-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
B06JbrKnbERTI4XHqopMxUQoOffOKz01BPgEgwryMJGKaGlgVS3g+0XFAbqgDxEg
KLp3/RrGXvwBKe2Xc8BIhQ==
0000083402-08-000002.txt : 20080211
0000083402-08-000002.hdr.sgml : 20080211
20080208180713
ACCESSION NUMBER: 0000083402-08-000002
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 9
CONFORMED PERIOD OF REPORT: 20071231
FILED AS OF DATE: 20080211
DATE AS OF CHANGE: 20080208
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: RESOURCE AMERICA INC
CENTRAL INDEX KEY: 0000083402
STANDARD INDUSTRIAL CLASSIFICATION: INVESTORS, NEC [6799]
IRS NUMBER: 720654145
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0930
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-04408
FILM NUMBER: 08590649
BUSINESS ADDRESS:
STREET 1: ONE CRESCENT DRIVE, SUITE 203
STREET 2: NAVY YARD CORPORATE CENTER
CITY: PHILADELPHIA
STATE: PA
ZIP: 19112
BUSINESS PHONE: 215-546-5005
MAIL ADDRESS:
STREET 1: ONE CRESCENT DRIVE, SUITE 203
STREET 2: NAVY YARD CORPORATE CENTER
CITY: PHILADELPHIA
STATE: PA
ZIP: 19112
FORMER COMPANY:
FORMER CONFORMED NAME: RESOURCE AMERICA LLC
DATE OF NAME CHANGE: 20060928
FORMER COMPANY:
FORMER CONFORMED NAME: RESOURCE AMERICA INC
DATE OF NAME CHANGE: 19920703
FORMER COMPANY:
FORMER CONFORMED NAME: RESOURCE EXPLORATION INC
DATE OF NAME CHANGE: 19890214
10-Q
1
raiform10q123107.htm
RAI FORM 10Q 12/31/07
raiform10q123107.htm
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
FORM 10-Q
(Mark
One)
[X]
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended December 31,
2007
or
[ ]
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from _________ to __________
Commission
file number:
0-4408
RESOURCE AMERICA,
INC.
(Exact
name of registrant as specified in its charter)
|
|
|
(State
or other jurisdiction of
|
|
(I.R.S.
Employer
|
incorporation
or organization)
|
|
Identification
No.)
|
|
|
|
One Crescent Drive, Suite
203
|
|
|
Navy Yard Corporate
Center
|
|
|
|
|
|
(Address
of principal executive offices)
|
|
(Zip
code)
|
Registrant's
telephone number, including area code: (215) 546-5005
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. x Yes ¨ No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer ¨
|
Accelerated
filer x
|
Non-accelerated
filer ¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). ¨ Yes x No
The
number of outstanding shares of the registrant’s common stock on February 4,
2008 was 17,749,440.
RESOURCE AMERICA, INC. AND
SUBSIDIARIES
INDEX TO QUARTERLY
REPORT ON FORM 10-Q
|
|
PAGE
|
PART I
|
FINANCIAL
INFORMATION
|
|
Item 1.
|
Financial
Statements (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 2.
|
|
|
|
|
|
Item 3.
|
|
|
|
|
|
Item 4.
|
|
|
|
|
|
PART II
|
OTHER
INFORMATION
|
|
|
|
|
Item 2.
|
|
|
|
|
|
Item 6.
|
|
|
|
|
|
|
PART I. FINANCIAL
INFORMATION
Item
1. Financial
Statements
RESOURCE AMERICA,
INC.
(in
thousands, except share data)
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Cash
|
|
$ |
19,790
|
|
|
$ |
14,624
|
|
Restricted cash
|
|
|
76,613
|
|
|
|
19,340
|
|
Receivables
|
|
|
19,812
|
|
|
|
21,255
|
|
Receivables from managed
entities
|
|
|
20,478
|
|
|
|
20,177
|
|
Loans sold, not
settled
|
|
|
11,857
|
|
|
|
152,706
|
|
Loans held for investment,
net
|
|
|
197,721
|
|
|
|
285,928
|
|
Loans held-for-sale, at fair
value
|
|
|
112,634
|
|
|
|
−
|
|
Investments in commercial
finance, net
|
|
|
646,394
|
|
|
|
243,391
|
|
Investments in real estate,
net
|
|
|
49,265
|
|
|
|
49,041
|
|
Investment securities
available-for-sale, at fair value
|
|
|
45,145
|
|
|
|
51,777
|
|
Investments in unconsolidated
entities
|
|
|
34,924
|
|
|
|
36,777
|
|
Property and equipment,
net
|
|
|
15,242
|
|
|
|
12,286
|
|
Deferred income
taxes
|
|
|
36,482
|
|
|
|
30,995
|
|
Goodwill
|
|
|
7,969
|
|
|
|
7,941
|
|
Intangible assets,
net
|
|
|
4,699
|
|
|
|
4,774
|
|
Other assets
|
|
|
24,438
|
|
|
|
18,664
|
|
Total assets
|
|
$ |
1,323,463
|
|
|
$ |
969,676
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
$ |
81,723
|
|
|
$ |
60,546
|
|
Payables to managed
entities
|
|
|
2,561
|
|
|
|
1,163
|
|
Borrowings
|
|
|
1,050,476
|
|
|
|
706,372
|
|
Deferred income tax
liabilities
|
|
|
11,124
|
|
|
|
11,124
|
|
Minority
interests
|
|
|
6,146
|
|
|
|
6,571
|
|
Total
liabilities
|
|
|
1,152,030
|
|
|
|
785,776
|
|
|
|
|
|
|
|
|
|
|
Commitments and
contingencies
|
|
|
−
|
|
|
|
−
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $1.00 par
value, 1,000,000 shares authorized;
none
outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock, $.01 par value,
49,000,000 shares authorized; 27,117,108
and 26,986,975 shares issued,
respectively (including nonvested
restricted
stock of 306,716 and 199,708, respectively)
|
|
|
268
|
|
|
|
268
|
|
Additional paid-in
capital
|
|
|
265,730
|
|
|
|
264,747
|
|
Retained
earnings
|
|
|
18,114
|
|
|
|
25,724
|
|
Treasury stock, at cost;
9,379,326 and 9,369,960 shares, respectively
|
|
|
(102,171 |
) |
|
|
(102,014 |
) |
ESOP loan
receivable
|
|
|
(217 |
) |
|
|
(223 |
) |
Accumulated other comprehensive
loss
|
|
|
(10,291 |
) |
|
|
(4,602 |
) |
Total stockholders’
equity
|
|
|
171,433
|
|
|
|
183,900
|
|
|
|
$ |
1,323,463
|
|
|
$ |
969,676
|
|
The accompanying notes are an integral
part of these statements
RESOURCE AMERICA,
INC.
(in
thousands, except per share data)
(unaudited)
|
|
Three Months
Ended
|
|
|
|
|
|
|
|
|
REVENUES
|
|
|
|
|
|
|
Commercial
finance
|
|
$ |
27,965
|
|
|
$ |
7,089
|
|
Financial
fund management
|
|
|
16,292
|
|
|
|
12,387
|
|
Real
estate
|
|
|
6,472
|
|
|
|
4,564
|
|
|
|
|
50,729
|
|
|
|
24,040
|
|
COSTS AND
EXPENSES
|
|
|
|
|
|
|
|
|
Commercial
finance
|
|
|
9,551
|
|
|
|
3,631
|
|
Financial
fund management
|
|
|
6,614
|
|
|
|
4,552
|
|
Real
estate
|
|
|
5,466
|
|
|
|
3,013
|
|
General
and administrative
|
|
|
3,458
|
|
|
|
2,789
|
|
Provision
for credit losses
|
|
|
2,773
|
|
|
|
45
|
|
Depreciation
and amortization
|
|
|
966
|
|
|
|
709
|
|
|
|
|
28,828
|
|
|
|
14,739
|
|
OPERATING
INCOME
|
|
|
21,901
|
|
|
|
9,301
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(14,677 |
) |
|
|
(4,591 |
) |
Minority
interests
|
|
|
(1,091 |
) |
|
|
(560 |
) |
Other
(expense) income, net
|
|
|
(18,368 |
) |
|
|
2,528
|
|
|
|
|
(34,136 |
) |
|
|
(2,623 |
) |
(Loss)
income from continuing operations before taxes
|
|
|
(12,235 |
) |
|
|
6,678
|
|
(Benefit)
provision for income taxes
|
|
|
(5,873 |
) |
|
|
2,210
|
|
(Loss)
income from continuing operations
|
|
|
(6,362 |
) |
|
|
4,468
|
|
Loss
from discontinued operations, net of tax
|
|
|
(12 |
) |
|
|
(19 |
) |
NET (LOSS)
INCOME
|
|
$ |
(6,374 |
) |
|
$ |
4,449
|
|
Basic (loss) earnings per
common share:
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
(0.37 |
) |
|
$ |
0.26
|
|
Discontinued
operations
|
|
|
−
|
|
|
|
−
|
|
Net
(loss) income
|
|
$ |
(0.37 |
) |
|
$ |
0.26
|
|
Weighted
average shares outstanding
|
|
|
17,428
|
|
|
|
17,292
|
|
Diluted (loss) earnings per
common share:
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
(0.37 |
) |
|
$ |
0.23
|
|
Discontinued
operations
|
|
|
−
|
|
|
|
−
|
|
Net
(loss) income
|
|
$ |
(0.37 |
) |
|
$ |
0.23
|
|
Weighted
average shares outstanding
|
|
|
17,428
|
|
|
|
19,122
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common
share
|
|
$ |
0.07
|
|
|
$ |
0.06
|
|
The
accompanying notes are an integral part of these statements
RESOURCE AMERICA,
INC.
THREE MONTHS ENDED DECEMBER 31,
2007
(in
thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
ESOP
|
|
|
Other
|
|
|
Totals
|
|
|
|
|
|
|
Common
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Treasury
|
|
|
Loan
|
|
|
Comprehensive
|
|
|
Stockholders’
|
|
|
Comprehensive
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Stock
|
|
|
Receivable
|
|
|
Loss
|
|
|
Equity
|
|
|
Loss
|
|
Balance,
October 1, 2007
|
|
$ |
268
|
|
|
$ |
264,747
|
|
|
$ |
25,724
|
|
|
$ |
(102,014 |
) |
|
$ |
(223 |
) |
|
$ |
(4,602 |
) |
|
$ |
183,900
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,374 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,374 |
) |
|
$ |
(6,374 |
) |
Treasury
shares
issued
|
|
|
-
|
|
|
|
54
|
|
|
|
-
|
|
|
|
80
|
|
|
|
-
|
|
|
|
-
|
|
|
|
134
|
|
|
|
−
|
|
Stock-based
compensation
|
|
|
-
|
|
|
|
250
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
250
|
|
|
|
−
|
|
Restricted
stock awards
|
|
|
-
|
|
|
|
521
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
521
|
|
|
|
−
|
|
Issuance
of common shares
|
|
|
-
|
|
|
|
158
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
158
|
|
|
|
−
|
|
Purchase
of treasury shares
|
|
|
−
|
|
|
|
−
|
|
|
|
−
|
|
|
|
(237 |
) |
|
|
−
|
|
|
|
−
|
|
|
|
(237 |
) |
|
|
−
|
|
Cash
dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,236 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,236 |
) |
|
|
−
|
|
Other
comprehensive loss
|
|
|
−
|
|
|
|
−
|
|
|
|
−
|
|
|
|
−
|
|
|
|
−
|
|
|
|
(5,689 |
) |
|
|
(5,689 |
) |
|
|
(5,689 |
) |
Total
comprehensive
loss
|
|
|
−
|
|
|
|
−
|
|
|
|
−
|
|
|
|
−
|
|
|
|
−
|
|
|
|
−
|
|
|
|
−
|
|
|
$ |
(12,063 |
) |
Repayment
of ESOP
loan
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6
|
|
|
|
−
|
|
|
|
6
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
$ |
268
|
|
|
$ |
265,730
|
|
|
$ |
18,114
|
|
|
$ |
(102,171 |
) |
|
$ |
(217 |
) |
|
$ |
(10,291 |
) |
|
$ |
171,433
|
|
|
|
|
|
The
accompanying notes are an integral part of this statement
RESOURCE AMERICA,
INC.
(in
thousands)
(unaudited)
|
|
Three Months
Ended
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
Net
(loss) income
|
|
$ |
(6,374 |
) |
|
$ |
4,449
|
|
Adjustments
to reconcile net (loss) income to net cash provided by (used
in)
operating activities, net of
acquisitions:
|
|
|
|
|
|
|
|
|
Impairment charge on
collateralized debt obligation investments
|
|
|
1,017
|
|
|
|
−
|
|
Depreciation and
amortization
|
|
|
1,290
|
|
|
|
810
|
|
Provision for credit
losses
|
|
|
2,773
|
|
|
|
45
|
|
Equity in earnings of
unconsolidated entities
|
|
|
(3,609 |
) |
|
|
(3,981 |
) |
Minority
interests
|
|
|
1,091
|
|
|
|
560
|
|
Distributions from
unconsolidated entities
|
|
|
4,764
|
|
|
|
3,941
|
|
Losses on sales of loans
held-for-sale
|
|
|
18,332
|
|
|
|
−
|
|
Gains on sales of investment
securities available-for-sale
|
|
|
−
|
|
|
|
(1,347 |
) |
Gains on sales of
assets
|
|
|
(301 |
) |
|
|
(74 |
) |
Deferred income tax
benefit
|
|
|
(5,487 |
) |
|
|
(671 |
) |
Non-cash compensation on
long-term incentive plans
|
|
|
905
|
|
|
|
401
|
|
Non-cash compensation
issued
|
|
|
110
|
|
|
|
797
|
|
Non-cash compensation
received
|
|
|
(97 |
) |
|
|
(673 |
) |
Decrease
(increase) in commercial finance investments
|
|
|
7,455
|
|
|
|
(63,594 |
) |
Changes
in operating assets and liabilities
|
|
|
(979 |
) |
|
|
(7,706 |
) |
Net cash provided by (used in)
operating activities of continuing operations
|
|
|
20,890
|
|
|
|
(67,043 |
) |
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(3,375 |
) |
|
|
(219 |
) |
Payments
received on real estate loans and real estate
|
|
|
3,695
|
|
|
|
3,256
|
|
Investments
in real estate
|
|
|
(738 |
) |
|
|
(10,188 |
) |
Purchase
of investments
|
|
|
(200,311 |
) |
|
|
(5,795 |
) |
Proceeds
from sale of investments
|
|
|
1,957
|
|
|
|
3,381
|
|
Net
cash paid for acquisitions
|
|
|
(8,022 |
) |
|
|
−
|
|
(Increase)
decrease in other assets
|
|
|
(3,842 |
) |
|
|
1,769
|
|
Net cash used in investing
activities of continuing operations
|
|
|
(210,636 |
) |
|
|
(7,796 |
) |
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Increase
in borrowings
|
|
|
416,900
|
|
|
|
161,507
|
|
Principal
payments on borrowings
|
|
|
(162,452 |
) |
|
|
(97,751 |
) |
Dividends
paid
|
|
|
(1,236 |
) |
|
|
(1,043 |
) |
Distributions
paid to minority interest holders
|
|
|
(937 |
) |
|
|
−
|
|
Increase
in restricted cash
|
|
|
(57,273 |
) |
|
|
(5,639 |
) |
Proceeds
from issuance of stock
|
|
|
158
|
|
|
|
25
|
|
Purchase
of treasury stock
|
|
|
(237 |
) |
|
|
−
|
|
Net cash provided by financing
activities of continuing operations
|
|
|
194,923
|
|
|
|
57,099
|
|
CASH FLOWS FROM DISCONTINUED
OPERATIONS:
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
(6 |
) |
|
|
(14 |
) |
Financing
activities
|
|
|
(5 |
) |
|
|
−
|
|
Net cash used in discontinued
operations
|
|
|
(11 |
) |
|
|
(14 |
) |
Increase (decrease) in
cash
|
|
|
5,166
|
|
|
|
(17,754 |
) |
Cash at beginning of
period
|
|
|
14,624
|
|
|
|
37,622
|
|
Cash at end of
period
|
|
$ |
19,790
|
|
|
$ |
19,868
|
|
The
accompanying notes are an integral part of these statements
RESOURCE AMERICA,
INC.
December 31, 2007
(unaudited)
NOTE 1 – NATURE OF
OPERATIONS
Resource America, Inc. (the "Company"
or “RAI”) (Nasdaq: REXI) is a specialized asset management company that uses
industry specific expertise to generate and administer investment opportunities
for outside investors in the commercial finance, real estate and financial fund
management sectors. As a specialized asset manager, the Company seeks
to develop investment vehicles for outside investors for which the Company
manages the assets acquired pursuant to long-term management and operating
arrangements. The Company limits its investment vehicles to
investment areas where it owns existing operating companies or has specific
expertise.
The consolidated financial statements
and the information and tables contained in the notes thereto as of December 31,
2007 and for the three months ended December 31, 2007 and 2006 are
unaudited. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America (“GAAP”) have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. However, in the opinion of management, these
interim financial statements include all the necessary adjustments to present
fairly the results of the interim periods presented. The unaudited
interim consolidated financial statements should be read in conjunction with the
audited consolidated financial statements included in the Company’s Annual
Report on Form 10-K for the fiscal year ended September 30, 2007 (“fiscal
2007”). The results of operations for the three months ended December
31, 2007 may not necessarily be indicative of the results of operations for the
full fiscal year ending September 30, 2008 (“fiscal 2008”).
NOTE 2 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Principles of
Consolidation
The consolidated financial statements
include the accounts of the Company and its subsidiaries, all of which are
wholly-owned except for certain financial fund management entities and LEAF
Financial Corp. (“LEAF”) in which the senior executives of LEAF hold a 14.9%
interest.
When the Company obtains an explicit or
implicit interest in an entity, the Company evaluates the entity to determine if
the entity is a variable interest entity (“VIE”), and, if so, whether or not the
Company is deemed to be the primary beneficiary of the VIE, in accordance with
Financial Accounting Standards Board (“FASB”) Interpretation 46, “Consolidation
of Variable Interest Entities,” as revised (“FIN 46-R”). Generally,
the Company consolidates VIEs for which the Company is deemed to be the primary
beneficiary or for non-VIEs which the Company controls. The primary
beneficiary of a VIE is the variable interest holder that absorbs the majority
of the variability in the expected losses or the residual returns of the
VIE. When determining the primary beneficiary of a VIE, the Company
considers its aggregate explicit and implicit variable interests as a single
variable interest. If the Company’s single variable interest absorbs
the majority of the variability in the expected losses or the residual returns
of the VIE, the Company is considered the primary beneficiary of the VIE.
The Company reconsiders its determination of whether an entity is a VIE
and whether the Company is the primary beneficiary of such VIE if certain events
occur.
RESOURCE AMERICA,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
December 31, 2007
(unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES − (Continued)
Principles of Consolidation −
(Continued)
In certain collateralized debt
obligation (“CDO”) transactions sponsored by the Company, the Company provides
credit support in the form of a first loss guarantee to the warehouse lender,
which is typically an investment banking firm that provides the warehouse
facility to a CDO issuer while the CDO issuer accumulates assets. If
the warehouse lender has to dispose of the assets it holds at a loss, the
Company will reimburse the lender for its losses up to a specified
amount. Generally, the first loss amount ranges from 3% to 6% of the
total assets accumulated in the warehouse facility during the accumulation
phase. The Company is often required to deposit an amount into an account
held by the warehouse lender as assets are being accumulated. The Company
reflects these amounts as restricted cash on its consolidated balance
sheets. In these cases, the Company has generally determined the CDO
issuer is a VIE, the first loss guarantee is a variable interest and that the
Company is the primary beneficiary and required to consolidate the CDO issuer’s
assets and liabilities which generally consist of leveraged and commercial loans
and a warehouse facility.
When a sufficient amount of assets are
accumulated, the CDO issuer repays the warehouse facility by issuing various
layers of CDO securities to investors in a private offering, the Company’s first
loss guarantee is terminated and the Company no longer consolidates the CDO
issuer. The Company generally serves as collateral asset manager of the
CDO issuer and receives ongoing fees for this service until the expiration of
the CDO issuer.
As of December 31, 2007, the Company
consolidated three CDO issuers (Apidos CDO VI, Apidos CDO VII and Resource
Europe II). Subsequent to December 31, 2007, the Company determined to end
the warehouse agreements for Apidos CDO VII and Resource Europe II (see Note
12). The underlying loans were sold in late January and early
February 2008. Accordingly, the Company reclassified these loans and
recorded a loss on the reclassification in the quarter ended December 31,
2007. The loss is included in other (expense) income in the
consolidated statements of operations (see Note 18). The assets and
liabilities of those CDO issuers, which were included in the Company’s
consolidated balance sheets at December 31, 2007 in accordance with FIN 46-R,
will not be consolidated in subsequent periods as a result of the
sale. The restricted cash (see Note 5) securing the warehouse
agreements was retained by the warehouse lender. Additionally, the
Company has no additional warehouse loss exposure under these facilities and is
relieved of its commitments (see Note 19).
In December 2007, the Company purchased
100% of the outstanding preference shares of Apidos CDO VI for $21.3
million. The equity interest is subordinated in right of payment to
all other securities issued by Apidos CDO VI. The Company was deemed
to be the primary beneficiary and, therefore, has consolidated Apidos CDO VI in
accordance with FIN 46-R.
Certain
reclassifications have been made to the fiscal 2007 consolidated financial
statements to conform to the fiscal 2008 presentation.
RESOURCE AMERICA,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS − (Continued)
December 31, 2007
(unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES − (Continued)
Allowance for Credit
Losses
Loans held for investment are generally
evaluated for impairment individually, but loans purchased on a pooled basis
with relatively smaller balances and substantially similar characteristics may
be evaluated collectively for impairment. The Company considers a
loan to be impaired when, based on current information and events, management
believes it is probable that the Company will be unable to collect all amounts
due according to the contractual terms of the loan agreement. When a
loan is impaired, the allowance for loan losses is increased by the amount of
the excess of the amortized cost basis of the loan over its fair
value. Fair value may be determined based on market price, if
available; the fair value of the collateral less estimated disposition costs; or
the present value of estimated cash flows. Increases in the allowance
for credit losses are recognized in the statements of operations as a provision
for credit losses. When a loan, or a portion thereof, is considered
uncollectible and pursuit of the collection is not warranted, then the Company
will record a charge-off or write-down of the loan against the allowance for
credit losses. The Company periodically evaluates its loan portfolio,
and in particular, any loans that are not current with respect to scheduled
payments of principal and interest. In reviewing its portfolio of
loans held for investment and the observable secondary market prices, the
Company determined that a reserve was needed at December 31, 2007 and recorded a
provision for credit losses of $458,000.
For real estate loans included in
investments in real estate in the consolidated balance sheets, the Company
considers general and local economic conditions, neighborhood values,
competitive overbuilding, casualty losses and other factors that may affect the
value of loans and real estate. The value of loans and real estate
may also be affected by factors such as the cost of compliance with regulations
and liability under applicable environmental laws, changes in interest rates and
the availability of financing. Income from a property will be reduced
if a significant number of tenants are unable to pay rent or if available space
cannot be rented on favorable terms. In addition, the Company
continually monitors collections and payments from its borrowers and maintains
an allowance for estimated losses based upon its historical experience and its
knowledge of specific borrower collection issues. The Company reduces
its investments in real estate loans and real estate by an allowance for amounts
that may become unrealizable in the future. Such allowance can be
either specific to a particular loan or property or general to all loans and
real estate.
An impaired loan may remain on accrual
status during the period in which the Company is pursuing repayment of the loan;
however, the loan would be placed on non-accrual status at such time as either
(1) management believes that scheduled debt service payments will not be met
within the coming 12 months; (2) the loan becomes 90 days delinquent; (3)
management determines the borrower is incapable of, or has ceased efforts
toward, curing the cause of the impairment; or (4) the net realizable value of
the loan’s underlying collateral approximates the Company’s carrying value of
such loan. While on non-accrual status, the Company recognizes
interest income only when an actual payment is received. The Company
recorded no provision on the real estate loans at December 31, 2007 or
2006.
The Company evaluates the adequacy of
the allowance for credit losses in commercial finance, which includes
investments in leases, notes and future payment card receivables, based upon,
among other factors, management’s experience of portfolio default rates,
subsequent collectability and economic conditions and trends. The
Company discontinues the recognition of revenue for leases and notes for which
payments are more than 90 days past due. Management has determined
that an allowance for credit losses was needed at December 31, 2007 and 2006 and
recorded a provision of $2.3 million and $45,000,
respectively.
RESOURCE AMERICA,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS − (Continued)
December 31, 2007
(unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES − (Continued)
Allowance for Credit Losses −
(Continued)
Generally, during the lease terms of
existing operating leases, the Company will not recover all of the cost and
related expenses of its rental equipment and, therefore, it is prepared to
remarket the equipment in future years. The Company’s policy is to
review, on a continual basis, the expected economic life of its rental equipment
in order to determine the recoverability of its undepreciated
cost. The Company writes down its rental equipment to its estimated
net realizable value when it is probable that its carrying amount exceeds such
value and the excess can be reasonably estimated; gains are only recognized upon
actual sale of the rental equipment. There were no writedowns of
equipment during three months ended December 31, 2007 and 2006.
Recently Issued Financial Accounting
Standards
In December 2007, the Securities and
Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 110 (“SAB
110”). SAB 110 amends and replaces Question 6 of Section D.2 of Topic
14, “Share-Based Payment,” of the Staff Accounting Bulletin
series. Question 6 of Section D.2 of Topic 14 expresses the views of
the staff regarding the use of the “simplified” method in developing an estimate
of the expected term of “plain vanilla” share options and allows usage of the
“simplified” method for share option grants prior to December 31,
2007. SAB 110 allows public companies which do not have historically
sufficient experience to provide a reasonable estimate to continue to use the
“simplified” method for estimating the expected term of “plain vanilla” share
option grants after December 31, 2007. The Company will continue to
use the “simplified” method until it has enough historical experience to provide
a reasonable estimate of expected term in accordance with SAB 110.
In December 2007, the FASB issued
Statement of Financial Accounting Standards (“SFAS”) 141-R, “Business
Combinations.” SFAS 141-R retains the fundamental requirements in
SFAS 141 that the acquisition method of accounting (referred to as the purchase method) be used for
all business combinations and for an acquirer to be identified for each business
combination. It also establishes principles and requirements for how
the acquirer: (a) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree; (b) recognizes and measures the goodwill acquired in
the business combination or a gain from a bargain purchase and (c) determines
what information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination. SFAS
141-R will apply prospectively to business combinations for which the
acquisition date is on or after the Company’s fiscal year beginning October 1,
2009. While the Company has not yet evaluated the impact, if any,
that SFAS 141-R will have on its consolidated financial statements, the Company
will be required to expense costs related to any acquisitions after September
30, 2009.
In December 2007, the FASB issued SFAS
160, “Noncontrolling Interests in Consolidated Financial
Statements.” This Statement amends Accounting Research Bulletin 51 to
establish accounting and reporting standards for the noncontrolling (minority)
interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a
subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements. The
Company has not yet determined the impact, if any, that SFAS 160 will have on
its consolidated financial statements. SFAS 160 is effective for the
Company’s fiscal year beginning October 1, 2009.
RESOURCE AMERICA,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS − (Continued)
December 31, 2007
(unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES − (Continued)
Recently Issued Financial Accounting
Standards − (Continued)
In June 2007, the Accounting Standards
Executive Committee of the American Institute of Certified Public Accountants
(“AICPA”) issued Statement of Position (“SOP”) 07-1, “Clarification of the Scope
of the Audit and Accounting Guide ‘Investment Companies’ and Accounting by
Parent Companies and Equity Method Investors for Investments in Investment
Companies.” SOP 07-1 provides guidance for determining whether an
entity is within the scope of the AICPA Audit and Accounting Guide Investment
Companies (the “Guide”). Additionally, it provides guidance as to
whether a parent company or an equity method investor can apply the specialized
industry accounting principles of the Guide (referred to as investment company
accounting). This SOP is effective for fiscal years beginning on or
after December 15, 2007, with early application encouraged (for the Company, its
fiscal year beginning October 1, 2008). In October 2007, the FASB
issued an exposure draft indefinitely deferring the effective date of this
SOP.
In May 2007, the FASB issued Staff
Position (“FSP”) FIN 46-R(7), “Application of FASB Interpretation 46-R to
Investment Companies” (“FSP FIN 46-R(7)”). FSP FIN 46-R(7) amends the
scope of the exception to FIN 46-R to state that investments accounted for at
fair value in accordance with investment company accounting are not subject to
consolidation under FIN 46-R. This interpretation is effective for
fiscal years beginning on or after December 15, 2007 (for the Company, its
fiscal year beginning October 1, 2008). Certain of the Company’s
consolidated subsidiaries currently apply investment company
accounting. The Company is currently evaluating the impact, if any;
the adoption of this interpretation will have on its consolidated financial
statements.
In February 2007, the FASB issued SFAS
159, "The Fair Value Option for Financial Assets and Financial Liabilities -
Including an Amendment of SFAS 115," which permits entities to choose to measure
many financial instruments and certain other items at fair value (“SFAS
159”). The fair value option established by SFAS 159 permits all
entities to choose to measure eligible items at fair value at specified election
dates. Entities choosing the fair value option would be required to
report unrealized gains and losses on items for which the fair value option has
been elected in earnings at each subsequent reporting date. Adoption
is required for fiscal years beginning after November 15, 2007 (for the Company,
its fiscal year beginning October 1, 2008). The Company is currently
evaluating the expected effect, if any; SFAS 159 will have on its consolidated
financial statements.
In September 2006, the FASB issued SFAS
157, “Fair Value Measurements,” which provides guidance on measuring the fair
value of assets and liabilities (“SFAS 157”). SFAS 157 will apply to
other accounting pronouncements that require or permit assets or liabilities to
be measured at fair value but does not expand the use of fair value to any new
circumstances. This standard will also require additional disclosures
in both annual and quarterly reports. SFAS 157 will be effective for
financial statements issued for fiscal years beginning after November 15, 2007
(for the Company, its fiscal year beginning October 1, 2008). In
November 2007, the FASB announced that it would defer the effective date of SFAS
157 for one year for all non-financial assets and liabilities, except those that
are recognized or disclosed at fair value in the financial statements on a
recurring basis. The Company is currently determining the effect, if
any; the adoption of SFAS 157 will have on its consolidated financial
statements.
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS − (Continued)
December 31, 2007
(unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES − (Continued)
Concentration of Credit
Risk
Financial instruments, which
potentially subject the Company to concentrations of credit risk, consist
principally of periodic temporary investments of cash and restricted cash. The
Company places its temporary cash investments and restricted cash in high
quality short-term money market instruments with high-quality financial
institutions and brokerage firms. At December 31, 2007, the Company
had $39.5 million (excluding restricted cash) in deposits at various banks, of
which $36.4 million was over the insurance limit of the Federal Deposit
Insurance Corporation. No losses have been experienced on such
investments.
NOTE 3 − SUPPLEMENTAL CASH FLOW
INFORMATION
Supplemental disclosure of cash flow
information (in thousands):
|
|
Three Months
Ended
|
|
|
|
|
|
|
|
|
Cash paid during the period
for:
|
|
|
|
|
|
|
Interest
|
|
$ |
18,279
|
|
|
$ |
1,650
|
|
Income
taxes
|
|
$ |
1,224
|
|
|
$ |
61
|
|
Non-cash activities include the
following:
|
|
|
|
|
|
|
|
|
Transfer of loans held for
investment (see Note 12):
|
|
|
|
|
|
|
|
|
Reduction of loans held for
investment
|
|
$ |
194,207
|
|
|
$ |
−
|
|
Termination of associated
warehouse credit
facility
|
|
$ |
(194,207 |
) |
|
$ |
−
|
|
Activity on secured warehouse
facilities related to secured bank loans:
|
|
|
|
|
|
|
|
|
Purchase of
loans
|
|
$ |
(51,524 |
) |
|
$ |
(210,129 |
) |
Proceeds from sale of
loans
|
|
$ |
152,843
|
|
|
$ |
2,630
|
|
Principal payments on
loans
|
|
$ |
7,366
|
|
|
$ |
6,143
|
|
Use of funds held in escrow for
purchases of
loans
|
|
$ |
(3,000 |
) |
|
$ |
−
|
|
(Losses) gains on sale of
loans
|
|
$ |
(29 |
) |
|
$ |
2
|
|
(Repayments of) borrowings on
associated secured warehouse credit facilities
|
|
$ |
(107,841 |
) |
|
$ |
201,355
|
|
Acquisition of leasing assets
of NetBank Business Finance (see Note 7):
|
|
|
|
|
|
|
|
|
Commercial finance assets
acquired
|
|
$ |
412,541
|
|
|
$ |
−
|
|
Purchase of building and other
assets
|
|
$ |
7,835
|
|
|
$ |
−
|
|
Debt incurred for
acquisition
|
|
$ |
(391,176 |
) |
|
$ |
−
|
|
Liabilities
assumed
|
|
$ |
(21,178 |
) |
|
$ |
−
|
|
RESOURCE AMERICA,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS − (Continued)
December 31, 2007
(unaudited)
NOTE 4 − EARNINGS PER
SHARE
Basic earnings per share (“Basic EPS”)
is determined by dividing net income by the weighted average number of shares of
common stock outstanding during the period. Diluted earnings per
share (“Diluted EPS”) is computed by dividing net income by the sum of the
weighted average number of shares of common stock outstanding after giving
effect to the potential dilution from the exercise of securities, such as stock
options, into shares of common stock as if those securities were exercised as
well as the dilutive effect of other award plans, including restricted stock and
director units.
The following table presents a
reconciliation of the shares used in the computation of Basic EPS and Diluted
EPS (in thousands):
|
|
Three Months
Ended
December
31,
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
Basic
shares
outstanding
|
|
|
17,428
|
|
|
|
17,292
|
|
Dilutive
effect of stock option and award plans (1)
|
|
|
−
|
|
|
|
1,830
|
|
Dilutive
shares
outstanding
|
|
|
17,428
|
|
|
|
19,122
|
|
(1)
|
As
of December 31, 2007, all outstanding options and other equity awards were
antidilutive due to the loss for the quarter and therefore, were excluded
from the computation of diluted EPS. In addition, of the
options outstanding at December 31, 2007, 993,007 were at exercise prices
exceeding the average market price of the Company’s stock for the three
months ended December 31, 2007. The exercise prices on these
options range from $15.91 to $27.84. As of December 31, 2006,
all outstanding options were
dilutive.
|
NOTE 5 − RESTRICTED
CASH
At December 31, 2007, the Company held
$76.6 million of restricted cash, which was comprised of the following (in
thousands):
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
Escrow
funds − financial fund management
|
|
$ |
51,906 |
(1) |
|
$ |
12,282
|
|
Collection
accounts – commercial finance
|
|
|
23,719 |
(2) |
|
|
5,884
|
|
Other
|
|
|
988
|
|
|
|
1,174
|
|
|
|
$ |
76,613
|
|
|
$ |
19,340
|
|
(1)
|
At
December 31, 2007, Apidos CDO VI held $37.1 million in
trust. In addition, the Company held $14.8 million in escrow as
required by the warehouse agreements for Apidos CDO VII and Resource
Europe II. These funds were retained by the lenders due to the
termination of these facilities (see Notes 6, 12, 18 and
19).
|
(2)
|
The
Company is required under the existing credit facilities for its
commercial finance operations to maintain collection
accounts. The significant increase in borrowings under those
facilities, principally to fund the acquisition of NetBank (see Notes 7
and 12), resulted in an increase in cash held in the collection accounts
at December 31, 2007.
|
RESOURCE AMERICA,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS − (Continued)
December 31, 2007
(unaudited)
NOTE 6 − LOANS
Loans Held for
Investment
The following is a summary of the
Company’s secured bank loans held for investment by CDO issuers that the Company
consolidated in accordance with FIN 46-R (in thousands):
|
|
|
|
|
|
|
Principal
|
|
$ |
199,020
|
|
|
$ |
284,906
|
|
Unamortized
premium
|
|
|
314
|
|
|
|
1,160
|
|
Unamortized
discount
|
|
|
(1,155 |
) |
|
|
(138 |
) |
|
|
|
198,179
|
|
|
|
285,928
|
|
Allowance for credit
losses
|
|
|
(458 |
) |
|
|
−
|
|
Loans
held for investment, net
|
|
$ |
197,721
|
|
|
$ |
285,928
|
|
In December 2007, the Company closed
Apidos CDO VI, a $240.0 million securitization of corporate loans, and provided
the equity of $21.3 million for this investment. At December 31,
2007, the portfolio of loans consisted of floating rate loans at various London
Inter-Bank Offered Rates (“LIBOR”) plus 1.38% to 9.50% with maturity dates
ranging from March 2010 to June 2022.
At September 30, 2007, the portfolio
consisted of floating rate loans at various LIBOR rates, including European
LIBOR rates, plus 1.38% to 8.50%, with maturity dates ranging from March 2010 to
June 2022.
There were no fixed rate loans as of
December 31, 2007 or September 30, 2007.
Loans Sold, Not
Traded
In connection with the substantial
volatility and reduction in liquidity in global credit markets that commenced in
July 2007, the Company decided to decrease its exposure to corporate bank loans,
principally in Europe and to a lesser extent the United States. As a
result, the Company entered into trades to sell certain bank loans prior to
September 30, 2007, not all of which had settled at that date. The gross
proceeds of these trades totaled $152.7 million. As of December 31,
2007, $11.9 million in proceeds remained outstanding from these
trades. All remaining proceeds from these trades were received in
January 2008.
Loans
Held-for-Sale
As of
December 31, 2007, the Company consolidated three CDO issuers (Apidos, CDO VI,
Apidos CDO VII and Resource Europe II). Subsequent to December 31,
2007, the Company determined to end the warehouse agreements for Apidos CDO VII
and Resource Europe II (see Note 12). The underlying loans were sold
in late January and early February 2008. As a result, the Company
reclassified $112.6 million of loans held for investment that had secured these
warehouse facilities to loans held-for-sale. In connection with the
reclassification, the Company recorded an $18.3 million charge to reduce these
loans to fair value (see Note 18). The assets and liabilities of
those CDO issuers, which were included in our consolidated balance sheets at
December 31, 2007 in accordance with FIN 46-R, will not be consolidated in
subsequent periods as a result of the sale. The restricted cash (see
Note 5) securing the warehouse agreements was retained by the warehouse
lender. Additionally, the Company has no additional loss exposure and
is relieved of its commitments (see Note 19).
RESOURCE AMERICA,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS − (Continued)
December 31, 2007
(unaudited)
NOTE 7 – INVESTMENTS IN COMMERCIAL
FINANCE
Portfolio
Acquisitions
Dolphin Capital
Corp. On November 30, 2007, the Company acquired the net
business assets of Dolphin Capital Corp., an equipment finance subsidiary of
Lehman Brothers Bank, FSB. The total purchase price of $170.5 million
included a $169.0 million portfolio of small ticket leases which was acquired
directly by an investment partnership sponsored and managed by LEAF. The
investment partnership financed this transaction with bank borrowings under an
existing facility.
NetBank Business
Finance. On November 7, 2007, the Company acquired at a
discount a portfolio of over 10,000 equipment leases and loans to small
businesses, of NetBank Business Finance, a division of NetBank, from the Federal
Deposit Insurance Corporation which held it in receivership, for $412.5
million. Financing for this transaction was provided by borrowings under
the Company’s existing warehouse credit facility and a new facility with Morgan
Stanley Bank and Morgan Stanley Asset Funding Inc. (see Note 12).
The following table summarizes the
allocation of the estimated fair value of the assets acquired and liabilities
assumed at the date of the respective portfolio acquisitions (in
thousands):
|
|
|
|
|
|
|
Leases
and notes
|
|
$ |
412,539
|
|
|
$ |
−
|
|
Property
and equipment and other assets
|
|
|
6,168
|
|
|
|
1,667
|
|
Liabilities
assumed
|
|
|
(21,176 |
) |
|
|
−
|
|
Borrowings
under debt facilities
|
|
|
(389,683 |
) |
|
|
(1,493 |
) |
Net cash paid for
acquisitions
|
|
$ |
7,848
|
|
|
$ |
174
|
|
Commercial Finance
Assets
The Company’s investments in commercial
finance include the following (in thousands):
|
|
December
31,
|
|
|
September
30,
|
|
|
|
|
|
|
|
|
Notes
receivable
|
|
$ |
471,516
|
|
|
$ |
192,262
|
|
Direct
financing leases, net
|
|
|
152,387
|
|
|
|
44,100
|
|
Future
payment card receivables, net
|
|
|
23,686
|
|
|
|
6,899
|
|
Assets
subject to operating leases, net of accumulated depreciation of
$27
and $7
|
|
|
200
|
|
|
|
250
|
|
Allowance
for credit losses
|
|
|
(1,395 |
) |
|
|
(120 |
) |
Investments in commercial
finance, net
|
|
$ |
646,394
|
|
|
$ |
243,391
|
|
The interest rates on notes receivable
generally range from 7% to 15%.
RESOURCE AMERICA,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS − (Continued)
December 31, 2007
(unaudited)
NOTE 7 – INVESTMENTS IN COMMERCIAL
FINANCE − (Continued)
Commercial Finance Assets −
(Continued)
The components of direct financing
leases are as follows (in thousands):
|
|
|
|
|
|
|
Total
future minimum lease payments
receivables
|
|
$ |
178,501
|
|
|
$ |
50,196
|
|
Initial
direct costs, net of
amortization
|
|
|
781
|
|
|
|
658
|
|
Unguaranteed
residuals
|
|
|
2,276
|
|
|
|
442
|
|
Unearned
income
|
|
|
(29,171 |
) |
|
|
(7,196 |
) |
Investments in direct financing
leases,
net
|
|
$ |
152,387
|
|
|
$ |
44,100
|
|
The Company typically sells without
recourse all of the leases and notes it acquires or originates to the investment
entities it manages within two to three months after their acquisition or
origination. However, due to the significant volume of leases and
loans acquired from NetBank ($383.0 million at December 31, 2007), these assets
are not expected to be completely sold until April 2008. In addition,
the Company has accumulated a $130.0 million portfolio of leases and notes that
are anticipated to be sold to a new investment entity it formed and will
manage. This new investment entity is currently in the offering
stage.
Merit Capital Advance (“Merit”), an
indirect subsidiary of the Company, provides capital advances to small
businesses based on factoring their future credit card receipts. The
components of future payment card receivables are as follows (in
thousands):
|
|
|
|
|
|
|
Total
future payment card
receivables
|
|
$ |
28,111
|
|
|
$ |
8,135
|
|
Unearned
income
|
|
|
(4,425 |
) |
|
|
(1,236 |
) |
Investments
in future payment card
receivables
|
|
$ |
23,686
|
|
|
$ |
6,899
|
|
The following table summarizes the
activity in the allowance for credit losses (in thousands):
|
|
|
|
|
|
|
|
|
|
Balance,
October 1, 2007
|
|
$ |
−
|
|
|
$ |
120
|
|
|
$ |
120
|
|
Provision for credit
losses
|
|
|
1,586
|
|
|
|
729
|
|
|
|
2,315
|
|
Charge-offs, net of
recoveries
|
|
|
(616 |
) |
|
|
(424 |
) |
|
|
(1,040 |
) |
Balance,
December 31, 2007
|
|
$ |
970
|
|
|
$ |
425
|
|
|
$ |
1,395
|
|
RESOURCE AMERICA,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS − (Continued)
December 31, 2007
(unaudited)
NOTE 8 – INVESTMENTS IN REAL
ESTATE
The following is a summary of the
changes in the carrying value of the Company’s investments in real estate (in
thousands):
|
|
|
|
|
September
30,
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate loans:
|
|
|
|
|
|
|
|
|
|
Balance, beginning of
period
|
|
$ |
27,765
|
|
|
$ |
28,739
|
|
|
$ |
28,739
|
|
New loans
|
|
|
−
|
|
|
|
−
|
|
|
|
1,597
|
|
Additions to existing
loans
|
|
|
−
|
|
|
|
−
|
|
|
|
42
|
|
Collection of
principal
|
|
|
(1,602 |
) |
|
|
(281 |
) |
|
|
(3,373 |
) |
Other
|
|
|
165
|
|
|
|
47
|
|
|
|
760
|
|
Balance, end of
period
|
|
|
26,328
|
|
|
|
28,505
|
|
|
|
27,765
|
|
Less: allowance for credit
losses
|
|
|
(629 |
) |
|
|
(770 |
) |
|
|
(629 |
) |
Net real estate
loans
|
|
|
25,699
|
|
|
|
27,735
|
|
|
|
27,136
|
|
Real
estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Ventures
|
|
|
9,863
|
|
|
|
9,421
|
|
|
|
9,769
|
|
Owned, net of accumulated
depreciation of $2,223, $1,833, and
$2,125
|
|
|
13,703
|
|
|
|
12,336
|
|
|
|
12,136
|
|
Total real estate
|
|
|
23,566
|
|
|
|
21,757
|
|
|
|
21,905
|
|
Investments
in real estate
|
|
$ |
49,265
|
|
|
$ |
49,492
|
|
|
$ |
49,041
|
|
NOTE 9 − INVESTMENT SECURITIES
AVAILABLE-FOR-SALE
The Company’s investment securities
available-for-sale are carried at fair market value based on market
quotes. Unrealized gains or losses, net of tax, are included in
accumulated comprehensive loss in stockholders’ equity.
The Company has invested in two
affiliated publicly-traded companies, Resource Capital Corp. (“RCC”) (NYSE:
RSO), and The Bancorp, Inc. (“TBBK”) (Nasdaq: TBBK) (see Note 17), in addition
to investments in the CDO issuers it has sponsored and manages, as follows (in
thousands):
|
|
December
31,
|
|
|
September
30,
|
|
|
|
|
|
|
|
|
RCC
stock, including unrealized losses of $11,309 and $7,344
|
|
$ |
18,272
|
|
|
$ |
22,099
|
|
TBBK
stock, including unrealized gains of $418 and $1,010
|
|
|
1,592
|
|
|
|
2,184
|
|
CDO
securities, including net unrealized losses of $8,547 and
$7,543
|
|
|
25,281
|
|
|
|
27,494
|
|
Investment securities
available-for-sale
|
|
$ |
45,145
|
|
|
$ |
51,777
|
|
The Company held approximately 2.0
million shares of RCC at December 31, and September 30, 2007. In
addition, the Company held options to acquire 2,166 shares (at an average price
per share of $15.00) and warrants to acquire an additional 100,088 shares (at
$15.00 per share) of RCC common stock at December 31, and September 30,
2007.
The Company held 118,290 shares of TBBK
at December 31, and September 30, 2007. Included in other assets at
December 31 and September 30, 2007 are an additional 123,719 shares of TBBK as
well as $1.1 million and $1.2 million, respectively, of other equity securities
that are held in a supplemental employment retirement plan for the Company’s
former Chief Executive Officer.
RESOURCE AMERICA,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS − (Continued)
December 31, 2007
(unaudited)
NOTE 9 − INVESTMENT SECURITIES
AVAILABLE-FOR-SALE − (Continued)
Investments in CDO securities represent
investments in the CDO issuers that the Company sponsored and
manages. Investments in 18 CDOs at December 31 and September 30, 2007
were held directly through the Company’s financial fund management entities and
indirectly through the consolidation of two investment partnerships, the
Structured Finance Funds (“SFF”) entities, that the Company manages as the
general partner. Interests owned by third parties of the SFF
entities, reflected as minority interest holdings on the consolidated balance
sheets, totaled $4.2 million and $3.6 million as of December 31 and September
30, 2007, respectively. The investments held by the respective CDOs
are sensitive to interest rate fluctuations, which accordingly impact their fair
value. Unrealized losses are generally caused by the effect of rising
interest rates on those securities with stated interest rates that are below
market.
Unrealized
Losses
The following table discloses the
pre-tax unrealized gains (losses) relating to the Company’s investments in CDO
securities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
2007
|
|
$ |
33,828
|
|
|
$ |
242
|
|
|
$ |
(8,789 |
) |
|
$ |
25,281
|
|
December
31,
2006
|
|
$ |
31,282
|
|
|
$ |
157
|
|
|
$ |
(1,861 |
) |
|
$ |
29,578
|
|
Unrealized losses as of December 31,
2007 and 2006, along with the related fair value and aggregated by the length of
time the investments were in a continuous unrealized loss position, are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
2007
|
|
$ |
16,194
|
|
|
$ |
(2,714 |
) |
|
$ |
5,282
|
|
|
$ |
(6,075 |
) |
December
31,
2006
|
|
$ |
15,896
|
|
|
$ |
(899 |
) |
|
$ |
5,353
|
|
|
$ |
(962 |
) |
Realized Losses
The global credit markets have been
subject to substantial volatility and reduction in liquidity, principally as a
result of conditions in the residential mortgage sector, particularly in the
subprime sector. In the first quarter of fiscal 2008, the Company
recorded a $1.0 million charge for the other–than-temporary impairment of
certain of its investments in CDOs, primarily those with investments in real
estate asset-backed securities (“ABS”), including residential mortgage-backed
securities (“RMBS”) and commercial mortgage-backed securities (“CMBS”), and
trust preferred securities of a subprime lender and a subprime
investor. There were no impairment charges in the first fiscal
quarter of 2007.
RESOURCE AMERICA,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS − (Continued)
December 31, 2007
(unaudited)
NOTE 10 − INVESTMENTS IN
UNCONSOLIDATED ENTITIES
As a specialized asset manager, the
Company develops various types of investment vehicles which it manages under
long-term management agreements or similar arrangements. The
following table details the Company’s investments in these vehicles, including
the range of partnership interests owned (in thousands, except
percentages):
|
|
|
|
|
|
|
|
Range of Combined Partnership
Interests
|
|
Trapeza
entities (1)
|
|
$ |
15,726
|
|
|
$ |
16,190
|
|
|
|
13%−50%
|
|
Financial
fund management partnerships
|
|
|
7,582
|
|
|
|
7,185
|
|
|
|
5%−10%
|
|
Real
estate investment partnerships
|
|
|
8,111
|
|
|
|
7,926
|
|
|
|
5%–11%
|
|
Commercial
finance investment partnerships
|
|
|
2,002
|
|
|
|
2,109
|
|
|
|
1%−5%
|
|
Tenant-in-Common
(“TIC”) property interest (2)
|
|
|
1,503
|
|
|
|
3,367
|
|
|
N/A
|
|
Investments in unconsolidated
entities
|
|
$ |
34,924
|
|
|
$ |
36,777
|
|
|
|
|
|
(1)
|
Includes
the Company’s 50% equity interest in one of the managers of the Trapeza
CDO entities, Trapeza Capital Management, LLC (“TCM”). The
Company does not consolidate TCM since it does not have control over
it.
|
(2)
|
The
Company held an interest in one TIC property. Of the Company’s
49% ownership interest in the property, 13.8% and 32.9% remained available
for sale to investors at December 31 and September 30, 2007,
respectively.
|
Summarized operating data for TCM is
presented below (in thousands):
|
|
Three Months
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
fees
|
|
$ |
2,910
|
|
|
$ |
3,839
|
|
Operating
expenses
|
|
|
(890 |
) |
|
|
(824 |
) |
Other
expense
|
|
|
(67 |
) |
|
|
(29 |
) |
Net
income
|
|
$ |
1,953
|
|
|
$ |
2,986
|
|
NOTE 11 − PROPERTY AND
EQUIPMENT
Property and equipment, net, consisted
of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
Land
(1)
|
|
|
−
|
|
|
$ |
200
|
|
|
$ |
−
|
|
Building
(1)
|
|
39
years
|
|
|
|
1,667
|
|
|
|
−
|
|
Leasehold
improvements
|
|
1-15
years
|
|
|
|
5,539
|
|
|
|
4,420
|
|
Real
estate assets − FIN 46-R
|
|
40
years
|
|
|
|
3,900
|
|
|
|
3,900
|
|
Furniture
and equipment
|
|
3-10
years
|
|
|
|
10,178
|
|
|
|
9,438
|
|
|
|
|
|
|
|
|
21,484
|
|
|
|
17,758
|
|
Accumulated
depreciation and amortization
|
|
|
|
|
|
|
(6,242 |
) |
|
|
(5,472 |
) |
Property and equipment,
net
|
|
|
|
|
|
$ |
15,242
|
|
|
$ |
12,286
|
|
(1)
|
Reflects
the value of the land and building located in Moberly, Missouri which the
Company acquired from Dolphin Capital Corp. (see Notes 7 and 12
).
|
RESOURCE AMERICA,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS − (Continued)
December 31, 2007
(unaudited)
NOTE 12 –
BORROWINGS
The credit facilities of the Company,
as well as those of the financial fund management CDO issuers that the Company
consolidates under FIN 46-R, and related borrowings outstanding are as
follows:
|
|
As of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions)
|
|
|
(in
thousands)
|
|
|
(in
thousands)
|
|
Financial fund
management:
|
|
|
|
|
|
|
|
|
|
Secured warehouse credit
facilities consolidated under FIN 46-R
|
|
$ |
300.0
|
|
|
$ |
54,018
|
|
|
$ |
50,626
|
|
|
|
|
589.2
|
|
|
|
89,050
|
|
|
|
223,549
|
|
|
|
|
−
|
|
|
|
−
|
|
|
|
165,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CDO senior notes consolidated
under FIN 46-R, net
|
|
|
218.0
|
|
|
|
212,950 |
(1) |
|
|
−
|
|
Subtotal – Financial fund
management
|
|
$ |
1,107.2
|
|
|
|
356,018
|
|
|
|
439,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
finance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured revolving credit
facilities
|
|
$ |
150.0
|
|
|
|
129,600
|
|
|
|
83,900
|
|
|
|
|
250.0
|
|
|
|
128,098
|
|
|
|
137,637
|
|
Bridge loans
|
|
|
|
|
|
|
|
|
|
|
|
|
A
Loan
|
|
|
333.4
|
|
|
|
321,658
|
|
|
|
−
|
|
B
Loan
|
|
|
34.7
|
|
|
|
33,527
|
|
|
|
−
|
|
Subtotal – Commercial
finance
|
|
$ |
768.1
|
|
|
|
612,883
|
|
|
|
221,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured revolving credit
facilities
|
|
$ |
75.0
|
|
|
|
56,600
|
|
|
|
29,600
|
|
|
|
|
14.0
|
|
|
|
8,000
|
|
|
|
−
|
|
Subtotal –
Corporate
|
|
$ |
89.0
|
|
|
|
64,600
|
|
|
|
29,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
debt
|
|
|
|
|
|
|
16,975
|
|
|
|
15,696
|
|
Total borrowings
outstanding
|
|
|
|
|
|
$ |
1,050,476
|
|
|
$ |
706,372
|
|
(1)
|
The
senior notes are shown net of deferred issuance costs of $5.1
million.
|
RESOURCE AMERICA,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS − (Continued)
December 31, 2007
(unaudited)
NOTE 12 – BORROWINGS −
(Continued)
Financial fund management - Secured
warehouse credit facilities
The
Company is a party to various warehouse credit agreements for facilities which
provide funding for the purchase of bank loans in the U.S. and
Europe. Borrowings under these facilities are consolidated by the
Company in accordance with FIN 46-R while the assets accumulate prior to the
completion of the CDO. Upon the closing of the CDO, the facility is
terminated and the interest is paid. The following financial fund
management facilities were in place at December 31, 2007:
|
·
|
In
July 2007, a $300.0 million facility was opened with affiliates of Morgan
Stanley Bank (“Morgan Stanley”) with interest at LIBOR plus 75 basis
points. The
Company determined to end this facility at its maturity date on January
16, 2008. The
Company has recorded a loss as of December 31, 2007 from the subsequent
sale and reclassification of the underlying loans in the portfolio (see
Note 18). The facility provides for a guarantee by the Company
as well as an escrow deposit (see Notes 5 and 19). The Company
has no further exposure under this facility. Average borrowings
were $50.5 million at an average interest rate of 5.8% for the three
months ended December 31,
2007.
|
|
·
|
In
January 2007, a EUR 400.0 million facility (approximately $589.2 million
at December 31, 2007) was opened with Morgan Stanley with interest at
European LIBOR plus 75 basis points. The Company determined to
end this facility at its maturity date on January 11,
2008. The Company has recorded a loss as of December 31, 2007
from the subsequent sale and reclassification of these underlying loans
(see Note 18). The facility provides for a guarantee by the
Company as well as an escrow deposit (see Notes 5 and 19). The
Company has no further exposure under this facility. Average
borrowings were $141.9 million at an average interest rate of 5.3% for the
three months ended December 31,
2007.
|
|
·
|
In
connection with the closing of Apidos CDO VI, a $400.0 million facility
opened in August 2006 with affiliates of Credit Suisse Securities (USA)
LLC (“Credit Suisse”) was terminated in December 2007. The
interest rate was LIBOR plus 62.5 basis points. Average
borrowings for the three months ended December 31, 2007 were $144.1
million at an average interest rate of 5.7%. Average borrowings
for the three months ended December 31, 2006 were $81.4 million at an
average interest rate of 6.0%.
|
Financial Fund Management – CDO
senior notes
In
December 2007, the Company closed Apidos CDO VI, which issued $218.0 million of
its senior notes at par. The investments held by Apidos CDO VI
collateralize the debt it issued and, as a result, the investments are not
available to the Company, its creditors or stockholders. The senior
notes issued consist of the following classes: (i) $181.5 million of class A-1
notes bearing interest at LIBOR plus 0.64%; (ii) $6.0 million of class A-2 notes
bearing interest at LIBOR plus 1.25%; (iii) $13.0 million of class B notes
bearing interest at LIBOR plus 2.25%; (iv) $8.0 million of class C notes bearing
interest at LIBOR plus 4.00%; and (v) $9.5 million of class D notes bearing
interest at LIBOR plus 6.75%. All of the notes issued mature on
December 13, 2019, although the note holders have the right to call the notes
anytime after January 4, 2012 until maturity, or in the case of a refinancing,
anytime after January 4, 2011. The weighted average interest rate on
all the notes was 5.94% at December 31, 2007.
RESOURCE AMERICA,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS − (Continued)
December 31, 2007
(unaudited)
NOTE 12 – BORROWINGS −
(Continued)
Commercial finance - Secured
revolving credit facilities
In July
2006, LEAF entered into a $150.0 million revolving warehouse credit facility
with a group of banks led by National City Bank that expires on July 31,
2009. Interest is charged at one of two rates: (i) LIBOR plus 1.5%,
or (ii) the prime rate. In September 2007, LEAF entered into an
interest rate swap agreement in the amount of $75.0 million for this facility in
order to mitigate fluctuations in LIBOR (see Note 14). The swap
agreement terminates in September 2009. The underlying equipment
being leased or financed collateralizes the borrowings. Weighted
average borrowings for the three months ended December 31, 2007 were $121.0
million at an effective interest rate of 6.4%. Weighted average
borrowings for the three months ended December 31, 2006 were $105.5 million at
an effective interest rate of 7.3%.
In
December 2006, LEAF assumed an unused $250.0 million line of credit with Morgan
Stanley from RCC. The facility is non-recourse to the
Company. The facility matures in October 2009. However, any
outstanding borrowings as of that date will continue to amortize until fully
repaid at a higher rate of interest. The underlying equipment being
leased or financed collateralizes the borrowings. Interest is charged
at one of two rates based on the utilization of the facility: (i)
one-month LIBOR plus 60 basis points on borrowings up to $100.0 million and (ii)
one-month LIBOR plus 75 basis points on borrowings in excess of $100.0
million. Interest and principal payments are due
monthly. The Company utilizes interest rate swap agreements to
mitigate fluctuations in LIBOR (see Note 14). The swap agreements
terminate at various dates ranging from November 2011 to November
2020. Weighted average borrowings for the three months ended December
31, 2007 were $135.2 million at an effective interest rate of
5.8%. Weighted average borrowings for the three months ended December
31, 2006 were $2.2 million at an effective interest rate of 7.3%.
In June 2007, LEAF entered into a
$100.0 million short-term revolving credit facility opened with a commercial
bank, which was terminated in October 2007. Interest was charged at
one of three rates: (i) LIBOR plus 1.75%, (ii) one-month LIBOR
divided by the sum of 1 minus the LIBOR reserve percent, plus 1.75%; and (iii)
the higher of the lender’s base rate or the federal funds rate plus 50 basis
points. There were no borrowings on this facility in fiscal
2008.
Commercial finance – Bridge
loans
In November 2007, an indirect
subsidiary of LEAF obtained $368.1 million of bridge financing from Morgan
Stanley to fund the NetBank acquisition. The financing agreement provides
for two loans − a class A loan and a class B loan. These loans are
secured by the assets of the LEAF subsidiary. The agreement
terminates on November 1, 2008 unless extended at the discretion of the
lender. However, any outstanding borrowings as of that date will
continue to amortize until fully repaid, at a higher rate of
interest. The Company has entered into an interest rate swap
agreement to mitigate fluctuations in the interest rate on this facility (see
Note 14). The swap agreement matures in September 2011.
The class A loan ($333.4 million) has
varying rates of interest as follows: (i) from the closing date
through August 7, 2008, the rate is the adjusted eurodollar rate (defined as the
30 day LIBOR rate) plus 2.00%; (ii) from August 8, 2008 through the termination
date, the rate is the adjusted eurodollar rate plus 2.50%; and (iii) from and
after the termination date or during any event of default, the adjusted
eurodollar rate plus 3.00%.
The class B loan ($34.7 million) has
varying rates of interest as follows: (i) from the closing date
through August 7, 2008, the rate is the adjusted eurodollar rate plus 10.00%;
(ii) from August 8, 2008 through the termination date, the rate is the adjusted
eurodollar rate plus 12.50%; and (iii) from and after the termination date or
during any event of default, the adjusted eurodollar rate plus
15.00%.
Weighted average borrowings on these
loans were $217.5 million at an effective interest rate of 7.5% for the
three months ended December 31, 2007.
RESOURCE AMERICA,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS − (Continued)
December 31, 2007
(unaudited)
NOTE 12 – BORROWINGS −
(Continued)
Corporate – Secured revolving credit
facilities
Commerce Bank,
N.A. In May 2007, the Company entered into a $75.0 million
revolving credit facility with Commerce Bank, N.A. expiring on May 23, 2012
which replaced an existing $25.0 million facility. Up to $7.5 million
of borrowings may be in the form of standby letters of
credit. Borrowings are secured by a first priority security interest
in certain assets of the Company and certain subsidiary guarantors, including
(i) the present and future fees and investment income earned in connection with
the management of, and investments in, sponsored CDOs, (ii) a pledge of 12,972
shares of TBBK, and (iii) the pledge of an aggregate of 1,261,579 shares of
RCC. Availability under the facility is limited to the lesser value
of (a) 75% of the net present value of future management fees to be earned plus
70% of the market value of the listed stock pledged or (b) $75.0
million. Borrowing base availability was limited to $50.0 million
until July 17, 2007, when it was increased to $75.0 million with the addition of
U.S. Bank, N.A. as a participating lender.
Borrowings
bear interest at one of two rates at the Company’s election: (i) the prime rate
plus 1%; or (ii) LIBOR plus 2.25%. The Company is also required to
pay an unused facility fee of 25 basis points per annum, payable quarterly in
arrears. Average borrowings for the three months ended December 31,
2007 were $40.7 million at an average rate of 8.34%. As of December
31, 2007, availability on this line was limited to $16.4
million. There were no outstanding borrowings on this facility in the
first quarter of fiscal 2007.
Sovereign
Bank. The Company has a $14.0 million revolving line of credit
with Sovereign Bank that expires in July 2009. The facility is
secured by certain real estate collateral and certain investment securities
available-for-sale. Availability, limited based on the value of the
collateral, was $1.0 million as of December 31, 2007.
Interest
is charged at one of two rates elected at the Company’s option: (i) LIBOR plus
2.0%, or (ii) the prime rate. Weighted average borrowings for the
three months ended December 31, 2007 were $1.3 million at an effective interest
rate of 11.9%. There were no outstanding borrowings on this facility
in the first quarter of fiscal 2007.
Other debt − Mortgage
loans
In June
2006, the Company obtained a $12.5 million first mortgage on a hotel property in
Savannah, Georgia. The mortgage is due on July 6, 2011, has a 7.1%
fixed rate, and requires monthly payments of principal and interest of
$84,220. The principal balance as of December 31, 2007 was $12.4
million.
As of
December 31, 2007, a VIE consolidated by the Company in accordance with FIN 46-R
is the obligor under an outstanding first mortgage secured by real estate with
an outstanding balance totaling $1.3 million. The mortgage requires
monthly payments of principal and interest at a fixed interest rate of 8.8% and
matures in July 2014. The mortgage is not a legal obligation of the
Company; however, it is senior to the VIE’s obligation to the
Company. Mortgage payments are paid from the cash flows of the
VIE.
In November 2007, in conjunction with
the acquisition of the net business assets of Dolphin Capital Corp., the Company
obtained a $1.5 million first mortgage on an office building in Moberly,
Missouri. The mortgage is due in December 2037, has an 8% fixed rate
and requires monthly payments of principal and interest of $11,077 (see Note
7).
RESOURCE AMERICA,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS − (Continued)
December 31, 2007
(unaudited)
NOTE 12 – BORROWINGS −
(Continued)
Other debt −
Notes
Secured Notes. In
June 2006, the Company borrowed $1.5 million from JP Morgan under a promissory
note for the purchase of its equity investment in a CDO issuer the Company
sponsored and manages. The note requires quarterly payments of
principal and interest at LIBOR plus 100 basis points (6.2% at December 31,
2007) and matures in July 2010. The Company’s share of the equity
distributions and its share of the collateral management fees from the CDO
issuer collaterized the borrowings under the note. The outstanding
balance as of December 31, 2007 was $1.0 million.
At
December 31, 2007, the Company also had an outstanding balance of $638,000 on a
secured note with Sovereign Bank. The note, secured by the furniture
and computer equipment of the Company’s commercial finance business, requires
monthly payments of principal and interest of $18,796 over five
years at a fixed interest rate of 6.9%.
Debt repayments
Annual principal payments on the
Company’s aggregate borrowings over the next five years ending December 31 and
thereafter are as follows (in thousands):
2008
|
|
$ |
334,448 |
(1) |
2009
|
|
|
164,301
|
|
2010
|
|
|
103,194
|
|
2011
|
|
|
284,017 |
(2) |
2012
|
|
|
6,231
|
|
Thereafter
|
|
|
20,267
|
|
|
|
$ |
912,458
|
|
(1)
|
Excludes
$143.1 million related to borrowings under financial fund management
secured warehouse credit facilities which the Company terminated in
January 2008 and which will be net settled with the proceeds from the sale
of collateral.
|
(2)
|
Includes
the repayment of $218.0 million of senior notes for Apidos CDO VI which
the Company consolidates under FIN
46-R.
|
Covenants
At December 31, 2007, the Company was
in compliance with all of the financial covenants under its various debt
agreements. These financial covenants are customary for the type and
size of the related debt facilities and include minimum equity requirements as
well as specified debt service coverage and leverage ratios.
RESOURCE AMERICA,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS − (Continued)
December 31, 2007
(unaudited)
NOTE 13 − COMPREHENSIVE (LOSS)
INCOME
Comprehensive (loss) income includes
net income and all other changes in the equity of a business from transactions
and other events and circumstances from non-owner sources. These
changes, other than net income, are referred to as “other comprehensive (loss)
income” and for the Company include changes in the fair value, net of taxes, of
investment securities available-for-sale and hedging contracts.
The following table reflects the
changes in comprehensive (loss) income (in thousands):
|
|
Three Months
Ended
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$ |
(6,374 |
) |
|
$ |
4,449
|
|
Other
comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
Unrealized (losses) gains on
investment securities available-for-sale
net of tax of $(3,100) and
$2,292
|
|
|
(3,544 |
) |
|
|
2,300
|
|
Less: reclassification for
losses (gains) realized in net income,
net of tax of $495 and
$(579)
|
|
|
536
|
|
|
|
(768 |
) |
|
|
|
(3,008 |
) |
|
|
1,532
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability
adjustment, net of tax of $5 and $0
|
|
|
(5 |
) |
|
|
−
|
|
Unrealized (losses) gains on
hedging contracts, net of tax $(2,901) and $9
|
|
|
(3,172 |
) |
|
|
13
|
|
Foreign currency translation
gain
|
|
|
496
|
|
|
|
187
|
|
Comprehensive
(loss) income
|
|
$ |
(12,063 |
) |
|
$ |
6,181
|
|
The changes in accumulated other
comprehensive (loss) income associated with cash flow hedge activities (see
Note 14) were as follows (in thousands):
|
|
Three Months
Ended
|
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
$ |
(732 |
) |
|
$ |
−
|
|
Current
period changes in fair value, net of tax of $(2,901) and
$9
|
|
|
(2,440 |
) |
|
|
13
|
|
Balance
at end of period
|
|
$ |
(3,172 |
) |
|
$ |
13
|
|
NOTE 14 – DERIVATIVE
INSTRUMENTS
The Company’s hedging strategy is to
use derivative financial instruments, including interest rate swaps, designated
as cash flow hedges. The Company does not use derivative financial
instruments for trading or speculative purposes. The Company manages
the credit risk of possible counterparty default in these derivative
transactions by dealing exclusively with counterparties with investment grade
ratings.
Before entering into a derivative
transaction for hedging purposes, the Company determines whether a high degree
of initial effectiveness exists between the change in the value of the hedged
item and the change in the value of the derivative from a movement in interest
rates. High effectiveness means that the change in the value of the
derivative will be effectively offset by the change in the value of the hedged
asset or liability. The Company measures the effectiveness of each
hedge throughout the hedge period. Any hedge ineffectiveness, as
defined by GAAP, will be recognized in the consolidated statements of
operations.
RESOURCE AMERICA,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS − (Continued)
December 31, 2007
(unaudited)
NOTE 14 – DERIVATIVE INSTRUMENTS −
(Continued)
At December 31, 2007, the notional
amount of outstanding interest rate swaps was $546.0
million. Assuming that market rates remain constant with the rates at
December 31, 2007, $1.8 million of the net losses in accumulated other
comprehensive loss would be recognized in earnings over the next 12
months.
NOTE 15 - INCOME
TAXES
The Company recorded the following
(benefit) provision for income taxes, as follows (in thousands):
|
|
Three Months
Ended
December
31,
|
|
|
|
|
|
|
|
|
(Benefit)
provision for income taxes, at estimated effective rates
|
|
$ |
(5,873 |
) |
|
$ |
2,872
|
|
Net
decrease in valuation
allowance
|
|
|
−
|
|
|
|
(662 |
) |
(Benefit)
provision for income
taxes
|
|
$ |
(5,873 |
) |
|
$ |
2,210
|
|
The tax rates used to determine
deferred tax assets or liabilities are the enacted tax rates in effect for the
year in which the differences are expected to reverse. The future
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become
deductible. The Company continually evaluates its ability to realize the
tax benefits associated with deferred tax assets by analyzing forecasted taxable
income using both historical and projected future operating results, the
reversal of existing temporary differences, taxable income in prior carryback
years (if permitted) and the availability of tax planning strategies. A
valuation allowance is required to be established unless management determines
that it is more likely than not that the Company will ultimately realize the tax
benefit associated with a deferred tax asset.
In July 2006, the FASB issued FIN 48,
“Accounting for Uncertainties in Income Taxes - an Interpretation of SFAS 109,”
which provides guidance on the measurement and recognition and disclosure
of tax positions taken or expected to be taken in a tax return. The
Interpretation also provides guidance on derecognition and
classification. FIN 48 prescribes that a tax position should only be
recognized if it is more likely than not that the position will be sustained
upon examination by the appropriate taxing authority. A tax position
that meets this threshold is measured as the largest amount of benefit that is
greater than 50 percent likely of being realized upon ultimate
settlement. The cumulative effect of applying the provisions of FIN
48 is to be reported as an adjustment to the beginning balance of retained
earnings in the period of adoption. Effective October 1, 2007, the
Company adopted the provisions of FIN 48, which did not have an impact on its
consolidated balance sheets on date of adoption nor as of December 31,
2007. In addition, the Company does not anticipate significant
adjustments to the total amount of unrecognized tax benefits within the next
twelve months.
The Company is subject to examination
by the U.S. Internal Revenue Service (“IRS”) and other taxing authorities in
certain states in which the Company has significant business operations, such as
Pennsylvania and New York. The IRS is currently examining the
Company's 2005 tax year. The Company anticipates that the 2005
examination will be concluded in the current fiscal year and has recorded a
liability and corresponding deferred tax asset for what the Company's believes
to be the proposed examination adjustments based upon the results from its 2004
IRS examination. The Company is no longer subject to U.S. federal
income tax examinations for fiscal years before 2004 and is no longer subject to
state and local income tax examinations by tax authorities for fiscal years
before 2001.
RESOURCE AMERICA,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS − (Continued)
December 31, 2007
(unaudited)
NOTE 15 - INCOME TAXES −
(Continued)
The Company is also required under FIN
48 to disclose its accounting policy for classifying interest and penalties, the
amount of interest and penalties charged to expense each period as well as the
cumulative amounts recorded in the consolidated balance sheets. The
Company will continue to classify any tax penalties as other operating expenses
and any interest as interest expense.
NOTE 16 − STOCK−BASED
COMPENSATION
Employee Stock
Options
The Company’s employee stock plans
allow for grants of the Company’s common stock in the form of incentive stock
options (“ISOs”), non-qualified stock options, and stock appreciation
rights. Under the 2005 employee stock plan, the Company may also
grant restricted stock, stock units, performance shares, stock awards, dividend
equivalents and other stock-based awards.
During the three months ended December
31, 2007, the Company granted 10,000 employee stock options. No
grants were made in the first quarter of fiscal 2007. There was no
tax benefit recorded at the grant date since the options issued were ISOs and
employees have typically held the stock received on exercise for the requisite
holding period.
The calculation of the fair value of
options granted was made using the Black-Scholes option pricing model with the
following weighted average assumptions:
|
|
Three
Months Ended
December
31, 2007
|
|
Fair
value of stock option granted
|
|
$ |
3.56
|
|
Expected
life (years)
|
|
|
6.25
|
|
Expected
stock volatility
|
|
|
28.9%
|
|
Risk-free
interest rate
|
|
|
4.8%
|
|
Dividend
yield
|
|
|
1.7%
|
|
As of December 31, 2007, there was a
total of $1.6 million of unrecognized compensation cost related to nonvested
stock options. This cost is expected to be recognized over a
weighted-average period of 1.1 years. The Company recorded option
compensation expense during the three months ended December 31, 2007 and 2006 of
$250,000 and $217,000, respectively.
Restricted Stock
During the quarter ended December 31,
2007, the Company issued 107,969 shares of restricted stock valued at $1.8
million, which vest primarily over 39 months. During fiscal 2007, the
Company issued 137,446 shares of restricted stock valued at $3.5 million, which
primarily vest 25% in January 2008 and 6.25% on a quarterly basis thereafter
through January 2011. In fiscal 2006, the Company issued 84,580
shares of restricted stock valued at $1.5 million, which primarily vest 25% per
year commencing in January 2007. For the three months ended December
31, 2007 and 2006, the Company recorded compensation expense related to these
restricted stock awards of $515,000 and $90,000, respectively.
RESOURCE AMERICA,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS − (Continued)
December 31, 2007
(unaudited)
NOTE 16 – STOCK-BASED COMPENSATION −
(Continued)
Restricted Stock −
(Continued)
During fiscal 2007, LEAF issued 135,000
shares of its restricted stock valued at $39,000, which vest 25% per year
commencing April 2008. During fiscal 2006, LEAF issued 300,000 shares
of its restricted stock valued at $69,000, which vest at 50% per year commencing
in February 2007. In March 2007, a majority-owned subsidiary of LEAF
issued 8% of its units valued at $53,000. The Company recorded
compensation expense related to these awards of $6,000 and $12,000 for the three
months ended December 31, 2007 and 2006, respectively.
Performance–Based
Awards
During the quarter ended December 31,
2007, the Company granted 99,000 shares of restricted stock that will vest based
on the achievement of certain performance goals. No expense was
recorded relative to these units.
Aggregate information regarding the
Company’s employee stock options as of December 31, 2007 is as
follows:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
Stock Options
Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
– beginning of year
|
|
|
3,316,761
|
|
|
$ |
8.49
|
|
|
|
|
|
|
|
Granted
|
|
|
10,000
|
|
|
$ |
16.49
|
|
|
|
|
|
|
|
Exercised
|
|
|
(23,125 |
) |
|
$ |
6.84
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(1,000 |
) |
|
$ |
17.26
|
|
|
|
|
|
|
|
Balance
- end of
period
|
|
|
3,302,636
|
|
|
$ |
8.53
|
|
|
|
4.5
|
|
|
$ |
22,554,077
|
|
Exercisable
- end of
period
|
|
|
2,995,267
|
|
|
$ |
7.55
|
|
|
|
|
|
|
|
|
|
Available
for grant
|
|
|
883,011 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Reduced
for other equity shares awards that have been granted under the 2005
employee stock plan.
|
RESOURCE AMERICA,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS − (Continued)
December 31, 2007
(unaudited)
NOTE 16 – STOCK-BASED COMPENSATION −
(Continued)
The following table summarizes the
activity for nonvested employee stock options and restricted stock during the
three months ended December 31, 2007:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant
Date
|
|
|
|
|
|
|
|
|
Nonvested Stock
Options
|
|
|
|
|
|
|
Outstanding
− beginning of
year
|
|
|
297,870
|
|
|
$ |
7.70
|
|
Granted
|
|
|
10,000
|
|
|
$ |
5.87
|
|
Vested
|
|
|
−
|
|
|
$ |
−
|
|
Forfeited
|
|
|
(500 |
) |
|
$ |
6.75
|
|
Outstanding
– end of
period
|
|
|
307,370
|
|
|
$ |
7.57
|
|
|
|
|
|
|
|
|
|
|
Nonvested Restricted
Stock
|
|
|
|
|
|
|
|
|
Outstanding
− beginning of
year
|
|
|
199,708
|
|
|
$ |
22.50
|
|
Granted
|
|
|
107,969
|
|
|
$ |
16.30
|
|
Vested
|
|
|
−
|
|
|
$ |
−
|
|
Forfeited
|
|
|
(961 |
) |
|
$ |
25.99
|
|
Outstanding
– end of
period
|
|
|
306,716
|
|
|
$ |
20.66
|
|
NOTE 17 - CERTAIN RELATIONSHIPS AND
RELATED PARTY TRANSACTIONS
In the ordinary course of its business
operations, the Company has ongoing relationships with several related
entities. The following table details the receivables and payables
with these related parties (in thousands):
|
|
December
31,
|
|
|
September
30,
|
|
|
|
|
|
|
|
|
Receivables from managed
entities and related parties:
|
|
|
|
|
|
|
Commercial finance investment
partnerships
|
|
$ |
7,544
|
|
|
$ |
9,229
|
|
Financial fund management
entities
|
|
|
4,788
|
|
|
|
5,341
|
|
Real estate investment
partnerships and TIC property interests
|
|
|
4,868
|
|
|
|
3,439
|
|
RCC
|
|
|
3,199
|
|
|
|
2,034
|
|
Other
|
|
|
79
|
|
|
|
134
|
|
Receivables from managed
entities and related parties, net
|
|
$ |
20,478
|
|
|
$ |
20,177
|
|
Payables due to managed
entities and related parties:
|
|
|
|
|
|
|
|
|
Real estate investment
partnerships and TIC property interests
|
|
$ |
2,361
|
|
|
$ |
1,163
|
|
TBBK
|
|
|
200
|
|
|
|
−
|
|
Payables to managed
entities
|
|
$ |
2,561
|
|
|
$ |
1,163
|
|
RESOURCE AMERICA,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS − (Continued)
December 31, 2007
(unaudited)
NOTE 17 - CERTAIN RELATIONSHIPS AND
RELATED PARTY TRANSACTIONS − (Continued)
The Company receives fees, dividends
and reimbursed expenses from several related/managed entities. In
addition, the Company reimburses another related entity for certain operating
expenses. The following table details those activities (in
thousands):
|
|
Three Months
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Fund Management
- fees from managed entities
|
|
$ |
2,827
|
|
|
$ |
2,611
|
|
Real Estate - fees from
investment partnerships and TIC
property interests
|
|
|
2,222
|
|
|
|
2,338
|
|
Commercial finance -
fees from investment partnerships
|
|
|
8,503
|
|
|
|
2,128
|
|
RCC:
|
|
|
|
|
|
|
|
|
Management, incentive and
servicing fees
|
|
|
2,776
|
|
|
|
2,828
|
|
Reimbursement of expenses from
RCC
|
|
|
93
|
|
|
|
264
|
|
Dividends
received
|
|
|
804
|
|
|
|
823
|
|
Atlas America −
reimbursement of net costs and expenses
|
|
|
155
|
|
|
|
196
|
|
Anthem
Securities:
|
|
|
|
|
|
|
|
|
Payment of operating
expenses
|
|
|
−
|
|
|
|
(198 |
) |
Reimbursement of costs and
expenses
|
|
|
−
|
|
|
|
201
|
|
1845 Walnut Associates Ltd -
payment of rent and operating expenses
|
|
|
(120 |
) |
|
|
(159 |
) |
9 Henmar LLC - payment
of broker/consulting fees
|
|
|
(167 |
) |
|
|
(158 |
) |
Ledgewood P.C. – payment
of legal services
|
|
|
(160 |
) |
|
|
(57 |
) |
Relationship with The Bancorp,
Inc. Daniel G. Cohen (“D. Cohen”) is chairman of the board and
Betsy Z. Cohen (“B. Cohen”) is the CEO of TBBK and its subsidiary
bank. D. Cohen is the son of Edward E. Cohen (“E. Cohen,” the
Company’s Chairman of the Board) and the brother of Jonathan Z. Cohen (“J.
Cohen,” the Company’s CEO and President) and B. Cohen is the wife of E. Cohen
and mother of J. Cohen and D. Cohen. During the three months ended
December 31, 2006, the Company sold 80,000 of its shares of TBBK stock for $2.0
million and realized gains of $1.3 million. On June 15, 2007, Merit
(a subsidiary of LEAF) entered into an agreement with TBBK under which TBBK
provides banking and operational services to Merit. For the three
months ended December 31, 2007, $14,000 in fees had been paid to
TBBK. In addition, the Company has accrued a fee of $200,000 due to
TBBK for advisory services related to the acquisition of NetBank. At
December 31, 2007, the Company had $2.2 million in cash on deposit at
TBBK.
Transactions between LEAF and
RCC. LEAF originates and manages commercial finance assets on
behalf of RCC. The leases and notes are sold to RCC at book value
plus an origination fee not to exceed 1%. LEAF sold $22.7 million and
$9.6 million of leases and notes to RCC during three months ended December 31,
2007 and 2006, respectively. In addition, from time to time LEAF
repurchases leases and loans from RCC as an accommodation under certain
circumstances, which include the consolidation of multiple customer accounts,
originations of new leases when equipment is upgraded and to facilitate the
timely resolution of problem accounts when collection is considered
likely. LEAF purchased $3.3 million and $7.3 million during the three
months ended December 31, 2007 and 2006, respectively, of leases from RCC at a
price equal to their book value.
RESOURCE AMERICA,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS − (Continued)
December 31, 2007
(unaudited)
NOTE 17 - CERTAIN RELATIONSHIPS AND
RELATED PARTY TRANSACTIONS − (Continued)
Transactions between LEAF and its
Investment Partnerships. LEAF originates and manages
commercial finance assets on behalf of its investment partnerships (the “LEAF
Funds”) for which it also is the general partner. The leases and
notes are sold to the LEAF Funds at book value plus an originations fee not to
exceed 2%. LEAF sold $282.1 million and $55.2 million of leases and
notes to the LEAF Funds during the three months ended December 31, 2007 and
2006, respectively. In addition, from time to time LEAF repurchases
leases and loans from the LEAF Funds as an accommodation under certain
circumstances, which include the consolidation of multiple customer accounts,
originations of new leases when equipment is upgraded and to facilitate the
timely resolution of problem accounts when collection is considered
likely. LEAF purchased $1.4 million of leases and notes back from the
LEAF Funds at a price equal to their book value for each of the three months
ended December 31, 2007 and 2006.
NOTE 18 − OTHER (EXPENSE) INCOME,
NET
The following table details the
Company’s other (expense) income, net (in thousands):
|
|
Three Months
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expense:
|
|
|
|
|
|
|
Loss on loans
held-for-sale
|
|
$ |
(18,332 |
) |
|
$ |
−
|
|
Impairment charge on CDO
investments
|
|
|
(1,017 |
) |
|
|
−
|
|
|
|
|
(19,349 |
) |
|
|
−
|
|
|
|
|
|
|
|
|
|
|
Other
income:
|
|
|
|
|
|
|
|
|
RCC dividend
income
|
|
|
804
|
|
|
|
823
|
|
Gain on sale of TBBK
shares
|
|
|
−
|
|
|
|
1,347
|
|
Interest income and other
income,
net
|
|
|
177
|
|
|
|
358
|
|
|
|
|
981
|
|
|
|
2,528
|
|
Other (expense) income,
net
|
|
$ |
(18,368 |
) |
|
$ |
2,528
|
|
In connection with the substantial
volatility and reduction in liquidity in the global credit markets which
commenced in July 2007, the Company recorded the following charges during the
three months ended December 31, 2007:
|
·
|
an
$18.3 million net loss from the reclassification of corporate loans held
for investment to loans held-for-sale due to the termination of the
related warehouse facilities in January 2008;
and
|
|
·
|
a
$1.0 million charge reflecting the other-than-temporary impairment of
certain of the Company’s investments in CDOs, primarily those with
investments in real estate ABS and CMBS, and trust preferred securities of
a residential mortgage lender and a subprime
investor.
|
NOTE 19 - COMMITMENTS AND
CONTINGENCIES
The Company entered into a master lease
agreement with one of the TIC programs it sponsored and manages. This
agreement requires that the Company fund up to $1.0 million for capital
improvements for the TIC property over the next 19 years.
RESOURCE AMERICA,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS − (Continued)
December 31, 2007
(unaudited)
NOTE 19 - COMMITMENTS AND
CONTINGENCIES − (Continued)
Senior lien financing obtained with
respect to certain acquired properties, TIC investment programs and real estate
loans are obtained on a non-recourse basis, with the lender’s remedies limited
to the properties securing the senior lien financing. Although
non-recourse in nature, these loans are subject to limited standard exceptions,
which the Company has guaranteed (“carveouts”). These carveouts
relate to a total of $576.0 million in financing and expire as the related
indebtedness is paid down over the next ten years.
The Company, through its financial fund
management subsidiary, has commitments to purchase equity in two CDOs secured by
trust preferred securities which are currently in their warehouse
stage. The estimated equity commitments, approximately $3.5 million
in the aggregate as of December 31, 2007, are contingent upon the successful
completion of the respective CDOs, which is uncertain due to current market
conditions. The amount of equity the Company actually purchases may
differ from the originally estimated commitment.
The warehouse agreements with Morgan
Stanley for Resource Europe II and Apidos CDO VII provide for guarantees by the
Company of potential losses on a portfolio of bank loans. These
guarantees, which totaled $18.8 million at December 31, 2007, were eliminated
upon the termination of the warehouse agreements and the sale of the underlying
loans in late January and early February 2008 (see Notes 5, 6, 12 and
18).
As a specialized asset manager, the
Company sponsors investment funds in which it may make an equity investment
along with outside investors. This equity investment is generally
based on a percentage of funds raised and varies among investment
programs.
The Company is party to employment
agreements with certain executives that provide for compensation and certain
other benefits. The agreements also provide for severance payments
under certain circumstances.
The Company is party to various routine
legal proceedings arising out of the ordinary course of its
business. Management believes that none of these actions,
individually or in the aggregate, will have a material adverse effect on the
Company’s financial condition or operations.
As of December 31, 2007, the Company
does not believe it is probable that any payments will be required under any of
its indemnifications and, accordingly, no liabilities for these obligations have
been recorded in the consolidated financial statements.
RESOURCE AMERICA,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS − (Continued)
December 31, 2007
(unaudited)
NOTE 20 - OPERATING
SEGMENTS
The Company’s operations include three
reportable operating segments that reflect the way the Company manages its
operations and makes business decisions. In addition to its reporting
operating segments, certain other activities are reported in the “all other”
category. Summarized operating segment data are as follows (in
thousands):
|
|
|
|
|
|
|
|
Financial fund
management
|
|
|
|
|
|
|
|
Three Months Ended December 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from external customers
|
|
$ |
28,002
|
|
|
$ |
6,677
|
|
|
$ |
12,441
|
|
|
$ |
−
|
|
|
$ |
47,120
|
|
Equity
in (losses) earnings of unconsolidated entities
|
|
|
(37 |
) |
|
|
(205 |
) |
|
|
3,851
|
|
|
|
−
|
|
|
|
3,609
|
|
Total revenues
|
|
|
27,965
|
|
|
|
6,472
|
|
|
|
16,292
|
|
|
|
−
|
|
|
|
50,729
|
|
Segment
operating expenses
|
|
|
(9,551 |
) |
|
|
(5,466 |
) |
|
|
(6,614 |
) |
|
|
−
|
|
|
|
(21,631 |
) |
Depreciation
and amortization
|
|
|
(468 |
) |
|
|
(185 |
) |
|
|
(81 |
) |
|
|
(232 |
) |
|
|
(966 |
) |
Interest
expense
|
|
|
(8,220 |
) |
|
|
(260 |
) |
|
|
(5,232 |
) |
|
|
(965 |
) |
|
|
(14,677 |
) |
Provision
for credit losses
|
|
|
(2,315 |
) |
|
|
−
|
|
|
|
(458 |
) |
|
|
−
|
|
|
|
(2,773 |
) |
Other
income (expense), net
|
|
|
53
|
|
|
|
95
|
|
|
|
(19,397 |
) |
|
|
(2,577 |
) |
|
|
(21,826 |
) |
Minority
interests
|
|
|
(655 |
) |
|
|
−
|
|
|
|
(436 |
) |
|
|
−
|
|
|
|
(1,091 |
) |
Income
(loss) before intercompany
interest expense and income
taxes
|
|
|
6,809
|
|
|
|
656
|
|
|
|
(15,926 |
) |
|
|
(3,774 |
) |
|
|
(12,235 |
) |
Intercompany
interest expense
|
|
|
(1,527 |
) |
|
|
−
|
|
|
|
−
|
|
|
|
1,527
|
|
|
|
−
|
|
Income (loss) from continuing
operations
before income
taxes
|
|
$ |
5,282
|
|
|
$ |
656
|
|
|
$ |
(15,926 |
) |
|
$ |
(2,247 |
) |
|
$ |
(12,235 |
) |
Three Months Ended December 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from external customers
|
|
$ |
7,095
|
|
|
$ |
4,732
|
|
|
$ |
8,232
|
|
|
$ |
−
|
|
|
$ |
20,059
|
|
Equity
in (losses) earnings of unconsolidated entities
|
|
|
(6 |
) |
|
|
(168 |
) |
|
|
4,155
|
|
|
|
−
|
|
|
|
3,981
|
|
Total revenues
|
|
|
7,089
|
|
|
|
4,564
|
|
|
|
12,387
|
|
|
|
−
|
|
|
|
24,040
|
|
Segment
operating expenses
|
|
|
(3,631 |
) |
|
|
(3,013 |
) |
|
|
(4,552 |
) |
|
|
−
|
|
|
|
(11,196 |
) |
Depreciation
and amortization
|
|
|
(327 |
) |
|
|
(169 |
) |
|
|
(14 |
) |
|
|
(199 |
) |
|
|
(709 |
) |
Interest
expense
|
|
|
(2,013 |
) |
|
|
(261 |
) |
|
|
(2,275 |
) |
|
|
(42 |
) |
|
|
(4,591 |
) |
Provision
for credit losses
|
|
|
(45 |
) |
|
|
−
|
|
|
|
−
|
|
|
|
−
|
|
|
|
(45 |
) |
Other
(expense) income, net
|
|
|
(42 |
) |
|
|
43
|
|
|
|
(241 |
) |
|
|
(21 |
) |
|
|
(261 |
) |
Minority
interests
|
|
|
(58 |
) |
|
|
−
|
|
|
|
(502 |
) |
|
|
−
|
|
|
|
(560 |
) |
Income
(loss) before intercompany
interest expense and income
taxes
|
|
|
973
|
|
|
|
1,164
|
|
|
|
4,803
|
|
|
|
(262 |
) |
|
|
6,678
|
|
Intercompany
interest expense
|
|
|
(506 |
) |
|
|
−
|
|
|
|
(1,422 |
) |
|
|
1,928
|
|
|
|
−
|
|
Income from continuing
operations
before income
taxes
|
|
$ |
467
|
|
|
$ |
1,164
|
|
|
$ |
3,381
|
|
|
$ |
1,666
|
|
|
$ |
6,678
|
|
RESOURCE AMERICA,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS − (Continued)
December 31, 2007
(unaudited)
NOTE 20 - OPERATING SEGMENTS −
(Continued)
|
|
|
|
|
|
|
|
Financial fund
management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2007
|
|
$ |
721,214
|
|
|
$ |
146,335
|
|
|
$ |
470,573
|
|
|
$ |
(14,659 |
) |
|
$ |
1,323,463
|
|
December
31, 2006
|
|
$ |
192,668
|
|
|
$ |
145,074
|
|
|
$ |
396,866
|
|
|
$ |
(30,787 |
) |
|
$ |
703,821
|
|
(1)
|
Includes
general corporate expenses and assets not allocable to any particular
segment.
|
Geographic
Information. Revenues generated from the Company’s European
operations totaled $3.2 million and $1.5 million for the three months ended
December 31, 2007 and 2006, respectively. Included in segment assets
as of December 31, 2007 and 2006 were $106.4 million and $130.9 million,
respectively, of European assets, primarily loans held for sale and
investment.
Major Customer. In
December 31, 2007 and 2006, the management and acquisition fees that the Company
received from RCC were $2.8 million and $2.8 million, respectively, or 5.5% and
11.8%, respectively, of its consolidated revenues. These fees have
been reported as revenues by each of the Company’s operating
segments.
ITEM
2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (unaudited)
This report contains certain
forward-looking statements. Forward-looking statements relate to
expectations, beliefs, projections, future plans and strategies, anticipated
events or trends and similar expressions concerning matters that are not
historical facts. In some cases, you can identify forward-looking
statements by terms such as “anticipate,” “believe,” “could,” “estimate,”
“expects,” “intend,” “may,” “plan,” “potential,” “project,” “should,” “will” and
“would” or the negative of these terms or other comparable
terminology. Such statements are subject to the risks and
uncertainties more particularly described in Item 1A, under the caption “Risk
Factors,” in our Annual Report on Form 10-K for the period ended September 30,
2007. These risks and uncertainties could cause actual results to
differ materially. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of the date
hereof. We undertake no obligation to publicly release the results of
any revisions to forward-looking statements which we may make to reflect events
or circumstances after the date of this Form 10-Q or to reflect the occurrence
of unanticipated events, except as may be required under applicable
law.
Overview of the Three Months Ended
December 31, 2007 and 2006
We are a
specialized asset management company that uses industry specific expertise to
generate and administer investment opportunities in the commercial finance, real
estate and financial fund management sectors. As a specialized asset
manager, we seek to develop investment funds for outside investors for
which we provide asset management services. We typically
maintain an investment in the investment vehicles we sponsor. As of
December 31, 2007, we managed $17.9 billion of assets.
We
limit our services to asset classes in which we have specific
expertise. We believe this strategy enhances the return on investment
we can achieve. In our commercial finance operations, we focus on
originating small and middle-ticket equipment leases and commercial notes
secured by business-essential equipment, including technology, commercial and
industrial equipment and medical equipment. In our real estate
operations, we concentrate on investments in distressed real estate loans,
ownership operation and management of multi-family and commercial real estate,
and originating or purchasing real estate mortgage loans including whole loans,
first priority interests in commercial mortgage loans (known as A
notes) and, to a lesser extent, subordinated interests in first mortgage
loans, known as B notes, and mezzanine loans. In our financial fund
management operations, we concentrate on trust preferred securities of banks,
bank holding companies, insurance companies and other financial companies, bank
loans and asset-backed securities.
We have continued to develop our
existing operations with the sponsorship of new investment funds and have
expanded the distribution of our products through a large
broker/dealer/financial planner network that we have
developed. Additionally, we have undertaken several initiatives to
further expand the scope of our asset management operations, in particular
through the sponsorship of RAI Acquisition Corp., a specialty purpose
acquisition corporation formed for the purpose of acquiring one or more
businesses.
During the later half of 2007 and
continuing in 2008, credit markets in the United States and throughout much of
the rest of the world have been extremely volatile and
challenging. We believe that such credit market conditions have
created opportunities for us, principally in our commercial finance and real
estate businesses, as demonstrated by the four acquisitions we have made since
June 30, 2007 totaling $940.2 million.
Due to the current status of global
credit markets, we continue to believe that the CDO markets will slow
substantially in 2008, limiting our ability to generate additional assets under
management through this channel. Our CDO vehicles have been
significantly affected by these conditions and, in particular, have been
impacted by continued credit market turbulence and reduction in global
liquidity. Specifically, two secured warehouse credit facilities
which we consolidated under FIN 46-R have been impacted. We
determined to end these facilities on their expiration dates of January 11 and
January 16, 2008, respectively. We had provided limited guarantees
totaling $18.8 million under these facilities which were supported by escrow
deposits of $14.8 million. The expiration of these facilities
necessitated the sale of the loans securing them in late January and early
February 2008 which resulted in the reclassification and caused a $10.2 million
charge, net of tax, to be recorded in the quarter ended December 31, 2007 and
triggered our guarantee. As a result, our escrow deposits have been
retained by the warehouse lenders and we will be required to pay an additional
$4.6 million to cover our guarantee in February 2008. As of February
2008, we have no further commitments under these credit
facilities. In addition to the $10.2 million charge, net of tax, our
loans held-for-sale, our assets under management, our borrowings and our
restricted cash will decrease by $112.6 million, $134.4 million, $143.1 million
and $14.8 million, respectively.
Assets Under
Management
We increased our assets under
management by $4.3 billion to $17.9 billion at December 31, 2007 from $13.6
billion at December 31, 2006. The growth in our assets under
management was the result of:
|
·
|
an
increase in the financial fund management assets we manage on behalf of
individual and institutional investors, RCC and us, both in the United
States and in Europe;
|
|
·
|
an
increase in real estate assets managed on behalf of RCC and limited
partnerships and TIC property interests that we sponsor;
and
|
|
·
|
an
increase in commercial finance assets managed on behalf of the limited
partnerships we sponsor, and RCC.
|
The following table sets forth
information relating to our assets under management by operating segment and
their growth from December 31, 2007 to December 31, 2006 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
fund management
|
|
$ |
14,556
|
|
|
$ |
11,775
|
|
|
$ |
2,781
|
|
|
|
24%
|
|
Real
estate
|
|
|
1,644
|
|
|
|
1,159
|
|
|
|
485
|
|
|
|
42%
|
|
Commercial
finance
|
|
|
1,699
|
|
|
|
682
|
|
|
|
1,017
|
|
|
|
149%
|
|
|
|
$ |
17,899
|
|
|
$ |
13,616
|
|
|
$ |
4,283
|
|
|
|
31%
|
|
Our assets under management are
primarily managed through various investment vehicles including CDOs, public and
private limited partnerships, TIC property interests, a real estate investment
trust, and other investment funds. The following table sets forth the
number of entities we manage by operating segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
2007 (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
fund management
|
|
|
31
|
|
|
|
12
|
|
|
|
−
|
|
|
|
−
|
|
Real
estate
|
|
|
2
|
|
|
|
6
|
|
|
|
7
|
|
|
|
2
|
|
Commercial
finance
|
|
|
−
|
|
|
|
3
|
|
|
|
−
|
|
|
|
1
|
|
|
|
|
33
|
|
|
|
21
|
|
|
|
7
|
|
|
|
3
|
|
As of December 31,
2006(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
fund management
|
|
|
22
|
|
|
|
11
|
|
|
|
−
|
|
|
|
−
|
|
Real
estate
|
|
|
1
|
|
|
|
5
|
|
|
|
6
|
|
|
|
−
|
|
Commercial
finance
|
|
|
−
|
|
|
|
2
|
|
|
|
−
|
|
|
|
1
|
|
|
|
|
23
|
|
|
|
18
|
|
|
|
6
|
|
|
|
1
|
|
(a)
|
All
of our operating segments manage assets on behalf of
RCC.
|
As of December 31, 2007 and 2006, we
managed $17.9 billion and $13.6 billion of assets, respectively, for the
accounts of institutional and individual investors and RCC, a REIT we sponsored
and manage for our own account and on warehouse facilities in the following
asset classes (in millions):
|
|
|
|
|
|
|
|
|
Institutional
and Individual Investors
|
|
|
|
|
|
|
|
|
Assets
Held on Warehouse Facilities
|
|
|
|
|
|
|
|
Trust
preferred securities (1)
(4)
|
|
$ |
5,101
|
|
|
$ |
−
|
|
|
$ |
−
|
|
|
$ |
90
|
|
|
$ |
5,191
|
|
|
$ |
4,328
|
|
Bank
loans (1)
(5)
|
|
|
1,855
|
|
|
|
931
|
|
|
|
198
|
|
|
|
134
|
|
|
|
3,118
|
|
|
|
2,509
|
|
Asset-backed
securities (1)
|
|
|
5,752
|
|
|
|
395
|
|
|
|
−
|
|
|
|
−
|
|
|
|
6,147
|
|
|
|
4,860
|
|
Real
properties (2)
|
|
|
535
|
|
|
|
−
|
|
|
|
−
|
|
|
|
−
|
|
|
|
535
|
|
|
|
403
|
|
Mortgage
and other real estate-related loans (2)
|
|
|
−
|
|
|
|
929
|
|
|
|
180
|
|
|
|
−
|
|
|
|
1,109
|
|
|
|
756
|
|
Commercial
finance assets (3)
|
|
|
958
|
|
|
|
95
|
|
|
|
646
|
|
|
|
−
|
|
|
|
1,699
|
|
|
|
682
|
|
Private
equity and hedge fund assets (1)
|
|
|
100
|
|
|
|
−
|
|
|
|
−
|
|
|
|
−
|
|
|
|
100
|
|
|
|
78
|
|
|
|
$ |
14,301
|
|
|
$ |
2,350
|
|
|
$ |
1,024
|
|
|
$ |
224
|
|
|
$ |
17,899
|
|
|
$ |
13,616
|
|
(1)
|
We
value these assets at their amortized
cost.
|
(2)
|
We
value our managed real estate assets as the sum of: the amortized cost of
our commercial real estate loans; the book value of real estate and other
assets held by our real estate investment partnerships and
tenant-in-common, or TIC, property interests; the amount of our
outstanding legacy loan portfolio; and the book value of our interests in
real estate.
|
(3)
|
We
value our commercial finance assets as the sum of the book value of the
equipment and notes and future receivable advances financed by
us.
|
(4)
|
The
trust preferred securities are being held on warehouse facilities which is
without recourse to us.
|
(5)
|
The
bank loans were being held on two separate warehouse facilities which were
consolidated on our balance sheets at December 31, 2007 and for which we
have a guarantor liability of $18.8 million in the
aggregate. We terminated the related warehouse
facilities in January 2008 and the bank loans were sold in late
January and early February 2008. We have no further exposure
under these warehouse facilities.
|
Employees
As of December 31, 2007, we employed
719 full-time workers, an increase of 482, or 203%, from 237 employees at
December 31, 2006. The following table summarizes our employees by
operating segment:
|
|
|
|
|
Financial Fund
Management
|
|
|
|
|
|
|
|
|
|
|
December 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
professionals
|
|
|
208
|
|
|
|
44
|
|
|
|
29
|
|
|
|
133
|
|
|
|
2
|
|
Other
|
|
|
511
|
|
|
|
18
|
|
|
|
183 (1)
|
|
|
|
270
|
|
|
|
40
|
|
Total
|
|
|
719
|
|
|
|
62
|
|
|
|
212
|
|
|
|
403 (2)
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
professionals
|
|
|
82
|
|
|
|
34
|
|
|
|
23
|
|
|
|
24
|
|
|
|
1
|
|
Other
|
|
|
155
|
|
|
|
20
|
|
|
|
9
|
|
|
|
95
|
|
|
|
31
|
|
Total
|
|
|
237
|
|
|
|
54
|
|
|
|
32
|
|
|
|
119
|
|
|
|
32
|
|
(1)
|
Includes
167 employees related to our new property management
company.
|
(2)
|
Reflects
the additional employees hired in connection with the acquisition of
NetBank and Dolphin Capital Corp.
|
Revenues
The revenues in each of our business
segments are generated by the fees we earn for structuring and managing the
investment vehicles we sponsor on behalf of individual and institutional
investors, RCC and ML and the income produced by the assets and investments we
manage for our own account. The following table sets forth certain
information related to the revenues we have recognized in each of these revenue
categories (in thousands):
|
|
Three Months
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund
management revenues (1)
|
|
$ |
20,913
|
|
|
$ |
12,820
|
|
Finance
and rental revenues (2)
|
|
|
25,412
|
|
|
|
7,595
|
|
RCC
management
fees
|
|
|
2,371
|
|
|
|
1,706
|
|
Net
gain from TIC property interests (3)
|
|
|
171
|
|
|
|
91
|
|
Other
(4)
|
|
|
1,862
|
|
|
|
1,828
|
|
|
|
$ |
50,729
|
|
|
$ |
24,040
|
|
(1)
|
Includes
fees from each of our financial fund management, real estate and
commercial finance operations and our share of the income or loss from
limited and general partnership interests we own in our financial fund
management and real estate
operations.
|
(2)
|
Includes
interest income on bank loans from our financial fund management
operations, interest and accreted discount income from our real estate
operations, interest and rental income from our commercial finance
operations and revenues from certain real estate
assets.
|
(3)
|
Reflects
net gains recognized by our real estate segment on the sale of TIC
interests to outside investors.
|
(4)
|
Includes
the equity compensation earned in connection with the formation of RCC and
the disposition of leases and loans as well as other charges in our
commercial finance operations.
|
We provide a more detailed discussion
of the revenues generated by each of our business segments under “ − Results of
Operations: Commercial Finance”, “ −Results of
Operations: Real Estate” and “ − Results of
Operations: Financial Fund Management.”
Results of Operations: Commercial
Finance
During the three months ended December
31, 2007, our commercial finance operations increased assets under management to
$1.7 billion as compared to $681.6 million at December 31, 2006, an increase of
$1.0 billion (149%). Originations of new equipment financing for the
three months ended December 31, 2007 increased by $601.0 million (466%) to
$730.1 million from $129.1 million for the three months ended December 31,
2006. Our growth was driven by our recent acquisitions of the net
business assets of Dolphin Capital Corp, the acquisition of the $412.5 million
NetBank Business Finance leasing portfolio from the Federal Deposit Insurance
Corporation, or FDIC, our continued growth in new and existing vendor programs,
the introduction of new commercial finance products and the expansion of our
sales staff. As of December 31, 2007, we managed approximately 89,300
leases and notes that had an average original finance value of $24,000 with an
average term of 49 months.
The November 2007 acquisition of
Dolphin Capital Corp., an equipment finance subsidiary of Lehman Brothers Bank,
significantly expanded our commercial finance operations origination capability
and assets under management. The total purchase price of $170.5
million included a $169.0 million portfolio of small ticket leases acquired
directly by LEAF Equipment Leasing Income Fund III, L.P., or LEAF
III. In addition, we retained Dolphin Capital Corp.’s team of 70
highly experienced personnel, including senior management, origination and
operations.
In November 2007, we also
acquired a $412.5 million portfolio, at a discount, comprised of over
10,000 leases and small business loans originated by NetBank Business Finance,
the equipment leasing division of NetBank which was being operated in
receivership by the FDIC. In addition, we hired approximately 70 of
the former NetBank Business Finance employees in Columbia, South
Carolina. These employees have further expanded our third party
funding business unit which we established with our June 2007 acquisition of the
leasing division of Pacific Capital Bank. Financing for this
acquisition was provided principally by Morgan Stanley Bank. We
intend to sell the NetBank portfolio to our investment partnerships by April
2008. Until then, we expect to carry the leases and loans and related
debt on our consolidated balance sheets, thereby increasing our investment in
commercial finance assets, borrowings, finance revenues, interest expense and
provision for credit losses.
During the three months ended December
31, 2007, we earned acquisition fees on $304.8 million in commercial financing
assets acquired for our investment entities as compared to $88.0 million for the
three months ended December 31, 2006, an increase of $216.8 million
(246%).
The following table sets forth
information related to our commercial finance assets managed (in
millions):
|
|
|
|
|
|
|
|
|
|
|
LEAF
Financial
|
|
$ |
623
|
|
|
$ |
172
|
|
Merit
Capital Advance
|
|
|
23
|
|
|
|
−
|
|
LEAF
I
|
|
|
102
|
|
|
|
90
|
|
LEAF
II
|
|
|
343
|
|
|
|
321
|
|
LEAF
III
|
|
|
502
|
|
|
|
−
|
|
RCC
|
|
|
95
|
|
|
|
89
|
|
Merrill
Lynch
|
|
|
11
|
|
|
|
10
|
|
|
|
$ |
1,699
|
|
|
$ |
682
|
|
The revenues from our commercial
finance operations consist primarily of finance revenues from leases and notes
held by us prior to being sold; asset acquisition fees which are earned when
commercial finance assets are sold to one of our investment partnerships and
asset management fees earned over the life of the lease or loan after it is
sold. The following table sets forth certain information relating to
the revenues recognized and costs and expenses incurred in our commercial
finance operations (in thousands):
|
|
Three Months
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
(1)
|
|
|
|
|
|
|
Finance revenues −
LEAF
|
|
$ |
14,259
|
|
|
$ |
2,938
|
|
Finance revenues −
Merit
|
|
|
2,168
|
|
|
|
−
|
|
Acquisition fees
|
|
|
5,704
|
|
|
|
1,006
|
|
Fund management
fees
|
|
|
3,997
|
|
|
|
2,458
|
|
Other
|
|
|
1,837
|
|
|
|
687
|
|
|
|
$ |
27,965
|
|
|
$ |
7,089
|
|
|
|
|
|
|
|
|
|
|
Cost
and expenses:
|
|
|
|
|
|
|
|
|
LEAF costs and
expenses
|
|
$ |
8,160
|
|
|
$ |
3,631
|
|
Merit costs and
expenses
|
|
|
1,391
|
|
|
|
−
|
|
|
|
$ |
9,551
|
|
|
$ |
3,631
|
|
(1)
|
Total
revenues include RCC servicing and originations fees of $426,000 and
$348,000 for the three months ended December 31, 2007 and 2006,
respectively.
|
Revenues
in our commercial finance operations increased $20.9 million (295%) to $28.0
million in the three months ended December 31, 2007 as compared to the three
months ended December 31, 2006. We attribute this increase primarily
to the following:
|
·
|
an
$11.3 million increase in commercial finance revenues primarily as a
result of the NetBank assets acquired from the FDIC and the growth in
lease originations. We intend to sell the NetBank portfolio to
our investment partnerships by April 2008. The sale is
predicated on LEAF III raising sufficient capital to acquire this
portfolio and assuming our existing Morgan Stanley
debt. Upon the sale, our finance revenues and interest expense
will decrease significantly; however, we will earn asset acquisition fees
at the time of sale in addition to ongoing fund asset management
fees;
|
|
·
|
Merit,
which began operations in March 2007, generated revenue of $2.2 million
for three months ended December 31,
2007;
|
|
·
|
a
$4.7 million (467%) increase in asset acquisition fees resulting from the
increase in leases sold. Sales of leases increased by $216.8
million to $304.8 million for the three months ended December 31, 2007,
principally related to Dolphin Capital Corp. leases and notes acquired by
LEAF III in November 2007;
|
|
·
|
a
$1.5 million (63%) increase in fund management fees resulting from the
$1.0 billion increase in assets under management;
and
|
|
·
|
a
$1.2 million (167%) increase in other income, primarily reflecting net
gains on equipment finance dispositions, which vary widely from period to
period.
|
Costs and Expenses − Three Months
Ended December 31, 2007 as Compared to the
Three Months Ended December 31,
2006
Costs and expenses from our commercial
finance operations increased $5.9 million (163%) to $9.6 million in the three
months ended December 31, 2007 as compared to three months ended December 31,
2006. We attribute this increase primarily to the
following:
|
·
|
an
increase of $2.9 million in wages and benefit costs. The number
of full-time employees increased to 366 (208%) as of December 31, 2007
from 119 as of December 31, 2006 due to our recent acquisitions of Pacific
Capital Bank, NetBank and Dolphin Capital Corp. and to support our
expanded operations. Wages and benefit costs will increase in
future periods with the full quarter’s impact of the new
employees;
|
|
·
|
an
increase of $1.6 million in operating expenses as a result of our increase
in origination capabilities, primarily due to our recent acquisitions;
and
|
|
·
|
an
increase of $1.4 million for Merit which began operations in March 2007,
of which $600,000 was related to wages and benefits for 37 employees and
$800,00 related to general and administrative
expenses.
|
Results of Operations: Real
Estate
In real estate, we manage four classes
of assets:
|
·
|
commercial
real estate debt, principally A notes, whole loans, mortgage
participations, B notes, mezzanine debt and related commercial real estate
securities;
|
|
·
|
real
estate investment limited partnerships, limited liability companies and
TIC property interests;
|
|
·
|
real
estate loans, owned assets and ventures, known collectively as our legacy
portfolio; and
|
|
·
|
a
portfolio of real estate loans, acquired at a discount from the U.S.
Department of Housing and Urban Development, or
HUD.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions)
|
|
Assets under
management:
|
|
|
|
|
|
|
Commercial real estate
debt
|
|
$ |
935
|
|
|
$ |
656
|
|
Real estate investment
entities
|
|
|
534
|
|
|
|
403
|
|
Legacy
portfolio
|
|
|
100
|
|
|
|
100
|
|
HUD portfolio
|
|
|
75
|
|
|
|
−
|
|
|
|
$ |
1,644
|
|
|
$ |
1,159
|
|
During the three months ended December
31, 2007, our real estate operations were affected by four principal trends or
events:
|
·
|
the
transition of property management from third party managers to our
internal multi-family manager, Resource Residential, which commenced
operations in October 2007;
|
|
·
|
the
continuing volatility and reduction in liquidity in global credit markets
have decreased transactions and financings which affect our commercial
real estate debt platform;
|
|
·
|
an
increased number of distressed real estate opportunities that are
available to purchase; and
|
|
·
|
growth
in our real estate business through the sponsorship of real estate
investment partnerships and the sponsorship of TIC property
interests.
|
We support our real estate investment
partnerships by making long-term limited partnership investments. In
addition, from time to time, we make bridge investments in the underlying
partnerships and TIC property interests to facilitate
acquisitions. We record losses on these equity method investments
primarily as a result of depreciation and amortization expense recorded by the
partnerships and TIC property interests. As additional investors are
admitted to the partnerships and TIC programs, we transfer our bridge investment
to new investors at our original cost and recognize a gain approximately equal
to the previously recognized loss.
Gains on resolution of loans, FIN 46-R
assets and other real estate assets (if any) and the amount of fees received (if
any) vary from transaction to transaction. There have been in the
past, and we expect that in the future there will be, significant
period-to-period variations in our gains on resolution and fee
income. Moreover, it is anticipated that gains on resolution will
likely decrease in the future as we complete the resolution of our legacy
portfolio.
The following table sets forth certain
information relating to the revenues recognized and costs and expenses incurred
in our real estate operations (in thousands):
|
|
Three Months
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
Fee income from sponsorship of
partnerships and TIC property interests
|
|
$ |
1,299
|
|
|
$ |
1,783
|
|
REIT management fees from
RCC
|
|
|
1,776
|
|
|
|
1,010
|
|
Rental property income and FIN
46-R
revenues
|
|
|
1,986
|
|
|
|
1,220
|
|
Property management
fees
|
|
|
881
|
|
|
|
395
|
|
Interest, including accreted
loan
discount
|
|
|
419
|
|
|
|
225
|
|
Equity in loss of
unconsolidated
entities
|
|
|
(60 |
) |
|
|
(160 |
) |
Net gains on sale of TIC
property
interests
|
|
|
171
|
|
|
|
91
|
|
|
|
$ |
6,472
|
|
|
$ |
4,564
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
General and
administrative
|
|
$ |
4,263
|
|
|
$ |
2,253
|
|
FIN 46-R operating and rental
property
expenses
|
|
|
1,203
|
|
|
|
760
|
|
|
|
$ |
5,466
|
|
|
$ |
3,013
|
|
Revenues - Three Months Ended
December 31, 2007 as Compared to the
Three Months Ended December 31,
2006
Revenues increased $1.9 million (42%)
to $6.5 million for the three months ended December 31, 2007 from $4.6 million
for the three months ended December 31, 2006. We attribute the
increase to the following:
|
·
|
a
$484,000 decrease in fee income due to the purchase of two properties
worth $22.6 million for one of our investment partnerships during the
three months ended December 31, 2007 as compared to the similar purchase
of two larger properties worth $57.9 million during the three months ended
December 31, 2006;
|
|
·
|
a
$766,000 increase in REIT management fees reflecting an increase of $279.0
million in the commercial real estate debt assets we managed to $935.0
million at December 31, 2007;
|
|
·
|
a
$766,000 increase in rental property income due to the inclusion of rental
income of one TIC asset as a result of our master leasing a residential
property from one of the TIC programs that we
manage;
|
|
·
|
a
$486,000 increase in property management fees due to both an increase in
the number of properties under management from 19 at December 31, 2006 to
27 at December 31, 2007, as well as the increase in fees related to
properties now managed internally;
|
|
·
|
a
$194,000 increase in interest due to the resumption of accretion on one
loan during the second quarter of the fiscal year ended September 30,
2007;
|
|
·
|
a
$100,000 decrease in equity loss of unconsolidated entities due to the
reallocation of partnership income from a real estate venture;
and
|
|
·
|
an
$80,000 increase in net gains on sale of TIC property interests due to the
increased volume of TIC program
activity.
|
Costs and Expenses - Three Months
Ended December 31, 2007 as Compared to the
Three Months Ended December 31,
2006
Costs and expenses increased by $2.5
million (81%) to $5.5 million for the three months ended December 31, 2007 as
compared to $3.0 million for the three months ended December 31, 2006, primarily
due to increased wages and benefits corresponding to our expanded real estate
operations, principally our new property management company, Resource
Residential, which resulted in a full quarter of costs, while revenues were
transferred ratably over the quarter. The increase in rental property
expenses is due to the inclusion of operating expenses of one TIC asset as a
result of our master leasing a residential property from one of the TIC programs
that we manage.
Results of
Operations: Financial Fund Management
We conduct our financial fund
management operations through five subsidiaries:
|
·
|
Trapeza
Capital Management, LLC, or Trapeza, a joint venture between us and an
unrelated third party, which originates, structures, finances and manages
investments in trust preferred securities and senior debt securities of
banks, bank holding companies, insurance companies and other financial
companies.
|
|
·
|
Apidos
Capital Management, LLC, or Apidos, which invests in, finances, structures
and manages investments in bank
loans.
|
|
·
|
Ischus
Capital Management, LLC, or Ischus, which invests in, finances, structures
and manages investments in asset-backed securities or ABS, including
residential mortgage-backed securities, or RMBS, and commercial
mortgage-backed securities, or
CMBS.
|
|
·
|
Resource
Europe, which invests in, finances, structures and manages investments in
international bank loans.
|
|
·
|
Resource
Financial Institutions Group, Inc., or RFIG, which serves as the general
partner for four company-sponsored affiliated partnerships which invest in
financial institutions.
|
The following table sets forth
information relating to assets managed by us on behalf of institutional and
individual investors, RCC and ourselves (in millions):
|
|
|
|
|
|
Institutional and Individual
Investors
|
|
|
|
|
|
Assets Held on Warehouse
Facilities
|
|
|
|
|
Trapeza
|
|
$ |
5,101
|
|
|
$ |
−
|
|
|
$ |
90
|
|
|
$ |
5,191
|
|
Apidos
|
|
|
1,620
|
|
|
|
931
|
|
|
|
54
|
|
|
|
2,605
|
|
Ischus
|
|
|
5,752
|
|
|
|
395
|
|
|
|
−
|
|
|
|
6,147
|
|
Resource
Europe
|
|
|
433
|
|
|
|
−
|
|
|
|
80
|
|
|
|
513
|
|
Other
company-sponsored partnerships
|
|
|
100
|
|
|
|
−
|
|
|
|
−
|
|
|
|
100
|
|
|
|
$ |
13,006
|
|
|
$ |
1,326
|
|
|
$ |
224
|
|
|
$ |
14,556
|
|
|
|
|
|
|
|
Institutional
and
Individual
|
|
|
|
|
|
Assets Held on Warehouse
Facilities
|
|
|
|
|
Trapeza
|
|
$ |
4,017
|
|
|
$ |
−
|
|
|
$ |
311
|
|
|
$ |
4,328
|
|
Apidos
|
|
|
1,067
|
|
|
|
614
|
|
|
|
583
|
|
|
|
2,264
|
|
Ischus
|
|
|
3,597
|
|
|
|
396
|
|
|
|
867
|
|
|
|
4,860
|
|
Resource
Europe
|
|
|
−
|
|
|
|
−
|
|
|
|
245
|
|
|
|
245
|
|
Other
company-sponsored partnerships
|
|
|
78
|
|
|
|
−
|
|
|
|
−
|
|
|
|
78
|
|
|
|
$ |
8,759
|
|
|
$ |
1,010
|
|
|
$ |
2,006
|
|
|
$ |
11,775
|
|
In our financial fund management
segment, we earn fees on assets managed on behalf of institutional and
individual investors as follows:
|
·
|
Collateral management
fees − we receive fees for managing the assets held by CDOs we
sponsor. Certain of the management fees are senior and certain
are subordinated to debt service payments on the CDOs. These
fees vary by CDO, with our annual fee ranging between 0.08% and 0.75% of
the aggregate principal balance of the collateral securities owned by the
CDO issuers.
|
|
·
|
Administration fees −
we receive fees for managing the assets held by partnerships sponsored by
us and for managing their general operations. These fees vary
by limited partnership, with our annual fee ranging between 0.75% and
2.00% of the partnership capital
balance.
|
We also receive distributions on our
investments in the entities we manage which vary depending on our investment
and, with respect to particular limited partnerships, with the terms of our
general partner interest. We discuss the basis for our fees and
revenues for each area in more detail in the following sections.
Our financial fund management
operations have depended upon our ability to sponsor CDO issuers and sell their
CDOs. As a result of recent conditions in the global credit markets,
our ability to sponsor CDOs in the future may be limited. As a
consequence, while we expect that the existing CDO issuers we manage will
continue to provide us with a stream of management fee revenues, we may be
unable to increase those revenues during fiscal 2008 or they may
decrease. For risks applicable to our financial fund management
operations, see our Annual Report on Form 10-K for the fiscal year ended
September 30, 2007; Item 1A “Risk Factors – Risks Relating to Particular Aspects
of our Financial Fund Management, Real Estate and Commercial Finance
Operations.”
Trapeza
We have
co-sponsored, structured and currently co-manage 13 CDO issuers holding
approximately $5.1 billion in trust preferred securities of banks, bank holding
companies, insurance companies and other financial companies. In
addition, at December 31, 2007, we managed $89.5 million in trust preferred
securities for two CDOs currently in their accumulation stage. The closing
of these CDOs is uncertain due to the current market conditions.
We own a
50% interest in an entity that manages 11 Trapeza CDO issuers and a 33.33%
interest in another entity that manages two Trapeza CDO issuers. We
also own a 50% interest in the general partners of the limited partnerships that
own the equity interests of five Trapeza CDO issuers. We also have
invested as a limited partner in each of these limited
partnerships.
We derive revenues from our Trapeza
operations through base and incentive management and administration
fees. We also receive distributions on amounts we have invested in
limited partnerships. Management fees, including incentive fees, vary
by CDO issuer but have ranged from between 0.25% and 0.60% of the aggregate
principal balance of the collateral held by the CDO issuers of which a portion
is subordinated. These fees are also shared with our
co-sponsors. We are also entitled to incentive distributions in four
of the partnerships we manage. We no longer receive subordinated
management fees on one CDO issuer.
Apidos
We
sponsored, structured and currently manage eight CDO issuers for institutional
and individual investors, RCC and ourselves which hold approximately $2.6
billion in bank loans at December 31, 2007, of which $930.9 million are managed
on behalf of RCC through three CDOs.
We derive
revenues from our Apidos operations through base and incentive management fees
ranging from 0.5% and 0.75% of the aggregate principal balance of the collateral
held by the CDO issuers, of which a portion is subordinated to debt service
payments on the CDOs and interest income earned on the assets of certain issuers
during the warehousing period prior to execution of a CDO.
Ischus
We sponsored, structured and currently
manage nine CDO issuers for institutional and individual investors and RCC which
hold approximately $6.1 billion in primarily real estate ABS including RMBS,
CMBS and credit default swaps, of which $394.7 million is managed on behalf of
RCC.
We own a
50% interest in the general partner and manager of Structured Finance Fund, L.P.
and Structured Finance Fund II, L.P., collectively referred to as the SFF
partnerships. These partnerships own a portion of the equity
interests of three Trapeza CDO issuers and Ischus CDO I. We also have
invested as a limited partner in each of these limited
partnerships.
We derive revenues from our Ischus
operations through management and administration fees. We also
receive distributions on amounts we invest in the limited
partnerships. Management fees vary by CDO issuer, ranging from
between 0.08% and 0.40% of the aggregate principal balance of the collateral
held by the CDO issuer of which a portion is subordinated to debt service
payments on the CDOs. We no longer receive subordinated management
fees on three CDO issuers.
Resource
Europe
We sponsored, structured and currently
manage one CDO issuer holding $432.3 million in European bank loans at December
31, 2007.
We derive
revenues from our Resource Europe operations through base and incentive
management fees of up to 0.60% of the aggregate principal balance of the
collateral held by the CDO issuer, of which a portion is subordinated to debt
service payments on the CDO.
Company - Sponsored
Partnerships
We sponsored, structured and currently
manage four affiliated partnerships for individual and institutional investors
that invest in financial institutions. We derive revenues from these
operations through an annual management fee, based on 2.0% of
equity. We also have invested as the general partner of these
partnerships and may receive a carried interest of up to 20% upon meeting
specific investor return rates.
We have also sponsored, structured and
currently manage another affiliated partnership organized as a hedge
fund. We derive revenues from this partnership through base and
incentive management fees. Base management fees are calculated
monthly at 1/12th of 2% of the
partnership’s net assets. Incentive management fees are calculated
annually at 20% of cumulative annual net profits. We also have
invested as a limited partner in this partnership.
The following table sets forth certain
information relating to the revenues recognized and costs and expenses incurred
in our financial fund management operations (in thousands):
|
|
Three Months
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
Fund management
fees
|
|
$ |
6,447
|
|
|
$ |
4,908
|
|
Interest income on
loans
|
|
|
6,580
|
|
|
|
3,212
|
|
Limited and general partner
interests
|
|
|
1,390
|
|
|
|
1,479
|
|
Earnings on unconsolidated
CDOs
|
|
|
813
|
|
|
|
445
|
|
Earnings of Structured Finance
Fund
partnerships
|
|
|
463
|
|
|
|
529
|
|
RCC management fees and equity
compensation
|
|
|
434
|
|
|
|
1,470
|
|
Other
|
|
|
165
|
|
|
|
344
|
|
|
|
$ |
16,292
|
|
|
$ |
12,387
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
General and administrative
expenses
|
|
$ |
6,493
|
|
|
$ |
3,878
|
|
Equity compensation
expense
|
|
|
110
|
|
|
|
673
|
|
Expenses of Structured Finance
Fund
partnerships
|
|
|
11
|
|
|
|
1
|
|
|
|
$ |
6,614
|
|
|
$ |
4,552
|
|
Fees and/or reimbursements that we
receive vary by transaction and, accordingly, there may be significant
variations in the revenues we recognize from our financial fund management
operations from period to period.
Revenues - Three Months Ended
December 31, 2007 as Compared to the
Three Months Ended December 31,
2006
Revenues increased $3.9 million (32%)
for the three months ended December 31, 2007. We attribute the
increase to the following:
|
·
|
a
$1.5 million increase in fund management fees, primarily from the
following;
|
|
-
|
a
$2.4 million increase in collateral management fees principally as a
result of the completion of seven new CDOs since December 31, 2006 coupled
with a full quarter of collateral management fees from three previously
completed CDOs; offset in part by
|
|
-
|
a
$909,000 decrease in portfolio management fees received in connection with
the formation of Trapeza CDO XI during the three months ended December 31,
2006. No such fee was received during the three months ended
December 31, 2007.
|
|
·
|
a
$3.4 million increase in interest income on loans held for investment,
resulting primarily from the
following:
|
|
-
|
a
$1.7 million increase from the consolidation in our financial statements
of one Apidos CDO issuer and one Resource Europe CDO issuer during the
three months ended December 31, 2007 as compared to one Apidos CDO issuer
and one Resource Europe CDO issuer during the three months ended December
31, 2006 while they accumulated assets through separate warehouse
facilities. The weighted average loan balances of CDO issuers
we consolidated through warehouse facilities in the three months ended
December 31, 2007 and 2006 were $196.3 million and $99.9 million,
respectively, at weighted average interest rates of 6.31% and 6.10%,
respectively; and
|
|
-
|
a
$1.7 million increase from the consolidation in our financial statements
of Apidos CDO VI during the three months ended December 31, 2007 as
compared to the three months ended December 31, 2006 while it accumulated
assets through a warehouse facility. In December 2007, we
closed Apidos CDO VI, repaid all borrowings under the warehouse facility
and purchased 100% of the subordinated notes. The weighted
average loan balance of Apidos CDO VI in the three months ended December
31, 2007 and 2006 was $171.3 million and $81.4 million, respectively, at
weighted average interest rates of 7.20% and 7.77%,
respectively.
|
|
·
|
an
$89,000 decrease in revenues from our limited and general partner
interests, primarily from the
following:
|
|
-
|
a
$347,000 decrease from our share of the operating results of
unconsolidated partnerships we have sponsored; offset in part
by
|
|
-
|
a
$258,000 increase in net unrealized appreciation in the book value of the
partnership securities and swap agreements to reflect current market
value.
|
|
·
|
a
$368,000 increase in our earnings in unconsolidated CDOs as a result of a
net increase in earnings from investments in fourteen previously sponsored
CDO issuers;
|
|
·
|
a
$1.0 million decrease in RCC management fees and equity compensation,
reflecting a $99,000 decrease in management fees and a $937,000 decrease
in equity compensation; and
|
|
·
|
a
$179,000 decrease in other revenue, resulting primarily from the interest
spread earned on loans and ABS assets accumulating on warehouse facilities
with third parties based on the terms of warehousing agreements during the
three months ended December 31, 2006. No such spread was
received during the three months ended December 31,
2007.
|
Costs and Expenses − Three Months
Ended December 31, 2007 as Compared to the
Three Months Ended December 31,
2006
Costs and expenses of our financial
fund management operations increased $2.1 million (45%) for the three months
ended December 31, 2007 as compared to the three months ended December 31,
2006. We attribute the increase to the following:
|
·
|
a
$2.6 million increase in general and administrative expenses, primarily
from the following:
|
|
-
|
a
$1.3 million increase in wages and benefits as a result of additional
personnel in response to growth in our assets under
management;
|
|
-
|
a
$551,000 decrease in reimbursed expenses from our Trapeza, Ischus and
Apidos operations, which vary depending on the terms of the transactions;
and
|
|
-
|
a
$493,000 increase in professional fees primarily due to an increase in
consulting fees related to our European
operations.
|
|
·
|
a
$563,000 decrease in equity compensation expense related to the award of
RCC restricted stock and options to members of
management.
|
Results of Operations: Other Costs
and Expenses and Other (Expense) Income
General and administrative costs were
$3.5 million for the three months ended December 31, 2007, an increase of
$669,000 (24%) as compared to $2.8 million for the three months ended December
31, 2006. We attribute the increase primarily to the
following:
|
·
|
a
$1.0 million increase in wages and benefits, of which $425,000 was
compensation expense related to the vesting of restricted stock awards
given to employees in fiscal 2007 and 2006; offset in part
by
|
|
·
|
a
$306,000 decrease in accounting and auditing
fees.
|
Provision for credit losses was $2.8
million for the three months ended December 31, 2007 as compared to $45,000 for
the three months ended December 31, 2006. The increase in the
provision for credit losses is a result of the following:
|
·
|
in
our commercial finance business, we typically sell without recourse all
the leases and notes we acquire or originate to investment entities we
manage within two to three months after their acquisition or
origination. The significant volume of leases and loans
remaining from the NetBank acquisition ($383.0 million at December 31,
2007) are not expected to be sold until April 2008. In
addition, we accumulated a $130.0 million portfolio of leases and notes
that we anticipated selling to a new entity that we have formed, which is
currently in the offering stage. The increase in the amount of
lease and notes held on our consolidated balance sheets along with the
significant growth in originations has increased the likelihood that a
credit problem may occur prior to the sale of those assets to one of our
investment partnerships. Accordingly, we recorded a provision
for credit losses in our commercial finance business of $2.3 million;
and
|
|
·
|
in
our financial fund management business, we closed Apidos CDO VI in
December 2007, a $240.0 million securitization of corporate loans and for
which we provided equity of $21.3 million. We reviewed this
portfolio of loans, the observable secondary market prices and evaluated
general market conditions, and as a result, recorded a provision for
credit losses of $458,000.
|
Depreciation and amortization expense
was $966,000 for the three months ended December 31, 2007, an increase of
$257,000 (36%) as compared to $709,000 for the three months ended December 31,
2006. This increase relates primarily to the addition of $8.2 million
of leasehold improvements and equipment over the past twelve months as we
continued to expand our operations.
Interest expense increased by $10.1
million (220%) for the three months ended December 31, 2007. The
following table reflects interest expense (exclusive of intercompany interest
charges) as reported by segment (in thousands):
|
|
Three Months
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
finance
|
|
$ |
8,220
|
|
|
$ |
2,013
|
|
Financial
fund
management
|
|
|
5,232
|
|
|
|
2,275
|
|
Real
estate
|
|
|
260
|
|
|
|
261
|
|
All
other
|
|
|
965
|
|
|
|
42
|
|
|
|
$ |
14,677
|
|
|
$ |
4,591
|
|
The increase in interest expense
primarily reflects the increased borrowings by our commercial finance and
financial fund management businesses to fund their expanded
operations. Facility utilizations and interest rates for our
commercial finance and financial fund management operations were as
follows:
|
|
Three Months
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
finance
|
|
|
|
|
|
|
Average borrowings (in
millions)
|
|
$ |
473.7
|
|
|
$ |
107.8
|
|
Average interest
rates
|
|
|
6.8 |
% |
|
|
7.3 |
% |
|
|
|
|
|
|
|
|
|
Financial fund
management
|
|
|
|
|
|
|
|
|
Average borrowings (in
millions)
|
|
$ |
365.0
|
|
|
$ |
185.3
|
|
Average interest
rates
|
|
|
5.6 |
% |
|
|
4.8 |
% |
Interest expense incurred by our
commercial finance operations increased by $6.2 million for the three months
ended December 31, 2007 due to an increase in average borrowings of $365.9
million offset, in part, due to a reduction of interest rates as a result of our
use of interest rate swaps to fix the rates. LEAF’s growth in
borrowings was driven by recent acquisitions, continued growth in new and
existing vendor programs and the introduction of new commercial finance
products.
Interest expense incurred by our
financial fund management operations increased by $3.0 million for the three
months ended December 31, 2007, reflecting an increase in average borrowings of
$179.7 million, primarily to fund the purchase of loans held for
investment. These loans, and their associated debt, are held by CDO
issuers which we consolidate while the assets accumulate on the warehouse
facilities. In January 2008, the two warehouse agreements outstanding
at December 31, 2007 were terminated. In addition, we closed Apidos
CDO VI in December 2007, which issued $218.0 million of its senior notes at a
weighted average interest rate of 5.94%.
The following table sets forth certain
information relating to the increase in minority interest expense of $531,000
(95%) for the three months ended December 31, 2007 (in thousands):
|
|
Three Months
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
finance minority ownership (1)
|
|
$ |
655
|
|
|
$ |
58
|
|
SFF
partnerships (2)
|
|
|
339
|
|
|
|
391
|
|
Warehouse
providers (2)
|
|
|
97
|
|
|
|
111
|
|
|
|
$ |
1,091
|
|
|
$ |
560
|
|
(1)
|
Senior
executives of LEAF hold a 14.9% interest in LEAF, reflecting the LEAF
stock issued upon the conversion of a note in fiscal 2006 and the issuance
of LEAF’s restricted stock in fiscal 2007 and 2006. The
increase in minority interest expense for LEAF for the three months ended
December 31, 2007 is a result of the increase in LEAF’s income from
continuing operations before income taxes and minority interest of $5.4
million.
|
(2)
|
At
December 31, 2007, we owned a 15% and 36% limited partner interest in SFF
I and SFF II, respectively, which invest in the equity of certain of the
CDO issuers we have formed. In addition, certain warehouse
providers are entitled to receive 10% to 15% of the interest spread earned
on their respective warehouse facilities which hold Apidos and Resource
Europe bank loan assets during their accumulation stage. As of
August 23, 2007, the right of one of these warehouse providers to receive
a 15% share of the interest spread on the Resource Europe bank loans
terminated.
|
Other expense, net was $18.4 million
for the three months ended December 31, 2007 as compared to other income, net,
of $2.5 million for the three months ended December 31, 2006. The
reduction in other income is a result of the following:
|
·
|
an
$18.3 million loss on sale of secured bank loans in Europe and the United
States in late January and early February 2008 as a result of the
termination in January 2008 of two secured warehouse credit facilities
consolidated under FIN 46-R, for which we had provided limited
guarantees;
|
|
·
|
a
$1.3 million decrease in gains on sales of TBBK common
stock. During the three months ended December 31, 2006, we sold
80,000 shares of stock recognizing a gain of $1.3
million. There were no sales during the three months ended
December 31, 2007; and
|
|
·
|
a
$1.0 million charge for the other-than-temporary impairment of certain of
our investments
in CDOs during the three months ended December 31, 2007, primarily those
with investments in real estate ABS and CMBS, and trust preferred
securities of a residential mortgage lender and a subprime
investor. There were no other-than-temporary impairments in the
three months ended December 31,
2006.
|
Our effective income tax rate (income
taxes as a percentage of income from continuing operations, before taxes) was
48% for the three months ended December 31, 2007 compared to a 33% effective
rate for the three months ended December 31, 2006. The increase in
the effective income tax rate primarily relates to a reduction in our available
tax credits as well as the prior year reversal of the valuation
allowance by $662,000.
We currently project our effective tax
rate to be between 46% and 49% for the remainder of fiscal 2008. Our
effective income tax rate can vary from period to period depending on, among
other factors, the geographic and business mix of our earnings and the level of
our tax credits. Certain of these and other factors, including our
history of pre-tax earnings, are taken into account in assessing our ability to
realize our net deferred tax assets. See Note 15 to our consolidated
financial statements for further information regarding our provision for
taxes.
We are subject to examination by the
U.S. Internal Revenue Service, or IRS, and other taxing authorities in certain
states in which we have significant business operations, such as Pennsylvania
and New York. The IRS is currently examining our 2005 tax year, which
we anticipate will be concluded in the current fiscal year. We have
recorded a liability and corresponding deferred tax asset for what we believe to
be the proposed examination adjustments based upon the results of our 2004 IRS
examination.
We adopted FASB 48, “Accounting for
Uncertainty in Income Taxes − an interpretation of SFAS 109,” effective October
1, 2007. FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in financial statements and requires the impact of a tax
position to be recognized in the financial statements if that position is more
likely than not of being sustained by the taxing authority. The
adoption of FIN 48 did not have a material impact on our consolidated balance
sheets or statements of operations (See Note 15 to our consolidated financial
statements for further information).
Liquidity and Capital
Resources
General. Our major
sources of liquidity have been from borrowings under our existing credit
facilities and the resolution of our real estate legacy portfolio, and to a
lesser extent, proceeds from the sale of our TBBK shares. We have
employed these funds principally to expand our specialized asset management
operations. We expect to fund our asset management businesses from a
combination of expanded borrowings under our existing credit facilities, cash
generated by operations, and the continued resolution of our legacy
portfolio.
The following table sets forth our
sources and uses of cash (in thousands):
|
|
Three Months
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
Provided
by (used in) operating activities of continuing operations
|
|
$ |
20,890
|
|
|
$ |
(67,043 |
) |
Used
in investing activities of continuing operations
|
|
|
(210,636 |
) |
|
|
(7,796 |
) |
Provided
by financing activities of continuing operations
|
|
|
194,923
|
|
|
|
57,099
|
|
Used
in discontinued operations
|
|
|
(11 |
) |
|
|
(14 |
) |
Increase (decrease) in
cash
|
|
$ |
5,166
|
|
|
$ |
(17,754 |
) |
We had $19.8 million in cash at
December 31, 2007, an increase of $5.2 million (35%) as compared to $14.6
million at September 30, 2007. Our ratio of earnings from continuing
operations before income taxes, minority interest and interest expense to fixed
charges was 0.3 to 1.0 for the three months ended December 31, 2007 as compared
to 2.4 to 1.0 for the three months ended December 31, 2006. The
decrease in this ratio primarily reflects a pre-tax loss of $12.2 million in the
three months ended December 31, 2007 as compared to pre-tax income of $6.7
million in the three months ended December 31, 2006, in addition to increased
interest expense. Our increased borrowings principally reflect the
$213.0 million of senior notes issued by Apidos CDO VI; we acquired all of the
equity interests in Apidos CDO VI in December 2007 and in accordance with FIN
46-R, consolidated its assets and liabilities. In addition, we
increased our utilization of secured credit facilities, primarily to fund the
NetBank acquisition. Correspondingly, this increase in borrowings is
further reflected by our ratio of debt to equity, which increased to 613% for
the three months ended December 31, 2007 from 168% for the three months ended
December 31, 2006.
Cash Flows from Operating
Activities. Net cash provided by
operating activities of continuing operations was $20.9 million, an increase of
$87.9 million as compared to the $67.0 million use of cash for the three months
ended December 31, 2006, substantially as a result of the
following:
|
·
|
a
$71.0 million decrease in investments in commercial finance assets,
reflecting the sale of notes and leases to our investment
partnerships. This decrease does not reflect the $583.0 million
of commercial finance assets that were acquired in two deals we closed in
November 2007 using direct bank financing;
and
|
|
·
|
a
$15.0 million increase in cash provided from continuing operations,
reflecting the $10.8 million reduction in net income, as adjusted to
exclude $25.8 million of non-cash charges, including a $19.5 million
increase in losses on sales and impairment charges recorded on secured
bank loans, $2.7 million of reserves provided for credit
losses and $3.6 million of increases in other non-cash
charges.
|
Cash Flows from Investing
Activities. Net cash used by our
investing activities of continuing operations increased by $202.8 million for
the three months ended December 31, 2007 as compared to the three months ended
December 31, 2006, primarily reflecting the following:
|
·
|
a
$192.1 million net increase in investments, including the $200.3 million
net increase in loans held for investment, principally the
loans held by Apidos CDO
VI; and
|
|
·
|
the
$8.0 million of funds used in the acquisition of
NetBank.
|
Cash Flows from Financing
Activities. Net cash provided by our financing activities of
continuing operations increased by $137.8 million for the three months ended
December 31, 2007 as compared to the three months ended December 31, 2006,
principally related to the following:
|
·
|
a
$190.7 million of funding provided by our credit facilities, net of
repayments, reflecting primarily the consolidation of the Apidos CDO VI
senior notes; offset, in part by
|
|
·
|
a
$51.7 million increase in escrow deposits (see Note 5 to our consolidated
financial statements).
|
Capital
Requirements
Our capital needs consist principally
of funds to make investments in the investment vehicles we sponsor or for our
own account and to provide bridge financing or other temporary financial support
to facilitate asset acquisitions by our sponsored investment
vehicles. Accordingly, the amount of capital we require will depend
to a significant extent upon our level of activity in making investments for our
own account or in sponsoring investment vehicles, all of which is largely within
our discretion.
Contractual Obligations and Other
Commercial Commitments
The following tables summarize our
contractual obligations and other commercial commitments at December 31, 2007
(in thousands):
|
|
|
|
|
Payments Due By
Period
|
|
Contractual
obligations:
|
|
|
|
|
Less than
|
|
|
1 – 3
|
|
|
4 – 5
|
|
|
After 5
|
|
Other
debt (1)
(3)
|
|
$ |
590,051
|
|
|
$ |
134,139
|
|
|
$ |
185,698
|
|
|
$ |
268,373
|
|
|
$ |
1,841
|
|
Capital
lease obligations (1)
|
|
|
110
|
|
|
|
42
|
|
|
|
68
|
|
|
|
−
|
|
|
|
−
|
|
Secured
credit facilities (1)
(2)
|
|
|
322,297
|
|
|
|
200,267
|
|
|
|
81,729
|
|
|
|
21,875
|
|
|
|
18,426
|
|
Operating
lease
obligations
|
|
|
18,296
|
|
|
|
3,317
|
|
|
|
5,052
|
|
|
|
3,512
|
|
|
|
6,415
|
|
Other
long-term
liabilities
|
|
|
6,035
|
|
|
|
1,106
|
|
|
|
1,667
|
|
|
|
1,458
|
|
|
|
1,804
|
|
Total
contractual
obligations
|
|
$ |
936,789
|
|
|
$ |
338,871
|
|
|
$ |
274,214
|
|
|
$ |
295,218
|
|
|
$ |
28,486
|
|
(1)
|
Not
included in the table above are estimated interest payments calculated at
rates in effect at December 31, 2007; Less than 1 year: $50.8
million; 1-3 years: $61.4 million; 4-5 years: $19.9
million; and after 5 years: $2.6
million.
|
(2)
|
Excludes
$143.1 million related to borrowings under financial fund management
secured warehouse facilities which were terminated in January
2008.
|
(3)
|
Includes
the repayment of $218.0 million of senior notes for Apidos CDO VI which we
consolidated under FIN 46-R.
|
|
|
|
|
|
Amount of Commitment Expiration
Per Period
|
|
Other commercial
commitments:
|
|
|
|
|
Less than
|
|
|
1 – 3
|
|
|
4 – 5
|
|
|
After 5
|
|
Guarantees
(1)
|
|
$ |
23,446
|
|
|
$ |
23,446
|
|
|
$ |
−
|
|
|
$ |
−
|
|
|
$ |
−
|
|
Standby
letters of
credit
|
|
|
246
|
|
|
|
246
|
|
|
|
−
|
|
|
|
−
|
|
|
|
−
|
|
Other
commercial commitments (2)
(3)
|
|
|
580,547
|
|
|
|
67,133
|
|
|
|
109,169
|
|
|
|
8,214
|
|
|
|
396,031
|
|
Total
commercial commitments (4)
|
|
$ |
604,239
|
|
|
$ |
90,825
|
|
|
$ |
109,169
|
|
|
$ |
8,214
|
|
|
$ |
396,031
|
|
(1)
|
Our
two warehouse agreements with Morgan Stanley secured by $14.8 million in
escrow deposits provide for guarantees by us totaling $18.8 million for
potential losses on two portfolios of bank loans. These
guarantees were eliminated upon the termination of the warehouse
agreements and the sale of the underlying loans in late January and early
February 2008.
|
(2)
|
Senior
lien financing obtained with respect to certain acquired properties, TIC
investment programs and real estate loans are obtained on a non-recourse
basis, with the lender’s remedies limited to the properties securing the
senior lien financing. Although non-recourse in nature, these
loans are subject to limited standard exceptions, which we have guaranteed
(“carveouts”). These carveouts relate to a total of $576.0
million in financing and expire as the related indebtedness is paid down
over the next ten years.
|
(3)
|
Through
our financial fund management subsidiary, we have commitments to purchase
an equity interest in all of the CDOs currently in their warehouse
stage. These equity commitments, which total approximately $3.5
million as of December 31, 2007, are contingent upon the successful
completion of the respective CDOs which are anticipated over the next
twelve months. Upon the close of each CDO, the amount of equity
we actually purchase may be less or possibly more than the originally
estimated commitment.
|
(4)
|
All
other credit facilities remained substantially unchanged from what was
previously disclosed in our Annual Report on Form 10-K for fiscal
2007.
|
We entered
into a master lease agreement with one of our TIC programs. This
agreement requires that we fund up to $1.0 million for capital improvements over
the next 19 years.
Critical Accounting
Policies
The discussion and analysis of our
financial condition and results of operations are based upon our consolidated
financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of our assets, liabilities, revenues
and cost and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates,
including those related to the provision for credit losses, deferred tax assets
and liabilities, and identifiable intangible assets, and certain accrued
liabilities. We base our estimates on historical experience and on
various other assumptions that we believe reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under
different assumptions or conditions.
For a detailed discussion on the
application of policies critical to our business operations and other accounting
policies, see our Annual Report on Form 10-K for fiscal 2007, at Note 2 of the
“Notes to Consolidated Financial Statements.”
Recently Issued Financial Accounting
Standards
In December 2007, the Securities and
Exchange Commission, or SEC issued Staff Accounting Bulletin No. 110, or SAB
110. SAB 110 amends and replaces Question 6 of Section D.2 of Topic
14, “Share-Based Payment,” of the Staff Accounting Bulletin
series. Question 6 of Section D.2 of Topic 14 expresses the views of
the staff regarding the use of the “simplified” method in developing an estimate
of expected term of “plain vanilla” share options and allows usage of the
“simplified” method for share option grants prior to December 31,
2007. SAB 110 allows public companies which do not have historically
sufficient experience to provide a reasonable estimate to continue use of the
“simplified” method for estimating the expected term of “plain vanilla” share
option grants after December 31, 2007. We will continue to use the
“simplified” method until we have sufficient historical experience to provide a
reasonable estimate of expected term in accordance with SAB 110.
In December 2007, the Financial
Accounting Standards Board, or FASB, issued Statement of Financial Accounting
Standards, or SFAS, 141-R, “Business Combinations.” SFAS 141-R
retains the fundamental requirements in SFAS 141 that the acquisition method of
accounting (referred to as the purchase method) be used for
all business combinations and for an acquirer to be identified for each business
combination. It also establishes principles and requirements for how
the acquirer: (a) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree; (b) recognizes and measures the goodwill acquired in
the business combination or a gain from a bargain purchase and (c) determines
what information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination. SFAS
141-R will apply prospectively to business combinations for which the
acquisition date is on or after our fiscal year beginning October 1,
2009. While we have not yet evaluated the impact, if any, that SFAS
141-R will have on our consolidated financial statements, we will be required to
expense costs related to any acquisitions after September 30, 2009.
In December 2007, the FASB issued SFAS
160, “Noncontrolling Interests in Consolidated Financial
Statements.” This Statement amends Accounting Research Bulletin 51 to
establish accounting and reporting standards for the noncontrolling (minority)
interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a
subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements. We have
not yet determined the impact, if any, that SFAS 160 will have on our
consolidated financial statements. SFAS 160 is effective for our
fiscal year beginning October 1, 2009.
In June 2007, the Accounting Standards
Executive Committee of the American Institute of Certified Public Accountants,
or AICPA issued Statement of Position, or SOP 07-1, “Clarification of the Scope
of the Audit and Accounting Guide ‘Investment Companies’ and Accounting by
Parent Companies and Equity Method Investors for Investments in Investment
Companies.” SOP 07-1 provides guidance for determining whether an
entity is within the scope of the AICPA Audit and Accounting Guide Investment
Companies (the “Guide”). Additionally, it provides guidance as to
whether a parent company or an equity method investor can apply the specialized
industry accounting principles of the Guide (referred to as investment company
accounting). This SOP is effective for fiscal years beginning on or
after December 15, 2007, with early application encouraged (for us, our fiscal
year beginning October 1, 2008). In October 2007, the FASB issued an
exposure draft indefinitely deferring the effective date of this
SOP.
In May 2007, the FASB issued Staff
Position, or FSP FIN 46-R(7), “Application of FASB Interpretation 46-R to
Investment Companies,” or FSP FIN 46-R(7). FSP FIN 46-R(7) amends the
scope of the exception to FIN 46-R to state that investments accounted for at
fair value in accordance with investment company accounting are not subject to
consolidation under FIN 46-R. This interpretation is effective for
fiscal years beginning on or after December 15, 2007 (for us, our fiscal year
beginning October 1, 2008). Certain consolidated subsidiaries
currently apply investment company accounting. We are currently
evaluating the impact, if any; the adoption of this interpretation will have on
our consolidated financial statements.
In
February 2007, the FASB issued SFAS 159, "The Fair Value Option for Financial
Assets and Financial Liabilities - Including an Amendment of SFAS 115," which
permits entities to choose to measure many financial instruments and certain
other items at fair value, or SFAS 159. The fair value option
established by SFAS 159 permits all entities to choose to measure eligible items
at fair value at specified election dates. Entities choosing the fair
value option would be required to report unrealized gains and losses on items
for which the fair value option has been elected in earnings at each subsequent
reporting date. Adoption is required for fiscal years beginning after
November 15, 2007 (for us, our fiscal year beginning October 1,
2008). We are currently evaluating the expected effect, if any; SFAS
159 will have on our consolidated financial statements.
In September 2006, the FASB issued SFAS
157, “Fair Value Measurements,” or SFAS 157, which provides guidance on
measuring the fair value of assets and liabilities. SFAS 157 will
apply to other accounting pronouncements that require or permit assets or
liabilities to be measured at fair value but does not expand the use of fair
value to any new circumstances. This standard will also require
additional disclosures in both annual and quarterly reports. SFAS 157
will be effective for financial statements issued for fiscal years beginning
after November 15, 2007 (for our, its fiscal year beginning October 1,
2008). In November 2007, the FASB announced that it would defer the
effective date of SFAS 157 for one year for all non financial assets and
liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis. We are currently
determining the effect, if any; the adoption of SFAS 157 will have on our
consolidated financial statements.
ITEM
3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary objective of the following
information is to provide forward-looking quantitative and qualitative
information about our potential exposure to market risks. The
following discussion is not meant to be a precise indicator of expected future
losses, but rather an indicator of reasonable credit losses. This
forward-looking information provides indicators of how we view and manage our
ongoing market risk exposures. All of our market risk-sensitive
instruments were entered into for purposes other than trading.
General
We are exposed to various market risks,
principally fluctuating interest rates. These risks can impact our
results of operations, cash flows and financial position. We manage
these risks through regular operating and financing activities.
The following analysis presents the
effect on our earnings, cash flows and financial position as if hypothetical
changes in market risk factors occurred at December 31, 2007. We
analyze only the potential impacts of hypothetical assumptions. Our
analysis does not consider other possible effects that could impact our
business.
Commercial
Finance
At December 31, 2007, we held $646.4
million in commercial finance assets, comprised of notes, leases and future
payment card receivables at fixed rates of interest. We periodically
sell these assets to the investment partnerships we sponsored and manage at our
cost basis, typically within three months from the date
acquired. Accordingly, our exposure to changes in market interest
rates on these assets is minimized. Further, we, along with our
investment partnerships, maintain swap agreements to effectively fix the
interest rates on the related debt, as discussed below.
We had weighted average borrowings of
$135.2 million and $217.5 million under a secured revolving credit facility and
a bridge loan with Morgan Stanley at December 31, 2007 at effective interest
rates of 5.8% and 7.5%, respectively. These facilities are not
subject to fluctuation in interest rates because we have entered into interest
rate swap agreements which create a fixed interest rate on the entire
balances.
Real Estate
Portfolio Loans and Related Senior
Liens. As of December 31, 2007, we believe that none of the
three loans held in our portfolio that have senior liens are sensitive to
changes in interest rates since:
|
·
|
the
loans are subject to forbearance or other agreements that require all of
the operating cash flow from the properties underlying the loans, after
debt service on senior lien interests, to be paid to us and therefore are
not currently being paid based on the stated interest rates of the
loans;
|
|
·
|
the
senior lien interests ahead of our interests are at fixed rates and are
not subject to interest rate fluctuation that would affect payments to us;
and
|
|
·
|
each
loan has significant accrued and unpaid interest and other charges
outstanding to which cash flow from the underlying property would be
applied even if cash flows were to exceed the interest due, as originally
underwritten.
|
FIN 46-R Loan. A
mortgage that we consolidate at December 31, 2007 as a result of FIN 46-R is at
a fixed interest rate and, therefore, not subject to interest rate
fluctuations.
Financial Fund
Management
At December 31, 2007, we had two
outstanding secured warehouse facilities to purchase bank loans with balances of
$54.0 million and $89.1 million. In January 2008, we determined to
end these facilities.
Other
At December 31, 2007, we had two
secured revolving credit facilities for general business
use. Weighted average borrowings on these two facilities were $42.0
million for the three months ended December 31, 2007 at an effective interest
rate of 8.5%. A hypothetical 10% change in the interest rate on these
facilities would change our annual interest expense by $80,000.
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our periodic reports under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission’s
rules and forms, and that such information is accumulated and communicated to
our management, including our Chief Executive Officer and our Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and
procedures, our management recognized that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and our management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
Under the supervision of our Chief
Executive Officer and Chief Financial Officer and with the participation of our
disclosure committee, we have carried out an evaluation of the effectiveness of
our disclosure controls and procedures as of the end of the period covered by
this report. Based upon that evaluation, our Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and
procedures are effective at the reasonable assurance level.
During the three months ended December
31, 2007, there were no significant changes in our internal control over
financial reporting that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.
PART II. OTHER
INFORMATION
ITEM
2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides
information about purchases by us during the three months ended December 31,
2007 of equity securities that are registered by us pursuant to Section 12 of
the Securities Exchange Act of 1934:
Issuer Purchases of Equity
Securities
|
|
Total Number of Shares
Purchased
|
|
|
Average Price Paid per
Share
|
|
|
Total Number of Shares
Purchased as Part of Publicly Announced Plans or Programs (2)
|
|
|
Maximum Number (or
Approximate Dollar Value) of Shares that May Yet Be Purchased Under
the Plans or Programs (1)
|
|
October
1 to October 31, 2007
|
|
|
−
|
|
|
$ |
−
|
|
|
|
−
|
|
|
$ |
47,416,279
|
|
November
1 to November 30, 2007
|
|
|
16,648
|
|
|
$ |
14.16
|
|
|
|
16,648
|
|
|
$ |
47,180,493
|
|
December
1 to December 31, 2007
|
|
|
−
|
|
|
$ |
14.16
|
|
|
|
−
|
|
|
$ |
47,180,493
|
|
Total
|
|
|
16,648
|
|
|
|
|
|
|
|
16,648
|
|
|
|
|
|
(1)
|
In
July 2007, the Board of Directors authorized a share repurchase plan under
which we may repurchase up to $50.0 million of our outstanding common
stock. This plan replaces the previous plan authorized in
September 2004. These purchases may be made at any time in the
open market or through privately-negotiated
transactions.
|
(2)
|
Through
December 31, 2007, we have repurchased an aggregate of 188,123shares at a
total cost of approximately $2.8 million pursuant to our July 2007 stock
repurchase program, at an average cost of $14.99 per
share.
|
Exhibit
No. Description
|
|
3.1
|
Restated
Certificate of Incorporation of Resource America. (1)
|
3.2
|
Amended
and Restated Bylaws of Resource America. (1)
|
|
Asset
Purchase Agreement by and among LEAF Financial Corporation, LEAF Funding,
Inc., Dolphin Capital Corp. and Lehman Brothers Bank, FSB, dated November
19, 2007.
|
|
Loan
Sale Agreement by and between Federal Deposit Insurance Corporation as
receiver of NetBank, Alpharetta, Georgia and LEAF Funding, LLC, dated
November 2007.
|
|
Receivables
Loan and Security Agreement, dated November 1, 2007 among LEAF Capital
Funding III, LLC as Borrower; LEAF Financial Corporation as Servicer,
Morgan Stanley Bank as Class A Lender and Collateral Agent and Morgan
Stanley Asset Funding, Inc. as Class B Lender, U.S. Bank National
Association as Custodian and Lender’s Bank and Lyon Financial Services,
Inc. (d/b/a U.S. Bank Portfolio Services as Backup
Servicer).
|
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
Certification
of Chief Executive Officer pursuant to Section 1350 18 U.S.C., as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
Certification
of Chief Financial Officer pursuant to Section 1350 18 U.S.C., as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
(1)
|
Filed
previously as an exhibit to our Quarterly Report on Form 10-Q for the
quarter ended December 31, 1999 and by this reference incorporated
herein.
|
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
|
RESOURCE AMERICA,
INC.
|
|
(Registrant)
|
|
|
Date:
February 11, 2008
|
By: /s/
Steven J. Kessler
|
|
STEVEN J.
KESSLER
|
|
Executive Vice President and
Chief Financial Officer
|
|
|
Date:
February 11, 2008
|
By: /s/
Arthur J. Miller
|
|
ARTHUR J.
MILLER
|
|
Vice President and Chief
Accounting Officer
|
|
|
58
EX-2.1
2
assetpuragrmdolphin.htm
ASSET PURCHASE AGRMT LEAF AND DOLPHIN
assetpuragrmdolphin.htm
ASSET
PURCHASE AGREEMENT
BY
AND
AMONG
LEAF
FINANCIAL CORPORATION,
LEAF
FUNDING, INC.,
DOLPHIN
CAPITAL CORP.
AND
LEHMAN
BROTHERS BANK, FSB
Dated
as
of November 19, 2007
TABLE
OF CONTENTS
|
|
Page
|
ARTICLE
I
|
DEFINITIONS
|
1
|
|
1.1
|
Certain
Definitions
|
1
|
|
1.2
|
Terms
Defined Elsewhere in this Agreement
|
9
|
|
1.3
|
Other
Definitional and Interpretive Matters
|
10
|
ARTICLE
II
|
SALE
AND PURCHASE OF
ASSETS
|
11
|
|
2.1
|
Sale
and Purchase of Assets
|
11
|
|
2.2
|
Assumed
Liabilities
|
11
|
|
2.3
|
Retained
Assets
|
12
|
|
2.4
|
Retained
Liabilities
|
12
|
ARTICLE
III
|
PURCHASE
PRICE
|
12
|
|
3.1
|
Purchase
Price
|
12
|
|
3.2
|
Payment
of Purchase Price.
|
12
|
|
3.3
|
Purchase
Price Adjustment
|
12
|
ARTICLE
IV
|
CLOSING
AND
TERMINATION
|
15
|
|
4.1
|
Closing
Date
|
15
|
|
4.2
|
Termination
of Agreement
|
15
|
|
4.3
|
Procedure
Upon Termination
|
16
|
|
4.4
|
Effect
of Termination
|
16
|
ARTICLE
V
|
REPRESENTATIONS
AND WARRANTIES OF
THE COMPANY
|
16
|
|
5.1
|
Organization
and Good Standing
|
16
|
|
5.2
|
Authorization
of Agreement
|
17
|
|
5.3
|
Conflicts;
Consents of Third Parties
|
17
|
|
5.4
|
Balance
Sheets
|
18
|
|
5.5
|
Financing
Contracts
|
18
|
|
5.6
|
Financial
Statements
|
21
|
|
5.7
|
Absence
of Certain Developments
|
22
|
|
5.8
|
Title
|
22
|
|
5.9
|
Taxes
|
22
|
|
5.10
|
Real
Property
|
22
|
|
5.11
|
Tangible
Personal Property
|
23
|
|
5.12
|
Intellectual
Property
|
23
|
|
5.13
|
Material
Contracts
|
23
|
|
5.14
|
Employees
|
24
|
|
5.15
|
Labor
|
24
|
|
5.16
|
Litigation
|
24
|
|
5.17
|
Compliance
with Laws; Permits
|
24
|
|
5.18
|
Environmental
Matters
|
25
|
|
5.19
|
Financial
Advisors
|
26
|
|
5.20
|
Sufficiency
of Assets, Excluded Assets
|
26
|
|
5.21
|
Intentionally
Deleted
|
26
|
|
5.22
|
No
Other Representations or Warranties; Schedules
|
26
|
ARTICLE
VI
|
REPRESENTATIONS
AND WARRANTIES OF
THE STOCKHOLDER
|
27
|
|
6.1
|
Organization
and Good Standing
|
27
|
|
6.2
|
Authorization
of Agreement
|
27
|
|
6.3
|
Conflicts;
Consents of Third Parties
|
27
|
|
6.4
|
Litigation
|
28
|
|
6.5
|
Financial
Advisors
|
28
|
ARTICLE
VII
|
REPRESENTATIONS
AND WARRANTIES OF
PURCHASER
|
28
|
|
7.1
|
Organization
and Good Standing
|
28
|
|
7.2
|
Authorization
of Agreement
|
28
|
|
7.3
|
Conflicts;
Consents of Third Parties
|
29
|
|
7.4
|
Litigation
|
29
|
|
7.5
|
Financial
Advisors
|
29
|
|
7.6
|
Financial
Capability
|
29
|
|
7.7
|
Condition
of the Business
|
29
|
|
7.8
|
Closing
Date Balance Sheet
|
30
|
ARTICLE
VIII
|
COVENANTS
|
30
|
|
8.1
|
Access
to Information
|
30
|
|
8.2
|
Conduct
of the Business Pending the Closing
|
31
|
|
8.3
|
Consents
|
32
|
|
8.4
|
Regulatory
Approvals
|
32
|
|
8.5
|
Further
Assurances
|
34
|
|
8.6
|
Non-Competition;
Non-Solicitation; Confidentiality, Etc
|
34
|
|
8.7
|
Preservation
of Records
|
35
|
|
8.8
|
Publicity
|
35
|
|
8.9
|
Use
of Name
|
36
|
|
8.10
|
Employment
and Employee Benefits
|
36
|
|
8.11
|
Disclosure
Schedules; Supplementation and Amendment of Schedules
|
37
|
|
8.12
|
Notification
|
37
|
|
8.13
|
No
Negotiation
|
37
|
|
8.14
|
Commercially
Reasonable Efforts
|
38
|
|
8.15
|
Payment
of Retained Liabilities
|
38
|
ARTICLE
IX
|
CONDITIONS
TO
CLOSING
|
38
|
|
9.1
|
Conditions
Precedent to Obligations of Purchaser
|
38
|
|
9.2
|
Conditions
Precedent to Obligations of the Stockholder
|
39
|
|
9.3
|
Frustration
of Closing Conditions
|
40
|
ARTICLE
X
|
INDEMNIFICATION
|
40
|
|
10.1
|
Survival
of Representations and Warranties
|
40
|
|
10.2
|
Indemnification
by Stockholder
|
41
|
|
10.3
|
Indemnification
by Purchaser
|
41
|
|
10.4
|
Indemnification
Procedures
|
42
|
|
10.5
|
Certain
Limitations on Indemnification.
|
43
|
|
10.6
|
Calculation
of Losses
|
44
|
|
10.7
|
Tax
Treatment of Indemnity Payments
|
44
|
|
10.8
|
Exclusive
Remedy
|
44
|
ARTICLE
XI
|
MISCELLANEOUS
|
45
|
|
11.1
|
Tax
Matters
|
45
|
|
11.2
|
Expenses
|
45
|
|
11.3
|
Submission
to Jurisdiction; Consent to Service of Process
|
45
|
|
11.4
|
Entire
Agreement; Amendments and Waivers
|
45
|
|
11.5
|
Governing
Law
|
46
|
|
11.6
|
Notices
|
46
|
|
11.7
|
Severability
|
47
|
|
11.8
|
Binding
Effect; Assignment
|
47
|
|
11.9
|
Non-Recourse
|
47
|
|
11.10
|
Counterparts
|
48
|
Schedules
Schedule
1.1(a)
|
Knowledge
of the Company
|
Schedule
1.1(d)
|
Backlog
Transactions
|
Schedule
1.1(g)
|
Other
Assets
|
Schedule
1.1(h)
|
Fixed
Assets
|
Schedule
1.1(i)
|
Employee
Listing
|
Schedule
1.1(l)
|
Additional
Contracts
|
Schedule
2.2
|
Assumed
Liabilities
|
Schedule
2.3
|
Company
Contracts
|
Schedule
3.1
|
Balance
Sheet Format
|
Schedule
3.3(h)
|
Purchase
Price Allocation
|
Schedule
5.3(a)
|
No
Conflicts
|
Schedule
5.3(b)
|
Consents
|
Schedule
5.5(a)
|
Financing
Contracts
|
Schedule
5.5(b)
|
Status
of Certain Financing Contracts
|
Schedule
5.5(c)
|
Status
of Certain Financing Contracts
|
Schedule
5.5(e)
|
Financing
Contracts Sold With Recourse
|
Schedule
5.5(f)
|
Delinquent
or Non-Accrual Financing Contracts
|
Schedule
5.5(g)
|
Governing
Law
|
Schedule
5.5(n)
|
Delivery
of Property
|
Schedule
5.5(o)
|
Title
to Property
|
Schedule
5.5(q)
|
Defaults
with Respect to Certain Financing Contracts
|
Schedule
5.5(t)
|
Final
Payments
|
Schedule
5.5(u)
|
Payment
Obligations
|
Schedule
5.6
|
Financial
Statements
|
Schedule
5.7
|
Absence
of Certain Changes
|
Schedule
5.8
|
Title
|
Schedule
5.9
|
Taxes
|
Schedule
5.10
|
Real
Property
|
Schedule
5.11
|
Tangible
Personal Property
|
Schedule
5.12
|
Intellectual
Property
|
Schedule
5.13(a)
|
Material
Contracts
|
Schedule
5.13(b)
|
Material
Contracts in Default
|
Schedule
5.15(a)
|
Labor
and Collective Bargaining Agreements
|
Schedule
5.15(b)
|
Labor
|
Schedule
5.16
|
Litigation
|
Schedule
5.18
|
Environmental
Matters
|
Schedule
5.20
|
Excluded
Assets
|
Schedule
7.3(a)
|
No
Conflicts
|
Schedule
8.2
|
Conduct
of Business Pending Closing
|
Schedule
8.3
|
Contracts
to be Assigned
|
Schedule
9.2(d)
|
Consents,
Waivers and Approvals
|
Exhibit
A
|
Form
of Legal Opinion
|
ASSET
PURCHASE AGREEMENT
This
ASSET PURCHASE AGREEMENT, (the “Agreement”), dated as of November 19,
2007, by and among LEAF Financial Corporation, a corporation existing under
the
laws of Delaware, and LEAF Funding, Inc., a corporation existing under the
laws
of Delaware (collectively, “Purchaser”), Dolphin Capital Corp., a
Massachusetts corporation (the “Company”), and Lehman Brothers Bank, FSB
(the “Stockholder”).
W
I T N E
S S E T H:
WHEREAS,
the Stockholder owns all of the issued and outstanding shares of capital stock
of the Company;
WHEREAS,
the Company is engaged in the micro-ticket equipment leasing and financing
business (the “Business”);
WHEREAS,
the Company desires to sell to Purchaser, and Purchaser desires to purchase
from
the Company, certain of the assets of the Company relating to the Business
for
the purchase price and upon the terms and conditions hereinafter set
forth;
WHEREAS,
Purchaser has agreed to assume certain specific liabilities related to the
Business; and
WHEREAS,
certain terms used in this Agreement are defined in
Section 1.1;
NOW,
THEREFORE, in consideration of the premises and the mutual covenants and
agreements hereinafter contained, the parties hereby agree as
follows:
ARTICLE
I
DEFINITIONS
1.1 Certain
Definitions.
(a) For
purposes of this Agreement, the following terms shall have the meanings
specified in this Section 1.1:
“Affiliate”
means, with respect to any Person, any other Person that, directly or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, such Person, and the term “control” (including the terms
“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 ownership of voting securities,
by
contract or otherwise.
“Assets”
means collectively, all of Company’s:
(a) Financing
Contracts;
(b) right,
title and interest in the Portfolio Property, collateral, or Residual with
respect to each Financing Contract;
(c) files
pertaining to each Financing Contract;
(d) transactions
that have been approved, but for which no Financing Contract has been finally
executed (the “Backlog”) (Schedule 1.1(d) sets forth the Backlog
as of October 31, 2007 and shall be updated as of the Closing
Date);
(e) rights
of the Company under any existing customer agreement relating to any Financing
Contract or the Backlog;
(f) intangible
rights and property associated with the Business and the name “Dolphin Capital
Corp.”, including but not limited to, Intellectual Property used in or related
to the Business, going concern value, goodwill, telephone numbers, facsimile
numbers, websites, email addresses, processes, trade dress, business and product
names, logos, slogans, trade secrets, industrial models, designs, methodologies,
technical information, and know-how relating to the origination and servicing
of
the Financing Contracts;
(g) rights
of the Company in guaranties, reserve accounts, security deposits and other
collateral posted by any Person in connection with the Business or the
Assets;
(h) fixed
assets, as set forth on Schedule 1.1(h), including all real property
described in Section 5.10, located at the Moberly, Missouri office of the
Company and any field sales person’s office, including all equipment, furniture,
computer hardware and Software, Technology, improvements, fixtures and other
tangible personal property owned by the Company in connection with the
Business;
(i) books,
records and other documents and information related to the Business or the
Assets, including all customer, prospect, third party originator and distributor
lists, sales literature, price lists, quotes and bids, promotional programs,
product catalogs and brochures, inventory records, product data, purchase orders
and invoices, sales orders and sales order log books, commission records,
customer information, correspondence and all personnel records and other records
of the Company related to its employees listed on Schedule 1.1(i) to the
extent their transfer is permitted by law;
(j) insurance
benefits, including rights and proceeds, arising from or relating to the Assets
or Assumed Liabilities prior to the Closing Date, unless expended in accordance
with this Agreement;
(k) claims
of the Company against third parties relating to the Business or the Assets,
whether choate or inchoate, known or unknown, contingent or noncontingent,
including equipment warranties; and
(l) the
additional contracts set forth on Schedule 1.1(l).
“Assumed
Liabilities” means (i) all liabilities as of the Closing Date which are set
forth on Schedule 2.2 attached hereto as liabilities to be assumed by
Purchaser, (ii) all liabilities for Taxes relating to the Assets for all taxable
periods (or portions thereof) beginning after the Closing Date (determined
in
accordance with Section 11.1(b)), and (iii) all liabilities and
obligations of Purchaser under Section 8.10. The Assumed Liabilities set
forth on Schedule 2.2 as presented on the Closing Date Balance Sheet are
the only liabilities being assumed by Purchaser pursuant to clause (i) of the
preceding sentence, and any other liabilities (including any liabilities
relating to the period prior to the Closing Date that relate to liabilities
listed in Schedule 2.2, but which were not presented in the Closing Date
Balance Sheet) other than those set forth in clauses (ii) and (iii) of the
preceding sentence, shall continue to be the responsibility of the
Company.
“Baseline
Balance Sheet” means the itemized balance sheet attached hereto on
Schedule 3.1.
“Baseline
Balance Sheet Date” means September 30, 2007.
“Business
Day” means any day of the year on which national banking institutions in New
York are open to the public for conducting business and are not required or
authorized to close.
“Code”
means the Internal Revenue Code of 1986, as amended.
“Company
Benefit Plan” means each material “employee benefit plan” (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended)
and any other material employee compensation or benefit plan or agreement,
in
each case, maintained by the Company.
“Contract”
means any written contract, agreement, indenture, note, bond, mortgage, loan,
instrument, lease, or license.
“Customer”
means any lessee, obligor, third party originator, client, customer, vendor
or
supplier, as applicable, in connection with the Assets.
“Environmental
Law” means any applicable Law currently in effect relating to the protection
of the environment or natural resources, including the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. § 9601
etseq.), the Hazardous Materials Transportation Act
(49 U.S.C. App. § 1801 etseq.), the Resource
Conservation and Recovery Act (42 U.S.C. § 6901 etseq.), the
Clean Water Act (33 U.S.C. § 1251 etseq.), the Clean Air Act
(42 U.S.C. § 7401 etseq.) the Toxic Substances Control
Act (15 U.S.C. § 2601 etseq.), and the Federal
Insecticide,
Fungicide,
and Rodenticide Act (7 U.S.C. § 136 etseq.), as each has been
amended and the regulations promulgated pursuant thereto.
“Final
Contractual Payment” means a final payment which is a firm, mandatory
payment made by the obligor under a Financing Contract, and which payment is
not
the Residual.
“Financing
Contract” means any Contract (including any schedule or amendment thereto or
assignment, assumption, renewal or novation thereof) in existence on the date
hereof (and not included in the Retained Assets) and any ancillary agreements
relating thereto, in the form of (a) a lease of or rental agreement with respect
to Portfolio Property, or (b) a sale contract (including an installment sale
contract or conditional sale agreement) arising out of the sale of Portfolio
Property, or (c) a secured or unsecured financing of Portfolio Property, or
(d)
a secured or unsecured loan, and in each case, which with respect
thereto: (i) the Company is the lessor, seller, lender, secured party
or obligee (whether initially or as an assignee), or (ii) is between an obligor,
on the one hand, and a lessor, seller, obligee, secured party or assignee of
any
of the foregoing, on the other hand, and (A) which would be a Financing Contract
if the Company were the lessor, seller, obligee, secured party or assignee
of
any of the foregoing thereunder and (B) with respect to which the Company is
an
assignee of the revenues or claims with respect thereto.
“Financing
Statements” means the financing statements covering all property subject to
those Financing Contracts involving amounts over $25,000 necessary to duly
perfect a first lien security interest therein.
“GAAP”
means generally accepted accounting principles in the United States as of the
date hereof consistently applied.
“Governmental
Body” means any government or governmental or regulatory body thereof, or
political subdivision thereof, whether federal, state, local or foreign, or
any
agency, instrumentality or authority thereof, or any court or arbitrator (public
or private).
“Hazardous
Material” means any substance, material or waste which is regulated or
defined as a “hazardous waste,” “hazardous substance,” “hazardous material,”
“restricted hazardous waste,” “contaminant,” “pollutant,” “toxic waste” or
“toxic substance” under any provision of any Environmental Law including
petroleum and its by-products and asbestos.
“HSR
Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended and the rules and regulations promulgated thereunder.
“Indebtedness”
of any Person means, without duplication, (i) the principal of, and
accreted value and accrued and unpaid interest in respect of
(A) indebtedness of such Person for money borrowed and
(B) indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which such Person is responsible or liable;
(ii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and
all obligations of such Person under any title retention agreement (but
excluding trade accounts payable and other accrued current liabilities);
(iii) all obligations of the type referred to in clauses (i) and (ii)
of any Persons the payment of which such Person is responsible or liable,
directly or indirectly, as obligor, guarantor, surety or otherwise; and
(iv) all obligations of the type referred to in clauses (i) through
(iii) of other Persons secured by any Lien on any property or asset of such
Person (whether or not such obligation is assumed by such Person).
“Independent
Accounting Firm Guidelines” means an accounting firm that is an eligible
accountant for the purposes of Securities and Exchange Commission rules and
regulations.
“Intellectual
Property” means all intellectual property rights used by the Company arising
from or in respect of the following: (i) all patents and applications
therefor, including continuations, divisionals, continuations-in-part, or
reissues of patent applications and patents issuing thereon (collectively,
“Patents”), (ii) all trademarks, service marks, trade names, service
names, brand names, trade dress rights, logos, Internet domain names and
corporate names, together with the goodwill associated with any of the
foregoing, and all applications, registrations and renewals thereof,
(collectively, “Marks”), (iii) copyrights and registrations and
applications therefor, works of authorship and mask work rights (collectively,
“Copyrights”) and (iv) all Software and Technology of the
Company.
“IRS”
means the United States Internal Revenue Service and, to the extent relevant,
the United States Department of Treasury.
“Knowledge
of the Company” means the actual knowledge of those Persons identified on
Schedule 1.1 (a), which persons shall have made due inquiries of their
direct reports.
“Law”
means any foreign, federal, state, local law, common law, statute, code,
ordinance, rule or regulation including any stock exchange
regulation.
“Legal
Proceeding” means any judicial, administrative or arbitral actions, suits or
proceedings (public or private) by or before a Governmental Body.
“Liability”
means any debt, liability or obligation (whether direct or indirect, absolute
or
contingent, accrued or unaccrued, liquidated or unliquidated, or due or to
become due) and including all costs and expenses relating thereto.
“Lien”
means any lien, encumbrance, pledge, mortgage, deed of trust, security interest,
claim, lease, charge, option, right of first refusal, easement, servitude or
transfer restriction.
“Material
Adverse Effect” means a material adverse effect on (i) the business, assets,
properties, results of operations or financial condition of the Company or
(ii)
the ability of the Company to consummate the transactions contemplated by this
Agreement,
other than an effect resulting from an Excluded Matter. “Excluded
Matter” means any one or more of the following: (i) changes in conditions in
the U.S. or global economy or capital or financial markets generally except
to
the extent that such change has a materially disproportionate impact on the
industry in which the Company operates or the Business as compared to other
similarly situated companies in the same industry; (ii) the effect of any change
arising in connection with earthquakes, hurricanes or other natural disasters,
hostilities, acts of war, sabotage or terrorism or military actions or any
escalation or material worsening of any such hostilities, acts of war, sabotage
or terrorism or military actions existing or underway as of the date hereof;
(iii) the effect of any action taken by Purchaser or its Affiliates with respect
to the transactions contemplated hereby or with respect to the Business; (iv)
the failure of the Company to meet any of its internal projections; and (v)
any
effect resulting from the public announcement of this Agreement, compliance
with
terms of this Agreement or the consummation of the transactions contemplated
by
this Agreement.
“Non-Accrual
Financing Contracts” means any Financing Contract that is either (i) 120
days or more delinquent or (ii) classified by the Company as a delinquent or
non-performing Finance Contract.
“Order”
means any order, injunction, judgment, decree, ruling, writ, assessment or
arbitration award of a Governmental Body.
“Ordinary
Course of Business” means the ordinary and usual course of normal day-to-day
operations of the Company, substantially in accordance with past
practice.
“Permits”
means any approvals, authorizations, consents, licenses, permits or certificates
of a Governmental Body.
“Permitted
Exceptions” means (i) all defects, exceptions, restrictions,
easements, rights of way and encumbrances with respect to real property or
interests therein disclosed in policies of title insurance delivered to
Purchaser; (ii) statutory liens for current Taxes, assessments or other
governmental charges not yet delinquent or the amount or validity of which
is
being contested in good faith by appropriate proceedings; (iii) mechanics’,
carriers’, workers’, repairers’ and similar Liens arising or incurred in the
Ordinary Course of Business; (iv) zoning, entitlement and other land use
and environmental regulations by any Governmental Body; (v) title of a lessor
under a capital or operating lease; and (vi) such other imperfections in title,
charges, easements, restrictions and encumbrances which would not, individually
or in the aggregate, result in a Material Adverse Effect.
“Person”
means any individual, corporation, partnership, limited liability company,
firm,
joint venture, association, joint-stock company, trust, unincorporated
organization, Governmental Body or other entity.
“Portfolio
Property” means any asset with respect to which the Company is the lessor,
seller or secured party, as the case may be, pursuant to the terms of a
Financing
Contract (whether initially or as an assignee) or any such asset which is held
by the Company.
“Record
Date” means the date six (6) Business Days prior to the Closing
Date.
“Record
Date Balance Sheet” means the itemized balance sheet of the Company as of
the Record Date prepared in accordance with GAAP and in the format set forth
on
Schedule 3.1.
“Release”
means any release, spill, emission, leaking, pumping, pouring, dumping,
emptying, injection, deposit, disposal, discharge, dispersal, migration or
leaching into the environment.
“Remedial
Action” means all actions required under Environmental Laws to (i) clean up,
remove, treat or address any Hazardous Material in the environment at levels
exceeding those allowed by applicable Environmental Laws, including pre-remedial
studies and investigations or post-remedial monitoring and care.
“Residual”
means, with respect to any item of Portfolio Property, its estimated value
upon
expiration of the Financing Contract to which it is subject, as determined
by
the Company and established on its books and records at the inception of such
Financing Contract.
“Retained
Assets” means the following assets of the Company which are not part of the
sale and purchase contemplated hereunder, and are excluded from the Assets
and
shall remain the property of the Company after the Closing:
(a) all
cash, cash equivalents and short-term investments;
(b) all
minute books, stock records and corporate seals;
(c) such
Contracts listed in Schedule 2.3 including any and all rights associated
therewith;
(d) all
personnel records and other records that the Company is required by law to
retain in its possession;
(e) all
rights in connection with and assets of the Company Benefit Plans;
(f) all
Tax Returns of the Company and any claim, right or interest in or to any refund,
rebate, abatement or other recovery for Taxes relating to all taxable periods
(or portions thereof) ending on or before the Closing Date (as determined in
accordance with Section 11.1(b)), together with any interest due thereon
or penalty rebate arising therefrom; and
(g) all
such other assets set forth on Schedule 1.1(g).
“Retained
Liabilities” means any other Liabilities or Indebtedness of the Company
whatsoever not included in the Assumed Liabilities.
“Securities
Laws” means the Securities Act of 1933 and the Securities Exchange Act of
1934, each as amended.
“Software”
means any and all (i) computer programs, including any and all software
implementations of algorithms, models and methodologies, whether in source
code
or object code, and (ii) databases and compilations, including any and all
data and collections of data, whether machine readable or
otherwise.
“Subsidiary”
means, in respect of any Person, any Person in which such first Person, directly
or indirectly, beneficially owns more than 50% of either the equity interest
in,
or the voting control of, such Person, whether or not existing on the date
hereof.
“Tax”
or “Taxes” means (i) all federal, state, local or foreign taxes, charges,
fees, imposts, levies or other assessments, including all net income, gross
receipts, capital, sales, use, ad valorem, value added, transfer, franchise,
profits, inventory, capital stock, license, withholding, payroll, employment,
social security, unemployment, excise, severance, stamp, occupation, property
and estimated taxes, customs duties, fees, assessments and charges of any kind
whatsoever, and (ii) all interest, penalties, fines, additions to tax or
additional amounts imposed by any Taxing Authority in connection with any item
described in clause (i).
“Taxing
Authority” means the IRS and any other Governmental Body responsible for the
administration of any Tax.
“Tax
Return” means any return, report or statement required to be filed with
respect to any Tax (including any attachments thereto, and any amendment
thereof), including any information return, claim for refund, amended return
or
declaration of estimated Tax, and including, where permitted or required,
combined, consolidated or unitary returns for any group of entities that
includes the Company or any Affiliates.
“Technology”
means, collectively, all information, designs, formulae, algorithms, procedures,
methods, techniques, ideas, know-how, research and development, technical data,
programs, subroutines, tools, materials, specifications, processes, inventions
(whether patentable or unpatentable and whether or not reduced to practice),
apparatus, creations, improvements, works of authorship and other similar
materials, and all recordings, graphs, drawings, reports, analyses, and other
writings, and other tangible embodiments of the foregoing, in any form whether
or not specifically listed herein, and all related technology, that are used
in,
incorporated in, embodied in, displayed by or relate to, or are used by the
Company.
“Threat
of Release” means a reasonable likelihood of a Release that may require
action in order to prevent or mitigate damage to the environment that may result
from such Release.
1.2 Terms
Defined Elsewhere in this Agreement. For purposes of this
Agreement, the following terms have meanings set forth in the sections
indicated:
Term
|
|
Section
|
Agreement
|
|
Recitals
|
Antitrust
Laws
|
|
8.4(b)
|
Asset
Acquisition Statement
|
|
3.3(h)
|
Balance
Sheet
|
|
5.6
|
Balance
Sheet Date
|
|
5.6
|
Cap
|
|
10.5(a)
|
Claim
|
|
8.7(c)
|
Closing
|
|
4.1
|
Closing
Date
|
|
4.1
|
Closing
Date Balance Sheet
|
|
3.3(b)
|
Closing
Date Purchase Price Adjustment
|
|
3.2
|
Common
Stock
|
|
5.4(a)
|
Company
|
|
Recitals
|
Company
Documents
|
|
5.2
|
Company
Property
|
|
5.10
|
Company
Properties
|
|
5.10
|
Confidentiality
Agreement
|
|
8.6(a)
|
Continuing
Employees
|
|
8.12(a)
|
Copyrights
|
|
1.1
(in Intellectual Property definition)
|
Environmental
Permits
|
|
5.18(a)
|
Estimated
Closing Statement
|
|
3.3(a)
|
Excluded
Matter
|
|
1.1
(in definition of Material Adverse Effect)
|
Final
Purchase Price Adjustment
|
|
3.3(b)
|
Financial
Statements
|
|
5.6
|
Indemnification
Claim
|
|
10.4(b)
|
Indemnitees
|
|
8.7(a)
|
Independent
Accountant
|
|
3.3(d)
|
Loss
|
|
10.2(a)
|
Losses
|
|
10.2(a)
|
Marks
|
|
1.1
(in Intellectual Property definition)
|
Material
Contracts
|
|
5.13(a)
|
Old
Plans
|
|
8.12(b)(ii)
|
Owned
Property
|
|
5.10
|
Owned
Properties
|
|
5.10
|
Patents
|
|
1.1
(in Intellectual Property definition)
|
Personal
Property Leases
|
|
5.11
|
Purchase
Price
|
|
3.1
|
Purchase
Price Adjustment
|
|
3.3(b)
|
Purchaser
|
|
Recitals
|
Purchaser
Documents
|
|
7.2
|
Purchaser
Indemnified Parties
|
|
10.2(a)
|
Term |
|
Section |
Purchaser
Plans
|
|
8.12(b)(ii)
|
Real
Property Lease
|
|
5.10
|
Reference
Date
|
|
3.3(a)
|
Reference
Statement
|
|
3.3(a)
|
Restricted
Business
|
|
8.6
|
Revised
Statement
|
|
3.3(h)
|
Seller
Indemnified Parties
|
|
10.3(a)
|
Seller
Marks
|
|
8.10
|
Stockholder
|
|
Recitals
|
Stockholder
Documents
|
|
6.2
|
Survival
Period
|
|
10.1
|
1.3 Other
Definitional and Interpretive Matters.
(a) Unless
otherwise expressly provided, for purposes of this Agreement, the following
rules of interpretation shall apply:
Calculation
of Time Period. When calculating the period of time before which,
within which or following which any act is to be done or step taken pursuant
to
this Agreement, the date that is the reference date in calculating such period
shall be excluded. If the last day of such period is a non-Business
Day, the period in question shall end on the next succeeding Business
Day.
Dollars. Any
reference in this Agreement to $ shall mean U.S. dollars.
Exhibits/Schedules.
(b) The
Exhibits and Schedules to this Agreement are hereby incorporated and made a
part
hereof and are an integral part of this Agreement. All Exhibits and
Schedules annexed hereto or referred to herein are hereby incorporated in and
made a part of this Agreement as if set forth in full herein. Any
matter or item disclosed on one Schedule shall be deemed to have been disclosed
on each other Schedule. Disclosure of any item on any Schedule shall
not constitute an admission or indication that such item or matter is material
or would have a Material Adverse Effect. No disclosure on a Schedule
relating to a possible breach or violation of any Contract, Law or Order shall
be construed as an admission or indication that breach or violation exists
or
has actually occurred. Any capitalized terms used in any Schedule or
Exhibit but not otherwise defined therein shall be defined as set forth in
this
Agreement.
(c) Notwithstanding
paragraph (a) above and Section 4.2(d), the parties agree that the any
updates to the Schedules between the date hereof and Closing shall be taken
into
account in determining Purchase Price under Section 3.3 in accordance
with normal Company policy.
Gender and Number. Any reference in this Agreement to gender
shall include all genders, and words imparting the singular number only shall
include the plural and vice versa.
Headings. The
provision of a Table of Contents, the division of this Agreement into Articles,
Sections and other subdivisions and the insertion of headings are for
convenience of reference only and shall not affect or be utilized in construing
or interpreting this Agreement. All references in this Agreement to
any “Section” are to the corresponding Section of this Agreement unless
otherwise specified.
Herein. The
words such as “herein,” “hereinafter,” “hereof,” and
“hereunder” refer to this Agreement as a whole and not
merely to a
subdivision in which such words appear unless the context otherwise
requires.
Including. The
word “including” or any variation thereof means (unless the context of
its usage otherwise requires) “including, without limitation” and shall
not be construed to limit any general statement that it follows to the specific
or similar items or matters immediately following it.
Reflected
On or Set Forth In. An item arising with respect to a specific
representation or warranty shall be deemed to be “reflected on” or
“set forth in” a balance sheet or financial statements, to the extent any
such phrase appears in such representation or warranty, if (a) there is a
reserve, accrual or other similar item underlying a number on such balance
sheet
or financial statements that related to the subject matter of such
representation, (b) such item is otherwise specifically set forth on the balance
sheet or financial statements or (c) such item is reflected on the balance
sheet
or financial statements and is specifically set forth in the notes
thereto.
(b) The
parties hereto have participated jointly in the negotiation and drafting of
this
Agreement and, in the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as jointly drafted by the parties
hereto and no presumption or burden of proof shall arise favoring or disfavoring
any party by virtue of the authorship of any provision of this
Agreement.
ARTICLE
II
SALE
AND
PURCHASE OF ASSETS
2.1 Sale
and Purchase of Assets. Upon the terms and subject to the
conditions contained herein, on the Closing Date, the Company agrees to sell
to
Purchaser, and Purchaser agrees to purchase from the Company, the
Assets. Any other assets of the Company not included in the
definition of Assets, including the Retained Assets, shall remain the property
of the Company.
2.2 Assumed
Liabilities. Upon the terms and subject to the conditions
contained herein, on the Closing Date, Purchaser agrees to pay, perform,
discharge or otherwise satisfy in accordance with their respective terms, all
of
the Assumed Liabilities.
2.3 Retained
Assets. The Company shall retain, and Purchaser is not acquiring,
the Retained Assets.
2.4 Retained
Liabilities. Except as otherwise provided in this Agreement,
Purchaser will not assume or be responsible for any, and the Company and/or
the
Stockholder shall remain liable and responsible for, all Retained
Liabilities.
ARTICLE
III
PURCHASE
PRICE
3.1 Purchase
Price. Subject to adjustment as provided in Section 3.3,
the purchase price payable by Purchaser for the Assets (the “Purchase
Price”) shall be an amount equal to (i) the book value of the Assets as of
the Record Date, plus (ii) a business premium of $250,000, reduced
by (iii) the amount of the Assumed Liabilities as of the Record Date, (to the
extent not taken into account in clause (i)); provided, however, that
such amount shall be increased or decreased pursuant to Sections 3.2 and
3.3 below. Notwithstanding anything to the contrary in this Agreement,
in
no event shall the Purchase Price be increased for any reason other than an
increase in the value of the Financing Contracts between the Baseline Balance
Sheet Date and the Closing Date. By way of example, the Purchase
Price on September 30, 2007 would have been $166,805,471, as set forth on the
Baseline Balance Sheet.
3.2 Payment
of Purchase Price. On the Closing Date, Purchaser shall pay to Company the
Purchase Price. Each balance sheet prepared pursuant to any provision of Article
3 shall conform to the format set forth in Schedule 3.1, in which balance
sheet items are classified as Assets, Assumed Liabilities, Retained Assets
or
Retained Liabilities, as the case may be.
3.3 Purchase
Price Adjustment.
(a) As
promptly as practicable, but no later than four (4) Business Days prior to
Closing, the Company shall deliver to Purchaser the Record Date Balance Sheet
together with the Company’s calculation of the Closing Date Purchase Price
Adjustment.
(b) As
promptly as practicable, but no later than thirty (30) days after the Closing
Date, Purchaser shall cause to be prepared and delivered to Stockholder a
balance sheet (the “Closing Date Balance Sheet”) and a certificate based
on such Closing Date Balance Sheet setting forth Purchaser’s calculation of the
changes in the net value of the Assets and Liabilities for the balance sheet
categories specified in Schedule 3.1 (but not for any other balance sheet
categories) between the Baseline Balance Sheet Date and the Closing Date (the
“Final Purchase Price Adjustment”).
(c) If
Stockholder disagrees with Purchaser’s calculation of the Final Purchase Price
Adjustment delivered pursuant to Section 3.3(b), Stockholder may, within
15 days after delivery of the Closing Date Balance Sheet, deliver a notice
to
Purchaser stating that Stockholder disagrees with such calculation and
specifying in reasonable detail
those items or amounts as to which Stockholder disagrees and the basis
therefor. Stockholder shall be deemed to have agreed with all other
items and amounts contained in the Closing Date Balance Sheet and the
calculation of the Final Purchase Price Adjustment delivered pursuant to
Section 3.3(b).
(d) If
a notice of disagreement shall be duly delivered pursuant to Section
3.3(c), Stockholder and Purchaser shall, during the 15 days following such
delivery, use their commercially reasonable efforts to reach agreement on the
disputed items or amounts in order to determine, as may be required, the amount
of the Final Purchase Price Adjustment. If during such period,
Stockholder and Purchaser are unable to reach such agreement, they shall
promptly thereafter cause an independent accounting firm meeting the Independent
Accounting Firm Guidelines (the “Independent Accountant”) (or if
Stockholder and Purchaser are unable to agree upon such a firm within ten (10)
Business Days after the notice of disagreement is received, then within an
additional ten (10) Business Days, Stockholder and Purchaser shall each select
one such firm and those two firms shall select a third such firm, in which
event
“Independent Accountant” shall mean such third firm), to review this Agreement
and the disputed items or amounts for the purpose of calculating the Final
Purchase Price Adjustment (it being understood that in making such calculation,
the Independent Accountant shall be functioning as an expert and not as an
arbitrator). Each of Purchaser and Stockholder agree that it shall
not engage, or agree to engage the Independent Accountant to perform any
services other than as the Independent Accountant pursuant hereto until the
Closing Balance Sheet and the Final Purchase Price Adjustment have been finally
determined pursuant to this Section 3.3. Each party
agrees to execute, if requested by the Independent Accountant, a reasonable
engagement letter. Purchaser and Stockholder shall cooperate with the
Independent Accountant and promptly provide all documents and information
requested by the Independent Accountant. In making such calculation,
the Independent Accountant shall consider only those items or amounts in the
Closing Balance Sheet and Purchaser’s calculation of the Final Purchase Price
Adjustment as to which Stockholder has disagreed in its notice of disagreement
duly delivered pursuant to Section 3.3(c). The Independent
Accountant shall deliver to Stockholder and Purchaser, as promptly as
practicable (but in any case no later than 30 days from the date of engagement
of the Independent Accountant), a report setting forth such
calculation. Such report shall be final and binding upon Stockholder
and Purchaser, shall be deemed a final arbitration award that is binding on
Purchaser and Stockholder, and neither Purchaser nor Stockholder shall seek
further recourse to courts or other tribunals, other than to enforce such
report. Judgment may be entered to enforce such report in any court
of competent jurisdiction. The Independent Accountant will determine
the allocation of the cost of its review and report based on the inverse of
the
percentage its determination (before such allocation) bears to the total amount
of the total items in dispute as originally submitted to the Independent
Accountant. For example, should the items in dispute total in amount
to $1,000 and the Independent Accountant awards $600 in favor of Stockholder’s
position, 60% of the costs of its review would be borne by Purchaser and 40%
of
the costs would be borne by Stockholder.
(e) Stockholder,
Purchaser and the Company shall, and shall cause their respective
representatives to, cooperate and assist in the preparation of the Closing
Balance
Sheet and the calculation of the Final Purchase Price Adjustment and in the
conduct of the review referred to in this Section 3.3, including the
making available to the extent necessary of books, records, work papers and
personnel.
(f) If
the amount to be paid to Stockholder as a result of the Final Purchase Price
Adjustment exceeds the amount to be paid to Stockholder as a result of the
Closing Date Purchase Price Adjustment, Purchaser shall pay to Stockholder,
in
the manner and with interest as provided in Section 3.3(g), the amount of
such excess and, if the amount to be paid to Stockholder as a result of Final
Purchase Price Adjustment is less than the amount to be paid to Stockholder
as a
result of the Closing Date Purchase Price Adjustment, Stockholder shall pay
to
Purchaser, as an adjustment to the Purchase Price, in the manner and with
interest as provided in Section 3.3(g), the amount of such
shortfall. The Final Purchase Price Adjustment shall be computed (i) as shown
in
Purchaser’s calculation delivered pursuant to Section 3.3(b) if no notice
of disagreement with respect thereto is duly delivered pursuant to Section
3.3(c); or (ii) if such a notice of disagreement is delivered, (A) as agreed
by Stockholder and Purchaser pursuant to Section 3.3(d) or (B) in the
absence of such agreement, as shown in the Independent Accountant’s calculation
delivered pursuant to Section 3.3(d); provided, however,
that in no event shall Final Purchase Price Adjustment be more than Purchaser’s
calculation of Final Purchase Price Adjustment delivered pursuant to Section
3.3(b) or less than Stockholder’s calculation of Closing Date Purchase Price
Adjustment delivered pursuant to Section 3.3(c).
(g) Any
payment pursuant to Section 3.3(e) shall be made at a mutually convenient
time and place within five (5) Business Days after Final Purchase Price
Adjustment has been determined by wire transfer by Purchaser or Stockholder,
as
the case may be, of immediately available funds to the account of such other
party as may be designated in writing by such other party. The amount
of any payment to be made pursuant to this Section 3.3 shall bear
interest from and including the Closing Date to but excluding the date of
payment at a rate per annum equal to the rate of interest published from time
to
time by The Wall Street Journal, Eastern Edition, as the “prime rate”
at large U.S. money center banks during the period from the Closing
Date to the
date of payment. Such interest shall be payable at the same time as
the payment to which it relates and shall be calculated daily on the basis
of a
year of 365 days and the actual number of days elapsed.
(h) The
Company and Purchaser shall allocate the Purchase Price and any Assumed
Liabilities required to be taken into account for income tax purposes among
the
Assets and the covenants in Section 8.6 as reflected on Schedule
3.3(h) as such Schedule will be updated as of Closing and, in accordance
with such allocation, the Company shall prepare and deliver to Purchaser copies
of Form 8594 and any required exhibits thereto (the “Asset Acquisition
Statement”). The Asset Acquisition Statement shall be prepared in
accordance with Section 1060 of the Code and the treasury regulations
promulgated thereunder. The Company shall prepare and deliver to
Purchaser from time to time revised copies of the Asset Acquisition Statement
(the “Revised Statements”) so as to report any matters on the Asset
Acquisition Statement that need updating (including purchase price adjustments,
if any) consistent with the agreed upon
allocation. Purchase Price (plus the Assumed Liabilities, as
applicable) shall be allocated in accordance with the Asset Acquisition
Statement or, if
applicable,
the last Revised Statements, provided by the Company to Purchaser, and all
income Tax Returns and reports filed by Purchaser and the Company shall be
prepared consistently with such allocation. Neither Purchaser nor the
Company shall, nor shall they permit their respective Affiliates to, take
any
position inconsistent with the Asset Acquisition Statement or the
then-applicable Revised Statements.
ARTICLE
IV
CLOSING
AND TERMINATION
4.1 Closing
Date. The closing of the sale and purchase of the Assets provided
for in Section 2.1 hereof (the “Closing”) shall take place at the
offices of Weil, Gotshal & Manges LLP located at 767 Fifth Avenue, New York,
New York, 10153 at 10:00 a.m. (New York City time) on a date to be specified
by
the parties (the “Closing Date”), which date shall be no later than the
tenth Business Day after the satisfaction or waiver of the conditions set forth
in Article IX (other than conditions that by their nature are to be
satisfied at the Closing, but subject to the satisfaction or waiver of those
conditions at such time), unless (i) the Company elects to have the Closing
take
place on the last Business Day of the month during which such conditions shall
have been satisfied or waived, or (ii) the time, date or place is otherwise
agreed to in writing by the parties hereto. Notwithstanding the foregoing,
the
parties shall use reasonable best efforts to effectuate the Closing on or before
November 30, 2007.
4.2 Termination
of Agreement. This Agreement may be terminated prior to the
Closing as follows:
(a) At
the election of the Company or Purchaser on or after February 29, 2008, (such
date, as it may be extended under clause (A) of this Section 4.2(a), the
“Termination Date”), if the Closing shall not have occurred by the close
of business on such date, provided that the terminating party is not in breach
in any material respect of any of its obligations hereunder;
(b) by
mutual written consent of the Company and Purchaser;
(c) by
the Company or Purchaser if there shall be in effect a final nonappealable
Order
of a Governmental Body of competent jurisdiction restraining, enjoining or
otherwise prohibiting the consummation of the transactions contemplated hereby;
it being agreed that subject to the last sentence of Section 7.3(b)
hereof, the parties hereto shall promptly appeal any adverse determination
which
is not nonappealable (and pursue such appeal with reasonable diligence);
provided, however, that the right to terminate this Agreement
under this Section 4.2(c) shall not be available to a party if such Order
was primarily due to the failure of such party to perform any of its obligations
under this Agreement; or
(d) by
Purchaser if there has been an event, change, occurrence or circumstance
individually or in the aggregate with any such events, changes, occurrences
or
circumstances that have had a Material Adverse Effect.
4.3 Procedure
Upon Termination. In the event of termination and abandonment by
Purchaser or the Company, or both, pursuant to Section 4.2 hereof,
written notice thereof shall forthwith be given to the other party or parties,
and this Agreement shall terminate, and the purchase of the Assets hereunder
shall be abandoned, without further action by Purchaser or the
Company.
4.4 Effect
of Termination. a) In the event that this Agreement is
validly terminated in accordance with Section 4.2 and 4.3, then
each of the parties shall be relieved of their duties and obligations arising
under this Agreement after the date of such termination and such termination
shall be without liability to Purchaser, the Company or the Stockholder;
provided, that no such termination shall relieve any party hereto from
liability for any willful breach of this Agreement and, provided,
further, that the obligations of the parties set forth in Articles X
and XI hereof shall survive any such termination and shall be enforceable
hereunder.
(b) Nothing
in this Section 4.4 shall relieve the Company, the Stockholder or
Purchaser of any liability for a breach of any of its covenants or agreements
or
willful breach of its representations and warranties contained in this Agreement
prior to the date of termination. The damages recoverable by the
non-breaching party shall include all attorneys’ fees reasonably incurred by
such party in connection with the transactions contemplated hereby.
(c) The
Confidentiality Agreement shall survive any termination of this Agreement and
nothing in this Section 4.4 shall relieve the Stockholder or Purchaser of
their obligations under the Confidentiality Agreement. If this
Agreement is terminated in accordance with Sections 4.2 and 4.3,
Purchaser agrees that the prohibition in the Confidentiality Agreement
restricting Purchaser’s ability to (i) solicit any employee of the Company to
join the employ of Purchaser or any if its Affiliates, or (ii) actually employ
any employee of the Company, shall be extended to a period of one year from
the
date of this Agreement.
ARTICLE
V
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
The
Company hereby represents and warrants to Purchaser that:
5.1 Organization
and Good Standing. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Massachusetts and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as now
conducted. The Company is duly qualified or authorized to do business
and is in good standing under the laws of each jurisdiction in which it owns
or
leases real property and each other
jurisdiction
in which the conduct of its business or the ownership of its properties requires
such qualification or authorization, except where the failure to be so
qualified, authorized or in good standing would not have a Material Adverse
Effect.
5.2 Authorization
of Agreement. The Company has all requisite power and authority
to execute and deliver this Agreement and each other agreement, document, or
instrument or certificate contemplated to be executed by the Company in
connection with the consummation of the transactions contemplated by this
Agreement (together with this Agreement, the “Company Documents”), and to
consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the Company Documents and the
consummation of the transactions contemplated hereby and thereby have been
duly
authorized by all requisite corporate action on the part of the
Company. This Agreement has been, and each of the Company Documents
will be at or prior to the Closing, duly and validly executed and delivered
by
the Company and (assuming the due authorization, execution and delivery by
the
other parties hereto and thereto) the Company Documents constitute the legal,
valid and binding obligations of the Company, enforceable against it in
accordance with their terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors’ rights and
remedies generally, and subject, as to enforceability, to general principles
of
equity, including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding at law
or
in equity).
5.3 Conflicts;
Consents of Third Parties.
(a) Except
as set forth on Schedule 5.3(a), none of the execution and delivery by
the Company of this Agreement or the Company Documents, the consummation of
the
transactions contemplated hereby or thereby, or compliance by the Company with
any of the provisions hereof or thereof will conflict with, or result in any
violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination or cancellation under, any
provision of (i) the certificate of incorporation and by-laws of the
Company; (ii) any Contract, or Permit to which the Company is a party or by
which any of the properties or assets of the Company are bound; (iii) any Order
of any Governmental Body applicable to the Company or by which any of the
properties or assets of the Company are bound; or (iv) any applicable Law,
other
than, in the case of clauses (ii), (iii) and (iv), such conflicts, violations,
defaults, terminations or cancellations, that would not have a Material Adverse
Effect.
(b) Except
as set forth on Schedule 5.3(b), no consent, waiver, approval, Order,
Permit or authorization of, or declaration or filing with, or notification
to, any Person or Governmental Body is required on the part of the Company
in
connection with the execution and delivery of this Agreement or the Company
Documents or the compliance by the Company with any of the provisions hereof
or
thereof, or the consummation of the transactions contemplated hereby or thereby,
or the transfer of any Asset to Purchaser except for (i) compliance with the
requirements of the HSR Act, if applicable, and (ii) such other consents,
waivers, approvals, Orders, Permits or authorizations the failure of which
to
obtain would not have a Material Adverse Effect.
5.4 Balance
Sheets. The Company has prepared the Baseline Balance Sheet, and will
prepare the Record Date Balance Sheet, in accordance in all material respects
with GAAP. The Baseline Balance Sheet fairly presents, and the Record
Date Balance Sheet will fairly present, the financial position of the Company
in
all material respects as of the Baseline Balance Sheet Date and the Record
Date
respectively.
5.5 Financing
Contracts.
(a) The
Company has previously made available to Purchaser a complete and accurate
list
of all Financing Contracts held by the Company as of the date shown on the
Schedule. Schedule 5.5(a) sets forth all of the Financing
Contracts as of such date and will be updated as of the Closing
Date.
(b) Except
as set forth Schedule 5.5(b), as such Schedule will be updated as of the
Closing Date, to the Knowledge of the Company, each Financing Contract (i)
is
valid, binding and enforceable by the Company against the lessee, obligor or
borrower thereunder in accordance with its written terms, except as may be
limited by any bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or similar Law affecting creditors’ rights and remedies generally
and, with respect to the enforceability of any Financing Contract by general
principles of equity, including principles of commercial reasonableness, good
faith and fair dealing, and (ii) constitutes and arose out of a bona fide
business transaction entered into in the ordinary and usual course of business
of the Company consistent with its past practices.
(c) Except
as set forth in Schedule 5.5(c), as such Schedule will be updated as of
the Closing Date, (i) each Financing Contract is, or will be at the Closing
Date, in full force and effect, free and clear of Liens other than Permitted
Exceptions, and not subject to any defense, offset, claim, right of rescission
or counterclaim by the obligor under such Financing Contract, or any Person
claiming under any such right (subject to applicable bankruptcy, insolvency,
moratorium, reorganization, fraudulent transfer and other Laws relating to
or
affecting creditors’ rights generally, to general equitable principles and to
the Servicemembers Civil Relief Act); (ii) the Company is not in material breach
of or default under any Financing Contract, except as set forth in Schedule
5.5(c), no other party is in payment breach thereof of more than sixty (60)
days or material default thereunder and to the Knowledge of the Company, and
no
other event has occurred which, with notice and/or lapse of time, would
constitute a default by the Company or any other party thereunder; (iii) the
Company shall be the owner and holder of all right, title and interest in each
Financing Contract; (iv) no obligor under any Financing Contract (A) has
acquired any Portfolio Property, any interest in any Portfolio Property or
the
use of any Portfolio Property pursuant to such Financing Contract for personal,
family or household use or for agricultural purposes or (B) is a director,
executive officer or five percent or greater shareholder of the Company, or
to
the Knowledge of the Company, any Person, corporation or enterprise controlling,
controlled by or under common control with any of the foregoing; (v) the Company
has in its possession a fully executed original or copy of any lease or note
(and an executed original or a true and correct copy of all other documents)
comprising each Financing Contract and all other documents required by the
Company’s credit or investment approval with respect to each Financing
Contract;
(vi) the Company has in its possession documentation sufficient to establish
the
original cost or value (as used by the Company) of all Portfolio Property
for
purposes of determining personal property Tax Liability; (vii) except with
respect to private label arrangements, all payments pursuant to each Financing
Contract are made for the benefit of the Company; (viii) the Company has
approved credit applications and otherwise entered into commitments with
respect
to Financing Contracts in a manner consistent in all material respects with
the
Company’s credit policies, collateral eligibility standards and credit quality
classifications in effect at the time and otherwise complied in all material
respects with standards of evaluating originating, underwriting and funding
new
businesses which are in all material respects consistent with its past
practices; and (ix) the Company is not and is not committed to become a party
to
any contract with respect to the Residual as to any Portfolio
Property.
(d) Each
Financing Contract, now held or at any time previously held by the Company
(whether or not currently held by the Company and whether or not outstanding),
has been administered and serviced (if serviced by the Company), and the
relevant Financing Contract files are being maintained in all material respects
in accordance with the relevant loan documents and the Company’s underwriting
standards and was originated, solicited or acquired, as the case may be, in
all
material respects in accordance with the Company’s policies, practices and
procedures regarding such matters as in effect at the time of such origination,
solicitation or acquisition, which policies, practices and procedures have
been
previously disclosed to Purchaser.
(e) Except
as set forth in Schedule 5.5(e), as such Schedule will be updated as of
the Closing Date, all Financing Contracts purchased or originated by the Company
and subsequently sold by Company have been sold without recourse to the Company
(other than for breach of representations or warranties by the Company set
forth
in the conveyance documents and which, to the Knowledge of the Company, there
are no such breaches) and without any obligation to repurchase such Financing
Contracts or Liability under any yield maintenance or similar
obligation. Each outstanding participation sold by the Company was
sold with the risk of non-payment of all or any portion of that underlying
Financing Contract to be shared by each participant (including the Company)
and
except as set forth in Schedule 5.5(e) without any recourse of such other
lender or participant to the Company for payment or repurchase of the amount
of
such Financing Contract represented by the participation or Liability under
any
yield maintenance or similar obligation.
(f) Schedule
5.5(f), as such Schedule will be updated as of the Closing Date, sets forth
a list of all Non-Accrual Financing Contracts. The Company has not
received any written notice from any other Person indicating that the Company
is
presently in material default under or in material breach of any Financing
Contract.
(g) Except
as set forth in Schedule 5.5(g), as such Schedule will be updated as of
the Closing Date, each Financing Contract is expressly governed by the Laws
of
the State of Missouri. To the Knowledge of the Company, each obligor
under a Financing Contract is located in the United States. All
amendments, modifications, waivers, extensions, cancellations and releases
in
respect of any Financing Contract are in writing
and are maintained in hard copy or are stored electronically in the
documentation for such Financing Contract.
(h) The
Financing Contract files maintained by the Company are in good order and contain
all originals or copies of all material documents relating to the origination
and enforcement of the Financing Contracts.
(i) Each
Finance Contract is evidenced by a written agreement, and there are no material
understandings, agreements, undertakings or arrangements between any of the
Company and the lessees or transferees under any Financing Contract which are
not set forth therein or in a written agreement included in the Financing
Contract files relating to such Financing Contract. The entries made
on Company’s system and on the Closing Statement with respect to each Financing
Contract are consistent with the Financing Contract files relating
thereto. Each such Financing Contract and any Financing Contract
files pertaining thereto shall be supplied by the Company to Purchaser as
promptly as possible but in any event at the Closing Date.
(j) No
payments required to be made under any Financing Contract have been paid, in
advance of the due dates thereof except for payments reflected in the related
Financing Contract receivable.
(k) The
Company has not acted, or failed to act, in a manner which would materially
alter or reduce any of its rights or benefits under any manufacturers’ or
vendors’ warranties or guarantees relating to property covered by any Financing
Contract.
(l) The
Company has properly prepared and filed Financing Statements for each Financing
Contract involving $25,000 or more, and each such Financing Statement is
current.
(m) Each
Financing Contract (and any related guarantees) is a valid, binding and
enforceable, non-cancelable obligation of the obligor thereunder (and guarantors
thereof) in accordance with its terms, except as the same may be affected by
bankruptcy, insolvency, reorganization, moratorium and other similar laws
affecting the rights of creditors generally. Each of such obligors
and guarantors is a bona fide party thereto and, to the Knowledge of the
Company, has the requisite legal capacity to enter into the respective
agreements to which it is a party.
(n) Except
as set forth in Schedule 5.5(n), as such Schedule will be updated as of
the Closing Date, the property that is the subject of each Financing Contract
has been delivered to the obligor thereunder, and accepted by such
obligor.
(o) Except
as set forth in Schedule 5.5(o), as such Schedule will be updated as of
the Closing Date, the Company has absolute, complete and indefeasible title
to
the property subject to each Financing Contract (or a duly perfected first-lien
security interest in the property subject to such Financing Contract) and all
sums due thereunder, free and clear of any and Liens or claims of any Person;
and except as set forth
on
such Schedule as will be updated as of Closing, the supplier or vendor of said
property has received payment in full for said property.
(p) The
Company is not in material breach of any obligation under any Financing
Contract.
(q) The
Company has received no notice of any event other than a payment default listed
on Schedule 5.5(q), as such Schedule will be updated as of the Closing
Date, which is, or with notice and/or lapse of time is likely, to constitute
a
material default under any Financing Contract or of any claim by an obligor
or
guarantor of a right of offset or counterclaim.
(r) Except
as set forth in Schedule 5.5(o), as such Schedule will be updated as of
the Closing Date, the Company has proof of payment (either by copies of canceled
checks or confirmations of wire transfers or by such other evidence, all as
shall be satisfactory to Purchaser in its sole discretion) for the Portfolio
Property underlying each Financing Contract, and shall deliver such proof of
payment to Purchaser on or before the Closing Date.
(s) The
descriptions of each Financing Contract set forth on Schedule 5.5(a), as
such Schedule will be updated as of the Closing Date, are, and on the Closing
Statement will be, properly coded with respect to each of the following items
of
data: (i) the number of payments remaining, (ii) the periodic payment
amount, (iii) the security deposit amount, (iv) the end of lease disposition,
(v) the Residual or the Final Contractual Payment.
(t) Except
as set forth on Schedule 5.5(t), as such Schedule will be updated as of
the Closing Date, the Final Contractual Payment on each Financing Contract
is a
contractual obligation and not an optional payment.
(u) All
payment obligations by any obligors pursuant to each Financing Contract are
due
to the Company, and no payments are made to any third party
originator. Except as set forth on Schedule 5.5(u), as such
Schedule will be updated as of the Closing Date, no Financing Contract requires
any current or future payment to a third party originator.
5.6 Financial
Statements. The Company has made available to Purchaser copies of
(i) the audited consolidated balance sheets of the Company as at December 31,
2006, 2005 and 2004 and the related audited consolidated statements of income
and of cash flows of the Company for the years then ended and (ii) the
unaudited consolidated balance sheet of the Company as at September 30, 2007
and
the related consolidated statements of income and cash flows of the Company
for
the nine month period then ended (such audited and unaudited statements,
including the related notes and schedules thereto, are referred to herein as
the
“Financial Statements”). Except as set forth in the notes
thereto and as disclosed in Schedule 5.6, each of the Financial
Statements has been prepared in accordance with GAAP consistently applied and
presents fairly in all material respects the consolidated financial position,
results of operations
and cash flows of the Company as at the dates and for the periods indicated
therein.
For
the
purposes hereof, the unaudited consolidated balance sheet of the Company as
at
September 30, 2007 is referred to as the “Balance Sheet” and September
30, 2007 is referred to as the “Balance Sheet Date”.
5.7 Absence
of Certain Developments. Except as contemplated by this Agreement
or as set forth on Schedule 5.7, since the Balance Sheet Date (i)
the Company has conducted its business only in the Ordinary Course of Business
and (ii) there has not been any event, change, occurrence or circumstance that
has had a Material Adverse Effect.
5.8 Title. The
Company will deliver good and marketable title to the Assets owned by the
Company free and clear of any Liens, except (i) as set forth on Schedule
5.8, (ii) that no representation is made in this Section 5.8 as to
the Assets covered by Sections 5.5, 5.10 and 5.12 (as to
which such Sections shall govern), and (iii) in the case of Portfolio Property,
the Lien of the Financing Contracts themselves.
5.9 Taxes. Except
as set forth on Schedule 5.9, the Company has timely filed all material
Federal, state and foreign Tax Returns and reports required to be filed by
it,
and all Taxes required to be paid by it have either been paid by it or are
reflected in accordance with GAAP as a reserve for Taxes on the most recent
Financial Statements, and all such returns and reports are correct and complete
in all material respects, or requests for extensions to file such returns or
reports have been timely filed, granted and have not expired, except to the
extent that such failures to file, to pay or to have extensions granted that
remain in effect individually or in the aggregate have not had and would not
reasonably be expected to have a Material Adverse Effect, and the Financial
Statements reflect an adequate reserve for all Taxes payable by the Company
for
all taxable periods and portions thereof through the date of such financial
statements. All material Taxes required to be withheld by the Company
have been withheld and have been duly and timely paid to the proper Taxing
Authority, except for such failure as would not have a Material Adverse
Effect. No deficiencies for any Taxes have been proposed, asserted or
assessed against the Company that are still pending. No income Tax Return of
the
Company is under current examination by the IRS or by any state or foreign
tax
authority. All assessments for Taxes due with respect to any
concluded litigation have been fully paid or have been adequately reserved
on
the Financial Statements in accordance with GAAP. This Section
5.9 represents the sole and exclusive representation and warranty of the
Company regarding tax matters.
5.10 Real
Property. Schedule 5.10 sets forth a complete list of (i)
all material real property and interests in real property owned in fee by the
Company (individually, an “Owned Property” and collectively, the
“Owned Properties”), and (ii) all leases of real property by the
Company (individually, a “Real Property Lease” and collectively, the
“Real Property Leases” and, together with the Owned Properties, being
referred to herein individually as a “Company Property” and collectively
as the “Company Properties”) as lessee or lessor. To the
Knowledge of the Company, the Company
has fee title to all Owned Property, free and clear of all Liens of any nature
whatsoever except (A) Liens set forth on Schedule 5.10 and (B)
Permitted Exceptions. Except as set forth in Schedule 5.10,
the Company has not received any written notice of any default or event that
with notice or lapse of time, or both, would constitute a default by the Company
under any of the Real Property Leases.
5.11 Tangible
Personal Property. Schedule 5.11 sets forth all leases of
personal property by the Company (“Personal Property
Leases”). Except as set forth in Schedule 5.11, the
Company has not received any written notice of any default or any event that
with notice or lapse of time, or both, would constitute a default, by the
Company under any of the Personal Property Leases.
5.12 Intellectual
Property. To the Knowledge of the Company,
Schedule 5.12 sets forth the Company’s Intellectual
Property. Except as set forth on Schedule 5.12, the
Company owns or has valid licenses to use all material Intellectual Property
used by it in the Ordinary Course of Business, except to the extent the failure
to be the owner or the valid licensee would not be material. Except
as set forth on Schedule 5.12, to the Knowledge of the Company, (i) the
material Intellectual Property used by the Company is not the subject of any
challenge received by the Company in writing and (ii) the Company has not
received any written notice of any default or any event that with notice or
lapse of time, or both, would constitute a default under any material
Intellectual Property license to which the Company is a party or by which it
is
bound.
5.13 Material
Contracts.
(a) Schedule
5.13(a) sets forth all of the following Contracts to which the Company is a
party or by which it is bound (collectively, the “Material Contracts”) and that
are included in the Assets:
(i) Contracts
with the Stockholder or any current officer or director of the Company (other
than Contracts with the Stockholder or any of its affiliates made in the
Ordinary Course of Business on terms generally available to similarly situated
non-affiliated parties);
(ii) Contracts
relating to loan origination or servicing systems;
(iii) Contracts
for the sale of any of the assets of the Company other than in the Ordinary
Course of Business, for consideration in excess of $50,000;
(iv) Contracts
relating to any acquisition to be made by the Company of any operating business
or the capital stock of any other Person, in each case for consideration in
excess of $50,000;
(v) Contracts
relating to the incurrence of Indebtedness, or the making of any loans, in
each
case involving amounts in excess of $ 50,000;
(vi) Contracts
which involve the expenditure of more than $50,000 in the aggregate or require
performance by any party more than one year from the date
hereof that, in either case, are not terminable by the Company without penalty
on notice of 180 days’ or less.
(b) Except
as set forth on Schedule 5.13(b), as such Schedule will be updated as of
Closing, to the Knowledge of the Company, the Company has not received any
written notice of any default or event that with notice or lapse of time, or
both, would constitute a default by the Company under any Material Contract,
except for defaults that would not have a Material Adverse Effect.
5.14 Employees. All
records and reports provided by the Company to the Purchaser with respect to
the
employees of the Company are complete and accurate in all material
respects.
5.15 Labor.
(a) Except
as set forth on Schedule 5.15(a), the Company is not a party to any labor
or collective bargaining agreement.
(b) Except
as set forth on Schedule 5.15(b), there are no (i) strikes, work
stoppages, work slowdowns or lockouts pending or, to the Knowledge of the
Company, threatened against or involving the Company, or (ii) unfair labor
practice charges, grievances or complaints pending or, to the Knowledge of
the
Company, threatened by or on behalf of any employee or group of employees of
the
Company, except in each case as would not have a Material Adverse
Effect.
5.16 Litigation. Schedule
5.16 sets forth all Legal Proceedings pending or, to the Knowledge of the
Company threatened against the Company before any Governmental Body as of the
date hereof. The Company is not subject to any Order of any
Governmental Body except to the extent the same would not reasonably be expected
to have a Material Adverse Effect.
5.17 Compliance
with Laws; Permits.
(a) The
Company is in compliance with all Laws of any Governmental Body applicable
to
its businesses or operations, except where the failure to be in compliance
would
not have a Material Adverse Effect. The Company has not received any
written notice of or been charged with the violation of any Laws, except where
such violation would not have a Material Adverse Effect.
(b) The
Company currently has all Permits which are required for the operation of its
businesses as presently conducted, other than those the failure of which to
possess would not have a Material Adverse Effect. The Company is not
in default or violation (and no event has occurred which, with notice or the
lapse of time or both, would constitute a default or violation) of any term,
condition or provision of any Permit to which it is a party, except where such
default or violation would not have a Material Adverse Effect.
5.18 Environmental
Matters. The representations and warranties contained in this
Section 5.18 are the sole and exclusive representations and warranties of
the Company or the Stockholder pertaining or relating to any environmental,
health or safety matters, including any arising under any Environmental
Laws. Except as set forth on Schedule 5.18 hereto and
except in each case as would not have a Material Adverse Effect:
(a) the
Company is, and at all times has been, in compliance with, and has not been
and
is not in violation of, any Environmental Laws. Such compliance includes
obtaining, maintaining and complying with any Permits required under all
applicable Environmental Laws necessary to operate the Business.
(b) Neither
the Company nor the Stockholder has any reasonable basis to expect, nor has
any
of them received, any actual or threatened Order, notice or other communication
from any Governmental Body or Person, alleging any violation of or Liability
under any Environmental Law or of any obligation to undertake or bear the cost
of any with respect to any Company Property or other property or asset (whether
real, personal or mixed) in which the Company has or had an
interest;
(c) there
are no pending or, to the Knowledge of the Company, threatened claims, Liens,
or
other restrictions of any nature resulting from any Liabilities, arising under
or pursuant to any Environmental Law with respect to or affecting any Company
Property or any other property or asset (whether real, personal or mixed) in
which the Company has or had an interest;
(d) neither
the Company nor Stockholder has any knowledge of or any reasonable basis to
expect, nor has either of them, received, any citation, directive, inquiry,
notice, Order, summons, warning or other written communication that relates
to a
Remedial Action, or any alleged, actual, or potential violation or failure
to
comply with any Environmental Laws at any Company Property or property or asset
(whether real, personal or mixed) in which the Company has or had an interest,
or with respect to any property or facility to which Hazardous Materials
generated, manufactured, refined, transferred, imported, used or processed
by
the Company have been transported, treated, stored, handled, transferred,
disposed, recycled or received;
(e) the
Company is not responsible for any Liabilities arising under Environmental
Laws
with respect to any Company Property or, to the Knowledge of the Company, with
respect to any other property or asset (whether real, personal or mixed) in
which the Company (or any predecessor) has or had an interest or at any property
geologically or hydrologically adjoining any Company Property or any such other
property or asset;
(f) there
are no Hazardous Materials present on or in the environment at any Company
Property at concentrations exceeding those allowed by applicable Environmental
Laws including any Hazardous Materials contained in barrels, aboveground or
underground storage tanks, landfills, land deposits, dumps, equipment (whether
movable or fixed) or other containers, either temporary or permanent, and
deposited
or located in land, water, sumps, or any other part of the Company
Property. The Company has not permitted or conducted, or is aware of,
any Remedial Action conducted with respect to any Company Property or any other
property or assets (whether real, personal or mixed) in which the Company has
or
had an interest in a manner that would reasonably be expected to result in
the
Company incurring Liabilities under Environmental Laws;
(g) There
has been no Release or, to the Knowledge of the Company, Threat of Release,
of
any Hazardous Materials at or from any Company Property or at any other location
where any Hazardous Materials were generated, manufactured, refined,
transferred, produced, imported, used, or processed from or by any Company
Property, or from any other property or asset (whether real, personal or mixed)
in which Stockholder has or had an interest in a manner that would reasonably
be
expected to result in the Company incurring Liabilities under Environmental
Laws; and
(h) Stockholder
has to the knowledge of the Stockholder, made available to Purchaser true and
complete copies and results of any reports, studies, analyses, tests, or
monitoring possessed or initiated by Stockholder pertaining to Hazardous
Materials or Remedial Action in, on, or under the Company Property, or
concerning compliance, by Stockholder with Environmental Laws.
5.19 Financial
Advisors. No Person, other than Lehman Brothers Inc., has acted,
directly or indirectly, as a broker, finder or financial advisor for the
Stockholder or the Company in connection with the transactions contemplated
by
this Agreement and no other such Person is entitled to any fee or commission
or
like payment from Purchaser in respect thereof.
5.20 Sufficiency
of Assets, Excluded Assets. Except for the assets, insurance and
corporate services described on Schedule 5.20, the Company’s assets
constitute all of the assets necessary together with the Stockholder’s
agreements hereunder for Purchaser to operate the Company as of the Closing
Date
without interruption and in the Ordinary Course of Business.
5.21 Intentionally
Deleted.
5.22 No
Other Representations or Warranties; Schedules. Except for the
representations and warranties contained in this Article V (as
modified by the Schedules hereto), neither the Company nor any other Person
makes any other express or implied representation or warranty with respect
the
Company or the transactions contemplated by this Agreement, and the Company
disclaims any and all other representations or warranties, whether made by
the
Company, the Stockholder or any of their respective Affiliates, officers,
directors, employees, agents or representatives. Except for the
representations and warranties contained in Article V hereof (as modified
by the Schedules hereto as supplemented or amended), the Company and the
Stockholder hereby disclaim all liability and responsibility for any
representation, warranty, projection, forecast, statement, or information made,
communicated, or furnished (orally or in writing) to Purchaser or its Affiliates
or representatives (including any opinion, information,
projection, or advice that may have been or may be provided to Purchaser by
any
director, officer, employee, agent, consultant, or representative of the Company
or the Stockholder or any of their respective Affiliates). The
Company and the Stockholder make no representations or warranties to Purchaser
regarding the probable success or profitability of the Company. The
disclosure of any matter or item in any schedule hereto shall not be deemed
to
constitute an acknowledgment that any such matter is required to be
disclosed.
ARTICLE
VI
REPRESENTATIONS
AND WARRANTIES OF THE STOCKHOLDER
The
Stockholder hereby represents to Purchaser that:
6.1 Organization
and Good Standing. The Stockholder is a federal savings bank duly
incorporated, validly existing and in good standing under the laws of the United
States and has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business.
6.2 Authorization
of Agreement. The Stockholder has all requisite corporate power,
authority and legal capacity to execute and deliver this Agreement and each
other agreement, document, or instrument or certificate contemplated by this
Agreement or to be executed by the Stockholder in connection with
the consummation of the transactions contemplated by this Agreement
(together with this Agreement, the “Stockholder Documents”), and to
consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and each of the Stockholder Documents
and the consummation of the transactions contemplated hereby and thereby have
been duly authorized by all required corporate action on the part of
the Stockholder. This Agreement has been, and each of the Stockholder
Documents will be at or prior to the Closing, duly and validly executed and
delivered by the Stockholder, and (assuming the due authorization, execution
and
delivery by the other parties hereto and thereto) this Agreement constitutes,
and each Stockholder Document, when so executed and delivered will constitute,
the legal, valid and binding obligation of the Stockholder, enforceable against
the Stockholder in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors’
rights and remedies generally, and subject, as to enforceability, to general
principles of equity, including principles of commercial reasonableness, good
faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity).
6.3 Conflicts;
Consents of Third Parties.
(a) None
of the execution and delivery by the Stockholder of this Agreement or the
Stockholder Documents, the consummation of the transactions contemplated hereby
or thereby, or compliance by the Stockholder with any of the provisions hereof
or thereof will conflict with, or result in any violation of or default (with
or
without notice or lapse of time, or both) under, or give rise to a right of
termination or cancellation under, any provision of (i) the charter
documents of the Stockholder;
(ii) any Contract, or Permit to which the Stockholder is a party or by
which any of the properties or assets of the Stockholder are bound; (iii) any
Order of any Governmental Body applicable to the Stockholder or by which any
of
the properties or assets of the Stockholder are bound; or (iv) any applicable
Law, except where the failure to do so would not result in a Material Adverse
Effect.
(b) No
consent, waiver, approval, Order, Permit or authorization of, or declaration
or
filing with, or notification to, any Person or Governmental Body is
required on the part of the Stockholder in connection with the execution and
delivery of this Agreement or the Stockholder Documents, or the compliance
by
such Stockholder with any of the provisions hereof or thereof, the consummation
of the transactions contemplated hereby and thereby, except for (A) compliance
with the requirements of the HSR Act, if applicable, and (B) for such other
consents, waivers, approvals, Orders, permits or authorizations the
failure of which to obtain would not have a material adverse effect on the
Stockholder’s ability to consummate the transactions contemplated
hereby.
6.4 Litigation. There
are no Legal Proceedings pending or, to the knowledge of the Stockholder,
threatened that are reasonably likely to prohibit or restrain the ability of
the
Stockholder to enter into this Agreement or consummate the transactions
contemplated hereby.
6.5 Financial
Advisors. No Person, other than Lehman Brothers Inc., has acted,
directly or indirectly, as a broker, finder or financial advisor for the
Stockholder in connection with the transactions contemplated by this Agreement,
and no other such Person is entitled to any fee or commission or like payment
in
respect thereof.
ARTICLE
VII
REPRESENTATIONS
AND WARRANTIES OF PURCHASER
Purchaser
hereby represents and warrants to the Stockholder that:
7.1 Organization
and Good Standing. Each Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State
of
Delaware and has all requisite corporate power and authority to own, lease
and
operate properties and carry on its business.
7.2 Authorization
of Agreement. Each Purchaser has full corporate power and
authority to execute and deliver this Agreement and each other agreement,
document, instrument or certificate contemplated by this Agreement or to be
executed by such Purchaser in connection with the consummation of the
transactions contemplated hereby and thereby (the “Purchaser Documents”),
and to consummate the transactions contemplated hereby and
thereby. The execution, delivery and performance by each Purchaser of
this Agreement and each Purchaser Document have been duly authorized by all
necessary corporate action on behalf of such Purchaser. This
Agreement has been, and each Purchaser Document will be at or prior to the
Closing, duly executed and delivered
by each Purchaser and (assuming the due authorization, execution and delivery
by
the other parties hereto and thereto) this Agreement constitutes, and each
Purchaser Document when so executed and delivered will constitute, the legal,
valid and binding obligation of each Purchaser, enforceable against each
Purchaser in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors’
rights and remedies generally, and subject, as to enforceability, to general
principles of equity, including principles of commercial reasonableness, good
faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity).
7.3 Conflicts;
Consents of Third Parties.
(a) Except
as set forth on Schedule 7.3(a) hereto, none of the execution and
delivery by each Purchaser of this Agreement or the Purchaser Documents, the
consummation of the transactions contemplated hereby or thereby, or the
compliance by each Purchaser with any of the provisions hereof or thereof will
conflict with, or result in any violation of or default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination or
cancellation under, any provision of (i) the certificate of incorporation
and by-laws of such Purchaser; (ii) any Contract or Permit to which such
Purchaser is a party or by which Purchaser or its properties or assets are
bound; (iii) any Order of any Governmental Body applicable to such Purchaser
or
by which any of the properties or assets of such Purchaser are bound; or (iv)
any applicable Law.
(b) No
consent, waiver, approval, Order, Permit or authorization of, or declaration
or
filing with, or notification to, any Person or Governmental Body is required
on
the part of either Purchaser in connection with the execution and delivery
of
this Agreement or the Purchaser Documents, the compliance by each Purchaser
with
any of the provisions hereof or thereof, the consummation of the transactions
contemplated hereby or the taking by each Purchaser of any other action
contemplated hereby, except for compliance with the requirements of the HSR
Act,
if applicable.
7.4 Litigation. There
are no Legal Proceedings pending or, to the knowledge of each Purchaser,
threatened that are reasonably likely to prohibit or restrain the ability of
such Purchaser to enter into this Agreement or consummate the transactions
contemplated hereby.
7.5 Financial
Advisors. Except for Fairview Advisors, LLC, no Person has acted,
directly or indirectly, as a broker, finder or financial advisor for either
Purchaser in connection with the transactions contemplated by this Agreement
and
no Person is entitled to any fee or commission or like payment in respect
thereof.
7.6 Financial
Capability. At the Closing the Purchaser will have, sufficient
funds available to pay the Purchase Price and any expenses incurred by Purchaser
in connection with the transactions contemplated by this Agreement.
7.7 Condition
of the Business. Notwithstanding anything contained in this
Agreement to the contrary, each Purchaser acknowledges and agrees that neither
the Company
nor the Stockholder is making any representations or warranties whatsoever,
express or implied, beyond those expressly given by the Company and the
Stockholder, as the case may be, in Article V and Article VI,
respectively (as modified by the Schedules hereto as supplemented or amended),
and each Purchaser acknowledges and agrees that, except for the representations
and warranties contained therein, the assets and the business of the Company
is
being transferred on a “where is” and, as to condition, “as is”
basis. Any claims either Purchaser may have for breach of
representation or warranty shall be based solely on the representations and
warranties of the Company or the Stockholder set forth in Article V or
Article VI, respectively (as modified by the Schedules hereto as
supplemented or amended). Each Purchaser further represents that none
of the Company, any Stockholder or any of their respective Affiliates nor any
other Person has made any representation or warranty, express or implied, as
to
the accuracy or completeness of any information regarding the Company or the
Stockholder, or the transactions contemplated by this Agreement not expressly
set forth in this Agreement, and none of the Company, the Stockholder, any
of
their respective Affiliates or any other Person will have or be subject to
any
Liability to either Purchaser or any other Person resulting from the
distribution to either Purchaser or its representatives or Purchaser’s use of,
any such information, including any confidential memoranda distributed on behalf
of the Company relating to the Company or other publications or data room
information provided to either Purchaser or its representatives, or any other
document or information in any form provided to either Purchaser or its
representatives in connection with the sale of the Company and the transactions
contemplated hereby. Each Purchaser acknowledges that it has
conducted to its satisfaction, its own independent investigation of the
condition, operations and business of the Company and, in making its
determination to proceed with the transactions contemplated by this Agreement,
each Purchaser has relied on the results of its own independent
investigation.
7.8 Closing
Date Balance Sheet. The Purchaser will prepare the Closing Date Balance
Sheet in accordance in all material respects with GAAP. The Closing
Date Balance Sheet will fairly present, the financial position of the Company
in
all material respects as of the Closing Date.
ARTICLE
VIII
COVENANTS
8.1 Access
to Information. Prior to the Closing, Purchaser shall be
entitled, through its officers, employees and representatives (including its
legal advisors and accountants), to make such investigation of the properties,
businesses and operations of the Company and such examination of the books
and
records of the Company as it reasonably requests and to make extracts and copies
of such books and records. Any such investigation and examination
shall be conducted during regular business hours upon reasonable advance notice
and under reasonable circumstances and shall be subject to restrictions under
applicable Law. The Company shall cause the officers, employees,
consultants, agents, accountants, attorneys and other representatives of the
Company to cooperate with Purchaser and Purchaser’s representatives in
connection with such investigation and examination,
and
Purchaser and its representatives shall cooperate with the
Company and its representatives and shall use their reasonable efforts to
minimize any disruption to the business. Notwithstanding anything
herein to the contrary, no such investigation or examination shall be permitted
to the extent that it would require the Company to disclose information subject
to attorney-client privilege or conflict with any confidentiality obligations
to
which the Company is bound. Notwithstanding anything to the contrary
contained herein, prior to the Closing, without the prior written consent
of the
Company, which may be withheld for any reason, (i) Purchaser shall not contact
any suppliers to, or customers of, the Company, and (ii) Purchaser shall
have no
right to perform invasive or subsurface investigations of the properties
or
facilities of the Company.
8.2 Conduct
of the Business Pending the Closing.
(a) Prior
to the Closing, except (I) as set forth on Schedule 8.2, (II) as required
by applicable Law, (III) as otherwise contemplated by this Agreement or (IV)
with the prior written consent of Purchaser (which consent shall not be
unreasonably withheld, delayed or conditioned), the Company shall:
(i) conduct
the Business only in the Ordinary Course of Business;
(ii) use
its commercially reasonable efforts to (A) preserve the present business
operations, organization and goodwill of the Company, and (B) preserve the
present relationships with customers and suppliers of the Company;
(iii) except
as otherwise directed by Purchaser in writing, and without making any commitment
on Purchaser’s behalf, use commercially reasonable efforts to preserve intact
the current business organization of the Business, keep available the services
of the officers, employees and agents of the Business and maintain the relations
and good will of the Business with suppliers, customers, landlords, creditors,
employees, agents and others having business relationships with it;
(iv) confer
with Purchaser prior to implementing operational decisions of a material nature
with respect to the Business;
(v) otherwise
report periodically to Purchaser concerning the status of the business,
operations and finances of the Business;
(vi) use
its commercially reasonable efforts to keep in full force and effect, without
amendment, all material rights relating to the Business;
(vii) comply
with all Laws and contractual obligations applicable to the operations of the
Business;
(viii) use
its commercially reasonable efforts to continue in full force and effect all
insurance coverage pertaining to the Business under its existing policies or
substantially equivalent policies;
(ix) upon
request from time to time, use its commercially reasonable efforts to execute
and deliver all documents, make all truthful oaths, testify in any Legal
Proceedings and do all other acts that may be reasonably necessary or desirable
in the opinion of Purchaser to consummate the transactions contemplated
hereunder, all without further consideration; and
(x) maintain
all books and records of the Company relating to the Business in the Ordinary
Course of Business.
(b) Except
(I) as set forth on Schedule 8.2, (II) as required by applicable
Law, (III) as otherwise contemplated by this Agreement or (IV) with the prior
written consent of Purchaser (which consent shall not be unreasonably withheld,
delayed or conditioned), the Company shall not:
(i) subject
to any Lien, any of the Assets;
(ii) permit
the Company to enter into or agree to enter into any merger, consolidation
or
sale of any of the Assets to any other Person; or
(iii) agree
to do anything prohibited by this Section 8.2.
8.3 Consents. The
Company shall apply for any consents requested by the Purchaser, and the Company
and the Stockholder shall cooperate with Purchaser and use their commercially
reasonable efforts to obtain at the earliest practicable date all consents
and
approvals required to consummate the transactions contemplated by this
Agreement, including, without limitation, the consents and approvals referred
to
in Sections 5.3(b), 6.3(b) and 7.3(b) hereof, and to assign
the Contracts set forth on Schedule 8.3 to Purchaser at the
Closing.
8.4 Regulatory
Approvals.
(a) Each
of Purchaser, the Company and the Stockholder (if necessary) shall (i) make
or
cause to be made all filings required of each of them or any of their respective
Subsidiaries or Affiliates under the HSR Act or other Antitrust Laws with
respect to the transactions contemplated hereby as promptly as practicable
and,
in any event, within 20 Business Days after the date of this Agreement in the
case of all filings required under the HSR Act and within four weeks in the
case
of all other filings required by other Antitrust Laws, (ii) comply at the
earliest practicable date with any request under the HSR Act or other Antitrust
Laws for additional information, documents, or other materials received by
each
of them or any of their respective subsidiaries or Affiliates from the FTC,
the
Antitrust Division or any other Governmental Body in respect of such filings
or
such transactions, and (iii) cooperate with each other in connection with any
such filing (including, to the extent permitted by applicable law, providing
copies of all such documents to the non-filing parties prior to filing and
considering all reasonable additions, deletions or changes suggested in
connection therewith) and in connection with resolving any investigation or
other inquiry of any of the FTC, the Antitrust Division or other Governmental
Body under any Antitrust Laws with respect to any such filing or any such
transaction. Each such party shall use its best
efforts
to furnish to each other all information required for any application or
other
filing to be made pursuant to any applicable law in connection with the
transactions contemplated by this Agreement. Each such party shall
promptly inform the other parties hereto of any oral communication with,
and
provide copies of written communications with, any Governmental Body regarding
any such filings or any such transaction. No party hereto shall
independently participate in any formal meeting with any Governmental Body
in
respect of any such filings, investigation, or other inquiry without giving
the
other parties hereto prior notice of the meeting and, to the extent permitted
by
such Governmental Body, the opportunity to attend and/or
participate. Subject to applicable Law, the parties hereto will
consult and cooperate with one another in connection with any analyses,
appearances, presentations, memoranda, briefs, arguments, opinions and proposals
made or submitted by or on behalf of any party hereto relating to proceedings
under the HSR Act or other Antitrust Laws. Any party may, as it deems
advisable and necessary, reasonably designate any competitively sensitive
material provided to the other parties under this Section 8.4 as “outside
counsel only.” Such materials and the information contained therein
shall be given only to the outside legal counsel of the recipient and will
not
be disclosed by such outside counsel to employees, officers, or directors
of the
recipient, unless express written permission is obtained in advance from
the
source of the materials.
(b) Each
of Purchaser and the Company shall use its best efforts to resolve such
objections, if any, as may be asserted by any Governmental Body with respect
to
the transactions contemplated by this Agreement under the HSR Act, the Sherman
Act, as amended, the Clayton Act, as amended, the Federal Trade Commission
Act,
as amended, and any other United States federal or state or foreign statutes,
rules, regulations, orders, decrees, administrative or judicial doctrines or
other laws that are designed to prohibit, restrict or regulate actions having
the purpose or effect of monopolization or restraint of trade (collectively,
the
“Antitrust Laws”). In connection therewith, if any Legal
Proceeding is instituted (or threatened to be instituted) challenging any
transaction contemplated by this Agreement as in violation of any Antitrust
Law,
each of Purchaser and the Company shall cooperate and use its best efforts
to
contest and resist any such Legal Proceeding, and to have vacated, lifted,
reversed, or overturned any decree, judgment, injunction or other Order whether
temporary, preliminary or permanent, that is in effect and that prohibits,
prevents, or restricts consummation of the transactions contemplated by this
Agreement, including by pursuing all available avenues of administrative and
judicial appeal, unless by mutual agreement, Purchaser and the Company decide
that litigation is not in their respective best interests. Each of
Purchaser and the Company shall use commercially reasonable efforts to take
such
action as may be required to cause the expiration of the notice periods under
the HSR Act or other Antitrust Laws with respect to such transactions as
promptly as possible after the execution of this Agreement. In connection with
and without limiting the foregoing, each of Purchaser and the Company agree
to
use its best efforts to take promptly any and all steps necessary to avoid
or
eliminate each and every impediment under any Antitrust Laws that may be
asserted by any Federal, state and local and non-United States antitrust or
competition authority, so as to enable the parties to close the transactions
contemplated by this Agreement as
expeditiously
as possible, including effecting or committing to effect, by consent decree,
hold separate orders, trust or otherwise
the sale or disposition of such of its assets or businesses as are required
to
be divested in order to avoid the entry of, or to effect the dissolution
of, any
decree, Order, judgment, injunction, temporary restraining order or other
order
in any suit or preceding, that would otherwise have the effect of preventing
or
materially delaying the consummation of the transactions contemplated by
this
Agreement.
8.5 Further
Assurances. Subject to, and not in limitation of, Section
8.4, each of Purchaser and the Company shall use its commercially reasonable
efforts to (i) take all actions necessary or appropriate to consummate the
transactions contemplated by this Agreement and (ii) cause the fulfillment
at
the earliest practicable date of all of the conditions to their respective
obligations to consummate the transactions contemplated by this
Agreement.
8.6 Non-Competition;
Non-Solicitation; Confidentiality, Etc.
(a) For
a period of three (3) years from and after the Closing Date, neither the Company
nor the Stockholder shall directly or indirectly, own, manage, engage in,
operate, control, work for, consult with, render services for, do business
with,
maintain any interest in (proprietary, financial or otherwise) or participate
in
the ownership, management, operation or control of, any business, whether in
corporate, proprietorship or partnership form or otherwise, engaged in the
micro-ticket equipment lease financing business or that otherwise competes
with
the Business (a “Restricted Business”); provided, however, that
the restrictions contained in this Section 8.6(a) shall not restrict the
acquisition by the Stockholder, directly or indirectly, of (i) less than 5%
of
the outstanding capital stock of any publicly traded company engaged in a
Restricted Business, (ii) any company of which a Restricted Business is not
the
principal operation or purpose; or (iii) any distressed assets acquired in
a
secondary market, and provided, further, that the restrictions contained
in this Section 8.6(a) shall not restrict the Stockholder from directly
or indirectly (x) engaging in any Restricted Business in which it was engaged
as
of the Closing Date, or (y) disposing of, servicing or dealing in any way with
the Retained Assets.
(b) Purchaser
acknowledges that the information provided to it in connection with this
Agreement and the transactions contemplated hereby is subject to the terms
of
the confidentiality agreement between Purchaser and the Company dated July
16,
2007 (the “Confidentiality Agreement”), the terms of which are
incorporated herein by reference. Effective upon, and only upon, the
Closing Date, the Confidentiality Agreement shall terminate.
(c) Neither
the Company nor the Stockholder shall disparage the Business, Purchaser,
Purchaser’s business or any of Purchaser’s shareholders, directors, officers,
employees or agents. Purchaser will not disparage Stockholder,
Stockholder’s business or any of Stockholder’s shareholders, directors,
officers, employees or agents.
(d) If
a final judgment of a court or tribunal of competent jurisdiction determines
that any term or provision contained in Section 8.6 is invalid or
unenforceable, then the parties agree that the court or tribunal will have
the
power to reduce
the scope, duration or geographic area of the term or provision, to delete
specific words or phrases or to
delete
any invalid or unenforceable term or provision. This Section 8.6 will
be enforceable as so modified after the expiration of the time within which
the
judgment may be appealed. This Section 8.6 is reasonable and
necessary to protect and preserve parties legitimate business interests and
to
prevent any unfair advantage. The parties hereto acknowledge and
agree that any remedy at law for any breach of the provisions of this Section
8.6 would be inadequate, and hereby consent to the granting by any court
of
an injunction or other equitable relief, without the necessity of actual
monetary loss being proved, in order that the breach or threatened breach
of
such provisions may be effectively restrained.
8.7 Preservation
of Records. The Stockholder and Purchaser agree that each of them
shall preserve and keep the records held by them or their Affiliates relating
to
the respective businesses of the Company for a period of seven years from the
Closing Date and shall make such books, records and personnel available to
the
other as may be reasonably required by such party (i) in connection with the
preparation of financial statements, regulatory filings or Tax returns of the
Company and the Stockholder or their Affiliates in respect of periods ending
on
or prior to Closing, (ii) in connection with any insurance claims by, Legal
Proceedings or tax audits against or governmental investigations of the
Stockholder or Purchaser or any of their Affiliates, (iii) in order to
enable the Stockholder or Purchaser to comply with their respective obligations
under this Agreement and each other agreement, document or instrument
contemplated hereby or thereby, or (iv) for the purposes of administering the
Assets, the Assumed Liabilities, the Retained Assets and/or the Retained
Liabilities. In the event the Stockholder or Purchaser wishes to
destroy such records after that time, such party shall first give 90 days prior
written notice to the other and such other party shall have the right at its
option and expense, upon prior written notice given to such party within that
90
day period, to take possession of the records within 180 days after the date
of
such notice. The Purchaser and the Stockholder shall be entitled, at
their sole cost and expense, to make copies of the books and records to which
they are entitled to access pursuant to this Section 8.7.
8.8 Publicity.
(a) None
of the Stockholder, the Company or Purchaser shall issue any press release
or
public announcement concerning this Agreement or the transactions contemplated
hereby without obtaining the prior written approval of the other party hereto,
which approval will not be unreasonably withheld, conditioned or delayed,
unless, in the sole judgment of the Stockholder, the Company or Purchaser,
as
applicable, disclosure is otherwise required by applicable Law or by the
applicable rules of any stock exchange or interdealer automated quotation system
on which the Stockholder, the Company, Purchaser or Affiliate of Purchaser
lists
securities, provided that, to the extent required by applicable Law, the party
intending to make such release shall use its commercially reasonable efforts
consistent with such applicable Law to consult with the other party with respect
to the timing and content thereof.
(b) The
parties acknowledge that a copy of this Agreement is required to be filed by
Purchaser under Securities Laws, and that such disclosure shall be limited
to
the extent required by such Securities Laws.
8.9 Use
of Name.
(a) Purchaser
agrees that (i) it shall have no right to use or exploit the names “Lehman
Brothers Bank”, “Lehman Brothers”, “Capital Crossing” or any service marks,
trademarks, trade names, identifying symbols, logos, emblems, signs or insignia
related thereto or containing or comprising the foregoing, including any name
or
mark confusingly similar thereto (collectively, the “Subject Marks”), and
(ii) will not at any time hold itself out as having any affiliation with the
Stockholder or any of its Affiliates. In furtherance thereof, as
promptly as practicable but in no event later than 45
days following the Closing Date, Purchaser shall
remove, strike over or otherwise obliterate all Subject Marks from all materials
including, without limitation, any vehicles, business cards, schedules,
stationery, packaging materials, displays, signs, promotional materials,
manuals, forms, computer software and other materials.
(b) Notwithstanding
any other provision in this Agreement, Purchaser agrees that for a period of
30
days following the Closing Date, Stockholder shall have a right to continue
to
use the name “Dolphin Capital Corp.” and any service marks, trademarks, trade
names, identifying symbols, logos, emblems, signs or insignia related thereto
in
connection with the wind down and transition of the Retained Assets and Retained
Liabilities from the Company to the Stockholder.
8.10 Employment
and Employee Benefits.
(a) Employees.
Within 10 days following the date hereof, Purchaser shall extend offers of
employment to at least 90% of the current employees of the Company (the
“Continuing Employees”). Notwithstanding the foregoing, Purchaser is not
obligated to extend an offer of employment to any current employee that either
(i) the Company would have cause to terminate, or (ii) is underperforming at
his
or her current position, and such employees shall not be counted in making
the
calculation in the preceding sentence. Prior to extending offers of employment
to the Continuing Employees, Purchaser shall consult with Stockholder regarding
selection of such Continuing Employees and criteria for such selection,
including without limitation to ensure compliance with any applicable
Laws.
(b) Compensation
and Benefits.
(i) Purchaser
hereby agrees that all offers of employment to the Continuing Employees shall
provide the Continuing Employees with initial salary and wages no less than
a
similarly qualified employee of Purchaser as of the date hereof.
(ii) Continuing
Employees shall have the right to participate in Purchaser’s benefits plans on a
basis no less favorable than other comparable employees of Purchaser, including
but not limited to, health insurance, prescription
drug
coverage, life insurance, short term disability insurance, long term disability
insurance, paid
vacations,
401(k) retirement plan with company match, and any other plans or arrangements
offered by Purchaser (the “Purchaser Plans”). To the extent permissible
by applicable Law, for purposes of eligibility and vesting (but not benefit
accrual), under the Purchaser Plans, Purchaser shall credit each Continuing
Employee with his or her years of service with the Company and any predecessor
entities, to the same extent as such Continuing Employee was entitled
immediately prior to the Closing to credit for such service under any similar
Company Benefit Plan. The Purchaser Plans shall not deny Continuing Employees
coverage on the basis of pre-existing conditions and shall credit such
Continuing Employees for any deductibles and out-of-pocket expenses paid in
the
same calendar year as the Closing (unless coverage was denied under the
corresponding Company Benefit Plan).
8.11 Disclosure
Schedules; Supplementation and Amendment of Schedules. The
Company and the Stockholder may, at their option, include in the Schedules
items
that are not material in order to avoid any misunderstanding, and such
inclusion, or any references to dollar amounts, shall not be deemed to be an
acknowledgement or representation that such items are material, to establish
any
standard of materiality or to define further the meaning of such terms for
purposes of this Agreement. Information disclosed in the Schedules
shall constitute a disclosure for all purposes under this Agreement
notwithstanding any reference to a specific section, and all such information
shall be deemed to qualify the entire Agreement and not just such
section. From time to time prior to the Closing, the Company shall
have the right to supplement or amend the Schedules with respect to any matter
hereafter arising or discovered after the delivery of the Schedules pursuant
to
this Agreement. No such supplement or amendment shall have any effect
on the satisfaction of the condition to closing set forth in Section
9.1(a), nor shall it effect the indemnification obligations of the
Stockholder under Article X to the extent that the changes to the Schedules have
not already been reflected in the Purchase Price (as adjusted pursuant to
Section 3.3).
8.12 Notification. The
Company or the Stockholder shall promptly notify Purchaser of the occurrence
of
any event that is reasonably expected to cause the satisfaction of the condition
in Section 9.1(a) not to occur.
8.13 No
Negotiation. Until such time as this Agreement shall be
terminated pursuant to Section 4.2, except for actions taken at the
direction of the board of directors of the Company in fulfilling its fiduciary
duties to shareholders, or as may be required by law, the Company shall not,
nor
shall it knowingly permit any of its representatives to, directly or indirectly,
solicit, initiate, encourage or knowingly facilitate discussions or negotiations
with any other person, or furnish to any other person any information
concerning, (i) any sale, transfer or other disposition of all or a material
portion of the Assets or stock of the Company to any person other than
Purchaser, (ii) any merger or consolidation of the Company with or into any
person other than Purchaser, or (iii) any issuance or sale of voting securities
of the Company to any person other than Purchaser.
8.14 Commercially
Reasonable Efforts. The Company and the Stockholder shall use
commercially reasonable efforts to cause the conditions in Section 9.1 to
be satisfied. Purchaser shall use commercially reasonable efforts to
cause the conditions in Section 9.2 to be satisfied.
8.15 Payment
of Retained Liabilities. If the failure to make any payments with
respect to the Retained Liabilities will materially impair Purchaser’s use or
enjoyment of or title to the Assets or conduct of the Business, Purchaser may,
at any time after the Closing Date, elect to pay the amounts owed directly
(but
shall have no obligation to do so) and Stockholder shall reimburse Purchaser
for
such amounts; provided, that (i) Purchaser has provided Stockholder with
at least thirty (30) days written notice of its intention to pay the amounts,
and (ii) the payments are not being disputed by the Stockholder in good
faith.
ARTICLE
IX
CONDITIONS
TO CLOSING
9.1 Conditions
Precedent to Obligations of Purchaser. The obligation of
Purchaser to consummate the transactions contemplated by this Agreement is
subject to the fulfillment, on or prior to the Closing Date, of each of the
following conditions (any or all of which may be waived by Purchaser in whole
or
in part to the extent permitted by applicable Law):
(a) the
representations and warranties of the Company and the Stockholder set forth
in
this Agreement (including the Schedules as of the date hereof) shall be true
and
correct at and as of the Closing, except to the extent such representations
and
warranties relate to an earlier date (in which case such representations and
warranties shall be true and correct on and as of such earlier date); provided
however, that in the event of a breach of a representation or warranty, the
condition set forth in this Section 9.1(a) shall be deemed satisfied
unless the effect of all such breaches of representations and warranties taken
together result in a Material Adverse Effect or unless permitted updates to
the
Schedules shall, together with any breaches of representations and warranties,
result in a Material Adverse Effect, and Purchaser shall have received a
certificate signed by an authorized officer of the Company, dated the Closing
Date, to the foregoing effect;
(b) the
Company and the Stockholder shall have performed and complied in all material
respects with all obligations and agreements required by this Agreement to
be
performed or complied with by them on or prior to the Closing Date, and
Purchaser shall have received a certificate signed by an authorized officer
of
the Company, dated the Closing Date, to the foregoing effect;
(c) there
shall not be in effect any Order by a Governmental Body of competent
jurisdiction restraining, enjoining or otherwise prohibiting the consummation
of
the transactions contemplated hereby;
(d) the
waiting period, if applicable, to the transactions contemplated by this
Agreement under the HSR Act shall have expired or early termination shall have
been granted;
(e) delivery
to Purchaser of a bill of sale executed by a duly authorized officer of the
Company;
(f) delivery
to Purchaser of a good standing certificate for each of the Company and the
Stockholder, issued by the state in which each of the foregoing is organized
or
incorporated, as the case may be, dated not more than five Business Days prior
to the Closing Date;
(g) delivery
to Purchaser of a title report from First American Title Insurance Company
dated
October 17, 2007, subject to the exceptions detailed on Schedule
5.10;
(h) delivery
to Purchaser of a certificate, in customary form, certifying that the Company
is
not a foreign Person;
(i) the
Company and the Stockholder shall have delivered, or caused to be delivered,
to
Purchaser a legal opinion of internal counsel of Stockholder (as to authority
only) substantially in the form attached hereto as Exhibit
A;
(j) certificates
in customary form, of the Secretary or Assistant Secretary of each of the
Company and the Stockholder, certifying and attaching all requisite resolutions
or actions of the Company and the Stockholder approving the consummation of
the
transactions contemplated hereunder and certifying to the incumbency and
signatures of the officers of the Company and the Stockholder;
(k) delivery
to Purchaser of such other deeds, bills of sale, assignments, certificates
of
title, other instruments of transfer and conveyance and other documents or
certificates as may reasonably be requested by Purchaser, each in a form and
substance satisfactory to Purchaser and its legal counsel and executed by a
duly
executed officer of the Company and/or the Stockholder; and
(l) Purchaser
shall have received a commercial mortgage loan offer from the Stockholder or
one
of its Affiliates in an amount equal to 80% of the book value of the Owned
Property as of the Closing on standard market terms and conditions. For example,
if the book value of the building comprising a portion of the Owned Property
(without regard to accumulated depreciation as of the Closing) is equal to
$1,700,067, depreciation as of the Closing is equal to $22,250 and the book
value of the land comprising a portion of the Owned Property as of the Closing
is equal to $200,000, for a total net book value of $1,877,817, then the amount
of such loan offer shall be $1,502,000.
9.2 Conditions
Precedent to Obligations of the Stockholder. The obligations of
the Stockholder to consummate the transactions contemplated by this Agreement
are subject to the fulfillment, prior to or on the Closing Date, of each of
the
following
conditions (any or all of which may be waived by the Stockholder in whole or
in
part to the extent permitted by applicable Law):
(a) the
representations and warranties of Purchaser set forth in this Agreement
qualified as to materiality shall be true and correct (including the Schedules
as of the date hereof), and those not so qualified shall be true and correct
in
all material respects, at and as of the Closing Date as though made on the
Closing Date, except to the extent such representations and warranties relate
to
an earlier date (in which case such representations and warranties qualified
as
to materiality shall be true and correct, and those not so qualified shall
be
true and correct in all material respects, on and as of such earlier date),
and
the Stockholder shall have received a certificate signed by an authorized
officer of Purchaser, dated the Closing Date, to the foregoing
effect;
(b) Purchaser
shall have performed and complied in all material respects with all obligations
and agreements required by this Agreement to be performed or complied with
by
Purchaser on or prior to the Closing Date, and the Stockholder shall have
received a certificate signed by an authorized officer of Purchaser, dated
the
Closing Date, to the foregoing effect;
(c) there
shall not be in effect any Order by a Governmental Body of competent
jurisdiction restraining, enjoining or otherwise prohibiting the consummation
of
the transactions contemplated hereby;
(d) all
consents, waivers and approvals listed on Schedule 9.2(d) shall have been
received;
(e) the
waiting period, if applicable, to the transactions contemplated by this
Agreement under the HSR Act shall have expired or early termination shall have
been granted; and
(f) Purchaser
shall have delivered, or caused to be delivered, to the Stockholder evidence
of
the wire transfer in respect of the Purchase Price.
9.3 Frustration
of Closing Conditions. None of the Company, Purchaser or the
Stockholder may rely on the failure of any condition set forth in Sections
9.1 or 9.2, as the case may be, if such failure was caused by such
party’s failure to comply with any provision of this Agreement.
ARTICLE
X
INDEMNIFICATION
10.1 Survival
of Representations and Warranties. The representations and
warranties of the parties contained in this Agreement shall survive the Closing
through and including the two (2) year anniversary of the Closing Date;
provided, however, that the representations and warranties of the Company
set forth in (a) Sections 5.9 (Taxes) and 5.18 (Environmental
Matters) shall survive the Closing until 90 days following the expiration of
the
applicable statute of limitations with respect to the
particular
matter that is the subject matter thereof, and (b) Section 5.5 (Financing
Contracts) shall survive the Closing through and including the date of
expiration or termination in respect of the particular Financing Contract
that
is the subject matter thereof (in each case, the “Survival Period”);
provided, however, that any obligations under Sections
10.2(a) and 10.3(a) shall not terminate with respect to any Losses as
to which the Person to be indemnified shall have given notice in writing
setting
forth the specific claim and the basis therefor to the indemnifying party
in
accordance with Section 10.4(a) before the termination of the applicable
Survival Period.
10.2 Indemnification
by Stockholder.
(a) Subject
to Sections 8.10 and 10.5 hereof, the Stockholder hereby agrees to
indemnify and hold Purchaser and its directors, officers, employees, Affiliates,
stockholders, agents, attorneys, representatives, successors and permitted
assigns (collectively, the “Purchaser Indemnified Parties”) harmless from
and against any and all losses, liabilities, claims, demands, judgments, damages
(excluding incidental and consequential damages), fines, suits, actions, costs
and expenses (individually, a “Loss” and, collectively,
“Losses”):
(i) based
upon or resulting from the failure of any of the representations or warranties
made by the Stockholder or the Company in this Agreement other than the
representations of the Company set forth in Section 5.5 hereof, to be
true and correct in all respects at and as of the date hereof;
(ii) based
upon or resulting from the failure of any of the representations or warranties
made by the Company in Section 5.5 of this Agreement, to be true and
correct in all respects at and as of the date hereof; and
(iii) based
upon or resulting from the breach of any covenant on the part of the Stockholder
or the Company under this Agreement.
(b) For
the purposes of calculating any Losses hereunder, any materiality or Material
Adverse Effect qualifications in the representations, warranties, covenants
and
agreements shall be disregarded.
(c) Purchaser
acknowledges and agrees that the Stockholder shall not have any Liability under
any provision of this Agreement for any Loss to the extent that such Loss is
caused by action taken by Purchaser or any other Person (other than the
Stockholder or the Company in breach of this Agreement) after the Closing
Date. Purchaser shall take and shall cause its Affiliates to take all
reasonable steps to mitigate any Loss upon becoming aware of any event which
would reasonably be expected to, or does, give rise thereto.
10.3 Indemnification
by Purchaser.
(a) Subject
to Section 10.5, Purchaser hereby agrees to indemnify and hold Company,
the Stockholder and their respective directors, officers, employees, Affiliates,
stockholders, agents, attorneys, representatives, successors and permitted
assigns
(collectively, the “Seller Indemnified Parties”) harmless from and
against, and pay to the applicable Seller Indemnified Parties the amount of,
any
and all Losses:
(i) based
upon or resulting from the failure of any of the representations and warranties
made by Purchaser in this Agreement to be true and correct in all respects
at
the date hereof; and
(ii) based
upon or resulting from the breach of any covenant on the part of Purchaser
under
this Agreement.
(b) The
Stockholder shall take and cause its Affiliates to take all reasonable steps
to
mitigate any Loss upon becoming aware of any event which would reasonably be
expected to, or does, give rise thereto.
10.4 Indemnification
Procedures.
(a) A
claim for indemnification for any matter not involving a third-party claim
may
be asserted by notice to the party from whom indemnification is
sought.
(b) In
the event that any Legal Proceedings shall be instituted, or that any claim
shall be asserted, by any third party in respect of which payment may be sought
under Sections 10.2 and 10.3 hereof (regardless of the limitations
set forth in Section 10.5) ( an “Indemnification Claim”), the
indemnified party shall promptly cause written notice of the assertion of any
Indemnification Claim of which it has knowledge which is covered by this
indemnity to be forwarded to the indemnifying party. The failure of
the indemnified party to give reasonably prompt notice of any Indemnification
Claim shall not release, waive or otherwise affect the indemnifying party’s
obligations with respect thereto except to the extent that the indemnifying
party is prejudiced as a result of such failure. The indemnifying
party shall have the right, at its sole option and expense, to be represented
by
counsel of its choice, which must be reasonably satisfactory to the indemnified
party, and to defend against, negotiate, settle or otherwise deal with any
Indemnification Claim which relates to any Losses indemnified against by it
hereunder. If the indemnifying party elects to defend against,
negotiate, settle or otherwise deal with any Indemnification Claim which relates
to any Losses indemnified against by it hereunder, it shall within 30 days
(or
sooner, if the nature of the Indemnification Claim so requires) notify the
indemnified party of its intent to do so. If the indemnifying party
elects not to defend against, negotiate, settle or otherwise deal with any
Indemnification Claim which relates to any Losses indemnified against hereunder,
the indemnified party may defend against, negotiate, settle or otherwise deal
with such Indemnification Claim. If the indemnifying party shall
assume the defense of any Indemnification Claim, the indemnified party may
participate, at his or its own expense, in the defense of such Indemnification
Claim; provided, however, that such indemnified party shall be
entitled to participate in any such defense with separate counsel at the expense
of the indemnifying party if, (i) so requested by the indemnifying party to
participate or (ii) in the reasonable opinion of counsel to the indemnified
party, a conflict or potential conflict exists between the indemnified party
and
the indemnifying
party
that would make such separate representation advisable; and provided,
further, that the indemnifying party shall not be required to pay
for
more than one such counsel (plus any appropriate local counsel) for all
indemnified parties in connection with any Indemnification Claim. The
parties hereto agree to cooperate fully with each other in connection with
the
defense, negotiation or settlement of any such Indemnification
Claim. Notwithstanding anything in this Section 10.4 to the
contrary, neither the indemnifying party nor the indemnified party shall,
without the written consent of the other party, settle or compromise any
Indemnification Claim or permit a default or consent to entry of any judgment
unless the claimant and such party provide to such other party an unqualified
release from all Liability in respect of the Indemnification
Claim. Notwithstanding the foregoing, if a settlement offer solely
for money damages is made by the applicable third party claimant, and the
indemnifying party notifies the indemnified party in writing of the indemnifying
party’s willingness to accept the settlement offer and, subject to the
applicable limitations of Sections 10.5 and 10.6, pay the amount
called for by such offer, and the indemnified party declines to accept such
offer, the indemnified party may continue to contest such Indemnification
Claim,
free of any participation by the indemnifying party, and the amount of any
ultimate Liability with respect to such Indemnification Claim that the
indemnifying party has an obligation to pay hereunder shall be limited to
the
lesser of (A) the amount of the settlement offer that the indemnified party
declined to accept plus the Losses of the indemnified party relating to such
Indemnification Claim through the date of its rejection of the settlement
offer
or (B) the aggregate Losses of the indemnified party with respect to such
Indemnification Claim.
(c) After
any final decision, judgment or award shall have been rendered by a Governmental
Body of competent jurisdiction and the expiration of the time in which to appeal
therefrom, or a settlement shall have been consummated, or the indemnified
party
and the indemnifying party shall have arrived at a mutually binding agreement
with respect to an Indemnification Claim hereunder, the indemnified party shall
forward to the indemnifying party notice of any sums due and owing by the
indemnifying party pursuant to this Agreement with respect to such
matter.
10.5 Certain
Limitations on Indemnification.
(a) Notwithstanding
the provisions of this Article X, neither the Stockholder nor Purchaser
shall have any indemnification obligations for Losses under Sections
10.2(a)(i) or (iii) or Sections 10.3(a) unless the aggregate
amount of all such Losses exceeds $50,000, in which event the indemnifying
party
shall be obligated to pay the entire amount of all such Losses; provided
however, that Purchaser shall not make such claims more often than
quarterly. For clarification purposes, in the event the aggregate
amount of all such Losses exceeds $50,000 and an initial claim is made by a
Purchaser Indemnified Party pursuant to this Section 10.2(a), any
Purchaser Indemnified Party shall be entitled to make subsequent claims for
indemnification in amounts less than or greater than $50,000.
(b) In
no event shall the aggregate indemnification to be paid by the Stockholder
under
this Article X exceed an amount equal to fifty percent (50%) of the
Purchase Price (the “Cap”).
(c) Purchaser
shall not be entitled to indemnification pursuant to Section 10.2(a)(ii)
unless the related breach is one which materially impairs the value of any
Financing Contract or Financing Contracts, in which case, Stockholder shall
have
the option to, within thirty (30) days of notification of an indemnification
claim with respect to any Financing Contract(s), (i) repurchase such Financing
Contract or Financing Contracts in question from Purchaser for 101% of the
book
value of the Financing Contract or Financing Contracts in question as of the
date of the repurchase, or (ii) indemnify the Purchaser in accordance with
the
provisions of Section 10.4. For the purposes of this Section
10.4(c), a material impairment is one in which either damages on any
Financing Contract exceed $500, or damages on multiple Financing Contracts
exceed $5,000.
(d) Purchaser
shall not make any claim for indemnification under this Article X in
respect of any matter that is taken into account in the calculation of any
adjustment to the Purchase Price pursuant to Section 3.3.
10.6 Calculation
of Losses. Notwithstanding anything to the contrary elsewhere in
this Agreement, no party shall, in any event, be liable to any other Person
for
any consequential, incidental, indirect, special or punitive damages of such
other Person, including loss of future revenue, income or profits, diminution
of
value or loss of business reputation or opportunity relating to the breach
or
alleged breach hereof (provided that such limitation with respect to profits
shall not limit the Stockholder’s right to recover contract damages in
connection with Purchaser’s failure to close in violation of this
Agreement).
10.7 Tax
Treatment of Indemnity Payments. The Company and Purchaser agree
to treat any indemnity payment made pursuant to this Article X as an
adjustment to the Purchase Price for federal, state, local and foreign income
tax purposes.
10.8 Exclusive
Remedy. From and after the Closing the sole and exclusive remedy
for any breach or failure (whether in contract, in tort or otherwise) to be
true
and correct, or alleged breach or failure to be true and correct, of any
representation or warranty or any covenant or agreement in this Agreement,
shall
be indemnification in accordance with this Article X. In
furtherance of the foregoing, the parties hereby waive, to the fullest extent
permitted by applicable Law, any and all other rights, claims and causes of
action (including rights of contributions, if any) known or unknown, foreseen
or
unforeseen, which exist or may arise in the future, that it may have against
the
Stockholder or Purchaser, as the case may be, arising under or based upon any
federal, state or local Law (including any such Law relating to environmental
matters or arising under or based upon any securities Law, common Law or
otherwise). Notwithstanding the foregoing, this Section 10.8
shall not operate to interfere with or impede the operation of the provisions
of
Article III providing for the (i) resolution of certain disputes relating
to the Purchase Price between the parties and/or by an Independent Accountant
and (ii) limit
the
rights of the parties to seek equitable remedies (including specific performance
or injunctive relief).
ARTICLE
XI
MISCELLANEOUS
11.1 Tax
Matters.
(a) All
sales, use, transfer, intangible, recordation, documentary stamp or similar
Taxes or charges, of any nature whatsoever, applicable to, or resulting from,
the transactions contemplated by this Agreement shall be borne equally by the
Purchaser on the one hand and by the Company and the Stockholder on the other
hand.
(b) For
purposes of the definitions of Assumed Liabilities and Retained Assets, in
the
case of a taxable period that includes the Closing Date, Taxes shall be
allocated to the periods before and after the Closing Date as
follows: (i) in the case of Taxes such as property taxes, such Taxes
shall be allocated to periods before and after the Closing Date on a per diem
basis and (ii) in the case of Taxes based on net or gross income, or
transactional taxes such as sales taxes, the portion of such Taxes allocable
to
the period before the Closing Date shall be computed on the assumption that
the
taxable period ended on the Closing Date.
11.2 Expenses. Except
as otherwise provided in this Agreement, each of the Stockholder, the Company
and Purchaser shall bear its own expenses incurred in connection with the
negotiation and execution of this Agreement and each other agreement, document
and instrument contemplated by this Agreement and the consummation of the
transactions contemplated hereby and thereby.
11.3 Submission
to Jurisdiction; Consent to Service of Process.
(a) The
parties hereto hereby irrevocably submit to the non-exclusive jurisdiction
of
any federal or state court located within the borough of Manhattan of the City,
County and State of New York over any dispute arising out of or relating to
this
Agreement or any of the transactions contemplated hereby and each party hereby
irrevocably agrees that all claims in respect of such dispute or any suit,
action proceeding related thereto may be heard and determined in such
courts. The parties hereby irrevocably waive, to the fullest extent
permitted by applicable law, any objection which they may now or hereafter
have
to the laying of venue of any such dispute brought in such court or any defense
of inconvenient forum for the maintenance of such dispute. Each of
the parties hereto agrees that a judgment in any such dispute may be enforced
in
other jurisdictions by suit on the judgment or in any other manner provided
by
law.
(b) Each
of the parties hereto hereby consents to process being served by any party
to
this Agreement in any suit, action or proceeding by the delivery of a copy
thereof in accordance with the provisions of Section 11.6.
11.4 Entire
Agreement; Amendments and Waivers. This Agreement (including the
schedules and exhibits hereto) and the Confidentiality Agreement represent
the
entire understanding and agreement between the parties hereto with respect
to
the subject matter hereof. This Agreement can be amended,
supplemented or changed, and any provision hereof can be waived, only by written
instrument making specific reference to this Agreement signed by the party
against whom enforcement of any such amendment, supplement, modification or
waiver is sought. No action taken pursuant to this Agreement,
including any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action of compliance with any
representation, warranty, covenant or agreement contained herein. The
waiver by any party hereto of a breach of any provision of this Agreement shall
not operate or be construed as a further or continuing waiver of such breach
or
as a waiver of any other or subsequent breach. No failure on the part
of any party to exercise, and no delay in exercising, any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of such right, power or remedy by such party preclude any other or
further exercise thereof or the exercise of any other right, power or
remedy.
11.5 Governing
Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and performed in such State without giving effect to the choice of law
principles of such state that would require or permit the application of the
laws of another jurisdiction.
11.6 Notices. All
notices and other communications under this Agreement shall be in writing and
shall be deemed given (i) when delivered personally by hand (with written
confirmation of receipt), (ii) when sent by facsimile (with written confirmation
of transmission) or (iii) one Business Day following the day sent by overnight
courier (with written confirmation of receipt), in each case at the following
addresses and facsimile numbers (or to such other address or facsimile number
as
a party may have specified by notice given to the other party pursuant to this
provision):
If
to the
Company or the Stockholder, to:
Lehman
Brothers Bank
745
Seventh Avenue, 24th Floor
New
York,
NY 10019
Facsimile:
(212) 548-9009
Attention:
General Counsel
With
a
copy (which shall not constitute notice) to:
Weil,
Gotshal & Manges LLP
767
Fifth
Avenue
New
York,
NY 10153
Facsimile:
(212) 310-8007
Attention:
Michael A. King, Esq. and Michael Bond, Esq.
LEAF
Financial Corporation
LEAF
Funding, Inc. (c/o LEAF Financial Corporation)
1818
Market Street, 9th Floor
Philadelphia,
PA 19103
Facsimile:
(215) 640-6363
Attention: Crit
DeMent
With
a
copy (which shall not constitute notice) to:
Ledgewood,
P.C.
1900
Market Street, Suite 750
Philadelphia,
PA 19103
Facsimile:
(215) 735-2513
Attention: J.
Baur Whittlesey, Esq.
11.7 Severability. If
any term or other provision of this Agreement is invalid, illegal, or incapable
of being enforced by any law or public policy, all other terms or provisions
of
this Agreement shall nevertheless remain in full force and effect so long as
the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal, or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely
as
possible in an acceptable manner in order that the transactions contemplated
hereby are consummated as originally contemplated to the greatest extent
possible.
11.8 Binding
Effect; Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
permitted assigns. Nothing in this Agreement shall create or be
deemed to create any third party beneficiary rights in any Person or entity
not
a party to this Agreement except as provided below. No assignment of
this Agreement or of any rights or obligations hereunder may be made by either
the Stockholder or the Company, directly or indirectly (by operation of law
or
otherwise), without the prior written consent of the other parties hereto and
any attempted assignment without the required consents shall be
void. Purchaser may assign its rights and obligations hereunder to
any Affiliate of Purchaser. No assignment of any obligations
hereunder shall relieve the parties hereto of any such
obligations. Upon any such permitted assignment, the references in
this Agreement to Purchaser shall also apply to any such assignee unless the
context otherwise requires.
11.9 Non-Recourse. Except
as specifically set forth in this Agreement, no past, present or future
director, officer, employee, incorporator, member, partner, stockholder, agent,
attorney or representative of the Stockholder or the Company or any of their
respective Affiliates shall have any Liability for any obligations or
liabilities of the
Stockholder or the Company under this Agreement of or for any claim based on,
in
respect of, or by reason of, the transactions contemplated hereby and
thereby.
11.10 Counterparts. This
Agreement may be executed in one or more counterparts, each of which will be
deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement.
**
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK **
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by
their respective authorized officers, as of the date first written
above.
LEAF
FINANCIAL CORPORATION
DOLPHIN
CAPITAL CORP.
LEHMAN
BROTHERS BANK, FSB
49
EX-2.2
3
loansaleagrmtnetbank.htm
LEAF LOAN SALE AGREEMENT W FDIC
loansaleagrmtnetbank.htm
LOAN
SALE AGREEMENT
BY
AND BETWEEN
FEDERAL
DEPOSIT INSURANCE CORPORATION
AS
RECEIVER OF NETBANK, ALPHARETTA, GEORGIA
AND
LEAF
FUNDING, LLC
TABLE
OF CONTENTS
Article
I
Definitions
Article
II
Purchase
and Sale of Loans
2.1.
|
Terms
and Conditions of Sale
|
10
|
2.2.
|
Closing
and Payment of Purchase Price
|
10
|
2.3.
|
Allocation
of Payments Made on Loans
|
10
|
2.4.
|
Adjustments
to Purchase Price; Offsets Against Deposits
|
10
|
2.5.
|
Rebates
and Refunds
|
11
|
2.6.
|
Interest
Conveyed
|
11
|
2.7.
|
Retained
Claims and Release
|
12
|
2.8.
|
Other
Taxes
|
12
|
Article
III
Transfer
of Loan(s), Collateral Documents and Servicing
3.1.
|
Delivery
of Documents
|
|
3.2.
|
Recordation
of Documents
|
16
|
3.3.
|
Transfer
of Servicing
|
16
|
Article
IV
Representation
and Warranties of Buyer
4.1.
|
Buyer's
Authorization
|
18
|
4.2.
|
Compliance
with Law
|
18
|
4.3.
|
Execution
and Enforceability
|
18
|
4.4.
|
Representations
Remain True
|
18
|
Article
V
Covenants,
Duties and Obligations of Buyer
5.1.
|
Servicing
of Loans
|
19
|
5.2.
|
Assumption
of Obligations
|
19
|
5.3.
|
Collection
Agency/Contingency Fee Agreements
|
19
|
5.4.
|
Insured
or Guaranteed Loans
|
19
|
5.5.
|
Buyer's
Due Diligence
|
20
|
5.6.
|
Reporting
to or for the Applicable Taxing Authorities
|
20
|
5.7.
|
Loans
in Litigation
|
20
|
5.8.
|
Loans
in Bankruptcy
|
21
|
5.9.
|
Loan
Related Insurance
|
22
|
5.10.
|
Loans
with Escrow Accounts and Security Deposits
|
22
|
5.11.
|
Loans
in which Seller was the Lead Lender in a Participated Loan
|
22
|
5.12.
|
Contracts
for Deed
|
22
|
5.13
|
Leases
|
22
|
5.14.
|
Files
and Records
|
22
|
5.15.
|
Reimbursement
for Use of Seller's Employees
|
23
|
5.16.
|
Notice
to Borrowers
|
23
|
5.17.
|
Notice
of Claim
|
24
|
5.18.
|
Use
of the FDIC's Name and Reservation of Statutory Powers
|
24
|
5.19.
|
Prior
Servicer Information
|
24
|
5.20.
|
Release
of Seller
|
24
|
5.21.
|
Indemnification
|
25
|
5.22.
|
Borrower
as Buyer
|
25
|
5.23.
|
Accounts
Payable/Brokerage Commissions
|
25
|
5.24.
|
Payment
of Taxes
|
26
|
5.25.
|
Assignment
of Servicing Agreements
|
26
|
5.26.
|
Purchase
of Platform-related Assets and Liabilities
|
26
|
Article
VI
Loans
Sold "As Is" and Without Recourse
6.1.
|
Loans
Sold "As Is"
|
27
|
6.2.
|
No
Warranties or Representations with Respect to Escrow Accounts
and
Security
Deposits
|
27
|
6.3.
|
No
Warranties or Representations as to Amounts of Unfunded
Principal
|
27
|
6.4.
|
Disclaimer
Regarding Calculation or Adjustment of Interest on any
Loan
|
27
|
6.5.
|
No
Warranties or Representations with Regard to Due Diligence
Data
|
27
|
6.6.
|
Buyer's
Waiver of Cause of Action
|
27
|
6.7.
|
Intervening
or Missing Assignments
|
28
|
6.8.
|
No
Warranties or Representations as to Documents
|
28
|
Article
VII
Repurchase
by Seller at Buyer's Option
7.1.
|
Repurchases
at Buyer's Option
|
29
|
7.2.
|
Securities
Laws Right of Rescission
|
30
|
7.3.
|
Defects
not Qualifying for Repurchase
|
30
|
7.4.
|
Notice
to Seller
|
30
|
7.5.
|
Re-delivery
of Note(s), Files and Documents
|
31
|
7.6.
|
Waiver
of Buyer's Repurchase Option
|
31
|
Article
VIII
Notices
8.1.
|
Notices
|
32
|
8.2.
|
Article
VII Notice
|
32
|
8.3.
|
All
Other Notices
|
32
|
Article
IX
Forfeiture
of Earnest Money and Other Remedies
Article
X
Miscellaneous
Provisions
10.1.
|
Severability
|
35
|
10.2.
|
Construction
|
35
|
10.3.
|
Survival
|
35
|
10.4.
|
Governing
Law
|
35
|
10.5.
|
Cost,
Fees and Expenses
|
35
|
10.6.
|
Nonwaiver,
Amendment and Assignment
|
35
|
10.7.
|
Drafting
Presumption
|
35
|
10.8.
|
Controlling
Agreement
|
35
|
10.9.
|
Venue
|
36
|
10.10.
|
Counterparts
|
36
|
10.11.
|
Waiver
of Jury Trial
|
36
|
10.12.
|
Incorporation
by Reference
|
36
|
Attachments
Attachment
"A"---Schedule of Loans
|
A-1
|
Attachment
"A-1"-Schedule of Loans
|
A-2
|
Attachment
“A-2”-Schedule of Inchoate Agreements
|
A-3
|
Attachment
"B"---Repurchase Percentages
|
B-1
|
Attachment
"C"---Bill of Sale
|
C-1
|
Attachment
"D"---Assignment and Assumption of Interests and
Obligations
|
D-1
|
Attachment
"E"---Assignment and Lost Instrument Affidavit
|
E-1
|
Attachment
"F"---Affidavit and Assignment of Claim
|
F-1
|
Attachment
"G"---Limited Power of Attorney
|
G-1
|
Attachment
“H”---Servicing Agreements
|
H-1
|
Attachment
“I”---Assignment of Leases
|
I-1
|
Attachment
“J”---Master Assignment of Certain Loans and Leases
|
J-1
|
LOAN
SALE AGREEMENT
LOAN
POOL NUMBER: NBF-1-07-010
THIS
AGREEMENT, entered into this ___
day of November, 2007 by and between the Federal Deposit Insurance Corporation
("FDIC") as Receiver of NetBank, Alpharetta, Georgia (“Seller”) and LEAF
Funding, LLC ("Buyer") sets forth the terms and conditions whereby Seller agrees
to sell and Buyer agrees to purchase all those Loans set forth in the attached
Schedule of Loans for the consideration herein stated.
NOW
THEREFORE, Seller and Buyer agree
and represent as follows:
Definitions
For
purposes of this Agreement the
following terms shall have the meanings indicated:
"Accounting
Records" means the general ledger and supporting
subsidiary ledgers and schedules.
"Advances"
means the sum of all unreimbursed amounts advanced by or on behalf of the Failed
Bank, Seller or Buyer for the benefit of a Borrower or a third-party advanced
to
meet required scheduled payments, or to protect the Noteholder's lien position
or the Collateral, including payment of ad valorem taxes and hazard and forced
placed insurance as permitted by the terms of any Loan sold
hereunder. Advances do not include Disbursements of Principal or
Corporate Advances.
"Affidavit
and Assignment of
Claim" means an Affidavit and Assignment of Claim in the form of
Attachment "F" to this Agreement.
"Agreement"
means
this
Loan Sale Agreement and the Attachments hereto.
"Assignment
and Assumption of
Interests and Obligations" means an Assignment and Assumption of
Interests and Obligations in the form of Attachment "D" to this
Agreement.
"Assignment
and Lost Instrument
Affidavit" means an Assignment and Lost Instrument Affidavit in the
form of Attachment "E" to this Agreement.
"Attachment"
means any
of the attachments to this Agreement.
"Bank
Closing Date"
means the close of business of the Failed Bank on the date on which the
Chartering Authority closed such institution.
"Bid"
means the offer
to purchase one or more Loan Pool(s) that was submitted by Buyer and accepted
by
the Seller.
"Bid
Amount" means,
with respect to a Loan Pool, an amount equal to (i) the sum of the Book Values
for all Loans in a Loan Pool, multiplied by (ii) the corresponding Bid
Percentage.
"Bid
Award Date" means
the date the Bid Confirmation Letter is sent to Buyer by Seller.
“Bid
Certification”
means the document under such title provided to bidders and potential
bidders as part of the Bid Package and executed or assented to by Buyer in
connection with submitting a Bid.
"Bid
Confirmation
Letter" means the letter sent to Buyer by Seller confirming acceptance
of a Bid submitted by Buyer.
"Bid
Instructions"
means the document under such title provided to bidders and potential
bidders.
“Bid
Package” means
the documents that were provided to bidders and potential bidders for the sale
of the Loans, including but not limited to the following: (i)
Invitation to Bid, (ii) Bid Instructions, (iii) Bid Certification, (iv)
Purchaser Eligibility Certification, (v) this Agreement with all Attachments,
and (vi) Loan Spreadsheet(s), all as the same may be modified, amended, revised
or supplemented from time to time.
"Bid
Percentage" means
Buyer's offer, expressed as a percentage of Book Value, to purchase a Loan
Pool.
"Bill
of Sale" means a
Bill of Sale in the form of Attachment "C" to this Agreement.
“Book
Value” for Loans which are leases means the outstanding balance of
"gross lease receivables" and "gross lease residuals" net of "unearned discount"
as reflected on the books and records of NBBF as of the Calculation
Date.
"Book
Value" for Loans which are not
leases means a Loan's unpaid principal balance as stated on the books and
records of NBBF as of Bank Closing Date and adjusted by (i) subtracting payments
of principal received by Seller or its predecessor on or before the Calculation
Date (including any adjustments made as a result of a foreclosure sale on or
before the Calculation Date as to which the Redemption Period, if any, expired
on or before the Calculation Date), (ii) adding Disbursements of Principal
made
by Seller or its predecessor on or before the Calculation Date, and (iii) adding
back any principal previously charged or written off by NBBF. Book
Value for pre-computed interest Loans shall include, in addition, the amount
of
outstanding earned and unearned interest for such Loans. The Book
Value shall not include any general or specific reserves on the books and
records of NBBF.
"Borrower"
means any
obligor, guarantor or surety of any Loan or any other party liable for the
performance of obligations associated with any Loan.
"Business Day" means any day other than a Saturday, Sunday or federal
legal holiday.
"Calculation
Date"
means October 31, 2007, which date shall be used to calculate the Purchase
Price.
"Certificate
re Other Taxes"
means a certificate signed by the chief financial officer, chief
accounting officer or other executive officer with knowledge of tax matters,
or
the general counsel, of Buyer certifying that under the applicable laws of
(a)
each relevant Foreign Jurisdiction, (b) any jurisdiction in which Buyer, its
lending or other relevant office or agents may be located, or (c) any other
jurisdiction, (i) no Other Taxes are payable by Seller or Buyer, or
if any such Other Taxes are payable, certifying the type and amount of such
taxes, the party responsible for the payment thereof, the relevant taxing
authority to which payment of such Other Taxes must be made and the timing
for
such payment as required by applicable law, and (ii) no tax forms or other
information reports are required of the Seller, or if any such forms or reports
are required, certifying the type of form, the relevant taxing authority and
the
deadline for such form or other report.
"Chartering
Authority"
means (i) with respect to a national bank, the Office of the Comptroller of
the
Currency, (ii) with respect to a federal savings association or savings bank,
the Office of Thrift Supervision, (iii) with respect to a bank or savings
institution chartered by a state, the agency of such state charged with primary
responsibility for regulating and/or closing banks or savings institutions,
as
the case may be, (iv) the Corporation in accordance with 12 U.S.C. Section
1821(c), with regard to self appointment, or (v) the appropriate federal banking
agency in accordance with 12 U.S.C. 1821(c)(9).
"Closing"
means the simultaneous delivery by Seller and Buyer of documents and funds
and
the performance of the other acts herein provided to be performed on the Loan
Sale Closing Date in order to effect the consummation of the Loan
Sale.
"Collateral"
means
any
and all collateral securing a Loan, including without limitation, any accounts
receivable, inventory, property of any kind, whether real or personal (including
but not limited to equipment and other physical assets), and any contract and
other rights and interests of a Borrower pledged pursuant to or otherwise
subject to any Collateral Document. Collateral does not include collateral
which
has been foreclosed on or before the Calculation Date and the Redemption Period,
if any, has expired on or before the Calculation Date.
"Collateral
Document"
means each deed of trust, mortgage, assignment of production, security
agreement, assignment of security interest, personal guaranty, corporate
guaranty, letter of credit, pledge agreement, collateral agreement, loan
agreement or other agreement or document, whether an original or copy or whether
similar to or different from those enumerated, securing in any manner the
performance or payment by any Borrower of its obligations or the obligations
of
any other Borrower under any Note evidencing a Loan. Collateral
Document does not include a deed of trust, mortgage, assignment of production,
security agreement, assignment of security interest, pledge agreement or
collateral agreement insofar as the collateral encumbered by such agreement
has
been foreclosed under such agreement on or before the
Calculation
Date, and the Redemption Period, if any, has expired on or before the
Calculation Date.
"Confidentiality
Agreement"
means the confidentiality agreement executed or assented to by Buyer
in
anticipation of gaining access to the documents comprising the Bid
Package and other documents related to the sale of the Loans.
"Contract
for Deed"
means an executory contract with a third party to convey real
property.
"Corporate
Advances"
means the payment of appraisal fees, broker opinion fees, attorney fees and
associated legal fees, foreclosure fees, trustee fees, property inspection
fees,
property preservation and operating cost fees, tax penalties, title policies,
lien search fees or any other cost that can be directly associated with the
collection and servicing of a Note.
"Corporation"
means the Federal Deposit Insurance Corporation in its corporate
capacity.
"Deconversion
Date"
means the date Loan servicing records are transferred to the system
of
records of the Buyer of Pool NBF-1-07-020, which date shall be a Business Day
not later than sixty (60) calendar days after the Loan Sale Closing
Date.
"Deficiency
Balance"
means the remaining unpaid principal balance of any Note purchased hereunder
after crediting to it the proceeds of a foreclosure sale which occurred on
or
before the Calculation Date, and for which the Redemption Period, if any,
expired on or before the Calculation Date.
"Disbursement
of Principal"
means incremental funding of loan proceeds under a Note, such as in
the
case of a revolving credit loan or a construction loan.
“Earnest
Money Deposit”
means the monies paid by or on behalf of Buyer to Seller prior to
Loan
Sale Closing Date in the amount and manner specified in the Bid Instructions
contained in the Bid Package.
“Failed
Bank” means
any depository institution (i) which owned a Loan on the date on which the
Chartering Authority closed such institution and (ii) for which the Corporation
has been appointed Receiver.
"Foreign
Loan" means a
Loan regarding which the Borrower or any of the Collateral concerning the Loan
is located in a country other than the United States.
"Foreign
Jurisdiction"
means any country, other than the United States, and any subdivision
or
other jurisdiction of or in such other country in which a Borrower or any
Collateral is located.
“Inchoate
Agreements”
means those certain loans and leases set out in Attachment “A-2”
to
this Agreement. The Inchoate Agreements are commercial non-real
estate loans and equipment leases which, as of November 1, 2007 had not been
funded by NBBF, but which, prior to November 1, 2007 either (a) have been
formalized by the execution of loan, lease or other documents in which NBBF
is
lender, lessor or secured party, or (b) have been otherwise committed to or
in
the process of being committed to by NBBF as lender, lessor, or secured
party.
"Internal
Revenue
Code" means the Internal Revenue Code of 1986 of the United States, as
it may be amended from time to time.
“Invitation
to Bid”
means the document under such title provided to bidders and potential
bidders as part of the Bid Package.
"Limited
Power of
Attorney" means the Limited Power of Attorney in the form of Attachment
“G” to this Agreement.
"Loan(s)"
means and
includes: (a) any obligation evidenced by a Note or other evidence of
indebtedness; (b) all rights, powers, liens or security interests of Seller
in
or under the Collateral Document(s); (c) any judgment founded upon a note to
the
extent attributable thereto and any lien arising therefrom; (d) any Contract
for
Deed and the real property which is subject to such Contract for Deed; (e)
any
lease and the related leased property, including, but not limited to, in the
case of the purchase of Loan Pool NBF-1-07-010, those leases described in
Attachment “I” to this Agreement; (f) all right, title and interest in and to
any Deficiency Balance; and (g) any other asset or liability of whatever kind
or
type, all as identified on the attached Schedule of Loans, including without
limitation, all rights arising therefrom or appurtenant thereto. Loan(s) do
not
include repossessed or foreclosed collateral (i) which was foreclosed on or
before the Calculation Date and (ii) for which the Redemption Period, if any,
expired on or before the Calculation Date.
"Loan
File" means (i)
all Failed Bank documents pertaining to any Loan, either copies or originals,
that are in the possession of Seller excluding the Note, renewals of the Note
and Collateral Documents and (ii) any files with respect to a Loan established
and maintained by Seller's employee(s) or contractor(s) responsible for the
management of that Loan following the closing of the Failed Bank, excluding
Seller's internal memoranda and confidential communications between Seller
and
its legal counsel. The Loan File does not include other files maintained by
other employees or agents of Seller, such as Seller's legal
counsel.
"Loan
Pool(s)" means
one (or more) of the groups of Loans identified in the Schedule of
Loans.
"Loan
Sale" means the
sale of Loans of the Failed Bank by Seller as described in the Bid
Package.
"Loan
Sale Closing
Date" means a date selected by Seller, which date shall not be later
than ten (10) Business Days after the Bid Award Date.
“Loan
Spreadsheets”
means information on the Loans provided to bidders and potential
bidders as part of the Bid Package.
"Mortgaged
Property"
means the land, fixtures and improvements, if any, securing any Loan sold to
Buyer under the terms and conditions of this Agreement. Mortgaged
Property does not include property repossessed or foreclosed on or before the
Calculation Date as to which the Redemption Period, if any, expired on or before
the Calculation Date.
“NBBF”
means
NetBank
Business Finance, a division of NetBank, Alpharetta, Georgia.
"Non-Foreign
Loan"
means any Loan which is not a Foreign Loan.
"Non-Performing
Loan(s)" means any Loan which is not a lease, other than a Performing
Loan.
"Note"
means each
agreement, document and instrument evidencing a Loan, including without
limitation, each promissory note, loan agreement, shared credit or participation
agreement, inter-creditor agreement, letter of credit, reimbursement agreement,
draft, bankers' acceptance, transmission system confirmation of transaction
or
other evidence of indebtedness of any kind evidencing each Loan (including
loan
histories, affidavits, general collection information, correspondence and
comments pertaining to such obligation).
"Noteholder"
means
the
holder of a Note.
"Obligations"
means all obligations and commitments of Seller relating to a Loan and arising
under and in accordance with the relevant Note(s) or Collateral Documents
relating thereto, including without limitation the commitment to make advances
of funds to or for the benefit of a Borrower.
"Other
Taxes" means
any taxes, assessments, levies, imposts, duties, deductions, fees, withholdings
or other charges of whatever nature, including interest and penalties thereon,
required to be paid to any taxing authority of or in (a) any Foreign
Jurisdiction, (b) any jurisdiction in which Buyer, its lending or other relevant
office or agents may be located under the applicable laws of such Foreign
Jurisdiction or (c) any other jurisdiction, with respect to the sale and
transfer of the Loans, the Collateral Documents or the rights in the Collateral
or the assignment and assumption of Obligations thereunder, including without
limitation any withholding taxes payable by virtue of the sale of the Loans
at a
discount from Book Value and any value-added taxes. The term “Other
Taxes” does not encompass the defined term “Taxes.”
"Participated
Loan"
means any Loan subject to a shared credit, participation or similar
inter-creditor agreement under which the Failed Bank was lead or agent financial
depository institution or otherwise managed the credit or sold participations,
or under which the Failed Bank
was
a
participating financial depository institution or purchased participations
in a
credit managed by another.
"Platform-related
Assets and
Liabilities" means the assets and liabilities listed on Attachment
"A-1" to this Agreement.
"Performing
Loan"
means any Loan which is not a lease, for which the last payment of principal,
interest and any escrow amounts that is required to be paid by the terms of
the
Note or Collateral Documents is less than sixty days past due (for matured
loans, less than thirty days past due) as of the Calculation Date as shown
on
the Schedule of Loans attached hereto as Attachment "A," regardless of whether
such Loan is in a Loan Pool consisting primarily of Performing Loans or
consisting primarily of Non-Performing Loans.
"Property"
means the
real or personal property securing any Loan contained in a Loan
Pool. Property does not include property repossessed or
foreclosed on or before the Calculation Date as to which the Redemption Period,
if any, expired on or before the Calculation Date.
"Purchase
Price" means
an amount equal to the sum of (i) the Bid Amount, plus (ii) any
Advances made by NBBF, the Failed Bank or Seller, plus, as regards Loans which
are not leases (iii) Disbursements of Principal made by Seller that are not
included in the Book Value, plus (iv) interest calculated on the Book
Value and at the rate payable for each Performing Loan (except those with
pre-computed interest) from the interest "paid-to date" to, but not including,
the Loan Sale Closing Date, plus, as regards the Loans, (v) a credit for any
assumption of the liability for security deposits and escrow deposits as
provided in Section 5.10, plus (vi) a credit for any net liabilities
(liabilities less assets) assumed by Buyer pursuant to Sections 5.23 and 5.24,
and plus or minus, only in the event of the purchase of Loan Pool NBF-1-07-010
(vii) any debit or credit, as applicable, with respect to the Platform-related
Assets and Liabilities as set forth in Section 5.26. No amount with
respect to unpaid interest shall be due for Non-Performing Loans.
"Purchaser
Eligibility
Certification" means the document under such title provided to bidders
and potential bidders as part of the Bid Package and executed by Buyer in
connection with the Loan Sale.
“Receiver”
means
the
Federal Deposit Insurance Corporation as Receiver of NetBank.
"Redemption
Period"
means the applicable state statutory time period, if any, during which
a foreclosed owner may buy back foreclosed real property from the foreclosure
sale purchaser. Not all states provide for a Redemption
Period. The length of a Redemption Period may vary among the states
which do provide for a Redemption Period. The law of the state in
which the real property is located is the applicable law in determining whether
there is a Redemption Period and if so, how long it is.
"Related
Party" means
any party related to the Borrower in the manner delineated in 26 U.S.C.A 267(b)
and the regulations promulgated thereunder, as such law and regulations may
be
amended from time to time.
"Repurchase
Percentage"
means the Repurchase Percentage indicated on Attachment "B" to this
Agreement.
"Repurchase
Price"
means, with respect to any Loan, an amount equal to the sum of (i) the Bid
Amount, adjusted to reflect changes to Book Value in accordance with Section
2.4
hereof, for the Loan Pool containing such Loan, multiplied by the Repurchase
Percentage, plus (ii) any Advances on such Loan included in the Purchase Price,
plus (iii) any interest on such Loan that is not a lease included in the
Purchase Price, minus (iv) the total of amounts received after the Calculation
Date by Buyer for such Loan, regardless of how applied, plus (v) Advances made
by Buyer, plus (vi) total Disbursements of Principal regarding such Loan which
is not a lease made by Seller that are not included in the Book Value, minus,
as
regards the Loans, (vii) any amount credited to Buyer by Seller for security
deposits and escrow deposits as provided in Section 5.10, accounts payable
and
brokerage commissions as provided in Section 5.23 and Taxes as provided in
Section 5.24 which is attributable to the repurchased Loan. The
amount to be subtracted for security deposits, escrow deposits, accounts
payable, brokerage commissions and Taxes as provided in this paragraph will
not
be subtracted in the event Buyer has actually paid such amounts on the
repurchased Loan and Buyer provides evidence satisfactory to Seller that such
amounts have been paid.
"Schedule
of Loans" means the
list of all Loans that are the subject of this transaction appended to this
Agreement as Attachment "A" and in addition, if the Buyer purchases Loan Pool
NBF-1-07-010, the list of Loans appended to this Agreement as Attachment
"A-1."
“Servicing
Agreements”
means the two Servicing Agreements described on Attachment “H” to this
Agreement.
"Settlement
Date"
means a date determined by Seller upon which final adjustments will be made
to
the Purchase Price pursuant to Section 2.4 hereof. Any Settlement Date
determined by Seller shall be a Business Day not later than one hundred eighty
(180) calendar days after the Loan Sale Closing Date.
"Significant
Environmental
Contamination" means the presence at, in or under a Mortgaged Property,
at a level or in an amount that poses a threat to human health or the
environment sufficient to prompt a regulator to require remediation under any
federal or state law, of any substance defined as a "hazardous substance" under
Section 101(14) of the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section 9601(14), and including lead-based paint and
petroleum, including crude oil or any fraction thereof that is liquid at
standard conditions of temperature and pressure.
“Taxes”
means
sales
taxes and personal property taxes assessed against Seller regarding the Loans,
which sales taxes and personal property taxes remain unpaid by the Seller as
of
the Calculation Date, or become due and payable after the Calculation
Date.
"Transfer
Documents"
means the endorsements and allonges to Notes, Assignment and Lost Instrument
Affidavits (if applicable), assignments, deeds and other documents of
assignment, conveyance or transfer required under the laws of any jurisdiction
within the United States to evidence the transfer to Buyer of the Loans, the
Collateral Documents and Seller’s rights with respect to the Loans and the
Collateral. Transfer Documents do not include this Agreement, the Bill of Sale,
and the Assignment and Assumption of Interests and Obligations.
"Uniform
Commercial
Code" means the uniform law governing commercial transactions as
adopted by the State of New York.
Article
II
Purchase
and Sale of Loans
2.1.
Terms
and
Conditions of Sale. Seller agrees to sell, assign, transfer and convey
to Buyer, and Buyer agrees to purchase and accept from Seller, all the right,
title and interest of Seller, subject to the provisions of Section 3.3, as
of
the Loan Sale Closing Date, in and to each Loan in the Loan Pool(s) on a
servicing-released basis, and all rights in the Property pursuant to the
Collateral Documents. Seller agrees to assign and Buyer agrees to
assume (a) all of the Obligations of the Failed Bank or Seller under and with
respect to all the Notes and Collateral Documents and (b) all the other
obligations of Buyer set out in this Agreement. Such sale, assignment, transfer
and conveyance by Seller and the purchase, acceptance and assumption by Buyer
shall occur at and as of the Loan Sale Closing Date, and shall be on the
terms and subject to the conditions set forth in this Agreement, including
without limitation, the payment by Buyer of the Purchase Price.
NBBF
will
not enter into any new loan or lease beginning November 1,
2007. Beginning November 1, 2007, NBBF will refer to the Buyer all
inquiries it receives from potential borrowers or lessees regarding new loans
or
leases. It will be the Buyer’s decision as to whether to enter into a
loan or lease with the inquirer and whether to fund such loan or
lease.
NBBF
will
assign the Inchoate Agreements to Buyer by an assignment in the form of
Attachment "J" to this Agreement. The Buyer has no right to call upon
Seller to repurchase the Inchoate Agreements under the provisions of Article
VII
of the Agreement.
(a)
On or before the Settlement Date,
Seller shall provide Buyer with a statement(s) setting forth adjustments to
the
Purchase Price that Buyer or Seller discovers reflecting (1) any changes in
the
Book Value (i) because of miscalculations, misapplied payments, unapplied
payments, unrecorded Disbursements of Principal disbursed on or before the
Calculation Date, or other accounting errors; or (ii) resulting from a final
court decree, unappealable regulatory enforcement order or other similar action
of a legal or regulatory nature effective on or before the Calculation Date,
or
(iii) resulting from a foreclosure sale which occurred on or before the
Calculation Date for which the Redemption Period, if any, expired on or before
the Calculation Date; and (2) any unreimbursed Advances or Disbursements of
Principal disbursed after the Calculation Date that were not previously included
in the Purchase Price. No adjustment to Purchase Price will be made for (a)
any
changes resulting from any calculation or adjustment of interest on any Loan
as
provided in Section 6.4 hereof, or (b) any payment of Taxes as provided in
Section 5.24. Any monies due Buyer or Seller as a result of any adjustments
made
pursuant to Section 2.4(a)(1) hereof will be calculated by multiplying the
resulting net change in Book Value by the Bid Percentage. Any monies due Seller
as a result of any adjustments made pursuant to Section 2.4(a)(2) will be equal
to 100% of the aggregate amount of payments not previously included in the
Purchase Price. The total aggregate amount owed to Seller shall be subtracted
from the total aggregate amount owed to Buyer. If the resulting amount is a
positive number, Seller shall pay such amount to Buyer, and if the resulting
amount is a negative number, Buyer shall pay such amount to Seller as if such
number were a positive number. Any monies due Buyer or Seller will be paid
no
later than ten (10) Business Days after the Settlement Date. Buyer shall adjust
its servicing records to reflect any changes to the unpaid principal balance
of
any Loan made pursuant to this Section 2.4(a).
(b)
With respect to any Loan, Seller
reserves the right to permit or require offsets against deposit accounts of
the
Failed Bank. If allowed by Seller, such offsets will be retroactive to the
date
such Failed Bank closed. At such time as an offset is effected, Seller will
give
notice of such to Buyer and pay Buyer the amount of the offset on a
dollar-for-dollar basis and Buyer shall credit such amount to the Loan according
to the terms and conditions of the applicable Note(s) as of Bank Closing
Date.
2.6.
Interest
Conveyed. Seller shall convey all of its right, title and interest in
and to each Loan. In the event a foreclosure occurs after the
Calculation Date, or occurred on or before the Calculation Date, but the
Redemption Period had not expired on or before the Calculation Date, Seller
shall convey to Buyer the Deficiency Balance, if any, together with the net
proceeds, if any, of such foreclosure sale. If Seller was the purchaser at
such
foreclosure sale, Seller shall convey to Buyer the Deficiency Balance, if any,
together with a quitclaim deed to the property purchased at such foreclosure
sale. Buyer acknowledges and agrees that Buyer shall not acquire any interest
in
or to any such property which was foreclosed by Seller or any of its
predecessors-in-interest on or before the Calculation Date and for which the
Redemption Period, if any, had
expired
on or before the Calculation Date; nor shall Buyer acquire any interest in
or to
any performance or completion bond filed with any governmental entity for the
purpose of ensuring that improvements constructed or to be constructed on such
property are completed in accordance with any governmental regulation(s) or
building requirement(s) applicable to the proposed or completed
improvement.
2.7.
Retained
Claims and Release. Buyer and Seller agree that the sale of the Loans
pursuant to this Agreement will exclude the transfer to Buyer of all right,
title and interest of Seller in and to any and all claims of any nature
whatsoever that might now exist or hereafter arise, whether known or unknown,
that Seller has or might have (a) against officers, directors, employees,
insiders, accountants, attorneys, other persons employed by Seller or the Failed
Bank and any of its predecessors, underwriters or any other similar persons
who
have caused a loss to Seller or the Failed Bank and any of its predecessors
in
connection with the initiation, origination or administration of a Loan, (b)
against any appraisers, accountants, auditors, attorneys, investment bankers
or
brokers, loan brokers, deposit brokers, securities dealers or other professional
individuals or entities who performed services for the Seller or the Failed
Bank
or any of its predecessors, relative to a Loan, (c) against any third parties
involved in any alleged fraud or other misconduct relating to the making or
servicing of a Loan or (d) against any appraiser or other party from whom Seller
or any servicing agent contracted for services or title insurance in connection
with the making, insuring or servicing of a Loan.
2.8.
Other
Taxes. Notwithstanding that Other Taxes may, under applicable law, be
assessed against and payable by Seller, Buyer hereby agrees to accept
responsibility for and to pay, on its own behalf or on behalf of Seller, as
the
case may be, any and all Other Taxes, and Seller shall have no obligation to
reimburse Buyer therefor. Payment of Other Taxes shall not affect the Purchase
Price. Within thirty days after the Loan Sale Closing Date, Buyer
shall deliver to Seller a Certificate re Other Taxes in accordance with Section
3.1 hereof. In the event that the Certificate re Other Taxes shall prove to
have
been incorrect or for any other reason Buyer becomes aware of
Other Taxes due, Buyer shall promptly notify Seller and shall pay such Other
Taxes in accordance with the provisions of this Section 2.8. In the event that
Other Taxes shall be payable, Buyer shall make payment thereof to the relevant
taxing authorities when due, identifying to such authorities in appropriate
manner and in accordance with applicable law the nature of the payment and
identifying the party on whose behalf the payment is being made. In the event
that, under applicable law, Buyer shall be unable to make payment of Other
Taxes
on behalf of Seller, then Buyer shall promptly notify Seller thereof and Seller
may, at its sole option, grant to Buyer a limited power of attorney, in such
form as Seller shall determine, solely for the purpose of making payment of
such
Other Taxes and filing information returns with respect thereto as agent for
Seller. Buyer shall notify Seller, in accordance with the provisions of Article
VIII of this Agreement, promptly after payment of any Other Taxes that such
payment has been made.
Article
III
Transfer
of Loan(s), Collateral Documents and Servicing
(a) At
Closing, Buyer shall deliver to Seller:
1. Two
originals of the Assignment and Assumption of Interests and Obligations, in
the
form of Attachment "D" to this Agreement, executed by
Buyer.
2. A
corporate resolution certified by Buyer's corporate secretary or,
if
Buyer
is not a corporation, other evidence satisfactory to Seller as to Buyer's
authority: (i) to purchase the Loans and assume the Obligations thereunder,
and
(ii) to execute and deliver this Agreement and all related instruments required
to consummate the transactions contemplated hereby and to carry out all of
its
obligations hereunder (including a certificate of incumbency of any person
who
executes any document on behalf of Buyer).
3. Two
originals of this Agreement executed by Buyer.
|
4.
|
Two
originals of the Assignment of Leases, in the form of Attachment
“I” to
this Agreement, executed by Buyer.
|
|
5.
|
Two
originals of an Assignment of Servicing Agreements as described in
Section
5.25 of this Agreement, executed by
Buyer.
|
6. Other
documents as Seller may reasonably require as evidence of
Buyer's
good standing, existence or authority.
(b) At
Closing, Seller shall deliver to Buyer:
1. A
Bill of Sale transferring all of Seller's right, title and interest
in
|
and
to the Loans to Buyer, in the form of Attachment "C" to this
Agreement, executed by Seller.
|
2. Two
originals of the Assignment and Assumption of Interests and Obligations, in
the
form of Attachment "D" to this Agreement, executed by
Seller.
3. Two
originals of this Agreement executed by Seller.
|
4.
|
Two
originals of the Assignment of Leases, in the form of Attachment
“I” to
this Agreement, executed by Seller.
|
|
5.
|
Two
originals of an Assignment of Servicing Agreements as described in
Section
5.25 of this Agreement, executed by
Seller.
|
6. Such
Transfer Documents executed by Seller as Seller elects to deliver at
Closing.
(c) Within
thirty days after the Loan Sale Closing Date, Buyer shall deliver the
Certificate re Other Taxes to Seller, if applicable.
(d) Within
a reasonable time after the Loan Sale Closing Date, Seller shall deliver to
Buyer the Note, the Loan File(s) and Collateral Document(s) pertaining to the
Loan(s) sold.
(e) After
Closing, Seller, in Seller’s sole discretion, may elect to grant a Limited Power
of Attorney to selected Buyer employees. If Seller elects to grant
such a Limited Power of Attorney, Seller will provide it to Buyer within a
reasonable time after the Loan Sale Closing Date. If Buyer is granted
such a Limited Power of Attorney, Buyer, at Buyer’s expense, will prepare and
execute on behalf of Seller, within a reasonable time after the Loan Sale
Closing Date, all Transfer Documents not delivered by Seller to Buyer at
Closing. All Transfer Documents prepared by Buyer shall be in
appropriate form suitable for filing or recording (if applicable) in the
relevant jurisdiction and otherwise subject to the limitations set forth herein,
and Buyer shall be solely responsible for the preparation, contents and form
of
such documents. Buyer hereby releases Seller from any loss or damage
incurred by Buyer due to the contents and form of any documents prepared by
Buyer and shall indemnify and hold Seller harmless for any action or cause
of
action by any person, including Buyer, arising out of the contents or form
of
the Transfer Documents, including without limitation, any claim relating to
the
adequacy or inadequacy of any of such documents or instruments for the purposes
thereof.
The
form
which Buyer shall use for endorsing promissory notes or preparing allonges
to
promissory notes is as follows:
Pay
to
the order of
Without
Recourse
FEDERAL
DEPOSIT INSURANCE CORPORATION AS RECEIVER OF NETBANK
By:
Name:
Title: Attorney-in-Fact
All
other
documents of assignment, conveyance or transfer shall contain this
sentence: “This assignment is made without recourse, representation
or warranty, express or implied, by the FDIC in its corporate capacity or
as
Receiver.”
(f) In
the event Seller elects not to provide Buyer with a Limited Power of Attorney
in
accordance with Section 3.1(e), then all Transfer Documents not delivered by
Seller to Buyer at Closing shall be prepared and executed by one of the
following methods, at Seller’s option:
1. Seller,
at Seller’s expense, will prepare and execute all endorsements and allonges to
Notes or Assignment and Lost Instrument Affidavits (if applicable) not delivered
by Seller to Buyer at Closing and provide them to Buyer within a reasonable
time
after the Loan Sale Closing Date. Buyer, at Buyer’s expense, will
prepare all other Transfer Documents not delivered by Seller to Buyer at Closing
and shall deliver such documents to Seller for execution within a reasonable
time after the Loan Sale Closing Date. All Transfer Documents
prepared by Buyer shall be subject to the terms and conditions for Transfer
Documents specified in Section 3.1(e) above. If any Transfer Document
delivered by Buyer to Seller for execution is unacceptable to Seller for any
reason whatsoever, Seller may return such document to Buyer along with an
explanation as to why the document is unacceptable to Seller. When
requesting execution of any such document, Buyer shall furnish Seller with
the
Loan Pool and the Loan numbers set forth on the Schedule of Loans, and a copy
of
the Note(s), a copy of the Collateral Document(s) or other document(s) to be
transferred, and copies of any previous assignments of the applicable Collateral
Document or other document; or
2. Seller,
at Seller’s expense, will prepare and execute all Transfer Documents not
delivered by Seller to Buyer at Closing and provide them to Buyer within a
reasonable time after the Loan Sale Closing Date. Seller shall
furnish all such documents to Buyer in appropriate form suitable for filing
or
recording (if applicable) in the relevant jurisdiction and otherwise subject
to
the limitations set forth herein.
(g) As
to Foreign Loans, Buyer, at its own expense, must retain counsel who are
licensed in the Foreign Jurisdiction(s) involved with the Foreign
Loans. Such foreign counsel must draft the documents necessary to
assign the Foreign Loans to Buyer. Documents presented to Seller to
assign Foreign Loans to Buyer must be accompanied by a letter on the foreign
counsel's letterhead, signed by the foreign counsel preparing those documents,
certifying that those documents conform to all the laws of the Foreign
Jurisdiction. Each such document and instrument shall be delivered to
Seller in the English language, provided, however, that any document required
for its purposes to be executed by Seller in a language other than the English
language shall be delivered to Seller in such language, accompanied by a
translation thereof in the
English language, certified as to its accuracy by an executive officer or
general counsel of Buyer and, if such executive officer or general counsel
shall
not be fluently bilingual, by the translator thereof.
(h) Nothing
contained herein or elsewhere in this Agreement shall require Seller to make
any
agreement, representation or warranty or provide any indemnity in any such
document or instrument or otherwise, nor is Seller obligated to obtain any
consents or approval to the sale or transfer of (i) the Loans or the related
servicing rights, if any, (ii) the Servicing Agreements described in Attachment
“H,” or (iii) the assumption by the Buyer of the Obligations or any of the other
obligations described in this Agreement.
(i) Seller
agrees to execute any additional documents required by applicable law or
necessary to effectively transfer and assign any and all Loans to
Buyer. Seller shall have no obligation to provide, review or execute
any such additional documents unless the same shall have been requested of
Seller within 365 calendar days of the Loan Sale Closing Date.
3.2. Recordation
of Documents. Buyer shall be responsible for, and
agrees to promptly deliver, at its sole cost and expense, all appropriate
documents and instruments with respect to each Loan for recordation or filing
in
the appropriate land, chattel, Uniform Commercial Code, and other records of
the
appropriate county, state and/or other jurisdiction(s) or Foreign Jurisdiction
to effect the transfer of the Loans and the Collateral Documents and all rights
in Collateral, and to render legal, valid and enforceable the obligations of
the
Borrower(s) to the Buyer and the assumption by the Buyer of any Obligations
related to a Loan arising under and in accordance with the relevant Note and
Collateral Documents. Seller shall, if such is affirmatively required
under the applicable laws of a relevant Foreign Jurisdiction, take such actions
as are necessary in such Foreign Jurisdiction to effect the purposes of this
Article III. In accordance with Section 2.8 hereof, Buyer shall
be responsible for and shall pay any and all Other Taxes, fees, costs and
expenses incurred in connection therewith, including without limitation
notarization fees and stamp, transfer and similar Other Taxes or
fees.
In
the
event a successful bidder acquires Loan Pool NBF-1-07-020, Seller will provide
interim servicing of the Loans on Buyer’s behalf from the Loan Sale Closing
Date through the Deconversion Date. The interim servicing provided by
Seller will conform to industry standards. Seller’s performance
of this interim servicing shall cease on the Deconversion Date.
Seller
will appoint Buyer as its subservicer, and Buyer will serve as Seller’s
subservicer during the interim servicing period from Loan Sale Closing Date
through the Deconversion Date. On the Loan Sale Closing Date Seller
will make available to Buyer or will provide Buyer with the NBBF system(s)
used
to service Loans. Seller will pay Buyer to subservice the Loans only
for the thirty (30) calendar-day period beginning on the Loan Sale Closing
Date. Seller will not pay Buyer for subservicing beginning the
thirty-first (31st) day from
the Loan
Sale Closing Date (the Loan
Sale
Closing Date being the first day of the thirty-one days) through the
Deconversion Date. Seller will pay Buyer for subservicing for the
thirty (30)
calendar
period beginning on the Loan Sale Closing Date on the following
basis: Seller will reimburse Buyer for expenses incurred by Buyer in
connection with Buyer’s subservicing duties which the Seller reasonably
determines are actual, reasonable and necessary, including expenses of
photocopying, postage and express mail, data processing and employee
services (based upon the number of hours spent performing subservicing duties)
but not including overhead or other administrative expenses related to such
employee services. All of such subservicing expenses submitted to
Seller for reimbursement must be documented by evidence, satisfactory to Seller,
supporting the basis for such expenses. Promptly upon request by
Seller, Buyer shall supply Seller with any additional evidence that Seller
may
request.
From
and
after the Loan Sale Closing Date, all rights, obligations, liabilities and
responsibilities with respect to the servicing of the Loans shall pass to the
Buyer, and Seller shall be discharged from all liability therefor, including
any
liability arising from any interim servicing provided by Seller pursuant to
this
Section 3.3.
Article
IV
Representation
and Warranties of Buyer
Buyer
hereby represents and warrants to
Seller as of the date of this Agreement and as of the Loan Sale Closing
Date:
4.2. Compliance
with Law. Neither Buyer nor any of its subsidiaries is in violation of
any statute, regulation, order, decision, judgment or decree of, or any
restriction imposed by, the United States of America, any State, municipality
or
other political subdivision or any agency of any of the foregoing, or any court
or other tribunal having jurisdiction over Buyer or any of its subsidiaries
or
any assets of any such person, or any foreign government or agency thereof
having such jurisdiction, with respect to the conduct of the business of Buyer
or of its subsidiaries, or the ownership of the properties of Buyer or any
of
its subsidiaries, which, either individually or in the aggregate with all other
such violations, would materially and adversely affect the business, operations
or condition (financial or otherwise) of Buyer or the ability of Buyer to
perform, satisfy or observe any obligation or condition under this Agreement.
Neither the execution and delivery nor the performance by Buyer of this
Agreement will result in any violation by Buyer of, or be in conflict with,
any
provision of any applicable law or regulation, or any order, writ or decree
of
any court or governmental authority.
Article
V
Covenants,
Duties and Obligations of Buyer
5.5. Buyer's
Due Diligence. Buyer represents that it has made an independent
evaluation of the Loans and Loan Files and/or any electronic data made available
to it pertaining to the Loans being purchased hereunder. Buyer also represents
that it has conducted such other investigations as it deems appropriate and
as
are consistent with the terms of the Confidentiality Agreement executed or
assented to by Buyer in connection with this transaction, including, without
limitation, searches of Uniform Commercial Code, title, court, bankruptcy and
other public records. Buyer agrees and represents that it is entering into
this
Agreement solely on the basis of its own investigations and its judgment as
to
the nature, validity, enforceability, collectibility and value of the Loans
and
all other facts material to their purchase, including, but not limited to the
legal matters and risks relating to the collection and enforcement, and the
performance of Obligations in any Foreign Jurisdiction. Buyer further
acknowledges that no employee or representative of Seller has been authorized
to
make any statements or representations other than those specifically contained
in this Agreement.
Buyer
shall be responsible for submitting all information returns required under
applicable laws of any Foreign Jurisdiction, to the extent such are required
to
be filed by Buyer or Seller under such laws, relating to the Loans, for the
calendar or tax year in which the Closing occurs and thereafter.
5.7. Loans
in Litigation. With respect to any Loan sold pursuant to this
Agreement, which is the subject of any type of pending litigation, Buyer shall
notify Seller's Regional Counsel, 1601 Bryan Street, Dallas, Texas 75201, within
fifteen (15) Business Days of the Loan Sale Closing Date of the name
of the attorney selected by Buyer to represent Buyer's interests in the
litigation. Buyer shall, within fifteen (15) Business Days of the Loan Sale
Closing Date, notify the clerk of the court or other appropriate official and
all counsel of record that ownership of the Loan was transferred from Seller
to
Buyer. Buyer shall have its attorney file appropriate pleadings and other
documents and instruments with the court or other appropriate body within twenty
(20) Business Days of the Loan Sale Closing Date, substituting Buyer's attorney
for Seller's attorney and also removing Seller as a party to the litigation
and
substituting Buyer as the real party-in-interest. Except as provided in the
next
succeeding sentence, should Buyer fail to
comply
with the provisions of this section within twenty (20) Business Days after
the
Loan Sale Closing Date, Seller may, at its option, dismiss with or without
prejudice or withdraw from, any such pending litigation.
In
the
event that Buyer shall be unable, as a matter of applicable law, to cause Seller
to be replaced by Buyer as party-in-interest in any such litigation, Buyer
shall
provide to Seller's Regional Counsel at the address specified above within
twenty (20) Business Days of the Loan Sale Closing Date a legal opinion of
Buyer's legal counsel, qualified in the relevant jurisdiction, to such effect
and stating the reasons for such failure. In such event, (i) Buyer
shall cause its attorney to conduct such litigation at Buyer's sole cost and
expense; (ii) Buyer shall cause the removal of Seller and substitution of Buyer
as party-in-interest in such litigation at the earliest time possible under
applicable law; (iii) Buyer shall use its best efforts to cause such litigation
to be resolved by judgment or settlement in as reasonably efficient a manner
as
practical; (iv) Seller shall cooperate with Buyer and Buyer's attorney as
reasonably required in Seller's sole judgment to bring such litigation or any
settlement relating thereto to a reasonable and prompt conclusion; (v) no
settlement shall be agreed upon by Buyer or its agents or counsel without the
express prior written consent of Seller, unless such settlement includes an
irrevocable and complete waiver and release of any and all potential claims
against Seller in relation to such litigation or the subject Loans or
Obligations by any person, including without limitation Buyer and any Borrower,
and any and all losses, liabilities, claims, causes of action, damages, demands,
taxes, fees, costs and expenses relating thereto are expressly agreed, duly,
validly and enforceably, to be paid by Buyer without recourse of any kind to
Seller; and (vi) Buyer shall pay all costs and expenses of Seller and Seller's
counsel, if any, engaged in connection with such litigation as provided for
in
the next succeeding sentence.
Buyer
agrees to reimburse Seller, upon demand, for Seller's legal expenses in such
litigation. Buyer shall pay all of the costs and expenses incurred by it in
connection with the actions provided for in this Section 5.7, including, without
limitation, all legal fees and expenses and court costs, and agrees to pay
or
reimburse Seller, upon demand, for Seller's legal expenses in connection with
such litigation incurred on or after the Loan Sale Closing Date, including
the
dismissal thereof or withdrawal therefrom.
such
Loan
and Buyer further agrees to reimburse Seller for any cost or expense incurred
by
Seller as a result of Buyer's failure to file an Affidavit and Assignment of
Claim or similar forms as required herein.
(a) Allow
Seller the continuing right to use, inspect and make extracts from or copies
of
any such documents or records upon Seller's reasonable notice to
Buyer.
(b) Allow
Seller the possession, custody and use of original documents for any lawful
purpose and upon reasonable terms and conditions.
(c) Give
reasonable notice to Seller of Buyer's intention to destroy or dispose of any
documents or files and to allow Seller, at its own expense, to recover the
same
from Buyer.
5.15. Reimbursement
for Use of Seller's Employees. In the event of litigation with respect
to the Loans purchased by Buyer in which Seller or its employees are requested
or required by subpoena, court order or otherwise, to perform any acts
including, but not limited to, testifying in litigation, preparing responses
to
subpoenas or other legal process or pleadings, and/or performing any review
of
public or private records such as tracing funds, whether said litigation is
commenced by Buyer or any other party, Seller shall be reimbursed by Buyer
for
the time expended by each of Seller's employees involved in the performance
of
said acts at the rate of the greater of $75.00 per hour per employee or the
then
prevailing hourly rate per employee charged by the Seller or the FDIC to perform
such services, plus all associated travel, lodging and per diem costs. Seller
shall, in its sole and absolute discretion, determine and assign the personnel
necessary to perform said acts. Buyer also agrees to reimburse Seller for copies
made in the course of performing said acts at the rate of 25 cents ($.25) per
copy. Nothing in this section shall require Seller to provide Buyer with any
information or service in this regard.
5.16. Notice
to Borrowers. Buyer or, at Seller's option, Seller shall promptly after
the Loan Sale Closing Date, but in no event later than thirty (30) calendar
days
after the Loan Sale Closing Date, at its own cost and
expense, give notice of this transfer to all Borrowers or Loan servicers, in
the
case of Borrowers located in the United States, by first class U.S. mail at
their current or last known address of record or, in the case of Borrowers
located in a Foreign Jurisdiction, in such manner as may be required under
the
laws of such jurisdiction in order to effectively give notice to such Borrowers
of the transfer of the Loans. In the event there is no known address for a
Borrower, no personal notice to that Borrower shall be necessary. Upon
subsequently locating such Borrower, Buyer shall send such notice to such
Borrower. Buyer shall be liable to Seller for any and all costs and expenses
incurred by Seller as a result of Buyer's failure to comply with the provisions
of this section. Such costs and expenses shall include, but not be limited
to,
salaries of Seller's personnel and other administrative expenses, the time
expended by each of Seller's employees involved in the performance of said
acts
at the rate of the greater of $75.00 per hour per employee or the then
prevailing hourly rate per employee charged by the Seller or the FDIC to perform
such services, plus all associated travel, lodging and per diem costs. Seller
shall, in its sole and absolute discretion, determine and assign the personnel
necessary to perform said acts. Buyer also agrees to reimburse Seller for copies
made in the course of performing said acts at the rate of 25 cents ($.25) per
copy. Nothing in this section shall require Seller to provide Buyer with any
information or service in this regard.
5.18. Use
of the FDIC's Name and Reservation of Statutory Powers. Buyer agrees
that it will not use or permit the use by its agents, successors or assigns
of
any name or combination of letters that is similar to the FDIC or the Federal
Deposit Insurance Corporation. Buyer will not represent or imply that it is
affiliated with, authorized by or in any way related to the FDIC. Seller
specifically permits Buyer to assert the statute of limitations established
under 12 U.S.C. § l82l(d)(14) pursuant to the terms of the Assignment and
Assumption of Interests and Obligations. However, Buyer acknowledges and agrees
that the assignment of any Loan or Collateral Document pursuant to the terms
of
this Agreement shall not constitute the assignment of any other rights, powers
or privileges granted to Seller pursuant to the provisions the Federal Deposit
Insurance Act, including, without limitation, those granted pursuant to 12
U.S.C. § 182l(d), 12 U.S.C. § l823(e) and 12 U.S.C. § 1825, all such rights and
powers being expressly reserved by Seller; nor, shall Buyer assert or attempt
to
assert any such right, power or privilege in any pending or future litigation
involving any Loan purchased hereunder. Buyer and Seller agree and stipulate
that breach of the provisions of this section will result in actual and
substantial damages to Seller in an amount that cannot be determined with
precision. It is therefore agreed that in the event of such breach, Buyer shall
pay the sum of $25,000.00 to Seller for each such breach as liquidated damages,
together with such fees and expenses as Seller may incur in preventing further
or continuing breach of said provision and recovering liquidated damages.
Notwithstanding the provisions of this section, the FDIC may also pursue any
equitable remedy it may have for Buyer's breach of this covenant.
5.20. Release
of Seller. (a) Except as otherwise specifically provided in
Article VII of this Agreement, Buyer hereby releases and forever discharges
Seller, the Failed Bank and the FDIC, all of their officers, directors,
employees, agents, attorneys, contractors and representatives, and their
successors, assigns and affiliates, from any and all claims (including any
counterclaim or defensive claim), demands, causes of action, judgments or legal
proceedings and remedies of whatever kind or nature that Buyer now has or might
have in the future, whether now known or unknown, which are related in any
manner whatsoever to the Loans and this Agreement.
(b) Buyer
agrees that it will not renew, extend, renegotiate, compromise, settle or
release any Note or Loan or any right of Buyer founded upon or growing out
of
this Agreement, except upon payment in full thereof, unless all Borrowers on
said Note or Loan shall first release and discharge the Failed Bank(s) and
Seller and its agents and assigns (the "Released Parties") from all claims,
demands and causes of action which any such Borrower may have against
any such Released Party arising from or growing out of any act or omission
occurring prior to the date of such release. If Buyer fails
to obtain such release, Buyer agrees to protect,
save and hold Seller harmless from any expense or damage Seller suffers that
might have been prevented had Buyer obtained the release.
5.21. Indemnification.
Buyer agrees to pay, or reimburse to Seller, and
to protect, indemnify, save and hold harmless Seller, Seller's
agents and financial services advisor engaged in connection with the Loan Sale
from and against any and all losses, liabilities, claims, causes
of action, damages, demands, taxes, fees, costs and expenses
of whatever kind, arising out of, incurred in connection
with or otherwise relating to Buyer's actions or inactions in
performing, or failure to perform, the obligations
of Buyer set forth in this Agreement. Buyer further agrees
to pay when due or promptly reimburse Seller for any fees, taxes,
costs and expenses incurred by Seller in connection with the performance or
nonperformance by Buyer of all of the obligations
of Buyer specified herein. Buyer further agrees
to indemnify and hold Seller harmless against any and all claims, losses,
liabilities, causes of action, damages, demands, taxes, fees, costs and expenses
whatsoever arising from or related to the Inchoate Agreements, whether such
claims are now known, arise after the date of the Agreement, or are discovered
after the date of the Agreement.
5.22. Borrower
as Buyer. In the event that Buyer is the Borrower or a Related Party
with respect to any Loan in the Loan Pool, then Buyer, on its own behalf and
on
behalf of any Related Party, agrees that it shall, and hereby does, release
and
discharge and agrees to indemnify, defend and hold harmless the Failed Bank(s),
Seller and Seller's agents and employees from and against all claims, demands
and causes of action arising out of any act or omission related to said Loan.
Buyer acknowledges and agrees that it shall have no repurchase option on any
Loan for which Buyer or a Related Party is the Borrower pursuant to Article
VII
of this Agreement. At Buyer's request, and upon preparation of appropriate
documentation by Buyer in conformance with Section 3.1, Seller will release
and
discharge a Loan for which Buyer is the Borrower in lieu of assigning the same
to Buyer. In any event, Seller will issue a 1099 to report any discharge of
indebtedness in connection with the sale or release of the Loan to the Borrower
or a Related Party in accordance with IRS regulations and FDIC
policy. Notwithstanding the foregoing, any failure by the FDIC to
issue a 1099 does not relieve the Buyer of its responsibility to report the
discharge of indebtedness in accordance with applicable federal tax
law.
5.23. Accounts
Payable/Brokerage Commissions. Buyer shall assume and be
solely responsible for (i) all accounts payable by NBBF to suppliers of
equipment as reflected in account number 207110 of NBBF's books and records,
and
(ii) all liabilities reflected in account number 290010 of NBBF's books and
records which liabilities are primarily brokerage commissions payable by NBBF
to
equipment lease brokers. Buyer shall be given a credit against the
Purchase Price for the net liabilities assumed pursuant to this section as
such
net liabilities are calculated by netting assets against liabilities as they
appear on the books and records of NBBF in account numbers 207110 and 290010
as
of the Calculation Date.
5.24. Payment
of Taxes. Buyer shall be responsible for payment of
all Taxes. Buyer shall be given a credit against the Purchase Price
for the net liabilities for Taxes assumed pursuant to this section as such
Taxes
are calculated by netting assets against liabilities as they appear on the
books
and records of NBBF in account numbers 207100 and 207105 as of the Calculation
Date.
5.25. Assignment
of Servicing Agreements. Buyer will accept assignment of
the Servicing Agreements, thereby becoming the servicer under the Servicing
Agreements for loans serviced for third parties. Buyer agrees to
assume all obligations of the Servicer under the Servicing
Agreements. Seller will assign the Servicing Agreements to Buyer at
no charge.
5.26. Purchase
of Platform-related Assets and Liabilities. The Buyer
of Loan Pool NBF-1-07-010 will purchase the Platform-related Assets and
Liabilities from the Seller. If the net balance of the
Platform-related Assets and Liabilities as such items appear on the books and
records of NBBF as of the Calculation Date is positive, the Buyer shall purchase
the Platform-related Assets and Liabilities at their net Book Value, which
shall
be in addition to the Purchase Price, or if the net balance of the
Platform-related Assets and Liabilities is negative, Buyer shall be given a
credit against the Purchase Price for the Platform-related Assets and
Liabilities assumed pursuant to this section.
Article
VI
Loans
Sold “As Is” and Without Recourse
6.1. Loans
Sold “As Is.” THE LOANS ARE SOLD "AS IS" AND "WITH ALL FAULTS," WITHOUT ANY
REPRESENTATION, WARRANTY OR RECOURSE WHATSOEVER AS TO EITHER COLLECTIBILITY,
CONDITION, FITNESS FOR ANY PARTICULAR PURPOSE, MERCHANTABILITY OR ANY OTHER
WARRANTY, EXPRESS OR IMPLIED. SELLER SPECIFICALLY DISCLAIMS ANY WARRANTY,
GUARANTY OR REPRESENTATION, ORAL OR WRITTEN, PAST OR PRESENT, EXPRESS OR
IMPLIED, CONCERNING THE LOANS, THE STRATIFICATION OR PACKAGING OF THE LOANS,
THE
COLLATERAL OR THE COLLATERAL DOCUMENTS.
Article
VII
Repurchase
by Seller at Buyer's Option
7.1. Repurchases
at Buyer's Option. Buyer may, at its option, and upon
satisfaction of the procedures and other requirements set forth below, require
Seller to repurchase a Loan other than an Inchoate Agreement, if, and only
if,
prior to the Loan Sale Closing Date one of the following events set forth below
has occurred. IN NO EVENT SHALL THE OCCURRENCE OF ANY SUCH EVENT BE EVIDENCE
OF
BAD FAITH, MISCONDUCT OR FRAUD EVEN IN THE EVENT THAT IT IS SHOWN THAT SELLER,
IN ANY CAPACITY, ANY AGENT OF SELLER, ANY FAILED BANK OR ANY OF THEIR RESPECTIVE
DIRECTORS, EMPLOYEES, OFFICERS OR AGENTS KNEW OR SHOULD HAVE KNOWN OF THE
EXISTENCE OF ANY FACTS RELATING TO THE OCCURRENCE OF SUCH EVENT:
(a) The
Borrower had been discharged in a no asset bankruptcy proceeding and no
collateral exists out of which the Loan may be satisfied and all guarantors
or
sureties of the Note, if any, or the obligations contained therein, have
similarly been discharged in no asset bankruptcies.
(b) A
court of competent jurisdiction had entered a final judgment (other than a
bankruptcy decree or judicial foreclosure order) holding that neither the
Borrower nor any guarantors or sureties owe an enforceable obligation to pay
the
holder of the Note or its assignee(s).
(c) The
Failed Bank or Seller had executed and delivered to the Borrower a release
of
liability from all obligations under the Note.
(d) A
title defect exists in connection with the property which is the subject of
a
Contract for Deed and which title defect requires a prior order or judgment
of a
court to enable Buyer to convey title to such property in accordance with the
terms and conditions set forth in the Contract for Deed.
(e) Seller
is not the owner of the Loan (or, in the case of a participation interest in
a
Loan, Seller is not the owner of the pro rata interest in such
participation interest set forth on the attached Schedule of
Loans).
(f) The
Mortgaged Property securing any Loan sold hereunder has Significant
Environmental Contamination. Buyer's recourse with respect to this Section
7.1(f) shall be conditioned upon: (i) the presence of Significant Environmental
Contamination not being disclosed in the Loan, Loan File or other material
made
available by Seller to Buyer prior to submission of a Bid; (ii) such Loan having
a Book Value greater than $250,000.00 as of the Loan Sale Closing Date; and,
(iii) Buyer delivering, along with the notice required by Section 7.4 hereof,
the following, each of which must be satisfactory in form and substance to
Seller in its sole discretion:
1. A
Phase I environmental assessment, from a qualified and reputable firm, of the
Mortgaged Property securing the Loan; and,
2. A
Phase II environmental assessment or lead-based paint survey of such Mortgaged
Property from a qualified and reputable firm, which assessment shall confirm
(i)
the existence of Significant Environmental Contamination on such Mortgaged
Property and (ii) that the regulator is likely to require such remediation;
and,
3. Buyer
shall have submitted a written certification of Buyer under penalty of perjury
that no action has been taken by or on behalf of Buyer (i) to initiate
foreclosure proceedings or (ii) to accept a deed-in-lieu-of-foreclosure in
connection with such Loan.
(g) The
Failed Bank, its officers, directors or employees fraudulently caused the
Borrower to receive less than all of the proceeds and benefits of a Note.
Buyer's recourse with respect to this Section 7.1(g) shall be conditioned upon
Buyer delivering, along with the notice required by Section 7.4 hereof, written
evidence of such fraud, which evidence must be satisfactory in form and
substance to Seller in its sole discretion.
7.5. Re-delivery
of Note(s), Files and Documents. For any Loan that
qualifies for repurchase under this Article, Buyer shall: (a) re-endorse or
reassign and deliver the Note(s) to Seller, (b) reassign all Collateral
Documents associated with such Loan and reconvey any real property subject
to a
Contract for Deed or transferred by quitclaim deed pursuant to Section 2.6
hereof, together with such other documents or instruments as shall be necessary
or appropriate to convey the Loan back to Seller, (c) re-deliver to Seller
the
Loan File, along with any additional records compiled or accumulated by Buyer
pertaining to the Loan, and (d) deliver to Seller a certification, notarized
and
executed under penalty of perjury by a duly authorized representative of Buyer,
certifying that as of the date of repurchase none of the conditions relieving
Seller of its obligation to repurchase the Loan(s) as specified in Section
7.6
hereof has occurred. The documents evidencing such reconveyance shall be
substantially the same as those executed as of Closing pursuant to Article
III
of this Agreement. In all cases where Buyer recorded or filed among public
records any document or instrument evidencing a transfer of the Loan to Buyer,
Buyer shall cause to be recorded or filed among such records a similar document
or instrument evidencing the reconveyance of the Loan to Seller. Upon compliance
by Buyer with the provisions hereof, Seller shall pay to Buyer the Repurchase
Price.
7.6. Waiver
of Buyer's Repurchase Option. Seller will be relieved
of its obligation to repurchase any Loan for any reason set forth in subsections
(a) through (g) of Section 7.1 hereof, if Buyer: (a) modifies any of the terms
of the Loan (including the terms of any Collateral Document or Contract for
Deed); (b) exercises forbearance with respect to any scheduled payment on the
Loan; (c) accepts or executes new or modified lease documents assigned by Seller
to Buyer; (d) sells, assigns or transfers the Loan or any interest therein;
(e)
fails to employ usual and customary care in the maintenance, collection,
servicing and preservation of the Loan, including usual and customary
delinquency prevention, collection procedures and protection of collateral
as
warranted; (f) initiates any litigation in connection with the Loan or the
Mortgaged Property securing the Loan other than litigation to force payment
or
to realize on the Collateral securing the Loan; (g) completes any action with
respect to foreclosure on, or accepts a deed-in-lieu of foreclosure for any
Property securing the Loan; (h) causes, by action or inaction, the priority
of
title to the Loan, Mortgaged Property and other security for the Loan to be
less
than that conveyed by Seller; (i) causes, by action or inaction, the security
for the Loan to be different than that conveyed by Seller, except as may be
required by the terms of the Collateral Documents; (j) causes, by action or
inaction, a claim of third parties to arise against Buyer that, as a result
of
repurchase under this Agreement, might be asserted against Seller; (k) causes,
by action or inaction, a security interest, lien, pledge or charge of any nature
to encumber the Loan to arise; (l) is the Borrower or any Related
Party under such Loan; or (m) makes a disbursement other than an
Advance.
Article
VIII
Notices
SELLER: Manager,
Asset Claims Administration
FDIC
Asset Claims
Administration
550
17th Street, NW, (Rm.
F-3054)
Washington,
D.C.
20429-002
Facsimile:
(202) 898-8916
Senior
Counsel
FDIC
Legal Division
Litigation
Branch, Receivership Section
Special
Issues Unit
3501
Fairfax Drive (Room E-7056)
Arlington,
VA 22226
BUYER: LEAF
Funding, LLC
1818
Market Street, 9th Floor
Philadelphia,
PA 19103
Attention: Mr.
Crit DeMent, CEO
Telephone
Number: 215-717-3357
Facsimile
Number:
215-569-0675
E-mail Address: cdement@leaf-finacial.com
SELLER: Federal
Deposit Insurance Corporation
Franchise
and Asset Marketing
Branch
1601
Bryan Street
Dallas,
Texas 75201
Federal
Deposit Insurance
Corporation
Regional
Counsel, Litigation
Branch
1601
Bryan Street
Dallas,
Texas 75201
Forfeiture
of Earnest Money and Other Remedies
9.1 Failure
to Close. If for any reason, without fault of Seller, Buyer
fails to consummate a purchase on the Loan Sale Closing Date, upon the terms
and
conditions set forth in this Agreement, Seller’s liquidated damages shall be the
Earnest Money Deposit and all other funds deposited with
Seller. Buyer and Seller agree that the failure or refusal of Seller
to alter or modify in any way, the terms or conditions of this Agreement or
any
other documents contained in the Bid Instructions shall not constitute fault
on
the part of Seller. Nothing contained herein is intended to, nor
shall it be construed to limit, in any way the right of Seller to seek any
other
right, remedy, relief or damages provided by law or equity. Buyer
shall not be liable for any of the foregoing damages if Buyer is forced to
withdraw its Bid after award as the result of a supervisory directive given
by
the FDIC or other federal or state financial regulatory agency, provided that
Seller shall be satisfied that such supervisory directive is legally
effective. In such event, Seller shall refund the Earnest Money
Deposit and any other funds deposited with Seller.
Article
X
Miscellaneous
Provisions
10.6. Nonwaiver,
Amendment and Assignment. No
provision of this Agreement may be amended or waived except in writing executed
by all of the parties to this Agreement. This Agreement and the terms,
covenants, conditions, provisions, obligations, undertakings, rights and
benefits hereof, including the Attachments to this Agreement, shall be binding
upon, and shall inure to the benefit of the undersigned parties and their
respective heirs, executors, administrators, representatives, successors and
assigns. Notwithstanding the foregoing, this Agreement may not be transferred
or
assigned without the express prior written consent of Seller (and any attempted
assignment without such consent shall be void).
10.8. Controlling
Agreement. Seller and Buyer hereby acknowledge and
agree that this Agreement shall in all instances be the controlling document
with respect to the terms of the sale and transfer of the Loans, Collateral
Documents and Collateral, and the assignment and assumption
of all obligations thereunder. In the event of a conflict between the terms
of
this Agreement and the terms of any other document or instrument executed in
connection herewith and with the transactions contemplated hereby, including,
without limitation, any translation into a foreign language of this Agreement,
any Collateral Document, or any other document or instrument executed in
connection herewith which is prepared for notarization, filing or any other
purpose, the terms of this Agreement shall control, and furthermore, the terms
of this Agreement shall in no way be or be deemed to be amended, modified or
otherwise affected in any manner by the terms of such other document or
instrument.
10.12. Incorporation
by Reference. The Bid Package shall be considered part of
this Agreement as if fully set forth herein.
BUYER: SELLER
FEDERAL DEPOSIT INSURANCE
LEAF
FUNDING,
LLC CORPORATION
AS RECEIVER OF
NETBANK
By: By:
Name: Name:
Title: Title: Attorney-in-Fact
36
EX-10.10
4
leafnetbankagrm.htm
LEAF FLSA NET BANK AGMT
leafnetbankagrm.htm
RECEIVABLES
LOAN AND SECURITY AGREEMENT
Dated
as
of November 1, 2007
Among
LEAF
CAPITAL FUNDING III, LLC,
as
the
Borrower
and
LEAF
FINANCIAL CORPORATION,
as
the
Servicer
and
MORGAN
STANLEY BANK
as
Class A Lender and Collateral Agent
and
MORGAN
STANLEY ASSET FUNDING INC.
as
Class B Lender
and
U.S.
BANK
NATIONAL ASSOCIATION,
as
the
Custodian and the Lenders’ Bank
and
LYON
FINANCIAL SERVICES, INC. (D/B/A U.S. BANK PORTFOLIO SERVICES),
as
the
Backup Servicer
This
RECEIVABLES LOAN AND SECURITY AGREEMENT is made as of November 1, 2007,
among:
(1) LEAF
CAPITAL FUNDING III, LLC, a Delaware limited liability company (the
“Borrower”);
(2) LEAF
FINANCIAL CORPORATION, a Delaware corporation (“LEAF Financial” or the
“Initial Servicer”), as the Servicer (as defined herein);
(3) MORGAN
STANLEY BANK, as Class A Lender (“Morgan Stanley” and a “Lender”
hereunder) and Collateral Agent (as defined herein);
(4) MORGAN
STANLEY ASSET FUNDING INC., as Class B Lender (a “Lender” hereunder and,
together with Morgan Stanley, the “Lenders”);
(5) U.S.
BANK NATIONAL ASSOCIATION, as the Custodian and the Lenders’ Bank (as each such
term is defined herein); and
(6) LYON
FINANCIAL SERVICES, INC. (d/b/a U.S. Bank Portfolio Services), a Minnesota
corporation, as the Backup Servicer (as defined herein).
IT
IS
AGREED as follows:
ARTICLE
I
DEFINITIONS
SECTION
1.01 Certain
Defined Terms. a) Certain capitalized terms used
throughout this Agreement are defined above or in this
Section 1.01.
(b) As
used in this Agreement and the exhibits and schedules thereto (each of which
is
hereby incorporated herein and made a part hereof), the following terms shall
have the following meanings (such meanings to be equally applicable to both
the
singular and plural forms of the terms defined):
“Accountants’
Report” has the meaning assigned to that term in
Section 6.11(b).
“Active
Backup Servicer’s Fee” means, for any Fee Period or portion thereof after
the occurrence of a Servicer Default and the appointment of the Backup Servicer
as Servicer hereunder, an amount, payable out of Collections on the Pledged
Receivables and amounts applied to the payment of, or treated as payments on,
the Pledged Receivables, equal to the greater of (i) the Active Backup Servicing
Fee Rate, multiplied by the Eligible Receivables Balance as of the first day
of
such Fee Period, multiplied by a fraction, the numerator of which shall be
the
actual number of days in such Fee Period and the denominator of which shall
be
360, and (ii) $7,000. The Active Backup Servicer’s Fees shall also
include reasonable out-of-pocket expenses incurred by the Backup Servicer in
performing its duties as Servicer.
“Active
Backup Servicing Fee Rate” means 1.50%.
“Active
Backup Servicer’s Indemnified Amounts” has the meaning assigned to that term
in Section 6.09.
“Adjusted
Eurodollar Rate” means, with respect to any Interest Period for any Loan (or
portion thereof) allocated to such Interest Period, an interest rate per annum
equal to the sum of (i) the Adjusted Eurodollar Rate Margin and
(ii) an interest rate per annum equal to the average of the interest rates
per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) reported
during such Interest Period on Reuters LIBOR01 Page (British Bankers Association
Settlement Rate) as the London Interbank Offered Rate for United States dollar
deposits having a term of thirty (30) days and in a principal amount of
$1,000,000 or more (or, if such page shall cease to be publicly available or,
if
the information contained on such page, in each applicable Lender’s
sole judgment, shall cease to accurately reflect such London Interbank Offered
Rate, such rate as reported by any publicly available recognized source of
similar market data selected by such Lender that, in such Lender’s reasonable
judgment, accurately reflects such London Interbank Offered Rate).
“Adjusted
Eurodollar Rate Margin” has the meaning ascribed thereto in the Fee
Letter.
“Adverse
Claim” means a lien, security interest, charge, encumbrance or other right
or claim of any Person other than, with (i) respect to the Pledged Assets,
any lien, security interest, charge, encumbrance or other right or claim in
favor of the Collateral Agent or (ii) any Permitted Lien.
“Affected
Party” has the meaning assigned to that term in
Section 2.09.
“Affiliate”
when used with respect to a Person, means any other Person controlling,
controlled by or under common control with such Person. For the
purposes of this definition, “control,” when used with respect to any specified
Person, means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities,
by
contract or otherwise; and the terms “controlling” and “controlled” have
meanings correlative to the foregoing.
“Aggregate
Advance Amount” means the Class A Advance Amount plus the Class B Advance
Amount.
“Agreement”
means this Receivables Loan and Security Agreement, as the same may be amended,
restated, supplemented and/or otherwise modified from time to time hereafter
in
accordance with its terms.
“Amortized
Equipment Cost” means, (i) with respect to all Eligible Receivables (a) as
of the Borrowing Date, the present value of the remaining Scheduled Payments
under all Eligible Receivables (including any Balloon Payment or Put Payment),
discounted monthly at the rate at which the present value of all Scheduled
Payments under all Eligible Receivables (including any Balloon Payment or Put
Payment) equals the Purchase Price and, (b) as of any subsequent date of
determination, shall mean the present value of the then remaining Scheduled
Payments under all Eligible Receivables (including any Balloon
Payment or Put Payment) discounted monthly at the aforementioned discount rate,
and (ii) with respect to an Eligible Receivable (a) as of the Borrowing Date,
the present value of the remaining
Scheduled
Payments under such Eligible Receivable (including any Balloon Payment or
Put
Payment), discounted monthly at the rate at which the present value of all
Scheduled Payments under all Eligible Receivables (including any Balloon
Payment
or Put Payment) equals the Purchase Price and, (b) as of any subsequent date of
determination, shall mean the present value of the then remaining Scheduled
Payments under such Eligible Receivable (including any Balloon Payment or
Put
Payment) discounted monthly at the aforementioned discount
rate.
“Annualized
Default Rate” means, as of any date of determination after the end of the
first Collection Period following the date hereof, an amount (expressed as
a
percentage) equal to (i) the product of (A) the aggregate Discounted
Balances of all Pledged Receivables which were Eligible Receivables at the
time
of their Pledge hereunder and which became Defaulted Receivables during the
six
(or such lesser number of Collection Periods since the date hereof) immediately
preceding Collection Periods and (B) 2 (if six or more Collection Periods
have occurred since the date hereof), 2.4 (if five Collection Periods have
occurred since the date hereof), 3 (if four Collection Periods have
occurred since the date hereof), 4 (if three Collection Periods have
occurred since the date hereof), 6 (if two Collection Periods have occurred
since the date hereof) or 12 (if one Collection Period has occurred since
the date hereof) divided by (ii) the average Eligible Receivables Balance
as of the first Business Day of each of the six (or such lesser number of
Collection Periods since the date hereof) immediately preceding Collection
Periods.
“Annualized
Net Loss Rate” means, as of any date of determination after the end of the
first Collection Period following the date hereof, an amount (expressed as
a
percentage) equal to (i) the product of (A) (x) the aggregate
Discounted Balances of all Pledged Receivables which were Eligible Receivables
at the time of their Pledge hereunder and which became Defaulted Receivables
during the six (or such lesser number of Collection Periods since the date
hereof) immediately preceding Collection Periods minus
(y) Recoveries received during the six (or such lesser number of Collection
Periods since the date hereof) immediately preceding Collection Periods and
(B) 2 (if six or more Collection Periods have occurred since the date
hereof), 2.4 (if five Collection Periods have occurred since the date
hereof), 3 (if four Collection Periods have occurred since the date
hereof), 4 (if three Collection Periods have occurred since the date
hereof), 6 (if two Collection Periods have occurred since the date hereof)
or 12 (if one Collection Period has occurred since the date hereof) divided
by (ii) the Eligible Receivables Balance as of the first Business Day of
the six (or such lesser number of Collection Periods since the date hereof)
immediately preceding Collection Periods.
“Approved
Lienholder” means any Person that (i) has entered into a Nominee Lienholder
Agreement, a copy of which has been delivered by the Collateral Agent to the
Custodian and (ii) appears on the list of approved lienholders provided by
LEAF
Financial Corporation to the Custodian from time to
time.
“Assigned
Documents” has the meaning assigned to that term in
Section 2.10.
“Assignment”
has the meaning set forth in the Purchase and Sale Agreement.
“Assignment
and Acceptance” has the meaning assigned to that term in
Section 9.04.
“Available
Funds” has the meaning assigned to that term in
Section 2.04(c).
“Backup
Servicer” means Lyon Financial Services, Inc. (d/b/a U.S. Bank Portfolio
Services) or any successor Backup Servicer appointed by the Lenders pursuant
to
Section 6.13.
“Backup
Servicer Delivery Date” has the meaning assigned to that term in
Section 6.10(d).
“Balloon
Payment” means a payment due, or which may be required, at the end of the
term of a Contract (which constitutes a loan) equal to the principal amount
under such Contract which remains outstanding after the payment of all regular
scheduled payments of principal during the term of such Contract.
“Bankruptcy
Code” means Title 11, United States Code, 11 U.S.C. §§ 101
etseq., as amended.
“Bankruptcy
Event” shall be deemed to have occurred with respect to a Person if
either:
(c) a
case or other proceeding shall be commenced, without the application or consent
of such Person, in any court, seeking the liquidation, reorganization, debt
arrangement, dissolution, winding up, or composition or readjustment of debts
of
such Person, the appointment of a trustee, receiver, custodian, liquidator,
assignee, sequestrator or the like for such Person or all or substantially
all
of its assets, or any similar action with respect to such Person under any
law
relating to bankruptcy, insolvency, reorganization, winding up or composition
or
adjustment of debts, and such case or proceeding shall continue undismissed,
or
unstayed and in effect, for a period of 60 consecutive days; or an order for
relief in respect of such Person shall be entered in an involuntary case under
the federal bankruptcy laws or other similar laws now or hereafter in effect;
or
(d) such
Person shall commence a voluntary case or other proceeding under any applicable
bankruptcy, insolvency, reorganization, debt arrangement, dissolution or other
similar law now or hereafter in effect, or shall consent to the appointment
of
or taking possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) for such Person or for any substantial
part of its property, or shall make any general assignment for the benefit
of
creditors, or shall fail to, or admit in writing its inability to, pay its
debts
generally as they become due, or, if a corporation or similar entity, its board
of directors or members shall vote to implement any of the
foregoing.
“Base
Rate” means, on any date, a fluctuating rate of interest per annum equal to
the arithmetic average of the rates of interest publicly announced by JPMorgan
Chase Bank and Citibank, N.A. (or their respective successors) as their
respective prime commercial lending rates (or, as to any such bank that does
not
announce such a rate, such bank’s “base” or other rate determined by the Class A
Lender to be the equivalent rate announced by such bank), except that, if any
such bank shall, for any period, cease to announce publicly its prime commercial
lending (or equivalent) rate, the Class A Lender shall, during such period,
determine the Base Rate based upon the prime commercial lending (or equivalent)
rates announced publicly by the other such bank or, if each such bank ceases
to
announce publicly its prime commercial lending (or equivalent) rate, based
upon
the prime commercial lending (or equivalent) rate or rates announced publicly
by
one or more other banks selected by the Class A Lender. The prime
commercial lending (or equivalent) rates used in computing the Base Rate are
not
intended to be the lowest rates of interest charged by such banks in connection
with extensions of credit to debtors. The Base Rate shall change as
and when such banks’ prime commercial lending (or equivalent) rates
change.
“Borrower”
has the meaning assigned to that term in the preamble hereto.
“Borrower
Pension Plan” means a “pension plan” as such term is defined in section 3(2)
of ERISA, which is subject to Title IV of ERISA and to which the Borrower or
any
ERISA Affiliate of Borrower may have any liability, including any liability
by
reason of having been a substantial employer within the meaning of section
4063
of ERISA at any time during the preceding five years, or by reason of being
deemed to be a contributing sponsor under section 4069 of ERISA.
“Borrowing”
means the borrowing of the Class A Loan and the Class B Loan under this
Agreement.
“Borrowing
Date” means, with respect to the Borrowing, the date on which the Borrowing
is funded.
“Borrowing
Limit” means on the Borrowing Date, the lesser of (i) the Facility Limit and
(ii) the Maximum Advance Amount, and at any time the Aggregate Advance Amount,
as such amount may be increased pursuant to Section 2.16;
provided, however, that at all times, on or after the Program
Termination Date, the Borrowing Limit shall mean the aggregate outstanding
principal balance of the Loans.
“Breakage
Fee” means, for Loans allocated to any Interest Period during which such
Loans are repaid (in whole or in part) prior to the end of such Interest Period,
the breakage costs, if any, related to such repayment plus the amount, if any,
by which (i) interest (calculated without taking into account any Breakage
Fee), which would have accrued on the amount of the payment of such Loans during
such Interest Period (as so computed) if such payment had not been made, as
the
case may be, exceeds (ii) the sum of (A) interest actually received by
each Lender in respect of such Loans for such Interest Period and, if
applicable, (B) the income, if any, received by the Lenders from each
Lender’s investing the proceeds of such payments on such Loans.
“Business
Day” means a day of the year other than a Saturday or a Sunday or any other
day on which banks are authorized or required to close in New York City, St.
Paul, Minnesota or Salt Lake City, Utah; provided, that, if any
determination of a Business Day shall relate to a Loan bearing interest at
the
Adjusted Eurodollar Rate, the term “Business Day” shall also exclude any day on
which banks are not open for dealings in dollar deposits in the London interbank
market.
“Calculated
Swap Amortizing Balance” means, with respect to a Qualifying Interest Rate
Swap and as of any date of determination, the projected scheduled amortizing
balance of the Pledged Receivables which were Pledged during the period ending
on the Remittance Date on which such Qualifying Interest Rate Swap became
effective and beginning on the day following the immediately preceding
Remittance Date, determined by the Servicer and accepted by the Lenders based
upon the Discounted Balance of such Pledged Receivables as of such date of
determination, adjusted for prepayments using an absolute prepayment speed
which, in the judgment of the Lenders, is consistent with the speed with which
the Pledged Receivables have prepaid in the past.
“Capital
Stock” of any Person means any and all shares, interests, rights to
purchase, warrants, options, contingent share issuances, participations or
other
equivalents of or interest in equity (however designated) of such
Person.
“Certificate
of Title” means with respect to a Vehicle, an original certificate of title
issued by the Registrar of Titles of the applicable State.
“Change
of Control” means that at any time (i) Owner shall own directly or
indirectly less than 100% of all membership interests of the Borrower,
(ii) Resource America shall own directly or indirectly less than 50.1% of
all Capital Stock or voting power of the initial Servicer, (iii) the
initial Servicer shall own directly or indirectly less than 80% of all Capital
Stock or voting power of Originator and Owner, (iv) Resource America, Owner
or the Borrower merges or consolidates with any other Person without the prior
written consent of the Lenders, (v) the initial Servicer or the Originator
merges or consolidates with any other Person and the initial Servicer or the
Originator, as applicable, is not the surviving entity or (vi) either of
Crit DeMent or Miles Herman is not employed in a senior management position
at
the initial Servicer, is not involved in the day-to-day operations of the
initial Servicer or is not able to perform substantially all of his duties
as an
employee of the initial Servicer during any three month period and, in each
case, has not been replaced by a person approved by the Lenders in writing
within 90 days of any such event.
“Check-in
Repurchase Event” has the meaning set forth in Section
5.02(e).
“Check-in
Requirements” means the procedures set forth in Section 5.02 of this
Agreement.
“Class
A Advance Amount” means $333,380,316.91.
“Class
A Facility Limit” means, at any time, with respect to the Class A Notes, the
product of (x) 97.10%, (y) 89%, and (z) the Amortized Equipment Cost with
respect to all Pledged Receivables that are Eligible Receivables.
“Class
A Interest Rate” means (i) from the Closing Date through August 7, 2008, the
Adjusted Eurodollar Rate plus 2.00%; (ii) from August 8, 2008 through the
Facility Maturity Date, the Adjusted Eurodollar Rate plus 2.50%; and (iii)
from
and after the Facility Maturity Date or at any time upon the occurrence and
continuation of any Event of Default or any Termination Event, the Adjusted
Eurodollar Rate plus 3.00%.
“Class
A Lender” means the Lender in respect of the Class A Loan.
“Class
A Loan” has the meaning set forth in Section 2.01(a).
“Class
A Note” has the meaning set forth in Section 2.01(b).
“Class
B Advance Amount” means $33,712,616.32.
“Class
B Interest Rate” means (i) from the Closing Date through August 7, 2008, the
Adjusted Eurodollar Rate plus 10.00%; (ii) from August 8, 2008 through the
Facility Maturity Date, the Adjusted Eurodollar Rate plus 12.50%; and (iii)
from
and after the Facility Maturity Date or at any time upon the occurrence and
continuation of any Event of Default or any Termination Event, the Adjusted
Eurodollar Rate plus 15.00%.
“Class
B Lender” means the Lender in respect of the Class B Loan.
“Class
B Loan” means the sum of the Class B Advance Amount plus
$1,000,000.
“Class
B Note” has the meaning set forth in Section 2.01(b).
“Closing
Date” means November 7, 2007.
“Code”
means the Internal Revenue Code of 1986, as amended.
“Collateral
Agent” means the Class A Lender, in its capacity as collateral agent on
behalf of the Secured Parties.
“Collateral
Agent’s Fee” means, for any Fee Period, an amount, payable out of
Collections on the Pledged Receivables and amounts applied to the payment of,
or
treated as payments on, the Pledged Receivables, equal to the amount listed
in
the Fee Letter.
“Collateral
Receipt” has the meaning assigned to that term in the Custodial
Agreement.
“Collection
Account” means a special trust account (account number 119320000 at the
Lenders’ Bank) in the name of the Borrower and under the control of the Lender;
provided, that the funds deposited therein (including any interest and
earnings thereon) from time to time shall constitute the property and assets
of
the Borrower and the Borrower shall be solely liable for any taxes payable
with
respect to the Collection Account.
“Collection
Account Agreement” means that certain Collection Account Agreement, dated
the date of this Agreement, among the Borrower, the Servicer, the Lenders’ Bank
and the Lenders, as such agreement may from time to time be amended,
supplemented or otherwise modified in accordance with the terms
thereof.
“Collection
Date” means the date on which the aggregate outstanding principal amount of
the Loans have been repaid in full and all interest and Fees and all other
Obligations have been paid in full.
“Collection
Period” means, (i) with respect to any Remittance Date (including the
initial Remittance Date), the period beginning on, and including, the first
day
of the most recently ended calendar month and ending on, and including, the
last
day of the most recently ended calendar month; provided, that the final
Collection Period shall begin on, and include, the first day of the then current
calendar month and shall end on the Collection Date and (ii) in any context
other than with respect to any Remittance Date, a calendar month.
“Collections”
means, without duplication, with respect to any Pledged Receivable, all
Scheduled Payments related to such Receivable, all prepayments and related
penalty payments with respect to the Contract related to such Receivable, all
overdue payments and related interest and penalty payments with respect to
the
Contract related to such Receivable, all Guaranty Amounts, all Insurance
Proceeds, all Servicing Charges, all proceeds under “buyout letters” or other
prepayment/termination agreements and all Recoveries related to such Receivable,
all amounts paid to the Borrower related to such Receivable pursuant to the
terms of the Purchase and Sale Agreement, all amounts paid by the Servicer
related to such Receivable in connection with its obligations under
Section 6.20 hereof, and all other payments received with respect to
the Contract related to such Receivable, all cash receipts and proceeds in
respect of the Other Conveyed Property or Related Security (including, without
limitation, the Obligor Collateral) related to such Receivable, any Servicer
Advances related to such Receivable, and any amounts paid to the Borrower under
or in connection with any Qualifying Interest Rate Swap or the hedging
arrangements contemplated thereunder.
“Commitment
Percentage” has the meaning assigned to that term in
Section 9.04(b).
“Computer
Tape or Listing” means the computer tape or listing (whether in electronic
form or otherwise) generated by the Servicer on behalf of the Borrower, which
provides information relating to the Receivables included in the Eligible
Receivables Balance.
“Contract”
means a Lease Contract or a Loan Contract.
“Controlling
Holders” means, so long as any amounts payable hereunder to the holders of
the Class A Notes remain outstanding, the holders of a majority of the aggregate
outstanding principal amount of the Class A Notes, and thereafter, so long
as
any amounts payable hereunder to the holders of the Class B Notes remain
outstanding, the holders of the aggregate outstanding principal amount of the
Class B Notes.
“Credit
and Collection Policy” means (i) collectively, the “Operations Policies
& Procedures” memorandum and certain other items, as annexed hereto as
Schedule IV as such policy may hereafter be amended, modified or
supplemented from time to time in compliance with this Agreement and (ii) with
respect to any Servicer other than LEAF Financial, that Servicer’s collection
policies for similar assets in effect from time to time.
“Custodial
Agreement” means that certain Custodial Agreement dated as of the date
hereof among the Servicer, the Borrower, the Lenders and the
Custodian, together with all instruments, documents and agreements executed
in
connection therewith, as such Custodial Agreement may from time to time be
amended, restated, supplemented and/or otherwise modified in accordance with
the
terms thereof.
“Custodian”
means U.S. Bank National Association (or a sub-custodian on its behalf) or
any
substitute Custodian appointed by the Lenders pursuant to the Custodial
Agreement.
“Custodian’s
Fee” means, for any Fee Period, an amount, payable out of Collections on the
Pledged Receivables and amounts applied to the payment of, or treated as
payments on, the Pledged Receivables, equal to the aggregate fees listed in
that
certain “Schedule of Fees” letter dated October 23, 2007 between U.S. Bank
National Association and LEAF Financial Corporation which relate to such Fee
Period.
“Debt”
of any Person means (i) indebtedness of such Person for borrowed money,
(ii) obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments related to transactions that are classified as
financings under GAAP, (iii) obligations of such Person to pay the deferred
purchase price of property or services, (iv) obligations of such Person as
lessee under leases which shall have been or should be, in accordance with
GAAP,
recorded as capital leases, (v) obligations secured by an Adverse Claim
upon property or assets owned (under GAAP) by such Person, even though such
Person has not assumed or become liable for the payment of such obligations
and
(vi) obligations of such Person under direct or indirect guaranties in
respect of, and obligations (contingent or otherwise) to purchase or otherwise
acquire, or otherwise to assure a creditor, against loss in respect of,
indebtedness or obligations of others of the kinds referred to in
clauses (i) through (v) above.
“Defaulted
Receivable” means, as of any date of determination, any Pledged
Receivable:
(i) with
respect to which any part of any Scheduled Payment, or any tax-related payment,
owed by the applicable Obligor under the terms of the related Contract remains
unpaid for more than 120 days after the due date therefor set forth in such
Contract;
(ii) with
respect to which the first or second Scheduled Payment is not paid in full
when
due under the related Contract;
(iii) with
respect to which any payment or other material terms of the related Contract
have been modified due to credit related reasons after such Contract was
acquired by the Borrower pursuant to the Purchase and Sale
Agreement;
(iv) which
has been or should be charged off as a result of the occurrence of a Bankruptcy
Event with respect to the related Obligor, if any, or which has been or should
otherwise be deemed uncollectible by the Servicer, in each case, in accordance
with the Credit and Collection Policy; or
(v) with
respect to which the Servicer has repossessed the related
Equipment.
“Deficiency”
has the meaning assigned to that term in the Custodial Agreement.
“Delinquency
Rate” means, as of any date of determination, an amount (expressed as a
percentage) equal to (i) the aggregate Discounted Balances of all
Delinquent Receivables as of the last day of the immediately preceding
Collection Period divided by (ii) aggregate Discounted Balances of all
Pledged Receivables which are Eligible Receivables as of such day.
“Delinquent
Receivable” means, as of any date of determination, any Pledged Receivable
(other than a Defaulted Receivable) with respect to which any part of any
Scheduled Payment (or other amount payable under the terms of the related
Contract) remains unpaid for more than 60 days but not more than 120 days
after the due date therefor set forth in such Contract.
“Depository
Institution” means a depository institution or trust company, incorporated
under the laws of the United States or any State thereof, that is subject to
supervision and examination by federal and/or State banking
authorities.
“Discount
Rate” means, as of any date of determination, a percentage equal to the sum
of (i) 7.20% per annum, (ii) at any time prior to the occurrence of a Servicer
Default and the appointment of the Backup Servicer as Servicer hereunder, the
Servicing Fee Rate and the Standby Backup Servicing Fee Rate, (iii) at any
time after the occurrence of a Servicer Default and the appointment of the
Backup Servicer as Servicer hereunder, the Active Backup Servicing Fee Rate
and
(iv) a rate per annum equal to 0.05%.
“Discounted
Balance” means, with respect to any Contract, as of any date of
determination, the present value of the aggregate amount of Scheduled Payments
(including any Balloon Payment or Put Payment but, in any event, calculated
without giving effect to any booked residual value with respect to any related
Equipment) due or to become due under the terms of the related Contract after
the Cut-Off Date applicable to the Receivable related thereto, which remain
unpaid as of such date of determination, calculated by discounting such
aggregate amount of such Scheduled Payments to such date of determination at
an
annual rate equal to the Discount Rate.
“Dollar
Purchase Option Contract” means a Contract (i) in connection with which
an agreement was executed which grants the related Obligor a right to purchase
the Equipment leased under such Contract for $1.00 or other nominal
consideration at the end of the initial term of such Contract or
(ii) grants the related Obligor a right to purchase the Equipment leased
under such Contract for $1.00 or other nominal consideration at the end of
the
initial term of such Contract.
“Eligible
Depository Institution” means a Depository Institution the short term
unsecured senior indebtedness of which is rated at least Prime-1 by Moody’s, A-1
by S&P, and F1 by Fitch, if rated by Fitch.
“Eligible
Receivable” means, at any time, a Pledged Receivable with respect to which
each of the representations and warranties regarding the Contract related to
such Pledged Receivable contained in Schedule III hereto is true and
correct at such time.
“Eligible
Receivables Balance” means, at any time, the aggregate Discounted Balances
of all Eligible Receivables which are Pledged Receivables hereunder to secure
Loans at such time.
“Equipment”
means the equipment or Vehicle leased to an Obligor, or serving as collateral
for a loan to an Obligor, under a Contract together with any replacement parts,
additions and repairs thereof, and any accessories incorporated therein and/or
affixed thereto.
“Equipment
Category” means any of the Equipment Categories set forth on Schedule V
hereto, as such schedule may be updated from time to time by the Borrower with
the consent of the Lenders (which such consent shall not be unreasonably
withheld).
“Equity
Investment” means $10,210,637.42.
“ERISA”
means the United States Employee Retirement Income Security Act of 1974, as
amended from time to time.
“ERISA
Affiliate” means a corporation, trade or business that is, along with any
Person, a member of a controlled group of corporations or a controlled group
of
trades or businesses, as described in section 414 of the Internal Revenue Code
of 1986, as amended, or section 4001 of ERISA.
“Eurodollar
Disruption Event” means any of the following: (i) a
determination by any Lender that it would be contrary to law or to the directive
of any central bank or other governmental authority (whether or not having
the
force of law) to obtain United States dollars in the London interbank market
to
make, fund or maintain any Loan, (ii) a determination by any Lender that
the rate at which deposits of United States dollars are being offered in the
London interbank market does not accurately reflect the cost to such Lender
of
making, funding or maintaining any Loan or (iii) the inability of any
Lender to obtain United States dollars in the London interbank market to make,
fund or maintain any Loan.
“Eurodollar
Index” means an index based upon an interest rate reported on Reuters
LIBOR01 Page (British Bankers Association Settlement Rate) as the London
Interbank Offered Rate for United States dollar deposits.
“Event
of Default” has the meaning assigned to that term in
Section 7.01.
“Exception
Report” has the meaning set forth in the Custodial Agreement.
“Exception
Sublimit Receivable” means a Receivable arising under a Lease Contract
related to Equipment having an Amortized Equipment Cost of less than $100,000
as
to which the original, executed Lease Contract has not been forwarded to the
Custodian for inclusion in the related Receivable File.
“Excluded
Assets” means all Receivables and other assets acquired by the Originator
pursuant to the FDIC Purchase Agreement which are not Pledged
Assets.
“Exit
Fee” has the meaning set forth in the Fee Letter.
“Facility
Amount” means, at any time, the difference between the aggregate Loans
Outstanding hereunder minus $1,000,000 (the deferred, capitalized portion of
the
Class B Arrangement Fee (as defined in the Fee Letter) payable by the Borrower
to the Class B Lender).
“Facility
Deficiency” means, at any time, that either: (i) the Class A Facility Limit
is less than the aggregate outstanding principal balance of the Class A Notes,
or (ii) the Facility Limit is less than the Facility Amount; an amount equal
to
the amount of such deficiency, respectively.
“Facility
Limit” means, at any time, with respect to the Class A Notes and the Class B
Notes, collectively, the product of (x) 97.10%, (y) 98%, and (z) the Amortized
Equipment Cost with respect to all Pledged Receivables that are Eligible
Receivables.
“Facility
Limit Certificate” means a report, in substantially the form of
Exhibit A, prepared by the Borrower (or the initial Servicer on its
behalf) for the benefit of Lenders pursuant to
Section 6.10(c).
“Facility
Maturity Date” means November 1, 2008, unless extended by the Lenders in
their sole discretion, at the written request of the Borrower, by written notice
to the other parties hereto.
“FDIC
Documents” has the meaning specified in the Purchase and Sale
Agreement.
“FDIC
Purchase Agreement” means the Loan Sale Agreement between Federal Deposit
Insurance Corporation, as Receiver of Netbank and the Originator with respect
to
the Pledged Receivables and other assets.
“Fee
Letter” has the meaning assigned to that term in
Section 2.08(a).
“Fee
Period” means a period commencing on (and including) a Remittance Date and
ending on (and including) the day prior to the next Remittance Date;
provided, that, the initial Fee Period hereunder shall commence on (and
include) the date hereof and end on (and include) December 7, 2007.
“Fees”
has the meaning assigned to that term in
Section 2.08(a).
“Fitch”
means Fitch, Inc. (or its successors in interest).
“FMV
Contract” means a Contract which (i) in connection with which any
agreement was executed which grants the related Obligor a right to purchase
the
Equipment leased under such Contract for the fair market value thereof at the
end of the initial term of such Contract or (ii) grants the related Obligor
a right to purchase the Equipment leased under such Contract for the fair market
value thereof at the end of the initial term of such Contract.
“GAAP”
means generally accepted accounting principles as in effect from time to time
in
the United States.
“Government
Entity” means the United States, any State, any political subdivision of a
State and any agency or instrumentality of the United States or any State or
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to
government.
“Guaranty
Amounts” means any and all amounts paid by any guarantor with respect to the
applicable Contract.
“Included
Repurchased Receivable” means any Receivable repurchased by the Originator
pursuant to Section 6.1(b) of the Purchase and Sale Agreement with
respect to which, as of the date of repurchase, any part of any Scheduled
Payment (or other amount payable under the terms of the related Contract)
remained unpaid after the due date therefor set forth in such
Contract.
“Indemnified
Amounts” has the meaning assigned to that term in
Section 8.01.
“Independent
Accountants” has the meaning assigned to that term in
Section 6.11(b).
“Initial
Qualified Swap Counterparty” means Morgan Stanley Capital Services Inc., a
Delaware corporation, and its successors and permitted assigns.
“Insurance
Certificate” means the insurance certificate related to the Insurance Policy
with respect to such Receivable (which insurance certificate shall list the
Originator as a loss payee).
“Insurance
Policy” means, with respect to any Obligor Collateral, the insurance policy
maintained by or on behalf of the Obligor pursuant to the related Contract
that
covers physical damage to the related Equipment (in an amount sufficient to
insure completely the value of such Equipment) and general liability (including
policies procured by the Borrower or the Servicer, or any agent thereof, on
behalf of the Obligor).
“Insurance
Proceeds” means, with respect to an item of Obligor Collateral and a related
Contract, any amount paid under an Insurance Policy issued with respect to
such
Obligor Collateral and/or the related Contract.
“Interest
Period” means, for any outstanding Loans, a period determined pursuant to
Section 2.03(a).
“Interest
Rate” has the meaning assigned to such term in Section
2.03(b).
“LEAF
Financial” has the meaning assigned to that term in the preamble
hereto.
“Lease
Contract” means (i) the standard form equipment lease contract of NBBF in
the form delivered to the Servicer and the Lenders and which shall be deemed
incorporated herein as Exhibit D-1 attached hereto or (ii) a lease
agreement otherwise approved by the Servicer in compliance with the Credit
and
Collection Policy, pursuant to which Equipment is leased to an Obligor by NBBF
or Originator, together with all schedules, supplements and amendments thereto
and each other document and instrument related to such lease.
“Lease
File” has the meaning assigned to that term in clause (a) of the
definition of “Receivable File”.
“Lender”
means, any one of and “Lenders” means all of, the Class A Lender and the Class B
Lender, and each such Person’s successors and assigns.
“Lenders’
Bank” means U.S. Bank National Association and its successors and assigns
that are Eligible Depository Institutions.
“Lenders’
Bank Fee” means an annual fee paid in advance, payable out of Collections on
the Pledged Receivables and amounts applied to the payment of, or treated as
payments on, the Pledged Receivables, equal to $6,000. The “Lenders’
Bank Fee” shall also include (i) a one-time acceptance fee of $4,500 payable on
the Closing Date and (ii) reasonable out-of-pocket expenses incurred by the
Lenders’ Bank in the performance of its duties.
“Liquidation
Proceeds” means, with respect to a Receivable with respect to which the
related Obligor Collateral has been repossessed or foreclosed upon by the
Servicer, all amounts realized with respect to such Receivable net of
(i) reasonable expenses of the Servicer incurred in connection with the
collection, repossession, foreclosure and/or disposition of the related Obligor
Collateral and (ii) amounts that are required to be refunded to the Obligor
on such Receivable; provided, however, that the Liquidation
Proceeds with respect to any Receivable shall in no event be less than
zero.
“Loan”
means either of the Class A Loan or the Class B Loan and “Loans” means
the Class A Loan and the Class B Loan.
“Loan
Contract” means, (i) the standard form equipment loan/security contract of
NBBF delivered to the Servicer and the Lenders and which shall be deemed
incorporated herein as Exhibit D-2 and Exhibit D-3 or (ii) a
loan/security agreement and promissory note otherwise approved by the Servicer
in compliance with the Credit and Collection Policy, in each case, pursuant
to
which NBBF or the Originator makes a loan to an Obligor secured by Equipment
purchased by such Obligor, together with all schedules, supplements and
amendments thereto and each other document and instrument related
thereto.
“Loan
File” has the meaning assigned to that term in clause (b) of the
definition of “Receivable File”.
“Loans
Outstanding” means the sum of the principal amounts of all Loans, as reduced
from time to time by Collections with respect to any Pledged Receivable received
and distributed as repayment of principal amounts of Loans outstanding pursuant
to Section 2.04 and any other amounts received by the Lenders to
repay the principal amounts of Loans outstanding pursuant to
Section 2.15 or otherwise; provided, however, that the
principal amounts of Loans outstanding shall
not
be
reduced by any Collections with respect to any Pledged Receivable or other
amounts if at any time such Collections or other amounts are rescinded or must
be returned for any reason.
“Lockbox”
means a post office box to which Collections with respect to any Pledged
Receivable are remitted for retrieval by the Lockbox Bank and for deposit by
the
Lockbox Bank into the Lockbox Account.
“Lockbox
Account” means the deposit account (account number 153910088597 at the
Lockbox Bank) in the name of “U.S. Bank NA as Securities Intermediary for LEAF
Financial and various lenders”.
“Lockbox
Bank” means U.S. Bank National Association and its successors in
interest.
“Lockbox
Intercreditor Agreement” means the Amended and Restated Lockbox
Intercreditor Agreement, dated as of April 18, 2005, among the Lockbox Bank,
the
Servicer, the Borrower, and certain other parties.
“Material
Adverse Effect” means a material adverse effect on (i) the ability of
the Borrower, the Originator and/or the Servicer to conduct its business,
(ii) the ability of the Borrower, the Originator and/or the Servicer to
perform its respective obligations under this Agreement and/or any other
Transaction Document to which it is a party, (iii) the validity or
enforceability of this Agreement and/or any other Transaction Document to which
the Borrower, the Originator and/or the Servicer is a party, (iv) the
rights and remedies of any Lender under this Agreement and/or any of the
Transaction Documents and/or (v) the validity, enforceability or
collectibility of all or any portion of the Pledged Receivables.
“Maximum
Advance Amount” means, on the Borrowing Date, $367,092,933.23.
“Minimum
Equity Requirement” means $10,000,000.
“Minimum
Tangible Net Worth” means, with respect to Resource America, a Tangible Net
Worth (measured as of each fiscal quarter end) of not less than
$125,000,000.
“Monthly
Remittance Report” means a report, in substantially the form of
Exhibit C, furnished by the Servicer to the Lenders pursuant to
Section 6.10(b).
“Moody’s”
means Moody’s Investors Service, Inc. (or its successors in
interest).
“Morgan
Stanley” has the meaning assigned to that term in the preamble
hereto.
“NetBank”
means NetBank, FSB, Alpharetta, Georgia, a federally chartered savings
bank.
“NBBF”
means NetBank Business Finance, a division of NetBank. All references
to NBBF shall also mean NetBank or any other applicable division
thereof.
“Nominee
Lienholder Agreement” means either (i) a “Vehicle Lienholder Nominee
Agreement” in the form attached hereto as Exhibit E (with such modifications as
the Collateral Agent may approve) or (ii) any other nominee lienholder agreement
or collateral agency agreement approved in writing by the Collateral
Agent.
“Non-Level
Payment Contract” means a Contract that does not provide for level Scheduled
Payments during the term of such Contract.
“Notes”
has the meaning assigned to that term in Section 2.01(b)
hereof.
“Notice
of Borrowing” has the meaning assigned to that term in
Section 2.02(b) hereof.
“Notice
of Pledge” has the meaning assigned to that term in the Custodial
Agreement.
“Obligations”
means all present and future indebtedness and other liabilities and obligations
(howsoever created, arising or evidenced, whether direct or indirect, absolute
or contingent, or due or to become due) of the Borrower to the Secured Parties
arising under this Agreement, the Notes and/or any other Transaction Document
and shall include, without limitation, all liability for principal of and
interest on the Loans, indemnifications and other amounts due or to become
due
by the Borrower to the Secured Parties under this Agreement and/or any other
Transaction Document, including, without limitation, interest, fees and other
obligations that accrue after the commencement of an insolvency proceeding
(in
each case whether or not allowed as a claim in such insolvency
proceeding).
“Obligor”
means, collectively, each Person obligated to make payments under a
Contract.
“Obligor
Collateral” means (i) the Equipment leased to an Obligor under a Lease
Contract, (ii) the Equipment and other property pledged by an Obligor to
secure its obligations under a Loan Contract and (iii) any other property
pledged by an Obligor to secure its obligations under a Loan
Contract.
“Obligor
Financing Statement” means a UCC financing statement filed by Originator or
the Underlying Originator against an Obligor under a Contract which evidences
a
security interest in the related Obligor Collateral.
“Officer’s
Certificate” means a certificate signed by the president, the secretary, the
chief financial officer or any vice president of any Person.
“Opinion
of Counsel” means a written opinion of independent counsel acceptable to the
Lenders, which opinion, if such opinion or a copy thereof is required by the
provisions of this Agreement or any other Transaction Document to be delivered
to the Borrower or the Lenders, is acceptable in form and substance to the
Lenders.
“Originator”
means LEAF Funding, LLC, a Delaware limited liability company and/or the
Partnership.
“Originator
Insurance Agreement” means that certain letter agreement regarding the
Originator’s obligations as named loss payee under Insurance Policies, dated as
of the date hereof, among the Originator, the Servicer, the Borrower and the
Lenders, as such agreement may from time to time be amended, restated,
supplemented and/or otherwise modified in accordance with the terms
thereof.
“Other
Conveyed Property” means, with respect to any Receivable, all of the
Borrower’s right, title and interest in, to and under (i) all Collections
and other monies at any time received orreceivable
with respect to such Receivable after the applicable Cut-Off Date (as defined
in
the Purchase and Sale Agreement), (ii) the Equipment related to such
Receivable (to the extent of the Borrower’s ownership rights, if any, therein),
(iii) in the case of a Receivable related to any Contract, any and all
agreements, documents, certificates and instruments evidencing the Borrower’s
security interest or other interest in and to the related Obligor Collateral
or
any intercreditor agreement with respect thereto, including, without limitation,
any Certificate of Title, (iv) the Obligor Collateral related to such
Receivable including, without limitation, the security interest in such Obligor
Collateral granted by the related Obligor to Originator under the related
Contract and assigned by Originator to the Borrower under the Purchase and
Sale
Agreement, (v) the Obligor Financing Statement, if any, related to such
Receivable, (vi) the Insurance Policy and any proceeds from the Insurance
Policy relating to such Receivable, including rebates of premiums not otherwise
due to an Obligor, (vii) the related Contract and all other items required
to be contained in the related Receivable File, any and all other documents
or
electronic records that the Borrower keeps on file in accordance with its
customary procedures relating to such Receivable, the related Obligor Collateral
or the related Obligor, (viii) all property (including the right to receive
future Liquidation Proceeds) that secures such Receivable and that has been
acquired by or on behalf of the Borrower pursuant to the liquidation of such
Receivable, and (ix) all present and future rights, claims, demands, causes
and chooses in action in respect of any or all of the foregoing and all payments
on or under and all proceeds and investments of any kind and nature in respect
of any of the foregoing.
“Other
Swap Breakage Cost” has the meaning assigned to that term in Section
2.15 hereof.
“Overdue
Payment” means, with respect to a Collection Period, all payments due in a
prior Collection Period that the Servicer receives from or on behalf of an
Obligor during such Collection Period, including any Servicing
Charges.
“Owner”
means (i) the Originator or (ii) subject to the prior written consent of the
Lenders (such consent not to be unreasonably withheld), the Partnership or
any
subsidiary thereof or of the initial Servicer (each, a “Permitted Transferee”)
which acquires all of the membership interests of the Borrower.
“Partnership”
means, LEAF Equipment Leasing Income Fund III, L.P., a Delaware limited
partnership.
“Permitted
Investments” means any one or more of the following:
(i) direct
obligations of, or obligations fully guaranteed as to principal and interest
by,
the United States or any agency or instrumentality thereof, provided such
obligations are backed by the full faith and credit of the United
States;
(ii) repurchase
obligations (the collateral for which is held by a third party or the Collateral
Agent), with respect to any security described in clause (i) above,
provided that the long-term unsecured obligations of the party agreeing to
repurchase such obligations are at the time rated by Moody’s and S&P in one
of their two highest long-term rating categories and if rated by Fitch, in
one
of its two highest long-term rating categories;
(iii) certificates
of deposit, time deposits, demand deposits and bankers’ acceptances of any bank
or trust company incorporated under the laws of the United States
or
any
State thereof or the District of Columbia, provided that the short-term
commercial paper of such bank or trust company (or, in the case of the principal
depository institution in a depository institution holding company, the
long-term unsecured debt obligations of the depository institution holding
company) at the date of acquisition thereof has been rated by Moody’s and
S&P in their highest short-term rating category, and if rated by Fitch, in
its highest short-term rating category;
(iv) commercial
paper (having original maturities of not more than 270 days) of any
corporation incorporated under the laws of the United States or any State
thereof or the District of Columbia, having a rating, on the date of acquisition
thereof, of no less than A-1 by Moody’s, P-1 by S&P and F-1 if rated by
Fitch;
(v) money
market mutual funds, including funds managed by the Lenders’ Bank or its
Affiliates, registered under the Investment Company Act of 1940, as amended,
having a rating, at the time of such investment, of no less than Aaa by Moody’s,
AAA by S&P and AAA if rated by Fitch; and
(vi) any
other investments approved in writing by the Lenders.
provided,
that no such instrument shall be a Permitted Investment if such instrument
evidences the right to receive either (a) interest only payments with
respect to the obligations underlying such instrument or (b) both principal
and interest payments derived from obligations underlying such instrument,
where
the principal and interest payments with respect to such instrument provide
a
yield to maturity exceeding 120% of the yield to maturity at par of such
underlying obligation. Each Permitted Investment may be purchased by
the Lenders’ Bank or through an Affiliate of the Lenders’ Bank.
“Permitted
Liens” means with respect to Obligor Collateral, (A) liens and security
interests in favor of the Collateral Agent, granted pursuant to the Transaction
Documents, (B) the interests of an Obligor arising under the Contract to
which it is a party in the Obligor Collateral related to such Contract,
(C) liens for taxes, assessments, levies, fees and other governmental and
similar charges either not yet due or being contested in good faith and by
appropriate proceedings, provided, that appropriate reserves shall have been
established with respect to any such taxes either not yet due or being contested
in good faith and by appropriate proceedings, (D) any liens with respect to
any mechanics, suppliers, materialmen, laborers, employees, repairmen and other
like liens arising in the ordinary course of a servicer’s, lessor’s/lender’s or
lessee’s/borrower’s business securing obligations which are not due and payable,
and (E) salvage rights of insurers with respect to the equipment subject to
a Contract under insurance policies maintained pursuant to the Transaction
Documents or a Contract.
“Permitted
Transferee” has the meaning given to such term in the definition of “Owner”
herein.
“Person”
means an individual, partnership, corporation (including a business trust),
limited liability company, joint stock company, trust, unincorporated
association, joint venture, government (or any agency or political subdivision
thereof) or other entity.
“Pledge”
means the pledge of any Receivable pursuant to
Article II.
“Pledged
Assets” has the meaning assigned to that term in
Section 2.11.
“Pledged
Receivables” has the meaning assigned to that term in
Section 2.11(a).
“Prepayment
Amount” means the principal amount of Loans repaid by the Borrower in
connection with an optional prepayment of Loans made by the Borrower pursuant
to
Section 2.15 hereof.
“Prepayment
Date” means any date on which an optional prepayment of Loans is made by the
Borrower pursuant to Section 2.15 hereof.
“Priority
Documents” means, (i) with respect to a Lease Contract, the related
original, executed Lease Contract (or, in the case of a Lease Contract under
a
master lease, a machine or facsimile copy of the related master lease certified
by an authorized officer of the Borrower and stamped “I hereby certify that this
is a true and exact copy of the original” and an original, executed schedule
thereto describing the related Equipment) and the item listed in clause (4)
of
subsection (a)(i) of the definition of Receivable File, and (ii) with respect
to
a Loan Contract, the items listed in clauses (1), (2) and (4) of subsection
(b)(i) of the definition of Receivable File. The term “Priority
Documents” shall also include a machine copy of the existing Certificate of
Title with respect to any Vehicle subject to a Contract.
“Program
Termination Date” means the earliest of (i) the date of occurrence of
any event described in Section 7.01(a) hereof, (ii) the date of
the declaration of the Program Termination Date pursuant to any other subsection
of Section 7.01 or (iii) the date of the declaration of the
Program Termination Date by, and at the option of, the Lenders upon the
occurrence of a Program Termination Event.
“Program
Termination Event” means the occurrence of any of the following
events:
(i) a
regulatory, tax or accounting body has ordered that the activities of any Lender
or any Affiliate thereof contemplated hereby be terminated or, as a result
of
any other event or circumstance, the activities of any Lender or any Affiliate
contemplated hereby may reasonably be expected to cause such Lender or the
Person, if any, then acting as the administrator or the manager for such Lender
or any of its Affiliates to suffer materially adverse regulatory, accounting
or
tax consequences;
(ii) an
Event of Default has occurred and is continuing;
(iii) Reserved;
(iv) the
Annualized Default Rate exceeds 3.5%;
(v) the
rolling weighted average of the Delinquency Rates in respect of any three
consecutive Collection Periods exceeds 4.0%;
(vi) the
Annualized Net Loss Rate exceeds 3.5%;
(vii) Reserved;
(viii) Reserved;
(ix) Reserved;
(x) a
Servicer Default has occurred and is continuing; or
(xi)
(1) any Qualifying Swap Counterparty ceases to maintain the long-term debt
ratings required of a Qualifying Swap Counterparty and (A) does not post
cash collateral in a manner acceptable to the Lenders within 45 days and
(B) is not replaced within 45 days by a replacement acceptable to the
Lenders or (2) the Borrower fails to comply with any term, covenant or
agreement hereunder related to the maintenance of any Qualifying Interest Rate
Swaps; or
(xii) the
occurrence of three or more Termination Events.
“Purchase
and Sale Agreement” means that certain Purchase and Sale Agreement, dated as
of the date hereof, between the Originator, as seller, and the Borrower, as
purchaser, together with all instruments, documents and agreements executed
in
connection therewith, as such Purchase and Sale Agreement may from time to
time
be amended, supplemented or otherwise modified in accordance with the terms
hereof.
“Purchase
Date” has the meaning set forth in the Purchase and Sale
Agreement.
“Purchase
Price” means $385,772,014.15.
“Put
Payment” means with respect to any Contract constituting a lease, the
payment, if any, required to be made by the Obligor under the terms of such
lease in connection with the required purchase by such Obligor of the related
Equipment at the end of the term of such lease.
“Qualifying
Interest Rate Swap” means (X) an interest rate swap agreement
(i) between the Borrower and a Qualifying Swap Counterparty,
(ii) under which the Borrower shall receive a floating rate of interest
based on a Eurodollar Index acceptable to the Lenders in exchange for the
payment by the Borrower of a fixed rate of interest equal to the applicable
Swapped Rate, (iii) the effective date of which is the Borrowing Date,
(iv) having a varying notional balance which is, as of the effective date
thereof, in an amount equal to the aggregate principal amount of the Loans
advanced on such effective date and (v) which shall otherwise be on such
terms and conditions and pursuant to such documentation as shall be acceptable
to the Lenders or (Y) an alternative interest rate hedging agreement agreed
to in writing by the Borrower and the Lenders.
“Qualifying
Swap Counterparty” means Morgan Stanley Capital Services Inc. (or any
successors or permitted assigns), any Lender or any Affiliate of a
Lender.
“Rating
Agencies” means Moody’s, S&P and Fitch, or any other nationally
recognized statistical rating organizations as may be designated by the
Lenders.
“Receivable”
means the rights to all payments from an Obligor under a Contract, including,
without limitation, any right to the payment with respect to (i) Scheduled
Payments, (ii) any prepayments or overdue payments made with respect to
such Scheduled Payments, (iii) any
Guaranty
Amounts, (iv) any Insurance Proceeds, (v) any Servicing Charges and
(vi) any Recoveries.
“Receivable
File” means with respect to each Receivable:
(a) if
such Receivable is related to a Lease Contract the following items
(collectively, a “Lease File”):
(i) (1) the
related original, executed Lease Contract (or, in the case of a Lease Contract
under a master lease, a machine or facsimile copy of the related master lease
certified by an authorized officer of the Borrower and stamped “I hereby certify
that this is a true and exact copy of the original” and an original, executed
schedule thereto describing the related Equipment) unless such Lease Contract
is
related to an Exception Sublimit Receivable, in which event the executed Lease
Contract (or, in the case of Lease Contracts under a master lease, the related
schedule) may be a machine or facsimile copy certified in the manner described
above, (2) a true, executed copy of the related delivery/installation
certificate or acknowledgment and acceptance of delivery certificate if such
Receivable is related to Equipment with an Amortized Equipment Cost in excess
of
$50,000, (3) a true copy of the Insurance Certificate if such
Receivable is related to Equipment with an Amortized Equipment Cost in excess
of
$100,000, (4) other than with respect to a Lease Contract related to
Equipment which has an Amortized Equipment Cost of less than $25,000 if such
Lease Contract is a Dollar Purchase Option Contract or $50,000 if such Lease
Contract is a FMV Contract, a “transmittal order” from the Servicer to a filing
service company and an “in process report” from such filing service company to
the Servicer (or other evidence of the submission of the related UCC financing
statement for filing in the appropriate filing office) and, within 45 days
of the related Contract being executed, a file-stamped copy of the related
UCC
financing statement and (5) vendor order(s) or invoice(s); and
(ii) copies
of any additional documents, other than servicing related documents, that the
Borrower keeps on file with respect to such Receivable;
(b) if
such Receivable is related to a Loan Contract the following items (collectively,
a “Loan File”):
(i) (1) the
original, executed payment schedule or promissory note (if any), (2) a
true, executed copy of the related “Master Agreement” or “Finance Agreement”,
(3) a true copy of the related Insurance Certificate if such Receivable is
related to Equipment with an Amortized Equipment Cost in excess of $100,000
and
(4) other than with respect to a Receivable related to Equipment which has
an Amortized Equipment Cost of less than $25,000, a “transmittal order” from the
Servicer to a filing service company and an “in process report” from such filing
service company to the Servicer (or other evidence of the submission of the
related UCC financing statement for filing in the appropriate filing office)
and, within 45 days of the related Contract being executed, a file-stamped
copy of the related UCC financing statement; and
(ii) copies
of any additional documents, other than servicing related documents, that the
Borrower keeps on file with respect to such Receivable;
In
addition, if the Obligor Collateral related to such Receivable is a Vehicle,
the
related Receivable File shall include the original copy of the Certificate
of
Title with respect to such Vehicle, which such Certificate of Title satisfies
the Titling Requirements or (prior to the 90th day after such Receivable
was first included in the calculation of the Eligible Receivables Balance,
if
such Certificate of Title has not yet been received by the Servicer or the
Borrower) a copy of the application for such Certificate of Title.
“Receivables
Schedule” has the meaning assigned to that term in the Custodial
Agreement.
“Records”
means all documents, books, records and other information (including, without
limitation, tapes, disks, punch cards and related property and rights)
maintained with respect to Receivables and the related Obligors which the
Borrower has itself generated, in which the Borrower has acquired an interest
pursuant to the Purchase and Sale Agreement or in which the Borrower has
otherwise obtained an interest.
“Recoveries”
means, for any Collection Period during which, or any Collection Period after
the date on which, any Receivable becomes a Defaulted Receivable and with
respect to such Defaulted Receivable, all payments that the Servicer received
from or on behalf of the related Obligor during such Collection Period in
respect of such Defaulted Receivable or from the repossession, liquidation
or
re-leasing of the related Obligor Collateral, including but not limited to
Scheduled Payments, Overdue Payments, Guaranty Amounts and Insurance
Proceeds.
“Registrar
of Titles” means with respect to any State, the governmental agency or body
responsible for the registration of, and the issuance of certificates of title
relating to, motor vehicles and liens thereon.
“Related
Security” means with respect to any Receivable:
(i) any
and all security interests or liens and property subject thereto from time
to
time securing or purporting to secure payment of such Receivable;
(ii) all
guarantees, indemnities, warranties, letters of credit, insurance policies
and
proceeds and premium refunds thereof and other agreements or arrangements of
whatever character from time to time supporting or securing payment of such
Receivable; and
(iii) all
proceeds of the foregoing.
“Release
Price” means, with respect to a Pledged Receivable to be released hereunder,
an amount equal to the present value of the then remaining Scheduled Payments
under such Pledged Receivables (including any Balloon Payment or Put Payment)
discounted monthly at the discount rate used in calculating the Amortized
Equipment Cost, plus interest accrued thereon from and including the
Remittance Date immediately preceding the date such Pledged Receivable is to
be
released through (but not including) the next succeeding Remittance
Date.
“Remittance
Date” means the (7th) day
of each month
beginning December, 2007, or, if such date is not a Business Day, the next
succeeding Business Day; provided, that the final Remittance Date shall occur
on
the Collection Date.
“Reuters
LIBOR01 Page” means the display page so designated on the Reuters Monitor
Money Rates Service or any other page that may replace that page on that service
for the purpose of displaying comparable rates or prices.
“Resource
America” means Resource America, Inc., a Delaware corporation.
“Rollover
Interest Period” means any Interest Period other than any Interest Period
applicable to the Loan arising as a result of the Borrowing on the Borrowing
Date.
“S&P”
means Standard & Poor’s Ratings Group, a division of The McGraw-Hill
Companies, Inc. (or its successors in interest).
“Scheduled
Payments” means, with respect to any Receivable, the periodic payments
payable under the terms of the related Contract (but not including any such
periodic payment to the extent paid in advance by the related
Obligor).
“Secured
Parties” means the Class A Lender, the Class B Lender, the Servicer, the
Backup Servicer, the Custodian, the Lenders’ Bank, each Qualified Swap
Counterparty and their respective successors and assigns.
“Servicer”
means, at any time, LEAF Financial or any other Person then authorized, pursuant
to Section 6.01, to service, administer and collect Pledged
Receivables.
“Servicer
Advance” has the meaning assigned to such term in
Section 6.19.
“Servicer
Default” means the occurrence of any of the following events:
(i) the
failure of the Servicer to deliver any payments, collections or proceeds which
it is obligated to deliver under the terms hereof or of any other Transaction
Document at the times it is obligated to make such deliveries under the terms
hereof or of any other Transaction Document, and such failure remains unremedied
for two Business Days;
(ii) the
failure of the Servicer to satisfy any of its reporting, certification,
notification or documentation requirements under the terms hereof or of any
other Transaction Document or the failure of the Servicer to observe or perform
any material term, covenant or agreement hereunder or under any other
Transaction Document (other than those described in clause (i) above) and
such failure shall remain unremedied for 10 days after the Servicer first
has knowledge, whether constructive or actual, of such failure;
(iii) any
representation, warranty or statement of the Servicer made herein or in any
other Transaction Document shall prove to be incorrect in any material respect,
and, solely if such incorrect representation, warranty or statement can be
remedied, such representation, warranty or statement is not made true within
15 days;
(iv) the
occurrence of an Event of Default;
(v) the
occurrence of a Program Termination Event described in clauses (iv), (v),
(vi) or (xii) of the definition of Program Termination Events; or
(vi) the
occurrence of any Bankruptcy Event in respect of the Servicer.
“Servicer
Pension Plan” means a “pension plan” as such term is defined in section 3(2)
of ERISA, which is subject to Title IV of ERISA and to which the Servicer or
any
ERISA Affiliate of Servicer may have any liability, including any liability
by
reason of having been a substantial employer within the meaning of section
4063
of ERISA at any time during the preceding five years, or by reason of being
deemed to be a contributing sponsor under section 4069 of ERISA.
“Servicing
Charges” means the sum of (a) all late payment charges paid by Obligors
under Contracts after payment in full of any Scheduled Payments due in a prior
Collection Period and Scheduled Payments for the related Collection Period
and
(b) any other incidental charges or fees received from an Obligor,
including, but not limited to, late fees, collection fees, taxes and charges
for
insufficient funds.
“Servicing
Fee” means, for any Fee Period, an amount, payable out of Collections on the
Pledged Receivables and amounts applied to the payment of, or treated as
payments on, the Pledged Receivables, equal to (i) the Servicing Fee Rate
multiplied by (ii) the Eligible Receivables Balance as of the first day of
such Fee Period multiplied by (iii) a fraction, the numerator of which shall
be
the actual number of days in such Fee Period and the denominator of which shall
be 360. Upon assuming the duties of the Servicer hereunder, the
Backup Servicer shall also be entitled to receive a one-time acceptance fee
of
$60,000, which shall be considered part of the “Servicing Fee” hereunder but
shall be in addition to the amount set forth in the sentence above.
“Servicing
Fee Rate” means 1.00%.
“Standby
Backup Servicer’s Fee” means, for any Fee Period or portion thereof prior to
the occurrence of a Servicer Default and the appointment of the Backup Servicer
as Servicer hereunder, an amount, payable out of Collections on the Pledged
Receivables and amounts applied to the payment of, or treated as payments on,
the Pledged Receivables, equal to the greater of (i) the Standby Backup
Servicing Fee Rate, multiplied by the Eligible Receivables Balance as of the
first day of such Fee Period, multiplied by a fraction, the numerator of which
shall be the actual number of days in such Fee Period and the denominator of
which shall be 360, or (ii) $2,000. The “Standby Backup Servicer’s
Fee” shall also include (i) a one-time acceptance fee of $5,000 payable on the
Closing Date and (ii) reasonable out-of-pocket expenses incurred by the Standby
Backup Servicer in the performance of its duties.
“Standby
Backup Servicing Fee Rate” means .0150%.
“State”
means one of the fifty states of the United States or the District of
Columbia.
“Swapped
Rate” means, with respect to any Qualifying Interest Rate Swap, the annual
rate of interest (expressed as a percentage) which the Borrower, as the
fixed-rate payor, is required to pay under such Qualifying Interest Rate Swap
in
order to receive the floating rate of interest provided for under such
Qualifying Interest Rate Swap.
“Tangible
Net Worth” means, with respect to any Person, the amount calculated in
accordance with GAAP as (i) the consolidated net worth of such Person and
its consolidated subsidiaries, plus (ii) to the extent not otherwise
included in such consolidated net worth, unsecured subordinated Debt of such
Person and its consolidated subsidiaries, the terms and conditions of
which
are
reasonably satisfactory to the Lenders, minus (iii) the consolidated
intangibles of such Person and its consolidated subsidiaries, including, without
limitation, goodwill, trademarks, tradenames, copyrights, patents, patent
allocations, licenses and rights in any of the foregoing and other items treated
as intangibles in accordance with GAAP.
“Termination
Event” means the occurrence, on or after 60 days after the Borrowing Date,
of any of the following events:
(i) the
rolling weighted average of the Delinquency Rates in respect of any three
consecutive Collection Periods, calculated by the Lenders solely with respect
to
Receivables, exceeds 3.5%;
(ii) the
Annualized Default Rate, calculated by (or in a manner satisfactory to) the
Lenders solely with respect to Receivables, exceeds 4.0%; or
(iii) the
Annualized Net Loss Rate exceeds 3.5%.
“Titling
Requirements” means, (i) in the case of any Vehicle leased or sold to an
Obligor pursuant to a Contract, the Certificate of Title for such Vehicle
indicates the Obligor, as owner, and the Borrower or an Approved Lienholder,
as
lienholder, or (ii) in the event that any Vehicle leased or sold to an Obligor
pursuant to a Contract indicates NBBF, as owner, on the related Certificate
of
Title, then within 90 days after the Closing Date the Certificate of Title
for
such Vehicle shall indicate the Borrower, as owner, and an Approved Lienholder,
as lienholder.
“Transaction
Documents” means this Agreement, the Purchase and Sale Agreement, the
Lockbox Intercreditor Agreement, the Collection Account Agreement, the Fee
Letter, the Custodial Agreement, the Originator Insurance Agreement, the FDIC
Documents, the Class A Notes, the Class B Notes, each lease bailment agreement
with a sub-custodian, each Qualifying Interest Rate Swap and each document
and
instrument related to any of the foregoing.
“Transition
Costs” means any documented expenses and allocated cost of personnel
reasonably incurred by the Backup Servicer in connection with a transfer of
servicing from the Servicer to the Backup Servicer as the successor Servicer;
provided, that such expenses and allocated costs do not exceed
$60,000.
“UCC”
means the Uniform Commercial Code as from time to time in effect in the
specified jurisdiction.
“Underlying
Originator” means Netbank or other originator of a Contract, other than the
Originator, engaged, in the ordinary course of business in providing financing
to Obligors for the purposes of acquiring or leasing the related
Equipment.
“Underlying
Originator Credit and Collection Policy” means the credit and collection
policy of an Underlying Originator, as such policy may hereafter be amended,
modified or supplemented from time to time in compliance with this
Agreement.
“United
States” means the United States of America.
“Unmatured
Event of Default” means any event that, if it continues uncured, will, with
lapse of time or notice or lapse of time and notice, constitute an Event of
Default.
“Vehicle”
means a new or a used automobile, minivan, sports utility vehicle, light duty
truck or heavy duty truck, or any other equipment, ownership of which is subject
to a motor vehicle certificate of title statute.
“Warehouse
Facility” means the facility in the aggregate amount of up to $250,000,000,
as evidenced by the Receivables Loan and Security Agreement, dated as of October
31, 2006, among Resource Capital Funding II, LLC as borrower, LEAF Financial,
Morgan Stanley Bank, as lender and U.S. Bank National Association, as same
may
be modified, amended, or supplemented from time to time.
“Weighted
Average Swapped Rate” means, as of any date of determination, the weighted
average (weighted solely based on the Calculated Swap Amortizing Balances of
such Qualifying Interest Rate Swaps as of such date of determination) of the
Swapped Rates of the Qualifying Interest Rate Swaps in effect on such date
of
determination.
SECTION
1.02 Other
Terms. All accounting terms not specifically defined herein shall
be construed in accordance with GAAP. All terms used in Article 9 of
the UCC in the State of New York, and not specifically defined herein, are
used
herein as defined in such Article 9.
SECTION
1.03 Computation
of Time Periods. Unless otherwise stated in this Agreement, in
the computation of a period of time from a specified date to a later specified
date, the word “from” means “from and including” and the words “to” and “until”
each mean “to but excluding.”
ARTICLE
II
THE
RECEIVABLES FACILITY
SECTION
2.01 Borrowings. b) On
the Borrowing Date, subject to the terms and conditions hereinafter set forth,
the Class A Lender and the Class B Lender shall make the term loan in principal
amounts equal to (i) in the case of the Class A Lender, the Class A Advance
Amount (the “Class A Loan” and a “Loan”), and (ii) in the case of
the Class B Lender, the Class B Advance Amount, respectively, to the Borrower
secured by Pledged Assets. On the Borrowing Date, no Loan shall be made if
(i)
the Aggregate Advance Amount shall exceed the Maximum Advance Amount, (ii)
any
Program Termination Event or an event that but for notice or lapse of time
or
both would constitute a Program Termination Event shall have occurred and be
continuing or (iii) the Facility Amount, after giving effect to such
Borrowing, would exceed the Borrowing Limit.
(b) The
Class A Loan shall be evidenced by a promissory note substantially in the form
of Exhibit H-1 (a “Class A Note” and collectively the “Class A
Notes”) and the Class B Loan shall be evidenced by a promissory note
substantially in the form of Exhibit H-2 (a “Class B Note” and
collectively the “Class B Notes” and, together with the Class A Notes,
collectively, the “Notes”).
SECTION
2.02 The
Borrowing.
(a) [Reserved]
(b) i) The
Borrowing shall be made on at least two (2) Business Days’ irrevocable written
notice from the Borrower to the applicable Lender (such written notice, the
“Notice of Borrowing”), provided that such Notice of Borrowing is
received by such Lender no later than 12:00 noon (New York City time) on the
Business Day of receipt. Any Notice of Borrowing received after 12:00
noon (New York City time) shall be deemed received prior to 12:00 noon (New
York
City time) on the following Business Day. The Notice of Borrowing
shall specify (A) the aggregate amount of the Borrowing, (B) the date
of the Borrowing, (C) the allocation of the Loans as Class A Loans and Class
B
Loans and (D) in an electronic file acceptable to the Lenders, the Eligible
Receivables to be Pledged in connection with the Borrowing (and upon the
Borrowing, such Receivables shall be Pledged Receivables
hereunder). On the date of the Borrowing, upon satisfaction of the
applicable conditions set forth in Article III the Class A Lender and the
Class B Lender shall make available to the Borrower the portion of the Borrowing
constituting the Class A Advance Amount and the Class B Advance Amount,
respectively, on the Borrowing Date, no later than 2:00 P.M. (New York City
time), in same day funds (net of amounts payable to or for the benefit of each
related Lender), by payment into the account which the Borrower has designated
in writing.
(ii) The
Notice of Borrowing delivered to a Lender pursuant to this
Section 2.02(b) shall be in an electronic file format acceptable to
such Lender (A) accompanied by a copy of the Notice of Pledge (and the
Receivables Schedule attached thereto), which was sent to the Custodian pursuant
to the terms of the Custodial Agreement in connection with the pledge of
Eligible Receivables to be made in connection therewith and (B) specifying
for
each Receivables pledged therein the information set forth on Exhibit B
hereto.
(iii) The
Class A Loan shall bear interest at the Class A Interest Rate and the Class
B
Loan shall bear interest at the Class B Interest Rate.
(iv) The
Borrower may not reborrow any amounts that are repaid with respect to the
Loans.
(v) Determinations
by any Lender of the existence of any Eurodollar Disruption Event (any such
determination to be communicated to the Borrower and the other Lender by written
notice from such Lender promptly after such Lender learns of such event), or
of
the effect of any Eurodollar Disruption Event on its making or maintaining
Loans
at the Adjusted Eurodollar Rate or the Base Rate, shall be conclusive absent
manifest error.
SECTION
2.03 Determination
of Interest Periods and Interest Rates.
(a) The
initial Interest Period applicable to the Borrowing shall commence on, and
include, the date of the Borrowing and shall terminate on, and include, the
day
immediately prior to the next occurring Remittance Date or such earlier date
as
the Lenders may determine (an “Early Interest Period Termination
Date”). All outstanding Loans allocated to one or more initial
Interest Periods or Rollover
Interest
Periods maturing on the same date shall be combined and allocated to a single
Rollover Interest Period at the end of such initial Interest Periods or Rollover
Interest Periods. Each Rollover Interest Period shall commence on,
and include, the Remittance Date following the last day of the immediately
preceding Interest Period (or, if applicable, on an Early Interest
Period Termination Date) and shall terminate on, and include, the day
immediately prior to the next occurring Remittance Date.
(b) The
interest rate per annum (the “Interest Rate”) applicable to any Loan for
any Interest Period shall be equal to the applicable Class A Interest Rate
(for
the Class A Notes) or the applicable Class B Interest Rate (for the Class B
Notes); provided, however, that if a Lender shall have notified
the Borrower that a Eurodollar Disruption Event has occurred, the Interest
Rate
for all Loans shall be equal to the Base Rate until such Eurodollar Disruption
Event has ceased, at which time the Interest Rate shall again be equal to the
applicable Class A Interest Rate and applicable Class B Interest
Rate.
SECTION
2.04 Remittance
Procedures. The Servicer, as agent for the Lenders, shall
instruct the Lenders’ Bank and, if the Servicer fails to do so, the Collateral
Agent shall instruct the Lenders’ Bank, to apply funds on deposit in the
Collection Account as described in this Section 2.04.
(a) Interest
and Breakage Fees. On each Business Day (including any Remittance
Date), the Servicer shall, and, if the Servicer fails to do so, the Lenders
may
direct the Lenders’ Bank to, retain in the Collection Account for transfer at
the further direction of the Lenders or any duly authorized agent of the Lenders
(whether on such day or on a subsequent day) collected funds in an amount equal
to accrued and unpaid interest through such day on the Loans not so previously
retained and the amount of any accrued and unpaid Breakage Fees owed to each
Lender on such day. On or before the last day of each Interest
Period, the Lenders shall notify the Servicer of the accrued and unpaid interest
for such Interest Period and the Servicer shall, on the last day of each
Interest Period, direct the Lenders’ Bank to pay collected funds set aside in
respect of accrued and unpaid interest pursuant to this
Section 2.04(a) to each Lender (or the designee of such Lender) in
respect of payment of such accrued and unpaid interest for such Interest
Period. On any Business Day on which an amount is set aside in
respect of Breakage Fees pursuant to this Section 2.04(a), the
Servicer shall direct the Lenders’ Bank to pay such funds to the Lenders in
payment of such Breakage Fees.
(b) Interest
Period Loan Principal Repayment. The Servicer shall, and if the
Servicer fails to do so the Lenders may, by 10:00 a.m. (St. Paul, Minnesota
time) on the last day of each Interest Period that is not a Remittance Date,
direct the Lenders’ Bank to transfer collected funds held by the Lenders’ Bank
in the Collection Account on such date, to pay the Lenders in payment (or
partial payment) of the outstanding principal amount of all Loans allocated
to
such Interest Period, in an amount equal to the least of (i) the amount of
such collected funds held in the Collection Account other than funds set aside
pursuant to Section 2.04(a), (ii) the aggregate outstanding
principal amount of Loans allocated to such Interest Period, or
(iii) if no Program Termination Event shall have occurred and be
continuing, an amount equal to the excess, if any, of the Facility Amount
immediately prior to such distribution over the lesser of (A) the Facility
Limit and (B) the Borrowing Limit (after giving effect to the Borrowing and
any distributions of amounts on deposit in the Collection Account made on such
date).
(c) Remittance
Date Transfers From Collection Account. The Servicer shall, and
if the Servicer fails to do so the Collateral Agent shall, by 10:00 a.m. (St.
Paul, Minnesota time) on each Remittance Date, direct the Lenders’ Bank to
transfer collected funds held by the Lenders’ Bank in
the
Collection Account which were remitted to the Collection Account during the
Collection Period with respect to such Remittance Date (“Available
Funds”), in the following amounts and priority:
(i) to
the Borrower, in an amount equal to such funds which were paid by Obligors
with
respect to their obligation under the related Contracts to pay any taxes (it
being agreed by the Borrower that such amount shall be promptly paid to the
taxing authorities entitled thereto), together with (provided the current
Scheduled Payment has been paid in full) late fees, interest on overdue amounts
and other amounts not in respect of Scheduled Payments;
(ii) to
the related Qualifying Swap Counterparty under each Qualifying Interest Rate
Swap, in an amount equal to (and for the payment of) all amounts which are
due
and payable by the Borrower to such Qualifying Swap Counterparty on such
Remittance Date, pursuant to the terms of the applicable Qualifying Interest
Rate Swap or this Agreement;
(iii) on
a prorata basis, to (w) the Backup Servicer in an amount
equal to the Standby Backup Servicer’s Fee (to the extent accrued and unpaid as
of the last day of the immediately preceding Fee Period) at any time prior
to
the occurrence of a Servicer Default and the appointment of the Backup Servicer
as the Servicer hereunder and (x) the Custodian, the Custodian’s Fee (y)
the Collateral Agent, the Collateral Agent’s Fee and (z) the Lenders’ Bank,
the Lenders’ Bank Fee;
(iv) at
any time prior to the occurrence of a Servicer Default and the appointment
of
the Backup Servicer as the Servicer hereunder, to the Servicer in an amount
equal to the Servicing Fee which is accrued and unpaid as of the last day of
the
immediately preceding Fee Period and, at any time after the occurrence of a
Servicer Default and the appointment of the Backup Servicer as the Servicer
hereunder, to the Backup Servicer in an amount equal to (1) the Active Backup
Servicer’s Fees which are accrued and unpaid as of the last day of the
immediately preceding Fee Period plus (2) any Transition Costs not previously
reimbursed to the Backup Servicer plus (3) the Active Backup Servicer’s
Indemnified Amounts;
(v) on
a prorata basis, (x) to the Collateral Agent, any indemnification
amounts then due and payable to the Collateral Agent and (y) to the Custodian,
any indemnification amounts then due and payable to the Custodian;
(vi) [Reserved];
(vii) (A)
first, to the Class A Lender in an amount equal to (and for the
prorata payment of) the Fees which are due and payable to it on
such Remittance Date pursuant to the terms of the Fee Letter, including (without
duplication) interest on the Class A Loan which is accrued and unpaid as of
the
last day of the immediately preceding Fee Period; and then (B) to the Class
B
Lender, in
an
amount equal to (and for the prorata payment of) the Fees which
are due and payable to it on such Remittance Date pursuant to the term of
the
Fee Letter, including (without duplication)
interest
on the Class B Loan which is accrued and unpaid as of the last day of the
immediately preceding Fee Period.
(viii) to
the Servicer in an amount equal to any Servicer Advances (and amounts to be
reimbursed as Servicer Advances pursuant to Section 6.19) not
previously reimbursed to the Servicer;
(ix) to
the Owner (if the Owner is a Permitted Transferee), so long as no Termination
Event or Event of Default has occurred and is continuing, the amount then
required to be paid by the Partnership (pursuant to its partnership agreement)
to its limited partners, provided that the aggregate amount payable to the
Owner
in any twelve-month period shall not exceed the product of 8.5% times the
arithmetic average monthly Equity Investment for such period;
(x) so
long as no Termination Event or Event of Default has occurred and is continuing,
and prior to the Facility Maturity Date, to the holders of the Class A Notes
and
Class B Notes, prorata and paripassu, all remaining
amounts to pay principal on the Notes until the principal amount of all Notes
shall have been paid in full;
(xi) if
an Event of Default or Termination Event has occurred and is continuing, or
if
the Facility Maturity Date has occurred, then (A) to the holders of the Class
A
Notes, all remaining amounts to pay principal on the Class A Notes until the
principal amount of all Class A Notes shall have been paid in full, and (B)
thereafter, to the holders of the Class B Notes until the principal amount
of
all Class B Notes shall have been paid in full;
(xii) (A)
first, to the Class A Lender in an amount equal to the aggregate amount of
all
other Obligations then due from the Borrower to the Class A Lender or any
Affected Party hereunder related to the Class A Lender for the account of such
parties as applicable; and then (B) second, to the Class B Lender in an amount
equal to the aggregate amount of all other Obligations then due from the
Borrower to the Class B Lender or any Affected Party hereunder related to the
Class B Lender for the account of such parties as applicable; and
(xiii) to
the order of the Borrower, any remaining amounts.
(d) Subordination. Except
as otherwise provided in this Agreement or as otherwise agreed in a writing
signed by the Class A Lender and the Class B Lender, the payment of all
principal, interest or other amounts due under or in connection with the Class
B
Notes (collectively, the “Junior Obligations”) is hereby postponed and
subordinated to the payment in full in cash of all principal and interest due
in
respect of the Class A Notes, and, notwithstanding anything herein to the
contrary, all payments or other distributions whatsoever in respect of any
Junior Obligations owed to a holder of a Class B Note shall be made in
accordance with the priority of payments set forth in Section
2.04(c). Without limiting the generality of the foregoing, the
holders of the Class B Notes agree that all liens and security interests which
secure the payment or performance of the Junior Obligations are hereby
subordinated to any lien or security interest now or hereafter securing the
payment or performance of any liability or other obligation owed to the holders
of the Class A Notes (regardless of the order or manner of perfection thereof
or
any non-perfection thereof).
(e) Deficiency
Payments. Notwithstanding anything to the contrary contained in
this Section 2.04 or in any other provision in this Agreement, if,
on any day prior to the Collection Date, a Facility Deficiency shall have
occurred, then the Borrower shall remit to the respective Lenders,
no
later
than the close of business of such Lender on such day (or if such day is not
a
Business Day, no later than the close of business of such Lender on the next
succeeding Business Day), (i) so long as no Termination Event or Event of
Default shall have occurred and be continuing, the amount required to eliminate
any Facility Deficiency or (ii) if any Termination Event or Event of Default
shall have occurred and is continuing, the entire outstanding Facility Amount,
first to the Class A Notes until paid in full, and then to the Class B Notes
until paid in full.
(f) Remittance
Reports. On each Remittance Date, the Servicer shall deliver to
the Lenders an electronic file, in a form acceptable to the Lenders, setting
forth all of the information set forth on Schedule VII.
(g) Instructions
to the Lenders’ Bank. All instructions and directions given to
the Lenders’ Bank by the Servicer, the Borrower or the Lenders pursuant to this
Section 2.04 shall be in writing (including instructions and
directions transmitted to the Lenders’ Bank in electronic format), and such
written instructions and directions shall be delivered with a written
certification that such instructions and directions are in compliance with
the
provisions of this Section 2.04. The Servicer and the
Borrower shall immediately transmit to the Lenders by telecopy a copy of all
instructions and directions given to the Lenders’ Bank by such party pursuant to
this Section 2.04. The Lender shall immediately transmit
to the Servicer and the Borrower by telecopy a copy of all instructions and
directions given to the Lenders’ Bank by the Lenders, pursuant to this
Section 2.04.
SECTION
2.05 Reserved.
SECTION
2.06 Reserved.
SECTION
2.07 Payments
and Computations, Etc. c) All amounts to be deposited or paid by
the Borrower or the Servicer to any Lender hereunder shall be paid or deposited
in accordance with the terms hereof no later than 12:00 noon (New York City
time) on the day when due in lawful money of the United States in immediately
available funds to the Collection Account or such other account as is designated
by such Lender. The Borrower shall, to the extent permitted by law,
pay to each applicable Lender interest on all amounts not paid or deposited
when
due hereunder (whether owing by the Borrower or the Servicer) at the Base Rate,
plus 2%, payable on demand; provided, however, that such interest
rate shall not at any time exceed the maximum rate permitted by applicable
law. Such interest shall be for the account of such Lender in respect
of each of the Class A Note and the Class B Note and shall be paid in accordance
with Section 2.04(c). Any Obligation hereunder shall not be
reduced by any distribution of any portion of Collections with respect to any
Pledged Receivable if at any time such distribution is rescinded or returned
by
a Lender to the Borrower or any other Person for any reason. All
computations of interest and all computations of Breakage Fee and other fees
hereunder (including, without limitation, the Fees, the Active Backup Servicer’s
Fee, the Standby Backup Servicer’s Fee, the Custodian’s Fee and the Servicing
Fee) shall be made on the basis of a year of 360 days (or 365 or 366 days
for interest calculated at the Base Rate) for the actual number of days
(including the first but excluding the last day) elapsed.
(b) Whenever
any payment hereunder shall be stated to be due on a day other than a Business
Day, such payment shall be made on the next succeeding Business Day, and such
extension of time shall in such case be included in the computation of payment
of interest or any fee
payable
hereunder, as the case may be; provided, however, that with
respect to the calculation of interest, such extension of time shall not be
included in more than one Interest Period.
(c) If
the Borrowing requested by the Borrower and approved by the Lenders pursuant
to
Section 2.02 is not for any reason whatsoever, except as a result of
the gross negligence or willful misconduct of a Lender or an Affiliate thereof,
made or effectuated, as the case may be, on the date specified therefor, the
Borrower shall indemnify such Lender against any loss, cost or expense incurred
by such Lender related thereto (other than any such loss, cost or expense solely
due to the gross negligence or willful misconduct of such Lender or an Affiliate
thereof), including, without limitation, any loss (including cost of funds
and
reasonable out-of-pocket expenses), cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such Lender
to fund Loans or maintain Loans made by such Lender during such Interest
Period. The applicable Lender shall provide to the Borrower
documentation setting forth the amounts of any loss, cost or expense referred
to
in the previous sentence, such documentation to be conclusive absent manifest
error.
SECTION
2.08 Fees. d)
The Borrower shall pay each Lender certain fees, including the Exit Fee, (the
“Fees”) in the amounts and on the dates set forth in a fee letter (the
“Fee Letter”), dated the date hereof, among the Borrower and the
Lenders.
(b) All
of the Fees payable pursuant to this Section 2.08 (other than Fees
payable on or prior to the Borrowing Date) shall be payable solely from amounts
available for application pursuant to, and subject to the priority of, payment
set forth in, Section 2.04.
SECTION
2.09 Increased
Costs; Capital Adequacy. e) If, due to either (i) the
introduction of or any change (including, without limitation, any change by
way
of imposition or increase of reserve requirements) in or in the interpretation
of any law or regulation (including, without limitation, any law or regulation
resulting in any interest payments paid to any Lender under this Agreement
being
subject to United States withholding tax) or (ii) the compliance with any
guideline or request from any central bank or other governmental authority
(whether or not having the force of law), there shall be any increase in the
cost to any Lender or any Affiliate, successor or assign or participant thereof
(each of which shall be an “Affected Party”) of agreeing to make or
making, funding or maintaining any Loan (or any reduction of the amount of
any
payment (whether of principal, interest, fee, compensation or otherwise) to
any
Affected Party hereunder), as the case may be, the Borrower shall, from time
to
time, within ten days after written demand complying with
Section 2.09(c) by such Lender, on behalf of such Affected Party,
pay to such Lender, on behalf of such Affected Party, additional amounts
sufficient to compensate such Affected Party for such increased costs or reduced
payments.
(b) If
either (i) the introduction of or any change in or in the interpretation of
any law, guideline, rule or regulation, directive, request or accounting
principle or (ii) the compliance by any Affected Party with any law,
guideline, rule, regulation, directive, request or accounting principle from
any
central bank, other governmental authority, agency or accounting authority
(whether or not having the force of law), including, without limitation,
compliance by an Affected Party with any request or directive regarding capital
adequacy, has or would have the effect of reducing the rate of return on the
capital of any Affected Party, as a consequence of its obligations hereunder
or
any related document or arising in connection herewith or therewith to a level
below that which any such Affected Party could have achieved but for such
introduction, change or compliance (taking into
consideration the policies of such Affected Party with respect to capital
adequacy), by an amount deemed by such Affected Party to be material, then,
from
time to time, after demand by such Affected Party (which demand shall be
accompanied by a statement setting forth the basis of such demand), each Lender
shall be paid, on behalf of such Affected Party (from Collections with respect
to Pledged Receivables pursuant to, and subject to the priority of payment
set
forth in, Section 2.04), such additional amounts as will compensate
such Affected Party for such reduction.
(c) In
determining any amount provided for in this Section 2.09, the
Affected Party may use any reasonable averaging and attribution
methods. Each Lender, on behalf of any Affected Party making a claim
under this Section 2.09, shall submit to the Borrower a certificate
setting forth in reasonable detail the basis for and the computations of such
additional or increased costs, which certificate shall be conclusive absent
demonstrable error.
(d) If,
as a result of any event or circumstance similar to those described in
Section 2.09(a) or 2.09(b), any Affected Party (that is a
Lender) is required to compensate a bank or other financial institution
(including, without limitation, any Affiliate of Morgan Stanley) providing
liquidity support, credit enhancement or other similar support to such Affected
Party in connection with this Agreement, then, upon demand by such Affected
Party, the Borrower shall pay, in accordance with Section 2.04, to
such Affected Party such additional amount or amounts as may be necessary to
reimburse such Affected Party for any amounts paid by it, and shall notify
each
Qualified Swap Counterparty of such payment.
SECTION
2.10 Collateral
Assignment of Agreements. The Borrower hereby collaterally
assigns to the Collateral Agent (and its successors and assigns) for the benefit
of the Secured Parties, all of the Borrower’s right and title to and interest
in, to and under (but not any obligations under) the Purchase and Sale
Agreement, each Qualifying Interest Rate Swap, the Contract related to each
Pledged Receivable, all other agreements, documents and instruments evidencing,
securing or guarantying any Pledged Receivable and all other agreements,
documents and instruments related to any of the foregoing (the “Assigned
Documents”). Without limiting any obligation of the Servicer
hereunder, the Borrower confirms and agrees that the Collateral Agent (or any
designee thereof, including, without limitation, the Servicer), following an
Event of Default or a Program Termination Event, shall have the right to enforce
the Borrower’s rights and remedies under each Assigned Document, but without any
obligation on the part of the Collateral Agent or any of its Affiliates to
perform any of the obligations of the Borrower under any such Assigned
Document. In addition, each of the Servicer and the Borrower confirms
and agrees that the Servicer and the Borrower will, upon receipt of notice
or
discovery thereof, promptly send to the Collateral Agent a notice of
(i) any breach of any representation, warranty, agreement or covenant under
any such Assigned Document or (ii) any event or occurrence that, upon
notice, or upon the passage of time or both, would constitute such a breach,
in
each case, immediately upon learning thereof. The parties hereto
agree that such assignment to the Collateral Agent shall terminate upon the
Collection Date.
SECTION
2.11 Grant
of a Security Interest. To secure the prompt and complete payment
when due of the Obligations and the performance by the Borrower of all of the
covenants and obligations to be performed by it pursuant to this Agreement,
the
Borrower hereby (i) collaterally assigns and pledges to the Collateral
Agent (and its successors and assigns), for the benefit of the Secured Parties,
and (ii) grants a security interest to the Collateral Agent (and its
successors and assigns), for the benefit of the Secured Parties, in all property
of the Borrower, whether
tangible or intangible and whether now owned or existing or hereafter arising
or
acquired and wheresoever located (collectively, the “Pledged Assets”),
including, without limitation, all of the Borrower’s right, title and interest
in, to and under:
(a) all
Receivables purchased by, or otherwise transferred or pledged to (pursuant
to
the terms of the Purchase and Sale Agreement) the Borrower under the Purchase
and Sale Agreement from time to time (such Receivables, the “Pledged
Receivables”, all Other Conveyed Property related to the Pledged Receivables
purchased by (or otherwise transferred or pledged pursuant to the terms of
the
Purchase and Sale Agreement) to the Borrower under the Purchase and Sale
Agreement, all Related Security related to the Pledged Receivables, all interest
of the Borrower in all Obligor Collateral related to the Pledged Receivables
(together with all security interests in and Insurance Proceeds related to
such
Obligor Collateral and all proceeds from the disposition of such Obligor
Collateral, whether by sale to the related Obligors or otherwise), all
Collections and other monies due and to become due under the Contracts related
to the Pledged Receivables received on or after the date such Pledged
Receivables were purchased by (or purportedly purchased by) the Borrower under
the Purchase and Sale Agreement;
(b) the
Assigned Documents, including, in each case, without limitation, all monies
due
and to become due to the Borrower under or in connection therewith;
(c) the
Collection Account, the Lockbox, the Lockbox Account, and all other bank and
similar accounts relating to Collections with respect to Pledged Receivables
(whether now existing or hereafter established) and all funds held therein,
and
all investments in and all income from the investment of funds in the Collection
Account, the Lockbox Account, and such other accounts;
(d) the
Records relating to any Pledged Receivables;
(e) all
UCC financing statements filed by the Borrower against the Originator under
or
in connection with the Purchase and Sale Agreement;
(f) [Reserved];
(g) each
Qualifying Interest Rate Swap, any other interest rate protection agreement
entered into with respect to the transactions contemplated under the RLSA and,
in each case, all payments thereunder;
(h) all
Liquidation Proceeds relating to any Pledged Receivables; and
(i) all
proceeds of the foregoing property described in clauses (a) through (g)
above, including interest, dividends, cash, instruments and other property
from
time to time received, receivable or otherwise distributed in respect of or
in
exchange for or on account of the sale or other disposition of any or all of
the
then existing Pledged Receivables.
The
Borrower hereby authorizes the Collateral Agent to file financing statements
describing as the collateral covered thereby as "all of the debtor's personal
property or assets" or words to that effect, notwithstanding that such wording
may be broader in scope than the collateral described in this
Agreement.
SECTION
2.12 Evidence
of Debt. Each Lender shall maintain an account or accounts
evidencing the indebtedness of the Borrower to such Lender resulting from the
related Loan (and related Class A Note and Class B Note) owing to such Lender
from time to time, including the amounts of principal and interest payable
and
paid to such Lender from time to time hereunder. The entries made in
such account(s) of such Lender shall be conclusive and binding for all purposes,
absent manifest error.
SECTION
2.13 Release
of Pledged Receivables. f) Subject to Section 2.15
hereof, upon the repayment of the Loans and all other amounts payable to each
Lender under this Agreement and any other Transaction Document, the security
interest of the Collateral Agent in each Pledged Receivable and the related
Other Conveyed Property and Related Security shall be released and the Borrower
hereby authorized to file, on behalf of the Collateral Agent, UCC termination
statements in respect thereof.
(b) The
Borrower shall notify the Collateral Agent of any Release Price to be paid
pursuant to this Section 2.13 on the Business Day on which such
Release Price shall be paid specifying the Pledged Receivables to be released
and the Release Price.
(c) Promptly
after the Collection Date has occurred, the Collateral Agent shall re-assign
and
transfer to the Borrower, for no consideration but at the sole expense of the
Borrower, their respective remaining interests in the Pledged Assets, free
and
clear of any Adverse Claim resulting solely from an act by the Collateral Agent
but without any other representation or warranty, express or implied, by or
recourse against the Collateral Agent.
SECTION
2.14 Treatment
of Amounts Paid by the Borrower. Amounts paid by the Borrower
pursuant to Section 2.13 on account of Pledged Receivables shall be
treated as payments on Pledged Receivables hereunder.
SECTION
2.15 Prepayment;
Certain Indemnification Rights; Termination. g) The Borrower may
prepay, in whole or in part, the outstanding principal amount of any Class
A
Notes and/or Class B Notes. Any amounts so prepaid shall be applied
to repay the outstanding principal amount of Loans allocated to an Interest
Period or Interest Periods selected by the related Lender. If the
Borrower intends to make an optional prepayment pursuant to this Section
2.15(a), the Borrower shall give five (5) Business Days' prior written
notice thereof to the Lenders, specifying the intended Prepayment Date, the
intended Prepayment Amount, a calculation of any applicable Breakage Fee and
any
other breakage costs in connection with a Qualified Interest Rate Swap (such
cost, an “Other Swap Breakage Cost”). Any such optional prepayment
shall be accompanied by all interest accrued with respect thereto and the
Breakage Fee and Other Swap Breakage Cost with respect to the applicable
Prepayment Amount and Prepayment Date. If such notice is given, the
principal amount specified in such notice (together with all interest accrued
with respect thereto and the Breakage Fee and Other Swap Breakage Cost related
thereto) shall be due and payable on the Prepayment Date specified
therein. Notwithstanding the foregoing, any payment by the Borrower
required pursuant to Section 2.04(e) or (f) or, in connection with
the occurrence of an Event of Default, pursuant to Section 7.01 hereof
shall not be considered an optional prepayment and no Breakage Fee or Other
Swap
Breakage Cost shall be required to be paid in respect thereof.
(b) Without
limiting any other provision hereof, the Borrower agrees to indemnify each
Lender, the Qualifying Swap Counterparty and any Affiliate thereof and to hold
each such Person harmless
from any cost, loss or expense which it may sustain or incur as a consequence
of
(i) the Borrower making any optional prepayment pursuant to Section
2.15(a) hereof, (ii) any default by the Borrower in making any optional
prepayment pursuant to Section 2.15(a) hereof after notice of such
prepayment has been given, (iii) any failure by the Borrower to take a Loan
hereunder after notice of such Loan has been given pursuant to this Agreement,
(iv) any acceleration of the maturity of any Loans by any Lender in accordance
with the terms of this Agreement, including, but not limited to, any Breakage
Fees, any cost, loss or expense arising related to the termination (in whole
or
in part) or amendment of any Qualifying Interest Rate Swap and from interest
or
fees payable by such Lender to lenders of funds obtained by it in order to
advance or maintain the Loans hereunder. Indemnification pursuant to
this Section shall survive the termination of this Agreement and shall include
reasonable fees and expenses of counsel and expenses of litigation.
(c) Notwithstanding
any other provision hereof, the Borrower shall not terminate or amend this
Agreement or any other Transaction Document or reduce the Borrowing Limit prior
to the Facility Maturity Date without the Lenders’ prior written consent, which
consent may be withheld in each Lender’s sole discretion.
(d) At
any time prior to the occurrence of a Termination Event or an Event of Default,
the Borrower shall have the right to deliver written notice, which notice shall
be sent to the Lenders and the holders of the Class B Notes (the
“Class B Buyout Notice”) designating a purchaser for (without recourse, warranty
or representation (other than the holders of such Class B Notes own such Class
B
Notes free and clear of any liens created or granted by the holders of such
Class B Notes)) the entire (but not less than the entire) outstanding principal
amount of Class B Notes (and all associated rights, titles, claims and
privileges associated therewith, including rights under this Agreement) for
an
amount (the “Class B Buyout Price”) equal to the outstanding principal amount
of, and accrued but unpaid interest on, the Class B Notes (including any
make-whole premium payable) and all other amounts then payable to the holder(s)
of the Class B Notes under this Agreement. The purchase of the Class
B Notes pursuant to this Section shall close no later than the date specified
in
such Class B Buyout Notice, which date shall be subject to the prior written
approval of the holder of the Class B Notes. The Class B Buyout Price
shall be remitted by wire transfer in immediately available federal funds to
the
holder(s) of the Class B Notes to account(s) specified by such
holder(s). Interest shall be calculated to but excluding the Business
Day on which such purchase shall occur if the Class B Buyout Price is wired
to
the holder(s) of the Class B Notes prior to 1:00 pm New York time and interest
shall be calculated to and including such Business Day if the Class B Notes
Buyout Price is wired to the holder(s) of the Class B Notes later than 1:00
pm
New York time.
SECTION
2.16 Increase
of Borrowing Limit. The Borrower may, upon 30 days’ prior
written notice to the Lenders (with a simultaneous copy to the Initial
Qualifying Swap Counterparty), request that the Borrowing Limit be increased,
which request may be granted in the sole discretion, and with the written
consent, of the Lenders, it being agreed that the Borrower shall pay to each
Lender the fee related to such increase that is required pursuant to the terms
of the Fee Letter and any other costs, fees and expenses pursuant to Section
9.07.
ARTICLE
III
CONDITIONS
OF LOANS
SECTION
3.01 Conditions
Precedent to Borrowing. The Borrowing hereunder is subject to the
conditions precedent that:
(a) the
Arrangement Fee (as such term is defined in the Fee Letter) shall have been
paid
in full and all other acts and conditions (including, without limitation, the
obtaining of any necessary regulatory approvals and the making of any required
filings, recordings or registrations) required to be done and performed and
to
have happened prior to the execution, delivery and performance of this Agreement
and all related documents and to constitute the same legal, valid and binding
obligations, enforceable in accordance with their respective terms, shall have
been done and performed and shall have happened in due and strict compliance
with all applicable laws; and
(b) each
Lender shall have received on or before the date of the Borrowing the items
listed in Schedule I hereto, each in form and substance satisfactory
to such Lender.
SECTION
3.02 Conditions
Precedent to All Borrowings. The Borrowing by the Borrower from
the Lenders shall be subject to the further conditions precedent
that:
(a) Reserved;
(b) After
giving effect to the Borrowing requested by the Borrower the following
statements shall be true (and the Borrower shall be deemed to have certified
that):
(i) the
Facility Amount will not exceed the Borrowing Limit; and
(ii) the
Facility Amount will not exceed the Facility Limit.
(c) On
the Borrowing Date, the following statements shall be true and correct, and
the
Borrower by accepting any amount of the Borrowing shall be deemed to have
represented that:
(i) the
representations and warranties contained in Section 4.01 are true
and correct in all material respects, before and after giving effect to the
Borrowing to take place on the Borrowing Date and to the application of proceeds
therefrom, on and as of such day as though made on and as of such
date;
(ii) no
event has occurred and is continuing, or would result from the Borrowing, which
constitutes a Program Termination Event hereunder or an event that but for
notice or lapse of time or both would constitute a Program Termination
Event;
(iii) no
event has occurred and is continuing, or would result from the Borrowing, which
constitutes a Termination Event hereunder or an event that but for notice or
lapse of time or both would constitute a Termination Event;
(iv) Reserved;
(v) 1.2.the
requirements set forth in Section 2.01(a) hereof shall have been complied
with;
(vi) 3.(a)
the Borrower has delivered to each Lender a copy of the applicable Notice of
Borrowing and the related Notice of Pledge (together with the attached
Receivables Schedule) pursuant to Section 2.02, each appropriately
completed and executed by the Borrower, (b) the Borrower has delivered or
caused to have been delivered to the Custodian the Notice of Pledge with respect
to the Receivables being Pledged hereunder three (3) Business Days prior to
the
Borrowing Date, and (c) the Contract related to each Receivable being
Pledged hereunder on the Borrowing Date has been duly assigned by the Originator
to the Borrower and duly assigned by the Borrower to the Collateral
Agent;
(vii) all
terms and conditions of the Purchase and Sale Agreement required to be satisfied
in connection with the assignment of each Receivable being Pledged hereunder
on
the Borrowing Date (and the Other Conveyed Property and Related Security related
thereto), including, without limitation, the perfection of the Borrower’s
interests therein (other than with respect to Equipment which has an Amortized
Equipment Cost of less than $25,000 and is leased under Dollar Purchase Option
Contracts or $50,000 and is leased under FMV Contracts), shall have been
satisfied in full, and all filings (including, without limitation, UCC filings)
required to be made by any Person and all actions required to be taken or
performed by any Person in any jurisdiction to give the Collateral Agent a
first
priority perfected security interest in such Receivables, Related Security
and
the Other Conveyed Property related thereto and the proceeds thereof shall
have
been made, taken or performed;
(viii) (A) the
initial Servicer shall have taken or caused to be taken all steps necessary
under all applicable law (including the filing of an Obligor Financing
Statement) in order to cause a valid, subsisting and enforceable perfected,
first priority security interest to exist in Originator’s favor in the Obligor
Collateral securing each Receivable being Pledged hereunder on the Borrowing
Date (other than with respect to Equipment which has an Amortized Equipment
Cost
of less than $25,000 and is leased under Dollar Purchase Option Contracts or
$50,000 and is leased under FMV Contracts), (B) the Originator shall have
assigned the perfected, first priority security interest in the Obligor
Collateral to the Borrower pursuant to the Purchase and Sale Agreement and
(C)
the Borrower shall have assigned the perfected, first priority security interest
in the Obligor Collateral (and the proceeds thereof) referred to in
clause (A) above to the Collateral Agent, pursuant to
Section 2.11 hereof;
(ix) [Reserved];
and
(x) the
Borrower shall have taken all steps necessary under all applicable law in order
to cause to exist in favor of the Collateral Agent a valid, subsisting and
enforceable first priority perfected security interest in the Borrower’s
interest in the Obligor Collateral related to each Receivable being Pledged
hereunder on the Borrowing Date (other than with respect to Equipment which
has
an Amortized Equipment Cost of less than $25,000 and is leased under Dollar
Purchase Option Contracts or $50,000 and is leased under FMV
Contracts);
(d) No
law or regulation shall prohibit, and no order, judgment or decree of any
Government Entity shall prohibit or enjoin, the making of such Loans by any
Lender in accordance with the provisions hereof; and
(e) The
Lenders shall have received and found to be satisfactory with respect to Pledged
Receivables being Pledged in connection with the Borrowing, which have been
previously pledged to any lender by the Originator, the Borrower or any
Affiliate thereof under any other financing facility, evidence of the release
of
any liens granted in connection with such financing with respect to any such
Pledged Receivables.
(f) Unless
a credit agreement and/or security agreement, including but not limited to
any
such agreement with National City Bank, as agent, related to Receivables being
Pledged by the Borrower in connection with the Borrowing, shall have provided
for an automatic release of the Agent’s or Collateral Agent’s, as applicable,
lien and security interest in such Receivables granted thereunder, the
applicable agent or lender shall have executed and delivered to the Borrower
and
the Collateral Agent a partial release letter and the Borrower shall have duly
filed with the appropriate filing office a UCC-3 partial release evidencing
the
release contained in such release letter, in each case in a form satisfactory
to
the Collateral Agent.
SECTION
3.03 Advances
Do Not Constitute a Waiver. No advance of a Loan by any Lender
hereunder shall constitute a waiver of any condition to such Lender’s obligation
to make such an advance unless such waiver is in writing and executed by such
Lender.
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES
SECTION
4.01 Representations
and Warranties of the Borrower. The Borrower hereby represents
and warrants, as of the date hereof, on the Borrowing Date and on the first
day
of each Rollover Interest Period, as follows:
(a) Each
Receivable designated as an Eligible Receivable on any Facility Limit
Certificate or Monthly Remittance Report is an Eligible
Receivable. Each Receivable included as an Eligible Receivable in any
calculation of the Facility Limit or the Eligible Receivables Balance is an
Eligible Receivable.
(b) The
Borrower is a limited liability company duly organized, validly existing and
in
good standing under the laws of the jurisdiction of its formation and has the
power and all licenses necessary to own its assets and to transact the business
in which it is engaged and is duly qualified and in good standing under the
laws
of each jurisdiction where the transaction of such business or its ownership
of
the Pledged Receivables requires such qualification.
(c) The
Borrower has the power, authority and legal right to make, deliver and perform
this Agreement and each of the Transaction Documents to which it is a party
and
all of the transactions contemplated hereby and thereby, and has taken all
necessary action to authorize the execution, delivery and performance of this
Agreement and each of the Transaction Documents to which it is a party, and
to
grant to the Collateral Agent a first priority perfected security interest
in
the
Pledged Assets on the terms and conditions of this Agreement. This
Agreement and each of the Transaction Documents to which the Borrower is a
party
constitutes the legal, valid and binding obligation of the Borrower, enforceable
against it in accordance with their respective terms, except as the
enforceability hereof and thereof may be limited by bankruptcy, insolvency,
moratorium, reorganization and other similar laws of general application
affecting creditors’ rights generally and by general principles of equity
(whether such enforceability is considered in a proceeding in equity or at
law). No consent of any other party and no consent, license, approval
or authorization of, or registration or declaration with, any Government Entity,
bureau or agency is required in connection with the execution, delivery or
performance by the Borrower of this Agreement or any Transaction Document to
which it is a party or the validity or enforceability of this Agreement or
any
such Transaction Document or the Pledged Receivables, other than such as have
been met or obtained.
(d) The
execution, delivery and performance of this Agreement and all other agreements
and instruments executed and delivered or to be executed and delivered pursuant
hereto or thereto in connection with the Pledge of the Pledged Assets will
not
(i) create any Adverse Claim on the Pledged Assets or (ii) violate any
provision of any existing law or regulation or any order or decree of any court,
regulatory body or administrative agency or the certificate of formation or
limited liability company agreement of the Borrower or any contract or other
agreement to which or the Borrower is a party or by which the Borrower or any
property or assets of the Borrower may be bound.
(e) No
litigation or administrative proceeding of or before any court, tribunal or
governmental body is presently pending or, to the knowledge of the Borrower,
threatened against the Borrower or any properties of Borrower or with respect
to
this Agreement, which, if adversely determined, could have a Material Adverse
Effect.
(f) In
selecting the Receivables to be Pledged pursuant to this Agreement, no selection
procedures were employed which are intended to be adverse to the interests
of
any Lender.
(g) The
grant of the security interest in the Pledged Assets by the Borrower to the
Collateral Agent pursuant to this Agreement, is in the ordinary course of
business for the Borrower and is not subject to the bulk transfer or any similar
statutory provisions in effect in any applicable jurisdiction. No
such Pledged Assets have been sold, transferred, assigned or pledged by the
Borrower to any Person, other than the Pledge of such Assets to the Collateral
Agent pursuant to the terms of this Agreement.
(h) The
Borrower has no Debt or other indebtedness which, in the aggregate, exceeds
$10,000, other than Debt incurred under the terms of the Transaction
Documents.
(i) The
Borrower has been formed solely for the purpose of engaging in the transactions
contemplated by this Agreement and the other Transaction Documents.
(j) No
injunction, writ, restraining order or other order of any nature adversely
affects the Borrower’s performance of its obligations under this Agreement or
any Transaction Document to which the Borrower is a party.
(k) The
Borrower has filed (on a consolidated basis or otherwise) on a timely basis
all
tax returns (including, without limitation, all foreign, federal, state, local
and other tax returns) required
to be filed, is not liable for taxes payable by any other Person and has paid
or
made adequate provisions for the payment of all taxes, assessments and other
governmental charges due from the Borrower except for those taxes being
contested in good faith by appropriate proceedings and in respect of which
no
penalty may be assessed from such contest and it has established proper reserves
on its books. No tax lien or similar adverse claim has been filed,
and no claim is being asserted, with respect to any such tax, assessment or
other governmental charge. Any taxes, fees and other governmental
charges payable by the Borrower, as applicable, in connection with the execution
and delivery of this Agreement and the other Transaction Documents and the
transactions contemplated hereby or thereby have been paid or shall have been
paid if and when due.
(l) The
chief executive office of the Borrower (and the location of the Borrower’s
records regarding the Pledged Receivables (other than those delivered to the
Custodian)) is located at 1818 Market Street, 9th Floor, Philadelphia, PA
19103.
(m) The
Borrower’s legal name is as set forth in this Agreement; other than as disclosed
on Schedule II hereto (as such schedule may be updated from time to
by the Lenders upon receipt of a notice delivered to the Lenders pursuant to
Section 6.18), the Borrower has not changed its name since its
formation; the Borrower does not have tradenames, fictitious names, assumed
names or “doing business as” names other than as disclosed on
Schedule II hereto (as such schedule may be updated from time to by
the Lenders upon receipt of a notice delivered to the Lenders pursuant to
Section 6.18).
(n) The
Borrower is solvent and will not become insolvent after giving effect to the
transactions contemplated hereby; the Borrower is paying its debts as they
become due; and the Borrower, after giving effect to the transactions
contemplated hereby, will have adequate capital to conduct its
business.
(o) The
Borrower has no subsidiaries.
(p) The
Borrower has given fair consideration and reasonably equivalent value in
exchange for the sale of the Pledged Receivables by the Originator under the
Purchase and Sale Agreement.
(q) No
Monthly Remittance Report or Facility Limit Certificate (each if prepared by
the
Borrower or to the extent that information contained therein is supplied by
the
Borrower), information, exhibit, financial statement, document, book, record
or
report furnished or to be furnished by the Borrower to the Lenders in connection
with this Agreement is or will be inaccurate in any material respect as of
the
date it is or shall be dated or (except as otherwise disclosed in writing to
the
Lenders, as the case may be, at such time) as of the date so furnished, and
no
such document contains or will contain any material misstatement of fact or
omits or shall omit to state a material fact or any fact necessary to make
the
statements contained therein not misleading.
(r) No
proceeds of the Loans will be used by the Borrower to acquire any security
in
any transaction, which is subject to Section 13 or 14 of the Securities
Exchange Act of 1934, as amended.
(s) There
are no agreements in effect adversely affecting the rights of the Borrower
to
make, or cause to be made, the grant of the security interest in the Pledged
Assets contemplated by Section 2.11.
(t) The
Borrower is not an “investment company” or an “affiliated person” of or
“promoter” or “principal underwriter” for an “investment company” as such terms
are defined in the Investment Company Act of 1940, as amended, nor is the
Borrower otherwise subject to regulation thereunder.
(u) No
Event of Default or Unmatured Event of Default has occurred and is
continuing.
(v) Reserved.
(w) The
Borrower is in compliance with ERISA in all material respects. No steps have
been taken to terminate any Borrower Pension Plan which could result in material
liability, and no contribution failure has occurred with respect to any Borrower
Pension Plan sufficient to give rise to a lien under section 302(f) of
ERISA. No condition exists or event or transaction has occurred with
respect to any Borrower Pension Plan which could result in the Borrower or
any
ERISA Affiliate of Borrower incurring any material liability, fine or
penalty.
(x) There
is not now, nor will there be at any time in the future, any agreement or
understanding between the Servicer and the Borrower (other than as expressly
set
forth herein), providing for the allocation or sharing of obligations to make
payments or otherwise in respect of any taxes, fees, assessments or other
governmental charges.
(y) Notwithstanding
anything to the contrary in the Warehouse Facility, no Pledged Receivable will
constitute (for purposes of the Warehouse Facility) either an “Eligible Pool A
Receivable” or an “Eligible Pool B Receivable”, in each case as defined under
the Warehouse Facility.
SECTION
4.02 Representations
and Warranties of the Servicer. The Servicer (so long as the
Servicer is not the Backup Servicer as successor Servicer) hereby represents
and
warrants, as of the date hereof, on the Borrowing Date, on each Remittance
Date
and on the first day of each Rollover Interest Period, as follows:
(a) Each
Receivable designated as an Eligible Receivable on any Facility Limit
Certificate or Monthly Remittance Report is an Eligible
Receivable. Each Receivable included as an Eligible Receivable in any
calculation of the Facility Limit or the Eligible Receivables Balance is an
Eligible Receivable.
(b) The
Servicer is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation and has the power and
all licenses necessary to own its assets and to transact the business in which
it is engaged (which includes servicing Receivables on behalf of third parties
and itself) and is duly qualified and in good standing under the laws of each
jurisdiction where its servicing of the Pledged Receivables requires such
qualification.
(c) The
Servicer has the power, authority and legal right to make, deliver and perform
this Agreement and each of the Transaction Documents to which it is a party
and
all of the transactions contemplated hereby and thereby, and has taken all
necessary action to authorize the execution, delivery and performance of this
Agreement and each of the Transaction Documents to which it is a
party. This Agreement and each of the Transaction Documents to which
the Servicer is a party constitutes the legal, valid and binding obligation
of
the Servicer, enforceable against it in accordance
with their respective terms, except as the enforceability hereof and thereof
may
be limited by bankruptcy, insolvency, moratorium, reorganization and other
similar laws of general application affecting creditors’ rights generally and by
general principles of equity (whether such enforceability is considered in
a
proceeding in equity or at law). No consent of any other party and no
consent, license, approval or authorization of, or registration or declaration
with, any Government Entity is required in connection with the execution,
delivery or performance by the Servicer of this Agreement or any Transaction
Document to which it is a party or the validity or enforceability of this
Agreement or any such Transaction Document, other than such as have been met
or
obtained.
(d) The
execution, delivery and performance of this Agreement by the Servicer and all
other agreements and instruments executed and delivered or to be executed and
delivered by the Servicer pursuant hereto or thereto in connection with the
Pledge of the Pledged Assets will not (i) create any Adverse Claim on the
Pledged Assets or (ii) violate any provision of any existing law or
regulation or any order or decree of any court, regulatory body or
administrative agency or the certificate of incorporation or bylaws of the
Servicer or any material contract or other agreement to which the Servicer
is a
party or by which the Servicer or any of its property or assets may be
bound.
(e) No
litigation or administrative proceeding of or before any court, tribunal or
governmental body is presently pending or, to the knowledge of the Servicer,
threatened against the Servicer or any properties of the Servicer or with
respect to this Agreement, which, if adversely determined, could have a Material
Adverse Effect.
(f) No
injunction, writ, restraining order or other order of any nature adversely
affects the Servicer’s performance of its obligations under this Agreement or
any Transaction Document to which the Servicer is a party.
(g) The
Servicer has filed (on a consolidated basis or otherwise) on a timely basis
all
material tax returns (including, without limitation, all foreign, federal,
state
and local income tax returns) required to be filed, is not liable for taxes
payable by any other Person (other than any Person within the Servicer’s
consolidated group or similar group) and has paid or made adequate provisions
for the payment of all material taxes, assessments and other governmental
charges due from the Servicer except for those taxes being contested in good
faith by appropriate proceedings and in respect of which it has established
proper reserves on its books. No tax lien or similar adverse claim
has been filed, and no claim is being asserted, with respect to any such tax,
assessment or other governmental charge. Any taxes, fees and other
governmental charges payable by the Servicer in connection with the execution
and delivery of this Agreement and the other Transaction Documents to which
it
is a party and the transactions contemplated hereby or thereby have been paid
or
shall have been paid if and when due.
(h) The
chief executive office of the Servicer (and the location of the Servicer’s
records regarding the Pledged Receivables (other than those delivered to the
Custodian)) is located at 1818 Market Street, 9th Floor, Philadelphia, PA
19103.
(i) The
Servicer’s legal name is as set forth in this Agreement; other than as disclosed
on Schedule II hereto (as such schedule may be updated from time to
by the Lenders upon receipt of a notice delivered to the Lenders pursuant to
Section 6.18), the Servicer has not changed its name since its
formation; the Servicer does not have tradenames, fictitious names, assumed
names or “doing
business as” names other than as disclosed on Schedule II hereto (as
such schedule may be updated from time to by the Lenders upon receipt of a
notice delivered to the Lenders pursuant to
Section 6.18).
(j) The
Servicer is solvent and will not become insolvent after giving effect to the
transactions contemplated hereby; the Servicer is paying its debts as they
become due; and the Servicer, after giving effect to the transactions
contemplated hereby, will have adequate capital to conduct its
business.
(k) As
of the date hereof and as of the date of delivery of any Monthly Remittance
Report or Facility Limit Certificate, no Monthly Remittance Report or Facility
Limit Certificate (each if prepared by the Servicer or to the extent that
information contained therein is supplied by the Servicer), information,
exhibit, financial statement, document, book, record or report furnished or
to
be furnished by the Servicer to the Lenders in connection with this Agreement
is
or will be inaccurate in any material respect, and no such document contains
or
will contain any material misstatement of fact or omits or shall omit to state
a
material fact or any fact necessary to make the statements contained therein
not
misleading.
(l) The
Servicer is not an “investment company” or an “affiliated person” of or
“promoter” or “principal underwriter” for an “investment company” as such terms
are defined in the Investment Company Act of 1940, as amended, nor is the
Servicer otherwise subject to regulation thereunder.
(m) No
Event of Default or Unmatured Event of Default has occurred and is
continuing.
(n) Each
of the Pledged Receivables was underwritten and is being serviced in conformance
with Originator’s and the Servicer’s standard underwriting, credit, collection,
operating and reporting procedures and systems (including, without limitation,
the Credit and Collection Policy).
(o) Any
Computer Tape or Listing made available by the Servicer to the Lenders was
complete and accurate in all material respects as of the date on which such
Computer Tape or Listing was made available.
(p) The
Servicer is in compliance with ERISA in all material respects. No steps have
been taken to terminate any Servicer Pension Plan which could result in material
liability, and no contribution failure has occurred with respect to any Servicer
Pension Plan sufficient to give rise to a lien under section 302(f) of
ERISA. No condition exists or event or transaction has occurred with
respect to any Servicer Pension Plan which could result in the Servicer or
any
ERISA Affiliate of Servicer incurring any material liability, fine or
penalty.
(q) There
is not now, nor will there be at any time in the future, any agreement or
understanding between the Servicer and the Borrower (other than as expressly
set
forth herein), providing for the allocation or sharing of obligations to make
payments or otherwise in respect of any taxes, fees, assessments or other
governmental charges.
(r) Notwithstanding
anything to the contrary in the Warehouse Facility, no Pledged Receivable will
constitute (for purposes of the Warehouse Facility) either an “Eligible Pool A
Receivable”
or an “Eligible Pool B Receivable”, in each case as defined under the Warehouse
Facility.
SECTION
4.03 Resale
of Receivables Upon Breach of Covenant or Representation and Warranty by
Borrower. The Borrower or the Servicer, as the case may be, shall
inform the other parties to this Agreement and the Qualifying Swap Counterparty
promptly, in writing, upon the discovery of any breach of the representations,
warranties and/or covenants contained in Section 4.01,
Section 4.02 or Section 5.01; provided,
however, that the failure to provide any such
notice shall not diminish,
in any manner whatsoever, any obligation of the Borrower under this
Section 4.03 to sell any Pledged Receivable. Upon the
discovery by or notice to the Borrower of any such breach that also constitutes
a LEAF Purchase Event under and as defined in the Purchase and Sale Agreement,
the Borrower
shall
have an obligation to, and the Borrower shall, resell to the Originator pursuant
to the Purchase and Sale Agreement (and the Collateral Agent may enforce
such
obligation of the Borrower to sell) any Pledged Receivable adversely affected
by
any such breach. The Servicer shall notify the Collateral Agent
promptly, in writing, of any failure by the Borrower to so resell any such
Pledged Receivable. In connection with the resale of such Pledged
Receivable, the Borrower shall remit funds in an amount equal to the Release
Price for such Pledged Receivable to the Collection Account on the date of
such
resale and the Collateral Agent, in consideration for payment (and automatically
upon deposit in the Collection Account), of the Release Price shall be deemed
to
have released its security interest in such Pledged Receivables. It is
understood and agreed that the obligation of the Borrower to resell to the
Originator, and the obligation of the Originator to purchase, any Receivables
which are adversely affected by a LEAF Purchase Event is not intended to,
and
shall not, constitute a guaranty of the collectibility or payment of any
Receivable which is not collected, not paid or uncollectible on account of
the
insolvency, bankruptcy, or financial inability to pay of the related
Obligor.
SECTION
4.04 Representations
and Warranties of the Lenders. Each Lender hereby represents and
warrants, on the Borrowing Date and on the first day of each Rollover Interest
Period, that it is a “qualified purchaser” within the meaning of Section 3(c)(7)
of the Investment Company Act.
ARTICLE
V
GENERAL
COVENANTS OF THE BORROWER AND THE SERVICER
SECTION
5.01 General
Covenants. h) The Borrower will observe all corporate procedures
required by its certificate of formation, limited liability company agreement
and the laws of its jurisdiction of formation. The Borrower will
maintain its limited liability company existence in good standing under the
laws
of its jurisdiction of formation and will promptly obtain and thereafter
maintain qualifications to do business as a foreign limited liability company
in
any other state in which it does business and in which it is required to so
qualify under applicable law.
(b) The
Borrower will at all times ensure that (i) its members act independently
and in its interests and in the interests of its creditors, (ii) it shall
at all times maintain at least one independent manager who (A) is not
currently and has not been during the five years preceding the date of this
Agreement an officer, director or employee of the Borrower or an Affiliate
thereof (other than acting as independent manager or in a similar capacity)
and
(B) is not a member of the Borrower or an Affiliate thereof (other than a
special independent member of the Borrower or alimited
purpose corporation, business trust, partnership or other entity organized
for
the purpose of acquiring, financing or otherwise investing, directly or
indirectly, in assets or receivables originated, owned or serviced by Originator
or an Affiliate of any of them), (iii) its assets are not commingled with
those of Originator or any other Affiliate of the Borrower, (iv) its
members duly authorize all of its limited liability company actions, (v) it
maintains separate and accurate records and books of account and such books
and
records are kept separate from those of Originator and any other Affiliate
of
the Borrower and (vi) it maintains minutes of the meetings and other
proceedings of the members. Where necessary, the Borrower will obtain
proper authorization from its members for limited liability company
action.
(c) The
Borrower will pay its operating expenses and liabilities from its own
assets.
(d) The
Borrower will not have any of its indebtedness guaranteed by Originator or
any
Affiliate thereof. Furthermore, the Borrower will not hold itself
out, or permit itself to be held out, as having agreed to pay or as being liable
for the debts of Originator, and the Borrower will not engage in business
transactions with Originator, except on an arm’s-length basis. The
Borrower will not hold Originator out to third parties as other than an entity
with assets and liabilities distinct from the Borrower. The Borrower
will cause any of its financial statements consolidated with those of Originator
to state that the Borrower is a separate corporate entity with its own separate
creditors who, in any liquidation of the Borrower, will be entitled to be
satisfied out of the Borrower’s assets prior to any value in the Borrower
becoming available to the Borrower’s equity holders. The Borrower
will not act in any other matter that could foreseeably mislead others with
respect to the Borrower’s separate identity.
(e) In
its capacity as Servicer, LEAF Financial will, to the extent necessary, maintain
separate records on behalf of and for the benefit of the Lenders, act in
accordance with instructions and directions, delivered in accordance with the
terms hereof, from the Borrower, and/or the Lenders in connection with its
servicing of the Pledged Receivables hereunder, and will ensure that, at all
times when it is dealing with or in connection with the Pledged Receivables
in
its capacity as Servicer, it holds itself out as Servicer, and not in any other
capacity.
(f) The
Servicer (if LEAF Financial or an Affiliate thereof) shall, to the extent
required by applicable law, disclose all material transactions associated with
this transaction in appropriate regulatory filings and public
announcements. The annual financial statements of Resource America
(including any consolidated financial statements) shall disclose the effects
of
the transactions contemplated by the Purchase and Sale Agreement as a sale
of
Receivables, Related Security and Other Conveyed Property to the Borrower,
and
the annual financial statements of the Borrower shall disclose the effects
of
the transactions contemplated by this Agreement as a loan to the extent required
by and in accordance with GAAP, it being understood that the Loans to the
Borrower under this Agreement will be treated as debt on the consolidated
financial statements of Resource America.
(g) The
Borrower shall take all other actions necessary to maintain the accuracy of
the
factual assumptions set forth in the legal opinions of Thacher Proffitt &
Wood LLP, as special counsel to the Originator and the Borrower, issued in
connection with the Purchase and Sale Agreement and relating to the issues
of
substantive consolidation and true conveyance of the Pledged
Receivables.
(h) Except
as otherwise provided herein or in any other Transaction Document, neither
the
Borrower nor the Servicer shall sell, assign (by operation of law or otherwise)
or otherwise dispose of, or create or (if the Servicer is LEAF Financial or
an
Affiliate thereof) suffer to exist any Adverse Claim upon or with respect to,
any Pledged Receivable, any Collections related thereto or any other Pledged
Assets related thereto, or upon or with respect to any account to which any
Collections of any Receivable are sent, or assign any right to receive income
in
respect thereof. Except as otherwise provided herein or in any other
Transaction Document, the Borrower shall not create or suffer to exist any
Adverse Claim upon or with respect to any of the Borrower’s
assets. Except as otherwise provided herein or in any other
Transaction Document, the Servicer shall not create, or (if the Servicer is
LEAF
Financial or an Affiliate thereof) permit any action to be taken by any Person
to create, any Adverse Claim upon or with respect to any of the Borrower’s
assets.
(i) The
Borrower will not merge or consolidate with, or convey, transfer, lease or
otherwise dispose of (whether in one transaction or in a series of
transactions), all or substantially all of its assets (whether now owned or
hereafter acquired) other than with respect to asset dispositions in connection
with an optional prepayment pursuant to Section 2.15(a) hereof, or
acquire all or substantially all of the assets or capital stock or other
ownership interest of any Person without the prior written consent of the
Lenders.
(j) The
Borrower will not account for or treat (whether in financial statements or
otherwise) the transactions contemplated by the Purchase and Sale Agreement
in
any manner other than a sale and absolute assignment of Receivables, Related
Security and Other Conveyed Property by Originator to the Borrower constituting
a “true conveyance” for bankruptcy purposes.
(k) The
Borrower will not amend, modify, waive or terminate any terms or conditions
of
the Purchase and Sale Agreement without the written consent of the Lenders,
and
shall perform its obligations thereunder.
(l) The
Borrower will not make any amendment, modification or other change to its
certificate of formation or limited liability company agreement that would
materially and adversely affect the Lenders without each Lender’s prior written
consent, and shall notify the Lenders prior to making any amendment,
modification or other change to its certificate of formation or limited
liability company agreement prior to the effectiveness thereof.
(m) Neither
the Borrower nor (if the Servicer is LEAF Financial or an Affiliate thereof)
the
Servicer will make or allow to be made any material amendment to the Credit
and
Collection Policy without the prior written consent of the Lenders (and the
Lenders hereby agree to take commercially reasonable efforts to respond to
any
request for such consent in a timely manner). Neither the Borrower
nor (if the Servicer is LEAF Financial or an Affiliate thereof) the Servicer
will make or allow to be made any non-material amendment to the Credit and
Collection Policy without the prior written consent of the Lenders; provided,
that if the Lenders have not responded to a written request for such
consent within ten (10) Business Days of receipt thereof, the Lenders shall
be
deemed to have consented to such request.
(n) If
the Borrower or the Servicer receives any Collections with respect to any
Pledged Receivable, the Borrower or the Servicer, as applicable, will remit
such
Collections to the Collection Account within one (1) Business Day of the
Borrower’s or the Servicer’s identification thereof.
(o) The
Servicer shall cause:
(i) the
Obligor under each Contract to remit all payments owed or otherwise payable
by
such Obligor under such Contract (or any servicer on its behalf) to the Lockbox
or by wire transfer to the Lockbox Account;
(ii) the
Lockbox Bank to deposit all Collections with respect to any Pledged Receivable
in the Lockbox into the Lockbox Account on each Business Day; and
(iii) the
Lockbox Bank to remit all Collections with respect to any Pledged Receivable
on
deposit in the Lockbox Account (or any sub-account thereof or any related
account) to the Collection Account on each Business Day.
(p) Reserved.
(q) The
Borrower shall deliver to the Lenders on each Purchase Date a copy of the
Assignment delivered to it on such Purchase Date.
(r) Each
of the Servicer (and, if the Servicer is not LEAF Financial or an Affiliate
thereof, upon the Servicer gaining knowledge thereof) and the Borrower shall
promptly notify the Lenders of the occurrence of any Servicer Default, Event
of
Default, Program Termination Event, Termination Event (and any event that,
if it
continues uncured, would, with lapse of time or notice or lapse of time and
notice, constitute any Servicer Default, Event of Default, Program Termination
Event or Termination Event).
(s) Each
of the Servicer (if the Servicer is LEAF Financial or an Affiliate thereof)
and
the Borrower shall take all actions (in the case of Obligor Collateral with
an
Amortized Equipment Cost over $100,000) and all commercially reasonable actions
(in the case of Obligor Collateral with an Amortized Equipment Cost of $100,000
or less) necessary to ensure that the Originator is at all times named as loss
payee under each Insurance Policy with respect to Obligor Collateral related
to
a Pledged Receivable.
(t) On
the Borrowing Date, a Qualifying Interest Rate Swap, in form and substance
satisfactory to the Lenders, shall be duly executed by the Borrower and a
Qualifying Swap Counterparty, and any amounts required to have been paid
thereunder as of such Remittance Date shall have been paid and any obligations
required to have been performed thereunder as of such Remittance Date shall
have
been performed.
(u) The
Pledged Receivables are ineligible to be refinanced with any proceeds of the
Warehouse Facility.
(v) The
Borrower shall not acquire any debt obligation or interest therein if, after
giving effect to such acquisition, more than 40 percent of the debt obligations
or interests therein held by the Borrower (as determined under the rules of
Treasury Regulation 301.7701(i)-1(c)) would consist of real estate mortgages
or
interests therein (as defined in Treasury Regulation
301.7701(i)-1(d))
(w) If
the Obligor Collateral related to any Receivable securing the Borrowing is
a
Vehicle, the Borrower shall, within 40 days after the Closing Date, deliver
to
the applicable Registrar
of Titles an application for a Certificate of Title for such Vehicle satisfying
the Titling Requirements.
SECTION
5.02 Check-in
Requirements.
(a) The
Borrower hereby covenants and agrees that, (i) not later than 20 days after
the
Borrowing Date, it shall cause to be delivered to the Custodian the Priority
Documents related to Contracts whose aggregate Amortized Equipment Cost
constitutes not less than 50% of the aggregate Amortized Equipment Cost of
all
Contracts, and (ii) not later than 40 days after the Borrowing Date, it shall
cause to be delivered to the Custodian the Priority Documents for each Pledged
Receivable; provided, however, that the Borrower shall be permitted to
deliver to the Custodian a machine copy of any original, executed Contract
(certified as a true copy (a “Certified True Copy”) by an officer of either the
Obligor or the Borrower or its predecessor as lessor or lender thereunder)
for
Contracts whose aggregate Amortized Equipment Cost constitutes not more than
5%
of the aggregate Amortized Equipment Cost of all Contracts.
(b) The
Borrower hereby covenants and agrees that if the aggregate Discounted Balance
of
all Contracts for which the Custodian has received only a Certified True Copy
exceeds the aforesaid 5% limit for any period exceeding fifteen days, then
on
the first Business Day after such fifteenth day it shall resell the Pledged
Receivables related to all such Contracts to the Originator, deposit the Release
Price for each such Pledged Receivable to the Collection Account and remit
to
the respective Lenders (no later than the close of business of such Lender
on
such Business Day), protanto, as a partial prepayment of the
outstanding principal amount of the Notes (together with interest accrued and
unpaid on such prepayment through such date of prepayment),
prorata according to their respective Commitment Percentage, and
otherwise comply with the requirements of Section 4.03 hereof with respect
to
all such Pledged Receivables.
(c) The
Custodian hereby agrees that, within one Business Day (to the extent the number
of Receivable Files received on any Business Day is no greater than 1,000 and
that such Receivable Files are delivered to the Custodian in the same order
as
the Receivable Schedule) or within such greater number of Business Days as
the
parties hereto mutually agree (to the extent the number of Receivable Files
received on any Business Day exceeds 1,000), it shall deliver to the Borrower,
each Lender and the Servicer (i) a Collateral Receipt for all Receivable Files
received on that date and (ii) an Exception Report) covering any Deficiencies
noted in such Collateral Receipt. Additionally, on each Business Day, the
Custodian hereby agrees to deliver to Borrower, each Lender and the Servicer
a
cumulative report of any uncured Deficiencies identified in all prior Collateral
Receipts.
(d) The
Borrower hereby covenants and agrees that, (i) subject to the proviso in
Section 5.02(a) hereof, not later than 60 days after the Borrowing
Date, it shall cause to be delivered to the Custodian every item
constituting the Receivable File for each Pledged Receivable, including every
item identified in each Exception Report delivered by the Custodian pursuant
to
Section 5.02(c) hereof and (ii) for each Pledged Receivable with respect
to which it shall not have complied with the immediately preceding clause (i),
it shall, to the extent it has not complied therewith within fifteen
noncomplying days after receipt of an Exception Report with respect to any
such
Deficiency pursuant to this Section 5.02(d), on the first Business Day
after, resell the Pledged Receivables related to all such Contracts to the
Originator, deposit the Release Price for each such Pledged Receivable to the
Collection Account and remit to the respective Lenders (no later than the close
of business
of such Lender on such Business Day), protanto, as a partial
prepayment of the outstanding principal amount of the Notes (together with
interest accrued and unpaid on such prepayment through such date of prepayment),
prorata according to their respective Commitment Percentage, and
otherwise comply with the requirements of Section 4.03 hereof with
respect to all such Pledged Receivables.
(e) The
events described in subsections (b) and (d)(ii) hereof shall constitute a
Check-in Repurchase Event.
ARTICLE
VI
ADMINISTRATION
AND SERVICING; CERTAIN COVENANTS
SECTION
6.01 Appointment
and Designation of the Servicer. i) The Borrower and the Lenders
hereby appoint the Person designated by the Lenders from time to time, pursuant
to this Section 6.01 (the “Servicer”), as their agent to
service, administer and collect the Pledged Receivables and otherwise to enforce
their respective rights and interests in and under the Pledged Receivables
and
the other Pledged Assets. The Servicer shall collect such Pledged
Receivables under the conditions referred to above by means of the collection
procedures as set forth in the Credit and Collection Policy, to the extent
consistent with the provisions of this Article VI. Unless
otherwise specified by the Borrower, the Servicer’s authorization under this
Agreement shall terminate on the Collection Date. Until the Lenders
give notice to the Borrower of a designation of a new Servicer upon the
occurrence and during the continuance of any Servicer Default, or consents
in
writing to the appointment by the Borrower of a new Servicer, LEAF Financial
is
hereby designated as, and hereby agrees to perform the duties and obligations
of, the Servicer, pursuant to the terms hereof at all times until the earlier
of
the Lenders’ designation of the Backup Servicer or any other Person as the new
Servicer (upon the occurrence and during the continuance of any Servicer
Default), the delivery by the Lenders of its written consent to the appointment
by the Borrower of a new Servicer or the Collection Date. Upon the
occurrence and during the continuance of any Servicer Default, the Lenders
may
at any time designate as Servicer the Backup Servicer, or any other Person
with
demonstrated experience in servicing equipment leases and loans, to succeed
LEAF
Financial or any successor Servicer, on the condition in each case that any
such
Person so designated shall agree to perform the duties and obligations of the
Servicer pursuant to the terms hereof. Each of the Borrower and LEAF
Financial hereby grants to any successor Servicer an irrevocable power of
attorney to take any and all steps in the Borrower’s, LEAF Financial’s or the
Servicer’s name, as applicable, and on behalf of the Borrower or LEAF Financial,
necessary or desirable, in the determination of such successor Servicer, to
service, administer or collect any and all Pledged Receivables.
(b) The
Servicer is hereby authorized to act for the Borrower and the Lenders and,
in
such capacity, shall manage, service, administer and arrange collections on
the
Pledged Receivables and perform the other actions required by the Servicer
under
this Agreement for the benefit of the Lenders. The Servicer agrees
that its servicing of the Pledged Receivables shall be carried out in accordance
with customary and usual procedures of institutions which service equipment
lease and loan contracts and receivables and, to the extent more exacting,
the
degree of skill and attention that the Servicer exercises from time to time,
with respect to all comparable equipment lease and loan contracts and
receivables that it services for itself or others in accordance with the Credit
and Collection Policy (or if the Backup
Servicer
has been appointed as Servicer, the Backup Servicer’s customary
collection policies) and, to the extent more exacting, the requirements of
this
Article VI. The Servicer’s duties shall include, without
limitation, collecting and posting of all Collections with respect to any
Pledged Receivable, responding to inquiries of Obligors on the Pledged
Receivables, investigating delinquencies, sending invoices, payment statements
or payment books to Obligors, reporting any required tax information to
Obligors, policing the collateral, enforcing the terms of the Contracts (and
any
documents related thereto) related to any Pledged Receivables, complying
with
the terms of the Lockbox Agreement, accounting for Collections with respect
to
any Pledged Receivable, furnishing monthly and annual statements to the Lenders
with respect to distributions and performing the other duties specified
herein.
(c) Reserved.
(d) To
the extent consistent with the standards, policies and procedures otherwise
required hereby, the Servicer shall have full power and authority, acting alone,
to do any and all things in connection with such managing, servicing,
administration and collection that it may deem necessary or
desirable. The Servicer is authorized to release liens on Obligor
Collateral in order to collect Insurance Proceeds with respect thereto and
to
liquidate such Obligor Collateral in accordance with its customary standards,
policies and procedures; provided, however, that, notwithstanding
the foregoing, the Servicer shall not, (i) except pursuant to an order from
a court of competent jurisdiction, release an Obligor from payment of any unpaid
amount under any Pledged Receivable or (ii) waive the right to collect the
unpaid balance of any Pledged Receivable from such Obligor, except that, subject
to Section 6.02(a), the Servicer may forego collection efforts if
the amount which the Servicer, in its reasonable judgment, expects to realize
in
connection with such collection efforts is determined by the Servicer, in its
reasonable judgment, to be less than the reasonably expected costs of pursuing
such collection efforts and if the Servicer would forego such collection efforts
in accordance with its customary procedures. The Servicer is hereby
authorized to commence, in its own name (in its capacity as Servicer), if
possible, or in the name of the Borrower or the Lenders (provided that if
the Servicer is acting in the name of the Borrower or the Lenders, the Servicer
shall have obtained the Borrower’s or the Lenders’ consent, as the case may be,
which consent shall not be unreasonably withheld), a legal proceeding to enforce
any Pledged Receivable (or any terms or provisions of the related Contract)
or
to commence or participate in any other legal proceeding (including, without
limitation, a bankruptcy proceeding) relating to or involving a Pledged
Receivable or any related Contract, Obligor or Obligor Collateral. If
the Servicer commences or participates in such a legal proceeding in its own
name, the Borrower or the Lenders, as the case may be, shall thereupon be deemed
to have automatically assigned such Pledged Receivable to the Servicer solely
for purposes of commencing or participating in any such proceeding as a party
or
claimant, and the Servicer is authorized and empowered by the Borrower or the
Lender, as the case may be, to execute and deliver in the Servicer’s name any
notices, demands, claims, complaints, responses, affidavits or other documents
or instruments in connection with any such proceeding. The Borrower
or the Lender, as the case may be, shall furnish the Servicer with any powers
of
attorney and other documents which the Servicer may reasonably request in
writing and which the Servicer deems necessary or appropriate and take any
other
steps which the Servicer may deem necessary or appropriate to enable the
Servicer to carry out its servicing and administrative duties under this
Agreement. If, however, in any suit or legal proceeding it is held
that the Servicer may not prosecute such suit or legal proceeding on the grounds
that it is not an actual party in interest or a holder entitled to enforce
such
suit or legal proceeding, the Borrower shall take such steps as the Servicer
deems necessary to prosecute such suit or legal proceeding, including bringing
suit in its name.
SECTION
6.02 Collection
of Receivable Payments; Modification and Amendment of Receivables; Lockbox
Agreements. i) Consistent with and subject to the standards,
policies and procedures required by this Agreement, the Servicer shall collect
all payments called for under the terms and provisions of the Contracts related
to the Pledged Receivables (and the terms and provisions of any documents
related thereto) as and when the same shall become due and shall follow such
collection procedures with respect to the Pledged Receivables and the related
Contracts and Insurance Policies as will, in the reasonable judgment of the
Servicer, maximize the amount to be received by the Borrower and the Lenders
with respect thereto.
(b) The
Servicer shall remit all payments by or on behalf of the Obligors received
directly by the Servicer to the Collection Account, without deposit into any
intervening account as soon as practicable, but in no event later than the
end
of business on the Business Day of identification thereof as payments by or
on
behalf of the Obligors.
SECTION
6.03 Realization
Upon Receivables. Consistent with the standards, policies and
procedures required by this Agreement, the Servicer shall use its best efforts
to repossess (or otherwise comparably convert the ownership of) and liquidate
any Obligor Collateral securing a Pledged Receivable within a number of days
consistent with the Credit and Collection Policy of an uncured failure of
the related Obligor to make any payment which it is obligated to make under
the
related Contract or an earlier date that would be customary under the
circumstances involved (as determined in accordance with the Credit and
Collection Policy) and, in any case, in a manner as will, in the reasonable
judgment of the Servicer, maximize the amount to be received by the Borrower
and
the Lenders with respect thereto; provided, however, that the
Servicer need not repossess (or otherwise comparably convert the ownership
of)
and liquidate the Obligor Collateral securing such a Pledged Receivable if,
in
the reasonable opinion of the Servicer, the value of such Obligor Collateral
does not exceed by more than an insignificant amount the cost to repossess
(or
otherwise comparably convert the ownership of) and liquidate such Obligor
Collateral. The Servicer is authorized to follow such customary
practices and procedures as it shall deem necessary or advisable, consistent
with the standard of care required by Section 6.01, which practices
and procedures may include reasonable efforts to realize upon any guaranties,
selling the related Obligor Collateral at public or private sale, the submission
of claims under an Insurance Policy and other actions by the Servicer in order
to realize upon such Pledged Receivable. The foregoing is subject to
the provision that, in any case in which the Obligor Collateral shall have
suffered damage, the Servicer shall not expend funds in connection with any
repair or towards the repossession of such Obligor Collateral, unless it shall
determine in its discretion that such repair and/or repossession shall increase
the proceeds of liquidation of the related Pledged Receivable by an amount
greater than the amount of such expenses. All Liquidation Proceeds
shall be remitted directly by the Servicer to the Collection Account without
deposit into any intervening account as soon as practicable, but in no event
later than one (1) Business Day after identification thereof as Liquidation
Proceeds. The Servicer shall pay on behalf of the Borrower any
personal property taxes assessed on repossessed Obligor Collateral, and the
Servicer shall be entitled to reimbursement of any such tax as a Servicer
Advance.
SECTION
6.04 Insurance
Regarding Equipment. j) At the time of the Pledge of any
Receivable hereunder, the Servicer shall require each Obligor to obtain and
maintain (or with respect to an Underlying Originator, cause such Underlying
Originator to obtain and maintain) Insurance Policies in accordance with the
terms of the Credit and Collection Policy and its customary servicing procedures
and shall furnish evidence of such insurance (except if the Equipment
relating to such Obligor has an aggregate Amortized Equipment Cost of $100,000
or less) to the Lenders.
(b) The
Servicer may, and upon the request of the Lenders shall, sue to enforce or
collect upon the Insurance Policies, in its own name (but in its capacity as
Servicer), if possible, or as agent of the Borrower and the
Lenders. If the Servicer elects to commence a legal proceeding to
enforce an Insurance Policy, the act of commencement shall be deemed to be
an
automatic assignment of the rights of the Borrower and the Lenders under such
Insurance Policy to the Servicer for purposes of collection only. If,
however, in any enforcement suit or legal proceeding it is held that the
Servicer may not enforce an Insurance Policy on the grounds that it is not
an
actual party in interest or a holder entitled to enforce the Insurance Policy,
the Borrower shall take such steps as the Servicer deems necessary to enforce
such Insurance Policy, including bringing suit in its name.
SECTION
6.05 Maintenance
of Security Interests in Obligor Collateral. k) The initial
Servicer and the Borrower shall take all steps necessary, under all applicable
law, in order to (i) cause a valid, subsisting and enforceable first
priority perfected security interest to exist in favor of the Collateral Agent
in the Borrower’s interests in the Obligor Collateral, all Other Conveyed
Property and all Related Security related to each Receivable (and the proceeds
thereof) being Pledged hereunder, to secure a Loan on the Borrowing Date thereof
including (A) the filing of a UCC financing statement in the applicable
jurisdiction adequately describing the Obligor Collateral, Other Conveyed
Property and all Related Security and naming the Borrower as debtor and the
Collateral Agent as the secured party, (B) filing Obligor Financing
Statements against all Obligors purchasing or leasing Obligor Collateral, and
(C) other than with respect to a Lease Contract related to Equipment which
has an Amortized Equipment Cost of less than $25,000 if such Lease Contract
is a
Dollar Purchase Option Contract or $50,000 if such Lease Contract is a FMV
Contract, causing the filing of UCC-3 assignment statements in the applicable
jurisdictions adequately describing the Equipment and other collateral being
transferred by the Underlying Originator to the Originator and naming the
applicable Underlying Originator as the assignor and Originator as the assignee,
(ii) ensure that such security interest is and shall be prior to all other
liens upon and security interests in the Borrower’s interests in such Obligor
Collateral, Other Conveyed Property and Related Security (and the proceeds
thereof) that now exist, or may hereafter arise or be created other than
Permitted Liens, and (iii) ensure that immediately prior to the Pledge of
such Receivable by the Borrower to the Collateral Agent, such Obligor
Collateral, Other Conveyed Property and Related Security is free and clear
of
all Adverse Claims other than Permitted Liens; and
(b) The
initial Servicer shall take all steps, as are necessary (subject to
Section 6.05(a)), to maintain perfection of the security interest in
the Borrower’s interests in the Obligor Collateral, Other Conveyed Property and
Related Security related to each Pledged Receivable (and the proceeds thereof)
in favor of the Collateral Agent including but not limited to, obtaining the
execution by the Borrower and the recording, registering, filing, rerecording,
refiling, and reregistering of all security agreements, financing statements
and
continuation statements as are necessary to maintain and/or perfect such
security interests granted by the Borrower and the recordation of the Borrower’s
or the applicable Approved Lienholder’s lien on the Certificate of Title for any
Vehicle included in such Obligor Collateral, all in accordance with the Titling
Requirements. Without limiting the generality of the foregoing, the
Borrower and each Lender each hereby authorizes the initial Servicer, and the
initial Servicer agrees, to take any and all steps necessary (subject to
Section 6.05(a)) to re-perfect the security interest in the
Borrower’s interests in any Obligor Collateral (and the Borrower’s interests
therein), Other Conveyed Property and Related Security
related to each Pledged Receivable (and the proceeds thereof) in favor of the
Collateral Agent as may be necessary, due to the relocation of such Obligor
Collateral or for any other reason.
SECTION
6.06 Pledged
Receivable Receipts. The Servicer shall make a deposit into the
Collection Account in an amount equal to the Collections with respect to any
Pledged Receivable received, or made by, or on behalf of it, within one Business
Day of such Collections being received, or made by, or on behalf of
it.
SECTION
6.07 No
Rights of Withdrawal. Until the Collection Date, the Borrower
shall have no rights of direction or withdrawal, with respect to amounts held
in
the Collection Account or the Lockbox Account, except with respect to funds
not
related to any Pledged Assets, which were incorrectly deposited into any such
account.
SECTION
6.08 Permitted
Investments. The Borrower shall, pursuant to written instruction,
direct the Lenders’ Bank (and if the Borrower fails to do so, the Lenders may,
pursuant to written instruction, direct the Lenders’ Bank) to invest, or cause
the investment of, funds on deposit in the Collection Account in Permitted
Investments, from the date of this Agreement until the Collection
Date. Absent any such written instruction, the Lenders’ Bank shall
invest, or cause the investment of, such funds in Permitted Investments
described in clause (v) of the definition thereof. A Permitted
Investment acquired with funds deposited in the Collection Account shall mature
not later than the Business Day immediately preceding any Remittance Date,
and
shall not be sold or disposed of prior to its maturity. All such
Permitted Investments shall be registered in the name of a securities
intermediary or its nominee for the benefit of the Lenders, and otherwise comply
with assumptions of the legal opinion of Thacher Proffitt & Wood LLP,
delivered in connection with this Agreement. All income and gain
realized from any such investment, as well as any interest earned on deposits
in
the Collection Account, shall be distributed in accordance with the provisions
of Article II hereof. The Borrower shall deposit in the
Collection Account, as the case may be (with respect to investments made
hereunder of funds held therein), an amount equal to the amount of any actual
loss incurred, in respect of any such investment, immediately upon realization
of such loss. None of the Lenders’ Bank or any Lender shall be liable
for the amount of any loss incurred, in respect of any investment, or lack
of
investment, of funds held in the Collection Account.
SECTION
6.09 Servicing
Compensation. As compensation for its activities hereunder, the
Servicer shall be entitled to be paid the Servicing Fee from the Collection
Account as provided in Section 2.04(c). The Servicer
shall be required to pay all expenses incurred by it in connection with its
servicing activities hereunder and shall not be entitled to reimbursement
therefor, except with respect to reasonable expenses of the Servicer incurred
in
connection with the repossession and disposition of any Obligor Collateral
(which the Servicer may retain from the proceeds of the disposition of such
Obligor Collateral) and any Servicer Advances made by the Servicer pursuant
hereto. The Servicing Fee may not be transferred in whole, or in
part, except in connection with the transfer of all the Servicer’s
responsibilities and obligations under this Agreement. At any time
after the occurrence of a Servicer Default and the appointment of the Backup
Servicer as the Servicer hereunder, the Backup Servicer shall be entitled to
receive an amount, payable out of Collections on the Pledged Receivables and
amounts applied to the payment of, or treated as payments on, the Pledged
Receivables, equal to expenses incurred by the Backup Servicer,
acting in its capacity as the Servicer, in connection with its obligations
under
Sections 6.05(a) and (b) hereof (such expenses, the “Active
Backup Servicer’s Indemnified Amounts”).
SECTION
6.10 Reports
to the Lenders; Account Statements; Servicing Information. l) The
Borrower will deliver to the Lenders and each Qualifying Swap Counterparty,
(i) on the Program Termination Date, a report identifying the Pledged
Receivables (and any information with respect thereto requested by the Lenders)
on the day immediately preceding the Program Termination Date, and
(ii) upon a Lender’s reasonable request and upon reasonable notice, on any
other Business Day, a report identifying the Pledged Receivables (and any
information with respect thereto, reasonably requested by such Lender) as of
such day.
(b) At
least four (4) Business Days prior to each Remittance Date, the Servicer shall
prepare and deliver, or have delivered to the Lenders and each Qualifying Swap
Counterparty, (i) a Monthly Remittance Report and any other information
reasonably requested by a Lender, relating to all Pledged Receivables
(including, if requested, a Computer Tape or Listing), all information in the
Monthly Remittance Report and all other such information to be accurate as
of
the last day of the immediately preceding Collection Period, and (ii) in an
electronic format mutually acceptable to the Servicer and the Lenders, all
information reasonably requested by the Lenders relating to all Pledged
Receivables. If any Monthly Remittance Report indicates the existence
of a Facility Deficiency, the Borrower shall, on the date of delivery of such
Monthly Remittance Report, prepay to the Lenders, for the account of the
Lenders, a portion of the Loans as is necessary to cure such Facility
Deficiency, in accordance with Section 2.04(e) hereof.
(c) By
no later than the Borrowing Date, the Borrower (or the initial Servicer on
its
behalf) shall also prepare and deliver to the Lenders a Facility Limit
Certificate containing information accurate as of the date of delivery of such
Facility Limit Certificate. If any Facility Limit Certificate
indicates the existence of a Facility Deficiency, the Borrower shall on the
date
of delivery of such Facility Limit Certificate prepay to the Lenders, for the
account of the Lenders, a portion of the Loans, to the extent necessary to
cure
such Facility Deficiency, in accordance with Section 2.04(e)
hereof.
(d) At
least four (4) Business Days prior to each Remittance Date (each such day,
a
“Backup Servicer Delivery Date”), the Servicer shall prepare and deliver,
or have delivered, to the Backup Servicer (i) a Monthly Remittance Report
in respect of the immediately-preceding Collection Period and (ii) a
computer tape or a diskette or any other electronic transmission in a format
acceptable to the Backup Servicer containing the information with respect to
the
Pledged Receivables during such Collection Period which was necessary for
preparation of such Monthly Remittance Report or is reasonably requested by
the
Backup Servicer.
(e) The
Borrower shall deliver to the Lenders all reports it receives pursuant to the
Purchase and Sale Agreement within one Business Day of the receipt
thereof.
SECTION
6.11 Statements
as to Compliance; Financial Statements. m) The Servicer shall
deliver to the Backup Servicer, the Borrower and the Lenders on or before March
31st of each year, beginning with 2008, an Officer’s Certificate stating, as to
each signatory thereof, that (x) a review of the activities of the Servicer
during the preceding calendar year (or the portion of the preceding calendar
year commencing on the date of this Agreement and ending December 31, 2007
in
the
case of the first such review) and of its performance under this Agreement
has
been made under such officer’s supervision, and (y) to the best of such
officer’s knowledge, based on such review, the Servicer has fulfilled all of its
obligations under this Agreement throughout such calendar year (or portion
thereof, as the case may be) or, if there has been a default in the fulfillment
of any such obligation, specifying each such default known to such officer
and
the nature and status thereof and the action being taken to cure such
default.
(b) The
Servicer (if LEAF Financial or an Affiliate thereof) shall, at its expense,
cause a firm of nationally recognized independent certified public accountants
acceptable to the Lenders (the “Independent Accountants”), who may also
render other services to the Servicer, the Backup Servicer or to the Borrower,
to deliver to the Borrower and the Lenders, on or before March 31st of each
year, beginning 2008, with respect to the twelve (12) months ended the
immediately preceding December 31, a statement (the “Accountant’s
Report”) addressed to the Board of Directors of the Servicer and to the
Lenders, to the effect that such firm has examined such Facility Limit
Certificates and Monthly Remittance Reports prepared by the Servicer during
the
twelve (12) months ended the immediately preceding December 31 as it deemed
necessary in order to issue the Accountants’ Report and issued its report
thereon, and that such examination was made in accordance with generally
accepted auditing standards and, accordingly, included such tests of the
accounting records and such other auditing procedures as such firm considered
necessary in the circumstances. The Accountants’ Report shall further
state that (i) a review in accordance with agreed upon procedures was made;
and (ii) except as disclosed in the Accountant’s Report, no exceptions or
errors in the Facility Limit Certificates and Monthly Remittance Reports
examined were found except for (A) such exceptions as the Independent
Accountants believe to be immaterial and (B) such other exceptions as shall
be set forth in the Accountants’ Report. The Accountants’ Report
shall also indicate that the firm is independent of the Borrower and the
Servicer within the meaning of the Code of Professional Ethics of the American
Institute of Certified Public Accountants.
(c) As
soon as available and no later than forty-five (45) days after the end of each
calendar quarter in each fiscal year of the Borrower or Resource America, the
Borrower shall deliver to the Lenders two copies of:
(i) a
balance sheet of the Borrower and Resource America as of the end of such
calendar quarter, setting forth in comparative form the corresponding figures
for the most recent year-end for which an audited balance sheet has been
prepared, which balance sheet shall be prepared and presented in accordance
with, and provide all necessary disclosure required by, GAAP and shall be
accompanied by a certificate signed by the financial vice president, treasurer,
chief financial officer or controller of the Borrower or Resource America,
as
applicable, stating that such balance sheet presents fairly the financial
condition of the Borrower or Resource America, as the case may be, and has
been
prepared in accordance with GAAP consistently applied; and
(ii) statements
of income, stockholders’ equity and cash flow of the Borrower and Resource
America for such calendar quarter setting forth in comparative form the
corresponding figures for the comparable period one year prior thereto (subject
to normal year-end adjustments), which such statements shall be prepared and
presented in accordance with, and provide all necessary disclosure required
by,
GAAP and shall be accompanied by a certificate signed by the financial vice
president, treasurer, chief financial officer or controller
of the Borrower or Resource America, as applicable, stating that such financial
statements present fairly the financial condition and results of operations
of
the Borrower or Resource America, as the case may be, and have been prepared
in
accordance with GAAP consistently applied.
(d) As
soon as available and no later than forty-five (45) days after the end of each
calendar quarter in each fiscal year of Resource America, LEAF Financial shall
deliver to the Lenders two copies of:
(i) a
consolidated balance sheet of Resource America and its consolidated subsidiaries
(including Originator and Servicer) as of the end of such calendar quarter,
setting forth in comparative form the corresponding figures for the most recent
year-end for which an audited balance sheet has been prepared, which such
balance sheet shall be prepared and presented in accordance with, and provide
all necessary disclosure required by, GAAP and shall be accompanied by a
certificate signed by the financial vice president, treasurer, chief financial
officer or controller of Resource America stating that such balance sheet
presents fairly the financial condition of the companies being reported upon
and
has been prepared in accordance with GAAP consistently applied; and
(ii) consolidated
statements of income, stockholders’ equity and cash flow of Resource America and
its consolidated subsidiaries (including Originator and Servicer) for such
calendar quarter, in each case, setting forth in comparative form the
corresponding figures for the comparable period one year prior thereto (subject
to normal year-end adjustments), which such statements shall be prepared and
presented in accordance with, and provide all necessary disclosure required
by,
GAAP and shall be accompanied by a certificate signed by the financial vice
president, treasurer, chief financial officer or controller of Resource America
stating that such financial statements present fairly the financial condition
and results of operations of the companies being reported upon and have been
prepared in accordance with GAAP consistently applied.
(e) As
soon as available and no later than ninety (90) days after the end of each
fiscal year of the Borrower or Resource America, LEAF Financial shall deliver
to
the Lenders two copies of:
(i) a
balance sheet of the Borrower and Resource America as of the end of the fiscal
year, setting forth in comparative form the figures for the previous fiscal
year
and accompanied by an opinion of a firm of independent certified public
accountants of nationally recognized standing acceptable to the Lenders stating
that such balance sheet presents fairly the financial condition of the Borrower
or Resource America, as applicable, and has been prepared in accordance with
GAAP consistently applied (except for changes in application in which such
accountants concur); and
(ii) statements
of income, stockholders’ equity and cash flow of the Borrower and Resource
America for such fiscal year, setting forth in comparative form the figures
for
the previous fiscal year and accompanied by an opinion of a firm of independent
certified public accountants of nationally recognized standing acceptable to
the
Lenders stating that such financial statements present fairly the financial
condition of the Borrower or Resource America,
as applicable, and have been prepared in accordance with GAAP consistently
applied (except for changes in application in which such accountants
concur).
(f) As
soon as available and no later than ninety (90) days after the end of each
fiscal year of Resource America, LEAF Financial shall deliver to the Lenders
two
copies of:
(i) a
consolidated and consolidating balance sheet of Resource America and its
consolidated subsidiaries (including Originator and Servicer) as of the end
of
the fiscal year, setting forth in comparative form the figures for the previous
fiscal year and accompanied by an opinion of a firm of independent certified
public accountants of nationally recognized standing acceptable to the Lenders
stating that such balance sheet presents fairly the financial condition of
the
companies being reported upon and has been prepared in accordance with GAAP
consistently applied (except for changes in application in which such
accountants concur); and
(ii) consolidated
and consolidating statements of income, stockholders’ equity and cash flow of
Resource America and its consolidated subsidiaries (including Originator) for
such fiscal year; in each case setting forth in comparative form the figures
for
the previous fiscal year and accompanied by an opinion of a firm of independent
certified public accountants of nationally recognized standing acceptable to
the
Lenders stating that such financial statements present fairly the financial
condition of the companies being reported upon and have been prepared in
accordance with GAAP consistently applied (except for changes in application
in
which such accountants concur).
SECTION
6.12 Access
to Certain Documentation; Obligors; Background Check. n) The
Collateral Agent (and its agents or professional advisors) shall at the expense
of the Borrower, have the right under this Agreement, once during each calendar
quarter, to examine and audit, during business hours or at such other times
as
might be reasonable under applicable circumstances, any and all of
the
books, records, financial statements or other information of the Servicer
and
the Borrower, or held by another for the Servicer or the Borrower or on its
behalf, concerning this Agreement, provided, that, prior to the
occurrence of an Event of Default, the Borrower shall not be responsible
for the
expenses of the Collateral Agent to the extent that such expenses exceed
$25,000
in the aggregate in any calendar year. Each Lender (and its agents or
professional advisors) shall, at the expense of the Borrower and as frequently
as such Lender may desire, have the right under this Agreement after the
occurrence and during the continuance of an Event of Default, to examine
and
audit, during business hours or at such other times as might be reasonable
under
applicable circumstances, any and all of the books, records or other information
of the Servicer or the Borrower, or held by another for the Servicer or the
Borrower or on its behalf, concerning this Agreement. Each Lender and
the Collateral Agent (and its respective agents and professional advisors)
shall
coordinate examinations and audits under this Section 6.12(a) in order to
minimize expense and inconvenience to the Borrower. Each Lender and
the Collateral Agent (and its respective agents and professional advisors)
shall
treat as confidential any information obtained during the aforementioned
examinations which is not already publicly known or available; provided,
however, that each Lender and the Collateral Agent may disclose
such
information if required to do so by law or by any regulatory authority and
may
disclose information relevant to the tax treatment and tax structure of the
transactions contemplated by this Agreement.
(b) Each
Lender (and its respective agents or professional advisors) shall, at its own
expense, have the right under this Agreement to contact Obligors once with
respect to any Receivable which is Pledged hereunder to request that each such
Obligor verify and confirm by return letter the existence and amount of such
Receivable, the type of Equipment leased under or securing the related Contract
and such other information as such Lender deems reasonable under the
circumstances (each such return letter to be mailed to a post office box
established by such Lender). The Servicer and the Borrower hereby
agree to cooperate with each Lender (and its respective agents or professional
advisors) in connection with any attempt thereby to contact any such Obligor
and
shall provide to each such Lender such information as is needed in order to
facilitate such contact. Each Lender (and its respective agents and
professional advisors) shall treat as confidential any information obtained
during any such contact with any such Obligor which is not already publicly
known or available; provided, however, that each Lender (and its respective
agents or professional advisors) may disclose such information if required
to do
so by law or by any regulatory authority and may disclose information relevant
to the tax treatment and tax structure of the transactions contemplated by
this
Agreement.
(c) Each
Lender (or its respective agents and/or third party professional advisors)
may,
from time to time, cause comprehensive background checks on newly-hired senior
management, key employees and principals of each of Resource Capital Corp.,
the
initial Servicer and Originator to be completed by an investigation service
acceptable to such Lender, at the Borrower’s expense.
SECTION
6.13 Backup
Servicer. If a Servicer Default shall occur, then the Lenders
may, by notice to the Servicer, the Borrower and the Backup Servicer, terminate
all of the rights and obligations of the Servicer under this
Agreement. Upon the delivery to the Servicer of such notice, all
authority and power of the Servicer under this Agreement, whether with respect
to the Pledged Assets or otherwise, shall pass to and be vested in the Backup
Servicer pursuant to and under this Section (unless the Lenders shall have
appointed a different successor Servicer pursuant to Section 6.01
hereof or the
Backup
Servicer is unable to act as Servicer and a successor is appointed as provided
in the fourth paragraph of this Section 6.13), and, without
limitation, the Backup Servicer is hereby authorized and empowered to execute
and deliver, on behalf of the Servicer, as attorney-in-fact or otherwise,
any
and all documents and other instruments, and to do or accomplish all other
acts
or things necessary or appropriate to effect the purposes of such notice
of
termination or to perform the duties of the Servicer under this
Agreement. The Servicer agrees to cooperate with the Lenders and the
Backup Servicer in effecting the termination of the Servicer’s responsibilities
and rights hereunder, including, without limitation, providing notification
to
the Obligors of the assignment of the servicing function, providing the Backup
Servicer, at the Servicer's expense, with all records, in electronic or other
form, reasonably requested by the Backup Servicer, in such form as the Backup
Servicer may reasonably request and at such times as the Backup Servicer
may
reasonably request, to enable the Backup Servicer to assume the servicing
functions hereunder and the transfer to the Backup Servicer for administration
by it of all cash amounts which at the time should be or should have been
deposited by the Servicer in the Collection Account or thereafter be received
by
the Servicer with respect to the Pledged Receivables. Additionally,
the Servicer agrees to cooperate in providing, at the Servicer’s expense, the
Backup Servicer as successor Servicer, with reasonable access (including
at the
premises of the Servicer) to Servicer’s employees and any and all books, records
or other information reasonably requested by it to enable the Backup Servicer,
as successor Servicer, to assume the servicing functions
hereunder. Neither any Lender nor the Backup Servicer shall be deemed
to have breached any obligation hereunder as a result of a failure to make
or
delay in making any distribution as and when
required hereunder caused by the failure of the Servicer to remit any amounts
received by it or to deliver any documents held by it with respect to the
Pledged Assets. The Backup Servicer (including as successor Servicer)
undertakes to perform only such duties and obligations as are specifically
set
forth in this Agreement, it being understood by all parties hereto that there
are no implied duties or obligations of the Backup Servicer
hereunder.
The
Active Backup Servicer’s Fees and Transition Costs shall be paid out of
Collections with respect to any Pledged Receivable as set forth in
Section 2.04(c) on and after the date, if any, that the Backup
Servicer assumes the responsibilities of the Servicer pursuant to this
Section. The Standby Backup Servicer’s Fees and Transition Costs
shall be paid out of Collections with respect to any Pledged Receivable as
set
forth in Section 2.04(c) prior to the date, if any, that the Backup
Servicer assumes the responsibilities of the Servicer pursuant to this
Section.
Any
obligations of LEAF Financial under any Transaction Document other than in
its
capacity as Servicer shall continue in effect notwithstanding LEAF Financial’s
termination as Servicer.
On
and
after the time the Servicer receives a notice of termination pursuant to this
Section 6.13, the Backup Servicer shall be (and the Backup Servicer
hereby agrees to be) the successor in all respects to the Servicer in its
capacity as Servicer under this Agreement and the transactions set forth or
provided for herein and shall have all the rights and powers and be subject
thereafter to all the responsibilities, duties and liabilities relating thereto
placed on the Servicer by the terms and provisions hereof; provided,
however, that any failure to perform such duties or responsibilities
caused by the Servicer’s failure to
provide
information required by this Section 6.13 shall not be considered a
default by the Backup Servicer hereunder; provided, further,
however, that the Backup Servicer, as successor Servicer,
shall have
(i) no liability with respect to any obligation which was required to be
performed by the terminated Servicer prior to the date that the Backup Servicer
becomes the successor to the Servicer or any claim of a third party based
on any
alleged action or inaction of the terminated Servicer, (ii) no obligation
to perform any repurchase or advancing obligations, if any, of the Servicer,
(iii) no obligation to pay any taxes required to be paid by the Servicer
(provided that the Backup Servicer shall pay any income taxes for which it
is
liable), (iv) no obligation to pay any of the fees and expenses of any
other party to the transactions contemplated hereby, and (v) no liability
or obligation with respect to any Servicer indemnification obligations of
any
prior Servicer, including the original Servicer. The indemnification
obligations of the Backup Servicer, upon becoming a successor Servicer, are
expressly limited to those arising on account of its failure to act in good
faith and with reasonable care under the circumstances. In addition,
the Backup Servicer shall have no liability relating to the representations
and
warranties of the Servicer contained in
Article IV. Notwithstanding the above, the Class A Lender
may, or shall, if the Backup Servicer is unable to so act, appoint itself,
or
appoint any other established servicing institution acceptable to the Lenders
in
their sole discretion, as the successor to the Servicer hereunder in the
assumption of all or any part of the responsibilities, duties or liabilities
of
the Servicer hereunder. Pending appointment of a successor to the
Servicer hereunder, and after the Lenders notify the Servicer to discontinue
performing servicing functions under this Agreement, the Backup Servicer
(or the
Class A Lender if there is no Backup Servicer) shall act in such capacity
as
hereinabove provided. In connection with such appointment and
assumption, the Lenders may make such arrangements for the compensation of
such
successor out of payments on Pledged Receivables as it and such successor
shall
agree; provided, however, that, except as provided herein, no such
compensation shall be in excess of that permitted the Servicer hereunder,
unless
(i) agreed to
by the
Lenders and (ii) such compensation shall be on commercially competitive
terms and rates. The Borrower, the Lenders and such successor shall
take such action, consistent with this Agreement, as shall be necessary to
effectuate any such succession. The parties hereto agree that in no
event will the Backup Servicer be liable for any special, indirect or
consequential damages.
The
Backup Servicer hereby agrees that it shall, and shall take all actions
necessary so that it shall at all times be ready to, assume all the rights
and
powers and all of the responsibilities, obligations and duties of the Servicer
hereunder, within ten (10) Business Days of receiving from a Lender a notice
requesting the Backup Servicer to do so.
Notwithstanding
anything contained in this Agreement to the contrary, absent specific knowledge
by any Lyon Financial Services, Inc. account representative assigned to this
transaction from time to time, or written notice detailing specific Errors
(as
defined below) or other deficiencies, Lyon Financial Services, Inc., as
successor Servicer, is authorized to accept and rely on all accounting records
(including computer records) and work product of the prior Servicer hereunder
relating to the Contracts (collectively, the “Predecessor Servicer Work
Product”) without any audit or other examination thereof, and Lyon Financial
Services, Inc. shall have no duty, responsibility, obligation or liability
for
the acts and omissions of the prior Servicer. If any error,
inaccuracy, commission or incorrect or nonstandard practice or procedure
(collectively, “Errors”) exists in any Predecessor Servicer Work Product
and such Errors cause Lyon Financial Services, Inc. to make or continue any
errors (collectively, “Continued Errors”), Lyon
Financial
Services, Inc. shall have no liability for such Continued Errors;
provided, however, that Lyon Financial Services, Inc. agrees to
use its best efforts to prevent Continued Errors. In the event that
Lyon Financial Services, Inc. becomes aware of Errors or Continued Errors,
Lyon
Financial Services, Inc. shall, with the prior consent of the Lenders, use
its
best efforts to reconstruct and reconcile any affected data as is commercially
reasonable to correct such Errors and Continued Errors and to prevent future
Continued Errors. Lyon Financial Services, Inc. shall be entitled to
recover its costs thereby expended as Servicer Advances in accordance with
Section 2.04(c) hereof.
Within
four (4) Business Days after each Remittance Date, provided that the Backup
Servicer shall have received the information specified in
Section 6.10(d) within the time specified therein, the Backup
Servicer shall compare the information on the computer tape or diskette (or
other means of electronic transmission acceptable to the Backup Servicer) most
recently delivered to the Backup Servicer by the Servicer pursuant to
Section 6.10(d) with respect to such Remittance Date to the
corresponding Monthly Remittance Report delivered to the Backup Servicer by
the
Servicer pursuant to Section 6.10(d) and shall:
(a) confirm
that such Monthly Remittance Report is complete on its face;
(b) confirm
the distributions to be made on such Remittance Date pursuant to
Section 2.04(c) hereof to the extent the Backup Servicer is able to
do so given the information provided to it by the Servicer (it being hereby
agreed that the Backup Servicer shall promptly notify the Servicer and the
Lenders if such information is insufficient and that the Servicer shall promptly
provide to the Backup Servicer any additional information required by the Backup
Servicer);
(c) confirm
the mathematical computations of information in such Monthly Remittance Report;
and
(d) confirm
such other information as the Backup Servicer and the Lenders may
agree;
In
the
event of any discrepancy between the information set forth in
subparagraphs (b) or (c) above as calculated by the Servicer and that
determined or calculated by the Backup Servicer, the Backup Servicer shall
promptly report such discrepancy to the Servicer and the Lenders. In
the event of a discrepancy as described in the preceding sentence, the Servicer
and the Backup Servicer shall attempt to reconcile such discrepancy within
five
(5) Business Days after reporting such discrepancy, but in the absence of a
reconciliation, distributions on the related Remittance Date shall be made
consistent with the information calculated by the Servicer, the Servicer and
the
Backup Servicer shall attempt to reconcile such discrepancy prior to the next
Remittance Date, and the Servicer shall promptly report to the Lenders regarding
the progress, if any, which shall have been made in reconciling such
discrepancy. If the Backup Servicer and the Servicer are unable to
reconcile such discrepancy with respect to such Monthly Remittance Report by
the
next Remittance Date that falls in April, July, October or January, the Servicer
shall cause independent accountants acceptable to the Lenders, at the Servicer’s
expense, to examine such Monthly Remittance Report and attempt to reconcile
such
discrepancy at the earliest possible date (and the Servicer shall promptly
provide the Lenders with a report regarding such event). The effect,
if any, of such reconciliation shall be reflected in the Monthly Remittance
Report for the next succeeding Remittance Date.
Other
than as specifically set forth in this Agreement, the Backup Servicer shall
have
no obligation to supervise, verify, monitor or administer the performance of
the
Servicer and shall have no liability for any action taken or omitted by the
Servicer.
The
Backup Servicer may allow a subservicer to perform any and all of its duties
and
responsibilities hereunder, including but not limited to its duties as successor
Servicer hereunder, should the Backup Servicer become the successor Servicer
pursuant to the terms of this Agreement; provided, however, that
the Backup Servicer shall remain liable for the performance of all of its duties
and obligations hereunder to the same extent as if no such subservicing had
occurred.
In
no
event shall the Backup Servicer (either prior to or after its appointment
hereunder as Servicer) be responsible or liable for any failure or delay in
the
performance of its obligations hereunder arising out of or caused by, directly
or indirectly, forces beyond its control, including without limitation, acts
of
terrorism, civil or military disturbances, nuclear or natural catastrophes
or
acts of God.
SECTION
6.14 Additional
Remedies of Lenders Upon Event of Default. During the continuance
of any Event of Default, each Lender, in addition to the rights specified in
Section 7.01, shall have the right to take all actions now or
hereafter existing at law, in equity or by statute to protect its interests
and
enforce its rights and remedies (including the institution and prosecution
of
all judicial, administrative and other proceedings and the filings of proofs
of
claim and debt in connection therewith). Except as otherwise
expressly provided in this Agreement, no remedy provided for by this Agreement
shall be exclusive of any other remedy, each and every remedy shall be
cumulative and in addition to any other remedy, and no delay or omission to
exercise any right or remedy shall impair any such right or remedy or shall
be
deemed to be a waiver of any Event of Default.
SECTION
6.15 Waiver
of Defaults. The Lenders may waive any default by the Servicer in
the performance of its obligations hereunder and its
consequences. Upon any such waiver of a past default, such default
shall cease to exist, and any Event of Default arising therefrom shall be deemed
to have been remedied for every purpose of this Agreement. No such
waiver shall be effective unless it shall be in writing and signed by the
Lenders and no such waiver shall extend to any subsequent or other default
or
impair any right consequent thereon except to the extent expressly so
waived.
SECTION
6.16 Maintenance
of Certain Insurance. On the date hereof the Servicer shall
obtain, and at all times thereafter during the term of its service as Servicer
the Servicer shall maintain, in force a directors and officers liability
insurance policy in an amount not less than $1,000,000 naming the Collateral
Agent as loss payee and with an insurance company reasonably acceptable to
the
Lenders.
The
Servicer shall deliver a copy of the insurance policy required under this
Section 6.16 to the Lenders on the date hereof together with a
certification from the applicable insurance company that such policy is in
force
on the date hereof.
The
Servicer shall prepare and present, on behalf of itself and the Lenders, claims
under any such policy in a timely fashion in accordance with the terms of such
policy, and upon, the filing of any claim on any policy described in this
Section, the Servicer shall promptly notify the Lenders of such
claim.
SECTION
6.17 Segregation
of Collections. The Servicer shall not commingle funds
constituting Collections with respect to any Pledged Receivable with any other
funds of the Servicer; provided, that such commingling may occur in the
Lockbox Account so long as the Lockbox Intercreditor Agreement is in full force
and effect.
SECTION
6.18 UCC
Matters; Protection and Perfection of Pledged Assets. The
Borrower will not change the jurisdiction of its formation, make any change
to
its corporate name or use any tradenames, fictitious names, assumed names,
“doing business as” names or other names (other than those listed on
Schedule II hereto, as such schedule may be revised from time to
time to reflect name changes and name usage permitted under the terms of this
Section 6.18 after compliance with all terms and conditions of this
Section 6.18 related thereto) unless, prior to the effective date of
any such jurisdiction change, name change or use, the Borrower notifies the
Collateral Agent of such change in writing and delivers to the Collateral Agent
such executed financing statements as the Collateral Agent may request to
reflect such jurisdiction, name change or use, together with such other
documents and instruments as the Collateral Agent may request in connection
therewith. The Borrower will not change the location of its chief
executive office or the location of its records regarding the Pledged
Receivables unless, prior to the effective date of any such change of location,
the Borrower notifies the Collateral Agent of such change of location in writing
and delivers to the Collateral Agent such executed financing statements as
the
Collateral Agent may reasonably request to reflect such change of location,
together with such Opinions of Counsel, documents and instruments as the
Collateral Agent may request in connection therewith. The Borrower
agrees that from time to time, at its expense, it will promptly execute and
deliver all further instruments and documents, and take all further action
that
the Collateral Agent may reasonably request in order to perfect, protect or
more
fully evidence the Collateral Agent’s interest in the Pledged Assets acquired
hereunder, or to enable the Collateral Agent to exercise or enforce any
of
its respective rights hereunder. Without limiting the generality of
the foregoing, the Borrower will, upon the request of the Collateral
Agent: (i) execute (if necessary) and file such financing or
continuation statements, or amendments thereto or assignments thereof, and
such
other instruments or notices, as may be necessary or appropriate or as the
Collateral Agent may request, and (ii) mark its master data processing
records evidencing such Pledged Receivables with a legend acceptable to the
Collateral Agent, evidencing that the Collateral Agent has acquired an interest
therein as provided in this Agreement. The Collateral Agent shall be
entitled to conclusively rely on the filings or registrations made by or on
behalf of the Borrower without any independent investigation and the Borrower’s
obligation to make such filings as evidence that such filings have been
made. The Borrower hereby authorizes the Collateral Agent to file one
or more financing or continuation statements, and amendments thereto and
assignments thereof, relative to all or any of the Pledged Receivables and
the
Other Conveyed Property and the
Related
Security related thereto and the proceeds of the foregoing now existing or
hereafter arising, without the signature of the Borrower where permitted
by
law. The Borrower hereby ratifies and authorizes the filing by the
Collateral Agent of any such financing statement made prior to the date
hereof. A carbon, photographic or other reproduction of this
Agreement or any financing statement covering the Pledged Receivables, or
any
part thereof, shall be sufficient as a financing statement. The
Borrower shall, upon the request of the Collateral Agent at any time after
the
occurrence of an Event of Default and at the Borrower’s expense, notify the
Obligors obligated to pay any Pledged Receivables, or any of them, of the
security interest of the Collateral Agent in the Pledged Assets. If
the Borrower fails to perform any of its agreements or obligations under
this
Section 6.18, the Collateral Agent may (but shall not be required
to) itself perform, or cause performance of, such agreement or obligation,
and
the expenses of the Collateral Agent incurred in connection therewith shall
be
payable by the Borrower upon the Collateral Agent’s demand
therefor. For purposes of enabling the Collateral Agent to exercise
its rights described in the preceding sentence and elsewhere in this
Article VI, the Borrower hereby authorizes the Collateral Agent and
its successors and assigns to take any and all steps in the Borrower’s name and
on behalf of the Borrower necessary or desirable, in the determination of
the
Collateral Agent, to collect all amounts due under any and all Pledged
Receivables, including, without limitation, endorsing the Borrower’s name on
checks and other instruments representing Collections with respect to any
Pledged Receivable and enforcing such Pledged Receivables and the related
Contracts and, if any, the related guarantees.
SECTION
6.19 Servicer
Advances. The Servicer may, in its sole discretion, make an
advance in respect of any payment due on a Pledged Receivable (other than a
Defaulted Receivable) to the extent such payment has not been received by the
Servicer as of its due date and the Servicer reasonably expects such payment
will be ultimately recoverable (a “Servicer Advance”). The
Servicer shall deposit into the Collection Account in immediately available
funds the aggregate of all Servicer Advances to be made during a Fee Period
on
or prior to the Business Day immediately preceding the related Remittance
Date. The Servicer shall be entitled to reimbursement for such
Servicer Advances from monies in the Collection Account as provided in
Section 2.04(c) hereof.
SECTION
6.20 Repurchase
of Receivables Upon Breach of Covenant or Representation and Warranty by
Servicer. The Borrower or the Servicer, as the case may be, shall
inform the other parties to this Agreement and the Initial Qualifying Swap
Counterparty promptly, in writing, upon the discovery of any breach of the
Servicer’s representations, warranties and/or covenants pursuant to
Section 4.02, Section 6.05 or Article V;
provided, however, that the failure to provide any such
notice
shall not diminish, in any manner whatsoever, any obligation of the Servicer
hereunder to repurchase any Pledged Receivable. Unless such breach
shall have been cured
by
the last day of the first full calendar month following the discovery by or
notice to the Servicer of such breach (and provided that a Facility Deficiency
exists on such last day), the Servicer (if LEAF Financial or an Affiliate
thereof) shall have an obligation, and the Borrower shall and the Collateral
Agent may, enforce such obligation of the Servicer (if LEAF Financial or an
Affiliate thereof), to repurchase any Pledged Receivable materially and
adversely affected by such breach. The Borrower shall notify the
Collateral Agent promptly, in writing, of any failure by the Servicer to so
repurchase any such Pledged Receivable. In consideration of the
repurchase of such Pledged Receivable, the Servicer shall remit funds in an
amount equal to the Release Price for
such
Pledged Receivable to the Collection Account on the date of such
repurchase. The obligations of the Servicer under this
Section 6.20 are in addition to, and in no way limit, any
obligations of the Servicer in its individual capacity under the Purchase
and
Sale Agreement. It is understood and agreed that the obligation of
the Servicer to purchase any Receivables is not intended to, and shall not,
constitute a guaranty of the collectibility or payment of any Receivable
which
is not collected, not paid or uncollectible on account of the insolvency,
bankruptcy, or financial inability to pay of the related
Obligor.
SECTION
6.21 Compliance
with Applicable Law. The Servicer and the Borrower shall at all
times comply in all material respects with all requirements of applicable
federal, state and local laws, and regulations thereunder (including, without
limitation, usury laws, the Federal Truth-in-Lending Act, the Equal Credit
Opportunity Act, the Fair Credit Billing Act, the Fair Credit Reporting Act,
the
Fair Debt Collection Practices Act, the Federal Trade Commission Act, the
Magnuson-Moss Warranty Act, the Federal Reserve Board’s Regulations “B” and “Z”,
the Soldiers’ and Sailors’ Civil Relief Act of 1940 and state adaptations of the
National Consumer Act and of the Uniform Consumer Credit Code and all other
consumer credit laws and equal credit opportunity and disclosure laws) in the
conduct of its business.
SECTION
6.22 Receipt
of Certificates of Title. Any Receivable with respect to which
the Obligor Collateral includes a Vehicle and for which the Servicer shall
not
have (i) received a Certificate of Title satisfying the Titling
Requirements and (ii) delivered such Certificate of Title to the Custodian
within 90 days of the first day of inclusion of such Pledged Receivable in
the calculation of the Facility Limit, shall no longer be deemed to be an
Eligible Receivable and, therefore, shall no longer be included in the
calculation of the Facility Limit. In the case of any Receivable
excluded from the calculation of the Facility Limit pursuant to the previous
sentence, the Receivable so excluded from the calculation of the Facility Limit
may at a later time be included in the calculation of the Facility Limit,
provided, that (i) the Custodian shall have received the Certificate
of Title described above with respect to such Receivable from the applicable
Registrar of Titles and delivered such Certificate of Title to the Custodian
and
(ii) such Receivable is otherwise an Eligible Receivable at such
time.
SECTION
6.23 Lenders’
Bank Limitation of Liability. o) The Lenders’ Bank undertakes to
perform only such duties and obligations as are specifically set forth in this
Agreement, it being expressly understood by the parties hereto that there are
no
implied duties or obligations under this Agreement. Neither the
Lenders’ Bank nor any of its officers, directors, employees or agents shall be
liable, directly or indirectly, for any damages or expenses arising out of
the
services performed under this Agreement other than damages which result from
the
gross negligence or willful misconduct of it or them. In no event
will the Lenders’ Bank or any of its officers, directors, employees or agents be
liable for any consequential, indirect or special damages.
(b) The
Lenders’ Bank shall not be liable for any error of judgment, or for any act done
or step taken or omitted by it, in good faith, or for any mistakes of fact
or
law, or for anything which it may do or refrain from doing in connection
herewith.
(c) The
Lenders’ Bank may rely on and shall be protected in acting upon any certificate,
instrument, opinion, notice, letter, telegram or other document delivered to
it
by any other Person and which in good faith it believes to be genuine and which
has been signed by the proper party or parties. The Lenders’ Bank may
rely on and shall be protected in acting upon the written instructions of any
designated officer of the Borrower, the Servicer or the Lender.
(d) The
Lenders’ Bank may consult with counsel reasonably satisfactory to it and the
opinion of such counsel shall be full and complete authorization and protection
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in accordance with the opinion of such counsel.
(e) The
Lenders’ Bank shall not be required to expend or risk its own funds or otherwise
incur financial liability in the performance of any of its duties hereunder,
or
in the exercise of its rights or powers, if the Lenders’ Bank believes that
repayment of such funds (repaid in accordance with the terms of this Agreement)
or adequate indemnity against such risk or liability is not reasonably assured
to it.
(f) The
Lenders’ Bank shall not be deemed to be a fiduciary of any party
hereto.
(g) The
parties hereto agree that in no event will the Lenders’ Bank be liable for
special, indirect or consequential damages.
ARTICLE
VII
EVENTS
OF DEFAULT
SECTION
7.01 Events
of Default. If any of the following events (each an “Event of
Default”) shall occur:
(a) the
occurrence of any Bankruptcy Event with respect to the Borrower, Owner, Resource
America, the Originator or the Servicer; or
(b) any
representation or warranty made or deemed to be made by the Borrower or the
Servicer (or any of its officers) under or in connection with this Agreement
(or
any remittance report or other information or report delivered pursuant hereto)
or any other Transaction Document shall prove to be false or incorrect in any
respect and shall remain false or incorrect for a period fifteen (15) Business
Days after the Servicer or the Borrower become aware, or are notified by a
Lender, the Custodian or any other Person, that such representation or warranty
is false or incorrect; provided, however, that if any breach
described above is cured by the repurchase of Receivables pursuant to
Article VI of the Purchase and Sale Agreement or by a repayment
hereunder, or repurchase pursuant to Sections 4.03 or 6.20
hereof, such breach shall cease to constitute an Event of Default;
or
(c) (i) the
Borrower or the Servicer shall fail to perform or observe any term, covenant
or
agreement hereunder or under any other Transaction Document (other than
described in (x) clause (ii)
below) in any material respect and such failure remains unremedied for fifteen
(15) Business Days or (ii) either the Servicer or the Borrower shall fail
to make any payment or deposit to be made by it when due hereunder or under
any
other Transaction Document and such failure remains unremedied for two (2)
Business Days; or
(d) the
Borrower, Owner, Resource America or the Servicer shall
fail to pay (and such failure remains unremedied for two (2) Business Days)
any
principal of or premium or interest on any Debt in an amount in excess of
$10,000,000, when the same becomes due and payable (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise); or any other
default under any agreement or instrument relating to any Debt of the Borrower
or the Servicer or any other event, shall occur if the effect of such default
or
event is to accelerate, or to permit the acceleration of, the maturity of such
Debt; or any such Debt shall be declared to be due and payable or required
to be
prepaid (other than by a regularly scheduled required prepayment) prior to
the
stated maturity thereof; or
(e) the
Originator, the Borrower or any of their respective subsidiaries shall have
suffered any material adverse change to its business, financial condition or
any
other condition which, in any Lender’s sole discretion, constitutes a material
impairment of the Originator or the Borrower’s ability to perform its
Obligations; or
(f) (i) the
Collateral Agent shall at any time fail to have a valid, perfected, first
priority security interest in any of the Pledged Assets (other than Equipment
which has a value of less than (x) $25,000 if such Equipment is leased
under Dollar Purchase Option Contracts or (y) $50,000 if such Equipment is
leased under FMV Contracts) or (ii) any purchase by the Borrower of a
Receivable and the Collections, Related Security and Other Conveyed Property
with respect thereto under the Purchase and Sale Agreement shall, for any
reason, cease to create in favor of the Borrower a perfected ownership interest
in such Receivable and the Collections, Related Security and the Other Conveyed
Property with respect thereto; provided, however, that if an event
described in the foregoing clause (i) or (ii) is cured by the
repurchase of Receivables pursuant to Article VI of the Purchase and
Sale Agreement or by a repayment hereunder or repurchase pursuant to
Sections 4.03 or 6.20 hereof, within five Business Days, such
event shall cease to constitute an Event of Default; or
(g) the
Borrower or the Servicer shall have suffered any material adverse change to
its
financial condition or operations which would affect the collectibility of
the
Pledged Receivables or the Borrower’s or the Servicer’s ability to conduct its
business or fulfill its obligations hereunder or under any other Transaction
Document; or
(h) the
Servicer’s or the Borrower’s activities are terminated for any reason, including
any termination thereof by a regulatory, tax or accounting body; or
(i) the
occurrence of a Change of Control; or
(j) the
Purchase and Sale Agreement or any other Transaction Document or any material
provision of any of them shall cease to be in full force and effect and
enforceable in accordance with its terms, or the Servicer, the Borrower, or
any
Affiliate of the Servicer or the Borrower shall so assert in writing;
or
(k) the
occurrence of a Servicer Default; or
(l) either
(1) the Facility Amount exceeds the Facility Limit or (2) the aggregate
outstanding principal amount of the Class A Notes exceeds the Class A Facility
Limit; and, in each case, such event shall remain unremedied for two Business
Days; or
(m) the
auditor’s opinion accompanying the audited annual financial statements of the
Servicer or the Borrower is qualified in any manner; or
(n)
(i) any Qualifying Interest Rate Swap shall cease to be in full force and
effect, (ii) the Borrower or the Servicer fail to comply with any hedging
requirement hereunder or (iii) the counterparty under any Qualifying
Interest Rate Swap or former or purported Qualifying Interest Rate Swap fails
to
qualify as a Qualifying Swap Counterparty and does not post cash collateral
in a
manner satisfactory to the Lenders is not replaced by a Qualifying Swap
Counterparty within 45 days of such counterparty’s failure to so qualify,
(iv) the occurrence of any default by the Borrower or Servicer in the
observance or performance of any of the terms or provisions of any Qualifying
Interest Rate Swap or (v) any interest rate swap agreement represented by
the Borrower or the Servicer to be a Qualifying Interest Rate Swap shall fail
to
be, or cease to be, a Qualifying Interest Rate Swap; or
(o) Resource
America shall, at any time, permit its Tangible Net Worth to be less than the
Minimum Tangible Net Worth;
(p) either
(i) the provisions of the Transaction Documents relating to the Backup
Servicer or its duties under any of the Transaction Documents cease to be in
full force and effect and enforceable in accordance with their terms, or the
Backup Servicer shall so assert in writing, (ii) Lyon Financial Services,
Inc. or any successor Backup Servicer resigns, is removed by the Lenders, or
otherwise ceases to act as the Backup Servicer, and such Backup Servicer is
not
replaced by a new Backup Servicer satisfactory to the Lenders within 45 days
of
such resignation, removal or other event; or
(q) the
occurrence of three or more Termination Events;
then
the
Lenders may, by notice to the Borrower and each Qualifying Swap Counterparty,
declare the Program Termination Date to have occurred; provided, that, in
the case of any event described in Section 7.01(a) above, the
Program Termination Date shall be deemed to have occurred automatically upon
the
occurrence of such event. Upon any such declaration or automatic
occurrence, (i) the Borrower shall cease purchasing Receivables from
Originator under the Purchase and Sale Agreement, (ii) at the option of
each Lender in its sole discretion, such Lender may declare such Lender’s
related Loans made to the Borrower hereunder and all interest and all Fees
accrued on such Loans and any other Obligations to be immediately due and
payable (and the Borrower shall pay such Loans and all such amounts and
Obligations immediately), (iii) the Lenders, jointly and in their sole
discretion, may direct the Obligors to make all payments under the Pledged
Receivables directly to the Backup Servicer, the Collateral Agent or any lockbox
or account established by any of such parties. Any Collections
received in any such account (or received directly by any Lender or the
Collateral Agent) shall be applied to the Obligations in accordance with the
priority of payments set forth in Section 2.04(c). In
addition, upon any such declaration or upon any such automatic occurrence,
the
Lenders and the Collateral Agent shall have, in addition to all other rights
and
remedies under this Agreement or otherwise, all other rights and remedies
provided
under the UCC of the applicable jurisdiction and other applicable laws, which
rights shall be cumulative.
SECTION
7.02 Additional
Remedies of the Lenders. p) If, (i) upon any Lender’s
declaration that such Lender’s related Loans made to the Borrower hereunder are
immediately due and payable pursuant to Section 7.01 or (ii) on
the Facility Maturity Date, the aggregate outstanding principal amount of the
Loans, all accrued Fees and interest and any other Obligations are not
immediately paid in full, then the Collateral Agent, in addition to all other
rights specified hereunder, shall have the right to immediately sell in a
commercially reasonable manner, in a recognized market (if one exists) at such
price or prices as the Collateral Agent may reasonably deem satisfactory, any
or
all Pledged Assets and shall apply the proceeds thereof to the Obligations
in
accordance with the priority of payments set forth in Section
2.04(c).
(b) The
parties recognize that it may not be possible to sell all of the Pledged Assets
on a particular Business Day, or in a transaction with the same purchaser,
or in
the same manner because the market for such Pledged Assets may not be
liquid. Accordingly, the Collateral Agent may elect, in its sole
discretion, the time and manner of liquidating any Pledged Assets, and nothing
contained herein shall obligate the Collateral Agent to liquidate any Pledged
Assets on the date a Lender declares the Loans made to the Borrower hereunder
to
be immediately due and payable pursuant to Section 7.01 or to
liquidate all Pledged Assets in the same manner or on the same Business
Day.
(c) Any
amounts received from any sale or liquidation of the Pledged Assets pursuant
to
this Section 7.02 in excess of the Obligations will be returned to
the Borrower, its successors or assigns, or to whosoever may be lawfully
entitled to receive the same, or as a court of competent jurisdiction may
otherwise direct.
(d) Each
of the Class A Lender, the Class B Lender, the Collateral Agent and the Initial
Qualifying Swap Counterparty shall have, in addition to all the rights and
remedies provided herein and provided by applicable federal, state, foreign,
and
local laws (including, without limitation, the rights and remedies of a secured
party under the Uniform Commercial Code of any applicable state, to the extent
that the Uniform Commercial Code is applicable, and the right to offset any
mutual debt and claim), all rights and remedies available to such Person at
law,
in equity or under any other agreement between such Person and the
Borrower.
(e) Except
as otherwise expressly provided in this Agreement, no remedy provided for by
this Agreement shall be exclusive of any other remedy, each and every remedy
shall be cumulative and in addition to any other remedy, and no delay or
omission to exercise any right or remedy shall impair any such right or remedy
or shall be deemed to be a waiver of any Program Termination Event or Event
of
Default.
ARTICLE
VIII
INDEMNIFICATION
SECTION
8.01 Indemnities
by the Borrower. Without limiting any other rights which the
Class A Lender, the Class B Lender, the Collateral Agent, the Backup Servicer
(whether in its capacity as Backup Servicer or successor Servicer), the Lenders’
Bank, the Custodian, the Initial Qualifying Swap Counterparty or any of their
respective Affiliates may have hereunder or under applicable
law,
the
Borrower hereby agrees to indemnify each Lender, the Collateral Agent, the
Custodian, the Backup Servicer, the Lenders’ Bank, the Initial Qualifying Swap
Counterparty and each of their respective Affiliates (each, an “Indemnified
Party” for purposes of this Article VIII) from and against any
and all damages, losses, claims, liabilities and related costs and expenses,
including reasonable attorneys’ fees and disbursements (all of the foregoing
being collectively referred to as “Indemnified Amounts”), awarded against
or incurred by any of them arising out of or as a result of this Agreement
or in
respect of any Pledged Assets, excluding, however, (A) Indemnified Amounts
to
the extent resulting solely from gross negligence, bad faith or willful
misconduct on the part of an Indemnified Party, (B) taxes (including interest
and penalties imposed thereon) imposed by the jurisdiction in which such
Indemnified Party’s principal executive office is located, on or measured by the
overall net income of such Indemnified Party or (C) Indemnified Amounts to
the
extent that they are or result from lost profits (other than principal, interest
and Fees with respect to the Loans). Without limiting the foregoing,
the Borrower shall indemnify each Indemnified Party for Indemnified Amounts
relating to or resulting from any of the following (to the extent not resulting
solely from gross negligence, bad faith or willful misconduct on the part
of an
Indemnified Party):
(i) any
Pledged Receivable treated as or represented by the Borrower to be an Eligible
Receivable which is not at the applicable time an Eligible
Receivable;
(ii) reliance
on any representation or warranty made or deemed made by the Borrower or any
of
its officers under or in connection with this Agreement, which shall have been
false or incorrect in any material respect when made or deemed made or
delivered;
(iii) the
failure by the Borrower to comply with any term, provision or covenant contained
in this Agreement or any agreement executed in connection with this Agreement,
or with any applicable law, rule or regulation with respect to any Pledged
Assets, or the nonconformity of any Pledged Assets with any such applicable
law,
rule or regulation;
(iv) the
failure to vest and maintain vested in the Collateral Agent or to transfer
to
the Collateral Agent a first priority perfected security interest in the
Receivables which are, or are purported to be, Pledged Receivables, together
with all related Other Conveyed Property, Collections, Related Security and
other Pledged Assets related thereto (including, without limitation, the
Borrower’s interest in and to any and all Obligor Collateral with respect to
such Receivables), free and clear of any Adverse Claim whether existing at
the
time of the related Borrowing or at any time thereafter;
(v) the
failure to maintain, as of the close of business on each Business Day prior
to
the Collection Date, a Facility Amount which is less than or equal to the lesser
of (x) the Borrowing Limit on such Business Day and (y) the Facility
Limit on such Business Day;
(vi) the
failure to maintain, as of the close of business on each Business Day prior
to
the Collection Date, a Facility Amount, which is less than or equal to the
Facility Limit;
(vii) Reserved;
(viii) the
failure to file, or any delay in filing, financing statements or other similar
instruments or documents under the UCC of any applicable jurisdiction or other
applicable laws with respect to any Receivables which are, or are purported
to
be, Pledged Receivables
or
the
other Pledged Assets related thereto, whether at the time of the Borrowing
or at
any subsequent time;
(ix) any
dispute, claim, offset or defense (other than the discharge in bankruptcy of
an
Obligor) to the payment of any Receivable which is, or is purported to be,
a
Pledged Receivable (including, without limitation, a defense based on such
Receivable (or the Contract evidencing such Receivable) not being a legal,
valid
and binding obligation of such Obligor enforceable against it in accordance
with
its terms);
(x) any
failure of the Borrower to perform its duties or obligations in accordance
with
the provisions of this Agreement or any other Transaction Document;
(xi) the
failure of the Borrower to pay when due any taxes payable in connection with
the
Pledged Receivables or the Pledged Assets related thereto;
(xii) any
repayment by a Lender of any amount previously distributed in payment of Loans
or payment of interest or Fees or any other amount due hereunder, in each case
which amount such Lender believes in good faith is required to be
repaid;
(xiii) the
commingling by the Borrower of Collections of Pledged Receivables at any time
with other funds;
(xiv) any
investigation, litigation or proceeding related to this Agreement or the use
of
proceeds of Loans or the Pledged Assets;
(xv) any
failure by the Borrower to give reasonably equivalent value to Originator in
consideration for the transfer by Originator to the Borrower of any Receivable
or any attempt by any Person to void or otherwise avoid any such transfer under
any statutory provision or common law or equitable action, including, without
limitation, any provision of the Bankruptcy Code;
(xvi) [Reserved];
(xvii) any
failure of the Borrower or any of its agents or representatives to remit to
the
Collection Account, Collections of Pledged Receivables remitted to the Borrower
or any such agent or representative;
(xviii) any
failure on the part of the Borrower duly to observe or perform in any material
respect any covenant or agreement under any Qualifying Interest Rate Swap;
and/or
(xix) any
Contract related to any Pledged Receivable being rejected by an Obligor under
Section 365 of the Bankruptcy Code in the event that a Bankruptcy Event has
occurred with respect to such Obligor.
Any
amounts subject to the indemnification provisions of this
Section 8.01 shall be paid by the Borrower to the applicable Lender
on behalf of the applicable Indemnified Party within two (2) Business Days
following such Lender’s written demand therefor on behalf of the applicable
Indemnified Party (and such Lender shall pay such amounts to the applicable
Indemnified Party promptly after the receipt by such Lender of such
amounts). Each Lender, on behalf of any related
Indemnified
Party making a request for indemnification under this Section 8.01,
shall submit to the Borrower a certificate setting forth in reasonable detail
the basis for and the computations of the Indemnified Amounts with respect
to
which such indemnification is requested, which certificate shall be conclusive
absent demonstrable error.
If
the
Borrower has made any payments in respect of Indemnified Amounts to a Lender,
on
behalf of an Indemnified Party pursuant to this Section 8.01 and
such Indemnified Party thereafter collects any of such amounts from others,
such
Indemnified Party will promptly repay such amounts collected to the Borrower,
without interest.
SECTION
8.02 Indemnities
by Servicer. q) Without limiting any other rights which any
Indemnified Party may have hereunder or under applicable law, the Servicer
(if
LEAF Financial or one of its Affiliates) hereby agrees to indemnify each
Indemnified Party from and against any and all damages, losses, claims,
liabilities and related costs and expenses (including reasonable attorneys’ fees
and disbursements) (all of the foregoing being collectively referred to as
“Servicer Indemnified Amounts”) suffered or sustained by any Indemnified
Party as a consequence of any of the following, excluding, however, Servicer
Indemnified Amounts resulting solely from (A) any gross negligence, bad faith
or
willful misconduct of any Indemnified Party claiming indemnification hereunder,
(B) taxes (including interest and penalties imposed thereon) imposed by the
jurisdiction in which such Indemnified Party’s principal executive office is
located, on or measured by the overall net income of such Indemnified Party;
(C)
Indemnified Amounts to the extent that they are or result from lost profits
(other than principal, interest and Fees with respect to the Loans); and (D)
Indemnified Amounts to the extent the same includes losses that arise solely
due
to Receivables being uncollectible on account of the insolvency, bankruptcy
or
lack of creditworthiness of the related Obligor or would constitute recourse
to
Servicer for such losses:
(i) the
inclusion, in any computations made by it in connection with any Facility Limit
Certificate or Monthly Remittance Report or other report prepared by it
hereunder, of any Pledged Receivables which were not Eligible Receivables as
of
the date of any such computation;
(ii) reliance
on any representation or warranty made by the Servicer (if LEAF Financial or
one
of its Affiliates) or any of its officers under or in connection with this
Agreement, which shall have been false or incorrect in any material respect
when
made or delivered;
(iii) the
failure by the Servicer (if LEAF Financial or any of its Affiliates) to comply
with (A) any term, provision or covenant contained in this Agreement, or
any agreement executed in connection with this Agreement, or (B) any
applicable law, rule or regulation applicable to it with respect to any Pledged
Assets;
(iv) any
action or inaction by the Servicer (if LEAF Financial or one of its Affiliates)
that causes the Collateral Agent not to have a first priority perfected security
interest in the Receivables that are, or are purported to be, Pledged
Receivables, together with all related Other Conveyed Property, Collections,
Related Security and other Pledged Assets related thereto (including without
limitation, the Borrower’s interest in and to any and all Obligor Collateral
with respect to such Receivables), free and clear of any Adverse Claim whether
existing at the time of the related Borrowing or any time
thereafter;
(v) the
commingling by the Servicer (if LEAF Financial or one of its Affiliates) of
the
Collections of Pledged Receivables at any time with any other
funds;
(vi) any
failure of the Servicer (if LEAF Financial or one of its Affiliates) or any
of
its agents or representatives (including, without limitation, agents,
representatives and employees of the Servicer acting pursuant to authority
granted under Section 6.01 hereof) to remit to Collection Account,
Collections of Pledged Receivables remitted to the Servicer or any such agent
or
representative;
(vii) the
failure by the Servicer (if LEAF Financial or any of its Affiliates) to perform
any of its duties or obligations in accordance with the provisions of this
Agreement or errors or omissions related to such duties; and/or
(viii) notwithstanding
whether any Pledged Receivable shall have been repurchased by the Servicer
pursuant to Section 6.20, any of the events or facts giving rise to
a breach of any of the Servicer’s representations, warranties, agreements and/or
covenants set forth in Article V or
Article VI.
(b) Any
Servicer Indemnified Amounts shall be paid by the Servicer (if LEAF Financial
or
one of its Affiliates) to each related Lender, for the benefit of the applicable
Indemnified Party, within two (2) Business Days following receipt by the
Servicer of such Lender’s written demand therefor (and such Lender shall pay
such amounts to the applicable Indemnified Party promptly after the receipt
by
such Lender of such amounts).
(c) If
the Servicer has made any indemnity payments to a Lender, on behalf of an
Indemnified Party pursuant to this Section 8.02 and such Indemnified
Party thereafter collects any of such amounts from others, such Indemnified
Party will promptly repay such amounts collected to the Servicer, without
interest.
Each
applicable Indemnified Party shall deliver to the indemnifying party under
Section 8.01 and Section 8.02, within a reasonable time
after such Indemnified Party’s receipt thereof, copies of all notices and
documents (including court papers) received by such Indemnified Party relating
to the claim giving rise to the Indemnified Amounts.
ARTICLE
IX
MISCELLANEOUS
SECTION
9.01 Amendments
and Waivers. No amendment or modification of any provision of
this Agreement shall be effective without the written agreement of the Borrower,
the Servicer, the Lenders and, to the extent any of their rights or obligations
hereunder are adversely affected thereby, the Backup Servicer, the Custodian,
the Lenders’ Bank, and/or each Qualifying Swap Counterparty, and no termination
or waiver of any provision of this Agreement or consent to any departure
therefrom by the Borrower or the Servicer shall be effective without the written
concurrence of the Backup Servicer and the Lenders. Any waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
SECTION
9.02 Notices,
Etc. All notices and other communications provided for hereunder
shall, unless otherwise stated herein, be in writing (including telex
communication, communication
by facsimile copy or electronic mail) and mailed, telexed, transmitted or
delivered, as to each party hereto, at its address set forth on Schedule
VI hereto or specified in such party’s Assignment and Acceptance or at such
other address (including, without limitation, an electronic mail address) as
shall be designated by such party in a written notice to the other parties
hereto. All such notices and communications shall be effective, upon
receipt, or in the case of notice by facsimile copy or electronic mail, when
verbal communication of receipt is obtained, except that notices and
communications pursuant to Article II shall not be effective until
received.
SECTION
9.03 No
Waiver; Remedies. No failure on the part of any Lender to
exercise, and no delay in exercising, any right hereunder shall operate as
a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive
of any remedies provided by law.
SECTION
9.04 Binding
Effect; Assignability; Multiple Lenders. r) This Agreement shall
be binding upon and inure to the benefit of the Borrower, the Servicer, the
Lenders, the Backup Servicer, the Custodian, the Lenders’ Bank and their
respective successors and permitted assigns. This Agreement and each
Lender’s rights and obligations hereunder (and under its related Note) and
interest herein shall be assignable in whole or in part (including by way of
the
sale of participation interests therein) by such Lender and its successors
and
assigns. None of the Borrower, the Servicer or the Backup Servicer
may assign any of its rights and obligations hereunder or any interest herein
without the prior written consent of the Lenders; provided that the Borrower
shall be permitted, on not less than 10 Business Days’ prior written notice to
the other parties hereto and with the prior written consent of the Lenders,
to
be provided in the sole discretion of the Lenders, to assign all of its rights
and obligations hereunder to, and simultaneously with the transfer of all
Pledged Assets to, a Permitted Transferee which shall have assumed in a writing
satisfactory to the Lenders all such rights and obligations and acquired all
such Pledged Assets. The parties to each assignment or participation
made pursuant to this Section 9.04 shall execute and deliver to the
applicable Lender, for its acceptance and recording in its books and records,
an
assignment and acceptance agreement (an “Assignment and Acceptance”) or a
participation agreement or other transfer instrument reasonably satisfactory
in
form and substance to (i) the parties to
such
Assignment and Acceptance, (ii) in the case of an assignment of the Class
B
Loan, the Class A Lender and (iii) prior to an Event of Default, the
Borrower. Each such assignment or participation shall be effective as
of the date specified in the applicable Assignment and Acceptance or other
agreement or instrument only after the execution, delivery, acceptance and
recording thereof as described in the preceding sentence. Each Lender
shall notify the Borrower of any assignment or participation thereof made
pursuant to this Section 9.04. Each Lender may, in
connection with any assignment or participation or any proposed assignment
or
participation pursuant to this Section 9.04, disclose to the
assignee or participant or proposed assignee or participant any information
relating to the Borrower and the Pledged Assets furnished to such Lender
by or
on behalf of the Borrower or the Servicer; provided, however, that
such Lender shall not disclose any such information until it has obtained
an
agreement from such assignee or participant or proposed assignee or participant
that it shall treat as confidential (under terms mutually satisfactory to
such
Lender, the Borrower, the Servicer and such assignee or participant or proposed
assignee or participant) any information obtained which is not already publicly
known or available, and may disclose information relevant to the tax treatment
and tax structure of the transactions contemplated by this
Agreement.
(b) Whenever
the term “Lender” is used herein, it shall mean the Class A Lender, the Class B
Lender and/or any other Person which shall have executed an Assignment and
Acceptance, in each case with respect to either the Class A Loan or the Class
B
Loan; provided, however, that the holders of the Class A Notes
collectively, and the holders of the Class B Notes collectively, shall have
a
prorata share (subject to any provisions of this Agreement which
shall subordinate the rights of the holders of the Class B Notes to the holders
of the Class A Notes) of the rights and obligations of the Lender(s) hereunder
with respect to the Pledged Assets and otherwise in the relative proportions
that the outstanding principal amount of the Class A Notes or the Class B Notes,
respectively, bears to the sum of the outstanding principal amount of the Class
A Notes and the Class B Notes on such date of calculation (its respective
“Commitment Percentage”). Unless otherwise specified herein, any right at
any time of any Lender to enforce any remedy under this Agreement or any
Transaction Document shall be exercised by the Controlling Holders.
(c) Subject
to Section 9.04(a), each of the parties hereto hereby agrees to
execute any amendment to this Agreement that is required in order to facilitate
the addition of any new Lender hereunder as contemplated by this
Section 9.04 and which does not have any adverse effect on the
Borrower, the Originator, the Servicer or any Affiliate thereof.
SECTION
9.05 Term
of This Agreement. This Agreement including, without limitation,
the Borrower’s obligation to observe its covenants set forth in
Articles V and VI and the Servicer’s obligation to observe
its covenants set forth in Articles V and VI, shall remain in
full force and effect until the Collection Date; provided,
however, that the rights and remedies with respect to any breach of
any
representation and warranty made or deemed made by the Borrower or the Servicer
pursuant to Articles III and IV and the indemnification and
payment provisions of Article VIII and Article IX and
the provisions of Section 9.08 and Section 9.09 shall be
continuing and shall survive any termination of this Agreement.
SECTION
9.06 GOVERNING
LAW; JURY WAIVER; CONSENT TO JURISDICTION. s) THIS AGREEMENT
SHALL, IN ACCORDANCE WITH SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF
THE STATE OF NEW YORK, BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO ANY CONFLICTS OF LAW PRINCIPLES THEREOF THAT WOULD CALL FOR THE
APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION, EXCEPT TO THE EXTENT THAT
THE
VALIDITY OR PERFECTION OF THE INTERESTS OF THE LENDERS IN THE PLEDGED
RECEIVABLES, OR REMEDIES HEREUNDER, IN RESPECT THEREOF, ARE GOVERNED BY THE
LAWS
OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK.
(b) EACH
OF THE PARTIES HERETO WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT
IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING DIRECTLY
OR
INDIRECTLY OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREUNDER.
(c) ANY
LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN
THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN
DISTRICT OF NEW YORK; AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH
OF
THE PARTIES HERETO CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO
THE
NON-EXCLUSIVE
JURISDICTION OF THOSE COURTS. EACH OF THE PARTIES HERETO IRREVOCABLY
WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY OBJECTION, INCLUDING ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, THAT IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION
OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT
RELATED HERETO. EACH OF THE PARTIES HERETO WAIVES PERSONAL SERVICE OF ANY
SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH SERVICE MAY BE MADE BY ANY OTHER
MEANS PERMITTED BY NEW YORK LAW.
SECTION
9.07 Costs,
Expenses and Taxes. t) In addition to the rights of
indemnification granted to the Backup Servicer (whether in its capacity as
Backup Servicer or successor Servicer), the Custodian, the Lenders’ Bank, each
Lender and its respective Affiliates under Section 8.01 hereof, the
Borrower agrees to pay on demand all reasonable (and reasonably documented)
costs and expenses of the Backup Servicer, the Custodian, the Lenders’ Bank and
each Lender incurred in connection with the preparation, execution or delivery
of, or any waiver or consent issued or amendment prepared in connection with,
this Agreement, the other Transaction Documents and the other documents to
be
delivered hereunder or in connection herewith or therewith or incurred in
connection with any amendment, waiver or modification of this Agreement, any
other Transaction Document, and any other documents to be delivered hereunder
or
thereunder or in connection herewith or therewith that is necessary or requested
(and, with respect to such Lender, actually entered into) by any of the
Borrower, the Servicer, such Lender or made necessary or desirable as a result
of the actions of any regulatory, tax or accounting body affecting such Lender
and its Affiliates, or which is related to an Event of Default, including,
without limitation, the reasonable fees and out-of-pocket expenses of counsel
for the Backup
Servicer,
the Custodian, the Lenders’ Bank and each Lender with respect thereto and with
respect to advising the Backup Servicer, the Custodian, the Lenders’ Bank and
each Lender as to their respective rights and remedies under this Agreement
and
the other documents to be delivered hereunder or in connection herewith,
and all
costs and expenses, if any (including reasonable counsel fees and expenses),
incurred by the Backup Servicer, the Custodian, the Lenders’ Bank or any Lender
in connection with the enforcement of this Agreement and the other documents
to
be delivered hereunder or in connection herewith.
(b) The
Borrower shall pay on demand any and all stamp, sales, excise and other taxes
and fees payable or determined to be payable in connection with the execution,
delivery, filing and recording of this Agreement, the other documents to be
delivered hereunder or any agreement or other document providing liquidity
support, credit enhancement or other similar support to any Lender which is
specific to this Agreement or the funding or maintenance of Loans
hereunder.
(c) The
Borrower shall pay on demand all other costs, expenses and taxes (excluding
franchise and income taxes) incurred by any Lender or the Initial Qualifying
Swap Counterparty or any shareholder thereof related to this Agreement, any
other Transaction Document or any Qualifying Interest Rate Swap or similar
interest rate cap agreement (“Other Costs”), including, without
limitation, the reasonable fees and out-of-pocket expenses of counsel for such
Lender or the Initial Qualifying Swap Counterparty with respect to
(i) advising such Person as to its rights and remedies under this Agreement
and the other documents to be delivered hereunder or in connection herewith
and
(ii) the enforcement of this Agreement and the other documents to be
delivered hereunder or in connection herewith; provided, however,
that the Borrower shall have no obligation
to
pay
the fees and out-of-pocket expenses of counsel to the Initial Qualifying Swap
Counterparty related to the initial negotiation, execution and delivery of
any
Qualifying Interest Rate Swap.
(d) Without
limiting any other provision hereof, the Borrower shall pay on demand all costs,
expenses and fees of the Backup Servicer prior to the occurrence of a Servicer
Default and the appointment of the Backup Servicer as Servicer hereunder related
to its duties under this Agreement.
(e) Any
Person making a claim under this Section 9.07 shall submit to the
Borrower a notice setting forth in reasonable detail the basis for and the
computations of the applicable costs, expenses, taxes or similar
items.
SECTION
9.08 No
Proceedings. The Servicer, the Backup Servicer, the Custodian,
the Collateral Agent, the Class A Lender, the Class B Lender and the Lenders’
Bank each hereby agree that it will not institute against, or join any other
Person in instituting against, the Borrower any proceedings of the type referred
to in the definition of Bankruptcy Event prior to two years and one day after
the Collection Date.
SECTION
9.09 Recourse
Against Certain Parties. No recourse under or with respect to any
obligation, covenant or agreement (including, without limitation, the payment
of
any fees or any other obligations) of any Lender as contained in this Agreement
or any other agreement, instrument or document entered into by the Borrower
or
such Lender pursuant hereto or in connection herewith
shall
be had against any administrator of the Borrower or such Lender or any
incorporator, affiliate, stockholder, officer, employee or director of the
Borrower or such Lender or of any such administrator, as such, by the
enforcement of any assessment or by any legal or equitable proceeding, by
virtue
of any statute or otherwise;
itbeingexpresslyagreedandunderstood
that the agreements of each party hereto contained in this Agreement and
all of
the other agreements, instruments and documents entered into by the Borrower
or
any Lender pursuant hereto or in connection herewith are, in each case, solely
the corporate obligations of such party (and nothing in this
Section 9.09 shall be construed to diminish in any way such
corporate obligations of such party), and that no personal liability whatsoever
shall attach to or be incurred by any administrator of the Borrower or any
Lender or any incorporator, stockholder, affiliate, officer, employee or
director of the Borrower or such Lender or of any such administrator, as
such,
or any of them, under or by reason of any of the obligations, covenants or
agreements of the Borrower or such Lender contained in this Agreement or
in any
other such instruments, documents or agreements, or which are implied therefrom,
and that any and all personal liability of every such administrator of the
Borrower or any Lender and each incorporator, stockholder, affiliate, officer,
employee or director of the Borrower or such Lender or of any such
administrator, or any of them, for breaches by the Borrower or such Lender
of
any such obligations, covenants or agreements, which liability may arise
either
at common law or in equity, by statute or constitution, or otherwise, is
hereby
expressly waived as a condition of and in consideration for the execution
of
this Agreement. The provisions of this Section 9.09 shall
survive the termination of this Agreement.
SECTION
9.10 Execution
in Counterparts; Severability; Integration. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be
an
original and all of which when taken together shall constitute one and the
same
agreement. Delivery of an executed counterpart
of a signature page to this Agreement by facsimile shall be effective as
delivery of a manually executed counterpart of this Agreement. In the
event that any provision in or obligation under this Agreement shall be invalid,
illegal or unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions or obligations, or of such provision
or obligation in any other jurisdiction, shall not in any way be affected or
impaired thereby. This Agreement contains the final and complete
integration of all prior expressions by the parties hereto with respect to
the
subject matter hereof and shall constitute the entire agreement among the
parties hereto with respect to the subject matter hereof, superseding all prior
oral or written understandings other than the Fee Letter.
SECTION
9.11 Tax
Characterization. Notwithstanding any provision of this
Agreement, the parties hereto intend that the Loans advanced hereunder shall
constitute indebtedness of the Borrower for federal income tax
purposes.
SECTION
9.12 Calculation
of Performance Triggers. Notwithstanding anything to the contrary
herein, Included Repurchased Receivables shall be treated as Pool Receivables
for purposes of each calculation of the Annualized Default Rate, Annualized
Net
Loss Rate, and Delinquency Rate required to be made hereunder (but for no other
purpose).
ARTICLE
X
THE
COLLATERAL AGENT
SECTION
10.01 No
Implied Duties. The Collateral Agent shall be obligated to
perform only the duties as are specifically set forth in this Agreement, and
no
implied covenants or obligations shall be read into this Agreement against
the
Collateral Agent.
SECTION
10.02 Limits
on Liability. The Collateral Agent shall not be liable for any
acts, omissions, errors of judgment or mistakes of fact or law made, taken
or
omitted to be made or taken by it in accordance with this Agreement and the
other Transaction Documents (including acts, omissions, errors or mistakes
with
respect to the Collateral), except for those arising out of or in connection
with the Collateral Agent’s gross negligence or willful
misconduct. The Collateral Agent may consult with counsel,
accountants and other experts, and any opinion or advice of any such counsel,
any such accountant and any such other expert shall be full and complete
authorization and protection in respect of any action taken or suffered by
the
Collateral Agent hereunder in accordance therewith. The Collateral Agent shall
have the right at any time to seek instructions concerning the administration
of
the Pledged Assets from any court of competent jurisdiction. The
Collateral Agent may conclusively rely, and shall be fully protected in acting,
upon any resolution, statement, certificate, instrument, opinion, report,
notice, request, consent, order, bond or other paper or document which it has
no
reasonable reason to believe to be other than genuine and to have been signed
or
presented by the proper party or parties or, in the case of cables, telecopies
and telexes, to have been sent by the proper party or parties. Absent
its gross negligence or willful misconduct, the Collateral Agent may
conclusively rely, as to the truth of the statements and the correctness of
the
opinions expressed therein, upon any certificates or opinions furnished to
the
Collateral Agent and conforming to the requirements of this Agreement and the
other Transaction Documents, if any.
SECTION
10.03 Acknowledgement. Each
Lender hereby acknowledges and agrees that its rights and obligations as a
“Lender” under the Collection Account Agreement are being held by Morgan Stanley
in its capacity as Collateral Agent for the benefit of the Secured
Parties.
[Signature
page to follow.]
IN
WITNESS WHEREOF, the parties have caused this Agreement to be executed by their
respective officers thereunto duly authorized, as of the date first above
written.
THE
BORROWER:
|
LEAF
CAPITAL FUNDING III, LLC
By:_______________________________________
Name:
Title:
|
THE
SERVICER:
|
LEAF
FINANCIAL CORPORATION
By:_______________________________________
Name:
Title:
|
|
|
THE
CLASS A LENDER AND
THE
COLLATERAL AGENT
|
MORGAN
STANLEY BANK
By:_______________________________________
Name:
Title:
|
THE
CLASS B LENDER
|
MORGAN
STANLEY ASSET FUNDING INC.
By:_______________________________________
Name:
Title:
|
THE
CUSTODIAN AND
THE
LENDERS’ BANK:
|
U.S.
BANK NATIONAL ASSOCIATION
By:_______________________________________
Name:
Title:
|
THE
BACKUP SERVICER
|
LYON
FINANCIAL SERVICES, INC. (D/B/A
U.S.
BANK PORTFOLIO SERVICES)
By:_______________________________________
Name:
Title:
|
SCHEDULE
I
CONDITION
PRECEDENT DOCUMENTS
As
required by Section 3.01 of the Agreement, each of the following
items must be delivered to the Lenders prior to the date of the
Borrowing:
(a) A
copy of this Agreement duly executed by each of the parties hereto;
(b) A
certificate of the Secretary or Assistant Secretary of each of the Borrower,
the
Originator and the Servicer, dated the date of this Agreement, certifying
(i) the names and true signatures of the incumbent officers authorized to
sign on behalf of the such Person each Transaction Document to which it is
a
party (on which certificate the Lenders may conclusively rely until such time
as
the Lenders shall receive from such Person a revised certificate meeting the
requirements of this paragraph (b)), (ii) that the copy of the
certificate of incorporation or formation of each such Person attached thereto
is a complete and correct copy and that such certificate of incorporation or
formation has not been amended, modified or supplemented and is in full force
and effect, (iii) that the copy of the organizational documents of such
Person attached thereto is a complete and correct copy, and that such
organizational documents have not been amended, modified or supplemented and
is
in full force and effect, and (iv) the resolutions of the board of
directors or members of such Person approving and authorizing the execution,
delivery and performance by such Person of each Transaction Document to which
it
is a party;
(c) Good
standing certificate, dated as of a recent date for each of the Borrower, the
Originator and the Servicer, issued by its jurisdiction of
organization;
(d) Executed,
original copies of proper financing statements (the “Facility Financing
Statements”) describing the Pledged Receivables, Other Conveyed Property,
Related Security and other Pledged Assets, and (a) filed against Originator
in
favor of the Borrower as assignor secured party and naming the Collateral Agent
as total assignee and (b) filed against the Borrower and in favor of the
Collateral Agent, as secured party, and other, similar instruments or documents,
as may be necessary or, in the opinion of the Collateral Agent, desirable under
the UCC of all appropriate jurisdictions or any comparable law to perfect the
Collateral Agent’s interests in all Pledged Receivables, Other Conveyed
Property, Related Security and other Pledged Assets;
(e) Executed,
original copies of proper financing statements, if any, necessary to release
all
security interests and other rights of any Person in the Pledged Receivables,
Other Conveyed Property, Related Security and other Pledged Assets previously
granted by Originator or the Borrower;
(f) Certified
copies of requests for information or copies (or a similar UCC search report
certified by a party acceptable to the Lenders), dated a date reasonably near
to
the date of the initial Borrowing, listing all effective financing statements
(including the Facility Financing Statements), which name any of the Borrower
or
the Originator (under such party’s present name and any previous name) as debtor
and which are filed in the jurisdictions in which the Facility Financing
Statements were filed, together with copies of such financing statements (none
of which, other than the Facility Financing Statements, shall cover any Pledged
Assets);
(g) One
or more favorable Opinions of Counsel, of counsel to the Originator and the
Borrower, with respect to such matters as any Lender may reasonably request
(including an opinion, with respect to the creation, perfection and first
priority of the security interest of the Borrower and the Collateral Agent
in
the property described in such Opinion of Counsel);
(h) One
or more favorable Opinions of Counsel, of counsel to the Originator and the
Borrower, with respect to the true conveyance of the Receivables under the
Purchase and Sale Agreement, and issues of substantive
consolidation;
(i) One
or more favorable Opinions of Counsel, of counsel to the Originator, the
Borrower, the Custodian and the Backup Servicer with respect to, among other
things, the due authorization, execution and delivery of, and enforceability
of,
this Agreement and the other Transaction Documents;
(j) A
favorable Opinion of Counsel of counsel to the Borrower, with respect to the
first priority perfected security interest of the Collateral Agent in the
Collection Account and the funds therein;
(k) Any
necessary third party consents to the closing of the transactions contemplated
hereby;
(l) A
copy of each of the other Transaction Documents duly executed by the parties
thereto; and
(m) A
copy of the directors and officers liability insurance policy referred to in
Section 6.16 hereof together with a certification from the
applicable insurance company that such policy is in full force and effect on
the
date hereof.
(n) Copies
of all other documents referred to in the Closing Checklist attached as Exhibit
I hereto, satisfactory in all respect to the Lenders.
SCHEDULE
II
PRIOR
NAMES, TRADENAMES, FICTITIOUS NAMES
AND
“DOING BUSINESS AS” NAMES
1. Borrower: None
2. Servicer: LEAF
Financial Corporation
LEAF
Financial Corporation was previously named Fidelity Leasing
Corporation. Effective February 28, 1996, Fidelity Leasing
Corporation changed its name to F.L. Partnership Management,
Inc. Effective May 1, 2000, F.L. Partnership Management, Inc. and FL
Financial Services, Inc. merged, with F.L. Partnership Management, Inc. as
the
surviving entity. Effective December 13, 2001, F.L. Partnership
Management, Inc. changed its name to LEAF Financial
Corporation. Effective June 29, 2004, LEAF Asset Management, Inc. and
LEAF Financial Corp. merged, with LEAF Financial Corp. as the surviving
entity. LEAF Financial Corporation has no trade names, fictitious
names or “doing business as” names.
SCHEDULE
III
REPRESENTATIONS
AND WARRANTIES WITH
RESPECT
TO ELIGIBLE RECEIVABLES
The
following representations and warranties are made by the Borrower with respect
to the Contracts related to Pledged Receivables which are designated as being
Eligible Receivables on a Facility Limit Certificate or a Monthly Remittance
Report, or are otherwise represented to the Lenders as being Eligible
Receivables, or are included as Eligible Receivables in any calculation set
forth herein.
1. Each
such Contract represents the genuine, legal, valid, binding and full recourse
payment obligation of the Obligor thereunder, enforceable by the Borrower in
accordance with its terms and the Obligor, with respect to such Contract (and
any guarantor of the Obligor’s obligations thereunder), had full legal capacity
to execute and deliver such Contract and any other documents related
thereto.
2. [Intentionally
omitted.]
3. To
the extent that such Contract consists of a payment schedule or promissory
note
(if any), together with the “Master Agreement”, “Finance Agreement” or similar
agreement related thereto and incorporated by reference therein, each other
payment schedule or promissory note (if any) related to the same “Master
Agreement”, “Finance Agreement” or similar agreement is also a Contract related
to a Pledged Receivable. To the extent that such Contract consists of
a “Master Lease Schedule” or similar agreement together with a “Master Lease
Agreement” or similar agreement which is related to, and incorporated by
reference therein, each other “Master Lease Schedule” or similar agreement
related to the same “Master Lease Agreement” or similar agreement is also a
Contract related to a Pledged Receivable.
4. Reserved.
5. Each
such Contract (i) was (a) originated by Originator in the ordinary course
of Originator’s business and Originator had all necessary licenses and permits
to originate Contracts in the State where the related Obligor and the related
Obligor Collateral were located or (b) purchased by Originator, in a transaction
that would constitute a “true sale” for bankruptcy purposes, from a Person (a
“Seller”) (other than Northern Leasing Systems, Inc. or any Affiliate
thereof) who originated such Contract in the ordinary course of Seller’s
business and who had all necessary licenses and permits to originate Contracts
in the State where the related Obligor and the related Obligor Collateral were
located, (ii) was sold by Originator to the Borrower under the Purchase and
Sale Agreement and the Borrower has all necessary licenses and permits to own
Receivables and enter into Contracts in the state where the related Obligor
and
the related Obligor Collateral are located, (iii) contains customary and
enforceable provisions, such as to render the rights and remedies of the
Borrower (and any assignee thereof) adequate for realization against the
collateral security related thereto and (iv) provides for level Scheduled
Payments during the term of such Contract or such Contract is a Non-Level
Payment Contract.
6. Each
such Contract was originated by Originator or the Seller without any fraud
or
material misrepresentation on the part of the related Obligor or Originator
or
the Seller. Each such
Contract
was sold by Originator to the Borrower without any fraud or material
misrepresentation on the part of Originator.
7. No
such Contract is the subject of any litigation (other than as set forth in
any
of the FDIC Documents or any Schedule thereto), nor is it subject to any right
of rescission, setoff, counterclaim or defense on the part of the Obligor
thereunder.
8. Each
such Contract has had no provision thereof waived, amended, altered or modified
in any respect since its acquisition or origination by LEAF except in conformity
with the Credit and Collection Policy.
9. The
Obligor, with respect to each such Contract, has a billing address in the United
States and, except as otherwise permitted in writing by the Lenders from time
to
time, the Equipment which is the subject of each such Contract and all other
Obligor Collateral with respect thereto is located in the United
States.
10. Each
such Contract (i) is calculated at a fixed yield, (ii) is fully
amortizing in periodic installments over its remaining term (which may include
a
Balloon Payment or Put Payment), (iii) has a remaining term of 180 months
or less and does not permit renewal or extension, (iv) provides for
acceleration of the Scheduled Payments thereunder if the related Obligor is
in
default under or has otherwise violated or breached any material provision
of
such Contract, (v) neither the Originator, the Servicer, the Borrower or
any other Person has applied any part of any cash collateral paid under such
Contract to any of the Scheduled Payments due under such Contract, and
(vi) has not been assigned by the related Obligor nor has there been any
sub-lease of the Obligor Collateral.
11. [Intentionally
omitted.]
12. Each
such Contract (i) is payable by a single Obligor, that is a corporate
Person, or, if the collateral is Equipment used in a business, an individual
and
(ii) provides for the financing or lease of Obligor Collateral to be used
in the business of the related Obligor.
13. Each
such Contract was originated in the United States and is denominated and payable
solely in United States Dollars.
14. Each
such Contract (i) if a Lease Contract, contains “hell or high water”
provisions; (ii) requires the related Obligor to assume all risk of loss or
malfunction of the related Obligor Collateral; (iii) requires the related
Obligor to pay all maintenance, repair, insurance and taxes, together with
all
other ancillary costs and expenses, with respect to the related Obligor
Collateral; and (iv) requires the related Obligor to pay, in full, when
due, all Scheduled Payments notwithstanding any casualty, loss or other damage
to the related Obligor Collateral.
15. Each
such Contract is by its terms an absolute and unconditional obligation of the
related Obligor and is non-cancelable (in the case of a Lease Contract) and
non-cancelable and non-prepayable without the payment in full of principal
and
accrued interest and finance charges prior to the expiration of the term of
such
Contract; such Contract does not provide for the substitution, exchange or
addition of any other items of Obligor Collateral related to such Contract
if
the effect thereof would be to reduce or extend the Scheduled Payments related
thereto; and the rights with respect
to such Contract are assignable by Originator (and its successors and assigns,
including the Borrower) without the consent of or notice to any
Person.
16. Each
such Contract is in the form of one of the form contracts attached hereto as
Exhibit D-1, Exhibit D-2 or Exhibit D-3 or in a form
otherwise approved by the Servicer in compliance with the Credit and Collection
Policy.
17. [Intentionally
omitted.]
18. All
material requirements of applicable federal, state and local laws, and
regulations thereunder in respect of each such Contract, the origination
thereof, and the Obligor Collateral related thereto, have been complied with
in
all respects.
19. The
applicable Obligor (other than a lessee under a Lease Contract that is a “true
lease”) has good and marketable title to the Equipment which is the subject of
each such Contract and such Equipment is free and clear of all Adverse
Claims.
20. Each
such Contract constitutes either an “Instrument” or “Chattel Paper” or a
“Payment Intangible” within the meaning of the UCC.
21. Each
such Contract contains language by which the related Obligor grants a security
interest to Originator in the Obligor Collateral which is the subject of each
such Contract.
22. (A) The
Originator shall have taken or caused to be taken all steps necessary under
all
applicable law (including the filing of an Obligor Financing Statement with
respect to each such Contract) in order to cause a valid, subsisting and
enforceable perfected, first priority security interest to exist in Originator’s
favor in the Obligor Collateral securing each such Contract (other than with
respect to Equipment which has a value of less than $25,000 if such Equipment
is
leased under Dollar Purchase Option Contracts or $50,000 if such Equipment
is
leased under FMV Contracts), (B) Originator shall have assigned the
perfected, first priority security interest in the Obligor Collateral referred
to in clause (A) above to the Borrower pursuant to the Purchase and Sale
Agreement and (C) the Borrower shall have assigned the perfected, first
priority security interest in the Obligor Collateral referred to in clause
(A)
above to the Collateral Agent pursuant to Section 2.11
hereof.
23. The
Borrower has taken all steps necessary under all applicable law in order to
perfect the security interest of the Collateral Agent in (i) the Borrower’s
interest in the Obligor Collateral related to each such Contract (other than
Equipment which has a value of less than $25,000 if such Equipment is leased
under Dollar Purchase Option Contracts or $50,000 if such Equipment is leased
under FMV Contracts) and (ii) each such Contract and the Receivable,
Related Security and Other Conveyed Property related thereto (and the proceeds
thereof), and there exists in favor of the Collateral Agent as secured party,
a
valid, subsisting and enforceable first priority perfected security interest
in
(i) the Borrower’s interest in such Obligor Collateral and (ii) such
Contract and the Receivable, Related Security and Other Conveyed Property
related thereto (and the proceeds thereof) and such security interest is and
shall be prior to all other liens upon and security interests in (i) the
Borrower’s interest in such Obligor Collateral and (ii) such Contract and
the Receivable, Related Security and Other Conveyed Property related thereto
(and the proceeds thereof) that now exist or may hereafter arise or be created
(other than Permitted Liens).
24. If
the Obligor Collateral related to such Contract includes a Vehicle, such
Contract shall be a Loan Contract or a Dollar Purchase Option Contract, and
the
Borrower or the Servicer shall have delivered to the applicable Registrar of
Titles an application for a Certificate of Title for such Vehicle satisfying
the
Titling Requirements.
25. No
such Contract is a Defaulted Receivable or, at the time of its Pledge hereunder,
a Delinquent Receivable.
26. Each
such Contract is payable by an Obligor which is not subject to any bankruptcy,
insolvency, reorganization or similar proceeding.
27. The
information pertaining to each such Contract set forth in the Schedule of
Contracts (as defined in the Purchase and Sale Agreement), the related
Assignment and each Facility Limit Certificate and Monthly Remittance Report
is
true and correct in all respects.
28. With
respect to each such Contract, by the Borrowing Date on which such Contract
is
Pledged hereunder and on each relevant date thereafter, Originator will have
caused its master computer records relating to such Contract to be clearly
and
unambiguously marked to show that such Contract has been Pledged under this
Agreement.
29. With
respect to each such Contract there exists a Receivable File and such Receivable
File contains each item listed in the definition of Receivable File with respect
to such Contract and such Receivable File has been delivered to the Custodian
or
will have been delivered to the Custodian in accordance with Section 5.02 of
the
RLSA.
30. No
such Contract has been repaid, prepaid, satisfied, subordinated or rescinded,
and the Obligor Collateral securing such Contract has not been released from
the
lien of the Lenders in whole or in part (except for releases of Equipment from
a
Contract prior to the date of the Pledge thereof and which releases have been
noted in the Collateral Receipt related to such document).
31. No
such Contract was originated in, or is subject to the laws of, any jurisdiction
the laws of which would make unlawful, void or voidable the sale, transfer,
pledge and/or assignment of such Contract under this Agreement or the Purchase
and Sale Agreement, and Originator has not entered into any agreement with
any
Obligor that prohibits, restricts or conditions the sale, transfer, pledge
and/or assignment of such Contract.
32. [Intentionally
Omitted].
33. No
such Contract has been sold, transferred, assigned or pledged by Originator
to
any Person other than the Borrower. Borrower has not taken any action
to convey any right to any Person that would result in such Person having a
right to payments due under any such Contract or payments received under the
related Insurance Policy or otherwise to impair the rights of the Borrower
or
the Lenders in such Contract, the related Insurance Policy or any proceeds
thereof. There is an Insurance Policy in full force and effect with
respect to the Equipment related to such Contract if such Equipment had an
Amortized Equipment Cost over $100,000.
34. No
such Contract is assumable by another Person in a manner which would release
the
Obligor thereof from such Obligor’s obligations to Originator or the
Borrower.
35. There
has been no default, breach, violation or event permitting acceleration under
the terms of any such Contract, and no condition exists or event has occurred
and is continuing that with notice, the lapse of time or both would constitute
a
default, breach, violation or event permitting acceleration under the terms
of
any such Contract, and there has been no waiver of any of the
foregoing.
36. No
selection procedures adverse to the Borrower or any Lender have been utilized
in
selecting any such Contract from all other similar Contracts originated or
purchased by Originator.
37. The
Obligor Collateral related to any such Contract is not subject to any tax or
mechanic’s lien or any other Adverse Claim.
38. [Intentionally
omitted.]
39. The
Borrower has delivered to the Custodian, in accordance with Section 5.02 of
the
RLSA, the sole original counterpart of each such Contract (or a true and correct
copy thereof) and such document constitutes the entire agreement between the
parties thereto in respect of the related Obligor Collateral.
40. Each
such Contract is in full force and effect in accordance with its terms and
neither the Borrower nor the Obligor has or will have suspended or reduced
any
payments or obligations due or to become due thereunder by reason of a default
by any other party to such Contract; there are no proceedings pending or
threatened asserting insolvency of such Obligor; there are no proceedings
pending or threatened wherein such Obligor, any other obligated party or any
Government Entity has alleged that such Contract is illegal or
unenforceable.
41. The
acquisition practices used by the Originator and the origination and collection
practices used by the Servicer with respect to each such Contract have been
in
all respects customary in the equipment financing and servicing
business.
42. The
Obligor Collateral related to each such Contract was properly delivered to
the
Obligor in good repair and is in proper working order. Each Obligor has accepted
the related Equipment. The related Obligor is the end user of the
Equipment that is the subject of any such Contract and no Obligor has sublet
the
Equipment to any other party.
43. The
Obligor with respect to any such Contract is not a merchant with respect to
the
Equipment related to such Contract.
44. Except
with respect to a breach of an Obligor’s right of quiet enjoyment of the related
Equipment, neither the operation of any of the terms of any such Contract nor
the exercise by the Borrower, the Servicer or the Obligor of any right under
any
such Contract will render such Contract unenforceable in whole or in part nor
subject to any right of rescission, setoff, claim, counterclaim or defense,
and
no such right of rescission, set-off, claim, counterclaim or defense, including
a defense arising out of a breach of the Obligor’s right of quiet enjoyment of
the Equipment, has been asserted with respect thereto.
45. The
Borrower and the Servicer have duly fulfilled all obligations on their part
to
be fulfilled under or in connection with the origination, acquisition and
assignment of such Contract, including, without limitation, giving any notices
and obtaining any consents necessary to effect the
acquisition
of such Contract by the Borrower, and have done nothing to impair the rights
of
the Borrower or any Lender in the Contract or payments with respect
thereto.
46. Originator
and the Servicer have duly fulfilled all obligations on their part to be
fulfilled under or in connection with the origination, acquisition and
assignment of such Contract, and have done nothing to impair the rights of
the
Borrower in such Contract or payments with respect
thereto. Originator, the Servicer and Borrower have duly fulfilled
all continuing obligations on their part to be fulfilled under or in connection
with such Contract.
47. [Intentionally
Omitted].
48. The
sale from the Originator to the Borrower of each such Contract and the Other
Conveyed Property and Related Security related thereto does not violate the
terms or provisions of any agreement to which the Borrower is a party or by
which it is bound.
49. The
transfer, assignment and conveyance of the Contract and the Other Conveyed
Property and Related Security related thereto from the Originator to the
Borrower pursuant to the Purchase and Sale Agreement is not subject to nor
will
result in any tax, fee or governmental charge payable by the Borrower or any
other Person to any federal, state or local government.
50. No
such Contract (other than a “true lease”) may be (i) an executory contract
or (ii) in any event, deemed to be an executory contract or unexpired lease
subject to rejection by an Obligor under Section 365 of the Bankruptcy Code
in the event that a Bankruptcy Event has occurred with respect to such
Obligor.
51. Each
such Contract contains enforceability provisions (i) permitting the
acceleration of the payments thereunder if the Obligor is in default under
such
Contract and (ii) sufficient to enable the Borrower to repossess or
foreclose upon the Obligor Collateral related thereto.
52. Each
such Contract generally contains provisions requiring the payment of both
interest and principal (or, in the case of a Lease Contract, lease payments)
in
each calendar month or quarter during the term of such Contract.
53. The
promissory note, if any, related to each such Contract (i) was payable to
the Originator immediately prior to its transfer to the Borrower under the
Purchase and Sale Agreement, and (ii) was payable to the Borrower
immediately prior to its Pledge hereunder and has not been endorsed by
Originator to any Person other than the Borrower.
54. [Intentionally
Omitted].
55. [Intentionally
Omitted].
56. [Intentionally
Omitted].
57. The
vendor of the Equipment relating to such Receivable has received payment in
full
from the Obligor prior to the Pledge of such Receivable hereunder and has no
remaining obligations with respect to such Equipment except for any applicable
warranty.
58. No
such Contract provides for delivery and/or financing of any Equipment after
the
Closing Date and there are no unperformed purchase or financing commitments
thereunder as of the Closing Date, and no such Contract contains any unperformed
purchase or financing commitments as of the Closing Date.
59. No
Scheduled Payment under any Contract is delinquent for more than 30
days.
SCHEDULE
IV
CREDIT
AND COLLECTION POLICY
Attached.
SCHEDULE
V
EQUIPMENT
CATEGORIES
AUTOMOTIVE
|
AWNINGS
|
BEAUTY
SALON
|
BOOK
OF BUSINESS
|
CLEANING
EQUIPMENT
|
COMPUTERS
|
CONSTRUCTION
|
CONTAINERS
|
COPIERS
|
CREMATORIUMS
|
ELECTRONIC
EQUIPMENT
|
ENGINEERING
EQUIPMENT
|
FARMING
EQUIPMENT
|
FEES
|
FITNESS
& RECREATIONAL EQUIP
|
FIXTURES
|
FURNITURE
& FURNISHINGS
|
GAS
PUMPS
|
GOLF
CARS
|
HEATING
& AIR EQUIPMENT
|
INDUSTRIAL
CYLINDERS
|
LANDSCAPE
& GARDENING EQUIP
|
LAUNDRY
& DRYCLEANING EQUIP
|
LEASEHOLD
IMPROVEMENTS
|
LOCK
BOXES
|
MACHINE
TOOL EQUIPMENT
|
MAILING
EQUIPMENT
|
MANUFACTURING
EQUIPMENT
|
MEDICAL
EQUIPMENT
|
MOBILE
COMMUNICATIONS
|
MOBILE/PORTABLE
EQUIPMENT
|
NEW
CONSTRUCTION
|
OFFICE
EQUIPMENT
|
PLUMBING
|
PORTABLE
TOILETS
|
POS
SYSTEMS
|
PRINTING
EQUIPMENT
|
REFUSE
CONTAINERS
|
RENTAL
EQUIPMENT
|
RENTAL
PROPANE TANKS
|
RENTAL
WATER BOTTLES/COOLERS
|
RESTAURANT
EQUIPMENT
|
RETAIL
EQUIPMENT
|
SECURITY
SYSTEMS |
SIGNS |
SOFTWARE |
TANNING
EQUIPMENT |
TELEPHONE
SYSTEMS |
TITLE
EQUIPMENT |
VENDING |
VIDEO
EQUIPMENT |
WATER
SYSTEMS |
WORKING
CAPITAL LOAN |
*
The
above categories are subject to change based upon LEAF operations.
SCHEDULE
VI
ADDRESSES
FOR NOTICE
LEAF
Capital Funding III, LLC
c/o
LEAF
Funding Inc.
1818
Market Street, 9th Floor
Philadelphia,
PA 19103
Attention: Matthew
Goldenberg
Facsimile
No.: (215) 640-6370
Confirmation
No.: (215) 231-7070
LEAF
Financial Corporation
1818
Market Street, 9th
Floor,
Philadelphia,
PA 19103
Attention: Miles
Herman
Facsimile
No.: (215) 640-6363
Confirmation
No.: (215) 717-3358
Morgan
Stanley Capital Services Inc.
Transaction
Management Group
1585
Broadway
New
York,
NY 10036-8293
Attention: Chief
Legal Officer
Facsimile
No.: 001-212-507-4022
Morgan
Stanley Credit
750
Seventh Avenue
New
York,
NY 10019
Facsimile
No.: (212) 507-5890
E-mail:
spvmonthlyreport@morganstanley.com
Morgan
Stanley Bank
1221
Avenue of the Americas
New
York,
NY 10020
Attention: Peter
Woroniecki
Facsimile
No.: (212) 762-6943
Confirmation
No.: (212) 762-6942
Morgan
Stanley Asset Funding Inc.
1221
Avenue of the Americas
New
York,
NY 10020
Attention: Peter
Woroniecki
Facsimile
No.: (212) 762-6943
Confirmation
No.: (212) 762-6942
U.S.
Bank
National Association
EP-MN-WS3D
60
Livingston Ave.
St.
Paul,
MN 55107
Attention: Diane
Reynolds
Facsimile
No.: (651) 495-8090
Confirmation
No.: (651) 495-3923
Lyon
Financial Services, Inc. (d/b/a U.S. Bank Portfolio Services)
U.S.
Bank
Portfolio Services
1310
Madrid Street
Marshall,
MN 56258
Attention: Joe
Andries
Facsimile
No.: (866) 806-0775
Confirmation
No.: (507) 532-7129
SCHEDULE
VII
REMITTANCE
REPORT INFORMATION
[TO
BE
AGREED UPON BY COLLATERAL AGENT AND SERVICER]
EXHIBIT
A
FORM
OF
FACILITY LIMIT CERTIFICATE
FACILITY
LIMIT CERTIFICATE
__________,
200__
To: Morgan
Stanley Bank/Morgan Stanley Asset Funding Inc.
1221
Avenue of the Americas
New
York, NY 10020
Attn:
Peter Woroniecki
Ladies
and Gentlemen:
Reference
is made to the Receivables Loan and Security Agreement dated as of November
1,
2007 (the “Loan Agreement”), among LEAF Capital Funding III, LLC, (the
“Borrower”), Leaf Financial Corporation, as the Servicer, Morgan Stanley Bank,
as Class A Lender, Morgan Stanley Asset Funding Inc., as Class B Lender, U.S.
Bank National Association, as the Custodian and the Lenders’ Bank and Lyon
Financial Services, Inc. (d/b/a U.S. Bank Portfolio Services) as the Backup
Servicer. Capitalized terms used herein but not defined herein shall
have the meanings assigned to such terms in the Loan Agreement.
In
accordance with Section 6.10(c) of the Loan Agreement, the Borrower
hereby certifies that, after giving effect to the Borrowing requested to occur
on __________, 200__:
|
(1)
|
(a)
the Facility Amount under the Loan Agreement does not exceed the
Facility
Limit, and (b) the outstanding principal amount of the Class A Notes
does
not exceed the Class A Facility
Limit;
|
|
(2)
|
no
Program Termination Event or Event of Default exists;
and
|
|
(3)
|
if
the Borrowing is to be secured by Receivables, no Termination Event
exists;
|
The
Borrower hereby further certifies that attached hereto as Schedule A are
true and correct calculations evidencing the accuracy of the statements set
forth in paragraphs (1) and, as applicable, (2) above.
Very
truly yours,
LEAF
CAPITAL FUNDING III, LLC
By:
Name: Miles
Herman
Title: Vice
President
EXHIBIT
B
FORM
OF
REQUIRED DATA FIELDS
(a) Obligor
lease number;
(b) Obligor
name;
(c) Reserved;
(d) Obligor
Credit risk rating (if available);
(e) Collateral
location (city and state);
(f) Reserved;
(g) Equipment
category/type;
(h) Non
Level Payment Contract flag;
(i) Balloon
flag and put payment flag;
(j) Stand
Alone Working Capital Loan Flag;
(k) New/used
flag (if available);
(l) Lease
type (true/installment);
(m) Serial
Number (if available);
(n) SIC
Code (if available);
(o) Vendor;
(p) Commencement
Date
(q) Maturity
Date;
(r) Date
Next Due;
(s) Original
Term;
(t) Remaining
Term;
(u) Payment
Frequency;
(v) Original
Receivable Balance;
(w) Current
Receivable Balance;
(x) Original
Equipment Cost;
(y) Amortized
Equipment Cost;
(z) Scheduled
Payment; and
(aa) Discounted
Balance.
EXHIBIT
C
FORM
OF
MONTHLY REMITTANCE REPORT
(See
attached.)
EXHIBIT
D-1
FORM
OF
LEASE CONTRACT
(See
attached.)
EXHIBIT
D-2
FORM
OF
LOAN CONTRACT
(See
attached.)
EXHIBIT
D-3
FORM
OF
LOAN CONTRACT
(See
attached.)
EXHIBIT
E
VEHICLE
LIENHOLDER NOMINEE AGREEMENT
This
Vehicle Lienholder Nominee Agreement (this “Agreement”) is made as of
__________, 2007, among __________ (the “Lienholder”), as Lienholder,
LEAF Capital Funding III, LLC (the “Borrower”), Morgan Stanley Bank, as
Class A Lender and Morgan Stanley Asset Funding Inc., as Class B Lender
(collectively, the “Lenders”).
Whereas,
from time to time LEAF Funding, LLC (“Funding”) may acquire an
ownership or security interest in certain Contracts;
Whereas,
Lienholder appears as the lienholder of record on the Titles for the Vehicles
sold or leased under such Contracts;
Whereas,
from time to time Funding may sell to the Borrower certain of such Contracts
and
all of its right, title and interest in the related Vehicles, and
Whereas,
the Borrower shall pledge, inter alia, such Contracts and the
Borrower’s security interest in each such Vehicle, to the Lenders in order to
secure loans being advanced to the Borrower by, and the other obligations of
the
Borrower to, the Lenders (the “Loan Transactions”); and
Whereas,
due to the administrative difficulty and costs of amending the Titles of the
Vehicles to note thereon (i) the security interest of the Borrower in such
Vehicles and (ii) the security interest of the Lenders in the security interest
of the Borrower in such Vehicles, the Titles to the Vehicles will not be amended
to note such security interests of the Borrower and the Lenders but instead,
from and after the date hereof, the Lienholder will act as the Borrower’s and
the Lenders’ respective nominee lienholder with respect to the Vehicles pursuant
to the terms hereof;
Now,
Therefore, in consideration of the mutual promises herein contained and for
other good and valuable consideration, the receipt and sufficiency of which
are
hereby acknowledged, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Term. This
Agreement will commence on the date hereof and will remain in full force and
effect until the Collection Date.
2. Appointment
of Nominee Lienholder. The Borrower and the Lenders hereby
appoint the Lienholder as their nominee lienholder, in a representative
capacity, with respect to the Vehicles, and the Lienholder hereby agrees to
serve in such capacity as described herein. The Lienholder hereby
agrees that all of its right, title, interest (which is solely as stated
lienholder on the Titles) in and to the
Vehicles
shall be solely for the respective benefit of the Borrower and the
Lenders. As stated lienholder on the Titles to all of such Vehicles,
the Lienholder agrees to take any and all reasonable actions as the Borrower
(with the consent of the Lenders) or the Lenders may request
in writing with respect to the Titles including, without limitation, all
actions
for which the Lienholder’s consent, waiver, release, vote or signature (or other
action of similar nature) is necessary or advisable in the judgment of the
Borrower or the Lenders in order to maintain, preserve and protect the
Borrower’s security interest in such Vehicles and the Lenders’ security interest
in the Borrower’s security interest in such Vehicles and if the Lienholder fails
to take any or all such actions, the Lenders or any designee of the Lenders
may
take such actions at the sole expense of the Borrower, and the Lienholder
hereby
grants to the Lenders and any such designee an irrevocable power of attorney
and
license to take any and all such actions in the Lienholder’s name and on behalf
of the Lienholder.
3. Interests
in the Vehicles. Notwithstanding the fact that the Lienholder
will be and remain noted as first lienholder (which is solely as stated
lienholder) on the Titles to the Vehicles from time to time pledged to the
Borrower and repledged to the Lenders, each party hereto hereby agrees that,
on
and after the date hereof:
(i) except
as set forth in subsection (ii) below and subject to the terms of any agreement
between the Borrower and the Lenders, the Borrower is entitled to all incidents,
benefits and risks of a holder of a first priority perfected security interest
or ownership in and lien on the Vehicles;
(ii) subject
to the terms of any agreement between the Borrower and the Lenders, the Lenders
is entitled to all incidents, benefits and risks of a holder of a first priority
perfected security interest in and lien on the Borrower’s first priority
perfected security interest in and lien on the Vehicles and the right to
exercise or cause the exercise of all remedies with respect to the Vehicles,
including the right to repossess, sell and otherwise transfer and dispose of
the
Vehicles at the times and subject to the terms of the Contract with the Obligor
relating to such Vehicle;
(iii) the
Lienholder has no direct (or indirect) ownership or other rights or interest
(including any security interest) in any of the Vehicles;
(iv) the
Lienholder will not take any action with respect to the Vehicles unless such
action is consented to by the Lenders; and
(v) the
Lienholder shall not represent to any lender, financing source or other Person,
that it has, or in any other manner hold itself out as having, any direct or
indirect ownership interest or any other rights or interests (including any
security interest) in any of the Vehicles, except for any rights it may have
as
nominee lienholder hereunder with respect to the Vehicles.
On
the
Collection Date, the Lienholder shall, at the expense of the Borrower, return
the Titles to the Borrower along with a power of attorney, if necessary to
substitute Borrower or Lenders as stated lienholder on all Titles, and the
Lienholder shall have no further responsibility for removing the Lienholder
as
stated lienholder on the Titles.
4. Entire
Agreement. This Agreement constitutes the entire agreement among
the parties hereto with respect to the subject matter of this Agreement and
supersedes any prior understandings, agreements, or representations by or among
the parties hereto, written or oral, to the extent they relate in any way to
the
subject matter hereof.
5. Remittance
of Proceeds. In the event that Lienholder receives any insurance
proceeds or other payments or proceeds in respect of the Vehicles, it shall
hold
the same in trust and notify the Borrower and the Lenders of the receipt
thereof, and shall remit promptly such payments or proceeds to the account
specified by the Lenders as set forth herein, or as otherwise identified by
the
Lenders from time to time by written notice, but in no event later than the
fifth day following receipt of such payments or proceeds.
6. Documentation. From
and after the date hereof, to the extent that Lienholder from time to time
receives any certificate of title or notifications of lienholder status relating
to any Vehicle, Lienholder shall promptly forward the same to U.S. Bank (or,
following the delivery of written notice from Lenders to such effect, the
Lenders).
7. Nonpetition. Lienholder
hereby agrees that it will not institute against, or join any other person
or
entity in instituting against Borrower any proceeding under any bankruptcy,
reorganization, liquidation or insolvency law or statute now or hereafter in
effect in any jurisdiction until two years and one day shall have elapsed since
the payment in full of all indebtedness and other obligations owed by Borrower
to the Lenders, Lenders’ Bank and Collateral Agent with respect to the Loan
Transactions.
8. Succession
and Assignment. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns. Neither the Lienholder nor the Borrower may assign
either this Agreement or any of its respective rights, interests, or obligations
hereunder without the prior written approval of the Lenders.
9. Counterparts. This
Agreement may be executed in separate counterparts, each of which will be deemed
an original but all of which together will constitute one and the same
instrument. Delivery of an executed counterpart of a signature page
to this Agreement by facsimile shall be effective as delivery of a manually
executed counterpart of this Agreement.
10. Headings. The
section headings contained in this Agreement are inserted for convenience only
and will not affect in any way the meaning or interpretation of this
Agreement.
11. Notices. All
notices, requests, demands, claims and other communications hereunder will
be in
writing. Any notice, request, demand, claim, or other communication
hereunder will be deemed duly given if (and then two business days after) it
is
sent by registered or certified mail, return receipt requested, postage prepaid,
and addressed to the intended recipient as set forth below:
If
to
the Lienholder:
LEAF
Capital Funding III, LLC
1818
Market Street, 9th Floor
Philadelphia,
Pa 19103
Attention:
Miles Herman
Facsimile
No.: (215) 640-6363
Confirmation
No.: (215) 717-3358
If
to
the Lenders:
Morgan
Stanley Bank
1221
Avenue of the Americas
New
York,
NY 10020
Attention:
Peter Woroniecki
Facsimile
No.: (212) 762-6943
Confirmation
No.: (212) 762-6942
Morgan
Stanley Asset Funding Inc.
1221
Avenue of the Americas
New
York,
NY 10020
Attention:
Peter Woroniecki
Facsimile
No.: (212) 762-6943
Confirmation
No.: (212) 762-6942
Any
party
hereto may give written notice, request, demand, claim, or other communication
hereunder using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail, or electronic mail), but
no
such notice, request, demand, claim, or other communication will be deemed
to
have been duly given unless and until it is actually received by the intended
recipient. Any party hereto may change the address to which notices,
requests, demands, claims and other communications hereunder are to be delivered
by giving the other parties notice in the manner herein set forth.
12. Governing
Law. This agreement shall, in accordance with
section 5-1401 and 5-1402 of the General Obligations Law of the State of
New York, be governed by the laws of the State of New York, without regard
to
any conflicts of law principles thereof that would call for the application
of
the laws of any other jurisdiction.
13. Consent
to Jurisdiction; Waiver of Jury Trial; Etc. Any legal action or
proceeding with respect to this agreement may be brought in the courts of the
State of New York or of the United States of America for the Southern District
of New York, and, by execution and delivery of this agreement, each party hereto
hereby accepts for itself and in respect of its property, generally and
unconditionally, the nonexclusive jurisdiction of the aforesaid
courts. The guarantor hereby irrevocably waives, in connection with
any such action or proceeding, (i) trial by jury, (ii) to the extent it may
effectively do so under applicable law, any objection, including any objection
to the laying of venue or based on the grounds of forum non conveniens, which
it
may now or hereafter have to the bringing of any such action or proceeding
in
such respective jurisdictions and (iii) the right to interpose any set-off,
counterclaim or cross-claim (unless such set-off, counterclaim or cross-claim
could not, by reason of any applicable federal or state procedural laws, be
interposed, pleaded or alleged in any other action).
14. Amendments
and Waivers. No amendment of any provision of this Agreement
will be valid unless the same will be in writing and signed by each of the
parties hereto. No waiver by the Lenders of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, will be deemed to extend to any prior or subsequent default,
misrepresentation, or breach of warranty or covenant hereunder or affect in
any
way any rights arising by virtue of any such prior or subsequent
occurrence.
15. Severability. Any
term or provision of this Agreement that is invalid or unenforceable in any
situation in any jurisdiction will not affect the validity or enforceability
of
the remaining terms and provisions hereof or the validity or enforceability
of
the offending term or provision in any other situation or in any other
jurisdiction.
16. Definitions. Capitalized
terms used herein but not previously defined herein have the following
meanings:
(i) “Collection
Date” means the date on which (a) the aggregate outstanding principal amount of
the loans under the Loan Transactions have been repaid in full and all interest
and fees and all other obligations of the Borrower thereunder have been paid
in
full, and (b) the Lenders shall have no further obligation to make additional
loans.
(ii) “Contract”
means a finance lease contract or a secured loan contract with respect to one
or
more Vehicles and includes the rights to all payments from the Obligor
thereunder.
(iii) “Obligor”
means each person obligated to make payments under a Contract and which is
the
owner or co-owner of the related Vehicle(s).
(iv) “Registrar
of Titles” means with respect to any state, the governmental agency or body
responsible for the registration of, and the issuance of certificates of title
relating to, motor vehicles and liens thereon.
(v) “Servicer”
means LEAF Financial Corporation.
(vi) “Title”
means with respect to a Vehicle, an original certificate of title issued by
the
Registrar of Titles of the applicable state.
(vii) “Vehicle”
means a new or a used automobile, minivan, sports utility vehicle, light duty
truck or heavy duty truck in which Borrower or Funding has acquired an ownership
or security interest.
[Signature
page to follow.]
In
Witness Whereof, the parties hereto have duly executed this Agreement as of
the
date first above written.
[LIENHOLDER]
By:_______________________________
Name:_________________________
Title:__________________________
|
LEAF
CAPITAL FUNDING III, LLC,
|
By:______________________________
Name:________________________
Title:_________________________
|
MORGAN
STANLEY BANK, as Class A Lender
|
By:_____________________________
Name:________________________
Title:_________________________
|
MORGAN
STANLEY ASSET FUNDING INC., as Class B
Lender
|
By:_____________________________
Name:________________________
Title:_________________________
EXHIBIT
F
FORM
OF
NOTICE OF BORROWING
NOTICE
OF BORROWING
November
__, 2007
To: Morgan
Stanley Bank/Morgan Stanley Asset Funding Inc.
1221
Avenue of the Americas
New
York, NY 10020
Attn:
Peter Woroniecki
Notice
of
Borrowing No.: [1]
Gentlemen:
Reference
is made to the Receivables Loan and Security Agreement dated as of November
1,
2007 (the “Loan Agreement”), among LEAF Capital Funding III, LLC, (the
“Borrower”), Leaf Financial Corporation, as the Servicer, Morgan Stanley Bank,
as Class A Lender and Morgan Stanley Asset Funding Inc., as Class B Lender,
U.S.
Bank National Association, as the Custodian and the Lenders’ Bank and Lyon
Financial Services, Inc. (d/b/a U.S. Bank Portfolio Services) as the Backup
Servicer. Capitalized terms used herein but not defined herein shall
have the meanings assigned to such terms in the Loan Agreement.
In
accordance with Sections 2.02(b) and 6.10(c) of the Loan Agreement, the
Borrower hereby certifies that, after giving effect to the Borrowing requested
to occur on November 7, 2007:
|
1.
|
Requested
aggregate amount of Borrowing:
|
Class
A
Loan: $__________
Class
B
Loan: $__________
|
2.
|
Requested
date of Borrowing: November 7, 2007
|
|
3.
|
In
connection with this Borrowing we Pledge to you the Eligible Receivables
set forth on the Schedule of Receivables attached
hereto.
|
Payments
in connection with this Borrowing should be deposited to the following
account: _________________________.
(Signature
page to follow)
Very
truly yours,
LEAF
CAPITAL FUNDING III, LLC
By:
Name: Miles
Herman
Title: Vice
President
EXHIBIT
G
Reserved.
EXHIBIT
H-1
FORM
OF
CLASS A NOTE
CLASS
A
NOTE
|
|
US
$333,380,316.91
|
New
York, New York
|
|
November
7, 2007
|
|
|
FOR
VALUE
RECEIVED, LEAF Capital Funding III, LLC, a Delaware limited liability company
(the “Borrower”), promises to pay to the order of MORGAN STANLEY BANK
(the “Lender”) the principal amount of the Class A Loan made by Lender to
Borrower pursuant to the Receivables Loan and Security Agreement, dated as
of
November 1, 2007, as amended or modified (the “RLSA”), among the
undersigned, LEAF Financial Corporation, as Servicer, the Lender, in its
capacity as Class A Lender, Class B Lender and Collateral Agent, U.S. Bank
National Association, as the Custodian and the Lenders’ Bank, and Lyon Financial
Services, Inc. (d/b/a U.S. Bank Portfolio Services). Such principal
payments shall be made in the amounts and on the dates provided for in the
RLSA;
provided, however, that the entire unpaid principal amount of this
Class A Note shall be due and payable on November 1, 2008. Borrower
also promises to pay interest on the unpaid principal amount of the Class A
Loan
on the dates and at the rate or rates provided for in the RLSA. All
such payments of principal and interest shall be made in the currencies and
at
the offices required under the RLSA.
This
Class A Note is one of the promissory notes referred to in Section 2.01(b)
of
the RLSA and is subject to all terms of the RLSA. Terms defined in
the RLSA are used herein with the same meanings.
The
Borrower hereby expressly waives presentment, demand, notice of protest and
all
other further demands and further notices in connection with the delivery,
acceptance, performance, default or enforcement of this Class A Note and RLSA,
and an action for amounts due hereunder or thereunder shall immediately
accrue.
The
Class
A Loan by Lender, the respective dates on which the principal is due and all
repayments of the principal thereof shall be recorded by Lender pursuant to
its
normal business practice; provided that the failure of Lender to make any
such recordation or endorsement shall not affect the obligations of the Borrower
under the first paragraph of this Class A Note or under the RLSA.
[Remainder
of page intentionally left blank]
Reference
is made to the RLSA for provisions for the prepayment hereof and the
acceleration of the maturity hereof.
|
LEAF
CAPITAL FUNDING III, LLC
|
|
|
|
|
|
By:
_________________________
|
|
Name:
|
|
Title:
|
|
|
EXHIBIT
H-2
FORM
OF
CLASS B NOTE
CLASS
B
NOTE
|
|
US$34,712,616.32
|
New
York, New York
|
|
November
7, 2007
|
|
|
FOR
VALUE
RECEIVED, LEAF Capital Funding III, LLC, a Delaware limited liability company
(the “Borrower”), promises to pay to the order of MORGAN STANLEY ASSET
FUNDING INC. (the “Lender”) the principal amount of $34,712,616.32 in
accordance with the Receivables Loan and Security Agreement, dated as of
November 1, 2007, as amended or modified (the “RLSA”), among the
undersigned, LEAF Financial Corporation, as Servicer, Morgan Stanley Bank in
its
capacity as Class A Lender and Collateral Agent, the Lender as Class B Lender,
U.S. Bank National Association, as the Custodian and the Lenders’ Bank, and Lyon
Financial Services, Inc. (d/b/a U.S. Bank Portfolio Services). Such
principal payments shall be made in the amounts and on the dates provided for
in
the RLSA; provided, however, that the entire unpaid principal
amount of this Class B Note shall be due and payable on November 1,
2008. Borrower also promises to pay interest on the unpaid principal
amount of this Class B Note on the dates and at the rate or rates provided
for
in the RLSA. All such payments of principal and interest shall be
made in the currencies and at the offices required under the RLSA.
This
Class B Note is one of the promissory notes referred to in Section 2.01(b)
of
the RLSA and is subject to all terms of the RLSA. Terms defined in
the RLSA are used herein with the same meanings.
The
Borrower hereby expressly waives presentment, demand, notice of protest and
all
other further demands and further notices in connection with the delivery,
acceptance, performance, default or enforcement of this Class B Note and RLSA,
and an action for amounts due hereunder or thereunder shall immediately
accrue.
The
original principal amount of this Class B Note, the respective dates on which
the principal is due and all repayments of the principal thereof shall be
recorded by Lender pursuant to its normal business practice; provided
that the failure of Lender to make any such recordation or endorsement shall
not
affect the obligations of the Borrower under the first paragraph of this Class
B
Note or under the RLSA.
[Remainder
of page intentionally left blank]
Reference
is made to the RLSA for provisions for the prepayment hereof and the
acceleration of the maturity hereof.
|
LEAF
CAPITAL FUNDING III, LLC
|
|
|
|
|
|
By:
_________________________
|
|
Name:
|
|
Title:
|
|
|
EXHIBIT
I
CLOSING
CHECKLIST
TABLE
OF CONTENTS
|
|
PAGE
|
ARTICLE
I
|
DEFINITIONS
|
1
|
Section
1.01
|
Certain
Defined Terms
|
1
|
Section
1.02
|
Other
Terms
|
26
|
Section
1.03
|
Computation
of Time Periods
|
26
|
|
|
|
ARTICLE
II
|
THE
RECEIVABLES FACILITY
|
26
|
Section
2.01
|
Borrowings
|
26
|
Section
2.02
|
The
Borrowing.
|
27
|
Section
2.03
|
Determination
of Interest Periods and Interest Rates.
|
27
|
Section
2.04
|
Remittance
Procedures
|
28
|
Section
2.05
|
Reserved.
|
31
|
Section
2.06
|
Reserved.
|
31
|
Section
2.07
|
Payments
and Computations, Etc
|
31
|
Section
2.08
|
Fees
|
32
|
Section
2.09
|
Increased
Costs; Capital Adequacy
|
32
|
Section
2.10
|
Collateral
Assignment of Agreements
|
33
|
Section
2.11
|
Grant
of a Security Interest
|
34
|
Section
2.12
|
Evidence
of Debt
|
35
|
Section
2.13
|
Release
of Pledged Receivables
|
35
|
Section
2.14
|
Treatment
of Amounts Paid by the Borrower
|
35
|
Section
2.15
|
Prepayment;
Certain Indemnification Rights; Termination
|
35
|
Section
2.16
|
Increase
of Borrowing Limit
|
37
|
|
|
|
ARTICLE
III
|
CONDITIONS
OF LOANS
|
37
|
Section
3.01
|
Conditions
Precedent to Borrowing
|
37
|
Section
3.02
|
Conditions
Precedent to All Borrowings
|
37
|
Section
3.03
|
Advances
Do Not Constitute a Waiver
|
39
|
|
|
|
ARTICLE
IV
|
REPRESENTATIONS
AND WARRANTIES
|
40
|
Section
4.01
|
Representations
and Warranties of the Borrower
|
40
|
Section
4.02
|
Representations
and Warranties of the Servicer
|
43
|
Section
4.03
|
Resale
of Receivables Upon Breach of Covenant or Representation and
Warranty by
Borrower
|
45
|
Section
4.04
|
Representations
and Warranties of the Lenders
|
46
|
|
|
|
ARTICLE
V
|
GENERAL
COVENANTS OF THE BORROWER AND THE SERVICER
|
46
|
Section
5.01
|
General
Covenants
|
46
|
Section
5.02
|
Check-in
Requirements.
|
50
|
|
|
|
ARTICLE
VI
|
ADMINISTRATION
AND SERVICING; CERTAIN COVENANTS
|
51
|
Section
6.01
|
Appointment
and Designation of the Servicer
|
51
|
Section
6.02
|
Collection
of Receivable Payments; Modification and Amendment of Receivables;
Lockbox
Agreements
|
53
|
|
|
PAGE
|
Section
6.03
|
Realization
Upon Receivables
|
53
|
Section
6.04
|
Insurance
Regarding Equipment
|
54
|
Section
6.05
|
Maintenance
of Security Interests in Obligor Collateral
|
54
|
Section
6.06
|
Pledged
Receivable Receipts
|
55
|
Section
6.07
|
No
Rights of Withdrawal
|
55
|
Section
6.08
|
Permitted
Investments
|
55
|
Section
6.09
|
Servicing
Compensation
|
56
|
Section
6.10
|
Reports
to the Lenders; Account Statements; Servicing Information
|
56
|
Section
6.11
|
Statements
as to Compliance; Financial Statements
|
57
|
Section
6.12
|
Access
to Certain Documentation; Obligors; Background Check
|
59
|
Section
6.13
|
Backup
Servicer
|
60
|
Section
6.14
|
Additional
Remedies of Lenders Upon Event of Default
|
64
|
Section
6.15
|
Waiver
of Defaults
|
64
|
Section
6.16
|
Maintenance
of Certain Insurance
|
65
|
Section
6.17
|
Segregation
of Collections
|
65
|
Section
6.18
|
UCC
Matters; Protection and Perfection of Pledged Assets
|
66
|
Section
6.19
|
Servicer
Advances
|
66
|
Section
6.20
|
Repurchase
of Receivables Upon Breach of Covenant or Representation and
Warranty by
Servicer
|
66
|
Section
6.21
|
Compliance
with Applicable Law
|
67
|
Section
6.22
|
Receipt
of Certificates of Title
|
67
|
Section
6.23
|
Lenders’
Bank Limitation of Liability
|
67
|
|
|
|
ARTICLE
VII
|
EVENTS
OF DEFAULT
|
68
|
Section
7.01
|
Events
of Default
|
68
|
Section
7.02
|
Additional
Remedies of the Lenders
|
71
|
|
|
|
ARTICLE
VIII
|
INDEMNIFICATION
|
71
|
Section
8.01
|
Indemnities
by the Borrower
|
71
|
Section
8.02
|
Indemnities
by Servicer
|
74
|
|
|
|
ARTICLE
IX
|
MISCELLANEOUS
|
76
|
Section
9.01
|
Amendments
and Waivers
|
76
|
Section
9.02
|
Notices,
Etc
|
76
|
Section
9.03
|
No
Waiver; Remedies
|
76
|
Section
9.04
|
Binding
Effect; Assignability; Multiple Lenders
|
76
|
Section
9.05
|
Term
of This Agreement
|
77
|
Section
9.06
|
GOVERNING
LAW; JURY WAIVER; CONSENT TO JURISDICTION
|
78
|
Section
9.07
|
Costs,
Expenses and Taxes
|
78
|
Section
9.08
|
No
Proceedings
|
79
|
Section
9.09
|
Recourse
Against Certain Parties
|
79
|
Section
9.10
|
Execution
in Counterparts; Severability; Integration
|
80
|
Section
9.11
|
Tax
Characterization
|
80
|
|
|
PAGE
|
Section
9.12
|
Calculation
of Performance Triggers
|
80
|
|
|
|
ARTICLE
X
|
THE
COLLATERAL AGENT
|
81
|
Section
10.01
|
No
Implied Duties
|
81
|
Section
10.02
|
Limits
on Liability
|
81
|
Section
10.03
|
Acknowledgement
|
81
|
LIST
OF SCHEDULES AND EXHIBITS
SCHEDULES
SCHEDULE
I
|
Condition
Precedent Documents
|
SCHEDULE
II
|
Prior
Names, Tradenames, Fictitious Names and “Doing Business As”
Names
|
SCHEDULE
III
|
Representations
and Warranties with Respect to Eligible Receivables, Eligible Contracts
and Eligible Underlying Originators
|
SCHEDULE
IV
|
Credit
and Collection Policy
|
SCHEDULE
V
|
Equipment
Categories
|
SCHEDULE
VI
|
Addresses
for Notice
|
SCHEDULE
VII
|
Remittance
Report Information
|
EXHIBITS
EXHIBIT
A
|
Form
of Facility Limit Certificate
|
EXHIBIT
B
|
Form
of Required Data Fields
|
EXHIBIT
C
|
Form
of Monthly Remittance Report
|
EXHIBIT
D-1
|
Form
of Lease Contract
|
EXHIBIT
D-2
|
Form
of Loan Contract
|
EXHIBIT
D-3
|
Form
of Loan Contract
|
EXHIBIT
E
|
Form
of Vehicle Lienholder Nominee
Agreement
|
EXHIBIT
F
|
Form
of Notice of Borrowing
|
EXHIBIT
H-1
|
Form
of Class A Note
|
EXHIBIT
H-2
|
Form
of Class B Note
|
EXHIBIT
I
|
Closing
Checklist
|
iv
EX-31.1
5
ex31_1.htm
EXHIBIT 31.1 CERTIFICATION
ex31_1.htm
EXHIBIT
31.1
CERTIFICATION
I,
Jonathan Z. Cohen, certify that:
1)
|
I
have reviewed this report on Form 10-Q for the quarterly period
ended
December 31, 2007 of Resource America,
Inc.;
|
2)
|
Based
on my knowledge, this report does not contain any untrue statement
of a
material fact or omit to state a material fact necessary to make
the
statements made, in light of the circumstances under which such
statements
were made, not misleading with respect to the period covered by
this
report;
|
3)
|
Based
on my knowledge, the financial statements, and other financial
information
included in this report, fairly present in all material respects
the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
4)
|
The
registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures
(as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure
that material information relating to the registrant, including
its
consolidated subsidiaries, is made known to us by others within
those
entities, particularly during the period in which this report is
being
prepared;
|
b)
|
Designed
such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting
principles;
|
c)
|
Evaluated
the effectiveness of the registrant's disclosure controls and procedures
and presented in this report our conclusions about the effectiveness
of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
d)
|
Disclosed
in this report any change in the registrant's internal control
over
financial reporting that occurred during the registrant's most
recent
fiscal quarter (the registrant's fourth fiscal quarter in the case
of an
annual report) that has materially affected, or is reasonably likely
to
materially affect, the registrant's internal control over financial
reporting; and
|
5)
|
The
registrant's other certifying officer and I have disclosed, based
on our
most recent evaluation of internal control over financial reporting,
to
the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent
functions):
|
a)
|
All
significant deficiencies and material weaknesses in the design
or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability
to record,
process, summarize and report financial information;
and
|
b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control
over financial reporting.
|
|
/s/
Jonathan Z. Cohen
|
Date: February
11, 2008
|
Jonathan
Z. Cohen
|
|
Chief
Executive Officer
|
|
|
EX-31.2
6
ex31_2.htm
EXHIBIT 31.2 CERTIFICATION
ex31_2.htm
EXHIBIT
31.2
CERTIFICATION
I,
Steven
J. Kessler, certify that:
1)
|
I
have reviewed this report on Form 10-Q for the quarterly period
ended
December 31, 2007 of Resource America,
Inc.;
|
2)
|
Based
on my knowledge, this report does not contain any untrue statement
of a
material fact or omit to state a material fact necessary to make
the
statements made, in light of the circumstances under which such
statements
were made, not misleading with respect to the period covered by
this
report;
|
3)
|
Based
on my knowledge, the financial statements, and other financial
information
included in this report, fairly present in all material respects
the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
4)
|
The
registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures
(as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure
that material information relating to the registrant, including
its
consolidated subsidiaries, is made known to us by others within
those
entities, particularly during the period in which this report is
being
prepared;
|
b)
|
Designed
such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting
principles;
|
c)
|
Evaluated
the effectiveness of the registrant's disclosure controls and procedures
and presented in this report our conclusions about the effectiveness
of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
d)
|
Disclosed
in this report any change in the registrant's internal control
over
financial reporting that occurred during the registrant's most
recent
fiscal quarter (the registrant's fourth fiscal quarter in the case
of an
annual report) that has materially affected, or is reasonably likely
to
materially affect, the registrant's internal control over financial
reporting; and
|
5)
|
The
registrant's other certifying officer and I have disclosed, based
on our
most recent evaluation of internal control over financial reporting,
to
the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent
functions):
|
a)
|
All
significant deficiencies and material weaknesses in the design
or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability
to record,
process, summarize and report financial information;
and
|
b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control
over financial reporting.
|
|
/s/
Steven J. Kessler
|
Date: February
11, 2008
|
Steven
J. Kessler
|
|
Executive
Vice President and Chief Financial Officer
|
|
|
EX-32.1
7
ex32_1.htm
EXHIBIT 32.1 CERTIFICATION
ex32_1.htm
EXHIBIT
32.1
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report of Resource America, Inc. (the "Company")
on Form 10-Q for the quarterly period ended December 31, 2007 as filed with
the
Securities and Exchange Commission on the date hereof (the "Report"), I,
Jonathan Z. Cohen, Chief Executive Officer of the Company, certify, pursuant
to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1)
|
The
Report fully complies with the requirements of section 13(a) or
15(d) of
the Securities Exchange Act of 1934,
and
|
(2)
|
The
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of
the
Company.
|
|
/s/
Jonathan Z. Cohen
|
Date: February
11, 2008
|
Jonathan
Z. Cohen
|
|
Chief
Executive Officer
|
|
|
EX-32.2
8
ex32_2.htm
EXHIBIT 32.2 CERTIFICATION
ex32_2.htm
EXHIBIT
32.2
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report of Resource America, Inc. (the "Company")
on Form 10-Q for the quarterly period ended December 31, 2007 as filed with
the
Securities and Exchange Commission on the date hereof (the "Report"), I,
Steven
J. Kessler, Executive Vice President and Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906
of the Sarbanes-Oxley Act of 2002, that:
(1)
|
The
Report fully complies with the requirements of section 13(a) or
15(d) of
the Securities Exchange Act of 1934,
and
|
(2)
|
The
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of
the
Company.
|
|
/s/
Steven J. Kessler
|
Date: February
11, 2008
|
Steven
J. Kessler
|
|
Executive
Vice President and Chief Financial Officer
|
|
|
GRAPHIC
9
railogo.jpg
begin 644 railogo.jpg
M_]C_X``02D9)1@`!`0$`8`!@``#_X0!P17AI9@``24DJ``@````$`!H!!0`!
M````/@```!L!!0`!````1@```"@!`P`!`````@#`P#$!`@`9````3@``````
M``!@`````0```&`````!````141'05)I>F5R(%-O9G1W87)E(%-U:71E``#_
MVP!#``4$!`0$`P4$!`0&!04&"`T("`<'"!`+#`D-$Q`4$Q(0$A(4%QT9%!8<
M%A(2&B,:'!X?(2$A%!DD)R0@)AT@(2#_VP!#`04&!@@'"`\("`\@%1(5("`@
M("`@("`@("`@("`@("`@("`@("`@("`@("`@("`@("`@("`@("`@("`@("`@
M("#_P``1"`!H`+\#`2(``A$!`Q$!_\0`'P```04!`0$!`0$```````````$"
M`P0%!@<("0H+_\0`M1```@$#`P($`P4%!`0```%]`0(#``01!1(A,4$&$U%A
M!R)Q%#*!D:$((T*QP152T?`D,V)R@@D*%A<8&1HE)B7J#A(6&AXB)BI*3E)66EYB9
MFJ*CI*6FIZBIJK*SM+6VM[BYNL+#Q,7&Q\C)RM+3U-76U]C9VN'BX^3EYN?H
MZ>KQ\O/T]?;W^/GZ_\0`'P$``P$!`0$!`0$!`0````````$"`P0%!@<("0H+
M_\0`M1$``@$"!`0#!`<%!`0``0)W``$"`Q$$!2$Q!A)!40=A<1,B,H$(%$*1
MH;'!"2,S4O`58G+1"A8D-.$E\1<8&1HF)R@I*C4V-S@Y.D-$149'2$E*4U15
M5E=865IC9&5F9VAI:G-T=79W>'EZ@H.$A8:'B(F*DI.4E9:7F)F:HJ.DI::G
MJ*FJLK.TM;:WN+FZPL/$Q<;'R,G*TM/4U=;7V-G:XN/DY>;GZ.GJ\O/T]?;W
M^/GZ_]H`#`,!``(1`Q$`/P#G]5^-?Q1T_6KZQ_X2>3_1[B2+_5)_"Q'I5+_A
M>WQ1_P"AGD_[])_A7,^/X1;_`!+\20CHNHSX_&0FN:K["%"C**?(ON/'E4FF
MU<]+_P"%[?%'_H9Y/^_2?X4?\+V^*/\`T,\G_?I/\*\THJ_JU'^1?<+VL^YZ
M7_PO;XH_]#/)_P!^D_PJ2'X]_%&&0/\`\)&9,?PO"A'\J\PHH>%H_P`B^X?M
M9]SWK1_VH?&EFRKJVEZ?J<8ZXS"Y_$9`_(U[)X-_:%\$^)YH[.^:30KUS@1W
M;`QD^SCC\P*^(:3%<]3+J,UHK,N.(FM]3]0E=74,C!E(R".N+_`.%[?%'_`*&>3_OTG^%*?B'K6M[MT<]PPBY_@'"_H*Y>OKJ.
M&I^SCS15['D3JRYG9GI?_"]OBC_T,\G_`'Z3_"C_`(7M\4?^AGD_[])_A7FE
M%:_5J/\`*ON)]K/N?=?P'\<:AXV^'\ESK-S]HU.SNGAFDP`6!`93@>QQ^%>K
MCK7QY^R[X@^P>.=0T"1P(]2@WH#_`'TY_D37VFOE\92]E6<4M#TZ,N:";%
M-?/7[1?Q`UCPPVBZ3X?U*:QNY]T\KQ<'8"`!^>?RKZ$-?-O[3G@^_P!1M-.\
M56%NTT=A&\-T5YV(3D-CT!S7*CWLF5%XV"K;>9Y';?'GXGVT00>(!*!_%+`C
M'^568OVA/B:DZ/)JL$JJN*H_3WE>"E_RZ7W'V'X&^/,.
MK_9/^$EM[;3H[I9RDPDX0Q;?O$XY(/0`50\/>,=3^+_Q/9;!)[/PWHRN\
M']2\+>(;O0M6B$=W:OM8#HP[,/4&OTJ.-O/I7PM^T#K-AK/Q@OGT]E=;6)+:
M1UYW.N=WY9Q^%>%EV*JU*CA-W1VXBG&,;K<\HHHHKWCA`9!!':OT-^%6MR^(
M?A9H&IW#%YVMECD8]2R_+D_E7YY5]^_!"QDT_P"#'A^.4$-)"9<'MN8D?SKQ
M3@'N3M0?HQ_*O(PE+VM:,3LJRY8-GS-1117V)XX4444`=%
MX&UY_#'C_1-=4D+:72-)@]8R<./^^2:_1V&19HDE1@RNH8$=P>E?F!TYK[_^
M"_B/_A)?A+HUV[;I[>/[++SGYDX_48/XUX6:T](U%Z'=A9;Q/1*^?_VA_&7B
M/P7?>&+_`,/:D]JTAG$D>-R2?XW"W4)MIKJ>A)XI^&6E0&/2_!5Q
MJ1:[!=M4GW'R0!]PIC:Q(Z'-?67PEG2;P'"+758=3T])6%E(C?/'"0"L<@[.
MI)7Z`5\`?_JKZU_90`/A+Q%D?\OJ?^@5R8[!TZ5+GANB%F.)Q+<:TN:_<\'^
M,?\`R67Q+_U]'_T$5P5=W\8&W?&3Q,?^GLC]!7"5[5#^%'T/(G\3"GPRO!.D
MT9P\;!E/H1S_`$IE%:D'I>K?'3XE:SISV-QKOD1.-K&WB6-F'ID#->:$DDDD
MDGDDT45G"G"G\"L5*3EN%%%2VT#75Y#:HRJTSB,%S@`DXR3V%:/N2;O@KPM>
M^,O&6G^'[-3FXD'FOC/EQC[S?@,U^BVG6<&G:;;6%LFR"WB6*-?15&!_*O./
MA%\)[+X<:0\LTJ7FM7:CS[@+@(/[B>WJ>^*]1KY/'8GV\[1V1ZM"GR1UZC79
M0I)Z`9-?GG\4_$9\4_%#6]55]T)G,,/.?D3Y1_*OMKXI^)!X5^&&MZLK;9Q`
MT,'_`%T?Y1_//X5^>)Y).O=QI\
MQRTH\\K'R]15B^M);#4KFQG&);>5HG'NIP?Y57KI3NKHS>X5],_LJ^)/*O=:
M\*S/\LP%Y""?XA\K_IM_*OF:NR^%_B,^%?B?HFK%]L`N!%/_`-%?\`?G_DE?3J$,H(Y!YKY>_:SSN\*^G^
MD?\`LE?.8#_>(GHU_P"&SY?HHHKZX\D*^MOV4/\`D4?$/_7\G_HNODFOK']E
M%C_PC/B0$Y47<9Q_P`UYV9?[N_D=&'_B'@?Q8??\7_$YSQ]M
M;\4_$[_]1"4?DQ%P7/IDTRI[+_D(6W_75
M?YU;O9V)6YW/Q3^&ES\,]?M-/DU'^T;:\A\V&X\GRLD'#+C)Y''?N*\_K[+_
M`&FO#G]J?#BVUN),S:3<;B0.?+?Y6'Y[3^%?&E<>"KNM2O+RK2B>Q2ES03/F7]JKQ)Y=
MGHGA6%^96:\F`_NCY4S^.[\J^6*]!^,GB3_A)OBSK-XC[H+>3[+%SQM3C^>:
M\^KZ;!T_9T8QZ_YGFUI'+Z>:`,TLJ2(H=V))(
MKYXHK6M0A6CRSV)A4<'=&_XSUFP\0^-=4US3;62TMKV8S+#(02A/4<>^:P**
M*UBE%)(AN[N%`)!!'4'(^M%%,1^A'PD\2CQ5\+-%U(OOG2(6\WJ'3Y3G\@?Q
MKQ7]K)\S>%DQSMN#^J4S]E?Q/Y=QK/A.=^),7L`)[@!7'Y;3^%-_:Q<&_P#"
MZ=Q'.?U2OG*5+V6-Y3T9RYJ-SYFHHHKZ0\X*^K?V3FSHOB=<])X3C_@+5\I5
M]3?LFM_H7BI>XDMS^CUYV8_[N_D=&'_B'SUXXE\[XA^(I>SZC<'_`,B&N>K2
MU^7S_$VJ3@Y\R[E;/KES6;7=#2*1A+=A4]G_`,A"V_ZZK_.H*GLO^0A;?]=5
M_G3>S".Y^D7B?18?$?A+5-$G^Y>VSPY_NDC@_@<&OS:SO)[2X39-"YC=
M?1@<$?G7Z=?PU\(?'CPY_P`(]\7=2*)M@U`"\CXP/F^]_P"/`_G7SV55+3<.
MYWXF/NJ1Y=111FOHCSSH/!?B&;PKXVTG7XB?]$N%=U'\29PP_$$U]Y^-?%4&
M@?#'5/$L$BNJVA>W;/#,XPGZD&OSLS7K?B;XEG6/@)X=\)>:3>07#1W`S_RS
MB`V9^NX?]\FO+QN&]M.$E\SJHU>6+1Y,[M([2.Q9F.23U)IM&:,UZBTT1RW.
MJ\%>`?$/C_4KBP\/PQ/+;Q^;(97V*!G'7UY_2N\_X9K^)?\`S[V'_@2*]9_9
M:T#['X(U/7Y%^?4;KRT./X(QC_T(M^5?0F*^?Q.85(57&&R.^EAXN*;/A36/
MV?\`XA:)HE[J]W:VAM[.)II/+N`S;5&3@8YZ5Y/7Z=7UJE[8W%G*H:.>-HW!
M[@C!_G7YKZ]I(]1TB7(>SN'A.1_=8C-=F`Q4Z[:GNC*O24+.)FT449KU
M#E.M^&_B5O"?Q)T36BV((KA4G'K$WRM^AS^%>R_M6RI)J_A;8=RFWF8,.X++
M7S:"D_$3Q7_PE7@SP-/(^ZYL[26TGYYW(Z@9^J[37#4I?[1"J;QG^[<3
MS:BBBNXP"OI_]DY_G\4Q9Z^0V/\`OL5\P5]*_LH28U7Q*GK#$\":N#,/\`
M=Y?(WP_\1'5R?LM>$997E?Q#JVYR6/\`J^I_X#31^RMX/)_Y&'5O_(?_`,32
M:SJ]K9?'S5=(U[Q+?6&@IIRSA%NY$59#CD8.1WJKX!^(^K>'_#&LZOKUQ>:I
MI%QJ*VNA-^NU[?&SZ9Y.W#VD%?1/;>_3U+G_``RK
MX/\`^AAU?_R'_P#$T^+]EGPC#/'*OB#5248,,^7V_P"`UTLOQHT_3;_7-/UF
MQC6ZTNT%XIL;H7$=PIP,!MJX;)'!%;$?Q&-GX+O/%>O6-O;Z?%;QW$+V5W]H
M$V_/R`E%PP(`QR.>M'URN_MG+++IQ2?)OMYGH0Z5YS\2/A'H7Q*N=/N=4O+J
MSFLD=%>WVY=6(.#D'H1^IJ)/B;J^';3Q!H:V$'B),VVYPO_``RMX/\`^AAU;_R'_P#$T#]E
M7PA_T,.K?^0__B:[O4_B7)HO]F:=JFE16VLZC:QIK6JVU]I,PBF$4WG12`YVNCX&0<>G%5]1D>(=6_P#(?_Q->H_$74;NW\+-I>ER
M^7JFKO\`8;5L_<+`[G_X"NX_A7+?!/Q%?WW@*ZT346:76=`F>SF61SN?&=I)
MQGGIGVI?7:_\[+CEZ=!UTMG;_@^AZ!X2\-6/@_PK8^'M/=Y+>T3:KR8W-SDD
MX[\UNYYKQ5_C3J\GA;5?$%CX(>6UTB[>WO"UZ%VA2`2OR?-UZ8'UK3;XM7,&
MN>'4O/#,EMHVOX6VO6N075MN[YH]O`_X%7*Y7=V=']GUTK_8\
MK=C[3C./-$6W[N?]K-:'_"T-:O/&.J>&=)\'M>SZ?Y3O*+P!3$Y'S\KZ'I54
MZLJ;O!V(EEU:2]Z.QQR_LL^#F/R^(=6/XQ__`!-/_P"&5?"'_0PZM_Y#_P#B
M:UO#'B[P_P"&I/B)J]QI<]A_9]\'NLW1G\^4C`V`J-N>!7;Z9XI\17,"7-]X
M8\J*XM/M4`@NO-;/&(VRJ@$AL]2.M;_7:_\`,S*IE[@]8Z?\"YYE_P`,J^$/
M^AAU;_R'_P#$TO\`PRMX0VA3XBU?:#G&8_Q_AKN_#WQ&NM0\?3>#-:T:/3[[
M[/\`:H7M[L7".F<$$[1M;VKT-@'0J<\\'%5]Z;:L85V8#.><#N*UQ\9=273_``YK4_A!X=$UF=+&-'CU.;1HA)=O-<&(;R"1&F
M%;+8'4X%=S:3//9P3R1-$\D:LT;'E21G'X5$\35J+EE*Z.66%]E9RC:YY2/!
M>O3_`!LU'Q3?:3!)HM[8_8&0SJ7(XRQ7TX/'6N'F^#'C:'0[KP]97%LUEIVH
MC4=%FDDR5/.8W7L#QSZ@^M%%<5Y^OP4O+C2?%VE6+'1=*U18GLK&23S1'*A)+
M'!(`/3C)_*BBC8SCBZE*[IZ&[/X'\1^)]0\$+K=G%IUMX9Q+,RRB0W,JA0H0
M#HORYR?7&*IQ^!O&]AJ?CW3[*VLI;#Q-NDBO))RIA)4K@I@YZ^HHHHW*6.JI
M\JM;_@W_`#(+CX=^+G\(^`M(AM+7[1X=NUN+@M/\KA3T7CJ03UK?\<^"O$=S
MX^T#Q]X7$$]_IJ&">RG?RQ-&./!WBWQ'?^
M'/&.F6UG:Z[HTC_Z#+-YD/3O7H6@MK$EHTVLZ3:Z9,V,0V\WG?
M4EMJ_P`J**=CGJ8B4Z:IO9;>ARVM^$+GQ9X[BN/$>FP7.@6=LR6T7G'<9F.6
MD8#'88'/K7/>'OA]KOA'XK:AKGAW3K6'P[>PB*2S^T'?N`X<9&.OOW-%%)HU
MABZL8.">C5K="K8?#KQ9;?#+QCX9E@L_M6N7DEQ`RW!*('(.&.W.1CMUJSK7
M@#Q1J>D^!+2.VM-V@.K76Z<@2`+M(7Y3U'/-%%'*:+'5>;FTO>_X6_(F\!>$
MO&_@4W'AQ+'3=3T5KEIK:[EF,$+Y+'3[Y+98([R&Z9OM&TC@@*-H*C!Y[
MT44FARQU65N:VC36G;3]#*TCP7XH\/>++3QC<:5IEK;:=HS6;V=G(2X*Y;
ME^8D]N.N,FO2?!">)QX2@F\63I-JDY,K(BA1$#RJ<=<>M%%%B:^(E6A>:5]O
MD<'IW@3Q=9:UX\O9(+!XO$\3)$@N6S$2K*-WR<_>[56O/AOXKF^%/AGPI&+`
M7NCW<4[R-.VQPC;ACY<\_3M1132+^OU>92TZ?@K+\#2L_!GB_P`,?$W4_$^@
M0V5[8ZXB&[M;BX,1@D'=6"G-J+69T0V\?V=8L^8LO\>?;
1_P"M110
-----END PRIVACY-ENHANCED MESSAGE-----