Exhibit 10.9
Patriot
The Patriot Group, LLC
October 26, 2004
America Business Financial Services, Inc.
Residential Mortgage Loan Warehouse and Residual Master Repurchase Agreement
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American Business Financial Services, Inc.
The ▇▇▇▇▇▇▇▇▇ Building
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Chairman, President, Chief Executive Officer
and Chief Operating Officer
Ladies and Gentlemen:
Reference is made to (i) the Commitment Letter dated September 17, 2004
executed and delivered by The Patriot Group, LLC, on behalf of itself, its
affiliates and subsidiaries ("Patriot"; also referred to herein as "we" and
"us") to, but not accepted or executed by, American Business Financial Services,
Inc. (together with its affiliates and subsidiaries, "ABFS"; also referred to
herein as "you"; such letter, the "Original Commitment Letter") and (ii) the
letter dated October 6, 2004 executed and delivered by Patriot and ABFS pursuant
to which the parties agreed, among other things, to continue our discussions
concerning certain facilities that Patriot would consider entering into with
ABFS (the "Extension Letter").
Patriot would be pleased and is prepared to proceed with ABFS toward a
facility (the "Committed Facility") on the terms contained in this letter
agreement (the "Commitment Letter") and in the Summaries of Terms and Conditions
attached as Exhibit A-1 and Exhibit A-2 hereto and incorporated herein by
reference (collectively, the "Commitment Terms"). As provided in the Commitment
Terms, the Committed Facility will consist of (i) a US$30,000,000 funding
commitment dedicated primarily to Wet Loans (defined below) (the "Wet
Warehouse") and (ii) a commitment of up to US$23,000,000 for the purchase of
specified ABFS-owned residual interests (the "Purchased Securities") from one or
more outstanding ABFS securitizations (the "Residual Repo"). Neither the Wet
Warehouse nor the Residual Repo is offered individually; both must be accepted
by ABFS. Patriot will commit to organize the Investor and the Purchaser (which
may be the same entity) described in the Commitment Terms and such entities will
provide the financing for the Wet Warehouse and will purchase the Purchased
Securities under the Residual Repo, respectively, subject to the terms thereof.
Patriot reserves the right to involve other investors and/or purchasers
(both junior and senior) in the Committed Facility, and you agree to cooperate
with us in our efforts to bring such investors and purchasers into the Committed
Facility. To assist Patriot in its efforts with respect to the Committed
Facility, you agree promptly to prepare and provide to Patriot all information
with respect to ABFS and the transactions contemplated hereby, including
projections (the "Projections") and all financial information, as we may
reasonably request. You hereby represent and covenant that (a) all information
other than the Projections (the "Information") that has been or will be made
available to Patriot by you or any of your representatives is or will be, when
furnished, complete and correct in all material respects and does not or will
not, when furnished, contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements contained
therein not materially misleading in light of the circumstances under which such
statements are made, (b) the Projections that have been or will be made
available to Patriot by you or any of your representatives have been or will be
prepared in good faith based upon commercially reasonable and supportable
assumptions, and (c) you will provide to Patriot timely updates to the
Information whenever, based upon the passage of time or the occurrence of events
or both, such updates are necessary to prevent the Information from including an
untrue statement of a material fact or failing to include a material fact
necessary in order to make the statements contained in the Information not
materially misleading in light of the circumstances under which such statements
were made. You understand that in making available the Committed Facility we may
use and rely on the Information and Projections without independent verification
thereof.
As consideration for Patriot's agreements hereunder, ABFS agrees to pay
to Patriot the fees set forth in Annex I to each Summary of Terms and Conditions
attached hereto and Work Fees as provided hereinbelow.
Patriot's agreements hereunder are subject to (a) approval of the
Committed Facility by Patriot's investment committee (which approval will be
sought after ABFS has executed and delivered a counterpart of this Commitment
Letter and, if obtained, will be confirmed to ABFS in writing prior to 6:00 p.m.
on the seventh (7th) business day following the date of such execution and
delivery), (b) all amounts due from ABFS upon ABFS's acceptance of the
Commitment Letter having been received by Patriot before the expiration date and
time set forth in the last paragraph on page 5 hereof and all other amounts due
thereafter from ABFS having been paid; (c) there not occurring or becoming known
to us any material adverse condition or material adverse change in or affecting
the business, operations, property, condition (financial or otherwise) or
prospects of ABFS and its subsidiaries, taken as a whole, other than as has been
disclosed in ABFS's public filings through October 1, 2004 (the date of the
latest SEC filing by ABFS reviewed by Patriot and its counsel to date); (d) our
not becoming aware after the date hereof of any information or other matter
affecting ABFS and/or its affiliates and subsidiaries or the transactions
contemplated hereby which is inconsistent in a material and adverse manner with
any Information, Projections or other matter disclosed to us prior to the date
hereof; (e) there not having occurred a material disruption of or material
adverse change in financial, banking or capital market conditions that, in our
judgment, could materially impair our ability to provide or arrange the
Committed Facility; (f) the negotiation, execution and delivery not later than
November 5, 2004 of definitive documentation with respect to the Committed
Facility satisfactory to Patriot and its counsel; and (g) the other conditions
set forth or referred to in the Commitment Terms.
2
The parties agree that if either (A) Patriot delivers to ABFS written
confirmation of the approval by its investment committee of the Committed
Facility within the time period allotted under clause (a) of the immediately
preceding paragraph (which confirmation shall reflect any adjustments to Annex
II to Exhibit A-2 theretofore made after reasonable consultation with ABFS and
Clearwing Capital, LLC ("Clearwing"), as provided in "Purchased Securities" in
Exhibit A-2), or (B) at any time on or prior to the Closing Date, ABFS (i)
accepts any proposal or commitment with respect to any facility which, if
consummated, would either (x) prevent the Committed Facility from being executed
on the terms contemplated herein or (y) render the Committed Facility
unenforceable in whole or in part, or (ii) fails to cooperate fully with Patriot
in the performance of any and all further due diligence required by Patriot
pursuant hereto (which due diligence shall include, but not be limited to,
supplying Patriot with Excel files containing the complete performance history
of ABFS's securitizations), then in either case the Commitment Fee payable
pursuant to Annex I to Exhibit A-1 shall be permanently retained by Patriot.
However, if neither (A) nor (B) above occurs, it is agreed that Patriot shall
return such Commitment Fee to ABFS, net of any assessed but unpaid Work Fees.
You agree (a) to indemnify and hold harmless Patriot and its officers,
members, directors, employees, advisors, and agents (each, an "indemnified
person") from and against any and all losses, claims, damages and liabilities
(including for taxes, it being the intention and agreement of the parties that
(i) the Committed Facility will be treated as a financing for federal and state
income tax purposes, as a result of which the Seller under the Residual Repo
will continue to own the Purchased Securities for federal and state income tax
purposes, and (ii) neither ABFS nor any affiliate thereof shall transfer or
pledge to any other entity, or suffer to exist any competing security interest
(other than Clearwing's pledge and security interest existing on the date
hereof) on, any of the Additional Collateral), to which any such indemnified
person may become subject arising out of or in connection with the Original
Commitment Letter, the Extension Letter, this Commitment Letter, the Committed
Facility, the use of the proceeds thereof or any related transaction or any
claim, litigation, investigation or proceeding relating to any of the foregoing,
regardless of whether any indemnified person is a party thereto, and to
reimburse each indemnified person upon demand for any legal or other expenses
incurred in connection with investigating or defending any of the foregoing,
provided that the foregoing indemnity will not, as to any indemnified person,
apply to losses, claims, damages, liabilities or related expenses to the extent
they are found by a final, non-appealable judgment of a court to arise from the
willful misconduct or gross negligence of such indemnified person, and (b) to
reimburse Patriot on demand for all out-of-pocket expenses (including diligence
expenses, consultants' fees and expenses, travel expenses, and reasonable fees,
charges and disbursements of counsel and other advisors) incurred in connection
with the Original Commitment Letter, the Extension Letter, this Commitment
Letter and the preparation, execution and delivery of the Committed Facility and
all related documentation (including any amounts related to efforts to involve
other investors and/or purchasers in the Committed Facility), subject to the
Work Fee provisions contained in the immediately succeeding paragraph. No
indemnified person shall be liable for any special, indirect, consequential or
punitive damages in connection with its activities related to the Committed
Facility. No indemnified person shall be liable for any damages arising from the
use by others of Information or other materials obtained through electronic,
telecommunications or other information transmission systems or for any special,
indirect, consequential or punitive damages.
3
As provided in the Extension Letter, you confirm your agreement to pay
Patriot a Work Fee of up to US$1,400,000 (the "Patriot Work Fee Limit") which
will be used to pay out-of-pocket diligence and transaction expenses related to
the Committed Facility (including any prior expenses of Patriot incurred in
connection with negotiations between Patriot and ABFS culminating in the
Original Commitment Letter but excluding the diligence expenses of any
participants in or lenders to Investor or Purchaser other than Patriot). It is
agreed that US$825,000 of Work Fees have been paid to Patriot (and credited
toward the Patriot Work Fee Limit) as of the date hereof. ABFS shall remit by
wire transfer in immediately available funds an additional Work Fee amount of
US$100,000 to Patriot on the date of execution and delivery of the Commitment
Letter by ABFS, and such amount will be credited toward the Patriot Work Fee
Limit. Additional Work Fee amounts, subject to the Patriot Work Fee Limit, may
be requested by Patriot and will be deposited by ABFS if and as needed,
including on a prospective basis. You also confirm your agreement to pay to
Patriot the diligence and other expenses of any participants in or lenders to
Investor or Purchaser other than Patriot, as and when requested by Patriot, up
to a limit of US$400,000, which limit is separate from and in addition to the
Patriot Work Fee Limit and any other fees and expenses set forth herein. Any
unused amounts of the Work Fees or participant and lender expenses deposited
with Patriot will be refunded to ABFS.
This Commitment Letter shall not be assignable by you without the prior
written consent of Patriot (and any purported assignment without such consent
shall be null and void), is intended to be solely for the benefit of the parties
hereto and is not intended to confer any benefits upon, or create any rights in
favor of, any person other than the parties hereto. This Commitment Letter may
not be amended or waived except by an instrument in writing signed by you and
Patriot. This Commitment Letter may be executed in any number of counterparts,
each of which shall be an original, and all of which, when taken together, shall
constitute one agreement. Delivery of an executed signature page of this
Commitment Letter by facsimile transmission shall be effective as delivery of a
manually executed counterpart hereof. The Nondisclosure Agreement between ABFS
and Patriot, dated as of September 9, 2004 (as amended in accordance with the
Extension Letter, the "NDA"), the Extension Letter, and, upon your execution and
delivery of a counterpart original of this letter to us, this Commitment Letter,
will be the only agreements in effect with respect to the Committed Facility,
will supersede all prior understandings with respect to the Committed Facility
and will set forth the entire understanding of the parties with respect thereto.
This Commitment Letter shall be governed by, and construed in accordance with,
the laws of the State of New York.
This Commitment Letter is delivered to you on the understanding that
none of this Commitment Letter or the Commitment Terms, nor any of their terms
or substance, shall be disclosed, directly or indirectly, to any other person
except (a) to your officers, agents, attorneys and other advisors who are
directly involved in the consideration of this matter, (b) to Clearwing,
provided that Clearwing has agreed to keep its contents confidential, (c) to
persons or entities other than those listed in (a) and (b) hereof with Patriot's
prior written permission, or (d) as may be compelled in a judicial or
administrative proceeding or as otherwise required by law (in which case you
agree to inform us promptly thereof).
You acknowledge that Patriot may be providing debt financing, equity
capital or other funding or services (including financial advisory services) to
other companies with whom you compete or in respect of which you may have
conflicting interests regarding the transactions described herein or otherwise.
4
You also acknowledge that Patriot has no obligation to use in connection with
the transactions contemplated by this letter, or to furnish to you, confidential
information obtained from other companies.
The compensation, reimbursement, indemnification and confidentiality
provisions contained herein (respectively, the "Surviving Provisions") and in
the NDA and the Extension Letter shall remain in full force and effect
regardless of whether definitive documentation shall be executed and delivered
and notwithstanding the non-acceptance or termination of this Commitment Letter
or termination of Patriot's commitment hereunder. Your obligations under this
Commitment Letter, other than those arising under the Surviving Provisions,
shall terminate upon the termination hereof and if documentation with respect to
a Committed Facility is executed, shall be superseded by the provisions of such
documentation upon the initial funding thereunder.
If the foregoing correctly sets forth our agreement, please indicate
your acceptance of the terms hereof, and of the Commitment Terms, by returning
to us an executed counterpart hereof, together with the amounts payable upon the
acceptance hereof, not later than 12:00 noon, New York City time, on Wednesday,
October 27, 2004. Please note that Patriot's wire transfer instructions for the
payments required in connection herewith are set forth on Exhibit B hereto.
Patriot's commitment and agreements herein will automatically expire at such
time in the event Patriot has not received such executed counterpart and such
amounts in accordance with this paragraph.
[Remainder of page intentionally left blank]
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Patriot is pleased to have the opportunity to assist you in connection
with this important facility.
Very truly yours,
THE PATRIOT GROUP, LLC
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
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Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
Title: Co-Chief Executive Officer
Accepted and agreed to as of
the date first written above by:
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇.
Title: Chairman, President, Chief Executive Officer
and Chief Operating Officer
6
EXHIBIT A-1
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American Business Financial Services, Inc.
Residential Mortgage Loan Warehouse Agreement
Summary of Terms and Conditions for Wet Warehouse
October 26, 2004
I. PARTIES
Issuer Parent: A special purpose bankruptcy-remote Delaware
statutory trust ("Trust 3" or the "Issuer
Parent"), 97% of the beneficial interests in
which shall be owned by ABFS Consolidated
Holdings, Inc. ("Holdings"), a direct,
wholly-owned subsidiary of American Business
Financial Services, Inc., and 3% of the
beneficial interests in which shall be owned by
the Originators (as defined below).
Issuer: A special purpose bankruptcy-remote Delaware
statutory trust ("Trust 4" or the "Issuer"), all
of the beneficial interests in which shall be
owned by Trust 3. The Issuer may be the same
entity as the Seller under the Residual Repo.
Investor: A limited purpose entity to be formed by Patriot
(or one or more of its affiliates and/or
subsidiaries). Investors may include participants
in addition to Patriot, and Patriot may obtain
capital from or arrange direct participation by
third parties on a senior or junior basis (such
investors, collectively, the "Investor"). The
Investor may be the same entity as the Purchaser
under the Residual Repo.
Custodian: A third party that can fulfill all duties,
including necessary wire transfers to acquire wet
funded mortgage loans, pursuant to a Custodial
Agreement satisfactory to Patriot in its sole
discretion. JPMorgan Chase Bank would be
acceptable to Patriot as Custodian.
Issuer Owner
Trustee: A financial institution to be selected by ABFS
that can fulfill all duties required of it under
an Issuer Trust Agreement, satisfactory to
Patriot in its sole discretion.
Parent Owner
Trustee: A financial institution to be selected by ABFS
that can fulfill all duties required of it under
an Issuer Parent Trust Agreement, satisfactory to
Patriot in its sole discretion.
A-1-1
Investor Co-
Trustees: (i) A nationally-chartered commercial bank and
(ii) a Delaware trustee, both to be selected by
Patriot in its sole discretion, that can, between
them, fulfill all duties required of them under
an Investor Trust Agreement, satisfactory to
Patriot in its sole discretion.
Servicer: ABFS, on a short-term renewable basis. The
Servicer will earn a servicing fee (to be
approved by the Investor in its sole discretion).
Investor, in its sole discretion, will grant
renewals from time to time. Servicer shall
deposit collections daily into a segregated
collection/distribution account, subject to the
commingling prohibitions contained herein, at the
Custodian or the applicable Investor Co-Trustee
(as determined by the Investor) for the benefit
and under the control of Investor.
Back-up Servicer: Countrywide Home Loan Servicing LP, pursuant to a
Back-up Servicing Agreement satisfactory to
Patriot.
II. FACILITY AMOUNT AND STRUCTURE
Facility Amount: US$30,000,000.
Facility Term: Three (3) years from Closing Date.
Structure: Structured warehouse facility with advances
evidenced by one or more master variable funding
notes (collectively, the "VFN") issued by the
Issuer. The VFN, having a principal amount of up
to US$30,000,000, will provide funding for, and
will be secured primarily by, Wet Loans (as
defined below) and proceeds thereof. The VFN may
also be secured by Wet Loans which have become
Eligible Loans (as defined below). The
outstanding principal amount of all advances
under the VFN may at no time exceed the Borrowing
Base (as defined below). The VFN will be secured
by all Loan Collateral (as defined below) and by
all Additional Collateral (as defined below).
Investor will purchase the VFN on the Closing
Date.
Issuer will acquire the Wet Loans, on a daily
basis, in legal true sales. Trust 3 will purchase
Wet Loans from the Originators and Issuer will
purchase Wet Loans from Trust 3.
Investor reserves the right to bring one or more
lenders into the Wet Warehouse provided that the
resulting structure provides ABFS with
substantially identical funding availability and
pricing to the availability and pricing described
herein.
Borrowing Base: As to any loan funded under the Wet Warehouse, at
any date, the lesser of (x) the Facility Amount
and (y) the product of the Advance Rate (as
defined below) applicable to such loan and the
lesser of (i) the then-current principal balance
of such loan or (ii) the fair market value of
such loan as determined by the Investor in its
sole discretion.
A-1-2
Wet Warehouse
Collateral: The VFN will be secured by (i) a perfected first
priority security interest in and lien upon all
Wet Loans, including all Wet Loans that become
Eligible Loans (as defined below), all proceeds
thereof, all funds from time to time on deposit
in the concentration/distribution and
disbursement accounts maintained by the
Custodian, all funds returned or to be returned
by any Approved Closing Agent (as defined below)
and all rights under all Closing Protection
Letters and Funds Receipt Agreements (as defined
below) (collectively, the "Loan Collateral");
(ii) a direct pledge by ABFS of 100% of the
common stock of Holdings; (iii) a preferred
certificate (the "Trust 3 P Certificate") to be
issued by Trust 3 to Investor, entitling Investor
to a priority interest in all assets and
distributions received by Trust 3 and such rights
with respect thereto as are satisfactory to
Investor in its sole discretion; (iv) a perfected
first priority security interest in and lien on
all rights to reimbursement for servicer
advances, unearned fees of all types and prepay,
late, forbearance, satisfaction, NSF and other
similar earned fees due to ABFS as servicer, the
"par" amount of which on the Closing Date shall
not be less than US$37,000,000 (which shall
constitute a super-priority claim to collections
within each securitization trust), all pledged by
American Business Credit, Inc., or any other
applicable affiliate thereof (the "Servicer
Reimbursement and Fee Collateral"); and (v) a
perfected first priority security interest in and
lien on the value of the Purchased Securities in
excess of the amount necessary for Seller to
satisfy its obligations to Purchaser under the
Residual Repo (the "Repo-related Collateral" and,
together with the Trust 3 P Certificate and the
Servicer Reimbursement and Fee Collateral, the
"Additional Collateral"), all on a basis
acceptable to Investor in its sole discretion
(the collateral described in clauses (i)-(v)
immediately above, the "Wet Warehouse
Collateral"). It is agreed by the parties that
upon the termination of the Residual Repo, the
Issuer shall identify replacement Wet Warehouse
Collateral acceptable to the Investor in its sole
discretion and pledge such replacement Wet
Warehouse Collateral to the Investor to replace
such Repo-related Collateral as shall be released
from the lien of the Investor; provided, that if
and only if the Residual Repo shall be terminated
on its Termination Date (as defined in Exhibit
A-2), then upon thirty (30) days' prior written
notice to Investor, Issuer may terminate the Wet
Warehouse on the second anniversary of the
Closing Date and pay the Investor a one-time
termination fee of US$600,000 by wire transfer in
immediately available funds (such termination of
the Wet Warehouse becoming effective upon
confirmation by Investor of receipt of such
termination fee as well as all other amounts then
due to Investor under the Wet Warehouse and the
Residual Repo).
A-1-3
Holdings owns 97% of the "common" equity
certificates (or "R Certificates") of ABFS
Warehouse Trust 2003-1 ("Trust 1"), which owns
the outstanding retained interest-only strips
("IOs") and securitization over-collateralization
and residual interests set forth on Schedule I
attached hereto (the IOs and such other scheduled
interests, collectively, the "Trust 1 IO
Collateral"). Three other ABFS entities, American
Business Mortgage Services, Inc., HomeAmerican
Credit, Inc., and American Business Credit, Inc.
(collectively, the "Originators") own and hold
the remaining 3% of the Trust 1 R Certificates.
The Trust 1 R Certificates (together with all
rights relating thereto, the "Trust 3 Assets")
will be sold by Holdings and the Originators to
Trust 3 in a true sale on the Closing Date. ABFS
shall have the responsibility to obtain all
consents necessary for such sales.
Trust 3 will receive all distributions on the
Trust 1 R Certificates. The Trust 3 P Certificate
will entitle the holder thereof to receive 100%
of the value of the Trust 3 Assets, including
without limitation, such distributions and any
other Trust 3 Assets, and any proceeds from or
other sales or dispositions of any of the
foregoing. On the Closing Date, Trust 3 will
issue the Trust 3 P Certificate to Investor to
secure the obligations of Issuer hereunder and of
the Seller under the Residual Repo. The Investor,
as the holder of the Trust 3 P Certificate, will
be entitled to apply 100% of such value to such
obligations. As the holder of the Trust 3 P
Certificate, Investor, and its successors and
assigns, will have the right to exercise all
rights with respect to Trust 3 and the Trust 3
Assets, including any rights of termination and
any of the rights of the Trust 1 R
Certificateholders with respect to Trust 1 and
the IO Collateral held by Trust 1 under the
Amended and Restated Trust Agreement, dated as of
October 14, 2003, pursuant to which Trust 1 was
established. In an Event of Default under the Wet
Warehouse Facility Documentation, Investor, as
the holder of the Trust 3 P Certificate, will
have rights customary for secured creditors,
including the right to foreclose upon and sell
the Trust 3 Assets to satisfy the obligations of
the Issuer hereunder and the obligations of the
Seller under the Residual Repo; provided that for
as long as the Chrysalis Warehouse is
outstanding, Investor will not effect any sale or
transfer of the Trust 3 Assets to any entity that
is not either (i) an affiliate of Investor or
(ii) a securitization vehicle or other similar
special purpose financing entity.
On the Closing Date, Trust 3 will issue Trust 3 R
Certificates to Holdings (representing 97% of the
Trust 3 common equity) and to the Originators
(representing 3% of such equity). ABFS has
advised Patriot that any and all of the cash flow
from these Trust 3 R Certificates, as well as any
and all Trust 3 P Certificate cash flow not
A-1-4
applied to the obligations owed to Investor under
the Wet Warehouse or to Purchaser under the
Residual Repo, will secure the obligations of
ABFS to the holders of its currently outstanding
senior collateralized subordinated notes as are
secured by the cash flow from the Trust 1 R
Certificates. Otherwise, the Trust 3 R
Certificates may not be assigned or pledged.
The Wet Warehouse Collateral will secure (a) the
principal balance of the VFN (except that the
Trust 3 P Certificate will secure only 15% of the
principal balance of the VFN (but 100% if a Fraud
Event occurs)); (b) all earned interest and fees;
and (c) all expenses and indemnities at any time
reimbursable to Investor. In addition, all Wet
Warehouse Collateral (except the Repo-related
Collateral) shall secure Seller's obligations
under the Residual Repo, and the Investor may
apply the Wet Warehouse Collateral in any order
to the Issuer's obligations under the Wet
Warehouse. A "Fraud Event" shall include, but not
be limited to, the pledge or transfer by the
Issuer or any other person of any of the mortgage
notes or other documents or collateral relating
to the Wet Loans to any party not authorized to
receive or obtain a security or ownership
interest in the same under the terms of the Wet
Warehouse Facility Documentation, any Wet Loans
not being actual bona fide mortgage loans, any
diversion of funds advanced by Investor - or by
the Custodian on the Investor's behalf - from
their intended use, any material
misrepresentation regarding such loans or any
attempt to force either Trust 3 or Trust 4 into
bankruptcy or violate their separateness
covenants.
The collateral securing that certain Master Loan
and Security Agreement, dated as of October 14,
2003, between ABFS Warehouse Trust 2003-2 ("Trust
2") and Chrysalis Warehouse Funding, LLC
("Chrysalis;" such facility, in the form filed in
2003 with the SEC, the "Chrysalis Warehouse;"
such agreement, in the form filed in 2003 with
the SEC, the "Chrysalis Loan Agreement"), will at
all times be limited to the mortgage loans funded
thereunder and the additional collateral granted
to Chrysalis by Trust 1 as of the effective date
of such credit facility, less the residual
interests released by Chrysalis as contemplated
herein (the "Remaining Chrysalis Additional
Collateral"). Chrysalis' senior claim to the
Remaining Chrysalis Additional Collateral will at
all times be consistent with its claims under the
Chrysalis Warehouse (i.e., based on 10% of its
facility outstandings (which percentage has been
modified to 12.22% as agreed with ABFS; no other
terms have been modified) and percentage fees and
interest rates as provided in the original
Chrysalis Warehouse) and will be based on a
maximum facility size of US$400,000,000
(US$250,000,000 if the Chrysalis Warehouse shall
fail to be upsized to US$400,000,000 by the
earlier of (x) the January 12, 2005 deadline
contemplated under the terms thereof (as such
deadline may be extended by the parties to the
Chrysalis warehouse by mutual agreement) or (y)
March 31, 2005).
A-1-5
Purpose: The VFN will fund the purchase by Trust 4 of
residential first and second mortgage loans
originated by various ABFS subsidiaries and
meeting ABFS's underwriting guidelines in effect
from time to time (the "Underwriting
Guidelines").
Eligible Loans: Whole loan eligibility criteria to be
substantially similar to those contained in the
Chrysalis Warehouse ("Eligibility Criteria"),
including a certification with respect to each
loan from the Custodian. Whole loans originally
funded as Wet Loans which come to meet the
Eligibility Criteria are referred to herein as
"Eligible Loans".
Wet Loans: Funded and closed mortgage loans which by their
terms would qualify as Eligible Loans but for the
fact that full and complete documentation has not
been received by the Custodian ("Wet Loans"). The
funding of Wet Loans will at all times be subject
to the requirements set forth under "Wet Loan
Advance Requirements" below.
Advance Rate: As to any Wet Loan funded under the Wet
Warehouse, as provided under that certain Amended
and Restated Senior Secured Credit Agreement,
dated as of September 22, 2003 (the "Chase
Warehouse"), between ABFS and JPMorgan Chase Bank
as Agent (90% for fixed-rate first mortgage
loans, 88% for adjustable-rate first mortgage
loans and 75% for second mortgage loans). Wet
Loan purchases will be the subject of the
additional requirements set forth under "Wet Loan
Advance Requirements" below.
Wet Loans (i) may be financed under the Wet
Warehouse for a maximum of six (6) business days
from and including the date of origination of
each such Wet Loan and (ii) cannot have been
financed under any other wet loan financing
facility, except those Wet Loans financed on the
Closing Date that were - immediately prior
thereto - financed under the Chase Warehouse if
the Chase Warehouse is being terminated on the
Closing Date; provided, that Wet Loans which
become Eligible Loans prior to the close of the
sixth business day from origination may remain
financed under the Wet Warehouse for a maximum of
sixty (60) additional days. Such Eligible Loans
will continue to be financed at the lesser of (a)
the applicable Advance Rate or (b) the advance
rate which would be applicable to such loan under
the Chrysalis Warehouse (if such loan were
subject to such facility), subject in all cases
and at all times to the principal balance of the
VFN not exceeding the Facility Amount. Wet Loans
and Eligible Loans will only be released as Wet
Warehouse Collateral if the principal balance of
the VFN does not exceed the Borrowing Base -
after giving effect to such release - and no
default or event of default under the Wet
Warehouse has occurred and is continuing.
A-1-6
In addition, the Advance Rate provided by
Investor with respect to any category of Wet
Loans or Eligible Loans will at no time exceed
the advance rate offered to ABFS under any other
ABFS warehouse facility for similar loans (as
determined by the Investor), and to effectuate
such intent ABFS will provide to Investor (and/or
the Custodian), no less frequently than weekly,
copies of all borrowing base certificates and
remittance reports provided to or by other
lenders and such other information as the
Custodian or Investor may request. Investor may,
in its discretion in connection with its ongoing
monitoring of the Wet Warehouse Collateral,
including but not limited to its ongoing review
of contract underwriting, decrease the Advance
Rates for the Wet Warehouse from time to time.
Loan Advance
Mechanics: The Custodian will act as the disbursing agent
for funding of all advances under the Wet
Warehouse at the expense of the Issuer, including
but not limited to funding for all Wet Loan
purchases by Trust 4. Funding for Wet Loan
purchases by Trust 4 shall be deposited by
Investor and Issuer into a
concentration/distribution account maintained by
the Custodian. Once the Custodian has received
all amounts due from each of Investor (advance in
accordance with applicable Advance Rates) and
Issuer (deposit representing applicable haircut
amount and fees) in the concentration/
distribution account, the combined deposit will
be transferred to a disbursement account
maintained by the Custodian. The amounts needed
by Issuer to fund the concentration/distribution
account will be supplied to it solely through
capital contributions made by Holdings (which
will also obtain the needed funds solely by
capital contributions) through Trust 3 and by
excess cash flow. The Custodian will wire
transfer the Wet Loan purchase price to the
Approved Closing Agent, subject to such
procedures with respect to validating wire
transfer instructions provided by ABFS as are
satisfactory to Investor, and will receive by
direct delivery the related documentation for
such Wet Loan from such Approved Closing Agent.
Wet Loan Advance
Requirements: Wet Loans will be closed in escrow by an Approved
Closing Agent which is bonded by an Approved
Title Insurer pursuant to a Closing Protection
Letter (except in New York, where a guarantee
letter shall be provided in form and substance
acceptable to the Investor) and Funds Receipt
Agreement benefiting the Investor and specific
closing instructions provided by the Custodian on
behalf of the Investor.
A-1-7
An "Approved Title Insurer" shall mean any
single-A-rated insurance company reasonably
satisfactory to the Custodian on behalf of the
Investor.
An "Approved Closing Agent" shall mean a closing
agent which is independently owned and operated
(i.e., has no affiliation with ABFS), is bonded
by an Approved Title Insurer (or a guarantee
letter in New York) and is insured against errors
and omissions in an amount satisfactory to
Patriot in its sole discretion.
Under each "Closing Protection Letter" (or
guarantee letter in New York) the applicable
Approved Title Insurer (or comparable entity
under a guarantee letter in New York) will
guarantee the performance of the applicable
Approved Closing Agent and agree to reimburse the
Investor for any losses incurred due to (i)
malfeasance or fraud on the part of the Approved
Closing Agent or (ii) the failure of the Approved
Closing Agent to follow the specific closing
instructions specified by the Investor.
Each "Funds Receipt Agreement" will provide
specific instructions for the applicable Approved
Closing Agent to close and deliver mortgage loans
funded by Investor immediately or to wire the
funds back to Investor (or the Custodian, if so
directed by the Investor in writing) if the
funding does not occur within one (1) business
day, such wire to include, without limitation,
the applicable haircut amount deposited by the
Issuer. If any Approved Closing Agent at any time
fails to either deliver the loan collateral file
(such file to consist of the note, the mortgage,
the title policy, the assignment of mortgage and
all other related documents) or return funds to
the Custodian as required (it being understood
that all Approved Closing Agents will be required
to deliver loan documents directly to the
Custodian), the applicable Approved Title Insurer
pursuant to the Closing Protection Letter (or
comparable entity under a guarantee letter in New
York) will be obligated to reimburse the Investor
for the full amount of the wire.
Additional Collateral: The market value (as determined by the Investor
in its sole discretion) of the Additional
Collateral (as adjusted to take into account all
potential senior claims of Chrysalis against the
Trust 1 IO Collateral represented by the
Remaining Chrysalis Additional Collateral) shall
be greater than US$60,000,000 at all times.
Distributions: (i) Any payments of principal, interest and other
amounts paid by obligors with respect to the Wet
Loans and Eligible Loans, and all foreclosure
proceeds, insurance proceeds and other recoveries
thereon, (ii) any proceeds of the refinancing,
sale or securitization of any Wet Loans or
Eligible Loans and any other proceeds of the Loan
Collateral, (iii) any cash flow from the Trust 1
IO Collateral released by Chrysalis under the
A-1-8
Chrysalis Warehouse, all of which shall be turned
over to the Parent Owner Trustee, for the benefit
of the Trust 3 P Certificate holder and other
parties with interests in the Trust 3 R
Certificates, (iv) all proceeds of Servicer
Reimbursement and Fee Collateral, and (v) any
proceeds of Repo-related Collateral
(collectively, the "Wet Warehouse Available
Collections"), shall be deposited into one or
more collection/distribution accounts
(established under such terms as are satisfactory
to the Investor) and be paid on a monthly basis
on each Payment Date (as defined in Annex I to
Exhibit A-1) as follows:
first, to the Issuer Owner Trustee, Parent Owner
Trustee, Investor Co-Trustees, Custodian and
Back-up Servicer, pro rata, any outstanding fees
not paid by the Issuer;
second, to the Servicer to pay any servicing
fees;
third, to the Investor to pay any fees owed to
Investor;
fourth, to the Investor to pay any interest owed
to Investor;
fifth, to the Investor to pay any principal
amounts of the VFN needed to remain in compliance
with the Borrowing Base and to pay the
outstanding principal balance of the VFN upon the
maturity, early termination or acceleration of
the Wet Warehouse;
sixth, to the Investor to pay any other amounts
due to Investor under the Wet Warehouse;
seventh, remaining Wet Warehouse Available
Collections (other than any remaining portion
thereof described in clause (v) of the definition
of "Wet Warehouse Available Collections") to the
Purchaser or other applicable parties (other than
the Seller) under the Residual Repo to the extent
the funds available under such facility are
insufficient to make the required payments
thereunder; and
eighth, provided no Event of Default has occurred
and is continuing under the Wet Warehouse, the
remainder to the Issuer.
Amounts due Investor under priorities "third"
through "sixth" shall be deemed to be "Required
Distributions" for purposes of the Wet Warehouse,
and failure of Investor to receive such Required
Distributions in full, by operation of the
waterfall above or otherwise, shall constitute an
Event of Default under the Wet Warehouse.
More frequent payments, resulting from the
refinancing, sale or securitization of Eligible
Loans, will also be permitted, under arrangements
satisfactory to the Investor. Release of excess
cash flow from the Trust 1 IO Collateral received
on the 15th of each month may be permitted by the
A-1-9
Investor prior to a Payment Date subject to such
conditions as the Investor shall determine in its
sole discretion. Wet Warehouse Available
Collections referred to in clauses (iii), (iv)
and (v) of the definition thereof shall not be
commingled with funds pledged or belonging to
others; Wet Warehouse Available Collections
referred to in clauses (i) and (ii) of the
definition thereof may be commingled with funds
pledged to other ABFS lenders or belonging to
ABFS whole loan purchasers under arrangements
satisfactory to Investor in its sole discretion.
III. CERTAIN PAYMENT PROVISIONS
Investor Fees and
Interest Rates: As set forth on Annex I to Exhibit A-1.
Other Fees and
Expenses: Fees and expenses of the Issuer Owner Trustee,
Parent Owner Trustee, Investor Co-Trustees,
Custodian, Servicer and Back-up Servicer to be
paid by ABFS, such fees and expenses being
separate and apart from any fees and expenses
owed to Patriot or Investor (including the
Monitoring Fee (as defined below) and Work Fees).
In addition, all out-of-pocket fees and expenses
incurred by the Investor in connection with the
administration, amendment and/or enforcement of
the Wet Warehouse will be reimbursed by the
Issuer or ABFS on demand.
IV. CERTAIN CONDITIONS
Initial Conditions: The availability of the Wet Warehouse shall be
conditioned upon satisfaction of, among other
things, the following conditions precedent not
later than November 5, 2004 (the date upon which
all such conditions precedent shall be satisfied,
the "Closing Date"):
(a) The Issuer shall have executed and delivered
definitive financing documentation with respect
to the Wet Warehouse, including without
limitation the Trust 3 P Certificate (the "Wet
Warehouse Facility Documentation") and a master
repurchase agreement with respect to the Residual
Repo in form and substance satisfactory to
Investor;
(b) The Investor and all participants therein or
lenders thereto shall have received all fees
required to be paid (including but not limited to
all Work Fees), and all expenses for which
invoices have been presented shall have been paid
in full, on or before the Closing Date (with Work
Fees being applied thereto as provided herein);
(c) All governmental and third party approvals
necessary or, in the discretion of the Investor,
advisable in connection with the transactions
contemplated hereby and the continuing operations
of ABFS and its subsidiaries, including Holdings,
the Issuer Parent and the Issuer, shall have been
obtained and be in full force and effect;
A-1-10
(d) The Investor shall have received and
determined as satisfactory, prior to the Closing
Date, (i) ABFS's annual report and final audited,
consolidated financial statements for the fiscal
year ended June 30, 2004 substantially in the
form filed or to be filed with the Securities and
Exchange Commission (the "SEC") on Form 10-K,
together with the opinion thereon of BDO ▇▇▇▇▇▇▇,
LLP; (ii) satisfactory unaudited interim
consolidated financial statements of ABFS for
each of July, August, September and October of
the current fiscal year (to the extent such
statements have been produced by ABFS); (iii) all
correspondence between ABFS and the SEC regarding
ABFS's registration statement on Form S-2 filed
on October 15, 2004 regarding its retail secured
subordinated indebtedness; (iv) ABFS's latest
contingent financial restructuring plan; and (v)
any other correspondence between ABFS and the SEC
which Patriot may request;
(e) The Investor shall have received such legal
opinions, documents and other instruments as are
customary for transactions of this type and as
they may reasonably request;
(f) ABFS and its affiliates shall be in full
compliance (after giving effect to any waivers
obtained thereunder satisfactory to Patriot) with
all terms and conditions contained in the
Chrysalis Loan Agreement, all other financings
and all of its securitizations;
(g) ABFS shall have received one or more
definitive warehouse commitments from one or more
other new lenders to the company to provide an
aggregate minimum US$100,000,000 in warehouse
funding, with an aggregate minimum US$30,000,000
sub-limit for wet loans ("Additional Warehouse
Lines"), which Additional Warehouse Lines shall
be required to close not later than the Closing
Date;
(h) ABFS shall have obtained a "key man" life
insurance policy on the life of ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇, to be collaterally assigned to the
Investor, in an amount at least equal to
US$2,000,000 (provided that ABFS shall use its
best efforts to increase the amount of such
policy to US$5,000,000 within six months of the
Closing Date);
(i) Investor shall have entered into such
intercreditor agreements with ABFS's other
lenders as are, in Investor's sole discretion,
necessary to effectuate the intent of the Wet
Warehouse and preserve its interests in the Wet
Warehouse Collateral, in each case on terms and
conditions satisfactory to Investor in its sole
discretion, including but not limited to (a)
restrictions on the sale or disposition of
A-1-11
Trust 1 IO Collateral and (b) the commingling of
Wet Warehouse Available Collections referred to
in clauses (i) and (ii) of the definition thereof
under "Distributions" above;
(j) All conditions contained in the Commitment
Letter shall each have been satisfied;
(k) Investor shall have received copies of
certified resolutions of the Board of Directors
of ABFS and Holdings (including any applicable
committees thereof) authorizing and approving the
Wet Warehouse, in form and substance satisfactory
to Investor; and
(l) ABFS, Holdings and the pledgor(s) of Servicer
Reimbursement and Fee Collateral shall provide
Investor with current financial statements,
prepared in accordance with GAAP, along with
certifications, which must evidence that each has
a positive net worth (and cover related matters)
as of the Closing Date.
On-Going
Conditions: Each financing shall be conditioned upon (a) the
accuracy of all representations and warranties in
the Wet Warehouse Facility Documentation
(including, without limitation, material adverse
change and litigation representations) and (b)
there being no default or event of default in
existence at the time of, or after giving effect
to the making of, such extension of credit. As
used herein and in the Wet Warehouse Facility
Documentation, a "material adverse change" shall
mean any event, development or circumstance that
has had or could reasonably be expected to have a
material adverse effect on (x) the business,
assets, property, condition (financial or
otherwise), or prospects of ABFS and its
affiliates taken as a whole or on the value of
the Wet Warehouse Collateral, or (y) the validity
or enforceability of any of the Wet Warehouse
Facility Documentation or the rights or remedies
of the Investor thereunder.
ABFS shall maintain an effective registration
statement with the SEC for retail subordinated
indebtedness with availability of at least
$30,000,000 at all times. In addition, as
provided under the Chrysalis Warehouse, ABFS
shall not be unable for any reason to sell or
issue subordinated debentures or senior
collateralized subordinated notes under any
existing Sub-debt Indentures (defined in the
Chrysalis Loan Agreement as all indentures
entered into prior to the closing date of that
credit facility between ABFS and U.S. Bank
National Association) or any other similar future
indentures for more than three consecutive weeks
or on more than two occasions in any twelve-month
period irrespective of the length of time of any
such occasions.
A-1-12
ABFS must at all times satisfy all requirements
for continuing its current Nasdaq listing status.
A delisting notification will be a default under
the Wet Warehouse Facility Documentation, with a
cure period provided to reestablish ABFS's
listing on Nasdaq equal to the applicable cure
period provided in Nasdaq's listing standards
and/or regulations.
ABFS shall not make any material changes to its
Underwriting Guidelines, unless Investor shall
have given prior written approval for such
changes.
ABFS shall at all times keep Investor informed in
writing of its mortgage loan programs and related
program pricing, including without limitation any
and all changes thereto as and when made.
ABFS and Issuer shall at all times maintain all
required lending and other licenses in each
applicable jurisdiction in which it transacts
business.
At all times during the term of the Committed
Facility, ABFS shall retain ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇ in their current
positions at ABFS or, if and to the extent
▇▇▇▇▇▇▇ ▇▇▇▇▇ or ▇▇▇▇▇▇ ▇▇▇▇▇▇ shall cease to
hold their current positions, secure a
replacement employee reasonably satisfactory to
Investor within 60 days thereafter.
At all times during the life of the Wet
Warehouse, ABFS shall maintain in force a "key
man" life insurance policy on the life of ▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇, to be collaterally assigned to the
Investor, in an amount at least equal to
US$2,000,000 (provided that ABFS shall use its
best efforts to increase the amount of such
policy to US$5,000,000 within six months of the
Closing Date).
Investor shall be added as a named insured to
ABFS's errors and omissions insurance and
fidelity bond.
ABFS shall at all times preserve current coverage
levels of general liability, errors and omissions
and fidelity bond coverage.
ABFS shall not discriminate against the Investor
with respect to the Wet Loans it chooses to
finance under the Wet Warehouse.
V. CERTAIN DOCUMENTATION MATTERS
The Wet Warehouse Facility Documentation shall contain representations,
warranties, covenants and events of default customary for agreements of this
type and other terms deemed appropriate by the Investor, including, without
limitation:
A-1-13
Certain Financial
Covenants: ABFS to have at least US$350,000,000 in aggregate
active warehouse facility commitments from one or
more other lenders or investors at all times.
Terms and conditions of facilities shall be
reasonably acceptable to Investor.
The pledgor(s) of the Servicer Reimbursement and
Fee Collateral shall periodically certify, and
provide monthly financial statements prepared in
accordance with GAAP evidencing, that each
maintains a positive net worth at the end of the
period covered by each such certification.
Other Covenants/
Representations: Covenants/representations to include but not be
limited to those set forth in the Chrysalis Loan
Agreement (with covenants covering the Wet
Warehouse Collateral), and the following (all
schedules to be revised as of the Closing Date,
with any changes therein being satisfactory to
Investor in its sole discretion):
As of the Closing Date, there are no material
actions or proceedings threatened or commenced
and continuing against ABFS where the evaluated
exposure as determined by ABFS in consultation
with its outside legal counsel is in excess of
US$50,000, other than those summarized on
Schedule B attached to the Commitment Letter.
As of the Closing Date, there are no material
complaints asserted against ABFS by consumers or
regulators on their behalf other than those
summarized on Schedule C attached to the
Commitment Letter.
As of the Closing Date, there are no threatened
or pending enforcement actions, administrative
proceedings or investigations involving ABFS by
any federal, state or local governmental entity
other than those summarized on Schedule D
attached to the Commitment Letter.
With respect to ABFS-sponsored securitizations
which were insured by financial guaranty
company(ies), Schedule E lists (and ABFS has
provided copies of) all amendments and waivers to
contracts related to such securitizations, all
correspondence with such financial guaranty
company(ies) that is or may be material to the
holders of the residual interests in such
securitization and all servicer extension notices
and waivers related thereto received by ABFS
prior to the Closing Date from the financial
guaranty company.
ABFS is licensed and qualified to originate loans
and transact business in and is in good standing
under the laws of each state where it originates
and services mortgage loans unless otherwise
exempt under applicable law from such licensing
or qualification.
A-1-14
No mortgage loans subject to the Wet Warehouse
are: (a) mortgage loans that are subject to the
provisions of the Homeownership and Equity
Protection Act of 1994 as amended; (b) "high
cost" mortgage loans, "covered" mortgage loans,
"high risk home" mortgage loans or "predatory"
mortgage loans or any other comparable term, no
matter how defined under any federal, state or
local law, (c) mortgage loans subject to any
comparable federal, state or local statutes or
regulations, or any other statute or regulation
providing for heightened regulatory scrutiny or
assignee liability to holders of such mortgage
loans, or (d) High Cost Loans or Covered Loans as
applicable (as such terms are defined in the
Standard & Poor's LEVELS(R) Glossary Revised,
Appendix E, as such Appendix E may be revised
from time to time).
ABFS does not and will not engage in any
predatory or deceptive lending practices,
including but not limited to, the extension of
credit to a mortgagor without regard for the
mortgagor's ability to repay the mortgage loan
and the extension of credit to a mortgagor which
has no apparent benefit to the mortgagor, in
connection with the mortgage loans that it
originates.
ABFS does not and will not require mortgagors to
purchase any credit life, disability, accident or
health insurance product as a condition of
obtaining an extension of credit.
The information set forth in the multi-state
prepayment charge grid attached on Schedule F
attached to the Commitment Letter is complete,
true and correct in all material respects and
each prepayment charge imposed by ABFS in the
mortgage loans that it originates is permissible,
enforceable and collectable under applicable
federal and state law.
Events of Default: Events of Default to include, but not be limited
to, failure to satisfy any of the "Initial
Conditions," any of the "On-Going Conditions",
those events of default under Chrysalis Loan
Agreement, and the following:
Failure by ABFS to obtain required Additional
Warehouse Lines required by the Wet Warehouse
Facility Documentation.
Loss of servicing rights under (i) more than two
outstanding ABFS securitizations or (ii) any
warehouse facility (including the Wet Warehouse).
Any other customary Events of Default and any
events of default under the Residual Repo.
A-1-15
Upon an Event of Default, the Wet Warehouse will
terminate and all outstandings thereunder,
including, without limitation, amounts due under
the VFN, will be immediately due and payable.
Investor shall be entitled to enforce any rights
and all remedies pursuant to the Wet Warehouse
Facility Documentation and applicable law,
including without limitation its right to sell
all or portions of the Loan Collateral on a
servicing-released basis and its rights with
respect to the Trust 3 P Certificate and the
other Additional Collateral.
Governing Law State of New York.
Jurisdiction: Federal and State Courts located in the borough
of Manhattan, City of New York.
Counsel to Investor
and Patriot: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇ LLP and ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇ LLP.
Opinions: Closing opinions acceptable to Investor
including, but not limited to, perfected security
interest opinions with respect to all of the Wet
Warehouse Collateral, a non-consolidation opinion
(which shall include, but not be limited to,
opinions regarding the non-consolidation of the
Issuer, on the one hand, with Trust 1, Trust 3,
Holdings and American Business Financial
Services, Inc., on the other hand) and true sale
opinions with respect to the Wet Loans and
Eligible Loans as between the Originators and
Trust 3, and Trust 3 and the Issuer.
A-1-16
Annex I to Exhibit A-1
----------------------
Investor Compensation
---------------------
Pricing: Rate - 1 month Libor + 2.50% per annum on all
outstanding VFN balances, payable on the last day
of the relevant interest period. Interest
generally shall be due monthly, and interest
shall also be due whenever the VFN balance is
repaid (e.g., when Eligible Loans are released to
be refinanced under another warehouse line or
sold or securitized) on the balance repaid.
Default Rate - Rate plus 5.00% applicable upon
and following an Event of Default and applicable
to overdue interest, fees and other obligations,
as well as to principal amounts then due.
Payment Date - Generally to coincide with each
Roll Date under the Residual Repo. Payment Dates
may be scheduled more frequently as Investor
deems necessary to apply proceeds arising from
the refinancing, sale or securitization of
Eligible Loans.
Fees: Commitment Fee - US$950,000, payable by 6:00 p.m.
on the date of acceptance by ABFS of the
Commitment Letter.
Closing Fee - US$250,000 payable on the Closing
Date; provided, however, that as agreed in the
Extension Letter, if the Closing Date occurs on
or prior to November 5, 2004 (or such later date
as Issuer and Investor may agree), Investor will
credit to the Closing Fee the US$250,000 fee paid
by ABFS in connection with the Extension Letter,
resulting in a reduction of the Closing Fee to
US$-0-.
Facility Fee - US$600,000, payable on the first
anniversary of the Closing Date.
Credit Support and Arrangement Fee - US$150,000
per month, payable on the Closing Date and on a
specific day of each month thereafter (as shall
be determined by the Investor). Credit Support
and Arrangement Fees payable for the first twelve
(12) months after the Closing Date (US$1,800,000
in aggregate) will be fully-earned on the Closing
Date. Credit Support and Arrangement Fees payable
thereafter will be fully earned as they become
due.
Non-Use Fee - 0.50% per annum on the undrawn
portion of the Wet Warehouse.
A-1-17
Monitoring Fee - US$50,000 per calendar quarter,
payable on the Closing Date and thereafter at
three-month intervals during the term of the Wet
Warehouse, for a total of US$600,000. Monitoring
Fees payable in respect of the first four (4)
calendar quarters after the Closing Date
(US$200,000 in aggregate) will be fully earned on
the Closing Date. Monitoring Fees payable
thereafter will be fully earned as they come due.
Termination Fee - US$600,000 payable in
connection with any termination by Issuer of the
Wet Warehouse as contemplated in the first
paragraph under "Wet Warehouse Collateral" in
Exhibit A-1.
Rate and
Fee Basis: Shall at all times be calculated on the basis of
a 360-day year and the actual number of days
elapsed.
▇-▇-▇▇
▇▇▇▇▇▇▇ ▇-▇
-----------
American Business Financial Services, Inc.
Residential Mortgage Loan Residual Master Repurchase Agreement
Summary of Terms and Conditions for Residual Repo
October 26, 2004
I. PARTIES
Seller: Trust 4. Holdings will contribute the Purchased
Assets (defined below) to Trust 3 on the Closing
Date. Trust 3 will contribute the Purchased
Assets to the Seller on the Closing Date.
Purchaser: A limited purpose entity to be formed by Patriot
(or one or more of its affiliates and/or
subsidiaries). Purchasers may include
participants in addition to Patriot, and Patriot
may obtain capital from or arrange direct
participation by third parties on a senior or
junior basis (such purchasers, collectively, the
"Purchaser"). Purchaser shall from time to time
enter into transactions (the "Transactions") to
purchase Purchased Securities (as defined below)
with an obligation of Seller to repurchase the
Purchased Securities.
Seller Owner
Trustee: The same financial institution designated as the
Issuer Owner Trustee and Parent Owner Trustee in
Exhibit A-1.
Purchaser Co-
Trustees: The same financial institutions designated as the
Investor Co-Trustees in Exhibit A-1.
Purchased Securities: Residual interests set forth on Annex II hereto
(subject to modification by Patriot in accordance
with the immediately succeeding paragraph),
relating to one or more issued and outstanding
ABFS securitizations, together with (i) any and
all rights of Seller, Servicer and/or applicable
affiliates thereof to effect a cleanup call with
respect to the securitization(s) to which such
residual interests relate and (ii) any and all
rights to purchase delinquent loans (including,
without limitation, for the purpose of managing
delinquency and loss percentages used to
calculate whether a "Trigger Event" or a similar
event has occurred under the related pooling and
servicing agreement or the related sale and
servicing agreement pursuant to which the
Purchased Securities were issued); provided, that
Purchaser shall only control the exercise of such
rights to purchase delinquent loans from the
related trust upon an Event of Default (and,
accordingly, ABFS may exercise such rights prior
thereto) (collectively, the "Purchased
Securities"). Purchased Securities will be
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delivered to Purchaser free and clear of any and
all liens and encumbrances, together with bond
powers necessary and sufficient to permit
re-registration of the Purchased Securities in
the name of Purchaser. Any Additional Residual
Interests (as defined below) shall also
constitute Purchased Securities.
The parties agree that the initial selection of
the Purchased Securities set forth on Annex II
hereto may be adjusted by Purchaser (in
reasonable consultation with ABFS and Clearwing
Capital, LLC) at any time on or prior to the date
and time by which Patriot shall have delivered
written confirmation of its investment committee
approval of the Committed Facility, provided that
the aggregate book value of the Purchased
Securities finally selected - determined by
reference to ABFS's Analysis of Interest-Only
Strip and MSA Fair Values for deals 1998-3
through 2003-2, as at 9/30/04, provided by ABFS
to Patriot on October 8, 2004 (as to any residual
interest included in such analysis, the "ABFS
Book Value") - does not exceed by more than
US$3,000,000 the aggregate ABFS Book Value of the
Purchased Securities identified in Annex II to
Exhibit A-2. Notwithstanding the foregoing, the
parties agree that the Preliminary Securities
Purchase Price may be adjusted by Purchaser at
any time prior to the Closing Date to reflect any
change in the Repo Market Value of the Purchased
Securities which may result from distributions on
the Purchased Securities after September 30,
2004, changes in market conditions or other
factors as determined by Purchaser (any such
adjustment, a "Pre-Closing Adjustment") (see also
"Securities Purchase Price" below).
II. FACILITY AMOUNT AND STRUCTURE
Facility Amount: The Initial Securities Purchase Price (as defined
below), which shall in no event exceed
US$23,000,000 (the "Facility Amount"). The
Facility Amount shall reflect any Pre-Closing
Adjustment and shall be reduced by any and all
Permanent Margin Payments (defined below), which
shall be applied to permanently reduce the then
current Securities Purchase Price on the
applicable Roll Date (as defined below) (or other
date selected by Purchaser in its sole
discretion).
Termination Date: Two (2) years from Closing Date.
Structure: Repurchase facility. On the Closing Date,
Purchaser will acquire the Purchased Securities
from Seller pursuant to the terms of the Master
Repurchase Agreement (as defined below), for the
Preliminary Securities Purchase Price (adjusted
to reflect any Pre-Closing Adjustment). Purchaser
will receive all payments and distributions on
the Purchased Securities directly from the
issuers thereof, to be applied pursuant to
"Distributions" below.
A-2-2
Purchaser reserves the right to include one or
more purchasers in the Residual Repo provided
that the resulting structure provides ABFS with
substantially identical funding availability and
pricing to the availability and pricing described
herein.
Securities
Purchase Price: Initially, US$23,000,000 (the "Preliminary
Securities Purchase Price"), which amount shall
be adjusted to reflect any Pre-Closing Adjustment
(so adjusted, the "Initial Securities Purchase
Price"), and on any date following the Closing
Date, the Initial Securities Purchase Price less
the sum of all Permanent Margin Payments made by
Seller to Purchaser up to such date (each such
resulting amount, the then applicable "Securities
Purchase Price").
Roll Date: The 26th calendar day of each month (or, if such
day is not a business day, the next succeeding
business day) or such other calendar day of each
month agreed by the parties and reflected in the
Residual Repo Facility Documentation.
Securities
Repurchase Price: The aggregate of (i) the Securities Purchase
Price; (ii) any accrued and unpaid Price
Differential; and (iii) any accrued and unpaid
fees (including any due and unpaid Repurchase
Option Premium), expenses, breakage costs and/or
indemnity amounts, such amounts to be paid in
connection with Seller's repurchase of the
Purchased Securities on the Termination Date in
accordance with the Residual Repo Facility
Documentation.
Price Differential: As of any date of determination, the aggregate
amount obtained by daily application of the
Pricing Rate (or during the continuation of an
Event of Default, by daily application of the
Default Rate) to the Securities Purchase Price on
a 360-day-per-year basis for the actual number of
days elapsed during the period commencing on (and
including) the Closing Date and ending on (but
excluding) the date of determination (reduced by
any amount of such Price Differential in respect
of such period previously paid by Seller to
Purchaser). The accrued Price Differential shall
be paid monthly on each Roll Date.
Valuation: The value of the Purchased Securities (the "Repo
Market Value") will be determined by Purchaser in
its sole discretion and will be marked to market
daily at Purchaser's sole discretion.
Margin Call: If on any date the Repo Market Value of the
Purchased Securities is less than the Purchaser's
Margin Amount for all Purchased Securities (such
value shortfall, a "Margin Deficit"), then
Purchaser may make a margin call on Seller (a
"Margin Call"). If a Margin Call is made, Seller
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shall be obligated, but shall have the option, to
(A) transfer cash or additional residual
interests to Purchaser acceptable to Purchaser in
its sole discretion ("Additional Residual
Interests"), so that such cash (which shall be
valued at the then applicable Purchaser's Margin
Percentage) and the Repo Market Value of the
Purchased Securities, including any such
Additional Residual Interests, will thereupon
equal or exceed the Purchaser's Margin Amount
and/or (B) pay to Purchaser such amount of the
outstanding Securities Purchase Price as is
needed to eliminate the Margin Deficit (and any
such payment shall permanently reduce the
Securities Purchase Price and the then
outstanding Facility Amount) (each such payment,
a "Permanent Margin Payment"). Seller shall have
one (1) business day to specify the extent to
which it is exercising options (A) and/or (B)
above (and otherwise will be deemed to have
elected option (B) above), and shall have an
additional four (4) business days to satisfy any
such Margin Call. Residual Repo Available
Collections (as defined below) may - and, to the
extent Seller fails to make an election following
a Margin Call, such amounts will - be applied as
and when provided below to make Permanent Margin
Payments. Any and all cash transferred by Seller
in connection with a Margin Call pursuant to
option (A) above will be deposited into an
account controlled by the Purchaser (the
"Residual Repo Cash Margin Account"). Amounts at
any time on deposit in the Residual Repo Cash
Margin Account may be applied by the Purchaser to
offset any deficit in amounts available to effect
the payments contemplated under priorities
"first" through "fifth" under "Distributions"
below and will be released to the Seller if the
Seller makes any Permanent Margin Payments needed
to eliminate any Margin Deficit and is not in
default under the Residual Repo or the Wet
Warehouse.
Purchaser's
Margin Amount: As of any date, the amount equal to the product
of the Purchaser's Margin Percentage and the
Securities Repurchase Price.
Purchaser's
Margin Percentage: Initially, two hundred percent (200%); provided,
that on each of the first ten (10) Roll Dates,
the Purchaser's Margin Percentage shall increase
by five percentage points (5%), reaching two
hundred fifty percent (250%) on the tenth (10th)
Roll Date and remaining at 250% at all times
thereafter.
Optional
Termination: On any Roll Date prior to the Termination Date,
the Seller may terminate the Residual Repo by
repurchasing the Purchased Securities (in whole
but not in part) for the Securities Repurchase
Price (including therein any unpaid Repurchase
Option Premium) and paying the applicable Exit
Fee to the Purchaser (a "Seller Termination").
A-2-4
Repo Additional
Collateral: The Wet Warehouse Collateral (other than the
Repo-related Collateral) (the "Repo Additional
Collateral") will secure the Securities
Repurchase Price (expressly including all accrued
Price Differential, fees and all expenses and
indemnities at any time reimbursable to
Purchaser), except that the Trust 3 P Certificate
will secure such amounts only up to the limits
contemplated under "Wet Warehouse Collateral" in
Exhibit A-1.
Distributions: Any distributions on or with respect to the
Purchased Securities (the "Residual Repo
Available Collections"), plus the proceeds of any
Repo Additional Collateral (to the extent
necessary to make the payments set forth in
priorities "first" through "fourth" below), shall
be deposited into a collection/distribution
account (established under such terms as are
satisfactory to the Purchaser) and applied on a
monthly basis on each Roll Date (taking into
account the election or deemed election of Seller
with respect to any Margin Call as contemplated
under "Margin Call" above) as follows:
first, to the Purchaser to pay any Repurchase
Option Premium and other fees then due;
second, to the Purchaser to pay the accrued Price
Differential;
third, to the Purchaser for any Permanent Margin
Payments then due and payable;
fourth, to the Purchaser to pay any other amounts
due to Purchaser under the Master Repurchase
Agreement;
fifth, remaining Residual Repo Available
Collections to the Investor or other applicable
parties (other than the Issuer) under the Wet
Warehouse to the extent the funds available under
such facility are insufficient to make the
required payments thereunder; and
sixth, provided no Event of Default has occurred
and is continuing under the Residual Repo, the
remainder to the Seller.
Amounts due Purchaser under priorities "first"
through "fourth" shall be deemed to be "Required
Distributions" for purposes of the Residual Repo,
and failure of Purchaser to receive such Required
Distributions in full, by operation of the
waterfall above or otherwise, shall constitute an
Event of Default under the Residual Repo.
A-2-5
Release of excess Residual Repo Available
Collections received on the 15th of each month
may be permitted by the Purchaser prior to the
Roll Date subject to such conditions as the
Purchaser shall determine in its sole discretion.
III. CERTAIN PAYMENT PROVISIONS
Purchaser Fees and
Premiums: As set forth on Annex I to Exhibit A-2.
Other Fees and
Expenses: Fees and expenses of the Seller Owner Trustee,
Purchaser Co-Trustees and Custodian to be paid by
ABFS and such fees and expenses shall be separate
and apart from any fees and expenses owed to
Patriot or Purchaser (including the Monitoring
Fee and Work Fee). In addition, all out-of-pocket
fees and expenses incurred by the Purchaser in
connection with the administration, amendment
and/or enforcement of the Residual Repo will be
reimbursed by the Seller on demand.
IV. CERTAIN CONDITIONS
Initial Conditions: The availability of the Residual Repo shall be
conditioned upon satisfaction of, among other
things, the following conditions precedent not
later than November 5, 2004 (the date upon which
all such conditions precedent shall be satisfied,
the "Closing Date"):
(a) The Seller shall have executed and delivered
definitive repurchase documentation, including a
Master Repurchase Agreement (the "Master
Repurchase Agreement"), with respect to the
Residual Repo in form and substance satisfactory
to Purchaser (the "Residual Repo Facility
Documentation");
(b) The Purchaser and all participants therein or
lenders thereto shall have received all fees
required to be paid, and reimbursement for all
expenses for which invoices have been presented,
on or before the Closing Date;
(c) Purchaser shall have entered into the
intercreditor agreement(s) referred to in Exhibit
A-1;
(d) Patriot shall have received copies of
certified resolutions of the Board of Directors
of ABFS and Holdings (including any applicable
committees thereof) authorizing and approving the
Residual Repo, in form and substance satisfactory
to Patriot; and
(e) All Initial Conditions to the Wet Warehouse
shall have been satisfied.
A-2-6
On-Going Conditions: The availability of the funding provided by the
Residual Repo shall at all times be conditioned
upon (i) the continued accuracy of all
representations and warranties in the Residual
Repo Facility Documentation (including, without
limitation, the material adverse change and
litigation representations), (ii) there not
having occurred any Event of Default and (iii)
the satisfaction of any other applicable On-Going
Conditions under the Wet Warehouse. As used
herein and in the Residual Repo Facility
Documentation a "material adverse change" shall
mean any event, development or circumstance that
has had or could reasonably be expected to have a
material adverse effect on (a) the business,
assets, property, condition (financial or
otherwise), or prospects of ABFS and its
affiliates taken as a whole or the value of the
Purchased Securities or (b) the validity or
enforceability of any of the Residual Repo
Facility Documentation or the rights or remedies
of the Purchaser thereunder.
V. CERTAIN DOCUMENTATION MATTERS
The Residual Repo Facility Documentation shall contain representations,
warranties, covenants and events of default customary for agreements of this
type and other terms deemed appropriate by the Purchaser, including, without
limitation:
Covenants/
Representations: Covenants/representations to include but not be
limited to those set forth in Chrysalis Loan
Agreement as well as all applicable covenants and
representations made with respect to the Wet
Warehouse and those appropriate for financings of
residual interests.
Events of Default: Events of Default to include, but not limited to,
those customary in repurchase agreements and in
financings of residual interests, as well as any
of the "Initial Conditions," any of the "On-Going
Conditions", and all Events of Default set forth
with respect to the Wet Warehouse. Failure of
Purchaser to receive Required Distributions as
contemplated hereinabove shall also constitute an
Event of Default.
Upon an Event of Default, the Master Repurchase
Agreement will terminate and the aggregate
Securities Repurchase Price of the Purchased
Securities will be immediately due and payable.
Purchaser shall be entitled to any and all
remedies pursuant to the Master Repurchase
Agreement documents and applicable law.
Governing Law: State of New York.
Jurisdiction: Federal and State Courts located in the borough
of Manhattan, City of New York.
Counsel to the
Purchaser and Patriot: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇ LLP and ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
LLP.
A-2-7
Opinions: Standard closing opinions acceptable to Purchaser
including, but not limited to, a perfected
security interest opinion, a nonconsolidation
opinion, a true sale opinion regarding the sales
of the Purchased Securities to Trust 3 and to the
Seller, and a "securities contract" opinion.
VI. ACKNOWLEDGEMENTS WITH RESPECT TO RESIDUAL REPO
ABFS acknowledges by signing the Commitment Letter that (i) Purchaser's
assessments of Repo Market Value will be made in Purchaser's sole discretion;
(ii) as current distributions on the Purchased Securities are received, future
distributions, and therefore the discounted value of such distributions, will
decline, which will have the general effect of reducing the Securities Purchase
Price over time; (iii) because distributions on the Purchased Securities will be
applied to make required Permanent Margin Payments to Purchaser prior to any
releases of funds to Seller, Seller may experience significant volatility in the
cash flows it receives from the Purchased Securities, and may receive no such
cash flows over extended periods of time; and (iv) the management and board of
directors of ABFS fully understand the implications of the Residual Repo as they
relate to the ongoing financial and liquidity needs of ABFS.
A-2-8
Annex I to Exhibit A-2
----------------------
Purchaser Compensation
----------------------
Pricing: Repurchase Option Premium: An amount equal to 6.0% of the
Facility Amount, payable on the Closing Date, plus another
amount, payable on the one-year anniversary of the Closing
Date, equal to 6.0% of the Facility Amount as of such date.
Pricing Rate: As of any date of calculation, 13.5% per annum,
compounded monthly.
Default Rate: As of any date of calculation, 20% per annum,
compounded monthly, applicable upon and following an Event of
Default.
Fees: Exit Fee - 3.0% of the Facility Amount (immediately prior to
the Seller Termination or Termination Date, as applicable),
payable upon any Seller Termination or otherwise on the
Termination Date.
Monitoring Fee - An amount per month to be determined by the
Purchaser, based in part on the number of residual interests
which are included in the Purchased Securities, payable until
the earlier of a Seller Termination and the Termination Date.
Substantially all of the Monitoring Fee will be applied to
offset fees assessed by an independent residual valuation
expert to analyze and value the Purchased Securities on behalf
of the Purchaser on a monthly basis.
A-2-9
Annex II to Exhibit A-2
-----------------------
Schedule of Residual Interests to be Purchased
----------------------------------------------
1. Class X Certificate, No. X-1, issued by ABFS Mortgage Loan Trust 2001-2.
2. Certificate No. 1, issued by ABFS Mortgage Loan Trust 2000-2.
3. Certificate No. 2, issued by ABFS Mortgage Loan Trust 2000-2.
4. Pool I Certificate No. 1, issued by ABFS Mortgage Loan Trust 1999-4.
5. Pool I Certificate No. 2, issued by ABFS Mortgage Loan Trust 1999-4.
6. Pool II Certificate No. 1, issued by ABFS Mortgage Loan Trust 1999-4.
7. Pool II Certificate No. 2, issued by ABFS Mortgage Loan Trust 1999-4.
8. Pool I Certificate No. 1, issued by ABFS Mortgage Loan Trust 1999-3.
9. Pool I Certificate No. 2, issued by ABFS Mortgage Loan Trust 1999-3.
10. Pool II Certificate No. 1, issued by ABFS Mortgage Loan Trust 1999-3.
11. Pool II Certificate No. 2, issued by ABFS Mortgage Loan Trust 1999-3.
12. Pool I Certificate No. 1, issued by ABFS Mortgage Loan Trust 1999-2.
13. Pool I Certificate No. 2, issued by ABFS Mortgage Loan Trust 1999-2.
14. Pool II Certificate No. 1, issued by ABFS Mortgage Loan Trust 1999-2.
15. Pool II Certificate No. 2, issued by ABFS Mortgage Loan Trust 1999-2.
16. Pool I Certificate No. 1, issued by ABFS Mortgage Loan Trust 1999-1.
17. Pool I Certificate No. 2, issued by ABFS Mortgage Loan Trust 1999-1.
18. Pool II Certificate No. 1, issued by ABFS Mortgage Loan Trust 1999-1.
19. Pool II Certificate No. 2, issued by ABFS Mortgage Loan Trust 1999-1.
20. Pool I Certificate No. 1, issued by ABFS Mortgage Loan Trust 1998-4.
21. Pool I Certificate No. 2, issued by ABFS Mortgage Loan Trust 1998-4.
22. Pool II Certificate No. 1, issued by ABFS Mortgage Loan Trust 1998-4.
23. Class R Certificate, No. R-1, issued by ABFS Mortgage Loan Trust 1998-3
A-2-10
