Document:

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                                                                   Exhibit 10.32

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                   WAREHOUSING CREDIT AND SECURITY AGREEMENT

                                    BETWEEN

                   HANOVER CAPITAL MORTGAGE HOLDINGS, INC.,
                            A MARYLAND CORPORATION,

                        HANOVER CAPITAL PARTNERS LTD.
                            A NEW YORK CORPORATION,

                                      AND

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                                 BANK UNITED,
                            A FEDERAL SAVINGS BANK

                          DATED AS OF APRIL 30, 1999

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                                TABLE OF CONTENTS

<TABLE>
<S>       <C>                                                                               <C>
1.   DEFINITIONS......................................................................      Page  1
          1.1    Defined Terms. ......................................................      Page  1
          1.2    Other Definitional Provisions........................................      Page 13

2.   THE CREDIT ......................................................................      Page 14
          2.1    The Commitment ......................................................      Page 14
          2.2    Procedures for Obtaining Advances ...................................      Page 15
          2.3    Note ................................................................      Page 17
          2.4    Interest ............................................................      Page 17
          2.5    Principal Payments ..................................................      Page 18
          2.6    Expiration of Commitment ............................................      Page 19
          2.7    Method of Making Payments ...........................................      Page 19
          2.8    Commitment Fee ......................................................      Page 19
          2.9    Miscellaneous Charges ...............................................      Page 20
          2.10   Bailee ..............................................................      Page 20

3.   COLLATERAL ......................................................................      Page 20
          3.1    Grant of Security Interest ..........................................      Page 20
          3.2    Security Interest in Mortgage-backed Securities .....................      Page 22
          3.3    Delivery of Collateral Documents ....................................      Page 22
          3.4    Delivery of Additional Collateral or Mandatory Prepayment ...........      Page 23
          3.5    Right of Redemption from Pledge .....................................      Page 23
          3.6    Collection ..........................................................      Page 23
          3.7    Return or Release of Collateral at End of Commitment ................      Page 24

4.   CONDITIONS PRECEDENT ............................................................      Page 24
          4.1    Initial Advance .....................................................      Page 24
          4.2    Each Advance ........................................................      Page 25

5.   REPRESENTATIONS AND WARRANTIES ..................................................      Page 26
          5.1    Organization; Good Standing; Subsidiaries ...........................      Page 27
          5.2    Authorization and Enforceability ....................................      Page 27
          5.3    Financial Condition .................................................      Page 27
          5.4    Litigation ..........................................................      Page 28
          5.5    Compliance with Laws ................................................      Page 28
          5.6    Regulations G and U .................................................      Page 28
          5.7    Investment Company Act and Public Utility Holding Company Act .......      Page 28
          5.8    Agreements ..........................................................      Page 28
          5.9    Title to Properties .................................................      Page 29
          5.10   ERISA ...............................................................      Page 29
          5.11   Eligibility .........................................................      Page 29
          5.12   Special Representations Concerning Collateral .......................      Page 30
          5.13   RICO ................................................................      Page 31
</TABLE>

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<TABLE>
<S>       <C>                                                                               <C>
          5.14   Proper Names ........................................................      Page 31
          5.15   Direct Benefit From Loans ...........................................      Page 32
          5.16   Loan Documents Do Not Violate Other Documents .......................      Page 32
          5.17   Consents Not Required ...............................................      Page 32
          5.18   Material Fact Representations .......................................      Page 32
          5.19   Place of Business ...................................................      Page 32
          5.20   Use of Proceeds; Business Loans .....................................      Page 33
          5.21   No Undisclosed Liabilities ..........................................      Page 33
          5.22   Tax Returns and Payments ............................................      Page 33
          5.23   Subsidiaries ........................................................      Page 33
          5.24   Holding Company .....................................................      Page 34

6.   AFFIRMATIVE COVENANTS ...........................................................      Page 34
          6.1    Payment of Note .....................................................      Page 34
          6.2    Financial Statements and Other Reports ..............................      Page 34
          6.3    Maintenance of Existence; Conduct of Business .......................      Page 35
          6.4    Compliance with Applicable Laws .....................................      Page 35
          6.5    Inspection of Properties and Books ..................................      Page 35
          6.6    Notice ..............................................................      Page 35
          6.7    Payment of Debt, Taxes, etc .........................................      Page 36
          6.8    Insurance ...........................................................      Page 36
          6.9    Other Loan Obligations ..............................................      Page 36
          6.10   Use of Proceeds of Advances .........................................      Page 37
          6.11   Special Affirmative Covenants Concerning Collateral .................      Page 37
          6.12   Cure of Defects in Loan Documents ...................................      Page 38

7.   NEGATIVE COVENANTS ..............................................................      Page 38
          7.1    Contingent Liabilities ..............................................      Page 38
          7.2    Merger; Acquisitions ................................................      Page 38
          7.3    Loss of Eligibility .................................................      Page 38
          7.4    Debt to Adjusted Tangible Net Worth Ratio ...........................      Page 38
          7.5    Minimum Adjusted Tangible Net Worth .................................      Page 39
          7.6    Minimum GAAP Net Worth ..............................................      Page 39
          7.7    Minimum Current Ratio ...............................................      Page 39
          7.8    Maximum Non-Investment Grade Securities to Adjusted
                 Tangible Net Worth Ratio ............................................      Page 39
          7.9    Transactions with Affiliates ........................................      Page 39
          7.10   Limits on Corporate Distributions ...................................      Page 39
          7.11   RICO ................................................................      Page 39
          7.12   No Loans or Investments Except Approved Investments .................      Page 39
          7.13   Charter Documents and Business Termination ..........................      Page 40
          7.14   Changes in Accounting Methods .......................................      Page 40
          7.15   No Sales, Leases or Dispositions of Property ........................      Page 40
          7.16   Changes in Business or Assets .......................................      Page 41
          7.17   Changes in Office or Inventory Location .............................      Page 41
          7.18   Special Negative Covenants Concerning Collateral ....................      Page 41
</TABLE>

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<TABLE>
<S>       <C>                                                                              <C>
          7.19   No Indebtedness .....................................................      Page 41

8.   DEFAULTS; REMEDIES ..............................................................      Page 42
          8.1    Events of Default ...................................................      Page 42
          8.2    Remedies ............................................................      Page 45
          8.3    Application of Proceeds .............................................      Page 47
          8.4    Lender Appointed Attorney-in-Fact ...................................      Page 48
          8.5    Right of Set-Off ....................................................      Page 48

9.   NOTICES .........................................................................      Page 48

10.  REIMBURSEMENT OF EXPENSES; INDEMNITY.............................................      Page 49

11.  FINANCIAL INFORMATION............................................................      Page 50

12.  MISCELLANEOUS....................................................................      Page 51
          12.1  Terms Binding Upon Successors; Survival of Representations............      Page 51
          12.2  Assignment............................................................      Page 51
          12.3  Amendments............................................................      Page 51
          12.4  Governing Law.........................................................      Page 51
          12.5  Participations........................................................      Page 51
          12.6  Relationship of the Parties...........................................      Page 51
          12.7  Severability..........................................................      Page 52
          12.8  Usury.................................................................      Page 52
          12.9  Consent to Jurisdiction...............................................      Page 53
          12.10 Arbitration...........................................................      Page 53
          12.11 ADDITIONAL INDEMNITY..................................................      Page 54
          12.12 No Waivers Except in Writing..........................................      Page 55
          12.13 WAIVER OF JURY TRIAL..................................................      Page 55
          12.14 Multiple Counterparts.................................................      Page 55
          12.15 No Third Party Beneficiaries..........................................      Page 55
          12.16 RELEASE OF LENDER LIABILITY...........................................      Page 55
          12.17 ENTIRE AGREEMENT; AMENDMENT...........................................      Page 56
          12.18 NO ORAL AGREEMENTS....................................................      Page 56
</TABLE>

<TABLE>
<S>                                                                                        <C>
EXHIBIT "A-1".........................................................................      Page 58

EXHIBIT "A-2".........................................................................      Page 60

ANNEX "A" TO EXHIBIT "A-2"............................................................      Page 61

EXHIBIT "B"...........................................................................      Page 62

EXHIBIT "C"...........................................................................      Page 63

EXHIBIT "D"...........................................................................      Page 67
</TABLE>

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<TABLE>
<S>                                                                                        <C>
EXHIBIT "E"...........................................................................      Page 68

EXHIBIT "F"...........................................................................      Page 70

ANNEX "A" TO EXHIBIT "F"..............................................................      Page 71

EXHIBIT "G"...........................................................................      Page 74

EXHIBIT "H"...........................................................................      Page 75

EXHIBIT "I"...........................................................................      Page 76

EXHIBIT "J-1".........................................................................      Page 77

EXHIBIT "J-2".........................................................................      Page 78

EXHIBIT "K"...........................................................................      Page 79

EXHIBIT "L"...........................................................................      Page 81

EXHIBIT "M"...........................................................................      Page 82

EXHIBIT "N"...........................................................................      Page 83

EXHIBIT "O"...........................................................................      Page 84
</TABLE>

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                    WAREHOUSING CREDIT AND SECURITY AGREEMENT

      THIS WAREHOUSING CREDIT AND SECURITY AGREEMENT (this "Agreement"), is
dated as of April 30, 1999, by and among HANOVER CAPITAL MORTGAGE HOLDINGS,
INC., a Maryland corporation (the "Company") having its principal office at 90
West Street, Suite 1509, New York, New York, 10006, HANOVER CAPITAL PARTNERS
LTD., a New York corporation ("HCP"), having its principal office at 90 West
Street, Suite 1508, New York, New York 10006 (the Company and "HCP" being called
collectively, the "Borrowers" and individually, the "Borrower"), and BANK
UNITED, a federal savings bank (the "Lender"), having its principal office at
3200 Southwest Freeway, Suite 2700, Houston, Texas 77027.

      WHEREAS, the Borrowers have requested the Lender to make certain loans to
the Borrowers to finance the purchase of Mortgage Loans (as that term is herein
defined) and for such other purposes specifically set forth herein which loans
are for the benefit of the Borrowers;

      WHEREAS, the Lender is willing to make such loans as herein provided, upon
the terms, agreements and covenants and subject to the conditions hereinafter
set forth and in reliance on the representations and warranties herein made and
referred to; and

      WHEREAS, the Borrowers and the Lender desire to set forth herein the terms
and conditions upon which the Lender shall provide warehouse financing to the
Borrowers;

      NOW, THEREFORE, for good and valuable consideration, the amount and
sufficiency of which are hereby acknowledged by the parties hereto, to induce
the Lender to provide the warehouse financing facility to the Borrowers and in
reliance of the representations and warranties made herein, the parties hereto
hereby agree as follows:

1.    DEFINITIONS.

      1.1 Defined Terms. Capitalized terms defined below or elsewhere in this
Agreement (including the exhibits hereto) shall have the following meanings:

            "Adjusted Tangible Net Worth" means, with respect to the Company at
      any date, the Tangible Net Worth of the Company at such date plus one
      percent (1%) of the sum of the outstanding principal balances of Mortgage
      Loans as of such date for which Company owns the Servicing Rights less
      Non-Investment Grade Securities, deferred financing fees and all other
      intangible assets of any unconsolidated Subsidiary.

            "Advance" means a disbursement by the Lender under the Commitment
      pursuant to Article 2 of this Agreement.

            "Advance Request" means (a) with respect to an Advance against
      Eligible Mortgage Loans or Eligible Non-Conforming Mortgage Loans, EXHIBIT
      "A-1" attached hereto and incorporated herein for all purposes and (b)
      with respect to an Advance against

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      Investment Grade Securities, EXHIBIT "A-2" attached hereto and
      incorporated herein for all purposes

            "Affiliate" shall mean any Person controlling, controlled by or
      under common control with any other Person. For purposes of this
      definition "control" (including "controlled by" and "under common control
      with") means the possession, directly or indirectly, of the power to
      direct or cause the direction of the management and policies of such
      Person, whether through the ownership of voting securities, by contract,
      or otherwise or owning or possessing the power to vote 10% or more of any
      class of voting securities of any Person. Without limiting the generality
      of the foregoing, for purposes of this Agreement, Company and each of its
      respective Subsidiaries shall be deemed to be Affiliates of one another.

            "Aged Mortgage Loans" means Eligible Mortgage Loans that have been
      included in Collateral for a period of more than one hundred eighty (180)
      days.

            "Agreement" means this Warehousing Credit and Security Agreement,
      either as originally executed or as it may from time to time be
      supplemented, modified or amended.

            "Applicable Law" shall mean the laws of the State of Texas and the
      United States of America in effect from time to time and applicable to the
      transactions between the Lender and the Company pursuant to this Agreement
      and the other Loan Documents whichever permits the charging and collection
      of the highest nonusurious rate of interest on such transactions. For
      purposes of determining Texas law with respect to the highest nonusurious
      rate of interest, the weekly rate ceiling permitted under Chapter 1D. of
      the Texas Credit Title, as amended, shall be controlling.

            "Approved Custodian" means a Person acceptable to the Lender from
      time to time in its sole discretion, who possesses Mortgage Loans that
      secure Mortgaged-backed Securities.

            "Bailee Letter" has the meaning set forth in Section 3.3 hereof.

            "Borrowers" has the meaning set forth in the first paragraph of
      this Agreement.

            "Business Day" means any day excluding Saturday, Sunday and any day
      on which Lender is closed for business.

            "Capitalized Lease" shall mean any lease under which rental payments
      are required to be capitalized on a balance sheet of the lessee in
      accordance with GAAP.

            "Capitalized Rentals" shall mean the amount of aggregate rentals due
      and to become due under all Capitalized Leases under which the Company is
      a lessee that would be reflected as a liability on a balance sheet of the
      Company.

            "Chattel Paper" shall have the meaning assigned that term under the
      UCC.

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            "Collateral" has the meaning set forth in Section 3.1 hereof.

            "Collateral Documents" means (a) with respect to Pledged Mortgages
      and Pledged Securities all of the documents and other items described on
      EXHIBIT "C" hereto and (b) with respect to Investment Grade Securities,
      all of the documents and other items described on EXHIBIT "O".

            "Collateral Value" means

                  (a) with respect to any Eligible Mortgage Loan, an amount
            equal to the least of (i) the Par Value thereof, (ii) the amount
            which the Investor has committed to pay for such Mortgage Loan
            pursuant to a Purchase Commitment, or (iii) the Fair Market Value of
            such Mortgage Loan, or (iv) the actual out-of-pocket cost of such
            Mortgage Loan to the Company;

                  (b) with respect to any Eligible Non-Conforming Mortgage Loan,
            an amount equal to the least of (i) the Par Value of such Mortgage
            Loan, (ii) the Fair Market Value of such Mortgage Loan, (iii) the
            amount which the Investor will pay for such Mortgage Loan pursuant
            to a Purchase Commitment, or (iv) the actual out-of-pocket cost of
            such Mortgage Loan to the Company;

                  (c) with respect to any Investment Grade Security, an amount
            equal to the lesser of (i) the applicable Borrower's book value of
            such Investment Grade Security or (ii) the market value of such
            Investment Grade Security as determined by the Lender or such third
            party acceptable to the Lender in its sole discretion;

                  (d) with respect to Collateral that is not described within
            (a), (b) or (c) and that is pledged pursuant to Section 3.4 hereof,
            Collateral Value shall equal an amount established by Lender in its
            sole discretion;

                  (e) with respect to Collateral that is not described in (a),
            (b), (c) or (d) the Collateral Value shall be equal to $0.00;

                  (f) with respect to any Mortgage Loan that is not or ceases to
            be an Eligible Mortgage Loan or an Eligible Non-Conforming Mortgage
            Loan, the Collateral Value thereof shall equal $0.00; and

                  (g) with respect to any Investment Grade Security that is
            downgraded below an Investment Grade credit rating, the Collateral
            Value thereof shall be equal to $0.00.

            "Commitment" has the meaning set forth in Section 2.1(a) hereof.

            "Commitment Fee" has the meaning set forth in Section 2.8 hereof.

            "Company" has the meaning set forth in the first paragraph of
      this Agreement.

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            "Contracts" shall mean all contracts between any Borrower and one
      or more additional parties.

            "Contract Rights" shall mean all rights of any Borrower (including,
      without limitation, all rights to payment) under each Contract.

            "Conventional Mortgage Loan" means a Single-family Mortgage Loan,
      other than an FHA Loan or VA Loan, that complies with all applicable
      requirements for purchase under the FNMA or FHLMC standard form of
      conventional mortgage purchase contract.

            "Current Assets" means, with respect to any Person, those assets set
      forth in the consolidated balance sheet of a Person prepared in accordance
      with GAAP, as current assets, defined as those assets that are now cash or
      will be by their terms or disposition be converted to cash within one year
      of the date of calculation plus Mortgage-backed Securities of such Person
      and Mortgage Loans held by such Person to maturity.

            "Current Liabilities" means, with respect to any Person, those
      liabilities set forth in the consolidated balance sheet of a Person
      prepared in accordance with GAAP, as current liabilities, defined as those
      liabilities due upon demand or within one year from the date of
      calculation less non-recourse, Debt of such Person.

            "Current Ratio" means, with respect to any Person, the sum of the
      amounts set forth in the consolidated balance sheet of the Person,
      prepared in accordance with GAAP, on the date of calculation as Current
      Assets divided by the sum of the amounts set forth in such consolidated
      balance sheet as Current Liabilities.

            "Debt" means, with respect to any Person, at any date (a) all
      indebtedness or other obligations of such Person which, in accordance with
      GAAP, would be included in determining total liabilities as shown on the
      liabilities side of a balance sheet of such Person at such date; and (b)
      all indebtedness or other obligations of such Person for borrowed money or
      for the deferred purchase price of property or services; provided that for
      purposes of this Agreement, there shall be excluded from Debt at any date
      loan loss reserves, deferred taxes arising from capitalized excess service
      fees, and operating leases.

            "Default" means the occurrence of any event or existence of any
      condition which, but for the giving of notice, the lapse of time, or both,
      would constitute an Event of Default.

            "Default Rate" has the meaning set forth in Section 2.4(c) hereof.

            "Delinquent Loans" means, collectively, Delinquent "30 - 59" Loans
      and Delinquent "60 - 89" Loans.

            "Delinquent "30 - 59" Loan" means, on any day, a Mortgage Loan that
      satisfies the requirements of an Eligible Conforming Mortgage Loan, except
      that it is at least 30

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      days, but not more than 59 days, delinquent with respect to the payment of
      principal or interest (without regard to applicable grace period) on the
      date of any determination.

            "Delinquent "60 - 89" Loan" means, on any day, a Mortgage Loan that
      satisfies the requirements of an Eligible Conforming Mortgage Loan except
      that it is at least 60 days, but not more than 89 days, delinquent with
      respect to the payment of principal or interest (without regard to any
      applicable grace period) on the date of any determination.

            "Documents" shall have the meaning assigned that term under the
      UCC.

            "Electronic Request" has the meaning set forth in Section 2.2(a)
      hereof.

            "Eligible Mortgage Loan" means, at the time of any determination
      thereof (a) a Mortgage Loan, that at such time (i) is, without
      duplication, a Conventional Mortgage Loan, an FHA Loan, a VA Loan, or a
      Jumbo Loan; (ii) is a First Mortgage Loan or a Second Mortgage Loan; (iii)
      has a combined loan to value ratio of not greater than 100% (such ratio to
      be based upon all loans, including, such Mortgage Loan, and all other
      loans secured by the Mortgaged Property securing such Mortgage Loan; (iv)
      is validly pledged to the Lender, subject to no other Liens; (v) is not
      currently delinquent with respect to any payment due thereunder; (vi) is
      covered by a Hedging Contract or (b) a Mortgage-backed Security that at
      such time is validly pledged to Lender, subject to no other Liens.

            "Eligible Mortgage Pool" means a pool of Mortgage Loans that will
      secure a "mortgage related security", as defined in Section 3(a)(41) of
      the Exchange Act administered or to be administered by a trustee
      acceptable to Lender in its sole discretion where the Mortgage, Mortgage
      Note and other documents relating to such Mortgage Loans are held or to be
      held by an Approved Custodian.

            "Eligible Non-Conforming Mortgage Loan" means, at the time of any
      determination thereof, a Mortgage Loan that at such time (i) is, without
      duplication, a Delinquent "30 - 59" Loan or a Delinquent "60 - 89" Loan,
      (ii) is, without duplication, a First Mortgage Loan or a Second Mortgage
      Loan; (iii) has a combined loan to value ratio of not greater than 100%
      (such ratio to be based upon all loans, including, such Mortgage Loan, and
      all other loans secured by the Mortgaged Property securing such Mortgage
      Loan; (iv) is validly pledged to the Lender, subject to no other Liens;
      and (v) is subject to a Purchase Commitment or is covered by a Hedging
      Contract or is underwritten in accordance with standards approved by
      Lender so that such Mortgage Loan is readily salable in the secondary
      market or is eligible for securitization.

            "ERISA" means the Employee Retirement Income Security Act of 1974
      and all rules and regulations promulgated thereunder, as amended from time
      to time and any successor statute.

            "Event of Default" means any of the conditions or events set
      forth in Section 8.1 hereof.

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            "Exchange Act" means the Securities Exchange Act of 1934, as amended
      from time to time and any successor statute.

            "Fair Market Value" shall mean, at any date, with respect to:

                  (a) any Mortgage-backed Security, the bid rate reflected on
            the Telerate screen for a Mortgage-backed Security with the closest
            coupon rate that does not exceed that of the Mortgage-backed
            Security in question multiplied by the original face amount of such
            Mortgage-backed Security, and multiplied by the current pool factor
            for such Mortgage-backed Security.

                  (b) any Mortgage Loan, the market rate reflected on the
            Telerate screen for thirty (30) day mandatory future delivery of
            such Mortgage Loan multiplied by the outstanding principal balance
            thereof.

            In the event Telerate ceases to publish either the market or bid
      price referenced in (a) and (b) above, the average bid price quoted in
      writing to the Lender as of the date of determination by any two
      nationally recognized dealers selected by Lender that are making a market
      in similar Mortgage Loans or Mortgaged-backed Securities shall be utilized
      in lieu of the market or bid price, as the case may be.

            "FHA" means the Federal Housing Administration and any successor
      thereto.

            "FHA Loan" means a Single-family Mortgage Loan, payment of which is
      partially or completely insured by the FHA under the National Housing Act
      or Title V of the Housing Act of 1949 or with respect to which there is a
      current, binding and enforceable commitment for such insurance issued by
      the FHA.

            "FHLMC" means the Federal Home Loan Mortgage Corporation and any
      successor thereto.

            "FHLMC Guide" means the Freddie Mac Sellers' and Servicers' Guide,
      dated September 17, 1984, applicable bulletins, the applicable MIDANET
      Users Guide (or the MIDAPHONE User's Guide) and any particular purchase
      documents as defined in the Sellers' and Servicers' Guide, as revised
      prior to the date hereof.

            "FICA" means the Federal Insurance Contributions Act.

            "First Mortgage" means a mortgage or deed of trust which constitutes
      a first Lien on the property covered thereby.

            "First Mortgage Loan" means a Mortgage Loan secured by a First
      Mortgage.

            "Floating Rate" has the meaning set forth in Section 2.4(a)
      hereof.

            "FNMA" means the Federal National Mortgage Association and any
      successor thereto.

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            "FNMA Guide" means the FNMA Servicing Guide dated June 30, 1990, as
      revised prior to the date hereof.

            "Funding Account" means the non-interest bearing demand checking
      account established with, maintained by, and pledged to Lender into which
      shall be deposited the proceeds of Advances, the proceeds from any sale of
      Collateral, and from which funds shall be disbursed for the acquisition of
      Mortgage Loans.

            "GAAP" means generally accepted accounting principles set forth in
      the opinions and pronouncements of the Accounting Principles Board and the
      American Institute of Certified Public Accountants and statements and
      pronouncements of the Financial Accounting Standards Board or in such
      other statements by such other entity as may be approved by a significant
      segment of the accounting profession, which are applicable to the
      circumstances as of the date of determination.

            "GAAP Net Worth" means, with respect to any Person at any date, the
      sum of the total shareholders' equity in such Person (including capital
      stock, additional paid-in capital, and retained earnings, but excluding
      treasury stock, if any), on a consolidated basis determined in accordance
      with GAAP.

            "General Intangibles" shall have the meaning assigned that term
      under the UCC.

            "GNMA" means the Government National Mortgage Association and any
      successor thereto.

            "GNMA Guide" means the GNMA I Mortgage-Backed Securities Guide,
      Handbook GNMA 5500.1 REV. 6, as revised prior to the date hereof, and as
      may be revised from time to time, and GNMA II Mortgage-Backed Securities
      Guide Handbook GNMA 5500.2, as revised prior to the date hereof.

            "HCP" means HANOVER CAPITAL PARTNERS LTD., a New York corporation.

            "Hedging Contract" means a written contractual arrangement designed
      to provide protection against fluctuations in interest rates with respect
      to Mortgage Loans and commitments made to prospective Mortgage Loan
      obligors to extend Mortgage Loans at specified rates of interest in each
      case in accordance with guidelines acceptable to the Lender.

            "HUD" means the Department of Housing and Urban Development and
      any successor thereto.

            "Indemnified Liabilities" has the meaning set forth in Article 10
      hereof.

            "Instrument" has the meaning assigned that term under the UCC.

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            "Interest Rate Hedging Contract" means any interest rate swap
      agreement, interest rate cap agreement, interest rate collar agreement,
      interest rate insurance arrangement, future or option contract in respect
      of US government securities or Mortgage-backed Securities or any other
      agreement, arrangement or security position designed to provide protection
      to the Borrower against fluctuations in interest rates.

            "Interim Date" has the meaning set forth in Section 4.1(a)(5)
      hereof.

            "Internal Revenue Code" means the Internal Revenue Code of 1986, or
      any subsequent federal income tax law or laws, as any of the foregoing
      have been or may from time to time be amended.

            "Investment Grade" means a credit rating of BBB or better, as
      determined by S & P or a credit rating of Baa2 or better as determined by
      Moody's.

            "Investment Grade I-O Strips" means an Investment Grade Security
      that provides for payment by the issuer to the holder of such security of
      pass-through interest only.

            "Investment Grade Securities" means, on any date of determination,
      Mortgage-backed Securities that (a) have an Investment Grade credit rating
      and (b) are validly pledged to the Lender, subject to no other Liens.

            "Investor" means FNMA, FHLMC, GNMA, any of the Persons listed in
      EXHIBIT "L" hereto, or a financially responsible institution which is
      acceptable to Lender, in its sole discretion; provided that at any time by
      written notice to the Borrowers Lender may disapprove any Investor in its
      sole discretion, whether or not that Person is named as an Investor in
      this definition or in EXHIBIT "L" or has been previously approved as an
      Investor by Lender. Upon receipt of such notice, the Persons named in
      Lender's notice shall no longer be Investors from and after the date of
      the receipt of such notice.

            "Jumbo Loan" means a Single-family Mortgage Loan (other than a FHA
      Loan or VA Loan) that complies with all applicable requirements for
      purchase under the FNMA or FHLMC standard form of conventional mortgage
      purchase contract then in effect except that the amount of such Mortgage
      Loan exceeds the maximum amount under those requirements, but in no event
      shall the amount of such Single-family Mortgage Loan exceed $1,000,000.00.

            "Lender" has the meaning set forth in the first paragraph of this
      Agreement.

            "LIBOR Rate" means a rate of interest equal to the London Interbank
      Offered Rate for U. S. dollar deposits as quoted by Telerate, Bloomberg or
      any other rate quoting service, selected by Lender in its sole discretion
      for an interest period of one month. In the event such rate ceases to be
      published, LIBOR Rate shall mean a comparable rate of interest reasonably
      selected by Lender.

                                                                          Page 8
<PAGE>   17
            "Lien" means any lien, mortgage, deed of trust, pledge, security
      interest, charge or encumbrance of any kind (including any conditional
      sale or other title retention agreement, any lease in the nature thereof,
      and any agreement to give any security interest).

            "Loan Documents" means this Agreement, the Note, the Guaranty, and
      each other document, instrument or agreement executed by the Company,
      "HCP" or any other Person in connection herewith or therewith, as any of
      the same may be amended, restated, renewed or replaced from time to time.

            "Margin Stock" has the meaning assigned to that term in Regulations
      G and U of the Board of Governors of the Federal Reserve System as in
      effect from time to time.

            "Maximum Rate" shall mean the maximum lawful non-usurious rate of
      interest (if any) that, under Applicable Law, the Lender may charge the
      Borrowers on the Advances from time to time. To the extent that the
      interest rate laws of the State of Texas are applicable and unless changed
      in accordance with law, the applicable rate ceiling shall be the weekly
      ceiling determined in accordance with Texas Credit Title, as amended.

            "Monthly Average LIBOR Rate" means the average of all LIBOR Rates
      quoted during a given month. In the event (i) the Note is paid in full and
      the Commitment is terminated prior to a month end; or (ii) the initial
      Advance hereunder occurs on a date other than the first day of that month
      on which LIBOR Rates are quoted, the Monthly Average LIBOR Rate shall
      mean, in the case of clause (i), the average of all LIBOR Rates quoted
      that month up to and including the last Business Day prior to such payment
      in full; or, in the case of clause (ii), the LIBOR Rates quoted on the
      date of the initial Advance through the end of that month.

            "Moody's" means Moody's Investors Service, Inc.

            "Mortgage" means a First Mortgage or Second Mortgage on improved
      real property.

            "Mortgage-backed Securities" means FHLMC, GNMA or FNMA securities or
      securities issued by such other Persons acceptable to Lender in its
      reasonable discretion that are backed by Mortgage Loans.

            "Mortgage Loan" means any loan evidenced by a Mortgage Note. A
      Mortgage Loan, unless otherwise expressly stated herein, means a
      Single-family Mortgage Loan.

            "Mortgage Note" means a note secured by a Mortgage.

            "Mortgage Note Amount" means, as of the date of determination, the
      then outstanding unpaid principal amount of a Mortgage Note.

                                                                          Page 9
<PAGE>   18
            "Mortgage Pool" means a pool of Mortgage Loans that were warehoused
      with the Lender, on the basis of which there is to be issued a
      Mortgage-backed Security.

            "Mortgaged Property" means the property, real, personal, tangible or
      intangible, securing a Mortgage Note.

            "Multiemployer Plan" means a "multiemployer plan" as defined in
      Section 4001(a)(3) of ERISA that is maintained for employees of any
      Borrower or a Subsidiary of any Borrower.

            "Net Investable Balances" means the average collected balances in
      non-interest bearing deposit accounts controlled or maintained by the
      Borrowers and its Subsidiaries in accounts at the Lender, less balances to
      support float, activity charges, reserve requirements, Federal Deposit
      Insurance Corporation insurance premiums and such other assessments as may
      be imposed by governmental authorities from time to time.

            "Non-Investment Grade Securities"means, on the date of any
      determination, securities that do not have an Investment Grade credit
      rating.

            "Note" has the meaning set forth in Section 2.3 hereof.

            "Notices" has the meaning set forth in Article 9 hereof.

            "Obligations" shall mean any and all indebtedness, obligations and
      liabilities of the Borrowers to the Lender (whether now existing or
      hereafter arising, voluntary or involuntary, whether or not jointly owed
      with others, direct or indirect, absolute or contingent, liquidated or
      unliquidated, and whether or not from time to time decreased or
      extinguished and later increased, created or incurred), arising out of or
      related to the Loan Documents, or any of them.

            "Officer's Certificate" means a certificate executed on behalf of
      the Company or "HCP" by its chief financial officer or its treasurer or by
      such other officer as may be designated herein, in the form of EXHIBIT "F"
      hereto, as the case may be.

            "OTS" means the Office of Thrift Supervision.

            "Par Value" means, with respect to any Mortgage Loan at the time of
      any determination, the unpaid principal balance of such Mortgage Loan on
      such date.

            "Participant" has the meaning set forth in Section 12.5 hereof.

            "Person" means and includes natural persons, corporations, limited
      partnerships, general partnerships, joint stock companies, joint ventures,
      associations, companies, trusts, banks, trust companies, land trusts,
      business trusts or other organizations, whether or not legal entities, and
      federal and state governments and agencies or regulatory authorities and
      political subdivisions thereof.

                                                                         Page 10
<PAGE>   19
            "Plans" has the meaning set forth in Section 5.10 hereof.

            "Pledged Mortgages" has the meaning set forth in Section 3.1(a)
      hereof.

            "Pledged Securities" has the meaning set forth in Section 3.1(b)
      hereof.

            "Proceeds" shall have the meaning assigned that term under the UCC
      or under other relevant law and, in any event, shall include, but not be
      limited to, (i) any and all proceeds of any insurance, indemnity or
      warranty payable to the Lender or a Borrower from time to time with
      respect to any of the Collateral, (ii) any and all payments (in any form
      whatsoever) made or due and payable to the Debtor from time to time in
      connection with any requisition, confiscation, condemnation, seizure or
      forfeiture of all or any part of the Collateral by any governmental
      authority (or any Person acting under color of governmental authority),
      (iii) any and all securities issued with respect to any of the Collateral
      (whether issued by GNMA, FNMA, FHLMC or otherwise) and (iv) any and all
      other amounts from time to time paid or payable under or in connection
      with any of the Collateral (including, without limitation, under any
      Purchase Commitment, or guaranty or commitment for guaranty).

            "Purchase Commitment" means a current binding and enforceable
      written commitment, in form and substance satisfactory to the Lender,
      issued in favor of a Borrower by an Investor pursuant to which that
      Investor commits to purchase Mortgage Loans or Mortgage-backed Securities
      of a particular type and yield owned by such Borrower at a committed
      price, which commitment shall at all times be subject to approval by the
      Lender as to terms and conditions.

            "Receivables" shall mean any "account" as such term is defined in
      the UCC, now or hereafter owned by a Borrower and, in any event, shall
      include, but shall not be limited to, all rights to payment, whether now
      in existence or arising from time to time hereafter, including, without
      limitation, rights evidenced by an account, note, contract, security
      agreement, chattel paper or other evidence of indebtedness of security,
      together with (i) all security pledged, assigned, hypothecated or granted
      to or held by a Borrower to secure the foregoing, (ii) all of a Borrower's
      right, title and interest in and to any property or goods, the sale of
      which give rise thereto, (iii) all guarantees, endorsements and
      identifications on, or of, any of the foregoing, (iv) all powers of
      attorney for the execution of any evidence of indebtedness or security or
      underwriting in connection therewith, (v) all books, records, ledger
      cards, data and invoices relating thereto, (vi) all evidences of the
      filing of financing statements and other statements and the registration
      of other instruments in connection therewith and amendments thereto,
      notices to other creditors or secured parties and certificates from filing
      or other registration officers, (vii) all credit information, reports,
      memoranda relating thereto and (viii) all other writings related in any
      way to the foregoing.

            "Redemption Amount" has the meaning set forth in Section 3.5
      hereof.

                                                                         Page 11
<PAGE>   20
            "RICO" means the Racketeer Influenced and Corrupt Organizations
      Act of 1970, as amended.

            "Second Mortgage" means a mortgage or deed of trust which
      constitutes a second Lien on the property covered thereby.

            "Second Mortgage Loan" means a Single-family Mortgage Loan that is
      underwritten in conformity with underwriting standards approved by the
      applicable Investor and is secured by a Second Mortgage.

            "Servicing Contract" means, with respect to any Person, the
      arrangement, whether or not in writing, pursuant to which such Person has
      the right to service Mortgage Loans.

            "Servicing Rights" means (a) the rights, obligations, remedies,
      powers, and responsibilities of a Person to service Mortgage Loans owned
      by that Person, including without limitation the right to collect
      principal and interest payments, administer escrow accounts, and the right
      to own and possess loan files and all records, documents, and data
      relating to such Mortgage Loans, and (b) the obligations, rights,
      remedies, powers, privileges, benefits and responsibilities of a Person to
      service Mortgage Notes for GNMA, FNMA or FHLMC under and in accordance
      with the GNMA Guide, the FNMA Guide and the FHLMC Guide, respectively or
      for any Investor under any Servicing Contract, including, without
      limitation, (i) the right to receive servicing fees, termination fees, net
      sales proceeds, late charges, insufficient fund fees, and other ancillary
      income relating to the Mortgage Notes (ii) the right to hold and
      administer the escrow accounts, and (iii) the right to all loan files,
      insurance files, tax records, collection records, documents, ledgers,
      computer printouts, computer tapes and other records, data or information
      relating to the Mortgage Notes, the escrow accounts or the servicing or
      otherwise necessary or proper to perform the obligations of servicer.

            "Single-family Mortgage Loan" means a Mortgage Loan secured by a
      Mortgage covering improved real property containing one to four family
      residences (including, without limitation, condominium units but excluding
      cooperative ownership interests).

            "S & P" means Standard & Poor's Corporation.

            "Statement Date" has the meaning set forth in Section 4.1(a)(5)
      hereof.

            "Subsidiary" means any corporation, association or other business
      entity in which more than fifty percent (50%) of the total voting power or
      shares of stock entitled to vote in the election of directors, managers or
      trustees thereof is at the time owned or controlled, directly or
      indirectly, by any Person or one or more of the other Subsidiaries of that
      Person or a combination thereof.

            "Tangible Net Worth" means, with respect to any Person at any date,
      the sum of the total shareholders' equity in such Person (including
      capital stock, additional paid-in capital, and retained earnings, but
      excluding treasury stock, if any), on a consolidated

                                                                         Page 12
<PAGE>   21
      basis; less the aggregate book value of all intangible assets of such
      Person (as determined in accordance with GAAP), including without
      limitation, goodwill, trademarks, trade names, service marks, copyrights,
      patents, licenses, franchises, capitalized excess servicing fees. and
      Servicing Rights, each to be determined in accordance with GAAP consistent
      with those applied in the preparation of the financial statements referred
      to in Section 5.3 hereof; provided that, for purposes of this Agreement,
      there shall be excluded from total assets, advances or loans to
      shareholders, officers or Affiliates, investments in Affiliates, assets
      pledged to secure any liabilities not included in the Debt of such Person
      and those other assets which would be deemed by HUD to be non-acceptable
      in calculating adjusted net worth in accordance with its requirements in
      the Audit Guide for Audit of Approved Non-Supervised Mortgagees", as in
      effect as of such date.

            "Termination Date" means April 30, 2000, or such earlier date upon
      which Lender's obligation to fund shall be terminated pursuant to the
      terms of this Agreement.

            "Tribunal" means any court or governmental department, commission,
      board, bureau, agency, or instrumentality of any state, commonwealth,
      nation, territory, possession, county, parish, or municipality, whether
      now or hereafter constituted and/or existing.

            "UCC" means the Uniform Commercial Code as in effect on the date
      hereof in the State of Texas or any other relevant jurisdiction, as
      applicable.

            "VA" means the Veterans Administration and any successor thereto.

            "VA Loan" means a Single-family Mortgage Loan, payment of which is
      partially or completely guaranteed by the VA under the Servicemen's
      Readjustment Act of 1944 or Chapter 37 of Title 38 of the United States
      Code or with respect to which there is a current binding and enforceable
      commitment for such a guaranty issued by the VA.

      1.2   Other Definitional Provisions.

            (a) Accounting terms not otherwise defined herein shall have the
      meanings given the terms under GAAP.

            (b) Defined terms may be used in the singular or the plural, as the
      context requires.

2.    THE CREDIT.

      2.1   The Commitment.

            (a) Subject to the terms and conditions of this Agreement and
      provided no Default or Event of Default has occurred and is continuing,
      the Lender agrees, from time to time during the period from the date
      hereof to and including the Termination Date, to make Advances to the
      Borrowers, provided the sum of the total aggregate principal amount

                                                                         Page 13
<PAGE>   22
      outstanding at any one time of all such Advances hereunder shall not
      exceed FIFTY MILLION AND NO/100 DOLLARS ($50,000,000.00). The obligation
      of the Lender to make Advances hereunder up to such limit is hereinafter
      referred to as the "Commitment." Within the Commitment, the Borrowers may
      borrow, repay and reborrow. All Advances under this Agreement shall
      constitute a single indebtedness, and all of the Collateral shall be
      security for the Note and for the performance of all the Obligations of
      the Borrowers to the Lender.

            (b) Advances shall be used by a Borrower solely for the purpose of
      funding the acquisition of Eligible Mortgage Loans or Eligible
      Non-Conforming Mortgage Loans or for working capital purposes with respect
      to Advances against Investment Grade Securities, and none other, and shall
      be made at the request of such Borrower in the manner hereinafter provided
      in Section 2.2, against the pledge of such Mortgage Loans, Investment
      Grade Securities, and such other collateral as is set forth in Section 3.1
      hereof as Collateral therefor. Advances shall also be subject to the
      following restrictions:

                  (1) No Advance shall be made against Mortgage Loans that are
            not Eligible Mortgage Loans or Eligible Non-Conforming Mortgage
            Loans.

                  (2) The aggregate amount of Advances outstanding at any one
            time against Delinquent "30 - 59" Loans shall not exceed five
            percent (5%) of the aggregate amount of all Advances outstanding at
            the time of any determination.

                  (3) The aggregate amount of Advances outstanding at any one
            time against Delinquent "60 - 89" Loans shall not exceed two percent
            (2%) of the aggregate amount of all Advances outstanding at the time
            of any determination.

                  (4) The aggregate amount of Advances against Second Mortgage
            Loans outstanding at any one time shall not exceed five percent (5%)
            of the aggregate amount of all Advances outstanding at the time of
            any determination.

                  (5) The aggregate amount of Advances against Investment Grade
            Securities outstanding at any one time shall not exceed FIFTEEN
            MILLION AND NO/100 DOLLARS ($15,000,000.00) and of this amount, no
            more than FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00) may be
            outstanding at any one time against Investment Grade I- O Strip
            Securities.

                  (6) The aggregate amount of Advances against Aged Mortgage
            Loans outstanding at any one time shall not exceed twenty-five
            percent (25%) of the aggregate amount of all Advances outstanding at
            the time of any determination.

            (c) No Advance against an Eligible Mortgage Loan that is not a
      Second Mortgage Loan shall exceed an amount equal to 95% of the Collateral
      Value of such Mortgage Loan, to be determined as of the date such Mortgage
      Loan is pledged to Lender.

                                                                         Page 14
<PAGE>   23
            (d) No Advance against an Eligible Mortgage Loan that is a Second
      Mortgage Loan shall exceed an amount equal to 90% of the Collateral Value
      of such Mortgage Loan, to be determined as of the date such Mortgage Loan
      is pledged to Lender.

            (e) No Advance against a Delinquent "30 - 59" Loan shall exceed at
      any time an amount equal to eighty-five percent (85%) of the Collateral
      Value of such Mortgage Loan, to be determined as of the date such Mortgage
      Loan is pledged to Lender.

            (f) No Advance against a Delinquent "60 - 89" Loan shall exceed at
      any time an amount equal to eighty percent (80%) of the Collateral Value
      of such Mortgage Loan, to be determined as of the date such Mortgage Loan
      is pledged to Lender.

            (g) No Advance against an Investment Grade Security shall exceed the
      following amount applicable to the investment rating for such Investment
      Grade Security:

                  (i) For an Investment Grade Security with a rating of AA or
            better, eighty percent (80%) of the Collateral Value of such
            Investment Grade Security;

                  (ii) For an Investment Grade Security with a rating of A,
            seventy-five percent (75%) of the Collateral Value of such
            Investment Grade Security;

                  (iii) For an Investment Grade Security with a rating of BBB,
            seventy percent (70%) of the Collateral Value of such Investment
            Grade Security; and

                  (iv) For an Investment Grade I - O Strip, sixty-five percent
            (65%) of the Collateral Value of such Investment Grade I - O Strip.

      2.2   Procedures for Obtaining Advances.

            (a) A Borrower may obtain an Advance hereunder against an Eligible
      Mortgage Loan or an Eligible Non-Conforming Mortgage Loan, subject to the
      satisfaction of the conditions set forth in Sections 4.1 and 4.2 hereof,
      upon compliance with the procedures set forth in this Section 2.2 and in
      EXHIBIT "C" attached hereto and made a part hereof. Requests for Advances
      shall be initiated by a Borrower (i) by delivering to the Lender and its
      designee, by telecopy (with original to be sent immediately thereafter by
      overnight mail) a completed and signed Advance Request in the form of
      EXHIBIT "A-1" attached hereto and made a part hereof, or (ii) by using the
      electronic data transmission service provided by the Lender and its
      licensor, MBMS Incorporated, to transmit to the Lender a request for
      Advance ("Electronic Request"), which shall include all information
      required by EXHIBIT "A-1" through the Warehouse Management System software
      provided by the Lender and its licensor, MBMS Incorporated. The Lender
      shall have the right, on not less than three (3) Business Days' prior
      notice to the Borrowers, to modify the Advance Request, Electronic
      Request, or any exhibits hereto to conform to current legal requirements
      or Lender practices, and, as so modified, said Advance Request, Electronic
      Request or exhibits shall be deemed a part hereof. In consideration of the
      Lender permitting the Borrowers to make Electronic Requests for Advances
      utilizing the Warehouse Management

                                                                         Page 15
<PAGE>   24
      System software or Advance Requests by telecopy, each Borrower covenants
      and agrees to assume liability for and to protect, indemnify and save the
      Lender harmless from, any and all liabilities, obligations, damages,
      penalties, claims, causes of action, costs, charges and expenses,
      including attorneys' fees and expenses of employees, which may be imposed,
      incurred by or asserted against the Lender by reason of any loss, damage
      or claim howsoever arising or incurred because of, out of or in connection
      with (i) any action of the Lender pursuant to Electronic Requests or
      Advance Requests by telecopy, (ii) the breach of any provisions of this
      Agreement by any Borrower, (iii) the transfer of funds pursuant to such
      Electronic Requests or Advance Requests by telecopy, or (iv) the Lender's
      honoring or failing to honor any Electronic Request or Advance Request by
      telecopy for any reason or no reason whatsoever. The Lender is entitled to
      rely upon and act upon Electronic Requests or Advance Requests by
      telecopy, and the Borrowers shall be unconditionally and absolutely
      estopped from denying (x) the authenticity and validity of any such
      transaction so acted upon by the Lender once the Lender has advanced funds
      and has deposited or transferred such funds as requested in any such
      Electronic Request or Advance Request by telecopy, and (y) the Borrowers'
      liability and responsibility therefor.

            (b) A Borrower may obtain an Advance hereunder against Investment
      Grade Securities subject to the satisfaction of the conditions set forth
      on EXHIBIT "O" hereto and all other terms and conditions set forth in this
      Agreement. Requests for Advances against Investment Grade Securities shall
      be initiated by a Borrower delivering to the Lender a completed and signed
      Advance Request in the form of EXHIBIT "A-2" attached hereto and made a
      part hereof for all purposes.

            (c) Before funding, the Lender and its designee shall have a
      reasonable time to examine such Advance Request and the Collateral
      Documents to be delivered prior to such requested Advance, as set forth in
      the applicable Exhibit hereto, and may reject such of them as do not meet
      the requirements of this Agreement or of the related Purchase Commitment.
      The Advance Request and the Collateral Documents must be received by
      Lender no later than 2:00 p.m. Houston, Texas time in order for funding to
      occur the next Business Day. If the Advance Request and Collateral
      Documents are received by Lender later than 2:00 p.m. Houston, Texas time
      on any day, the funding shall occur on the second Business Day occurring
      thereafter.

            (d) To make an Advance, the Lender shall credit the Funding Account
      with the Lender upon compliance by such Borrower with the terms of this
      Agreement.

      2.3 Note. The Borrowers' obligation to pay the principal of, and interest
on, all Advances made by the Lender shall be evidenced by a promissory note (the
"Note") of the Borrowers dated as of the date hereof, in form and substance of
EXHIBIT "N" hereto. The term "Note" shall include all extensions, renewals and
modifications of the Note and all substitutions therefor. All terms and
provisions of the Note are hereby incorporated herein.

      2.4   Interest.

                                                                         Page 16
<PAGE>   25
            (a) (1) The unpaid amount of each Advance outstanding against
            Mortgage Loans that are not Aged Mortgage Loans shall bear interest
            from the date of such Advance until paid in full, at a rate of
            interest equal to the lesser of (i) the Maximum Rate, or (ii) a
            floating rate of interest (the "Floating Rate") which is equal to
            187.5 basis points (1.875%) per annum over the Monthly Average LIBOR
            Rate.

                  (2) The unpaid amount of each Advance outstanding against
            Mortgage Loans that are Aged Mortgage Loans shall bear interest from
            the date such Mortgage Loans become Aged Mortgage Loans until such
            Advance is paid in full at a rate of interest equal to the lesser of
            (i) the Maximum Rate or (ii) a fluctuating rate of interest which is
            equal to 237.5 basis points (2.375%) per annum over the Monthly
            Average LIBOR Rate.

                  (3) The unpaid amount of each Advance outstanding against
            Investment Grade Securities shall bear interest from the date of
            such Advance until paid in full, at a rate of interest equal to the
            lesser of (i) the Maximum Rate or (ii) a fluctuating rate of
            interest which is equal to 287.5 basis points (2.875%) per annum
            over the Monthly Average LIBOR Rate.

                  (4) Notwithstanding Section 2.4(a)(1), (2), and (3) above to
            the contrary, the unpaid portion of Advances ("NIB Advances") equal
            to Net Investable Balances shall bear interest at the following
            rates in the following priority:

                        (i)   First, NIB Advances against Mortgage Loans that
                  are not Aged Mortgage Loans shall bear interest at the rate of
                  1.875% per annum;

                        (ii)  Second, NIB Advances against Aged Mortgage
                  Loans shall bear interest at the rate of 2.375% per annum;
                  and

                        (iii) Third, the balance, if any, of NIB Advances
                  against Investment Grade Securities shall bear interest at the
                  rate of 2.875% per annum.

            (b) Interest and Commitment Fee shall be computed on the basis of a
      360-day year and applied to the actual number of days elapsed in each
      interest calculation period and shall be payable monthly in arrears, on
      the first day of each month, commencing with the first month following the
      date of this Agreement, and ending on Termination Date.

            (c) Obligations not paid when due (whether at stated maturity, upon
      acceleration following the occurrence of an Event of Default or otherwise)
      shall bear interest, from the date due until paid in full, at a rate of
      interest ("Default Rate") at all times equal to the lesser of (i) four
      percent (4) per annum over the Floating Rate; or (ii) the Maximum Rate,
      said interest to be payable on demand by Lender.

      2.5 Principal Payments.

                                                                         Page 17
<PAGE>   26
            (a) The outstanding unpaid principal amount of all Advances shall be
      payable in full upon April 30, 2000.

            (b) The Borrowers shall have the right to prepay the outstanding
      Advances in whole or in part, from time to time, without premium or
      penalty, subject to the Borrowers' obligation to pay the Commitment Fee
      pursuant to Section 2.8 of this Agreement.

            (c) The Borrowers shall be obligated to pay to the Lender, without
      the necessity of prior demand or notice from the Lender, and each Borrower
      authorizes the Lender to charge its accounts (excluding any monies held by
      such Borrower in trust for third parties) in Lender's possession for the
      amount of any outstanding Advance against a specific Mortgage Loan or
      Investment Grade Security upon the earliest occurrence of any of the
      following events:

                  (1) The expiration of one hundred eighty (180) days from the
            date of any Advance for any Mortgage Loan (excluding Aged Mortgage
            Loans);

                  (2) An Aged Mortgage Loan has been included in Collateral for
            270 days (computed from the date such Aged Mortgage Loan was
            originally pledged to the Lender).

                  (3) The expiration of thirty (30) days from the date the
            Mortgage Loan was delivered to an Investor for examination and
            purchase, without the purchase being made, or upon rejection of the
            Mortgage Loan as unsatisfactory by an Investor;

                  (4) The expiration of forty-five (45) days from the date
            Mortgage Loan is delivered to the certificating custodian acceptable
            to the Lender for the issuance of a Mortgage-backed Security;

                  (5) The expiration of ten (10) Business Days from the date a
            Collateral Document in connection with such Mortgage Loan was
            delivered to a Borrower for correction or completion, without being
            returned to the Lender, corrected or completed;

                  (6) The expiration of three (3) Business Days after the date
            on which the related Purchase Commitment, if any, expires, is
            terminated or otherwise canceled or no longer in full force and
            effect and the specific Mortgage Loan was not delivered under the
            Purchase Commitment prior to such termination, expiration or
            cancellation;

                  (7) The Mortgage Loan is not or ceases to be an Eligible
            Mortgage Loan or an Eligible Non-Conforming Mortgage Loan;

                  (8) Upon sale of the Mortgage Loan;

                                                                         Page 18
<PAGE>   27
                  (9) The expiration of three hundred sixty-four (364) days from
            the date of any Advance against any Investment Grade Security; and

                  (10) The Investment Grade Security is downgraded below an
            Investment Grade credit rating.

            Upon receipt of such payment by the Lender, such Mortgage Loans or
      Investment Grade Securities shall be considered to have been redeemed from
      pledge, and the Collateral Documents relating thereto which have not been
      delivered to the Investor or the pool custodian or pool trustee shall be
      released by the Lender to the applicable Borrower.

      2.6 Expiration of Commitment. Unless extended or terminated earlier as
permitted hereunder, the Commitment shall expire of its own term, and without
the necessity of action by the Lender, at the close of business on the
Termination Date. However, the remainder of this Agreement shall remain in full
force and effect until all amounts due on the Obligations have been paid in
full. The Lender has not made, and does not hereby make, any commitment to
renew, extend, rearrange or otherwise refinance the outstanding and unpaid
principal of the Note or accrued interest thereon. In the event, however, the
Lender from time to time renews, extends, rearranges, increases and/or otherwise
refinances any portion or all of any Obligation and any accrued interest thereon
at any time, such refinancing shall be evidenced by an appropriate promissory
note in form and substance satisfactory to the Lender and, unless otherwise
noted or modified at such time or times by the terms of such promissory note or
any agreements executed in connection therewith, any such promissory note or
notes and refinancing evidenced thereby shall be governed in all respects by the
terms of this Agreement.

      2.7 Method of Making Payments. Except as otherwise specifically provided
herein, all payments hereunder shall be made to the Lender not later than the
close of business (Houston time) on the date when due unless such date is a
non-Business Day, in which case, such payment shall be due on the first Business
Day thereafter, and shall be made in lawful money of the United States of
America in immediately available funds.

      2.8 Commitment Fee. In consideration of Lender's agreement to make
Advances available to Borrower under the Commitment, subject to the terms of
this Agreement, Borrower shall pay to Lender, a commitment fee equal to
one-fourth of one percent (0.25%) per annum of the total amount available under
the Commitment pursuant to Section 2.1 hereof (the "Commitment Fee"). Lender
acknowledges that it has received from the Borrowers the sum of $62,500.00 as
payment against the Commitment Fee. The balance of the Commitment Fee shall be
due and payable at the execution and delivery of this Agreement. The Commitment
Fee shall be deemed fully earned and non-refundable upon the execution and
delivery of this Agreement by the parties, notwithstanding the Commitment is
never fully funded during the term of this Agreement.

      2.9 Miscellaneous Charges. At the end of each month during the term of
this Agreement, the Borrowers shall pay to the Lender in arrears on or before
five (5) days after the later of (a) the end of each calendar month or (b) the
Borrowers' receipt of the Lender's bill for

                                                                         Page 19
<PAGE>   28
such monthly period, a transaction fee equal to $15.00 per Pledged Mortgage and
per Pledged Security held by Lender during such month and for which Lender has
not previously received a transaction fee, for the handling and administration
of Advances and Collateral. For the purposes hereof, Borrowers shall, at their
sole cost and expense, pay all miscellaneous charges and expenses incurred by
the Lender in connection with the handling and administration of Advances and
Collateral, including, without limitation, all charges for security delivery
fees and charges for overnight delivery of Collateral to Investors and any
charges of an Approved Custodian in connection with Pledged Securities.
Miscellaneous charges are due when incurred, but shall not be delinquent if paid
within ten (10) days after receipt of an invoice or an account analysis
statement from the Lender.

      2.10 Bailee. Lender appoints each Borrower - and each Borrower shall act -
as its bailee to (i) hold in trust for Lender (A) the original recorded copy of
the mortgage, deed of trust, or trust deed securing each Pledged Mortgage
pledged by it, (B) a mortgagee policy of title insurance (or binding unexpired
and unconditional commitment to issue such insurance if the policy has not yet
been delivered to Company) insuring such Borrower's perfected, first priority
Lien created by that mortgage, deed of trust, or trust deed, (C) the original
insurance policies for each Pledged Mortgage pledged by it, and (D) all other
original documents relating to each Pledged Mortgage pledged by it, including
any promissory notes, any other loan documents and supporting documentation,
surveys, settlement statements, closing instructions, and Mortgage-backed
Securities, and (ii) deliver to Lender any of the foregoing items as soon as
reasonably practicable upon Lender's request.

3.    COLLATERAL.

      3.1 Grant of Security Interest. As security for the payment of the Note
and for the performance of all of the Obligations hereunder, each Borrower
hereby assigns and transfers all right, title and interest, now owned or
hereafter acquired, in and to and grants a security interest to the Lender in
the following described property, whether now owned or hereafter acquired (the
"Collateral"):

            (a) All Mortgage Loans including all Mortgage Notes and Mortgages
      evidencing such Mortgage Loans which from time to time are delivered or
      caused to be delivered to the Lender or its designee, come into the
      possession, custody or control of the Lender for the purpose of assignment
      or pledge or in respect of which an Advance has been made by the Lender
      hereunder (the "Pledged Mortgages");

            (b) All Mortgage-backed Securities which are from time to time
      delivered or caused to be delivered to, or are otherwise in the possession
      of the Lender, or its designee, its agent, bailee or custodian as assignee
      or pledged to the Lender, or for such purpose are registered by book-entry
      in the name of the Lender, including, without limitation, all Investment
      Grade Securities (the "Pledged Securities");

            (c) All private mortgage insurance and all commitments issued by the
      FHA or VA to insure or guarantee any Mortgage Loans included in the
      Pledged Mortgages; all guaranties related to Pledged Securities; all
      Purchase Commitments held by such Borrower

                                                                         Page 20
<PAGE>   29
      covering the Pledged Mortgages or the Pledged Securities and all proceeds
      resulting from the sale thereof to Investors pursuant thereto; all
      personal property, contract rights, servicing and servicing fees and
      income or other proceeds, amounts and payments payable to such Borrower as
      compensation or reimbursement, accounts and general intangibles of
      whatsoever kind relating to the Pledged Mortgages, the Pledged Securities,
      and all other documents or instruments relating to the Pledged Mortgages,
      and the Pledged Securities, including, without limitation, any interest of
      such Borrower in any fire, casualty or hazard insurance policies and any
      awards made by any public body or decreed by any court of competent
      jurisdiction for a taking or for degradation of value in any eminent
      domain proceeding as the same relate to the Pledged Mortgages;

            (d) All General Intangibles, Instruments, Documents and Chattel
      Paper evidencing, securing, supporting or relating to Pledged Mortgages or
      Pledged Securities, including, without limitation, causes of action,
      foreclosure suites and any judgments therein, relating thereto;

            (e) All Receivables, Contracts and Contract Rights relating to
      Pledged Mortgages or Pledged Securities pursuant to this Warehouse Credit
      Agreement, including, without limitation, (i) all Purchase Commitments,
      (ii) all commitments to insure or guarantee and all guarantees, (iii) all
      insurance policies and any claims thereunder, (iv) rights to maintain any
      escrows, (v) rights under any agreement pursuant to which any Pledged
      Mortgage or Pledged Security was purchased or issued, as the case may be,
      and (vi) all escrow accounts and all monies; securities and instruments
      deposited or required to be deposited in the escrow accounts;

            (f) All documents, instruments, files, surveys, certificates,
      correspondence, appraisals, computer programs, tapes, discs, cards,
      accounting records (including all information, records, tapes, data,
      programs, discs and cards necessary or helpful in the administration or
      servicing of the foregoing Collateral) and other information and data of
      such Borrower relating to the foregoing Collateral;

            (g) All now existing or hereafter acquired cash delivered to or
      otherwise in the possession of the Lender or its agent, bailee or
      custodian or designated on the books and records of such Borrower as
      assigned and pledged to the Lender;

            (h)   All Hedging Contracts and Interest Rate Hedging Contracts
      with respect to the Pledged Mortgages and Pledged Securities; and

            (i) All cash and non-cash Proceeds of the foregoing Collateral,
      including all dividends, distributions and other rights in connection
      with, and all additions to, modifications of and replacements for, the
      foregoing Collateral, and all products and proceeds of the foregoing
      Collateral, together with whatever is receivable or received when the
      foregoing Collateral or proceeds thereof are sold, collected, exchanged or
      otherwise disposed of, whether such disposition is voluntary or
      involuntary, including, without limitation, all rights to payment with
      respect to any cause of action affecting or relating to the foregoing
      Collateral or proceeds thereof.

                                                                         Page 21
<PAGE>   30
      3.2 Security Interest in Mortgage-backed Securities. A Borrower's ability
to convert Mortgage Loans pledged by it to Mortgage-backed Securities are
subject to the following conditions:

            (a) Pledged Mortgages that are to be transferred to a pool custodian
      in connection with the issuance of Mortgage-backed Securities, shall be
      released from the Lender's security interest only against payment to the
      Lender of the amount due the Lender in connection with such Pledged
      Mortgages as determined in accordance with Section 3.5 of this Agreement
      or against the issuance of such Mortgage-backed Securities and the
      continuation of the Lender's first priority, perfected security interest
      in such Mortgage-backed Securities and the proceeds thereof until payment
      due the Lender in respect of said Pledged Mortgages is made to the Lender.

            (b) In the case of Mortgage-backed Securities created from Pledged
      Mortgages, the Lender shall have the exclusive right to the possession of
      the Mortgage-backed Securities or, if the Mortgage-backed Securities are
      not to be issued in certificated form, shall have the right to have the
      book entries for the Mortgage-backed Securities issued in the Lender's
      name or the name or names of its designees. Lender shall cause delivery of
      the Mortgage-backed Securities to be made to the Investor or the book
      entries registered in the name of the Investor or the Investor's designee
      only against payment therefor. Each Borrower acknowledges that the Lender
      may enter into one or more standing arrangements with other financial
      institutions for the issuance of Mortgage-backed Securities in book entry
      form in the name of such other financial institutions, as agent for the
      Lender, and each Borrower agrees upon request of the Lender, to execute
      and deliver to such other financial institutions its written concurrence
      in any such standing arrangements.

      3.3 Delivery of Collateral Documents. The Lender or its designee
exclusively shall deliver Pledged Mortgages or Pledged Securities to (a) an
Investor that has issued a Purchase Commitment with respect thereto for its
examination and purchase, or (b) an Approved Custodian for purposes of
examination or delivery in connection with the issuance of Mortgage-backed
Securities. In such cases where the Lender must deliver documents to an Investor
or Approved Custodian, the Lender must receive signed shipping instructions (in
the form of EXHIBIT "D" attached hereto), no later than 2:00 p.m. Houston, Texas
time one (1) Business Day prior to the expiration of the appended Purchase
Commitment, in addition to any other documents listed in Section II of EXHIBIT
"C" in respect of the issuance of Mortgage-backed Securities. If shipping
instructions are received by Lender before 2:00 p.m. Houston, Texas time of any
Business Day, Lender will ship the documents together with the Bailee Letter (in
form of EXHIBIT "K") to the Investor or Approved Custodian on the same Business
Day, otherwise Lender will ship the documents the next Business Day following
receipt of shipping instructions. In any case in which an Advance has been made
hereunder against Pledged Mortgages, based on the existence of a Purchase
Commitment covering such Pledged Mortgages, each Borrower agrees that such
Pledged Mortgages will not be placed in any mortgage pool other than an Eligible
Mortgage Pool, unless such Pledged Mortgages have been redeemed from pledge as
permitted hereunder or other arrangements, satisfactory to the Lender in its
sole discretion, have been made for the redemption of such Pledged Mortgages
from pledge hereunder. The Lender may deliver any document

                                                                         Page 22
<PAGE>   31
relating to the Collateral to a Borrower for correction or completion against a
trust receipt in the form of EXHIBIT "E" attached hereto executed by such
Borrower. Each Borrower hereby represents and warrants to the Lender that any
request by it for release of the Collateral consisting of or relating to
Mortgage Loans pledged by it shall be solely for the purposes of correcting
clerical or non-substantial documentation problems in preparation for returning
such Collateral to the Lender for ultimate sale or exchange; each Borrower shall
request such release in compliance with all of the terms and conditions of such
release set forth herein; and each Borrower will return to the Lender such
documentation released to it pursuant to this Section 3.3 within ten (10)
calendar days after such delivery.

      3.4 Delivery of Additional Collateral or Mandatory Prepayment. At any time
that the aggregate Collateral Value of the Collateral then pledged hereunder is
less than the aggregate amount of the Advances then outstanding hereunder, the
Lender may request, and the Borrowers shall within ten (10) Business Days after
Notice by the Lender (a) deliver to the Lender or its designee for pledge
hereunder additional Mortgage Loans and/or cash, in aggregate amounts sufficient
to cover the difference between the Collateral Value of the Collateral pledged
and the aggregate amount of Advances outstanding hereunder, or (b) repay the
Advances in an amount sufficient to reduce the aggregate balance thereof
outstanding to an amount equal to or below the Collateral Value of the
Collateral pledged hereunder. If at any time the Collateral Value of any
Collateral is zero, Borrowers shall immediately pay to Lender the aggregate
balance of all Advances outstanding against such Collateral. If at any time the
limitations of Section 2.1(b) (2) - (6) are exceeded, Borrowers shall
immediately pay to Lender the amount of such excess.

      3.5 Right of Redemption from Pledge. So long as no Event of Default has
occurred, a Borrower may redeem a Mortgage Loan or Mortgage-backed Security
pledged by it by notifying the Lender of its intention to redeem such Mortgage
Loan or Mortgage-backed Security from pledge and by paying, or causing an
Investor to pay, to the Lender, for application to prepayment of the principal
balance of the Note, an amount (the "Redemption Amount") equal to the amount of
the Advances made with respect to or relating to such Mortgage Loan or
Mortgage-backed Security to be released as of the date of such application.

      3.6 Collection. So long as no Event of Default shall have occurred, each
Borrower shall be entitled to service and receive and collect directly all sums
payable to it in respect of the Collateral pledged by it other than proceeds of
any Purchase Commitment or proceeds of the sale of any Collateral. Following the
occurrence of any Event of Default, the Lender or its designee shall thereafter
be entitled to service and receive and collect all sums payable to each Borrower
in respect of the Collateral and in such case (a) the Lender or its designee in
its discretion may, in its own name or in the name of the applicable Borrower or
otherwise, demand, sue for, collect or receive any money or property at any time
payable or receivable on account of or in exchange for any of the Collateral,
but shall be under no obligation to do so, (b) each Borrower shall, if the
Lender so requests, forthwith pay to the Lender at its principal office all
amounts thereafter received by such Borrower upon or in respect of any of the
Collateral, advising the Lender as to the source of such funds, and (c) all
amounts so received and collected by the Lender shall be held by it as part of
the Collateral.

                                                                         Page 23
<PAGE>   32
      3.7 Return or Release of Collateral at End of Commitment. If (a) the
Commitment shall have expired or been terminated, and (b) no Advances, interest
or other Obligations evidenced by the Loan Documents or due under this Agreement
shall be outstanding and unpaid, the Lender shall deliver or release all
Collateral in its possession to the Borrowers. The receipt of the Borrowers for
any Collateral released or delivered to the Borrowers pursuant to any provision
of this Agreement shall be a complete and full acquittance for the Collateral so
returned, and the Lender shall thereafter be discharged from any liability or
responsibility therefor.

4.    CONDITIONS PRECEDENT.

      4.1 Initial Advance. The obligation of the Lender to make the initial
Advance under this Agreement is subject to the satisfaction, in the sole
discretion of the Lender, on or before the date thereof, of the following
conditions precedent:

            (a) The Lender shall have received the following, all of which must
      be satisfactory in form and content to the Lender, in its sole discretion:

                  (1) The Loan Documents dated as of the date hereof duly
            executed by the Borrowers;

                  (2) Certified copies of each Borrower's articles of
            incorporation and bylaws and certificates of good standing dated no
            less recently than ninety (90) days prior to the date of this
            Agreement and, with respect to each Borrower, a certification from
            the taxing authority of the state of incorporation stating that the
            applicable Borrower is in good standing with said taxing authority:

                  (3) An original resolution of the board of directors of each
            Borrower, certified as of the date of this Agreement by its
            corporate secretary, authorizing the execution, delivery and
            performance of this Agreement and the other Loan Documents, and all
            other instruments or documents to be delivered by such Borrower
            pursuant to this Agreement;

                  (4) A certificate (in the form of EXHIBIT "J-1" OR "J-2", as
            the case may be) of each Borrower's corporate secretary as to the
            resolution of the board of directors of such Borrower authorizing
            the execution, delivery and performance of this Agreement and the
            other Loan Documents and the incumbency and authenticity of the
            signatures of the officers of such Borrower executing this Agreement
            and the other Loan Documents and each Advance Request and all other
            instruments or documents to be delivered pursuant hereto (the Lender
            being entitled to rely thereon until a new such certificate has been
            furnished to the Lender);

                  (5) Financial statements of the Company (and its Subsidiaries,
            on a consolidated basis) containing a balance sheet as of December
            31, 1998 (the "Statement Date") and related statements of income,
            changes in stockholders' equity and cash flows for the period ended
            on the Statement Date and a balance sheet as of January 31, 1999
            ("Interim Date") and related statement of income for

                                                                         Page 24
<PAGE>   33
            the period ended on the Interim Date, all prepared in accordance
            with GAAP applied on a basis consistent with prior periods and in
            the case of the statements as of the Statement Date, audited by
            independent certified public accountants of recognized standing
            acceptable to the Lender;

                  (6) A favorable written opinion of counsel to the Borrowers,
            dated as of the date of this Agreement, to be in substantially the
            form of EXHIBIT "M" hereto, and addressed to the Lender;

                  (7) A tax, lien and judgment search of the appropriate public
            records for each Borrower, including a search of Uniform Commercial
            Code financing statements, which search shall not have disclosed the
            existence of any prior Lien on the Collateral other than in favor of
            the Lender or as permitted hereunder;

                  (8) Copies of the certificates, documents or other written
            instruments which evidence each Borrower's eligibility described in
            Section 5.11 hereof, all in form and substance satisfactory to the
            Lender;

                  (9) Copies of each Borrower's errors and omissions insurance
            policy or mortgage impairment insurance policy and blanket bond
            coverage policy, all in form and content satisfactory to the Lender,
            showing compliance by such Borrower as of the date of this Agreement
            with the related provisions of Section 6.8 hereof and showing Lender
            as an additional loss payee on such policies;

                  (10) Executed financing statements in recordable form covering
            the Collateral and ready for filing in all jurisdictions required by
            the Lender;

                  (11) Evidence that the Funding Account has been established
            with the Lender.

      4.2 Each Advance. The obligation of the Lender to make the initial and
each subsequent Advance under this Agreement is subject to the satisfaction, in
the sole discretion of the Lender, as of the date of each such Advance, of the
following additional conditions precedent:

            (a) In connection with an Advance, the applicable Borrower shall
      have delivered to the Lender the Advance Request or the Electronic
      Request, Collateral Documents, and documents required under and shall have
      satisfied the procedures set forth in Section 2.2 and EXHIBIT "C",
      according to the type of Collateral to be financed through the requested
      Advance. All items delivered to the Lender or its designee shall be
      satisfactory to the Lender in form and content, and the Lender may reject
      such of them as do not meet the requirements of this Agreement or of the
      related Purchase Commitment or Purchase Agreement, as the case may be.

            (b) The Lender shall have received evidence satisfactory to it as to
      the making and/or continuation of any book entry or the due filing and
      recording in all appropriate offices of all financing statements and other
      instruments as may be necessary to perfect the

                                    Page 25
<PAGE>   34
      security interest of the Lender in the Collateral under the Uniform
      Commercial Code of Texas or other applicable law.

            (c) The representations and warranties of the Borrowers contained in
      Article 5 hereof shall be accurate and complete in all material respects
      as if made on and as of the date of each Advance.

            (d) Each Borrower shall have performed all agreements to be
      performed by it hereunder, and, as of the date of the Advance Request, and
      after giving effect to the requested Advance, there shall exist no Default
      or Event of Default hereunder.

            (e) Each Borrower shall not have incurred any material liabilities,
      direct or contingent, except as approved by Lender pursuant to Section
      7.20, since the date hereof.

            (f) The Lender shall have received from counsel for the Borrowers,
      if requested by the Lender in its sole discretion, an updated opinion, in
      form and substance satisfactory to the Lender, addressed to the Lender and
      dated as of the date of such Advance, covering such of the matters as the
      Lender may reasonably request.

            (g) Such additional documents, instruments, and information as
      Lender or its legal counsel may require.

      Acceptance of the proceeds of the requested Advance by the applicable
Borrower shall be deemed a representation by such Borrower that all conditions
set forth in this Article 4 shall have been satisfied as of the date of such
Advance.

5.    REPRESENTATIONS AND WARRANTIES.

      Each Borrower hereby represents and warrants to the Lender, as of the date
of this Agreement and (unless otherwise notified in writing by such Borrower and
Lender, in its sole discretion, approves in writing) as of the date of each
Advance Request and the making of each Advance, that:

      5.1 Organization; Good Standing; Subsidiaries. Each Borrower and each
Subsidiary of such Borrower is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation,
has the full legal power and authority to own its property and to carry on its
business as currently conducted and is duly qualified as a foreign corporation
to do business and is in good standing in each jurisdiction in which the
transaction of its business makes such qualification necessary, except in
jurisdictions, if any, where a failure to be in good standing has no material
adverse effect on the business, operations, assets or financial condition of
such Borrower or any such Subsidiary. For the purposes hereof, good standing
shall include qualification for any and all licenses and payment of any and all
taxes required in the jurisdiction of its incorporation and in each jurisdiction
in which each Borrower transacts business. The Borrowers have no Subsidiaries
except as set forth on EXHIBIT "G" hereto. EXHIBIT "G" sets forth with respect
to each such Subsidiary, its name, address, place of incorporation, each state

                                                                         Page 26
<PAGE>   35
in which it is qualified as a foreign corporation, and the percentage ownership
of the applicable Borrower in such Subsidiary.

      5.2 Authorization and Enforceability. Each Borrower has all requisite
corporate power and authority to execute, deliver, create, issue, comply and
perform this Agreement, the Note and all other Loan Documents to which such
Borrower is party and to make the borrowings hereunder. The execution, delivery
and performance by each Borrower of this Agreement, the Note and all other Loan
Documents to which such Borrower is party and the making of the borrowings
hereunder and thereunder, have been duly and validly authorized by all necessary
corporate action on the part of such Borrower (none of which actions has been
modified or rescinded, and all of which actions are in full force and effect)
and do not and will not conflict with or violate any provision of law or of the
articles of incorporation or by-laws of such Borrower, conflict with or result
in a breach of or constitute a default or require any consent under any
contracts to which such Borrower is a party, or result in the creation of any
Lien upon any property or assets of such Borrower other than the Lien on the
Collateral granted hereunder, or result in or require the acceleration of any
Indebtedness of such Borrower pursuant to any agreement, instrument or indenture
to which such Borrower is a party or by which such Borrower or its property may
be bound or affected. This Agreement, the Note and all other Loan Documents
contemplated hereby or thereby constitute legal, valid, and binding obligations
of each Borrower, enforceable in accordance with their respective terms, except
as limited by bankruptcy, insolvency or other such laws affecting the
enforcement of creditors' rights generally.

      5.3 Financial Condition. The balance sheet of the Company provided to
Lender pursuant to Section 4.1(a)(5) hereof (and if applicable, its
Subsidiaries, on a consolidating and consolidated basis) as at the Statement
Date, and the related statements of income, changes in stockholders' equity, and
cash flows for the fiscal year ended on the Statement Date, heretofore furnished
to the Lender, fairly present the financial condition of the Company and its
Subsidiaries as at the Statement Date and the Interim Date and the results of
its and their operations for the fiscal period ended on the Statement Date and
the Interim Date. The Company had, on the Statement Date and the Interim Date,
no known material liabilities, direct or indirect, fixed or contingent, matured
or unmatured, or liabilities for taxes, long-term leases or unusual forward or
long-term commitments not disclosed by, or reserved against in, said balance
sheet and related statements, and at the present time there are no material
unrealized or anticipated losses from any loans, advances or other commitments
of the Company except as heretofore disclosed to the Lender in writing. Said
financial statements were prepared in accordance with GAAP applied on a
consistent basis throughout the periods involved. Since the Statement Date,
there has been no material adverse change in the business, operations, assets or
financial condition of the Company or its Subsidiaries, nor is the Company aware
of any state of facts particular to the Company which (with or without notice or
lapse of time or both) would or could result in any such material adverse
change.

      5.4 Litigation. Except as disclosed on EXHIBIT "H", there are no actions,
claims, suits or proceedings pending, or to the knowledge of the Borrowers,
threatened or reasonably anticipated against or affecting any Borrower or any
Subsidiary of any Borrower in any court or before any arbitrator or before any
government commission, board, bureau or other administrative agency which, if
adversely determined, may reasonably be expected to result in any material and

                                                                         Page 27
<PAGE>   36
adverse change in the business, operations, assets or financial condition of
such Borrower or any of its Subsidiaries, as a whole.

      5.5 Compliance with Laws. To the knowledge of Borrowers, neither the
Borrowers nor any Subsidiary of the Borrowers is in violation of any provision
of any law, or of any judgment, award, rule, regulation, order, decree, writ or
injunction of any court or public regulatory body or authority which might have
a material adverse effect on the business, operations, assets or financial
condition of the Borrowers or any of Borrowers' Subsidiaries, as a whole.

      5.6 Regulations G and U. No Borrower is engaged principally, or as one of
its important activities, in the business of extending credit for the purpose of
purchasing or carrying Margin Stock, and no part of the proceeds of any Advances
made hereunder will be used to purchase or carry any Margin Stock or to extend
credit to others for the purpose of purchasing or carrying any Margin Stock.

      5.7 Investment Company Act and Public Utility Holding Company Act. Neither
the Borrowers nor any of their Subsidiaries is an "investment company" or
controlled by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended. Neither the Borrowers nor any of their
Subsidiaries is subject to regulation under the Public Utility Holding Company
Act of 1935, as amended.

      5.8 Agreements. Neither the Borrowers nor any Subsidiary of the Borrowers
is a party to any agreement, instrument or indenture, or subject to any
restriction, materially and adversely affecting its business, operations, assets
or financial condition, except as disclosed in the financial statements
described in Section 5.3 hereof. The Borrowers and each Subsidiary of the
Borrowers are not in default in the performance, observance or fulfillment of
any of the obligations, covenants or conditions contained in any agreement,
instrument, or indenture which default could have a material adverse effect on
the business, operations, properties or financial condition of the Borrowers as
a whole. No holder of any Indebtedness of any Borrower or of any of its
Subsidiaries has given notice of any alleged default thereunder or, if given,
the same has been cured or will be cured by such Borrower within the cure period
provided therein, and no liquidation or dissolution of any Borrower or any of
its Subsidiaries and no receivership, insolvency, bankruptcy, reorganization or
other similar proceedings relative to any Borrower or any of its Subsidiaries or
any of their respective properties is pending, or to the knowledge of the
Borrowers and each Subsidiary of the Borrowers, threatened.

      5.9 Title to Properties. The Company and each Subsidiary of the Company
has good, valid, insurable (in the case of real property) and marketable title
to all of its properties and assets (whether real or personal, tangible or
intangible) reflected on the financial statements described in Section 5.3
hereof, free and clear of all Liens, except for liens not prohibited under this
Agreement, and all such properties and assets are free and clear of all Liens
except as disclosed in such financial statements.

      5.10 ERISA. All plans ("Plans") of a type described in Section 3(3) of
ERISA in respect of which any Borrower or any Subsidiary of any Borrower is an
"Employer," as defined in Section

                                                                         Page 28
<PAGE>   37
3(5) of ERISA, are in substantial compliance with ERISA, and none of such Plans
is insolvent or in reorganization, has an accumulated or waived funding
deficiency within the meaning of Section 412 of the Internal Revenue Code, and
neither the applicable Borrower nor any Subsidiary of such Borrower has incurred
any material liability (including any material contingent liability) to or on
account of any such Plan pursuant to Sections 4062, 4063, 4064, 4201 or 4204 of
ERISA; and no proceedings have been instituted to terminate any such Plan, and
no condition exists which presents a material risk to such Borrower or a
Subsidiary of such Borrower of incurring a liability to or on account of any
such Plan pursuant to any of the foregoing Sections of ERISA. No Plan or trust
forming a part thereof has been terminated since December 1, 1974.

      5.11 Eligibility. Each Borrower has all requisite corporate power and
authority and all necessary licenses, permits, franchises and other
authorizations to own and operate its property and to carry on its business as
now conducted. If approved now or hereafter as a lender or seller/servicer for
any one or more of the governmental agencies as set forth below, each Borrower
will remain at all times approved and qualified and in good standing and meet
all requirements applicable to such status:

            (a) FNMA approved seller/servicer of Mortgage Loans, eligible to
      originate, purchase, hold, sell, and service Mortgage Loans to be sold to
      FNMA.

            (b) FHLMC approved seller/servicer of Mortgage Loans, eligible to
      originate, purchase, hold, sell, and service Mortgage Loans to be sold to
      FHLMC.

            (c) GNMA approved seller/servicer of Mortgage Loans, eligible to
      originate, purchase, hold, sell, and service Mortgage Loans to be sold to
      GNMA.

            (d) HUD approved lender, eligible to originate, purchase, hold, sell
      and service FHA-insured Mortgage Loans.

            (e) VA lender in good standing under the VA loan guarantee program
      eligible to originate, purchase, hold, sell, and service VA-guaranteed
      Mortgage Loans.

      5.12 Special Representations Concerning Collateral. Each Borrower hereby
represents and warrants to the Lender, as of the date of this Agreement and as
of the date of each Advance, that:

            (a) Each Borrower is the legal and equitable owner and holder, free
      and clear of all Liens (other than Liens granted hereunder), of the
      Pledged Mortgages and the Pledged Securities pledged by it. All Pledged
      Mortgages, Pledged Securities, and Purchase Commitments have been duly
      authorized and validly granted or issued to the applicable Borrower, and
      all of the foregoing items of Collateral comply with all of the
      requirements of this Agreement, and have been validly pledged or assigned
      to the Lender, subject to no other Liens.

            (b) Each Borrower has, and will continue to have, the full right,
      power and authority to pledge the Collateral pledged and to be pledged by
      it hereunder.

                                                                         Page 29
<PAGE>   38
            (c) Any Mortgage Loan and related documents included in the Pledged
      Mortgages (1) as of the date of the Advance Request for such Mortgage
      Loan, has been duly executed and delivered by the parties thereto at a
      closing; (2) has been made in compliance with all requirements of the Real
      Estate Settlement Procedures Act, Equal Credit Opportunity Act, the
      federal Truth-In-Lending Act and all other applicable laws and
      regulations; (3) is valid and enforceable in accordance with its terms,
      without defense or offset; (4) has not been modified or amended except in
      writing, which writing is part of the Collateral Documents, nor any
      requirements thereof waived; and (5) complies with the terms of this
      Agreement and, if applicable, with the related Purchase Commitment held by
      the applicable Borrower. Each Mortgage Loan has been fully advanced in the
      face amount thereof and each Mortgage creates a Lien on the premises
      described therein.

            (d) No monetary default, nor, to the knowledge of the Borrowers, any
      event which, with notice or lapse of time or both, would become a default,
      has occurred and is continuing under any Mortgage Loan included in the
      Pledged Mortgages; provided, however, that, with respect to Pledged
      Mortgages which have already been pledged as Collateral hereunder, if any
      such default or event has occurred, the pledging Borrower will promptly
      notify the Lender and the same shall not have continued for more than
      ninety (90) days.

            (e) Each Borrower has complied with all laws, rules and regulations
      in respect of the FHA insurance or VA guarantee of each Mortgage Loan
      included in the Pledged Mortgages designated by the Company as an FHA
      insured or VA guaranteed Mortgage Loans, and such insurance or guarantee
      is in full force and effect. All such FHA insured and VA guaranteed
      Mortgage Loans comply in all respects with all applicable requirements for
      purchase under the FNMA standard form of selling contract for FHA insured
      and VA guaranteed loans and any supplement thereto then in effect.

            (f) All fire and casualty policies covering Mortgaged Property
      encumbered by a Pledged Mortgage (1) name the applicable Borrower and its
      successors and assigns as the insured under a standard mortgagee clause,
      (2) are and will continue to be in full force and effect, and (3) afford
      and will continue to afford insurance against fire and such other risks as
      are usually insured against in the broad form of extended coverage
      insurance from time to time available, as well as insurance against flood
      hazards if the same is required by FHA or VA.

            (g) Pledged Mortgages encumbering Mortgaged Property located in a
      special flood hazard area designated as such by the Secretary of HUD are
      and shall continue to be covered by special flood insurance under the
      National Flood Insurance Program.

            (h) Each FHA insured Mortgage Loan pledged hereunder meets all
      applicable governmental requirements for such insurance. Each Mortgage
      Loan, against which an Advance is made on the basis of a Purchase
      Commitment meets all requirements of such Purchase Commitment. Each
      Borrower shall assure that Mortgage Loans pledged pursuant to this
      Agreement and intended to be used in the formation of Mortgage-backed
      Securities

                                                                         Page 30
<PAGE>   39
      shall comply, or prior to the formation of any such Mortgage-backed
      Security, shall comply with the requirements of the governmental
      instrumentality, department or agency guaranteeing such Mortgage-backed
      Security.

            (i) For Pledged Mortgages which will be used to secure GNMA
      Mortgage-backed Securities, the Company has received from GNMA a
      Confirmation Notice or Confirmation Notices for Request Additional
      Commitment Authority and for Request Pool Numbers, and there remains
      available thereunder a commitment on the part of GNMA sufficient to permit
      the issuance of GNMA Mortgage-backed Securities in an amount at least
      equal to the amount of such Pledged Mortgages designated by the applicable
      Borrower as the Mortgage Loans to be used to secure such GNMA
      Mortgage-backed Securities; each such Confirmation Notice is in full force
      and effect; each of such Pledged Mortgages has been assigned by the
      applicable Borrower to one of such Pool Numbers and a portion of the
      available GNMA Commitment has been allocated thereto by the applicable
      Borrower, in an amount at least equal to the principal amount of each
      Mortgage Note secured by such Pledged Mortgages; and each such assignment
      and allocation has been reflected in the books and records of the
      applicable Borrower.

            (j) Each Pledged Mortgage in excess of $250,000.00 is supported by
      an appraisal that meets the appraisal requirements of FNMA or FHLMC (in
      the case of "HCP" Mortgaged Property), or the Office of Thrift Supervision
      for the type of Mortgaged Property securing that Pledged Mortgage; or,
      alternatively, such Pledged Mortgage is eligible for purchase or is
      guaranteed or insured by a U.S. Government agency or a U.S. Government
      sponsored enterprise.

      5.13 RICO. Each Borrower is not in violation of any laws, statutes or
regulations, including, without limitation, RICO, which contain provisions which
could potentially override Lender's security interest in the Collateral.

      5.14 Proper Names. Each Borrower does not operate in any jurisdiction
under a trade name, division, division name or name other than those names set
forth on EXHIBIT "I" attached hereto and all such names included on EXHIBIT "I"
are utilized by the applicable Borrower only in the jurisdictions listed
therein.

      5.15 Direct Benefit From Loans. Each Borrower has received, or, upon the
execution and funding thereof, will receive (a) direct benefit from the making
and execution of this Agreement and the other Loan Documents to which it is a
party, and (b) fair and independent consideration for the entry into, and
performance of, this Agreement and the other Loan Documents to which it is a
party. Contemporaneously with the disbursements of each Advance by the Lender to
a Borrower, all such proceeds will be used to finance the origination or
purchase of Eligible Mortgage Loans or for working capital purposes with respect
to Advances against Investment Grade Securities.

      5.16 Loan Documents Do Not Violate Other Documents. Neither the execution
and delivery by the Borrowers of this Agreement or any other Loan Document to
which it is a party nor the consummation of the transactions herein and therein
contemplated, nor the performance

                                                                         Page 31
<PAGE>   40
of, or compliance with, the terms and provisions hereof and thereof, does or
will contravene, breach or conflict with any provision of either of its articles
of incorporation or by-laws, or any applicable law, statute, rule or regulation
or any judgment, decree, writ, injunction, franchise, order or permit applicable
to any Borrower or its assets or properties, or does or will conflict or be
inconsistent with, or does or will result in any breach or default of, any of
the terms, covenants, conditions or provisions of, or constitute a default
under, or result in the creation or imposition of any Lien upon any of the
property or assets of any Borrower pursuant to the terms of any indenture,
mortgage, deed of trust, loan agreement, or other instrument to which any
Borrower is a party or by which any Borrower or any of its property may be
bound, the contravention, conflict, inconsistency, breach or default of which
will have a materially adverse effect on such Borrower's condition, financial or
otherwise, or affect its ability to perform, promptly and fully, its obligations
hereunder or under any of the other Loan Documents.

      5.17 Consents Not Required. Except for those consents that have already
been obtained and delivered to Lender or required as a condition to any Advance
hereunder, no consent of any Person and no consent, license, permit, approval,
or authorization of, exemption by, or registration or declaration with, any
Tribunal is required in connection with the execution, delivery, performance,
validity, or enforceability of this Agreement or any of the Loan Documents by
the Borrowers.

      5.18 Material Fact Representations. Neither the Loan Documents nor any
other agreement, document, certificate, or written statement furnished to the
Lender by or on behalf of any Borrower in connection with the transactions
contemplated in any of the Loan Documents contains any untrue statement of a
material adverse fact. There are no material adverse facts or conditions
relating to the making of the Commitment, any of the Collateral, and/or the
financial condition and business of any Borrower known to any Borrower which
have not been fully disclosed, in writing, to the Lender, it being understood
that this representation is made as of, and shall be limited to the date of this
Agreement. All writings heretofore or hereafter exhibited or delivered to the
Lender by or on behalf of any Borrower are and will be genuine and what they
purport to be.

      5.19 Place of Business. The principal place of business of the Company is
90 West Street, Suite 1508, New York, New York 10006, and the chief executive
office of the Company and the office where it keeps its respective financial
books and records relating to their property and all contracts relating thereto
and all accounts arising therefrom is located at the address set forth for the
Company in Section 9 hereof. The principal place of business of "HCP" is 90 West
Street, Suite 1508, New York, New York 10006, and the chief executive office of
"HCP" and the office where it keeps its respective financial books and records
relating to their property and all contracts relating thereto and all accounts
arising therefrom is located at the address set forth for "HCP" in Section 9
hereof.

      5.20 Use of Proceeds; Business Loans. Each Borrower will use the proceeds
of the Advances made pursuant to the Commitment solely as follows, and for no
other purpose: finance the purchase of Eligible Mortgage Loans or Eligible
Non-Conforming Mortgage Loans or for working capital purposes with respect to
Advances against Investment Grade Securities. All loans evidenced by the Note
are and shall be "business loans", as such term is used in the Depository

                                                                         Page 32
<PAGE>   41
Institutions Deregulation and Monetary Control Act of 1980, as amended, and such
loans are for business or commercial purposes and not primarily for personal,
family, household or agricultural use, as such terms are used or defined in the
Texas Credit Title, Regulation Z promulgated by the Board of Governors of the
Federal Reserve System, and Titles I and V of the Consumer Credit Protection
Act. The provisions of the Texas Credit Title which regulate revolving loans and
revolving triparty accounts shall not apply to this Agreement.

      5.21 No Undisclosed Liabilities. Other than as permitted in Section 7.19
hereof, each Borrower does not have any liabilities or Indebtedness, direct or
contingent, except for liabilities or Indebtedness which, in the aggregate, do
not exceed $25,000.00.

      5.22 Tax Returns and Payments. All federal, state and local income,
excise, property and other tax returns required to be filed with respect to each
Borrower's operations and those of its Subsidiaries in any jurisdiction have
been filed on or before the due date thereof (plus any applicable extensions);
all such returns are true and correct; all taxes, assessments, fees and other
governmental charges upon each Borrower and its Subsidiaries and upon its
property, income or franchises, which are due and payable have been paid,
including, without limitation, all FICA payments and withholding taxes, if
appropriate, other than those which are being contested in good faith by
appropriate proceedings, diligently pursued and as to which such Borrower has
established adequate reserves determined in accordance with GAAP, consistently
applied. The amounts reserved, as a liability for income and other taxes
payable, in the financial statements described in Section 5.3 hereof are
sufficient for payment of all unpaid federal, state and local income, excise,
property and other taxes, whether or not disputed, of the Company and its
Subsidiaries, accrued for or applicable to the period and on the dates of such
financial statements and all years and periods prior thereto and for which
Company and its Subsidiaries may be liable in their own right or as transferee
of the assets of, or as successor to, any other Person.

      5.23 Subsidiaries. Except as set forth in EXHIBIT "G" hereto, each
Borrower has not issued, and does not have outstanding, any warrants, options,
rights or other obligations to issue or purchase any shares of its capital stock
or other securities. The outstanding shares of capital stock of each Borrower
have been duly authorized and validly issued and are fully paid and
nonassessable. All Subsidiaries of each Borrower are listed on EXHIBIT "G",
attached hereto.

      5.24 Holding Company. The Company is not a "holding company" or a
"subsidiary company" of a "holding company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.

6.    AFFIRMATIVE COVENANTS.

      Each Borrower hereby covenants and agrees that, so long as the Commitment
is outstanding or there remain any Obligations of any Borrower to be paid or
performed under this Agreement or under any other Loan Document, each Borrower
shall:

      6.1 Payment of Note. Punctually pay or cause to be paid the principal of,
interest on and all other amounts payable hereunder and under the Note in
accordance with the terms thereof.

                                                                         Page 33
<PAGE>   42
      6.2 Financial Statements and Other Reports. Deliver or caused to be
delivered to the Lender:

            (a) As soon as available and in any event within thirty (30) days
      after the end of each calendar month, statements of income, changes in
      stockholders' equity, and cash flows of each Borrower and, if applicable,
      such Borrower's Subsidiaries, on a consolidated and consolidating basis
      for the immediately preceding month, and related balance sheet as at the
      end of the immediately preceding month, all in reasonable detail, prepared
      in accordance with GAAP applied on a consistent basis, and certified as to
      the fairness of presentation by the president and chief financial officer
      of each Borrower, subject, however, to year-end audit adjustments.

            (b) As soon as available and in any event within ninety (90) days
      after the close of each fiscal year: statements of income, changes in
      stockholders' equity and cash flows of each Borrower, and, if applicable,
      such Borrower's Subsidiaries, on a consolidated and consolidating basis
      for such year, the related balance sheet as at the end of such year
      (setting forth in comparative form the corresponding figures for the
      preceding fiscal year), all in reasonable detail, prepared in accordance
      with GAAP applied on a consistent basis throughout the periods involved,
      and accompanied by an opinion in form and substance satisfactory to the
      Lender and prepared by an accounting firm reasonably satisfactory to the
      Lender, or other independent certified public accountants of recognized
      standing selected by each Borrower and acceptable to the Lender, as to
      said financial statements and a certificate signed by the president and
      chief financial officer of each Borrower stating that said financial
      statements fairly present the financial condition and results of
      operations of each Borrower and, if applicable, such Borrower's
      Subsidiaries as at the end of, and for, such year.

            (c) Together with each delivery of financial statements required in
      this Section 6.2, (i) an Officer's Certificate of Company in substantially
      the form of EXHIBIT "F" hereto, (ii) a written summary of all Hedging
      Contracts and Interest Rate Hedging Contracts maintained by Borrowers,
      (iii) a written summary of each Borrower's delinquency experience with
      respect to Pledged Mortgages, and (iv) a written static pool analysis
      segregated by pledged or unpledged to the Lender and setting forth current
      delinquency and prepayment status.

            (d) Copies of all regular or periodic financial and other reports,
      if any, which any Borrower shall file with the Securities and Exchange
      Commission or any governmental agency successor thereto and copies of any
      audits completed by GNMA, FHLMC, or FNMA. Copies of the Mortgage Bankers'
      Financial Reporting Forms (FNMA Form 1002) which any
      Borrower shall have filed with FNMA.

            (e) From time to time, with reasonable promptness, such further
      information regarding the business, operations, properties or financial
      condition of any Borrower as the Lender may reasonably request.

                                                                         Page 34
<PAGE>   43
      6.3 Maintenance of Existence; Conduct of Business. Preserve and maintain
its corporate existence in good standing and all of its rights, privileges,
licenses and franchises necessary in the normal conduct of its business,
including, without limitation, its eligibility as lender, seller/servicer and
issuer described under Section 5.11 hereof; conduct its business in an orderly
and efficient manner; and make no material change in the nature or character of
its business or engage in any business in which it was not engaged on the date
of this Agreement.

      6.4 Compliance with Applicable Laws. Comply with the requirements of all
applicable laws, rules, regulations and orders of any governmental authority, a
breach of which could materially adversely affect its business, operations,
assets, or financial condition, except where contested in good faith and by
appropriate proceedings, and with sufficient reserves established therefor.

      6.5 Inspection of Properties and Books. Permit authorized representatives
of the Lender to (a) discuss the business, operations, assets and financial
condition of such Borrower and its Subsidiaries with their officers and
employees and to examine their books of account, records, reports and other
papers and make copies or extracts thereof, and (b) inspect all of its property
and all related information and reports at Lender's expense, all at such
reasonable times as the Lender may request. Each Borrower 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 the Lender or any authorized representatives of the Lender may
address to them in reference to the financial condition or affairs of such
Borrower and its Subsidiaries. Such Borrower may have its representatives in
attendance at any meetings between the officers or other representatives of the
Lender and its accountants held in accordance with this authorization.

      6.6 Notice. Give prompt written notice to the Lender of (a) any action,
suit or proceeding instituted by or against any Borrower or any of its
Subsidiaries in any federal or state court or before any commission or other
regulatory body (federal, state or local, domestic or foreign) which action,
suit or proceeding has at issue in excess of Twenty-Five Thousand Dollars
($25,000.00) (except for normal collection and foreclosure proceedings initiated
by any Borrower in connection with a Mortgage Loan or any other mortgage loan),
or any such proceedings threatened against any Borrower, or any of its
Subsidiaries in writing containing the details thereof, (b) the filing,
recording or assessment of any federal, state or local tax Lien against it, or
any of its assets or any of its Subsidiaries, (c) the occurrence of any Event of
Default hereunder or the occurrence of any Default and continuation thereof for
five (5) days, (d) the suspension, revocation or termination of any Borrower's
eligibility, in any respect, as approved lender, seller/servicer or issuer as
described under Section 5.11 hereof, (e) the transfer, loss or termination of
any Servicing Contract to which any Borrower is a party, or which is held for
the benefit of such Borrower, and the reason for such transfer, loss or
termination, if known to such Borrower, and (f) any other action, event or
condition of any nature which may lead to or result in a material adverse effect
upon the business, operations, assets, or financial condition of any Borrower or
its Subsidiaries or which, with or without notice or lapse of time or both,
would constitute a default under any other agreement instrument or indenture to
which any Borrower is a party or to which such Borrower, its properties or
assets may be subject.

                                                                         Page 35
<PAGE>   44
      6.7 Payment of Debt, Taxes, etc. Pay and perform all of its obligations
and Indebtedness, and cause to be paid and performed all obligations and
Indebtedness of its Subsidiaries in accordance with the terms thereof and pay
and discharge or cause to be paid and discharged all taxes, assessments and
governmental charges or levies imposed upon it or its Subsidiaries, or upon
their respective income, receipts or properties before the same shall become
past due, as well as all lawful claims for labor, materials and supplies or
otherwise which, if unpaid, might become a Lien or charge upon such properties
or any part thereof; provided, however, that such Borrower and its Subsidiaries
shall not be required to pay obligation, Indebtedness, taxes, assessments or
governmental charges or levies or claims for labor, materials or supplies for
which it or its Subsidiaries shall have obtained an adequate bond or adequate
insurance or which are being contested in good faith and by proper proceedings
which are being reasonably and diligently pursued if such proceedings do not
involve any likelihood of the sale, forfeiture or loss of any such property or
any interest therein while such proceedings are pending, and provided further
that book reserves adequate under generally accepted accounting principles shall
have been established with respect thereto and provided further that the owing
Person's title to, and its right to use, its property is not materially
adversely affected thereby.

      6.8 Insurance. Maintain (a) errors and omissions insurance or mortgage
impairment insurance and blanket bond coverage, with such companies and in such
amounts as satisfy prevailing FNMA and FHLMC requirements applicable to a
qualified mortgage originating institution, and (b) liability insurance and fire
and other hazard insurance on its properties, with responsible insurance
companies approved by the Lender, in such amounts and against such risks as is
customarily carried by similar businesses operating in the same vicinity; and
(c) within thirty (30) days after notice from the Lender, obtain such additional
insurance as the Lender shall reasonably require, all at the sole expense of
such Borrower. Copies of such policies shall be furnished to the Lender without
charge upon obtaining such coverage or any renewal of or modification to such
coverage.

      6.9 Other Loan Obligations. Perform all obligations under the terms of
each loan agreement, note, mortgage, security agreement or debt instrument by
which such Borrower is bound or to which any of its property is subject, and
promptly notify the Lender in writing of a declared default under or the
termination, cancellation, reduction or non-renewal of any of its other lines of
credit or financing agreements with any other lender. EXHIBIT "B" hereto is a
true and complete list of all such lines of credit or financing agreements as of
the date hereof.

      6.10 Use of Proceeds of Advances. Use the proceeds of each Advance solely
for the purpose of financing or purchasing Eligible Mortgage Loans or Eligible
Non-Conforming Mortgage Loans or for working capital purposes with respect to
Advances against Investment Grade Securities.

      6.11  Special Affirmative Covenants Concerning Collateral.

            (a) Warrant and defend the right, title and interest of the Lender
      in and to the Collateral against the claims and demands of all Persons
      whomsoever.

            (b) Service or cause to be serviced all Pledged Mortgages in
      accordance with the standard requirements of the issuers of Purchase
      Commitments covering the same and

                                                                         Page 36
<PAGE>   45
      all applicable FHA and VA requirements, including without limitation
      taking all actions necessary to enforce the obligations of the obligors
      under such Mortgage Loans. Each Borrower shall service or cause to be
      serviced all Mortgage Loans backing Pledged Securities pledged by it in
      accordance with applicable governmental requirements and issuers of
      Purchase Commitments covering the same. Each Borrower shall hold all
      escrow funds collected in respect of Pledged Mortgages and Mortgage Loans
      backing Pledged Securities pledged by it in trust, without commingling the
      same with non-custodial funds, and apply the same for the purposes for
      which such funds were collected.

            (c) Execute and deliver to the Lender such Uniform Commercial Code
      financing statements with respect to the Collateral as the Lender may
      request. Each Borrower shall also execute and deliver to the Lender such
      further instruments of sale, pledge or assignment or transfer, and such
      powers of attorney, as required by the Lender to secure the Collateral,
      and shall do and perform all matters and things necessary or desirable to
      be done or observed, for the purpose of effectively creating, maintaining
      and preserving the security and benefits intended to be afforded the
      Lender under this Agreement. The Lender shall have all the rights and
      remedies of a secured party under the Uniform Commercial Code of Texas, or
      any other applicable law, in addition to all rights provided for herein.

            (d) Notify the Lender within two (2) Business Days after receipt of
      notice from an Investor of any default under, or of the termination of,
      any Purchase Commitment relating to any Pledged Mortgage, Eligible
      Mortgage Pool or Pledged Security pledged by it.

            (e) Promptly comply in all respects with the terms and conditions of
      all Purchase Commitments, and all extensions, renewals and modifications
      or substitutions thereof or thereto. Each Borrower will cause to be
      delivered to the Investor the Pledged Mortgages and Pledged Securities to
      be sold under each Purchase Commitment not later than the expiration
      thereof.

            (f) Maintain, at its principal office or in a regional office
      approved by the Lender, or in the office of a computer service bureau
      engaged by such Borrower and approved by the Lender, and, upon request,
      shall make available to the Lender the originals, or copies in any case
      where the originals have been delivered to the Lender or to an Investor,
      of its Mortgage Notes and Mortgages included in Pledged Mortgages,
      Mortgage-backed Securities delivered to the Lender as Pledged Securities,
      Purchase Commitments, and all related Mortgage Loan documents and
      instruments, and all files, surveys, certificates, correspondence,
      appraisals, computer programs, tapes, discs, cards, accounting records and
      other information and data relating to the Collateral.

      6.12 Cure of Defects in Loan Documents. Promptly cure and cause to be
promptly cured any defects in the creation, issuance, execution and delivery of
this Agreement and the other Loan Documents; and upon request of the Lender and
at its expense, each Borrower will promptly execute and deliver, and cause to be
executed and delivered, to the Lender or its designee, all such additional
documents, agreements and/or instruments in compliance with or in accomplishment

                                                                         Page 37
<PAGE>   46
of the covenants and agreements of this Agreement and the other Loan Documents,
and/or to create, perfect, preserve, extend and/or maintain any and all Liens
created pursuant hereto or pursuant to any other Loan Document as valid and
perfected Liens (of a priority as set forth in this Agreement) in favor of the
Lender to secure the Obligations, all as reasonably requested from time to time
by the Lender.

7.    NEGATIVE COVENANTS.

      Each Borrower hereby covenants and agrees that, so long as the Commitment
is outstanding or there remain any Obligations of any Borrower to be paid or
performed under this Agreement or any other Loan Document, each Borrower shall
not, either directly or indirectly, without the prior written consent of the
Lender:

      7.1 Contingent Liabilities. Assume, incur, create, guarantee, endorse, or
otherwise become or be liable for the obligation of any Person other than a
co-Borrower except for such Borrower's endorsement of negotiable instruments for
deposit or collection in the ordinary course of business and with respect to
those Contingent Liabilities previously disclosed to and approved by the Lender
guaranteeing Indebtedness in amounts previously disclosed to and approved by
Lender to HCP.

      7.2 Merger; Acquisitions. Liquidate, dissolve, consolidate or merge with,
or sell any substantial part of its assets or acquire any substantial part of
the assets of another, or permit any Subsidiary to do any of the foregoing or
engage in any business activities or operations substantially different from or
unrelated to those in which the Company or its Subsidiaries were engaged on the
date hereof except that any Subsidiary may merge with and into or transfer any
part of its assets to the Company and any Borrower may acquire the assets of
another business that is engaged in business activities or operations
substantially similar to such Borrower's and PROVIDED, FURTHER, that if after
giving effect thereto, no Event of Default or Default would exist hereunder.

      7.3 Loss of Eligibility. Take any action that would cause such Borrower to
lose all or any part of its status as an eligible lender, seller/servicer and
issuer as described under Section 5.11 hereof.

      7.4 Debt to Adjusted Tangible Net Worth Ratio. Permit the ratio of Debt to
Adjusted Tangible Net Worth of the Company (and their Subsidiaries, on a
consolidated basis) to exceed 7:1 computed as of the end of each calendar month.
For the purposes of this Section 7.5, Debt of the Company shall include only
recourse liabilities as determined in accordance with GAAP.

      7.5 Minimum Adjusted Tangible Net Worth. Permit Adjusted Tangible Net
Worth of the Company (and its Subsidiaries, on a consolidated basis) to be less
than THIRTY MILLION AND NO/100 DOLLARS ($30,000,000.00), computed as of the end
of each calendar month.

      7.6 Minimum GAAP Net Worth. Permit GAAP Net Worth of the Company (and its
Subsidiaries, on a consolidated basis) to be less than SIXTY MILLION AND NO/100
DOLLARS ($60,000,000.00), computed as of the end of each calendar month.

                                                                         Page 38
<PAGE>   47
      7.7 Minimum Current Ratio. Permit the Current Ratio of the Company (and
its Subsidiaries, on a consolidated basis) to be less than 1.01 to 1.0 computed
as of the end of each calendar month.

      7.8 Maximum Non-Investment Grade Securities to Adjusted Tangible Net Worth
Ratio. Permit the ratio of Non-Investment Grade Securities to Adjusted Tangible
Net Worth of the Company (and its Subsidiaries, on a consolidated basis) to
exceed 0.50:1 computed as of the end of each calendar month.

      7.9 Transactions with Affiliates. Directly or indirectly enter into any
transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with an Affiliate unless
such transaction is (a) otherwise permitted under this Loan Agreement, (b) in
the ordinary course of the Borrower's business and (c) upon fair and reasonable
terms no less favorable to the Borrower than it would obtain in a comparable
arm's length transaction with a Person who is not an Affiliate, or make a
payment that is not otherwise permitted by this Section 7.9 to any Affiliate. In
no event shall the Borrower pledge to the Lender hereunder any Mortgage Loan
acquired by the Borrower from an Affiliate of the Borrower.

      7.10 Limits on Corporate Distributions. Pay, make or declare or incur any
liability to pay, make or declare any dividend (excluding stock dividends) or
other distribution, direct or indirect, on or on account of any shares of its
stock or any redemption or other acquisition, direct or indirect, of any shares
of its stock or of any warrants, rights or other options to purchase any shares
of its stock nor purchase, acquire, redeem or retire any stock or ownership
interest in itself whether now or hereafter outstanding except that so long as
no Default, Event of Default or violation of Sections 7.4, 7.5, 7.6, 7.7 and 7.8
hereof exists at such time, or would exist immediately thereafter, such Borrower
may declare and pay cash dividends to its shareholders.

      7.11 RICO. Violate any laws, statutes or regulations, whether federal or
state, for which forfeiture of its properties is a potential penalty, including,
without limitations, RICO.

      7.12 No Loans or Investments Except Approved Investments. Without the
prior written consent of Lender, make or permit to remain outstanding any loans
or advances to, or investments in, any Person, except that the foregoing
restriction shall not apply to:

            (a) investments in marketable obligations maturing no later than 180
      days from the date of acquisition thereof by such Borrower and issued and
      fully guaranteed, directly, by the full faith and credit of the Government
      of the United States of America or any agency thereof; and

            (b) investments in certificates of deposit maturing no later than
      180 days from the date of issuance thereof and issued by commercial banks
      in the United States and such banks rated by Moody's Investor Service,
      Inc. and receiving a rating of Prime-2 or higher on Moody's short term
      debt rating or rated by Standard & Poor's Corporation and receiving a
      rating of AA-/A1+ or higher on S&P's short term debt rating, or issued by
      Lender, it being acknowledged and agreed that the foregoing requirements
      shall pertain to

                                                                         Page 39
<PAGE>   48
      certificates of deposit issued and/or received on a date on or after the
      date of this Agreement);

            (c) investments made in the ordinary and usual course of business;

            (d) Mortgage Loans or Mortgage backed Securities originated or
      acquired in the ordinary course of business; and

            (e) advances to HCP made in the ordinary and usual course of
      business.

      7.13  Charter Documents and Business Termination.

            (a) Amend or otherwise modify its corporate charter or otherwise
      change its corporate structure in any manner which will have a materially
      adverse effect on such Borrower's condition, financial or otherwise, or
      which will have a material adverse effect upon such Borrower's ability to
      perform, promptly and fully, its obligations hereunder or under any of the
      other Loan Documents, or

            (b) Take any action with a view toward its dissolution, liquidation
      or termination, or, in fact, dissolve, liquidate or terminate its
      existence.

      7.14 Changes in Accounting Methods. Make any change in its accounting
method as in effect on the date of this Agreement or change its fiscal year
ending date from December 31, unless such changes (a) are required for
conformity with generally accepted accounting principles and, in such event,
such Borrower will give prior written notice of each such change to the Lender
or (b) or if not so required, are in conformity with generally accepted
accounting principles and have the prior written approval of the Lender which
approval shall not be unreasonably withheld.

      7.15 No Sales, Leases or Dispositions of Property. Except in the ordinary
course of its business, sell, lease, transfer or otherwise dispose of all or any
material portion or portions or integral part of its properties or assets,
whether now owned or hereafter acquired (whether in a single transaction or in a
series of transactions), or enter into any arrangement, directly or indirectly,
with any person, whereby it shall sell or transfer any of its properties or
assets, whether now owned or hereafter acquired, and thereafter rent or lease as
lessee such property or any part thereof which it intends to use for
substantially the same purpose or purposes as the property sold or transferred.

      7.16 Changes in Business or Assets. Make any substantial change (a) in the
nature of its business as now conducted, or (b) in the use of its property as
now used and proposed to be used.

      7.17 Changes in Office or Inventory Location. Change the address and/or
location of its chief executive office or principal place of business or the
place where it keeps its books and records or its inventory to a location
outside the State of New York, as applicable, unless, prior to any such change,
such Borrower shall execute and cause to be executed such additional agreements
and/or lien instruments as the Lender may reasonably request to conform with the

                                                                         Page 40
<PAGE>   49
provisions hereof and the transactions and perfected Liens in the Collateral
contemplated under this Agreement and the other Loan Documents.

      7.18  Special Negative Covenants Concerning Collateral.

            (a) Amend or modify, or waive any of the terms and conditions of, or
      settle or compromise any claim in respect of, any Pledged Mortgages or
      Pledged Securities pledged by it. Notwithstanding, Borrower may waive,
      modify or vary any terms of any Pledged Mortgages or consent to the
      postponement of strict compliance with any such term or in any manner
      grant indulgence to any mortgagor; provided, however, that (unless the
      mortgagor is in default with respect to the Pledged Mortgage, or such
      default is, in the judgment of the Borrower, imminent) the Borrower may
      not permit any modification with respect to any Pledged Mortgage that
      would change the mortgage interest rate, defer or forgive the payment of
      any principal or interest, change the outstanding principal amount (except
      for actual payments of principal), make any future advances or extend the
      final maturity date, as the case may be, with respect to such Pledged
      Mortgage or release any collateral securing such Pledged Mortgage.

            (b) Sell, assign, transfer or otherwise dispose of, or grant any
      option with respect to, or pledge or otherwise encumber (except pursuant
      to this Agreement or as permitted herein) any of the Collateral or any
      interest therein.

            (c) Make any compromise, adjustment or settlement in respect of any
      of the Collateral or accept other than cash in payment or liquidation of
      the Collateral.

      7.19 No Indebtedness. Except for the Indebtedness described in EXHIBIT "B"
hereto, without the prior written consent of Lender, incur, create, assume or
guarantee or in any manner become or be liable or permit to be outstanding any
Indebtedness (including obligations for the payment of rentals other than
provided for herein) nor guarantee any contract or other obligation, and will
not in any way become or be responsible for obligations of any Person, whether
by agreement to purchase the Indebtedness of any other Person or agreement for
the furnishing of funds to any other Person through the purchase of goods,
supplies or services (or by way of stock purchase, capital contribution, advance
or loan) for the purpose of paying or discharging the Indebtedness of any other
Person or otherwise, except that the foregoing restrictions shall not apply to:

            (a) the Obligations;

            (b) liabilities for taxes, assessments, governmental charges or
      levies which are not yet due and payable or which are being contested in
      good faith by appropriate proceedings diligently conducted if reserves
      adequate under generally accepted accounting principles have been
      established therefor;

            (c) endorsements of negotiable instruments for collection in the
      ordinary course of business;

                                                                         Page 41
<PAGE>   50
            (d) Indebtedness incurred in the ordinary course of business in
      connection with normal trade or business obligations which are payable
      within 90 days of the occurrence thereof, provided, however, that no
      Indebtedness shall be incurred by such Borrower to any Affiliate other
      than in the ordinary course of business and upon substantially the same or
      better terms as it could obtain in an arm's length transaction with a
      Person who is not an Affiliate.

            (e) Indebtedness of less than $50,000.00, in the aggregate, incurred
      in the ordinary course of business.

            (f) Indebtedness incurred in the ordinary course of business for the
      purpose of leasing office space or equipment to be used in the conduct of
      the business of such Borrower.

            (g) Short-term lines of credit (not to exceed one year maturity)
      incurred in the ordinary and usual course of business.

8.    DEFAULTS; REMEDIES.

      8.1 Events of Default. The occurrence of any of the following conditions
or events shall be an event of default ("Event of Default"):

            (a) Failure to pay the principal of any Advance when due, whether at
      stated maturity, by acceleration, or otherwise; or failure to pay any
      installment of interest on any Advance or any other amount due under this
      Agreement within ten (10) days after the due date; or failure to pay,
      beyond any applicable grace period, the principal or interest on any other
      indebtedness due the Lender; or

            (b) Failure of any Borrower or any of its Subsidiaries to pay, or
      any default in the payment of any principal or interest on, any other
      Indebtedness or in the payment of any contingent obligation beyond any
      period of grace provided; or breach or default with respect to any other
      material term of any other Indebtedness of any loan agreement, mortgage,
      indenture or other agreement relating thereto, if the effect of such
      failure, default or breach is to cause, or to permit the holder or holders
      thereof (or a trustee on behalf of such holder or holders) to cause,
      Indebtedness of such Borrower or its Subsidiaries in the aggregate amount
      of Fifty Thousand Dollars ($50,000.00) or more to become or be declared
      due prior to its stated maturity (upon the giving or receiving of notice,
      lapse of time, both, or otherwise) or failure of any Borrower to comply
      with Section 6.11 hereof; or

            (c) Any representations or warranties made or deemed made herein or
      in any other Loan Document, or in any statement or certificate at any time
      given by any Borrower in writing pursuant hereto or thereto shall be
      inaccurate or incomplete in any materially adverse respect on the date as
      of which made or deemed made; or

            (d) The Borrowers shall default in the performance of or compliance
      with any term or covenant contained in this Agreement and such default
      shall not have been

                                                                         Page 42
<PAGE>   51
      remedied or waived within thirty (30) days after receipt of notice from
      the Lender of such default other than those referred to above in
      Subsections 8.1(a), 8.1(b), or 8.1(c); or

            (e) (1) A court having jurisdiction shall enter a decree or order
      for relief in respect of any Borrower or any of its Subsidiaries in an
      involuntary case under any applicable bankruptcy, insolvency or other
      similar law now or hereafter in effect in respect of any Borrower or any
      of its Subsidiaries, which decree or order is not stayed; or a filing of
      an involuntary case under any applicable bankruptcy, insolvency or other
      similar law in respect of any Borrower or any of its Subsidiaries has
      occurred; or (2) any other similar relief shall be granted under any
      applicable federal or state law; or a decree or order of a court having
      jurisdiction for the appointment of a receiver, liquidator, sequestrator,
      trustee, custodian or other officer having similar powers over any
      Borrower or any of its Subsidiaries, or over all or a substantial part of
      their respective property, shall have been entered; or the involuntary
      appointment of an interim receiver, trustee or other custodian of any
      Borrower or any of its Subsidiaries, for all or a substantial part of
      their respective property; or the issuance of a warrant of attachment,
      execution or similar process against any substantial part of the property
      of any Borrower or any of its Subsidiaries, and the continuance of any
      such events in Subsections (1) and (2) above for sixty (60) days unless
      dismissed or discharged (provided, however, that Lender shall have no
      obligation to make Advances during said sixty (60) day period); or

            (f) Any Borrower or any of its Subsidiaries shall have an order for
      relief entered with respect to it or commence a voluntary case under any
      applicable bankruptcy, insolvency or other similar law now or hereafter in
      effect, or shall consent to the entry of an order for relief in an
      involuntary case, or to the conversion to an involuntary case, under any
      such law, or shall consent to the appointment of or taking possession by a
      receiver, trustee or other custodian for all or a substantial part of its
      property; the making by any Borrower or any of its Subsidiaries of any
      assignment for the benefit of creditors; or the failure of any Borrower or
      any of its Subsidiaries, or the admission by any of them of its inability,
      to pay its debts as such debts become due; or

            (g) Any money judgment, writ or warrant of attachment, or similar
      process involving in any case an amount in excess of Fifty Thousand
      Dollars ($50,000.00) shall be entered or filed against any Borrower or any
      of its Subsidiaries or any of their respective assets and shall remain
      undischarged, unvacated, unbonded or unstayed for a period of thirty (30)
      days or in any event no later than five (5) days prior to the date of any
      proposed sale thereunder; or

            (h) Any order, judgment or decree shall be entered against any
      Borrower decreeing the dissolution or split up of such Borrower and such
      order shall remain undischarged or unstayed for a period in excess of
      twenty (20) days (provided, however, Lender shall not be obligated to make
      Advances during said 20 day period); or

            (i) Any Plan maintained by any Borrower or any of its Subsidiaries
      shall be terminated within the meaning of Title IV of ERISA or a trustee
      shall be appointed by an appropriate United States district court to
      administer any Plan, or the Pension Benefit

                                                                         Page 43
<PAGE>   52
      Guaranty Corporation (or any successor thereto) shall institute
      proceedings to terminate any Plan or to appoint a trustee to administer
      any Plan if as of the date thereof such Borrower's or any Subsidiary's
      liability (after giving effect to the tax consequences thereof) to the
      Pension Benefit Guaranty Corporation (or any successor thereto) for
      unfunded guaranteed vested benefits under the Plan exceeds the then
      current value of assets accumulated in such Plan by more than Fifty
      Thousand Dollars ($50,000.00) (or in the case of a termination involving
      such Borrower or any of its Subsidiaries as a "substantial employer" (as
      defined in Section 4001(a)(2) of ERISA) the withdrawing employer's
      proportionate share of such excess shall exceed such amount); or

            (j) Any Borrower or any of its Subsidiaries as employer under a
      Multiemployer Plan shall have made a complete or partial withdrawal from
      such Multiemployer Plan and the plan sponsor of such Multiemployer Plan
      shall have notified such withdrawing employer that such employer has
      incurred a withdrawal liability in an annual amount exceeding Fifty
      Thousand Dollars ($50,000.00); or

            (k) Any Borrower shall purport to disavow its obligations hereunder
      or shall contest the validity or enforceability hereof, or the Lender's
      security interest on any portion of the Collateral shall become
      unenforceable or otherwise impaired; provided that, subject to the
      Lender's approval, no Event of Default shall occur as a result of such
      impairment if all Advances made against any such Collateral shall be paid
      in full within ten (10) days of the date of such impairment; or

            (l) Any Borrower dissolves or terminates its existence, or
      discontinues its usual business; or

            (m) Any court shall find or rule, or any Borrower shall assert or
      claim, (i) that the Lender does not have a valid, perfected, enforceable
      Lien and security interest in the Collateral of the priority as
      represented in this Agreement or in any other Loan Document, or (ii) that
      this Agreement or any of the Loan Documents does not or will not
      constitute the legal, valid, binding and enforceable obligations of the
      party or parties (as applicable) thereto, or (iii) that any Person has a
      conflicting or adverse Lien, claim or right in, or with respect to, the
      Collateral and the Borrowers are unable within 10 days to have such
      finding or ruling reversed or to have such adverse Lien, claim or right
      removed; or

            (n) Any Borrower shall have concealed, removed, or permitted to be
      concealed or removed, any part of its property, with intent to hinder,
      delay or defraud its creditors or any of them, or made or suffered a
      transfer of any of its property which may be fraudulent under any
      bankruptcy, fraudulent conveyance or similar law; or shall have made any
      transfer of its property to or for the benefit of a creditor at a time
      when other creditors similarly situated have not been paid; or shall have
      suffered or permitted, while insolvent, any creditor to obtain a Lien upon
      any of its property through legal proceedings or distraint or other
      process which is not vacated within 60 days from the date thereof; or

            (o) There shall be a material adverse change in the financial
      condition, business or operations of the Company.

                                                                         Page 44
<PAGE>   53
      8.2 Remedies.

            (a) Upon the occurrence of any Event of Default described in
      Sections 8.1(e) or 8.1(f), the Commitment shall be terminated and the
      unpaid principal amount of and accrued and unpaid interest on the Note
      shall automatically become due and payable, without presentment for
      payment, demand, notice of non-payment, protest, notice of protest, notice
      of intent to accelerate, notice of acceleration, maturity, or any other
      notices or requirements of any kind of Lender to the Borrowers or any
      other Person liable thereon or with respect thereto, all of which are
      hereby expressly waived by each Borrower.

            (b) Upon the occurrence of any Event of Default, other than those
      described in Sections 8.1(e) or 8.1(f), the Lender may, by written notice
      to the Borrowers, terminate the Commitment and/or declare all Obligations
      of the Borrowers to be immediately due and payable, whereupon the same
      shall forthwith become due and payable, together with all accrued interest
      thereon, and the obligation of the Lender to make any Advances shall
      thereupon terminate.

            (c) Upon the occurrence of any Event of Default, the Lender may also
      do any of the following:

                  (1) Foreclose upon or otherwise enforce its security interest
            in and Lien on the Collateral to secure all payments and performance
            of Obligations of the Borrowers in any manner permitted by law or
            provided for hereunder.

                  (2) Notify all obligors in respect of the Collateral that the
            Collateral has been assigned to the Lender and that all payments
            thereon are to be made directly to the Lender or such other party as
            may be designated by the Lender; settle, compromise, or release, in
            whole or in part, any amounts owing on the Collateral, any such
            obligor or any Investor or any portion of the Collateral, on terms
            acceptable to the Lender; enforce payment and prosecute any action
            or proceeding with respect to any and all Collateral; and where any
            such Collateral is in default, foreclose on and enforce security
            interests in, such Collateral by any available judicial procedure or
            without judicial process and sell property acquired as a result of
            any such foreclosure.

                  (3) Act, or contract with a third party to act, as servicer or
            subservicer of each item of Collateral requiring servicing and
            perform all obligations required in connection with Purchase
            Commitments, such third party's fees to be paid by the Borrowers.

                  (4) Require any Borrower to assemble the Collateral and/or
            books and records relating thereto and make such available to the
            Lender at a place to be designated by the Lender.

                                                                         Page 45
<PAGE>   54
                  (5) Enter onto property where any Collateral or books and
            records relating thereto are located and take possession thereof
            with or without judicial process.

                  (6) Prior to the disposition of the Collateral, prepare it for
            disposition in any manner and to the extent the Lender deems
            appropriate.

                  (7) Exercise all rights and remedies of a secured creditor
            under the Uniform Commercial Code of Texas or other applicable law,
            including, but not limited to, selling or otherwise disposing of the
            Collateral, or any part thereof, at one or more public or private
            sales, whether or not such Collateral is present at the place of
            sale, for cash or credit or future delivery, on such terms and in
            such manner as the Lender may determine, including, without
            limitation, sale pursuant to any applicable Purchase Commitment. If
            notice is required under such applicable law, the Lender will give
            the Borrowers not less than ten (10) days' notice of any such public
            sale or of the date after which private sale may be held. Each
            Borrower agrees that ten (10) days' notice shall be reasonable
            notice. The Lender may, without notice or publication, adjourn any
            public or private sale or cause the same to be adjourned from time
            to time by announcement at the time and place fixed for the sale,
            and such sale may be made at any time or place to which the same may
            be so adjourned. In case of any sale of all or any part of the
            Collateral on credit or for future delivery, the Collateral so sold
            may be retained by the Lender until the selling price is paid by the
            purchaser thereof, but the Lender shall not incur any liability in
            case of the failure of such purchaser to take up and pay for the
            Collateral so sold and, in case of any such failure, such Collateral
            may again be sold upon like notice. The Lender may, however, instead
            of exercising the power of sale herein conferred upon it, proceed by
            a suit or suits at law or in equity to collect all amounts due upon
            the Collateral or to foreclose the pledge and sell the Collateral or
            any portion thereof under a judgment or decree of a court or courts
            of competent jurisdiction, or both.

                  (8) Proceed against the Borrowers on the Note.

            (d) The Lender shall incur no liability as a result of the sale or
      other disposition of the Collateral, or any part thereof, at any public or
      private sale or disposition. Each Borrower hereby waives (to the extent
      permitted by law) any claims it may have against the Lender arising by
      reason of the fact that the price at which the Collateral may have been
      sold at such private sale was less than the price which might have been
      obtained at a public sale or was less than the aggregate amount of the
      outstanding Advances and the unpaid interest accrued thereon, even if the
      Lender accepts the first offer received and does not offer the Collateral
      to more than one offeree and none of the actions described herein shall
      render Lender's disposition of the Collateral in such a manner as
      commercially unreasonable.

            (e) Each Borrower specifically waives (to the extent permitted by
      law) any equity or right of redemption, all rights of redemption, stay or
      appraisal which such

                                                                         Page 46
<PAGE>   55
      Borrower has or may have under any rule of law or statute now existing or
      hereafter adopted, and any right to require the Lender to (1) proceed
      against any Person, (2) proceed against or exhaust any of the Collateral
      or pursue its rights and remedies as against the Collateral in any
      particular order, or (3) pursue any other remedy in its power. The Lender
      shall not be required to take any steps necessary to preserve any rights
      of such Borrower against holders of mortgages prior in lien to the Lien of
      any Mortgage included in the Collateral or to preserve rights against
      prior parties.

            (f) The Lender may, but shall not be obligated to, advance any sums
      or do any act or thing necessary to uphold and enforce the Lien and
      priority of, or the security intended to be afforded by, any Mortgage
      included in the Collateral, including, without limitation, payment of
      delinquent taxes or assessments and insurance premiums. All advances,
      charges, costs and expenses, including reasonable attorneys' fees and
      disbursements, incurred or paid by the Lender in exercising any right,
      power or remedy conferred by this Agreement, or in the enforcement hereof,
      together with interest thereon, at the Default Rate, from the time of
      payment until repaid, shall become a part of the principal balance
      outstanding hereunder and under the Note.

            (g) No failure on the part of the Lender to exercise, and no delay
      in exercising, any right, power or remedy provided hereunder, at law or in
      equity shall operate as a waiver thereof; nor shall any single or partial
      exercise by the Lender of any right, power or remedy provided hereunder,
      at law or in equity preclude any other or further exercise thereof or the
      exercise of any other right, power or remedy. Without intending to limit
      the foregoing, all defenses based on the statute of limitations are hereby
      waived by each Borrower to the extent permitted by law. The remedies
      herein provided are cumulative and are not exclusive of any remedies
      provided at law or in equity.

      8.3 Application of Proceeds. The proceeds of any sale, disposition or
other enforcement of the Lender's security interest in all or any part of the
Collateral shall be applied by the Lender:

            First, to the payment of the costs and expenses of such sale or
      enforcement, including reasonable compensation to the Lender's agents and
      counsel, and all expenses, liabilities and advances made or incurred by or
      on behalf of the Lender in connection therewith;

            Second, to the payment of any other amounts due (other than
      principal and interest) under the Note or this Agreement;

            Third, to the payment of interest accrued and unpaid on the Note;

            Fourth, to the payment of the outstanding principal balance of
      the Note; and

            Finally, to the payment to the Borrowers, or to its successors or
      assigns, or as a court of competent jurisdiction may direct, of any
      surplus then remaining from such proceeds.

                                                                         Page 47
<PAGE>   56
      If the proceeds of any such sale, disposition or other enforcement are
insufficient to cover the costs and expenses of such sale, as aforesaid, and the
payment in full of all Obligations of the Borrowers, the Borrowers shall remain
liable for any deficiency, except as otherwise provided herein.

      8.4 Lender Appointed Attorney-in-Fact. The Lender is hereby appointed the
attorney-in-fact of each Borrower, with full power of substitution, for the
purpose of carrying out the provisions hereof and taking any action and
executing any instruments which the Lender may deem necessary or advisable to
accomplish the purposes hereof, which appointment as attorney-in-fact is
irrevocable and coupled with an interest. Without limiting the generality of the
foregoing, the Lender shall have the right and power to give notices of its
security interest in the Collateral to any Person, either in the name of the
applicable Borrower or in its own name, to endorse all Pledged Mortgages or
Pledged Securities payable to the order of the applicable Borrower, to change or
cause to be changed the book-entry registration or name of subscriber or
Investor on any Pledged Security, or to receive, endorse and collect all checks
made payable to the order of the Company representing any payment on account of
the principal of or interest on, or the proceeds of sale of, any of the Pledged
Mortgages or Pledged Securities and to give full discharge for the same.

      8.5 Right of Set-Off. If the Borrowers shall default in the payment of the
Note, any interest accrued thereon, or any other sums which may become payable
hereunder when due, or in the performance of any other Obligations under this
Agreement, the Lender, shall have the right, at any time and from time to time,
without notice, to set-off and to appropriate or apply any and all property or
indebtedness of any kind at any time held or owing by the Lender to or for the
credit of the account of the Borrowers or any one of them (excluding any monies
held by the Borrowers or any one of them in trust for third parties) against and
on account of the Obligations, irrespective of whether or not the Lender shall
have made any demand hereunder and whether or not said Obligations shall have
matured; provided, however, that the Lender shall not be allowed to set-off
against funds in accounts with respect to which (i) any Borrower is a trustee or
an escrow agent in respect of bona fide third parties other than Affiliates, and
(ii) such trust or escrow arrangement was so denominated at the time of the
creation of such account.

9.    NOTICES.

      All notices, demands, consents, requests and other communications required
or permitted to be given or made hereunder (collectively, "Notices") shall,
except as otherwise expressly provided hereunder, be in writing and shall be
delivered in person or mailed, first class, return receipt requested, postage
prepaid, or delivered by overnight courier, addressed to the respective parties
hereto at their respective addresses hereinafter set forth or, as to any such
party, at such other address as may be designated by it in a Notice to the
other. All Notices shall be conclusively deemed to have been properly given or
made when duly delivered, in person or by overnight courier, or if mailed on the
third Business Day after being deposited in the mails, addressed as follows:

            If to Company:    HANOVER CAPITAL MORTGAGE HOLDINGS, INC.
                              Attn: Joyce S. Mizerak

                                                                         Page 48
<PAGE>   57
                              90 West Street, Suite 1509
                              New York, New York 10006
                              Tel: (212) 732-5086
                              Fax: (212) 732-4728
                              Email: joyce.mizerak@hanovercapital.com

            If to "HCP":      HANOVER CAPITAL PARTNERS LTD.
                              Attn: Joyce S. Mizerak
                              90 West Street, Suite 1509
                              New York, New York 10006
                              Tel: (212) 732-5086
                              Fax:  (212) 732-4728
                              Email: joyce.mizerak@hanovercapital.com

            If to the Lender: Bank United
                              Attn: John D. West
                              Regional Director, Mortgage Banker Finance
                              400 Colony Square, Suite 200
                              Atlanta, Georgia 30361
                              Tel: (404) 877-9192
                              Fax:  (404) 877-9195
                              Email: westj@bankunited.com

            with a copy to:   Bank United
                              Attn: Jonathon K. Heffron
                              General Counsel
                              3200 Southwest Freeway, Suite 2600
                              Houston, Texas 77027
                              Tel: (713) ______________
                              Fax: (713) 543-6469
                              Email: ________________

10.   REIMBURSEMENT OF EXPENSES; INDEMNITY.

      The Borrowers shall: (a) pay all out-of-pocket costs and expenses of the
Lender, including, without limitation, reasonable attorneys' fees, in connection
with the preparation, negotiation, documentation, enforcement, and
administration of this Agreement, the Note, and other Loan Documents and the
making and repayment of the Advances and the payment of interest thereon;
provided that Lender's reasonable attorney's fees for the preparation of the
Loan Documents shall not exceed $5,000.00 plus the reasonable costs and expenses
of counsel; (b) pay, and hold the Lender and any holder of the Note harmless
from and against, any and all present and future stamp, documentary and other
similar taxes with respect to the foregoing matters and save the Lender and the
holder or holders of the Note harmless from and against any and all liabilities
with respect to or resulting from any delay or omission to pay such taxes; (C)
INDEMNIFY, PAY AND HOLD HARMLESS THE LENDER AND ANY OF ITS OFFICERS, DIRECTORS,
EMPLOYEES OR AGENTS AND ANY SUBSEQUENT HOLDER OF

                                                                         Page 49
<PAGE>   58
THE NOTE FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES,
PENALTIES, JUDGMENTS, SUITS, COSTS, EXPENSES AND DISBURSEMENTS OF ANY KIND
WHATSOEVER (THE "INDEMNIFIED LIABILITIES") WHICH MAY BE IMPOSED UPON, INCURRED
BY OR ASSERTED AGAINST THE LENDER OR SUCH HOLDER IN ANY WAY RELATING TO OR
ARISING OUT OF THIS AGREEMENT, THE NOTE, OR ANY OTHER LOAN DOCUMENT OR ANY OF
THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY TO THE EXTENT THAT ANY SUCH
INDEMNIFIED LIABILITIES RESULT (DIRECTLY OR INDIRECTLY) FROM ANY CLAIMS MADE, OR
ANY ACTIONS, SUITS OR PROCEEDINGS COMMENCED OR THREATENED, BY OR ON BEHALF OF
ANY CREDITOR (EXCLUDING THE LENDER AND THE HOLDER OR HOLDERS OF THE NOTE),
SECURITY HOLDER, SHAREHOLDER, CUSTOMER (INCLUDING, WITHOUT LIMITATION, ANY
PERSON HAVING ANY DEALINGS OF ANY KIND WITH ANY BORROWER), TRUSTEE, DIRECTOR,
OFFICER, EMPLOYEE AND/OR AGENT OF ANY BORROWER ACTING IN SUCH CAPACITY, ANY
BORROWER OR ANY GOVERNMENTAL REGULATORY BODY OR AUTHORITY. THE FOREGOING
INDEMNITY SHALL NOT APPLY TO THE EXTENT THE INDEMNIFIED LIABILITIES RESULT FROM
THE NEGLIGENCE OR WILLFUL MISCONDUCT OF THE LENDER OR LENDER'S OWN VIOLATIONS OF
REGULATIONS APPLICABLE TO IT. THE AGREEMENT OF THE BORROWERS CONTAINED IN THIS
SUBSECTION (C) SHALL SURVIVE THE EXPIRATION OR TERMINATION OF THIS AGREEMENT AND
THE PAYMENT IN FULL OF THE NOTE. ATTORNEYS' FEES AND DISBURSEMENTS INCURRED IN
ENFORCING, OR ON APPEAL FROM, A JUDGMENT PURSUANT HERETO SHALL BE RECOVERABLE
SEPARATELY FROM AND IN ADDITION TO ANY OTHER AMOUNT INCLUDED IN SUCH JUDGMENT,
AND THIS CLAUSE IS INTENDED TO BE SEVERABLE FROM THE OTHER PROVISIONS OF THIS
AGREEMENT AND TO SURVIVE AND NOT BE MERGED INTO SUCH JUDGMENT.

11.   FINANCIAL INFORMATION.

      All financial statements and reports furnished to the Lender hereunder
shall be prepared in accordance with GAAP, applied on a basis consistent with
that applied in preparing the financial statements as at, and for the period
ended, the Statement Date (except to the extent otherwise required to conform to
good accounting practice).

12.   MISCELLANEOUS.

      12.1 Terms Binding Upon Successors; Survival of Representations. The terms
and provisions of this Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns. All
representations, warranties, covenants and agreements herein contained on the
part of each Borrower shall survive the making of any Advance and the execution
of the Note, and shall be effective so long as the Commitment is outstanding
hereunder or there remain any Obligations of the Company hereunder or under the
Note to be paid or performed.

                                                                         Page 50
<PAGE>   59
      12.2 Assignment. This Agreement may not be assigned by the Borrowers. The
Lender may assign, at any time, in whole or in part, its rights and delegate its
obligations under this Agreement and the other Loan Documents, along with the
Lender's security interest in any or all of the Collateral, and any assignee
thereof may enforce this Agreement and the other Loan Documents, and such
security interest.

      12.3 Amendments. Except as otherwise provided in this Agreement, this
Agreement may not be amended, modified or supplemented unless such amendment,
modification or supplement is set forth in a writing signed by the parties
hereto.

      12.4 Governing Law. This Agreement and the other Loan Documents shall be
governed by the laws of the State of Texas, without reference to its principles
of conflicts of laws.

      12.5 Participations. The Lender may at any time sell, assign or grant
participations in, or otherwise transfer to any other Person (a "Participant"),
all or part of the Obligations under this Agreement. Without limitation of the
exclusive right of the Lender to collect and enforce such Obligations, each
Borrower agrees that each disposition will give rise to a debtor-creditor
relationship of such Borrower to the Participant, and such Borrower authorizes
each Participant, upon the occurrence of an Event of Default, to proceed
directly by right of setoff, banker's lien, or otherwise, against any assets of
such Borrower which may be in the hands of such Participant. Each Borrower
authorizes the Lender to disclose to any prospective Participant and any
Participant any and all information in the Lender's possession concerning such
Borrower, this Agreement and the Collateral.

      12.6 Relationship of the Parties. This Agreement provides for the making
of Advances by the Lender, in its capacity as a lender, to each Borrower, in its
capacity as a borrower, and for the payment of interest, repayment of principal
by the Borrowers to the Lender, and for the payment of certain fees by the
Borrowers to the Lender. The relationship between the Lender and the Borrowers
is limited to that of creditor/secured party, on the one hand, and debtor, on
the other hand. The provisions herein for compliance with financial covenants
and delivery of financial statements are intended solely for the benefit of the
Lender to protect its interests as lender in assuring payments of interest and
repayment of principal and payment of certain fees, and nothing contained in
this Agreement shall be construed as permitting or obligating the Lender to act
as a financial or business advisor or consultant to the Borrowers, as permitting
or obligating the Lender to control the Borrowers or to conduct the Borrowers'
operations, as creating any fiduciary obligation on the part of the Lender to
the Borrowers, or as creating any joint venture, agency, or other relationship
between the parties hereto other than as explicitly and specifically stated in
this Agreement. Each Borrower acknowledges that it has had the opportunity to
obtain the advice of experienced counsel of its own choosing in connection with
the negotiation and execution of this Agreement and to obtain the advice of such
counsel with respect to all matters contained herein, including, without
limitation, the provision for waiver of trial by jury. Each Borrower further
acknowledges that it is experienced with respect to financial and credit matters
and has made its own independent decisions to apply to the Lender for credit and
to execute and deliver this Agreement.

                                                                         Page 51
<PAGE>   60
      12.7 Severability. If any provision of this Agreement shall be declared to
be illegal or unenforceable in any respect, such illegal or unenforceable
provision shall be and become absolutely null and void and of no force and
effect as though such provision were not in fact set forth herein, but all other
covenants, terms, conditions and provisions hereof shall nevertheless continue
to be valid and enforceable.

      12.8 Usury. It is the intent of Lender and the Borrowers in the execution
and performance of this Agreement and the Note or any Loan Document to remain in
strict compliance with Applicable Law from time to time in effect. In
furtherance thereof, Lender and the Borrowers stipulate and agree that none of
the terms and provisions contained in the Note, this Agreement or any Loan
Document shall ever be construed to create a contract to pay for the use,
forbearance or detention of money with interest at a rate or in an amount in
excess of the Maximum Rate or amount of interest permitted to be charged under
Applicable Law. For purposes of this Agreement, the Note and any other Loan
Document, "interest" shall include the aggregate of all charges which constitute
interest under Applicable Law that are contracted for, taken, charged, reserved,
or received under this Agreement, the Note or any other Loan Document. The
Borrowers shall never be required to pay unearned interest or interest at a rate
or in an amount in excess of the Maximum Rate or amount of interest that may be
lawfully charged under Applicable Law, and the provisions of this paragraph
shall control over all other provisions of this Agreement and the Note or any
Loan Document, which may be in actual or apparent conflict herewith. If the Note
is prepaid, or if the maturity of the Note is accelerated for any reason, or if
under any other contingency the effective rate or amount of interest which would
otherwise be payable under the Note would exceed the Maximum Rate or amount of
interest Lender or any other holder of the Note is allowed by Applicable Law to
charge, contract for, take, reserve or receive, or in the event Lender or any
holder of the Note shall charge, contract for, take, reserve or receive monies
that are deemed to constitute interest which would, in the absence of this
provision, increase the effective rate or amount of interest payable under the
Note to a rate or amount in excess of that permitted to be charged, contracted
for, taken, reserved or received under Applicable Law then in effect, then the
principal amount of the Note or the amount of interest which would otherwise be
payable under the Note or both shall be reduced to the amount allowed under
Applicable Law as now or hereinafter construed by the courts having
jurisdiction, and all such moneys so charged, contracted for, taken, reserved or
received that are deemed to constitute interest in excess of the Maximum Rate or
amount of interest permitted by Applicable Law shall immediately be returned to
or credited to the account of the Borrowers upon such determination. Lender and
the Borrowers further stipulate and agree that, without limitation of the
foregoing, all calculations of the rate or amount of interest contracted for,
charged, taken, reserved or received under the Note which are made for the
purpose of determining whether such rate or amount exceeds the Maximum Rate,
shall be made to the extent not prohibited by Applicable Law, by amortizing,
prorating, allocating and spreading during the period of the full stated term of
the Note, all interest at any time contracted for, charged, taken, reserved or
received from the Borrowers or otherwise by Lender or any other holder of the
Note.

      12.9 Consent to Jurisdiction. Subject to the provisions of Section 12.10
of this Agreement, the Company hereby agrees that any action or proceeding under
this Agreement, the Note or any document delivered pursuant hereto may be
commenced against it in any court of competent jurisdiction within the State of
Texas, by service of process upon the Company by first

                                                                         Page 52
<PAGE>   61
class registered or certified mail, return receipt requested, addressed to the
Company at its address last known to the Lender. The Company agrees that any
such suit, action or proceeding arising out of or relating to this Agreement or
any other such document may be instituted in Harris County, State District Court
or in the United States District Court for the District of Texas at the option
of the Lender; and the Company hereby waives any objection to the venue, or any
claim as to inconvenient forum, of any such suit, action or proceeding. Nothing
herein shall affect the right of the Lender to accomplish service of process in
any other manner permitted by law or to commence legal proceedings or otherwise
proceed against the Company in any other jurisdiction or court.

      12.10 Arbitration. To the maximum extent not prohibited by law, any
controversy, dispute or claim arising out of, in connection with, or relating to
the Commitment or the Loan Documents or any transaction provided for therein,
including but not limited to any claim based on or arising from an alleged tort
or an alleged breach of any agreement contained in any of the Loan Documents,
shall, at the request of any party to the Loan Documents (either before or after
the commencement of judicial proceedings), be settled by arbitration pursuant to
Title 9 of the United States Code, which the parties hereto acknowledge and
agree applies to the transaction involved herein, and in accordance with the
Commercial Arbitration Rules of the American Arbitration Association (the
"AAA"). If Title 9 of the United States Code is inapplicable to any such claim,
dispute or controversy for any reason, such arbitration shall be conducted
pursuant to the Texas General Arbitration Act and in accordance with the
Commercial Arbitration Rules of the AAA. In any such arbitration proceeding: (i)
all statutes of limitations which would otherwise be applicable shall apply; and
(ii) the proceeding shall be conducted in Houston, Texas, by a single
arbitrator, if the amount in controversy is $1,000,000.00 or less, or by a panel
of three arbitrators if the amount in controversy is over $1,000,000.00. All
arbitrators shall be selected by the process of appointment from a panel
pursuant to Section 13 of the AAA Commercial Arbitration Rules and each
arbitrator shall be either an active attorney, a mortgage banker or retired
judge with an AAA acknowledged expertise in the subject matter of the
controversy, dispute or claim. Any award rendered in any such arbitration
proceeding shall be final and binding, and judgment upon any such award may be
entered in any court having jurisdiction.

      If any party to any Loan Document files a proceeding in any court to
resolve any such controversy, dispute or claim, such action shall not constitute
a waiver of the right of such party or a bar to the right of any other party to
seek arbitration under the provisions of this Section of that or any other
claim, dispute or controversy, and the court shall, upon motion of any party to
the proceeding, direct that such controversy, dispute or claim be arbitrated in
accordance with this Section.

      Notwithstanding any of the foregoing, the parties hereto agree that no
arbitrator or panel of arbitrators shall possess or have the power to (i) assess
punitive damages, (ii) dissolve, rescind or reform (except that the arbitrator
may construe ambiguous terms) any Loan Document, (iii) enter judgment on the
debt, (iv) exercise equitable powers or issue or enter any equitable remedies
with respect to matters submitted to arbitration, or (v) allow discovery of
attorney/client privileged information. The Commercial Arbitration Rules of the
AAA are hereby modified to this extent for the purpose of arbitration of any
dispute, controversy or claim arising out of, in connection with, or relating to
the Loan or any Loan Document. The parties hereby further agree to waive,

                                                                         Page 53
<PAGE>   62
each to the other, any claims for punitive damages and agree neither an
arbitrator nor any court shall have the power to assess such damages.

      No provision of, or the exercise of any rights under, this Section shall
limit or impair the right of any party to any Loan Document before, during or
after any arbitration proceeding to: (i) exercise self-help remedies such as
setoff or repossession; (ii) foreclose (judicially or otherwise) any Lien on or
security interest in any real or personal Collateral; or (iii) obtain emergency
relief from a court of competent jurisdiction to prevent the dissipation,
damage, destruction, transfer, hypothecation, pledging or concealment of assets
or of Collateral securing any Indebtedness, obligation or guaranty referenced in
any Loan Document. Such emergency relief may be in the nature of, but is not
limited to: pre-judgment attachments, garnishments, sequestrations, appointments
of receivers, or other emergency injunctive relief to preserve the status quo.

      12.11 ADDITIONAL INDEMNITY. IN ADDITION TO THE INDEMNITY PROVIDED IN
SECTION 10, THE BORROWERS SHALL INDEMNIFY AND HOLD THE LENDER, ITS SUCCESSORS,
ASSIGNS, AGENTS, AND EMPLOYEES, HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS,
ACTIONS, SUITS, PROCEEDINGS, COSTS, EXPENSES, DAMAGES, FINES, PENALTIES, AND
LIABILITIES, INCLUDING, WITHOUT LIMITATION, ATTORNEYS' FEES AND COSTS, ARISING
OUT OF, CONNECTED WITH, OR RESULTING FROM (A) THE OPERATION OF THE BORROWERS'
BUSINESSES, (B) THE LENDER'S PRESERVATION OR ATTEMPTED PRESERVATION OF
COLLATERAL, AND (C) ANY FAILURE OF THE SECURITY INTERESTS AND LIENS IN THE
COLLATERAL GRANTED TO THE LENDER PURSUANT TO THIS AGREEMENT TO BE OR TO REMAIN
PERFECTED OR TO HAVE THE PRIORITY AS CONTEMPLATED THEREIN. THIS INDEMNITY SHALL
NOT APPLY TO THE EXTENT THE SUBJECT OF THE INDEMNIFICATION IS CAUSED BY OR
ARISES OUT OF THE NEGLIGENCE OR WILLFUL MISCONDUCT OF THE LENDER. AT THE
LENDER'S REQUEST, THE BORROWERS SHALL, AT THEIR OWN COST AND EXPENSE, JOINTLY
AND SEVERALLY, DEFEND OR CAUSE TO BE DEFENDED ANY AND ALL SUCH ACTIONS OR SUITS
THAT MAY BE BROUGHT AGAINST THE LENDER AND, IN ANY EVENT, SHALL SATISFY, PAY,
AND DISCHARGE ANY AND ALL JUDGMENTS, AWARDS, PENALTIES, COSTS, AND FINES THAT
MAY BE RECOVERED AGAINST THE LENDER IN ANY SUCH ACTION, PLUS ALL ATTORNEYS' FEES
AND COSTS RELATED THERETO TO THE EXTENT PERMITTED BY APPLICABLE LAW; PROVIDED,
HOWEVER, THAT THE LENDER SHALL GIVE THE BORROWERS (TO THE EXTENT THE LENDER
SEEKS INDEMNIFICATION THEREFOR FROM THE COMPANY UNDER THIS SECTION 12.11)
WRITTEN NOTICE OF ANY SUCH CLAIM, DEMAND, OR SUIT AFTER THE LENDER HAS RECEIVED
WRITTEN NOTICE THEREOF, AND THE LENDER SHALL NOT SETTLE ANY SUCH CLAIM, DEMAND,
OR SUIT, IF THE LENDER SEEKS INDEMNIFICATION THEREFOR FROM THE BORROWERS,
WITHOUT FIRST GIVING NOTICE TO THE BORROWERS OF THE LENDER'S DESIRE TO SETTLE
AND OBTAINING THE CONSENT OF THE BORROWERS TO THE SAME, WHICH CONSENT THE
BORROWERS HEREBY AGREE NOT TO UNREASONABLY WITHHOLD. ALL OBLIGATIONS OF THE
BORROWERS UNDER THIS SECTION 12.11 SHALL SURVIVE THE PAYMENT OF THE NOTE AND THE
OBLIGATIONS.

                                                                         Page 54
<PAGE>   63
      12.12 No Waivers Except in Writing. No failure or delay on the part of the
Lender in exercising any power or right hereunder or under any other Loan
Document shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise
thereof or the exercise of any other right or power. No notice to or demand on
any Borrower or any other Person in any case shall entitle such Borrower or such
other Person to any other or further notice or demand in similar or other
circumstances.

      12.13 WAIVER OF JURY TRIAL. EACH BORROWER HEREBY EXPRESSLY WAIVES ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION OR LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT FOR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.

      12.14 Multiple Counterparts. This Agreement may be executed in any number
of counterparts, all of which, taken together, shall constitute one and the same
instrument.

      12.15 No Third Party Beneficiaries. This Agreement is for the sole and
exclusive benefit of the Borrowers and Lender. This Agreement does not create,
and is not intended to create, any rights in favor of or enforceable by any
other Person. This Agreement may be amended or modified by the agreement of the
Borrowers and Lender, without any requirement or necessity for notice to, or the
consent of or approval of any other Person.

      12.16 RELEASE OF LENDER LIABILITY. TO THE MAXIMUM EXTENT NOT PROHIBITED BY
LAW FROM TIME TO TIME IN EFFECT, EACH BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY (AND AFTER IT HAS CONSULTED WITH ITS OWN ATTORNEY) IRREVOCABLY AND
UNCONDITIONALLY AGREES THAT NO CLAIM MAY BE MADE BY IT AGAINST THE LENDER OR ANY
OF ITS DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS, ACCOUNTANTS, AGENTS OR
INSURERS, OR ANY OF ITS OR THEIR SUCCESSORS AND ASSIGNS, FOR ANY SPECIAL,
INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES IN RESPECT OF ANY BREACH OR WRONGFUL
CONDUCT (WHETHER THE CLAIM IS BASED ON CONTRACT OR TORT OR DUTY IMPOSED BY LAW)
ARISING OUT OF, OR RELATED TO, THE TRANSACTIONS CONTEMPLATED BY ANY OF THIS
AGREEMENT, THE NOTE, OR ANY OTHER LOAN DOCUMENTS, OR ANY ACT, OMISSION, OR EVENT
OCCURRING IN CONNECTION HEREWITH OR THEREWITH. IN FURTHERANCE OF THE FOREGOING,
EACH BORROWER HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE UPON ANY CLAIM FOR
ANY SUCH DAMAGES, WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED
TO EXIST IN ITS FAVOR.

      12.17 ENTIRE AGREEMENT; AMENDMENT. THIS AGREEMENT, THE NOTE, AND THE OTHER
LOAN DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE
PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE
SUBJECT MATTER HEREOF. THE PROVISIONS OF THIS AGREEMENT AND THE OTHER

                                                                         Page 55
<PAGE>   64
LOAN DOCUMENTS TO WHICH THE COMPANY IS A PARTY MAY BE AMENDED OR WAIVED ONLY BY
AN INSTRUMENT IN WRITING SIGNED BY THE PARTIES HERETO.

      12.18 NO ORAL AGREEMENTS. THE WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

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

                                    BORROWERS:

                                    HANOVER CAPITAL MORTGAGE HOLDINGS, INC.,
                                    a Maryland corporation

                                    By:
                                       ----------------------------------------
                                    Name:  Joyce S. Mizerak
                                    Title: Managing Director

                                    HANOVER CAPITAL PARTNERS LTD.,
                                    a New York corporation

                                    By:
                                       ----------------------------------------
                                    Name: Joyce S. Mizerak
                                    Title: Managing Director

                                    LENDER:

                                    BANK UNITED

                                    By:
                                       ----------------------------------------
                                          JOHN D. WEST, Regional Director,
                                          Mortgage Banker Finance

                                                                         Page 56
<PAGE>   65
EXHIBITS:

<TABLE>
<S>   <C>   <C>
A-1    -    Advance Request
A-2    -    Advance Request
B      -    Existing Company Indebtedness
C      -    Procedures and Documentation for Warehousing Single-family Mortgage Loans
D      -    Shipping Instructions
E      -    Trust Receipt
F      -    Officer's Certificate
G      -    Subsidiaries
H      -    Litigation
I      -    Trade Names
J-1    -    Secretary's Certificate
J-2    -    Secretary's Certificate
K      -    Bailee Letter
L      -    Investors
M      -    Legal Opinion
N      -    Note
O      -    Pledge of Investment Grade Securities
</TABLE>

                                                                         Page 57
<PAGE>   66
                                  EXHIBIT "A-1"

                REQUEST FOR ADVANCE SINGLE-FAMILY MORTGAGE LOANS

Mortgage Company:                        Loan Number:
                 ---------------------               --------------------------
Mortgagor:                               Prepared By:
                 ---------------------               --------------------------
                                         Warehouse Date:
                 ---------------------                  -----------------------
Social Security No.:                     Requested Warehouse
                    ------------------         Amount:
Address:                                              -------------------------
        ------------------------------   Closing Agent/Seller:
                                                              -----------------
        ------------------------------         Phone:
                                                     --------------------------
                                               Fax:
                                                   ----------------------------
Loan Type (check all that apply):

      VA                FHA              LTV:
        --------------      ----------       ----------------------------------
      Conventional      Jumbo
                  ----        --------
      Subprime                           Sublimit:
              --------

Note Amount:                             Eligible Conforming
            --------------------------                       -----
Note Date:
          ----------------------------   Eligible Non-Conforming
                                                                 -----
Interest Rate:                                30 - 59 Delinquent
              ------------------------                           -----
                                              60 - 89 Delinquent
                                                                 -----
Investor:
         -----------------------------
Investor Takeout Price:
                       ---------------
Investor Expiration Date:
                         -------------

                                METHOD OF ADVANCE

( ) Wire Transfer (see attached instructions)  Amount of Wire/Check:$
                                                                     -----------

( ) Check No.                                  Date of Wire/Check:
             -------------------------------                      --------------

                            REQUIRED DOCUMENTATION
                     (in addition to this Advance Request)

                                  EXHIBIT "A-1"                          Page 58
<PAGE>   67
Attached please find the following documents in connection with the above
request:

-     Original Mortgage Note, endorsed in blank.

-     Certified copy of Mortgage.

-     Recordable Assignment of Mortgage (in blank).

-     Certified copies of all interim Assignments (if applicable).

-     Copy of Purchase Commitment if any.

      Executed as of the              day of                     , 199  .
                         ------------        --------------------     --
                                                                             ,
                                    -----------------------------------------
                                    a                      corporation
                                      --------------------

                                    By:
                                       ---------------------------------------
                                    Name:
                                         -------------------------------------
                                    Title:
                                          ------------------------------------

                                  EXHIBIT "A-1"                          Page 59
<PAGE>   68
                                  EXHIBIT "A-2"

               REQUEST FOR ADVANCE (INVESTMENT GRADE SECURITIES)

                             [Letterhead of Company]

Bank United
3200 Southwest Freeway, Suite 2702
Houston, Texas 77027

Gentlemen:

      ____________________ (the "Company"), (other Borrower), and Bank United
(the "Lender") executed a Warehousing Credit and Security Agreement dated April
_____, 1999 (such agreement as amended, supplemented, or restated is called the
"Loan Agreement"). Any term defined in the Loan Agreement and used in this
Request shall have the meaning given to it in the Loan Agreement.

      The Company hereby requests an Advance in the amount of $__________
against the Investment Grade Securities described on SCHEDULE 1.1 attached
hereto in accordance with Section 2.2(b) of the Loan Agreement. The Company
hereby represents and warrants that it has granted, transferred, and conveyed to
the Lender a security interest in the Investment Grade Securities described on
SCHEDULE 1.1 attached hereto, free and clear of all other Liens. The amount of
this Request is not more than the amount permitted by the Loan Agreement to be
borrowed against Investment Grade Securities. The computation of the amount
permitted to be borrowed under the Loan Agreement is accurately reflected on
ANNEX "A" attached hereto.

      The Company hereby certifies that all of the items that the Company is
required to furnish to the Lender under the Loan Agreement in connection with
this Request accompany it, all of those items are accurate and what they purport
to be and all of the Investment Grade Securities described in SCHEDULE 1.1
conform in all respects to the requirements of the Loan Agreement. The Company
hereby certifies that all of the representations and warranties in this Request,
the Loan Agreement and all other Loan Documents are currently true and correct
and are hereby republished. The Company further represents and warrants each of
the Borrowers is in full compliance with each and every term, condition,
covenant, and agreement under the Loan Agreement and all other Loan Documents.
The Company hereby acknowledges that the Lender shall rely on the truth of each
statement in this Request in making the requested Advance.

                                             By:_______________________________

                                             Name:_____________________________

                                             Title:____________________________

                                  EXHIBIT "A-2"                          Page 60
<PAGE>   69
                           ANNEX "A" TO EXHIBIT "A-2"

A.    Description of the Investment Grade Securities:

      (1)   Cusip#
                  ------------
      (2) Description of security, i.e., series, tranche, coupon, etc.:

      (3)   Rating:

            Moody's                 S&P
                   ------------         ----------------
      (4)   Book Value:

            $                  (as of date of request)
             ------------------
      (5)   Market Value:

            $                  (as of date of request)
             ------------------

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
INVESTMENT      LESSER OF BOOK       ADVANCE RATE        ADVANCE AMOUNT
SECURITY        OR MARKET VALUE      FOR RATING
-------------------------------------------------------------------------------
<S>             <C>                  <C>                 <C>

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

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

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

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

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

-------------------------------------------------------------------------------
</TABLE>

              Total Amount of Advance: $
                                        ----------------------------------

                         ANNEX "A" TO EXHIBIT "A-2"                      Page 61
<PAGE>   70
                                   EXHIBIT "B"

                    LIST OF EXISTING INDEBTEDNESS OF COMPANY

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
LENDER      TYPE OF        COMMITMENT      COLLATERAL      AVG. BALANCE
            FINANCING      AMOUNT                          OUTSTANDING AS
                                                           OF __________, 19__
--------------------------------------------------------------------------------
<S>         <C>            <C>             <C>             <C>

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

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

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

--------------------------------------------------------------------------------
</TABLE>

                                   EXHIBIT "B"                           Page 62
<PAGE>   71
                                   EXHIBIT "C"

                  PROCEDURES AND DOCUMENTATION FOR WAREHOUSING
                          SINGLE-FAMILY MORTGAGE LOANS

      The following procedures and documentation requirements must be observed
in all respects by each Borrower. All documents must be satisfactory to Lender
in its sole discretion. Terms used below, which are not otherwise defined, shall
have the meanings given them in the Warehousing Credit and Security Agreement,
as amended, modified or renewed from time to time. The HUD, FNMA and FHLMC form
numbers referred to herein are for convenience only and the Company shall use
the equivalent forms required at the time of delivery of the Mortgage Loans or
Mortgage-backed Securities.

I.    Prior to making an Advance that is not a Wet Settlement Advance, the
      Lender must receive the following:

      (1)   Copy of settlement or funding check issued to, or signed wire
            transfer request directing funds to seller of Mortgage Loan.

      (2)   If not an Electronic Request, Original Request for Advance against
            Single-Family Mortgage Loans (EXHIBIT "A").

      (3)   Original signed Mortgage Note, endorsed by the applicable Borrower
            in blank with corresponding interim endorsements, if applicable.

      (4)   Copy of the Mortgage certified true by the escrow/title company or
            closing agent.

      (5)   Certified true copies of all interim assignments (recorded or sent
            for recordation) of the Mortgage.

      (6)   An Assignment of the Mortgage to the Lender in recordable form but
            unrecorded.

      (7)   Copy of specific Purchase Commitment, if any.

II.   The Lender exclusively shall deliver Pledged Mortgages or Pledged
      Securities and all related loan documents and/or pool documents to
      Investor or Approved Custodian unless otherwise agreed in writing.

A.    The following procedures are to be followed for deliveries of Pledged
      Mortgages to Investors:

      No later than 2:00 p.m. Houston, Texas time one (1) Business Day prior to
      the expiration date of the Purchase Commitment, the Lender must receive
      the following:

                                  EXHIBIT "C"                            Page 63
<PAGE>   72
      (1)   Signed or electronic shipping instructions for the delivery of the
            Pledged Mortgages including the following:

            (a)   Name and address of the office of the Investor to which the
                  loan documents are to be shipped and the preferred method of
                  delivery;

            (b)   Instructions for endorsement of the Mortgage Note;

            (c)   Names of Mortgagor and Mortgage Note Amounts of Pledged
                  Mortgages to be shipped; and

            (d)   Number and expiration date of the Purchase Commitment.

      (2)   All loan documents related to the Pledged Mortgages required for
            delivery to the Investor.

      (3)   For deliveries of Pledged Mortgages to FNMA for cash purchase, the
            following additional documents are required:

            (a)   Original Loan Schedule (FNMA Form 1068 or 1069) showing the
                  Lender's designated FNMA payee code as recipient of the loan
                  purchase proceeds.

      (4)   For deliveries of Pledged Mortgages to FHLMC for cash purchase, the
            following additional documents are required:

            (a)   Original completed Warehouse Lender Release of Security
                  Interest (FHLMC Form 996) to be executed by the Lender.

            (b)   Original Wire Transfer Authorization for a Cash Warehouse
                  Delivery (FHLMC Form 987), designating the Lender as the
                  Warehouse Lender and showing the cash collateral account
                  designated by the Lender as the receiving account for loan
                  purchase proceeds.

B.    The following procedures are to be followed for deliveries of Pledged
      Mortgages to Approved Custodians:

      No later than one (1) Business Day prior to required delivery date to the
      Approved Custodian, the Lender must receive the following:

      (1)   Signed or electronic shipping instructions for the delivery of the
            Pledged Mortgages to the Approved Custodian including the following:

            (a)   Name and address of the office of the Approved Custodian to
                  which the loan documents are to be shipped and the preferred
                  method of delivery;

                                  EXHIBIT "C"                            Page 64
<PAGE>   73
            (b)   Instructions for endorsement of the Mortgage Note; and

            (c)   Names of Mortgagor and Mortgage Note Amounts of Pledged
                  Mortgages to be shipped.

            (d)   Commitment number and expiration date of the Purchase
                  Commitment for the Pledged Securities.

      (2)   All loan documents related to the Pledged Mortgages required for the
            issuance of the Mortgage-backed Securities.

      (3)   For FNMA Mortgage-backed Securities issuance, the following
            additional documents are required:

            (a)   Original Schedule of Mortgages (FNMA Form 2005 or 2025).

            (b)   Original executed Security Release Certification (FNMA Form
                  2004) to be executed by the Lender.

            (c)   Original Delivery Schedule (FNMA Form 2014), instructing FNMA
                  to issue the Mortgage-backed Securities in the name of the
                  Company with the Lender as pledgee and to deliver the
                  Mortgage-backed Securities to the Lender's custody account at
                  Banker's Trust (Account No. 92798) and bearing the following
                  instructions: These instructions may not be changed without
                  the prior written consent of Bank United.

      (4)   For FHLMC Mortgage-backed Securities issuance, the following
            additional documents are required:

            (a)   Original Settlement Information and Delivery Authorization
                  (FHLMC Form 939), designating the Lender as the Warehouse
                  Lender and instructing FHLMC to deliver the Mortgage-backed
                  Securities to the Lender's custody account at Banker's Trust,
                  Account No. 92798.

      (5)   For GNMA Mortgage-backed Securities issuance, the following
            additional documents are required:

            (a)   Signed original Schedule of Mortgages (HUD Form 11706).

            (b)   Signed original Schedule of Subscribers (HUD Form 11705)
                  instructing GNMA to issue the Mortgage-backed Securities in
                  the name of the Company and designating Bankers Trust as Agent
                  for the Lender as the subscriber, using the following
                  language: BANKERS TRUST AS AGENT FOR BANK UNITED and deliver
                  the Mortgage-backed Securities to the Lender's custody Account
                  No. 92798 at Bankers Trust. The following

                                  EXHIBIT "C"                            Page 65
<PAGE>   74
                  instructions must also be included on the form: "These
                  instructions may not be changed without the prior written
                  consent of Bank United."

            (c)   Completed original Release of Security Interest (HUD Form
                  11711A) to be executed by the Lender.

      Upon instruction by the Company, the Lender will complete the endorsement
      of the Mortgage Note and make arrangements for the delivery of the
      complete loan package with the appropriate Bailee Letter to the Investor
      or Approved Custodian. Upon receipt of Mortgage-backed Securities, the
      Lender will cause such Mortgage-backed Securities to be delivered to the
      Investor which issued the Purchase Commitment. Mortgage-backed Securities
      will be released to the Investor only upon payment of the purchase
      proceeds to the Lender. Cash proceeds of sales of Pledged Mortgages and
      Pledged Securities shall be applied to related Advances outstanding under
      the Commitment. Provided no Default exists, the Lender shall return any
      excess proceeds of the sale of Mortgage Loans or Mortgage-backed
      Securities to the Company, unless otherwise instructed in writing.

                                   EXHIBIT "C"                           Page 66
<PAGE>   75
                                   EXHIBIT "D"

                   FORM OF SHIPPING REQUEST AND AUTHORIZATION
                              [Company Letterhead]

Date:_______________________________

BANK UNITED
[Address]

Attention:__________________________       Re:   Commitment No._______________

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

      LOAN NUMBER                BORROWER NAME                NOTE AMOUNT

to the following address:

NAME:
ADDRESS:

ATTENTION:

Please endorse the notes as follows:

Please ship the Loan Documents either by _________________________ or by such
other courier service we have specifically approved in writing. You are not
responsible for any delays in shipment or any other actions or inactions of the
courier. However, because the commitment expires on _________________________,
19___, we ask that you deliver the Loan Documents to the courier no later than
_________________________, 19___.

Please have the courier bill us by using our account no. _______________. If you
should have any questions, or should feel the need for additional documentation,
please do not hesitate to call _________________________.

                                    __________________________________________,

                                    a ____________________ corporation

                                    By:_______________________________________

                                    Name:_____________________________________

                                    Title:____________________________________

                                   EXHIBIT "D"                           Page 67
<PAGE>   76
                                   EXHIBIT "E"

                                  TRUST RECEIPT

Trust Receipt No._________________              _________________________, 19___

      The undersigned,____________________________________________, a
____________________corporation (the "Company"), acknowledges receipt from Bank
United, a federal savings bank ("Lender"), pursuant to that certain Warehousing
Credit and Security Agreement (Single-Family Mortgage Loans) dated effective as
of April _____, 1999, by and among the Company, (the other Borrower) , and
Lender (the "Agreement"), of the following described property (the "Trust
Property"), possession of which is herewith entrusted to the Company for the
purposes set forth below:

Mortgage Loan No.                              Note Amount:

Obligor:

Purpose: [Specify nature of clerical or other documentation problem to be
         corrected.]

      The Company hereby acknowledges that a security interest in the Trust
Property and in the proceeds of the Trust Property has been granted to the
Lender pursuant to the Agreement.

      In consideration of the delivery of the Trust Property by the Lender to
the Company, the Company hereby agrees to hold the Trust Property in trust for
the Lender as provided under and in accordance with all provisions of the
Agreement and to return the Trust Property to the Lender no later than the close
of business on the tenth day following the date hereof or, if such day is not a
Business Day, on the following Business Day. The Company further agrees that the
aggregate Collateral Value of Single-family Mortgage Loans with respect to which
notes or other documentation has been released under trust receipts, does not
exceed $500,000.00.

                                                                               ,
                                    -------------------------------------------
                                    a
                                      --------------------

                                    By:
                                       ---------------------------------------
                                    Name:
                                         -------------------------------------
                                    Title:
                                          ------------------------------------

Delivery to Company Acknowledged

BANK UNITED

By:
   ---------------------------
Name:
     -------------------------
Title:
      ------------------------

                                   EXHIBIT "E"                           Page 68
<PAGE>   77
      The undersigned, acknowledges that the above-mentioned Trust Property has
been returned to the Lender on __________________, 19___.

                                    BANK UNITED

                                    By:
                                       ----------------------------------------
                                    Name:
                                         --------------------------------------
                                    Title:
                                          -------------------------------------

                                   EXHIBIT "E"                           Page 69
<PAGE>   78
                                   EXHIBIT "F"

                              OFFICER'S CERTIFICATE

COMPANY:          HANOVER CAPITAL MORTGAGE HOLDINGS, INC.

LENDER:           BANK UNITED

DATE:
                  -----------------------------------------

REPORTING PERIOD:                    ended                  , 199
                 --------------------     ------------------     ---

      This certificate is delivered to Lender under the Warehousing Credit and
Security Agreement dated effective as of April _____, 1999, among Borrowers, and
Lender (the "Agreement"), all the defined terms of which have the same meanings
when used herein.

      The undersigned officer hereby certifies that: (a) I am, and at all times
mentioned herein have been, the duly elected, qualified, and acting officer of
the Company designated below; (b) to the best of my knowledge, the Financial
Statements of the Company for the period shown above (the "Reporting Period")
and which accompany this certificate were prepared in accordance with GAAP and
present fairly the financial condition of the Company as of the end of the
Reporting Period and the results of their operations for the Reporting Period;
(c) a review of the Agreement and of the activities of the Company during the
Reporting Period has been made under my supervision with a view to determining
the Company's compliance with the covenants, requirements, terms, and conditions
of the Agreement, and such review has not disclosed the existence during or at
the end of the Reporting Period (and I have no knowledge of the existence as of
the date hereof) of any Event of Default or Default, except as disclosed on
ANNEX "A" hereto (which specifies the nature and period of existence of each
Event of Default or Default, if any, and what action the Company has taken, is
taking, and propose to take with respect to each); (d) the calculations
described on the attached ANNEX "A" evidence that the Company is in compliance
with the requirements of Sections 7.4, 7.5, 7.6, 7.7, and 7.8 of the Agreement
at the end of the Reporting Period (or if the Company is not in compliance,
showing the extent of non-compliance and specifying the period of non-compliance
and what actions the Company proposes to take with respect thereto; (e) the
Company was, as of the end of the Reporting Period, in compliance and good
standing with applicable FNMA, GNMA, FHLMC, and HUD net worth requirements.

                                  HANOVER CAPITAL MORTGAGE HOLDINGS, INC.,
                                  a Maryland corporation

                                  By
                                    ----------------------------------------
                                  Name:
                                       -------------------------------------
                                  Title:
                                        ------------------------------------

                                   EXHIBIT "F"                           Page 70
<PAGE>   79
                           ANNEX "A" TO EXHIBIT "F"

BORROWERS:              HANOVER CAPITAL MORTGAGE HOLDINGS, INC.

REPORTING PERIOD:
                        --------------------------------------------

All financial calculations set forth herein are as of the Reporting Period.

<TABLE>
<S>    <C>                                                                          <C>
I.     GAAP NET WORTH

       The GAAP Net Worth of the Company, on a consolidated basis is:

       Shareholder's equity (including capital stock, additional paid-in
       capital, and retained earnings, but excluding treasury stock, if any):       $_______________

       MINIMUM GAAP NET WORTH IS $60,000,000.00

       Covenant Satisfied:                 Covenant Not Satisfied:
                          --------------                          -------------

II.    TANGIBLE NET WORTH

       The Tangible Net Worth of the Company, on a
       consolidated basis, is:                                                      $_______________

       GAAP Net Worth:                                                              $_______________

       Minus:   Intangible Assets, including Capitalized Servicing Rights:          $_______________

       Minus:   Advances or loans to shareholders, officers or Affiliates           $_______________

       Minus:   Investments in Affiliates:                                          $_______________

       Minus:   Assets pledged to secure liabilities not included in Debt:          $_______________

       Minus:   Any other HUD nonacceptable assets:                                 $_______________

       TANGIBLE NET WORTH:                                                          $_______________
</TABLE>

                           ANNEX "A" TO EXHIBIT "F"                      Page 71
<PAGE>   80
<TABLE>
<S>    <C>                                                                          <C>
III.   ADJUSTED TANGIBLE NET WORTH

       The Adjusted Tangible Net Worth of the Company,
       on a consolidated basis, is:                                                 $_______________
       Tangible Net Worth (from above):                                             $_______________

       Plus:    1% of UPB of Mortgage Loans (Servicing)                             $_______________

       Minus: Non-Investment Grade Securities                                       $_______________

       Minus: deferred financing fees                                               $_______________

       Minus: intangible assets of any unconsolidated Subsidiary                    $_______________

       ADJUSTED TANGIBLE NET WORTH:                                                 $_______________

       MINIMUM ADJUSTED TANGIBLE NET WORTH IS $30,000,000.00.

       Covenant Satisfied:____________  Covenant Not Satisfied:______________

IV.    DEBT OF THE COMPANY

       Total Recourse Liabilities:                                                  $_______________

       DEBT:                                                                        $_______________

V.     DEBT TO ADJUSTED TANGIBLE NET WORTH

       The ratio of Debt to Adjusted Tangible Net Worth is:                           _______ to 1.

       MAXIMUM DEBT TO ADJUSTED TANGIBLE NET WORTH RATIO IS 7:1.

       Covenant Satisfied:____________  Covenant Not Satisfied:______________

VI.    MINIMUM CURRENT RATIO

       Current Assets (assets that are now cash or will be by their terms or
       disposition be converted to cash within one year of the date of
       calculation plus Mortgage-backed Securities and Mortgages held to
       maturity):                                                                   $_______________

       Current Liabilities (liabilities due upon demand or within
       one year from the date of calculation less non-recourse
       Debt):                                                                       $_______________
</TABLE>

                           ANNEX "A" TO EXHIBIT "F"                      Page 72
<PAGE>   81
<TABLE>
<S>    <C>                                                                          <C>
       The ratio of Current Assets to Current Liabilities is:                        _______ to 1.

       MINIMUM CURRENT RATIO IS 1.01:1.00.

       Covenant Satisfied:____________  Covenant Not Satisfied:______________

VII.   MAXIMUM NON-INVESTMENT GRADE SECURITIES/ADJUSTED TANGIBLE NET WORTH
       RATIO

       Non-Investment Grade Securities                                              $_______________

       Adjusted Tangible Net Worth    (from II above)                               $_______________

       The Ratio of Non-Investment Grade Securities to
       Adjusted Tangible Net Worth is                                                _______ to 1.

       MAXIMUM NON-INVESTMENT/ADJUSTED TANGIBLE
       NET WORTH RATIO IS: 0.50:1.00

       Covenant Satisfied:____________  Covenant Not Satisfied:______________

VIII.  DEFAULTS OR EVENTS OF DEFAULT (DISCLOSE NATURE AND PERIOD OF EXISTENCE AND
       ACTION BEING TAKEN IN CONNECTION THEREWITH; IF NONE, STATE NONE)
</TABLE>

                           ANNEX "A" TO EXHIBIT "F"                      Page 73
<PAGE>   82
                                   EXHIBIT "G"

                              LIST OF SUBSIDIARIES

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
BORROWER    NAME OF       ADDRESS OF          STATE OF         WHERE QUALIFIED    BORROWER'S
            SUBSIDIARY    PRINCIPAL OFFICE    INCORPORATION    FOREIGN CORP.      PERCENTAGE OWNERSHIP
------------------------------------------------------------------------------------------------------
<S>         <C>           <C>                 <C>              <C>                <C>

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

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

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

------------------------------------------------------------------------------------------------------
</TABLE>

                                   EXHIBIT "G"                           Page 74
<PAGE>   83
                                   EXHIBIT "H"

                        DISCLOSURE OF PENDING LITIGATION

      (Include the caption of the case, including styling, cause number, and
      court in which it is pending, date filed, status of the proceedings, and
      description of claims, counterclaims and damages asserted.)

                                   EXHIBIT "H"                           Page 75
<PAGE>   84
                                   EXHIBIT "I"

                             TRADE NAMES OF COMPANY

<TABLE>
<CAPTION>
       BORROWER                   TRADE NAME               JURISDICTION USED
       --------                   ----------               -----------------
<S>                               <C>                      <C>

</TABLE>

                                   EXHIBIT "I"                           Page 76
<PAGE>   85
                                  EXHIBIT "J-1"

                      CERTIFICATE OF CORPORATE RESOLUTIONS
                           AND INCUMBENCY OF OFFICERS
                              (BORROWING AUTHORITY)

                                  {To Be Added}

                                   EXHIBIT "I"                           Page 77
<PAGE>   86
                                  EXHIBIT "J-2"

                      CERTIFICATE OF CORPORATE RESOLUTIONS
                           AND INCUMBENCY OF OFFICERS
                              (BORROWING AUTHORITY)

                                  {To Be Added}

                                   EXHIBIT "I"                           Page 78
<PAGE>   87
                                  EXHIBIT "K"

                                 BAILEE LETTER

(Investor Name and Address)

      Re:   Purchase of Mortgage Loans from
                                           -----------------------------------

Ladies and Gentlemen:

      Attached please find those Mortgage Loans listed separately on the
attached schedule, which Mortgage Loans are owned by____________________________
____________________, a ____________________ corporation (the "Company") and
are being delivered to you for purchase.

      The Mortgage Loans comprise a portion of the Collateral under (and as the
term "Collateral" and capitalized terms not otherwise defined hereunder are
defined in) that certain Warehousing Credit and Security Agreement
(Single-family Mortgage Loans) ("Warehouse Agreement") dated effective as of
April _____, 1999, by and between the Company and BANK UNITED, a federal savings
bank ("Lender"). Each of the Mortgage Loans is subject to a security interest in
favor of Lender, which security interest shall be automatically released upon
our receipt of the full amount due to the Lender under the Warehouse Agreement
in connection with such Mortgage Loans (as set forth on the schedule attached
hereto) by wire transfer to the following account:

            Bank United
            Houston, Texas
            ABA #313071904
            Credit:
                   ------------------------
            Account:
                    -----------------------

      Until payment therefor is received, the aforesaid security interest
therein will remain in full force and effect, and you shall hold possession of
such Collateral and the documentation evidencing same as custodian, agent and
bailee for and on behalf of Lender. In the event any Mortgage Loan is
unacceptable for purchase, return the reject item directly to the undersigned at
the address set forth below. In no event shall any Mortgage Loan be returned or
sales proceeds remitted in full no later than thirty (30) days from the date
hereof. If you are unable to comply with the above instructions, please so
advise the undersigned immediately.

                                  EXHIBIT "K"                            Page 79
<PAGE>   88
      NOTE: BY ACCEPTING THE MORTGAGE LOANS DELIVERED TO YOU WITH THIS LETTER,
YOU CONSENT TO BE THE CUSTODIAN, AGENT AND BAILEE FOR LENDER ON THE TERMS
DESCRIBED IN THIS LETTER. THE UNDERSIGNED REQUESTS THAT YOU ACKNOWLEDGE RECEIPT
OF THE ENCLOSED MORTGAGE LOANS AND THIS LETTER BY SIGNING AND RETURNING THE
ENCLOSED COPY OF THIS LETTER TO THE UNDERSIGNED AT THE FOLLOWING ADDRESS: 3200
Southwest Freeway, Suite 2702, Houston, Texas 77027.

      HOWEVER, YOUR FAILURE TO DO SO DOES NOT NULLIFY SUCH CONSENT.

                                     Sincerely,

                                   BANK UNITED

                                     By:
                                        --------------------------------------
                                     Name:
                                          ------------------------------------
                                     Title:
                                           -----------------------------------

IRREVOCABLY ACKNOWLEDGED
AND AGREED TO:

[INVESTOR]

By:
   ----------------------------------
Name:
     --------------------------------
Title:
      -------------------------------

                                  EXHIBIT "K"                            Page 80
<PAGE>   89
                                   EXHIBIT "L"

                                LIST OF INVESTORS

                                  {To Be Added}

                                   EXHIBIT "L"                           Page 81
<PAGE>   90
                                   EXHIBIT "M"

                                 OPINION LETTER

                                  {To Be Added}

                                   EXHIBIT "M"                           Page 82
<PAGE>   91
                                   EXHIBIT "N"

                                 PROMISSORY NOTE

                                  {To Be Added}

                                   EXHIBIT "N"                           Page 83
<PAGE>   92
                                   EXHIBIT "O"

                      PLEDGE OF INVESTMENT GRADE SECURITIES

I.    PROCEDURES AND DOCUMENTATION FOR ADVANCES AGAINST INVESTMENT GRADE
      SECURITIES

      Prior to making an Advance against Investment Grade Securities, the Lender
shall receive the following documents (each of which must be in form and
substance satisfactory to Lender) in the manner set forth below:

A.    A Request for Advance, in substantially the form of EXHIBIT "A-2",
      executed by the pledging Borrower.

B.    A Commercial Security Agreement, in substantially the form of ANNEX B
      hereto, executed by the pledging Borrower.

C.    A SCHEDULE 1.1, in form and substance approved by Lender, describing in
      reasonable detail the Investment Grade Securities to be pledged.

D.    A Financing Statement, in form and substance approved by Lender (with a
      schedule attached thereto being identical to the SCHEDULE 1.1 delivered
      under Item C. above), executed by the pledging Borrower as debtor and
      Lender as secured party, in appropriate original counterparts for filing
      with the appropriate filing officers under the Code centrally in the State
      of New York and anywhere else directed by Lender.

E.    For an Investment Grade Security that is not in book-entry form:

      (1)   The original Investment Grade Security.

      (2)   A bond power endorsed - or another appropriate instrument of
            assignment executed - by the pledging Borrower in blank.

F.    For an Investment Grade Security that is a FNMA, FHLMC, or GNMA
      Mortgage-backed Security in book-entry form, confirmation of either:

      (1)   The appropriate entry (i) in records of a Federal Reserve Bank of
            the nominal ownership by Lender of any FNMA Mortgage-backed Security
            that constitutes a "FNMA BookEntry Security", as defined in the
            Book-Entry Procedures for FNMA Securities, 24 C.F.R. Sections
            81.41-81.49 (the "FNMA Book-Entry Procedures"), or a FHLMC
            Mortgage-backed Security that constitutes a "FHLMC BookEntry
            Security", as defined in the Federal Home Loan Mortgage Corporation
            Book-Entry Regulations, 1 C.F.R. Sections 462.1-462.8 (the "FHLMC
            Book-Entry Regulations"), and

                                   EXHIBIT "O"                           Page 84
<PAGE>   93
            (ii) by Lender in its records of the pledging Borrower's ownership
            of that book-entry Mortgage-backed Security subject to Lender's
            Lien; or

      (2)   The (i) appropriate entry by Chemical Bank - in its capacity as
            custodian for Participants Trust Company ("PTC"), GNMA's central
            depository - in its records of the nominal ownership by Lender of
            any GNMA guaranteed Mortgage-backed Security, (ii) the appropriate
            entry by Lender in its records of the pledging Borrower's ownership
            of that book-entry Mortgage-backed Security subject to a Lender's
            Lien, and (iii) receipt by Lender of a confirmation of transaction
            in the form of a written advice specifying the amount and
            description of that book-entry Mortgage-backed Security subject to
            that Lien.

G.    Any and all other files, documents, instruments, certificates,
      correspondence, or other records as may be reasonably requested by Lender
      and deemed necessary, appropriate, or desirable.

                                   EXHIBIT "O"                           Page 85
<PAGE>   94
                               FIRST AMENDMENT TO
                    WAREHOUSING CREDIT AND SECURITY AGREEMENT

      This First Amendment to Warehousing Credit and Security Agreement (this
"Amendment"), is entered into as of the 12th day of May, 1999, by and between
HANOVER CAPITAL MORTGAGE HOLDINGS, INC., a Maryland corporation ( "Company"),
HANOVER CAPITAL PARTNERS LTD., a New York corporation ("HCP")(the Company and
HCP herein collectively called "Original Borrowers"), and HANOVER QRS-1 98-B,
INC., a Delaware corporation ("QRS-1"), HANOVER QRS-2 98-B, INC., a Delaware
corporation ("QRS-2"), HANOVER SPC-A, INC., a Delaware corporation ("SPC"), and
HANOVER CAPITAL REPO CORP., a Delaware corporation ("Repo") (QRS-1, QRS-2, SPC,
and Repo herein collectively referred to as the "New Borrowers", and Original
Borrowers and New Borrowers herein collectively referred to as the "Borrowers"
); and BANK UNITED, a federal savings bank ("Lender"). Capitalized terms used
but not defined herein have the meanings assigned to them in that certain
Warehousing Credit and Security Agreement (Single-Family Mortgage Loans) (the
"Credit Agreement") dated effective as of April 30, 1999, by and between
Original Borrowers and Lender, as the same has been or may be amended or
supplemented from time to time.

      Section 1. Recitals. The Borrowers and Lender desire to amend the Credit
Agreement, subject to the terms and conditions of this Amendment. Therefore, The
Company and Lender hereby agree as follows, intending to be legally bound:

      Section 2. Amendments. The Credit Agreement is hereby amended and
supplemented as follows:

      (a) Section 1.1 of the Credit Agreement is hereby amended by the amendment
      or addition of the following definitions:

            "Borrowers " shall mean the Company, HCP, QRS-1, QRS-2, SPC, and
            Repo.

            " New Borrowers " shall mean the QRS-1, QRS-2, SPC, and Repo.

            "Original Borrowers " shall mean the Company and HCP.

            "QRS-1" shall mean Hanover QRS-1 98-2, Inc., a Delaware corporation.

            "QRS-2" shall mean Hanover QRS-2 98-2, Inc., a Delaware corporation.

            "Repo" shall mean Hanover Capital Repo Corp., a Delaware
            corporation.

            "SPC" shall mean Hanover SPC-A, Inc., a Delaware corporation.

            (b) The New Borrowers, as additional borrowers under the terms of
      the Credit Agreement, specifically agree to be bound by and to abide by
      all of the terms and conditions
<PAGE>   95
      contained in the Credit Agreement and in all of the other Loan Documents,
      as herein amended, as if each of the New Borrowers had executed and
      delivered the same to Lender and Lender had accepted the same, such
      covenants, representations, terms and conditions of the Credit Agreement
      and the Loan Documents being incorporated herein by reference. Without in
      any way limiting the foregoing, each New Borrower restates and ratifies
      and Representations and Warranties set forth in Article V of the Credit
      Agreement; the Affirmative Covenants set forth in Article VI of the Credit
      Agreement; and the Negative Covenants set forth in Article VII of the
      Credit Agreement; provided, however, that Section 5.19 is amended to read
      as follows:

                  "5.19A. Place of Business. The principal place of business of
            the Company is 90 West Street, Suite 1508, New York, New York,
            10006, and the chief executive office of the Company and the office
            where it keeps its financial books and records relating to its
            property and all contracts relating thereto and all accounts arising
            therefrom is located at the address set forth for the Company in
            Section 9 hereof; the principal place of business of HCP is 100
            Metroplex Drive, Suite 301, Edison, New Jersey 08817, and the chief
            executive office of HCP and the office where it keeps its financial
            books and records relating to its property and all contracts
            relating thereto and all accounts arising therefrom is located at
            the address set forth for HCP in Section 9 hereof; and the principal
            place of business of each of the New Borrowers is 90 West Street,
            Suite 1508, New York, New York, 10006, and the chief executive
            office of each of the New Borrowers and the office where each New
            Borrower keeps its financial books and records relating to its
            property and all contracts relating thereto and all accounts arising
            therefrom is located at the address set forth for the New Borrowers
            in Section 9 hereof."

            To the extent that any of the Exhibits to the Credit Agreement need
      to be supplemented because of the addition of the New Borrowers, such
      exhibits are attached hereto.

            (c) Article 9 of the Credit Agreement is amended by the addition of
      the following addresses for the New Borrowers:

                              HANOVER QRS-1 98-B, INC.
                              90 West Street, Suite 1508
                              New York, New York 10006
                              Attn: Joyce S. Mizerak
                              Tel: 212-732-5086
                              Fax: 212-732-4728

                                       2
<PAGE>   96
                              HANOVER QRS-2 98-B, INC.
                              90 West Street, Suite 1508
                              New York, New York 10006
                              Attn: Joyce S. Mizerak
                              Tel: 212-732-5086
                              Fax: 212-732-4728

                              HANOVER SPC-A, INC.
                              90 West Street, Suite 1508
                              New York, New York 10006
                              Attn: Joyce S. Mizerak
                              Tel: 212-732-5086
                              Fax: 212-732-4728

                              HANOVER CAPITAL REPO CORP.
                              90 West Street, Suite 1508
                              New York, New York 10006
                              Attn: Joyce S. Mizerak
                              Tel:  212-732-5086
                              Fax: 212-732-4728

            (d) The promissory note ("Credit Note") dated as of May 12, 1999, in
      the original principal amount of $50,000,000, executed by the Borrowers
      and payable to the order of Lender, is given to Lender in replacement of
      the promissory note dated April 30, 1999, in the original principal amount
      of $50,000,000, executed by the Original Borrowers and payable to the
      order of Lender (the "Original Note"), and not in novation or discharge
      thereof. The definition of the term "Note" in the Credit Agreement is
      hereby amended to mean the Credit Note and all renewals, extensions,
      modifications, increases, rearrangements, and replacements thereof.

            (e) Notwithstanding any provision herein or in the Credit Agreement
      or the Credit Note to the contrary, the liability of the Borrowers under
      the Credit Agreement shall be joint and several.

      Section 3. Representations. The Borrowers represent and warrant that all
of the representations and warranties contained in the Credit Agreement and all
instruments and documents executed pursuant thereto or contemplated thereby are
true and correct in all material respects on and as of this date.

      Section 4. Continued Force and Effect. Except as specifically amended
herein, all of the terms and conditions of the Credit Agreement and all other
Loan Documents are and remain in full force and effect in accordance with their
respective terms. All of the terms used herein have the

                                       3
<PAGE>   97
same meanings as set out in the Credit Agreement, unless amended hereby or
unless the context clearly requires otherwise. References in the Credit
Agreement to the "Agreement," the "Loan Agreement," "hereof," "herein" and words
of similar import shall be deemed to be references to the Credit Agreement as
amended hereby. Any reference in the other Loan Documents to the "Agreement,"
the "Line of Credit Agreement," "Warehouse Agreement," or the "Loan Agreement"
shall be deemed to be references to the Credit Agreement as amended through the
date hereof. Any references in the Credit Agreement or any of the Loan Documents
to the Note, or the Credit Note shall be deemed to be references to the Credit
Note.

      Section 5. Representations and Release of Claims. Except as otherwise
specified herein, the terms and provisions hereof shall in no manner impair,
limit, restrict or otherwise affect the obligations of the Borrowers or any
third party to Lender, as evidenced by the Loan Documents. The Borrowers hereby
acknowledge, agree, and represent that (i) the Borrowers are indebted to Lender
pursuant to the terms of the Credit Note; (ii) the liens, security interests and
assignments created and evidenced by the Loan Documents are, respectively,
first, prior, valid and subsisting liens, security interests and assignments
against the Collateral and secure all indebtedness and obligations of the
Borrowers to Lender under the Credit Note, the Credit Agreement, all other Loan
Documents, as modified herein; (iii) there are no claims or offsets against, or
defenses or counterclaims to, the terms or provisions of the Loan Documents, and
the other obligations created or evidenced by the Loan Documents; (iv) the
Borrowers have no claims, offsets, defenses or counterclaims arising from any of
the Lender's acts or omissions with respect to the Loan Documents, or the
Lender's performance under the Loan Documents; (v) the representations and
warranties contained in the Loan Documents are true and correct representations
and warranties of the Borrowers, as of the date hereof; (vi) the Borrowers
promise to pay to the order of Lender the indebtedness evidenced by the Credit
Note according to the terms thereof; and (vii) the Borrowers are not in default
and no event has occurred which, with the passage of time, giving of notice, or
both, would constitute a default by the any of the Borrowers of such Borrower's
obligations under the terms and provisions of the Loan Documents. In
consideration of the modification of certain provisions of the Loan Documents,
all as herein provided, and the other benefits received by the Borrowers
hereunder, the Borrowers hereby RELEASE, RELINQUISH and forever DISCHARGE
Lender, its predecessors, successors, assigns, shareholders, principals,
parents, subsidiaries, agents, officers, directors, employees, attorneys and
representatives (collectively, the "Lender Released Parties"), of and from any
and all claims, demands, actions and causes of action of any and every kind or
character, whether known or unknown, present or future, which the Borrowers
have, or may have against Lender Released Parties, arising out of or with
respect to any and all transactions relating to the Credit Agreement, the
Original Note, the Credit Note, and the other Loan Documents occurring prior to
the date hereof, including any other loss, expense and/or detriment, of any kind
or character, growing out of or in any way connected with or in any way
resulting from the acts, actions or omissions of the Lender Released Parties,
and including any loss, cost or damage in connection with any breach of
fiduciary duty, breach of any duty of fair dealing, breach of competence, breach
of funding commitment, undue influence, duress, economic coercion, conflict of
interest, negligence, bad faith, malpractice, violations of the Racketeer
Influence and Corrupt Organizations Act, intentional or negligent infliction of
emotional or mental distress, tortious interference with corporate governments
or

                                       4
<PAGE>   98
prospective business advantage, tortious interference with contractual
relations, breach of contract, deceptive trade practices, libel, slander,
conspiracy, the charging, contracting for, taking, reserving, collecting or
receiving of interest in excess of the highest lawful rate applicable to the
Loan Documents (i.e., usury), any violations of federal or state law, any
violations of federal or state banking rules, laws or regulations, including,
but not limited to, any violations of Regulation B, Equal Credit Opportunity,
bank tying act claims, any violation of the Texas Free Enterprise Antitrust Act
or any violation of federal antitrust acts.

      Section 6. Severability. In the event any one or more provisions contained
in the Credit Agreement, this Amendment, or any of the Loan Documents should be
held to be invalid, illegal or unenforceable in any respect, the validity,
enforceability and legality of the remaining provisions contained herein and
therein shall not be affected in any way or impaired thereby and shall be
enforceable in accordance with their respective terms.

      Section 7. Expenses. The Borrowers agree to pay all out-of-pocket costs
and expenses (including reasonable fees and expenses of legal counsel) of Lender
in connection with the preparation, operation, administration and enforcement of
this Amendment.

      Section 8. Acknowledgment. Except as amended hereby, the Borrowers ratify
and confirm that the Loan Documents are and remain in full force and effect in
accordance with their respective terms and that all Collateral is unimpaired by
this Amendment and secures the payment and performance of all indebtedness and
obligations of the Borrowers under the Credit Note, the Credit Agreement, and
all other Loan Documents, as modified hereby. Each of the undersigned officers
of the New Borrowers executing this Amendment represents and warrants that he
has full power and authority to execute and deliver this Amendment on behalf of
each of the New Borrowers, as appropriate. Each of the undersigned officers of
the Original Borrowers represent and warrant that his execution and delivery of
this Amendment has been duly authorized, and that the resolutions and affidavits
previously delivered to Lender, in connection with the execution and delivery of
the Credit Agreement, are and remain in full force and effect and have not been
altered, amended or repealed in anywise. In connection with the execution of
this Amendment, AND AS A SPECIFIC CONDITION THERETO, the New Borrowers have
delivered to Lender the following documents:

            (a) Certified copies of each of the New Borrower's articles of
      incorporation including all amendments thereto, all certified by the
      Secretary of State of Delaware as being in full force and effect on the
      date hereof and all other documents the Lender may request relating to the
      existence, qualification, and good standing of any of the New Borrowers.

            (b) Secretary's Certificates (in the form of Exhibit "J" to the
      Credit Agreement) for each New Borrower, executed by an officer of such
      New Borrower and certifying that such New Borrower is authorized to
      execute, deliver, and perform this Amendment and the Credit Agreement, the
      Credit Note, and the other Loan Documents and each Advance Request and all
      other instruments or documents to be delivered pursuant hereto (the Lender

                                       5
<PAGE>   99
      being entitled to rely thereon until a new certificate has been furnished
      to the Lender) including a certification of incumbency of officers.

            (c) A favorable written opinion of counsel to Borrowers, dated as of
      the date of this Amendment, to be in substantially the form of Exhibit "M"
      to the Credit Agreement, and addressed to the Lender.

            (d) On or before the date that each of the New Borrowers pledges
      collateral to Lender, a tax, lien and judgment search of the appropriate
      public records for such New Borrower, including a search of Uniform
      Commercial Code financing statements, which search shall not have
      disclosed the existence of any prior Lien on the Collateral other than in
      favor of the Lender or as otherwise permitted under the Loan Documents.

            (e) At such time as each New Borrower delivers Collateral to Lender,
      executed financing statements in recordable form covering the Collateral
      and ready for filing in all additional jurisdictions required by the
      Lender.

      Section 9. No Waiver. The Borrowers agree that no Event of Default and no
Default has been waived or remedied by the execution of this Amendment by
Lender, and any such Default or Event of Default heretofore arising and
currently continuing shall continue after the execution and delivery hereof.

      Section 10. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of Texas and, to the extent
applicable, by federal law.

      Section 11. Counterparts. This Amendment may be executed in any number of
counterparts and all of such counterparts taken together shall be deemed to
constitute one and the same instrument.

      SECTION 12. NO ORAL AGREEMENTS. THIS WRITTEN AMENDMENT, THE CREDIT
AGREEMENT, THE CREDIT NOTE, AND THE OTHER LOAN DOCUMENTS, ALL AS MODIFIED
HEREBY, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL AGREEMENTS OF THE
PARTIES.

      THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

      EXECUTED and effective as of the dates first written above.

ORIGINAL BORROWERS:                      HANOVER SPC-A, INC., a Delaware
                                         corporation
HANOVER CAPITAL MORTGAGE
HOLDINGS, INC.,                          By:
                                             ------------------------------

                                       6
<PAGE>   100
a Maryland corporation                   Name: Joyce S. Mizerak
                                         Title: Vice President
By:
   ---------------------------------
Name: Joyce S. Mizerak
Title: Managing Director                 HANOVER CAPITAL REPO CORP., a
                                         Delaware corporation

HANOVER CAPITAL PARTNERS LTD.,           By:
a New York corporation                      -------------------------------
                                         Name: Joyce S. Mizerak
                                         Title: Vice President
By:
   ---------------------------------
Name: Joyce S. Mizerak
Title: Managing Director

                                         LENDER:
NEW BORROWERS:
                                         BANK UNITED,
HANOVER QRS-1 98-B, INC., a Delaware     a federal savings bank
corporation

By:                                      By:
   ---------------------------------        -------------------------------
Name: Joyce S. Mizerak                   Name:
                                              -----------------------------
Title: Vice President                    Title:
                                               ----------------------------

HANOVER QRS-2 98-B, INC., a Delaware
corporation

By:
   ---------------------------------
Name: Joyce S. Mizerak
Title: Vice President
<PAGE>   101
                               SECOND AMENDMENT TO
                    WAREHOUSING CREDIT AND SECURITY AGREEMENT

      This Second Amendment to Warehousing Credit and Security Agreement (this
"Amendment"), is entered into as of the 1st day of October, 1999, by and between
HANOVER CAPITAL MORTGAGE HOLDINGS, INC., a Maryland corporation ( "Company");
HANOVER CAPITAL PARTNERS, LTD., a New York corporation ("HCP"); HANOVER QRS-1
98-B, INC., a Delaware corporation ("QRS-1"); HANOVER QRS-2 98-B, INC., a
Delaware corporation ("QRS-2"); HANOVER SPC-A, INC., a Delaware corporation
("SPC"); and HANOVER CAPITAL REPO CORP., a Delaware corporation ("Repo")(the
Company, HCP, QRS-1, QRS-2, SPC, and Repo herein collectively referred to as the
"Borrowers"); and BANK UNITED, a federal savings bank ("Lender"). Capitalized
terms used but not defined herein have the meanings assigned to them in that
certain Warehousing Credit and Security Agreement (Single-Family Mortgage Loans)
(the "Credit Agreement") dated effective as of April 30, 1999, by and between
Original Borrowers and Lender, as the same has been or may be amended or
supplemented from time to time.

      Section 1. Recitals. The Borrowers and Lender desire to amend the Credit
Agreement, subject to the terms and conditions of this Amendment. Therefore, The
Company and Lender hereby agree as follows, intending to be legally bound:

      Section 2. Amendments. The Credit Agreement is hereby amended and
supplemented as follows:

      (a) Section 1.1 of the Credit Agreement is hereby amended by the amendment
      or addition of the following definitions:

            "Adjusted Tangible Net Worth" shall mean, with respect to the
            Company at any date, the Tangible Net Worth of the Company at such
            date, plus one percent (1%) of the sum of the outstanding principal
            balances of Mortgage Loans as of such date for which Company owns
            the Servicing Rights, plus fifty percent (50%) of the lesser of book
            value or market value (as determined by Lender of a third party
            acceptable to Lender, in Lender's sole discretion) of any
            Non-Investment Grade Securities as of such date, less deferred
            financing fees and all other intangible assets of any unconsolidated
            Subsidiary.

            "Termination Date" shall mean shall mean March 28, 2000, or such
            earlier date upon which Lender's obligation to fund shall be
            terminated pursuant to the terms of this Agreement.

      (b) Section 2.5(a) of the Credit Agreement is deleted in its entirety, and
      the following is substituted therefor:

                  "(a) The outstanding unpaid principal amount of all advances
            shall be payable in full upon March 28, 2000."
<PAGE>   102
      (c) Section 7.5 of the Credit Agreement is deleted in its entirety, and
      the following is substituted therefor:

                  "7.5. Minimum Adjustable Tangible Net Worth. Permit Adjusted
            Tangible Net Worth of the Company (and their Subsidiaries, on a
            consolidated basis) to be less than TWENTY-FIVE MILLION AND NO/100
            DOLLARS ($25,000,000.00), computed as of the end of each calendar
            month."

      (d) Section 7.6 of the Credit Agreement is deleted in its entirety, and
      the following is substituted therefor:

                  "7.6. Minimum GAAP Net Worth. Permit the GAAP Net Worth of the
            Company (and their Subsidiaries, on a consolidated basis) to be less
            than FORTY-FIVE MILLION AND NO/100 DOLLARS ($45,000,000.00),
            computed as of the end of each calendar month."

      (e) Section 7.8 of the Credit Agreement is deleted in its entirety, and
      the following is substituted therefor:

                  "7.8. Maximum Non-Investment Grade Securities to Adjusted
            Tangible Net Worth Ratio. Permit the ratio of Non-Investment Grade
            Securities to Adjusted Tangible Net Worth of the Company (and its
            Subsidiaries, on a consolidated basis) to exceed 0.50:1 computed as
            of the end of each calendar month. For purposes of calculating this
            ratio only, the calculation of Adjusted Tangible Net Worth of the
            Company shall include one hundred percent (100%) of the lesser of
            book value or market value (as determined by Lender of a third party
            acceptable to Lender, in Lender's sole discretion) of such
            Non-Investment Grade Securities as of the date of calculation."

      (f) The Credit Agreement is amended by the addition of the following
      Section 7.20:

                  "7.20. Failure to Maintain Committed Lines of Credit. Fail to
            maintain committed lines of credit in a minimum amount that is equal
            to the market value of all Mortgage Loans warehoused with any
            lender, whether or not such Mortgage Loans are financed under such
            committed lines of credit."

      Section 3. Consent to Purchase of Non-Investment Grade Securities.
Notwithstanding the provisions of Section 7.9 to the contrary, Bank United
hereby consents to the Company?s purchase of $14,000,000 in Non-Investment Grade
Securities from HCP. Such consent shall not operate as a waiver of Lender's
right to insist upon strict compliance by Borrower with the terms of the Credit
Agreement.

                                                                               2
<PAGE>   103
      Section 4. Representations. The Borrowers represent and warrant that all
of the representations and warranties contained in the Credit Agreement and all
instruments and documents executed pursuant thereto or contemplated thereby are
true and correct in all material respects on and as of this date.

      Section 5. Continued Force and Effect. Except as specifically amended
herein, all of the terms and conditions of the Credit Agreement and all other
Loan Documents are and remain in full force and effect in accordance with their
respective terms. All of the terms used herein have the same meanings as set out
in the Credit Agreement, unless amended hereby or unless the context clearly
requires otherwise. References in the Credit Agreement to the "Agreement," the
"Loan Agreement," "hereof," "herein" and words of similar import shall be deemed
to be references to the Credit Agreement as amended hereby. Any reference in the
other Loan Documents to the "Agreement," the "Line of Credit Agreement,"
"Warehouse Agreement," or the "Loan Agreement" shall be deemed to be references
to the Credit Agreement as amended through the date hereof. Any references in
the Credit Agreement or any of the Loan Documents to the Note, or the Credit
Note shall be deemed to be references to that certain promissory note dated as
of May 12, 1999, in the original principal amount of $50,000,000, executed by
the Borrowers and payable to the order of Lender, which was given to Lender in
replacement of the promissory note dated April 30, 1999, in the original
principal amount of $50,000,000, executed by the Original Borrowers and payable
to Lender.

      Section 6. Representations and Release of Claims. Except as otherwise
specified herein, the terms and provisions hereof shall in no manner impair,
limit, restrict or otherwise affect the obligations of the Borrowers or any
third party to Lender, as evidenced by the Loan Documents. The Borrowers hereby
acknowledge, agree, and represent that (i) the Borrowers are indebted to Lender
pursuant to the terms of the Credit Note; (ii) the liens, security interests and
assignments created and evidenced by the Loan Documents are, respectively,
first, prior, valid and subsisting liens, security interests and assignments
against the Collateral and secure all indebtedness and obligations of the
Borrowers to Lender under the Credit Note, the Credit Agreement, all other Loan
Documents, as modified herein; (iii) there are no claims or offsets against, or
defenses or counterclaims to, the terms or provisions of the Loan Documents, and
the other obligations created or evidenced by the Loan Documents; (iv) the
Borrowers have no claims, offsets, defenses or counterclaims arising from any of
the Lender's acts or omissions with respect to the Loan Documents, or the
Lender's performance under the Loan Documents; (v) the representations and
warranties contained in the Loan Documents are true and correct representations
and warranties of the Borrowers, as of the date hereof; (vi) the Borrowers
promise to pay to the order of Lender the indebtedness evidenced by the Credit
Note according to the terms thereof; and (vii) the Borrowers are not in default
and no event has occurred which, with the passage of time, giving of notice, or
both, would constitute a default by the any of the Borrowers of such Borrower's
obligations under the terms and provisions of the Loan Documents. In
consideration of the modification of certain provisions of the Loan Documents,
all as herein provided, and the other benefits received by the Borrowers
hereunder, the Borrowers hereby RELEASE, RELINQUISH and forever DISCHARGE
Lender, its predecessors, successors, assigns, shareholders, principals,
parents, subsidiaries, agents, officers, directors, employees,

                                                                               3
<PAGE>   104
attorneys and representatives (collectively, the "Lender Released Parties"), of
and from any and all claims, demands, actions and causes of action of any and
every kind or character, whether known or unknown, present or future, which the
Borrowers have, or may have against Lender Released Parties, arising out of or
with respect to any and all transactions relating to the Credit Agreement, the
Original Note, the Credit Note, and the other Loan Documents occurring prior to
the date hereof, including any other loss, expense and/or detriment, of any kind
or character, growing out of or in any way connected with or in any way
resulting from the acts, actions or omissions of the Lender Released Parties,
and including any loss, cost or damage in connection with any breach of
fiduciary duty, breach of any duty of fair dealing, breach of competence, breach
of funding commitment, undue influence, duress, economic coercion, conflict of
interest, negligence, bad faith, malpractice, violations of the Racketeer
Influence and Corrupt Organizations Act, intentional or negligent infliction of
emotional or mental distress, tortious interference with corporate governments
or prospective business advantage, tortious interference with contractual
relations, breach of contract, deceptive trade practices, libel, slander,
conspiracy, the charging, contracting for, taking, reserving, collecting or
receiving of interest in excess of the highest lawful rate applicable to the
Loan Documents (i.e., usury), any violations of federal or state law, any
violations of federal or state banking rules, laws or regulations, including,
but not limited to, any violations of Regulation B, Equal Credit Opportunity,
bank tying act claims, any violation of the Texas Free Enterprise Antitrust Act
or any violation of federal antitrust acts.

      Section 7. Severability. In the event any one or more provisions contained
in the Credit Agreement, this Amendment, or any of the Loan Documents should be
held to be invalid, illegal or unenforceable in any respect, the validity,
enforceability and legality of the remaining provisions contained herein and
therein shall not be affected in any way or impaired thereby and shall be
enforceable in accordance with their respective terms.

      Section 8. Expenses. The Borrowers agree to pay all out-of-pocket costs
and expenses (including reasonable fees and expenses of legal counsel) of Lender
in connection with the preparation, operation, administration and enforcement of
this Amendment.

      Section 9. Acknowledgment. Except as amended hereby, the Borrowers ratify
and confirm that the Loan Documents are and remain in full force and effect in
accordance with their respective terms and that all Collateral is unimpaired by
this Amendment and secures the payment and performance of all indebtedness and
obligations of the Borrowers under the Credit Note, the Credit Agreement, and
all other Loan Documents, as modified hereby. Each of the undersigned officers
of the Borrowers represent and warrant that his or her execution and delivery of
this Amendment has been duly authorized, and that the resolutions and affidavits
previously delivered to Lender, in connection with the execution and delivery of
the Credit Agreement and the First Amendment thereto, are and remain in full
force and effect and have not been altered, amended or repealed in anywise.

      Section 10. No Waiver. The Borrowers agree that no Event of Default and no
Default has been waived or remedied by the execution of this Amendment by
Lender, and any such Default or

                                                                               4
<PAGE>   105
Event of Default heretofore arising and currently continuing shall continue
after the execution and delivery hereof. Notwithstanding the foregoing, as of
September 30, 1999, Borrower had violated the Minimum GAAP Net Worth Covenant.
Lender's agreement to forbear from exercising its rights and remedies under the
Loan Documents in connection with Borrower's noncompliance with the Minimum GAAP
Net Worth Covenant and its agreement to enter into this Amendment (including,
without limitation, the amendment of the Minimum Adjustable Net Worth Covenant
and the Minimum GAAP Net Worth Covenant) shall not constitute (i) a waiver of
any existing Events of Defaults under the Loan Documents; (ii) a waiver of any
right, remedy, or recourse of Lender exercisable upon any existing Events of
Default or any subsequent Events of Default; or (iii) a waiver of any of any of
Lender's rights, remedies or recourses under the Loan Documents or as provided
by the laws of the State of Texas. Furthermore, Lender shall have the right, at
any time and from time to time, to insist upon strict performance by Borrower of
all terms and conditions set forth in the Loan Documents.

      Section 11. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of Texas and, to the extent
applicable, by federal law.

      Section 12. Counterparts. This Amendment may be executed in any number of
counterparts and all of such counterparts taken together shall be deemed to
constitute one and the same instrument.

      SECTION 13. NO ORAL AGREEMENTS. THIS WRITTEN AMENDMENT, THE CREDIT
AGREEMENT, THE CREDIT NOTE, AND THE OTHER LOAN DOCUMENTS, ALL AS MODIFIED
HEREBY, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL AGREEMENTS OF THE
PARTIES.

      THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

                         [SIGNATURES ON FOLLOWING PAGE]

                                                                               5
<PAGE>   106
      EXECUTED and effective as of the dates first written above.

BORROWERS:                               HANOVER SPC-A, INC., a Delaware
                                         corporation
HANOVER CAPITAL MORTGAGE
HOLDINGS, INC.,                          By:
a Maryland corporation                      --------------------------------
                                         Name:
                                              ------------------------------
                                         Title:
                                               -----------------------------
By:
   ------------------------------
Name:
     ----------------------------
Title:                                   HANOVER CAPITAL SPC, INC., a
      ---------------------------        Delaware corporation

HANOVER CAPITAL PARTNERS, LTD.,          By:
a New York corporation                      --------------------------------
                                         Name:
                                              ------------------------------
                                         Title:
By:                                            -----------------------------
   ------------------------------
Name:                                    HANOVER REPO CORP., a Delaware
     ----------------------------        corporation
Title:
      ---------------------------
NEW BORROWERS:                           By:
                                            --------------------------------
                                         Name:
                                              ------------------------------
                                         Title:
                                               -----------------------------
HANOVER QRS-1 98-B, INC., a Delaware
corporation

By:                                      LENDER:
   ------------------------------
Name:
     ----------------------------
Title:                                   BANK UNITED,
      ---------------------------        a federal savings bank

HANOVER QRS-2 98-B, INC., a Delaware
corporation                              By:
                                            --------------------------------
                                         Name:
                                              ------------------------------
By:                                      Title:
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Name:
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Title:
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                                                                               6<PAGE>   1
                                                                   Exhibit 10.20

                          BOSTON SCIENTIFIC CORPORATION
                          2000 LONG-TERM INCENTIVE PLAN

1.   ADMINISTRATION

     Subject to the express provisions of the Plan, the Administrator has the
authority to interpret the Plan; determine eligibility for and grant Awards;
determine, modify or waive the terms and conditions of any Award; prescribe
forms, rules and procedures (which it may modify or waive); and otherwise do all
things necessary to implement the Plan. Once a written agreement evidencing an
Award hereunder has been provided to a Participant, the Administrator may not,
without the Participant's consent, alter the terms of the Award so as to affect
adversely the Participant's rights under the Award, unless the Administrator
expressly reserved the right to do so in writing at the time of such delivery.
In the case of any Award intended to be eligible for the performance-based
compensation exception under Section 162(m), the Administrator shall exercise
its discretion consistent with qualifying the Award for such exception.

     Notwithstanding any provision herein to the contrary, the Administrator may
modify the terms of the Plan or may create one or more subplans, in each case on
such terms as it deems necessary or appropriate, to provide for awards to
non-U.S. participants; provided, that no such action by the Administrator shall
increase the total number of shares issuable hereunder.

2.   LIMITS ON AWARD UNDER THE PLAN

     a. NUMBER OF SHARES. A maximum of 20,000,000 shares of Stock may be
delivered in satisfaction of Awards under the Plan. For purposes of the
preceding sentence, shares that have been forfeited in accordance with the terms
of the applicable Award and shares held back in satisfaction of the exercise
price or tax withholding requirements from shares that would otherwise have been
delivered pursuant to an Award shall not be considered to have been delivered
under the Plan. Also, the number of shares of Stock delivered under an Award
shall be determined net of any previously acquired Shares tendered by the
Participant in payment of the exercise price or of withholding taxes.

     b. TYPE OF SHARES. Stock delivered by the Company under the Plan may be
authorized but unissued Stock or previously issued Stock acquired by the Company
and held in treasury. No fractional shares of Stock will be delivered under the
Plan.

     c. STOCK-BASED AWARD LIMITS. The maximum number of shares of Stock for
which Stock Options may be granted to any person in any calendar year, the
maximum number of shares of Stock subject to SARs granted to any person in any
calendar year and the aggregate maximum number of shares of Stock subject to
other Awards that may be delivered (or the value of which may be paid) to any
person in any calendar year shall each be 5,000,000. For purposes of the
preceding sentence, the repricing of a Stock Option or SAR shall be treated as a
new grant to the extent required under Section 162(m). Subject to these
limitations, each person eligible to participate in the Plan shall be eligible
in any year to receive Awards covering up to the full number of shares of Stock
then available for Awards under the Plan.

     d. OTHER AWARD LIMITS. No more than $10,000,000 may be paid to any
individual with respect to any Cash or Other Performance Award (other than an
Award expressed in terms of shares of Stock or units representing Stock, which
shall instead be subject to the limit set forth in Section 2.c. above). In
applying the dollar limitation of the preceding sentence: (A) multiple Cash or
Other Performance Awards to the same individual that are determined by reference
to performance periods of one year or less ending with or within the same fiscal
year of the Company shall be subject in the aggregate to one $10,000,000 limit,
and (B) multiple Cash or Other Performance Awards to the same individual that
are determined by reference to one or more multi-year performance periods ending
in the same fiscal year of the Company shall be subject in the aggregate to
separate $10,000,000 limits.

<PAGE>   2

3.   ELIGIBILITY AND PARTICIPATION

     The Administrator will select Participants from among those key Employees,
directors and other individuals or entities providing services to the Company or
its Affiliates who, in the opinion of the Administrator, are in a position to
make a significant contribution to the success of the Company and its
Affiliates. Eligibility for ISOs is further limited to those individuals whose
employment status would qualify them for the tax treatment described in Sections
421 and 422 of the Code.

4.   RULES APPLICABLE TO AWARDS

     a.   ALL AWARDS

          (1) TERMS OF AWARDS. The Administrator shall determine the terms of
all Awards subject to the limitations provided herein.

          (2) PERFORMANCE CRITERIA. Where rights under an Award depend in whole
or in part on satisfaction of Performance Criteria, actions by the Company that
have an effect, however material, on such Performance Criteria or on the
likelihood that they will be satisfied will not be deemed an amendment or
alteration of the Award.

          (3) ALTERNATIVE SETTLEMENT. The Company may at any time extinguish
rights under an Award in exchange for payment (subject in each case to the
limitations of Section 2) in cash, Stock or other property on such terms as the
Administrator determines, provided the holder of the Award consents to such
exchange.

          (4) TRANSFERABILITY OF AWARDS. Awards may be transferred only as
follows: (i) ISOs may not be transferred other than by will or by the laws of
descent and distribution and during a Participant's lifetime may be exercised
only by the Participant (or in the event of the Participant's incapacity, by the
person or persons legally appointed to act on the Participant's behalf); (ii)
Stock Options other than ISOs may be transferred by will or by the laws of
descent and distribution and, except as otherwise determined by the
Administrator, may also be transferred during the Participant's lifetime,
without payment of consideration, to one or more Family Members of the
Participant; (iii) Awards of Unrestricted Stock shall be subject only to such
transfer restrictions under the Plan as are specified by the Administrator; and
(iv) Awards other than Stock Options and other than Unrestricted Stock may not
be transferred except as the Administrator otherwise determines. If an Award is
claimed or exercised by a person or persons other than the Participant, the
Company shall have no obligation to deliver Stock, cash or other property
pursuant to such Award or otherwise to recognize the transfer of the Award until
the Administrator is satisfied as to the authority of the person or persons
claiming or exercising such Award.

          (5) VESTING, ETC. Without limiting the generality of Section 1, the
Administrator may determine the time or times at which an Award will vest (i.e.,
become free of forfeiture restrictions) or become exercisable and the terms on
which an Award requiring exercise will remain exercisable. Unless the
Administrator expressly provides otherwise, upon the cessation of the
Participant's employment or other service relationship with the Company and its
Affiliates (i) all Awards (other than Stock Options, SARs and Restricted Stock)
held by the Participant or by a permitted transferee under Section 4.a.(4)
immediately prior to such cessation of employment or other service relationship
will be immediately forfeited if not then vested and, where exercisability is
relevant, will immediately cease to be exercisable, and (ii) Stock Options, SARs
and Restricted Stock shall be treated as follows:

               (A) immediately upon the cessation of a Participant's employment
          or other service relationship with the Company and its Affiliates by
          reason of the Participant's Disability, or with respect to a
          Participant who is an employee or director of the Company or its
          Affiliates, by reason of such Participant's Retirement, all Stock
          Options, SARs and Restricted Stock Awards held by the Participant (or
          by a permitted transferee under Section 4.a.(4)) immediately prior to
          such Disability or, as applicable, Retirement, will become vested and,
          where exercisability is

<PAGE>   3

          relevant, will remain exercisable for the lesser of three years or the
          period ending on the latest date on which such Stock Option or SAR
          could have been exercised if the Participant's employment or other
          service relationship with the Company and its Affiliates had continued
          unchanged, whereupon such Stock Options and SARs shall terminate;

               (B) all Stock Options, SARs and Restricted Stock Awards held by a
          Participant (or by a permitted transferee under Section 4.a.(4))
          immediately prior to the Participant's death will become vested and,
          where exercisability is relevant, will remain exercisable for the
          lesser of one year or the period ending on the latest date on which
          such Stock Option or SAR could have been exercised had the Participant
          not died, whereupon such Stock Options and SARs shall terminate;

               (C) except as provided in (D) below, all Stock Options, SARs and
          Restricted Stock Awards held by a Participant (or by a permitted
          transferee under Section 4.a.(4)) immediately prior to the cessation
          (other than by reason of death or Disability, or with respect to a
          Participant who is an employee or director of the Company or its
          Affiliates, Retirement) of the Participant's employment or other
          service relationship with the Company and its Affiliates, to the
          extent then not vested shall terminate, and to the extent then
          exercisable, will remain exercisable for the lesser of three months or
          the period ending on the latest date on which such Stock Option or SAR
          could have been exercised if the Participant's employment or other
          service relationship with the Company and its Affiliates had continued
          unchanged, whereupon such Stock Options and SARs shall terminate;

               (D) all Stock Options, SARs and Restricted Stock Awards held by
          the Participant (or by a permitted transferee under Section 4.a.(4))
          whose cessation of employment or other service relationship is
          determined by the Administrator in its sole discretion to be for cause
          or to result from reasons which cast such discredit on the Participant
          as to justify immediate termination of the Award shall immediately
          terminate upon such cessation. For this purpose, "cause" means a
          felony conviction of a Participant or the failure of a Participant to
          contest prosecution for a felony, or a Participant's misconduct or
          dishonesty which is harmful to the business or reputation of the
          Company.

Unless the Administrator expressly provides otherwise, a Participant's
"employment or other service relationship with the Company and its Affiliates"
will be deemed to have ceased when the individual is no longer employed by or in
a service relationship with the Company or its Affiliates. Except as the
Administrator otherwise determines, with respect to a Participant who is an
employee or director of the Company or its Affiliates, such Participant's
"employment or other service relationship with the Company and its Affiliates"
will not be deemed to have ceased during a military, sick or other bona fide
leave of absence if such absence does not exceed 180 days or, if longer, so long
as the Participant retains a right by statute or by contract to return to
employment or other service relationship with the Company and its Affiliates.

     (6)  TAXES. The Administrator will make such provision for the withholding
of taxes as it deems necessary. The Administrator may, but need not, hold back
shares of Stock from an Award or permit a Participant to tender previously-owned
shares of Stock in satisfaction of tax withholding requirements. In no event
shall shares of Stock be tendered or held back by the Company in excess of the
amount required to be withheld for Federal, state, and other taxes.

     (7)  DIVIDEND EQUIVALENTS, ETC. The Administrator may provide for the
payment of amounts in lieu of cash dividends or other cash distributions with
respect to Stock subject to an Award if and in such manner as it deems
appropriate.

     (8)  RIGHTS LIMITED. Nothing in the Plan shall be construed as giving any
person the right to continued employment or service with the Company or its
Affiliates, or any rights as a shareholder

<PAGE>   4

except as to shares of Stock actually issued under the Plan. The loss of
existing or potential profit in Awards will not constitute an element of damages
in the event of termination of employment or service for any reason, even if the
termination is in violation of an obligation of the Company or Affiliate to the
Participant.

          (9) SECTION 162(M). The Administrator in its discretion may grant
Performance Awards that are intended to qualify for the performance-based
compensation exception under Section 162(m) and Performance Awards that are not
intended so to qualify. In the case of an Award intended to be eligible for the
performance-based compensation exception under Section 162(m), the Plan and such
Award shall be construed to the maximum extent permitted by law in a manner
consistent with qualifying the Award for such exception. In the case of a
Performance Award intended to qualify as performance-based for the purposes of
Section 162(m), the Administrator shall preestablish in writing one or more
specific Performance Criteria no later than 90 days after the commencement of
the period of service to which the performance relates (or at such earlier time
as is required to qualify the Award as performance-based under Section 162(m)).
Prior to payment of any Performance Award intended to qualify as
performance-based under Section 162(m), the Administrator shall certify whether
the Performance Criteria have been attained, and such determination shall be
final and conclusive. The provisions of this Section 4.a.(9) shall be construed
in a manner that is consistent with the regulations under Section 162(m), and
shall be deemed to be automatically modified to take into account any subsequent
statutory changes, regulations, rulings or interpretations with respect thereto.

     b.   AWARDS REQUIRING EXERCISE

          (1) TIME AND MANNER OF EXERCISE. Unless the Administrator expressly
provides otherwise, (a) an Award requiring exercise by the holder will not be
deemed to have been exercised until the Administrator receives a written notice
of exercise (in form acceptable to the Administrator) signed by the appropriate
person and accompanied by any payment required under the Award; and (b) if the
Award is exercised by any person other than the Participant, the Administrator
may require satisfactory evidence that the person exercising the Award has the
right to do so.

          (2) EXERCISE PRICE. The Administrator shall determine the exercise
price of each Stock Option; provided, that each Stock Option must have an
exercise price that is not less than the fair market value of the Stock subject
to the Stock Option, determined as of the date of grant. An ISO granted to an
Employee described in Section 422(b)(6) of the Code must have an exercise price
that is not less than 110% of such fair market value. Where shares of Stock
issued under an Award are part of an original issue of shares, the Award shall
require an exercise price equal to at least the par value of such shares.

          (3) PAYMENT OF EXERCISE PRICE, IF ANY. Where the exercise of an Award
is to be accompanied by payment, the Administrator may determine the required or
permitted forms of payment, subject to the following: all payments will be by
cash or check acceptable to the Administrator, unless one of the following forms
of payment is permitted by the Administrator in its discretion in any specific
instance (with the consent of the optionee of an ISO, unless such permitted form
of payment is expressly provided for in the grant), (i) through the delivery of
shares of Stock which have been outstanding for at least six months (unless the
Administrator approves a shorter period) and which have a fair market value
equal to the exercise price, (ii) by delivery to the Company of a promissory
note of the person exercising the Award, payable on such terms as are specified
by the Administrator, (iii) by delivery of an unconditional and irrevocable
undertaking by a broker to deliver promptly to the Company sufficient funds to
pay the exercise price, or (iv) by any combination of the foregoing permissible
forms of payment.

          (4) GRANT OF STOCK OPTIONS. Each Stock Option awarded under the Plan
shall be deemed to have been awarded as a non-ISO (and to have been so
designated by its terms) unless the Administrator expressly provides that the
Stock Option is to be treated as an ISO. No ISO may be granted under the Plan
after February 28, 2010, but ISOs previously granted may extend beyond that
date.

<PAGE>   5

     c.   AWARDS NOT REQUIRING EXERCISE

     Awards of Restricted Stock and Unrestricted Stock may be made in return for
either (i) services determined by the Administrator to have a value not less
than the par value of the Awarded shares of Stock, or (ii) cash or other
property having a value not less than the par value of the Awarded shares of
Stock plus such additional amounts (if any) as the Administrator may determine
payable in such combination and type of cash, other property (of any kind) or
services as the Administrator may determine.

5.   EFFECT OF CERTAIN TRANSACTIONS

     a.   MERGERS, ETC.

          (1) CHANGE IN CONTROL. Except as the Administrator may otherwise
determine in connection with the grant of an Award, immediately prior to a
Change in Control each Award shall vest (and if relevant shall become
exercisable), all Performance Criteria and other conditions to an Award shall be
deemed satisfied, and all Award deferrals shall be accelerated.

          (2) COVERED TRANSACTIONS. In the event of a Covered Transaction (and
in addition to the provisions of Section 5(a) if also constituting a Change in
Control), all Stock-based Awards (all Stock Options, SARs, Restricted Stock,
Deferred Stock, including any Performance Awards consisting of any of the
foregoing), except to the extent consisting of outstanding shares of Stock that
are then free of any restrictions under the Plan, shall terminate immediately
prior to the Covered Transaction unless assumed in accordance with the
immediately following sentence. If there is a surviving or acquiring entity, the
Administrator may provide for a substitution or assumption of Awards by the
acquiring or surviving entity or an affiliate thereof, on such terms as the
Administrator determines. If there is no surviving or acquiring entity, or if
the Administrator does not provide for a substitution or assumption of an Award,
the Award shall vest (and to the extent relevant become exercisable) at least 10
days prior to the effective date of the Covered Transaction.

     b.   CHANGES IN AND DISTRIBUTIONS WITH RESPECT TO THE STOCK

          (1) BASIC ADJUSTMENT PROVISIONS. In the event of a stock dividend,
stock split or combination of shares, recapitalization or other change in the
Company's capital structure, the Administrator will make appropriate adjustments
to the maximum number of shares that may be delivered under the Plan under
Section 2.a. and to the maximum share limits described in Section 2.b., and will
also make appropriate adjustments to the number and kind of shares of stock or
securities subject to Awards then outstanding or subsequently granted, any
exercise prices relating to Awards and any other provision of Awards affected by
such change.

          (2) CERTAIN OTHER ADJUSTMENTS. The Administrator may also make
adjustments of the type described in paragraph (1) above to take into account
distributions to common stockholders other than those provided for in Section
5.a. and 5.b.(1), or any other event, if the Administrator determines that
adjustments are appropriate to avoid distortion in the operation of the Plan and
to preserve the value of Awards made hereunder; provided, that no such
adjustment shall be made to the maximum share limits described in Section 2.c.
or 2.d., or otherwise to an Award intended to be eligible for the
performance-based exception under Section 162(m), except to the extent
consistent with that exception, nor shall any change be made to ISOs except to
the extent consistent with their continued qualification under Section 422 of
the Code.

          (3) CONTINUING APPLICATION OF PLAN TERMS. References in the Plan to
shares of Stock shall be construed to include any stock or securities resulting
from an adjustment pursuant to Section 5.b.(1) or 5.b.(2) above.

<PAGE>   6

6.   LEGAL CONDITIONS ON DELIVERY OF STOCK

     The Company will not be obligated to deliver any shares of Stock pursuant
to the Plan or to remove any restriction from shares of Stock previously
delivered under the Plan until the Company's counsel has approved all legal
matters in connection with the issuance and delivery of such shares; if the
outstanding Stock is at the time of delivery listed on any stock exchange or
national market system, the shares to be delivered have been listed or
authorized to be listed on such exchange or system upon official notice of
issuance; and all conditions of the Award have been satisfied or waived. If the
sale of Stock has not been registered under the Securities Act of 1933, as
amended, the Company may require, as a condition to exercise of the Award, such
representations or agreements as counsel for the Company may consider
appropriate to avoid violation of such Act. The Company may require that any
certificates evidencing Stock issued under the Plan bear an appropriate legend
reflecting any restriction on transfer applicable to such Stock.

7.   AMENDMENT AND TERMINATION

     Subject to the provisions of Section 1, the Administrator may at any time
or times amend the Plan or any outstanding Award for any purpose which may at
the time be permitted by law, or may at any time terminate the Plan as to any
further grants of Awards; provided, that (except to the extent expressly
required or permitted by the Plan) no such amendment will, without the approval
of the stockholders of the Company, effectuate a change for which stockholder
approval is required in order for the Plan to continue to qualify under Section
422 of the Code and for Awards to be eligible for the performance-based
exception under Section 162(m).

8.   NON-LIMITATION OF THE COMPANY'S RIGHTS

     The existence of the Plan or the grant of any Award shall not in any way
affect the Company's right to award a person bonuses or other compensation in
addition to Awards under the Plan.

9.   GOVERNING LAW

     The Plan shall be construed in accordance with the laws of the Commonwealth
of Massachusetts.

10.  DEFINED TERMS

The following terms, when used in the Plan, shall have the meanings and be
subject to the provisions set forth below:

     "ADMINISTRATOR": The Board or, if one or more has been appointed, the
Committee, including their delegates (subject to such limitations on the
authority of such delegates as the Board or the Committee, as the case may be,
may prescribe). The senior Legal and Human Resources representatives of the
Company shall also be the Administrator, but solely with respect to ministerial
tasks related hereto.

     "AFFILIATE": Any corporation or other entity owning, directly or
indirectly, 50% or more of the outstanding Stock of the Company, or in which the
Company or any such corporation or other entity owns, directly or indirectly,
50% of the outstanding capital stock (determined by aggregate voting rights) or
other voting interests.

     "AWARD": Any or a combination of the following:

          (i) Stock Options.

<PAGE>   7

          (ii)   SARs.

          (iii)  Restricted Stock.

          (iv)   Unrestricted Stock.

          (v)    Deferred Stock.

          (vi)   Other Stock-Based Awards.

          (vii)  Cash Performance Awards.

          (viii) Other Performance Awards.

          (ix)   Grants of cash, or loans, made in connection with other Awards
     in order to help defray in whole or in part the economic cost (including
     tax cost) of the Award to the Participant.

     "BOARD": The Board of Directors of the Company.

     "CASH PERFORMANCE AWARD": A Performance Award payable in cash. The right of
the Company under Section 4.a.(3) to extinguish an Award in exchange for cash or
the exercise by the Company of such right shall not make an Award otherwise not
payable in cash a Cash Performance Award.

     "CHANGE IN CONTROL": Any of:

     (i) an acquisition, consolidation or merger in which the Company is not the
surviving corporation or with respect to which all or substantially all of the
beneficial owners of the outstanding stock of the Company and the combined
voting power of the outstanding voting securities of the Company entitled to
vote generally in the election of directors immediately prior to such
transaction do not own beneficially, directly or indirectly, and in
substantially the same proportion, more than 60% of, respectively, the then
outstanding shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such
transaction;

     (ii) a sale or transfer of all or substantially all the Company's assets;

     (iii) a complete dissolution or liquidation of the Company; or

     (iv) continuing directors constitute less than a majority of the Board,
where a "continuing director" includes (A) each person who was a director of the
Company on January 3, 2000, and (B) each person who subsequently becomes a
director of the Company with approval by a vote of at least a majority of the
"continuing directors" in office at the time of such person's election or
nomination as a director unless that person became a director in connection with
an actual or threatened election contest.

Notwithstanding clauses (i) through (iv) above, none of the following shall
constitute a "Change in Control" for purposes of this definition:

     (x) the shares of common stock of the Company or the voting securities of
the Company entitled to vote generally in the election of directors are acquired
directly from the Company;

     (y) the shares of common stock of the Company or the voting securities of
the Company entitled to vote generally in the election of directors are acquired
by any employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company; or

<PAGE>   8

     (z) (A) the beneficial owners of the outstanding shares of common stock of
the Company, and of the securities of the Company entitled to vote generally in
the election of directors, immediately prior to such transaction beneficially
own, directly or indirectly, in substantially the same proportions immediately
following such transaction more than 60% of the outstanding shares of common
stock and of the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors of the corporation
(including, without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the Company's assets
either directly or through one or more subsidiaries) resulting from such
transaction and (B) at least a majority of the members of the board of directors
of the corporation resulting from such transaction were members of the board of
directors at the time of the execution of the initial agreement, or of the
action of the Board, authorizing such transaction.

     "CODE": The U.S. Internal Revenue Code of 1986 as from time to time amended
and in effect, or any successor statute as from time to time in effect.

     "COMMITTEE": One or more committees of the Board (including any
subcommittee thereof) appointed or authorized to make Awards and otherwise to
administer the Plan. In the case of Awards granted to executive officers of the
Company, the Committee shall be comprised solely of two or more outside
directors within the meaning of Section 162(m).

     "COMPANY": Boston Scientific Corporation.

     "COVERED TRANSACTION": Any of (i) a consolidation or merger in which the
Company is not the surviving corporation or which results in the acquisition of
all or substantially all the Company's outstanding stock by a single person or
entity or by a group of persons and/or entities acting in concert, (ii) a sale
or transfer of all or substantially all the Company's assets, or (iii) a
dissolution or liquidation of the Company.

     "DEFERRED STOCK": A promise to deliver Stock or other securities in the
future on specified terms.

     "DISABILITY": Permanent and total disability as determined under the
Company's long-term disability program for employees then in effect.

     "EMPLOYEE": Any person who is employed by the Company or an Affiliate.

     "FAMILY MEMBER": An individual or entity included as a "family member"
within the meaning of the Security and Exchange Commission's Form S-8,
Registration Statement Under The Securities Act of 1933.

     "ISO": A Stock Option intended to be an "incentive stock option" within the
meaning of Section 422 of the Code.

     "PARTICIPANT": An Employee, director or other person providing services to
the Company or its Affiliates who is granted an Award under the Plan.

     "PERFORMANCE AWARD": An Award subject to Performance Criteria.

     "PERFORMANCE CRITERIA": Specified criteria the satisfaction of which is a
condition for the exercisability, vesting or full enjoyment of an Award. For
purposes of Performance Awards that are intended to qualify for the
performance-based compensation exception under Section 162(m), a Performance
Criterion shall mean an objectively determinable measure of performance relating
to any of the following (determined either on a consolidated basis or, as the
context permits, on a divisional, subsidiary, line of business, project or
geographical basis or in combinations thereof): (i) sales; revenues; assets;
liabilities; costs; expenses; earnings before or after deduction for all or any
portion of interest, taxes, depreciation, amortization or other items, whether
or not on a continuing operations or an aggregate or per share basis; return on
equity, investment, capital or assets; one or more operating ratios; borrowing
levels, leverage ratios or credit rating; market share; capital expenditures;
cash flow; working capital requirements;

<PAGE>   9

stock price; stockholder return; sales, contribution or gross margin, of
particular products or services; particular operating or financial ratios;
customer acquisition, expansion and retention; or any combination of the
foregoing; or (ii) acquisitions and divestitures (in whole or in part); joint
ventures and strategic alliances; spin-offs, split-ups and the like;
reorganizations; recapitalizations, restructurings, financings (issuance of debt
or equity) and refinancings; transactions that would constitute a change of
control; or any combination of the foregoing. A Performance Criterion measure
and targets with respect thereto determined by the Administrator need not be
based upon an increase, a positive or improved result or avoidance of loss.

     "PLAN": The Boston Scientific Corporation 2000 Incentive Plan as set forth
herein, as from time to time amended and in effect.

     "RESTRICTED STOCK": An Award of Stock subject to forfeiture to the Company
if specified conditions are not satisfied.

     "RETIREMENT": Unless the Administrator expressly provides otherwise,
cessation of employment or other service relationship with the Company and its
Affiliates if, as of the date of such cessation, (i) the Participant has
attained age 50 and has accrued at least five years of service with the Company
and its Affiliates, and (ii) the sum of the Participant's age and years of
service as of such date equals or exceeds 62.

     "SECTION 162(m)": Section 162(m) of the Code.

     "SARS": Rights entitling the holder upon exercise to receive cash or Stock,
as the Administrator determines, equal to a function (determined by the
Administrator using such factors as it deems appropriate) of the amount by which
the Stock has appreciated in value since the date of the Award.

     "STOCK": Common Stock of the Company, par value $.01 per share.

     "STOCK OPTIONS": Options entitling the recipient to acquire shares of Stock
upon payment of the exercise price.

     "UNRESTRICTED STOCK": An Award of Stock not subject to any restrictions
under the Plan.

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