EXHIBIT 10.7

 

SCHEDULE

to the Master Agreement

(Multicurrency – Cross Border)

dated as of September 5, 2003

 

between

 

CITIBANK, N.A.

(“Party A”),

a national banking association organized

under the laws of the United States

 

and

 

VON KARMAN FUNDING LLC

(“Party B”)

a limited liability company organized

under the laws of Delaware

 

Part 1. Termination Provisions

 

In this Agreement:

 

(a) “Specified Entity” means in relation to Party A for the purpose of:

 

Section 5(a)(v)   Not Applicable.         Section 5(a)(vi)   Not Applicable.    
    Section 5(a)(vii)   Not Applicable.         Section 5(b)(iv)   Not
Applicable.                      

 

  and in relation to Party B for the purpose of:

 

Section 5(a)(v)   Not Applicable.         Section 5(a)(vi)   Not Applicable.    
    Section 5(a)(vii)   Not Applicable.         Section 5(b)(iv)   Not
Applicable.                      

 

(b) “Specified Transaction” will have the meaning specified in Section 14 of
this Agreement.

 

(c) (i)    The provisions of Section 5(a) and Section 5(b) (as modified by (g)
below) will apply to Party A and to Party B as follows:

 

The designation below of an Event of Default as being “Applicable” to a specific
party means that upon the occurrence of such an Event of Default with respect to
such party, the other party shall have the rights of a Non-defaulting Party
under Section 6 of the Agreement, and conversely,

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the designation of such an event as being “Not Applicable” means that such other
party shall not have such right.

 

(ii)

 

Section 5(a)

   Party A

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   Party B

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(i)

 

“Failure to Pay or Deliver”

   Applicable.    Applicable.

(ii)

 

“Breach of Agreement”

   Applicable.    Not Applicable.

(iii)

 

“Credit Support Default”

   Applicable.    Not Applicable.

(iv)

 

“Misrepresentation”

   Applicable.    Not Applicable.

(v)

 

“Default under Specified Transaction”

   Not Applicable.    Not Applicable.

(vi)

 

“Cross Default”

   Not Applicable.    Not Applicable.

(vii)

 

“Bankruptcy”

   Applicable.    Applicable.

(viii)

 

“Merger Without Assumption”

   Applicable.    Applicable.

 

provided that Section (5)(a)(i) of this Agreement is amended, subject to Part
5(i) of this Schedule, to read as follows:

 

Failure to Pay or Deliver. Failure by the party to make, on the date when due,
any payment under this Agreement or delivery under Section 2(a)(i) or 2(e)
required to be made by it if such failure is not remedied on or before the first
Local Business Day after notice (including notice via email or facsimile) of
such failure is given to the party.

 

The designation below of a Termination Event as being “Applicable” to a specific
party means that upon the occurrence of such Termination Event with respect to
such party, either party in the case of an Illegality, the Burdened Party in the
case of a Tax Event Upon Merger, or the party which is not the Affected Party in
the case of a Credit Event Upon Merger or an Additional Termination Event if
there is only one Affected Party, as the case may be, shall have the right to
terminate the Transaction in accordance with Section 6 (b) of the Agreement, and
conversely, the designation of such an event as being “Not Applicable” means
that neither party shall have the right to terminate the Transaction in
accordance with Section 6(b) of the Agreement upon the occurrence of such
Termination Event with respect to such party.

 

Section 5(b)    Party A

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   Party B

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(i)

 

“Illegality”

   Applicable.    Applicable.

(ii)

 

“Tax Event”

   Not Applicable.    Not Applicable.

(iii)

 

“Tax Event Upon Merger”

   Applicable.    Not Applicable.

(iv)

 

“Credit Event Upon Merger”

   Applicable.    Not Applicable.

(v)

 

“Additional Termination Event”

   Applicable.    Not Applicable.

 

(d)    Payments on Early Termination.  Notwithstanding Section 6(e) of the
Agreement, upon the occurrence or effective designation of an Early Termination
Date, no termination payments shall be payable by either party except as set
forth in Part 5(b) of this Schedule.

 

(e)    “Termination Currency” means United States Dollars (“USD”).

 

(f)    The “Automatic Early Termination” provisions of Section 6(a) will not
apply to Party A or Party B.

 

(g)    The following shall be specified as an “Additional Termination Event”
pursuant to Section 5(b)(v):

 

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Party A Downgrade. The occurrence and continuation of a Termination Event
following the expiration of the applicable 30 day grace period pursuant to Part
5(p) herein, in which case, the Early Termination Date for the Transaction shall
be the date designated by Party B, subject to Part 5(b)(v) of this Schedule. For
purposes of the foregoing Additional Termination Event, Party A shall be the
Affected Party.

 

Part 2.    Tax Representations.

 

(a)    Payer Tax Representations.  For the purpose of Section 3(e) of this
Agreement, Party A and Party B will each make the following representation:

 

It is not required by any applicable law, as modified by the practice of any
relevant governmental revenue authority, of any Relevant Jurisdiction to make
any deduction or withholding for or on account of any Tax from any payment
(other than interest under Section 2(e), 6(d)(ii) or 6(e) of this Agreement) to
be made by it to the other party under this Agreement. In making this
representation, it may rely on (i) the accuracy of any representations made by
the other party pursuant to Section 3(f) of this Agreement, (ii) the
satisfaction of the agreement of the other party contained in Section 4(a)(i) or
4(a)(iii) of this Agreement and the accuracy and effectiveness of any document
provided by the other party pursuant to Section 4(a)(i) or 4(a)(iii) of this
Agreement and (iii) the satisfaction of the agreement of the other party
contained in Section 4(d) of this Agreement, provided that it shall not be a
breach of this representation where reliance is placed on clause (ii) and the
other party does not deliver a form or document under Section 4(a)(iii) by
reason of material prejudice to its legal or commercial position.

 

(b)    Payee Tax Representations.  For the purpose of Section 3(f) of this
Agreement, Party A and Party B will make the following representations specified
below, if any:

 

The following representation will apply to Party A:

 

It is a national banking association organized under the laws of the United
States and its U.S. taxpayer identification number is 13-5266470. It is “exempt”
within the meaning of Treasury Regulation sections 1.6041-3(p) and 1.6049-4(c)
from information reporting on Form 1099 and backup withholding.

 

The following representation will apply to Party B: It is a limited liability
company organized under the laws of Delaware.

 

Part 3.    Agreement to Deliver Documents.

 

Section 4(a) of this Agreement is amended by deleting the following in the first
sentence thereof:

 

, in certain cases under subparagraph (iii) below,

 

Section 4(a)(iii) of this Agreement is amended to read as follows:

 

any forms, documents or certificates that may be required or reasonably
requested in order to allow such other party to make a payment under this
Agreement or any applicable Credit Support Document without any deduction or
withholding for or on account of any Tax, or with such deduction or withholding
at a reduced rate, with any

 

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such forms, documents or certificates to be accurate and completed in a manner
reasonably satisfactory to such other party, and to be executed and to be
delivered with any required certification to such other party (or to such
government or taxing authority as such other party reasonably directs), promptly
upon the earlier of (A) reasonable demand by such other party and (B) learning
that any such forms, documents or certificates are required;

 

For the purpose of Section 4(a)(i) and Section 4(a)(ii) of this Agreement, Party
A and Party B each agree to deliver the following documents, as applicable:

 

Documents to be delivered are:

 

Party required to

deliver document

   Form, Document or
Certificate    Date by which to be
Delivered   

Covered by

Section 3(d)

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Party A

   An opinion of counsel to Party A acceptable to counsel of Party B.    Upon
execution of this Agreement.    No

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Party A

   An incumbency certificate with respect to the signatory of this Agreement.   
Upon execution of this Agreement.    Yes

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Party B

   An opinion of counsel to Party B acceptable to counsel of Party A.    Upon
execution of this Agreement.    No

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Party B

   An incumbency certificate with respect to the signatory of this Agreement.   
Upon execution of this Agreement.    Yes

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Party B

   Executed copies of each Program Document and each amendment thereof.    Upon
execution of this Agreement and on the date of each amendment thereof.    Yes

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Party A and Party B

   An executed U.S. Internal Revenue Service Form W-9 (or any successor
thereto).    (i) Before the first Payment Date under this Agreement, (ii)
promptly upon reasonable demand by Party A and (iii) promptly upon a party
learning that any such form previously provided by such party has become
obsolete or incorrect.    N/A

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Party B

   Copy of each notice and/or report received or delivered by the Issuer
pursuant to the Program Documents.    As provided in the Program Documents.   
Yes

 

Part 4.    Miscellaneous.

 

(a) Addresses for Notices. For the purpose of Section 12(a):

 

  Address for notices or communications to Party A:

 

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     Address:    Citibank, N.A.                333 West 34th Street            
   2nd Floor                New York, New York 10001                           
Attention:    Director Derivatives Operations           Facsimile:    (212)
615-8594                            In addition, in the case of notices or
communications relating to Section 5, 6, 11 or 13 of this Agreement, a second
copy of any such notice or communication shall be addressed to the attention of
the legal department of Citibank as follows:                       Address:   
Capital Markets Legal Department                250 West Street               
10th Floor                New York, New York 10013     

 

 

Attention:    Department Head                  (For all purposes)            
Address for notices or communications to Party B:                  Address:   
Von Karman Funding LLC           18400 Von Karman, Suite 1000           Irvine,
California 92612                       Attention: Kevin Cloyd (with copies to
General Counsel)           Facsimile: 949-440-7033           Telephone:
949-440-7030                  Address for notices or communications to Moody’s:
                 Address:    Moody’s Investors Service, Inc.           99 Church
Street           New York, New York 10007           Attention: Asset Backed
Commercial Paper Group           Facsimile No: (212) 553-0300                 
Address for notices or communications to S&P:                  Address:   
Standard & Poor’s,           a division of The McGraw-Hill Companies, Inc.     
     55 Water Street           New York, New York 10041           Attention:
Asset Backed Surveillance Group           Facsimile No: (212) 438-2647          
       Address for notices to Servicer:     

 

 

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Address:    New Century Mortgage Corporation           18400 Von Karman, Suite
1000           Irvine, California 92612                       Attention: Kevin
Cloyd (with copies to General Counsel)           Facsimile: 949-440-7033       
   Telephone: 949-440-7030                 

 

Notices under this Agreement and the Transaction shall be sent to Moody’s and
S&P only to the extent specifically required in the transaction confirmation.

 

(b) Process Agent.  For the purpose of Section 13(c):

 

  Party A appoints as its Process Agent: Not Applicable.

 

  Party B appoints as its Process Agent: Not Applicable.

 

(c) Offices.  The provisions of Section 10(a) will apply to Party A and will not
apply to Party B.

 

(d) Multibranch Party.  For the purpose of Section 10(c) of this Agreement:-

 

  Party A is not a Multibranch Party.

 

  Party B is not a Multibranch Party.

 

(e) Calculation Agent.  The Servicer (as set forth in detail in the
Confirmation).

 

(f) Credit Support Document.    Details of any Credit Support Document:

 

  In the case of Party A: The 1994 ISDA Credit Support Annex (New York law) and
paragraph 13 thereto (attached hereto as Exhibit A); provided that Party A shall
only be required to post Eligible Collateral pursuant to Part 5(p) of this
Schedule.

 

  In the case of Party B: The Security Agreement.

 

  Notwithstanding the foregoing, each Party hereto acknowledges and agrees that
“Credit Support Default” and “Misrepresentation” (Section 5(a)(iii) and Section
5(a)(iv), respectively, of the Agreement) shall not constitute Events of Default
applicable to Party B.

 

(g) Credit Support Provider.

 

  Credit Support Provider means in relation to Party A: Not Applicable.

  Credit Support Provider means in relation to Party B: Not Applicable.

 

(h) “Affiliate” will have the meaning specified in Section 14 of this Agreement.

 

(i)    GOVERNING LAW.  THIS AGREEMENT WILL BE GOVERNED BY, CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO
CONFLICTS OF LAWS PROVISIONS THEREOF).

 

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(j)    Netting of Payments   Section 2(c)(ii) will apply .with respect to all
payments under this Agreement. For purposes of netting pursuant to Section
2(c)(ii), payments made on the Business Day before a Payment Date shall be
deemed to be made on such Payment Date.

 

(k)    Account Detail:

 

  Payments to Party A: The Account described in the related Confirmation

  Payments to Party B: Collateral Account under the Security Agreement

 

Part 5. Other Provisions.

 

(a)    Confirmation.  The Confirmation, as amended and supplemented from time to
time, supplements, forms part of, and will be read and construed as one with the
Agreement. The parties hereby agree and acknowledge that the Transaction entered
into pursuant to the Confirmation, dated as of the date hereof and bearing the
Reference No. 50034056, between the parties shall constitute the sole
Transaction under this Agreement.

 

(b)    Early Termination.

 

  (i) Section 6(b)(ii) is hereby amended by adding at the end of the first
paragraph the following:

 

“, provided that the party seeking to make the transfer such that such
Termination Event ceases to exist shall deliver to the Servicer and Party B (in
the case of transfers by Party A) or to Party A (in the case of transfers by
Party B) written confirmation from each Rating Agency that such transfer will
not result in the then-current rating of any series of Senior Notes outstanding
being withdrawn or lowered.”

 

  (ii) Payments on Early Termination. If an Early Termination Date is designated
with respect to Party A or Party B, no termination payments under Section 6(e)
shall be payable by either party, except (A) each Party shall make all payments
pursuant to the Confirmation through and including the Early Termination Date;
and (B) without duplication of the amounts payable pursuant to the foregoing
clause (A), Party A shall pay to Party B the Unpaid Amounts owing to Party B by
Party A as of the Early Termination Date and Party B shall pay to Party A the
Unpaid Amounts owing to Party A by Party B as of the Early Termination Date, and
neither party shall have any further liability in respect of the termination of
this Agreement except as set forth in this Schedule and the Confirmation;
provided, however, if Party A is the sole Defaulting Party or sole Affected
Party prior to the designation of an Early Termination Date or an Early
Termination Date is deemed to occur, Party A shall make or cause to be made such
payments (if any) to the Successor Counterparty (as defined below) in the amount
and manner as are specified below in Part 5(b)(iii) hereof.

 

  (iii) (A)    In the event that an Event of Default or Termination Event has
occurred and Party A is the sole Defaulting Party or sole Affected Party, Party
A and Party B agree as follows:

 

(1)    Party A shall give prompt written notice of such Event of Default or
Termination Event to Party B, the Servicer, Moody’s and S&P.

 

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(2)    Commencing with the date of such Event of Default or Termination Event,
Party A shall use its reasonable efforts to cooperate with Party B and the
Servicer to transfer Party A’s rights and duties hereunder and any hedge
transaction to (or otherwise procure a replacement transaction with terms
substantially similar to this Transaction with) a successor to Party A having a
short-term unsecured and unguaranteed debt rating of “A-1+” by S&P and “P-1” by
Moody’s and, if rated by Fitch, “F1+” by Fitch and a long-term debt rating of at
least “AA-” by S&P and “Aa3” by Moody’s and, if rated by Fitch, “AA-” by Fitch
(a “Successor Counterparty”), such that the ratings of the Senior Notes and the
Extended Notes by each Rating Agency will not be withdrawn or reduced below the
ratings of the Senior Notes and the Extended Notes prior to such Event of
Default or Termination Event.

 

(3)    Party B shall not designate an Early Termination Date unless (i) a
Successor Counterparty is appointed and the requirements of Part 5(b)(iii)(A)(2)
of this Schedule are otherwise satisfied upon designation of such Early
Termination Date or (ii) a termination of the Program has commenced pursuant to
Section 11.2 under the Mortgage Loan Purchase and Servicing Agreement (in which
case, the Early Termination Date shall be deemed to be the Program Termination
Date (as defined below)).

 

(4)    Party A shall bear or otherwise reimburse Party B and the Servicer for
all reasonable costs associated with the actions required by Part
5(b)(iii)(A)(2) of this Schedule. For the avoidance of doubt, to the extent such
costs have been paid by Party A to Party B pursuant to Section 2(e) or Section
11 of the Agreement, such costs will not be included in the calculation of
amounts payable pursuant to this provision of the Schedule.

 

(B)    If, pursuant to Part 5(b)(iii)(A) of this Schedule, Party B replaces this
Transaction with a substantially similar transaction (the “Successor Swap”) with
a Successor Counterparty (instead of an assignment or transfer of Party A’s
rights and obligations hereunder):

 

(1)    the Calculation Agent shall calculate an amount that would be payable to
(or by) Party B assuming (w) the Transaction and any hedge transaction were
Terminated Transactions, (x) that Section 6(e)(i)(3) of the 1992 ISDA
Multicurrency-Cross Border Master Agreement were applicable, (y) that Party A
was the Defaulting Party and (z) that the Early Termination Date was the date
the Successor Counterparty entered into such replacement transaction (the
“Successor Swap Amount”); and

 

(2)    the payment by Party A or the receipt from the Successor Counterparty of
the Successor Swap Amount in accordance with Part 5(b)(iii)(B)(1) of this
Schedule and any amounts determined pursuant to Part 5(b)(iii)(A)(4) of this
Schedule shall constitute satisfaction in full of the respective obligations of
Party B to Party A and of Party A to Party B in respect of the termination of
the Transaction and any hedge transaction.

 

(iv)    In the event that an Event of Default or Termination Event has occurred
and Party B is the sole Defaulting Party or sole Affected Party, notwithstanding
the provisions of Sections 6(a) and 6(b) of this Agreement, Party A may send
notice to Party B declaring such Event of Default or Termination Event and the
Early Termination Date shall be deemed to be the later of (i) the date upon
which the last Mortgage Loan is sold pursuant to Section 11.2 of the Mortgage
Loan Purchase and Servicing Agreement and (ii) the date on which all principal
and interest due on the Senior Notes is paid (the later of such two dates, the
“Program Termination Date”).

 

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(v)    Notwithstanding the provisions in this Agreement, if an Early Termination
Date is designated, the Early Termination Date shall occur on the Program
Termination Date (subject to transfer provisions in Part 5(b)(iii)(A) above).

 

(c)    No Bankruptcy Petition.  Prior to the date that is one year and one day
after the payment in full of any Senior Note issued by Party B (or such longer
preference period as may be in effect at such time), Party A, in its capacity as
Swap Counterparty, shall not institute against, or join any other person in
instituting against, Party B, any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings, or other proceedings under any federal or
state bankruptcy or similar law. Nothing herein shall prevent Party A from
participating in any such proceeding once commenced by another entity.

 

(d)    Transfer.  Section 7 is hereby amended by:

 

  (i) adding the words “(and notice of the transferee to)” after the word “of”
in the third line thereof, and (ii) adding the words “(subject to providing
three Business Days prior written notice of the transferee to the other party
and to each Rating Agency)” after the word “transfer” in the fourth and seventh
line thereof.

 

  (ii) adding at the end thereof:

 

    “Any party making any such transfer shall deliver to the other party and the
Servicer written confirmation from each Rating Agency that such transfer will
not result in the then-current rating of any series of the Senior Notes
outstanding being withdrawn or lowered.”

 

  (iii) adding a new paragraph 7(c) reading as follows:

 

    “(c) Notwithstanding anything to the contrary set forth in the Agreement,
Party A agrees to the assignment to Deutsche Bank Trust Company Americas as
Collateral Agent under the Security Agreement, for the benefit of the Secured
Parties under the Security Agreement of, and the grant to the Collateral Agent
for the benefit of each Secured Party of a security interest in, the rights of
Party B under this Agreement and the Confirmation. Party A further consents to
and agrees that in connection with the realization of any of the Secured
Parties’ rights (including Party A’s rights) under the Security Agreement, that
the Collateral Agent, on behalf of the Secured Parties (including Party A) is
entitled to, and shall have, all rights of Party B hereunder.

 

(e)    Eligible Contract Participant.  Party A and Party B represent to the
other that on the date hereof and on each date on which a Transaction is entered
into between them that: (a) It is an “eligible contract participant” within the
meaning of Section 1a(12) of the Commodity Exchange Act, as amended; (b) this
Agreement and each Transaction is subject to individual negotiation by each
Party; and (c) neither this Agreement nor any Transaction will be executed or
traded on a “trading facility” within the meaning of Section 1a(33) of the
Commodity Exchange Act, as amended.

 

(f)    WAIVER OF RIGHT TO TRIAL BY JURY.  EACH OF THE PARTIES HEREBY IRREVOCABLY
WAIVES ANY AND ALL RIGHT TO A TRIAL BY JURY WITH RESPECT TO ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY TRANSACTION.

 

(g)    Amendments.  Section 9(b) of this Agreement is hereby amended by adding
the following after the word “system” in the last line thereof:

 

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“, provided, however, that each Rating Agency shall receive prior written notice
of all such amendments, modifications or waivers; provided, further, that each
material amendment, modification or waiver shall require, prior to its
effectiveness, the written confirmation of each Rating Agency that such material
amendment, modification or waiver shall not result in the then-current rating of
any series of Senior Notes outstanding being withdrawn or lowered.”

 

(h)    Section 2.  Section 2(e) of the Agreement shall not apply to payments to
be made by Party B.

 

(i)    Section 5.  Section 5(a)(i) of the Agreement is hereby amended by
deleting the words “the party” in the last line thereof and replacing such
language with the following:

 

“the Collateral Agent and the party, provided that any payment default may be
cured on behalf of Party B by the Collateral Agent prior to designation of an
Early Termination Date (but the Collateral Agent shall have no obligation to do
so)”

 

(j)    Expenses.  Section 11 of the Agreement is hereby amended by deleting the
words “A Defaulting Party” in the first line thereof and “the Defaulting Party”
in the fourth line thereof and replacing such language with the following:

 

  “Party A, to the extent that it is a Defaulting Party,”

 

(k)    Relationship Between Parties.  With respect to each Transaction
hereunder:

 

  (i) Non-Reliance.  Each party represents and warrants that it is acting for
its own account, and it has made its own independent decisions to enter into
that Transaction and as to whether that Transaction is appropriate or proper for
it is based upon its own judgment and upon advice from such advisors as it has
deemed necessary. It is not relying on any communication (written or oral) of
the other party as investment advice or as a recommendation to enter into that
Transaction; it being understood that information and explanations related to
the terms and conditions of a Transaction shall not be considered investment
advice or a recommendation to enter into that Transaction. It has not received
from the other party any assurance or guarantee as to the expected results of
that Transaction.

 

  (ii) Evaluation and Understanding.  It is capable of evaluating and
understanding (on its own behalf or through independent professional advice),
and understands and accepts the terms, conditions and risks of that Transaction.
It is also capable of assuming, and assumes, the financial and other risks of
that Transaction.

 

  (iii) Status of Parties.  The other party is not acting as a fiduciary or an
advisor for it in respect of that Transaction.

 

(l)    Amendment of the Program Documents.  Party B agrees that it shall not
make any amendment to any Program Document without the written consent of Party
A (such consent not to be unreasonably withheld).

 

(m)    Limited Recourse to Party B.  Notwithstanding anything to the contrary
contained herein, all obligations of Party B under Section 2(a)(i) of this
Agreement shall be payable by Party B only on a Payment Date or Interim Payment
Date (each as defined in the related Confirmation of the Transaction) and only
to the extent of funds available therefor in the Collateral Account as provided
in Section 2.01, Section 6.03 or Section 6.06 of the Security Agreement and, to
the extent such funds are not available or

 

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are insufficient for the payment thereof, shall not constitute a claim against
Party B to the extent of such unavailability or insufficiency until such time as
Party B has assets sufficient to pay such prior deficiency. This paragraph shall
survive the termination of this Agreement but in all cases shall expire
concurrently with the earlier to occur of (i) the restriction specified in Part
5(c) and (ii) the commencement of any bankruptcy, insolvency or liquidation
proceeding or other proceeding under any Federal or state bankruptcy law with
respect to Party B.

 

(n)    No Recourse.  The obligations of Party B hereunder are solely the
obligations of Party B and no recourse shall be had with respect to this
Agreement, any of the obligations of Party B hereunder or for the payment of any
fee or other amount payable hereunder or for any claim based on, arising out of
or relating to any provision of this Agreement against any member, stockholder,
employee, officer, director, incorporator, trustee, affiliate, agent or servant
of Party B except to the extent that any such claim arises as a result of the
intentional misconduct, fraud, bad faith and/or gross negligence of such
persons. The provisions of this paragraph shall survive the termination of this
Agreement.

 

(o)    Notice of Payment Amounts.  The Calculation Agent shall provide (via
email or facsimile) Party A with estimates of payments to be made by each of
Party A and Party B (including a breakdown of the components of each payment)
under the Agreement on the next following Payment Date, Interim Payment Date and
Party A Accrued Interest Payment Date (as defined in the Confirmation). Such
estimates shall be provided (i) by 4:00 p.m. (New York City time) of the second
Business Day prior to each such monthly Payment Date and Party A Accrued
Interest Payment Date and (ii) by 4:00 p.m. (New York City time) of the first
Business Day prior to each such Interim Payment Date. Final confirmation of the
actual amounts to be wired shall be provided (via e-mail or facsimile and
confirmed by telephone) by no later than 12:00 noon (New York City time) on each
such Interim Payment Date and on the Business Day immediately prior to each such
monthly Payment Date and Party A Accrued Interest Payment Date.

 

(p)    Reduction of Swap Counterparty’s Rating.  In the event that Party A’s
short-term senior unsecured deposit rating is withdrawn or reduced below “A-l+”
by S&P or “P-1” by Moody’s and, if rated by Fitch, “F1+” by Fitch Party A is
obligated to immediately provide written notice thereof to Party B and, within
30 days after such rating withdrawal or reduction (if such withdrawal or
reduction is continuing), to either, in its discretion (i) establish any
arrangement with Moody’s or S&P, as the case may be, including obtaining a
backup swap counterparty, (ii) obtain replacement total return swap agreements
with terms substantially the same as this Agreement, or (iii) execute and
deliver to Party B the Credit Support Document, in any such case such that Party
A shall receive written confirmation that the rating of each series of Senior
Notes outstanding by the applicable rating agency will not be withdrawn or
reduced below the applicable rating of each series of Senior Notes outstanding
existing immediately prior to such downgrade, as applicable; provided, however,
that the preceding provisions may be modified, without the consent of the
holders of the Senior Notes, if the Member and the Collateral Agent shall have
been provided with a letter from Moody’s and S&P to the effect that any such
modification will not adversely affect the ratings on all series of Senior Notes
outstanding. Any costs associated with obtaining a replacement swap agreement or
establishing any other arrangement satisfactory to the applicable rating agency
will be borne by Party A. No failure on the part of Party A to effect any of the
alternatives specified above shall constitute an Event of Default with respect
to Party A. Rather, following the 30-day period, a Termination Event shall be
deemed to have occurred with Party A as the Affected Party.

 

(q)    Additional Swap Counterparties.  To the extent that Party B enters into
total return swap agreements similar to this Transaction with other additional
swap counterparties, such swap counterparties will be required to maintain
short-term credit ratings of “A-1+” from S&P and “P-1” from Moody’s and, if
rated by Fitch, “F1+” by Fitch and long-term credit ratings of at least “AA-”
from S&P and “Aa3” from Moody’s and, if rated by Fitch, “AA-+ by Fitch.

 

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(r)    Additional Definitions.  Capitalized terms used in this Schedule and not
otherwise defined herein shall have the meaning set forth in the Confirmation,
the Mortgage Loan Purchase and Servicing Agreement. Additionally, the
capitalized terms set forth below shall have the following meanings:

 

  “Mortgage Loan Purchase and Servicing Agreement” shall mean that certain
Mortgage Loan Purchase and Servicing Agreement, dated as of September 5, 2003
between Party B, as Purchaser, NC Capital Corporation, as Seller and New Century
Mortgage Corporation, as Seller and Servicer, as amended from time to time.

 

 

  “Security Agreement” shall mean that certain Security Agreement, dated as of
September 5, 2003, among Party B, as the Company and Deutsche Bank Trust Company
Americas, as Collateral Agent, as amended from time to time.

 

(s)    Consent to Recording.  The parties agree that each may electronically
record all telephonic conversations between marketing and trading personnel in
connection with this Agreement and that any such recordings may be submitted in
evidence in any Proceedings relating to this Agreement.

 

(t)    Further Representations of Party B:

 

  (i) Assuming the due authorization, execution and delivery thereof by the
other parties thereto, each of the Program Documents to which Party B is a party
constitutes the legal, valid and binding obligations of Party B, enforceable
against Party B in accordance with the terms thereof, subject to applicable
bankruptcy, insolvency and similar laws or legal principles affecting creditors’
rights generally, and subject, as to enforceability, to general principles of
equity regardless of whether enforcement is sought in a proceeding in equity or
at law.

 

  (ii) The Program Documents to which Party B is a party are in full force and
effect on the date hereof and there have been no amendments or waivers or
modifications of any of the terms thereof since the original execution and
delivery of the Program Documents to which Party B is a party.

 

  (iii) To the best of its knowledge, no event of default (or event which would,
with the passage of time or the giving of notice, constitute an event of
default) has occurred and is continuing under any of the Program Documents to
which Party B is a party.

 

(u)    No Set-off.  Other than as provided in Section 2(c) of this Agreement,
all payments hereunder shall be made without set-off or counterclaim. Section
6(e) of the Agreement is amended by the deletion of the following sentence: “The
amount, if any, payable in respect of an Early Termination Date and determined
pursuant to this Section will be subject to any Set-off.”

 

(v)    Severability.  Any provision of this Agreement which is prohibited,
unenforceable or not authorized in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition, unenforceability
or non-authorization without invalidating the remaining provisions hereof or
affecting the validity, enforceability or legality of such provision in any
other jurisdiction so long as this Agreement as so modified continues to
express, without material change, the original intentions of the parties as to
the subject matter of this Agreement and the deletion of such portion of this
Agreement will not substantially impair the respective benefits and expectations
of the parties to this Agreement. The parties shall endeavor, in good faith
negotiations, to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.

 

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(w)    Section 2(a)(iii).  Section 2(a)(iii) of this Agreement shall not apply
to the obligations of either party.

 

 

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The parties executing this Schedule have executed the Agreement and have agreed
as to the contents of this Schedule.

 

 

CITIBANK N.A.   By:   /s/    LINDA COOK          

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Name:

Title:

 

Linda Cook

Vice President

 

 

VON KARMAN FUNDING LLC   By:  

New Century Mortgage Corporation, as Manager

      By:   /s/    PATRICK FLANAGAN  

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Name:

Title:

 

Patrick Flanagan

President

 

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