Exhibit 10.6

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SECOND AMENDED AND RESTATED MASTER LOAN AND SECURITY

AGREEMENT

 

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Dated as of June 27, 2005

 

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NEW CENTURY MORTGAGE CORPORATION

as Servicer

 

NC CAPITAL CORPORATION

as Borrower

 

NEW CENTURY FINANCIAL CORPORATION

as Guarantor

 

and

 

CITIGROUP GLOBAL MARKETS REALTY CORP.

(as successor to Salomon Brothers Realty Corp.)

as Lender

 

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TABLE OF CONTENTS

 

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Section 1.

   Definitions and Accounting Matters.    1      1.01    Certain Defined Terms
   1      1.02    Accounting Terms and Determinations    12

Section 2.

   Advances, Note and Prepayments.    13      2.01    Advances.    13      2.02
   Notes.    13      2.03    Procedure for Borrowing.    13      2.04   
Limitation on Types of Advances, Illegality    14      2.05    Repayment of
Advances; Interest.    15      2.06    Mandatory Prepayments or Pledge.    15  
   2.07    Optional Prepayments.    15      2.08    Requirements of Law.    16  
   2.09    Extension.    17      2.10    Reserved.    17

Section 3.

   Payments; Computations; Taxes; Fees.    17      3.01    Payments.    17     
3.02    Computations    17      3.03    U.S. Taxes.    18      3.04   
[Reserved].    18

Section 4.

   Collateral Security.    18      4.01    Collateral; Security Interest.    18
     4.02    Further Documentation    19      4.03    Changes in Locations,
Name, etc    20      4.04    Lender’s Appointment as Attorney-in-Fact.    20  
   4.05    Performance by Lender of Borrower’s Obligations    21      4.06   
Proceeds    21      4.07    Remedies    21      4.08    Limitation on Duties
Regarding Presentation of Collateral    22      4.09    Powers Coupled with an
Interest    22      4.10    Release of Security Interest    22      4.11    REO
Subsidiary; Formation; REO Property Representations and Warranties    22

Section 5.

   Conditions Precedent.    23      5.01    Initial Advance    23      5.02   
Initial and Subsequent Advances    25

 

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Section 6.

   Representations and Warranties    27      6.01    Existence    27      6.02
   Reserved.    27      6.03    Litigation    27      6.04    No Breach    27  
   6.05    Action    27      6.06    Approvals    28      6.07    Margin
Regulations    28      6.08    Taxes    28      6.09    Investment Company Act
   28      6.10    No Legal Bar    28      6.11    No Default    28      6.12   
Collateral: Collateral Security.    28      6.13    Chief Executive Office:
Chief Operating Office    29      6.14    Location of Books and Records    29  
   6.15    True and Complete Disclosure    29      6.16    Reserved.    29     
6.17    ERISA    29      6.18    Reserved.    29      6.19    True Sales    30  
   6.20    No Burdensome Restrictions    30      6.21    Reserved.    30     
6.22    Acquisition of Mortgage Loans    30      6.23    No Adverse Selection   
30      6.24    Borrower Solvent Fraudulent Conveyance    30

Section 7.

   Covenants of the Borrower    30      7.01    Financial Statements    30     
7.02    Litigation    32      7.03    Existence, Etc    32      7.04   
Prohibition of Fundamental Changes    33      7.05    Borrowing Base Deficiency
   33      7.06    Notices    33      7.07    Servicing    34      7.08   
Servicer Reports; Management of Assets    34      7.09    True and Complete
Disclosure    34      7.10    Reserved.    34      7.11    Transactions with
Affiliates    34      7.12    Financial Covenants.    35      7.13    Limitation
on Liens    35      7.14    Limitation on Sale of Assets    35      7.15   
Plans and Multiemployer Plans    35      7.16    Reserved.    35      7.17   
Reserved.    35      7.18    Reserved.    35      7.19    Restricted Payments   
35      7.20    Reserved.    35      7.21    No Amendment or Waiver    35     
7.22    Maintenance of Property; Insurance    35      7.23    Further
Identification of Collateral    36      7.24    Mortgage Loan or REO Property
Determined to be Defective    36

 

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     7.25    Reserved.    36      7.26    Reserved.    36      7.27    Special
Purpose Entity    36      7.28    Broker’s Price Opinions    37

Section 8.

   Events of Default    37

Section 9.

   Remedies Upon Default.    39

Section 10.

   No Duty on Lender’s Part    40

Section 11.

   Miscellaneous.    40      11.01    Waiver    40      11.02    Notices    40  
   11.03    Indemnification and Expenses.    40      11.04    Amendments    41  
   11.05    Successors and Assigns    41      11.06    Survival    41      11.07
   Captions    42      11.08    Counterparts    42      11.09    Loan Agreement
Constitutes Security Agreement; Governing Law    42      11.10    SUBMISSION TO
JURISDICTION: WAIVERS    42      11.11    WAIVER OF JURY TRIAL    42      11.12
   Acknowledgments    43      11.13    Hypothecation or Pledge of Collateral   
43      11.14    Assignments; Participations.    43      11.15    Servicing.   
44      11.16    Periodic Due Diligence Review    45      11.17    Set Off    46

Section 12.

   Limitations on Liability.    46      12.01    Limitation on Liability    46  
   12.02    Limitation on Liability of Lender’s Officer’s, Employees, Etc    46
     12.03    Reserved.    46      12.04    Conflict of Terms    46      12.05
   The Servicer    46      12.06    Termination    46

 

SCHEDULES

    

SCHEDULE 1

   Representations and Warranties re: Mortgage Loans

SCHEDULE 2

   Filing Jurisdictions and Offices

SCHEDULE 3

   Representations and Warranties re: REO Properties

EXHIBITS

    

EXHIBIT A

   Form of Promissory Note

EXHIBIT B

   Form of Custodial Agreement

EXHIBIT C

   Form of Opinion of Counsel to the Borrower

 

 

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EXHIBIT D

   Form of Notice of Borrowing and Pledge

EXHIBIT E

   Form of Guarantor’s Quarterly Certification

EXHIBIT F

   Required Fields for Servicing Transmission

EXHIBIT G

   Required Fields for Asset Data Transmission

EXHIBIT H

   [Reserved]

EXHIBIT I

   Form of REO Subsidiary Pledge Agreement

 

 

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SECOND AMENDED AND RESTATED MASTER LOAN AND SECURITY AGREEMENT

 

SECOND AMENDED AND RESTATED MASTER LOAN AND SECURITY AGREEMENT, dated as of June
27, 2005, among NC Capital Corporation, a California corporation (the
“Borrower”), New Century Mortgage Corporation, a California Corporation (the
“Servicer”), New Century Financial Corporation, a Maryland corporation (the
“Guarantor”) and Citigroup Global Markets Realty Corp. (as successor to Salomon
Brothers Realty Corp.), a New York corporation (the “Lender”).

 

RECITALS

 

WHEREAS, the Borrower, Servicer and Lender are parties to that certain Amended
and Restated Master Loan and Security Agreement, dated December 29, 2004 as
amended by the parties from time to time (the “Prior Agreement”); and

 

WHEREAS, the parties desire to enter into this Second Amended and Restated
Master Loan and Security Agreement to, among other things, increase the Maximum
Credit (as defined herein) and to amend and restate the Prior Agreement in its
entirety.

 

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Borrower, Servicer, Guarantor and Lender
hereby agree as follows:

 

Section 1. Definitions and Accounting Matters.

 

1.01 Certain Defined Terms. As used herein, the following terms shall have the
following meanings (all terms defined in this Section 1.01 or in other
provisions of this Loan Agreement in the singular to have the same meanings when
used in the plural and vice versa).

 

“Accepted Servicing Practices” the servicing standards set forth in Section 3.01
of the Pooling and Servicing Agreement.

 

“Advance” shall have the meaning specified in Section 2.01(a) hereof.

 

“Affiliate” means with respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, “control” when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms “controlling” and
“controlled” have meanings correlative to the foregoing.

 

“Aggregation Facility” means the Letter Agreement, dated as of April 1, 2000,
among the Lender, Salomon Smith Barney Inc., the Borrower and the Servicer.

 

“ALTA” means the American Land Title Association.

 

“Asset Data Transmission” shall mean a computer-readable magnetic or other
electronic format incorporating the fields identified on Exhibit G.

 

“Asset File” shall have the meaning assigned thereto in the Custodial Agreement.

 

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“Asset Schedule” shall mean the hard copy report provided by the Borrower which
shall include (a) with respect to each Mortgage Loan to be included as
Collateral: (i) the Mortgage Loan number, (ii) the Mortgagor’s last name, (iii)
the original principal amount of the Mortgage Loan, and (iv) the current
principal balance of the Mortgage Loan, and (b) with respect to each REO
Property, the street address of the REO Property.

 

“Assignment of Mortgage” shall mean, with respect to any Mortgage, an assignment
of the Mortgage, notice of transfer or equivalent instrument in blank or in
recordable form (excepting therefrom mortgage recordation information that has
not yet been returned by the applicable recorder’s office), sufficient under the
laws of the jurisdiction wherein the related Mortgaged Property is located to
reflect the assignment and pledge of the Mortgage.

 

“Available Proceeds” shall mean, as of each Payment Date, the amount available
in the Collection Account for distribution to Borrower after distribution of
amounts required by Section 11.15(c)(ii) and after reconciliation for
chargebacks and other items; provided, however, that Available Proceeds for any
Payment Date shall not include any amounts in the Collection Account received
after the last day of the related Collection Period.

 

“Bankruptcy Code” shall mean the United States Bankruptcy Code of 1978, as
amended from time to time.

 

“Borrower” shall have the meaning provided in the heading hereof.

 

“Borrowing Base” shall mean the aggregate Collateral Value of (i) all Mortgage
Loans that have been, and remain, pledged to the Lender hereunder and (ii) any
REO Property then owned by an REO Subsidiary.

 

“Borrowing Base Certificate” shall mean a certificate prepared by the Lender
setting forth the Borrowing Base and the aggregate outstanding principal amount
of Advances.

 

“Borrowing Base Deficiency” shall have the meaning provided in Section 2.06
hereof.

 

“BPO” shall mean, with respect to a Mortgage Loan or REO Property, a broker’s
price opinion prepared by a duly licensed real estate broker who has no
interest, direct or indirect, in the Mortgage Loan or REO Property or in the
Borrower or any Affiliate or REO Subsidiary of the Borrower and whose
compensation is not affected by the results of the broker’s price opinion and
which valuation indicates the expected proceeds for a sale of the related
Mortgaged Property or REO Property and, with respect to any condominium
development or planned unit development that was not Fannie Mae or Freddie Mac
approved, the amount, if any, by which the valuation was decreased as a result
of such lack of approval, and includes certain assumptions, including those as
to the condition of the interior of the applicable Mortgaged Property or REO
Property and marketing time.

 

“Business Day” shall mean any day other than (i) a Saturday or Sunday, or (ii) a
day on which the New York Stock Exchange, the Federal Reserve Bank of New York,
the Servicer or the Custodian is authorized or obligated by law or executive
order to be closed.

 

“Capital Lease Obligations” shall mean, for any Person, all obligations of such
Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) Property to the extent such obligations are required
to be classified and accounted for as a capital lease on a balance sheet of such
Person under GAAP, and, for purposes of this Loan Agreement, the amount of such
obligations shall be the capitalized amount thereof, determined in accordance
with GAAP.

 

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“Cash Equivalents” means any of the following: (a) marketable direct obligations
issued by, or unconditionally guaranteed by, the United States Government or
issued by any agency thereof and backed by the full faith and credit of the
United States, in each case maturing within one year from the date of
acquisition; (b) certificates of deposit, time deposits, eurodollar time
deposits or overnight bank deposits having maturities of six months or less from
the date of acquisition issued by any commercial bank organized under the laws
of the United States or any state thereof having combined capital and surplus of
not less than $500,000,000; (c) commercial paper of an issuer rated at least A-1
by Standard & Poor’s Ratings Services (“S&P”) or P-1 by Moody’s Investors
Service, Inc. (“Moody’s”), or carrying an equivalent rating by a nationally
recognized rating agency, if both of the two named rating agencies cease
publishing ratings of commercial paper issuers generally, and maturing within
six months from the date of acquisition; (d) repurchase obligations of any
commercial bank satisfying the requirements of clause (b) of this definition,
having a term of not more than 30 days, with respect to securities issued or
fully guaranteed or insured by the United States government; (e) securities with
maturities of one year or less from the date of acquisition issued or fully
guaranteed by any state, commonwealth or territory of the United States, by any
political subdivision or taxing authority of any such state, commonwealth or
territory or by any foreign government, the securities of which state,
commonwealth, territory, political subdivision, taxing authority or foreign
government (as the case may be) are rated at least A by S&P or A by Moody’s; (f)
securities with maturities of six months or less from the date of acquisition
backed by standby letters of credit issued by any commercial bank satisfying the
requirements of clause (b) of this definition; or (g) shares of money market
mutual or similar funds which invest exclusively in assets satisfying the
requirements of clauses (a) through (f) of this definition.

 

“Change of Control” means the acquisition by any Person, or two or more Persons
acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of
the Securities and Exchange Commission under the Securities Exchange Act of
1934) of outstanding shares of voting stock of the Borrower or Guarantor,
respectively, at any time if after giving effect to such acquisition (i) such
Person or Persons owns twenty percent (20%) or more of such outstanding voting
stock or (ii) the existing shareholders of the Borrower or Guarantor,
respectively, do not own more than fifty percent (50%) of such outstanding
shares of voting stock.

 

“Code” shall mean the Internal Revenue Code of 1986, as amended from time to
time.

 

“Collateral” shall have the meaning assigned to such term in Section 4.01(b)
hereof.

 

“Collateral Value” shall mean:

 

(a) (I) with respect to any Mortgage Loan which, in the Lender’s sole
discretion, is of insufficient quality to be purchased pursuant to the terms of
the Aggregation Facility or (II) with respect to any Mortgage Loan which is
missing documentation or other information and such problem is not cured by the
Borrower in sixty days, an amount equal to (A) for the first ninety-day period
after such Mortgage Loan becomes subject to the terms of this Agreement, 90% of
the unpaid principal balance of the Mortgage Loan as of such date and (B)
thereafter, 90% of the unpaid principal balance of the Mortgage Loan, minus an
additional 10% of the unpaid principal balance of such Mortgage Loan for each
additional month after the initial ninety-day period;

 

(b) with respect to any Mortgage Loan which was more than thirty days but less
than sixty days delinquent on more than one occasion in the prior twelve months
and is now current, an amount equal to (A) 95% of the unpaid principal balance
of the Mortgage Loan as of the date such Mortgage Loan becomes subject to the
terms of this Agreement, if such Mortgage Loan has been more than thirty days
delinquent but less than sixty days delinquent on two occasions in the prior
twelve months; (B) 90% of the unpaid principal balance of the Mortgage Loan as
of the date such Mortgage

 

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Loan becomes subject to the terms of this Agreement, if such Mortgage Loan has
been sixty days delinquent on one occasion in the prior twelve months and (C)
85% of the unpaid principal balance of the Mortgage Loan, if such Mortgage Loan
does not meet the requirements set forth in (A) or (B) above; or

 

(c) (I) with respect to each Mortgage Loan that is delinquent one Monthly
Payment or delinquent two Monthly Payments, an amount equal to the lesser of (i)
the Market Value and (ii) 90% of the unpaid principal balance of such Mortgage
Loan; (II) with respect to each Mortgage Loan that is delinquent three Monthly
Payments, the lesser of (i) the Market Value and (ii) 80% of the unpaid
principal balance of such Mortgage Loan; (III) with respect to each Mortgage
Loan that is delinquent four or more Monthly Payments or with respect to each
REO Property, the least of (i) the Market Value, (ii) 65% of the unpaid
principal balance of such Mortgage Loan (or with respect to an REO Property, the
related Mortgage Loan immediately prior to foreclosure) and (iii) 65% of the
most recent BPO; provided, that, the Collateral Value shall be deemed to be zero
with respect to each Mortgage Loan or REO Property:

 

(1) in respect of which there is a material breach of a representation and
warranty set forth on Schedule 1 or Schedule 3, as applicable (assuming each
representation and warranty is made as of the date Collateral Value is
determined);

 

(2) which has been released from the possession of the Custodian under Section
5(a) of the Custodial Agreement to the Borrower or its bailee for a period in
excess of ten (10) Business Days;

 

(3) which has been released from the possession of the Custodian (i) under
Section 5(b) of the Custodial Agreement under any Transmittal Letter in excess
of the time period stated in such Transmittal Letter for release, or (ii) under
Section 5(c) of the Custodial Agreement under an Attorney Bailee Letter, from
and after the date such Attorney’s Bailee Letter is terminated or ceases to be
in full force and effect;

 

(4) (a) if the related Mortgage Note or the related Mortgage is not genuine or
is not the legal, valid, binding and enforceable obligation of the maker
thereof, subject to no right of rescission, set-off, counterclaim or defense, or
(b) if such Mortgage is not a valid, subsisting, enforceable and perfected first
lien on the Mortgaged Property;

 

(5) which is a Non-BPO Asset, the outstanding principal balance of which, when
added to the outstanding principal balance of all other Non-BPO Assets then
pledged to Lender in connection with an Advance, causes the aggregate
outstanding principal balance of all such Non-BPO Assets to exceed 1% of the
Maximum Credit;

 

(6) which is a Forty Year Mortgage Loan, the outstanding principal balance of
which, when added to the outstanding principal balance of all other Forty Year
Mortgage Loans then pledged to Lender in connection with an Advance, causes the
aggregate outstanding principal balance of all Forty Year Mortgage Loans to
exceed 20% of the Maximum Credit; or

 

(7) which is a Ring-Fence Mortgage Loan, the outstanding principal balance of
which, when added to the outstanding principal balance of all other Ring-Fence
Mortgage Loans then pledged to Lender in connection with an Advance, causes the
aggregate outstanding principal balance of all Ring-Fence Mortgage Loans to
exceed $8,000,000.

 

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“Collection Account” shall mean the account established by the Servicer in
accordance with the terms and provisions of the Pooling and Servicing Agreement
with the Custodian, except that such account is subject to a security interest
in favor of the Lender and into which all Collections shall be deposited.

 

“Collection Period” shall mean, with respect to each Payment Date, the
immediately preceding calendar month (or in the case of the first Payment Date
following the date as of which any Eligible Asset is funded under this
Agreement, the period from and including the Funding Date through the end of the
calendar month in which the Funding Date occurs).

 

“Collections” shall mean, collectively, all Principal Collections, all Interest
Collections, all Operation Proceeds, all Sale Proceeds and Other Collections.

 

“Contractual Obligation” shall mean as to any Person, any material provision of
any agreement, instrument or other undertaking to which such Person is a party
or by which it or any of its property is bound or any material provision of any
security issued by such Person.

 

“Custodial Agreement” shall mean the Custodial Agreement dated as of the date
hereof among the Borrower, the Custodian and the Lender, substantially in the
form of Exhibit B hereto, as the same shall be modified and supplemented and in
effect from time to time.

 

“Custodian” shall mean U.S. Bank National Association, its successors and
permitted assigns.

 

“Custodian Asset Transmission” shall have the meaning assigned thereto in the
Custodial Agreement.

 

“Default” shall mean an Event of Default or an event that with notice or lapse
of time or both would become an Event of Default.

 

“Due Date” means the day of the month on which the Monthly Payment is due on a
Mortgage Loan, exclusive of any days of grace.

 

“Due Diligence Review” shall mean the performance by the Lender of any or all of
the reviews permitted under Section 11.16 hereof with respect to any or all of
the Mortgage Loans, the REO Properties or the Borrower, any REO Subsidiary or
the Servicer, as desired by the Lender from time to time.

 

“Effective Date” shall mean the date upon which the conditions precedent set
forth in Section 5.01 shall have been satisfied.

 

“Eligible Asset” shall mean a Mortgage Loan which is secured by a first mortgage
lien on a one-to-four family residential property or an REO Property and as to
which (i) the representations and warranties in Section 6.12 and Schedule 1 (or,
in the case of an REO Property, the representations and warranties in Schedule
3) hereof are correct, (ii) the related Asset File contains all required
Mortgage Loan Documents without Material Exceptions unless otherwise waived by
the Lender and (iii) such other customary criteria for eligibility determined by
the Lender shall have been satisfied.

 

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.

 

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“ERISA Affiliate” shall mean any corporation or trade or business that is a
member of any group of organizations (i) described in Section 414(b) or (c) of
the Code of which the Borrower is a member and (ii) solely for purposes of
potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of
the Code and the lien created under Section 302(f) of ERISA and Section 412(n)
of the Code, described in Section 414(m) or (o) of the Code of which the
Borrower is a member.

 

“Event of Default” shall have the meaning provided in Section 8 hereof.

 

“Exception Report” shall mean the exception report prepared by the Custodian
pursuant to the Custodial Agreement.

 

“Fannie Mae” means Fannie Mae, formerly known as the Federal National Mortgage
Association, or any successor thereto.

 

“Forty Year Mortgage Loan” means a Mortgage Loan with a forty (40) year
amortization period but which becomes due and payable in full at the end of the
thirtieth year.

 

“Freddie Mac” means Freddie Mac, formerly known as the Federal Home Loan
Mortgage Corporation, or any successor thereto.

 

“Funding Date” shall mean the date on which an Advance is made hereunder.

 

“GAAP” shall mean generally accepted accounting principles as in effect from
time to time in the United States of America.

 

“Governmental Authority” shall mean any nation or government, any state or other
political subdivision thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government
and any court or arbitrator having jurisdiction over the Borrower, any REO
Subsidiaries or any of their properties.

 

“Guarantee” shall mean, as to any Person, any obligation of such Person directly
or indirectly guaranteeing any Indebtedness of any other Person or in any manner
providing for the payment of any Indebtedness of any other Person or otherwise
protecting the holder of such Indebtedness against loss (whether by virtue of
partnership arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, or to take-or-pay or otherwise), provided that the term
“Guarantee” shall not include (i) endorsements for collection or deposit in the
ordinary course of business, or (ii) obligations to make servicing advances for
delinquent taxes and insurance, or other obligations in respect of a Mortgaged
Property, to the extent required by the Lender. The amount of any Guarantee of a
Person shall be deemed to be an amount equal to the stated or determinable
amount of the primary obligation in respect of which such Guarantee is made or,
if not stated or determinable, the maximum reasonably anticipated liability in
respect thereof as determined by such Person in good faith. The terms
“Guarantee” and “Guaranteed” used as verbs shall have correlative meanings.

 

“Guarantor” shall mean, New Century Financial Corporation.

 

“Guaranty” shall mean, the Guaranty Agreement, dated as of December 29, 2004
between the Guarantor and Lender.

 

“Indebtedness” shall mean, for any Person: (a) obligations created, issued or
incurred by such Person for borrowed money (whether by loan, the issuance and
sale of debt securities or the sale of Property to another Person subject to an
understanding or agreement, contingent or otherwise, to

 

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repurchase such Property from such Person); (b) obligations of such Person to
pay the deferred purchase or acquisition price of Property or services, other
than trade accounts payable (other than for borrowed money) arising, and accrued
expenses incurred, in the ordinary course of business so long as such trade
accounts payable are payable within 90 days of the date the respective goods are
delivered or the respective services are rendered; (c) Indebtedness of others
secured by a Lien on the Property of such Person, whether or not the respective
Indebtedness so secured has been assumed by such Person; (d) obligations
(contingent or otherwise) of such Person in respect of letters of credit or
similar instruments issued or accepted by banks and other financial institutions
for account of such Person; (e) Capital Lease Obligations of such Person; (f)
obligations of such Person under repurchase agreements or like arrangements; (g)
Indebtedness of others Guaranteed by such Person; (h) all obligations of such
Person incurred in connection with the acquisition or carrying of fixed assets
by such Person; (i) Indebtedness of general partnerships of which such Person is
a general partner; and (j) any other indebtedness of such Person evidenced by a
note, bond, debenture or similar instrument; and less (k) the aggregate amount
of any indebtedness that is reflected on the balance sheet of such Person in
respect of obligations incurred pursuant to a securitization transaction, solely
to the extent such obligations are secured by the assets securitized thereby and
are non-recourse to such Person.

 

“Insurance Proceeds” means with respect to each Mortgage Loan, proceeds of
insurance policies insuring the Mortgage Loan or the related Mortgaged Property.

 

“Interest Collections” shall mean collections on the Mortgage Loans attributable
to interest paid thereon.

 

“Interest Period” shall mean, with respect to any Advance, (i) initially, the
period commencing on the Funding Date with respect to such Advance and ending on
the calendar day prior to the Payment Date of the next succeeding month, and
(ii) thereafter, each period commencing on the Payment Date of a month and
ending on the calendar day prior to the Payment Date of the next succeeding
month. Notwithstanding the foregoing, no Interest Period may end after the
Maturity Date.

 

“Junior Securitization Interests” shall mean a mortgage-backed security created
in a securitization transaction that represents a subordinated right to receive
principal or interest payments on the mortgage loans underlying such
securitization (whether or not such subordination arises only under particular
circumstances).

 

“Lender” shall have the meaning assigned thereto in the heading hereto.

 

“LIBO Base Rate” shall mean with respect to any Interest Period, the rate per
annum equal to the rate appearing at page 3750 of the Telerate Screen as
one-month LIBOR at or about 11:00 A.M., eastern time, on the second Business Day
preceding such Interest Period, and if such rate shall not be so quoted, the
rate per annum at which the Lender is offered Dollar deposits at or about 11:00
A.M., eastern time, on such date by prime banks in the interbank eurodollar
market where the eurodollar and foreign currency and exchange operations in
respect of its Advances are then being conducted for delivery on such day for a
period of one month and in an amount comparable to the amount of the Advances to
be outstanding on such day. Lender shall have the sole discretion to reset the
LIBO Base Rate daily.

 

“LIBO Rate” shall mean with respect to each Interest Period pertaining to an
Advance, a rate per annum equal to the LIBO Base Rate plus 200 basis points
(rounded upwards to the nearest 0.0625%).

 

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“Lien” shall mean any mortgage, lien, pledge, charge, security interest or
similar encumbrance.

 

“Loan Agreement” shall mean this Second Amended and Restated Master Loan and
Security Agreement, as such agreement may be amended, supplemented or otherwise
modified from time to time as mutually agreed by the parties in writing.

 

“Loan Documents” shall mean, collectively, this Loan Agreement, the Note, any
REO Subsidiary Pledge Agreement, the Guaranty and the Custodial Agreement.

 

“Market Value” shall mean the market value as determined by the Lender in its
sole discretion.

 

“Material Adverse Effect” shall mean a material adverse effect on (a) the
property, business, operations, financial condition or prospects of the
Borrower, (b) the ability of the Borrower to perform in all material respects
its obligations under any of the Loan Documents to which it is a party, (c) the
validity or enforceability in all material respects of any of the Loan
Documents, (d) the rights and remedies of the Lender under any of the Loan
Documents, (e) the timely payment of the principal of or interest on the
Advances or other amounts payable in connection therewith or (f) the Collateral
(other than changes in Market Value due to market conditions).

 

“Material Exception” shall have the meaning assigned thereto in the Custodial
Agreement.

 

“Maturity Date” shall mean December 31, 2005, or such earlier date on which this
Loan Agreement shall terminate in accordance with the provisions hereof or by
operation of law.

 

“Maximum Credit” shall mean $150,000,000.

 

“Monthly Payment” means the scheduled monthly payment of principal and interest
on a Mortgage Loan as adjusted in accordance with changes in the Mortgage
Interest Rate pursuant to the provisions of the Mortgage Note for an adjustable
rate Mortgage Loan.

 

“Mortgage” shall mean the mortgage, deed of trust or other instrument creating a
first lien on, or first priority security interest in, a Mortgaged Property
securing a Mortgage Note.

 

“Mortgage Interest Rate” means the annual rate of interest borne on a Mortgage
Note, which shall be adjusted from time to time with respect to adjustable rate
Mortgage Loans.

 

“Mortgage Loan” shall mean a mortgage loan (together with any related prepayment
charges and the related servicing rights) which the Custodian has been
instructed to hold for the Lender pursuant to the Custodial Agreement, and which
Mortgage Loan includes, without limitation, (i) a Mortgage Note, the related
Mortgage and all other Mortgage Loan Documents and (ii) all right, title and
interest of the Borrower in and to the Mortgaged Property covered by such
Mortgage.

 

“Mortgage Loan Documents” shall mean, with respect to a Mortgage Loan, the
documents comprising the Asset File for such Mortgage Loan.

 

“Mortgage Note” shall mean the original executed promissory note or other
evidence of the indebtedness of a mortgagor/borrower with respect to a Mortgage
Loan.

 

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“Mortgaged Property” means the real property (including all improvements,
buildings and fixtures thereon and all additions, alterations and replacements
made at any time with respect to the foregoing) and all other collateral
securing repayment of the debt evidenced by a Mortgage Note.

 

“Mortgagee” means either the Borrower or any subsequent holder of a Mortgage
Loan.

 

“Mortgagor” means the obligor on a Mortgage Note.

 

“Multiemployer Plan” shall mean a multiemployer plan defined as such in Section
3(37) of ERISA to which contributions have been or are required to be made by
the Borrower or any ERISA Affiliate and that is covered by Title IV of ERISA.

 

“Net Worth” shall mean, with respect to any Person, the excess of such Person’s
total assets, over such Person’s total liabilities, determined in accordance
with GAAP.

 

“Non-BPO Asset” shall mean a Mortgage Loan or REO Property for which a BPO is
not obtained by the date that is 14 calendar days after such Mortgage Loan or
REO Property is pledged to Lender hereunder in connection with an Advance.

 

“Note” shall mean the promissory note provided for by Section 2.02(a) hereof for
Advances and any promissory note delivered in substitution or exchange therefor,
in each case as the same shall be modified and supplemented and in effect from
time to time.

 

“Notice of Borrowing and Pledge” shall have the meaning assigned to such term in
Section 2.03(a).

 

“Operation Proceeds” shall mean collections of rent and other amounts realized
from the operation of REO Property.

 

“Other Collections” shall mean all collections and proceeds on or in respect of
the Mortgage Loans or REO Properties (other than Principal Collections, Interest
Collections, Operation Proceeds and Sale Proceeds) and excluding collections
required to be paid to a Mortgagor on the Mortgage Loans or held for the
Mortgagor, whether or not in escrow, including, without limitation, collections
for taxes and insurance.

 

“Payment Date” shall mean the thirtieth (30th) day of each calendar month, or if
such day is not a Business Day, the next succeeding Business Day.

 

“PBGC” shall mean the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.

 

“Permitted Liens” shall mean (i) those Liens that existed on an REO Property as
of the Funding Date; (ii) any taxes, assessments or governmental charges on any
of the REO Properties which the Servicer has not advanced because the Servicer
has determined, in accordance with Accepted Servicing Practices that any advance
of such charges would not be likely recoverable from the sale of such REO
Property; (iii) any obligation to cure existing violations under environmental
laws with regard to REO Properties which the Servicer has not advanced because
the Servicer has determined, in accordance with Accepted Servicing Practices and
the terms and conditions of the Pooling and Servicing Agreement, that any
advance on such obligations would not be likely recoverable from the sale of
such REO Property; and (iv) any Liens granted by Borrower in favor of Lender.

 

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“Person” shall mean any individual, corporation, company, voluntary association,
partnership, joint venture, limited liability company, trust, unincorporated
association or government (or any agency, instrumentality or political
subdivision thereof).

 

“Plan” shall mean an employee benefit or other plan established or maintained by
the Borrower or any ERISA Affiliate and that is covered by Title IV of ERISA,
other than a Multiemployer Plan.

 

“Pooling and Servicing Agreement” shall mean the Pooling and Servicing
Agreement, Series 1999-NC5 dated as of December 1, 1999 among U.S. Bank National
Association, Salomon Brothers Mortgage Securities VII, Inc and the Servicer, as
the same may be amended, supplemented or otherwise modified and in effect from
time to time.

 

“Post-Default Rate” shall mean, in respect of any principal of any Advance or
any other amount under this Loan Agreement, the Note or any other Loan Document
(other than the Custodial Agreement) that is not paid when due to the Lender
(whether at stated maturity, by acceleration or mandatory prepayment or
otherwise), a rate per annum during the period from and including the due date
to but excluding the date on which such amount is paid in full equal to 2% per
annum, plus (i) the interest rate otherwise applicable to such Advance or other
amount, or (ii) if no interest rate is otherwise applicable, the LIBO Rate.

 

“Principal Collections” shall mean collections on the Mortgage Loans
attributable to principal payments thereon.

 

“Property” shall mean any right or interest in or to property of any kind
whatsoever, whether real, personal or mixed and whether tangible or intangible.

 

“Qualified Originator” shall mean (a) the Borrower, the Servicer or any of their
affiliates and (b) any other originator of Mortgage Loans; provided, however,
the Lender shall have the right to reject an originator (in its reasonable
discretion) by delivering written notice to the Borrower 15 days prior to
ceasing to accept Collateral originated by such person.

 

“Regulations G, T, U and X” shall mean Regulations G, T, U and X of the Board of
Governors of the Federal Reserve System (or any successor), as the same may be
modified and supplemented and in effect from time to time.

 

“Reimbursable Expenses” shall mean (x) all costs and expenses reasonably
incurred in the ordinary course of business consistent with Accepted Servicing
Practices to preserve, protect, maintain or secure the Eligible Assets or
otherwise reasonably incurred in the course of the Servicer’s performance of its
services under this Agreement to the extent related to such Eligible Assets
(other than the Servicer’s overhead expenses), or similar costs incurred
directly by the Borrower in connection with the Eligible Assets and (y) any
other costs and expenses otherwise authorized in writing by the Borrower and
approved in writing by the Lender. Reimbursable Expenses specifically excludes
any servicing advances outstanding by the Servicer or any other servicer prior
to the date of this Agreement.

 

“REO Property” shall mean any Mortgaged Property (together with the related
servicing rights) the title to which has been acquired by an REO Subsidiary by
foreclosure, deed-in-lieu of foreclosure or similar means, in each case together
with all buildings, fixtures and improvements thereon and all other rights,
benefits and proceeds arising from and in connection with such REO Property.

 

“REO Subsidiary” shall have the meaning assigned to such term in Section 4.11
hereof.

 

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“REO Subsidiary Pledge Agreement” shall mean a pledge agreement made by the
Borrower in favor of the Lender, substantially in the form of Exhibit I hereto,
as the same may be amended, supplemented or otherwise modified from time to
time.

 

“REO Subsidiary Pledged Stock” shall mean all capital stock or other equity
interests of any REO Subsidiary, which capital stock or interests (x) evidence
the Borrower’s 100% equity ownership interest in such REO Subsidiary, together
with all stocks, certificates, options or rights of any nature whatsoever that
may be issued or granted by such REO Subsidiary to the Borrower while this Loan
Agreement is in effect and (y) are pledged to the Lender pursuant to an REO
Subsidiary Pledge Agreement.

 

“Requirement of Law” shall mean as to any Person, the certificate of
incorporation and by-laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.

 

“Required Documents” shall mean those documents identified in Section 2(I) of
the Custodial Agreement.

 

“Residual Finance Subsidiaries” shall mean any wholly-owned Subsidiary of the
Borrower that, pursuant to its articles or certificate of incorporation, has a
purpose limited to the ownership of Junior Securitization Interests, the
establishment of one or more securitization trusts, issuing securities backed by
such Junior Securitization Interests, otherwise financing such Junior
Securitization Interests, and lawful activities incidental to and necessary and
convenient to the foregoing.

 

“Responsible Officer” shall mean, as to any Person, the chief operating officer,
the chief executive officer, the chief financial officer and any executive vice
president or senior vice president of such Person and, with respect to the
Borrower and any REO Subsidiary, any other Person designated as a responsible
officer by the Borrower or such REO Subsidiary (including any manager) to the
Lender; provided, that in the event any such officer is unavailable at any time
he or she is required to take any action hereunder, Responsible Officer shall
mean any officer authorized to act on such officer’s behalf as demonstrated by a
certificate of corporate resolution.

 

“Restricted Payments” shall mean with respect to any Person, collectively, all
dividends or other distributions of any nature (cash, securities, assets or
otherwise), and all payments, by virtue of redemption or otherwise, on any class
of equity securities (including, without limitation, warrants, options or rights
therefor) issued by such Person, whether such securities are now or may
hereafter be authorized or outstanding and any distribution in respect of any of
the foregoing, whether directly or indirectly.

 

“Ring-Fence Mortgage Loan” means a Mortgage Loan that is a second lien loan and
is identified on Schedule 1 to that certain Waiver Letter dated June 27, 2005 by
and among Borrower, Servicer, Guarantor and Lender.

 

“Sale Proceeds” shall mean (i) any proceeds of any sales, liquidations,
transfers or dispositions of any Mortgage Loan, net of reasonable costs,
including reasonable attorneys’ fees, and (ii) any proceeds of any sales,
liquidations, dispositions, condemnations, casualty insurance and other amounts
from any disposition, taking, damage or destruction of all or any portion of any
Mortgaged Property or REO Property, net of reasonable costs of closing,
including but not limited to brokerage commissions, make-ready expenses, title
insurance, financing costs, recording fees, transfer taxes, tax certificates,
title and closing agent fees and pro-rated items; provided, however, that with
respect to the

 

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foreclosure of any Mortgaged Property that is acquired by an REO Subsidiary,
Sale Proceeds shall not include any proceeds of such foreclosure sale if the
entire amount of such proceeds were advanced to such REO Subsidiary by an
Affiliate of such REO Subsidiary to enable such REO Subsidiary to acquire such
Mortgaged Property.

 

“Secured Obligations” shall have the meaning assigned thereto in Section 4.01(c)
hereof.

 

“Servicing Records” shall have the meaning assigned thereto in Section 11.15(b)
hereof.

 

“Servicing Transmission” shall mean a computer-readable magnetic or other
electronic format acceptable to the parties containing the information
identified on Exhibit F.

 

“Subsidiary” shall mean, with respect to any Person, any corporation,
partnership or other entity of which at least a majority of the securities or
other ownership interests having by the terms thereof ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions of such corporation, partnership or other entity (irrespective of
whether or not at the time securities or other ownership interests of any other
class or classes of such corporation, partnership or other entity shall have or
might have voting power by reason of the happening of any contingency) is at the
time directly or indirectly owned or controlled by such Person or one or more
Subsidiaries of such Person or by such Person and one or more Subsidiaries of
such Person.

 

“Tangible Net Worth” means, with respect to any Person, as of any date of
determination, the consolidated Net Worth of such Person and its Subsidiaries,
less the consolidated net book value of all assets of such Person and its
Subsidiaries (to the extent reflected as an asset in the balance sheet of such
Person or any Subsidiary at such date) which will be treated as intangibles
under GAAP, including, without limitation, such items as deferred financing
expenses, net leasehold improvements, good will, trademarks, trade names,
service marks, copyrights, patents, licenses and unamortized debt discount and
expense; provided, that interest-only strips, residual interests or reserve
certificates issued in connection with a public or private securitization
transaction owned by such person or its Subsidiaries shall not be treated as
intangibles for purposes of this definition.

 

“Total Indebtedness” means, with respect to any Person, for any period, the
aggregate Indebtedness of such Person and its Subsidiaries during such period
maintained in accordance with GAAP, less the aggregate amount of any such total
liabilities that are reflected on the balance sheet of such Person in respect of
obligations incurred pursuant to a securitization transaction solely to the
extent such obligations are secured by the assets securitized thereby and are
non-recourse to such Person.

 

“Uniform Commercial Code” shall mean the Uniform Commercial Code as in effect on
the date hereof in the State of New York; provided that if by reason of
mandatory provisions of law, the perfection or the effect of perfection or
non-perfection of the security interest in any Collateral is governed by the
Uniform Commercial Code as in effect in a jurisdiction other than New York,
“Uniform Commercial Code” shall mean the Uniform Commercial Code as in effect in
such other jurisdiction for purposes of the provisions hereof relating to such
perfection or effect of perfection or non-perfection.

 

1.02 Accounting Terms and Determinations. Except as otherwise expressly provided
herein, all accounting terms used herein shall be interpreted, and all financial
statements and certificates and reports as to financial matters required to be
delivered to the Lender hereunder shall be prepared, in accordance with GAAP.

 

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Section 2. Advances, Note and Prepayments.

 

2.01 Advances.

 

(a) Subject to fulfillment of the conditions precedent set forth in Sections
5.01 and 5.02 hereof, and provided that no Default shall have occurred and be
continuing hereunder, the Lender agrees, from time to time, on the terms and
conditions of this Loan Agreement, to make loans (individually, an “Advance”;
collectively, the “Advances”) to the Borrower in immediately available funds, on
any Business Day from and including the Effective Date to but excluding the
Maturity Date in an aggregate principal amount at any one time outstanding up to
but not exceeding the lesser of (i) the Maximum Credit and (ii) the Borrowing
Base as in effect from time to time.

 

(b) Subject to the terms and conditions of this Loan Agreement, during such
period the Borrower may borrow, repay and reborrow hereunder.

 

(c) In no event shall an Advance be made when any Default or Event of Default
has occurred and is continuing.

 

(d) The minimum amount of any Advance made by the Lender hereunder shall be
$500,000.

 

(e) The Lender shall not be obligated to make more than four Advances in any one
calendar month.

 

2.02 Notes.

 

(a) The Advances made by the Lender shall be evidenced by a single promissory
note of the Borrower substantially in the form of Exhibit A hereto (the “Note”),
dated the date hereof payable to the Lender in a principal amount equal to the
amount of the Maximum Credit as originally in effect and otherwise duly
completed. The Lender shall have the right to have its Note subdivided, by
exchange for promissory notes of lesser denominations or otherwise.

 

(b) The date, amount and interest rate of each Advance made by the Lender to the
Borrower, and each payment made on account of the principal thereof, shall be
recorded by the Lender on its books and, prior to any transfer of the Note,
noted by the Lender on the grid attached to the Note or any continuation
thereof; provided, that the failure of the Lender to make any such recordation
or notation shall not affect the obligations of the Borrower or Guarantor to
make a payment when due of any amount owing hereunder or under the Note in
respect of the outstanding Advances.

 

2.03 Procedure for Borrowing.

 

(a) Borrowing Procedure for Requesting an Advance. The Borrower may request a
borrowing to be secured by any Eligible Assets hereunder, on any Business Day
during the period from and including the Effective Date to but excluding the
Maturity Date, by delivering to the Lender, with a copy to the Custodian, an
Asset Data Transmission and an irrevocable Notice of Borrowing and Pledge
substantially in the form of Exhibit D hereto (a “Notice of Borrowing and
Pledge”), appropriately completed, which must be received no later than three
(3) Business Days prior to the requested Funding Date. Such Notice of Borrowing
and Pledge shall include an Asset Schedule in respect of the Eligible Assets
that the Borrower proposes to pledge to the Lender and to be included in the
Borrowing Base in connection with such borrowing.

 

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(b) Pursuant to the Custodial Agreement, the Custodian shall review any Required
Documents delivered prior to 12:00 p.m. (eastern time) on the second Business
Day prior to the requested Funding Date in time to include the related Mortgage
Loans and REO Properties in the Borrowing Base determination for such Funding
Date. Not later than 1:00 p.m. (eastern time) on the Business Day prior to each
Funding Date, the Custodian shall deliver to the Lender, via electronic
transmission acceptable to the Lender, the Custodian Asset Transmission and an
Exception Report showing the status of all Mortgage Loans and REO Properties
then held by the Custodian, including but not limited to the Mortgage Loans and
REO Properties which are subject to document exceptions, and the time the
related Mortgage Loan Documents have been released pursuant to Section 5(a) or
5(b) of the Custodial Agreement. In addition, the Custodian shall deliver to the
Lender no later than 1:00 p.m. (eastern time) by facsimile transmission on the
Business Day prior to each Funding Date, one or more Trust Receipts (as defined
in the Custodial Agreement) relating to the Mortgage Loans and REO Properties.
The original copies of such Trust Receipts shall be delivered to Mr. Gerald
Mullooly, Citigroup Global Markets Realty Corp., 333 West 34th Street, 4th
Floor, New York, New York 10001 (telephone number (212) 615-7725) by overnight
delivery using a nationally recognized insured overnight delivery service for
receipt on each Funding Date.

 

(c) Upon the Borrower’s request for a borrowing pursuant to Section 2.03(a)
above, the Lender shall, assuming all conditions precedent set forth in this
Section 2.03 and in Sections 5.01 and 5.02 have been met, and provided no
Default shall have occurred and be continuing (in accordance with Section 2.01),
not later than 1:00 p.m. (eastern time) on the requested Funding Date make an
Advance in an amount (determined by the Lender) which would not cause the
aggregate amount of Advances then outstanding to exceed the lesser of (i) the
Maximum Credit or (ii) the Borrowing Base shown on the latest Borrowing Base
Certificate of the Lender. Subject to the foregoing, such borrowing will be made
available to the Borrower by the Lender transferring, via wire transfer
(pursuant to wire transfer instructions provided by the Borrower in the related
Notice of Borrowing and Pledge), in the aggregate amount of such borrowing in
funds immediately available to the Borrower.

 

2.04 Limitation on Types of Advances, Illegality. Anything herein to the
contrary notwithstanding, if, on or prior to the determination of any LIBO Base
Rate:

 

(a) the Lender reasonably determines, which determination shall be conclusive,
that quotations of interest rates for the relevant deposits referred to in the
definition of “LIBO Base Rate” in Section 1.01 hereof are not being provided in
the relevant amounts or for the relevant maturities for purposes of determining
rates of interest for Advances as provided herein; or

 

(b) it becomes unlawful for the Lender to honor its obligation to make or
maintain Advances hereunder using a LIBO Rate;

 

then the Lender shall give the Borrower prompt notice thereof and, so long as
such condition remains in effect, the Lender shall be under no obligation to
make additional Advances, and the Borrower shall, at its option, either prepay
such Advances or pay interest on such Advances at a rate per annum as determined
by the Lender taking into account the increased cost, if any, to the Lender of
making the Advances.

 

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2.05 Repayment of Advances; Interest.

 

(a) The entire unpaid principal amount of all Advances, together with all
accrued and unpaid interest thereon, if not previously paid, shall be due and
payable to the Lender on the Maturity Date.

 

(b) No later than the Business Day prior to each Payment Date, the Lender shall
provide to the Borrower a report which shall state the interest amount due for
the current Interest Period on the Advances and the amount of any mandatory
principal prepayment pursuant to Section 2.06. The calculation on such report
shall be based upon information provided in the most recent Servicing
Transmission and the most recent Custodian Asset Transmission and Exception
Report.

 

(c) The Borrower or Guarantor shall pay to the Lender interest on the unpaid
principal amount of each Advance for the period from and including the date of
such Advance to but excluding the date such Advance shall be paid in full, at a
rate per annum equal to the LIBO Rate. Notwithstanding the foregoing, the
Borrower or Guarantor shall pay to the Lender interest at the applicable
Post-Default Rate on any principal of any Advance and on any other amount
payable by the Borrower or Guarantor hereunder or under the Note, that shall not
be paid in full when due (whether at stated maturity, by acceleration or by
mandatory prepayment or otherwise), for the period from and including the due
date thereof to but excluding the date the same is paid in full. Accrued
interest on each Advance as calculated in Section 2.05(b) above shall be payable
monthly on each Payment Date and on the Maturity Date, except that interest
payable at the Post-Default Rate shall accrue daily and shall be payable
promptly upon receipt of invoice. Promptly after the determination of any
interest rate provided for herein or any change therein, the Lender shall give
written notice thereof to the Borrower.

 

2.06 Mandatory Prepayments or Pledge.

 

Pursuant to the Custodial Agreement, on each Business Day on which there is a
sale, release or other change in the Mortgage Loans held by the Custodian or REO
Properties owned by an REO Subsidiary, the Custodian shall deliver to the Lender
and the Borrower a Custodian Asset ‘Transmission and an Exception Report. On the
fifth Business Day of each calendar month, the Borrower shall cause the Servicer
to deliver to the Lender the Servicing Transmission. No later than 5:00 p.m.
eastern time on the Business Day preceding each Payment Date the Lender shall
deliver to the Borrower a Borrowing Base Certificate, the calculation in such
certificate to be based on (a) the principal balance and appraised value of the
Mortgage Loans as of the last day of the preceding calendar month and (b) the
appraised value of the REO Properties as of the last day of the preceding
calendar month. Such information shall be ascertained from the Custodian Asset
Transmission, the Exception Report and the Servicing Transmission. In the event
that such Borrowing Base Certificate indicates that the aggregate outstanding
principal amount of Advances exceeds the Borrowing Base (a “Borrowing Base
Deficiency”), the Borrower or Guarantor shall on the related Payment Date,
either prepay the Advances in part or in whole or pledge additional Eligible
Assets (which Collateral shall be in all respects acceptable to the Lender) to
the Lender, such that after giving effect to such prepayment or pledge the
aggregate outstanding principal amount of the Advances does not exceed the
Borrowing Base.

 

2.07 Optional Prepayments.

 

(a) The Advances are prepayable without premium or penalty, in whole or in part
on each Payment Date. The Advances are prepayable at any other time, in whole or
in part, in accordance herewith and subject to clause (b) below. Any amounts
prepaid shall be applied to repay the outstanding principal amount of any
Advances (together with interest thereon) until paid in full. Amounts repaid may
be reborrowed in accordance with the terms of this Loan Agreement. If the
Borrower or Guarantor intends to prepay an Advance in whole or in part from any
source, the Borrower or Guarantor shall give two (2) Business Days’ prior
written notice thereof to the Lender. If such notice is given, the amount

 

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specified in such notice shall be due and payable on the date specified therein,
together with accrued interest to such date on the amount prepaid. Partial
prepayments shall be in an aggregate principal amount of at least $1,000,000.

 

(b) If the Borrower or Guarantor makes a prepayment of the Advances on any day
which is not a Payment Date, the Borrower and Guarantor shall indemnify the
Lender and hold the Lender harmless from any actual loss (excluding any lost
profit or opportunity cost) which the Lender may sustain or incur arising from
(a) the re-employment of funds obtained by the Lender to maintain the Advances
hereunder or (b) fees payable to terminate the deposits from which such funds
were obtained, in either case, which actual loss or expense shall be equal to an
amount equal to the excess, as reasonably determined by the Lender, of (i) its
cost of obtaining funds for such Advances for the period from the date of such
payment through the following Payment Date over (ii) the amount of interest
likely to be realized by the Lender in redeploying the funds not utilized by
reason of such payment for such period. This Section 2.07 shall survive
termination of this Loan Agreement and payment of the Note.

 

2.08 Requirements of Law.

 

(a) If the adoption of any Requirement of Law (other than with respect to any
amendment made to the Lender’s certificate of incorporation and by-laws or other
organizational or governing documents) made subsequent to the date hereof or any
change in the interpretation or application thereof or compliance by the Lender
with any request or directive (whether or not having the force of law) from any
central bank or other Governmental Authority made subsequent to the date hereof:

 

(i) shall subject the Lender to any tax of any kind whatsoever with respect to
this Loan Agreement, the Note or any Advance made by it (excluding net income
taxes) or change the basis of taxation of payments to the Lender in respect
thereof;

 

(ii) shall impose, modify or hold applicable any reserve, special deposit,
compulsory advance or similar requirement against assets held by deposits or
other liabilities in or for the account of Advances or other extensions of
credit by the Lender, or any other acquisition of funds by any office of the
Lender which requirement is not otherwise included in the determination of the
LIBO Base Rate hereunder;

 

(iii) shall impose on the Lender any other condition;

 

and the result of any of the foregoing is to increase the cost to the Lender, by
an amount which the Lender deems to be material, of making, continuing or
maintaining any Advance or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrower or Guarantor shall promptly pay
the Lender such additional amount or amounts as will compensate the Lender for
such increased cost or reduced amount receivable thereafter incurred.

 

(b) If the Lender shall have determined that the adoption of or any change in
any Requirement of Law (other than with respect to any amendment made to the
Lender’s certificate of incorporation and by-laws or other organizational or
governing documents) regarding capital adequacy or in the interpretation or
application thereof or compliance by the Lender or any corporation controlling
the Lender with any request or directive regarding capital adequacy (whether or
not having the force of law) from any Governmental Authority made subsequent to
the date hereof shall have the effect of reducing the rate of return on the
Lender’s or such corporation’s capital as a consequence of its obligations
hereunder to a level below that which the Lender or such corporation could have
achieved but for such adoption, change or compliance (taking into consideration
the Lender’s or such corporation’s policies with respect to capital adequacy) by
an amount deemed by the Lender to be material in its commercially

 

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reasonable discretion, then from time to time, after the Lender submits to the
Borrower a written request therefor, the Borrower or Guarantor shall promptly
pay to the Lender such additional amount or amounts as will thereafter
compensate the Lender for such reduction.

 

(c) If the Lender becomes entitled to claim any additional amounts pursuant to
this subsection, it shall promptly notify the Borrower of the event by reason of
which it has become so entitled. A certificate (providing reasonable support as
to amounts requested) as to any additional amounts payable pursuant to this
subsection submitted by the Lender to the Borrower shall be conclusive in the
absence of manifest error.

 

2.09 Extension.

 

At the request of the Borrower, at least thirty (30) days prior to the Maturity
Date, the Lender may in its sole discretion extend the Maturity Date for a
period of 364 days by giving written notice of such extension to the Borrower no
later than twenty (20) days, but in no event more than thirty (30) days, prior
to the Maturity Date.

 

2.10 Reserved.

 

Section 3. Payments; Computations; Taxes; Fees.

 

3.01 Payments.

 

Except to the extent otherwise provided herein, all payments of principal,
interest and other amounts to be made by the Borrower or Guarantor under this
Loan Agreement and the Note, shall be made in immediately available funds,
without deduction, set-off or counterclaim, to the Lender at the following
account maintained by the Lender at The Chase Manhattan Bank: Account Number
066612187, Account Name: Salomon Brothers Realty Corp, ABA Number: 021000021,
Attention: Gerald Mullooly, not later than 2:00 p.m., eastern time, on the date
on which such payment shall become due (each such payment made after such time
on such due date to be deemed to have been made on the next succeeding Business
Day). The Borrower and Guarantor acknowledge that each has no rights of
withdrawal from the foregoing account. Notwithstanding the foregoing, if payment
is made after 2:00 p.m., eastern time but prior to 5:00 p.m., eastern time, the
Borrower or Guarantor will owe an additional day’s interest but such late
payment will not constitute an Event of Default hereunder.

 

3.02 Computations. Interest on the Advances shall be computed on the basis of a
360-day year for the actual days elapsed (including the first day but excluding
the last day) occurring in the period for which payable.

 

3.03 U.S. Taxes.

 

(a) The Borrower and Guarantor agree to pay to the Lender such additional
amounts as are necessary in order that the net payment of any amount due to the
Lender hereunder after deduction for or withholding in respect of any U.S. Tax
(as defined below) imposed with respect to such payment (or in lieu thereof,
payment of such U.S. Tax by the Lender), will not be less than the amount stated
herein to be then due and payable; provided, that the foregoing obligation to
pay such additional amounts shall not apply:

 

(i) to any payment to the Lender hereunder unless the Lender is entitled to
submit a Form 1001 (relating to the Lender and entitling it to a complete
exemption from withholding on all interest to be received by it hereunder in
respect of the Advances), or Form 4224 (relating to all interest to be received
by the Lender hereunder in respect of the Advances), or

 

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(ii) to any U.S Tax imposed solely by reason of the failure by the Lender to
comply with applicable certification, information, documentation or other
reporting requirements concerning the nationality, residence, identity or
connections with the United States of America of the Lender if such compliance
is required by statute or regulation of the United States of America as a
precondition to relief or exemption from such U.S Tax.

 

For the purposes of this Section 3.03(a), (i) “Form 1001” shall mean Form 1001
(Ownership, Exemption, or Reduced Rate Certificate) of the Department of the
Treasury of the United States of America, (ii) “Form 4224” shall mean Form 4224
(Exemption from Withholding of Tax on Income Effectively Connected with the
Conduct of a Trade or Business in the United States) of the Department of the
Treasury of the United States of America (or in relation to either such Form
such successor and related forms as may from time to time be adopted by the
relevant taxing authorities of the United States of America to document a claim
to which such Form relates) and (iii) U.S. Taxes” shall mean any present or
future tax, assessment or other charge or levy imposed by or on behalf of the
United States of America or any taxing authority thereof or therein.

 

(b) Within 30 days after paying any such amount to the Lender, and within 30
days after it is required by law to remit such deduction or withholding to any
relevant taxing or other authority, the Borrower or Guarantor shall deliver to
the Lender evidence satisfactory to the Lender of such deduction, withholding or
payment (as the case may be).

 

(c) The Lender represents and warrants to the Borrower that on the date hereof
the Lender is either incorporated under the laws of the United States or a State
thereof or is entitled to submit a Form 1001 (relating to the Lender and
entitling it to a complete exemption from withholding on all interest to be
received by it hereunder in respect of the Advances) or Form 4224 (relating to
all interest to be received by the Lender hereunder in respect of the Advances).

 

3.04 [Reserved].

 

Section 4. Collateral Security.

 

4.01 Collateral; Security Interest.

 

(a) Pursuant to the Custodial Agreement, the Custodian shall hold the Mortgage
Loan Documents as exclusive bailee and agent for the Lender pursuant to the
terms of the Custodial Agreement and shall deliver to the Lender Trust Receipts
with Exception Reports (as such terms are defined in the Custodial Agreement) to
the effect that it has reviewed such Mortgage Loan Documents in the manner
required by the Custodial Agreement and identifying any deficiencies in such
Mortgage Loan Documents as so reviewed.

 

(b) Each of the following items or types of property, whether now owned or
hereafter acquired, now existing or hereafter created and wherever located, is
hereinafter referred to as the “Collateral”:

 

(i) all Eligible Assets identified on an Asset Schedule attached to a Notice of
Borrowing and Pledge delivered by the Borrower to the Lender and the Custodian
from time to time;

 

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(ii) all Mortgage Loan Documents, including without limitation all promissory
notes, and all Servicing Records (as defined in Section 11.15(b) hereof), and
any other collateral pledged or otherwise relating to such Mortgage Loans,
together with all files, material documents, instruments, surveys (if
available), certificates, correspondence, appraisals, computer records, computer
storage media, Mortgage Loan accounting records and other books and records
relating to any Mortgage Loan or REO Property, in each case, only to the extent
such collateral relates to the Mortgage Loan or REO Property;

 

(iii) all mortgage guaranties and insurance (issued by governmental agencies or
otherwise) and any mortgage insurance certificate or other document evidencing
such mortgage guaranties or insurance relating to any Mortgage Loans and all
claims and payments thereunder;

 

(iv) all other insurance policies and insurance proceeds relating to any
Mortgage Loans or the related Mortgaged Property or to any REO Property;

 

(v) the Custodial Agreement;

 

(vi) any purchase agreements or other agreements or contracts relating to or
constituting any or all of the foregoing;

 

(vii) all purchase or take-out commitments relating to or constituting any or
all of the foregoing;

 

(viii) the Collection Account and all monies from time to time on deposit
therein;

 

(ix) the escrow accounts and similar arrangements relating to the Mortgage Loans
and REO Properties and all monies from time to time on deposit therein;

 

(x) any REO Subsidiary Pledged Stock;

 

(xi) all “accounts”, “chattel paper” and “general intangibles” as defined in the
Uniform Commercial Code relating to or constituting any or all of the foregoing;
and

 

(xii) any and all replacements, substitutions, distributions on or proceeds of
any or all of the foregoing.

 

(c) The Borrower hereby assigns, pledges and grants a security interest to the
Lender in all of its right, title and interest in, to and under all the
Collateral, whether now owned or hereafter acquired, now existing or hereafter
created and wherever located, to secure the repayment of principal of and
interest on all Advances and all other amounts owing to the Lender hereunder,
under the Note and under the other Loan Documents (collectively, the “Secured
Obligations”). The Borrower agrees to mark its computer records and tapes to
evidence the security interests granted to the Lender hereunder.

 

4.02 Further Documentation. At any time and from time to time, upon the written
request of the Lender, and at the sole expense of the Borrower or Guarantor, the
Borrower will promptly and duly execute and deliver, or will promptly cause to
be executed and delivered, such further instruments and documents and take such
further action as the Lender may reasonably request for the purpose of obtaining
or preserving the full benefits of this Loan Agreement and of the rights and
powers herein granted, including, without limitation, the filing of any
financing or continuation statements under the Uniform Commercial Code in effect
in any jurisdiction with respect to the Liens created hereby. The

 

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Borrower also hereby authorizes the Lender to file any such financing or
continuation statement without the signature of the Borrower to the extent
permitted by applicable law. A carbon, photographic or other reproduction of
this Loan Agreement shall be sufficient as a financing statement for filing in
any jurisdiction

 

4.03 Changes in Locations, Name, etc. Neither the Borrower or Guarantor shall
(i) change the location of its chief executive office/chief place of business
from that specified in Section 6 hereof or (ii) change its name, identity or
corporate structure (or the equivalent) or change the location where it
maintains its records with respect to the Collateral unless it shall have given
the Lender at least 15 days prior written notice thereof and shall have
delivered to the Lender all Uniform Commercial Code financing statements and
amendments thereto as the Lender shall request and taken all other actions
deemed reasonably necessary by the Lender to continue its perfected status in
the Collateral with the same or higher priority.

 

4.04 Lender’s Appointment as Attorney-in-Fact.

 

(a) The Borrower hereby irrevocably constitutes and appoints the Lender and any
officer or agent thereof with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of the Borrower and in the name of the Borrower or in its own name, from
time to time in the Lender’s discretion, for the purpose of carrying out the
terms of this Loan Agreement, to take any and all appropriate action and to
execute any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Loan Agreement, and, without
limiting the generality of the foregoing, the Borrower hereby gives the Lender
the power and right, on behalf of the Borrower, without assent by, but with
notice to, the Borrower, if an Event of Default shall have occurred and be
continuing, to do the following:

 

(i) in the name of the Borrower or its own name, or otherwise, to take
possession of and endorse and collect any checks, drafts, notes, acceptances or
other instruments for the payment of moneys due under any mortgage insurance or
with respect to any other Collateral and to file any claim or to take any other
action or proceeding in any court of law or equity or otherwise deemed
appropriate by the Lender for the purpose of collecting any and all such moneys
due under any such mortgage insurance or with respect to any other Collateral
whenever payable;

 

(ii) to pay or discharge taxes and Liens levied or placed on or threatened
against the Collateral; and

 

(iii) (A) to direct any party liable for any payment under any Collateral to
make payment of any and all moneys due or to become due thereunder directly to
the Lender or as the Lender shall direct; (B) to ask or demand for, collect,
receive payment of and receipt for, any and all moneys, claims and other amounts
due or to become due at any time in respect of or arising out of any Collateral;
(C) to sign and endorse any invoices, assignments, verifications, notices and
other documents in connection with any of the Collateral; (D) to commence and
prosecute any suits, actions or proceedings at law or in equity in any court of
competent jurisdiction to collect the Collateral or any portion thereof and to
enforce any other right in respect of any Collateral; (E) to defend any suit,
action or proceeding brought against the Borrower with respect to any
Collateral; (F) to settle, compromise or adjust any suit, action or proceeding
described in clause (E) above and, in connection therewith, to give such
discharges or releases as the Lender may deem appropriate; and (G) generally, to
sell, transfer, pledge and make any agreement with respect to or otherwise deal
with any of the Collateral as fully and completely as though the

 

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Lender were the absolute owner thereof for all purposes, and to do, at the
Lender’s option and the Borrower’s expense, at any time, or from time to time,
all acts and things which the Lender deems necessary to protect, preserve or
realize upon the Collateral and the Lender’s Liens thereon and to effect the
intent of this Loan Agreement, all as fully and effectively as the Borrower
might do.

 

The Borrower hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable.

 

(b) The Borrower also authorizes the Lender; at any time and from time to time,
to execute, in connection with the sale provided for in Section 4.07 hereof, any
endorsements, assignments or other instruments of conveyance or transfer with
respect to the Collateral.

 

(c) The powers conferred on the Lender are solely to protect the Lender’s
interests in the Collateral and shall not impose any duty upon the Lender to
exercise any such powers. The Lender shall be accountable only for amounts that
it actually receives as a result of the exercise of such powers, and neither the
Lender nor any of its officers, directors, or employees shall be responsible to
the Borrower or Guarantor for any act or failure to act hereunder, except for
its own gross negligence or willful misconduct.

 

4.05 Performance by Lender of Borrower’s Obligations. If the Borrower fails to
perform or comply with any of its material agreements contained in the Loan
Documents and the Lender may itself perform or comply, or otherwise cause
performance or compliance, with such agreement, the reasonable out-of-pocket
expenses of the Lender incurred in connection with such performance or
compliance, together with interest thereon at a rate per annum equal to the
Post-Default Rate, shall be payable by the Borrower or Guarantor to the Lender
on demand and shall constitute Secured Obligations.

 

4.06 Proceeds. If an Event of Default shall occur and be continuing, (a) all
proceeds of Collateral received by the Borrower consisting of cash, checks and
other near-cash items shall be held by the Borrower in trust for the Lender;
segregated from other funds of the Borrower, and shall forthwith upon receipt by
the Borrower be turned over to the Lender in the exact form received by the
Borrower (duly endorsed by the Borrower to the Lender, if required) and (b) any
and all such proceeds of Collateral received by the Lender will be applied by
the Lender against the Secured Obligations. Any balance of such proceeds
remaining after the Secured Obligations shall have been paid in full and this
Loan Agreement shall have been terminated shall be promptly paid over to the
Borrower or to whomsoever may be lawfully entitled to receive the same. For
purposes hereof, proceeds shall include, but not be limited to, all principal
and interest payments, all amounts on deposit in the Collection Account, all
prepayments and payoffs, insurance claims, condemnation awards, sale proceeds,
real estate owned rents and any other income and all other amounts received in
each case with respect to the Collateral.

 

4.07 Remedies. If an Event of Default shall occur and be continuing, the Lender
may exercise, in addition to all other rights and remedies granted to it in this
Loan Agreement and in any other instrument or agreement securing, evidencing or
relating to the Secured Obligations, all rights and remedies of a secured party
under the Uniform Commercial Code. Without limiting the generality of the
foregoing, the Lender without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon the Borrower or any other Person
(all and each of which demands, defenses, advertisements and notices are hereby
waived), may in such circumstances forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
lease, assign, give option or options to purchase, or otherwise dispose of and
deliver the Collateral or any part thereof (or contract to do any of the
foregoing), in one or more parcels or as an entirety at public or private sale
or sales, at any exchange,

 

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broker’s board or office of the Lender or elsewhere upon such terms and
conditions and at prices that are consistent with the prevailing market for
similar collateral as it may deem advisable and at such prices as it may deem
best, for cash or on credit or for future delivery without assumption of any
credit risk. The Lender shall act in good faith to obtain the best execution
possible under prevailing market conditions. The Lender shall have the right
upon any such public sale or sales, and, to the extent permitted by law, upon
any such private sale or sales, to purchase the whole or any part of the
Collateral so sold, free of any right or equity of redemption in the Borrower,
which right or equity is hereby waived or released. The Borrower further agrees,
at the Lender’s request, to assemble the Collateral and make it available to the
Lender at places which the Lender shall reasonably select, whether at the
Borrower’s premises or elsewhere. The Lender shall apply the net proceeds of any
such collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred therein or
incidental to the care or safekeeping of any of the Collateral or in any way
relating to the Collateral or the rights of the Lender hereunder, including,
without limitation, reasonable attorneys’ fees and disbursements, to the payment
in whole or in part of the Secured Obligations, in such order as the Lender may
elect, and only after such application and after the payment by the Lender of
any other amount required or permitted by any provision of law, including,
without limitation, Section 9-504(1)(c) of the Uniform Commercial Code, need the
Lender account for the surplus, if any, to the Borrower. To the extent permitted
by applicable law, the Borrower and Guarantor waive all claims, damages and
demands they may acquire against the Lender arising out of the exercise by the
Lender of any of its rights hereunder, other than those claims, damages and
demands arising from the gross negligence or willful misconduct of the Lender.
If any notice of a proposed sale or other disposition of Collateral shall be
required by law, such notice shall be deemed reasonable and proper if given at
least 10 days before such sale or other disposition. The Borrower and Guarantor
shall remain liable for any deficiency (plus accrued interest thereon as
contemplated pursuant to Section 205(b) hereof) if the proceeds of any sale or
other disposition of the Collateral are insufficient to pay the Secured
Obligations and the reasonable fees and disbursements of any attorneys employed
by the Lender to collect such deficiency.

 

4.08 Limitation on Duties Regarding Presentation of Collateral. The Lender’s
duty with respect to the custody, safekeeping and physical preservation of the
Collateral in its possession, under Section 9-207 of the Uniform Commercial Code
or otherwise, shall be to deal with it in the same manner as the Lender deals
with similar property for its own account. Neither the Lender nor any of its
directors, officers or employees shall be liable for failure to demand, collect
or realize upon all or any part of the Collateral or for any delay in doing so
or shall be under any obligation to sell or otherwise dispose of any Collateral
upon the request of the Borrower or otherwise.

 

4.09 Powers Coupled with an Interest. All authorizations and agencies herein
contained with respect to the Collateral are irrevocable and powers coupled with
an interest.

 

4.10 Release of Security Interest. Upon termination of this Loan Agreement and
repayment to the Lender of all Secured Obligations and the performance of all
obligations under the Loan Documents, the Lender shall release its security
interest in any remaining Collateral; provided that if any payment, or any part
thereof; of any of the Secured Obligations is rescinded or must otherwise be
restored or returned by the Lender upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of the Borrower, or upon or as a result of the
appointment of a receiver, intervenor or conservator of; or a trustee or similar
officer for the Borrower or any substantial part of its Property, or otherwise,
this Loan Agreement, all rights hereunder and the Liens created hereby shall
continue to be effective, or be reinstated, until such payments have been made.

 

4.11 REO Subsidiary; Formation; REO Property Representations and Warranties. The
Borrower shall cause any REO Property to be taken by deed in the name of a
wholly-owned subsidiary of the Borrower (any such subsidiary, an “REO
Subsidiary”) formed for the sole purpose of holding any REO Property. The
Borrower may establish one or more REO Subsidiaries. Promptly upon the formation
of any REO Subsidiary, the Borrower shall (or shall cause the applicable REO
Subsidiary to):

 

(A) provide written notice thereof to the Lender;

 

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(B) execute and deliver to the Lender an REO Subsidiary Pledge Agreement (or, if
an REO Subsidiary Pledge Agreement shall have already been executed and
delivered, a supplement thereto) pursuant to which all REO Subsidiary Pledged
Stock of such REO Subsidiary shall be pledged to the Lender or the Custodian, as
instructed by the Lender;

 

(C) deliver all certificates representing REO Subsidiary Pledged Stock, together
with an undated transfer power for each such certificate duly executed in blank
on behalf of the Borrower, to the Lender or the Custodian, as instructed by the
Lender;

 

(D) deliver an acknowledgment of such REO Subsidiary in the form attached to the
REO Subsidiary Pledge Agreement;

 

(E) deliver an officer’s certificate signed by a Responsible Officer and a
secretary of such REO Subsidiary, together with a good standing certificate with
respect to such REO Subsidiary and certified copies of the certificate of
formation, articles of incorporation, bylaws and operating agreement (or
equivalent documents) of such REO Subsidiary and of all resolutions or other’
authority of such REO Subsidiary with respect to holding REO Property, all in
form and substance satisfactory to the Lender, all of which organizational
documents shall contain such terms and provisions, including, without
limitation, provisions relating to the nature of the REO Subsidiary as a
special, single purpose vehicle, as the Lender may reasonably require; and

 

(F) deliver an opinion of counsel satisfactory to the Lender as to the formation
of the REO Subsidiary, the attachment and perfection of the security interest in
favor of the Lender in the REO Subsidiary Pledged Stock and such other matters
as the Lender may reasonably request.

 

Upon the acquisition of title to the underlying property by an REO Subsidiary,
the Borrower shall be deemed to make the representations and warranties listed
on Schedule 3 hereto with respect to such REO Property. The Borrower shall, at
its sole cost and expense, take all such other steps as may be necessary in
connection with the pledge of all REO Subsidiary Pledged Stock to properly
perfect the security interest created pursuant to the REO Subsidiary Pledge
Agreement therein.

 

Section 5. Conditions Precedent.

 

5.01 Initial Advance. The obligation of the Lender to make its initial Advance
hereunder is subject to the satisfaction, immediately prior to or concurrently
with the making of such Advance, of the following conditions precedent:

 

(a) Loan Agreement. The Lender shall have received this Loan Agreement, executed
and delivered by a duly authorized officer of the Borrower.

 

(b) Loan Documents. The Lender shall have received the following documents, each
of which shall be satisfactory to the Lender in form and substance:

 

(i) Note. The Note, duly completed and executed;

 

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(ii) Custodial Agreement. The Custodial Agreement, duly executed and delivered
by the Borrower and the Custodian. In addition, the Borrower shall have filed
all Uniform Commercial Code and related filings and performed under the
Custodial Agreement and taken such other action as the Lender shall have
requested in order to perfect the security interests created pursuant to the
Loan Agreement; and

 

(iii) Pooling and Servicing Agreement. A copy of the Pooling and Servicing
Agreement.

 

(c) Organizational Documents. A good standing certificate and certified copies
of the charter and by-laws (or equivalent documents) of the Borrower and of all
corporate or other authority for the Borrower with respect to the execution,
delivery and performance of the Loan Documents and each other document to be
delivered by the Borrower from time to time in connection herewith (and the
Lender may conclusively rely on such certificate until it receives notice in
writing from the Borrower to the contrary).

 

(d) Legal Opinion. A legal opinion of counsel to the Borrower, substantially in
the form attached hereto as Exhibit C.

 

(e) Filings, Registrations, Recordings. Any documents (including, without
limitation, financing statements) required to be filed, registered or recorded
in order to create, in favor of the Lender, a perfected, first-priority security
interest in the Collateral, subject to no Liens other than Permitted Liens and
those created hereunder, shall have been properly prepared and executed for
filing (including the applicable county(ies) if the Lender determines such
filings are necessary in its reasonable discretion), registration or recording
in each office in each jurisdiction in which such filings, registrations and
recordations are required to perfect such first-priority security interest.

 

(f) Fees and Expenses. The Lender shall have received all fees and expenses
required to be paid by the Borrower on or prior to the initial Funding Date
pursuant to Section 11.03(b) and such fees and expenses may be netted out of any
Advance made by the Lender hereunder. In addition any other ongoing fees and
expenses required to be paid by the Borrower to the Lender may be netted out of
any Advance made by the Lender hereunder.

 

(g) REO Subsidiary. The Borrower shall have established an REO Subsidiary and
complied with the provisions set forth in Section 4.11 with respect to such REO
Subsidiary.

 

(h) Financial Statements. The Lender shall have received the financial
statements referenced in Section 7.01(a).

 

(i) Consents, Licenses, Approvals. The Lender shall have received copies
certified by the Borrower of all consents, licenses and approvals, if any,
required in connection with the execution, delivery and performance by the
Borrower, of and the validity and enforceability of, the Loan Documents, which
consents, licenses and approvals shall be in full force and effect.

 

(j) Insurance. The Lender shall have received evidence in form and substance
satisfactory to the Lender showing compliance by the Borrower as of such initial
Funding Date with Section 7.22 hereof.

 

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(k) Collection Account. The Collection Account shall have been established with
a financial institution satisfactory to the Lender, and the terms of all
documentation relating to such accounts shall be in accordance with the
requirements of the Loan Documents and shall be satisfactory to the Lender in
form and substance and the Borrower shall provide evidence of same, including
any agreements with respect thereto. The Borrower shall provide to the Lender
evidence of the foregoing.

 

(l) Other Documents. The Lender shall have received such other documents as the
Lender or its counsel may reasonably request.

 

5.02 Initial and Subsequent Advances. The making of each Advance to the Borrower
(including the initial Advance) on any Business Day is subject to the following
further conditions precedent, both immediately prior to the making of such
Advance and also after giving effect thereto and to the intended use thereof:

 

(a) no Default, Event of Default or event which, in the sole judgment of the
Lender, may have a Material Adverse Effect shall have occurred and be
continuing;

 

(b) both immediately prior to the making of such Advance and also after giving
effect thereto and to the intended use thereof, the representations and
warranties made by the Borrower and Guarantor in Section 6 hereof and in each of
the other Loan Documents, shall be true and complete on and as of the date of
the making of such Advance in all material respects (in the case of the
representations and warranties set forth on Schedule 1 solely with respect to
Mortgage Loans included in the Borrowing Base) with the same force and effect as
if made on and as of such date (or, if any such representation or warranty is
expressly stated to have been made as of a specific date, as of such specific
date). At the request of the Lender, the Lender shall have received an officer’s
certificate signed by a Responsible Officer of the Borrower certifying as to the
truth and accuracy of the above, which certificate shall specifically include a
statement that the Borrower is in compliance with all governmental licenses and
authorizations and is qualified to do business and in good standing in all
required jurisdictions;

 

(c) the aggregate outstanding principal amount of the Advances shall not exceed
the Borrowing Base;

 

(d) subject to the Lender’s right to perform one or more Due Diligence Reviews
pursuant to Section 11.16 hereof, the Lender shall have completed its due
diligence review of the Mortgage Loan Documents for each Advance and such other
documents, records, agreements, instruments, mortgaged properties or information
relating to such Advances as the Lender in its reasonable discretion deems
appropriate to review and such review shall be satisfactory to the Lender in its
reasonable discretion;

 

(e) the Lender shall have received a Notice of Borrowing and Pledge, Asset
Schedule and Asset Data Transmission and all other documents required under
Section 2.03;

 

(f) the Lender shall have received from the Custodian, a Custodian Asset
Transmission and one or more Trust Receipts in respect of Mortgage Loans to be
pledged hereunder on such Business Day and an Exception Report, in each case
dated such Business Day and duly completed;

 

(g) in the event that the Mortgage Loans to be pledged would cause the aggregate
outstanding principal balance of Mortgage Loans pledged secured by Mortgaged
Property from

 

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any state to exceed 10% of the aggregate outstanding principal balance of
Mortgage Loans pledged hereunder, then the Borrower shall, upon request by the
Lender, deliver an opinion of counsel acceptable to the Lender in such state,
substantially in the form of items number 12 and 13 of Exhibit C;

 

(h) with respect to any Mortgage Loan that was funded in the name of or acquired
by a Qualified Originator which is an Affiliate of the Borrower, the Lender may,
in its sole discretion, require the Borrower to provide evidence sufficient to
satisfy the Lender that such Mortgage Loan was acquired in a legal sale,
including without limitation, an opinion, in form and substance and from an
attorney, in both cases, acceptable to the Lender in its sole discretion, that
such Mortgage Loan was acquired in a legal sale;

 

(i) none of the following shall have occurred and/or be continuing:

 

(i) a catastrophic event or events shall have occurred resulting in the
effective absence of a “repo market” or comparable “lending market” for
financing debt obligations secured by mortgage loans or securities for a period
of (or reasonably expected to be) at least 30 consecutive days and the same has
resulted in the Lender not being able to finance any Advances through the “repo
market” or “lending market” with traditional counterparties at rates which would
have been reasonable prior to the occurrence of such catastrophic event or
events;

 

(ii) a catastrophic event or events shall have occurred resulting in the
effective absence of a “securities market” for securities backed by mortgage
loans for a period of (or reasonably expected to be) at least 30 consecutive
days and the same results in the Lender not being able to sell securities backed
by mortgage loans at prices which would have been reasonable prior to such
catastrophic event or events; or

 

(iii) there shall have occurred a material adverse change in the financial
condition of the Lender which affects (or can reasonably be expected to affect)
materially and adversely the ability of the Lender to fund its obligations under
this Loan Agreement and the Lender shall have given notice thereof pursuant to
Section 11.02 hereof to the Borrower at least 30 days prior to the requested
Funding Date;

 

(j) Reserved.

 

(k) with respect to each Eligible Asset that is an REO Property at the time that
an Advance is made with respect to such Eligible Asset, the Borrower shall
deliver, or cause to be delivered, to the Custodian for recordation in the
appropriate governmental recording office of the jurisdiction where such REO
Property is located, the original executed deed (in recordable form) to such REO
Property, naming the related REO Subsidiary as the grantee;

 

(l) Reserved.

 

Each request for a borrowing by the Borrower hereunder shall constitute a
certification by the Borrower to the effect set forth in this Section (both as
of the date of such notice, request or confirmation and as of the date of such
borrowing).

 

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Section 6. Representations and Warranties. The Borrower and Guarantor represent
and warrant to the Lender that throughout the term of this Loan Agreement:

 

6.01 Existence. The Borrower is a California corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization. The Guarantor is a Maryland corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization. Both Borrower and Guarantor (a) have all requisite corporate or
other power, and has all governmental licenses, authorizations, consents and
approvals, necessary to own its assets and carry on its business as now being or
as proposed to be conducted, except where the lack of such licenses,
authorizations, consents and approvals would not be reasonably likely to have a
Material Adverse Effect on its property, business or financial condition, or
prospects, (b) are qualified to do business and are in good standing in all
other jurisdictions in which the nature of the business conducted by each makes
such qualification necessary, except where failure so to qualify would not be
reasonably likely (either individually or in the aggregate) to have a Material
Adverse Effect on its property, business or financial condition, or prospects
and (c) are in compliance in all material respect with all Requirements of Law.

 

6.02 Reserved.

 

6.03 Litigation. There are no actions, suits, arbitrations, investigations or
proceedings pending or, to their knowledge, threatened against the Borrower or
Guarantor affecting any of their property before any Governmental Authority, (i)
as to which individually or in the aggregate there is a reasonable likelihood of
an adverse decision which would be reasonably likely to have a Material Adverse
Effect on the property, business or financial condition, or prospects of the
Borrower or Guarantor or (ii) which questions the validity or enforceability of
any of the Loan Documents or any action to be taken in connection with the
transactions contemplated hereby and there is a reasonable likelihood of a
materially adverse effect or decision.

 

6.04 No Breach. Neither (a) the execution and delivery of the Loan Documents nor
(b) the consummation of the transactions therein contemplated in compliance with
the terms and provisions thereof will conflict with or result in a breach of the
certificate of incorporation or bylaws of the Borrower or Guarantor, or any
applicable law, rule or regulation, or any order, writ, injunction or decree of
any Governmental Authority, or other material agreement or instrument to which
the Guarantor, Borrower or any of Borrower’s REO Subsidiaries, is a party or by
which any of them or any of their property is bound or to which any of them is
subject, or constitute a default under any such material agreement or
instrument, or (except for the Liens created pursuant to this Loan Agreement)
result in the creation or imposition of any Lien upon any property of the
Guarantor, Borrower or any of Borrower’s REO Subsidiaries, pursuant to the terms
of any such agreement or instrument.

 

6.05 Action. The Borrower and Guarantor have all necessary corporate or other
power, authority and legal right to execute, deliver and perform their
obligations under each of the Loan Documents to which each is a party; the
execution, delivery and performance by the Borrower and Guarantor of each of the
Loan Documents to which each is a party has been duly authorized by all
necessary corporate or other action on its part; and each Loan Document has been
duly and validly executed and delivered by the Borrower or Guarantor and
constitutes a legal, valid and binding obligation of the Borrower and Guarantor,
enforceable against the Borrower and Guarantor in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors’ rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).

 

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6.06 Approvals. No authorizations, approvals or consents of, and no filings or
registrations with, any Governmental Authority, or any other Person, are
necessary for the execution, delivery or performance by the Borrower or
Guarantor of the Loan Documents to which it is a party or for the legality,
validity or enforceability thereof, except for filings and recordings in respect
of the Liens created pursuant to this Loan Agreement.

 

6.07 Margin Regulations. Neither the making of any Advance hereunder, nor the
use of the proceeds thereof, will violate or be inconsistent with the provisions
of Regulation G, T, U or X.

 

6.08 Taxes. The Guarantor, Borrower and Borrower’s REO Subsidiaries have filed
all Federal income tax returns and all other material tax returns that are
required to be filed by them and have paid all taxes due pursuant to such
returns or pursuant to any assessment received by any of them, except for any
such taxes, if any, that are being appropriately contested in good faith by
appropriate proceedings diligently conducted and with respect to which adequate
reserves have been provided. The charges, accruals and reserves on the books of
the Guarantor, Borrower and Borrower’s REO Subsidiaries in respect of taxes and
other governmental charges are, in the opinion of each, respectively, adequate.

 

6.09 Investment Company Act. Neither the Guarantor, Borrower or any of
Borrower’s REO Subsidiaries is an “investment company”, or a company
“controlled” by an “investment company”, within the meaning of the Investment
Company Act of 1940, as amended. The Borrower is not subject to any Federal or
state statute or regulation which limits its ability to incur indebtedness.

 

6.10 No Legal Bar. The execution, delivery and performance of this Loan
Agreement and the Note, the borrowings hereunder and the use of the proceeds
thereof will not violate any Requirement of Law or Contractual Obligation of the
Guarantor, Borrower or of any of Borrower’s Subsidiaries and will not result in,
or require, the creation or imposition of any Lien (other than the Liens created
hereunder) on any of its or their respective properties or revenues pursuant to
any such Requirement of Law or Contractual Obligation.

 

6.11 No Default. Neither the Borrower nor any of its Affiliates, is in default
under or with respect to any of its Contractual Obligations in any respect which
should reasonably be expected to have a Material Adverse Effect. No Default or
Event of Default has occurred and is continuing.

 

6.12 Collateral: Collateral Security.

 

(a) The Borrower has not assigned, pledged, or otherwise conveyed or encumbered
any Mortgage Loan to any other Person, and immediately prior to the pledge of
each such Mortgage Loan, the Borrower was the sole owner of such Mortgage Loan
and had good and marketable title thereto, free and clear of all Liens, in each
case except for Liens to be released simultaneously with the Liens granted in
favor of the Lender hereunder and following such release no Person other than
the Borrower has any Lien on any Mortgage Loan. Notwithstanding the foregoing,
the Borrower may sell, transfer, assign or pledge or otherwise convey any
foreclosed Mortgaged Property to an REO Subsidiary.

 

(b) The provisions of this Loan Agreement are effective to create in favor of
the Lender a valid security interest in all right, title and interest of the
Borrower in, to and under the Collateral.

 

(c) Upon receipt by the Custodian of each Mortgage Note, endorsed in accordance
with the Custodial Agreement, the Lender shall have a fully perfected first
priority security interest therein, in the Mortgage Loan evidenced thereby and
in the Borrower’s interest in the related Mortgaged Property.

 

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(d) Upon the filing of financing statements on Form UCC-1 naming the Lender as
“Secured Party” and the Borrower as “Debtor”, and describing the Collateral, in
the jurisdictions and recording offices listed on Schedule 2 attached hereto,
the security interests granted hereunder in the Collateral will constitute fully
perfected first priority security interests under the Uniform Commercial Code in
all right, title and interest of the Borrower in, to and under such Collateral,
which can be perfected by filing under the Uniform Commercial Code

 

(e) The REO Subsidiary Pledged Stock of any REO Subsidiary will constitute all
of the issued and outstanding capital stock or other equity interests of all
classes of such REO Subsidiary, and all of such REO Subsidiary Pledged Stock
will have been duly and validly issued and, if’ capital stock, shall have been
fully paid and nonassessable. Upon the delivery to the Lender or Custodian of
any certificates or stocks evidencing such REO Subsidiary Pledged Stock, the
security interest created by the REO Subsidiary Pledge Agreement therein will
constitute a perfected first priority security interest in such REO Subsidiary
Pledged Stock in favor of the Lender as security for the Secured Obligations.

 

6.13 Chief Executive Office: Chief Operating Office. The Borrower’s and
Guarantor’s chief executive office and chief operating office on the Effective
Date are located at 18400 Von Karman, Irvine, California 92612.

 

6.14 Location of Books and Records. The location where the Borrower keeps its
books and records including all computer tapes and records relating to the
Collateral is its chief executive office or the office of the Servicer located
at 1610 East St. Andrew Place, Suite B150, Santa Ana, California 92614, or the
chief operating office or offices of the Custodian.

 

6.15 True and Complete Disclosure. The written information, reports, financial
statements, exhibits and schedules (other than projections) prepared by the
Borrower and furnished to the Lender (and, to the Borrower’s knowledge, prepared
on behalf of the Borrower and furnished to the Lender) in connection with the
negotiation, preparation or delivery of this Loan Agreement and the other Loan
Documents or included herein or therein or delivered pursuant hereto or thereto,
when taken as a whole, do not contain any untrue statement of material fact or
omit to state any material fact necessary to make the statements herein or
therein, in light of the circumstances under which they were made, not
misleading. All written information furnished after the date hereof by or on
behalf of the Borrower to the Lender in connection with this Loan Agreement and
the other Loan Documents and the transactions contemplated hereby and thereby
will be true, complete and accurate in every material respect, or (in the case
of projections) based on reasonable estimates, on the date as of which such
information is stated or certified. There is no fact known to a Responsible
Officer that could reasonably be expected to have a Material Adverse Effect that
has not been disclosed herein, in the other Loan Documents or in a report,
financial statement, exhibit, schedule, disclosure letter or other writing
furnished to the Lender for use in connection with the transactions contemplated
hereby or thereby.

 

6.16 Reserved.

 

6.17 ERISA. Each Plan to which the Borrower or its Subsidiaries make direct
contributions, and, to the knowledge of the Borrower, each other Plan and each
Multiemployer Plan, is in compliance in all material respects with, and has been
administered in all material respects in compliance with, the applicable
provisions of ERISA, the Code and any other federal or state law. No event or
condition has occurred and is continuing as to which the Borrower would be under
an obligation to furnish a report to the Lender under Section 7.01(d) hereof.

 

6.18 Reserved.

 

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6.19 True Sales. Any and all interest of a Qualified Originator in, to and under
any Mortgage funded in the name of or acquired by such Qualified Originator or
seller which is Affiliate of the Borrower has been sold, transferred, conveyed
and assigned to the Borrower pursuant to a legal sale and such Qualified
Originator retains no interest in such Mortgage Loan.

 

6.20 No Burdensome Restrictions. No Requirement of Law or Contractual Obligation
of the Borrower or any of its Affiliates has a Material Adverse Effect.

 

6.21 Reserved.

 

6.22 Acquisition of Mortgage Loans. The Mortgage Loans were acquired by the
Borrower, and the collection practices used by the Servicer with respect to the
Mortgage Loans have been, in all material respects, legal, proper, reasonable
and customary in the residential sub-prime mortgage loan servicing business.
Each of the Mortgage Loans complies with the representations and warranties
listed on Schedule 1 hereto.

 

6.23 No Adverse Selection. The Borrower used no selection procedures that
identified the Mortgage Loans as being less desirable or valuable than other
comparable mortgage loans owned by the Borrower.

 

6.24 Borrower and Guarantor Solvent; Fraudulent Conveyance. As of the date
hereof and immediately after giving effect to each Advance, the fair value of
the assets of the Borrower and Guarantor, respectively, is greater than the fair
value of the liability (including, without limitation, contingent liabilities if
and to the extent required to be recorded as a liability on the financial
statements in accordance with GAAP) of each, respectively, and each of the
Guarantor and Borrower is and will be solvent, is and will be able to pay its
debts as they mature and does not and will not have an unreasonably small
capital to engage in the business in which each is engaged and proposes to
engage. The Borrower and Guarantor do not intend to incur, or believe that they
have incurred, debt beyond their ability to pay such debts as they mature. The
Borrower and Guarantor are not contemplating the commencement of insolvency,
bankruptcy, liquidation or consolidation proceedings or the appointment of a
receiver, liquidator conservator, trustee or similar official in respect of the
Borrower or Guarantor or any of their assets. The Borrower is not pledging any
Mortgage Loans with any intent to hinder, delay or defraud any of its creditors.

 

Section 7. Covenants of the Borrower. The Borrower and Guarantor each covenant
and agree with the Lender that, so long as any Advance is outstanding and until
payment in full of all Secured Obligations:

 

7.01 Financial Statements. The Borrower shall deliver to the Lender:

 

(a) (i) as soon as available and in any event within 30 days after the end of
each month (other than those calendar months that are quarter-end months), the
unaudited consolidated balance sheets of the Borrower and each REO Subsidiary as
at the end of such month and the related unaudited consolidated statements of
income and retained earnings and of cash flows for the Borrower and each REO
Subsidiary for such month and the portion of the fiscal year through the end of
such month, setting forth in each case in comparative form the figures for the
previous year, accompanied by a certificate of a Responsible Officer of the
Borrower, which certificate shall state that said consolidated financial
statements fairly present the consolidated financial condition and results of
operations of the Borrower and each REO Subsidiary as at the end of; and for;
such month (subject to normal year-end audit adjustments);

 

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(i) as soon as available and in any event within 45 days after the end of each
of the first three quarterly fiscal periods of each fiscal year of the Borrower
and each REO Subsidiary, the unaudited consolidated balance sheets of the
Borrower and each REO Subsidiary as at the end of such period and the related
unaudited consolidated statements of income and retained earnings and of cash
flows for the Borrower and each REO Subsidiary for such period and the portion
of the fiscal year through the end of such period, setting forth in each case in
comparative form the figures for the previous year, accompanied by a certificate
of a Responsible Officer of the Borrower, which certificate shall state that
said consolidated financial statements fairly present the consolidated financial
condition and results of operations of the Borrower and each REO Subsidiary in
accordance with GAAP, consistently applied, as at the end of, and for, such
period (subject to normal year-end audit adjustments);

 

(b) as soon as available and in any event within 120 days after the end of each
fiscal year of the Borrower, the consolidated balance sheets of the Borrower and
each REO Subsidiary as at the end of such fiscal year and the related
consolidated statements of income and retained earnings and of cash flows for
the Borrower and each REO Subsidiary for such year, setting forth in each case
in comparative form the figures for the previous year, accompanied by an opinion
thereon of independent certified public accountants of recognized national
standing, which opinion shall not be qualified as to scope of audit or going
concern and shall state that said consolidated financial statements fairly
present the consolidated financial condition and results of operations of the
Borrower and each REO Subsidiary at the end of, and for, such fiscal year in
accordance with GAAP, and a certificate of such accountants stating that, in
making the examination necessary for their opinion, they obtained no knowledge,
except as specifically stated, of any Default or Event of Default; and

 

(c) from time to time such other information regarding the financial condition,
operations, or business of the Borrower and each REO Subsidiary as the Lender
may reasonably request;

 

(d) as soon as reasonably possible, and in any event within thirty (30) days
after a Responsible Officer knows, or with respect to any Plan or Multiemployer
Plan to which the Borrower or any of its Subsidiaries makes direct
contributions, has reason to believe, that any of the events or conditions
specified below with respect to any Plan or Multiemployer Plan has occurred or
exists, a statement signed by a senior financial officer of the Borrower setting
forth details respecting such event or condition and the action, if any, that
the Borrower or its ERISA Affiliate proposes to take with respect thereto (and a
copy of any report or notice required to be filed with or given to PBGC by the
Borrower or an ERISA Affiliate with respect to such event or condition):

 

(i) any reportable event (a “Reportable Event”), as defined in Section 4043(b)
of ERISA and the regulations issued thereunder, with respect to a Plan, as to
which PBGC has not by regulation or otherwise waived the requirement of Section
4043(a) of ERISA that it be notified within thirty (30) days of the occurrence
of such event (provided that a failure to meet the minimum funding standard of
Section 412 of the Code or Section 302 of ERISA, including, without limitation,
the failure to make on or before its due date a required installment under
Section 412(m) of the Code or Section 302(e) of ERISA, shall be a Reportable
Event regardless of the issuance of any waivers in accordance with Section
412(d) of the Code); and any request for a waiver under Section 412(d) of the
Code for any Plan;

 

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(ii) the distribution under Section 4041(c) of ERISA of a notice of intent to
terminate any Plan or any action taken by the Borrower or an ERISA Affiliate to
terminate any Plan;

 

(iii) the institution by PBGC of proceedings under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan, or the
receipt by the Borrower or any ERISA Affiliate of a notice from a Multiemployer
Plan that such action has been taken by PBGC with respect to such Multiemployer
Plan;

 

(iv) the complete or partial withdrawal from a Multiemployer Plan by the
Borrower or any ERISA Affiliate that results in liability under Section 4201 or
4204 of ERISA (including the obligation to satisfy secondary liability as a
result of a purchaser default) or the receipt by the Borrower or any ERISA
Affiliate of notice from a Multiemployer Plan that it is in reorganization or
insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to
terminate or has terminated under Section 4041A of ERISA;

 

(v) the institution of a proceeding by a fiduciary of any Multiemployer Plan
against the Borrower or any ERISA Affiliate to enforce Section 515 of ERISA,
which proceeding is not dismissed within 30 days; and

 

(vi) the adoption of an amendment to any Plan that, pursuant to Section
401(a)(29) of the Code or Section 307 of ERISA, would result in the loss of
tax-exempt status of the trust of which such Plan is a part if the Borrower or
an ERISA Affiliate fails to timely provide security to such Plan in accordance
with the provisions of said Sections.

 

The Borrower will furnish to the Lender, at the time it furnishes each set of
financial statements pursuant to paragraphs (a) and (b) above, a certificate of
a Responsible Officer of the Borrower to the effect that, to the best of such
Responsible Officer’s knowledge, the Borrower during such fiscal period or year
has observed or performed all of its covenants and other agreements, and
satisfied every material condition, contained in this Loan Agreement and the
other Loan Documents to be observed, performed or satisfied by it, and that such
Responsible Officer has obtained no knowledge of any Default or Event of Default
except as specified in such certificate (and, if any Default or Event of Default
has occurred and is continuing, describing the same in reasonable detail and
describing the action the Borrower has taken or proposes to take with respect
thereto).

 

7.02 Reserved.

 

7.03 Existence, Etc. The Guarantor and Borrower shall, and Borrower shall cause
each of its REO Subsidiaries to:

 

(a) preserve and maintain its legal existence and all of its material rights,
privileges, licenses and franchises;

 

(b) comply with the requirements of all applicable laws, rules, regulations and
orders of Governmental Authorities (including, without limitation, truth in
lending, real estate settlement procedures and all environmental laws) if
failure to comply with such requirements would be reasonably likely (either
individually or in the aggregate) to have a Material Adverse Effect;

 

(c) keep adequate records and books of account, in which complete entries will
be made in accordance with GAAP consistently applied;

 

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(d) not move its chief executive office or chief operating office from the
addresses referred to in Section 6.13 unless it shall have provided the Lender
15 days prior written notice of such change;

 

(e) pay and discharge all taxes, assessments and governmental charges or levies
imposed on it or on its income or profits or on any of its Property prior to the
date on which penalties attach thereto, except for any such tax, assessment,
charge or levy the payment of which is being contested in good faith and by
proper proceedings and against which adequate reserves are being maintained;

 

(f) permit representatives of the Lender, during normal business hours upon
three (3) Business Days prior written notice at a mutually desirable time, to
examine, copy and make extracts from its books and records, to inspect any of
its Properties, and to discuss its business and affairs with its officers, all
to the extent reasonably requested by the Lender. The Borrower and Guarantor
hereby acknowledge and confirm that the Lender (i) will rely on such information
in the performance of the services contemplated by Agreement without
independently investigating or verifying any of it and (ii) assumes no
responsibility for the accuracy or completeness of such information. The Lender
hereby acknowledges the confidential nature of the information to be provided to
it by the Borrower or Guarantor and agrees that it will not disclose any such
information to any third party (other than its Affiliates, its counsel or its
independent accountants) without the prior written consent of the Borrower or
Guarantor, respectively; provided however the Lender may use such information if
necessary in connection with an Event of Default hereunder to market the
Mortgage Loans or REO Properties for sale; and

 

(g) at all times, maintain and keep in force insurance with financially sound
and reputable insurance companies or associations in such amounts and covering
such risks as are usually carried by companies engaged in the same or a similar
business and similarly situated, which insurance may provide for reasonable
deductibility from coverage thereof.

 

7.04 Prohibition of Fundamental Changes. Except as otherwise contemplated by the
Loan Documents, the Borrower and Guarantor shall not enter into any transaction
of merger or consolidation or amalgamation, or liquidate, wind up or dissolve
(or suffer any liquidation, winding up or dissolution) or sell all or
substantially all of their assets.

 

7.05 Borrowing Base Deficiency. If at any time there exists a Borrowing Base
Deficiency the Borrower shall cure the same in accordance with Section 2.06
hereof:

 

7.06 Notices. The Borrower and Guarantor shall give notice to the Lender
promptly:

 

(a) upon the Borrower or Guarantor becoming aware of, and in any event within
one (1) Business Day after, the occurrence of any Default or Event of Default or
any event of default or default under any other material agreement of the
Borrower or Guarantor which could reasonably be expected to have a Material
Adverse Effect;

 

(b) upon, and in any event within three (3) Business Days after, service of
process on the Guarantor, Borrower or any of Borrower’s REO Subsidiaries, or any
agent thereof for service of process, in respect of any legal or arbitrable
proceedings affecting the Guarantor, Borrower or any of Borrower’s REO
Subsidiaries (i) that questions or challenges the validity or enforceability of
any of the Loan Documents or (ii) as to which there is a reasonable likelihood
of adverse determination which would result in a Material Adverse Effect;

 

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(c) upon the Borrower becoming aware of any default related to any Collateral,
any Material Adverse Effect and any event or change in circumstances which
should reasonably be expected to have a Material Adverse Effect;

 

(d) upon the Borrower becoming aware during the normal course of its business
that the Mortgaged Property in respect of any Mortgage Loan or Mortgage Loans
with an aggregate unpaid principal balance of at least $100,000 has been damaged
by waste, fire, earthquake or earth movement, windstorm, flood, tornado or other
casualty, or otherwise damaged so as to materially and adversely affect the
Collateral Value of such Mortgage Loan;

 

(e) upon the entry of a judgment or decree against the Guarantor, Borrower or
any of Borrower’s REO Subsidiaries in an amount in excess of $2,000,000 and

 

(f) upon, and in any event within three (3) Business Days after, service of
process on the Servicer, or any agent thereof for service of process, in respect
of any legal or arbitrable proceedings affecting the Servicer (i) as to which
there is a reasonable likelihood of adverse determination and that seek
certification of a class of plaintiffs, (ii) that question or challenge the
validity or enforceability of any mortgage loan based on a violation of federal
or state law with respect to the origination or servicing of such mortgage loan
and the cumulative amount of liability to the Servicer; if such proceedings are
adversely determined, exceeds $1,000,000 or (iii) as to which there is a
reasonable likelihood of adverse determination which would result in a Material
Adverse Effect.

 

Each notice pursuant to this Section 7.06 (other than 7.06(e)) shall be
accompanied by a statement of a Responsible Officer of the Borrower or Guarantor
setting forth details of the occurrence referred to therein and stating what
action the Borrower or Guarantor has taken or proposes to take with respect
thereto.

 

7.07 Servicing. The Borrower or Guarantor shall not permit any Person other than
the Servicer to service Mortgage Loans without the prior written consent of the
Lender; which consent shall not be unreasonably withheld.

 

7.08 Servicer Reports; Management of Assets. The Servicer shall: (i) promptly
deliver to the Lender all reports, statements and other materials relating to
the Collateral or the financial condition of the Servicer in accordance with the
provisions of the Pooling and Servicing Agreement, (ii) fully perform all of its
covenants, agreements and obligations in accordance with the provisions of the
Pooling and Servicing Agreement, (iii) promptly deliver to the Lender any notice
of default or prospective termination of the Servicer and any notice of default
or termination given by the Servicer and (iv) cause the Collateral to be
administered in accordance with the standards set forth in the Pooling and
Servicing Agreement.

 

7.09 True and Complete Disclosure. All written information furnished after the
date hereof by or on behalf of the Borrower or Guarantor to the Lender in
connection with this Loan Agreement and the other Loan Documents and the
transactions contemplated hereby and thereby will be true, complete and accurate
in every material respect, or (in the case of projections) based on reasonable
estimates, on the date as of which such information is stated or certified.

 

7.10 Reserved.

 

7.11 Transactions with Affiliates. Except for (i) the guaranties of Indebtedness
created under this Loan Agreement, (ii) transfers of mortgage loans and REO
properties between

 

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Affiliates and the Borrower and (iii) transfers of Junior Securitization
Interests between Affiliates and the Borrower, the Borrower will not enter into
any transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transaction is (a) otherwise permitted under this Loan Agreement, (b) in
the ordinary course of the Borrower’s business and (c) upon fair and reasonable
terms no less favorable to the Borrower than it would obtain in a comparable
arm’s length transaction with a Person which is not an Affiliate, or make a
payment that is not otherwise permitted by this Section 7.11 to any Affiliate;
provided, however, that nothing contained in this Section 7.11 is intended to
limit the Borrower’s ability to sell any Collateral that has a Collateral Value
deemed by the Lender to be zero on terms that do not comply with clause (c)
above.

 

7.12 Financial Covenants. Guarantor shall comply with the following financial
covenants: the Guarantor will, at all times, (a) maintain a Tangible Net Worth,
on a consolidated basis, during each fiscal year, of not less than the sum of
(i) $750,000,000 and (ii) fifty percent (50%) of all subsequent equity capital
raises as of the last day of each of its fiscal quarters; (b) maintain a ratio
of Total Indebtedness to Tangible Net Worth as of the last day of each fiscal
quarter of greater than 12:1; and (c) maintain, on a consolidated basis, cash
and Cash Equivalents in an amount not less than $60,000,000. The Guarantor shall
execute and deliver to Lender a quarterly certification substantially in the
form of Exhibit E hereto, each within forty-five (45) days after the end of each
quarter.

 

7.13 Limitation on Liens. The Borrower will not, nor will it permit or allow
others to, create, incur or permit to exist any material Lien, security interest
or claim on or to any of the Collateral, except for Permitted Liens. The
Borrower will defend the Collateral against, and will take such other action as
is necessary to remove, any Lien, security interest or claim on or to the
Collateral, other than Permitted Liens and the security interests created under
this Loan Agreement, and the Borrower will defend the right, title and interest
of the Lender in and to any of the Collateral against the claims and demands of
all persons whomsoever.

 

7.14 Limitation on Sale of Assets. Except as specifically contemplated in
Section 5(b) of the Custodial Agreement, the Borrower shall not convey, sell,
lease, assign, transfer or otherwise dispose of (collectively, “Transfer”), any
of the Collateral, whether now owned or hereafter acquired or allow any REO
Subsidiary to Transfer any of its assets to any Person.

 

7.15 Plans and Multiemployer Plans. Neither the Borrower nor any REO Subsidiary
shall adopt or make direct contributions to any Plan or Multiemployer Plan.

 

7.16 Reserved.

 

7.17 Reserved.

 

7.18 Reserved.

 

7.19 Restricted Payments. The Borrower shall not make any Restricted Payments
following an Event of Default or if the making of such Restricted Payment is
reasonably likely to result in the occurrence of an Event of Default.

 

7.20 Reserved.

 

7.21 No Amendment or Waiver. Except as expressly provided in the Pooling and
Servicing Agreement, the Borrower will not, nor will it permit or allow others
to amend, modify, terminate or waive any provision of any Mortgage Loan to which
the Borrower is a party in any manner which could reasonably be expected to
materially and adversely affect the value of such Mortgage Loan as Collateral.

 

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7.22 Maintenance of Property; Insurance. The Borrower shall cause the Servicer
to keep all property useful and necessary in its business in good working order
and condition. The Borrower shall, and shall cause each REO Subsidiary to,
maintain errors and omissions insurance and/or mortgage impairment insurance and
blanket bond coverage in such amounts as are in effect on the Effective Date (as
disclosed to the Lender in writing) and shall not reduce such coverage without
the written consent of the Lender, and shall also maintain, or cause to be
maintained, title and hazard insurance with financially sound and reputable
insurance companies, with respect to property and risks of a character usually
maintained by entities engaged in the same or similar business similarly
situated, against loss, damage and liability of the kinds and in the amounts
customarily maintained by such entities.

 

7.23 Further Identification of Collateral. The Borrower will furnish to the
Lender from time to time statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as the Lender may reasonably request, all in reasonable detail.

 

7.24 Mortgage Loan or REO Property Determined to be Defective. Upon discovery by
the Borrower or the Lender of any breach of any representation or warranty
listed on Schedule 1 hereto applicable to any Mortgage Loan or on Schedule 3
hereto applicable to any REO Property, the party discovering such breach shall
promptly give notice of such discovery to the other.

 

7.25 Reserved.

 

7.26 Reserved.

 

7.27 Special Purpose Entity. (a) The Borrower shall cause such REO Subsidiary
to: (i) continue to be duly formed and existing and a single purpose entity;
(ii) continue to comply with the provisions of its organizational documentation
delivered to the Lender pursuant to Sections 4.11 and 5.01(c) hereof and the
laws of the state of its formation relating to entities of the same type; (iii)
observe all legal requirements regarding its existence; (iv) continue to
accurately maintain its financial statements, accounting records and other
documents separate and apart from those of any other Person; (v) not commingle
its assets with those of any other Person; (vi) continue to accurately maintain
its own bank accounts and separate books of account; (vii) continue to pay its
own liabilities (other than those liabilities incurred under the Custodial
Agreement) from its own separate assets; (viii) continue to identify itself
under its own name (or its d/b/a name as required by the laws of certain
jurisdictions in order to do business therein) and as a separate and distinct
entity in all dealings with the public; (ix) not identify itself as being a
division or part of any other entity (except, in the case of an REO Subsidiary,
as a wholly-owned subsidiary of the Borrower); (x) not identify any other Person
as being a division or part of such REO Subsidiary and (xi) to the extent
permitted by applicable law, not cause such REO Subsidiary to become the debtor
in any case or proceeding, or otherwise avail itself of relief under, any
bankruptcy, insolvency or similar law; provided, however, that nothing contained
in this Section 7.27(a) is intended to prevent the Borrower and any one or more
REO Subsidiaries from (x) maintaining joint accounting records and books of
account with each other, (y) paying their liabilities from each others’ assets
and (z) identifying themselves as related entities in dealings with the public.

 

(b) The Borrower shall not permit such REO Subsidiary to: (i) create, incur,
assume or suffer to exist any Indebtedness (other than under this Loan
Agreement) or guarantee obligation; (ii) create, incur or permit to exist, or
permit or allow others to create, incur or permit to exist, any Lien, security
interest or claim on or to any of its property, other than the Liens in favor of
the Lender; (iii)

 

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consummate any transaction of merger or consolidation or amalgamation, or
liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution)
or sell all or substantially all of its assets; (iv) convey, sell, lease,
assign, transfer or otherwise dispose of, any of its property, business or
assets (including, without limitation, receivables and leasehold interests)
whether now owned or hereafter acquired, except as specifically contemplated in
Section 5(b) of the Custodial Agreement, provided that the Sale Proceeds thereof
are deposited into the Collection Account; (v) make any advance, loan, extension
of credit or capital contribution to, or purchase any stock, bonds, notes,
debentures or other securities of or any assets constituting a business unit of,
or make any other investment in (any of the foregoing, an “Investment”), any
Person other than an REO Subsidiary; (vi) amend its certificate of incorporation
or by-laws or other similar organizational or constitutive documents without the
prior written consent of the Lender which consent shall not be unreasonably
withheld; (vii) form any Subsidiaries other than REO Subsidiaries or (viii) with
respect to each REO Subsidiary, engage in or transact any business or operations
other than the acquisition of REO Properties.

 

(c) The Borrower shall cause each REO Subsidiary to maintain the REO Properties
in the condition received (reasonable wear and tear excepted) and promptly
repair any damage or casualty (except to the extent that the Servicer reasonably
has determined in accordance with Accepted Servicing Practices and the terms and
provisions of the Pooling and Servicing Agreement, not to apply the related
insurance proceeds or condemnation awards to the repair or restoration of the
REO Property, in which event such unapplied proceeds shall be included in
Collections for purposes hereof), The Borrower shall cause each REO Subsidiary
to permit the Lender and its agents, representatives and employees, upon
reasonable prior notice, at the Lender’s cost, to inspect any REO Property and
conduct such environmental and engineering studies as the Lender may require;
provided, that such inspections and studies do not materially and unreasonably
interfere with the use, operation and occupancy of such REO Property.

 

7.28 Broker’s Price Opinions. The Lender may obtain, at the Borrower’s or
Guarantor’s expense, within the month prior to the related Funding Date (or
immediately, if an Advance has already been made with respect to a Mortgage Loan
and such Mortgage Loan subsequently becomes delinquent three Monthly Payments),
a BPO with respect to each Mortgage Loan that is delinquent three or more
Monthly Payments and with respect to each REO Property for which an Advance will
be made on such Funding Date; provided, however, that the vendor providing such
BPO must be approved by the Lender. The Lender hereby approves Hanson Quality
Loan Services, Nationwide Appraisal Services Corp. and Ocwen Federal Bank FSB.
The Lender has the right to obtain a new BPO, at the expense of the Borrower;
with respect to each Mortgage Loan delinquent more than three Monthly Payments
and with respect to each REO Property every six (6) months.

 

Section 8. Events of Default. Each of the following events shall constitute an
event of default (an “Event of Default”) hereunder:

 

(a) the Borrower or Guarantor shall default in the payment of any principal of
or interest on any Advance when due (whether at stated maturity, upon
acceleration or at mandatory prepayment) and such default shall have continued
unremedied for one Business Day; or

 

(b) the Borrower or Guarantor shall default in the payment of any other amount
payable by it hereunder or under any other Loan Document after notification by
the Lender of such default, and such default shall have continued unremedied for
three Business Days; or

 

(c) any representation, warranty or certification made or deemed made herein or
in any other Loan Document by the Borrower or Guarantor or any certificate
furnished to the Lender pursuant to the provisions thereof, shall prove to have
been false or misleading in any

 

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material respect as of the time made or furnished (other than the
representations and warranties set forth in Schedule 1 or Schedule 3 which shall
be considered solely for the purpose of determining the Collateral Value of the
Mortgage Loan or REO Properties; unless the Borrower shall have made any such
representations and warranties with knowledge that they were materially false or
misleading at the time made) and, within 30 days after written notice thereof
shall have been given to the applicable Borrower by the Lender, the condition or
circumstance in respect of which such representation, warranty or certification
was false or misleading shall not have been eliminated as otherwise cured; or

 

(d) the Borrower or Guarantor shall fail to comply with the requirements of
Section 7.03(a), Section 7.04, Section 7.06(a) or (c), Section 7.12, Section
7.13, Section 7.14, Section 7.19 or Section 7.22 hereof; or the Borrower shall
default in the performance of its obligations under Section 7.05 hereof, and
such default shall continue unremedied for a period of one (1) Business Day; or
the Borrower or Guarantor shall fail to observe or perform any other agreement
contained in this Loan Agreement or any other Loan Document and such failure to
observe or perform shall continue for a period of ten (10) Business Days; or

 

(e) a final judgment or judgments for the payment of money in excess of
$2,000,000 in the aggregate shall be rendered against the Borrower or any REO
Subsidiary by one or more courts, administrative tribunals or other bodies
having jurisdiction over them and the same shall not be discharged (or provision
shall not be made for such discharge) or bonded, or a stay of execution thereof
shall not be procured, within 60 days from the date of entry thereof and the
Borrower or any such REO Subsidiary shall not, within said period of 60 days, or
such longer period during which execution of the same shall have been stayed or
bonded, appeal therefrom and cause the execution thereof to be stayed during
such appeal; or

 

(f) the Borrower or Guarantor shall admit in writing their inability to pay
their debts as such debts become due; or

 

(g) either the Guarantor, Borrower or any REO Subsidiary of the Borrower shall
(i) apply for or consent to the appointment of, or the taking of possession by,
a receiver, custodian, trustee, examiner or liquidator of itself or of all or a
substantial part of its property, (ii) make a general assignment for the benefit
of its creditors, (iii) commence a voluntary case under the Bankruptcy Code,
(iv) file a petition seeking to take advantage of any other law relating to
bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or
winding-up, or composition or readjustment of debts, (v) fail to controvert in a
timely and appropriate manner, or acquiesce in writing to, any petition filed
against it in an involuntary case under the Bankruptcy Code or (vi) take any
corporate or other action for the purpose of effecting any of the foregoing; or

 

(h) a proceeding or case shall be commenced, without the application or consent
of the Guarantor, Borrower or any of Borrower’s REO Subsidiaries, in any court
of competent jurisdiction, seeking (i) its reorganization, liquidation,
dissolution, arrangement or winding-up, or the composition or readjustment of
its debts, (ii) the appointment of a receiver, custodian, trustee, examiner,
liquidator or the like of the Guarantor, Borrower or any such REO Subsidiary of
the Borrower or of all or any substantial part of its property, or (iii) similar
relief in respect of the Guarantor, Borrower or any such REO Subsidiary of the
Borrower under any law relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or adjustment of debts, and such proceeding or case
shall continue undismissed, or an order, judgment or decree approving or
ordering any of the. foregoing shall be entered and continue unstayed and in
effect, for a period of 60 or more days; or an order for relief against the
Guarantor, Borrower or any such REO Subsidiary of the Borrower shall be entered
in an involuntary case under the Bankruptcy Code; or

 

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(i) the Custodial Agreement or any Loan Document shall for whatever reason
(including an event of default thereunder) be terminated by the Borrower or the
lien on the Collateral created by this Agreement or the Borrower’s material
obligations hereunder shall cease to be in full force and effect as to the
Borrower; or the enforceability thereof shall be contested by the Borrower; or

 

(j) [Reserved]

 

(k) (i) any Person shall engage in any “prohibited transaction” (as defined in
Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any
material “accumulated funding deficiency” (as defined in Section 302 of ERISA),
whether or not waived, shall exist with respect to any Plan or any Lien in favor
of the PBGC or a Plan shall arise on the assets of the Borrower or any commonly
controlled entity as defined under ERISA, (iii) a Reportable Event shall occur
with respect to, or proceedings shall commence to have a trustee appointed, or a
trustee shall be appointed, to administer or to terminate, any Single Employer
Plan, which Reportable Event or commencement of proceedings or appointment of a
trustee is, in the reasonable opinion of the Lender, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, (iv) any Single
Employer’ Plan shall terminate for purposes of Title IV of ERISA, (v) the
Borrower or any commonly controlled entity as defined under ERISA shall, or in
the reasonable opinion of the Lender is likely to, incur any liability in
connection with a withdrawal from, or the insolvency or reorganization of, a
Multiemployer Plan or (vi) any other event or condition shall occur or exist
with respect to a Plan; and in each case in clauses (i) through (vi) above, such
event or condition, together with all other such events or conditions, if any,
could reasonably be expected to have a Material Adverse Effect; or

 

(l) any Change of Control of the Borrower shall have occurred without the prior
consent of the Lender; or

 

(m) the Borrower shall grant, or suffer to exist, any Lien on any Collateral
except Permitted Liens and the Liens contemplated hereby; or the Liens
contemplated hereby shall cease to be first priority perfected Liens on the
Collateral in favor of the Lender or shall be Liens in favor of any Person other
than the Lender; or

 

(n) the Borrower shall default under, or fail to perform as requested under, or
shall otherwise materially breach the terms of any instrument, agreement or
contract between the Borrower and the Lender or any of the Lender’s Affiliates
and such failure or breach is not cured within the applicable cure period; or

 

(o) the Lender shall reasonably request specifying the reasons for such request,
information, and/or written responses to such requests, regarding the financial
well-being of the Borrower and such information and/or responses shall not have
been provided within three Business Days of such request, provided that the
nature and scope of such request are such that the Borrower could reasonably be
expected to respond within such period.

 

Section 9. Remedies Upon Default.

 

(a) Upon the occurrence of one or more Events of Default (subject to the
expiration of the applicable cure period contained therein) other than those
referred to in Section 8(g) or (h), the

 

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Lender may immediately declare the principal amount of the Advances then
outstanding under the Note to be immediately due and payable, together with all
interest thereon and reasonable fees and out-of-pocket expenses accruing under
this Loan Agreement; provided that upon the occurrence of an Event of Default
referred to in Sections 8(g) or (h), such amounts shall immediately and
automatically become due and payable without any further action by any Person.
Upon such declaration or such automatic acceleration, the balance then
outstanding on the note shall become immediately due and payable, without
presentment, demand, protest, or other formalities of any kind, all of which are
hereby expressly waived by the Borrower and Guarantor, and the Lender may
thereupon exercise any remedies available to it at law and pursuant to the Loan
Documents.

 

(b) Upon the occurrence of one or more Events of Default (subject to the
expiration of the applicable cure period contained therein), the Lender shall
have the right to obtain physical possession of the Servicing Records and all
other files of the Borrower relating to the Collateral and all documents
relating to the Collateral which are then or may thereafter come in to the
possession of the Borrower or any third party acting for the Borrower and the
Borrower shall deliver to the Lender such assignments as the Lender shall
request. The Lender shall be entitled to specific performance of all agreements
of the Borrower contained in this Loan Agreement.

 

Section 10. No Duty on Lender’s Part. The powers conferred on the Lender
hereunder are solely to protect the Lender’s interests in the Collateral and
shall not impose any duty upon it to exercise any such powers. The Lender shall
be accountable only for amounts that it actually receives as a result of the
exercise of such powers, and neither it nor any of its officers, directors,
employees or agents shall be responsible to the Borrower or Guarantor for any
act or failure to act hereunder, except for its or their own gross negligence or
willful misconduct.

 

Section 11. Miscellaneous.

 

11.01 Waiver. No failure on the part of the Lender to exercise and no delay in
exercising, and no course of dealing with respect to, any right, power or
privilege under any Loan Document shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, power or privilege under any Loan
Document preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law.

 

11.02 Notices. Except as otherwise expressly permitted by this Loan Agreement
all notices, requests and other communications provided for herein and under the
Custodial Agreement (including, without limitation, any modifications of, or
waivers, requests or consents under, this Loan Agreement) shall be given or made
in writing (including, without limitation, by telex or telecopy) delivered to
the intended recipient at the “Address for Notices” specified below its name on
the signature pages hereof); or, as to any party, at such other address as shall
be designated by such party in a written notice to each other party. Except as
otherwise provided in this Loan Agreement and except for notices given under
Section 2 (which shall be effective only on receipt), all such communications
shall be deemed to have been duly given when transmitted by telex or telecopier
or personally delivered or, in the case of a mailed notice, upon receipt, in
each case given or addressed as aforesaid.

 

11.03 Indemnification and Expenses.

 

(a) The Borrower and Guarantor agree to hold the Lender harmless from and
indemnify the Lender against all liabilities, losses, damages, judgments, costs
and expenses of any kind which may be imposed on, incurred by, or asserted
against the Lender, relating to or arising out of, this Loan Agreement, the
Note, any other Loan Document or any transaction contemplated hereby or thereby,

 

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or any amendment, supplement or modification of, or any waiver or consent under
or in respect of, this Loan Agreement, the Note, any other Loan Document or any
transaction contemplated hereby or thereby, that, in each case, results from
anything other than the Lender’s gross negligence or willful misconduct. In any
suit, proceeding or action brought by the Lender in connection with any Mortgage
Loan for any sum owing thereunder, or to enforce any provisions of any Mortgage
Loan, the Borrower and Guarantor (subject to Section 12.01) will save, indemnify
and hold the Lender harmless from and against all expense, loss or damage
suffered by reason of any defense, set-off, counterclaim, recoupment or
reduction of liability whatsoever of the account debtor or obligor thereunder;
arising out of a breach by the Borrower or Guarantor of any obligation
thereunder or arising out of any other agreement, indebtedness or liability at
any time owing to or in favor of such account debtor or obligor or its
successors from the Borrower or Guarantor. The Borrower and Guarantor also agree
to reimburse the Lender as and when billed by the Lender for all the Lender’s
reasonable out-of-pocket costs and expenses incurred in connection with the
enforcement or the preservation of the Lender’s rights under this Loan
Agreement, the Note, any other Loan Document or any transaction contemplated
hereby or thereby, including without limitation the reasonable fees and
disbursements of its counsel. The Borrower and Guarantor hereby acknowledge
that, notwithstanding the fact that the Note is secured by the Collateral, the
obligations of the Borrower under the Note are recourse obligations of the
Borrower.

 

(b) The Borrower and Guarantor agree to pay as and when billed by the Lender all
of the out-of-pocket costs and expenses incurred by the Lender in connection
with the development, preparation and execution of, and any amendment,
supplement or modification to, this Loan Agreement, the Note, any other Loan
Document or any other documents prepared in connection herewith or therewith.
The Borrower and Guarantor agree to pay as and when billed by the Lender all of
the out-of-pocket costs and expenses incurred in connection with the
consummation and administration of the transactions contemplated hereby and
thereby including, without limitation, (i) all the reasonable fees,
disbursements and expenses of counsel to the Lender, (ii) all the due diligence,
inspection, testing and review costs and expenses incurred by the Lender with
respect to Collateral under this Loan Agreement, including, but not limited to,
those costs and expenses incurred by the Lender pursuant to Sections 11.03(a),
11.14 and 11.16 hereof other than any costs and expenses incurred in connection
with the Lender’s rehypothecation of the Mortgage Loans prior to an Event of
Default and (iii) initial and ongoing fees and expenses incurred by the
Custodian and any trustee with respect to the Mortgage Loans.

 

11.04 Amendments. Except as otherwise expressly provided in this Loan Agreement,
any provision of this Loan Agreement may be modified or supplemented only by an
instrument in writing signed by the Borrower, Guarantor and the Lender and any
provision of this Loan Agreement may be waived by the Lender.

 

11.05 Successors and Assigns. This Loan Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective succesors and
permitted assigns.

 

11.06 Survival. The obligations of the Borrower and Guarantor under Section
11.03 hereof shall survive the repayment of the Advances and the termination of
this Loan Agreement. In addition, each representation and warranty made, or
deemed to be made by a request for a borrowing, herein or pursuant hereto shall
survive the making of such representation and warranty, and the Lender shall not
be deemed to have waived, by reason of making any Advance, any Default that may
arise by reason of such representation or warranty proving to have been false or
misleading, notwithstanding that the Lender may have had notice or knowledge or
reason to believe that such representation or warranty was false or misleading
at the time such Advance was made.

 

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11.07 Captions. The table of contents, captions and section headings appearing
herein are included solely for convenience of reference and are not intended to
affect the interpretation of any provision of this Loan Agreement.

 

11.08 Counterparts. This Loan Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Loan Agreement by
signing any such counterpart.

 

11.09 Loan Agreement Constitutes Security Agreement; Governing Law. This Loan
Agreement shall be governed by New York law without reference to choice of law
doctrine (but with reference to Section 5-1401 of the New York General
Obligations Law, which by its terms applies to this Loan Agreement), and shall
constitute a security agreement within the meaning of the Uniform Commercial
Code.

 

11.10 SUBMISSION TO JURISDICTION: WAIVERS. EACH PARTY HERETO HEREBY IRREVOCABLY
AND UNCONDITIONALLY:

 

(A) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS LOAN AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS, OR FOR
RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE
NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, THE
FEDERAL COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW
YORK, AND APPELLATE COURTS FROM ANY THEREOF;

 

(B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS
AND, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT
OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND
AGREES NOT TO PLEAD OR CLAIM THE SAME;

 

(C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE
EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY
SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO ITS ADDRESS SET FORTH
UNDER ITS SIGNATURE BELOW OR AT SUCH OTHER ADDRESS OF WHICH THE LENDER SHALL
HAVE BEEN NOTIFIED; AND

 

(D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN
ANY OTHER JURISDICTION.

 

11.11 WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE GUARANTOR, THE LENDER AND
THE SERVICER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS LOAN AGREEMENT, ANY OTHER LOAN DOCUMENT OR
THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

 

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11.12 Acknowledgments. The Borrower hereby acknowledges that:

 

(a) it has been advised by counsel in the negotiation, execution and delivery of
this Loan Agreement, the Note and the other Loan Documents to which it is a
party;

 

(b) the Lender has no fiduciary relationship to the Borrower; and the
relationship between the Borrower and the Lender is solely that of debtor and
creditor; and

 

(c) no joint venture exists among or between the Lender and the Borrower.

 

11.13 Hypothecation or Pledge of Collateral. The Lender shall have free and
unrestricted use of all Collateral and nothing in this Loan Agreement shall
preclude the Lender from engaging in repurchase transactions with the Collateral
or otherwise pledging, repledging, transferring, hypothecating, or
rehypothecating the Collateral. Nothing contained in this Loan Agreement shall
obligate the Lender to segregate any Collateral delivered to the Lender by the
Borrower.

 

11.14 Assignments; Participations.

 

(a) The Borrower may assign any of their rights or obligations hereunder or
under the Note only with the prior written consent of the Lender. The Lender may
assign or transfer all or any of its rights or obligations under this Loan
Agreement and the other Loan Documents; provided, however, the Lender must give
one Business Day’s notice to the Borrower.

 

(b) The Lender may, in accordance with applicable law, at any time sell to one
or more lenders or other entities (“Participants”) participating interests in
any Advance, the Note, its commitment to make Advances, or any other interest of
the Lender hereunder and under the other Loan Documents. In the event of any
such sale by the Lender of participating interests to a Participant, the
Lender’s obligations under this Loan Agreement to the Borrower shall remain
unchanged, the Lender shall remain solely responsible for the performance
thereof, the Lender shall remain the holder of the Note for all purposes under
this Loan Agreement and the other Loan Documents, and the Borrower and the
Lender shall continue to deal solely and directly with the Lender in connection
with the Lender’s rights and obligations under this Loan Agreement and the other
Loan Documents. The Borrower agrees that if amounts outstanding under this Loan
Agreement and the Note are due or unpaid, or shall have been declared or shall
have become due and payable upon the occurrence of an Event of Default, each
Participant shall be deemed to have the right of set-off in respect of its
participating interest in amounts owing under this Loan Agreement and the Note
to the same extent as if the amount of its participating interest were owing
directly to it as the Lender under this Loan Agreement or the Note; provided,
that such Participant shall only be entitled to such right of setoff if it shall
have agreed in the agreement pursuant to which it shall have acquired its
participating interest to share with the Lender the proceeds thereof. The Lender
also agrees that each Participant shall be entitled to the benefits of Sections
2.07 and 11.03 with respect to its participation in the Advances outstanding
from time to time; provided, that the Lender and all Participants shall be
entitled to receive no greater amount in the aggregate pursuant to such Sections
than the Lender would have been entitled to receive had no such transfer
occurred.

 

(c) The Borrower and Guarantor agree to cooperate with the Lender in connection
with any such assignment and/or participation, to execute and deliver such
replacement notes, and to enter into such restatements of, and amendments,
supplements and other modifications to, this Loan Agreement and the other Loan
Documents in order to give effect to such assignment and/or participation. The
Borrower further agrees to furnish to any Participant identified by the Lender
to the Borrower copies of all reports and certificates to be delivered by the
Borrower to the Lender hereunder; as and when delivered to the Lender.
Notwithstanding the Borrower’s obligations set forth in this Section 11.14(c),

 

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the Borrower shall not be obligated to incur either (i) material additional
obligations or (ii) material additional costs or expenses in connection with the
fulfillment of such obligations except with respect to clause (ii) above if the
Lender agrees to reimburse such costs and expenses.

 

11.15 Servicing.

 

(a) Unless otherwise agreed to among the parties hereto, the Borrower hereby
appoints the Servicer to service; and the Servicer hereby covenants and agrees
to service the Mortgage Loans and REO Properties for an initial term, commencing
on the first Funding Date and ending 30 days thereafter, which term shall be
extendable by the Borrower for successive terms of one calendar month
thereafter, until the Maturity Date; provided, however; that if an Event of
Default has occurred and is continuing or has not been cured, the Servicer shall
immediately be terminated as Servicer. The Mortgage Loans and REO Properties
shall be serviced in accordance with the servicing provisions of the Pooling and
Servicing Agreement, including the representations and warranties and servicing
standards with respect to the prepayment charges As part of its servicing
duties, the Servicer shall enforce “due-on-sale” provisions to the extent
permitted by law, shall administer all escrow/impound deposits and shall make
all servicing advances (not including advances of delinquent principal and
interest) on the Mortgage Loans. The Mortgage Loans shall be serviced for a
servicing fee equal to 0.50% per annum payable monthly on the then-outstanding
principal balance of each Mortgage Loan (the “Servicing Fee”) and any additional
servicing compensation as set forth in Section 3.18 of the Pooling and Servicing
Agreement, which Servicing Fee and additional servicing compensation will be
paid in accordance with the provisions of the Pooling and Servicing Agreement.
Notwithstanding the foregoing, in the event an Event of Default shall occur and
be continuing, the Servicer will no longer be servicer, unless the term of
servicing is extended by the Lender in its sole discretion. In such event,
Lender shall have the right to transfer such servicing to another Servicer
without payment of any fee to the Servicer; provided, however, that the Servicer
will be entitled to all amounts owed to it in respect of its Servicing Fee up to
the date the Servicer is terminated as servicer. In addition, in the event any
proceeds from any sale of the Mortgage Loans to a third party in connection with
a default by Borrower exceeds the amounts owed to Lender under this Loan
Agreement, the Lender will reimburse the Servicer for any unpaid servicing
advances and any ancillary income accrued during the Servicer’s period as
servicer. The Servicer will cooperate in good faith to effect such servicing
transfer and shall pay all costs associated with such servicing transfer. The
Borrower shall cause the Servicer to service the Mortgage Loans and REO
Properties in accordance with the terms of the Pooling and Servicing Agreement
and this Loan Agreement and the Borrower shall enforce all of the obligations of
the Servicer.

 

(b) (i) The Borrower agrees that the Lender has a first priority perfected
security interest in all servicing records of the Borrower relating to the
Collateral, including but not limited to any and all servicing agreements,
files, documents, records, data bases, computer tapes, copies of computer tapes,
proof of insurance coverage, insurance policies, appraisals, other closing
documentation, payment history records, and any other records relating to or
evidencing the servicing of the Mortgage Loans and REO Properties (the
“Servicing Records”), and (ii) the Borrower grants the Lender a security
interest in all servicing rights relating to the Mortgage Loans and REO
Properties and all Servicing Records to secure the obligation of the Borrower or
its designee to service in conformity with this Section and any other obligation
of the Borrower to the Lender. The Borrower covenants to safeguard such
Servicing Records and to deliver them promptly to the Lender or its designee
(including the Custodian) at the Lender’s request; provided that prior to an
Event of Default, delivery of copies of the Servicing Records will satisfy the
Borrower’s obligations on the last sentence of this Section 11.15(b).

 

(c) (i) The Borrower shall deposit or cause the Servicer to deposit all
Collections into the Collection Account within one Business Day of receipt of
good funds thereof.

 

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(ii) Except as expressly provided for in this paragraph (ii) and paragraph (iii)
below, no withdrawals shall be made from the Collection Account. On each Payment
Date prior to an Event of Default the Servicer shall distribute upon receipt of
notice from the Borrower or the Lender as to the amount due and payable (the
calculation of such amounts shall be the responsibility of the party submitting
the notice), from such amounts available in the Collection Account as of the
close of business on the last Business Day of the immediately preceding
Collection Period for application in the following priority:

 

(a) to the Borrower and the Servicer, an amount equal to Reimbursable Expenses
(to the extent not previously reimbursed); and (B) to the Servicer; an amount
equal to the Servicing Fee and all unpaid Servicing Fees from prior Payment
Dates.

 

(b) to the Lender, all amounts due (including the amounts sufficient to cause
the outstanding principal amount of Advances to equal the Borrowing Base) as of
such Payment Date pursuant to this Loan Agreement; and

 

(c) to the Borrower, an amount equal to all Available Proceeds.

 

At any time after Servicer receives notice from Lender that an Event of Default
under this Agreement is then continuing, Servicer shall make payments from the
Collection Account only in accordance with the express written instructions of
Lender.

 

11.16 Periodic Due Diligence Review. The Borrower acknowledges that the Lender
has the right to perform continuing due diligence reviews with respect to the
Mortgage Loans and REO Properties, for purposes of verifying compliance with the
representations, warranties and specifications made hereunder, or otherwise, and
the Borrower agrees that upon reasonable (but no less than five (5) Business
Day’s) prior notice to the Borrower; the Lender or its authorized
representatives will be permitted during normal business hours to examine,
inspect, make copies of, and make extracts of, the Asset Files and any and all
documents, records, agreements, instruments or information relating to such
Mortgage Loans or REO Properties in the possession, or under the control, of the
Borrower and/or the Custodian. The Borrower also shall make available to the
Lender a knowledgeable financial or accounting officer for the purpose of
answering questions respecting the Asset Files and the Mortgage Loans and REO
Properties. Without limiting the generality of the foregoing, the Borrower
acknowledges that the Lender shall make Advances to the Borrower based solely
upon the information provided by the Borrower to the Lender in the Asset Data
Transmission and the representations, warranties and covenants contained herein,
and that the Lender, at its option, has the right at any time to conduct a
partial or complete due diligence review on some or all of the Mortgage Loans
securing such Advance, including, without limitation, ordering new credit
reports, lien searches, new BPO’s or other appraisals on the related Mortgaged
Properties and otherwise re-generating the information used to originate such
Mortgage Loan or REO Properties. The Lender may underwrite such Mortgage Loans
itself or engage a third party underwriter to perform such underwriting. The
Borrower agrees to cooperate with the Lender and any third party underwriter in
connection with such underwriting, including, but not limited to, providing the
Lender and any third party underwriter with access to any and all documents,
records, agreements, instruments or information relating to such Mortgage Loans
or REO Properties in the possession, or under the control, of the Borrower. In
addition, the Lender has the right to perform continuing Due Diligence Reviews
of the Borrower. The Borrower further agrees to provide to the Lender upon
request an updated appraisal with respect to any Mortgaged Property. The
Borrower and the Lender further agree that all out-of-pocket costs and expenses
incurred by the Lender in connection with the Lender’s activities pursuant to
this Section 11.16 shall be paid for as agreed by the Borrower and the Lender.

 

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11.17 Set Off. In addition to any rights and remedies of the Lender provided by
this Loan Agreement and by law, the Lender shall have the right, without prior
notice to the Borrower, any such notice being expressly waived by the Borrower
to the extent permitted by applicable law, upon any amount becoming due and
payable by the Borrower hereunder (whether at the stated maturity, by
acceleration or otherwise) to set-off and appropriate and apply against such
amount any and all Property and deposits (general or special, time or demand,
provisional or final), in any currency, and any other credits, indebtedness or
claims, in any currency, in each case whether direct or indirect, absolute or
contingent, matured or unmatured, at any time held or owing by the Lender or any
Affiliate thereof to or for the credit or the account of the Borrower. The
Lender agrees promptly to notify the Borrower after any such set-off and
application made by the Lender; provided that the failure to give such notice
shall not affect the validity of such set-off and application.

 

Section 12. Limitations on Liability.

 

12.01 Limitation on Liability. Except as otherwise provided below, the Lender’s
recourse shall be limited to the Borrower and none of its Affiliates, officers,
directors, employees, shareholders or any other Person, disclosed or
undisclosed, shall be personally liable for the repayment of any of the
Advances, except that the Servicer (but not any direct or indirect general or
limited partners or shareholders, officers, directors or employees of the
general or limited partners in the Servicer) shall be personally liable (1) for
either the Borrower’s or Guarantor’s fraud (but only to the extent of actual
damages suffered by the Lender caused by such fraud) and (2) whether prior to or
after an Event of Default for the Borrower’s misappropriation of any amounts on
deposit or required to be on deposit in the Collection Account and any other
amounts required to be held by the Borrower in escrow or segregated accounts
pursuant to the terms hereof and any other escrow deposits, but only to the
extent of the amounts so misapplied. By separately executing this Loan Agreement
and as further consideration for the making of the Advances by the Lender, the
Servicer agrees that it shall be liable and responsible for the liabilities
referenced in clauses (1) and (2) above to the extent set forth above.

 

12.02 Limitation on Liability of Lender’s Officer’s, Employees, Etc. Any
obligation or liability whatsoever of the Lender which may arise at any time
under this Loan Agreement or any other Loan Document shall be satisfied, if at
all, out of the Lender’s assets only. No such obligation or liability shall be
personally binding upon, nor shall resort for the enforcement thereof be had to,
the property of any of the Lender’s shareholders, directors, officers, employees
or agents, regardless of whether such obligation is in the nature of contract,
tort or otherwise.

 

12.03 Reserved.

 

12.04 Conflict of Terms. In the event of any conflict between the provisions of
this Loan Agreement and the provisions of any of the other Loan Documents, the
provisions of this Loan Agreement shall prevail; provided, however, that if
there is a specific cross-reference in this Loan Agreement to one of the other
Loan Documents or to the other Loan Documents generally with respect to a
provision or a right or obligation which this Loan Agreement permits only as
provided therein and not otherwise, then such other Loan Document or Loan
Documents shall govern.

 

12.05 The Servicer. The parties to this Loan Agreement hereby acknowledge and
agree that the Servicer is a signatory to this Loan Agreement only with respect
to Section 11.11, Section 11.15 and Section 12.01 hereof.

 

12.06 Termination. Other than those sections intended to survive in the Master
Loan and Security Agreement dated November 18, 1998 among the Servicer and
Liquidation Properties, Inc. (including those sections related to
indemnification), such agreement is hereby terminated.

 

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[Signature Page to Follow]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to be
duly executed and delivered as of the day and year first above written.

 

Address for Notices:

 

NC Capital Corporation

18400 Von Karman

Irvine, California 92612

  NC CAPITAL CORPORATION

Attention: Stergios Theologides, Esq.

Telecopier No.: (949) 863-7243

Telephone No.: (949) 440-7030

 

By:     /s/ Kevin Cloyd

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

Name: Kevin Cloyd

Title:   President

Address for Notices:

 

New Century Mortgage Corporation

18400 Von Karman

Irvine, California 92612

  NEW CENTURY MORTGAGE CORPORATION

Attention: Stergios Theologides, Esq.

Telecopier No.: (949) 863-7243

Telephone No.: (949) 440-7030

 

By:     /s/ Kevin Cloyd

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

Name: Kevin Cloyd

Title:   Executive Vice President

Address for Notices:

 

New Century Mortgage Corporation

18400 Von Karman

Irvine, California 92612

  NEW CENTURY FINANCIAL CORPORATION

Attention: Stergios Theologides, Esq.

Telecopier No.: (949) 863-7243

Telephone No.: (949) 440-7030

 

By:     /s/ Kevin Cloyd

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

Name: Kevin Cloyd

Title:   Executive Vice President

Address for Notices:

 

390 Greenwich Street

New York, New York 10013

  CITIGROUP GLOBAL MARKETS REALTY CORP.

Attention: Mr. James Xanthos

Telecopier No.: (212) 723-4144

Telephone No.: (212) 723-6395

 

By:    /s/ James Xanthos

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

Name: James Xanthos

Title:  Authorized Signer

 

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Schedule 1

 

REPRESENTATIONS AND WARRANTIES REGARDING

THE MORTGAGE LOANS

 

As to each Mortgage Loan that forms part of the Collateral hereunder (and the
related Mortgage, Mortgage Note, Assignment of Mortgage and Mortgaged Property),
the Borrower shall be deemed to make the following representations and
warranties to the Lender as of such date and as of each date Collateral Value is
determined. With respect to the representations and warranties contained in this
Schedule 1 which are made to the knowledge or the best of knowledge of the
Borrower, or as to which the Borrower, has no knowledge, if it is discovered
that the substance of any such representation and warranty was materially
inaccurate as of the date such representation and warranty was made or deemed to
be made, and such inaccuracy materially and adversely affects the value of the
related Mortgage Loan or the interest therein of the Lender, then
notwithstanding the lack of knowledge by the Borrower, with respect to the
substance of such representation and warranty being materially inaccurate at the
time the representation and warranty was made, the Lender shall have the rights
set forth in the Loan Agreement and the Collateral Value shall be deemed to be
zero with respect to each such Mortgage Loan until the breach is cured in all
material respects.

 

(i) The information set forth in the Asset Data Transmission, including the
field concerning any related Prepayment Charge, is complete, true and correct as
of the related Funding Date;

 

(ii) [Reserved];

 

(iii) The Borrower has not advanced funds, or induced, solicited or knowingly
received any advance of funds from a party other than the owner of the related
Mortgaged Property, directly or indirectly, for the payment of any amount
required by the Mortgage Note or Mortgage;

 

(iv) There are no delinquent taxes, ground rents, water charges, sewer rents,
assessments, insurance premiums, leasehold payments, including assessments
payable in future installments or other outstanding charges affecting the
related Mortgaged Property;

 

(v) To the best knowledge of the Borrower, the terms of the Mortgage Note and
the Mortgage have not been impaired, waived, altered or modified in any respect,
except by written instruments, recorded in the applicable public recording
office if necessary to maintain the lien priority of the Mortgage; and which
have been delivered to the Custodian; the substance of any such waiver,
alteration or modification has been approved by the title insurer, to the extent
required by the related policy, and is reflected on the Asset Data Transmission.
No instrument of waiver, alteration or modification has been executed by the
Borrower or any other person in the chain of title from the Borrower to the
Lender, and no Mortgagor has been released, in whole or in part, except in
connection with an assumption agreement approved by the title insurer, to the
extent required by the policy, and which assumption agreement has been delivered
to the Custodian and the terms of which are reflected in the Asset Data
Transmission;

 

(vi) Prior to the pledge to the Lender from the Borrower; the Mortgage Note and
the Mortgage are not subject to any right of rescission, set-off, counterclaim
or defense, including the defense of usury, nor will the operation of any of the
terms of the Mortgage Note and the Mortgage, or the exercise of any right
thereunder, render the Mortgage unenforceable, in whole or in part, or subject
to any right of rescission, set-off, counterclaim or defense, including the
defense of usury and no such right of rescission, set-off, counterclaim or
defense has been asserted with respect thereto;

 

 

Sched. 1-1

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(vii) All buildings upon the Mortgaged Property are insured by a generally
acceptable insurer against loss by fire, hazards of extended coverage and such
other hazards as are customary in the area where the Mortgaged Property is
located, pursuant to insurance policies conforming to the requirements of the
Pooling and Servicing Agreement. All such insurance policies contain a standard
mortgagee clause naming the Borrower, its successors and assigns as mortgagee
and all premiums thereon have been paid. If upon origination of the Mortgage
Loan, the Mortgaged Property was in an area identified on a Flood Hazard Map or
Flood Insurance Rate Map issued by the Federal Emergency Management Agency as
having special flood hazards (and such flood insurance has been made available)
a flood insurance policy meeting the requirements of the current guidelines of
the Federal Insurance Administration is in effect which policy conforms to the
requirements of Fannie Mae and Freddie Mac. The Mortgage obligates the Mortgagor
thereunder to maintain all such insurance at the Mortgagor’s cost and expense,
and on the Mortgagor’s failure to do so, authorizes the holder of the Mortgage
to maintain such insurance at Mortgagor’s cost and expense and to seek
reimbursement therefor from the Mortgagor;

 

(viii) Any and all requirements of any federal, state or local law including,
without limitation, usury, truth in lending, real estate settlement procedures,
consumer credit protection, equal credit opportunity or disclosure laws
applicable to the origination and servicing of the Mortgage Loan have been
complied with in all material respects. Any and all statements or
acknowledgments required to be made by the Mortgagor relating to such
requirements are and will remain in the Asset File;

 

(ix) The Mortgage has not been satisfied, canceled, subordinated or rescinded,
in whole or in part, and the Mortgaged Property has not been released from the
lien of the Mortgage, in whole or in part, nor has any instrument been executed
that would effect any such satisfaction, cancellation, subordination, rescission
or release;

 

(x) The Mortgage is a valid, existing and enforceable first lien on the
Mortgaged Property, including all improvements on the Mortgaged Property subject
only to (a) the lien of current real property taxes and assessments not yet due
and payable, (b) covenants, conditions and restrictions, rights of way,
easements and other matters of the public record as of the date of recording
being acceptable to mortgage lending institutions generally and specifically
referred to in the lender’s title insurance policy delivered to the originator
of the Mortgage Loan and which do not adversely affect the market value of the
Mortgaged Property and (c) other matters to which like properties are commonly
subject which do not materially interfere with the benefits of the security
intended to be provided by the Mortgage or the use, enjoyment, value or
marketability of the related Mortgaged Property, Any security agreement, chattel
mortgage or equivalent document related to and delivered in connection with the
Mortgage Loan establishes and creates a valid, existing and enforceable first
lien and first priority security interest on the property described therein and
as of the time it pledged each Mortgage Loan to the Lender, the Borrower had
full right to pledge the same to the Lender. The Mortgaged Property was not, as
of the date of origination of the Mortgage Loan, subject to a mortgage, deed of
trust, deed to secure debt or other security instrument creating a lien
subordinate to the lien of the Mortgage;

 

(xi) The Mortgage Note and the related Mortgage are genuine and each is the
legal, valid and binding obligation of the maker thereof; enforceable in
accordance with its terms;

 

(xii) All parties to the Mortgage Note and the Mortgage had legal capacity to
enter into the Mortgage Loan and to execute and deliver the Mortgage Note and
the Mortgage, and the Mortgage Note and the Mortgage have been duly and properly
executed by such parties. The Mortgagor is a natural person who is a party to
the Mortgage Note and the Mortgage is in an individual capacity or family trust
that is guaranteed by a natural person;

 

 

Sched. 1-2

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(xiii) The proceeds of the Mortgage Loan have been fully disbursed to or for the
account of the Mortgagor and there is no obligation for the Mortgagee to advance
additional funds thereunder and any and all requirements as to completion of any
on-site or off-site improvement and as to disbursements of any escrow funds
therefor have been complied with. All costs, fees and expenses incurred in
making or closing the Mortgage Loan and the recording of the Mortgage have been
paid, and the Mortgagor is not entitled to any refund of any amounts paid or due
to the Mortgagee pursuant to the Mortgage Note or Mortgage;

 

(xiv) Immediately prior to the pledge of the Mortgage Loan hereunder, the
Borrower is the sole legal, beneficial and equitable owner of the Mortgage Note
and the Mortgage and has full right to pledge the Mortgage Loan to the Lender
free and clear of any encumbrance, equity, lien, pledge, charge, claim or
security interest;

 

(xv) All parties which have had any interest in the Mortgage Loan, whether as
mortgagee, assignee, pledgee or otherwise, are (or, during the period in which
they held and disposed of such interest, were) in compliance with any and all
applicable “doing business” and licensing requirements of the laws of the state
wherein the Mortgaged Property is located;

 

(xvi) The Mortgage Loan is covered by an ALTA lender’s title insurance policy
with, in the case of any adjustable rate Mortgage Loan, an adjustable rate
mortgage endorsement, such endorsement substantially in the form of ALTA Form
6.0 or 6.1, acceptable to Fannie Mae or Freddie Mac, issued by a title insurer
acceptable to Fannie Mae and Freddie Mac and qualified to do business in the
jurisdiction where the Mortgaged Property is located, insuring (subject to the
exceptions contained in (x)(a) and (b) above) the Borrower, its successors and
assigns as to the first priority lien of the Mortgage in the original principal
amount of the Mortgage Loan and against any loss by reason of the invalidity or
unenforceability of the lien resulting from the provisions of the Mortgage
providing for adjustment in the mortgage interest rate and monthly payment.
Additionally, such lender’s title insurance policy affirmatively insures ingress
and egress to and from the Mortgaged Property, and against encroachments by or
upon the Mortgaged Property or any interest therein. The Borrower is the sole
insured of such lender’s title insurance policy, and such lender’s title
insurance policy is in full force and effect and will be in full force and
effect upon the consummation of the transactions contemplated by this Agreement.
No claims have been made under such lender’s title insurance policy, and no
prior holder of the related Mortgage, including the Borrower, has done, by act
or omission, anything which would impair the coverage of such lender’s title
insurance policy;

 

(xvii) There is no material default, breach, violation or event of acceleration
existing under the Mortgage or the Mortgage Note and no event which, with the
passage of time or with notice and the expiration of any grace or cure period,
would constitute a material default, breach, violation or event of acceleration,
and the Borrower has not waived any material default, breach, violation or event
of acceleration;

 

(xviii) There are no mechanics’ or similar liens or claims which have been filed
for work, labor or material (and no rights are outstanding that under law could
give rise to such lien) affecting the related Mortgaged Property which are or
may be liens prior to, or equal or coordinate with, the lien of the related
Mortgage;

 

(xix) Except to the extent that would not materially adversely affect the value
of the Mortgaged Property, (i) all improvements which were considered in
determining the appraised value of the related Mortgaged Property lay wholly
within the boundaries and building restriction lines of the Mortgaged Property,
and (ii) no improvements on adjoining properties encroach upon the Mortgaged
Property. Each appraisal has been performed in accordance with the provisions of
the Financial Institutions Reform, Recovery and Enforcement Act of 1989;

 

 

Sched. 1-3

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(xx) The Mortgage Loan was originated by the Servicer or by a savings and loan
association, a savings bank, a commercial bank or similar banking institution
which is supervised and examined by a federal or state authority, or by a
mortgagee approved as such by the Secretary of HUD or (ii) acquired by the
Servicer directly through loan brokers or correspondents such that (a) the
Servicer approved the Mortgage Loan prior to funding or purchase;

 

(xxi) Principal payments on the Mortgage Loan commenced no more than two months
after the proceeds of the Mortgage Loan were disbursed. The Mortgage Loan bears
interest at the mortgage interest rate. The Mortgage Note is payable on the
first day of each month in monthly payments which, in the case of each
adjustable rate Mortgage Loan, are changed on each adjustment date to an amount
which will amortize the stated principal balance of the Mortgage Loan over its
remaining term at the mortgage interest rate. Interest on the Mortgage Loan is
calculated on the basis of a 360-day year consisting of twelve 30-day months.
The Mortgage Note does not permit negative amortization. No Mortgage Loan
permits the Mortgagor to convert an adjustable rate Mortgage Loan to a fixed
rate Mortgage Loan;

 

(xxii) The origination and collection practices used by the Servicer with
respect to each Mortgage Note and Mortgage have been in all respects legal,
proper, prudent and customary in the mortgage origination and servicing
industry. The Mortgage Loan has been serviced by the Servicer (directly or
through a subservicer) and any predecessor servicer in accordance with the terms
of the Mortgage Note. With respect to escrow deposits and escrow payments, if
any, all such payments are in the possession of, or under the control of, the
Borrower and there exist no deficiencies in connection therewith for which
customary arrangements for repayment thereof have not been made. No escrow
deposits or Escrow Payments or other charges or payments due the Borrower have
been capitalized under any Mortgage or the related Mortgage Note;

 

(xxiii) The Mortgaged Property is free of damage and waste and there is no
proceeding pending for the total or partial condemnation thereof;

 

(xxiv) The Mortgage and related Mortgage Note contain customary and enforceable
provisions such as to render the rights and remedies of the holder thereof
adequate for the realization against the Mortgaged Property of the benefits of
the security provided thereby, including, (a) in the case of a Mortgage
designated as a deed of trust, by trustee’s sale, and (b) otherwise by judicial
foreclosure. Since the date of origination of the Mortgage Loan, the Mortgaged
Property has not been subject to any bankruptcy proceeding or foreclosure
proceeding and the Mortgagor has not filed for protection under applicable
bankruptcy laws. There is no homestead or other exemption available to the
Mortgagor which would interfere with the right to sell the Mortgaged Property at
a trustee’s sale or the right to foreclose the Mortgage. The Mortgagor has not
notified the Borrower and the Borrower has no knowledge of any relief requested
or allowed to the Mortgagor under the Soldiers and Sailors Civil Relief Act of
1940;

 

(xxv) The related Mortgaged Property is not a leasehold estate or, if such
Mortgaged Property is a leasehold estate, the remaining term of such lease is at
least ten (10) years greater than the remaining term of the related Mortgage
Note;

 

(xxvi) The Mortgage Note is not and has not been secured by any collateral
except the lien of the corresponding Mortgage on the Mortgaged Property and the
security interest of any applicable security agreement or chattel mortgage
referred to in (x) above;

 

 

Sched. 1-4

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(xxvii) The Asset File contains an appraisal of the related Mortgaged Property
made and signed, prior to the approval of the Mortgage Loan application, by a
qualified appraiser, approved by the Borrower, who had no interest, direct or
indirect in the Mortgaged Property or in any loan made on the security thereof;
whose compensation is not affected by the approval or disapproval of the
Mortgage Loan and who met the minimum qualifications of Fannie Mae and Freddie
Mac;

 

(xxviii) In the event the Mortgage constitutes a deed of trust, a trustee, duly
qualified under applicable law to serve as such, has been properly designated
and currently so serves and is named in the Mortgage, and no fees or expenses
are or will become payable by the Lender to the trustee under the deed of trust,
except in connection with a trustee’s sale after default by the Mortgagor;

 

(xxix) No Mortgage Loan contains provisions pursuant to which monthly payments
are (a) paid or partially paid with funds deposited in any separate account
established by the Borrower, the Mortgagor, or anyone on behalf of the
Mortgagor, (b) paid by any source other than the Mortgagor or (c) contains any
other similar provisions which may constitute a “buydown” provision. The
Mortgage Loan is not a graduated payment mortgage loan and the Mortgage Loan
does not have a shared appreciation or other contingent interest feature;

 

(xxx) With respect to each adjustable rate Mortgage Loan, the Mortgagor has
executed a statement to the effect that the Mortgagor has received all
disclosure materials required by applicable law with respect to the making of
adjustable rate mortgage loans; and if the Mortgage Loan is a refinanced
mortgage loan, the Mortgagor has received all disclosure and rescission
materials required by applicable law with respect to the making of a refinanced
mortgage loan, and evidence of such receipt is and will remain in the Asset
File;

 

(xxxi) No Mortgage Loan was made in connection with (a) the construction or
rehabilitation of a Mortgaged Property or (b) facilitating the trade-in or
exchange of a Mortgaged Property;

 

(xxxii) The Mortgage Note, the Mortgage, the Assignment of Mortgage and any
other documents required to be delivered with respect to each Mortgage Loan
pursuant to the Custodial Agreement, have been delivered to the Custodian all in
compliance with the specific requirements of the Custodial Agreement;

 

(xxxiii) The Mortgaged Property is lawfully occupied under applicable law; all
inspections, licenses and certificates required to be made or issued with
respect to all occupied portions of the Mortgaged Property and, with respect to
the use and occupancy of the same, including but not limited to certificates of
occupancy, have been made or obtained from the appropriate authorities;

 

(xxxiv) No error, omission, misrepresentation, negligence, fraud or similar
occurrence with respect to a Mortgage Loan has taken place on the part of any
person, including, without limitation, the Mortgagor, any appraiser, any builder
or developer, or any other party involved in the origination of the Mortgage
Loan or in the application of any insurance in relation to such Mortgage Loan;

 

(xxxv) The Assignment of Mortgage is in blank or in recordable form and is
acceptable fin’ recording under the laws of the jurisdiction in which the
Mortgaged Property is located;

 

(xxxvi) Any principal advances made to the Mortgagor prior to the Funding Date
have been consolidated with the outstanding principal amount secured by the
Mortgage, and the secured principal amount, as consolidated, bears a single
interest rate and single repayment term. The lien of the Mortgage securing the
consolidated principal amount is expressly insured as having first lien priority
by a title insurance policy, an endorsement to the policy insuring the
mortgagee’s consolidated interest or by other title evidence acceptable to
Fannie Mae and Freddie Mac. The consolidated principal amount does not exceed
the original principal amount of the Mortgage Loan;

 

 

Sched. 1-5

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

(xxxvii) Except with respect to a Forty Year Mortgage Loan, no Mortgage Loan has
a balloon payment feature;

 

(xxxviii) If the residential dwelling on the Mortgaged Property is a condominium
unit or a unit in a planned unit development (other than a de minimis planned
unit development) such condominium or planned unit development project meets the
Fannie Mae’s eligibility requirements;

 

(xxxix) [Reserved];

 

(xl) Any Mortgage Loan subject to the provisions of the Homeownership and Equity
Protection Act of 1994, P.L. 103-325, 108 Stat 2160 was originated in compliance
therewith;

 

(xli) The Mortgage Loan was not intentionally selected by the Borrower in a
manner intended to adversely affect the interest of the Lender;

 

(xlii) The Borrower has not dealt with any broker or agent or other person who
might be entitled to a fee, commission or compensation in connection with the
transaction contemplated by this Loan Agreement other than the Lender;

 

(xliii) Each Mortgaged Property consists of a parcel of real property with a
single family residence erected thereon, or a two to four family dwelling, or an
individual condominium unit in a low-rise or high-rise condominium project, or
an individual unit in a planned unit development. Each Mortgaged Property is
improved with a residential dwelling, Without limiting the foregoing, the
Mortgaged Property does not consist of any of the following property types: (a)
co-operative units, (b) log homes, (c) earthen homes, (d) underground homes, (e)
mobile homes and (f) manufactured homes (as defined in the Fannie Mae
Originator-Servicer’s Guide), except when the appraisal indicates that the home
is of comparable construction to a stick or beam construction home, is readily
marketable, has been permanently affixed to the site and is not in a mobile home
“park.” The Mortgaged Property is either a fee simple estate or a long-term
residential lease. If the Mortgage Loan is secured by a long-term residential
lease, unless otherwise specifically disclosed in the Asset Data Transmission,
(A) the terms of such lease expressly permit the mortgaging of the leasehold
estate, the assignment of the lease without the lessor’s consent (or the
lessor’s consent has been obtained and such consent is the Asset File) and the
acquisition by the holder of the Mortgage of the rights of the lessee upon
foreclosure or assignment in lieu of foreclosure or provide the holder of the
Mortgage with substantially similar protection; (B) the terms of such lease do
not (x) allow the termination thereof upon the lessee’s default without the
holder of the Mortgage being entitled to receive written notice of, and
opportunity to cure, such default or (y) prohibit the holder of the Mortgage
from being insured under’ the hazard insurance policy relating to the Mortgaged
Property; (C) the original term of such lease is not less than 15 years; (D) the
term of such lease does not terminate earlier than 10 years after the maturity
date of the Mortgage Note; and (E) the Mortgaged Property is located in a
jurisdiction in which the use of leasehold estates for residential properties is
an accepted practice;

 

(xliv) At the time of origination, the loan-to-value ratio of the Mortgage Loan
was not greater than 95.00%;

 

(xlv) The Mortgage, and if required by applicable law the related Mortgage Note,
contains a provision for the acceleration of the payment of the unpaid principal
balance of the Mortgage Loan in the event that the Mortgaged Property is sold or
transferred without the prior written consent of the Mortgagee, at the option of
the Mortgagee;

 

 

Sched. 1-6

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

(xlvi) The Mortgage Loan either contains a customary due-on-sale clause or may
be assumed by a creditworthy purchaser of the related Mortgaged Property;

 

(xlvii) With respect to any adjustable rate Mortgage Loan, as of any Adjustment
Date (as defined in the Pooling and Servicing Agreement) for such Mortgage Loan,
the index applicable to the determination of the Mortgage Interest Rate on such
Mortgage Loan will be the average of the interbank offered rates for six-month
United States dollar deposits in the London market, generally as published in
The Wall Street Journal and as most recently available as of either (i) the
first business day 45 days prior to such Adjustment Date or (ii) the first
business day of the month preceding the month of such Adjustment Date, as
specified in the related Mortgage Note; and

 

(xlviii) Each Mortgage Loan is an obligation that is principally secured by real
property.

 

Sched. 1-7

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

Schedule 2

 

FILING JURISDICTIONS AND OFFICES

 

1. Office of the Secretary of the State of California.

 

Sched. 2-1

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

Schedule 3

 

REPRESENTATIONS AND WARRANTIES

REGARDING REO PROPERTIES

 

As to each REO Property, the Borrower hereby represents and warrants to the
Lender as of the date the REO Property is acquired by an REO Subsidiary and
continually while it is owned by such REO Subsidiary:

 

(a) The REO Subsidiary has good and marketable fee simple title to the REO
Property, subject only to: (i) Permitted Liens; (ii) the lien of real property
taxes and assessments not yet subject to sale; (iii) covenants, conditions and
restrictions, rights of way, easements, other similar impairments to title and
other encumbrances of public record as of the date of recording which do not
adversely affect the market value of the REO Property; (iv) other matters to
which like properties are commonly subject which do not materially interfere
with the use, enjoyment, value or marketability of the REO Property, (v) any
unlawful holdover being prosecuted by the Servicer; (vi) any statutory right of
redemption and (vii) other Liens of record approved by the Lender in writing.

 

(b) The original deed to the related REO Property and related document of
conveyance reflecting on its face that title thereto is held by the related REO
Subsidiary and any other documents required to be delivered under the Custodial
Agreement for each REO Property have been delivered to the Custodian or if such
original deed has not been returned by the applicable County Recorder’s Office,
a copy of such deed certified by the Servicer as a true and correct copy of the
original submitted for recording.

 

(c) The Asset File contains a BPO or an Appraisal of the related REO Property.

 

(d) The Borrower has not sold, transferred, assigned or pledged orotherwise
conveyed or encumbered (except for Permitted Liens) any REO Property to any
Person other than the Lender except for Liens released simultaneously with the
grant of a security interest in favor of the Lender hereunder.

 

(e) The REO Subsidiary has not sold, transferred, assigned or pledged or
otherwise conveyed or encumbered (except for Permitted Liens) any REO Property
to any Person except for REO Properties the Sale Proceeds of which have been
deposited into the Collection Account.

 

Sched. 3-1

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

EXHIBIT A

 

[FORM OF PROMISSORY NOTE]

 

$150,000,000

June 27, 2005

 

New York, New York

 

FOR VALUE RECEIVED, NC CAPITAL CORPORATION, a California corporation (the
“Borrower”), hereby promises to pay to the order of CITIGROUP GLOBAL MARKETS
REALTY CORP. (as successor to Salomon Brothers Realty Corp.) (the “Lender”), at
the principal office of the Lender at 390 Greenwich Street, New York, New York
10013, in lawful money of the United States, and in immediately available funds,
the principal sum of ONE HUNDRED FIFTY MILLION DOLLARS ($150,000,000) (or such
lesser amount as shall equal the aggregate unpaid principal amount of the
Advances made by the Lender to the Borrower under the Loan Agreement), on the
dates and in the principal amounts provided in the Loan Agreement, and to pay
interest on the unpaid principal amount of each such Advance, at such office, in
like money and funds, for the period commencing on the date of such Advance
until such Advance shall be paid in full, at the rates per annum and on the
dates provided in the Loan Agreement.

 

The date, amount and interest rate of each Advance made by the Lender to the
Borrower, and each payment made on account of the principal thereof, shall be
recorded by the Lender on its books and, prior to any transfer of this Note,
endorsed by the Lender on the schedule attached hereto or any continuation
thereof; provided, that the failure of the Lender to make any such recordation
or endorsement shall not affect the obligations of the Borrower to make a
payment when due of any amount owing under the Loan Agreement or hereunder in
respect of the Advances made by the Lender.

 

This Note is the Note referred to in the Second Amended and Restated Master Loan
and Security Agreement dated as of June 27, 2005 (as amended, supplemented or
otherwise modified and in effect from time to time, the “Loan Agreement”) among
the Borrower; New Century Mortgage Corporation, New Century Financial
Corporation and the Lender, and evidences Advances made by the Lender
thereunder. Terms used but not defined in this Note have the respective meanings
assigned to them in the Loan Agreement.

 

The Borrower agrees to pay all the Lender’s costs of collection and enforcement
(including reasonable attorneys’ fees and disbursements of the Lender’s counsel)
in respect of this Note when incurred, including, without limitation, reasonable
attorneys’ fees through appellate proceedings.

 

Notwithstanding the pledge of the Collateral, the Borrower hereby acknowledges,
admits and agrees that the Borrower’s obligations under this Note are recourse
obligations of the Borrower to which the Borrower pledges its full faith and
credit.

 

The Borrower, and any endorsers or guarantors hereof (a) severally waive
diligence, presentment, protest and demand and also notice of protest, demand,
dishonor and nonpayments of this Note, (b) expressly agree that this Note, or
any payment hereunder, may be extended from time to time, and consent to the
acceptance of further Collateral, the release of any Collateral for this Note,
the release of any party primarily or secondarily liable hereon and (c)
expressly agree that it will not be necessary for the Lender, in order to
enforce payment of this Note, to first institute or exhaust the Lender’s
remedies against the Borrower or any other party liable hereon or against any
Collateral for this Note. No extension of time for the payment of this Note, or
any installment hereof made by agreement by the

 

A-1

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

Lender with any person now or hereafter liable for the payment of this Note,
shall affect the liability under this Note of the Borrower, even if the Borrower
is not a party to such agreement; provided, however, that the Lender and the
Borrower, by written agreement between them, may affect the liability of the
Borrower.

 

Any reference herein to the Lender shall be deemed to include and apply to every
subsequent holder of this Note. Reference is made to the Loan Agreement for
provisions concerning optional and mandatory prepayments, Collateral,
acceleration and other material terms affecting this Note.

 

The Borrower hereby submits to New York jurisdiction with respect to any action
brought with respect to this Note and waives any right with respect to the
doctrine of forum non conveniens with respect to such transactions.

 

This Note shall be governed by and construed under the laws of the State of New
York (without reference to choice of law doctrine but with reference to Section
5-1401 of the New York General Obligations Law, which by its terms applies to
this Note) whose laws the Borrower expressly elects to apply to this Note. The
Borrower agrees that any action or proceeding brought to enforce or arising out
of this Note may be commenced in the Supreme Court of the State of New York,
Borough of Manhattan, or in the District Court of the United States for the
Southern District of New York.

 

NC CAPITAL CORPORATION By:  

 

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

Name:     Title:    

 

 

A-2

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

SCHEDULE OF ADVANCES

 

This Note evidences Advances made under the within-described Loan Agreement to
the Borrower, on the dates, in the principal amounts and bearing interest at the
rates set forth below, and subject to the payments and prepayments of principal
set forth below:

 

Date Made

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

 

Principal Amount

of Loan

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

 

Amount Paid

or Prepaid

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

 

Unpaid Principal

Amount

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

 

Notation
Made by

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

 

 

 

A-3

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

EXHIBIT B

 

[FORM OF CUSTODIAL AGREEMENT]

 

B-1

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

EXHIBIT C

 

[FORM OF OPINION OF COUNSEL TO THE BORROWER]

 

[                    ], 2005

 

Citigroup Global Markets Realty Corp.

390 Greenwich Street

New York, New York 10013

 

Dear Sirs and Mesdames:

 

You have requested my opinion, as counsel to NC Capital Corporation, a
California corporation, (the “Borrower”), with respect to certain matters in
connection with that certain Second Amended and Restated Master Loan and
Security Agreement, dated as of [                    ], 2005 (the “Loan and
Security Agreement”), by and among the Borrower, New Century Mortgage
Corporation, New Century Financial Corporation and Citigroup Global Markets
Realty Corp. (the “Lender”), being executed contemporaneously with a Promissory
Note dated [                    ], 2005 from the Borrower to the Lender (the
“Note”), a Custodial Agreement, dated as of April 1, 2000 (the “Custodial
Agreement”), by and among the Borrower, U.S. Bank National Association (the
“Custodian”) and the Lender. Capitalized terms not otherwise defined herein have
the meanings set forth in the Loan and Security Agreement.

 

I have examined the following documents:

 

  1. the Loan and Security Agreement;

 

  2. the Note;

 

  3. the Custodial Agreement;

 

  4. unfiled copies of the financing statements listed on Schedule 1 to the Loan
and Security Agreement (collectively, the “Financing Statements”) naming the
Borrower as Debtor and the Lender as Secured Party and describing the Collateral
(as defined in the Loan and Security Agreement) as to which security interests
may be perfected by filing under the Uniform Commercial Code of the States
listed on Schedule 1 (the “Filing Collateral”), which I understand will be filed
in the filing offices listed on Schedule 1 (the “Filing Offices”); and

 

  5. such other documents, records and papers as I have deemed necessary and
relevant as a basis for this opinion.

 

To the extent I have deemed necessary and proper, I have relied upon the
representations and warranties of the Borrower contained in the Loan and
Security Agreement. I have assumed the authenticity of all documents submitted
to me as originals, the genuineness of all signatures, the legal capacity of
natural persons and the conformity to the originals of all documents.

 

Based upon the foregoing, it is my opinion that:

 

1. The Borrower is a corporation duly organized, validly existing and in good
standing under the laws of the State of California and is qualified to transact
business in, and is in good standing under, the laws of the State of California.

 

C-1

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

2. The Borrower has the corporate power to engage in the transactions
contemplated by the Loan and Security Agreement, the Note, and the Custodial
Agreement and all requisite corporate power, authority and legal right to
execute and deliver the Loan and Security Agreement, the Note, and the Custodial
Agreement and observe the terms and conditions of such instruments. The Borrower
has all requisite corporate power to borrow under the Loan and Security
Agreement and to grant a security interest in the Collateral pursuant to the
Loan and Security Agreement.

 

3. The execution, delivery and performance by the Borrower of the Loan and
Security Agreement, the Note, and the Custodial Agreement, and the borrowings by
the Borrower and the pledge of the Collateral under the Loan and Security
Agreement have been duly authorized by all necessary corporate action on the
part of the Borrower. Each of the Loan and Security Agreement, the Note and the
Custodial Agreement have been executed and delivered by the Borrower and are
legal, valid and binding agreements enforceable in accordance with their
respective terms against the Borrower, subject to bankruptcy laws and other
similar laws of general application affecting rights of creditors and subject to
the application of the rules of equity, including those respecting the
availability of specific performance, none of which will materially interfere
with the realization of the benefits provided thereunder or with the Lender’s
security interest in the Mortgage Loans.

 

4. No consent, approval, authorization or order of, and no filing or
registration with, any court or governmental agency or regulatory body is
required on the part of the Borrower for the execution, delivery or performance
by the Borrower of the Loan and Security Agreement, the Note and the Custodial
Agreement or for the borrowings by the Borrower under the Loan and Security
Agreement or the granting of a security interest to the Lender in the
Collateral, pursuant to the Loan and Security Agreement.

 

5. The execution, delivery and performance by the Borrower of, and the
consummation of the transactions contemplated by, the Loan and Security
Agreement, the Note and the Custodial Agreement do not and will not (a) violate
any provision of the Borrower’s certificate of incorporation or by-laws, (b)
violate any applicable law, rule or regulation, (c) violate any order, writ,
injunction or decree of any court or governmental authority or agency or any
arbitral award applicable to the Borrower of which I have knowledge (after due
inquiry) or (d) result in a breach of, constitute a default under, require any
consent under, or result in the acceleration or required prepayment of any
indebtedness pursuant to the terms of, any agreement or instrument of which I
have knowledge (after due inquiry) to which the Borrower is a party or by which
it is bound or to which it is subject, or (except for the Liens created pursuant
to the Loan and Security Agreement) result in the creation or imposition of any
Lien upon any Property of the Borrower pursuant to the terms of any such
agreement or instrument.

 

6. There is no action, suit, proceeding or investigation pending or, to the best
of my knowledge, threatened against the Borrower which, in my judgment, either
in any one instance or in the aggregate, would be reasonably likely to result in
any material adverse change in the properties, business or financial condition,
or prospects of the Borrower or in any material impairment of the right or
ability of the Borrower to carry on its business substantially as now conducted
or in any material liability on the part of the Borrower or which would draw
into question the validity of the Loan and Security Agreement, the Note, the
Custodial Agreement or the Mortgage Loans or of any action taken or to be taken
in connection with the transactions contemplated thereby, or which would be
reasonably likely to impair materially the ability of the Borrower to perform
under the terms of the Loan and Security Agreement, the Note, the Custodial
Agreement or the Mortgage Loans.

 

7. The Loan and Security Agreement is effective to create, in favor of the
Lender, a valid security interest under the Uniform Commercial Code in all of
the right, title and interest of the Borrower in, to and under the Collateral as
collateral security for the payment of the Secured Obligations (as

 

C-2

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

defined in the Loan and Security Agreement), except that (a) such security
interests will continue in Collateral after its sale, exchange or other
disposition only to the extent provided in Section 9-306 of the Uniform
Commercial Code, and (b) the security interests in Collateral in which the
Borrower acquires rights after the commencement of a case under the Bankruptcy
Code in respect of the Borrower may be limited by Section 552 of the Bankruptcy
Code.

 

8. When the Mortgage Notes are delivered to the Custodian, endorsed in blank by
a duly authorized officer of the Borrower, the security interest referred to in
paragraph 7 above in the Mortgage Notes will constitute a fully perfected first
priority security interest in all right, title and interest of the Borrower
therein, in the Mortgage Loan evidenced thereby and in the Borrower’s interest
in the related Mortgaged Property.

 

9. Upon the filing of financing statements on Form UCC-1 naming the Lender as
“Secured Party” and the Borrower as “Debtor”, and describing the Collateral, in
the jurisdictions and recording offices listed on Schedule 1 to the Loan and
Security Agreement, the security interests referred to in paragraph 7 above will
constitute fully perfected security interests under the Uniform Commercial Code
in all right, title and interest of the Borrower in, to and under such
Collateral, which can be perfected by filing under the Uniform Commercial Code.

 

10. The Assignments of Mortgage are in recordable form, except for the insertion
of the name of the assignee, and upon the name of the assignee being inserted,
are acceptable for recording under the laws of the state where each related
Mortgaged Property is located.

 

11. The Borrower is duly registered as a [                            ] in each
state in which Mortgage Loans were originated to the extent such registration is
required by applicable law, and has obtained all other licenses and governmental
approvals in each jurisdiction to the extent that the failure to obtain such
licenses and approvals would render any Mortgage Loan unenforceable or would
materially and adversely affect the ability of the Borrower to perform any of
its obligations under, or the enforceability of the Loan Documents.

 

12. Assuming that all other elements necessary to render a Mortgage Loan legal,
valid, binding and enforceable were present in connection with the execution,
delivery and performance of each Mortgage Loan (including completion of the
entire Mortgage Loan fully, accurately and in compliance with all applicable
laws, rules and regulations) and assuming further that no action was taken in
connection with the execution, delivery and performance of each Mortgage Loan
(including in connection with the sale of the related Mortgaged Property) that
would give rise to a defense to the legality, validity, binding effect and
enforceability of such Mortgage Loan, nothing in the forms of such Mortgage
Loans would tender such Mortgage Loans other than legal, valid, binding and
enforceable.

 

13. Assuming their validity, binding effect and enforceability in all other
respects (including completion of the entire Mortgage Loan fully, accurately and
in compliance with all applicable laws, rules and regulations), the forms of
Mortgage Loans are in sufficient compliance with                      law and
Federal consumer protection laws so as not to be rendered void or voidable at
the election of the Mortgagor thereunder.

 

Very truly yours,

 

 

 

C-3

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

EXHIBIT D

 

[FORM OF NOTICE OF BORROWING AND PLEDGE]

 

[insert date]

 

Citigroup Global Markets Realty Corp

390 Greenwich Street

New York, New York 10013

Attention: Joseph Little

 

Notice of Borrowing and Pledge No.:                                         
        

 

Ladies/Gentlemen:

 

Reference is made to the Second Amended and Restated Master Loan and Security
Agreement, dated as of June 27, 2005 (the “Loan Agreement”; capitalized terms
used but not otherwise defined herein shall have the meaning given them in the
Loan Agreement), among NC Capital Corporation (the “Borrower”), New Century
Mortgage Corporation, New Century Financial Corporation and Citigroup Global
Markets Realty Corp. (the “Lender”).

 

In accordance with Section 2.03 of the Loan Agreement, the undersigned Borrower
hereby requests that you, the Lender, make an Advance to us in connection with
our delivery of Eligible Assets on [DATE), which is at least three (3) Business
Days following the date of this request, in connection with which we shall
pledge to you as Collateral the Eligible Assets (along with all previous pledges
defined as Eligible Assets for such date) set forth on the Asset Schedule
attached hereto. The Borrower requests that such Advance be remitted by the
Lender by wire transfer to the following account:

 

    ABA Number:     AT-FN:     BFW:

 

The Borrower hereby certifies, as of such Funding Date, that:

 

(a) no Default or Event of Default has occurred and is continuing on the date
hereof nor will occur after giving effect to such Advance as a result of such
Advance;

 

(b) each of the representations and warranties made by the Borrower in or
pursuant to the Loan Documents is true and correct in all material respects on
and as of such date (in the case of the representations and warranties in
respect of Eligible Assets, solely with respect to Eligible Assets being
included in the Borrowing Base on the Funding Date) as if made on and as of the
date hereof (or, if any such representation or warranty is expressly stated to
have been made as of a specific date, as of such specific date);

 

(c) the Borrower is in compliance with all governmental licenses and
authorizations and is qualified to do business and is in good standing in all
required jurisdictions; and

 

(d) the Borrower has satisfied all conditions precedent in Section 5.02 of the
Loan Agreement and all other requirements of the Loan Agreement.

 

D-1

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

The undersigned duly authorized officer of the Borrower further represents and
warrants that (1) the documents constituting the Custodial File (as defined in
the Custodial Agreement) with respect to the Eligible Assets that are the
subject of the Advance requested herein and more specifically identified on the
mortgage loan schedule or computer readable magnetic transmission delivered to
both the Lender and the Custodian in connection herewith (the “Receipted
Assets”) have been or are hereby submitted to the Custodian and such Required
Documents are to be held by the Custodian subject to the Lender’s first priority
security interest thereon, (2) all other documents related to such Receipted
Mortgage Loans (including, but not limited to, mortgages, insurance policies,
loan applications and appraisals) have been or will be created and held by the
Borrower in trust for the Lender, (3) all documents related to such Receipted
Assets withdrawn from the Custodian shall be held in trust by the Borrower for
the Lender, and the Borrower will not attempt to pledge, hypothecate or
otherwise transfer such Receipted Assets to any other party until the Advance to
which such Receipted Assets are related has been paid in full by the Borrower
and (4) the Borrower has granted a first priority perfected security interest in
and lien on the Receipted Assets.

 

The Borrower hereby represents and warrants that (a) the Receipted Assets have
an unpaid principal balance as of the date hereof of $             and (b) the
number of Receipted Assets is     .

 

 

Very truly yours, NC CAPITAL CORPORATION By:  

 

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

Name:     Title:    

 

D-2

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

Schedule I

to Notice of Borrowing and Pledge

 

[ELIGIBLE ASSETS PROPOSED TO BE PLEDGED

TO LENDER ON FUNDING DATE]

 

[attach Asset Schedule]

 

Sched. I-1

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

EXHIBIT E

 

QUARTERLY CERTIFICATION

 

I,                                  of New Century Financial Corporation (the
“Guarantor”), in accordance with that certain Second Amended and Restated Master
Loan and Security Agreement (“Agreement”), dated as of June 27, 2005 among NC
Capital Corporation (“Borrower”), New Century Mortgage Corporation (“Servicer”),
Guarantor and Citigroup Global Markets Realty Corp. (“Lender”), do hereby
certify on behalf of Guarantor that:

 

(i) The Guarantor is in compliance with all provisions and terms of the
Agreement and no Default thereunder has occurred;

 

(ii) The Tangible Net Worth of the Guarantor is not less than the sum of (i)
$750,000,000 and (ii) fifty percent (50%) of all subsequent equity capital
raises as of the last day of each of its fiscal quarters;

 

(iii) The Guarantor’s ratio of Total Indebtedness to Tangible Net Worth is not
greater than 12:1 as of the fiscal quarter end; and

 

(iv) The Guarantor has maintained, on a consolidated basis, Cash and Cash
Equivalents in an amount not less than $60 million.

 

Capitalized terms used but not defined herein shall have the meanings assigned
thereto in the Agreement.

 

IN WITNESS WHEREOF, I have signed this certificate on behalf of Guarantor.

 

Date:                     , 200    

 

NEW CENTURY FINANCIAL CORPORATION By:  

 

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

Name:     Title:    

 

E-1

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EXHIBIT F

 

REQUIRED FIELDS FOR SERVICING TRANSMISSION

 

F-1

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EXHIBIT G

 

REQUIRED FIELDS FOR ASSET DATA TRANSMISSION

 

G-1

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

EXHIBIT H

 

[RESERVED]

 

H-1

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EXHIBIT I

 

[FORM OF REO SUBSIDIARY PLEDGE AGREEMENT]

 

REO SUBSIDIARY PLEDGE AGREEMENT

 

REO SUBSIDIARY PLEDGE AGREEMENT, dated as of December 29, 2004 made by NC
Capital Corporation, a California corporation (the “Borrower”), in favor of
CITIGROUP GLOBAL MARKETS REALTY CORP, a New York corporation (the “Lender”),
parties to the Loan Agreement referred to below.

 

RECITALS

 

Pursuant to the Amended and Restated Master Loan and Security Agreement, dated
as of December 29, 2004 (as amended, supplemented or otherwise modified from
time to time, the “Loan Agreement”), among the Borrower, New Century Mortgage
Corporation, New Century Financial Corporation and the Lender, the Lender has
agreed to make a loan to the Borrower upon the terms and subject to the
conditions set forth therein. Upon the formation of any REO Subsidiary (as
defined in the Loan Agreement) by the Borrower, the Borrower is required to
pledge the REO Subsidiary Pledged Stock (as defined in the Loan Agreement) to
the Lender to secure the Secured Obligations (as defined in the Loan Agreement),
and to provide to the Lender all such other documentation as required by the
Loan Agreement.

 

NOW, THEREFORE, in consideration of the premises and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Borrower hereby agrees with the Lender as follows:

 

Section 1. Defined Terms. Unless otherwise defined herein, terms which are
defined in the Loan Agreement and used herein are so used as so defined, and the
following terms shall have the following meanings:

 

“Additional Issuer” shall have the meaning ascribed to such term in Section 20
hereof.

 

“Collateral” means the Pledged Stock and all Proceeds.

 

“Issuer” means each of the corporations listed on Schedule I hereto (or deemed
to be listed thereon as provided in Section 20 hereof), as applicable, as an
issuer of Pledged Stock.

 

“Pledge Agreement” means this REO Subsidiary Pledge Agreement, as amended,
supplemented or otherwise modified from time to time.

 

“Pledged Stock” means the limited liability company membership interests, shares
of capital stock, partnership interests or other equity interests listed on
Schedule I hereto (or deemed to be listed thereon as provided in Section 20
hereof), together with all certificates, options or rights of any nature
whatsoever which may be issued or granted by any Issuer to the Borrower while
this Pledge Agreement is in effect.

 

“Proceeds” means all “proceeds” as such term is defined in Section 9-306(1) of
the Uniform Commercial Code in effect in the State of New York on the date
hereof and, in any event, shall include, without limitation, all dividends or
other income from the Pledged Stock, collections thereon or distributions with
respect thereto.

 

I-1

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Section 2. Pledge; Grant of Security Interest. The Borrower hereby delivers to
the Lender all the Pledged Stock (whether now owned by the Borrower or hereafter
acquired and whether now existing or hereafter coming into existence) and hereby
grants to the Lender a first security interest in the Collateral, as collateral
security for the prompt and complete payment and performance when due (whether
at the stated maturity, by acceleration or otherwise) of the Secured
Obligations.

 

Section 3. Stock Powers. Concurrently with the delivery to the Lender of each
certificate representing one or more shares or interests of the Pledged Stock,
the Borrower shall deliver an undated stock or transfer power covering such
certificate, duly executed in blank, if the Lender so requests signature
guaranteed.

 

Section 4. Representations and Warranties. The Borrower represents and warrants
that:

 

(a) this Pledge Agreement has been duly executed and delivered on behalf of the
Borrower and constitutes a legal, valid and binding obligation of the Borrower
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors’ rights generally and by general
equitable principles (whether enforcement is sought by proceedings in equity or
at law);

 

(b) all of the shares or interests of Pledged Stock are evidenced by
certificates, which certificates have been delivered to the Lender; and the
shares or interests of Pledged Stock constitute all the issued and outstanding
shares of all classes of the capital stock, membership interests, partnership
interests or other equity interests, as applicable, of each Issuer and are
represented by the certificates listed thereon;

 

(c) all the shares of the Pledged Stock have been duly and validly issued and,
if capital stock of a corporation, are fully paid and nonassessable;

 

(d) the Borrower is the record and beneficial owner of, and has title to, the
Pledged Stock, free of any and all Liens or options in favor of or claims of,
any other Person, except the Lien created by this Pledge Agreement; and

 

(e) upon delivery to the Lender of the certificates evidencing the Pledged Stock
(and assuming the continuing possession by the Lender of such certificates in
accordance with the requirements of applicable law), the Lien granted pursuant
to this Pledge Agreement will constitute a valid, perfected first priority Lien
on the Collateral, enforceable as such against all creditors of the Borrower and
any Persons purporting to purchase any Collateral from the Borrower.

 

Section 5. Covenants. The Borrower covenants and agrees with the Lender that,
from and after the date of this Pledge Agreement until the Secured Obligations
are paid in full:

 

(a) If the Borrower shall, as a result of its ownership of the Pledged Stock,
become entitled to receive or shall receive any stock or other certificate
(including, without limitation, any certificate representing a stock dividend or
a distribution in connection with any reclassification, increase or reduction of
capital or any certificate issued in connection with any reorganization), option
or rights, whether in addition to, in substitution of, as a conversion of, or in
exchange for any shares of the Pledged Stock, or otherwise in respect thereof,
the Borrower shall accept the same as the Lender’s agent, hold the

 

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same in trust for the Lender and deliver the same forthwith to the Lender in the
exact form received, duly indorsed by the Borrower to the Lender, if required,
together with an undated stock or transfer power covering such certificate duly
executed in blank and with, if the Lender so requests, signature guaranteed, to
be held by the Lender hereunder as additional collateral security for the
Secured Obligations. Any sums paid upon or in respect of the Pledged Stock upon
the liquidation or dissolution of any Issuer shall be paid over to the Lender to
be held by it hereunder as additional collateral security for the Secured
Obligations, and in case any distribution of capital shall be made on or in
respect of the Pledged Stock or any property shall be distributed upon or with
respect to the Pledged Stock pursuant to the recapitalization or
reclassification of the capital of any Issuer or pursuant to the reorganization
thereof, the property so distributed shall be delivered to the Lender and the
Issuer, subject to the terms hereof as additional collateral security for the
Secured Obligations. If any sums of money or property so paid or distributed in
respect of the Pledged Stock shall be received by the Borrower, the Borrower
shall, until such money or property is paid or delivered to the Lender, hold
such money or property in trust for the Lender segregated from other funds of
the Borrower, as additional collateral security for the Secured Obligations.

 

(b) Without the prior written consent of the Lender, the Borrower will not (i)
vote to enable, or take any other action to permit, any Issuer to issue any
stock or other equity securities of any nature or to issue any other securities
convertible into or granting the right to purchase or exchange for any stock or
other equity securities of the Issuer, or (ii) sell, assign, transfer, exchange
or otherwise dispose of, or grant any option with respect to, the Collateral, or
(iii) create, incur or permit to exist any Lien or option in favor of, or any
claim of any Person with respect to, any of the Collateral, or any interest
therein, except for the Lien provided for by this Pledge Agreement. The Borrower
will defend the right, title and interest of the Lender in and to the Collateral
against the claims and demands of all Persons whomsoever.

 

(c) At any time and from time to time, upon the written request of the Lender,
and at the sole expense of the Borrower, the Borrower will promptly and duly
execute and deliver such further instruments and documents and take such further
actions as the Lender may reasonably request for the purposes of obtaining or
preserving the full benefits of this Pledge Agreement and of the rights and
powers herein granted. If any amount payable under or in connection with any of
the Collateral shall be or become evidenced by any promissory note, other
instrument or chattel paper, such note, instrument or chattel paper shall be
immediately delivered to the Lender, duly endorsed in a manner satisfactory to
the Lender, to be held as Collateral pursuant to this Pledge Agreement.

 

(d) The Borrower agrees to pay, and to save the Lender harmless from, any and
all liabilities with respect to, or resulting from any delay in paying, any and
all stamp, excise, sales or other taxes which may be payable or determined to be
payable with respect to any of the Collateral or in connection with any of the
transactions contemplated by this Pledge Agreement.

 

Section 6. Cash Dividends; Voting Rights. Unless an Event of Default shall have
occurred and be continuing and the Lender shall have given notice to the
Borrower of the Lender’s intent to exercise its corresponding rights pursuant to
Section 7 below, the Borrower shall be permitted to receive all cash dividends
paid, to the extent permitted in the Loan Agreement, in respect of the Pledged
Stock and to exercise all voting and corporate rights with respect to the
Pledged Stock; provided, however, that no vote shall be cast or corporate right
exercised or other action taken which would impair the Collateral or which would
be inconsistent with or result in any violation of any provision of the Loan
Agreement the Note, this Pledge Agreement or the other Loan Documents.

 

Section 7. Rights of the Lender. (i) If an Event of Default shall occur and be
continuing and the Lender shall give notice of its intent to exercise such
rights to the Borrower: (i) the Lender shall have the right to receive any and
all cash dividends or distributions paid in respect of the

 

I-3

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Pledged Stock and make application thereof to the Secured Obligations in such
order as it may determine, and (ii) at the request of the Lender, all shares or
other interests of the Pledged Stock shall be registered in the name of the
Lender or its nominee, and the Lender or its nominee may thereafter exercise (A)
all voting, corporate and other rights pertaining to such shares or interests of
the Pledged Stock at any meeting of shareholders, members, partners or like
interest holders of any Issuer or otherwise and (B) any and all rights of
conversion, exchange, subscription and any other rights, privileges or options
pertaining to such shares of the Pledged Stock as if it were the absolute owner
thereof (including, without limitation, the right to exchange at its discretion
any and all of the Pledged Stock upon the merger, consolidation, reorganization,
recapitalization or other fundamental change in the structure of any Issuer, or
upon the exercise by the Borrower or the Lender of any right, privilege or
option pertaining to such shares or interests of the Pledged Stock, and in
connection therewith, the right to deposit and deliver any and all of the
Pledged Stock with any committee, depository, transfer agent, registrar or other
designated agency upon such terms and conditions as it may determine), all
without liability except to account for property actually received by it, but
the Lender shall have no duty to exercise any such right, privilege or option
and shall not be responsible for any failure to do so or delay in so doing.

 

(b) The rights of the Lender hereunder shall not be conditioned or contingent
upon the pursuit by the Lender of any right or remedy against any Issuer or
against any other Person which may be or become liable in respect of all or any
part of the Secured Obligations or against any other collateral security
therefor, guarantee thereof or right of offset with respect thereto. The Lender
shall not be liable for any failure to demand, collect or realize upon all or
any part of the Collateral or for any delay in doing so, nor shall it be under
any obligation to sell or otherwise dispose of any Collateral upon the request
of the Borrower or any other Person or to take any other action whatsoever with
regard to the Collateral or any part thereof.

 

Section 8. Remedies. If an Event of Default shall occur and be continuing, the
Lender may exercise, in addition to all other rights and remedies granted in
this Pledge Agreement and in any other instrument or agreement securing,
evidencing or relating to the Secured Obligations, all rights and remedies of a
secured party under the Uniform Commercial Code. Without limiting the generality
of the foregoing, the Lender, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon the Borrower, any Issuer or any
other Person (all and each of which demands, defenses, advertisements and
notices are hereby waived), may in such circumstances forthwith collect,
receive, appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell, assign, give option or options to purchase or
otherwise dispose of and deliver the Collateral or any part thereof (or contract
to do any of the foregoing), in one or more parcels at public or private sale or
sales, in the over-the-counter market, at any exchange broker’s board or office
of the Lender or elsewhere upon such terms and conditions as it may deem
advisable and at such prices as it may deem best, for cash or on credit or for
future delivery without assumption of any credit risk. The Lender shall have the
right upon any such public sale or sales, and, to the extent permitted by law,
upon any such private sale or sales, to purchase the whole or any part of the
Collateral so sold, free of any right or equity of redemption in the Borrower,
which right or equity is hereby waived or released. The Lender shall apply any
Proceeds from time to time held by it and the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred therein or
incidental to the care or safekeeping of any of the Collateral or in any way
relating to the Collateral or the rights of the Lender hereunder, including,
without limitation, reasonable attorneys’ fees and disbursements, to the payment
in whole or in part of the Secured Obligations, in such order as the Lender may
elect, and only after such application and after the payment by the Lender of
any other amount required by any provision of law, including, without
limitation, Section 9-504(1)(c) of the Uniform Commercial Code, need the Lender
account for the surplus, if any, to the Borrower. To the extent permitted by
applicable law, the Borrower waives all claims, damages and demands it may
acquire against the Lender arising out of the exercise by the Lender

 

I-4

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of any of its rights hereunder. If any notice of a proposed sale or other
disposition of Collateral shall be required by law, such notice shall be deemed
reasonable and proper if given at least 10 days before such sale or other
disposition. The Borrower shall remain liable for any deficiency if the proceeds
of any sale or other disposition of Collateral are insufficient to pay the
Secured Obligations and the fees and disbursements of any attorneys employed by
the Lender to collect such deficiency. The Borrower further waives and agrees
not to assert any rights or privileges which it may acquire under Section 9-112
of the Uniform Commercial Code.

 

Section 9. Private Sales. (i) The Borrower recognizes that the Lender may be
unable to effect a public sale of any or all the Pledged Stock, by reason of
certain prohibitions contained in the Securities Act of 1933, as amended (the
“Securities Act”) and applicable state securities laws or otherwise, and may be
compelled to resort to one or more private sales thereof to a restricted group
of purchasers which will be obliged to agree, among other things, to acquire
such securities for their own account for investment and not with a view to the
distribution or resale thereof. The Borrower acknowledges and agrees that any
such private sale may result in prices and other terms less favorable to the
Lender than if such sale were a public sale and, notwithstanding such
circumstances, agrees that any such private sale shall be deemed to have been
made in a commercially reasonable manner. The Lender shall be under no
obligation to delay a sale of any of the Pledged Stock for the period of time
necessary to permit each Issuer to register such securities for public sale
under the Securities Act, or under applicable state securities laws, even if
such Issuer would agree to do so.

 

(b) The Borrower further agrees to use its reasonable efforts to do or cause to
be done all such other acts as may be necessary to make any sale or sales of all
or any portion of the Pledged Stock pursuant to this Section 9 valid and binding
and in compliance with any and all other applicable Requirements of Law.

 

Section 10. No Subrogation. Notwithstanding any payment or payments made by the
Borrower hereunder, or any set-off or application of funds of the Borrower by
the Lender, or the receipt of any amounts by the Lender with respect to any of
the Collateral, the Borrower shall not assert any right it may have to be
subrogated to any of the rights of the Lender against any Issuer or against any
other collateral security held by the Lender for the payment of the Secured
Obligations, until the Secured Obligations shall have been paid in full.

 

Section 11. Amendments, etc. with Respect to the Secured Obligations. The
Borrower shall remain obligated hereunder, and the Collateral shall remain
subject to the Lien granted hereby, notwithstanding that, without any
reservation of rights against the Borrower, and without notice to or further
assent by the Borrower, any demand for payment of any of the Secured Obligations
made by the Lender may be rescinded by the Lender, and any of the Secured
Obligations continued, and the Secured Obligations, or the liability of any
Issuer or any other Person upon or for any part thereof, or any collateral
security or guarantee therefor or right of offset with respect thereto, may,
from time to time, in whole or in part, be renewed, extended, amended, modified,
accelerated, compromised, waived, surrendered or released by the Lender, and any
guarantee, right of offset or other collateral at any time held by the Lender
for the payment of the Secured Obligations may be sold, exchanged, waived,
surrendered or released. The Lender shall have no obligation to protect, secure,
perfect or insure any other Lien at any time held by it as security for the
Secured Obligations or any property subject thereto. The Borrower waives any and
all notice of the creation, renewal, extension or accrual of any of the Secured
Obligations and notice of or proof of reliance by the Lender upon this Pledge
Agreement; the Secured Obligations, and any of them, shall conclusively be
deemed to have been created, contracted or incurred in reliance upon this Pledge
Agreement; and all dealings among any one or more of the Issuers, the Borrower
or the Lender shall likewise be conclusively presumed to have been had or
consummated in reliance upon this Pledge Agreement. The Borrower waives
diligence, presentment and protest to or upon any Issuer or the Borrower with
respect to the Secured Obligations.

 

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Section 12. Limitation on Duties Regarding Collateral. The Lender’s sole duty
with respect to the custody, safekeeping and physical preservation of the
Collateral in its possession, under Section 9-207 of the Uniform Commercial Code
or otherwise, shall be to deal with it in the same manner as the Lender deals
with similar securities and property for its own account. The Lender or any of
its directors, officers, employees or agents shall not be liable for failure to
demand, collect or realize any obligation to sell or otherwise dispose of any
Collateral upon the request of the Borrower or otherwise.

 

Section 13. Powers Coupled with an Interest. All authorizations and agencies
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest.

 

Section 14. Severability. Any provision of this Pledge Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

 

Section 15. Section Headings. The section headings used in this Pledge Agreement
are for convenience of reference only and are not to affect the construction
hereof or be taken into consideration in the interpretation hereof.

 

Section 16. No Waiver; Cumulative Remedies. The Lender shall not by any act
(except by a written instrument pursuant to Section 17 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any Default or Event of Default or in any
breach of any of the terms and conditions hereof. No failure to exercise, nor
any delay in exercising, on the part of the Lender, any right, power or
privilege hereunder shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
A waiver by the Lender of any right or remedy hereunder on any one occasion
shall not be construed as a bar to any right or remedy which the Lender would
otherwise have on any future occasion. The rights and remedies herein provided
are cumulative, may be exercised singly or concurrently and are not exclusive of
any rights or remedies provided by law.

 

Section 17. Waivers and Amendments; Successors and Assigns; Governing Law. None
of the terms or provisions of this Pledge Agreement may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by
the Borrower and the Lender, provided that any provision of this Pledge
Agreement may be waived by the Lender in a letter or agreement executed by the
Lender or by telex or facsimile transmission from the Lender. This Pledge
Agreement shall be binding upon the successors and assigns of the Borrower and
shall inure to the benefit of the Lender and their respective successors and
assigns. Any assignment of this Pledge Agreement by the Borrower shall be
subject to the terms of the Loan Agreement. THIS PLEDGE AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.

 

Section 18. Notices. Notices by the Lender to the Borrower or any Issuer shall
be in writing and may be given by mail, or by facsimile transmission, addressed
or transmitted to the Borrower at its address set forth in the Loan Agreement
and shall be effective (a) in the case of mail, upon receipt, (b) one Business
Day following timely delivery to a nationally recognized overnight courier
service, and (c) in the case of facsimile notices, when sent and electronically
confirmed. Any of the Borrower or any Issuer may change its respective address
and transmission numbers by written notice to the Lender.

 

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Section 19. Irrevocable Authorization and Instruction to the Issuer. The
Borrower hereby authorizes and instructs each Issuer to comply with any
instruction received by it from the Lender in writing that (a) states that an
Event of Default has occurred and (b) is otherwise in accordance with the terms
of this Pledge Agreement, without any other or further instructions from the
Borrower, and the Borrower agrees that each Issuer shall be fully protected in
so complying.

 

Section 20. Additional Issuers. Pursuant to the Loan Agreement, the Borrower is
required to pledge all REO Subsidiary Pledged Stock of each REO Subsidiary that
was not in existence when this Pledge Agreement was executed and delivered. Upon
the formation of any such REO Subsidiary, the Borrower shall execute and deliver
a Supplement to this Pledge Agreement, substantially in the form of Exhibit B
attached hereto, together with all certificates and stock or transfer powers
relating to such REO Subsidiary Pledged Stock, and thereupon (i) each such REO
Subsidiary shall constitute an additional Issuer for all purposes hereof
(collectively, the “Additional Issuers”), (ii) Schedule I hereto shall be deemed
supplemented to include such REO Subsidiary Pledged Stock, and (iii) the
Borrower shall be deemed to represent and warrant all of the representations and
warranties set forth in this Pledge Agreement, as so supplemented, as of the
date of such Supplement.

 

Section 21. Other Liens. Notwithstanding anything to the contrary contained
herein, Liens previously granted by the Borrower in favor of the Lender or
future Liens that are granted by the Borrower in favor of the Lender will not
constitute a breach of this Pledge Agreement.

 

Section 22. Acknowledgment and Consent. Concurrently with the delivery of any
Pledged Stock hereunder, the Borrower shall cause the related Issuer to execute
and deliver to the Lender an Acknowledgment and Consent in the form of Exhibit A
attached hereto.

 

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IN WITNESS WHEREOF, the undersigned has caused this Pledge Agreement to be duly
executed and delivered as of this      day of April, 2000.

 

NC CAPITAL CORPORATION

 

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Name:

Title:

 

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Schedule I To

Pledge Agreement

 

DESCRIPTION OF PLEDGED STOCK

 

Name of Issuer and State of
Formation/Authorization

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

 

Class of Stock

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

 

Certificate No.

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

   No. of Shares

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

 

 

 

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Exhibit A to

Pledge Agreement

 

ACKNOWLEDGMENT AND CONSENT

 

The undersigned, the Issuer referred to in the foregoing Pledge Agreement,
hereby acknowledges receipt of a copy thereof and agrees to be bound thereby and
to comply with the terms thereof insofar as such terms are applicable to it. The
undersigned agrees to notify the Lender promptly in writing of the occurrence of
any of the events described in Section 5(a) of the Pledge Agreement. The
undersigned further agrees that the terms of Section 9(b) of the Pledge
Agreement and the Loan Agreement shall apply to it, with respect to all actions
that may be required of the Borrower under or pursuant to or arising out of this
Pledge Agreement and the Loan Agreement.

 

 

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

  , By:  

 

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Name:         Title:         Address for Notices:    

Attention:

Telecopier No.:

Telephone No.:

   

 

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Exhibit B to

Pledge Agreement

 

REO SUBSIDIARY PLEDGE AGREEMENT SUPPLEMENT

 

PLEDGE AGREEMENT SUPPLEMENT, dated as of                     ,              (the
“Supplement”), made by NC CAPITAL CORPORATION, a California corporation (the
“Borrower”), in favor of CITIGROUP GLOBAL MARKETS REALTY CORP., a New York
corporation (the “Lender”), under the Loan Agreement (as defined in the Pledge
Agreement referred to below).

 

1. Reference is hereby made to that REO Subsidiary Pledge Agreement, dated as of
December 29, 2004, made by the Borrower in favor of the Lender (as amended,
supplemented or otherwise modified as of the date hereof, the “Pledge
Agreement”). Terms defined in the Pledge Agreement are used herein as therein
defined.

 

2. The Borrower hereby confirms and reaffirms the security interest in the
Collateral granted to the Lender under the Pledge Agreement.

 

3. As additional collateral security for the prompt and complete payment when
due (whether at stated maturity, by acceleration or otherwise) of the Secured
Obligations, the Borrower hereby delivers to the Lender all of the issued and
outstanding shares or interests of the capital stock, membership interests,
limited partnership interests or other equity interests, as applicable, of the
Additional Issuers listed in Schedule I hereto, together with all certificates,
options, or rights of any nature whatsoever which may be issued or granted by
the Additional Issuers in respect of such shares or interests while the Pledge
Agreement, as supplemented hereby, is in force (the “Additional Pledged Stock”;
as used in the Pledge Agreement as supplemented by this Supplement, “Pledged
Stock” shall be deemed to include the Additional Pledged Stock) and hereby
grants to the Lender a first security interest in the Additional Pledged Stock
and all Proceeds thereof.

 

4. The Borrower shall provide to the Lender all such other documentation as
required by the Loan Agreement.

 

5. The Borrower hereby represents and warrants that the representations and
warranties contained in Section 4 of the Pledge Agreement are true and correct
on the date of this Supplement with references therein to the “Issuers” to
include the Additional Issuers, and with references to the “Pledge Agreement” to
mean the Pledge Agreement as supplemented by this Supplement.

 

6. This Supplement is supplemental to the Pledge Agreement, forms a part thereof
and is subject to the terms thereof. Schedule I to the Pledge Agreement shall
hereby be deemed to include each item listed on Schedule I to this Supplement.

 

7. This Supplement shall be governed by, and construed and interpreted in
accordance with, the laws of the State of New York.

 

8. Concurrently with the delivery of any Additional Pledged Stock hereunder, the
Borrower shall cause the Additional Issuers listed in Schedule I hereto to
execute and deliver to the Lender an Acknowledgment and Consent in the form of
Exhibit A attached hereto.

 

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IN WITNESS WHEREOF, the Borrower and the Lender have caused this REO Subsidiary
Pledge Agreement Supplement to be duly executed and delivered on this      day
of                     .

 

NC CAPITAL CORPORATION By:  

 

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Name:     Title:     CITIGROUP GLOBAL MARKETS REALTY CORP. By:  

 

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

Name:     Title:    

 

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Schedule I to

REO Subsidiary Pledge Agreement Supplement

 

DESCRIPTION OF ADDITIONAL PLEDGED STOCK

 

Name of each Additional

Issuer and State of

Formation/Authorization

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  Class of Stock

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  Certificate No.

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  No. of Shares

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[Name of Additional Issuer]
a [                    ]            

 

I-13

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Exhibit A to

REO Subsidiary Pledge Agreement Supplement

 

ACKNOWLEDGMENT AND CONSENT

 

Each of the undersigned Additional Issuers hereby acknowledges receipt of a copy
of the foregoing Supplement and the Pledge Agreement referred to therein (the
“Pledge Agreement”). The undersigned agrees for the benefit of the Lender as
follows:

 

1. The undersigned will be bound by the terms of the Pledge Agreement and will
comply with such terms insofar as such terms are applicable to the undersigned.

 

2. The undersigned will notify the Lender promptly in writing of the occurrence
of any of the events described in Section 5(a) of the Pledge Agreement.

 

3. The terms of Section 9(b) of the Pledge Agreement and the Loan Agreement
apply to it, mutatis mutandis, with respect to all actions that may be required
of the Borrower under or pursuant to or arising out of this Pledge Agreement and
the Loan Agreement.

 

[List each Additional Issuer]

a [                    ]

By:  

 

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Name:     Title:    

Address for Notices:

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[Street Address]

[City, State, Zip Code]

Attention:

Telephone:

Telecopy:

 

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