties to the General Partner set forth in Section 9.01(a) above and similarly agree not to sell, assign or transfer such Partnership Interest or fraction thereof to any Person who does not similarly represent, warrant and agree. 9.02. RESTRICTIONS ON TRANSFER OF LIMITED PARTNERSHIP INTERESTS. (a) Subject to the provisions of 9.02(b), (c) and (d), no Limited Partner may offer, sell, assign, hypothecate, pledge or otherwise transfer all or any portion of his Limited Partnership Interest, or any of such Limited Partner's economic rights as a Limited Partner, whether voluntarily or by operation of law or at judicial sale or otherwise (collectively, a "Transfer") without the consent of the General Partner, which consent may be granted or withheld in its sole and absolute discretion. Any such purported transfer undertaken without such consent shall be considered to be null and void ab initio and shall not be given effect. The General Partner may require, as a condition of any Transfer to which it consents, that the transferor assume all costs incurred by the Partnership in connection therewith. (b) No Limited Partner may withdraw from the Partnership other than as a result of a permitted Transfer (I.E., a Transfer consented to as contemplated by clause (a) above or clause (c) below or a Transfer pursuant to 9.05 below) of all of his Partnership Units pursuant to this Article IX or pursuant to an exchange of all of his Partnership Units pursuant to 8.05. Upon the permitted Transfer or redemption of all of a Limited Partner's Partnership Units, such Limited Partner shall cease to be a Limited Partner. (c) Subject to 9.02(d), (e) and (f) below, a Limited Partner may Transfer, with the consent of the General Partner, all or a portion of his Partnership Units to (i) a parent or parent's spouse, natural or adopted descendant or descendants, spouse of such descendant, or brother or sister, or a trust created by such Limited Partner for the benefit of such Limited Partner and/or any such person(s), of which trust such Limited Partner or any such person(s) is a trustee, (ii) a corporation controlled by a Person or Persons named in (i) above, or (iii) if the Limited Partner is an entity, its beneficial owners. (d) No Limited Partner may effect a Transfer of its Limited Partnership Interest, in whole or in part, if, in the opinion of legal counsel for the Partnership, such proposed Transfer would require the registration of the Limited Partnership Interest under the Securities Act of 1933, as amended, or would otherwise violate any applicable federal or state securities or blue sky law (including investment suitability standards). (e) No Transfer by a Limited Partner of its Partnership Units, in whole or in part, may be made to any Person if (i) in the opinion of legal counsel for the Partnership, the transfer would result in the Partnership's being treated as an association taxable as a corporation (other than a qualified REIT subsidiary within the meaning of Section 856(i) of the Code), (ii) in the opinion of legal counsel for the Partnership, it would adversely affect the ability of the Company to continue to qualify as a REIT or subject the Company to any additional taxes under Section 857 or Section 4981 of the Code, or (iii) such transfer is effectuated through an "established securities market" or a "secondary market (or the substantial equivalent thereof)" within the meaning of Section 7704 of the Code. 35 (f) No transfer of any Partnership Units may be made to a lender to the Partnership or any Person who is related (within the meaning of Regulations Section 1.752-4(b)) to any lender to the Partnership whose loan constitutes a nonrecourse liability (within the meaning of Regulations Section 1.752-1(a)(2)), without the consent of the General Partner, which may be withheld in its sole and absolute discretion, PROVIDED THAT as a condition to such consent the lender will be required to enter into an arrangement with the Partnership and the General Partner to exchange or redeem for the Cash Amount any Partnership Units in which a security interest is held simultaneously with the time at which such lender would be deemed to be a partner in the Partnership for purposes of allocating liabilities to such lender under Section 752 of the Code. (g) Any Transfer in contravention of any of the provisions of this Article IX shall be void and ineffectual and shall not be binding upon, or recognized by, the Partnership. (h) Prior to the consummation of any Transfer under this Article IX, the transferor and/or the transferee shall deliver to the General Partner such opinions, certificates and other documents as the General Partner shall request in connection with such Transfer. 9.03. ADMISSION OF A SUBSTITUTE LIMITED PARTNER. (a) Subject to the other provisions of this Article IX, an assignee of the Limited Partnership Interest of a Limited Partner (which shall be understood to include any purchaser, transferee, donee, or other recipient of any disposition of such Limited Partnership Interest) shall be deemed admitted as a Limited Partner of the Partnership only with the consent of the General Partner and upon the satisfactory completion of the following: (i) The assignee shall have accepted and agreed to be bound by the terms and provisions of this Agreement by executing a counterpart or an amendment thereof, including a revised EXHIBIT A, and such other documents or instruments as the General Partner may require in order to effect the admission of such Person as a Limited Partner. (ii) To the extent required, an amended Certificate evidencing the admission of such Person as a Limited Partner shall have been signed, acknowledged and filed for record in accordance with the Act. (iii) The assignee shall have delivered a letter containing the representation set forth in Section 9.01(a) hereof and the agreement set forth in Section 9.01(b) hereof. (iv) If the assignee is a corporation, partnership or trust, the assignee shall have provided the General Partner with evidence satisfactory to counsel for the Partnership of the assignee's authority to become a Limited Partner under the terms and provisions of this Agreement. 36 (v) The assignee shall have executed a power of attorney containing the terms and provisions set forth in Section 8.02 hereof. (vi) The assignee shall have paid all legal fees and other expenses of the Partnership and the General Partner and filing and publication costs in connection with its substitution as a Limited Partner. (vii) The assignee has obtained the prior written consent of the General Partner to its admission as a Substitute Limited Partner, which consent may be given or denied in the exercise of the General Partner's sole and absolute discretion. (b) For the purpose of allocating Profits and Losses and distributing cash received by the Partnership, a Substitute Limited Partner shall be treated as having become, and appearing in the records of the Partnership as, a Partner upon the filing of the Certificate described in Section 9.03(a)(ii) hereof or, if no such filing is required, the later of the date specified in the transfer documents or the date on which the General Partner has received all necessary instruments of transfer and substitution. (c) The General Partner shall cooperate with the Person seeking to become a Substitute Limited Partner by preparing the documentation required by this Section and making all official filings and publications. The Partnership shall take all such action as promptly as practicable after the satisfaction of the conditions in this Article IX to the admission of such Person as a Limited Partner of the Partnership. 9.04. RIGHTS OF ASSIGNEES OF PARTNERSHIP INTERESTS. (a) Subject to the provisions of Sections 9.01 and 9.02 hereof, except as required by operation of law, the Partnership shall not be obligated for any purposes whatsoever to recognize the assignment by any Limited Partner of its Partnership Interest until the Partnership has received notice thereof. (b) Any Person who is the assignee of all or any portion of a Limited Partner's Limited Partnership Interest, but does not become a Substitute Limited Partner and desires to make a further assignment of such Limited Partnership Interest, shall be subject to all the provisions of this Article IX to the same extent and in the same manner as any Limited Partner desiring to make an assignment of its Limited Partnership Interest. 9.05. EFFECT OF BANKRUPTCY, DEATH, INCOMPETENCE OR TERMINATION OF A LIMITED PARTNER. The occurrence of an Event of Bankruptcy as to a Limited Partner, the death of a Limited Partner or a final adjudication that a Limited Partner is incompetent (which term shall include, but not be limited to, insanity) shall not cause the termination or dissolution of the Partnership, and the business of the Partnership shall continue if an order for relief in a bankruptcy proceeding is entered against a Limited Partner, the trustee or receiver of his estate 37 or, if he dies, his executor, administrator or trustee, or, if he is finally adjudicated incompetent, his committee, guardian or conservator, shall have the rights of such Limited Partner for the purpose of settling or managing his estate property and such power as the bankrupt, deceased or incompetent Limited Partner possessed to assign all or any part of his Partnership Interest and to join with the assignee in satisfying conditions precedent to the admission of the assignee as a Substitute Limited Partner. 9.06. JOINT OWNERSHIP OF INTERESTS. A Partnership Interest may be acquired by two individuals as joint tenants with right of survivorship, provided that such individuals either are married or are related and share the same home as tenants in common. The written consent or vote of both owners of any such jointly held Partnership Interest shall be required to constitute the action of the owners of such Partnership Interest; provided, however, that the written consent of only one joint owner will be required if the Partnership has been provided with evidence satisfactory to the counsel for the Partnership that the actions of a single joint owner can bind both owners under the applicable laws of the state of residence of such joint owners. Upon the death of one owner of a Partnership Interest held in a joint tenancy with a right of survivorship, the Partnership Interest shall become owned solely by the survivor as a Limited Partner and not as an assignee. The Partnership need not recognize the death of one of the owners of a jointly-held Partnership Interest until it shall have received notice of such death. Upon notice to the General Partner from either owner, the General Partner shall cause the Partnership Interest to be divided into two equal Partnership Interests, which shall thereafter be owned separately by each of the former owners. ARTICLE X BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS 10.01. BOOKS AND RECORDS. At all times during the continuance of the Partnership, the Partners shall keep or cause to be kept at the Partnership's specified office true and complete books of account in accordance with generally accepted accounting principles, including: (a) a current list of the full name and last known business address of each Partner, (b) a copy of the Certificate of Limited Partnership and all certificates of amendment thereto, (c) copies of the Partnership's federal, state and local income tax returns and reports, (d) copies of the Agreement and any financial statements of the Partnership for the three most recent years and (e) all documents and information required under the Act. Any Partner or its duly authorized representative, upon paying the costs of collection, duplication and mailing, shall be entitled to inspect or copy such records during ordinary business hours. 10.02. CUSTODY OF PARTNERSHIP FUNDS; BANK ACCOUNTS. (a) All funds of the Partnership not otherwise invested shall be deposited in one or more accounts maintained in such banking or brokerage institutions as the General Partner 38 shall determine, and withdrawals shall be made only on such signature or signatures as the General Partner may, from time to time, determine. (b) All deposits and other funds not needed in the operation of the business of the Partnership may be invested by the General Partner in investment grade instruments (or investment companies whose portfolio consists primarily thereof), government obligations, certificates of deposit, bankers' acceptances and municipal notes and bonds. The funds of the Partnership shall not be commingled with the funds of any other Person except for such commingling as may necessarily result from an investment in those investment companies permitted by this Section 10.02(b). 10.03. FISCAL AND TAXABLE YEAR. The fiscal and taxable year of the Partnership shall be the calendar year. 10.04. ANNUAL TAX INFORMATION AND REPORT. Within 75 days after the end of each fiscal year of the Partnership, the General Partner shall furnish to each person who was a Limited Partner at any time during such year the tax information necessary to file such Limited Partner's individual tax returns as shall be reasonably required by law. 10.05. TAX MATTERS PARTNER; TAX ELECTIONS; SPECIAL BASIS ADJUSTMENTS. (a) The General Partner shall be the Tax Matters Partner of the Partnership within the meaning of Section 6231(a)(7) of the Code. As Tax Matters Partner, the General Partner shall have the right and obligation to take all actions authorized and required, respectively, by the Code for the Tax Matters Partner. The General Partner shall have the right to retain professional assistance in respect of any audit of the Partnership by the Service and all out-of-pocket expenses and fees incurred by the General Partner on behalf of the Partnership as Tax Matters Partner shall constitute Partnership expenses. In the event the General Partner receives notice of a final Partnership adjustment under Section 6223(a)(2) of the Code, the General Partner shall either (i) file a court petition for judicial review of such final adjustment within the period provided under Section 6226(a) of the Code, a copy of which petition shall be mailed to all Limited Partners on the date such petition is filed, or (ii) mail a written notice to all Limited Partners, within such period, that describes the General Partner's reasons for determining not to file such a petition. (b) All elections required or permitted to be made by the Partnership under the Code or any applicable state or local tax law shall be made by the General Partner in its sole and absolute discretion. (c) In the event of a transfer of all or any part of the Partnership Interest of any Partner, the Partnership, at the option of the General Partner, may elect pursuant to Section 754 of the Code to adjust the basis of the Properties. Notwithstanding anything contained in Article V of this Agreement, any adjustments made pursuant to Section 754 shall 39 affect only the successor in interest to the transferring Partner and in no event shall be taken into account in establishing, maintaining or computing Capital Accounts for the other Partners for any purpose under this Agreement. Each Partner will furnish the Partnership with all information necessary to give effect to such election. 10.06. REPORTS TO LIMITED PARTNERS. (a) As soon as practicable after the close of each fiscal quarter (other than the last quarter of the fiscal year), the General Partner shall cause to be mailed to each Limited Partner a quarterly report containing financial statements of the Partnership, or of the Company if such statements are prepared solely on a consolidated basis with the Company, for such fiscal quarter, presented in accordance with generally accepted accounting principles. As soon as practicable after the close of each fiscal year, the General Partner shall cause to be mailed to each Limited Partner an annual report containing financial statements of the Partnership, or of the Company if such statements are prepared solely on a consolidated basis with the Company, for such fiscal year, presented in accordance with generally accepted accounting principles. The annual financial statements shall be audited by accountants selected by the General Partner. (b) Any Partner shall further have the right to a private audit of the books and records of the Partnership, provided such audit is made for Partnership purposes, at the expense of the Partner desiring it and is made during normal business hours. ARTICLE XI AMENDMENT OF AGREEMENT; MERGER The General Partner's consent shall be required for any amendment to this Agreement. The General Partner, without the consent of the Limited Partners, may amend this Agreement in any respect or merge or consolidate the Partnership with or into any other partnership or business entity (as defined in ss. 17-211 of the Act) in a transaction pursuant to Section 7.01(c), (d) or (e) hereof; PROVIDED, HOWEVER, that the following amendments and any other merger or consolidation of the Partnership shall require the consent of Limited Partners (other than the Company) holding more than 50% of the Percentage Interests of the Limited Partners (other than the Company): (a) any amendment affecting the operation of the Conversion Factor or the Exchange Right (except as provided in Section 8.05(d) or 7.01(d) hereof) in a manner adverse to the Limited Partners; (b) any amendment that would adversely affect the rights of the Limited Partners to receive the distributions payable to them hereunder, other than with respect to the issuance of additional Partnership Units pursuant to Section 4.02 hereof; (c) any amendment that would alter the Partnership's allocations of Profit and Loss to the Limited Partners, other than with respect to the issuance of additional Partnership Units pursuant to Section 4.02 hereof; or 40 (d) any amendment that would impose on the Limited Partners any obligation to make additional Capital Contributions to the Partnership. ARTICLE XII GENERAL PROVISIONS 12.01. NOTICES. All communications required or permitted under this Agreement shall be in writing and shall be deemed to have been given when delivered personally or upon deposit in the United States mail, registered, postage prepaid return receipt requested, to the Partners at the addresses set forth in EXHIBIT A attached hereto; PROVIDED, HOWEVER, that any Partner may specify a different address by notifying the General Partner in writing of such different address. Notices to the Partnership shall be delivered at or mailed to its specified office. 12.02. SURVIVAL OF RIGHTS. Subject to the provisions hereof limiting transfers, this Agreement shall be binding upon and inure to the benefit of the Partners and the Partnership and their respective legal representatives, successors, transferees and assigns. 12.03. ADDITIONAL DOCUMENTS. Each Partner agrees to perform all further acts and execute, swear to, acknowledge and deliver all further documents which may be reasonable, necessary, appropriate or desirable to carry out the provisions of this Agreement or the Act. 12.04. SEVERABILITY. If any provision of this Agreement shall be declared illegal, invalid, or unenforceable in any jurisdiction, then such provision shall be deemed to be severable from this Agreement (to the extent permitted by law) and in any event such illegality, invalidity or unenforceability shall not affect the remainder hereof. 12.05. ENTIRE AGREEMENT. This Agreement and exhibits attached hereto constitute the entire Agreement of the Partners and supersede all prior written agreements and prior and contemporaneous oral agreements, understandings and negotiations with respect to the subject matter hereof. 12.06. PRONOUNS AND PLURALS. When the context in which words are used in the Agreement indicates that such is the intent, words in the singular number shall include the plural and the masculine gender shall include the neuter or female gender as the context may require. 41 12.07. HEADINGS. The Article headings or sections in this Agreement are for convenience only and shall not be used in construing the scope of this Agreement or any particular Article. 12.08. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original copy and all of which together shall constitute one and the same instrument binding on all parties hereto, notwithstanding that all parties shall not have signed the same counterpart. 12.09. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia. IN WITNESS WHEREOF, the parties hereto have hereunder affixed their signatures to this Third Amended and Restated Agreement of Limited Partnership, all as of the date first above written. OCWEN GENERAL, INC. By: /s/ WILLIAM C. ERBEY --------------------------- Name: William C. Erbey Title: Chief Executive Officer 42
EXHIBIT A Agreed Value Of Cash Capital Partnership Percentage Partner Contribution Contribution Units Interest - ------- ------------ ------------ ----- -------- GENERAL PARTNER: Ocwen General, Inc. $ 3,005,191 189,650 .9120% 1675 Palm Beach Lakes Blvd. Suite 1000 West Palm Beach, FL 33401 LIMITED PARTNERS: Ocwen Limited, Inc. $297,513,897 18,775,350 90.2859% 1675 Palm Beach Lakes Blvd. Suite 1000 West Palm Beach, FL 33401 Investors Mortgage Insurance Holding $ 30,948,693 1,830,436 8.8021% Company 1675 Palm Beach Lakes Blvd. Suite 1000 West Palm Beach, FL 33401 TOTAL: $331,467,781 20,795,436 100.00%
EXHIBIT B NOTICE OF EXERCISE OF EXCHANGE RIGHT In accordance with Section 8.05 of the Amended and Restated Agreement of Limited Partnership (the "Agreement") of Ocwen Partnership, L.P., the undersigned hereby irrevocably (i) presents for exchange ________ Partnership Units in Ocwen Partnership, L.P. in accordance with the terms of the Agreement and the Exchange Right referred to in Section 8.05 thereof, (ii) surrenders such Partnership Units and all right, title and interest therein, and (iii) directs that the Cash Amount or REIT Shares Amount (as defined in the Agreement) as determined by the General Partner deliverable upon exercise of the Exchange Right be delivered to the address specified below, and if REIT Shares (as defined in the Agreement) are to be delivered, such REIT Shares be registered or placed in the name(s) and at the address(es) specified below. Dated:___________, _____ Name of Limited Partner: ------------------------------ (Signature of Limited Partner) ------------------------------ (Mailing Address) ------------------------------ (City) (State) (Zip Code) Signature Guaranteed by: ------------------------------ If REIT Shares are to be issued, issue to: Please insert social security or identifying number: Name: EX-10.8 4 EXHIBIT 10.8 Exhibit 10.8 ================================================================================ PSA THE BOND MARKET TRADE ASSOCIATION FORM OF MASTER REPURCHASE AGREEMENT SEPTEMBER 1996 VERSION ================================================================================ Dated as of March 30, 1998 By and Among: OCWEN PARTNERSHIP L.P., MERRILL LYNCH MORTGAGE CAPITAL INC. AND MERRILL LYNCH CREDIT CORPORATION 1. APPLICABILITY From time to time the parties hereto may enter into transactions in which one party ("Seller") agrees to transfer to the other ("Buyer") securities or other assets ("Securities") against the transfer of funds by Buyer, with a simultaneous agreement by Buyer to transfer to Seller such Securities at a date certain or on demand, against the transfer of funds by Seller. Each such transaction shall be referred to herein as a "Transaction" and, unless otherwise agreed in writing, shall be governed by this Agreement, including any supplemental terms or conditions contained in Annex I hereto and in any other annexes identified herein or therein as applicable hereunder. 2. DEFINITIONS (a) "Act of Insolvency", with respect to any party, (i) the commencement by such party as debtor of any case or proceeding under any bankruptcy, insolvency, reorganization, liquidation, moratorium, dissolution, delinquency or similar law, or such party seeking the appointment or election of a receiver, conservator, trustee, custodian or similar official for such party or any substantial part of its property, or the convening of any meeting of creditors for purposes of commencing any such case or proceeding or seeking such an appointment or election, (ii) the commencement of any such case or proceeding against such party, or another seeking such an appointment or election, or the filing against a party of an application for a protective decree under the provisions of the Securities Investor Protection Act of 1970, which (A) is consented to or not timely contested by such party, (B) results in the entry of an order for relief, such an appointment or election, the issuance of such a protective decree or the entry of an order having a similar effect, or (C) is not dismissed within 15 days, (iii) the making by such party of a general assignment for the benefit of creditors, or (iv) the admission in writing by such party of such party's inability to pay such party's debts as they become due; (b) "Additional Purchased Securities", Securities provided by Seller to Buyer pursuant to Paragraph 4(a) hereof; (c) "Buyer's Margin Amount", with respect to any Transaction as of any date, the amount obtained by application of the Buyer's Margin Percentage to the Repurchase Price for such Transaction as of such date: (d) "Buyer's Margin Percentage", with respect to any Transaction as of any date, a percentage (which may be equal to the Seller's Margin Percentage) agreed to by Buyer and Seller or, in the absence of any such agreement, the percentage obtained by dividing the Market Value of the Purchased Securities on the Purchase Date by the Purchase Price on the Purchase Date for such Transaction; (e) "Confirmation", the meaning specified in Paragraph 3(b) hereof; (f) "Income", with respect to any Security at any time, any principal thereof and all interest, dividends or other distributions thereon; (g) "Margin Deficit", the meaning specified in Paragraph 4(a) hereof; (h) "Margin Excess", the meaning specified in Paragraph 4(b) hereof; (i) "Margin Notice Deadline", the time agreed to by the parties in the relevant Confirmation, Annex I hereto or otherwise as the deadline for giving notice requiring same-day satisfaction of margin maintenance obligations as provided in Paragraph 4 hereof (or, in the absence of any such agreement, the deadline for such purposes established in accordance with market practice); (j) "Market Value", with respect to any Securities as of any date, the price for such Securities on such date obtained from a generally recognized source agreed to by the parties or the most recent closing bid quotation from such a source, plus accrued Income to the extent not included therein(other than any Income credited or transferred to, or applied to the obligations of, Seller pursuant to Paragraph 5 hereof) as of such date (unless contrary to market practice for such Securities); (k) "Price Differential", with respect to any Transaction 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 date of determination (reduced by any amount of such Price Differential previously paid by Seller to Buyer with respect to such Transaction); (l) "Pricing Rate", the per annum percentage rate for determination of the Price Differential; (m) "Prime Rate", the prime rate of U.S. commercial banks as published in THE WALL STREET JOURNAL (or, if more than one such rate is published, the average of such rates); (n) "Purchase Date", the date on which Purchased Securities are to be transferred by Seller to Buyer; (o) "Purchase Price", (i) on the Purchase Date, the price at which Purchased Securities are transferred by Seller to Buyer, and (ii) thereafter, except where Buyer and Seller agree otherwise, such price increased by the amount of any cash transferred by Buyer to Seller pursuant to Paragraph 4(b) hereof and decreased by the amount of any cash transferred by Seller and Buyer pursuant to Paragraph 4(a) hereof or applied to reduce Seller's obligations under clause (ii) of Paragraph 5 hereof; (p) "Purchased Securities", the Securities transferred by Seller to Buyer in a Transaction hereunder, and any Securiti4es substituted therefor in accordance with Paragraph 9 hereof. The term "Purchased Securities" with respect to any Transaction at any time also shall include Addition Purchased Securities delivered pursuant to Paragraph 4(a) hereof and shall exclude Securities returned pursuant to Paragraph 4(b) hereof; (q) "Repurchase Date", the date on which Seller is to repurchase the Purchased Securities from Buyer, including any date determined by application of the provisions of Paragraph 3(C) or 11 hereof; (r) "Repurchase Price", the price at which Purchased Securities are to be transferred from Buyer to Seller upon termination of a Transaction, which will be determined in each case (including Transactions terminable upon demand) as the sum of the Purchased Price and the Price Differential as of the date of such determination. 2 (s) "Seller's Margin Amount", with respect to any Transaction as of any date, the amount obtained by application the Seller's Margin Percentage to the Repurchase Price for such Transaction as of such date; (t) "Seller's Margin Percentage", with respect to any Transaction as of any date, a percentage (which may be equal to the Buyer's Margin Percentage) agreed to by Buyer and Seller or, in the absence of any such agreement, the percentage obtained by dividing the Market Value of the Purchased Securities on the Purchase Date by the Purchase Price on the Purchase Date for such Transaction. 3. INITIATION; CONFIRMATION; TERMINATION (a) An agreement to enter into a Transaction may be made orally or in writing at the initiation of either Buyer or Seller. On the Purchase Date for the Transaction, the Purchased Securities shall be transferred to Buyer or its agent against the transfer of the Purchase Price to an account of Seller. (b) Upon agreeing to enter into a Transaction hereunder, Buyer or Seller(or both), as shall be agreed, shall promptly deliver to the other party a written confirmation of each Transaction (a "Confirmation"). The Confirmation shall describe the Purchased Securities (including CUSIP number, if any), identify Buyer and Seller and set forth (i) the Purchase Date, (ii) the Purchase Price, (iii) the Repurchase Date, unless the Transaction is to be terminable on demand, (iv) the Pricing Rate or Repurchase Price applicable to the Transaction, and(v) any additional terms or conditions of the Transaction not inconsistent with this Agreement. The Confirmation, together with the Agreement, shall constitute conclusive evidence of the terms agreed between Buyer and Seller with respect to the Transaction to which the Confirmation relates, unless with respect to the Confirmation specific objection is made promptly after receipt thereof. In the event of any conflict between the terms of such Confirmation and this Agreement, this Agreement shall prevail. (c) In the case of Transactions terminable upon demand, such demand shall be made by Buyer or Seller, no later than such time as is customary in accordance with market practice, by telephone or otherwise on or prior to the business day on which such termination will be effective. On the date specified in such demand, or on the date fixed for termination in the case of Transactions having a fixed term, termination of the Transaction will be effected by transfer to Seller or its agent of the Purchased Securities and any Income in respect thereof received by Buyer (and not previously credited or transferred to, or applied to the obligations of, Seller pursuant to Paragraph 5 hereof) against the transfer of the Repurchase Price to an account of Buyer. 4. MARGIN MAINTENANCE (a) If at any time the aggregate Market Value of all Purchased Securities subject to all transactions which a particular party hereto is acting as Buyer is less than the aggregate Buyer's margin Amount for all such Transactions (a "Margin Deficit"), then Buyer may by notice to Seller require Seller in such Transactions, at Seller's option, to transfer to Buyer cash or additional Securities reasonably acceptable to Buyer ("Additional Purchased Securities"), so that the cash and aggregate Market Value of the Purchased Securities, including any such Additional Purchased Securities, will thereupon equal or exceed such aggregate Buyer's margin Amount (decreased by the amount of any Margin Deficit as of such date arising from any Transactions in which such Buyer is acting as the Seller). (b) If at any time the aggregate Market Value of all Purchased Securities subject to all Transactions in which a particular party hereto is acting as Seller exceed the aggregate Seller's margin Amount for all such Transactions at such time (a "Margin Excess"), then Seller may be notice to Buyer require Buyer in such Transactions, at Buyer's option, to transfer cash or Purchased Securities to Seller, so that the aggregate Market Value of the Purchased Securities, after deduction of any such 3 cash or any Purchased Securities so transferred, will thereupon not exceed such aggregate Seller's Margin Amount (increased by the amount of any Margin Excess as of such date arising from any Transactions in which such Seller is acting as Buyer). (c) If any notice is given by Buyer or Seller under subparagraph (a) or (b) of this Paragraph at or before the Margin Notice Deadline on any business day, the party receiving such notice shall transfer cash or Additional Purchased Securities as provided in such subparagraph no later than the close of business in the relevant market on such day. If any such notice is given after the Margin Notice Deadline, the party receiving such notice shall transfer such cash or Securities no later than the close of business in the relevant market on the next business day following such notice. (d) Any cash transferred pursuant to this Paragraph shall be attributed to such Transactions as shall be agreed upon by Buyer and Seller. (e) Seller and Buyer may agree, with respect to any or all Transactions hereunder, that the respective rights of Buyer or Seller (or both) under subparagraphs (a) and (b) of this Paragraph may be exercised only where a Margin Deficit or a Margin Excess, as the case may be, exceeds a specified dollar amount or a specified percentage of the Repurchase Prices for such Transactions (which amount or percentage shall be agreed to by Buyer and Seller prior to entering into any such Transactions). (f) Seller and Buyer may agree, with respect to any or all Transactions hereunder, that the respective rights of Buyer and Seller under subparagraphs (a) and (b) of this Paragraph to require the elimination of a Margin Deficit or a Margin Excess, as the case may be, may be exercised whenever such a Margin Deficit or a Margin Excess exists with respect to any single Transaction hereunder (calculated without regard to any other Transaction outstanding under this Agreement). 5. INCOME PAYMENTS Seller shall be entitled to receive an amount equal to all Income paid or distributed on or in respect of the Securities that is not otherwise received by Seller, to the full extent it would be so entitled if the Securities had not been sold to Buyer. Buyer shall, as the parties may agree with respect to any Transaction (or, in the absence of any such agreement, as Buyer shall reasonably determine in its discretion), on the date such Income is paid or distributed either (i) transfer to or credit to the account of Seller such Income with respect to any Purchased Securities subject to such Transaction or (ii) with respect to Income paid in cash, apply the Income payment or payments to reduce the amount, if any, to be transferred to Buyer by Seller upon termination of such Transaction. Buyer shall not be obligated to take any action pursuant to the preceding sentence (A) to the extent that such action would result in the creation of a Margin Deficit, unless prior thereto or simultaneously therewith Seller transfers to Buyer cash or Additional Purchased Securities sufficient to eliminate such Margin Deficit, or (B) if an Event of Default with respect to Seller has occurred and is then continuing at the time such Income is paid or distributed. 6. SECURITY INTEREST Although the parties intend that all Transactions hereunder by sales and purchases and not loans, in the event any such Transactions are deemed to be loans, Seller shall be deemed to have pledged to Buyer as security for the performance by Seller of its obligations under each such Transaction, and shall be deemed to have granted to Buyer a security interest in, all of the Purchased Securities with respect to all Transactions hereunder and all Income thereon and other proceeds thereof. 7. PAYMENT AND TRANSFER Unless otherwise mutually agreed, all transfers of funds hereunder shall be in immediately available funds. All Securities transferred by one party hereto to the other party (i) shall be in suitable form for transfer or shall be accompanied by duly executed instruments of transfer or assignment in blank and 4 such other documentation as the party receiving possession may reasonably request, (ii) shall be transferred on the book-entry system of a Federal Reserve Bank, or (iii) shall be transferred by any other method mutually acceptable to Seller and Buyer. 8. SEGREGATION OF PURCHASED SECURITIES To the extent required by applicable law, all Purchased Securities in the possession of Seller shall be segregated from other securities in its possession and shall be identified as subject to this Agreement. Segregation may be accomplished by appropriate identification on the books and records of the holder, including a financial or securities intermediary or a clearing corporation. All of Seller's interest in the Purchased Securities shall pass to Buyer on the Purchase Date and, unless otherwise agreed by Buyer and Seller, nothing in this Agreement shall preclude Buyer from engaging in repurchase transactions with the Purchased Securities or otherwise selling, transferring, pledging or hypothecating the Purchased Securities, but no such transaction shall relieve Buyer of its obligations to transfer Purchased Securities to Seller pursuant to Paragraph 3, 4 or 11 hereof, or of Buyer's obligation to credit or pay Income to, or apply Income to the obligations of, Seller pursuant to Paragraph 5 hereof. ---------------------------------------------------------------------------- REQUIRED DISCLOSURE FOR TRANSACTIONS IN WHICH THE SELLER RETAINS CUSTODY OF THE PURCHASED SECURITIES Seller is not permitted to substitute other securities for those subjects to this Agreement and therefore must keep Buyer's securities segregated at all times, unless in this Agreement Buyer grants Seller the right to substitute other securities. If Buyer grants the right to substitute, this means that Buyer's securities will likely be commingled with Seller's own securities during the trading day. Buyer is advised that, during any trading day that Buyer's securities are commingled with Seller's securities, the[will]* [may]** be subject to liens granted by Seller to [its clearing bank]* [third parties]** and may be used by Seller for deliveries on other securities transactions. Whenever the securities are commingled, Seller's ability to resegregate substitute securities for Buyer will be subject to Seller's ability to satisfy [the clearing]* [any]** lien or to obtain substitute securities. ---------------------------------------------------------------------------- *Language to be used under 17 C.F.R. SS403.4(e) if Seller is a government securities broker or dealer other than a financial institution. **Language to be used under 17 C.F.R. SS403.5(d) if Seller is a financial institution. 9. SUBSTITUTION (a) Seller may, subject to agreement with and acceptance by Buyer, substitute other Securities for any Purchased Securities. Such substitution shall be made by transfer to Buyer of such other Securities and transfer to Seller of such Purchased Securities. After substitution, the substituted Securities shall be deemed to be Purchased Securities. (b) In Transactions in which Seller retains custody of Purchased Securities, the parties expressly agree that Buyer shall be deemed, for purposes of subparagraph (a) of this Paragraph, to have agreed to and accepted in this Agreement substitution by Seller of other Securities for Purchased Securities; PROVIDED, HOWEVER, that such other Securities shall have a Market Value at least equal to the Market Value of the Purchased Securities for which they are substituted. 10. REPRESENTATIONS 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 Transactions contemplated hereunder and to perform its obligations hereunder and has taken all necessary action to authorize such execution, delivery and per- 5 formance, (ii) it will engage in such Transactions as principal (or, if agreed in writing, in the form of an annex hereto or otherwise, 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) it has obtained all authorizations of any governmental body required in connection with this Agreement and the transactions hereunder and such authorizations are in full force and effect and (v) the execution, delivery and performance of this Agreement and the Transactions hereunder will not violate any law, ordinance, charter, by-law or rule applicable to it or any agreement by which it is bound or by which any of its assets are affected. On the Purchase Date for any Transaction Buyer and Seller shall each be deemed to repeat all the foregoing representations made by it. 11. EVENTS OF DEFAULT In the event that (i) Seller fails to transfer or Buyer fails to purchase Purchased Securities upon the applicable Purchase Date, (ii) Seller fails to repurchase or Buyer fails to transfer Purchased Securities upon the applicable Repurchase Date, (iii) Seller or Buyer fails to comply with Paragraph 4 hereof, (iv) Buyer fails, after one business day's notice, to comply with Paragraph 5 hereof, (v) an Act of Insolvency occurs with respect to Seller or Buyer, (vi) any representation made by Seller or Buyer shall have been incorrect or untrue in any material respect when made or repeated or deemed to have been made or repeated, or (vii) Seller or Buyer shall admit to the other its inability to, or its intention not to perform any of its obligations hereunder (each an "Event of Default"): (a) The nondefaulting party may, at its option (which option shall be deemed to have been exercised immediately upon the occurrence of an Act of Insolvency), declare and Event of Default to have occurred hereunder and, upon the exercise or deemed exercise of such option, the Repurchase Date for each Transaction hereunder shall, if it has not already occurred, be deemed immediately to occur (except that, in the event that the Purchase Date for any Transaction has not yet occurred as of the date of such exercise or deemed exercise, such Transaction shall be deemed immediately canceled). The nondefaulting party shall (except upon the occurrence of an Act of Insolvency) give notice to the defaulting party of the exercise of such option as promptly as practicable. (b) In all Transactions in which the defaulting party is acting as Seller, if the nondefaulting party exercises or is deemed to have exercised the option referred to in subparagraph (a) of this Paragraph, (i) the defaulting party's obligations in such Transactions to repurchase all Purchased Securities, at the Repurchase Price therefor on the Repurchase Date determined in accordance with subparagraph (a) of the Paragraph, shall thereupon become immediately due and payable, (ii) all Income paid after such exercise or deemed exercise shall be retained by the nondefaulting party and applied to the aggregate unpaid Repurchase Prices and any other amounts owing by the defaulting party hereunder, and (iii) the defaulting party shall immediately deliver to the nondefaulting party any Purchased Securities subject to such Transactions then in the defaulting party's possession or control. (c) In all Transactions in which the defaulting party is acting as Buyer, upon tender by the nondefaulting party of payment of the aggregate Repurchase Prices for all such Transactions, all right, title and interest in and entitlement to all Purchased Securities subject to such Transactions shall be deemed transferred to the nondefaulting party, and the defaulting party shall deliver all such Purchased Securities to the nondefaulting party. 6 (d) If the nondefaulting party exercises or is deemed to have exercised the option referred to in subparagraph (a) of this Paragraph, the nondefaulting party, without prior notice to the defaulting party, may: (i) as to Transactions in which the defaulting party is acting as Seller, (A) immediately sell, in an recognized market (or otherwise in a commercially reasonable manner) at such price or prices as the nondefaulting party may reasonably deem satisfactory, any or all Purchased Securities subject to such Transactions and apply the proceeds thereof to the aggregate unpaid Repurchase Prices and any other amounts owing by the defaulting party hereunder or (B) in its sole discretion elect, in lieu of selling all or a portion of such Purchased Securities, to give the defaulting party credit for such Purchased Securities in an amount equal to the price therefor on such date, obtained from a generally recognized source or the most recent closing bid quotation from such a source, against the aggregate unpaid Repurchase Prices and any other amounts owing by the defaulting party hereunder; and (ii) as to Transactions in which the defaulting party is acting as Buyer, (A) immediately purchase, in a recognized market (or otherwise in a commercially reasonable manner) at such price or prices as the nondefaulting party may reasonably deem satisfactory, securities ("Replacement Securities") of the same class and amount as any Purchased Securities that are not delivered by the defaulting party to the nondefaulting party as required hereunder or (B) in its sole discretion elect, in lieu of purchasing Replacement Securities, to be deemed to have purchased Replacement Securities at the price therefor on such date, obtained from a generally recognized source or the most recent closing offer quotation from such a source. Unless otherwise provided in Annex I, the parties acknowledge and agree that (1) the Securities subject to any Transaction hereunder are instruments traded in a recognized market, (2) in the absence of a generally recognized source for prices or bid or offer quotations for any Security, the nondefaulting party may establish the source therefor in its sole discretion and (3) all prices, bids and offers shall be determined together with accrued Income (except to the extent contrary to market practice with respect to the relevant Securities). (e) As to Transactions in which the defaulting party is acting as Buyer, the defaulting party shall be liable to the nondefaulting party for any excess of the price paid (or deemed paid) by the nondefaulting party for Replacement Securities over the Repurchase Price for the Purchased Securities replaced thereby and for any amounts payable by the defaulting party under Paragraph 5 hereof or otherwise hereunder. (f) For purposes of this Paragraph 11, the Repurchase Price for each Transaction hereunder in respect of which the defaulting party is acting as Buyer shall not increase above the amount of such Repurchase Price for such Transaction determined as of the date of the exercise or deemed exercise by the nondefaulting party of the option referred to in subparagraph (a) of this Paragraph. (g) The defaulting party shall be liable to the nondefaulting party for (i) the amount of all reasonable legal or other expenses incurred by the nondefaulting party in connection with or as a result of an Event of Default, (ii) damages in an amount equal to the cost (including all fees, expenses and commissions) of entering into replacement transactions and entering into or terminating hedge transactions in connection with or as a result of an Event of Default, and (iii) any other loss, damage, cost or expense directly arising or resulting from the occurrence of an Event of Default in respect of a Transaction. (h) To the extent permitted by applicable law, the defaulting party shall be liable to the nondefaulting party for interest on any amounts owing by the defaulting party hereunder, from the date the defaulting party becomes liable for such amounts hereunder until such amounts are (i) paid in full 7 by the defaulting party or (ii) satisfied in full by the exercise of the nondefaulting party's rights hereunder. Interest on any sum payable by the defaulting party to the nondefaulting party under this Paragraph 11(h) shall be at a rate equal to the greater of the Pricing Rate for the relevant Transaction or the Prime Rate. (i) The nondefaulting party shall have, in addition to its rights hereunder, any rights otherwise available to it under any other agreement or applicable law. 12. SINGLE AGREEMENT Buyer and Seller acknowledge that, and have entered hereinto 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 have been made in consideration of each other. 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. 13. NOTICES AND OTHER COMMUNICATIONS Any and all notices, statements, demands or other communications hereunder may be given by a party to the other by mail, facsimile, telegraph, messenger or otherwise to the address specified in Annex II hereto, or so sent to such party at any other place specified in a notice of change of addess hereafter received by the other. All notices, demands and requests hereunder may be made orally, to be confirmed promptly in writing, or by other communication as specified in the preceding sentence. 14. ENTIRE AGREEMENT; SEVERABILITY This Agreement shall supersede any existing agreements between the parties containing general terms and conditions for repurchase transactions. 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. 15. NON-ASSIGNABILITY; TERMINATION (a) The rights and obligations of the parties under this Agreement and under any Transaction shall not be assigned by either party without the prior written consent of the other party, and any such assignment without the prior written consent of the other party shall be null and void. Subject to the foregoing, this Agreement and any Transactions shall be binding upon and shall inure to the benefit of the parties and their respective successors and assigns. This Agreement may be terminated by either party upon giving written notice to the other, except that this Agreement shall, notwithstanding such notice, remain applicable to any Transactions then outstanding. (b) Subparagraph (a) of this Paragraph 15 shall not preclude a party from assigning, charging or otherwise dealing with all or any part of its interest in any sum payable to it under Paragraph 11 hereof. 16. GOVERNING LAW This Agreement shall be governed by the laws of the State of New York without giving effect to the conflict of law principles thereof. 8 17. 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. Without limitation on any of the foregoing, the failure to give a notice pursuant to Paragraph 4(a) or 4(b) hereof will not constitute a waiver of any right to do so at a later date. 18. USE OF EMPLOYEE PLAN ASSETS (a) If assets of an employee benefit plan subject to any provision of the Employee Retirement Income Security Act of 1974 ("ERISA") are intended to be used by either party hereto (the "Plan Party") in a Transaction, the Plan Party shall so notify the other party prior to the Transaction. The Plan Party shall represent in writing to the other party that the Transaction does not constitute a prohibited transaction under ERISA or is otherwise exempt therefrom, and the other party may proceed in reliance thereon but shall not be required so to proceed. (b) Subject to the last sentence of subparagraph (a) of this Paragraph, any such Transaction shall proceed only if Seller furnishes or has furnished to Buyer its most recent available audited statement of its financial condition and its most recent subsequent unaudited statement of its financial condition. (c) By entering into a Transaction pursuant to this Paragraph, Seller shall be deemed (i) to represent to Buyer that since the date of Seller's latest such financial statements, there has been no material adverse change in Seller's financial condition which Seller has not disclosed to Buyer, and (ii) to agree to provide Buyer with future audited and unaudited statements of its financial condition as they are issued, so long as it is a Seller in any outstanding Transaction involving a Plan Party. 19. INTENT. (a) The parties recognize that each Transaction is a "repurchase agreement" as that term is defined in Section 101 of Title 11 of the United States Code, as amended (except insofar as the type of Securities subject to such Transaction or the term of such Transaction would render such definition inapplicable), and a "securities contract" as that term is defined in Section 741 of Title 11 of the United States Code, as amended (except insofar as the type of assets subject to such Transaction would render such definition inapplicable). (b) It is understood that either party's right to liquidate Securities delivered to it in connection with Transactions hereunder or to exercise any other remedies pursuant to Paragraph 11 hereof is a contractual right to liquidate such Transaction as described in Section 555 and 559 of Title 11 of the United States Code, as amended. (c) The parties agree and acknowledge that if a party hereto is an "insured depository institution," as such term is defined in the Federal Deposit Insurance Act, as amended ("FDIA"), then each Transaction hereunder is a "qualified financial contract," as that term is defined in FDIA and any rules, orders or policy statements thereunder (except insofar as the type of assets subject to such Transaction would render such definition inapplicable). (d) It is understood that this Agreement constitutes a "netting contract" as defined in and subject to Title IV of the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") and each payment entitlement and payment obligation under any Transaction hereunder shall constitute a "covered contractual payment entitlement" or "covered contractual payment obligation", 9 respectively, as defined in and subject to FCIDIA (except insofar as one or both of the parties is not a "financial institution" as that term is defined in FDICIA). 20. DISCLOSURE RELATING TO CERTAIN FEDERAL PROTECTIONS The parties acknowledge that they have been advised that: (a) in the case of Transactions in which one of the parties is a broker or dealer registered with the Securities and Exchange Commission ("SEC") under Section 15 of the Securities Exchange Act of 1934 ("1934 Act"), the Securities Investor Protection Corporation has taken the position that the provisions of the Securities Investor Protection Act of 1970 ("SIPA") do not protect the other party with respect to any Transaction hereunder. (b) in the case of Transactions in which one of the parties is a government securities broker or a government securities dealer registered with the SEC under Section 15C of the 1934 Act, SIPA will not provide protection to the other party with respect to any Transaction hereunder; and (c) in the case of Transactions in which one of the parties is a financial institution, 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 or the National Credit Union Share Insurance Fund, as applicable. OCWEN PARTNERSHIP L.P. MERRILL LYNCH MORTGAGE CAPITAL INC. By: By: ------------------------- ------------------------- Title: Title: ---------------------- ---------------------- Date: Date: ------------------------- ----------------------- MERRILL LYNCH CREDIT CORPORATION By: ------------------------- Title: ---------------------- Date: ----------------------- 10 ANNEX I SUPPLEMENTAL TERMS TO MASTER REPURCHASE AGREEMENT, DATED AS OF MARCH 30, 1998, AMONG MERRILL LYNCH MORTGAGE CAPITAL INC. AND MERRILL LYNCH CREDIT CORPORATION AND OCWEN PARTNERSHIP L.P. 1. APPLICABILITY. These Supplemental Terms (the "Supplemental Terms") to Master Repurchase Agreement (the "Repurchase Agreement") modify the terms and conditions of the Repurchase Agreement and the terms under which the parties hereto may, from time to time, enter into Transactions (the Repurchase "Agreement"). This Agreement shall be read, taken and construed as one and the same instrument. Capitalized terms used in these Supplemental Terms and not otherwise defined herein shall have the meanings set forth in the Repurchase Agreement. 2. ADDITIONAL DEFINITIONS. (a) Notwithstanding the definition set forth in Paragraph 2(j) of the Repurchase Agreement, with respect to any Eligible Asset, the "Market Value" shall be the price determined, as of any date of determination, to be the fair market value thereof as determined solely by Buyer; PROVIDED, HOWEVER, that (i) a Market Value of zero shall be assigned to each Eligible Asset that does not at any time comply with the representation and warranty of Seller set forth in Paragraph 6(b)(xii) of these Supplemental Terms, (ii) the Market Value of Eligible Assets shall not in any event exceed the outstanding principal amount thereof, (iii) any Eligible Asset that has been subject to this Agreement for more than 180 consecutive calendar days in the aggregate shall have a Market Value of zero and (iv) any Eligible Asset with respect to which there is a material breach of a representation or warranty that is not cured within any applicable cure period shall have a market Value of zero until such time as such breach of representation or until such time as such breach of representation or warranty is cured and thereafter shall not be subject to clause (iv) of this proviso for determination of Market Value until such time as another breach of representation or warranty relating thereto occurs. (b) "A Quality Non-Conforming Mortgage Loans" shall mean single family residential mortgage loans that qualify under the "A First Lien Standard Program Parameters" set forth in Seller's Guide. (c) "B Quality Non-Conforming Mortgage Loans" shall mean single family residential mortgage loans that qualify under the "B First Lien Standard Program Parameters" as set forth in Seller's Guide. (d) "Book Net Worth" shall refer to the equity of Seller as determined in accordance with GAAP. (e) "Borrower" shall refer to the obligor of any Eligible Asset. (f) "Buyer" shall mean MLCC, in the case of Eligible Assets secured by second or third liens, and MLMCI in all other cases. (g) "Buyer's Margin Percentage" shall refer to the percentage used to calculate Buyer's margin Amount, which shall, for each Eligible Asset, equal 95%. (h) "C Quality Non-Conforming Mortgage Loans" shall mean single family residential mortgage loans that qualify under the "C First Lien Standard Program Parameters" as set forth in Seller's Guide. (i) "Code" shall refer to the Internal Revenue Code of 1986, as amended. (j) "Computer Tape" shall have the meaning set forth in the Custodial Agreement. (k) "Custodial Agreement" shall refer to the Tri-Party Custodial Agreement, dated as of March 30, 1998, by and among Seller, Buyer and the Custodian, providing for the custody of records relating to Eligible Assets, as the same may be amended, supplemented or otherwise modified from time to time with the written consent of the parties thereto. (l) "Custodial Confirmation Statement" shall refer to the confirmation statement issued by the party named as custodian in the Custodial Agreement that evidences ownership of the Eligible Assets indicated thereon. 2 (m) "Custodian" shall refer to Texas Commerce Bank National Association and its permitted successors as custodian under the Custodial Agreement. (n) "D Quality Non-Conforming Mortgage Loans" shall mean single family residential mortgage loans that qualify under the "D First Lien Standard Program Parameters" as set forth in Seller's Guide. (o) "Delivery Date" shall have the meaning set forth in the Custodial Agreement. (p) "Eligible Assets" shall mean Home Equity Loans, Mortgage Loans and Jumbo Mortgage Loans subject to this Agreement. (q) "GAAP" shall mean generally accepted accounting principles consistently applied. (r) "Home Equity Loans" shall refer to the mortgage loans secured by first or second liens on single family residential real property (including, without limitation, condominiums and planned unit developments) certain documents relating to which have been delivered to the Custodian pursuant to the Custodial Agreement. (s) "Jumbo Mortgage Loans" shall refer to any Mortgage Loan in excess of $500,000 and otherwise so designated by Seller and acceptable to Buyer, in its sole discretion, and which except with respect to the original principal balance thereof, have been underwritten in accordance with the standards of the Seller. (t) "LIBOR" shall mean the London Interbank Offered Rate for United States Dollar deposits as set forth on page 8695 of Knight-Ridder as of 8:00 a.m., New York City time, on the date of determination for the period most closely corresponding to the term of the related Transaction. (u) "List of Eligible Assets" shall refer to the List of Home Equity Loans, the List of Mortgage Loans or the List of Jumbo Mortgage Loans, as applicable. (v) "List of Home Equity Loans" shall be defined in Paragraph 3 of these Supplemental Terms. (w) "List of Jumbo Mortgage Loans" shall be as defined in Paragraph 3 of these Supplemental Terms. (x) "List of Mortgage Loans" shall be as defined in Paragraph 3 of these Supplemental Terms. 3 (y) "Margin Notice Deadline" shall mean 10:00 a.m., New York City time. (z) "MLMCI" shall refer to Merrill Lynch Mortgage Capital Inc. (aa) "Monthly Report" shall mean the monthly report, substantially in the form attached hereto as Exhibit C, submitted by Seller to Buyer. (ab) "Mortgage" shall mean the mortgage or other instrument creating a lien on the property securing a Note. (ac) "Mortgage Loan" shall mean an A Quality Non-Conforming Mortgage Loan, a B Quality Non-Conforming Mortgage Loan, a C Quality Non-Conforming Mortgage Loan or a D Quality Non-Conforming Mortgage Loan. (ad) "Note" shall mean the note or other evidence of indebtedness of a Borrower secured by a Mortgage. (ae) "Ocwen" shall mean Ocwen Asset Investment Corp., the parent of Seller. (af) "Pricing Rate" shall mean the per annum percentage rate for the determination of the Price Differential, which rate shall be (i) 90 basis points in excess of LIBOR for the period from and including the related Purchase Date to but excluding the related Delivery Date and (ii) 65 basis points in excess of LIBOR thereafter. (ag) "Qualified Insurer" shall refer to a pool insurer customarily used by Seller and mutually agreeable to Seller and Buyer. (ah) "Securities" shall be deemed to mean Eligible Assets and, notwithstanding the use of the term "Securities" in the Master Repurchase Agreement, in no event shall such Eligible Assets be deemed to be securities for the purposes of any securities or blue sky laws. (ai) "Seller" shall refer to Ocwen Partnership L.P. (aj) "Seller's Guide" shall refer to the underwriting guide of Seller for Mortgage Loans, Jumbo Mortgage Loans or Home Equity Loans, as applicable, as such guide may be amended from time to time and in the form most recently accepted in writing by Buyer in its reasonable business judgment. (ak) "Tangible Net Worth" shall refer to the sum of equity and subordinated debt of Seller determined in accordance with GAAP less the sum of (i) intercompany receivables, (ii) 4 loans to officers or employees of Seller, (iii) good will and (iv) deferred taxes. (al) "Transaction" shall, in addition to the definition set forth in the Repurchase Agreement, refer to substitutions pursuant to Paragraph 8 of the Repurchase Agreement. 3. CONFIRMATIONS. Each Confirmation shall be binding upon the parties hereto unless written notice of objection is given by the objecting party to the other party within two (2) business days after the objecting party's receipt of such Confirmation. In the case of Transactions involving Jumbo Mortgage Loans, Home Equity Loans or Mortgage Loans the Eligible Assets shall be identified on a detailed listing to be provided by Seller to Buyer (a "List of Jumbo Mortgage Loans" for Jumbo Mortgage Loan, a "List of Home Equity Loans' for Home Equity Loans and a "List of Mortgage Loans" for Mortgage Loans) and may be identified in the related Confirmation by reference to such lists. 4. MARGIN MAINTENANCE. (a) Paragraphs 4(a) and 4(b) of the Repurchase Agreement are hereby modified to provide that if the notice to be given by Buyer or Seller, as the case may be, is given at or prior to the Margin Notice deadline, the transfer of the Additional Purchased Securities from Seller to Buyer pursuant to Paragraph 4(a) of these Supplemental Terms or the transfer of cash or Purchased Securities from Buyer to Seller pursuant to Paragraph 4(b) of these Supplemental Terms shall be made prior to the close of business in New York City on the date of such notice, and if such notice is given after the Margin Notice Deadline, Seller shall transfer the Additional Eligible Assets prior to the close of business in New York City on the business day immediately following the date of such notice. The Custodial Agreement shall set forth further terms and provisions relating to Buyer's and Seller's rights and obligations under Paragraph 4 of the Repurchase Agreement. (b) Paragraph 4 of the Repurchase Agreement is hereby modified by adding the following at the end thereof: "(f) In the event that Seller fails to comply with the provisions of this Paragraph 4 and such failure is not due to the acts or omissions of Buyer, Buyer shall not be obligated to enter into any additional Transactions hereunder after the 5 date of such failure unless such failure is cured or waived. 5. INCOME PAYMENTS. Paragraph 5 of the Repurchase Agreement is hereby modified to provide that, so long as no Event of Default shall have occurred and be continuing, Seller shall be entitled to all payments of principal and interest and principal prepayments payable to the holder of the Eligible Assets. Upon the occurrence of an Event of Default, payment of principal and interest and principal prepayments (without deducting any amount for the Servicing Fee) shall be paid directly to Buyer in accordance with the terms of this Agreement. 6. INTENT OF THE PARTIES; SECURITY INTEREST. (a) In the event, for any reason, any Transaction is construed by any court as a secured loan rather than a purchase and sale, the parties intend that Seller shall have granted to Buyer a perfected first priority security interest in all of the Eligible Assets. (b) Seller shall pay all fees and expenses associated with perfecting such security interest including, without limitation, the cost of filing financing statements under the Uniform Commercial Code and recording assignment of mortgage as and when reasonably requested by Buyer. (c) Notwithstanding any election by buyer to engage in repurchase transactions with the Eligible Assets or if Buyer otherwise elects to pledge or hypothecate such Eligible Assets, upon demand by Seller and upon the satisfaction of the conditions hereunder for the release of Eligible Assets, Buyer shall redeliver to seller those Eligible Assets specifically identified to Buyer by Seller free and clear of any liens or encumbrances created by Buyer. (d) Notwithstanding Paragraph 8(b) of the Repurchase Agreement, it is the intention of the parties that the Custodian, rather than Seller, shall maintain custody of the Purchased Securities pursuant to the Custodial Agreement. 7. REPRESENTATIONS, WARRANTIES AND COVENANTS. (a) Each party represents and warrants, and shall on and as of the Purchase Date of any Transaction be deemed to represent and warrant, as follows: (i) The execution, delivery and performance of this Agreement and the performance of each Transaction 6 Do not and will not result in or require the creation of any lien, security interest or other charge or encumbrance (other than pursuant to this Agreement) upon or with respect to any of its properties: and (ii) This Agreement is, and each Transaction when entered into under this Agreement will be, a legal, valid and binding obligation of it enforceable against it in accordance with the terms of this Agreement, subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditor's rights and to the general principles of equity (regardless of whether considered in proceeding in equity or at law). (b) Seller represents and warrants to Buyer, and shall on and as of the Purchase Date of any Transaction be deemed to represent and warrant, as follows: (i) The documents disclosed by Seller to Buyer pursuant to this Agreement are either original documents or genuine and true copies thereof; (ii) Seller is a separate and independent entity from the Custodian named in the Custodial Agreement, Seller does not own a controlling interest in such Custodian either directly or through affiliates and no director or officer of Seller is also a director or officer of such Custodian. (iii) None of the Purchase Price for any Eligible Assets will be used either directly or indirectly to acquire any security, as that term is defined in Regulation T of the Regulations of the Board of Governors of the Federal Reserve System, and Seller has not taken any action that might cause any Transaction to violate any regulation of the Federal Reserve Board; (iv) Each Eligible Asset conforms to the underwriting standards set forth in Seller's Guide; all Eligible Assets will comply with the applicable representations and warranties attached as Exhibit B hereto; (v) Each Eligible Asset was originated by Seller or purchased by Seller from Seller's list of approved originators except as disclosed to Buyer in writing; 7 (vi) Each Eligible Asset was underwritten in accordance with Seller's Guide furnished by Seller to Buyer and accepted by Buyer in writing, and no change to such underwriting standards has occurred since the date of the last written revision to such standards was furnished to Buyer by Seller or on behalf of Seller and accepted by Buyer in writing; (vii) Since the date of the most recent financial statement of Seller, delivered by it pursuant to Paragraph 10 of these Supplemental Terms, there has been no material adverse change in the financial condition or results of operations of Seller; (viii) Seller shall be at the time it delivers any Eligible Assets for any Transaction, and shall continue to be, through the Purchase Date relating to each such Transaction, the legal and beneficial owner of such Eligible Assets, free of any lien, security interest, option or encumbrance except for the security interest created by or pursuant to this Agreement and except for liens disclosed in writing to Buyer prior to the Purchase Date for the related Transaction and with respect to which Buyer has not objected; (ix) Seller has taken all action with respect to this Agreement, the Custodial Agreement and the transactions contemplated hereby and thereby in order to comply with the provisions of all applicable law; and (x) No eligible Assets are more than thirty (30) days delinquent as of the related reporting period. (c) Seller covenants with Buyer, from and after the date of this Agreement, as follows: (i) Seller will take all actions necessary with respect to this Agreement, the Custodial Agreement and the transactions contemplated hereby and thereby in order to maintain compliance with the provisions of all applicable law; (ii) Seller shall immediately notify Buyer in writing if an Event of Default or an event contemplated by Paragraph 8 of these Supplemental Terms shall have occurred; (iii) Seller shall deliver a Computer Tape relating to the Custodial Agreement to Buyer with such 8 frequency as Buyer may require but in no event less frequently than monthly; (iv) No Eligible Asset shall be subject to this Agreement for more than 180 consecutive calendar days in aggregate; (v) Seller shall deliver to Buyer a Monthly Report on the first business day of each month during the term of this Agreement; (vi) Seller shall comply with the provisions of Paragraph 6(b) of these Supplemental Terms; (vii) Seller shall promptly notify Buyer upon Seller's becoming aware that any of Seller's credit facilities shall terminate or debt become due prior to its stated maturity; (viii) Unless Seller shall be in compliance with all credit covenants made by it hereunder, Seller shall not repay any of its subordinated debt during the term of this Agreement or while any amounts are payable to Buyer hereunder; and (ix) This Agreement and the terms hereof are intended to be confidential and the Seller shall no disclose this Agreement or its terms (including any public filings with any regulatory body) without the express written consent of the Buyer. 8. EVENTS OF DEFAULT. (a) The term "Event of Default" shall, in addition to the definition set forth in the Repurchase Agreement and with respect to the applicable party, include the following events: (i) Any governmental or self-regulatory authority shall take possession of Buyer or Seller or their property or appoint any receiver, conservator or other official, or such party shall take any action to authorize any of the actions set forth in this clause (i). (ii) Either Buyer or Seller shall have reasonably determined that the other party is or will be unable to meet its commitments under this Agreement, shall have notified the other party of such determination and such party shall not have responded with appropriate information to the 9 contrary to the reasonable satisfaction of the inquiring party within 36 hours after notice. (iii) This Agreement shall for any reason cease to create a valid, first priority security interest in any of the Eligible Assets purported to be covered thereby. (iv) A final, non-appealable judgment by any competent court in the United States of America for the payment of money in an amount of a least $100,000 is rendered against Buyer or Seller, and the same remains undischarged by the applicable party for a period of sixty (60) days during which execution of such judgment is not effectively stayed. (v) Any representations or warranty made by Buyer or Seller in this Agreement or the Custodial Agreement shall have been incorrect or untrue in any material respect when made or repeated or when deemed to have been made or repeated and the non-defaulting party shall have been materially and adversely affected thereby. (vi) Any covenant made by Buyer or Seller in this Agreement or the Custodial Agreement shall have been breached in any material respect and the non-defaulting party shall have been materially and adversely affected thereby. (vii) Any event of default or any event which with notice, the passage of time or both shall constitute an event of default shall occur and be continuing under any repurchase or other financing agreement for borrowed funds or indenture for borrowed funds by which Buyer or Seller is bound or affected shall occur and be continuing including, without limitation, any such agreement of one party to which the other party is a party. (viii) Seller shall experience losses or changes in its financial condition (exclusive of amounts withdrawn for payment of taxes due and payable by the shareholders of Seller) that cause its Book Net Worth for any calendar quarter to be less than or equal to 80% of its Tangible Net Worth as of six calendar months prior to such period. (ix) The ratio of Seller's total assets to Seller's Tangible Net Worth shall at any time exceed 12:1. 10 (x) Seller's ratio of total liabilities to Book Net Worth shall at any time exceed 8:1. (b) Upon the occurrence and during the continuance of an Event of Default; (i) All rights of the defaulting party to receive payments which it would otherwise be authorized to receive pursuant to Paragraph 5 of these Supplemental Terms shall be suspended, and all such rights shall thereupon become vested in the non-defaulting party, which shall thereupon have the sole right to receive such payments and apply them to the aggregate unpaid amounts owed to the non-defaulting party by the defaulting party. (ii) All payments which are received by the defaulting party contrary to the provisions of the preceding clause (i) shall be received in trust for the benefit of the non-defaulting party and shall be segregated from other funds of the defaulting party. (iii) The non-defaulting party may exercise any self-help remedies permitted by applicable law. (iv) The non-defaulting party shall be entitled to the right of set off with respect to any amounts owed by the defaulting party to the non-defaulting party under any contract, margin account or other arrangement. 9. EVENTS OF TERMINATION. (a) At the option of Buyer, exercised by thirty-six (36) hours advance written notice to Seller, the Repurchase Date for each Transaction under this Agreement shall be deemed to immediately occur in the event that: (i) In the judgment of Buyer a material adverse change shall have occurred in the business, operations, properties, prospects or condition (financial or otherwise) of Seller; (ii) Buyer shall request written assurances as to the Financial well-being of Seller an such assurances shall not have been provided within thirty-six (36) hours of such request; (iii) Seller shall be in default with respect to any normal and customary covenants under any debt contract or agreement, any servicing agreement or 11 any lease to which it is a party, which default could materially adversely affect the financial condition of Seller (which covenants include, but are not limited to, an Act of Insolvency of Seller or the failure of Seller to make required payments under such contract or agreement as they become due); (iv) The senior debt obligations or short-term debt obligations of Merrill Lynch & Co., Inc. shall be rated below the four highest generic grades (without regard to any pluses or minuses reflecting gradations within such generic grades) by any nationally recognized statistical rating organization; (v) Any representation or warranty made by Seller in this Agreement or any Custodial Agreement shall have been materially incorrect or untrue when made or repeated or when deemed to have been made or repeated and such circumstance shall not have been cured within twenty-four (24) hours of Seller having received notice; (vi) Seller shall fail to promptly notify Buyer or (i) the acceleration of any debt obligation or the termination of any credit facility of Seller; (ii) the amount and maturity of any such debt assumed after the date hereof; (iii) any adverse developments with respect to pending or future litigation involving Seller; and (iv) any other developments which might materially and adversely affect the financial condition of Seller; or (vii) Seller shall have failed to comply in any material respect with its obligations under the Custodial Agreement. (b) The events specified in Paragraph 9(a) of these Supplemental Terms which may, at the option of Buyer, cause an acceleration of the Repurchase Date for a Transaction shall be in addition to any other rights of Buyer to cause such an acceleration under this Agreement. 10. FINANCIAL STATEMENTS. Seller shall have provided Buyer: (a) as soon as available and in any event within sixty (60) days after the close of each of the first three (3) quarters of each fiscal year of Seller, Seller's unaudited balance sheet and statement of income, subject to normal recurring year-end audit adjustments, and as 12 prepared in accordance with generally accepted accounting principles consistently applied; (b) as soon as available and in any event within one hundred and twenty (120) days after the close of each fiscal year of Seller, a balance sheet of Seller, a statement of income of Seller and a statement of changes in financial position of Seller as at the end of and for the fiscal year just closed, setting forth the corresponding figures of the previous fiscal year, if applicable, in comparative form, all in reasonable detail and certified in writing (without any qualification or exception deemed material by Buyer) by an authorized officer of Seller; (c) as soon as available and in any event within sixty(60) days after the close of each of the first three (3) quarters of each fiscal year of Ocwen, the applicable quarterly Form 10-Q as filed with the Securities and Exchange Commission, including the consolidated statements for Ocwen, subject to normal recurring year-end audit adjustments, and as prepared in accordance with generally accepted accounting principles consistently applied; and (d) as soon as available and in any event within one hundred and twenty (120) days after the close of each fiscal year of Ocwen, a consolidating balance sheet of Ocwen, a consolidating statement of income of Ocwen and a consolidating statement of changes in financial position of Ocwen as at the end of and for the fiscal year just closed, setting forth the corresponding figures of the previous fiscal year, if applicable, in comparative form, all in reasonable detail and certified (without any qualification or exception deemed material by Buyer) by independent public accountants selected by Ocwen and reasonably satisfactory to Buyer (which requirement Buyer hereby agrees may be satisfied by Ocwen's audited financial statement included in an Annual Report on Form 10-K and filed with the Securities and Exchange Commission). Each delivery of Eligible Assets by Seller to Buyer hereunder will constitute a representation by Seller that there has been no material adverse change in Seller's financial condition not disclosed to Buyer since the date of Ocwen's most recent financial statement. Seller shall provide Buyer, from time to time at Seller's expense, with such information of a financial or operational nature respecting Seller as Buyer may reasonably request promptly upon receipt of such request. Buyer shall maintain the confidentiality of all financial information provided by Seller to Buyer and shall not make such 13 information available to any other person or entity (except as otherwise required by a court of competent jurisdiction) without the prior written consent of Seller, which consent shall not be unreasonably withheld. 11. MINIMUM AND MAXIMUM TRANSACTION AMOUNTS; MARGIN. With respect to all Transactions hereunder: (a) The minimum amount of any Transaction under this Agreement shall have an aggregate Repurchase Price of $1,000,000; (b) The aggregate outstanding Repurchase Price for the Eligible Assets subject to this Agreement at any one time shall not exceed $125,000,000; (c) The amount of the outstanding Repurchase Price attributable to C Quality Non-Conforming Mortgage Loans and D Quality Non-Conforming Mortgage Loans shall not, in the aggregate, exceed $20,000,000; (d) Buyer's Margin Percentage with respect to each category of Eligible Assets shall be as stated in Paragraph 2(f) of these Supplemental Terms; and (e) The amount of the outstanding Repurchase Price attributable to Jumbo Mortgage Loans, as of any date of determination, shall not, in the aggregate, exceed $20,000,000. 12. REPURCHASE PRICE; PRICE DIFFERENTIAL. The Repurchase Price as of any date shall include that portion of the Price Differential that has accrued but has not been paid. The Price Differential shall accrue, be calculated and be compounded on a daily basis for each Purchased Security (such calculation to be made on the basis of a 360-day year and the actual number of days elapsed). Any provision of this Agreement to the contrary notwithstanding, the Price Differential shall be payable monthly in arrears to Buyer with respect to each Transaction. Any provisions of this Agreement to the contrary notwithstanding, the Price Differential for any Transaction shall, unless otherwise agreed by the parties, be equal to the product of (i) the Repurchase Price (which shall be the Purchase Price increased by the accrued and unpaid Price Differential) and (ii) the Pricing Rate (based upon a 360 day year and the actual number of days). Payment of the Price Differential to Buyer shall be made by wire transfer in immediately available funds. 14 13. ADDITIONAL INFORMATION; CONFIDENTIALITY. (a) At any reasonable time, Seller shall permit Buyer, its agents or attorneys, to inspect and copy any and all documents and data in their possession pertaining to each Security that is the subject of such Transaction. Such inspection shall occur upon the request of Buyer at a mutually agreeable location during regular business hours and on a date not more than two (2) business days after the date of such request. (b) Seller agrees to provide Buyer from time to time with such information concerning Seller of a financial or operational nature as Buyer may reasonably request. (c) Each of the parties acknowledges and agrees that this Agreement, the Custodial Agreement and all information provided by one party to another in connection with said agreements and the Transactions contemplated thereby are confidential in nature and each party agrees that it shall limit the distribution of such documents and information to its officers, employees, attorneys, accountants and agents as required in order to conduct its business with the other party; PROVIDED, HOWEVER, that the restriction set forth in this subparagraph (c) shall not apply to documents and information that (i) a party has been directed to disclose by a court or regulatory authority of competent jurisdiction, (ii) are required to be disclosed pursuant to applicable federal or state law (including the regulations of the Securities and Exchange Commission), (iii) has entered the public domain through means other than a breach of the foregoing covenant by the party seeking to distribute such documents and information, (iv) was known by the receiving party prior to its receipt thereof from the other part and (v) the other party has given written permission to disclose. 14. UNCOMMITTED FACILITY. The entering into any Transaction hereunder is discretionary on the part of both parties and each Eligible Asset must be acceptable to Buyer for Purchaser hereunder, which determination shall be made by Buyer in its sole discretion. Buy may, in its sole discretion, reject any Security from inclusion in a Transaction hereunder for any reason. 15. TRANSACTION PROCEDURES. Unless mutually agreed to the contrary by Buyer and Seller, no Purchase Date or Repurchase Date shall occur on a date other 15 than a Friday (or the next preceding business day in the event Friday is not a business day). 16. OPINION OF COUNSEL. Seller shall, on the date of the first Transaction hereunder and, upon the reasonable request of Buyer based on Buyer's good faith belief that there may have been a material change in law or fact, on the date of any subsequent Transaction, cause to be delivered to Buyer, with reliance thereon permitted as to any person or entity that purchases the Eligible Assets from Buyer in a repurchase transaction, a favorable opinion of counsel to Seller with respect to the matters set forth in Exhibit A-1 and Exhibit A-2 hereto, in form and substance reasonably acceptable to Buyer. 17. ADDITIONAL CONDITIONS. Prior to entering into the initial Transaction under this Agreement, Seller shall cause each of the following conditions to occur: (a) A Custodial Agreement in a form satisfactory to Buyer shall have been executed and delivered by the parties thereto; (b) Seller shall have disclosed information satisfactory to Buyer with respect to the scheduled maturities of all outstanding credit facilities and debt of Seller; (c) Seller shall make available to Buyer and its agents all printouts and all computer software pertaining to the Eligible Assets as Buyer may reasonably request; (d) The Custodian shall have delivered to Buyer a Custodial Confirmation Statement relating to the Eligible Assets subject to the Transaction; and (e) Seller shall have delivered a balance sheet and income statement (prepared in accordance with GAAP) to Buyer with an officer's certificate certifying the truth and accuracy of the information therein. 18. REPURCHASE TRANSACTIONS. Buyer may in its sole election engage in repurchase transactions with the Eligible Assets or otherwise pledge or hypothecate the Eligible Assets with a counterparty of Buyer's choice; PROVIDED, HOWEVER, that no such transaction by Buyer shall relieve Buyer of its obligations to Seller in connection with the repurchase by Seller of any Eligible Assets in accordance with the terms of this Agreement and that, upon demand by Seller, Buyer shall redeliver to Seller such repurchased Eligible Assets as are specifically identified by Seller free and clear of any liens or encumbrances created by Buyer. 16 19. NEW YORK JURISDICTION; WAIVER OF JURY TRIAL. Seller agrees to submit to personal jurisdiction in the State of New York in any action or proceeding arising out of this Agreement. Buyer and Seller each hereby waives the right of trial by jury in any litigation arising hereunder. 20. SERVICING ARRANGEMENTS. (a) The parties hereto agree and acknowledge that, notwithstanding the purchase and sale of the Eligible Assets contemplated hereby, Seller shall cause the Eligible Assets to continue to be serviced for the benefit of Buyer and, if Buyer shall exercise its right to sell the Eligible Assets pursuant to this Agreement prior to the related Repurchase Date, Buyer's assigns; PROVIDED, HOWEVER, that, so long as an Event of Default shall not have occurred and be continuing, Seller shall be entitle to receive the Servicing Fee relating to the Eligible Assets serviced by it until such time as Buyer elects to terminate Seller as servicer of the Eligible Assets as contemplated by subparagraph (d) below: PROVIDED, FURTHER, HOWEVER, that if an Event of Default shall have occurred and be continuing, Seller shall not be entitled to receive the Servicing Fee during the occurrence of such Event of Default and after the expiration of such thirty (30) day period shall be entitled to receive the Servicing Fee until servicing is terminated as herein provided; and PROVIDED, FURTHER, HOWEVER, that the obligation of Seller to cause Eligible Assets to be serviced for the benefit of Buyer as aforesaid shall cease upon the payment to Buyer of the Repurchase Price therefor. (b) Seller shall cause the Eligible Assets to be serviced in accordance with the servicing standards for similar assets generally employed by prudent servicers in the Mortgage Loan, Jumbo Mortgage Loan, Home Equity Loan and manufactured housing industry. (c) Seller shall cause the servicer to enforce the rights of the owner of the Eligible Assets in accordance with the standards of a prudent lender in the manufactured housing, Mortgage Loan, Jumbo Mortgage Loan and Home Equity Loan industry. (d) Buyer may, in its sole discretion is any Event of Default shall have occurred and be continuing, without payment of any termination fee, Servicing Fee (except as otherwise provided in subparagraph (a) above) or any other amount to Seller or any servicer, (i) sell its right to the Eligible Assets on a servicing released basis or (ii) 17 terminate the servicer of the Eligible Assets with or without cause. (e) Each servicer of Eligible Assets must be approved by Buyer. 21. FURTHER ASSURANCES. Seller shall promptly provide such further assurances or agreements as Buyer may request in order to effect the purposes of this Agreement. 22. BUYER AS ATTORNEY-IN-FACT. Buyer is hereby appointed to act after the occurrence and during the continuation of an Event of Default as the attorney-in-fact of Seller for the purpose of carrying out the provisions of this Agreement and taking any action and executing any instruments that Buyer may deem necessary or advisable to accomplish the purposes hereof, which appointment as attorney-in-fact is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, Buyer shall have the right and power after the occurrence and during the continuation of any Event of Default to receive, endorse and collect all checks made payable to the order of Seller representing any payment on account of the principal of or interest on any of the Purchased Securities and to give full discharge for the same. 23. TERMINATION. Notwithstanding any provisions of Paragraph 15 of the Master Repurchase Agreement to the contrary, this Agreement and all Transactions outstanding hereunder shall terminate automatically without any requirement for notice on the date occurring eleven calendar months and twenty-nine days after the date as of which this Agreement is entered into; PROVIDED, HOWEVER, that this Agreement and any Transaction outstanding hereunder may be extended by written agreement of Buyer and Seller; and PROVIDED, FURTHER, HOWEVER, that no such party shall be obligated to agree to such an extension. 24. APPOINTMENT OF AGENT. MLCC hereby appoints MLMCI as its agent for purposes of reviewing and executing Confirmation/Funding Requests, determining Market Value, exercising any termination option provided for in Paragraph 9 of these Supplemental Terms, exercising MLCC" rights under any margin maintenance provision of this Agreement, exercising MLCC" rights under the default provisions of this Agreement and such other purposes as MLCC may direct. The appointment of such agent shall not relieve MLCC of its obligations as Buyer hereunder. 25. BINDING TERMS. All of the covenants, stipulations, promises and agreements in this Agreement shall bind the successors and assigns of the parties hereto, whether expressed or not. 26. NOTICES AND OTHER COMMUNICATIONS. Any provision of Paragraph 13 of the Repurchase Agreement to the contrary 18 notwithstanding, any notice required or permitted by this Agreement shall be in writing (including telegraphic, facsimile or telex communication) and shall be effective and deemed delivered only when received by the party to which it is sent. Any such notice shall be sent to a party at the address or facsimile transmission number set forth in Annex II attached hereto. 27. INCORPORATION OF TERMS. The Repurchase Agreement as supplemented hereby shall be read, taken and construed as one and the same instrument. 28. EXPENSES. Seller shall pay its own expenses and all reasonable out-of-pocket costs and expenses (including fees and disbursements of counsel): (1) of Buyer incident to the preparation and negotiation of this Agreement, the Custodial Agreement, any documents relating thereto, any amendment or waivers thereto, and the protection of the rights of Buyer thereunder and (2) of Buyer incident to the enforcement of payment of amounts due under this Agreement or the Custodial Agreement, whether by judicial proceedings or otherwise, including, without limitation, in connection with bankruptcy, insolvency, liquidation, reorganization, moratorium or other similar proceedings involving Seller. Buyer shall not, from and after the date of this Agreement and so long as an Event of Default shall not have occurred and be continuing, expend amounts reimbursable by Seller in excess oF $5,000 without having notified Seller. Notwithstanding any provision hereof to the contrary, the obligations of Seller under this Paragraph 27 shall be effective and enforceable whether or not any Transaction remains outstanding and shall survive payment of all other obligations owed by Seller to Buyer. 29. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which counterparts, shall be deemed to be an original, and such counterparts shall constitute but one and the same instrument. The following exhibits have been omitted herefrom and are available upon the request of the Commission: A-1 Opinion of Internal Counsel to Seller A-2 Opinion of Independent Counsel to Seller C Monthly Activity Report Annex II 19 EXHIBIT B REPRESENTATIONS AND WARRANTIES PART I. ELIGIBLE ASSET As to each Eligible Asset on a Purchase Date (and the related Mortgage, mortgage Note, assignment of Mortgage and mortgaged property), the Seller shall be deemed to make the following representations and warranties to the Buyer as of such date and as of each date Market Value is determined. With respect to any representations and warranties made to the best of the Seller's knowledge, 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 knowledge or lack of knowledge of the Seller, then, notwithstanding that such representation and warranty is made to the best of the Seller's knowledge, such Mortgage Loan shall be assigned a Collateral Value of zero. The Seller has good title to and is the sole owner and holder of the Mortgage Loan; 1. Immediately prior to the pledge and grant of security interest to the Buyer, the Note and the Mortgage Loan were not subject to an assignment or pledge, and the Seller has full right and authority to pledge and assign the Mortgage Loan to the Buyer. 2. The Seller is transferring such Mortgage Loan to the Buyer free and clear of any and all liens, pledges, charges or security interests of any nature encumbering the Mortgage Loans. 3. The information set forth on the List of Eligible Assets is true and correct in all material respects. 4. Seller has acquired, serviced, collected and otherwise dealt with each Mortgage Loan in compliance with all applicable federal, state and local laws and regulations and the terms of the related Note and Mortgage. 5. The related Note and Mortgage are genuine and each is the legal, valid and binding obligation of the maker thereof, enforceable in accordance with its terms except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and be generally equity principles (regardless of whether such enforcement is considered in a proceeding in equity or at law). 6. The related Mortgage is a valid and enforceable first lien or second lien on the related mortgaged property, which B-1 mortgaged property is free and clear of all encumbrances and liens (including mechanics liens) having priority over the first lien of the Mortgage except for: (i) liens for real estate taxes and assessments not yet due and payable; (ii) covenants, conditions and restrictions, rights of way, easements and other matters of public record as of the date of recording of such Mortgage, such exceptions appearing of record being acceptable to mortgage lending institutions generally or specifically reflected or considered in the lender's title insurance policy delivered to the origination of the Mortgage Loan and referred to in the appraisal made in connection with the origination of the related Mortgage Loan and (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 such Mortgage. 7. Any security agreement, chattel mortgage or equivalent document related to such Mortgage Loan establishes and creates a valid and enforceable lien on the property described. 8. The Seller has not advanced funds, or induced, solicited or knowingly received any advance of funds by a party other than the Borrower, directly or indirectly, for the payment of any amount required under the Mortgage Loan under the Mortgage Loan. 9. Except as otherwise disclosed by written instruments included in the related documents required to be held by the Custodian pursuant to the Custodial Agreement with respect to such Mortgage Loan (the "Mortgage File"), Seller has not impaired, waived, altered or modified the related Mortgage or Note in any material respect, or satisfied, canceled, rescinded or subordinated such Mortgage or Note in whole or in part or released all or any material portion of the mortgaged property from the lien of the Mortgage, or executed any instrument of release, cancellation, rescission or satisfaction of the Note or Mortgage. 10. The Mortgage has not been satisfied, canceled 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 (except for a release that does not materially impair the security of the Mortgage Loan or a release the effect of which is reflected in the loan-to-value ration for the Mortgage Loan as set forth in the List of Eligible Assets, nor to the best of the Seller's knowledge has any instrument been executed that would effect any such release, cancellation, subordination or rescission; 11. No condition exists which could give rise to any right of rescission, set off, counterclaim , or defense including, without limitation, the defense of usury, and no such right has been asserted. B-2 12. There is no proceeding pending for the total or partial condemnation and no eminent domain proceedings pending affecting any mortgaged property. 13. Each Mortgage loan is covered by either (i) a mortgage title insurance policy or other generally acceptable form of insurance policy customary in the jurisdiction where the mortgaged property is located or (ii) if generally acceptable in the jurisdiction where the mortgaged property is located, an attorney's opinion of title given by an attorney licensed to practice law in the jurisdiction where the mortgaged property is located. All of Seller's rights under such policies, opinions or other instruments shall be deemed to be transferred and assigned to Buyer upon transfer and pledge of the Mortgage Loans hereunder. The tile insurance policy has been issued by a title insurer licensed to do business in the jurisdiction where the mortgaged property is located, insuring the original lender, its successor and assigns, as to the first or second priority lien, as applicable, of the Mortgage in the original principal amount of the Mortgage Loan, subject to the exceptions contained in such policy. Seller is the sole insured of such mortgagee title insurance policy, and such mortgagee title insurance policy is in full force and effect and will be in force and effect upon the consummation of the transactions contemplated by this Agreement. Seller has not made and has no knowledge of any claims made under such mortgagee title insurance policy. Seller is not aware of any action by a prior holder and Seller has not done, by act or omission, anything which could impair the coverage or enforceability of such mortgagee title insurance policy or the accuracy of such attorney's opinion of title. 14. Except for delinquent monthly payments, there exists no material default, breach, violation or event of acceleration existing under the related Mortgage or the related 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 material default, breach, violation or event of acceleration. The Seller has not waived any default, breach, violation or event of acceleration. 15. With respect to any Mortgage Loan which provides for an adjustable interest rate, all rate adjustments made by Seller have been performed in accordance with the terms of the related Note or subsequent modifications, if any. 16. As of the time of origination, there are no delinquent taxes, ground rents, water charges, sewer rents, assessments, insurance premiums, leasehold payments, including assessments payable in future installments or other outstanding charges, affecting the related mortgaged property. B-3 17. (i) No foreclosure proceedings are pending against the mortgaged property, and to the Seller's best knowledge, (ii) no material litigation or lawsuit relating to the Mortgage Loan is pending and (iii) the Mortgage Loan is not subject to any pending bankruptcy or insolvency proceeding. 18. The Mortgage Loan obligates the Borrower thereunder to maintain a hazard insurance policy ("Hazard Insurance") in an amount at least equal to the lesser of (i) the amount necessary to fully compensate for any damage or loss to the improvements which are part of such mortgaged property on a replacement costs basis and (ii) the outstanding principal balance of the Mortgage Loan, in either case in an amount sufficient to avoid the application of any "co-insurance provisions", and, if it was in place at origination of the Mortgage Loan, flood insurance, at the Borrower's cost and expense. If the mortgaged property is in an area identified in the Federal Register by the Federal Emergency Management Agency ("FEMA") as having special flood hazards, a flood insurance policy is in effect which met the requirements of FEMA at the time such policy was issued. The Mortgage obligates the Borrower's failure to do so, authorizes the holder of the Mortgage to obtain and maintain such insurance at the Borrower's cost and expense, and to seek reimbursement therefor form the Borrower. The mortgaged property is covered by Hazard Insurance. 19. The Note is not and has not been secured by any collateral except the lien on the corresponding Mortgage and the security interest of any applicable security agreement or chattel mortgage. 20. Subject to any applicable laws, 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. 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 or judicial foreclosure and (ii) otherwise by judicial foreclosure. To the best of Seller's knowledge, since the date of origination of the Mortgage Loan, the mortgaged property has not been subject to any bankruptcy proceeding or foreclosure proceeding and the Borrower has not filed for protection under applicable bankruptcy laws. There is no homestead or other exemption available to the Borrower that would interfere with the right to sell the mortgaged property at a trustee's sale or the right to foreclose the Mortgage. In the event the Mortgage constitutes a deed of trust, a trustee, duly qualified under applicable law to serve as such, has been properly B-4 designated and currently so serves and is named in the Mortgage, and no fees or expenses are or will become payable by Buyer to the trustee under the deed of trust, except in connection with a trustee's sale after default by the related Borrower. The Borrower has not notified the Seller and the Seller has no knowledge of any relief requested or allowed to the Borrower under the Soldiers and Sailors Civil Relief Act of 1940. 21. Except as set forth in the appraisal which forms part of the related Mortgage File, the mortgaged property, normal wear and tear excepted, is undamaged by waste, fire, earthquake or earth movement, windstorm, flood, tornado or other casualty so as to affect materially and adversely the value of the mortgaged property as security for the Mortgage Loan or the use for which the premises were intended and the Seller has no knowledge of any proceeding pending for the total or partial condemnation of such Mortgage Property. 22. There was no fraud involved in the origination of the Mortgage Loan by the mortgagee or, to the Seller's knowledge, by the Borrower, any appraiser or any other party involved in the origination of the Mortgage Loan. 23. Each Mortgage File contains an appraisal of the mortgaged property indicating an appraised value equal to the appraised value identified for such mortgaged property on the List of Eligible Assets. Each appraisal has been performed in accordance with the provisions of the Financial Institutions Reform, Recovery and Enforcement Act of 1989. 24. All parties which have had any interest in the Mortgage Loan, whether as mortagee, assignee, pledgee or othwerwise, 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 mortaged property is located. 25. No improvements on the related mortgaged property encroach on adjoining properties (and in the case of a condominium unit, such improvements are within the project with respect to that unit), and no improvements on adjoining properties encroach upon the mortgaged property unless there exists in the Mortgage File a title policy with endorsements which insure against losses sustained by the insured as a result of such encroachments. 26. Principal payments on the Mortgage Loan commenced no more than sixty days after the proceeds of the Mortgage Loan were disbursed and the Note is payable on the first day of each month. 27. The Mortgage Loan bears interest at the mortgage interest rate and the Note does not permit negative amortization. B-5 28. With respect to escrow deposits, if any, 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 advances or other charges or payments due the Seller have been capitalized under any Mortgage or the related Noted. 29. No Mortgage Loan contains provisions pursuant to which monthly payments are: (i) paid or partially paid with fund deposited in any separate account established by the Seller, the Borrower, or anyone on behalf of the Borrower; (ii) paid by any source other than the Borrower or (iii) contains 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. 30. To the Seller's best knowledge, the mortgaged property is lawfully occupied under applicable law. 31. Each Mortgage Loan has been underwritten in accordance with the underwriting guidelines applicable to such Mortgage Loan (on the basis of its classification of an A Quality Non-Conforming Mortgage Loan, B Quality Non-Conforming Mortgage Loan, C Quality Non-Conforming Mortgage Loan, as applicable) of the Seller in effect at the time the Mortgage Loan was originated or purchased by the Seller. 32. No law relating to servicing, collection or notification practices and no law relating to origination practices, has been violated in connection with any Mortgage Loan transferred to the Buyer pursuant to this Agreement, including, without limitation, usury, truth in lending, real estate settlement procedures, consumer credit protection, equal credit opportunity or disclosure laws. The Mortgage Loan has been serviced by the Seller and any predecessor servicer in accordance with the terms of the Note. 33. No Mortgage Loan was made in connection with (a) the construction or rehabilitation of a mortgaged property or (b) facilitating the trade-in or exchange of a mortgage property. 34. The Seller hereby covenants that it will no directly solicit any Borrower hereunder to refinance the related Mortgage Loan. 35. The proceeds of the Mortgage Loan have been fully disbursed to or for the account of the Borrower and there is no obligation for the Mortgagee to advance additional funds 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 compiled with. All costs, fees and B-6 expenses incurred in making or closing the Mortgage Loan and the recording of the Mortgage have been paid, and the Borrower is not entitled to any refund of any amounts paid or due to the Mortgagee pursuant to the Note or Mortgage. 36. There are no mechanics' or similar liens or claims that have been filed for work, labor or material (and no rights are outstanding that under law could give rise to such lien) affecting the related mortgaged property that are or may be liens prior to or equal or coordinate with, the lien of the related Mortgage. 37. As to each fixed rate Mortgage Loan, interest is calculated on the Note on the basis of twelve 30 day months and a 360 day year, and, as to each adjustable rate Mortgage Loan, interest is calculated on the Note on the basis of the number of days in the related interest accrual period. 38. The mortgaged property consists of either (i) a single parcel of real property or (ii) more than one parcel of real property (as determined for tax purposes only) which parcels are contiguous and are subject to a single deed or title, in each case with a detached single family residence erected thereon, or a two-to four-family dwelling, or an individual condominium unit in a low-rise or high-rise condominium project, or a manufactured dwelling attached to a permanent foundation, or an individual unit in a planned unit development or a townhouse. No residence or dwelling is a mobile home. No Mortgage Loan is secured by a leasehold estate. B-7 EX-10.9 5 EXHIBIT 10.9 THIS AGREEMENT is made on 24 April 1998 between: (1) OCWEN ASSET INVESTMENT-UK, LLC, a Delaware limited liability company, and whose principal place of business is at The Forum, 1675 Palm Beach Lakes Boulevard, West Palm Beach, FL 33401 (the "BORROWER"); and (2) GREENWICH CAPITAL FINANCIAL PRODUCTS, INC. a company incorporated under the laws of the State of Delaware (the "LENDER"); and WHEREAS: (1) Ocwen Financial Corporation ("OFC") and City Mortgage Corporation Limited ("CMC") together with other parties referred to therein have entered into an agreement for the sale and purchase of the business of CMC and its subsidiaries dated 31 March 1998 (the "SALE AGREEMENT") pursuant to which OFC has agreed to buy or procure another Buyer Group Company (as therein defined) or any OAIC Group Company (as therein defined) to buy the assets specified therein and the entire issued share capital of City Mortgage Receivables 7 Plc. (2) The Lender has agreed to provide a facility to the Borrower to finance the acquisition by the Borrower of the Securitisation Residuals under the Sale Agreement on the terms and subject to the conditions contained herein. (3) The Borrower is a wholly owned subsidiary and Ocwen Partnership L.P. (the "GUARANTOR") is a 98 per cent. owned subsidiary of Ocwen Asset Investment Corporation. (4) The Guarantor has agreed to provide a loan to the Borrower (the "INTERCOMPANY LOAN") to finance the balance of the purchase price of the Securitisation Residuals and in consideration for the economic benefit to be received by the Guarantor under the Intercompany Loan and in order to protect its return under the Intercompany Loan the Guarantor has agreed to guarantee the obligations of the Borrower under this Agreement on and subject to the terms of the Guarantee. 1. INTERPRETATION 1.1 DEFINITIONS In this Agreement (including the recitals hereto) the following terms shall have the respective meanings set forth below: "ACCELERATION" means any acceleration of the Advance hereunder following the occurrence of an Event of Default. 1 "ACCOUNT BANK" means National Westminster Bank Plc or such other bank or financial institution as may be substituted as account bank with the prior written consent of the Lender. "ADDITIONAL PRINCIPAL REPAYMENT AMOUNT" means, on any Principal Repayment Date in respect of which the provisions of clause 6.4 and 6.5 apply, the amount necessary such that after application of such amount to Outstanding Advances (and after application of the Principal Repayment Amount to Outstanding Advances on such date) the Collateral Percentage is equal to 65 per cent. "ADVANCE" means, save as otherwise provided herein, the advance (as from time to time reduced by repayment and prepayment) in an amount of ,19,000,000 (nineteen million pounds) to be made by the Lender to the Borrower in one instalment on the Advance Date to be applied by the Borrower, together with the advance made to it under the Intercompany Loan on or prior to the Advance Date, to finance the purchase by the Borrower of the Securitisation Residuals. "ADVANCE DATE" means the date hereof or such later date as agreed by the Lender. "AGREEMENT" means this Residuals Loan Facility Agreement, including all schedules and annexures hereto, which expression shall include the same as varied, supplemented, re-stated, extended or replaced, in each case in writing, from time to time. "AVAILABLE CASH" means, for each Principal Repayment Date, an amount equal to the aggregate of:- (a) the Permitted Percentage (at the relevant time) of Securitisation Residual Receipts received or recovered during the related Collection Period; and (b) 100 per cent of all Securitisation Residual Proceeds received or recovered during the related Collection Period. "BORROWER PROCEEDS ACCOUNT" means the account in the name of the Borrower with the Account Bank number 36156930 assigned to the Lender pursuant to the Borrower Proceeds Account Assignment. "BORROWER PROCEEDS ACCOUNT ASSIGNMENT" means the assignment of the Borrower Proceeds Account in favour of the Lender dated on or about the date hereof in form and substance satisfactory to the Lender. "BUSINESS DAY" means a day (other than a Saturday or Sunday) on which banks are generally open for business in London and New York. "COLLATERAL PERCENTAGE" means, on any day by reference to which the same falls to be calculated, Outstanding Advances expressed as a percentage of Residuals Market Value plus Eligible Collateral Value, calculated and agreed in accordance with Clause 16. 2 "COLLECTION PERIOD" means the calendar month immediately prior to the calendar month in which the relevant Interest Payment Date or Principal Repayment Date falls. "CONSOLIDATED INDEBTEDNESS" means for any period, the aggregate Indebtedness of the relevant entity determined on a consolidated basis in accordance with GAAP less any non-specific balance sheet reserves maintained in accordance with GAAP. "CONSOLIDATED TANGIBLE NET WORTH" means all amounts included as capital on the relevant entity's consolidated balance sheet determined in accordance with GAAP less amounts owing to affiliates and less any intangible assets including, without limitation, goodwill and deferred tax assets. "DEFERRED INTEREST PERIOD" means each period which would, but for the deferral of the first Interest Payment Date, have been an Interest Period prior to the First Interest Payment Date. "DETERMINATION DATE" means the last day of each Collection Period. "DISPOSAL" means in the case of the Securitisation Residuals financed hereunder the sale or other disposition thereof, by the Borrower or the Lender as assignee. "ELIGIBLE COLLATERAL" means any form of collateral which is mutually acceptable to both the Lender and the Borrower charged (by way of first fixed charge) or otherwise pledged so as to give the Lender a first priority, perfected security interest pursuant to security documents in form and substance satisfactory to the Lender; "ELIGIBLE COLLATERAL VALUE" means the market value of the Eligible Collateral determined at the sole discretion of the Lender, acting in good faith which in the absence of manifest error shall be conclusive. "ENFORCEMENT" means any enforcement by the Lender of any of its Security under the Security Documents irrespective of whether, at that time, an Acceleration shall have occurred; "EVENT OF DEFAULT" means any one of the conditions or circumstances referred to in clause 14. "FACILITY" means the facility granted to the Borrower by the Lender under this Agreement. "FACILITY OFFICE" means the office of the Lender through which it makes the Advance to the Borrower. 3 "FINAL MATURITY DATE" means the day falling on the third anniversary from the date hereof unless that day is not a Business Day in which case the Final Maturity Date shall be the immediately preceding day which is a Business Day. "GAAP" means accounting principles generally accepted and adopted in the United States of America as at the relevant date and applied on a consistent basis. "GUARANTEE" means the guarantee to be given by the Guarantor on or about the date hereof in form and substance satisfactory to the Lender guaranteeing, inter alia, the obligations of the Borrower under this Agreement. "HOLDING COMPANY" of a company or corporation means any company or corporation of which the first-mentioned company or corporation is a subsidiary, and references to a company or corporation shall be deemed to include a company or corporation which is not formed and registered under the Companies Act 1985. "INDEBTEDNESS" means any obligation (whether incurred as principal or surety) for the payment or repayment of money in respect of: (a) monies borrowed and debit balances at banks; (b) any loan note, bond, note, loan stock, commercial paper, debenture or other security; (c) any acceptance or letters of credit; (d) the deferred purchase price of property or services, except accounts payable and accrued expenses arising in the ordinary course of business; (e) any receivable sold or discounted (otherwise than on a non-recourse basis); (f) the capital value of any lease (whether in respect of land, machinery, equipment or otherwise) entered into primarily as a method of raising finance or financing the acquisition of the asset leased; (g) any currency or interest swap, cap, collar, floor or corridor transaction, any repurchase or reverse repurchase transaction, any foreign exchange, spot or forward transaction, any stock lending transaction, any financial option, or any combination of any of the foregoing; or (h) without double counting, any guarantee, indemnity or contingent liability in respect of any borrowings of any person of a type referred to in (a) to (g) above but only to the extent the borrowings thereby guaranteed or indemnified against are outstanding. "INITIAL COLLATERAL DEFICIENCY PERIOD" means the period commencing on the date hereof and continuing until the Collateral Percentage is 60 per cent or less for three 4 successive Principal Repayment Dates unless on the date hereof the Collateral Percentage is 60 per cent or less in which case there shall be no Initial Collateral Deficiency Period. "INTEREST CALCULATION AMOUNT" means in respect of each Deferred Interest Period falling within (or part within) the period from the date hereof to the First Interest Payment Date (as defined in the definition of "Interest Payment Date"), the amount of interest which would, but for the extended First Interest Period, have been payable on each Principal Repayment Date falling within (and on the final day of) such period, calculated on the basis that:- (1) all interest on each such Principal Repayment Date is paid on its due date; (2) LIBOR is re-set on each Principal Repayment Date; and (3) interest is calculated on the actual reducing principal balance of the Advance. "INTEREST PAYMENT DATE" means in the case of the First Interest Payment Date the earlier of the Principal Repayment Date immediately following the date on which the Borrower receives a direction from the Inland Revenue pursuant to the United States/United Kingdom double taxation treaty to pay interest under this Agreement free of UK withholding tax or the Principal Repayment Date immediately following notice by the Lender to the Borrower that interest payments are to be paid subject to UK withholding tax (such date, the "FIRST INTEREST PAYMENT DATE"), and in the case of each subsequent interest payment date, each Principal Repayment Date. "Interest Period" means each of the following periods: (a) the period commencing on (and including) the day the Advance is made and ending on (but excluding) the next following Interest Payment Date; and (b) thereafter, each period commencing on (and including) an Interest Payment Date and ending on (but excluding) the next following Interest Payment Date, provided that any Interest Period which would otherwise overrun the Final Maturity Date shall end upon of the Final Maturity Date. "ISSUERS" means each of City Mortgage Receivables 1 Plc (Company No. 3126751), City Mortgage Receivables 2 Plc (Company No. 3245450), City Mortgage Receivables 3 Plc (Company No. 3245445), City Mortgage Receivables 4 Plc (Company No. 3246090), City Mortgage Receivables 5 Plc (Company No. 3304205) and City Mortgage Receivables 6 Plc (Company No. 3328209). "LIBOR" in respect of a particular period and in relation to the Advance or other amount in respect of which an interest rate is to be determined pursuant to this Agreement, means the percentage interest rate per annum for the time being offered 5 in the London Interbank Market to prime banks for sterling deposits for the relevant period at or about 11.00 a.m. (London time) on the first day of such period as published on the relevant page of The Bloomberg (Bloomberg L.P.) under the heading "Money Market - Money Market Rates" save that LIBOR for the First Interest Period shall be one month LIBOR. "MARGIN" means 2.5 per cent per annum. "NOVATION AGREEMENTS" means the six novation agreements to be entered into on or about the date hereof each in form and substance satisfactory to the Lender relating to, inter alia, Securitisation Residuals in respect of Securitisations and the Novation agreement to be entered into on or about the date hereof in form and substance satisfactory to the Lender relating to, inter alia, certain bank accounts. "OUTSTANDING ADVANCE" means, on any day by reference to which the same falls to be determined, the aggregate amount of the Advance outstanding under the Facility. "PERMITTED PERCENTAGE" means: (i) during the Initial Collateral Deficiency Period: (a) 75 per cent. for so long as the Collateral Percentage does not exceed 65 per cent; or (b) 94 per cent. for so long as the Collateral Percentage exceeds 65 per cent; or (ii) during the Subsequent Collateral Deficiency Period: (a) 50 per cent. for so long as the Collateral Percentage does not exceed 65 per cent; or (b) 94 per cent. for so long as the Collateral Percentage exceeds 65 per cent. "POTENTIAL EVENT OF DEFAULT" means any event which with the giving of notice or the passing of time or both or the occurrence of any other event will become an Event of Default. "PRINCIPAL REPAYMENT AMOUNT" for any Principal Repayment Date means an amount equal to Available Cash (calculated for the relevant Principal Repayment Date) less the aggregate of:- (a) interest due hereunder on the relevant Principal Repayment Date; and (b) all reasonable fees, expenses and other amounts due to the Lender under any Transaction Document on such Principal Repayment Date. 6 "PRINCIPAL REPAYMENT DATE" means, the 25th day of May 1998, unless that day is not a Business Day in which case the first Principal Repayment Date shall be the immediately preceding day which is a Business Day and thereafter the 25th day of each month unless that day is not a Business Day is which case the Principal Repayment Date shall be the immediately preceding day which is a Business Day. "PURCHASE PRICE" means such part of the purchase price payable under the Sale Agreement as is attributed to the Securitisation Residuals. "PURCHASE PRICE BALANCE" means the amount by which the Purchase Price exceeds the Advance. "RESIDUALS ASSIGNMENT" means the assignment agreement to be entered into on or about the date hereof in form and substance satisfactory to the Lender by the Borrower assigning in favour of the Lender the Assets (as therein defined). "RESIDUALS MARKET VALUE" means the market value of the Securitisation Residuals financed under the Facility determined at the sole discretion of the Lender, acting in good faith which in the absence of manifest error shall be conclusive. "SECURED LIABILITIES" means all liabilities and obligations of whatever nature of the Borrower, the Guarantor or any other person secured under any Security Document. "SECURITISATION DOCUMENTATION" means all documentation executed in connection with each Securitisation as the same shall have been novated and amended pursuant to, inter alia, the Novation Agreements. "SECURITISATION RESIDUALS" has the meaning attributed to it in the Residuals Assignment. "SECURITISATION RESIDUALS PROCEEDS" means, in respect of Securitisation Residuals financed hereunder, the aggregate amount of:- (a) all cash consideration received by or on behalf of the Borrower or the Lender as assignee upon or as a result of the Disposal of some or all of such Securitisation Residuals; and (b) any non-refundable deposit or other advance payment paid to or for the account of the Borrower or the Lender as assignee by any person acquiring or proposing to acquire all or any of such Securitisation Residuals under a contract or offer to purchase or otherwise acquire the same which has been withdrawn, terminated, cancelled or has lapsed, irrespective of whether the same shall be payable upon or at any time after the relevant Disposal. 7 "SECURITISATION RESIDUALS RECEIPTS" means all amounts received or recovered by or on behalf of the Borrower or the Lender as assignee in respect of their respective rights, title and interest in and to any Securitisation Residual, whether received or recovered under or in accordance with the Securitisation Documentation or otherwise but excluding all Securitisation Residuals Proceeds. "SECURITISATIONS" means each of the six securitisations of Mortgage Loans originated by CMC and certain of its subsidiaries, effected through sales of the Mortgage Loans to the Issuers on 21 March, 1996, 18 October, 1996, 31 October, 1996, 31 January, 1997 and 30 April, 1997. "SECURITY" includes any mortgage, sub mortgage, fixed or floating charge, sub charge, encumbrance, lien, pledge, hypothecation, absolute assignment, assignment by way of security, or title retention arrangement, and any agreement or arrangement having substantially the same economic or financial effect as any of the foregoing (including any "hold back" or "flawed asset" arrangement). "SECURITY DOCUMENTS" means the Residuals Assignment, (and each further security document executed pursuant thereto), the Borrower Proceeds Account Assignment and any other security document executed pursuant to this Agreement. "SERVICE DOCUMENT" means a writ, summons, order judgment or other process issued in connection with any Proceedings; "SUBSEQUENT COLLATERAL DEFICIENCY PERIOD" means the period commencing on the day immediately following the last day of the Initial Collateral Deficiency Period and continuing until the Final Maturity Date or, if earlier the repayment in full of the Advance. "SUBSIDIARY" of a person means (i) any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned or controlled by such person, one or more of the other subsidiaries of such person or any combination thereof or (ii) any partnership in which such person is a general partner. "TRANSACTION DOCUMENTS" means this Agreement, the Security Documents and the Guarantee and each other document at any time entered into between all or any of the Borrower, the Guarantor, the Lender and any third party pursuant to or in connection with any document which is a Transaction Document. the "LENDER" shall be construed so as to include its and any subsequent successors and assigns in accordance with their respective interests. 8 a "MONTH" is a reference to a period starting on one day in a calendar month and ending on the numerically corresponding day in the next following calendar month; PROVIDED that, where any such period would otherwise end on a day which is not a Business Day, it shall end on the following succeeding Business Day, unless that day falls in the calendar month next following that in which it would otherwise have ended, in which case it shall end on the immediately preceding Business Day; and provided further that, if there is no numerically corresponding day in the next following calendar month, that period shall end on the last Business Day in that next following calendar month (and references to "MONTHS" shall be construed accordingly). a "PERSON" shall be construed as a reference to any person, firm, company, corporation, government, state or agency of a state or any association or partnership (whether or not having separate legal personality) of two or more of the foregoing. "REPAY" (or any derivative form thereof) shall, subject to any contrary indication, be construed to include "PREPAY" (or, as the case may be, the corresponding derivative form thereof). "TAX" shall be construed so as to include any present or future tax, levy, impost, duty or other charge of a similar nature (including any penalty or interest payable in connection with any failure to pay or any delay in paying any of the same). "VAT" shall be construed as a reference to value added tax including any similar tax which may be imposed in place thereof from time to time. the "WINDING-UP", "DISSOLUTION" or "ADMINISTRATION" of a company or corporation shall be construed so as to include any equivalent or analogous proceedings under the law of the jurisdiction in which such company or corporation is incorporated or any jurisdiction in which such company or corporation carries on business including the seeking of liquidation, winding-up, reorganisation, dissolution, administration, arrangement, adjustment, protection or relief of debtors. 1.2 INTERPRETATION For the purposes of this Agreement except as otherwise expressly provided or unless the context otherwise requires:- (1) accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles; (2) references herein to "clauses", "sub-clauses", "paragraphs", and other subdivisions without reference to a document are to designated clauses, sub-clauses paragraphs and other subdivisions of this Agreement; 9 (3) reference to a sub-clause without further reference to a clause is a reference to such sub-clause as contained in the same clause in which the reference appears, and this rule shall also apply to paragraphs and other subdivisions; (4) the words "herein", "hereof", "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular provision; (5) headings to clauses and Schedules are for convenience only and do not affect the interpretation of this Agreement; (1) (6) references to a "company" shall be construed so as to include any company, corporation or other body corporate, wherever and however incorporated or established; (7) references to times of the day are to London time; (8) references to any agreement (including without limitation to each Transaction Document), shall be construed as a reference to such agreement as the same may be, or may from time to time have been, amended, modified, supplemented, novated or restated in accordance with the terms of the Transaction Documents; (1) "(POUND STERLING)", "POUNDS" and "STERLING" denote the lawful currency of the United Kingdom and "$" and "DOLLAR" denote the lawful currency of the United States of America; (10) any reference in this Agreement to a statute shall be construed as a reference to such statute as the same may have been, or may from time to time be, amended, modified or re-enacted; (11) any reference to Security shall include not only interests which constitute Security as a matter of English law but also (and separately) those which constitute Security as a matter of U.S. law. 2. THE FACILITY AND PURPOSEFACILITY AND PURPOSE 2.1 The Lender hereby grants to the Borrower a credit facility comprising the Advance on and subject to the terms of this Agreement. 2.2 The Advance will be used by the Borrower for the sole purpose of purchasing the Securitisation Residuals (as novated and amended pursuant to the Novation Agreements) from CMC and Mortgage Management Limited on the terms of the Sale Agreement. 10 2.3 The Lender shall not be obliged to concern itself with the application of amounts borrowed by the Borrower under this Agreement and application by the Borrower of funds so borrowed contrary to the provisions of clause 2.2 shall not prejudice the Lender's rights hereunder or under any other Transaction Document. 3. AVAILABILITY 3.1 The Facility will not become available to the Borrower and the Lender shall be under no obligation to make the Advance hereunder until each of the following conditions precedent shall have been fulfilled to the satisfaction of the Lender: (1) the Lender shall have received each of the following documents, each in form and substance satisfactory to it:- (1) a true and complete copy of the Certificate of Formation of the Borrower, certified by the Secretary of State of the State of Delaware, together with a certified true and complete copy of the limited liability company agreement of the Borrower certified by the Secretary or Assistant Secretary of the Borrower and a true and complete copy of the Certificate of Limited Partnership of the Guarantor, certified by the Secretary of Commonwealth of the Commonwealth of Virginia, together with a certified true and complete copy of the limited partnership agreement of the Guarantor certified by the Secretary or Assistant Secretary of the Guarantor; (2) a certificate of the Secretary or an Assistant Secretary of each of the Borrower and the Guarantor certifying, among other things (a) the names and true signatures of the officers of such person authorised to sign the Transaction Documents to which it is a party; (b) that the limited liability company agreement or limited partnership agreement of such person delivered to the Lender on the date of the drawing of the Advance are true and complete, and have not been amended, rescinded or otherwise modified; (c) that the resolutions of the Board of Directors (or equivalent governing body) of each of such person attached thereto, which authorise, among other things the execution and delivery of the Transaction Documents, are true and complete, and have not been amended, rescinded or otherwise modified; (d) that the Sale Agreement and Novation Agreements delivered to the Lender on the date of the drawing of the Advance are true and complete copies of such documents and contain all amendments or modifications thereto as of such date; and (e) that there have been no changes in the Certificate of Formation or Certificate of Limited Partnership, as the case may be, of such person since the date of the most recent certification thereof by the Secretary of State of Delaware or Secretary of Commonwealth of the Commonwealth of Virginia, as the case may be. 11 (3) originals (or, where the Lender is not party to the relevant document, certified copies) of each of the following documents, duly executed by each party thereto other than the Lender:- (1) the Guarantee; (2) the Security Documents and all notices and acknowledgements thereof to be given and received thereunder and all consents to any such security being granted; (3) the Sale Agreement including all schedules thereto and the disclosure letter relating thereto; (4) the Novation Agreements together with all notices relating thereto; (5) the Intercompany Loan. (4) in respect of each of the Borrower and the Guarantor a copy (certified by the secretary or a director or equivalent officer of the relevant company to be true, complete and up to date as at the date of advance of the Advance) of all consents, approvals, authorisations or orders of any court or governmental agency or body required for the execution, delivery and performance by it of, or compliance by it with, the terms of any Transaction Document or the consummation of the transactions contemplated thereby; (5) duly executed account mandates in relation to the Borrower Proceeds Account, specifying the authorised signatories for the Borrower and the Lender; (6) UCC-1 Financing Statements executed by the Borrower against the Securitisation Residuals with respect to the jurisdictions requested by the Lender; (2) all conditions precedent under each other Transaction Document (other than any requirement that the Facility shall have become available hereunder) shall have been fulfilled; (3) the Lender shall have received legal opinions, each in form and substance satisfactory to it, from each of the following: (1) Edge and Ellison; (2) Akin, Gump, Strauss, Hauer & Feld LLP; (3) in house counsel to Ocwen Financial Corporation 12 (4) the articles of incorporation and By-Laws of the Borrower shall be in form and substance satisfactory to the Lender. (5) the representations and warranties made in Section 12 shall be true and correct on and as of the Advance Date, immediately preceding and after giving effect to such Advance and to the application of the proceeds therefrom; (6) the Lender shall be satisfied that the loan, in an amount at least equal to the Purchase Price Balance, shall have been made by the Guarantor to the Borrower under the Intercompany Loan. 4. DRAWINGS 4.1 Subject to:- (1) the conditions precedent in Clause 3 having been fulfilled to the satisfaction of the Lender or waived by the Lender; and (2) no Event of Default or Potential Event of Default having occurred and subsisting unremedied (to the satisfaction of the Lender) and unwaived, in each case by no later than 12, noon London time on the Advance Date the Lender will make the Advance to the Borrower on the Advance Date. 4.2 Subject to the foregoing provisions of this Clause 4 the Lender shall, not later than 2 pm London time on the date on which the Advance is to be made (or such later time as maybe agreed between the Borrower and the Lender), make the Advance requested, the Advance to be credited to an account specified by the Borrower. 4.3 If the Borrower fails for any reason whatsoever (other than as a consequence of a breach of the Lender's obligations) to draw down the Advance on the Advance Date (whether such failure be the result of the occurrence of an Event of Default or otherwise), the Borrower will pay to the Lender on demand such amount as the Lender certifies to be necessary to compensate for all losses excluding loss of Margin incurred or to be incurred on account of deposits acquired or arranged in order to fund the Advance. Any such certificate by the Lender shall be prima facie evidence of such losses. 5. INTEREST ON ADVANCESON ADVANCES 5.1 The Borrower will pay interest on the Advance on each Interest Payment Date in respect of each Interest Period referable thereto at the rate per annum equal to the aggregate of (i) the Margin and (ii) LIBOR for the relevant Interest Period. 13 5.2 On the First Interest Payment Date, the Borrower shall pay an additional amount of interest at the rate equal to LIBOR on the Interest Calculation Amount for each Deferred Interest Period falling prior to the First Interest Payment Date such interest to accrue from and including the first day of each respective Deferred Interest Period to but not including the last day of such Deferred Interest Period. 5.3 The Lender will, as soon as practicable after commencement of each Interest Period advise the Borrower of LIBOR for that Interest Period. Any certificate of the Lender as to the rate and amount of interest determined by it under this Agreement in respect of any Interest Period shall, save for manifest error, be conclusive and binding on the Borrower and the Guarantor. 5.4 Interest at the rate determined as aforesaid shall be calculated on each Advance and each part thereof on the basis of actual days elapsed and a 365 day year, shall accrue from day to day from and including the first day of each Interest Period to but excluding the date of repayment of the Advance. 5.5 If LIBOR cannot be determined for any reason the rate of interest applicable to the Advance shall be the sum of the Margin and the rate, expressed as a percentage rate per annum, which is the actual cost to the Lender of funding the Advance from whatever sources it may select during such Interest Period (as applicable) and, if the Lender so requires, within five days of such notification the Lender and the Borrower shall enter into negotiations with a view to agreeing a substitute basis for determining the rates of interest which may be applicable to the Advance in the future. 5.6 If the Borrower is required to repay principal on the Advance on any day other than an Interest Payment Date or Principal Repayment Date, the Borrower shall be obliged to pay such amount together with interest accrued thereon to the date of such repayment. 6. REPAYMENT AND APPLICATION OF RECEIPTSAND APPLICATION OF RECEIPTS 6.1 The Borrower shall repay the amount of the Outstanding Advance in full (together with all other amounts then due hereunder) on the Final Maturity Date. 6.2 The Borrower shall, on each Principal Repayment Date repay the Principal Repayment Amount for such Principal Repayment Date. 6.3 Securitisation Residuals Receipts and Securitisation Residuals Proceeds received by any party hereto other than the Lender shall be paid by such party, forthwith upon receipt of the same, to the Borrower Proceeds Account and shall be held by the relevant party on trust for the Lender pending payment of the same into the Borrower Proceeds Account. 6.4 On each Principal Repayment Date the Permitted Percentage of all Securitisation Residual Receipts and 100 per cent of all Securitisation Residuals Proceeds shall be 14 applied in or towards satisfaction of the obligations of the Borrower hereunder in the following order of priority: (1) first, in or towards payment of all interest falling due to the Lender hereunder on the relevant Interest Payment Date together with any overdue interest accrued thereon up to and including the relevant distribution date; (2) second, in or towards payment of the Principal Repayment Amount due on such Principal Repayment Date; (3) third, in or towards payment of all reasonable fees and expenses or other amounts due and owing to the Lender under all Transaction Documents (other than amounts referred to in (a) or (b)); and (4) prior to an Event of Default which is continuing, the balance, if any, to be released to the Borrower, (1) provided that at all times following the earlier of an Acceleration or an Enforcement the whole of the provisions of this clause 6 shall cease to apply and all amounts received or recovered in respect of the assets subject to the Security Documents may be applied by the Lender in or towards satisfaction of the Secured Liabilities in such order as the Lender in its absolute discretion shall determine. 6.5 If:- (a) (i) on the third consecutive Principal Repayment Date on which the applicable Permitted Percentage is 94 per cent; and (ii) on each of such three (3) consecutive Principal Repayment Dates the Collateral Percentage (calculated on the basis of Outstanding Advances as reduced by the Principal Repayment Amount repaid on such date) exceeds 65 per cent, OR (b) on any Principal Repayment Date the provisions of clauses 6.5(a)(i) and (ii) or this clause 6.5(b) have been applicable to any of the six immediately preceding Principal Repayment Dates and on such Principal Repayment Date the Collateral Percentage, after application of the provisions of clause 6.4, exceeds 65 per cent, then the Borrower shall, at its option, on such Principal Repayment Date either: (A) prepay an amount equal to the Additional Principal Repayment Amount; or 15 (B) provide additional Eligible Collateral of a value as would result in a Collateral Percentage (calculated on the basis of Outstanding Advances as reduced by the Principal Repayment Amount repaid on the relevant Principal Repayment Date) of 65 per cent, 6.6 Following application of funds under and in accordance with clause 6.4, and provided that no Event of Default has occurred and is continuing if the aggregate of:- (a) Securitisation Residual Receipts received or recovered during the related Collection Period; plus (b) Securitisation Residual Proceeds received or recovered during the related Collection Period, exceeds Available Cash, then such excess shall be released to the Borrower, to such account as the Borrower shall from time to time direct. 6.7 Without prejudice to the Security Documents, the Lender shall consent to the Disposal of some or all of the Securitisation Residuals financed hereunder provided that the Collateral Percentage calculated immediately following such Disposal is no greater than the Collateral Percentage calculated on the Principal Repayment Date immediately prior to such Disposal. 6.8 If all or any part of the Advance is repaid under this clause other than on an Principal Repayment Date, the Borrower will pay to the Lender on demand such amount as the Lender certifies to be necessary to compensate it for all losses excluding loss of Margin incurred or to be incurred by it on account of deposits acquired or arranged in order to fund the Advance. Any such certificate by the Lender shall, in the absence of manifest error, be prima facie evidence of such losses. 6.9 Subject to Clause 6.8, the Borrower may on any Business Day, upon five Business Days prior written notice to the Lender, prepay in whole or in part the Outstanding Advance hereunder together with all accrued interest thereon. 7. EVIDENCE OF DEBTOF DEBT The Lender shall maintain in accordance with its usual practice, accounts evidencing the amounts from time to time lent by and owing to it hereunder, and in any legal action or proceeding arising out of or in connection with this Agreement, the entries made in such accounts shall in the absence of manifest error be prima facie evidence of the existence and amounts of the specified obligations of the Borrower. 8. TAXES 8.1 If the Borrower:- 16 (1) whether before or after receipt by the Borrower of a direction from the Inland Revenue pursuant to the United States/United Kingdom double taxation treaty to pay interest under this Agreement free of UK withholding tax is required as a result of any change in law or in its interpretation or administration to make any payment to the Lender hereunder subject to any deduction or withholding on account of tax; or (2) is unable to obtain a direction from the Inland Revenue pursuant to the United States/United Kingdom double taxation treaty to pay interest under this Agreement free of UK withholding tax (other than as a result of an act or omission of the Lender); it shall notify the Lender of such event and, provided that as a result of (a) or (b) above payments hereunder are required to be made subject to a deduction or withholding on account of tax, the sum payable by the Borrower in respect of which such deduction or withholding is required to be made shall, subject to clause 8.2, be increased (the amount of such increase being referred to hereafter as the "GROSS-UP AMOUNT") to the extent necessary to ensure that, after the making of the required deduction or withholding, the Lender receives and retains (free from any liability in respect of such deduction or withholding) a net sum equal to the sum which it would have received and so retained had no such deduction or withholding been made or required to be made. 8.2 If, at any time, the circumstances in clause 8.1 apply, the Borrower shall be entitled to prepay the whole (but not part) of the Outstanding Advance within 60 days of the change in law or unavailability of a direction pursuant to the treaty, as the case may be, in accordance with Clause 6.9 and in such circumstances the Lender agrees that the provisions of Clause 6.8 hereof shall not apply and, if during such 60 day period any Gross-up Amount would otherwise fall due for payment hereunder, the Borrower shall be entitled to defer the obligation to pay the same until the last day of the 60 day period, on which day it shall fall due. 8.3 If the Borrower makes any payment hereunder in respect of which it is required by law to make any deduction or withholding on account of tax, it shall pay the full amount required to be deducted or withheld to the relevant taxation or other authority within the time allowed for such payment under applicable law and shall deliver to the Lender, within thirty days after it has made such payment to the applicable authority, an original receipt (or a certified copy thereof) issued by such authority evidencing the payment to such authority of all amounts so required to be deducted or withheld in respect of such payment or any other written evidence acceptable to the Lender. 8.4 If the Borrower pays any increased amount under clause 8.1 ( a "TAX PAYMENT") and the Lender, acting reasonably, determines that it has received and retained a refund of, or a credit against, the tax paid or payable by it and that the refund or credit is in respect of, or calculated with reference to, the deduction or withholding giving rise to 17 the Tax Payment (such refund or credit being referred to hereafter as a "TAX CREDIT"), then the Lender shall, to the extent that it can do so without prejudice to the retention of the Tax Credit, reimburse to the Borrower in the manner described in the following sentence such amount as the Lender shall reasonably determine to be the proportion of the Tax Credit as will leave the Lender after reimbursement in no better or worse position than it would have been in if the Tax Payment had not been required. The manner in which such reimbursement is to be made shall first be by way of set off against such of the amount(s) which the Borrower is then liable to pay to the Lender (for whatever reason and regardless of whether the payment of such amount(s) has fallen due) as the Lender shall, in its sole opinion, specify and notify to the Borrower. 8.5 Nothing in this clause 8 shall interfere with the Lender's right to arrange its tax affairs in whatever manner it thinks fit and, without limiting the foregoing, the Lender shall not be under any obligation to claim any Tax Credit in priority to any other claims, reliefs, credits or deductions available to it. The Lender shall not in any event be obliged to disclose any information relating to its tax affairs or any computations in respect thereof to the Borrower or any other person. 8.6 All amounts payable under this Agreement are expressed to be exclusive of any VAT chargeable in respect thereof. If any VAT is chargeable in respect of such amounts, the Borrower shall, in addition, pay to the Lender an amount equal to such VAT, and the Lender shall provide the Borrower with a proper VAT invoice in respect thereof. 9. INCREASED COSTSCOSTS 9.1 If, by reason of:- (1) the introduction of, or any change in any applicable law, regulation or regulatory requirement or any change in the interpretation or application of any thereof in each case after the date hereof and/or (2) compliance by the Lender or any holding company of the Lender with any applicable directive, request or requirement whether or not having the force of law but, if not having the force of law being of general application and of a type with which the Lender or a holding company of the Lender is accustomed to comply of any central bank or any self regulating organisation or any governmental, fiscal, monetary or other authority (including, but not limited to, a directive, request or requirement which affects the manner in which any bank allocates capital in support of its assets or liabilities or contingent liabilities or deposits with it or for its account or advances or commitments made by it) which is brought into effect after the date hereof, and if, to the extent of compliance with either or both of paragraphs (a) and (b):- (1) the Lender or any holding company of the Lender is unable to obtain the rate of return on its capital which it would have been able to obtain 18 but for the Lender's entering into or assuming or maintaining a commitment or performing its obligations (including its obligation to make Advances) under this Agreement; (2) the Lender or any holding company of the Lender incurs a cost as a result of the Lender's entering into or assuming or maintaining a commitment or performing its obligations (including its obligation to make Advances) under this Agreement; (3) there is any increase in the cost to the Lender or any holding company of the Lender of funding or maintaining all or any of the Advances; (4) the Lender or any holding company of the Lender becomes liable to make any payment on account of tax or otherwise (except on account of any tax imposed on and calculated by reference to the net income of the Facility Office by the jurisdiction in which the Lender (or its holding company) is incorporated or in which the Facility Office is located), or foregoes any interest or other return, on or calculated by reference to the amount of any Advance or the amount of any sum received or receivable by it (or its subsidiary) under this Agreement, then the Borrower shall, from time to time on demand of the Lender, promptly pay to the Lender amounts sufficient to indemnify the Lender or its holding company as appropriate against, as the case may be, (1) such reduction in the rate of return of capital, (2) such cost, (3) such increased cost (or such proportion of such increased cost as is, in the opinion of the Lender, attributable to its or its holding company funding or maintaining the Advance), or (4) such liability. 9.2 If the Lender intends to make a claim pursuant to this clause 9 it shall notify the Borrower of the event by reason of which it is entitled to do so PROVIDED that nothing herein shall require the Lender to disclose any confidential information relating to the organisation of its affairs and shall consult with the Borrower as to possible steps that could be taken to reduce any such increased costs provided that the Lender shall be under no obligation to take any such steps considered. 9.3 If notwithstanding the consultation referred to in Clause 9.2, the provisions of Clause 9.1 would apply then the Borrower shall, at its option, be entitled to prepay the whole (but not part) of the Outstanding Advance in accordance with Clause 6.9 and in such circumstances the Lender agrees that the provisions of Clause 6.8 hereof shall not apply. 10. ILLEGALITY If, at any time, it is or becomes unlawful for the Lender to make, fund or allow to remain outstanding all or part of the Advance, then the Lender shall, promptly after becoming aware of the same, deliver to the Borrower a notice to that effect, the 19 Lender shall not thereafter be obliged to make the Advance hereunder and, if the Lender has made the Advance, the Borrower shall on the earlier of: (a) the date falling 90 days after the date of notification of the illegality; and (b) the Business Day immediately preceding the day on which it will become unlawful for the Lender to do as aforesaid, repay any Outstanding Advance together with accrued interest thereon and all other amounts owing to the Lender hereunder. 11. PAYMENTS Any payment to be paid by the Borrower to the Lender pursuant to this Agreement shall be made in sterling, in immediately available, freely transferrable and cleared funds for value same day, to such account of the Lender as the Lender shall, from time to time, have specified in writing for such purpose. 12. REPRESENTATIONS AND WARRANTIESAND WARRANTIES 12.1 The Borrower hereby represent, warrant, covenant and undertake to the Lender that:- (1) it is a limited liability company duly organised, validly existing and in good standing under the laws of the state of its organisation and is duly authorised and qualified to transact any and all business contemplated by this Agreement and the other Transaction Documents to be conducted by it. (2) it has the full limited liability company power and authority to execute, deliver and perform, and to enter into and consummate the transactions contemplated by this Agreement and the other Transaction Documents to which it is a party and has been duly authorised by all necessary limited liability company action on its part the execution, delivery and performance of this Agreement and the other Transaction Documents to which it is a party; and this Agreement and each Transaction Document to which it is a party, assuming the due authorisation, execution and delivery thereof by the Lender, constitutes its legal, valid and binding obligation, enforceable against it in accordance with its respective terms, except to the extent that (a) the enforceability thereof may be limited by bankruptcy, insolvency, moratorium, receivership and other similar laws relating to creditors' rights generally and (b) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defences and to the discretion of the court before which any proceeding therefor may be brought; (3) its execution and delivery of this Agreement and each Transaction Document to which it is a party, the consummation of any other of the transactions herein or therein contemplated on its part and the fulfilment of or compliance with 20 the terms hereof or thereof will not (i) result in a material breach of any term or provision of its Certificate of Formation, limited liability company agreement and/or other constituent documents or (ii) materially conflict with, result in a material breach, violation or acceleration of, or result in a material default under, the terms of any other material agreement or instrument to which it is a party or by which it may be bound, or any statute, order or regulation applicable to it of any court, regulatory body, administrative agency or governmental body having jurisdiction over it; (4) it is not party to, bound by, or in breach or violation of any material indenture or other material agreement or instrument, or subject to or in violation of any statute, order or regulation of any court, regulatory body, administrative agency or governmental body having jurisdiction over it, which materially and adversely affects or, to its knowledge, would in the future materially and adversely affect, (i) its ability to perform its obligations under this Agreement or the Transaction Documents to which it is a party or (ii) its business, operations, financial condition, properties or assets taken as a whole; (1) (5) no litigation is pending or, to the best of its knowledge, threatened against it that would materially and adversely affect the execution, delivery or enforceability of this Agreement or the Transaction Documents to which it is a party or its ability to perform any of its obligations hereunder or thereunder in accordance with the terms hereof or thereof; (6) no consent, approval, authorisation or order of any court or governmental agency or body is required for the execution, delivery and performance by it of, or compliance by it with, this Agreement or any Transaction Document to which it is a party or the consummation of the transactions contemplated hereby or thereby, or if any such consent, approval, authorisation or order is required, it has obtained or it is in the process of obtaining the same; (7) it has not, at any time since its formation, had any employee, entered into any contracts, carried on any business or incurred any liabilities; (8) it has filed or caused to be filed, all tax returns (federal, state and local) (or requests for extension which are routinely granted) which are required to be filed and has paid all taxes including those which have become due pursuant to such returns or pursuant to any assessments made against it or any of its properties, as the case may be, and all other material taxes or other charges imposed on it or any of its properties by any Governmental Authority; and no tax liens have been filed; (9) no proceeds of the Advance will be used, directly or indirectly, by it for the purpose of "purchasing" or "carrying" any "margin stock" or for the purpose of reducing or retiring any Indebtedness which was originally incurred to 21 purchase or carry margin stock or for any other purpose which might cause the Advance to be a "purpose credit" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System; (10) all financial statements of the Borrower delivered to the Lender fully and accurately present the financial position of the Borrower as of the respective dates thereof in accordance with GAAP. Since 31 December, 1997, there has been no material adverse change in the business, operations, properties, condition (financial or otherwise) or prospects of the Borrower; (11) it is, not directly or indirectly, controlled by any Person which is, an "investment company" within the meaning of the Investment Company Act of 1940, as amended; the Borrower and Guarantor are not subject to any regulation under any federal or state statute or regulation which limits its ability to incur Indebtedness. The representations and warranties under clause 14.1(a)-(k) inclusive shall be given on the date of this Agreement and shall be repeated on each date on which the Advance is outstanding hereunder by reference to the facts and circumstances existing at the relevant time. 12.2 The Lender represents and warrants to the Borrower in terms of clauses 12.1(a) to (f) (inclusive), mutatis mutandis, save that the reference in Clause 12.1 (a) to a limited liability company shall be construed as a reference to a corporation. 12.3 lt is understood and agreed that the representations and warranties set forth in clause 12.1 shall survive the pledging and charging of the Securitisation Residuals to the Lender and shall enure to the benefit of the Lender. 12.4 With respect to the representations and warranties contained in clause 12.1 which are made to the best of the Borrower's knowledge, after reasonable inquiry and investigation, if it is discovered by either the Borrower, or the Lender that the substance of such representation and warranty is inaccurate then, notwithstanding the Borrower's lack of knowledge with respect to the inaccuracy at the time the representation or warranty was made, the Lender shall have the same rights in respect of the breach thereof as it would have if the applicable representation or warranty was breached. 12.5 Upon discovery by either the Borrower or the Lender of a breach of any of the foregoing representations and warranties given under clause 12.1 the party discovering such breach shall give prompt written notice to the other. 13. UNERTAKINGS AND COVENANTS 13.1 The Borrower hereby undertakes with the Lender that from and after the date hereof and until all sums due and to become due hereunder have been paid or repaid in full and the Facility shall no longer exist: 22 (1) it shall obtain, comply with the terms of and do all that is necessary to maintain in full force and effect all authorisations, approvals, licences and consents required in or by the laws and regulations of all applicable jurisdictions to enable it lawfully to enter into and perform its obligations under this Agreement and each Transaction Document and to ensure the legality, validity, enforceability or admissibility in evidence in England of this Agreement and each Transaction Document and shall ensure that none of the foregoing are revoked or modified; (2) it shall promptly inform the Lender of the occurrence of any Event of Default or Potential Event of Default and, upon receipt of a written request to that effect from the Lender, confirm to the Lender that, save as previously notified to the Lender or as notified in such confirmation, no such event has occurred; (3) it shall ensure that at all times the claims of the Lender against it under this Agreement and the Transaction Documents are secured as provided in the Security Documents and that the security thereunder will be of the nature and will rank in the priority it is expressed to have in the Security Documents; (4) it shall not, without the prior written consent of the Lender, create or permit to subsist any Security over all or any of its present or future revenues or assets save for security created (or permitted) under the Security Documents; (5) it shall not, without the prior written consent of the Lender, incur any Indebtedness (whether actual or contingent, subordinated or otherwise whatsoever) make any loans, grant any credit or give any guarantee or indemnity (except as contemplated in the Transaction Documents) to or for the benefit of any person or otherwise voluntarily assume any liability, whether actual or contingent, in respect of any obligation of any other person; (6) it shall not, without the prior written consent of the Lender, issue any further membership interests or alter any rights attaching to its issued membership interests in existence at the date hereof; (7) it shall not, without the prior written consent of the Lender, sell, lease, transfer or otherwise dispose of, by one or more transactions or series of transactions (whether related or not), the whole or any part of its revenues or its assets except as permitted under the Transaction Documents; (8) it shall ensure that the Residual Assignment remains at all times its valid obligation and that the Security created thereunder remains valid and perfected security. (9) it shall apply all monies released to it pursuant to this Agreement first in discharge of amounts due to the Guarantor under the Intercompany Loan. 23 (10) it shall not, unless and until it has satisfied on such a date any amounts which have fallen due to the Guarantor under the Intercompany Loan make or declare any dividend or other distribution; (11) it shall not, without the prior written consent of the Lender, open or permit to be opened any bank accounts in its name or on its behalf other than the Borrower Proceeds Account; (12) it shall not engage in any business other than that contemplated in the Transaction Documents and shall not have any employees; (13) it shall not make or permit any amendments to be made to the Certificate of Formation, limited liability company agreement and/or its other constituent documents without prior written consent of the Lender, such consent not to be unreasonably withheld; (14) it shall deliver to the Lender as soon as the same are available, and in any event within one hundred and twenty (120) days after the end of each of its financial years a copy of its audited annual financial statements; (15) it shall provide the Lender promptly upon request with any information relating to it and/or its financial condition as the Lender may from time to time reasonably require in connection with this Agreement; (16) it shall ensure that each set of audited annual financial statements delivered pursuant to sub-clause (l) are prepared in accordance with generally accepted accounting principles and on the same basis every year and half year (save as may be required from time to time as a result of changes in law or regulation or generally accepted accounting principles); (17) it shall, promptly upon receipt of the same, deliver to the Lender a copy of any independent accountants' management letters received by it relating to it or any member of its group; 14. DEFAULT 14.1 In the event of:- (1) any default by the Borrower in the payment of any amount due for payment hereunder, including without limitation under clause 6.2 (if applicable) or under any Transaction Document within two Business Days after written notice from the Lender demanding payment of the same has been received; or (2) the Borrower failing to observe or perform any other covenants, obligations or agreements of the Borrower under this Agreement or any Transaction 24 Document which, if (in the good faith opinion of the Lender) capable of remedy shall not have been remedied (to the satisfaction of the Lender) within thirty Business Days of written notice from the Lender requiring remedy of the same; or (3) any representation or warranty made or repeated by the Borrower or the Guarantor under this Agreement or under any other Transaction Document being or proving to be or have been untrue or incorrect or misleading in any material respect as at the date at which it was made or repeated, and in the case of any such breach which is (in the good faith opinion of the Lender) capable of remedy, the relevant breach not having been remedied within thirty Business Days of the Lender requiring the Borrower or, as the case may be, the Guarantor to do so; or (4) any default by the Guarantor in the payment of any amount due for payment under the Guarantee or under any other Transaction Document on the due date therefor; or (5) the Guarantor failing to observe or perform any other covenant, obligation or agreement contained in the Guarantee or under any other Transaction Document which, if (in the good faith opinion of the Lender) is capable of remedy has not been remedied (to the satisfaction of the Lender) within thirty Business Days of the Lender requiring the Guarantor to do so; or (6) the Residual Assignment ceasing to be a binding obligation upon the Borrower Security thereunder; or (7) the Borrower or the Guarantor shall: (i) become insolvent; (ii) be dissolved; (iii) fail generally to pay its debts as such debts become due; (iv) commence a voluntary case under federal bankruptcy, insolvency or other similar law; (v) consent to the appointment of or taking of possession by a receiver, liquidator, assignee, trustee, custodian, or sequestrator (or other similar official) of the Borrower or the Guarantor or of any substantial part of its property; (vi) make an assignment for the benefit of creditors; or (vii) take any action intended or likely to result in any event described in the foregoing clauses (i) through (vi); or (8) there shall be filed or entered in respect of the Borrower or the Guarantor a petition, decree or order for relief by a court having jurisdiction in the premises in an involuntary case under the federal bankruptcy laws, as now or hereafter constituted, or any other applicable federal, state or foreign bankruptcy, insolvency or other similar law, or appointing a receiver, liquidator, assignee, custodian, trustee or sequestrator (or other similar official) of the Borrower or the Guarantor or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and any such petition, decree or order shall continue undismissed, unstayed and in effect for a period 25 of 60 days; or (9) any material adverse change in the condition (financial, business, prospects or otherwise) of any of the Borrower or the Guarantor occurring, which, in the reasonable judgment of the Lender is reasonably likely to prevent the Borrower or the Guarantor, as the case may be, from performing its respective material obligations under any Transaction Document or is likely to adversely affect the value (to the Lender) of its security whether by adversely affecting the value of such security, the prospects of a sale thereof or otherwise; or (10) the Borrower ceasing to be a wholly owned subsidiary of Ocwen Asset Investment Corporation ("OAIC"); or (11) OAIC ceasing to own a majority of the issued and outstanding common shares of Ocwen General, Inc. (12) the Borrower or the Guarantor shall default in respect of: (i) any payment obligation under any loan from the Lender or any subsidiary or affiliate of the Lender or any obligation to pay for securities delivered to the Borrower or the Guarantor by the Lender or a subsidiary; (ii) the Borrower or the Guarantor shall fail to pay any money due under any other agreement, note, indenture or instrument evidencing, securing, guaranteeing or otherwise relating to Indebtedness of the Borrower or the Guarantor for borrowed money in the aggregate of $10,000,000, which failure to pay constitutes an event of default under any such agreement or instrument or constitutes a default and such default shall continue beyond any applicable grace periods therein specified or the Borrower or the Guarantor shall default in the observance or performance of any other covenant or condition in any such agreement or instrument, which default constitutes an event of default and has not been waived by the creditor or other applicable party thereunder, and such default shall continue beyond any applicable grace periods therein specified; (iii) any other event shall occur or condition shall exist if the effect of such event or condition is to accelerate the maturity of such Indebtedness; or (iv) any such Indebtedness shall be declared due and payable prior to the stated maturity thereof; other than, in the case of items (ii) thereof (iv), Indebtedness with respect to which the failure to pay would not, individually or in the aggregate, be expected to have a material adverse effect on the financial condition, operations, business or prospects of the Borrower or the Guarantor, (each of the foregoing an "EVENT OF DEFAULT"), the Lender may, (save that in relation to clause 14.1 (g) and (h) upon the occurrence of which the Outstanding Advance together with all interest accrued thereon and all other sums then due and outstanding from the Borrower hereunder shall automatically become immediately due and payable), for so long as such event is continuing unwaived by the Lender do each or any of the following: 26 (1) declare, by written notice to the Borrower, the Outstanding Advance together with all interest accrued thereon and all other sums then due and outstanding hereunder from the Borrower to be immediately due and payable, whereupon the same shall become immediately due and payable; and/or (2) enforce all or any of its security under the Security Documents; and (3) terminate this Agreement,. whereupon the Lender shall cease to be obliged to make, if not already made, the Advance hereunder. 14.2 If the Advance shall be declared immediately due and payable as aforesaid, the Borrower shall pay to the Lender such amount as the Lender certifies to be necessary to compensate it for any loss incurred (excluding loss of Margin) or to be incurred on account of deposits acquired or arranged in order to fund such Advance as a consequence of such Event of Default. 14.3 The rights conferred on the Lender pursuant to this clause 14 shall be in addition to whatever rights the Lender may have both at law and in equity. 14.4 The Lender may waive any default by the Borrower 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. 14.5 The Borrower agrees to indemnify and keep indemnified the Lender from and against any loss, cost (including any cost of enforcement), liability (including any tax liability), claim or damage which the Lender incurs or suffers as a consequence of the occurrence of any Event of Default and the indemnity may, without limiting the Lender's rights, be claimed as a debt or liquidated demand. 27 15. DEFAULT INTERESTINTEREST 15.1 If any sum due and payable by the Borrower hereunder is not paid on the due date therefor or if any sum due and payable by the Borrower under any judgement or decree of any court in connection herewith is not paid on the date of such judgement or decree, the period beginning on such due date or, as the case may be, the date of such judgement or decree and ending on the date upon which the obligation of the Borrower to pay such sum (the balance thereof for the time being unpaid being herein referred to as an "UNPAID SUM") is discharged shall be divided into successive periods, each of which (other than the first) shall start on the last day of the preceding such period and the duration of each of which shall (except as otherwise provided in this clause 15) be selected by the Lender. 15.2 During each such period relating thereto as is mentioned in clause 15.1 an unpaid sum shall bear interest at the rate per annum which is the sum from time to time of two per cent and the Margin in respect thereof at such time and LIBOR on the first day of the relevant period provided that: (1) if, for any such period, LIBOR cannot be determined, the rate of interest applicable to such unpaid sum shall be the rate per annum which is the sum of two per cent and the Margin in respect thereof at such time and the rate per annum determined by the Lender to be equal to the rate which express as a percentage rate per annum equals the cost to it of funding such unpaid sum for such period from whatever sources it may select; and (2) if such unpaid sum is all or part of the Advance which became due and payable on a day other than an Interest Payment Date therefor, the first such period applicable thereto shall be of a duration equal to the unexpired portion of that Interest Period and the rate of interest applicable thereto from time to time during such period shall be that which exceeds by two per cent the rate which would have been applicable to it had it not so fallen due. 15.3 Any interest which shall have accrued under this clause 15 in respect of an unpaid sum shall be due and payable and shall be paid by the Borrower at the end of the period by reference to which it is calculated or on such other dates as the Lender may specify by written notice to the Borrower. 1.1 16. CALCULATIONS 16.1 The Borrower shall, for each Interest Payment Date, calculate the Collateral Percentage for that date, such calculation to be done as soon as possible after the applicable Determination Date and in any event no later than the third Business Day prior to the Interest Payment Date in question and shall notify the same to the Lender, immediately upon calculation of the same. 16.2 The Lender shall, for the purposes of the calculation under clause 16.1 notify the Borrower of the fair market value of the Securitisation Residuals financed under this 28 Agreement which have not, at the relevant time, been sold or otherwise disposed of by the Borrower, as determined by the Lender, in good faith. 16.3 The Lender's determination of the matters to be notified to the Borrower under this clause shall, in the absence of manifest error or bad faith, be final and binding on the parties hereto. 16.4 The Borrower's determination of the Collateral Percentage once agreed by the Lender under clause 16.5 shall, in the absence of manifest error or bad faith (on the part of either party), be final and binding on the parties hereto. 16.5 The Lender shall use reasonable endeavours to agree the Borrower's determinations of the Collateral Percentage within three Business Days of notification of the same to the Lender. 17. CURRENCY OF ACCOUNTOF ACCOUNT 17.1 Sterling is the currency of account and payment for each and every sum at any time due from the Borrower hereunder provided that each payment in respect of costs and expenses shall be made in the currency in which the same were incurred. 17.2 If any sum due from the Borrower under this Agreement or any order or judgement given or made in relation hereto has to be converted from the currency (the "FIRST CURRENCY") in which the same is payable hereunder or under such order, decree or judgement into another currency (the "SECOND CURRENCY") for the purpose of (a) making or filing a claim or proof against the Borrower, (b) obtaining an order, decree or judgement in any court or other tribunal or (c) enforcing any order, decree or judgement given or made in relation hereto, the Borrower shall indemnify and hold harmless each of the persons to whom such sum is due from and against any loss suffered as a result of any discrepancy between (i) the rate of exchange used for such purpose to convert the sum in question from the first currency into the second currency and (ii) the rate or rates of exchange at which such person may in the ordinary course of business purchase the first currency with the second currency upon receipt of a sum paid to it in satisfaction, in whole or in part, of any such order, judgement, decree, claim or proof. 18. SET-OFF-OFF 18.1 The Borrower authorises the Lender to apply any credit balance to which the Borrower is entitled on any account of the Borrower with the Lender in satisfaction of any sum due and payable from the Borrower to the Lender hereunder but unpaid. 18.2 All payments required to be made by the Borrower hereunder shall be calculated without reference to any set-off, deduction or counterclaim and shall be made free and clear of and without any deduction for or on account of any set-off, deduction or counterclaim. 29 19. CALCULATION OF INTERESTOF INTEREST Interest shall accrue from day to day and shall be calculated on the basis of a year of 365 days and the actual number of days elapsed. 20. COSTS AND EXPENSESAND EXPENSES 20.1 The Borrower shall, save where expressed to the contrary in any other Transaction Document, from time to time on demand of the Lender, reimburse the Lender for all reasonable costs and expenses (including legal fees) together with any VAT thereon incurred by it in connection with the negotiation, preparation and execution of this Agreement, the Transaction Documents and the completion of the transactions pursuant to this Agreement or the Transaction Documents or in connection with the preservation and/or enforcement of any of the rights of the Lender under this Agreement and the Transaction Documents. 20.2 The Borrower shall pay all stamp, registration and similar taxes to which this Agreement or any judgement or decree given in connection herewith is or at any time may be subject (including in relation to the perfection of security granted by the Security Documents) and shall, from time to time on demand of the Lender, indemnify the Lender against any liabilities, costs, claims and expenses resulting from any failure to pay or any delay in paying any such tax. 20.3 The Borrower shall, from time to time on demand of the Lender compensate the Lender at such daily and/or hourly rates as the Lender shall from time to time reasonably determine for the time and expenditure, all costs and expenses (including telephone, fax, copying, travel and personnel costs) incurred by the Lender in connection with its taking such action as it may deem appropriate or in complying with any request by the Borrower in connection with (a) the granting or proposed granting of any waiver or consent requested hereunder by the Borrower; (b) any actual, potential or reasonably suspected breach by the Borrower of its obligations hereunder; (c) the occurrence of any event which is an Event of Default or a Potential Event of Default; or (d) any amendment or proposed amendment hereto requested by the Borrower. 20.4 The Borrower, agrees to indemnify the Lender and its immediate parent company (collectively, "INDEMNITEES") from and against any and all liabilities, obligations, losses or damages, arising from suits, claims or actions brought by third parties against the Indemnitees (including, without limitation, any reasonable, costs, expenses or disbursements relating to the forgoing) arising out of this Agreement, or any action taken or omitted by the Lender under or pursuant to this Agreement, provided that the Borrower shall not be liable for any portion of such liabilities, obligations, losses (excluding consequential losses) or damages resulting from the gross negligence or wilful misconduct of such Indemnitee as finally determined by a court of competent jurisdiction. The foregoing agreements shall survive termination or expiration of this Agreement for a period of three years. 30 21. REMEDIES AND WAIVERSAND WAIVERS No failure to exercise, nor any delay in exercising, on the part of the Lender, any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise thereof or the exercise of any other right or remedy. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law. 22. CONFIDENTIALITY The Parties shall not, without the prior written consent of the other parties hereto, disclose to any person the existence or any details concerning the Transaction Documents except to the extent such disclosure is contemplated in any Transaction Document, or is required pursuant to the application of any applicable law or an order of a court of competent jurisdiction, or is made to the that party's auditors or other professional advisors who are subject to confidentiality restrictions imposed by a professional body which are substantially similar to those set forth above. 23. NOTICES 23.1 ADDRESSES Any notice or other communication or document to be made or delivered under this Agreement shall be made or delivered by fax or otherwise in writing. Each notice, communication or other document to be delivered to any party to this Agreement shall (unless that other person has by fifteen days' written notice to the other party specified another address or fax number) be made or delivered to that person at the address(es) or fax number (if any) set out below:- (1) in the case of the Lender to 203 629 8363, attention John C. Anderson with a simultaneous copy to 203 629 4571, attention General Counsel; (2) in the case of the Borrower to: c/o Ocwen Capital Corporation The Forum 1675 Palm Beach Lakes Boulevard Suite 1002 West Palm Beach Florida 33401 USA for the attention of: John Erbey, Corporate Secretary Tel: + (561) 682 8000 Fax: + (561) 682 8177 With a copy to: 31 Joseph A Dlutowski Senior Vice President Ocwen Capital Corporation The Forum 1675 Palm Beach Lakes Boulevard Suite 1002 West Palm Beach Florida 33401 USA for the attention of: Corporate Secretary Tel: + (561) 682 8661 Fax: + (561) 682 8163 23.2 DEEMED DELIVERY Any notice, communication or document to be delivered to any person shall be deemed to have been delivered:- (1) in the case of personal delivery, at the time of such delivery; (2) in the case of delivery by post, on the business day following the day on which it was posted and in proving such delivery it shall be sufficient to prove that the relevant notice, communication or document was properly addressed, stamped and posted (by airmail, if to another country) in the United Kingdom or, in the case of service to or from an address outside the United Kingdom at 9.00 a.m. on the fourth day following the day on which it was posted; (3) in the case of any notice or other communication by fax, (a) on the business day the same was transmitted so long as there is evidence that such fax message was received prior to 5.00 p.m. local time of the recipient on such day and such day is a business day for the recipient, otherwise (b) on the business day following the day on which it was transmitted and, in either case, in proving such delivery it shall be sufficient to prove that the whole of the fax message was received on any fax machine of the recipient and that there was no evidence that such transmission had been interrupted. 24. SEVERABILITY If at any time any provision of this Agreement is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, that shall not affect or impair:- (1) the legality, validity or enforceability in that jurisdiction of any other provision of this Agreement; or 32 (2) the legality, validity or enforceability under the law of any other jurisdiction of that or any other provision of this Agreement. 25. ASSIGNMENT 25.1 The Lender may at any time:- (1) sub-participate part (but not the whole) of its rights or benefits under this Agreement provided that at any time, no more than 51% of its rights and benefits hereunder may be sub-participated; and (2) assign or transfer part (but not the whole) of its rights or benefits under this Agreement provided that at any time, no more than 51% of its rights and benefits hereunder may be assigned or transferred and provided further that:- (1) if such assignment or transfer is to any person other than a subsidiary, holding company of or other member of the Lender's group such assignment or transfer shall require the prior consent of the Borrower (such consent not to be unreasonably withheld); and (2) if, at the time and as a result of any proposed transfer or assignment, the Borrower would incur any increased cost or be liable to make payments in excess of those required to be made hereunder immediately prior thereto (other than any minimum liquid asset costs) such assignment or transfer is on terms that the Borrower is not and will not be liable for any such increased cost or liability. 25.2 The Borrower shall not be entitled to assign, transfer or otherwise dispose of all or any of its rights or benefits under this Agreement without the prior written consent of the Lender. 25.3 The Lender may disclose to a proposed assignee, transferee or sub-participant information in its possession relating to the provisions of this Agreement and the Transaction Documents which it considers necessary or desirable to disclose for the purposes of the proposed assignment, transfer or sub-participation, notwithstanding the provisions of clause 22 (Confidentiality), provided that the Lender obtains from such assignee, transferee, or sub-participant a confidentiality undertaking on the same terms as Clause 22 or such other terms as may be agreed between the Borrower and the Lender. 25.4 This Agreement shall bind and inure to the benefit of and be enforceable by the Lender and its respective successors, transferees and assigns and references to the Lender shall be deemed to include references to each of the foregoing. 33 26. NO MARSHALLING The Borrower consents and agrees that neither the Lender nor any Person acting for or on behalf of the Lender shall be under any obligation to marshal any assets in favor of the Borrower or against or in payment of any or all of the obligations hereunder or under any Transaction Document. 27. FURTHER ASSURANCE The Borrower shall, from time to time on being required to do so by the Lender, now or at any time in the future, do or procure the doing of all such acts and/or execute or procure the execution of all such documents in a form satisfactory to the Lender as the Lender may consider necessary for giving full effect to this Agreement and the Transaction Documents and securing to the Lender the full benefit of the rights, powers and remedies conferred upon the Lender in this Agreement or any Transaction Documents. 28. AGENT FOR SERVICE 28.1 The Borrower irrevocably agrees that any Service Document may be sufficiently and effectively served on it in connection with Proceedings, whether pursuant to this Agreement or any other Transaction Document, in England and Wales by service on its agent Ocwen Limited, Ref: Keith Ainsworth, if no replacement agent has been appointed and notified to the Lender pursuant to sub-clause 28.4, or on the replacement agent if one has been appointed and notified to the Lender. 28.2 Any Service Document served pursuant to this clause shall be marked for the attention of: (1) Ocwen Limited, c/o Edge & Ellison at 18 Southampton Place, London, WC1A 2AJ (Reference: Keith Ainsworth) or such other address within England and Wales as may be notified to the Lender by the Borrower and the Guarantor; or (2) such other person as is appointed as agent for service pursuant to sub-clause 28.4 at the address notified pursuant to sub-clause 28.4. 28.3 Any document addressed in accordance with sub-clause 28.2 shall be deemed to have been duly served if:- (1) left at the specified address, when it is left; or (2) sent by first class post, two clear Business Days after the date of posting. 1.4 If the agent referred to in sub-clause 28.1 (or any replacement agent appointed pursuant to this sub-clause) at any time ceases for any reason to act as such, the Borrower shall appoint a replacement agent to accept service having an address for service in England or Wales and shall notify the Lender of the name and address of the replacement agent; failing such appointment and notification, the Lender shall be 34 entitled by notice to the Borrower to appoint such a replacement agent to act on the Borrowers' behalf. 1.5 A copy of any Service Document served on an agent pursuant to this clause shall be sent by post to the Borrower at its address for the time being for the service of notices and other communications under clause 23 (Notices), but no failure or delay in so doing shall prejudice the effectiveness of service of the Service Document in accordance with the provisions of sub-clause 28.1 1.6 Each party irrevocably consents to the service of process of any of the courts in Submitted States in any such action or Proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid to the party's notice address specified above, such service to become effective upon receipt of evidence of the receipt thereof. 29. ENTIRE AGREEMENT This Agreement (together with the Transaction Document, entered into on or after the date hereof) constitutes the whole and only agreement between the parties relating to the secured, guaranteed residuals facility relating to CMR1 to CMR6 (as described in the commitment letter between Greenwich Capital Markets, Inc and Ocwen Financial Corporation dated 31 March, 1998) and supersedes and extinguishes any prior drafts, agreements, undertakings, representations, warranties and arrangements of any nature whatsoever, including without limitation the said commitment letter provided that the provisions of said commitment letter under the heading "The Residual Financing Facilities" and "Miscellaneous" (insofar as they relate to the foregoing) relating to the Subsequent Residual Facility shall remain and be effective for the purposes of OFC having available in accordance with the terms thereunder the Subsequent Residual Facility. 35 30. GOVERNING LAW 30.1 This Agreement shall be governed by and construed in accordance with the laws of England. 30.2 The parties to this Agreement irrevocably agree that the courts of England are to have jurisdiction to settle any dispute which may arise out of or in connection with this Agreement and any other Transaction Document and that accordingly any proceeding, suit, or action arising out of or in connection with this Agreement or any other Transaction Document ("Proceedings") may be brought in such courts. 30.3 Without prejudice to sub-Clause 30.2, all the parties further irrevocably agree that any Proceedings may be brought in any court of the State of New York, or the State of Florida or any other state of the United States, where any party has its chief executive office (all of such states being the "Submitted States") or federal court sitting in the Submitted States and any court having jurisdiction over appeals of matters heard in such courts and each of the parties hereto irrevocably submits to the non-exclusive jurisdiction of such courts. 30.4 Each of the parties hereto irrevocably waives any objection it may have now or hereafter to the laying of the venue of any Proceedings in any such court as is referred to in this clause and any claim of forum non conveniens and further irrevocably agrees that a judgment in any Proceedings brought in any court referred to in this clause shall be conclusive and binding upon it and may be enforced in the courts of any other jurisdiction. IN WITNESS WHEREOF, this Agreement is duly executed the date and year first above written. for and on behalf of OCWEN ASSET INVESTMENT - UK, LLC a Delaware limited liability company By: /s/ J. A. Dlutowski ---------------------- Name: J. A. Dlutowski Title: Authorised Officer 36 for and on behalf of GREENWICH CAPITAL FINANCIAL PRODUCTS, INC. By: /s/ John C Anderson ------------------- Name: John C Anderson Title: Senior Vice President 37 EX-27 6 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM OCWEN ASSET INVESTMENT CORP'S CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0001033643 OCWEN ASSET INVESTMENT CORP. 1 USD 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 1 7,609,603 200,537,146 0 0 0 0 0 0 447,725,270 177,614,055 0 0 0 191,250 264,166,168 447,725,270 0 (8,800,622) 0 1,009,690 189,655 0 693,817 (10,504,242) 0 (10,504,242) 0 0 0 (10,504,242) (0.55) (0.54) Tag 10 includes Cash and amounts due from depository institutions of $373,097 and Interest bearing deposits of $7,236,506. Tag 11 includes securities held for trading of $42,545,318 and securites available for sale of $157,991,828. Tag 28 includes Interest income on Repurchase agreements and interest bearing deposits of $198,138, on Securities held for trading of $(2,637,259), on Securities available for sale of $4,648,582, on Loans of $1,240,807, and on Discount loans of $902,777, operating income of $803,961 and loss on securities held for trading of $(13,957,628). Tag 30 includes Provision for loan losses of $105,073, Management fess of $828,881, Due diligence expenses of $192,689, and Foreign currency gains of $(116,953). Tags 34, 36 and 40 exclude minority interest in net loss of operating partnership of $189,542.
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