Exhibit 10.1


 


 





CREDIT AGREEMENT


 


 






 


 


RYLAND MORTGAGE COMPANY,


as Borrower


 


 


GUARANTY BANK


as Lender


 


 






 


 


January 24, 2008


 




 





 













 


TABLE OF CONTENTS


 


	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I

  	
  GENERAL TERMS

  	
  1

  
	
   

  	
   

  	
   

  
	
  Section 1.1

  	
  Certain Definitions

  	
  1

  
	
  Section 1.2

  	
  Exhibits and Schedules

  	
  17

  
	
  Section 1.3

  	
  Calculations and
  Determinations

  	
  17

  
	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
  AMOUNT AND TERMS OF
  LOANS

  	
  17

  
	
   

  	
   

  	
   

  
	
  Section 2.1

  	
  Commitment and Loans

  	
  17

  
	
  Section 2.2

  	
  Promissory Note;
  Interest on the Note

  	
  17

  
	
  Section 2.3

  	
  Notice and Manner of
  Obtaining Loans

  	
  17

  
	
  Section 2.4

  	
  Fees.

  	
  19

  
	
  Section 2.5

  	
  Mandatory Repayments

  	
  19

  
	
  Section 2.6

  	
  Payments to Lender

  	
  19

  
	
  Section 2.7

  	
  Increased Cost and
  Reduced Return.

  	
  20

  
	
   

  	
   

  	
   

  
	
  ARTICLE III

  	
  CONDITIONS PRECEDENT

  	
  21

  
	
   

  	
   

  	
   

  
	
  Section 3.1

  	
  Initial Loan

  	
  21

  
	
  Section 3.2

  	
  All Loans

  	
  22

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV

  	
  BORROWER
  REPRESENTATIONS AND WARRANTIES

  	
  23

  
	
   

  	
   

  	
   

  
	
  Section 4.1

  	
  Organization and Good
  Standing

  	
  23

  
	
  Section 4.2

  	
  Authorization and Power

  	
  23

  
	
  Section 4.3

  	
  No Conflicts or
  Consents

  	
  23

  
	
  Section 4.4

  	
  Enforceable Obligations

  	
  24

  
	
  Section 4.5

  	
  Priority of Liens

  	
  24

  
	
  Section 4.6

  	
  No Liens

  	
  24

  
	
  Section 4.7

  	
  Financial Condition of
  Borrower

  	
  24

  
	
  Section 4.8

  	
  Full Disclosure

  	
  24

  
	
  Section 4.9

  	
  No Default

  	
  24

  
	
  Section 4.10

  	
  No Litigation

  	
  24

  
	
  Section 4.11

  	
  Taxes

  	
  25

  
	
  Section 4.12

  	
  Principal Office, etc

  	
  25

  
	
  Section 4.13

  	
  Compliance with ERISA

  	
  25

  
	
  Section 4.14

  	
  Subsidiaries

  	
  25

  
	
  Section 4.15

  	
  Indebtedness

  	
  25

  
	
  Section 4.16

  	
  Permits, Patents,
  Trademarks, etc.

  	
  25

  
	
  Section 4.17

  	
  Status Under Certain
  Federal Statutes

  	
  25

  
	
  Section 4.18

  	
  Securities Act

  	
  25

  
	
  Section 4.19

  	
  No Approvals Required

  	
  26

  
	
  Section 4.20

  	
  Survival of
  Representations

  	
  26

  
	
  Section 4.21

  	
  Compliance with Laws

  	
  26

  
	
  Section 4.22

  	
  Payment of Obligations

  	
  26

  
	
  Section 4.23

  	
  Individual Mortgage
  Loans

  	
  26

  
	
  Section 4.24

  	
  Environmental Matters

  	
  27

  
	
  Section 4.25

  	
  Status as Approved
  Seller/Servicer

  	
  28

  
	
  Section 4.26

  	
  Regulation U

  	
  28

  
						



 


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TABLE OF CONTENTS


 


	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
  AFFIRMATIVE COVENANTS

  	
  28

  
	
   

  	
   

  	
   

  
	
  Section 5.1

  	
  Financial Statements
  and Reports.

  	
  28

  
	
  Section 5.2

  	
  Taxes and Other Liens

  	
  30

  
	
  Section 5.3

  	
  Maintenance

  	
  30

  
	
  Section 5.4

  	
  Further Assurances

  	
  31

  
	
  Section 5.5

  	
  Reimbursement of
  Expenses

  	
  31

  
	
  Section 5.6

  	
  Insurance

  	
  31

  
	
  Section 5.7

  	
  Accounts and Records:
  Servicing Records

  	
  32

  
	
  Section 5.8

  	
  Right of Inspection

  	
  32

  
	
  Section 5.9

  	
  Notice of Certain
  Events

  	
  32

  
	
  Section 5.10

  	
  Performance of Certain
  Obligations and Information Regarding Investors

  	
  33

  
	
  Section 5.11

  	
  Use of Proceeds: Margin
  Stock

  	
  33

  
	
  Section 5.12

  	
  Notice of Default

  	
  33

  
	
  Section 5.13

  	
  Compliance with Loan
  Documents

  	
  33

  
	
  Section 5.14

  	
  Operations and
  Properties

  	
  33

  
	
  Section 5.15

  	
  Environmental Matters.

  	
  33

  
	
  Section 5.16

  	
  MERS Status.

  	
  34

  
	
  Section 5.17

  	
  Hedging Arrangements

  	
  34

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI

  	
  NEGATIVE COVENANTS

  	
  35

  
	
   

  	
   

  	
   

  
	
  Section 6.1

  	
  No Merger; Limitation
  on Issuance of Securities

  	
  35

  
	
  Section 6.2

  	
  Limitation on
  Indebtedness

  	
  35

  
	
  Section 6.3

  	
  Fiscal Year, Method of
  Accounting

  	
  35

  
	
  Section 6.4

  	
  Business

  	
  35

  
	
  Section 6.5

  	
  Liquidations,
  Consolidations and Dispositions of Substantial Assets

  	
  35

  
	
  Section 6.6

  	
  Loans, Advances, and
  Investments

  	
  36

  
	
  Section 6.7

  	
  Use of Proceeds

  	
  36

  
	
  Section 6.8

  	
  Actions with Respect to
  Mortgage Collateral

  	
  36

  
	
  Section 6.9

  	
  Transactions with
  Affiliates

  	
  37

  
	
  Section 6.10

  	
  Liens

  	
  37

  
	
  Section 6.11

  	
  ERISA Plans

  	
  37

  
	
  Section 6.12

  	
  Change of Principal
  Office

  	
  37

  
	
  Section 6.13

  	
  Tangible Net Worth

  	
  37

  
	
  Section 6.14

  	
  Total Indebtedness to
  Adjusted Tangible Net Worth

  	
  37

  
	
  Section 6.15

  	
  Profitability

  	
  37

  
	
  Section 6.16

  	
  Adjusted Tangible Net
  Worth

  	
  37

  
	
  Section 6.17

  	
  Dividends

  	
  38

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII

  	
  EVENTS OF DEFAULT

  	
  38

  
	
   

  	
   

  	
   

  
	
  Section 7.1

  	
  Nature of Event

  	
  38

  
	
  Section 7.2

  	
  Default Remedies

  	
  40

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII

  	
  INDEMNIFICATION

  	
  40

  
						



 


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TABLE OF CONTENTS


 


	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  Section 8.1

  	
  Indemnification

  	
  40

  
	
  Section 8.2

  	
  Limitation of Liability

  	
  41

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX

  	
  MISCELLANEOUS

  	
  41

  
	
   

  	
   

  	
   

  
	
  Section 9.1

  	
  Notices

  	
  41

  
	
  Section 9.2

  	
  Amendments, Etc

  	
  42

  
	
  Section 9.3

  	
  CHOICE OF LAW; VENUE

  	
  42

  
	
  Section 9.4

  	
  Invalidity

  	
  43

  
	
  Section 9.5

  	
  Survival of Agreements

  	
  43

  
	
  Section 9.6

  	
  Renewal, Extension or
  Rearrangement

  	
  43

  
	
  Section 9.7

  	
  Waivers

  	
  43

  
	
  Section 9.8

  	
  Cumulative Rights

  	
  43

  
	
  Section 9.9

  	
  Limitation on Interest

  	
  43

  
	
  Section 9.10

  	
  Bank Accounts; Offset

  	
  44

  
	
  Section 9.11

  	
  Assignments,
  Participations.

  	
  44

  
	
  Section 9.12

  	
  Exhibits and Schedules

  	
  45

  
	
  Section 9.13

  	
  Titles of Articles,
  Sections and Subsections

  	
  45

  
	
  Section 9.14

  	
  Counterparts; Fax

  	
  45

  
	
  Section 9.15

  	
  Termination: Limited
  Survival

  	
  45

  
	
  Section 9.16

  	
  Disclosures

  	
  45

  
	
  Section 9.17

  	
  Time is of the Essence

  	
  46

  
	
  Section 9.18

  	
  USA Patriot Act Notice

  	
  46

  
	
  Section 9.19

  	
  Electronic Transactions

  	
  46

  
	
  Section 9.20

  	
  No Reliance

  	
  46

  
	
  Section 9.21

  	
  Confidential
  Information.

  	
  46

  
	
  Section 9.22

  	
  WAIVER OF JURY TRIAL

  	
  48

  
	
  Section 9.23

  	
  CONSEQUENTIAL DAMAGES

  	
  48

  
	
  Section 9.24

  	
  ENTIRE AGREEMENT

  	
  49

  
				



 


iii













 


TABLE OF CONTENTS


(continued)


 


	
  SCHEDULES

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule 1.1

  	
   

  	
  Approved Investors

  
	
   

  	
   

  	
   

  
	
  Schedule 4.14

  	
   

  	
  Subsidiaries

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  EXHIBITS

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit A

  	
   

  	
  Form of Note

  
	
   

  	
   

  	
   

  
	
  Exhibit B

  	
   

  	
  Form of Borrowing
  Request

  
	
   

  	
   

  	
   

  
	
  Exhibit C

  	
   

  	
  Certificate
  Accompanying Financial Statement

  
	
   

  	
   

  	
   

  
	
  Exhibit D

  	
   

  	
  Borrowing Base
  Certificate

  
	
   

  	
   

  	
   

  
	
  Exhibit E

  	
   

  	
  Form of Security
  Agreement

  
				



 


iv













 


CREDIT AGREEMENT


 


THIS CREDIT AGREEMENT is
made and entered into as of January 24, 2008, between RYLAND MORTGAGE
COMPANY, an Ohio corporation (“Borrower”), and GUARANTY BANK (“Lender”).


 


The parties hereto hereby
agree as follows:


 


ARTICLE I


 


GENERAL TERMS


 


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


 


“Adjusted Floating LIBOR”
means, for any day, the rate per annum equal to the sum of the Floating LIBOR
for such day plus the Applicable Floating LIBOR Margin, provided that the
Adjusted Floating LIBOR shall never exceed the Maximum Rate.


 


“Applicable Floating LIBOR Margin”
means nine-tenths percent (0.90%) per annum.


 


“Adjusted Tangible Net Worth”
means, as of any date, the Tangible Net Worth of Borrower minus the
outstanding amount of Intercompany Loans.


 


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


 


“Aged Loan” means an
Eligible Mortgage Loan which has been included in the Borrowing Base for more
than sixty (60) days but less than or equal to one hundred and twenty (120)
days.


 


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


 


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


 


“Applicable Advance Rate Percentage”  means, for each Mortgage Loan
classification listed below, the percentage listed opposite such Mortgage Loan
classification:


 


	
  Prime Loan (Dry Loan)

  	
   

  	
  98%

  
	
   

  	
   

  	
   

  
	
  Prime Loan (Wet Loan)

  	
   

  	
  98%

  
	
   

  	
   

  	
   

  
	
  Second Lien Loan (Dry
  Loan)

  	
   

  	
  90%

  
	
   

  	
   

  	
   

  
	
  Second Lien Loan (Wet
  Loan)

  	
   

  	
  90%

  



 


1













 


“Applicable Sublimit”
means, for each Mortgage Loan classification listed below, the percentage of
the total Commitment listed opposite such Mortgage Loan classification:


 


	
  Wet Loans

  	
   

  	
  35%

  
	
   

  	
   

  	
   

  
	
  Second Lien Loans

  	
   

  	
  5%

  



 


provided,
however, that in the last five and first five Business Days of every
calendar month the Applicable Sublimit for Wet Loans shall be 50% of the
Commitment.


 


“Appraised Value”
means, for any Mortgage Loan, the current appraised value of the property
secured by the Mortgage as determined by an appraisal performed in full
compliance with FNMA/FHLMC appraisal requirements and on an appraisal form
approved by FNMA or FHLMC, and performed by a state licensed or state-certified
real estate appraiser (in accordance with the provisions of Title XI of
FIRREA).


 


“Borrower” shall have
the meaning assigned to such term in the preamble hereof.


 


“Borrowing” means a
borrowing of a new Loan.


 


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


 


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


 


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


 


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


 


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


 


“Change of Control”
means the Parent ceases to own one hundred percent (100%) of the voting power
of the voting stock of Borrower.


 


“CLTV” means to any
Mortgage Loan, the ratio expressed as a percentage determined by dividing
(i) the total amount owing and outstanding on all loans secured by the
residential real 


 


2













 


property and improvements
serving as collateral for the Mortgage Loan, by (ii) the Appraised Value
of the residential real property and improvements serving as collateral for the
Mortgage Loan.


 


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


 


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


 


“Collateral Value of the Borrowing
Base” means, on any day, the sum of the Unit Collateral Values
of all Eligible Mortgage Loans included in the Borrowing Base on such day as
determined by Lender based on information then available to Lender.


 


“Commitment” means at
any date, the obligation of the Lender to make Loans to Borrower pursuant to Section 2.1
hereof in an aggregate outstanding amount not to exceed at any time
$40,000,000.


 


“Confidential Information”
means, with respect to a Person, information about hardware, software, screens,
specifications, designs, plans, drawings, data, prototypes, discoveries,
research, developments, methods, processes, procedures, improvements,
“know-how”, compilations, market research, marketing techniques and plans,
business plans and strategies, customer names and all other information related
to or provided by customers, price lists, pricing policies and financial
information or other business and/or technical information and materials, in
oral, demonstrative, written, graphic or machine-readable form, which is
(i) unpublished, (ii) not available to the general public or trade,
and (iii) maintained as confidential and proprietary information by the
disclosing party for regulatory, customer relations, and/or competitive
reasons.  Confidential Information also
includes such confidential and proprietary information or material belonging to
a disclosing party or to which the other party may obtain knowledge or access
through or as a result of the performance of its obligations under this
Agreement.  Confidential Information also
includes any information described above which the disclosing party has
obtained in confidence from another party who treats it as proprietary or
designates it as Confidential Information, whether or not owned or developed by
the disclosing party.  Without limiting
the foregoing, Confidential Information includes all such information provided
to each party by the other party both before and after the date of this
Agreement and also includes the terms of this Agreement.


 


“Conforming Loan”
means a Mortgage Loan which (i) receives one of the following responses
from Fannie Mae Desktop Underwriter: (a) Approve/Eligible,
(b) Approve/Ineligible, (c) Refer/Eligible, or
(d) EA-I,-II,-III/Eligible, or (ii) receives one of the following
responses from Freddie Mac Loan Prospector: (x) Accept/Accept, or
(y) A-Minus, or (iii) receives an Accept from Clout/Clues.  Mortgage Loans receiving a “Refer/Eligible”
response must be accompanied by the Investor’s approval to the exception.  Mortgage Loans receiving approval under the
“Expanded Approval” (“EA”) criteria or “A-Minus” criteria are permitted only if
Borrower provides Lender with a copy of the Fannie Mae or Freddie Mac contract
which allows delivery by Borrower for this loan type.  Mortgage Loans receiving an
“Approve/Ineligible” response are permitted only if Borrower or applicable
take-out investor represents and warrants to Lender that Borrower possesses an
agency waiver with respect to such Mortgage Loan, thereby making such Mortgage
Loan agency eligible.


 


3













 


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


 


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


 


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


 


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


 


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


 


“Drawdown Termination Date”
means the earlier of January 22, 2009, or the day on which the Note first
becomes due and payable in full.


 


“Dry Loan” means an
Eligible Mortgage Loan included in the Borrowing Base and for which the
Required Mortgage Documents have been delivered to Lender.


 


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


 


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


 


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


 


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


 


4













 


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


 


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


 


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


 


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


 


(h)           Such Mortgage Loan will be free and
clear of all Liens, except Permitted Liens;


 


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


 


(j)            Such Mortgage Loan is secured by a
first Mortgage, or in the case of any Second Lien Loan, a second Mortgage, on
Single Family property;


 


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


 


(l)            Such Mortgage Loan has not been
included in the Borrowing Base for more than one hundred and twenty (120) days;


 


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


 


(i)            If such Mortgage
Loan was withdrawn by Borrower for purposes of correcting clerical or other
non-substantive documentation problems, the promissory note and other documents
relating to such Mortgage Loan are returned to the Lender within ten (10) Business
Days from the date of withdrawal; and the Unit Collateral Value of such
Mortgage Loan when added to the Unit Collateral 


 


5













 


Value of other Mortgage
Loans which have been similarly released to Borrower and have not been returned
does not exceed ten percent (10%) of the Commitment;


 


(ii)            If such Mortgage Loan was shipped by
the Lender directly to a permanent investor for purchase or to a custodian for
the formation of a pool, (x) such investor or custodian is in full
compliance with the terms of the bailee letter under which such Mortgage Loan
was shipped, and (y) the full purchase price for such Mortgage Loan has
been received by the Lender (or such Mortgage Loan has been returned to the
Lender) within forty-five (45) calendar days from the date of shipment by the
Lender;


 


(n)           Such Mortgage Loan is subject to
(A) a Take-Out Commitment which is in full force and effect or (B) a
Hedging Arrangement which is acceptable to the Lender in its sole and absolute
discretion;


 


(o)           Such Mortgage Loan is a Prime Loan;


 


(p)           If such Mortgage is a Second Lien
Loan, the Unit Collateral Value of such Mortgage Loan when added to the
Collateral Value of all other Second Lien Loans does not exceed the Applicable
Sublimit for Second Lien Loans;


 


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


 


(r)            The Property covered by such
Mortgage Loan is located within the fifty United States;


 


(s)           Such Mortgage Loan has been
underwritten by the originator thereof in accordance with such originator’s
then current underwriting guidelines, which underwriting guidelines have been
previously approved by Lender; and


 


(t)            The representations and warranties
made by the Borrower in Section 4.23 with respect to each Mortgage
Note and Mortgage Loan are true and correct.


 


“Environmental Laws”
means any and all Laws relating to (a) the protection of the environment,
(b) emissions, discharges or releases of pollutants, contaminants,
chemicals or hazardous or toxic substances or wastes into the environment
including ambient air, surface water, ground water or land, or (c) the
manufacture, processing, distribution, use, treatment,


 


6













 


storage, disposal, transport or handling of pollutants, contaminants,
chemicals or industrial, toxic or hazardous substances or wastes or the
clean-up or other remediation thereof.


 


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


 


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


 


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


 


“E-Sign Act” means the
Electronic Signatures in Global and National Commerce Act, as amended from time
to time.


 


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


 


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


 


“FHA Loan” means a
Mortgage Loan insured by the FHA.


 


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


 


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


 


“FIRREA” means the
Financial Institutions Reform Recovery and Enforcement Act of 1989, as amended
from time to time, together with the regulations from time to time promulgated
with respect thereto.


 


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


 


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


 


“Floating LIBOR”
means, for any day, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) equal to the rate appearing on Bloomberg Professional (or,
if not available, any other nationally recognized trading screen reporting the
British Bankers’ Association LIBOR) at 10:00 a.m. (Central time) as the
British Bankers’ Association LIBOR for


 


7













 


deposits in U.S. Dollars with a term equivalent to one month.  In the event that such rate does not appear
on Bloomberg Professional, “Floating LIBOR” for purposes of this definition
shall be determined by reference to such other comparable publicly available
service for displaying London inter-bank offered rates as may be selected by
the Lender.


 


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


 


“Full Documentation Mortgage Loan”
means a Mortgage Loan supported by all of the customary documentation required
to underwrite the Mortgage Loan, including, without limitation, the
following:  (i) Verification of
Income (“VOI”), (ii) Verification of Assets (“VOA”), and
(iii) Verification of Employment (“VOE”).


 


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


 


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


 


“GLB Act” means The
Gramm-Leach-Bliely Financial Services Modernization Act of 1999, as amended.


 


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


 


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


 


“Guaranty Obligation”
of any Person means any contract, agreement or understanding of such Person
pursuant to which such Person guarantees, or in effect guarantees, any
Indebtedness,


 


8













 


lease, dividends or other obligations (the “Primary Obligations”)
of any other Person (the “Primary
Obligor”) in any manner, whether directly or indirectly,
contingently or absolutely, in whole or in part, including without limitation
agreements:


 


(a)                to purchase such Primary
Obligation or any property constituting direct or indirect security therefor,


 


(b)               to advance or supply funds
(A) for the purchase or payment of any such Primary Obligation, or
(B) to maintain working capital or other balance sheet conditions of the
Primary Obligor or otherwise to maintain the net worth or solvency of the
Primary Obligor,


 


(c)                to purchase property, securities
or services primarily for the purpose of assuring the owner of any such Primary
Obligation of the ability of the Primary Obligor to make payment of such
Primary Obligation; or


 


(d)               otherwise to assure or hold
harmless the owner of any such Primary Obligation against loss in respect
thereof;


 


provided,
that “Guaranty
Obligation” shall not include endorsements that are made in the
ordinary course of business of negotiable instruments or documents for deposit
or collection.  The amount of any
Guaranty Obligation shall be deemed to be the maximum amount for which the
guarantor may be liable pursuant to the agreement that governs such Guaranty
Obligation, unless such maximum amount is not stated or determinable, in which
case the amount of such obligation shall be the maximum reasonably anticipated
liability thereon, as determined by such guarantor in good faith.


 


“Hedging Arrangement”
means any forward sales contract, forward trade contract, interest rate swap
agreement, interest rate cap agreement, or other contract pursuant to which
Borrower has protected itself from the consequences of a loss in the value of a
Mortgage Loan because of changes in interest rates or in the market value of
mortgage loan assets.


 


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


 


“Intercompany Loan”
means a loan or advance from a Related Person to an Affiliate or shareholder,
member or partner of any Related Person.


 


9













 


“Investor” means any
Person approved by Lender and listed on Schedule 1.1, as such
Schedule may be updated or supplemented from time to time; provided,  however,
that Lender shall deliver a list of all Persons approved as Investors by Lender
upon each amendment of such Schedule by Lender, and an Investor shall be
removed from such list upon the written direction of Lender.


 


“Investment Property”
means a Single Family dwelling which is not the Principal Residence or
Second/Vacation Property of the Obligor under the related Mortgage Loan.


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


10













 


its obligations under this Agreement, the Note, or any other Loan
Document to which it is a party.


 


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


 


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


 


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


 


“MERS® System” means
the system of recording transfers of mortgages electronically maintained by
MERS.


 


“MIN” means, with
respect to each Mortgage Loan, the Mortgage Identification Number for such
Mortgage Loan registered with MERS on the MERS® System.


 


“MOM Loan” means, with
respect to any Mortgage Loan, MERS acting as the mortgagee of such Mortgage
Loan, solely as nominee for the originator or Borrower, as the case may be, of
such Mortgage Loan and its successors and assignees.


 


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


 


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


 


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


 


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


 


“Net Income” of any
Person means, for any period, the net income of such Person (excluding
extraordinary gains but including extraordinary losses) for such period, calculated
in accordance with GAAP.


 


11













 


“Net Worth” of any
Person means, as of any date, an amount equal to all Consolidated assets of
such Person minus such Person’s Consolidated liabilities, each as
determined in accordance with GAAP.


 


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


 


“Obligations” means
all present and future Indebtedness, obligations, and liabilities of Borrower
to Lender, and all renewals and extensions thereof, or any part thereof,
arising pursuant to this Agreement or any other Loan Document, and all interest
accrued thereon, and reasonable attorneys’ fees and other costs incurred in the
drafting, negotiation, enforcement or collection thereof, regardless of whether
such Indebtedness, obligations, and liabilities are direct, indirect, fixed,
contingent, joint, several or joint and several.


 


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


 


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


 


“Parent” means The
Ryland Group, Inc., a Maryland corporation, and owner of all of the
outstanding capital stock of Borrower.


 


“Parent Debt Agreement”
means that certain Credit Agreement, dated as of January 12, 2006, among
the Parent, JPMorgan Chase Bank, N.A., as agent, and the lenders party thereto,
and all amendments, modifications and supplements thereto and amendments and
restatements thereof, and including any subsequent credit facilities
refinancing any indebtedness thereunder.


 


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


 


“Permitted Liens”
means (i) Liens in favor of Lender, (ii) a first Lien in respect of a
Second Lien Loan, and (iii) ad valorem taxes and assessments not yet due
and payable.


 


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


 


“Prime Loan” means a
Single Family Mortgage Loan which is secured by a first-lien or second-lien
Mortgage and is a Conforming Loan, FHA Loan or VA Loan.


 


“Principal Residence”
means a Single Family dwelling that the Obligor occupies as his or her primary
residence.


 


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


 


12













 


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


 


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


 


“Related Persons”
means Borrower and each of Borrower’s Subsidiaries.


 


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


 


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


 


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


 


“Second Lien Loan”
means a Single Family Mortgage Loan which (i) is secured by a traditional
closed-end second-lien Mortgage, and is a Conforming Loan, FHA Loan or VA Loan,
(ii) has a CLTV less than or equal to 95%, and (iii) is not in excess
of $100,000.


 


“Second/Vacation Property”
means a Single Family dwelling that is not used for rental purposes and that
the Obligor occupies for some portion of the year.


 


“Security Agreement”
means the Security Agreement between Borrower and Lender dated of even date herewith
in substantially the form attached as Exhibit E, as the same may
from time to time be further supplemented, amended or restated.


 


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


 


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


 


13













 


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


 


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


 


“Settlement Account”
means the non-interest bearing demand deposit account established by Borrower
with Lender to be used for (i) the deposit of proceeds from the sale of
Mortgage Collateral, and (ii) the payment of the Obligations; provided
that (a) the Settlement Account shall be pledged to Lender for the
benefit of Lender, (b) Borrower shall not be entitled to withdraw funds
from the Settlement Account, (c) as long as no Event of Default has
occurred and is continuing, to the extent that the deposit of proceeds from the
sale of Mortgage Loans exceeds the Unit Collateral Value of such Mortgage Loans
and any payments then due and owing under this Agreement or the Note, Lender
shall transfer such excess amount to the Operating Account, and (d) if at
any time the aggregate amount of funds in the Settlement Account is
insufficient to pay any and all payments due and owing under this Agreement or
the Note (such amount being referred to as the “Deficiency”), Lender shall transfer an
amount equal to the Deficiency from the Operating Account to the Settlement
Account.


 


“Single Family” means
residential real property consisting of land and a completed one-to-eight unit
single family dwelling thereon (including Principal Residences, Second/Vacation
Property and Investment Property), which is fully completed and ready for
occupancy, and which is not used for commercial purposes, is not a leasehold
interest, and is not a manufactured or mobile home.


 


“Subordinated Debt”
means Indebtedness of Borrower that has been subordinated to the payment of the
Obligations in writing on terms acceptable to Lender.


 


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


 


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


 


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


 


14













 


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


 


“Total Indebtedness”
of any Person means, as of any date, the sum of (a) all Indebtedness of
such Person as of such date prepared in accordance with GAAP and (b) the
aggregate amount of Mortgage Loans purchased and remaining under any Mortgage
Loan purchase facility of such Person.


 


“UCC” means the Texas
Uniform Commercial Code, as the same may hereafter be amended.


 


“UETA” means the Texas
Uniform Electronic Transaction Act, as amended from time to time.


 


“Unencumbered Liquid Assets”
means, as of any date of determination, the sum of (a) United States cash
which is not subject to any liens or security interests, and (b) Cash
Equivalents which are not subject to any liens or security interests.


 


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


 


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


 


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


 


(iii)          if applicable, the amount at which an
Investor has committed to purchase the Mortgage Loan pursuant to a Take-Out
Commitment; or


 


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


 


provided
that if any such Eligible Mortgage Loan included in the Borrowing Base becomes
an Aged Loan, the Unit Collateral Value of such Mortgage Loan as determined by
the above calculation shall be reduced by five percent (5%), and Borrower shall
immediately, on such Eligible Mortgage Loan’s sixty-first (61st) day in the
Borrowing Base, make repayment required by Section 2.5; and 


 


15













 


provided further
that if any such Aged Loan is included in the Borrowing Base for more than
ninety (90) days, the Unit Collateral Value of such Mortgage Loan shall be
reduced by an additional ten percent (10%), and Borrower shall immediately, on
such Eligible Mortgage Loan’s ninety-first (91st) day in the Borrowing Base,
make repayment required by Section 2.5; and


 


provided further
that no Eligible Mortgage Loan may be included in the Borrowing Base for more
than one hundred twenty (120) days, such that on the one hundred twenty-first
(121st) day after such Eligible Mortgage Loan is first included in the
Borrowing Base, the Unit Collateral Value of such Mortgage Loan shall be
reduced to zero, and Borrower shall immediately make repayment required by Section 2.5.


 


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


 


“VA Loan” means a
Mortgage Loan guaranteed by the VA.


 


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


 


Other Definitional
Provisions.


 


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


 


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


 


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


 


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


 


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


 


16













 


Section 1.2             Exhibits
and Schedules.  All Exhibits and
Schedules attached to this Agreement are incorporated by reference herein and
made a part hereof for all purposes.


 


Section 1.3             Calculations
and Determinations.  All calculations
under the Loan Documents of interest and of fees shall be made on the basis of
actual days elapsed (including the first day but excluding the last) and a year
of three hundred sixty (360) days.  Each
determination by Lender of amounts to be paid hereunder shall, in the absence
of manifest error, be conclusive and binding. 
Unless otherwise expressly provided herein or unless Lender otherwise
consents all financial statements and reports furnished to Lender hereunder
shall be prepared and all financial computations and determinations pursuant
hereto shall be made in accordance with GAAP. 
Lender shall deliver to Borrower an interest billing statement for each
month on or before the fifth (5th) day of the next succeeding month, which
interest billing statement shall set forth the interest accrued on the Loans
for such month; provided that any failure or delay in delivering such interest
billing or any inaccuracy therein shall not affect the Obligations.


 


ARTICLE II


 


AMOUNT AND TERMS OF LOANS


 


Section 2.1             Commitment
and Loans.  Subject to the terms and
conditions contained in this Agreement, Lender agrees to make loans (“Loans”) to Borrower on a revolving credit basis
from time to time on any Business Day from the date of this Agreement through
the Drawdown Termination Date.  The
aggregate amount of all Loans requested in any Borrowing Request must be equal
to the lesser of (i) an amount greater than or equal to $25,000 or
(ii) an amount equal to the Commitment less the Loan Balance.  Notwithstanding anything to the contrary,
after giving effect to the transactions contemplated by the Borrowing Request
pursuant to which a Loan is requested, and at all other times, the aggregate
unpaid principal amount of all Loans outstanding shall not exceed the lesser of
(a) the Collateral Value of the Borrowing Base, and (b) the
Commitment.


 


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


 


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


 


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


 


17













 


(b)            be
received by Lender not later than 2:00 p.m., Central time, on the day on
which any such Loans are to be made.


 


With each delivery of a
Borrowing Request to Lender, Borrower represents and warrants to Lender the
following:


 


(i)         Borrower is entitled
to receive the requested Loan under the terms and conditions of this Agreement;


 


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


 


(iii)       all Mortgage Loans
offered thereby conform in all respects with the applicable requirements set
forth in this Agreement;


 


(iv)       no Event of Default
exists under this Agreement or would result from the Borrowing or the
application of the
proceeds therefrom;


 


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


 


(vi)       after giving effect to
the Loan requested thereby the Loan Balance shall not exceed the lesser of
(1) the Collateral Value of the Borrowing Base and (2) the
Commitment; and


 


(vii)      after giving effect to
the Loans requested thereby, no Applicable Sublimit will be exceeded.


 


Additionally, with each
Borrowing Request, Borrower represents and warrants that, except as permitted
under this Agreement, Borrower holds with respect to each of the Mortgage Notes
offered the following:


 


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


 


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


 


(iii)       evidence of insurance
policies insuring the mortgaged premises as required by the Lender; and


 


(iv)       unless delivered
therewith, an original of any executed Take-Out Commitment or document
evidencing any Hedging Arrangement acceptable to Lender in its sole discretion
relating to such Mortgage Note.


 


With the delivery of each
Borrowing Request, Borrower agrees that it holds the above referenced items in
trust for Lender, and will at any time deliver the same to Lender upon request
or, upon


 


18













 


written instructions from
Lender, to any Person designated by Lender, promptly, and in any event within
two (2) Business Days after such request or instructions.  Borrower further agrees that it will not
deliver any of the above items, nor give, transfer, or assign any interest in
same, to any Person other than Lender (or the Person or Persons designated by
Lender) without the prior written consent of Lender.


 


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


 


Section 2.4             Fees.


 


(a)           In consideration of Lender’s commitment to
make the Loans, Borrower will pay to Lender a non-refundable commitment fee
determined on a daily basis by applying a rate of 12.5 basis points (0.125%)
per annum to the Commitment on each day during the term of the Loans.  This commitment fee shall be due and payable
in advance for each Fiscal Quarter on the fifteenth day of such Fiscal Quarter.


 


(b)           Borrower shall pay to Lender, a collateral
handling fee in the amount of $10.00 for each Mortgage Loan file.


 


Section 2.5             Mandatory
Repayments.  If at any time the Loan
Balance exceeds the lesser of (i) the Collateral Value of the Borrowing Base (as a result of an
Applicable Sublimit being exceeded or otherwise) or (ii) the Commitment,
then Borrower (x) shall repay the amount of such excess or (y) so
long as the Loan Balance does not exceed the Commitment, pledge to Lender
additional Eligible Mortgage Loans which have an aggregate Unit Collateral
Value equal to or greater than such excess, in each case, within one
(1) Business Day after written notice thereof is given by Lender to
Borrower; provided that, after giving effect to any pledge of additional
Eligible Mortgage Loans, the Unit Collateral Value of such Mortgage Loans when
added to the Unit Collateral Value of all other Mortgage Loans in the same
Mortgage Loan classification does not exceed the Applicable Sublimit for such
Mortgage Loan classification.


 


Section 2.6             Payments
to Lender.  All payments of interest
on the Note, all payments of principal, including any principal payment made
with proceeds of Mortgage Collateral, and fees hereunder shall be made directly
to Lender in federal or other immediately available funds before 1:00 pm
(Central time) on the respective dates when due via wire transfer of
immediately available funds to the Settlement Account.  Borrower shall send notice to Lender before
1:00 p.m. (Central time) on the day any payment of principal or interest
is received by Lender which sets forth the Loans against which such payment is
to be applied.  Any payment (or any
payment received without a notice regarding application of such payment)
received by Lender after such time will be deemed to have been made on the next
following Business Day.  Should any such
payment become due and payable on a day other than a Business Day, the maturity
of such payment shall be extended to the next succeeding Business Day, and, in
the case of a payment of principal or past due interest, interest shall accrue
and be payable thereon for the period of such extension as provided in the Loan
Document under which such payment is due.


 


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Each payment under a Loan Document shall be payable at the place
provided therein and, if no specific place of payment is provided, shall be
payable at the place of payment of the Note. 
When Lender collects or receives money on account of the Obligations,
Lender shall apply all such money so distributed, as follows:


 


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


 


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


 


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


 


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


 


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


 


Section 2.7             Increased Cost and Reduced
Return.


 


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


 


(b)           Lender
shall promptly notify Borrower of any event of which it has knowledge,
occurring after the date hereof, which will entitle Lender to compensation
pursuant to this Section.  In the event
that Lender claims compensation under this Section, Lender shall furnish to
Borrower a statement setting forth the additional amount or amounts to be paid
to it hereunder which shall be conclusive in the absence of manifest
error.  The statement shall describe the
change that took place (e.g. citing the Law, rule, regulation or directive), an
explanation as to how Lender determined that the reduction in the rate of
return was due to its obligations under this Agreement and demonstrate the
calculations utilized in arriving at the amount owed from


 


20













 


Borrower.  In determining such
amount, Lender shall act in good faith and may use any reasonable averaging and
attribution methods.


 


ARTICLE III


 


CONDITIONS PRECEDENT


 


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


 


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


 


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


 


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


 


(ii)        the Note;


 


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


 


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


 


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


 


(vi)       an opinion of counsel
for Borrower in form and substance satisfactory to Lender;


 


(vii)      a Borrowing Request and
a Borrowing Base Certificate dated as of the date of the first Loan, certified
by the Controller or Senior Vice President of Borrower;


 


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


 


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(ix)       such other documents,
instruments, certificates and agreements (including, without limitation, UCC
tax and lien search results) as Lender or its legal counsel may reasonably
request at any time at or prior to the date of the initial Loan hereunder.


 


(b)           No
Person, other than Lender, holds any mortgage, pledge, lien, security interest
or other charge or encumbrance in, against or to any of the Mortgage Loans
identified by the Borrower as Mortgage Collateral or included in any
computation of the Collateral Value of the Borrowing Base.


 


(c)           Lender
shall have received evidence satisfactory to it that all filings and other
actions necessary or desirable to perfect and protect the Liens created by the
Security Instruments shall have been completed (including, without limitation,
the filing of financing statements on form UCC-1 and filing of UCC-3 amendments
or termination statements).


 


(d)           Borrower
shall have paid all fees and reimbursements to be paid to Lender pursuant to
any Loan Document, or otherwise due Lender and including reasonable fees (not
to exceed $20,000) and reasonable expenses of Lender’s attorneys.


 


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


 


(a)           Borrower
shall have delivered to Lender a Borrowing Request dated as of the date of such
Loan, certified by the Controller, a Vice President or Senior Vice President of
Borrower, and the Required Mortgage Documents for all Eligible Mortgage Loans
other than Wet Loans;


 


(b)           all
other Property in which Borrower has granted a Lien to Lender shall have been
physically delivered to the possession of Lender, to the extent required to be
so delivered under the Loan Documents;


 


(c)           the
representations and warranties of each Related Person contained in this
Agreement or any Security Instrument (other than those representations and
warranties which are by their terms expressly limited to the date of this
Agreement) shall be true and correct in all material respects on and as of the
date of such Loan, as though made on and as of such date, both before and after
giving effect to the Borrowing and the application of the proceeds thereof;


 


(d)           no
Default or Event of Default shall have occurred and be continuing or would
result from such Borrowing or the application of the proceeds therefrom;


 


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


 


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


 


(g)           the
making of such Loan shall not be prohibited by any Governmental Requirement or
contravene or conflict with any Requirement of Law;


 


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


 


(i)            No
Person, other than Lender, shall be listed in the field designated “interim
funder” on the MERS® System with respect to any Mortgage Loans identified by
the Borrower as Mortgage Collateral or included in any computation of the
Collateral Value of the Borrowing Base.


 


Delivery to Lender of a
Borrowing Request shall be deemed to constitute a representation and warranty
by Borrower on the date thereof and on the date on which the Loan is made of
the facts specified in subsections (c) and (d) of
this Section.


 


ARTICLE IV


 


BORROWER REPRESENTATIONS AND WARRANTIES


 


Borrower represents and
warrants as follows:


 


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


 


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


 


Section 4.3             No
Conflicts or Consents.  Neither the
execution and delivery by any Related Person of the Loan Documents to which it
is a party, nor the consummation of any of the transactions herein or therein
contemplated, nor compliance with the terms and provisions hereof or with the
terms and provisions thereof, will (a) materially contravene or conflict
with any Requirement of Law to which any Related Person is subject, or any
indenture, mortgage, deed of trust, or other agreement or instrument to which
any Related Person is a party or by which any Related Person may be bound, or
to which the Property of any Related Person may be subject, or (b) result
in the creation or imposition of any Lien, other than the Lien of the Security
Agreement, on the Property of any Related Person.  Except as expressly set forth in
Section 4.19, all actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits,


 


23













 


authorizations, rights and licenses required to be taken, given or
obtained, as the case may be, from any Governmental Authority that are
necessary in connection with the transactions contemplated by the Loan
Documents have been obtained.


 


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


 


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


 


Section 4.6             No
Liens.  Borrower has good and
indefeasible title to the Mortgage Collateral free and clear of all Liens and
other adverse claims of any nature, except for Permitted Liens.


 


Section 4.7             Financial
Condition of Borrower.  Borrower has
delivered to Lender copies of its annual audited balance sheet as of
December 31, 2006, and the related statements of income, stockholders’
equity and cash flows for the period ended such date; such financial statements
fairly present the financial condition of Borrower as of such date and the
results of operations of Borrower for the period ended on such date and have
been prepared in accordance with GAAP, subject to normal year-end adjustments;
as of the date thereof, there were no obligations, liabilities or Indebtedness
(including material contingent and indirect liabilities and obligations or
unusual forward or long-term commitments) of Borrower which are not reflected
in such financial statements and no change which constitutes a Material Adverse
Effect has occurred in the financial condition or business of Borrower since
December 31, 2006.  Borrower has
also delivered to Lender its unaudited quarterly balance sheet for the period
ending September 30, 2007 and management reports for September 30,
2007; such reports fairly and accurately present Borrower’s commitment
position, pipeline position, servicing and production as of the end of such
months and for the fiscal year to date for the periods ending on such dates.


 


Section 4.8             Full
Disclosure.  There is no material
fact that Borrower has not disclosed to Lender which could have a Material
Adverse Effect.  None of (i) the
financial statements referred to in Section 4.7 hereof,
(ii) any Borrowing Request or officer’s certificate, or (iii) any
statement delivered by any Related Person to Lender in connection with this
Agreement, contains any untrue statement of material fact.


 


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


 


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


 


24













 


Section 4.11           Taxes.  All tax returns required to be filed by each
Related Person in any jurisdiction have been filed and all taxes, assessments,
fees and other governmental charges upon each Related Person or upon any of its
properties, income or franchises have been paid prior to the time that such
taxes could give rise to a Lien thereon, unless protested in good faith by
appropriate proceedings and with respect to which reserves in conformity with
GAAP have been established on the books of such Related Person.  No Related Person has any knowledge of any
proposed tax assessment against any Related Person.


 


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


 


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


 


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


 


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


 


Section 4.16           Permits, Patents, Trademarks, etc.


 


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


 


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


 


Section 4.17           Status
Under Certain Federal Statutes.  No
Related Person is (a) a “public utility,” as such term is defined in the
Federal Power Act, as amended, (b) an “investment company,” or a company
“controlled” by an “investment company,” within the meaning of the Investment
Company Act of 1949, as amended or (c) a “rail carrier,” or a “person controlled
by or affiliated with a rail carrier,” within the meaning of Title 49,
U.S.C., and no Related Person is a “carrier” to which 49 U.S.C.
§l1301(b)(1) is applicable.


 


Section 4.18           Securities Act. 
No Related Person has issued any unregistered securities in violation of
the registration requirements of the Securities Act of 1933, as amended, or of
any other Requirement of Law, and is not violating any rule, regulation, or
requirement under the Securities Act of 1933, as amended, or the Securities and
Exchange Act of 1934, as amended.


 


25













 


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


 


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


 


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


 


Section 4.21           Compliance with Laws. 
Borrower is in compliance in all material respects with the requirements
of all Laws and all orders, writs, injunctions and decrees applicable to it or
to its business or property, including ERISA and FIRREA, except in such
instances in which (a) such requirement of Law or order, writ, injunction
or decree is being contested in good faith by appropriate proceedings
diligently conducted; or (b) the failure to comply therewith would not
likely be expected to have a Material Adverse Effect.


 


Section 4.22           Payment of Obligations. 
Borrower is not in default in the payment and discharge of its material
obligations and liabilities, including all tax liabilities, assessments and
governmental charges or levies upon it or its properties or assets, unless the
same are being contested in good faith by appropriate proceedings diligently
conducted and adequate reserves in accordance with GAAP are being maintained by
the Borrower.


 


Section 4.23           Individual Mortgage Loans. 
Borrower hereby represents with respect to each Mortgage Note and
Mortgage Loan that is part of the Collateral:


 


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


 


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


 


26













 


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


 


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


 


(e)           Each Mortgage Loan is a first lien or second
lien Single Family loan, and has been underwritten by the originator thereof in
accordance with such originator’s then current underwriting guidelines, which
guidelines have been previously submitted to and approved by Lender; provided that (i) the aggregate
amount of Second Lien Loans does not exceed the Applicable Sublimit for Second
Lien Loans and (ii) the aggregate amount of all Wet Loans does not exceed
the Applicable Sublimit for Wet Loans;


 


(f)            Each Mortgage Note is either (i) payable
in monthly installments of principal and interest, with interest payable in
arrears, and requires a monthly payment which is sufficient to amortize the
original principal balance over the original term, not to exceed forty (40)
years, and to pay interest at the related interest rate, or (ii) payable
in monthly installments of interest only, with interest payable in arrears,
with principal payments to begin no later than ten (10) years from closing
with payments which are sufficient to fully amortize the original principal
balance over a period not to exceed forty (40) years; and no Mortgage Note
provides for any extension of the original term;


 


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


 


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


 


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


 


(j)            For each Mortgage Loan, Borrower has obtained
closing protection letters from the underwriter for the respective title
insurance policy.


 


Section 4.24           Environmental
Matters.  In the ordinary course of
each Related Person’s business, the officers and managers of each Related
Person consider the effect of Environmental Laws on the business of such
Related Person, in the course of which they identify and evaluate potential
risks and liabilities accruing to such Related Person due to Environmental
Laws.  On the basis of this
consideration, each Related Person has reasonably concluded that neither


 


27













 


violation of nor compliance with Environmental Laws can reasonably be
expected to have a Material Adverse Effect on the business or financial
condition of such Related Person or on the ability of Borrower to perform the
Obligations.  No Related Person has
received any notice to the effect that its operations are not in material
compliance with any of the requirements of applicable Environmental Laws or are
the subject of any federal or state investigation evaluating whether any
remedial action is needed to respond to a release of any toxic or hazardous
waste or substance into the environment, which non-compliance or remedial
action could reasonably be expected to have a Material Adverse Effect on the
business or financial condition of the Related Persons, taken as a whole, or on
the ability of Borrower to perform the Obligations.


 


Section 4.25           Status
as Approved Seller/Servicer. 
Borrower is an approved Seller/Servicer for FNMA and FHLMC in good
standing and is an approved lender with FHA, VA and HUD.


 


Section 4.26           Regulation U.  Borrower has not, directly or indirectly,
used any of the proceeds of the Loans for the purpose, whether immediate,
incidental or ultimate, of buying any “margin stock” or of maintaining,
reducing or retiring any Indebtedness originally incurred to purchase a stock
that is currently any “margin stock,” or for any other purpose which might
constitute this transaction a “purpose credit,” in each case within the meaning
of Regulation U, or otherwise taken or permitted to be taken any action
which would involve a violation of Regulation U or of Regulation T
(12 C.F.R. 220, as amended) or Regulation X
(12 C.F.R. 224, as amended) or any other regulation of such board.


 


ARTICLE V


 


AFFIRMATIVE COVENANTS


 


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


 


Section 5.1             Financial Statements and Reports.


 


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


 


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


 


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


 


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


 


(iv)          Promptly after being requested by Lender but
not more than twice during any calendar year (unless a Default or Event of
Default shall exist), and in any event within thirty (30) days after receiving
such request in writing, a Consolidated balance sheet of Borrower as of the end
of the calendar month immediately preceding such request and the related
Consolidated statements of income, stockholders’ equity and cash flows of
Borrower for such month and the period from the first day of the then current
Fiscal Year through the end of such month, certified by the Controller or other
executive officer of Borrower to have been prepared in accordance with GAAP
applied on a basis consistent with prior periods.


 


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


 


(vi)          Promptly and in any event within
(x) forty-five (45) days after the end of each Fiscal Quarter of Borrower
and (y) within ninety (90) days after the end of each Fiscal Year of
Borrower, a completed Officer’s Certificate in the form of Exhibit C  attached hereto, executed by the President,
Controller or executive officer of Borrower;


 


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(vii)         Promptly and in any event within ninety (90)
days of the beginning of each Fiscal Year, an annual operating budget of
Borrower for such Fiscal Year, in form and substance satisfactory to Lender;


 


(viii)        Promptly and in any event within thirty (30)
days after the end of each calendar month, a monthly pipeline report in form
and substance satisfactory to Lender;


 


(ix)           Promptly and in any event within forty-five
(45) days after the end of each Fiscal Quarter, a mortgage loan production
report as of the end of such Fiscal Quarter, reflecting Borrower’s Mortgage
Loan production and acquisition volumes during such Fiscal Quarter, and such
other similar information as reasonably requested by Lender to be in such
report;


 


(x)            Promptly and in any event within seven
(7) days after the end of each week, a hedging coverage report showing, in
detail and form satisfactory to Lender, Borrower’s hedging coverage of all
Eligible Mortgage Loans subject to a Hedging Arrangement;


 


(xi)           Promptly upon request by Lender, but not more
than once per Fiscal Quarter (unless a Default or Event of Default shall
exist), a management report in form and substance acceptable to Lender
including, without limitation detail on Borrower’s commitment position,
repurchase requests by investors, and any other report reasonably requested by
Lender;


 


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


 


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


 


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


 


Section 5.3             Maintenance.  Each Related Person shall (a) maintain
its corporate or partnership existence, rights and franchises (provided that
Borrower may discontinue the existence of any of its Subsidiaries that the
Borrower in good faith determines are no longer operating or necessary for the
business and operations of Borrower and its other Subsidiaries);
(b) observe and comply in all material respects with all Governmental
Requirements, and (c) maintain its Properties (and any Properties leased
by or consigned to it or held under title retention or conditional sales
contracts) in good and workable condition at all times and make all 


 


30













 


repairs, replacements, additions, betterments and improvements to its
Properties as are needed and proper so that the business carried on in
connection therewith may be conducted properly and efficiently at all times.  Borrower shall maintain good standing as an
approved seller and servicer for FNMA and FHLMC and as an approved lender with
FHA, VA and HUD.


 


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


 


Section 5.5             Reimbursement of Expenses. 
Borrower shall pay (a) all reasonable legal fees incurred by Lender
in connection with the preparation, negotiation, syndication, execution and
delivery of this Agreement, the Note and the other Loan Documents (provided
such legal fees for the preparation, negotiation, syndication, execution and
delivery of the initial Loan Documents shall not exceed $20,000) and any
amendments, consents or waivers executed in connection therewith, (b) all
fees, charges or taxes for the recording or filing of the Security Instruments,
(c) all reasonable out-of-pocket expenses of Lender in connection with the
administration of this Agreement, the Note and the other Loan Documents,
including courier expenses actually incurred and billed to Borrower in
connection with the Mortgage Collateral, (d) all reasonable amounts
expended, advanced or incurred by Lender to satisfy any obligation of Borrower
under this Agreement or any of the other Loan Documents or to collect the Note,
or to protect, preserve, exercise or enforce the rights of Lender under this
Agreement or any of the other Loan Documents, (e) all reasonable
out-of-pocket costs and expenses (including reasonable fees and expenses of
attorneys and other experts employed or retained by such Person) incurred in
connection with, arising out of, or in any way related to (i) consulting
during a Default with respect to (A) the protection, preservation,
exercise or enforcement of any of its rights in, under or related to the
Collateral or the Loan Documents or (B) the performance of any of its
obligations under or related to the Loan Documents, or (ii) protecting,
preserving, exercising or enforcing during a Default any of its rights in,
under or related to the Collateral or the Loan Documents, each of
(a) through (e) shall include all underwriting expenses, collateral
liquidation costs, court costs, attorneys’ fees (including, without limitation,
for trial, appeal or other proceedings), fees of auditors and accountants, and
investigation expenses reasonably incurred by Lender in connection with any
such matters, together with interest at the post-maturity rate specified in the
Note on each item specified in clause (a) through (e) from thirty
(30) days after the date of written demand or request for reimbursement until
the date of reimbursement.  Provided,
however, Lender shall not be entitled to any reimbursement under
clauses (d) and (e) above if there is a determination in a
final, non-appealable judgment by a court of competent jurisdiction that Lender
was not entitled to exercise such remedies under the Loan Documents.


 


Section 5.6             Insurance.  Borrower shall maintain with financially
sound and reputable insurers, insurance with respect to its Properties and
business against such liabilities, casualties,


 


31













 


risks and contingencies and in such types and amounts as is customary
in the case of Persons engaged in the same or similar businesses and similarly
situated, including, without limitation, a fidelity bond or bonds with
financially sound and reputable insurers with such coverage and in such amounts
as is customary in the case of Persons engaged in the same or similar
businesses and similarly situated.  The
improvements on the land covered by each Mortgage shall be kept continuously
insured at all times by responsible insurance companies against fire and
extended coverage hazards under policies, binders, letters, or certificates of
insurance, with a standard mortgagee clause in favor of Borrower and its assigns.  Each such policy must be in an amount not
less than the highest of the following: 
(a) the amount of the Mortgage Loan, (b) 90% of the insurable
value of the improvements, and (c) an amount sufficient to prevent
co-insurance, without reduction by reason of any co-insurance, reduced rate
contribution, or similar clause of the policies or binders.  Upon request of Lender, Borrower shall
furnish or cause to be furnished to Lender from time to time a summary of the
insurance coverage of Borrower in form and substance satisfactory to Lender and
if requested shall furnish Lender copies of the applicable policies.


 


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


 


Section 5.8             Right of Inspection.  Each
Related Person shall permit authorized representatives of Lender to do the
following as it relates to this Agreement: 
to discuss the business, operations, assets and financial condition of
such Related Person with their officers and employees, to examine their
Servicing Records and books of records and account and make copies or extracts
thereof and to visit and inspect any of the Properties of each Related Person,
all at such reasonable times and as often as Lender may request.  Each Related Person will provide its
accountants with a copy of this Agreement promptly after the execution hereof
and will instruct its accountants to answer candidly any and all questions that
the officers of Lender or any authorized representatives of Lender may address
to them in reference to the financial condition or affairs of any Related
Person as those conditions or affairs relate to this Agreement.  Each Related Person may have its
representatives in attendance at any meetings between the officers or other
representatives of Lender and such Related Person’s accountants held in
accordance with this authorization.


 


Section 5.9             Notice of Certain Events. 
Borrower shall promptly notify Lender upon (a) the receipt of any
notice from, or the taking of any other action by, the holder of any promissory
note, debenture or other evidence of Indebtedness of any Related Person with
respect to a claimed default that could, individually or in the aggregate, be
reasonably expected to have a Material Adverse Effect, together with a detailed
statement by a responsible officer of Borrower specifying the notice given or
other action taken by such holder and the nature of the claimed default and
what action Borrower is taking or proposes to take with respect thereto;
(b) the


 


32













 


commencement of, or any determination in, any legal, judicial or
regulatory proceedings between any Related Person and any Governmental
Authority or any other Person which, if adversely determined, could have a
Material Adverse Effect; (c) any change in senior management of Borrower,
(d) any material adverse change in the business, operations, prospects or
financial condition of any Related Person, including, without limitation, the
insolvency of any Related Person, (e) any event or condition which, if
adversely determined, could have a Material Adverse Effect, or (f) the
occurrence of any Termination Event.


 


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


 


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


 


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


 


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


 


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


 


Section 5.15           Environmental Matters.


 


(a)           Each Related Person will comply in all
material respects with all Environmental Laws now or hereafter applicable to
such Related Person and shall obtain, at or prior to the time required by
applicable Environmental Laws, all environmental, health and safety permits,


 


33













 


licenses and other authorizations necessary for its operations and will
maintain such authorizations in full force and effect.


 


(b)           Borrower
will promptly furnish to Lender all written notices of violation, orders,
claims, citations, complaints, penalty assessments, suits or other proceedings
received by Borrower, or of which it has notice, pending or threatened against
Borrower, by any Governmental Authority with respect to any alleged violation
of or non-compliance with any Environmental Laws or any permits, licenses or
authorizations in connection with its ownership or use of its properties or the
operation of its business that could, individually or in the aggregate, be
reasonably expected to have a Material Adverse Effect.


 


Section 5.16           MERS Status.


 


(a)           Borrower
will (a) at all times, maintain its status as a MERS member in good
standing, (b) at all times remain in full compliance with all terms and
conditions of membership in MERS, including the MERSCORP, Inc.
“Rules of Membership” most recently promulgated by MERSCORP, Inc.,
the “MERS Procedures Manual” most recently promulgated by MERS, and any and all
other guidelines or requirements set forth by MERS or MERSCORP, Inc., as
each of the foregoing may be modified from time to time, including, but in no
way limited to, compliance with guidelines and procedures set forth with
respect to technological capabilities, drafting and recordation of Mortgages,
registration of Mortgages on the MERS System, and registration of the interest
of the Lender in such mortgages and membership requirements, (c) promptly,
upon the request of the Lender, execute and deliver to the Lender an assignment
of mortgage, in blank, with respect to any MERS Mortgage that the Lender
determines shall be removed from the MERS System and (d) at all times
maintain the Electronic Tracking Agreement executed of even date herewith in
full force and effect.


 


(b)           Borrower
shall not de-register or attempt to de-register any Mortgage from the MERS
System unless Borrower has complied with the requirements set forth in the
Electronic Tracking Agreement and the requirements hereof and of the Security
Agreement relating to release of Collateral.


 


Section 5.17           Hedging
Arrangements.  Borrower shall
maintain Hedging Arrangements with respect to all Eligible Mortgage Loans not
subject to a Take-Out Commitment with Persons reasonably satisfactory to Lender
in order to mitigate the risk that the market value of any such Eligible
Mortgage Loan will change as a result of a change in interest rates or the
market for mortgage loan assets before the Eligible Mortgage Loan is purchased
by an Investor or repurchased by Borrower. 
Borrower will use its best efforts to cause a Person providing such a
Hedging Arrangement to acknowledge Lender’s security interest in the Hedging
Arrangement and related collateral granted pursuant to the Security Agreement,
by agreement reasonably satisfactory to Lender.


 


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ARTICLE VI


 


NEGATIVE COVENANTS


 


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


 


Section 6.1             No
Merger; Limitation on Issuance of Securities.  No Related Person shall merge or consolidate
with or into any Person; provided that Borrower may merge or consolidate with
any wholly owned subsidiary of Borrower if Borrower is the surviving
corporation; and provided further that after giving effect thereto, no Default
or Event of Default would exist hereunder. 
No Related Person shall acquire by purchase, or otherwise, all or
substantially all of the assets or capital stock of any Person.  Borrower will not issue any securities other
than shares of its common stock and any options or warrants giving the holders
thereof only the right to acquire such shares. 
No Related Person other than Borrower will issue any additional shares
of its capital stock or other securities or any options, warrants or other
rights to acquire such additional shares or other securities except to Borrower
and only to the extent not otherwise forbidden under the terms hereof.  No Subsidiary of Borrower which is a
partnership will allow any diminution of Borrower’s interest (direct or
indirect) therein.  There shall be no
Change of Control.


 


Section 6.2             Limitation
on Indebtedness.  No Related Person
shall incur, create, contract, assume, have outstanding, guarantee or otherwise
be or become, directly or indirectly, liable in respect of any Indebtedness or
Guaranty Obligations unless at the time of the incurrence of such Indebtedness
or Guaranty Obligations (x) no Default or Event of Default shall have
occurred and be continuing or would result therefrom and (y) after giving
effect to such Indebtedness or Guaranty Obligations, the Borrower is in
compliance on a pro forma basis with the covenants set forth in Sections 6.13
through 6.16 as a result thereof; and provided further, to the extent
such Indebtedness is in respect of another mortgage warehouse credit facility,
Lender is collateral manager and custodian of the collateral thereunder.


 


Section 6.3             Fiscal
Year, Method of Accounting.  No
Related Person shall change its Fiscal Year or make any material change in its
method of accounting without prior notice to Lender.  Upon such notice and if such change is
consistent with GAAP, the reports and financial statement of Borrower and its
Consolidated subsidiaries required hereunder may be prepared in accordance with
such change but, if such changes are material, all calculations and
determinations to be made hereunder may be made in accordance with such change
only after notice of such change is given to Lender and Lender agrees to such
change insofar as it affects the accounting of Borrower or of Borrower and its
Consolidated subsidiaries.


 


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


 


Section 6.5             Liquidations,
Consolidations and Dispositions of Substantial Assets.  No Related Person shall dissolve or liquidate
or sell, transfer, lease or otherwise dispose of any material portion of their
property or assets or business; provided, however, nothing in this


 


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Section 6.5
shall be construed to prohibit
any Related Person from selling rights to service mortgage loans and pools of
mortgage loans or Mortgage Notes in the ordinary course of their business.


 


Section 6.6             Loans,
Advances,
and Investments.  No Related Person shall make any loan (other
than Mortgage Loans), advance, extension of credit, or capital contribution to,
or investment in (including any investment in any Subsidiary, joint venture or
partnership), or purchase or otherwise acquire any of the capital stock,
securities, or evidences of indebtedness of, any Person (including, without
limitation, any employee or officer of any Related Person) (collectively, “Investment”), or otherwise acquire any interest in, or
control of, another Person, except for the following:


 


(a)           Cash Equivalents;


 


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


 


(c)           Mortgage Notes acquired by Borrower in the
ordinary course of Borrower’s business; and


 


(d)           Investments by any Related Person other than
those described in the preceding clauses (a) through (c) in a business
or venture substantially similar to those engaged in by such Related Person,
provided that the aggregate amount of all such other Investments for all
Related Persons shall at no time exceed $500,000.


 


Section 6.7             Use
of Proceeds.  Borrower shall not
permit the proceeds of the Loans to be used for any purpose other than those
permitted by Section 5.11 hereof. 
Borrower shall not, directly or indirectly, use any of the proceeds of
the Loans for the purpose, whether immediate, incidental or ultimate, of buying
any “margin stock” or of maintaining, reducing or retiring any Indebtedness
originally incurred to purchase a stock that is currently any “margin stock,”
or for any other purpose which might constitute this transaction a “purpose
credit,” in each case within the meaning of Regulation G of the Board of
Governors of the Federal Reserve System (12 C.F.R. 207, as amended), or
Regulation U, or otherwise take or permit to be taken any action which would
involve a violation of such Regulation G or Regulation U or of Regulation T (12
C.F.R. 220, as amended) or Regulation X (12 C.F.R. 224, as amended) or any
other regulation of such board.


 


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


 


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


 


(b)           Agree
to the amendment or termination of any Take-Out Commitment in which Lender has
a security interest or to substitution of a Take-Out Commitment for a Take-Out


 


36













 


Commitment in which Lender has a security interest hereunder, if such
amendment, termination or substitution may reasonably be expected (as
determined by Lender in its sole discretion) to have a Material Adverse Effect;


 


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


 


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


 


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


 


Section 6.10           Liens.  No Related Person shall grant, create, incur,
assume, permit or suffer to exist any Lien, upon any of its Property, including
without limitation any and all of Borrower’s Mortgage Notes, and Servicing
Rights and the proceeds from any thereof, other than (a) Liens which
secure payment of the Obligations, (b) first Liens on Property which also
secures Second Lien Loans, so long as the Unit Collateral Value of such
Mortgage Notes secured thereby does not exceed the Applicable Sublimit for
Second Lien Loans, and (c) Liens on Property other than Collateral which
secure payment of the Indebtedness permitted to be incurred hereunder.


 


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


 


Section 6.12           Change of Principal Office.  The
Borrower shall not move its principal office, executive office or principal
place of business from the address set forth in Section 9.1 without
prior written notice to Lender.


 


Section 6.13           Tangible Net Worth.  As
of the end of each Fiscal Quarter, the Tangible Net Worth of Borrower shall not
be less than $13,000,000.


 


Section 6.14           Total Indebtedness to Adjusted Tangible Net
Worth.  The ratio of Total Indebtedness of Borrower
to Adjusted Tangible Net Worth of Borrower shall never be more than 12.0 to
1.0.


 


Section 6.15           Profitability.  As
of the end of each Fiscal Quarter, Borrower’s Consolidated Net Income for the
period of four preceding Fiscal Quarters ended as of the end of such Fiscal
Quarter shall be a positive number equal to or greater than $1.00.


 


Section 6.16           Adjusted Tangible Net Worth.  At
the end of each Fiscal Quarter, the Adjusted Tangible Net Worth of Borrower
shall not be less than $5,000,000.


 


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Section 6.17           Dividends.  The Borrower shall not, nor shall it permit
any Subsidiary to, declare or pay any Dividends, unless at the time of each
Dividend by Borrower, (x) no Default or Event of Default shall have
occurred and be continuing or would result therefrom and (y) after giving
effect to such Dividend, the Borrower is in compliance on a pro forma basis
with the covenants set forth in Sections 6.13 through 6.16.


 


ARTICLE VII


 


EVENTS OF DEFAULT


 


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


 


(a)           Borrower
fails to make any payment of (i) principal of the Note on or before the date
such payment is due, (ii) interest on the Note and such failure continues
for two (2) Business Days after the date such payment is due, or
(iii) any fee, expense or other amount due hereunder, under the Note, or
under any other Loan Document, and such failure continues for a period of five
(5) Business Days after Lender gives Borrower notice thereof;


 


(b)           Default
is made in the due observance or performance by any Related Person of any
covenant set forth in Article VI or Section 5.9 of this
Agreement;


 


(c)           Default
is made in the due observance or performance by any Related Person of any of
the covenants or agreements contained in this Agreement other than those
described in subsections (a) or (b) immediately above and such
Default continues for a period of fifteen (15) days after Lender gives Borrower
notice thereof;


 


(d)           Any
Related Person defaults in the due observance or performance or any of the
covenants or agreements contained in any other Loan Document to which it is a
party, and (unless such default otherwise constitutes a Default pursuant to
other provisions of this Section 7.1) such default continues
unremedied beyond the expiration of any applicable grace period which may be
expressly allowed under such other Loan Document, but which, in any case, shall
not be shorter than fifteen (15) days;


 


(e)           Any
material statement, warranty or representation by or on behalf of any Related
Person contained in this Agreement, the Note or any other Loan Document to
which it is a party, or in any Borrowing Request, officer’s certificate or
other writing furnished in connection with this Agreement, proves to have been
incorrect or misleading in any material respect as of the date made or deemed
made;


 


(f)            Any
Related Person:


 


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


 


38













 


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


 


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


 


(iv)          suffers the entry against it of a
final judgment for the payment of money in excess of $500,000.00 (not covered
by insurance satisfactory to Lender in its discretion), unless the same is
discharged within thirty (30) days after the date of entry thereof or an appeal
or appropriate proceeding for review thereof is taken within such period and a
stay of execution pending such appeal is obtained; or


 


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


 


(g)           Any
Related Person fails to make when due or within any applicable grace period any
payment on any Indebtedness (other than the Obligations) with an unpaid
principal balance of over $1,000,000.00; or any event or condition occurs under
any provision contained in any agreement under which such obligation is
governed, evidenced or secured (or any other material breach or default under
such obligation or agreement occurs) if the effect thereof is to cause or
permit the holder or trustee of such obligation to cause such obligation to
become due or repurchased, prepaid, redeemed or defeased prior to its stated
maturity; or any such obligation becomes due (other than by regularly scheduled
payments) prior to its stated maturity; or any of the foregoing occurs with
respect to any one or more items of Indebtedness of any Related Person with
unpaid principal balances exceeding, in the aggregate, $250,000.00;


 


(h)           Any
event or condition occurs under any provision contained in the Parent Debt
Agreement (or any other material breach or default under the Parent Debt
Agreement occurs) if the effect thereof is to cause or permit the holder or
trustee of such obligation to cause such obligation to become due or repurchased,
prepaid, redeemed or defeased prior to its stated maturity; or any default or
event of default occurs under any provision contained in any line of credit
maintained by Borrower and such default is not cured within any applicable
given period;


 


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


 


39













 


of any such document shall be challenged or denied by any Person other
than Lender other than by reason of illegality;


 


(j)            Either
(i) any “accumulated funding deficiency” (as defined in
Section 412(a)) of the Code in excess of $25,000.00 exists with respect to
any ERISA Plan, whether or not waived by the Secretary of the Treasury or his
delegate, or (ii) any Termination Event occurs with respect to any ERISA
Plan and the then current value of such ERISA Plan’s benefits guaranteed under
Title IV of ERISA exceeds the then current value of such ERISA Plan’s
assets available for the payment of such benefits by more than $10,000.00 (or
in the case of a Termination Event involving the withdrawal of a substantial
employer, the withdrawing employer’s proportionate share of such excess exceeds
such amount) or (iii) any Related Person or any ERISA Affiliate withdraws
from a multiemployer plan resulting in liability under Title IV of ERISA
of an amount in excess of $10,000.00 in the case of any Related Person or
$10,000.00 in the case of any other ERISA Affiliate; or


 


(k)           A
Change of Control occurs.


 


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


 


ARTICLE VIII


 


INDEMNIFICATION


 


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


 


40













 


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


 


provided only that such
indemnified party shall not be entitled under this section to receive
indemnification for that portion, if any, of any liabilities and costs which is
proximately caused by its own individual gross negligence or willful misconduct
as determined by a court of competent jurisdiction in a final non-appealable
judgment.  All amounts payable by
Borrower shall be immediately due upon Lender’s request for the payment
thereof.


 


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


 


ARTICLE IX


 


MISCELLANEOUS


 


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


 


	
   

  	
  Borrower:

  	
   

  	
  Ryland Mortgage Company

  
	
   

  	
   

  	
  6300 Canoga Avenue,
  14th Floor

  
	
   

  	
   

  	
  Woodland Hills, CA
  91367

  
	
   

  	
   

  	
  Attention: David A.
  Brown, Senior Vice President

  
	
   

  	
   

  	
  FAX: (818) 251-4192

  
	
   

  	
   

  	
  TEL: (818) 251-4116

  



 


41













 


	
   

  	
  Copy to:

  	
   

  	
  Ryland Mortgage Company

  
	
   

  	
   

  	
  6300 Canoga Avenue, 14th Floor

  
	
   

  	
   

  	
  Woodland Hills, CA 91367

  
	
   

  	
   

  	
  Attention: Eric Menyuk, Vice President, Counsel

  
	
   

  	
   

  	
  FAX: (818) 251-4206

  
	
   

  	
   

  	
  TEL: (818) 251-4114

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Lender:

  	
   

  	
  Guaranty Bank

  
	
   

  	
   

  	
  8333 Douglas Avenue

  
	
   

  	
   

  	
  Dallas, Texas 75225

  
	
   

  	
   

  	
  Attention: Ross Evans

  
	
   

  	
   

  	
  FAX: 214-360-4892

  
	
   

  	
   

  	
  TEL: 214-360-2672

  



 


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


 


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


 


Section 9.3     CHOICE
OF LAW; VENUE.  THIS AGREEMENT SHALL
BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS. 
SECTION 346 OF THE TEXAS FINANCE CODE (WHICH REGULATES CERTAIN
REVOLVING LOAN ACCOUNTS AND REVOLVING TRIPARTY ACCOUNTS) SHALL NOT APPLY TO
THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS. 
BORROWER HEREBY AGREES THAT THE OBLIGATIONS CONTAINED HEREIN ARE
PERFORMABLE IN DALLAS COUNTY, TEXAS.  ALL
PARTIES HERETO AGREE THAT (I) ANY ACTION ARISING OUT OF THIS TRANSACTION
SHALL BE FILED IN DALLAS COUNTY, TEXAS, (II) VENUE FOR ENFORCEMENT OF ANY
OF THE OBLIGATIONS CONTAINED IN THIS AGREEMENT SHALL BE IN DALLAS COUNTY,
(III) PERSONAL JURISDICTION SHALL BE IN DALLAS COUNTY, TEXAS,
(IV) ANY ACTION OR PROCEEDING UNDER THIS AGREEMENT SHALL BE COMMENCED
AGAINST BORROWER IN DALLAS COUNTY, (V) SUCH ACTION SHALL BE INSTITUTED IN
THE COURTS OF THE STATE OF TEXAS LOCATED IN DALLAS COUNTY, TEXAS OR IN THE
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS LOCATED IN
DALLAS COUNTY, TEXAS, AND (VI) BORROWER HEREBY WAIVES ANY OBJECTION TO THE
VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING AND ADDITIONALLY WAIVES ANY RIGHT
IT MAY HAVE TO BE SUED ELSEWHERE. 
NOTHING HEREIN


 


42













 


SHALL AFFECT THE RIGHT OF LENDER TO ACCOMPLISH SERVICE
OF PROCESS IN ANY MANNER PERMITTED BY LAW.


 


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


 


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


 


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


 


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


 


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


 


Section 9.9        Limitation on Interest.  Lender, each Related Person and any other
parties to the Loan Documents intend to contract in strict compliance with
applicable usury Law from time to time in effect.  In furtherance thereof such Persons stipulate
and agree that none of the terms and provisions contained in the Loan Documents
shall ever be construed to create a contract to pay, for the use, forbearance
or detention of money, interest in excess of the maximum amount of interest
permitted to be charged by applicable Law from time to time in effect.  Neither each Related Person nor any present
or future guarantors, endorsers, or other Persons hereafter becoming liable for
payment of any Obligation shall ever be liable for unearned interest thereon or
shall ever be required to pay interest thereon in excess of the maximum amount
that may be lawfully charged under applicable Law from time to time in effect,
and the provisions of this section shall control over all other provisions of
the Loan Documents which may be in conflict or apparent conflict herewith.  Lender expressly disavows any intention to
charge or collect excessive unearned interest or finance charges in the event
the maturity of any Obligation is accelerated. 
If (a) the maturity of any Obligation is accelerated for any
reason, (b) any Obligation is prepaid and as a result any amounts held to
constitute interest are determined to be in excess of the legal maximum, or
(c) Lender or any other holder of any or all of the Obligations shall
otherwise collect moneys which are determined to constitute interest which
would otherwise increase the interest on any or all of the Obligations to an
amount in excess of that permitted to be charged by applicable Law then in
effect, then all such sums


 


43













 


determined to constitute interest in excess of such legal limit shall,
without penalty, be promptly applied to reduce the then outstanding principal
of the related Obligations or, at Lender’s or such holder’s option, promptly
returned to each Related Person or the other payor thereof upon such
determination.  In determining whether or
not the interest paid or payable, under any specific circumstance, exceeds the
maximum amount permitted under applicable Law, Lender and each Related Persons
(and any other payors thereof) shall to the greatest extent permitted under applicable
Law, (i) characterize any non-principal payment as an expense, fee or
premium rather than as interest, (ii) exclude voluntary prepayments and
the effects thereof, and (iii) amortize, prorate, allocate, and spread the
total amount of interest throughout the entire contemplated term of the
instruments evidencing the Obligations in accordance with the amounts
outstanding from time to time thereunder and the maximum legal rate of interest
from time to time in effect under applicable Law in order to lawfully charge
the maximum amount of interest permitted under applicable Law.  In the event applicable Law provides for an
interest ceiling under Section 303 of the Texas Finance Code, that ceiling
shall be the weekly ceiling.


 


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


 


Section 9.11           Assignments,
Participations.


 


(a)           Assignments.  Lender shall have the right to sell, assign
or transfer all or any part of Note, Loans and rights and the associated rights
and obligations under all Loan Documents to one or more financial institutions,
with minimum assets of $100,000,000, and the assignee, transferee or recipient
shall have, to the extent of such sale, assignment, or transfer, the same
rights, benefits and obligations of Lender. 
No individual assignment shall be in an amount less than
$5,000,000.  Within five (5) Business
Days after any such assignment, the assignee shall notify Borrower of the
outstanding principal balance of the Note payable to assignee and Borrower
shall execute and deliver to assignee a new Note evidencing such assignee’s
assigned Loans and, if the assignor Lender has retained a portion of its Loans,
replacement Note in the principal amount of the Loans retained by the assignor
Lender (such Note to be in exchange for, but not in payment of, the Note held
by such Lender).


 


44













 


(b)           Participations.  Lender shall have the right to grant
participations in all or any part of the Note, Loans and the associated rights
and obligations under all Loan Documents to one or more financial institutions
with minimum assets of $100,000,000.


 


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


 


Section 9.12           Exhibits
and Schedules.  The exhibits and
schedules attached to this Agreement are incorporated herein and shall be
considered a part of this Agreement for the purposes stated herein, except that
in the event of any conflict between any of the provisions of such exhibits and
schedules and the provisions of this Agreement, the provisions of this
Agreement shall prevail.


 


Section 9.13           Titles
of Articles, Sections and Subsections. 
All titles or headings to articles, sections, subsections or other
divisions of this Agreement or the exhibits hereto are only for the convenience
of the parties and shall not be construed to have any effect or meaning with
respect to the other content of such articles, sections, subsections or other
divisions, such other content being controlling as to the agreement between the
parties hereto.


 


Section 9.14           Counterparts;
Fax.  This Agreement may be executed
in counterparts, and it shall not be necessary that the signatures of both of
the parties hereto be contained on any one counterpart hereof, each counterpart
shall be deemed an original, but all counterparts together shall constitute one
and the same instrument.  This Agreement
may be duly executed by facsimile or other electronic transmission.


 


Section 9.15           Termination:
Limited Survival.  In its sole and
absolute discretion Borrower may at any time that no Obligations are owing
elect in a notice delivered to Lender to terminate this Agreement.  Upon receipt by Lender of such a notice, if
no Obligations are then owing, this Agreement and all other Loan Documents
shall thereupon be terminated and the parties thereto released from all
prospective obligations thereunder. 
Notwithstanding the foregoing or anything herein to the contrary, any
waivers or admissions made by any Person in any Loan Documents, any
Obligations, and any obligations which any Person may have to indemnify or
compensate Lender shall survive any termination of this Agreement or any other
Loan Document.  At the request and
expense of Borrower, Lender shall prepare and execute all necessary instruments
to reflect and effect such termination of the Loan Documents.


 


Section 9.16           Disclosures.  Lender may disclose to, and exchange and
discuss with, any other Person any information concerning the Collateral or
Related Person (whether received by Lender or any other Person) for the purpose
of (a) complying with Governmental Requirements or any legal proceedings,
(b) protecting or preserving the Collateral, (c) protecting,
preserving, exercising or enforcing any of their rights in, under or related to
the Collateral or the Loan Documents, (d) performing any of their
obligations under or related to the Loan Documents or any intercreditor
agreement relating to a Permitted Warehouse Facility, or (e) consulting
with respect to any of the foregoing matters.


 


45













 


Section 9.17           Time
is of the Essence.  Time is of the
essence with respect to the performance of the obligations contained in this
Agreement.


 


Section 9.18           USA
Patriot Act Notice.  Lender hereby
notifies Borrower that pursuant to the requirements of the USA Patriot Act
(Title III of Pub. L. 107-56 (signed into law October 26, 2003)) (the
“Act”), it is required to obtain, verify and
record information that identifies Borrower, which information includes the
name and address of Borrower and other information that will allow Lender to
identify Borrower in accordance with the Act.


 


Section 9.19           Electronic
Transactions.  Borrower hereby
affirmatively consents and agrees to permit Lender and its successors and
assigns to enter into transactions with Borrower involving “electronic records”
and “electronic means,” as those terms are defined in UETA and the E-Sign Act.


 


Section 9.20           No
Reliance.  In executing this
Agreement, Borrower warrants and represents that Borrower is not relying on any
statement or representation other than those in this Agreement and is relying
upon its own judgment and advice of its attorneys.


 


Section 9.21           Confidential Information.


 


(a)           Restrictions
on Use of Confidential Information. 
Borrower and Lender agree not to use Confidential Information of the
other for any purpose other than the fulfillment of its obligations under the
Agreement.  Except as set forth in
clauses (c) and (d) of this Section 9.21, Borrower
and Lender shall not disclose, publish, release, transfer or otherwise make
available Confidential Information of the other in any form to, or for the use
or benefit of, any Person without the other’s consent.  Borrower and Lender shall, however, be
permitted to disclose relevant aspects of the other’s Confidential Information
to its officers, agents, subcontractors, and employees to the extent that such
disclosure is reasonably necessary for the performance of its duties and
obligations under the Agreement and such disclosure is not prohibited by the
GLB Act, the regulations promulgated thereunder or other applicable Law;
provided, however, that Borrower and Lender shall take all reasonable measures
to ensure that Confidential Information of the other is not disclosed or
duplicated in contravention of these provisions by such officers, agents,
subcontractors and employees.  Borrower
and Lender further agree promptly to advise the other in writing of any misappropriation,
or unauthorized disclosure or use by any person of Confidential Information
which may come to its attention and to take all steps reasonably requested by
the other to limit, stop or otherwise remedy such misappropriation, or
unauthorized disclosure or use.  If the
GLB Act, the regulations promulgated hereunder or other applicable Law now or
hereafter in effect imposes a higher standard of confidentiality to the
Confidential Information, such standard shall prevail over the provisions of
this Section.


 


(b)           Controls
on Confidential Information. 
Borrower and Lender shall establish commercially reasonable controls to
ensure that the confidentiality of the Confidential Information and to ensure
that the Confidential Information is not disclosed contrary to the provisions
of this Section, the GLB Act or any other applicable privacy Laws and
regulations.  Without limiting the
foregoing, Borrower and Lender shall implement such physical and other security
measures as are necessary to (i) ensure the security and confidentiality
of the Confidential Information, (ii) protect against any threats or
hazards to the security and integrity


 


46













 


of the Confidential Information and (iii) protect against any
unauthorized access to or use of the Confidential Information.  Borrower and Lender shall, at a minimum
establish and maintain such data security program as is necessary to meet the
objectives of the Interagency Guidelines Establishing Standards for
Safeguarding Customer Information as set forth in the Code of Federal
Regulations at 12 C.F.R. Parts 30, 208, 211, 225, 263, 308 364, 568
and 570.  To the extent that any duties
and responsibilities under the Agreement are delegated to an agent or other
subcontractor, reasonable steps shall be taken to ensure that such agents and
subcontractor adhere to the same requirements. 
Borrower and Lender will not make any more copies of the other’s written
or graphic materials containing Confidential Information than is necessary for
its use under the terms of the Agreement, and each such copy shall be marked
with the same proprietary notices as appear on the originals.


 


(c)           Confidential
Information Not Subject to Restrictions. 
Notwithstanding anything to the contrary contained herein, neither
Borrower nor Lender shall have any obligation with respect to any Confidential
Information of the other party, or any portion thereof, which the receiving
party can establish by competent proof:


 


(i)            is or becomes generally known to
companies engaged in the same or similar businesses as the parties hereto on a
non-confidential basis, through no wrongful act of the receiving party;


 


(ii)           is lawfully obtained by the receiving
party from a third party which has no obligation to maintain the information as
confidential and which provides it to the receiving party without any
obligation to maintain the information as proprietary or confidential;


 


(iii)          was known prior to its disclosure to
the receiving party without any obligation to keep it confidential as evidenced
by the tangible records kept by the receiving party in the ordinary course of
its business;


 


(iv)          is independently developed by the
receiving party without reference to the disclosing party’s Confidential
Information; or


 


(v)           is the subject of a written agreement
whereby the disclosing party consents to the use or disclosure of such
Confidential Information.


 


(d)           Required
Disclosures.  If a receiving party or
any of its representatives shall be under a legal obligation in any
administrative or judicial circumstance to disclose any Confidential
Information, the receiving party shall, to the extent not prohibited, give the
disclosing party prompt notice so that the disclosing party may seek a
protective order and/or waive the duty of nondisclosure; provided that in the
absence of such order or waiver, if the receiving party or any such
representative shall, in the opinion of its counsel, stand liable for contempt
or suffer other censure or penalty for failure to disclose, disclosure pursuant
to the order of such tribunal may be made by the receiving party or its
representative without liability hereunder.


 


(e)           Continued
Restrictions.  For as long as
Borrower or Lender continues to possess or control Confidential Information
furnished by the other, and for so long as the Confidential


 


47













 


Information remains unpublished, confidential and legally protectable
as the property of the disclosing party, except as otherwise specified herein,
the receiving party shall make no use of such Confidential Information
whatsoever, notwithstanding the termination or expiration of the
Agreement.  Borrower and Lender
acknowledge their understanding that the termination or expiration of the
Agreement shall not be deemed to give either a right or license to use or
disclose the Confidential Information of the other.  Any materials or documents, including copies
that contain Confidential Information, shall be promptly returned or destroyed
when necessary to prevent disclosure of the Confidential Information to third
parties.  If any materials are destroyed,
rather than returned, as permitted by the previous sentence, the party that
destroyed such materials shall provide a certificate to the other party that
specifically identifies the materials destroyed and confirms that the materials
were in fact destroyed.


 


(f)            Injunctive
Relief Permitted.  It is agreed that
the unauthorized disclosure or use of any Confidential Information may cause
immediate or irreparable injury to the party providing the Confidential Information,
and that such party may not be adequately compensated for such injury in
monetary damages.  Borrower and Lender
therefore acknowledge and agree that, in such event, the other shall be
entitled to seek any temporary or permanent injunctive relief necessary to
prevent such unauthorized disclosure or use, or threat of disclosure or use,
and each consents to the jurisdiction of any federal or state court of
competent jurisdiction sitting in Dallas, Texas for purpose of any suit
hereunder and to service of process therein by certified or registered mail,
return receipt requested.


 


Section 9.22           WAIVER
OF JURY TRIAL.  EACH OF THE PARTIES
HERETO WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, ITS
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION, PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY,
WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE.  EACH OF THE PARTIES HERETO AGREES THAT ANY
SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY.  WITHOUT LIMITING THE FOREGOING, THE PARTIES
FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY
OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER
PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY PROVISION
HEREOF OR THEREOF.  THIS WAIVER SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AGREEMENT AND ANY OTHER LOAN DOCUMENTS.


 


Section 9.23           CONSEQUENTIAL
DAMAGES.  NEITHER BORROWER, NOR
LENDER SHALL HAVE ANY LIABILITY WITH RESPECT TO, AND EACH SUCH PERSON HEREBY
WAIVES, RELEASES AND AGREES NOT TO SUE EACH OTHER SUCH PERSON FOR, ANY SPECIAL,
INDIRECT OR CONSEQUENTIAL DAMAGES SUFFERED BY SUCH OTHER PERSON IN CONNECTION
WITH ANY CLAIM RELATED TO THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
HEREIN.


 


48













 


Section 9.24           ENTIRE
AGREEMENT.  THE NOTE, THIS AGREEMENT,
AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
HERETO AND THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG
THE PARTIES.


 


[THE
REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]


 


49













 


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


 


	
  BORROWER:

  	
  RYLAND
  MORTGAGE COMPANY,

  an Ohio corporation

  
	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Martyn Watson

  
	
   

  	
   

  	
  Name:

  	
  Martyn Watson

  
	
   

  	
   

  	
  Title:

  	
  Vice President,
  Controller

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  LENDER:

  	
  GUARANTY
  BANK

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ross Evans

  
	
   

  	
   

  	
  Ross Evans

  
	
   

  	
   

  	
  Vice President

  



 


50


 













 


SCHEDULE 1.1


 


APPROVED
INVESTORS


 


California Housing
Finance Agency (CalHFA)


 


CitiMortgage Inc.


 


Countrywide Home Loans


 


Federal Home Loan
Mortgage Corporation


 


Federal National Mortgage
Association


 


Government National
Mortgage Association


 


Guaranty Bank


 


J.P. Morgan Chase


 


North Carolina Housing
Finance Agency


 


South Carolina Housing
Finance Agency


 


Texas Dept. of
Housing & Community Affairs


 


US Bank Home Mortgage


 


Virginia Housing
Development Authority


 


Wells Fargo


 


Schedule 1.1,  Page 1













 


SCHEDULE 4.14


 


SUBSIDIARIES
AND INVESTMENTS


 


	
  Associates
  Funding, Inc., a Delaware corporation

  
	
   

  
	
  Associates Mortgage
  Funding Corporation, a Delaware corporation

  
	
   

  
	
  Cornerstone Title Company, a Maryland corporation

  Ryland Title Company of Maryland, a Maryland corporation

  Cornerstone Title Insurance Company

  
	
   

  
	
  Ryland Insurance
  Services, a California corporation

  



 


Schedule 1 Page 1