-----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, J9bXmTubH0p7v7OCnbMH7dJ2d+31GcFLwi/kbMgUvh37ynesiPDat3cKSNy26GPE +mygtfCTeUoHpNlqW1VuHQ== 0000950124-98-007742.txt : 19981229 0000950124-98-007742.hdr.sgml : 19981229 ACCESSION NUMBER: 0000950124-98-007742 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BINGHAM FINANCIAL SERVICES CORP CENTRAL INDEX KEY: 0001044862 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 383313951 STATE OF INCORPORATION: MI FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-34453 FILM NUMBER: 98776559 BUSINESS ADDRESS: STREET 1: 31700 MIDDLEBELT TOAD SUITE 145 CITY: FARMINGTON HILLS STATE: MI ZIP: 48334 BUSINESS PHONE: 2489329656 MAIL ADDRESS: STREET 1: 317 MIDDLEBELT ROAD SUITE 145 CITY: FARMINGTON HILLS STATE: MI ZIP: 48334 FORMER COMPANY: FORMER CONFORMED NAME: MANUFACTURED HOME LENDING CORP DATE OF NAME CHANGE: 19970822 10-K 1 FORM 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO _____________ Commission File No. 0-23381 BINGHAM FINANCIAL SERVICES CORPORATION (Exact name of registrant as specified in its charter) STATE OF MICHIGAN 38-3313951 State of Incorporation I.R.S. Employer I.D. No. 260 EAST BROWN STREET SUITE 200 BIRMINGHAM, MICHIGAN 48009 (248) 644-5470 (Address of principal executive offices and telephone number) Securities Registered Pursuant to Section 12(b) of the Act: NONE Securities Registered Pursuant to Section 12(g) of the Act: COMMON STOCK, NO PAR VALUE Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] 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 --- --- As of December 4, 1998, the aggregate market value of the Registrant's voting stock held by non-affiliates of the Registrant was approximately $17,767,187.50, determined in accordance with the highest price at which the stock was sold on such date as reported by the Nasdaq SmallCap Market. As of December 4, 1998, there were 1,576,818 shares of the Registrant's common stock issued and outstanding. 2 PART I ITEM 1. BUSINESS GENERAL Bingham Financial Services Corporation (the "Company") is a specialized financial services company, providing financing for new and previously owned manufactured homes. Through acquisitions during 1998, the Company's business has expanded to include commercial lending and mortgage servicing for income-producing properties. The Company has recently moved its executive office to 260 East Brown Street, Suite 200, Birmingham, Michigan 48009 and its new telephone number is (248) 644-5470. The Company, which is a Michigan corporation, employed 25 people as of September 30, 1998. HISTORY OF THE COMPANY The Company was incorporated in August, 1996 as an affiliate of Sun Communities, Inc. ("Sun"), a fully integrated publicly held real estate investment trust ("REIT"), and began transacting business in January of 1997. The Company completed its initial public offering on November 13, 1997. At that time, the Company's business was focused primarily on providing financing for new and previously owned manufactured homes by making conventional loans under installment loan contracts secured by the borrower's manufactured home ("Contracts"). The Company was formed by Sun in response to the growing need to provide timely and competitive financing to residents in manufactured home communities owned and managed by Sun ("Sun Communities"). Sun is one of the nation's largest owners and managers of manufactured housing communities. Established in 1975, Sun became a public company in 1993 with its common stock listed on the New York Stock Exchange under the symbol SUI. Sun has experienced rapid growth since becoming public, growing from 24 communities and 6,500 developed sites to 104 communities and over 37,000 developed sites as of September 30, 1998. STRUCTURE OF THE COMPANY Sun assisted in forming the Company by loaning the Company amounts required to fund the Company's Contracts pursuant to a demand note which was paid in full with the proceeds from the Company's initial public offering. In addition, Sun through its operating subsidiary, Sun Communities Operating Limited Partnership (collectively, "Sun"), continues to provide financial assistance pursuant to a subordinated debt facility consisting of a $4 million term loan and a $6 million five year revolving credit facility (the "Subordinated Debt Facility") as well as a $12 million demand line of credit. In connection with the Subordinated Debt Facility, the Company issued common stock purchase warrants to Sun to purchase up to 400,000 shares of common stock at the initial public offering price of $10 per share. Sun also entered into an arrangement with the Company whereby Sun offers the Company as the only preferred financing source to home purchasers and home owners in Sun Communities. For its services, Sun receives an annual fee based on average loan balances, which fee was $85,000 for the year ended September 30, 1998, and the Company granted Sun 330,000 options to purchase common stock of the Company which will vest in eight equal annual amounts beginning in January 2001. The Company paid Sun a fee of $75,000 for the year ended September 30, 1998 as reimbursement for general and administrative expenses. The operations of the Company are carried on through certain subsidiaries (the "Subsidiaries"), including MHFC, Inc., a Michigan corporation ("MHFC"), I.J.K. Insurance Agency, Inc., MHFC -2- 3 of New Mexico, Inc., Bloomfield Acceptance Company, L.L.C. ("Bloomfield") and Bloomfield Servicing Company, L.L.C. ("Bloomfield Servicing"). Substantially all of the Company's assets are held by or through MHFC and Bloomfield, of which the Company is the sole shareholder and sole member, respectively. MAJOR ACQUISITIONS In March of 1998, the Company, through two wholly owned subsidiaries, acquired (the "Transaction") Bloomfield and its mortgage servicing affiliate Bloomfield Servicing, expanding the Company's business into commercial lending and servicing. As consideration for the Transaction, the Company issued 272,727 shares of Bingham common stock to the members of Bloomfield and Bloomfield Servicing and an additional 9,091 shares of Bingham common stock to certain members to be held in escrow for a period of three years from the closing of the Transaction in accordance with the terms of an escrow agreement. In addition, at some time between May 31, 1999 and May 31, 2000, the Company is required to issue up to that number of shares of Bingham common stock equal in value to $500,000 as additional consideration if the businesses of Bloomfield and Bloomfield Servicing meet certain requirements. FINANCING AND OTHER ACTIVITIES MANUFACTURED HOUSING The Company originates conventional loans that generally range in size from $4,500 to $90,000 and have a term of 5-25 years. The Company has focused its marketing efforts principally through manufactured home community owners and operators. This effort has been targeted at Sun Communities, where the Company's services are offered as the preferred source of financing. The Company continues to take the steps necessary to capture a greater share of the loans generated by home purchasers and owners in Sun Communities. In addition, the Company has also started to originate loans through manufactured home dealers. The Company is responsible for processing credit applications for potential borrowers and adheres to a set of uniform underwriting guidelines to maintain an acceptable level of credit risk with respect to its growing portfolio of loans. The Company has a scoring model which uses a statistically based automated credit scoring system, that is continually refined, which quantifies responses using variables obtained from the applicant's credit application and credit report. This scoring model is based on empirical historical data which helps the Company determine the probability of loan failure and assess what changes in loan terms would make the loan an acceptable risk. The most significant criteria in the scoring model are the applicant's payment history and income. While the scoring model is based on objective criteria, the underwriter has the discretion to award a limited number of points to an applicant for certain credit and value factors. The Company retains a security interest in any manufactured home it finances. To perfect its security interest in the manufactured home, the Company delivers the application for a new certificate of title to the applicable state agency for processing. Once either the new certificate of title or a stamped application form is received by the Company, its security interest is deemed "perfected" under applicable state law. The Company has entered into an agreement with an unaffiliated third party, St. James Servicing Corporation (the "Subservicer") for the servicing of the Contracts (the "Subservicer Agreement"). The Subservicer receives a monthly fee per Contract depending on the number of Contracts it is servicing. The Subservicer Agreement has a 10 year term and terminates if the entire amounts of principal and interest on all loans are paid in full. The Company may terminate the agreement earlier with or without cause upon 90 days written notice to the Subservicer. If the -3- 4 Company terminates the Subservicer Agreement without cause it must pay the Subservicer 3 months' servicing fees. The Company's ability to finance Contracts is dependent on its availability of funds. In March 1998, Sun extended a line of credit of up to $12 million to the Company. The loan is evidenced by a demand promissory note bearing interest at a per annum rate equal to LIBOR plus 140 basis points. The loan is unsecured but with full recourse. In addition, the Company continues to draw from funds available under the Subordinated Debt Facility. The Company has entered into a repurchase arrangement with an unrelated party and has also sold a significant number of Contracts to unrelated financial institutions without retaining servicing and with full recourse to the Company in the event of a default by the borrower. COMMERCIAL MORTGAGE BANKING BUSINESS GENERAL Through Bloomfield and Bloomfield Servicing, the Company participates and is active in all aspects of commercial real estate mortgage banking, including originating, underwriting, placing, securitizing, and servicing commercial real estate loans. Bloomfield acts as both a direct lender, making commercial real estate loans for its own portfolio as well as for accumulation and securitization, and as a traditional mortgage banker, placing commercial real estate loans with institutional investors. Much of Bloomfield's activities are focused on the manufactured housing industry and the Company believes that Bloomfield is one of the largest originators of loans on manufactured home communities in the country. A manufactured home community is a residential subdivision designed and improved with sites for the placement of manufactured homes and related improvements and amenities. From January 1, 1998 through the end of the Company's fiscal year, Bloomfield had originated approximately $185 million of loans on manufactured home communities. LENDING Bloomfield sources lending opportunities on a nationwide basis from direct borrower inquiry as well as from mortgage bankers. Loan applications are processed at the Company's offices in Birmingham, Michigan where due diligence is performed, including an analysis of property operating history, appraisal report, environmental report, borrower creditworthiness, credit history and experience. Bloomfield performs on-site property inspection and local market analysis. Bloomfield historically has funded its direct lending operations through simultaneous buy/sell arrangements with major institutional investors, earning origination and servicing fees. Beginning in May 1998, Bloomfield began funding loans primarily through a repurchase agreement with a Wall Street investment bank, in expectation of receiving the benefit of greater securitization profits by taking on the risk of hedging and aggregation. It is expected that Bloomfield will fund the bulk of its future direct lending activities through similar arrangements. A portion of Bloomfield's direct lending activities will remain on the balance sheet. As of the end of the fiscal year, Bloomfield maintained a portfolio of $65.5 million of loans. TRADITIONAL MORTGAGE BANKING Bloomfield places commercial real estate mortgage loans with institutional investors, primarily life insurance companies that it represents on an exclusive or semi-exclusive basis. The bulk of -4- 5 these activities take place in Michigan. SERVICING Bloomfield Servicing services loans that Bloomfield originates. Historically, the majority of the loans made on a direct lending basis were serviced until the loan was securitized, at which time Bloomfield Servicing received a servicing termination fee. Beginning in May 1998, Bloomfield Servicing began retaining the servicing of its direct loans and it is expected that the size of Bloomfield Servicing's servicing portfolio will increase. It addition to Bloomfield's loans, Bloomfield Servicing services commercial real estate loans on behalf of five institutional investors. The majority of these loans are in Michigan. As of September 30, 1998, Bloomfield Servicing's servicing portfolio totaled approximately $374 million. The entire portfolio was current. DELINQUENCY AND REPOSSESSION The Subservicer is responsible for the servicing of Contracts from the time of funding until the loan is paid in full. This servicing includes processing payments and issuing delinquent letters of 7 days and 17 days, and a 27 day default letter. The Company is responsible for collecting loans that are over 30 days delinquent and it hires a local attorney after the expiration of the 27 day default letter. The local attorney issues a 30 day demand letter, at which time full payment must be made on all arrearages including late fees and attorney fees. The Company generally repossesses the manufactured home after payments have become 60 to 90 days delinquent if the Company is not able to work out a satisfactory arrangement with the borrower. Sun and an affiliate of Sun may assist with foreclosure and the sale of the manufactured home after repossession. In an effort to minimize repossessions on Contracts sold with full recourse, the Company monitors the servicing and collection efforts of the financial institutions to which the Company has sold Contracts with full recourse. The Company maintains a reserve for estimated credit losses on Contracts owned by the Company or sold to third parties with full recourse. The Company provides for losses in amounts necessary to maintain the reserves at levels the Company believes are sufficient to provide for future losses based on the Company's historical loss experience, current economic conditions and portfolio performance measures. For fiscal 1998 and 1997, as a result of expenses incurred due to defaults and repossessions, $39,000 and $0, respectively was charged to the reserve for losses on credit sales. The Company's reserve for losses on credit sales at September 30, 1998 was $185,000, as compared to $58,000 at September 30, 1997. In fiscal 1998 and 1997, the Company repossessed 15 and 1 manufactured homes, respectively. The Company's inventory of repossessed homes was 8 homes at September 30, 1998 as compared to 1 home at September 30, 1997. The estimated net realizable value of the repossessed homes in inventory at September 30, 1998 was approximately $194,000. The net losses resulting from repossessions on Company originated loans as a percentage of the average principal amount of such loans outstanding for fiscal 1998 and 1997 was .23% and 0.0%. At September 30, 1998 and September 30, 1997, delinquent installment sales contracts and loans expressed as a percentage of the total number, and of the total amount, of installment sales -5- 6 contracts and loans which the Company services, or has sold with full recourse and are serviced by others, were as follows:
TOTAL DELINQUENCY PERCENTAGE NUMBER OF SEPTEMBER 30, 1998 CONTRACTS ------------------------------------------------------------ AND LOANS --------- 30 DAYS 60 DAYS 90 DAYS TOTAL ------- ------- ------- ----- Company-serviced contracts and loans 803 3.9% 2.2% 2.0% 8.2% (Manufactured Home loans) Contracts and loans sold with full 382 0.0% 0.0% 0.0% 0.0% recourse serviced by others(1) --- ---- ---- ---- ---- 1185 2.6% 1.5% 1.4% 5.5% Company-serviced contracts and loans 13 0.0% 0.0% 0.0% 0.0% (Commercial loans)
TOTAL NUMBER DELINQUENCY PERCENTAGE OF CONTRACTS SEPTEMBER 30, 1997 AND LOANS ----------------------------------------------------------- --------- 30 DAYS 60 DAYS 90 DAYS TOTAL ------- ------- ------- ----- Company -serviced contracts and loans 366 0.0% 0.3% 0.3% 0.6% (Manufactured Home loans) Contracts and loans sold with full 0 0.0% 0.0% 0.0% 0.0% recourse serviced by others - ---- ---- ---- ---- 366 0.0% 0.3% 0.3% 0.6% Company-serviced contracts and loans 0 0.0% 0.0% 0.0% 0.0% (Commercial loans)
TOTAL AMOUNT DELINQUENCY PERCENTAGE OF CONTRACTS SEPTEMBER 30, 1998 AND LOANS ----------------------------------------------------------- --------- (Dollars in thousands) 30 DAYS 60 DAYS 90 DAYS TOTAL ------- ------- ------- ----- Company-serviced contracts and loans $ 22,674 3.2% 2.2% 1.6% 7.0% (Manufactured Home loans) Contracts and loans sold with full $11,218 0.0% 0.0% 0.0% 0.0% recourse serviced by others(1) ------- ---- ---- ---- ---- $33,892 2.2% 1.5% 0.5% 4.2% Company-serviced contracts and loans $65,546 0.0% 0.0% 0.0% 0.0% (Commercial loans)
-6- 7
TOTAL AMOUNT DELINQUENCY PERCENTAGE OF CONTRACTS SEPTEMBER 30, 1997 AND LOANS ----------------------------------------------------------- --------- (Dollars in thousands) 30 DAYS 60 DAYS 90 DAYS TOTAL ------- ------- ------- ----- Company-serviced contracts and loans $9,556 .59% .13% .61% 1.33% (Manufactured Home loans) Contracts and loans sold with full 0 0.0% 0.0% 0.0% 0.0% recourse serviced by others - ---- ---- ---- ---- $9,556 .59% .13% .61% 1.33% Company-serviced contracts and loans 0 0.0% 0.0% 0.0% 0.0% (Commercial loans)
(1) On September 30, 1998 the Company completed a sale of 382 loans with a total principal balance of approximately $11.2 million. At the time of the sale the loans were all current. They are included in the above tables to more accurately reflect delinquency percentages of the portfolio. INSURANCE IJK Insurance Agency, Inc., a subsidiary of the Company, is a licensed agent placing property and casualty, credit life and warranty insurance, primarily for the Company's manufactured home loans. COMPETITION The manufactured housing finance industry is very fragmented and highly competitive. There are numerous non-traditional consumer finance sources serving this market. Several of these financing sources are larger than the Company and have greater financial resources. In addition, some of the manufactured housing industry's larger manufacturers maintain their own finance subsidiaries to provide financing for purchasers of their manufactured homes. Historically, traditional financing sources (commercial banks, savings and loans, credit unions and other consumer lenders), many of which have significantly greater resources than the Company and may be able to offer more attractive terms to potential customers, have not consistently served this market. The Company believes that its relationship with Sun, its focus on community owners and operators, its prompt and consistent review of credit applications and its emphasis on providing a high level of service enable it to compete effectively for the purchase price financing and refinancing of manufactured homes. However, to the extent that traditional and non-traditional lenders significantly expand their activity in this market, the Company may be adversely affected. There is no assurance that the Company will be able to effectively compete against its existing or any future competitors. The Company's manufactured home finance business is generally subject to seasonal trends, reflecting the general pattern of sales of manufactured homes peaking during the spring and summer months and declining to lower levels from mid-November through January. The Company's commercial lending business is highly competitive and Bloomfield operates on a nationwide basis against a host of local, regional and national lenders. Many of its competitors are larger and have greater financial resources than the Company. Traditionally, the Company's competitors included banks and thrifts, life insurance companies, mortgage bankers and credit companies. More recently, the competition has expanded to encompass Wall Street brokerage -7- 8 houses, either directly or through proxies or "conduits." The Company believes that the industry is in a state of transition and rapid consolidation and while the Company believes that it is well-positioned to compete effectively in this environment, there can be no assurances that it will do so. REGULATION AND SUPERVISION The Company is subject to regulation and licensing under various federal and state statutes and regulations. The Company's manufactured home finance business currently is conducted in the states of Alabama, Arizona, Colorado, Delaware, Florida, Georgia, Illinois, Indiana, Kansas, Michigan, Missouri, North Carolina, Ohio, Oregon, South Carolina, Texas and Virginia, and the Company currently intends to operate in the states of California, Idaho, Nevada, North Dakota, New Mexico, Utah and Washington. Most states where the Company operates: (i) limit the interest rate and other charges that may be imposed under, or prescribe certain other terms of, the Contracts; (ii) regulate the sale and type of insurance products that the Company may offer and the insurers for which it will act as agent; and (iii) define the Company's rights to repossess and sell collateral. The Company is licensed to conduct its finance operations in the states of Alabama, Colorado, Delaware, Florida, Indiana, Kansas, Michigan, Missouri, North Carolina, Ohio, Texas and Virginia. No license is required to conduct the Company's manufactured home finance operations in Arizona, Georgia, Illinois, Oregon and South Carolina. The Company is subject to numerous federal laws, including the Truth in Lending Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act and the rules and regulations promulgated thereunder, and certain rules of the Federal Trade Commission. These laws require the Company to provide certain disclosures to applicants, prohibit misleading advertising and protect against discriminatory financing or unfair credit practices. The Truth in Lending Act and Regulation Z promulgated thereunder require disclosure of, among other things, the terms of repayment, the final maturity, the amount financed, the total finance charge and the annual percentage rate charged on each Contract. The Equal Credit Opportunity Act prohibits creditors from discriminating against loan applicants (including retail installment contract obligors) on the basis of race, color, sex, age or marital status. Under the Equal Credit Opportunity Act, creditors are required to make certain disclosures regarding consumer rights and advise consumers whose credit applications are not approved of the reasons for the rejection. The Fair Credit Reporting Act requires the Company to provide certain information to consumers whose credit applications are not approved on the basis of a report obtained from a consumer reporting agency. The rules of the Federal Trade Commission limit the types of property a creditor may accept as collateral to secure a consumer loan and its holder in due course rules provide for the preservation of the consumer's claims and defenses when a consumer obligation is assigned to a subject holder. The Credit Practices Rule of the Federal Trade Commission imposes additional restrictions on loan provisions and credit practices. The sale of insurance products by the Company is subject to various state insurance laws and regulations which govern allowable charges and other practices. The regulatory procedures discussed above are subject to changes by the regulatory authorities. There are no assurances that future regulatory changes will not occur. These regulatory changes could place additional burdens on the Company. ITEM 2. PROPERTIES FACILITY The Company's corporate headquarters is approximately 14,800 square feet, terminates on October 31, 2001 and is located in Birmingham, Michigan. The lease on this space currently -8- 9 provides for monthly rent of $28,700 per month, including base rent and a pro rata share of operating expenses and real estate taxes. The Company has an option to renew the lease for an additional 3 years. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal, governmental, administrative or other proceedings to which the Company is a party or of which any of its property is the subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders during the fourth quarter of the fiscal year covered by this report. PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock has been listed on the Nasdaq SmallCap Market ("Nasdaq") since May 11, 1998 under the symbol "BFSC" and was previously traded on the NASD OTC Bulletin Board. On December 4, 1998, the closing sales price of the Common Stock was 16 1/8 and the Common Stock was held by approximately 38 holders of record and approximately 750 beneficial holders. The following table sets forth, for the periods indicated, the range of the high and low sales prices.
High Low ---- --- FISCAL YEAR ENDED SEPTEMBER 30, 1998 First Quarter ended 12/31/97................................... 10 3/8 9 Second Quarter ended 3/31/98................................... 16 9 3/8 Third Quarter ended 6/30/98................................... 22 3/4 16 1/8 Fourth Quarter ended 9/30/98................................... 28 1/2 13 1/4
The Company has never paid cash dividends on its Common Stock. The Company currently intends to retain any earnings for use in its operations and does not anticipate paying cash dividends in the foreseeable future. The following chart sets forth the information regarding all securities issued by the Company during the year ended September 30, 1998, which were not registered under the Securities Act:
Conversion/ Securities Issued Date of Issuance Purchaser Consideration Exemption Exercise price - ----------------- ---------------- --------- ------------- --------- -------------- Sun 25,000 shares of Communities, (4)2 of the Common Stock 10/27/97 Inc. $250,000 Securities Act N/A 96,730 shares of Membership (4)2 of the Common Stock 3/05/98 Daniel E. Bober Interest (1) Securities Act N/A 96,730 shares of Creighton J. Membership (4)2 of the Common Stock 3/05/98 Weber Interest (1) Securities Act N/A
-9- 10
Conversion/ Securities Issued Date of Issuance Purchaser Consideration Exemption Exercise price - ----------------- ---------------- --------- ------------- --------- -------------- 25,695 shares of Joseph Membership (4)2 of the Common Stock 3/05/98 Drolshagen Interest in (1) Securities Act N/A 17,130 shares of Membership (4)2 of the Common Stock 3/05/98 James Bennett Interest (1) Securities Act N/A 5,136 shares of Patricia Membership (4)2 of the Common Stock 3/05/98 Jorgensen Interest (1) Securities Act N/A 13,689 shares of Membership (4)2 of the Common Stock 3/05/98 Deborah Jenkins Interest (1) Securities Act N/A 1,708 shares of Membership (4)2 of the Common Stock 3/05/98 Lynn Baszczuk Interest (1)(2) Securities Act N/A 15,000 shares of Membership (4)2 of the Common Stock 3/05/98 James Simpson Interest in (1) Securities Act N/A 7,500 shares of Katheryne Membership 4)2 of the Common Stock 3/05/98 Zelenock Interest (1) Securities Act N/A 2,500 shares of Membership (4)2 of the Common Stock 3/05/98 Jeffrey Urban Interest (1) Securities Act N/A
(1) Membership interest in Bloomfield Acceptance Company, L.L.C and Bloomfield Servicing Company, L.L.C. For a description of the acquisition of Bloomfield Acceptance Company, L.L.C. and Bloomfield Servicing Company, L.L.C., see the Company's Current Report on Form 8-K dated March 5, 1998. (2) Ms. Baszczuk did not hold a membership interest in Bloomfield Servicing Company, L.L.C. ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED PERIOD JANUARY 2 SEPTEMBER 30, 1998 TO SEPTEMBER 30, 1997 ------------------ --------------------- (Dollars in thousands) INCOME STATEMENT DATA: - ---------------------- Revenue $ 6,141 $ 280 Loss before income tax benefit (793) (110) Net loss (574) (110) Loss per common share, basic and diluted (0.46) - BALANCE SHEET DATA: Total assets $ 94,859 $ 9,652 Total debt 78,230 9,747 Stockholders' equity (deficiency) 13,457 (110) SELECTED RATIOS: Return on average assets (1.23%) (2.28%) Return on average equity (deficiency) (4.13) (100.00) Average equity (deficiency) to average assets 29.77 (1.14)
-10- 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company commenced operations in January 1997, for the primary purpose of originating loans on manufactured home "Contracts" located within the communities owned by Sun. The Company was formed by Sun in response to the growing need to provide timely and competitive financing to residents in manufactured home communities. The Company provides financing for new and previously owned manufactured homes to borrowers whose credit needs may or may not be met by traditional financial institutions due to credit expectations or other factors. The Company through one of its subsidiaries also provides warranty, credit life and disability insurance on the contracts it finances. Through acquisitions the Company's business has expanded to include commercial lending and mortgage servicing for income producing properties. The Company expects to extend its business to include the origination of manufactured home loans to communities not owned and operated by Sun, other types of installment loans, expand its mortgage servicing operations and engage in other related businesses through the initiation of new businesses or through the acquisition of existing ones. RESULTS OF OPERATIONS The Company had a loss before federal income tax benefit of $793,000 for the year ended September 30, 1998 on gross revenues of $6.1 million and expenses of $6.9 million. This is compared to a loss of $110,000 on gross revenues of $280,000 and expenses of $390,000 for the period January 2, 1997 (date of inception) through September 30, 1997. Net loss for the Company increased $464,000 versus the $110,000 loss for 1997. The large increase in total gross income was due to a greater number of loans originated in the manufactured home loan portfolio and through the acquisition of a commercial mortgage loan originator in March, 1998. Interest income on manufactured home loans increased to $2.2 million from $280,000 for the year ended September 30, 1998 versus the period ended September 30, 1997. Interest income on the commercial mortgage loan portfolio for the period March 1, 1998 through September 30, 1998 was $1.1 million. The following table sets forth the extent to which the Company's net interest income has been affected by changes in average interest rates and average balances of interest-earning assets and interest-bearing liabilities: -11- 12
YEAR AND PERIOD ENDED SEPTEMBER 30, 1998 AND 1997 ---------------------------------------------------------------------------------- AVERAGE BALANCE AVERAGE RATE INTEREST INCREASE VARIANCE DUE TO: ---------------------------------------------------------------------------------- 1998 1997 1998 1997 1998 1997 (DECREASE)VOLUME RATE ---------------------------------------------------------------------------------- Interest-earning assets: Loans $51,480 $3,879 8.60% 10.83% $3,296 $ 280 $3,016 $2,991 $ 25 Cash and equivalents 3,839 - 3.75% - 84 - 84 84 - ---------------------------------------------------------------------------------- 55,319 3,879 8.26% 10.83% 3,380 280 3,100 3,075 25 ---------------------------------------------------------------------------------- Interest-bearing Liabilities Term loan 4,000 3,727 11.75% 6.98% 392 195 197 20 177 Revolving line of credit 9,540 - 7.00% - 668 - 668 668 - Loans sold under agreement to repurchase 32,549 - 7.15% - 873 - 873 873 - ---------------------------------------------------------------------------------- 46,089 3,727 7.52% 6.98% 1,933 195 1,738 1,561 177 ---------------------------------------------------------------------------------- Interest rate spread 0.74% 3.85% Excess average earning assets $ 9,230 $ 152 8.26% 10.83% ================================== Net interest margin 2.00% 4.12% $1,447 $ 85 $1,362 $1,514 $(152) =============================================================
Mortgage origination and refinance fees totaled $1.2 million for fiscal 1998 on the brokered commercial mortgage loans. The sale of mortgage servicing rights in connection with the commercial mortgage loans originated and serviced resulted in gross revenues of approximately $600,000. No comparable is reported for fiscal 1997 as this is the first year of commercial mortgage origination for the Company. During the latter part of the fourth quarter of 1998, the Company incurred losses due to unprecedented market conditions related to commercial mortgage backed securities and related instruments. The Company recorded $2.4 million of losses related to mark-to-market valuations of commercial mortgage loans held for sale and the related hedge positions. Gain on sale of loans represents the gross income from the sale of approximately $11.2 million of manufactured home loans on a servicing released basis. This is the first year in which the Company has sold a portion of its manufactured home loan portfolio. Interest expense for the year ended September 30, 1998 was $1.9 million versus $195,000 for the period ended September 30, 1997. The Company maintained a significantly higher level of borrowings to fund its increased manufactured home loan originations and commercial mortgage portfolio. Provision for credit losses increased to $147,000 in 1998 from $58,000 in 1997 due to the large increase in the manufactured home loan portfolio. Provision for loan losses is recorded in amounts sufficient to maintain an allowance at a level considered adequate to cover losses from liquidating manufactured home loans and loans sold with recourse. General and administrative and other operating expenses increased to $2.5 million in fiscal 1998 as compared to $137,000 for the period ended September 30, 1997. The large increase was the result of underwriting and originating significantly higher manufactured home loan volumes in fiscal 1998, operations for the full year rather than the shorter period from inception to September 30, 1997, and through the acquisition of Bloomfield and Bloomfield Servicing with the related underwriting, originating and servicing of commercial mortgage loans. The largest -12- 13 increase in general and administrative expenses related to the increase in the number of employees from 4 to 25, including the increase through acquisition. LIQUIDITY AND CAPITAL RESOURCES The Company consummated an initial public offering of 1,200,000 shares of common stock on November 19, 1997. The initial offering price was $10.00, which provided approximate proceeds of $11.2 million. On December 16, 1997, an additional 70,000 shares were issued, which provided approximate proceeds of $651,000. The Company also sold 25,000 shares of common stock to Sun in a private transaction resulting in an additional $250,000 in gross proceeds. In connection with the initial public offering the Company entered into a subordinated loan agreement with Sun. The subordinated loan agreement provides for a subordinated debt facility of up to $10 million, which indebtedness shall be subordinated to all senior debt of the Company. The facility consists of a $4 million term loan with an annual interest rate of 9.75% and a five year revolving line of credit for up to $6 million at an annual interest rate equal to the prime rate plus 125 basis points. In March 1998, Sun provided an additional $12 million revolving line of credit payable upon demand with an annual interest equal to "LIBOR" plus 140 basis points. At September 30, 1998 the Company had used $21.3 million of the subordinated debt and revolving line of credit facilities. In accordance with the subordinated loan agreement the Company issued detachable warrants to Sun covering 400,000 shares of common stock at a price of $10.00 per warrant share. The detachable warrants have a term of seven years and may be exercised at any time after the fourth anniversary of the issuance. In March 1998 the Company's commercial mortgage originating subsidiary entered into a one year master repurchase agreement with a lender to finance up to $150 million of fixed rate commercial loans secured by real estate. In September of 1998 that agreement was amended to include financing of manufactured home, floor plan and bridge loans. At the time of the amendment the maximum financing limit was increased to $250 million. The annual interest rate on the facility is a variable rate of interest equal to "LIBOR" plus a spread, dependent on the advance rate and the asset class. As of September 30, 1998 approximately $56.9 million of borrowings were outstanding under the facility. In September 1998, the Company completed a sale of approximately $11.2 million outstanding principal balance amount of loans from its manufactured home loan portfolio. The sale resulted in approximate proceeds to the Company of $12 million. The Company expects to meet its short-term liquidity requirements through working capital provided by operating activities and proceeds from additional sales of its loan portfolio. Long term liquidity requirements will be met through additional equity offerings, draws on its revolving lines of credit, advances under repurchase agreements and periodic securitizations of its loan portfolio. MARKET RISK Market risk is the risk of loss arising from adverse changes in market prices and interest rates. The Company's market risk arises from interest rate risk inherent in its financial instruments. The Company is not currently subject to foreign currency exchange rate risk or commodity price risk. In the normal course of business, the Company also faces risks that are either nonfinancial or nonquantifiable. Such risks principally include credit risk -13- 14 and legal risk and are not included in the following table. The following table shows the Company's expected maturity dates of its assets and liabilities. For each maturity category in the table the difference between interest-earning assets and interest-bearing liabilities reflects an imbalance between repricing opportunities for the two sides of the balance sheet. The consequences of a positive cumulative gap at the end of one year suggests that, if interest rates were to rise, liability costs would increase more quickly than asset yields, placing negative pressure on earnings.
MATURITY ------------------------------------------------------------ 0 TO 3 4 TO 12 1 TO 5 OVER 5 MONTHS MONTHS YEARS YEARS TOTAL - -------------------------------------------------------------------------------------------------------------------- (In thousands) Assets: Cash and equivalents....................... $ 1,979 $ - $ - $ - $ 1,979 Restricted cash............................ 716 1,537 - - 2,253 Loans receivable........................... 204 85,871 - - 86,075 Other assets............................... 399 2,464 755 934 4,552 ------------------------------------------------------------ $ 3,298 $ 89,872 $ 755 $ 934 $ 94,859 TOTAL ASSETS ============================================================ Liabilities: Advances by mortgagors..................... $ 701 $ 1,537 $ - $ - $ 2,238 Accounts payable and accrued expenses...... 503 123 10 - 636 Advances under repurchase agreement........ 150 56,742 - - 56,892 Subordinated debt.......................... (19) 3,509 - - 3,490 Notes Payable - Sun Communities............ - 17,848 - - 17,848 Other liabilities.......................... - - - 298 298 ------------------------------------------------------------ TOTAL LIABILITIES 1,335 79,759 10 298 81,402 ------------------------------------------------------------ Stockholders' Equity Common stock............................... - - - 13,608 13,608 Paid-in-capital............................ - - - 533 533 Retained deficit........................... - - - (684) (684) ------------------------------------------------------------- TOTAL LIABILITIES AND EQUITY $ 1,335 $ 79,759 $ 10 $ 13,755 $94,859 ============================================================= Reprice difference......................... $ 1,963 $ 10,113 $ 745 $ (12,821) Cumulative gap............................. $ 1,963 $ 12,076 $12,821 $ - Percent of total assets.................... 2.07% 12.73% 13.52% -
The following table shows the Company's financial instruments and derivative instruments that are sensitive to changes in interest rates, categorized by expected maturity, and the instruments' fair values at September 30, 1998. Management believes the negative effect of a rise in interest rates is reduced by the anticipated short duration of the Company's loan receivables. Management intends that the loan receivables will be securitized or sold as part of a whole loan sale prior to the end of 1999. Proceeds from the securitization or whole loan sales would be used to pay down the corresponding debt. This strategy reduces interest rate exposure that might otherwise arise from maturities of debt instruments not matching maturities of assets. The instruments held by the Company are held for purposes other than trading. The Company also manages interest rate risk through the use of forward sales of U.S. Treasury -14- 15 securities to hedge the commercial loan portfolio. The Company uses these instruments to reduce risk by essentially creating offsetting market exposures since the majority of the commercial loans are fixed rate loans that have an annual interest rate equal to a spread over U.S. Treasuries.
MATURITY ------------------------------------------------------------------------------------------ TOTAL 1999 2000 2001 2002 2003 THEREAFTER FAIR VALUE ------------------------------------------------------------------------------------------ Interest sensitive assets: Loans receivable $ 90,369 $ - $ - $ - $ - $ - $ 90,369 Average interest rate 8.60% - - - - - 8.60% Interest bearing deposits 1,979 - - - - - 1,979 Average interest rates 3.75% - - - - - 3.75% ------------------------------------------------------------------------------------------ Total interest sensitive assets $92,348 $ - $ - $ - $ - $ - $ 92,348 ========================================================================================== Interest sensitive liabilities: Borrowings: Advances under repurchase agreements $ 56,892 $ - $ - $ - $ - $ - $ 56,892 Average interest rate 7.15% - - - - - 7.15% Forward sales of U.S. Treasury securities 48,497 - - - - - 48,497 Average interest rate 5.84% - - - - - 5.84% Subordinated debt 3,490 - - - - - 3,490 Average interest rate 11.75% - - - - - 11.75% Note payable - Sun 17,848 - - - - - 17,848 Average interest rate 7.00% - - - - - 7.00% ------------------------------------------------------------------------------------------ Total interest sensitive liabilities $ 126,727 $ - $ - $ - $ - $ - $ 126,727 ==========================================================================================
FORWARD-LOOKING STATEMENTS Certain statements contained in this Annual Report form 10-K which are not historical fact, may be deemed to be forward-looking statements under the federal securities laws. There are many factors that could cause the Company's actual results to differ materially from those indicated in the forward-looking statements. Such factors include but are not limited to general economic conditions, interest rate risk, delinquency and default rates, demand for the Company's services, the degree to which the Company is leveraged and its needs for financing. In addition, it should be noted that past financial and operational performance of the Company is not necessarily indicative of future financial and operational performance. YEAR 2000 Background. Some computers, software, and other equipment include a programming code in which calendar year data is abbreviated to only two digits. As a result of this design decision, some of these systems could fail to operate or fail to produce correct results if "00" is interpreted to mean 1900, rather than 2000. These problems are widely expected to increase in frequency -15- 16 and severity as the year 2000 approaches, and are commonly referred to as "Year 2000 Problem". The Year 2000 Problem could affect computers, software and other equipment used and operated by the Company. Accordingly, the Company is reviewing its internal computer programs and systems to ensure that the programs and systems will be Year 2000 compliant. The Company presently believes that its computer systems will be Year 2000 compliant in a timely manner. The Company believes that it has identified substantially all of the major computers, software applications, and related equipment used in connection with its internal operations that must be modified, upgraded or replaced to minimize the possibility of a material disruption to its business. The Company has commenced the process of modifying, upgrading and replacing those systems that have been identified as adversely affected, and expects to complete this process by early 1999. The Company estimates the total cost of completing any required modifications, upgrades, or replacements of these internal systems will not have a material adverse effect on the Company's business or results of operations. This estimate is being monitored and will be revised as additional information becomes available. The Company is in the process of identifying and contacting its critical suppliers, service providers and contractors to determine the extent to which the Company's interface systems are vulnerable to those third parties' failure to remedy their own Year 2000 issues. To the extent that responses to Year 2000 readiness are unsatisfactory, the Company will seek to change suppliers, service providers or contractors to those that have demonstrated year 2000 readiness, but cannot be assured that it will be successful in finding such alternatives. In the event that any of the Company's significant suppliers, service providers and contractors do not successfully achieve Year 2000 compliance, and the Company is unable to replace them, the Company's business or operations could be adversely affected. The Company expects to identify and resolve all Year 2000 Problems that could materially adversely affect business operations. However, management believes it is not possible to determine with complete certainty that all Year 2000 Problems affecting the Company have been identified or corrected. The number of devices that could be affected and the interactions among these devices are simply too numerous. As a result, management expects that the Company could possibly suffer the following consequences: 1. a significant number of operational inconveniences and inefficiencies for the Company and its clients that may divert management's time and attention and financial and human resources from its ordinary business activities; and 2. a lesser number of serious system failures that may require significant efforts by the Company to prevent or alleviate material business disruptions. The Company does not yet have a comprehensive contingency plan with respect to the Year 2000 Problem, but intends to establish such a plan during fiscal 1999 as part of its ongoing Year 2000 compliance effort. The discussion of the Company's efforts, and management's expectations, relating to Year 2000 compliance are forward-looking statements. The Company's ability to achieve Year 2000 compliance and the level of incremental costs associated therewith, could be adversely impacted by, among other things, the availability and cost of programming and testing resources, vendors' ability to modify proprietary software, and unanticipated problems identified in the ongoing compliance review. -16- 17 RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board (the "FASB") issued SFAS No. 130 "Reporting Comprehensive Income" ("SFAS 130") which is effective for fiscal years beginning after December 15, 1997. SFAS 130 establishes standards for reporting comprehensive income and its components in a full set of general-purpose financial statements. SFAS 130 requires that all components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The adoption of this standard will not have an impact on the Company's financial position or results of operations. In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131") which is effective for fiscal years beginning after December 15, 1997. SFAS 131 establishes standards for reporting information about operating segments in annual financial statements and in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The adoption of this standard will not have an impact on the Company's financial position or results of operations. In February 1998, FASB issued SFAS 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits" ("SFAS 132")), This standard standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis, and eliminates certain disclosures that are no longer as useful as they were when FASB Statement No. 87, Employers' Accounting for Pensions, No. 88, Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, and No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, were issued. It will be adopted effective October 1, 1998 and is not expected to have a material effect on the Company's financial statements. In June 1998, FASB issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). This Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging Activities. This statement will be adopted effective October 1, 1999. In October 1998, FASB issued SFAS No. 134 "Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise", this statement establishes accounting and reporting standards for certain activities of mortgage banking enterprises and other enterprises that conduct operations that are substantially similar to the primary operations of a mortgage banking enterprise. This statement will be adopted effective October 1, 1999 and is not expected to have a material effect on the Company's financial statements. -17- 18 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA BINGHAM FINANCIAL SERVICES CORPORATION FINANCIAL STATEMENTS FURNISHED PURSUANT TO THE REQUIREMENTS OF FORM 10-K AND REPORT OF INDEPENDENT ACCOUNTANTS FOR THE YEAR AND PERIOD ENDED SEPTEMBER 30, 1998 AND 1997 -18- 19 BINGHAM FINANCIAL SERVICES CORPORATION INDEX TO FINANCIAL STATEMENTS Page ---- Report of Independent Accountants........................................... 20 Financial Statements: Consolidated Balance Sheets - September 30, 1998 and 1997................... 21 Consolidated Statements of Operations for the year and period ended September 30, 1998 and 1997........................................ 22 Consolidated Statements of Changes in Stockholders' Equity for the year and period ended September 30, 19987 and 1997................. 23 Consolidated Statements of Cashflows for the year and period ended September 30, 1998 and 1997........................................ 24 Notes to Consolidated Financial Statements.................................. 25 -19- 20 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Bingham Financial Services Corporation In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, changes in stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Bingham Financial Services Corporation and its subsidiaries at September 30, 1998 and 1997, and the results of their operations and their cash flows for the year ended September 30, 1998 and for the period from January 2, 1997 (date of inception) through September 30, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Detroit, Michigan December 18, 1998 -20- 21 BINGHAM FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT FOR SHARES)
SEPTEMBER 30, --------------------------------------- ASSETS 1998 1997 --------------------------------------- Cash and equivalents $ 1,979 $ - Restricted cash 2,253 - Loans receivable 86,075 9,541 Property and equipment, net 655 7 Other assets 3,897 104 ============ ============ Total assets $ 94,859 $ 9,652 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Advances by mortgagors $ 2,238 $ - Accounts payable and accrued expenses 636 15 Advances under repurchase agreements 56,892 - Subordinated debt, net of debt discount of $510 3,490 - Note payable - Sun Communities 17,848 9,747 ------------ ----------- Total liabilities 81,104 9,762 ------------ ----------- Minority Interest 298 - ------------ ----------- Stockholders' equity (deficiency) Preferred stock, no par value, 10,000,000 shares authorized; no shares issued and outstanding - - Common Stock, no par value, 10,000,000 shares authorized; 1,576,818 and 100 shares issued and outstanding at 1998 and 1997 respectively 13,608 - Paid-in capital 533 - Retained earnings (deficit) (684) (110) ------------ ----------- Total stockholders equity (deficiency) 13,457 (110) ------------ ----------- Total liabilities and stockholders' equity $ 94,859 $ 9,652 (deficiency) ============ ===========
The accompanying notes are an integral part of these financial statements. -21- 22 BINGHAM FINANCIAL SERVICES CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR AND PERIOD ENDED SEPTEMBER 30, 1998 AND 1997 (IN THOUSANDS, EXCEPT FOR SHARES)
PERIOD JANUARY 2, YEAR ENDED THROUGH REVENUES SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 ------------------ ------------------ Interest income on loans $ 3,296 $ 280 Mortgage origination and servicing fees 1,361 - Gain on sale of loans 738 - Sale of mortgage servicing rights 618 - Other income 128 - ------------------ ------------------ Total revenues 6,141 280 ------------------ ------------------ COSTS AND EXPENSES Interest expense 1,933 195 Provision for credit losses 147 58 Provision for unrealized hedge loss 2,400 - General and administrative 1,250 - Other operating expenses 1,204 137 ------------------ ------------------ Total costs and expenses 6,934 390 ------------------ ------------------ Loss before income tax benefit (793) (110) Income tax benefit (219) - ------------------ ------------------ Net loss $ (574) $ (110) ================== ================== Weighted average common shares outstanding 1,261,031 ================== Loss per share: Basic and diluted $ (0.46) ==================
The accompanying notes are an integral part of these financial statements. -22- 23 BINGHAM FINANCIAL SERVICES CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEAR AND PERIOD ENDED SEPTEMBER 30, 1998 AND 1997 (IN THOUSANDS, EXCEPT FOR SHARES)
TOTAL COMMON PAID-IN RETAINED STOCKHOLDER'S STOCK CAPITAL DEFICIT EQUITY ----- ------- ------- ------ Balance January 2, 1997 $ - $ - $ - $ - Issuance of 100 shares of common stock - - Net loss (110) (110) -------- ------- --------- ----------- Balance, September 30, 1997 - - (110) (110) Issuance of 1,295,000 shares of common stock, net 11,583 11,583 Issuance of 281,818 shares of common stock in conjunc- tion with acquisition 2,025 (119) 1,906 Issuance of 400,000 warrants with subordinated debt 577 577 Option amortization 75 75 Net loss (574) (574) -------- ------- --------- ----------- Balance, September 30, 1998 $ 13,608 $ 533 $ (684) $ 13,457 ======== ======= ========= ===========
The accompanying notes are an integral part of these financial statements. -23- 24 BINGHAM FINANCIAL SERVICES CORPORATION CONSOLIDATED STATEMENTS OF CASHFLOWS FOR THE YEAR AND PERIOD ENDED SEPTEMBER 30, 1998 AND 1997 (IN THOUSANDS)
PERIOD YEAR ENDED JANUARY 2 TO SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 ------------------ ------------------ Net loss $ (574) $ (110) Adjustments to reconcile net income to net cash provided by operating activities: Provision for unrealized hedge loss 2,400 - Provision for credit losses 147 58 Depreciation and amortization 516 18 Gain on sale of investment securities (13) - Gain on sale of loans (738) - Increase in other assets (2,386) (129) Increase in other liabilities 115 210 ------------ -------------------- Net cash provided (used) by operating activities (533) 47 ------------ -------------------- Commercial loans originated (65,796) - Manufactured home loans originated (27,010) (9,844) Collections on installment contracts receivable 2,191 244 Proceeds from the sale of loans 12,513 - Proceeds from the sale of investment securities 71 - Capital expenditures (27) - ------------ -------------------- Net cash used in investing (78,058) (9,600) ------------ -------------------- Proceeds from issuance of common stock 11,582 - Proceeds from issuance of subordinated debt, and related warrants 4,000 - Advances under repurchase agreements 56,892 - Advances on note payable, Sun Communities 30,117 9,553 Repayment of note payable, Sun Communities (22,021) - ------------ -------------------- Net cash provided by financing activities 80,570 9,553 ------------ -------------------- Net increase in cash and cash equivalents 1,979 - Cash and cash equivalents, beginning of period - - ------------ -------------------- Cash and cash equivalents, end of period $ 1,979 $ - ============ ==================== Supplemental disclosures of cash flow information: Interest paid $ 2,128 $ - Federal income taxes paid $ 290 $ -
The accompanying notes are an integral part of these financial statements. -24- 25 BINGHAM FINANCIAL SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------------- A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS: The Company was incorporated as an affiliate of Sun Communities, Inc. for the purpose of providing financing to residents living in manufactured housing communities for the purchase of new and used manufactured homes. The Company originates conventional loans that generally range in size from $4,500 to $90,000 and have a term of 5-25 years. The Company has focused its marketing efforts principally through manufactured home community owners and operators. This effort has been targeted at Sun Communities, where the Company's services are offered as the preferred source of financing. The Company continues to take the steps necessary to capture a greater share of the loans generated by home purchasers and owners in Sun Communities. In addition, the Company has also started to originate loans through manufactured home dealers. The Company also participates and is active in all aspects of commercial real estate mortgage banking, including originating, underwriting, placing, securitizing, and servicing commercial real estate loans through Bloomfield and Bloomfield Servicing. Bloomfield acts as both a direct lender, making commercial real estate loans for its own portfolio as well as for accumulation and securitization, and as a traditional mortgage banker, placing commercial real estate loans with institutional investors. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts and transactions of the Company and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation. For purposes of income statement and cashflow comparison, the Company does not have a period covering the twelve months ended September 30, 1997. Information presented covers the period from January 2, 1997 (date of inception) through September 30, 1997. Earnings per share information for the period ending September 30, 1997 is based on the 100 shares issued for initial capitalization. The Company's initial public offering of common stock did not take place until the quarter ended December 31, 1997. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS: Cash and cash equivalents represent short-term highly liquid investments with original maturities of three months or less and include cash and interest bearing deposits at banks. The Company has restricted cash related to servicing on loans held by others which is held in trust for subsequent payment to the owners of those loans. LOANS RECEIVABLE: Loans receivable consist of commercial real estate loans and manufactured home loans. The commercial loans primarily consist of fixed rate loans secured by mortgages on commercial property. Commercial loans originated are either sold immediately to permanent investors or held for sale. Manufactured home loans are conventional fixed rate loans under contracts secured by the borrowers' manufactured homes. -25- 26 BINGHAM FINANCIAL SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------------- Loans held for sale are carried at the lower of cost or market value determined on an aggregate basis. Loans receivable include accrued interest and are net of deferred hedging gains or losses and an allowance for expected losses. DERIVATIVE FINANCIAL INSTRUMENTS: The Company uses forward sales of U.S. Treasury securities to hedge its commercial mortgage loan portfolio. These forward sales are used as a means to hedge interest rate risk connected to anticipated sales or securitizations of the commercial mortgage loans. The Company's accounting for derivative financial instruments that are used to manage risk is in accordance with the concepts established in SFAS No. 80, "Accounting for Futures Contracts". Deferral (hedge) accounting is applied if the derivative reduces the risk of the underlying hedged item and is designated at inception as a hedge with respect to the hedged item. Additionally, the derivative must result in payoffs that are expected to be inversely correlated to the hedged item. Derivatives are measured for effectiveness both at inception and on an ongoing basis. If a derivative instrument ceases to meet the criteria for deferral accounting, any subsequent gains and losses are currently recognized in income. ALLOWANCE FOR LOAN LOSSES: The allowance for possible losses on loans is maintained at a level believed adequate by management to absorb potential losses from impaired loans, loans sold with recourse and the remainder of the loan portfolio. The allowance for loan losses is based upon periodic analysis of the portfolio, economic conditions and trends, historical credit loss experience, borrowers' ability to repay and collateral values. CAPITALIZED MORTGAGE SERVICING RIGHTS: The Company accounts for mortgage servicing rights in accordance with SFAS No. 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities" ("SFAS 125"). SFAS 125 requires that a separate asset or liability be recorded representing the right or obligation to service loans for others. A servicing asset or liability is determined by allocating the loans' previous carrying amount between the servicing asset and the loans that were sold, based on their relative fair values at the date of sale. The fair value of the servicing asset or liability is based on an analysis of discounted cash flows that incorporates estimates of market servicing costs, projected ancillary servicing revenue, projected prepayment rates and market profit margins. Mortgage servicing rights are periodically assessed for impairment based on the fair value of those rights calculated on a discounted basis. This assessment is performed on a disaggregate basis, stratified by mortgage type and term. Identified impairments are recognized through a valuation allowance. INTEREST ON LOANS: Interest on loans is credited to income when earned. An allowance for interest on loans is provided when a loan becomes more than 75 days past due as the collection of these loans is considered doubtful. LOAN FEES: Loan origination fees and certain direct loan origination costs are deferred and recognized over the lives of the related loans as an adjustment of the yields using a level-yield method. REPOSESSED HOMES: Manufactured homes acquired through foreclosure or similar proceedings are recorded at the lower of the related loan balance plus any operating expenses of such homes or the estimated fair value of the home at acquisition date. -26- 27 BINGHAM FINANCIAL SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------------- OTHER ASSETS: Other assets is comprised of margin deposits with brokers, organization costs, prepaid expenses, deferred financing costs and other miscellaneous receivables. Margin deposits with brokers totaled $1.3 million and are invested in short-term treasury bills. Organization costs are amortized on a straight-line basis over a five-year life. Deferred financing costs are capitalized and amortized over the life of the corresponding line of credit. LOANS SOLD UNDER AGREEMENTS TO REPURCHASE: The Company enters into sales of loans under agreements to repurchase the loans. The agreements are short-term and are accounted for as secured borrowings. The obligations to repurchase the loans sold are reflected as a liability, and the loans that collateralize the agreements are reflected as assets in the balance sheet. DEPRECIATION: Provisions for depreciation are computed using the straight-line method over the estimated useful lives of office properties and equipment, as follows: leasehold improvements - life of the lease; furniture and fixtures - seven years; capitalized software - five years; computers - five years. INCOME TAXES: The Company uses the liability method in accounting for income taxes. Under this method, deferred income taxes result from temporary differences between the tax bases of assets and liabilities and the bases reported in consolidated financial statements. The deferred taxes are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. GOODWILL: Goodwill, which represents the excess of purchase price over the fair value of net assets acquired, is amortized on a straight-line basis over the expected periods to be benefited, generally 25 years. PER SHARE DATA: SFAS No. 128, "Earnings Per Share", was issued in March 1997 and is effective for financial statements issued after December 15, 1997. This Statement establishes standards for computing and presenting earnings per share ("EPS") and supersedes Accounting Principles Board Opinion No. 15 and its related interpretations. The Statement replaces the presentation of primary EPS with a presentation of basic EPS. Basic EPS excludes dilution, whereas diluted EPS includes the potential dilution that could occur if securities or contracts to issue shares of common stock were to be exercised or converted into shares of common stock. Basic earnings per share are computed by dividing net income available to common shareholders by the weighted average common shares outstanding. At September 30, 1998 there were approximately 260,000 potential shares of common stock from stock options and warrants outstanding. Had these stock options and warrants been exercised they would have had an anti-dilutive effect on the net loss. In accordance with SFAS No. 128 the effect of the anti-dilutive shares is not included in the earnings per share calculation. The following table presents a reconciliation of the numerator (income applicable to common shareholders) and denominator (weighted average common shares outstanding) for the basic loss per share calculation for the year ended September 30, 1998: -27- 28 BINGHAM FINANCIAL SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------------
----------------------------------------------------------------------------------------------------- Net Loss Per Loss Shares Share ------------------------------------------------------ (In thousands, except loss per share) Basic and diluted loss per share............... $ (574) 1,261 $ (0.46)
B. ACQUISITIONS In March 1998 the Company acquired 100% of the outstanding stock of Bloomfield Acceptance Company, L.L.C. ("Bloomfield") and Bloomfield Servicing Company, L.L.C. ("Bloomfield Servicing") for 281,818 shares of the Company's common stock valued at approximately $2.1 million. Bloomfield is engaged in the business of the origination of mortgages and real estate lending. Loans originated by Bloomfield primarily consist of fixed rate loans secured by mortgages on commercial property. Bloomfield Servicing was formed to service the loans originated by Bloomfield and other investors. In addition to the shares of common stock issued to the former owners of Bloomfield and Bloomfield Servicing, additional consideration of up to $500,000, in the form of the Company's common stock, will be paid to the owners subject to the performance of the merged entities over the two year period following the date of merger. Each of the acquisitions was accounted for as a purchase. The results of operations for the year ended September 30, 1998 include the results of operations for each of the acquired companies since the date of their respective acquisitions. The aggregate purchase price for the acquisitions completed for the year ended September 30, 1998, was $2.1 million. The purchase price was allocated to the assets acquired and liabilities assumed based on the related fair values at the date of acquisition. The excess of the aggregate purchase price over the fair values of the assets acquired and liabilities assumed has been allocated to goodwill and is being amortized on a straight-line method over 25 years. In conjunction with these acquisitions, liabilities assumed and other non-cash consideration was as follows (in thousands, unaudited): Fair value of assets acquired.................................... $ 4,668 Goodwill......................................................... 664 Stock issued in consideration of companies acquired... (2,067) ------------------ Liabilities assumed.............................................. $ 3,265 ==================
-28- 29 BINGHAM FINANCIAL SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------------- The following table summarizes pro forma unaudited results of operations as if each of the acquisitions completed during 1998 had occurred at the beginning of each year presented:
PERIOD JANUARY 2 SEPTEMBER 30, TO SEPTEMBER 30, 1998 1997 ----------------------------------------------------------------------------------------------------------------- (In thousands, except earnings per share) Revenues............................................................... $ 7,660 $ 2,329 Income before income taxes............................................. (684) 624 Net Income ............................................................ (503) 367 Basic and diluted loss per share....................................... $ (0.40)
C. LOANS RECEIVABLE The carrying amounts and fair values of loans receivable consisted of the following:
SEPTEMBER 30 ------------------------------------------------------------------- 1998 1997 ------------------------------------------------------------------- Book Value Market Value Book Value Market Value ---------------------------------------------------------------------------------------------------------- (In thousands) Manufactured home loans............ $ 22,674 $ 24,098 $ 9,556 $ 9,556 Commercial loans................... 65,546 61,722 - - Accrued interest receivable........ 440 440 43 43 Valuation allowance................ (2,400) - - - Reserve for credit loss............ (185) - (58) - ------------------------------------------------------------------- $ 86,075 $ 86,260 $ 9,541 $ 9,599 ===================================================================
The carrying amount of loans receivable includes a valuation allowance for mark-to-market adjustments on the hedge positions. The following table shows the valuation allowance and any related additions or deductions:
1998 1997 --------------------------------------------------------- (In thousands) Balance at beginning of year $ - - Valuation allowance.......... 2,400 - ------------------------- Balance at end of year... $ 2,400 - =========================
-29- 30 BINGHAM FINANCIAL SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------------- The following table sets forth the average loan balance, weighted average loan yield and weighted average initial term of the loan portfolio:
SEPTEMBER 30 ----------------------------------------------------------- 1998 1997 1998 1997 ----------------------------------------------------------- Manufactured Home Commercial Mortgage ------------------------------------------------------------------------------------------------- (Dollars in thousands) Principal balance loans receivable, net................................. 22,673 $ 9,541 $ 63,402 $ - Number of loans receivable.......... 803 366 13 - Average loan balance................ $ 29 $ 26 $ 5,042 $ - Weighted average loan yield......... 10.9% 10.7% 7.6% - Weighted average initial term....... 22 years 23 years 9.7 years -
The contracts are secured by manufactured homes, which range in age from 1963 to 1998, with approximately 56% of the manufactured homes built since 1996. The following table sets forth the concentration by state of the loan portfolio:
SEPTEMBER 30 ------------------------------------------------------------------------------------------------ 1998 1997 1998 1997 -------------------------------------------------------------------------------------------------- Manufactured Home Commercial Mortgage ------------------------------------------------------------------------------------------------- Principal % Principal % Principal % Principal % ------------------------------------------------------------------------------------------------ (Dollars in thousands) Michigan 9,177 40.5% 4,644 48.7% 29,107 44.4% - - Indiana 5,729 25.3% 2,257 23.7% - - - - Arizona - - - - 9,953 15.2% - - Texas 1,859 8.2% 1,458 15.3% - - - - Florida 1,805 8.0% 830 8.7% 14,260 21.8% - - California - - - - 8,504 13.0% - - Other 4,104 18.1% 352 3.6% 3,722 5.6% - -
The following table sets forth the number and value of loans for various terms for the manufactured home loan portfolio:
SEPTEMBER 30 ------------------------------------------------------- 1998 1997 ---------------------------------------------------------------------- Number of Principal Number of Principal Term Loans Balance Loans Balance ---- ------------- ---------- ------------- ------------ (Dollars in thousands) 5 or less.. 27 $ 209 7 $ 40 6-10........ 88 1,073 29 342 11-12...... 9 100 3 45 13-15...... 104 1,876 51 745 16-20...... 210 6,020 71 1,357 21-25...... 363 13,291 196 6,557 26-30...... 2 105 9 455
-30- 31 BINGHAM FINANCIAL SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------------- The commercial mortgage loans have amortization terms of between 25 and 30 years. In certain cases they also have a hyper-amortization feature that takes effect if the loan is not repaid on its anticipated repayment date. At that time the interest rate increases and any excess cash flows from the project are used to pay down the principal balance. Delinquency statistics for the manufactured home loan portfolio are as follows:
SEPTEMBER 30 ---------------------------------------------------------------------- 1998 1997 ---------------------------------------------------------------------- Days No. of Principal % of No. of Principal % of Loans Balance Portfolio Loans Balance Portfolio ---------------------------------------------------------------------------------------- (Dollars in thousands) 31-60........... 31 $ 730 3.2% 2 $ 56 .59% 61-90........... 18 508 2.2% 1 12 .13% Greater than 90 16 357 1.6% 2 58 .61%
No commercial mortgage loans were delinquent as of September 30, 1998. D. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses and related additions and deductions to the allowance for the years ended September 30, 1998 and 1997 were as follows:
1998 1997 --------------------------------------------------------- (In thousands) Balance at beginning of year $ 58 $ - Provision for loan losses....... 147 58 Net losses...................... (20) - ------------------------- Balance at end of year... $ 185 $ 58 =========================
E. SERVICING RIGHTS Changes in capitalized mortgage servicing rights are summarized as follows:
1998 ------------------------------------------------------------------------ (In thousands) Balance at beginning of year......................... - Addition through acquisition of Bloomfield Servicing $ 552 Additional servicing asset net....................... 104 Amortization ........................................ (28) Sales ............................................... (472) ------------ Balance at end of year........................... $ 156 ============
Bloomfield Servicing services loans that Bloomfield originates. In addition to Bloomfield's loans, Bloomfield Servicing services commercial real estate loans on behalf of five institutional investors. The majority of these loans are in Michigan. As of September 30, 1998, Bloomfield Servicing's servicing portfolio totaled approximately $374 million. The Company had no servicing rights in 1997. -31- 32 BINGHAM FINANCIAL SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------------- F. PROPERTY AND EQUIPMENT Property and equipment are summarized as follows:
September 30 --------------------------------- 1998 1997 ----------------------------------------------------------------------------------- (In thousands) Cost: Furniture and fixtures....................... $ 159 $ - Leasehold improvements....................... 33 - Capitalized Software......................... 322 - Computer equipment........................... 175 8 --------------------------------- 689 8 Less accumulated depreciation.................. 34 1 ================================= $ 655 $ 7 =================================
Depreciation expense was $33,700 and $1,100 in 1998 and 1997 respectively. G. DEBT At the time of its initial public offering the Company entered into a subordinated debt facility with Sun Communities. The facility consisted of a $4.0 million term loan and a five-year revolving line of credit for up to $6.0 million. The term loan was at an annual interest rate of 9.75% and the revolving line of credit is at an annual rate equal to the prime rate plus 125 basis points. In accordance with the subordinated debt loan agreement the Company has issued detachable warrants to Sun covering 400,000 shares of common stock at a price of $10 per warrant share. The detachable warrants have a term of seven years and may be exercised at any time after the fourth anniversary of issuance. In March 1998 Sun provided an additional line of credit of up to $12.0 million payable upon demand at an annual interest rate equal to "LIBOR" plus 140 basis points. In March 1998 the Company's commercial mortgage subsidiary entered into a one-year master repurchase agreement with a lender to finance up to $150 million of fixed rate commercial loans secured by real estate. In September 1998 that agreement was amended and restated to include manufactured home and floor plan loans. The borrowing limit was also increased to $250 million. The loans are sold at 85- 92% of the then current face value, depending on the asset class and certain concentration constraints. The repurchase transactions are for 30 days and may be rolled over for up to nine months. At September 30, 1998 and 1997 debt outstanding was as follows:
SEPTEMBER 30 --------------------------------- 1998 1997 --------------------------------- (In thousands) Loans sold under agreements to repurchase....... $ 56,900 $ - Revolving line of credit........................ 17,800 5,700 Term loan, net of discount...................... 3,500 4,000 ================= ============== $ 78,200 $ 9,700 ================= ==============
-32- 33 BINGHAM FINANCIAL SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------------- H. PARTICIPANTS SUPPORT AGREEMENT As of September 30, 1997 the Company entered into a participant support agreement with Sun Communities. Pursuant to the agreement, participants options were granted to Sun September 30, 1997 and will vest if, and only if, Sun is a party to and in compliance with the terms of the participant support agreement on the vesting date and on December 31 of the previous year. The options will vest in eight equal annual amounts, each consisting of 41,250 options, on January 31, 2001 through 2008. The options may be exercised at any time after vesting until expiration ten years after the date of vesting. Each option vesting January 31, 2001 to 2003 will entitle the holder to purchase one share of common stock for a purchase price of $10. Each option vesting on January 31, 2004, 2005 and 2006 will entitle the holder to purchase one share of common stock for $12. Each option vesting on January 31, 2007 and 2008 will entitle the holder to purchase one share of common stock for $14. The Company recognizes service costs related to the options based on the fair value method as prescribed by Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock based Compensation". Service costs are amortized based on the vesting periods of the options. Amortization for the year ended September 30, 1998 was $74,700. I. STOCK OPTION PLAN The Company has stock option plans in which 157,681 shares of common stock have been reserved for issuance as of September 30, 1998. Under the plans, the exercise price of the options will not be less than the fair market value of the common stock on the date of grant. The date on which the options are first exercisable is determined by the administrator of the Company's stock option plan, the Compensation Committee of the Board of Directors or the entire Board of Directors, and options generally have vested over a three-year period from the date of grant. The term of an option may not exceed ten years from the date of grant. The Company has adopted the disclosure requirements of Statements of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation." Accordingly, the fair value of each option grant in 1998 was estimated using the Black-Scholes option pricing model based on the assumptions stated below:
1998 --------------------------------------------------------------------------- Estimated weighted average fair value Per share of options granted........................... $ 5.44 Assumptions: Annualized dividend yield ..................... -% Common stock price volatility.................. 44.14% Weighted average risk free rate of return...... 5.83% Weighted average expected option term (in years) 6
-33- 34 BINGHAM FINANCIAL SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------------- The Company has elected to measure compensation cost using the intrinsic value method, in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly since all options are granted at a fixed price not less than the fair market value of the Company's common stock on the date of grant, no compensation cost has been recognized for its stock option plan. Had stock option costs of the plan been determined based on the fair value at the 1998 grant dates for awards under those plans consistent with the methodology of SFAS 123, the pro forma effects on the Company's net income and earnings per share would be as follows:
1998 ================================================================================ (In thousands, except earnings per share) Net loss (as reported)................................... $ (574) Stock option compensation cost........................... 143 =============== Pro forma net loss............................... $ (717) =============== Basic and diluted loss per share (as reported)........... $ (0.46) Stock option compensation cost........................... .11 =============== Pro forma basic and diluted loss per share....... $ (0.57) ===============
The following table sets forth changes in options outstanding:
1998 ================================================================================ WEIGHTED AMOUNT AVG. PRICE - -------------------------------------------------------------------------------- Shares under option: Outstanding at beginning of year.................. - $ - Granted........................................... 111,850 10.65 Forfeited......................................... (1,950) 13.00 Canceled.......................................... - - Exercised ........................................ - - --------------------- Outstanding at end of year........................ 109,900 10.65 --------------------- Exercisable at end of year........................ 30,000 $ 10.00 ---------------------
The following table sets forth details of options outstanding at September 30, 1998
OPTIONS OUTSTANDING OPTIONS EXERCISABLE - ------------------------------------------------------------------------------------------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE RANGE OF NUMBER REMAINING RANGE OF NUMBER REMAINING EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE - ------------------------------------------------------------------------------------------------------- $ 10.00 85,900 9.08 Years $ 10.00 30,000 9.08 Years 13.00 24,000 9.42 Years - ------------------------------------------------------------------------------------------------------ $10.00 -13.00 109,900 9.15 Years $ 10.00 30,000 9.08 Years ======================================================================================================
There were no options outstanding in 1997. -34- 35 BINGHAM FINANCIAL SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------------- J. FEDERAL INCOME TAXES Federal income tax expense consisted of the following:
1998 1997 ------------------------------------------------------------------------------- (In thousands) Current.............................. $ 683 $ - Deferred............................. (902) - ====================================== $ (219) $ - ======================================
A reconciliation of the statutory federal income tax rate to the effective income tax rate follows:
1998 ------------------------------------------------------------- Statutory tax rate................................. (34.00%) Effect of: Change in valuation of deferred tax assets (4.70) Other, net .................................... 11.09 ======== Effective tax rate ................................ (27.61%) ========
There was no federal income tax provision in 1997. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company believes its current tax planning strategy will allow for the recovery of the total net deferred tax asset. Significant components of the Company's deferred tax assets and liabilities are as follows:
1998 ------------------------------------------------------------------ (In thousands) Deferred Tax Assets: Option amortization............................ $ 25 Net deferral required by FAS 91................ 130 Reserve for loan losses ....................... 14 Valuation allowance for unrealized hedge loss.. 816 Other items, net .............................. 5 ------------- Total deferred tax assets ................ 990 Deferred Tax Liabilities: Deferred closing costs ........................ 88 ------------- Total deferred tax liabilities ............ 88 ------------- Total net deferred tax assets...................... 902 ============= Total net federal income tax assets $ 902 =============
Total net deferred tax assets are shown as a part of other assets in the consolidated balance sheets. There were no deferred taxes at September 30, 1997. -35- 36 BINGHAM FINANCIAL SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------------- K. STOCKHOLDERS' EQUITY The Company consummated an initial public offering of 1,200,000 shares of common stock on November 19, 1997. The initial offering price was $10.00, which provided approximate proceeds to the Company of $11,160,000. On December 16, 1997, an additional 70,000 shares were issued which provided approximate proceeds to the Company of $651,000. Prior to the initial public offering, on October 27, 1997 the Company sold 25,000 shares to Sun Communities for gross proceeds of $250,000. L. LITIGATION The Company is subject to various claims and legal proceedings arising out of the normal course of business, none of which in the opinion of management are expected to have a material effect on the Company's financial position. M. COMMITMENTS AND CONTINGENCIES LEASE COMMITMENTS: At September 30, 1998 aggregate minimum rental commitments under noncancelable leases having terms of more than one year were $917,000, payable $280,000 (1999), $314,000 (2000) and $323,000 (2001). Total rental expense for the year ended September 30, 1998 was $83,000. These leases are for office facilities and equipment and generally contain either clauses for cost of living increases and/or options to renew or terminate the lease. LOAN COMMITMENTS: At September 30, 1998 and 1997 the Company had commitments to originate manufactured home installment contracts approximating $4.8 million and $3 million respectively. Commercial mortgage loan commitments totaled $14.7 million at September 30, 1998. N. FINANCIAL INSTRUMENTS AND OFF-BALANCE SHEET ACTIVITY FINANCIAL INSTRUMENTS: The Company hedges its commercial mortgage loan portfolio as part of its interest rate risk management strategy and as a condition of the related repurchase agreement which finances the portfolio. The Company hedges the interest rate risk on its portfolio by doing forward sales of U.S. Treasury Securities. The Company classifies these forward sales as hedges on specific loan receivables. Any gross unrealized gains or losses on these forward sales are an adjustment to the basis of the mortgage loan portfolio and are used in the lower of cost or market valuation to establish a valuation allowance as shown in Note C. The following table identifies the gross unrealized gains and losses of the forward sales as of September 30, 1998 and 1997: -36- 37 BINGHAM FINANCIAL SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------------
SEPTEMBER 30 ------------------------------------------------------------------------------- 1998 1998 1997 1997 ------------------------------------------------------------------------------- GROSS GROSS GROSS GROSS UNREALIZED UNREALIZED UNREALIZED UNREALIZED SECURITY DESCRIPTION GAINS LOSSES GAINS LOSSES ---------------------------------------------------------------------------------------------------------------- (In thousands) U.S. Treasury 6.125% - 8/07 $ - $ (2,019) $ - $ - U.S. Treasury 6.375% - 8/27 - (294) - - U.S. Treasury 5.500% - 2/08 - (1,649) - - U.S. Treasury 5.625% - 5/08 - (321) - - --------------------------------- --------------------------------- $ - $ (4,283) $ - $ - ================================= =================================
LOANS SOLD WITH RECOURSE: In September 1998 the Company sold $11.2 million of its manufactured home loan portfolio with recourse. The Company is required to repurchase any contract that goes into default, as defined in the loan agreement, for the life of the loan. FAIR VALUE OF FINANCIAL INSTRUMENTS: Statement of Financial Accounting Standards No. 107 ("SFAS 107") requires disclosure of fair value information about financial instruments, whether or not recognized in the Balance Sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. The carrying amount for cash and cash equivalents approximate their fair value. Fair values for the Company's loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The carrying amount of accrued interest approximates its fair value. Due to their short maturity, accounts payable and accrued expense carrying values approximate fair value O. SELECTED QUARTERLY FINANCIAL DATA
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------------------------------------------------------------------------------------------------- (In thousands, except earnings per share) 1998: Interest income $ 316 $ 433 $ 819 $ 1,797 Interest expense 151 135 405 1,241 Net income (loss) 22 120 435 (1,151) Diluted earnings (loss) per share .04 .08 .22 (0.73) 1997: Interest income $ - $ 10 $ 112 $ 158 Interest expense - 15 70 110 Net loss - (62) (3) (45)
-37- 38 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no changes in the Company's independent public accountants during the past two fiscal years. PART III The information required by ITEMS 10, 11, 12 AND 13 will be included in the Company's proxy statement for its 1999 Annual Meeting of Shareholders, and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed herewith as part of this Form 10-K: (1) A list of the financial statements required to be filed as part of this Form 10-K is shown in the "Index to the Financial Statements" included in Part II, Item 8 of this report. (2) Schedules other than those listed in the "Index to the Financial Statements" contained in Part II, Item 8 of this report are omitted because of the absence of the conditions under which they are required or because the information required is included in the consolidated financial statements or notes thereto. (3) A list of the exhibits required by Item 601 of Regulation S-K to be filed as a part of this Form 10-K is shown on the "Exhibit Index" filed herewith. (b) Reports on Form 8-K The Company filed a report on Form 8-K detailing the merger of Bloomfield Acceptance Company, L.L.C. and Bloomfield Servicing Company, L.L.C. with subsidiaries of the Company pursuant to an Agreement and Plan of Merger dated as of February 17, 1998. The date of the report was March 5, 1998. The required financial statements of the businesses acquired and the required pro forma financial information were filed with an amendment to the Form 8-K on May 12, 1998. -38- 39 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: December 28, 1998 BINGHAM FINANCIAL SERVICES CORPORATION By: /s/ Jeffrey P. Jorissen -------------------------------- Jeffrey P. Jorissen, President Chief Executive Officer and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- /s/ Gary A. Shiffman Chairman of the Board of December 28, 1998 ------------------------------------------- Directors, Secretary Gary A. Shiffman /s/ Jeffrey P. Jorissen President, Chief Executive Officer, December 28, 1998 ------------------------------------------- Chief Financial Officer and Director Jeffrey P. Jorissen /s/ Milton M. Shiffman Director December 28, 1998 ------------------------------------------- Milton M. Shiffman /s/ Robert H. Orley Director December 28, 1998 ------------------------------------------- Robert H. Orley /s/ Brian M. Hermelin Director December 28, 1998 ------------------------------------------- Brian M. Hermelin
-39- 40
NAME TITLE DATE ---- ----- ---- /s/ Arthur A. Weiss Director December 28, 1998 -------------------------------------------- Arthur A. Weiss /s/ Daniel E. Bober Director and Vice President December 28, 1998 -------------------------------------------------- Daniel E. Bober /s/ Creighton J. Weber Director and Vice President December 28, 1998 -------------------------------------------- Creighton J. Weber
-40- 41 EXHIBIT INDEX
EXHIBIT NUMBER ------ DESCRIPTION ----------- 2.1 Agreement And Plan of Merger dated as of February 17, 1998 by and among Bingham Financial Services Corporation, a Michigan corporation, BAC Acquiring Corp., a Michigan corporation, BSC Acquiring Corp., a Michigan corporation, Bloomfield Acceptance Company, L.L.C., a Michigan limited liability company, and Bloomfield Servicing Company, L.L.C., a Michigan limited liability company. Omitted from such exhibit, as filed, are the remaining exhibits referenced in such agreement. The Registrant will furnish supplementally a copy of any such exhibits to the Commission upon request. (incorporated by reference to the Company's Current Report on Form 8-K dated March 5, 1998) 2.2 Certificate of Merger for BAC Acquiring Corp. and Bloomfield Acceptance Company, L.L.C., dated March 5, 1998. (incorporated by reference to the Company's Current Report on Form 8-K dated March 5, 1998) 2.3 Certificate of Merger for BSC Acquiring Corp. and Bloomfield Servicing Company, L.L.C., dated March 5, 1998. (incorporated by reference to the Company's Current Report on Form 8-K dated March 5, 1998) 3.1 Amended and Restated Articles of Incorporation of Bingham Financial Services Corporation (incorporated by reference to the Company's registration Statement on Form S-1; File No. 333-34453) 3.2 Amended and Restated Bylaws of Bingham Financial Services Corporation (incorporated by reference to the Company's registration Statement on Form S-1; File No. 333-34453) 4.1 Shareholders Agreement dated March 4, 1998 (incorporated by reference to the Company's Current Report on Form 8-K dated March 5, 1998) 4.2 Bloomfield Shareholders Agreement dated March 5, 1998 (incorporated by reference to the Company's Current Report on Form 8-K dated March 5, 1998) 10.1 Participants Support Agreement, by and between Bingham Financial Services Corporation and Sun Communities, Inc. (assigned to Sun Communities Operating Limited Partnership as of December 31, 1997) entered into on September 30, 1997, but effective as of July 1, 1997 (incorporated by reference to the Company's registration Statement on Form S-1; File No. 333-34453) 10.2 Administration Agreement, by and between Bingham Financial Services Corporation and Sun Communities, Inc., dated July 1, 1997 (incorporated by reference to the Company's registration Statement on Form S-1; File No. 333-34453) 10.3 Form of Indemnification Agreement (incorporated by reference to the Company's registration Statement on Form S-1; File No. 333-34453)
42
EXHIBIT NUMBER ------ DESCRIPTION ----------- 10.4 Employment Agreement between the Company and William L. Mulvaney (incorporated by reference to the Company's registration Statement on Form S-1; File No. 333-34453) 10.5 Employment Agreement dated as of March 4, 1998 by and between Bingham Financial Services Corporation and Daniel E. Bober (incorporated by reference to the Company's Current Report on Form 8-K dated March 5, 1998) 10.6 Employment Agreement dated as of March 4, 1998 by and between Bingham Financial Services Corporation and Creighton J. Weber (incorporated by reference to the Company's Current Report on Form 8-K dated March 5, 1998) 10.7 Subordinated Loan Agreement dated September 30, 1997 between Bingham Financial Services Corporation and Sun Communities, Inc. (assigned to Sun Communities Operating Limited Partnership as of December 31, 1997) (incorporated by reference to the Company's registration Statement on Form S-1; File No. 333-34453) 10.8 Form of Line of Credit Promissory Note, dated September 30, 1997 between Bingham Financial Corporation and Sun Communities, Inc. (assigned to Sun Communities Operating Limited Partnership as of December 31, 1997) (incorporated by reference to the Company's registration Statement on Form S-1; File No. 333-34453) 10.9 Form of Term Promissory Note, dated September 30, 1997 between Bingham Financial Corporation and Sun Communities, Inc. (assigned to Sun Communities Operating Limited Partnership as of December 31, 1997) (incorporated by reference to the Company's registration Statement on Form S-1; File No. 333-34453) 10.10 Loan Agreement between Bingham Financial Services Corporation and Sun Communities Operating Limited Partnership, dated March 1, 1998 (filed herewith) 10.11 Demand Promissory Note between Bingham Financial Services Corporation and Sun Communities Operating Limited Partnership, dated March 1, 1998 (filed herewith) 10.12 Amended and Restated Master Repurchase Agreement dated October 5, 1998, by and among Bloomfield Acceptance Company, L.L.C., MHFC, Inc. and Lehman Commercial Paper Inc. Omitted from such exhibit, as filed, are the remaining exhibits referenced in such agreement. The Registrant will furnish supplementally a copy of any such exhibits to the Commission upon request. (filed herewith) 10.13 Bingham Financial Services Corporation 1997 Stock Option Plan (incorporated by reference to the Company's registration Statement on Form S-1; File No. 333-34453) 10.14 Detachable Warrant Agreement, dated September 30, 1997 between Bingham Financial Services Corporation and Sun Communities, Inc.
43
EXHIBIT NUMBER ------ DESCRIPTION ----------- (assigned to Sun Communities Operating Limited Partnership as of December 31, 1997) (incorporated by reference to the Company's registration Statement on Form S-1; File No. 333-34453) 10.15 Form of Detachable Warrant of Bingham Financial Corporation dated September 30, 1997 (incorporated by reference to the Company's registration Statement on Form S-1; File No. 333-34453) 10.16 Subservicer Agreement between Bingham Financial Services Corporation and St. James Servicing Corporation, dated January 1, 1997 (incorporated by reference to the Company's registration Statement on Form S-1; File No. 333-34453) 11 Calculation of Earnings Per Share (filed herewith) 21 List of Subsidiaries (filed herewith) 27 Financial Data Schedule (filed herewith)
EX-10.10 2 LOAN AGREEMENT 1 EXHIBIT 10.10 LOAN AGREEMENT THIS LOAN AGREEMENT (the "Agreement") is made and entered into as of March 1, 1998 by and between Sun Communities Operating Limited Partnership, a Michigan limited partnership ("Lender"), whose address is 31700 Middlebelt Road, Suite 145, Farmington Hills, Michigan 48334, and BINGHAM FINANCIAL SERVICES CORPORATION, a Michigan corporation ("Borrower"), whose address is 31700 Middlebelt Road, Suite 125, Farmington Hills, Michigan 48334. RECITAL: A. Borrower has requested from Lender, and Lender has agreed to make the loan described below (the "Loan") to Borrower, in accordance with the terms and conditions set forth in this Agreement. NOW, THEREFORE, the parties agree as follows: 1. LOAN. Lender will make the following Loan to Borrower:
Type of Loan Interest Rate Note Amount Maturity ------------ ------------- ----------- -------- Line of Credit 140 basis points $12,000,000 Demand over LIBOR
The Loan and any amendments, extensions, renewals, or refinancing thereof are subject to this Agreement. 2. LINE OF CREDIT DEMAND LOAN. Provided that no Event of Default exists and no Event of Default will be caused by any draw under the Loan, Lender agrees to loan to Borrower, from time to time upon not less than fifteen (15) days written notice to Lender, up to the aggregate principal amount of $12,000,000 (the "Line of Credit Loan"), in increments at the discretion of Lender. Lender's obligation to make any advance to Borrower under the Loan and the Note shall automatically suspend upon any earlier occurrence of an Event of Default unless and until waived by Lender in writing. Lender may, in its sole discretion, refuse to make advances or readvances for any reason whatsoever. 3. BORROWER'S REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, all of which representations and warranties shall be continuing until the Loan is fully paid and Borrower's obligations under this Agreement and the Related Documents are fully performed, as follows: A. Borrower's Existence and Authority. Borrower is a Michigan corporation, the person executing this Agreement has full power and complete authority to execute this Agreement and all Related Documents, and this Agreement and the Related Documents are valid, binding and enforceable against Borrower. B. Financial Information. All financial information provided to Lender has been prepared and will continue to be prepared in accordance with generally accepted accounting principles ("GAAP"), consistently applied, and fully and fairly presents the financial condition of Borrower as of the date or for the operating period thereof. There has been no material adverse change in Borrower's business, property, or financial condition since the date of Borrower's latest Financial Statements provided to Lender. 2 C. No Litigation/No Misrepresentations. There are no civil or criminal proceedings pending before any court, government agency, arbitration panel, or administrative tribunal or, to Borrower's knowledge, threatened against Borrower, which may result in any material adverse change in the business, property, or financial condition of Borrower. All representations and warranties in this Agreement and the Related Documents are true and correct and no material fact has been omitted. 4. AFFIRMATIVE COVENANTS. As of the date of this Agreement and continuing until all of Borrower's obligations under this Agreement and the Related Documents are fully performed and until the Loan is fully repaid to Lender, Borrower shall at all times comply with the following covenants: A. Notice of Adverse Events. Borrower shall promptly notify Lender in writing of any litigation, indictment, governmental proceeding, default, or any other occurrence which may have a material adverse effect on Borrower's business, property or financial condition. B. Maintain Business Existence and Operations. Borrower shall do all things necessary to keep in full force and effect Borrower's corporate existence and continue its business as presently conducted. C. General Compliance with Law. Borrower shall at all times operate its business in strict compliance with all applicable Federal, State, and local laws, ordinances and regulations, and refrain from engaging in any civil or criminal activity proscribed by Federal, State or local law. 5. EVENTS OF DEFAULT. The occurrence of any of the following events shall constitute an Event of Default under this Agreement: A. Failure to Pay Amounts Due. Any principal or interest under either of the Notes is not paid when due. B. Insecurity. Lender deems itself insecure believing that the prospect of payment of the Loan is impaired. C. Misrepresentations; False Financial Information. Any statement, warranty or representation of Borrower in connection with or contained in this Agreement, the Related Documents, or any Financial Statements now or hereafter furnished to Lender by or on behalf of Borrower, is false or misleading. D. Noncompliance with Loan Agreements. Borrower breaches any covenant, term, condition or agreement stated in this Agreement or the Related Documents. E. Cessation/Termination of Existence. Borrower shall cease doing business or Borrower's existence is terminated by sale, dissolution, merger or otherwise. F. Bankruptcy or Receivership. Any conveyance is made of substantially all of Borrower's assets, any assignment is made for the benefit of creditors, any receiver is appointed, or any insolvency, liquidation or reorganization proceeding under the Bankruptcy Code or otherwise shall be filed by or against Borrower. G. Attachments; Tax Liens. Any attachment, execution, levy, forfeiture, tax lien or similar writ or process is issued against any property of Borrower. -2- 3 H. Material Adverse Change. Any material adverse change occurs or is imminent the effect of which would be to substantially diminish Borrower's financial condition, business, or the ability to perform its agreements with Lender. I. Other Lender Default. Any other indebtedness to Lender or any other creditor (including, without limitation, Financial Institutions (as defined below)) becomes due and remains unpaid after acceleration of the maturity or after the stated maturity. 6. REMEDIES ON DEFAULT. A. Acceleration Set-Off. Upon the occurrence of any Event of Default, Lender may, at Lender's option, declare the Loan to be immediately due and payable. The foregoing shall not in any way impair Lender's right to demand repayment under the terms of the Note. B. Remedies; No Waiver. The remedies provided in this Agreement are cumulative and not exclusive, and Lender may exercise any remedies available to it at law, in equity, and as are provided in this Agreement, and any other written agreement between Borrower and Lender. No delay or failure of Lender in exercising any right, remedy, power, or privilege under this Agreement or the Related Documents shall affect that right, remedy, power or privilege, nor shall any single or partial exercise preclude the exercise of any other right, remedy, power or privilege. No delay or failure of Lender to demand strict adherence to the terms of this Agreement or the Related Documents shall be deemed to constitute a course of conduct inconsistent with Lender's right at any time, before or after any Event of Default, to prospectively demand strict adherence to the terms of this Agreement and the Related Documents. 7. MISCELLANEOUS. A. Compliance with Lender Agreements. Borrower acknowledges that Borrower has read and understands this Agreement, the Related Documents, and all other written agreements between Borrower and Lender, and Borrower agrees to fully comply with all of the agreements. B. Further Action. Borrower agrees, from time to time, upon Lender's request to make, execute, acknowledge, and deliver to Lender, such further and additional instruments, documents, and agreements, and to take such further action as may be required to carry out the intent and purpose of this Agreement and prompt repayment of the Loan. C. Governing Law/Partial Illegality. This Agreement and the Related Documents shall be interpreted and the rights of the parties determined under the laws of the State of Michigan. Should any part, term, or provision of this Agreement be adjudged illegal or in conflict with any law of the United States of America or State of Michigan, the validity of the remaining portion or provisions of the Agreement shall not be affected. D. Writings Constitute Entire Agreement; Modifications Only in Writing. This Agreement together with all other written agreements between Borrower and Lender, including, without limitation, the Related Documents, constitute the entire agreement of the parties and there are no other agreements, express or implied. None of the parties shall be bound by anything not expressed in writing, and neither this Agreement nor the Related Documents can be modified except by a writing executed by Borrower and by Lender. This Agreement shall inure to the benefit of and shall be -3- 4 binding upon all of the parties to this Agreement and their respective successors and assigns; provided however, that Borrower cannot assign or transfer its rights or obligations under this Agreement without Lender's prior written consent. E. Headings. All section and paragraph headings in this Agreement are included for reference only and do not constitute a part of this Agreement. F. Term of Agreement. This Agreement shall continue in full force and effect until all of Borrower's obligations to Lender are fully satisfied and the Loan is fully repaid. 8. DEFINITIONS. The following words shall have the following meanings in this Agreement: A. "Event of Default" shall mean any of the events described in Section 5 of this Agreement or in the Related Documents. B. "Financial Institution" shall mean any bank as defined in section 3(a)(2) of the Securities Act of 1933, as amended (the "Act"), savings and loan association or other institution as defined in section 3(a)(5) (A) of the Act, insurance company as defined in section 2(13) of the Act, or investment banking firm. C. "Financial Statements" shall mean all balance sheets, income statements, and other financial information which have been, are now, or in the future are furnished to Lender. D. "LIBOR" shall mean the rate as quoted by the Dow Jones Telerate System "LIBO Page" report of such interest rates as determined by Reuter's News Service. E. "Note" shall mean that certain $12,000,000 demand promissory note from Borrower to Lender, in the form attached hereto as Exhibit A. F. "Related Documents" shall mean any and all documents, promissory notes, and agreements executed in connection with this Agreement. The term shall include documents existing before, at the time of execution of, and documents executed concurrent with or after the date of, this Agreement. [The remainder of this page intentionally left blank.] -4- 5 IN WITNESS WHEREOF, the parties have executed this Loan Agreement as of the date first written above. BORROWER: BINGHAM FINANCIAL SERVICES CORPORATION, a Michigan corporation By: /s/ Jeffrey P. Jorissen -------------------------------------------- Jeffrey P. Jorissen Its: President, Chief Executive Officer and Chief Financial Officer LENDER: SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP, a Michigan limited partnership By: Sun Communities, Inc., a Maryland corporation Its: General Partner By: /s/ Gary A.Shiffman -------------------------------------------- Gary A. Shiffman Its: President EX-10.11 3 DEMAND PROMISSORY NOTE 1 EXHIBIT 10.11 DEMAND PROMISSORY NOTE $12,000,000.00 DETROIT, MICHIGAN DATED: AS OF MARCH 1, 1998 FOR VALUE RECEIVED, BINGHAM FINANCIAL SERVICES CORPORATION, a Michigan corporation ("Borrower"), promises to pay ON DEMAND to the order of Sun Communities Operating Limited Partnership, a Michigan limited partnership ("Lender"), at 31700 Middlebelt Road, Suite 145, Farmington Hills, Michigan 48334, or at such other place as Lender may designate in writing, the principal sum of TWELVE MILLION AND NO/100 DOLLARS ($12,000,000.00) or such lesser sum as shall have been advanced by Lender to Borrower under the loan account hereinafter described, plus interest as hereinafter provided, all in lawful money of the United States of America, in accordance with the terms hereof. This Note is subject to the terms of that certain Loan Agreement between Borrower and Lender of even date herewith (the "Agreement"), the terms of which are incorporated herein by reference. Lender will loan to Borrower, upon not less than fifteen (15) days written notice to Lender, up to the aggregate principal amount of $12,000,000.00, in increments at the discretion of Lender, provided, however, that the aggregate principal outstanding at any time does not exceed $12,000,000.00. All advances made hereunder shall be charged to a loan account in Borrower's name on Lender's books, and Lender shall debit to such account the amount of each advance made to, and credit to such account the amount of each repayment made by Borrower. From time to time but not less than quarterly, Lender shall furnish Borrower a statement of Borrower's loan account, which statement shall be deemed to be correct, accepted by, and binding upon Borrower, unless Lender receives a written statement of exceptions from Borrower within ten (10) days after such statement has been furnished. The unpaid principal balance of this promissory note ("Note") shall bear interest, computed at a rate equal to "LIBOR" as quoted by the Dow Jones Telerate System "LIBO Page" report of such interest rates as determined by Reuter's News Service, or (in the sole discretion of the Lender) as quoted in the Wall Street Journal, as of one business day before the date of this Note, plus one hundred forty (140) basis points (the "Rate") (which Rate shall be adjusted for purposes of this Note every six (6) months from the date hereof to be equal to "LIBOR" as quoted by the Dow Jones Telerate System "LIBO Page" report of such interest rates as determined by Reuter's News Service, or (in the sole discretion of the Holder) as quoted in the Wall Street Journal, as of the business day preceding the date of such adjustment, plus one hundred forty (140) basis points), in lawful money of the United States of America, in the manner provided below. On demand, the entire unpaid principal balance of this Note, together with all accrued and unpaid interest, shall be due and payable in full within ten (10) days after the date of the demand. Advances of principal, repayment and readvances may be made under this Note from time to time but Lender, in its sole discretion, may refuse to make advances or readvances hereunder for any reason whatsoever. All payments received hereunder shall, at the option of Lender, first be applied against accrued and unpaid interest and the balance against principal. Borrower expressly assumes all risks of loss or delay in the delivery of any payments made by mail, and no course of conduct or dealing shall affect Borrower's assumption of these risks. Upon the occurrence of an Event of Default, as defined in the Agreement, the entire unpaid principal balance and all accrued and unpaid interest owing under this Note shall be immediately due and payable, together with costs and attorneys fees reasonably incurred by Lender in collecting or enforcing payment. Borrower acknowledges and agrees that the Lender has the right to demand repayment of the entire balance of this Note, in its sole and absolute discretion, whether or not an Event of Default has occurred. 2 Upon the occurrence and during the continuance of an Event of Default under this Note, the outstanding principal amount hereof shall bear interest at a rate which is three percent (3.0%) per annum greater than the Rate otherwise applicable. Acceptance by Lender of any payment in an amount less than the amount then due shall be deemed an acceptance on account only, and Borrower's failure to pay the entire amount then due shall be and continue to be a default. Upon the occurrence of any Event of Default, neither the failure of Lender promptly to exercise its right to declare the outstanding principal and accrued unpaid interest hereunder to be immediately due and payable, nor the failure of Lender to demand strict performance of any other obligation of Borrower or any other person who may be liable hereunder, shall constitute a waiver of any such rights, nor a waiver of such rights in connection with any future default on the part of Borrower or any other person who may be liable hereunder. Borrower and all endorsees, sureties and guarantors hereof hereby jointly and severally waive presentment for payment, demand, notice of non-payment, notice of protest or protest of this Note, and Lender diligence in collection or bringing suit, and do hereby consent to any and all extensions of time, renewals, waivers or modifications as may be granted by Lender with respect to payment or any other provisions of this Note. The liability of Borrower under this Note shall be absolute and unconditional, without regard to the liability of any other party. Notwithstanding anything herein to the contrary, in no event shall Borrower be required to pay a rate of interest in excess of the Maximum Rate. The term "Maximum Rate" shall mean the maximum non-usurious rate of interest that Lender is allowed to contract for, charge, take, reserve or receive under the applicable laws of any applicable state or of the United States of America (whichever from time to time permits the highest rate for the use, forbearance or detention of money) after taking into account, to the extent required by applicable law, any and all relevant payments or charges hereunder, or under any other document or instrument executed and delivered in connection herewith and the indebtedness evidenced hereby. In the event Lender ever receives, as interest, any amount in excess of the Maximum Rate, such amount as would be excessive interest shall be deemed a partial prepayment of principal, and, if the principal hereof is paid in full, any remaining excess shall be returned to Borrower. In determining whether or not the interest paid or payable, under any specified contingency, exceeds the Maximum Rate, Borrower and Lender shall, to the maximum extent permitted by law, (a) characterize any non-principal payment as an expense, fee, or premium rather than as interest; (b) exclude voluntary prepayments and the effects thereof; and (c) amortize, prorate, allocate and spread the total amount of interest through the entire contemplated term of such indebtedness until payment in full of the principal (including the period of any extension or renewal thereof) so that the interest on account of such indebtedness shall not exceed the Maximum Rate. [The remainder of this page intentionally left blank.] -2- 3 This Note shall be binding upon Borrower and its successors and assigns, and the benefits hereof shall inure to Lender and its successors and assigns. This Note has been executed in the State of Michigan, and all rights and obligations hereunder shall be governed by the laws of the State of Michigan. BORROWER: BINGHAM FINANCIAL SERVICES CORPORATION, a Michigan corporation By: /s/ Jeffrey P. Jorissen -------------------------------------------- Jeffrey P. Jorissen Its: President, Chief Executive Officer and Chief Financial Officer -3- EX-10.12 4 MASER REPURCHASE AGREEMENT 1 EXHIBIT 10.12 AMENDED AND RESTATED MASTER REPURCHASE AGREEMENT DATED AS OF SEPTEMBER 30, 1998 AMONG LEHMAN COMMERCIAL PAPER INC., AS BUYER AND BLOOMFIELD ACCEPTANCE COMPANY, L.L.C., AS SELLER AND MHFC, INC. AS SELLER 2 TABLE OF CONTENTS
PAGE ---- 1. APPLICABILITY.................................................................................................1 2. DEFINITIONS...................................................................................................1 3. CONDITIONS PRECEDENT; INITIATION; CONFIRMATION; TERMINATION; MAXIMUM TRANSACTION AMOUNTS; FEES...............24 4. COLLATERAL MAINTENANCE AMOUNT................................................................................30 5. INCOME PAYMENTS..............................................................................................31 6. SECURITY INTEREST............................................................................................32 7. PAYMENT, TRANSFER AND CUSTODY................................................................................33 8. REHYPOTHECATION OR PLEDGE OF PURCHASED LOANS.................................................................34 9. SUBSTITUTION.................................................................................................35 10. REPRESENTATIONS AND WARRANTIES..............................................................................35 11. NEGATIVE COVENANTS OF THE SELLERS...........................................................................44 12. AFFIRMATIVE COVENANTS OF THE SELLERS........................................................................46 13. EVENTS OF DEFAULT...........................................................................................50 14. REMEDIES....................................................................................................53 15. DUE DILIGENCE...............................................................................................56 16. SINGLE AGREEMENT............................................................................................57 17. NOTICES AND OTHER COMMUNICATIONS............................................................................57 18. ENTIRE AGREEMENT; SEVERABILITY..............................................................................58 19. NON-ASSIGNABILITY...........................................................................................58 20. TERMINABILITY...............................................................................................58 21. GOVERNING LAW...............................................................................................58
ii 3
22. CONSENT TO JURISDICTION.....................................................................................58 23. NO WAIVERS, ETC.............................................................................................59 24. INTENT......................................................................................................59 25. SERVICING...................................................................................................59 26. DISCLOSURE RELATING TO CERTAIN FEDERAL PROTECTIONS..........................................................60 27. NETTING.....................................................................................................61 28. INDEMNIFICATION.............................................................................................61 29. ESTABLISHMENT OF COLLECTION ACCOUNT.........................................................................62 30. CONFIDENTIALITY OF AGREEMENT................................................................................64 31. MISCELLANEOUS...............................................................................................64
iii 4 EXHIBITS --------
EXHIBIT I Specific Loan Program Terms and Provisions Part 1 Fees Payable by Sellers Part 2 Applicable Purchase Price Percentages, Applicable Collateral Maintenance Percentages and Pricing Spreads Part 3 Limitations by Loan Type Part 4 Allowable Extra Costs EXHIBIT II Specific Representations and Warranties by Loan Type Part 1 Representations and Warranties Regarding Mortgage Loans Part 2 Representations and Warranties Regarding Credit Leases Part 3 Representations and Warranties Regarding MH Loans Part 4 Representations and Warranties Regarding Floorplan Loans EXHIBIT III Seller's Underwriting Guidelines Part 1 Mortgage Loans Part 2 MH Loans Part 3 Floorplan Loans EXHIBIT IV Loan Eligibility Requirements Part 1 Conduit Mortgage Loans and Credit Lease Mortgage Loans Part 2 Interim Mortgage Loans Part 3 Bridge Mortgage Loans Part 4 MH Loans Part 5 Floorplan Loans EXHIBIT V List of Sellers' Loan Documents Part 1 Mortgage Loans Part 2 MH Loans Part 3 Floorplan Loans
iv 5 AMENDED AND RESTATED MASTER REPURCHASE AGREEMENT This is an AMENDED AND RESTATED MASTER REPURCHASE AGREEMENT dated as of September 30, 1998, between LEHMAN COMMERCIAL PAPER INC. (the "Buyer"); BLOOMFIELD ACCEPTANCE COMPANY, L.L.C. ("BAC"); and MHFC, Inc. ("MHFC", collectively, with BAC, "Sellers", and each individually a "Seller"), amending and restating the Master Repurchase Agreement Governing Purchases and Sales of Mortgage Loans, dated as of March 19, 1998, between Buyer and BAC (the "Original Agreement"). Whereas, the Buyer and BAC desire to amend and restate the Original Agreement, which governed Credit Lease Mortgage Loans and Conduit Mortgage Loans, to provide terms and conditions under which the Buyer is additionally prepared to purchase (i) Bridge Mortgage Loans, Interim Mortgage Loans, and Floorplan Loans from BAC, each as defined herein, and (ii) MH Loans, as defined herein, from MHFC, an Affiliate of BAC; NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the Original Agreement is hereby amended and restated in its entirety to read as follows, adding MHFC as party hereto: 1. APPLICABILITY From time to time, until the Final Repurchase Date applicable to each type of Loan (as hereinafter defined), the Buyer agrees, subject to the terms and conditions hereof, to enter into transactions upon the request of a Seller in which such Seller agrees to transfer to Buyer certain Loans against the transfer of funds by Buyer, with a simultaneous agreement by Buyer to transfer to such Seller such Loans at a date specified in the Confirmation, against the transfer of funds by Buyer. Each such transaction shall be referred to herein as a "Transaction" and shall be governed by this Agreement and the related Confirmation, unless otherwise agreed in writing. Buyer shall have the option, upon the completion of a Transaction and receipt of a Request for Purchase, to enter into additional Transactions with respect to the related Loans provided that the maximum aggregate term of any Loan subject to Transactions shall not exceed the respective Maximum Aggregate Term applicable to those Loans. Notwithstanding anything in this Agreement to the contrary, Buyer shall have no obligation to enter into any Transaction hereunder if there shall have occurred any material adverse change, as determined by Buyer in its reasonable good faith judgment, in the financial condition of either Seller, the financial markets generally or the secondary market for Loans. Buyer shall promptly notify Sellers of any determination by Buyer that any of the foregoing has occurred. All obligations of either Seller under all Transactions shall be full recourse to both Sellers. 2. DEFINITIONS When used in this Agreement, the following capitalized terms have the meanings given to them in this Section. "Accepted Servicing Practices" means with respect to any Loan, those loan servicing practices of prudent lending institutions which service loans of the same type as such Loan in the jurisdiction where the related Underlying Asset is located with a view to the 1 6 maximization of timely recovery of principal and interest on such Loan, but without regard to: (1) any relationship that a Servicer or any Affiliate of a Servicer has with a Seller or an Affiliate of a Seller; (2) a Servicer's or any subservicer's obligation to advance expenses with respect to the Loan; (3) a Servicer's or subservicer's right to receive compensation for its services; or (4) the ownership, management or servicing for others by a Servicer or subservicer of any other loans or property. "Act of Insolvency" means, with respect to any party and its Affiliates, (i) the filing of a petition, commencing, or authorizing the commencement of any case or proceeding under any bankruptcy, insolvency, reorganization, liquidation, dissolution or similar law relating to the protection of creditors of such party or its Affiliates, or suffering any such petition or proceeding to be commenced by another which is consented to, not timely contested or results in entry of an order for relief; (ii) the seeking the appointment of a receiver, trustee, custodian or similar official for such party or an Affiliate or any substantial part of the property of either, (iii) the involuntary appointment of a receiver, conservator, or manager for such party or an Affiliate by any governmental agency or authority having the jurisdiction to do so, and that appointment shall not have been dismissed or stayed within 30 days after its occurrence; (iv) the making or offering by such party or an Affiliate of a composition with its creditors or a general assignment for the benefit of creditors, (v) the admission by such party or an Affiliate of such party of its inability to pay its debts or discharge its obligations as they become due or mature; or (vi) that any governmental authority or agency or any person, agency or entity acting or purporting to act under governmental authority shall have taken any action to condemn, seize or appropriate, or to assume custody or control of, all or any substantial part of the property of such party or of any of its Affiliates, or shall have taken any action to displace the management of such party or of any of its Affiliates or to curtail its authority in the conduct of the business of such party or of any of its Affiliates, and that action shall not have been dismissed or stayed within 30 days after its initiation. "Additional Costs" has the meaning specified in Section 3(h) hereof. "Additional Loans" means Eligible Loans or cash provided by a Seller to Buyer or its designee pursuant to Section 4(a) hereof. "Add-ons" means, (A) with respect to new Manufactured Homes, Dealer-installed equipment, attachments, improvements and related out-buildings or (B) with respect to Pre-owned Manufactured Homes, existing Dealer-installed equipment, in each case not to exceed the lesser of (i) actual cost or (ii) 25% of the lesser of NADA Retail Value or the retail sales price of the Manufactured Home, the aggregate value of which is consolidated into the principal outstanding balance of the MH Paper. "Administration Fee" means a fee on certain types of Loans, payable by a Seller on or before the initial Purchase Date for such Loan as set forth in Exhibit I, Part 1 to this Agreement, as may be amended from time to time upon agreement of the parties hereto. "Adverse Claim" means any claim of ownership or any lien, or any rights that under the law could give rise to such liens (including mechanics or similar liens or claims which have been filed for work, labor or materials affecting the Manufactured Home securing the MH Loan), security interest, title retention, trust or other charge or encumbrance, equity, loan, pledge, 2 7 claim, or other type of preferential arrangement having the effect or purpose of creating a lien or security interest, other than the security interest created under this Agreement. "Affiliate" means, with respect to any Person, another Person that directly or indirectly controls, or is under common control with, or is controlled by, such Person. As used in this definition, "control" (including, with its correlative meanings, "controlled by" and "under common control with") means possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise). "Agreement" means this Amended and Restated Master Repurchase Agreement among Buyer and Sellers, as amended from time to time. "ALTA" means the American Land Title Association. "Applicable Collateral Maintenance Percentage" means the fraction, expressed as a percentage, the numerator of which is 1, and the denominator of which is the Applicable Purchase Price Percentage for a given Loan as set forth in Exhibit I, Part 2 to this Agreement, as may be amended from time to time upon agreement of the parties hereto. The Applicable Collateral Maintenance Percentage is multiplied by the Repurchase Price to determine the minimum Collateral Maintenance Amount, for purposes of determining if a Collateral Deficit exists for any Transaction. "Applicable Purchase Price Percentage" has the meaning set forth in Exhibit I, Part 2 to this Agreement, as may be amended from time to time upon agreement of the parties hereto. "Appraised Value" means, (A) with respect to a Mortgage Loan, the reconciled value of the Mortgaged Property as set forth in the appraisal prepared in accordance with the Underwriting Guidelines made in connection with the origination of the related Mortgage Loan; (B) with respect to an MH Loan secured by a Manufactured Home (i) that was not a Pre-owned Manufactured Home at the time that the MH Loan was originated, the retail purchase price of the Manufactured Home, including any Add-ons, (plus, with respect to a Land-and-Home Loan, the Appraised Value of the Mortgaged Property as determined in accordance with (A) hereof), or (ii) that was a Pre-owned Manufactured Home at the time the related MH Loan was originated, the lesser of (i) the total delivered sales price of the Manufactured Home (except for refinancings), (ii) the acceptable appraised value determined by an appraisal prepared in accordance with the Underwriting Guidelines or (iii) the estimate of value determined in accordance with the NADA Retail Value (plus, with respect to a Land-and-Home Loan, the Appraised Value of the Mortgaged Property as determined in accordance with (A) hereof); and (C) with respect to a Floorplan Loan secured by a Manufactured Home (i) that was not a Pre-owned Manufactured Home at the time the related Floorplan Loan was originated (or subject to a subsequent Transaction), the manufacturer's invoice (to the Dealer from the manufacturer) or (ii) that was a Pre-owned Manufactured Home at the time the related Floorplan Loan was originated (or subject to a subsequent Transaction), the lesser of the NADA Wholesale Value or the price paid by the Dealer for such Manufactured Home (including, in both cases, Add-ons added by Dealer subsequent to Dealer's acquisition of the Manufactured Home). 3 8 "APR" or "Annual Percentage Rate" means the interest cost of the loan, i.e. the finance charge, expressed as a percentage rate, which rate is obtained from computations required by Regulation Z. "Asset Value Net Worth" means (x) the aggregate sum of the products of the Book Values for each of the following asset types multiplied by (y) the percentages indicated below with respect to each asset type:
Asset Type % of Book Value ---------- --------------- Conduit Mortgage Loans - Performing 10.0% Credit Lease Mortgage Loans - Performing 10.0% Interim Mortgage Loans - Performing 20.0% Bridge Mortgage Loans - Performing 35.0% MH Loans - Performing 17.5% Floorplan Loans - Performing 20.0% Residential Mortgage Loans - Performing 8.0% Mortgage Loans - Non-Performing 50.0% Residential Mortgage Loans - Non-Performing 50.0% MH Paper - Non-Performing 50.0% Cash and Cash Equivalents (as defined herein) 0.0% Property and Equipment 50.0% Accounts Receivable - Net 15.0% Retained Interests in Securitizations-Commercial 25.0% Retained Interests in Securitizations-Residential and MH Paper 25.0% Corporate Loans 50.0% Investments in Marketable Securities (as defined herein) 50.0% All Other Assets 100.0%
"Assignment and Conveyance" means an assignment of right, title and interest in either a Mortgage Loan, a Floorplan Loan, or a pool of MH Loans, substantially in the form of Exhibit 13 to the Custodial Agreement. "Assignment of Consignment Agreement" means an assignment from Seller to Buyer of a Consignment Agreement, in form and substance acceptable to Buyer. "Assignment of Mortgage" means, with respect to any Mortgage, an assignment of the mortgage, notice of transfer or equivalent instrument in recordable form, sufficient under the laws of the jurisdiction wherein the related property is located to reflect the assignment and pledge of the Mortgage. "Back-up Servicer" means Hatfield Philips Inc. or such other entity designated by Buyer from time to time. "Back-up Servicing Agreement" means back-up servicing agreements, in form and substance satisfactory to Buyer, executed by the Back-up Servicer, the Buyer and each Seller, 4 9 as such agreements may be amended, supplemented or otherwise modified from time to time, providing for the assumption of servicing by the Back-up Servicer upon the Buyer's request. "Blanket Fidelity Bond and Errors and Omissions Insurance" means blanket fidelity bond and errors and omissions insurance, both with broad coverage with insurance companies acceptable to the Buyer, on all officers, employees or other persons acting in any capacity with regard to the Loans to handle funds, money, documents and papers or provide professional services relating to the Loans. Blanket Fidelity Bond and Errors and Omissions Insurance coverage shall protect and insure the Sellers and all Servicers against losses, including forgery, theft, embezzlement, fraud, errors and omissions and negligent acts of such persons, and coverage shall be in an amount that is customary for servicers that service a portfolio of comparable Loans and that are generally acceptable as servicers to institutional investors, but the scope of coverage, amounts and terms shall be at least equal to the FNMA Guidelines for multifamily mortgage loans, as amended from time to time. "Blocked Account" has the meaning specified in Section 29 hereof. "Blocked Account Agreement" means (i) that certain Amended and Restated Blocked Account Agreement, dated as of September 30, 1998, among Buyer, NBD Bank and its successors and assigns as Lockbox Bank, BAC and Bloomfield Servicing, as Servicer, as the same may be amended, supplemented or otherwise modified from time to time, or (ii) that certain Blocked Account Agreement, dated as of September 30, 1998, among Buyer, NBD Bank and its successors and assigns as Lockbox Bank, MHFC and St. James Servicing as Servicer, as the same may be amended, supplemented or otherwise modified from time to time, or such other Blocked Account Agreements that may be entered from time to time, in which the respective Lockbox Bank acknowledges the Buyer's lien on the Blocked Account, and agrees that the Lockbox Bank shall only withdraw and allow withdrawal of funds from the Blocked Accounts on instruction from the Buyer. "Bloomfield Blocked Account" has the meaning specified in Section 29(a). "Bloomfield Servicing" means Bloomfield Servicing Company, L.L.C. "Book Value" means the net value of the related balance sheet accounts in accordance with GAAP. "Breach", as that term relates to any representation, warranty or covenant in this Agreement, means that such representation or warranty was incorrect or untrue in any material respect when made or repeated or deemed to have been made or repeated, or either Seller has failed to comply with a covenant, and which condition (i.e., untruth or incorrectness or failure to comply) has a Material Adverse Effect. "Breakage Costs" has the meaning specified in Section 3(j)(3) hereof. "Bridge Mortgage Loan" means a Mortgage Loan which satisfies the Loan Eligibility Requirements for Bridge Mortgage Loans set forth in Exhibit IV, Part 3 to this Agreement, as may be amended from time to time upon agreement of the parties hereto. 5 10 "Business Day" means a day other than (i) a Saturday or Sunday, or (ii) a day in which the Buyer or the New York Stock Exchange is authorized or obligated by law or executive order to be closed. "Buyer" means Lehman Commercial Paper Inc. and its successors and assigns. "Buyer's LTV" means the effective loan-to-value to Buyer (expressed as a percentage) attributable to the Purchase Price for a Bridge Mortgage Loan (calculated as the Purchase Price for the related Bridge Mortgage Loan divided by the market value of the related Mortgaged Property, as determined in good faith by Buyer in its sole discretion, based upon its due diligence review), which shall equal one of the Pricing Rate selections reflected for Bridge Mortgage Loans in Exhibit I, Part 2 to this Agreement, as may be amended from time to time upon agreement of the parties hereto, and which shall be chosen by Seller in connection with the fixing of the Pricing Spread. "Buyer's Underwriter" means Hatfield Philips Inc. or such other entity designated by Buyer from time to time. "Capital Lease Obligations" means, for any Person, all obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) Property to the extent such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP, and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP. "Cash Equivalents" means (i) direct obligations of, and obligations fully guaranteed as to the full and timely payment of principal and interest by, the U.S. government or any agency or instrumentality thereof, (ii) demand deposits, time deposits, bankers' acceptances, repurchase agreements, or certificates of deposit of depository institutions or trust companies incorporated under the laws of the U.S. or any state of the U.S. and insured by the FDIC and which have the highest rating from Standard & Poor's and/or Moody's, (iii) commercial paper which has an A-1+ or P-1+ rating and (iv) money market funds or money market savings accounts, which have the highest rating from Standard & Poor's and Moody's. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Collateral" has the meaning specified in Section 6 hereof. "Collateral Deficit" means either a Market Value Collateral Deficit or a Securitization Value Collateral Deficit. "Collateral Information" means, with respect to each Loan, that information set forth in Exhibits 6-1, 6-2 and 6-3 of the Custodial Agreement, or as otherwise approved by Buyer, which information is set forth on a Loan Schedule provided by Seller to Buyer in paper and electronic form. 6 11 "Collateral Maintenance Amount" means, with respect to any Transaction, the amount obtained by multiplying (i) the Applicable Collateral Maintenance Percentage, as set forth in Exhibit I, Part 2 to this Agreement, as may be amended from time to time upon agreement of the parties hereto, by (ii) the related Repurchase Price for such Transaction. "Collections" means, with respect to any Loan, all cash collections and other Proceeds of such Loan (including late charges, fees and interest arising thereon and all recoveries with respect to Loans that have been written off as uncollectible. "Commitment Fee" means the fee or fees by type of Loan, paid or to be paid, as provided in Exhibit I, Part 1 to this Agreement, as may be amended from time to time upon agreement of the parties hereto. "Commonly Controlled Entity" means an entity, whether or not incorporated, which is under common control with a Seller within the meaning of Section 4001 of ERISA or is part of a group which includes a Seller and which is treated as a single employer under Section 414 of the Code. "Conduit Mortgage Loan" means a Mortgage Loan which satisfies the Loan Eligibility Requirements set forth in Exhibit IV, Part 1 to this Agreement, as may be amended from time to time upon agreement of the parties hereto, but which is not backed by a Credit Lease. "Confirmation" has the meaning specified in Section 3(e) hereof. "Consignment Agreement" means the consignment agreement between a Dealer and a consignee in which Dealer consigns Manufactured Home inventory to the consignee, which agreement is in form and substance acceptable to Buyer, in its sole discretion. "Credit Lease" means a bond type triple net lease to a Credit Tenant which occupies 100% of the related Mortgaged Property. "Credit Lease Mortgage Loan" means a Mortgage Loan secured by a Mortgage backed by a Credit Lease, which satisfies the Loan Eligibility Requirements set forth in Exhibit IV, Part 1 to this Agreement, as may be amended from time to time upon agreement of the parties hereto. "Credit Tenant" means a tenant rated at least Baa3 by Moody's and BBB- by Standard & Poor's, approved by Buyer, under a Credit Lease. "Curtailment" means the required periodic repayment, every 90 days, of at least 10% of the outstanding principal balance on the loan amount advanced to a Dealer by a Seller (or such other periodic payment as may be approved by Buyer, in its sole discretion) with respect to each Manufactured Home securing each Floorplan Loan subject to a Transaction as of that date. "Custodial Agreement" means the Amended and Restated Custodial Agreement, dated as of the date hereof, by and among Buyer, Sellers and the Custodian, as amended from time to time. 7 12 "Custodial Delivery" means the form, executed by a Seller and delivered with the Loan Schedule and the Loan File to Buyer or its designee (including the Custodian) pursuant to Section 7 hereof, in the form of Exhibit 7-1 to the Custodial Agreement for BAC and Exhibit 7-2 to the Custodial Agreement for MHFC, as such forms may be amended from time to time. "Custodian" means the custodian under the Custodial Agreement. The initial custodian is LaSalle National Bank. "Dealer" means a dealer in Manufactured Homes held for sale to third-parties, which Dealer is the Obligor on a Dealer Note secured by such Manufactured Homes. "Dealer Financing Agreement" means the agreement between Seller and a Dealer that provides for the financing of a Floorplan Loan. "Dealer Note" means, with respect to a Floorplan Loan, the note executed by the Dealer evidencing indebtedness in connection with the purchase of Manufactured Homes for inventory pursuant to a Dealer Financing Agreement. There shall be one Dealer Note for each Floorplan Loan, regardless of the number of Manufactured Homes financed. "Default" means an event that with notice or lapse of time or both would become an Event of Default. "Delinquent" means, with respect to any Eligible Loan, the period of time from the date on which an Obligor fails to pay an obligation under the terms of such Eligible Loan (without regard to any applicable grace periods) to the date on which such payment is made. "Delinquent MH Loan" means an MH Loan that is more than 29 days Delinquent but less than 60 days Delinquent. "Designated Fax Distributor" means the Person designated to receive and distribute faxes from the Settlement Agent, which shall initially be Simpson Zelenock, a professional corporation of attorneys, located at 260 East Brown Street, Suite 300, Birmingham, Michigan 48009-6232. "Distribution Worksheet" means the monthly worksheet prepared by a Seller or a Servicer of the Loans and delivered to Buyer which sets forth the servicing activities for the prior calendar month and the resulting deposits in, and requested distributions from, a Blocked Account related thereto, in form and substance satisfactory to Buyer. "DSCR" shall mean the quotient obtained by dividing (x) Obligor's consolidated after-tax net operating income, exclusive of extraordinary gains and losses, interest expense, depreciation and amortization to the extent included in the calculation of net operating income by (y) debt service (i.e., payments of interest and principal scheduled and required under borrowing facilities) on Indebtedness (excluding balloon loan maturity payments). "Due Date" means the day of the month on which the Monthly Payment is due on a Loan, exclusive of any days of grace. 8 13 "Eligible Floorplan Loan" means a Floorplan Loan which conforms to the Floorplan Loan Eligibility Requirements individually and which, when added to the aggregate Eligible Floorplan Loans purchased hereunder does not cause such Eligible Floorplan Loans, as a whole, to fail to conform to the Floorplan Loan Eligibility Requirements. "Eligible Loans" means, Eligible Mortgage Loans, Eligible MH Loans, Eligible Floorplan Loans and any other type of Loans that may be subsequently added to this Agreement by the mutual written agreement of Buyer and the applicable Seller. "Eligible MH Loan" means an MH Loan which conforms to the MH Loan Eligibility Requirements individually and which, when added to the aggregate Eligible MH Loans purchased hereunder does not cause such Eligible MH Loans, as a whole, to fail to conform to the MH Loan Eligibility Requirements. "Eligible Mortgage Loan" means a Mortgage Loan which conforms to the Loan Eligibility Requirements for Mortgage Loans, individually, and which, when added to the aggregate Eligible Mortgage Loans purchased hereunder does not cause such Eligible Mortgage Loans, as a whole, to fail to conform to the Loan Eligibility Requirements for Mortgage Loans. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "Escrow Account" means an account established for receipt of Escrow Payments, which account is subject to a Blocked Account Agreement. "Escrow Instructions" means the escrow instructions approved by Buyer. "Escrow Payments" means with respect to any Loan, the amounts constituting ground rents, taxes, assessments, water rates, sewer rents, municipal charges, mortgage insurance premiums, fire and hazard insurance premiums, condominium charges, and any other payments required to be escrowed by the Obligor with the obligee pursuant to a Mortgage or any other document. "Event of Default" has the meaning specified in Section 13 hereof. "Executive Bonus Plan" has the meaning set forth in the definition of Restricted Payment. "Exit Fee" has the meaning provided in Section 3(j)(4) hereof. "Extra Costs" means the set-up costs, delivery costs, title fees, appraisal fees, flood hazard determination fees, Seller, broker, and/or Dealer closing fees, insurance costs, taxes, and licensing fees, each of which is no greater than the amount specified in Exhibit I, Part 4 to this Agreement, as may be amended from time to time upon agreement of the parties hereto, the aggregate value of which is consolidated into the principal outstanding balance of the MH Paper. "Facility Documents" has the meaning specified in Section 3(a) hereof. 9 14 "FCCR" means, for any calendar quarter, the quotient obtained by dividing (x) Guarantor's consolidated after-tax net operating income, exclusive of extraordinary gains and losses, interest expense, depreciation and amortization to the extent included in the calculation of net operating income by (y) debt service (i.e., payments of principal and interest scheduled and required under borrowing facilities, excluding payments due to Buyer solely as a result of pass-throughs of scheduled amortization, Curtailments and prepayments on the Loans) on Guarantor's consolidated Indebtedness (excluding balloon loan maturity payments) plus preferred stock dividends of the Sellers and Guarantor. "Final Repurchase Date" has the meaning set forth in Exhibit I, Part 3 to this Agreement, as may be amended from time to time upon agreement of the parties hereto or such earlier date to which it may be accelerated pursuant to Section 8 of this Agreement. "Floorplan Loan" means MH Paper which satisfies the Floorplan Loan Eligibility Requirements. A Floorplan Loan is made to finance a Dealer's inventory of Manufactured Homes, in whole or in part. "Floorplan Loan Eligibility Requirements" means the Loan Eligibility Requirements with respect to Floorplan Loans as set forth on Exhibit IV, Part 5 to this Agreement, as may be amended from time to time upon agreement of the parties hereto. "GAAP" means generally accepted accounting principles as in effect from time to time in the United States. "Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any court or arbitrator having jurisdiction over the Sellers, any of its Affiliates or any of its properties. "Grandfathered Loans" means the Transactions consisting of the purchase of Loans on the following Properties: (i) Thomas Edison Hotel in Port Huron, Michigan and (ii) A-Secured Self & Vehicle Storage II in Maricopa County, Arizona. "Gross Margin" means with respect to each adjustable rate Loan, the fixed percentage amount that is added to the Index, as set forth in the related Note. "Ground Lease" means a lease for all or any portion of the real property comprising the Mortgaged Property, the lessee's interest in which is held by the Mortgagor of the related Mortgage Loan. "Guarantee" means, as to any Person, any obligation of such Person directly or indirectly guaranteeing any Indebtedness of any other Person or in any manner providing for the payment of any Indebtedness of any other Person or otherwise protecting the holder of such Indebtedness against loss (whether by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, or to take-or-pay or otherwise); provided that the term "Guarantee" shall not include (i) endorsements for collection or deposit in the ordinary course of business, or (ii) obligations to make servicing advances for delinquent taxes and insurance or other obligations in respect of a Mortgaged Property, to the extent required by Buyer. The amount of any Guarantee of a Person shall be deemed to be an amount equal to the 10 15 stated or determinable amount of the primary obligation in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined in accordance with GAAP. The terms "Guarantee" and "Guaranteed" used as verbs shall have correlative meanings. "Guarantor" means Bingham Financial Services Corporation, the sole parent of Sellers. "Guaranty" means that certain Amended and Restated Affiliate Guaranty dated as of the date hereof. "Hedge" means, with respect to any or all of the Purchased Loans, any interest rate swap, cap or collar agreement or similar arrangements providing for protection against fluctuations in interest rates or the exchange of nominal interest obligations, either generally or under specific contingencies, entered into by Sellers with Buyer or its Affiliates, and reasonably acceptable to the Buyer. "Index" means with respect to each adjustable rate Loan, the index set forth in the related Note for the purpose of calculating the interest rate thereon. "Income" means, with respect to any Purchased Loan at any time, any principal thereof then payable and all interest, dividends or other distributions payable thereon less any related servicing fee(s) charged by a subservicer as approved by Buyer. "Indebtedness" means, for any Person: (a) obligations created, issued or incurred by such Person for borrowed money (whether by loan, the issuance and sale of debt securities or the sale of Property to another Person subject to an understanding or agreement, contingent or otherwise, to repurchase such Property from such Person); (b) obligations of such Person to pay the deferred purchase or acquisition price of Property or services, other than trade accounts payable (other than for borrowed money) arising, and accrued expenses incurred, in the ordinary course of business so long as such trade accounts payable are payable in accordance with their terms within 60 days of the date the respective goods are delivered or the respective services are rendered; (c) Indebtedness of others secured by a Lien on the Property of such Person, whether or not the respective Indebtedness so secured has been assumed by such Person; (d) obligations (contingent or otherwise) of such Person in respect of letters of credit or similar instruments issued or accepted by banks and other financial institutions for account of such Person; (e) Capital Lease Obligations of such Person; (f) obligations of such Person under repurchase agreements or like arrangements; (g) Indebtedness of others Guaranteed by such Person; (h) all obligations of such Person incurred in connection with the acquisition or carrying of fixed assets by such Person; and (i) Indebtedness of general partnerships of which such Person is a general partner. "Initial Table Funded Loan Documents" means (a) the Mortgage Note, (b) the Escrow Instructions, (c) the Settlement Agent Trust Receipt (d) the Insured Closing Letter and (e) the Custodial Delivery. "Insured Closing Letter" means a letter addressed to BAC and Buyer from the title insurance underwriter for which the Settlement Agent is serving as an agent for Table Funded 11 16 Mortgage Loans, which letter shall be in form and substance reasonably acceptable to BAC and Buyer. "Intercreditor Agreement" means an agreement between Seller and other creditors of any Dealer, providing, among other things, for the subordination of such creditor's security interests to Seller's security interests and/or the distinguishing between or among security interests so that such creditor does not claim a security interest in the Property or interests that are subject to Seller's security interests. "Interest Period" means, with respect to any Transaction, (i) initially, the period commencing on the Purchase Date and ending on the day immediately preceding the next Payment Date (the "Interest Reset Date"), and (ii) thereafter, each period from and including the day following the immediately preceding Interest Reset Date up to and including the succeeding Interest Reset Date or such shorter period as agreed among Buyer and a Seller when the current LIBOR period expires. Notwithstanding the foregoing, each Interest Period that commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate calendar month when the Interest Period expires) shall end on the last Business Day of the appropriate calendar month. Notwithstanding the foregoing: (i) no Interest Period may begin before and end after the Final Repurchase Date; and (ii) each Interest Period that would otherwise end on a day that is not a Business Day shall end on the next succeeding Business Day (or, if such next succeeding Business Day falls in the next succeeding calendar month, on the next preceding Business Day). "Interest Reset Date" has the meaning set forth in the definition of Interest Period. "Interim Mortgage Loan" means a Mortgage Loan which satisfies the Loan Eligibility Requirements set forth in Exhibit IV, Part 2 to this Agreement, as may be amended from time to time upon agreement of the parties hereto. "Land-and-Home Loan" means an MH Loan secured by a Mortgage on the Obligor's real property and the Manufactured Home permanently affixed to it. "LIBOR" means the rate per annum calculated with respect to each Transaction as set forth below: (i) Two (2) Business Days prior to each Interest Reset Date, LIBOR shall be determined by Buyer on the basis of the offered rate for one month deposits of not less than U.S. $1,000,000, which appears on the date of determination on Telerate Page 3750 as of 11:00 a.m., London time (or such other page as may replace the Telerate Page on that service for the purposes of displaying London interbank offered rates of major banks). If no such offered rate appears, LIBOR with respect to the relevant Interest Period shall be determined as described in (ii) below. (ii) With respect to an Interest Reset Date on which no such offered rate appears two (2) Business Days prior to each Interest Reset Date on Telerate Page 3750 as described in (i) above (or the Wall Street Journal, if the Telerate Page is no longer used for the purposes of displaying London interbank offered rates of major banks), LIBOR shall be the arithmetic mean, expressed as a percentage, of the offered rates for one month deposits in U.S. dollars that appears on the Reuters Screen LIBOR Page as of 11:00 a.m., London time, on the 12 17 date of determination. If, in turn, such rate is not displayed on the Reuters Screen LIBOR Page at such time, then LIBOR for such date shall be reasonably determined by Buyer to be the arithmetic mean of the offered quotations to first-class banks in the Interbank LIBOR Market. All percentages resulting from any calculations of LIBOR referred to in this Agreement shall be rounded up to the nearest multiple of 1/100 of 1% and all U.S. dollar amounts used in or resulting from such calculations shall be rounded to the next higher cent. "Lien" means any mortgage, lien, pledge, charge, security interest or similar encumbrance. "Lien Certificate" shall mean, with respect to any Manufactured Home, if applicable, an original certificate of title, certificate of lien or other notification issued by the Registrar of Titles of the applicable state to a secured party which indicates that the Lien of the secured party on the Manufactured Home is recorded on the original certificate of title. "Loan" means a Mortgage Loan, a Floorplan Loan, or an MH Loan. "Loan Agreement" means a Dealer Financing Agreement or an MH Contract. "Loan Documents" means, with respect to a Loan, the documents comprising the Loan File for that Loan. "Loan Eligibility Requirements" means the eligibility requirements with respect to the particular type of Loan as set forth on Exhibit IV, Parts 1 through 5 to this Agreement and such other additions to Exhibit IV that may be added from time to time for other Loan types, and any amendments thereto. "Loan File" means the required documents for each Loan type set forth in Annex A to the Custodial Agreement (and set forth in table form in Annex B to the Custodial Agreement), together with any additional documents and information required to be delivered to Buyer or its designee (including the Custodian). "Loan Interest Rate" means the annual rate of interest borne on a Note, which shall be adjusted from time to time with respect to adjustable rate Loans. "Loan Interest Rate Adjustment Date" means with respect to each adjustable rate Loan, the date, specified in the related Note and Loan Schedule, on which the Loan Interest Rate is adjusted. "Loan Interest Rate Cap" means with respect to an adjustable rate Loan, the limit on each Interest Rate adjustment as set forth in the related Note. "Loan Limitations" means the aggregate, type and individual sublimits and other constraints with respect to Loans, as set forth in Exhibit I, Part 3 to this Agreement, as may be amended from time to time upon agreement of the parties hereto. "Loan Representations" means those representations and warranties set forth in Exhibit II and in Section 10(c) hereof. 13 18 "Loan Schedule" means a schedule of Loans attached to each Trust Receipt and Custodial Delivery, and also delivered to Buyer monthly and at other times, from time to time, containing Collateral Information with respect to each Loan. "Loan-to-Value Ratio" or "LTV" means with respect to any Loan, as of any date, the fraction, expressed as a percentage, the numerator of which is the principal balance of such Loan at the date of determination and the denominator of which is the Appraised Value. "Loan Transfer Agreements" means the repurchase or loan agreements or other transactions under which a Qualified Originator transfers Eligible Loans to a Seller. "Lockbox Bank" means, with respect to the Blocked Accounts under which Bloomfield Servicing and St. James Servicing act as Servicers, NBD Bank, a Michigan banking corporation, and with respect other Blocked Accounts, the bank designated as such upon mutual agreement of Buyer and Seller. "Manufactured Home" means a unit of new, pre-owned, or used manufactured housing consisting of a pre-fabricated manufactured unit affixed to a permanent foundation, or a mobile home (including all Add-ons, attachments, improvements and accessions) which meets the requirements of Section 25(e)(10) of the Internal Revenue Code of 1986, 26 U.S.C. 25(e)(10) as amended, securing the indebtedness of the Obligor under the related MH Loan. "Manufacturer's Floorplan Agreement" means an agreement between a Seller and a Manufactured Home manufacturer that specifies, among other things, that such manufacturer will repurchase, at the price and terms described in that agreement, Manufactured Homes sold to a Dealer by that manufacturer and financed by a Seller, in the event that the Seller acquires possession of those Manufactured Homes through repossession, voluntary surrender or otherwise. "Market Value" means as of any date with respect to any Loan, the price at which such Loan could readily be sold, as determined in good faith by Buyer in its sole discretion, provided that, the Market Value shall be deemed to be zero with respect to each Loan (i) which has been subject to Transactions for more than the Maximum Aggregate Term; (ii) other than an MH Loan, which is more than 29 days Delinquent; (iii) which fails to meet the Loan Eligibility Requirements for that Loan type; (iv) with respect to which there is a Breach (other than a Breach of a Loan Representations) that has not been cured; (v) which violates the Loan Limitations established for the applicable Loan type under Exhibit I, Part 3 to this Agreement; and (vi) which is a Table Funded Mortgage Loan for which the Custodian has failed to receive the related Mortgage Loan Documents on the third Business Day following the applicable Purchase Date. The Market Value of a Loan as to which there has been a Breach of a Loan Representation that has not been cured, shall be reduced to a value determined by Buyer in its sole good faith discretion, which value may be zero. The determination of Market Value will be determined by Buyer based upon its due diligence review and will include the benefit of Hedges provided directly by Buyer or its Affiliate, and in each case pledged as additional collateral to the Buyer. The Market Value of Purchased Loans shall be determined by the Buyer no less frequently than monthly. Market Value adjustments as a result of interest rate movements can be performed daily by the Buyer. Sellers hereby acknowledge that Market Value will be negatively impacted by the lack of current due diligence information. 14 19 "Market Value Collateral Deficit" has the meaning specified in Section 4(a) hereof. "Marketable Securities" means securities which have an investment grade rating from a national rating agency, which are registered with and actively traded on a nationally recognized exchange, and for which a quoted market price is readily available. "Material Adverse Effect" means a material adverse effect, as determined by Buyer in its sole discretion, upon (i) the business operations, properties, assets, condition (financial or otherwise) or prospects of either Seller or Guarantor taken as a whole, (ii) the ability of either Seller to perform its obligations, or of Buyer to enforce any of its rights or remedies, under this Agreement or any of documents to be executed and/or delivered hereunder, (iii) the individual or aggregate Market Value or the Securitization Value of any or all of the Purchased Loans (or other Collateral) or (iv) the ability of Guarantor to perform its obligations under the Guaranty. Any negative impact on the value of a Loan, however small such impact may be, shall be considered a Material Adverse Effect on such Loan, as to which Buyer may adjust the Market Value and/or Securitization Value. "Maximum Aggregate Term" has the meaning specified in Exhibit I, Part 3 to this Agreement, as may be amended from time to time upon agreement of the parties hereto. "Maximum Committed Amount" means the total amount committed hereunder, for each Loan type, or group of Loan types, as set forth in Exhibit I, Part 3 to this Agreement, as may be amended from time to time upon agreement of the parties hereto. "Maximum Leverage Ratio" means, for any calendar quarter, the quotient obtained by dividing (x) Guarantor's consolidated Indebtedness by (y) Guarantor's consolidated Tangible Net Worth. "Maximum Single Park Exposure" means the value of MH Loans that may be originated in a single Manufactured Home park, as set forth in Exhibit I, Part 3 to this Agreement, as may be amended from time to time upon agreement of the parties hereto. "Maximum Single State Exposure" means the value of MH Loans that may be originated in a single state, as set forth in Exhibit I, Part 3 to this Agreement, as may be amended from time to time upon agreement of the parties hereto. "MH Contract" means the installment loan agreement or retail installment sales contract executed by an Obligor evidencing indebtedness in connection with the financing of a Manufactured Home. "MH Insurance" means property, casualty, credit life and/or warranty insurance purchased by an Obligor in connection with the financing of an MH Loan. "MH Loan" means MH Paper which satisfies the MH Loan Eligibility Requirements. The term MH Loan includes Land-and-Home Loans. MH Loans are made under MH Contracts or MH Notes. 15 20 "MH Loan Eligibility Requirements" means the eligibility requirements with respect to MH Loans as set forth on Exhibit IV, Part 4 to this Agreement, as may be amended from time to time upon agreement of the parties hereto. "MH Note" means a note or other evidence of indebtedness of an Obligor (other than a Dealer) secured by a Manufactured Home, and, if a Land-and-Home Loan, secured by the related Mortgaged Property. "MH Paper" means a non-securitized whole loan, which shall be a loan secured by a perfected first priority Lien on a Manufactured Home, and, in the case of Land-and-Home Loans, secured also by a perfected first priority Lien on the related Mortgaged Property and the Manufactured Home permanently affixed to it. The term MH Paper consists of MH Loans and Floorplan Loans. "MH Servicer" means St. James Servicing with respect to the invoicing and accounting services set forth in the MH Servicing Agreement and MHFC for all other activities customarily provided by servicers of loans of the same type as the MH Loans, or any successor Servicer approved by Buyer. "MH Servicing Agreement" means the Servicing Agreement between MHFC and the MH Servicer, as may hereafter be amended by the parties thereto with Buyer's consent. "MH Side Letter" means that certain letter agreement, the subject matter of which is MH Paper, dated as of the date hereof, between Lehman Brothers Inc. and MHFC, as it may hereafter be amended by the parties thereto. "MHFC" means MHFC, Inc., a Michigan corporation. "Monthly Payment" means the scheduled Monthly Payment of principal and/or interest on a Loan, including adjustments made in accordance with changes in the Loan Interest Rate pursuant to the provisions of the Note for an adjustable rate Loan. "Moody's" means Moody's Investor Service, Inc. "Mortgage" means a mortgage, deed of trust, deed to secure debt or other instrument, creating a valid and enforceable first lien on or a first priority ownership interest in an estate in fee simple in real property and the improvements thereon, securing a Mortgage Note or similar evidence of indebtedness. "Mortgage Loan" means a non-securitized whole loan, which shall be a mortgage loan secured by a perfected first priority lien on commercial real estate assets. The term Mortgage Loan includes Conduit Mortgage Loans, Credit Lease Mortgage Loans, Bridge Mortgage Loans and Interim Mortgage Loans, any of which may be Table Funded Mortgage Loans. "Mortgage Loan Servicer" means Bloomfield Servicing, or any successor Servicer approved by Buyer. 16 21 "Mortgage Loan Servicing Agreement" means the Servicing Agreement between BAC and the Mortgage Loan Servicer, as it may hereafter be amended by the parties thereto with Buyer's consent. "Mortgage Note" means a note or other evidence of indebtedness of a Mortgagor secured by a Mortgage. "Mortgaged Property" means the real property securing repayment of the debt evidenced by a Mortgage Note (or securing an MH Note, in the case of Land-and-Home Loans). "Mortgagee" means the record holder of a Mortgage Note secured by a Mortgage. "Mortgagor" means the obligor on a Mortgage Note and the grantor of the related Mortgage. "Multiemployer Plan" means a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "NADA Retail Value" and "NADA Wholesale Value" means the retail and wholesale value, respectively, of a Manufactured Home as stated in the then current N.A.D.A. Manufactured Housing Appraisal Guide ("Blue Book") published by National Appraisal Guides, Inc., or any successor publication similarly recognized by the trade and approved by Buyer. "Non-Use Fee" means the fee for not using this facility, payable on certain types of Loans, by a Seller to Buyer as set forth in Exhibit I, Part 1 to this Agreement, as may be amended from time to time upon agreement of the parties hereto. "Note" means a Mortgage Note, MH Note or Dealer Note. "Obligor" means, the Dealer on a Dealer Note, the obligor on a MH Note, or a Mortgagor on a Mortgage Note. "Officer's Certificate" means, with respect to any Person, a certificate of the chief executive officer, chief operating officer or vice president or, with respect to financial matters, a certificate of the chief financial officer or treasurer of such Person. "Original Agreement" means that certain Master Repurchase Agreement Governing Purchases and Sales of Mortgage Loans between Buyer and BAC, dated as of March 19, 1998. "Park Concentration Limit" has the meaning specified in Exhibit I, Part 2 to this Agreement, as may be amended from time to time upon agreement of the parties hereto. "Payment Date" means (i) with respect to all Loans other than MH Loans, the first (1st) calendar day of the month, and (ii) with respect to MH Loans, the tenth (10th) calendar day of the month, provided in both cases that if any such calendar day is not a Business Day, the succeeding Business Day. 17 22 "Payoff Letter" means a letter from a Prior Lender, that details the amount necessary to extinguish indebtedness owed by Dealer to such Prior Lender, which indebtedness is secured by Manufactured Homes and/or other Property that will secure a Floorplan Loan, and which provides an automatic release and/or subordination in favor of Seller (and its successors and/or assigns) of its security interest in all such Property upon receipt of payment of such amount. "PBGC" means the Pension Benefit Guaranty Corporation established pursuant to subtitle A of Title IV of ERISA. "Perfection Requirements Memorandum" has the meaning specified in Section 12(r). "Periodic Payment" has the meaning specified in Section 5(d) hereof. "Permitted Delinquencies" means the sublimit allowed for Delinquent MH Loans, set forth in Exhibit I, Part 3 to this Agreement, as may be amended from time to time upon agreement of the parties hereto. "Person" means an individual, partnership, corporation, limited liability company, joint stock company, trust or unincorporated organization or a governmental agency or political subdivision thereof. "Pipeline Report" means the report, in that form agreed upon by the parties as amended from time-to-time, provided by a Seller with respect to all Mortgage Loans being actively processed by that Seller for intended inclusion in Transactions under this Agreement. "Plan" means at a particular time, any employee benefit plan which is covered by ERISA and in respect of which Sellers or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "PMI Policy" or "Primary Mortgage Insurance Policy" means a policy of primary mortgage guaranty insurance issued by a Qualified Insurer. "Pre-owned Manufactured Home" means a Manufactured Home that was previously sold to or leased by a third-party for residential purposes, and, as referenced in this Agreement, shall include Used Manufactured Homes. "Price Differential" means, with respect to any Transaction hereunder as of any date, the aggregate amount obtained by daily application of the Pricing Rate for such Transaction to the Purchase Price for such Transaction on a 360 day per year basis for the actual number of days during the period commencing on (and including) the Purchase Date for such Transaction and ending on (but excluding) the Repurchase Date (reduced by any amount of such Price Differential previously paid by a Seller to Buyer with respect to such Transaction). "Pricing Rate" means the per annum percentage rate specified in the Confirmation for determination of the Price Differential which shall not exceed LIBOR plus the applicable Pricing Spread. 18 23 "Pricing Spread" has the meaning set forth in Exhibit I, Part 2 to this Agreement, as may be amended from time to time upon agreement of the parties hereto. "Prior Lender" means a previous lender to a Dealer, which lender has financed Manufactured Homes which will secure a Floorplan Loan. "Proceeds" means, with respect to any Collateral, whatever is receivable or received when such Collateral is sold, collected, exchanged or otherwise disposed of, whether such disposition is voluntary or involuntary, and includes all rights to payment, including returned premiums, with respect to any insurance relating to such Collateral. "Property" means any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible. "Purchase Date" means the date on which Purchased Loans are transferred by a Seller to Buyer or its designee (including the Custodian) as specified in the Confirmation. "Purchase Price" means on each Purchase Date, the price at which Purchased Loans are sold or transferred by a Seller to Buyer or its designee (including the Custodian), which, with respect to: (i) Conduit Mortgage Loans, Credit Lease Mortgage Loans, Interim Mortgage Loans, MH Loans and Floorplan Loans, is equal to the Applicable Purchase Price Percentage multiplied by the lowest of (x) the Market Value of such Purchased Loans, (y) the Securitization Value of such Purchased Loans, or (z) the outstanding principal amount of such Purchased Loans on the Purchase Date. (ii) Bridge Mortgage Loans, is the Buyer's LTV multiplied by the market value of the Mortgaged Property, as determined in good faith by the Buyer in its sole discretion, based upon its due diligence review. "Purchased Loans" means the Loans sold by a Seller to the Buyer in a Transaction, any Additional Loans and any Substituted Loans, whether or not such Loans were in fact Eligible Loans at the time of purchase, or thereafter. "Qualified Insurer" means an insurance company duly qualified as such under the laws of the states in which the Underlying Asset is located, duly authorized and licensed in such states to transact the applicable insurance business and to write the insurance provided and whose claims paying ability at the time of determination is (i) rated not less than A3 by Moody's or A- or better by Standard & Poor's or (ii) if such insurance company is not rated by either Moody's or Standard & Poor's, rated A:VII or better by Best's Insurance Reports. "Qualified Originator" means either Seller or another originator of Loans approved by Buyer in writing. "Registrar of Titles" means, with respect to any state, the governmental agency or body responsible for the registration of, and the issuance of certificates of title relating to, motor vehicles, Manufactured Homes and liens thereon. 19 24 "Reorganization" means, with respect to any Multiemployer Plan, the condition that such Plan is in reorganization within the meaning of Section 4241 of ERISA. "Replacement Loans" has the meaning specified in Section 14(b)(ii) hereof. "Reportable Event" means any of the events set forth in Section 4043(b) of ERISA, other than those events as to which the thirty day notice period is waived under Sections .13, .14, .16, .18, .19 or .20 of PBGC Reg. ss. 4043. "Repurchase Date" means the date on which a Seller is to repurchase Purchased Loans from Buyer, including any date determined by application of the provisions of Sections 3 or 14 hereof, as specified in the Confirmation; provided that in no event shall such date be (i) more than 30 days after the Purchase Date or (ii) after the expiration of the Maximum Aggregate Term. "Repurchase Price" means the price at which Purchased Loans are to be transferred from Buyer or its designee (including the Custodian) to a Seller upon termination of a Transaction, which will be determined in each case as the sum of the Purchase Price and the Price Differential as of the date of such determination decreased by all cash, Income (including Curtailments and prepayments) and Periodic Payments actually received by Buyer. "Request for Purchase" means written notice of a Seller's request to enter into a Transaction, in a form acceptable to the applicable Seller and Buyer. Such Request for Purchase shall (i) specify the requested Purchase Date and Repurchase Date, (ii) include the Loan Schedule containing Collateral Information with respect to the Loan or Loans that the Seller proposes to sell to Buyer in connection with such Transaction, and (iii) be for at least the minimum amount set forth in Exhibit I, Part 3 to this Agreement, as may be amended from time to time upon agreement of the parties hereto. A Request for Purchase covering a Floorplan Loan as to which Buyer has already disbursed funds shall clearly specify this, and shall include BAC's Loan Number and the Dealer name on the Floorplan Loan as to which an additional purchase is requested. "Restricted Payments" means any of the following actions: (i) declaring or paying any dividend (other than dividends payable solely in common stock of either Seller or Guarantor) on, or making any payment on account of, or setting apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any shares of any class of capital stock of the Guarantor or any warrants or options to purchase any such stock, whether now or hereafter outstanding, or making any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of the Sellers, Guarantor or any Subsidiary, or (ii) making any payments in excess of the amounts set forth in (A) Sellers' executive bonus plans (each an "Executive Bonus Plan"), and (B) the employment agreements as entered into between Guarantor and each of Daniel E. Bober, Creighton J. Weber and William L. Mulvaney, as in effect as of the date hereof. "Restrictions on Transferability" means any material condition to, or restriction on, the ability of the holder or an assignee of the holder of any right, title or interest to sell, assign, transfer or otherwise liquidate such right, title or interest in a commercially reasonable 20 25 time and manner or which would otherwise materially deprive the holder or any assignee of the holder of the benefits thereof. "St. James Servicing" means St. James Servicing Corporation. "St. James Blocked Account" has the meaning specified in Section 29(a). "Second Side Letter" means that certain letter agreement, the subject of which is Bridge Mortgage Loans and Interim Mortgage Loans, dated as of the date hereof, between Lehman Brothers Inc. and BAC, as may be hereafter amended by the parties thereto. "Second Subordination Letter" means that certain letter agreement dated as of the date hereof, among Buyer, Sellers and Sun Communities, Inc. "Securitization Value" means as of any date with respect to any Loan, the price at which such Loan could readily be securitized or sold in a securitization, as determined in good faith by Buyer in its sole discretion, provided that, the Securitization Value shall be deemed to be zero with respect to each Loan (i) which has been subject to Transactions for more than the Maximum Aggregate Term; (ii) other than an MH Loan, which is more than 29 days Delinquent; (iii) which fails to meet the Loan Eligibility Requirements for that Loan type; (iv) with respect to which there is a Breach (other than a Breach of a Loan Representations) that has not been cured; (v) which violates the Loan Limitations established for the applicable Loan type under Exhibit I, Part 3 to this Agreement; and (vi) which is a Table Funded Mortgage Loan for which the Custodian has failed to receive the related Mortgage Loan Documents on the third Business Day following the applicable Purchase Date. The Securitization Value of a Loan as to which there has been a Breach of a Loan Representation that has not been cured, shall be reduced to a value determined by Buyer in its sole good faith discretion, which value may be zero. The determination of Securitization Value will be determined by Buyer based upon its due diligence review and will include the benefit of Hedges provided directly by Buyer or its Affiliate, and in each case pledged as additional collateral to the Buyer. Sellers hereby acknowledge that Securitization Value will be negatively impacted by the lack of current due diligence information. "Securitization Value Collateral Deficit" has the meaning specified in Section 4(a) hereof. "Seller" means BAC with respect to Mortgage Loans and Floorplan Loans, and MHFC with respect to MH Loans. "Seller's Loan Documents" means the documents identified for each Loan type as set forth in Exhibit V, Parts 1, 2 and 3 to this Agreement as approved by Buyer as may be amended from time to time with Buyer's written consent. "Servicer" means the Mortgage Loan Servicer and the MH Servicer. "Servicing Agreement" has the meaning specified in Section 25 hereof. 21 26 "Servicing File" means with respect to each Loan, the file retained by a Seller or Servicer consisting of originals of all documents related to a Loan which are not delivered to a Buyer or its designee and copies of the Loan Documents. "Servicing Letter" has the meaning specified in Section 25. "Servicing Records" has the meaning specified in Section 25 hereof. "Settlement Agent" shall mean, with respect to any Transaction, an entity satisfactory to the Buyer in its sole discretion (which may be a title company, escrow company or attorney in accordance with local law and practice in the jurisdiction where the related Table Funded Mortgage Loan is being originated), to which the proceeds of such Transaction are to be wired by Buyer. "Settlement Agent Trust Receipt" means a trust receipt issued by the Settlement Agent evidencing the Purchased Loans it holds, in the form of Exhibit 1-6 to the Custodial Agreement, and delivered to the Buyer and the Custodian by the Designated Fax Distributor. "Side Letter" means that certain letter agreement, the subject of which is Conduit Mortgage Loans and Credit Lease Mortgage Loans, dated March 19, 1998, between Buyer and BAC, as may be hereafter amended by the parties thereto. "Significant Modification" means any modification that would be a "significant modification" as such term is defined in U.S. Department of the Treasury Regulations Section 1.1001-3(e) which includes a modification that, based upon on all the facts and circumstances, is economically significant to the Purchased Loan in the sole discretion of the Buyer, including, but not limited to any changes in the interest rate, payment schedule, maturity date, Obligor, guarantor or Underlying Asset. "Single Employer Plan" means any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan. "Standard & Poor's" means Standard & Poor's Rating Services, a division of the McGraw Hill Companies, Inc. "State Concentration Limit" has the meaning specified in Exhibit I, Part 2 to this Agreement, as may be amended from time to time upon agreement of the parties hereto. "Subsidiary" means, with respect to any Person, any corporation, partnership or other entity of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation, partnership or other entity (irrespective of whether or not at the time securities or other ownership interests of any other class or classes of such corporation, partnership or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person. 22 27 "Substituted Loans" means any Eligible Loans substituted for Purchased Loans in accordance with Section 9 hereof. "Table Funded Mortgage Loan" shall mean a Mortgage Loan which is sold to the Buyer simultaneously with the origination thereof by the Seller, which origination is financed in part or in whole with proceeds of Transactions advanced directly to the Settlement Agent. A Mortgage Loan shall cease to be a Table Funded Mortgage Loan after the Custodian has delivered a Trust Receipt to Buyer certifying its receipt of the corresponding Loan File. "Table Funded Trust Receipt" has the meaning specified in the Custodial Agreement. "Tangible Net Worth" means the consolidated Total Assets of Guarantor minus an amount equal to the sum of (x) consolidated Indebtedness of Guarantor and (y) consolidated intangible assets (including, without limitation, goodwill) as set forth in the consolidated financial statement of Guarantor. "Title Policy" has the meaning specified in Paragraph 2 of Exhibit II, Part 1. "Total Assets" of any Person shall mean, at any date, the Book Value of all its properties and assets, whether real, personal or mixed; provided that Buyer and the respective Seller shall mutually agree upon the assumptions to be used to evaluate the Book Value of any residual interest or interest-only securities owned by that Seller or its Affiliates prior to its inclusion in the calculation of Book Value. "Total Committed Amount" has the meaning specified in Exhibit I, Part 3 to this Agreement, as may be amended from time to time upon agreement of the parties hereto. "Transaction" has the meaning specified in Section 1 hereof. "Trust Receipt" means a trust receipt issued by Custodian to Buyer confirming the Custodian's possession of certain Loan Files which are the property of and held by Custodian for the benefit of the Buyer or the registered holder of such trust receipt. "Underlying Asset" means the Mortgaged Property with respect to a Mortgage Loan and Land-and-Home Loan, and a Manufactured Home (including Add-ons) with respect to an MH Loan and Floorplan Loan. "Underwriting Guidelines" means the underwriting guidelines for Mortgage Loans, MH Loans, and Floorplan Loans, substantially in the form of Exhibit III, Parts 1, 2 and 3, to this Agreement as may be amended from time to time. "Uniform Commercial Code" or "UCC" means the Uniform Commercial Code as in effect on the date hereof in the State of New York; provided that if by reason of mandatory provisions of law, the perfection or the effect of perfection or non-perfection of the security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than New York, "Uniform Commercial Code" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection. 23 28 "Used Manufactured Home" means a Manufactured Home that is older than the 1996 model year. 3. CONDITIONS PRECEDENT; INITIATION; CONFIRMATION; TERMINATION; MAXIMUM TRANSACTION AMOUNTS; FEES (a) Conditions Precedent to Initial Transaction. Buyer's obligation to enter into the initial Transaction hereunder is subject to the satisfaction, immediately prior to or concurrently with the making of such Transaction, of the condition precedent that Buyer shall have received the Commitment Fee from Sellers and any other fees and expenses payable hereunder, and all of the following documents with respect to each Loan type that is eligible for purchase, each of which shall be satisfactory to Buyer and its counsel in form and substance (together with the Confirmation, collectively, the "Facility Documents"): (1) Agreement. This Agreement, duly completed, and executed and delivered by Sellers; (2) Amended and Restated Custodial Agreement. Amended and Restated Custodial Agreement, duly executed and delivered by Sellers and the Custodian; (3) Uniform Commercial Code Filings. Any filings requested by Buyer or required under the Uniform Commercial Code duly completed and executed and such other actions as Buyer shall have requested in order to perfect the security interests created pursuant to this Agreement; (4) Blocked Account Agreements. The two Blocked Account Agreements, duly executed and delivered, respectively, by (i) BAC, Bloomfield Servicing and NBD Bank, and (ii) MHFC, St. James Servicing, and NBD Bank; (5) Opinions of Counsel. An opinion or opinions of counsel to the Sellers and to the Guarantor regarding corporate authority and perfection of security interests in Loans, in form and substance acceptable to the Buyer, including affirmations of the current validity of previously delivered documents; an opinion or opinions of counsel to MHFC regarding perfection of security interests in MH Paper, in all states in which MH Paper will be originated, and a written analysis, satisfactory to Buyer in its sole discretion, from outside counsel to MHFC regarding the effect on the validity and enforceability of Buyer's interests in MH Loans and the related Manufactured Homes in those states in which MHFC has not yet obtained licensing. (6) Guaranty. The Guaranty, duly executed and delivered by Guarantor; (7) Second Side Letter. The Second Side Letter, duly executed and delivered by BAC; (8) MH Side Letter. MH Side Letter, duly executed and delivered by MHFC; 24 29 (9) Second Subordination Letter. The Second Subordination Letter, duly executed and delivered by all the parties thereto; (10) Mortgage Loan Servicing Agreement. The Servicing Agreement, duly executed and delivered by BAC and Mortgage Loan Servicer; (11) MH Servicing Agreement. The MH Servicing Agreement, duly executed and delivered by MHFC and MH Servicer; (12) Servicing Letter - Mortgage Loan Servicer. A Servicing Letter, as required under Section 25(d), duly executed and delivered by the Mortgage Loan Servicer. (13) Servicing Letter - MH Servicer. A Servicing Letter, as required under Section 25(d), duly executed and delivered by the MH Servicer. (14) Organizational Documents. For each of BAC, MHFC and the Guarantor, Buyer shall have received a certificate of good standing and a certificate of the Secretary or Assistant Secretary of each entity certifying: (i) a copy of its articles of incorporation, (ii) a copy of its by-laws; (iii) the names and signatures of the officers authorized on its behalf to execute, deliver and perform under the Facility Documents, and any other documents to be delivered by it from time to time in connection therewith (on which the Buyer conclusively rely until such time as the Buyer shall receive from the Sellers or the Guarantor, respectively, a revised certificate); and (iv) resolutions of the Board of Directors of each entity authorizing that entity to execute, perform under, and deliver the Facility Documents; (15) Officer's Certificates. An Officer's Certificate of each Seller, regarding representations and warranties; (16) Power of Attorney. Two omnibus powers of attorney in form and substance satisfactory to Buyer, one duly executed and delivered by each Seller with respect to all of the Loans delivered or to be delivered by that Seller to Buyer or its designee (including the Custodian), irrevocably appointing Buyer its attorney-in-fact with full power to complete, record and/or file the Assignments of Mortgages and other assignments, complete the endorsement of the Notes and/or MH Contracts and take such other steps as may be necessary or desirable to enforce Buyer's rights against such Loans, the related Loan Files and the Servicing Records; (17) Underwriting Guidelines. A copy of Sellers' current Underwriting Guidelines for MH Loans and a copy of any material changes to BAC's Underwriting Guidelines made since the Underwriting Guidelines for Conduit Mortgage Loans and Credit Lease Mortgage Loans were last delivered to Buyer; (18) Sellers' Loan Documents. Seller's Loan Documents for MH Loans, as identified in Exhibit V attached hereto, and confirmation that the previously delivered Seller's Loan Documents for Conduit and Credit Lease Mortgage Loans remain the complete and true copies of those used by BAC for such Loans. 25 30 (19) Financial Statements. Interim unaudited (for the period ended June 30, 1998) financial statements and financial projections for the upcoming fiscal year for Sellers and Guarantor, to be replaced by updated final projections within thirty (30) days of the date hereof ; (20) Insurance Policies. Insurance policies required by Section 12(o) hereof; (21) SMMEA Memo. Memo on status of each Seller's SMMEA qualification; (22) Designated Fax Distributor Letter. Letter from the Designated Fax Distributor in which the Designated Fax Distributor agrees to act as Designated Fax Distributor. (23) Other Documents. Such other documents as Buyer may reasonably request. (b) Conditions Precedent to all Transactions. Buyer's obligation to enter into each Transaction (including the initial Transaction) is subject to the satisfaction of the following further conditions precedent, both immediately prior to entering into such Transaction and also after giving effect thereto to the intended use thereof: (1) Underwriting Summary and Draft Loan Schedule. At least one (1) week prior to the Purchase Date, Buyer and Buyer's Underwriter shall have received a materially completed underwriting summary (which may be updated prior to the Purchase Date) and a draft Loan Schedule for all Loans in the form mutually agreed to by Buyer and the applicable Seller with respect to each Mortgage Loan to be purchased on such Purchase Date; (2) Completion of Due Diligence. Buyer shall have completed its due diligence to its satisfaction with respect to each Eligible Loan to be purchased on such Purchase Date; (3) Requests for Purchase. With respect to each Loan other than a Table Funded Mortgage Loan, no later than 12:00 noon (New York time) three Business Days prior to the specified Purchase Date and promptly upon rate-locking with respect to any Table Funded Mortgage Loan, Buyer, and Custodian, shall have received an executed final Request for Purchase containing an Officer's Certificate of a Seller certifying that such Seller is in compliance with all covenants, representations and warranties in the Agreement, including without limitation, the Loan Representations, and a final Loan Schedule, via facsimile and in electronic form, with respect to each Loan to be purchased on the Purchase Date; (4) Trust Receipts. For each Loan other than a Table Funded Mortgage Loan, a Trust Receipt and a Loan Schedule, with such exceptions as are acceptable to Buyer in its sole discretion in respect of Eligible Loans to be sold hereunder on such Purchase Date, in each case dated such Purchase Date and duly completed. For each 26 31 Table Funded Mortgage Loan, a Table Funded Trust Receipt and a Loan Schedule, in each case dated such Purchase Date and duly completed; (5) Documents. For each Loan other than a Table Funded Mortgage Loan, the documentation set forth in Annex A and Annex B of the Custodial Agreement. For each Table Funded Mortgage Loan, Buyer and Custodian shall have received a fax of the Initial Table Funded Loan Documents; (6) No Seller Default. No Event of Default or material Default shall have occurred and be continuing; (7) Underwriting Guidelines. The applicable Seller shall have provided Buyer with any changes to that Seller's Underwriting Guidelines prior to the effectiveness of any such change; (8) Payment of Administration Fees. Buyer shall have received the Administration Fee for each Loan that will be purchased in such Transaction, as to which an Administration Fee is payable, or the Buyer may deduct such Administration Fees from the Purchase Price disbursed on such Purchase Date; and (9) Loan Transfer Agreements. Any Loan Transfer Agreements applicable to Loans to be purchased by Buyer hereunder. (c) Conditions Precedent to Bridge Mortgage Loan and Interim Mortgage Loan Transactions. Buyer's obligation to enter into each Transaction that includes Bridge Mortgage Loans or Interim Mortgage Loans (other than the Grandfathered Loans) is subject to satisfaction of the conditions precedent set forth in Section 3(b) hereof, as they relate to Bridge Mortgage Loans and Interim Mortgage Loans, and delivery of the Underwriting Guidelines and Seller's Loan Documents for Bridge Mortgage Loans and Interim Mortgage Loans. BAC shall not be assessed a Commitment Fee or Non-Use Fee on Bridge Mortgage Loans or Interim Mortgage Loans until such time as a Bridge Mortgage Loan or Interim Mortgage Loan (other than the Grandfathered Loans) becomes subject to a Transaction, and, at such time, the fees payable with respect to Bridge Mortgage Loans and Interim Mortgage Loans, respectively, shall be those set forth in Exhibit I, Part I of this Agreement, as may be amended from time to time by the parties hereto. (d) Conditions Precedent to Floorplan Loan Transactions. Buyer's obligation to enter into each Transaction that includes Floorplan Loans is subject to the satisfaction of the conditions precedent set forth in Section 3(b) hereof as they relate to Floorplan Loans, delivery of the Underwriting Guidelines and Seller's Loan Documents for Floorplan Loans, delivery of executed Consignment Agreements and Assignments of Consignment Agreements with respect to each consignee of Manufactured Homes, and delivery of opinions and other documents requested by Buyer to assure that its interests in Floorplan Loans will be protected. (e) Initiation and Confirmation. An agreement to enter into a Transaction shall be initiated by a Seller's delivery of a Request for Purchase to Buyer. Buyer shall confirm the terms of each Transaction by issuing a written confirmation (a "Confirmation") to such Seller promptly after the Buyer's receipt of the Request for Purchase. Such Confirmation shall describe 27 32 the Purchased Loans, identify Buyer and Seller and set forth (i) the Purchase Date, (ii) the Purchase Price, (iii) the Repurchase Date, (iv) the Pricing Rate applicable to the Transaction and the Buyer's LTV in the case of Bridge Mortgage Loans, (v) the Applicable Collateral Maintenance Percentages and (vi) additional terms or conditions not inconsistent with this Agreement. After receipt of the Confirmation, the Seller shall sign the Confirmation and promptly return it to Buyer. Any Confirmation by Buyer shall be deemed to have been received by the Seller on the date actually received by the Seller. Each Confirmation, together with this Agreement, shall be conclusive evidence of the terms of the Transaction(s) covered thereby unless objected to in writing by the Seller no more than three (3) Business Days after the date the Confirmation was received by the Seller or unless a corrected Confirmation is sent by Buyer. An objection sent by a Seller must specifically state the objection, must specify the provision(s) being objected to by the Seller, must set forth such provision(s) in the manner that the Seller believes they should be stated, and must be received by Buyer no more than three (3) Business Days after the Confirmation was received by the Seller. (f) Funding of Transactions. Buyer will only provide funds for purchase of Table Funded Mortgage Loans to and through the Settlement Agent as provided in the Request for Purchase approved by Buyer. All other Transactions will be funded in accordance with the Seller's written instructions in the Request for Purchase approved by Buyer. All such fundings will be in immediately available funds in U.S. dollars and effected through wire transfer arrangements acceptable to both Seller and Buyer. (g) Minimum and Maximum Transaction Amounts. With respect to all Transactions hereunder, the aggregate Purchase Price for all Purchased Loans at any one time subject to then outstanding Transactions under this Agreement shall not exceed the Total Committed Amount. Further, the aggregate Purchase Price of all Eligible Loans for which a Request for Purchase is submitted by a Seller pursuant to this Agreement, and the aggregate outstanding principal balance of all Purchased Loans at any one time subject to then outstanding Transactions under this Agreement, shall conform to the amounts and limitations set forth in Exhibit I, Part 3. Buyer shall have no obligation to enter any Transaction if at such time a Default or Event of Default shall have occurred and be continuing. (h) Additional Costs. The Sellers shall pay directly to Buyer from time to time such amounts as Buyer may determine to be necessary to compensate Buyer for any costs that Buyer determines are attributable to its using a LIBOR-based Pricing Rate or its obligation to use a LIBOR-based Pricing Rate hereunder, or any reduction in any amount receivable by Buyer hereunder in respect of the Pricing Rate (such increases in costs and reductions in amounts receivable being herein called "Additional Costs"), resulting from any change that: (1) shall subject Buyer to any tax, duty or other charge in respect of such LIBOR-based Pricing Rate or changes the basis of taxation of any amounts payable to such Buyer under this Agreement in respect of any of such LIBOR-based Pricing Rate (excluding changes in the rate of tax on the overall net income of such Buyer by the jurisdiction in which Buyer has its principal office); or 28 33 (2) imposes or modifies any reserve, special deposit or similar requirements relating to any LIBOR-based Pricing Rate; or (3) imposes any other condition affecting this Agreement or the transactions contemplated hereby or thereby. Buyer shall deliver to the Sellers a statement setting forth the amount and basis of determination of any Additional Costs in such detail as determined in good faith by Buyer to be adequate, it being agreed that such statement and the method of its calculation shall be adequate and shall be conclusive and binding upon the Sellers, absent manifest error. (i) Limitation on Pricing Rate Used; Illegality. Anything herein to the contrary notwithstanding, if, on or prior to the determination of the Pricing Rate: (1) the Buyer determines, which determination shall be conclusive, that quotations of interest rates for the relevant deposits referred to in the definition of "LIBOR" in Section 2 hereof are not being provided in the relevant amounts or for the relevant maturities for purposes of determining the Pricing Rates as provided herein; or (2) the Buyer determines, which determination shall be conclusive, that the relevant rate of interest referred to in the definition of "Pricing Rate" in Section 2 hereof upon the basis of which the Pricing Rate is to be determined is not likely adequately to cover the cost to the Buyer of purchasing the Purchased Loans using such Pricing Rate; or (3) it becomes unlawful for the Buyer to honor its obligation to purchase Loans hereunder using a Pricing Rate based upon LIBOR; then the Buyer shall give the Sellers prompt notice thereof and, so long as such condition remains in effect, the Buyer shall be under no obligation to enter into additional Transactions, and the Sellers shall, either repurchase all Purchased Loans then subject to a Transaction or the new Pricing Rate shall be determined based upon the rate selected by the Buyer in a manner that is reasonably satisfactory to Buyer so as to adequately reflect the cost to Buyer of purchasing the Purchased Loans using such substituted Pricing Rate (in which case Buyer shall continue to be obligated to enter into additional Transactions using that substituted Pricing Rate). (j) Termination and Repurchase; Exit Fee. (1) Notice of Repurchase. A Seller may at any time and from time to time repurchase the Purchased Loans subject to a Transaction, in whole or in part, upon at least one (1) Business Day's irrevocable notice to Buyer, specifying the Repurchase Date of such repurchase and the Repurchase Price. If any such notice is given, the Repurchase Price specified in such notice shall be due and payable on the Repurchase Date specified therein, together with any amounts payable pursuant to subsection 3(j)(3) hereof. Notice of repurchase pursuant to this subsection 3(j)(1) shall be made by a Seller by telephone or otherwise, no later than 1:00 p.m. (New York Time) on the Business Day prior to the day on which such repurchase will be effected. 29 34 (2) Transfer of Purchased Loans. On the Repurchase Date, termination of the Transaction will be effected by transfer to a Seller or its designee of the Purchased Loans (and any Income in respect thereof received by Buyer not previously credited or transferred to, or applied to the obligations of, the Seller pursuant to Section 5 hereof) against the simultaneous transfer of the Repurchase Price plus any Breakage Costs, as defined below, payable by the Seller to Buyer pursuant to the succeeding paragraph to an account of Buyer. The Seller is obligated to obtain the Loan Files from Buyer or its designee at Seller's expense on the Repurchase Date. (3) Breakage Costs. If a Seller repurchases the Purchased Loans on any day which is not a Repurchase Date for such Loans, such Seller shall indemnify Buyer and hold Buyer harmless from any loss or expense which Buyer may sustain or incur arising from the reemployment of funds obtained by Buyer hereunder or from fees payable to terminate the deposits from which such funds were obtained, but not including loss of profit ("Breakage Costs"). Buyer shall deliver to the Seller a statement setting forth the amount and basis of determination of any Breakage Costs in such detail as determined in good faith by Buyer to be adequate, it being agreed that such statement and the method of its calculation shall be adequate and shall be conclusive and binding upon the Seller, absent manifest error. This Section shall survive termination of this Agreement and repurchase of all Purchased Loans subject to Transactions hereunder. (4) Exit Fee. In the event that a Seller repurchases any Purchased Loans subject to a Transaction whether on the Repurchase Date or otherwise, that Seller agrees to pay Buyer an exit fee (the "Exit Fee"), if such Purchased Loan is subject to an Exit Fee pursuant to Exhibit I, Part 1 hereof, each such payment to be made in U.S. dollars, in immediately available funds, without deduction, set-off or counterclaim, to Buyer at the account designated by Buyer. Without limiting the generality of the foregoing, any Exit Fee shall accrue and be payable as a condition to delivery by Buyer of the related Purchased Loans that are subject to this Agreement at the time of any repurchase or termination of this Agreement. No Exit Fee shall be payable if the Seller refinances the Purchased Loan due for repurchase and simultaneously subjects such refinanced Mortgage Loan to a Transaction. However, an Exit Fee shall be payable on such refinanced Mortgage Loan at the earlier of (i) the time of its repurchase or (ii) termination of this Agreement, at the rates set forth in Exhibit 1, Part 1 depending on the classification of such Loan. (k) Non-Use Fee. Seller shall pay Buyer any Non-Use Fee as and when required, as set forth in Exhibit I, Part 1 to this Agreement. 4. COLLATERAL MAINTENANCE AMOUNT (a) Collateral Deficit; Additional Loans. If at any time (i) the aggregate Market Value of all Purchased Loans subject to then outstanding Transactions is less than the aggregate Collateral Maintenance Amount for all such Transactions (a "Market Value Collateral Deficit"), or (ii) the aggregate Securitization Value of all Purchased Loans subject to then outstanding Transactions is less than the aggregate Collateral Maintenance Amount for all such Transactions (a "Securitization Value Collateral Deficit"), then Buyer may by notice to the Seller require the Seller to transfer to Buyer or its designee (including the Custodian) additional Eligible 30 35 Loans ("Additional Loans") or cash, so that the cash and aggregate Market Value and aggregate Securitization Value of the Purchased Loans, including any such Additional Loans, will thereupon equal or exceed the aggregate Collateral Maintenance Amount. Any cash remitted by a Seller to Buyer pursuant to this Section 4(a) shall be deemed a payment of all or part of the Repurchase Price and such Seller shall be liable for and shall pay promptly to Buyer any Breakage Cost as a result therefrom. (b) Notice of Deficit and Required Payment or Delivery. Notice required pursuant to subsection (a) above may be given by means of telecopier or telegraphic transmission. A notice for the payment or delivery in respect of a Collateral Deficit received before noon on a Business Day, local time of the party receiving the notice, must be met not later than 5:00 p.m. (New York time) on the Business Day following the day upon which the notice was given, local time of the party receiving the notice. Any notice given on a Business Day after noon, local time of the party receiving the notice, shall be met not later than 2:00 p.m. (New York time) on the second succeeding Business Day. The failure of Buyer, on any one or more occasions, to exercise its rights under subsection (a) of this Section 4 shall not change or alter the terms and conditions to which this Agreement is subject or limit the right of the Buyer to do so at a later date. Buyer and Sellers agree that a failure or delay to exercise its rights under subsection (a) of this Section 4 shall not limit Buyer's rights under this Agreement or otherwise existing by law or in any way create additional rights for Sellers. (c) No Further Transactions Until Deficit Remedied. In the event that either of the Sellers fail to comply with the provisions of this Section 4, Buyer shall not be obligated to enter into any additional Transactions under this Agreement after the date of such failure. 5. INCOME PAYMENTS (a) Sellers' Limited Right to Income Payments. All Income with respect to Purchased Loans subject to Transactions shall be held in a segregated Blocked Account established with respect to that Seller at the Lockbox Bank for the benefit of Buyer (pursuant to Section 29 of this Agreement) and distributed under the relevant Blocked Account Agreement. Where a particular Transaction's term extends over an Income payment date on the Purchased Loans subject to that Transaction such Income shall be the property of Buyer. Notwithstanding the foregoing, so long as no Event of Default shall have occurred and be continuing, each Seller shall be entitled to all Income with respect to that Seller's respective Purchased Loans subject to Transactions. An Event of Default by either Seller is considered an Event of Default by both Sellers. (b) Payments by Obligors. The parties understand and agree that each Obligor must be instructed to remit payments to a Blocked Account established at the Lockbox Bank in the name of a Seller subject to the lien of Buyer, as more particularly addressed in Section 29 of this Agreement. (c) Curtailments, Principal Payments and Prepayments. BAC must instruct Dealers to make Curtailment payments, and both Sellers shall instruct all Obligors on all Loans to make all payments, including prepayment payments, directly to the appropriate Blocked Account for distribution to the Buyer on the Payment Date following receipt thereof. Principal prepayments, Curtailments, or any other payment received in respect of Purchased Loans shall be 31 36 deposited into the Blocked Account, no later than one (1) Business Day following receipt by a Seller, Mortgage Loan Servicer or MH Servicer thereof, as applicable. Whenever a Curtailment payment or prepayment on any Loan is made to the Buyer, the Repurchase Price of the corresponding Loan shall be reduced by the amount of such payment, or, at Seller's option, and subject to a notice of repurchase given pursuant to Section 3(j)(1) hereof, the Loans may be repurchased pursuant to Section 3(j)(2) hereof, subject to any Breakage Cost due pursuant to Section 3(j)(3) hereof. (d) Required Periodic Payments to Buyer. Notwithstanding that Buyer and Sellers intend that the Transactions hereunder be sales to Buyer of the Purchased Loans, Sellers shall pay by wire transfer to Buyer the accreted value of the Price Differential (less any amount of such Price Differential previously paid by Sellers to Buyer) (each such payment, a "Periodic Payment") on each Payment Date. (e) Payments on Payment Date. All payments received from Obligors in respect of Purchased Loans shall be remitted to Buyer on the Payment Date in accordance with Section 29 to this Agreement. Each Seller shall deliver or cause to be delivered to Buyer on the second Business Day immediately preceding the Payment Date (i) a Distribution Worksheet and (ii) the updated Collateral Information with respect to all of that Seller's Loans then subject to Transactions. (f) Deduction from Repurchase Price. Buyer shall deduct from the Repurchase Price of each such Transaction all Income payments, including Curtailment payments, and all Periodic Payments related thereto, actually received by Buyer pursuant to Sections 5(a) through (d) hereof. 6. SECURITY INTEREST (a) Grant of Security Interest and Cross-Collateralization. Buyer and the Sellers intend that the Transactions hereunder be sales to Buyer of the Purchased Loans and not loans from Buyer to Sellers secured by the Purchased Loans. However, in order to preserve Buyer's rights under this Agreement in the event that a court or other forum recharacterizes the Transactions hereunder as loans and as security for the performance by Sellers of all of Sellers' obligations to Buyer under this Agreement and the Transactions entered into pursuant to this Agreement, both Sellers grant Buyer, on a cross-collateralized basis with all outstanding Transactions, a first priority security interest in the Purchased Loans, including the indebtedness of Obligors and the Underlying Assets, including all Manufactured Homes now owned or hereafter acquired, as collateral for Floorplan Loans and MH Loans, and all other collateral provided as security for the Purchased Loans; Servicing Agreements, Back-up Servicing Agreements, Servicing Records, insurance, guarantees, indemnities and warranties and proceeds thereof, financing statements and other agreements or arrangements of whatever character from time relating to the Purchased Loans, Income, any and all Hedges, all Insured Closing Letters and the Escrow Instructions covering any or all of the Loans, all Collections and the Blocked Accounts and all amounts on deposit therein, any and all collection accounts and escrow accounts relating to the Purchased Loans, all MH Contracts, Dealer Financing Agreements, and other Loan Agreements, the Loan Documents, all Consignment Agreements, sale contracts, security agreements, the right to payment of interest or finance charges and collateral securing such obligations, and any other contract rights, and other assets relating to the Purchased Loans 32 37 or any interest in the Purchased Loans, whether constituting real or personal property, accounts, chattel paper, equipment, goods, instruments, general intangibles, inventory or proceeds, or securities backed by or representing an interest in such Loans, and any and all replacements, substitutions, distributions on or Proceeds of any and all of the foregoing (collectively, the "Collateral"). (b) Payment of Costs of Perfection. Sellers shall pay all fees and expenses associated with perfecting Buyer's security interest in the Collateral, including, without limitation, the cost of filing financing statements under the Uniform Commercial Code and recording Assignments of Mortgages and other assignments, as and when required by Buyer in its sole discretion. (c) Additional Actions. Sellers covenant to take such further actions as are necessary in order to perfect Buyer's first priority security interest in the Hedges or in any other Collateral. (d) Joint and Several Liability. Each Seller hereby acknowledges and agrees that such Seller shall be jointly and severally liable for all representations, warranties, covenants, obligations and indemnities of the Sellers hereunder. 7. PAYMENT, TRANSFER AND CUSTODY (a) Payments by Sellers. Unless otherwise mutually agreed in writing, all transfers of funds by Sellers hereunder shall be made in immediately available funds in U.S. dollars, without deduction, set-off or counterclaim, to Buyer at the account designated by Buyer. (b) Custodial Delivery. On or before each Purchase Date, the respective Seller shall deliver or cause to be delivered to Buyer or its designee the Custodial Delivery in the form of Exhibit 7-1 and Exhibit 7-2 of the Custodial Agreement. With respect to each Table Funded Mortgage Loan, BAC shall cause the Settlement Agent or Designated Fax Distributor to deliver to the Custodian by facsimile the Initial Table Funded Loan Documents. A Designated Fax Distributor acts as fiduciary on behalf of Buyer in performing its responsibilities hereunder. (c) Transfer of Ownership. On the Purchase Date for each Transaction, ownership of the Purchased Loans shall be transferred to the Buyer or its designee (including the Custodian) against the simultaneous transfer of the Purchase Price to an account of the respective Seller specified in the Confirmation. The Seller, simultaneously with the delivery to Buyer or its designee (including the Custodian) of the Purchased Loans relating to each Transaction hereby sells, transfers, conveys and assigns to Buyer or its designee (including the Custodian) without recourse, but subject to the terms of this Agreement, all the right, title and interest of the Seller in and to the Purchased Loans together with all right, title and interest in and to the proceeds of any related insurance policies. (d) Delivery of Loan File. In connection with each sale, transfer, conveyance and assignment, or pledge, (i) three (3) Business Days prior to each Purchase Date with respect to each Loan other than a Table Funded Mortgage Loan, and (ii) by no later than 12:00 noon (New York time) on the third Business Day following the applicable Purchase Date with respect to each Table Funded Mortgage Loan, the Sellers shall deliver or cause to be delivered and released to the Custodian the original documents pertaining to each Purchased Loan set forth in Annex A 33 38 and Annex B of the Custodial Agreement. The Loan Files shall be maintained in accordance with the Custodial Agreement. (e) Buyer shall deposit the Loan Files representing the Purchased Loans, or direct that the Loan Files be deposited directly, with the Custodian. The Loan Files shall be maintained in accordance with the Custodial Agreement. (f) Any documents related to a Loan which have not been delivered to Buyer or its designee (including the Custodian) are and shall be held in trust by the applicable Seller or its designees for the benefit of Buyer as the owner thereof. The Seller or its designees shall maintain the related Servicing File consisting of a copy of the Loan File and the originals of other documents related to the Loans not delivered to Buyer or its designee. The possession of the Servicing Files by Sellers or their designees is at the will of the Buyer for the sole purpose of servicing the related Purchased Loan(s), and such retention and possession by the Sellers or their designees is in a custodial capacity only. In addition to copies of the Loan Documents, the Servicing File shall include, without limitation, (i) the original or copy certified by an employee of the Seller of the credit application signed by the Obligor and the Obligor credit bureau report(s) obtained by the Seller during the underwriting of the Obligor's credit application, (ii) the Seller's credit worksheet together with the credit score of the Obligor (which may be maintained by the Seller in its computer database), (iii) in the case of a new Manufactured Home, the manufacturer's invoice in respect of such Manufactured Home, and in the case of Mortgage Loans, Pre-owned Manufactured Homes and Land-and-Home Loans, an appraisal or other acceptable documentation as permitted pursuant to the terms and conditions of the Underwriting Guidelines, corroborating the indicated value thereof, (iv) proof of all insurance coverage required hereunder, including without limitation, hazard insurance or blanket hazard insurance, (v) copies of the letter or other written instruction delivered to each Obligor directing that payments be made to the relevant Lockbox Account, (vi) all documents evidencing origination in accordance with the Underwriting Guidelines and (vii) copies of all material correspondence. The books and records (including, without limitation, any computer records or tapes) of each Seller or their designees shall be marked appropriately to reflect clearly the sale of the related Purchased Loan to Buyer. Sellers and their designees (including the Custodian) shall release their custody of Servicing Files only in accordance with written instructions from Buyer, unless such release is in connection with a repurchase of any Purchased Loan by a Seller. 8. REHYPOTHECATION OR PLEDGE OF PURCHASED LOANS Title to all Purchased Loans shall pass to Buyer and Buyer shall have free and unrestricted use of all Purchased Loans. Nothing in this Agreement shall preclude Buyer from engaging in repurchase transactions with the Purchased Loans or otherwise pledging, repledging, hypothecating, or rehypothecating the Purchased Loans, but no such transaction shall relieve Buyer of its obligations to transfer Purchased Loans to Sellers pursuant to Section 3 hereof. Nothing contained in this Agreement shall obligate Buyer to segregate any Purchased Loans delivered to Buyer by Sellers; provided that Buyer acknowledges that the Custodian is contractually obligated to segregate the Loan Files pursuant to the Custodial Agreement. In the event that there is a material adverse change or other development in the repurchase markets which result in the Buyer being unable to finance its position through the repurchase market with its traditional repurchase counterparties, Buyer may accelerate the Final Repurchase Date of one 34 39 or more, or all, of any Loan or Loans and/or types of Purchased Loans to the date of such occurrence. 9. SUBSTITUTION (a) Sellers' Right to Substitute Eligible Loans. Subject to Section 9(b) below, Sellers may, upon one (1) Business Days' written notice to Buyer, with a copy to Custodian, substitute other Eligible Loans for any Purchased Loans. Such substitution shall be made by transfer to Buyer or its designee (including the Custodian) of the Loan Files of such other Eligible Mortgage Loans together with a Custodial Delivery and transfer to the Seller or its designee of the Purchased Loans requested for release. After substitution, the substituted Eligible Loans shall be deemed to be Purchased Loans subject to the same Transaction as the released Mortgage Loans. (b) Limitation on Substitution. Notwithstanding anything to the contrary in this Agreement, Sellers may not substitute other Eligible Loans for any Purchased Loans (i) if after taking into account such substitution, a Collateral Deficit would occur, (ii) such substitution would cause a breach of any provision of this Agreement or (iii) a Default shall have occurred and be continuing. 10. REPRESENTATIONS AND WARRANTIES (a) Mutual Representations and Warranties. Each of Buyer and each Seller (for itself, not jointly, but severally) represents and warrants to the other that (i) it is duly authorized to execute and deliver this Agreement, to enter into the Transactions contemplated hereunder and to perform its obligations hereunder and has taken all necessary action to authorize such execution, delivery and performance; (ii) it will engage in such Transactions as principal; (iii) the person signing this Agreement on its behalf is duly authorized to do so on its behalf; (iv) this Agreement is legal, valid and binding obligation of it, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, or similar debtor/creditor laws and general principles of equity and public policy, (v) no approval, consent or authorization of any Transaction contemplated by this Agreement from any federal, state, or local regulatory authority having jurisdiction over it is required or, if required, such approval, consent or authorization has been or will, prior to the Purchase Date for such Transaction, be obtained; (vi) the execution, delivery, and performance of this Agreement and the Transactions hereunder will not violate any law, regulation, order, judgment, decree, ordinance, charter, by-law, or rule applicable to it or its property or constitute a default (or an event which, with notice or lapse of time, or both would constitute a default) under or result in a breach of any material agreement or other material instrument by which it is bound or by which any of its assets are affected; (vii) it has received approval and authorization to enter into this Agreement and each and every Transaction actually entered into hereunder pursuant to its internal policies and procedures; and (viii) neither this Agreement nor any Transaction pursuant hereto are entered into in contemplation of insolvency or with intent to hinder, delay or defraud any creditor. (b) Representations and Warranties for Individual Transactions. BAC and MHFC each represents and warrants to Buyer, with respect to itself, that as of the Purchase Date for the purchase of any Purchased Loans by Buyer and as of the date of this Agreement and any 35 40 Transaction hereunder and at all times while this Agreement and any Transaction hereunder is in full force and effect: (1) Confirmation. All of the representations and warranties in this Agreement, including the Loan Representations, are true with respect to, and all other conditions precedent to the effectiveness of this Agreement and to each Transaction have been and continue to be met and satisfied. (2) Organization. Seller is duly organized, validly existing and in good standing under the laws and regulations of the state of Michigan and is duly licensed, qualified, and in good standing in every state where Seller transacts business and at all times when it held the Loan in any state where any Underlying Asset is located if the laws of such state require licensing or qualification in order to conduct business of the type conducted by Seller therein except where the failure to be so qualified, licensed or in good standing in such other jurisdiction could not, individually or in the aggregate, have a Material Adverse Effect; (3) No Litigation. There is no action, suit, proceeding, arbitration or investigation pending or threatened against Seller which, either in any one instance or in the aggregate, (within the meaning of Statement of Financial Accounting Standards No. 5), which if adversely determined would individually or in the aggregate result in any material adverse change in the business, operations, financial condition, properties or assets of Seller, or in any material impairment of the right or ability of Seller to carry on its business substantially as now conducted, or in any material liability on the part of Seller, or would affect the validity of this Agreement or any of the Purchased Loans or of any action taken or to be taken in connection with the obligations of Seller contemplated herein, or which would be likely to impair materially the ability of Seller to perform under the terms of this Agreement; (4) No Broker. Seller has not dealt with any broker, investment banker, agent, or other person, except for Buyer, who may be entitled to any commission or compensation in connection with the sale of Purchased Loans to Buyer pursuant to this Agreement; (5) Selection Process. The Purchased Loans were selected from among the Loans in Seller's portfolio as to which the representations and warranties set forth in this Agreement could be made and such selection was not made in a manner so as to result in a Material Adverse Effect upon Buyer; (6) Taxes. Seller has filed all Federal income tax returns and all other material tax returns that are required to be filed by Seller and have paid all taxes due pursuant to such returns or pursuant to any assessment received by Seller, except for any such taxes as are being appropriately contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves in accordance with GAAP have been provided. The charges, accruals and reserves on Seller's books in respect of taxes and other governmental charges are, in Seller's opinion, adequate; 36 41 (7) No Untrue Statements. To the best of Seller's knowledge, neither this Agreement nor any written statement made, including without limitation all financial statements of the Seller or its Affiliates delivered to Buyer, or any report or other document issued or delivered or to be issued or delivered by Seller pursuant to this Agreement, or in connection with, the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading; (8) Servicing Practices. The servicing and collection practices used by Seller, and the origination practices of the related Qualified Originator, have been in all material respects legal, proper and prudent and have meet customary industry standards applicable to similar loans. (9) Performance of Agreement. Seller does not believe, nor does it have any reason or cause to believe, that it cannot perform each and every covenant contained in this Agreement on its part to be performed; (10) Seller Not Insolvent. Seller is not, and with the passage of time does not expect to become, insolvent; (11) No Event of Default. No Event of Default has occurred and is continuing under this Agreement; (12) ERISA. Each Plan to which Seller or its Subsidiaries make direct contributions, and, to the knowledge of Seller, each other Plan and each Multiemployer Plan, is in compliance in all material respects with, and has been administered in all material respects in compliance with, the applicable provisions of ERISA, the Code and any other federal or state law; (13) Requirements for Perfection. The Perfection Requirements Memorandum required under Section 12(r) is a true, complete, current and accurate explanation of document and filing requirements necessary to effect perfection of Buyer's interests Manufactured Homes and the related MH contracts. (14) Lending facilities. Neither Seller has a line of credit or other lending arrangement with any Person other than Sun Communities, Inc. and/or Guarantor. (15) Computer Systems The computer systems utilized by each Seller and Servicer (other than the Mortgage Servicer) in the performance of their servicing activities under this Agreement and any Servicing Agreement is capable of properly performing any calculations and recordkeeping functions with respect to the Loans on and after January 1, 2000. (c) Individual Loans. Each Seller makes the following representations and warranties with respect to each individual Loan it sells in a Transaction hereunder, as of the related Purchase Date and as of each day such Transaction is in effect, except as shall be specifically disclosed in the schedule attached to the related Request for Purchase. 37 42 (1) Good Title; No Adverse Claims. Seller is the sole owner and holder of the Loan and has good, valid, indefeasible, marketable title thereto, and full right, power and authority to sell, transfer and assign such Loan to Buyer, free and clear of any Adverse Claim (including, with respect to Mortgage Loans, mechanics', materialman's or other similar liens or claims which have been filed for work, labor or materials affecting Mortgaged Property which are or may be liens prior to, or equal or coordinate with, the lien of the Mortgage, unless such lien is insured against under a Title Policy) or Restrictions on Transferability. The Loan, if purchased or otherwise acquired by Seller, was acquired by Seller for fair value and in the ordinary and regular course of its business, and Seller took possession thereof without knowledge that the Loan was subject to a security interest. The Qualified Originator, if any, has not sold, assigned or pledged the Loan to any Person other than Seller and, prior to the transfer of the Loan by Qualified Originator to Seller, Qualified Originator had good and indefeasible title thereto free and clear of any Adverse Claim or Restrictions on Transferability and was the sole owner and holder thereof with full right to sell, assign and transfer the Loan to Seller free and clear of any Adverse Claim, and upon such sale, Seller acquired a valid ownership interest in such Loan, free and clear of any Adverse Claim and any other Restriction on Transferability. Neither Seller or any other party has sold, assigned or pledged the Loan to any Person other than Buyer (unless a collateral assignment that has been fully terminated prior to the assignment of that Loan by Seller to Buyer under this Agreement). Following the purchase by Buyer of each Loan, the Buyer will hold such Loan free and clear of any Adverse Claim or Restrictions on Transferability. (2) Security Interest in the Loan. Although intended as a sale to Buyer, in the event of recharacterization of the sale of any Loan to Buyer as a financing, Buyer has a valid, binding, enforceable first priority perfected security interest therein. The Loan is not and has not been secured by any collateral except the lien of the corresponding Underlying Asset. (3) Origination Practices. The Loan was originated by a Qualified Originator in the regular course of its business, and, if purchased by Seller, was purchased in the regular course of its business. The origination practices used by Seller or by any Affiliate of Seller with respect to each Purchased Loan (as well as all parties which have had any interest in the creditor/lender's interest in each such Loan, during the period in which they held and disposed of such interest) (i) have been and are in all respects legal and proper in the mortgage origination business and in compliance with the requirements of federal and state laws, rules and regulations applicable to each Loan, including without limitation, truth-in-lending, real estate settlement procedures, consumer credit protection, equal credit opportunity and disclosure laws and (ii) are in accordance with the Underwriting Guidelines attached hereto as Exhibit III and the documentation is consistent in form and substance with the Seller's Loan Documents approved by Buyer for use under this Agreement, and each material deviation therefrom appears on a schedule attached to the Request for Purchase and no such deviation (regardless of whether or not considered material by Seller) would be deemed to be imprudent by a prudent lender experienced in originating Loans of that nature, and in no event will have a Material Adverse Effect. All Loan Documents included in the Loan File have been duly executed as required by their provisions and the provisions of applicable law and are in a 38 43 form generally acceptable to prudent institutional lenders that regularly originate and purchase Loans of the type subject to each Loan Transaction. (4) Loan Eligibility Requirements. Each of the Purchased Loans and each Eligible Loan delivered hereunder as Additional Loans or Substituted Loans conforms to the Loan Eligibility Requirements in all material respects and has a stated maturity and is denominated in United States Dollars. It is understood and agreed that the Loan Representations shall survive delivery of the respective Loan File to Buyer or its designee (including the Custodian). (5) Conformance with Representations and Warranties. Each Loan sold hereunder and each pool of Purchased Loans sold by a Seller in a Transaction hereunder conforms to the applicable representations and warranties in Exhibit II of this Agreement in all material respects and each Eligible Loan delivered hereunder as an Additional Loan or Substituted Loan conforms to those representations and warranties in all material respects. (6) Correct Collateral Information. As of the date of its delivery, the Collateral Information with respect to the Loan in the Request for Purchase and the Loan Schedule is complete, true and correct in all material respects. (7) Enforceability of Loan Documents. (A) The Loan Documents have been duly and properly executed, and (B) the Loan Documents are legal, valid and binding obligations of the Obligor, and their terms are enforceable against the Obligor or other Obligor thereunder, subject only to bankruptcy, insolvency, moratorium, fraudulent transfer, fraudulent conveyance and similar laws affecting rights of creditors generally and to the application of general principles of equity (regardless of whether such enforcement is considered in a proceeding at law or in equity). Subject to (B), above, the Loan Documents contain customary and enforceable provisions such as to render the rights and remedies of the holder thereof adequate for the realization against each related Underlying Asset of the material benefits of the security, including realization by judicial or, if applicable, non-judicial foreclosure, and there is no homestead of other exemption under applicable state or federal law that is available to the Obligor which would materially interfere with such right to foreclosure. Upon default by an Obligor on a Loan and foreclosure on, or trustee's sale of, the Underlying Asset pursuant to the proper procedures, the holder of the Loan will be able to deliver good and merchantable or marketable title to the Underlying Asset. Any interest required to be paid by Seller pursuant to state, Federal and local law has been properly paid and credited. (8) Legal Capacity. To the best of Seller's knowledge, all parties to the Note and the related Loan Documents delivered in connection with the Loan, including individual persons, had the legal capacity to enter into such documents. (9) No Limitation Upon Assignment. In connection with the assignment, transfer or conveyance of any individual Loan or MH Contract, the Note and other Loan Documents do not contain any provision limiting the right or ability of the applicable Qualified Originator to assign, transfer and convey the to any other person or entity. The Loan was not originated in and is not subject to the laws of any jurisdiction 39 44 whose laws would make the transfer of the Loan pursuant to any applicable Loan Transfer Agreement or this Agreement unlawful or render the Loan unenforceable. (10) No Usury. The Purchased Loan does not violate or is exempt from applicable usury laws. All Loan Interest Rate adjustments have been made in strict compliance with state and Federal law and the terms of the related Loan. (11) No Waiver or Modification of Loan Terms. Since the date of origination of the Loan, the terms of the Loan have not been impaired, waived, altered, released, rescinded, satisfied, canceled, extended, subordinated or modified in any respect (except by a written instrument which has been recorded, if necessary, to protect the interests of the Buyer, and which has been delivered to the Buyer or its designee (including the Custodian) for inclusion in the Loan File, and with respect to which the economic terms of which are reflected in the Loan Schedule and the Collateral Information), and no portion of the collateral for the Loan has been released in any manner from the lien of the encumbrance or security interest created upon the closing of that Loan in favor of Seller (except if specifically called for under and pursuant to the Loan Documents and in compliance with the applicable Underwriting Guidelines, and summarized in the underwriting summary or other document delivered to Buyer at the time of, or in connection with, the related Request for Purchase). The substance of any such waiver, alteration or modification has been approved by the issuer of any related insurance policy, to the extent required by such policy. (12) Full Disbursement; No Additional Services. Except if specifically permitted under the applicable Loan Eligibility Requirements and contemplated by the Loan Documents, and the proceeds of the Loan have been fully disbursed and there is no requirement for future advances thereunder and Seller covenants that it will not make any future advances under the Loan to the Obligor. All costs, fees and expenses incurred by Seller (or which are otherwise payable by the Obligor under the Loan Documents) in making or closing the Loan and the recording of the Loan were paid, and the Obligor is not entitled to any refund of any amounts paid or due under the Loan. Except if specifically called for under and pursuant to the Loan Documents and in compliance with the applicable Underwriting Guidelines, and summarized in the underwriting summary or other document delivered to Buyer at the time of, or in connection with, the related Request for Purchase, the Loan is not subject to the performance of additional services by any Person. (13) Completion of Improvements. Except for the escrows and disbursements therefrom, or if specifically permitted under the applicable Loan Eligibility Requirements, and in each case as contemplated by the Loan Documents, any Obligor requirements for on or off-site improvements as to disbursement of any escrow funds therefor have been complied with. (14) Commencement of Payments by Obligor. Except for interest-only Loans (if permitted under the applicable Loan Eligibility Requirements and Underwriting Guidelines), principal payments on the Loan commenced, or under the terms of the Loan Documents are to commence, no more than 60 days after funds were disbursed in connection with the Loan. 40 45 (15) No Lender Participation. The Loan does not have a shared appreciation feature or provide for contingent or additional interest in the form of participation in cash flow, or (except in connection with Mortgage Loan hyperamortization terms approved by Buyer) negative amortization. Except in connection with Interim Mortgage Loans and Bridge Mortgage Loans including "preferred equity" features consistent with the applicable Underwriting Guidelines approved by Buyer, the indebtedness evidenced by the Loan is not convertible to an ownership interest in the Underlying Asset or the Obligor and Seller has not financed nor does it own directly or indirectly, any equity of any form in the Underlying Asset or the Obligor, unless otherwise approved in writing by Buyer. (16) Whole Loan. The Loan is a whole loan and contains no equity participation by the lender. (17) No Fraud. No fraudulent acts were committed by Seller or its affiliates in connection with the origination process of the Loan. (18) No Default. To the best knowledge of Seller, and other than with respect to Permitted Delinquencies in connection with MH Loans, there is no material default, breach, violation or event of acceleration existing under any of the Loan Documents and Seller has not received actual notice of any event (other than payments due but not yet delinquent) which, with the passage of time or with notice and the expiration of any grace or cure period, would and does constitute a default, breach, violation or event of acceleration; no waiver by Seller of the foregoing exists and no person other than the holder of the Note may declare any of the foregoing. The first Monthly Payment shall be made, or shall have been made, with respect to the Loan on its Due Date or within its grace period, all in accordance with the terms of the related Loan Documents. (19) No Breach of Obligor's Representations. Seller has not taken any action, nor has knowledge that the Obligor has taken any action, that would cause the representations and warranties made by the Obligor in the Loan Documents not to be true in any material respect. (20) No Defenses. The Loan is not subject to (and the assignment thereof to the Buyer pursuant to this Agreement will not subject the Loan to) any right of rescission, setoff, counterclaim or defense, including the defense of usury, nor will the operation of any of the terms of the Loan or the exercise of any right thereunder will not render the Loan unenforceable in whole or in material part or subject to any right of rescission, setoff, counterclaim or defense, including the defense of usury, and to Seller's knowledge, no such right of rescission, setoff, counterclaim or defense has been asserted with respect thereto. (21) No Pending Proceedings. To the best of Seller's knowledge, there are no proceedings or investigations pending or threatened before any Governmental Authority (A) asserting the invalidity of the Loan, (B) asserting the bankruptcy or insolvency of the related Obligor, (C) seeking the payment of the Loan or payment and performance of the Loan (other than with respect to Permitted Delinquencies, if applicable), or (D) seeking any determination or ruling that might materially and 41 46 adversely affect the validity or enforceability of the Loan, and no other material action, suit, proceeding, arbitration or investigation with respect to any of the Underlying Asset is pending (or to Seller's knowledge) threatened against Seller. (22) Funded Escrows. Any escrow accounts for taxes or other reserves required to be funded on the date of origination of the Loan pursuant to the Loan documents have been funded and all such escrow accounts required to have been funded as of the Purchase Date (taking into account any applicable notice and grace period) have been funded in accordance with the applicable Underwriting Guidelines. All Escrow Payments have been collected in full compliance with state and Federal law. All escrow deposits and Escrow Payments required as of the Purchase Date are in the possession of, or under the control of, Seller and there exist no deficiencies in connection therewith for which customary arrangements for repayment thereof have not been made. No escrow deposits, Escrow Payments or other charges or payments (other than Extra Costs) due to either Seller have been capitalized under the Loans. (23) No Violation of Environmental Laws. Neither Seller nor any of its Affiliates has received any notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with any environmental laws with regard to any of the Underlying Assets, nor does Seller have knowledge or reason to believe that any such notice will be received or is being threatened. Seller has not taken any actions which would cause any Underlying Asset not to be in compliance with all applicable federal, state and local laws pertaining to environmental hazards. (24) Delivery of Loan File. The Loan File Documents have been delivered to the Custodian (or with respect to Table Funded Mortgage Loans, will be delivered to the Custodian within the time period required under Section 7 of this Agreement), and (ii) Seller has delivered to Buyer or its designee all documents required to be delivered pursuant to this Agreement. Seller or its designee is in possession of a complete, true and accurate Loan File with respect to each Purchased Loan, except for such documents the originals of which have been delivered to the Custodian. All documentation required to be delivered to the applicable Servicer has been received by that Servicer. (25) No Advance of Funds by Seller or Third Party for Debt Service. Except insofar as the proceeds of the Loan are to be applied in satisfaction of payments due under the terms of the Loan, as provided in the Loan Documents, Seller has not advanced funds, or knowingly received any advance of funds from a party other than the Obligor subject to the related Loan, directly or indirectly, for the payment of any amount required by the Loan, and no provision exists in the Loan Documents anticipating payments by anyone on behalf of the Obligor by any source other than the Obligor, except under guarantees that are in the related Loan File. (26) Recording and Filing Fees. All applicable recording taxes and other filing fees have been paid in full or deposited with the Settlement Agent (or the issuer of the Title Policy issued in connection with a Mortgage Loan or Land and Home Loan) for payment upon recordation and/or filing of the relevant documents. 42 47 (27) Collateral Undamaged. To the best of Seller's knowledge, (i) there is no proceeding pending or threatened for the total or partial condemnation of the Underlying Asset, if any; (ii) the Underlying Asset is undamaged by waste, fire, earthquake or earth movement, windstorm, flood, tornado, explosion, accident, riot, war, or act of God or the public enemy or other casualty so as to materially and adversely affect the value of the Underlying Asset as security for the Loan or the use for which the premises (if applicable) were intended and each Underlying Asset is in good condition and repair and, except as disclosed in the engineering report and summarized in the underwriting summary or other document delivered to the Buyer at the of, or in connection with, the related Request for Purchase, no material deferred maintenance exists; and (iii) no Underlying Asset has suffered damage that is not covered by a Hazard Insurance Policy (if that insurance coverage is required under this Agreement for that Underlying Asset). (28) Due on Sale or Transfer Provisions. The Loan Documents contain provisions for the acceleration of the payment of the unpaid principal balance of the Loan if (A) the Obligor voluntarily transfers or encumbers all or any portion of any related Mortgaged Property, or (B) any direct or indirect interest in Obligor is voluntarily transferred or assigned, other than, in each case, as permitted under the terms and conditions of the Loan Documents. (29) Acceptable Investment. Sellers have no knowledge of any circumstances or conditions with respect to the Loan or the Underlying Asset, the Obligor or the Obligor's credit standing that can reasonably be expected to cause private institutional investors to regard the Loan as an unacceptable investment, cause the Loan to become delinquent, or materially and adversely affect the value or marketability of the Loan. (30) Payment Instructions. Each Obligor has been directed, and is required to, remit or wire all payments, including prepayment payments and Curtailment payments, with respect to each Loan for deposit directly to the appropriate Blocked Account. (31) Outstanding Charges. All taxes, governmental assessments, insurance premiums, water, sewer, park and municipal charges, leasehold payments or ground rents which previously became due and owing have been paid, or an escrow of funds has been established in an amount sufficient to pay for every such item which remains unpaid and which has been assessed but not yet due and payable. (32) Loan Eligibility Requirements. The Loan meets all of the Loan Eligibility Requirements set forth herein for that Loan type. (33) Knowledge of Defects. Seller has no knowledge of any fact which would lead a reasonably prudent lender to expect at the time of origination of such Loan that any scheduled payment on such Loan would not be paid in full when due or to expect any other material adverse effect on (A) the performance by Seller of its obligations under the Facility Documents or Loan Documents (B) the validity or enforceability of any of the Facility Documents or Loan Documents to which it is a party, (C) the Loans or the 43 48 interests of Seller or Dealer therein or (D) the federal income tax attributes of the sale or pledge of the Loans. (34) Necessary Documentation. Seller has submitted to the Obligor all necessary documentation (including an invoice for Floorplan Loans, and for MH Loans, as applicable) for payment of such Loan and has fulfilled all its other obligations in respect thereof. The Obligor has submitted to Seller all documentation necessary for disbursement of such Loan and has fulfilled all its other obligations in respect thereof. (d) For the purposes of this Agreement (including the Loan Representations): (i) the term "to Seller's knowledge," means that the applicable Seller reasonably believes such representation or warranty to be true, and has no actual knowledge or notice that such representation or warranty is inaccurate or incomplete, but that such Seller, consistent with the standard of care exercised by prudent lending institutions originating Loans of the type to which that representation or warranty applies, has no knowledge of any facts or circumstances that would render reliance thereon unjustified without further inquiry; (ii) the term "to the best of Seller's knowledge," means that to such Seller's knowledge, the representation or warranty is not incomplete or inaccurate, and such Seller has conducted a reasonable inquiry (consistent with the standard of care exercised by prudent lending institutions originating Loans of the type to which that representation or warranty applies) to assure the accuracy and completeness of the applicable statement; and (iii) the term "in reliance on" or "based on," means that such Seller has examined and relied in whole or in part upon the certificate, report, opinion or other referenced document, that the information contained in such document is sufficient to support accurately and in all material respects the substance of the applicable representation or warranty, that such Seller's reliance on such document is reasonable, prudent and consistent with the standard of care exercised by prudent lending institutions originating Loans of the type to which that representation or warranty applies, and although the Seller is under no obligation to independently verify the information contained in such document, the Seller believes the information contained therein to be true and accurate in all material respects and has no knowledge of any facts or circumstances that would render reliance thereon unjustified without further inquiry. With respect to any representations and warranties made by each Seller, in the event that it is discovered that the circumstances with respect to the related Loan are not accurately reflected in such representation and warranty notwithstanding the actual knowledge or lack of knowledge of a Seller, then, notwithstanding that such representation and warranty is made "to the best of the Seller's knowledge," or "to Seller's knowledge," or in reliance on or based on other information, the Market Value and/or Securitization Value of such Loans may, in the Buyer's sole good faith discretion, be reduced to zero based on such Breach. 11. NEGATIVE COVENANTS OF THE SELLERS On and as of the date of this Agreement and each Purchase Date and until this Agreement is no longer in force with respect to any Transaction, each Seller covenants for itself that: (a) Impair Value of Loans. It will not take any action which would directly or indirectly impair or adversely affect Buyer's title and right to the Market Value or Securitization Value of the Purchased Loans; 44 49 (b) Further Liens. It will not pledge, assign, convey, grant, bargain, sell, set over, deliver or otherwise transfer any interest in the Purchased Loans or other Collateral to any person not a party to this Agreement nor will either Seller create, incur or permit to exist any Lien in or on the Purchased Loans or other Collateral except as described in Section 6 hereof without the prior express written consent of Buyer; (c) Merger or Dissolution. It will not enter into any transaction of merger or consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), sell all or substantially all of its assets or change its name, identity or corporate structure, provided that the Seller may merge and consolidate with any Person if the Seller is the surviving corporation, or the entity into which it merges has equity and a market value of at least that of the Seller immediately prior to such merger and such entity expressly assumes the obligations of the Seller at the time of such merger and, after giving effect thereto, no Default or Event of Default would exist hereunder; (d) Engage in Other Lines of Business. It will not engage, to any substantial extent, in any line or lines of business activity other than the businesses now generally carried on by it; (e) Restrictions Upon Other Transactions. It will not enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of property or the rendering of any service, with any Affiliate unless such transaction is (a) otherwise permitted under this Agreement, (b) in the ordinary course of Seller's business and (c) upon fair and reasonable terms no less favorable to Seller than it would obtain in a comparable arm's length transaction with a Person which is not an Affiliate, or make a payment to any Affiliate that is not otherwise permitted by this Agreement; (f) Loans and Advances. It will not make any advance (other than advances made as required in connection with servicing Loans in the ordinary course as to which it owns the servicing rights), loan, extension of credit or capital contribution to, or purchase any stock, bonds, notes, debentures or other securities of or any assets constituting a business unit of, or make any other investment in, any Person; (g) No Change in Fiscal Year. Its fiscal year will end on September 30 and it will not make any changes to its fiscal year; (h) No Adverse Action. It will not take any action which would result in a Material Adverse Effect upon its business operations and/or financial condition; (i) Relocate Offices. It will not move its chief executive office from its address as of the date hereof unless it shall have provided Buyer fifteen (15) days' prior written notice of such change; or (j) Restrictions On Distributions. It will not, after the occurrence and during the continuation of any Default of which it has notice or knowledge, or an Event of Default, make any distribution, payment on account of, or set apart assets for, a sinking or other analogous fund for the purchase, redemption, defeasance, retirement or other acquisition of any equity or partnership interest of Seller, whether now or hereafter outstanding, or make any other 45 50 distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of Seller. 12. AFFIRMATIVE COVENANTS OF THE SELLERS For so long as this Agreement is in effect: (a) Notification of Material Adverse Changes. Each Seller covenants that it will promptly notify Buyer of any material adverse change in its business operations and/or financial condition; (b) Confirming Documents Regarding Representations and Warranties. Each Seller shall provide Buyer with copies of such documentation as Buyer may reasonably request evidencing the truthfulness of the representations set forth in Section 10 hereof, including but not limited to resolutions evidencing the approval of this Agreement by Seller's board of directors or loan committee, copies of the minutes of the meetings of Seller's board of directors or loan committee at which this Agreement and the Transactions contemplated by this Agreement were approved; (c) Maintenance of First Lien Position. Each Seller shall, at Buyer's request, take all action necessary to ensure that Buyer will have a first priority security interest in the related Collateral, including, among other things, filing such Uniform Commercial Code financing statements as Buyer may reasonably request; (d) Notice of Defaults. Each Seller shall notify Buyer, no later than one (1) Business Day after obtaining actual knowledge thereof, if any event has occurred that constitutes a Breach, a Default, or an Event of Default with respect to either Seller; (e) Changes to Underwriting Guidelines and Loan Documents. Each Seller covenants to provide Buyer with a copy of any material changes to that Seller's Underwriting Guidelines or Seller's Loan Documents prior to the effectiveness of any such change. Buyer shall use reasonable efforts to review and approve or disapprove such changes within five (5) Business Days or otherwise within a reasonable amount of time following receipt thereof. In the event that Buyer does not approve such change in writing, Buyer shall not be obligated to enter into any Transactions with respect to Eligible Loans underwritten to such changed Underwriting Guidelines or relating to such changed Seller's Loan Documents. Each Seller shall notify Buyer prior to entering into any Significant Modification or assumption agreements with any Obligor and shall deliver such documents to the Custodian for inclusion in the related Loan Files. However, MHFC may act in the ordinary course of business as a prudent lender in connection with MH Loans in making modifications other than Significant Modifications (which must have prior approval from Buyer), prior to notifying Buyer, if any only if, such action will not impair Buyer's interest therein and MHFC notifies Buyer promptly upon making any such change. Any modification or assumption agreements shall conform with the Seller's Underwriting Guidelines. If a change in circumstances results in impairment of the marketability of Loans that are underwritten pursuant to previously approved Underwriting Guidelines, Buyer may notify Seller that it objects to continued use of such Underwriting Guidelines, and Buyer shall thereafter be under no obligation to enter into any Transactions with respect to Loans underwritten in accordance therewith (other than Transactions for which Seller has issued a commitment letter, 46 51 as to which Buyer shall use good faith efforts to effect the purchase, but the Market Value and/or Securitization Values given the Loans subject thereto may be re-adjusted by Buyer, in Buyer's sole discretion, to reflect the impairment of marketability). (f) Hedging. Each Seller shall at all times maintain Hedges, having a notional amount not less than the aggregate outstanding balance of all fixed rate Purchased Loans with Buyer or an Affiliate thereof, having terms with respect to protection against fluctuations in interest rates reasonably acceptable to Buyer. Buyer acknowledges that Seller's purchases of short sales on U.S. Treasury Securities of equal duration to the Purchased Loans shall be an acceptable interest rate protection strategy and Hedge program and Buyer shall make available to Seller a knowledgeable individual for discussion purposes; (g) Provision of Collateral Information for Each Loan. Each Seller covenants to provide or cause to be provided to Buyer, by no later than 12:00 noon (New York time), two Business Days immediately preceding each Payment Date, either by direct modem electronic transmission or via a computer diskette, the Collateral Information in computer readable format with respect to all Purchased Loans then subject to Transactions and covenants to provide Buyer with access to operating statements, the occupancy status and other property level information, with respect to the properties, plus any such additional reports as Buyer may reasonably request with respect to pending originations of mortgage loans; (h) BAC's Provision of Pipeline Report. BAC covenants to provide, or cause to be provided to Buyer, the Pipeline Report by no later than 12:00 noon (New York time) two (2) Business Days immediately preceding each Payment Date, either by direct modem electronic transmission or via computer diskette; (i) Seller Financial Reporting. Each Seller covenants to provide Buyer with the following financial and reporting information with respect to that Seller: (i) Annual Statements. Within 90 days after the last day of its fiscal year, Seller's audited consolidated statements of income and statements of changes in cash flow for such year and balance sheets as of the end of such year in each case presented fairly in accordance with GAAP, and accompanied, in all cases, by an unqualified report of a nationally recognized independent certified public accounting firm consented to by Buyer (which consent shall not be unreasonably withheld); (ii) Quarterly Statements. Within 45 days after the last day of the first three fiscal quarters in any fiscal year, Seller's consolidated statements of income and statements of changes in cash flow for such quarter and balance sheets as of the end of such quarter presented fairly in accordance with GAAP and certified by an Officer's Certificate as being complete and correct and fairly presenting the results of operations, assets and liabilities and financial condition of that Seller; (iii) Compliance Certificates. Upon request and in any event not more frequently than quarterly, an Officer's Certificate from a senior officer of each Seller addressed to Buyer certifying that, as of such calendar month, (x) that Seller is in compliance with all of the terms, conditions and requirements of this Agreement, and (y) no Event of Default exists; and 47 52 (iv) Consolidated Statements. Buyer acknowledges that each Seller is a wholly-owned subsidiary of Guarantor and that its financial statements are prepared in connection with the preparation of audited statements for Guarantor. For the purposes of satisfying the foregoing reporting requirements, Sellers shall provide Buyer with copies of Guarantor's corresponding consolidated statements with consolidating information specifically applicable to each Seller and Bloomfield Servicing; (j) Servicer Financial Reporting. Each Seller covenants for itself to cause any Servicer or subservicer of its respective Purchased Loans to provide Buyer with the following financial and reporting information with respect to that party: (i) Annual Statements. Within 90 days after the last day of its fiscal year, the Servicer's or subservicer's audited consolidated statements of income and statements of changes in cash flow for such year and balance sheets as of the end of such year in each case presented fairly in accordance with GAAP, and accompanied, in all cases, by an unqualified report of a nationally recognized independent certified public accounting firm (or other independent certified public accounting firm for the MH Servicer's annual statements for the 1998 fiscal year only) consented to by Buyer (which consent shall not be unreasonably withheld); (ii) Quarterly Statements. Within 45 days after the last day of the first three (3) fiscal quarters in any fiscal year, the Servicer's or subservicer's consolidated statements of income and statements of changes in cash flow for such quarter and balance sheets as of the end of such quarter presented fairly in accordance with GAAP; (iii) Compliance Certificates. Within 90 days after the last day of its fiscal year, an Officer's Certificate of the Servicer or subservicer addressed to Buyer certifying that, as of such calendar month, the Servicer or subservicer is in compliance with all of the terms, conditions and requirements of the Servicing Agreement and no default exists thereunder; and (iv) Consolidated Statements. Buyer acknowledges that Bloomfield Servicing is a wholly-owned subsidiary of Guarantor, and that its financial statements are prepared in connection with the preparation of audited statements for Guarantor. For the purposes of satisfying the foregoing reporting requirements with respect to Bloomfield Servicing, Sellers shall provide Buyer with copies of Guarantor's corresponding consolidated statements with consolidating information specifically applicable to each Seller and Bloomfield Servicing; (k) Evidence of Compliance with Legal Requirements. For at least the term of this Agreement, each Seller shall maintain in its possession, available for Buyer's inspection, and shall deliver to Buyer promptly upon written request, evidence of compliance with all legal and organizational requirements applicable to its existence and the origination, servicing and collection of all Purchased Loans subject to Transactions at any time. (l) Accepted Servicing Practices. Each Seller shall cause the servicing of the Purchased Loans to conform to Accepted Servicing Practices; 48 53 (m) Compliance with Representations, Warranties and Eligibility Requirements. Each Seller shall continue to comply with the representations and warranties as provided in this Agreement and with the Loan Eligibility Requirements in all material respects and shall promptly notify Buyer upon obtaining notice or knowledge of any Breach; (n) Notice of Benefit Plan Events. Each Seller shall promptly give notice to Buyer of the following events, as soon as possible and in any event within 30 days after Seller knows or has reason to know thereof: (i) the occurrence or expected occurrence of any Reportable Event with respect to any Plan, a failure to make any required contribution to a Plan, the creation of any Lien in favor of the PBGC or a Plan or any withdrawal from, or the termination, Reorganization or Act of Insolvency of, any Multiemployer Plan or (ii) the institution of proceedings or the taking of any other action by the PBGC or Seller or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdrawal from, or the terminating, Reorganization or Act of Insolvency of, any Plan; (o) Maintenance of Insurance. Each Seller covenants to maintain with financially sound and reputable insurance companies insurance as set forth below in at least such amounts and against at least such risks as are usually insured against in the same general area by companies engaged in the same or a similar business, which insurance shall name the Buyer as an additional loss payee, in the case of property or casualty insurance, and shall furnish to Buyer, a certified true copy of such bond and insurance policies, including policies for Blanket Fidelity Bond and Errors and Omissions Insurance and key-man life insurance for Daniel Bober and Creighton Weber in the amount of at least $1,000,000 each, and upon Buyer's request, shall furnish a statement from the surety and the insurer that such fidelity bond or insurance policy shall in no event be terminated or materially modified without 30 days' prior written notice to the Buyer, and such other information with respect thereto as Buyer may reasonably request; (p) GAAP. Each Seller covenants that, unless otherwise expressly stated to the contrary, all financial representations, warranties, covenants and calculations shall be made in accordance with GAAP; (q) Transfer of Servicing Upon Default. Each Seller will, upon the occurrence of a Default, at the Buyer's instruction, transfer servicing to the Back-up Servicer in a prudent and prompt manner, safeguarding the Buyer's interest therein. 49 54 (r) Perfection Requirements Memorandum. Sellers shall provide Buyer and Custodian with a memorandum (the "Perfection Requirements Memorandum" of the state requirements for perfection of security interests in MH Paper and the Underlying Assets, indicating which documents must be delivered to Custodian in order to evidence perfection of Buyer's interest in the collateral covered thereby and shall keep that list current to reflect any material changes in those requirements. MHFC shall not propose any MH Loan for purchase and BAC shall not propose any Floorplan Loan for purchase if the Perfection Requirements Memorandum not been delivered to Buyer and Custodian; (s) Executive Bonus Plans. Each Seller shall provide Buyer with a copy of any Executive Bonus Plans to be adopted by that Seller, as and when finalized; and (t) Monthly Inspections. BAC will conduct, or cause to be conducted by a qualified third party under contract to BAC or the applicable Servicer, monthly inspections of each Dealer's Property to verify the existence and condition of the Manufactured Homes securing all Floorplan Loans and shall provide copies of the results of such inspection to Buyer after completion. (u) SMMEA-eligibility for Manufactured Homes. MHFC will diligently pursue its application to the Secretary of Housing and Urban Development pursuant to section 1703 of Title 12 (Title 1 of the National Housing Act), for approval for insurance, and will provide Buyer with a quarterly update of the status of the application at the time it delivers its financial reports required under Section 12(i) (ii) hereof. (v) UCC filing for Change of Address. Promptly upon each Seller's change of address, such Seller shall file a change of address amendment to the UCC-1 filing previously made in favor of Buyer, in the appropriate filing office, and shall send an acknowledgment thereof to Buyer. (w) Provision of forms for effecting assignment of security interest in Manufactured Homes. MHFC will obtain all applications, documents and forms that would be required by state recording officers to record Buyer's interest in the Manufactured Homes that secure MH Loans subject to Transactions, and will forward such forms to Custodian, as and when received. (x) Computer Systems The computer systems utilized by the Mortgage Servicer in the performance of their servicing activities under this Agreement and its Servicing Agreement will be capable before June 30, 1999 of properly performing any calculations and recordkeeping functions with respect to the Loans on and after January 1, 2000. 13. EVENTS OF DEFAULT (a) If any of the following events (each an "Event of Default") occur, Sellers and Buyer shall have the rights set forth in Section 14 hereof, as applicable: (i) Either Seller, Buyer, or Guarantor fails to satisfy or perform either: (A) Any payment or purchase obligation under this Agreement including without limitation, the payment of the Repurchase Price when due; or 50 55 (B) Any other material obligation or covenant under this Agreement, other than an Event of Default specifically included in any of the other subsections of this Section 13(a) within five (5) Business Days after notice of such Breach; (ii) An Act of Insolvency occurs with respect to either Seller or Buyer or Guarantor; (iii) There shall occur a Breach of any representation or warranty made by either Seller or Guarantor that is not corrected or cured of its inaccuracy within five (5) Business Days of the earlier of notice or knowledge of such Breach (other than a Breach of a Loan Representation, which shall not be considered as a Default or an Event of Default, and instead shall be considered solely for the purpose of determining the Market Value and Securitization Value of the Loans, unless a Seller has made any such representation or warranty with knowledge that it was materially false or misleading at the time made, in which case it shall constitute an Event of Default); (iv) Either Seller or Buyer shall admit its inability to, or its intention not to, perform any of its obligations hereunder, Guarantor shall admit is inability to perform under the Guaranty; (v) Any governmental, regulatory, or self-regulatory authority, including, but not limited to, the Agencies, takes any action that removes, limits, restricts, suspends or terminates the rights, privileges, or operations of either Seller or any of its Affiliates, including suspension as an issuer, lender or seller/servicer of mortgage loans, which suspension has a Material Adverse Effect and which continues for more than 24 hours; (vi) Either Seller or Guarantor dissolves, merges or consolidates with another entity (unless (A) it is the surviving party or (B) the entity into which it merges has equity and a market value of at least that of the Seller or Guarantor, as the case may be, immediately prior to such merger and such entity expressly assumes the obligations of the Seller or Guarantor at the time of such merger), or sells, transfers, or otherwise disposes of a material portion of its business or assets without Buyer's prior written consent; (vii) Buyer, in its good faith judgment, believes that there has been a material adverse change in the business, operations, corporate structure or financial condition of either Seller or the Guarantor or that either Seller or the Guarantor will not meet any of its obligations under any Transaction pursuant to the Facility Documents, this Agreement, servicing requirements, the Guaranty or any other agreement between the parties; (viii) A final nonappealable judgment by any competent court in the United States of America for the payment of money in an amount of at least $250,000 is rendered against either Seller or the Guarantor, and the same remains undischarged, unbonded or unpaid for a period of sixty (60) days during which execution of such judgment is not effectively stayed; 51 56 (ix) This Agreement and the related Facility Documents shall for any reason cease to create a valid, first priority security interest in any of the Purchased Loans purported to be covered hereby; (x) A Market Value Collateral Deficit or Securitization Value Collateral Deficit occurs with respect to either Seller, as applicable, and is not eliminated within the time period specified in Section 4(b) hereof; (xi) An "event of default" or other material breach has occurred pursuant to (A) a Hedge entered into upon request of Buyer pursuant to Section 12(f) hereof, (B) the Custodial Agreement, (C) any Blocked Account Agreement, (D) the Side Letter, (E) the Second Side Letter, (F) the MH Side Letter (G) the Second Subordination Letter or (H) the Guaranty; (xii) Either Seller or any of its Affiliates shall be in default under any note, indenture, loan agreement, guaranty, swap agreement or any other material contract to which it is a party, which default (i) involves the failure to pay a matured obligation, or (ii) permits the acceleration of the maturity of obligations by any other party to or beneficiary; (xiii) Guarantor's Maximum Leverage Ratio shall exceed 9:1 at any time; (xiv) Guarantor's Tangible Net Worth shall at any time be less than the greater of (a) Guarantor's Asset Value Net Worth minus unsecured subordinated debt of the Guarantor which is subject to a subordinated agreement acceptable to Buyer and (b) the sum of (x) $10,300,000, (y) 85% of equity contributions to Guarantor received since March 19, 1998 and (z) 75% of cumulative positive net income of Sellers and other Subsidiaries of Guarantor from March 19, 1998; (xv) Guarantor's FCCR for any calendar quarter shall be less than 1.25x at any time; (xvi) Guarantor shall have made a Restricted Payment; (xvii) Guarantor shall have entered into a line of business other than the lines of business expressly contemplated in that certain prospectus, dated November 13, 1997, for 1,200,000 shares of common stock of Guarantor; or (xviii) Either Seller shall fail to fully transfer servicing to the Back-up Servicer within five (5) Business Days of Buyer's request. (b) In making a determination as to whether an Event of Default has occurred, and where more specific information is not reasonably available to the party making the determination, the parties hereto shall be entitled to rely on reports published or broadcast by media sources believed by such party to be generally reliable and on information provided to it by any other sources believed by it to be generally reliable, provided that such party in good faith believes such information to be accurate and has taken such steps as may be reasonable in the circumstances to attempt to verify such information, provided however, without impairing the 52 57 ability of any party to rely on the above-listed information, the party against which such information is used shall have the right to establish any disputed facts or conclusions with evidence from more reliable sources. 14. REMEDIES (a) Buyer's Remedies. If an Event of Default occurs with respect to either Seller or Guarantor, the following rights and remedies are available to Buyer: (i) Acceleration of Repurchase Date. At the option of Buyer, exercised by written notice to the Sellers (which option shall be deemed to have been exercised, even if no notice is given, immediately upon the occurrence of an Act of Insolvency), the Repurchase Date for each Transaction hereunder shall be deemed immediately to occur. (ii) Sellers' Repurchase Obligations. If Buyer exercises or is deemed to have exercised the option referred to in subsection (a)(i) of this Section, (A) Sellers' obligations hereunder to repurchase all Purchased Loans in such Transactions shall thereupon become immediately due and payable, (B) to the extent permitted by applicable law, the Repurchase Price with respect to each such Transaction shall be increased by the aggregate amount obtained by daily application of, on a 360 day per year basis for the actual number of days during the period from and including the date of the exercise or deemed exercise of such option to but excluding the date of payment of the Repurchase Price as so increased, (x) the Pricing Rate for each such Transaction plus 4.0% to (y) the Repurchase Price for such Transaction as of the Repurchase Date as determined pursuant to subsection (a)(i) of this Section (decreased as of any day by (I) any amounts actually in the possession of Buyer pursuant to clause (C) of this subsection, (II) any proceeds from the sale of Purchased Loans applied to the Repurchase Price pursuant to subsection (a)(xii) of this Section, and (III) any amounts applied to the Repurchase Price pursuant to subsection (a)(iii) of this Section), and (C) all Income actually received by the Buyer or its designee (including the Custodian) pursuant to Section 5 shall be applied to the aggregate unpaid Repurchase Price owed by Sellers. (iii) Sale or Other Disposition of Loans by Buyer. After one (1) Business Day's notice to the Sellers (which notice need not be given if an Act of Insolvency shall have occurred, and which may be the notice given under subsection (a)(i) of this Section 14), Buyer may (A) immediately sell, without notice or demand of any kind, at a public or private sale and at such price or prices Buyer may reasonably deem satisfactory any or all Purchased Loans subject to a Transaction hereunder or (B) in its sole discretion elect, in lieu of selling all or a portion of such Purchased Loans, to give Sellers credit for such Purchased Loans in an amount equal to the Market Value of the Purchased Loans against the aggregate unpaid Repurchase Price and any other amounts owing by Sellers hereunder. The proceeds of any disposition of Purchased Loans shall be 53 58 applied first to the costs and expenses incurred by Buyer in connection with the Event of Default; second to the actual costs of cover and/or related hedging transactions; third to the Repurchase Price; and fourth to any other outstanding obligation of Sellers to Buyer or its Affiliates. (iv) Buyer's Discretion in Connection with Liquidation of Loans. The parties recognize that it may not be possible to purchase or sell all of the Purchased Loans on a particular Business Day, or in a transaction with the same purchaser, or in the same manner because the market for such Purchased Loans may not be liquid. In view of the nature of the Purchased Loans, the parties agree that liquidation of a Transaction or the underlying Purchased Loans does not require a public purchase or sale and that a good faith private purchase or sale shall be deemed to have been made in a commercially reasonable manner. Accordingly, Buyer may elect, in its sole discretion, the time and manner of liquidating any Purchased Loan and nothing contained herein shall (A) obligate Buyer to liquidate any Purchased Loan on the occurrence of an Event of Default or to liquidate all Purchased Loans in the same manner or on the same Business Day or (B) constitute a waiver of any right or remedy of Buyer. However, in recognition of the parties' agreement that the Transactions hereunder have been entered into in consideration of and in reliance upon the fact that all Transactions hereunder constitute a single business and contractual relationship and that each Transaction has been entered into in consideration of the other Transactions, the parties further agree that Buyer shall use its best efforts to liquidate all Transactions hereunder upon the occurrence of an Event of Default as quickly as is prudently possible in the reasonable judgment of Buyer. (v) Appointment of a Receiver for Collateral. Buyer shall, without regard to the adequacy of the security for the Sellers' obligations under this Agreement, be entitled to the appointment of a receiver by any court having jurisdiction, without notice, to take possession of and protect, collect, manage, liquidate, and sell the Collateral or any portion thereof, and collect the payments due with respect to the Collateral or any portion thereof. Sellers shall pay all costs and expenses incurred by Buyer in connection with the appointment and activities of such receiver, including, without limitation, legal fees. (vi) Injunction. Sellers agree that Buyer may obtain an injunction or an order of specific performance to compel Sellers to fulfill their obligations as set forth in Section 25 hereof, if Sellers fail or refuse to perform their obligations as set forth therein. (vii) Joint and Several Obligation. Sellers shall be jointly and severally liable to Buyer for the amount of all expenses, reasonably incurred by Buyer in connection with or as a consequence of an Event of Default, including, without limitation, reasonable legal fees and expenses and reasonable costs incurred in connection with hedging or covering transactions. (viii) Remedies Not Exclusive. Buyer shall have all the rights and remedies provided herein, provided by applicable federal, state, foreign, and local laws (including, without limitation, the rights and remedies of a secured party under the Uniform Commercial Code of the State of New York, to the extent that the Uniform 54 59 Commercial Code is applicable, and the right to offset any mutual debt and claim), in equity, and under any other agreement between Buyer and either or both Sellers. (ix) Concurrent Remedies. Buyer may exercise one or more of the remedies available to Buyer immediately upon the occurrence of an Event of Default and, except to the extent provided in subsections (a)(i) and (iii) of this Section, at any time thereafter without notice to Sellers. All rights and remedies arising under this Agreement as amended from time-to-time hereunder are cumulative and not exclusive of any other rights or remedies which Buyer may have. (x) Recourse to Other Assets of Sellers. In addition to its rights hereunder, Buyer shall have the right to proceed against any assets of Sellers which may be in the possession of Buyer or its designee (including the Custodian) including the right to liquidate such assets and to set off the proceeds against monies owed by Sellers to Buyer pursuant to this Agreement. Buyer may set off cash, the proceeds of the liquidation of the Purchased Loans, any Collateral or its proceeds, and all other sums or obligations owed by Buyer or its affiliates to Sellers against all of Sellers' obligations to Buyer, whether under this Agreement, under a Transaction, or under any other agreement between the parties, or otherwise, whether or not such obligations are then due, without prejudice to Buyer's right to recover any deficiency. Any cash, proceeds, or property in excess of any amounts due, or which Buyer reasonably believes may become due, to it from Sellers shall be returned to Sellers after satisfaction of all obligations of Sellers to Buyer. (xi) Nonjudicial Processes. Buyer may enforce its rights and remedies hereunder without prior judicial process or hearing, and Sellers hereby expressly waive any defenses Sellers might otherwise have to require Buyer to enforce its rights by judicial process. Sellers also waive any defense Sellers might otherwise have arising from the use of nonjudicial process, enforcement and sale of all or any portion of the Collateral, or from any other election of remedies. Sellers recognizes that nonjudicial remedies are consistent with the usages of the trade, are responsive to commercial necessity and are the result of a bargain at arm's length. (xii) Sales Pursuant to Securities Offerings. Buyer and Sellers hereby agree that sales of the Purchased Loans shall be deemed to include and permit the sales of Purchased Loans pursuant to a securities offering. (b) Sellers' Remedies. If an Event of Default occurs with respect to Buyer, the following rights and remedies are available to Sellers: (i) Repurchase of All Purchased Loans. Upon tender by Sellers of payment of the aggregate Repurchase Price for all such Transactions, Buyer's right, title and interest in all Purchased Loans subject to such Transactions shall be deemed transferred to the respective Seller, and Buyer shall deliver or cause to be transferred all such Purchased Loans to Sellers or their designees at Buyer's expense. (ii) Replacement Loans. If Sellers exercise the option referred to in subsection (b)(i) of this Section and Buyer fails to deliver or cause to be delivered the 55 60 Purchased Loans to the respective Seller or its designee, after one Business Day's notice to Buyer, such Seller may (A) purchase Loans ("Replacement Loans") that are as similar as is reasonably practicable in characteristics, outstanding principal amounts (as a pool) and interest rate to any Purchased Loans that are not delivered by Buyer to Sellers or its designees as required hereunder or (B) in its sole discretion elect, in lieu of purchasing Replacement Loans, to be deemed to have purchased Replacement Loans at a price therefor on such date, equal to the Market Value of the Purchased Loans. (iii) Buyer's Liability. Buyer shall be liable to the Sellers, and Buyer shall pay to the Sellers on demand, (A) with respect to Purchased Loans (other than Additional Loans), for any excess of the price paid (or deemed paid) by Sellers for Replacement Loans therefor over the Repurchase Price for such Purchased Loans and (B) with respect to Additional Loans, for the price paid (or deemed paid) by Sellers for the Replacement Loans therefor. In addition, Buyer shall be liable to Sellers for interest on such remaining liability with respect to each such purchase (or deemed purchase) of Replacement Loans calculated on a 360-day year basis for the actual number of days during the period from and including the date of such purchase (or deemed purchase) until paid in full by Buyer. Such interest shall be at the greater of the Pricing Rate or the Prime Rate. (iv) Sellers' Expenses. Buyer shall be liable to Sellers for the amount of all expenses reasonably incurred by Sellers in connection with or as a consequence of an Event of Default, including, without limitation, reasonable legal expenses and reasonable expenses incurred in connection with covering existing hedging transactions with respect to the Purchased Loans. (v) Remedies Not Exclusive. Sellers shall have all the rights and remedies provided herein, provided by applicable federal, state, foreign, and local laws, in equity, and under any other agreement between Buyer and Sellers, including, without limitation, the right to offset any debt or claim. (vi) Concurrent Remedies. Sellers may exercise one or more of the remedies available to Sellers immediately upon the occurrence of an Event of Default and at any time thereafter without notice to Buyer. All rights and remedies arising under this Agreement as amended from time-to-time hereunder are cumulative and not exclusive of any other rights or remedies which Sellers may have. 15. DUE DILIGENCE Sellers acknowledge that Buyer has the right to perform continuing due diligence reviews with respect to the Loans, for purposes of verifying compliance with the representations, warranties and specifications made hereunder, or otherwise, and Sellers agree that upon reasonable prior notice to Sellers, provided that, in the event that a Default shall have occurred, then without notice, Buyer or its authorized representatives will be permitted during normal business hours to examine, inspect, and make copies and extracts of, the Loan Files, Servicing Records and any and all documents, records, agreements, instruments or information relating to such Loans in the possession or under the control of Sellers, any Servicer or subservicer and/or the Custodian. Sellers also shall make available to Buyer a knowledgeable financial or 56 61 accounting officer for the purpose of answering questions respecting the Loan Files and the Loans. Without limiting the generality of the foregoing, Sellers acknowledge that Buyer may enter into Transactions with the Sellers based solely upon the Collateral Information provided by each respective Seller to Buyer and the representations, warranties and covenants contained herein, and that Buyer, at its option, has the right at any time to conduct a partial or complete due diligence review on some or all of the Loans. Buyer may underwrite such Loans itself or engage a mutually agreed upon third party underwriter to perform such underwriting. Sellers agree to cooperate with Buyer and any third party underwriter in connection with such underwriting, including, but not limited to, providing Buyer and any third party underwriter with access to any and all documents, records, agreements, instruments or information relating to such Loans in the possession, or under the control, of Sellers. Sellers further agree that Sellers shall reimburse Buyer for any and all out-of-pocket costs and expenses reasonably incurred by Buyer in connection with Buyer's activities pursuant to this Section 15 hereof. 16. SINGLE AGREEMENT Buyer and Sellers acknowledge that, and have entered hereunto and will enter into each Transaction hereunder in consideration of and in reliance upon the fact that, all Transactions hereunder constitute a single business and contractual relationship and that each has been entered into in consideration of the other Transactions. Accordingly, each of Buyer and Sellers agree (i) to perform all of their respective obligations in respect of each Transaction hereunder, and that a default in the performance of any such obligations shall constitute a default 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; provided, however, that the parties hereto acknowledge and agree that each Purchased Loan is identified and unique and nothing in this Agreement should limit or reduce Buyer's obligation to deliver the Purchased Loans to Sellers as and when provided herein. 17. NOTICES AND OTHER COMMUNICATIONS Unless another address is specified in writing by the respective party to whom any written notice or other communication is to be given hereunder, all such notices or communications shall be in writing or confirmed in writing (including without limitation by telex or telecopy) and delivered to the intended recipient at the "Address for Notices" specified below its name on the signature page hereof), or, as to any party, at such other address as shall be designated by such party in a written notice to each other party. All notices to Buyer's Underwriter shall be made in writing to Hatfield Philips, 285 Peachtree Center Avenue, Marquis Two Tower, Suite 2300, Atlanta, Georgia 30303, Attention: P. Conrad Nelson (phone: (404) 420-5600 and fax: (404) 420-5610). 57 62 18. ENTIRE AGREEMENT; SEVERABILITY This Agreement together with the applicable Facility Documents and Confirmations constitute the entire understanding between Buyer and Sellers with respect to the subject matter it covers and shall supersede any existing agreements between the parties containing general terms and conditions for repurchase transactions involving Purchased Loans. By acceptance of this Agreement, Buyer and Sellers acknowledge that they have not made, and are not relying upon, any statements, representations, promises or undertakings not contained in this Agreement. Each provision and agreement herein shall be treated as separate and independent from any other provision or agreement herein and shall be enforceable notwithstanding the unenforceability of any such other provision or agreement. 19. NON-ASSIGNABILITY The rights and obligations of the parties under this Agreement and under any Transaction shall not be assigned by Sellers without the prior written consent of Buyer. 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. Nothing in this Agreement express or implied, shall give to any person, other than the parties to this Agreement and their successors hereunder, any benefit or any legal or equitable right, power, remedy or claim under this Agreement. 20. TERMINABILITY This Agreement shall terminate upon the earlier of (i) the Final Repurchase Date and (ii) written notice from either Seller to Buyer to such effect, except that this Agreement shall, notwithstanding the above clause, remain applicable to any Transaction then outstanding and provided however, that as a condition precedent to any termination by either Seller, the Exit Fee required pursuant to Section 3(j)(4) hereof shall be paid by BAC to Buyer. Notwithstanding any such termination or the occurrence of an Event of Default, all of the representations, warranties and indemnities hereunder (including the Loan Representations) shall continue and survive. 21. GOVERNING LAW THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF. 22. CONSENT TO JURISDICTION The parties irrevocably agree to submit to the personal jurisdiction of the United States District Court for the Southern District of New York, the parties irrevocably waiving any objection thereto. If, for any reason, federal jurisdiction is not available, and only if federal jurisdiction is not available, the parties irrevocably agree to submit to the personal jurisdiction of the Supreme Court of the State of New York, the parties irrevocably waiving any objection thereto. 58 63 23. NO WAIVERS, ETC. No express or implied waiver of any Event of Default by any party shall constitute a waiver of any other Event of Default and no exercise of any remedy hereunder by any party shall constitute a waiver of its right to exercise any other remedy hereunder. No modification or waiver of any provision of this Agreement and no consent by any party to a departure herefrom shall be effective unless and until such shall be in writing and duly executed by both of the parties hereto. Any such waiver or modification shall be effective only in the specific instance and for the specific purpose for which it was given. 24. INTENT The parties understand and intend that this Agreement and each Transaction hereunder constitute a "repurchase agreement" and a "securities contract" as those terms are defined under the relevant provisions of Title 11 of the United States Code, as amended. 25. SERVICING (a) Servicing for Buyer using Accepted Servicing Practices. Notwithstanding the purchase and sale of the Purchased Loans hereby, the respective Seller and, pursuant to their respective Servicing Agreement, the MH Servicer and the Mortgage Loan Servicer, as applicable, shall continue to service the respective Purchased Loans for the benefit of Buyer and, if Buyer shall exercise its rights to pledge or hypothecate the Purchased Loan prior to the related Repurchase Date pursuant to Section 8 hereof, Buyer's assigns; provided, however, that the obligations of a Seller to service Purchased Loans shall cease, at that Seller's option, upon the payment by Seller to Buyer of the Repurchase Price therefor. The respective Seller shall service or cause the respective Servicer to service the Purchased Loans in accordance with Accepted Servicing Practices approved by Buyer and maintained by other prudent mortgage lenders with respect to mortgage loans similar to those Purchased Loans. (b) Servicing Agreements and Servicing Records. Each Seller agrees that Buyer is the owner of all servicing records, including but not limited to any and all servicing agreements (the "Servicing Agreements"), files, documents, books, records, data bases, computer tapes, disks, copies of computer tapes, Seller's rights in any data processing software, computer programs and related property and rights, proof of insurance coverage, insurance policies, appraisals, other closing documentation, payment history records, and any other records relating to or evidencing the servicing of Purchased Loans (the "Servicing Records") so long as the Purchased Loans are subject to this Agreement. Each Seller grants Buyer a security interest in all the respective servicing fees and rights relating to the Purchased Loans and all Servicing Records to secure the obligation of both Sellers or their designees to service in conformity with this Section and any other obligation of the respective Seller to Buyer. Sellers covenant to safeguard their respective Servicing Records and to deliver them promptly to Buyer or its designee (including the Custodian) at Buyer's request. (c) Buyer's Options Upon Default by Servicers. Upon the occurrence and continuance of a Default (including upon the failure of a Seller, Servicer or any subservicer to meet Accepted Servicing Practices after notice of default and failure by the Servicer to cure any such default within 15 days thereafter), Buyer may, in its sole discretion, (i) sell its right to the 59 64 Purchased Loans on a servicing released basis or (ii) terminate the Sellers, Servicer or any subservicer as servicer of the Purchased Loans with or without cause, in each case without payment of any termination fee, in which case Sellers will promptly, within five (5) Business Days, transfer servicing, or cause servicing to be transferred, to the Back-up Servicer. Buyer agrees that if Buyer has caused the transfer of servicing to the Back-up Servicer pursuant to a Default, and such Default does not become an Event of Default within sixty (60) days, Buyer shall transfer servicing back to the Servicer, at Buyer's expense. (d) Each Seller shall provide to the Buyer a letter from its Servicer (the "Servicing Letter") (i) acknowledging Buyer's security interest in the Loans, (ii) granting Buyer a security interest in all servicing fees and rights relating to Loans and all Servicing Records related thereto to secure the obligation of Servicer to service in conformity with this Agreement, (iii) acknowledging that Buyer is the collateral assignee of all Servicing Records, (iv) acknowledging that upon a Default, the Seller may terminate any Servicing Agreement upon request of the Buyer, and Servicer shall transfer servicing to Buyer's designee, at no cost or expense to the Buyer, it being agreed that the Seller will pay any and all fees required to terminate the Servicing Agreement and to effectuate the transfer of servicing to the designee of the Buyer, and (v) agreeing to allow Buyer to inspect the Servicer's servicing facilities, for the purpose of satisfying the Buyer that the Servicer has the ability to service the Loans as provided herein. (e) No Subservicers Without Buyer Consent. Sellers shall not employ subservicers to service the Purchased Loans without the prior written approval of Buyer, which approval shall not be unreasonably withheld. If the Purchased Loans are serviced by a subservicer, Sellers irrevocably assign all of their rights, title and interest in any such subservicing agreement, with respect to the Purchased Loans, to Buyer. The applicable Seller shall cause any subservicers engaged by or for the benefit of that Seller to execute a letter agreement with Buyer acknowledging Buyer's security interest and agreeing that, upon notice from Buyer (or the Custodian on its behalf) that an Event of Default has occurred and is continuing hereunder, it shall deposit all Income with respect to the Purchased Loans in the account specified in the third sentence of Section 5(a) hereof. (f) Subordination of Servicing Fees. The payment of servicing fees shall be subordinate to payment of amounts outstanding under any Transaction and this Agreement. 26. DISCLOSURE RELATING TO CERTAIN FEDERAL PROTECTIONS The parties acknowledge that they have been advised that in the case of Transactions in which one of the parties is an "insured depository institution" as that term is defined in Section 1831(a) of Title 12 of the United States Code, as amended, funds held by the financial institution pursuant to a Transaction hereunder are not a deposit and therefore are not insured by the Federal Deposit Insurance Corporation, the Savings Association Insurance Fund or the Bank Insurance Fund, as applicable. 60 65 27. NETTING If Buyer and Sellers are "financial institutions" as now or hereinafter defined in Section 4402 of Title 12 of the United States Code ("Section 4402") and any rules or regulations promulgated thereunder: (a) All amounts to be paid or advanced by any one party to or on behalf of the other under this Agreement or any Transaction hereunder shall be deemed to be "payment obligations" and all amounts to be received by or on behalf of one party from the other under this Agreement or any Transaction hereunder shall be deemed to be "payment entitlements" within the meaning of Section 4402, and this Agreement shall be deemed to be a "netting contract" as defined in Section 4402. (b) The payment obligations and the payment entitlements of the parties hereto pursuant to this Agreement and any Transaction hereunder shall be netted as follows. In the event that either party (the "Defaulting Party") shall fail to honor any payment obligation under this Agreement or any Transaction hereunder, the other party (the "Nondefaulting Party") shall be entitled to reduce the amount of any payment to be made by the Nondefaulting Party to the Defaulting Party by the amount of the payment obligation that the Defaulting Party failed to honor. 28. INDEMNIFICATION Each Seller agrees to jointly and severally hold Buyer harmless from and indemnify Buyer against all liabilities, losses, damages, judgments, reasonably incurred costs and expenses of any kind which may be imposed on, incurred by or asserted against Buyer (collectively, the "Costs") relating to or arising out of the Transactions or this Agreement, including reasonable legal costs and settlement costs, except if such losses, liabilities, claims, damages or expenses result from Buyer's gross negligence or willful misconduct. Without limiting the generality of the foregoing, each Seller agrees to jointly and severally hold Buyer harmless from and indemnify Buyer against all Costs with respect to all Loans relating to or arising out of any violation or alleged violation of any environmental law, rule or regulation or any consumer credit laws, including without limitation ERISA, the Truth in Lending Act and/or the Real Estate Settlement Procedures Act, that, in each case, results from anything other than Buyer's gross negligence or willful misconduct. In any suit, proceeding or action brought by Buyer in connection with any Loan for any sum owing thereunder, or to enforce any provisions of any Loan, each Seller will jointly and severally save, indemnify and hold Buyer harmless from and against all expense, loss or damage suffered by reason of any defense, set-off, counterclaim, recoupment or reduction or liability whatsoever of the account debtor or obligor thereunder, arising out of a breach by either Seller of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to or in favor of such account debtor or obligor or its successors from Sellers. Each Seller also agrees to reimburse Buyer as and when billed by Buyer for all Buyer's costs and expenses incurred in connection with the enforcement or the preservation of Buyer's rights under this Agreement or any Transaction contemplated hereby, amendments and waivers, including without limitation the reasonable fees and disbursements of its counsel. Each Seller hereby acknowledges that, the obligations of both Sellers hereunder are recourse obligations of each Seller. 61 66 29. ESTABLISHMENT OF COLLECTION ACCOUNT (a) Each Seller shall, or shall cause each Servicer to, establish and maintain one or more collection accounts for the Buyer's benefit, which may be interest-bearing, entitled, as applicable: (i) "Bloomfield Servicing Company, L.L.C. in trust for Bloomfield Acceptance Company, L.L.C." (the "Bloomfield Blocked Account") or (ii) "St. James Servicing Corporation in trust for MHFC, Inc." (the "St. James Blocked Account") (together, the "Blocked Accounts"). The Blocked Accounts shall be governed by the terms in this Section 29 and the Blocked Account Agreements. The provisions of this Section 29 apply separately to each Blocked Account and to BAC with respect to the Bloomfield Blocked Account and MHFC with respect to the St. James Blocked Account, and to BAC's and MHFC's respective Servicers. (b) Sellers shall, or shall cause the Servicers to, deposit all payments received and all proceeds received from sales of any Loans, within one (1) Business Day following receipt thereof. BAC must instruct all Obligors on Mortgage Loans and Floorplan Loans to remit all payments directly to the Bloomfield Blocked Account. MHFC must instruct all Obligors on MH Loans to remit all payments directly to the St. James Blocked Account. (c) Permitted Withdrawals (A) Distributions. Subject to the provisions hereof, and to the extent available for distribution, all funds held in the Blocked Accounts, or received by the applicable Seller or Servicer as of one calendar day prior to two Business Days immediately preceding each Payment Date during the period in which there is no Default, shall be distributed on each Payment Date (subject to any restrictions contained herein or in the Facility Documents) in the following order of priority: FIRST: To Escrow Accounts for amounts representing Escrow Payments as per the Loan Documents; SECOND: To the Buyer in accordance with the Buyer's wire transfer instructions as provided herein or as amended from time to time, in an amount sufficient to pay: (i) any Periodic Payment due and owing; (ii) the amount of any Collateral Deficit; and (iii) the amount of any fees or expenses or other amounts due and owing to the Buyer hereunder or in the Facility Documents; THIRD: To payment to Buyer of Curtailment and other prepayments received on any Loans; FOURTH: To the Servicer for any reasonable servicing fees due and owing; 62 67 FIFTH: To the respective Seller in accordance with its wire transfer instructions, an amount equal to any proceeds indicated on that Seller's most recent Distribution Worksheet for such Payment Date as are remaining in the Blocked Account and available for distribution to that Seller on such Payment Date. The relevant Seller or the Servicer, as the case may be, shall be entitled to transfer funds on deposit in a Blocked Account to one or more Escrow Accounts for the purpose of holding funds attributable to Escrow Payments; provided that any Escrow Account is identified and is subject to a Blocked Account Agreement. (B) Distribution in the Event of Default. To the extent available for distribution to Sellers on each Payment Date, all funds held in the Blocked Account or received by either Seller or Servicer during a period in which there is a Default which has occurred and is known to the Sellers or as to which Buyer has notified Sellers, and which is continuing, shall be distributed on each Payment Date in the following order of priority: FIRST: To payment to the Buyer of amounts as set forth in the subheadings entitled "SECOND AND THIRD" in Subsection (A) above; SECOND: To payment of the Repurchase Price for any then outstanding Transactions; THIRD: To any additional amounts owing to the Buyer hereunder; and FOURTH: Any surplus then remaining shall be paid to the respective Sellers or their successors or assigns or to whomsoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct. (d) The distributions set forth in subsection (c) of this Section shall be determined pursuant to the Distribution Worksheet for each respective Seller. Each Seller shall or shall cause its Servicer to deliver its respective Distribution Worksheet to that Seller and Buyer by facsimile by no later than 12:00 noon (New York time) on the second preceding Business Day prior to each Payment Date. Prior to remitting any distributions pursuant to this Section, the respective Seller and its Servicers shall have received by facsimile, the written consent of Buyer to the information set forth on a Distribution Worksheet. In the event that Buyer shall have failed to consent to a Distribution Worksheet by 5:00 p.m. (New York time) on the Business Day prior to each Payment Date, the affected Seller or its Servicer shall promptly contact Buyer and shall use its best efforts to obtain such written consent. In the event that Buyer disputes any calculation set forth on a Distribution Worksheet, the affected Servicer shall promptly contact Buyer and the respective Seller, and all parties shall use their best efforts to resolve such dispute; provided that, Buyer's good faith determination that accrued interest is due and owing or that a Collateral Deficit exists under this Agreement shall be conclusive absent manifest error. 63 68 (e) Reliance on Distribution Worksheets. The Lockbox Bank and the Servicers may rely upon any Distribution Worksheet which has been consented to by Buyer, and neither the Lockbox Bank nor the Servicers shall have any liability to Buyer for actions taken in reliance on such Distribution Worksheet. All distributions made by a Servicer pursuant to this Section shall be (subject to any decree of any court of competent jurisdiction) final, and that Servicer shall have no duty to inquire as to the application by Buyer of any amounts distributed to it. (f) Appointment of Third Party Upon Default. In the event a Default shall occur and be continuing, Buyer may select a third party to prepare and distribute the Distribution Worksheets to all of the parties. (g) Accrued Interest and Sellers' Separate Funds. Unless an Event of Default has occurred and is continuing, all interest accrued on Blocked Account(s) shall be allocated to the applicable Seller and shall constitute part of the funds available for distribution to Sellers in accordance with the foregoing procedure. Any of a Seller's separate funds used to establish any Blocked Account may be distributed to the relevant Seller at any time prior to an Event of Default in accordance with the Distribution Worksheet. 30. CONFIDENTIALITY OF AGREEMENT Sellers and Buyer agree to maintain the confidentiality of this Agreement and its terms and agree not to disclose this Agreement or its terms to any other party except as required for the enforcement of its terms, or as required by law, regulatory requirements or court order or discovery, or to Affiliates of Sellers or Guarantor or to their respective accountants, attorneys and similar Persons who provide professional or advisory services to them. Nonetheless, each Person given confidential information relating to this Agreement shall be informed by the giver of the confidential nature of this Agreement, and shall agree to maintain its confidentiality. Sellers shall be responsible for any breach of this agreement by their Affiliates and any other Persons to whom this Agreement or information about this Agreement is given. In the event Sellers determine, in consultation with legal counsel experienced in securities regulation, that the Agreement must be filed with the Securities and Exchange Commission pursuant to applicable law, such filing may only be made after consultation with Buyer and agreement upon redaction of certain terms of the Agreement (including, without limitation, the Pricing Spread and Commitment Fee). 31. MISCELLANEOUS (a) Time is of the essence under this Agreement and all Transactions and all references to a time shall mean New York time in effect on the date of the action unless otherwise expressly stated in this Agreement. (b) Buyer shall be authorized to accept orders and take any other action affecting any accounts of the respective Seller in response to instructions given in writing or orally by telephone or otherwise by any person with apparent authority to act on behalf of that Seller, and the relevant Seller shall indemnify Buyer, defend, and hold Buyer harmless from and against any and all liabilities, losses, damages, costs, and expenses of any nature arising out of, or 64 69 in connection with, any action taken by Buyer in response to such instructions received or reasonably believed to have been received from such Seller. (c) If there is any conflict between the terms of this Agreement or any Transaction entered into hereunder and the Custodial Agreement or any other Facility Document, this Agreement shall prevail. (d) If there is any conflict between the terms of a Confirmation or a corrected Confirmation issued by the Buyer and this Agreement, the Confirmation and/or corrected Confirmation shall prevail. (e) This Agreement may be executed in counterparts, each of which so executed shall be deemed to be an original, but all of such counterparts shall together constitute but one and the same instrument. (f) Sellers agree to reimburse Buyer for all reasonable costs and expenses of Buyer in connection with this Agreement, and the Sellers agree to reimburse Buyer for all reasonable costs and expenses of Buyer in connections with any Transactions hereunder including, respectively but without limitation, (i) the fees, expenses and disbursement of outside counsel to Buyer, (ii) due diligence expenses, (iii) on-going auditing fees, (iv) custodial fees, (v) Lockbox Bank fees and (vi) the fees, expenses and disbursements of the Back-up Servicer, if servicing has been transferred to the Back-up Servicer pursuant to Section 12(q) hereof. (g) The headings in this Agreement are for convenience of reference only and shall not affect the interpretation or construction of this Agreement. [SIGNATURE PAGE FOLLOWS.] 65 70 IN WITNESS WHEREOF, THE PARTIES HAVE ENTERED INTO THIS AGREEMENT AS OF THE DATE SET FORTH ABOVE. LEHMAN COMMERCIAL PAPER INC., Buyer By: ----------------------------------- Title: -------------------------------- Date: -------------------------------- Address for Notices: Lehman Commercial Paper Inc. 101 Hudson Street Jersey City, New Jersey 07306 Attention: Chris Czako Phone: (201) 524-4494 Fax: (201) 524-4439 with a copy to: Lehman Commercial Paper Inc. 200 Vesey Street, 8th Floor New York, New York 10285-0900 Attention: John Ng Phone (212) 526-3165 Fax: (212) 526-7423 BLOOMFIELD ACCEPTANCE COMPANY, L.L.C., Seller By: /s/ ------------------------------------ Title: --------------------------------- Date: --------------------------------- Address for Notices: Bloomfield Acceptance Company, L.L.C. 260 East Brown, Suite 350 Birmingham, Michigan 48009-6229 Attention: Daniel E. Bober, President Phone: (248) 644-3375 Fax: (248) 644-5760 MHFC, INC., By: /s/ ------------------------------------ Title: --------------------------------- Date: --------------------------------- Address for Notices: MHFC, Inc. 31700 Middlebelt, Suite 125 Farmington Hills, Michigan 48334 Attention: William L. Mulvaney Chief Operating Officer Phone: (248) 932-9656 Fax: (248) 932-4073 EX-11 5 COMPUTATION OF EARNINGS 1 EXHIBIT 11
SEPTEMBER 30, 1998 ------------------ Basic and Diluted ------------- Net loss $ (574) ============= Average Shares Common 1,261 ------------- Total 1,261 ============= Loss per common share $ (0.46) =============
EX-21 6 SUBSIDIARIES 1 EXHIBIT 21 List of Subsidiaries of Bingham Financial Services Corporation 1. MHFC, Inc., a Michigan corporation 2. Bloomfield Acceptance Company, L.L.C., a Michigan limited liability company 3. Bloomfield Servicing Company, L.L.C., a Michigan limited liability company 4. MHFC of New Mexico, Inc., a Michigan corporation and wholly owned subsidiary of MHFC, Inc. 5. IJK Insurance Agency, Inc., a Michigan corporation and wholly owned subsidiary of MHFC, Inc. EX-27 7 FINANCIAL DATA SCHEDULE
5 12-MOS SEP-30-1998 OCT-01-1997 SEP-30-1998 0 0 86,075,000 0 0 0 0 0 94,859,000 81,104,000 0 0 0 13,608,000 (151,000) 94,859,000 0 6,141,000 0 0 4,854,000 147,000 1,933,000 (793,000) (219,000) (574,000) 0 0 0 (574,000) (.46) (.46)
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