Exhibit 10.1

 

[EXECUTION]

 

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CREDIT AGREEMENT

 

DUXFORD FINANCIAL, INC.

 

and

 

BAYPORT MORTGAGE, L.P.

 

as Borrowers

 

GUARANTY BANK

 

as Lender

 

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August 29, 2003

 

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TABLE OF CONTENTS

 

             Page

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ARTICLE I

 

GENERAL TERMS

   1    

Section 1.1

 

Certain Definitions

   1    

Section 1.2

 

Exhibits and Schedules

   14    

Section 1.3

 

Calculations and Determinations

   14

ARTICLE II

 

AMOUNT AND TERMS OF LOANS

   14    

Section 2.1

 

Commitment and Loans

   14    

Section 2.2

 

Promissory Note; Interest on the Note

   14    

Section 2.3

 

Notice and Manner of Obtaining Loans

   15    

Section 2.4

 

Fees.

   15    

Section 2.5

 

Mandatory Repayments

   15    

Section 2.6

 

Payments to Lender

   15    

Section 2.7

 

Increased Cost and Reduced Return.

   16

ARTICLE III

 

CONDITIONS PRECEDENT

   17    

Section 3.1

 

Initial Loan

   17    

Section 3.2

 

All Loans

   18

ARTICLE IV

 

BORROWER REPRESENTATIONS AND WARRANTIES

   19    

Section 4.1

 

Organization and Good Standing

   19    

Section 4.2

 

Authorization and Power

   19    

Section 4.3

 

No Conflicts or Consents

   19    

Section 4.4

 

Enforceable Obligations

   19    

Section 4.5

 

Priority of Liens

   20    

Section 4.6

 

No Liens

   20    

Section 4.7

 

Financial Condition of Borrowers

   20    

Section 4.8

 

Full Disclosure

   20    

Section 4.9

 

No Default

   20    

Section 4.10

 

No Litigation

   20    

Section 4.11

 

Taxes

   20    

Section 4.12

 

Principal Office, etc

   21    

Section 4.13

 

Compliance with ERISA

   21    

Section 4.14

 

Subsidiaries

   21    

Section 4.15

 

Indebtedness

   21    

Section 4.16

 

Permits, Patents, Trademarks, etc.

   21    

Section 4.17

 

Status Under Certain Federal Statutes

   21    

Section 4.18

 

Securities Act

   21    

Section 4.19

 

No Approvals Required

   22    

Section 4.20

 

Survival of Representations

   22    

Section 4.21

 

Individual Mortgage Loans

   22    

Section 4.22

 

Environmental Matters

   23

 

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ARTICLE V

 

AFFIRMATIVE COVENANTS

   24    

Section 5.1

 

Financial Statements and Reports.

   24    

Section 5.2

 

Taxes and Other Liens

   26    

Section 5.3

 

Maintenance

   26    

Section 5.4

 

Further Assurances

   26    

Section 5.5

 

Reimbursement of Expenses

   26    

Section 5.6

 

Insurance

   27    

Section 5.7

 

Accounts and Records; Servicing Records

   27    

Section 5.8

 

Right of Inspection

   27    

Section 5.9

 

Notice of Certain Events

   28    

Section 5.10

 

Performance of Certain Obligations and Information Regarding Investors

   28    

Section 5.11

 

Use of Proceeds; Margin Stock

   28    

Section 5.12

 

Notice of Default

   28    

Section 5.13

 

Compliance with Loan Documents

   29    

Section 5.14

 

Operations and Properties

   29    

Section 5.15

 

Environmental Matters.

   29

ARTICLE VI

 

NEGATIVE COVENANTS

   29    

Section 6.1

 

No Merger; Limitation on Issuance of Securities

   29    

Section 6.2

 

Limitation on Indebtedness

   29    

Section 6.3

 

Fiscal Year, Method of Accounting

   30    

Section 6.4

 

Business

   30    

Section 6.5

 

Liquidations, Consolidations and Dispositions of Substantial Assets

   30    

Section 6.6

 

Loans, Advances, and Investments

   30    

Section 6.7

 

Use of Proceeds

   30    

Section 6.8

 

Actions with Respect to Mortgage Collateral

   31    

Section 6.9

 

Transactions with Affiliates

   31    

Section 6.10

 

Liens

   31    

Section 6.11

 

ERISA Plans

   31    

Section 6.12

 

Change of Principal Office

   31    

Section 6.13

 

Minimum Tangible Net Worth

   32    

Section 6.14

 

Total Debt to Tangible Net Worth Ratio

   32    

Section 6.15

 

Profitability

   32    

Section 6.16

 

Management Fees

   32    

Section 6.17

 

Minimum Liquidity

   32

ARTICLE VII

 

EVENTS OF DEFAULT

   32    

Section 7.1

 

Nature of Event

   32    

Section 7.2

 

Default Remedies

   34

ARTICLE VIII

 

INDEMNIFICATION

   35    

Section 8.1

 

Indemnification

   35    

Section 8.2

 

Limitation of Liability

   35

 

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ARTICLE IX

 

MISCELLANEOUS

   35    

Section 9.1

 

Notices

   35    

Section 9.2

 

Amendments, Etc

   36    

Section 9.3

 

CHOICE OF LAW; VENUE

   37    

Section 9.4

 

Invalidity

   37    

Section 9.5

 

Survival of Agreements

   37    

Section 9.6

 

Renewal, Extension or Rearrangement

   37    

Section 9.7

 

Waivers

   37    

Section 9.8

 

Cumulative Rights

   37    

Section 9.9

 

Limitation on Interest

   37    

Section 9.10

 

Bank Accounts; Offset

   38    

Section 9.11

 

Assignments, Participations.

   39    

Section 9.12

 

Confidentiality

   39    

Section 9.13

 

Exhibits

   39    

Section 9.14

 

Titles of Articles, Sections and Subsections

   39    

Section 9.15

 

Counterparts; Fax

   39    

Section 9.16

 

ENTIRE AGREEMENT

   40    

Section 9.17

 

Termination; Limited Survival

   40    

Section 9.18

 

Joint and Several Liability

   40    

Section 9.19

 

No Release of Joint and Several Liability.

   40    

Section 9.20

 

Disclosures

   42    

Section 9.21

 

WAIVER OF JURY TRIAL

   43    

Section 9.22

 

CONSEQUENTIAL DAMAGES

   43

 

EXHIBITS

 

Exhibit A

  —  

Form of Note

Exhibit B

  —  

Form of Borrowing Request

Exhibit C

  —  

Investors

Exhibit D

  —  

Subsidiaries

Exhibit E

  —  

Certificate Accompanying Financial Statement

Exhibit F

  —  

Form of Security Agreement

Exhibit G

  —  

[Intentionally Omitted]

Exhibit H

  —  

Borrowing Base Worksheet

 

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CREDIT AGREEMENT

 

THIS CREDIT AGREEMENT is made and entered into as of August 29, 2003, between
DUXFORD FINANCIAL, INC., a California corporation (“Duxford”), and BAYPORT
MORTGAGE, L.P., a California limited partnership (“Bayport”) GUARANTY BANK
(“Lender”).

 

The Borrowers, jointly and severally, agree with Lender as follows:

 

ARTICLE I

 

GENERAL TERMS

 

Section 1.1 Certain Definitions. As used in this Agreement, the following terms
have the following meanings:

 

“Affiliate” means, as to any Person, each other Person that directly or
indirectly (through one or more intermediaries or otherwise) controls, is
controlled by, or is under common control with, such Person.

 

“Aged Mortgage Loan” means an Eligible Mortgage Loan which has been included in
the Borrowing Base for more than forty-five (45) days and less than ninety (90)
days.

 

“Aged Mortgage Loan Sublimit” means $2,000,000.

 

“Agency” means any of FHA, FNMA, FHLMC, GNMA and VA.

 

“Agreement” means this Credit Agreement, as the same may from time to time be
amended, supplemented or restated.

 

“Agreement to Pledge” means each agreement by Borrowers set forth in a Borrowing
Request for Wet Mortgage Loans, to deliver Required Mortgage Documents to Agent.

 

“Applicable Collateral Value Percentage” means (i) with respect to each GRL Loan
included in the Borrowing Base, one hundred percent (100%), (ii) with respect to
each other Eligible Mortgage Loan included in the Borrowing Base, ninety-eight
percent (98%).

 

“Borrowers” means Duxford and Bayport and “Borrower” means either of them.

 

“Borrowing” means a borrowing of a new Loan.

 

“Borrowing Base” means at any date all Eligible Mortgage Loans which have been
delivered to and held by Lender or otherwise identified as Mortgage Collateral.

 

“Borrowing Base Worksheet” means a certificate describing the Eligible Mortgage
Loans to be included in the Borrowing Base in a form acceptable to Lender.

 

“Borrowing Request” means a request, in the form of Exhibit B, for a Loan
pursuant to Article II.

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“Business Day” means a day, other than a Saturday or Sunday, on which commercial
banks are open for business with the public in Dallas, Texas. Any Business Day
in any way relating to the Eurodollar Rate must also be a day on which, in the
judgment of Lender, significant transactions in dollars are carried out in the
interbank Eurocurrency market.

 

“Cash Equivalents” means (i) securities issued or directly and fully guaranteed
or insured by the United States Government or any agency or instrumentality
thereof which mature within ninety (90) days from the date of acquisition, and
(ii) time deposits and certificates of deposit, which mature within ninety (90)
days from the date of acquisition, of Lender or any other domestic commercial
bank having capital and surplus in excess of $200,000,000, which has, or the
holding company of which has, a commercial paper rating of at least A-1 or the
equivalent thereof by Standard & Poors Corporation or P-1 or the equivalent
thereof by Moody’s Investors Service, Inc.

 

“Change of Control” means (a) Parent ceases to own one hundred percent (100%) of
the voting power of the voting stock of Duxford, (b) Duxford ceases to be the
sole general partner of Bayport, (c) Richard E. Frankel ceases to serve as Chief
Executive Officer of Duxford, or Mark A. Carver ceases to serve as President of
Duxford and such officer is not replaced within sixty days thereafter with a new
officer acceptable to Lender, in its sole and absolute discretion.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Collateral” has the meaning given to it in the Security Agreement.

 

“Collateral Value of the Borrowing Base” means on any day the sum of the Unit
Collateral Values of all Eligible Mortgage Loans included in the Borrowing Base
on such day as determined by Lender based on information then available to
Lender; provided that the Collateral Value of the Borrowing Base shall never
exceed the Commitment.

 

“Commitment” means at any date, the obligation of the Lender to make Loans to
Borrowers pursuant to Section 2.1 hereof in an aggregate outstanding amount not
to exceed at any time $10,000,000.

 

“Consolidated” refers to the consolidation of any Person, in accordance with
GAAP, with its properly consolidated subsidiaries. References herein to a
Person’s Consolidated financial statements, financial position, financial
condition, liabilities, etc. refer to the consolidated financial statements,
financial position, financial condition, liabilities, etc. of such Person and
its properly consolidated subsidiaries.

 

“Debtor Laws” means all applicable liquidation, conservatorship, bankruptcy,
moratorium, arrangement, receivership, insolvency, reorganization or similar
Laws from time to time in effect affecting the rights of creditors generally and
general principles of equity.

 

“Default” means any of the events specified in Section 7.1 hereof, whether or
not any requirement for notice or lapse or time or any other condition has been
satisfied.

 

“Default Rate” means, at the time in question, with respect to all Obligations,
the sum of (i) four percent (4%) per annum, plus (ii) the per annum interest
rate otherwise payable in respect of the Obligations; provided that in no event
shall the Default Rate ever exceed the Maximum Rate.

 

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“Dividends,” in respect of any corporation, means: (a) cash distributions or any
other distributions on, or in respect of, any class of equity security of such
corporation, except for distributions made solely in shares of securities of the
same class; and (b) any and all funds, cash or other payments made in respect of
the redemption, repurchase or acquisition of such securities.

 

“Drawdown Termination Date” means the earlier of the date which is 364 days
after the date hereof, or the day on which the Note first becomes due and
payable in full.

 

“Dry Loans” means all Eligible Mortgage Loans included in the Borrowing Base
other than Wet Loans.

 

“Eligible Mortgage Loan” means a Mortgage Loan with respect to which each of the
following statements is accurate and complete (and the Borrowers by including
such Mortgage Loan in any computation of the Collateral Value of the Borrowing
Base shall be deemed to so represent to Lender at and as of the date of such
computation):

 

(a) Such Mortgage Loan is a binding and valid obligation of the Obligor thereon,
in full force and effect and enforceable in accordance with its terms, except as
enforceability may be limited by Debtor Laws;

 

(b) The Mortgage Note evidencing such Mortgage Loan is genuine in all respects
as appearing on its face and as represented in the books and records of
Borrower, and all information set forth therein is true and correct;

 

(c) Such Mortgage Loan is free of any default (other than as permitted by
subparagraph below) of any party thereto (including Borrowers), counterclaims,
offsets and defenses, including the defense of usury, and from any rescission,
cancellation or avoidance, and all right thereof, whether by operation of law or
otherwise;

 

(d) No payment under such Mortgage Loan is more than thirty (30) days past due
the payment due date set forth in the underlying Mortgage Note and Mortgage;

 

(e) The Mortgage Note evidencing such Mortgage Loan contains the entire
agreement of the parties thereto with respect to the subject matter thereof, has
not been modified or amended in any respect not expressed in writing therein and
is free of concessions or understandings with the Obligor thereon of any kind
not expressed in writing therein;

 

(f) Such Mortgage Loan is in all respects in accordance with all Requirements of
Law applicable thereto, including, without limitation, the federal Consumer
Credit Protection Act and the regulations promulgated thereunder and all
applicable usury Laws and restrictions, and all notices, disclosures and other
statements or information required by Law or regulation to be given, and any
other act required by Law or regulation to be performed, in connection with such
Mortgage Loan have been given and performed as required;

 

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(g) All advance payments and other deposits on such Mortgage Loan have been paid
in cash, and no part of said sums has been loaned, directly or indirectly, by
Borrowers to the Obligor, and, other than as disclosed to Lender in writing,
there have been no prepayments;

 

(h) At all times such Mortgage Loan will be free and clear of all Liens, except
in favor of Lender;

 

(i) The Property covered by such Mortgage Loan is insured against loss or damage
by fire and all other hazards normally included within standard extended
coverage in accordance with the provisions of such Mortgage Loan with Borrower
named as a loss payee thereon;

 

(j) Such Mortgage Loan is secured by a first Mortgage;

 

(k) The date of origination of such Mortgage Loan is not more than thirty (30)
days prior to the date such Mortgage Loan was first included in the Borrowing
Base;

 

(l) Such Mortgage Loan has not been included in the Borrowing Base for more than
forty-five (45) days, provided that if such Mortgage Loan is an Aged Mortgage
Loan, it has not been included in the Borrowing Base for more than ninety (90)
days and the Unit Collateral Value of such Mortgage Loan when added to the Unit
Collateral Value of all other Aged Mortgage Loans does not exceed the Aged
Mortgage Loan Sublimit;

 

(m) If such Mortgage Loan is included in the Borrowing Base and has been
withdrawn from the possession of the Lender on terms and subject to conditions
set forth in the Security Agreement then:

 

(i) If such Mortgage Loan was withdrawn by Borrowers for purposes of correcting
clerical or other non-substantive documentation problems, the promissory note
and other documents relating to such Mortgage Loan are returned to the Lender
within ten (10) Business Days from the date of withdrawal; and the Unit
Collateral Value of such Mortgage Loan when added to the Unit Collateral Value
of other Mortgage Loans which have been similarly released to Borrowers and have
not been returned does not exceed ten percent (10%) of the Commitment;

 

(ii) If such Mortgage Loan was shipped by the Lender directly to a permanent
investor for purchase or to a custodian for the formation of a pool, (x) such
investor or custodian is in full compliance with the terms of the bailee letter
under which such Mortgage Loan was shipped, and (y) the full purchase price for
such Mortgage Loan has been received by the Lender (or such Mortgage Loan has
been returned to the Lender) within forty (40) calendar days from the date of
shipment by the Lender;

 

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(n) Such Mortgage Loan is subject to a Take-Out Commitment which is in full
force and effect;

 

(o) Such Mortgage Loan conforms to Agency guidelines in regards to credit
quality, or has a credit score of at least 650 from a repository acceptable to
the Lender, and if such Mortgage Loan is a Jumbo Loan, the Unit Collateral Value
of such Mortgage Loan when added to the Unit Collateral Value of all other Jumbo
Loans does not exceed the Jumbo Sublimit; and

 

(p) The Required Mortgage Documents have been delivered to Lender prior to the
inclusion of such Mortgage Loan in any computation of the Borrowing Base or, if
such items have not been delivered to Lender on or prior to the date such
Mortgage Loan is first included in any computation of the Borrowing Base, (a)
Borrowers have pledged and agreed to deliver all Required Mortgage Documents
pursuant to a Borrowing Request delivered to Lender prior to such inclusion, and
(b) the Collateral Value of such Mortgage Loan when added to the Collateral
Value of all other Mortgage Loans for which Lender has not received the Required
Mortgage Documents does not exceed the Wet Warehousing Sublimit, provided that,
all Required Mortgage Documents with respect to such Mortgage Loan shall be
delivered to Lender within five (5) Business Days after the date of the
Agreement to Pledge with respect thereto;

 

“Environmental Laws” means any and all Laws relating to (a) the protection of
the environment, (b) emissions, discharges or releases of pollutants,
contaminants, chemicals or hazardous or toxic substances or wastes into the
environment including ambient air, surface water, ground water or land, or (c)
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or wastes or the clean-up or other remediation
thereof.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended
from time to time, together with the regulations from time to time promulgated
with respect thereto.

 

“ERISA Affiliate” means all members of the group of corporations and trades or
businesses (whether or not incorporated) which, together with any Borrower, are
treated as a single employer under Section 414 of the Code.

 

“ERISA Plan” means any pension benefit plan subject to Title IV of ERISA or
Section 412 of the Code maintained or contributed to by a Borrower or any ERISA
Affiliate with respect to which Borrowers have a fixed or contingent liability.

 

“Eurodollar Rate” means, for any day, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) appearing on the Bloomberg Eurorate (or,
if not available, any other nationally recognized trading screen reporting
on-line trading with Eurorates) at 10:00 a.m. (Dallas, Texas time) as the
Eurorates for deposits in dollars on that day for a period of one month. In the
event such rate ceases to be published, Eurodollar Rate shall mean a comparable
rate of interest reasonably selected by Lender.

 

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“Event of Default” means any of the events specified in Section 7.1 hereof,
provided that any requirement in connection with such event for the giving of
notice or the lapse of time, or the happening of any further condition, event or
act has been satisfied.

 

“FHA” means the Federal Housing Administration or any successor thereto.

 

“FHLMC” means the Federal Home Loan Mortgage Corporation, or any successor
thereto.

 

“Financing Lease” means (i) any lease of Property if the then present value of
the minimum rental commitment thereunder should, in accordance with GAAP, be
capitalized on a balance sheet of the lessee, and (ii) any other lease
obligations which are capitalized on a balance sheet of the lessee.

 

“First Tier Loans” means GRL Dry Loans.

 

“First Tier Rate” means the per annum rate of interest equal to the Eurodollar
Rate plus 2.25% per annum, but in no event shall the First Tier Rate exceed the
Maximum Rate.

 

“First Tier Portion” means, on any day, the Unit Collateral Value of the First
Tier Loans.

 

“Fiscal Quarter” means each period of three calendar months ending March 31,
June 30, September 30 and December 31 of each year.

 

“Fiscal Year” means each period of twelve calendar months ending December 31 of
each year.

 

“FNMA” means the Federal National Mortgage Association, or any successor
thereto.

 

“Funding Account” means the non-interest bearing demand checking account
established by Borrowers with Lender to be used for (a) the initial deposit of
proceeds of Loans; and (b) the funding or purchase of a Mortgage Note by
Borrowers; provided that the Funding Account shall be pledged to Lender and that
Borrowers shall not be entitled to withdraw funds from the Funding Account.

 

“GAAP” means those generally accepted accounting principles and practices which
are recognized as such by the Financial Accounting Standards Board (or any
generally recognized successor) and which, in the case of any Borrower and its
consolidated subsidiaries, are applied for all periods after the date hereof in
a manner consistent with the manner in which such principles and practices were
applied to the financial statements described in Section 4.7. If any change in
any accounting principle or practice is required by the Financial Accounting
Standards Board (or any such successor) in order for such principle or practice
to continue as a generally accepted accounting principle or practice, all
reports and financial statements required hereunder with respect to such
Borrowers may be prepared in accordance with such change, but all calculations
and determinations to be made hereunder may be made in accordance with such
change only after notice of such change is given to Lender and Lender agrees to
such change insofar as it affects the accounting of such Borrowers.

 

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“General Partner” means Duxford.

 

“GNMA” means the Government National Mortgage Association, or any successor
thereto.

 

“Governmental Authority” means any nation or government, any agency, department,
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.

 

“Governmental Requirement” means any law, statute, code, ordinance, order, rule,
regulation, judgment, decree, injunction, franchise, permit, certificate,
license, authorization or other direction or requirement (including, without
limitation, any of the foregoing which relate to environmental standards or
controls, energy regulations and occupational, safety and health standards or
controls) of any arbitrator, court or other Governmental Authority, which
exercises jurisdiction over any Related Person or any of its Property.

 

“GRL” means Guaranty Residential Lending, a Nevada corporation.

 

“GRL Dry Loans” means Dry Loans for which GRL has issued a Take-out Commitment.

 

“Indebtedness” of any Person at a particular date means the sum (without
duplication) at such date of (a) all indebtedness of such Person for borrowed
money or for the deferred purchase price of property or services or which is
evidenced by a note, bond, debenture, or similar instrument, (b) all obligations
of such Person under any Financing Lease, (c) all obligations of such Person in
respect of letters of credit, acceptances, or similar obligations issued or
created for the account of such Person, (d) all Guaranty Obligations of such
Person, (e) all liabilities secured by any Lien on any property owned by such
Person, whether or not such Person has assumed or otherwise become liable for
the payment thereof, and (f) any liability of such Person in respect of unfunded
vested benefits under an ERISA Plan and (g) all liabilities of such Person in
respect of indemnities or repurchase obligations made in connection with the
sale of Mortgage Loans.

 

“Investor” means any Person listed on Exhibit C, as such exhibit may be updated
or supplemented from time to time; provided, however, that Lender shall deliver
a list of all Persons approved as Investors by Lender upon each amendment of
such exhibit by Lender, and a Investor shall be removed from such list upon the
written direction of Lender.

 

“Jumbo Loan” means a Mortgage Loan which has been underwritten in accordance
with the guidelines of an Investor and which would be an Eligible Mortgage Loan
except that the original unpaid principal amount of the underlying Mortgage Note
is greater than the maximum amount accepted by the Agencies and equal to or less
than $650,000; provided that Mortgage Loans with an unpaid principal amount in
excess of $650,000 and less than $1,000,000 shall be included as a “Jumbo Loan”
if approved for inclusion in the Borrowing Base by Lender in writing.

 

“Jumbo Sublimit” means $4,000,000.

 

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“Keep-Well Agreement” means the Keep Well Agreement of even date herewith
between Parent and Lender.

 

“Law” means any statute, law, regulation, ordinance, rule, treaty, judgment,
order, decree, permit, concession, franchise, license, agreement or other
governmental restriction of the United States or any state or political
subdivision thereof or of any foreign country or any department, province or
other political subdivision thereof. Any reference to a Law includes any
amendment or modification to such Law, and all regulations, rulings, and other
Laws promulgated under such Law.

 

“Lender” means Guaranty Bank and its successors and assigns.

 

“Lien” means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (whether statutory or otherwise), or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, any conditional sale or other
title retention agreement, any Financing Lease having substantially the same
economic effect as any of the foregoing, and the filing of any financing
statement under the Uniform Commercial Code or comparable law of any
jurisdiction in respect of any of the foregoing).

 

“Liquidity” means, with respect to any Person as of any date, the amount of cash
and Cash Equivalents of such Person as of such date..

 

“Loan” has the meaning given it in Section 2.1.

 

“Loan Balance” means for any day, the principal balance of the Loans outstanding
on such day.

 

“Loan Document” means any, and “Loan Documents” shall mean all, of this
Agreement, the Note, the Security Instruments, the Keep-Well Agreement, and any
and all other agreements or instruments now or hereafter executed and delivered
by Borrowers or any other Person in connection with, or as security for the
payment or performance of any or all of the Obligations, as any of such may be
renewed, amended or supplemented from time to time.

 

“Market Value” on any day shall be determined by Lender, in its sole discretion,
based upon (a) information then available to Lender regarding quotes to dealers
for the purchase of mortgage notes similar to the Mortgage Note that have been
delivered to Lender pursuant to this Agreement or (b) sales prices actually
received by Borrowers for mortgage notes sold by Borrowers during the
immediately preceding thirty (30) day period similar to the Mortgage Note that
have been delivered to Lender pursuant to this Agreement.

 

“Material Adverse Effect” means any material adverse effect on (a) the validity
or enforceability of this Agreement, the Note or any other Loan Document, (b)
the business, operations, total Property or financial condition of any Related
Person, (c) the collateral under any Security Instrument, or (d) the ability of
any Related Person to fulfill its obligations under this Agreement, the Note, or
any other Loan Document to which it is a party.

 

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“Maximum Rate” means, with respect to each Lender, the maximum nonusurious rate
of interest that such Lender is permitted under applicable Law to contract for,
take, charge, or receive with respect to its Loans.

 

“MERS” means Mortgage Electronic Registration, Inc., a Delaware corporation, or
any successor thereto.

 

“MERS Agreement” means those agreements by and among Borrowers, Lender, MERS and
MERSCORP, Inc., as amended, modified, supplemented, extended, restated or
replaced from time to time.

 

“MERS(R) System” means the system of recording transfers of mortgages
electronically maintained by MERS.

 

“Monthly Facility Usage” means for each calendar month, the sum of (i) the
average Loan Balance for such month, plus (ii) the average amount of purchased
loans outstanding under the Purchase Facility for such month.

 

“Mortgage” means a mortgage or deed of trust, on standard forms in form and
substance satisfactory to Lender, securing a Mortgage Note and granting a
perfected, first priority lien on residential real property consisting of land
and a one-to-four-family dwelling thereon which is completed and ready for
occupancy.

 

“Mortgage Collateral” means all Mortgage Notes (a) which are made payable to the
order of Borrower or have been endorsed (without restriction or limitation)
payable to the order of Borrower, (b) in which Lender has been granted and
continues to hold a perfected first priority security interest, (c) which are in
form and substance acceptable to Lender in its reasonable discretion, (d) which
are secured by Mortgages, and (e) which conform in all respects with all the
requirements for purchase of such Mortgage Note under the Take-Out Commitments
and are valid and enforceable in accordance with their respective terms.

 

“Mortgage Loan” means a one-to-four-family mortgage loan which is evidenced by a
Mortgage Note and secured by a Mortgage, together with the rights and
obligations of a holder thereof and payments thereon and proceeds therefrom.

 

“Mortgage Note” means the note or other evidence of indebtedness evidencing the
indebtedness of an Obligor under a Mortgage Loan.

 

“Net Worth” of any Person means, as of any date, the remainder of all
Consolidated assets of such Person minus such Person’s Consolidated liabilities,
each as determined by GAAP.

 

“Note” means any promissory note delivered by Borrowers to Lender pursuant to
Section 2.2 in the form attached hereto as Exhibit A and all renewals,
modifications and extensions thereof.

 

“Obligations” means all present and future Indebtedness, obligations, and
liabilities of Borrower to Lender, and all renewals and extensions thereof, or
any part thereof, arising pursuant to this Agreement or any other Loan Document,
and all interest accrued thereon, and

 

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reasonable attorneys’ fees and other costs incurred in the drafting,
negotiation, enforcement or collection thereof, regardless of whether such
Indebtedness, obligations, and liabilities are direct, indirect, fixed,
contingent, joint, several or joint and several.

 

“Obligor” means the Person or Persons obligated to pay the Indebtedness which is
the subject of a Mortgage Loan.

 

“Operating Account” means the non-interest bearing demand checking accounts
(whether one or more) established by Borrowers with Lender to be used for
Borrowers’ operations.

 

“Parent” means William Lyon Homes, a Delaware corporation, and owner of all of
the outstanding capital stock of Duxford and a fifty percent (50%) partnership
interest in Bayport.

 

“PBGC” means the Pension Benefit Guaranty Corporation or any Governmental
Authority succeeding to any of its functions.

 

“Permitted Warehouse Facilities” means (i) the mortgage warehouse credit
facility provided by First Tennessee Bank, N.A. to Borrowers in an aggregate
principal amount not to exceed $20,000,000, and (ii) any other mortgage
warehouse credit facility approved in writing by Lender.

 

“Person” means any individual, corporation, partnership, joint venture,
association, joint stock company, limited liability company, trust,
unincorporated organization, Governmental Authority, or any other form of
entity.

 

“Property” means any interest in any kind of property or asset, whether real,
personal or mixed, or tangible or intangible.

 

“Purchase Facility” means the Mortgage Loan Purchase and Sale Agreement of even
date herewith between Duxford and Lender and the Mortgage Loan Purchase and Sale
Agreement of even date herewith between Bayport and Lender.

 

“Regulation D” means Regulation D issued by the Board of Governors of the
Federal Reserve System as in effect from time to time.

 

“Regulation U” means Regulation U issued by the Board of Governors of the
Federal Reserve System as in effect from time to time.

 

“Regulation X” means Regulation X issued by the Board of Governors of the
Federal Reserve System as in effect from time to time.

 

“Related Persons” means Borrowers and each Subsidiary of a Borrower.

 

“Reportable Event” means (1) a reportable event described in Sections 4043(c)(5)
or (6) of ERISA or the regulations promulgated thereunder, or (2) any other
reportable event described in Section 4043(c) of ERISA or the regulations
promulgated thereunder other than a reportable event not subject to the
provision for 30-day notice to the PBGC pursuant to a waiver by the PBGC under
Section 4043(a) of ERISA.

 

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“Required Mortgage Documents” means as to any Mortgage Loan, the items described
on Schedule A to the Security Agreement.

 

“Requirement of Law” as to any Person means the charter and by-laws or other
organizational or governing documents of such Person, and any law, statute,
code, ordinance, order, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization or other determination,
direction or requirement (including, without limitation, any of the foregoing
which relate to environmental standards or controls, energy regulations and
occupational, safety and health standards or controls) of any arbitrator, court
or other Governmental Authority, in each case applicable to or binding upon such
Person or any of its Property or to which such Person or any of its Property is
subject.

 

“Second Tier Loans” means all Dry Loans other than (i) GRL Dry Loans, (ii) Aged
Loans and (iii) Jumbo Loans.

 

“Second Tier Portion” means, on any day, the Unit Collateral Value of the Second
Tier Loans.

 

“Second Tier Rate” means the per annum rate of interest equal to the Eurodollar
Rate plus 2.35% per annum, but in no event shall the Second Tier Rate exceed the
Maximum Rate.

 

“Security Agreement” means the Security Agreement between Borrowers and Lender
in the form attached hereto as Exhibit F, as the same may from time to time be
further supplemented, amended or restated.

 

“Security Instrument” means (a) the Security Agreement and (b) such other
executed documents as are or may be necessary to grant to Lender a perfected
first prior and continuing security interest in and to all Mortgage Collateral,
and any and all other agreements or instruments now or hereafter executed and
delivered by Borrowers in connection with, or as security for the payment or
performance of, all or any of the Obligations, including Borrower’s obligations
under the Note and this Agreement, as such agreements may be amended, modified
or supplemented from time to time.

 

“Servicing Agreements” means all agreements between the Related Persons and
Persons other than a Related Person pursuant to which Borrowers undertake to
service Mortgage Loans.

 

“Servicing Records” means all contracts and other documents, books, records and
other information (including without limitation, computer programs, tapes,
discs, punch cards, data processing software and related property and rights)
maintained with respect to the Servicing Rights.

 

“Servicing Rights” means all of right, title and interest of any Related Person
in and under the Servicing Agreements, including, without limitation, the rights
of Borrowers to income and reimbursement thereunder.

 

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“Settlement Account” means (i) the non-interest bearing demand deposit account
established by Borrowers with Lender to be used for the deposit of proceeds from
the sale of Mortgage Collateral; and (ii) the payment of the Obligations;
provided that (a) the Settlement Account shall be pledged to Lender for the
benefit of Lender, (b) neither Borrower shall be entitled to withdraw funds from
the Settlement Account, (c) as long as no Event of Default has occurred and is
continuing, to the extent that the deposit of proceeds from the sale of Mortgage
Loans exceeds the Unit Collateral Value of such Mortgage Loans and any payments
then due and owing under this Agreement or the Note, Lender shall transfer such
excess amount to the Operating Account, and (d) if at any time the aggregate
amount of funds in the Settlement Account is insufficient to pay any and all
payments due and owing under this Agreement or the Note (such amount being
referred to as the “Deficiency”), Lender shall transfer an amount equal to the
Deficiency from the Operating Account to the Settlement Account.

 

“Submission List” means a list in the form of Schedule B-I or B-II to the form
of Borrowing Request.

 

“Subsidiary” means, with respect to any Person, any corporation, association,
partnership, joint venture, or other business or corporate entity, enterprise or
organization which is directly or indirectly (through one or more
intermediaries) controlled by or owned fifty percent (50%) or more by such
Person.

 

“Take-Out Commitment” means with respect to any Eligible Mortgage Loan, a
written master commitment of an Investor to purchase a Mortgage Loan or a pool
of Mortgage Loans under which such Eligible Mortgage Loans will be delivered to
such Investor on terms satisfactory to Lender, in its reasonable discretion.

 

“Tangible Net Worth” means, with respect to any Person, as of any date, the Net
Worth of such Person minus (a) all Consolidated assets of such Person which
would be classified as intangible assets under GAAP, including but not limited
to goodwill (whether representing the excess cost over book value of assets
acquired or otherwise), patents, trademarks, trade names, copyrights,
franchises, deferred charges, and capitalized servicing rights and (b) all
Indebtedness and receivables owing from Parent and other Affiliates of such
Person to such Person.

 

“Termination Event” means (a) the occurrence with respect to any ERISA Plan of a
Reportable Event, (2) the withdrawal of either Borrower or any ERISA Affiliate
from an ERISA Plan during a plan year in which it was a “substantial employer,”
as defined in Section 4001(a)(2) of ERISA, (c) the distribution to affected
parties of a notice of intent to terminate any ERISA Plan or the treatment of
any ERISA Plan amendment as a termination under Section 4041 of ERISA, (d) the
institution of proceedings to terminate any ERISA Plan by the PBGC under Section
4042 of ERISA, or (5) any other event or condition which might constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any ERISA Plan.

 

“Third Tier Loans” means all Wet Loans, Aged Loans and Jumbo Loans.

 

“Third Tier Portion” means, on any day, the Unit Collateral Value of the Third
Tier Loans.

 

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“Third Tier Rate” means the per annum rate of interest equal to the Eurodollar
Rate plus 2.50% per annum, but in no event shall the Third Tier Rate exceed the
Maximum Rate.

 

“Total Debt” of any Person means, as of any date, all amounts which would be
included as liabilities on a Consolidated balance sheet of such Person as of
such date prepared in accordance with GAAP.

 

“Unit Collateral Value” means on any day with respect to each Eligible Mortgage
Loan included in the Borrowing Base, the Applicable Collateral Value Percentage
of the least of the following:

 

(i) the outstanding principal balance of the Mortgage Note constituting such
Mortgage Loan;

 

(ii) the actual out-of-pocket cost to the applicable Borrower of such Mortgage
Loan minus the amount of principal paid under such Mortgage Loan and delivered
to Lender for application to the prepayment of the Loans;

 

(iii) the amount at which an Investor has committed to purchase the Mortgage
Loan pursuant to a Take-Out Commitment not to exceed 100% of the original
principal balance of the Mortgage Note; or

 

(iv) the Market Value of the Mortgage Note constituting such Mortgage Loan.

 

“VA” means the Veterans Administration and any successor thereto.

 

“Wet Loans” means Eligible Mortgage Loans which are included in the Borrowing
Base, but for which the Required Mortgage Documents have not been delivered to
Lender.

 

“Wet Warehousing Sublimit” means 40% of the Commitment.

 

Other Definitional Provisions.

 

(b) Unless otherwise specified therein, all terms defined in this Agreement
shall have the above-defined meanings when used in the Note or any other Loan
Document, certificate, report or other document made or delivered pursuant
hereto.

 

(c) Each term defined in the singular form in Section 1.1 shall mean the plural
thereof when the plural form of such term is used in this Agreement, the Note or
any other Loan Document, certificate, report or other document made or delivered
pursuant hereto, and each term defined in the plural form in Section 1.1 shall
mean the singular thereof when the singular form of such term is used herein or
therein.

 

(d) The words “hereof,” “herein,” “hereunder” and similar terms when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and section, subsection, schedule and
exhibit references herein are references to sections, subsections, schedules and
exhibits to this Agreement unless otherwise specified. The word “or” is not
exclusive, and the word “including” (in its various forms) means “including
without limitation.”

 

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(e) Unless the context otherwise requires or unless otherwise provided herein
the terms defined in this Agreement which refer to a particular agreement,
instrument or document also refer to and include all renewals, extensions,
modifications, amendments and restatements of such agreement, instrument or
document, provided that nothing contained in this section shall be construed to
authorize any such renewal, extension, modification, amendment or restatement.

 

(f) As used herein, in the Note or in any other Loan Document, certificate,
report or other document made or delivered pursuant hereto, accounting terms
relating to any Person and not specifically defined in this Agreement or therein
shall have the respective meanings given to them under GAAP.

 

Section 1.2 Exhibits and Schedules. All Exhibits and Schedules attached to this
Agreement are a part hereof for all purposes.

 

Section 1.3 Calculations and Determinations. All calculations under the Loan
Documents of interest and of fees shall be made on the basis of actual days
elapsed (including the first day but excluding the last) and a year of three
hundred sixty (360) days. Each determination by Lender of amounts to be paid
under Section 2.7 shall, in the absence of manifest error, be conclusive and
binding. Unless otherwise expressly provided herein or unless Lender otherwise
consents all financial statements and reports furnished to Lender hereunder
shall be prepared and all financial computations and determinations pursuant
hereto shall be made in accordance with GAAP. Lender shall deliver to Borrowers
an interest billing statement for each month on or before the fifteenth day of
the next succeeding month, which interest billing statement shall set forth the
interest accrued on the Loans for such month; provided that any failure or delay
in delivering such interest billing or any inaccuracy therein shall not affect
the Obligations.

 

ARTICLE II

 

AMOUNT AND TERMS OF LOANS

 

Section 2.1 Commitment and Loans. Subject to the terms and conditions contained
in this Agreement, Lender agrees to make loans (“Loans”) to Borrowers on a
revolving credit basis from time to time on any Business Day from the date of
this Agreement through the Drawdown Termination Date. The aggregate amount of
all Loans requested in any Borrowing Request must be greater than or equal to
$50,000] or the unadvanced portion of the Borrowing Base. After giving effect to
the transactions contemplated by the Borrowing Request pursuant to which a Loan
is requested, and at all other times, the aggregate amount of all Loans
outstanding shall not exceed the Collateral Value of the Borrowing Base.

 

Section 2.2 Promissory Note; Interest on the Note. The obligation of Borrowers
to repay the Loans made by Lender, together with interest accruing in connection
therewith, shall be evidenced by a Note payable to the order of Lender. Interest
on the Note shall be due and payable as provided herein and therein. The entire
Loan Balance and all accrued and unpaid interest thereon shall be finally due
and payable on the Drawdown Termination Date.

 

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Section 2.3 Notice and Manner of Obtaining Loans. Borrowers must give written
notice, or telephonic notice promptly confirmed in writing, of each request for
Loans. Each such written request or confirmation must be made in writing in the
form and substance of the “Borrowing Request” attached hereto as Exhibit B, duly
completed. Each such Borrowing Request must:

 

(a) specify the aggregate amount of any new Loans and the date on which such
Loan is to be advanced; and

 

(b) be received by Lender not later than 2:00 p.m., Dallas, Texas, time, on the
day on which such Loan is to be made.

 

Each such telephonic request shall be deemed a representation, warranty,
acknowledgment and agreement by Borrowers as to the matters which are required
to be set out in such written confirmation. If all conditions precedent to such
Loan have been met Lender will on the date requested promptly remit to Borrowers
the amount of such Loan in immediately available dollars, by crediting the
Funding Account with immediately available funds as the amount of such Loan.

 

Section 2.4 Fees.

 

(a) Borrowers shall pay to Lender, a collateral handling fee in the amount of
$30 for each Mortgage Loan file.

 

(b) For each GRL Loan included in the Borrowing Base that is not submitted to
GRL for purchase, Borrower shall pay to Lender an administrative fee in the
amount of Two Hundred Fifty Dollars ($250). In addition, the rate of interest on
the part of the First Tier Portion attributable to such GRL Loan (in the section
collectively called the “Recalculated Portion”), shall be recalculated using the
Second Tier Margin or the Third Tier Margin, as appropriate (in this section
called the “Recalculated Interest Amount”), and Borrower shall pay to Lender the
amount by which the Recalculated Interest Amount exceeds the amount of interest
accrued on the Recalculated Portion prior to the date of such recalculation.

 

Section 2.5 Mandatory Repayments. If at any time the Loan Balance exceeds the
Collateral Value of the Borrowing Base, Borrowers shall repay the amount of such
excess within one (1) Business Day after written notice thereof is given by
Lender to either Borrower.

 

Section 2.6 Payments to Lender. All payments of interest on the Note, all
payments of principal, including any principal payment made with proceeds of
Mortgage Collateral, and fees hereunder shall be made directly to Lender in
federal or other immediately available funds before 1:00 pm (Dallas, Texas time)
on the respective dates when due via wire transfer to the Settlement Account.
Borrowers shall send notice to Lender before 1:00 p.m. (Dallas, Texas time) on
the day any payment of principal or interest is received by Lender which sets
forth the Loans against which such payment is to be applied. Any payment (or any
payment

 

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received without a notice regarding application of such payment) received by
Lender after such time will be deemed to have been made on the next following
Business Day. Should any such payment become due and payable on a day other than
a Business Day, the maturity of such payment shall be extended to the next
succeeding Business Day, and, in the case of a payment of principal or past due
interest, interest shall accrue and be payable thereon for the period of such
extension as provided in the Loan Document under which such payment is due. Each
payment under a Loan Document shall be payable at the place provided therein
and, if no specific place of payment is provided, shall be payable at the place
of payment of the Note. When Lender collects or receives money on account of the
Obligations, Lender shall apply all such money so distributed, as follows:

 

(a) first, for the payment of all Obligations which are then due, and if such
money is insufficient to pay all such Obligations, (i) first to any
reimbursements due Lender under Section 5.5, (ii) second, to the payment of the
Loans then due, and (iii) then to the partial payment of all other Obligations
then due in proportion to the amounts thereof, or as Lender shall otherwise
agree;

 

(b) then for the prepayment of amounts owing under the Loan Documents if so
specified by Borrowers;

 

(c) then for the prepayment of principal on the Note, together with accrued and
unpaid interest on the principal so prepaid; and

 

(d) last, for the payment or prepayment of any other Obligations.

 

All payments applied to principal or interest on any Note shall be applied first
to any interest then due and payable, then to principal then due and payable,
and last to any prepayment of principal and interest.

 

Section 2.7 Increased Cost and Reduced Return.

 

(a) If, after the date hereof, Lender shall have determined that the adoption of
any applicable Law, rule, or regulation regarding capital adequacy or any change
therein or in the interpretation or administration thereof by any Governmental
Authority, central bank, or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of Law) of any such Governmental Authority,
central bank, or comparable agency, has or would have the effect of reducing the
rate of return on the capital of Lender or any corporation controlling Lender,
due to the obligations of Lender hereunder, to a level below that which Lender
or such corporation could have achieved but for such adoption, change, request,
or directive (taking into consideration its policies with respect to capital
adequacy), then, within fifteen (15) days after demand by Lender, Borrowers
shall pay to Lender such additional amount or amounts as will compensate Lender
for such reduction, but only to the extent that Lender has not been compensated
therefor by any increase in the Eurodollar Rate.

 

(b) Lender shall promptly notify Borrowers of any event of which it has
knowledge, occurring after the date hereof, which will entitle Lender to
compensation

 

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pursuant to this Section. In the event that Lender claims compensation under
this Section, Lender shall furnish to Borrowers a statement setting forth the
additional amount or amounts to be paid to it hereunder which shall be
conclusive in the absence of manifest error. In determining such amount, Lender
shall act in good faith and may use any reasonable averaging and attribution
methods.

 

ARTICLE III

 

CONDITIONS PRECEDENT

 

The obligation of Lender to make Loans hereunder is subject to fulfillment of
the conditions precedent stated in this Article III.

 

Section 3.1 Initial Loan. The obligation of Lender to fund any Loan hereunder
shall be subject to, in addition to the conditions precedent specified in
Section 3.2, the following terms and conditions:

 

(a) Borrowers shall have delivered to Lender the following (each of the
following documents being duly executed and delivered and in form and substance
satisfactory to Lender, and, with the exception of the Note, each in a
sufficient number of originals that Lender and its counsel may have an executed
original of each document):

 

(i) an executed counterpart of this Agreement and of all instruments and
certificates referred to in this Article III not theretofore delivered (except
the Borrowing Request which is to be delivered at the time provided in
Subsection 3.2(a) hereof);

 

(ii) the Note;

 

(iii) the Security Agreement dated of even date herewith;

 

(iv) a certificate of the Secretary or Assistant Secretary of Duxford Borrower
setting forth (i) resolutions of its board of directors authorizing the
execution, delivery, and performance of the Loan Documents to which it is a
party and identifying the officers authorized to sign such instruments, (ii)
specimen signatures of the officers so authorized, and (iii) articles of
incorporation of Duxford certified by the appropriate Secretary of State as of a
recent date, and (iv) bylaws of Duxford, certified as being accurate and
complete;

 

(v) a certificate of the existence and good standing for Duxford in its state of
incorporation dated no earlier than fifteen days prior to the date hereof;

 

(vi) documents similar to those described in items (iv) and (v) above with
respect to Bayport;

 

(vii) [Intentionally Omitted];

 

(viii) a Borrowing Request and a Borrowing Base Worksheet dated as of the date
of the first Loan, certified by authorized officers of Borrowers;

 

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(ix) the Keep Well Agreement executed by Parent;

 

(x) documents similar to those described as items (iv) and (v) above with
respect to Parent;

 

(xi) a duly executed original of the MERS Agreement; and

 

(xii) such other documents as Lender may reasonably request at any time at or
prior to the date of the initial Loan hereunder.

 

(b) No Person, other than Lender, holds any mortgage, pledge, lien, security
interest or other charge or encumbrance in, against or to any of the Mortgage
Loans.

 

(c) Borrowers shall have paid all fees and reimbursements to be paid to Lender
pursuant to any Loan Document, or otherwise due Lender and including reasonable
fees and disbursements of Lender’s attorneys.

 

Section 3.2 All Loans. The obligation of Lender to fund any Loan pursuant to
this Agreement is subject to the following further conditions precedent:

 

(a) Borrowing Request accompanied by a Borrowing Base Worksheet dated as of the
date of such Loan, certified by the chief financial officer of Borrowers, and
the Required Mortgage Documents for all Eligible Mortgage Loans other than Wet
Loans;

 

(b) all other Property in which Borrowers have granted a Lien to Lender shall
have been physically delivered to the possession of Lender;

 

(c) the representations and warranties of each Related Person contained in this
Agreement or any Security Instrument (other than those representations and
warranties which are by their terms limited to the date of the agreement in
which they are initially made) shall be true and correct in all material
respects on and as of the date of such Loan;

 

(d) no Default or Event of Default shall have occurred and be continuing and no
change or event which constitutes a Material Adverse Effect shall have occurred
as of the date of such Loan;

 

(e) the Funding Account, the Settlement Account and the Operating Account shall
be established and in existence;

 

(f) the making of such Loan shall not be prohibited by any Governmental
Requirement;

 

(g) the delivery to Lender of such other documents and opinions of counsel,
including such documents as may be necessary or desirable to perfect or maintain
the priority of any Lien granted or intended to be granted hereunder or
otherwise and including favorable written opinions of counsel with respect
thereto, as Lender may reasonably request; and

 

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(h) No Person, other than Lender, shall be listed in the field designated
“interim funder” on the MERS(R) System.

 

Delivery to Lender of a Borrowing Request shall be deemed to constitute a
representation and warranty by Borrowers on the date thereof and on the date on
which the Loan is made, if any, set forth therein as to the facts specified in
Subsections (c) and (d) of this Section.

 

ARTICLE IV

 

BORROWER REPRESENTATIONS AND WARRANTIES

 

Borrowers represent and warrant as follows:

 

Section 4.1 Organization and Good Standing. Each Related Person (a) is a
corporation or limited partnership duly incorporated or formed, and existing in
good standing under the Laws of the jurisdiction of its incorporation or
formation, (b) is duly qualified as a foreign corporation or limited partnership
and in good standing in all jurisdictions in which its failure to be so
qualified could have a Material Adverse Effect, (c) has the corporate or
partnership power and authority to own its properties and assets and to transact
the business in which it is engaged and is or will be qualified in those states
wherein it proposes to transact business in the future and (d) is in compliance
with all Requirements of Law except to the extent that the failure to comply
therewith could not, in the aggregate, have a Material Adverse Effect.

 

Section 4.2 Authorization and Power. Each Related Person has the corporate or
partnership power and requisite authority to execute, deliver and perform the
Loan Documents to which it is a party; each Related Person is duly authorized to
and has taken all corporate or partnership action necessary to authorize it to,
execute, deliver and perform the Loan Documents to which it is a party and is
and will continue to be duly authorized to perform such Loan Documents.

 

Section 4.3 No Conflicts or Consents. Neither the execution and delivery by any
Related Person of the Loan Documents to which it is a party, nor the
consummation of any of the transactions herein or therein contemplated, nor
compliance with the terms and provisions hereof or with the terms and provisions
thereof, will (a) materially contravene or conflict with any Requirement of Law
to which any Related Person is subject, or any indenture, mortgage, deed of
trust, or other agreement or instrument to which any Related Person is a party
or by which any Related Person may be bound, or to which the Property of any
Related Person may be subject, or (b) result in the creation or imposition of
any Lien, other than the Lien of the Security Agreement, on the Property of any
Related Person. All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and licenses
required to be taken, given or obtained, as the case may be, from any
Governmental Authority that are necessary in connection with the transactions
contemplated by the Loan Documents have been obtained.

 

Section 4.4 Enforceable Obligations. This Agreement, the Note, and the other
Loan Documents to which any Related Person is a party are the legal, valid and
binding obligations of such Related Person, enforceable in accordance with their
respective terms, except as limited by Debtor Laws.

 

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Section 4.5 Priority of Liens. Upon delivery to Lender of each Borrowing
Request, Lender shall have valid, enforceable, perfected, first priority Liens
and security interests in each Mortgage Note identified therein.

 

Section 4.6 No Liens. Borrowers have good and indefeasible title to the Mortgage
Collateral free and clear of all Liens and other adverse claims of any nature,
except for ad valorem taxes and assessments not yet due and payable and Liens in
the Mortgage Collateral in favor of Lender.

 

Section 4.7 Financial Condition of Borrowers. Each Borrower has delivered to
Lender copies of its annual audited balance sheet as of December 31, 2002, and
the related statements of income, stockholders’ equity and cash flows for the
period ended such date; such financial statements fairly present the financial
condition of such Borrower as of such date and the results of operations of
Borrowers for the period ended on such date and have been prepared in accordance
with GAAP, subject to normal year-end adjustments; as of the date thereof, there
were no obligations, liabilities or Indebtedness (including material contingent
and indirect liabilities and obligations or unusual forward or long-term
commitments) of such Borrower which are not reflected in such financial
statements and no change which constitutes a Material Adverse Effect has
occurred in the financial condition or business of Borrowers since December 31,
2002. Each Borrower has also delivered to Lender its unaudited quarterly balance
sheet for the period ending March 31, 2003 and management reports for the period
ending on March 31, 2003; such reports fairly and accurately present Borrowers’
commitment position, pipeline position, servicing and production as of the end
of such months and for the fiscal year to date for the periods ending on such
dates.

 

Section 4.8 Full Disclosure. There is no material fact that Borrowers have not
disclosed to Lender which could adversely affect the properties, business,
prospects or condition (financial or otherwise) of the Related Persons, or could
adversely affect the Mortgage Collateral or the Servicing Rights. To the
knowledge of Borrowers, none of (i) the financial statements referred to in
Section 4.7 hereof, (ii) any Borrowing Request or officer’s certificate, or
(iii) any statement delivered by any Related Person to Lender in connection with
this Agreement, contains any untrue statement of material fact.

 

Section 4.9 No Default. No Related Person is in default under any loan
agreement, mortgage, security agreement or other material agreement or
obligation to which it is a party or by which any of its Property is bound.

 

Section 4.10 No Litigation. There are no material actions, suits or legal,
equitable, arbitration or administrative proceedings pending, or to the
knowledge of any Borrower threatened, against any Related Person the adverse
determination of which could constitute a Material Adverse Effect.

 

Section 4.11 Taxes. All tax returns required to be filed by each Related Person
in any jurisdiction have been filed and all taxes, assessments, fees and other
governmental

 

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charges upon each Related Person or upon any of its properties, income or
franchises have been paid prior to the time that such taxes could give rise to a
Lien thereon, unless protested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been established on the
books of such Related Person. No Related Person has any knowledge of any
proposed tax assessment against any Related Person.

 

Section 4.12 Principal Office, etc. The principal office, chief executive office
and principal place of business of each Related Person is at the address set
forth in Section 9.1.

 

Section 4.13 Compliance with ERISA. No Related Person currently maintains,
contributes to, is required to contribute to or has any liability, whether
absolute or contingent, with respect to an ERISA Plan. With respect to all other
employee benefit plans maintained or contributed to by each Related Person, each
Related Person is in material compliance with ERISA.

 

Section 4.14 Subsidiaries. No Related Person presently has any Subsidiary or
owns any stock in any other corporation or association except those listed in
Exhibit D. As of the date hereof, each Related Person owns, directly or
indirectly, the equity interest in each of its Subsidiaries which is indicated
in such exhibit.

 

Section 4.15 Indebtedness. No Related Person has any indebtedness outstanding
other than the Indebtedness permitted by Section 6.2.

 

Section 4.16 Permits, Patents, Trademarks, etc.

 

(a) Each Related Person has all permits and licenses necessary for the operation
of its business.

 

(b) Each Related Person owns or possesses (or is licensed or otherwise has the
necessary right to use) all patents, trademarks, service marks, trade names and
copyrights, technology, know-how and processes, and all rights with respect to
the foregoing, which are necessary for the operation of its business, without
any known material conflict with the rights of others. The consummation of the
transactions contemplated hereby will not alter or impair in any material
respect any of such rights of each Related Person.

 

Section 4.17 Status Under Certain Federal Statutes. No Related Person is (a) a
“holding company” or a “subsidiary company” of a “holding company” or an
“affiliate” of a “holding company” or of a “subsidiary company” of a “holding
company,” as such terms are defined in the Public Utility Holding Company Act of
1935, as amended, (b) a “public utility,” as such term is defined in the Federal
Power Act, as amended, (c) an “investment company,” or a company “controlled” by
an “investment company,” within the meaning of the Investment Company Act of
1949, as amended or (d) a “rail carrier,” or a “person controlled by or
affiliated with a rail carrier,” within the meaning of Title 49, U.S.C., and no
Related Person is a “carrier” to which 49 U.S.C. §11301(b)(1) is applicable.

 

Section 4.18 Securities Act. No Related Person has issued any unregistered
securities in violation of the registration requirements of the Securities Act
of 1933, as amended, or of any other Requirement of Law, and is not violating
any rule, regulation, or requirement

 

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under the Securities Act of 1933, as amended, or the Securities and Exchange Act
of 1934, as amended. No Related Person is required to qualify an indenture under
the Trust Indenture Act of 1939, as amended, in connection with its execution
and delivery of the Note.

 

Section 4.19 No Approvals Required. Other than consents and approvals previously
obtained and actions previously taken, neither the execution and delivery of
this Agreement, the Note and the other Loan Documents to which any Related
Person is a party, nor the consummation of any of the transactions contemplated
hereby or thereby requires the consent or approval of, the giving of notice to,
or the registration, recording or filing by any Related Person of any document
with, or the taking of any other action in respect of, any Governmental
Authority which has jurisdiction over each Related Person or any of its
Property, except for (a) the filing of the Uniform Commercial Code financing
statements and other similar filings to perfect the interest of Lender in the
Collateral, and (b) such other consents, approvals, notices, registrations,
filings or action as may be required in the ordinary course of business of the
Related Persons in connection with the performance of the obligations of the
Related Persons hereunder.

 

Section 4.20 Survival of Representations. All representations and warranties by
Borrowers herein shall survive delivery of the Note and the funding of the
Loans, and any investigation at any time made by or on behalf of Lender shall
not diminish the right of Lender to rely thereon.

 

Section 4.21 Individual Mortgage Loans. Borrowers hereby represent with respect
to each Mortgage Note and Mortgage Loan that is part of the Collateral:

 

(a) Borrowers have good and marketable title to each Mortgage Note and Mortgage,
was the sole owner thereof and had full right to pledge the Mortgage Loan to
Lender free and clear of any other Lien;

 

(b) To the knowledge of Borrowers, there is no default, breach, violation or
event of acceleration existing under any Mortgage or the related Mortgage Note
and there is no event which, with the passage of time or with notice and/or the
expiration of any grace or cure period, would constitute a default, breach,
violation or event of acceleration and no such default, breach, violation or
event of acceleration has been waived;

 

(c) To the knowledge of Borrowers, the physical condition of the Property
subject to the Mortgage has not deteriorated since the date of origination of
the related secured Mortgage Loan (normal wear and tear excepted) and there is
no proceeding pending for the total or partial condemnation of any Mortgaged
Property;

 

(d) Each Mortgage contains customary and enforceable provisions such as to
render the rights and remedies of the holder thereof adequate for the
realization against the related Property subject to the Mortgage of the benefits
of the security provided thereby, including, (i) in the case of a Mortgage
designated as a deed of trust, by trustee’s sale, and (ii) otherwise, by
judicial foreclosure;

 

(e) Each Mortgage Loan is a first lien one-to-four-family loan, and has been
underwritten by the originator thereof in accordance with such originator’s then
current underwriting guidelines;

 

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(f) Each Mortgage Note is payable in monthly installments of principal and
interest, with interest payable in arrears, and requires a monthly payment which
is sufficient to amortize the original principal balance over the original term
and to pay interest at the related interest rate; and no Mortgage Note provides
for any extension of the original term;

 

(g) No Mortgage Loan is a loan in respect of either the purchase of a
manufactured home or mobile home or the purchase of the land on which a
manufactured home or mobile home will be placed;

 

(h) The origination practices used by the originator of the Mortgage Loans and
the collection practices used by the Borrowers with respect to each Mortgage
Loan have been in all material respects legal, proper, prudent and customary in
the loan origination and servicing business;

 

(i) Each Mortgage Loan was originated in compliance with all applicable Laws and
no fraud or misrepresentation was committed by any Person in connection
therewith;

 

(j) Each Mortgage Loan matures within thirty (30) years after the date of
origination thereof.

 

(k) For each Mortgage Loan, Borrowers have obtained closing protection letters
from the underwriter for the respective title insurance policy.

 

Section 4.22 Environmental Matters. In the ordinary course of each Related
Person’s business, the officers and managers of each Related Person consider the
effect of Environmental Laws on the business of such Related Person, in the
course of which they identify and evaluate potential risks and liabilities
accruing to such Related Person due to Environmental Laws. On the basis of this
consideration, each Related Person has reasonably concluded that neither
violation of nor compliance with Environmental Laws can reasonably be expected
to have a Material Adverse Effect on the business or financial condition of such
Related Person or on the ability of Borrowers to perform the Obligations. No
Related Person has received any notice to the effect that its operations are not
in material compliance with any of the requirements of applicable Environmental
Laws or are the subject of any federal or state investigation evaluating whether
any remedial action is needed to respond to a release of any toxic or hazardous
waste or substance into the environment, which non-compliance or remedial action
could reasonably be expected to have a Material Adverse Effect on the business
or financial condition of the Related Persons, taken as a whole, or on the
ability of Borrowers to perform the Obligations.

 

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ARTICLE V

 

AFFIRMATIVE COVENANTS

 

Each Related Person shall at all times comply with the covenants contained in
this Article V, from the date hereof and for so long as any part of the
Obligations or the Commitment is outstanding unless Lender has agreed otherwise.

 

Section 5.1 Financial Statements and Reports.

 

(a) Duxford shall furnish to Lender the following, all in form and detail
reasonably satisfactory to Lender.

 

(i) Promptly after becoming available, and in any event within ninety (90) days
after the close of each Fiscal Year of Duxford, Duxford’s Consolidated balance
sheet as of the end of such Fiscal Year, and the related Consolidated statements
of income, stockholders’ equity and cash flows of Duxford for such Fiscal Year,
setting forth in each case in comparative form the corresponding figures for the
preceding Fiscal Year, such financial statements shall be unqualified and shall
be accompanied by the related report of independent certified public accountants
acceptable to Lender which report shall be to the effect that such statements
have been prepared in accordance with GAAP applied on a basis consistent with
prior periods except for such changes in such principles with which the
independent public accountants shall have concurred;

 

(ii) Promptly after becoming available, and in any event within forty-five (45)
days after the end of each calendar month, including the twelfth calendar month
in each Fiscal Year, a Consolidated balance sheet of Duxford as of the end of
such month and the related Consolidated statements of income, stockholders’
equity and cash flows of Duxford for such month and the period from the first
day of the then current Fiscal Year through the end of such month, certified by
the chief financial officer or other executive officer of Duxford to have been
prepared in accordance with GAAP applied on a basis consistent with prior
periods;

 

(iii) Promptly and in any event within forty-five (45) days after the end of
each calendar month in each Fiscal Year of Duxford (except the last), and within
fifteen (15) days after the completion of each year-end audit by Duxford
independent public accountants, a completed Officer’s Certificate in the form of
Exhibit E hereto, executed by the president or chief financial officer of
Duxford;

 

(iv) Promptly and in any event within forty-five (45) days after the end of each
calendar month, a management report in form acceptable to Lender including,
without limitation detail on Borrower’s pipeline position, commitment position,
repurchase requests by investors and production statistics;

 

(v) With each Borrowing Request, a Borrowing Base Worksheet;

 

(vi) Promptly upon receipt thereof, a copy of each other report

 

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submitted to Borrower by independent accountants in connection with any annual,
interim or special audit of the books of Borrower; and

 

(vii) such other information concerning the business, properties or financial
condition of any Related Person as Lender may reasonably request.

 

(b) Bayport shall furnish to Lender the following, all in form and detail
reasonably satisfactory to Lender:

 

(i) Promptly after becoming available, and in any event within ninety (90) days
after the close of each Fiscal Year of Bayport, Bayport’s Consolidated balance
sheet as of the end of such Fiscal Year, and the related Consolidated statements
of income, partnership equity and cash flows of Bayport for such Fiscal Year,
setting forth in each case in comparative form the corresponding figures for the
preceding Fiscal Year, such financial statements shall be unqualified and shall
be accompanied by the related report of independent certified public accountants
acceptable to Lender which report shall be to the effect that such statements
have been prepared in accordance with GAAP applied on a basis consistent with
prior periods except for such changes in such principles with which the
independent public accountants shall have concurred;

 

(ii) Promptly after becoming available, and in any event within forty-five (45)
days after the end of each calendar month, including the twelfth calendar month
in each Fiscal Year, a Consolidated balance sheet of Bayport as of the end of
such month and the related Consolidated statements of income, partnership equity
and cash flows of Bayport for such month and the period from the first day of
the then current Fiscal Year through the end of such month, certified by the
chief financial officer or other executive officer of the general partner of
Bayport to have been prepared in accordance with GAAP applied on a basis
consistent with prior periods;

 

(iii) Promptly and in any event within forty-five (45) days after the end of
each calendar month in each Fiscal Year of Bayport (except the last), and within
fifteen (15) days after the completion of each year-end audit by Bayport’s
independent public accountants, a completed Officer’s Certificate in the form of
Exhibit E hereto, executed by the president or chief financial officer of the
general partners of Bayport;

 

(iv) Promptly and in any event within forty-five (45) days after the end of each
calendar month, a management report in form acceptable to Lender including,
without limitation detail on Bayport’s pipeline position, commitment position,
repurchase requests by investors and production statistics;

 

(v) With each Borrowing Request, a Borrowing Base Worksheet;

 

(vi) Promptly upon receipt thereof, a copy of each other report submitted to
Bayport by independent accountants in connection with any annual, interim or
special audit of the books of Bayport; and

 

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(vii) such other information concerning the business, properties or financial
condition of any Related Person as Lender may reasonably request.

 

Section 5.2 Taxes and Other Liens. Each Related Person shall pay and discharge
promptly all taxes, assessments and governmental charges or levies imposed upon
it or upon its income or upon any of its Property as well as all claims of any
kind (including claims for labor, materials, supplies and rent) which, if
unpaid, might become a Lien upon any or all of its Property; provided, however,
each Related Person shall not be required to pay any such tax, assessment,
charge, levy or claim if the amount, applicability or validity thereof shall
currently be contested in good faith by appropriate proceedings diligently
conducted by or on behalf of such Related Person and if such Related Person
shall have set up reserves therefor adequate under GAAP.

 

Section 5.3 Maintenance. Each Related Person shall (a) maintain its corporate
existence, rights and franchises; (b) observe and comply in all material
respects with all Governmental Requirements, and (c) maintain its Properties
(and any Properties leased by or consigned to it or held under title retention
or conditional sales contracts) in good and workable condition at all times and
make all repairs, replacements, additions, betterments and improvements to its
Properties as are needed and proper so that the business carried on in
connection therewith may be conducted properly and efficiently at all times.
Borrowers shall maintain good standing as an approved seller and servicer for
FNMA and FHLMC and as an approved lender with FHA, VA and HUD.

 

Section 5.4 Further Assurances. Borrowers shall, within three (3) Business Days
after the request of Lender, cure any defects in the execution and delivery of
the Note, this Agreement or any other Loan Document and each Related Person
shall, at its expense, promptly execute and deliver to Lender upon request all
such other and further documents, agreements and instruments in compliance with
or accomplishment of the covenants and agreements of each Related Person in this
Agreement and in the other Loan Documents or to further evidence and more fully
describe the collateral intended as security for the Note, or to correct any
omissions in this Agreement or the other Loan Documents, or more fully to state
the security for the obligations set out herein or in any of the other Loan
Documents, or to make any recordings, to file any notices, or obtain any
consents.

 

Section 5.5 Reimbursement of Expenses. Borrowers shall pay (a) all reasonable
legal fees (including, without limitation, allocated costs for in-house legal
service) incurred by Lender in connection with the preparation, negotiation,
syndication, execution and delivery of this Agreement, the Note and the other
Loan Documents and any amendments, consents or waivers executed in connection
therewith, (b) all fees, charges or taxes for the recording or filing of the
Security Instruments, (c) all reasonable out-of-pocket expenses of Lender in
connection with the administration of this Agreement, the Note and the other
Loan Documents, including courier expenses incurred in connection with the
Mortgage Collateral, (d) all amounts expended, advanced or incurred by Lender to
satisfy any obligation of Borrowers under this Agreement or any of the other
Loan Documents or to collect the Note, or to protect, preserve, exercise or
enforce the rights of Lender under this Agreement or any of the other Loan
Documents or to collect the Note, or to protect, preserve, exercise or enforce
the rights of Lender or any Lender under this Agreement or any of the other Loan
Documents, (e) all reasonable out-

 

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of-pocket costs and expenses (including fees and disbursements of attorneys and
other experts employed or retained by such Person) incurred in connection with,
arising out of, or in any way related to (i) consulting during a Default with
respect to (A) the protection, preservation, exercise or enforcement of any of
its rights in, under or related to the Collateral or the Loan Documents or (B)
the performance of any of its obligations under or related to the Loan
Documents, or (ii) protecting, preserving, exercising or enforcing during a
Default any of its rights in, under or related to the Collateral or the Loan
Documents, each of (a) through (e) shall include all underwriting expenses,
collateral liquidation costs, court costs, attorneys’ fees (including, without
limitation, for trial, appeal or other proceedings), fees of auditors and
accountants, and investigation expenses reasonably incurred by Lender in
connection with any such matters, together with interest at the post-maturity
rate specified in the Note on each item specified in clause (a) through (e) from
thirty (30) days after the date of written demand or request for reimbursement
until the date of reimbursement.

 

Section 5.6 Insurance. Borrowers shall maintain with financially sound and
reputable insurers, insurance with respect to their Properties and business
against such liabilities, casualties, risks and contingencies and in such types
and amounts as is customary in the case of Persons engaged in the same or
similar businesses and similarly situated, including, without limitation, a
fidelity bond or bonds with financially sound and reputable insurers with such
coverage and in such amounts as is customary in the case of Persons engaged in
the same or similar businesses and similarly situated. The improvements on the
land covered by each Mortgage shall be kept continuously insured at all times by
responsible insurance companies against fire and extended coverage hazards under
policies, binders, letters, or certificates of insurance, with a standard
mortgagee clause in favor of the applicable Borrowers and its assigns. Each such
policy must be in an amount equal to the lesser of the maximum insurable value
of the improvements or the original principal amount of the Mortgage Note,
without reduction by reason of any co-insurance, reduced rate contribution, or
similar clause of the policies or binders. Upon request of Lender, each Borrower
shall furnish or cause to be furnished to Lender from time to time a summary of
the insurance coverage of such Borrower in form and substance satisfactory to
Lender and if requested shall furnish Lender copies of the applicable policies.

 

Section 5.7 Accounts and Records; Servicing Records. Each Related Person shall
keep books of record and account in which full, true and correct entries will be
made of all dealings or transactions in relation to its business and activities,
in accordance with GAAP. Each Related Person shall maintain and implement
administrative and operating procedures (including, without limitation, an
ability to recreate all records pertaining to the performance of such Related
Person’s obligations under the Servicing Agreements in the event of the
destruction of the originals of such records) and keep and maintain all
documents, books, records, computer tapes and other information reasonably
necessary or advisable for the performance by each Related Person of its
obligations under the Servicing Agreements.

 

Section 5.8 Right of Inspection. Each Related Person shall permit authorized
representatives of Lender to discuss the business, operations, assets and
financial condition of such Related Person with their officers and employees, to
examine their Servicing Records and books of records and account and make copies
or extracts thereof and to visit and inspect any of the Properties of each
Related Person, all at such reasonable times and as often as Lender may request.
Each Related Person will provide its accountants with a copy of this Agreement

 

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promptly after the execution hereof and will instruct its accountants to answer
candidly any and all questions that the officers of Lender or any authorized
representatives of Lender may address to them in reference to the financial
condition or affairs of any Related Person as those conditions or affairs relate
to this Agreement. Each Related Person may have its representatives in
attendance at any meetings between the officers or other representatives of
Lender and such Related Person’s accountants held in accordance with this
authorization.

 

Section 5.9 Notice of Certain Events. Borrowers shall promptly notify Lender
upon (a) the receipt of any notice from, or the taking of any other action by,
the holder of any promissory note, debenture or other evidence of Indebtedness
of any Related Person with respect to a claimed default, together with a
detailed statement by a responsible officer of the respective Borrower
specifying the notice given or other action taken by such holder and the nature
of the claimed default and what action such Borrower is taking or proposes to
take with respect thereto; (b) the commencement of, or any determination in, any
legal, judicial or regulatory proceedings between any Related Person and any
Governmental Authority or any other Person which, if adversely determined, could
have a Material Adverse Effect; (c) any change in senior management of either
Borrower; (d) any material adverse change in the business, operations, prospects
or financial condition of any Related Person, including, without limitation, the
insolvency of any Related Person, (e) any event or condition which, if adversely
determined, could have a Material Adverse Effect or (f) the occurrence of any
Termination Event.

 

Section 5.10 Performance of Certain Obligations and Information Regarding
Investors. Borrowers shall perform and observe in all material respects each of
the provisions of each Take-Out Commitment and each of the Servicing Agreements
on its part to be performed or observed and will cause all things to be done
which are necessary to have each item of Mortgage Collateral covered by a
Take-Out Commitment comply with the requirements of such Take-Out Commitment.
Upon request by Lender, Borrowers will deliver to Lender financial information
concerning any Person Lender is reviewing to determine whether to approve such
Person as an Investor; all such financial information must be delivered to
Lender prior to any request by Borrowers for Mortgage Collateral to be delivered
to such Person.

 

Section 5.11 Use of Proceeds; Margin Stock. The proceeds of all Loans shall be
used by Borrowers solely for the origination and purchase of Eligible Mortgage
Loans pending sale to an Investor. None of such proceeds shall be used for the
purpose of purchasing or carrying any “margin stock” as defined in Regulation U,
or for the purpose of reducing or retiring any Indebtedness which was originally
incurred to purchase or carry margin stock or for any other purpose which might
constitute this transaction a “purpose credit” within the meaning of such
Regulation U. Neither Borrowers nor any Person acting on behalf of Borrower
shall take any action in violation of Regulation U or Regulation X or shall
violate Section 7 of the Securities Exchange Act of 1934 or any rule or
regulation thereunder, in each case as now in effect or as the same may
hereafter be in effect.

 

Section 5.12 Notice of Default. Borrowers shall furnish to Lender immediately
upon becoming aware of the existence of any Default or Event of Default, a
written notice specifying the nature and period of existence thereof and the
action which Borrowers are taking or proposes to take with respect thereto.

 

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Section 5.13 Compliance with Loan Documents. Each Related Person shall promptly
comply with any and all covenants and provisions of this Agreement the Note and
the other Loan Documents to be complied with by such Related Person.

 

Section 5.14 Operations and Properties. Each Related Person shall comply with
all rules, regulations and guidelines applicable to it. Each Related Party shall
act prudently and in accordance with customary industry standards in managing
and operating its Property.

 

Section 5.15 Environmental Matters.

 

(a) Each Related Person will comply in all material respects with all
Environmental Laws now or hereafter applicable to such Related Person and shall
obtain, at or prior to the time required by applicable Environmental Laws, all
environmental, health and safety permits, licenses and other authorizations
necessary for its operations and will maintain such authorizations in full force
and effect.

 

(b) Each Borrower will promptly furnish to Lender all written notices of
violation, orders, claims, citations, complaints, penalty assessments, suits or
other proceedings received by Borrowers, or of which it has notice, pending or
threatened against the respective Borrower, by any Governmental Authority with
respect to any alleged violation of or non-compliance with any Environmental
Laws or any permits, licenses or authorizations in connection with its ownership
or use of its properties or the operation of its business.

 

ARTICLE VI

 

NEGATIVE COVENANTS

 

Each Related Person shall at all times comply with the covenants contained in
this Article VI, from the date hereof and for so long as any part of the
Obligations or the Commitment is outstanding unless Lender has agreed otherwise:

 

Section 6.1 No Merger; Limitation on Issuance of Securities. Neither Parent nor
any Related Person shall merge or consolidate with or into any Person; provided
that Borrower may merge or consolidated with any wholly owned subsidiary of such
Borrower if such Borrower is the surviving entity, if prior to and after giving
effect thereto, no Default exists or would exist hereunder. No Related Person
shall acquire by purchase, or otherwise, all or substantially all of the assets
or capital stock of any Person. Borrowers will not issue any securities other
than shares of its common stock and any options or warrants giving the holders
thereof only the right to acquire such shares. No Subsidiary of either Borrower
will issue any additional shares of its capital stock or other securities or any
options, warrants or other rights to acquire such additional shares or other
securities except to the respective Borrower and only to the extent not
otherwise forbidden under the terms hereof. No Subsidiary of either Borrower
which is a partnership will allow any diminution of the respective Borrower’s
interest (direct or indirect) therein.

 

Section 6.2 Limitation on Indebtedness. No Related Person shall incur, create,
contract, assume, have outstanding, guarantee or otherwise be or become,
directly or indirectly, liable in respect of any Indebtedness or Guaranty
Obligations except:

 

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(a) the Obligations;

 

(b) trade debt, equipment leases, equipment loans and liens for taxes and
assessments not yet due and payable owed in the ordinary course of business; and

 

(c) Indebtedness arising under Permitted Warehouse Facilities.

 

Section 6.3 Fiscal Year, Method of Accounting. Neither Parent nor any Related
Person shall change its Fiscal Year or make any material change in its method of
accounting.

 

Section 6.4 Business. No Related Person shall, directly or indirectly, engage in
any business which differs materially from that currently engaged in by
Borrowers.

 

Section 6.5 Liquidations, Consolidations and Dispositions of Substantial Assets.
No Related Person shall dissolve or liquidate or sell, transfer, lease or
otherwise dispose of any material portion of their property or assets or
business; provided, however, nothing in this Section 6.5 shall be construed to
prohibit any Related Person from selling rights to service mortgage loans and
pools of mortgage loans or Mortgage Note in the ordinary course of their
business.

 

Section 6.6 Loans, Advances, and Investments. No Related Person shall make any
loan (other than Mortgage Loans), advance, or capital contribution to, or
investment in (including any investment in any Subsidiary, joint venture or
partnership), or purchase or otherwise acquire any of the capital stock,
securities, or evidences of indebtedness of, any Person (collectively,
“Investment”), or otherwise acquire any interest in, or control of, another
Person, except for the following:

 

(a) Cash Equivalents;

 

(b) Any acquisition of securities or evidences of indebtedness of others when
acquired by a Related Person in settlement of accounts receivable or other debts
arising in the ordinary course of its business, so long as the aggregate amount
of any such securities or evidences of indebtedness is not material to the
business or condition (financial or otherwise) of such Related Person;

 

(c) Mortgage Notes acquired by Borrowers in the ordinary course of their
business; and

 

(d) Other Investments in an aggregate amount not to exceed $100,000.

 

Section 6.7 Use of Proceeds. Borrowers shall not permit the proceeds of the
Loans to be used for any purpose other than those permitted by Section 5.11
hereof. Borrowers shall not, directly or indirectly, use any of the proceeds of
the Loans for the purpose, whether immediate, incidental or ultimate, of buying
any “margin stock” or of maintaining, reducing or retiring any Indebtedness
originally incurred to purchase a stock that is currently any “margin

 

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stock,” or for any other purpose which might constitute this transaction a
“purpose credit,” in each case within the meaning of Regulation G of the Board
of Governors of the Federal Reserve System (12 C.F.R. 207, as amended), or
Regulation U, or otherwise take or permit to be taken any action which would
involve a violation of such Regulation G or Regulation U or of Regulation T (12
C.F.R. 220, as amended) or Regulation X (12 C.F.R. 224, as amended) or any other
regulation of such board.

 

Section 6.8 Actions with Respect to Mortgage Collateral. Borrowers shall not:

 

(a) Compromise, extend, release, or adjust payments on any Mortgage Collateral,
accept a conveyance of mortgaged property in full or partial satisfaction of any
Mortgage Collateral, or release any Mortgage securing or underlying any Mortgage
Collateral;

 

(b) Agree to the amendment or termination of any Take-Out Commitment in which
Lender has a security interest or to substitution of a Take-Out Commitment for a
Take-Out Commitment in which Lender has a security interest hereunder, if such
amendment, termination or substitution may reasonably be expected (as determined
by Lender in its sole discretion) to have a Material Adverse Effect;

 

(c) Transfer, sell, assign, or deliver any Mortgage Collateral pledged to Lender
to any Person other than Lender, except pursuant to a Take-Out Commitment; or

 

(d) Grant, create, incur, permit or suffer to exist any Lien upon any Mortgage
Collateral except for Liens granted to Lender to secure the Note and Obligations
and such non-consensual Liens as may be deemed to arise as a matter of law
pursuant to any Take-Out Commitment.

 

Section 6.9 Transactions with Affiliates. Borrowers shall not enter into any
transactions including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transactions are otherwise permitted under this Agreement, are in the
ordinary course of each Borrower’s respective business and are upon fair and
reasonable terms no less favorable to such Borrower than it would obtain in a
comparable arm’s length transaction with a Person not an Affiliate.

 

Section 6.10 Liens. No Related Person shall grant, create, incur, assume, permit
or suffer to exist any Lien, upon any of its Property, including without
limitation any and all of Borrowers’ Mortgage Note, and Servicing Rights and the
proceeds from any thereof, other than (a) Liens which secure payment of the
Obligations, (b) Liens on any Borrower’s Mortgage Notes and Servicing Rights
which secure Permitted Warehouse Facilities and are not part of the Collateral,
(c) to the extent not otherwise prohibited hereunder, Liens which secure payment
of the Indebtedness described in Section 6.2(b) or Section 6.2(c) on Property
other than Collateral.

 

Section 6.11 ERISA Plans. No Related Person shall adopt or agree to maintain or
contribute to any ERISA Plan. Borrowers shall promptly notify Lender in writing
in the event an ERISA Affiliate adopts an ERISA Plan.

 

Section 6.12 Change of Principal Office. No Related Person shall move its
principal office, executive office or principal place of business from the
address set forth in Section 9.1 without prior written notice to Lender.

 

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Section 6.13 Minimum Tangible Net Worth. As of the end of each calender month,
the aggregate Tangible Net Worth of Borrowers shall not be less than $2,000,000.

 

Section 6.14 Total Debt to Tangible Net Worth Ratio. The ratio of the aggregate
Total Debt of Borrowers to the aggregate Tangible Net Worth of Borrowers shall
never exceed 12.0 to 1.0.

 

Section 6.15 Profitability. As of the end of each Fiscal Quarter, each
Borrower’s Consolidated net income for the two consecutive Fiscal Quarters then
ended shall be a positive number equal to or greater than $1.

 

Section 6.16 Management Fees. No Related Person shall pay management fees to any
of its Affiliates.

 

Section 6.17 Minimum Liquidity. The aggregate Liquidity of Borrowers shall never
be less than $1,500,000.

 

ARTICLE VII

 

EVENTS OF DEFAULT

 

Section 7.1 Nature of Event. An Event of Default shall exist if any one or more
of the following occurs:

 

(a) Borrowers fail to make any payment of principal of or interest on the Note,
or payment of any fee, expense or other amount due hereunder, under the Note, or
under any other Loan Document, on or before the date such payment is due;

 

(b) Default is made in the due observance or performance by any Related Person
of any covenant set forth in Article V of this Agreement (other than Section
5.9) and such Default continues for a period of fifteen (15) days after Lender
gives Borrowers notice thereof;

 

(c) Default is made in the due observance or performance by any Related Person
of any of the covenants or agreements contained in this Agreement other than
those described in subsections (a) or (b) immediately above;

 

(d) Any Related Person or Parent defaults in the due observance or performance
or any of the covenants or agreements contained in any other Loan Document to
which it is a party, and (unless such default otherwise constitutes a Default
pursuant to other provisions of this Section 7.1) such default continues
unremedied beyond the expiration of any applicable grace period which may be
expressly allowed under such other Loan Document;

 

(e) Any material statement, warranty or representation by or on behalf of any

 

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Related Person or Parent contained in this Agreement, the Note or any other Loan
Document to which it is a party, or in any Borrowing Request, officer’s
certificate or other writing furnished in connection with this Agreement, proves
to have been incorrect or misleading in any material respect as of the date made
or deemed made;

 

(f) Any Related Person or Parent:

 

(i) suffers the entry against it of a judgment, decree or order for relief by a
court of competent jurisdiction in an involuntary proceeding commenced under any
applicable bankruptcy, insolvency or other similar law of any jurisdiction now
or hereafter in effect, including the federal Bankruptcy Code, as from time to
time amended, or has any such proceeding commenced against it which remains
undismissed for a period of sixty (60) days; or

 

(ii) commences a voluntary case under any applicable bankruptcy, insolvency or
similar law now or hereafter in effect, including the federal Bankruptcy Code,
as from time to time amended; or applies for or consents to the entry of an
order for relief in an involuntary case under any such law; or makes a general
assignment for the benefit of creditors; or fails generally to pay (or admits in
writing its inability to pay) its debts as such debts become due; or takes
corporate or other action to authorize any of the foregoing; or

 

(iii) suffers the appointment of or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of all or a
substantial part of its assets or of any part of the Mortgage Collateral in a
proceeding brought against or initiated by it, and such appointment or taking
possession is neither made ineffective nor discharged within sixty (60) days
after the making thereof, or such appointment or taking possession is at any
time consented to, requested by, or acquiesced to by it; or

 

(iv) suffers the entry against it of a final judgment for the payment of money
in excess of $500,000 (not covered by insurance satisfactory to Lender in its
discretion), unless the same is discharged within thirty (30) days after the
date of entry thereof or an appeal or appropriate proceeding for review thereof
is taken within such period and a stay of execution pending such appeal is
obtained; or

 

(v) suffers a writ or warrant of attachment or any similar process to be issued
by any court against all or any substantial part of its assets or any part of
the Mortgage Collateral;

 

(g) Any Related Person fails to make when due or within any applicable grace
period any payment on any Indebtedness under any Permitted Warehouse Facility or
any other Indebtedness (except the Obligations) with an unpaid principal balance
of over $250,000; or any event or condition occurs under any provision contained
in any agreement under which such obligation is governed, evidenced or secured
(or any other material breach or default under such obligation or agreement
occurs) if the effect thereof is to cause or permit the holder or trustee of
such obligation to cause such obligation to

 

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become due prior to its stated maturity; or any such obligation becomes due
(other than by regularly scheduled payments) prior to its stated maturity; or
any of the foregoing occurs with respect to any one or more items of
Indebtedness of any Related Person with unpaid principal balances exceeding, in
the aggregate, $250,000;

 

(h) Any event or condition occurs under any provision contained in any document
or agreement governing any Permitted Warehouse Facility (or any other material
breach or default under any such document or agreement occurs) if the effect
thereof is to cause or permit the holder or trustee of such obligation to cause
such obligation to become due prior to its stated maturity;

 

(i) This Agreement, the Note or any other Loan Document shall for any reason
cease to be in full force and effect, or be declared null and void or
unenforceable in whole or in part as the result of any action initiated by any
Person other than Lender; or the validity or enforceability of any such document
shall be challenged or denied by any Person other than Lender other than by
reason of illegality;

 

(j) Either (i) any “accumulated funding deficiency” (as defined in Section
412(a) of the Code in excess of $500,000 exists with respect to any ERISA Plan,
whether or not waived by the Secretary of the Treasury or his delegate, or (ii)
any Termination Event occurs with respect to any ERISA Plan and the then current
value of such ERISA Plan’s benefits guaranteed under Title IV of ERISA exceeds
the then current value of such ERISA Plan’s assets available for the payment of
such benefits by more than $10,000 (or in the case of a Termination Event
involving the withdrawal of a substantial employer, the withdrawing employer’s
proportionate share of such excess exceeds such amount) or (iii) any Related
Person or any ERISA Affiliate withdraws from a multiemployer plan resulting in
liability under Title IV of ERISA of an amount in excess of $10,000;

 

(k) A Change of Control occurs;

 

(l) General Partner ceases to be the general partner of Bayport;

 

(m) Bayport is not treated as a partnership for federal income tax purposes;

 

(n) The Partnership Agreement is modified without the prior written consent of
Lender; or

 

(o) Bayport is dissolved.

 

Section 7.2 Default Remedies. Upon the occurrence and during the continuance of
an Event of Default, Lender may declare the Commitment to be terminated and/or
declare the entire principal and all interest accrued on the Note to be, and the
Note, together with all Obligations, shall thereupon become, forthwith due and
payable, without any presentment, demand, protest, notice of protest and
nonpayment, notice of acceleration or of intent to accelerate or other notice of
any kind, all of which hereby are expressly waived. Notwithstanding the
foregoing, if an Event of Default specified in Subsections 7.1 (f)(i), (ii) or
(iii) above occurs with respect to either Borrower, the Commitment shall
automatically and

 

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immediately terminate and the Note and all other Obligations shall become
automatically and immediately due and payable, both as to principal and
interest, without any action by Lender and without presentment, demand, protest,
notice of protest and nonpayment, notice of acceleration or of intent to
accelerate, or any other notice of any kind, all of which are hereby expressly
waived, anything contained herein, in the Note to the contrary notwithstanding.

 

ARTICLE VIII

 

INDEMNIFICATION

 

Section 8.1 Indemnification. Borrowers agree to indemnify Lender and each
director, officer, agent, attorney, employee, representative and Affiliate of
Lender (each an “Indemnified Party”), upon demand, from and against any and all
liabilities, obligations, claims, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements (including reasonable fees of
attorneys, accountants, experts and advisors) of any kind or nature whatsoever
(in this Section 8.1 collectively called “liabilities and costs”) which to any
extent (in whole or in part) may be imposed on, incurred by, or asserted against
any Indemnified Party growing out of, resulting from or in any other way
associated with any of the Mortgage Collateral, the Loan Documents, and the
transactions and events (including the enforcement or defense thereof) at any
time associated therewith or contemplated therein (including any violation or
noncompliance with any Environmental Laws by any Related Person).

 

THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND
COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM
OR THEORY OF STRICT LIABILITY, OR ARE CAUSED IN WHOLE OR PART, BY ANY NEGLIGENT
ACT OR OMISSION OF ANY KIND BY SUCH INDEMNIFIED PARTY,

 

provided only that such indemnified party shall be not entitled under this
section to receive indemnification for that portion, if any, of any liabilities
and costs which is proximately caused by its own individual gross negligence or
willful misconduct. All amounts payable by Borrowers shall be immediately due
upon Lender’s request for the payment thereof.

 

Section 8.2 Limitation of Liability. None of Lender, its directors, officers,
agents, attorneys, employees, representatives or affiliates shall be liable for
any action taken or omitted to be taken by it or them under or in connection
with this Agreement. THE FOREGOING EXCULPATION SHALL APPLY TO ANY NEGLIGENT ACT
OR OMISSION OF ANY KIND BY ANY SUCH PERSON, PROVIDED THAT SUCH PERSON SHALL BE
LIABLE FOR ITS OWN INDIVIDUAL GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.

 

 

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ARTICLE IX

 

MISCELLANEOUS

 

Section 9.1 Notices. Any notice or request required or permitted to be given
under or in connection with this Agreement, the Note or the other Loan Documents
(except as may otherwise be expressly required therein) shall be in writing and
shall be mailed by first class or express mail, postage prepaid, or sent by
telex, telegram, telecopy or other similar form of rapid transmission, confirmed
by mailing (by first class or express mail, postage prepaid) written
confirmation at substantially the same time as such rapid transmission, or
personally delivered to an officer of the receiving party. All such
communications shall be mailed, sent or delivered to the parties hereto at their
respective addresses as follows:

 

Borrowers:

      

Duxford Financial, Inc.

        

1300 Dove Street, Suite 200

        

Newport Beach, California 92660

        

FAX:   949.471.2110

        

TEL:    949.471.2000

        

Bayport Mortgage, L.P.

        

1300 Dove Street, Suite 200

        

Newport Beach, California 92660

        

FAX:   949.471.2110

        

TEL:    949.471.2000

Lender:

      

Guaranty Bank

        

8333 Douglas Avenue

        

Dallas, Texas 75225

        

Attention: Judi Flusche

        

FAX:   214.360.1660

        

TEL:    214.360.2782

    cc:   

Guaranty Bank

        

4330 La Jolla Village Drive, Suite 310

        

San Diego, California 92122

        

Attention: Jon M. Larson

        

FAX:   858.597.8830

        

TEL:    858.597.8842

 

or at such other addresses or to such individual’s or department’s attention as
any party may have furnished the other party in writing. Any communication so
addressed and mailed shall be deemed to be given when so mailed, except that
Borrowing Requests, and communications related thereto shall not be effective
until actually received by Lender or Borrowers, as the case may be; and any
notice so sent by rapid transmission shall be deemed to be given when receipt of
such transmission is acknowledged, and any communication so delivered in person
shall be deemed to be given when receipted for by, or actually received by, an
authorized officer of Borrowers or Lender, as the case may be.

 

Section 9.2 Amendments, Etc. No amendment or waiver of any provision of this
Agreement, the Security Instruments, the Note, or any other Loan Document, nor
consent to any departure by any Related Person from the terms thereof, shall in
any event be effective unless the same shall be in writing and signed by (i) if
such party is Borrower, by Borrower and (ii) if such party is Lender, by Lender.

 

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Section 9.3 CHOICE OF LAW; VENUE. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF TEXAS. ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT SHALL BE BROUGHT AND MAINTAINED IN THE APPLICABLE
STATE OR FEDERAL COURT IN DALLAS COUNTY, TEXAS. THIS AGREEMENT IS PERFORMABLE IN
DALLAS COUNTY, TEXAS AND THE PARTIES HERETO WAIVE ANY RIGHT THEY MAY HAVE TO BE
SUED ELSEWHERE. THE PARTIES HERETO CONSENT TO PERSONAL JURISDICTION IN DALLAS
COUNTY, TEXAS. Section 346 of the Texas Finance Code (which regulates certain
revolving loan accounts and revolving triparty accounts) shall not apply to this
Agreement or the other Loan Documents.

 

Section 9.4 Invalidity. In the event that any one or more of the provisions
contained in the Note, this Agreement or any other Loan Document shall, for any
reason, be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of such document.

 

Section 9.5 Survival of Agreements. All covenants and agreements herein and in
any other Loan Document not fully performed before the date hereof or the date
thereof, and all representations and warranties herein or therein, shall survive
until payment in full of the Obligations and termination of the Commitment.

 

Section 9.6 Renewal, Extension or Rearrangement. All provisions of this
Agreement and of the other Loan Documents shall apply with equal force and
effect to each promissory note hereafter executed which in whole or in part
represent a renewal, extension for any period, increase or rearrangement of any
part of the Obligations originally represented by the Note or of any part of
such other Obligations.

 

Section 9.7 Waivers. No course of dealing on the part of Lender, or any of its
officers, employees, consultants or agents, nor any failure or delay by Lender
with respect to exercising any right, power or privilege of Lender under the
Note, this Agreement or any other Loan Document shall operate as a waiver
thereof, except as otherwise provided in Section 9.2 hereof.

 

Section 9.8 Cumulative Rights. The rights and remedies of Lender under the Note,
this Agreement, and any other Loan Document shall be cumulative, and the
exercise or partial exercise of any such right or remedy shall not preclude the
exercise of any other right or remedy.

 

Section 9.9 Limitation on Interest. Lender, each Related Person and any other
parties to the Loan Documents intend to contract in strict compliance with
applicable usury Law from time to time in effect. In furtherance thereof such
Persons stipulate and agree that none of the terms and provisions contained in
the Loan Documents shall ever be construed to create a contract to pay, for the
use, forbearance or detention of money, interest in excess of the maximum amount
of interest permitted to be charged by applicable Law from time to time in

 

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effect. Neither each Related Person nor any present or future guarantors,
endorsers, or other Persons hereafter becoming liable for payment of any
Obligation shall ever be liable for unearned interest thereon or shall ever be
required to pay interest thereon in excess of the maximum amount that may be
lawfully charged under applicable Law from time to time in effect, and the
provisions of this section shall control over all other provisions of the Loan
Documents which may be in conflict or apparent conflict herewith. Lender
expressly disavows any intention to charge or collect excessive unearned
interest or finance charges in the event the maturity of any Obligation is
accelerated. If (a) the maturity of any Obligation is accelerated for any
reason, (b) any Obligation is prepaid and as a result any amounts held to
constitute interest are determined to be in excess of the legal maximum, or (c)
Lender or any other holder of any or all of the Obligations shall otherwise
collect moneys which are determined to constitute interest which would otherwise
increase the interest on any or all of the Obligations to an amount in excess of
that permitted to be charged by applicable Law then in effect, then all such
sums determined to constitute interest in excess of such legal limit shall,
without penalty, be promptly applied to reduce the then outstanding principal of
the related Obligations or, at Lender’s or such holder’s option, promptly
returned to each Related Person or the other payor thereof upon such
determination. In determining whether or not the interest paid or payable, under
any specific circumstance, exceeds the maximum amount permitted under applicable
Law, Lender and each Related Persons (and any other payors thereof) shall to the
greatest extent permitted under applicable Law, (i) characterize any
non-principal payment as an expense, fee or premium rather than as interest,
(ii) exclude voluntary prepayments and the effects thereof, and (iii) amortize,
prorate, allocate, and spread the total amount of interest throughout the entire
contemplated term of the instruments evidencing the Obligations in accordance
with the amounts outstanding from time to time thereunder and the maximum legal
rate of interest from time to time in effect under applicable Law in order to
lawfully charge the maximum amount of interest permitted under applicable Law.
In the event applicable Law provides for an interest ceiling under Section 303
of the Texas Finance Code, that ceiling shall be the weekly ceiling.

 

Section 9.10 Bank Accounts; Offset. To secure the repayment of the Obligations
each Related Person hereby grants to Lender and to each financial institution
which hereafter acquires a participation or other interest in the Loans or Note
(in this section called a “Participant”) a security interest, a lien, and a
right of offset, each of which shall be in addition to all other interests,
liens, and rights of Lender or any Participant at common law, under the Loan
Documents, or otherwise, and each of which shall be upon and against (a) any and
all moneys, securities or other property (and the proceeds therefrom) of any
Related Person now or hereafter held or received by or in transit to Lender, any
Lender or Participant from or for the account any Related Person, whether for
safekeeping, custody pledge, transmission, collection or otherwise, (b) any and
all deposits (general or special, time or demand, provisional or final) of any
Related Person with Lender or any Participant, and (c) any other credits and
claims of any Related Person at any time existing against Lender, any Lender or
Participant, including claims under certificates of deposit. Upon the occurrence
of any Default, each of Lender and Participants is hereby authorized to
foreclose upon, offset, appropriate, and apply, at any time and from time to
time, without notice to Borrowers, any and all items hereinabove referred to
against the Obligations then due and payable.

 

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Section 9.11 Assignments, Participations.

 

(a) Assignments. Lender shall have the right to sell, assign or transfer all or
any part of Note, Loans and rights and the associated rights and obligations
under all Loan Documents to one or more financial institutions, with minimum
assets of $500,000,000, and the assignee, transferee or recipient shall have, to
the extent of such sale, assignment, or transfer, the same rights, benefits and
obligations of Lender. Within five (5) Business Days after any such assignment,
the assignee shall notify Borrowers of the outstanding principal balance of the
Note payable to assignee and Borrowers shall execute and deliver to assignee a
new Note evidencing such assignee’s assigned Loans and, if the assignor Lender
has retained a portion of its Loans, replacement Note in the principal amount of
the Loans retained by the assignor Lender (such Note to be in exchange for, but
not in payment of, the Note held by such Lender).

 

(b) Participations. Lender shall have the right to grant participations in all
or any part of the Note, Loans and the associated rights and obligations under
all Loan Documents to one or more financial institutions with minimum assets of
$500,000,000.

 

(c) Distribution of Information. It is understood and agreed that Lender may
provide to assignees and participants and prospective assignees and participants
financial information and reports and data concerning Borrowers’ properties and
operations which was provided to Lender pursuant to this Agreement.

 

Section 9.12 Confidentiality. Lender agrees to keep confidential any information
furnished or made available to it by any Related Person pursuant to this
Agreement that is marked confidential; provided that nothing herein shall
prevent Lender from disclosing such information (a) to any officer, director,
employee, agent, or advisor of Lender or Affiliate of Lender, (b) to any other
Person if reasonably incidental to the administration of the credit facility
provided herein, (c) as required by any law, (d) upon the order of any court or
administrative agency, (e) upon the request or demand of any tribunal, (f) that
is or becomes available to the public or that is or becomes available to Lender
other than as a result of a disclosure by Lender prohibited by this Agreement,
(g) in connection with any litigation to which such Lender or any of its
Affiliates may be a party, (h) to the extent necessary in connection with the
exercise of any right or remedy under this Agreement or any other Loan Document,
and (i) subject to provisions substantially similar to those contained in this
section, to any actual or proposed participant or assignee.

 

Section 9.13 Exhibits. The exhibits attached to this Agreement are incorporated
herein and shall be considered a part of this Agreement for the purposes stated
herein, except that in the event of any conflict between any of the provisions
of such exhibits and the provisions of this Agreement, the provisions of this
Agreement shall prevail.

 

Section 9.14 Titles of Articles, Sections and Subsections. All titles or
headings to articles, sections, subsections or other divisions of this Agreement
or the exhibits hereto are only for the convenience of the parties and shall not
be construed to have any effect or meaning with respect to the other content of
such articles, sections, subsections or other divisions, such other content
being controlling as to the agreement between the parties hereto.

 

Section 9.15 Counterparts; Fax. This Agreement may be executed in

 

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counterparts, and it shall not be necessary that the signatures of both of the
parties hereto be contained on any one counterpart hereof; each counterpart
shall be deemed an original, but all counterparts together shall constitute one
and the same instrument. This Agreement may be duly executed by facsimile or
other electronic transmission.

 

Section 9.16 ENTIRE AGREEMENT. THE NOTE, THIS AGREEMENT, AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO AND THERETO
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE
PARTIES.

 

Section 9.17 Termination; Limited Survival. In its sole and absolute discretion
Borrowers may at any time that no Obligations are owing elect in a notice
delivered to Lender to terminate this Agreement. Upon receipt by Lender of such
a notice, if no Obligations are then owing, this Agreement and all other Loan
Documents shall thereupon be terminated and the parties thereto released from
all prospective obligations thereunder. Notwithstanding the foregoing or
anything herein to the contrary, any waivers or admissions made by any Person in
any Loan Documents, any Obligations, and any obligations which any Person may
have to indemnify or compensate Lender shall survive any termination of this
Agreement or any other Loan Document. At the request and expense of Borrowers,
Lender shall prepare and execute all necessary instruments to reflect and effect
such termination of the Loan Documents.

 

Section 9.18 Joint and Several Liability. Each Borrower shall be jointly and
severally liable for Indebtedness and Obligations under the Loan Documents,
including but not limited to the payment of all Obligations.

 

Section 9.19 No Release of Joint and Several Liability.

 

(i) No action which Lender may take or omit to take in connection with any Loan
Document or any of the Obligations, and no course of dealing of the Lender with
a Borrower (the “Affected Borrower”) or any other Person, shall release or
diminish the joint and several liability of the other Borrower hereunder for
Loans made to the Affected Borrower. Without limiting the foregoing, each
Borrower hereby expressly agrees that Lender may, from time to time, without
notice to or the consent of the other Borrower, do any or all of the following:

 

(1) Give or refuse to give any waivers or other indulgences with respect to the
Loan Documents.

 

(2) Neglect, delay, fail, or refuse to take or prosecute any action for the
collection or enforcement of any of the Obligations, to foreclose or take or
prosecute any action in connection with the Collateral, to bring suit against
any Borrower or any other Person, or to take any other action concerning the
Obligations or the Loan Documents.

 

(3) Compromise or settle any unpaid or unperformed Obligations.

 

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(4) Take, exchange, amend, eliminate, surrender, release, or subordinate any
Collateral, accept additional or substituted collateral therefor, and perfect or
fail to perfect Lender’s rights in any or all of such collateral.

 

(5) Except as otherwise provided in the Loan Documents, apply all monies
received from any Borrower or others, or from any Collateral, as Lender may
determine to be in its best interest, without in any way being required to
marshal Collateral or assets or to apply all or any part of such monies upon any
particular part of the Obligations.

 

(ii) No action or inaction of Duxford or any other Person, and no change of law
or circumstances, shall release or diminish the joint and several liability of
Bayport hereunder for Loans made to Duxford. Without limiting the foregoing, the
joint and several liability of Bayport hereunder for Loans made to Duxford shall
not be released, diminished, impaired, reduced, or affected by the occurrence of
any or all of the following from time to time, even if occurring without notice
to or without the consent of Bayport:

 

(1) Any voluntary or involuntary liquidation, dissolution, sale of all or
substantially all assets, marshaling of assets or liabilities, receivership,
conservatorship, assignment for the benefit of creditors, insolvency,
bankruptcy, reorganization, arrangement, or composition of Duxford or any other
proceedings involving Duxford or any of the assets of Duxford under laws for the
protection of debtors, or any discharge, impairment, modification, release, or
limitation of the liability of, or stay of actions or lien enforcement
proceedings against, Duxford, any properties of Duxford, or the estate in
bankruptcy of Duxford in the course of or resulting from any such proceedings.

 

(2) The failure by Agent or any Lender to file or enforce a claim in any
proceeding described in the immediately preceding subsection or to take any
other action in any proceeding to which Duxford is a party.

 

(3) The release by operation of law of Duxford from any of the Obligations.

 

(4) The invalidity, deficiency, illegality, or unenforceability of any of the
Obligations or the Loan Documents against Duxford, in whole or in part, any bar
by any statute of limitations or other law of recovery on any of the
Obligations, or any defense or excuse for failure to perform on account of force
majeure, act of God, casualty, impossibility, impracticability, or other defense
or excuse whatsoever.

 

(5) Without limiting any of the foregoing, any fact or event (whether or not
similar to any of the foregoing) which in the absence of

 

41

--------------------------------------------------------------------------------

this provision would or might constitute or afford a legal or equitable
discharge or release of or defense to a debtor or surety other than the actual
performance by Duxford under this Agreement.

 

(iii) No action or inaction of Bayport or any other Person, and no change of law
or circumstances, shall release or diminish the joint and several liability of
Duxford hereunder for Loans made to Bayport. Without limiting the foregoing, the
joint and several liability of Duxford hereunder for Loans made to Bayport shall
not be released, diminished, impaired, reduced, or affected by the occurrence of
any or all of the following from time to time, even if occurring without notice
to or without the consent of Duxford:

 

(1) Any voluntary or involuntary liquidation, dissolution, sale of all or
substantially all assets, marshaling of assets or liabilities, receivership,
conservatorship, assignment for the benefit of creditors, insolvency,
bankruptcy, reorganization, arrangement, or composition of Bayport or any other
proceedings involving Bayport or any of the assets of Bayport under laws for the
protection of debtors, or any discharge, impairment, modification, release, or
limitation of the liability of, or stay of actions or lien enforcement
proceedings against, Bayport, any properties of Bayport, or the estate in
bankruptcy of Bayport in the course of or resulting from any such proceedings.

 

(2) The failure Lender to file or enforce a claim in any proceeding described in
the immediately preceding subsection or to take any other action in any
proceeding to which Bayport is a party.

 

(3) The release by operation of law of Bayport from any of the Obligations.

 

(4) The invalidity, deficiency, illegality, or unenforceability of any of the
Obligations or the Loan Documents against Bayport, in whole or in part, any bar
by any statute of limitations or other law of recovery on any of the
Obligations, or any defense or excuse for failure to perform on account of force
majeure, act of God, casualty, impossibility, impracticability, or other defense
or excuse whatsoever.

 

(5) Without limiting any of the foregoing, any fact or event (whether or not
similar to any of the foregoing) which in the absence of this provision would or
might constitute or afford a legal or equitable discharge or release of or
defense to a debtor or surety other than the actual performance by Bayport under
this Agreement.

 

Section 9.20 Disclosures. Lender may disclose to, and exchange and discuss with,
any other Person any information concerning the Collateral or Borrowers or any
Subsidiary (whether received by Lender or any other Person) for the purpose of
(a) complying with Governmental Requirements or any legal proceedings, (b)
protecting or preserving the

 

42

--------------------------------------------------------------------------------

Collateral, (c) protecting, preserving, exercising or enforcing any of their
rights in, under or related to the Collateral or the Loan Documents, (d)
performing any of their obligations under or related to the Loan Documents, or
(e) consulting with respect to any of the foregoing matters.

 

Section 9.21 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO WAIVES, TO THE
MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, ITS RESPECTIVE RIGHTS TO A TRIAL BY
JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO
THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY
OR THEREBY IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY
ANY OF THE PARTIES AGAINST ANY OTHER PARTY, WHETHER WITH RESPECT TO CONTRACT
CLAIMS, TORT CLAIMS, OR OTHERWISE. EACH OF THE PARTIES HERETO AGREES THAT ANY
SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY.
WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE
RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY
ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO
CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT
AND ANY OTHER LOAN DOCUMENTS.

 

Section 9.22 CONSEQUENTIAL DAMAGES. NEITHER BORROWERS, NOR LENDER SHALL HAVE ANY
LIABILITY WITH RESPECT TO, AND EACH SUCH PERSON HEREBY WAIVES, RELEASES AND
AGREES NOT TO SUE EACH OTHER SUCH PERSON FOR, ANY SPECIAL, INDIRECT OR
CONSEQUENTIAL DAMAGES SUFFERED BY SUCH OTHER PERSON IN CONNECTION WITH ANY CLAIM
RELATED TO THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREIN.

 

[The remainder of this page is intentionally left blank]

 

43

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly
executed as of the date first above written.

 

BORROWERS:

  

DUXFORD FINANCIAL, INC., a California

Corporation

     By:   

    /s/ Richard Frankel

--------------------------------------------------------------------------------

         

Name:  Richard Frankel

         

Title:    Chairman

     By:   

    /s/ Mark A. Carver

--------------------------------------------------------------------------------

         

Name:  Mark A. Carver

         

Title:    President

    

BAYPORT MORTGAGE, L.P., a California Limited

Partnership

     By:   

Duxford Financial, Inc., a California

Corporation, its general partner

         

By:

  

  /s/ Richard Frankel

--------------------------------------------------------------------------------

              

Name:  Richard Frankel

              

Title:    Chairman

         

By:

  

  /s/ Mark A. Carver

--------------------------------------------------------------------------------

              

Name:  Mark A. Carver

              

Title:    President

LENDER:

       

GUARANTY BANK

         

By:

  

  /s/ Jon Larson

--------------------------------------------------------------------------------

              

Name:  Jon Larson

              

Title:    Senior Vice President

--------------------------------------------------------------------------------

EXHIBIT A

 

PROMISSORY NOTE

 

$10,000,000

  Dallas, Texas   August 29, 2003

 

FOR VALUE RECEIVED, the undersigned, DUXFORD FINANCIAL, INC., a California
corporation (“Duxford”) and BAYPORT MORTGAGE, L.P., a California limited
partnership (“Bayport,” and together with Duxford, “Borrowers”), jointly and
severally promise to pay to the order of GUARANTY BANK (herein called “Lender”),
the principal sum of Ten Million and No/100 ($10,000,000) or, if less, the
aggregate unpaid principal amount of the Loans made under this Note by Lender to
Borrowers pursuant to the terms of the Credit Agreement (as hereinafter
defined), together with interest on the unpaid principal balance thereof as
hereinafter set forth, both principal and interest payable as herein provided in
lawful money of the United States of America at the offices of the Lender, 8333
Douglas Avenue, Dallas, Texas or at such other place within Dallas County,
Texas, as from time to time may be designated by the holder of this Note.

 

This Note (a) is issued and delivered under that certain Credit Agreement of
even date herewith between Borrowers and Lender (herein, as from time to time
supplemented, amended or restated, called the “Credit Agreement”), and is a Note
as defined therein, (b) is subject to the terms and provisions of the Credit
Agreement, which contains provisions for payments and prepayments hereunder and
acceleration of the maturity hereof upon the happening of certain stated events,
and (c) is secured by and entitled to the benefits of certain Security
Instruments (as identified and defined in the Credit Agreement). Payments on
this Note shall be made and applied as provided herein and in the Credit
Agreement. Reference is hereby made to the Credit Agreement for a description of
certain rights, limitations of rights, obligations and duties of the parties
hereto and for the meanings assigned to terms used and not defined herein and to
the Security Instruments for a description of the nature and extent of the
security thereby provided and the rights of the parties thereto.

 

The principal amount of this Note, together with all interest accrued hereon,
shall be due and payable in full on the Drawdown Termination Date.

 

So long as no Event of Default has occurred and is continuing, (i) the First
Tier Portion of the Loan Balance (exclusive of any past due principal or
interest) from time to time outstanding shall bear interest on each day
outstanding at the First Tier Rate in effect on such day; (ii) the Second Tier
Portion of the Loan Balance (exclusive of any past due principal or interest)
from time to time outstanding shall bear interest on each day outstanding at the
Second Tier Rate in effect on such day; and (iii) the Third Tier Portion of the
Loan Balance (exclusive of any past due principal or interest) from time to time
outstanding shall bear interest on each day outstanding at the Third Tier Rate
in effect on such day. If an Event of Default has occurred and is continuing,
the entire Loan Balance (exclusive of any past due principal or interest) from
time to time outstanding shall bear interest on each day outstanding at the
applicable Default Rate in effect on such day.

--------------------------------------------------------------------------------

On the fifteenth (15th) day of each calendar month, beginning on the fifteenth
(15th) day of the calendar month immediately following the calendar month in
which this Note is executed, Borrowers shall pay to the holder hereof all unpaid
interest which has accrued on the Loan Balance through and including the last
day of the immediately preceding calendar month. All past due principal of and
past due interest on the Loan Balance shall bear interest on each day
outstanding at the applicable Default Rate in effect on such day, and such
interest shall be due and payable daily as it accrues. Notwithstanding the
foregoing provisions of this paragraph: (i) this Note shall never bear interest
in excess of the Maximum Rate and, (ii) if at any time the rate at which
interest is payable on this Note is limited by the Maximum Rate (by the
foregoing subsection (i) or by reference to the Maximum Rate in the definition
of Default Rate), this Note shall bear interest at the Maximum Rate and shall
continue to bear interest at the Maximum Rate until such time as the total
amount of interest accrued hereon equals (but does not exceed) the total amount
of interest which would have accrued hereon had there been no Maximum Rate
applicable hereto.

 

Notwithstanding the foregoing paragraph and all other provisions of this Note,
in no event shall the interest payable hereon, whether before or after maturity,
exceed the maximum amount of interest which, under applicable law, may be
charged on this Note, and this Note is expressly made subject to the provisions
of the Credit Agreement which more fully set out the limitations on how interest
accrues hereon. In the event applicable law provides for a ceiling under Section
303 of the Texas Finance Code, that ceiling shall be the weekly rate ceiling and
shall be used in this Note for calculating the Maximum Rate and for all other
purposes. The term “applicable law” as used in this Note shall mean the laws of
the State of Texas or the laws of the United States, whichever laws allow the
greater interest, as such laws now exist or may be changed or amended or come
into effect in the future.

 

If this Note is placed in the hands of an attorney for collection after default,
or if all or any part of the indebtedness represented hereby is proved,
established or collected in any court or in any bankruptcy, receivership, debtor
relief, probate or other court proceedings, Borrowers and all endorsers,
sureties and guarantors of this Note jointly and severally agree to pay
reasonable attorneys’ fees and collection costs to the holder hereof in addition
to the principal and interest payable hereunder.

 

Except as otherwise provided in the Credit Agreement, Borrowers and all
endorsers, sureties and guarantors of this Note hereby severally waive demand,
presentment, notice of demand and of dishonor and nonpayment of this Note,
protest, notice of protest, notice of intention to accelerate the maturity of
this Note, declaration or notice of acceleration of the maturity of this Note,
diligence in collecting, the bringing of any suit against any party and any
notice of or defense on account of any extensions, renewals, partial payments or
changes in any manner of or in this Note or in any of its terms, provisions and
covenants, or any releases or substitutions of any security, or any delay,
indulgence or other act of any trustee or any holder hereof, whether before or
after maturity.

 

2

--------------------------------------------------------------------------------

No waiver by Lender of any of its rights or remedies hereunder or under any
other document evidencing or securing this Note or otherwise shall be considered
a waiver of any other subsequent right or remedy of Lender; no delay or omission
in the exercise or enforcement by Lender of any rights or remedies shall ever by
construed as a waiver of any right or remedy of Lender; and no exercise or
enforcement of any such rights or remedies shall ever be held to exhaust any
right or remedy of Lender.

 

Borrowers reserve the right to prepay the outstanding principal balance of this
Note, in whole or in part at any time and from time to time without premium or
penalty, in accordance with the terms of the Credit Agreement.

 

3

--------------------------------------------------------------------------------

THIS NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES HERETO SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT THE SAME ARE GOVERNED BY
APPLICABLE FEDERAL LAW.

 

DUXFORD FINANCIAL, INC., a California

Corporation

By:

 

 

--------------------------------------------------------------------------------

   

Name:

   

Title:

By:

 

 

--------------------------------------------------------------------------------

   

Name:

   

Title:

BAYPORT MORTGAGE, L.P., a California

Limited Partnership

By:

 

Duxford Financial, Inc., its general partner

   

By:

 

 

--------------------------------------------------------------------------------

       

Name:

       

Title:

   

By:

 

 

--------------------------------------------------------------------------------

       

Name:

       

Title:

 

4

--------------------------------------------------------------------------------

EXHIBIT B

 

BORROWING REQUEST

 

FROM:   Duxford Financial, Inc.

       Bayport Mortgage, L.P.

       (collectively, “Borrowers”)

 

TO:   Guaranty Bank (“Lender”)

 

I. Borrowers hereby request Loans in the amount and on the date specified below,
pursuant to the Credit Agreement among Borrowers and Lender dated as of August
29, 2003 (as amended, modified or restated from time to time, the “Agreement”).
Capitalized terms used herein and defined in the Agreement shall be used herein
as so defined.

 

II. Loans requested:

 

  (a) Borrowers hereby request Loans in the aggregate principal amount of
$                                        .

 

  (b) Requested advance date:                     , 200    .

 

III. The undersigned officers of Borrower represent and warrant to Lender and
each Lender:

 

  (a) Borrowers are entitled to receive the requested Loan under the terms and
conditions of the Agreement;

 

  (b) all items which Borrowers are required to furnish to Lender pursuant to
the Agreement accompany this Borrowing Request (or, if Wet Loans, shall be
delivered to Lender in accordance with the Agreement);

 

  (c) all Mortgage Loans offered hereby conform in all respects with the
applicable requirements set forth in the Agreement;

 

  (d) no Event of Default has occurred and is continuing under the Agreement;

 

  (e) no change or event which with notice and/or the passage of time would
constitute an Event of Default;

 

  (f) after giving effect to the Loan requested hereby the aggregate amount of
the outstanding principal balance of the Loan will not exceed the lesser of (1)
the Collateral Value of the Borrowing Base and (2) the Commitment.

--------------------------------------------------------------------------------

Borrowers have attached and submit herewith Submission Lists describing all
Eligible Mortgage Loans included in the Collateral Value of the Borrowing Base,
other than Wet Loans (the “Dry Submission Lists”) and Submission Lists
describing all Wet Loans included in the Collateral Value of the Borrowing Base
(the “Wet Submission Lists”). Borrowers have submitted—or are submitting to
Lender concurrently herewith—the Required Mortgage Documents with respect to
each Mortgage Note described or referred to in the Dry Submission Lists.
Borrowers hereby grant to Lender a security interest in all such new Mortgage
Collateral described in the Dry Submission Lists and the Wet Submission Lists
and all related Required Mortgage Documents, and all of the foregoing are hereby
made subject to the security interest of Lender created by the Security
Agreement. Borrowers hereby agree to deliver the Required Mortgage Documents
with respect to each Mortgage Note described or referred to in the Wet
Submission Lists within five (5) Business Days following the date hereof.

 

Borrowers represent and warrant that, except as permitted under the Agreement,
Borrowers hold with respect to each of the Mortgage Notes hereby offered the
following:

 

  (a) unless delivered herewith, the original filed copy of the Mortgage
relating to such Mortgage Note;

 

  (b) mortgagee policies of title insurance conforming to the requirements of
the Lender or binding commitments for the issuance of same;

 

  (c) insurance policies insuring the mortgaged premises as required by the
Lender; and

 

  (d) unless delivered herewith, an original of any executed Take-Out Commitment
relating to such Mortgage Note.

 

Borrowers agree that they hold the above referenced items in trust for Lender,
and will at any time deliver the same to Lender upon request or, upon written
instructions from Lender, to any Person designated by Lender. Borrowers further
agrees that they will not deliver any of the above items, nor give, transfer, or
assign any interest in same, to any Person other than Lender (or the Person or
Persons designated by Lender) without the prior written consent of Lender.

 

The representations and warranties of Borrowers contained in the Agreement and
those contained in each other Loan Document to which Borrowers are a party are
true and correct in all respects on and as of the date hereof.

 

2

--------------------------------------------------------------------------------

    

DUXFORD FINANCIAL, INC., a California

Corporation

Date:                    , 2003

  

By:

 

 

--------------------------------------------------------------------------------

        

Name:

            

Title:

        

By:

 

 

--------------------------------------------------------------------------------

        

Name:

            

Title:

        

BAYPORT MORTGAGE, L.P., a California

Limited Partnership

    

By:

 

Duxford Financial, Inc., a California

Corporation, its general partner

        

By:

 

 

--------------------------------------------------------------------------------

            

Name:

            

Title:

        

By:

 

 

--------------------------------------------------------------------------------

            

Name:

            

Title:

 

3

--------------------------------------------------------------------------------

INSTRUCTIONS FOR ELECTRONIC TRANSFER

OF BORROWING REQUEST

 

I. Narrative to be included on face of email from Borrower to Lender:

 

The Borrowing Request attached to this email is hereby (i) electronically signed
by                                                      , the [insert title] of
[Duxford Financial, Inc. or Bayport Mortgage, L.P., a California [corporation or
limited partnership] (the “Borrower”), on the date this email is sent to you,
(ii) adopted by the Borrower in all respects, and (iii) delivered pursuant to
the Credit Agreement dated as of August 29, 2003 between Guaranty Bank
(“Lender”) and the Borrower (the “Credit Agreement”). The Submission Lists
incorporated into such Borrowing Request are also attached to this email.

 

Documents to be attached:

 

Borrowing Request

  Dry Submission List   Wet Submission List

--------------------------------------------------------------------------------

SCHEDULE B-I

 

DRY SUBMISSION LISTS

--------------------------------------------------------------------------------

SCHEDULE B-II

 

WET SUBMISSION LISTS

--------------------------------------------------------------------------------

EXHIBIT C

 

APPROVED INVESTORS

 

ABN AMRO ( Interfirst)

Chase

Countrywide

Etrade

First Horizon

Wells Fargo Funding

--------------------------------------------------------------------------------

EXHIBIT D

 

SUBSIDIARIES OF BORROWERS

 

Name

--------------------------------------------------------------------------------

 

State of Incorporation

--------------------------------------------------------------------------------

 

Percentage Ownership

--------------------------------------------------------------------------------

None

       

--------------------------------------------------------------------------------

EXHIBIT E

[Duxford]

 

CERTIFICATE ACCOMPANYING

FINANCIAL STATEMENTS

 

Reference is made to that certain Credit Agreement dated as of August 29, 2003
(as from time to time amended, the “Agreement”), by and among DUXFORD FINANCIAL,
INC. (“Duxford”) and BAYPORT MORTGAGE, L.P. (“Bayport,” and together with
Duxford, “Borrowers”) and GUARANTY BANK, as Lender (“Lender”), which Agreement
is in full force and effect on the date hereof. Terms which are defined in the
Agreement are used herein with the meanings given them in the Agreement.

 

This Certificate is furnished pursuant to Section 5.1(a)(iii) of the Agreement.
Together herewith Duxford is furnishing to Lender Duxford’s audited annual
financial statements or monthly financial statements (the “Financial
Statements”) dated                     , 20     (the “Reporting Date”). Duxford
hereby represents, warrants, and acknowledges to Lender that:

 

  (a) the officer of Duxford signing this instrument is the duly elected,
qualified and acting                                          of Duxford;

 

  (b) the Financial Statements are prepared in accordance with GAAP;

 

  (c) attached hereto is Schedule E-1 showing Duxford’s compliance as of the
Reporting Date with the requirements of Sections 6.13 through 6.17 of the
Agreement *[and Duxford’s non-compliance as of such date with the requirements
of Section(s)              of the Agreement];

 

  (d) on the Reporting Date Borrowers were, and on the date hereof Borrowers
are, in full compliance with the disclosure requirements of Article V of the
Agreement, and no Default otherwise existed on the Reporting Date or otherwise
exists on the date of this instrument *[except for Default(s) under Section (s)
                                         of the Agreement, which (is/are] more
fully described on a schedule attached hereto).

 

The officer of Duxford signing this instrument hereby certifies that he has
reviewed the Loan Documents and the Financial Statements and has otherwise
undertaken such inquiry as is in his opinion necessary to enable him to express
an informed opinion with respect to the above representations, warranties and
acknowledgments of Duxford and, to the best of his knowledge, such
representations, warranties, and acknowledgments are true, correct and complete.

 

IN WITNESS WHEREOF, this instrument is executed as of                     ,
20    .

--------------------------------------------------------------------------------

DUXFORD FINANCIAL, INC., a California

Corporation

By:

 

 

--------------------------------------------------------------------------------

   

Name:

 

 

--------------------------------------------------------------------------------

   

Title:

 

 

--------------------------------------------------------------------------------

By:

 

 

--------------------------------------------------------------------------------

   

Name:

 

 

--------------------------------------------------------------------------------

   

Title:

 

 

--------------------------------------------------------------------------------

 

2

--------------------------------------------------------------------------------

SCHEDULE E-1

[Duxford]

 

Financial Covenants

--------------------------------------------------------------------------------

 

Required

--------------------------------------------------------------------------------

 

Actual [or in compliance]

--------------------------------------------------------------------------------

1.

 

Minimum Tangible

Net Worth*

 

Not less than $2,000,000

  ___________________________

2.

 

Total Debt to

Tangible Net Worth*

 

Not more than 12.0 to 1.00

  ___________________________

3.

 

Profitability*

 

Not less than $1

  ___________________________

4.

 

Minimum Liquidity*

 

Not less than $1,500,000

  ___________________________

 

DUXFORD FINANCIAL, INC., a California

Corporation

By:

 

 

--------------------------------------------------------------------------------

   

Name:

 

 

--------------------------------------------------------------------------------

   

Title:

 

 

--------------------------------------------------------------------------------

By:

 

 

--------------------------------------------------------------------------------

   

Name:

 

 

--------------------------------------------------------------------------------

   

Title:

 

 

--------------------------------------------------------------------------------

_____________

(Date)

 

--------------------------------------------------------------------------------

* Aggregate values with those of Bayport Mortgage, L.P.

--------------------------------------------------------------------------------

EXHIBIT E

[Bayport]

 

CERTIFICATE ACCOMPANYING

FINANCIAL STATEMENTS

 

Reference is made to that certain Credit Agreement dated as of August 29, 2003
(as from time to time amended, the “Agreement”), by and among DUXFORD FINANCIAL,
INC. (“Duxford”) and BAYPORT MORTGAGE, L.P. (“Bayport,” and together with
Duxford, “Borrowers”) and GUARANTY BANK, as Lender (“Lender”), which Agreement
is in full force and effect on the date hereof. Terms which are defined in the
Agreement are used herein with the meanings given them in the Agreement.

 

This Certificate is furnished pursuant to Section 5.1(a)(iii) of the Agreement.
Together herewith Bayport is furnishing to Lender Bayport’s audited annual
financial statements or monthly financial statements (the “Financial
Statements”) dated                     , 20     (the “Reporting Date”). Bayport
hereby represents, warrants, and acknowledges to Lender that:

 

  (a) the officer signing this instrument on behalf of Duxford in its capacity
as general partner of Bayport is the duly elected, qualified and acting
                                         of Duxford;

 

  (b) the Financial Statements are prepared in accordance with GAAP;

 

  (c) attached hereto is Schedule E-1 showing Bayport’s compliance as of the
Reporting Date with the requirements of Sections 6.13 through 6.17 of the
Agreement *[and Bayport’s non-compliance as of such date with the requirements
of Section(s)              of the Agreement];

 

  (d) on the Reporting Date Borrowers were, and on the date hereof Borrowers
are, in full compliance with the disclosure requirements of Article V of the
Agreement, and no Default otherwise existed on the Reporting Date or otherwise
exists on the date of this instrument *[except for Default(s) under Section (s)
                                         of the Agreement, which (is/are] more
fully described on a schedule attached hereto).

 

The officer of Duxford signing this instrument on behalf of Duxford in its
capacity as general partner of Bayport hereby certifies that he has reviewed the
Loan Documents and the Financial Statements and has otherwise undertaken such
inquiry as is in his opinion necessary to enable him to express an informed
opinion with respect to the above representations, warranties and
acknowledgments of Bayport and, to the best of his knowledge, such
representations, warranties, and acknowledgments are true, correct and complete.

 

IN WITNESS WHEREOF, this instrument is executed as of                     ,
20    .

--------------------------------------------------------------------------------

BAYPORT MORTGAGE, L.P. a California

Limited Partnership

By:

 

Duxford Financial, Inc., a California

Corporation, its general partner

   

By:

 

 

--------------------------------------------------------------------------------

       

Name:

 

 

--------------------------------------------------------------------------------

       

Title:

 

 

--------------------------------------------------------------------------------

   

By:

 

 

--------------------------------------------------------------------------------

       

Name:

 

 

--------------------------------------------------------------------------------

       

Title:

 

 

--------------------------------------------------------------------------------

 

2

--------------------------------------------------------------------------------

SCHEDULE E-1

[Bayport]

 

Financial Covenants

--------------------------------------------------------------------------------

 

Required

--------------------------------------------------------------------------------

 

Actual [or in compliance]

--------------------------------------------------------------------------------

1.

 

Minimum Tangible Net Worth

 

Not less than $2,000,000

  ___________________________

2.

 

Total Debt to

Tangible Net Worth**

 

Not more than 12.0 to 1.00

  ___________________________

3.

 

Profitability**

 

Not less than $1

  ___________________________

4.

 

Minimum Liquidity**

 

Not less than $1,500,000

  ___________________________

 

BAYPORT MORTGAGE, L.P., a California

Limited Partnership

By:

 

Duxford Financial, Inc., a California

Corporation, its general partner

By:

 

 

--------------------------------------------------------------------------------

   

Name:

 

 

--------------------------------------------------------------------------------

   

Title:

 

 

--------------------------------------------------------------------------------

By:

 

 

--------------------------------------------------------------------------------

   

Name:

 

 

--------------------------------------------------------------------------------

   

Title:

 

 

--------------------------------------------------------------------------------

 

_____________

(Date)

 

--------------------------------------------------------------------------------

** Aggregate values with those of Duxford Financial, Inc.

--------------------------------------------------------------------------------

EXHIBIT F

 

FORM OF SECURITY AGREEMENT

 

[EXECUTION]

 

SECURITY AGREEMENT

 

THIS SECURITY AGREEMENT (this “Security Agreement”) is made and dated as of
August 29, 2003, by DUXFORD FINANCIAL, INC., a California corporation, and
BAYPORT MORTGAGE, L.P., a California limited partnership (collectively,
“Debtors”), and GUARANTY BANK (“Secured Party”).

 

RECITALS

 

A.     Pursuant to that certain Credit Agreement of even date herewith between
Debtors and Secured Party (as from time to time amended, supplemented or
restated, the “Credit Agreement”), Secured Party agreed to extend credit to
Debtors on the terms and subject to the conditions set forth therein.
Capitalized terms not otherwise defined herein are used with the same meanings
as in the Credit Agreement.

 

B.     As a condition precedent to the effectiveness of the Credit Agreement,
Secured Party has required the execution and delivery of this Security Agreement
in order to, among other things, create a first priority perfected security
interest in the Collateral in favor of Secured Party to secure payment of the
Obligations.

 

NOW, THEREFORE, in consideration of the above Recitals and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Debtors agree with Secured Party as follows:

 

AGREEMENTS

 

1.     Delivery of Collateral.   Debtors shall deliver Submission Lists to
Secured Party from time to time identifying Mortgage Loans that Debtors intend
to include in Collateral by delivering to Secured Party the mortgage documents
described on Schedule A attached hereto for each such Mortgage Loan (the
“Required Mortgage Documents”). Debtors shall obtain and hold for the benefit of
Secured Party the documents described on Schedule B attached hereto for each
such Mortgage Loan (the “Additional Required Mortgage Documents”).

 

2.     Grant of Security Interest.   Debtors hereby pledge, assign and grant to
Secured Party a first priority security interest in the property described in
Paragraph 3 below (collectively and severally, the “Collateral”), to secure
payment of (i) the Obligations, (ii) all costs reasonably incurred by Secured
Party (a) to obtain, preserve, perfect and enforce the security interest granted
hereby and all other liens and security interests securing payment of the
Obligations, (b) to collect the Obligations, and (c) to maintain, preserve and
collect the Collateral, including, but not limited to, taxes, assessments,
insurance premiums, repairs, reasonable attorneys’ fees and legal expenses
(including, without limitation, allocated costs for in-house legal services),
rent, storage

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charges, advertising costs, brokerage fees and expenses of sale; and (iii) all
renewals, extensions and modifications of the indebtedness referred to in the
foregoing clauses, or any part thereof. The loans, advances, indebtedness,
obligations, liabilities and costs described in this section are collectively
referred to herein as the “Secured Indebtedness.” All proceeds hereof shall be
applied by Secured Party to the Secured Indebtedness in accordance with the
Credit Agreement.

 

3.    Collateral.  The Collateral shall consist of all right, title and interest
of Debtors, of every kind and nature, in and to all of the following property,
assets and rights of Debtors, wherever located, whether now existing or
hereafter arising, and whether now or hereafter owned or acquired by or accruing
or owing to Debtors, and all proceeds and products thereof (including all
proceeds in the Settlement Account from time to time):

 

(a)    Any and all Instruments, Certificated Securities, Uncertificated
Securities, and Investment Property of Debtors in the actual or constructive
possession of Secured Party, any Person designated as a bailee (“Bailee”) of
Mortgage Notes by Secured Party until payment is made for such Notes or they are
returned to Secured Party, or of Debtors in trust for Secured Party, or in
transit to or from Secured Party or Bailee as collateral for the Secured
Indebtedness or designated by Debtors as collateral for the Secured Indebtedness
(whether or not delivered to Secured Party or Bailee), and any and all
agreements and documents related to any thereof including, without limitation,
all Mortgage Notes and Mortgages delivered, or to be delivered, to Secured Party
or Bailee or to be held by Debtors in trust for Secured Party or Bailee (the
“Mortgage Collateral”, including without limitation:

 

(i)    any and all rights, titles and interests Debtors may now or hereafter
have in and to any and all promissory notes, Mortgages, guaranties, bonds,
insurance policies, commitments, and other Instruments, documents, or agreements
ever executed and delivered to Debtors in connection with its mortgage lending
business and related to the Mortgage Collateral;

 

(ii)    any and all present and future Accounts, Chattel Paper, documents,
Instruments, General Intangibles, Payment Intangibles and other personal
property now owned or hereafter acquired by Debtors arising from or by virtue of
any transactions related to its mortgage lending business and related to the
Mortgage Collateral;

 

(iii)    any and all proceeds from the sale, financing or other disposition of
the items described in (i) and (ii) above; and

 

(iv)    all Software, files, surveys, certificates, correspondence, appraisals,
computer programs, tapes, discs, cards, accounting records, and other records,
information, and data of Debtors related to the Mortgage Collateral (including
without limitation all information, data, programs, tapes, discs and cards
necessary to administer and service such Mortgage Loans).

 

2

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(b)    All Take-Out Commitments related to the Mortgage Collateral and all
rights of Debtors in, to and under any agreements or other arrangements
(including without limitation, an interest rate swap agreement, an interest cap
agreement, and a forward sale agreement) entered into by Debtor to protect
itself against changes in interest rates or the market value of any of the
Mortgage Collateral, including without limitation, all rights to payment arising
under such agreements or arrangements.

 

(c)    All right, title and interest of Debtors under all agreements between
Debtors and Persons other than Debtors pursuant to which Debtors undertake to
service the Mortgage Collateral, including without limitation, the rights of
Debtors to income and reimbursement thereunder.

 

(d)    All purchase agreements, credit agreements or other agreements pursuant
to which Debtors acquired the Mortgage Collateral and all promissory notes,
security agreements and other instruments and documents executed by Debtors
pursuant thereto or in connection therewith, insofar as such agreements,
instruments and documents relate to the Mortgage Collateral.

 

(e)    All other money or property of Debtors in the possession of Secured Party
including, without limitation, (i) the Funding Account, the Settlement Account,
the Operating Account, all Deposit Accounts established with Secured Party and
any other accounts established by Debtors with Secured Party, (ii) all amounts
on deposit in the Funding Account, the Settlement Account, the Operating
Account, such Deposit Accounts or any other accounts established by Debtors with
Secured Party and (iii) the obligations of Secured Party to Debtors arising out
of such deposits.

 

(f)    All right, title and interest of Debtors in and to any other asset of
Debtors which has been or hereafter at any time is delivered to Secured Party or
Bailee hereunder.

 

(g)    All proceeds of whatever kind or nature from any of such collateral
described in paragraphs (a), (b), (c), (d), (e) and (f) above, including but not
limited to Mortgage-Backed Securities constituting proceeds of the Mortgage
Collateral.

 

As used in this Security Agreement, the terms “Accounts,” “Certificated
Securities,” “Chattel Paper,” “Deposit Accounts,” “General Intangibles,
“Instruments,” “Investment Property,” “Payment Intangibles,” “Software,” and
“Uncertificated Securities” and shall have the respective meanings assigned to
them in the Texas Uniform Commercial Code, as the same may hereafter be amended;
and the term “Mortgage-Backed Security” shall mean (i) a security (including a
participation certificate) guaranteed by GNMA that represents interests in a
pool of Mortgage Loans, or (ii) a security (including a participation
certificate) issued by FNMA or FHLMC that represents interests is such a pool.

 

3

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4.    Handling of Collateral; Settlement Account; Redemption of Collateral.

 

(a)    So long as no Default or Event of Default exists, Secured Party may from
time to time release documentation relating to Mortgage Loans to Debtors against
a trust receipt executed by Debtors in the form of Exhibit 1 hereto. Debtors
hereby represent and warrant that any request by Debtors for release of
Collateral under this subparagraph (a) shall be solely for the purposes of
correcting clerical or other non-substantial documentation problems in
preparation of returning such Collateral to Secured Party for ultimate sale or
exchange and that Debtors have requested such release in compliance with all
terms and conditions of such release set forth herein and in the Credit
Agreement.

 

(b)    So long as no Default or Event of Default exists, upon delivery by
Debtors to Secured Party of a shipping request substantially in the form of that
attached hereto as Exhibit 2, together with an air bill or other form of
shipping label properly completed with the name and address of the respective
Investor, Secured Party will transmit, or cause to be transmitted, Mortgage
Loans held by it as directed by Debtors under cover of a transmittal letter
substantially in the form of that attached hereto as Exhibit 3 (or such other
form as may be approved by Secured Party).

 

(c)    All amounts payable on account of the sale of Collateral will be
instructed to be paid directly by the purchaser to the Settlement Account.
Debtors will not be credited for any amounts due from any purchaser until
Secured Party has actually received immediately available funds. Pursuant to
Paragraph 3 above Debtors have granted to Secured Party a security interest in
and lien upon the Settlement Account and in any and all amounts at any time held
therein. This Paragraph 4(c) shall further constitute irrevocable notice to
Secured Party that the accounts referred to in Paragraph 3(e) above are “no
access” accounts to Debtors.

 

(d)    So long as no Default or Event of Default exists, Secured Party shall
take such steps as they may be reasonably directed from time to time by Debtors
in writing which are not inconsistent with the provisions of this Security
Agreement and the other Loan Documents and which Debtors deem necessary to
enable Debtors to perform and comply with Take-Out Commitments and with other
agreements for the sale or other disposition in whole or in part of Mortgage
Loans. Mortgage Collateral may be sold pursuant to a Take-Out Commitment so long
as no Default or Event of Default exists.

 

(e)    So long as no Default or Event of Default exists, upon receipt of a
Collateral Release Request in the form attached hereto as Exhibit 4, Secured
Party is hereby authorized, and does hereby agree, to release free and clear of
the security interest granted to Secured Party by this Security Agreement any
Mortgage Loan, together with all other documentation relating thereto, to
Debtors or as directed by Debtors; provided that after giving effect to such
release, the Collateral Value of the Borrowing Base is equal or greater than the
Loan Balance. In the event any Collateral Release Request is received by Secured
Party prior to 2:15 p.m. (Dallas time) on any Business Day, said Collateral
shall be released on the following Business Day. Secured Party agrees to
transmit all Collateral released pursuant to this section as directed by Debtors
at the expense of Debtors, and, upon request by Debtors, to complete the
endorsements of the

 

4

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related instruments and the assignments of the related instruments, to execute
the appropriate form of UCC financing statement release, if necessary, and to
execute such other appropriate instruments of transfer or release as Debtors
shall reasonably request. Secured Party shall be fully protected in relying on
any delivery instructions from Debtors in which Debtors purport to be entitled
to direct delivery of the items identified therein, and Debtors shall reimburse
Secured Party for all expenses incurred in connection with the delivery of any
item held by it under this section.

 

(f)    So long as no Default or Event of Default exists, Debtors may obtain the
release of the security interest in favor of Secured Party in all or any part of
the Mortgage Collateral at any time, and from time to time, by paying to Secured
Party, as a prepayment under the Credit Agreement, the Unit Collateral Value of
the Mortgage Collateral to be so released (such Unit Collateral Value being
determined as of the date of such release). In the event that the Unit
Collateral Value of the Mortgage Collateral designated by Secured Party, as
determined on the date in question, is less than the Unit Collateral Value of
such Mortgage Collateral as determined on the date that such Mortgage Collateral
was first delivered to Secured Party reasonably shall deem impaired its ability
to satisfy the Secured Indebtedness by recourse to such Mortgage Collateral,
Debtors shall, within two (2) Business Days after the reasonable written request
of Secured Party at any time during the term hereof either:

 

(i)    pay to Secured Party in immediately available funds an amount equal to
the aggregate Unit Collateral Value of any Mortgage Collateral designated by
Secured Party (such Unit Collateral Value being determined as of the date of
such redemption), or

 

(ii)    deliver to Secured Party other Mortgage Collateral in substitution for
such designated Mortgage Collateral, the aggregate Unit Collateral Value of
which substituted Mortgage Collateral (determined at the time of substitution)
is equal to or greater than the aggregate Unit Collateral Value of the Mortgage
Collateral being replaced (determined as of the date such Mortgage Collateral
was first delivered to Secured Party hereunder).

 

(g)    A Mortgage Loan which has been delivered to Secured Party under this
Security Agreement shall be and remain Collateral until released pursuant to
Section 4(f) or until this Security Agreement is terminated, notwithstanding (i)
any defect in any document delivered to Secured Party pursuant to the Credit
Agreement or this Security Agreement, (ii) the failure of such Mortgage Loan to
have or retain Unit Collateral Value, (iii) the failure of Debtors to make
timely delivery of any document required to be delivered to Secured Party under
this Security Agreement or the Credit Agreement, or (iv) any other fact,
circumstance, condition or event whatsoever. For purposes of the preceding
sentence, the funding of the origination or purchase of a Mortgage Loan from the
proceeds of a Loan and/or the assignment of Unit Collateral Value to such
Mortgage Loan by Secured Party shall be deemed to be conclusive evidence of the
delivery of such Mortgage Loan under the Credit Agreement, notwithstanding any
subsequent determination by Secured Party that the documentation delivered for
such Mortgage Loan was incomplete or defective in any respect or that such
Mortgage Loan should not have been assigned Unit Collateral Value.

 

5

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5.    Costs and Expenses.  Debtors shall pay all costs and expenses of Secured
Party directly relating to Secured Party’s performance of this Security
Agreement and the enforcement of the rights and remedies of Secured Party
hereunder and such costs and expenses, including, without limitation, reasonable
fees and expenses of legal counsel to Secured Party as provided in the Credit
Agreement.

 

6.    Representations and Warranties.  Debtors warrant that: (a) Debtors is the
sole owner of the Collateral (or, in the case of after-acquired Collateral, at
the time Debtors acquire rights in the Collateral, will be the sole owner
thereof), subject only to the rights of Investors under the Take-Out
Commitments; (b) except for security interests in favor of Secured Party any
other security interests permitted under the Credit Agreement, no Person has
(or, in the case of after-acquired Collateral, at the time Debtors acquire
rights therein, will have) any right, title, claim or interest in, against or to
the Collateral and, in any event, so long as Secured Party complies with the
procedures relating to possession of Collateral set forth in this Security
Agreement, Secured Party shall have a perfected, first priority security
interest therein; (c) no consent of any Person is required that has not been
obtained for the granting of the security interests provided for herein, nor
will any consent be required for Secured Party to exercise its rights under this
Security Agreement in accordance with the terms of this Security Agreement; (d)
to the best of Debtor’s knowledge, all information heretofore, herein or
hereafter supplied to Secured Party by or on behalf of Debtors with respect to
the Collateral is or will be accurate and complete in all material respects; (e)
the Take-Out Commitments covering such Collateral may be collaterally assigned
to Secured Party as described herein; (f) each Mortgage Loan is, at all dates
included in the computation of the Collateral Value of the Borrowing Base an
Eligible Mortgage Loan; (g) to the best of Debtor’s knowledge, no material
dispute, right of setoff, counterclaim or defense exists with respect to all or
any part of the Collateral; (h) this Security Agreement constitutes the legal,
valid and binding obligation of Debtors enforceable against Debtors and the
Collateral in accordance with its terms (subject to limitations as to
enforceability which might result from bankruptcy, reorganization, insolvency or
other similar laws affecting creditors’ rights generally and general principles
of equity); (i) in making and closing each Mortgage Loan originated by a third
party, Debtors have or will have fully complied with, and all collateral
documents delivered with respect to such Mortgage Loan comply or will comply
with, all applicable federal, state and local laws, regulations and rules,
including, but not limited to, (1) usury laws, (2) the Real Estate Settlement
Procedures Act of 1974, (3) the Equal Credit Opportunity Act, (4) the Federal
Truth in Lending Act, (5) Regulation Z of the Board of Governors of the Federal
Reserve System and (6) all other consumer protection and truth-in-lending laws
which may apply, and in each case with the regulations promulgated in connection
therewith, as the same may be amended from time to time; and Debtors shall
maintain sufficient documentary evidence in its files with respect to such
Mortgage Loans to substantiate such compliance; (j) upon the delivery of the
Mortgage Note evidencing a Mortgage Loan to Secured Party, Secured Party shall
have a valid and perfected first priority security interest in such Mortgage
Loan; and (k) immediately upon (1) the execution and delivery of the Credit
Agreement, the Note and the other Loan Documents, (2) the acquisition by Debtors
of rights in such Collateral and (3) the filing with the Secretary of State of
Texas of a financing statement showing Debtors, as debtors, and Secured Party,
as secured party, and describing the Collateral, Secured Party shall have a
valid and perfected first priority security interest in the Collateral which is
other than as described in clause (j) above, to the extent that a security
interest in such other Collateral can be perfected by filing a financing
statement.

 

6

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7.    Covenants of Debtors.  Debtors hereby agree: (a) to procure, execute and
deliver from time to time any endorsements, assignments, financing statements
and other writings deemed necessary or appropriate by Secured Party to perfect,
maintain and protect Secured Party’s security interest hereunder and the
priority thereof and to deliver promptly to Secured Party all originals of any
Collateral or proceeds thereof consisting of chattel paper or instruments; (b)
not to surrender or lose possession of (other than to Secured Party), sell,
encumber, or otherwise dispose of or transfer, any Collateral or right or
interest therein other than shipment of Mortgage Loans under Take-Out
Commitments and as otherwise permitted under Paragraph 6 above or the Credit
Agreement; (c) not to grant to any Investor any other security interest in any
Collateral, or otherwise acknowledge the creation of any ownership rights of any
Investor with respect to any Collateral unless and until Secured Party has
received the proceeds of such Collateral as described herein; (d) at all times
to account fully for and promptly to deliver to Secured Party, in the form
received, all Collateral or proceeds thereof received, endorsed to Secured Party
or in blank as appropriate and accompanied by such assignments and powers, duly
executed, as Secured Party shall request, and until so delivered all Collateral
and proceeds thereof shall be held in trust for Secured Party, separate from all
other property of Debtors and identified as the property of Secured Party; (e)
to keep accurate and complete records of the Collateral and at any reasonable
time and at Secured Party’s expense (provided that during the continuation of
any Event of Default, the following shall be at Debtors’ expense), upon demand
by Secured Party, to exhibit to and allow inspection of the Collateral and the
records, reports and information concerning the Collateral by Secured Party (or
Persons designated by Secured Party); (f) to keep the records concerning the
Collateral at the location(s) set forth in Paragraph 15 below and not to remove
the records from such location(s) without the prior written consent of Secured
Party; (g) not to materially modify, compromise, extend, rescind or cancel any
deed of trust, mortgage, note or other document, instrument or agreement
connected with any Mortgage Loan pledged under this Security Agreement or any
document relating thereto or connected therewith or consent to a postponement of
strict compliance on the part of any party thereto with any term or provision
thereof in any material respect; (h) to keep the Collateral insured against
loss, damage, theft, and other risks customarily covered by insurance, and such
other risks as Secured Party may reasonably request; (i) to do all acts that a
prudent investor would deem necessary or desirable to maintain, preserve and
protect the Collateral; (j) not knowingly to use or permit any Collateral to be
used unlawfully or in violation of any provision of this Security Agreement, the
Credit Agreement or any applicable statute, regulation or ordinance or any
policy of insurance covering the Collateral; (k) to pay (or require to be paid)
prior to their becoming delinquent all taxes, assessments, insurance premiums,
charges, encumbrances and liens now or hereafter imposed upon or affecting any
Collateral except as otherwise permitted in the Credit Agreement; (l) to notify
Secured Party before any such change shall occur of any change in Debtors’
names, identities, structures or jurisdictions through merger, consolidation or
otherwise; (m) to appear in and defend, at Debtors’ cost and expense, any action
or proceeding which may affect its title to or Secured Party’s interest in the
Collateral; and (n) to comply in all material respects with all laws,
regulations and ordinances relating to the possession, operation, maintenance
and control of the Collateral.

 

7

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8.    Collection of Collateral Payments.

 

(a)    Until Secured Party gives notice to Debtors pursuant to Paragraph 8(b)
below or exercises the Secured Party’s rights under Paragraph 10 hereof, Debtors
shall be entitled to receive all collections on any and all of the Mortgage
Notes, Mortgages and any documents related to the foregoing (hereinafter
collectively called “Collections”) and use the same in the normal course of
business. Upon notice from Secured Party to Debtors given after the occurrence
and during the continuation of an Event of Default, Debtors shall furnish to
Secured Party not later than the tenth Business Day after the end of each month
a report on all Collections received during the preceding month and provide the
same accounting therefor as Debtors customarily furnish the Investors therein,
including with respect to Collections on each Mortgage Loan: (1) the name of the
Obligor, (2) Debtors’ loan number for the Mortgage Loan, (3) current principal
balance of the Mortgage Loan, (4) current escrow balance with respect to the
Mortgage Loan, (5) number and amount of past due payments on the Mortgage Loan
and (6) the amount of the Collections received during such month with respect to
the Mortgage Loan, itemized to show (A) principal portion, (B) interest portion
and (C) portion thereof representing amounts paid in escrow for real estate
taxes and insurance.

 

(b)    Upon notice from Secured Party to Debtors given after the occurrence and
during the continuation of an Event of Default, Debtors shall hold all
Collections representing principal payments and prepayments and escrows for real
estate taxes and insurance in trust for Secured Party and shall promptly remit
the same to Secured Party. All amounts representing the principal payments and
prepayments on Mortgage Loans which are delivered to Secured Party pursuant to
the preceding sentence shall be deposited in the Settlement Account and all
amounts representing real estate tax and insurance escrows for Mortgage Loans
which are delivered to Secured Party pursuant to the preceding sentence shall be
deposited in an escrow account with any bank satisfactory to Debtors and Secured
Party, to be held for the payment of the applicable real estate taxes and
insurance premiums.

 

(c)    Debtors hereby agree to indemnify, defend and save harmless Secured Party
and its officers, employees and representatives (collectively, the “Indemnified
Persons”) from and against all liabilities and expenses on account of any
adverse claim asserted against Secured Party relating to any moneys received by
Secured Party on account of any Collections WHETHER OR NOT SUCH LIABILITIES AND
EXPENSES ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY
CLAIM OR THEORY OF STRICT LIABILITY, OR ARE CAUSED IN WHOLE OR IN PART, BY ANY
NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY INDEMNIFIED PERSON (except for any
such liabilities or expenses arising as a direct result of the gross negligence
or willful misconduct of such Indemnified Person) and such obligation of Debtors
shall continue in effect after and notwithstanding the discharge of the Secured
Indebtedness and/or the release of the security interest granted in Paragraph 3
above.

 

9.    Authorized Action by Secured Party.  Debtors hereby irrevocably appoint
Secured Party its attorney in fact, with full power of substitution, for and on
behalf and in the name of Debtors, which power of attorney shall become
effective upon the occurrence and remain

 

8

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effective during the continuance of an Event of Default, to (i) endorse and
deliver to any Person any check, instrument or other paper coming into Secured
Party’s possession and representing payment made in respect of any Mortgage Note
delivered to and held by Secured Party hereunder as Mortgage Collateral or in
respect of any other Collateral or Take-Out Commitment; (ii) prepare, complete,
execute, deliver and record any assignment to Secured Party or to any other
Person of any Mortgage relating to any Mortgage Note delivered to and held by
Secured Party hereunder as Mortgage Collateral; (iii) endorse and deliver any
Mortgage Note delivered to and held by Secured Party hereunder as Mortgage
Collateral and do every other thing necessary or desirable to effect transfer of
all or any part of the Mortgage Collateral to Secured Party or to any other
Person; (iv) take all necessary and appropriate action with respect to all
Secured Indebtedness and the Mortgage Collateral to be delivered to Secured
Party or held by Debtors in trust for Secured Party; (v) commence, prosecute,
settle, discontinue, defend, or otherwise dispose of any claim relating to any
Take-Out Commitment or any part of the Mortgage Collateral; and (vi) sign
Debtors’ name wherever appropriate to effect the enforcement of Secured Party’s
rights and remedies set forth in this Agreement relating to the Secured
Indebtedness and/or the Mortgage Collateral. This Paragraph 9 shall be
liberally, not restrictively, construed so as to give the greatest latitude to
Secured Party’s power, as Debtors’ attorney-in-fact, to collect, sell, and
deliver any of the Mortgage Collateral and all other documents relating thereto.
The powers and authorities herein conferred on Secured Party may be exercised by
Secured Party through any Person who, at the time of the execution of a
particular instrument, is an authorized officer of Secured Party. The power of
attorney conferred by this Paragraph 9 is granted for a valuable consideration
and is coupled with an interest and irrevocable so long as the Secured
Indebtedness, or any part thereof, shall remain unpaid or the Commitment is
outstanding. All Persons dealing with Secured Party, or any officer thereof
acting pursuant hereto shall be fully protected in treating the powers and
authorities conferred by this Paragraph 9 as existing and continuing in full
force and effect until advised by Secured Party that the Secured Indebtedness
have been fully and finally paid and satisfied and the Commitment has been
terminated. Debtors hereby authorize Secured Party to file, without the
signature of Debtors where permitted by law, one or more financing statements,
continuation statements or initial financing statements and amendments thereto
indicating the Collateral. Debtors further agree that a carbon, photographic or
other reproduction of this Agreement or any financing statement describing any
Collateral is sufficient as a financing statement and may be filed in any
jurisdiction by Secured Party.

 

10.    Default and Remedies.

 

(a)    While an Event of Default exists under any Loan Document, Secured Party
may, without notice to or demand upon Debtors: (a) foreclose or otherwise
enforce Secured Party’s security interest in the Collateral in any manner
permitted by law or provided for hereunder; (b) sell or otherwise dispose of in
a commercially reasonable manner the Collateral or any part thereof at one or
more public or private sales or at any broker’s board or on any securities
exchange, whether or not such Collateral is present at the place of sale, for
cash or credit or future delivery and without assumption of any credit risk, on
such terms and in such manner as Secured Party may determine; (c) require
Debtors to assemble the Collateral and/or books and records relating thereto and
make such available to Secured Party at a place to be designated by

 

9

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Secured Party; (d) enter into property where any Collateral or books and records
relating thereto are located and take possession thereof with or without
judicial process; and (e) prior to the disposition of the Collateral, prepare it
for disposition in any manner and to the extent Secured Party deems appropriate.
Whether or not Secured Party exercises any right given pursuant to this section
upon the occurrence of any Event of Default, Secured Party shall have as to any
Collateral all other rights and remedies provided for herein and all rights and
remedies of a secured party under the Texas Uniform Commercial Code and, in
addition thereto and not in lieu thereof, all other rights or remedies at law or
in equity existing or conferred upon Secured Party by other jurisdictions or
other applicable law or given to Secured Party pursuant to any security
agreement, other instrument or agreement heretofore, now, or hereafter given as
security for Debtors’ obligations hereunder.

 

(b)    Secured Party is authorized, at any such sale, if it deems it advisable
so to do, to restrict the prospective bidders or purchasers to Persons who will
represent and agree that they are purchasing for their own account, for
investment, and not with a view to the distribution or sale of any of the
Collateral. Upon any sale or other disposition pursuant to this Security
Agreement, Secured Party shall have the right to deliver, assign and transfer to
the purchaser thereof the Collateral or portion thereof so sold or disposed of
and all proceeds thereof shall be promptly distributed in accordance with the
terms of the Credit Agreement. Each purchaser at any such sale or other
disposition shall hold the Collateral free from any claim or right of whatever
kind, including any equity or right of redemption of Debtors, and Debtors
specifically waive (to the extent permitted by law) all rights of redemption,
stay or appraisal which they have or may have under any rule of law or statute
now existing or hereafter adopted. Secured Party shall give Debtors only such
notice and shall publish such notice as may be required by the Texas Uniform
Commercial Code or by other applicable law of the intention to make any such
public or private sale or sale at broker’s board or on a securities exchange.
Debtors acknowledge and agrees that a private sale of any Collateral pursuant to
any Take-Out Commitment shall be deemed to be a sale of such Collateral in a
commercially reasonable manner, provided that such sale is substantially on the
terms and conditions of such Take-Out Commitment. Any such public sale shall be
held at such time or times within the ordinary business hours and at such place
or places permitted by the Texas Uniform Commercial Code. At any such sale the
Collateral may be sold in one lot as an entirety or in separate parcels, as
Secured Party may determine. Secured Party may adjourn any public or private
sale or cause the same to be adjourned from time to time by announcement at the
time and place fixed for the sale, and such sale may be made at any time or
place to which the same may be so adjourned. In case of any sale of all or any
part of the Collateral on credit or for future delivery, (i) the Collateral so
sold may be retained by Secured Party until the selling price is paid by the
purchaser thereof, (ii) Secured Party shall not incur any liability in case of
the failure of such purchaser to take up and pay for the Collateral so sold, and
(iii) in case of any such failure, such Collateral may again be sold as provided
herein. Nothing contained in this Security Agreement shall prohibit the Lender
from purchasing the Collateral at such sale.

 

11.    Waiver.  Secured Party shall not incur any liability as a result of the
sale of the Collateral in a commercially reasonable manner, or any part thereof,
at any public or private sale. Debtors each hereby waive any claims it may have
against Secured Party arising by reason of the

 

10

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fact that the price at which the Collateral may have been sold at such private
sale was less than the price which might have been obtained at a public sale or
was less than the aggregate amount of the Secured Indebtedness then outstanding.

 

12.    Binding Upon Successors.  All rights of Secured Party under this Security
Agreement shall inure to the benefit of Secured Party and its successors and
assigns, and all obligations of Debtors shall bind their successors and assigns;
provided that Debtors shall not have the right to assign their rights or
obligations under this Security Agreement without the consent of Secured Party.

 

13.    Entire Agreement; Severability.  This Security Agreement and the Credit
Agreement contains the entire security agreement and collateral agency agreement
with respect to the Collateral between Secured Party and Debtors and supersedes
all prior written or oral agreements and understandings relating thereto. All
waivers by Debtors provided for in this Security Agreement have been
specifically negotiated by the parties with full cognizance and understanding of
their rights. If any of the provisions of this Security Agreement shall be held
invalid or unenforceable, this Security Agreement shall be construed as if not
containing such provisions, and the rights and obligations of the parties hereto
shall be construed and enforced accordingly.

 

14.    Choice of Law.  This Security Agreement shall be construed in accordance
with and governed by the laws of the State of Texas, except to the extent that
the perfection and the effect of perfection or non-perfection of the security
interest created hereunder, in respect of any of the Collateral, are governed by
the laws of a jurisdiction other than the State of Texas. Where applicable and
except as otherwise defined herein or in the Credit Agreement, terms used herein
have the meanings given them in the Texas Uniform Commercial Code.

 

15.    Place of Business; Records.  Debtors represent and warrant that their
principal place of business and chief executive office is at the address set
forth beneath their signature below, and that their books and records concerning
the Collateral are kept at their principal place of business and chief executive
office. Debtors shall not change their principal place of business and chief
executive office without thirty (30) days’ prior written notice to Secured
Party.

 

16.    Notice.  Except where instructions or notices are expressly authorized
elsewhere in this Security Agreement to be given by telephone or by other means
of transmission, all instructions, notices and other communications to be given
to any party hereto shall be given as provided in the Credit Agreement.

 

17.    Modification of Agreement.  No provisions of this Agreement may be
amended or waived (except for waivers expressly provided for hereunder) unless
such amendment or waiver is in writing and is signed by Debtors and Secured
Party.

 

11

--------------------------------------------------------------------------------

18.    Counterparts; Fax.  This Agreement may be executed in counterparts, and
it shall not be necessary that the signatures of both of the parties hereto be
contained on any one counterpart hereof; each counterpart shall be deemed an
original, but all counterparts together shall constitute one and the same
instrument. This Agreement may be duly executed by facsimile or other electronic
transmission.

 

[The remainder of this page is intentionally left blank.]

 

 

12

--------------------------------------------------------------------------------

EXECUTED as of the day and year first above written.

 

DUXFORD FINANCIAL, INC., a California

Corporation

By:

     

--------------------------------------------------------------------------------

   

Name:

Title:

   

Address for Notices:

 

1300 Dove Street, Suite 200

Newport Beach, California 92660

Fax:   949.471.2110

Tel:    949.471.2000

BAYPORT MORTGAGE, L.P. a California

Limited Partnership

By:

 

Duxford Financial, Inc., a California

Corporation, its general partner

By:

     

--------------------------------------------------------------------------------

   

Name:

Title:

     

By:

     

--------------------------------------------------------------------------------

   

Name:

Title:

     

By:

     

--------------------------------------------------------------------------------

   

Name:

Title:

   

Address for Notices:

 

1300 Dove Street, Suite 200

Newport Beach, California 92660

Fax:   949.471.2110

Tel:    949.471.2000

--------------------------------------------------------------------------------

GUARANTY BANK

 

By:

     

--------------------------------------------------------------------------------

   

Name:

Title:

 

Address for Notices:

 

8333 Douglas Avenue

Dallas, Texas 75225

Attention: Judi Flusche

Fax:   (214) 360-1660

Tel:    (214) 360-2782

 

cc:

 

4330 La Jolla Village Drive, Suite 310

San Diego, California 92122

Attention: Jon M. Larson

Fax:   (858) 597-8830

Tel:    (858) 597-8842

 

--------------------------------------------------------------------------------

EXHIBITS AND SCHEDULES

TO

SECURITY AGREEMENT

 

SCHEDULE

--------------------------------------------------------------------------------

   DOCUMENT

--------------------------------------------------------------------------------

A    Required Mortgage Documents B    Additional Required Mortgage Documents

EXHIBIT

--------------------------------------------------------------------------------

   DOCUMENT

--------------------------------------------------------------------------------

1    Form of Debtor Trust Receipt 2    Form of Shipping Request 3    Form of
Bailee Letter to Investors 4    Form of Collateral Release Request

 

--------------------------------------------------------------------------------

SCHEDULE A

 

REQUIRED MORTGAGE DOCUMENTS

 

A.    Original Mortgage Note executed in favor of a Debtor or the originator who
sold such Mortgage Note to a Debtor (with a complete series of endorsements
without recourse from the original payee thereof, through any subsequent holders
to such Debtor if purchased by such Debtor and endorsed by an authorized
signatory of such Debtor in blank).

 

B.    Unless the Mortgage is registered on the MERS(R) System, an assignment of
the Mortgage executed by the Debtors in favor of Secured Party in recordable
form, such assignment may be in the form of one or more blanket assignments
covering Mortgage Loans located in the same county, if Secured Party so agrees.

 

C.    If the Mortgage is registered on the MERS(R) System and noting the
presence of a MIN, an assignment of the Mortgage executed by the Debtors in
favor of MERS in recordable form.

 

D.    Originals or copies of assignments from each holder of the Mortgage Loan
to each subsequent assignee, if any, to complete the chain of record ownership
of such Mortgage Loan to the applicable Debtor.

 

E.    The original or a copy of the Mortgage, including all available Mortgage
riders relating to the Mortgage Loan, noting the presence of the MIN of the
Mortgage Loan and language indicating that the Mortgage Loan is a MOM Loan if
the Mortgage Loan is a MOM Loan, with the recording information indicated
thereon.

 

F.    A copy of the executed master Take-Out Commitment relating to such
Mortgage Note, a certificate of Debtors confirming that such Mortgage Loan will
be delivered under such Take-Out Commitment.

 

G.    A copy, certified by the title insurance company or the closing Secured
Party, of all applicable and necessary powers-of-attorney and assumed name
certificates.

 

--------------------------------------------------------------------------------

SCHEDULE B

 

ADDITIONAL REQUIRED MORTGAGE DOCUMENTS

 

1.    The original recorded Mortgage securing the Mortgage Note if not delivered
to Secured Party.

 

2.    Evidence of fire and extended coverage insurance in an amount not less
than the highest of the following: (a) the amount of the Mortgage Loan, (b) 90%
of the insurable value of the improvements, and (c) an amount sufficient to
prevent co-insurance. Secured Party reserves the right to obtain a loss payable
endorsement in its favor if it so desires.

 

3.    Evidence of Notice to Customer required by the federal Truth-in-Lending
Law and Federal Reserve Regulation Z.

 

4.    In the case of an FHA Mortgage Note, an FHA insurance certificate or a
commitment to deliver such; in the case of a VA mortgage note; a VA guaranty
certificate or a commitment to deliver such and in the case of a conventional
mortgage note, an appraisal.

 

5.    A certified copy of the preliminary policy of or commitment for title
insurance insuring the Mortgage as a first lien on the property subject thereto
written by a title company and in amount and containing exceptions satisfactory
to Secured Party.

 

6.    Evidence of certificate of completion, as appropriate under the
circumstances.

 

7.    Other documentation as Secured Party may reasonably deem appropriate, as
well as documentation necessary to fulfill requirements of the Take-Out
Commitments.

 

8.    Such additional documents as may be necessary in the opinion of Secured
Party to transfer to Secured Party the title to any Collateral pledged and/or
hypothecated pursuant to the Security Agreement.

 

--------------------------------------------------------------------------------

EXHIBIT 1

 

TRUST RECEIPT

 

DATE:                         , 2003

 

GUARANTY BANK

8333 Douglas Avenue

11th Floor

Dallas, Texas 75225

 

Attn:                                                  

 

Pursuant to Paragraph 4 of the Security Agreement by and among Guaranty Bank and
Duxford Financial, Inc. and Bayport Mortgage, L.P., as “Debtors” (as amended,
supplemented or restated from time to time, the “Security Agreement”), Debtors
request the temporary transfer of the original Mortgage Note(s) as listed below
to allow Debtors to make corrections to such Mortgage Notes. We acknowledge that
these Mortgage Notes are being used as Mortgage Collateral for the warehouse
line of credit established by the Credit Agreement dated as of August 29, 2003
by and among Secured Party and Debtors (as amended, supplemented or restated
from time to time, the “Credit Agreement”).

 

Obligor

 

--------------------------------------------------------------------------------

 

Loan Amount

 

--------------------------------------------------------------------------------

 

Collateral Value

 

--------------------------------------------------------------------------------

 

Debtors agree to hold the Mortgage Notes in trust for Secured Party, as a
custodian, bailee and agent for the benefit of Secured Party. Debtors agree to
do the following within [ten (10)] days of this date:

 

(a)    Return the Mortgage Notes to Secured Party, or

 

(b)    Pay to Secured Party the aggregate Unit Collateral Value of the Mortgage
Notes.

 

In the event Debtors are unable for any reason to comply with the terms of this
Trust Receipt, Debtors shall immediately return the Mortgage Notes to Secured
Party.

 

By accepting the Mortgage Notes, Debtors shall be bound by the terms of this
Trust Receipt. Secured Party requests that Debtors acknowledge the receipt of
the Mortgage Notes and this Trust Receipt by signing below. Capitalized terms
not defined herein are used as defined in the Credit Agreement.

--------------------------------------------------------------------------------

REQUESTED BY:

 

DUXFORD FINANCIAL, INC., a California Corporation

 

 

By:      

--------------------------------------------------------------------------------

    Name:     Title:

 

By:      

--------------------------------------------------------------------------------

    Name:     Title:

 

BAYPORT MORTGAGE, L.P.,

a California Limited Partnership

By:   Duxford Financial, Inc., its general partner       By:      

--------------------------------------------------------------------------------

    Name:     Title: By:      

--------------------------------------------------------------------------------

    Name:     Title:

 

STATE OF    §      § COUNTY OF    §

 

This instrument was ACKNOWLEDGED before me the              day of
                        , 2003, by              of Duxford Financial, Inc., a
California corporation, on behalf of said corporation in its individual capacity
and its capacity as general partner of Bayport Mortgage, L.P., a California
limited partnership.

 

                 

--------------------------------------------------------------------------------

        Notary Public—State of                                         
                                          My Commission expires:               

--------------------------------------------------------------------------------

        Printed Name of Notary

--------------------------------------------------------------------------------

       

--------------------------------------------------------------------------------

EXHIBIT 2

 

FORM OF SHIPPING REQUEST

 

Date:                     , 2003

 

GUARANTY BANK

8333 Douglas Avenue

Dallas, Texas 75225

Attention:                                     

FAX: (214) 360-1660

Telephone: (214) 360-            

 

This letter is to serve as authorization for you to endorse and ship the
following loans:

 

Loan Number   Obligor Name   Note Amount

 

to the following address under Take-Out Commitment #                            
(the “Commitment”) from an Investor as follows:

 

NAME:

ADDRESS:

 

ATTENTION:

 

Please endorse the notes as follows:

 

Please ship the loan documents either by                              or by such
other courier service as we have designated to you as “approved.” The courier
shall act as an independent contractor bailee acting solely on your behalf, but
we acknowledge and agree that you are not responsible for any delays in shipment
caused by courier or any other actions or inactions of the courier, including,
without limitation, any loss of any loan documents; however, because the
Commitment expires on                     , 200    , we ask that you deliver the
loan documents to the courier no later than                     , 200    .

 

--------------------------------------------------------------------------------

Please have the courier bill us by using our acct. #                    . If you
should have any questions, or should feel the need for additional documentation,
please do not hesitate to call                             .

 

DUXFORD FINANCIAL, INC., a California

Corporation

By:

     

--------------------------------------------------------------------------------

   

Name:

 

 

--------------------------------------------------------------------------------

   

Title:

 

 

--------------------------------------------------------------------------------

         

By:

           

Name:

 

 

--------------------------------------------------------------------------------

   

Title:

 

 

--------------------------------------------------------------------------------

BAYPORT MORTGAGE, L.P., a California

Limited Partnership

By:

 

Duxford Financial, Inc., its general partner

By:

     

--------------------------------------------------------------------------------

   

Name:

 

 

--------------------------------------------------------------------------------

   

Title:

 

 

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

INSTRUCTIONS FOR ELECTRONIC TRANSFER

OF SHIPPING REQUEST

 

I.    Narrative to be included on face of email from Debtor to Secured Party:

 

The Shipping Request attached to this email is hereby (i) electronically signed
by                             , the [insert title] of [Duxford Financial, Inc.
or Bayport Mortgage, L.P.], a California [corporation or limited partnership]
(the “Debtor”), on the date this email is sent to you, (ii) adopted by the
Debtor in all respects, and (iii) delivered pursuant to the Security Agreement
dated as of August 29, 2003 between Guaranty Bank (“Secured Party”) and Debtor
(the “Security Agreement”). The Schedule of Mortgage Loans incorporated into
such Shipping Request is also attached to this email.

 

Documents to be attached:

 

Shipping Request

Schedule of Mortgage Loans to be Shipped

 

--------------------------------------------------------------------------------

EXHIBIT 3

 

BAILEE LETTER FOR INVESTORS

 

--------------------------------------------------------------------------------

   GUARANTY BANK

--------------------------------------------------------------------------------

   8333 Douglas Avenue

--------------------------------------------------------------------------------

   Dallas, Texas 75225     

Attention:                                 

Mortgage Finance Department

FAX: (214) 360-1660

Telephone: (214) 360-        

 

The enclosed mortgage notes and other documents (the “Mortgage Documents”) as
more particularly described on the attached schedule, have been (i) sold to
GUARANTY BANK (“Guaranty”) under each Mortgage Loan Purchase and Sale Agreement
(collectively, as renewed, extended, amended, or restated, the “Purchase
Agreement”) dated as of August 29, 2003 between each of DUXFORD FINANCIAL, INC.
and BAYPORT MORTGAGE, L.P. (collectively, the “Companies”) and Guaranty or (ii)
assigned and pledged to Guaranty as collateral under the Credit Agreement (as
renewed, extended, amended, or restated, the “Credit Agreement”) dated as of
August 29, 2003 between the Companies and Guaranty.

 

The Mortgage Documents themselves are being delivered to you for purchase under
an existing commitment (the “Takeout Commitment”). Either payment in full for
the Mortgage Documents or the Mortgage Documents themselves must be received by
Guaranty within forty (40) days after the date of this letter. Until that time,
you are deemed to be holding the Mortgage Documents in trust as bailee for
Guaranty, subject to the security interest granted Guaranty in accordance with
the applicable provisions of the Uniform Commercial Code. No property interest
in the Mortgage Documents is transferred to you until Guaranty receives the
greater of (i) the agreed purchase price of the Mortgage Documents or (ii)
$                    . If you receive conflicting instructions regarding the
Mortgage Documents from the Company and Guaranty, you agree to act in accordance
with Guaranty’s instructions. GUARANTY RESERVES THE RIGHT, AT ANY TIME BEFORE IT
RECEIVES FULL PAYMENT, TO NOTIFY YOU AND REQUIRE THAT YOU RETURN THE MORTGAGE
DOCUMENTS TO GUARANTY.

 

Payment for the Mortgage Documents must be made by wire transfer of immediately
available funds to:

 

GUARANTY BANK   

Account Number                             

ABA Number:

  

Attn:

Further Credit:                                          

  

TEL:

    

FAX:

 

--------------------------------------------------------------------------------

BY ACCEPTING THE MORTGAGE DOCUMENTS DELIVERED TO YOU WITH THIS LETTER, YOU
CONSENT TO HOLD THE MORTGAGE DOCUMENTS FOR THE BENEFIT OF GUARANTY AND TO BE
GUARANTY’S BAILEE ON THE TERMS DESCRIBED IN THIS LETTER. GUARANTY REQUESTS THAT
YOU ACKNOWLEDGE RECEIPT OF THE ENCLOSED MORTGAGE DOCUMENTS AND THIS LETTER BY
SIGNING AND RETURNING TO GUARANTY THE ENCLOSED COPY OF THIS LETTER, BUT YOUR
FAILURE TO DO SO DOES NOT NULLIFY YOUR CONSENT OR OTHERWISE AFFECT OR IMPAIR ANY
TERM OR CONDITION OF THIS LETTER OR THEIR BINDING EFFECTS ON YOU. If you fail to
make full payment to Guaranty for it within forty (40) days after the date of
this letter, you are instructed to return all of the Mortgage Documents to
Guaranty. The preceding provision in no way affects or impairs any claim or
cause of action against you in respect of the Takeout Commitment.

 

This letter binds you and your successors, assigns, trustees, conservators, and
receivers and inures to Guaranty and its respective successors and assigns.

 

Very truly yours,

 

GUARANTY BANK

 

 

By:      

--------------------------------------------------------------------------------

   

Name:

   

Title:

 

 

Acknowledged and Agreed as of             , 200            

 

[NAME OF BAILEE]

 

By:      

--------------------------------------------------------------------------------

   

Name:

   

Title:

 

--------------------------------------------------------------------------------

EXHIBIT 4

 

COLLATERAL RELEASE REQUEST

 

TO: GUARANTY BANK as Secured Party

   Date:                        

 

1. DUXFORD FINANCIAL, INC. and BAYPORT MORTGAGE, L.P. (collectively, the
“Debtors”) hereby request the release of the Mortgage Collateral herein
specified, pursuant to Paragraph 4(f) of the Security Agreement (as amended,
supplemented or restated from time to time, the “Agreement”) between Debtors and
Guaranty Bank (“Secured Party”), and hereby direct Secured Party, in accordance
with the provisions of the Agreement and that certain Credit Agreement dated as
of August 29, 2003, between Debtors and Secured Party and the Lenders named
therein (as from time to time amended, supplemented or restated, the “Credit
Agreement”) to hold or deliver the Mortgage Collateral described on the attached
schedule as directed herein. Capitalized terms used herein and defined in the
Credit Agreement shall be used herein as so defined.

 

2. Release Requested:

 

Debtors hereby request that Secured Party release any security interest it may
have in each Mortgage Note (the “Identified Notes”) described on Schedule I
attached hereto.

 

3. Delivery Instructions:

 

Debtors hereby direct Secured Party to (check applicable blank):

 

           To hold the Identified Notes pending written delivery instructions
from Debtors.

 

           To deliver the Identified Notes to the Person described in the
attached instructions in accordance with the attached instructions.

 

4. The undersigned officers of Debtors represent and warrant to Secured Party:

 

  (a) Debtors are entitled to receive the requested release under the terms and
conditions of the Agreement and the Credit Agreement;

 

  (b) no Default or Event of Default has occurred and is continuing under the
Credit Agreement;

 

  (c) no change or event which constitutes a Material Adverse Effect has
occurred; and

--------------------------------------------------------------------------------

(d)

   (i)    the Collateral Value of the Borrowing Base (after giving effect to the
release requested pursuant to Paragraph 2 of this Collateral Release Request) is
$                          (ii)    the Loan Balance is $                      
   (iii)    Debtors are entitled to such release. (Requirement of Agreement:
item (i) not less than item (ii).

 

5.    The representations and warranties of Debtors contained in the Credit
Agreement and those contained in each other Loan Document to which Debtors are a
party (other than those representations and warranties which are by their terms
limited to the date of the agreement in which they were initially made) are true
and correct in all material respects on and as of the date hereof.

 

DUXFORD FINANCIAL, INC., a California

Corporation

By:      

--------------------------------------------------------------------------------

   

Name:

     

 

--------------------------------------------------------------------------------

   

Title:

     

 

--------------------------------------------------------------------------------

By:              

--------------------------------------------------------------------------------

   

Name:

     

 

--------------------------------------------------------------------------------

   

Title:

     

 

--------------------------------------------------------------------------------

BAYPORT MORTGAGE, L.P. a California

Limited Partnership

By:  

Duxford Financial, Inc., its general partner

 

--------------------------------------------------------------------------------

    By:              

--------------------------------------------------------------------------------

       

Name:

 

 

--------------------------------------------------------------------------------

       

Title:

 

 

--------------------------------------------------------------------------------

    By:              

--------------------------------------------------------------------------------

       

Name:

 

 

--------------------------------------------------------------------------------

       

Title:

 

 

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

SCHEDULE I

 

MORTGAGE NOTES TO BE RELEASED

 

Loan Number

--------------------------------------------------------------------------------

   Date

--------------------------------------------------------------------------------

   Original
Principal
Amount

--------------------------------------------------------------------------------

   Collateral
Value

--------------------------------------------------------------------------------

   Maker

--------------------------------------------------------------------------------

   Payee

--------------------------------------------------------------------------------

   Interest Rate

--------------------------------------------------------------------------------

   Maturity
Date

--------------------------------------------------------------------------------

 

 

 

 

COLLATERAL DELIVERY INSTRUCTIONS

--------------------------------------------------------------------------------

INSTRUCTIONS FOR COLLATERAL RELEASE REQUEST

 

I.    Narrative to be included on face of email from Debtor to Secured Party:

 

The Shipping Request attached to this email is hereby (i) electronically signed
by                             , the [insert title] of [Duxford Financial, Inc.
or Bayport Mortgage L.P.], a California [corporation or limited partnership]
(the “Debtor”), on the date this email is sent to you, (ii) adopted by the
Debtor in all respects, and (iii) delivered pursuant to the Security Agreement
dated as of August 29, 2003 between Guaranty Bank (“Secured Party”) and Debtor
(the “Security Agreement”). The Schedule of Mortgage Loans incorporated into
such Shipping Request is also attached to this email.

 

Documents to be attached:

 

Shipping Request

Schedule of Mortgage Loans to be Shipped

--------------------------------------------------------------------------------

EXHIBIT G

 

[INTENTIONALLY OMITTED]

--------------------------------------------------------------------------------

EXHIBIT H

 

BORROWING BASE WORKSHEET