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, 1996
OR
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
1-14074
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(Commission File Number)
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
ContiFinancial Corporation
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(Exact name of registrant as specified in its charter)
Delaware 13-3852588
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
277 Park Avenue
New York, New York 10172
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 207-2800
-------------------------
no change
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether 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. Yes X No
The Company had 44,362,404 shares of common stock outstanding as of February 7,
1997.
<PAGE>
CONTIFINANCIAL CORPORATION
Consolidated Balance Sheets
as of December 31, 1996 and March 31, 1996
(dollars in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
December 31, March 31,
1996 1996
------------ ---------
Assets
<S> <C> <C>
Cash and cash equivalents $ 39,043 $ 32,479
Restricted cash 3,321 620
Securities purchased under agreements to resell 508,950 179,875
Interest-only and Residual Certificates 338,012 293,218
Capitalized servicing fees receivable 23,820 11,689
Trade Receivables:
Receivables held for sale 481,596 303,679
Other receivables 75,021 50,470
Allowance for loan losses (4,483) (1,824)
---------- ----------
Total trade receivables, net 552,134 352,325
---------- ----------
Premises and equipment, net of accumulated depreciation of $3,054
and $2,497 as of December 31, 1996 and March 31, 1996, respectively 6,854 3,906
Cost in excess of minority interest equity 47,000 14,573
Other assets 23,604 3,855
---------- ----------
Total assets $1,542,738 $ 892,540
========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued expenses $ 107,873 $ 73,459
Securities sold but not yet purchased 506,987 180,729
Payables to affiliates:
Due to affiliates 40,245 13,734
Notes payable 202,000 324,000
---------- ----------
Total payables to affiliates 242,245 337,734
---------- ----------
Senior Notes 299,170 --
Other liabilities 11,169 5,799
---------- ----------
Total liabilities 1,167,444 597,721
---------- ----------
Commitments and contingencies
Minority interest of subsidiary 1,234 --
Stockholders' equity:
Preferred stock (par value $0.01 per share; 25,000,000 shares authorized;
none issued or outstanding at December 31, 1996 and March 31, 1996) -- --
Common stock (par value $0.01 per share; 250,000,000 shares authorized;
44,380,949 and 44,347,018 shares issued and outstanding at December 31,
1996 and 44,378,953 shares issued and outstanding at March 31, 1996) 444 444
Paid-in capital 294,742 294,701
Retained earnings 96,622 22,648
Treasury stock (33,931 shares of common stock, at cost) (713) --
Deferred Compensation (17,035) (22,974)
---------- ----------
Total stockholders' equity 374,060 294,819
---------- ----------
Total liabilities and stockholders' equity $1,542,738 $ 892,540
========== ==========
</TABLE>
The accompanying notes to the unaudited condensed consolidated financial
statements are an integral part of these statements.
2
<PAGE>
CONTIFINANCIAL CORPORATION
Consolidated Statements of Income
for the three and nine months ended December 31, 1996 and 1995
(dollars in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended December 31, Ended December 31,
1996 1995 1996 1995
------------ ------- ------------ --------
<S> <C> <C> <C> <C>
Gross income
Gain on sale of receivables .................... $ 58,404 $40,887 $ 133,773 $101,031
Interest ....................................... 48,273 18,370 109,967 61,335
Net servicing income ........................... 12,420 8,180 32,386 20,266
Other income ................................... 2,235 419 4,652 2,227
------------ ------- ------------ --------
Total gross income ....................... 121,332 67,856 280,778 184,859
------------ ------- ------------ --------
Expenses
Compensation and benefits ...................... 23,674 13,149 51,870 33,101
Interest (includes $4,066, $7,251, $15,372
and $16,587 for the three and nine
months ended December 31, 1996 and 1995,
respectively, to affiliates) ...................... 36,001 13,737 79,989 51,255
Provision for loan losses ...................... 994 110 1,302 367
General and administrative ..................... 13,073 4,146 24,830 10,960
------------ ------- ------------ --------
Total expenses ........................... 73,742 31,142 157,991 95,683
------------ ------- ------------ --------
Income before income taxes and
minority interest .............................. 47,590 36,714 122,787 89,176
Income taxes ...................................... 18,944 14,281 49,192 34,689
------------ ------- ------------ --------
Income before minority interest ................... 28,646 22,433 73,595 54,487
Minority interest of subsidiary ................... (379) -- (379) 3,310
------------ ------- ------------ --------
Net income ............................... $ 29,025 $22,433 $ 73,974 $ 51,177
============ ======= ============ ========
Primary and fully diluted earnings per
common share ...................................... $ 0.66 $ 1.68
============ ============
Fully diluted weighted average number of shares
outstanding ....................................... 44,282,407 44,091,627
============ ============
Primary weighted average number of shares
outstanding ....................................... 44,230,824 44,014,541
============ ============
</TABLE>
The accompanying notes to the unaudited condensed consolidated financial
statements are an integral part of these statements.
3
<PAGE>
CONTIFINANCIAL CORPORATION
Condensed Consolidated Statements of Cash Flows
for the nine months ended December 31, 1996 and 1995
(dollars in thousands)
(unaudited)
Nine Months
Ended December 31,
---------------------
1996 1995
--------- ---------
Net cash used in operating activities ............. $(155,248) $(252,226)
--------- ---------
Cash flows from investing activities:
Acquisition of majority owned subsidiaries ...... (32,075) (34,350)
Acquisition of minority interest in subsidiaries (2,404) --
Purchase of property and equipment .............. (1,356) (976)
--------- ---------
Cash used in investing activities ........ (35,835) (35,326)
--------- ---------
Cash flows from financing activities:
Net decrease in notes payable to affiliates .... (122,000) --
Net proceeds from issuance of Senior Notes ..... 293,136 --
Net increase in due to affiliates ............. 26,511 289,322
--------- ---------
Net cash provided by financing activities 197,647 289,322
--------- ---------
Net increase in cash and cash equivalents ......... 6,564 1,770
Cash and cash equivalents at beginning of period . 32,479 2,822
--------- ---------
Cash and cash equivalents at end of period ........ $ 39,043 $ 4,592
========= =========
The accompanying notes to the unaudited condensed consolidated financial
statements are an integral part of these statements.
4
<PAGE>
CONTIFINANCIAL CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
December 31, 1996
(dollars in thousands)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
ContiFinancial Corporation and its consolidated subsidiaries (collectively,
"ContiFinancial" or the "Company") have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission and, in the opinion of
management, reflect all normal, recurring adjustments which are necessary for a
fair presentation of the financial position, results of operations, and cash
flows for each period shown. The results for interim periods are not necessarily
indicative of financial results for the full year. These unaudited condensed
consolidated financial statements should be read in conjunction with the audited
Consolidated Financial Statements and notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1996 (the "Annual
Report"). All significant intercompany accounts and transactions have been
eliminated in consolidation.
Certain reclassifications of March 31, 1996 amounts have been made to conform to
the current year presentation.
2. RECENT ACCOUNTING PRONOUNCEMENTS
On January 1, 1997, the Company adopted the Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards ("SFAS") No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities" ("SFAS 125") which addresses the accounting for transfers of
financial assets in which the transferor has some continuing involvement either
with the assets transferred or with the transferee. A transfer of financial
assets in which the transferor surrenders control over those assets is accounted
for as a sale to the extent that consideration other than beneficial interest in
the transferred assets is received in exchange. SFAS 125 requires that
liabilities and derivatives incurred or obtained by transferors as part of a
transfer of financial assets be initially measured at fair value, if
practicable. In addition, SFAS 125 requires that servicing assets and
liabilities be subsequently measured by the amortization over their estimated
life and assessment of asset impairment be based on such assets' fair value.
SFAS 125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, and is to be
applied prospectively. The adoption of this standard did not have a material
impact on the Company's financial position or results of operations. However the
Company expects that certain of the assets that it had financed under the
Purchase and Sale Facilities prior to January 1, 1997 will not qualify for sale
treatment under SFAS 125 and as a result will be accounted for on the balance
sheet of the Company. SFAS 125 does not in any way effect the ability of the
Company to finance these assets. The Company expects to replace the Purchase and
Sale Facilities with repurchase agreements for those asset types which do not
qualify for sale treatment. On December 31, 1996, approximately $398 million of
such assets not qualifying for sale treatment would be accounted for on the
balance sheet of the Company.
5
<PAGE>
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") which was adopted on April 1, 1996. SFAS 123 allows
companies either to continue to account for stock-based employee compensation
plans under existing accounting standards or adopt a fair value based method of
accounting for stock options as compensation expense over the service period
(generally the vesting period) as defined in the new standard. SFAS 123 requires
that if a company continues to account for stock options under Accounting
Principles Board ("APB") Opinion No. 25, it must provide annual pro forma net
income and earnings per share information "as if" the new fair value approach
had been adopted. The Company will continue to account for stock-based
compensation under APB Opinion No. 25 and will make the required disclosures at
March 31, 1997. As a result, the adoption of this standard did not have an
impact on the Company's financial position or results of operations.
3. SENIOR NOTES
On August 14, 1996, the Company issued $300 million of unsecured senior notes
(the "Senior Notes") due August 15, 2003. Proceeds to the Company, net of
underwriting fees and market discount were $293,136.
The Senior Notes bear interest at 8.375% payable semiannually on February 15 and
August 15 commencing February 15, 1997. The Senior Notes are redeemable as a
whole or in part, at the option of the Company, at any time or from time to
time, at a redemption price equal to the greater of (i) 100% of their principal
amount or (ii) the sum of the present values of the remaining scheduled payments
of principal and interest thereon discounted to the date of redemption on a
semiannual basis at the treasury yield plus 50 basis points, plus, in each case,
accrued interest to the date of redemption.
The Company is required to comply with various operating and financial covenants
as set forth in the agreements governing the issuance of the Senior Notes. Among
other restrictions, the Company must comply with limitations on indebtedness and
restricted payments.
The Senior Notes are equal in right of payment with all existing and future
senior indebtedness of the Company and will be senior in right of payment to all
future subordinated indebtedness of the Company.
Interest expense on the Senior Notes was $6,121 and $9,177 for the three and
nine months ended December 31, 1996, respectively.
4. PAYABLES TO AFFILIATES
In connection with the sale of the Senior Notes (as discussed in Note 3), the
Company prepaid in full the $125,000 term note payable to Continental Grain
Company ("Continental Grain") originally due on September 30, 1997.
5. ACQUISITIONS
On November 8, 1996, the Company purchased 100% of the outstanding stock of
California Lending Group, Inc. d/b/a United Lending Group, Inc. a west
coast-based home equity lender specializing in retail originations via direct
mail and telemarketing throughout the United States. On November 15, 1996, the
Company purchased 100% of the outstanding stock of Royal Mortgage Partners,
L.P., d/b/a Royal MortgageBanc, a California-based wholesale and retail
originator of fixed and adjustable rate home equity
6
<PAGE>
loans. On November 21, 1996, the Company purchased 53.5% of the common stock of
Triad Financial Corporation, a California-based auto finance company
specializing in origination of non-prime auto finance contracts for used and new
vehicles. On December 16, 1996, the Company purchased 100% of the outstanding
stock of Resource One Consumer Discount Company, Inc., a Pennsylvania-based home
equity lender specializing in retail origination via direct mail, television,
and telemarketing throughout the eastern and mid-western states. These
transactions have been accounted for as purchases, and the results of operations
have been included with the Company's results of operations since the effective
acquisition dates. The cumulative purchase price was $37.5 million. As a result
of the acquisitions, $33.0 million of cost in excess of minority interest equity
was recorded which will be amortized on a straight-line basis over a 25 year
useful life. Certain of these acquisitions provide for payments which are
contingent upon future earnings or employment of key management. Contingent
purchase payments based on earnings will be recorded when determinable as cost
in excess of minority interest equity. Contingent payments based on employment
agreements which require the continuing employment of key management will be
accounted for as compensation in the period earned. The Company has a right and
obligation to purchase the remaining 46.5% of the common stock of Triad at any
time subsequent to the effective date of the acquisition. The purchase price
will be based upon the future earnings of Triad and will be recorded, when
determinable. The excess of the purchase price over the fair value of the net
assets acquired will be recorded as an increase in cost in excess of minority
interest equity. The acquisitions are not material to the financial position or
results of operations of the Company.
6. SUBSEQUENT EVENT
On January 8, 1997, the Company closed a $200 million unsecured revolving credit
facility. The three-year facility has several interest rate pricing
alternatives, including those based on LIBOR and federal funds rates.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This discussion should be read in conjunction with the accompanying unaudited
condensed consolidated financial statements and notes thereto, and the Company's
audited Consolidated Financial Statements and notes thereto included in the
Company's Annual Report. Certain statements under this caption constitute
"forward-looking statements" under federal securities laws.
See "Forward-looking Statements."
General
The Company is engaged in the consumer and commercial finance business by
originating and servicing home equity loans and providing financing and asset
securitization expertise to originators of a broad range of loans, leases and
receivables. Through ContiMortgage Corporation ("ContiMortgage"), the Company is
a leading originator, purchaser, seller and servicer of home equity loans made
to borrowers whose borrowing needs may not be met by traditional financial
institutions due to credit exceptions or other factors. The Company has
strategic alliances with various originators of a broad range of consumer and
commercial loans and other assets ("Strategic Alliances"). Through ContiTrade
Services L.L.C. ("ContiTrade") the Company provides financing and asset
securitization structuring expertise, and through ContiFinancial Services
Corporation ("ContiFinancial Services"), an NASD broker/dealer, the Company
provides placement services. In September 1996, the Company established
ContiWest corporation, a Nevada corporation, to administer and underwrite a
portion of the Company's origination portfolio.
The Company's Strategic Alliance clients are originators of consumer and
commercial loans, leases and receivables. The Company provides financing and
asset securitization execution and expertise to the Strategic Alliance client
while the client provides a consistent flow of securitizable assets to the
Company. In certain Strategic Alliances, the Company receives interests
("Strategic Alliance Equity Interests") in the Strategic Alliance client. The
realization of value on such Strategic Alliance Equity Interests is subject to
many factors, including the future growth and profitability of the Strategic
Alliance clients and the completion of initial public offerings by such
Strategic Alliance clients.
In the third quarter of fiscal 1997, the Company acquired three home equity
companies and one auto finance company to satisfy growth strategies of expanding
into the western United States, diversifying into retail origination and owning
other asset origination platforms with assets with which it has significant
securitization experience. The four new loan origination subsidiaries,
California Lending Group, Inc. d/b/a United Lending Group, Inc. ("ULG"), Royal
Mortgage Partners, L.P., d/b/a Royal MortgageBanc ("Royal"), Triad Financial
Corporation ("Triad"), and Resource One Consumer Discount Company, Inc.
("Resource One"), collectively called (the "Acquisitions") are discussed below:
o On November 8, 1996, the Company purchased 100% of the outstanding
stock of ULG, a west coast-based home equity lender specializing in
retail originations via direct mail and telemarketing throughout the
United States. ContiMortgage will service the product originated by
ULG and retained by the Company for securitization.
o On November 15, 1996, the Company, through its subsidiary
ContiMortgage, purchased 100% of the outstanding stock of Royal. Royal
is a California-headquartered wholesale and retail originator
8
<PAGE>
of fixed and adjustable rate home equity loans.
o On November 21, 1996, the Company acquired a 53.5% equity interest in
Triad, a California-based non-prime auto finance company. The Company
has the right and obligation to acquire the common stock of Triad from
existing shareholders.
o On December 16, 1996, the Company, through its subsidiary
ContiMortgage, purchased 100% of the outstanding stock of Resource
One. Resource One, headquartered in Langhorne Pennsylvania, is a
retail branch home equity loan originator that utilizes direct mail,
television, telemarketing, referrals and other sources to generate
loan inquires directly from borrowers.
The Acquisitions have been accounted for as purchases, and the results of
operations have been included with the Company's results of operations since the
effective acquisition dates. The cumulative purchase price was $37.5 million,
resulting in $33.0 million of cost in excess of minority interest equity which
will be amortized on a straight-line basis over a 25 year useful life. Certain
acquisition's terms contain payments which are contingent upon future earnings
or employment of key management. Such contingent payments will be recorded as
purchase price or compensation as is appropriate for the nature of the payments.
The Company has a right and obligation to purchase the remaining 46.5% of the
common stock of Triad at any time subsequent to the effective date of the
acquisition. The purchase price will be determined based upon the future
earnings of Triad and will be recorded, when determinable. The excess of the
purchase price over the fair value of the net assets acquired will be recorded
as an increase in cost in excess of minority interest equity. The Acquisitions
are not material to the financial position or results of operations of the
Company.
The following table presents loan portfolio data relating to the three and nine
month periods ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended December 31, Ended December 31,
------------------ ------------------
Loan Portfolio Data 1996 1995 1996 1995
---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C>
ContiMortgage serviced loan portfolio .......... $5,699,145 $3,427,190 $5,699,145 $3,427,190
Home Equity loan originations .................. $1,300,940 $648,160 $2,864,475 $1,654,972
Sub-prime Auto loan originations ............... $12,428 -- $12,428 --
Securitizations and sales:
ContiMortgage .............................. $900,180 $650,086 $2,407,554 $1,400,270
Strategic alliances ........................ 309,609 489,680 922,008 1,372,680
---------- ---------- ---------- ----------
Total securitizations and sales ................ $1,209,789 $1,139,766 $3,329,562 $2,772,950
========== ========== ========== ==========
</TABLE>
Certain Accounting Considerations
For a discussion of recent accounting pronouncements, see Note 2 to the
unaudited condensed consolidated financial statement.
9
<PAGE>
As a fundamental part of its business and financing strategy, the Company sells
substantially all of its loans or other assets through securitization in the
form of REMICs, owner trusts or grantor trusts. In a securitization, the Company
sells loans or other assets that it has originated or purchased to a trust for a
cash purchase price and an interest in the loans or other assets securitized (in
the form of the "excess spread"). The cash purchase price is raised through an
offering of pass-through certificates by the trust. Following the
securitization, the purchasers of the pass-through certificates receive the
principal collected and the investor pass-through interest rate on the
certificate balance, while the Company receives the excess spread . The excess
spread represents, over the life of the loans or other assets, the excess of the
weighted average coupon on each pool of loans or other assets sold over the sum
of the pass-through interest rate plus a normal servicing fee, a trustee fee, an
insurance fee and an estimate of annual future credit losses related to the
loans or other assets securitized (the "Excess Spread"). The majority of the
Company's gross income is recognized as gain on sale of loans or other assets,
which represents the value of the Excess Spread less origination and
underwriting costs. The present value of the Excess Spread is the Excess Spread
receivable (the "Excess Spread Receivable"). The Excess Spread Receivable is
either a contractual right or a certificated security generally in the form of
an interest-only or residual certificate. The majority of the Company's Excess
Spread Receivable at December 31, 1996 and March 31, 1996 is interest-only and
residual certificates. Consequently, the Company's consolidated balance sheets
designate Excess Spread Receivable as "interest-only and residual certificates."
The Company recognizes the gain on sale of loans or other assets in the fiscal
year in which such loans or other assets are sold, although cash (representing
the Excess Spread and servicing fees) is received by the Company over the life
of the loans or other assets. Concurrent with recognizing such gain on sale, the
Company records the Excess Spread Receivable as an asset on its consolidated
balance sheets. The Excess Spread Receivable is reduced as cash distributions
are received from the securitization.
Due to the fact that the gain recognized in the year of sale is equal to the
present value of the estimated future cash flows from the Excess Spread, the
amount of cash actually received over the lives of the loans or other assets
normally exceeds the gain previously recognized at the time the loans or other
assets were sold and therefore interest income is recognized over the life of
the loans or other assets securitized. In periods subsequent to the sale, the
Company may recognize an increase in fair value of Excess Spread Receivable as
gain on sale of receivables to the extent that estimates of the loan pools
future remaining lives exceed those originally projected. This estimate of
extended life is performed by reviewing past prepayment experience and
estimating future prepayment experience by considering numerous factors which
include current market assumptions, the interest rate environment and economic
factors. If actual prepayments with respect to sold loans occur faster or credit
experience is worse than projected at the time such loans were sold, the
carrying value of the Excess Spread Receivable may have to be written down
through a charge to earnings in the period of adjustment. To date, the Company
has not been required to record such a downward adjustment on its portfolio as a
whole. The Company believes that one factor contributing to this positive
experience is the Company's determination that over time home equity loan
prepayments have been less volatile than conventional mortgage prepayments.
Additionally, upon sale or securitization of servicing retained mortgages, the
Company capitalizes the cost associated with the right to service mortgage loans
based on its relative fair value. The Company determines fair value based on the
present value of estimated net future cash flows related to servicing income.
The cost allocated to the servicing rights is amortized in proportion to and
over the period of estimated net future servicing fee income. The Company
periodically reviews capitalized servicing fees receivable for
10
<PAGE>
valuation impairment. This review is performed on a disaggregated basis for the
predominant risk characteristics of the underlying loans which are loan type,
term and credit quality. The Company generally makes loans to credit impaired
borrowers whose borrowing needs may not be met by traditional financial
institutions due to credit exceptions. The Company has found that credit
impaired borrowers are payment sensitive rather than interest rate sensitive. As
such the Company does not consider interest rates a predominant risk
characteristic for purposes of valuation impairment. Impairment is recognized in
a valuation allowance for each disaggregated stratum in the period of
impairment.
Financial Condition
December 31, 1996
Securities purchased under agreements to resell increased $329.1 million from
$179.9 million at March 31, 1996 to $509.0 million at December 31, 1996. The
Company hedges its interest rate exposure on its receivables held for sale and
loans and other assets sold, with recourse, under its asset purchase and sale
facilities with certain financial institutions ("Purchase and Sale Facilities"),
through the use of United States Treasury securities and futures contracts.
Securities purchased under agreements to resell are part of this hedging
strategy. The increase in securities purchased under agreements to resell was
primarily due to the increase in receivables held for sale.
Interest-only and residual certificates increased $44.8 million from $293.2
million at March 31, 1996 to $338.0 million at December 31, 1996. Excluding the
Acquisitions during the third quarter of fiscal 1997, interest-only and residual
certificates increased by $43.7 million. This increase represented $150.2
million recorded during the nine months ended December 31, 1996 related to new
securitizations and recorded interest income of $23.9 million partially offset
by $96.5 million of sales of such certificates and $33.9 million of collections.
Capitalized servicing fees receivable increased $12.1 million from $11.7 million
at March 31, 1996 to $23.8 million at December 31, 1996. This balance reflected
the capitalization of $17.1 million of servicing rights partially offset by
amortization of $5.0 million.
Trade receivables, net increased by $199.8 million from $352.3 million at March
31, 1996 to $552.1 million at December 31, 1996. Excluding the Acquisitions
during the third quarter of fiscal 1997, trade receivables increased by $114.2
million. This increase was primarily due to a net increase in receivables held
for sale from $303.7 million as of March 31, 1996 to $394.6 million at December
31, 1996. The net increase in receivables held for sale was primarily due to the
investment of the net cash proceeds available from the Company's initial public
offering in February 1996 (the "IPO"), the sale of the $300.0 million Senior
Notes, and the sale of certain excess spread receivables partially offset by the
repayment of the $125.0 million term note ("the Term Note") payable to
Continental Grain Company ("Continental Grain"), in addition to the investment
in the Acquisitions.
Premises and equipment, net of accumulated depreciation, increased by $3.0
million from $3.9 million at March 31, 1996 to $6.9 million at December 31,
1996. Excluding the Acquisitions during the third quarter of fiscal 1997,
premises and equipment decreased by $0.04 million. This decrease was primarily
as a result of office equipment acquisitions which were more than offset by the
normal periodic depreciation of owned equipment.
11
<PAGE>
Cost in excess of minority interest equity increased by $32.4 million from $14.6
million at March 31, 1996 to $47.0 million at December 31, 1996. The increase
was primarily due to the Acquisitions during the third quarter of fiscal 1997.
Other assets increased $19.7 million from $3.9 million at March 31, 1996 to
$23.6 million at December 31, 1996. Excluding the Acquisitions during the third
quarter of fiscal 1997, other assets increased by $17.9 million. This increase
is primarily due to an increase of approximately $10.6 million of deferred
issuance costs on the Senior Notes and an increase of $4.2 million in escrow
deposits.
Accounts payable and accrued expenses increased $34.4 million from $73.5 million
at March 31, 1996 to $107.9 million at December 31, 1996. Excluding the
Acquisitions during the third quarter of fiscal 1997, accounts payable and
accrued expenses increased by $29.2 million. The balance increased primarily due
to an increase in accrued interest payable due to the issuance of the Senior
Notes, an increase in amounts due to brokers in relation to the purchase of
loans and an increase in general accounts payable due to the increase in volume.
Securities sold but not yet purchased increased $326.3 million from $180.7
million at March 31, 1996 to $507.0 million at December 31, 1996. The Company
hedges its interest rate exposure on its receivables held for sale, loans and
other assets sold with recourse under its Purchase and Sale Facilities through
the use of United States Treasury securities and futures contracts. Securities
sold but not yet purchased are part of this hedging strategy. This increase in
securities sold but not yet purchased was primarily due to the increase in
receivables held for sale.
On August 14, 1996 the Company issued the $300.0 million Senior Notes and
received net proceeds of $293.1 million, after underwriting fees and market
discount, resulting in the balance sheet increase from March 31, 1996. The
Senior Notes were issued at a discount which is being amortized over the life of
the Senior Notes, resulting in the balance of $299.2 million as of December 31,
1996.
Payables to affiliates decreased $95.5 million from $337.7 million at March 31,
1996 to $242.2 million at December 31, 1996. The decrease was primarily due to
the prepayment of the $125.0 million Term Note payable to Continental Grain upon
receipt of the proceeds from the issuance of the Senior Notes offset by an
increase in taxes payable to Continental Grain under the Company's tax sharing
agreement due to increased pre-tax income.
Other liabilities increased $5.4 million from $5.8 million at March 31, 1996 to
$11.2 million at December 31, 1996. The increase is primarily due to amounts
recorded as deferred purchase price liabilities of the Acquisitions. Excluding
the Acquisitions during the third quarter of fiscal 1997, other liabilities
decreased by $0.7 million. The decrease is primarily due to a decrease in
deferred income in connection with the origination and securitization of loans
and other assets.
Stockholders' equity increased $79.2 million from $294.8 million at March 31,
1996 to $374.0 million at December 31, 1996 due to net income of $74.0 million
and the amortization of deferred compensation of $5.2 million.
12
<PAGE>
Results of Operations
Three Months Ended December 31, 1996 Compared to Three Months Ended December 31,
1995
The Company's total gross income increased from $67.9 million for the three
months ended December 31, 1995 to $121.3 million for the three months ended
December 31, 1996, representing a 79% increase. Excluding the Acquisitions
during the third quarter of fiscal 1997, gross income increased by $42.8
million, or 63%. Net income increased from $22.4 million for the three months
ended December 31, 1995 to $29.0 million for the three months ended December 31,
1996, representing a 29% increase. Excluding the Acquisitions during the third
quarter of fiscal 1997, net income increased by $7.8 million, or 35%.
On a percentage basis, the following table sets forth the composition of the
Company's results as a percentage of total gross income for the periods
indicated:
Three Months
Ended December 31,
--------------------
Gross income 1996 1995
------- -------
Gain on sale of receivables ........................ 48.13% 60.26%
Interest ........................................... 39.79% 27.07%
Net servicing income ............................... 10.24% 12.05%
Other income ....................................... 1.84% 0.62%
------- -------
Total gross income .............................. 100.00% 100.00%
------- -------
Expenses
Compensation and benefits .......................... 19.51% 19.38%
Interest ........................................... 29.67% 20.24%
Provision for loan losses .......................... 0.82% 0.16%
General and administrative ......................... 10.78% 6.11%
------- -------
Total expenses ................................... 60.78% 45.89%
------- -------
Income before income taxes and minority interest ...... 39.22% 54.11%
Income taxes .......................................... 15.61% 21.05%
Minority interest of subsidiary ....................... (0.31%) 0.00%
------- -------
Net income ...................................... 23.92% 33.06%
======= =======
Income. The increase in total gross income was due to a greater volume of loans
originated as a result of the expansion of the Company's wholesale and broker
home equity loan origination sources.
13
<PAGE>
The following table sets forth information regarding the components of the
Company's total gross income in each of the three month periods ended December
31:
Three Months
Ended December 31,
--------------------
1996 1995
------- -------
(in thousands)
Gain on sale of receivables ............ $ 58,404 $40,887
Interest ............................... 48,273 18,370
Net servicing income ................... 12,420 8,180
Other income ........................... 2,235 419
--------- -------
Total gross income .................. $ 121,332 $67,856
========= =======
Gain on sale of receivables was the primary component of total gross income,
comprising 48% and 60% of total gross income in the three months ended December
31, 1996 and 1995, respectively. Gain on sale of receivables increased $17.5
million or 43% for the three months ended December 31, 1996 as compared to the
corresponding period in 1995. Excluding the Acquisitions during the third
quarter of fiscal 1997, gain on sale of receivables increased by $9.2 million or
22%. Gain on sale of receivables as a percentage of total gross income was lower
for the third quarter of fiscal 1997 due to an increase in the outstanding
balance of interest earning assets.
Gain on sale of receivables represents income primarily from the structuring and
sale of pools of home equity loans, originated by ContiMortgage and Strategic
Alliance clients of the Company, to REMICs, owner trusts and grantor trusts. In
addition, gains on sale of receivables are earned upon whole loan sales and upon
the securitization of commercial and multi-family loans, Title I home
improvement loans, franchise loans, small business loans and equipment leases
which are sold into REMICs and whole loan and other trust structures.
The increase in the amount of gain on sale of receivables was primarily due to a
larger gain on sale percentage earned in the three months ended December 31,
1996 as compared to the corresponding period in 1995. The larger gain on sale
percentage was due partially to an increased proportion of ContiMortgage
securitizations which yield higher gain on sale percentages than securitizations
and placements for Strategic Alliance clients. For the three months ended
December 31, 1996, ContiMortgage securitizations represented $900.2 million of
total volume as compared to $650.1 million for the three months ended December
31, 1995. This contributed to a gain of 55 basis points in Excess Spread or a
$6.3 million increase in gain on sale of receivables in the three months ended
December 31, 1996 as compared to the corresponding period in 1995.
The Company structured and sold $1.2 billion of mortgages and leases in the
three months ended December 31, 1996, an increase of $70.0 million from the
three months ended December 31, 1995, which increased the gain on sale of
receivables by $2.9 million. The combination of the $6.3 million increase due to
a higher gain on sale percentage and the $2.9 million increase due to increased
volume resulted in a total increase in gain on sale
14
<PAGE>
of receivables from the three months ended December 31, 1995 of $9.2 million.
The gain on sale of receivables as a percentage of loans securitized and sold
for the three months ended December 31, 1996 and 1995 was 4.8% and 3.6%,
respectively.
Interest income increased $29.9 million or 163% for the three months ended
December 31, 1996 from the corresponding period in 1995. Excluding the
Acquisitions during the third quarter of fiscal 1997, interest income increased
by $28.5 million, or 155%. Interest income represents interest earned on loans
originated or purchased by the Company during the period from their origination
or purchase until the actual sale of the loans, as well as the recognition of
the increased value of the discounted Excess Spread Receivables over time. The
interest earned on loans originated and purchased contributed $25.8 million to
the increase between the three months ended December 31, 1996 and 1995. The
increase in interest earned on loans originated and purchased was due primarily
to a $951 million increase in the average balance of loans originated and
purchased but not yet securitized during the periods. The recognition of the
increased value of the discounted Excess Spread Receivables over time accounted
for $2.7 million of the increase in interest income which was due to the
increase in the average investment in Excess Spread Receivables in the three
months ended December 31, 1996 as compared to the corresponding period in 1995.
Net servicing income increased $4.2 million or 52% for the three months ended
December 31, 1996 compared to the corresponding period in 1995 due to the
increase in the size of the servicing portfolio and the volume of loan sales and
securitizations. Excluding the Acquisitions during the third quarter of fiscal
1997, net servicing income increased by $4.1 million, or 51%. The Company's loan
servicing portfolio increased $2.3 billion from $3.4 billion to $5.7 billion on
December 31, 1995 as compared to December 31, 1996, contributing to a $3.4
million increase in net servicing income between the three months ending
December 31, 1995 and 1996. Additionally, net servicing income increased by $0.7
million in the third quarter of fiscal 1997 as compared to the third quarter of
fiscal 1996 due to capitalized servicing income associated with the 38% increase
in the ContiMortgage home equity loan sales and securitizations for the three
months ended December 31, 1996 as compared to the corresponding period in 1995.
Other income increased $1.8 million or 433% for the three month period ended
December 31, 1996 compared to the corresponding period in 1995. Excluding the
Acquisitions during the third quarter of fiscal 1997, other income increased by
$0.9 million, or 215%. Other income consists primarily of "purchase premium
refunds" received from certain origination sources related to loans that prepay
within a contractually set time period. Upon origination of a loan, the Company
will pay a wholesale originator a purchase premium for the loan or pools of
loans. The Company negotiates agreements with wholesale originators that provide
that a portion of such purchase premium will be repaid if individual loans are
repaid within a contractually set time period. The income from "purchase premium
refunds" increased due to the increase in ContiMortgage origination volume.
Expenses. Total expenses for the three months ended December 31, 1996 increased
$42.6 million or 137% from the corresponding period in 1995. Excluding the
Acquisitions during the third quarter of fiscal 1997, total expenses increased
by $29.9 million, or 96%. This increase in total expenses was due to the
increase in number of employees, the granting of "restricted" common stock and
costs associated with increased home equity loan volume.
15
<PAGE>
The following table sets forth the components of the Company's expenses for the
three months ended December 31, 1996 and 1995.
Three Months
Ended December 31,
--------------------
1996 1995
------- -------
(in thousands)
Compensation and benefits ............... $ 23,674 $13,149
Interest ................................ 36,001 13,737
Provision for loan losses ............... 994 110
General and administrative .............. 13,073 4,146
--------- -------
Total expenses ...................... $ 73,742 $31,142
========= =======
Compensation and benefits expense increased $10.5 million or 80.0% for the three
months ended December 31, 1996 compared to the corresponding period in 1995.
Excluding the Acquisitions during the quarter, compensation and benefits expense
increased by $3.5 million, or 27%. This increase was primarily due to the
addition of new personnel, changes in incentive compensation plans, the granting
of restricted common stock and commissions paid to certain employees on volume
of loan originations. On December 31, 1996, the Company had 1,346 employees, 692
from the Acquisitions, as compared to 332 employees on December 31, 1995, which
primarily contributed to a $8.4 million increase in salary partially offset by a
$5.0 million decrease in incentive compensation for the three months ended
December 31, 1996 as compared to the corresponding period in 1995. In connection
with the IPO, shares of "restricted" common stock were granted to certain key
employees. The "restricted" common stock granted, subject to the employee's
continued employment with the Company, vests between February 14, 1996 and March
31, 2000. The granting of "restricted" common stock increased the compensation
expense for three months ended December 31, 1996 by $1.1 million compared to the
corresponding period in 1995. The commissions paid to certain ContiMortgage
employees decreased $1.0 million for the three months ended December 31, 1996 as
compared to the corresponding period in 1995. Compensation and benefits expense
represented 20% and 19% of total gross income for the three months ended
December 31, 1996 and 1995, respectively.
Interest expense increased $22.3 million or 163% to $36.0 million for the three
months ended December 31, 1996 as compared to $13.7 million for the
corresponding period in 1995. Excluding the Acquisitions during the third
quarter of fiscal 1997, interest expense increased by $22.2 million, or 162% to
$35.9 million. This increase was primarily a result of interest expense
associated with the issuance of the Senior Notes, the costs of the sale, with
limited recourse, of certain Excess Spread Receivables and an overall increase
in the cost of borrowing offset by decreased expenses from the Purchase and Sale
Facilities and decreased borrowing from Continental Grain. The average
borrowings from Continental Grain, the Purchase and Sale Facilities, the Senior
Notes and the Excess Spread Receivables sold, with limited recourse, increased
by $1.3 billion for the three months ended December 31, 1996, as compared to the
corresponding period in 1995 resulting in a $22.9 million increase in interest
expense. The decrease in the Company's combined interest rates by 14 basis
points decreased interest expense by $0.6 million for the three months ended
December 31, 1996 as compared to the corresponding period in 1995. The
combination of the $0.6 million decrease due to a lower combined interest rate
and the $22.9 million increase due to increased balances resulted in a total
increase of $22.3 million in interest expense for the three months ended
December 31, 1996 compared to the corresponding period in 1995.
16
<PAGE>
Provision for loan losses increased to $1.0 million for the three months ended
December 31, 1996 as compared to $0.11 million for the three months ended
December 31, 1995. Excluding the Acquisitions during the third quarter of fiscal
1997, provision for loan losses increased by $.01 million, or 9%. Provision for
loan losses is recorded in sufficient amounts to maintain an allowance at a
level considered adequate to cover anticipated losses resulting from liquidation
of receivables held for sale and receivables sold with limited recourse under
the Purchase and Sale Facilities, prior to securitization. Provision for credit
losses recorded at securitization is reserved in the value of interest-only and
residual certificates. The slight increase in the three months ended December
31, 1996 as compared to the corresponding period in 1995 resulted from a
determination of adequate reserves in light of actual loss experience.
General and administrative expenses increased $8.9 million or 215% for the three
months ended December 31, 1996 compared to the corresponding period in 1995, and
represented 11% and 6% of total gross income for the three months ended December
31, 1996 and 1995, respectively. Excluding the Acquisitions during the third
quarter of fiscal 1997, general and administrative expenses increased by $4.2
million, or 102%. Other than the acquisitions, the primary cause of the increase
was a $1.7 million increase in costs associated with underwriting, originating
and servicing higher loan volumes. In the three months ended December 31, 1996,
the origination volume increased 101% as compared to the three months ended
December 31, 1995. Increased expense related to the implementation of collection
technology accounted for approximately $0.7 million of the increase. The
remaining increase was due primarily to an increase in general and
administrative expenses of $1.8 million related to the increase in the number of
employees to 654 on December 31, 1996, excluding employees of the Acquisitions,
from 332 on December 31, 1995.
Income Taxes. The Company is included in the consolidated Federal income tax
return of Continental Grain. The Company's provision for income taxes was $18.9
million and $14.3 million for the three months ended December 31, 1996 and 1995,
respectively. The increase in taxes of 33% for the three months ended December
31, 1996 compared to the corresponding period in 1995 was substantially related
to the increase in income before taxes and minority interest over the same
period. The effective tax rate for the three months ended December 31, 1996
increased to 40% from 39% in the comparable period in fiscal 1996 due to a
change in the provision for state income taxes.
17
<PAGE>
Nine Months Ended December 31, 1996 Compared to Nine Months Ended December 31,
1995
The Company's total gross income increased from $184.9 million for the nine
months ended December 31, 1995 to $280.8 million for the nine months ended
December 31, 1996, representing a 52% increase. Excluding the Acquisitions
during the third quarter of fiscal 1997, gross income increased by $85.2 million
or 46%. Net income has increased from $51.2 million for the nine months ended
December 31, 1995 to $74.0 million for the nine months ended December 31, 1996,
representing a 45% increase. Excluding the Acquisition during the third quarter
of fiscal 1997, net income increase by $24.0 million or 47%.
On a percentage basis, the following table sets forth the composition of the
Company's results as a percentage of total gross income for the periods
indicated:
Nine Months
Ended December 31,
--------------------
1996 1995
------- -------
Gross income
Gain on sale of receivables .......................... 47.64% 54.65%
Interest ............................................. 39.17% 33.18%
Net servicing income ................................. 11.53% 10.96%
Other income ......................................... 1.66% 1.21%
------- -------
Total gross income ................................ 100.00% 100.00%
------- -------
Expenses
Compensation and benefits ............................ 18.47% 17.91%
Interest ............................................. 28.50% 27.72%
Provision for loan losses ............................ 0.46% 0.20%
General and administrative ........................... 8.84% 5.93%
------- -------
Total expenses ..................................... 56.27% 51.76%
------- -------
Income before income taxes and minority interest ........ 43.73% 48.24%
Income taxes ............................................ 17.52% 18.77%
Minority interest of subsidiary ......................... (0.13%) 1.79%
------- -------
Net income ........................................ 26.34% 27.68%
======= =======
18
<PAGE>
Income. The increase in total gross income was due to a greater volume of loans
originated as a result of the expansion of the Company's wholesale and broker
origination sources. The following table sets forth information regarding the
components of the Company's total gross income in each of the nine month periods
ended December 31:
Nine Months
Ended December 31,
--------------------
1996 1995
------- -------
(in thousands)
Gain on sale of receivables ............ $133,773 $101,031
Interest ............................... 109,967 61,335
Net servicing income ................... 32,386 20,266
Other income ........................... 4,652 2,227
-------- --------
Total gross income .................. $280,778 $184,859
======== ========
Gain on sale of receivables was the primary component of total gross income,
comprising 48% and 55% of total gross income in the nine months ended December
31, 1996 and 1995, respectively. Gain on sale of receivables as a percentage of
total gross income was lower for the nine months ended December 31, 1996 due to
an increase in servicing income associated with a larger servicing portfolio and
a larger balance of interest earning assets. Gain on sale of receivables
increased $32.7 million or 32% for the nine months ended December 31, 1996 as
compared to the corresponding period in 1995. Excluding the Acquisitions during
the third quarter of fiscal 1997, gain on sale of receivables increased by $24.4
million, or 24%.
The increase in the amount of gain on sale of receivables was due primarily to
an increase in securitization volume in addition to a larger gain on sale
percentage in the nine months ended December 31, 1996. The Company structured
and sold $3.3 billion of mortgages and leases in the nine months ended December
31, 1996, an increase of $0.5 billion from the nine months ended December 31,
1995 which contributed $16.0 million of the increase in gain on sale of
receivables.
The larger gain on sale percentage was due to an increased proportion of
ContiMortgage securitizations which yield higher gain on sale percentages than
securitizations and placements for Strategic Alliance clients. For the nine
months ended December 31, 1996, ContiMortgage represented 72% of total volume as
compared to 50% for the nine months ended December 31, 1995. This shift in
securitization type resulted in a gain of 30 basis points in Excess Spread or an
$8.4 million increase in gain on sale of receivables in the nine months ended
December 31, 1996 as compared to the corresponding period in 1995. The
combination of the $8.4 million increase due to the gain on sale percentage and
the $16.0 million increase due to increased securitization volume resulted in a
total increase in gain on sale of receivables, excluding the Acquisitions during
the third quarter of fiscal 1997, of $24.4 million. The gain on sale of
receivables as a percentage of loans securitized and sold for the nine months
ended December 31, 1996 and 1995 was 4.0% and 3.6%, respectively.
19
<PAGE>
Interest income increased $48.6 million or 79% for the nine months ended
December 31, 1996 from the corresponding period in 1995. Excluding the
Acquisitions during the third quarter of fiscal 1997, interest income increased
by $47.2 million, or 77%. Interest income represents interest earned on loans
originated or purchased by the Company during the period from their origination
or purchase until the actual sale of the loans, as well as the recognition of
the increased value of the discounted Excess Spread Receivables over time. The
interest earned on loans originated and purchased contributed $36.5 million to
the increase between the nine months ended December 31, 1996 and 1995. The
increase in interest earned on loans originated and purchased was due primarily
to the increase in the average balance of loans originated and purchased but not
yet securitized during the periods, an increase of $801.0 million in the nine
months ended December 31, 1996 as compared to the corresponding period in 1995.
The recognition of the increased value of the discounted Excess Spread
Receivables over time accounted for $10.7 million of the increase in interest
income which was due to the increase in the average investment in Excess Spread
Receivables in the nine months ended December 31, 1996 as compared to the
corresponding period in 1995.
Net servicing income increased $12.1 million or 60% for the nine months ended
December 31, 1996 compared to the corresponding period in 1995 due to the
increase in the size of the servicing portfolio and the volume of loan sales and
securitizations. The Company's loan servicing portfolio increased $2.3 billion
or 66% to $5.7 billion from December 31, 1995 to December 31, 1996, contributing
$8.7 million or 72% of the increase between the nine months ending December 31,
1996 and 1995. Additionally, net servicing income increased by $3.3 million in
the nine months ended December 31, 1996 as compared to the nine months ended
December 31, 1995 due to capitalized servicing income associated with the 72%
increase in the volume of ContiMortgage loan sales and securitizations for the
nine months ended December 31, 1996 as compared to the corresponding period in
1995.
Other income increased $2.4 million or 109% for the nine months ended December
31, 1996 compared to the corresponding period in 1995. Excluding the
Acquisitions during the third quarter of fiscal 1997, other income increased by
$1.6 million, or 72%. Other income consists primarily of "purchase premium
refunds" received from certain origination sources related to loans that prepay
within a contractually set time period. Upon origination of a loan, the Company
will pay a wholesale originator a purchase premium for the loan or pools of
loans. The Company negotiates agreements with wholesale originators that provide
that a portion of such purchase premium will be repaid if individual loans are
repaid within a contractually set time period. The income from "purchase premium
refunds" increased due to increases in origination volume.
Expenses. Total expenses for the nine months ended December 31, 1996 increased
$62.3 million or 65% from the corresponding period in 1995. Excluding the
Acquisitions during the third quarter of fiscal 1997, total expenses increased
$49.6 million or 52%. This increase in total expenses was due to the increase in
number of employees, the granting of "restricted" common stock and costs
associated with increased home equity loan volume.
20
<PAGE>
The following table sets forth the components of the Company's expenses for the
nine months ended December 31, 1996 and 1995.
Nine Months
Ended December 31,
--------------------
1996 1995
------- -------
(in thousands)
Compensation and benefits ............... $ 51,870 $ 33,101
Interest ................................ 79,989 51,255
Provision for loan losses ............... 1,302 367
General and administrative .............. 24,830 10,960
-------- --------
Total expenses ...................... $157,991 $ 95,683
======== ========
Compensation and benefits expense increased $18.8 million or 57% for the nine
months ended December 31, 1996 compared to the corresponding period in 1995 due
to the addition of new personnel, change in incentive compensation plans, and
the granting of restricted common stock. Excluding the Acquisitions during the
third quarter of fiscal 1997, compensation and benefits expense increased by
$11.7 million, or 35%. On December 31, 1996, the Company had 1,346 employees,
692 from the Acquisitions, as compared to 332 employees on December 31, 1995,
which primarily contributed to a $20.9 million increase in salary, $7.0 million
due to the Acquisitions, offset by a $7.3 million decrease in incentive
compensation for the nine months ended December 31, 1996 as compared to the
corresponding period in 1995. In connection with the IPO, shares of "restricted"
common stock were granted to certain key employees. The "restricted" common
stock granted, subject to the employee's continued employment with the Company,
vests between February 14, 1996 and March 31, 2000. The granting of "restricted"
common stock increased the compensation expense for nine months ended December
31, 1996 by $5.2 million. Compensation and benefits expense represented 18% of
total gross income for both the nine months ended December 31, 1996 and 1995.
Interest expense increased $28.7 million or 56% to $80.0 million for the nine
months ended December 31, 1996 as compared to $51.3 million for the
corresponding period in 1995 primarily as a result of interest expense incurred
in connection with the issuance of the Senior Notes, the costs of the sale, with
limited recourse, of certain Excess Spread Receivables and an overall increase
in the cost of borrowing offset by decreased expenses from the Purchase and Sale
Facilities and decreased borrowings from Continental Grain. The Acquisitions did
not affect interest expense as the Acquisitions' external financing arrangements
were terminated upon acquisition. The average borrowings from Continental Grain,
Purchase and Sale Facilities, the Senior Notes and the Excess Spread Receivables
sold, with limited recourse, increased by $533 million for the nine months ended
December 31, 1996, as compared to the corresponding period in 1995 resulting in
a $28.1 million increase in interest expense. The increase in the Company's
combined interest rates by 5 basis points increased interest expense by $0.6
million for the nine months ended December 31, 1996 as compared to the
corresponding period in 1995. The combination of the $0.6 million increase due
to a higher combined interest rate and the $28.1 million increase due to
increased balances resulted in a total increase of $28.7 million in interest
expense for the nine months ended December 31, 1996 compared to the
corresponding period in 1995.
21
<PAGE>
Provision for loan losses increased $0.9 million to $1.3 million for the nine
months ended December 31, 1996 as compared to $0.4 million the nine months ended
December 31, 1995. Excluding the Acquisitions during the third quarter of fiscal
1997, provision for loan loss increased by $0.1 million, or 16%. Provision for
loan losses is recorded in sufficient amounts to maintain an allowance at a
level considered adequate to cover anticipated losses resulting from liquidation
of receivables held for sale and receivables sold with limited recourse under
Purchase and Sale Facilities, prior to sale or securitization. Provision for
credit losses recorded at securitization is reserved in the value of
interest-only and residual certificates. The slight increase in the nine months
ended December 31, 1996 as compared to the corresponding period in 1995 resulted
from a determination of adequate reserves in light of actual loss experience.
General and administrative expenses increased $13.9 million or 126% for the nine
months ended December 31, 1996 compared to the corresponding period in 1995, and
represented 9% and 6% of total gross income for the nine months ended December
31, 1996 and 1995, respectively. Excluding the Acquisitions during the third
quarter of fiscal 1997, general and administrative expenses increased by $9.2
million, or 84%. Other than the Acquisitions, the primary cause of the increase
was a $4.8 million increase in costs associated with underwriting, originating
and servicing higher loan volumes. In the nine months ended December 31, 1996,
the origination volume increased 73% as compared to the nine months ended
December 31, 1995. Expenses related to the implementation of collection
technology accounted for approximately $1.0 million of the increase. The
remaining increase was due primarily to an increase in general and
administrative expenses related to the increase in the number of employees to
654 on December 31, 1996 , excluding employees of the Acquisitions, as compared
to 332 on December 31, 1995 of approximately $3.4 million.
Income Taxes. The Company is included in the consolidated Federal income tax
return of Continental Grain. The Company's provision for income taxes was $49.2
million and $34.7 million for the nine months ended December 31, 1996 and 1995,
respectively. The increase in taxes of 42% for the nine months ended December
31, 1996 compared to the corresponding period in 1995 was substantially related
to the increase in income before taxes and minority interest over the same
period. The effective tax rate for the nine months ended December 31, 1996
increased to 40% from 39% in the comparable period in fiscal 1996 due to a
change in the provision for state income taxes.
Minority Interest. In fiscal 1996, minority interest represents the portion of
income before taxes and minority interest due to the 20% minority shareholders
of ContiMortgage. Minority interest was $3.3 million for the nine months ended
December 31, 1995. The change in minority interest was directly related to the
change in the Company's ownership percentage of ContiMortgage. On June 19, 1995,
ContiTrade Services Corporation ("ContiTrade Services") effectively acquired
control of the remaining 20% minority interest in ContiMortgage, which became a
wholly-owned subsidiary of ContiTrade Services. Accordingly, the results of
operations for the nine months ended December 31, 1995 include approximately
three months of minority interest of $3.3 million, while the comparable period
of fiscal 1997 reflected 100% ownership of ContiMortgage during the period.
In fiscal 1997, minority interest represents the portion of income before taxes
and minority interest due to the 46.5% minority shareholders of Triad. On
November 21, 1996, the Company acquired 53.5% of the common stock of Triad.
Minority interest was ($0.4) million for the nine month ended December 31, 1996.
22
<PAGE>
Liquidity and Capital Resources
In a securitization, the Company recognizes a gain on the sale of loans or
assets securitized upon the closing of the securitization, but does not receive
the cash representing such gain until it receives the Excess Spread, which is
payable over the actual life of the loan or other assets securitized. The
Company incurs significant expenses in connection with a securitization and
incurs both current and deferred tax liabilities as a result of the gain on
sale. Therefore, the Company requires continued access to short and long term
external sources of cash to fund its operations. The Company's primary cash
requirements are expected to include the funding of: (i) mortgage, loan and
lease originations and purchases pending their pooling and sale; (ii) the points
and expenses paid in connection with the acquisition of wholesale loans; (iii)
fees and expenses incurred in connection with its securitization program; (iv)
over collateralization or reserve account requirements in connection with loans
and leases pooled and sold; (v) ongoing administrative and other operating
expenses; (vi) payments related to its tax obligations under a Tax Sharing
Agreement with Continental Grain; (vii) interest and principal payments under
the payables to affiliates, and Senior Notes; (viii) the costs of the Purchase
and Sale Facilities; (ix) interest payments under the unsecured revolving credit
facility; and (x) the cost of any new acquisitions that the Company may pursue.
See "Forward-looking Statements".
As a result of its growing securitization program, the Company has operated, and
expects to continue to operate, on a negative cash flow basis, which is expected
to increase as the volume of its loan and asset purchases and originations
increases and its securitization program grows. See "Forward-looking
Statements". The Company securitized and sold in the secondary market $3.3
billion of loans in the nine months ended December 31, 1996 compared to $2.8
billion in the nine months ended December 31, 1995. The Company used $155.2
million of cash in operations during the nine months ended December 31, 1996.
During the life of the REMICs, owner trusts or grantor trusts, the Company
subordinates to the rights of holders of senior interests a portion of the
Excess Spread otherwise due to the Company as a credit enhancement to support
the sale of senior interests. The terms of the REMICs, owner trusts and grantor
trusts generally require that the Excess Spread otherwise payable to the Company
during the early months of the trusts be used to increase the cash reserve
account, or to repay the senior interests in order to increase over
collateralization to specified maximums. The value of such "deposit" accounts is
included in the value of Excess Spread Receivables and the related gain on sale
of receivables, net of necessary reserves for credit losses, if applicable.
In addition, increased use of securitization transactions as a funding source by
the Company has resulted in a significant increase in the amount of gain on sale
of receivables recognized by the Company. During the nine months ended December
31, 1996, the Company recognized gain on sale of receivables in the amount of
$133.8 million compared to $101.0 million for the corresponding period in 1995.
The recognition of gain on sale of receivables will have a negative impact on
the cash flows of the Company to the extent the Company is required to pay state
and Federal income taxes on these amounts in the period recognized,
notwithstanding that the Company does not receive the cash representing the gain
until later periods as the related loans are repaid or otherwise collected.
The Company's primary sources of liquidity are sales of loans, leases and other
assets through securitization, the sale of loans, leases and other assets under
the Purchase and Sale Facilities, the sale of Excess Spread
23
<PAGE>
Receivables, the sale of $300.0 million of unsecured Senior Notes, the unsecured
revolving credit facility and the financing provided by Continental Grain. While
the Company sells Excess Spread Receivables from time to time, there is no
liquid market for such Excess Spread Receivables.
Through ContiTrade, the Company had $2.0 billion of committed sale capacity
under its Purchase and Sale Facilities with various financial institutions as of
December 31,1996. The Purchase and Sale Facilities allow ContiTrade to sell,
with limited recourse, interests in designated pools of loans and other assets.
The Company has guaranteed ContiTrade's obligations under the Purchase and Sale
Facilities. These agreements generally have one year renewable terms (one
Purchase and Sale Facility has a two-year term), all of which will expire
between February 1997 and June 1998. On December 31, 1996, the Company had
utilized $1.3 billion of the capacity under these facilities. The Company
currently anticipates that it will be able to renew these facilities when they
expire and to obtain additional facilities.
Since fiscal 1995, ContiSecurities Asset Funding Corp. ("CSAF"), has been
selling certain Excess Spread Receivables, with limited recourse, to provide
cash to fund the Company's securitization program. On March 31, 1996, $91.0
million of these sales were outstanding. On April 1, 1996, CSAF sold $96.5
million of certain interest-only and residual certificates, and ContiFinancial,
as well as Continental Grain, guaranteed CSAF's performance thereunder. At
December 31, 1996, $155.4 million of these sales were outstanding. Under the
recourse provisions of the agreements, CSAF is responsible for losses incurred
by the purchaser within an agreed-upon range. CSAF's performance obligations in
these transactions are guaranteed by Continental Grain for an agreed-upon fee.
Although the Company intends to continue to pursue opportunities to sell Excess
Spread Receivables, no assurance can be given that such opportunities will be
available in the future.
On August 14, 1996, the Company issued $300 million of unsecured Senior Notes
maturing August 15, 2003. The Senior Notes bear interest at 8.375% payable
semiannually on February 15 and August 15 commencing February 15, 1997. The
Senior Notes are redeemable as a whole or in part, at the option of the Company,
at any time or from time to time, at a redemption price equal to the greater of
(i) 100% of their principal amount and (ii) the sum of the present values of the
remaining scheduled payments of principal and interest thereon discounted to the
date of redemption on a semiannual basis at the treasury yield plus 50 basis
points, plus in each case accrued interest to the date of redemption. Proceeds
to the Company, net of underwriting fees and market discount were $293.1
million. Of this amount, $125.0 million was used by the Company to repay in full
the Term Note payable to Continental Grain and the remaining funds have been
used for general corporate purposes, including funding loan originations and
purchases, supporting securitization transactions and other working capital
needs.
On January 8, 1997, the Company closed a $200 million unsecured revolving credit
facility. The three-year facility has several interest rate pricing
alternatives, including those based on LIBOR and federal funds rates. The
facility will be used for general corporate and liquidity purposes.
In order to fund the Company's growth prior to the IPO, Continental Grain
provided the Company with intercompany financing ("Intercompany Debt"). To
refinance the Intercompany Debt, simultaneously with the completion of the IPO,
Continental Grain purchased from the Company a $125 million five-year note
issued under an indenture (the "Indenture Note"), a $74 million four-year note
(the "Four Year Note") and the $125 million Term Note for $324 million in
aggregate (collectively, the "Notes"). The Term Note was prepaid in full on
August 19, 1996 after the Company's issuance of $300 million of unsecured Senior
Notes
24
<PAGE>
as discussed above. The Company's ability to refinance the Notes is subject to
limitations contained in the Continental Grain d ebt Agreements such as
restrictions on the in currence of debt and liens and other financial covenants.
The net proceeds from the IPO and the issuance of the Senior Notes were used by
the Company for general corporate purposes, including funding loan originations
and purchases, supporting securitization transactions (including the retention
of Excess Spread Receivables) and other working capital needs. Sales of the
loans, leases and other assets through securitizations, the sale of loans under
the Purchase and Sale Facilities, the sale of Excess Spread Receivables and
further issuances of debt (subject to the covenants of the Notes), together with
cash on hand, are expected to be sufficient to fund the Company's liquidity
requirements for at least the next 12 months if the Company's future operations
are consistent with management's current growth expectations. The Company has no
commitments for additional financing and there can be no assurance that the
Company will be successful in consummating any such financing transactions in
the future on terms that the Company would consider to be favorable.
Furthermore, no assurance can be given that Continental Grain will provide such
financing if the Company is unable to obtain third party financing or that the
terms of the Continental Grain debt agreements will permit the Company to obtain
such financing. See "Forward-looking Statements".
Forward-looking Statements
Certain statements contained in this Quarterly Report on Form 10-Q which are not
historical fact may be deemed to be forward-looking statements under the federal
securities laws. There are many important factors that could cause the Company's
actual results to differ materially from those indicated in the forward-looking
statements. Such factors include, but are not limited to, general economic
conditions, including interest rate risk, prepayment, delinquency and default
rates, changes (legislative and otherwise) in the asset securitization industry,
demand for the Company's services, the impact of certain covenants in loan
agreements of the Company and Continental Grain, the degree to which the Company
is leveraged, the Company's needs for financing, and other risks identified in
the Company's Securities and Exchange Commission filings.
25
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
For a description of certain litigation involving the Company, see
the Company's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1996.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
No. Description
------- -----------
11.2 Computation of the Company's earnings per common share
10.5 Revolving credit facility - Credit Agreement
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
None.
26
<PAGE>
SIGNATURES
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.
ContiFinancial Corporation
Date Signature Title
- ---- --------- -----
February 14, 1997 /s/ Daniel J. Willett Senior Vice President and Chief
- ----------------- --------------------- Financial Officer (Principal
Daniel J. Willett Financial Officer)
February 14, 1997 /s/ Susan E. O'Donovan Vice President and Controller
- ----------------- ---------------------- (Principal Accounting Officer)
Susan E. O'Donovan
27
================================================================================
CREDIT AGREEMENT
dated as of
January 7, 1997
among
CONTIFINANCIAL CORPORATION
The Lenders Party Hereto
and
CREDIT SUISSE FIRST BOSTON,
NEW YORK BRANCH,
as Administrative Agent
---------------------------
CREDIT SUISSE FIRST BOSTON,
NEW YORK BRANCH, AND DRESDNER BANK AG,
NEW YORK AND GRAND CAYMAN BRANCHES,
as Co-Arrangers
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
Definitions
SECTION 1.01. Defined Terms 1
SECTION 1.02. Classification of Loans and Borrowings 30
SECTION 1.03. Terms Generally 30
SECTION 1.04. Accounting Terms; GAAP 31
ARTICLE II
The Credits
SECTION 2.01. Commitments 32
SECTION 2.02. Loans and Borrowings 32
SECTION 2.03. Requests for Revolving Borrowings 33
SECTION 2.04. Swingline Loans 34
SECTION 2.05. Funding of Borrowings 36
SECTION 2.06. Interest Elections 36
SECTION 2.07. Termination and Reduction of Commitments
38
SECTION 2.08. Repayment of Loans; Evidence of Debt 39
SECTION 2.09. Prepayment of Loans 40
SECTION 2.10. Fees 41
SECTION 2.11. Interest 42
SECTION 2.12. Alternate Rate of Interest 43
SECTION 2.13. Increased Costs 43
SECTION 2.14. Break Funding Payments 45
SECTION 2.15. Taxes 45
SECTION 2.16. Payments Generally; Pro Rata Treatment; Sharing of
Set-offs 47
<PAGE>
SECTION 2.17. Mitigation Obligations; Replacement of Lenders 49
ARTICLE III
Representations and
Warranties
SECTION 3.01. Organization; Powers 50
SECTION 3.02. Authorization; Enforceability 50
SECTION 3.03. Governmental Approvals; No Conflicts 51
SECTION 3.04. Financial Condition; No Material Adverse Change
51
SECTION 3.05. Properties 51
SECTION 3.06. Litigation and Environmental Matters 52
SECTION 3.07. Compliance with Laws and Agreements 52
SECTION 3.08. Investment and Holding Company Status 53
SECTION 3.09. Taxes 53
SECTION 3.10. ERISA 53
SECTION 3.11. Disclosure 53
SECTION 3.12. Federal Reserve Regulations 54
ARTICLE IV
Conditions
SECTION 4.01. Effective Date 54
SECTION 4.02. Each Credit Event 56
ARTICLE V
Affirmative Covenants
SECTION 5.01. Financial Statements and Other Information 57
<PAGE>
SECTION 5.02. Notices of Material Events 59
SECTION 5.03. Existence; Conduct of Business 60
SECTION 5.04 Payment of Obligations 60
SECTION 5.05. Maintenance of Properties; Insurance 60
SECTION 5.06. Books and Records; Inspection
and Audit Rights 60
SECTION 5.07. Compliance with Laws 61
SECTION 5.08. Use of Proceeds 61
ARTICLE VI
Negative Covenants
SECTION 6.01. Limitation on Indebtedness and Preferred
Stock of Restricted Subsidiaries 62
SECTION 6.02. Limitation on Liens 63
SECTION 6.03. Limitation on Mergers and Consolidations
66
SECTION 6.04. Limitation on Sales of Assets and
Subsidiary Stock 67
SECTION 6.05. Limitation on Loans and Investments 68
SECTION 6.06. Limitation on Affiliate
Transactions 71
SECTION 6.07. Limitation on Restrictions on
Distributions from Restricted
Subsidiaries 72
SECTION 6.08. Limitation on Investment Company Status 73
SECTION 6.09. Financial Covenants 73
SECTION 6.10. Limitation on Business of the Borrower 73
ARTICLE VII
Events of Default 74
ARTICLE VIII
The Administrative Agent 77
<PAGE>
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices 80
SECTION 9.02. Waivers; Amendments 80
SECTION 9.03. Expenses; Indemnity; Damage Waiver 82
SECTION 9.04. Successors and Assigns 83
SECTION 9.05. Survival 87
SECTION 9.06. Counterparts; Integration;
Effectiveness 87
SECTION 9.07. Severability 87
SECTION 9.08. Right of Setoff 88
SECTION 9.09. Governing Law; Jurisdiction; Consent
to Service of Process 88
SECTION 9.10. WAIVER OF JURY TRIAL 89
SECTION 9.11. Headings 89
SECTION 9.12. Confidentiality 90
SCHEDULES:
Schedule 2.01 -- Commitments
Schedule 3.06 -- Disclosed Matters
Schedule 6.01 -- Indebtedness and Preferred Stock
Schedule 6.02 -- Existing Liens
Schedule 6.06 -- Affiliate Transactions
Schedule 6.07 -- Existing Restrictions
EXHIBITS:
Exhibit A -- Form of Assignment and Acceptance
Exhibit B -- Forms of Opinion of Borrower's Counsel
Exhibit C -- Borrowing Base Certificate
<PAGE>
CREDIT AGREEMENT dated as of January 7, 1997, among
CONTIFINANCIAL CORPORATION, the LENDERS party hereto, and CREDIT
SUISSE FIRST BOSTON, NEW YORK BRANCH, as Administrative Agent.
The Borrower (such term and each other capitalized term used but not
otherwise defined herein having the meaning assigned to it in Article I) has
requested the Lenders to establish the credit facilities provided for herein for
liquidity and general corporate purposes. The Lenders are willing to establish
such credit facilities upon the terms and subject to the conditions set forth
herein. Accordingly, the parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Defined Terms. As used in this Agreement, the following
terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Alternate Base Rate.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) used or useful in a Related Business, (ii) the
Capital Stock of a Person that becomes a Restricted Subsidiary as a result of
the acquisition of such Capital Stock by the Borrower or another Restricted
Subsidiary, (iii) Capital Stock constituting a minority interest in any Person
that at such time is a Restricted Subsidiary; provided, however, that any such
Restricted Subsidiary described in clause (ii) or (iii) above is primarily
engaged in a Related Business or (iv) the Capital Stock or Indebtedness of a
Strategic Alliance Client.
"Adjusted LIBO Rate" means, with respect to each day during each
Interest Period pertaining to a Eurodollar Borrowing, an interest rate per annum
determined in accordance with the following formula (rounded upwards, if
necessary, to the next 1/16 of 1%):
LIBO Rate
----------------
1.00 - Eurocurrency Reserve Requirements
"Administrative Agent" means Credit Suisse First Boston, New York
Branch, in its capacity as administrative agent for the Lenders hereunder.
"Administrative Questionnaire" means an Administrative Questionnaire
in a form supplied by the Administrative Agent.
<PAGE>
"Affiliate" means, with respect to a specified Person, another Person
that directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
"Alternate Base Rate" means, for any day, a rate per annum equal to
the greater of (a) the Prime Rate in effect on such day and (b) the Federal
Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the
Alternate Base Rate due to a change in the Prime Rate or the Federal Funds
Effective Rate shall be effective as of the opening of business on the effective
day of such change in the Prime Rate or the Federal Funds Effective Rate,
respectively.
"Applicable Percentage" means, with respect to any Lender, the
percentage of the total Commitments represented by such Lender's Commitment,
giving effect to any assignments made in conformity with Section 9.04(b). If the
Commitments have terminated or expired, the Applicable Percentages shall be
determined based upon the Commitments most recently in effect, giving effect to
any assignments made in conformity with Section 9.04(b).
"Applicable Rate" means, for any day, with respect to any Swingline
Loan or Eurodollar Revolving Loan, or with respect to the commitment fees
payable hereunder, as the case may be, the applicable rate per annum set forth
below under the caption "Eurodollar Spread", "Swingline Spread" or "Commitment
Fee Rate", as the case may be, based upon the ratings by Moody's and S&P,
respectively, applicable on such date to the Index Debt:
<PAGE>
================================================================================
Index Debt Ratings Commitment Eurodollar Swingline
Fee Rate Spread Spread
- --------------------------------------------------------------------------------
Category 1
A- or higher by S&P .1000% .4000% .6000%
A3 or higher by Moody's
- --------------------------------------------------------------------------------
Category 2
BBB+ by S&P .1250% .4500% .6500%
Baa1 by Moody's
- --------------------------------------------------------------------------------
Category 3
BBB by S&P .1875% .5000% .7000%
Baa2 by Moody's
- --------------------------------------------------------------------------------
Category 4
BBB- by S&P .2250% .6250% .8250%
Baa3 by Moody's
- --------------------------------------------------------------------------------
Category 5
BB+ by S&P .2750% .7500% .9500%
Bal by Moody's
- --------------------------------------------------------------------------------
Category 6
Lower than BB+ by S&P .3750% 1.000% 1.200%
Lower than Bal by Moody's
================================================================================
For purposes of the foregoing, (i) until, but not including, the first
anniversary of the date hereof, the Eurodollar Spread, Swingline Spread and
Commitment Fee Rate shall be determined by reference to Category 5, unless
Category 6 shall otherwise be applicable at any time during such period (in
which case the Eurodollar Spread, Swingline Spread and Commitment Fee Rate shall
be determined by reference to Category 6); (ii) if either Moody's or S&P shall
not have in effect a rating for the Index Debt (other than by reason of the
circumstances referred to in the last sentence of this definition), then such
rating agency shall be deemed to have established a rating in Category 6; (iii)
if the ratings established or deemed to have been established by Moody's and S&P
for the Index Debt shall fall within different Categories, the Applicable Rate
shall be based on the higher of the two ratings, except that (x) if the lower of
such ratings is two Categories below the higher of such ratings, the Applicable
Rate shall be determined based on the Category between the Categories in which
such ratings fall and (y) if the lower of such ratings is more than two
Categories below the higher of such ratings, the Applicable Rate shall be
determined based on the Category that is immediately above the Category in which
the lower of such ratings falls; and (iv) if the ratings established or deemed
to have been established by Moody's and S&P for the Index Debt shall be changed
(other than as a result of a change in the rating system of Moody's or S&P),
such change shall be effective as of the first Business Day following the
applicable ratings change. Each change in the Applicable Rate shall apply during
the period commencing on the date on which such change is publicly announced and
ending on the date immediately preceding the effective date of the next such
change. If the rating system of Moody's or S&P shall change, or if either such
rating agency shall cease to be in the business of rating corporate debt
obligations or either Moody's or S&P shall refuse to provide a rating of the
Index Debt (provided that the Borrower has used its best efforts to cause such
rating agency to provide such a rating, including the payment of any fees and
the provision of any information requested or required thereby in the ordinary
course conduct of its rating business), the Borrower
<PAGE>
and the Lenders shall negotiate in good faith to amend this definition to
reflect such changed rating system or the unavailability of ratings from such
rating agency and, pending the effectiveness of any such amendment, the
Applicable Rate shall be determined by reference to the rating most recently in
effect prior to such change or cessation.
"Asset Disposition" has the meaning assigned to it in Section 6.04.
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Lender and an assignee (with the consent of any party whose consent is
required by Section 9.04), and accepted by the Administrative Agent, in the form
of Exhibit A or any other form approved by the Administrative Agent.
"Availability Period" means the period from and including the
Effective Date to but excluding the earlier of the Maturity Date and the date of
termination of the Commitments.
"Average Life" means, as of the date of determination, with respect to
any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the
sum of the products of the numbers of years from the date of determination to
the dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments. "Board" means
the Board of Governors of the Federal Reserve System of the United States of
America.
"Board of Directors" means the Board of Directors of the Borrower or
any committee thereof duly authorized to act on behalf of such Board of
Directors.
"Borrower" means ContiFinancial Corporation, a Delaware corporation.
"Borrowing" means (a) Revolving Loans of the same Type, made,
converted or continued on the same date and, in the case of Eurodollar Loans, as
to which a single Interest Period is in effect, or (b) a Swingline Loan.
"Borrowing Base" means an amount equal to two times the amount by
which (a) the sum, without duplication, of (i) 100% of Eligible Cash & Cash
Equivalents, (ii) 95% of Eligible Receivables, (iii) 85% of Eligible Fixed
Income Investments, (iv) 85% of Eligible I/O Strip Securities, (v) 80% of
Eligible Performance Deposits, (vi) 75% of Capitalized Servicing Fees and (vii)
65% of Eligible Residuals (in each case excluding any assets set forth in
clauses (i) through (vii) above that are not Eligible Assets), exceeds (b)
Outstanding Funded Indebtedness. The amount of the Borrowing Base set forth in
any Borrowing Base Certificate may be reduced by the Borrower at its option for
any reason, including any failure of the Borrower to obtain the relevant
information from newly-acquired Restricted Subsidiaries in a timely manner. The
Borrowing Base at any time in effect shall be determined by reference to the
Borrowing Base Certificate most recently delivered to the Administrative Agent
pursuant to Sections 4.01(f) and 5.01(g). Notwithstanding the foregoing
provisions of this definition, at any time when the
<PAGE>
Borrower shall have outstanding Index Debt that shall be Investment Grade, the
Borrowing Base will be deemed to equal the aggregate amount of the Commitments
in effect at such time.
"Borrowing Base Certificate" means a certificate in the form of
Exhibit C prepared by the Borrower.
"Borrowing Request" means a request by the Borrower for a Revolving
Borrowing in accordance with Section 2.03.
"Business Day" means any day that is not a Saturday, Sunday or other
day on which commercial banks in New York City are authorized or required by law
to remain closed; provided that, when used in connection with a Eurodollar Loan,
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.
"Capital Lease Obligations" of any Person means the obligations of
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
"Capital Stock" of any Person means any and all shares, interests,
share capital, rights to subscribe for or purchase, warrants, options,
participations or other equivalents of or interests or membership interests in
(however designated) equity of such Person, including any Preferred Stock, any
limited or general partnership interest and any limited liability company
membership interest (but excluding any debt securities convertible into such
equity), and any rights to subscribe for or purchase any thereof.
"Capitalized Servicing Fees" means servicing fees capitalized and
carried at fair value in accordance with GAAP on the balance sheet of the
Borrower and its Restricted Subsidiaries on a consolidated basis.
"Change in Control" means the occurrence of any of the following
events:
(i) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than any Permitted Holder, is or
becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that such person shall be deemed to
have "beneficial ownership" of all shares that any such person has the
right to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly, of more than
35% of the total voting power of the Voting Stock of the Borrower;
provided, however, that the Permitted Holders beneficially own (as
defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly
or indirectly, in the aggregate a lesser percentage of the total
voting power of the Voting Stock of the
<PAGE>
Borrower than such other person and do not have the right or ability
by voting power, contract or otherwise to elect or designate for
election a majority of the Board of Directors (for the purposes of
this clause (i), such other person shall be deemed to beneficially own
any Voting Stock of a corporation held by another corporation (a
"parent corporation"), if such other person is the beneficial owner
(as defined above for such person), directly or indirectly, of more
than 35% of the voting power of the Voting Stock of such parent
corporation and the Permitted Holders beneficially own (as defined
above for the Permitted Holders), directly or indirectly, in the
aggregate a lesser percentage of the voting power of the Voting Stock
of such parent corporation and do not have the right or ability by
voting power, contract or otherwise to elect or designate for election
a majority of the board of directors of such parent corporation);
(ii) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Directors
(together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the
Borrower was approved by a vote of 66-2/3% of the directors of the
Borrower then still in office who were either directors at the
beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a
majority of the Board of Directors then in office; or
(iii) the merger or consolidation of the Borrower with or into
another Person or the merger of another Person with or into the
Borrower, or the sale of all or substantially all the assets of the
Borrower to another Person (other than a Person that is controlled by
the Permitted Holders), and, in the case of any such merger or
consolidation, the securities of the Borrower that are outstanding
immediately prior to such transaction and which represent 100% of the
aggregate voting power of the Voting Stock of the Borrower are changed
into or exchanged for cash, securities or property, unless pursuant to
such transaction such securities are changed into or exchanged for, in
addition to any other consideration, securities of the surviving
corporation that represent immediately after such transaction, at
least a majority of the aggregate voting power of the Voting Stock of
the surviving corporation; provided, however, that the sale by the
Borrower or its Restricted Subsidiaries from time to time solely of
Receivables to a trust for the purpose solely of effecting one or more
securitizations shall not be treated hereunder as a sale of all or
substantially all the assets of the Borrower.
"Change in Law" means (a) the adoption of any law, rule or regulation
after the date of this Agreement, (b) any change in any law, rule or regulation
or in the interpretation or application thereof by any Governmental Authority
after the date of this Agreement or (c) compliance by any Lender (or, for
purposes of Section 2.13(b), by any lending office of such Lender or by such
Lender's holding company, if any) with any request, guideline or directive
(whether or not having the force of law) of any Governmental Authority made or
issued after the date of this Agreement.
"Class", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans
or Swingline Loans.
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Commitment" means, with respect to each Lender, the commitment of
such Lender to make Revolving Loans and to acquire participations in Swingline
Loans hereunder, expressed as an amount representing the maximum aggregate
amount of such Lender's Revolving Credit Exposure hereunder, as such commitment
may be (a) reduced from time to time pursuant to Section 2.07 and (b) reduced or
increased from time to time pursuant to assignments by or to such Lender
pursuant to Section 9.04. The initial amount of each Lender's Commitment is set
forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which
such Lender shall have assumed its Commitment, as applicable. The initial
aggregate amount of the Lenders' Commitments is $200,000,000.
"Consolidated EBIT" for any period, with respect to the Borrower and
its Restricted Subsidiaries on a consolidated basis, means Consolidated Net
Income for such period plus, to the extent deducted in computing Consolidated
Net Income for such period, (a) Consolidated Interest Expense for such period
and (b) foreign, Federal, state and local income tax expense for such period.
"Consolidated Interest Coverage Ratio" for any period means the ratio
of Consolidated EBIT for such period to Consolidated Interest Expense for such
period.
"Consolidated Interest Expense" for any period means the total
interest expense of the Borrower and its Restricted Subsidiaries on a
consolidated basis for such period.
"Consolidated Leverage Ratio" as of any date of determination means
the ratio of (i) the aggregate amount of all Indebtedness of the Borrower and
its Restricted Subsidiaries on a consolidated basis as of such date (excluding
(A) Permitted Warehouse Indebtedness and (B) any Indebtedness under Hedging
Agreements Incurred pursuant to Section 6.05(b)) to (ii) Consolidated Net Worth
as of such date.
"Consolidated Net Income" means the net income from continuing
operations (after taxes) of the Borrower and its Restricted Subsidiaries,
determined on a consolidated basis in accordance with GAAP, excluding the effect
of extraordinary or non-recurring gains or losses (as such gains or losses are
determined in accordance with GAAP).
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Borrower and its Restricted Subsidiaries on a consolidated
basis as of the end of the most recent fiscal quarter of the Borrower for which
financial statements are available, as (i) the par or stated value of all
outstanding Capital Stock of the Borrower plus (ii) paid-in capital or capital
surplus relating to such Capital Stock plus (iii) any retained earnings or
earned surplus less (A) any accumulated deficit, (B) any amounts attributable to
Disqualified Stock and (C) any amounts attributable to deferred compensation
appropriately classified as net worth in accordance with GAAP.
<PAGE>
"Continental Grain" means Continental Grain Company, a Delaware
corporation.
"Control" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of a Person,
whether through the ability to exercise voting power, by contract or otherwise.
"Controlling" and "Controlled" have meanings correlative thereto.
"Default" means any event or condition which constitutes an Event of
Default or which upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"Disclosed Matters" means the actions, suits and proceedings and the
environmental matters disclosed in Schedule 3.06.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening of any event
(i) matures or is mandatorily redeemable pursuant to a sinking fund obligation
or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (iii) is redeemable at the option of the holder thereof,
in each case in whole or in part on or prior to the first anniversary of the
Maturity Date; provided, however, that any Capital Stock that would not
constitute Disqualified Stock but for provisions thereof giving holders thereof
the right to require such Person to repurchase or redeem such Capital Stock upon
the occurrence of a "change of control" occurring prior to the first anniversary
of the Maturity Date shall not constitute Disqualified Stock if the "change of
control" provisions applicable to such Capital Stock are not more favorable to
the holders of such Capital Stock than the Change in Control-related provisions
in Article VII.
"dollars" or "$" refers to lawful money of the United States of
America.
"Effective Date" means the date on which the conditions specified in
Section 4.01 are satisfied (or waived in accordance with Section 9.02).
"Eligible Assets" means Eligible Cash & Cash Equivalents, Eligible
Fixed Income Investments, Eligible I/O Strip Securities, Eligible Performance
Deposits, Eligible Receivables, Eligible Residuals and Capitalized Servicing
Fees, in each case which are free and clear of all Liens (except that Eligible
Performance Deposits may be subject to a Lien in favor of the Person providing
the related Warehouse Facility if such Lien was created in connection with the
provision of such Warehouse Facility and secures the performance of assets
relating to such Warehouse Facility).
"Eligible Cash & Cash Equivalents" means all cash and all Investments
of the Borrower and its Restricted Subsidiaries, determined on a consolidated
basis in accordance with GAAP, specified in any of clauses (a) through (d) of
the definition of Permitted Investments.
<PAGE>
"Eligible Excess Spread Receivables" means Excess Spread Receivables
of the Borrower and its Restricted Subsidiaries on a consolidated basis created
after the date hereof; provided, however, that "Eligible Excess Spread
Receivables" shall not include any Excess Spread Receivables created as the
result of the securitization or sale of other Excess Spread Receivables.
"Eligible Fixed Income Investments" means all Investments of the
Borrower and its Restricted Subsidiaries, determined on a consolidated basis in
accordance with GAAP, of the type specified in clause (e) of the definition of
Permitted Investments.
"Eligible I/O Strip Securities" means the book value of all I/O Strip
Securities of the Borrower and its Restricted Subsidiaries, determined on a
consolidated basis in accordance with GAAP, that are rated at least Baa3 by
Moody's or BBB- by S&P, Duff & Phelps Credit Rating Co. or Fitch Investors
Service, L.P.
"Eligible Performance Deposits" means the aggregate amount of all
Performance Deposits of the Borrower and its Restricted Subsidiaries, determined
on a consolidated basis, other than Performance Deposits relating to Warehouse
Facilities if the Borrower or a Restricted Subsidiary has determined (x) in the
case of purchase and sale Warehouse Facilities, not to repurchase and
subsequently securitize or sell the related Receivables or assets and (y) in the
case of Warehouse Facilities in the form of a loan, not to securitize or sell
the related Receivables or assets.
"Eligible Performance Guarantees" means the aggregate amount of all
Performance Guarantees of the Borrower and its Restricted Subsidiaries,
determined on a consolidated basis, other than Performance Guarantees relating
to Warehouse Facilities if the Borrower or a Restricted Subsidiary has
determined (x) in the case of purchase and sale Warehouse Facilities, not to
repurchase and subsequently securitize or sell the related Receivables or assets
and (y) in the case of Warehouse Facilities in the form of a loan, not to
securitize or sell the related Receivables or assets.
"Eligible Receivables" shall mean all Receivables (excluding
Performance Deposits, Capitalized Servicing Fees and Excess Spread Receivables)
of the Borrower and its Restricted Subsidiaries, determined on a consolidated
basis in accordance with GAAP, which are held for sale and are not past due by
more than 90 days; provided, however, that the aggregate amount of Eligible
Receivables at any time shall exclude (i) Eligible Receivables that are past due
by more than 30 days but less than 60 days to the extent that Eligible
Receivables past due by more than 30 days but less than 60 days would otherwise
constitute more than 7% of such aggregate amount of Eligible Receivables at such
time and (ii) Eligible Receivables that are past due by 60 days or longer to the
extent that Eligible Receivables past due by 60 days or longer would otherwise
constitute more than 3% of such aggregate amount of Eligible Receivables at such
time.
"Eligible Residuals" shall mean all Excess Spread Receivables (other
than Eligible I/O Strip Securites) of the Borrower and its Restricted
Subsidiaries, determined on a consolidated basis, and carried at fair value, in
accordance with GAAP, excluding any such Excess Spread
<PAGE>
Receivables created as the result of the securitization of existing Excess
Spread Receivables or the sale of Excess Spread Receivables.
"Environmental Laws" means all laws, rules, regulations, codes,
ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental Authority,
relating in any way to the environment, preservation or reclamation of natural
resources, the management, release or threatened release of any Hazardous
Material or health and safety matters.
"Environmental Liability" means any liability, contingent or otherwise
(including any liability for damages, costs of environmental remediation, fines,
penalties or indemnities), of the Borrower or any Restricted Subsidiary directly
or indirectly resulting from or based upon (a) violation of any Environmental
Law, (b) the generation, use, handling, transportation, storage, treatment or
disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials,
(d) the release or threatened release of any Hazardous Materials into the
environment or (e) any contract, agreement or other consensual arrangement
pursuant to which liability is assumed or imposed with respect to any of the
foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that, together with the Borrower, is treated as a single employer
under Section 414(b) or (c) of the Code or, solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined in Section
4043 of ERISA or the regulations issued thereunder with respect to a Plan (other
than an event for which the 30-day notice period is waived); (b) the existence
with respect to any Plan of an "accumulated funding deficiency" (as defined in
Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the
filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an
application for a waiver of the minimum funding standard with respect to any
Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any
liability under Title IV of ERISA with respect to the termination of any Plan;
(e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan
administrator of any notice relating to an intention to terminate any Plan or
Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the
Borrower or any of its ERISA Affiliates of any liability with respect to the
withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the
receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by
any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice,
concerning the imposition of Withdrawal Liability or a determination that a
Multiemployer Plan is, or is expected to be, insolvent or in reorganization,
within the meaning of Title IV of ERISA.
"Eurocurrency Reserve Requirements" means for any day as applied to a
Eurodollar Loan, the aggregate (without duplication) of the rates (expressed as
a decimal
<PAGE>
fraction) of reserve requirements in effect on such day (including, without
limitation, basic, supplemental, marginal and emergency reserves under any
regulations of the Board or other Governmental Authority having jurisdiction
with respect thereto) dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of such Board) maintained by a member bank of the Federal Reserve
System of the United States of America.
"Eurodollar", when used in reference to any Loan or Borrowing, refers
to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Adjusted LIBO Rate.
"Event of Default" has the meaning assigned to such term in Article
VII.
"Excess Spread" means, over the life of a "pool" of Receivables that
have been sold by a Person to a trust or other Person in a securitization or
sale, the rights retained by such Person or a Restricted Subsidiary at or
subsequent to the closing of such securitization or sale to receive for its
benefit cash flows attributable to such "pool".
"Excess Spread Receivables" of a Person means the contractual or
certificated right to Excess Spread capitalized on such Person's consolidated
balance sheet (the amount of which shall be the present value of the Excess
Spread, calculated in accordance with GAAP).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Taxes" means, with respect to the Administrative Agent, any
Lender, or any other recipient of any payment to be made by or on account of any
obligation of the Borrower hereunder, (a) income or franchise taxes imposed on
(or measured by) its net income by the United States of America, or by the
jurisdiction under the laws of which such recipient is organized or in which its
principal office is located or, in the case of any Lender, in which its
applicable lending office is located, (b) any branch profits taxes imposed by
the United States of America or any similar tax imposed by any other
jurisdiction in which the Borrower is located and (c) in the case of a Foreign
Lender (other than an assignee pursuant to a request by the Borrower under
Section 2.17(b)), any withholding tax that is imposed on amounts payable to such
Foreign Lender at the time such Foreign Lender becomes a party to this Agreement
(or designates a new lending office) or is attributable to such Foreign Lender's
failure to comply with Section 2.15(e), except to the extent that such Foreign
Lender (or its assignor, if any) was entitled, at the time of designation of a
new lending office (or assignment), to receive additional amounts from the
Borrower with respect to such withholding tax pursuant to Section 2.15(a).
"Federal Funds Effective Rate" means, for any day, the weighted
average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for the day of such
transactions received by
<PAGE>
the Administrative Agent (or, when determined with respect to Swingline Loans,
the Swingline Lender) from three Federal funds brokers of recognized standing
selected by it.
"Financial Officer" means the chief financial officer, principal
accounting officer, treasurer or controller of the Borrower.
"Foreign Lender" means any Lender that is organized under the laws of
a jurisdiction other than that in which the Borrower is located. For purposes of
this definition, the United States of America, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.
"GAAP" means generally accepted accounting principles in the United
States of America.
"Governmental Authority" means the government of the United States of
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.
"Guarantee" of or by any Person (the "guarantor") means any
obligation, contingent or otherwise, of the guarantor guaranteeing or having the
economic effect of guaranteeing any Indebtedness or other obligation of any
other Person (the "primary obligor") in any manner, whether directly or
indirectly, and including any obligation of the guarantor, direct or indirect,
(a) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation or to purchase (or to advance or
supply funds for the purchase of) any security for the payment thereof, (b) to
purchase or lease property, securities or services for the purpose of assuring
the owner of such Indebtedness or other obligation of the payment thereof, (c)
to maintain working capital, equity capital or any other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Indebtedness or other obligation or (d) as an account party
in respect of any letter of credit or letter of guaranty issued to support such
Indebtedness or obligation; provided, that the term Guarantee shall not include
endorsements for collection or deposit in the ordinary course of business.
"Hazardous Materials" means all explosive or radioactive substances or
wastes and all hazardous or toxic substances, wastes or other pollutants,
including petroleum or petroleum distillates, asbestos or asbestos containing
materials, polychlorinated biphenyls, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
"Hedging Agreement" means any interest rate protection agreement,
foreign currency exchange agreement, commodity price protection agreement or
other interest or currency exchange rate or commodity price hedging arrangement.
<PAGE>
"Incur" means issue, assume, Guarantee, incur or otherwise become
liable for; provided, however, that any Indebtedness or Capital Stock of a
Person existing at the time such Person becomes a Restricted Subsidiary (whether
by merger, consolidation, acquisition or otherwise) shall be deemed to be
Incurred by such Person at the time it becomes a Restricted Subsidiary. The term
"Incurrence" when used as a noun shall have a correlative meaning. The accretion
of principal of a non-interest bearing or other discount security shall be
deemed the Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
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 Capital
Lease Obligations of such Person; (iii) 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 expense accruals
arising in the ordinary course of business); (iv) all obligations of such Person
for the reimbursement of any obligor on any letter of credit, banker's
acceptance or similar credit transaction (other than obligations with respect to
letters of credit securing obligations (other than obligations described in (i)
through (iii) above) entered into in the ordinary course of business of such
Person to the extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than the tenth Business
Day following receipt by such Person of a demand for reimbursement following
payment on the letter of credit); (v) the amount of all obligations of such
Person with respect to the redemption, repayment or other repurchase of any
Disqualified Stock (but excluding any accrued dividends); (vi) Warehouse
Indebtedness; (vii) in connection with each sale by such Person of any Excess
Spread Receivables, the maximum aggregate contractual claim (if any) that the
purchaser thereof could have against such Person if the amounts anticipated at
the time of such sale to be received by such purchaser in connection with such
Excess Spread Receivables are not received by such purchaser; (viii) all
obligations of the type referred to in clauses (i) through (vii) of other
Persons and all dividends of other Persons for the payment of which, in either
case, such Person is responsible or liable, directly or indirectly, as obligor,
guarantor or otherwise, including by means of any Guarantee; (ix) all
obligations of the type referred to in clauses (i) through (viii) 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), the amount of such obligation
being deemed to be the lesser of the value of such property or assets or the
amount of the obligation so secured and (x) to the extent not otherwise included
in this definition, Hedging Agreements of such Person. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and the maximum
liability, upon the occurrence of the contingency giving rise to the obligation,
of any contingent obligations at such date. Notwithstanding the foregoing, any
securities issued in a securitization by a special purpose owner trust or
similar entity formed by or on behalf of a Person and to which Receivables or
Excess Spread Receivables have been sold or otherwise transferred by or on
behalf of such Person or its Subsidiaries shall not be treated as Indebtedness
of such Person or its Subsidiaries under this Agreement, regardless of whether
such securities are treated as indebtedness for tax purposes.
<PAGE>
"Indemnified Taxes" means Taxes other than Excluded Taxes.
"Index Debt" means senior, unsecured, long-term indebtedness for
borrowed money of the Borrower that is not guaranteed by any other Person or
subject to any other credit enhancement.
"Interest Election Request" means a request by the Borrower to convert
or continue a Revolving Borrowing in accordance with Section 2.06.
"Interest Payment Date" means (a) with respect to any ABR Loan, the
last day of each March, June, September and December, (b) with respect to any
Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing
of which such Loan is a part and (c) with respect to any Swingline Loan, the day
that such Loan is required to be repaid.
"Interest Period" means, with respect to any Eurodollar Borrowing, the
period commencing on the date of such Borrowing and ending on the numerically
corresponding day in the calendar month that is one, two or three months
thereafter, as the Borrower may elect; provided that (a) if any Interest Period
would end on a day other than a Business Day, such Interest Period shall be
extended to the next succeeding Business Day unless such next succeeding
Business Day would fall in the next calendar month, in which case such Interest
Period shall end on the next preceding Business Day and (b) any Interest Period
pertaining to a Eurodollar Borrowing that commences on the last Business Day of
a calendar month (or on a day for which there is no numerically corresponding
day in the last calendar month of such Interest Period) shall end on the last
Business Day of the last calendar month of such Interest Period. For purposes
hereof, the date of a Borrowing initially shall be the date on which such
Borrowing is made and thereafter shall be the effective date of the most recent
conversion or continuation of such Borrowing.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as trade accounts on the balance sheet of the lender) or other
extensions of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary", (i) "Investment" shall include the portion
(proportionate to the Borrower's equity interest in such Subsidiary) of the fair
market value of the net assets of any Subsidiary at the time that such
Subsidiary is designated an Unrestricted Subsidiary; provided, however, that
upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Borrower
shall be deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary in an amount (if positive) equal to (x) the Borrower's "Investment"
in such Subsidiary at the time of such redesignation less (y) the portion
(proportionate to the Borrower's equity interest in such Subsidiary) of the fair
market value of the net assets of such Subsidiary at the time of such
redesignation; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors.
<PAGE>
"Investment Grade" means, when used with reference to the Index Debt,
that such Index Debt shall be rated (a) at or above Baa3 (or the equivalent) by
Moody's and (b) at or above BBB- (or the equivalent) by S&P. Each rating of the
Index Debt will be effective on the date on which such rating is publicly
announced by the applicable rating agency. If the rating system of Moody's or
S&P shall change, or if either such rating agency shall cease to be in the
business of rating corporate debt obligations, the Borrower and the Lenders
shall negotiate in good faith to amend this definition to reflect such changed
rating system or the unavailability of ratings from such rating agency and,
pending the effectiveness of any such amendment, the applicable rating shall be
determined by reference to the rating most recently in effect prior to such
change or cessation.
"I/O Strip Securities" means a certificate issued to the Borrower or a
Restricted Subsidiary in a securitization of a pool of Receivables (other than
Excess Spread Receivables) in the ordinary course of business of the Borrower
which pays a fixed or floating rate of interest on a notional principal amount.
"Lenders" means the Persons listed on Schedule 2.01 and any other
Person that shall have become a party hereto pursuant to an Assignment and
Acceptance, other than any such Person that ceases to be a party hereto pursuant
to an Assignment and Acceptance. Unless the context otherwise requires, the term
"Lenders" includes the Swingline Lender.
"LIBO Rate" means the rate per annum determined by the Administrative
Agent at approximately 11:00 a.m., London time, on the date which is two
Business Days prior to the beginning of the relevant Interest Period by
reference to the British Bankers' Association Interest Settlement Rates for
deposits in dollars (as set forth by any service selected by the Administrative
Agent which has been nominated by the British Bankers' Association as an
authorized information vendor for the purpose of displaying such rates, which is
currently equivalent to such rate appearing on page 3750 of the Telerate screen)
for a period equal to such Interest Period (rounded upward to the nearest whole
multiple of 1/16th of 1%, if such rate is not such a multiple); provided that to
the extent that an interest rate is not ascertainable pursuant to the foregoing
provisions of this definition, the "LIBO Rate" shall be the interest rate per
annum determined by the Administrative Agent to be the average (rounded upward
to the nearest whole multiple of 1/16th of 1% per annum, if such average is not
such a multiple) of the rates per annum at which deposits in dollars are offered
for such relevant Interest Period to major banks in the London interbank market
in London, England by the Reference Banks, at approximately 11:00 a.m., London
time, on the date which is two Business Days prior to the beginning of such
Interest Period. If any of the Reference Banks shall be unable or shall
otherwise fail to supply such rates to the Administrative Agent upon its
request, the rate of interest shall, subject to the provisions of Section 2.12,
be determined on the basis of the quotations of the remaining Reference Banks or
Reference Bank.
"Lien" means, with respect to any asset, (a) any mortgage, deed of
trust, lien, pledge, hypothecation, encumbrance, charge or security interest in,
on or of such asset, (b) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or title
<PAGE>
retention agreement (or any financing lease having substantially the same
economic effect as any of the foregoing) relating to such asset, (c) in the case
of securities, any purchase option, call or similar right of a third party with
respect to such securities and (d) any claim (whether direct or indirect through
subordination or other structural encumbrance) against any Excess Spread
Receivable sold unless the seller is not liable for any losses thereon.
"Loans" means the loans made by the Lenders to the Borrower pursuant
to this Agreement.
"Margin Stock" has the meaning given such term under Regulation U.
"Material Adverse Effect" means (a) a material adverse effect on the
business, assets, operations, prospects or condition, financial or otherwise, of
the Borrower and the Restricted Subsidiaries taken as a whole, (b) a material
adverse effect on the ability of the Borrower to perform any of its obligations
under this Agreement or (c) a material adverse effect on the rights of or
benefits available to the Lenders under this Agreement.
"Material Indebtedness" means Indebtedness (other than the Loans), or
obligations in respect of one or more Hedging Agreements, of any one or more of
the Borrower and its Restricted Subsidiaries in an aggregate principal amount
exceeding $5,000,000 (or the equivalent amount in any other currency). For
purposes of determining Material Indebtedness, the "principal amount" of the
obligations of the Borrower or any Restricted Subsidiary in respect of any
Hedging Agreement at any time shall be the maximum aggregate amount (giving
effect to any netting agreements) that the Borrower or such Restricted
Subsidiary would be required to pay if such Hedging Agreement were terminated at
such time.
"Maturity Date" means the third anniversary of the Effective Date.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a multiemployer plan as defined in Section
4001(a)(3) of ERISA.
"Net Available Cash" from an Asset Disposition means cash payments
received therefrom (including any cash payments received by way of deferred
payment of principal pursuant to a note or installment receivable or otherwise,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in any other
noncash form) in each case net of (i) all legal, title and recording tax
expenses, commissions and other fees and expenses incurred, and all Federal,
state, provincial, foreign and local taxes required to be accrued as a liability
under GAAP, as a consequence of such Asset Disposition, (ii) all payments made
on any Indebtedness which is secured by any assets subject to such Asset
Disposition, in accordance with the terms of any Lien upon or other security
agreement of any kind with respect to such assets, or which must by its terms,
or in order to obtain a necessary consent to such Asset Disposition, or by
applicable law, be repaid out of the proceeds from such
<PAGE>
Asset Disposition, (iii) all distributions and other payments required to be
made to minority interest holders in Subsidiaries or joint ventures as a result
of such Asset Disposition and (iv) the deduction of appropriate amounts provided
by the seller as a reserve, in accordance with GAAP, against any liabilities
associated with the property or other assets disposed of in such Asset
Disposition and retained by the Borrower or any Restricted Subsidiary after such
Asset Disposition; provided that "Net Available Cash" will be increased by the
amount of any such reserve to the extent such reserve is reversed.
"Other Taxes" means any and all present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies arising
from any payment made hereunder or from the execution, delivery or enforcement
of, or otherwise with respect to, this Agreement, other than Excluded Taxes.
"Outstanding Funded Indebtedness" means all outstanding Indebtedness
of the Borrower and its Restricted Subsidiaries on a consolidated basis
excluding (a) the Loans, (b) any Indebtedness constituting Hedging Agreement
obligations, (c) 80% of the aggregate amount of Eligible Performance Guarantees
and (d) all Permitted Warehouse Indebtedness.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA and any successor entity performing similar functions.
"Performance Deposits" means the right of the Borrower or any
Restricted Subsidiary to receive from the purchaser or lender providing any
Warehouse Facility an amount equal to (x) the face value of the assets which are
the subject of such Warehouse Facility less (y) the sum of (i) the amount of
cash actually received by the Borrower or such Restricted Subsidiary as proceeds
of such Warehouse Facility and (ii) the aggregate amount of all Performance
Guarantees provided in connection with such Warehouse Facility; provided that no
such Performance Deposit shall, when taken together with the aggregate amount of
all Performance Guarantees relating to the applicable Warehouse Facility, in any
event exceed 10% of the face value of the assets which are the subject of such
Warehouse Facility.
"Performance Guarantee" means any Guarantee of the Borrower or any
Restricted Subsidiary for the benefit of the provider of a Warehouse Facility of
obligations relating to Receivables which are the subject of a Warehouse
Facility in an amount which, when taken together with the aggregate amount of
all Performance Deposits relating to the applicable Warehouse Facility, is no
greater than 10% of the face value of the Receivables which are the subject of
such Warehouse Facility; provided that such Guarantee has the same economic
effect as a Performance Deposit.
"Permitted Holders" means lineal descendants of Jules Fribourg,
including any individual legally adopted; spouses of such descendants; trusts,
the beneficiaries of which are any of the foregoing; partnerships, corporations,
or other entities in which any of the foregoing (individually or collectively)
has a controlling interest; and charitable organizations established by any of
the foregoing.
<PAGE>
"Permitted Investments" means:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America (or by any agency thereof to the extent such obligations are backed
by the full faith and credit of the United States of America), in each case
maturing within one year from the date of acquisition thereof;
(b) investments in commercial paper, maturing not more than 180 days
after the date of acquisition, issued by a corporation (other than an
Affiliate of the Borrower) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United
States of America with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's or "A-1" (or
higher) according to S&P;
(c) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company that is not an Affiliate of the
Borrower and which is organized under the laws of the United States of
America, any state thereof or any foreign country recognized by the United
States, and which bank or trust company has capital, surplus and undivided
profits aggregating in excess of $200,000,000 (or the foreign currency
equivalent thereof) and has outstanding debt which is rated "A" (or such
similar equivalent rating) or higher by at least one nationally recognized
statistical rating organization (as defined in Rule 436 under the
Securities Act of 1933, as amended) or any money-market fund sponsored by a
registered broker dealer or mutual fund distributor;
(d) fully collateralized repurchase agreements with a term of not more
than 30 days for securities described in clause (a) above and entered into
with a financial institution satisfying the criteria described in clause
(c) above; and
(e) investments in securities with maturities of six months or less
from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A"
by S&P or "A2" by Moody's.
"Permitted Warehouse Indebtedness" means Warehouse Indebtedness in
connection with a Warehouse Facility; provided, however, that (i) the assets as
to which such Warehouse Indebtedness relates are or, prior to any funding under
the related Warehouse Facility with respect to such assets were, eligible to be
recorded as held for sale on the balance sheet of the Borrower and its
Restricted Subsidiaries in accordance with GAAP, (ii) such Warehouse
Indebtedness will be deemed to be Permitted Warehouse Indebtedness except to the
extent the holders of such Warehouse Indebtedness have contractual recourse to
the Borrower or its Restricted Subsidiaries to satisfy claims in respect of such
Warehouse Indebtedness in excess of, without duplication, (A) the realizable
value of the assets to which such Warehouse Indebtedness relates and (B) any
Performance Deposit securing such Warehouse Indebtedness or any
<PAGE>
Performance Guarantee supporting such Warehouse Indebtedness, and (iii) any such
Indebtedness has not been outstanding in excess of 364 days.
"Person" means any natural person, corporation, limited liability
company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.
"Plan" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or
any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Preferred Stock", as applied to the Capital Stock of any Person,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such Person,
over shares of Capital Stock of any other class of such Person.
"Prime Rate" means the rate of interest per annum publicly announced
from time to time by Credit Suisse as its prime rate in effect at its principal
office in New York City; each change in the Prime Rate shall be effective from
and including the date such change is publicly announced as being effective.
"Receivables" means consumer and commercial loans, leases and
receivables purchased or originated by the Borrower, any Restricted Subsidiary
or a Strategic Alliance Client in the ordinary course of business; provided,
however, that for purposes of determining the amount of a Receivable at any
time, such amount shall be determined in accordance with GAAP, consistently
applied, as of the most recent practicable date.
"Reference Banks" means Credit Suisse, Dresdner Bank AG and The Bank
of New York.
"Refinance" means, in respect of any Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue
other Indebtedness in exchange or replacement for, such Indebtedness.
"Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Borrower or any Restricted Subsidiary existing on the date
hereof or Incurred in compliance with this Agreement (including Indebtedness
that Refinances Refinancing Indebtedness); provided, however, that (i) such
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being Refinanced and (iii) such Refinancing Indebtedness has an aggregate
principal amount (or if Incurred with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal amount (or
<PAGE>
if Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced; provided further,
however, that Refinancing Indebtedness shall not include (x) Indebtedness of a
Subsidiary that Refinances Indebtedness of the Borrower or another Subsidiary or
(y) Indebtedness of the Borrower or a Restricted Subsidiary that Refinances
Indebtedness of an Unrestricted Subsidiary.
"Register" has the meaning set forth in Section 9.04.
"Related Business" means any consumer or commercial finance business
or any financial service business.
"Related Parties" means, with respect to any specified Person, such
Person's Affiliates and the respective directors, officers, employees, agents
and advisors of such Person and such Person's Affiliates.
"Required Lenders" means, at any time, Lenders having aggregate
Revolving Credit Exposures and unused Commitments representing more than 50% of
the sum of the total Revolving Credit Exposures and unused Commitments at such
time.
"Restricted Subsidiary" means any Subsidiary that is not an
Unrestricted Subsidiary.
"Revolving Borrowing" means a Borrowing of Revolving Loans.
"Revolving Credit Exposure" means, with respect to any Lender at any
time, the sum of the outstanding principal amount of such Lender's Revolving
Loans and its Swingline Exposure at such time.
"Revolving Loan" means a Loan made pursuant to Section 2.03.
"Rolling Period" means, at any time, the fiscal quarter most recently
ended and the three immediately preceding fiscal quarters, considered as a
single accounting period.
"S&P" means Standard & Poor's.
"Stated Maturity" means, with respect to any security or Indebtedness,
the date specified in such security or Indebtedness as the fixed date on which
the final payment of principal of such security is due and payable, including
pursuant to any mandatory redemption provision (but excluding any provision
providing for the repurchase of such security at the option of the holder
thereof upon the happening of any contingency unless such contingency has
occurred).
"Strategic Alliance Client" means any Person (other than a Restricted
Subsidiary) engaged in a Related Business to which the Borrower provides, or
reasonably expects to provide,
<PAGE>
financing or asset securitization expertise in return for asset-backed
underwriting or placement agent commitments.
"subsidiary" means, with respect to any Person (the "parent") at any
date, any corporation, limited liability company, partnership, association or
other entity the accounts of which would be consolidated with those of the
parent in the parent's consolidated financial statements if such financial
statements were prepared in accordance with GAAP as of such date, as well as any
other corporation, limited liability company, partnership, association or other
entity (a) of which securities or other ownership interests representing more
than 50% of the equity or more than 50% of the ordinary voting power or, in the
case of a partnership, more than 50% of the general partnership interests are,
as of such date, owned, controlled or held, or (b) that is, as of such date,
otherwise Controlled, by the parent or one or more subsidiaries of the parent or
by the parent and one or more subsidiaries of the parent.
"Subsidiary" means any subsidiary of the Borrower.
"Swingline Exposure" means, at any time, the aggregate principal
amount of all Swingline Loans outstanding at such time. The Swingline Exposure
of any Lender at any time shall be its Applicable Percentage of the total
Swingline Exposure at such time.
"Swingline Lender" means Dresdner Bank AG, New York and Grand Cayman
Branches, in its capacity as lender of Swingline Loans hereunder.
"Swingline Loan" means a Loan made pursuant to Section 2.04.
"Taxes" means any and all present or future taxes, levies, imposts,
duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"Transactions" means the execution, delivery and performance by the
Borrower of this Agreement, the borrowing of Loans and the use of the proceeds
thereof.
"Type", when used in reference to any Loan or Borrowing, refers (x) in
the case of a Swingline Loan or a Borrowing of a Swingline Loan, to Swingline
Loans and (y) in the case of Revolving Loans, to whether the rate of interest on
such Loan, or on the Loans comprising such Borrowing, is determined by reference
to the Adjusted LIBO Rate or the Alternate Base Rate.
"Unrestricted Subsidiary" means (i) any Subsidiary that at the time of
determination shall be designated an Unrestricted Subsidiary by the Board of
Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary
(including any newly acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital
Stock or Indebtedness of, or holds any Lien on any property of, the Borrower or
any other Subsidiary that is not a Subsidiary of the Subsidiary to be so
designated; provided, however, that no Default shall have occurred and be
continuing or would occur as a result thereof, and each representation and
warranty of the Borrower contained in Article III shall be
<PAGE>
true and correct in all material respects after giving effect to such
designation. Any such designation by the Board of Directors shall be evidenced
by the Borrower to the Administrative Agent by promptly filing with the
Administrative Agent a copy of the board resolution giving effect to such
designation and a certificate, signed by two executive officers, certifying that
such designation complied with the foregoing provisions.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests or membership interests) of such
Person then outstanding and normally entitled (without regard to the occurrence
of any contingency) to vote in the election of directors, managers or trustees
thereof.
"Warehouse Facility" means any funding arrangement with a financial
institution or other lender or purchaser exclusively to finance the purchase or
origination of Receivables by the Borrower, a Subsidiary or a Strategic Alliance
Client for the purpose of pooling such Receivables prior to securitization or
sale in the ordinary course of business, including purchase and sale facilities
pursuant to which the Borrower or a Subsidiary sells Receivables or debt of a
Strategic Alliance Client secured by Receivables owned or financed by such
Strategic Alliance Client to a financial institution and retains a right of
first refusal upon the subsequent resale of such Receivables or debt by such
financial institution.
"Warehouse Indebtedness" means the greater of (x) the consideration
received by the Borrower or its Restricted Subsidiaries under a Warehouse
Facility and (y) the book value of the assets financed under a Warehouse
Facility with respect to Receivables or debt of a Strategic Alliance Client
secured by Receivables owned or financed by such Strategic Alliance Client until
such time as such Receivables or debt are (i) securitized, (ii) repurchased by
the Borrower or its Restricted Subsidiaries or (iii) sold by the counterparty
under the Warehouse Facility to a Person who is not an Affiliate of the
Borrower.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the
Capital Stock of which (other than directors' qualifying shares and shares held
by other Persons to the extent such shares are required by applicable law to be
held by a Person other than the Borrower or a Restricted Subsidiary) is owned by
the Borrower or one or more Wholly Owned Subsidiaries.
"Withdrawal Liability" means liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Classification of Loans and Borrowings. For purposes of
this Agreement, Loans may be classified and referred to by Class (e.g., a
"Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class and Type
(e.g., a "Eurodollar Revolving Loan"). Borrowings also may be classified and
referred to by Class (e.g., a "Revolving Borrowing") or by Type (e.g., a
"Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar Revolving
Borrowing").
<PAGE>
SECTION 1.03. Terms Generally. The definitions of terms herein shall
apply equally to the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation". The word "will"
shall be construed to have the same meaning and effect as the word "shall".
Unless the context requires otherwise (a) any definition of or reference to any
agreement, instrument or other document herein shall be construed as referring
to such agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference
herein to any Person shall be construed to include such Person's successors and
assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar
import, shall be construed to refer to this Agreement in its entirety and not to
any particular provision hereof, (d) all references herein to Articles,
Sections, Exhibits and Schedules shall be construed to refer to Articles and
Sections of, and Exhibits and Schedules to, this Agreement and (e) the words
"asset" and "property" shall be construed to have the same meaning and effect
and to refer to any and all tangible and intangible assets and properties,
including cash, securities, accounts and contract rights.
SECTION 1.04. Accounting Terms; GAAP. Except as otherwise expressly
provided herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time; provided
that, if the Borrower notifies the Administrative Agent that the Borrower
requests an amendment to any provision hereof to eliminate the effect of any
change occurring after the date hereof in GAAP or in the application thereof on
the operation of such provision (or if the Administrative Agent notifies the
Borrower that the Required Lenders request an amendment to any provision hereof
for such purpose), regardless of whether any such notice is given before or
after such change in GAAP or in the application thereof, then such provision
shall be interpreted on the basis of GAAP as in effect and applied immediately
before such change shall have become effective until such notice shall have been
withdrawn or such provision amended in accordance herewith.
ARTICLE II
The Credits
SECTION 2.01. Commitments. Subject to the terms and conditions set
forth herein, each Lender agrees to make Revolving Loans to the Borrower from
time to time during the Availability Period in an aggregate principal amount
that will not result in such Lender's Revolving Credit Exposure exceeding the
lesser of (a) such Lender's Commitment and (b) such Lender's Applicable
Percentage of the Borrowing Base in effect at such time. Within the foregoing
limits and subject to the terms and conditions set forth herein, the Borrower
may borrow, prepay and reborrow Revolving Loans.
SECTION 2.02. Loans and Borrowings. (a) Each Revolving Loan shall be
made as part of a Borrowing consisting of Revolving Loans made by the Lenders
ratably in accordance
<PAGE>
with their respective Commitments. The failure of any Lender to make any Loan
required to be made by it shall not relieve any other Lender of its obligations
hereunder; provided that the Commitments of the Lenders are several and no
Lender shall be responsible for any other Lender's failure to make Loans as
required.
(b) Subject to Section 2.12, each Revolving Borrowing shall be
comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request
in accordance herewith. Each Lender at its option may make any Eurodollar Loan
by causing any domestic or foreign branch or Affiliate of such Lender to make
such Loan; provided that any exercise of such option shall not affect the
obligation of the Borrower to repay such Loan in accordance with the terms of
this Agreement.
(c) At the commencement of each Interest Period for any Eurodollar
Revolving Borrowing, such Borrowing shall be in an aggregate amount that is an
integral multiple of $1,000,000 and not less than $5,000,000. At the time that
each ABR Revolving Borrowing is made, such Borrowing shall be in an aggregate
amount that is an integral multiple of $1,000,000 and not less than $5,000,000;
provided that an ABR Revolving Borrowing may be in an aggregate amount that is
equal to the aggregate unused balance of the Commitments. Each Swingline Loan
shall be in an amount that is an integral multiple of $1,000,000. Borrowings of
more than one Type and Class may be outstanding at the same time; provided that
there shall not at any time be more than six Borrowings outstanding (provided
that for purposes of the foregoing proviso (i) all ABR Borrowings outstanding at
any time shall be deemed to constitute a single Borrowing and (ii) all Swingline
Borrowings outstanding at any time shall be deemed to constitute a single
Borrowing).
(d) Notwithstanding any other provision of this Agreement, the
Borrower shall not be entitled to request, or to elect to convert or continue,
any Eurodollar Borrowing if the Interest Period requested with respect thereto
would end after the Maturity Date.
SECTION 2.03. Requests for Revolving Borrowings. To request a
Revolving Borrowing, the Borrower shall notify the Administrative Agent of such
request by telephone (a) in the case of a Eurodollar Borrowing, not later than
12:00 noon, New York City time, three Business Days before the date of the
proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 12:00
noon, New York City time, one Business Day before the date of the proposed
Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall
be confirmed promptly by hand delivery or telecopy to the Administrative Agent
of a written Borrowing Request in a form approved by the Administrative Agent
and signed by the Borrower. Each such telephonic and written Borrowing Request
shall specify the following information in compliance with Section 2.02:
(i) the aggregate amount of the requested Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
<PAGE>
(iii) whether such Borrowing is to be an ABR Borrowing or a Eurodollar
Borrowing;
(iv) in the case of a Eurodollar Borrowing, the initial Interest
Period to be applicable thereto, which shall be a period contemplated by
the definition of the term "Interest Period"; and
(v) the location and number of the Borrower's account to which funds
are to be disbursed, which shall comply with the requirements of Section
2.05.
If no election as to the Type of Revolving Borrowing is specified, then the
requested Revolving Borrowing shall be an ABR Borrowing. If no Interest Period
is specified with respect to any requested Eurodollar Revolving Borrowing, then
the Borrower shall be deemed to have selected an Interest Period of one month's
duration. Promptly following receipt of a Borrowing Request in accordance with
this Section, the Administrative Agent shall advise each Lender of the details
thereof and of the amount of such Lender's Loan to be made as part of the
requested Borrowing.
SECTION 2.04. Swingline Loans. (a) Subject to the terms and conditions
set forth herein, the Swingline Lender agrees to make Swingline Loans to the
Borrower from time to time during the Availability Period, in an aggregate
principal amount at any time outstanding that will not result in (i) the
aggregate principal amount of outstanding Swingline Loans exceeding $30,000,000
or (ii) the aggregate Revolving Credit Exposures exceeding the lesser of (x) the
aggregate Commitments and (y) the Borrowing Base in effect at such time;
provided that the Swingline Lender shall not be required to make a Swingline
Loan to refinance an outstanding Swingline Loan. Within the foregoing limits and
subject to the terms and conditions set forth herein, the Borrower may borrow,
prepay and reborrow Swingline Loans.
(b) To request a Swingline Loan, the Borrower shall concurrently
notify the Administrative Agent and the Swingline Lender of such request by
telephone (confirmed by telecopy), not later than 12:00 noon, New York City
time, on the day of a proposed Swingline Loan. Each such notice shall be
irrevocable and shall specify the requested date (which shall be a Business Day
and may be the same Business Day on which such Swingline Loan is to be made) and
amount of the requested Swingline Loan. The Swingline Lender shall make each
Swingline Loan available to the Borrower by means of a credit to the general
deposit account of the Borrower with the Swingline Lender by 3:00 p.m., New York
City time, on the requested date of such Swingline Loan.
(c) The Swingline Lender may by written notice given to the
Administrative Agent not later than 10:00 a.m., New York City time, on any
Business Day require the Lenders to acquire participations on such Business Day
in all or a portion of the Swingline Loans outstanding, provided that such
Swingline Loans are free and clear of all Liens. Such notice shall specify the
aggregate amount of Swingline Loans in which Lenders will participate. Promptly
upon receipt of such notice, the Administrative Agent will give notice thereof
to each Lender, specifying in such notice such Lender's Applicable Percentage of
such Swingline Loan or Loans. Each Lender hereby absolutely and unconditionally
agrees, upon receipt of notice as provided
<PAGE>
above, to pay to the Administrative Agent, for the account of the Swingline
Lender, such Lender's Applicable Percentage of such Swingline Loan or Loans.
Each Lender acknowledges and agrees that its obligation to acquire
participations in Swingline Loans pursuant to this paragraph is absolute and
unconditional and shall not be affected by any circumstance whatsoever,
including the occurrence and continuance of a Default or reduction or
termination of the Commitments, and that each such payment shall be made without
any offset, abatement, withholding or reduction whatsoever. Each Lender shall
comply with its obligation under this paragraph by wire transfer of immediately
available funds, in the same manner as provided in Section 2.05 with respect to
Loans made by such Lender (and Section 2.05 shall apply, mutatis mutandis, to
the payment obligations of the Lenders), and the Administrative Agent shall
promptly pay to the Swingline Lender the amounts so received by it from the
Lenders. The Administrative Agent shall notify the Borrower of any
participations in any Swingline Loan acquired pursuant to this paragraph, and
thereafter payments in respect of such Swingline Loan shall be made to the
Administrative Agent and not to the Swingline Lender. Any amounts received by
the Swingline Lender from the Borrower (or other party on behalf of the
Borrower) in respect of a Swingline Loan after receipt by the Swingline Lender
of the proceeds of a sale of participations therein shall be promptly remitted
to the Administrative Agent; any such amounts received by the Administrative
Agent shall be promptly remitted by the Administrative Agent to the Lenders that
shall have made their payments pursuant to this paragraph and to the Swingline
Lender, as their interests may appear. The purchase of participations in a
Swingline Loan pursuant to this paragraph shall not relieve the Borrower of any
default in the payment thereof. Notwithstanding the foregoing, a Lender shall
not have any obligation to acquire a participation in a Swingline Loan pursuant
to this paragraph if a Default shall have occurred and be continuing at the time
such Swingline Loan was made and such Lender shall have notified the Swingline
Lender in writing, at least one Business Day prior to the time such Swingline
Loan was made, that such Default has occurred and that such Lender will not
acquire participations in Swingline Loans made while such Default is continuing.
SECTION 2.05. Funding of Borrowings. (a) Each Lender shall make each Loan to be
made by it hereunder on the proposed date thereof by wire transfer of
immediately available funds by 12:00 noon, New York City time, to the account of
the Administrative Agent most recently designated by it for such purpose by
notice to the Lenders; provided that Swingline Loans shall be made as provided
in Section 2.04. The Administrative Agent will make such Revolving Loans
available to the Borrower by promptly crediting the amounts so received, in like
funds, to an account of the Borrower maintained with the Administrative Agent in
New York City and designated by the Borrower in the applicable Borrowing
Request.
(b) Unless the Administrative Agent shall have received notice from a
Lender prior to the proposed date of any Borrowing that such Lender will not
make available to the Administrative Agent such Lender's share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
and may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. In such event, if a Lender has not in fact made its share
of the applicable Borrowing available to the Administrative Agent, then the
applicable Lender and, if such Lender fails to pay such amount immediately upon
demand, the Borrower, agrees to pay to the Administrative Agent forthwith on
demand such corresponding amount with interest thereon, for each day from and
including the date such amount is made available to the Borrower to but
<PAGE>
excluding the date of payment to the Administrative Agent, at (i) in the case of
such Lender, the Federal Funds Effective Rate or (ii) in the case of the
Borrower, the interest rate applicable to ABR Loans. If such Lender pays such
amount to the Administrative Agent, then such amount shall constitute such
Lender's Loan included in such Borrowing. If the Borrower pays such amount to
the Administrative Agent, it shall not thereby waive any claim it may have
against such Lender.
SECTION 2.06. Interest Elections. (a) Each Revolving Borrowing
initially shall be of the Type specified in the applicable Borrowing Request
and, in the case of a Eurodollar Borrowing, shall have an initial Interest
Period as specified in such Borrowing Request. Thereafter, the Borrower may
elect to convert such Revolving Borrowing to a different Type or to continue
such Revolving Borrowing and, in the case of a Eurodollar Borrowing, may elect
Interest Periods therefor, all as provided in this Section. The Borrower may
elect different options with respect to different portions of the affected
Revolving Borrowing, in which case each such portion shall be allocated ratably
among the Lenders holding the Loans comprising such Revolving Borrowing, and the
Loans comprising each such portion shall be considered a separate Revolving
Borrowing. This Section shall not apply to Swingline Borrowings, which may not
be converted or continued.
(b) To make an election pursuant to this Section, the Borrower shall
notify the Administrative Agent of such election by telephone by the time that a
Borrowing Request would be required under Section 2.03 if the Borrower were
requesting a Revolving Borrowing of the Type resulting from such election to be
made on the effective date of such election. Each such telephonic Interest
Election Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Interest Election
Request in a form approved by the Administrative Agent and signed by the
Borrower.
(c) Each telephonic and written Interest Election Request shall
specify the following information in compliance with Section 2.02:
(i) the Borrowing to which such Interest Election Request applies and,
if different options are being elected with respect to different portions
thereof, the portions thereof to be allocated to each resulting Borrowing
(in which case the information to be specified pursuant to clauses (iii)
and (iv) below shall be specified for each resulting Borrowing);
(ii) the effective date of the election made pursuant to such Interest
Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of the
term "Interest Period".
<PAGE>
If any such Interest Election Request requests Eurodollar Borrowing but does not
specify an Interest Period, then the Borrower shall be deemed to have selected
an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election Request, the
Administrative Agent shall advise each Lender of the details thereof and of such
Lender's portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest Election
Request with respect to a Eurodollar Borrowing prior to the end of the Interest
Period applicable thereto, then, unless such Borrowing is repaid as provided
herein, at the end of such Interest Period such Borrowing shall be converted to
an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of
Default has occurred and is continuing and the Administrative Agent, at the
request of the Required Lenders, so notifies the Borrower, then, so long as an
Event of Default is continuing (i) no outstanding Revolving Borrowing may be
converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each
Eurodollar Revolving Borrowing shall be converted to an ABR Borrowing at the end
of the Interest Period applicable thereto.
SECTION 2.07. Termination and Reduction of Commitments. (a) Unless
previously terminated, the Commitments shall terminate on the Maturity Date.
(b) The Borrower may at any time terminate, or from time to time
reduce, the Commitments; provided that (i) each reduction of the Commitments
shall be in an amount that is an integral multiple of $1,000,000 and not less
than $5,000,000 and (ii) the Borrower shall not terminate or reduce the
Commitments if, after giving effect to any concurrent prepayment of the Loans in
accordance with Section 2.09, the sum of the Revolving Credit Exposures would
exceed the total Commitments.
(c) The Borrower shall notify the Administrative Agent of any election
to terminate or reduce the Commitments under paragraph (b) of this Section at
least three Business Days prior to the effective date of such termination or
reduction, specifying the effective date of such election. Promptly following
receipt of any notice, the Administrative Agent shall advise the Lenders of the
contents thereof. Each notice delivered by the Borrower pursuant to this Section
shall be irrevocable; provided that a notice of termination of the Commitments
delivered by the Borrower may state that such notice is conditioned upon the
effectiveness of other credit facilities, in which case such notice may be
revoked by the Borrower (by notice to the Administrative Agent on or prior to
the specified effective date) if such condition is not satisfied. Any
termination or reduction of the Commitments shall be permanent. Each reduction
of the Commitments shall be made ratably among the Lenders in accordance with
their respective Commitments.
SECTION 2.08. Repayment of Loans; Evidence of Debt. (a) The Borrower
hereby unconditionally promises to pay (i) to the Administrative Agent for the
account of each Lender the then unpaid principal amount of each Revolving Loan
on the Maturity Date and (ii) to the Swingline Lender (or, with respect to
Swingline Loans with respect to which participations have been purchased by
Lenders pursuant to Section 2.04(c), to the Administrative Agent for the
<PAGE>
benefit of the Lenders) the then unpaid principal amount of each Swingline Loan
on the earliest of (A) the Maturity Date, (B) the seventh Business Day after
such Swingline Loan is made and (C) if on the day such Swingline Loan was made
one or more other Swingline Loans were outstanding ("existing Swingline Loans"),
the seventh Business Day after the first of such existing Swingline Loans was
made; provided that on each date that a Revolving Borrowing is made, the
Borrower shall repay all Swingline Loans then outstanding.
(b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing the indebtedness of the Borrower to such
Lender resulting from each Loan made by such Lender, including the amounts of
principal and interest payable and paid to such Lender from time to time
hereunder.
(c) The Administrative Agent shall maintain accounts in which it shall
record (i) the amount of each Loan made hereunder, the Class and Type thereof
and the Interest Period, if any, applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Lender hereunder and (iii) the amount of any sum received by
the Administrative Agent hereunder for the account of the Lenders and each
Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to paragraph
(b) or (c) of this Section shall be prima facie evidence of the existence and
amounts of the obligations recorded therein; provided that the failure of any
Lender or the Administrative Agent to maintain such accounts or any error
therein shall not in any manner affect the obligation of the Borrower to repay
the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans made by it be evidenced by a
promissory note. In such event, the Borrower shall prepare, execute and deliver
to such Lender a promissory note payable to the order of such Lender (or, if
requested by such Lender, to such Lender and its registered assigns) and in a
form approved by the Administrative Agent. Thereafter, the Loans evidenced by
such promissory note and interest thereon shall at all times (including after
assignment pursuant to Section 9.04) be represented by one or more promissory
notes in such form payable to the order of the payee named therein (or, if such
promissory note is a registered note, to such payee and its registered assigns).
SECTION 2.09. Prepayment of Loans. (a) The Borrower shall have the
right at any time and from time to time to prepay any Borrowing in whole or in
part, subject to prior notice in accordance with paragraph (b) of this Section.
(b) The Borrower shall notify the Administrative Agent (and, in the case of
payment of a Swingline Loan, the Swingline Lender and the Administrative Agent)
by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case
of prepayment of a Eurodollar Revolving Borrowing, not later than 12:00 noon,
New York City time, three Business Days before the date of prepayment, (ii) in
the case of prepayment of an ABR Revolving Borrowing, not later than 12:00 noon,
New York City time, one Business Day before the date of prepayment or (iii) in
the case of payment of a Swingline Loan, not later than 12:00 noon, New York
City time, on the date
<PAGE>
of prepayment. Each such notice shall be irrevocable and shall specify the
prepayment or payment date and the principal amount of each Borrowing or portion
thereof to be prepaid or repaid; provided that, if a notice of prepayment is
given in connection with a conditional notice of termination of the Commitments
as contemplated by Section 2.07, then such notice of prepayment may be revoked
if such notice of termination is revoked in accordance with Section 2.07.
Promptly following receipt of any such notice relating to a Revolving Borrowing,
the Administrative Agent shall advise the Lenders of the contents thereof. Each
partial prepayment of any Revolving Borrowing shall be in an amount that would
be permitted in the case of an advance of a Revolving Borrowing of the same Type
as provided in Section 2.02. Each prepayment of a Revolving Borrowing shall be
applied ratably to the Loans included in the prepaid Borrowing. Prepayments and
payments in accordance with this Section 2.09 shall be accompanied by accrued
interest to the extent required by Section 2.11. The Borrower and the Swingline
Lender will notify the Administrative Agent promptly following any payment by
the Borrower with respect to any Swingline Loan.
(c) If at any time the Revolving Credit Exposure exceeds the Borrowing
Base, the Borrower shall forthwith prepay the then outstanding Loans by such
amount as shall be necessary to eliminate such excess.
SECTION 2.10. Fees. (a) The Borrower agrees to pay to the
Administrative Agent for the account of each Lender on the last day of March,
June, September and December in each year, commencing on the first such date to
occur after the date hereof, and on each date on which the Commitment of such
Lender shall be reduced, expire or be terminated as provided herein, a
commitment fee, which shall accrue at the Applicable Rate on the average daily
amount by which the Commitment of such Lender exceeds its outstanding Revolving
Loans during the preceding quarter (or other period commencing with the date
hereof or ending with the date on which such Commitment shall expire or be
terminated). All commitment fees shall be computed on the basis of a year of 360
days and shall be payable for the actual number of days elapsed (including the
first day but excluding the last day). The commitment fee due to each Lender
shall commence to accrue on the date hereof and shall cease to accrue on the
date on which the Commitment of such Lender shall expire or be terminated as
provided herein.
(b) The Borrower agrees to pay to the Administrative Agent, for its
own account, fees payable in the amounts and at the times separately agreed upon
between the Borrower and the Administrative Agent.
(c) All fees payable hereunder shall be paid on the dates due, in
immediately available funds, to the Administrative Agent for distribution, in
the case of commitment fees, to the Lenders. Fees paid shall not be refundable
under any circumstances.
SECTION 2.11. Interest. (a) The Loans comprising each ABR Borrowing
shall bear interest at the Alternate Base Rate.
(b) The Loans comprising each Eurodollar Borrowing shall bear interest
at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing
plus the Applicable Rate.
<PAGE>
(c) Each Swingline Loan shall bear interest at the Federal Funds
Effective Rate plus the Applicable Rate.
(d) Notwithstanding the foregoing, if any principal of or interest on
any Loan or any fee or other amount payable by the Borrower hereunder is not
paid when due, whether at stated maturity, upon acceleration or otherwise, such
overdue amount shall bear interest, after as well as before judgment, at a rate
per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the
rate otherwise applicable to such Loan as provided in the preceding paragraphs
of this Section or (ii) in the case of any other amount, 2% plus the rate
applicable to ABR Loans as provided in paragraph (a) of this Section.
(e) Accrued interest on each Loan shall be payable in arrears on each
Interest Payment Date for such Loan; provided that (i) interest accrued pursuant
to paragraph (d) of this Section shall be payable on demand, (ii) in the event
of any repayment or prepayment of any Loan, accrued interest on the principal
amount repaid or prepaid shall be payable on the date of such repayment or
prepayment, (iii) in the event of any conversion of any Eurodollar Revolving
Loan prior to the end of the current Interest Period therefor, accrued interest
on such Loan shall be payable on the effective date of such conversion and (iv)
all accrued interest shall be payable upon the expiration or termination of the
Commitments.
(f) All interest hereunder shall be computed on the basis of a year of
360 days, except that interest computed by reference to the Alternate Base Rate
at times when the Alternate Base Rate is based on the Prime Rate shall be
computed on the basis of a year of 365 days (or 366 days in a leap year), and in
each case shall be payable for the actual number of days elapsed (including the
first day but excluding the last day). The applicable Alternate Base Rate and
Adjusted LIBO Rate shall be determined by the Administrative Agent and (solely
with respect to the determination of interest payable on any Swingline Loan) the
applicable Federal Funds Effective Rate shall be determined by the Swingline
Lender, such determinations being conclusive absent manifest error.
SECTION 2.12. Alternate Rate of Interest. If prior to the commencement
of any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines in good faith (which
determination shall be conclusive absent manifest error) that adequate and
reasonable means do not exist for ascertaining the Adjusted LIBO Rate for
such Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders that
the Adjusted LIBO Rate for such Interest Period will not adequately and
fairly reflect the cost to such Lenders of making or maintaining their
Loans included in such Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent
<PAGE>
notifies the Borrower and the Lenders that the circumstances giving rise to such
notice no longer exist, (i) any Interest Election Request that requests the
conversion of any Revolving Borrowing to, or continuation of any Revolving
Borrowing as, a Eurodollar Borrowing shall be ineffective and (ii) if any
Borrowing Request requests a Eurodollar Revolving Borrowing, such Borrowing
shall be made as an ABR Borrowing.
SECTION 2.13. Increased Costs. (a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit or
similar requirement against assets of, deposits with or for the account of,
or credit extended by, any Lender (except any such reserve requirement
reflected in the Adjusted LIBO Rate); or
(ii) impose on any Lender or the London interbank market any other
condition affecting this Agreement or Eurodollar Loans made by such Lender;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to reduce the amount of any sum received or
receivable by such Lender (whether of principal, interest or otherwise), then
the Borrower will pay to such Lender such additional amount or amounts as will
compensate such Lender for such additional costs incurred or reduction suffered
(excluding the effect of any Excluded Taxes).
(b) If any Lender determines that any Change in Law regarding capital
requirements has or would have the effect of reducing the rate of return on such
Lender's capital or on the capital of such Lender's holding company, if any, as
a consequence of this Agreement or the Loans made by such Lender, to a level
below that which such Lender or such Lender's holding company could have
achieved but for such Change in Law (taking into consideration such Lender's
policies and the policies of such Lender's holding company with respect to
capital adequacy), then from time to time the Borrower will pay to such Lender
such additional amount or amounts as will compensate such Lender or such
Lender's holding company for any such reduction suffered.
(c) A certificate of a Lender setting forth the amount or amounts
necessary to compensate such Lender or its holding company, as the case may be,
as specified in paragraph (a) or (b) of this Section shall be delivered to the
Borrower and shall be conclusive absent manifest error. The Borrower shall pay
such Lender, as the case may be, the amount shown as due on any such certificate
within 10 days after receipt thereof.
(d) Failure or delay on the part of any Lender to demand compensation
pursuant to this Section shall not constitute a waiver of such Lender's right to
demand such compensation; provided that the Borrower shall not be required to
compensate a Lender pursuant to this Section for any increased costs or
reductions incurred more than 270 days prior to the date that such Lender
notifies the Borrower of the Change in Law giving rise to such increased costs
or
<PAGE>
reductions and of such Lender's intention to claim compensation therefor;
provided further that, if the Change in Law giving rise to such increased costs
or reductions is retroactive, then the 270-day period referred to above shall be
extended to include the period of retroactive effect thereof.
SECTION 2.14. Break Funding Payments. In the event of (a) the payment
of any principal of any Eurodollar Loan other than on the last day of an
Interest Period applicable thereto (including as a result of an Event of
Default), (b) the conversion of any Eurodollar Loan other than on the last day
of the Interest Period applicable thereto, (c) the failure to borrow, convert,
continue or prepay any Revolving Loan on the date specified in any notice
delivered pursuant hereto (regardless of whether such notice may be revoked
under Section 2.09(b) and is revoked in accordance therewith), or (d) the
assignment of any Eurodollar Loan other than on the last day of the Interest
Period applicable thereto as a result of a request by the Borrower pursuant to
Section 2.17, then, in any such event, the Borrower shall compensate each Lender
for the loss, cost and expense attributable to such event. In the case of a
Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to
include an amount determined by such Lender to be the excess, if any, of (i) the
amount of interest which would have accrued on the principal amount of such Loan
had such event not occurred, at the Adjusted LIBO Rate that would have been
applicable to such Loan, for the period from the date of such event to the last
day of the then current Interest Period therefor (or, in the case of a failure
to borrow, convert or continue, for the period that would have been the Interest
Period for such Loan), over (ii) the amount of interest which would accrue on
such principal amount for such period at the interest rate which such Lender
would bid were it to bid, at the commencement of such period, for dollar
deposits of a comparable amount and period from other banks in the eurodollar
market. A certificate of any Lender setting forth any amount or amounts (and, in
reasonable detail, the calculations relating thereto) that such Lender is
entitled to receive pursuant to this Section shall be delivered to the Borrower
and shall be conclusive absent manifest error. The Borrower shall pay such
Lender the amount shown as due on any such certificate within 10 days after
receipt thereof.
SECTION 2.15. Taxes. (a) Any and all payments by or on account of any
obligation of the Borrower hereunder shall be made free and clear of and without
deduction for any Indemnified Taxes or Other Taxes; provided that if the
Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from
such payments, then (i) the sum payable shall be increased as necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section) the Administrative Agent or such
Lender (as the case may be) receives an amount equal to the sum it would have
received had no such deductions been made, (ii) the Borrower shall make such
deductions and (iii) the Borrower shall pay the full amount deducted to the
relevant Governmental Authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) The Borrower shall indemnify the Administrative Agent and each
Lender, within 10 days after written demand therefor, for the full amount of any
Indemnified Taxes or
<PAGE>
Other Taxes paid by the Administrative Agent or such Lender, as the case may be,
on or with respect to any payment by or on account of any obligation of the
Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or
asserted on or attributable to amounts payable under this Section) and any
penalties, interest and reasonable expenses arising therefrom or with respect
thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or
legally imposed or asserted by the relevant Governmental Authority. A
certificate as to the amount of such payment or liability (showing in reasonable
detail the calculation of such amount) delivered to the Borrower by a Lender, or
by the Administrative Agent on its own behalf or on behalf of a Lender, shall be
conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified Taxes or
Other Taxes by the Borrower to a Governmental Authority, the Borrower shall
deliver to the Administrative Agent the original or a certified copy of a
receipt issued by such Governmental Authority evidencing such payment, a copy of
the return reporting such payment or other evidence of such payment reasonably
satisfactory to the Administrative Agent.
(e) Any Foreign Lender that is entitled to an exemption from or
reduction of withholding tax under the law of the jurisdiction in which the
Borrower is located, or any treaty to which such jurisdiction is a party, with
respect to payments under this Agreement shall deliver to the Borrower (with a
copy to the Administrative Agent), at the time or times prescribed by applicable
law, such properly completed and executed documentation prescribed by applicable
law or reasonably requested by the Borrower as will permit such payments to be
made without withholding or at a reduced rate.
SECTION 2.16. Payments Generally; Pro Rata Treatment; Sharing of
Set-offs. (a) The Borrower shall make each payment required to be made by it
hereunder (whether of principal, interest or fees, or of amounts payable under
Section 2.13, 2.14 or 2.15, or otherwise) prior to 12:00 noon, New York City
time, on the date when due, in immediately available funds, without set-off or
counterclaim. Any amounts received after such time on any date may, in the
discretion of the Administrative Agent, be deemed to have been received on the
next succeeding Business Day for purposes of calculating interest thereon. All
such payments shall be made to the Administrative Agent at its offices at One
Liberty Plaza, New York, New York, except that payments of interest on and
principal of Swingline Loans shall be made directly to the Swingline Lender at
its offices at 75 Wall Street, New York, New York, and except that payments
pursuant to Sections 2.13, 2.14, 2.15 and 9.03 shall be made directly to the
Persons entitled thereto. The Administrative Agent shall distribute any such
payments received by it for the account of any other Person to the appropriate
recipient promptly following receipt thereof. If any payment hereunder shall be
due on a day that is not a Business Day, the date for payment shall be extended
to the next succeeding Business Day, and, in the case of any payment accruing
interest, interest thereon shall be payable for the period of such extension.
All payments hereunder shall be made in dollars.
(b) If at any time insufficient funds are received by and available to
the Administrative Agent to pay fully all amounts of principal, interest and
fees then due hereunder, such funds shall be applied (i) first, towards payment
of interest and fees then due hereunder,
<PAGE>
ratably among the parties entitled thereto in accordance with the amounts of
interest and fees then due to such parties, and (ii) second, towards payment of
principal then due hereunder, ratably among the parties entitled thereto in
accordance with the amounts of principal then due to such parties.
(c) If any Lender shall, by exercising any right of set-off or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Revolving Loans or Swingline Loans resulting in such
Lender receiving payment of a greater proportion of the aggregate amount of its
Revolving Loans and Swingline Loans and accrued interest thereon than the
proportion received by any other Lender, then the Lender receiving such greater
proportion shall purchase (for cash at face value) participations in the
Revolving Loans and Swingline Loans of other Lenders to the extent necessary so
that the benefit of all such payments shall be shared by the Lenders ratably in
accordance with the aggregate amount of principal of and accrued interest on
their respective Revolving Loans and Swingline Loans; provided that (i) if any
such participations are purchased and all or any portion of the payment giving
rise thereto is recovered, such participations shall be rescinded and the
purchase price restored to the extent of such recovery, without interest, and
(ii) the provisions of this paragraph shall not be construed to apply to any
payment made by the Borrower pursuant to and in accordance with the express
terms of this Agreement or any payment obtained by a Lender as consideration for
the assignment of or sale of a participation in any of its Loans to any assignee
or participant, other than to the Borrower or any Subsidiary or Affiliate
thereof (as to which the provisions of this paragraph shall apply). The Borrower
consents to the foregoing and agrees, to the extent it may effectively do so
under applicable law, that any Lender acquiring a participation pursuant to the
foregoing arrangements may exercise against the Borrower rights of set-off and
counterclaim with respect to such participation as fully as if such Lender were
a direct creditor of the Borrower in the amount of such participation.
(d) Unless the Administrative Agent shall have received notice from
the Borrower prior to the date on which any payment is due to the Administrative
Agent for the account of the Lenders hereunder that the Borrower will not make
such payment, the Administrative Agent may assume that the Borrower has made
such payment on such date in accordance herewith and may, in reliance upon such
assumption, distribute to the Lenders the amount due. In such event, if the
Borrower has not in fact made such payment, then each of the Lenders severally
agrees to repay to the Administrative Agent forthwith on demand the amount so
distributed to such Lender with interest thereon, for each day from and
including the date such amount is distributed to it to but excluding the date of
payment to the Administrative Agent, at the Federal Funds Effective Rate, as
determined by the Administrative Agent.
(e) If any Lender shall fail to make any payment required to be made
by it pursuant to Section 2.04(c), 2.05(b) or 2.16(d), then the Administrative
Agent may, in its discretion (notwithstanding any contrary provision hereof),
apply any amounts thereafter received by the Administrative Agent for the
account of such Lender to satisfy such Lender's obligations under such Sections
until all such unsatisfied obligations are fully paid.
<PAGE>
SECTION 2.17. Mitigation Obligations; Replacement of Lenders. (a) If
any Lender requests compensation under Section 2.13, or if the Borrower is
required to pay any additional amount to any Lender or any Governmental
Authority for the account of any Lender pursuant to Section 2.15, then such
Lender shall use reasonable efforts, including designating a different lending
office for funding or booking its Loans hereunder, to eliminate or reduce
amounts payable pursuant to Section 2.13 or 2.15, as the case may be, in the
future; provided that any such action would not subject such Lender to any
unreimbursed cost or expense and would not otherwise be disadvantageous to such
Lender in any respect deemed significant by it. The Borrower hereby agrees to
pay all reasonable costs and expenses incurred by any Lender in connection with
any such action.
(b) If any Lender requests compensation under Section 2.13, or if the
Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.15,
or if any Lender defaults in its obligation to fund Loans hereunder, then the
Borrower may, at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04), all its interests, rights and obligations under this Agreement to
an assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment); provided that (i) the Borrower
shall have received the prior written consent of the Administrative Agent (and,
if a Commitment is being assigned, the Swingline Lender), which consent shall
not unreasonably be withheld, (ii) such Lender shall have received payment of an
amount equal to the outstanding principal of its Revolving Loans and Swingline
Loans, accrued interest thereon, accrued and unpaid fees and all other amounts
payable to it hereunder (including under Sections 2.13 and 2.15), from the
assignee (to the extent of such outstanding principal and accrued interest and
fees) or the Borrower (in the case of all other amounts) and (iii) in the case
of any such assignment resulting from a claim for compensation under Section
2.13 or payments required to be made pursuant to Section 2.15, such assignment
will result in a reduction in such compensation or payments. A Lender shall not
be required to make any such assignment and delegation if, prior thereto, as a
result of a waiver by such Lender or otherwise, the circumstances entitling the
Borrower to require such assignment and delegation cease to apply.
(c) In making any claim under Section 2.13 or 2.15 or calculating any
amounts due thereunder, each Lender shall treat the Borrower no less favorably
than the treatment afforded by such Lender to similarly situated borrowers in
similar circumstances.
<PAGE>
ARTICLE III
Representations and Warranties
The Borrower represents and warrants to the Lenders that:
SECTION 3.01. Organization; Powers. Each of the Borrower and its
Restricted Subsidiaries is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization and has all requisite
power and authority to carry on its business as now conducted. Each of the
Borrower and its Restricted Subsidiaries is qualified to do business in, and is
in good standing in, every jurisdiction where such qualification is required,
except where the failure to be so qualified or in good standing, individually or
in the aggregate, could not reasonably be expected to result in a Material
Adverse Effect.
SECTION 3.02. Authorization; Enforceability. The Transactions are
within the Borrower's corporate powers and have been duly authorized by all
necessary corporate and, if required, stockholder action. This Agreement has
been duly executed and delivered by the Borrower and constitutes a legal, valid
and binding obligation of the Borrower, enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
or other laws affecting creditors' rights generally and subject to general
principles of equity, regardless of whether considered in a proceeding in equity
or at law.
SECTION 3.03. Governmental Approvals; No Conflicts. The Transactions
(a) do not require any consent or approval of, registration or filing with, or
any other action by, any Governmental Authority, except such as have been
obtained or made and are in full force and effect, (b) will not violate any
applicable law or regulation or the charter, by-laws or other organizational
documents of the Borrower or any of its Restricted Subsidiaries or any order of
any Governmental Authority, (c) will not violate or result in a default under
any indenture or material agreement or other instrument binding upon the
Borrower or any of its Restricted Subsidiaries or its assets, or give rise to a
right thereunder to require any payment to be made by the Borrower or any of its
Restricted Subsidiaries, and (d) will not result in the creation or imposition
of any Lien on any asset of the Borrower or any of its Restricted Subsidiaries.
SECTION 3.04. Financial Condition; No Material Adverse Change. (a) The
Borrower has heretofore furnished to the Lenders the balance sheet and
statements of income, stockholders equity and cash flows of the Borrower and its
Restricted Subsidiaries on a consolidated basis (i) as of and for the fiscal
year ended March 31, 1996 reported on by Arthur Andersen LLP, independent public
accountants, and (ii) as of and for the fiscal quarter and the portion of the
fiscal year ended September 30, 1996, certified by its chief financial officer.
Such financial statements present fairly, in all material respects, the
financial condition and results of operations and cash flows of the Borrower and
its Restricted Subsidiaries on a consolidated basis as of such dates and for
such periods in accordance with GAAP, subject to year-end audit adjustments and
the absence of footnotes in the case of the statements referred to in clause
(ii) above.
<PAGE>
(b) Since September 30, 1996, there has been no material adverse
change in the business, assets, operations, prospects or condition, financial or
otherwise, of the Borrower and its Restricted Subsidiaries, taken as a whole.
SECTION 3.05. Properties. (a) Each of the Borrower and its Restricted
Subsidiaries has good title to, or valid leasehold interests in, all its real
and personal property material to its business, except for minor defects in
title that do not interfere with its ability to conduct its business as
currently conducted or to utilize such properties for their intended purposes.
(b) Each of the Borrower and its Restricted Subsidiaries owns, or is
licensed to use, all trademarks, tradenames, service marks, copyrights, patents
and other intellectual property material to its business, and the use thereof by
the Borrower and its Restricted Subsidiaries does not infringe upon the rights
of any other Person, except for any such infringements that, individually or in
the aggregate, could not reasonably be expected to result in a Material Adverse
Effect.
SECTION 3.06. Litigation and Environmental Matters. (a) There are no
actions, suits or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of the Borrower, threatened
against or affecting the Borrower or any of its Restricted Subsidiaries (i) that
could reasonably be expected, individually or in the aggregate, to result in a
Material Adverse Effect (other than the Disclosed Matters) or (ii) that involve
this Agreement or the Transactions.
(b) Except for the Disclosed Matters and except with respect to any
other matters that, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect, neither the Borrower nor any of
its Restricted Subsidiaries (i) has failed to comply with any Environmental Law
or to obtain, maintain or comply with any permit, license or other approval
required under any Environmental Law, (ii) has become subject to any
Environmental Liability, (iii) has received notice of any claim with respect to
any Environmental Liability or (iv) knows of any basis for any Environmental
Liability.
(c) Since the date of this Agreement, there has been no change in the
status of the Disclosed Matters that, individually or in the aggregate, has
resulted in, or materially increased the likelihood of, a Material Adverse
Effect.
SECTION 3.07. Compliance with Laws and Agreements. Each of the
Borrower and its Restricted Subsidiaries is in compliance with all laws,
regulations and orders of any Governmental Authority applicable to it or its
property and all indentures, agreements and other instruments binding upon it or
its property, except where the failure to do so, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect. No Default has occurred and is continuing.
SECTION 3.08. Investment and Holding Company Status. Neither the
Borrower nor any of its Restricted Subsidiaries is (a) an "investment company"
as defined in, or subject to
<PAGE>
regulation under, the Investment Company Act of 1940 (other than any Restricted
Subsidiary which is not subject to regulation under such statute as a result of
an exemption therefrom) or (b) a "holding company" as defined in, or subject to
regulation under, the Public Utility Holding Company Act of 1935.
SECTION 3.09. Taxes. Each of the Borrower and its Restricted
Subsidiaries has timely filed or caused to be filed all Tax returns and reports
required to have been filed and has paid or caused to be paid all Taxes required
to have been paid by it, except (a) Taxes that are being contested in good faith
by appropriate proceedings and for which the Borrower or such Restricted
Subsidiary, as applicable, has set aside on its books adequate reserves in
accordance with GAAP or (b) to the extent that the failure to do so could not
reasonably be expected to result in a Material Adverse Effect.
SECTION 3.10. ERISA. No ERISA Event has occurred or is reasonably
expected to occur that, when taken together with all other such ERISA Events for
which liability is reasonably expected to occur, could reasonably be expected to
result in a Material Adverse Effect. The present value of all accumulated
benefit obligations under each Plan (based on the assumptions used for purposes
of Statement of Financial Accounting Standards No. 87) did not, as of the date
of the most recent financial statements reflecting such amounts, exceed by more
than $10,000,000 the fair market value of the assets of such Plan, and the
present value of all accumulated benefit obligations of all underfunded Plans
(based on the assumptions used for purposes of Statement of Financial Accounting
Standards No. 87) did not, as of the date of the most recent financial
statements reflecting such amounts, exceed by more than $10,000,000 the fair
market value of the assets of all such underfunded Plans.
SECTION 3.11. Disclosure. The Borrower has disclosed to the Lenders
all agreements, instruments and corporate or other restrictions to which it or
any of its Restricted Subsidiaries is subject, and all other matters known to
it, that, individually or in the aggregate, could reasonably be expected to
result in a Material Adverse Effect. None of the reports, financial statements,
certificates or other information furnished by or on behalf of the Borrower to
the Administrative Agent or any Lender in connection with the negotiation of
this Agreement or delivered hereunder (as modified or supplemented by other
information so furnished) contains any material misstatement of fact or omits to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided that,
with respect to projected financial information, the Borrower represents only
that such information was prepared in good faith based upon assumptions believed
to be reasonable at the time; and provided further that with respect to
information about third parties the Borrower represents only that it has no
actual knowledge that such information is inaccurate or misleading.
SECTION 3.12. Federal Reserve Regulations. (a) Neither the Borrower
nor any of the Restricted Subsidiaries is engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying Margin Stock.
(b) No part of the proceeds of any Loan will be used, whether directly
or indirectly, and whether immediately, incidentally or ultimately, (i) to
purchase or carry Margin
<PAGE>
Stock or to extend credit to others for the purpose of purchasing or carrying
Margin Stock or to refund indebtedness originally incurred for such purpose, or
(ii) in any event, for any purpose which entails a violation of, or is
inconsistent with, the provisions of the Regulations of the Board, including
Regulation G, U or X.
ARTICLE IV
Conditions
SECTION 4.01. Effective Date. The obligations of the Lenders to make
Loans hereunder shall not become effective until the date on which each of the
following conditions is satisfied (or waived in accordance with Section 9.02):
(a) The Administrative Agent (or its counsel) shall have received from
each party hereto either (i) a counterpart of this Agreement signed on
behalf of such party or (ii) written evidence satisfactory to the
Administrative Agent (which may include telecopy transmission of a signed
signature page of this Agreement) that such party has signed a counterpart
of this Agreement.
(b) The Administrative Agent shall have received a favorable written
opinion (addressed to the Administrative Agent and the Lenders and dated
the Effective Date) of Pitney, Hardin, Kipp & Szuch and of Alan Langus,
counsel for the Borrower, substantially in the form of Exhibit B, and
covering such other matters relating to the Borrower, this Agreement or the
Transactions as the Required Lenders shall reasonably request. The Borrower
hereby requests such counsel to deliver such opinion.
(c) The Administrative Agent shall have received such documents and
certificates as the Administrative Agent or its counsel may reasonably
request relating to the organization, existence and good standing of the
Borrower, the authorization of the Transactions and any other legal matters
relating to the Borrower, this Agreement or the Transactions, all in form
and substance satisfactory to the Administrative Agent and its counsel.
(d) The Administrative Agent shall have received a certificate, dated
the Effective Date and signed by the President, a Vice President or a
Financial Officer of the Borrower, confirming compliance with the
conditions set forth in paragraphs (a) and (b) of Section 4.02.
(e) The Administrative Agent shall have received all fees and other
amounts due and payable on or prior to the Effective Date, including, to
the extent invoiced, reimbursement or payment of all out-of-pocket expenses
required to be reimbursed or paid by the Borrower hereunder.
<PAGE>
(f) The Administrative Agent and each Lender shall have received (i) a
Borrowing Base Certificate prepared by the Borrower and reasonably
satisfactory to the Administrative Agent and showing the Borrowing Base as
of the close of business on November 30, 1996, and (ii) such other
supporting documentation and additional reports with respect to the
Borrowing Base as the Administrative Agent shall reasonably request in
writing prior to the Closing Date.
The Administrative Agent shall notify the Borrower and the Lenders of the
Effective Date, and such notice shall be conclusive and binding. Notwithstanding
the foregoing, the obligations of the Lenders to make Loans hereunder shall not
become effective unless each of the foregoing conditions is satisfied (or waived
pursuant to Section 9.02) at or prior to 3:00 p.m., New York City time, on
January 31, 1997 (and, in the event such conditions are not so satisfied or
waived, the Commitments shall terminate at such time).
SECTION 4.02. Each Credit Event. The obligation of each Lender to make
a Loan on the occasion of any Borrowing is subject to the satisfaction of the
following conditions:
(a) The representations and warranties of the Borrower set forth in
this Agreement shall be true and correct in all material respects on and as
of the date of such Borrowing.
(b) At the time of and immediately after giving effect to such
Borrowing, no Default shall have occurred and be continuing.
Each Borrowing shall be deemed to constitute a representation and warranty by
the Borrower on the date thereof as to the matters specified in paragraphs (a)
and (b) of this Section.
ARTICLE V
Affirmative Covenants
Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall have
been paid in full, the Borrower covenants and agrees with the Lenders that:
<PAGE>
SECTION 5.01. Financial Statements and Other Information. The Borrower
will furnish to the Administrative Agent and each Lender:
(a) within 90 days after the end of each fiscal year of the Borrower,
(i) a copy of the audited consolidated balance sheet of the Borrower and
its Restricted Subsidiaries on a consolidated basis and the related
statements of operations, stockholders' equity and cash flows, as of the
end of and for such year, setting forth in each case in comparative form
the figures as of the end of and for the previous fiscal year, all reported
on by Arthur Andersen LLP or other independent public accountants of
recognized national standing (without a "going concern" or like
qualification or exception and without any qualification or exception as to
the scope of such audit) to the effect that such consolidated financial
statements present fairly in all material respects the financial condition
and results of operations of the Borrower and its Restricted Subsidiaries
on a consolidated basis in accordance with GAAP consistently applied and
(ii) a letter from such independent public accountants certifying that
during the course of their audit nothing came to their attention that would
indicate that the Borrowing Base Certificate, if any, relating to the last
day of such fiscal year is inaccurate in any material respect;
(b) within 60 days after the end of each of the first three fiscal
quarters of each fiscal year of the Borrower, a copy of the unaudited
consolidated balance sheet of the Borrower and its Restricted Subsidiaries
on a consolidated basis and the related statements of operations,
stockholders' equity and cash flows, as of the end of and for such fiscal
quarter and the then elapsed portion of the fiscal year, setting forth in
each case in comparative form the figures for the corresponding period or
periods of (or, in the case of the balance sheet, as of the end of) the
previous fiscal year, all certified by one of its Financial Officers as
presenting fairly in all material respects the financial condition and
results of operations of the Borrower and its Restricted Subsidiaries on a
consolidated basis in accordance with GAAP consistently applied, subject to
normal year-end audit adjustments and the absence of footnotes;
(c) concurrently with any delivery of financial statements under
clause (a) or (b) above, a certificate of a Financial Officer (i)
certifying as to whether a Default has occurred and, if a Default has
occurred, specifying the details thereof and any action taken or proposed
to be taken with respect thereto; (ii) setting forth reasonably detailed
calculations demonstrating compliance with Section 6.09; (iii) stating
whether any change in GAAP or in the application thereof has occurred since
the date of the audited financial statements referred to in Section 3.04
and, if any such change has occurred, specifying the effect of such change
on the financial statements accompanying such certificate; and (iv) setting
forth the aggregate amount of all Warehouse Facilities and the aggregate
portions thereof provided on a committed and on an uncommitted basis;
(d) concurrently with any delivery of financial statements under
clause (a) above, a certificate of the accounting firm that reported on
such financial statements stating whether they obtained knowledge during
the course of their examination of such financial
<PAGE>
statements of any Default (which certificate may be limited to the extent
required by accounting rules or guidelines);
(e) promptly after the same become publicly available, copies of all
periodic and other reports, proxy statements and other materials filed by
the Borrower or any Restricted Subsidiary with the Securities and Exchange
Commission, or any Governmental Authority succeeding to any or all of the
functions of said Commission, or with any national securities exchange, as
the case may be;
(f) promptly following any request therefor, such other information
regarding the operations, business affairs and financial condition of the
Borrower or any Restricted Subsidiary, or compliance with the terms of this
Agreement, as the Administrative Agent, on its own behalf or on behalf of
any Lender, may reasonably request;
(g) unless the Index Debt is Investment Grade, not later than 12:00
noon, New York City time, on the fifteenth Business Day of each month, (i)
a Borrowing Base Certificate showing the Borrowing Base as of the close of
business on the last day of the immediately preceding month, each such
certificate to be certified by a Financial Officer as complete and correct
in all material respects and (ii) such other supporting documentation and
additional reports with respect to the Borrowing Base as the Administrative
Agent shall from time to time reasonably request; and
(h) immediately upon (i) any revaluation, or any event that under GAAP
would require a revaluation, in either case resulting from a change in
assumptions, performance or valuation methodology or any other circumstance
not arising in the ordinary course of the Borrower's business, of the
Excess Spread Receivables on a aggregate basis on a balance sheet required
to be delivered under clause (a) or (b) above, a certificate of a Financial
Officer describing such revaluation and the reasons therefor and (ii)
notice of any change of the rating of any Index Debt.
SECTION 5.02. Notices of Material Events. The Borrower will furnish to
the Administrative Agent and each Lender prompt written notice of the following:
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or proceeding by or
before any arbitrator or Governmental Authority against or affecting the
Borrower or any Affiliate thereof that could reasonably be expected to
result in a Material Adverse Effect;
(c) the occurrence of any ERISA Event that, alone or together with any
other ERISA Events that have occurred, could reasonably be expected to
result in liability of the Borrower and its Restricted Subsidiaries in an
aggregate amount exceeding $5,000,000; and
<PAGE>
(d) any other development that results in, or could reasonably be
expected to result in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of
a Financial Officer or other executive officer of the Borrower setting forth the
details of the event or development requiring such notice and any action taken
or proposed to be taken with respect thereto.
SECTION 5.03. Existence; Conduct of Business. The Borrower will, and
will cause each of its Restricted Subsidiaries to, do or cause to be done all
things necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges and franchises material
to the conduct of its business; provided that the foregoing shall not prohibit
(a) any merger, consolidation, liquidation or dissolution permitted under
Section 6.03 or (b) any Asset Disposition permitted under Section 6.04.
SECTION 5.04. Payment of Obligations. The Borrower will, and will
cause each of its Restricted Subsidiaries to, pay its obligations, including Tax
liabilities, that, if not paid, could reasonably be expected to result in a
Material Adverse Effect before the same shall become delinquent or in default,
except where (a) the validity or amount thereof is being contested in good faith
by appropriate proceedings, (b) the Borrower or such Restricted Subsidiary has
set aside on its books adequate reserves with respect thereto in accordance with
GAAP and (c) the failure to make payment pending such contest could not
reasonably be expected to result in a Material Adverse Effect.
SECTION 5.05. Maintenance of Properties; Insurance. The Borrower will,
and will cause each of its Restricted Subsidiaries to, (a) keep and maintain all
property material to the conduct of its business in good working order and
condition, ordinary wear and tear excepted, and (b) maintain, with financially
sound and reputable insurance companies, insurance in such amounts and against
such risks as are customarily maintained by companies engaged in the same or
similar businesses operating in the same or similar locations.
SECTION 5.06. Books and Records; Inspection and Audit Rights. (a) The
Borrower will, and will cause each of its Restricted Subsidiaries to, keep
proper books of record and account in which full, true and correct entries are
made of all dealings and transactions in relation to its business and
activities. The Borrower will, and will cause each of its Restricted
Subsidiaries to, permit any representatives designated by the Administrative
Agent or any Lender, upon reasonable prior notice, to visit and inspect its
properties, to examine and make extracts from its books and records, and to
discuss its affairs, finances and condition with officers of the Borrower and
its independent accountants, all at such reasonable times and as often as
reasonably requested; provided that any such discussions with such independent
accountants pursuant to this paragraph shall be held no more than once in any
fiscal year unless (and shall be at the sole cost and expense of the Borrower
if) a Default shall have occurred and be continuing. If the Borrower so elects,
on any visit or inspection or during any discussion pursuant to this Section,
such designated representatives shall be accompanied by one or more
representatives of the Borrower.
<PAGE>
(b) At any time upon the request of the Administrative Agent made with
reasonable prior notice, the Borrower will permit the Administrative Agent or
professionals (including investment bankers, consultants, accountants, lawyers
and appraisers) retained by the Administrative Agent to conduct evaluations and
appraisals of (i) the Borrower's practices in the computation of the Borrowing
Base and (ii) the assets included in the Borrowing Base, and will pay the
reasonable fees and expenses in connection therewith; provided that such persons
shall be entitled to conduct such evaluations and appraisals only if (x) a
Default has occurred and is continuing or (y) the Administrative Agent, or the
Required Lenders through the Administrative Agent, determines that a Material
Adverse Effect has occurred since the Effective Date.
SECTION 5.07. Compliance with Laws. The Borrower will, and will cause
each of its Restricted Subsidiaries to, comply with all laws, rules, regulations
and orders of any Governmental Authority applicable to it or its property,
except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
SECTION 5.08. Use of Proceeds. The proceeds of the Loans will be used
only for general corporate and liquidity purposes. No part of the proceeds of
any Loan will be used, whether directly or indirectly, for any purpose that
entails a violation of any of the Regulations of the Board, including
Regulations G, U and X.
ARTICLE VI
Negative Covenants
Until the Commitments have expired or terminated and the principal of
and interest on each Loan and all fees payable hereunder have been paid in full,
the Borrower covenants and agrees with the Lenders that:
SECTION 6.01. Limitation on Indebtedness and Preferred Stock of
Restricted Subsidiaries. The Borrower will not permit any Restricted Subsidiary
to Incur, or permit to exist with respect to any Restricted Subsidiary, directly
or indirectly, any Indebtedness or Preferred Stock except:
(a) Permitted Warehouse Indebtedness;
(b) Indebtedness or Preferred Stock issued to and held by the Borrower
or a Wholly Owned Subsidiary; provided, however, that any subsequent
issuance or transfer of any Capital Stock which results in any such Wholly
Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent
transfer of such Indebtedness or Preferred Stock (other than to the
Borrower or a Wholly Owned Subsidiary) shall be deemed, in each case, to
constitute the issuance of Indebtedness or Preferred Stock by the issuer
thereof;
<PAGE>
(c) Indebtedness or Preferred Stock of a Subsidiary Incurred and
outstanding on or prior to the date on which such Subsidiary was acquired
by the Borrower (other than Indebtedness or Preferred Stock Incurred in
connection with, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Subsidiary became a Subsidiary or was
acquired by the Borrower);
(d) Indebtedness or Preferred Stock outstanding on the date hereof and
set forth in Schedule 6.01 (other than Indebtedness described in clause
(a), (b) or (c) of this Section); and
(e) Refinancing Indebtedness Incurred in respect of Indebtedness or
Preferred Stock referred to in clause (c) or (d) of this Section or this
clause (e); provided, however, that to the extent such Refinancing
Indebtedness directly or indirectly Refinances Indebtedness or Preferred
Stock of a Subsidiary described in clause (c) of this Section, such
Refinancing Indebtedness shall be Incurred only by such Subsidiary.
SECTION 6.02. Limitation on Liens. The Borrower will not, and will not
permit any Subsidiary to, Incur or permit to exist any Lien on any of its
properties (including Capital Stock of a Restricted Subsidiary), whether owned
on the date hereof or thereafter acquired, or on any income or revenues or
rights in respect of any thereof, or assign or transfer any income or revenues
or rights in respect thereof except:
(a) pledges or deposits by such Person under worker's compensation
laws, unemployment insurance laws or similar legislation, or good faith
deposits in connection with bids, tenders, contracts (other than for the
payment of Indebtedness) or leases to which such Person is a party, or
deposits to secure public or statutory obligations of such Person or
deposits of cash or United States government bonds to secure surety or
appeal bonds to which such Person is a party, or deposits as security for
contested taxes or import duties or for the payment of rent, in each case
Incurred in the ordinary course of business;
(b) Liens imposed by law, such as carriers', warehousemen's and
mechanics' Liens, in each case for sums not yet due or being contested in
good faith by appropriate proceedings or other Liens arising out of
judgments or awards against such Person with respect to which such Person
shall then be proceeding with an appeal or other proceedings for review;
(c) Liens for property taxes not yet subject to penalties for
non-payment or which are being contested in good faith and by appropriate
proceedings;
(d) Liens in favor of issuers of surety bonds or letters of credit
issued pursuant to the request of and for the account of such Person in the
ordinary course of its business; provided, however, that such letters of
credit do not constitute Indebtedness;
<PAGE>
(e) minor survey exceptions, minor encumbrances, easements or
reservations of, or rights of others for, licenses, rights of way, sewers,
electric lines, telegraph and telephone lines and other similar purposes,
or zoning or other restrictions as to the use of real property or Liens
incidental to the conduct of the business of such Person or to the
ownership of its properties which were not Incurred in connection with
Indebtedness and which do not in the aggregate materially adversely affect
the value of said properties or materially impair their use in the
operation of the business of such Person;
(f) Liens securing Indebtedness Incurred to finance the construction,
purchase or lease of, or repairs, improvements or additions to, property,
plant or equipment of such Person (and in any event excluding Capital Stock
of another Person); provided, however, that the Lien may not extend to any
other asset owned by such Person or any of its Subsidiaries at the time the
Lien is Incurred, and the Indebtedness secured by the Lien may not be
Incurred more than 180 days after the later of the acquisition, completion
of construction, repair, improvement, addition or commencement of full
operation of the property subject to the Lien;
(g) Liens on Performance Deposits and any Receivables or other assets
referred to in clause (ii)(A) of the definition of Permitted Warehouse
Indebtedness, in each case owned by the Borrower or a Restricted
Subsidiary, as the case may be, to secure Permitted Warehouse Indebtedness;
(h) Liens on Excess Spread Receivables (or on the Capital Stock of any
Subsidiary of such Person substantially all the assets of which are Excess
Spread Receivables); provided, however, that (I)(A) any such Liens shall
not pertain to any Excess Spread Receivable existing on the date hereof,
which, if created thereafter, would have been an Eligible Excess Spread
Receivable unless such Excess Spread Receivable was subject to a Lien on
such date created by the Borrower in respect of the financing thereof (a
"predecessor Lien"); provided further, however, that in the case of any
such Liens (a "subsequent Lien") on Excess Spread Receivables which were
subject to predecessor Liens, the sum of (1) the aggregate book value of
subordinated interests created and retained by the Borrower or its
Restricted Subsidiaries as a result of the sale or financing associated
with such subsequent Liens and (2) the aggregate book value of any Excess
Spread Receivables which were subject to predecessor Liens but which are
then no longer subject to any Lien (other than permitted Liens described
under another clause of this Section) shall equal at least the aggregate
book value at such time of all such Excess Spread Receivables which are
then subject to subsequent Liens, as calculated immediately prior to the
creation of each such subsequent Lien, multiplied by a fraction the
numerator of which is the aggregate book value of the subordinated
interests associated with all predecessor Liens on the date hereof, and the
denominator of which is the sum of (1) such aggregate book value of such
subordinated interests and (2) the outstanding balance on the date hereof,
of the related senior interests; and (B) any such Lien on any Eligible
Excess Spread Receivables shall extend to Eligible Excess Spread
Receivables representing no more than 50% of the amount of Eligible Excess
Spread Receivables shown on the balance sheet of the Borrower and its
Restricted Subsidiaries on a
<PAGE>
consolidated basis, determined and consolidated in accordance with GAAP, as
of the later of (x) the date hereof and (y) the end of the most recent
fiscal quarter of the Borrower prior to the creation of such Lien for which
financial statements are available; and (II) for purposes of this clause
(h), any Lien on the Capital Stock of any Person substantially all the
assets of which are Excess Spread Receivables shall be treated as a Lien on
the Excess Spread Receivables of such Person;
(i) Liens existing on the date hereof and listed on Schedule 6.02;
(j) Liens on property or shares of Capital Stock of another Person at
the time such other Person becomes a Subsidiary of such Person; provided,
however, that such Liens are not created, incurred or assumed in connection
with, or in contemplation of, such other Person becoming such a Subsidiary;
provided further, however, that such Lien may not extend to any other
property owned by such Person or any of its Subsidiaries;
(k) Liens on property at the time such Person or any of its
Subsidiaries acquires the property, including any acquisition by means of a
merger or consolidation with or into such Person or a Subsidiary of such
Person; provided, however, that such Liens are not created, incurred or
assumed in connection with, or in contemplation of, such acquisition;
provided further, however, that the Liens may not extend to any other
property owned by such Person or any of its Subsidiaries;
(l) Liens securing Indebtedness or other obligations of a Subsidiary
of such Person owing to such Person or a Restricted Subsidiary of such
Person;
(m) Liens (other than on any Excess Spread Receivables) securing
Hedging Agreements; and
(n) Liens to secure any Refinancing (or successive Refinancings) as a
whole, or in part, of any Indebtedness secured by any Lien referred to in
the foregoing clauses (f), (i), (j) and (k); provided, however, that (x)
such new Lien shall be limited to all or part of the same property that
secured the original Indebtedness (plus improvements to or on such
property) and (y) the Indebtedness secured by such Lien at such time is not
increased to any amount greater than the sum of (A) the outstanding
principal amount or, if greater, committed amount of the Indebtedness
described under the foregoing clauses (f), (i), (j) or (k), as the case may
be, at the time the original Lien became a Lien permitted by this Section
and (B) an amount necessary to pay any fees and expenses, including
premiums, related to such refinancing, refunding, extension, renewal or
replacement.
Notwithstanding the foregoing, clauses (f), (j) or (k) above will be
deemed to exclude any Lien to the extent such Lien applies to any Additional
Assets acquired directly or indirectly with Net Available Cash pursuant to
Section 6.04.
<PAGE>
SECTION 6.03. Limitation on Mergers and Consolidations. The Borrower
will not consolidate with or merge with or into, or convey, transfer or lease,
in one transaction or a series of related transactions, all or substantially all
its assets to, any Person, unless:
(a) the Borrower shall be the surviving Person of any such
transaction;
(b) immediately after giving effect to such transaction, no Default
shall have occurred and be continuing;
(c) immediately after giving effect to such transaction, the Successor
Company shall have Consolidated Net Worth in an amount which is not less
than Consolidated Net Worth immediately prior to such transaction; and
(d) the Borrower shall have delivered to the Administrative Agent a
certificate, signed by two executive officers, and an opinion of counsel,
each stating that such consolidation, merger or transfer comply with this
Agreement.
Notwithstanding the foregoing clauses (b) and (c), any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to the Borrower or a Wholly Owned Subsidiary.
SECTION 6.04. Limitation on Sales of Assets and Subsidiary Stock. The
Borrower will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, consummate any sale, lease, transfer or other disposition (or series
of related sales, leases, transfers or dispositions) by the Borrower or any
Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of this
definition as an "Asset Disposition"), of:
(a) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares or shares required by applicable law to be
held by a Person other than the Borrower or a Restricted Subsidiary);
(b) all or substantially all the assets of any division or line of
business of the Borrower or any Restricted Subsidiary;
(c) any other assets of the Borrower or any Restricted Subsidiary
outside of the ordinary course of business of the Borrower or such
Restricted Subsidiary;
(d) any Investment in a Strategic Alliance Client; or
(e) any Excess Spread Receivables;
other than, in the case of (a), (b), (c), (d) and (e) above, (x) an Asset
Disposition by a Restricted Subsidiary to the Borrower or by the Borrower or a
Restricted Subsidiary to a Restricted Subsidiary or (y) an Asset Disposition
(including related assets) for an aggregate consideration of
<PAGE>
$1,000,000 or less, unless (i) the Borrower or such Restricted Subsidiary
receives consideration at the time of such Asset Disposition at least equal to
the fair market value (including the value of all non-cash consideration), as
determined in good faith by the Board of Directors, of the shares and assets
subject to such Asset Disposition and at least 85% of the consideration therefor
received by the Borrower or such Restricted Subsidiary is in the form of cash or
cash equivalents and (ii) an amount equal to 100% of the Net Available Cash from
such Asset Disposition is applied by the Borrower (or such Restricted
Subsidiary, as the case may be) (A) to the extent the Borrower elects, to
acquire Additional Assets, either directly or through a Restricted Subsidiary,
within 180 days from the later of the date of such Asset Disposition or the
receipt of such Net Available Cash, and (B) to the extent of the balance of such
Net Available Cash after application in accordance with clause (A), to
permanently reduce the Commitments in accordance with Section 2.07 and to make
any prepayments required by such Section in connection with such reduction.
Notwithstanding the foregoing provisions of this Section, the Borrower
and the Restricted Subsidiaries shall not be required to apply any Net Available
Cash in accordance with this Section except to the extent that the aggregate Net
Available Cash from all Asset Dispositions which has not been applied in
accordance with this paragraph exceeds $10,000,000. Pending application of Net
Available Cash pursuant to this Section, such Net Available Cash shall be
applied (i) to prepay outstanding Loans and (ii) to the extent of the excess of
Net Available Cash over the principal amount of outstanding Loans, in Permitted
Investments.
SECTION 6.05. Limitation on Loans and Investments. (a) The Borrower
will not, and will not permit any of its Restricted Subsidiaries to, purchase,
hold or acquire (including pursuant to any merger with any Person that was not a
Wholly Owned Subsidiary prior to such merger) any Capital Stock, evidences of
indebtedness or other securities (including any option, warrant or other right
to acquire any of the foregoing) of, make or permit to exist any loans or
advances to, Guarantee any obligations of, or make or permit to exist any
investment or any other interest in, any other Person, or purchase or otherwise
acquire (in one transaction or a series of transactions) any assets of any other
Person constituting a business unit, except:
(i) Permitted Investments;
(ii) Investments by the Borrower or any Restricted Subsidiary in a
Restricted Subsidiary or a Person that will, upon the making of such
Investment, become a Restricted Subsidiary; provided, however, that the
primary business of such Restricted Subsidiary is a Related Business;
(iii) a Strategic Alliance Client to the extent such Investment
consists of options, warrants or other securities that are convertible or
exchangeable for equity securities of such Strategic Alliance Client and is
received by the Borrower or a Restricted Subsidiary without the payment of
any consideration other than the concurrent provision by the Borrower or
such Restricted Subsidiary to such Strategic Alliance Client of financing
or asset securitization expertise on terms determined by the Borrower to be
fair and reasonable to the Borrower or such Restricted Subsidiary from a
financial point of view
<PAGE>
without taking into consideration any value that may inhere in such option,
warrant or convertible or exchangeable security;
(iv) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all
or substantially all its assets to, the Borrower or a Restricted
Subsidiary; provided, however, that such Person's primary business is a
Related Business;
(v) receivables owing to the Borrower or any Restricted Subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; (vi) payroll,
travel and similar advances to cover matters that are expected at the time
of such advances ultimately to be treated as expenses for accounting
purposes and that are made in the ordinary course of business; (vii) loans
or advances to employees in the ordinary course of business in accordance
with the past practices of the Borrower or such Restricted Subsidiary, but
in any event not to exceed $10,000,000 in aggregate principal amount
outstanding at any one time;
(viii) stock, obligations or securities received in settlement of
debts created in the ordinary course of business and owing to the Borrower
or any Restricted Subsidiary or in satisfaction of judgments;
(ix) any Person to the extent such Investment represents the non-cash
portion of the consideration received for an Asset Disposition;
(x) Receivables;
(xi) a Strategic Alliance Client to the extent such Investment
consists of (A) Indebtedness of such Strategic Alliance Client that is
secured by Receivables owned by such Strategic Alliance Client in an
aggregate principal amount at any time outstanding not to exceed the
aggregate market value of such Receivables; provided, however, that such
Receivables are eligible to be characterized under GAAP as held for sale on
the balance sheet of such Strategic Alliance Client and such Indebtedness
has not been outstanding in excess of 364 days; and (B) Indebtedness of
such Strategic Alliance Client that is secured by Excess Spread Receivables
owned by such Strategic Alliance Client; provided, however, that such
Excess Spread Receivables are attributed solely to one or more "pools" of
Receivables that were securitized in one or more transactions in which the
Borrower or its Restricted Subsidiaries either acted as underwriters or
placement agent or provided all or a portion of the financing for such
"pool" prior to such securitization; and
(xii) Excess Spread Receivables; provided, however, that such Excess
Spread Receivables represent interests in one or more "pools" of
Receivables that were securitized in one or more transactions in which the
Borrower or its Restricted Subsidiaries acted as
<PAGE>
sponsor, underwriter or placement agent or provided all or a portion of the
financing for such "pool" prior to such securitization.
(b) The Borrower will not, and will not permit any of its Restricted
Subsidiaries to, enter into any Hedging Agreement, other than Hedging Agreements
entered into in the ordinary course of business to hedge or mitigate risks to
which the Borrower or any Restricted Subsidiary or any Strategic Alliance Client
is exposed in the conduct of its business or the management of its liabilities;
provided that, in the case of Hedging Agreements relating to a Strategic
Alliance Client, (i) such Hedging Agreements are not for speculative purposes of
the Borrower or any Restricted Subsidiary and (ii) such Strategic Alliance
Client is contractually obligated to make the Borrower or such Restricted
Subsidiary whole for any loss suffered thereby in connection therewith.
SECTION 6.06. Limitation on Affiliate Transactions. (a) The Borrower
will not, and will not permit any of its Restricted Subsidiaries to, sell, lease
or otherwise transfer any property or assets to, or purchase, lease or otherwise
acquire any property or assets from, or otherwise engage in any other
transactions with, any of its Affiliates (an "Affiliate Transaction") unless the
terms thereof (i) are no less favorable to the Borrower or such Restricted
Subsidiary than those that could be obtained at the time of such transaction in
arm's-length dealings with a Person who is not such an Affiliate, (ii) if such
Affiliate Transaction involves an amount in excess of $2,000,000 (or the
equivalent amount in any foreign currency) (x) are set forth in writing and (y)
have been approved by a majority of the members of the Board of Directors having
no personal stake in such Affiliate Transaction and (iii) if such Affiliate
Transaction involves an amount in excess of $10,000,000 (or the equivalent
amount in any foreign currency), have been determined by a nationally recognized
investment banking firm to be fair, from a financial standpoint, to the Borrower
and its Restricted Subsidiaries.
(b) The provisions of Section 6.06(a) shall not prohibit (i) any
Permitted Investment, (ii) any issuance of securities, or other payments, awards
or grants in cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, stock options and stock ownership plans approved by the
Board of Directors, (iii) the grant of stock options or similar rights to
employees and directors of the Borrower pursuant to plans approved by the Board
of Directors, (iv) loans or advances to employees in the ordinary course of
business in accordance with the past practices of the Borrower or its Restricted
Subsidiaries, but in any event not to exceed $10,000,000 (or the equivalent
amount in any foreign currency) in aggregate principal amount outstanding at any
one time, (v) the payment of reasonable fees to directors of the Borrower and
its Restricted Subsidiaries who are not employees of the Borrower or its
Restricted Subsidiaries, (vi) any Affiliate Transaction between the Borrower and
a Restricted Subsidiary or between consolidated Restricted Subsidiaries (in each
case other than any Restricted Subsidiary that is an "affiliate" (as such term
is defined in the Exchange Act) of any Affiliate (other than any Restricted
Subsidiary) of the Borrower and (vii) transactions pursuant to any agreement as
in existence as of the date hereof and set forth in Schedule 6.06 between the
Borrower or its Restricted Subsidiaries and Continental Grain or one of its
subsidiaries.
SECTION 6.07. Limitation on Restrictions on Distributions from
Restricted Subsidiaries. The Borrower will not, and will not permit any
Restricted Subsidiary to, directly or
<PAGE>
indirectly, enter into, incur or permit to exist any agreement or other
arrangement that prohibits, restricts or imposes any condition upon (a) the
ability of the Borrower or any Restricted Subsidiary to create, incur or permit
to exist any Lien upon any of its property or assets or (b) the ability of any
Restricted Subsidiary to pay dividends or make any other distributions on its
Capital Stock to the Borrower or a Restricted Subsidiary or pay any Indebtedness
owed to the Borrower, to make any loans or advances to the Borrower or a
Restricted Subsidiary or to Guarantee Indebtedness of or to transfer any of its
property or assets to the Borrower or any other Restricted Subsidiary that owns
Capital Stock therein; provided that the foregoing shall not apply to (i)
restrictions and conditions imposed by law or by this Agreement; (ii) any
encumbrance or restriction pursuant to an agreement in effect at or entered into
on the date hereof identified on Schedule 6.07 (but shall apply to any extension
or renewal of, or any amendment or modification expanding the scope of, any such
restriction or condition); (iii) any encumbrance or restriction with respect to
a Restricted Subsidiary pursuant to an agreement applicable to such Restricted
Subsidiary on or prior to the date on which such Restricted Subsidiary was
acquired by the Borrower (other than an agreement entered into in connection
with, or in anticipation of, the transaction or series of related transactions
pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or
was acquired by the Borrower) and outstanding on such date; (iv) any such
encumbrance or restriction consisting of customary non-assignment provisions in
leases governing leasehold interests to the extent such provisions restrict the
transfer of the lease or the property leased thereunder; (v) in the case of a
Restricted Subsidiary transferring any of its property or assets to the
Borrower, restrictions contained in security agreements or mortgages securing
Indebtedness of a Restricted Subsidiary to the extent such restrictions restrict
the transfer of the property subject to such security agreements or mortgages;
and (vi) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition; provided further that clause
(a) of the foregoing shall not apply to restrictions or conditions imposed by
any agreement relating to secured Indebtedness permitted by this Agreement if
such restrictions or conditions apply only to the property or assets securing
such Indebtedness.
SECTION 6.08. Limitation on Investment Company Status. The Borrower
will not take any action, or otherwise permit to exist any circumstance, that
would require the Borrower to register as an "investment company" under the
Investment Company Act of 1940.
SECTION 6.09. Financial Covenants. (a) Consolidated Net Worth shall
not at any time be less than (i) $325,000,000 plus (ii) an amount equal to 75%
of the aggregate of positive Consolidated Net Income (without deduction for
quarterly losses) for each fiscal quarter which begins after September 30, 1996,
and ends prior to the date for which compliance with this Section is being
determined.
(b) The Consolidated Leverage Ratio will not at any time exceed 2.50
to 1.00.
(c) The Consolidated Interest Coverage Ratio for the Rolling Period
shall at no time be less than 1.50 to 1.00.
<PAGE>
SECTION 6.10. Limitation on Business of the Borrower. The Borrower
will not engage at any time in any business or business activity other than the
business currently conducted by it and Related Business.
ARTICLE VII
Events of Default
If any of the following events ("Events of Default") shall occur:
(a) the Borrower shall fail to pay any principal of any Loan when and
as the same shall become due and payable, whether at the due date thereof
or at a date fixed for prepayment thereof or otherwise;
(b) the Borrower shall fail to pay any interest on any Loan or any fee
or any other amount (other than an amount referred to in clause (a) of this
Article) payable under this Agreement, when and as the same shall become
due and payable, and such failure shall continue unremedied for a period of
three days;
(c) any representation or warranty made or deemed made by or on behalf
of the Borrower or any Restricted Subsidiary in or in connection with this
Agreement or any amendment or modification hereof or waiver hereunder, or
in any report, certificate, financial statement or other document furnished
pursuant to or in connection with this Agreement or any amendment or
modification hereof or waiver hereunder, shall prove to have been
materially incorrect when made or deemed made;
(d) the Borrower shall fail to observe or perform any covenant,
condition or agreement contained in Section 5.02, 5.03 (with respect to the
Borrower's existence) or 5.08 or in Article VI;
(e) the Borrower shall fail to observe or perform any covenant,
condition or agreement contained in this Agreement (other than those
specified in clause (a), (b) or (d) of this Article), and such failure
shall continue unremedied for a period of 30 days after notice thereof from
the Administrative Agent to the Borrower (which notice will be given at the
request of any Lender);
(f) the Borrower or any Restricted Subsidiary shall fail to make any
payment (whether of principal or interest and regardless of amount) in
respect of any Material Indebtedness, when and as the same shall become due
and payable;
(g) any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or that enables
or permits (with or without the giving of notice, the lapse of time or
both) the holder or holders of any Material Indebtedness or any trustee or
agent on its or their behalf to cause any Material Indebtedness to become
due, or to require the prepayment, repurchase, redemption or
<PAGE>
defeasance thereof, prior to its scheduled maturity; provided that this
clause (g) shall not apply to secured Indebtedness that becomes due as a
result of the permitted voluntary sale or transfer of the property or
assets securing such Indebtedness;
(h) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed seeking (i) liquidation, reorganization or other
relief in respect of the Borrower or any Restricted Subsidiary or its
debts, or of a substantial part of its assets, under any Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or
hereafter in effect or (ii) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for the Borrower
or any Restricted Subsidiary or for a substantial part of its assets, and,
in any such case, such proceeding or petition shall continue undismissed
for 60 days or an order or decree approving or ordering any of the
foregoing shall be entered;
(i) the Borrower or any Restricted Subsidiary shall (i) voluntarily
commence any proceeding or file any petition seeking liquidation,
reorganization or other relief under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in
effect, (ii) consent to the institution of, or fail to contest in a timely
and appropriate manner, any proceeding or petition described in clause (h)
of this Article, (iii) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official
for the Borrower or any Restricted Subsidiary or for a substantial part of
its assets, (iv) file an answer admitting the material allegations of a
petition filed against it in any such proceeding, (v) make a general
assignment for the benefit of creditors or (vi) take any action for the
purpose of effecting any of the foregoing;
(j) the Borrower or any Restricted Subsidiary shall become unable,
admit in writing or fail generally to pay its debts as they become due;
(k) one or more judgments for the payment of money in an aggregate
amount not covered by insurance in excess of $5,000,000 (or the equivalent
amount in any foreign currency) shall be rendered against the Borrower, any
Restricted Subsidiary or any combination thereof and the same shall remain
undischarged for a period of 60 consecutive days during which execution
shall not be effectively stayed, or any action shall be legally taken by a
judgment creditor to attach or levy upon any assets of the Borrower or any
Restricted Subsidiary to enforce any such judgment;
(l) an ERISA Event shall have occurred that, in the opinion of the
Required Lenders, when taken together with all other ERISA Events that have
occurred, could reasonably be expected to result in liability of the
Borrower and its Restricted Subsidiaries in an aggregate amount exceeding
(i) $5,000,000 for any fiscal year of the Borrower or (ii) $10,000,000 for
all periods; or
(m) a Change in Control shall occur;
<PAGE>
then, and in every such event (other than an event with respect to the Borrower
described in clause (h) or (i) of this Article), and at any time thereafter
during the continuance of such event, the Administrative Agent may, and at the
request of the Required Lenders shall, by notice to the Borrower, take either or
both of the following actions, at the same or different times: (i) terminate the
Commitments, and thereupon the Commitments shall terminate immediately, and (ii)
declare the Loans then outstanding to be due and payable in whole (or in part,
in which case any principal not so declared to be due and payable may thereafter
be declared to be due and payable), and thereupon the principal of the Loans so
declared to be due and payable, together with accrued interest thereon and all
fees and other obligations of the Borrower accrued hereunder, shall become due
and payable immediately, without presentment, demand, protest or other notice of
any kind, all of which are hereby waived by the Borrower; and in case of any
event with respect to the Borrower described in clause (h) or (i) of this
Article, the Commitments shall automatically terminate and the principal of the
Loans then outstanding, together with accrued interest thereon and all fees and
other obligations of the Borrower accrued hereunder, shall automatically become
due and payable, without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Borrower.
ARTICLE VIII
The Administrative Agent
Subject to the further provisions hereof, each of the Lenders hereby
irrevocably appoints the Administrative Agent as its agent and authorizes the
Administrative Agent to take such actions on its behalf and to exercise such
powers as are delegated to the Administrative Agent by the terms hereof,
together with such actions and powers as are reasonably incidental thereto.
The bank serving as the Administrative Agent hereunder shall have the
same rights and powers in its capacity as a Lender as any other Lender and may
exercise the same as though it were not the Administrative Agent, and such bank
and its Affiliates may accept deposits from, lend money to and generally engage
in any kind of business with the Borrower or any Restricted Subsidiary or other
Affiliate thereof as if it were not the Administrative Agent hereunder.
The Administrative Agent shall not have any duties or obligations
except those expressly set forth herein. Without limiting the generality of the
foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or
other implied duties, regardless of whether a Default has occurred and is
continuing, (b) the Administrative Agent shall not have any duty to take any
discretionary action or exercise any discretionary powers, except discretionary
rights and powers expressly contemplated hereby that the Administrative Agent is
required to exercise in writing by the Required Lenders (or such other number or
percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 9.02), and (c) except as expressly set forth herein, the
Administrative Agent shall not have any duty to disclose, and shall not be
liable for the failure to disclose, any information relating to the Borrower or
any of its Restricted Subsidiaries that is communicated to or obtained by the
bank serving as Administrative Agent or any of its Affiliates
<PAGE>
in any capacity. The Administrative Agent shall not be liable for any action
taken or not taken by it with the consent or at the request of the Required
Lenders (or such other number or percentage of the Lenders as shall be necessary
under the circumstances as provided in Section 9.02) or in the absence of its
own gross negligence or wilful misconduct. The Administrative Agent shall be
deemed not to have knowledge of any Default unless and until written notice
thereof is given to the Administrative Agent by the Borrower or a Lender, and
the Administrative Agent shall not be responsible for or have any duty to
ascertain or inquire into (i) any statement, warranty or representation made in
or in connection with this Agreement, (ii) the contents of any certificate,
report or other document delivered hereunder or in connection herewith, (iii)
the performance or observance of any of the covenants, agreements or other terms
or conditions set forth herein, (iv) the validity, enforceability, effectiveness
or genuineness of this Agreement or any other agreement, instrument or document,
or (v) the satisfaction of any condition set forth in Article IV or elsewhere
herein, other than to confirm receipt of items expressly required to be
delivered to the Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and shall not
incur any liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person. The Administrative Agent
also may rely upon any statement made to it orally or by telephone and believed
by it to be made by the proper Person, and shall not incur any liability for
relying thereon. The Administrative Agent may consult with legal counsel (who
shall be counsel for the Borrower, internal counsel for the Administrative Agent
or a Lender, or a nationally recognized law firm), nationally recognized
independent accountants and other experts selected by it, and shall not be
liable for any action taken or not taken by it in accordance with the advice of
any such counsel, accountants or experts.
The Administrative Agent may perform any and all its duties and
exercise its rights and powers by or through any one or more sub-agents
appointed (after consultation with the Borrower) by the Administrative Agent.
The Administrative Agent and any such sub-agent may perform any and all its
duties and exercise its rights and powers through their respective Related
Parties. The exculpatory provisions of the preceding paragraphs shall apply to
any such sub-agent and to the Related Parties of the Administrative Agent and
any such sub-agent, and shall apply to their respective activities in connection
with the syndication of the credit facilities provided for herein as well as
activities as Administrative Agent.
Subject to the appointment and acceptance of a successor
Administrative Agent as provided in this paragraph, the Administrative Agent may
resign at any time by notifying the Lenders and the Borrower. Upon any such
resignation, the Required Lenders shall have the right, in consultation with the
Borrower, to appoint a successor. If no successor shall have been so appointed
by the Required Lenders and shall have accepted such appointment within 30 days
after the retiring Administrative Agent gives notice of its resignation, then
the retiring Administrative Agent may, on behalf of the Lenders, appoint a
successor Administrative Agent which shall be a bank. Upon the acceptance of its
appointment as Administrative Agent hereunder by a successor, such successor
shall succeed to and become vested with all the rights, powers, privileges and
duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be
<PAGE>
discharged from its duties and obligations hereunder. The fees payable by the
Borrower to a successor Administrative Agent shall be the same as those payable
to its predecessor unless otherwise agreed between the Borrower and such
successor. After the Administrative Agent's resignation hereunder, the
provisions of this Article and Section 9.03 shall continue in effect for the
benefit of such retiring Administrative Agent, its sub-agents and their
respective Related Parties in respect of any actions taken or omitted to be
taken by any of them while it was acting as Administrative Agent.
Each Lender acknowledges that it has, independently and without
reliance upon the Administrative Agent or any other Lender and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement,
any related agreement or any document furnished hereunder or thereunder.
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices. Except in the case of notices and other
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to the Borrower, to it at ContiFinancial Corporation, 277 Park
Avenue, New York, New York 10172, Attention of Chief Counsel and of
Director of Corporate Finance (Telecopy No. (212) 207-2935);
(b) if to the Administrative Agent, to Credit Suisse First Boston,
Eleven Madison Avenue (Telecopy No. (212) 325-8228), Attention of Diane
Albanese;
(c) if to the Swingline Lender, to it at Dresdner Bank AG, New York
and Grand Cayman Branches, 75 Wall Street, Attention of Claudia Zoy
(Telecopy No. (212) 429-2130); and
(d) if to any other Lender, to it at its address (or telecopy number)
set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other
<PAGE>
communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
SECTION 9.02. Waivers; Amendments. (a) No failure or delay by the
Administrative Agent or any Lender in exercising any right or power hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further exercise thereof or
the exercise of any other right or power. The rights and remedies of the
Administrative Agent and the Lenders hereunder are cumulative and are not
exclusive of any rights or remedies that they would otherwise have. No waiver of
any provision of this Agreement or consent to any departure by the Borrower
therefrom shall in any event be effective unless the same shall be permitted by
paragraph (b) of this Section, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
Without limiting the generality of the foregoing, the making of a Loan shall not
be construed as a waiver of any Default, regardless of whether the
Administrative Agent or any Lender may have had notice or knowledge of such
Default at the time.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Borrower and the Required Lenders or by the Borrower and the
Administrative Agent with the consent of the Required Lenders; provided that no
such agreement shall (i) increase the Commitment of any Lender without the
written consent of such Lender, (ii) reduce or forgive the principal amount of
any Loan or reduce the rate of interest thereon, or reduce any fees payable
hereunder, without the written consent of each Lender, (iii) postpone the
scheduled date of payment of the principal amount of any Loan or any interest
thereon, or any fees payable hereunder, or amend the definition of "Maturity
Date", or reduce the amount of, waive or excuse any such payment, or postpone
the scheduled date of expiration of any Commitment, without the written consent
of each Lender affected thereby, (iv) change Section 2.16(b) or (c) in a manner
that would alter the pro rata sharing of payments required thereby, without the
written consent of each Lender, or (v) change any of the provisions of this
Section or the definition of "Required Lenders" or any other provision hereof
specifying the number or percentage of Lenders required to waive, amend or
modify any rights hereunder or make any determination or grant any consent
hereunder, without the written consent of each Lender; provided further that no
such agreement shall (i) increase any advance rate used in calculating the
Borrowing Base or otherwise change the computation of the Borrowing Base or the
definition of any constituent component of the Borrowing Base, without the prior
written consent of Lenders representing 80% of the aggregate Commitments or (ii)
amend, modify or otherwise affect the rights or duties of the Administrative
Agent or the Swingline Lender hereunder without the prior written consent of the
Administrative Agent or the Swingline Lender, as the case may be.
SECTION 9.03. Expenses; Indemnity; Damage Waiver. (a) The Borrower
shall pay (i) all reasonable out-of-pocket expenses incurred by the
Administrative Agent and its Affiliates and the Swingline Lender and its
Affiliates, including the reasonable fees, charges and disbursements of counsel
for the Administrative Agent and the Swingline Lender, in connection with the
syndication of the credit facilities provided for herein, the preparation and
administration
<PAGE>
of this Agreement or any amendments, modifications or waivers of the provisions
hereof (whether or not the transactions contemplated hereby or thereby shall be
consummated) and (ii) all reasonable out-of-pocket expenses incurred by the
Administrative Agent or any Lender, including the fees, charges and
disbursements of any counsel for the Administrative Agent or any Lender, in
connection with the enforcement or protection of its rights in connection with
this Agreement, including its rights under this Section, or in connection with
the Loans made hereunder, including all such reasonable out-of-pocket expenses
incurred during any workout, restructuring or negotiations in respect of such
Loans.
(b) The Borrower shall indemnify the Administrative Agent and each
Lender, and each Related Party of any of the foregoing Persons (each such Person
being called an "Indemnitee") against, and hold each Indemnitee harmless from,
any and all losses, claims, damages, liabilities and related expenses, including
the fees, charges and disbursements of any counsel for any Indemnitee, incurred
by or asserted against any Indemnitee arising out of, in connection with, or as
a result of (i) the execution or delivery of this Agreement or any agreement or
instrument contemplated hereby, the performance by the parties hereto of their
respective obligations hereunder or the consummation of the Transactions or any
other transactions contemplated hereby, (ii) any Loan or the use of the proceeds
therefrom, (iii) any actual or alleged presence or release of Hazardous
Materials on or from any property owned or operated by the Borrower or any of
its Restricted Subsidiaries, or any Environmental Liability related in any way
to the Borrower or any of its Restricted Subsidiaries, or (iv) any actual or
prospective claim, litigation, investigation or proceeding relating to any of
the foregoing, whether based on contract, tort or any other theory and
regardless of whether any Indemnitee is a party thereto; provided that such
indemnity shall not, as to any Indemnitee, be available to the extent that such
losses, claims, damages, liabilities or related expenses have resulted from the
gross negligence or wilful misconduct of such Indemnitee.
(c) To the extent that the Borrower fails to pay any amount required
to be paid by it to the Administrative Agent, or the Swingline Lender under
paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the
Administrative Agent or the Swingline Lender, as the case may be, such Lender's
Applicable Percentage (determined as of the time that the applicable
unreimbursed expense or indemnity payment is sought) of such unpaid amount;
provided that the unreimbursed expense or indemnified loss, claim, damage,
liability or related expense, as the case may be, was incurred by or asserted
against the Administrative Agent or the Swingline Lender in its capacity as
such.
(d) To the extent permitted by applicable law, no party shall assert,
and each party hereby waives, any claim against any Indemnitee, on any theory of
liability, for special, indirect, consequential or punitive damages (as opposed
to direct or actual damages) arising out of, in connection with, or as a result
of, this Agreement or any agreement or instrument contemplated hereby, the
Transactions, any Loan or the use of the proceeds thereof; provided that this
Section 9.03(d) shall in no way limit the rights of any Lender under Section
2.13, 2.14 or 2.15.
(e) All amounts due under this Section shall be payable not later than
10 days after written demand therefor.
<PAGE>
SECTION 9.04. Successors and Assigns. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns permitted hereby, except that the
Borrower may not assign or otherwise transfer any of its rights or obligations
hereunder without the prior written consent of each Lender (and any attempted
assignment or transfer by the Borrower without such consent shall be null and
void). Nothing in this Agreement, expressed or implied, shall be construed to
confer upon any Person (other than the parties hereto, their respective
successors and assigns permitted hereby and, to the extent expressly
contemplated hereby, the Related Parties of each of the Administrative Agent and
the Lenders) any legal or equitable right, remedy or claim under or by reason of
this Agreement.
(b) Any Lender may assign to one or more assignees all or a portion of
its rights and obligations under this Agreement (including all or a portion of
its Commitment and the Loans at the time owing to it); provided that (i) except
in the case of an assignment to a Lender or an Affiliate of a Lender, each of
the Borrower and the Administrative Agent (and, in the case of an assignment of
all or a portion of a Commitment or any Lender's obligations in respect of its
Swingline Exposure, the Swingline Lender) must give their prior written consent
to such assignment (which consent shall not be unreasonably withheld), (ii)
except in the case of an assignment to a Lender or an Affiliate of a Lender or
an assignment of the entire remaining amount of the assigning Lender's
Commitment, the amount of the Commitment of the assigning Lender subject to each
such assignment (determined as of the date the Assignment and Acceptance with
respect to such assignment is delivered to the Administrative Agent) shall be an
aggregate amount that is an integral multiple of $1,000,000 and not less than
$10,000,000 unless each of the Borrower and the Administrative Agent otherwise
consent, (iii) each partial assignment shall be made as an assignment of a
proportionate part of all the assigning Lender's rights and obligations under
this Agreement, (iv) the parties to each assignment shall execute and deliver to
the Administrative Agent an Assignment and Acceptance, together with a
processing and recordation fee of $3,500, and (v) the assignee, if it shall not
be a Lender, shall deliver to the Administrative Agent an Administrative
Questionnaire; and provided further that any consent of the Borrower otherwise
required under this paragraph shall not be required if an Event of Default under
clause (h) or (i) of Article VII has occurred and is continuing. Subject to
acceptance and recording thereof pursuant to paragraph (d) of this Section, from
and after the effective date specified in each Assignment and Acceptance the
assignee thereunder shall be a party hereto and, to the extent of the interest
assigned by such Assignment and Acceptance, have the rights and obligations of a
Lender under this Agreement, and the assigning Lender thereunder shall, to the
extent of the interest assigned by such Assignment and Acceptance, be released
from its obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all of the assigning Lender's rights and obligations under
this Agreement, such Lender shall cease to be a party hereto but shall continue
to be entitled to the benefits of (and therefore shall be treated as a Lender
for purposes of determing entitlement to the benefits of) Sections 2.13, 2.14,
2.15 and 9.03). Any assignment or transfer by a Lender of rights or obligations
under this Agreement that does not comply with this paragraph shall be treated
for purposes of this Agreement as a sale by such Lender of a participation in
such rights and obligations in accordance with paragraph (e) of this Section.
<PAGE>
(c) The Administrative Agent, acting for this purpose as an agent of
the Borrower, shall maintain at one of its offices in The City of New York a
copy of each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Commitment of,
and principal amount of the Loans owing to, each Lender pursuant to the terms
hereof from time to time (the "Register"). The entries in the Register shall be
conclusive, and the Borrower, the Administrative Agent and the Lenders may treat
each Person whose name is recorded in the Register pursuant to the terms hereof
as a Lender hereunder for all purposes of this Agreement, notwithstanding notice
to the contrary. The Register shall be available for inspection by the Borrower
and any Lender, at any reasonable time and from time to time upon reasonable
prior notice.
(d) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, the assignee's completed
Administrative Questionnaire (unless the assignee shall already be a Lender
hereunder), the processing and recordation fee referred to in paragraph (b) of
this Section and any written consent to such assignment required by paragraph
(b) of this Section, the Administrative Agent shall accept such Assignment and
Acceptance and record the information contained therein in the Register. No
assignment shall be effective for purposes of this Agreement unless it has been
recorded in the Register as provided in this paragraph.
(e) Any Lender may, without the consent of the Borrower, the
Administrative Agent or the Swingline Lender, sell participations to one or more
banks or other entities (a "Participant") in all or a portion of such Lender's
rights and obligations under this Agreement (including all or a portion of its
Commitment and the Loans owing to it); provided that (i) such Lender's
obligations under this Agreement shall remain unchanged, (ii) such Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations and (iii) the Borrower, the Administrative Agent and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement. Any
agreement or instrument pursuant to which a Lender sells such a participation
shall provide that such Lender shall retain the sole right to enforce this
Agreement and to approve any amendment, modification or waiver of any provision
of this Agreement; provided that such agreement or instrument may provide that
such Lender will not, without the consent of the Participant, agree to any
amendment, modification or waiver described in the first proviso to Section
9.02(b) that affects such Participant. Subject to paragraph (f) of this Section,
the Borrower agrees that each Participant shall be entitled to the benefits of
Sections 2.13, 2.14 and 2.15 to the same extent as if it were a Lender and had
acquired its interest by assignment pursuant to paragraph (b) of this Section.
To the extent permitted by law, each Participant also shall be entitled to the
benefits of Section 9.08 as though it were a Lender, provided such Participant
agrees to be subject to Section 2.16(c) as though it were a Lender.
(f) A Participant shall not be entitled to receive any greater payment
under Section 2.13 or 2.15 than the applicable Lender would have been entitled
to receive with respect to the participation sold to such Participant, unless
the sale of the participation to such Participant is made with the Borrower's
prior written consent. A Participant that would be a Foreign Lender if it were a
Lender shall not be entitled to the benefits of Section 2.15 unless the Borrower
is
<PAGE>
notified of the participation sold to such Participant and such Participant
agrees, for the benefit of the Borrower, to comply with Section 2.15(e) as
though it were a Lender.
(g) Any Lender may at any time pledge or assign a security interest in
all or any portion of its rights under this Agreement to secure obligations of
such Lender, including any pledge or assignment to secure obligations to a
Federal Reserve Bank, and this Section shall not apply to any such pledge or
assignment of a security interest; provided that no such pledge or assignment of
a security interest shall release a Lender from any of its obligations hereunder
or substitute any such pledgee or assignee for such Lender as a party hereto.
SECTION 9.05. Survival. All covenants, agreements, representations and
warranties made by the Borrower herein and in the certificates or other
instruments delivered in connection with or pursuant to this Agreement shall be
considered to have been relied upon by the other parties hereto and shall
survive the execution and delivery of this Agreement and the making of any
Loans, regardless of any investigation made by any such other party or on its
behalf and notwithstanding that the Administrative Agent or any Lender may have
had notice or knowledge of any Default or incorrect representation or warranty
at the time any credit is extended hereunder, and shall continue in full force
and effect as long as the principal of or any accrued interest on any Loan or
any fee or any other amount payable under this Agreement is outstanding and
unpaid and so long as the Commitments have not expired or terminated. The
provisions of Sections 2.13, 2.14, 2.15 and 9.03 and Article VIII shall survive
and remain in full force and effect regardless of the consummation of the
transactions contemplated hereby, the repayment of the Loans, the expiration or
termination of the Commitments or the termination of this Agreement or any
provision hereof.
SECTION 9.06. Counterparts; Integration; Effectiveness. This Agreement
may be executed in counterparts (and by different parties hereto on different
counterparts), each of which shall constitute an original, but all of which when
taken together shall constitute a single contract. This Agreement and any
separate letter agreements with respect to fees payable to the Administrative
Agent constitute the entire contract among the parties relating to the subject
matter hereof and supersede any and all previous agreements and understandings,
oral or written, relating to the subject matter hereof. Except as provided in
Section 4.01, this Agreement shall become effective when it shall have been
executed by the Administrative Agent and when the Administrative Agent shall
have received counterparts hereof which, when taken together, bear the
signatures of each of the other parties hereto, and thereafter shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Delivery of an executed counterpart of a signature page
of this Agreement by telecopy shall be effective as delivery of a manually
executed counterpart of this Agreement.
SECTION 9.07. Severability. Any provision of this Agreement held to be
invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
<PAGE>
SECTION 9.08. Right of Setoff. If an Event of Default shall have
occurred and be continuing, each Lender and each of its Affiliates is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other obligations at any time
owing by such Lender or Affiliate to or for the credit or the account of the
Borrower against any of and all the obligations of the Borrower now or hereafter
existing under this Agreement held by such Lender, irrespective of whether or
not such Lender shall have made any demand under this Agreement and although
such obligations may be unmatured. The rights of each Lender under this Section
are in addition to other rights and remedies (including other rights of setoff)
which such Lender may have. Any Lender that has set off and applied any amount
pursuant to this Section 9.08 shall thereafter provide notice to the Borrower
describing such set-off and application; provided, however, that the failure to
provide such notice shall not affect the validity of such set-off or
application.
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of
Process. (a) This Agreement shall be construed in accordance with and governed
by the law of the State of New York (without prejudice to the provisions of
Section 5-1401 of the General Obligations Law of the State of New York,
excluding such State's principles of conflicts of law).
(b) The Borrower hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of the Supreme Court
of the State of New York sitting in New York County and of the United States
District Court of the Southern District of New York, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in such New
York State or, to the extent permitted by law, in such Federal court. Each of
the parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement shall
affect any right that the Administrative Agent or any Lender may otherwise have
to bring any action or proceeding relating to this Agreement against the
Borrower or its properties in the courts of any jurisdiction.
(c) The Borrower hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement in any court referred to in
paragraph (b) of this Section. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 9.01. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
<PAGE>
SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 9.11. Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
SECTION 9.12. Confidentiality. Each of the Administrative Agent and
the Lenders agrees to maintain the confidentiality of the Information (as
defined below), except that Information may be disclosed (a) to its Affiliates
and to its and their directors, officers, employees and agents, including
accountants, legal counsel and other advisors (it being understood that the
Persons to whom such disclosure is made will be informed of the confidential
nature of such Information and instructed to keep such Information confidential)
solely for use in connection with this Agreement and the transactions
contemplated hereby and the performance by the parties hereunder, (b) to the
extent requested by any regulatory authority, (c) to the extent required by
applicable laws or regulations or by any subpoena or similar legal process, (d)
to any other party to this Agreement, (e) in connection with the exercise of any
remedies hereunder or any suit, action or proceeding relating to this Agreement
or the enforcement of rights hereunder, (f) subject to an agreement containing
provisions substantially the same as those of this Section, to any assignee of
or Participant in, or any prospective assignee of or Participant in, any of its
rights or obligations under this Agreement, (g) with the consent of the Borrower
or (h) to the extent such Information (i) becomes publicly available other than
as a result of a breach of this Section or (ii) becomes available to the
Administrative Agent or any Lender on a nonconfidential basis from a source
other than the Borrower. For the purposes of this Section, "Information" means
all information received from the Borrower or a Subsidiary relating to any of
the Borrower or a Restricted Subsidiary or its business, other than any such
information that is available to the Administrative Agent or any Lender on a
nonconfidential basis prior to disclosure by the Borrower or such Subsidiary.
Any Person required to maintain the confidentiality of Information as provided
in this Section shall be considered to have complied with its obligation to do
so if such Person has exercised the same degree of care to maintain the
confidentiality of such Information as such Person would accord to its own
confidential information. The Lenders agree that the rights of the Borrower
under this Section shall be enforceable by specific performance.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
CONTIFINANCIAL CORPORATION,
by
/s/: James E. Moore
-------------------
Name: James E. Moore
Title: President and Chief Executive and Authorized Signatory
/s/: Jerome M. Perelson
-----------------------
Name: Jerome M. Perelson
Title: Senior Vice President and Chief Financial Officer and
Authorized Signatory
<PAGE>
CREDIT SUISSE FIRST BOSTON,
NEW YORK BRANCH,
as Administrative Agent,
by
/s/: J. Colgan
--------------
Name: J. Colgan
Title: Vice President
/s/: Ira Lubinsky
-----------------
Name: Ira Lubinsky
Title: Associate
CREDIT SUISSE FIRST BOSTON,
NEW YORK BRANCH, as a Lender,
by
/s/: J. Colgan
--------------
Name: J. Colgan
Title: Vice President
/s/: Ira Lubinsky
-----------------
Name: Ira Lubinsky
Title: Associate
<PAGE>
DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES,
as a Lender and as
Swingline Lender,
by
/s/: William M. Coulter
-----------------------
Name: William M. Coulter
Title: Vice President
by
/s/: Craig D. Meisner
---------------------
Name: Craig D. Meisner
Title: Vice President
<PAGE>
THE BANK OF NEW YORK,
by
/s/: Robert A. Tweed
--------------------
Name: Robert A. Tweed
Title: Vice President
<PAGE>
CORESTATES BANK, N.A.,
by
/s/: Andrew Tauber
------------------
Name: Andrew Tauber
Title: Vice President
<PAGE>
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA,
by
/s/: Peter G. Perna
-------------------
Name: Peter G. Perna
Title: Vice President
<PAGE>
SOCIETE GENERALE,
by
/s/: Karel Vasak
----------------
Name: Karel Vasak
Title: Vice President and Senior
Relationship Director
<PAGE>
COMERICA BANK,
by
/s/: N. Donald Heath
--------------------
Name: N. Donald Heath
Title: Vice President
<PAGE>
DEUTSCHE BANK AG, NEW YORK
AND/OR CAYMAN ISLANDS BRANCHES,
by
/s/: Gayma Z. Shivnarain
------------------------
Name: Gayma Z. Shivnarain
Title: Vice President
by
/s/: Dale F. Oberst
-------------------
Name: Dale F. Oberst
Title: Associate
<PAGE>
DG BANK DEUTSCHE
GENOSSENSCHAFTSBANK, CAYMAN
ISLAND BRANCH,
by
/s/: Karen A. Brinkman
----------------------
Name: Karen A. Brinkman
Title: Vice President
by
/s/: Robert B. Herber
---------------------
Name: Robert B. Herber
Title: Vice President
<PAGE>
THE BANK OF NOVA SCOTIA,
by
/s/: Stephen Lockhart
---------------------
Name: Stephen Lockhart
Title: Vice President
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH,
by
/s/: Robert Ivosevich
---------------------
Name: Robert Ivosevich
Title: Senior Vice President
<PAGE>
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK,
by
/s/: Seija K. Hurskainen
------------------------
Name: Seija K. Hurskainen
Title: Vice President
<PAGE>
PNC BANK, NATIONAL ASSOCIATION,
by
/s/: Kirk Seagers
-----------------
Name: Kirk Seagers
Title: Assistant Vice President
<PAGE>
THE SUMITOMO BANK, LIMITED,
NEW YORK BRANCH,
by
/s/: John C. Kissinger
----------------------
Name: John C. Kissinger
Title: Joint General Manager
<PAGE>
SCHEDULE 2.01
Contact Person, Address and
Name of Lender Telephone and Telecopy Numbers Commitment
- -------------- ------------------------------ ----------
Credit Suisse First Boston, Diane Albanese $20,000,000
New York Branch 11 Madison Avenue
New York, NY 10010
Tel: (212) 325-9935
Fax: (212) 238-5073
Dresdner Bank AG, New York William M. Coulter $20,000,000
and Grand Cayman Branches 75 Wall Street
New York, NY 10005
Tel: (212) 429-4160
Fax: (212) 429-4170
The Bank of New York Robert A. Tweed $15,000,000
One Wall Street
New York, NY 10286
Tel: (212) 635-6465
Fax: (212) 635-6468
CoreStates Bank, N.A. Andrew Tauber $15,000,000
John White
Helen Wessling
1339 Chestnut Street
Philadelphia, PA 19107-3579
Tel: (215) 786-4367
Fax: (215) 786-8304
First Union National Bank Peter G. Perna $15,000,000
of North Carolina 301 S. College Street DC-6
Charlotte, NC 28288-0166
Tel: (704) 383-1946
Fax: (704) 374-7102
Societe Generale Michelle Vensel $15,000,000
Matthew Blesso
<PAGE>
1221 Avenue of the Americas
New York, NY 10020
Tel: (212) 278-6425/6882
Fax: (212) 278-7462
Comerica Bank Von Ringger $15,000,000
500 Woodward Avenue MC 3256
Detroit, MI 48226
Tel: (313) 222-9285
Fax: (313) 222-9295
Deutsche Bank AG, New York Dale Oberst $15,000,000
and/or Cayman Islands 31 West 52nd Street
Branches New York, NY 10019
Tel: (212) 469-8667
Fax: (212) 469-8108
DG Bank Deutsche Robert B. Herber $15,000,000
Genossenschaftsbank, 609 Fifth Avenue
Cayman Island Branch New York, NY 10017
Tel: (212) 745-1581
Fax: (212) 745-1556/1550
The Bank of Nova Scotia Alan Reiter $15,000,000
One Liberty Plaza, 26th Floor
New York, NY 10006
Tel: (212) 225-5028
Fax: (212) 225-5090
Credit Lyonnais Andrea Griffis $10,000,000
New York Branch NY Corporate Group A
1301 Avenue of the Americas
New York, NY 10019
Tel: (212) 261-7325
Fax: (212) 459-3179
<PAGE>
Morgan Guaranty Trust Seija K. Hurskainen $10,000,000
Company of New York 60 Wall Street
New York, NY 10260-0060
Tel: (212) 648-3201
Fax: (212) 648-5249
PNC Bank National Robert Bjorhus $10,000,000
Association 1600 Market Street
Philadelphia, PA 19103
Tel: (215) 585-6872
Fax: (215) 585-7615
The Sumitomo Bank, Betsy A. Sprenkle $10,000,000
Limited, New York Branch 277 Park Avenue, 6th Floor
New York, NY 10172
Tel: (212) 224-4154
Fax: (212) 224-5188
Total Commitment $200,000,000
<PAGE>
EXHIBIT A
FORM OF
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement dated as of January 7, 1997
(as amended and in effect on the date hereof, the "Credit Agreement"), among the
ContiFinancial Corporation, the Lenders named therein and Credit Suisse First
Boston, New York Branch, as Administrative Agent for the Lenders. Terms defined
in the Credit Agreement are used herein with the same meanings.
The Assignor named on the reverse hereof hereby sells and assigns,
without recourse, to the Assignee named on the reverse hereof, and the Assignee
hereby purchases and assumes, without recourse, from the Assignor, effective as
of the Assignment Date set forth on the reverse hereof, the interests set forth
on the reverse hereof (the "Assigned Interest") in the Assignor's rights and
obligations under the Credit Agreement, including, without limitation, the
interests set forth on the reverse hereof in the Commitment of the Assignor on
the Assignment Date and Revolving Loans owing to the Assignor which are
outstanding on the Assignment Date, together with the participations in
Swingline Loans held by the Assignor on the Assignment Date, but excluding
accrued interest and fees to and excluding the Assignment Date. The Assignee
hereby acknowledges receipt of a copy of the Credit Agreement. From and after
the Assignment Date (i) the Assignee shall be a party to and be bound by the
provisions of the Credit Agreement and, to the extent of the Assigned Interest,
have the rights and obligations of a Lender thereunder and (ii) the Assignor
shall, to the extent of the Assigned Interest, relinquish its rights and be
released from its obligations under the Credit Agreement.
This Assignment and Acceptance is being delivered to the
Administrative Agent together with (i) if the Assignee is a Foreign Lender, any
documentation required to be delivered by the Assignee pursuant to Section
2.15(e) of the Credit Agreement, duly completed and executed by the Assignee,
and (ii) if the Assignee is not already a Lender under the Credit Agreement, an
Administrative Questionnaire in the form supplied by the Administrative Agent,
duly completed by the Assignee. The [Assignee/Assignor] shall pay the fee
payable to the Administrative Agent pursuant to Section 9.04(b) of the Credit
Agreement.
This Assignment and Acceptance shall be governed by and construed in
accordance with the laws of the State of New York.
Date of Assignment:
Legal Name of Assignor:
Legal Name of Assignee:
Assignee's Address for Notices:
Effective Date of Assignment
("Assignment Date"):
Percentage Assigned of
<PAGE>
Facility/Commitment
(set forth, to at least
8 decimals, as a
percentage of the
Facility and the
aggregate Commitments
of all Lenders
Facility Principal Amount Assigned thereunder)
- -------- ------------------------- -----------
Commitment Assigned: $ %
Revolving Loans:
The terms set forth above and on the reverse side hereof are hereby agreed to:
[Name of Assignor], as Assignor
By: ________________________________
Name:
Title:
[Name of Assignee], as Assignee
By: ________________________________
Name:
Title:
The undersigned hereby consent to the within assignment:1
ContiFinancial Corporation, Credit Suisse First Boston, New
York Branch, Administrative Agent,
By: ____________________________ By: ________________________________
Name: Name:
Title: Title:
By: ____________________________ Dresdner Bank AG, New York and
Name: Grand Cayman Branches, as
Title: Swingline Lender,
By: _______________________________
Name:
Title:
- ----------
(1) Consents to be included to the extent required by Section 9.04(b) of the
Credit Agreement.
<PAGE>
EXHIBIT C
FORM OF
BORROWING BASE CERTIFICATE
To: The Lenders Party to
the Credit Agreement
This Borrowing Base Certificate is furnished pursuant to the Credit
Agreement dated as of January 7, 1997, among ContiFinancial Corporation (the
"Borrower"), the Lenders party thereto and Credit Suisse, as administrative
agent. Each capitalized term used and not otherwise defined herein shall have
the meaning assigned to it in the Credit Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am a duly elected Financial Officer of the Borrower;
2. I have reviewed the terms of the Credit Agreement and I have
made, or have caused to be made under my supervision, a detailed
review of the transactions and conditions of the Borrower and its
Restricted Subsidiaries during the period covered by the attached
form; and
3. The attached form sets forth data and computations required by
and complying with certain provisions of the Credit Agreement,
all of which data and computations are true, complete and correct
in all material respects.
The foregoing certification, together with the data and computations,
attached hereto is made and delivered this __ day of 19__.
CONTIFINANCIAL CORPORATION,
by _______________________________
Name:
Title:
<PAGE>
ContiFinancial Corporation
Attachment to Borrowing Base Certificate
Credit Agreement dated as of January 7, 1997
Borrowing Base data and computations as of __________, 19__
<TABLE>
<CAPTION>
Total Contribution to
Asset Amount Not Advance Borrowing Base
Category Less Than Rate (Total Amount x Advance Rate)
-------- --------- ---- -----------------------------
<S> <C> <C> <C>
Eligible Cash & Cash Equivalents $ 100% $
Eligible Receivables $ 95% $
Eligible Fixed Income Securities
Eligible I/O Strip Securities $ 85% $
Eligible Performance Deposits $ 80% $
Capitalized Servicing Fees $ 75% $
Eligible Residuals $ 65% $
-----------------
Subtotal: $
Outstanding Funded Indebtedness
($ )
-----------------
Subtotal: $
multiplied by 2
=================
Borrowing
Base Total: $
</TABLE>
ContiFinancial Corporation
Calculation of Earnings Per Share
Primary
Net Income
73,974,000
Weighted Average Shares
1st Quarter
2nd Quarter 43,898,281
3rd Quarter 43,914,518
Average 44,230,824
-----------
44,014,541
Year-to-date Primary EPS
-------------
$1.68
=============
Fully Dilutive
Net Income
73,974,000
Weighted Average Shares
1st Quarter
2nd Quarter 44,043,368
3rd Quarter 43,949,105
Average 44,282,407
-----------
44,091,627
Year-to-date Primary EPS
-------------
$1.68
=============
<PAGE>
Exhibit 11.2
ContiFinancial Corporation
Third Quarter F97
Fully Diluted
<TABLE>
<CAPTION>
Weighted
# of shares weighting Ave. Shares
----------- --------- -----------
<S> <C> <C> <C> <C>
Continental Grain Shares 35,918,421.00 100% 35,918,421
Shares Issued in IPO 7,130,000.00 100% 7,130,000
Shares Acquired through exercise of options 1,996.00 100% 1,996
Shares Aquired Through Accelerated Vesting 1,996.00 100% 1,996
Shares Aquired Through Accelerated Vesting 53,200.00 100% 53,200
Shares Aquired Through Accelerated Vesting -11/19/96 3,992.00 46% 1,836
Effect of Restricted Shares:
Effect through November 19, 1996
Assumed Proceeds:
Unamortized deferred comp. @ 11/19/96 18,167,370
--------------
Tax benefit on assumed exercise:
Total Restricted Shares 1,264,007
Market Price (11/19) 34.75
Value 43,924,243
===========
Tax Effect (40%) 17,569,697
Tax Effect of compensation 10,617,659
-----------
6,952,038.50
--------------
Total Assumed Proceeds 25,119,408.44
==============
Repurchase Shares on Market
Total Assumed Proceeds 25,119,408.44
Market Price (11/19) 34.750
--------------
Number of Shares 722,860.67
==============
Incremental Shares Considered to be Outstanding
Restricted Shares 1,264,007.00
Repurchase Shares 722,860.67
--------------
Incremental Shares 541,146.33 54.00% 292,219
==============
Effect from November 20,1996 to December 31, 1996
Unamortized deferred comp. @ 12/31/96 17,034,752
Tax benefit on assumed exercise:
Total Restricted Shares 1,239,549
Market Price (12/31) 36.125
-----------
Value 44,778,708
===========
Tax Effect (40%) 17,911,483
Tax Effect of compensation 10,412,212
-----------
7,499,271.45
--------------
Total Assumed Proceeds 24,534,023.39
==============
Repurchase Shares on Market
Total Assumed Proceeds 24,534,023.39
Market Price (12/31) 36.125
--------------
Number of Shares 679,142.52
==============
Incremental Shares Considered to be Outstanding
Restricted Shares 1,239,549.00
Repurchase Shares 679,142.52
--------------
Incremental Shares 560,406.48 46.000% 257,787
============== =======
Effect of Options:
Options Exercised:
none
Options Remaining:
Number of Options 2,505,980
Offering Price 21.11
-----------
Proceeds on exercising options 52,901,237.80
Tax Effect:
Options Exercised 2,505,980
Higher of Ave. Market Price (for quarter)
or ending mkt price 36.125
-----------
Estimated value 90,528,528
===========
Tax Effect (40%) 36,211,411
Tax Effect of compensation 21,160,495
-----------
15,050,915.88
--------------
Total Assumed Proceeds 67,952,153.68
==============
Repurchase Shares on Market
Total Assumed Proceeds 67,952,153.68
Higher of Ave. Market Price (for month) or
ending mkt price 36.125
--------------
Number of Shares 1,881,028.48
==============
Incremental Shares Considered to be Outstanding
Granted Options 2,505,980.00
Repurchase Shares 1,881,028.48
--------------
Incremental Shares 624,951.52 100.00% 624,952
==============
Weighted Average Shares 44,282,407
3rd Quarter Net Income 29,025,000
===========
Fully Dilutive Earnings Per Share $0.66
===========
</TABLE>
Exhibit 11.3
ContiFinancial Corporation
Third Quarter F97
Primary
<TABLE>
<CAPTION>
Weighted
# of shares weighting Ave. Shares
------------- --------- -------------
<S> <C> <C> <C> <C>
Continental Grain Shares 35,918,421.00 100% 35,918,421
Shares Issued in IPO 7,130,000.00 100% 7,130,000
Shares Acquired through exercise of options 1,996.00 100% 1,996
Shares Aquired Through Accelerated Vesting -8/15/96 1,996.00 100% 1,996
Shares Aquired Through Accelerated Vesting 53,220.00 100% 53,220
Shares Aquired Through Accelerated Vesting -11/19/96 3,992.00 46% 1,836
Effect of Restricted Shares:
Effect through November 19 ,1996
Assumed Proceeds:
Unamortized deferred comp. @ 9/30/96 18,872,000
Unamortized deferred comp. @ 11/19/96 18,167,370
------------
37,039,370
============
Average unamortized def. comp. during the period 18,519,684.97
Tax benefit on assumed exercise:
Total Restricted Shares 1,264,007
Ave. Market Price (from 10/1 - 11/19) 32.858
------------
Value 41,532,742
============
Tax Effect (40.0%) 16,613,097
Tax Effect of compensation 10,617,659
------------
5,995,438.00
-------------
Total Assumed Proceeds 24,515,122.97
=============
Repurchase Shares on Market
Total Assumed Proceeds 24,515,122.97
Ave. Market Price (from 10/1 - 11/19) 32.858
-------------
Number of Shares 746,092.97
=============
Incremental Shares Considered to be Outstanding
Restricted Shares 1,264,007.00
Repurchase Shares 746,092.97
-------------
Incremental Shares 517,914.03 54% 279,674
=============
Effect from November 19- December 31, 1996
Unamortized deferred comp. @ 11/19/96 18,167,370
Unamortized deferred comp. @ 12/31/96 17,034,752
------------
35,202,122
============
Average unamortized def. comp. during the period 17,601,060.94
Tax benefit on assumed exercise:
Total Restricted Shares 1,239,549
Ave. Market Price (from 11/20 - 12/31) 37.205
------------
Value 46,117,421
============
Tax Effect (40%) 18,446,968
Tax Effect of compensation 10,412,212
------------
8,034,756.62
-------------
Total Assumed Proceeds 25,635,817.56
=============
Repurchase Shares on Market
Total Assumed Proceeds 25,635,817.56
Ave. Market Price (from 11/20 - 12/31) 37.205
-------------
Number of Shares 689,042.27
=============
Incremental Shares Considered to be Outstanding
Restricted Shares 1,239,549.00
Repurchase Shares 689,042.27
-------------
Incremental Shares 550,506.73 46% 253,233
=============
Effect of Options:
Options Exercised:
none
Options Remaining:
Number of Options, net of cancelled and exercised 2,505,980
Offering Price 21.11
------------
Proceeds on exercising options 52,901,237.80
Tax Effect:
Options Exercised 2,505,980
Ave. Market Price (from 10/1 - 12/31) 34.760
------------
Estimated value 87,107,865
============
Tax Effect (40%) 34,843,146
Tax Effect of compensation 21,160,495
------------
13,682,650.80
-------------
Total Assumed Proceeds 66,583,888.60
=============
Repurchase Shares on Market
Total Assumed Proceeds 66,583,888.60
Ave. Market Price (from 10/1 - 12/31) 34.760
-------------
Number of Shares 1,915,531.89
=============
Incremental Shares Considered to be Outstanding
Granted Options 2,505,980.00
Repurchase Shares 1,915,531.89
-------------
Incremental Shares 590,448.11 100% 590,448
=============
Weighted Average Shares 44,230,824
===============
3rd Quarter Net Income 29,025,000
===============
Primary Earnings Per Share $0.66
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 39,043
<SECURITIES> 846,962
<RECEIVABLES> 575,954
<ALLOWANCES> (4,483)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 9,908
<DEPRECIATION> 3,054
<TOTAL-ASSETS> 1,542,738
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 444
<OTHER-SE> 373,616
<TOTAL-LIABILITY-AND-EQUITY> 1,542,738
<SALES> 0
<TOTAL-REVENUES> 280,778
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 76,700
<LOSS-PROVISION> 1,302
<INTEREST-EXPENSE> 79,989
<INCOME-PRETAX> 122,787
<INCOME-TAX> 49,192
<INCOME-CONTINUING> 73,974
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73,974
<EPS-PRIMARY> 1.68
<EPS-DILUTED> 1.68
</TABLE>
