MASTER LOAN AGREEMENT
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THIS MASTER LOAN AGREEMENT (this "LOAN AGREEMENT") is made and entered
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into as of June 10, 2004, by and between MATTERHORN FINANCIAL SERVICES
LLC, a California limited liability company
("BORROWER"), PERFORMANCE CAPITAL MANAGEMENT, LLC, a California limited
liability company ("PCM"), and VARDE INVESTMENT PARTNERS, L.P., a Delaware
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limited partnership ("LENDER").
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RECITALS
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Borrower desires that Lender make one or more Loans to finance Borrower's
acquisition(s) of certain assets from various sellers.
Lender is willing to make the Loans, up to an aggregate original principal
amount of Twenty- five Million Dollars ($25,000,000), subject to the terms and
conditions herein set forth.
In consideration of the foregoing premises and the agreements hereinafter
set forth, Borrower and Lender agree as follows:
ARTICLE I
DEFINITIONS
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For purposes of this Loan Agreement, the following terms shall
have the following meanings:
"ACCELERATION NOTICE" shall have the meaning set forth in Section 9.3.
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"ACCOUNT DOCUMENTS" shall mean customer agreements, notes,
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security agreements, financing statements, leases, Certificates of Title,
Chattel Paper, Instruments, documents, agreements, and such other evidences
of indebtedness or documents and electronic tapes relating to the Assets in
the Portfolios.
"AFFILIATE" shall mean, as to any Person, any other Person which, directly
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or indirectly, is in control of, is controlled by, or is under common
control with, such Person. A Person shall be deemed to control another
Person if the controlling Person possesses, directly or indirectly, the
power to direct or cause the direction of the management and policies of
the other Person, whether through the ownership of voting securities, by
contract or otherwise. In any event, Borrower and PCM are "Affiliates" of
each other.
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"ASSETS" shall mean non-performing consumer debt obligations
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consisting principally of distressed or delinquent obligations, that are
identified in a Proposal and are made subject to the Loan Documents, and
including any amendments, modifications, replacements or renewals of such
consumer debt obligations.
"ASSET PURCHASE AGREEMENT" shall mean an agreement under which Borrower has
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purchased Assets from an Asset Seller.
"ASSET SELLER" shall mean the Person from whom Borrower acquires Assets.
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"ASSIGNMENT OF SERVICING AGREEMENT" shall mean a collateral assignment of
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the Servicing Agreement executed by Borrower and Servicer for the benefit
of Lender, in the form attached hereto as Exhibit G
"BANK" shall mean Comerica Bank.
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"BLOCKED ACCOUNT AGREEMENT" means the agreement among the Bank, Borrower
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and Lender which governs the administration of the Control Account as a
blocked account.
"BORROWER CONTINGENT PERCENTAGE" shall have the meaning set forth
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in the Proposal.
"BORROWER'S CONTINGENT PAYMENT" shall mean, with respect to a Portfolio,
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the amount retained by Borrower from Gross Receipts pursuant to subsection
3.4(h).
"BORROWER'S CONTINGENT PAYMENT VALUE" shall have the meaning set forth in
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Section 3.7.
"BORROWER'S CONTRIBUTION" shall mean with respect to a particular
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Portfolio, the sum of (a) Borrower's financial contribution toward payment
of the Total Cost with respect to the related Portfolio, and (b) any
amounts other than Gross Receipts from such Portfolio which are applied to
a Portfolio Shortfall Amount with respect to such Portfolio pursuant to
Section 3.5.
"BORROWING DATE" with respect to any Loan shall mean the date of funding of
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such Loan.
"BUSINESS DAY" shall mean any day other than a Saturday or Sunday, or a
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date on which Lender or commercial banks in the State of Minnesota
generally are closed for regular business.
"CERTIFICATE OF TITLE" shall mean any "certificate of title," as such term
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is defined in the Code, now owned or hereafter acquired by Borrower.
"CHATTEL PAPER" shall mean any "chattel paper," as such term is defined in
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the Code, now owned or hereafter acquired by Borrower.
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"CLOSING FEES AND EXPENSES" shall mean the costs of perfection, legal
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expenses and the other fees and expenses agreed upon by Lender and Borrower
for each Loan to be paid on the applicable Borrowing Date and which shall
be included in the Total Cost of each Portfolio.
"CODE" means the Uniform Commercial Code as the same may, from time to
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time, be enacted and in effect in the State of Minnesota; provided, that in
the event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of, or remedies with respect to,
Lender's Lien on any Collateral is governed by the Uniform Commercial Code
as enacted from time to time and in effect in a jurisdiction other than the
State of Minnesota, the term "Code" shall mean the Uniform Commercial Code
as enacted and in effect in such other jurisdiction solely for purposes of
the provisions thereof relating to such attachment, perfection, priority or
remedies and for purposes of definitions related to such provisions.
"COLLATERAL" shall have the meaning set forth in the Security Agreement.
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"COMMITMENT" shall mean Lender's written acceptance of a Proposal
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including any additional terms that Lender may require as a condition to
making the requested Loan, substantially in the form of Exhibit C hereto.
"CONTINGENT PAYMENT VALUE" shall have the meaning set forth in Section 9.3.
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"CONTROL ACCOUNT" shall mean the account at the Bank established solely for
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the purpose of (i) receiving daily sweep deposits from the Post Office Box,
(ii) receiving periodic deposits from Servicer related to payments on the
Collateral, and (iii) distributing amounts per Lender's instructions
pursuant to Sections 3.3 and 3.4.
"DEFAULT RATE" shall mean a rate that is four percent (4%) above the Note
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Rate.
"DISTRIBUTION DATE" shall mean the tenth (10th) Business Day of each
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calendar month beginning the first month following the Borrowing Date.
"EQUITY RETURN" shall mean, with respect to Borrower's Contribution
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in a Portfolio, an annual return specified in the related Proposal, which
shall accrue on the outstanding balance of Borrower's Contribution in the
related Portfolio, on a daily basis and which shall be added to such
outstanding balance on the last day of the prior month to the extent that
Gross Receipts are not available for payment thereof on such Distribution
Date pursuant to Section 3.4(f).
"EVENT OF DEFAULT" shall have the meaning set forth in Section 9.1.
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"FACILITY TERMINATION DATE" shall mean June 10, 2009 or any earlier
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termination of this Loan Agreement in accordance with its terms.
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"FIXED INTEREST" shall have the meaning set forth in Section 2.7.
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"FORWARD FLOW AGREEMENT" shall mean an Asset Purchase Agreement pursuant to
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which Borrower purchases a series of Portfolios over a fixed period of time
at a fixed price.
"GOVERNING STATE" shall mean the State of Minnesota.
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"GROSS RECEIPTS" shall mean all payments made by Obligors on account of the
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Collateral, together with any other collections, income, interest,
principal, penalties, late fees, extension fees, prepayment fees, or other
fees on account of the Collateral, any net proceeds from the sale or other
disposition of the Collateral, including amounts received from any Asset
Seller, all whether collected by Borrower, Servicer or any Subservicer,
such that the amounts included in "Gross Receipts" are intended to be
absolutely gross and not diminished by any amounts paid or to be paid to
any party for costs or services rendered.
"GUARANTOR" shall mean PCM.
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"GUARANTY" shall mean the Guaranty from the Guarantor(s) in the form
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attached hereto as Exhibit E.
"INITIAL APPRAISAL" shall have the meaning set forth in Section 9.3.
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"INSTRUMENT" shall mean any "instrument," as such term is defined in the
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Code, now owned or hereafter acquired by Borrower, wherever located.
"LENDER CONTINGENT PERCENTAGE" shall have the meaning set forth
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in the Proposal.
"LENDER'S CONTINGENT PAYMENT" shall mean, with respect to a Portfolio, the
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amount payable by Borrower to Lender from Gross Receipts pursuant to
subsection 3.4(h).
"LENDER'S CONTINGENT PAYMENT VALUE" shall have the meaning set
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forth in Section 3.7.
"LIEN" shall mean a lien, security interest, pledge, hypothecation,
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collateral assignment, charge, encumbrance, or other right or claim of any
Person other than an unfiled lien for tax accrued but not yet payable
"LOAN" shall have the meaning set forth in Section 2.1.
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"LOAN DOCUMENTS" shall mean this Loan Agreement, the Servicing Agreement,
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the Security Agreement, the Blocked Account Agreement and all Notes, the
Guarantees, Assignments of Servicing Agreement, and other documents,
instruments or certificates delivered pursuant hereto or in connection
herewith.
"MATERIAL ADVERSE EFFECT " shall mean, with respect to any
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event or circumstance, a material adverse effect on:
(a) the ability of Borrower (or applicable party, as the
context requires) to perform its obligations with respect to any Loan or
under any Loan Document to which it is a party;
(b) the validity or enforceability of any Loan Document;
(c) the status, existence, perfection, priority, or enforceability of
any lien or security interest granted to Lender pursuant to the Loan
Documents; or
(d) the validity, enforceability or collectibility of the Assets,
taken as a whole.
"MATURITY DATE" shall mean the maturity date for principal and any other
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accrued but unpaid amounts on each Loan, which shall be the earlier of (i)
the date twenty-four (24) months following the applicable Borrowing Date or
(ii) the date of acceleration of the related Note pursuant to Section 9.2.
"MAXIMUM PRINCIPAL BALANCE" shall mean an amount, expressed as a percentage
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of the original Loan balance, by which the outstanding Loan balance must be
reduced to at various points in time. The "Maximum Principal Balance"
specified in the respective Note will be controlling, but such amounts will
be based on an agreed upon default amortization level that approximates the
payment in full of all amounts due under Section 3.4(a) through and
including 3.4(e). The default amortization level will be arrived at by
solving for the liquidation rate that meets the requirements of the
preceding sentence while keeping the timing of collections the same as
assumed by Borrower upon the purchase of the respective Portfolio.
"NET RECEIPTS" shall mean Gross Receipts, less (i) net proceeds from the
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sale of a Portfolio or any portion thereof (such net proceeds being the
gross sale proceeds, less any approved costs incurred to third parties in
connection with the sale), (ii) any repayments received from any Asset
Seller on account of a repurchase of Assets pursuant to the Asset Purchase
Agreement, (iii) any other payment made by an Asset Seller to Borrower in
connection with a breach by the Asset Seller under the Asset Purchase
Agreement, and (iv) any Protective Advances.
"NOTE" shall mean a promissory note substantially in the form of Exhibit D
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hereto evidencing a Loan.
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"NOTE RATE" shall mean the interest rate specified in the related Proposal.
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"NOTICE" shall have the meaning contained in Section 10.14.
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"OBLIGOR" shall mean each signer, co-signer, guarantor or
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other person responsible for payment of an Asset.
"PCM" shall have the meaning first set forth above.
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"PERSON" shall mean any natural person, limited liability company,
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corporation, partnership, joint venture, firm, association, trust,
unincorporated organization, governmental agency or political subdivision
or any other entity, whether acting in an individual, fiduciary or other
capacity.
"PORTFOLIO" shall mean each pool or grouping of Assets purchased from time
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to time by Borrower from an Asset Seller and any other related Collateral,
which is financed in part by a Loan from Lender.
"PORTFOLIO BUDGET" shall mean a strategic budget developed by Borrower and
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Servicer and approved by Lender for each Portfolio of Assets, representing
Borrower's good faith estimate of the projected cash inflows and outflows
including, but not limited to, Gross Receipts, Protective Advances and
Servicing Fees.
"PORTFOLIO PREPAYMENT SCHEDULE" shall have the meaning set forth in Section
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3.7.
"PORTFOLIO SHORTFALL AMOUNT" shall have the meaning set forth in Section
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3.5.
"POST OFFICE BOX" shall mean an address used solely for the purpose of
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receiving payments from Obligors on the Assets serviced by Servicer.
"PREPAYMENT NOTICE DATE" shall have the meaning set forth in Section 3.7.
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"PREPAYMENT OFFER" shall have the meaning set forth in Section 3.7.
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"PREPAYMENT OPTION" shall have the meaning set forth in Section 3.7.
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"PROPOSAL" shall mean a written proposal from Borrower to Lender requesting
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a Loan in connection with Borrower's purchase of a particular Portfolio (or
a series of Portfolios pursuant to a Forward Flow Agreement), substantially
in the form of Exhibit B hereto.
"PROTECTIVE ADVANCE" shall mean certain payments, approved by the Lender,
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and made by Servicer or Borrower for the purpose of preserving the value of
any
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Collateral, including, without limitation, payments of arbitration and/or
litigation filing fees, and payment of any court fees related to the
Collateral.
"PROTECTIVE ADVANCE LIMIT" shall mean, with respect to each
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Portfolio, an amount agreed to by Borrower and Lender, which amount shall
be the maximum cumulative amount that Borrower (or Servicer) may expend on
Protective Advances for such Portfolio without Lender's prior approval.
"QUALIFIED ASSIGNEE" shall mean (i) a financial institution that is not a
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direct business competitor of PCM with total assets of at least
$100,000,000, or (ii) an assignee that is an accredited investor as that
term is defined in Regulation D under the Securities Act of 1933, as
amended, and is not a business competitor of PCM that gives substantially
all decision- making authority with respect to this Agreement to Varde
Partners, Inc. or one of its Affiliates.
"QUALIFIED PORTFOLIO" shall mean one or more Assets acquired or proposed to
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be acquired in one transaction by PCM, any Affiliate of PCM, or any
principal of PCM or its Affiliates.
"REMITTANCE REPORT" shall mean a report submitted monthly by
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Servicer to Borrower and Lender (i) listing deposits into and disbursements
out of the Control Account, (ii) calculating all Servicing Fees due
Servicer for the period covered by such report, and (iii) showing all other
amounts payable pursuant to Section 3.4. All such amounts shall be
identified by Portfolio.
"SECURITY AGREEMENT" shall mean the Security Agreement substantially in the
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form of Exhibit F attached hereto.
"SERVICER" shall mean PCM, or its successor under the Servicing
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Agreement between Borrower, as owner, and PCM, as servicer.
"SERVICER TERMINATION EVENT" shall mean an event or circumstance
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that is grounds for termination of Servicer under the Servicing Agreement.
"SERVICING AGREEMENT" shall mean the agreement between Borrower and
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Servicer, initially in the form of Exhibit H hereto and otherwise in form
and containing such terms as may be required by and acceptable to Lender in
its sole and absolute discretion, relating to the collection and servicing
of the Portfolios.
"SERVICING FEES" shall mean an agreed upon fee for each Portfolio as
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specified in the Proposal, expressed as a percentage, and payable with
respect to Net Receipts.
"SUBSERVICER" shall mean any subservicer engaged for the purpose of
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advising Servicer or performing collections, or any other party performing
Servicer's obligations under the Servicing Agreement (whether by delegation
or designation
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from Servicer or otherwise). Attorneys (other than in-house counsel)
engaged for the purpose of collections are deemed to be Subservicers.
"THIRD APPRAISAL" shall have the meaning set forth in Section 9.3.
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"TOTAL COST" shall mean, for each Portfolio, the sum of the following, as
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more particularly specified in the related Proposal: (i) Borrower's
purchase price therefore, (ii) an agreed- upon amount of Closing Fees and
Expenses relating to the closing of the related Loan, (iii) Lender's third
party due diligence costs with respect to the Portfolio (unless Borrower
pays such costs directly at closing), (iv) an agreed upon allocation of
closing fees, legal expenses and other costs incurred by Borrower and
Lender in connection with negotiating and preparing the initial Loan
Documents, and (v) an agreed upon allocation of ongoing professional
expenses incurred by Borrower at Lender's request in connection with the
administration of this Agreement, including, but not limited to, the cost
of auditing of Borrower.
"UNDERPERFORMING PORTFOLIO" shall mean a Portfolio which has been owned by
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Borrower for not less than six months, has underperformed such that it has
generated Portfolio Shortfall Amounts and which is not reasonably expected
to generate any Lender's Contingent Payments.
ARTICLE II
THE LOANS
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Section 2.1 TheLoans. Subject to the terms and conditions set forth
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herein, Lender agrees to make one or more loans up to an aggregate original
principal amount of Twenty- five Million Dollars ($25,000,000) (each, a
"LOAN" and collectively, the "LOANS"), in order to finance Borrower's
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acquisition(s) of Assets; provided, however, that the determination to make any
Loan is within Lender's sole and absolute discretion, and further provided,
that, unless otherwise agreed in writing, in no event will Lender make a Loan
from and after the Facility Termination Date. The Loans will not be made on a
revolving basis.
Section 2.2 Procedures for Loan Advances.
(a) Proposals. Borrower shall request each Loa n (or series of
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Loans, in the case of a Forward Flow Agreement) by presenting a Proposal to
Lender.
(b) Commitments. Lender shall have up to five (5) calendar days (or
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such lesser number of days as the parties may agree upon based on the
circumstances of the Proposal) from the receipt thereof, to accept or
reject the Proposal. If Lender accepts the Proposal, such acceptance shall
be in the form (and only in the form) of a Commitment. If Lender does not
respond within five (5) calendar days after Lender's receipt of the
Proposal (or such lesser number of
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days as the parties may agree upon based on the circumstances of the
Proposal), Lender shall be deemed to have rejected the Proposal. All Loans
from Lender to Borrower shall be made at Lender's sole and absolute
discretion, and Lender may decline to accept any Proposal (other than a
Proposal that is related to a Forward Flow Agreement that is then already
subject to a Commitment) for any reason or for no reason. In the case of a
Forward Flow Agreement that is the subject of a Commitment, so long as no
default has occurred and is continuing (hereunder or under the related
Commitment) and subject to the conditions precedent to advances contained
herein, Lender agrees to make advances of the respective Loan to finance
all of Borrower's purchases of Assets under such Forward Flow Agreement,
unless and until (x) there is, in Lender's reasonable judgment, a material
change in the quality of the Assets proposed to be acquired by Borrower, as
more particularly set forth in such original Forward Flow Agreement and (y)
Lender gives Borrower prior written notice of Lender's decision to not make
a Loan with respect to the purchase of a particular Portfolio under such
Forward Flow Agreement not later than the lesser of (i) thirty (30) days
after Lender's receives the respective request for a Loan or (ii) the time
allowed by the applicable Forward Flow Agreement. Lender shall have no
obligation to make any Loan except pursuant to and in accordance with the
terms and conditions of a written Commitment made to Borrower with respect
to a specific Portfolio or, in the case of a Forward Flow Agreement, the
Portfolios subject thereto.
Section 2.3 The Notes. Each Loan shall be evidenced by a Note duly
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executed by Borrower. Each Note shall bear interest from the applicable
Borrowing Date, represent a borrowing from the Borrowing Date, be issued in
registered form, be payable and be secured as provided therein and herein
and shall mature on the respective Maturity Date. Borrower shall maintain,
or cause to be maintained a register in the form attached as Exhibit A.
Section 2.4 Financed Amount. Lender will not make any Loan in an
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original principal amount greater than SEVENTY-FIVE PERCENT (75.0%) of the
Total Cost of the related Portfolio. Borrower shall be required to make
Borrower's Contribution on or before the Borrowing Date.
Section 2.5 Closing Fees and Expenses. Borrower shall be responsible
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for payment of the agreed upon Closing Fees and Expenses with respect to each
Loan, as set forth in the respective Proposal. In the event that a
Portfolio is financed by Lender hereunder, Borrower may finance the payment
of such expenses by including them in the Total Cost of the Portfolio. In
addition, Lender may agree in its sole discretion to permit Borrower to finance
such expenses by allocating portions of such expenses to the Total Cost of
future Portfolios.
Section 2.6 Conditions to Loan Advances; Loan Closings. This Loan
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Agreement shall be effective upon its full execution and delivery by
Borrower and Lender; provided, however, that the obligation of Lender to
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advance any Loan hereunder
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is subject in each case to the satisfaction or waiver of the following
conditions precedent on or before the applicable Borrowing Date:
(a) Conditions to Initial Loan Advance. The obligation of Lender to
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advance the initial Loan hereunder is subject in each case to the
satisfaction or waiver of the following conditions precedent on or before
the applicable Borrowing Date:
(i) Loan Documents. All of the Loan Documents shall have been
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fully executed on behalf of the applicable parties, including,
without limitation, the Security Agreement, the Servicing
Agreement, the Assignment of Servicing Agreement, the Guaranty,
and a Note with respect to such Loan.
(ii) Certified Resolutions. Borrower, Servicer and any Guarantors that
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are legal entities shall have delivered to Lender certified
copies of resolutions or other evidence of corporate, member or
partner action authorizing the execution, delivery and
performance of the respective Loan Documents (including the
borrowing of Loans subsequent to the initial Loan) and the
acquisition of Portfolios (including Portfolios with respect to
Loans subsequent to the initial Loan).
(iii) Opinions. At the commencement of this Agreement, Lender shall
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have received opinions from Borrower's, Servicer's and
Guarantors' counsel regarding the existence of Borrower,
Guarantor (if such Guarantor is a legal entity) and Servicer,
their organizational authority to enter into the respective Loan
Documents, the enforceability of the respective Loan Documents
and, from Borrower's counsel, the creation and perfection of
Lender's security interest in the Collateral.
(iv) Financing Statements. Lender shall have received evidence o f the
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filing of UCC-1 financing statements with the Secretary of State
of the state of Borrower's organization with respect to the
Collateral, naming Borrower as debtor and Lender as secured party
with respect to the Collateral.
(v) Borrower and Servicer Organizational Documents. Lender shall have
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received the following with respect to Borrower, Servicer and any
Guarantor that is a legal entity: (A) recent Good Standing
Certificate issued by the Secretary of State of such party's
state of organization, (B) articles of incorporation, certificate
of partnership or articles of organization, as the case may be,
as amended, certified by the Secretary of State of such parties
state of organization, and (C) current by-laws, partnership
agreement or operating agreement, as the case may be, certified
by an authorized officer, partner, member or manager, as the case
may be, of such entity.
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(vi) Evidence of Insurance Coverage. Lender shall have received
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evidence of the insurance coverage required to be maintained by
Borrower pursuant to this Agreement.
(b) Conditions to All Advances. The obligation of Lender to advance
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each Loan hereunder is subject in each case to the satisfaction or waiver
of the following conditions precedent on or before the applicable Borrowing
Date:
(i) Proposal and Commitment. Borrower shall have delivered to Lender
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a Proposal relating to the requested Loan, duly executed by an
authorized officer, and the Proposal shall have been accepted and
agreed to by Lender by the issuance of its Commitment.
(ii) Note. Borrower shall have executed and delivered to Lender a
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Note with respect to such Loan.
(iii) Asset Purchase Agreement Documentation. Lender shall have
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received all information and copies of all documents relating to
the respective Asset Purchase Agreement as Lender shall
reasonably request.
(iv) Portfolio Budget. Borrower shall have delivered to Lender the
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Portfolio Budget for the applicable Portfolio.
(v) No Default. As of such Borrowing Date, there shall exist no Event
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of Default and no condition, event or act which, with the giving
of notice or passage of time, or both, would constitute an Event
of Default.
(vi) Representations and Warranties. All representations and
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warranties of Borrower and Servicer contained herein shall be
true and correct in all material respects on such Borrowing Date,
with the same force and effect as though such representations and
warranties had been made at such time except to the extent such
representations and warranties expressly relate to an earlier
date, in which case such representations and warranties will be
true and correct in all material respects as of such earlier date
or, in the case of financial statements, shall refer to the
financial statements last delivered to Lender.
(vii) Acquisition of Portfolio by Borrower. Borrower shall have
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demonstrated to Lender's reasonable satisfaction that the Asset
Seller and Borrower will be unconditionally obligated to perform
their respective obligations under the Asset Purchase Agreement
upon receipt of the Loan proceeds. Promptly after each closing
with an Asset Seller, Borrower will use reasonable efforts to
file a UCC financing statement with respect to the sale of the
related Collateral by the Asset Seller to Borrower in the
appropriate filing jurisdiction. Borrower will furnish Lender
with a copy of such filing when it is available and will provide
such other evidence of
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the transfer of Assets to Borrower as is reasonably requested by
Lender after the related Borrowing Date.
(viii) Delivery of Documents. Borrower shall have delivered to
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Lender, or Lender's agent, the original copies of all Account
Documents relating to the Assets in such Portfolio then in its
possession that are Chattel Paper or Instruments, and will
immediately deliver (or cause the Asset Seller to deliver) upon
its receipt (or right to receive) any additional Account
Documents that are Chattel Paper or Instruments as may be
reasonably requested by Lender; provided, however, that all such
Instruments must be delivered to Lender or Lender's agent within
the time necessary for Lender to obtain a first priority
perfected purchase money security interest therein. For all
Assets subject to a Certificate of Title or similar title
documents, Borrower will deliver all original title documents to
Lender on the date of purchase of such Portfolio or as soon as
possible thereafter but in no event later than five (5) days
following such date of purchase. To the extent that Servicer
holds any such Chattel Paper, Instruments, or Certificates of
Title, Servicer shall hold them in a custodial capacity as bailee
for Lender.
(ix) Compliance with Agreements. Borrower shall have otherwise
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complied with all of the terms and conditions of the Loan
Documents.
(x) Assignment of Portfolio by Borrower. If an Affiliate of Borrower
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has executed an Asset Purchase Agreement, Borrower shall have
received an assignment of the Asset Purchase Agreement and the
Portfolio in form satisfactory to Lender.
(xi) Borrower's Contribution. Prior to or contemporaneously with the
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closing of a Loan, Borrower shall have funded Borrower's
Contribution of not less than 25% of the Total Cost.
(xii) Asset Information. Borrower shall have provided Lender
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sufficient information to allow Lender to actively participate in
the underwriting and pricing of the Portfolio, including but not
limited to, information provided to Borrower by Asset Sellers
related to the Assets, internally generated stratifications and
analyses of the Assets, portfolio write-ups prepared by Borrower,
key assumptions used in projecting future cash flows of the
Assets, historical financial information on the Assets and
proposed Asset Purchase Agreements.
(c) Closing. Unless otherwise agreed by Borrower and Lender, it
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is expected that the negotiation of the Loan Documents and the closing of
each Loan will take place by telephone and exchange of documents through
mail or other services, but the closing will be deemed to take place in
Minneapolis, Minnesota. The closing of each Loan will occur upon the
funding of the Loan following satisfaction of the conditions precedent set
forth in this Section 2.6.
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Section 2.7 Interest on Loans. In addition to Borrower's obligation to
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pay the Contingent Payments, Borrower hereby agrees to pay interest ("FIXED
INTEREST") on the unpaid principal balance of each Loan for the period
commencing on the Borrowing Date for such Loan and continuing thereafter until
the Loan is paid in full, in accordance with the following:
(a) Prior to the occurrence of an Event of Default, the outstand ing
principal balance of each Loan shall bear Fixed Interest in arrears at an
annual rate at all times equal to the Note Rate.
(b) Fixed Interest shall be payable monthly on each Distribution Date
with respect to the prior calendar month; provided, however, that if Gross
Receipts from the related Portfolio on the first two (2) Distribution Dates
following the Borrowing Date with respect to a Loan are insufficient to pay
the Accrued Fixed Interest, such accrued but unpaid Fixed Interest shall be
added to the principal amount of the respective Note, effective as of the
last day of the prior month. BEGINNING ON THE THIRD (3RD) DISTRIBUTION DATE
FOLLOWING THE BORROWING DATE FOR SUCH LOAN, FIXED INTEREST (INCLUDING ANY
ACCRUED BUT UNPAID FIXED INTEREST) SHALL BE PAYABLE MONTHLY ON EACH
DISTRIBUTION DATE WITH RESPECT TO THE PRIOR CALENDAR MONTH, NOTWITHSTANDING
THE ADEQUACY OF GROSS RECEIPTS AS APPLIED PURSUANT TO SECTION 3.4.
(c) From and after the occurrence of an Event of
Default and continuing thereafter until such Event of Default shall be
remedied to the written satisfaction of Lender, the outstanding principal
balance of each Loan shall bear interest at an annual rate equal to the
Default Rate.
Section 2.8 Computation of Interest. Fixed Interest accruing on each
-----------------------
Loan shall be computed on the basis of the actual number of days elapsed in a
year of three hundred and sixty (360) days. Subject to Section 2.7(a), interest
shall accrue on the outstanding principal balance of each Loan on a daily basis
and shall be added to principal of the outstanding Loan on each Distribution
Date if not paid when due and payable.
Section 2.9 Savings Provision. All agreements between Borrower and
-----------------
Lender are hereby expressly limited so that in no contingency or event
whatsoever, whether by reason of acceleration of maturity of the indebtedness
evidenced hereby or otherwise, shall the amount paid or agreed to be paid to
Lender for the use, forbearance, loaning or detention of the indebtedness
evidenced hereby exceed the maximum permissible amount under applicable law.
If from any circumstances whatsoever, fulfillment of any provisions
hereof or of any other Loan Document at any time given shall exceed the maximum
permissible amount under applicable law, then the obligation to be fulfilled
shall automatically be reduced to an amount which complies with applicable law,
and if from any circumstances Lender should ever receive as interest an amount
which would exceed the highest lawful rate of interest, such amount which would
be in excess of such lawful rate of interest shall be applied to the reduction
of the principal balance evidenced
13
hereby and not to the payment of interest. This provision shall
control every other provision of all agreements between Borrower and Lender
and shall also be binding upon and available to any subsequent holder of a Note.
Section 2.10 Right of First Refusal.
----------------------
(a) Grant of Right of First Refusal to Finance Certain Qualified
------------------------------------------------------------
Portfolios. In consideration of the representations and covenants of Lender
----------
contained in this Agreement and in particular in this Section 2.10, PCM
hereby grants Lender the right of first refusal to finance any Qualified
Portfolio acquired by PCM, any Affiliate of PCM, or any principal of PCM or
any of its Affiliates that have a total cost of $500,000 or more. For the
purposes of calculating "total cost" in the preceding sentence, all
purchases under Forward Flow Agreements will be aggregated as if the total
credit obligations purchased thereunder represent a single portfolio.
(b) Certificate Regarding Monthly Purchases. PCM will furnish to
---------------------------------------
Lender, no later than ten (10) days after each month-end, a list of all
Qualified Portfolios acquired by PCM, any Affiliate of PCM, or any
principal of PCM or any of its Affiliates during the previous month which
were not financed by Lender, together with copies of purchase agreements
pursuant to which such Qualified Portfolios were acquired (which purchase
agreements may be redacted to remove the name of the seller thereunder).
Such list shall be certified by an officer of PCM as to its completeness
and shall specify the following pieces of information for each Qualified
Portfolio: name of the purchaser; the date of closing; and the purchase
price (in dollars). Lender agrees to keep any such information received by
Lender hereunder strictly confidential as provided for in Section 9.4 of
this Agreement.
This Section 2.10 shall not be construed to limit in any manner Lender's
discretion with respect to the making of Loan.
ARTICLE III
LOAN REPAYMENT
--------------
Section 3.1 Payment of Principal and Interest on Loans. Interest
------------------------------------------
accruing on a Loan shall be payable in arrears on the next occurring
Distribution Date for the related Portfolio. The unpaid principal of each Loan
shall be finally due and payable on the Maturity Date for such Loan, as
specified in the Note evidencing payment of such Loan. In addition, each Loan
shall be subject to mandatory principal payment on each Distribution Date for
the related Portfolio in an amount equal to the Gross Receipts available for
such prepayment on such date, as provided in Section 3.4. EXCEPT AS PROVIDED IN
SECTION 3.7, NO PREPAYMENTS WILL BE PERMITTED UNLESS ACCEPTED BY LENDER IN ITS
SOLE AND ABSOLUTE DISCRETION OR UNLESS NECESSARY (AND ONLY TO THE EXTENT
NECESSARY) TO REDUCE THE OUTSTANDING PRINCIPAL BALANCE OF A LOAN TO THE MAXIMUM
PRINCIPAL BALANCE FOR SUCH LOAN TO THE EXTENT THAT SUCH MAXIMUM PRINCIPAL
BALANCE
14
IS NOT OTHERWISE ACHIEVED AS OF THE RELEVANT TARGET DATE SET OUT IN THE NOTE
EVIDENCING THE LOAN.
Section 3.2 Contingent Payments. Borrower agrees to pay to Lender
-------------------
the Contingent Payment with respect to each Portfolio, payable on each
Distribution Date for such Portfolio in an amount equal to that portion of the
Gross Receipts available for payment thereof on such date under subsections
3.4(h). Neither payment in full of the principal amount of any Loan made in
respect of a Portfolio nor the expiration or earlier termination of the loan
facility contemplated by this Agreement shall in any way affect the obligation
of Borrower to pay to Lender the Contingent Payment with respect to such
Portfolio as provided herein, and Lender shall continue to have a security
interest in all Loan Collateral as security for Borrower's obligation to make
such Contingent Payments. Borrower and Lender agree that all Contingent Payments
with respect to a Portfolio will be treated as interest for United States
federal income tax purposes.
Section 3.3 Administration of Collateral and Gross Receipts.
-----------------------------------------------
(a) Payment and Receipt Processing. Borrower will instruct Obligors
-------------------------------
to submit payments directly to the Post Office Box. Payments received in
the Post Office Box will be identified and processed daily by Servicer.
Servicer will use its best efforts to deposit amounts received from
Obligors on a daily basis into the Control Account (but in no event shall
such payments be deposited later than the first Business Day after such
amounts are received in the Post Office Box). Any and all other Gross
Receipts obtained by Borrower or Servicer from parties other than Obligors
(e.g., sale or repurchase proceeds, etc.) shall be deposited directly into
the Control Account no later than the next Business Day after receipt by
Servicer.
(b) Remittance Report. At least three (3) Business Days prior to
------------------
each Distribution Date, Servicer will provide Lender with a Remittance
Report together with applicable bank reconciliations and other supporting
materials sufficient to allow Lender to confirm that such Remittance Report
is correct. Upon receipt of the Remittance Report and receipt of
confirmation by Lender that the amounts are correct, Lender will direct the
Bank to disburse funds in accordance with the (approved) Remittance Report
using amounts then residing in the Control Account.
Section 3.4 Distribution of Gross Receipts. All amounts deposited into
------------------------------
the Control Account with respect to each Portfolio, together with any interest
earned thereon (the "DISBURSEMENT AMOUNT" for such Portfolio) will be
--------------------
distributed by the Bank on each Distribution Date in accordance with Lender's
instructions, in the following order of priority:
(a) first, to the Bank, any fees due for its services; then
-----
(b) second, to Servicer, an amount equal to any funds
------
improperly deposited to the Control Account; then
15
(c) third, to Servicer, an amount equal to all Servicing
-----
Fees and unreimbursed Protective Advances relating to such Portfolio,
together with any such amounts unpaid in prior months; then
(d) fourth, to Lender an amount equal to all accrued and
------
unpaid interest on the related Loan for such Portfolio; then
(e) fifth, to Lender, the unpaid principal balance of the related
-----
Loan; then
(f) sixth, to Borrower, its Equity Return for such Portfolio; then
-----
(g) seventh, to Borrower, the unpaid balance of
-------
Borrower's Contribution for such Portfolio; and then
(h) eighth, the Lender Contingent Percentage of the remainder
------
to Lender and the Borrower Contingent Percentage of the remainder to
Borrower.
Section 3.5 Portfolio Shortfalls. If as of any Distribution
---------------------
Date, (after allocatio n of Gross Receipts pursuant to Section 3.4) the Gross
Receipts collected with respect to a Portfolio are insufficient to pay (A) all
accrued and unpaid interest to Lender on the related Loan as and when the same
shall have become due and payable and (B) outstanding principal of the related
Loan as and when the same shall become due and payable, then the amount of any
such deficiency (herein, each an "PORTFOLIO SHORTFALL AMOUNT") must be paid from
--------------------------
either (a) a contribution from Borrower which will be added to Borrower's
Contribution for such underperforming Portfolio, or (b) amounts due and payable
to Borrower under Section 3.4 with respect to a performing Portfolio (such
amounts shall be deemed distributed to Borrower under Section 3.4 for such
performing Portfolio and then subsequently added to Borrower's Contribution for
the respective underperforming Portfolio). The determination of which Portfolio
will be used to make any payment to make up a Portfolio Shortfall Amount
pursuant to (b) of the preceding sentence shall be made by Lender in its sole
and absolute discretion.
Section 3.6 Protective Advance Limit. Notwithstanding anything to the
------------------------
contrary, a Borrower, Servicer, or any Subservicer shall be entitled to
a reimbursement for a Protective Advance from Gross Receipts only to
the extent that the amount of the Protective Advance for which payment or
reimbursement is sought, when added to all Protective Advances previously
paid for the respective Portfolio, is less than the Protective Advance
Limit for such Portfolio.
Section 3.7 Prepayment.
----------
(a) Certain Definitions. The following terms have the following meanings:
-------------------
(i) "PREPAYMENT OFFER" shall mean written notice from Borrower to
----------------
Lender relating to a Loan with respect to which all principal and Fixed
Interest have been paid in full, given no earlier than the date that is six
(6) full months
16
after the respective Maturity Date, that Borrower desires to initiate the
Prepayment Option with respect to such Loan.
(ii) "PREPAYMENT NOTICE DATE" shall mean the date on which Lender
----------------------
receives notice of the Prepayment Offer pursuant to subparagraph (i).
(b) Prepayment Option Procedures.
----------------------------
(i) Within ten (10) Business Days after the Prepayment Notice
Date, Borrower shall deliver to Lender a schedule setting forth in detail
its written good faith estimate of the future net cash flows from the
respective Portfolio as of the Prepayment Notice Date (the "PORTFOLIO
---------
PREPAYMENT SCHEDULE"). The Portfolio Prepayment Schedule shall also show
--------------------
the present value of the Lender's Contingent Payment with respect to such
Loan (the "LENDER'S CONTINGENT PAYMENT VALUE") and the present value of the
----------------------------------
Borrower's Contingent Payment (the "BORROWER'S CONTINGENT PAYMENT VALUE").
-----------------------------------
The Lender's Contingent Payment Value and the Borrower's Payment Contingent
Value must be calculated using the same cash flow and discount rate.
(ii) Within ten (10) Business Days after Lender's receipt
of the Portfolio Prepayment Schedule, Lender shall give notice to Borrower
that on a date that is not more than twenty (20) Business Days following
the date such notice is given to Borrower (the "PREPAYMENT DATE"), Lender
---------------
will, at Lender's sole discretion and option (such option, the "PREPAYMENT
----------
OPTION"), either:
------
(A) require Borrower to pay Lender the Lender's Contingent
Payment Value, as payment in full of Borrower's obligation to pay the
Lender's Contingent Payment on account of the respective Assets; or
(B) purchase or have Lender's designee purchase Borrower's
Contingent Payment Value as payment in full of Borrower's Contingent
Payment on account of the respective Assets and require Borrower to
cause Servicer to enter into an agreement with Lender or Lender's
designee to continue to service such Assets for Lender or Lender's
designee on substantially the same terms upon which such Assets are
then serviced.
(iii) All payments under this Section 3.7 shall be made in
immediately available funds. Following payment of Lender's Contingent
Payment Value in accordance with subsection 3.7(b)(ii)(A), all rights and
obligations of Lender with respect to the related Collateral and Loan
(including all obligations with respect to payment of principal, Fixed
Interest, and Lender's Contingent Payment) in connection with the related
Note shall terminate. Following payment of Borrower's Contingent Payment
Value in accordance with subsection 3.7(b)(ii)(B), all rights and
obligations of Borrower with respect to such Portfolio shall terminate.
17
(iv) All parties agree to execute, deliver, and file such
documents as may be reasonably necessary to evidence the transactions
contemplated by subsection 3.7(b)(ii)(A), including, without limitation,
the execution, delivery and filing of any lien assignments or termination
statements or any other documents reflecting the release of liens or
encumbrances granted pursuant to the Security Agreement. All parties agree
to execute, deliver, and file such documents as may be reasonably necessary
to evidence the transactions contemplated by subsection 3.7(b)(ii)(B),
including, without limitation (a) appropriate instruments to transfer
Borrower's remaining interest in the Portfolio to Lender or Lender's
designee.
ARTICLE IV
COLLATERAL
----------
To induce Lender to make the Loans and as security for the payment in full
by
Borrower of all amounts due hereunder and under the Notes, Borrower agrees
as follows:
(a) Security Agreement. Borrower shall execute and deliver
------------------
to Lender a Security Agreement pursuant to which Borrower shall assign to
and grant Lender a security interest in the Collateral and to keep such
security interest continually perfected thereafter. Such Collateral shall
secure all liabilities, obligations and indebtedness of Borrower to Lender
howsoever created, arising or evidenced, now existing or hereafter at any
time created, arising or incurred, including all obligations of Borrower
under this Loan Agreement or any other agreements entered into between or
among Borrower and Lender.
(b) Perfection of Lender's Security Interest. Borrower shall take,
----------------------------------------
and shall cause Servicer to take, all steps necessary to perfect Lender's
security interest in the Portfolios and other Collateral, including,
without limitation, (i) appropriate notations of Lender's interest on the
files constituting the Portfolios and/or on the computer records with
respect to the Portfolios, (ii) physical delivery of Account Documents with
respect to the Assets that are Chattel Paper or Instruments to Lender or
its designated agent as Lender may from time to time reasonably direct, or
(iii) filing or recording of any assignment, financing statement, notice or
other writing. Borrower agrees to execute, acknowledge and deliver all such
further and additional instruments and documents, and take such other
actions as may be necessary or as Lender or its counsel may reasonably
request from time to time in order to preserve, perfect and maintain
Lender's rights hereunder and under the Security Agreement.
ARTICLE V
BORROWER'S REPRESENTATIONS AND WARRANTIES.
------------------------------------------
To induce Lender to make Loans under this Loan Agreement, Borrower makes
the following representations and warranties, each of which shall survive the
execution and delivery of the Loan Documents and shall be deemed to be made as
of each
18
Borrowing Date and shall continue in full force and effect until payment in full
by Borrower of all amounts payable hereunder or under the Loan Documents.
Section 5.1 Corporate Existence and Good Standing. Borrower is, and
-------------------------------------
will continue to be, a duly organized and validly existing limited liability
company in good standing under the laws of the State of California with all
requisite power and authority to own and operate its property and assets and to
conduct the businesses in which it is engaged or proposes to engage. Borrower
does business only under the name of "Matterhorn Financial Services LLC"
Section 5.2 Power and Authority. Borrower has all requisite
---------------------
power and authority to execute, deliver, and carry out the terms and provisions
of the Loan Documents and has duly and properly taken all necessary action to
permit and authorize the execution, delivery and performance of the Loan
Documents. The Loan Documents have been duly authorized, executed and delivered
by Borrower, and each constitutes a legal, valid and binding obligation of
Borrower, enforceable against it in accordance with its respective terms subject
to bankruptcy, reorganization, insolvency, moratorium and similar laws affecting
creditor's rights generally and the effects, if any, of general principles of
equity.
Section 5.3 Compliance with Law and Other Agreements. Borrower is not
----------------------------------------
in violation of, or in default under, any terms of its Operating Agreement or
any agreement or instrument to which it is a party or by which it is bound or to
which any of its properties or assets are subject, or any judgment, decree,
order, statut e, rule or governmental regulation applicable to it, which
violation or default would have a material adverse effect on Borrower or its
ability to perform its duties under the Loan Documents. The execution, delivery,
and performance by Borrower of the Loan Documents, the consummation of the
transactions contemplated herein or therein and the compliance with the terms
and provisions hereof or thereof will not contravene any material provision of
law, statute, rule, or regulation to which Borrower is subject or any material
judgment, decree, franchise, order, governmental regulation, or permit
applicable to Borrower and will not violate, conflict with, or result in any
breach of any of the terms, covenants, conditions, or provisions of, or
constitute a default under, or result (except as contemplated by this Loan
Agreement and the Security Agreement) in the creation or imposition of any lien,
mortgage, pledge or encumbrance upon any of the property or assets of Borrower
pursuant to the terms of any indenture, mortgage, deed of trust, agreement or
other instrument to which Borrower is a party or by which it or its properties
are bound. Borrower or Servicer holds all of the permits, licenses,
certificates, consents and other authorizations of applicable governmental
entities required by law to own and service the Portfolios.
Section 5.4 Litigation. There are no actions, suits,
----------
proceedings, or investigations pending, or, to the best of Borrower's knowledge,
threatened against or affecting Borrower, its property or any of its Affiliates
(including but not limited to, Servicer), nor is there any outstanding judgment,
order, writ, injunction, decree or award affecting Borrower or its Affiliates
before any court or before any federal, state,
19
municipal or other governmental department, commission, board, bureau or agency,
which, either separately or in the aggregate, could have a materially adverse
effect on the business, assets, properties, prospects or financial condition of
Borrower, or which in any manner might impair the Collateral, and Borrower knows
of no meritorious basis for any such suit, proceeding, or investigation.
Section 5.5 Ownership; Liens. Borrower has not contracted for, created,
----------------
or incurred any Liens upon or granted any security interest in any of the
Collateral, except the Liens created pursuant to the Security Agreement.
Section 5.6 No Materially Adverse Contracts. Borrower is not obligated
-------------------------------
under any contract or agreement or under any law, regulation or decree, which
materially and adversely affects its ability to perform its obligations under
this Loan Agreement, or which materially and adversely affects the value of the
Collateral.
Section 5.7 Disclosure. The Loan Documents and the certificates,
----------
exhibits and schedules attached thereto or furnished to Lender by Borrower in
connection with the closing of any Loan or Loans, do not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements contained herein or therein not misleading. To the best
knowledge of Borrower, except as previously disclosed to Lender in writing,
there is no fact or condition existing as of the date hereof which materially
and adversely affects, or in the future may materially and adversely affect the
cond ition (financial or otherwise) of Borrower or the Collateral.
Section 5.8 Government Approval. Except for the filing of
---------------------
financing statements, or as may be provided in the Asset Purchase Agreements,
Borrower is not required to obtain any order, consent, approval or authorization
of, or presently required to make any declaration or filing with any
governmental authority in connection with, the execution and delivery of the
Asset Purchase Agreements and the Loan Documents.
Section 5.9 Borrower's and Servicer's Collection History. The
------------------------------------------------
collection history, experience and past results of Borrower, Servicer and their
Affiliates, as represented to Lender by Borrower prior to the date hereof, are
true and correct in all material respects, and Borrower has not failed to
disclose to Lender any material fact which is necessary to make such
representations not misleading.
Section 5.10 Limited Authority over Control Account. Borrower has
------------------------------------------
no authority to withdraw funds from the Control Account.
Section 5.11 No Omitted Material Facts. No representation or warranty in
-------------------------
this Agreement or in any schedule, statement or other document furnished or to
be furnished to Lender pursuant hereto or in connection with the transactions
contemplated hereby knowingly contains or will contain any untrue statement of a
material fact or knowingly omits or will knowingly omit to state any material
fact required to be stated herein or therein or necessary to make the statements
herein or therein not misleading.
20
ARTICLE VI
LENDER'S REPRESENTATIONS AND WARRANTIES.
----------------------------------------
Lender makes the following representations and warranties, each of which
shall survive the execution and delivery of the Loan Documents and shall be
deemed to be incorporated into each Commitment and made as of each Borrowing
Date and shall continue in full force and effect until payment in full by
Borrower of all amounts payable hereunder or under the Loan Documents.
Section 6.1 Limited Distribution. Lender is acquiring the Notes solely
--------------------
for its own account and not with a view to or for sale in connection with a
distribution, except that Lender intends to sell participation interests in the
Loan to Affiliates of Lender that are "accredited investors" as defined in
Regulation D promulgated under the Securities Act of 1933, as amended (the
"Securities Act"). Except as provided in the preceding sentence, Lender does
---------------
not have a present intention to sell the Notes, nor a present
arrangement (whether or not legally binding) or intention to effect any
distribution of the Notes to or through any person or entity.
Section 6.2 Accredited Investor. Lender is an "accredited investor" as
-------------------
defined in the Securities Act.
Section 6.3 Lender Compliance with Securities Laws. In each case in
-----------------------------------------
which Lender or its Affiliates have sold securities evidencing an
ownership or other participatory interest in Lender, Lender has complied in
all material respects with the requirements of the Securities Act and applicable
state securities laws, and all such sales have either been registered in
accordance with such laws or been conducted in accordance with an
exemption therefrom. In each case in which Lender or its Affiliates have
transferred securities owned by Lender, Lender and such Affiliates have complied
in all material respects with the requirements of the Securities Act and
applicable state securities laws, and all such sales have either been registered
in accordance with such laws or been conducted in accordance with an exemption
therefrom.
Notwithstanding anything to the contrary herein, a breach by
Lender of any representation or warranty of Lender contained in this Article
VI shall not be a defense to payment or performance by Borrower under any of the
Loan Documents. The Lender and the Borrower agree that the transaction
evidenced by the Loan Documents is a commercial loan transaction and
none of the loan documents are intended to be a "security" for any
state or federal securities law purposes.
ARTICLE VII
SERVICING; DISPOSITION OF ASSETS
--------------------------------
Section 7.1 Servicer. Borrower shall initially designate PCM as
--------
Servicer to collect and service the Collateral at all times that Borrower owes
Lender any amounts under this Loan Agreement. The terms under which Servicer
shall manage and service the Collateral shall be set forth in the Servicing
Agreement. Servicer shall be entitled to
21
receive Servicing Fees for each particular Portfolio on a monthly basis in the
amounts set forth in the related Proposal. Servicer shall not delegate any of
its rights or obligations under this Agreement or the Servicing Agreement to any
other person or entity (including any Subservicer) except upon terms and
conditions that have been approved by Lender in Lender's sole and absolute
discretion. Borrower will require Servicer to be solely responsible for
any amounts payable to any Subservicer from Servicer's own resources. If any
such Subservicer withholds or offsets collections from the Assets for services,
the Servicing Fee will be adjusted to ensure that total amount of fees paid to
all parties providing servicing functions (including Servicer and any
Subservicer) does not exceed an amount equal to the product of (i) the Servicing
Fee and (ii) Net Receipts. The Servicing Fee will be the sole compensation to
Servicer in connection with the Assets. Without limitation, Servicer will not be
entitled to any fees in connection with: (i) the sale of any Portfolio or
portion thereof, (iii) any repurchase of Assets by an Asset Seller, or (iii) any
other payment made by an Asset Seller to Borrower in connection with a breach by
the Asset Seller under the Asset Purchase Agreement.
Section 7.2 Replacement Servicer. If PCM is terminated as Servicer
---------------------
pursuant to Section 7.4 below, any replacement Servicer and the terms of any new
servicing agreement, including, without limitation, the amo unt of any Servicing
Fees, must first be approved in writing by Lender, in its sole and absolute
discretion.
Section 7.3 Reporting. In addition to any other reports required to be
---------
delivered herein, Borrower will deliver to Lender (or cause Servicer to deliver
to Lender) the following reports:
(a) Static Pool Reports. The following static pool reports by
---------------------
Portfolio:
(i) Gross Receipts. Not later than the 20th day of each month, a
---------------
report of Gross Receipts received in the preceding month, broken
down by source (e.g., any Subservicer, Asset Seller (resulting
from putbacks), Asset purchasers (resulting from a sale of all or
a portion of the Collateral and any other sources)) which shows
actual results to date.
(ii) Unpaid Balance. Not later than the 20th day of each month, a
---------------
report showing the unpaid balances of all Assets as of the last
day of the preceding month, broken down by the parties servicing
the Assets.
(iii) Performance. Not later than January 20th and July 20th of each
-----------
year, a projection of future monthly Gross Receipts together with
a variance analysis compared to the projections used to create
the Portfolio Budget, which shows actual results through the end
of the preceding month.
(b) Other. Borrower will also provide Lender with such other
-----
reports as Lender may deem reasonably necessary to evaluate the value
of the Collateral and the performance of Borrower under this Article
V.
22
Section 7.4 Termination of Servicer. Borrower agrees that Lender may,
-----------------------
at its option, terminate Servicer as provided in the Servicing Agreement;
provided, however, that all other provisions of the Loan Documents shall
survive such termination.
Section 7.5 Subservicing; Delegation by Servicer. Borrower agrees that
------------------------------------
the terms and conditions of any subservicing agreement or other assignment or
delegation of all or part of Servicer's responsibilities under the
Servicing Agreement to any Subservicer, including any amendment to any such
agreement or change in the terms of any such assignment of delegation, must be
approved in writing in advance by Lender. Lender's approval with respect to such
subservicing, assignment or delegation may be given or withheld by Lender in its
sole and absolute discretion.
Section 7.6 Sales or other Dispositions of Assets. Borrower will not
---------------------------------------
sell or otherwise transfer any interest in any Asset without the prior written
consent of Lender, which consent may be given or withheld in the sole discretion
of Lender. Upon receipt of a written request from Borrower, Lender will
consider the sale of a Portfolio that Lender determines in Lender's
reasonable discretion to be an Underperforming Portfolio, provided,
however, that the terms of any sale or other transfer of any Asset(s)
(including, without limitation, any Underperforming Portfolio) shall be subject
to Lender's prior written approval, which approval may be given or withheld in
the sole discretion of Lender.
ARTICLE VIII
OTHER COVENANTS AND AGREEMENTS OF BORROWER
------------------------------------------
Borrower agrees with Lender that it will fulfill and comply with the
covenants and agreements set forth in this Article VIII from the date hereof
until payment in full of each Note and of all other amounts due under this Loan
Agreement.
Section 8.1 Business and Existence. Borrower will perform all
--------------------------
things necessary to preserve and keep in full force and effect its existence and
use its best efforts to comply with all laws applicable to it. Borrower will
not engage in any line of business other than the purchasing and collection of
Assets acquired pursuant to the terms of this Agreement.
Section 8.2 Payment of Obligations and Expenses. Borrower will pay
---------------------------------------
and discharge all of its indebtedness, obligations and expenses promptly in
accordance with normal terms and practices of its business, before the same
shall become delinquent, as well as all lawful claims for labor, materials and
supplies which otherwise, if unpaid, might become a lien or charge upon its
properties or assets or any part thereof. Borrower will not be required to pay
any obligation so long as Borrower shall contest, in good faith and at its own
cost and expense, the amount or validity thereof, in an appropriate manner or by
appropriate proceedings which shall operate during the pendency thereof to
prevent the collection of or other realization upon the obligatio ns so
contested, provided that no such contest shall subject Lender to the risk of any
liability. Borrower will give Lender prompt written notice of any such contest.
23
Section 8.3 Payment of Taxes and Assessments. Borrower will pay when
----------------------------------
due all taxes, assessments and other governmental charges or levies which become
due and payable by Borrower to any political entity, subdivision or department
thereof under any law now or hereafter in force or effect, provided, however,
that Borrower will not be required to pay any tax, charge or assessment so long
as Borrower shall contest, in good faith and at its cost and expense, in its own
name and behalf, the amount or validity thereof, in an appropriate manner or by
appropriate proceedings which shall operate during the pendency thereof to
prevent the collection of or other realization upon the tax, assessment, levy or
charge, so contested, provided that no such contest shall subject Lender to the
risk of any liability. Borrower will give Lender prompt written notice of any
such contest.
Section 8.4 Notice of Event of Default. At the time of
------------------------------
Borrower's first knowledge of an Event of Default or any condition which, with
the passage of time could become an Event of Default, Borrower will furnish
Lender with written notice of the occurrence of any such event or the existence
of any such condition which constitutes or upon written notice or lapse of time
could constitute an Event of Default.
Section 8.5 Post-Closing Information. Promptly after the closing
-------------------------
of each acquisition of a Portfolio, Borrower will provide Lender with a report
containing detailed Asset-level information with respect to such Portfolio in a
format acceptable to Lender. Such report shall be delivered on a compact disc or
such other medium that Lender may reasonably request.
Section 8.6 Asset Information Related to Forward Flow Agreements. For
-----------------------------------------------------
all Portfolios purchased pursuant to a Forward Flow Agreement, Borrower will
submit to Lender a stratification report (by dollars and number of Assets with
percentages for each) containing detailed Asset information for each Portfolio
within three (3) Business Days after the relevant Borrowing Date. The form and
content of such stratification reports will be as determined by Lender in its
sole discretion.
Section 8.7 Other Information. Borrower will furnish such other
------------------
information regarding the operations, business affairs and financial
condition of Borrower or its property or assets (including but not limited
to the Portfolios of Assets and the Collateral) as Lender may reasonably request
for the purpose of determining compliance with the Loan Documents including but
not limited to true and exact copies of Borrower's books of account and tax
returns, and all information furnished to any governmental authority.
Section 8.8 Right of Inspection. Upon request and after
---------------------
reasonable prior written notice from Lender, Borrower will permit (and will
cause Servicer to permit) any person designated by Lender, at Lender's
expense, to visit and inspect any of the properties, books and financial
reports of Borrower or Servicer and to discuss its affairs, finances and
accounts all at such reasonable times during ordinary business hours of Borrower
or Servicer and as often as Lender may reasonably request for the purpose of
determining compliance with the Loan Documents, or the status of the
Collateral;
24
provided, however, that Lender will use reasonable efforts to conduct
(or have conducted) any such examination or inspection so as to minimize
disruptions to the operations of Borrower or Servicer.
Section 8.9 Compliance Certificate. Borrower will deliver to Lender,
-----------------------
within fifteen (15) days after the end of each calendar quarter, a certificate
dated as of the end of the quarter in question and signed by a responsible
officer of Borrower stating (i) that as of the date thereof no Event of Default
has occurred and is continuing or exists and (ii) that all representations and
warranties of Borrower set forth in this Loan Agreement remain true and correct
as of the date of such compliance certificate.
Section 8.10 Reimbursement of Collection Expenses. Borrower will
---------------------------------------
reimburse Lender, upon demand, for any and all costs, including legal expenses
and attorneys' fees, incurred in collecting any sums payable by Borrower under
the Loan Documents.
Section 8.11 Liens; Other Debt. Borrower will not contract, create,
-------------------
incur or permit any Liens upon or grant any security interest in any of the
Collateral, whether now owned or hereafter acquired, except for the Liens
created pursuant to the Security Agreement. Borrower will not incur any
debt, secured or unsecured, direct or contingent (including the guarantee of any
obligation), other than the Loans.
Section 8.12 Consolidation, Merger, Sale of Collateral. Borrower will
-------------------------------------------
not (i) wind up, liquidate, or dissolve its affairs, (ii) enter into any
transaction of merger or consolidation, (iii) convey, sell, lease or otherwise
dispose of the Collateral or any part thereof, except in the normal course of
collections on the Portfolios or pursuant to a sale or other disposition
consented to by Lender in the exercise of its sole and absolute
discretion, (iv) permit the sale or transfer of greater than 49% of the direct
or indirect ownership of Borrower or any other sale or transfer of the direct
or indirect controlling interest in Borrower.
Section 8.13 Other Agreements. Borrower will not enter into any
-----------------
agreement containing any provision that would be violated or breached
by the performance of Borrower's obligations hereunder, under the Security
Agreement or under any other Loan Document.
Section 8.14 Use of Loan Proceeds. Borrower will use the proceeds of the
--------------------
Loans only to pay for the Total Cost of the Portfolios and for no other
purpose.
Section 8.15 Notification of Legal Process. Borrower will promptly
--------------------------------
notify Lender of any attachment or other legal process levied against any of the
Portfolios or Collateral and any information received by Borrower relative to
the Collateral that might materially or adversely affect the value thereof or
the rights and remedies of Lender with respect thereto.
Section 8.16 Transactions with Affiliates. With respect to the
------------------------------
Loans made under this Loan Agreement and all Collateral subject to the Security
Agreement entered
25
into pursuant to this Loan Agreement, Borrower will not, either directly or
indirectly, enter into any contracts, agreements or transactions,
including but not limited to, brokerage contracts, property management
agreements, sales contracts for the providing of any other goods or services, or
the reimbursement or payment of any fees or expenses with its shareholders,
directors, officers, partners, members, managers, or governors or with any of
Borrower's Affiliates or entities owned in whole or in part by Borrower or its
shareholders, directors, officers, partners, members, managers, or governors
without the prior written consent of Lender, which consent may be
withheld for any reason. Borrower will not lend or invest money in, or borrow
from, any person or entity that purchases all or any portion of the Collateral,
or any interest therein, without the prior written consent of Lender, which
consent may be withheld for any reason.
Section 8.17 Key Employees. Borrower will cause David Caldwell and either
-------------
William D. Constantino or Darren Bard to remain senior officers of Borrower and,
to the extent acting in such capacity, to devote substantially all of their time
to the performance of the services described in the Loan Documents; or, in the
event that any such senior officers resign or are terminated, then
Borrower will hire reputable and industry- experienced professional
replacement(s) that are to be retained within sixty (60) days of such
resignation or termination.
Section 8.18 Annual Financial Statements. Not later than ninety (90)
------------------------------
days after Borrower's fiscal year end, Borrower will provide to Lender, annual
financial statements of Borrower reviewed by an independent firm of
certified public accountants in accordance with generally accepted accounting
principles and certified as correct by a reliable officer of Borrower. Should
(i) an Event of Default occur or (ii) the total unpaid principal balance of all
Notes exceed ten million dollars ($10,000,000) as of any fiscal year end of
Borrower; Lender, in its sole absolute discretion, may require that such
financial statements be audited rather than reviewed. The cost of such audit
shall be paid by Borrower.
Section 8.19 Quarterly Financial Statements. Not later than sixty (60)
-------------------------------
days after each fiscal quarter of Borrower, Borrower will provide to Lender,
financial statements for such quarter of Borrower prepared in accordance with
generally accepted accounting principles and certified as correct by a reliable
officer of Borrower.
Section 8.20 Single Purpose Entity.
-----------------------
(a) Borrower will not own any asset other than cash and the Assets;
(b) Borrower will not engage in any business other
than the ownership, management and collection of the Assets;
(c) Borrower will not enter into any contract or agreement with any
partner, principal or Affiliate of Borrower or any Affiliate of any partner
of Borrower except upon terms and conditions that are intrinsically fair
and
26
substantially similar to those that would be available on an arms- length
basis with third parties other than an Affiliate;
(d) Borrower will not make any loans or advances to any third party
(including any Affiliate), except pursuant to the Servicing Agreement and
related subservicing agreements;
(e) Borrower will do all things necessary to preserve its existence,
and will not, nor will any shareholder thereof, amend, modify or otherwise
change its articles of incorporation or by- laws in a manner which
adversely affects Borrower's existence as a single purpose entity;
(f) Borrower will maintain books and records and bank
accounts separate from those of its Affiliates;
(g) Borrower will hold itself out to the public as, a legal entity
separate and distinct from any other entity (including any Affiliate
thereof);
(h) Borrower will file its own separate tax returns;
(i) Borrower will not seek the dissolution or winding up, in whole or
in part, of Borrower;
(j) Borrower will not enter into any transaction of merger
or consolidation, or acquire by purchase or otherwise, all or substantially
all of the business assets of, or any stock or beneficial ownership of, any
entity;
(k) Borrower will except as specifically contemplated herein,
not commingle the funds and other assets of Borrower with those of any
Affiliate or other Person;
(l) Borrower will maintain its assets in such a manner that
is not costly or difficult to segregate, ascertain or identify its
individual assets from those of any Affiliate or other Person;
(m) Borrower will not hold itself out to be responsible for the debts
or obligations of any Affiliate or other Person;
(n) Borrower will conduct and operate its business as
presently conducted and operated; and
(o) Borrower agrees that, on account of the preceding covenants of
Borrower in this Section 8.20, without the necessity of an evidentiary
hearing and without the necessity or requirement that Lender establish or
prove the value of the Collateral, or the lack of adequate protection of
Lender's interest in the Collateral, Borrower will not contest Lender's
right to the immediate termination
27
of the automatic stay of 11 U.S.C. Sec. 362 in order to permit Lender to
exercise all of its rights and remedies in respect of the Collateral and
that the existence of this provision constitutes sufficient "cause" for
purposes of 11 U.S.C. Sec. 362(d)(1), and Borrower agrees not to directly
or indirectly oppose or otherwise defend against the termination of the
automatic stay.
Section 8.21 Location of Post Office Box. Borrower will not
-------------------------------
change the location or address of the Post Office Box without the prior written
consent of Lender, which consent may be given or withheld in the sole and
absolute discretion of Lender.
Section 8.22 Insurance.
---------
(a) Borrower shall maintain at all times:
(i) Errors and omissions insurance providing coverage in an amount
not less than one million dollars ($1,000,000). This coverage
shall include, but not be limited to, defense and alleged/caused
by errors and omissions as well as defense and loss related
(directly or indirectly) for alleged violation of federal or
state laws relating to collection practices;
(ii) General comprehensive insurance providing coverage in an amount
not less than one million dollars ($1,000,000); and
(iii) property casualty insurance (including applicable automobile and
marine polices, coverages and endorsements) on all tangible
Collateral in amounts and types reasonably required by Lender.
All policies maintained under this Section 8.22(a) must name
Lender as an additional insured or loss payee as applicable. The loss payee
endorsement shall provide for payment to the Lender notwithstanding any
acts or omissions of the Borrower or Servicer.
(b) Servicer and every Subservicer shall maintain at all times:
(i) Errors and omissions insurance providing coverage in an amount
not less than one million dollars ($1,000,000). This coverage
shall include, but not be limited to, defense and alleged/caused
by errors and omissions as well as defense and loss related
(directly or indirectly) for alleged violation of federal or
state laws relating to collection practices;
(ii) General comprehensive insurance providing coverage in an amount
not less than one million dollars ($1,000,000); and
(iii) Employee dishonesty insurance (or similarly named and
purposed insurance or bond) providing coverage in an amount not
less than one million dollars ($1,000,000) to insure/bond theft
of money by employees
28
or other authorized persons/entities of Borrower, Servicer,
and/or any Subservicer.
All policies maintained under this Section 8.22(b) must name Lender and
Borrower as additional insureds.
(c) All policies required under this Section 8.22 shall be in a form
and issued by insurance companies reasonably approved by Lender. Each
policy shall require notice to the Lender 30 days prior to the expiration
or cancellation of the insurance. Lender shall have the right to hold the
original policies or duplicate original policies of all insurance required
by this Section 8.22. Borrower and Servicer shall promptly deliver to
Lender a copy of all renewal and other notices received by such party with
respect to the policies and all receipts for paid premiums. At least 30
days prior to the expiration date of a policy, Borrower or Servicer shall
deliver to Lender the original (or a duplicate original) of a renewal
policy in form reasonably satisfactory to Lender.
(d) In the event of a property loss, Borrower shall give immediate
written notice to the insurance carrier and to Lender. Borrower hereby
authorizes and appoints Lender as attorney- in-fact for Borrower to make
proof of loss, to adjust and compromise any claims under policies of
property damage insurance, to appear in and prosecute any action arising
from such property damage insurance policies, to collect and receive the
proceeds of property damage insurance, and to deduct from such proceeds
Lender's expenses incurred in the collection of such proceeds. This power
of attorney is coupled with an interest and therefore is irrevocable.
Section 8.23 Notice of Litigation. Borrower will promptly notify Lender
---------------------
of any threatened or actual litigation involving any Collateral or Borrower in
which the amount of damages claimed is greater than $10,000.
Section 8.24 Indemnity.
---------
(a) Borrower agrees to indemnify, defend and hold Lender harmless
from and against any and all losses, damages, costs, claims, expenses
(including reasonable attorneys fees) and liabilities growing out of or
resulting from any of the following:
(i) the failure of Borrower, Servicer or their Affiliates to comply
with all applicable debt collection laws and regulations;
(ii) the misapplication (whether negligent or intentional),
misappropriation, conversion or theft of any part of the
Collateral by any officer, employee, agent or representative of
Borrower, Servicer or their Affiliates (including, without
limitation, receipts or proceeds from the Collateral received by
Borrower, Servicer or their Affiliates after notice of default on
any Loan
29
which are not applied to the outstanding balance of the related
Note, to payment of debt service on any Loan, or to the payment
of any other amounts payable under this Loan Agreement);
(iii) the failure to pay and discharge any liens, encumbrances
or security interests in the Collateral (other than liens granted
to Lender to secure repayment of Loans) created or which could be
created as a result of the actions of Borrower, Servicer or their
Affiliates;
(iv) fraud or material misrepresentation by Borrower, Servicer
or their Affiliates or any of their officers, employees, agents
or representatives;
(v) any consolidation or merger of Borrower or the assets of
Borrower, whether voluntary or involuntary; or
(vi) any breach by Borrower of Sections 7.5, 7.6, 8.11, 8.12, 8.16, or
8.20 of this Loan Agreement.
(b) In addition to the matters set forth in subparagraph (a),
Borrower agrees to indemnify, defend and hold Lender harmless from and
against any and all losses, damages, costs, claims, expenses (including
reasonable attorneys fees) and liabilities to third parties growing out of
or resulting from any other breach by Borrower or Servicer of any
representation, warranty, covenant or other agreement of Borrower or
Servicer contained in the Loan Documents.
This Section 8.24 shall survive payment in full of the Notes indefinitely.
ARTICLE VIII
DEFAULT
-------
Section 9.1 Events of Default. The occurrence of any one or more of the
-----------------
following events shall constitute an "EVENT OF DEFAULT" under this Loan
------------------
Agreement:
(a) Payment. Failure to make deposits to the Control Account or
-------
payments of interest, principal or other amounts payable to Lender under
any Note, this Loan Agreement or any other Loan Document within five (5)
days after such payment or deposit is due, including, without limitation
the failure to meet the "Maximum Principal Balance" specified in the
respective Note;
(b) Representations and Warranties. Any representation or warranty
--------------------------------
made by Borrower hereunder, under the Security Agreement, any Proposal or
other Loan Document or made by any Guarantor under a Guaranty shall prove
to be false, misleading, incomplete or untrue in any material respect as of
the date on which such representation or warranty is made;
30
(c) Covenants. Any breach by Borrower or any Guarantor of any
---------
covenant, term, agreement or condition contained in any Loan Document,
which breach has a Material Adverse Effect, and the same shall continue
unremedied for a period of thirty (30) calendar days after Borrower has or
reasonably should have had notice thereof (provided that such thirty (30)
calendar day period shall only be applicable if Borrower uses diligent
efforts during such time to cure such breach) or such other amount of time
permitted for cure that is specifically provided herein;
(d) Bankruptcy or Insolvency. (i) The commencement of
--------------------------
any proceeding under any bankruptcy or insolvency laws by or against
Borrower or any Guarantor and such proceeding shall not be dismissed within
sixty (60) calendar days after the date of filing; (ii) Borrower or any
Guarantor is unable, or admits in writing its inability, to pay its
recourse debts as they become due; (iii) Borrower or any Guarantor makes an
assignment for the benefit of creditors; (iv) Borrower or any Guarantor
files a petition or applies to any tribunal for the appointment of a
custodian, receiver or any trustee for all or a substantial part of its
assets; (v) Borrower or any Guarantor, by any act or omission, indicates
its consent, approval of, or acquiescence in the appointment of a receiver,
custodian or trustee for all or a substantial part of its property; (vi)
Borrower or any Guarantor is adjudicated a bankrupt; (vii) Borrower or any
Guarantor becomes insolvent however otherwise evidenced; or (viii) Borrower
ceases doing business as a going concern;
(e) Fraudulent Conveyances. Borrower shall have concealed, removed or
----------------------
permitted to be concealed or removed, any part of its property, with intent
to hinder, delay or defraud Borrower's creditors, or made or permitted a
transfer of any of its property which is fraudulent under any bankruptcy,
fraudulent conveyance or similar law;
(f) Default in or Breach of Other Agreements. The occurrence of any
-----------------------------------------
default or event of default under or the breach by Borrower, the Guarantor
or Servicer under any of the Loan Documents, or any other agreement, note,
debenture, deed of trust, mortgage or other instrument to which Borrower is
a party or by which it is bound relating to the borrowing of money;
(g) Judgments. A judgment or order for the payment of money is
---------
entered against Borrower or any Guarantor for more than $10,000 and such
judgment is not, within thirty (30) calendar days after the entry thereof,
discharged or execution thereof stayed or bonded pending appeal;
(h) Loss or Damage. Loss, theft, damage or destruction of
----------------
any material portion of the Collateral, or the making of any seizure,
unauthorized sale or other unauthorized transfer of any Collateral;
31
(i) Ownership and Control of Borrower. PCM shall cease to
-------------------------------------
own directly 100% of Borrower.
(j) Servicer Termination Event. The occurrence of a
------------------------------
Servicer Termination Event; or
(k) Breach by PCM. The occurrence of a breach of
-----------------
PCM's agreements contained in Section 2.10.
Section 9.2 Effect of Event of Default. Upon the occurrence of any
------------------------------
Event of Default, Lender may at its option, by written notice to
Borrower, declare the entire unpaid principal balance of any or all
Notes, and all other amounts due hereunder, immediately due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
expressly waived by Borrower. An Event of Default arising out of one Portfolio
or Note shall be deemed an Event of Default with respect to all Portfolios and
all Notes, and Lender's rights and remedies may be exercised with respect to any
or all of such Notes and Collateral securing the same. In addition, upon the
occurrence of any Event of Default, Lender may, at its option and in its sole
discretion, direct Obligors to make payments to a mailing address (including
Lender's address) that is different from the Post Office Box.
Section 9.3 Survival and Acceleration of Contingent Payment; Valuation.
----------------------------------------------------------
(a) Survival of Contingent Payment Obligation. NOTWITHSTANDING
---------------------------------------------
ANYTHING TO THE CONTRARY HEREIN OR IN THE OTHER LOAN DOCUMENTS, THE
OBLIGATION OF BORROWER TO PAY CONTINGENT PAYMENTS WILL SURVIVE AND CONTINUE
NOTWITHSTANDING LENDER'S RECEIPT OF ALL OF ITS PRINC IPAL AND FIXED
INTEREST WITH RESPECT TO A SPECIFIC LOAN OR THE EXPIRATION OR TERMINATION
OF THE LOAN FACILITY CONTEMPLATED HEREBY.
(b) Acceleration of Contingent Payment Following Event of
-----------------------------------------------------------
Default. Upon the occurrence of an Event of Default, Lender may, in
-------
its sole discretion and by written notice to Borrower (such notice, the
"ACCELERATION NOTICE"), accelerate payment of all of the Contingent
-------------------
Payments to the then present value of the aggregate of all of the unpaid
Contingent Payments (such value, the "CONTINGENT PAYMENT VALUE"), and such
------------------------
Contingent Payment Value will be due and payable in full. The Contingent
Payment Value will be determined in accordance with subsection (c), below.
(c) Determination of Contingent Payment Value. Borrower
---------------------------------------------
and Lender will have five (5) Business Days after Borrower's receipt of the
Acceleration Notice to agree in writing to the amount of the Contingent
Payment Value. If Borrower and Lender do not agree in writing to the
Contingent Payment Value within such (5) Business Days, then the Contingent
Payment Value will be determined as follows:
32
(i) Each of Borrower and Lender will have fifteen (15) Business Days
after Borrower's receipt of the Acceleration Notice to deliver an
appraisal of the Contingent Payment Value prepared by a qualified
independent appraiser (each such appraisal, an "INITIAL
-------
APPRAISAL"). If the higher of the Initial Appraisals is within
---------
110% of the lower of the Initial Appraisals, then the Contingent
Payment Value will be the average of the Initial Appraisals. If a
party fails to deliver an Initial Appraisal within the required
timeframe, then the valuation of the Contingent Payment Value in
the Initial Appraisal obtained by the other party will be
determinative as to the Contingent Payment Value.
(ii) If the higher of the Initial Appraisals is more than 110% of the
lower of the Initial Appraisals, then Borrower and Lender will
retain the appraisers who prepared the Initial Appraisals to
mutually select a third qualified independent appraiser to make
and deliver a third appraisal of the Contingent Payment Value
(the "THIRD APPRAISAL") within thirty (30) Business Days after
----------------
Borrower's receipt of the Acceleration Notice. The Third
Appraisal will be averaged with the Contingent Payment Value set
forth in one of the Initial Appraisals that is nearest to the
Third Appraisal valuation, and the other Initial Appraisal will
be disregarded. The average value so determined will be the
Contingent Payment Value for the purposes hereof and will be
binding on Borrower and Lender.
(iii) Each of Borrower and Lender will pay the cost of their respective
Initial Appraisals and the cost of the Third Appraisal will be
borne equally by Borrower and Lender.
ARTICLE X
MISCELLANEOUS
-------------
Section 10.1 Survival of Representations and Warranties. All
----------------------------------------------
representations and warranties made herein shall be true and correct as of each
Borrowing Date and shall survive the Borrowing Date and the execution and
delivery of this Loan Agreement, the Security Agreement, and each Note, and
shall continue in full force and effect until payment in full by Borrower
of all amounts payable hereunder, under the Security Agreement or under
the Notes.
Section 10.2 Cure. Lender shall have the right to cure any default by
----
Borrower upon any lease, insurance policy, indenture, security agreement,
mortgage, deed of trust, agreement or other instrument to which Borrower is a
party or by which its properties are bound or may be subject if such
default shall in any manner affect Lender's rights hereunder, or in and
to the Collateral, or the ability of Borrower to perform its obligations
hereunder or under the Security Agreement or the Notes, and Borrower shall
immediately reimburse Lender for any amounts paid to cure such defaults.
33
Section 10.3 Relationship between Parties. The relationship between
------------------------------
Lender and Borrower shall be solely one of commercial lender and
borrower, and nothing contained in this Loan Agreement or in any Loan Document
shall constitute the parties as partners or co- venturers with one another or
with any other party, or agents for one another or for any other party with
regard to any activities contemplated by this Loan Agreement or otherwise, or
render any party liable for any debts or obligations of any other party.
Section 10.4 Confidentiality. Borrower and Lender agree that they shall
---------------
keep the terms of this Loan Agreement, all other Loan Documents, and any Loan
made or to be made hereunder confidential, and neither Borrower nor Lender shall
disclose such terms to any other Person without the prior written consent of the
other party; provided however, that Borrower and Lender shall each be permitted
to disclose the terms of this transaction to its participating lenders,
partners, investors and Affiliates and their auditors, agents and represe
ntatives if such participating lenders, partners, investors and Affiliates and
their auditors, agents and representatives agree to keep such information
confidential.
Section 10.5 Amendment and Modification. Any amendments or modifications
--------------------------
to any provisions of this Loan Agreement, the Notes, the Security Agreement or
the other Loan Documents must be (i) in writing and (ii) signed by both Lender
and Borrower.
Section 10.6 Waivers. Lender shall not be deemed to have waived any of
-------
its rights or remedies hereunder, under any Note or Security Agreement or any
other Loan Document unless such waiver is (i) in writing and (ii) signed by
Lender, and then only to the extent specifically recited. No failure to
exercise and no delay or omission in exercising any right, remedy or
recourse on the right of Lender shall operate or be deemed as a waiver of
such right, remedy or recourse hereunder or thereunder or preclude any
other or further exercise thereof. A waiver or release on any one occasion
shall not be construed as continuing, as a bar to, or as a waiver
or release of any subsequent right, remedy or recourse on any
subsequent occasion. All rights and remedies of Lender, whether pursuant
to this Loan Agreement, the Notes, the Security Agreement, or any other Loan
Document, shall be cumulative and concurrent and may be exercised singularly,
successively or concurrently, at the sole discretion of Lender and may be
exercised as often as occasion therefore may exist.
Section 10.7 Transferability of Loan Agreement; Loan Participations.
----------------------------------------------------------
This Loan Agreement shall be binding upon Borrower and Lender and their
respective successors and assigns; provided, however, that (i) Borrower may not
transfer or assign any or all of its rights or obligations hereunder without the
prior written consent of Lender; (ii) Lender may transfer and assign any or all
of its rights or obligations hereunder or under any Loan or Note in connection
with the sale of participations in any Loan or Note to any Affiliate of Lender
or to a Qualified Assignee without the prior written consent of Borrower; and
(iii) Lender may not transfer and assign any or all of its rights or obligations
hereunder or under any Loan or Note (including without limitation the sale of
participations in any Loan or Note to any party other than an Affiliate of
Lender or a Qualified Assignee)
34
without the prior written consent of Borrower, which consent may not be
unreasonably withheld or delayed; provided, that a legal opinion reasonably
acceptable to PCM and Borrower, both as to identity of counsel and substance,
opining that the proposed transfer and/or assignment complies with or is not
subject to otherwise applicable securities laws, shall accompany any request for
Borrower's written consent. In connection with any such transfer, assignment or
sale or proposed transfer, assignment or sale, Lender may furnish any
information concerning this Loan Agreement, the Loan Documents, any
Loans or Notes, and Borrower to such actual or potential assignees or
transferees provided that the actual or potential assignee or transferee
agrees to keep all such information confidential. The Loan Agreement shall
be for the benefit of Lender and those of its affiliated funds which act as
lenders pursuant hereto.
Section 10.8 Actions in Connection with Bankruptcy. Without the necessity
-------------------------------------
of an evidentiary hearing and without the necessity or requirement that Lender
establish or prove the value of the Collateral (or any other collateral pledged
to Lender pursuant to the Loan Documents), or the lack of adequate protection
of Lender's interest in the Collateral (or any other collateral pledged to
Lender pursuant to the Loan Documents), Lender shall be entitled to the
immediate termination of the automatic stay of 11 U.S.C. Sec. 362 in order to
permit Lender to exercise all of its rights and remedies in respect of the
Collateral (or any other collateral pledged to Lender pursuant to the Loan
Documents), the existence of this provision constituting sufficient "cause" for
purposes of 11 U.S.C. Sec. 362(d)(1). Borrower agrees not to directly or
indirectly oppose or otherwise defend against the termination of the
automatic stay. Any reasonable attorney's fees and other expenses incurred by
Lender in connection with Borrower's bankruptcy or any of the other afo resaid
events shall be additional indebtedness of Borrower.
Section 10.9 GOVERNING LAW; JURISDICTION; VENUE. THIS LOAN
----------------------------------------
AGREEMENT, THE NOTES, AND ALL OTHER LOAN DOCUMENTS, AND WITHOUT LIMITATION
ANY QUESTIONS CONCERNING THE INTERPRETATION OR ENFORCEMENT THEREOF, SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
GOVERNING STATE. Borrower and Lender each hereby irrevocably submit to the
jurisdiction of any state or federal court sitting in the Governing State over
any suit, action or proceeding arising out of or relating to any Loan or this
Loan Agreement. Borrower irrevocably waives, to the fullest extent permitted by
law, any objection that Borrower may now or hereafter have to the laying of
venue of any such suit, action or proceeding brought in any such court and any
claims that any such suit, action or proceeding brought in any such court
has been brought in an inconvenient forum. Nothing in this Section
shall limit the right of Lender to bring proceedings against Borrower
in the courts of any other jurisdiction. Borrower agrees that any forum other
than the Governing State is an inconvenient forum and that a suit brought by
Borrower against Lender in a court of any state other than the Governing State
should be forthwith dismissed or transferred to a court located in the Governing
State by that court.
Section 10.10 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION
--------------------
WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST
35
QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT P ERSON
AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY
(RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES
BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE
THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY
ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG LENDER, BORROWER, PCM, OR
ANY GUARANTOR ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS
LOAN AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE
TRANSACTIONS RELATED THERETO.
Section 10.11 Enforceability of Loan Agreement. Should any one or more of
--------------------------------
the provisions of this Loan Agreement be determined to be illegal or
unenforceable, all other provisions shall remain effective and binding on the
parties hereto.
Section 10.12 Titles. Titles of the Sections of this Loan Agreement are
------
merely for convenience in reading and shall not be construed to alter, modify or
interpret the meaning of the provisions under said titles.
Section 10.13 Accounting Terms. Unless otherwise defined herein, all
-----------------
accounting terms used in this Loan Agreement shall have the meanings ascribed to
them by generally accepted accounting principles.
Section 10.14 Notice. Unless otherwise required or provided by this
------
Loan Agreement, all demands, notices, approvals and other communications
hereunder (including Borrower's reporting obligations set forth
herein) (individually and collectively, "NOTICES") shall be in writing and
-------
shall be served personally, delivered by facsimile or sent by a national
overnight delivery or courier company, or by United States registered or
certified mail, postage prepaid return receipt requested, and addressed as set
forth below. Any such Notices shall be deemed delivered upon delivery or
refusal to accept delivery as indicated in writing by the person attempting to
make personal service, on the United States Postal Service return receipt, or by
similar written advice from the overnight delivery company; provided, however,
that if any such Notice shall be sent by telecopier to the telecopier number, if
any, set forth above, such Notice shall be deemed given at the time and on the
date of machine transmittal (except if sent after 5:00 p.m. recipient's time,
then the notice shall be given at 9:00 a.m. on the next Business Day) if the
sending party receives a written send verification on its machine and sends a
duplicate Notice on the same day or the next Business Day by personal service,
registered or certified United States mail, or overnight delivery in the manner
described above. Each party hereto shall make an ordinary, good faith effort to
ensure that it will accept or receive Notices that are given in accordance with
this Section 10.14, and that any person to be given Notice actually receives
such Notice. Any party to whom Notices are to be
36
sent pursuant to this Loan Agreement may from time to time change its address
and/or facsimile number for future communication hereunder by giving Notice in
the manner prescribed herein to all other parties hereto, provided that the
address and/or facsimile number change shall not be effective until five (5)
Business Days after the Notice of change has been given.
If to Lender: With a Copy to:
Varde Investment Partners, L.P. Leonard, Street and Deinard
c/o Varde Partners, L.P. Professional Association
8500 Normandale Lake Blvd., Suite 1570 150 South Fifth Street, Suite 2300
Minneapolis, MN 55437 Minneapolis, MN 55402
Attention: Christopher Giles Attention: Andrew Lee, Esq.
Telephone No.: (952) 893-1554 Telephone No.: (612) 335-1881
Facsimile No.: (952) 893-9613 Facsimile No.: (612) 335-1657
If to Borrower: With a Copy to:
Matterhorn Financial Services LLC Matterhorn Financial Services LLC
222 S. Harbor Boulevard, Suite 400 222 S. Harbor Boulevard, Suite 400
Anaheim, CA 92805 Anaheim, CA 92805
Attention: Mr. David Caldwell Attention: William D. Constantino
- --------- ---------
Telephone No.: (714) 502-3790 Telephone No.: (714) 502-3780
Facsimile No.: (714) 502-3733 Facsimile No.: (714) 502-3733
If to PCM: With a Copy to:
Performance Capital Management, LLC Performance Capital Management, LLC
222 S. Harbor Boulevard, Suite 400 222 S. Harbor Boulevard, Suite 400
Anaheim, CA 92805 Anaheim, CA 92805
Attention: Mr. David Caldwell Attention: Mr. David Caldwell
- --------- ---------
Telephone No.: (714) 502-3790 Telephone No.: (714) 502-3790
Facsimile No.: (714) 502-3733 Facsimile No.: (714) 502-3733
37
Section 10.15 Entire Agreement. This Loan Agreement (including all
Exhibits hereto), the Servicing Agreement and the Security Agreement, all
Proposals and Notes, and all other Loan Documents shall constitute the
full and entire understanding and agreement of the parties hereto and
there are no further or other agreements or undertakings, written or
oral, in effect between the parties relating to the subject matter hereof
unless expressly referred to herein. All prior negotiations,
agreements, representations and warranties, statements and undertakings
concerning the subject matter hereof between the parties are superseded by
this Loan Agreement and the other Loan Documents.
[THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK.]
38
MASTER LOAN AGREEMENT
[Signature Page]
The undersigned have executed this Loan Agreement as of the date first
above written.
LENDER: BORROWER:
VARDE INVESTMENT PARTNERS, MATTERHORN FINANCIAL
L.P., a Delaware limited partnership, by SERVICES LLC, a California limited
Varde Investment Partners, G.P., LLC, a liability company, by Performance Capital
Delaware limited liability company, its Management, LLC, a California limited
General Partner, by Varde Partners, L.P., a liability company, its Sole Member
Delaware limited partnership, its Managing
Member, by Varde Partners, Inc., a
Delaware corporation, its General Partner
By: /s/ Rick J. Noel By: /s/ David Caldwell
------------------------------ ------------------------------
Name: Rick J. Noel Name: David Caldwell
Its: Vice President Its: Chief Operating Officer
PCM:
PERFORMANCE CAPITAL
MANAGEMENT, LLC, a California
limited liability company
By: /s/ David Caldwell
-----------------------------
Name: David Caldwell
Its: Chief Operating Officer
39
MASTER LOAN AGREEMENT
EXHIBIT A:
FORM OF NOTE REGISTER
---------------------
NOTE REGISTER
Varde Investment Partners, L.P. / Matterhorn Financial Services LLC
- --------------------------------------------------------------------------
Date of Note Face Amount of Note Name of Holder of Note
$ Varde Investment Partners, L.P.
- --------------------------------------------------------------------------
MASTER LOAN AGREEMENT
EXHIBIT B:
FORM OF PROPOSAL
----------------
Varde Investment Partners, L.P. c/o Varde Partners, L.P.
8500 Normandale Lake Boulevard, Suite 1570
Minneapolis, MN 55437
Attention: Chris Giles
Re Master Loan Agreement dated as of June 10, 2004 (the "LOAN AGREEMENT") among
--------------
Matterhorn Financial Services LLC, a California limited liability company
("BORROWER"), Performance Capital Management, LLC, a California limited
--------
liability company, and Varde Investment Partners, L.P., a Delaware limited
partnership ("LENDER")
------
Ladies and Gentlemen:
This letter shall serve as a Proposal pursuant to the Loan Agreement.
Capitalized terms have the respective meanings contained in the Loan Agreement.
We request that you finance Borrower's contemplated purchase of the following
Assets subject to, and in accordance with, the terms of the Loan Agreement and
the terms set forth below:
- ----------------------------------------------------------------------------------------------
Assets [Description of Assets] purchased pursuant to the [________]
Agreement dated as of [_________] by and between [______] and
Borrower
- ----------------------------------------------------------------------------------------------
Purchase Price [ %] of $__________________ or - $________________________
- ----------------------------------------------------------------------------------------------
Closing Fees and Expenses $ _______________ to
______________________________________
______________________________________
______________________________________
______________________________________
$ _______________ to
______________________________________
______________________________________
______________________________________
______________________________________
- ----------------------------------------------------------------------------------------------
Total Closing Fees and ______________________
Expenses
- ----------------------------------------------------------------------------------------------
Total Cost $ ________________
Proposal
Page 2
- ----------------------------------------------------------------------------------------------
Note Rate ___.00%
- ----------------------------------------------------------------------------------------------
Advance Rate ___.00%
- ----------------------------------------------------------------------------------------------
Loan Amount $ _________________
- ----------------------------------------------------------------------------------------------
Equity Return ___.00%
- ----------------------------------------------------------------------------------------------
Borrower Contingent ___.00%
Percentage
- ----------------------------------------------------------------------------------------------
Lender Contingent ___.00%
Percentage
- ----------------------------------------------------------------------------------------------
Borrowing Date ____________________
- ----------------------------------------------------------------------------------------------
Servicing Fee
- ----------------------------------------------------------------------------------------------
Protective Advance Limit
- ----------------------------------------------------------------------------------------------
Maximum Principal Balance See Schedule 1 attached hereto.
---------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Additional Conditions to _______________________________________________________
Closing or Terms _______________________________________________________
_______________________________________________________
- ----------------------------------------------------------------------------------------------
2
Proposal
Page 3
In offering this proposal, Borrower confirms that (i) no Event of Default has
occurred and is continuing or will occur as a result of the closing of the
proposed Loan or Borrower's purchase of the above -described Assets, (ii) the
representations and warranties in the Loan Agreement remain true and correct as
of the date hereof and there exists no condition, event or act which, with the
giving of notice or passage of time, or both, would constitute an Event of
Default, and (iii) the Loan Agreement, Security Agreement, Note and other Loan
Documents constitute legal, valid and binding obligations of Borrower
enforceable in accordance with their terms.
Dated: __________, 200___
BORROWER:
MATTERHORN FINANCIAL SERVICES LLC, a
California limited liability company, by
Performance Capital Management, LLC, a
California limited liability company, its Sole
Member
By: _____________________________
Name: David Caldwell
Its: Chief Operating Officer
3
Schedule 1 to Proposal
----------------------
MAXIMUM PRINCIPAL BALANCE
DATE: MAXIMUM PRINCIPAL BALANCE
______ Distribution Date __% of Original Loan Amount
_______Distribution Date __% of Original Loan Amount
_______Distribution Date __% of Original Loan Amount
Maturity Date 0% of Original Loan Amount
MASTER LOAN AGREEMENT
EXHIBIT C
FORM OF COMMITMENT
------------------
VARDE INVESTMENT PARTNERS, L.P.
c/o Varde Partners, L.P.
8500 Normandale Lake Boulevard, Suite 1570
Minneapolis, MN 55437
Telephone No.: 952.893.1554
Facsimile No.: 952.893.9613
Matterhorn Financial Services LLC
222 S. Harbor Boulevard, Suite 400
Anaheim, CA 92805
Attention: Mr. David Caldwell
- ---------
Re Master Loan Agreement dated as of June 10, 2004 the ("LOAN AGREEMENT")
--------------
among Matterhorn Financial Services LLC, a California limited liability
company ("BORROWER"), Performance Capital Management, LLC, a California
--------
limited liability company, and Varde Investment Partners, L.P., a Delaware
limited partnership ("LENDER")
------
Ladies and Gentlemen:
This letter shall serve as our "Commitment" (as defined in the Loan
Agreement) with respect to your Proposal dated _______, 200___ regarding the
___________ charged-off credit card accounts and receivables totaling
$_____________ being sold by ________ (the "PROPOSAL"). Lender hereby agrees to
- -------- make a "Loan" (as defined in the Loan Agreement) with respect to the
Proposal, subject to, and in accordance with, the terms and conditions set forth
in the Proposal and the Loan Agreement. This Commitment may be withdrawn by us
at any time prior to acceptance by the related Asset Seller of Borrower's
submission of a written and binding bid with respect to the related Portfolio
or the related Portfolios (in the case of a Forward Flow Commitment) if we
determine that there is a material adverse change in the collectibility of the
Assets in such Portfolio(s) or if we determine that there is a material adverse
change in Borrower's or Servicer's abilities to carry out their respective
responsibilities under the Loan Documents. Unless earlier withdrawn by us
pursuant to the preceding sentence, this Commitment will automatically expire on
the date that is ________ Business Days after the date written below.
Dated: ________, 200___
VARDE INVESTMENT PARTNERS, L.P., a Delaware
limited partnership, by Varde Investment Partners,
G.P., LLC, a Delaware limited liability company,
its General Partner, by Varde Partners, L.P., a
Delaware limited partnership, its Managing Member,
by Varde Partners, Inc., a Delaware corporation,
its General Partner
By: _______________________________
Name:
Its:
MASTER LOAN AGREEMENT
EXHIBIT D
FORM OF NOTE
------------
PROMISSORY NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR THE SECURITIES ACT OF ANY STATE (COLLECTIVELY, THE "SECURITIES LAWS"). THIS
NOTE MAY NOT BE SOLD OR OFFERED FOR SALE UNLESS THE OFFER OR SALE COMPLIES
WITH OR IS NOT SUBJECT TO OTHERWISE APPLICABLE SECURITIES LAWS.
$___________ _________, 200_
For value received, Matterhorn Financial Services LLC, a California limited
liability company, having a mailing address of 222 S. Harbor Boulevard, Suite
400, Anaheim, CA 92805 (hereinafter referred to as "BORROWER") promises to
--------
pay to the order of VARDE INVESTMENT PARTNERS, L.P., a Delaware limited
partnership, having a mailing address of c/o Varde Partners, Inc., 8500
Normandale Lake Boulevard, Suite 1570 Minneapolis, MN 55437, Minneapolis, MN
55437 (hereinafter referred to as "LENDER"), the principal sum
------
of ____ AND __/100 DOLLARS ($_______) in lawful money of the United States of
America, together with Fixed Interest at the rate of ____________ percent (__%)
per annum (the "NOTE RATE") on the advanced but unpaid principal balance and the
---------
Contingent Payment, all in accordance with the terms set forth herein and in the
Master Loan Agreement among Borrower and Lender, dated as of June 10, 2004 (the
"LOAN AGREEMENT"). Reference is hereby made to the Loan Agreement, the terms and
--------------
conditions of which are incorporated herein by reference as fully and with the
same effect as if set forth herein at length. All capitalized terms not
otherwise defined herein have the respective meanings contained in the Loan
Agreement. Reference is also hereby made to the Security Agreement described in
the Loan Agreement for a more complete description of certain Collateral, a
statement of certain covenants and agreements, a statement of the rights and
remedies and securities afforded thereby and all other matters contained
therein. This Note is entitled to the benefit of the Loan Agreement and the
Security Agreement.
Borrower and all endorsers and guarantors jointly and severally waive
presentments, demand, protest, and notice (except such notice as is required
under the Loan Documents) of any kind. This Note shall be governed by and
construed according to the internal laws of the State of Minnesota. Time is of
the essence of this Note and each of the provisions hereof.
Borrower agrees that it will be an Event of Default under the Loan
Agreement if the principal amount of this Note is not paid down to the following
Maximum Principal Balance amounts (subject to the terms of payment procedures
and specified in the Loan Agreement) as and when indicated:
DATE: MAXIMUM PRINCIPAL BALANCE
______ Distribution Date __% of Original Loan Amount
_______Distribution Date __% of Original Loan Amount
_______Distribution Date __% of Original Loan Amount
Maturity Date 0% of Original Loan Amount
IN WITNESS WHEREOF, Borrower has executed this Promissory Note as of the
date and year first above written.
MATTERHORN FINANCIAL SERVICES LLC, a California
limited liability company, by Performance Capital
Management, LLC, a California limited liability
company, its Sole Member
By: __________________________________
Name: ________________________________
Its: __________________________________
2
MASTER LOAN AGREEMENT
EXHIBIT E
FORM OF GUARANTY
----------------
GUARANTY
--------
Minneapolis,
Minnesota
June 10,
2004
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and to induce VARDE INVESTMENT PARTNERS, L.P. (the
"LENDER"), to make loans or extend other accommodations to or for the account of
------
MATTERHORN FINANCIAL SERVICES LLC, a California limited liability company (the
"BORROWER") or to engage in any other transactions with Borrower, PERFORMANCE
--------
CAPITAL MANAGEMENT, LLC, a California limited liability company ("GUARANTOR"),
---------
absolutely and unconditionally guarantees to the Lender the full and prompt
payment in respect of and performance of the liabilities and obligations of
Borrower under Section 8.24(a) of that certain Master Loan Agreement dated as of
even date herewith (the "LOAN AGREEMENT") among Borrower, Guarantor, and Lender
--------------
(such liabilities and obligations, the "GUARANTY OBLIGATIONS").
---------------------
All capitalized terms used but not otherwise defined in this Guaranty shall
have the meanings given them in the Loan Agreement.
1. To induce Lender to make Loans under this Loan Agreement,
each Guarantor makes the following representations and warranties, each
of which shall survive the execution and delivery of the Loan Documents and
shall be deemed to be made as of each Borrowing Date and shall continue in full
force and effect until payment in full by Borrower of all amounts payable under
the Loan Documents.:
(a) NO IMPAIRMENT. Guarantor is not in violation of any provision of
-------------
(A) this Guaranty or (B) any applicable law, statute or ordinance. There
has occurred and is subsisting no default under this Guaranty, or any
indenture, mortgage, lien, agreement, contract, deed, lease, loan
agreement, note, order, judgment, decree or other instrument or restriction
of any kind or character to which Guarantor is a party, by which Guarantor
is bound, or to which Guarantor, or any of Guarantor's assets, is subject
that, individually or in the aggregate, could adversely affect the
financial condition of Guarantor or the ability of Guarantor to perform its
obligations under this Guaranty. Neither the execution and delivery by
Guarantor of this Guaranty, nor the compliance by Guarantor with the terms,
conditions and provisions of this Guaranty will conflict with or result in
a breach of, or constitute a default under, any of the foregoing.
(b) NO DEFAULTS WITH RESPECT TO INDEBTEDNESS. Guarantor is not in
----------------------------------------
default in the payment of the principal of or interest on any indebtedness
for
borrowed money, and Guarantor is not in default under any instrument or
agreement under and subject to which any indebtedness for borrowed money
has been incurred, and no event has occurred and is continuing under the
provisions of any such instrument or agreement which with the lapse of time
or the giving of notice, or both, would constitute a default thereunder.
(c) NO MATERIAL DISPUTES. There is no action, suit, proceeding or
--------------------
investigation, at law, in equity, or before or by any court, arbitrator or
administrative, governmental, regulatory or adjudicative agency or body of
any kind pending, or, to the best of Guarantor's knowledge, contemplated or
threatened against or involving Guarantor, nor any facts or circumstances
that could result in the same, wherein an unfavorable decision, ruling or
finding (I) could adversely affect the transactions contemplated by the
Loan Documents and this Guaranty; (ii) could adversely affect the ability
of Guarantor to comply with the terms of this Guaranty; or (iii)
individually or in the aggregate, could have an adverse effect on the
financial condition or operations of Guarantor.
(d) FINANCIAL INFORMATION. The financial statements
---------------------
heretofore delivered to Lender by Guarantor in connection with the Loan are
true and correct in all material respects and have been prepared in
accordance with accounting principles consistently applied and correctly
and fairly present the financial condition of the subjects thereof. There
have been no material adverse changes in the condition or prospects,
financial or otherwise, of the subjects thereof since the dates of such
financial statements. Guarantor is not insolvent as of the date hereof.
2. No act or thing, except full payment and discharge of all of the
Guaranty Obligations, shall in any way exonerate the undersigned hereunder or
modify, reduce, limit or release the liability of the undersigned hereunder.
This is an absolute, unconditional and continuing guaranty of payment and
performance of the Guaranty Obligations. The dissolution or adjudication of
bankruptcy of the undersigned shall not revoke this Guaranty.
3. Each of the undersigned represents and warrants to Lender that the
undersigned has received valuable consideration for this Guaranty. Lender may
rely conclusively on a continuing warranty, hereby made, that each of the
undersigned continues to be benefited by this Guaranty and Lender shall have no
duty to inquire into or confirm the receipt of any such benefits, and this
Guaranty shall be effective and enforceable by Lender without regard to the
receipt, nature or value of any such benefits.
4. Each of the undersigned will pay or reimburse Lender for all costs,
expenses and reasonable attorneys' fees paid or incurred by Lender in
endeavoring to collect and enforce the Guaranty Obligations and in enforcing
this Guaranty.
5. The liability of each of the undersigned shall not be diminished or
extinguished by any of the following acts or things (which Lender is expressly
authorized to do, omit or suffer from time to time, without consent or approval
by or notice to the
2
undersigned); (I) any acceptance of collateral security, additional guarantors,
accommodation parties or sureties for any or all of the Guaranty Obligations,
(ii) any amendment or modification of any of the terms or provisions of any
agreement under which the Guaranty Obligations or any part thereof arose, (iii)
any waiver or indulgence granted to the Borrower, (iv) any delay or lack of
diligence in the enforcement of the Guaranty Obligations or any failure to
institute proceedings (including expiration of the statute of limitations), file
a claim, give any required notices or otherwise protect any of the Guaranty
Obligations, (v) any full or partial release of, compromise or settlement with,
or agreement not to sue, the Borrower or any guarantor or other person liable in
respect of any of the Guaranty Obligations, (vi) any release, surrender,
cancellation or other discharge of any evidence of the Guaranty Obligations or
the acceptance of any instrument in renewal or substitution therefor other than
a release of this Guaranty, (vii) any failure to obtain collateral security
(including rights of setoff) for the Guaranty Obligations, or to see to the
proper or sufficient creation and perfection thereof, or to establish the
priority thereof and (viii) any assignment, pledge or other transfer of any of
the Guaranty Obligations or any evidence thereof.
6. The liability of each of the undersigned shall not be affected or
impaired by any voluntary or involuntary liquidation, dissolution, sale or other
disposition of all or substantially all of the Assets, marshalling of assets and
liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of, or other
similar event or proceeding affecting the Borrower or any of its assets. None of
the undersigned will assert, plead or enforce against Lender any claim, defense
or setoff available to any of the undersigned against the Borrower.
7. Until such time as the Borrower's obligations to Lender under the Loan
Documents are paid in full, each of the undersigned waives any claim, right or
remedy which any the undersigned may now have or hereafter acquire against the
Borrower which arises hereunder and/or from the performance by any the
undersigned of such undersigned's obligations hereunder including, without
limitation, any claim, remedy or right of subrogation, reimbursement,
exoneration, contribution, indemnification, or participation in any claim, right
or remedy against the Borrower, whether such claim, right or remedy arises in
equity, under contract, by statute, under common law or otherwise.
8. Each of the undersigned waives presentment, demand for payment, notice
of dishonor or nonpayment and protest of any instrument evidencing the Guaranty
Obligations. Lender shall not be required first to resort for payment of the
Guaranty Obligations to the Borrower, other persons, or their properties, or
first to enforce, realize upon or exhaust any collateral security for the
Guaranty Obligations, before enforcing this Guaranty.
9. If any payment applied by Lender to the Guaranty Obligations is
thereafter set aside, recovered, rescinded or required to be returned for any
reason (including, without limitation, the bankruptcy, insolvency or
reorganization of the Borrower or any
3
other obligor), the Guaranty Obligations to which such payment was applied shall
for the purpose of this Guaranty be deemed to have continued in existence,
notwithstanding such application, and this Guaranty shall be enforceable as to
such Guaranty Obligations as fully as if such application had never been made.
10. Each of the undersigned acknowledges and agrees that Lender (i) has not
made any representations or warranties with respect to, (ii) does not assume any
responsibility to the undersigned for, and (iii) has no duty to provide
information to the undersigned regarding, the enforceability of any of the
Guaranty Obligations or the financial condition of the Borrower or any
additional guarantors. Each of the undersigned has independently determined the
creditworthiness of the Borrower and the enforceability of the Guaranty
Obligations.
11. This Guaranty shall be effective upon delivery to Lender, without
further act, condition or acceptance by Lender, shall be binding upon each of
the undersigned and the heirs, successors and assigns of each the undersigned
and shall inure to the benefit of Lender and its participants, successors and
assigns. Any invalidity or unenforceability of any pro vision or application of
this guaranty shall not affect other lawful provisions and application thereof,
and to this end the provisions of this Guaranty are declared to be severable.
This Guaranty may not be waived, modified, amended, terminated, released or
otherwise changed except by a writing signed by the undersigned and Lender. This
Guaranty shall be governed by and construed in accordance with the laws of the
Governing State. Each of the undersigned waives notice of Lender's acceptance
hereof. Each of the undersigned (i) irrevocably agrees that any suit, action or
other legal proceeding arising out of or relating to this Guaranty may be
brought in a court of record in the Governing State or in the courts of the
United States located in the Governing State, (ii) consents to the jurisdiction
of each such court in any suit, action or proceeding, (iii) waives any objection
which it may have to the laying of venue of any such suit, action or proceeding
in any such courts and any claim that any such suit, action or proceeding has
been brought in an inconvenient forum, and (iv) agrees that a final judgment in
any such suit, action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner provided by
law.
4
12. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL
TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND
EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY
(RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE
RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE
BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE
PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR
PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE, AMONG LENDER AND BORROWER OR ANY GUARANTOR ARISING OUT OF, CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN
CONNECTION WITH, THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS OR THE
TRANSACTIONS RELATED THERETO.
[THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK.]
5
GUARANTY SIGNATURE PAGE
This Guaranty has been duly executed by each of the undersigned the day and
year first above written.
GUARANTOR:
PERFORMANCE
CAPITAL MANAGEMENT, LLC, a
California limited liability company
By:
_____________________________
Name: David Caldwell
Its: Chief Operating Officer
Address:
--------
222 S. Harbor Boulevard, Suite 400
Anaheim, CA 92805
6
MASTER LOAN AGREEMENT
EXHIBIT F
FORM OF SECURITY AGREEMENT
--------------------------
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT is made and entered into as of June 10, 2004, by
and between MATTERHORN FINANCIAL SERVICES LLC, a California limited liability
company ("BORROWER") and VARDE INVESTMENT PARTNERS, L.P., a Delaware limited
--------
partnership ("LENDER").
------
Pursuant to that certain Master Loan Agreement (the "LOAN AGREEMENT ")
--------------
dated as of June 10, 2004, by and among Borrower, Performance Capital
Management, LLC, and Lender, Lender has agreed to make Loans to Borrower to
enable Borrower to acquire Portfolios of Assets and to pay certain related
expenses.
In consideration therefore, Borrower hereby agrees to grant Lender a
security interest constituting a first lien in the "Collateral" (as defined
below), subject to the terms and conditions contained herein.
1. CREATION OF SECURITY INTEREST. Borrower assigns and grants to Lender
-----------------------------
a continuing security interest in all of Borrower's right, title and interest in
and to all property and rights of Borrower, wherever located, whether now owned
or hereafter acquired or arising, and all products and Proceeds thereof
(collectively, the "Collateral"), including but not limited to the following:
----------
All personal and fixture property of every kind and nature including,
without limitation, all furniture, fixtures, equipment, raw materials,
inventory, other Goods, Accounts (including health-care- insurance
receivables, if any), contract rights, rights to the payment of money,
insurance refund claims and all other insurance claims and proceeds,
Chattel Paper, electronic chattel paper, documents, Instruments, securities
and other investment property, deposit accounts, rights to payment under
letters of credit, letter-of-credit rights, supporting obligations of every
nature, and General Intangibles including, without limitation, all tax
refund claims, license fees, patents, patent applications, trademarks,
trademark application, trade names, copyrights, copyright applications,
rights to sue and recover for past infringement of patents, trademarks and
copyrights, computer programs, computer software, engineering drawings,
service marks, customer lists, goodwill, and all licenses, permits,
agreements of any kind or nature pursuant to which (i) Borrower operates or
has authority to operate; (ii) Borrower possesses, uses or has authority to
possess or use property (whether tangible or intangible) of others, or
(iii) others possess, use, or have authority to possess or use property
(whether tangible or intangible) of Borrower, and all recorded data of any
kind or nature, regardless of the medium of recording, including, without
limitation, all software, writings, plans, specifications, and schematics;
together with, to the extent not listed above as original Collateral, all
substitutions and replacements for and products of any of the foregoing
property not constituting consumer goods and together with
proceeds of any and all of the foregoing property and, in the case of all
tangible Collateral, together with all accessions and (except in the case
of consumer goods) together with (i) all accessories, attachments, parts,
equipment and repairs now or hereafter attached or affixed to or used in
connection with any such Goods, and (ii) all warehouse receipts, bills of
lading and other documents of title now or hereafter covering such Goods.
2. Definitions. All terms used but not otherwise defined in this Security
-----------
Agreement shall have the meanings given them in the Loan Agreement or in the
Code. In the event of any conflict between the Loan Agreement and the Code, the
terms of the Loan Agreement shall control. The following terms shall have the
meanings set forth below:
"ACCOUNTS" means any "account" as such term is defined in the Code.
--------
"CHATTEL PAPER" means any "chattel paper" as such term is defined in the
-------------
Code.
"CODE" means the Uniform Commercial Code as the same may, from time to
----
time, be enacted and in effect in the State of Minnesota; provided, that in
the event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of, or remedies with respect to,
Lender's lien on any Collateral is governed by the Uniform Commercial Code
as enacted from time to time and in effect in a jurisdiction other than the
State of Minnesota, the term
"CODE" shall mean the Uniform Commercial Code as enacted and in effect in
----
such other jurisdiction solely for purposes of the provisions thereof
relating to such attachment, perfection, priority or remedies and for
purposes of definitions related to such provisions.
"GENERAL INTANGIBLES" means any "general intangibles," as such term is
-------------------
defined in the Code.
"GOODS" means "goods" as such term is defined in the Code,
-----
regardless of whether or not title to or a security interest upon such
goods is indicated on a certificate of title (as such term is defined in
the Code).
"INSTRUMENTS" means any "instruments," as such term is defined in the
-----------
Code.
"PAYMENT INTANGIBLES" means any "payment intangibles" as defined in
--------------------
the Code.
"PROCEEDS" means "proceeds" as such term is defined in the Code.
--------
"SECURITY INTEREST" means the security interest granted by Borrower to
-----------------
Lender in the Collateral pursuant to this Security Agreement.
3. THE SECURED OBLIGATIONS. Lender's security interest in the Collateral
-----------------------
shall secure all of Borrower's obligations and liabilities to Lender
under the Loan Agreement, each and every Note evidencing a Loan, this Security
Agreement and all
2
other indebtedness, obligations or liabilities of Borrower to Lender or one of
its Affiliates under any other agreement between Borrower and Lender or one of
its Affiliates, whether now existing or hereafter arising, howsoever evidenced
or created, actual, direct, fixed or contingent (collectively, the "SECURED
-------
OBLIGATIONS ").
- -----------
4. REPRESENTATIONS, WARRANTIES AND COVENANTS. Borrower represents and
-----------------------------------------
warrants and agrees that so long as any of the Secured Obligations remain
outstanding or unsatisfied:
(a) Borrower shall be the sole owner of the Collateral free and clear
of all levies, attachments, liens, charges, encumbrances and security
interests of every kind or character (other than the security interest
granted to Lender hereunder and other than levies, attachments, liens,
charges, encumbrances and security interests, if any, arising through or
under Lender).
(b) Borrower has full power and authority to execute this Security
Agreement and to subject the Collateral to the security interest created
hereby. No financing statement reflecting the perfection of a security
interest in favor of any creditor other than Lender covering all or any
part of the Collateral, is in existence or on file in any public office.
(c) This Security Agreement creates a valid, binding and enforceable
security interest in the Collateral under the Code.
(d) The location of the chief executive office of Borrower as well as
the location where Borrower maintains all books and records regarding the
Collateral is the address set forth herein as Borrower's address for notice
purposes and will not be changed without the prior written consent of
Lender, which consent shall not be unreasonably withheld.
(e) Borrower's exact legal name is as set forth below. Neither
Borrower nor any predecessor in title to any of the Collateral has executed
any financing statements which remain of record or security agreements
which remain in effect as "Borrower" or "Debtor" covering any of the
Collateral in any other name within the past five years. Until the Secured
Obligations are paid in full, Borrower will (i) preserve its corporate
existence and not, in one transaction or a series of related transactions,
merge into or consolidate with any other entity, or sell all or
substantially all of its assets; (ii) not change its name, its type of
organization, the state of its incorporation or organization, or its
organizational identification number; and (iii) not change its corporate
name without providing Lender with 30 days' prior written notice.
(f) Borrower will at any time or times hereafter, execute such
financing statements and other documents and instruments and perform such
acts as Lender may reasonably request to establish and maintain an
attached, perfected and first priority security interest in the Collateral
and will pay all costs of filing and recording. A carbon, photograph or
other reproduction of this Security
3
Agreement shall be sufficient as a financing statement. To the extent
permitted by law, Borrower hereby authorizes Lender to file one or more
financing statements describing the Collateral held by the Lender, which
financing statements may describe the Collateral as "all assets" of
Borrower. Borrower waives any right it may have to require Lender to pursue
any third person for any of the Secured Obligations. Lender may comply with
any applicable state or federal law requirements in connection with a
disposition of the Collateral and such compliance will not be considered
adversely to affect the commercial reasonableness of any sale of the
Collateral. Lender may specifically disclaim any warranties of title and
similar warranties.
(g) Lender does not authorize, and Borrower agrees not to make any
sales of, leases of, licenses of, or other transfer or disposition of, any
of the Collateral, or any grant of a security interest in any of the
Collateral, except as expressly permitted in the Loan Agreement.
(h) Borrower shall keep the Collateral free and clear of all levies,
attachments, liens, charges, encumbrances and security interests of every
kind or character (except for the security interest granted to Lender
hereunder and except for any levies, attachments, liens, charges,
encumbrances and security interests arising through or under Lender); and
shall defend title thereto against claims of all persons.
(i) Borrower shall maintain all records, instruments or other
documentation evidencing or otherwise relating to the Collateral at
Borrower's chief executive office and will not remove any part thereof
without the prior written consent of Lender which consent shall not be
unreasonably withheld.
(j) Borrower shall promptly pay and discharge when due all license
fees, registration fees, taxes, assessments and other charges which may be
levied upon or assessed against the ownership, possession or uses of the
Collateral or any portion thereof (except as otherwise permitted in the
Loan Agreement). At Lender's reasonable request, Borrower will promptly
furnish Lender with receipts showing any such payments.
(k) Borrower shall keep accurate and complete records of the
Collateral and shall, upon Lender's reasonable request, promptly affix on
any Collateral constituting Chattel Paper, a notice, in form satisfactory
to Lender, of Lender's security interest created hereunder.
(l) The Collateral will be used primarily for business purposes and
none of the Collateral consists of consumer goods.
(m) Each right to payment and each instrument, document, chattel paper
and other agreement constituting or evidencing Collateral is (or will be
when arising or issued) the valid genuine and legally enforceable
obligation, subject to no defense, set-off or counterclaim (other than
those arising in the
4
ordinary course of business) of the account debtor or other obligor named
therein or in Borrower's records pertaining thereto as being obligated to
pay such obligation. Borrower will neither agree to any material
modification or amendment nor agree to any cancellation of any such
obligation without Lender's prior written consent, and will not subordinate
any such right to payment to claims of other creditors of such account
debtor or other obligor.
(n) Except as permitted in the Loan Agreement, Borrower will not
without the prior written consent of Lender grant to any Obligor any
rebate, refund, allowance or credit on any Asset without the prior written
consent of Lender.
(o) Borrower represents that it has no commercial tort claims (as such
term is defined by the Code) except as expressly described in Section 1.
Borrower covenants that it will immediately notify Lender of any commercial
tort claim that arises after the date of this Security Agreement and
further covenants that Borrower will execute an additional agreement to
grant a first security interest in all such commercial tort claims after
they have arisen.
(p) Borrower covenants that it will:
(i) keep all tangible Collateral in good repair, working order and
condition, normal depreciation excepted, and will, from time to
time, replace any worn, broken or defective parts thereof;
(ii) at all reasonable times, permit Lender or its representatives to
examine or inspect any Collateral, wherever located, and to
examine, inspect and copy Borrower's books and records pertaining
to the Collateral and its business and financial condition and to
send and discuss with account debtors and other obligors requests
for verifications of amounts owed to Borrower;
(iii)promptly notify Lender of any loss of or material damage to any
Collateral or of any adverse change, known to Borrower, in the
prospect of payment of any sums due on or under any instrument,
chattel paper, or account constituting Collateral;
(iv) Promptly deliver to Lender any instrument, document or chattel
paper constituting Collateral, duly endorsed or assigned by
Borrower;
(v) bear the risk of loss of the Collateral and at all times keep all
tangible Collateral insured against risks of fire (including
so-called extended coverage), theft, collision (in case of
Collateral consisting of motor vehicles) and such other risks and
in such amounts as Lender may reasonably request, with any loss
payable to Lender to the extent of its interest;
5
(vi) not use or keep any Collateral, or permit it to be used or kept,
for any unlawful purpose or in violation of any federal, state or
local law, statute or ordinance;
(vii)not permit any tangible Collateral to become part of or to be
affixed to any real property without first assuring to the
reasonable satisfaction of Lender that the Security Interest will
be prior and senior to any interest, or lien then held or
thereafter acquired by any mortgagee of such real property or the
owner or purchaser of any interest therein; and
5. LENDER'S AUTHORITY; POWER OF ATTORNEY. Upon the occurrence of an
---------------------------------------
Event of Default under the Loan Agreement, Lender shall, without any further
action on the part of Borrower, have the authority, but shall not be obligated
to:
(a) notify any or all Obligors of the existence of Lender's security
interest and require such Obligors to pay or remit all sums due or to
become due directly to Lender or its nominee;
(b) place on (i) any chattel paper received as proceeds and
(ii) Borrower's books and records relating to the Collateral covered by the
security interest granted hereby a notation or legend stating that such
Collateral is subject to a security interest held by Lender;
(c) demand, collect, receive and receipt for, compound, compromise,
settle and give acquittance for, and prosecute and discontinue any suits or
proceedings in respect of any or all of the Collateral in the name of
Borrower; or
(d) take any action which Lender may deem necessary or desirable in
order to realize on the Collateral, including, without limitation,
performance of any contract and endorsement in the name of Borrower of any
checks, drafts, notes or other instruments or documents received in payment
of or on account of the Collateral.
Borrower hereby irrevocably appoints Lender as Borrower's agent and attorney-
in- fact, with full authority in the place and stead of Borrower and in the name
of Borrower, or otherwise, from time to time in Lender's discretion to take any
action and to execute any instrument which Lender may deem necessary or
advisable in pursuing or taking the foregoing rights and actions. Such
appointment is a right coupled with a present interest.
6
6. PERFECTION OF SECURITY INTERESTS.
--------------------------------
(a) Borrower shall, from time to time, deliver (and, if required under
applicable law, execute) such financing statements as Lender may reasonably
require in order to perfect the security interest granted herein. If any
Collateral consists of a motor vehicle or other personal property with a
certificate of title, Borrower shall execute such documents as may be
required to have the Security Interest properly noted on a certificate of
title. Borrower shall execute, deliver or endorse any and all instruments,
documents, assignments, security agreements and other agreements and
writings which Lender may at any time reasonably request in order to
secure, protect, perfect or enforce the Security Interest and Lender's
rights under this Security Agreement.
(b) To the extent permitted by law, Borrower hereby authorizes Lender
to file one or more financing statements (each a "Financing Statement")
describing the Collateral or any agricultural liens or other statutory
liens held by Lender including (i) Financing Statements where the
collateral is described with greater or lesser detail than as set forth in
this security agreement (ii) Financing Statements in which the scope of the
collateral is expanded or reduced from the scope set forth herein and (iii)
Financing Statements covering "all assets" of Borrower.
(c) Borrower shall have possession of the Collateral, except where
expressly otherwise provided in this Security Agreement or where Lender
chooses to perfect its security interest by possession, in addition to the
filing of a Financing Statement. Where Collateral is in the possession of a
third party, Borrower will join with Lender in notifying the third party of
Lender's security interest and Borrower will obtain, at Borrower's expense,
an acknowledgment form the third party that it is holding the Collateral
for the benefit of Lender.
(d) Borrower will cooperate with Lender in obtaining control with
respect to Collateral consisting of deposit accounts, investment property,
and Chattel Paper.
(e) Borrower will obtain, at Borrower's expense, the consent to the
Security Interest by the issuer of any letter of credit in which Borrower
has a Security Interest.
(f) Borrower will not create any Chattel Paper without placing a
legend on the Chattel Paper acceptable to Lender that indicates that Lender
has a security interest in the Chattel Paper. Borrower will, upon the
request of Lender, affix a legend acceptable to Lender on any Chattel Paper
received by Borrower that constitutes Collateral that Lender has a security
interest in the Chattel Paper.
7
7. EVENTS OF DEFAULT; REMEDIES. If any Event of Default under the Loan
---------------------------
Agreement shall have occurred and be continuing:
(a) Lender may, at its option, by written notice to Borrower, declare
the entire unpaid balance of the Loans, and all other Secured Obligations
and liabilities of Borrower, immediately due and payable, and Lender may
exercise in respect of the Collateral, in addition to other rights and
remedies otherwise available to it, all the rights and remedies of a
secured party under the Code (whether or not the Code applies to the
affected Collateral).
(b) Without limiting the generality of the foregoing, Lender may, to
the fullest extent permitted by applicable law, without notice, hearing or
process except as specified below, sell the Collateral or any part thereof
in one or more parcels at public or private sale, for cash, on credit or
for future delivery, and upon such other terms as Lender may deem
commercially reasonable, and Lender may purchase all or any part of the
Collateral at public or, if permitted by law, private sale, and in lieu of
actual payment of such purchase price, may set off the amount of such
purchase price against the Secured Obligations. Lender may adjourn any
public or private sale from time to time by announcement at the time and
place fixed therefore, and such sale may, with notice, be made at the time
and place to which it was so adjourned. Lender may abandon any such
proposed sale. Borrower acknowledges that any private sales of Collateral
affected by Lender may result in terms less favorable to a seller than
public sales, but Borrower agrees that such private sales shall
nevertheless be deemed commercially reasonable.
(c) If any notification of intended disposition of any of the
Collateral is required by law, such notification shall be deemed reasonably
and properly given if (i) deposited in the United States Postal Service
(certified mail) or (ii) sent via overnight delivery at least ten (10) days
before such disposition, postage prepaid, addressed to Borrower at the
address first set forth above. Such disposition shall be established by
affidavit of a representative of Lender, receipts or other reasonable
method.
(d) Borrower agrees to pay all costs and expenses incurred by Lender,
including reasonable attorney's fees and court costs, in connection with
any sale held pursuant to this Security Agreement or otherwise in
connection with enforcing the rights of Lender hereunder.
(e) The rights and remedies of Lender hereunder are cumulative and
nonexclusive and the exercise of any one or more of the remedies provided
for herein or under the Code shall not be construed as a waiver of any of
the other remedies of Lender so long as any part of the Secured Obligations
remain unsatisfied. No failure on the part of Lender to exercise, and no
delay in exercising, any right, power or remedy hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such
right, power or remedy
8
by Lender preclude any other or further exercise thereof or the exercise of
any other right, power or remedy.
(f) Any payments or proceeds received by Lender from the Collateral
shall be applied to the payment of costs and expenses incurred by Lender in
connection with performing, managing, maintaining or selling the
Collateral, including reasonable attorneys' fees and expenses, and the bala
nce, if any, shall be applied by Lender to payment of the Secured
Obligations, in order of application as Lender shall determine.
8. ASSIGNMENT OF INSURANCE. Borrower hereby assigns to Lender,
-------------------------
as additional security for the payment of the Secured Obligations, any and all
moneys (including but not limited to proceeds of insurance and refunds of
unearned premiums) due or to become due under and all other rights of Borrower
under or with respect to, any and all policies of insurance covering the
Collateral, and Borrower hereby directs the issuer of any such policy to pay any
such moneys directly to Lender. Both before and after the occurrence of an Event
of Default, Lender may (but need not), in its own name or in Borrower's name,
execute and deliver proofs of claim, receive all such moneys, indorse checks and
other instruments representing payment of such moneys, and adjust, litigate,
compromise or release any claim against the issuer of such policy.
9. INDEMNIFICATION. Borrower agrees to indemnify and hold
---------------
Lender harmless from and against any and all claims, losses and liabilities
arising out of or resulting from this Security Agreement (including enforcement
of this Security Agreement) except claims, losses or liabilities resulting from
Lender's gross negligence or willful misconduct.
10. NOTICES. Unless otherwise required or provided by this
-------
Security Agreement, all demands, notices, approvals and other communications
hereunder (including Borrower's reporting obligations set forth herein)
(individually and collectively, "NOTICES") shall be in writing and shall be
-------
served personally, delivered by facsimile or sent by a national overnight
delivery or courier company, or by United States registered or certified mail,
postage prepaid return receipt requested, and addressed as set forth below. Any
such Notices shall be deemed delivered upon delivery or refusal to accept
delivery as indicated in writing by the person attempting to make personal
service, on the United States Postal Service return receipt, or by similar
written advice from the overnight delivery company; provided, however, that if
any such Notice shall be sent by telecopier to the telecopier number, if any,
set forth below, such Notice shall be deemed given at the time and on the date
of machine transmittal (except if sent after 5:00 p.m. recipient's time, then
the notice shall be given at 9:00 a.m. on the next Business Day) if the sending
party receives a written send verification on its machine and sends a duplicate
Notice on the same day or the next Business Day by personal service, registered
or certified United States mail, or overnight delivery in the manner described
above. Each party hereto shall make an ordinary, good faith effort to ensure
that it will accept or receive Notices that are given in accordance with this
Section 10, and that any person to be given Notice actually receives such
Notice. Any party to whom Notices are to be sent pursuant to this Security
Agreement may from time to time change its address and/or
9
facsimile number for future communication hereunder by giving Notice in the
manner prescribed herein to all other parties hereto, provided that the address
and/or facsimile number change shall not be effective until five (5) Business
Days after the Notice of change has been give n.
If to Lender: With a Copy to:
Varde Investment Partners, L.P. Leonard, Street and Deinard
c/o Varde Partners, L.P. Professional Association
8500 Normandale Lake Blvd., Suite 1570 150 South Fifth Street, Suite 2300
Minneapolis, MN 55437 Minneapolis, MN 55402
Attention: Christopher Giles Attention: Andrew Lee, Esq.
Telephone No.: (952) 893-1554 Telephone No.: (612) 335-1881
Facsimile No.: (952) 893-9613 Facsimile No.: (612) 335-1657
If to Borrower: With a Copy to:
Matterhorn Financial Services LLC Matterhorn Financial Services LLC
222 S. Harbor Boulevard, Suite 400 222 S. Harbor Boulevard, Suite 400
Anaheim, CA 92805 Anaheim, CA 92805
Attention: Mr. David Caldwell Attention: William D. Constantino
Telephone No.: (714) 502-3790 Telephone No.: (714) 502-3780
Facsimile No.: (714) 502-3733 Facsimile No.: (714) 502-3733
11. GOVERNING LAW; JURISDICTION; VENUE. THIS SECURITY AGREEMENT, AND
-------------------------------------
WITHOUT LIMITATION ANY QUESTIONS CONCERNING THE INTERPRETATION OR ENFORCEMENT
THEREOF, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
GOVERNING STATE. Borrower and Lender each hereby irrevocably submit to the
jurisdiction of any state or federal court sitting in the Governing State over
any suit, action or proceeding arising out of or relating to this Security
Agreement. Borrower and Lender each irrevocably waive, to the fullest extent
permitted by law, any objection that Borrower or Lender may now or hereafter
have to the laying of venue of any such suit, action or proceeding brought in
any such court and any claims that any such suit, action or proceeding brought
in any such court has been brought in an inconvenient forum. Nothing in this
Section shall limit the right of Lender to bring proceedings against Borrower in
the courts of any other jurisdiction. Borrower agrees that any forum other than
the Governing State is an inconvenient forum and that a suit brought by Borrower
against Lender in a court of any state other than the Governing State should be
forthwith dismissed or transferred to a court located in the Governing State by
that court.
10
12. WAIVER OF NOTICES AND HEARING. Borrower, by entering into this
-----------------------------
Security Agreement and negotiating the terms hereof, voluntarily, intelligently
and knowingly waives any rights it may have to demand any notices other than
those provided for herein and any right to a hearing as a condition precedent to
Lender's exercise of its rights under the Code with respect to the Collateral
covered by this Security Agreement.
[THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK.]
11
SECURITY AGREEMENT
[Signature Page]
The parties have caused this Security Agreement to be executed as of the
date first shown above.
LENDER: BORROWER:
VARDE INVESTMENT PARTNERS, MATTERHORN FINANCIAL
L.P., a Delaware limited partnership, by SERVICES LLC, a California limited
Varde Investment Partners, G.P., LLC, a liability company, by Performance Capital
Delaware limited liability company, its Management, LLC, a California limited
General Partner, by Varde Partners, L.P., a liability company, its Sole Member
Delaware limited partnership, its Managing
Member, by Varde Partners, Inc., a
Delaware corporation, its General Partner
By: _____________________________ By: _____________________________
Name: Rick J. Noel Name: David Caldwell
Its: Vice President Its: Chief Operating Officer
MASTER LOAN AGREEMENT
EXHIBIT G
FORM OF ASSIGNMENT OF SERVICING AGREEMENT
-----------------------------------------
ASSIGNMENT OF SERVICING AGREEMENT
---------------------------------
THIS ASSIGNMENT OF SERVICING AGREEMENT (the "ASSIGNMENT") is entered into
----------
as of June 10, 2004, by and among MATTERHORN FINANCIAL SERVICES LLC, a
California limited liability company ("BORROWER"), PERFORMANCE CAPITAL
--------
MANAGEMENT, LLC, a California limited liability company ("SERVICER"), and VARDE
--------
INVESTMENT PARTNERS, L.P., a Delaware limited partnership ("LENDER").
------
R E C I T A L S:
Borrower is in the business of purchasing Assets from various Asset
Sellers.
Borrower intends to finance the acquisition of Assets with loans from
Lender pursuant to the terms of a Master Loan Agreement dated as of even date
herewith (the "LOAN AGREEMENT"). Pursuant to the Loan Agreement, Borrower is
--------------
required to grant Lender security interests in the Collateral.
Borrower and Servicer have entered into a Servicing Agreement dated as of
even date herewith (the "SERVICING AGREEMENT"), wherein Servicer agreed for
--------------------
compensation to manage, administer, service, make or cause to be made collection
efforts with regard to the Collateral, and to dispose of Collateral for the
benefit of Borrower and Lender.
As a condition precedent to the making advances pursuant to the Loan
Agreement, Lender requires that Borrower assign to it the Servicing Agreement,
and that Servicer acknowledge the assignment, subject to the terms and
conditions set forth below.
A G R E E M E N T:
NOW THEREFORE, for and in consideration of the mutual covenants herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby mutually acknowledged, the parties agree as follows:
1. Definitions. All capitalized terms not otherwise defined herein have
-----------
the respective meanings contained in the Servicing Agreement.
2. Assignment of Servicing Agreement. Borrower hereby assigns to Lender
------------------------------------
all rights in, to and under, all monies due and to become due pursuant to any
and all claims, demands and causes of action that Borrower now has or which may
hereafter arise against all parties under the Servicing Agreement; provided,
--------
however, that this Assignment shall become effective only upon the occurrence of
- -------
an Event of Default. Nothing in this Assignment shall be construed as imposing
on Lender any of Borrower's duties or obligations under the Servicing Agreement.
3. Lender's Rights on Event of Default. Upon the occurrence of an
----------------------------------------
Event of Default, Lender is hereby authorized at its option to exercise any and
all rights of Borrower pursuant to the Servicing Agreement and to receive for
Borrower's account, and not as a lender, all sums due Borrower pursuant to the
Servicing Agreement, and Lender is further authorized to prosecute, compromise
or take any other action which Borrower might take with respect to any claim,
demand or cause of action related to the Servicing Agreement as Lender deems
appropriate, including, without limitation, prosecution, compromise or release
of such claims. NOTWITHSTANDING ANY PROVISION CONTAINED IN THE SERVICING
AGREEMENT TO THE CONTRARY, UPON THE OCCURRENCE OF AN EVENT OF DEFAULT, LENDER
MAY, AT ITS OPTION, IMMEDIATELY TERMINATE THE SERVICING AGREEMENT WITH OR
WITHOUT CAUSE. UPON SUCH TERMINATION, NO PENALTY, FEE OR OTHER ACCELERATED
PAYMENT SHALL BE DUE TO SERVICER, BUT LENDER SHALL PROMPTLY REMIT PAYMENT OF ANY
UNPAID SERVICING FEES TO SERVICER (EXCEPT THAT LENDER MAY OFFSET ANY AMOUNTS DUE
TO BORROWER OR LENDER AND HELD BY SERVICER IN BREACH OF THE SERVICING
AGREEMENT).
4. Borrower's Rights Absent Default. Subject to the terms of the Loan
-----------------------------------
Documents, so long as Lender does not exercise its rights pursuant to Section 3
above, Borrower shall be entitled to collect, receive and apply for its own
account any sums due it pursuant to the Servicing Agreement and to prosecute,
compromise or take any other actions which Borrower deems appropriate with
respect to all rights, claims, demands or causes of actions which Borrower now
has or which may hereafter arise pursuant to the Servicing Agreement.
5. No Modification, Assignment or Termination without Lender Consent.
----------------------------------------------------------------------
Borrower and Servicer agree that neither will cancel, terminate, modify or
assign the Servicing Agreement without the prior written consent of Lender.
6. Indemnity. Borrower agrees to indemnify, defend and hold Lender
---------
harmless from and against any and all liability, loss, damage and expense,
including attorney's fees, which Lender may incur by reason of this Assignment;
provided, however, that such liability, loss, damage and expense is not incurred
due to the gross negligence or willful, wrongful conduct of Lender.
2
7. No Undisclosed Terms. Borrower and Servicer represent and warrant to
----------------------
Lender that the terms and conditions of the Servicing Agreement have been fully
set out and disclosed in the copies thereof that have been delivered to Lender.
8. Further Documents. Borrower and Servicer agree to execute and
------------------
deliver to Lender at any time or times during which this Assignment shall be in
effect such further instruments as may be necessary or convenient to make
effective this Assignment and the covenants herein contained.
9. Termination of Assignment. Upon payment of all sums due under the
--------------------------
Loan Documents, this Assignment shall terminate automatically.
10. No Waiver. The failure of Lender to avail itself of any of the terms
---------
of this Assignment for any period of time or times shall not be construed or
deemed to be a waiver of any of its rights hereunder. The rights and remedies of
Lender under this Assignment are cumulative, not in lieu of, but in addition to,
any other rights and remedies which Lender may have under or by virtue of the
Loan Documents or available by law. The rights and remedies of Lender may be
exercised from time to time and as often as such exercise is deemed expedient by
Lender.
11. Security Interests. Lender is granted a security interest in
-------------------
and to the Servicing Agreement and all monies and claims for money due or to
become due to Borrower under the Servicing Agreement. For this purpose Lender
shall be deemed a secured party, and Borrower shall be deemed a debtor. Borrower
agrees that Lender may file a financing statement in any jurisdiction deemed
appropriate by Lender in order to perfect the security interest granted hereby.
Borrower further agrees to take any other such actions as Lender may require to
perfect the security interest granted hereby.
12. Successors and Assigns Bound. This Assignment shall be binding upon
-------------------------------
and inure to the benefit of the parties hereto and their respective successors
and assigns.
13. Applicable Law. This Assignment shall be governed by and construed
---------------
in accordance with the laws of the State of Minnesota.
14. Counterparts. This Assignment may be executed in any number of
------------
counterparts. All counterparts shall be construed together and shall constitute
but one instrument.
[THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK.]
3
ASSIGNMENT OF SERVICING AGREEMENT
[Signature Page]
IN WITNESS WHEREOF, the parties hereto have executed this Assignment as of
the date first above written.
BORROWER: SERVICER:
MATTERHORN FINANCIAL SERVICES PERFORMANCE CAPITAL MANAGEMENT,
LLC, a California limited liability company, by LLC, a California limited liability company
Performance Capital Management, LLC, a
California limited liability company, its Sole
Member
By: _____________________________ By: _____________________________
Name: David Caldwell Name: David Caldwell
Its: Chief Operating Officer Its: Chief Operating Officer
LENDER:
VARDE INVESTMENT PARTNERS, L.P., a Delaware
limited partnership, by Varde Investment Partners,
G.P., LLC, a Delaware limited liability company,
its General Partner, by Varde Partners, L.P., a
Delaware limited partnership, its Managing Member,
by Varde Partners, Inc., a Delaware corporation,
its General Partner
By:
___________________________
Name: Rick J. Noel
Its: Vice President
4
MASTER LOAN AGREEMENT
EXHIBIT H
FORM OF SERVICING AGREEMENT
---------------------------
SERVICING AGREEMENT
-------------------
THIS SERVICING AGREEMENT (this "SERVICING AGREEMENT") is made and entered
-------------------
into as of June 10, 2004, by and between MATTERHORN FINANCIAL SERVICES LLC, a
California limited liability company ("CLIENT"), and PERFORMANCE CAPITAL
------
MANAGEMENT, LLC, a California limited liability company ("SERVICER").
--------
RECITALS
--------
Client is in the business of purchasing Assets from various Asset Sellers.
Client intends to finance the acquisition of Assets with loans from Lender
pursuant to the terms of the Loan Agreement. Pursuant to the Loan Agreement,
Client is required to grant Lender security interests in the Collateral.
Client desires to retain Servicer to manage, administer, service, make or
cause to be made collection efforts with regard to the Collateral, and dispose
of Collateral, all in the manner hereinafter set forth.
Servicer acknowledges Lender's interest in the Collateral and agrees to
provide the services described herein for the benefit of Client and Lender.
In consideration of the foregoing and the agreements set forth in this
Servicing Agreement, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Servicing Agreement, the following terms shall have
the following meanings:
"ASSETS" shall have the meaning set forth in the Loan Agreement.
------
"ASSET SELLER" shall have the meaning set forth in the Loan Agreement.
------------
"BUSINESS DAY" shall have the meaning set forth in the Loan Agreement.
------------
"COLLATERAL" shall have the meaning set forth in the Loan Agreement.
----------
"COLLECTION ACCOUNT" shall have the meaning set forth in the Loan
------------------
Agreement.
"COLLECTION PERIOD" shall have the meaning set forth in the Loan Agreement.
-----------------
"EFFECTIVE DATE" shall mean the date on which Client acquires any
---------------
Assets financed pursuant to the Loan Agreement.
"EVENT OF DEFAULT" shall have the meaning set forth in Section 5.1 below.
----------------
"GROSS RECEIPTS" shall have the meaning set forth in the Loan Agreement.
--------------
"INSOLVENCY PROCEEDING" means (i) the commencement by a person as debtor
---------------------
of any case or proceeding under any bankruptcy, insolvency, reorganization,
liquidation, dissolution or similar law, or such person seeking the appointment
of a receiver, trustee, custodian or similar official for such person or any
substantial part of such person's property, or a decree or order seeking such
appointment, (ii) the commencement of any such case or proceeding against a
person or another seeking such an appointment which (a) is consented to by such
party, (b) results in the entry of an order for relief, such appointment, the
issuance of such a protective decree or the entry of an order having similar
effect or (c) is not dismissed within 30 days, (iii) the making by a person of a
general assignment for the benefit of creditors or (iv) the admission in writing
by a person of such person's inability to pay such person's debts as they become
due.
"LENDER" means Varde Investment Partners, L.P., a Delaware limited
------
partnership.
"LIEN" shall have the meaning set forth in the Loan Agreement.
----
"LOAN" shall have the meaning set forth in the Loan Agreement.
----
"LOAN AGREEMENT" means that certain Master Loan Agreement dated as of June
--------------
10, 2004 between Client and Lender, as amended, supplemented or renewed from
time to time.
"MATERIAL ADVERSE EFFECT" shall have the meaning set forth in the Loan
-----------------------
Agreement.
"OBLIGOR" shall have the meaning set forth in the Loan Agreement.
-------
"PERSON" shall have the meaning set forth in the Loan Agreement.
------
"PORTFOLIO" shall have the meaning set forth in the Loan Agreement.
---------
"PORTFOLIO BUDGET" shall have the meaning set forth in the Loan Agreement.
----------------
"PROTECTIVE ADVANCE" shall have the meaning set forth in the Loan
------------------
Agreement.
"PROTECTIVE ADVANCE LIMIT" shall have the meaning set forth in the Loan
------------------------
Agreement.
"REMITTANCE REPORT" shall have the meaning set forth in the Loan Agreement.
-----------------
2
"SERVICING FEES" shall have the meaning set forth in the Loan Agreement.
--------------
"SUBSERVICER" shall have the meaning set forth in the Loan Agreement.
-----------
ARTICLE II
ADMINISTRATION AND SERVICING OF COLLATERAL.
-------------------------------------------
Section 2.1 Appointment of Servicer. Client hereby appoints
-------------------------
Servicer to manage, administer, service, make or cause to be made, collection
efforts with regard to the Collateral and to dispose of Collateral.
Section 2.2 Duties of Servicer. Servicer will provide the services
--------------------
customarily provided by servicers of collateral of the same or similar type as
the Collateral, including the following:
(a) Management of Collateral. Servicer shall manage the Collateral
--------------------------
in a manner consistent with the Portfolio Budgets and collect the Collateral in
a manner consistent with this Servicing Agreement and act, with respect to the
Collateral, in such a manner as will maximize the benefits to be received by
Client and Lender. Servicer ma y compromise, settle and give acquittance for,
and prosecute and discontinue suits and proceedings in respect of, the
Collateral in the ordinary course of servicing the Collateral, provided,
however, that Servicer may not take a course of action including a discounted
payment, foreclosure, sale or restructuring of any Collateral that materially
varies from the applicable Portfolio Budget without the prior written approval
of Client and Lender.
(b) Payment Processing. Servicer will cause all Gross
-------------------
Receipts to be processed in accordance with Section 3.3 of the Loan Agreement.
(c) Reporting. Servicer will assist Client in preparing and
---------
delivering on a timely basis the reports identified in Section 6.3 of the Loan
Agreement.
Section 2.3 Servicing Fees. As compensation for its services
---------------
hereunder, Client shall pay to Servicer the Servicing Fees. Servicing Fees will
be payable solely from Gross Receipts as provided in the Loan Agreement.
Section 2.4 Expenses of Servicer. Servicer shall be responsible for
----------------------
all internal costs and expenses of performing the services under this Servicing
Agreement, including but not limited to rent, salaries and communications.
Section 2.5 Standard of Care. In performing its duties and
------------------
obligations under this Servicing Agreement, Servicer will comply in all material
respects with all applicable federal, state, and local laws and regulations,
(including but not limited to any applicable consumer protection laws or
regulations), and will exercise that degree of skill and care consistent with
the degree of skill and care customarily exercised in the industry with respect
to collateral similar to the Collateral, and that is consistent with prudent
industry standards, and will apply in performing such duties and obligations,
those standards, policies and procedures consistent with the standards, policies
and procedures Servicer applies with respect to assets similar to the
3
Collateral owned or serviced by it; provided, however, that notwithstanding the
foregoing, Servicer shall not, except pursuant to a judicial order from a court
of competent jurisdiction, or as otherwise required by applicable law or
regulation or as otherwise permitted in Section 2.2(a) or elsewhere in this
Servicing Agreement, release or waive the right to collect the unpaid balance on
any Collateral. In performing its duties and obligations hereunder, Servicer
shall maintain all state and federal licenses, permits and franchises necessary
and appropriate for it to perform its responsibilities hereunder, and shall not
impair the rights of Client and Lender in the Collateral.
Section 2.6 Subservicing; Delegation by Servicer. Servicer agrees
---------------------------------------
that the terms and conditions of any subservicing agreement or other assignment
or delegation of all or part of Servicer's responsibilities under this Servicing
Agreement to any other Subservicer, including any amendment to any such
agreement or change in the terms of any such assignment or delegation, must be
approved in writing in advance by Client and Lender. Lender's and Client's
approval with respect to such subservicing, assignment or delegation may be
given or withheld by each such party in its sole and absolute discretion. No
such subservicing, assignment or delegation shall relieve Servicer of its
obligations hereunder and Servicer shall be responsible for monitoring and
enforcing any such subservicing, assignment or delegation for compliance with
the terms of this Servicing Agreement. Servicer shall cause any Subservicer to
whom any obligation or duty of Servicer hereunder is assigned or delegated to
comply with the terms of this Servicing Agreement, including, without
limitation, standard of care and licensing provisions of Section 2.5.
Section 2.7 Protective Advances. Client shall reimburse Servicer for
--------------------
all Protective Advances up to the amount of the Protective Advance Limit. Any
and all Protective Advances in excess of the Protective Advance Limit must be
approved in advance by Client and Lender.
ARTICLE III
COVENANTS OF SERVICER
---------------------
Servicer covenants and agrees as follows:
(a) Servicer shall defend Client's right, title and interest to and in
the Collateral against all claims of third parties claiming through or
under Servicer;
(b) Servicer shall promptly notify Client and Lender of the occurrence
of any Eve nt of Default and any material breach by Servicer of any of its
covenants, obligations or representations and warranties contained herein
or any other fact or circumstance known to Servicer which, if not cured,
with the passage of time, would result in an Event of Default;
(c) Servicer shall not sell, pledge, assign, or transfer to any other
Person, or grant, create, incur, assume, permit or suffer to exist any Lien
arising through Servicer on any Collateral owned by Client;
(d) Servicer will promptly advise Lender of any inquiry received from
an Obligor which contemplates the consent of Client or Lender regarding
settlement of any
4
unasserted claim, defense or compromise of any amount an Obligor owes or
any other matters Servicer should reasonably understand are not within
Servicer's authority under this Servicing Agreement.
(e) Servicer and every Subservicer shall maintain at all times:
(i) Errors and omissions insurance providing coverage in an amount
not less than one million dollars ($1,000,000). This coverage
shall include, but not be limited to, defense and alleged/caused
by errors and omissions as well as defense and loss related
(directly or indirectly) for alleged violation of federal or
state laws relating to collection practices;
(ii) General comprehensive insurance providing coverage in an amount
not less than one million dollars ($1,000,000); and
(iii) Employee dishonesty insurance (or similarly named and purposed
insurance or bond) providing coverage in an amount not less than
one million dollars ($1,000,000) to insure/bond theft of money by
employees or other authorized persons/entities of Client,
Servicer, and/or any Subservicer.
All policies maintained under this Article must name Client and Lender as
additional insureds. All policies required under this Article shall be in a
form and issued by insurance companies reasonably approved by Client and
Lender. Each policy shall require notice to Client and Lender 30 days prior
to the expiration or cancellation of the insurance. Lender shall have the
right to hold the original policies or duplicate original policies of all
insurance required by this Article. Servicer shall promptly deliver to
Client and Lender a copy of all renewal and other notices received by such
party with respect to the policies and all receipts for paid premiums. At
least 30 days prior to the expiration date of a policy, Servicer shall
deliver to Lender the original (or a duplicate original) of a renewal
policy in form reasonably satisfactory to Lender.
(f) Servicer shall treat all information relating to Client or the
Collateral as confidential and, except as necessary or appropriate in
connection with the servicing of the Collateral, Servicer shall not
disclose any such information without the written consent of Client and
Lender.
(g) Servicer shall take, or cause to be taken, all steps necessary to
perfect Lender's security interest in the Collateral including, without
limitation, the physical delivery of the original Collateral documents,
other evidences of indebtedness or chattel paper evidencing or securing the
Collateral to such agents, representatives or employees of Lender as Lender
may from time to time reasonably direct, the notation of Lender's security
interest in any of such Collateral on the instruments and documents
evidencing the Collateral or the filing or recording of any assignment,
financing statement, notice or other writing, all at Client's expense.
5
(h) If an Event of Default has occurred and is continuing or exists as
of the end of a fiscal year, on or before ninety (90) days after the end of
such fiscal year, Servicer shall cause a firm of independent accountants
which is a member of the American Institute of Certified Public Accountants
(which firm shall be reasonably acceptable to Lender) to furnish a
statement to Client and Lender, to the effect that such firm has examined
certain documents and records relating to Servicer's loan servicing and
reporting activities and on the basis of such examination, has concluded
that, such servicing and reporting requirements have been conducted in
compliance with this Servicing Agreement. If such Event of Default is
primarily caused by Servicer, the cost to Servicer of such accountant's
statements shall be the responsibility of and paid by Servicer. Otherwise,
the cost of such statements shall be the responsibility of and paid by
Client.
(i) Servicer shall deliver to Client and Lender on or before March 31
of each year, a certificate of an officer of Servicer, dated effective as
of March 31 of the preceding year, stating that (i) a review of the
activities of Servicer during the preceding twelve-month period and of its
performance under this Servicing Agreement has been made under such
officer's supervision and (ii) based on such review, Servicer has
materially fulfilled all its obligations under this Servicing Agreement
throughout such year, or, if there has been a default in the fulfillment of
any such obligation, specifying each such default and the nature and status
thereof.
(j) Servicer agrees that it will permit any representative or agent of
Client and/or Lender, to examine all the books of account, records, reports
and other papers of Servicer relating to the Collateral, to make copies and
extracts therefrom, and to discuss its affairs, finances and accounts
relating to the Collateral with representatives and agents of Client and/or
Lender, all at such reasonable times and as often as may be reasonably
requested.
(k) Servicer will promptly notify Lender of any threatened or actual
litigation involving any Collateral or Servicer (as a party to the
litigation) in which the amount of damages claimed is greater than
$10,000.00.
(l) Except for this Servicing Agreement, with respect to all
Collateral, Servicer will not, either directly or indirectly, enter into
any contracts, agreements or transactions other than agreements for legal
services, including but not limited to, brokerage contracts, property
management agreements, sales contracts for the providing of any other goods
or services, or the reimbursement or payment of any fees or expenses with
its members, officers or governors or with any of Client's Affiliates or
Servicer's Affiliates or entities owned in whole or in part by Client or
Servicer or their members without the prior written consent of Client and
Lender, which consent may be withheld for any reason. Servicer and its
Affiliates (other than Client) will not lend or invest money in, or borrow
from, any person or entity that purchases all or any portion of the
Collateral, or any interest therein, without the prior written consent of
Lender, which consent may be withheld for any reason.
6
(m) Servicer will cause David Caldwell to remain a senior officer of
Servicer and to devote such time to the performance of the services
described in this Servicing Agreement as is reasonably necessary to fulfill
Servicer's obligations hereunder.
(n) Not later than ninety (90) days after Servicer's fiscal year end,
Servicer will provide to Lender, annual financial statements of Servicer
reviewed by an independent firm of certified public accountants in
accordance with generally accepted accounting principles and certified as
correct by a reliable officer of Servicer. Should (i) an Event of Default
occur or (ii) the total unpaid principal balance of all Notes exceed ten
million dollars ($10,000,000) as of any fiscal year end of Client; Lender,
in its sole and absolute discretion, may require that such financial
statements be audited rather than reviewed. The cost of such audit shall be
paid by Client.
(o) Not later than sixty (60) days after each fiscal quarter of
Servicer, Servicer will provide to Lender, financial statements for such
quarter of Servicer prepared in accordance with generally accepted
accounting principles and certified as correct by a reliable officer of
Servicer.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 4.1 Representations and Warranties of Servicer. Servicer
----------------------------------------------
represents, warrants and covenants to Client and Lender that during the term of
this Servicing Agreement:
(a) Organization and Standing. Servicer is and shall be a limited
---------------------------
liability company duly organized and validly existing under the laws of the
State of California, with power and authority to own its properties and to
conduct its business as such properties are owned and such business is
presently conducted;
(b) Power and Authority. Servicer has full power and authority to
---------------------
execute, deliver and perform its obligations under this Servicing Agreement
and has duly and properly taken all necessary action to permit and
authorize the execution, delivery and performance of this Servicing
Agreement;
(c) Compliance With Law and Other Agreements. The consummation of the
----------------------------------------
transactions contemplated by this Servicing Agreement and the fulfillment
of the terms hereof will not (i) violate Servicer's Articles/Certificate of
Organization or Operating Agreement or constitute a default (or an event
which, with notice or lapse of time, or both, would constitute a default)
under, or result in the breach any contract, indenture, lease, credit
agreement or any other agreement or instrument to which Servicer is a party
or which may be applicable to Servicer or any of its properties; (ii)
result in the creation or imposition of any lien upon any of its properties
pursuant to the terms of any such indenture, agreement, or other instrument
(other than the Servicing Agreement); or (iii) violate any law, order, rule
or regulation applicable to Servicer of any court, federal or state
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over Servicer or its property;
7
(d) Binding Obligations. This Servicing Agreement shall constitute a
--------------------
legal, valid, and binding obligation of Servicer enforceable in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, or other similar laws affecting the enforcement
of creditors' rights in general and by general principles of equity,
regardless of whether such enforceability shall be considered in a
proceeding in equity or at law;
(e) Litigation. No proceeding of any kind, including but
----------
not limited to litigation, arbitration, judicial or administrative, is
pending or threatened against or contemplated by Servicer which would under
any circumstance have a material adverse effect on the execution, delivery,
performance or enforceability of this Servicing Agreement; and
(f) Disclosure. All factual information (taken as a whole)
----------
heretofore or contemporaneously furnished by or on behalf of Servicer
orally or in writing to Client or Lender, including but not limited to the
collection history, experience and past results of Servicer, does not, and
all other such factual information (taken as a whole) hereafter furnished
by or on behalf of Servicer to Client or Lender will not, as of the date
such information is dated or certified, contain any untrue statement of a
material fact or omit to state any material fact necessary to make such
information (taken as a whole) not misleading.
Section 4.2 Representations and Warranties of Client. Client
--------------------------------------------
hereby represents, warrants and covenants to Servicer that:
(a) Organization and Standing. Client is a limited liability
---------------------------
company organized and in good standing under the laws of the State of
California, with power and authority to own its properties and to conduct
its business as such properties are owned and such business is presently
conducted.
(b) Power and Authority. Client has all requisite power and
---------------------
authority to execute, deliver, and carry out its obligations under this
Servicing Agreement and has duly and properly taken all necessary action to
permit and authorize the execution, delivery and performance of this
Servicing Agreement.
(c) Compliance With Law and Other Agreements. The consummation of
--------------------------------------------
the transactions contemplated by this Servicing Agreement and the
fulfillment of the terms hereof will not (i) violate Client's Operating
Agreement or constitute a default (or an event which, with notice or lapse
of time, or both, would constitute a default) under, or result in the
breach of any contract, indenture, lease, credit agreement or any other
agreement or instrument to which Client is a party or which may be
applicable to Client or any of its properties; (ii) result in the creation
or imposition of any lien upon any of its properties pursuant to the terms
of any such indenture, agreement, or other instrument (other than the
Servicing Agreement); or (iii) violate any law, order, rule or regulation
applicable to Client of any court, federal or state regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over Client or its property.
8
(d) Binding Obligations. This Servicing Agreement shall constitute a
--------------------
legal, valid, and binding obligation of Client enforceable in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, or other similar laws affecting the enforcement
of creditors' rights in general and by general principles of equity,
regardless of whether such enforceability shall be considered in a
proceeding in equity or at law.
(e) Litigation. No proceeding of any kind, including but
----------
not limited to litigation, arbitration, judicial or administrative, is
pending or threatened against or contemplated by Client which would under
any circumstance have a material adverse effect on the execution, delivery,
performance or enforceability of this Servicing Agreement; and
(f) Disclosure. All factual information (taken as a whole)
----------
heretofore or contemporaneously furnished by or on behalf of Client orally
or in writing to Servicer or Lender, does not, and all other such factual
information (taken as a whole) hereafter furnished by or on behalf of
Client to Servicer or Lender will not, as of the date such information is
dated or certified, contain any untrue statement of a material fact or omit
to state any material fact necessary to make such information (taken as a
whole) not misleading.
Section 4.3 Survival of Representations and Warranties. The
----------------------------------------------
representations and warranties set forth in this Article IV are continuous and
shall survive the termination or expiration of this Servicing Agreement, unless
otherwise agreed to in writing by the parties.
ARTICLE V
EVENTS OF DEFAULT; REMEDIES
---------------------------
Section 5.1 Events of Default. Any of the following acts or
-------------------
occurrences shall constitute an "Event of Default" under this Servicing
Agreement:
(a) The failure to make any payment or deposit required to be made
under the terms of this Servicing Agreement which failure continues
unremedied for a period of five (5) days after such payment or deposit is
due;
(b) The failure to observe or perform any covenant or agreement (other
than in subparagraph (a), above) required to be performed under this
Servicing Agreement which failure continues unremedied for a period of five
(5) days after written notice of such failure shall have been given to the
breaching party and which failure Lender determines in its sole but
reasonable discretion has had a Material Adverse Effect, or is reasonably
likely to have a Material Adverse Effect if not remedied; provided,
however, that if the nature of such breach is such that it cannot
reasonably be cured within five (5) days following such written notice, but
can reasonably be cured within (30) days
9
following such written notice, Servicer may cure such breach by commencing
in good faith to cure the breach promptly after its receipt of such written
notice and prosecuting the cure of such breach to completion with diligence
and continuity within a reasonable time thereafter, but in any event within
thirty (30) days thereafter
(c) Servicer becomes the subject of an Insolvency Proceeding;
(d) Any representation, warranty or statement made in this Servicing
Agreement or in any certificate, report or other writing delivered pursuant
hereto shall prove to be incorrect in any material respect as of the time
when the same shall have been made; or
(e) The occurrence of an "Event of Default" under the Loan Agreement.
Section 5.2 Remedies. If an Event of Default shall occur and be
--------
continuing, the non- breaching party may exercise any right or remedy available
to it under this Servicing Agreement or under applicable law and, in addition,
may terminate the rights of the defaulting party under this Servicing Agreement
by giving thirty (30) days prior written notice. The rights of Servicer to
service any of the Collateral hereunder shall, at Lender's option, terminate
upon the occurrence of an Event of Default and written notice of termination by
Lender to Servicer.
ARTICLE VI
TERMINATION OF SERVICING AGREEMENT
----------------------------------
Section 6.1 Term of Agreement. The term of this Servicing Agreement
-------------------
shall begin on the Effective Date as set forth above and shall continue until
the earlier of (i) collection and resolution of all of the Collateral subject to
this Servicing Agreement to Client's and Lender's satisfaction, (ii) termination
of this Servicing Agreement under Section 5.2 or (iii) by mutual agreement of
the parties hereto with the prior written consent of Lender.
Section 6.2 Effect of Termination; Transfer of Servicing. Upon
-------------------------------------------------
termination of this Servicing Agreement, Servicer shall cooperate in the
transfer of the Collateral and all of Servicer's records (in either paper or
electronic form) pertaining to the Collateral to Lender or to a replacement
servicer as designated by Lender. Any matters pending at the effective
termination date will continue to be processed in an orderly and timely fashion;
it being intended, however, that responsibility for the Collateral shall
transfer as quickly as practicable and in any event within thirty (30) days
after the termination date. Upon termination of this Servicing Agreement, Client
shall promptly remit payment of any unpaid Servicing Fees to Servicer (except
that Client may offset any amounts due to Client and held by Servicer in breach
of this Servicing Agreement).
ARTICLE VII
MISCELLANEOUS PROVISIONS
------------------------
Section 7.1 Amendment. This Servicing Agreement may only be amended
---------
by a written instrument executed by the parties hereto and consented to in
writing by Lender. It is
10
the intention of Client and Servicer that Lender is a third party beneficiary
with respect to all of the covenants, obligations, agreements, representations
and warranties of both Client and Servicer in this Servicing Agreement.
Section 7.2 Waivers. The provisions of this Servicing Agreement may
-------
only be waived by written consent of the party making the waiver and the prior
written waiver of Lender. The failure of any party at any time to require
performance by the others of any provision of this Servicing Agreement shall in
no way affect that party's right to enforce such provision, nor shall the waiver
by any party of any breach of any provision of this Servicing Agreement be taken
or held to be a waiver of any further breach of the same provision or any other
provision.
Section 7.3 Notices. Unless otherwise required or provided
-------
by this Servicing Agreement, all demands, notices, approvals and other
communications hereunder (including Client's reporting obligations set forth
herein) (individually and collectively, "NOTICES") shall be in writing and
-------
shall be served personally, delivered by facsimile or sent by a national
overnight delivery or courier company, or by United States registered or
certified mail, postage prepaid return receipt requested, and addressed as set
forth below. Any such Notices shall be deemed delivered upon delivery or refusal
to accept delivery as indicated in writing by the person attempting to make
personal service, on the United States Postal Service return receipt, or by
similar written advice from the overnight delivery company; provided, however,
that if any such Notice shall be sent by telecopier to the telecopier number, if
any, set forth above, such Notice shall be deemed given at the time and on the
date of machine transmittal (except if sent after 5:00 p.m. recipient's time,
then the notice shall be given at 9:00 a.m. on the next Business Day) if the
sending party receives a written send verification on its machine and sends a
duplicate Notice on the same day or the next Business Day by personal service,
registered or certified United States mail, or overnight delivery in the manner
described above. Each party hereto shall make an ordinary, good faith effort to
ensure that it will accept or receive Notices that are given in accordance with
this Section 7.3, and that any person to be given Notice actually receives such
Notice. Any party to whom Notices are to be sent pursuant to this Servicing
Agreement may from time to time change its address and/or facsimile number for
future communication hereunder by giving Notice in the manner prescribed herein
to all other parties hereto
If to Client: With a Copy to:
Matterhorn Financial Services LLC Matterhorn Financial Services LLC
222 S. Harbor Boulevard, Suite 400 222 S. Harbor Boulevard, Suite 400
Anaheim, CA 92805 Anaheim, CA 92805
Attention: Mr. David Caldwell Attention: William D. Constantino
Telephone No.: (714) 502-3790 Telephone No.: (714) 502-3780
Facsimile No.: (714) 502-3733 Facsimile No.: (714) 502-3733
And to:
Lender and Lender's counsel as more
particularly provided in the Loan Agreement.
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If to Servicer: With a Copy to:
Performance Capital Management, LLC Performance Capital Management, LLC
222 S. Harbor Boulevard, Suite 400 222 S. Harbor Boulevard, Suite 400
Anaheim, CA 92805 Anaheim, CA 92805
Attention: Mr. David Caldwell Attention: William D. Constantino
- --------- ---------
Telephone No.: (714) 502-3790 Telephone No.: (714) 502-3780
Facsimile No.: (714) 502-3733 Facsimile No.: (714) 502-3733
And to:
Lender and Lender's counsel as more
particularly provided in the Loan Agreement.
Such notice, request, consent, demand or other communication shall be deemed
given when so delivered, or if mailed, two days after deposit with the U.S.
Postal Service.
Section 7.4 Indemnity. Servicer agrees to indemnify, defend and hold
---------
Client and Lender harmless from and against any and all losses, damages, costs,
claims, expenses (including reasonable attorneys fees) and liabilities to third
parties growing out of or resulting from any breach of this Servicing Agreement
by Servicer, any Event of Default caused by Servicer, or by reason of the
negligence or willful misconduct of Servicer, its agents, directors,
representatives or employees in the performance or non-performance of duties
hereunder including but not limited to (i) the failure to comply with all
applicable debt collection laws and regulations; (ii) the misapplication
(whether negligent or intentional), misappropriation, conversion or theft of any
part of the Collateral by any officer, employee, agent or representative of
Servicer; (iii) the failure to pay and discharge any liens, encumbrances or
security interests in the Collateral (other than liens granted to Lender to
secure repayment of Loans) created as a result of the actions of Servicer; (iv)
fraud or material misrepresentation or (v) the misapplication of proceeds paid
to Servicer under any insurance policies by reason of damage, loss or
destruction to any of the Collateral.
Section 7.5 Enforceability of Servicing Agreement. Should any one or
----------------------------------------
more of the provisions of this Servicing Agreement be determined to be illegal
or unenforceable, all other provisions shall remain effective and binding on the
parties hereto.
Section 7.6 Rights Cumulative. All rights and remedies under
------------------
this Servicing Agreement are cumulative, and none is intended to be exclusive of
another. No delay or omission in insisting upon the strict observance or
performance of any provision of this Servicing Agreement, or in exercising any
right or remedy, shall be construed as a waiver or relinquishment of such
provision, nor shall it impair such right or remedy.
Section 7.7 Powers of Attorney. Servicer is made Client's
--------------------
attorney-in-fact for the limited purpose of signing documents necessary to: (i)
maintain perfection of any Liens and
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security interests, (ii) release a Lien upon full payment of any related
Collateral, (iii) endorse checks for deposit into the Collection Account, and/or
(iv) bring, prosecute and dismiss suits and proceedings related to collection
activities with respect to the Collateral.
Section 7.8 Assignment and Binding Effect. This Servicing
--------------------------------
Agreement may be assigned only with the written consent of the parties hereto
and the consent of Lender; however, in the event of an assignment, all
provisions of this Servicing Agreement shall be binding upon and inure to the
benefit of the respective successors and assigns of the parties hereto.
Section 7.9 Governing Law. This Servicing Agreement shall be deemed
--------------
entered into with and shall be governed by and interpreted in accordance with
the laws of the State of Minnesota.
Section 7.10 Certificates and Instruments Held by Lender. Lender shall
----------------------------------------------
have custody of all certificates of title and similar instruments relating to
Assets. If Servicer should need the certificate of title (or similar instrument)
to any Asset to fulfill its obligations under the Servicing Agreement, Servicer
shall send Lender a request for such release along with an explanation of the
circumstances of the request. If such request is granted, Lender shall deliver
the requested certificate or instrument to Servicer, who shall hold such
certificate or instrument as bailee of Lender. Servicer covenants to return any
such certificate or instrument (or any renewal or replacement thereof) to Lender
upon completion of the task which required by use.
[THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK.]
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SERVICING AGREEMENT
[Signature Page]
The undersigned have executed this Servicing Agreement as of the date first
above written.
CLIENT: SERVICER:
MATTERHORN FINANCIAL SERVICES PERFORMANCE CAPITAL
LLC, a California limited liability company, by MANAGEMENT, LLC, a California
Performance Capital Management, LLC, a limited liability company
California limited liability company, its Sole
Member
By: _____________________________ By:_____________________________
Name: David Caldwell Name: David Caldwell
Its: Chief Operating Officer Its: Chief Operating Officer
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